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Prepared by: Nouraei & Mostafavi Law
Office (Iran)
MENA LEGAL (Germany)
Iranian
commercial, corporate, trademark,
e-commerce and trade law saw a
number of developments in 2004. What
follows is a précis of the new rules
and regulations that would have a
bearing on potential foreign
investors in Iran, as well as those
industrialists, corporations and
other business enterprises that may
already be in or are seeking to join
the Iranian market.
CONTENTS:
-
Fourth Five-Year Economic Plan
-
Iranian Budget Bill Keen on
Efficiency, Foreign Investment
-
Major Privatization Foreseen by
SEC Ruling
-
Expansion of the Number of Free Zones
-
Foreign Investment
-
Directive for Standardizing
Supply of Foreign Goods and
Services in Iran
-
Iranian E-Commerce Law in Force
-
Iran Joins Madrid Agreement for
the Repression of False and
Deceptive Indications of Source
on Goods
-
Time Restrictions for Use of
Trademarks Annulled
1-
Fourth Five-Year Economic Plan
The Fourth Iranian Five-Year
Economic, Social and Cultural
Development Plan was ratified in
2004 and goes into effect as of 21
March 2005. The plan focuses on
creating conditions for rapid
economic growth, synergistic
engagement with the global
economy, economic competitiveness,
utilization of technology for
creating added value, expansion of
tourism, safeguarding the
environment, upgrading the quality
of life and social justice and
reduction of government
entrepreneurship.
In the plan mechanisms have been
foreseen for the renovation and
facilitation of commerce, an
increase of Iran's share in
international trade, expansion of
trade in non-oil products and
services, reinforcement of the
competitive capacity of the
country's export products in
international markets and
expansion of implementation of the
communication and information
technology in economy, commerce
and trade.
According to this legislation,
setting any taxes and levies for
non-oil goods exportation of
products and services would be
banned. It is also prescribed that
a commercial balance be
established with other transacting
countries for the purpose of
increasing the volume of Iranian
non-oil exports.
As for the importation of goods,
all non-tariff barriers excepting
religiously banned products must
be lifted. Anti-dumping measures
are being adopted for confronting
importation of goods under
abnormal and significantly
privileged conditions.
All trade corporations and
distributors of Iranian and
foreign products are obliged to
honor the standards and norms made
known to them for the renovation
of the distribution networks and
joining the WTO.
The plan stipulates that
harmonization must be made between
the financial and monetary
policies with strategic commercial
policies. To achieve an active
partnership with the global
economy and boost foreign trade
the government has been obliged to
undertake the revision of the
Export-Import Law, the Law of
Customs Affairs and the Law of
Free Trade and Industrial Zones.
It must also prepare anti-dumping
regulations.
The five-year plan concentrates on
the necessity of enforcing the
rule of law for conducting
economic activities.
In a related development, the
Iranian Council of Ministers
ratified the articles of
association for the Trade
Expansion Organization of Iran.
The new body which according to
the said economic plan is
authorized to act globally through
its branches, seeks the following
targets:
Expansion of foreign trade,
marketing, promotion and
development of foreign markets for
Iranian export products and
services, improvement of the
Iranian international balance of
trade, dissemination of trade
information, adopting required
measures for facilitation of trade
and streamlining of trade
formalities, preparation of
appropriate laws and regulations
for commercial activities,
boosting of bi-lateral,
multi-lateral and regional
cooperation with other countries,
provision of facilities and
assistance for expansion of
exports and upgrading the quality
of goods and services with due
regard to the competitive
privileges of the country.
2-
Iranian Budget Bill Keen on
Efficiency, Foreign Investment
The National Budget Bill for the
Iranian year 1383 (20 March
2004-20 March 2005) was approved
by the Iranian parliament on March
14, 2004. The Bill consists of a
single Article and 21 Notes
including
matters relating to financial and
tax affairs, banking facilities,
defense affairs, energy, research
and technology, transportation and
communications, urban and rural
development, water and
agriculture, industry, mines and
commerce, money and foreign
exchange.
