WarSclerotic

The European Union has announced a new regulation aimed at shielding European companies from the impact of US sanctions on Iran. The measure, which has been greeted with skepticism by the European business media, is unlikely to succeed: it expects European companies to risk their business interests in the US market for interests in the much smaller Iranian market.

The so-called “Blocking Statute” entered into effect on August 7, the same day that the first round of US sanctions on Iran officially snapped back into place. Those sanctions target Iran’s purchases of US dollars — the main currency for international financial transactions and oil purchases — as well as the auto, civil aviation, coal, industrial software and metals sectors. A second, much stronger round of sanctions targeting Iran’s oil exports, takes effect on November 5.

The action follows up on President Donald J. Trump’s decision on May 8 to withdraw from the 2015 Joint Comprehensive Plan of Action (JCPOA, also known as the Iran Nuclear Deal) negotiated by the Obama administration, which lifted sanctions on Iran in exchange for a freeze on its nuclear program.

The Trump administration said that the deal negotiated by the Obama administration did not go far enough to curtail Iran’s nuclear weapons program, or its ballistic missile program, or its malign behavior in the Middle East and elsewhere.

The reimposed US sanctions apply not only to American citizens and companies, but also to non-American individuals and companies. In a legal concept known as extraterritoriality, any company based outside of the United States must comply with American sanctions if it uses dollars for its transactions, has a subsidiary in America or is controlled by Americans.

In an August 6 statement, Trump said:

“The United States is fully committed to enforcing all of our sanctions, and we will work closely with nations conducting business with Iran to ensure complete compliance. Individuals or entities that fail to wind down activities with Iran risk severe consequences.”

In an August 7 tweet, Trump repeated that threat:

“The Iran sanctions have officially been cast. These are the most biting sanctions ever imposed, and in November they ratchet up to yet another level. Anyone doing business with Iran will NOT be doing business with the United States.”

In a joint statement, EU foreign policy chief Federica Mogherini and the foreign ministers of France, Germany and the UK openly admitted that for the EU the Iran deal is all about money and vowed to protect European companies from US penalties:

“We are determined to protect European economic operators engaged in legitimate business with Iran, in accordance with EU law and with UN Security Council resolution 2231. This is why the European Union’s updated Blocking Statute enters into force on 7 August to protect EU companies doing legitimate business with Iran from the impact of US extra-territorial sanctions.

“The remaining parties to the JCPOA have committed to work on, inter alia, the preservation and maintenance of effective financial channels with Iran, and the continuation of Iran’s export of oil and gas. On these, as on other topics, our work continues, including with third countries [China and Russia] interested in supporting the JCPOA and maintaining economic relations with Iran.”

In a joint statement, EU foreign policy chief Federica Mogherini (pictured) and the foreign ministers of France, Germany and the UK openly admitted that for the EU the Iran nuclear deal is all about money and vowed to protect European companies from US penalties. (Photo by Dean Mouhtaropoulos/Getty Images)

The Blocking Statute, originally adopted by the EU in 1996 to help European companies avoid US sanctions on Cuba, was updated in June 2018 to include sanctions the US is re-imposing on Iran. The document, riddled with EU jargon, states:

“The Blocking Statute allows EU [economic] operators to recover damages arising from the extra-territorial sanctions within its scope from the persons causing them and nullifies the effect in the EU of any foreign court rulings based on them. It also forbids EU persons from complying with those sanctions, unless exceptionally authorized to do so by the [European] Commission in case non-compliance seriously damages their interests or the interests of the Union.”

In other words, the EU is prohibiting EU citizens and companies from complying with US sanctions and is authorizing EU companies hit by US sanctions to sue the US government for compensation in European courts.

In addition, European companies that do pull out of Iran without approval from the European Commission face the threat of being sued by EU member states.

Many European commentators said the EU scheme would be unworkable, especially for European multinational corporations with business interests in the United States.

The London-based Financial Times wrote:

“Diplomats and lawyers have raised serious doubts about the EU’s ability to protect European businesses operating in Iran from the US measures.

“The blocking statute, first drawn up in 1996, has rarely been tested. One senior EU official said there was little legal precedent for judges in EU member states to reclaim damages from third countries like the US if sued by companies.”

In France, Le Figaro wrote that European Commission’s response to US sanctions was “hasty” and amounted to a “political gesture.”

Le Monde described the EU’s measure as a “political signal for the Iranian regime, which demanded signs of European commitment to defend the JCPOA.”

