Since my last Chairman's Message in January, the world has been turned upside down by Corona Virus. This has inevitably put a halt to our meetings in London, but fortunately the Chamber has adapted well to the new circumstances, perhaps because we have learnt how to adapt to setbacks over the years. We continue to operate effectively.
As members are aware, we had already taken the decision in mid 2019 to save money by giving up our London office, opting to work remotely by taking advantage of all the benefits of modern technology. So, when Corona Virus hit in the first quarter of this year, it did not affect the administration of the Chamber.
New methods of meeting remotely have also enabled us to hold webinars starting in June with BICC President Richard Dalton's assessment of the challenges ahead for Iran. In July, the guest speaker at our webinar was Oliver Todd, Director, Department for International Trade, Tehran, who reviewed UK trade with Iran, and the effects of Corona Virus on the current performance of the Iranian economy. In August we were very pleased to welcome Mr Michael Bock, President of INSTEX, Mr Stephen Fallon, its Chief Compliance Officer and Rossella Rubini, INSTEX's relationship manager who gave us a detailed talk on INSTEX and its operations.
The guest speaker at our next webinar to be held later this month will be Trita Parsi, the founder of the National Iranian-American Council and distinguished expert on US-Iran relations. As we edge closer towards the US Presidential elections in early November, there will inevitably great interest in the attitudes of the Democrats towards the faltering JCPOA and relationships with Iran. We look forward to Trita's commentary.
In addition to these webinars, we continue to support members of the chamber on a case-by-case basis, as a number of our members know. We also submitted a paper to the Foreign Affairs Select Committee of the House of Commons in response to the Committee's call for input to its inquiry into UK-Iran relations. Our paper can be seen here The survival of the Chamber of Commerce is very much down to our members without whose subscriptions it could not continue. We therefore reserve our webinars and direct support for members who are right to expect that their financial support should give them privileged benefits.
As and when we emerge finally from the Corona Virus threat, we will of course plan a resumption of our meetings in London. In the meantime, please be assured we will continue to operate within the law but in the interests of our members.
Lord Lamont of Lerwick - September 2020
Relations between nations take many different forms. Aside from the usual diplomatic links which are regulated by international treaties and conventions, sport, culture and trade all play a part in bringing nations together and fostering those relations.
Trade between nations presents a regular channel for contact and mutual benefit and is especially important when other relations are going through a difficult phase. Britain has been trading with ran for over 400 hundred years and there are many, long-standing business links between the two nations. The trading relationship was for long dominated by the oil and gas industry, but in recent times, Iran's own medical capabilities have advanced impressively and the country is keen to access Britain's world - class healthcare and pharma products, services and technology. This is one of the reasons why we have majored in recent times on trade in healthcare /pharma / agritech. These sectors are free of sanctions, supported by the International Court, encouraged by the government here and must remain protected from the worst consequences of the deteriorating situation.
At some point, the relationship between Iran and the west will improve. When that happens, British companies - and banks - must be ready to play their part in bringing Iran back into a full trading relationship with the UK. It is BICC's responsibility to ensure, as best we can, that UK PLC is ready to take advantage of an improvement in political relations, whenever that might be.
Lord Lamont of Lerwick
At the end of last month US Secretary of State Mike Pompeo met with his German counterpart Heiko Mass to discuss a number of foreign policy issues. During the Question and Answer session of the joint press conference , Pompeo stated that:
'There are items that are sanctioned and there are items that are not. Those items that are subject to sanctions, we will do our best to enforce the American sanctions regime that is put in - has been put in place. But for those that aren't - for humanitarian goods, things that are permitted to move, whether they move through INSTEX or through another mechanism - those are lawful and appropriate and are permitted to continue under the sanctions laws that we've put in place. And so when we think about INSTEX, if it is aimed at facilitating the movement of goods that are authorized to move, it's unproblematic.'
This statement categorically expresses the US acceptance of trade in humanitarian goods. However, members of BICC will be aware from the personal briefing provided to us by Per Fischer , Head of INSTEX , that there are still a number of obstacles to negotiate before Instex is able to deliver its leading priority - transactions in humanitarian goods. Experience continues to show that for UK companies in sectors such as Agritech , Healthcare and pharma , the single biggest obstacle remains the U.K. banking system which will not at this stage handle such transactions. Various items on Twitter are suggesting that an oil-for -goods programme along the lines once operated by the UN for Iraq is under discussion but, this may also take some time to put in place.
Until such time as Instex or any oil-for-goods programme is up and running , we believe that alternative means of ensuring humanitarian supplies of U.K. origin reach Iran needs to be put in place as a matter of urgency. BICC is discussing possible ideas with HMG. We are also developing the idea of a conference to follow last year's successful healthcare conference which was held jointly with the Department for International Trade.
We will keep you informed of progress in these two areas.
