Relations between Pakistan and Iran are deeply rooted in history and are nurtured by commonalities of religion, culture and traditions. The geographical proximity of the two countries sharing a common border and their strategic location in the region brings them further closer to each other. Relations between both countries often concern with security issues such as smuggling, drug trafficking and encroachment of non-state actors along the border areas. But both neighboring countries are enjoying their relations in economic sector. Pakistan and Iran traded US $265 Million worth of goods. This volume is expected to increase in coming years.
Trade between Pakistan and Iran peaked to US$1.32 billion in 2008-2009 but subsequently declined and is presently around US $265 million. The elected governments in both countries want to boost trade which remained low due to international sanctions on Tehran. However, several other countries like China, Russia and India were able to resist these sanctions and maintained trade relations with Iran.
The trade volume between the two countries remained low despite signing of a preferential trade agreement on March 4, 2004, which became operational in September 1, 2006. Nevertheless, it is understood that the two countries have a much higher trade volume through informal channels, i.e., smuggling and through the third country transactions.
Pakistan has identified five places for setting up trading centrs along the Pak-Iran border, i.e., Taftan-Minjaveh, Ladgashtjalaq, Parome-Kuhak, Mand-Peshin and Santsar-Nobandan. The purpose of these common border markets is to sell goods at a concessional rate of customs duty and other taxes in order to control the growing cross border illegal trade.
The Iran-Pakistan (IP) gas pipeline will further enhance economic cooperation between the two countries. It would ensure the supply of 750 million cubic feet of natural gas per day to Pakistan. which is required to keep industrial and commercial wheel into perpetual motion.
At present, major commodities exported to Iran by Pakistan include rice, meat, paper, paperboard, textiles, fruits (particularly mangoes and oranges), sesame seeds, chickpeas, beans and surgical goods. Rice enjoys the lion’s share of approximately 35%, followed by Meat 20% and Paper and Paper board 19%. The major commodities imported from Iran include organic chemicals, plastic, minerals, oil, iron and steel.
The two countries have agreed to open bank branches and currency swap but the issues are still inconclusive. Iran had offered that Iran’s Bank Milli and Pakistan’s National Bank could open branches on reciprocal basis but this process is taking time.
The mode of business transactions is through the Asian Clearing Union (ACU), which is more time consuming than a normal letter of credit (LC). Opening a letter of credit through Iran’s sister companies in Dubai also adds to the cost and benefits only Dubai banks. It would be far more profitable if trade was permitted in local currencies instead of dollars.
There should be no embargo on Pakistan-Iran trade as other countries of the world are also doing trade with Iran. Pakistan has banking channels with various countries worldwide and therefore no reason only Iran be excluded in this respect.
Both Pakistan and Iran have joint chambers of commerce with a number of countries. These forums mainly managed by the private sector go a long way in facilitating growth of bilateral commercial relations. Pakistan needs to have a joint Chamber of Commerce with Iran as well. It will facilitate greater interaction between the private sectors of the two countries. Moreover, both countries should try to divert informal trade to legal channels by checking smuggling, revision of trade policies and reduction of tariff and non-tariff barriers. It is difficult to check smuggling through administrative measures. The best way is through elimination or reduction of tariff and non-tariff barriers.
Iran and Pakistan need to increase economic relation in the face of evolving regional situation and depressed international economic growth. Trade is the best way to strengthen and sustain mutual relations in the changing international scenario.