The budget bill stipulates that
all institutions subject to the
Third Economic, Social and
Cultural Development Plan of the
Islamic Republic of Iran, are
bound to conclude any foreign
transactions and contracts
exceeding USD 1 million through
limited or international tender.
The Central Bank of Iran (CBI)
shall be only allowed to undertake
or pay for transactions and
contracts which have met the
confirmation of the respective
highest authority of executive
organs to the effect that the
purport of this clause has been
honored.
In the energy sphere the budget
emphasizes optimizing its use
through fuel conservation projects
that foresee expanding public and
railway transportation, conversion
of vehicles to natural gas
consumption, utilization of
electric pumps in agriculture,
reducing energy consumption in
factories and buildings, reduction
of waste in transmission of
electricity and the development of
new energy technologies.
Concerning support for joint
research and technology projects
in expansion of telecommunication
and information technology by
Iranian companies and foreign or
domestic companies funding is made
available to executive
organizations to pay guarantees on
contracts and credits can also be
extended. A substantial sum has
been laid aside for the
development of e-commerce.
The government is also obliged to
adopt an appropriate strategy for
the domestic manufacture of
household appliances, audio-visual
devices, computer components and
cellular phones under license and
with participation of reputable
foreign manufacturers. All such
ventures require that the
manufactured commodities be
competitive with imported brands.
The bill also addressed the export
and import of oil products on
which subsidies had been lifted
and were freely traded in the
Iranian year 1383 (20 March
2004-20 March 2005). This range of
products that included bitumen no
longer require Ministry of Oil
permits to be imported or
exported.
The national budget which was
fixed under the general guidelines
of the Third Five Year Economic,
Social and Cultural Development
Plan cites Article 85 of that
document that allows the
government to procure and
guarantee repayment to foreign
capital markets for a specific
cluster of project finance or
partnership agreements up to a
ceiling of USD 9.3 billion for the
Iranian year 1383.
Of this amount USD 3.884 billion
will be dedicated to undertakings
that will repay the investment
through export of its line of
products. The private, cooperative
and government sectors are allowed
to take advantage of these
facilities with the government
guaranteeing export from these
schemes until a total settlement
of investment commitment is
achieved.
Another USD 5.416 billion in
foreign facilities is foreseen by
the legislation to be procured
with a guarantee of repayment in
projects enjoying priority of
implementation and technical and
economic feasibility that meet the
approval of the Economic Council.
This category of investment
finance might also become buy-back
schemes.
According to the bill the Council
of Ministers is allowed to seek
both foreign and domestic
investment across a wide range of
infrastructure projects. Some of
the
areas foreseen absorbing fresh
injections of money are power
generation projects for
hydroelectric, steam power, gas
and combined cycle power plants,
reserve pump and new energy plants
up to a capacity of 12,000 MW.
Also included are refinery
construction projects with a
capacity of 300,000 b/d, the
Tehran sewage network and
construction of 3,400 km of
railway and 1,300 km of highway.
The development of Imam Khomeini
International Airport and seven
existing international airports
remains a priority, as does
equipping large commercial ports,
procurement for the rail fleet and
telecommunication expansion
projects.
The Ministry of Economic Affairs
and Finance is also empowered to
guarantee up to USD 300 million in
foreign exchange for importation
of goods and services from Central
Asia and Russia, as well as for
exportation of domestic goods and
services to the said countries.
3- Major Privatization Foreseen by
SEC Ruling
Perhaps
the most important impediment to
the growth of a balanced economy
in post-revolution Iran has been
the question of massive state
ownership which, in fact, is
enshrined in Articles 43-44 of the
Constitution. The year 2004
witnessed significant movement
towards mass privatization of
government-held assets through
both new readings of those
articles and a planned amendment
or even a hint of repeal of the
same through a constitutional
referendum.
