Barter with Sanctioned hit countries
By
Qamar Bashir
Former Press Secretary to the President
Former Press Minister to the Embassy of Pakistan to France
Former MD, SRBC
The Ministry of Commerce’s announcement of Business-to-Business barter trade with Iran, Afghanistan, and Russia may be fantastic news for many, but it is also worrying because all three of these countries are subject to sanctions for various reasons. I hope that the Ministry of Foreign Affairs was consulted before making such a significant decision, because it may mean cheaper oil, LNG, coal, LPG, and less reliance on dollars in the short run, until the heat of the sanctions against these countries reaches us and puts us in much greater danger.
This threat is too great to ignore; imposing primary or secondary sanctions on Pakistan would have a negative impact on Pakistan’s exports to the United States and the European Union, which are the country’s two largest trading partners; total trade between Pakistan, Russia, Iran, and Afghanistan is a mere fraction of trade with the United States and the European Union. As an example, To summarize, Pakistan’s total exports to Russia, Iran, and Afghanistan were $ 1.03 billion in 2020, compared to total imports of $ 1.71 billion, with a trade balance heavily favored by Russia and Iran and favoring Pakistan only against Afghanistan, which is rapidly reducing.
(Source: https://oec.world/en/profile/bilateral-country/rus/partner/pak.
Against this, in 2021, overall US exports to Pakistan were $ 3.51 billion, while total US imports from Pakistan were $5.51 billion. Since 2014, the EU has been Pakistan’s third largest importer, owing mostly to GSP+. Pakistan’s exports to Europe reached $ 9.5 billion in 2022, while imports were $ 5.4 billion, with a $ 4.1 billion trade balance in favor of Pakistan.
Therefore, going for barter trade with sanctioned countries requires a thorough rethink by our policymakers; else, in our anger and eagerness to improve the economy, we may end up entirely destroying it, leaving the people of Pakistan as the biggest losers through no fault of their own. Before taking such a risky and perilous decision, we must look much deeper in the level of trade between Pakistan and sanctioned and sanctioning countries to fully grasp the risk or advantages associated with the decision.
Pakistan exported US$175.2 million to Russia in 2021, whereas Russia exported $498 million to Pakistan during the same period. Russia’s biggest exports were wheat ($185 million), dried legumes ($111 million), and hot-rolled iron ($44.8 million). Russia’s exports to Pakistan have climbed at an average rate of 8.32% during the last 25 years, from $67.6M in 1996 to $498M in 2021.
Pakistan shipped $18 million to Iran in 2021, and exports to Iran have fallen at an annualized rate of 44.1% over the last 24 years, from $21 million in 1997 to $18 million in 2021. In 2021, Iran exported $614 million to Pakistan, comprising $356 million in petroleum gas, $39.9 million in refined petroleum, and $38.9 million in electricity. Iran’s exports to Pakistan have climbed at an average rate of 13.5% over the last 24 years, from $29.5 million in 1997 to $614 million in 2021.
Pakistan exposed $833 million to Afghanistan in 2021. Pakistan’s biggest exports to Afghanistan were rice ($121 million), other vegetable oils ($75 million), and cement ($70.9 million). Pakistan’s exports to Afghanistan have climbed at an average rate of 4.04% over the last 18 years, from $408 million in 2003 to $833 million in 2021. During the same time period, Afghanistan exported $595 million to Pakistan. Raw cotton ($156 million), coal briquettes ($94.4 million), and grapes ($62.1 million) were the top three products. Afghanistan’s exports to Pakistan have climbed at an average rate of 18.1% during the last 18 years, from $29.9 million in 2003 to $595 million in 2021.
The trade figures of these three sanctioned countries dwarf in comparison to the exports of the United States to Pakistan in 2021, which were $ 3.51 billion, and Pakistan’s exports to the United States which were $ 5.51 billion. Since 2014, the EU has become Pakistan’s third largest import supplier, owing mostly to GSP+ status granted to Pakistan. Pakistan’s exports to Europe reached $ 9.5 billion in 2022, while imports totaled $ 5.4 billion, resulting in a trade balance that favors Pakistan by $ 4.1 billion.
But these immense and indispensable source can dried up in no time if primary and secondary sanctions are imposed on Pakistan coupled with axillary sanctions in the form of either suspension or complete withdrawal of financial and economic aid, programs or loans which are desperately needed to keep our beleaguered and crippled economy from committing eminent default and putting the people of Pakistan and the country to unspeakable financial and economic difficulties which may lead to social unrest and commotion in the society.
In normal circumstances, barter trade with countries that are not subject to sanctions or international trade restrictions for imports and exports is highly advantageous for signatory countries because it refers to the exchange of goods and services without the use of money, and if barter trade is conducted using local currencies, it can help to keep resources and value circulating within the local economy, thereby supporting local businesses and driving growth.
Furthermore, bartering avoids the need for money transactions, which can reduce costs connected with fees, currency exchange, and banking services, and if trade is done in local currencies, signatories can save conversion charges and other foreign trade expenses. It fosters ties and collaboration within the local community, resulting in a tightly knit and supportive local economy. It builds a feeling of community and strengthens social connections by encouraging individuals and companies to engage with each other directly. It can assist lessen reliance on foreign currencies, especially for nations with weak currencies or limited access to traditional financial services. Communities can retain commerce and economic activities even in difficult economic circumstances by adopting local currencies.
Barter trade also provides more flexibility in transactions than monetary trade, allowing participants to exchange goods and services based on their specific needs, without the constraints of traditional market prices, especially when economies are experiencing economic downturns or when certain goods or services are scarce, promote local production and self-sufficiency by exchanging locally produced goods and services, reducing reliance on imported goods and services.
Another biggest benefit could be to reduce its dependence on imports from a few traditional partners as Russia and Iran are the major producers of oil, gas, and other commodities, and Pakistan could use barter trade to import these commodities from Russia, Iran and Afghanistan at a discounted price and will diversify its exports destinations which are heavily focused on USA, China, Middle East and Europe.
Moreover, for a variety of reasons, the benefits far outweigh the drawbacks. One disadvantage is that barter trade agreements may be more difficult to enforce than traditional trade agreements due to the difficulties associated with seeking legal remedy if a party fails to fulfill its obligations under the agreement, and the future of the barter trade agreement may change if sanctions against these countries are lifted or tightened.
The second and most significant disadvantage is that Pakistan may be cut off from the international financial system, inviting the wrath of the United States and its allies, who have imposed a number of sanctions on these three countries and made it difficult for their respective banks to do business with foreign banks. Pakistan might potentially be targeted by secondary sanctions, which are placed on countries that do business with sanctioned countries. The US has previously threatened secondary sanctions against countries who do business with Russia, Iran, and Afghanistan. Making economic arrangements with these sanctioned countries would be interpreted as Pakistan opposing the United States and its allies, making it very hard for Pakistan to obtain loans from international financial institutions or attract foreign investment. Above all, Pakistan will be perceived as a backer of Russia’s invasion of Ukraine, supporter of alleged evil regime of Iran and alleged illegitimate government of Afghanistan which may threaten relations with the West and make it even more difficult for Pakistan to get military and economic help from these countries.
The government should reconsider its decisions, solicit input from all stakeholders, including chambers of commerce and industry, importers and exporters, economic and financial sector leaders, and consult with the United States and the European Union, and only proceed if both internal and external stakeholders are fully on board and supportive of this apparently risky decision.
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