S.Korea contemplates options for Iran sanctions

Posted on : 2010-08-07 13:02 KST Modified on : 2010-08-07 13:02 KST
SMEs involved in trade with Iran have already taken a hit from the proposed sanctoins
 U.S. State Department Special Advisor for Nonproliferation and Arms Control
U.S. State Department Special Advisor for Nonproliferation and Arms Control

 The United States has been strongly demanding that South Korea participate in economic sanctions on Iran, and Seoul has been placed in a position in which it must accept great economic losses as price for the South Korea-U.S. alliance. More than half of the small and medium-sized enterprises (SMEs) doing business with Iran have already taken a direct hit with the window for import and export-related financial dealings blocked. South Korea obtains 10 percent of its total oil imports from Iran, and some 2,000 SMEs alone export to Iran. Accordingly, there is concern that if South Korea accepts the U.S. demand and in fact suspends trade with Iran, its largest trading partner in the Middle East, the country will face a situation in which it is impossible to predict the economic damage.

 Regarding the sanctions on Iran, a high-ranking government official who spoke on the condition of anonymity said Friday, “It requires the wisdom to carefully harmonize between participating with international trends and minimizing the aftereffects considering South Korea’s trade relationship with Iran, and so Seoul remains in a difficult position.” The official went on to say, “Last year, 9.5 percent ($4.7 billiion) of South Korea’s crude imports were from Iran, a significant amount that could cause fatal problems in the South Korean economy.” He added that South Korean companies exported $4 billion worth of automobiles, electronics and SME products to Iran, which accounted for just 1 percent of total South Korean exports, but some 2,000 SMEs were involved in this trade.

 In the construction and plant sector, too, South Korean companies have obtained from Iran six orders for a total of $1.92 billion, and Korean shipbuilders have received orders for 28 ships valued at $1.1 billion.

 A government official said that when Japan recently announced a plan to execute not its own sanctions, but pure UN sanctions, Iran immediately responded by saying it could have a major effect on oil exports used by Japan.

 An official from the Korea International Trade Association (KITA) said the United States was demanding a higher level of sanctions from South Korea than it was of Japan, China and Southeast Asia, so South Korea could lose its competitiveness in trade with Iran.

 South Korean banks’ recent decision to suspend foreign currency payments in trade with Iran has dealt an immediate blow to SMEs. The Korea Federation of Small and Medium Business(KFSB) announced Friday that a survey of 72 SMEs doing businesses with Iran found that 56 percent had suffered loses after the announcement of planned sanctions by the United States, and 31.5 percent of firms exporting to Iran had all their dealings suspended.

 Meanwhile, the Lee Myung-bak administration has composed a taskforce composed of relevant ministries such as the Finance Ministry, Foreign Ministry and Ministry of Knowledge Economy to consider “independent sanctions” demanded by the United States and measures to minimize the damage to the South Korean economy and South Korean companies. The taskforce, in operation since mid-July, met for the first time officially Friday afternoon at the government complex in Gwacheon, chaired by Vice Finance Minister Yim Jong-yong.

 Above all else, the administration is trying to find alternative routes for South Korean companies to send money to and from Iran, but it reportedly has yet to find an effective countermeasure. South Korean banks have virtually suspended financial deals fro export contracts made after July 8 in accordance with US sanctions on Iran.

 Meanwhile, the Financial Supervisory Service said it has virtually finished its regular audit of the Seoul branch of Iran’s Bank Mellat. Action by the financial authorities against Bank Mellat is reportedly a key content of “independent sanctions” demanded by the United States, so attention is focusing on the results. A government official said South Korea can decide on the details of its measures only when the executive ordinance of its Iran sanctions law comes out around Oct. 1.

 Please direct questions or comments to [englishhani@hani.co.kr]

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