In the first week of October, the
powerful State Expediency Council
(SEC) endorsed another part of a
general plan of action to amend
the offending articles which
specify full state control over
key economic sectors. In a major
development, the SEC agreed that
the private sector would be given
direct investment access to all
major industries, manufacturing
and service sectors in a bid to
"prevent the governing system from
being a big employer".
"In order to promote economic
development and prevent further
losses to the national economy,
the government is authorized to
cede large industries and those
mentioned in Articles 43 and 44 of
the Constitution to the
cooperative and private sectors
not including the downstream oil
and gas industries" The SEC noted.
Foreign trade, banking, insurance,
power generation for domestic
consumption and export, telecoms,
the postal service, railways,
airlines and shipping have been
specified by the SEC as not
needing to remain under state
control.
Foreign banks activity in Iran
Until the ratification of the Law
Allowing Establishment of
non-State Banks of 9 April 2000,
only government banks had been
allowed to operate in Iran after
1979. But on that date the Iranian
parliament made clear allowances
for the Iranian private sector to
organize and charter banks.
Today, there is a growing
government trend for boosting
privatization and economic growth
and, as a result, the question of
allowing foreign banks to operate
on the Iranian mainland is gaining
in importance (there are no
restrictions for operation of
foreign banks in the Iranian free
zones).
At present, several foreign banks
have operations or representative
offices circumscribed to
coordination with the Central Bank
of Iran and state-run Iranian
commercial banks for the matters
related letters of credit and
loans but which are not allowed to
offer banking services to the
public.
Recently, Deputy Minister of
Economic and Financial Affairs
Saeed Shirkavand said the
government is planning to remove
the extant restrictions that have
kept foreign banks out of the
Iranian market by the spring of
this year. Before 1979, there were
some 35 banks and a number of
financial institutions that were a
mix of government, private and
foreign ownership.
4-
Expansion of the Number of Free
Zones
In terms of legislation, Iran paid
special attention to upgrading the
capacity of its
free trade and industrial zones.
New free trade zones in Bandar
Anzali, Julfa and
Abadan/Khorramshahr were created.
Now interested foreign parties
seeking a broader venue for
investment in Iran in terms of
banking, insurance, full ownership
of corporations, tax relief and
flexible labor contracts may
consider these new free areas
together with the existing old
ones (Kish, Qeshm, Chahbahar) for
launching industrial, trade and
service activities.
5- Foreign Investment
In 2004, Iran signed a number of
agreements with other countries,
among them Spain, Finland,
Romania, Austria and Germany on
reciprocal promotion and
protection of investments. These
case-by-case pacts are in fact
supplementary to realization of
the advantages and facilities
foreseen for foreign investors in
the Foreign Investment Promotion
and Protection Act (FIPPA) and its
implementing regulations ratified
in 2002.
In the German-Iran agreement
there are detailed subjects such
as the manner of admission and
protection of investments,
national treatment and most
favored nation treatment,
expropriation and compensation
treatment for damages and losses,
transfer of sums related to
investments, insurance guarantees
and subrogation, settlement of
disputes, etc. The agreements with
other European countries have more
or less the same
characteristics.
As of January 2005, the total
volume of foreign investment in
Iran over the past decade stood at
USD 9,153,754,000.00 spread over
189 joint venture projects.
Germany was at the top of the list
with 42 joint venture projects
worth some USD 2,814,890,000.00.
The figure is out of 133 projects
undertaken with European countries
that have a total value of USD
6,721,509,000.00. The numbers make
clear that Germany has been the
leading foreign investor in Iran.
In another development, there are
plans underway to create space for
foreign investors to trade on the
Tehran Stock Exchange. Preliminary
draft regulations say that foreign
investors can buy up to 10% of the
publicly traded shares of any
company.
To facilitate foreign investment
in Iran, the Council of Ministers
approved plans in 2004 stipulating
that each Iranian province have a
headquarters established composed
of the heads of the related
agencies, in order to ease
domestic and foreign investment.
