ocal traders are still waiting for an implementation mechanism for formal import and export of goods under business-to-business barter trade arrangement announced by the government of Pakistan with Afghanistan, Iran and Russia.

On June 1, the government made public a major trade policy decision to allow barter trade with regional countries. The policy is meant to reduce the foreign exchange requirement for import of essential items, ranging from basic edibles to raw materials for domestic needs as well as exporting industries.

According to a statutory regulatory order issued by the Ministry of Commerce now a business-to-business arrangement is allowed between Pakistan on one hand and Afghanistan, Iran and Russia on the other. It allows Pakistani traders to export 26 items to these three countries and to import 14, 18 and 16 items, respectively, against the exports. The decision has been largely welcomed.

However, several questions about an implementation mechanism remain unanswered. The exporters already trading with these countries are waiting impatiently for clarifications from the Ministry of Commerce.

Shahzad Ali Malik, one of the largest rice producers and exporters, says that trade is already under way with these countries, “We have been exporting rice to Iran for many years. However, the modalities of the new business-to-business trade arrangement have not been shared with us so far.” Malik says he has sought the details from the ministry. “Once the details are available, one can better understand the situation.”

People living and doing business in the areas bordering Afghanistan and Iran have always been doing undocumented barter trade. The practice goes back many decades and is currently covered under “local arrangements.” People on both sides are dependent on each other for a number of consumer products. Some of the Made-in-Iran products are also available in various urban centres of Pakistan.

Engr Daroo Khan Achakzai, the chief executive officer of one of the top goods transport and clearing companies in Chaman and former president of the Federation of Pakistani Chambers of Commerce and Industry (FPCCI), says that the SRO needs some clarifications in order to realise the full potential of the regional barter trade. “The MoC has included dozens of items in the list that are in custom’s WEBOC system on a trial basis. Instead of a only a handful of items, more than 200 items can be allowed under the trade agreement,” he says. He also says that if the trial barter regime with the short list of items fails to deliver the desired results, the government might consider closing down the facility. With 200 items, the arrangement is quite unlikely to fail.

Some of the traders are also seeking clarity on whether Russia means just the Russian Federation or are the Central Asian States in Russia’s near-abroad also available for the same terms.

About the implementation of the policy, Daroo Khan believes that it won’t be difficult. He says a rice exporter can easily purchase iron and steel products, for example, and sell those in the local market or to an iron importer.

Endorsing Daroo Khan’s point of view, Anjum Nisar, the senior vice president of the SAARC Chamber of Commerce and Industry says there is a need to open some ExIm Bank type solutions for business-to-business trade to clear the payments made under this facility. This is not something entirely new as India has been done this during the international trade sanctions on Iran. Under the arrangement, a joint account is opened in an international bank where the LCs are submitted and the bank clears the payments to the traders in the local currencies of the respective counties after evaluating the price of the traded goods. For example, a rice exporter gets an LC for a chemicals import against the export consignment even though he may have no expertise in chemicals trade. The bank evaluates the price of the two traded consignments and makes payments accordingly.

Anjum Nisar stresses the need for strong checks on the business-to-business trade facility, fearing that lax regulation could allow it to be used for smuggling and end up putting more pressure on foreign exchange.

In order to meet the objective of barter trade mechanism, all parties must finalise international mechanisms to remove difficulties in barter trade. Superficially, it seems that trade can boost Pakistan’s foreign exchange reserves through an increase in exports. However, it may not solve the currency smuggling problem, particularly across the Afghanistan border. “It can discourage smuggling of some goods from Iran, such as diesel,” he adds.

Governments tend to make big announcements to go with any changes in policy but in many instances the follow-up work and arrangements are found lacking. Sometimes the arrangements are made after the policy is announced and SROs are issued. People affected by the decision(s) then start complaining about the absence of required facilities.

The writer is a business reporter at The News International