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To join or not to join the world trade organization: a survey of Iranian banking executives from a historical perspective in view of intervention by the government and the central bank.

INTRODUCTION

The revelation of banking scandals within the Islamic Republic of Iran in July 2016 prompted the immediate discharge of CEOs from at least four state-owned banks by the Minister of Finance and Economic Affairs (IRNA, 2016a). This discovery also prompted changes in the banking system as a whole (Eghtesad, 2016). A public outrage concerning the astronomical salaries of the CEOs--$70,000 and above per month--forced the Islamic Republic to take drastic action (BBC, 2016). While the salary level could have been in alignment with the profit volume generated by banking executives, the man on the street whose minimum wage salary totals less than $300 per month--particularly due to the severe month delays he continually encounters while waiting for his own earnings--could hardly tolerate the bankers' lavish compensation (IRNA, 2016b). The fact that the salaries of the state-owned banking executives were determined by the same Minister of Finance only about 2 years ago--and those being the only charges for their dismissal--was not brought into discussions.

In late July of 2016, another banking scandal, stemming from the vanishing of more than $250,000,000 from the assets of one state bank, brought the banking community into the strongest challenge of its existence (Lucas, 2016). Meanwhile, a number of scandals within the banking industry are still occurring (Economist, 2016). In searching for the possible presence of an association of law obedience and the value of the corporate stock in Iran, Bolgorian (2011) has established a negative relationship between the magnitude of corruption and the stock prices. Public outcry has called for more stringent supervision at a time when global sanctions on Iranian banking have been at least partially lifted. These incidents were on top of a series of more profound banking catastrophes which had afflicted the economic community in the past few years (Heshmati Molaee, 2016).

Banking embezzlement and fraud in the magnitude of a billion dollars have stricken state-owned banks, and Iranians were extremely unhappy about it. The volume of some of these misallocations and embezzlements was so gross that the CEOs were subject to capital punishment (Torabi, 2012; Rezaee & Davani, 2013). Accusations of collusion between bankers and government officials were so widespread that the government had little choice other than to penalize the banking community to wash its own hands of aggravated charges.

While a number of researchers have offered internal mechanisms for fraud prevention (Baronaqi & Omidinia, 2015; Mashhadi & Tadayyon, 2015), it is believed that a clear perception of the nature of economic crime based on Article 44 of the Iranian Constitution would be a deterring factor. Others maintain that the established system of inspection and control was not adequate to prevent this extraordinary level of corruption. There needed to be a new, and preferably external, system to control and prevent banking corruption.

Public views steadily shifted towards the WTO, whose mandate and framework would force the Iranian government and the banking community to gain public trust. It appears that the objective of corruption-prevention was a motivating factor in the decision to join the WTO. Up to this point, support for WTO membership was based solely on the potential for the advancement of international trade in order to benefit from access to global markets--no longer in the Islamic Republic.

While subject to constant scrutiny by Western powers, the Islamic Republic of Iran has been a hotbed for intense internal debate regarding the form of relationship it should develop with the WTO. The election of a new president in the USA and the possibility for the continued sanctions would enhance the debate between clergy, politicians, and businessmen over the Iranian foreign policy. For the past 20 years, this deeply ideological conflict has distilled itself into a simple, yet impactful, question: should Iran join the World Trade Organization; and if so, why?

Within the international world of commerce, few sectors are as integrated and leveraged as banking. Iran's banking sector, with eight state-owned and 19 privately-owned banks, holding a combined $582 billion in assets according to the Central Bank of Iran (CBI), stands in a unique position given that it has only just reemerged from the isolation imposed by foreign sanctions, and is consequently being forced "to contend with a financial world which is very different from when they were cut off in 2012" (Saul and Arnold, 2016). Thus, the banking sector proves a viable subject for examination in this study of the Iranian banker's opinion of WTO membership. If any group of Iranians stands to benefit or hurt from the promise of greater inclusion into the world's markets through WTO membership, it is the bankers. It is their thoughts, opinions, and projections that we call upon in this study of public sentiment.

In examining the presence, or lack of support for WTO membership among the Iranian banking community, we limit the elements of our study to the following:

(1) Within our sample, how many bankers stand in support of Iranian WTO membership, and what is their rationale?

(2) Within our sample, how many bankers object to Iranian WTO membership, and what is their rationale?

(3) What is the perceived impact of global sanctions on the Iranian economy by Iranian bankers?

(4) Are the opinions of bankers regarding WTO membership independent of their perceived impact on their banking operations?

