Japan and Iran will begin negotiations on Monday in Tehran to conclude a bilateral investment treaty, the Japanese Foreign Ministry has announced.
Tokyo’s move to launch the three-day talks comes as the Japanese government plans to keep in step with the United States and Europe in lifting economic sanctions on Iran after an accord to diplomatically resolve Tehran’s nuclear program was reached in July, the Nikkei reported.
Japan hopes the envisioned investment pact will push more Japanese companies to enter the market of oil-rich Iran and not be left behind by the United States and European countries, ministry officials said.
Japan will be represented by Masaaki Kanai, director of the Second Middle East Division of the ministry’s Middle Eastern and African Affairs Bureau, while Ahmad Jamali, director general for Foreign Investment Office of the Organization for Investment Economic and Technical Assistance of Iran, will lead Iran’s delegation, the ministry said.
The Japanese government also plans to send Kentaro Sonoura, parliamentary vice foreign minister, for high-level negotiations between Japan and Iran later this month, the ministry officials said.
Meanwhile, Japan Times reported that Tokyo is making arrangements to send Foreign Minister Fumio Kishida to Iran in late October to set up a bilateral committee to deal with energy and infrastructure development and other economic issues, government sources said Friday.
According to the newspaper, the Japanese government is sending Kishida to meet his counterpart, Mohammad Javad Zarif, in hopes of setting up a joint committee at the director general level to discuss issues, including finance, infrastructure-building and development of natural resources and energy.
The government also plans to send Kentaro Sonoura, parliamentary vice foreign minister, later this month to speed up negotiations on the investment pact and work out details of the joint committee, ministry officials added.
Tokyo is stepping up efforts to court Iranian businesses and government at a time when Tehran looks set to return to international markets and Japanese companies are turbocharged on Prime Minister Shinzo Abe’s quantitative easing program.
Japan is one of Iran’s oldest and most trusted trade partners. For most of the past decade, non-oil exports to Japan have oscillated around half a billion US dollars annually. Imports from Japan reached a record of $1.37 billion in 2009/10 and much of that was constituted by engine parts for large vehicles, according to Tehran Chamber of Commerce, Industries, Mines and Agriculture.
Including oil, trade balance between the two countries has consistently been skewed in Iran’s favor. The main non-oil exports are chemicals, carpets and aluminum.
After the enactment of further sanctions by the US and EU in 2012, Washington began to actively pressure Japan to cut oil imports and trade in advanced capital goods while simultaneously severing Iranian businesses from the financial system, causing mutual trade to plunge. In 2013, the value of bilateral non-oil trade constituted only 14.7% of its peak in 2010 (see graph).
Trade with Japan suffered more than other developed East Asian countries, which can be ascribed to Tokyo’s closer alliance with the US. In contrast, non-oil trade with South Korea fell by only 37% between these years.
In February 2012, Washington and Tokyo reached an agreement to reduce Iranian oil imports by 11% annually. As a result, oil shipments fell from an average of 313,000 bpd in 2011 to 177,000 in 2013. Japan proved unable to continue this policy in 2014, when crude imports registered only an annual 4.9% decline, according to Reuters.
Despite these import cuts, Japan remains Iran’s third largest client of crude oil globally.
Following the July 14 nuclear deal that broke taboos on trade with Iran, Japanese firms and foreign affairs officials have actively been courting a range of Iranian economic sectors to take the front seat in the country’s post-sanctions investment climate. Not only are these companies worried about slowing demand in Japan and its large neighbor China, but Prime Minister Shinzo Abe’s program to force inflation up has also pushed up shares and balance sheets, causing an active quest for new growth markets.
The Iranian car market is one notable area in which the Japanese have taken a keen interest. Companies like Toyota, Honda, Mitsubishi and Nissan are enjoying the recent trend of sharply increasing car imports as Iran is gradually reducing tariffs on several models. Iran imported 102,000 cars last Iranian year (ended March 20, 2015) showing a 31% increase compared with the year before.
However, the Japanese are in heavy competition with South Korea for market share. Last Iranian year, Korean KIA and Hyundai together claimed over 60% of all car imports, with Toyota trailing third at just over 10%, according to the Islamic Republic of Iran Customs Administration.
All Japanese carmakers have increased their presence in Iran over the past 12 months. Honda has spent considerable money on marketing their cars via the Family Motors Auto Group while Mitsubishi is in talks with the Chabahar Free Trade Zone authorities to start manufacturing cars.
More recently, Iran called specifically on Japanese companies to build hybrid and other environmentally friendly cars in Iran, in acknowledgment of the Japanese knowhow in this field, while offering higher subsidies for this sort of production.
The car market is not the only area where cooperation looks likely to increase and carmakers’ efforts are in tandem with the wider push by Japanese officials and companies to expand ties.
In May, Japanese companies expressed interest in building steel plants near Chabahar. Soon after the nuclear deal, Daishiro Yamagiwa, Japan’s minister of economy, trade and industry, visited Tehran and met with Industries, Mining and Trade Minister Mohammad Reza Nematzadeh.
Representatives of 21 companies tagged along, hailing from such major trading houses such as plant-engineering giant JGC and big-name banks.
During talks between Japan’s External Trade Organization and TCCIMA chief, Ali Asghar Farshchi, who headed the meeting on Iran’s side, stated that: “The opportunity is ripe for capitalizing on the Iranian market. Fields such as mining, auto manufacturing, oil and gas are all highly profitable fields for joint investment.”
