GERMANY'S EFFORTS TO REDUCE EXPORTS TO IRAN

C O N F I D E N T I A L SECTION 01 OF 02 BERLIN 000729 C O R R E C T E D C O P Y (DECLAS DATE) SIPDIS NEA/IR, EEB FOR COULTER E.O. 12958: DECL: 06/19/2019 TAGS: PREL ECON EFIN ETRD ENRG IR GM SUBJECT: GERMANY'S EFFORTS TO REDUCE EXPORTS TO IRAN SHOWING SIGNS OF SUCCESS, BUT LEGAL THREATS LURK REF: A. BERLIN 566 ¶B. BERLIN 473 ¶C. BERLIN 336 ¶D. BERLIN 120 ¶E. 08 BERLIN 683 BERLIN 00000729 001.2 OF 002 Classified By: EMIN Robert A. Pollard for reasons 1.4 (b) and (d) ¶1. (C) Summary. Statistics from the first quarter indicate that Germany's efforts to discourage business with Iran are hammering German exports to that country. The German government, however, is under increasing pressure from German industry for its efforts and faces criticism in the press as well as legal challenges. Pending court cases may in fact threaten the government's ability to continue to expand its dual use export restrictions beyond the EU list. The Ministry of Economics downplayed the negative tone of press coverage, but acknowledged the possible consequences of pending court cases. End Summary. ¶2. (SBU) According to EU statistical data, German exports to Iran in the first quarter of 2009 declined 22% compared with the same period last year, to 800 million euro. Although this may be partly due to the global economic downturn and the decline in oil prices, the government's sanctions policy deserves a lot of the credit for cutting trade with Iran, as Germany's world-wide exports fell much less -- only 9% --during this same period. The decline in exports was particularly acute in certain sectors and sub-sectors. Overall steel exports to Iran fell 47%; more important, exports of steel for oil and gas pipelines fell 72%. This is a continuation of a trend of declining exports in industrial products dating back to 2008 (Ref C). ¶3. (C) The German government, despite limited legal tools to restrict exports of non-military, non-dual use goods ("civil goods"),has been willing to use the limited legal and extra-legal means ("moral suasion") available to it to discourage exports to Iran, particularly in the oil and energy sectors. The German government, for example, requested a German trade group cancel the Berlin visit of the Iranian oil minister and declined requests for official meetings and other participation in his visit (Ref A). Similarly, when faced with press reports of a German company entering into a large contract to supply natural gas filling �0A;stations in Iran, the Ministry of Economics contacted the company directly, encouraging the company to reevaluate the transaction (Ref B). Additionally, Germany reduced the volume of export credit insurance to Iran ("Hermes insurance") by 94% from 2004 to 2008 and now extends credit only for small projects, and refuses to extend Hermes insurance for exports in sensitive refinery or liquefied natural gas sectors (Ref D). ¶4. (SBU) In recent weeks, GOG efforts to discourage exports of civil goods to Iran have received a new round of negative coverage in mainstream German media. The Berlin daily newspaper "Tagesspigel" published an article criticizing the GOG's moral suasion campaign, repeating oft-heard industry complaints that it places exporters at a competitive disadvantage to their foreign rivals. Similarly, the leading German newsweekly "Der Spiegel" published a recent article highlighting cases that call into question the government's continuing ability to use moral suasion and other extra-legal measures to reduce these exports to Iran. In the "Saaed S." case, the GOG filed criminal charges against an exporter, claiming the recipients of his (unspecified) goods worked for the Iranian defense industry and that these exports threatened a "significant impairment of (Germany's) foreign relations". (Note: Section 7 of the German Foreign Trade and Payments Act allows the German government to restrict otherwise legal exports in such cases. End Note.) In a 109-page ruling dismissing the prosecution, the Munich Higher Regional Court rejected the government's arguments, finding parts of Germany's export law "incompatible" with EU law and interfering with the rights of German exporters. The GOG has appealed this decision to Germany's Federal Court of Justice in Karlsruhe, the court of final appeal for such matters. If the government loses the case, government officials told "Der Spiegel," the "entire system of foreign trade law will be dead." ¶5. (SBU) &Der Spiegel8 opened its report by discussing a five-page letter from Daimler to the German MFA, repeating the German industry mantra that German government policies placed exporters at a competitive disadvantage. This letter, written by a former spokesman for German Foreign Minister Steinmeier, stands against the backdrop of the German government's well-publicized 2008 declaration that certain German manufactured heavy trucks were restricted dual-use BERLIN 00000729 002.2 OF 002 items when exported to Iran or Syria (Ref E). In that case, the German Ministry of Economics expanded its national list of controlled dual-use items beyond those controlled by EU sanctions. Daimler complained in their letter that French and Swedish companies could profit at Daimler's expense. ¶6. (C) "Der Spiegel" highlighted a second case, involving the German fuel-tank truck manufacturer Esterer. In March 2008, Esterer applied to the German export control agency BAFA for a license to export 50 fuel trucks to Iran's Aseman airline, to be used at Tehran's Mehrhabad airport. However, Iranian air force planes are based at that airport, and Aseman provides aircraft maintenance services to the air force. The German MFA expressed concerns to German export control authorities over these trucks being used to fuel Iranian fighter jets. To date, BAFA has declined to render a decision on Esterer's application. Esterer has sued the government in the Frankfurt Administrative Court to force the authorities to make a final decision on their case. (Note: One possible reason for BAFA's inaction is the potential personal liability German law imposes on government officials for improperly denying export license applications. Given the nature of the Esterer case, BAFA officials may prefer inaction to facing a legal challenge to a denial. End note.) ¶7. (C) In discussing these matters with Econoff, Ministry of Economics official Martin Lutz described &Der Spiegel,s8 analysis of the Frankfurt court's upcoming decision's potential ramifications as "somewhat exaggerated". The case, he said, is not a direct challenge to Germany's Foreign Trade Act per se. However, he said that the lower court's decision was a "full-scale attack" on the GOG's long-standing ability to expand its dual-use items list beyond that of the more restricted EU list, a right Lutz stated is well grounded in both EU and German law. Further, while the Munich case does not directly address moral suasion, he did believe that this case, if resolved in favor of the Saeed S., will restrict the government's ability to expand dual-use lists and may weaken the government's political resolve to continue with moral suasion. The Ministry of Economics, he said, "fully disagrees" with the Munich court's decision and has defended its interests in the appellate process. ¶8. (C) Comment: If the German courts were to restrict the GOG's ability to use moral suasion to discourage export to Iran, this would represent a serious setback and the undoing of years of hard-won cooperation from Germany. For in fact, despite strenuous (public) denials that they have any leeway to interpret the regulations, BAFA officials have on occasion made rulings on &dual-use8 and other products that do not necessarily fall under EU sanctions or other restrictions. At a higher level, too, the Chancellor and other senior officials have not hesitated to jawbone recalcitrant business people involved in strategic, sensitive technologies such as LNG. Our German counterparts, however, have long warned that pushing the envelope too hard could trigger a backlash from business, possibly resulting in legal precedents that would sharply limit their freedom to impede trade and investment in Iran. Koenig