As has been noted in this space before, the lifting of sanctions on Iran is a highly welcome development both for the world and the region. It has made the world relatively less prone to violence and wars, and reasonably more open to trade. Being one of its closest neighbours and sharing a common border, culture and faith, one would have thought it was but natural for Pakistan to develop deep-rooted trade and economic relations with Iran. However, even before the imposition of sanctions, the bilateral trade between the two had never crossed the $1 billion mark. The main reason for such an insignificant trade relationship between the two is the fact that both have been, traditionally, essentially importing countries and their exports had remained confined to commodities like oil in the case of Iran and cotton textiles and rice in the case of Pakistan. Since we have traditionally been dependent on Saudi Arabia for our oil needs for a number of reasons, our oil imports from Iran had remained next to nothing. On the other hand, petro-dollar rich Iran had always been a highly lucrative market for manufactured goods and services from Europe, Japan, Russia and the US. Now that the sanctions have been lifted, it was but natural for the two — the big importer and the big exporters — to quickly revive their old trading links. And that is exactly what is happening today with Iranian President Hassan Rouhani undertaking tours of Italy and France where a number of money-spinning trade agreements were signed.
Though touted as a mediatory journey to end the feud between Riyadh and Tehran, Prime Minister Nawaz Sharif did well to visit Iran recently after having visited Saudi Arabia. One would also have expected Pakistan to initiate some very quick and far-reaching moves focusing on bilateral commerce and trade. The first and foremost move should be to establish banking channels with Iran. Next, we should speed up the process of finalising the deal for construction of phase one of the Iran-Pakistan gas pipeline from Gwadar in Balochistan to Nawabshah in Sindh. In the second phase, Pakistan needs to work on the 80km-long portion of the pipeline linking it with the Iranian border. Pakistan currently imports 74MWs of electricity from Iran for its coastal Makran division. The two countries are considering another two projects, involving the import of 1,000MWs and 100MWs of power. However, Iran has the potential to increase its electricity export to 3,000MW to energy-starved Pakistan.
In addition, Islamabad can easily increase its fruit and vegetable exports to Iran up to $80 million. Pakistan could also export huge quantities of meat, rice, oranges, mangoes and guava pulp to Iran. At present, due to tough regulatory standards and the economic slowdown in Europe, Pakistan’s fruit and vegetable exports have come under severe pressure. The Ministry of Commerce, in consultation with Iranian authorities, has already designed a $5 billion five-year two-way trade plan. Pakistan is also considering negotiating a free trade agreement with its neighbour and a draft of the proposed accord would be presented as soon as Tehran expresses its willingness.
The next step after a preferential trade agreement is a free trade deal and Pakistan cannot find a better time to start talks on this issue than right now. Iranian duties on agriculture fluctuate widely, ranging from on-seasonal highs to off-seasonal lows. The two sides need to agree on sanitary and phyto sanitary standards as these can prove to be unwanted barriers to bilateral trade. Pakistan and Iran have also agreed to consider linking the latter with the China-Pakistan Economic Corridor in an effort to strengthen border markets and upgrade road and railway networks. It is now important that a clear economic and trade policy vis-a-vis Iran emerges in the near future. We must take full advantage of the recent changes in global politics and economy, and foster better ties with an important neighbour.
Published in The Express Tribune, February 1st, 2016.