Pakistan and Iran will hold two-day-long talks in Tehran from Monday (today) on a five-year trade framework for boosting annual trade volume to $10 billion, sources told Business Recorder on Sunday. An official delegation left for Tehran on Sunday.
Earlier this year, Iran's President Mahmoud Ahmadinejad had expressed his keenness for increasing the quantum of Pakistan-Iran bilateral trade. Trade between Pakistan and Iran has shown an inconsistent pattern.
"In addition to a number of measures to increase trade, we will also discuss proposals on barter trade and currency swap with the Iranian authorities," said an official on condition of anonymity. Both countries are initiating talks when Iran is facing massive international pressure for allegedly pursuing a militarised nuclear programme. Tehran has consistently denied the allegation, saying its program was solely for peaceful purposes, ie nuclear energy.
Trade ties between Pakistan and Iran have been in trouble with Islamabad complaining that Tehran has imposed high tariffs on its goods despite a Preferential Trade Agreement (PTA).
Sources said that the Commerce Ministry had formally requested the Prime Minister to convene a meeting of all stakeholders, including the State Bank of Pakistan (SBP), to discuss expanding trade with Iran which is facing sanctions.
Trade between the two countries peaked at $1.32 billion in 2008-09 but subsequently declined to $1.16 billion in 2009-10 and plummeted to just $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. 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's access to Iran market.
Iran also maintains permit system for imports. When the Iranian government wants to restrict imports, it simply stops processing permits.
Pakistan and Iran signed a PTA which has been effective since September 1, 2006 under which 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, because of Iran's 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 problems in politically sensitive areas.