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IRAN: Khatami's German Visit Highlights Trade Prospects, Problems

Iran's President Mohammad Khatami is in Germany today, the latest in a series of state visits to EU countries. Both sides want the visits to bring greater foreign investment into Iran's economy. But as RFE/RL correspondent Charles Recknagel reports, that is not likely to happen until Tehran carries out widespread reforms.

Prague, 10 July 2000 (RFE/RL) -- President Mohammad Khatami is in Germany to complete a warming of Iran-German relations, which often were chilly over the last decade.

Relations plunged in 1997, when Germany accused top-ranking Iranian officials of being behind the assassination of Iranian opposition figures in Berlin five years earlier. And they only worsened over Tehran's sentencing of German businessman Helmut Hofer to death the same year for sexual relations with an Iranian woman.

But both sides now seem determined to consign those prickly days to the past. Since Hofer's release from prison early this year, Berlin and Tehran have emphasized that they want to cooperate. German Foreign Minister Joschka Fischer visited Tehran in March, and Khatami is reciprocating with his three-day visit beginning today (Monday).

Topping the agenda for both sides are trade relations. Germany was Iran's biggest European trading partner until the diplomatic spats of the 1990s saw it take second place behind Italy. And Germany has said it now would like to regain its former position, with a particular interest in participating in Iran's potentially lucrative oil and gas sectors.

One example of that interest was clearly visible last month, when a consortium of European banks led by Deutsche Bank granted a $550 million loan to Iran's National Petrochemical Company. The loan is intended to finance various petrochemical projects in Iran to be carried out in conjunction with European firms.

But even as this week's talks are likely to explore the possibilities of more such loans in the future, both sides also are keenly aware that there are very real limits on how much economic cooperation they currently can engage in.

Khatami -- as he represents Iran's moderate face to Germany -- is hobbled in his efforts by strong hostility in Iran's conservative camp to allowing greater foreign investment into the Islamic Republic.

And German officials are equally limited by the reluctance of German investors to risk any substantial sums of capital in Iran until there is a more welcoming investment climate there.

Analysts say that foreign investors today are deterred by endless regulations, political corruption, and political instability in Iran which the reformers who support President Khatami have so far been unable to clear up.

Shahram Chubin, a regional expert at the Center for Security Policy in Geneva, says that much of Iran's economy remains under the monopolistic control of state and quasi-state organizations. These conservative strongholds resist any changes -- such as opening the economy to foreign investment -- which might create a more competitive environment and undermine their power. Chubin says: "The really difficult questions have not been tackled. The difficult issues are transparency, the rule of law, the ability to repatriate profits, and also questions of being able to import material and the rates at which you can do that. All of these are very much under a stranglehold of bureaucratic and even clerical control unwilling to open the Iranian marketplace to real competition."

Analysts say that so long as such unwelcoming investment conditions exist, there is little likelihood that major foreign direct investment in Iran will materialize.

That makes Khatami's visit to Berlin this week more of symbolic value than of economic substance. It will offer German officials an opportunity to re-state their support for reforms in Iran -- both economic and political -- and for Khatami to restate his desire to carry such reforms out. But the question of when and if such reforms will take place remains very much open.

The continuing uncertainty over reforms in Iran was highly visible again this weekend just as Khatami was preparing to leave for Germany. On Saturday, hardline militias clashed with crowds in Tehran calling for greater social freedoms, injuring more than a dozen people. Afterward, Supreme Leader Ayatollah Ali Khamenei blamed Western governments for inspiring the unrest, citing the United States and Germany's EU partner Britain by name.

The clashes overshadowed student groups' efforts to peacefully mark a far more violent wave of unrest that swept Iran last year after vigilantes attacked a student rally for press freedom. That unrest, the greatest since the Islamic Republic's founding, claimed the lives of at least three people.

As Khatami visits Germany this week, Berlin is doing all it can to assure that the visit will be a diplomatic milestone. Khatami is the first Iranian leader to visit Germany since a trip 33 years ago by the late Shah, who was toppled in 1979.

Security is high in the German capital, where an exiled Iranian opposition group -- the National Council of Resistance of Iran, or NCR -- has said it expects 20,000 people to protest against the Tehran government. The NCR is the political wing of the Iraq-based Mujahideen Khalq armed movement.

Khatami is to be transported around Berlin by helicopter and Germany has temporarily waived its open-borders agreement with its EU neighbors to block incoming NCR supporters.