With the growing role of Iran in the region as a catalyst for regional trade links, physical product must also be equally complemented by the availability of superior infrastructural and transit facilities. The transit of goods via Iran through the region can be considered within the context of land and sea routes linking Iran's northern neighbors to the Persian Gulf littoral States, the Middle East , Europe and the Far East. As such, to be able to effectively serve its role as the only viable conduit to and from the region, major steps have been undertaken and implemented to facilitate the cross-border movements of goods, including the upgrading and construction of new transportation facilities such as ports, marine containerized terminals, road, rail and air links, free trade zones and the implementation of effective legislation. Steps taken include:

Railroads: Given the efficiency provided by railroads, the first rail link between the southern and northern sectors of the country was established in 1927 with the founding of the Trans-Iranian Railroad. Over the years, Iran's rail links were slowly developed and at present approximately 6,200 km. of rail networks span across the country and primarily serve to link Iran's southern and northern ports as well as serving such economically and culturally significant cities such as the Holy cities Mashad and Qom. These lines are backed by 525 locomotives, 17,000 cargo wagons and 1,000 passenger wagons. In 1998, over 24.3 million tons of cargo and 9.2 million passengers were transported. With the founding of two new major rail links within the

past two years, Iran's ability to meet the region's transit needs were greatly enhanced. These rail links consist of :

Bafq - Bandar Abbas : As part of the First Five Year Plan implemented in 1989, the Bafq-Bandar Abass railway was implemented in 1995 connecting Shahid Rajaie Port, considered one of the most advanced ports in the Persian Gulf, to the national rail network. With the connection of this port to the national rail network, a significant step was taken towards the establishment of a major route for regional trade. Goods from Iran's northern borders can now reach Bandar Abbas and back by rail via the Port of Bandar Turkmen in the Caspian Sea. This route is 1,940 Km. long and trains from Iran's northwestern neighbors and Turkey are now also effectively linked to this network via the Razi Station. Most of the rail links of this line are double tracked and can handle over fifteen million metric tons of goods per year, including petroleum products, copper and iron ore from Iran's Sarcheshmeh and Golgohar mines.

Mashad - Sarakhs - Tajan: As a complement to the 700Km. long Bafq-Bandar Abbas line, the 295Km. Mashad-Sarakhs-Tajan line was inaugurated in May 1996 in the presence of some thirty Heads of State and Governmental delegates. 130 Km of the line stretches from Sarakhs (Iran) to Tajan (Turkmenistan) and the remaining 165 Km. connects Sarakhs to Fariman (near Mashad) in Iranian territory. This rail line, which was created with the aim of establishing an uninterrupted and integrated communications network between the railways of the newly independent republics in Central and North Eastern Asia and to provide transit via Iranian territory into Europe and Persian Gulf littoral States, is in effect the modern day revival of the Silk Road and plays a remarkable role in the consolidation of political relations and the fulfillment of the desire of Iran's northern neighbors to gain access to free waters. It is currently projected that an initial annual transportation capacity of two million tons of cargo and five hundred thousand passengers will be utilized on this line initially gradually increasing to a maximum of eight million tons of cargo and one million passengers annually. Additional benefits of this rail line include:

1)The establishment of two separate connections comprising of a 547km line connecting the Iranian cities of Kerman and Zahedan and a1400 km section joining Bangladesh to Thailand which can result in the materialization of the Trans-Asian Railroad (TAR) Project which is to linking the Far East from Singapore to Istanbul in West Asia.

2) The establishment of the Northern Railway Project which is to run from Japan to Korea and then via the Russian Federation to Europe can easily follow a diversion across Central Asia to reach the Persian Gulf via the Iranian rail network.

3) The possibility of the connection of rail lines from Iran to Central Asia and subsequently from Central Asia to the Atlantic Ocean with final links to Russia and Siberia.

4) The possibility to establish a linkage between Iran, China and Vietnam with the construction of a rail line by Vietnam to China.

5)The possibility to connect the trans-Russian railroad from Siberia to the Baltic Sea coast, to Iran and finally to the ECO (covered further ahead in this Chapter) member countries (with the exception of Pakistan and Afghanistan).

6) The establishment of a railway connection with Caucasus, the Black Sea and Iran through the utilization of carrier ships for transportation between Turkmenistan on the
eastern side of the Sea and the Port of Baku on the western side. As far back as the 1960's

a carrier line was established so as to promote this mode of transportation.

7) The connection of Iran's southern ports to those of the northern Caspian Sea countries (Turkmenbashi, Shevechenko, Guriyev, Astrakhan, Mahachkala, Darband and Baku).

One railway extension that is currently under study is the possibility of establishing a linkage between Sarakhs and the Free Zone and port of Chahbahar which would span Iran's eastern borders between Afghanistan and Pakistan. The construction of such a trans - eastern line would result in linking Central Asia to the Sea of Oman with subsequent connections to with the railways of India and Pakistan.

