Why Iran is ending its years-long ban on car imports

Iran is to import new cars soon, but under very strict conditions that limit who can import them.

An Iranian worker walks among cars in a depot at the Iran Khodro automobile manufacturing plant, just outside Tehran, Iran
An Iranian worker walks among cars in a depot at the Iran Khodro automobile manufacturing plant, just outside Tehran, Iran [File: Vahid Salemi/AP Photo]

Tehran, Iran – After more than four years, the first foreign-made cars are expected to be imported into Iran within months, with hopes that the move can help a chaotic market tormented by monopolies and affordability issues.

Last week, President Ebrahim Raisi’s cabinet finally approved a bylaw for importing foreign-made road vehicles, more than four months after his administration had initially green-lit the imports.

Raisi’s predecessor, President Hassan Rouhani, had in July 2018 officially banned cars imported in a Completely Built Unit (CBU) format, only allowing the Completely Knocked-Down (CKD) format where cars are imported in parts, not as an assembled unit.

The decision was a reaction to a unilateral withdrawal by the United States from the country’s 2015 nuclear deal with world powers months earlier, which was followed by waves of all-encompassing economic sanctions that also triggered a currency crisis.

As major Western partners withdrew from the Iranian market, the move also left the door open for CKD imports of a variety of Chinese vehicles, which have since flooded the market.

But a large share of the market remains in control of a small handful of local automakers; chief among them the state-run Iran Khodro, which has been responsible for making cars with subpar qualities that have also become increasingly unaffordable on the back of the currency crisis and the rampant inflation that followed it.

Police authorities and experts have also blamed some of the local cars for extremely high rates of fatal road accidents in the country – especially still-prevalent old models like automaker SAIPA’s now-decommissioned Pride, which became infamous as the “chariot of death” due to its presence in accidents.

Many of the CKD-imported Chinese cars are also unaffordable for the average Iranian as they make it to consumers’ hands at exorbitant prices – often more than twice actual prices – due to high tariffs imposed on imports, seemingly to protect and incentivise local production.

No ‘luxury’ imports

In this environment, some hoped the bylaw for new imports would signal a policy about-face, opening up the market to large numbers of higher quality vehicles.

But with Washington’s sanctions still squeezing Iran’s foreign currency income streams, and affordability remaining a significant issue, the government devised regulations that it said aim to shun “luxury” imports.

For one, the cabinet-approved bylaw states that only 1bn euros ($1bn) will be allocated to imports through the Central Bank of Iran, and all imported cars should be capped at a value of 20,000 euros, with cars worth less than 10,000 euros given top priority to benefit the average consumer.

This automatically excludes many popular models by top global brands, and means at most 100,000 cars will be imported into Iran.

Only hybrid or all-electric cars can be imported into special trade or industrial zones, with importers tasked with investing in and establishing charging stations, according to the government.

The government bylaw also says incentives will be rolled out for local manufacturers to include imports of technology and parts to improve their own practices.

An Iranian worker pounds the body of a car at the Iran Khodro automobile manufacturing plant just outside Tehran, Iran
A worker inspects the body of a car at the Iran Khodro automobile manufacturing plant just outside Tehran, Iran [File: Vahid Salemi/AP Photo]

The nuclear deal factor

The first vehicles are expected to enter the country within months, before the current Iranian calendar year is out in March 2023.

Government officials have said negotiations have been conducted with Western companies, in addition to those in China and India, without elaborating.

The government bylaw also leaves the door open for foreign investment, saying sedan cars can be imported through foreign investment, but only if they are to be used in public transport.

But despite its potential, investors are hardly lined up to set up shop in the Iranian market as they will be susceptible to secondary US sanctions.

Iran and the US have been indirectly negotiating since April 2021 to restore their 2015 nuclear deal. If they reach an agreement, most sanctions on Iran will be lifted in exchange for reinstating curbs on the country’s advancing nuclear programme.

However, even if the nuclear deal is restored, Iranian officials have in the past several years warned that former partners who abandoned their commitments in the Iranian market due to US sanctions will not find it easy to return.

The sentiment is only strengthened by an increasing focus on a doctrine of “resistance economy” set by Supreme Leader Ali Hosseini Khamenei, which emphasises local production and self-reliance.

‘Not for the private sector’

While reopening imports is a positive development, the government’s conditions for importing new cars are too strict and narrow, according to Ali Khosravani, who owns one of the country’s largest auto sales and services companies.

“This is better than nothing, but it misses several major opportunities for the market,” he told Al Jazeera.

Khosravani explained that the move could have a positive psychological effect on average consumers who might not be necessarily looking to buy, but would welcome the re-entry of newer models into the market.

Imports, he said, could have signalled a chance to improve the market for mid-range cars, but the low price caps and other limitations defined in the government bylaw “put the final nail in that coffin”.

“This bylaw wasn’t written for the private sector, it was written so some of the same companies that previously had contracts with foreign brands and imported cars can do it again,” Khosravani said, pointing out another government condition that obliges importers to obtain direct import licences from foreign manufacturers.

Moreover, the government has not clarified import tariffs or customs duties yet – which are expected to be determined after the cars are imported.

Khosravani said more affordable prices in the Iranian car market would largely hinge on whether the nuclear deal is restored, which would have a big effect on currency rates and diversity in the market.

“I would open up imports to everyone so all real and legal persons could import cars,” he said of his own proposed model.

He also proposed initial tariff levels at 50 percent, which would be decreased for CKD and Semi-Knocked Down (SKD) imports, and moving away from government-provided currency, instead incentivising average consumers to invest and also sell the unused vehicles that they have purchased as a store of value.

“When talking about car imports, some link it with issues like class differences and inequality, saying cars are only a concern for the rich. But that’s not true, cars are a concern for everyone and if prices come down, everyone will benefit,” Khosravani said.

Source: Al Jazeera