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DOCUMENTS "COM"
COM(76)90
Vol.1976/9005

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COM(76)90 final .
Strasbourg,10March 1976 *
CONFIDENTIAL
DECLASSIFY
ÂM
THE COMMUNITY 'SRELATIONS WITH IRAN .COMMISSION
OFTHE
EUROPEAN COMMUNITIES
Secretariat
(Commission communication totheCouncil )
COM(76 )90final

Introduction
Keport ontheexploratory talks concerning the
negotiation ofanagreement with Iran
Recommendation foraCouncil decision authorising
theopening ofnegotiations .

1* During thelast fewyears therelations between Iran and the
Member States oftheCommunity ,particularly ,but not only ,inthe eco­
nomic andtrade fields ,have undergone avery rapid expansion anddeve­
lopment .But this has not asyet been matched bytheemergence ofasi­
milar intimacy ofrelations between theCommunity assuch and Iran *It
istowards the filling ofthis gap ,which isincreasingly regretted by
both parties ,that theCommission 'spresent paper andtheproposals con­
tained initare addressed .
2. Iran isthe second largest producer ofoil inthe Middle East
andaccounts forl8%oftheCommunity 'ssupplies .Iran hasproved a
reliable partner ,and has given assurances onmany occasions that it
intends toremain so.Inaddition ,itrepresents asingularly dynamic
export market fortheCommunity "^.Thiscomplementarity between the
import needs ofIran 'srapidly growing economy andthe Community 'sre­
quirements inenergy has contributed toavery substantial increase in
trade between the twoparties .Itisintheinterest ofboth ofthe
Community andofIran that this complementarity ,which will need in­
creasingly tobecharacterised byachange inthestructure ofthe
trade between the*tWo .panthers y"Should develop "inacoherent wayand
• *
should lead tothecreation ofcloser links ofinterdependence .
3. Iran isacountry with great ambitions and immense potential .
Itisalready theeleventh largest exporter intheworld .Itseconomic
development ,based onabundant natural resources and capital and an
excellent labour force ,requires asolid international basis ,and Iran
ishoping tofind this basis through far-reaching cooperation ,asa
privileged partner ,with theCommunity .This aspiration ,which asoften
been voiced bythehighest Iranian authorities ,isareflection ofthe
close historical ,political ,cultural ,and economic ties which Iran has
with Europe .Itisintheinterest oftheCommunity not todisappoint
Iran inthis aspiration ,butrather torespond toitfully within the
limits ofitsresources andrespecting itsother international obli­
gations .
1)Seefigures fordevelopment ofIran/EECtrade inAnnex III

THE EXPLORATORY TALKS
Jf. Thetrade agreement between theEECandIran which wasconcluded
in1963 expired on30November 1973 *This agreement hadinpractice
ceased tobeofany interest toIran since the "erga omnes "tariff
concessions ,which were restricted tocarpets ,dried apricots ,
raisins andcaviar ,hadbeen bound under GATT (with theexception of
atariff quota forraisins )anddidnottake into account therapid
change inIran 'seconomic situation ,oritsindustrial development
and desire todiversify itsexports .
Itwas forthis reason that ,even before the expiry ofthe
agreement ,theIranian authorities had stressed theneed tonegotiate
aconsiderable extension ofitscontent .This request wasmade
during avi«ii .by .the Memb"e'i ,'6'f .the .Cbrimission .responsible for
external relations toTehran inMay1971 and insubsequent discussions
held inBrussels inFebruary 1972 between anIranian delegation and
aCommission delegation .Following thelapsing oftheagreement ,new
talks were held inBrussels inJanuary 197^toexamine thepossibility
ofnegotiating a-new ,wider agreement .Onthis occasion ,the Iranian
delegation ,while accepting that there were noactual '"trade problems
between the twoparties ,nevertheless expressed thewish tobe
accorded complete duty-free access totheCommon Market forIranian
industrial products ,and inparticular forthose produced under
joint venture schemes with Community firms .Iran considered that
itwas atadisadvantage initstrade with theCommunity compared
with other countries with which theCommunity had concluded agreements *
/

