Special economic zones in Iran were established with various goals, including creating employment, developing exports and industry, raising the level of industrial technology, diversifying complementary and supporting industrial services, and similar goals. This type of spatial planning in Iran began in the early 1970s and was increased in number with various approvals in different governments. One of the most important factors that led to the establishment of special economic zones in the country is the existence of restrictive economic and trade laws and regulations. The establishment of special economic zones is a way to overcome these obstacles through legal advantages and facilities.
This article, after providing a definition of the concept of a special economic zone, will examine the law establishing special economic zones in Iran. Next, after reviewing a brief history of the emergence of these zones in Iran, the most important commercial and economic advantages related to these zones will be introduced.
Definition of special economic zones
The history of the establishment of special economic zones and free zones dates back to the 19th century in the port of Hamburg, but these areas have gained an important place in the economic development plans of countries since the mid-20th century. There are various definitions of special economic zones. For example, according to the World Bank definition, special economic zones are areas that are “enclosed industrial areas specialized in export-oriented factory production that provide free trade for enterprises operating within the scope, environment and regulatory conditions” (World Bank, 1992). Also, according to the definition of the International Labor Organization, they are “industrial areas with special incentives to attract foreign capital in which imported raw materials are processed to some extent and exported” (ILO, 1998). The United Nations defines free and special economic zones as follows: They are industrial areas that have a special location within the customs borders of the country and are usually located near an international airport or port; all production in these areas is usually for export. Imports of raw materials, intermediate goods, and equipment and machinery required for export products are exempt from customs duties. At the same time, customs operations related to regional imports and exports are expedited.
Based on these definitions, which of course focus more on the first generation of special economic zones and free zones for the production and processing of manufactured goods for export, it can be said that a special economic zone is an area of the country that is outside the customs territory and, as such, includes scheduled customs and tax exemptions, and other special benefits such as easier customs procedures, return of capital gains, and infrastructure facilities.
Law on the establishment of special economic zones in Iran
The history of the establishment of special economic zones in Iran dates back to 1975. The Sarakhs region in Iran was established in 1976, and following that, several special economic zones were put on the agenda, which operated under the title of customs protected zones. However, in 1985, with the approval of the law on the establishment and administration of special economic zones in the country, these zones officially began to operate. According to this law, the main goal of establishing special economic zones is to support economic activities, establish international trade relations, and stimulate the regional economy, and produce and process goods, transfer technology, non-oil exports, create productive employment, and attract and encourage domestic and foreign investment, re-export, foreign transit, and transfer of goods. Accordingly, the government has been allowed to establish areas under the title of special economic zones in counties that have the necessary talent and capacity to achieve the aforementioned goals.
In part of this law, guidelines have been provided for the import and export of goods, according to which the trade exchanges of the regions with abroad and with other special economic zones and free trade and industrial zones, after registration with the customs, are exempt from customs duties, commercial profits, and all import and export duties under any title and are not subject to restrictions and prohibitions of import and export regulations, with the exception of legal and religious restrictions and prohibitions, and the trade exchanges of the regions with other parts of the country, with the exception of the aforementioned regions, are subject to export and import regulations. Also, the import of goods in the form of passengers in any amount from the region to other parts of the country has been declared prohibited.
According to the Law on the Establishment and Administration of Special Economic Zones of the country, goods produced or processed in the zone when entering other parts of the country are considered domestically produced to the extent of the added value and the value of domestic raw materials and domestic parts used in it, and are exempt from paying import duties. The aforementioned law has obliged the Customs of the Islamic Republic of Iran to accept the requests of the owners of the goods for transit of goods and direct transportation from other entry points to the zones, and to provide the necessary facilities in this regard. The period for stopping the goods imported into the zone is determined by the zone management. Also, the method of accepting, entering and exiting foreign capital and the profits derived from it to the zone, and the manner and amount of foreign participation are carried out based on the Law on Encouragement and Support of Foreign Investment approved in 1380.