Inland Transit Facilities: With a well developed road network encompassing the east - west and north south axis of the country, virtually every population center in Iran is linked by serviceable roads. Since 1991 alone, over 250 km. of freeways and superhighways have been built and by the year 2001 it is expected that a further 1,100 km. of new freeways will be built. Of particular note is the attraction of domestic and foreign investment in this sector (see related sidebox). Additionally, Iran is joined to seven neighboring countries consisting of Turkmenistan, Afghanistan, Azerbaijan, Armenia, Pakistan, Iraq and Turkey via fifteen border roadways. These roads can be inter-linked through Iran's transiting highways. Iran is a member of the International Road transport Convention (TIR) and as such loaded trailers may be customs sealed at the departure point and pass unopened through transit countries. "On wheels" customs inspection and clearance is possible at any of Tehran's three customs terminals, thus speeding up delivery and cutting labor costs and risks of damage.

Air Routes: Most air corridors between Europe and South East Asia and between the Central Asian Republics / Trans-Caucasia and the Persian Gulf pass through Iranian airspace. It is foreseen that with the gradual increase in the number of multi-lateral contracts in Iran and the region , the number of flights crossing Iranian airspace will increase remarkably. As such, measures currently under implementation include the construction of several new airports across Iran, including Tehran's forthcoming multi-million Dollar Imam Khomeini International Airport (IKIA) with an eventual capacity to

store some 700,000 tons of cargo and a special handling area for transiting goods ( See Side box). Most major international airlines already have cargo flights to Iran at standard IATA rates. Consignments may arrive at the airport and then exit on another flight or continue on their routes via truck, railway or sea.

Sea Routes and Ports: In the north of Iran lies the Caspian Sea, with an area of 424,000 sq. Km. , of which some 700 Km. of coastline is shared with its neighboring countries. The primary port of this region is Anzali, having a general jetty with five posts with a length of 562 meters a depth of five meters and a handling capacity of 4,000 metric tons. To the south, Iran shares 2,000 km. of the coastlines of the Sea of Oman and the

Persian Gulf one of the most vital transit points in the world . Iran's main ports in the south are Bandar Imam, Bandar Bushehr, Bandar Abbas, Bandar Chabahar, Bandar Genaveh, Bandar Khoramshahr, Bandar Dailam, Bandar Lengeh, Bandar Qeshm, Bandar Jask, Bandar Kalantari and Bandar Abadan. Together these fourteen ports have a total of ninety jetties, spread over an area of 15,760 sq.m, 285,000 sq.m of transit warehouses, and docking facilities measuring 2,821,400 sq.m for the service of ships and goods in transit. Total nominal capacity of Iran's ports currently stands at some twenty eight million tons of cargo annually with major expansions currently under way. Specifically, with the launch of the aforementioned Bafgh - Bandar Abbas railway and the resultant transit linkage to the nations of Caucasia and Central Asia from the Persian Gulf, equipping and expanding the two northern ports of Anzali and Noshahr have become priority projects. The major ports of the Caspian Sea comprise of Baku (Republic of Azerbaijan), Mahach Qaleh (Daghestan), Astrakhan (Russia), Aknao and Guriev (Kazakhstan) and Turkemenbashi and Aktash in Turkmenistan. By establishing linkages with the ports of Noshar and Anzali a new corridor has been made available to these nations to reach global markets. Anzali, which is the largest port bordering the Caspian Sea and Iran's third largest port is an important point for the transit of goods between Iran and in particular, Russia, as it is proximate to the Volga River and the Central Asian region. Goods transited to or from Anzali by way of Germany (Hamburg) can be covered in half the distance than by Iran's southern ports. Located at 48' and 28' longitude from the east and 37' and 28' at north, the port covers 27.5 sq.km. and is located less that 380 km. away from Tehran. It's capacity currently stands at 2.5 million tons compared to 240,000 tons prior to the 1979 Islamic Revolution. Noshahr, which is less than 200 km. away from Tehran is located at 32' longitude and 40' and 36' latitude. At the present time over 30% of goods transiting Iran to the Caucasus and Central Asia pass through these two ports. It bears note that the Islamic Republic of Iran also has the distinction of having the largest and most sophisticated fleet in the Middle East.

Laws and Regulations: So as to avoid bottlenecks and overly bureaucratic procedures that can lead to time consuming and expensive delays, the Parliament of the Islamic Republic of Iran has ratified a Law known as the "Transportation of Foreign Goods Via the Islamic Republic of Iran" aimed at facilitating the transit of goods from Iran to the eastern, northern and southern parts of Asia. Highlights of the Law include abolition of licenses for the transit of goods, acceptance of bank guarantees and/or valid insurance policies instead of bonds for the transit of goods, exemptions of sealed goods from customs duties and visa issuance for drivers within a minimal amount of time.

