Original article featured in Law360 (http://www.law360.com/articles/691872/what-happens-to-the-iran-deal-without-us-support-)

By now, everyone with the slightest interest in global trade or international affairs knows that Iran and the P5+1 (the U.S., UK, Germany, France, Russia and China) reached an accord last month known as the Joint Comprehensive Plan of Action (JCPOA) . On JCPOA "Implementation Day" – the day the International Atomic Energy Agency (IAEA) certifies that Iran has taken required nuclear-related measures – nearly all UN and EU sanctions, and a great many U.S. sanctions, against Iran are to be suspended or terminated.

U.S. companies will see very little sanctions relief under the JCPOA.  However, if things go according to plan, by early 2016 non-U.S. companies that wish to trade with Iran will have little to fear from sanctions.

But the U.S. Congress may spoil the party before it begins.  And the prospect of that happening increased recently when Democratic Senator Chuck Schumer of New York announced that he would not support the JCPOA.

JCPOA Adoption Day

The JCPOA timetable includes an "Adoption Day", set for October 18, 2015.  On Adoption Day, JCPOA participants are to start laying the groundwork for implementing the agreement.  In particular, on Adoption Day:

  • Iran is required to initiate steps to comply with nuclear-related measures;
  • The EU is required to adopt a regulation terminating, with effect from Implementation Day, all of its nuclear-related sanctions against Iran; and
  • The U.S. is required, among other things, to "issue waivers, to take effect upon Implementation Day, ceasing the application of the statutory nuclear-related sanctions".

Whether President Obama will have the power to waive "statutory nuclear-related sanctions", however, is up to Congress.

Congressional Review of the JCPOA

The vast majority of U.S. sanctions slated to be eased under the JCPOA are "statutory" sanctions, that is, sanctions imposed by acts of Congress.   In part, these sanctions target non-U.S. companies that deal with:

  • Iran's energy and petrochemical sectors;
  • Iran's shipping, shipbuilding and port sectors;
  • Iran's banking and financial sectors; and
  • Trade with Iran in gold and other precious metals, software and metals.

While the President may waive sanctions established through his own executive orders, he may not waive statutory sanctions unless Congress grants him authority to do so.   Interestingly enough, all statutory Iran sanctions already contain provisions authorizing the President to waive their application.  The exercise of such waivers requires submission of notices and reports to, but not approval from, Congress.

However, concerned that the President might use his waiver power to deprive Congress of a say in the long-negotiated nuclear agreement with Iran, this spring Congress enacted the Iran Nuclear Agreement Review Act of 2015 ("INARA"), which became law in mid-May.  Under the INARA, Congress has until September 17, 2015 to review the JCPOA, during which time the President may not exercise his authority to waive statutory sanctions.  If the outcome of the review process is a joint resolution stating in substance that Congress favors the JCPOA, or if Congress issues no joint resolution at all, the President will be free to issue the statutory sanctions waivers.

If, on the other hand, Congress issues a joint resolution stating in substance that it does not favor the JCPOA, and if, after a promised Presidential veto, Congress overrides such veto, the President will be without authority to issue the waivers.

Without Congressional Support, What Happens to the JCPOA?

If the President cannot exercise his waiver authorities, the U.S. will not be able to meet its JCPOA commitments on Adoption Day.  Under the terms of the JCPOA, this will prevent the occurrence of Implementation Day, which, by definition, is the day on which (among other things) the U.S. ceases application of statutory nuclear-related sanctions.  JCPOA implementation does not contemplate partial compliance; either all parties meet their JCPOA commitments in full or the agreement is not implemented.

If the U.S. does not waive application of its statutory sanctions, Iran would have little reason to take its required nuclear-related measures and allow IAEA inspections.  President Obama could take other actions called for in the JCPOA, such as termination of executive orders, but, after years of hard-fought negotiations, it is inconceivable that Iran would proceed on the basis of such limited sanctions relief.  And if Iran does not take its nuclear-related measures, the EU and UN would have then no reason to suspend or terminate their sanctions.

In short, if, as a result of the U.S. Congressional review process, President Obama loses the ability to waive statutory sanctions, it is difficult to imagine any outcome other than a complete unraveling of the JCPOA.

Conclusion

To many, the most important question surrounding JCPOA implementation is whether Iran will be able to obtain IAEA certification that it has taken its required nuclear-related measures.  An equally important – and, indeed, more pressing – question is whether the U.S. Congress will permit the U.S. to comply with the conditions to JCPOA implementation.

It will take more than Chuck Schumer's vote to scuttle the Obama Administration's hopes for a nuclear deal with Iran.  But, as the senior senator from a populous state and a man expected by many to replace Harry Reid next year as senate leader for the Democratic Party – the President's party – Senator Schumer's decision to oppose the JCPOA is significant.

In the coming weeks, those for and against the JCPOA will be lobbying hard for the support of uncommitted congresspersons.   Decisions will be made based upon perceptions of whether war in the Mideast and Iran's obtaining nuclear weapons will be more likely or less likely if the JCPOA is implemented.  Notably, another dynamic is in play in the rest of the world – economics – which makes the JCPOA a far easier sell, as implementation will afford businesses worldwide – except those in the U.S. – nearly full access the Iranian market.  The absence of an economic upside for U.S. constituents makes garnering congressional support for the JCPOA all the more challenging for the Obama Administration.

Without U.S. participation, there is a very good chance that the JCPOA will unravel, the temporary sanctions relief that has been in place since January 2014 will be rescinded, and Iran will again largely be off limits for both U.S. and non-U.S. businesses.  In such case, the parties may then return to the drafting table, but, given the time and effort already expended on trying to reach a nuclear deal, this would seem an unlikely.