You are on page 1of 8

Forehead

Subject: Assignment of International Economics Dear Ms. The attached document is with reference to the allocated term assignment of international economics given b ou. I have selected the to!ic "#a$ Iran %ni&ue bilateral Trade' from news !a!er The Dail Dawn dated Ma ()* +,(- re!orted b Mubara$ .eb /han. The assignment is based on highlighting the issue* its assessment* !re and !ost situation and future outloo$. Than$ing ou. Abdullah 0isar 1oll 0o. +2-3453E6703(,

4 Mubara$ .eb /han 8 9:():+,(- (+:,,:,, AM IS;AMA4AD* Ma (<: #a$istan has struc$ a barter deal for e=!ort of one million tonnes of wheat against Iranian electricit dues. The deadloc$ over the barter deal !revailed since March +,(+ owing to differences on #a$istani wheat !rice offers* &ualit * along with unwillingness of the Iranian bureaucrac to !ursue the deal. 4oth the sides had initiall agreed that #a$istan would receive around >,,*,,, tonnes of urea and +,,*,,, tonnes of iron ore from Iran against e=!ort of one million tonnes of wheat under the barter trade. This deal did not materiali?e because of lu$ewarm res!onse of the Iranian bureaucrac @ an official source said re&uesting anon mit . Ae held a series of meetings* but could not reach an understanding* the official added. To e=tend further facilitation to Iran* the Ministr of 0ational Food Securit and 1esearch has submitted a new summar to the cabinet for changing the original barter deal and lin$ing it with !a ment of electricit dues to Iran. The Iranian outstanding !a ment is a!!ro=imatel B>,m for electricit su!!lied to #a$istan until A!ril +,(- in areas bordering 4alochistan. The !er month electricit bill Iran charges to #a$istan stood at B+.9m to B-m. The barter trade deal was struc$ between the Iranian #resident Mahmoud Ahamdinejad and #a$istani #resident Asif Ali .ardari during Iranian #residentCs visit to Islamabad in Februar +,(+. #a$istan Agriculture Storage D Service 6or!oration E#AS67F would e=!ort (,,*,,, tons wheat to Iranian Government Trading 6or!oration EGT6F state owned enter!rise. The electricit agreement is between #a$istan Transmission and Dis!atch 6om!an E0TD6F and Iranian Tavani* an electricit su!!l com!an . As !er the agreement* the 0TD6 would !a the !rice of wheat to #ASS67* while the Iranian GT6 would !a the same to Tavanir. The uni&ue barter deal would !ut a big &uestion mar$ on the abilit of 0TD6:#E#67 to collect electricit dues from the end consumers of 4alochistan in the border areas. The ministr of commerce did not disclose the !rice of wheat to be adjusted against the Iranian electricit dues. Initiall * #a$istan had offered wheat at the rate of B-,, !er ton. The e=!ort of wheat to Iran did not fall under the %S or %0 sanctions* commerce ministr s!o$es!erson Muhammad Ashraf told Dawn on Saturda .

Background Pakistan and Iran Trade Relations: The two countries are reflected in their wor$ing hand in hand in the organi?ations of the Islamic 6onference* %nited 0ations and the 0on Aligned Movement. 6lose ties between the Muslims of the sub continent and the !eo!le of Iran e=ist since centuries. After inde!endence of #a$istan these ties were strengthened more. Iran lent its full* unconditional moral and material su!!ort to #a$istan* and also stood b the side of #a$istan in the hours of need. This dee!3rooted bond of friendshi! between #a$istani and Iranian !eo!le remains stable and in fact has continued to grow. During the recent few3 ears both the countries have come closer to each other and are coo!erating in the industrial* cultural and economic sectors The relationshi!s are based on diverse a=es such as energ * oil* infrastructural coo!eration* financial assistance and commercial e=changes. #a$istan is the eleventh (( th largest economical and trade !artner of Iran and annual trade is between H(.22, billion EB (.<I+ billionF as of +,((* which is almost (J of IranKs total trade volume whereas to! five trade !artners are 6hina* Euro!ean %nion* %AE* South /orea and Tur$e @ amount and !ercentages given below:

Source: International Monetary Firm

Pakistan Iran Joint Business Council on Bilateral Trade: 7n (+ Lanuar +,,(* #a$istan and Iran formed a M#a$istan3Iran Loint 4usiness 6ouncilM E#IL4F bod on trade dis!utes. The council wor$s under the umbrella of ministr of commerce* it sets grounds for mutual beneficial trade ties among the business communit

on both sides of the boarder. The bod wor$s on to encourage the !rivati?ation in #a$istan and economic liberali?ation. In +,(+* the bilateral trade between each countr e=ceeded to hit B- billion. The common geogra!hical borders as well as religious affinities are among other factors* which give drive to enhance level of trade. According to the media re!orts* Iran is the second largest mar$et of 4asmati 1ice of #a$istan* ran$ing after Ira&. Present Situation & US Sanctions on Iran The %.S. economic sanctions on Iran regarding their nuclear !rogram generall affects #a$istanNs industrial sector. 1ecentl * the fruit industr of #a$istan have lost a lucrative mar$et in Iran* where at least -,*,,, tons of mango were e=!orted !reviousl * as a result of the trade embargo im!osed b the %nited 0ations on Tehran. According to the statistics b #a$istan* the fruit industr and the e=!orters could not e=!ort around B(, million worth of mango during the current season. The Ministr of 6ommerce EMo6omF has been in direct contact with the %S De!artment of Agriculture to resolve the issue through di!lomatic channels. 4ilateral trade between #a$istan and Iran remained low due to international restrictions on Tehran* whereas several other economies defied the sanctions and maintained trade relations with Iran. The statistics of IranKs trade with main !artners com!iled b the International Monetar Fund EIMFF revealed that #a$istan is ran$ed ((th in the to! trading !artners of Iran. Iran is facing sanctions from the %nited States* %nited 0ations and the Euro!ean %nion for the last several decades and Islamabad as a close !artner of Aashington also ado!ted a !olic to $ee! distance from Iran des!ite being neighboring countr . 1egional countries such as 6hina* India* the %nited Arab Emirates* 1ussia and Tur$e have major share in Iranian trade volume. Regular Trade Relations #a$istan should have courage to initiate regular trade relations with Iran in the interest of the nation and economic growth. Ever countr has the right to ta$e a decision in the larger interest of its economic growth. The government to materiali?e Iran3#a$istan gas !i!eline and functioning of the I# gas !i!eline would ensure su!!l of I9, million cubic feet of natural gas !er da and hel! bridge the energ ga!* re&uired to $ee! industrial and commercial wheel of the countr into !er!etual motion. The governmentKs decision to e=hibit their greater will* would add res!ect to the countr as a sovereign state. 0o individual or an foreign countr is above the sovereignt of #a$istan* Since the two countries have no ban$ing channels* the transactions are being done through the %AE* which to!!ed at third !lace in the list of major trade !artners. Baking Channels #resentl the two countries have much higher trade but it has been done through informal channels either smuggling or through the third countr .To increase the bilateral and regional trade* Iran raised several times the issue of establishing ban$ing channels with #a$istan. The need stressed that Islamabad and Tehran should set u! ban$ing channel for !romotion of bilateral trade.#a$istanKs ban$ing channels were established with various countries worldwide* and therefore* it should also not be neglected with Iran.The two