In a post-sanctions world, Iran will rely on the leadership of its financiers more than ever in order to gain access to the global network. A historical review of the Iranian banker's opinion on the accession to the WTO sheds lights on this prospect.

BACKGROUND

As a symbol of global trade, commercial cooperation, and economic fraternity, the WTO has assumed the role of benefactor to its member-states. Indeed, since its beginnings in 1947, with the formation of the General Agreement on Tariffs and Trade (GATT), the WTO has ignited the desires of powerful nations to direct and influence international trade to their own benefit.

Since the institution is granted an international ubiquity and prestigious presence, it has been in the interest of economists and politicians of the developed world to convince their colleagues in developing nations that entry to the Global Club is a privilege to be sought. However, the experience of many developing nations, diluted by the promises of international trade, does not stand up to all the rhetoric. From the very beginning of the WTO, developing nations have struggled to meet the stringent requirements for membership as they are dictated; much of what is required calls for physical and financial resources that lay beyond the grasp of these nations (Lowenfeld, 2007).

At the dawn of the 21st century, just years after the WTO was formed, J. Michael Finger, an economist specializing in trade policy for the World Bank, defined a number of costly problems faced by developing nations in implementing the WTO's requirements for membership. Finger categorized these problems into three groups: customs reform, intellectual property, and sanitary/phytosanitary standards (SPS). Phytosanitary refers to the health qualifications of agricultural products which cross borders. A phytosanitary certification is issued by a public officer technically qualified and duly authorized by a National Plant Protection Organization (NPPO) to inspect the farm product and attest to its sanitary condition.

Along with his colleague Philip Schuler, Finger examined several cases where developing countries allocated limited capital towards the construction and implementation of infrastructure pursuant to WTO-approved international trade. Finger and Schuler went on to question if the funds could not have been more wisely invested in projects of national importance, not mere cosmetics.

Within the field of comparative political economy and international relations, there are various arguments all suggesting that the requirements for WTO membership are designed such that only industrial nations, those with access to expansive technological and administrative resources, could ever meet them. Less developed countries, unable to meet the lofty requirements, are thus refused entry. Vinod Rege (1999), a former Director of GATT, attributes these unrealistic standards insofar as less developed countries are concerned, to the fact that when negotiations were taking place at the birth of the WTO, industrial nations simply had more delegates representing their interests. These delegates, strongly representative of the United States and Western European nations, possessed no knowledge of the infrastructure, regional abilities, economic systems, and cultural norms of developing nations. As a result, the negotiations invariably favored the Western titans of global commerce, leaving the developing nations with no choice but to channel scarce funds to WTO-mandated development, thus, foregoing more imperative projects (e.g. education) or membership completely.

The concerns of Finger and Schuler are supported by the research of Donatella (2010). From her studies of the policy and practices of GATT, WTO, and negotiations between delegates at conferences, she concludes that developed countries, in the early days of GATT, formulated coalitions united in furthering the interests of developed nations. They restricted trade of agricultural and textile products, critical products in developing economies, while liberalizing the trade of industrial products. Both calculated measures distinctly benefited developed economies at the expense of developing nations--hardly a mutually beneficial free trade agreement. The global idealism, upon which international trade measures have been formed, with their promise of bridging the gap between the haves and the have-nots of the world, has never materialized.

By the end of the 20th century, when a new form of GATT, branded as the WTO, came into being (WTO, 2016), industrial economies were switching rapidly from agricultural production to highly industrial and service-based economies. So as to better serve their economic interests, leaders of developed nations determined that production of agricultural products should be assigned to developing countries, where the labor was cheaper (bordering on subsistence), thereby providing food for the industrial economies capable of generating higher productivity from their highly-educated labor force. Low cost farming with subsistence wages was assigned to the East while high income industrial jobs monopolized in the West.

Since its formation in 1995, the bulk of WTO activities have consisted of dispute settlement between its member nations. Therefore, a Dispute Settlement Body (DSB) was established. A set of agreed procedures by the name of Dispute Settlement Understanding (DSU) was also adopted to make judgment on trade disputes between parties. By 2007, the WTO judiciary was empowered to demand factual information from parties in trade disputes and allowed itself to utilize its own inferences if either party would refrain from furnishing reliable data (Alvarez-Jimenez, 2007).

