Pax Americana without the United States
From the beginning of his presidency, Donald Trump has taken a collision course with multilateralism; it has included moratoriums on multilateral treatiesFootnote 1 and the funding of various international organizations,Footnote 2 the obstruction of World Trade Organization (WTO) Appellate Body operations,Footnote 3 the undermining of the North American Free Trade Agreement Footnote 4 and the North Atlantic Treaty Organization,Footnote 5 trade wars with China, Canada, and the European Union (EU),Footnote 6 and withdrawal from the United Nations Educational, Scientific and Cultural Organization,Footnote 7 the Paris Agreement,Footnote 8 and the United Nations (UN) Human Rights Council.Footnote 9 The United States (as well as Russia and China) may be willing to replace multilateralism with bilateral dealings where they can leverage their strengths. However, this is not an option for weaker actors (not to mention idealists believing in international law and economic cooperation as vehicles of peaceful cooperation). Paradoxically, American policy serves as a cure for the “rally ’round the flag” syndrome, forcing others to unite against the long-term instability it causes.
The presidential memorandum of 8 May 2018 is the best example of the challenges and opportunities created by the US stance.Footnote 10 By virtue of this document, President Trump withdrew from the Joint Comprehensive Plan of Action (JCPOA), an agreement with Iran concluded in Vienna by the five permanent members of the United Nations Security Council (UNSC) as well as Germany and the EU.Footnote 11 The bottom line of the deal was Iran’s commitment to limit its nuclear program (including reductions in the number and quality of centrifuges for the purpose of uranium enrichment, limits on uranium stockpiles, and restraints on the use and development of the Arak reactor) in exchange for the suspension and possible eventual termination of UN, US, and EU sanctions against it.
According to International Atomic Energy Agency (IAEA) reports, Iran has complied with its commitments.Footnote 12 Nevertheless, the United States terminated the agreement, breaching, at least, its withdrawal procedure requirements. It also violated the UNSC’s unanimous endorsement of the JCPOA, provided in Resolution 2231(2015).Footnote 13 The United States even considered the option of a military strike against Iran.Footnote 14 Given the prevailing view that the JCPOA was the greatest step towards a peaceful resolution of the Iranian challenge in decades, and the lack of US coordination with its allies, the EU has been left with just one option: countering the American sanctions. Although the EU will try to do its best with a blocking statute,Footnote 15 the unique position of the United States as a key jurisdiction in the settlement of international paymentsFootnote 16 may effectively cripple any economic cooperation with Iranian entities, including deals where none of the parties comes from, or operates in, the United States. This situation gives rise to a series of questions concerning the international legality of the US investment sanctions.
I argue that the Iranian sanctions situation has all the potential for becoming a landmark case for international investment, financial, and trade law. Most importantly, it traps the International Court of Justice (ICJ) — already seized of the issue by virtue of an Iranian application to the court — in a gilded cage, both providing it with the opportunity to rule upon the legality of the US sanctions as well as imposing major legal and political burdens upon it should it refuse to do so. Further international ligation and/or arbitration before other international dispute settlement venues may ensue, resulting from either Iranian or third-party applications.
This article begins with a general outline of the US sanctions regime. Subsequently, it offers a normative analysis of US bilateral commitments towards Iran. Both the issues of their status under international law — that is, whether they constitute treaties within the meaning of the international law of treaties — and possible substantive breaches are addressed. I focus on the JCPOA, the Treaty of Amity, Economic Relations, and Consular Rights between the United States and IranFootnote 17 and the ICJ claim thereunder, and relevant multilateral regimes — in particular, International Monetary Fund (IMF) law, Organisation for Economic Co-operation and Development (OECD) Liberalisation Codes, and the WTO’s General Agreement on Trade in Services (GATS).Footnote 18 Having established that the United States has likely committed prima facie violations of its treaty obligations, I turn to the key question of exceptions, focusing on the state of necessity and essential security clauses. I also briefly address the most pertinent procedural aspects of the possible international litigation. I conclude with general remarks concerning the likely contribution of this case to the development of international law.
This is the first article to discuss the risks of normative spillover should there be overly lenient acceptance of the United States’s arbitrary reliance on the state of necessity and essential security exceptions. The article also constitutes a pioneering attempt to take a streamlined approach to addressing these issues across various branches of international economic law, as there is hardly any case law available. In doing so, the article makes doctrinal and theoretical contributions that can have consequences for the development of public international law related to necessity and essential security clauses. This in turn will be of the utmost importance for either shielding the increasingly challenged multilateral architecture of public international law or furthering its fragmentation. In my concluding remarks, I mention the issue of limiting Iran’s capacity to issue sovereign debt instruments. However, due to space constraints, this article does not cover the legality of the US sanctions under customary international lawFootnote 19 or general international law, including the law of state responsibility.Footnote 20
The Old–New Regime of US Sanctions against Iran
By virtue of the JCPOA, states agreed to lift nuclear-related sanctions on Iran and provide additional benefits in exchange for temporary constraints on its uranium enrichment program and abstention from any activities relating to nuclear fuel reprocessing. The JCPOA, as an element of President Barack Obama’s legacy, was rejected by his successor Donald Trump. Trump “[has] been very clear about [his] opinion of that deal. It gave Iran far too much in exchange for far too little” and issued an ultimatum to the US Congress and the EU (!) to rectify the situation (“to fix the terrible flaws of the Iran nuclear deal”).Footnote 21 After less than half a year, Trump decided to withdraw from the JCPOA. According to National Security Presidential Memorandum 11 (NSPM-11),
[s]ince the JCPOA’s inception, ... Iran has only escalated its destabilizing activities in the surrounding region … [and] has publicly declared it would deny the IAEA access to military sites in direct conflict with the Additional Protocol to its Comprehensive Safeguards Agreement with the IAEA. In 2016, Iran also twice violated the JCPOA’s heavy water stockpile limits. This behaviour is unacceptable, especially for a regime known to have pursued nuclear weapons in violation of its obligations under the Treaty on the Non-Proliferation of Nuclear Weapons.Footnote 22
Most importantly, section 3 of NSPM-11 reintroduced sanctions, notably those provided for by the National Defense Authorization Act for Fiscal Year 2012, the Iran Sanctions Act of 1996, the Iran Threat Reduction and Syria Human Rights Act of 2012, and the Iran Freedom and Counterproliferation Act of 2012.Footnote 23
Accordingly, the State and Treasury Departments triggered 90- and 180-day wind-down periods before the re-imposition of sanctions.Footnote 24 The Office of Foreign Assets Control (OFAC) expected that by 4 November 2018, all of the US nuclear-related sanctions that had been lifted under the JCPOA would be re-imposed and fully effective. Accordingly, on 6 August 2018, the president issued the New Iran Executive Order 13846, thus re-imposing the previous measures.Footnote 25 The first group of sanctions (imposed in August 2018) included services related to:
1. the purchase or acquisition of US dollar banknotes by the government of Iran;
2. Iran’s trade in gold or precious metals;
3. the sale, supply, or transfer to or from Iran of graphite, raw or semi-finished minerals such as coal, and software for integrating industrial processes;
4. significant transactions related to the purchase or sale of Iranian rials or the maintenance of significant funds or accounts outside the territory of Iran denominated in rials; and
5. the purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt.
