Economic Dimensions of Iran – Pakistan Ties: Opportunities, obstacles and the way forward

Introduction

Pakistan has been using multilateral and regional trading systems as integration platforms for the promotion of its trade and investment. But, at least for the present, these systems have lost their attraction to Pakistan. This is mainly because of slow advancements taking place in global and regional trading systems. This has prompted Pakistan to sign bilateral free trade agreements (BFTAs) and bilateral preferential trading agreements (BPTAs) with some friendly countries.

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Pakistan being a neighbor of Iran has historical trade relations and people-to-people contacts. Their competing geopolitical interests can potentially be optimized by up fronting the pragmatic economic and business aspirations. USA imposed economic sanctions, coupled with Iran’s highly regulated economic environment, have discouraged Pakistani investors and traders to directly deal with Iranian businesses to harness opportunities. Consequently, licit and illicit as well as indirect (circular) trade is taking place. between Iran and Pakistan.

Bordering countries generally benefit from trade advantage over distant countries. Hence, in principle bordering countries should trade more than the remote countries, as nearness releases pressure of trade costs. Concomitantly, countries having policy harmonization and similar development levels are expected to have better trade relations. Seen within the proposition of the gravity model of trade, strengthening of Iran-Pakistan economic relationship would be mutually beneficial for the two countries. To realize benefits from their bilateral trade and investment potentials and opportunities, they can count on their available natural resources, cultural ties, nearness, large pool of skilled labor, rising per capita income, and growing middle- income class. Benefits of opportunities would be manifold once international economic sanctions on Iran are lifted. Then, the vast available potential can be tapped with concerted efforts.

Overall, a stronger Pakistan-Iran economic relationship can be beneficial for both countries, especially considering that Pakistan intends to reindustrialize its economy by moving up the value chain with respect to its manufacturing industries. In this regard, bilateral trade and investment expansion would provide a platform to benefit from scale-economies, sharing of technology and know-how besides other dynamic economic gains. Pakistan has shown its desire to transform its economic relations with Iran and the latter has shown its interest to reciprocate this gesture. Pakistan has already signed BPTA with Iran, but it has remained virtually ineffective owing to: unilateral imposition of high tariffs by both countries, non-availability of waiver from international economic sanctions, lack of banking facilities, lack of competitiveness, smuggling, etc. The current trade volume and economic relations do not commensurate with the full potential of both countries. It is worth noting that the size of ‘official’ trade in 2019 was $440 million, of which $424 million was imports from Iran and $16 million was exports from Pakistan to Iran, so a huge trade deficit against Pakistan exists that needs to be bridged.

Iran-Pakistan trade must begin with a new conviction and vigor. Both countries need to redefine their strategy for sustainable economic relations for the prosperity of their citizens. To meet this goal, there is a need to create space for private sector, harmonize economic policies, reduce trade cost, improve trade facilitation system etc.

Given that the sanctions may not be completely lifted” any time soon, Pakistan finds it increasingly difficult to reconcile with the situation and fulfill its desire to strengthen its economic ties with Iran. Pakistan needs to draw a fine line between satisfying its economic relations with a neighbor and honoring its commitments with UN and international partners.

Within above perspective, this article offers imporant insights on dynamics, evolution, and continued challenges in Iran-Pakistan economic relations, while suggesting a way forward to strengthen economic ties.

Salient Features of the Two Economies

Iran

The economy of Iran is highly concentrated on hydrocarbon and petroleum. The size of its market was 84 million people (2020) and gross domestic product (GDP) was $682 billion in 2021 with per capita income of $8,034. Iran is ranked as 2’nd in natural gas reserves and 4th in proven crude oil reserves in the world. Despite international sanctions since 1981, Iran continued to develop its physical infrastructures, transportation and communication systems. Iran’s ease-of-doing· business (EoDB) ranking the world was 127 in 2019.

