Pakistani businessmen demand third-party financial channel for Iran trade

A number of Pakistani businesses who are engaged in exporting to Iran have called on Islamabad to open a payment channel with Tehran through a Pakistan-based Chinese bank.

23 April 2019
ID : 21939
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Pakistani exporters are keen on using third-party banking channels, especially a Chinese bank, to do trade with Tehran as Pakistan's exports to Iran has dropped to meagre $35 million due to the US sanctions reimposed on the neighboring country, Pakistan Today reports. 

As the existing bilateral trade is based on barter and cash transaction system, the exporters demand the State Bank of Pakistan (SBP) to sign an agreement with a Chinese bank established in Karachi to facilitate the exports to Iran.

“Like other countries, we can also do trade with Iran if the Chinese bank’s facility is provided by opening a branch of the same bank in Balochistan,” Pakistan-Afghanistan Joint Chamber of Commerce and Industry (PAJCCI) Vice President Haji Jamaluddin was cited by the Pakistani daily 

“There are many countries trading with Iran using third-party banking channels. The Pakistani government is neglecting trade with the neighboring countries like Iran and Afghanistan and other countries are grabbing market shares in both these countries,” he said.

Pakistan businessmen demand came as the country's Prime Minister Imran Khan was headed for a two-day official visit to Iran. 

“Chinese banks like Industrial and Commercial Bank of China (ICBC) in Karachi can help exporters here to resolve the transaction issue with Iran in case the SBP signs a memorandum of understanding with the bank as China has good trade with Tehran,”  Haji Jamaluddin said, adding that a number of countries are doing business with Iran while carrying out their transactions in Dubai.

Pakistan Today goes on to cite several sources as saying that Pakistani banks are still shy of carrying out transactions with the Iranian banks and absence of banking channels is the single largest obstacle to enhancing the trade. Nonetheless, the SBP and the Central Bank of Iran are also in talks for payment arrangements through banking channels.

Back in 2017, the two central banks reached an agreemnt to help raise bilateral trade to $5bn. SBP Deputy Governor Riaz Riazuddin and Gholamali Kamyab, the CBI deputy governor for forex affairs, signed the agreement on behalf of their respective central banks in the Iranian capital Tehran.

The agreement seeks "to provide a trade settlement mechanism to promote trade between Pakistan and Iran. This mechanism will be used for the payment of trade conducted via letter of credit (L/Cs) and in accordance with international laws and regulations," said an official statement released by the SBP.

However, Pakistani exporters believe the SBP, despite its repeated announcement of resolving the banking issue, has failed to open a banking channel in Iran to facilitate the exporters. In 2017, SBP had announced that arrangements for establishment of banking channels between Pakistan and Iran have been finalized and soon central banks of both countries will sign an accord.

“Though Prime Minister Imran Khan is presently visiting Iran to enhance the bilateral economic ties, any efforts to restore the banking channels will not be fruitful,” the PAJCCI vice president said. According to him, the premier and his delegation had not consulted any trade body or business community for discussing ways of further improving bilateral ties.

Iranian President Hassan Rouhani proposed that Tehran and Islamabad start barter trade and use their own local currencies rial and rupee in a bid to facilitate bilateral trade to reach $5bn.

India, China and Turkey are doing sizeable trade with Iran by establishing a dedicated bank, according to the Pakistani outlet. 

Presently, trade between the neighbouring countries was being carried out under the Preferential Trade Agreement (PTA), which was signed in 2006 and has been effective since 2007. In the financial year 2008-9, trade between Iran and Pakistan surged close to $1.32 billion, but after the US and UN sanctions, the trade went down which now stands at almost $318 million out of which imports from Iran stand at $280 million whereas exports are just $35 million.

Pakistan Today compares Iran's current 18-billion-dollar trade with India and goes on to ask "why Pakistan failed to keep the trade with Iran at a reasonable level."

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