Trump Stance on JCPOA Nuclear Deal Poses Legal Dilemmas for Iran
◢ With the May 12 deadline for the issuing of key sanctions waivers as part of the Iran nuclear deal fast approaching, the legal impact of the collapse of the 2015 agreement ought to be considered. Regardless of how Iran responds to a change in U.S. policy, the possible withdrawal of the United States from the JCPOA will have a legal impact on its parties. Any possible change in the partnership or the provisions of the agreement will be reflected within the domain of international law.
With the May 12 deadline for the issuing of key sanctions waivers as part of the Iran nuclear deal fast approaching, what could be the impact of the collapse of the 2015 agreement? While Donald Trump's conditions for the review of the current arrangement have yet to be met and Iran's clear rejection of any amendments to the plan, the breakdown of the Joint Comprehensive Plan of Action (JCPOA) seems inevitable.
The nuclear deal is the most important multilateral agreement reached in the global nuclear non-proliferation system in the last decade. It is now at risk of collapse. There are three options for Iran should the US withdraw from the JCPOA.
First, Iran could exit the deal immediately and continue to fulfill the obligations under NPT and to the IAEA based only on the safeguard agreements with the agency. This is seen as the worst case scenario by the EU, E3 and the IAEA.
Second, Iran could exit the deal immediately, but continue to fulfill its commitments to the International Atomic Energy Agency (IAEA) based on both safeguard agreements with the IAEA agreed as part of the JCPOA and its preceding agreement, the Joint Plan of Action (JPOA). Under these safeguards Iran has suspended enrichment of uranium to 20 percent.
Third, Iran could opt to remain in the deal on the basis that the European Union and E3 (UK, France and Germany) will provide additional benefits to Iran to compensate for the negative effects of US withdrawal.Iran’s deputy foreign minister, Abbas Araghchi, one of the key architects of the JCPOA, has stated that as long as Iran continues to benefit from a removal of sanctions, it will remain committed to the deal, but has expressed doubts that the France, Germany and the UK will be able to guarantee Iran’s interests in the absence of the United States.
Regardless of which route Iran takes, the withdrawal of the United States from the JCPOA will have a legal impact on its parties. Any possible change in the partnership or the provisions of the agreement will be reflected within the domain of international law.
The Threat of Snapback
Trump has threatened not to issue the crucial waivers that have suspended US secondary sanctions on Iran. On May 12, Iran may find itself in a position not of its own making. Despite unprecedented international monitoring and scrutiny of its nuclear program, and despite the IAEA's approval of its commitments without the slightest deviation for military purposes, it may once again face significant economic sanctions, even over the vital sale of its oil. However, snapback of US secondary sanctions could actually preclude snapback of UN sanctions, if the deal remains intact following Trump’s withdrawal.
One of the provisions of the JCPOA, unprecedented in the 70-year history of the Security Council, is the decision-making process of the partners required to resume sanctions. According to Article 37 of the JCPOA, if the dispute resolving mechanism is unsuccessful, the UN Security Council will vote on a resolution to continue the lifting of sanctions.
In such a case, the United Nations Security Council would vote for a resolution to suspend sanctions. As described in a recent report by Stephen Mulligan, an attorney with the Congressional Research Service:
The ‘snapback’ mechanism thus places the onus on the Security Council to vote affirmatively to continue to lift its sanctions by stating that those sanctions will be implemented automatically unless the Security Council votes otherwise. As a permanent member of the Security Council, the United States would possess the power to veto any such vote and effectively force the reinstatement of the Security Council’s sanctions on Iran.
In this process, the vote of all five permanent members of the Council is critical. If one of these members does not agree with the suspension of sanctions, it alone can easily restore a series of Council sanctions under Article 41 and Chapter 7 of the United Nations Charter (threats to global peace and security).
However, if the United States pulls out of the JCPOA, triggering the snapback of its secondary sanctions against Iran, it may lose the ability to use the UN sanctions snapback threat which is articulated with Article 37 under JCPOA. In other words, only parties to the Iran deal are able to trigger the UN nuclear sanctions snapback procedure. If the US withdraws from the deal, it loses the ability to trigger this mechanism.
This would be a reprieve for Iran, but there are further legal pathways that should be considered in order to prevent more damages by the US to the non-proliferation regime and international law.
Recourse to the International Court of Justice
The IAEA has verified in eleven reports that Iran has fully complied with its commitments under the nuclear agreement. On this basis, Iran feels it is facing punishment without justification.
Iran can, on the basis of Clause 2 of Article 21 of the Treaty of Amity, Economic Relations, and Consular Rights (1955), file a complaint with the International Court of Justice (ICJ) against the United States on the basis that it has had a detrimental effect on its business and trade with other countries.
Punishing Iran with various economic sanctions, including the vital sale of its oil, may result in Iran’s withdrawal or limited implementation of its political commitments under JCPOA. Depending on whether Iran completely abandons JCPOA or suspends some of its commitments under the agreement, it means the end of the current inspections and the IAEA's ability to continue a complete and unprecedented monitoring of Iran's nuclear program. The result is the inability of a United Nations agency to carry out its mission.
The current situation has created a legal impediment, despite the wishes of Iran, for the IAEA and the members of its board of governors including the United Kingdom, France and Germany. According to the definition of the Vienna Convention on the Law of Treaties 1969, the JCPOA is not considered to a treaty, under which definition a violation would result in a case directly taken as a complaint to the International Court of Justice.