Petroleum, petrochemical products, fertilizers, caustic soda, pharmaceuticals, construction materials, textiles, cement, metal fabrication and food processing are the main manufacturing industries. Trade has been declining for the past many years due to economic sanctions. Exports of Iran have declined from $107.43 billion in 2018 to $65.72 billion in 2019; whereas imports also recorded a declining trend; they stood at $54.46 billion in 2018 and $76.39 billion in 2019, thus, resulting into a trade deficit from a surplus a year earlier.

The main exportable items of Iran are: Petroleum and petrochemical products (68.7%), plastic and plastic articles (4.2%), organic chemicals (4.2%), iron and steel (4%), fruits and nuts (1.8%), ores, slag, ash (1.2%), vegetables (1.1%), fertilizers (0.9%), sulphur, stone and cement (0.8%), and ‘Copper(0.7%); while, machinery including computers (26.66%), cereals (14.75%), chemicals (11.20%), metals and products (7.85%); transportation (6.98%), plastic and rubber products (5.10%), wood and wood articles (3.82%), food products (3.57%), textiles and clothing (3.04%) and animal (2.29%), miscellaneous goods (14.74%) are the main importable items of Iran.

The overall composition of exports and imports reflects the Iranian economy. Iran mainly exports raw materials (51.37%) mostly comprising petroleum; followed by consumer goods (30.27%), intermediate goods (17.19%) and capital goods (1 %). Whereas, imports comprise capital goods(31.69%) followed by intermediate goods (27.9%), consumer goods (20.33%) and raw materials (11.68%).

Major export destinations ofIran are: China (14.7%), Iraq (14%), UAE (10%), Afghanistan (5%),South Korea (4%), Turkey (4%), India (3%), Pakistan (2%), Indonesia (1%), Oman (1%), Thailand (1%) and Azerbaijan (1%). On the other hand, major sources of imports for Iran are: China (25%), UAE (14%), India (6%), Turkey (6%), Germany (6%), Switzerland (5%), South Korea (5%), Italy (3%), Russia (3%) and UK (3%).

Iran’s trade market concentration has been falling since 2014. It may be noted from the estimates of the Hirschman-Herfindhal Index” that it was 0.22 in 2014, which has consistently declined to 0.14 in 2016and 0.13 in 2017. Number of import products is 3,686 and number of export products is 2,790. On the other hand, number of import partner countries is 119, whereas number of export partner countries is 146. This performance also depends on the degree of connectivity of the country. To assess this, the Logistic Performance Index (LPI) score card is used. For Iran the index score was 2.85 in 2018 with the global LPI rank of 64, an improvement from LPI score of2.60 in 2016 and LPI rank of96 in 2016⁷. Moreover, Iran’s trade performance can also be gauged from the ease-of-trading across border by the measure Trade Across Border Rank: 123⁸. In 2010, Iran was able to reduce the time to export and import by installing scanners at the seaports and reorganizing of customs clearance system to separate inspections of chemicals and petroleum from general trade goods. In 2017 and 2019,

Iran improved and expanded the services offered by the national single window to facilitate trade, Foreign direct investment (FDI) inflow to Iran was $4.49 billion in 2012, which declined to $3.22 billion in 2016, $2.4 billion in 2018 and further declined to $0.91 billion in 2019.

When a country does not meet its current account deficit from net foreign investment inflows then it has to rely on external loans to bridge the gap. Iran’s external debt was $22.81 billion in 2010, which declined to $5.11 billion in 2014 but afterwards it kept rising and it stood at $9.1 billion in March 2021.

Pakistan

Pakistan is the 42^nd major global economy in terms of GOP. With population size of 225.15 million in FY2021, it is the 5^th largest country in the world, making its nominal per capita income at $1,543 in FY2021, which ranks it at 154^th place in the world. There is a caveat to these GOP statistics, as Pakistan’s undocumented economy, which is not covered in the GOP statistics and is over 90% of the documented economy. So, the above figures are highly under- reported. Ease-of-doing-business rank in the world is 108, which is higher from position 136 in 2020.

