Aftermath for Korean Companies Trading with Russia... Reluctance to Open L/C Leads to TT Transactions

Korea Likely to Face Slowdown in Transit Trade with China and Russia
Chinese Financial Sector Shows Shift in Stance Amid Concerns over Secondary Boycott Risks

[Asia Economy Beijing=Special Correspondent Jo Young-shin] As Russia's invasion of Ukraine continues, Korean companies trading with Russia are facing the aftershocks of the war. Korean financial institutions, fearing secondary boycotts (measures to sanction third countries trading with sanctioned countries) by the Western camp including the United States, have expressed reluctance to open letters of credit (L/C), effectively blocking payment channels.

Not only trade with Russia but also China-Russia intermediary trade has been halted, putting related companies on high alert.

[Image source=Yonhap News]

According to sources in Beijing on the 14th, Korean company A, which imports coal (for power generation) from Russia and then re-exports it to China, faced difficulties as it could not open a letter of credit.

This company, due to Korean financial institutions' reluctance to open letters of credit, ultimately agreed with the Russian side to use the telegraphic transfer (TT) method. TT also requires using the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network for dollar payments. This company imports 5 to 6 million tons of Russian coal annually, some of which is re-exported to China.

In the short term, they decided to continue importing Russian coal using the TT bypass, but if the war continues, additional imports of Russian coal are expected to become difficult.

Changes are also being detected in the Chinese financial sector. When importing Russian raw materials such as coal through third countries, they have started to be cautious of the West, including the United States. Foreign companies operating in China face increased risk of sanctions if they open letters of credit to import Russian products via bypass routes.

A source in the related industry stated, "Chinese companies have no major problems trading with Russia," but added that there is a sense of contraction within parts of the Chinese financial sector. This shift is interpreted as a change in atmosphere due to concerns about potentially providing grounds for secondary boycotts by the West including the United States.

He continued, "They have begun to recognize that even if Russian products are imported through third countries like Korea, they cannot escape secondary boycotts," and predicted that Chinese financial institutions and companies will find it difficult to import Russian products recklessly.

Another source expressed concern, saying, "Some Korean small and medium-sized enterprises trading with Russia locally in China have been asked to receive payment in rubles instead of dollars after issuing bills of lading (B/L)," warning that such cases may frequently occur in the future.

This content was produced with the assistance of AI translation services.