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Sooner or later
We have to deal with Iran

Shahriar Afshar
March 17, 2005

US-Iranian relations have always been a complex maze of conflicts and contradictions and few can boast that they know how to deal with Iran. But the US Administration is ready to step up and try something new.

On March 11, 2005, Secretary of State Condoleezza Rice Announced that the US shares the desire of European Governments to secure Iran’s adherence to its obligations through peaceful and diplomatic means. Rice also stated that President Bush has decided that the US will drop its objection to Iran’s application to the World Trade Organization and will consider, on a case by case basis, the licensing of spare-parts for Iranian civilian aircraft, in particular from the EU to Iran.

In response, Iran quickly rejected the US offer as not enough, knowing full well that its nuclear ambitions are the leverage that brought the US to the negotiating table in the first place. Regardless, in the Middle East, no one ever accepts the first offer. Somewhere during these indirect negotiations, Iran will seek an extreme makeover from its Axis of Evil image, validation for its Islamic theocracy, and an end to the US trade sanctions.

Faced with a variety of priorities in a second Presidential term and the growing $280 billion bill for the War on Terror, Iraq, and Afghanistan, the US Administration’s tone with Iran has changed over night. This is a dramatic shift in US policy and perhaps a cautious step towards a less costly and diplomatic solution with Iran.

The rest of the world welcomes the President’s initiative but some may be privately concerned for their own benefits. When US-Iranian relations ultimately resume, Europeans will see their exports to Iran dip in favor of American Exports and Middle Eastern countries may see White House initiatives such as the Middle East Free Trade Initiative (MEFTI) drying up.

Under MEFTI, the US already has free trade agreements with Jordan, Israel, Morocco, and Bahrain with the United Arab Emirates, Oman, & Qatar not far behind. All of these smaller Middle Eastern countries combined cannot compete with Iran’s buying power. In 2004, the US exported $23.5 billion to THE ENTIRE Middle East while Iran’s total imports were $25 billion, primarily from US allies.

Expectedly, WTO accession will open Iran’s marketplace even further to the international community. Even without US opposition however, Iran’s WTO negotiations will take years. Some 20 countries are already in line including Saudi Arabia and Russia. Iran’s main challenges will be to find new internal resolve to improve its trade policies, make drastic changes to improve its fledgling business climate, and create a more open legal framework that rivals that of the other 148 WTO members.

There are other policy obstacles on the road to Iran. Since 1995, the US has maintained unilateral trade sanctions by Presidential Executive Order. Since 1996, the US has also attempted to enforce extraterritorial sanctions against European oil companies under the Iran Libya Sanctions Act without any luck.

The US sanctions have not worked to change Iran’s nuclear ambitions, among other things, as evidenced by three clear indicators. First, some US companies like Halliburton are already operating in Iran via their wholly independent foreign subsidiaries. Second, US allies have solidified their corporate connections with Iran during the absence of their formidable American competition. And third, too add insult to injury, foreign companies are designing American parts and services out of their exports to US sanctioned countries like Iran. Being designed out could have exponentially damaging effects on US exports far beyond Iran.

There have been other US steps towards Iran since 1999 when the US began permitting the export of agricultural and medical goods. In 2000, the US began allowing the import of Persian rugs, luxury items, and certain food products. All US trade with Iran is subject to a license from the US Office of Foreign Assets Control. In 2004, the US exported $85 million to Iran, mostly tobacco goods, pharmaceuticals, and cereals and imported over $152 million in Persian rugs, artwork, and dried foods.

The next US steps towards Iran should focus on empowering Iranians to take charge of their own economic destiny. Investing in people, regardless of the official government negotiations, will always provide a more reliable return on US foreign policy investment.

First, the US can consider permitting US companies to hire Iranian for US call centers or engineering contract work as we have in India. This is a key noninvasive measure to allow US companies’ access to a low cost English speaking labor market. This initiative transforms Iran’s immense unemployed and educated workforce into stockholders in a mutually beneficial going concern as it further aligns Iran’s national interests with the US’.

Another step can be to expedite and grant more Iranian student and tourist visas to reunite families and propel aspiring Iranian students to reach their academic dreams in the US. Fingerprinting Iranians may have some homeland security appeal but it does not help us build bridges with the people of Iran nor does it help us protect any bridges in the US. A far greater homeland security concern would be the estimated 2.5 million illegal border crossings that we have along the US-Mexico border.

Next, the US should empower the Department of Commerce and other agencies to facilitate US business access to the Iranian marketplace. Presently, if you wish to engage in the permissible goods trade with Iran, you are on your own. US banks cannot offer letters of credit and US persons cannot reasonably facilitate trade between US exporters and Iranian buyers, a task that would ordinarily be delegated to the US Dept. of Commerce. If we undermine the most basic tools of international trade, we cannot build on the previous [1999-2000] economic incentives with Iran, achieve the desired level of diplomatic momentum, or gain the optimal economic impact that would resonate with Iranian decision makers.

Finally, we should increase the range of products and commodities permissible for export to and from Iran. Expanding the consumer goods trade on non-dual use products and on items not on the US Commerce Department’s Export Control List will go a long way to bypass the National Iranian Oil Company and build a direct pipeline to Iranian consumers. Can toasters and paper clips really derail US security concerns with Iran?

Now that the US Administration has opened another door to Iran, we must have the courage to walk through it and take the next steps. In doing so, the US can lay a foundation to bring Iran’s national interests in line with its own and international norms. US-Iranian engagement could even compel Iran to take a more responsible role as a stabilizing force with Iraq and Afghanistan, something the US may not be able to do from here and on its own.

Shahriar Afshar is President of the San Diego based, Iranian Trade Association, a non-political trade group that supports US-Iranian bilateral trade relations. Visit

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