According to Jim O’Neil (2001) “Pakistan is one of the Next Eleven Countries as having a high potential of becoming, along with the BRICS countries, among the world’s largest economies in the 21st century”.

Pakistan imports a variety of raw materials, intermediate inputs and goods to meet its production and consumption requirements. Imports are highly concentrated in terms of products and markets. Major imports include raw materials (18.12%), food (15.5%), electrical and non-electrical machinery (14.19%), petroleum products (13.84%), road motor vehicles (6.67%), and miscellaneous products (31.63%). Pakistan’s major import markets include China (27.1 %), UAE (9.4%), Indonesia (5.7%), USA (5.5%), Saudi Arabia (4.7%), Kuwait (2.6%), Japan (2.7%), Germany (1.9%), Malaysia (2.1 %), and India (0.6%)13.

Exports of Pakistan are concentrated in a few product groups: cotton manufactures (58.8%), rice (8.4%), leather products (3.3%), and miscellaneous exports (29.5%). The main destination countries of Pakistan’s exports are: USA (19.7%), China (9.7%), UK (8.1%), Germany (6.2%), Afghanistan (4.2%), Bangladesh (4.2%), UAE (3.9%), Spain (3.6%), Italy (3.1 %), France (1.6%), and other destinations (35.7%).

A country facing export concentration is more vulnerable to external shocks and grows slowly. Moreover, a country at a low level of industrialization tends to export a narrow range of products and is thus exposed to increased volatility in export earnings and terms of trade. In this context, Pakistan’s record of present decade is satisfactory. It may be noted from the estimates of the Hirschman- Herfindhal Index that it was 0.06 in ~12, which has gradually come down to 0.05 in 2014 and since then this trend of gradual decline has been persisting till to-date. This shows that Pakistan’s trade portfolio is fairly diversified and is improving too. In comparison with Iran, Pakistan’s trade portfolio is fairly diversified.

Number of import products is 4,039 (2019), which is higher than Iran, whereas the number of export products from Pakistan is 2,824 (2019) which is also higher than Iran. On the other hand, number of import partner countries is 208, that is 75% higher than Iran, whereas number of export partner countries is 194 that is also 33% higher than Iran. All these indicate Pakistan’s trade markets and products are more diversified than Iran.

As reported earlier, trade performance depends on how a country is connected globally. To assess this, the LPI Score Card is used. Pakistan’s LPI score was 2.42 in 2018 with the global LPI rank of 122. This performance is the reflection of policy measures introduced by Pakistan to improve its trade infrastructure over the past decade.

Foreign direct investment (FDI) into Pakistan has remained sizeable in recent years: net FDI was $2.41 billion in FY2017, $2.78 billion in FY2018, $1.36 billion in FY2019, and $2.60 billion in FY2020. This increase was mainly due to foreign investment inflow under CPEC projects.

Bilateral Economic Relations between Iran and Pakistan

Trade Relations

Historically, trade relations between the two countries have seen many difficulties. The volume of bilateral-trade has remained in the range of $48 million in 1975 to $1,066 million in 2010 and recently to $440 million in 2019. Up to 1985, trade was in favor of Pakistan but afterwards it faced deficit with the sole exception of 2010. Despite nearness and many other commonalities, both the countries trade overwhelmingly more with rest of the world. In 2019, the proportion of Pakistan’s bilateral-trade with Iran was only 0.57%. This low share is mainly because of lack of complementarity’? in their trade, stringent trade restrictions including use of import permits by the Iranian government, high tariffs on goods where Pakistan possesses competitive advantage, lack of enabling infrastructure for trade facilitation and connectivity as well as disarray in their economic and political policies. Besides, Iran since 1979 has remained mostly under international economic sanctions that forced Iran to conduct trade mostly with countries having economic power or political influence.

