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

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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