Iran says not interested in FTA: Dastgir reaches Tehran

22 Apr, 2015

Commerce Minister, Engineer Khurram Dastgir has reached Tehran (Iran) aimed at enhancing declining bilateral trade as Iran has clearly conveyed to Pakistan that it has no interest in inking Free Trade Agreement (FTA), well informed sources told Business Recorder. Pak-Iran PTA was signed on March 4, 2004 which was implemented on 1st September, 2006, and has been operational since then.
Under the PTA, Pakistan granted tariff concessions to Iran on 338 tariff lines (HS 06), while Iran granted tariff concessions on 309 tariff lines. Average tariff concessions are around 18 %. Pakistan's major products covered under the PTA include rice, fruits, cotton, cotton yarn, pharmaceutical products and cutlery while Iranian products include chemicals, vegetables, fruits (fresh and dry), spices, sea food etc.
Initially, the PTA gave a significant boost to Pakistan's exports to Iran and increased bilateral trade as well. In 2008-09 and 2009-10, Pakistan's bilateral trade with Iran crossed $1 billion. Pakistan's export's touched their peak in 2008-09 at $400 million. However, there has been a gradual decline in bilateral trade and to Pakistan's exports to Iran since then. Bilateral trade was at its lowest level of $218 million in 2013-14.
According to sources, major reason for this decrease in trade can be attributed to the international sanctions against Iran, the unique and peculiar nature of Iran's non-market economy, reluctance on part of the Iranian side to implement the PTA rates in letter and spirit, unpredictable and frequent changes in Iran's import regime, and the lack of a reliable payments mechanism.
In the PTA, both countries have agreed not to impose any non-tariff measures without following the established principles of valuation. But contrary to that, the Iranian side has imposed a ban on import of fruits except bananas from other countries including Pakistan which is a clear violation of the Pak-Iran PTA. Furthermore, Iran imposes seasonal bans on Pakistani fruit and food exports such as Kinnows, mangoes and rice.
Pakistan's exports to Iran in 2013-14 declined to $53 million which is a decline of (-) 84.34% compared to the corresponding period of 2012-13 ($97.7 million). This decline in exports to Iran is due to reduced export of meat and meat preparations, rice, fruit and fruit preparations, oil seeds and oleaginous fruits, sugar raw and refined (incl. Gur), synthetic fabrics and raw cotton. Imports from Iran have also decreased from $
167.55 million in 2012-13 to US$164 million in 2013-14 - a decline of (-) 2.16%. This decrease is mainly because of reduction in import of misc. edible products, oil seeds and oleaginous fruits, fertilisers crude, fertilizers manufactured etc.
Pak-Iran trade witnessed considerable progress during the first three years of the post PTA period i.e. from 2006-07 to 2008-09 in which bilateral trade increased from $573.767 million to an unprecedented level of $1321.32 million. Pakistan's exports to Iran increased from $167.55 million to $399.62 million, while imports from Iran also jumped from $405.76 to $921.7 during the same period.
However, Pak-Iran trade started declining gradually from the level of $1321.3 million in 2008-09 to a mere $218 million in 2013-14. Major causes of this precipitous decline in trade are attributed to international sanctions against Iran, lack of viable and effective payments mechanisms/banking channels in the wake of sanctions as banks no longer open LCs for imports/exports to/from Iran, restrictive trade regime of Iran and its expanding trade and economic relations with India and Turkey.
The sources further stated that Pakistan's total share of the Iranian market in 2012 was 0.23% while Iran's share of the Pakistani market was around 0.12%. This shows that the PTA has not achieved its objective of improving and enhancing bilateral trade.
"There is an imperative need to deepen the Margin of Preference (MoP) as well as product coverage under the PTA," the sources continued. Iran has high tariffs on products of export interest to Pakistan. Pakistan's major products covered under the PTA include rice ($8.32 million), meat and meat preparations ($7.52 million), fruits and fruits preparations ($65,000), cotton fabric ($0.694 million), and cutlery ($30,000).
Due to Iran's high tariffs as well as limited product coverage, substantial increase in bilateral trade has not been achieved in the wake of the Pak-Iran PTA. Hence it is a case of Iranian mercantilism hiding under the guise of a PTA which is not accruing any advantages to Pakistan.

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