Identifier
Created
Classification
Origin
09BERLIN336
2009-03-20 15:36:00
CONFIDENTIAL
Embassy Berlin
Cable title:  

INDUSTRY SAYS GERMAN GOVERNMENT ADOPTING TOUGH

Tags:  ETRD ENRG PREL EFIN ETTC KMVP IZ IR GM 
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P 201536Z MAR 09
FM AMEMBASSY BERLIN
TO SECSTATE WASHDC PRIORITY 3638
INFO IRAN COLLECTIVE PRIORITY
AMEMBASSY ABU DHABI PRIORITY 
AMEMBASSY BAGHDAD PRIORITY 
USMISSION UNVIE VIENNA PRIORITY 
IRAN RPO DUBAI PRIORITY
USMISSION USUN NEW YORK PRIORITY 
NSC WASHINGTON DC PRIORITY
SECDEF WASHINGTON DC PRIORITY
USEU BRUSSELS PRIORITY
C O N F I D E N T I A L BERLIN 000336 


PLEASE PASS TO EUR/CE FOR CHODGES, PSCHROEDER; NEA/IR; EEB
FOR COULTER; S/SAGSWA; ISN; TREASURY FOR JONATHAN BURKE

E.O. 12958: DECL: 03/20/2019
TAGS: ETRD ENRG PREL EFIN ETTC KMVP IZ IR GM
SUBJECT: INDUSTRY SAYS GERMAN GOVERNMENT ADOPTING TOUGH
TONE ON IRAN

REF: A. 09 BERLIN 00298

B. 09 BERLIN 00289

C. 09 BERLIN 00220

D. 09 BERLIN 00120

E. 08 BERLIN 00772

Classified By: Minister-Counselor for Economic Affairs Robert A. Pollar
d for reasons 1.4 (b) and (d)

C O N F I D E N T I A L BERLIN 000336


PLEASE PASS TO EUR/CE FOR CHODGES, PSCHROEDER; NEA/IR; EEB
FOR COULTER; S/SAGSWA; ISN; TREASURY FOR JONATHAN BURKE

E.O. 12958: DECL: 03/20/2019
TAGS: ETRD ENRG PREL EFIN ETTC KMVP IZ IR GM
SUBJECT: INDUSTRY SAYS GERMAN GOVERNMENT ADOPTING TOUGH
TONE ON IRAN

REF: A. 09 BERLIN 00298

B. 09 BERLIN 00289

C. 09 BERLIN 00220

D. 09 BERLIN 00120

E. 08 BERLIN 00772

Classified By: Minister-Counselor for Economic Affairs Robert A. Pollar
d for reasons 1.4 (b) and (d)


1. (C) Summary: German officials are exerting stronger
moral pressure on industry to discourage business with Iran
beyond those measures specifically stipulated in sanctions
regimes, according to industry contacts. German government
officials have reportedly emphasized the undesirability of
Liquefied Natural Gas (LNG) technology exports to Iran and
the need for German banks to fortify their scrutiny of
transactions related to Iran. Recent trade data indicates
that the German government's moral suasion campaign may be
showing some results although overall trade with Iran
increased in 2008. The problem is that German industry,
especially SMEs, is unlikely to stop trading with Iran so
long as it is legal. Industry has shown keen interest in the
U.S. policy review on Iran. Post welcomes information and
support from Treasury's Office of Foreign Assets Control
(OFAC) in addressing lingering misperceptions about USG
policy. End Summary.

--------------
GERMAN TRADE: FOODSTUFFS UP, HIGH-TECH DOWN
--------------


2. (U) Evidence now suggests the German government s
campaign (REFs D, E) to reduce exports to Iran may be showing
modest results, according to EuroStat data. Although
Germany,s exports to Iran rose 9.0% in 2008 over 2007 levels
to a total of 3.9 billion euro, the broad category of food
(up 179 million euro) accounted for 56% of this increase.
Germany's food exports to Iran jumped from 43 million euro in
2007 to 222 million euro in 2008, the vast majority of which
was grain. (In fact, German exports of grain exploded from
less than a million euro in 2007 to 165 million euro last
year.) Meanwhile, some industrial categories, notably, three
high-technology categories, showed significant decreases:

specialized machinery (down 44 million euro or 16%),
metalworking machinery (down 18 million or 40%) and
telecommunications equipment (down 13 million euro or 19%).
(Note: EU export data does not separately categorize refinery
or LNG equipment.)

