European states trigger Iran sanctions dispute resolution mechanism

Out-Law News | 29 Jan 2020 | 11:27 am | 1 min. read

Companies with contracts or projects with connections to Iran must carefully monitor developments in the region following the decision by France, Germany and the UK to trigger dispute resolution procedures, an expert has warned.

Iran announced earlier this month that it would no longer comply with restrictions on the number of nuclear centrifuges in use for uranium enrichment and other "enrichment-related matters" set out in the 2016 Joint Comprehensive Plan of Action (JCPoA, or 'Iran deal'). The European parties to the JCPoA, known as the E3, have decided to trigger the agreement's dispute resolution mechanism in response, although they have reiterated their commitment to preserving the JCPoA.

The EU lifted the majority of its economic and trade sanctions against Iran in early 2016 following the entry into force of the JCPoA, including wide-ranging EU sanctions relevant to the oil and gas sector.

Keen Stacy

Stacy Keen

Senior Associate

The end result of this process could be the reintroduction of the UN and EU sanctions lifted in 2016, although it is too early to say if that is a realistic outcome.

Stacy Keen, an expert in export controls and international sanctions at Pinsent Masons, the law firm behind Out-Law, said: "The joint statement by the foreign ministers of the E3 is explicit that the decision is not intended to implement 'maximum pressure' against Iran but to bring Iran back into full compliance with the JCPoA".

"The next step is for the matter to be referred to a joint commission comprised of the E3, Russia, China and Iran. If there is no resolution, the matter may progress further to be dealt with at the ministerial level before going to an advisory board for a non-binding decision. If there is no resolution and the E3 believe it to 'constitute significant non-performance' of JCPoA commitments, the matter could be referred to the UN Security Council" she said.

"The end result of this process could be the reintroduction of the UN and EU sanctions lifted in 2016, although it is too early to say if that is a realistic outcome," she said.

The triggering of the dispute mechanism by the E3 coincides with the introduction by the US of new sanctions against the construction, mining, manufacturing and textiles sectors of the Iranian economy. The US, which was one of the original signatories to the JCPoA, withdrew from the commitment and began reimposing its own sanctions in May 2018.

The E3, in a joint statement, said that they had "worked hard to address Iran's concerns and bring it back into compliance with its commitments under the nuclear agreement", including by leading on diplomatic efforts to encourage further negotiations between the US and Iran. They said that they were now forced to act as the actions of Iran are "inconsistent with the provisions of the nuclear agreement and have increasingly severe and non-reversible proliferation implications".

"We do this in good faith with the overarching objective of preserving the JCPoA and in the sincere hope of finding a way forward to resolve the impasse through constructive diplomatic dialogue, while preserving the agreement and remaining within its framework," they said.