Pakistan-Iran trade: Absence of credible payment mechanism major irritant: PBF

PESHAWAR: Pakistan Businesses Forum (PBF) Senior Vice President, Muhammad Riaz Khattak on Monday said that Pakistan has a narrow export basket to Iran, as 63 percent of the exports comprised rice alone.

A preferential trade agreement (PTA) was signed with Iran in 2006. Tariff concessions were granted to Iran on 309 tariff lines whereas Pakistan was given concessions on 338 tariff lines. Major sectors covered under the PTA include rice, fruits, cotton, cotton yarn, pharmaceutical products and cutlery.

In 2017, both sides decided to finalize the proposed FTA by November that year. The trade negotiating committee of both countries held two rounds of discussions on the FTA when it was projected that the agreement would increase bilateral trade from $300 million in 2016 to $5 billion by 2021. However, unavailability of a payment mechanism casts a shadow on the viability of a much-awaited agreement.

While Iran has about 959 joint border crossings with Pakistan, it remains to be seen how many border crossings will be declared for trade. Under the existing trade regime, bilateral trade, as per statistics, was slightly in favour of Tehran.

Riaz Khattak briefed the media that now full-fledged barter trade between Pakistan and Iran may likely resume in December. He said according to official sources all barriers on the transit trade have been abolished, as an experimental trial, apple fruit from Iran would hit the market soon.

Through the trade mechanism Pakistan would export one million tons of rice to Iran. Pakistan also exports know and other products to Iran. He said due to various US/ international sanctions imposed on Iran, Pakistani banks have been reluctant in opening letters of credit (LC) for export to Iran despite the repeated appeal on the part of exporters and traders of the country.

The absence of a credible payment mechanism remains the major irritant in the way of Pakistan-Iran trade. International sanctions, particularly those imposed by the US and European Union in 2010, targeted Iran’s banks. The sanctions prevented Pakistani banks from doing business with their Iranian counterparts including the opening of LCs, which is the most credible method for carrying out international trade transactions.

Trade was conducted through alternative payment mechanisms of limited scope, such as cash and to a certain extent through barter.

Earlier, Foreign Minister Bilawal Bhutto Zardari during his visit to Tehran had made serious efforts so that the two countries come closer to resolve one of the major obstacles in the expansion of bilateral trade through operationalising the barter trade mechanism.

Foreign Minister Bilawal emphasised the need for formulation of the cross-border exchanges through opening of new border crossings.

PBF SVP further said the promotion of trade through border marketplaces were the measures of the shared commitment to provide opportunities for enhanced economic and commercial activities between two countries.