6. TheCouncil held afirst exchange ofviews on12November 197k on
theguidelines for future relations between theCommunity and Iran .On
that occasion theCouncil stressed thepolitical and economic importance
which theCommunity attached toitsrelations with Iran and expressed
itsdesire toseek appropriate solutions inthemutual interest ofthe
twoparties *TheCouncil also recognised that atrade agreement ofthe
kind previously concluded with Iran nolonger provided anappropriate
solution and itagreed that talks should bestarted with Iran with an
open mind ,toestablish what would bethebest form ofagreement toen­
able thenew economic and trade relations between the twoparties to
develop under mutually satisfactory conditions .
After anumber offurther discussions inCOBEPER ,the Council
again discussed relations with Iran atitsmeeting on10and 11February
1975 *Following them theCommission established contact with theIranian
authorities .topropose theresumption oftheexploratory talks which had
been inabeyance .since January 197^.InaNote Verbale of25March 1975 ,
theIranian Mission reported that thfeIranian authorities hadgiven
their agreement inprinciple totheholding ofexploratory talks with
aview toconcluding ageneral agreement oneconomic cooperation taking
account ofthe current economic situation inIran ,theEuropean Commu­
nities and the world .
7* ACommission delegation ,led bySirChristopher Soames ,visited
Iran on13andIkMay1975 *Itmet theIranian Prime Minister ,MrHoveida
theMinister of'Economic andFinancial Affairs ,MrAn6ary ,andanumber
ofsenior Iranian officials .During this visit ,theCommission delegation
expressed itsconviction that ,because ofIran 'srapid andconsiderable
economic development ,anyagreement between theCommunity and Iran should
layparticular emphasis onclose economic and trade cooperation ,andthat
inthis spirit ofcooperation ,anytariff problems which arose could
generally speaking besolved onacase -by-case basis .Itwould therefore
benecessary tocarry outafact-finding exercise toidentify current
andpotential problems .TheIranians ,while maintaining their position
/-

ofprinciple that Iran wished tonegotiate anagreement which would
eliminate alldiscrimination compared with itscompetitors enjoying
thebenefits ofpreferential access totheCommunity market ,agreed
totheholding oftechnical discussions *These took place inBrussels
from 15to17July 1975 and inTehran from 27to29October 1975 *
8. Onthebasis oftheinformation supplied bytheIranian side
ontheir forecasts offuture exports totheCommunity ,itwas esta­
blished that many ofthese export products are considered tobenon-
sensitive under theCommunity 'sGeneralised System ofPreferences and
therefore enter theCommunity under this system free ofduty ,inprac­
tice without any quantitative limitation since thetheoretical ceilings
arenot applied *
9* Ontheother hand ,forsome products ofsubstantial importance
forIran 'sfuture development ,which areconsidered bytheCommunity
tobesensitive oofsemi-sensitive orare not included inthe GSP ,the
opportunity ofduty-free importations atpresent provided forwould be
insufficient ifthey .wei*e toremain •unchanged .
Theproducts falling inthis latter category were :
(a)refined petroleum products
(b)textiles and footwear
(c)cast iron ,including sponge iron ,andsteel
(d)aluminium
(e)copper
(f)electrical andelectronic products
(g)carpets .
10.Itwas ,however ,established that ,with theexception ofcarpets
andcertain textiles and footwear ,important export capacities will not
bebuilt upbefore 1980/82*ButtheIranian side even sowishes tobe
given adegree ofcertainty regarding thetariff arrangements which are
animportant factor intheconsideration ofinvestment decisions a

