SBP opposed to renewal of BPA with Iran

ISLAMABAD: The State Bank of Pakistan (SBP) has reportedly opposed the renewal of Banking Payment Agreement (BPA) with Iran, saying that the proposed pact may not be practicable in the current international scenario, well-informed sources told Business Recorder.

This matter is on the proposed agenda of 21st session of Pak-Iran Joint Economic Commission (JEC) scheduled to be held from August 16-19, 2022 in Islamabad.

The BPA was previously signed between the SBP and the CBI in April, 2017 to settle trade related payments issue. However, it could not be operationalised and subsequently, the BPA expired in April 2018.

Iranian side shared a new draft BPA with the SBP. During the follow-up meeting, it was decided that the SBP will consider the draft BPA model and Iranian side will share appropriate proposals on alternate payment mechanism for resolution of outstanding trade/electricity issues.

According to sources, State Bank of Pakistan noted that renewing the proposed draft Banking Payment Agreement carries significant risks due to international sanctions against Iran, especially those imposed by the United States. Therefore, the proposed BPA may not be practicable in the current scenario.

Both sides will also discuss removal of limited quantity from Pakistani citrus and possibilities of its trade through the open market.

The sources said, Iran allowed a very limited amount, ie, 5,000 metric tons of citrus from Pakistan only through border markets and not open trade. Iranian side will be requested to remove the quantity limit from Pakistani citrus and allow its trade through open market and adhere to the time limit as discussed during JBTC.

Iranian side will also be requested to fix date to inaugurate the border market at Mand-Pishin and to share their lists of items to be traded in the market.

In 2016, an MoU for enhancing bilateral trade up to $ 5 billion was signed between the Pakistan and Iran. The trade volume between the two countries shows a negative trend in terms of Pakistan’s exports to Iran though the volume of Iranian exports to Pakistan has significantly increased.

During the 20th session of JEC both sides expressed their willingness to enter into Free Trade Agreement (FTA). Draft FTA along with Mutual Recognition Agreements (MRAs) on Technical Barriers to Trade (TBT) and Sanitary and phytosanitary Measures (SPS) were finalized in the 3rd round of negotiations. However, the agreements are yet to be signed.

The 4th meeting of the Technical Negotiation Committee (TNC) on Pak-Iran FTA was held on July 4-5, 2019 in Islamabad. During the follow-up meeting held on October 14, 2020 Iranian side committed to propose two sets of dates for holding the 5th TNC and invite Pakistani delegation to Iran for holding next round of FTA. However, response from Iranian side is awaited.

The sources said Pakistan will urge the Iranians to finalize the dates of 5th TNC in order to have discussions on the sensitive lists of the two countries.

Another issue which will be discussed in the JEC is removal of tariff and non-tariff barriers under Preferential Trade Agreement (PTA) which became ineffective as both countries imposed regularity duties on the items included in PTA. Iran has also imposed non-tariff barriers like road and load taxes, SPS requirements etc. The ban on the exports of Pakistani Kinnow and seasonal ban on rice are still in effect.

Pakistan and Iran have a PTA effective since September 1, 2006. Under the PTA Pakistan grants tariff concessions to Iran on 338 tariff lines, while Iran grants tariff concessions on 309 tariff lines. Average tariff concessions are around 18 per cent. However, due to Iran’s restrictive tariff regime, tariffs applied by Iran on Pakistani exports are much higher than tariffs on Iranian exports to Pakistan.

The sources said, Pakistan raised these issues with Iran during the follow up meeting held on October 14, 2020. The Iranian side committed to look into the matter. However, tariff and non-tariff barriers imposed by Iran are still in practice.