In focusVolatile international trade regulations

International trade with Russia and Iran is currently a hot topic. The EU and US sanctions against both countries are significant to several Swedish companies.

In July 2015, President Barack Obama held a speech to the American nation. Together with State Secretary John Kerry, he concluded an agreement with the regional superpower Iran, according to some analysts, the largest and most powerful enemy of the US in the Middle East.

The Joint Comprehensive Plan of Action, entailing that Iran agrees, among others, not to develop nuclear weapons and submit to international inspection of its nuclear programme, is historic. In return, the United Nations, the EU and the US will suspend most of the tough trade sanctions against Iran over a 10-year period.

The democratic superpower and Iran have fought a cold war since 1979, when the autocratic Shah was overthrown. In 2012, the conflict escalated further when the US introduced so-called secondary sanctions, a sanction mechanism that meant that the US demanded that, for example, European companies and banks follow certain US sanctions against Iran. In cases where this did not happen, the US could penalise European companies and banks.

The same year, the EU also stepped up its sanctions and banned all trade in Iranian oil. The effects on the Iranian economy and foreign companies exporting to Iran were immediate. Five years on, relations have thawed. Although the US primary sanctions are still in place (sanctions aimed at American individuals and companies), the secondary sanctions aimed at Swedish and other European companies were lifted at year-end. Additionally, there are high hopes that this is the first step towards the normalisation of the West's foreign trade with Iran.

Sanctions and sanctions relief

"Iran has a population of over 80 million inhabitants and is historically the most developed country in the entire region. Several major Swedish companies have traded with Iran and many more are interested in entering the Iranian market", says Anders Lückander, lawyer and partner at Mannheimer Swartling.

The diplomatic rapprochement between Iran and the US resulted in increased media focus and increased inquiries to Anders Lückander and his colleagues from clients who were interested in establishments or trade in the Iranian market. Anders Lückander, who studied Middle Eastern Studies and harbours a great interest in this part of the world, suggested that Mannheimer Swartling put together an informal desk with a special mission to monitor the legal and economic consequences of the sanctions relief.

"Before the sanctions, Sweden and Germany had quite an extensive trade with Iran. Swedish brands have a good reputation while there is a lot of knowledge about Iran in Sweden, especially since we have a large Iranian minority here", says Carolina Dackö, lawyer and Specialist Counsel at Mannheimer Swartling.

Following Donald Trump's victory in the presidential election, there is great uncertainty around the future of the trade exchange with Iran. The Republicans in Congress opposed the agreement, so there is a risk that secondary sanctions will be reintroduced. But Anders Lückander and Carolina Dackö are optimistic.

"In many ways Iran is the economic engine in the Middle East, and the sanctions have created a backlog of many export products that Swedish industry can offer", says Carolina Dackö.

Trucks, vehicle components, pharmaceuticals, power engineering and commodities are some of the export products Iran needs. Many Swedish companies have also been contacted by Iranian purchasers. That said, it is not a question of simply pressing a button and start delivering the orders. Swedish banks are worried about accepting Iranian payments since the American primary sanctions are still in place and forbid, among others, transfers in US dollars.

Exports to Iran are still associated with a range of restrictions on the part of both the EU and the US. This requires fairly extensive legal investigation to be carried out before negotiations with an Iranian client can begin.

Russia is another export market subject to sanctions. In 2014, the EU and the US introduced sanctions against certain individuals and companies with a direct or indirect connection to the Russian regime. At the same time certain sectors in the Russian industry became subject to sanctions, among others the energy and banking sectors. As a result, several of Mannheimer Swartling's clients with operations or subsidiaries in Russia became subject to complex legislation.

Knowledge facilitates export

"The sanctions against Russia have had clear consequences. There are restrictions on certain types of transactions in some industries, among others the oil sector, and the deals done require very thorough due diligence. Swedish companies must know exactly who the counterparty is and any existing connections with the government and various business interests", says Fredrik Svensson, lawyer and partner at Mannheimer Swartling's Moscow office.

Companies that are prepared and already have knowledge, i.e., they know who they are trading with, where the goods will be used and whether an export permit is required for the goods, will be able to start deliveries immediately.

There are considerable similarities between the investigations around sanctions that must be carried out in Russia and those which must be carried out in Iran, Fredrik Svensson points out.

Russia is a big market and as a consequence of falling oil prices many Swedish companies are seeing a reduced purchasing power. Just like in Iran, it is strategically important for companies to follow the developments – both in terms of the economy and the regulations relating to sanctions. They want to be prepared when the tide turns.

"Companies that are prepared and already have knowledge, i.e., they know who they are trading with, where the goods will be used and whether an export permit is required for the goods, will be able to start deliveries immediately. This requires some preliminary work and adjusting to regulations if they change over time."

The probability that Russia should return the Crimea to Ukraine is non-existent, Fredrik Svensson believes. However, once some form of peace settlement is reached in eastern Ukraine, there will probably be some sanctions relief, which in turn is likely to boost Sweden's trade with Russia. Outside Moscow and St Petersburg, there is still a great need for modernisation, and there is much confidence in Swedish and other Nordic companies.