Lord Lamont of Lerwick
The Foreign Secretaries of Britain, France and Germany (the E3) have made a joint statement on the establishment of a new Special Purpose Vehicle called INSTEX (Instrument for supporting Trade Exchanges) designed to support trade transactions between European economic operators and Iran. The E3 Foreign Secretaries made it very clear that the three countries have made this move 'to preserve the Joint Comprehensive Plan of Action(JCPOA) endorsed by the United Nations Security Council Resolution 2231.' INSTEX is designed to 'support legitimate trade with Iran , focusing initially on the sectors most essential to the Iranian Population - such as Pharmaceutical, medical devices and agri-food goods.' The statement goes on to note that the E3 and INSTEX will continue to work on operational details, indicating that there is more to do before the organisation becomes fully operational. It also emphasises the need for a transparent corresponding entity in Iran without which INSTEX will not be able to work.
Instex will be registered in France and will be headed by German national Per Fischer, a former Head of Financial Institutions at Commerzbank with a very strong background in the Commonwealth of independent States (the former Soviet Union). France Germany and Britain will all be shareholders in the new institution and the United Kingdom will head the supervisory board.
The principle on which INSTEX is designed to work is not new: the idea has been around since the late 1920s when it was known as exchange clearing. Iran will need to lodge money in Europe with Instex - presumably from the sale of oil - which can then be used to pay European companies for goods exported to Iran. While oil and pharmaceuticals would cross borders, money would not.
This leaves open the question as to how a British company legitimately exporting pharmaceuticals or food to Iran and receiving payment at INSTEX can then repatriate that payment to a UK Clearing bank. Based on what we currently know, this problem has not yet been solved. If the UK government and other shareholders are unable to resolve that difficulty, it may be that the money would need to sit with INSTEX until the banking situation in the UK eases.
Although a number of operational details need to be addressed, the launch of Instex is significant and encouraging to those of us who believe that the UK must honour its commitments under JCPOA and that the overwhelmingly pressing sectors to address must be those of a humanitarian nature. In time, it may be available for trade in other unsanctioned items. Iran should not underestimate the work that has been needed to get INSTEX set up. Europe has maintained its position in spite of the US pressure.
Activity on both sides of the US - Iran divide has ramped up since my last message in August.
Iran applied to the International Court of Justice (ICJ)for a ruling against America's re-imposition of sanctions on the grounds that the sanctions breached a long- standing treaty of amity between the two nations. The ICJ heard the case in late August and on 3 October announced provisional measures requiring the US to remove any impediments to the supply of medicines and medical devices, foodstuffs and agricultural commodities and parts and services necessary for the safety of civil aviation. While this amounts to a provisional moral victory in a very limited area for Iran, the general feeling amongst most commentators is that the US will not adhere to the court's provisional ruling.
If true, America's non-compliance would amount to a repudiation of statements posted on the OFAC website promising continuing general exemptions for medical and agricultural products. It would also be a retraction of the verbal commitments which we understand have been made by US officials to the UK government.
There is perhaps a parallel in the latest developments relating to the Financial Action task Force (FATF) and the Iranian banking system. As we have reported separately, Iran had been working to introduce Anti Money Laundering and Counter-terrorism financing legislation required by the FATF to guarantee the further suspension of counter measures against Iran. In June 2016 The FATF 'welcomed Iran's high-level political commitment to address its strategic AML/CFT deficiencies, and its decision to seek technical assistance in the implementation of the Action Plan. Given that Iran provided that political commitment and the relevant steps it has taken, the FATF decided in June 2018 to continue the suspension of counter-measures.' At the end of its deliberations on 19 October, last week, the FATF observed that the majority of the Action Plan remains outstanding, but gave Iran until February 2019 to complete and implement all necessary reforms. The FATF community of 35 nations (including the US) was prepared to give Iran the benefit of the doubt and more time to achieve full compliance.
It was therefore somewhat surprising that on the 16 October while FATF deliberations were still underway, the US announced the re- imposition of sanctions on Parsian Bank. The reactions to this development have been various: some legal commentators have noted that the grounds for this new sanction was a remote connection between Parsian and another sanctioned body, a connection so remote that it would not have been possible to uncover the connection with any reasonable amount of due diligence. Others have observed that the designation of Parsian as an entity supporting terrorism will prevent Parsian from carrying out transactions connected with the supply of humanitarian goods. It is unlikely that the latter point by itself will carry much weight in the international community, partly because there are plenty of other banks in Iran willing to handle such transactions and only the designation of all of them would amount to a truly repressive measure. But, the timing of the imposition of sanctions on Parsian will almost certainly be construed as an attempt to influence the FATF deliberations, a tactic which does not seem to have succeeded.
Much more concerning - and from the American point of view, effective - is the continuing refusal of commercial European banks - among them the British clearing banks - to handle humanitarian transactions with Iran.
