An official delegation led by Secretary Ministry of Water and Power, Younus Dagha is visiting Tehran for 2 days from Tuesday (today) aimed at exploring ways and means to expand vistas of cooperation in different fields, well informed sources told Business Recorder. Presently, Pakistan is importing 100MW of electricity from Iran to meet requirements of Gwadar and negotiations to increase up to 1,100 MW are under way between the two countries.
Pakistan had also signed an agreement for placing pipeline to import gas from Iran but the project could not be materialised due to international sanctions on Iran. USA had lifted some sanctions against Iran after a nuclear deal but the pipeline is still under restrictions.
Commerce Minister Khurram Dastgir was also scheduled to visit Iran during the third week of December last to discuss prospects of Free Trade Agreement (FTA) but his visit was put off as the government didn't finalise its own trade plan. Presently, Pakistan and Iran are tied with Preferential Trade Agreement (PTA) which has been 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. Average tariff concessions are around 18 percent. However, due to Iran's restrictive tariff regime, tariff applied by Iran on Pakistani exports is much higher than tariff 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 wake of Pak-Iran PTA. Iran even raises tariffs on the products included in Pak-Iran PTA in violation of the agreement. Although international sanctions against Iran have been lifted, yet Pakistani banks are still hesitant to carry out transactions with Iranian banks.
The absence of banking channels is the single largest obstacle to enhance Pak-Iran trade. US has not lifted sanctions against Iran so far whereas European Union (EU) has relaxed some conditions. State Bank of Pakistan (SBP) is also in close contact with Iran to finalise an agreement that would allow official transactions between the two countries. Federal Cabinet has already allowed the SBP to finalise modus operandi of financial transactions.
Iran maintains high tariffs on Pakistani exports. For instance on textiles and clothing, Iranian tariffs are as high as 120 percent and 100 percent respectively. Similarly on leather and footwear, Iranian maximum tariffs are 120 percent, on fruits and vegetables, 200 percent, and 90 percent on rice. These high tariffs are serious obstacles to Pakistan's market access in Iran. Iran also maintains a permit system for importers and when the Iranian government wants to restrict imports, it simply stops issuing permits.