Association of Women in International Trade: Developments in EU Export Controls and Sanctions

May 30, 2018

Publication Type: 

  • Speeches and Testimony

Weapon Program: 

  • Nuclear


Valerie Lincy

On May 30, the Association of Women in International Trade (WIIT) held a panel discussion to explore developments in EU export controls and sanctions. Executive Director of Wisconsin Project on Nuclear Arms Control, Valerie Lincy, joined Dr. Andrea Viski (Director, Strategic Trade Research Institute and Editor-in-Chief, Strategic Trade Review) and Shannon Barna (Senior Counsel – Sanctions, GE Global Operations) to discuss EU sanctions in light of several pressing issues, including the re-imposition of U.S. sanctions on Iran following the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA).

Ms. Lincy provided an analysis of EU sanctions policy on Iran and how the U.S. withdrawal from the JCPOA might impact this policy. Highlights of the presentation are summarized below.

EU Sanctions Policy

  • EU sanctions policy is largely driven by two elements: the existence of a United Nations mandate and/or a strong consensus among the EU's 28 member states on the purpose of the sanctions. Without either of these elements, autonomous EU sanctions are unlikely.
  • The factors driving EU sanctions policy can create a divergence with U.S. sanctions policy, which does not require consensus-building among 28 countries or any U.N. mandate.
  • In order to avoid divergence, the EU and the U.S. must coordinate closely, either through the United Nations or separately, to establish shared objectives and agree to common actions.
    • The sanctions imposed on Iran (pre-JCPOA) and North Korea through a series of increasingly stringent U.N. Security Council resolutions are examples of successful coordination between the U.S. and EU. These resolutions require countries to implement certain targeted and activity-based sanctions and provide an international basis for countries to adopt additional sanctions.
    • The sanctions imposed on Russia and Syria are examples where no U.N. mandate exists. Autonomous U.S. and EU sanctions have been coordinated to some extent but this coordination has been difficult to maintain, in part because some EU sanctions must be periodically renewed, which reopens discussion on sanctions that do not have the full-throated support of all member states. Each time sanctions are up for renewal, EU members are dealing with a different political and economic context.

U.S. Seeks to Resume Maximum Pressure on Iran

  • The U.S. administration's Iran strategy, as articulated by Secretary of State Mike Pompeo on May 21 in remarks at the Heritage Foundation, includes applying "unprecedented financial pressure on the Iranian regime" as a necessary response to threats from Iran's nuclear program, its support for terrorism, its ballistic missile program and proliferation, and its destabilizing actions in the Middle East.
  • This strategy includes "working with U.S. allies" in Europe. The administration is sending U.S. officials to Europe and elsewhere to explain its new policy and plans for sanctions. Secretary Pompeo acknowledged that Europe, "may decide to try and keep their old nuclear deal going with Tehran."
  • However, he confirmed that U.S. nuclear-related sanctions on Iran, including secondary sanctions targeting non-U.S. persons in Europe and elsewhere that were waived or suspended as part of JPCOA, are back in force. Activity undertaken by these foreign parties that previously was allowed by the JCPOA is now subject to sanction, following wind down periods of 90 and 180 days.

EU's Continued Commitment to the JCPOA

  • The EU is committed to preserving the JCPOA, a multilateral agreement endorsed by the United Nations through Security Council resolution 2231, and will not join actively the U.S. pressure campaign.
  • The EU assesses the greatest security threat from Iran to be a resurgent nuclear program and believes that the best way to contain this threat is through the continuation of the JCPOA and its nuclear restrictions.
  • In order to maintain the JCPOA in the face of U.S. withdrawal, the EU priority is to ensure that the renewal of U.S. sanctions do not prevent Iran from receiving the economic benefits promised by the JCPOA.
  • In a formal statement released on May 18 and endorsed by EU heads of state or government, the European Commission announced plans to undertake the following:
    • Activate its Blocking Statute (formally known as Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of the extra-territorial application of legislation adopted by a third country) by updating the list of U.S. sanctions on Iran falling within its scope. This statute aims to protect European firms from the extraterritorial application of U.S. sanctions by forbidding them from complying with such sanctions, allowing firms to recover damages arising from the sanctions, and nullifying the effect in the EU of any foreign court judgements based on them. Activating this statute may not change the risk-based decision-making of private firms, but would formally demonstrate to Iran Europe's commitment to the JCPOA and opposition to the U.S. sanctions campaign.
    • Use the European Investment Bank to finance activities in Iran for small and medium European firms without U.S. exposure.
    • Seek to strengthen sectoral cooperation, including in the energy sector, by using financial assistance instruments like Development Cooperation or Partnership Instruments.
    • Encourage Member States to explore one-off bank transfers to the Central Bank of Iran to facilitate oil payments to Iran.
  • Despite disagreement with the U.S. administration on the JCPOA, the EU acknowledges the non-nuclear threats posed by Iran and shares U.S. concerns about these threats. However, the EU does not plan to address these threats through sanctions in the current context, because of the risk that any new sanctions could prompt Iran to withdraw from the JCPOA and restart its nuclear program.
  • Speaking on May 28, EU foreign policy chief Federica Mogherini confirmed that "when it comes to some of the regional dynamics or the ballistic missile program of Iran, obviously we do share, all together, some of the concerns of the U.S. administration. And the first concern we share is the one related to the possibility for Iran to develop a nuclear weapon - and this is exactly why we are determined to keep the agreement in place […] we have a different answer on what is the best strategy to meet these concerns."

