The Prime Minister is undertaking this long-awaited, important visit on the invitation of the President of Iran Seyed Hasan Rouhani on April 21, 2019 (today). According to the Ministry of Foreign Affairs, over the years, Pakistan''s relations with Iran have remained mired in several layers of mistrust, the most recent being Pakistan''s demand that Iran must take action against training camps of Baloch terror organizations on its soil.
Previously due to security issues along the Pak-Iran border, negative public statements against Pakistan have emanated from Iran, and the government, as part of its principled approach to strengthen its relations with neighbouring countries, is eager to explore all avenues of strengthening bilateral relations with Iran particularly in the economic areas.
The sources said Pakistan has pursued a policy of balanced engagement with Iran vis-à-vis Arab countries for the past several years. Given Pakistan''s financial compulsions, recent warming of its relations with Saudi Arabia and UAE has created an impression of a tilt in this balanced approach towards the Arabs, at the expense of Iran.
The sources said Pakistan can apply for waiver on the following grounds: (i) Pakistan''s economy is highly dependent on import of oil while Iran is an oil producing country and can offer oil to Pakistan at a comparatively cheaper price; and (ii) there has always been demand of medical/surgical instruments and Pakistani rice and fruits in Iran. Pakistan is quite capable of meeting Iranian needs of these products by improving the requisite logistics/infrastructure in this regard.
According to sources, in case legal means of trade are not explored between Iran and Pakistan, the population in border areas is likely be involved in exploring illegal means/channels of trading goods, which may ultimately give rise to the greater risks of money laundering and terror financing. Iranian authorities are charging a fee from Pakistani drivers and business community of Rs 3,750 as compared to Pakistan visa fee of Rs 2,750 being charged by Pakistan from Iranian citizens. The visa fee and visa can be cancelled any time by Iranian authorities without assigning any reason.
The export consignments from Pakistan to Iran are required to be attested by the consulate of Iran at Quetta with attestation fees of Rs 100,000 for consignment of Rs 100 million tons of rice and takes around 2-4 days. Pakistan has not imposed any such condition on Iranian imports. Load tax is charged at the rate of 10 per cent of the fare of Transport Company. If a truck is charged Rs 40,000 for travel from Quetta to Zahedan the transporter has to pay Rs 4000 even though the distance from Taftan border to Zahedan is 80 kms.
According to sources, there is a wide difference between trade data released by Iran Customs and Pakistan Bureau of Statistics. The Iranian customs data shows that the bilateral volume crossed $ 1 billion in 2017 while data reported by FBR shows the total trade of $ 392 million. Pakistan will emphasize the need of reconciliation of trade data. The government of Iran has imposed a ban on import of a number of agricultural goods including fruits and vegetables, seasonal ban on rice and the country specific ban on wheat from Pakistan. The ban on import of kinnows since 2011-12 is seriously affecting Pakistani fruit exporters and Pakistan is losing on average $ 30 million per annum.
Talking about Pak-Iran Free Trade Agreement (FTA), the sources said, in order to finalise the Free Trade Agreement (FTA) with Iran, three meetings of the Technical Negotiating Committee (NNC) have been held since 2016. The third meeting of the TNC was held in Tehran in 2017. Draft of FTA in goods and Mutual Recognition Agreement (MRA) on Technical Barriers to Trade (TBT) and sanitary and phytosanitary have been shared.
The source said, US sanctions on Iran were categorized into primary sanctions and secondary sanctions. The primary sanctions prevented US citizens or entities from engaging in transactions with Iran and its government. The secondary sanctions were applicable were applicable to non-US person and entities. After GCPOA, the USA lifted the secondary sanctions on Iran with effect from January 26, 2016 while primary sanctions remained enforced. However, following US decision to withdraw from JCPOA, the secondary sanctions were re-introduced partly on August 7, 2018 and partly on November 5, 2018. The US issued 180 day waivers for relaxation of some of the sanctions with effect from November 5, 2018.
The secondary sanctions pertain to the following: (i) financial and banking institutions; (ii) insurance related issues; (iii) Iran''s energy and petrochemical sectors; (iv) shipping sector; (v) trade in gold and other previous metals; and (vi) supply of goods and services related to the auto sector.
In order to trade with Iran in the presence of US sanctions, countries have employed different methods. Countries including China, Japan and South Korea have been granted a waiver by the US for import of oil as the economies of these countries are largely dependent on oil imports from Iran. Similarly European countries have devised a Special Purpose Vehicle (SPV) for trade with Iran. SPV facilitates European-Iran trade while reducing the need for transactions between the European and Iranian financial systems. It will do this by allowing European exporters to receive payments for sales to Iran from funds that are already within Europe and vice versa. Further details are being worked out. However, this mechanism will include only trade in food and medicines. Petroleum products will be kept outside this mechanism.
The sources further stated that Pakistan is also considering various options for engaging in trade with Iran. Currently, trade with Iran is conducted mainly through Dubai. According to the State Bank of Pakistan, although, a Memorandum of Understanding (MoU) was signed between SBP and Bank Markazi Jamhouri Islami Iran (BMJII) on April 13, 2017 in Tehran, Pakistani banks are still reluctant to do business with the Iranian banks and have adopted a risk averse approach especially after the recent penalty imposed on Habib Bank Limited by US treasury. Another reason is comparatively low volume of trade with Iran compared with USA.
A committee under the chairmanship of Minister of State for Revenue comprising public and private sector (Quetta Chamber of Commerce and Industries) representatives has been constituted. During the meetings of the committee, the SBP stated that since the entire banking sector is under sanctions, it is not possible to open branches of Iranian banks in Pakistan. Following deliberations, the committee has come up with the following proposals to overcome the payment problem with Iran: (i) seek waiver from the US on sanctions; (ii) establish a mechanism for barter trade; and (iii) set up a dedicated bank to do business with Iran.
The source said these proposals are under examination by the relevant Ministries and Departments in the light of their possible economic and political repercussions.
