Trade and economic relations between Pakistan and Iran

Former Chief Executive TDAP & Former President FPCCI

The economy of Islamic Republic of Iran is transition and mixed economy which is largely depends upon the hydrocarbon, petroleum, agriculture and service sector. Iran is an important economy of Middle East with market size 81.4 million people and nominal GDP US$ 430.1 million. Iran ranks second in the world in natural gas reserves and fourth in proven crude oil reserves. There was an Islamic revolution in Iran in 1979 and the aim of this revolution was economic dependent, full employment and comfortable living standard of people. Despite economic sanction since 1981 from US, the Government of Iran continue try to develop its infrastructure, communication, transportation system and expanding relations with neighboring countries particularly with Asian Countries.

Petroleum, petrochemicals, fertilizers, caustic soda, car manufacture, pharmaceuticals, telecom, energy, construction materials, textiles, cement, metal fabrication and food processing are the main industries in Iran. Overall the trade of Iran has declined during the past years due to economic and financial sanctions. At present, the export of Iran has declined to US$ 66.61 billion compare to US$ 105.8 billion in 2017 while imports of Iran showed a mixed trend and stood at US$ 51.6 billion in 2017 and US$ 41.05 billion in 2018. China, India, South Korea, Turkey and Japan are the main exports partner of Iran while UAE, China, South Korea, Turkey and Germany are major import partners of Iran. Petroleum, chemical and petrochemical products, fruits, nuts, carpets and cement are the main exportable items of Iran while industrial supplies, raw material, capital goods, foodstuffs and other consumer goods, technical services are the main importable items of Iran.

Iran is the first nation that recognizes Pakistan globally as a sovereign country in 1947, since then Iran had unique and good relations with Pakistan. Regionally, Iran plays a leading role in international organizations where Pakistan is also an active member like OIC, D-8, ECO, G-24 and G-77.

Since 2016, the President of Iran visited twice to Pakistan and in compliance the Prime Minister of Pakistan also visited Iran to enhance bilateral relations. In these visits, Several Memoranda of Understanding (MoUs) and agreements were signed for promoting bilateral cooperation in economic, technical, cultural and commercial fields. It was decided to increase the bilateral trade to $ 5 billion over the next five years.

Trade between Pakistan & Iran

The bilateral trade between Pakistan and Iran stood at US $293.18 million; with the volume of Pakistan's export to Iran US$ 32.29 and Pakistan's import from Iran is US$ 260.89 million. This bilateral trade is in favor of Iran and Pakistan's major exports to Iran include paper and paperboard, cereals, textiles, plastic goods, vegetable and fruit. The commodities which Pakistan imports from Iran include electrical machinery, minerals, oil, organic chemicals, iron, and steel.

The high customs duty on textiles and clothing, leather and footwear, fruit and vegetables and rice are the main obstacles in low volume of Pakistan's exports to Iran. Moreover, Iran also maintains a permit system for importers and when the Iranian government wants to restrict imports, it simply stops issuing permits.

Apart from formal trade, there is large amount of informal trade which is more than US$ 1 billion according to some estimates. At present, Pakistan and Iran enjoys Preferential Trade Agreement (PTA) and as per the PTA, both are enjoying concession on 18 percent of items. Pakistan has given concessions to Iran on 338 items and Iran has reciprocated by providing concession on 309 items to Pakistan.

In the past, Pakistan has decided to negotiate a free trade agreement whereon the development is very slow. There are huge potentials available for enhancement of trade between Pakistan and Iran in barter system, if Iran relax its trade policy with Pakistan and give good market access to Pakistan.

Pakistan-Iran Gas Pipeline Project:

The Pakistan-Iran gas pipeline project previously halted due to the economic sanctions on Iran as well as political hurdles between the two neighbors. Iran has already built the pipeline up to the Pakistan-Iran border and now it is time for Pakistan to complete its side of the agreement. The Iran Pakistan pipeline project can be linked with CPEC that would facilitate the transportation of Iranian gas to China through Pakistan, thus making Pakistan a regional hub of trade and energy corridor.

Road and Rail Network

Taftan- Dalbadin- Noshki-Quetta (N-40) is an approved highway link in Pakistan - a 370 km long highway connecting Quetta to Taftan at the Iranian border. The progress on this project is very slow. Moreover, the Istanbul - Islamabad - Tehran railway network was first proposed in the 18th Regional Planning Council of the ECO held in Islamabad in 2008. This was envisioned under the ECO framework where the ultimate goal was to connect Central Asia with Europe. The decision for revival of Gul Train (freight train Islamabad-Istanbul via Tehran) is still pending.

Chabahar and Gwadar Port:

Chabahar is not very far from the Pakistan port city of Gwadar. Pakistan has a desire that the two ports of Gwadar and Chahbahar should not be rivals but rise like sister ports. The two ports should complement each other in promoting trade in the region by enhancing connectivity through rails, roads and shipping links. The trade co-operation between Gwadar and Chahbahar would open economic prospects and job opportunities for both the countries.

Copyright Business Recorder, 2019