Submitted by Rafke Risseeuw on Fri, 09/21/2018 - 21:16

On Wednesday 29 August 2018, the EU announced its financial support package aimed at boosting Iran's crumbling economy.  The European Commission announced the allocation of a first tranche of 18 million euros ($21 million) — 8 million for the private sector, 8 million to cope with environmental challenges and 2 million to support drug harm reduction. The special measure was rushed through institutional procedures very quickly, sidelining the DEVE committee secretariat who had to deal with the measure on a very short notice which prompted criticism that the Parliament did not have enough time to exercise their scrutiny rights. Besides, the concern whether the Development Cooperation Instrument (DCI) was the right instrument for cooperation with Iran -taken into account its status as a middle income country- there are also more urgent questions to be raised in this meager attempt to demonstrate European engagement towards Iran.

Pierre Amilhat, Director of the Asia, Central Asia, Middle East/Gulf and Pacific Devco Directorate stated to the commission's defense that the push forward for the special measure is to be understood as a concrete step in demonstrating commitment to the Iran deal. In doing so, it aims at supporting the European economic motors through a continued economic engagement and sector cooperation with Iran. On the accusations of bypassing the Parliament, he defended the adoption of the special measure stating that the topics concerned where all part of the Parliament’s October 2016 resolution, during which the EP identified the specific areas of needs. He further explained that the Iranian profile does match the DCI criteria, while simultaneously allowing a degree of flexibility which justifies possible exceptions and derogation.

This budget installment is part of a wider package of 50 million euro of support for Iran. It is addressing key economic challenges among which support for the high potential SME sector and technical assistance to Iran's trade promotion organization appear as the most pressing issues. [1]

The European motives for keeping the JCPOA intact, is driven by the necessity to protect European economic sovereignty and autonomy in international relations. The special measure shows the weakness of the European position and for now it is not clear if this move will, by default, be appreciated by Tehran, as it was expecting the package of proposals much earlier. The EU caution is perceived as an attempt to buy time and to measure the impact of US secondary sanctions while waiting for the results of the American mid-term elections, which have the potential to shift the political situation in Washington. From an Iranian perspective it can be argued that the Iranians are waiting for objective guarantees regarding the sale of Iranian oil and renewed bank ties with Iran.[2] The EU until now has not been able to offer any of these guarantees and the first installment of 18 million euro is nothing more but a drop in the ocean.

The re-imposed US sanctions on Iran has not only put its economy under pressure, it has affected the global business community with a warning that anyone engaging in business with Iran will not be able to do business with the United States. As the second trade block worldwide, the European position has been increasingly under stress after the US administration decided to return to a hard containment policy on Iran. The EU finds itself with little to mitigate in the US dictated trade regime.  Although Europe is still committed to strengthening engagement with Iran, US policy puts Europe in a position where it has to crisis manage, instead of actively promoting a comprehensive approach and long term engagement.

This doesn’t impede the European Parliament to be critical of the actions proposed by the Commission and which are to be executed by the member states. The areas of concern have been carefully chosen with the approval of the Parliament. However, the concerns that these domains contain, are not to be under estimated and therefore BIC-R calls for a critical monitoring of the implementation process.

Area of concern: business climate for SMEs

Both environmental and economic challenges are embedded in a questionable Iranian policy framework. Although the rationales for economic under performance are varied and complex, an important variable are institutional short comings in framing decent policies in order to address the constraints of small and medium enterprises and environmental degradation in Iran. International sanctions have led to a deteriorating business climate and has had severe repercussions on small entrepreneurs. However, the internal challenges are equally worrying. Numerous studies have identified that Iranian entrepreneurs face constraints at the institutional level, such as: lack of support for entrepreneurs, instability of rules and regulation, lack of guarantee as well as a decent legal framework for monitoring and evaluation. In addition, they have to face an often ineffective, yet influential bureaucracy and an education system that is not compatible with the needs of nowadays entrepreneurship, business management and crisis response.[3]

Additionally, previous Iranian governments have made efforts to partially shift from an Iranian economy being dominated by state-run enterprises (whether or not under the invisible surveillance of a para-governmental sector controlled by security and military organizations) to a market-rule based economy. This is yet to be materialized not in the least because of the often overlapping interests of the main stakeholders having strong links in both business and politics, and who are far from eager to jeopardize their position and privileges through reforms.[4]

Area of Concern: addressing environmental challenges

With regard to environmental issues; climate change and environmental mismanagement have had a devastating and very fast pace deteriorating effect on Iran’s ecosystems. Air pollution, drought, agricultural and water management all have potential to severely affect economic growth, social stability and food security. However, environmental issues don’t seem to be on top of the Teheran agenda. Kaveh Madani, former deputy head of Iran's department of Environment, has argued that Iran suffers from a structural symptom-based management paradigm. He argues that the Iranian government is focusing on curing the symptoms of these problems rather than addressing the root causes.[5]  Mr Madani was obliged to leave his position, and decided to leave his country, as his criticism of environmental policies and priorities led him and his colleagues to be interrogated and detained on numerous occasions.[6] HRW reports that since January 2018 at least 50 environmental activists have been arrested. Eight of them are still in administrative detention without being charged. The harsh treatment of environmental activists shows that civil disobedience is a bigger concern than long term, ecological deterioration.[7]

 

BIC would like to see the following questions addressed:

If the EU is aiming for supporting the SME sector- that plays a key role to innovation, employment, and competitive advantage- it should be very careful in assessing and monitoring the budgets it is allocating.

  • What are the concrete aims of support?
  • Through which channels will the support be allocated?
  • Is the EU in the position to have insight in the selection of SME’s that will take part in the support programs sponsored on the European level?
  • The Iranian political sphere is characterized by different political camps and strong divisions on ideological issues. Moreover, there is a highly opaque, para governmental sphere that has strong political, military and economic interests that cut through the political and social levels. Can the EU guarantee that the budget is used for its righteous purpose and avert the risk of the budget falling in the hands of a corrupt crony capitalist elite?

When addressing environmental challenges:

  • What are the concrete aims of support?
  • Through which channels will the support be allocated?
  • What will happen with trans-boundary environmental challenges such as shared water flows or air pollution? The challenges with regard to water flows are of transnational nature and change of policy should take into account the repercussions of the riparian states such as Iraq.
  • What is the long term vision of an EU sponsored environmental policy in the Middle East and Iran specifically?