Assuming the role of the global supermarket, however, WTO regulations on bread-basket countries of the world were not without their impediments. Historically, the farmers of the "third world" have struggled to produce high-quality raw foods, at least according to Western standards of dietary consumption. Industrial nations took issue with this. In order to assure that developing nations met certain agricultural standards for products destined for export markets, Western delegates proposed a system wherein agricultural goods intended for export would be forced to comply with certain quality standards and receive phytosanitary certifications. So, as to assure the regulations were implemented properly, industrial nations instituted the National Plant Protection Organization in almost every country with agricultural export. Of course, this certificate was only intended to address the need for quality exported food products; it was never intended to address the issue of unsafe food products supplied to local populations.

Another issue of concern in the rapidly evolving world economy was the liberalization of intellectual property. By the end of the 20th century, virtually all knowledge-based products were designed and patented by developed countries. There was a concern that entrepreneurs in developing nations would quietly utilize the blueprints of Western products in their own production without paying adequate compensation to the country of origin. However, they didn't have money in the first place to pay for the highly priced patents and copyrights. The West argued for adjustments to the free-trade agreement, through the WTO, which would prevent infringement on intellectual property across borders and between regions. As could be expected, the concerns of developed nations were met. Provisions were soon put in place to protect intellectual property; unless permission was granted, developing nations were penalized for the unauthorized use and copying of Western technology. Simultaneously, these provisions called for reducing tariffs on Western goods, ignoring the fact that such measures were the only way domestic products would remain competitive in developing nations, at least in the short-term. The net result was increased global reliance on the products of industrial nations.

Rose (2002) concluded from his study that, of 175 countries who were engaged in international trade over a period of 50 years, there is little evidence that countries with membership in the GATT/WTO have different trade patterns than non-members. Nonetheless, his study shows that the Generalized System of Preferences (GSP) had a strong effect, manifested as a doubled volume of trade.

WTO and the Policies toward Small Developing Countries

While WTO administrators claim that their policies aim at economic and social development of member nations (Moore, 2001, WTO, 2016), a number of observers assert that the formation of the WTO has been to the detriment of small developing economies. This perception was brought about even in the early years of the establishment of the WTO, when Aileen Kwa (1998) concluded from her research that less developed countries have been marginalized by facing tariff escalations. Oxford Analytica (2010) maintains that during the GATT regime (1948-1994), small developing nations benefited from the trade liberalization enacted by developed countries without committing much of their resources. During the WTO regime (1995-Present), small economies were forced to retain import duties formulated by large developed countries. They had to also abide by new rules which covered new areas such as intellectual property and investment. Furthermore, since small economies do not have elaborate financial resources to staff their representatives in Geneva (headquarters of the WTO), they have not been able to pursue their interest vis-a-vis large countries. In turn, the majority of WTO rulings have been formulated by industrial countries that pursued their own interest in international trade.

WTO and Iranian Membership

The economy of the Islamic Republic of Iran fails to fit the mold of a developing nation as envisioned by the Western-influenced WTO. The country is extremely rich in natural resources, enjoying the second largest (after Russia) deposit of natural gas (33.6 trillion cubic meters) (Wikipedia, 2016a) and the fourth largest deposit of crude oil in the world (157,300 MMbbl) (Wikipedia, 2016b). Indeed, prior to the imposition of global sanctions by the United Nations and its individual members (UNSC, 2006a, 2006b, 2007, 2008a, 2008b, 2010, 2012; Gov.UK, 2014), Iran was the second largest exporter of crude oil among the Organization of Petroleum Exporting Countries (OPEC). As all oil and gas deposits are nationalized, the government is the sole beneficiary of their production and export. It, therefore, comes as no surprise that an estimated 84% of productive assets in Iran are owned by the government, on the basis of market value. In addition to overseeing the exploitation of natural resources, the government is also responsible for the food security and welfare of its 80 million citizens. As such, a large proportion of revenues from the sale of fossil energies are devoted to providing substantial subsidies to farmers in an attempt to maximize domestic food production.

Farm subsidies in Iran seek to influence both the supply and demand sides of the food cycle. On the supply side, the farmers receive low-cost energy for their farming equipment, the financial capital needed for procurement, and massive agricultural extension services, such as water resource development and irrigation systems. As a result, farmers enjoy artificially low production costs, but the nation as a whole bears the high cost of subsidies which is brought about by channeling funds from other public service avenues, such as education, health care, low cost housing, etc. On the demand side, the government sets a guaranteed purchase price for certain food commodities, but resells them to consumers at lower (more affordable) prices. This strategic government intervention, uniting the supply and demand components of the domestic economy, has assured an adequate supply of basic food materials to a growing nation, and avoided the potential for food shortages due to sustained droughts. Whatever success Iran has enjoyed under an agricultural system that is effectively nationalized, these measures stand in direct opposition to WTO principles, which call for fully integrated global markets. According to the WTO, any form of government intervention that seeks to protect domestic markets from international competition is regarded as counterproductive and subject to financial, administrative, and disciplinary punishment by the WTO.