countries have agreed to o!en ban$ branches and currenc swa! but the issues remained inconclusive. Iran had offered that IranKs 4an$ Milli and #a$istanKs 0ational 4an$ could o!en branches on reci!rocal basis. The ban$ing channel between the two countries is a must as the business transactions were routed through the Asian 6learing %nion* which was more time consuming than a normal letter of credit E;6F* while o!ening a letter of credit through IranKs sister com!anies in Dubai also adds to the cost and benefits Dubai ban$s. Direct financial transactions were also necessar as the revival of Gul Train Efreight train Islamabad3 Istanbul via TehranF would boost the #a$istanOIran trade relations. Free Trade Agreemnet There should be no embargo on #a$istan3Iran trade as other countries of the world are doing trade with Iran.The /arachi 6hamber has strong stance for o!ening of #a$istan3 Iran trade* has urged to activate and develo! regional trading bloc of the E67 countries* !articularl between #a$istan* Iran and Tur$e . The trade between the two countries should be !ermitted in local currencies instead of dollars and the trade through railwa s and road be regulari?ed. BI.9 billion Iran3#a$istan gas !i!eline can enhance the economic relationshi!* besides tremendous !otential for bilateral trade The trade volume between the two countries remained low des!ite signing of a !referential trade agreement on March 2* +,,2* which became o!erational from Se!tember (* +,,>.The business communit em!hasised to dee!en the e=isting #TA and it should be followed b a free trade agreement.#resentl * major commodities e=!orted to Iran included cereals* meat and edible meat offal@ edible fruits* nuts* !eel of citrus fruit* melons@ cotton@ !a!er and !a!erboard* and articles of !ul!.The major commodities im!orted from Iran included organic chemicals@ !lastic@ ores* slag and ash@ mineral fuels* oils* distillation !roducts@ and iron and steel. Mutual Coo eration #a$istan and Iran are !ursuing the agenda of mutual coo!eration for the benefit of their !eo!le and in the larger interest of regional !eace. Aith strong multi3faceted bilateral ties between the two countries* the a!!rehensions about an dela in the Iran3#a$istan gas !i!eline !rojects* under an e=ternal !ressure are totall mis!laced and baseless. #a$istan and Iran have et to finali?e barter trade deal on wheat and rice in lieu of electricit and iron ore because of issues in mode of !a ment* well informed sources. The sources said Iranian authorities have acce!ted sam!les of #a$istan wheat and rice but !a ment mechanism has not been finali?ed. !conomic Co"ordination Committee Economic 6o3ordination 6ommittee EE66F of the 6abinet considering the summar of Ministr of 0ational Food Securit and 1esearch on Msale of wheat to Iran under barter tradeM had allowed the e=!ort of one million tons of wheat to Iran from #asscoNs stoc$s at B-,, !er ton. It was also agreed that the federal government would !ic$ u! !rice differential of around B(,, !er ton.

According to sources* the Ministr of Food and Securit wrote a letter to the Finance Ministr re&uesting !a ment of 1s -9, million to #assco as wheat trans!ortation charges from #unjab to /arachi. It is unclear whether the Finance Ministr had released this amount or not. According to sources* after hectic and length consultations both sides finalised modalities of e=!ort on 0ovember +( last ear in Islamabad. To im!lement the trans!ortation of alread agreed one million tons of wheat e=!ort from #asscoNs stoc$s to Iran* the following was agreed: EiF (,,*,,, tons of wheat to be e=!orted b official channels@ and EiiF the remaining ),,*,,, tons of wheat will be e=!orted through the !rivate sector. The sources maintained that both sides also agreed that Mwheat barter trade ma be converted into commercial sale of wheatM. 5owever* the to! officials who are dealing with this deal identified following issues for clarit : EiF mode of !a ment 3 it was agreed that the Governors of central ban$s of both the countries would decide on the mode of !a ment@ and EiiF trans!ortation of wheat to /arachi. The Finance Division was su!!osed to !rovide funds for trans!ortation and !ort handling charges. The sources stated that #a$istan had to !a millions of dollars to Iran for electricit im!orted from Iran which will be adjusted in the barter trade of wheat. An Iranian team would arrive in #a$istan soon to e=amine the &ualit of wheat and after that e=!orts would $ic$ off. The two countries have set criteria and the Iranian team will conduct tests to chec$ the &ualit of wheat before shi!ment.' In e=change* #a$istan will im!ort fertili?er from Iran.#a$istan has a sur!lus wheat stoc$ of (.9 million tons and even after e=!ort of one million tons* 9,,*,,, will still be in sur!lus. Iran will !a B-,, !er ton* the average !rice of wheat in the international mar$et in Lul . 5owever* #a$istan will !a for fertili?er the !rice !revailing at the time of shi!ment. Im ort o# #ertili$ers Sus!ension or ver low su!!l of gas to fertili?er !lants has widened the ga! between demand and su!!l of urea in the countr * !rom!ting the government to aggressivel im!ort the commodit * which is vital for cultivating cro!s. In addition to the im!ort of fertiliser from Iran under barter trade* the Economic 6oordination 6ommittee EE66F of the cabinet O the highest economic decision3ma$ing bod O has !ermitted im!ort of -,,*,,, tons of urea from other sources. The Ministr of Industries had e=!ressed the desire to im!ort >,,*,,, tons.The government will have to bear a huge subsid of 1s(.II billion on -,,*,,, tons of im!orted urea according to current mar$et !rices* a further burden on the finance ministr which is reeling from lac$ of finances. Present %e&elo ment: #a$istan and Iran would ta$e concrete ste!s to boost bilateral trade volume and agreed to e=change more !arliamentar delegations to discuss issues of mutual interest.6oo!eration between both the countries would also have !ositive im!act on the region.There would be benefit to im!ort !etroleum !roducts of Iran including gas* oil etc. and in return Iran had also shown interest in e=!orting agriculture goods including wheat* rice and other !roducts from #a$istan to enhance trade.Man Fruitful results are e=!ected in near

