The Islamic Republic of Iran’s efforts to join the World Trade Organization (WTO) have long been met with resistance. Iran first filed for formal membership in 1996 and has been engaged in the accession process for the past two decades. On average, the process takes a decade for an aspiring nation (1).
Founded in 1995, the WTO hosts 164 member nations and operates as a platform for the liberalization, negotiation, and settlement of trade agreements and disputes (2). Exclusion has hindered the Iranian economy’s development. Joining the WTO would force other nations and Iran to abide by certain regulations adhering to international rule of law in their trading interactions, allowing for greater economic growth in Iran through the reduction of sanctions, exposure to international investment, and privatization of public enterprises.
WTO members benefit from a variety of factors stemming from a standardized commercial rule of law, as well as lower tariffs, among other advantages. WTO members are also prohibited from placing sanctions on one another, unless a country “considers [it] necessary for the protection of its essential security interests” (3). The lifting of sanctions is especially crucial for Iran, as its economy and people have suffered in recent years from international sanctions in response to its nuclear program and alleged sponsoring of terrorism.
Under WTO rules, all members must approve any organization-wide resolution, including the accession of new members (1). This rule awards to members the right to veto entry requests from non-participating nations. The United States has not been afraid to exercise its veto power, maintaining Iran as the world’s largest economy outside of the WTO (4). For the past twenty years, tension between the U.S. and Iran over issues including the Iranian nuclear programs, relations with close U.S. ally Israel, and human rights abuses, have strengthened American resolve to keep Iran out of the WTO. Sanctions are a powerful tool against Iran; should Iran gain entry to the WTO, its status as a member state would challenge this long-standing tactic to punish its misbehavior with sanctions on the international stage.
From its perspective, Iran is playing its part to align with certain WTO requirements and international expectations. Following its 2010 subsidy reduction, Iran has implemented other economic and tax reforms, including “tariff reductions and changes to its copyright laws” (5). Furthermore, the landmark Joint Comprehensive Plan of Action (JCPOA) arranged mid-last year with the Obama administration and EU promises to curtail Iranian nuclear programs in return for the lifting of certain economic sanctions (6). The nuclear deal arrived after years of disagreement between Iran and the United States and its allies over Iranian nuclear activity, which Tehran claims is primarily driven to fulfill needs for clean energy.
According to Iranian Parliament Speaker Ali Larijani, Iran’s “top priority in economic cooperation with other countries…[is] investment in [its] oil, gas, and petrochemical sectors” (7). Despite its large reserves of oil and gas, the country seeks “$185 billion in investment…in the upstream oil and gas sector, as well as $70 billion in petrochemical and $200 billion in optimizing energy consumer sectors to halve [its] energy intensity, which is two times more than global averages” (7). Energy intensity, which is used to quantify the energy efficiency of a country’s economy, demonstrates the financial cost of turning energy into GDP. The fact that Iran’s is double that of global averages is a testament to its economic isolation as a result of WTO omission, poor management and heavy subsidization of its primarily government-owned energy companies, and a lack of international investment (8). While Iran clearly stands to benefit from WTO accession, the process will be long and difficult.
Nations who wish to be admitted into the World Trade Organization must present a formal application to the Director-General of the WTO. The General Council then creates a working party, whose goal is to “examine the application of the Government [of the applicant country] and to submit to the General Council” its findings, which may include a “draft Protocol of Accession” (9). The applicant nation is then expected to submit a memorandum of its current trade regime, respond to questions regarding the memorandum, successfully negotiate the gaps between its own laws and those of the WTO in the multilateral track, and establish market access commitments on goods and services with specific countries in the bilateral track of negotiation” (10).
Iran first applied for full membership in 1996. Its working party was not established until 2005, and to date, the working party has still not met. Between 1996 and 2005, ambiguity in a WTO consensus rule not only allowed the United States to veto Iranian appointment to the organization, but it also allowed the request to be omitted from the formal agenda of the General Council (9). After a decade-long wait, the Iranian WTO application was formally recognized, and Iran gained observer status in 2005. Predictably, this concession was within the greater context of another attempt to control Iranian nuclear activity, during a time where the E3 of Britain, France, and Germany were in negotiations with Iran (11).
Following the granting of Iran’s observer status in 2005, the newly elected government of Mahmoud Ahmadinejad took four years to submit the Memorandum of Foreign Trade in 2009. Despite the national decision in 1996 that affirmed Iran’s commitment to joining the WTO, Dr. Ahmadinejad’s administration did not view it as a top priority compared to the previous administration (9). In continuation with the accession process, WTO members submitted hundreds of questions to Iran regarding their trading regime.
