Firms lose out over sanctions on Iran

With concerns spreading about the business impact of U.S.-led sanctions against Iran, a survey showed yesterday that more than half of Korea’s small firms trading with the Middle Eastern country have already suffered a loss.

According to the survey conducted by the Korea Federation of Small and Medium Business, 56 percent of the 72 small- and mid-sized firms doing business with Iran said they have suffered a loss since the U.S. issued the Comprehensive Iran Sanctions early last month to deepen Iran’s international isolation.

The U.S., led by President Barack Obama, and the European Union suspect that Iran is trying to build a nuclear bomb, though Tehran insists its nuclear program is meant to generate electricity.

The U.S. has been seeking international support to censure Iran for its uranium enrichment program. Robert Einhorn, a senior U.S. State Department official in charge of sanctions policy, was in Seoul last week to discuss the issue with Korean officials.

Because of such geopolitical reasons, the survey showed that exports to Iran have been halted for 31.5 percent of Korea’s small firms.

For example, a trading firm identified as “B” has stock worth several hundred million won in storage because it cannot open a credit account.

Other complaints made by firms include the inability to collect export payment from Iran.

“We had plans to export 1.2 billion won [$1.03 million] worth of automobile components to Iran but due to difficulty in settling payment, we are left with nothing but to break the contract,” said an official of a company who asked to remain anonymous.

In order to minimize damage, small- and mid-sized firms are asking the government for financial support to obtain export insurance that compensates them for losses and also for emergency business stability funds to cover the unpaid payment.

“Korean firms’ exports to the Iranian market was active,” said an employee of a small firm, noting that his company in particular had already received enough orders until next year. “Should geopolitical tensions continue, Korea might lose its export opportunities to Chinese firms.”

Nevertheless, an official from the federation said that “though business loss is mounting for small firms trading with Iran, there aren’t any brilliant solutions for now.”

Meanwhile, to minimize the economic damage, the Korean government is considering measures to allow local firms to transfer money by using an indirect financial transaction system.

The indirect financial transaction system, known as telegraphic transfers, works by allowing Iranian business entities to send export payment to Middle Eastern banks outside Iran - such as the United Arab Emirates - from which the money can be forwarded to Korean banks.

Although the telegraphic transfer system is not a convenient way of settling payment, industry officials say that allowing any means of transaction would keep trade from being halted.

“Using the telegraphic transfer system is the only alternative way to balance Korea’s trade with Iran,” said an official from the Ministry of Knowledge Economy.

By Lee Eun-joo [angie@joongang.co.kr]