Iran to Become a Member of Shanghai Cooperation Organization (SCO)

Islamic Republic of Iran is set to become an official member to the Shanghai Cooperation Organization (SCO).

Why this is a significant step?

The Bill for Iran’s membership in SCO has been submitted to the Parliament (Majlis) and is awaiting ratification by the Parliament. Iran’s membership, which was announced on the latest SCO Heads of States Council in Samarkand on 16th September 2022, would be a significant step forward in having a bigger share of global trade an investment. Iran had begun its efforts to join SCO as early as 2005, prior to the US unilaterally pulling out from JCPOA in November 2018. Not only the Iranian government, but the trade industry in Iran consider membership in SCO as a strong tool to boost cross-border trade and hence mitigate the constrains caused by the US sanctions.

SCO is an inter-governmental organisation with a population of over 1.5 bn, established to secure member states’ common economic, cultural and security interest. SCO has 9 permanent (assuming Iran as a member), and 3 supervisory members. According to statistics in 2017, the export volume amongst the member states was more than 329 bn US dollars.

Iran had already had close ties and trade with all SCO member states despite being under US sanctions; Russian and China have always been a political and trade partner with Iran, and they are the two powerful wings to the SCO; so, in nutshell, Iran’s membership can be considered as “formalization” of an already established partnership. It is in such circumstances that Iran’s government hopes to increase their share of global trade, particularly because SCO member states desire to reduce their dependence on US Dollar in their bilateral trade and this would be a great opportunity for Iran to tackle restrictions caused by the US sanctions. It is important to note that the SCO member states have all the legitimate security and non-economic justifications to do so, and this will perhaps make them more serious to follow such strategy. This strategy will have its reflections on loosening restriction imposed on SWIFT and by FATF. On the other hand, as Iran is following a 25 and 20 years strategic cooperation with the two powerful SCO members, i.e., China and Russia respectively, its membership in SCO would naturally accelerate finalization of those plans.

The legal schemes and available under Iran’s Foreign Investment Law and the benefits of FIPPA registration would increase SCO member states’ appetite to further open the trade doors with Iran. With this background, Iran’s membership in SCO will bring lots of opportunities, including in transportation and transit sector, for which Iran has historical infrastructure. Iran’s geographical position in comparison with other SCO member states will enable easier, cheaper and faster routes for transit of goods.

While the economic and political advantages of Iran becoming a SCO member are countless, it will not be free from practical legal complexities. Depending on the chosen route, businesses and industries in SCO member states will be required to comply with certain laws and regulations, ranging from registration, legalization to obtaining relevant licenses. We at MSLI are ready to provide comprehensive advice and support to different companies and industries on the back of our experienced team and our long history of successful provision of legal services.