Positive and Negative Impact of WTO Membership on the Iranian Trade and Economic Development

Iranian observers of domestic production and international trade have come to different conclusions based on their research. Exhibit 1 presents some of the perceived opportunities and threats. From their research on the agricultural market integrations of major crops in Iran and the question of membership in the WTO, Bakhshoodeh and Sahraeian (2006) concluded that membership would likely not benefit the Iranian economy in the short run but would eventually result in positive effects in the long run. They cite several administrative factors which have blocked Iranian food markets from domestic and international integration. However, some of their alleged obstacles to internal integration were only relevant in 2005, at a time when global sanctions had not yet been imposed and Iran lacked the infrastructure necessary to facilitate the production and distribution of food products. Between 2006 and 2012, 57,000 kilometers of rural roads have been constructed or paved, making the transport of crops from rural regions to urban markets a more convenient task.

Mostafavi and Jozi (2015) investigated environmental factors which need to be considered in Iran's accession to WTO and concluded that 2 factors had been considered of high importance to the accession. These were "institutionalizing the environmental laws and regulations based on international consensus", and "investment in ecotourism development based on the natural attractions of Iran."

RESEARCH METHOD

Five focus group sessions involving panels of five to seven members were organized during the summer of 2009, where the opinions of Iranian bankers regarding the status of the economy as well as government and CBI interference in their banking operations were explored. At that time, the Iranian government had applied for full membership within the WTO but had obtained only observer status due to restrictions relating to trade and politics. Panel participants were asked to discuss the positive and negative ramifications of full membership, as well as the quality of the Iranian banking system in rendering desired services to their clients.

Based on the information gathered from these groups of bankers, a questionnaire was developed that asked the banking community whether or not it would be useful to join the WTO. Subsequently, bankers were asked to give a rationale for their answers. This was done in order to gain an insight into the opinions of the banking executives towards the usefulness of the membership and any possible benefits or harm that the move would accrue to their personal interest, or to the banking institution as a whole. We needed to identify those factors that had an impact on their decisions to join. In this regard, we were largely interested in the effect of three factors on bankers' decision.

Hypothesis Setting

The first factor which would have impacted the decision of the Iranian bankers to support or resist WTO membership was their perception of the interference by the CBI in banking operations. Sepahvand (2009) has concluded that the financial liberation of the Iranian banks is a challenge to WTO membership. Respondents were requested to rate the level of interference on a Likert scale, composed of seven levels, with: 1. No interference at all, 2. Very little interference, 3. A little interference, 4. Rational supervision, 5. High interference, 6. Very high interference, and 7. Severe interference.

Obviously, a certain degree of supervision is deemed to be desirable. This necessity has been incorporated into the measurement by denoting the rating of 4 as a "rational and desirable supervision" of banking operations by the CBI. Accordingly, we were interested in testing a null hypothesis that there is no linear relationship between a perception of a high level of intervention by the Central Bank of Iran in the management of the banking industry, and the positive or negative inclination of the Iranian banking executives to join the World Trade Organization. Thus, the following Hypothesis was established at a 10% significance level:

Setting Hypothesis 1:

The first assumption is that the decision to join or not to join the WTO is independent from the perceived interference of the CBI. In other words, the Iranian bankers would not support the government's accession to the WTO to mediate pressure from the central bank. Accordingly,

[H.sub.0]: No relationship between [P.sub.YWTO2009] and [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

[H.sub.a]: [P.sub.YWTO2009] and [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] are related

Where [P.sub.YWTO2009] represents the proportion of the bankers' population that favor WTO accession in the survey, and [P.sub.CBI_Inter2009] represents the proportion of bankers that perceive interference by the CBI in the operations of their banks.

The dependent variable is either "Yes" or "No" for membership in the WTO. The independent variable is the perceived CBI intervention on a scale of 1-7.

