Iran, the WTO and the decline of national politics

Developing Just Leadership

Yusuf Al-Khabbaz

Shawwal 18, 1425 2004-12-01

Special Reports

by Yusuf Al-Khabbaz (Special Reports, Crescent International Vol. 33, No. 10, Shawwal, 1425)

Islamic Iran’s relations with international organizations such as the UN have been among the most criticised elements of its foreign policy. This month, it will apply again for membership of the WorldTrade Organization. YUSUF AL-KHABBAZ considers the implications...

In mid-December Islamic Iran will put forward its twentieth request to become a member of the World Trade Organization (WTO). Its previous nineteen requests were rejected by the WTO, which operates on the unanimous consensus of its nearly 150 member states. Although most members of the WTO, notably the European Union (EU) and China, support Iran’s request, the US and Israel have blocked its membership.

After the last rejection, Esfandiar Ommidbaksh, Iran’s representative to the WTO, noted that the EU is preparing an “incentives package” to placate the Americans, which involves Iran’s agreeing to abandon its nuclear programme. Because rejecting Iran’s membership on such grounds would expose the WTO as a political arm of the US government, other reasons are given for not admitting Iran, such as the unreadiness of Iran’s economy to enter the global economy. However, this argument is specious at best: many Third World states with economies far less robust than Iran’s are members of WTO. Still, as Ommidbaksh has suggested, “When the national economy is not ready to open up to the regional and Islamic markets, how would they accept the presence of Western companies in Iran,” referring to the Iranian parliament’s recent initiative asking the government to seek parliamentary authorization before signing certain foreign-trade deals, which is seen by many observers as an obstacle to “free trade.”

The EU has said that it supports the Islamic Republic’s desire to join the WTO, and that it plans to move forward on trade deals with Tehran. However, Werner Mueller, Germany’s minister of economy and technology, has consistently called upon Iran to “normalise” its ties with the US as a “prerequisite” for membership of the WTO. Lio G. Tan, China’s ambassador to Iran, has recently said that his country is in favour of Iran’s membership. In May he said that China hopes the Islamic Republic will be able to join the WTO in the near future, but added that “administrative red tape” and American “obstructionism” has hindered Iran’s efforts.

But resistance to joining the WTO is not coming only from outside Iran. Commenting about the ongoing debate in Iran about joining the WTO, Mohammad Nahavandian, deputy head of the ministry of science, research and technology, told the Islamic Republic News Agency (IRNA) in October 2002 that, “We made a mistake in the process of globalization and joining the WTO since the ruling attitude in the country in view of cultural, economic and political concerns resulted in an economic politicization.” Nahavandian continued: “In the globalization process, one cannot close its borders since this will lead to an economic isolation and undermine the country’s independence,” adding that “let’s not pay the cost of our ignorance with a self-imposed economic isolation.”

If granted WTO membership, Iran is pinning some of its hopes for its economic future on the tourism industry, and has already taken steps to remove restrictions in that sector by enacting a new policy in September (all tourists are to be granted a one-week visa upon arrival at any one of Iran’s five international airports) and by turning over hotel-pricing to the private sector. Largely because of the WTO-assisted Tourism Development Master Plan, Iran is developing a tourism programme aimed at capturing 1.5 percent of the world’s tourist arrivals over the next 20 years: that means 20 million tourist arrivals annually. In order to achieve this ambitious goal, which many believe is attainable, the Iranian government plans to increase its annual tourism budget eightfold, beginning next year. This includes investing an estimated US$5 billion in related programmes, such as infrastructure and restoration of historical sites. Francesco Frangialli, secretary-general of the WTO, stated during a recent visit to Iran that he was “most impressed” by the rapid pace of recent economic changes in Iran, which he suggested are providing a more favorable climate for the tourism industry.

After the WTO granted observer status to US-occupied Iraq in November, Arancha Gonzalez, spokeswoman for EU trade commissioner Pascal Lamy, admitted that the WTO general council had initiated a process to evaluate Iran’s request for membership, which she said the EU supports as part of its policy of “constructive engagement” with Iran. Iran made its first application for membership in 1996, after which reform policies were suggested that would create an economic system more amenable to foreign and domestic private investment, the prime goal of which would be to disconnect domestic economic activity from government policy. Although alleged government corruption is cited to justify this disconnection, it can again be seen as a political move, as many member-states of WTO have notoriously corruption-ridden economies. Even the US, self-proclaimed vanguard of free-trade capitalism, has its share of corrupt practices, as shown by the recent multibillion-dollar scandals involving Enron and Halliburton. What seems to be the real issue is Iran’s complex governmental structure, in which power is distributed among a multiplicity of centres, all with different types and degrees of power; it was intended as a system of checks and balances but, like many systems in the “advanced democracies” (perhaps most), is liable to abuse. Reform is not the only issue, then, since the WTO favours less government involvement in trade issues, except to provide a favourable investment climate and to police investments (something which, ironically, is more easily done in a one-man or one-party system: a dictatorship).

