The EAEU countries and Iran are preparing to sign a duty-free trade agreement

A free trade agreement between the EAEU countries and Iran could be signed as early as Monday, at a meeting of the heads of the five countries, EEC Trade Minister Andrei Slepnev said yesterday. Unlike the “temporary” free trade zone with the country that has been in effect since 2019, the reduction in duties will now affect 90% of all items and more than 99% of supplies from the EAEU countries – this will be the first such deal for Iran. An increase in supplies of both food and industrial products is expected – this should lead to a threefold increase in turnover. Suppliers, however, are still concerned about payment issues and the specifics of doing business in Iran in the context of long-term sanctions.

The EAEU countries and Iran have completed negotiations on the creation of a free trade zone – the agreement is planned to be signed in St. Petersburg at a meeting of the heads of the five countries on December 25, said EEC Minister for Trade Andrei Slepnev. While a temporary agreement concluded in 2019 is in force between the countries, it covers only 360 commodity items (out of 12 thousand). However, the EAEU-Iran trade turnover has already more than doubled in three years – from $2.5 billion in 2019 to $6.2 billion at the end of 2022.

The new agreement will allow increasing supplies to $18–20 billion per year within five to seven years, predicted Andrei Slepnev. About 90% of all tariff lines, which cover 99.2% of exports from EAEU countries, will be covered by the agreement. The benefits come from opening up an extremely closed market—Iran is not a WTO member, and its average import tariff is 30%. As part of the new FTA, the level of duties will be reduced to 4.5%. “This is $380 million in savings per year on duties,” noted the EEC Minister. For Iranian goods, the average tariff will be reduced from 6.6% to 0.8%. The agreement also involves the reduction of non-tariff barriers – in the areas of technical regulation (access to certification of goods will be simplified), sanitary and phytosanitary measures, customs regulation, market protection measures and rules for determining the origin of goods. Reducing duties on components should also make it easier to localize production. For Iran, a free trade zone with the EAEU is the first such agreement, for the “five” it is actually the second – the first was concluded with Vietnam in 2016. There is also an agreement with Serbia (but previously duty-free trade was secured by bilateral agreements), while an agreement with Singapore has been signed but not ratified.

Exports from the EAEU to Iran are mainly represented by wheat, oils and metallurgy products, while Iran supplies food – fruits, vegetables, nuts. Now supplies will expand due to the replacement of Western products on the Russian market, notes Andrey Slepnev: “Iran was able to offer industrial products for shipbuilders and the automotive industry.” Expansion of supplies, according to him, is possible not only due to wheat, but also other types of grains, lamb and poultry meat, processed and confectionery products. The industrial group includes products of ferrous and non-ferrous metallurgy, everything related to the oil and gas complex, woodworking, fertilizers; Important agreements have also been reached on aircraft, ships, motor vehicles, railway equipment, and electrical equipment, Mr. Slepnev listed, noting that the current obstacle to increasing trade is its imbalance. The Russian Federation sells a lot to Iran, but fewer goods are sent towards them (the imbalance affects the possibility of making payments in national currencies). It can be reduced by the supply of components, as well as “generous quotas” for agricultural products.

Advisor to the Center for Expertise on WTO Issues Maxim Medvedkov notes: the new agreement will create better conditions for mutual trade in comparison with the temporary one due to a significant expansion of the coverage of goods subject to liberalization – according to this parameter, the agreement will come close to the WTO benchmark of 90% – and the use of non-tariff measures for a larger number of goods. The structure of Iranian supplies to Russia now includes food, plastic products and building materials, but time will tell whether this balance will be beneficial for our industries pursuing a policy of import substitution, the expert believes. The temporary agreement gave businesses the opportunity to assess which positions need liberalization, which reduces the risks for Eurasian business, adds Sergei Mikhnevich, executive secretary, member of the Presidium of the EAEU Business Council.

“Currently, the size of the established duties does not allow concluding long-term contracts with suppliers, leading to the suspension of supplies,” says Business Russia Business Ambassador to Iran Dmitry Antonov. In addition to duties, despite the active work of Russian and Iranian banks, there are still restrictions on payments – businesses in the Russian Federation and Iran constantly draw attention to the fact that they cannot receive cargo because they cannot pay for them, and Russian banks are suspicious apply to any payments from and to Iran. In this regard, big problems arise, since urgently needed industrial goods arrive through Iranian ports to Russia and back, the expert adds.

Experts do not expect competition with Chinese products, the supply of which is rapidly growing; this is hampered by both the level of technology and production volumes. Sanction risks, on the contrary, have leveled out for a number of companies—the level of “sensitivity” for them turned out to be comparable. Kommersant’s interlocutor in business circles confirms that business is really primarily concerned with the issues of settlements and the system of three exchange rates in Iran, but doing business in the country is complicated by the closed nature of its economy. Thus, counterparties in Iran cannot be checked – there are no tools for this, and Iran also has a fairly high level of protectionism – these include government subsidies and restrictions, for example, on transport. “This is still an uncharted sea,” sums up the business representative.

Tatiana Edovina