Effects of Irans WTO accession on the cement

Effects of Iran’s WTO accession on the cement industry The 4 th European Cement Conference Barcelona, Spain, March 14 -17, 2004

Fars- Khoozestan Cement Co. B. Bidabad, N. Kalbasi, M. M Rezai TEHRAN - IRAN

Table of Contents Introduction Literature Review Stylized facts Countries’ experiences Tariff and Non-tariff barriers in Iran Methodology Estimated results Conclusions

Introduction Iran has a special geographical advantage regarding international trade for mining products due to locating in the Persian gulf region WTO has become an increasingly important force for liberalization, reducing tariff and non-tariff barriers and deregulations, and price control removal

Literature Review R. Dadras (1999) measure technical efficiency of the cement industry His results suggest that efficiency is time decreasing and ownership type affects the efficiency of cement industry Government interventions, price controls and export bans have contributed to decreasing efficiency trend

Literature Review M. Sameti (1995) measures the efficiency of cement manufactures of public and private sectors Productivity of capital in private sector companies has experienced the highest productivity level compared with other sectors

Iran’s cement imports and exports

Iran’s cement price compared with international price $/ton

Stylized facts of the cement industry in Iran Administrative controlled prices Heavily regulated and protected Import controls and export bans imposed by ministry of industries Profit margins set by the market regulating committee Huge amounts of tariff and non-tariff barriers leading to smuggling and trafficking

Countries’ experiences While some countries (China) benefited joining WTO, others suffered from loss of domestic industry The success depends crucially on the structure of industry and the level of protections imposed before joining WTO

Tariff rates in the region Tariffs vary substantially across the Persian gulf economies Kuwait and UAE have the lowest average tariff rates around 3. 5% Iran’s most consumer goods imports incur 30% to 50% tariff rates Cement industry with an average tariff rate of 35. 7% is heavily protected compared with chemical industries with an average tariff rate of 18. 9%

Methodology To determine the quantitative effects of Iran’s joining WTO on her cement industry we build up a Dynamic Disequilibrium Adjustment Model (DDAM) The DDAM consists of six equations; imports, exports, production, consumption, inventory, and prices

DDAM IRIMP=C(10)+C(11)*IRGDP+C(12)*IREE NOIL*WPRICE/IRWPRICE+C(13)*IRIMP(1)+C(14)*D 5972*IRIMP(1)+C(15)*D 77+C(16)*D 79+C(76)*D 7905 IREXP=(1 D 7286)*(C(21)*NCAPACITY+C(22)*IREE NOIL*WPRICE/IRWPRICE+C(23)*IREXP( -1))+C(24)*D 0205+C(25)*D 71

DDAM continues LOG(IRYCD)=C(30)+C(31)*LOG(IRWPRICE)+C (32)*LOG(NCAPACITY)+C(33)*LOG(IRYCD(1)) LOG(CONSD)=C(40)+C(41)*LOG(IRWPRICE)+ C(42)*LOG(IRGDPNF)+C(43)*@TREND+C(44)* D 5978 LOG (IRWPRICE) =(C(51)*EXCESS+C(52)*LOG(IRWPRICE(1)))*(1+C(53)*D 9405) EXCESS=IRYCD+IRIMP-CONSD-IREXP TBALANCE = IREXP-IRIMP

Variables in the DDAM model IRYCD=Iran's cement output (domestic supply) IRIMP=Iran's cement imports in tons IREXP=Iran's cement exports WPRICE=World price of cement IRPRICE=Iran's approved cement price (Rials per ton) IRWPRICE=Iran's cement wholesale price index IRGDP=Iran's GDP at constant factor prices IRGDPNF=Non oil GDP at factor costs IREENOIL=Iran's effective exchange rate (Units of Rials per U. S. dollars) EXCESS=Change in cement inventory in Iran NCAPACITY=nominal capacity of cement production in Iran CONSD=Cement consumption of domestic production

Sample and Data The sample period covers 19632002 All equations have been estimated with OLS technique

Estimated Results The estimated results suggest that cement import covaries positively and significantly with GDP and negatively and significantly with real effective exchange rate, as expected Cement export is positively and significantly related to nominal capacity and real effective exchange rate

Estimated Results continues Cement production covaries positively and significantly with the cement wholesale price index. However, nominal capacity has a positive and significant influence on domestic cement production Domestic consumption is negatively and significantly related to the cement wholesale price index as expected, and positively and significantly in relation with non-oil GDP

Simulations To analyze the effects of Iran’s WTO accession on the cement industry we solved the model for the period 19932002 by stochastic simulation method with 1000 replications Due to the lack of data on cement tariff rate we used pre and post WTO’s joining tariff rates for imports of industrial products, 69% tariff reduction on cement imports from DCs and 14% reduction for exports

Concluding Remarks Iran’s WTO accession: has negligible effects on domestic cement consumption and production Has negligible effects on cement exports Will raise cement imports Worsening the trade deficit of the industry

Concluding Remarks Cement imports will crucially contribute to the growth of the economy in years to come Reducing oil dependency requires accession to the world market, which is basically available through WTO membership To pave the way for joining WTO, Iran has to liberalize controlled prices, remove quantitative restrictions and deregulate the industry

The End

Effects of Iran’s WTO accession on the cement industry B. Bidabad, N. Kalbasi Anaraki, M. M. Rezai Fars_o_khozestan Cement Co. , Iran