Canada: Economic Sanctions And Trade: Easing Of Economic Sanctions Against Iran

Last Updated: February 16 2016
Article by Paul M. Lalonde and Carmen Francis

Easing of economic sanctions against Iran

The International Atomic Energy Agency's recent certification that the Government of Iran has met its obligations under the P5+1 Nuclear Agreement resulted in the United States and European Union relaxing substantial portions of their sanctions measures against Iran. The Agreement was concluded between Iran and China, France, Germany, Russia, the United Kingdom and the US on July 14, 2015, and constituted the roadmap to be pursued in ensuring that Iran's nuclear program remains exclusively peaceful. This has paved the way for increased commercial engagement with Iran and Iranian entities, and was the precursor to Canada's announcement on February 5, 2016 that it has also eased its economic sanctions regime.

The central components of the Joint Comprehensive Plan of Action (JCPOA)—the agreement ultimately concluded between Iran and the P5+1—are the roll-back of sanctions against the Iranian petroleum, petrochemical, oil and natural gas industries, restoration of financial ties with certain Iranian banks (including the Central Bank of Iran), and the elimination of the vast majority of US extra-territorial sanctions imposed after 2012.

With respect to the EU and the UK, the majority of the nuclear sanctions targeting Iran's energy, mining, financial and shipping sectors have been removed. In addition, technical assistance, financial assistance, brokerage services and insurance related to these sectors is now permitted. In the US, the Office of Foreign Assets Control issued guidance confirming that foreign affiliates and subsidiaries of US companies may engage in commercial activities involving Iran, provided that adequate controls are in place. Pursuant to Canada's recently amended sanctions, the blanket prohibitions on imports from Iran, exports to Iran and the provision of financial and other services to or from Iran have all been scaled back to a significant degree, subject to certain remaining restrictions.

While some sanctions remain in place in relation to the military and telecommunications sectors, the most significant legal obstacles to foreign commercial activity in Iran have now effectively been rescinded. Consequently, new trading opportunities will be opening up in Iran from both a strategic partnership and investment/expansion perspective. Businesses interested in undertaking commercial activities in Iran or with Iranian entities should therefore consider the evolving sanctions landscape in order to assess the potential for new or expanded markets.

The Trans-Pacific Partnership Agreement moves toward ratification

On November 5, 2015, the much-anticipated draft text of the TPP Agreement was released. In light of the release, businesses engaged in trading activities within the TPP zone can begin to analyze the potential benefits that may be leveraged as a result of tariff elimination and other preferential trading terms that will come into effect with the implementation of the TPP.

The draft text is the culmination of more than five years of often protracted negotiations between the 12 Pacific Rim countries that are parties to the TPP. The TPP is the largest trade agreement negotiated in the last 20 years, and is expected to substantially reduce barriers to trade and investment among its member countries, namely Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, and Vietnam. Together, these 12 TPP economies comprise 40 percent of global economic output and more than 800 million consumers, and span a region that is expected to constitute two-thirds of the world's middle class by 2030. The deepening of economic integration between member states that is expected to result from the implementation of the TPP will serve to facilitate the cross-border trade in goods and services, as well as foreign direct investment.

Although an agreement has been reached by the TPP members' trade representatives, the road to implementation may be long. The legal texts must be finalized and subjected to a legal "scrub," and the final text will then need to be implemented or ratified domestically by each of the 12 parties. Each member is expected to have completed its domestic implementation and ratification processes within two years of signing the TPP. That being said, even if some members have not ratified the TPP within this two-year timeline, the agreement will nonetheless come into effect as long as six of the original 12 signatories, representing 85 percent of the total GDP of the TPP economies, have successfully ratified. At present, there remains uncertainty with respect to the likelihood of ratification by certain key member states including, most notably, the US as the November 2016 Presidential election approaches.

The agreed-upon draft of the TPP text contains 30 chapters which address both standard trade agreement provisions and more novel content related to e-commerce, state-owned enterprises and capacity building. Among the most noteworthy TPP provisions are the following:

Market access/National treatment

At its most fundamental level, the TPP will substantially reduce, and in some cases eliminate, tariffs on thousands of products. The timing of tariff reductions varies depending on the product, with some reductions coming into effect immediately and others being phased in over several years. Businesses whose trading activities are expected to be affected by the TPP should therefore review each member country's respective tariff reduction schedules to assess the financial impact.

