The commercial relationship between Turkey and Iran has declined, especially following the western countries and United Nations (“UN”) imposing the embargo in 2012 due to Iran’s nuclear program. As a result of intensive efforts spent during the regime of Mr. Rouhani, the Joint Comprehensive Plan of Action (“JCPOA”) emerged, which became effective on January 16, 2016. With this progress, Iran is taking her place in the global economy once again and one of the consequences of this progress will certainly be the increase of the economic relationship between Turkey and Iran. Being a neighbouring country of Turkey, it is easy to travel to Iran for Turkish investors, or vice a e versa. Any Turkish citizen with an ordinary passport can travel to Iran for ninety (90) days without a visa requirement. It has also recently been announced by Ali Aqbali, the Director General for Foreign Nationals Employment Department of Ministry of Cooperatives, Labor and Social Welfare, that foreign investors will be eligible to a 3-year residence in Iran. This article summarizes certain topics of the commercial future of Turkey and Iran including; JCPOA, Preferential Trade Agreement and Istanbul and Tehran Stock Exchange.
JCPOA, which regulates the gradual removal of the sanctions, was signed between Iran, Russia, United States (“US”), England, China, France and Germany (“P5+1”), in Vienna on July 14, 2015. The UN Security Council decision came into force on July 20, 2015, and the signatory countries started to amend their own legislations as requıred, in order to lift the sanctions. The International Atomic Energy Agency of UN (“IAEA”) controlled the atomic developments in Iran and ultimately concluded that Iran fulfilled her duties, which was the require green light to start the Implementation Day and lifting of the sanctions. As Yukiyo Amano, the Director General of the IAEA stated "Relations between Iran and the IAEA now enter a new phase. It is an important day for the international community. I congratulate all those who helped make it a reality". With the decision of the IAEA, the measures put by the US and other countries against Iran; such as frozen accounts and assets, have started to be removed. Spokesman of the US State Department John Kirby has stated that $ 100 billion worth of Tehran’s assets have been freed so far. If Iran continues to fulfil her duties following the Implementation Day as well, the UN Security Council and other countries will lift all the sanctions, obligations and liabilities imposed against this country after ten years following the Finalization Day, dated July 14, 2015. The letter of agreement that European Union (“EU”) published on Finalization Day, dated July 14, 2015, stated that the sanctions will start to be lifted with the Implementation Day, and on January 16, 2016 such sanctions started to be lifted.
What about the Schedule of the JCPOA
1. Finalization Day: (July 14, 2015)
- Iran and P5+1 countries signed the JCPOA.
2. Adoption Day: (October 18, 2015)
- Ninety (90) days after UN Security Council approved the JCPOA on July 20, 2015, the participants of such agreement started to adopt necessary regulations.
- Iran started to perform her previous commitments on their nuclear program.
- EU started to legislate necessary regulations after getting confirmation from IAEA on Iran’s nuclear program.
3. Implementation Day: (January 16, 2016)
- JCPOA started to take action since IAEA confirmed that Iran acted according to such agreement in their nuclear program.
- European Union ended their sanctions on Iran’s nuclear program.
4. Iranian goods, limited to foodstuffs and carpets can now be imported into the United States although core US sanctions prohibiting US persons to engage in most transactions with Iran remain in place.
5. Transition Day: (within eight (8) years after the Adoption Day)
- If Iran uses all their nuclear substances for peaceful purposes within eight (8) years, IAEA will publish a report on the same.
- European Union will end the remaining sanctions.
- US will end or change the remaining sanctions.
- Iran will accept and confirm Additional Protocol. 6. Closure Day: (within fifteen (15) years after the Adoption Day)
- If Iran uses all their nuclear substances for peaceful purposes within fifteen (15) years, IAEA will publish a report on the same.
- EU will end the remaining sanctions.
- US will end or change the remaining sanctions.
Preferential Trade Agreement and It’s Impacts
The Preferential Trade Agreement4 (“PTA”) between Turkey and Iran, which came into force on January 1, 2015, is very important because of its effects on the increase of the volume and encouragements of the trade between the two countries. It is expected that PTA will demonstrate its real affects following the Implementation Day of the JCPOA. Alireza Bikdeli, the Turkish ambassador of Iran, states that Iran decided to give USD 10 billion worth of construction work to Turkish companies without involving them to any bidding process. He added that with the PTA, the trade volume between two countries increased 10% and within five years, it is expected that Turkey will invest in road, railway, harbor and aerial transportation mostly. As an example to short term outcome of PTA, he stated that Bergiz Construction, a Turkish company, got the tender of USD 1 billion worth of road construction work between Tabriz and Bazargan.5 Experts state that with the PTA, the customs tariff of 55% for Turkish products which are being exported to Iran will be decreased till %40 and the trade volume will become USD 35 billion in total. Iran will provide customs tariff discounts for medicine, cosmetic products, steel products, iron and nonferrous metals, electric-electronic products and other products such as white goods. According to Turkish Statistical Institute (“TUIK”), the export value of USD 9,9 billion that Turkey made to Iran in 2012, decreased to USD 4,2 billion in 2013 and to USD 3,9 billion in 2014.8 The trade volume value of USD 21,9 billion between the two countries decreased to USD 14,6 Billion in 2013 and to USD 13,7 billion in 2014. With the developments in JCPOA and PTA, the experts believe that the exports that Turkey will make to Iran will increase to USD 8-10 billion again and the food, chemical and automotive supply industry will become prominent in this period.
Financial Effects on Istanbul and Tehran Stock Exchange
With Iran’s reunion with global economy, financial markets will also change. Istanbul Stock Exchange and Tehran Stock Exchange have already signed a Goodwill Agreement after five months of discussions. This agreement includes mutual commodities to be traded in both stock exchanges. Dual public listing is also determined under the Goodwill Agreement. Hassan Ghalibaf Asl, the CEO of Tehran Stock Exchange stated that there are 320 companies of public ownership in Iran and their total worth is USD 100 billion. Mr. Asl draws attention to the fact that total share of foreign companies in Tehran Stock Exchange is only 1% and stated that there is an annual trade capacity of USD 25 billion value in the stock exchange. He added that there are in total 37 different sectors in Tehran Stock exchange and because of this variety, foreign investors will be interested in Iran. According to Mr. Asl, despite the fact that IMF expected 0% of annual growth in Iran in 2015, they are expecting an annual growth of 5-6% in 2016.
All of the remaining headlines of the commercial relationship between Turkey and Iran will be discussed in the 2nd Part of article on this topic to be published soon. We kindly invite you to follow our serial of articles on the Commercial Future of Turkey and Iran in order to be aware of all significant points on this issue.
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