Three months later, sanctions were broadened to include services related to:
6. Iran’s port operators and shipping and shipbuilding sectors;
7. petroleum-related transactions, including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
8. transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions;
9. specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions;
10. underwriting services, insurance, or reinsurance; and
11. Iran’s energy sector.
To the “extent reasonably practicable,” the secretary of state was also directed to shift the financial burden of unwinding any transaction or course of dealing primarily onto Iran or the Iranian counterparty.
NSPM-11 “does not ... create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person,” which corresponds directly with the above-mentioned provisions of the EU blocking statute.Footnote 26 For the purposes of this article, what seems most interesting in substantive terms are the following points. First, by virtue of section 8 of Executive Order 13846, the United States has imposed a prohibition on any US-owned or US-controlled foreign entity from knowingly engagingFootnote 27 in any transaction, directly or indirectly, with the Iranian government, or any person subject to its jurisdiction, if such a transaction would be covered by certain executive orders (prohibiting, inter alia, trade and other dealings with, and investment in, Iran, and blocking property of the government of Iran and Iranian financial institutions) or any regulation issued pursuant to the foregoing (including the Iranian Transactions and Sanctions Regulations (ITSR)) if the transaction were engaged in by a US person or in the United States.Footnote 28 Civil penalties for the US-owned or US-controlled foreign entity’s violation, attempted violation, conspiracy to violate, or causing of a violation of section 8 shall apply to a US person who owns or controls such an entity to the same extent that they would apply to a US person for the same conduct.
Second, by virtue of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, in relation to the ITSR, the sanctionable activities of a foreign financial institution include:
• facilitating the efforts of the government of Iran to acquire or develop weapons of mass destruction (WMD) or delivery systems for WMD or to provide support for terrorist organizations or acts of international terrorism;
• facilitating the activities of a person subject to financial sanctions pursuant to UNSC Resolutions 1737, 1747, 1803, or 1929 or any other UNSC resolution that imposes sanctions with respect to Iran;
• engaging in money laundering, or facilitating efforts by the Central Bank of Iran or any other Iranian financial institution, to carry out either of the facilitating activities described above; or
• facilitating a significant transaction or transactions or providing significant financial services for: (1) the Islamic Revolutionary Guard Corps (IRGC) or any of its agents or affiliates whose property and interests in property are blocked pursuant to the International Emergency Economic Powers Act (IEEPA) or (2) a financial institution whose property and interests in property are blocked pursuant to the IEEPA in connection with Iran’s proliferation of WMD, Iran’s proliferation of delivery systems for WMD, or Iran’s support for international terrorism.Footnote 29
In April 2019, Trump designated the IRGC as a foreign terrorist organization (FTO), which entailed travel and economic sanctions. The IRGC has been described as “the Iranian government’s primary means of directing and implementing its global terrorist campaign.”Footnote 30 It was the first time that the United States had ever named a part of a foreign government a FTO. In the same month, it was declared that the United States would end its waiver program for third-state importers of Iranian oil and possibly impose related sanctions.Footnote 31 Designating the IRGC as a FTO resulted, in June 2019, in the US Treasury sanctioning the Persian Gulf Petrochemical Industries Company and a network of thirty-nine associated companies for financially supporting the revolutionary guard.
Two questions ensue. First, did the United States undertake legally binding commitments not to impose sanctions against Iran applicable to the case at hand? Second, how does the answer to the first question impact on the legality of the US sanctions?
JCPOA
LEGAL STATUS
The JCPOA was concluded in Vienna on 14 July 2015. This detailed, 159-page document concluded two years of negotiations between Iran and the permanent members of the UNSC (China, France, Russia, the United Kingdom, and the United States), Germany, and the EU. The JCPOA parties thus realized the aim of the interim framework agreement (the Joint Plan of Action concluded by Iran, the permanent members of the UNSC, and GermanyFootnote 32), which called for the relief of sanctions in exchange for limitations on the Iranian nuclear program.Footnote 33 Whereas the substantive provisions of the JCPOA are analyzed below, the initial question in terms of legal consequences of possible breaches thereof is the normative status of the agreement under international law — namely, is it a treaty in the sense of Article 2(1)(a) of the Vienna Convention on the Law of the Treaties (VCLT)Footnote 34 or a political agreement with respect to the United States? Only the violation of a treaty would give grounds for international legal responsibility.
The decisive factor in this respect is the intent of the negotiating parties to create legal obligations governed by international law. As explained by the International Law Commission’s (ILC) special rapporteur on the law of treaties, such an intent does not automatically stem from “couch[ing the agreement] in the form usually given to binding agreements,” emphasizing its formal character by including adherence provisions, or even “a State reserv[ing] for itself the right to determine both the existence and the extent of the obligation undertaken by it. … On the other hand the absence of a true treaty relationship, notwithstanding the formality and the solemnity of the instrument, may be apparent from the terms, the designation and the history of the instrument in question.”Footnote 35 Accordingly, even though the designation of the agreement is not conclusive for its legal character, as confirmed by the definition of a treaty under Article 2(1)(a) of the VCLT, the designation of the JCPOA as a “plan” makes one hesitate before attaching legal significance to its provisions.
