During his first term in office, Iran's President Hassan Rouhani successfully negotiated with the UN and the US the terms whereon Iran agreed not to use its nuclear capability for developing weapons, and the IAEA inspectors verified Iran's commitment. Majority of the Iranians approved of this development, as proved by election of Hassan Rouhani for a second term as president.
This change in Iran's policy heralds an era of liberalism and pluralism in its relations with the rest of the world. However, instead of welcoming this development, led by Saudi Arabia, the Arab states are unhappy with Iran's new global profile. Given its overdependence on Saudi Arabia and the Persian Gulf states, Pakistan too is unclear about the profile of its future relations with Iran.
That's why the forthcoming visit of the Iranian President has triggered actions that were on the back burner despite the UN's lifting of economic sanctions on Iran, the most important of them being a mediatory role to bring together Iran and the Arab states. Yet, Iranian diplomats are in the forefront of the pursuit for reviving Pak-Iran trade and people-to-people relations.
Abiding by the sanctions Pakistan cut its trade with Iran; in 2014-15, the level dropped to zero despite the fact that during the years when Iran suffered from economic sanctions, many countries (particularly India) kept importing Iranian oil and boosted their trade with Iran, although as the mega oil and gas producer closest to Pakistan, Iran could be their cheapest supplier to Pakistan.
Meanwhile, besides expanding its trade with Iran, India invested heavily in up-grading Iran's Chabahar seaport. Contrary thereto, despite signing an accord to share the burden of laying the critically important Iran-Pakistan gas pipeline, Pakistan didn't perform on its part of the project, although Iran completed its share of the task well before its planned completion date.
The fate KASB Bank suffered by accepting deposits of Iranian entities was another example of how, courtesy its commitments to the US and Saudi Arabia, Pakistan couldn't help its next door neighbour in its hour of need. Besides this disconnectivity, what made things worse were the frequent attacks in Balochistan on the pilgrim convoys headed for Iran.
With a population of over 70 million, Iran is a big market, and after de-freezing of its huge exchange reserves, the Europeans visualised its potential, and offered their services in modernising its industrial base because Iran missed out on most of the technological innovations since 1980. Given Pakistan's slow growth in this area, this gap doesn't offer any opportunities to Pakistan.
Although Pakistan has its limitations in offering Iran modern plant and machinery, it can benefit by partly plugging the large demand-supply gap in Iran's consumer goods sector. Iran realises that optimising the benefits of geographical proximity is a rational pursuit; hence its positive initiatives in this context despite Pakistan's track record of its relation with the post-Shahenshah era Iran.
While Pakistan's government was slow in realising the potential the changed Iranian scenario offers, it's troubled textile and readymade garment sectors have identified this potential. Being its next door neighbour, Pakistan can export goods to Iran with the lowest component of transport cost - an advantage that can be capitalised on until new venues are identified.
The present export potential of other sectors including machinery, air-conditioning and refrigeration, electric cables, household gadgetry, medicines, surgical instruments, confectionary, processed food, meat, sports goods, stationery, paper, chipboard, etc, is unknown as yet due to a prolonged disconnect between the trading communities of both countries.
Iranians seem conscious of the two-way advantage in trade with Pakistan - export and import of goods at much lower landed cost due to the low transportation cost - and, very sensibly, the proposals they have made include a bilateral Free Trade Agreement and a 5-year strategic plan for cooperation in trade and investment through joint ventures in both countries.
In a consultative meeting convened by the Commerce Minister, representatives of Lahore Chamber of Commerce & Industry proposed the set-up of Pakistan-Iran Joint Economic Council (PIJEC) with a co-ordinating secretariat to oversee implementation of the PIJEC decisions for implementing mutually agreed projects. Besides, completing the Iran-Pakistan Gas Pipeline must be expedited.
This export potential of the sectors referred to above, needs to be explored by Pakistan's Iran-based diplomats in conjunction with Pakistan's chambers of commerce. It would be less than responsible to overlook the fact that, given India's record of its relations with Iran, it could benefit far more from this potential because its exports of these items are competitively priced.
But Pakistan suffers from a major disadvantage in this context; Pakistani banks no longer have branch networks in Iran. It is time Pakistani banks considered setting up branches in Iran's major Iranian commercial centres. For a start, they should set-up their representative offices to connect potential Iranian importers and exporters with their ideal counterparts in Pakistan.
Iran's banking sector remained virtually cut-off from the rest of the world for years; its workforce therefore lacks the requisite expertise for handling foreign trade, treasury operations, and electronic data processing. Besides organising extensive training courses for Iranian bankers, Pakistan could offer some experienced Pakistani bankers to Iran's banking system.
Last week, in a meeting with senior managers of all banks, State Bank of Pakistan (SBP) asked them to initiate updating their policies and systems to restore normal relations with Iranian banks. The focus was on reviving trade with Iran while keeping in view the residual sanctions, though Pakistan will comply with UN, "not US, sanctions" - a brave stance.
The meeting at SBP was a follow-up of the February 23 SBP advice to banks about the government decision to revive these relations after the UN lifted its sanctions against Iran. The advice was to initiate immediate administrative steps to restore relations with their counterparts in Iran for early revival of the present almost zero trade relations with Iran.
While Indian banks' branch networks kept operating in Iran despite the economic sanctions imposed on Iran, Pakistani banks shut their networks due to fear of retaliation by Western banks, and lack of protection by the SBP. Given the experience of KASB Bank, they are reluctant to revive their operations in Iran without credible assurance of back-up by the SBP.
It is high time the stakeholders in Pakistan's economy realised that a key benefit of reviving Pak-Iran trade relations could be importing oil from Iran at the lowest transportation (and hence total) cost, which could help plug the supply-demand gap in Pakistan's power sector and allow its industry to start operating at break-even level, partly regain its competitiveness, and stop the ongoing slide in Pakistan's exports.
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