Iran and Pakistan lack complementarity in trade because of divergence in their industrial production structures and local availability of natural resources. It is pertinent to note that aggregate export-to-import ratio of Pakistan with the world, in FY2019, was 0.42; this ratio with Iran was only 0.038. This suggests that Pakistan’s import-dependency is proportionately more on Iran than on rest of the world, which calls for the creation of balanced bilateral-trade relations. Three products; namely, paper, paper board and cereals accounted for over 90% of Pakistan’s exports to Iran in 2018. While, five products; namely, petroleum products, ceramic products, iron and steel, raw leather, and carpets accounted for about 80% of Pakistan’s imports from Iran. This pattern shows that there is hardly any overlap and hence no complementarity exists in their trade.

Trade restrictions whether unilateral or imposed by the international community induce traders to indulge into illegal trade activities. This is mainly because the cost of smuggling tends to be lower than trade conducted through official channels. When severity of international economic sanctions is felt then illegal channels become more attractive for trade. It may be noted that despite 3-times gasoline price hike in Iran in the recent past, the petroleum products smuggling did not halt on the Iran-Pakistan border because market price of the latter is much too higher (261%) than the former. The only change that is seen with price hike is that now it is mostly diesel that is smuggled into Pakistan. Consequently, total sales of diesel by Pakistani companies has declined by 1.4 million tons.

Another type of trade between two countries takes place via other countries (Dubakand Afghanistan; the so-called circular trade). Thus, trade through illegal and indirect channels conceals the actual size of bilateral-trade. The size of illegal; and indirect bilateral-trade is more than $1 billion; Illegal trade deprives both countries of revenues and circumvents their policy objectives. Sanctions have inadvertently strengthened the illicit traders and hurt the law-abiding traders. Besides, smuggling of petroleum products poses a constant threat to life and assets of the people involved. Thus, the main challenge of international sanctions’ enforcement is to control illicit trade.

Investment Relations

Iran reported the size of its FDI to Pakistan as $0.018 million in July 2017. This volume remained same until May 2018. FDI from Iran was all time high in 2007, when Pakistan received $33.2 million 15. In the past, Iran used to lend Pakistan to fulfill its balance of payments needs. Up until FY1982, Pakistan received an accumulated amount of $593.6 million from Iran. It went down to $13.64 million by 1991. In 1991, Pakistan also received a grant-in-aid worth $75 million from the government of Iran. Afterwards, these flows absolutely dried owing to Iran’s conomic and political conditions. Both Iran and Pakistan recognize the significance of the China-Pakistan Economic Corridor (CPEC) to build their bilateral economic relations. Linking CPEC projects with Iran would attract FDI from Iran into Pakistan. With ease in US sanctions, Iran- Pakistan gas pipeline project would attract huge investment from Iran and China. Both countries stand to gain from CPEC projects. Connectivity Pakistan and Iran are connected through road and rail. But years of laxity to improve trade and investment relations has resulted into deterioration of existing infrastructure. Realizing its importance for the expansion of bilateral and regional trade and tourism, both countries have taken certain initiatives. Pakistan has taken a unilateral decision to construct Quetta-Noshki-Dalbadin-Taftan (N-40) highway connecting Quetta with Taftan at the Iranian border. This project is being implemented under the public-private partnership. Besides, railways projects include:

(i) freight train operations between Quetta and Zahidan;

(ii) the Istanbul-Tehran-Islamabad railways network;

(iii) the Gul Train, a freight train between Istanbul- Islamabad via Tehran.

Iran has shown interest to connect the two ports of Gwadar and Chahbahar for their complementary role to romote bilateral trade. Pakistan may look at this offer if it provides a more secure and cheaper transport way for its cargo than rail and road.

