This article is an abstract of MBA thesis titled:

Economical Impacts of Iran membership of WTO on Iranian Ceramic Tile Industry




By:
Farhad Varasteh
Managing Director and member of the Board of Directors of "Ceramis Tile Company"
Farhad@Caroun.com 

Research

WTO & Iranian Ceramic Tile Industry: 2001

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Farhad Varasteh
 

What is the global situation of ceramic tile production, consumption, trade and its future developments ?What is the actual position of Iranian ceramic tile industry in terms of exportation and presence in the world's markets? What is the role of the WTO in this regard? What would be the effects of lifting the importation bans of this product on Iranian ceramic tile industry? What would be the consequences on this product through the joining of Iran to this organization and how could we investigate this joining and forecast as far as possible the future events.

Under present condition, such issues preoccupy every conscious Iranian industrialist or producer. But the emphasis is on the last question above namely, application of method or methods to analyze the processes & events and present them in the form of quantitative documentation. Therefore, this article focuses on the significance of scientific studies on the subject of Iran joining WTO rather than effects of such an event on the Iranian ceramic tile industry.

First, it is better to have a brief review over production and exports statistics of the main producers of ceramic tile in 1999.

Based on the report published in the last issue (sept.2000) of Ceramic World Review magazine, of the world's total production of ceramic tile (4764million square meter) during 1999, 1035 million square meters was exported by producing countries, making up 24.5% of the world's total consumption (4224 million Sq. m). The 26 main producing countries enjoyed 93.7% of the whole production in the word by producing 4436 million m2 of ceramic tiles, with China being on top with 1600, Turkey ranking the 5th with 150, Iran and UAE the 15th and the 23rd  with 55 & 30 million m2 production respectively. 94% of the world's total exports(942 million. M2 ) belong to 14 leading countries, Including Italy as number one with 417, Turkey with 50 the 3rd , UAE & the Czech Republic with 15 & 8 million m2 occupying the 12th  and the 14th ranks. Iran is absent in this 14 - country  list. A few of the most outstanding points mentioned in this report are as follows:

Firstly, despite China ranking the 9th (exporting 19 million m2 ), with respect to its enormous production potentiality and steps taken towards successful presence in the international market, having overcome obstacles in joining the WTO during the current year, in near future it can reverse the exiting balance in the global market of this product.

Secondly, Turkey, as a neighbor country  of Iran, occupies the 3rd  position in this chart while it has no specific advantage over Iran, regarding necessary sources of energy used in ceramic tile industry, or transportation costs which are both decisive factors in fixing cost price. In the case of the UAE, as well, some similarly important points can be witnessed.

After this introductory review, it is time to contemplate over the aforesaid questions and the significance involved in seeking proper answers and accurate methods to deal with them.

In order to get a clear  picture of the possible effects on this industry, should Iran join the WTO, and take preparatory measures in this regard, abstract article (thesis) made efforts, analyzing available statistics, to provide data for future steps in a scientific approach. The principle applied in this research model is "Armington Pauls" under the title: "The Geographic Pattern of Trade & the Effects of Price Changes'', which is formulated based on the" theory of demand for products distinguished by place of production." This is considered as a well known world trade model which have been used to calculate the price  changes by GATT.

This model offers how to use the trade structure's data to estimate the price changes which is made on the basis of market capacity & opportunities chart. Theoretically, it is possible to study & evaluate the effects of changes in trade policies on resource allocations.

The multinational general balance model, based on Armington Pauls can analyze such changes, taking into account parameters such as position & importance of customs unions, business and trade  negotiation within the framework of GATT, north - south trade issues, etc.

By means of the aforesaid model, the consequences or Iran's membership (a given country) in the WTO and its effects on ceramic tile industry can be assessed.

The following is the result of preliminary studies conducted in familiarizing with the WTO & GATT, mining & industry sectors in the second development plan, industrial production and trade of ceramic tile in Iran and in the world, GATT, s regulation concerning this industry, and problems caused by tariffs in Iran.

1- Since the beginning of the 21st century, to facilitate trade, international countries have found it inevitable to join, adopt & comply with regulations prescribed by the WTO, nevertheless, certain privileges in certain areas can be gained in the process of obtaining this membership & mutual negotiations, due to countries, and specific conditions.

2- The general content of the second & third development plans, in legislators, view, emphasizes a more active role for mining & industry sectors in the global economy, which is not in contrast with general rules & regulation of GATT & the WTO.

