The refusal by banks in Pakistan to accept letters of credit (L/Cs) from Iranian banks has all but halted bilateral trade between the two countries and encouraged the smuggling of goods, according to a long-established Pakistani newspaper.

The Nation magazine also reports that difficulties with direct imports and exports between the two countries are forcing traders to conduct indirect bilateral trade via Dubai.

Sanctions

Chairman of the Pak-Iran Business Council, Zubair Tufail, reportedly told The Nation that sanctions imposed on Iran had substantially halted trade between Pakistan and Iran.

Sanctions on financial institutions imposed by the US and the EU on Iran's financial institutions due to Tehran's nuclear ambitions and alleged support of terrorism have prompted banks across the world to refuse Iranian L/Cs.

State bank orders

According to Tufail, the State Bank of Pakistan has ordered all banks in Pakistan not to accept Iranian L/Cs, the newspaper report says, adding that direct trade between Pakistan and Iran more or less dried up in March 2008.

The president of the Union of Small and Medium Enterprises, Zulfikar Thaver, told The Nation that Pakistan's government should allow the country's banks to accept Iranian banks' L/Cs. He said the ban was encouraging smuggling of goods between the two countries, which was resulting in losses to Pakistan's national exchequer.

Dubai's role

Citing Pakistani exporters and importers, The Nation says that in the absence of Iranian L/Cs some exporters and importers are opting to trade goods indirectly with Iran via Dubai.

Trading goods via Dubai is costly, because Pakistani importers and exporters have to pay extra commission to Dubai-based indenting agents who establish L/Cs there in favour of the Pakistani traders.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.