VZCZCXRO7918
PP RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHBI #0311/01 2090832
ZNY CCCCC ZZH
P 280832Z JUL 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 7351
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8585
RUEHCG/AMCONSUL CHENNAI PRIORITY 2082
RUEHCI/AMCONSUL KOLKATA PRIORITY 1870
RUEHBI/AMCONSUL MUMBAI PRIORITY 2575
RUEHUL/AMEMBASSY SEOUL PRIORITY 0030
RUEHDE/AMCONSUL DUBAI PRIORITY 0037
RUEHRL/AMEMBASSY BERLIN PRIORITY 0061
RUEHVI/AMEMBASSY VIENNA PRIORITY 0010
RUEHII/VIENNA IAEA POSTS COLLECTIVE
RUEHIT/AMCONSUL ISTANBUL PRIORITY 0010
RUEHAK/AMEMBASSY ANKARA PRIORITY 0011

C O N F I D E N T I A L SECTION 01 OF 04 MUMBAI 000311 
 
SIPDIS 
 
TREASURY FOR OFAC 
LONDON FOR GAYLE; BERLIN FOR PAETZOLD; BAKU FOR MCCRENSKY; 
BAGHDAD FOR BUZBEE AND FLINCHBAUGH; DUBAI FOR IRPO ; 
 
E.O. 12958: DECL:  7/28/2019 
TAGS: EINV ECON EFIN PGOV ETRD ETTC EIND KCRM IR KS
IN 
SUBJECT: MUMBAI BUSINESSES FINDING NEW MECHANISMS FOR TRADE WITH 
IRAN 
 
REF: A. MUMBAI  000272 
     ¶B. 2007 COLOMBO 000676 
 
MUMBAI 00000311  001.2 OF 004 
 
 
CLASSIFIED BY: Michael Newbill, Consul for Economic and 
Political Affairs, Pol/Econ, State. 
REASON: 1.4 (e) 
¶1. (C) Summary:  While large Indian conglomerates are wary of 
investing in Iran, Mumbai's small and medium size trade 
companies continue to do business with their Iranian 
counterparts, explaining the 42 percent increase in India's 
non-petroleum and non-crude oil trade with Iran in the last 
year.  In the month of June, ConGenOff met with a wide array of 
business owners in Mumbai (India's commercial center) who trade 
with Iran and participate in numerous trade delegations 
sponsored by trade associations in both countries.  Discussions 
with these contacts reveal that even in light of sanctions 
against Iran, and the stigma it carries, Mumbai businesses are 
still exploring new bilateral trade opportunities with Iran. 
Moreover, members of Mumbai's business community are finding new 
mechanisms to side step obstacles, such as finding third parties 
like South Korean banks, to absorb the risk of Iranian letters 
of credit.  End Summary. 
 
 
 
NON-PETROLEUM TRADE BETWEEN INDIA AND IRAN ON THE RISE 
 
--------------------------------------------- --------- 
 
 
 
¶2. (SBU) Figures from India's Export Import Data Bank indicate 
that Indo-Iranian trade in key industries (not including 
petroleum products and crude oil) has already increased by 42 
percent in just the last year.  From 2007-2008, India's exports 
to Iran increased 34 percent, with goods such as black tea, 
coffee, black pepper, basmati rice, textiles,  office supplies 
(stationary), pharmaceuticals such as antibiotics, sugar, 
machinery for manufacturing fiber pulp, parts of central heating 
boilers, yellow fin tuna, and bird's eggs experiencing the most 
growth.  Imports from Iran during the same time period increased 
43 percent, including the largest increases in paper board, 
finishing agents, animal hides, carpets, ores, drinking glasses, 
fruit juices, gifts and almonds.  A number of trade forecasters 
predict trade with Iran will triple within the next five years 
although it currently remains a small share of India's total 
trade (3.1 percent). 
 
 
 
¶3. (SBU) According to a number of business owners in Mumbai, the 
demand for Iranian goods is strong, despite rising costs which 
could impact market share.  There are some goods, however, which 
continue to be in high demand on the Indian economy no matter 
what the cost.  For instance, in discussion with various nut and 
dried fruit vendors, the price of "Mamra Almonds," also known as 
Iranian almonds, has skyrocketed in the last six months, due to 
inflation in Iran. However, while American and Afghani almonds, 
and even some domestic varieties are gaining popularity, the 
Indian demand for the Iranian almonds continue to rise due to a 
cultural belief that they help in the development of children's 
brains, more so than other almonds.  From 2007-2008 the total 
import of almonds into India actually fell 35 percent, but the 
share of Iranian almonds in the market rose from 21 percent to 
33 percent according to the Export Import Data Bank. 
 
