ISLAMABAD: After lifting of sanctions on Iran in February, Pakistan is yet to normalise business activities with the country.

On Tuesday, Commerce Minister Khurram Dastagir Khan directed representatives of banks to furnish viable proposals for facilitation of banking transactions for trade with Iran within a month.

The directive came from the minister in a meeting with the officials of State Bank of Pakistan (SBP) and private banks for exploring banking channels available for trade with post-sanctions Iran.

Several meetings were held earlier to chalk out ways for restoring the banking channel, but with no fruitful results despite repeated requests from the trading community.

The commerce minister said Pakistan is searching for ways and means to initiate trade with Iran in a big way despite several impediments.

In March 2016, Iranian President visited Islamabad to boost bilateral trade to $5 billion in five years. During the visit, both sides also inked a framework to initiate talks on a free trade agreement (FTA), which will cover trade in goods, services and investment by June 2016.

The agreement is part of the five-year strategic trade cooperation plan (2016-2021). An official statement issued after the meeting said that the meeting was informed that despite removal of sanctions, private banks are reluctant to establish direct banking channels with Iran.

Usually, the National Bank of Pakistan (NBP) leads others. However, it has also not yet taken any concrete step this time around. Representatives of Pakistani private banks visited Iran a few months ago and report great enthusiasm in Iran regarding trade with Pakistan.

SBP and Central Bank of Iran signed a Letter of Intent on the occasion of visit of Iranian President to Pakistan for enhancing mutual cooperation and establishing direct banking links. Yet the progress on restoration of banking channel is very slow.

Pakistani traders sense great opportunities of export right next door with minimal transportation costs, especially that of basmati rice which earlier used to fetch millions of dollars.

Pakistan-Iran trade which was over one billion dollars, now stands at $270 million because of the international sanctions. Pakistan’s exports to Iran are limited to few products as 63 per cent of the proceeds come only from rice.

Exports to Iran fell to $43 million in 2014 from $182m in 2010, while imports plunged to $186m in 2014 from $884m in 2010. UN sanctions on Iran were the biggest reason behind this drop.

Pakistan’s commerce ministry is extensively engaged with the Iranian ministries of trade and industry and agriculture to fully operationalise the preferential trade agreement (PTA) signed in 2006 and enhance trade facilitation at the border.

Pakistan has also sought a response from Iran on tariff and non-tariff trade barriers.

In the last four years, Iran diverted its trade towards India and Turkey and there had been a marked increase in its bilateral trade with these two countries. There has also been little benefit because of high tariff on Pakistan’s exportable products.

The commerce minister recently paid a visit to Pakistan-Iran border at Taftan and inspected the facilities available for smooth movement of vehicles trading across the border and promised to upgrade the infrastructure.

As per the five-year economic engagement plan agreed between Pakistan and Iran, the ministry of commerce has forwarded the draft FTA framework agreement to Iran. However, the response from the Iranian side is still awaited.

Published in Dawn, June 29th, 2016