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Iran Stone Quarrying Industry and GATT

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Iran Exports and Imports; Jan.-Feb. 1995, No. 33, Pages: 20-23

On October 15, 1994 , the Ministry of Mines and Metals held a to discuss the pros and cons of the decision to join the GATT.

The conference began with a presentation by Dr. Behkish on general information concerning GATT and its relation to the activities of the Ministry of Mines and Metals. He went on to analyse the experts' reports on the effects of joining the agreement, the country's processing of raw materials, prices, exports, and competitiveness in the steel, copper, Aluminium, and decorative stone industries. A report, prepared by the Commerce Department of the Ministry of Mines and Metals and the Iran Mines Export Development Company, discussed the impact of joining the GATT on the country's production and export of decorative stones.

An introduction to Iran's stone industry, comparing it with those of other countries, followed by a synopsis of the views and opinions of experts in the field on the effects of an Iranian decision to joint the GATT, are discussed further in this article in the hope of encouraging our readers to send in their views for publication in our coming issues. The General Agreement on Tariffs and Trade (GATT) was born in 1947, immediately after the World War II, with the signing of a treaty by 23 mostly industrial countries in a bid to remove obstacles in the way of international trade. The move was taken at that juncture by most of those countries in support of their production. One of the important goals of the Agreement, now signed by 124 countries, was to exploit effectively international resources and thereby boost production and trade at the international level. Toward this end, the countries that adhere to the Agreement (GATT), agree to work for the fundamental reduction of tariffs and other trade barriers. The major activity of GATT so of imports and exports.

Other important principles underlying GATT are the encouragement of multilateral free trade among member countries, equal treatment of all members in rights and obligations and free and open trade interactions.

The attractiveness of membership in GATT can be recognised in the growing number of its members, which has increased from 23 signatories at the time of its establishment in 1947 to 109 in 1991, and from 109 member states in 1993 to 124 members now. The production and trade in various types of decorative stones in recent years have played an important and determining role with an average growth rate of 17 percent.

Production of decorative stones, according to the latest reliable statistics in 1993, stood at over 31 million tons, constituting 6.6 percent of the total international trade. Such a growth and share, particularly in view of the economic recession in the world in recent years, indicate the excellent position of decorative stones as a product in international trade. Paying full attention to these figures and other statistics (which are not all mentioned here) shows that trade in stones -as a result their export and consumption- has been considerably promoted and is a new prospect for development in the future. Therefore, it is natural that the industry is of vital significance to the producing countries, including Iran which enjoys high mineral potentials. For example, the People's Republic of China which did not have a long record in the field of stone production, has become a main player and determining pillar in this industry.

China's exports for 1991-1992 doubled, and it is now exporting stones to some of its neighbours, such as Japan, Korea, Hong Kong and Taiwan. Compared to China and even a number of other renowned countries in the stone industry, such as India, Portugal and Brazil, Iran enjoys a marked advantage when it comes to abundance in supply of stone quarries. Iran also enjoys numerous historical architectural works such as the brilliant stone work at Persepolis. Also, rich mineral decorative stones have accorded our country a unique status in the world. An endless supply of various types of decorative stones in Iran make it easy for different consumers in the international market to make their choices. Exploration and exploitation of hundreds of stone mines in recent years have unearthed new stone quarries mostly of granite, marble, travertine and other exquisite and multicoloured rare stones. The Ministry of Mines and Metals has already initiated a major effort to modernise mines and methods of stone extraction (replacing the obsolete and destructive method of explosion) to guarantee the supply of quality stones to the international markets.

Traditional Stone Processing Workshops

traditional methods of stone-cutting. At present there are some four thousand factories throughout the country still using the traditional method to produce soft stones for domestic use. These factories make up the traditional method to produce soft stones for domestic use. These factories make up the traditional infrastructure of the stone industry. However, the major demands in the international market are for hard stones (granite) and for soft ones. At present our factories are not in a position to meet both international demand for hard stones and the soft ones according to the international market specifications. Hence, the country's limited exports of wrought stones are not noticeable.

Modern Stone Processing Workshops

The Ministry of Mines and Metals, recognising the country's weakness in the production of processed stones, recently authorised some 15 modern stone-cutting and processing lines to be operated by the government and private sectors. These production units will be capable of producing a total of 1.5 million square meters of polished stones meeting international standards in dimension, thickness, grinding, and polishing. These units will guarantee the export of wrought stones in the form of slab and tile.