 
 
¶4. (C) According to Rais Shaikh (please protect), who returned 
from a trip to Iran in June 2009 (Ref A),the Commercial Attachi 
at the Iranian Consulate in Mumbai has a strong presence in the 
business community, also contributing to increased trade 
relations.  Shaikh, a successful businessman in Mumbai, told 
ConGenOff that he is especially impressed with the work and 
organization of the Commercial Attachi in Mumbai, whom he had 
not expected to be so orderly and efficient.  The Commercial 
Attachi pointed Shaikh to new manufacturers of "float glass" in 
Iran, which he plans to import for clients in Mumbai.  He said 
float glass is increasingly being used in Mumbai for the glass 
exterior of buildings, which is hard to find in India. 
 
MUMBAI 00000311  002.2 OF 004 
 
 
 
 
 
TALES FROM A TRADE DELEGATION TO IRAN 
 
------------------------------------- 
 
 
 
¶5. (C) On June 10, ConGenOff met with Vijay Kalantri (please 
protect), President of the All India Association of Industries 
(AIAI) and Director of Mumbai's World Trade Centers' 
Association, who has hosted Iranian trade delegations for the 
last 10 years.  Kalantri led a trade delegation to Iran on May 
16-30,2008  and met with key ministries and organizations, 
including the Chamber of Iran Commerce Industries and Mines 
(sic), the Privatization Organization of Iran, Khodro (an 
automobile company), and the Trade Promotion Organization. 
Their trip followed the visit of a trade delegation from Iran to 
Mumbai in March 2008.  Kalantri said that their exchanges helped 
in the November 2008 signing of agreements and memoranda of 
understanding (MOU) between Iran and India.  These agreements 
included a working plan on agriculture, a sister port 
arrangement between Shahid Rashid Port in Iran and Jawaharlal 
Nehru Port Trust near Mumbai, and an MOU between India's trade 
Promotion Organization and the Iranian International Exhibition 
Company. 
 
 
 
¶6. (SBU) Kalantri described the new areas of cooperation his 
organization had identified with Iran including banking, civil 
aviation, mining, film production, information technology, 
animation and entertainment, pharmaceuticals, detergent, and 
edible oils.  Kalantri confirmed to ConGenOff that while large 
industrial investors like Essar and the Hinduja group are 
obviously interested in Iran for energy and oil ventures, Indian 
importers are increasingly interested in a wide array of Iranian 
goods from nuts and saffron, to metal ores and industrial wax. 
There is also a growing Iranian interest in Indian exports, 
including machinery, pharmaceuticals, basmati rice, and rubber 
products.  He said that a key industry where India and Iran can 
explore cooperation is in the automotive sector; their visit to 
the Iran Khodro Company provided useful insights into "the 
excellence in automotive manufacturing in Iran,"he added.  He 
also said that Indian companies are increasingly interested in 
cement, juices, bitumen, and fertilizer.  He noted that the new 
port cooperation MOU illustrates the promising prospects in 
cooperation in transport and shipping.  In Kalantri's opinion, 
however, trade mechanisms between Iran and India must be 
formalized in order for trade between the two countries to 
fulfill its potential. 
 
 
 
MUMBAI AND IRANIAN BUSINESSES FIND WAYS AROUND TRADE OBSTACLES 
 
--------------------------------------------- ------------------ 
 
 
 
¶7. (C) While most large companies and conglomerates deny 
investing or importing oil and other petroleum products from 
Iran, other import and export companies in both India and Iran 
have found financing mechanisms to work around sanctioning 
polices on financial transactions, including servicing 
transactions through Dubai, the Asian Clearing Union, and South 
Korean banks that absorb the risk of Iranian letters of credit. 
 
