US Actions [1]

On 13 October 2017, President Trump announced he would not certify the Iran deal known as the Joint Comprehensive Plan of Action (the “JCPOA”) as required by the Iran Nuclear Agreement Review Act (INARA, P.L. 114-17) (the “INARA”) because he said the JCPOA was not vital to the national security interests of the United States.

INARA is a domestic US law, which amended Section 135(d)(6) of the Atomic Energy Act of 1954 (42 U.S.C. 2160(e) and requires that the Administration certify every 90 days that Iran: (1) is verifiably and fully implementing the JCPOA; (2) has not committed an uncured material breach; (3) has not taken any action that could advance a nuclear weapons programme; and (4) that continued suspension of sanctions (including issuance of waivers of applicable sanctions laws) is vital to the national security interests of the United States. The most recent certification was due on 15 October 2017.

This decision has been reported by the press IN TERMS THAT the US has “decertified” the JCPOA. However that is not the case. The US is still a formal party to the JCPOA and President Trump’s action has not terminated the JCPOA or withdrawn the US from the JCPOA. The “decertification” is merely a withholding of an affirmative action required of the President under INARA.

Withholding INARA certification does not, in and of itself, automatically revive any US secondary Iran sanctions. INARA itself does not require the Administration or Congress to take affirmative steps to re-impose US sanctions because there is no certification of compliance with INARA. However, decertification does give Congress the opportunity, but not a requirement, to enact new legislation to impose Iran sanctions within the next 60 days under expedited procedures. It is unclear what Congress will now do in this 60 day window.

Despite withholding INARA certification, President Trump might well decide to try to keep the JCPOA in force by renewing the waivers of US Iran-related sanctions laws and otherwise declining to re-impose any sanctions. The use of this option would signal the Administration’s dissatisfaction with the JCPOA and perhaps suggest the Administration wants it renegotiated, but without necessarily causing the JCPOA to collapse.

Should Congress not enact legislation under INARA in the current 60 day window to re-impose pre-JCPOA, or other new, sanctions, it is possible that Congress might act on new legislation under normal (not expedited) Congressional procedures to impose sanctions tied to addressing the weaknesses of the JCPOA or some other trigger mechanism such as Iran’s nuclear “break out” timing.

Finally, President Trump can, at any time under other existing US statutory authority announce a cessation of US implementation of the JCPOA; re-impose all or some of the US sanctions that were revoked or suspended to implement the JCPOA; reinstate those sanctions imposed by previous Executive Orders; decline to continue waiving provisions of US sanctions laws; impose new sanctions, or re-designate sanctioned entities and persons [i.e., Specially Designated Nationals (SDNs)] that were “de-listed” to implement the JCPOA. The President does not require the approval of Congress for any of these courses of possible action.

As President Trump plainly and succinctly stated on 13 October “in the event we are not able to reach a solution working with Congress and our allies, then the agreement will be terminated. It is under continuous review, and our participation can be cancelled by me, as President, at any time.”

European Reaction

Following President Trump’s decision not to certify Iran’s compliance with the JCPOA, the EU issued a press release reaffirming its determination to stand by the JCPOA. The EU communication stated that the EU is “committed to the continued full and effective implementation of all parts of the JCPOA” and that the US decision is “an internal US process.” The EU encourages the US to “maintain its commitment to the JCPOA and to consider the implications for the security of the US, its partners and the region before taking further steps.” It repeats the need to address concerns related to ballistic missiles and increasing tensions in the region outside the JCPOA and further states that “at a time of acute nuclear threat the EU is determined to preserve the JCPOA as a key pillar of the international non-proliferation architecture.” In addition to the EU’s formal reaction, a number of EU diplomats and politicians have voiced their support for the JCPOA, including the UK Prime Minster and Foreign Secretary.

Given the above reactions to the US President’s announcement, it seems reasonable to expect the EU to mount robust resistance to any change to the existing legal position under its sanctions regimes. However, there is considerable uncertainty regarding political outcomes and their impact on legal process in the EU. Financial institutions in the EU are likely to continue to adopt cautious positions on any investment in Iran.

Iranian Reaction

Iran’s representative to the UN had made it clear that Iran views the JCPOA as a binding international agreement which “cannot be negotiated or altered [as] it is not a bilateral agreement that can be annulled by unilateral actions.” Putting aside the populist statements made by the various high ranking Iranian officials, including President Rouhani, on the historical and geographical inaccuracies of statement made by the US President, Iran’s position is clear that it will continue to fulfil its commitments under the JCPOA and Iran will not be the first party to withdraw from the agreement. Iran has made it clear that any future decision on its commitment to the agreement will be dependent on the actions of the US government, in particular the Congress and whether Iran’s rights and interests, and specially economic interests, will continue to be protected by the agreement and by the international community.

Iran, through statements of its Foreign Minister, has also made it clear that it views the JCPOA as an imperfect agreement “based on mutual mistrust” and views the current US actions as a violation of both the spirit and letter of the agreement. The local business community in Iran, particularly in the oil and gas sector, has been supportive of the government’s position and view that it is business as usual for Iran and foreign companies. This has been supported by comments made by some of the major companies investing in Iran including Total.

Only time will tell whether the JCPOA will survive, but one thing that is for sure is that the pace of economic growth in Iran is one of the big contributing factors for its survival. The other is how the international diplomatic community is, prepared to provide the clarity and legal security expected that investors require.