Iran- Pakistan Bilateral Trade AgreementsIran and Pakistan signed a bilateral preferential trade agreement (BPTA) on March 4, 2004, which was ratified in May 2005. The main objective of the agreement is to improve bilateral economic and political relationships. Both countries decided to accord preferential treatment to each other and promote trade by removing non-tariff measures (NTMs). They also agreed not to change existing tariffs without prior consent of both the parties. Pakistan agreed to give concessions to Iran on 338 items; whereas Iran agreed to provide concessions on 309 items to Pakistan. Despite this agreement, a number of barriers on trade are practiced by Iran. Iran levy high import tariffs on textiles and clothing, leather and footwear, fruit and vegetables and rice, all these products are of high export interest to Pakistan. Furthermore, Iran maintains a system of permits for its  importers, it stops issuing permits without a prior notice to restrict imports. A year before the signing of BPTA, the proportion of total Pakistani trade with Iran was 1.55% in 2005 but paradoxically, instead of going up it started declining afterwards and reached 0.38% in 2012. Pakistan’s imports from Iran as a ratio of its exports to Iran were 2.1 times, which declined to 0.85 times during this period. This decline is mainly due to fall in export of fruits and rice to Iran. Indian exports replaced Pakistani exports. Besides, economic sanction is another main reason as to why PTA failed to achieve its full potential. Now a considerable volume of rice from Pakistan is channeled through UAE due to the absence of banking facilities. In order to curb trade mis-invoicing, both countries have agreed to create a mechanism for electronic exchange of bilateral trade data and information. Consequently, both countries would exchange values/documents on imported/exported goods for developing a fully automated clearance system, with advance information, about goods’ description and quality and passengers at Taftan-Mirjaveh border stations (as a pilot project). Once successful this system will be extended at other border stations in a phased manner. The system is expected to reduce costs of clearance of goods at the border stations will also facilitate trade and regulate the flow of passengers.

Economic Opportunities/Potential

Trade and trade policy measures caQ greatly reduce the risk of hostilities and mistrust between countries’. This is because trade encourages the reallocation of resources to more productive activities. Trade by creating  interdependence and sustainability in relations encourages countries to postpone their conflicts and later perhaps weed them out permanently. It is worth underscoring that:

• $2-3 billion is the immediate potential (if we divert smuggling, circular trade and remove trade mis-invoicing), while longer term potential may be over $5 billion, if both countries liberalize relations bilaterally. High potential for trade and joint investment activities is available to both countries, not only for their local markets but also for regional markets. Vast potential also exists for tourism, e-commerce, cargo handling, and transportation by establishing private joint companies. CPEC-SEZs provide opportunity for cooperation and to get closer on sustained basis. Post-CoVid-19 era is expected to bring regionalism at the forefront; where nearness will dominate distant regions. This would be needed for the establishment of secured supply chains that have assumed great importance under the pandemic. Iran is rich in natural resources; it has potential to supply natural ores, petroleum and their intermediate products to Pakistani industries for further processing. Both countries can immensely benefit from trade of these commodities and finished products.

• Provided the economic sanctions are relaxed/ lifted,huge potential exists for bilateral trade and investment. This potential can be capitalized if Iran eases its trade policy instruments and provides better market access to Pakistan. Current BPTA has limited scope and is ineffective, which has induced both countries to initiate negotiation on a BFTA, but the progress is slow. To identify products that can potentially be bilaterally traded, we discern following four effects.

• Pakistani industries that are likely to suffer from goods imported from Iran: Mineral fuels, organic chemicals, other chemicals, rubber products, articles of stone, carpets, plastic products, iron and steel and their products, and aluminum articles. These are the products in which Iran has a comparative advantage in production while Pakistan doesn’t have. Pakistani industries that are likely to tackle “weak threat” from goods imported from Iran: Inorganic chemicals, pharmaceutical products, floor coverings, stones and glassware, and transportation. These are the industries where both countries have comparative advantage in production; however, Iranian industries have some advantage over Pakistani industries.

• Pakistani industries that can gain from further trade opening with Iran: Rice, vegetables, fresh fruits, products of animal origin, products of milling industry, starches, salt, sugar, cement, leather and leather goods, cotton fabrics, clothing, knitted or crocheted fabrics, footwear, furniture, sports goods, surgical instruments. These Pakistani industries have competitive edge over Iranian industries.