 
 
¶8. (C) LETTERS OF CREDIT:  According to Shaikh and other 
businessmen who returned from a recent trip to Iran (Ref A) the 
inability to secure a letter of credit (LoC) from Iranian 
companies and their banks is a major obstacle faced by Indian 
traders.  In 2007, the State Bank of India (SBI) announced that 
 
MUMBAI 00000311  003.2 OF 004 
 
 
it would no longer negotiate LoCs opened by Iranian banks.  The 
most common practice, according to anecdotal information from 
ConGenOff business contacts, is to work with Iranian companies 
who process all transactions through banks and companies in 
Dubai; however, this cannot be done in U.S. dollars.  In 2007, 
Indian exporters, such as exporters of teas, were able to 
approach the Export Credit Guarantee Corporation (ECGC) of 
India, which provided insurance coverage to exports on credit 
terms in order to continue its mission of promoting Indian 
exports. However, this practice ended in 2008 due to pressure 
from SBI. 
 
 
 
¶9. (C) SOUTH KOREAN BANKS:  Shaikh told ConGenOff that South 
Korean banks (no specific names given) are now supporting a new 
mechanism for financing transactions with Iran.  According to 
Shakih, since Indian banks will not honor LoCs from Iranian 
banks for trade finance, some Iranian traders have devised an 
alternative route in which South Korean banks act as third-party 
financial intermediaries between Iranian banks and traders and 
Indian banks.  For instance with Indian exports to Iran, a South 
Korean bank would issue a non-USD denominated guarantee based on 
an Iranian-origin LoC, allowing an Indian bank to pay the Indian 
supplier for the goods received even though the Iranian buyer 
has not remitted funds.  The South Korean bank then charges the 
Iranian buyer 6-8 percent for the "loan," which is lower than 
the current Iranian lending rate, which is 12 percent or 24 
percent on the black market.  South Korean banks, able to 
guarantee these LoCs for 365 days, enable Iranian entities to 
use that money to finance their projects instead of borrowing 
money from Iranian banks at a higher interest rate. SBI will 
accept these LoCs backed by the South Korean bank guarantee (as 
long as it is not in USD). The South Korean banks profit after 
the loan is paid back. 
 
 
 
¶10. (SBU) ASIAN CLEARING UNION:  Kalantri said in his report on 
his trip to Iran that he addressed the constraints in banking 
and financial transactions with his Iranian counterparts.  He 
said that a large part of the export payment realization from 
Iran is done under the Asian Clearing Union (ACU).  (NOTE: As 
discussed in Ref B, the ACU was established 1975 with eight 
members  --Bangladesh, Bhutan, India, Iran, Myanmar, Nepal, 
Pakistan, and Sri Lanka - with a mandate that members banks 
carry floats of each other's currencies and manually settle 
accounts every two months. END NOTE.) He revealed that during 
his trip to Iran in 2008, Indian exporters complained of 
"administrative bottlenecks" slowing down transactions between 
Indian and Iranian businesses.  He lamented that Indian 
exporters especially were hit hard as they could not receive 
payments in USD from Iranian importers.  (NOTE: Kalantri is most 
likely referring to the restriction by the U.S. Office of 
Foreign Assets Control of all USD transactions, directly or 
indirectly, involving Iranian banks and companies as well as the 
settlement of third-country trade transactions. Indian 
businessmen have complained on various on-line trade blogs and 
message boards about this complication in financial 
transactions. End NOTE) 
 
 
 
¶11. (SBU) In order to resolve the problems that these exporters 
were facing, the Reserve Bank of India (RBI) published a 
circular in January 2009 announcing that the ACU participants 
would have the option to settle their transaction either in ACU 
dollars (equivalent to one U.S. Dollar) or ACU Euros (equivalent 
to one euro), allowing Indian importers and exporters to legally 
and effectively side-step the U.S. ban on making payments to 
Iranian exporters and receive payments from Iranian importers. 
This will also allow authorized banks in India to open and 
maintain ACU Dollar and ACU Euro account with their 
correspondent banks in other participating countries, like Iran. 
 
 
 
MUMBAI 00000311  004.2 OF 004 
 
 
 
¶12.  (C) Comment:  Small and medium sized trade companies in 
Mumbai are clearly eager to exploit the Iranian market, and 
bilateral trade is small, but growing.  Indian goods are 
becoming more popular in Iran, as more and more Iranians are 
traveling to India for work, study, and tourism.  At the same 
time, Indian demand, although reactive to the inflating costs of 
Iranian goods, remains strong for certain imports to which they 
have been accustomed.  Thus, while the increasing desire to 
trade with Iran is encouraging Indian business to find ways 
around sanctions and other obstacles, it will be interesting to 
see if Indian financial institutions continue to support the 
exploitation of loopholes found in the guaranteeing of LoCs 
another financing mechanism. End Comment. 
TYLER