Transcript Effects of Iran`s WTO accession on the cement industry

Effects of Iran’s WTO
accession on the cement
industry
The 4th 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
3000000
Iran's Cement Export and Import
2500000
2000000
1500000
1000000
500000
0
65
70
75
80
IREXP
85
90
IRIMP
95
00
Iran’s cement price compared with
international price $/ton
80
Iran's Domestic and International Cement Prices
70
60
50
40
30
20
10
0
65
70
75
80
85
IRPRICE/IREENOIL
90
95
WPRICE
00
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)*D5972*IRIMP(1)+C(15)*D77+C(16)*D79+C(76)*D7905
IREXP=(1D7286)*(C(21)*NCAPACITY+C(22)*IREE
NOIL*WPRICE/IRWPRICE+C(23)*IREXP(
-1))+C(24)*D0205+C(25)*D71
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)*
D5978
LOG (IRWPRICE)
=(C(51)*EXCESS+C(52)*LOG(IRWPRICE(1)))*(1+C(53)*D9405)
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
1963-2002
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