SHORT-TERM TRADE INSURANCE FOR IRAN TIGHTENED

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 001346 SIPDIS SIPDIS STATE FOR ISN/RA, ISN/CPI, AND EEB PARIS FOR USOECD COMMERCE FOR 6731 ELENTZ TREASURY FOR AMIT SHARMA E.O. 12958: DECL: 03/26/2017 TAGS: EFIN ETTC PREL IR JA SUBJECT: SHORT-TERM TRADE INSURANCE FOR IRAN TIGHTENED REF: A. TOKYO 603 ¶B. TOKYO 968 ¶C. STATE 38533 Classified By: Ambassador J. Thomas Schieffer for reasons 1.4 b/d. Summary -------------- ¶1. (C) In mid-March, Japan's primary trade insurance organzation reduced from 12 months to six months the maximum repayment term for routine short-term export credit insurance for trade with Iran (although periods up to two years may be considered on a case-by-case basis). It also announced it will not accept letters of credit from Iran's Bank Sepah issued after September 13, 2006. A Japanese trade agency official told econoff the object of the restrictions is to reduce trade risk vis-a-vis Iran while maintaining the general level of exports for Japanese business. He discounted press speculation that the restrictions would have an effect on larger project investment, explaining those would be financed through other mechanisms (which, he noted, have not been used since mid-2006). End summary. NEXI Tightens Short-term Trade Insurance for Iran -------------- -------------- ¶2. (SBU) Effective March 15, Japan's primary trade insurance organization, Nippon Export and Investment Insurance (NEXI), reduced from 12 months to six months the maximum repayment term for routine short-term export credit insurance for trade with Iran. NEXI also announced that it would not accept letters of credit in U.S. dollars issued by Bank Sepah or its subsidiaries on or after September 13, 2006. (NEXI had previously announced that it would not accept letters of credit issued by Bank Saderat on or after September 13, 2006 and by Bank Sepah on or after January 11, 2007.) On its website, NEXI described the actions as measures to control risk, "given consideration of various aspects of the situation regarding Iran's nuclear development." ¶3. (C) Ministry of Economy, Trade, and Industry (METI) Trade Insurance Division Director Kenichi Tomiyoshi told econoff March 27 that while NEXI's amount of short-term policy cover had remained level, its exposure had recently increased slightly, indicating a lengthening of average contract repayment. Reducing the maximum repayment term would therefore reduce NEXI's risk profile with regards to Iran. He added that NEXI had taken the action as a risk-control measure and that NEXI had made its decision in early March, before the adoption of UNSCR 1747. ¶4. (SBU) Tomiyoshi clarified that NEXI's reduced maximum repayment term for Export Credit insurance did not prohibit deals with terms longer than 180 days. Such deals, with repayment periods of up to two years, could still be approved, but they would have to be reviewed on a case-by-case basis. The practical effect, however, will be to reduce the average repayment terms of NEXI's export credit insurance. ¶5. (C) Tomiyoshi also discounted newspaper reports that the new restrictions would eliminate longer-term Japanese investment in petrochemical plants or other large projects, explaining that those investments would be handled under medium-to-long term programs. He quickly added, however, that no such financing had been approved since mid-2006. (Note: Tomiyoshi was evasive when asked if any mid-to-long term investment financing was under consideration, saying that depended on individual companies' proposals.) ¶6. (C) Throughout the conversation, Tomiyoshi played up NEXI's quasi-government status and the technical, risk-related rationale for its actions. Pressed, he TOKYO 00001346 002 OF 002 acknowledged that METI and NEXI officials had "exchanged views" on the policy changes and that METI was satisfied with the results. And while the effects of the restrictions are not yet visible, he stated that the goal was to reduce risk while maintaining, but not increasing, exports for Japanese businesses. Comment -------------- ¶7. (C) As described in ref A, while the Japanese government is committed to implementing UN Security Council resolutions on Iran, trade insurance provides cover for almost all of Japan's exports to the country. Tomiyoshi's comments reflect a delicate balancing of foreign policy and business interests and expose the reluctance in some areas within the Japanese bureaucracy to go beyond what is strictly mandated in UNSCRs 1737 and 1747. SCHIEFFER