Iran, like many WTO members or aspirants, faces a dual challenge: to convince domestic industries that they will be able to survive under the WTO trade regime, which will involve further opening Iran’s markets to foreign imports, while also convincing transnational trade bodies that Iran is on the road to economic reform, which will involve privatization and deregulation, basically removing economic decision-making from the government and giving it to the local private sector and the transnational companies. Problems have already emerged, such as when the government’s recent attempt to liberalize automobile imports was met with fierce resistance from domestic automobile manufacturers. If Iran becomes a member, the WTO will require substantial changes to Iranian law, most notably in areas such as foreign-investment regulations and those laws regulating taxation, labour, property ownership and environmental protection, all of which can be construed as barriers to free trade by transnational investors. There are many disagreements on these issues within the Iranian government, which were reflected in the foreign investment bill passed by parliament in 2001. Seen by many as a sufficiently liberal trade bill, it was rejected by the Majlis-e Nigehban (Council of Guardians, i.e. of the Revolution). Instead of the bill being passed back and forth between the two branches of the government, a joint committee was created to iron out the disagreements, which many saw as a serious attempt to comply with the WTO’s requirements.

While the Iranians seem to be taking their request to join the WTO seriously, the Americans continue to treat membership as a political weapon against the Islamic State. The US-based ultra-conservative Heritage Foundation recently published a report on the readiness of 155 states for globalization and membership of the WTO. Iran was placed near the bottom of the list, along with members of US president Bush’s “axis of evil,” including Cuba and North Korea. However, not all American policy-makers are willing to take seriously such hardline positions. Although they too have a political agenda, some liberal American economic organizations support Iran joining the WTO. For example, advisors to the US Chamber of Commerce support Iran’s application. John Rasdan, special advisor on Iran to the US Chamber of Commerce, remarked in January 2002 that “having Iran join the WTO waiting list is in the best interests of the United States, the global community, and Iran.” He continued, “WTO status for Iran would require widespread economic reforms in that country. The Iranian government would have to open its books for review, pass new foreign investment laws, eliminate many protective subsidies and tariffs, and enact policies that protect the intellectual property of US software, videos and books that today are pirated for sale on the streets of Tehran. These free market reforms would trigger social and political changes and introduce greater freedom and democracy in Iran.”

The US is virtually alone among almost 150 WTO members in blocking Iran’s membership, which Rasdan finds perplexing because “Iran seeks not a stream of revenue, but merely a chance to prove that it can abide by stringent international disciplines.” He added, “By engaging Iran and encouraging its exposure to the WTO process, we would help bring about the social, economic and political changes in Iranian society that we have long sought.” At the same time, he continued, “building bridges between the US and the Iranian private sector encourages progress, growth and stability in that country while dispelling the mistrust that has come from twenty years of estrangement.” US business leaders are concerned that their government’s intransigence on Iran will result in the more lucrative trade deals going to European firms. As Rasdan put it, “As long as the US blocks Iran’s negotiations with the WTO, we are allowing the Europeans to gain a lock on the Iranian market.” In Rasdan’s view Iranian membership would “force Iran to diversify its economy, become less ideological, and more inclined to quell mischief.”

So why is the US government blocking Iran’s application to join the WTO? An important factor is undoubtedly the childish and petty desire for revenge. Despite their pretensions to civilised behaviour, the Americans can be a vengeful and barbaric lot, rivalled perhaps only by the Israelis. They want revenge on Iran for what the Islamic Revolution did to them, just as they want revenge for the Haitian and Cuban revolutions, and just as American soldiers are taking revenge on the people of Iraq today. With money (in various forms, e.g. contracts, markets and resources) and power, revenge is a key motivating factor of US policy, and Americans have very long memories for their own grudges. In this case, their lust for revenge has overridden their lust for material and financial advantage. The EU has little reason to bear grudges against Iran; it is motivated largely by greed. There is little other real reason why Iran should not be able to join WTO if it wants to. Other global forces are rallying against the US, so it might be forced to seek its revenge in another way, and concede that Iran should be allowed to join the WTO, perhaps hoping that the demand to normalise relations will give the US a role in Iran’s political and economic development.