The second factor which had the potential to impact the support of Iranian bankers regarding WTO membership was their perception of governmental interference in banking operations. In this context, the directives of the Ministry of Finance and Economic Affairs and the Money and Credit Council were considered to be exerting greater influence than other agencies. Again, a Likert scale similar to the one employed in Hypothesis 1 was offered to the respondents. Accordingly, the following Hypothesis 2 was established at a 10% significance level:

Setting Hypothesis 2:

The second assumption relates to the independence of the bankers' decision to join the WTO from the interference by the Iranian government. We recognize a certain degree of independence for the CBI, although its governor is appointed by the president, and hence placed the government factor in a separate category as it might influence the bankers' decision. We assume that even if the Iranian bankers are under pressure by the government agencies to adopt an undesirable course of action, they would not look to the WTO for relief. Accordingly,

[H.sub.0]: No relationship between [P.sub.YWTO2009] and [P.sub.GOV_Inter2009] (independence of decisions)

[H.sub.a]: [P.sub.YWTO2009] and [P.sub.GOV_Inter2009] are related

Where [P.sub.YWTO2009] represents the proportion of the bankers' population that favor WTO accession in the survey, and [P.sub.GOV_Inter2009] represents the proportion of bankers that perceive interference by the Iranian government in the operations of their banks.

Finally, as the third factor, we were interested in knowing if the respondent's perception of the overall quality of the financial and marketing services (including customer relations management) of the Iranian banking system would have an impact on their decision to join the WTO. The service quality of the banks has been a major marketing factor over the past decade and a major criterion in the Iranian banking strategies (Mosahab, Mahamad, and Ramayah, 2010). Shahraki (2014) found a statistically significant positive relationship between the quality of service and customer's satisfaction. Faryabi et al. (2015) determined that relationship continuity factors play an important role in luring and maintaining bank customers. Alternatively, we would assume that the perception of a high quality system would convince bankers that foreign competition would be unable to eradicate domestic markets. Such a perception would be a strong inclination for the Iranian bankers to support accession to the WTO in order to benefit with interactions with the global banking system.

Respondents were requested to rate the level of quality of the banking system on a Likert scale, composed of seven levels, with: 1. Scandalously poor quality, 2. Very weak quality, 3. Weak quality, 4. Average quality, 5. Good quality, 6. Very good quality, and 7. Excellent quality.

To measure the possible relationship between perceived quality and a desire for WTO membership, the following Hypothesis 3 was established at a 10% significance level:

Setting Hypothesis 3:

The third assumption deals with the service quality of the Iranian banking system as it affects the bankers' decision to join the WTO. From our preliminary research we had concluded that membership in the WTO would provide new opportunities for Iranian bankers of good quality services to establish alliances with foreign banks and thus expand their operations and financial rewards. By the same token, bankers with poor quality services fear external competition, and will not support accent in the WTO. Either way, the quality of banking services would affect their decision. Here the null hypothesis is to be set as a lack of relationship between the quality of banking services and the decision to join. The alternative hypothesis calls for a relationship. Accordingly,

[H.sub.0] :No relationship between [P.sub.YWTO2009] and [Q.sub.Banking2009]

[H.sub.a] : [P.sub.YWTO2009] and [Q.sub.Banking2009] are related

Where [P.sub.YWTO2009] represents the proportion of the bankers' population that favor WTO accession in the survey, and [Q.sub.Banking2009] represents the rating given by bankers on the quality of Iranian banking system on the scale of 1-7.

In order to test each of the three hypotheses above, a contingency chi-square analysis was conducted to determine if the two variables are independent. A logistic regression analysis was also performed in order to determine if the proportion of bankers that favor joining the WTo is significantly affected by the three factors listed above.

METHODOLOGY

Data Collection

The questionnaire was presented to a sample of Iranian bankers attending an international banking conference in Tehran, Iran, in December 2009. The occasion was critical because it corresponded to the implementation of sanctions by Western powers.

ANALYSIS

The findings of the survey presented very interesting results. At the time where global sanctions were planned, 87% of the banking executives favored accession to the WTO, while 13% were against it.

Stated Reasons for and against Joining the WTO:

Arguments for Accession

Responding bankers were asked to write their reasons in support of their opinions to join or not to join the WTO. Their responses were analyzed and classified into five categories for the positive, and five categories for the negative judgment. Chart 1 and Table 1 present arguments which the bankers offered in support of their accession (Yes) to WTO.

The bulk of the arguments pertain to the possibility of becoming competitive within global markets. Iranian bankers were uncomfortable with continuous protection of the Iranian banking system, and particularly, state-owned banks by the Iranian government. They were attributing the state of inertia to the lack of competition by foreign firms. This factor was responsible for 38% of responses. Interestingly, many executives who took the survey worked for state-owned banks. In short, they were admitting that the quality of their banking services was not particularly good.