11. The Commission reaches the following tentative conclusions
regarding these "problem sectors ":
i.Textile products and footwear
Anypossible improvements will need totake account ofthe
particularly difficult situation inthese sectors®
ii.Certain ferrous and non-ferrous metal produced byfirst-stage
processing
Atpresent these products arenotcovered bytheGSP.Priority should
begiven toexamining towhat extent they could beincluded ,either
aspart ofthe improvements tothesystem envisaged inthe
context ofthe current multilateral trade negotiations orin
theannual adjustments .Itwould then have tobeseen whether
thepossibilities ofduty-free importation thus opened upwould
besufficient toaccommodate Iran 'sintended exports .
iii .Electrical' and electronic products
The trade problems ofthese products will have tobeexamined
case bycase ,indue time ,taking into account thedegree of
their sensitivity .
iv.Befined petroleum products
Until 1981-82 ,large-scale exports ofrefined petroleum pro­
ducts are not tobeforeseen inview ofthe time needed for
theimplementation ofIran 'sinvestment projects ,which more­
over have still not been finalised .Nevertheless ,since access
totheCommunity market forthese products ,and inparticular
their tariff treatment ,isanessential factor inIran 'sinvest­
ment decisions ,assurances would need tobegiven astoaccess
and tariff treatment .

v. Petrochemical products
Itwasestablished that this would not beaproblem sector ,
forthis wide range ofproducts would beintended mainly to
cover domestic demand *
12* The Iranians confirmed that ingeneral their industrialisa­
tion policy aimed toavoid investment inprojects which were not
economically sound and toavoid their exports creating situations
that would disturb themarket .Iranian policy istocreate highly
capital-intensive industries wherever appropriate ,taking into account
economies ofscale ,and toexport acertain percentage ofproduction .
These industrial exports would increasingly consist offinished pro­
ducts oThe Iranians agreed with theCommission delegation that the
establishment ofclose cooperation could prove very useful inavoiding
the creation ofnon-economic capacity ordisturbance ofthemarket .
• '#
13. The Iranian*side didnotaccept that .'tariff problem could
invariably besolved bytheGSP .Intheir view ,thenormal applica­
tion ofthe GSPalone would notprovide sufficient assurance for
future investment projects andwould not reflect theprivileged nature
sought for the future agreement .

7–
C.RECOMMENDATION FORACOUNCIL DECISION AUTHORISING THEOPENING OF
NEGOTIATIONS
l2*. Theexploratory talks cannowbeconsidered tohave been
completed .Inparticular ,after thetechnical talks ,aseries of
informal contacts tookplace between MrAnsar ^,theIranian Minister
ofFinance andEconomics andMrGundelach ,Member oftheCommission ,
which demonstrated clearly thewill ofboth sides nowtomove into
thephase ofnegotiations with thefirm ,intention ofreaching an
agreement onthebasis setoutbelow *Consequently theCommission
feels that theCommunity should nowadopt aposition onthenature
andcontent oftheagreement tobenegotiated with Iran .
15* 'Inthelight oftheexperience gained during theexploratory
talks ,the' •Commission considers that itisinthe interest ofboth
parties tonegotiate anagreement which would give aconvincing ex­
pression tothespecial relations between Iran and theCommunity .The
agreement should beoflong duration and becapable offuture develop­
ment .Itisonly thus ,with continuity and ever closer cooperation that
adynamic approach totheproblems taking account ofeconomic develop­
ment ispossible .
16. Onthis basis ,theCommission considers that aproposal should
now bemade toIran tonegotiate acomprehensive agreement which would
create aframework for thedevelopment ofthe closest possible economic
and trade cooperation which could beundertaken bytheCommunity inthe
fiels forwhich itisresponsible and inaccordance with itsinterna­
tional obligations .Theagreement should contain provisions making it
possible tofindsolutions inapragmatic wayforimmediate andlongterm
pratical trade problems which arise intherelations between Iranandthe
Community .TheCommission doesnotthink itisappropriate toprovide