Looking at its provisions, one is tempted to acknowledge its mixed political and legal character. In accordance with the preamble, the JCPOA “includes ... reciprocal commitments.”Footnote 36 However, while the Iranian commitments are clear, those of the other parties resemble soft obligations — for example, the “JCPOA will produce the comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions related to Iran’s nuclear programme.”Footnote 37 Although this implies an obligation to act in good faith (duty of effort),Footnote 38 the parties to the JCPOA did not have the capacity to undertake a legal obligation to the effect that the UNSC or the international community would lift sanctions (specific result). In the alternative, the JCPOA could consist of a political agreement with a letter of intent (notably with respect to UNSC decisions): “The E3/EU+3 and Iran commit to implement this JCPOA in good faith … and to refrain from any action inconsistent with the letter, spirit and intent of this JCPOA that would undermine its successful implementation.”Footnote 39
These considerations, however, seem to have only limited impact upon the United States’s legal position. Expected opposition from Congress compelled the Obama administration to state explicitly from the very beginning that the JCPOA was not legally binding — that is, it was neither a treaty nor an executive agreement.Footnote 40 The issue was debated hotly in 2015. Yet, despite some early controversies,Footnote 41 which were mainly of a constitutional character, the secretary of state was very clear, inter alia, while participating in a Senate hearing on the ongoing JCPOA negotiations, that the United States did not have any intention of undertaking legally binding obligations.Footnote 42 If that was not enough, the United States did not express formal consent to be bound by the putative treaty (as codified in Article 11 of the VCLT),Footnote 43 as the JCPOA has not been signed.Footnote 44 Even the cumulative effect of treaty provisions, unilateral declarations, and other unilateral acts, acquiescence, estoppel, and legitimate expectations does not automatically entail a legally binding obligation.Footnote 45
Accordingly, breaches of the JCPOA per se may give grounds for retorsion or political sanctions against the United States, but this would not amount to internationally wrongful acts, even though one could argue that a claim of rights (that is, the United States calling upon Iran to respect the agreement) entails corresponding duties.Footnote 46 The above considerations are not conclusive as to the legal character of the agreement with respect to its other parties. However, the JCPOA’s provisions have also been unanimously endorsed by the UNSC in Resolution 2231(2015), which “urged” its full implementation on the timetable established therein. The resolution “underscores” that UN member states are obliged to accept and carry out the UNSC’s decisions in accordance with Article 25 of the Charter of the United Nations (UN Charter).Footnote 47 Hence, whatever the normative status of the JCPOA per se in respect of the United States, its normative content has been transformed into a legally binding act of the UNSC. The United States may be bound by either or both formal sources at the same time.Footnote 48
PROCEDURAL ISSUES
On procedural grounds, the United States has violated both the JCPOA and Resolution 2231(2015). In accordance with paragraph 36 (on the dispute resolution mechanism) of the JCPOA, if the United States “believed that Iran was not meeting its commitments under this JCPOA,” the United States “could refer the issue to the Joint Commission for resolution.” Further,
[a]fter Joint Commission consideration, [the United States] could refer the issue to Ministers of Foreign Affairs, if it believed the compliance issue had not been resolved. … After Joint Commission consideration … either the complaining participant or the participant whose performance is in question could request that the issue be considered by an Advisory Board. … If the issue still has not been resolved to the satisfaction of the complaining participant, and if the complaining participant deems the issue to constitute significant non-performance, then that participant could treat the unresolved issue as grounds to cease performing its commitments under this JCPOA in whole or in part and/or notify the UN Security Council that it believes the issue constitutes significant non-performance.
Accordingly, while the finding of the Joint Commission and Advisory Board as to whether Iran committed an act of significant non-performance would not have been binding upon the United States, the United States should have followed the prescribed steps and notified the UNSC.
By virtue of Resolution 2231(2015), the JCPOA participants are “encouraged” to resolve any issues arising with respect to its implementation commitments through the procedures specified in the JCPOA.Footnote 49 The UNSC “expressed its intent” to address possible complaints by the JCPOA participants about significant non-performance. More importantly, the resolution contains a snapback provision; in case of significant non-performance of commitments under the JCPOA, all UN sanctions would be automatically re-imposed within thirty days, unless the UNSC affirmatively decided otherwise.Footnote 50 Some argue that the United States thus lost the right to trigger this snapback.Footnote 51
Given the fact that the United States is a permanent member of the UNSC, compulsory enforcement of the JCPOA or Resolution 2231(2015) by the UN seems improbable. At the same time, in such capacity, the United States enjoys both the greatest privileges and responsibilities for the maintenance of international peace and security, which constitutes a normative context for interpretation of other international law obligations, including the duty of cooperation and the good faith principle.
SUBSTANTIVE ISSUES
In substantive terms, the JCPOA stipulates that the United States will cease the application of the sanctions listed in the Annex to the JCPOA and will continue to do so.Footnote 52 The list of sanctions to be lifted covers nineteen categories. Such sanctions should also not apply to non-US persons.Footnote 53 The re-imposed US sanctions (discussed earlier) therefore contradict the JCPOA’s provisions concerning transactions with listed individuals and entities, the Iranian rial, the provision of US banknotes to the government of Iran, bilateral trade limitations on Iranian revenues held abroad, Iranian sovereign debt, services associated with the above categories, and gold and other precious metals.Footnote 54 As stated above, Resolution 2231(2015) urges full implementation of the JCPOA.Footnote 55 In the UNSC’s linguistic practice, this not only denotes a legally binding obligation but also is considered an even stronger expression than “calls upon” or “requests.”Footnote 56
The Iran–US Treaty of Amity, Economic Relations, and Consular Rights
LEGAL STATUS
Despite four decades of antipathy between the two countries, starting with the 1979 hostage crisis and punctuated by some 3,900 arbitration cases before the Iran–US Claims TribunalFootnote 57 and two pending ICJ casesFootnote 58 (three counting the US counterclaim), the United States declared its withdrawal from the 1957 Treaty of Amity, Economic Relations, and Consular Rights (Treaty of Amity)Footnote 59 only in October 2018.Footnote 60 As no further statements or documents relating to this declaration are publicly available (it is expected to take effect on 3 October 2019), the Treaty of Amity remains in force at least for one year from its formal denunciation. In other words, it is binding for the purposes of the ICJ proceedings and possibly other treaty challenges.