3- Iranian ceramic tile industry expanding its domain & horizons, enjoys suitable potentialities in supplying for the domestic market, as well as, a successful presence in the international ones.

4- With respect to the world's rising rate of ceramic & tile production, consumption & trade during the recent years, such a trend seems likely to continue through the forthcoming years. Care should be taken that the leading countries in this study are either members of the WTO or have applied for it.

5- Since the basis for fixing or decreasing tariff rates is the average rate of 1988-90, Iran can start negotiations by adopting the rate of 100%, while it has to lift import bans, in case the membership is finalized.

6-  In this case, Iran must not only smooth importations of this product but it also has to eliminate all privileges & discriminations between domestic & foreign products, including supportive subsidies or duties & direct taxes imposed.

The above mentioned results were used as a basis for a survey, conducted on the effects of price fluctuations in Iranian ceramic tile trade. In applying Armington Pauls simulating for Iran's conditions, price fluctuations have been imaged under the following two scenarios:

First, variation of imagined, tariff rates. Second, devaluation of Iranian Rial and US dollar.

By using the available statistical data concerning production and trade of ceramic  tile in Iran and in the world over a 5- year period (1991-95), the international trade matrix was designed, indicating entire domestic & international business transactions of the selected countries during 1995. Model calculations and results, based on the presented matrix, are as follows:

Since tariff reduction is one of the WTO's (GATT) main issues became basis, in the model to study its effects on this industry. The result of this scenario can be used in two conditions of ceiling & bottom rates (maximum & minimum ). The second scenario was designed, assuming a 25% devaluation of Rial against US dollar. The quantitative outcome of the former revealed that in case of Iran's membership in the WTO, under the most pessimistic & improbable conditions, Iran's trade balance will face a US dollar 13 million deficit, should it decide to lift importation bans & eliminate the 50% tariff rate in that year (the bottom line scenario). It is evident that such a case is neither advisable nor practical as the WTO members, all impose tariffs on their imported ceramic & tile. Therefore, tariff elimination is neither logical nor required by the  WTO.

But under the most favorable conditions (the ceiling scenario ), Iran will enjoy a US dollar 9.7 million increase in its trade balance if importation bans are lifted, provided that is maintains its 1998-89 rates of 100% as base rate for negotiations . Achieving this, is not quite impossible. Considering the 1988-89 tariffs, Iran can enter  negotiations with its contracting parties. It is worth mentioning that joining the WTO dose not require an unconditional omission of all tariffs. Besides, under certain conditions and for certain products, privileges can be gained for concessions granted. According to the result of the second scenario, a 25% decline in the value of Rial can result in a US dollar 11.4 million rise in export revenue.

Thus, the conclusive figures, with respect to the above mentioned scenarios in applying the model, indicate that under ordinary conditions, by obtaining WTO's membership, proper tariffs can be determined and on the other hand, an increase in ceramic  tile export level can be expected.

Care should be taken that the said conclusions, were drawn, taking into account the certain assumptions & conditions, qualitative restrictions, concerning given fields of operation.

Finally, the following recommendations could be of benefit to macro & micro management levels in applying the model for research accurately.

From the macro management & policy making angle, implementation of scientific means and methods & reliance on technical expertise, and being of analyzing situation & direction correctly are of vital necessity. Ruling out generalization of issues and non- technical comments which bring about a monotonous and day- to- day planning are also of the same importance.

In the micro management level of enterprises & corporations, managers of this industry should consider joining the WTO or minimum compliance with its international regulation, as a must, under which circumstances there are no, or limited grounds to benefit from supportive subsidies. Therefore, the higher and the better quality of products, the higher the chances of a successful presence in the world's market. Although the findings of this research promise a rise in the domestic production & export of ceramic tile, provided that suitable policies are made in this respect; this dose not mean that the path to prosperity is smooth , as there will be new rivals among newly-industrialized countries and others, planning to gain more profits.

As to the model, the main objective of using it has been to study the quantitative effects of joining the WTO with respect to parameters of changing tariff rates and Rial devaluation while there are other factors involved, which must to considered, such as price changes caused by changes in wage levels, energy, row materials & transportation costs which, in turn, can affect the cost price of ceramic tile production and exportation. Secondly, ceramic tile industry in Iran is subject to changes & development taking place in other economic sectors of the country, thus, by applying the model for each sector & expanding the research area, a comprehensive analysis will be within reach. This clearly, is beyond abilities of single individuals, and requires efforts of specialized team work.
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Research: Economy

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