insuch anagreement forpreferential trade provisions }there are
many economic ,political andlegal reasons forthis ,which theCom­
mission has stressed earlier during discussions intheCouncil and
the COHEPER ,and itisalso theview ofthe Commission that such
provisions arenotneeded inorder tomeet thespecific trade needs
ofIran .
The agreement would also envisage measures ofeconomic co­
operation which were not able foronereason oranother tobeunder­
taken within the framework ofthe continuing bilateral economic co­
operation between theMember States andIran ,orwhich were consi­
dered byall theparties involved tobemore suited tobeing dealt
with ataCommunity level .
17. Theagreement should specify asitsobjective the creation
between Iran and theCommunity ofaparticularly close anddynamic
link which would "*efleet the close historical links between the
Member States oftheCommunity and .Iran -,thepolitical will ofthe
twoparties tostrengthen .their relations ,thecomplementary nature
and interdependence oftheir twoeconomies and theintention to
develop their mutual trade .
18. Theagreement should then setoutthejoint guidelines for
cooperation inthe trade and theeconomic fields andwould setup
-inthe form ofaJoint Commission -theinstrument needed toimple­
ment this cooperation inthetwosectors .The guidelines would provide
for the scale ofsuch cooperation togrow aspossibilities arose ,as
needs were felt and asthepolicies ofIran and theCommunity develop <,
19. Sofarastrade cooperation isconcerned ,the twoparties
should grant each other most -favoured -nation treatment whilst respec­
ting their international obligations .Inthe case ofIran ,which is
not amember ofthe GATT andwhich initsplanning allocates its im­
ports among exporting countries ,this treatment would need toinclude
anundertaking not todiscriminate against imports from theCommunity .

20. TheCommunity would endeavour to find appropriate solu­
tions ingood time toanytariff problems which might arise (inpar­
ticular inrelation tosuch joint venture projects astheJoint
Commission should consider asbeing ofmutual interest )using such
existing ornewmeasures oftrade policy asitdeemed suitable and
taking into account Iran 'seconomic development andexport interests
and the economic situation oftherelevant sectors oftheCommunity s
For some particularly important products ,appropriate solutions might
have tobeenvisaged forimplementation immediately ontheentry into
force oftheagreement .
21. Inthefield ofnon-tariff barriers ,the twoparties should
undertake toseek all appropriate ways andmeans fortheir elimination .
22. The twoparties should agree topursue through the Joint
Commission such actions inthe fields oftrade cooperation and trade
promotion ad .would assist theincrease oftrade between Iran and the
Community .
23. Provision should bemade toenable negotiations onthe trade
cooperation provisions tobere-opened after the endofthesixth
year oftheagreement .This would ,inparticular ,provide anoppor­
tunity toexamine whether ,inthelight ofthe economic situation of
Iran ortheCommunity atthat time ,itwould bedesirable toreinforce
orenlarge thescope oftheagreement subject tointernational obli­
gations ofboth parties .
/
24. The economic cooperation section oftheagreement would aim
toadd aCommunity dimension tothe existing and continuing bilateral
economic cooperation between theMember States and Iran .Itwould thus
complement Iran 'scontinuing cooperation with theMember States .The
agreement should make itclear that theright oftheMember States
toact inthe field ofbilateral economic cooperation remained un­
touched .Theeconomic cooperation atCommunity level ,like the trade
cooperation ,should becapable offuture development .Nofield which
might bethe object ofeconomic cooperation would beexcluded in -
advance . ,

10.-
25- Both parties should also undertake not todiscriminate
against the other asregards access tonatural resources and the
supply ofrawmaterials ,food and industrial products ,andnot to
take any action inthis field which might hinder the implementation
ofcontracts concluded between business firms ,subject tointer­
national obligations and rights .
26. TheCommission 'sdetailed proposals aresetoutinthe
draft negotiating directives annexed tothe draft decision authorising
theopening ofnegotiations with Iran 'Annexes IandII)*which the
Commission recommends the Council toadopt .
(l)Theannex toAnnex IIdoes notprejudice thelegal form tobegiven
intheagreement toprovisions including ECSC products within its
scope .

