Measures to support small and medium sized enterprises that exports to Iran

Difficulties Related to the Economic Sanctions &

Measures to support small and medium sized enterprises that exports to Iran

The economic sanctions

Sanctions consist of a ban on the sale and shipment of products to a country and also on the purchase of its exports. Economic sanctions are usually the most significant of all sanctions imposed on a country. They imply “the deliberate, government-inspired withdrawal, or threat of withdrawal, of customary trade and financial relations.” Sanctions are measures applied in response to wrongdoing, such as an act of aggression against another state or pursuit of a racial policy against the international law or moral standards. Although sanctions penalize delinquent countries, they are above all intended to persuade them to change actions or policies in the future.[i]

 

 

Robert Einhorn, U.S. State Department’s special advisor for nonproliferation and arms control, said in Seoul that the U.S. government requests Korea government for participating Iran sanction. To be specific, the U.S. government demands the closure of Bank Mellat.

 

 

 

However, to participate in sanctions with Iran will damage Korean firms. This is because when firms export to Iran they do not pay their bills in cash but through the export letter of credit (L/C). The companies exchange the L/C for cash in the foreign bank located in Korea. Thus, when the Iran bank is shut down in Korea, firms will lose the mean for settlement.

 

 

The size of trand with Iran in 2009

 

At the first half of 2009, the monetary amount of trade increased significantly to 97.4 hundred million dollar, which is the fifteenth largest amount.

Current situation of monetary amount regarding trading with Iran

 

(Unit : Hundred million won, %)

  2009 2010

(Jan~June)

Ranking
2009 2010
Export  39.9 ( -8.1) 25.6 (48.6) 24 20
Import  57.5 (-30.1) 40.2 (64.4) 15 14
Profit  -17.5 -14.7    

* ( ) increased percentage of monetary amount compared to previous year

 

 

 

 

Three measures to support small and medium sized enterprises that exports to Iran

 

1. The support by policy loan

The Small and Medium Business Administration (SMBA) and the FSB provided the government supports by using the ‘Fast Track Program’. The Fast Track Program is related to the solution for the liquidity problem related to the sanctions. Furthermore, for the firms who heavily trade with Iran, the SMBA funds aid them. The corporation with temporary difficulties can borrow the amount below 5 hundred million won at specified interest rate from 3.7 percent to 5.4 percent.

2. The support by a bank bill

It will be allowed to extend the period of repaying the payment price, when the promissory of export bill is not processed at the right moment.

 

3. The support by center for difficulties regarding export to Iran

In the Korea International Trade Association established the problem solving center for errors regarding the trade with Iran. In addition, the Korean Federation of Banks set up the department that supports the obstacles related to the bank bill. The major features of these support centers are to receive the complaints as well as to inform the support system for the damage caused by the economic sanction.

 

 

Recent decision in terms of this issue

 

The FSC came to decision that the Seoul branch of the Bank Mellat was suspended by blocking tasks related to foreign exchange in October 2010. This is because they traded without the prior permission of the governor of the Bank of Korea.

Min Gyo Jeong (misomk@naver.com)

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About FSC Korea
The Financial Services Commission has been established for the purpose of protecting the integration of Korea’s financial markets by promoting sound credit system and fair business practices. To this end, the FSC serves as a consolidated policy making body for all matters pertaining to supervision of the financial industry as a whole. To raise the efficiency, the posts of the FSC Chairman and the FSS Governor were separated on March 2008 for clear distinction between policy-making and execution of financial market supervision

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