• Pakistani industrial users that can benefit by importing raw materials from Iran, whereas Pakistan is currently a net importer of items from other countries. These items include: Ores including aluminum, copper, iron, and pig iron.

• It is pertinent to note that gains may accrue from increase in existing trade levels as well as by creation of new trade. The former would also include circular- trade and illegal-trade becoming direct and legal. Gains from bilateral trade, however, will not come automatically in the presence of major trading partners ofIran, including China and India, who have long established their presence in the Iranian market. Pakistani exporters will have to struggle to make a mark of their presence.

• The Iran-Pakistan Gas Pipeline project is expected to provide a reliable gas supply to Pakistan and solving its gas shortage problem. Moreover, the two nations will gain from the ongoing CPEC projects if Iran is invited to join some of the projects.

Obstacles to Economic Relations

Main obstacles to economic relations between the two countries are:

1. Trade Policy.
2. USA-led Economic Sanctions.

Trade-Related Obstacles

• Poor infrastructure connectivity between the neighbors.

• Conducting legal and direct trade is extremely difficult due to lack of banking facilities. Consequently, indirect trade via Dubai or smuggling is taking place, which reduces profit margins for exporters.

• Non-transparency in the conduct of trade policy. Frequent changes are introduced in import regime of Iran.

• Corruption and ad hocism in policies and their implementation create mistrust among traders.

• High tariff and NTMs in Iran on products of Pakistani interest.

• Iran implements stringent national standards as technical barriers to trade that make it hard for Pakistani exporters to meet their requirements.

• Trade-related policies are implemented in a non-transparent way, which cannot be challenged because of the absence of a disputes settlement system.

• Consequently, export firms hesitate to do trade with Iranian firms.

• BPTA has limited scope and becomes ineffective because the follow up measures are not actively introduced and pursued. That is why both countries could not realize their explicit and latent economic potential.

• Lack of complementarity in trade, as a result bilateral intra-industry trade is non-existent.

• Smuggling, trade mis-invoicing and circular trade discourage legal trade. Such activities raise the cost of trade and circumvent the very objective of policies.

• Lack of bilateral supply and value chains and connectivity as well as inefficient trade facilitation system are other reasons for their high trade cost despite nearness due to which firms stay away from doing trading business.

USA-led Economic Sanctions

Main obstacle to trade relations is US sanctions on Iran. USA has warned commercial banks that they could be deprived of access to the financial system in USA if they conduct business with Iranian firms. Consequently, the State Bank of Pakistan (SBP) has announced that it is halting its dealings with Iranian banks and has informed domestic banks to treat all their clients from Iran as high risk. Following these instructions, Pakistani commercial banks are reluctant to conduct financial and trade transactions with Iranian banks. The SBP regularly monitors all transactions with Iran, thus leaving banks cautious of any dealings with Iranian firms. This has forced traders to conduct transactions either in local currencies or on barter basis. Similarly, insurance companies ctre not taking risk of underwriting for any business deal with Iran. This has adversely affected the Pakistani transport; companies doing business with Iranian companies. The SBP is of the view that since the entire banking sector is under sanctions, it is not possible to open branches of Iranian banks in Pakistan. Absence of the banking facilities has become another main obstacle to the promotion of bilateral trade. Thus, sanctions are hurting licit trade and are rewarding illicit trade, so sanctions policy has been counterproductive.

To offset the impact of foreign exchange earnings and control of capital flight, Iran has developed its very own concept of a “resistance economy”, i.e., by substituting imports with domestic production and banning some of the imports. This has led to a sharp decline in Pakistan’s licit exports to Iran, and an increase in border smuggling.