Free Trade and Special Economic Zones: Free Trade and Special Economic Zones (FTZ's and SEZ's) in Iran have been actively established and promoted with the intent of creating trade and industrial facilities and as an important source for the attraction of foreign direct investment and technology. Comprehensive legislation is in force and ratified in a manner that serves to exempt the Zones from national laws deemed restrictive and among the incentives readily available include fifteen year waivers of corporate individual taxes, minimal customs duties and restrictions on the movement of capital, no limitations on foreign investment and guarantees against nationalization. Selected portions of these laws are enclosed in Annex III. Iran's FTZ's and STZ's include:

Sarakhs FTZ: Located 180Km. east of Mashad on the border of Iran and Turkmenistan , the Sarakhs Free Trade Zone (SFTZ) serves as an effective trade corridor in the region. Advantages of the Zone include:

-The transit of goods to Europe and the Indian Ocean via a direct
Linkage with the Mashad - Sarakhs - Tajan railroad.
-The ability to utilize Sarakhs as an alternate trade route when Caspian sea ports are overloaded.

Sarakhs, in addition to its unique geographic position on the Iran - Turkmenistan border also holds some 15 trillion cubic meters of natural gas reserves and its refinery is one of the largest in the world. It is of note that in the World Conference of Free Trade Zones (WCFZ) held by the United Nations in Dubai recently, the positioning of Sarakhs and Chahbahar (see below) were deemed to be far superior to their neighboring counterpart Jebel Ali located in Dubai.

Chabahar FTZ: Strategically linked to Sarakhs and located in southwestern Iran off of the Oman Sea, Chabahar is the closest Iranian port to the Indian Ocean, and provides direct access to Turkmenistan and other Central Asian nations, via the Bafq - Bandar Abbas - Mashad - Sarakhs - Tajan rail lines thus effectively linking the Oman Sea to Sarakhs. The FTZ has two jetties with a capacity 2,000,000 tons per year, and has some 150,000 tons of storage facilities. The cornerstone of Chabahar's industrial development is a large scale oil refinery with a capacity of some 225,000 barrels per day. major attractions of Chabahar has been the incentive package that it offers to investors including:

1. Full exemptions from customs duties for machinery imports.
2 .Three year tax exemptions for raw material imports.
3. Fifty percent discounts on land to be utilized for industrial units.
4. Fifty percent discounts for a period of two years for products exported to the littoral states of the Persian Gulf and Sea of Oman by transit vessels of the Free Zone.
5. Fifty percent discounts on land transportation fares for products exported to the Central Asian Countries , Pakistan and Afghanistan for a period of two years.
6. Discounts of up to fifty percent on the purchase or lease of commercial office space and warehouses.
7. Fifty Percent discounts on the price of land utilized for residential blocks for workers and the personnel of industrial units located in the FTZ.
8. Minimal red tape as evidenced by the issuance of construction permits, office registrations, land sales, import permits and supply of telephone lines within 48 hours.

These incentives have been further buoyed by facilities such as social and cultural centers such as theaters, technical and vocational centers and the like, highlighted by the forthcoming establishment of an international university in the zone. In light of the above, over the past four years the Iranian private sector has invested over 500 billion Rials into the FTZ and over 1,600 investment permits have been registered , 65% of which pertained to the manufacturing sector.

Kish FTZ: The second largest island on the Persian Gulf encompassing a total of 91 Sq. Km, it is located 18Km. from the mainland, 200 Km. from Bandar Abbas and 200 Km. from the United Arab Emirates. Kish International Airport manages daily flights to and from twelve major cities in Iran and ten destinations abroad. Kish's harbor has a depth of 4 meters and can accommodate 2,000 ton vessels. Kish has well equipped industrial parks and provides a suitable home to several high tech ventures including investments by multinational companies such as Sony, Bosch and Siemens. Large scale warehouses are under construction for use by distributors with the aim of carrying out re-export activities to Central Asia. Additionally, in light of the islands seasonally favorable weather and picturesque scenery, Kish has developed into a major tourist center and has set new records for the number of tourists visiting in the past year. It is estimated that in the nea future, the number of Iranian and foreign tourists will quadruple and reach between 4 to 4.5 million per annum.The increases in tourism have in turn buoyed further investments in the island, particularly in

infrastructure. Such projects encompass, inter alia, increases in the number of desalination plants, new airport terminals, renovation of airport installations, expansion of harbors and piers, road networks and new hospitals. By way of example, the airport area has undergone an expansion from 1,500 sq. m. to 5000 sq. m. currently comprising of four terminals with a fifth six thousand sq. m. terminal under construction which will make it one of Iran's largest and most up to date airports. Of particular note has been the attraction of foreign investment in the water desalinization sector via a BOT venture (Build Operate Transfer) which is to utilize state of the art technology to de-salt water and sell the desalinized water to the Kish Free Trade Zone Authority (KFTZA) for a period of fifteen years. Once the investment is recouped at the end of the said period, ownership of the plant will be transferred over to the KFTZA.