PROCEDURAL ISSUES
In light of the United States’s withdrawal from the compulsory jurisdiction of the ICJ in 1986, the key enabling factor for the proceedings is the recognition by both parties to the Treaty of Amity of the jurisdiction of the ICJ over issues relating to the interpretation or application of the treaty by virtue of its Article XXI(2). This jurisdictional basis has already been accepted by the ICJ in the Oil Platforms case.Footnote 61
SUBSTANTIVE ISSUES
Under the Treaty of Amity, re-imposition of sanctions on internationally contested grounds does not contribute towards peace and sincere friendship.Footnote 62 It also, prima facie, violates:
• fair and equitable treatment of Iranian nationals and companies, the prohibition of unreasonable discrimination and effective enforcement of contractual rights, as far as the impact of sanctions upon investors could have been unfair or even, “in rare circumstances” of “more radical measures,” could amount to a regulatory taking or indirect expropriation;Footnote 63
• Iranians’ right to conduct their activities in the United States upon terms no less favourable than other enterprises of whatever nationality engaged in similar activities, including those deemed necessary or incidental to the effective conduct of their affairs;Footnote 64
• the prohibition on import and export restrictions or embargoes;Footnote 65 and, most importantly,
• the prohibition on restrictions on the making of payments, remittances, and other transfers of funds to or from the territories of the other high contracting party and exchange restrictions.Footnote 66
The Treaty of Amity does not preclude the application of measures regulating the flow of gold or silver or measures relating to fissionable materials.Footnote 67 The United States could try to claim “customary grounds of a non-commercial nature” to justify import and export restrictions and, for the transfers restrictions, rely upon approval from the IMF.Footnote 68 In light of the violation of UNSC Resolution 2231(2015), however, the former seems unlikely (the most likely necessity exception is discussed below). The latter would most likely be based on the security interests exception, which is also contained in the Treaty of Amity.Footnote 69
Multilateral Treaty Regimes
IMF
Given that both the United States and Iran are members of the IMF, its law is relevant in assessing US primary and secondary sanctions (“monetary restrictions” from the IMF’s perspective).Footnote 70 Although the principal purpose of the IMF’s Articles of Agreement is not to protect foreign investments per se, the goals of the promotion of exchange stability and assistance in the establishment of a multilateral system of current payments indirectly shield certain investment flows.Footnote 71 Fund members are generally prohibited from imposing restrictions on making payments and transfers for current international transactions and tampering with the exchange rates system.Footnote 72 In terms of restrictions on current international transactions,
• current transactions are financial flows not for the purposes of capital transfers;Footnote 73 most importantly, they include payments for economic contracts, including financial services; and
• the prohibition on limiting current transactions covers “making” (rather than receiving) payments — that is, the outflow of US payments for Iranian goods or services in this context.
A measure will be considered a restriction if its effect is to harness actual flows — that is, if it limits “the availability or use of exchange as such.”Footnote 74 To this extent, NSPM-11 is clearly more than a mere regulation of financial flows.
As for the prohibition on exchange restrictions, it covers all measures that affect “the availability or use of exchange as such.”Footnote 75 The IMF considers illegal, in particular, measures such as restrictions on payments for imports, restrictions for payments for services, and limits on usage of foreign currency accounts.Footnote 76 Accordingly, while the United States, as a member of the IMF, remains free to prohibit certain transactions with Iran and Iranian nationals, it shall not prevent payments for such contracts. Whereas the United States could not claim the most frequently used Article VIII(2)(a) exception for reasons related to the balance of payments (and financial assistance), restrictions imposed for security reasons are presumed legal unless otherwise declared by the IMF.Footnote 77
These provisions are obviously relevant with respect to primary sanctions — that is, those sanctions concerning US–Iran transactions (notably sanctions 1–7 and 11, listed earlier). Additionally, activities involving most persons from the OFAC’s specially designated nationals list — that is, persons identified as meeting the definitions of the terms “government of Iran” or “Iranian financial institution” — will also be subject to secondary sanctions beginning November 2018.Footnote 78
My subsequent remarks on the essential security interests exception are of the utmost relevance in this context. But, for now, one should also acknowledge the importance of IMF decisions on the US restrictions for scrutiny under the OECD’s Liberalisation Codes and the WTO’s GATS framework.Footnote 79
OECD’S LIBERALISATION CODES
In addition to its IMF obligations, the United States is also a member of the OECD. As such, it is bound by the Code of Liberalisation of Capital Movements (CMC) and the Code of Liberalisation of Current Invisible Operations (CIOC).Footnote 80 This means that it is obliged to eliminate restrictions on current invisible transactions (that is, services) and transfersFootnote 81 and to progressively abolish restrictions on movements of capital to the extent necessary for effective economic cooperation.Footnote 82 In terms of economic sanctions, more important is that under both regimes member states are bound by the standstill clause — that is, a prohibition on the introduction of new barriers.
The CMC and the CIOC are important in two respects: on the one hand, in terms of secondary sanctions against other OECD member states and their nationals and, on the other hand, possibly also with respect to Iran, as the members of the OECD are said to have extended the benefits of the codes to all IMF members.Footnote 83 At the same time, it should be acknowledged that, formally speaking, the codes are not treaties but, rather, legally binding resolutions of the international organization. In substantive terms, the scope of application of the CMC and the CIOC is considerably broader than the IMF Articles of Agreement, as they include:
• all capital transactions — that is, all long- and short-term capital movements and direct investments;
• both inward and outward transactions; and
• services — that is, invisible transactions, which cover the supply of services to residents by non-resident service providers and vice versa (including banking and finance, insurance, and private pensions).
There is no doubt that NSPM-11 constitutes a restrictive measure.Footnote 84
The only exception possibly available to the United States is, again, protection of its security interests.Footnote 85 The United States did not submit reservations to the CMC and the CIOC, which is of major importance for the legal assessment of the NSPM-11 regime. Although a comprehensive comparison of the investor protections under the IMF and OECD regimes is beyond the scope of this article, one should reiterate at this point that the CMC and the CIOC liberalize not only international transfers but also underlying transactions (unlike the IMF’s Articles of Agreement). Also, unlike the IMF’s Articles of Agreement, the CMC and the CIOC also liberalize inward investments by non-residents.
