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27.07.2018 | KPMG Law Insights

Foreign Trade Law & Export Control – The US withdrawal from the JCPOA and the reactivation of the Blocking Statute by the EU – Implications for European Companies in Foreign Trade

The U.S. withdrawal from the JCPOA and the reactivation of the Blocking Statute by the EU – Implications for European Companies in Foreign Trade

On May 8, 2018, U.S. President Donald J. Trump announced that he would terminate U.S. participation in the nuclear agreement reached with Iran – the Joint Comprehensive Plan of Action (JCPOA).

Following the U.S. withdrawal from the nuclear deal and the expiration of a wind-down period, the financial and economic sanctions imposed by the U.S. against Iran are to be gradually reinstated. Within the wind-down periods, which are 90 and 180 days and end on August 6, 2018 and November 4, 2018, respectively, companies should wind down and terminate existing business relationships in Iran.

After the end of the first wind-down period on August 6, 2018, sanctions related to foreign exchange and commodity trading, as well as against the Iranian automotive industry, among others, will come back into force. Finally, after the expiration of the second wind-down period, i.e., on November 4, 2018, sanctions against the oil industry, the energy sector, and the financial and insurance industries will revive. For example, the U.S. is already pushing for a global import ban on Iranian oil and has announced it will not make exceptions for the European Union (EU).

Response by the EU

The U.S. withdrawal from the Iran nuclear deal has drawn criticism. The EU, as well as the other signatories of the agreement, have explicitly expressed their support for the preservation of the nuclear agreement with Iran and want to maintain their economic relations in Iran.

To save the nuclear deal, the EU Commission has initiated the formal procedure to reactivate the so-called Blocking Statute (Regulation (EC) No. 2271/96). This anti-boycott provision aims to prevent the extraterritorial application of U.S. sanctions. The Blocking Statute thereby criminalizes participation in the Iran sanctions imposed by the U.S. on companies, but at the same time provides for the possibility of applying for exemptions.

The law is scheduled to take effect before August 6, 2018, the end of the first wind-down period.

Implications for exporting companies

However, European companies operating internationally are thus faced with the dilemma that compliance with the European anti-boycott regulation simultaneously leads to a violation of U.S. embargo provisions. This is compounded by the fact that failure to comply with U.S. sanctions can lead to serious consequences and drastic fines for companies. In addition, past experience has shown that the U.S. administration also consistently takes action against embargo violations by foreign companies.

The Blocking Statute, on the other hand, has not yet been applied in the past. The dispute at the time over sanctions against Cuba, Iran and Libya was settled. In this respect, it remains to be seen how the situation will develop and how the EU, in the event of a violation of the anti-boycott regulation, will react.

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