The Gulf Co-operation Council (GCC) countries have the highest density of free-trade zones in the world. Dubai is on top of the list concerning both quality and quantity, and offers a free-trade solution for almost any economic sector. As giant neighbouring Iran opens up to the international business community, another competitor joins the hunt for international investors in the Gulf region.

A major link between East and West as well as to the growing markets of Africa and the Caucasus, Iran occupies a perfect geostrategic position for future investors. Even more important is its enormous domestic market of 80 million consumers and a diversified economy desperately in need of foreign investment and technology. The potential for existing and future Iranian free-trade zones as gateways to a very lucrative market is obvious.

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The question is whether the regulatory framework of these free zones can be modified following the example of the United Arab Emirates and other successful countries in this field. Dubai in particular has been using free-trade zones as an instrument for bypassing the strict rules for foreign investors on the mainland by creating self-regulated zones with independent authorities that act as profit-oriented business units exempt from government interference. This strategy is probably one of main reasons for the tremendous success of its free trade zones.

Given the significant influence of government and other entities on the Iranian economy, it will be a complex task for its free zones to achieve a level of independence comparable to those of its neighbours. But any other form of governance will conflict with the nature of this tool for attracting foreign investors which is manifested in the name: free-trade zone. The modern interpretation of this concept is not limited to customs and taxes, but most importantly also to its governance.

Mazdak Rafaty is managing partner of Ludwar International Consultancy and SME advisor to the joint Emirati-German Chamber of Commerce. Email: m.rafaty@lic-consulting.com