At this point, the application process has stalled once more. Currently, the working party still needs to nominate a chair to head the accession process for Iran. WTO guidelines assure all member states the right to join any working party of an applicant nation (11). These guidelines once more bring into play the very real possibility of political tensions preventing the election of a working party chair. From 2010 to 2012, the United States imposed sanctions on Iranian access to international financial markets and its oil and gas sector, allegedly as punishment for bank sponsoring of terrorism and renewed nuclear activity (12). It is likely that this perceived hostile activity in the early 2010s slowed the selection process of a working party chair. With the advent of the JCPOA, however, Iran has taken a step in the right direction towards a diplomatic resolution that will allow it access to the WTO.
For the United States to give up its ability to sanction Iran, the Islamic Republic must honor its stated commitment to international security and peace. Last year’s four ballistic missile tests conducted by the Islamic Revolutionary Guards Corps (IRGC) “with slogans calling for the destruction of Israel” did not do much to assure the United States and its allies of this commitment (6). The IRGC is one of many state entities that will stand to lose economic power if Iran joins the World Trade Organization. Currently, it owns one-third of Iran’s annual budget and 51 percent of its telecommunications industry (13). Along with increased interdependence in trading relations with other nations, the influence of WTO legal standards will cause a gradual reduction in the power of state-owned enterprises (SOEs) and the influence of the IRGC, creating an environment that will also force Tehran to honor non-discrimination principles towards foreigners (13).
A long road still lies ahead for Iran. Preceding its accession into the WTO, the country must strike a delicate balance between protecting its domestic industries from international competition and opening its energy sectors to international investment. If Tehran is successful, it will be able to offer its rich oil reserves to fulfill global demands for energy, expand its middle class, and increase regional stability through inter-trade reliance. The United States and its allies would be wise to provide a clearer path to the WTO for Iran. Its complete integration into the global economy through trade will be more effective in aligning its actions with respect for human life and international rule of law than any sanction.
(1) Bizaer, Maysam. "Long Road Ahead for Iran's Bid to Join World Trade Organization." Al-Monitor. N.p., 02 Aug. 2016. Web. 12 Aug. 2016.
(2) "Understanding the WTO: The Organization." World Trade Organization, n.d. Web. 14 Aug. 2016.
(3) Carnegie, Allison. "Here’s What Will Happen If Iran Joins the WTO." Washington Post. The Washington Post, 24 Oct. 2015. Web. 12 Aug. 2016.
(4) Miles, Tom. "Iran, Biggest Economy outside WTO, Says It's Ready to Join."Reuters. Thomson Reuters, 17 Dec. 2015. Web. 12 Aug. 2016.
(5) Consilience: The Journal Of Sustainable Development. Vol. 10, Iss. 1 (2013), Pp. 99 – 110 Effects of a Hypothetical Iranian Accession to the World Trade Organization on Iran’s Flower Industry (n.d.): n. pag. Web. 13 Aug. 2016.
(6) "Iran Asks EU to Pressure U.S. to Get Access to WTO | The Japan Times."Japan Times RSS. N.p., 17 Apr. 2016. Web. 12 Aug. 2016.
(7) Karimov, Fatih. "Iran Attaches Priority on Foreign Investment in Energy Sector."Trend.Az. N.p., 02 Sept. 2015. Web. 12 Aug. 2016.
(8) Moshiri, Saeed. "Energy Price Reform and Energy Efficiency in Iran." International Association for Energy Economics, 2013. Web. 12 Aug. 2016.
(9) Alavi, Jalal. "Accession of Iran to the World Trade Organization: A Legal-Political Overview." Iranian Review of Foreign Affairs 1.3 (2010): 137-59. Web. 12 Aug. 2016.
(10) "Accessions | Iran." World Trade Organization, n.d. Web. 14 Aug. 2016.
(11) Nikou, Semira N. "Iran Gearing Up to Join the WTO–Again." LobeLog. N.p., 22 Dec. 2015. Web. 14 Aug. 2016.
(12) "Fact Sheet: Sanctions Related to Iran." The White House. Office of the Press Secretary, 31 July 2012. Web. 14 Aug. 2016.
(13) Aslan, Reza, and Raj Bhala. "Why WTO Membership for Iran Makes Sense."Foreign Policy. N.p., 23 June 2010. Web. 14 Aug. 2016.
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Stephan Llerena is a member of the second cohort of the World Bachelor in Business, a three-degree undergraduate business program jointly run by the University of Southern California, the Hong Kong University of Science and Technology, and Bocconi University of Milan. His work experience includes interning at a top 5% U.S. criminal law defense firm and with North American diplomats in Hong Kong. He is fascinated by the roles of international trade, law, and relations in maintaining global stability and security.