GATS
Iran is not yet a member of the WTO (Iran’s working party was established on 26 May 2005), and the United States is merely a signatory to the VCLT, and so the relevance of US commitments under WTO law to US–Iran relations cannot be assessed even in light of Article 18 of the VCLT relating to the legal effects of treaties prior to their entry into force. Those commitments, however, could be important in terms of secondary sanctions.Footnote 86 Here, analysis in abstracto is difficult within the limited scope of this article. Although NSPM-11 effectively aims to prevent trade both in goods (petroleum is considered as such for the purposes of WTO law) and services as well as in precious metals and Iranian currency, its direct objects in terms of secondary sanctions are mostly services related to such transactions. Accordingly, NSPM-11 seems to fall predominantly within the ambit of GATS rather than the General Agreement on Tariffs and Trade (GATT).Footnote 87
GATS only applies to services and service suppliers of any other member. This means that GATS’s application to US secondary sanctions is limited to the consumption by US persons of services provided by third-state persons or also, at best, to obstacles to service flows between two foreign states (notably when financial institutions active in the United States refuse to settle transactions). However, GATS does not limit the United States’s right to prevent its own persons from providing services abroad or to foreigners.
NSPM-11’s secondary sanctions against third-state nationals, both with respect to services provided to US consumers and between foreign states, could be assessed in light of the general obligation of most-favoured-nation (MFN) treatment as well as specific obligations — that is, in accordance with the US Schedule of Commitments — on market access.Footnote 88 Additionally, with respect to preventing service flows from a foreign state to the United States, sanctions could violate the national treatment standard.Footnote 89 In terms of an alleged MFN violation, it seems necessary to acknowledge that the United States is not discriminating on a nationality basis (in other words, secondary sanctions can apply on a non-discriminatory basis to any foreign person involved in designated transactions with Iran). Arguably, however, even if that was sufficient to justify MFN restrictions, sanctions may nevertheless be discriminatory de facto since the actual number of states that have managed to establish a business link with Iran (following the lifting of sanctions) remains limited.
Prima facie, the most likely sanctions to violate GATS are those secondary sanctions that relate to significant transactions with the Iranian rial (sanction 4), Iranian sovereign debt (sanction 5), financial relations with the Central Bank of Iran and designated Iranian financial institutions (sanctions 8 and 9), and underwriting services, insurance, or reinsurance (sanction 10). Here, the applicable law could vary from case to case. The United States is also a party to the WTO’s Understanding on Commitments in Financial Services, which stipulates more robust liberalization.Footnote 90 Hence, the applicable law would either be GATS together with the Annex on Financial Services and schedule of financial services commitments (including the US MFN exemptions, notably concerning insurance and banking services — that is, the fifth protocol to GATS) or the Understanding on Commitments in Financial Services (with respect to persons from another state party to the understanding).
Similar to the GATT, GATS also includes public order and essential security interests exemptions.Footnote 91 As for the former, the WTO’s Dispute Settlement Body (DSB) would be unlikely to take a deferential approach.Footnote 92 At this point, it is worth acknowledging that unlike the GATT’s essential security interests exception,Footnote 93 GATS obliges members to inform the Council for Trade in Services about security-related measures “to the fullest extent possible.” Accordingly, even if the GATS clause is self-judging, the United States should comply with the procedural requirements applicable to the adoption of secondary measures against third states.Footnote 94
Essential Security Interests, State of Necessity, and Economic Sanctions
The foregoing analysis has established that the United States has likely committed prima facie violations of binding legal commitments under the JCPOA as espoused by UNSC Resolution 2231(2015), the Treaty of Amity, as well as the IMF’s Articles of Agreement, the OECD’s Liberalisation Codes, and the WTO’s GATS. However, each of these commitments is subject to well-recognized exceptions. This section of the article, therefore, focuses on the applicability of those exceptions.
National security appertains to the very essence of, or is indispensable for, statehood. Accordingly, the international legal system must acknowledge states’ particular powers in this regard. This is reflected in the notion of the inherent right of self-defence, as enshrined in Article 51 of the UN Charter, and the self-judging formulation of the majority of treaty clauses concerning essential security interests.Footnote 95 For this reason, the international community, including dispute settlement bodies, tends to show particular caution when faced with an alleged breach of international obligations stemming from essential security concerns. At the same time, security interest clauses cannot constitute a blanket justification for violation of international law. The subsistence of international law hinges upon maintaining a fragile equilibrium between respecting a state’s right to its security and preventing the very same norm from becoming a device for destroying the legal system it is supposed to stabilize. This split is well reflected in investment arbitration case law with regard to economic emergencies; certain tribunals have ruled that the protections of bilateral investment treaties (BITs) should be upheld even in such times of emergency, when they are most needed, while others have taken the view that such occasions are when a government’s discretionary policy powers must be given precedence.Footnote 96
As for the clauses themselves, they assume a spectrum of approaches in defining whether, and to what extent, a state’s freedom to use them is restricted or not. Under Article XX(d) of the Iran–US Treaty of Amity, the parties reserve their right to apply measures “necessary to fulfil [their] obligations ... for the maintenance or restoration of international peace and security, or necessary to protect [their] essential security interests.”Footnote 97 Beyond the legally uncontentious possibility of claiming a security exception with respect to military establishments and fissionable and fusionable materials, Article XIVbis (1)(b)(iii) of GATS stipulates that a member can also take any actions “which it considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations.” Also, common Article 3(ii) of the OECD’s CMC and CIOC shields a state’s right to take any action “which it considers necessary for the protection of its essential security interests.” Finally, the IMF’s Articles of Agreement do not contain an explicit security interests exception; however, by virtue of a legally binding interpretation, the Executive Board has acknowledged that security matters fall outside the substantive scope of the Articles of Agreement. As a result, payment restrictions on such grounds are presumed legal unless otherwise declared by the IMF.Footnote 98