--------------
GERMANY'S TOUGH LINE
--------------


3. (C) Major industry organizations have complained to Post
about pressure from the German government. On March 4, Felix
Neugart of the German Chamber of Industry and Commerce (DIHK)
told EconOff that some German officials have been telling
industry privately that Israel is very likely to attack Iran
if insufficient pressure is brought to bear on Iran to change
its course. Steffen Behm, Director of Africa and Middle East
for the German Federation of Industries (BDI),likewise
described the German government's efforts to discourage LNG
deals with Iran as "very strong."

--------------
INDUSTRY STILL RESISTANT TO MORAL SUASION
--------------


4. (C) Elements of German industry remain skeptical of the
German government's moral suasion campaign. Industry
contacts said some exporters give credence to German press
stories that claim the USG is discouraging Europeans from
trading with Iran so that U.S. firms can win business there.
According to Behm, BDI advises German companies to strictly
adhere to any sanctions regime, but cannot do much more when
the German government itself only informally discourages
firms from conducting legal business. He argued that German
exporters deserve clear guidelines and legal certainty,
particularly on LNG technology. Similarly, Behm said that
the German Federal Financial Supervisory Authority (BaFIN) is
pressing German banks to undertake extremely onerous due
diligence on customers to little effect. BDI opposes
unilateral measures that, it argues, merely shift market
share from German firms to companies from China and Russia.


5. (C) German companies' responsiveness to moral suasion is
often tied to their size. Neugart of the DIHK contended that
despite German officials' strong language, security arguments
hold no sway with small and medium enterprises. In a March 6
meeting, representatives of the Bavarian Business Association
(VBW) told EconOff that larger Bavarian firms are less likely
to trade with Iran because of risks to their reputations, but
smaller, more specialized companies are apt to export
whatever is permitted under the law. VBW reps said many
firms complained that restrictions on trade with Iran are
affecting their bottom line, particularly in the energy
sector. In these cases, VBW advised such firms to explore
the growing business opportunities in Iraq as an alternative
market. VBW urged the U.S. government to consider further
outreach to more fully explain its sanctions policies.

--------------
STRONG INTEREST IN U.S. POLICY REVIEW
--------------


6. (C) Industry contacts are keenly interested in the U.S.
policy review and hope the process will be completed quickly
so that German stakeholders (both government and industry)
have a clearer sense of where U.S. policy is going.
Privately, industry associations recognize that the conflict
over Iran's nuclear ambitions may reach a critical point
within months. Most industry observers argued that
regardless of who wins Iran's June election, sanctions will
not persuade a regime and populace accustomed to economic
hardship to change course, and they remained skeptical that
Iran would abandon what its leadership regards as "a national
development project." Nonetheless, a German Federation of
Wholesale and Foreign Trade contact severely criticized
former Chancellor Gerhard Schroeder's recent meeting with
President Mahmoud Ahmadinejad in Tehran because he said it
made Ahmadinejad appear to be a credible leader (REF C).

--------------
COMMENT
--------------


7. (C) German industry has consistently downplayed the
Iranian threat in the past to forestall government pressure,
but now seems resigned to a gradual closing of the Iran
market as the German government closes ranks. Unlike in past
encounters, industry contacts did not point to policy
differences between the MFA and EconMin regarding trade with
Iran. Industry representatives also displayed greater
openness to American leadership, but remained skeptical that
a diplomatic solution was possible.


8. (C) Industry's reports of German government pressure on
LNG technology exporters tracks with what German government
interlocutors, including Economics Minister Karl-Theodor zu
Guttenberg (REF A),have recently emphasized to us: The
German government recognizes LNG technology as a key lever in
pressuring Iran and is therefore discouraging German
companies from exporting such technologies to Iran. Post
also sees the decreases in Germany's high tech exports
(machinery, metalworking and telecom),coupled with the
dramatic 94 percent drop in government export guarantees (REF
D),as small, but encouraging signs in the right direction.
That said, we should continue to press the German government
on trade with Iran; clearly, the unanticipated 2008 increase
is a source of embarrassment to many officials. The Mission
will continue its outreach to Germany's exporters in the
business communities of Munich, Hamburg, Frankfurt and
Duesseldorf, and would welcome a visit by U.S. sanctions and
export controls experts, building on OFAC's successful
meetings on Iran sanctions with German industry in Berlin in

2008. This also could be an opportunity to address German
industry questions about the results of the policy review.


Koenig