In November 2019, when USA further tightened financial sanctions, Iran increased its petroleum prices. It was then expected that smuggling of Iranian petroleum products would decline in the border areas, but it did not. It was mainly because price differential with Pakistan’s domestic petroleum remained sufficiently large keeping smuggling a viable business. More sanctions on Iran created more economic hardships for Iranian citizens forcing them to indulge into smuggling activities with more intensity and vigor. At the same time, Iran devalued its Riyal, as a result, its exports became cheaper for other countries, but its imports became expensive. Consequently, with decline in the profit margins, exports from Pakistan to Iran declined.

Iran and Pakistan signed a preliminary agreement, in 1995, to construct a gas pipeline between the two countries. Later, Iran proposed to extend the same pipeline up to India. An initial agreement was signed between Iran and India in February 1999. But India backed out from the project under USA pressure against the project. Iran has already built the pipeline up to Pakistan-Iran border, Pakistan has yet to construct its part of the pipeline, pending economic sanctions on Iran.

Way Forward

The way forward in cementing economic relations between Iran and Pakistan is through the early conclusion of Iran-Pakistan bilateral free trade agreement (IP-BFTA). The IP-BFTA would create a valuable opportunity for both neighbors to expand their trade and investment. This will engage them in strategic ways to build predictability while separating economic relations from geopolitical and other dynamics. In this context, firm steps need to be taken to transform both countries’ trajectory of historical cultural relationships to a new trajectory of economic partnership comprising vigorous trade, investment, and people-to-people contacts. Until IP-BFTA is finalized, both countries should fully operationalize the existing BPTA, an action that will be considered as a confidence building measure, while paying attention to the following:

• Iran has exempted a number of goods from all types of import taxes. These items include animals and livestock, agricultural products (unprocessed), bread, cheese, feedstock, flour, milk, machinery, pesticides, rice and sugar. Pakistani exporters need to focus on these items for export to Iran.
  For revitalizing trade relations, one possibility is to wait until Iran sanctions are removed. But at that time, we shall not be able to withstand global competition from competitors in the Iranian market. Moreover, Iran then will treat us like any other country of the world. However, if we create trade relations with Iran under punitive sanctions, of course a formidable challenge, then it will create a goodwill in Iran for Pakistan. Our traders can firmly hold their feet in the market when there is not much competition. This latter option can get strength if Pakistan engages China in its relations with Iran through CPEC-SEZs projects and vice versa i.e., China engages Pakistan in its long-term projects with Iran under its “25-year strategic bilateral deal”. Start completing Iran-Pakistan (IP) gas pipeline on the Pakistani side. China is ready for its financing. This could be a pressure tactic for countries opposing this project to come forward and negotiate in a decent manner.
  Existing bilateral Iran-Pakistan trade is based on barter and cash transactions in local currencies. To give a legal cover, arrange for currency-swap agreement, Concomitantly, if international economic sanctions on Iran do not ease, then central banks in Iran and Pakistan need to fast develop their national cryptocurrencies to trade with cryptos to overcome involuntary impasse in their trade relations.
  Improve soft and hard infrastructures between two countries. Operationalize Gul train and establish link between the ports of Gwadar and Chahbahar, it will also neutralize the India factor. This will make Gwadar as the hub of trading, shipping and transport activities.
• Create an industrial hub by establishing a CPEC-SEZ in the border area of Iran- Pakistan, whose output will be exported to the three participating countries on duty free basis.
  Pakistan should follow the way Dubai is conducting trade with Iran under the current Iran sanctions. Dubai is legally and illegally trading with Iran and is not paying any attention to time-to-time statements coming from Washington. Pakistan needs to use its influence too.
• Sanctions have hurt legal traders; and it tempts them to circumvent sanctions. Customs and border authorities lack the ability to thoroughly inspect cargoes to and from Iran. Consequently, illicit and indirect trade has made sanctions counterproductive. USA needs to be reminded of this situation to secure at least a limited access for legal trade; otherwise smuggling of goods has become an important source of money laundering and terror financing.
• The private sector in two countries needs to regularly interact for exchange of information on available opportunities. Moreover, to understand markets in each country there is a need to regularly hold trade fairs, exhibitions, and exchange trade delegations.