On 14 January 2020, France, Germany and Britain (known as the “E3”) launched the Dispute Resolution Mechanism against Iran under the Joint Comprehensive Plan of Action (JCPOA), the agreement on Iran’s nuclear programme reached in 2015 with Iran by the US, the EU, the UK, France, Germany, Russia and China. Under the terms of the JCPOA, in January 2016 the UN, the EU and the US lifted a major part of their sanctions, previously imposed on Iran, in exchange for Iran’s commitment to curb its enrichment of uranium, as a measure to prevent Iran from acquiring nuclear weapons.

The launch of the outcome of the Dispute Resolution Mechanism will have a major impact on companies engaged in international trade, as it could eventually result in the re-instatement of the UN and EU sanctions against Iran, that were lifted in January 2016 under the JCPOA.

The E3’s decision to trigger the Dispute Resolution Mechanism follows Iran’ announcement on 6 January 2020 that it would no longer comply with the uranium enrichment limits set in the JCPOA.

In a joint statement, E3 foreign ministers declared that their overarching objective is to preserve the JCPOA through a constructive diplomatic dialogue, but that Iran’s actions gave them no choice but to refer to the Dispute Resolution Mechanism envisaged under the JCPOA.

What’s next?

The parties will now have approximately 30 days to resolve their dispute, which is referred to a ‘Joint Commission’, composed pursuant to the provisions of the JCPOA, and then eventually to the Ministers of Foreign Affairs, before potentially ending up before the UN Security Council. If after that the UN Security Council fails to resolve the dispute, the UN and EU sanctions will be reinstated.

The functioning of the Dispute Resolution Mechanism is summarised below.

How does the Dispute Resolution Mechanism work?

  • As set out in paragraph 36 et seq. of the JCPOA, in the event of non-compliance of one party, the other could refer the issue to the Joint Commission that has 15 days to resolve it;
  • If the compliance issue has not been resolved by the Joint Commission, any party to the JCPOA can refer the matter to Ministers of Foreign Affairs, which will have 15 days to review it;
  • In parallel with or in lieu of the consideration by foreign ministers, the participants could request an Advisory Body, consisting of three members, to provide, within 15 days, a non-binding opinion on the matter;
  • If the issue remains unsolved after this initial 30-day process, the Joint Commission has five days to consider the opinion of the Advisory Body and still to attempt to settle the dispute;
  • If the complaining party is not satisfied and deems a “significant non-performance” by the opposing party persists, it can cease performing its commitments under the JCPOA in whole or in part and/or notify the UN Security Council, which will have to vote within 30 days on a resolution to continue the sanctions relief. A resolution needs nine votes in favour and no vetoes by the United States, Russia, China, Britain or France to pass;
  • If the resolution is not adopted within 30 days of the notification, the sanctions under all previous applicable UN resolutions would be re-imposed (“snapback”) unless the Security Council decides otherwise.

Potential EU snapback

According to the EU Council Decisions and Regulations adopted at the time of the JCPOA implementation, following the eventual re-imposition of the UN sanctions, the EU sanctions will be re-imposed by a decision of the EU Council, following a recommendation by the EU High Representative for Foreign Affairs and Security Policy and the E3’s representatives (see the European Commission Information Note on EU sanctions to be lifted under the JCPOA).

Such a decision will reintroduce all the extensive EU sanctions against Iran previously imposed in connection with Iran’s nuclear programme that have been suspended or terminated under the JCPOA. This would result, once again in an almost complete shutting down of Iran for European businesses and would mean a reversal of the EU’s policy in the last 4 years, where the EU and its Member States sought to promote trade with Iran.

Importantly, however, EU Regulation [Council Regulation (EU) 2015/1861] also provides that the EU snapback will not have retroactive effect, i.e. the execution of contracts concluded in accordance with the JCPOA while sanctions relief was in force will be permitted for a certain period of time, in order to allow companies to wind down their activities in a phased manner.

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