Global sanctions continue to stymie Pak-Iran trade: SBP refuses to facilitate for now

State Bank of Pakistan (SBP) has reportedly refused to facilitate bilateral trade with Iran through banking channels until all international sanctions are lifted, well informed sources told Business Recorder. A key hurdle in bilateral trade between Pakistan and Iran is lack of payment mechanism through banking channels as the banks (public and private) are hesitant to take the risk of sanctions as a consequence.
The sources said Commerce Ministry officials held a detailed meeting with SBP prior to the visit of Iranian delegation and tried to convince the central bank to facilitate bilateral trade. "SBP still says it''s a risk for it to take any step until all restrictions are lifted. SBP has advised us to wait for four or five months," sources said, adding that commercial banks are also waiting for removal of all restrictions.
Pakistan has prepared a five-year plan and submitted it to Iran for inputs within two years. After that things will be finalised in one month. By that time the situation of sanctions on Iran will become clearer, the sources maintained. "Basic idea is to prepare a future plan for five years which will be ready till sanctions are removed," the sources continued. The five-year plan comprises PTA, investment and infrastructure agreements.
Both sides have constituted small groups which will hold discussions in Pakistan and Iran and finalise the plan. Then the document will be signed by Commerce Ministers of the two countries. Pakistan, sources said, has requested Iran to streamline the dysfunctional Preferential Trade Agreement (PTA). Iran has given a list to Pakistan for deepening of PTA. Pakistan will also share amended list with Iran. However, Commerce Ministry officials argue that if things move like in the past then there is no benefit in amending the lists.
Pakistan has urged Iran to lift ban on Pakistani products. In the PTA, both countries have agreed not to impose any non-tariff measures without following 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.
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 and Islamabad''s exports in 2008-09 soared to $400 million. However, there has been a gradual decline in bilateral trade and Pakistan''s exports to Iran since then. Bilateral trade was at its lowest level of $218 million in 2013-14.
According to sources, the 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 the part of Iranians to implement the PTA in letter and spirit, unpredictable and frequent changes in Iran''s import regime, and the lack of a reliable payments mechanism.
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. This decrease is mainly because of a reduction in import of misc. edible products, oil seeds and oleaginous fruits, fertilisers crude, fertilisers manufactured etc. Pak-Iran trade witnessed considerable progress during the first three years of the post PTA period ie 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.