In 2009, when the preliminary measures on banking sanctions were taken off by the major powers, a number of Iranian bankers believed that the debate on accession to the WTO was a useless exercise. The government had no choice other than to join the WTO in order to save domestic banks from the malaise of corruptive behavior. About 1/3 of all positive judgments alluded to this phenomenon of necessity.

The improvement of the economy and commerce had a small adherence (15%). Banking executives were more concerned about the direct impact of WTO membership on the performance of their own banks (as well as the entire Iranian banking system) than the overall improvement of the national economy. This was understandable given that the perceived interference by government agencies in their strategies and tactics had channeled their outlook towards self-preservation and survival. Their viability had become their foremost concern. Economic improvements and other nationally desirable objectives had to be placed on a lower level of priority.

Arguments against Accession

Chart 2 and Table 2 exhibit a classification of major factors which the Iranian bankers deemed harmful to the operations of their banks and/or the vitality of the Iranian banking system as a whole. Iranian bankers rationalized their lack of support by citing the poor infrastructure of the Iranian economy. This factor accounted for 48% of the stated reasons for the lack of support. Comparing this phenomenon with the opinions of those banking executives who favored accession to the WTO, we can see a sharp contrast in the outlook towards the national economy. Those bankers who preferred Iranian membership in the WTO did not show much concern about the improvement of the economy, and did not mention it as a major reason for accession. In contrast, those who were not comfortable with the accession expressed concern about its harmful impact on the well-being of the national economy.

The next major factor was the perceived lack of competitiveness of the Iranian banking sector. This element comprised 30% of all mentioned arguments. Only 11% cited the decline of domestic industries in their negative judgment. Iranian bankers feared that a perfectly free trade system would invite a flood of foreign goods and services to domestic markets by international corporations that enjoy stronger production and more effective marketing systems.

The bulk of our analysis boils down to the recognition of the fact that support for Iranian membership in the WTO originates from a belief that such a relationship would improve the performance of domestic banks, and not so much the national economy and trade. Furthermore, to our surprise, the possibility of enhanced employment opportunities received scant attention in the survey. Our astonishment stems from the fact that during the time of the survey, the national unemployment rate had hovered around 13%, with a strong negative impact on the well-being of the economy as a whole.

With Regard to Hypothesis 1

The author assumed that interference by the CBI in the operations of the domestic banks would make Iranian bankers uncomfortable such that they would seek the WTO membership as a safety net in order to protect their operations from constant intrusion and possible damage by the CBI. A chi-square test of the independence of variables at a significance level of 10% produced a test statistic of 2.894, which was slightly higher than the critical value of 2.705, with a p-value of 0.088. The outcome of the test statistic, therefore, rejects the null hypothesis of the independence of factors. Thus, we accept the alternative hypothesis that perceived interference by the CBI does impact the opinions of Iranian bankers as to whether or not Iran should join the WTO.

Furthermore, the logistic regression procedure was applied in examining the tendency of the banking executives to favor WTO accession on the basis of their perceived level of intervention by the Central Bank of Iran.

The logistic model was used to measure the level of the odds that Iranian banking executives would be subject to in casting a favorable position to join the World Trade Organization as their level of perceived intervention by the CBI increases [as an example--from 4 (rational intervention) to 5 (a high level of intervention)]. In achieving this objective, we can use the following standard logistic regression model:

ln(p/1 - p) = [[beta].sub.0] + [[beta].sub.1]x

Where p is the proportion of individuals who wish to join the WTO, and x is the perception of the level of intervention by the CBI. [B.sub.0] and [B.sub.1] refer to the intercept and slope of the regression line. Hence, this model predicts that, for each unit increase in the level of perceived intervention by the CBI, the odds that the Iranian banking executive will wish to join the WTO is multiplied by [e.sup.0.2967] [approximately equal to] 1.3454, or is increased by about a 35% increase. The model reveals the prevalence of a strong inclination in Iranian banking executives to join the WTO when their perception of intervention in their work by the Central Bank of Iran increases from one level to a higher level of intervention.

In terms of this model, we can set hypothesis 1 as a test of [H.sub.0]:[[beta].sub.1] = 0 vs [H.sub.a]:[[beta].sub.1] [not equal to] 0. Table 3 presents the output of this test.

Having been satisfied with [alpha] = 0.10, we note that the regression coefficient for the CBI (0.2967) is significant. The P-Value is 0.0650. The outcome of the test suggests that the likelihood of Iranian bankers being favorable to WTO membership will increase by their level of perception of the intervention by the CBI. Put differently, the higher the level of perceived intervention, the higher the level of support for WTO membership will be. It is clear that the Iranian bankers view the phenomenon of CBI membership as a refuge from the CBI's constant intervention on their professional affairs.

