Iran Moves Hesitantly toward Liberalization

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Iran Moves Hesitantly Toward Liberalization

Colin MacKinnon is a country analyst with the Syracuse, New York-based PRS Group.

In early May Iran's parliament passed two measures in fast succession that are steps of a sort toward opening the country's economy to the rest of the world. On May 8 the parliament ratified the New York Convention, and a week later passed a new foreign investment law. Both measures are aimed at attracting foreign investment into the country and at easing Iran's entry into the World Trade Organization.

THE NEW YORK CONVENTION

The New York Convention is an international agreement on enforcing arbitration awards. Sounds humdrum, but in fact joining the Convention was an important step Iran simply had to take before it could even think of building investor confidence.

By joining, Iran has agreed to do two things: it now will allow disagreements between foreign investors and their Iranian partners to be taken out of the country for settlement before an impartial international arbitration panel. Until now, investment disputes were to be settled in Iranian courts.

Secondly, Tehran has promised to recognize and enforce foreign arbitration awards. This means that if an Iranian company, or even some branch of the Iranian government, loses to a foreign partner in an overseas arbitration proceeding, Iranian courts will have to recognize that fact and award damages to the foreign partner.

Ratifying the New York Convention also puts Iran--or Iranian firms--in a stronger position to pursue their own claims against foreigners abroad.

THE NEW INVESTMENT LAW

Passing a new investment law was also a necessary step to build investor confidence. This particular law, however, is hardly a foreign investor's dream. In fact, the new law is not all that different from one that has been on the books since 1955, although it does make comforting noises about protecting investments and eases restrictions somewhat on the repatriation of profits. Here's what the new law would do:

It would require foreign investors to apply to a special high-level committee for permission to invest in Iran. The committee would be made up of officials from Iran's Management and Planning Organization, the Central Bank of Iran, and the ministries of finance and foreign affairs and probably other ministries as well. Ultimately the minister of finance himself would have to sign off on the permission.

Foreign investors would be considered private companies operating under Iranian law, even if the investor were a foreign state-owned company.

The law confirms the right of investors to hold more than 49 percent of a local company, and promises that foreign investments would not be exposed to expropriation or nationalization. In a kind of double-speak, though, the law goes on to state that if the government decides, for whatever reason, to take over a company, the government and the company would have to come to terms before the government actually did so.

The foreign investor may bring in foreign exchange and conduct business in Iran. Funds brought in and not spent may be sent back out without interference. Profits earned after taxes may be transferred abroad. …