ANNEX I
RECOMMENDATION FOR ACOUNCIL DECISION AUTHORIZING THE OPENING
OFNEGOTIATIONS WITH IRAN
THECOUNCIL OFTHEEUROPEAN COMMUNITIES ,
Having regard totheTreaties establishing theEuropean Communities ,
Having regard totherecommendation from theCommission ,
Whereas theCouncil ,atitsmeeting on12November 197^»stressed the
political andeconomic importance which theCommunity attached toits
relations with Iran ;whereas theCouncil declared itsreadiness to
open negotiations with Iran inacompletely open frame ofmind with
aview toestablishing the forms and content ofanew agreement likely
toenable trade andeconomic relations todevelop tothe satisfaction
ofboth parties ,
• • ••
Whereas theexploratory talks which have been held with Iran since
that time suggest that itisappropriate toopen negotiations ,
HAS ADOPTED THIS DECISION :
Sole article
TheCommission ishereby authorized toopen negotiations for the
conclusion ofanoutline agreement oneconomic and trade cooperation
between theEuropean Communities and Iran .
TheCommission shall conduct these negotiations inaccordance with
the directives annexed hereto .
Done at...... ..........
For theCouncil ,

ANNEX II
NEGOTIATING DIRECTIVES
Nature ofthe agreement
1.Scope
The aim ofthenegotiations would bethe conclusion ofanoutline
agreement ontrade and economic cooperation between theEuropean
Communities and Iran inthe fields covered bytheTreaties esta­
blishing theCommunities' ^.
2.Evolutive nature
Anessential feature oftheagreement would bethat itiscapable
offuture development .Nofield which could becovered byeconomic
and trade cooperation would beexcluded ,and the twocontracting
parties would propose toexplore together within theJoint Commission
anypractical opportunities forcooperation *
3.Duration
Theduration off-he .agreement would beindefinite .However the
agreement coul 'd'bedenounced after sixyears andoneyear notice
would berequired .
From the end ofthe sixth year ofapplication ofthe agreement nego­
tiation could beopened onthetrade cooperation provisions .This
would ,inparticular ,provide anopportunity toexamine whether ,in
thelight oftheeconomic situation ofIran ortheCommunity atthat
time itwould bedesirable toreinforce ortoenlarge the scope of
theagreement inthis field ,subject tointernational obligations
ofboth parties .
1)Seealso thedraft protocol relating totheECSC which is
annexed tothis document .

ANNEX II (2)
Content ofthe agreement
1*Preamble
Thecontracting parties would refer tothe close historical links ,
thepolitical will and thegrowing complementarity oftheir economies
which had led them toseek through this agreement the definition ofa
newandspecial relationship between Iran andtheEuropean Community *
2.Trade cooperation
2.1 . The contracting parties would record their commitment toand
reciprocal interest inthedevelopment and diversification oftrade
between Iran and theCommunity and thecreation ofincreasingly close
links oftrade interdependence .
2.2 . With this aim inview they would grant each other most-favour -
nation treatment inthe tariff field
2.3 . They would endeavour tomaintain orgrant each other themaxi­
mum trade f&cilities possible forproducts ofimportance toeither
party ;themeans toachieve this would remain atthediscretion of
each ofthecontracting partie's*.Inthis context theCommunity would
endeavour to find appropriate solution for tariff problems arising
inconnection with Iranian exports totheCommunity ,taking into
account Iran 'seconomic development and export interests and the eco­
nomic situation ofthe relevant sectors oftheCommunity .
2.^. Thecontracting parties would undertake toseek allappro­
priate ways andmeans fortheelimination ofnon-tariff -barriers.
2.5 . Each ofthe twocontracting parties would undertake not to
discriminate against theother party with regard toacess tonatural
resources andsupply ofrawmaterials ,food andindustrial products ,
andnot totake anyaction inthis field which might hinder the
implementation ofcontracts between business firms ,subject tointer­
national obligations and rights .
2.6. They would agree totake allpossible measures tofavour
and facilitate trade promotion intheir respective markets .The
joint Commission oftheagreement will have topropose theappro­
priate ways andmeans .