If the recently elected Iranian parliament, along with a new president from the impending presidential elections, decides to ‘normalise’ relations with the US, then Iran will probably be allowed to join the WTO. Its desire to become a member is driven primarily by economic logic, and by the desire to join the rest of the world, which, for better or worse, has already joined the WTO regime. Observers of Iranian politics will notice that the recently elected parliament, dominated by conservatives, is also supported by the bazaaris, or local merchant class, so it seems reasonable that the new government will prefer policies that will benefit the bazaaris, in the interests of the national economy. But the bazaaris operate on a largely local trade logic, which is quite different from the logic that drives the WTO, even though many feel that this sector of Iranian society is beyond political control. However, evidence from the experience of other member states suggests that after joining the national economy will be subject to sweeping reforms largely directed by WTO technocrats. It will change greatly the way business is done in Iran.

Under the WTO regime of global trade, forces beyond national borders have more power than those inside. To the extent that local governments retain any power at all, the key to this local power is in governments’ willingness and ability to enforce the rules and regulations imposed and decided outside the country. Under global trade, this is the one remaining service that governments can provide: to support the external power more than internal power. However, this has put governments in a difficult situation, all over the world. On the one hand they are to be elected locally, but on the other hand their power is limited by global forces. This is the paradox of post-modern politics. Under the WTO regime, in addition to the economic reforms already mentioned, local Iranian businesses will have to compete with global businesses, which means that some will lose.

So, for example, if a major Iranian product such as pistachios can be purchased more cheaply from another supplier on the global market, this means that Iranian producers will have to reduce production-costs in order to compete with other suppliers. Under the WTO, the Iranian government can do nothing to protect local pistachio producers. The local market may rely on people’s taste for Iranian pistachios, but tastes can be changed by advertising and labels on nuts can be deceptive, so people might not know where their “local” nuts are coming from, or their behavior might gradually be modified to caring more about the price of pistachios than about the fate of the local growers of pistachios, or indeed about the survival of local varieties of pistachios. In the end everyone in the local chain of production will have to lower their costs: not only the cost of labour, but also the cost of shipping, packaging and especially distribution, in order to compete in the global economy. Some people will lose their jobs, and local government will be unable to help them in any way. The only significant exceptions to this rule will be the wealthy elites, who can play transnational games because their real allegiance is to transnational capital rather than local economies, local welfare, local fellow-feeling or local anything else. In short, politics is not about reformists and conservatives in Iran, or any other local political parties elsewhere, since members of both parties, in the case of Iran, seem to want to join the WTO. As the WTO regime takes hold of the local economy more strongly, lower wages for workers will mean that labour unions lose power or change their policies. In Iran today, pistachio-workers have among the highest salaries for workers. But if some other country can produce cheaper pistachios, in order to compete the local companies will have to reduce costs. The easiest way to reduce costs is to lower workers’ wages. Owners of businesses will not take less profit to reduce costs or prices; they will always reduce wages, and that means eliminating unions.

Iran’s economic planners believe that joining the WTO will be a long-term benefit for Iran: it will enable Iran to play a role in the global economy, and lead to the end of US-imposed economic sanctions. Besides this, they feel, as many others do, that having to play along with the WTO is inevitable anyway. It may be inevitable but it is not necessarily beneficial, especially if the WTO continues to be dominated by the wealthiest powers. The WTO will demand that Iran open its doors to foreign products, which will put local producers out of business. Those who can distribute foreign products will get rich, and those who cannot produce local products at the absolute cheapest global price will lose. If a foreign producer and importer of something that Iran makes can sell it more cheaply in Iran than the local producers can, then that producer has the right, under the WTO, to sell those products in Iran, and local government can do nothing to protect local industries. If the government attempts to help or support the local industries in any way, then Iran will face economic sanctions. So Iran may just be trading one set of sanctions for another.

