INITIAL FRENCH REACTION TO HALTING IRAN EXPORT CREDITS

S E C R E T PARIS 000407

SIPDIS

SIPDIS
STATE FOR EUR/WE; NEA/IR; EB/IFD/ODF and EB/ESC/TFS Treasury for
IA/Office of Trade Finance
E.O. 12958: DECL: (##)
TAGS: PREL EFIN MNUC EXIM UNSC OECD IR FR
SUBJECT: INITIAL FRENCH REACTION TO HALTING IRAN EXPORT CREDITS

REF: STATE 4760

Classified By: ECON M/C Thomas J. White for reasons 1.4 (b) and
(d).


1. (C) SUMMARY: Per reftel, we raised the issue of current
levels of sovereign and non-sovereign exposure to Iran with our
working-level contacts in the Finance Ministry. France is
interested in ratcheting up the pressure on Iran to convince it
to give up its nuclear weapons program, but is not in a position
to halt export credits. The Ambassador plans to follow up via
letter to Finance Minster Breton. END SUMMARY


2. (C) We spoke on January 24 with Renaud Lassus, DAS for the
export credit insurance division of the French Ministry of
Finance, and with Jean-Marie Paugam, DAS for Europe, Africa and
the Middle East in the international business development
division of the Finance Ministry, about the idea of halting
export credits to Iran.


3. (C) By way of overview, Paugam noted that France is not in
the same position as the United States with regard to trade,
since exports from France to Iran of goods and services
currently total around two billion euros (2.6 billion USD) per
year, France accounts for about four percent of the global
market share of trade with Iran. He also noted that any
decision affecting policy with Iran will be made by President
Chirac, although obviously France supports maintaining pressure
on the Iranian government. Last, he mentioned a technical
barrier to implementation, namely, the still non-existent legal
authority upon which any such change in policy would need to be
based, citing conversations held last year in a similar vein
with Finance Director Musca and Treasury Under Secretary Levey.


4. (S) Lassus said France's export credit company, COFACE
(Compagnie Francaise d'Assurance pour le Commerce Exterieur),
already is off-cover for short-term guarantees to Iran, and has
been for the last two years. This does not include pure private
sector transactions, which COFACE has the authority to conduct
without any GOF political influence or interference. COFACE is
majority-owned by Natexis Banque Populaires, and manages the
export guarantee program for the government. Being partially
off-cover is a different situation than some of France's EU
partners, who have increased or maintained their exposure.
France also has taken other measures to control economic
relations with Iran. For example, investment guarantees for the
automotive industry have only been approved after going up to
Finance Minister Breton for decision, and only for Peugeot and
Renault, as a way to target financial pressure.


5. (C) Lassus said COFACE has an exposure to Iran of 1.1
billion euros (1.4 billion USD),and annual flows have been
reduced to 200 million euros (260 million USD),which is mainly
to cover automobiles and vehicle parts. A large part of the
reduction is due to controls on dual-use technology and goods.
Oil exposure is small, but could become significant in the
future.


6. (C) Lassus closed by noting that on export credit policy,
France reduced its cap for Iran last year, and will reduce it
again this year. Absent legal authority directing a change in
policy, this was done on prudential grounds. The GOF is also
working on new rules for Hermes cover on dual-use goods to
certain nations, but the regulations have not yet been
published.

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