Korea faces hurdles to do business with Iran

Korean exporters may face an uphill battle to regain a foothold in Iran after a temporary nuclear deal, signed between Iran and six world powers in November, took into effect from Jan. 20.

Observers say recent media reports about the Iranian market are “too rosy” and underestimate the myriad of challenges facing Korean firms.

Such optimism disregard the fact that the Islamic Republic is not enthusiastic about Korean firms, they said.

Shin Jae-hyun, chairman and CEO of the Korea-Iran Business Council in Seoul, claimed that the Korean government “has gone too far” after it joined the United States-led sanctions against Iran.

“You will reap what you sow,” the former ambassador for energy and resources cooperation said.

Shin, who travelled to Iran 27 times in the last four years, blamed the Ministry of Strategy and Finance for being overly bureaucratic.

“Officials at the ministry are too stiff and sometimes I feel that they pay less attention to some 2,300 small exporters who entirely depend on trade with Iran,” he alleged.

Shin, also a lawyer, claims that the ministry is acting tougher than Washington in the enforcement of sanctions at the expense of local small exporters.

“They even don’t allow firms to do business with Iran in services areas, which are not on the sanctions list,” he lamented.

The government of Iran confirmed Shin’s view.

Last week, Iranian Ambassador to Korea Ahmad Masoumifar said that Korean exporters will find it difficult to make up for their years of absence in the Iranian market in the wake of the “significant changes” that have taken place there in the past years.

“Korean firms will face hard and great challenges to re-enter the Iranian market,” the envoy warned in a recent interview with The Korea Times.

Masoumifar claimed that Korean firms imposed what he called self-sanctions on themselves over the past two years since the government announced its decision to join the U.S.-led sanctions on Iran in 2010.

The Iranian envoy said Korean businesses were responsible for limiting their activities in Iran since the sanctions were imposed. They therefore created a vacuum that has been filled by their competitors, he said.

Iran warns

Masoumifar declined to elaborate on what he meant by Korean firms’ self-sanctions.

He added that compared with Europe or other unspecified Asian countries, Iranians are not very enthusiastic about Korean firms to resume business there.

“The activities and eagerness of European and Asian companies to get into the Iranian market are much higher than those of their Korean counterparts,” he said.

He cited the recent visit by National Assembly Speaker Kang Chang-hee to Iran as a positive step toward improvement in ties.

But, Masoumifar noted, this was not sufficient.

Earlier this month, a French delegation from the largest employers’ union MEDEF visited Iran to begin talks with their Iranian counterparts after an absence of several years following the European Union’s sanctions on Iran.

Ambassador Masoumifar said the French business delegation “had very fruitful discussions with their Iranian counterparts.”

Washington, meanwhile, was critical of the French delegation’s trip. Secretary of State John Kerry warned of any premature efforts to resume business with Iran, emphasizing that the Geneva Nuclear Agreement has a limited scope.

Kerry is said to have telephoned his French counterpart Laurent Fabius to protest the delegation’s visit.

He was quoted by Deputy Secretary of State Wendy Sherman as saying that the visit was “not helpful.”

“Secretary Kerry has talked directly to Foreign Minister Fabius about the trade delegation … about how this is not helpful … Teheran is not open for business because our sanctions relief is quite temporary, quite limited and quite targeted,” Sherman said on Feb.5.

Washington was apparently warning against a hasty move by countries to resume business with Tehran by making the talks public.

Meanwhile, Rep. Lee Sang-min of the main opposition Democratic Party, who accompanied Speaker Kang on the Iran visit, confirmed the unfriendly atmosphere in Iran.

“We’re told that our Iranian counterparts felt regret about Korea after the country joined the U.S.-led sanctions,” the lawmaker told The Korea Times.

Lee said he would closely collaborate with his colleagues in the National Assembly to ease Iran’s hard feelings by promoting a variety of exchange programs in cultural and non-political areas.

“The Iranian parliamentary leader will visit Korea in March or April as Kang requested him to do so when we visited Iran,” the lawmaker said.

The U.S. concern about the “premature resumption of business” with Iran is likely to limit Seoul’s policy options.

In addition to this, Korean exporters, especially auto parts producers, are facing intense competition in Iran as their European rivals are working to strengthen ties with their Iranian counterparts, returning from the few years of diplomatic hiatus after the EU imposed sanctions on Tehran in 2011.

Competition from Chinese parts manufacturers constitutes another major challenge for Korean exporters. Their chances were boosted by the fact that Beijing did not join the US-led sanctions on Iran thus given them significant room to strengthen their foothold there.

Interest rate dispute

Iran’s alleged hard feeling toward Korea meanwhile begs the question about its rather warm reception of the European trade delegation which imposed harsher bilateral sanctions on the country.

Those who are familiar with Korea-Iran relations said that the dispute between the Korean government and Central Bank of Iran (CBI) regarding interest rate hikes of the ICB’s deposit accounts in Woori Bank and the Industrial Bank of Korea (IBK) in 2012 could have triggered Tehran’s hard feelings toward Korea.

In August 2012, the CBI threatened to terminate a clearing system it established with the Korean government in September 2010 to help some 2,300 small Korean exporters continue to do business with Iran amid the ongoing sanctions.

Under the agreement, the CBI opened deposit accounts in Woori Bank and the Industrial Bank of Korea to help oil importers and small exporters to carry out financial transactions with Iran.

The CBI made deposits it earned from Korean oil importers into those accounts and small Korean exporters can withdraw money in return for their exports to Iran. The interest rate of the accounts was put at 0.1 percent.

Iran later demanded interest rate hikes of 3 percent after deposits unexpectedly grew to as much as nearly 6 trillion won in 2012 thanks to increases in oil prices. But the two banks rejected this demand.

According to a confidential document obtained by The Korea Times, Iran sought to partner with two other Korean banks, — KB Kookmin Bank and NH Bank — which promised higher interest rates, to establish a new clearing system after terminating the contracts with Woori and IBK.

In a confidential letter sent to then Finance Minister Park Jae-wan on June 26, 2012, the CBI accused the Ministry of Finance of pressurizing the two banks to reject Iran’s demand to raise the interest rate.

“(W)e were recently informed by KB Kookmin Bank and NH Bank that during their working-level meetings with the Ministry of Strategy and Finance in connection with such change of operators for the clearing system, the Korean government officials have shown preference against such change and discouraged any efforts by KB Kookmin Bank and NH Bank,” it read.

The document further read that the CBI unsuccessfully made an alternative proposal where KB and NH will only take deposits while Woori and IBK continue with clearing operations.

“But such a proposal was rejected by the Ministry of Strategy and Finance as well. Given the circumstances, I kindly ask you for an introduction of other eligible banks to carry on giving banking services to the traders of both countries …”

A source who is familiar with the negotiations alleged that the Korean banks teamed up with the government to “shame” Iran, causing unease within the country.

Experts are calling on the government to work on Korea-Iran relations to fully prepare for the “post-Geneva era.”

Yu Dal-seung, a professor at the Persian Language Department, of Hankuk University of Foreign Studies, remained optimistic about a complete nuclear agreement after July when the temporary wait-and-see period ends.

“I believe Iran and the P5+1 nations, namely the United States, China, Russia, Britain, France and Germany, will finally reach an agreement to end Iran’s nuclear program,” he said. “Iran has changed, especially after the new leader took office last year. And I think the United States also has changed as the Arab Spring has created a power vacuum in the Middle East.”

By Korean Times 

 

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