Potential foreign investors may
refer directly to these offices in
the provincial capitals and seek
information, guidance and support
from them.
Other Bi-lateral Agreements
In continuation of conclusion of
bi-lateral agreements, Iran in
2004 signed a significant number
of bilateral agreements for
facilitation and enhancement of
industrial, commercial, technical,
financial, tax, transport and
customs affairs. With respect to
Europe, agreements on avoidance of
double taxation were made with
Switzerland, Spain, Croatia;
customs affairs agreements with
Belgium and Austria and transport
agreements with Spain, Netherlands
and Slovakia.
6- Directive for Standardizing
Supply of Foreign Goods and Services
in Iran
An amendment was attached to the
executive directive for
regularizing the supply of foreign
goods and services in Iran. It is
aimed at enforcing the intent of
sub-paragraph 9 of clause R of
note 19 of the National Budget
Bill of the Iranian year 1382 (20
March 2003-20 March 2004). As a
result of this action very clear
lines of responsibility with
respect to foreign product and
services representation are now in
effect.
Any person or business including
foreign companies and their
branches supplying foreign goods
and services to the Iranian market
is obliged to provide the
documentation for all aspects of
their contractual representation
and activities in the country to
the Ministry of Commerce. The
General Office of Guilds and
Traders' Affairs in the ministry
is the department issuing
certification of compliance with
the amended directive.
As a result of the ruling, any
supply of goods and services that
fall under its jurisdiction but
lack the needed authorization have
been considered as contraband and
the suppliers liable to
prosecution under the pertinent
laws. The Organization of
Inspection and Control for Pricing
and Distribution of Goods and
Services is charged with
identifying foreign companies and
their official representatives
that fail to comply.
One bright side for the Iranian
consumer is that foreign concerns
are obliged to set up after sale
service and repair centers
commensurate to the volume of
business conducted in the domestic
market. Another requirement is
that Farsi language manuals,
warranty agreements and after sale
service cards for durable goods be
made available at the time of
purchase.
Unambiguous packaging,
registration number of the
company, certification number of
the Ministry of Commerce, labels
indicating the particulars of the
goods, the serial number of the
said item and its hologram in
addition to the sales invoice must
also be provided upon completion
of a transaction.
Repeated offenses of the
regulations will result in the
foreign concern being barred from
continuing activities within the
country. Iranian media and
advertising companies are only
allowed to advertise for foreign
goods that comply with the new
regulations.
Uniformity for Ex-IM Trading
The Iranian Majlis (parliament)
approved the single article Law on
Uniformity on Formalities for
Import and Export of Goods and
Services on 7th March 2004.
According to the said legislation,
all importers and exporters are
legally bound to trade solely
through authorized jetties,
airports and routes in compliance
with the normal practices of the
Iran Customs Administration. Any
trading outside the new guidelines
would subject the goods to
contraband regulations. The new
rules of procedure apply to all
governmental and non-governmental
institutions, private businesses
and natural and juridical persons.
No entity or individual is beyond
the jurisdiction of the Iran
Customs Administration under the
law.
The legislation has also amended
the first clause of Article 29 of
the Law of Customs Affairs that in
part now reads, "importation of
goods into the country or
exportation of goods from the
country through unauthorized
channels would be considered
smuggling."
7- Iranian E-Commerce Law in Force
The 81 article Law of Electronic
Commerce was approved in the
Iranian parliament on 7th January
2004. The legislation was created
to harmonize Iranian involvement
in e-commerce with domestic
requirements and global
developments. It contains six
chapters on the safe exchange of
data and information through the
medium of new communication
systems.
The first chapter, General
Regulations, explains terms and
definitions of the law, including
electronic signature, procedures
for sending and receiving data and
verifying its authenticity, time
and place of transmission of the
data messages. Chapter two
outlines the workings of the
offices dedicated to the issuance
of electronic signatures.