A brief history of special economic zones in Iran
The first signs of the formation of areas similar to special zones in Iran can be traced back to 1949. In that year, a regular warehouse for storing goods was built in Khorramshahr. In the 1960s, the idea of creating free zones and comprehensive plans for creating tourist centers on the islands of Kish and Minoo was raised. After the Islamic Revolution, the creation of free trade zones was raised in Note 19 of the First Development Plan Law. In implementation of this note, the government announced the creation of three free trade and industrial zones in Kish, Qeshm, and Chabahar in 1980. The law on how to administer free zones was approved by the Islamic Consultative Assembly in September 1993. In 2003, an area of the cities of Abadan and Khorramshahr, Jolfa, and Bandar Anzali was also approved by the Islamic Consultative Assembly as three new free zones.
As mentioned, in 1989, based on Note 19 of the Law of the First Five-Year Plan for the Economic, Social and Cultural Development of the Country, the government was allowed to establish free trade and industrial zones at three border points of the country. Note 20 of this law envisaged the creation of “specially protected zones,” which were later renamed “special economic zones.” These zones were defined as follows: “Special zones are enclosed areas located in port areas under the supervision of the Ports and Shipping Organization and in non-port areas under the supervision of Iranian Customs.”
With the approval of the Law on the Administration of Industrial Free Trade Zones in 1993, a specific framework for the administration of these zones was established. After that, in September 1993, Sirjan was approved as the first special economic zone not at the country’s entry points but in a location near the center of the country. After two or three, the approval process for other special economic zones in the country began, including the Sarakhs Special Economic Zone and the Salafchegan Special Economic Zone.
In February 2005, the law on the establishment and administration of special economic zones was approved separately. Special economic zones are established and administered by formulating and approving an executive regulation in the Council of Ministers, and its notification in 2007 by the Customs of the Islamic Republic of Iran to the country’s customs. Requests for the establishment of a new special economic zone are sent to the Secretariat of the Coordination Council through representatives of the parliament, provincial authorities, and other organizations. After obtaining the necessary information from the region and collecting documents and evidence based on the information and indexation of each region, the Secretariat makes a decision on its establishment. The request for the establishment of a new special economic zone is discussed and exchanged in the specialized committee of the Coordination Council for Free and Special Economic Zones. If approved by the Coordination Council, the bill for the establishment of the zone is submitted to the Cabinet, and after approval by the Cabinet, the bill is submitted to the Islamic Consultative Assembly for approval. After collecting opinions and suggestions and going through legal procedures, this bill is approved by the representatives of the parliament and is notified to the government for implementation.
According to the information of the Iran Free and Special Zones Service Portal, there are currently 34 special economic zones in the country, including Salafchegan Special Economic Zone, Rafsanjan Special Economic Zone, Shiraz Special Economic Zone, Kaveh Special Economic Zone, Lavan Special Economic Zone, Shiraz Special Economic Zone, Payam Special Economic Zone and Airport, Garmsar Special Economic Zone, and Arg Jadidi Special Economic Zone. A number of these special zones are dedicated to mining industries and operate under the responsibility of the Iranian Deputy Development and Renovation Organization and Mineral Industries. These zones include Lamerd Energy-intensive Industries Special Economic Zone, Parsian Energy-intensive Industries Special Economic Zone, Persian Gulf Mineral and Metal Industries Special Economic Zone, and Kashan Special Zone.
Functioning of Special Economic Zones
Special economic zones have three core functions:
1) A model for carrying out economic and trade reforms in the country: Special and free zones, with legal and communication facilities as a model plan, can play a special role in accessing technology and facilitating its transfer, accessing the capital market and international markets, and establishing free relations with the global economy.
2) Developing and processing exports to global markets, which takes place in three stages: exporting products produced by industries located in the regions; creating new industries with the aim of developing exports; and re-exporting due to the privileged geographical location.
3) Attracting foreign investment: In special zones, fulfilling this task is easier than on the mainland, given the legal advantages prevailing there.
The Kashan Special Economic Zone, with its industrial, commercial, and service functions and access to the country’s industrial hubs and knowledge-based activities in Tehran, Isfahan, and Qom, is a unique opportunity to exploit the above benefits. With access to raw material supply markets via rail and a highway network connected to the northern and southern transit terminals, this zone has paved the way for the formation and completion of export-oriented value chains in connection with the mining industries and the production of machinery and equipment. Ease of supplying production line equipment and machinery due to customs exemptions and the existence of special warehouse zones and a dry port linked to the rail dock area are other advantages of investing in the Kashan Special Economic Zone.
