Why French Carmakers are real Winners of Iranian Protectionism

By Ali Dadpay for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

Iran’s auto industry is only second to its energy sector, accounting for some 10% of the gross domestic product and 4% of employment. Showcasing the Islamic Republic’s efforts to become an industrial economy, it is protected by high tariffs on car imports. However, it is time to ask who benefits most from these tariffs.

Indeed, while the trade barriers are ostensibly introduced to protect Iranian automakers, it appears that the primary benefactors are French carmakers who have clearly found their niche in the largest auto market in the Middle East. In this equation, Iranian consumers are ultimately paying for the government’s protectionist policies.

Iran imposes a complicated system of tariffs and taxes on car imports, varying from 40-55% depending on the vehicle type. The government adds a 9% value added tax (VAT) and levies an additional 4% overall sales tax. As such, an Iranian consumer may pay customs and taxes amounting to as much as 80% of the value of an imported vehicle to be able to drive it on Iran’s hazardous roads and Tehran’s traffic-jammed streets.

The government’s rationale — supported by domestic automakers — is simple: Iran’s car industry is still in its infancy and must be protected from technologically superior foreign competition. Iran’s car manufacturing industry is the largest in the Middle East and North Africa and the 13th largest in the world, and the country counts 13 active automakers. Yet, the relatively large number of automakers does not mean that the market is competitive.

Indeed, only two firms account for 94% of total output: Iran Khodro Corporation (IKCO) and SAIPA. IKCO has joint venture and license production agreements with French automakers Groupe PSA and Renault. The deals involve local production and assembly of Peugeot and Renault cars, which are exempt from import tariffs. As such, through its agreements with local automakers, PSA and Renault are in effect bypassing Iran’s stringent trade barriers.

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