Starting from the last of these regimes, the IMF not only tends to abstain from becoming involved in strict political–security issues; it is even argued that it could continue financial support to a state sanctioned by other international organizations, including the UN.Footnote 99 Over the years, certain states have widely relied on a de facto security exception, notably the United States with respect to Iran (as well as Libya and Panama).Footnote 100 So far, the IMF has not considered itself directly bound by UNSC resolutions and has not questioned the application of such an exception. If the IMF were to approve a US claim that it is acting pursuant to its security interests, it would quasi-automatically shield the legality of exchange restrictions and current account controls under other treaties; notably, the WTO would likely defer to the IMF’s decision,Footnote 101 even though the IMF’s qualification of a measure as an exchange restrictionFootnote 102 does not preclude the possibility that the WTO would see it as a trade restriction subject to its own purview.Footnote 103 And, yet, even in the case of self-judging financial necessity clauses in international financial law (where the burden of proof is seemingly easier to satisfy), scholars support the view that it is not an arbitrary declaration but, rather, one where the legitimate efficiency and fairness interests of the non-violating party ought to be considered.Footnote 104 Given that the actual losses will be incurred by private actors, “at bottom is the question of risk allocation and determining who should bear the burden in situations of unforeseen events.”Footnote 105
As for the OECD codes and GATS, both clauses contain the threshold of what the state “considers” necessary for its security. There is no relevant OECD case law in this respect. The first WTO panel report dealing with the related issue under the GATT was circulated in April 2019 in proceedings instituted by Ukraine in Russia – Traffic in Transit. Footnote 106 The Ukrainian claim regarded bans and restrictions on traffic in transit by road and rail, from Ukraine, across Russia, and destined for Central Asia. Russia argued that the measures were among those “which it considers necessary for the protection of its essential security interests” (Article XXI(b) of the GATT) in response to an international relations emergency in 2014 that posed a threat to Russia’s essential security interests. Furthermore, Russia argued that, since the provision is to be interpreted as self-judging, it should be immune from any scrutiny by WTO dispute settlement bodies.Footnote 107
The panel concluded that the clause “which it considers” in the chapeau of Article XXI(b) does not extend to the determination of the circumstances described in each subparagraph. In other words, while there is greater discretion in determining the scope of measures considered necessary for the protection of essential security interests, the existence of factual circumstances, such as whether measures are taken “in time of” an “emergency in international relations,” must be objectively established.Footnote 108 Such a limitative interpretation was justified, in the panel’s view, in light of both the object and purpose of the treaty as well as the lack of consistent practice claiming broad discretion under Article XXI(b), which could be treated as an interpretative agreement between states parties to the GATT.Footnote 109 Further, the negotiation history confirmed this textual and contextual interpretation: “[T]here is no basis for treating the invocation of Article XXI(b)(iii) of the GATT 1994 as an incantation that shields a challenged measure from all scrutiny.” Footnote 110 In addition to rejecting the Russian argument (alleging a lack of jurisdiction in a dispute pertaining to national security), the panel also rejected the United States’s assertion — as an intervening party — that reliance on Article XXI(b) is “non-justiciable”; both arguments relied on the false “self-judging” nature of the provision.Footnote 111
Yet, while the circumstances described in subparagraphs (i) to (iii) of Article XXI(b) (including the alleged emergency in international relations and whether the impugned measures were taken “in time of” such emergency) refer to objective facts and operate as “limitative qualifying clauses,”Footnote 112 the panel deferred to a great extent to the defendant-state’s assessment with regard to the chapeau of the article (that is, what constitutes an essential security interest and what protective measures are necessary to protect it.) The panel’s reticence to apply a strict standard of review reached its peak when it found that, while it was impossible to state what security interests Russia had actually referred to, it could not be said that Russia did so in an obscure or indeterminate manner.Footnote 113 Even more intriguingly, while the panel recognized the existence of a good faith obligation when defining essential security interests and linking them to the contested measures, it was very careful to state that potential international responsibility of the defendant state for the state of emergency did not fall within its purview.Footnote 114
Accordingly, in this first case where an international tribunal was called upon to rule on an essential security interests claim by a permanent member of the UNSC (to justify its prima facie illicit acts in a situation to which it had contributed), members of the panel made a considerable effort to avoid taking a hard line. While the specific circumstances under which such a defence can be applied have to clear an objective standard, the panel left huge discretionary freedom to states with regard to the chapeau of the article.
The other most promising opportunities for a WTO panel to clarify the nature of the essential security interests clause will arise in three cases concerning the embargo on Qatar, against the United Arab Emirates, Bahrain and Saudi Arabia.Footnote 115 The Bahrain and Saudi Arabia cases are still in the consultation phase, but, in the United Arab Emirates case, the panel has already been formed.
There is, however, a vast literature concerning the GATT security interests exception.Footnote 116 The prevailing view seems to consider the clause as being self-judging.Footnote 117 As a result, the WTO’s DSB is unlikely to review the legality of the invocation of such exception, even if the plausibility of a security claim seems prima facie doubtful. At the same time, it seems significant to note that essential security interests — in the GATT preparatory works — were conceived as pertaining to classical military security and not to commercial matters, “as the only guarantee against abuse.”Footnote 118 In terms of GATS — aside from the notification requirement — more problematic is the timing of the sanctions — namely, the existence of an emergency in international relations. The emergency must obviously be directly related to the contested measure, and, in this particular case, one could argue that either there is none or that the emergency is actually caused by the US actions, hence precluding reliance on the exception (ex injuria jus non oritur).
When it comes to the obscure normative significance of the clause under the OECD’s CMC and CIOC, the OECD Investment Committee has explicitly stated that the security clause should be applied only in “exceptional situations,”Footnote 119 which was subsequently reiterated in a committee clarification stressing that the article is not to be used as an escape clause.Footnote 120 The CMC and the CIOC do not contain any compulsory dispute resolution mechanisms, and their enforcement is predominantly limited to an opaque peer review process.Footnote 121
Perhaps the most problematic for the United States could be the first challenge, under the Iran–US Treaty of Amity. Here, the security clause contains a more objective criterion, although some argue that an essential security defence in international investment lawFootnote 122 may be raised only when national security interests are at stake.Footnote 123 The Argentinian financial crisis provided a testing ground for arbitral application of similar essential security clauses.Footnote 124 According to some arbitral tribunals addressing that crisis, essential security could be equated with the necessity defence under customary international law (discussed later in this article);Footnote 125 others have held that non-precluded measures (NPMs) related to necessity are something separate.Footnote 126 However, under both approaches,Footnote 127 essential security can also be claimed in the case of an (economic) emergency. In Enron v Argentine Republic, the tribunal declared that the NPM provision at issue there was not self-judging since “the Treaty would be deprived of any substantive meaning.”Footnote 128 In other words, although the normative content of these provisions is not specified, and one may argue whether essential security covers only military matters or also economic distress, this is not to say that states enjoy a discretionary power to claim this exemption at will.
