July 20, 2015

Iran Sanctions – A Major Step Towards Final Resolution

Following 22 months of intensive talks, on 14th July 2015 an agreement was reached between Iran and the five permanent members of the UN Security Council (United States, Russia, China, Great Britain and France) and Germany together with the High Representative of the European Union for Foreign Affairs (EU+3) to end more than a decade long standoff relating to Iran’s nuclear activities. The terms of the agreement are carefully set out in the Joint Comprehensive Plan of Action (JCPOA) and are based on the earlier Joint Plan of Action (JPOA) agreed in Switzerland on 24 November 2013.

The JCPOA provides for detailed procedures and measures to monitor and restrict Iran’s nuclear activities for a period of 8 to 15 years. In return, Iran will benefit from the comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions (such as US and EU sanctions) related to Iran’s nuclear programme. The JCPOA intends to restore trade activities with Iran in the areas of banking, shipping, civil aviation, insurance and reinsurance, energy, finance and technology. Specific timeframes that all participants to the negotiations will adhere to are set out in the JCPOA.

Iran’s Commitments

Iran’s commitments, under the terms of the JCPOA, include its reaffirmation not to ever seek, develop or acquire any nuclear weapons, to redesign its heavy water research reactor in Arak (to reduce production of plutonium, as waste, significantly), not to engage in any spent fuel reprocessing, to restrict its research and development (R&D) activities together with limited use of more modern centrifuges, to reduce its enrichment capacity, and to reduce its low enrichment stockpile by 96% to below 300kg. The International Atomic Energy Agency (IAEA) is requested to monitor and verify “voluntary nuclear-related measures” as detailed in the JCPOA and to provide regular updates to its Board of Governors as well as the UN Security Council.

There is a further obligation on Iran to perform; Iran will have to fully implement the “Roadmap for Clarification of Past and Present Outstanding Issues” agreed with the IAEA earlier this year. The latter agreement contains arrangements to address past and present concerns relating to its nuclear programme as reported by the IAEA on 8th November 2011. The commitment assumed for Iran has also been reaffirmed under Paragraph 66, Section M of Annex I of the JCPOA. It is agreed that Iran will complete implementation of the activities undertaken under the Roadmap by 15 October 2015 and the IAEA will provide final assessment on the resolution of all past and present outstanding issues to its Board of Governors by 15 December 2015 for the EU+3 to be able to close the issue.

The EU+3’s Commitments

The JCPOA is based on reciprocal commitments. The EU+3 affirm that they “will refrain from imposing discriminatory regulatory and procedural requirements in lieu of the sanctions and restrictive measures covered” by the terms of the JCPOA. In other words, there will be no further new sanctions or restrictive measures on Iran’s nuclear related issues once the requirements set out in the agreement are met.

  1. UN Security Council’s Resolutions

Section 18 (and Paragraph 18, Section C of Annex V) of the JCPOA state that the UN Security Council will terminate all the previous Security Council’s resolutions on the Iran’s nuclear issue, namely 1696 (2006), 1737 (2006), 1747 (2007), 1803 (2008), 1835 (2008), 1929 (2010) and 2224 (2015), “simultaneously with the IAEA-verified implementation of agreed nuclear-related measures by Iran” but will establish specific restrictions as specified in Annex V. However, the provisions are subject to “re-imposition in the event of significant non-performance by Iran of JCPOA commitments”.

  1. The EU Council Regulation

Section 19 and Section A of Annex II provide provisions by which the EU and the EU member states commit to terminate all the provisions of Council Regulation No. 267/2012 and Council Decision 2010/413/CFSP (and subsequent amendments), and to terminate or amend national implementing legislation as required, in accordance with Annex V. The provisions will effectively terminate the Council Regulation (and its subsequent amendments) in relation to nuclear-related economic and financial sanctions, including related designations, at the same time the IAEA verifies implementation of agreed nuclear-related measures by Iran as specified in Annex V.

Areas subject to the easing of sanctions are contained in Annex II of the JCPOA and include banking, finance, shipping and shipbuilding, insurance and reinsurance, import and transport of crude oil, petroleum products, gas and petrochemicals, investment in the oil sector, gas and petrochemicals, export of key naval equipment and technology, sale or supply of software, provision of flagging and classification services, and provision of bunkering or ship supply services or any other services of vessels.

However, the EU Regulation in respect of proliferation-related sanctions (and related designations) will be terminated by the EU 8 years after Adoption Day.

  1. The US Sanctions

The United States, under Section 21 and Section B, Annex II of the agreement, agrees to cease the application (and to seek legislative action to terminate or modify to effect the termination) of all nuclear-related sanctions specified in Annex II (and will continue to do so) in accordance with the terms of the JCPOA, simultaneously upon the IAEA verifying implementation of the agreed nuclear-related measures by Iran as specified in Annex V. The US commitment under Annex II includes financial and banking transactions with individuals and entities (such as the Central Bank of Iran, NIOC and NITC), provision of US banknotes to the Government of Iran, insurance and reinsurance, oil and gas, transactions with Iran’s energy sector, transactions with Iran’s shipping and shipbuilding sectors, licensing sale of commercial passenger aircrafts, aircraft parts and services, and sale, supply and services in connection with Iran’s automotive sector.

