JAPAN EXTERNAL TRADE ORGANIZATION ASSESSMENT OF

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 002498 SIPDIS E.O. 12958: DECL: 10/29/2019 TAGS: ETRD PREL IR JA SUBJECT: JAPAN EXTERNAL TRADE ORGANIZATION ASSESSMENT OF JAPAN-IRAN TRADE REF: TOKYO 1412 Classified By: Deputy Chief of Mission James P. Zumwalt for Reasons 1.4 (b),(d) ¶1. (C) SUMMARY: Despite a significant increase in the monetary value of Japanese trade with Iran in 2008 due to fluctuations in the price of oil, Japanese economic engagement with Iran is not growing, according to Japan External Trade Organization (JETRO) officials. Japanese export of chemical catalysts with precious metals grew sharply in the past year, a trend which JETRO attributes to a change in Iranian environmental regulations for gasoline, but the Japanese share of Iran's auto imports decreased while the import of Korean brands increased. Preliminary data from the Japanese Ministry of Finance suggests the value of Japan's trade with Iran will fall sharply in 2009 due primarily to a drop in both the price of oil and the volume of Japan's oil imports from Iran. END SUMMARY. 2008 IN REVIEW: PRICE INCREASE, BUT TERMS OF TRADE UNCHANGED -------------- -------------- ¶2. (C) The sharp increase in the monetary value of Japan's trade with Iran in 2008 was due exclusively to an increase in crude oil prices rather than increased Japanese activity in the Iranian market, according to JETRO's most recent assessment of Iran. JETRO Middle East and Africa Research Department Director Shigeki Okada explained to emboff the absence of a substantive change in the composition of Japan's terms of trade with Iran, which consists essentially of importing crude oil and exporting vehicles. While JETRO has not completed a detailed analysis of 2009 year-to-date data, Okada expects the value of Japan's trade with Iran will decline corresponding to a decrease in the price of oil and the global economic slowdown. OIL ACCOUNTS FOR 95% OF JAPANESE TRADE WITH IRAN -------------- --- ¶3. (C) JETRO's research found Japanese imports from Iran in 2008 rose 42.7% in dollar terms to $18.1 billion in 2008, while exports rose 42.1% to a record $1.8 billion. Japan's trade deficit with Iran rose accordingly from $11.3 billion to $16.2 billion. Imports of oil, which rose 42.5% on a value basis to $17.3 billion, accounted for 95.8% of the total value of Japan's imports from Iran. Iran retained its position as Japan's number three supplier of oil after Saudi Arabia and the United Arab Emirates. The value of natural and synthetic gas imports and chemical products imports, which rose 55% and 54.7% respectively in 2008, along with petroleum accounted for 99.7% of Japan's imports from Iran. ¶4. (C) On the export side, JETRO's analysis found Japanese-made transport vehicles accounted for 40.1% of Japanese exports to Iran, followed by general machinery at 27.3%, steel at 9.2%, chemical products at 7.3% and electric appliances at 5.1%. In dollar terms, the value of transport equipment exports, including buses and passenger vehicles, roughly doubled to $757 million. Other machinery, including bulldozers and construction equipment, rose 46.8% to $287.9 million, while steel exports rose 3.8% to $173 million, after falling 40.8% the prior year. JETRO did not provide an analysis for why vehicle sales rose so sharply. ¶5. (C) JETRO's data indicate substantial growth in Japanese exports of supported catalysts that use precious metal as the catalyst from $81,552 in 2007 to $8.1 million in 2008. Okada did not offer a specific explanation for the sharp increase but suggested it was related to increased demand due to a change in Iranian environmental regulations governing gasoline content. JAPANESE VEHICLES LOSING MARKET SHARE -------------- ¶6. (C) JETRO's analysis of Iran's auto market found the market share of Japanese-brand vehicles fell in 2008, surpassed by imports from Korea. Hyundai led the market with shipments of 20,265 vehicles (45.9% of total vehicle imports),passing previous market-leader Toyota, which shipped 10,965 vehicles (24.8% of the market). Kia took the number three spot with 13.4 percent market share. JETRO assesses Iran will continue to be a difficult market for Japanese vehicles in 2009 and beyond due to appreciation of the yen relative to the Korean won. ¶7. (C) JETRO's analysis reported no significant Japanese foreign direct investment into Iran in 2008 due to international economic sanctions. The organization's TOKYO 00002498 002 OF 002 overview of future investment prospects suggests investment activity in Iran's 70 million person market would likely increase rapidly if relations with the United States were to improve, but it does not identify specific growth areas. All things considered, Okada concluded, given the presence of sanctions and the political risk associated with the Iran trade, Japanese firms seeking to take strategic advantage of population growth and rising incomes in the Middle East are likely to favor other markets in the region over Iran. COMMENT -------------- ¶8. (C) Preliminary data from the Japanese Ministry of Finance suggests the value of Japan's trade with Iran will indeed fall sharply in 2009. In the first eight months of 2009, Japanese exports to Iran fell 31.1% compared to the same period in 2008, while imports fell 53.8%. According to data compiled by the Petroleum Association of Japan, Japanese imports of crude oil from Iran during this period fell 14.2% from 19.6 million kiloliters to 16.8 million kiloliters. ROOS