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Viewing cable 08BERLIN786, GERMANY'S BUSINESS TIES WITH IRAQ -- A SLOW, BUT

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Reference ID Created Released Classification Origin
08BERLIN786 2008-06-13 12:52 2011-08-24 01:00 UNCLASSIFIED Embassy Berlin
VZCZCXRO8704
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHRL #0786/01 1651252
ZNR UUUUU ZZH
P 131252Z JUN 08
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC PRIORITY 1446
RUEHGB/AMEMBASSY BAGHDAD 0219
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNMEM/EU MEMBER STATES
RUCNFRG/FRG COLLECTIVE
UNCLAS SECTION 01 OF 02 BERLIN 000786 
 
SIPDIS 
 
 
E.O. 12356:  N/A 
TAGS: ETRD PREL BEXP IR GM
SUBJECT:  GERMANY'S BUSINESS TIES WITH IRAQ -- A SLOW, BUT 
PROMISING BEGINNING 
 
REF: BERLIN 474 
 
 
1. SUMMARY:  The Ministry of Economics and German business 
organizations are cooperating closely in seeking to rebuild 
Germany's significant business ties with Iraq.  The first 
important step is the planned June 30-July 1 meeting in 
Berlin of the German-Iraq Joint Economic Commission after a 
more than 20-year hiatus.  Despite this historic step, 
German companies continue to approach Iraq with 
considerable trepidation due to concerns over security, 
Iraq's lack of a legal structure for doing business, 
excessive bureaucracy, and difficulties moving goods across 
borders.  Many of the formerly significant business 
connections with Iraq have been lost with time and major 
German firms hold mixed attitudes about re-entering the 
market.  From a longer term perspective, however, the 
German business community (especially SMEs) recognizes that 
opportunities may be significant and is therefore beginning 
to lay the groundwork.  Much will depend on Iraq's ability 
to develop a business climate that is favorable to renewed 
German trade and investment.  End Summary 
 
 
 
Germany Sends a Political Signal on Business Ties 
--------------------------------------------- ---- 
with Iraq 
--------- 
 
2.  Several high-level Iraqi delegations have visited 
Germany in the last several weeks including one headed by 
Trade Minister Hadi Al-Hamiry, where the main topic of 
discussion was the planning for the first German-Iraq Joint 
Economic Commission meeting in more than 20 years.  The 
German Ministry of Economics will co-host the meeting with 
BDI (Federation of German Industries); Al-Hamiry is 
expected to lead the Iraqi delegation.  The intent is to 
begin a dialogue with Iraq aimed at restoring Germany's 
historically robust business ties with Iraq.  Total trade 
between Germany and Iraq in 2007 was a mere 360 million 
Euros and Iraq ranked 96th in the list of Germany's top 
trade partners, just ahead of Uruguay and Uzbekistan.  This 
is a far cry from the trade levels seen in the 1980's, when 
Iraq was Germany's largest trading partner in the region. 
 
 
German Companies Are Interested but Remain Cautious 
--------------------------------------------- ------ 
 
3.  Though the ambition and interest is high, both 
government and industry recognize that it will take time 
for German business to reengage in Iraq.  Several factors 
account for the continuing reluctance: 
 
-- Security: German companies were heavily criticized in 
the German press several years ago when they sent personnel 
to Iraq.  The press created the perception that corporate 
Germany was putting German citizens unnecessarily at risk. 
Bucking the fear factor, Daimler announced several weeks 
ago that it is opening a rep office in Baghdad, but no 
other major German company has followed suit.  The Daimler 
decision is viewed as an exception. 
 
-- Business Climate: Germany's major business organizations 
say that apart from security, the cost of doing business 
with Iraq is too high -- excessive bureaucracy, 
difficulties in negotiating contracts with Iraqi companies, 
and border crossing difficulties were cited as significant 
barriers. 
 
-- Government Procurement Policies (or lack thereof): BDI 
specifically mentioned that the lack of transparency in 
Iraqi government procurement procedures has dissuaded 
German companies from pursuing larger infrastructure 
projects. 
 
-- Competition for German Goods: German exports to the 
Middle East are flourishing and demand is increasing 
rapidly.  According to BDI and DIHK (German Chamber of 
Commerce), German companies already have "about as much 
business as they can handle" in the Middle East.  Iraq will 
need to compete more effectively with its neighbors to lure 
German companies back.  (Comment: Of course, some of these 
German companies would have more capacity to trade with 
Iraq if they were willing to reduce their economic ties to 
Iran, a point we have tried to drive home with German 
contacts.  End Comment.) 
 
BERLIN 00000786  002 OF 002 
 
 
 
-- Traditional Ties Broken: Major German companies such as 
Siemens and HochTief (construction company) were big 
players in developing Iraqi infrastructure in the 1980's. 
With the passing of 20 years, the personal relationships 
have been broken.  As DIHK explained to us, doing business 
in Iraq is heavily based on personal relationships; new 
relationships will need to be developed and this will take 
time. (Note: according to DIHK, Siemens has no current 
plans to re-enter the Iraqi market.) 
 
 
First Ventures Will Be In the North 
----------------------------------- 
 
4. German business organizations repeatedly point to the 
significantly better business climate in northern Iraq, 
where security is less of a concern and where access to the 
market is better.  They cited factors such as the existence 
of commercial flights (from Vienna) into northern Iraq 
(Lufthansa is expected to open a route soon from Germany as 
well).  Germany recently opened a Consulate in Erbil, 
another reassuring sign.  Both government and business 
contacts noted that German companies typically consult the 
German foreign ministry's travel advisory for guidance on 
doing business in foreign countries.  DIHK explained that 
the MFA's travel advisory for Iraq was recently modified, 
lifting the advisory against travel to northern Iraq, but 
leaving it in place for the rest of the country.  This is a 
key factor as the MFA's travel advisory determines whether 
companies can get insurance and other cover for their 
operations.  BGA (the German organization which represents 
over 4,000 SME export-importers) confirmed that German 
business activity in northern Iraq has picked up, primarily 
consisting of truck sales and various replacement parts for 
equipment. 
 
 
Trade Missions: What is the U.S. Doing? 
--------------------------------------- 
 
5. German business organizations are also looking at U.S. 
business activity for cues on re-entering Iraq.  DIHK 
inquired as to whether the U.S. was organizing trade 
missions to Iraq and what other planning was underway to 
reestablish business relations.  DIHK said that it might 
consider a trade mission to Iraq based on what the U.S. 
experience is.  BGA asked for any information the U.S. 
could share on business opportunities in Iraq.  Currently 
only a handful of German companies export to Iraq with 
their relations built on long-term personal connections. 
Thus, there is very little in the way of Iraq experience 
left in the German business community. 
 
 
Comment 
------- 
 
6. Despite the hesitation of German companies, both the 
government and business organizations recognize that the 
opportunities in Iraq are increasingly looking brighter and 
that Germany is relatively well poised to reclaim its share 
of the Iraqi market.  Much will depend on Iraq -- its 
ability to maintain stability, develop a legal structure 
conducive to business, and efficiently move goods across 
borders.  Northern Iraq will be the pilot testing ground 
for initial German forays and may set the stage for a more 
significant comeback for German business. 
 
Timken Jr