Can Rouhani's Government Close Illegal Docks?

According to the government's information base, President Hassan Rouhani has instructed the Anti-Smuggling Headquarters to take necessary and coordinated actions to combat illegal entry points and docks and to prevent the interference of non-responsible agencies in the import process. (March 8, 2015) Previously, Mehdi Karroubi had identified these docks as being under the control of the Revolutionary Guards, and Mahmoud Ahmadinejad had referred to the Guards as 'smuggler brothers' involved in their activities. Can Rouhani's government effectively deal with the widespread smuggling of goods into the country and illegal docks? Smuggling has become a widespread and structural phenomenon in Iran, no longer just a collection of illegal and isolated behaviors that account for a small percentage of imports and exports. Smuggling has turned into a significant and formal part of the country's economy and has established its own infrastructure. This has been noted by various individuals responsible for import and export. The Secretary of the Textile and Clothing Production and Export Union states: 'The textile and clothing industries in Iran have a market of 25 trillion tomans, of which 17 trillion tomans is related to clothing and the rest to fabric and carpets... 70% of the clothing available in the Iranian market is foreign, nearly 100% of which is imported illegally... Annually, $4.5 billion worth of smuggled clothing enters the Iranian market. In contrast to this volume of smuggled goods, only about $3 million in official imports are conducted by official representatives of some foreign brands.' (ISNA, February 6, 2015) Moving from clothing to communications, the Vice President of the Iranian Guild Chamber states: 'Currently, 75% of mobile phones in the market are smuggled.' (ISNA, September 8, 2014) According to a report from the Research Center of the Parliament, only 9% of foreign phones sold in the country are from official channels, while about 91% are imported through unofficial and smuggling routes. Official statistics indicate that in the first five months of the current year, $25.6 million worth of mobile phones were imported into the country. The remaining 91% amounts to about $258.8 million, indicating smuggled imports, totaling over $284.4 million.' (same source) This phenomenon is not limited to clothing and communications. The head of the Food and Drug Organization states: 'Estimates show that 50% of the cosmetic market in the country consists of smuggled goods.' (Fars, February 28, 2015) Habibollah Haghighi, head of the Central Headquarters for Combating Smuggling, announced that the value of smuggled goods into Iran in 2013 was between $20 to $25 billion, which is about half the value of goods officially imported into Iran that year. He noted that the volume of smuggled goods in 2013 was double the entire development budget of the country. (Fars, January 11, 2015) The head of the Iranian Entrepreneurs Association mentioned that '50 to 60% of smuggled goods are official.' (ISNA, February 1, 2015) Smuggling has become so prevalent in the country that it has even raised concerns for the Supreme Leader of the Islamic Republic: 'Today, the pressure of imports is exhausting the country, and very strange figures are being mentioned regarding the amount of smuggled imports.' (Personal website, February 23, 2015) He did not anticipate that these docks would become so active and take control of the country's economy to this extent when he authorized the smuggling docks for the Revolutionary Guards. Khamenei, who has repeatedly spoken of a resistant economy over the past two years, is unable to align his military commanders, who control a significant portion of the smuggling of goods into the country, with his desired policies. The reason is that smuggling not only covers part of the costs of the Islamic Republic's expansionism but also provides part of the rewards for the military in managing the repression machine. In such circumstances, little is expected from the government in this area. The roots of widespread and structural smuggling in Iran include: 1) Difficulty in conducting independent business from the government and lack of production growth, 2) The influx of government and state rents to insiders and low-risk businesses like import and export, 3) Lack of security for foreign investment due to the government's de-escalation policies, 4) The large size of the government and its significant role in the country's economy, and 5) The unaccountability and lack of oversight of military and security institutions. As long as human resources and a free economy are not central to economic policymaking, oil revenues will naturally finance both official and unofficial imports, a significant portion of which will benefit religious, military, and state bureaucracies. The government cannot and does not want to stop widespread and structural smuggling because this would require the Revolutionary Guards to exit economic activities. Beyond the risks of smuggling for production and wealth distribution in the country, some consequences of the prevalence and expansion of smuggled imports relate to the daily lives of people. For example, the prevalence of smuggling means a lack of after-sales service: 'Currently, there are 470 home appliance brands in Iran, most of which do not have after-sales service.' (Head of the Iranian Entrepreneurs Association, ISNA, February 1, 2015)