A further examination of the logistic regression leads to the following model:

[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII], where p/1-p represents the odds of wanting to join the WTO.

Therefore, a unit increase in x will result in the odds of wanting to join the WTO--that is, p/1-p--increasing by a multiple of [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII].

With Regard to Hypothesis 2

The Iranian government utilizes a variety of institutional strategies to restrict the activities of Iranian banks. The Ministry of Finance and Economic Affairs and the Money and Credit Council are among the main governmental institutions, aside from the CBI, which carry a mild degree of independence on its decisions. At times, government interference has been widely criticized by the banking community, and refuge in the WTO has been sought as a favorable strategy for bankers' immunity. The chi-square test of independence of variables was used to measure the possibility of a relationship between the perception of government interference on the decision of the banking executives to join the WTO. A 10% level of significance was deemed adequate for the analysis. In the pre-sanctions survey, the chi-square test produced a test statistic of 1.514, which was less than the critical value of 2.705. The p-value was found to be 0.218. Therefore, we fail to reject the null hypothesis of the independence of decisions. Indeed, it appears that the Iranian bankers have been so accustomed to government interference that they did not factor it in their decision to join or not to join the WTO.

Application of the logistic regression model at the significance level of [alpha] = 0.10 failed to support the hypothesis of dependability of the banker's choice on the magnitude of government intervention in the overall banking system. The outcome may be attributable to the relatively small sample size which could not provide adequate information for a final judgment.

With Regard to Hypothesis 3

It was assumed that some bankers would be motivated to favor a WTO environment because foreign competition would bring in new challenges. Domestic banks which are not operating well, and handling their customer relations management (CRM) poorly, would have to improve or leave. By the same token, among the opposing groups, there could be a number of bankers who envision that the accession to the WTO would endanger domestic banks and as such would be prompted to stand against it. At any rate, the decision to join or not to join is not independent of the external factors, but rather dependent on them.

In processing respondents' data for the chi-square test, we had to combine the ratings of 1-3 to signify a non-desirable judgment, while the rating of 4-7 signified a desirable level of service quality of the Iranian banking system. We set the null hypothesis to denote the independence of opinions regarding WTO membership from perceived quality of the banking system. A 10% level of significance was deemed acceptable for our analysis. A chi-square test statistic generated a value of 2.96, which was higher than the critical value of 2.705, thus rejecting the null hypothesis of the independence of the factors. This suggests that the perception of banking quality plays into a banker's opinion regarding WTO membership.

The chi-square analysis is supported by the logistic regression in Table 4, which was significant at the 10% level (p=0.056). We computed that, for each unit increase in the level of perceived quality of the banking services, the odds that the banker will wish to join the WTO is multiplied by [e.sup.0.4284] [approximately equal to] 1.53, or has increased by approximately 53%.

CONCLUSION

The Iranian economy, for the most part, has been vulnerable to fluctuations in global trade and, particularly, the demand for its crude oil and natural gas. In turn, an increasingly large quantity of consumer goods and industrial machinery was imported to service a growing population, which now approaches 80 million people. For a variety of reasons, the government was not able to utilize the revenues from the export of crude oil and natural gas to establish a strong base for domestic industry. In fact, the country has never become industrialized in a true sense. Product designs are still made overseas and, for the most part, the design of machinery and equipment for local manufacturing is also performed by foreign firms. In the majority of cases, even the construction of factories is done by foreign suppliers who engage in almost every phase of resource mobilization on an incubator basis. In a majority of cases, the production units are designed to utilize imported materials and component parts, thereby enhancing dependency on external input. It is for these reasons that domestic production systems have never been able to compete with imported goods, particularly high quality--though at times high priced--goods from industrial nations. For sure, almost none of the domestic factories can compete with the satisfactory quality but low-priced merchandise imported from Southeast Asia.

Furthermore, the infrastructure of the economy for domestic production is not adequately developed. It is for this reason that some observers of the Iranian economy believe that as long as structural changes are not made within Iran's production system, adherence to the free trade regulations imposed by the WTO would destroy domestic industries at the hands of foreign competition. Massive unemployment would follow the already double-digit unemployment rate and result in a social crisis. On the other hand, many observers have attributed the feeble nature of the domestic economy to the corruption that is brought about by the government's continuous protection of domestic industry through the imposition of high tariffs and/or the dictated rate of interest on bank loans by the Iranian government and its central bank. In this field research, we examined the opinions of Iranian bankers during this pre-sanction period with regards to the membership of the Iranian government in the WTO. A high level of support for membership has been observed.