future.Enhancing relations on !arliamentarians level would hel! discover more wa s to cement bonds between both the countries.More !arliamentarian delegations from both the countries visit and this ste! would not onl have !ositive im!act on relations of both the countries but it would also be beneficial for the whole region. Iranian Counsul 'eneral (isit to )ahore Cham*er o# Commerce & Insdustries+ The Iranian 6ounsul General said that the ;66I should !re!are a well3tailored !ro!osal and send it to the government for an increase in bilateral trade as the e=isting volume of two3wa business does not match the !otential the two countries have.The business communit in the two countries would have to increase interaction to share their e=!eriences in the larger interests of the !eo!le of two brotherl nations. 4oth #a$istan and Iran would have to focus on e=!ansion of trade b holding single countr e=hibitions and through trade delegations to each otherNs countr . The dissemination of sector3s!ecific and trade3related information would go a long wa in achieving the goal. 4oth the countries should share their e=!eriences. Agriculture* tourism and metal industr of Iran have o!!ortunities of investment therefore #a$istani business communit should come forward.4ilateral trade and economic relations should continue to increase. #a$istan Loint Investment 6om!an needs to be reactivated. #harmaceutical* dair D livestoc$ sectors of #a$istan have huge !otential that needs to be loo$ed into. The Iranian government hel! over the issue of smuggling and has caused irre!arable loss to the genuine businessmen. The earl com!letion of #a$3Iran Gas #i!eline #roject is in the benefit of #a$istan therefore it would continue to !ress the government in this regard.

Conclusion The two countries have agreed to o!en ban$ branches and currenc swa! but the issues remained inconclusive. Iran had offered that IranKs 4an$ Milli and #a$istanKs 0ational 4an$ could o!en branches on reci!rocal basis. The coo!eration between #a$istan and Iran is on a !ositive course as the two countries are heading to benefit from the sco!e of bilateral ties* ranging from cross3border trade to multi3billion mega gas !i!eline !roject. The high3level contacts of heads of state* in addition to the e=changes of !arliamentarians and !ublic re!resentatives* have given another boost to the e=isting warm relations between the two countries. The Iranian side has shown its interest to assist #a$istan in the energ sector with the !rovision of crude oil* gas and electricit . It is read to finance the gas !i!eline !roject in #a$istan as the discussions between the e=!erts and !rofessionals continue* to reach an agreement to materiali?e this investment. There is also a sco!e of introducing !referential tariff and free trade arrangements* and removing the tariff and non3tariff barriers between the two countries* which can further enhance bilateral trade and investment. There e=ists a !otential for the two countries to enter into a currenc swa! agreement and encourage trade in local currencies. #a$istan and Iran are $een to e=!and their mar$et for o!timum utili?ation of the tremendous trade and investment !otential e=isting between the two countries so as to reali?e the bilateral trade target.Aith regard to barter trade* #a$istanKs agreement with Iran on e=!ort of wheat and rice is a testimon of good relations and has the !otential to be re!licated in other areas to the mutual benefit. #a$istan has the ca!acit of e=!orting commodities such as rice* wheat and other items to Iran. 7n Afghanistan* both #a$istan and Iran have shared objectives to wor$ in tandem for !eace and reconciliation. The two countries have commonalit of views that terrorism and e=tremism are the common enemies and must be defeated. E=!erts believe that coo!eration in the ban$ing sector is also im!ortant to augment #a$3Iran trade and business activities. The coo!eration between the media of Iran and #a$istan is also im!ortant in order to !ortra the true !ers!ective* realit and image of each otherKs countries. Although* the economic ties between #a$istan and Iran date bac$ to centuries* the !rogress achieved in this res!ect remained marginal because of different !olitical and economic reasons. 4oth the countries have the !otential to cater for the demands of each other and trade in the !roducts which are being im!orted from rest of the world. /ee !ing
in view the above facts* concrete ste!s are to be ta$en to materiali?e !lanned trade and its growth and develo!ment in future.