Jun
13
U.S. Threatens Secondary Boycott of Companies Doing Business in Iran
Posted by Clif Burns at 9:57 pm on June 13, 2007
Category: Iran Sanctions
Threats by the United States to impose new sanctions against Iran include threats to take the Iran Sanctions Act out of mothballs and to start imposing sanctions authorized by that act against foreign companies investing in Iran’s petroleum sector. According to this report from the BBC:
Oil firms may face fines and other penalties if they sign deals to develop Iranian reserves of oil and gas, a State Department source told the BBC. Nicholas Burns, one of the most senior officials at the State Department, has a blunt message for energy companies considering Iranian deals. “We have been going round to the major oil and gas firms to let them know that this law [the Iranian Sanctions Act] exists and that we implement it if they cross the line,” he said.
Under the Iranian Sanctions Act, the President may impose certain specified sanctions on foreign companies that make investments exceeding $20 million in a twelve-month period that materially enhance the ability of Iran to develop its petroleum resources. Among those sanctions are a denial of the company’s ability to import into the United States.
When the law was initially enacted in 1996, the E.U. filed a complaint with the WTO that this secondary boycott of companies doing business with Iran violated the obligations of the United States under the General Agreement on Tariffs and Trade. In response the E.U. and the U.S. entered into a Memorandum of Understanding that attempted to avoid a confrontation over the secondary boycott. Relying on the Memorandum, the Clinton administration waived sanctions under section 9(c) of the Iranian Sanctions Act with respect to a proposed investment of $2 billion by Total SA of France to develop the South Pars oil field in Iran. Subsequent investments by European companies in the Iranian oil sector have not been sanctioned by the U.S.
The re-institution of the secondary boycott will likely lead the E.U. to reinstate its WTO complaint. According to the previously mentioned BBC report:
A number of European energy giants – including Shell, Repsol of Spain and France’s Total – are at the moment considering multi-billion dollar contracts to develop Iranian gas fields.
This will put the U.S. in a difficult situation given its earlier arguments that secondary boycotts by Arab countries of firms doing business with Israel violate the GATT.
For an excellent discussion of the illegality of secondary boycotts under the GATT, see Professor Eugene Kontorovich’s comprehensive article in the Chicago Journal of International Law.
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6 Comments:
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It should be remembered that the EU has already adopted blocking legislation, EU Regulation 96/2271, and certain members have adopted even more comprehensive blocking legislation, such as the UK Protection of Trading Interests Act. An appendix to 96/2271 specifically identified the predecessor to ISA, ILSA, as foreign legislation, compliance with which would violate 96/2271. Enforcement of ISA would trigger EU 96/2271, which, among other things would prevent cooperation with US enforcement actions and agencies, customs cooperation treaties notwithstanding, by both government agencies and businesses and individuals. Indeed, under the EU reg, an EU person has an enforceable right to demand non-compliance with a US investigation or enforcement action. If the Bushies make good on their threat of unilateral sanctions, this could set up a dispute that would make the Siberian gas pipeline dispute in the early 80s under Reagan look like a friendly disagreement.
The professor’s article does not entirely accurately describe the boycott. While third country companies can be blacklisted because of their relationship with Israel, a CIA report dated 1982 that I saw when still at Commerce in the mid80s founf that the vast majority of US companies on the blacklist were there because of procedural violations of the boycott, most notably failure to reply to a boycott questionnaire or similar name inquiry, rather than because of their trade with Israel. Thus, the blacklist is in part equivalent to the Commerce DPL and OFAC’s SDNL, which, if the balance of the professor’s article is correct in its analysis, would also violate WTO rules.
I think it will help lower gas prices in the US.
No, Mike, the analysis in that article would not lead to the conclusion that the DPL and SDN list violate the GATT. First, remember that primary boycotts against non-WTO members (such as Iran) don’t violate the GATT in the first place. Second, the issue for both primary and secondary boycotts is whether the fit within the exception under Article XXI relating to national security. A better argument can be made under Article XXI for a primary boycott than for a secondary boycott since trading with the WTO-member firm doesn’t directly pose a security threat to the US. So there is a colorable argument for the SDN list; not so much for a secondary boycott applied to firms in WTO member states.
[…] Last week we reported on increased jawboning by the State Department, which has been threatening to impose sanctions under the Iran Sanctions Act on foreign oil companies that do business in Iraq. One target singled out by State is the Austrian oil company OMV. In a daily press briefing, State Department spokesman Sean McCormack had this to say: Well, we have talked to I think — the company is OMV. We’ve talked to the Austrian Government about these negotiations. I understand that OMV has recently signed a preliminary deal . . . [W]e would question why at this point given Iran’s behavior in the international community . . . [it] would want to encourage these sorts of business dealings with Iran at this . . . particular time. […]