In the case of perceived quality of the financial and marketing services of the Iranian banking system, as well as perceived intervention of CBI in the affairs of the Iranian banks, both state-owned and private, the assumption of the independence of the decision to join or not to join the WTO is found to be invalid. The bankers appear to bring their personal biases into their decision-making process. However, in the case of perceived interference by the Iranian government, our analysis shows a significant degree of independence of decisions.

Whether Iran will join the WTO in the next several years remains uncertain. Membership in this world-wide body requires approval of every current member, a condition which leaves Iran in a very compromising situation. There is considerable resistance from several major powers to this end. For the most part, the resistance stems from opposing ideological views and political interests. However, after the official lifting of sanctions in 2016 (even though such effect has not completely materialized), there is growing hope among Iranian bankers that WTO membership is attainable and beneficial.

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Farrokh Safavi

Western Washington University

Tehran University

Farrokh Safavi is a professor of business administration at Western Washington University, Bellingham, Washington. He is currently a visiting professor of management at Tehran University, Tehran, The Islamic Republic of Iran.
Table 1

Categorized Reasons Supplied by the Iranian Banking Executives in
Favor of Joining the WTO

Number   Categories                     2009 (%)

1        Improvement of Economy and        15
         Commerce

2        No other alternative              33

3        Increased Competitiveness in      38
         Global Banking Community

4        Reducing Unemployment Rates       1

5        Other Positive impact             12

Table 2

Description of the Categorized Reasons for not joining the WTO

Number   Categories                             2009 (%)

6        Inadequate competitiveness of             30
         domestic banks

7        Poor infrastructure of the economy        48

8        Lack of diversity in economic policy      0

9        Possible decline of national              11
         industries

10       Other negative impact                     11

Table 3

Analysis of Maximum Likelihood Estimates for WTO Accession by the
Iranian Bankers with Respect to the Level of Perception of
Intervention by the Central Bank of Iran

Analysis of Maximum Likelihood Estimates

                         Standard
Parameter  DF  Estimate  Error     Chi-Square  Pr > ChiSq

Intercept  1   0.4936    0.7784    0.4020      0.5260
CBI        1   0.2967    0.1608    3.4050      0.0650

Table 4

Analysis of Maximum Likelihood Estimates for the Choice of WTO
by the Iranian Bankers with Respect to the Level of Perceived
Quality of Banking Services Offered by the Iranian Banking System

Analysis of Maximum Likelihood Estimates

                          Standard
Parameter   DF  Estimate  Error     Chi-Square  Pr > ChiSq

Intercept   1   0.3858    0.7620    0.2563      0.6127
Service     1   0.4284    0.2191    3.8220      0.0506

Chart 1

Categorized Reasons Supplied by the Iranian Banking Executives

Why Yes

1  15
2  33
3  38
4  1
5  12

Note: Table made from pie graph.

Chart 2

Categorized Reasons by the Iranian Banking Executives
who Maintain a Negative Opinion towards WTO Membership.

2009 Why No

6   30
7   48
8   0
9   11
10  11

Note: Table made from pie graph.

Exhibit 1

Perceived Opportunities and Threats for the Iranian Economy
in Joining WTO as a Full Member

           Opportunities                           Threats

 Easy access to World Markets For        Bankruptcy of the Economic
        Domestic Producers               Enterprises due to severe
                                       competition from foreign goods

    Ease of Settlement of Trade      Primitive Technology in production
   Dispute With Foreign Partners                and marketing

  Access to Input Resources from     Instability of Iranian economy and
         Foreign Suppliers                  the flight of capital

    Improvement of Intellectual      Decrease in government income due
      Property Rights in Iran             to lower tariffs & Taxes

    Minimization of Government       Losing many trade disputes due to
Intervention in Iranian Commercial       the influence of big powers
             Decisions

        Enhancement of Job            Waste of production resources and
 Opportunities by feeding foreign           distribution channels
              markets

     Technology transfer from         Respecting foreign intellectual
       Industrial Economies           property rights, but paying very
                                             high price for them

Source: Compiled from NSA
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Author:Safavi, Farrokh
Publication:International Journal of Business and Public Administration (IJBPA)
Article Type:Report
Geographic Code:7IRAN
Date:Dec 22, 2016
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