Iran accused of slapping high import tariffs

                Pakistan has accused Iran of slapping high import tariffs on items from Pakistani origin and frequent changes in import regime, well informed sources told Business Recorder. The sources said Iranian authorities had imposed a ban on issuance of permit to kinnow importers which had adversely affected export of kinnow to Iran from Pakistan, "which is violation of Pak-Iran PTA." The issue of ban on import of fruits from Pakistan may be taken up with Iranian side. 

Pakistan's major items of export to Iran include rice ($75.11 million), meat and meat preparations ($23.42 million), fruits & preparations ($11.80 million), agricultural products($6.96 million excluding rice and fruits, mostly live animals eg, cows), non-value-added textiles ($10.80 million). 

Major bottlenecks in expansion of Pak-Iran trade include; (i) high import tariffs applied by Iran on items of export interest to Pakistan ;( ii) frequent changes in import regime of Iran; (iii) import authorization system and ;(iv) indirect trade via Dubai; The sources were of the view that "Iran is still not a member of WTO and therefore follows a system of high import duties ranging up to 150% advalorem." PTA signed in 2004, and implemented in 2006, has not contributed to increasing Pakistan's exports due to high statutory import duties. According to sources, the Iranian economy is still closely regulated by the government. 

The following are some of the non-tariff barriers which hinder enhancement of Pakistan's exports: 

Import Authorization System: According to Iranian system, all the importers are required to first register their requests for imports with Ministry of Commerce through a system called Sabt-e-Safaresh. After processing of the case, the Ministry of Commence issues an import permit which is valid for 6 months. In some cases, the issuance of import permit also requires NOCs from other ministries/ departments. When the Iranian government wants to restrict/ ban import of some items, it simply stops processing of import permits. 

Frequent Changes in Import Regime: The Iranian rules and regulations change quite frequently and there is no official mechanism to notify such changes promptly. The aura of uncertainty in the local market deters business activity. Late Publication of Annual Tariff Book: Every year, after commencement of the new Iranian year on 20/21 March, the Ministry of Commerce I.R. of Iran, publishes a book containing new import/ export regulations and customs tariffs as per harmonized commodity descriptions and coding system. 

Banking problems: Banking restrictions imposed by the UN & the US on Iranian Banks have adversely affected Pakistani exports as major Pakistani banks no more accept LCs opened by these banks. So this factor has also discouraged our genuine exporters due to high risk involved in cash/ credit transactions.

Indirect Trade via Dubai: Due to high tariff import regime imposed by the Iranian government, a large number of Iranian importers are forced to receive their imports from Pakistan and India through Dubai. Reportedly, the Iranian companies get the Pakistani merchandise at Dubai and from there they re-export it to their sister firms in Iran, suitably under-invoiced. Furthermore, owing to delays/ problems in opening Letters of Credit (LCs) from Iran, in a large number of cases the Iranian companies prefer to open LCs from Dubai through their sister companies for Pakistani merchandise which is directly shipped to Iran. However, in trade figures this is reflected as trade between the UAE and Pakistan.

Courtesy: www.brecoder.com

Iran's new exchange rate strategy affecting importers

Trade sources indicates that Iran has just reworked its multiple exchange rate system to circumvent sanctions and importers in Iran will now have access to the open market exchange rate with a 2% discount.

This means that the Iranian importer will now have to shell out Rs 23,000 to Rs 25,000 Rials (or 2,300 to 2,500 toman) against one dollar as compared to 12,600 Rials against a dollar a week ago.

 We are yet to get an official communication from Iranian authorities. Media reports from Iran say that such a change has been brought in. Even our trade sources have also indicated such a change.

The Trade Promotion Organisation of Iran has recently released a new list of goods including wheat, sugar, meat, corn, dairy products, livestock, confectionery, iron products, rice, and some specific petrochemicals.

Authorities have divided imports into 10 categories based on how essential they are for the Iranian economy and will accordingly provide importers with dollars at a subsidised rate to buy basic goods.

Those products which are not produced domestically will be removed from the list of banned items, but most of the named products are produced in the country and there is no need to import them.

Western sanctions over Iran's controversial nuclear activities have caused a shortage of foreign currency in the country sparking a drastic devaluation of the Iranian Rial and sending inflation soaring.

Iran functions on a multiple exchange rate system to circumvent the sanctions. First, there is the official exchange rate of 12,500 Rial (1,250 toman). Then there is the open market exchange rate which varies between 25,000-28,000 Rial (2,500-2,800 toman) and finally the unofficial market rate of 28,000 Rial (2,800 toman).

It is learnt that Iran has now classified imported goods into three categories:

The first category consists of "strategic goods" which have access to the official rate of exchange, which is stable at 12,600 Rials (also known as 1,260 toman).

The second division consists of goods which are being prioritised and this, according to buyer sources, includes rice. There is unconfirmed news that importers in this category will have access to the open-market exchange rate with a 2% discount. This would work out to roughly less than 23,000 to 25,000 Rials (or 2,300 to 2,500 toman).

And the third division is being restricted or banned.

If this happens then it will be a major blow to the exporters worldwide.

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Export figures - still no reason to celebrate

The newly released export figures have shown a growth of 30.4 percent at $17.75 billion in June compared to $13.60 billion in the same month last financial year. And while some sectors showed signs of an early revival, a few labour-intensive sectors still continue to reel under severe crisis.

Moreover, the growth which we are witnessing based on these latest figures cannot be termed robust as they have still not been able to exceed the level that the sector saw prior to recession. In addition, the prime concern that things have still not stabilized in economies like the US and Europe, doesn't speak too well of the future.

Although the momentum in growth is good news, we must also bear in mind that it is against a low base. For instance if we take May's exports of $16.1 billion, we will notice that it is much less than $18.5 billion registered in May 2008. With the probability of increase in the cost of export credit and with uncertainty in the Euro Zone, I still strongly believe that the labour-intensive sectors need assistance for some more time to come and the government should also consider extending focus market benefits to other European countries.

The export figures of June also show that export of engineering goods, petroleum products, iron ore, gems, precious and semi-precious stones, chemical products has risen significantly. But even though these products are performing well, they are still facing several procedural and transaction problems, which is making a dent in their capital. For instance, shipping costs have increased by more than 40 percent and consignments are lying in the ports due to absence of large vessels compelling clients to resort to domestic procurement. I think our authorities need to look into these hurdles faced by the sector.

Meanwhile, the gloomy story of exports in ready-made garments, textile and man-made fibers remained the same with very little growth owing to less demand from the country's traditional markets. I think although the growth in export as the figures tell us is good news, we are still not in a position to celebrate.