EU Sanctions on Iran Pre-JCPOA

  • Before the JCPOA, there was an international consensus on the proliferation threat posed by Iran, particularly its uranium enrichment program, and the need to target certain parts of Iran's economy, such as its energy and banking sectors, for their role in supporting proliferation.
  • The United Nations adopted several resolutions that explicitly warned that engaging in these sectors could support Iranian proliferation. These resolutions provided a basis for consensus among EU members of the need to adopt more expansive autonomous sanctions.
  • In addition, beginning in 2008, the Financial Action Task Force (FATF) identified Iran as a high-risk jurisdiction for money-laundering and terrorist and proliferation finance, which further discouraged trade and investment with Iran.
  • U.S. secondary sanctions were in place for some of this time, but were not the primary driver for EU autonomous action.
  • U.N. Security Council resolution 1803 (2008) called on states:
    • to exercise vigilance in entering into new commitments for publicly provided financial support for trade with Iran, including export credits;
      • An EU regulation placed additional requirements on banking relationships with Iran and on reporting information for transactions involving Iran, and prohibited new loans and other financial assistance to the Government of Iran.
    • to exercise vigilance over the activities of financial institutions in their territories involving banks domiciled in Iran, in particular with Bank Melli and Bank Saderat;
      • The EU imposed sanctions on Bank Melli and its overseas branches.
    • and to inspect the cargoes to and from Iran, of aircraft and vessels, at their airports and seaports, owned or operated by Iran Air Cargo and Islamic Republic of Iran Shipping Line (IRISL);
      • The EU imposed sanctions on IRISL and a number of its subordinate entities operating in Europe and required additional pre-arrival and post-departure information for Iranian cargo.
  • U.N. Security Council resolution 1929 (2010):
    • warned of the potential connection between Iran’s revenues derived from its energy sector and the funding of Iran’s proliferation-sensitive nuclear activities;
      • The EU cut off oil purchase and stopped insuring shipments of Iranian oil.
    • tightened financial restrictions, calling on countries not to open new branches, subsidiaries, or representative offices of Iranian banks; not to provide financial services to Iranian banks; and not to open new bank branches in Iran;
      • The EU imposed sanctions on Bank Saderat and the SWIFT financial messaging service, based on Belgium, cut off Iranian banks

Looking Forward

  • The EU is unlikely to coordinate or cooperate with the United States on new Iran sanctions as it did in the pre-JCPOA period. Nor is the EU likely to adopt new autonomous sanctions against Iran's missile program, missile transfers, or regional destabilization activities, despite the substantive agreement with the United States on the threat posed by these activities and the existence of EU regulations that would allow for such sanctions.
  • The EU disagrees with the United States on the threat posed by Iran and what to do about that threat. In fact, some in Europe see the U.S. withdrawal from the JCPOA as the main threat that must now be addressed. 
  • Disagreement on Iran sanctions policy may lead to dissonance between the United States and Europe in other areas related to sanctions. For example:
    • Coordination on sanctions regimes that do not flow from U.N. Security Council resolutions could decline, for instance sanctions targeting Russia.
    • The EU may be reluctant to share intelligence with the U.S. for Iran sanctions targeting.
  • The way in which the United States' handle possible sanctions waivers for European firms will affect the degree of dissonance.
    • How will the United States implement its maximum pressure campaign against Iran in a context where the EU is not a partner in the effort?
    • Will European firms be the target of U.S. secondary sanctions?
    • Or will waivers or on-off arrangements be found for EU companies continuing to engage with Iran? Does the example of Chinese telecom giant ZTE establish a precedent for such arrangements in the context of larger trade negotiations?