Iran Just Exposed How a WTO Terms Brexit Will Not Result in Economic Woe on Either Side

The European Union remains under immense pressure from the United States to cease its commercial relations with state and private entities in the Islamic Republic of Iran. Whilst the US and Israeli governments are the only entities in the world that consider Iran to be in violation of the 2015 JCPOA (aka Iran nuclear deal), because the US has significant influence over international banking systems and world trade, threats made to sanction European companies for conducting business with Iran in the aftermath of US withdrawal from the JCPOA have been serious enough to have seen the French energy giant Total cut off its cooperation with the Iranian government.

However, this has not stopped the governments of Germany, France and the UK (which will remain in the EU for at least another two months) from setting up the Instrument in Support of Trade Exchanges (INSTEX), a Paris based special-purpose vehicle which will allow Iran and the EU to continue to transact, at first in the field of humanitarian goods and later in other areas of bilateral commerce. According to a joint statement from Germany, France and Britain (aka the E3):

“France, Germany and the United Kingdom, in accordance with their resolute commitment and continued efforts to preserve the Joint Comprehensive Plan of Action (JCPOA) endorsed by United Nations Security Council resolution 2231, announce the creation of INSTEX SAS (Instrument for Supporting Trade Exchanges), a Special Purpose Vehicle aimed at facilitating legitimate trade between European economic operators and Iran.

The E3 reaffirm that their efforts to preserve the economic provisions of the JCPOA are conditioned upon Iran’s full implementation of its nuclear-related commitments, including full and timely cooperation with the IAEA.

INSTEX will support legitimate European trade with Iran, focusing initially on the sectors most essential to the Iranian population – such as pharmaceutical, medical devices and agri-food goods. INSTEX aims in the long term to be open to economic operators from third countries who wish to trade with Iran and the E3 continue to explore how to achieve this objective.

The creation of INSTEX is a major first step taken by E3 countries today. The operationalisation of INSTEX will follow a step-by-step approach:

  • The E3 together with INSTEX will continue to work on concrete and operational details to define the way the company will operate.
  • The E3 will also work with Iran to create an effective and transparent corresponding entity that is required to be able to operationalise INSTEX.

INSTEX will function under the highest international standards with regards to anti-money laundering, combating the financing of terrorism (AML/CFT) and EU and UN sanctions compliance. In this respect, the E3 expect Iran to swiftly implement all elements of its FATF action plan.

The E3 underline their commitment to pursue the further development of INSTEX with interested European countries to make this instrument in support of trade exchanges with Iran operational by following the steps set out above”.

This represents a rare moment of unity among the leading economies of Europe, in so far as they are openly defying Washington in respect of Iran, even at a time when the EU is generally marching in lock-step with America in respect of trying to de-legitimise the UN recognised government of Venezuela. Beyond this, the creation of INSTEX also makes it clear that in spite of Brexit disagreements, the two leading powers of continental Europe are still able to cooperate with Britain over a matter of mutual concern.

Thus, far from being an altruistic move, the leading European economies are working to preserve their own economic self-interests that exist in Iran, whilst many European companies, particularly in Germany and France seek to expand bilateral initiatives with Iran in spite of Washington’s misgivings.

Whilst the success of INSTEX largely depends on US restraint in respect of sanctioning entities or even governments perceived to have facilitated commerce via the special-purpose vehicle, even if INSTEX ultimately crumbles under the weight of pressure from a United States that represents far more in terms of annual trade with Europe than does Iran, the very creation of INSTEX demonstrates one clear thing about the European Union: when the EU wants to continue trading with foreign partners, it will try to find a way to do so, even under difficult circumstances.

And thus one arrives at the possibility of a so-called “no deal Brexit” – a British withdrawal from the EU with no preexisting trade-deal in place. Given that trade between the European Economic Area (excluding Britain) and Britain is higher than that between the EU as a whole and Iran, it would make no logical sense for the EU to risk the wrath of mighty America in order to preserve trade with Iran, whilst doing nothing to preserve the far more lucrative bilateral trade between a post-Brexit EU and the UK.

Europe’s collective resistance to the American stance on Iran has demonstrated that for Europe, where there is a commercial will, there is at least an attempt at finding a pragmatic way. Crucially, unlike with Iran, there is not a chance that the US will do anything to stop a post-Brexit EU from entering into a new trade agreement with the UK. If anything, a deal made in the aftermath of a so-called “no deal Brexit” would be looked upon by Washington with favour because it would mean that Britain could engage in a no strings attached deal with both Europe and the United States. This would not so easily be the case if the UK remained attached to the existing EU customs union and certain elements of the EU’s single market, as the British Prime Minister currently claims to want.

Thus, if the EU is willing to risk America’s wrath in order to keep the trade door with Iran open, surely it could do so with NATO member Britain. No other interpretation can be logically derived.

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