Meanwhile local politicians seem to believe the slogans of “free trade”: they have apparently not researched the issue properly, or they believe that there is no other option. In other words, Iran’s application to join the WTO is based either on ignorance or on desperation, neither of which is an indicator of wise or farseeing government, though this is not Iran’s problem alone; it is a common “third world” problem. But once membership has been granted, new problems and difficulties will arise. Planners claim that to develop exports Iran has to join the WTO. But this is only the case if Iran can sell its exports more cheaply than anyone else in the global market; if pistachios (for instance) can be obtained more cheaply somewhere else, then Iran loses either way. Iran has many products that cannot now be exported because of the US-imposed sanctions, so the WTO may help to open some markets, but global trade is about the cheapest prices and the lowest production costs. If Iranian products cost more than similar products made somewhere else, then the Iranian products will not sell, with or without the WTO. The WTO is gaining more and more control over the world’s economies; joining it and not joining can both cause problems and difficulties for many countries. In other words, there is little choice in the matter; however, we should not fool ourselves into thinking that something is always beneficial just because there is no choice.

The world today is run mostly by money, and to understand world politics it is important to understand the ways in which this happens. In such a world, driven by money and greed for it, all other concerns become secondary. The global political game is about who gets the money, and the opportunities to make more money, even if national politicians believe that it is about something else. To join the WTO means to limit the power of local trade unions (which are traditionally strong in Iran), and to allow foreign companies to invest in Iran at the expense of local producers and investors, and to privatise public services (also an important feature of the Islamic Republic). This is the pattern that the WTO imposes all over the world: in the end, the WTO reduces the power of all governments. It makes local government irrelevant when it comes to economic policy. Iranian bureaucrats, like their local counterparts elsewhere, may think that the WTO will make Iran independent, but the actual case is the opposite. The WTO takes away the power of local governments to make economic decisions and influence the economic welfare of their own people.

The WTO is contributing to the erosion of electoral politics and popular participation everywhere. Under the WTO, local governments have less power to make laws and regulations for the economy, and to the extent that economic concerns are the most important concerns it means that local politics will be unable to do anything about what is most important to people. So elected officials (and almost all other local and national organisations) have no real role in deciding these policies. If all the Iranian people vote to have their local products protected, the WTO will still be able to force Iran’s government to sell cheap foreign products and put local producers out of business. So political institutions are becoming powerless. And although the WTO seems to be dominated by the governments of America, Europe and Japan, they are only doing so on behalf of the largest global corporations, which, although they are nominally American, European or Japanese, are working against their own people (through the WTO) and making the governments do so too.

Europe, the US and Japan have been playing economic games with each other for decades. They routinely sue each other in the WTO system, for one or another trade infraction, which ends up being resolved by compromising and weakening local trade-related laws. These compromises, or even the occasionally “victories,” are sold to their citizens as necessary for economic prosperity, but all this game really does is erode the protections available to citizens, workers and the environment by national regulations. In this system all governments, even those of the major powers, are working against their own peoples. The WTO is not really benefiting the national economies even of the rich nations, so much as it is benefiting the transnational corporations, which are the real benefactors. It is a cruel irony of modern politics today that as more states are being opened to ‘democratic’ decision-making, the power of those decisions is being reduced, which may eventually render national elections obsolete, or at any rate irrelevant. As long as economic logic supersedes all other logic, to join the WTO and to play its game by its rules will mean to turn over local destinies to the global corporations. When all that matters is money and the things it can buy, a system that supports the rule of money must inevitably be supreme.

Once this is understood, there is a choice of two types of path to take. One is to sink into despair or apathy at the end of local political systems, which are losing their relevance under the regime of global trade. But there are other options besides despair. One is cultural and one is political. On the cultural side, it seems necessary to readjust ourselves, and our expectations of what is reasonable and desirable, away from the kind of lifestyle that tends to value money and material comforts over all else, because that lifestyle (and people’s aspiring to it) is the real fuel of the global economy. After all, people lived simple and prosperous lives for millennia; it is only in the past half-century or so that the destructive American-style consumer economy has taken hold globally. Finding ways of living in traditional ethical codes and regional biosystems is an urgent task on the cultural front. In the economic arena, the WTO can be thought of as an economic analogue of the UN in the political sphere. There is a need for such global forums to air and resolve disputes, but the problem is that, like the UN, the WTO is dominated by the rich and powerful. If control can be wrestled from their hands, there may be hope of redeeming these transnational political and economic entities and steering them toward broader benefits for larger proportions of human societies. If not, we will almost certainly be much better off steering clear of them and going our own ways.

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