Qeshm FTZ: The largest island in the Persian Gulf, with an area of 1,335 Sq. Km and situated at the entrance of the Persian Gulf just off the Port of Bandar Abbas, the island has a unique history as a distribution center dating back to 500 B.C. for traders traveling between Western Asia, the Indian subcontinent, the Arabian Peninsula and the east coast of Africa. The island is rich in natural gas and will soon be home to a major petrochemical facility and other energy intensive industries. The two main commercial ports of the island have facilities for 60,000 ton ships and a off-loading capacity of two million tons of goods per year. These steps, among others, have led to an industrial boom in Qeshm. At the present time over 1,200 production units are active on the island, out of which 600 are comprised of industrial units. In the past three years alone over eighty factories have been commissioned and if this trend should continue, it is expected that over 200,000 new job opportunities will be created. Goods manufactured at Qeshm cover a broad amalgamation of products ranging from water pumps, polyethylene pipes, air conditioning units to textiles and video tapes. Export markets for these goods consist primarily of the United Kingdom, Kuwait, Somalia, Turkey, the United Arab Emirates and the countries of the CIS. It is expected with that with the forthcoming commissioning of ferromanganese, aluminum, and zinc production units, goods with a higher value added can be exported. Qeshm also serves as a major tourist attraction. So as to further promote tourism, a major recreational beach complex was recently launched spanning 27,000 sq.m. comprising of a restaurant, children's playground and aquarium. A unique aspect of the site is its construction by palm stems and branches by local craftsmen on par with the local architecture and traditions indigenous to the island. Further social and recreational sites are currently under plan for the island.

Sirjan SEZ: The Sirjan Special Economic Zone , as with Sarakhs and Chabahar, is tied in directly to the Bafq - Bandar Abbas - Mashad - Sarakhs - Tajan rail link. Sirjan has been chosen as a Special Zone site not only due to its geographic position, but also due to its year round perfect climate which enables the long term storage of goods, access to abundant supplies of water, fuel , human resources and easy accessibility. Located just 300 Km. from Bandar Abbas via a four lane super highway, Sirjan is connected via expressways to Pakistan and Afghanistan in the east, the Caucasus in the north west and Central Asia directly to the north. The Sirjan SEZ is owned and

governed by the Kerman Development Organization which aims to develop the Zone into a "city of the future". As such, ultra-modern facilities, fully automated and computerized public services, minimal red tape and a state of the art communications systems are all part of the infrastructure coming under implementation. Additionally, the city itself is being developed in a manner so as to encompass the daily creature comforts of most modern cities ranging from modern hospitals to a mini 'Disneyland'.

Bandar Anzali SEZ: Located at the Caspian Sea, Bandar Anzali's strategic importance lies in its access to the high seas through the Volga - Don Canal. This importance will be further enhanced with the forthcoming 1,340 km. long Anzali- Bushehr Freeway which will link by road Iran's northern and southern ports, and in effect, the Persian Gulf to the Caspian Sea. Investors in the Bandar Anzali SEZ are provided with a broad array of incentives including :

1. Exemptions from customs duties and taxes for the import of goods and machinery.
2. Capital insurance.
3. Minimal customs formalities and red tape.
4. No restrictions on storage periods for goods.
5. Opportunity to utilize credit facilities provided by the Islamic Development Bank (IDB).

Bushehr Port SEZ: The Bushehr Port SEZ is in effect two separate ports. The first, which is under the jurisdiction of the Ports & Shipping Organization of Iran covers an area of 41 hectares and enjoys all necessary facilities and infrastructure including docks, warehouses, loading and unloading equipment and an experienced workforce. A unique feature of the SEZ is that it is the first SEZ authorized to issue Certificates of Origin and Negotiable Separate Warehouse Receipts for the opening of foreign currency Letters of Credits (L/C) for the import of goods into the country. A second objective is the promotion of manufacturing and industries within the SEZ. As a result, any machinery imported into the SEZ for the purposes of manufacturing in the Zone is exempt from national import - export rules and any customs duties. The 'second' Bushehr Port SEZ is located 10 km. away and is under the jurisdiction of the Bushehr Construction and Development Company. This zone, which covers over 2000 hectares was established primarily with the aim of attracting industrial investments and warehousing, and is subject to the same incentive structure as the 'first' Bushehr Port SEZ.