'British Airways' announcement that it is suspending flights to Iran from 23 September hardly comes as a surprise. On 7 July KLM had announced its own decision to suspend flights from September and Air France did likewise yesterday. In all cases the national carriers have attributed the decision to commercial reasons.
While the struggling Iranian economy is likely to result in a reduction in demand at some point , it is clear that both the economic difficulties and the airlines' decisions are a direct result of unilateral US political measures - IE the re-imposition of sanctions.
The National carriers are of course not alone in taking the decision to withdraw. French oil giant Total and several auto companies have similarly withdrawn, but National Carriers are a particularly visible indication of the trend, impacting the direct flow of business travel between Iran and Europe. In this respect, the consequences of the US decision are perhaps unprecedented. The pre-JCPOA sanctions were of course multilateral, being applied by the UN , EU and individual European states. In those cases , national carriers had no choice but to suspend flights consistent with direction from their own governments.
Now, however, the national carriers are complying with measures imposed unilaterally by the US. This perhaps says much about the continuing importance of the US as one of the biggest markets in the world. But, if the US is able to exercise such direct influence on the commercial activities of other countries in this case and force compliance, it begs the question whether European companies will be forced to comply with other unilateral U.S decisions as and when Washington decides.'
On 6 August the Office For Foreign Asset Control (OFAC)of the US Treasury issued updated 'frequently asked questions ' on the re-imposition of sanctions . This document states that the sale of medicine and medical devices as well as certain other humanitarian items remains permissible, although OFAC points out that even in these sectors it remains impermissible to trade with sanctioned entities and individuals. ( see Read FAQ's Here, section 2.7)
The Department for International Trade has also confirmed to Lord Lamont that the US will continue to exercise broad exemptions for healthcare and pharmaceutical supplies to Iran'
On May 8th Donald Trump announced the US was withdrawing from the Nuclear Agreement with Iran (the JCPOA) and subsequently, the US Secretary of State announced the US would be implementing the strongest ever sanctions against business with Iran including re-imposing the sanctions that had previously been suspended.
American action is highly regrettable. Companies that have pursued legal business with Iran have done so in good faith based on the commitments contained in the JCPOA and endorsed by UN Security Council Resolution. A recent meeting of the Joint Commission of the JCPOA reaffirmed the intention of the E3 plus China and Russia to maintain and deepen economic relations with Iran. The E.U, particularly Germany, France and the UK have all expressed strong opposition to American policy.
In the Chamber, we are actively making our views and those of our members known to the Government. For that reason, we are keen also to hear from our members how they feel they will be affected by US sanctions and what actions they would like the Government to take. I and the Chamber have had meetings with both UK businesses and Government Ministers.
We understand the Government in coordination with the EU is intending to take the following steps:-
1) To take legislative action to block US sanctions so as to protect UK businesses doing legal trade with Iran from judicial actions by the US authorities. This will involve updating existing legislation blocking US sanctions on countries like Cuba. It will make it illegal for firms to cooperate with US judicial authorities in respect of sanctions to do with Iran.
While the government can put in place legislation to protect British companies trading with Iran from US fines, it cannot oblige the US and US companies to trade with a British company that is trading with Iran. So, companies trading with both countries will need to assess the relative importance to them of trade with the US and trade with Iran.
2) To persuade the OFAC (the Office of Foreign Assets Control) to give specific exemptions to certain existing strategic business links with Iran. We as a Chamber, have highlighted the fact that humanitarian goods like pharmaceuticals have not always enjoyed the exemptions under the previous American sanctions, and sometimes even US firms seem to have had an advantage.
We continue to press the Government to facilitate banking facilities for Iranian transactions, legal under UK law. In recent years, even while trade has been legal, banking facilities have been limited because of the fear of the existing US sanctions. with no dollar dealings or contact with the US have been willing to do business. Inthe new situation it must be even more important to find a solution to the banking issue. It may be that there will be a role for state-owned banks or SPVs (Special Purpose Vehicles). There has been the talk of the EU using the European Investment Bank (EIB) whose shareholders are the Governments of the EU.
Iran has been considering its response and is talking to the EU about what can be done.
We will continue to keep in close contact with the Government and to represent the views of our members. Please don't hesitate to be in touch with us about any particular problem you may have for which we could help, but also with any views, you may have about how the Government might deal with this issue.
President Trump has not quite torn up the Iran nuclear agreement but taken a big step towards getting others to do so. The President will be seen as undermining trust in the United States. Why should anyone ever make an agreement with the US again?.
The decision was made against the advice of Trump's own Secretary of State, and all the European participants in the negotiations. No one other than President Trump believes Iran has broken the agreement. Who should we believe the IAEA or the US President? His decision will undermine the position of the pragmatic President of Iran who wants to open the country up to the rest of the world.