The Treaty of Amity language is also mirrored in the subsequent US 2004 Model BIT, which expressly states that it is self-judging; yet all arbitral tribunals under the International Centre for Settlement of Investment Disputes (ICSID) interpreting this provision have ruled that this is not so.Footnote 129 Furthermore, the Treaty of Amity dispute has already been submitted to the ICJ, the same judicial organ that considered the essential security defence in Military and Paramilitary Activities in Nicaragua.Footnote 130 There, the defence claimed by the United States was on the basis of the 1956 US–Nicaragua Treaty of Friendship, Commerce and Navigation, whose Article XXI in relevant part is identical to the one at hand.Footnote 131 The United States argued at the time that “the policies and actions of the Government of Nicaragua constitute an unusual and extraordinary threat to the national security and foreign policy of the United States.”Footnote 132 While acknowledging that “the concept of essential security interests certainly extends beyond the concept of an armed attack,”Footnote 133 the court did not consider Nicaragua’s aggression in Central America to be an essential security threat. And, yet, the threat at the time appeared incomparably more tangible than in the Iranian case (to say nothing of the repercussions of Trump’s actions on the international peace process).
More directly related to the US–Iranian treaty controversy, the ICJ’s judgment in Oil Platforms was based on the very same treaty. In this case, the United States defended itself by referring to Article XX on Non-Precluded Measures of the Treaty of Amity. The factual basis of that case involved mining and other attacks on US flagged or owned vessels, which was still deemed insufficient for the purposes of claiming self-defence.Footnote 134 If the United States considers the security clause under the Treaty of Amity too narrow,Footnote 135 it could attempt a defence under the customary norm of necessity.Footnote 136 Yet, in accordance with the Draft Articles on the Responsibility of States necessity clause,Footnote 137 (1) the US sanctions would have to be the only way to safeguard US security; (2) the Iranian threat would have to amount to a grave and imminent peril; (3) the US reaction could not seriously impair the essential interests of the international community; and (4) the United States could not have contributed to the situation of necessity. One can hardly imagine that the United States could satisfy all four elements of this test, although some will question whether the Draft Articles actually reflect customary law in this respect or whether they should be applied to international investment law.Footnote 138
The ILC has acknowledged that
[t]he plea of necessity is exceptional in a number of respects. Unlike consent (art. 20), self-defence (art. 21) or countermeasures (art. 22), it is not dependent on the prior conduct of the injured State. Unlike force majeure (art. 23), it does not involve conduct which is involuntary or coerced. Unlike distress (art. 24), ... necessity consists not in danger to the lives of individuals in the charge of a State official but in a grave danger either to the essential interests of the State or of the international community as a whole.Footnote 139
Moreover, the ILC goes on to conclude that
[necessity] arises where there is an irreconcilable conflict between an essential interest, on the one hand, and an obligation of the State invoking necessity, on the other. These special features mean that necessity will only rarely be available to excuse the non-performance of an obligation and that it is subject to strict limitations to safeguard against possible abuse.Footnote 140
The ILC observes that “stringent conditions … before any such plea is allowed … mirror[] the language of article 62 of the 1969 Vienna Convention dealing with fundamental changes of circumstances.”Footnote 141 The peril must be “objectively established and not merely apprehended as possible.”Footnote 142 Finally, even if an international court or tribunal accepted a justification based on essential security interests or a state of necessity, private investors claiming violation of investment treaty rights at the very least could rely upon MFN clauses to invoke more favourable protection standards.
In the end, the wording of the security interests clauses prima facie may provide an easy way out of a legal assessment for the United States. Yet this case is special in many respects because it concerns a permanent member of the UNSC. In different circumstances, that would mean that the United States could avail itself of its veto power. However, the UNSC unanimously adopted a resolution endorsing the JCPOA, and the IAEA has confirmed Iran’s compliance with the plan. Violation of the JCPOA’s explicit procedural norms — which allows for quasi-automatic termination of the agreement — constitutes an act of outright disregard for the UNSC, the UN Charter, and the post-war peace project; for what could be of greater importance than nuclear security and support of terrorism by a nuclear state? How could the United States claim the benefit of a security interests clause if, in accordance with the IAEA’s assessment of compliance with the JCPOA, it is the one damaging the peace process? Accordingly, even by the most lenient standard of the OECD codes and GATS, if self-judging security interests clauses have any normative significance,Footnote 143 it would have seemed unlikely that the United States would pass the legal threshold of acting in good faith – at least until the Russia – Traffic in Transit panel report discussed above.Footnote 144 Now the WTO may have improved the United States’s chances before specialized tribunals such as those dealing with economic matters, but this puts even greater pressure upon the ICJ in the case lodged there by Iran.
Procedural Aspects
At least in the ICJ’s Treaty of Amity case, and possibly also in the case of investment arbitrations should such claims be filed, the infamous obscurity of the applicable rules of evidence — free assessment of evidence bound only by the prohibition of arbitrary actionFootnote 145 — could play in favour of the defendant.
