With the Return of US Sanctions, EU Enacts Statute Aimed at Keeping European Companies in Iran

By James Carstensen | August 7, 2018 | 9:03pm EDT
E.U. foreign affairs chief Federica Mogherini meets with Iranian Foreign Minister Javad Zarif in Tehran in 2016. (Photo: ILNA, File)

Berlin (CNSNews.com) – In a bid to sustain trade and economic relations with Iran, the European Union is looking to its so-called “blocking statute” that will forbid European companies from complying with enacted U.S. sanctions.

Germany is a major trade partner to Iran, and its economy ministry pledged Monday to “guarantee” investment and exports to Iran. Debate continues, however, over whether companies will choose to stay.

Much is at stake, as President Trump underlined in a tweet Tuesday: “Anyone doing business with Iran will NOT be doing business with the United States.”

“The American market is much more important and attractive for Europeans than the Iranian market,” noted Henning Riecke, a U.S.-E.U. relations expert at the German Council on Foreign Relations. There was no legal way for European governments to force companies to stay active in Iran, he said.

Dieter Kempf, president of the Federation of German Industries, told German media the public stances taken by the German government and the E.U. nevertheless send an “important political signal” of support to German industry.

The blocking statute was first established in 1996 as a response to U.S. sanctions on Cuba, which the E.U. similarly opposed. (Its application was averted after the Clinton administration agreed to waive penalties against European companies trading with Cuba.)

Under the statute, E.U. companies would be eligible to claim back damages arising from U.S. secondary sanctions, from whomever causes the damage.

Matt Thomas, a partner in legal firm Blank Rome’s International Trade group, said E.U. companies suing the U.S. government was unlikely.

“The possibility of private parties successfully recovering damages against the US government itself in proceedings before E.U. member state courts seems far-fetched, given international law principles of sovereign immunity that shield foreign nations from most private suits,” he explained.

But the statute could become an issue in business-to-business contractual disputes, he said, if one party fails to meet its obligations because it chose to comply with the sanctions.

Effective from Tuesday, the E.U. statute is a response to Trump’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA) nuclear deal with Iran.

As a result of that withdrawal, the U.S. this week reinstated some of the sanctions that had been lifted under the 2015 deal. A second round, directed at Iran's oil and banking businesses, are due to be reinstated in November.

In its bid to keep the JCPOA alive, Germany hopes protect exports that were worth about three billion euros ($3.57 billion) in 2017. Around 120 German companies operate in Iran and around 10,000 firms trade with the nation.

On Tuesday, German automaker Daimler followed the lead of manufacturer Siemens in withdrawing from Iran. Other large European firms such as the French oil company Total and Danish transporter Maersk have also pulled out.

Volker Treier, a foreign trade expert at the German Chambers of Commerce and Industry warned that the blocking statute may not be enough to stop more German companies from following suit.

“Around 120 German companies had opened their own representative office in Iran in recent years. Now many are retreating,” Treier told local media on Monday. “In the first five months of 2018, German exports to Iran fell by four percent, and the trend is continuing.”

Even companies not directly affected by U.S. sanctions are currently unable to find a bank to handle their Iran business, Treier said.

Robin Lee Allen, a partner at the private equity firm Esperance, said the blocking statute could still provide benefit to small German firms.

“Although there are some infrastructure projects involving large, global European brands, the E.U. is not proposing backing the Siemens-like firms in Iran,” he said, adding that most German firms trading with Iran are small to mid-sized, with only tenuous connections to the U.S.

The E.U. statement enacting the blocking statute pledged to maintain trade with Iran as long as it “respects its nuclear-related commitments,” while adding that it’s also committed to maintaining ties with the U.S., “who remains a key partner and ally.”

A U.S. official sounded unfazed, telling a press briefing Monday that the E.U. statute “is not something that we’re particularly concerned by.”

Matt Thomas said that, moving forward, the E.U. will likely maintain a proportional response, to avoid overshadowing broader bilateral trade and foreign policy issues.

“However, ultimately, much will depend on how aggressively the sanctions actually are enforced,” he said. “If the U.S. targets large E.U. companies – like banks and energy companies – with particularly aggressive sanctions enforcement, the Iran issue could quickly escalate to being a very serious bilateral issue.”

MRC Store