DAS GARBER'S DISCUSSION WITH GERMAN ECONOMIC

C O N F I D E N T I A L BERLIN 001518

SIPDIS

E.O. 12958: DECL: 11/06/2018
TAGS: IR AZ PREL ECON EAID IZ AF GM
SUBJECT: DAS GARBER'S DISCUSSION WITH GERMAN ECONOMIC
OFFICIALS ON IRAN, IRAQ, AND AFGHANISTAN

REF: STATE 115523

Classified By: Political Minister Counselor Jeffrey Rathke for reasons:
1.4 (B) AND (D).


1. (C) SUMMARY: EUR Deputy Assistant Secretary Judith Garber
on October 22 met with Ministry of Economics officials to
discuss Iran, Iraq, and Afghanistan. Deputy Director General
of Foreign Trade Law and Export Control Karl Wendling and
Head of North Africa and Near and Middle East Division Juegen
Friedrich stated that sanctions against Iran were working,
and that Germany may be open to less-targeted sanctions,
which could have an effect on the broader Iranian economy.
Wendling and Friedrich had just returned from a trade
delegation to Iraq, which they described as "successful"
given that German businesses signed several agreements during
the trip. Friedrich lamented the lack of an economic
strategy for Afghanistan and provided the German assessment
that economic reconstruction in Afghanistan faces more
difficulty than in Iraq. END SUMMARY

IRAN



2. (C) Although cast as an orientation visit for DAS Garber,
Wendling challenged DAS Garber for an explanation of why U.S.
exports to Iran have risen so much in the last 10 years. DAS
Garber explained that the percentage increase is deceptive,
as it is an increase from a very small base. Econoff added
that the exports were of humanitarian items, including
agricultural products and medical products and devices.


3. (C) Appearing satisfied with DAS Garber's answer, Wendling
then added that any increase in Germany's exports to Iran can
also be explained. First, he asserted, Iran is importing
more raw materials and as commodity prices have increased,
the quantity of German exports has not increased, only their
value. Second, he attributes the increase in value of German
exports to Iran to "currency fluctuations." He said that he
expects Germany's trade with Iran to decrease following the
introduction of the new Financial Action Task Force (FATF)
statement on Iran, linking it to UNSCR 1803's call for
vigilance over banks with ties to Iran's missile programs
(see reftel).


4. (C) When DAS Garber asked for Germany's assessment of the
impact of Iran sanctions, Friedrich opined that they were
working, but noted the recent announcement of cooperation
between Iran, Russia and Qatar on natural gas reflects "the
reality" that sanctions can only go so far. Friedrich stated
that the sanctions are hurting both Iranian traders and
industry. He also noted that the sanctions were a factor in
the increased value of German exports to Iran, as the
Iranians have to pay more. (Comment: How sanctions affect
the relative scarcity - and the price - of goods being
exported from Germany to Iran is not clear.) He stated that
the sanctions' effect on the Iranian economy made the Iranian
government's plan to implement a 3% Value Added Tax
politically impossible at the moment.


5. (C) Wendling then asserted that this might not be the best
time to move against the Iranian oil sector, as it will cause
oil prices to rise, possibly exacerbating the current
financial crisis. DAS Garber disagreed on the basis that
overall world oil demand was down.


6. (C) In response to DAS Garber's question, Wendling gave
his readout of the most recent P5 1 discussion on Iran. He
expressed surprise at China's negativity, but none at
Russia's position. Friedrich stated that Germany could
accept some new sanctions against Iran that are less targeted
and might have an effect on the broader Iranian economy.
Friedrich stated that Iran was asking for bids on a liquefied
natural gas plant with an estimated value of $1.4 billion.
He asserted there was "indirect bidding" by (unnamed) U.S.
companies on the project. Friedrich also explained that,
with respect to "civil goods" (non defense items),sanctions
law must legally originate at the EU, making formal German
unilateral action impossible.

IRAQ


7. (C) Friedrich shared that Germany had identified a roadmap
for German investment into Iraq, and that German businesses
remain highly interested in Iraq. Friedrich identified the
improved security situation as a reason for businesses to
revitalize their relationship with Iraq. Fifty companies
took part in a recent trade delegation to Kurdistan, and some
signed agreements during the trip according to Friedrich.
Friedrich agreed that Germany should take a more active role
in reconstruction and the development of civil society.
Currently, Germany has identified agriculture as the most
significant sector for investment in Iraq, in part because of

its influence on the social fabric and the development of
civil society.

AFGHANISTAN


8. (C) Officials were more pessimistic on Afghanistan.
Friedrich said that Allies have no economic vision for the
country and face a more difficult situation given the
"booming" drug industry and the lack of a natural resource
such as oil. The lack of alternative crops that could
generate as much income for farmers as opium poppy poses a
challenge to economic development plans. Executive Officer
of the Division for North Africa and Near and Middle East
Bernhard Schroeder said Germany is interested in engaging on
Afghanistan economic development but lacks a strategy.
Friedrich confirmed that Germany was preparing a trade
delegation to Afghanistan when two German soldiers were
killed in an October 20 suicide attack in northern
Afghanistan; due to the deaths, which reflect a deteriorating
security situation, the delegation's visit is postponed until
spring.


9. (U) This cable has been reviewed and approved by DAS
Garber.
TIMKEN JR