However the IAEA is an agency authorised by the UN and if it cannot reciprocate with its obligations to a UN member state that has been in compliance with the nuclear agreement (Iran) due to the interference of a third country, the IAEA can, on the basis of Article 96 of the UN Charter, and Clause 1 of Article 65 of the Statute of the International Court of Justice, for the first time in its history, resort to the ICJ for an advisory opinion on the legal status of the JCPOA.
There is some precedent for such a request by an international organization like the IAEA. The World Health Organisation has taken a similar action on threats to the use of nuclear weapons in armed conflict, requesting a referral from the International Court of Justice. The ICJ’s response would not be legally binding but it would be a new source of international law, and may be considered by the other parties to the nuclear agreement as an official advisory about their treatment of deadlock with the United States.
The JCPOA is an improbable achievement, an agreement reached after Iran had been subjected to the harshest sanctions regime ever imposed. In political practice and in the domain of international law, the JCPOA provides a new way of resolving disputes in support of the nuclear non-proliferation regime. the agreement collapses it would be, as in the words of Yukiya Amano, Director General of the IAEA, a “great loss for nuclear verification and for multilateralism” and in my view also for international law more generally.
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Why Iranian Companies Need to Work With International Lawyers
◢ While Iranian companies have successfully engaged international legal counsel in arbitration, the use of outside counsel in commercial negotiations is limited.
◢ The track record of Iran's commercial deals with foreign firms demonstrates how proper legal counsel is necessary to help protect Iran's commercial interests.
Iranian companies, particularly state owned enterprises, must become more accustomed to working with international legal advisors. As a general rule, Iranian organizations are hesitant in engaging international law firms at the appropriate early stages of commercial negotiations and hire outside counsel only when things go wrong.
Internal legal departments of some of these companies (such as Iran Air) are strong and competent enough. But many others overestimate their ability, while also struggling to justify the budgetary requirements of making use of international legal advice. More importantly, Iranian organizations tend to avoid outsourcing their legal affairs because of concerns over political intervention, breach of confidentiality, and hostile commercial rivalry.
Nonetheless, there are several examples where support of an international law firm has helped partially or totally state-owned Iranian companies to navigate complex issues when facing a legal challenge. A number of Iranian companies contested what was considered the unwarranted imposition of sanctions in European courts. Bank Mellat pursued legal action in both Britain’s Supreme Court and the European Court of Justice with the support of Zaiwalla & Co., a London-based law firm. The bank managed to secure favorable rulings. The Supreme Court (the final court of appeal in the UK for civil cases) ruled in June 2013 that sanctions imposed on the bank in 2009 were “irrational.” And in February of this year, the European Court of Justice made a similar finding, suggesting that the imposition of sanctions on Bank Mellat constituted an “error of law.” As a consequence of these rulings, Bank Mellat is now set to claim financial damages amounting to USD $4 billion against the UK government.
Similar cases include international law firm Stephenson Harwood representing Bank Saderat and National Iranian Tanker Company, and Eversheds representing the National Iranian Oil Company.
While positive experiences working with foreign legal advisors have been mostly limited to cases of litigation or arbitration, knowledge of international commercial law will be of utmost importance in post-sanctions deal-making. This is why there is a significant need for foreign legal advice before things go wrong. After a long period of sanctions, the legal teams of Iranian state-owned enterprises are unlikely to be up-to-scratch with the latest international regulations or the myriad difficulties of complex commercial deals.
The track record of commercial deals gives cause for concern. Several of Iran’s largest European industrial partners abandoned the market as nuclear sanctions were tightened beginning in 2009. Lack of foresight in commercial contracts, which did not include provisions for such a situation, meant that Iran found itself without legal recourse as these partners decided to renege on their contractual commitments. The most famous example is probably the withdrawal of French automaker Peugeot in 2012, which led to mothballing of primary production lines at the state owned Iranian carmaker Iran Khodro. The episode created a great deal of bad blood between the Iranian company and its French counterpart, which has had to promise voluntary compensation as part of planned return to the Iranian market. Such situations, which should be remediated within a legal framework, create lack of trust in foreign partners and become obstacles on the way to healthy future partnerships.
In another episode, the Central Bank of Iran purchased about USD $1.75 billion in bonds in Luxembourg through an intermediary and deposited them in a Citibank account in 2008. The Supreme Court of the United States ruled in Bank Markazi v. Peterson in 2015 that the bonds were Iranian assets and could be seized as part of compensation owed to American victims of terrorism. Iran has now referred the case to the International Court of Justice, and will probably hire international counsellors to handle the case. However, had legal advice been sought before the bonds were purchased, it might have been possible to foresee the risk of asset seizure by the US government.
Hesitations around engaging legal advice can also have consequences beyond industry and finance. For example, there have been calls for the Tehran Museum of Contemporary Art to make its remarkable collections available for international loans, which can generate fees to help revamp the museum. The plans include a possible loan to the Hirshhorn Museum in the United States, but outstanding legal claims in the United States against Iran have led to serious concerns that the pieces may be seized. As such, even Iran’s potential contribution to global arts and culture has suffered because of uncertainty about legal ramifications. Crafting loan contracts with international advice can pave the way for cultural interaction.
At a time when Iran is trying to revive and expand its economic interactions with the rest of the world, collaboration with international legal firms creates a perfect opportunity for legal departments within Iranian organizations and their counselors to exchange knowledge, upgrade their abilities, and expand their knowledge of the latest legal standards. It is time for Iranian companies and their leaders to accept the importance of legal advice for managing risks and making deals in the present international business environment.
Photo Credit: ICJ