The government, recognising the importance of the stone industry, has come out with sound policies emphasising its export potential. Basic investments, supply of machinery for exploration and extraction, programs for the transfer of technology in machinery and equipment production, and participation in domestic and international fairs to introduce Iranian stones are some of the steps being taken to promote stone production and export.

It is noteworthy that it would take at least three or four years for Iran to definitely join GATT, and our development programs should continue even after entering the GATT. Therefore, the status quo should not be the basis for an analysis regarding the stone industry in GATT. The present situation could only explain the existing structure. For a final analysis, the transformation in the coming years should be taken into account.

The emphasis placed on non-oil exports in the First Five Years Plan, coupled with three years of fruitful experience in the export of stones to international markets, provide a strong argument for membership in the GATT.

Membership will mean tariff and non-tariff exemptions for member countries, encouraging competition and opening international markets to Iranian exports of stones and other mine products. A comparison of the GATT 's member and non- member countries in liquidation tables of tariffs shows a Germany and Spain in 1992-1993 imposed 14 percent tariffs for processed stone imports of less than seven centimetres on non- members and exempted the members.

The main thrust of the country's Second Five Year Development Plan is to increase non-oil exports. The stone industry is among those to fulfil this policy. Iran's membership in the GATT will ensure the participation of this industry in the fulfilment of an important goal.

Imports of Raw Stones

At present, the import of raw or wrought stones into the country is unauthorised. Imports of raw or wrought stones, being very rare, carry a 25 percent tariff. By joining the GATT, the country will be forced to lift non tariff barriers. Hence, it becomes important to weigh the effects on competition when imported stones enter the country to compete with its domestic production. A comparison of imported raw stones with locally produced stones is worthwhile. At present, the average actual expense for extracting a ton of stone in the country is Rls. 50,000, i.e., approximately $ 20. By adding another $ 20 for the miner's profit, total extraction operation will come up to $40. On the other hand, the average price for Indian imported raw stones - our product's closest rival - is $40. With increased

costs of transportation and a 25 percent tariff during the early years of membership in the GATT, no favourable incentive would be found for importing ordinary and medium quality stones to the country.

Moreover, with an average annual stone production of 5 million tons, second only to Italy, Iran still holds a considerable edge in this product.

The comparison, of course, does not apply to special and exceptional imported stones. Despite a lift of the ban on such imports, the possibility for their imports will still exist. A good example is the blue stone of Brazil. In our opinion, its import not only would pose no real threat to our local stone industry, but also could be transformed into an important advantage for the following reasons:

First, we must try, considering the unused capacities of our factories, to provide and to ground for the import of raw stones for processing and export, alone or in co-operation with other countries, and to upgrade economic strength and management efficiency of our factories through value added.

Second, the import of the exceptional stones which presently constitute not more than 20% of the domestic stone consumption, would provide a healthy and constructive trade of Italy, Spain and China, as reliable importers and exporters, proves the practicability of these producers.

Imports of Processed Stones

The import of raw stones is not a serious rival to domestic stone production. Likewise, the import of processed stones, in view of the domestic availability of modern stone processing workshops and cheap energy and manpower, should not pose a serious threat.

In order to avoid undue optimism, it would be worth while to point out that our rich stone reserves, the investments, and the infrastructural measures alone could not guarantee our successful entrance into the GATT. Many intra-sectoral and extra-sectoral possibilities and co-ordination in the stone industry must be combined in order to guarantee our competitiveness in coping with the vigilant, active, and experienced rivals in the arena of international market.

At the end, some off the fundamental preparations essential for solid stone export strategy are mentioned:

1. Sketching a plan for stone exports by concerned organisations and individuals.

2. Upgrading the management practices at stone quarries and stone processing factories and laying the foundation of new standard management systems such as ISO 9000.

3. Absorption of capital (with stress on foreign capital) in stone mines and factories to materialize the existing and potential capacities.

4. Constant transfer of state of the art international technology in different mining and industrial sections of stone to enable the output to compete in international and domestic markets.

5. Mass production of machinery, mining equipment, and stone- processing factories in the country, by using Iran's existing industrial potentials and favourable use of foreign participation. Modernising all or some of the 4,000 stone cutting factories is also quite possible.

6. Increase of the stone production in mines and factories and optimised use of the potential capacities for decreasing fixed expenses and overheads, and eventually making them economical and competitive permanently

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