As the opening of the British Embassy in Tehran marks a further thaw in the political relations between Iran and the West, this article examines the main elements of the Joint Comprehensive Plan of Action agreed on 24 July 2015 and the impact it is likely to have on international trade
On 14 July 2015 a landmark agreement between the E3/EU+3 and Iran paved the way for a lifting of the economic and financial sanctions imposed on Iran in return for strict controls on Iran’s nuclear industry.
The terms of the agreement, set out in a Joint Comprehensive Plan of Action (JCPOA), state that provided that Iran complies with certain conditions to ensure it follows a peaceful nuclear policy, all existing UN, US and EU sanctions will be suspended in stages – and eventually removed altogether.
The conditions include reductions in Iran’s enriched uranium stockpile and its enrichment capacity, limits on reactors, heavy water and reprocessing, and cooperating with transparency and confidence-building measures, all of which are to be overseen by the International Atomic Energy Agency (IAEA).
The parties have agreed a timetable to implement their JCPOA commitments, as follows.
The first stage began with the adoption, on 20 July 2015, of a UN Security Council (UNSC) Resolution endorsing the agreed terms. However, the JCPOA does not enter into force, legally speaking, until ninety days after adoption of the Resolution, unless the JCPOA participants agree an earlier date (‘Adoption Day’).
On Adoption Day, each party to the JCPOA becomes legally bound to make all necessary arrangements and take all preparatory steps to implement its JCPOA obligations.
The US Congress is currently in the process of reviewing the JCPOA so it can be passed into US law. President Obama has made clear his intention to exercise his presidential veto if Congress votes against the agreement. Congress could still, however, override the veto with a two-thirds majority in each house.
Iran’s Majlis must also debate and approve the deal.
The EU Council will have to prepare amending legislation that repeals relevant parts of the implementing Regulation and suspends the relevant parts of the Council Decision (so that power to adopt new implementing legislation would remain, as it were, dormant and could be reactivated at any moment in case Iran failed to implement its commitments). This automatically becomes law in all the EU Member States on the relevant date.
The first stage of amending legislation will not, however, take effect until so-called ‘Implementation Day’. Implementation Day occurs only when the IAEA has finished verifying that Iran has carried out the specific nuclear-related measures set out in the JCPOA and issues its report.
Western officials estimate that it will take at least six to nine months for Iran to fulfil its commitments and for the IAEA to verify Iran’s compliance. Many politicians and lawyers closely involved in the negotiations are reasonably confident of a positive outcome and have expressed the hope that this process will be finished by spring next year.
Only when the IAEA has issued its report confirming that Iran has complied with its JCPOA commitments will the EU and US legislation suspending existing sanctions take effect.
The sanctions are due to be removed in two main stages according to the timetable set out in Annex V of the JCPOA. The majority will be lifted straightaway on Implementation Day. They will include all the main trade and financial sanctions, including restrictions on:
- Financial transactions;
- Provision of insurance and reinsurance;
- Importation and transportation of oil;
- Provisions relating to shipping, shipbuilding and the transport sector;
- The sale, supply and transfer of metals (including gold and other precious metals), banknotes and coinage;
- The sale and transfer of software;
- Activities with listed persons.
It is, however, worth bearing in mind that –
- There are some important differences of detail between the EU and US provisions;
- Only implementing legislation is to be repealed, while the power to re-introduce fresh implementing measures is merely suspended.
Annex V prescribes a minimum waiting period for the removal of all remaining sanctions against Iran. This is either eight years from Adoption Day or, if earlier, whenever the Director General of the IAEA has adopted a report to the IAEA Board of Governors, in parallel with the UN Security Council, stating that the IAEA has reached the broader conclusion that all nuclear material in Iran continues to be used in peaceful activities.
In the meantime, the EU Council and the US Department of the Treasury have each announced a further extension of the temporary sanctions relief originally introduced by the Joint Plan of Action (JPOA) on 24 November 2013.
An amendment to EU Decision 2010/413/CFSP prolongs the existing EU suspension on the same terms until 14 January 2016, covering –
- The transportation of Iranian crude oil;
- The provision of insurance and reinsurance, related to the importation, purchase, or transportation of Iranian crude oil;
- The importation, purchase and transportation of Iranian petrochemical products;
- The sale, purchase, transportation or brokering of gold and precious metals;
- Transactions to the limit of EUR 1,000,000 without prior authorisation.
The US government has extended the following JPOA relief until Implementation Day, covering –
- Iranian crude oil sales (also the transportation and insurance services associated with such sales);
- The export of petrochemical products;
- The sale, supply or transfer of significant goods or services used in connection with the automotive sector of Iran;
- The sale and purchase of gold and other precious metals.
The reliefs in 2-4 above are inclusive of ‘associated services’, incidental to the activity for which sanctions relief has been provided.
Relief is also available for –
- The licensing of transactions relating to the safety of Iran’s civil aviation industry;
- The facilitation of humanitarian and certain other transactions, i.e. transactions involving food and agricultural products, medicine, Iran’s UN obligations and payments of $400 million in governmental tuition assistance for Iranian students studying abroad.
Note that there are no changes with respect to the freezing of assets of designated persons, which remain frozen for the time being.
Permitted business activities:
To reiterate, the extended JPOA sanctions relief referred to above is the only relief in effect at present. Even if we reach Implementation Day, the sanctions’ powers will initially only be suspended and sanctions could be put back in place if Iran fails at any time to comply with any of its JPCOA obligations (subject to going through a dispute resolution procedure).
It follows that any companies intending to establish links within Iran should consider -
- starting or renewing discussions with prospective business customers and intermediaries in Iran;
- starting the due diligence process;
- negotiating contracts and drafting detailed terms (conditional on relevant sanctions being lifted);
- familiarising themselves with Iranian laws and business practices;
- marketing their products or services (falling short of actual sales or supplies);
- initiating other market research activities so as to be ready to start business the moment sanctions are lifted;
- but in no case should binding contracts be signed before that happens unless they are clearly expressed to be conditional.
Furthermore, if the IAEA reaches the conclusion that Iran has not satisfied its commitments as stipulated in the JPCOA, the official suspension and termination of sanctions against Iran may never come into force. Not only would the currently suspended sanctions’ powers be exercisable, but this could amount to a renewed threat of new and stricter sanctions being added.