On the prospects for the free trade zone of the EAEU and Iran, as well as our special multi-vector approach to work in the Middle East
Agreement
On December 25, a full-fledged Free Trade Agreement between the EAEU and Iran was finally signed in St. Petersburg. As stated, after a face-to-face meeting between the Russian leader and the President of Iran, I. Raisi, the finalization of many years of work took place during a meeting of the Supreme Eurasian Economic Council.
This agreement, on the one hand, was certainly expected by market operators, on the other hand, it was frankly forced and suffered. And this complex background of preparations well reflects how much our real economic life and foreign policy concepts and plans diverge. There are many plans and concepts, but economic life somehow moves on its own.
This surprises even the average person in our country, let alone how it amazes the observer from the outside. After all, the favorite theme of the foreign press is to present everything connected with our country as something similar to a barracks system, with total control of everything.
Life in Russia, it turns out, is much more interesting and multifaceted - the agreement, which was declared as one of the most important, took almost five years, and other similar projects are not being implemented much faster.
What is so important in this agreement for bilateral relations?
Important
The most important thing is the reduction of customs duties on almost the entire list of product ranges (over 10 thousand items) to minimum values. Previously, under a temporary agreement, 360 items from Iran and 502 from the EAEU fell into the preferential category.
Now you can come across the opinion that duties are practically zeroed out from high values. Regarding Iran, they even quote rates of 30%. This is not entirely true. During the temporary agreement, Iran has already reduced its import rates from 24% to 12% and from 18% to 13% for agricultural and industrial goods, the EAEU - from 10% to 4% and from 7% to 3%, respectively.
Current rates after the entry into force of the permanent agreement in March will be on average up to 0,8% for Iranian exports, and up to 4,5% on average for exports from the EAEU. Iran's historically relatively high interest rate should not be a concern due to the extreme weakness of the Iranian currency and the relatively low security of the domestic market for exports.
Why should Iran further reduce customs, somewhat protective tariffs?
Re-export, which will allow, using channels developed over the years in the Middle East, Pakistan and even Afghanistan, to resell goods, receiving back not only profits, but also a lot of dollars.
Under H. Rouhani, the direction “from the North” was given much less importance than under the current leadership, which has long been ready to use the entire capacity of its trade channels to their full capacity. Also, the current leadership in Tehran does not hide that it plans to maximize exports to Russia, for which it has been investing in our infrastructure for several years.
From the point of view of the EAEU, the issue of customs duties, which after the temporary agreement were critical only in specific cases, is no longer important. Here the issue of documentary support of deliveries is more important. The concluded agreement essentially unifies the technical accompanying documentation. And these are the standards and tolerances for all product items.
There is no doubt that the departments have done a lot of conciliation work in this area, especially since it was also coordinated through the EAEU. Another thing is that if we take the time from the moment when we ourselves declared the Iranian direction as one of the priorities, more has already passed ten years.
Judging by current estimates from the Eurasian Commission, the promising turnover today is seen as $17–20 billion over five years. This is not to say that such estimates are unrealistic; rather, on the contrary. Another thing is that even reaching these figures from the current ones (pessimists estimate the current turnover at 3,7 billion, optimists - about 5 billion) will still require work.
As already discussed in one of the previous articles, Russian exports in terms of Iran have the main potential through medium-sized businesses, which must also be given the opportunity to obtain working capital.
But this is actually not enough. To get a full return, it will be necessary to coordinate work with the Iranians in such a way that they allow some Russian exporters to share their work in their channels in the Middle East.
This is an unusual situation for Russian companies, and not the most desirable for Iranian ones. But maximizing work will be possible only in this way, and it is difficult to say yet how progressively our state institutions will be ready to act and help. So far, before the meeting, the Iranians were outraged in the press that Russian structures were reluctant to “help” the growth of trade.
Such passages must also be treated with both a certain caution and attentiveness.
Firstly, it is clear that the Iranians need to emphasize their wishes before signing the FTA agreement, and secondly, the Iranians, working in our domestic procurement market, often put pressure on local operators on prices.
And we need to be careful because in fact, our suppliers often lack one thing, then another, then a third, and most importantly, working capital and sufficient tools for guarantees and transaction coverage, such as letter of credit forms.
And this is just what lies at the top, and below there is still a whole iceberg of questions, right down to how to hire representatives, how to get accredited, and so on and so forth.
In a good situation, a new company should allow at least two years to develop such a route. And this is if, again, our managers allow the business to gain access to working capital and financial instruments. Otherwise, everything will end with ours transporting goods to the port at minimal prices and essentially selling them on our domestic market.
In general, this agreement is, without a doubt, strategically important, necessary for both countries, but they will still need to be able to manage it properly on our part. There is no doubt that the Iranians are using it for themselves in this way, however, the questions here are mainly for ourselves.
In general, in Russia, from the very top, the line to the southern direction is drawn very clearly, but this has been done for quite a long time, and there is always something clearly and implicitly hindering the Iranian direction.
What prevents?
In this regard, the following fact looked surprising. On December 23, the Iranian Foreign Ministry summoned Russia's charge d'affaires to convey a strong protest "in connection with Moscow's repeated support for the unsubstantiated allegations made in the statement published at the 6th conference of the Forum for Arab-Russian Cooperation in Morocco."
“At the meeting, the Assistant Director General of the Gulf Department of the Iranian Foreign Ministry reminded the Russian diplomat of the need to respect the sovereignty and territorial integrity of countries as a recognized and basic principle of relations between the peoples of the world.”
