India and Iran to begin trade talks even with looming US sanctions

June 12, 2018


India will soon begin talks with Iran just as the US has turned hostile toward the Persian Gulf nation, threatening it with renewed sanctions after walking out of a nuclear accord with the country. And the first round of formal negotiations on a preferential trade agreement (PTA) will be held between India and Iran by August.

Such an accord will see the two giving duty concessions to each other’s goods, enabling greater market access for India’s pharmaceutical, rice and auto component exports. Talks on a PTA began two years ago, and then slowed because Iran had concerns about India’s indirect tax structure.

Most of Iran’s exports to India are intermediates. Initially, they had problems with countervailing duty and its adjustment in the pre-GST (goods and services tax) regime but now it is confident of the new tax structure. Iran has sought details on India’s tax structure before and after the imposition of GST on around 100 products including urea, various dry fruits and chemicals.
On the issue of PTA talks gaining momentum when the US was becoming belligerent on sanctions, another commerce department official said the two were mutually exclusive of each other. PTA is a permanent thing while sanctions are temporary. Moreover, there is already an existing solution — the rupee payment mechanism — which is working.

Banks haven’t objected to India going ahead with the pact despite the threat of sanctions and in fact, with a PTA, banks will have to process fewer payments due to reduction of duties. Iran’s major exports to India are oil, fertilisers and chemicals while imports include cereals, tea, coffee, spices and organic chemicals.

The two sides agreed to undertake text-based negotiations on PTA as well as the conclusion of a bilateral investment treaty in a fixed time frame during Iranian president Hassan Rouhani’s visit to India in February.

India never stopped trading with Iran even when there were US and EU sanctions on that country. Going ahead with a PTA now is a strong signal of our trade partnership.
India’s exports to Iran were $2.6 billion in FY18 while import ere $11.1billion.

The US withdrew from the nuclear accord in May alleging that Iran had violated the terms of the deal aimed at curbing the country’s bid to develop nuclear weapons, raising the prospect of renewed sanctions.

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