Originally published by the Journal of Commerce in May 2018

The White House website defines the foreign policy of the Trump Administration as follows: “President Trump is bolstering American influence by leading a coalition of strong and independent nations to promote security, prosperity, and peace both within America’s borders and beyond. The promise of a better future will come in part from reasserting American sovereignty and the right of all nations to determine their own futures.”

Since the start of the current administration, the U.S. has withdrawn from the Paris Accord, the Trans-Pacific Partnership, and now the Iran JCPOA deal, to list the most significant international actions taken to date. The Paris Agreement provides internationally agreed upon standards to manage climate change. The current Environmental Protection Agency Administrator, Scott Pruitt, does not believe that human actions contribute significantly to climate change. See https://www.washingtonpost.com/news/energy-environment/wp/2017/03/09/on-climate-change-scott-pruitt-contradicts-the-epas-own-website/?noredirect=on&utm_term=.74315ce11367, where Mr. Pruitt is quoted as saying: “… so no, I would not agree that [human activity is] a primary contributor to the global warming that we see…” Nonetheless, other countries are proceeding with the Paris Accord.

Then, there was TPP. Whereas the expectation may have been that the deal would be dead when the U.S., withdrew,  that hardly turned out to be the case.  The agreement itself has been adopted and renamed. Alternately known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),  and also as TPP11, the agreement was signed, but not-yet ratified by  Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.  Equally interesting is the 20 or so provisions which were originally inserted at U.S. insistence and have now been “suspended”!  Also worthy of note is the expressed interest of the U.K. to join the talks after Brexit.

Subsequently, we have seen events related to NAFTA, KORUS, aluminum/steel tariffs under 232, and the threat of significant tariffs on Chinese goods in the context of 301. Most recently, of course, is the withdrawal of the U.S. from the Joint Comprehensive Plan of Action or JCPOA, the nuclear non-proliferation agreement between Iran, China, France, Russia, the United Kingdom, the U.S. and Germany. The justifications for withdrawal have been well-covered in the general press. Less attention has been paid to the process that will apply.  See the updated OFAC Frequently Asked Questions at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/jcpoa_winddown_faqs.pdf. Certain actions will be subject to a 90 day wind-down period which expires on August 6. 2018, and the remaining activities must be wound-down no later than November 4, 2018.

The 90 day wind-down period applies to sanctions on:

  1. The purchase or acquisition of U.S. dollar banknotes by the Government of Iran;
  2. Iran’s trade in gold or precious metals;

iii.        The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;

  1. Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
  2. The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
  3. Iran’s automotive sector.

Plus any and all activities related to General License I, the license associated with contingent contracts related to passenger aircraft and related parts and services.

On or around August 6, 2018, the U.S. will also revoke any authorizations related to:

  1. The importation into the United States of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licenses under the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR);
  2. Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and

iii.        Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.

The 180 day wind-down period applies to sanctions on:

  1. Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines (IRISL), South Shipping Line Iran, or their affiliates;
  2. Petroleum-related transactions with, among others, the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), and National Iranian Tanker Company (NITC), including the purchase of petroleum, petroleum products, or petrochemical products from Iran;

iii.        Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA);

  1. The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010 (CISADA);
  2. The provision of underwriting services, insurance, or reinsurance; and
  3. Iran’s energy sector.

Also subject to the 180 day timeframe are all activities involved transactions by foreign entities which are owned or controlled by U.S. persons, see General License H.

Pending license applications will be returned without action. No sanctions will be reimposed retroactively, but OFAC makes clear that engaging in new projects between March 8, 2018 and the relevant wind down deadline will be treated negatively.

France, Germany and other long-considered close U.S. allies pushed to keep the U.S. in the JCPOA. They were already disappointed with the outcome, but the situation is no doubt going to get more challenging. The focus of the U.S. sanctions which are being reimposed are the Government of Iran and its financial institutions. The stated goal of course is to get Iran to agree to what the U.S. considers a better deal.  Is such a deal even possible? Why would Iran sit down with this administration when it can wait for the next one and seek reinstatement of the existing deal or something similar? Who will pay the price in the meantime?

The way the U.S. sanctions are written and applied, many European and Asian companies, especially financial institutions, will be barred from making deals with Iranian businesses and/or processing their funds. When that happens, it is entirely possible a larger gap in cooperation will occur between the U.S. and Europe. Does the word “isolation” come to mind?

There is a saying that to avoid making the same mistakes, one must learn from history. The last time the U.S. seriously attempted isolationism was between the end of World War 1 and the bombing of Pearl Harbor which drew the U.S. into World War II.  In those days, the U.S. was a dominant world power, with no real rivals. That is hardly the case today.  Certainly there is the EU. China is also on the rise.  The world is too connected for any one country to totally withdraw from the rest of the world. One has to hope that Mr. Trump’s approach works, especially with the upcoming North Korea meetings, but the lingering question remains what is Plan B?

In the end, what seems to be going on is akin to a neighborhood dispute. No one questions the right of a new administration to take a fresh look at existing policies, but most of us learned early in our youth that you end up with a greater degree of cooperation if you don’t constantly bloody your neighbor’s nose!