The TPP also contains a commitment for all member states to provide non-discriminatory "national treatment" to each other's goods, subject to certain limited exceptions.

Rules of origin

The TPP accords preferential duties to those goods that qualify as "TPP Originating" by containing a specified amount of content originating from the member countries. Specific rules of origin are prescribed for textiles and apparel, among other products. The TPP's rules of origin will be crucial to understanding how businesses may benefit from the TPP (through lower input costs or better access to export markets), and to what extent certain market participants will be challenged by increased import competition.

Technical barriers to trade

In the interest of creating a "fair, predictable and open regulatory system" that promotes the flow of goods, the TPP establishes rules governing product standards and conformity assessments. These rules focus on ensuring transparency and non-discrimination in the adoption and implementation of regulatory measures, and will have specific implications for the trade in wine and distilled spirits, medical devices, pharmaceutical products and cosmetics, organic products, and information and communications technology products that employ cryptography.

Intellectual property

The TPP is generally expected to strengthen intellectual property protections, particularly with respect to copyright and the enforcement of the rules pertaining to patent registration, trademarking, trade secrets, and counterfeit and pirated goods. The Agreement contains a prescribed process for addressing geographical indications (sometimes referred to as "appellations of origin", e.g. Scotch Whisky), and establishes a minimum period for data exclusivity with respect to biological pharmaceuticals. The TPP will also enable rights holders to seek redress where intellectual property rights have been violated across the TPP region, providing additional certainty and transparency with respect to intellectual property rights enforceability in member states.

Procurement

While the Agreement will grant TPP suppliers access to government procurement contracts within new TPP markets—specifically in Australia, Brunei, Malaysia and Vietnam—it also expands market access at the sub-national level in Chile, Peru and Australia, and with respect to certain US regional power authorities. The procurement rules established by the TPP are intended to encourage fair and open procurement procedures by creating rules on non-discrimination, transparency and impartiality.

It should be noted that Canada, the US and Mexico have also agreed to a separate mechanism that will harmonize the tendering provisions in the NAFTA's Chapter 10 with the new standards set out in the TPP.

Electronic commerce

Electronic commerce has so far been the subject of few coordinated international regimes. TPP member states have agreed to a set of rules that prohibit the application of duties to products that are transmitted electronically, that prohibit the mandatory localization of servers as a condition for serving a market, and that seek to protect against the unauthorized disclosure of users' personal information. The TPP also addresses fraudulent and deceptive commercial practices, and the dissemination of unsolicited commercial electronic messages.

Transparency and anti-corruption

The TPP seeks to reduce corruption and enhance transparency in cross-border trade and investment by setting new ethical standards in the Asia-Pacific region. However, it is notable that these provisions are not subject to the TPP's dispute settlement mechanisms, addressed below. If properly implemented by the member countries, the transparency commitments of the TPP may be beneficial to stakeholders and their advisors in global restructurings, by ensuring they have access to government information that allows them to better understand the local market and regulatory dynamics.

Investor-state dispute settlement

Chapter 9 of the draft TPP contains investment-related commitments, and establishes a dispute settlement mechanism allowing investors of a member state to make a claim against a foreign member state where the investor believes the investment-related commitments of the TPP have been breached by the host state. The non-discriminatory treatment guaranteed to qualifying investors and investments under the TPP is subject to certain exceptions, for example, those that apply in respect of environmental protection measures. The draft TPP text contains the typical protections usually seen in international investment agreements, including a minimum standard of treatment protection. Another key feature is a "denial of benefits" provision for enterprises. This specifies that in order to obtain the protections of the TPP, an enterprise must have "substantial business activities" in the territory of another member state.

The road forward

As the tariff reductions come into force, some industries will face increased import competition as a result of the TPP. Multiple factors might affect the success of an industry aside from trade liberalization, and isolating the impact of trade agreements from other factor buffeting a particular industry is challenging at the best of times. That said, the TPP is not yet finalized and will not come into effect for many months (or even years), and accordingly, businesses engaged in trading activities within the TPP zone have time to review their supply chains, commercial strategies, and balance sheets in order to assess their opportunity for, or vulnerability to, offshore competition.

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Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com

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