Iran on the Way of Joining the EAEU

5 m.   |  2021-03-04

F ollowing several high-level meetings between Iran and Russia early this year, Iran has set to join the EAEU with the Iranian Parliamentary Speaker Mohammad Baker Kalibaf mentioning the decision upon his arrival in Tehran after a three-day trip to Moscow on February 10. He stressed that the country is going to become a permanent member of the Eurasian Economic Union, and the negotiations for joining will end in 2 weeks. 

This is a serious step in Russian-Iranian relations, which on the most part have been quite constructive in recent times. The lifting of the arms embargo against Iran right after an agreement reached between the two nations on the purchase of weapons set the wheels in motion. This ultimately increases Russia’s influence on Iran, however, it’s not a “threat”. These two countries are united by the same external threats and restrictions in the face of US and Western sanctions. Hence, their cooperation as well as the membership in the EAEU has positive political connotation, through which Iran will be able to continue the de-dollarization of the country.

Iran’s membership could be a major step forward for the Eurasian Union, which has been seeking to step up integration with foreign partners since its inception. With a goal of increasing the political and economic influence the Union can potentially garner in the world market. Being at the crossroads of strategically important trade routes, Iran has always been the first to be considered as a potential candidate for establishing trade and economic ties, allowing the union to move beyond the borders of post-Soviet countries.

This cooperation will also allow the EAEU to enter the markets of Southeast Asia, including India, contributing to the expansion of the Eurasian Union. India, which has been working for many years to build a new Silk Road, will have access to Iran by sea, then to Russia through Armenia and Georgia. It’s noteworthy that recently the issue of launching the Abkhazian railway has also recently been reactivated

Iran’s membership in the EAEU has been followed by the creation of a free trade zone, the talks on which began in 2016. Already in 2018, the sides signed an Interim Agreement between Iran and EAEU, enabling the formation of the free trade zone between the Eurasian Economic Union and its member states. According to this document, which entered into force on October 27, 2019, it envisages two stages for creating a free trade area. The initial stage, in the interim agreement was to be implemented, during which the sides planned to agree on the terms of the future full-scale agreement of EAEU membership.

T he interim agreement facilitated Iran’s entry into the markets of the five EAEU member states. On the one hand, Iran gains privileges for meat and some other agricultural products, metals, electronic and other products. The average import tariff applied by Iran for importing goods from the EAEU decreased from 22.4% to 15.4% for industrial goods, 32.2% to 13.2% for agricultural products. Totally 360 products were licensed. On the other hand, Iran gains privileges for the export of fruits and vegetables, metals, building materials and other products. The tariff decreases from 9.6% to 4.6% for agricultural products and from 8% to 4.7% for industrial products. In total 502 products have been granted reduction in tax.

According to the representative of Iran’s Customs Administration, since joining the agreement, from October 27, 2019 up to July 20, 2020, the volume of mutual trade of Iran and the EAEU amounted to 6.86 mil. tons of goods worth $2.4 billion. Total exports from the EAEU to Iran amounted to 1.65 mil. tons worth of $681 million, and imports from the member states amounted to 5.2 mil. tons worth of $1.73 billion. Along this period, Iran’s exports to Russia amounted to $367 million (54% of total exports from Iran to the EAEU), as a result of which Iran is considered Russia’s main partner in the “Eurasian five”. Russia is then followed by Armenia with $164 million (24%), Kazakhstan with $104 million (15%), Kyrgyzstan with $38 million (5.6%) and Belarus with $9 million (1.3%).

Free trade with the EAEU gave Tehran access to a huge market of more than 180 million people. Before signing the agreement in 2016, the trade turnover between Iran and the EAEU states was relatively low, about $2 billion, and in 2017, it reached about $2.5 billion. During the same mentioned period, Iran’s trade turnover with China amounted to $40 billion, and $13 billion with EU countries.

The interim agreement with Iran was a trial run for the EAEU within the context of considering the further expansion of the Eurasian Economic Area. Obviously, Iran’s membership is especially favorable for Armenia, which had initiated the agreement on the establishment of a free zone between Iran and the EAEU. Armenia is the only EAEU country, which has a land connection with the Islamic Republic of Iran, as a result of which it will have the opportunity to become a transit country between Iran and other EAEU countries. Therefore, it’s possible that Armenia might receive potential foreign investment in the construction of the North-South Road. This should result in launching the economic exploitation of the Meghri Free Economic Zone, which will increase the geopolitical significance of Syunik for Iran and Russia. Iran’s membership in the EAEU will allow Armenia to significantly reduce tax costs and get rid of additional bureaucratic red tape.