However, the US’s commitment under the terms of the JCPOA generally applies to non-US persons and covers the so called ‘US secondary sanctions’. US persons will still be subject to the restrictive measures imposed by the US sanctions with certain exceptions only. The explanatory footnote provided in Annex II of the agreement states “US persons and US-owned or –controlled foreign entities will continue to be generally prohibited from conducting transactions of the type permitted pursuant to this JCPOA, unless authorised to do so by” OFAC.

The explanatory note makes it clear that the sanctions which the US will cease to apply (and subsequently terminate or modify to effect the termination) “are those directed towards non-US persons”. The note also clarifies the term ‘non-US persons’ for the purpose of the relevant sections of the JCPOA. It means “any individual or entity, excluding (i) any United States citizen, permanent resident alien, entity organised under the laws of the United States or any jurisdiction within the United Sates (including foreign branches), or any person in the United States, and (ii) any entity owned or controlled by a US person.” It further clarifies the term ‘any entity owned or controlled by a US person’ to mean the US person “holds a 50 percent or greater equity interest by vote or value in the entity; holds a majority of seats on the board of directors of the entity; or otherwise controls the actions, policies, or personnel decisions of the entity.”

However, there are limited permissions for US persons to trade with Iran but only through licensing (OFAC) arrangements. Paragraph 5, Section B of Annex II covers the areas of trade in this respect and are mainly licensing arrangements for sale of commercial passenger aircrafts and related parts and services, importation of Iranian origin carpets and foodstuffs and non-US entities that are owned or controlled by a US person (as described above) to engage in activities that are consistent with the terms of the JCPOA.

JCPOA’s Implementation Plan

A set of detailed arrangements have been envisaged in Annex V of the JCPOA for the actions to be taken by all concerned parties. The ‘Finalisation Day’ is described as the day the agreement is reached (which is 14 July 2015) on which day Iran and the EU+3 will have to endorse the JCPOA. It is stated that the proposed UN Security Council resolution will be submitted to the UN Security Council for adoption “without delay”. It has been reported that the proposed Council’s resolution will be submitted to the UN Security Council in the next few days.

It is further agreed that “the EU will promptly endorse the UN Security Council resolution” and so Iran and the IAEA will soon after start putting in place the necessary arrangements to implement all the required transparency measures provided for in the JCPOA. The purpose is to have the arrangements in place and ready for implementation of the agreed terms on ‘Implementation Day’. It is expected that the EU Council will endorse the relevant UN Security Council resolution very soon after adoption. It is further expected that the necessary arrangements between Iran and the IAEA are to be put in place soon after.

As far as the JCPOA is concerned, it will come into effect on the ‘Adoption Day’. The ‘Adoption Day’ is the date 90 days after the endorsement of the JCPOA by the UN Security Council (the resolution), or an earlier date as may be agreed by mutual consent among the participants. Therefore, the JCPOA will only come into effect 90 days (or possibly earlier by mutual agreement between the negotiating parties) following its endorsement by the UN Security Council in a form of a Council’s resolution.

JCPOA participants will make all the necessary arrangements and preparations, including legal and administrative measures, for the implementation of the commitments assumed under the terms of the agreement immediately after the ‘Adoption Day’. Furthermore, Iran agrees to provisionally apply the Additional Protocol to the Non Proliferation Treaty (NPT), pending its ratification by the Iranian Parliament. During this period Iran will have to implement measures provided for in Paragraph 66, Section M of Annex I (Roadmap for Clarification of Past and Present Outstanding Issues). As it has been explained above, the outstanding issues should be closed by 15 December 2015.

The JCPOA will come to complete operation (including easing of various sanctions as stated therein) on the ‘Implementation Day’. The day has been agreed as the date on which the IAEA verifies implementation of the agreed measures by Iran of the nuclear-related measures stipulated in Sections 15.1 to 15.11 of Annex V of the JCPOA. Simultaneously, the EU and the US will take actions to lift the sanctions (elaborated above in this article) described in Sections 16 and 17 of Annex V. Although there is no specific time frame for the termination of the relevant UN Security Council resolutions, it implies from Section 18 of Annex V that all the relevant resolutions (as mentioned above) will be terminated soon after the ‘Implementation Day’.

JCPOA also stipulates a further deadline of 8 years after Adoption Day, which is called Transition Day. On this day, or the date the IAEA submits a report that all nuclear material in Iran remains in peaceful activities, the EU will terminate all provisions of the EU Regulation in relation to EU proliferation-related sanctions (those which have not been terminated on the Implementation Day). Similarly, the US will take legislative measures to terminate sanctions on non-US persons which have been suspended on Implementation Day and to remove them from the designated lists of sanctioned entities.

There will be some monitoring arrangements through the IAEA for the purpose of compliancy by Iran and some restrictions will, as described above, remain in place for 8 to 15 years. However, the bulk of the UN Security Council, EU and US sanctions against Iran will be removed or suspended on ‘Implementation Day’, subject to the continued compliance of the terms of the JCPOA by Iran. Provisions are in place to re-impose sanctions (the so-called “snap back” function) if Iran were to fail to meet its obligations under the JCPOA.

It should be noted that the procedures provided in the JCPOA have taken into account the practical aspects of implementation of all the agreed measures. It will take some months for Iran to fully comply with its commitments and for the IAEA to be able to verify those, bearing in mind that the latter will also have to close the outstanding issues raised in its earlier report (and stated in the ‘Roadmap’) by 15 December 2015. Until then, the current sanctions remain in force.

 

Dr. Shahab Mokhtari
Tel: +44 (0) 20 73750002
shahab.mokhtari@pacifics.co.uk

www.pacifics.co.uk

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