The EU is trying to fight Trump on Iran sanctions, but European businesses are already fleeing

"We have the duty to protect European companies."
May 18, 2018, 11:45am
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The European Union moved Friday to revive and old and untested law that could be used to block U.S. sanctions against European businesses — an attempt to keep the ailing Iran deal alive.

The European Commission — the executive body of the E.U. — said it had started the formal process to activate a 22-year-old regulation known as the Blocking Statute, adding reinstated U.S. sanctions on Iran to the scope of the legislation.

The statute effectively bans E.U. companies, under threat of punishment, from complying with U.S. sanctions, and stipulates that no foreign court rulings relating to the sanctions have any effect in the E.U.

“As the European Commission, we have the duty to protect European companies. We now need to act, and this is why we are launching the process to activate the Blocking Statute from 1996,” European Commission President Jean-Claude Juncker said.

The legislation was initially developed to circumvent a U.S. trade embargo on Cuba and sanctions on Iran and Libya, but was never enacted. The move to activate the law puts the E.U. on a collision course with Washington in its bid to salvage the 2015 nuclear accord after Donald Trump’s May 8 decision to revive Iran-related sanctions, prompting warnings from Washington that European businesses should wind up their trade with the Islamic Republic or face punishment.

Will it work?

Because the law has never been implemented, it’s unclear how effective it will be in shielding European companies from the threat of U.S. sanctions.

Large corporations will still face the loss of access to the world’s biggest economy and to the U.S.-dominated international banking system if they choose to trade with Iran. Yet the statute may have some impact as a political tool for Europe in their lopsided battle to discourage the U.S. from pursuing punitive sanctions against their companies.

READ: Europe can still save the Iran deal. Here's how.

European leaders, along with the other signatories to the deal, have said they are committed to the accord despite the U.S.’s withdrawal. But foreign firms must be able to continue to trade with Iran in the face of U.S. sanctions, in order to provide continued incentive for Tehran to adhere to the terms of the agreement.

Updating the law to include the reinstated U.S. sanctions could take up to two months, depending on how fast the union’s 28 member states vote in favor of the measure. The law leaves it up to each member state to determine the punishment for any breaches, but stipulates that the sanctions “must be effective, proportional and dissuasive.”

How are European companies reacting to the reintroduced U.S. sanctions?

Already, the threat of U.S. sanctions has led major European corporations to announce they are pulling out of Iran, with the speed of the exodus threatening to render any E.U response moot.

French energy group Total said Wednesday it would pull out of a major gas project in Iran unless it secured a sanctions waiver from the U.S., while German-headquartered insurance firm Allianz and Danish shipping giant A.P. Moller-Maersk have also announced they are quitting Iran.

“With the sanctions the Americans are to impose, you can’t do business in Iran if you also have business in the U.S., and we have that on a large scale,” Soren Skou, chief executive of A.P. Moller-Maersk, told Reuters.

“I don’t know the exact timing details, but I am certain that we’re also going to shut down.”

German Chancellor Angela Merkel has tempered expectations of what the European Union can achieve in its response to sanctions from the U.S.

“We can see whether we can give small and medium-sized companies certain relief. That is being examined,” she said. “As for compensating all businesses in a comprehensive way for such measures by the United States of America, I think we cannot and must not create illusions.”

Cover image: European Commission President Jean-Claude Juncker attends the EU-Western Balkans Summit in Sofia on May 17, 2018. (Dimitar DILKOFF / POOL / AFP) (Photo credit should read DIMITAR DILKOFF/AFP/Getty Images)