(Official website of the Iranian Foreign Ministry).
Over the past six months, this is the second call from a Russian diplomatic representative to the Iranian Foreign Ministry regarding the position regarding the three islands in the Persian Gulf.
As already discussed in detail in one of the previous materials (“Why were Iran so outraged by the summit held in Moscow with Arab countries”), the topic of the disputed islands (B. Tomb, M. Tomb, Abu Musa) remains not only sensitive, but also very loud for bilateral relations.
An approximate analogue of the problem from the Russian point of view is the question of ownership of the Kuril Islands. Let’s imagine that Tehran officially participates in a conference, as a result of which one of the resolutions includes a thesis about at least the disputed nature of the islands, phrases like “Northern Territories”, etc. will be used.
The noise that will arise in our country after this is approximately half of the public resonance that the issue of the islands causes in Iran. In this case, apparently, there is no need to write about it again historical the background of the territorial dispute between the UAE and Iran, so as not to duplicate last July’s material, but it makes sense to consider the situation in the context of relations between Russia and the countries of the region. Because the first, simplest, but also the most logical question that arises here is: why?
Last time, a scandal arose following the results of a ministerial meeting between Russia and the GCC (Cooperation Council for the Arab States of the Persian Gulf). The Council includes Oman, Saudi Arabia, UAE Qatar, Bahrain and Kuwait.
This time it arose as a result of a meeting in Marrakech (Morocco). The RAAF format is connected with the work of such platforms as the Arab League (Arab League) and covers issues of the entire Middle East, and the final resolution formed a consolidated position on the Palestinian tragedy, and on Libya, Syria, Somalia, Sudan, Yemen, shipping, and nuclear energy.
What point angered the Iranians so much once again?
This is paragraph 45 of the resolution, where the parties:
“refer to the joint statement adopted on July 7, 2023 following the meeting of the Russia-GCC strategic dialogue. Reaffirm support for all peace efforts, including initiatives and steps to achieve a peaceful settlement of the dispute over the three islands - Greater Tunb, Little Tunb and Abu Musa - in accordance with the principles of international law and the UN Charter, including through bilateral negotiations or appeals to the International Court of Justice UN, if the parties decide so.”
This text leaves no doubt that Russia, by signing this wording, recognizes the disputed nature of the islands, which is already a kind of taboo for Tehran. However, a similar nature on the above issue regarding the Kuril Islands would be just as taboo for us ourselves.
Is it possible, when working on the GCC or Arab League platforms, to bypass the issues of the islands, taking into account the fact that border issues there have always been and continue to form a significant part of the agenda?
No you can not. Therefore, the problem lies in the wording. Moreover, each such resolution provides for a system of reservations and footnotes to the individual position of a particular country.
For example, Iraq cannot simply sign such resolutions without such reservations, since they repealed the 1969 law banning any normalization of relations with Israel, only to pass a new one in 2022, even tougher. And there is such a clause in the current resolution from Baghdad.
That is, Russia could generally make an individual reservation, offering something of its own, even if not included in the general text, but thereby many questions from Iran would be removed.
It would be strange if the forum participants did not realize that Tehran and Moscow have very close relations on a wide range of problems, and Moscow has the right to a “dissenting opinion.” All this looks all the more surprising since our diplomatic school has historically honed its skills in such formulations. However, this was not done.
It turns out that before the signing of the agreement on December 25, our people in Morocco are introducing formulations that are so painful for Iran, so what? Make work on the free trade zone more difficult? Show that we do not depend on anything and are truly multi-vector? In the hope that Tehran will get an agreement and the Arabs will get wording, saying that one will balance the other?
Here, assistant to the head of state M. Oreshkin states:
“Russia has become the largest economy in Europe, is already breathing down Japan’s back in the race for fourth place in the world, and the economies of the US and EU are losing their role and significance.”
Is it really possible that the largest (!) economy in Europe cannot achieve a “minority opinion”?
Multi-vector
Multi-vectorism, apparently, should be learned from A. Lukashenko, who admitted that Crimea is “de facto Russian” eight years after it became Russian de jure. When necessary, we have all large multi-vector businesses in terms of Crimea - Sberbank, mobile operators, all multi-vector - Kazakhstan, Armenia, Tajikistan, but the Russian Foreign Ministry “doesn’t know how to play this.”
N. Pashinyan did not want to fly to the CIS summit, but flew because he largely depends on Iran, and there in St. Petersburg the issue of the EAEU FTA with Iran is being resolved. So, in fact, N. Pashinyan arrived, apparently, mainly with Iran in mind. Armenia is a participant (for now the EAEU).
At the same time, he still had, frankly, the audacity to declare that “the EAEU is an economic association that should not have a political, let alone a geopolitical agenda.” This is not kindergarten, this is not even sarcasm, but looks like outright mockery. Moreover, in relation to the country and the economic format on which the entire economy of Armenia hangs.
That is, everyone plays multi-vector, openly, and some are on the verge of a foul. And it is strange that against this background we did not ask the Arabs for a reservation in one of the questions. No one is saying that the agenda within the Arab League does not require increased attention at the present time - it does, but the scale of Russia is stated to be such that we should not ask for reservations, but simply declare them.
In general, everything in terms of sentiment at the “highest tier” in terms of working with the global South in general and with Iran in particular is very difficult. In this aspect, we have a kind of late Byzantium, when everything is very difficult around and inside, but elite groups live their own lives, eroding foreign policy objectives and allocated resources in their own interests. So, very difficult work awaits us in this area.
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