ISLAMABAD: Trade ties between Pakistan and Iran, have, reportedly worsened as the former complains that the latter has slapped high tariffs on its goods despite a Preferential Trade Agreement (PTA), well-informed sources in the Prime Minister Secretariat told Business Recorder.
This situation has emerged at a time when Iran is facing food shortages and a decline in the value of its currency due to US-led trade sanctions and the Iranian President visited Pakistan recently to attend a trilateral summit with Hamid Karzai of Afghanistan and to further cement relations with Islamabad.
During a meeting with Prime Minister Gilani on February 16, 2012, Iranian President Mahmoud Ahmadinejad offered to take Pak-Iran bilateral trade to $ 10 billion within two months. The Commerce Ministry, sources said has formally requested Prime Minister Syed Yousuf Raza Gilani to convene a meeting of all the stakeholders including the State Bank of Pakistan (SBP) to discuss expanding the dimensions of trade with Iran which is facing sanctions.
"The Iranian President was keen for quantum increase in Pak-Iran bilateral trade, however it seems top Iranian leadership is not fully cognisant of the bottlenecks in the growth of bilateral trade," the sources added. Trade between Pakistan and Iran is showing an inconsistent pattern. It peaked at $ 1.32 billion in 2008-09 but subsequently declined to $ 1.16 billion in 2009-10 and plummeted to $ 734.94 million in 2011, said an official of the Trade Development Authority of Pakistan (TDAP).
According to sources, Iran maintains high tariffs on products of export interest to Pakistan. For instance on textiles and clothing Iranian tariffs are as high as 120% and 100%, respectively. Similarly, on leather and footwear, Iranian tariffs are 120%, on fruits and vegetables 200% and on rice 100%. These high tariffs are serious obstacles to Pakistan market access in Iran.
Iran also maintains permit system for imports. When the Iranian government wants to restrict imports, it simply stops processing the permits. The sources said, Pakistan and Iran have a PTA which is effective since September 1, 2006. Under the PTA, Pakistan has granted tariff concessions to Iran on 338 tariff lines, while Iran has granted tariff concessions on 309 tariff lines. Average tariff concession is around 18%. However, due to Iran restrictive tariff regime, tariffs applied by Iran on Pakistani exports are much higher than tariffs on Iranian exports to Pakistan.
"Due to Iran's high tariffs as well as limited product coverage substantial increase in bilateral trade has not come through in the wake of Pak-Iran PTA. Iran even raises tariffs on the products included in Pak-Iran PTA in violation of the PTA," the sources maintained. For example kinnows are included in Pak-Iran PTA and Iran has bound its tariff with Pakistan at 43.5%. However, recently Iran increased tariffs on kinnows to 90%.
The high tariffs applied by Iran have contributed to cross-border smuggling, which creates law and order problem in politically sensitive areas. The matter was raised with Iranian delegation during the visit of Iran Deputy President to Islamabad on February 6-7, 2012. Pakistan and Iran have institutional arrangements in the shape of Joint Trade Committee (JTC) and Joint Economic Commission (JEC). However, in addition to these institutional arrangements, high-level political intervention is needed to sensitise top Iranian leadership about Iran's restrictive and untransparent trade regime.