Yet another chapter, Legal
Protection in Electronic
Communication, covers consumer
protection, marketing, private
data protection, copyright, trade
secrets and trade names. The
section on consumer protection
defines sale and services in
consumer transactions. However,
there are a number of exceptions
including financial services and
transactions completed at auction.
The other parts of the third
chapter explain the legal
protection of compositions in the
form of data messages. This
category covers information,
software, computer programs,
computer equipment and operating
techniques, databases and also
protection of intellectual
property including patents,
designs, copyright and the related
rights, integrated circuits and
chips, protection of trade secrets
including information, formulas,
patterns, software and programs,
equipment and techniques,
unpublished writings, business
operating procedures, drawings,
financial data, consumer lists,
etc.
According to the Fourth Five-Year
Economic, Social and Cultural
Development Plan the judiciary is
mandated to establish special
branches of the court for handling
the crimes related to e-commerce.
8- Iran Joins Madrid Agreement for
the Repression of False and
Deceptive Indications of Source on
Goods
The Council of Ministers on 8
February 2004 authorized the
Iranian government to join the
Madrid Agreement for the
Repression of False and Deceptive
Indications of Source on Goods of
14 April 1891. The measure was
taken under the 1958 Law
Authorizing the Iranian Government
to Join the Paris Convention for
the Protection of Industrial
Property.
The Madrid Agreement seeks to
provide international protection
for traditional national goods and
products that are well-known
because of attribution to a
specific area or geographical
location such as the Kashan
carpet, Swiss watch, Havana
cigars, etc. The measure also aims
at preventing the misuse of the
name of the country of origin by
foreigners through emphasis on
observation of national laws and
regulations regarding export and
import.
The Agreement has undergone
several revisions. These were at
Washington in 1911, The Hague in
1925, London in 1934 and Lisbon in
1958. Signatory countries
undertake to prohibit the use of
all misleading publicity capable
of deceiving the public as to the
source of the goods, and appearing
on signs, advertisements,
invoices, wine lists, business
letters or papers, or any other
commercial communication. Pirated
goods are now subject to seizure
by the authorities.
Iran has been taking a number of
similar steps in this area over
the past decade including its
accession to the World
Intellectual Property Organization
(WIPO). Accordingly, the Iran
Chamber of Commerce, Industries
and Mines and WIPO organized a
national seminar that ran from the
27th to the 29th
of January 2004 to commemorate
Iran becoming signatory to the
Madrid Agreement Concerning
Registration of Marks and the
Protocol Relating to the Madrid
Agreement on 19th
August 2003. The two pacts deal
with all matters related to the
international registration of
marks.
As explained by WIPO experts, the
system of international
registration of marks is governed
by these two treaties: namely the
Madrid Agreement Concerning the
International Registration of
Marks, which dates from 1891, and
the Protocol Relating to the
Madrid Agreement, which was
adopted in 1989, entered into
force on December 1, 1995, and
became operational on 1st
April 1996. Common regulations
under the Agreement and Protocol
also came into force on that date.
The system is administered by the
International Bureau of WIPO,
which maintains the International
Register. As of end 2003, a total
of 74 countries were adhering to
the Madrid System.
9-
Time Restrictions for Use of
Trademarks Annulled
The Administrative Court of
Justice empowered by the
Constitution to abrogate
regulations contrary to the law,
has annulled Article 13 of the
Implementing Regulations of the
Iranian Law for Registering
Trademarks and Patents. The court
stipulated that if the owner of a
registered trademark (whether
Iranian or foreigner) fails to use
it without a plausible excuse over
a three year period after
registration, interested parties
can request the court to have it
annulled.
The measure was taken on 17th
March 2004.
This newsletter is a
co-publication of Nourae'i and
Mostowfovi Law Office in Iran and
Mena Legal in Germany on the
occasion of the Iran Chamber of
Commerce, Industries and Mines
delegation's visit to Berlin on 31
January 2005.
Nouraei & Mostafavi Law Office
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2004 Developments in Iranian Commercial Law