New Iran-EAEU FTA Will Usher In An Era Of Increased Trade With Russia, India, and the Caspian Nations

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Op/Ed by Chris Devonshire-Ellis

Iran plans to sign an expanded EAEU FTA by October, with trade between  India, Russia and the Caspian Nations all set to increase as free trade agreements and infrastructure connectivity combine

Iran’s First Vice-President Es’haq Jahangiri has been overseeing the upcoming renewal of the Iran-Eurasian Economic Union (EAEU) Free Trade Agreement. The country negotiated an interim three-year deal in October 2018, with 862 commodity items subjected to preferential tariffs. That agreement expires later this year, with Jahangiri calling for a permanent agreement, describing the FTA as a good opportunity for the country’s economy. He asked the Iranian Ministry of Industry, Mining and Trade and other relevant organizations to set a timetable for the finalization of the agreement.

Jahangiri said that free trade with neighboring countries would develop Iran’s economy, industry and agriculture and said that the free trade between Iran and the Eurasian Economic Union (EAEU) is not a competition problem for Iran’s domestic manufacturers but instead provides a significant market for Iran’s export manufacturing.

The EAEU is a market including Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia, with Russia dominating. It has a market size of about 180 million with about 60 million to middle class consumer levels. Interestingly, the average per capita GDP income within the EAEU is US$9,500, about 20% higher than the China market.

The meeting was attended by the Iranian ministers of energy as well as industry, mining and trade, the ambassador of the Islamic Republic of Iran to Russia, representatives of the Ministry of Foreign Affairs, the Central Bank of Iran, and the Head of Iran’s Trade Promotion Organization (TPO) Hamid Zadboum. .

The interim free trade agreement between Iran and this union has laid the ground for the expansion of trade ties between the two sides. Since 2018, the agreement with the EAEU has significantly increased Iran’s exports to the EAEU and has been a major factor in boosting Iranian non-oil exports during the U.S. sanctions.

After the original FTA came into effect, Iran-EAEU trade immediately rose nearly 30% and reached US$330 million a month.

Iran has also stressed the need for using a common currency and replacing the U.S. dollar in trade exchanges between the members of the EAEU. Iran issued a gold backed cryptocurrency, Covenant, in 2019 to get around US sanctions preventing it from trading in dollars. EAEU members including Russia have all been discussing digital currencies, as well as China, a major client for Iranian oil exports.

Russia and India have both been putting into place infrastructure that will further increase Iranian multilateral trade, most notably the International North-South Transportation Corridor, (INSTC) which is now starting to become operational. That multi-modal route allows transshipment of goods from India to Iran’s Chabahar Port, then by rail across Iran, with connections east to Afghanistan and west to Turkey. Further north it reaches the Iranian Anzali Caspian Sea Port and Free Trade Zone just north of Tehran.

Anzali has shipping connections to the additional Caspian Sea nations of Azerbaijan, Kazakhstan, Russia & Turkmenistan. The Caspian Sea Ports of Baku, Aqtau, Turkmenbashi, and Russia’s new Lagan Port just to the south-west of Astrakhan are all significant trade and operational hubs for the INSTC, with all also providing free trade and manufacturing and processing facilities to add value to goods and products transiting in both directions.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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