Regional Integration of Iran and SCO in Comparison with EAEU

Regional arrangements and the outcomes of economic convergence among countries are currently subjects of interest for both major powers and developing emerging industrial economies. The benefits arising from regionalism have necessitated developing countries to experience a new level of international relations under regional convergences. Regionalism in Iran's vicinity has had the weakest possible results compared to Europe, America and Southeast Asia. In this region, two long-standing regionalism institutions (ECO and the Persian Gulf Cooperation Council) and new ones (the Shanghai Cooperation Organization and the Eurasian Economic Union) have been formed during the first steps. The importance of regionalism in the realization of development goals has created this necessity for Iran to make decisions and choose with a pragmatic view on priorities and strategic results of cooperation with active blocks in the region. In this article, an attempt has been made to use the theoretical framework of "regionalism" and convergences under economic integration in response to the question that from the beginning of the formation of the Shanghai Cooperation Organization and the Eurasian Economic Union until now, during the years 2000 to 2019, the "homogeneity and congruence of macroeconomic indicators" and "convergence of intra- and extra-regional trade" has been achieved better in which of these two regional institutions?, this hypothesis is proposed that "despite the non-economic goals of the Shanghai Cooperation Organization compared to the purely economic goals of the Eurasian Economic Union, economic homogeneity and commercial convergence have been achieved better in the Shanghai Cooperation Organization than in the Eurasian Economic Union".

Theoretical framework:

Economic integration is a type of trade policy that leads to the reduction or elimination of discriminatory trade restrictions among member countries. The effects of partial and static equilibrium of unions can be measured in terms of trade creation or trade diversion. Additionally, a Trade-Creating Customs Union (TCCU) can lead to an increase in the welfare of non-members. A Trade Diverting Customs Union (TDCU) might result in trade creation or trade diversion, and the ultimate outcome depends on the relative strength of these opposing forces. Customs union theory is a specific case of the second-best Theory. According to this theory, when all necessary conditions for achieving maximum social welfare or Pareto optimality are not satisfied, the pursuit of these conditions will not necessarily or usually lead to the second-best. In other words, in the absence of the necessary conditions for achieving Pareto optimality, the second-best choice is not necessarily the most desirable choice given the existing conditions. The conditions under which a union is formed will likely theoretically result in trade creation and increased welfare. Other static effects of a union include reductions in transaction costs and increased bargaining power of members. Nevertheless, the impact of the union on the exchange relationship among members is uncertain. In addition to static welfare benefits, countries establish unions due to other dynamic benefits such as increased competition, economies of scale, investment incentives, and more efficient utilization of economic benefits. Despite significant efforts made by developing countries for economic integration, they have achieved limited successes.The investigations carried out in this study can be considered in two dimensions, and following this consideration, the existing theoretical findings can be utilized. On the one hand, the identification of the Eurasian Economic Union as an example of a regional block is achieved based on the theories of individuals such as Rost, Deutsch, and Thompson, emphasizing shared geographical and cultural dimensions. On the other hand, according to perspectives like those of Katzenstein and Solingen, the Shanghai Cooperation Organization is defined as a regional block in political terms, regardless of the geographical proximity of its member countries, and it receives attention. Beyond the superficial definitions of the concept of a region, this research also focuses on a functional perspective of the Eurasian Economic Union and the Shanghai Cooperation Organization. In this regard, the study takes into account the opinions of individuals such as Munakata, Bhagwati, and Krugman to examine the enhancement of economic integration in the region and the effectiveness of trade arrangements in the path of economic convergence and trade homogenization within the Shanghai Cooperation Organization and the Eurasian Economic Union. The research aims to evaluate these aspects to determine the optimal position for Iran and the priority in cooperation with these two regional blocks.

The effectiveness of the intended trade arrangements, namely the Eurasian Economic Union and the Shanghai Cooperation Organization, has been explored using a comparative content analysis method, focusing on two indices: trade intensity and economic convergence.

The results focusing on economic homogeneity and convergence and evaluating the efficiency and trade convergence within and beyond these two regional institutions, with an emphasis on Iran's trade during the years 2019-2000, indicated that for both institutions, economic homogeneity and convergence have not been significantly affected by regionalism. However, the efficiency of trade convergence in the Shanghai Cooperation Organization has been more tangible and meaningful than in the Eurasian Economic Union. Additionally, the economy, trade, and foreign investment of the Shanghai Cooperation Organization have been 8.1, 6.7, and 6.2 times larger, respectively, compared to the Eurasian Economic Union.

Conclusions and Suggestions:

During the long-term period under study, particularly in the 2010s, Iran's trade development has experienced a weak, unbalanced, and declining performance. Even Iran's regionalism development with both regional institutions has not significantly impacted the country's trade development. Therefore, it is essential to redefine and implement fundamental and comprehensive developmental measures and policies in the path of economic growth and trade development. To promote intra and interregional trade in Iran, the following policy measures, derived from the research focal points, are suggested: First, major policy reforms should focus on stabilizing Iran's macroeconomic environment through sustainable and comprehensive growth, risk reduction, inflation control, and managing non-economic fluctuations. Second, trade policy reforms should aim at removing non-tariff trade barriers and achieving stability while rationalizing customs tariffs. Third, the identification of natural trading partners within and beyond Iran (potential and actual trading partners in stable and dynamic conditions, aligned with the long-term prospects of sustainable and comprehensive trade development, especially in developing export-oriented industries, knowledge-based industries, and efficient border trade) should be emphasized in the country's trade development. Finally, structural transformations should be pursued, with a focus on enhancing relative and competitive advantages, centered around industrialization and the development of various services, including tourism.