European leaders say that accelerating trade with Tehran is an important cornerstone in the EU’s decade-long engagement with the Islamic Republic.

Already, the EU is Iran’s main trade partner. In 2000, bilateral trade exceeded $12 billion. Patten explained, "There is more to be said for trying to engage and to draw these societies into the international community than to cut them off". Sounds good, but does boosting trade with Iran moderate the clerical leadership or catalyse reform? Unfortunately not, which is why Iranian students, women, workers, and human rights activists describe the proposed trade pact as nothing short of a disaster for their reform movement.

Critical engagement as a tool for moderation sounds good in theory, but in

Iran’s case it not only falls flat, but actually hampers reform. Iran’s bonyads, revolutionary foundations, prove an insurmountable obstacle. These conglomerates monopolize import-export and all major industry; some economists estimate that the bonyads account for 35 percent of Iran’s total GNP.

The Imam Reza Foundation, for example, has $20 billion in assets; the Martyr’s Foundation is a close second with an estimated $15 billion. The bonyads remain outside the control of both President Mohammed Khatami and the reformists in parliament. Supreme Leader Ali Khameneh’i alone chooses the foundation directors, called "little kings" in local parlance. His appointees? In 1989, he picked Mohsen Rafiqdust to lead the Foundation of the Oppressed. Rafiqdust had commanded the hard line Revolutionary Guard.

He used his decade-long tenure at the Foundation to fund terror groups and invest in nuclear and biological weapons technology. His successor is little better. When Mohammed Foruzandeh commanded the Revolutionary Guards, they not only pursued chemical weapons capacity, but also used them.

European leaders could overlook the foundations’ questionable expenditure, if revenue trickled down to help ordinary Iranians. Unfortunately, the opposite is true. Tehran is a bustling city. Bazaars, boutiques, and mom-and-pop shops compete for the attention of pedestrians crowding the busy streets. At first glance, all appears normal. But there are no privately-owned chains in the entire city of 12 million people, nor in any other Iranian city. The tax-exempt bonyads strangle private enterprise, which remains subject to over 50 different taxes. The $12 billion

Foundation of the Oppressed last February demonstrated that it cares little for the common welfare. More than 1,300 workers at its Baresh Textile Mill picketed the Foundation office after not receiving their wages for eight months; police disbursed the workers.

Only Iranians with hard-line connections achieve real affluence. Iranians eking out a living contemptuously speak of "aqazadeh-ha", literally "sons of important men"’ but used to refer to anyone using government connections for personal enrichment. Former President Ali Akbar Hashemi Rafsanjani is a prime example. He now controls more than 70 percent of Iran’s multi-million dollar pistachio trade. Earlier this year, he used his political connections to ram approval through for his newest investment, Medes Air, to fly direct from Dusseldorf to Urumiyeh, from where it services Iraqi Kurdistan.

In a March 24 sermon in Isfahan, reformist cleric Hadi Ghabel questioned how "those close to the leaders of the regime…have taken over the state’s treasury, wasting unlimited public funds on acquiring firms and buildings for themselves all over the world," while simultaneously, "girls in Tehran engage in prostitution in order to make a living for themselves and their families." Patten’s trade pact will disproportionately pump more money into the wallets of their adversaries.

Iranian reformists do not believe the self-righteous rhetoric that trade brings reform. After all, the EU’s engagement with Iran is now a decade old, and the policy’s track record is at best questionable. Iran’s rhetoric has softened, but her actions have not. Iranian agents assassinated dissidents in Berlin in 1993. Khatami refused to cooperate in the investigation of the 1996 Khobar terror bombing, which an Iranian brigadier-general allegedly masterminded. Iran continues to host Imad

Mughniyeh, responsible for a more than twenty-year string of kidnappings and terror attacks, including the 1983 car bomb attack on French and American peacekeepers in Beirut, and the 1994 attack on the Jewish cultural centre in Buenos Aires.

The fruits of increased trade? In March 2001, Khatami himself signed a $7 billion weaponry purchase in Moscow. Components purchased from Swiss, German, Italian, and Spanish companies now equip Iran’s biological weapons labs. While many Europeans label Khatami a democrat, his election came after the disqualification of 234 competitors. In his own writings in the daily "Keyhan", Khatami argued that only those who have attended religious seminaries should have a voice in government.

The irony of the EU-Iran trade pact is that it will not only hamper reform, but will irrevocably damage Europe’s long-term business prospects in Iran. Iranians are not simply pro-Western, but pro-American, and not just because of Bay watch. In universities and teahouses, Iranians cynically suggest Europe’s engagement is merely an attempt to win lucrative contracts from un-elected ayatollahs. A University of Tehran professor I met in the Iranian national archives suggested that Europe now was repeating the mistake America made in the 1970s with her blind support for the Shah.

The student riots of 1999, and last autumn’s football riots demonstrate the clerical leadership’s growing unpopularity. Last December, reformist students chanting, "Honesty! Honesty!" and "No more slogans" heckled Khatami as he spoke at Tehran University. On May 1, teachers, students, and factory workers denounced their government at marches across the country.

Editor’s note Mr. Michael Rubin is an adjunct fellow at The Washington Institute for Near East. The above article appeared on the 28 May issue of Wall Street Journal.

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