Pakistan’s federal government has approved rules for the conduct of barter trade between Pakistan and other countries including Afghanistan, Iran and Russia.
The ministry of commerce issued a notification to implement the ‘Business-to-Business (B2B) Barter Trade Mechanism’ that will allow public and private entities to engage with the three countries both in the import and export of goods, the Pakistani newspaper The Nation reported Friday.
A Statutory Regulatory Order (SRO), issued in this regard, stated that importers and exporters, who are the Federal Board of Revenue’s active taxpayers and subscribe to the Pakistan Single Window System, can engage in the barter trade.
“Application for authorization of import and export of goods under the B2B barter trade facility shall be submitted by the trader or their authorized agent through the online system to the regulatory collector,” the notification said. Under the barter mechanism, the trade of goods will be allowed on the principle of “import followed by export” and export would meet the value of imported goods.
The rules will allow Pakistan to import LNG, LPG as well as crude oil to meet the country’s rising energy needs. It will also allow Pakistan to export meat, fruits, vegetables, surgical instruments, textiles, perfumes and cosmetics. Afghanistan and Iran will also become markets for sports goods from Pakistan, in exchange for minerals, metals and coal. Pakistan will also be able to get industrial machinery from Russia based on barter arrangements.
Pakistani entities can export some 26 goods to Afghanistan, Iran and Russia including milk, cream, eggs and cereal, meat and fish products, fruits and vegetables, rice, salt, pharmaceutical products, finished leather and leather apparel, footwear, steel, and sports goods.
The country can import fruits and nuts, vegetables and pulses, spices, minerals and metals, coal and its products, raw rubber items, raw hides and skins, cotton, and iron and steel from Afghanistan.
From Iran, Pakistani traders are allowed to import fruits, nuts, vegetables, spices, minerals and metals, coal and related products, petroleum crude oil, LNG and LPG, chemical products, fertilizers, article of plastics and rubber, raw hides and skins, raw wool and articles of iron and steel.
Import items include pulses, wheat, coal and related products, petroleum oils including crude, LNG and LPG, fertilizers, tanning and dying extracts, articles of plastic and rubber, minerals and metals, chemicals products, articles of iron and steel, and textile industrial machinery have been allowed from Russia.
Due to various US/international sanctions imposed on Iran, Pakistani banks have been reluctant in opening letters of credit for export to Iran despite repeated appeals from exporters and traders in that country. The absence of a credible payment mechanism remains the major irritant in the way of Pakistan-Iran trade. International sanctions, particularly those imposed by the US and European Union in 2010, have targeted Iran’s banks.
The sanctions prevented Pakistani banks from doing business with their Iranian counterparts, including the opening of LCs, which is the most credible method for carrying out international trade. Trade was conducted through alternative payment mechanisms of a limited scope, such as cash and to a certain extent through barter.
CBI Measures
Mohammad Reza Farzin, the governor of the Central Bank of Iran, and Jameel Ahmad, the governor of the State Bank (central bank) of Pakistan, met earlier this month and agreed to expand bilateral banking relations.
Farzin called for the establishment of a banking channel with the neighboring country. Pakistani banks in the past were positive about creating such a channel.
Regarding the significance of creating and utilizing alternative financial messaging systems in interbank relations, Farzin said, "Iran's robust financial messaging systems can serve as an alternative to SWIFT and facilitate financial and banking communication between our two sides."
He underlined the importance of card-based banking transactions for Iranian traders in Pakistan and vice versa. "Iran is prepared to help build infrastructure that connects the bank cards of both sides.”
One of the proposals by Farzin was the formation of a working group, led by deputy governors of the two central banks, to enhance meaningful bilateral cooperation. "A joint banking committee, given the proximity and cultural and religious similarities between Iran and Pakistan, is necessary and should get priority.”
Ahmad expressed his government’s interest in boosting banking ties and welcomed Farzin's proposal for using alternative messaging systems and connecting the bank card networks. He said that the SBP is willing and able to form the joint committee to pave the way for cementing two-way banking cooperation.
