The EU Sanctions against Iran Bounce Back: The Case of Peugeot

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Pirooz Izadi
25 August 2012

EU’s financial and economic crisis has impacted virtually every sector with negative effects. For example, the demand for vehicles across the region has plunged causing more unemployment. On July 13, France’s largest carmaker, Peugeot-Citroen, declared that it would shut one of its largest factories in north of Paris and lay off 8,000 workers. Generally, Western European carmakers, except in Germany, are all suffering from diminishing demand and overcapacity but Peugeot is suffering most because of its big presence not only in France, but also in Italy and Spain which are at the midst of economic crisis too. Peugeot has declared that its sales will experience a 13% fall in the first half of 2012, and these layoffs are part of a general reorganization of its production and sales strategy to adapt to a shrinking European market increasingly dominated by luxury and ultra-cheap car producers mostly in Germany and Korea. Due partly to a large payroll tax, high labor costs have made French industry less competitive. Philippe Varin, the Peugeot chief, said that the high social charges imposed on French employers are putting an impossible burden on his company as it tries to compete globally, calling on the new Socialist administration to make a “massive” cut to the charges. In all sectors, French employers say they are being forced to move factories to cheaper locations such as Eastern Europe because of the charges.

This news dealt a blow to programs of Hollande's government which must manage to find up to $12 billion this year and $43 billion in 2013 to meet the deficit reduction targets it has promised to Brussels. The government has so far sought to reach its goals with tax increases primarily hitting the wealthy and business circles. But it seems that these measures will not be enough to reduce deficits—especially if the government starts throwing cash at heavy industries to limit proliferating lay off plans.

On the other hand, according to some news, Peugeot ended its cooperation with Iran following the imposition of economic sanctions on Iran by the West. Although, Peugeot earns nearly 4% of its income from Iranian market, it is worth noting that Iran is the second large market for Peugeot products. More than 300,000 cars are produced and sold in Iran under the brand of Peugeot which accounts for 40% of Iranian car market. Given that most of the products supplied under this brand in Iranian market are outmoded and thereby lacking appropriate outlets in other countries, Peugeot will lose an easy source of income. Also the halt in the export of spare parts to Iran will expose workers involved in producing them to lose their jobs. It is clear that this decision by Peugeot is not in the interest of this company. However, it should be noted that Peugeot entered in a strategic alliance with General Motors in March, and the American group became Peugeot’s second largest shareholder after the founding family. GM has paid 320 million € for a pack of 7% stake in the French company. Some observers say that the decision made by Peugeot has been provoked by its American partner.

In a broader context, given the high trade deficit between Iran and European countries (for example, between the years of 1992 and 2007, in average, Iran's imports from France amounted to 3/1 billion $ while its exports were only 58 million dollars), economic sanctions against Iran would not help European countries to improve their economic situation and to exit from crisis. Undoubtedly, as shown above, these sanctions have negative repercussions on their economic conditions, through losing a large and lucrative market, higher rate of unemployment, slower economic growth, etc. Therefore, it is up to European leaders, particularly those whose countries have large economic exchanges with Iran such as France, Germany and Italy to think twice before taking any further step to ramp up sanctions against Iran under the pressure of the U.S. and Israel.