In Reprieve for Multinational Business, Trump to Stave Snapback of Iran Sanctions
Following a lengthy interagency review, Donald Trump will today unveil his new Iran policy, bringing to an end months of speculation as to his administration's intentions. Despite Trump’s view of the Iran Deal as “the worst deal ever,” early reports make clear that Trump will not be withdrawing from the Joint Comprehensive Plan of Action (JCPOA).
Despite recent political uncertainty, underlying commercial momentum has remained strong in 2017. Trade between Europe and Iran nearly double in the first half of 2017, compared to the same period the year prior. The Iranian government reports that commitments of foreign direct investment have risen 55% in the last Iranian calendar year. The spectre of decertification has been seen as a risk to this steady growth.
On Thursday, the Trump administration provided background briefings to European diplomats and the members of the press outlining the content of the pending announcement. While specific details of the new strategy remain embargoed until shortly before Trump’s speech, which will be made at 12:45 EST, reporting by the Julian Borger of The Guardian and the Matthew Lee of the Associated Press, outlines a strategy that is less damaging than had been feared.
While President Trump will formally decertify Iran’s compliance with the JCPOA, he will do so not in denial of Iran’s technical compliance with the agreement, which has been subject to eight confirming reports by the International Atomic Energy Association (IAEA), but rather on the basis of America’s national security interest, in accordance with a specific provision for decertification stipulated in the Iran Nuclear Agreement Review Act (INARA).
The move to decertify will push the issue of the Iran Deal to Congress. The Trump administration is seeking new amendments to INARA in an attempt to address perceived “flaws” in the JCPOA. These include new provisions relating to Iran’s ballistic missile program and the activities of Iran’s Islamic Revolutionary Guard Corps (IRGC) that would automatically trigger the snapback of secondary sanctions in the event of a violation. Importantly, the administration is also seeking an amendment to INARA to remove the requirement for Trump to certify Iran’s compliance every 90 days, a move widely seen as a face-saving maneuver for an administration beset by infighting on the issue.
Crucially for multinational businesses active in Iran, the administration will not be recommending Congress reimpose the sanctions removed as part of the implementation of the JCPOA, which would have been tantamount to America’s withdrawal from the deal. The administration has also decided not to designate the IRGC as a terrorist organization, a move which would have risked drawing the Iranian government into an escalation.
As such, Trump’s announcement will have little immediate bearing on the ability of multinational companies to continue to trade and invest in Iran. Business leaders had long expected Trump to eventually decertify Iran’s compliance and had proceeded with commercial contracts accounting for such a move. In a recent survey of business leaders, 68% of Iranian respondents and 63% of non-Iranian respondents considered snapback a likely or very likely outcome of decertification. The fact that the administration is not recommending the reimposition of secondary sanctions will be seen as a reprieve. The question that now remains is the extent to which Congress wishes to redefine the scope of compliant trade and investment through amendments to INARA.
In what some business leaders see as a silver lining of the turmoil caused by the decertification issue, it may be that more definitive action by Congress could actually help safeguard the implementation of the JCPOA and by extension the operations of multinational businesses in Iran. For example, removing the rolling certification requirements would reduce political uncertainty surrounding the deal and its continued implementation.
Moreover, that Trump is not withdrawing from the agreement demonstrates that coordinated diplomacy can protect the JCPOA in Washington, and by extension, protect market access. In response to rising political uncertainty, and in the lead-up to today's announcement, European governments and the European business community significantly increased their level of direct dialogue on matters related to Iran Deal implementation. This dialogue helped ensure that the missions of the European diplomatic corps and the business community were mutually reinforcing. The progress made by businesses in engaging in Iran, with notable deals signed this summer by many of Europe’s industrial giants, helped underline the strategic value of the JCPOA for Europe beyond the realm of security issues.
The diplomatic efforts will need to continue. Congress is expected to make its determinations regarding the amendments to INARA within the next two months. There is significant risk that Congress could introduce new provisions to INARA that make compliance politically untenable for the Iranian government, which will see possible automatic snapback as a kind of booby trap. However if Congress takes a more sensible approach, the Iran Deal may yet emerge stronger than before. The new Trump strategy is minimal in its prescriptions. European leaders, must step in to define what a workable Iran policy looks like for all parties.
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