News ID: 318047
Published: 0315 GMT November 19, 2021

Iran-Pakistan trade and investment outlook

Iran-Pakistan trade and investment outlook

Iran and Pakistan are moving towards bolstering their bilateral trade ties and the removal of US sanctions based hurdles which stand in the way via the multiple trade agreements penned. There is a massive potential for bilateral trade and commerce between the two regional allies Iran and Pakistan, which hasn't been fully tapped.

Trade ties between Tehran and Islamabad have been affected by several factors, the most important of which is the draconian US sanction in recent years.

The two countries, however, continue to make strenuous efforts to remove bottlenecks in their bilateral trade relations and increase the volume of annual trade from around $1 billion to $5 billion by 2023. And the efforts in this direction have lately gained momentum.

Pakistan, with its large consumer market, holds immense potential for trade with regional countries, particularly Iran. The two countries, in an attempt to remove obstacles in the path of bilateral trade and investment, have stepped up efforts to tap the vast potential that exists between them.

These efforts have gained momentum under the new government in Tehran that is vigorously pursuing the East centric foreign policy with focus on neighboring countries.

On September 6th to 7th, during the ninth joint trade committee meeting between Iran and Pakistan in Tehran, the two sides agreed to revive the stalled talks on the free trade agreement and raise the volume of annual trade from less than $1 billion to $5 billion by 2023.

This is in line with the goal of pushing the annual bilateral trade to $10 billion, which economic pundits see a real possibility of achieving, provided the necessary infrastructure is in place.

The two longtime allies have agreed to make renewed efforts to remove the bottlenecks and facilitate the progress and promotion of trade and commerce with focus on bilateral investment, better connectivity, barter, trade, reduction in tariffs, construction of border markets, and joint exhibitions. It augurs well, not only for Iran Pakistan relations, but for the whole region as well.

Although both Iran and Pakistan have granted most favored nation status to each other, trade between them has seen erratic fluctuations over the years, the volume of annual trade between the two countries has been nowhere close to the potential that exists between them.

The preferential trade agreement Tehran and Islamabad inked in 2014 has evidently had no consequential impact on the volume of bilateral trade in recent years.

The target of a $5 billion annual trade by 2021 has faced a major impediment, the US sanctions.

At a 2016 business summit in Islamabad, the Pakistani premier at the time, Nawaz Shareef together with by the Iranian president, Hassan Rouhani, said the two countries aim to increase the annual trade volume to $5 billion by 2021.

At the time, the total trade volume between the two nations was $359 million.

The easing of sanctions by the US following the nuclear deal in 2015 had inspired hopes that trade could see a surge, but that was not to be. Before the nuclear deal in 2015, business prospects between the two countries either looked too bleak or too bright, depending on the extent of US pressure.

Sanctions relief in July 2015 showed a slight improvement in the figures, but the relief turned out to be short lived as sanctions were reinstated in May 2018. The current volume of trade between Iran and Pakistan is well below the $1 billion mark. But the race to the $5 billion mark has started afresh.

The Iran and Pakistan free trade agreement talks are good news for both sides. It will not only open new avenues of economic cooperation between the two countries, but also paves the way for implementation of other important accords, like the preferential trade agreement.

The two countries have inked multiple accords over the years to bolster trade and investment but somehow the full potential of bilateral cooperation could not be harvested. So, the question should be is it time for a turnaround?

Iran and Pakistan had finalized the draft of the free trade agreement in late 2017 after several rounds of talks. The agreement, however, became one of the first casualties of former US president Donald Trump's megalomania.

Trump's unilateral decision to pull the United States out of the 2015 nuclear deal, followed by reinstatement of crippling sanctions in May 2018, effectively put the crucial trade agreement on the backburner.

It took more than three years for Iran and Pakistan to revive talks on the agreement, which is likely to be set into motion within three months.

A Free Trade Agreement will also infuse new life into the preferential trade agreement signed between the two sides in 2004, which has so far failed to push the volume of trade beyond $1 billion, despite reducing customs duties on many tradable commodities, the reason being US sanctions and banking restrictions.

While Iran and Pakistan were already members of the Economic Cooperation Organization founded in 1985, they are also part of the Shanghai Cooperation Organization.

With China being a common ally, there is a possibility of Iran participating in the China Pakistan Economic Corridor, as well, which will provide a more convenient route to export Iran's massive resources of oil and gas. More importantly, it will puncture the US hegemonic policies.





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