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Share the blame
WTO's rejection of Iran's membership application

By Tagi Sagafi-nejad
July 20, 2001
The Iranian

Iran's knee-jerk reaction to the most recent setback, being rebuffed in its quest to gain membership in the World Trade Organization, is predictable. Most likely Iranian officials will cry foul, and blame the United States for the set back. This outcome should, instead, provide an opportunity for Iranian leaders and policy makers to reflect on the entire spectrum of reasons for this outcome, political and economic, internal and external, and to own up to their share of the blame.

Instead, when visitors bring shortcomings to their attention, authorities are annoyed. When visiting Japanese oilmen, in Iran at the invitation of the Ministry of Oil, point out weaknesses, the official Iranian radio shows its annoyance by saying: "Finding faults with the laws of Iran, as an investment-attracting country, is unacceptable". This is ostrich mentality!

WTO has approximately 140 members now, and no country, even the United States, can veto another country's application for accession without reason. The basic pillars of WTO are free trade and distortion-free economic systems and policies that make such a system possible. WTO is also a forum where common rules of engagement are hammered out collectively after arduous negotiations between member states.

There is give and take; and there is a system for settling disputes through a mechanism everyone agreed to. The US has won some disputes and lost others, as have other members. But in the interest of the greater good, if a country loses an argument, it takes it on the chin and continues on.

Imperfect as it is (lack of adequate transparency, unequal distribution of gains among members, insufficient sensitivity to the plight of the poorest nations, and to labor and the environment) WTO is, nonetheless, the closest we have to a multilateral and civilized approach to common economic issues. Moreover, this organization is bound to expand both in depth and breadth; it is to govern over a broader range of issues (such as those related to foreign direct investment) and more members are continue to be added.

So, why has Iran's membership application been turned down? Politics has played a role, no doubt. However, Iran's political and economic leaders as well as the general public, should reflect on some of the internal obstacles that must be overcome before Iran can be welcome in this community of nations. They must acknowledge the internal shortcomings and proceed to remedy them.

To become a WTO member, a country has to adhere to a basic paradigm, namely the primacy of the market. To say that the market in Iran is imperfect is a gross understatement.

Today Iran faces a mountain of internal challenges, from the complicated exchange rate regime to subsidies, from the dominant role of the state in private sector activities to the parastatal foundations and economic fiefdoms, from a hostile attitude toward trade and foreign investment to contradictory and stifling laws concerning working conditions, labor laws, operating permits, from corruption and a lack of transparency to multiple and overlapping institutions working at cross purposes and with overlapping or contradictory mandates.

Trade and manufacturing sectors are both encumbered and skewed by mismanagement and inefficiency. There are success stories and showcase projects, such as the automotive and petrochemical sectors, but Iran's manufacturing sector has been too protected for too long, and has not been able to develop competitive products at internationally acceptable standards. Successes have included some one hundred companies that have obtained International Standards Organization (ISO) certification. But these are few and far between.

Economic distortions have crippled the Iranian economy, and the sooner they are faced head-on, the better for the country.

These are some of the internal problems that Iran must face and remedy before it can become a full-fledged partner in the global economy. And join, it must. There is no choice and the sooner the better, because global competition continues unabated. The longer Iran waits on the sidelines, the further behind its slumbering economy will fall.

Having been handed his second victorious mandate by an overwhelming majority of Iranians, President Khatami must reign in not only the wayward judiciary but also the economic entities and policies that remain unaccountable and out of control.


Tagi Sagafi-nejad, Ph.D., is a professor of international business at Sellinger School of Business & Management, Loyola College, Maryland.

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