ANNEX II (3)
3.Economic cooperation
3.1 . Objectives
Inview ofthecomplementary nature andinterdependence ofthe
economies ofthecontracting parties ,and inaccordance with their
long-term economic development objectives ,theproposed economic
cooperation would aim to :
-promote thecoherent development ofCommunity andIranian industries ;
-promote industrial cooperation ,forexample inthefield ofenergy ;
-promote mutual investment ;
-promote technical ,scientific andtechnological progress ;
-safeguard and increase the sources ofsupply andmarkets ofraw
materials ,energy ,food and industrial products ;
-improve employment opportunities and conditions and thestandard
ofliving ;
-protect andimprove theenvironment ;
-promote therapid' .growth ofeconomic activity ,increased productivity
and financial stability .
3.2 . Fields covered
Theagreement would not enumerate thefields tobecovered byeconomic
cooperation .This would beatask given totheJoint Commission .But
given theagreement 'sevolutive nature nofield which lent itself to
economic cooperation would beexcluded inadvance .
3*3 * Methods
Thecontracting parties could undertake ,promote and facilitate :
-consultations ontheir plans andprospects foreconomic development
inorder tofacilitate thecoherence ofthis development ;
-systematic cooperation between their industries inorder tocreate
new industrial and commercial links orstrengthen existing ones ,
particularly intheform ofjoint ventures ,forexample inthe
field ofenergy (e.g. downstream operations ).

ANNEX II(4)
-greater participation ,based onmutual advantage ,oftheir firms
intheindustrial development ofthecontracting parties ;
-increased andmutually beneficial investment ;
-technological and scientific exchanges ;
-joint operations inthird countries ;
-thecollection andregular exchange ofallinformation onthe
practical opportunities forcooperation andontheindustrial
andcommercial development ofthecontracting parties ;
-theorganization ofcontacts andmeetings between businessmen from
thecontracting parties ;
-specific information andindustrial promotion schemes *
3.4 .Bilateral activities oftheMember States inthefield of
economic cooperation
_Theagreement would make itolear that this agreement andaotion taken
under Itleft untouched thepowers oftheMember ataxes toactbilaterally
inthefield ofeconomic cooperation .
4.Institutional aspects oftheagreement ■
4.1 . Joint Commission
AJoint Commission would besetuptoprovide aframework forand to
promote thevarious forms oftrade andeconomic cooperation proposed .
Itwould beable tosetupspecialist subcommittees toassist itin
certain tasks .Itsmain work will betoexamine thetrade problems
which might arisp and topropose appropriate solutions ingood time ,
and inthefield ofeconomic cooperation toimplement thegeneral
guidelines setoutintheagreement itself ,ffhe Joint Commission would
becomposed ofrepresentatives ofIran andtheCommunity (Commission
assisted byrepresentatives oftheMember States ).Representatives
would beeither atministerial level orathigh official level .
4.2 . Consultations
Theagreement would provide forconsultations atanappropriate level
andwithin theJoint Commission onpoints resulting from the imple­
mentation ofthe agreement .

Annex toANNEX II
PROTOCOL tobeagreed between theMember States oftheEuropean Coal and
Steel Community and theEuropean Coal andSteel Community ontheonehand
and Iran onthe other hand .
"Theprovisions oftheoutline agreement ontrade and economic cooperation
between theEuropean Economic Community and theEuropean Atomic Energy
Community ont theonehand and Iran ontheother hand shall also apply in
the field covered bytheTreaty establishing theEuropean Coal andSteel
Community .

ANNEX III
TRADE EUROPEAN COMMUNITIES -IRAN
Value inMio0
1965
(1)1970
(1)1971
(1)%
71/701972
(2)%
72/71
•··1973
(3)%
73/721974
(4)%
7V731974(9 m)
(5)1975(9 m)
(6)*
75/74
Import "6" 521,7 677,31.059,6 56%1.362,9 29%2.123,9 56%6.395,9 201% 5.095,7 4.185,3 -18#
_ Itgil - - - - 1.720,1 - 2.824 ,1 64%8.080,9 I86%6.257,8 5.751,6 -8*
Export"6" 283,1 556,7 684,4 23% 797,5 17%1.263,5 58%1.927,0 53%1.426,1 2.775,0 955«
_ tigit - - - -1.101,8 1.697,9 54%2.619,6 54%1.943,3 3.686,2 90S«
Exchanged rates applied :(1)1EUR=1,00^ Source :Monthly Statistics "Eurostat ".
(2) "=1,08 0
(3) "=1,25 0
(4) »=1,25 0
(5) "=1,35 0
(6)»=1,320