Pak - Iran bilateral trade and economic prospects, opportunities and challenges.

1. www.kpmg.com/pk
Borderswith
Iran
April 2017
Revival of Pak – Iran Trade
Borders

2. © 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of
the KPMG network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity. All rights reserved.
2
Pak-IranTrade
Pak–Iran
Relationship
Pakistan has long standing friendly relationship
with Iran, anchored with strong foundations
encompassing religious, ethnic and cultural
similarities. This can be evidenced through the
fact that Iran was the first country to officially
recognize Pakistan as a new state and Pakistan
was the first country which recognized the
Islamic revolution of Iran in 1979.
Trade Relations
Both the countries have strong economic ties
and trade relations, in 1964 establishment of
Regional Cooperation for Development (RCD)
further augmented the bilateral trade
arrangements between the two countries. This
was further strengthen through the revival of
RCD under the new tag of Economic
Cooperation Organization (ECO).
ECO enabled several agreements between the
two countries including the Preferential Trade
Agreement (PTA) in year 2004.
Preferential
Trade Agreement
With the PTA, 2004 both the countries agreed
to reduce custom duty on certain tradable
items.
However, the efforts for better trade relations
between the both countries encountered
impediments in terms of the security issues
encompassing smuggling, drug trafficking and
law and order situation in the boarder areas.
Further, the political environment have affected
the prospects of bilateral trade relations
between the two countries.
Bilateral Trade between the two countries have
increased over the years, this has also given
rise to the need for free cross border trade.
The increase in trade and economic relationship
between the two countries has also compelled
Pakistan to move towards Iran for its growing
energy needs.
In pursuance of which Pakistan signed a gas
purchase agreement with Iran in 2009.
Pak – Iran
Gas Pipeline
Pak – Iran gas pipeline was an idea proposed in
mid nineties. in which Iran was supposed to
supply natural gas to Pakistan and which was
further to be extended to India. India later
withdraw itself from the project based on its
disagreement over the gas price and security
concerns.
However, Pakistan and Iran remained
committed to the gas pipeline project and
finally inaugurated the pipeline construction in
2013.
Even though, efforts were made to complete
the project with in the stipulated timeframe, as
both the governments were cognizant of the
needs of their respective countries. But, the
multi billion project remained subject to various
impediments and obstacle resulting in undue
delays.
The key impediments for Pakistan in pursuance
of the pipeline project was the risk of facing
sanctions along with Iran. Additionally, political
influence from the US Government for alternate
gas supply from Turkmenistan was a factor
which cannot be overlooked.
Further, project financing/ Investment was
another obstacle, as due to the imposed
sanctions on Iran transactions in dollar were not
allowed and investors were reluctant to invest
due to the ‘snap back’ clause , which may
result in sanctions on the project.

3. © 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of
the KPMG network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity. All rights reserved.
3
Sanctions
onIran
Iran has remained subject to
sanctions since 1979, when for
the first time US imposed
sanctions on Iran following the
seizer of the US embassy in
Tehran.
Since then, there have been
many sanctions imposed on Iran
for various charges including
support for international
terrorism and Human rights
violations. However, in 2010 US
Government passed a
comprehensive Iran sanctions,
Accountability and Divestment
Act.
Following US, United Nations
(UN) and European Union (EU)
imposed various sanctions on
Iran as well, resulting in trade
and economic isolation of the
country.
TradeBarriers
OtherImpedimentsin
tradearrangements
 Security concerns on the border
areas of both countries, this includes
activities encompassing smuggling,
drug trafficking and activities by non
state actors.
 Iran’s strict Import policy, acting as
deterrent for the Pakistani exporter
to exploit the high potential market
of Iran.
 Weak Banking connections between
the two countries.
 Lack of communication and
economic relations between the
private sectors of both the countries.
 Political and economic preferences
of the Governments of the two
countries.