L’Express noted: “If a company is active in the big US market and the small Iranian market, then it does not benefit much from the fact that its activities are protected in Europe and Iran but not in the United States.”

Radio France Internationale (RFI), a French public radio service, said that the effects of the Blocking Statute would be “more symbolic than economic.” It added:

“The law would be more effective for Small and Medium-sized Enterprises (SMEs) doing business in Iran. For large corporations, the solution lies in negotiating waivers or exemptions with the United States. But such requests from France, Germany and the United Kingdom have already been rejected by Washington.”

La Croix wrote:

“Suffice to say that the implementation of this blocking law remains very hypothetical, as it goes into uncertain legal territories.

“Total, Maersk and Peugeot have already decided to leave Iran. Moreover, companies investing in Iran do not seem to believe much in the effectiveness of the regulation. The oil group Total, the ship-owner Maersk or the automaker Peugeot have already decided to leave. German group Daimler announced its withdrawal from Iran yesterday. These groups are more afraid of the US’s ability to implement sanctions than the EU’s wrath.”

In Germany, the public broadcaster ARD published an opinion article by Brussels correspondent Samuel Jackisch titled, “Well Roared, Paper Tiger — EU Defenseless against US Sanctions.” He said that the EU’s new policy was “logical, but largely meaningless,” and an attempt by EU foreign policy chief Federica Mogherini to “defend her political legacy.” He added:

“The EU can try to turn the tables on transatlantic relations, but in the end the US still comes out on top.

“The German export industry’s business with Iran may not be small at around three billion euros. However, the bottom line is that the same companies export 35 times as much to the USA. The EU is demanding that its largest corporations risk the entire cake for a few more crumbs.”

German public broadcaster ZDF wrote:

“The peculiar construction of the EU Blocking Statute remains: Ordinarily, regulations and laws prohibit something. For example, an anti-dumping law prohibits companies from price dumping in order to force competitors out of the market. But the EU Blocking Statute is a call to action: Do trade with Iran and do not let threats from the US president dissuade you!

The newspaper Westdeutsche Allgemeine Zeitung quoted the Chief Executive of the German Chamber of Industry and Commerce (DIHK), Martin von Wansleben, who described the EU’s measure as a “helpless political reaction.” He said that its purpose was to show that the EU does not bow to US sanctions. For individual companies, he said, the blocking regulation has “no relevance.”

In Austria, Der Standard wrote:

“The Blocking Regulation is not an effective antidote to US sanctions, as the historical example suggests…. Although Washington should refrain from extraterritorial sanctions, the US market is too important for corporations to expose themselves.”

In Italy, Südtirol News quoted stock market expert Robert Halver of Baader Bank:

“Due to the US sanctions against Iran, German industry will not touch Iran. If you realize that German industry is doing a hundredfold business in America, you will not do business with Iran, because then sanctions against German companies will exist. Therefore, Iran is certainly going to bleed very heavily at the moment.”

The European edition of Politico wrote:

“Some experts say the EU’s moves are unlikely to have the desired effect, arguing that the blocking statute would create legal burdens for Europe-based companies without preventing the US from targeting their American branches and assets. For many companies, the risk of being cut off from business in the US — a far bigger market than Iran — is enough to make them want to comply with Washington’s demands.”

An investment banker quoted by Reuters said:

“It would be suicide to do any new business or funding for Iran or Iran-related companies without explicit guarantees from the US government. They have us by the throat because so much business is conducted and cleared in dollars. The fines are in the multibillions these days so it’s just not worth the risk for a small piece of business and maybe pleasing a European government.”

As if to prove the point, moments before US sanctions against Iran entered into force, Daimler, the German car and truck manufacturer, dropped plans to expand its Iran business. “We have ceased our already restricted activities in Iran in accordance with the applicable sanctions,” Daimler said in a statement.

Daimler follows similar decisions by: Adidas (Germany); Allianz (Germany); AP Moller-Maersk (Denmark); Ciech (Poland); Citroen (France); CMA CGM (France); DZ Bank (Germany); Engie (France); ENI (Italy); Lloyds (UK); Lukoil (Russia); Maersk Tankers (Denmark); Oberbank (Austria); Opel (Germany); Peugeot (France); PGNiG (Poland), Renault (France); Scania (Sweden); Siemens (Germany); Swiss Re (Switzerland); and Total (France).

Soeren Kern is a Senior Fellow at the New York-based Gatestone Institute.