Ministry of Foreign Affairs Outline of Trade Policy Fundamentals Regarding Iran

October 1, 2003

Economy Fundamentals

The economy of the Islamic Republic of Iran is predominantly in the hands of the state and religious foundations. The Government formulates economic goals in five-year plans. Under the current Third Economic Plan, which entered into force on 21 March 2000, 30% of the business sector is to be privatized by the year 2005. Iran's gross domestic product (GDP) amounted to USD 117 billion (+6.5%) in the business year 2002/2003. Based on a population of approximately 66 million, this was equivalent to a per-capita income of approximately USD 1,500. The most important sectors of the Iranian economy are the oil and gas industry, the petrochemical industry, agriculture, the metal industry and the motor-vehicle industry. Iran's economy is struggling with a high inflation rate (15.8%) and high unemployment (approximately 17%) as well as widespread corruption and a sizable underground economy. Investment conditions for foreigners have markedly improved, however, as a result of investment protection legislation, tax reform and the unification of exchange rates.

Foreign trade

Thanks to high oil prices and the recent relaxation of import controls, Iran's current account and balance of payments have developed positively.

Current account

(in billion USD, 1 USD = 8,000 rials)

2000/20012001/20022002/2003Exports28.523.928.2Imports15.118.123.8Balance of trade13.45.84.4Balance on services-1.5-0.5-1.9Balance of unilateral transfers0.60.71.2Current account balance12.56.03.7

Oil and gas exports generated approximately 81% of Iran's export earnings in 2002/2003. Other exports include agricultural and traditional goods (carpets, fruit, pistachio nuts) and increasingly industrial products (motor-vehicle parts, steel). The value of non-oil exports rose slightly in 2002/2003 to USD 5.4 billion (previous year: USD 4.4 billion).

The main destinations for Iranian crude oil in 2002 were Japan, Italy, South Korea, China and Greece. Germany was once again the chief consumer of Iranian non-oil products in 2002. Iran's most important sources of imports in 2002 were Germany (approximately 10%), the United Arab Emirates, France, Italy and South Korea.

In the year 2000 the Iranian government decided to create a "Stabilization Fund" for oil-export revenues in excess of the amount calculated on the basis of price projections. By March 2003, these surplus revenues amounted to approximately USD 9 billion. Approximately half is allocated to a reserve as a buffer for oil price fluctuations; the remainder is used for employment promotion, equalization payments (resulting from the elimination of subsidized exchange rates for imports) and infrastructure measures as well as to offset the budget deficit. The Hermes ceiling was reset at the beginning of 2003 and now once again amounts to EUR 500 million. An internal limit of EUR 40 million is in effect for individual projects. At the beginning of 2003 the Federation also resumed the underwriting of capital investment.

Membership of economic organizations

Iran applied for admission to the World Trade Organization (WTO) back in 1995. No vote has been taken thus far on its application. Iran is a member of the Economic Cooperation Organization (ECO), a regional economic alliance consisting of the Central Asian states of Iran, Turkey, Pakistan, Azerbaijan, Turkmenistan, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan and Afghanistan.