x Abu Dhabi, UAEMonday 22 January 2018

The business of standing by Iran

German industry groups say it is unthinkable to cancel lucrative export contracts, as Chinese firms would quickly move in to supply the imports that Tehran wants.

Siemens, the largest industrial group in Europe, last month said that it would no longer enter into new deals with Iran. Above, a worker at the Siemens gas turbine factory in Berlin.
Siemens, the largest industrial group in Europe, last month said that it would no longer enter into new deals with Iran. Above, a worker at the Siemens gas turbine factory in Berlin.

German companies are resisting political pressure to wind down their business with Iran. Many look unlikely to follow Siemens, the German company that is Europe's largest industrial group, which announced last month that it would cease entering into new deals with the Islamic republic.

Industry associations in Germany say that despite the escalating nuclear dispute between Iran and the West it makes no sense for German firms to cancel lucrative exports, as rival manufacturers from China would fill the void. A unilateral pull-out from Iran would amount to a defeat, albeit a minor one, for German business in its battle with China for supremacy in world trade. China overtook Germany as the world's leading exporter last year.

"If you bow to political pressure and don't deliver a product, then other states, especially China, will supply it instead," Michael Tockuss, the director of the German-Iranian Chamber of Commerce in Hamburg, says in an interview with The National. "Once the new machine is in place, a German firm needn't bother trying to sell anything for the next few years." Germany is Iran's biggest trading partner in Europe and exported ?3.3 billion (Dh16.49bn) worth of machinery, chemical products, metals and other goods there in the first 11 months of last year. That was down about 8 per cent from the year earlier, but overall German exports fell by 20 per cent last year as a result of the global economic slump.

The German government has joined other western nations in pushing for a new round of sanctions against Iran to deter it from pursuing its nuclear programme, but Berlin has refrained so far from forcing German firms to cease business in Iran. "We think it makes little sense to pull out because sanctions on trade with Iran are already very tough and our firms adhere to them to the letter. This is all legal business. The problem is that governments are trying to reach political goals through economic measures," says Mr Tockuss. "Politics can react quickly. There may be an agreement with Iran tomorrow, or in the next three months, but if you sever economic ties they take years to re-establish."

Volker Perthes, the director of the German Institute for International and Security Affairs, says the economic sanctions only make sense if they are backed by the broadest possible international consensus. "If the only effect of a German company stopping deliveries is that a Chinese firm will take over, that won't increase the political pressure on Iran," he wrote in Handelsblatt, a German business newspaper.

The US forbids American companies from trading with Iran and has been pressuring other countries to follow suit for years. It is leading a push for the UN Security Council to impose a fourth round of sanctions on Iran, which this month began higher-grade uranium production. The West fears Iran is developing nuclear weapons; Iran says its nuclear work is solely aimed at generating electricity. Siemens did about ?500 million worth of business with Iran last year, supplying equipment for infrastructure projects as well as transport, medical and communications technology.

"We are aware of the sensitivity of our business with customers in Iran and monitor our business activities there very closely," the chief executive, Peter Loescher, told the company's annual shareholders' meeting last month. He said contractual agreements would be fulfilled, but that Siemens would take no new orders from the middle of this year. The announcement was welcome news for the German chancellor, Angela Merkel, because it reinforces Germany's credentials in the West in the nuclear dispute. "Germany has shown that the involvement of many firms has already been scaled back," she said.

But Siemens is a special case. The company has been battling to improve its image after being dogged by a major corruption scandal in recent years. In addition, it received bad headlines last year after reports that technology sold to Iran by its joint venture, Nokia Siemens Networks, could be used to monitor phone calls and help the Iranian regime to pursue dissidents. Human rights campaigners have called for a boycott of Siemens.

Siemens says the deal is in compliance with UN and EU sanctions. Dealing with Iran, the company decided, was not worth the risk to its business. Iran accounted for just 0.7 per cent of its sales last year. The US, by contrast, is a mainstay of its business, with 70,000 of the 400,000-strong Siemens workforce employed there. The big German banks Deutsche Bank and Commerzbank gave up their business operations with Iran in 2007, following heavy US lobbying. Daimler, the car maker, has scaled back its sales in Iran in recent years, in line with tougher German export controls on heavy lorries.

But other German firms are staying the course. Small and medium-sized companies in particular cannot afford to quit, say industry officials. "For many companies every order counts at the moment, including legal Iran contracts," says Klaus Friedrich, an expert on foreign trade at the German Engineering Industry Federation. "There's also the long-term potential of the Iranian economy; one doesn't want to simply be pushed out of Iran. China has rapidly and massively gained ground in Iran."

Matthias Kuntzel, a political scientist and the author of the book The Germans in Iran, says he had detected a slight change in sentiment among German firms. "Industry groups have dropped the rhetoric they were using only six months ago, when they were saying Iran was a strategic business for them and that thousands of jobs were at stake," says Dr Kuntzel. "Siemens was an exception, and one swallow doesn't make a summer. The other big firms aren't showing the slightest inclination to follow Siemens."

The German parliament, he says, must pass stricter laws forcing German firms to disclose all their business transactions with Iran, and should restrict the access of Iranian officials and executives to technology trade fairs in Germany. More than 7,000 Iranian firms visited German trade fairs in 2008 to learn about new products and technologies, according to the Tehran-based German-Iranian Chamber of Industry and Commerce.

"The German market is an El Dorado of technological progress for Iranians," says Dr Kuntzel. He says that despite closer government scrutiny on trade with Iran, firms around the world are still managing to conceal their exports, for example by channelling deliveries through other ports. "At present it's still very easy for firms to obscure their sales to Iran. The German government has described its strategy as one of discouraging firms from dealing with Iran, which means it's just a moral appeal. As a result, firms that refuse to be discouraged make the most profit. That's ridiculous."