Despite the potential difficulties for the future raised by President Trump's statement on 13th October, Iran remains open for business. Overseas traders and investors from countries around the world are being welcomed with open arms and this can be expected to continue.
BICC believes that trade and investment between countries fosters understanding between them. With understanding, tensions can be reduced; something badly needed in the Middle East in these times.
The latest UK government figures indicate that from January to October 2016 the value of UK exports to Iran had continued to rise, representing a 42% increase on the value of exports in the same period in 2015. Published trade figures do not take into account exports through a third country (for example, Turkey) and must be seen in the context of the low level of existing trade with Iran. However they were pointing in the direction of a continuing improvement in UK - Iran trade levels prior to the US election in November.
The main problem in increasing British Iranian trade lies in the absence of banking facilities because of the fear by European banks of American primary sanctions against Iran which were retained even after the JCPOA deal. Until the American election there were indications that some UK banks were willing to handle direct transactions with Iran under certain conditions. Since then attitudes of the banks seem to have become more cautious and restrictive. This means that, for the moment, those companies intending to trade with Iran will need to construct specific payment routes through banks in other parts of the world rather than expect payment under specific contracts with Iran to come directly into UK bank accounts.
The JCPOA is an agreement worth having for its own sake even if it does not lead to an immediate dramatic change in Iran's relations with the West. It does at the very least reduce the risk of nuclear proliferation and as such is a real gain. Since the American election the other signatory Governments to the agreement have strongly supported its continuation. However the specifics of President Trumps policy on Iran trade remain unclear. We will continue to monitor events. It is clear that Iranian private and public sector organisations wish to trade with the UK and respect this country's strengths in the field of quality engineering and design in the aerospace, automotive, oil and gas and healthcare sectors, amongst others. Decisions taken in the coming months will shape the scale and nature of our trade with Iran well beyond the time when the UK will have left the EU.
I can assure you that your Chamber is in constant dialogue with the Government about how to increase trade between the two countries. We will continue to lobby to find solutions to the problems of trade with Iran, including especially the financing of that trade.
Since its Implementation in January, Iran has fully met its obligations under the JCPOA. Ambassadors have been exchanged between the UK and Iran, both of whom are strongly directed towards improving bi-lateral trade and commerce. HM Government has identified Iran as a priority for UK business. UK exports have risen 32% by this September compared with the same period in 2015, although this is from a low base. But problems and threats remain to the UK/Iran trade relationship. The principle issue being that of banking.
At present, banking for trade transactions is not generally available from the UK. It is more so, but still limited in other EU countries and around the world. Some UK banks will undertake Iran business, but do so cautiously for their best, normally large, long-term customers, usually transaction by transaction, not on a limit or treaty basis. Exporters whose banks will not provide Iran trade finance and SMEs are unbanked for Iran. This means that the UK banking market doesn't generally provide Iran trade finance, which is a severe constraint on the growth of UK exports.
Therefore UK exporters have to obtain payment through a limited network of small banks around the world, often being unable to bring profits of the trade back directly to the UK. Although this is a considerable dampener on trade, it clearly happens as the 2016 statistics show.
The anxieties of banks have been sustained by some of the statements made by President-elect Trump during the presidential campaign. It is to be hoped that, during the presidential transition, as the President-elect listens to those who explain how the JCPOA has benefitted the signatories to it and the Middle East, his policies will reflect the fact that it has reduced regional risk.
I am hopeful that the advantages of the JCPOA to western interests in the Middle East will enable the banking market to become more open to Iran trade finance and so allow trade to grow in 2017.
2016 has proved to be a welcome year for Iran trade as implementation of the Joint Plan of Action (JPOA) was announced in January, meaning that a wide range of sanctions are now lifted. After 10 years of isolation, Iran is reconnecting with the international community. Most importantly, the lifting of sanctions offers significantly better economic prospects for Iran's population whilst the world's security has improved because Iran has complied with its part in the terms of the JCPOA.
Iran is currently exciting the interest of companies in many countries as trade and investment may now flow more easily. This is unsurprising as Iran has a diverse economy, is sometimes described as an energy "super-power" and as "the last great emerging market". Now is an ideal time to focus on the market.
The enthusiasm of exporters is not yet matched by the willingness of the banking community to provide trade banking services for Iran. Banks are working through their positions in the light civil penalties previously imposed by US agencies for alleged infractions of US sanctions law. They are encouraged to be open on Iran by the signatories to the JCPOA and, I hope, will find enough assurances from the US and EU governments to return to the market before long.
I am confident that the EU companies, importantly UK companies, will recover a significant level of the trade, and more, lost under sanctions.
For my own part, I have been appointed the Prime Minister's Trade Envoy for Iran - a new whole-of-government approach to boosting British exports, through a focus on priority markets and sectors. I will be working closely with BIS and UKTI. I am looking forward to a deepening relationship between the UK and Iran.