4. © 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of
the KPMG network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity. All rights reserved.
4
Pak–IranTradeProspects
Sanctions
Relief
In January 2016, UN Security Council, along
with EU, implemented the Joint
Comprehensive Plan of Action (“JCPOA”),
commonly known as the Iran nuclear deal.
The U.S., EU, and UN granted certain
sanctions relief to Iran based on Iran’s
agreement to limit its enriched uranium
activity.
ProspectsofPak–Irantrade
Henceforth, as the major sanctions have
been lifted, the Iran – Pakistan gas pipeline
project could augment the economic
cooperation in the region. Pakistan
considering its increasing oil and gas
demand, needs to exploit the opportunity
to enable continues supply of gas to its
consumers and meet the increasing energy
demands of the country.
Apart from the minerals, oil and gas trade
prospects, there is huge opportunity for
increasing bilateral trade for other various
products between the two countries. The
following graphs shows product wise trade
opportunities between Iran and Pakistan.
Although, Pakistan enjoys a healthy trade
and economic potential with Iran, however,
based on the reports of Trade Development
Authority of Pakistan (TDAP) it only shares
0.74% of the total exports to Iran.
Therefore, necessary consideration needs
to be made to exploit this opportunity
through appropriate initiatives both within
public and private sector.
Intherecentpast, Iranseemsto
havegainedanenormous
importancedueitgeo-politicaland
strategicsignificance.
0.00 1.00 2.00 3.00 4.00 5.00
Edible fruit and nuts;
Salt; sulphur and stone; lime
,cement and others
Chemicals; compounds of
precious metals..
Organic chemicals
Fertilisers
Plastics and articles thereof
Iron and steel
Machinery, mechanical
appliances
US Dollar Billion
Bilateral Trade opportunities between
Iran and Pakistan based on product
Pakistan's imports from world Iran's exports to world
Source: the above analysis is based on the statistics
of International Trade Centre.

5. © 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of
the KPMG network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity. All rights reserved.
5
Recently, State Bank of Pakistan(SBP) has
also signed a Banking and Payment
Agreement with the Central Bank of Iran
(Markazi Jomhoria Islami Iran), enabling a
trade settlement structure for the bilateral
trade between the two countries.
Considering the trade and economic
prospects of the country, KPMG has also
committed itself through reestablishing its
office in Tehran, providing professional
services to further augment the financial
and economic outlook.
Based on these recent developments,
there exists a twofold opportunity for both
Pakistan and Iran to enhance and
strengthen their energy and financial
sectors, respectively, through mutual
cooperation and economic ties.
ATwofoldOpportunitytoAugment
Pakistan’sEnergySectorandIran’s
FinancialSector.
Iran’s financial and commercial sector’s
isolation is another opportunity for Pakistan.
Collaboration and cooperation among the
financial sectors of the two countries will
enable rapid growth in the trade and
economic activities between the two
countries. The following graph provides
trade opportunities in terms of services
between the two countries.
Source: the above analysis is based on the statistics
of International Trade Centre.
0 5 10 15
Memo item:
Commercial services
Financial services
Government goods and
services n.i.e.
Transport
Construction
Other business services
Telecommunications,
computer, and
information services
Travel
US Dollar Million
Bilateral Trade opportunities
between Iran and Pakistan based on
Services
Iran 's imports from world Pakistan's Export to world
“Tradeandeconomicties,to
provideanenabling environment
forregionalcooperationand
development."

6. © 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of
the KPMG network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity. All rights reserved.
© 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
FormoreinformationContact:
Ahson Shah
Advisory Services
Senior Manager, KPMG Taseer Hadi & Co.
Tel: + 92 (21) 3568 5847
Fax: + 92 (21) 3568 5095
Rana Nadeem Akhter
Advisory Services
Partner, KPMG Taseer Hadi & Co.
Tel: + 92 (21) 3568 5847 (222)
Fax: + 92 (21) 3568 5095
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© 2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative ("KPMG
International"), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
Syed Muhammad Faraz Kazmi
Advisory Services
Senior Consultant, KPMG Taseer Hadi & Co.
Tel: + 92 (21) 3568 5847
Fax: + 92 (21) 3568 5095