BURDEN OF PROOF
Whereas the general principle that the party putting forward a material contention bears the burden of establishing it does not seem to be a controversial element of ICJ procedure,Footnote 146 two points may nevertheless prove contentious during the proceedings. First, the notion of judicial notice of the law (jura novit curia) lies in contrast to the foregoing principle of the burden of proof, which is applicable to questions of fact. While considering the legal status of commitments under the JCPOA, the court will be faced with the question of consent to be bound. While the existence of consent is a question of fact, its extent and, hence, interpretation of the scope of the agreement are questions of law.Footnote 147 Second, as the United States claims that Iran continues to pose an actual threat to its security through a nuclear armaments program, the latter will have to prove a negative fact. As stated by the ICJ in Military and Paramilitary Activities in Nicaragua, “[t]he evidence or material offered by Nicaragua in connection with the allegation of arms supply has to be assessed bearing in mind the fact that, in responding to that allegation, Nicaragua has to prove a negative.”Footnote 148 Accordingly, the court may decide to shift, or at least soften, the burden of proof.Footnote 149
FACT FINDING
Not only may the facts of the case be far from undisputed, but it also seems most likely that they will be heavily disputed given the opposition between the parties to the proceedings. The ICJ may be thus faced with a “documentary overload” consisting of complex scientific and technological information.Footnote 150 One can argue that “the ultimate purpose of international adjudication is not establishing facts, or truths, or even The Truth, but rather to settle the dispute. … Establishing facts does not necessarily lead to the settlement of the underlying dispute.”Footnote 151 This can limit, inter alia, the court’s readiness to rely upon expert opinions. Paradoxically, the probable lack of factual grounds for the US claims in such a highly politicized dispute may lead the court to be deferent to the disputing states: “[W]ell-reasoned judgments based in the law rather than decided on technical issues of fact have traditionally been perceived as … somehow less offensive to the State party on the wrong end of the judgment.”Footnote 152 In particular, the court is generally reluctant to draw negative inferences from a refusal to produce requested evidence. Together with a reluctance to engage in fact-finding, this may contribute to what one commentator has dubbed a reactive approach to the evidence.Footnote 153
STANDARD OF PROOF
Against this backdrop, the ICJ will have to decide the standard of proof applicable to the case at hand. Here, there is significant doubt as to whether the ICJ will adhere to the common law tradition of an objective standard of proof based on probability or to the more subjective civil law approach.Footnote 154 Not only have the judges never explicitly espoused any particular standard in this respect, but they have also not demonstrated a consistent approach in the ICJ’s case law either.Footnote 155 The court “has applied the most inconsistent standards of proof, mostly without devoting any in-depth rational consideration to the matter.”Footnote 156
Typically, the ICJ has aligned with “proof by a preponderance of the evidence” (or balance of probabilities).Footnote 157 The court could derive the standard of proof from Article 53(2) of its statute, as it did in Corfu Channel, where it ruled that charges of exceptional gravity require proof “by conclusive evidence … requiring a degree of certainty.”Footnote 158 But, even in this seminal judgment, the court spoke of standards such as “free from any doubt”Footnote 159 and “decisive legal proof.”Footnote 160 A number of other variations suggest adherence to the preponderance of evidence standard.Footnote 161 But the court also implied it could also apply any another standard, whether the other classical approach of proof “beyond reasonable doubt,” employed on several occasions, or some other variations (for example, sufficiency, conclusiveness).Footnote 162 Hence, even accepting a variable standard of proof – reflecting the importance of the matter to be provenFootnote 163 – the question remains whether it will be sufficient for Iran, as a plaintiff, to meet the relatively low threshold of prima face proof showing a negative fact (that it did not conduct an inherently secret nuclear program) in order to shift the burden to the United States. Or, since the dispute concerns international responsibility for a wrongful act and the alleged conduct concerns the plaintiff’s jurisdiction, will the court require a substantially higher standard of proof from Iran? Whichever the court deems appropriate, both parties will remain obliged to cooperate towards the peaceful settlement of the dispute.Footnote 164
Concluding Observations
There are a number of reasons why the US sanctions against Iran could and should foster the development of international economic law with regard to the necessity (non-precluded measures) doctrine as well as contribute to the stability of (or further undermine) the multilateral legal order. Due to differences in the mandates of various international dispute settlement bodies, and reticence with respect to scrutinizing matters pertaining to national security, the procedural order of events may prove crucial for how this case will be remembered. On 16 July 2018, Iran filed a claim against the United States before the ICJ for violation of the 1955 Treaty of Amity. This was a legally and politically obvious move; while President Trump continues to tarnish the international reputation of the United States and undermine multilateralism, Iran suddenly has taken the position of a law-abiding member of the international community.Footnote 165 As argued above, from the Iranian perspective, a claim before the ICJ under the Treaty of Amity seems the most promising legal avenue. From a broader perspective, depending on how the crisis and the court case unfold, the ICJ may deliver a judgment in time for Iran and its entrepreneurs to rely upon it before other dispute settlement venues — for instance, the IMF and/or investment arbitration bodies. The case may also be important for other states and, even more so, for private entities from third states who may be unwilling to antagonize the United States politically.
In substantive terms, I have argued that the US primary and secondary sanctions prima face violate US obligations under the IMF’s Articles of Agreement, the OECD Liberalisation Codes, and the WTO’s GATS. Depending on the states in question, secondary sanctions could also violate provisions of relevant BITs.Footnote 166 For instance, French groups Total and PSA (manufacturers of Peugeot and Citroën) very quickly declared that they would withdraw from Iran because of the US secondary sanctions.Footnote 167 In each of these cases, the decisive factor will be the availability of the essential security interests exception and/or the customary plea of necessity. In general international law as well as in financial, investment, and trade rules, the normative content of such clauses is vague, especially when they are phrased as self-judging provisions. Not surprisingly, courts and tribunals have been cautious when dealing with such matters. Some argue that treaty necessity carve-outs should not be conflated with the customary plea of necessity,Footnote 168 while others warn against mixing both regimes.Footnote 169
However, no matter how flexible these provisions are, there must be a red line somewhere in order not to render all international obligations practically unenforceable. The ICJ constitutes the most authoritative forum for resolving this dilemma. At the same time, the mastermind behind the entire situation, President Trump, gives all indications that, even if exculpated this time, he will resort to the same method again. In 2019, Trump’s policies had already resulted in six attacks against commercial ships in the Strait of Hormuz, allegedly by Iranian armed forces, and the downing of a US drone by the IRGC.Footnote 170 From this perspective, the case is a gilded cage for the ICJ, which must accept the honour of pronouncing itself upon the matter.
Paradoxically, what could be playing in the United States’s favour is Trump’s consistency in disparaging long-standing allies and flattering traditional rivals. Having imposed protective tariffs on imports from the EU, Canada, and Mexico for security reasons,Footnote 171 while launching a charm offensive towards, inter alia, Russia, the narrative of changing strategic alliances gains credibility. And, yet, even though no adjudicative body requested to assess the legality of the US sanctions against Iran would enjoy jurisdiction over US foreign policy at large, this article has hinted at the havoc wreaked by Donald Trump on international law. Judicial leniency or deference in this context would likely further threaten the subsistence of international law, for which a court or tribunal taking such an approach would have to bear its share of responsibility.
While balancing the United States’s and other stakeholders’ rights in this case, one could hope that some form of proportionality test could be applied to invocation of the essential security clause.Footnote 172 This would be particularly interesting with regard to sanctions limiting Iran’s capacity to issue sovereign debt. While this article does not deal with the legality of the US sanctions under general international law per se, it seems necessary to single out the financial sanctions measures for two reasons. On the one hand, New York and English law are the two most important legal orders under which sovereign bonds are currently issued. On the other hand, access to international capital markets may be vital for state budgeting powers, which are a core sovereign prerogative. Taken together, not only may the US financial sanctions be much more severe than other measures, but, since they interfere with Iran’s sovereignty, the proportionality threshold should also be arguably higher for this measure.
If subsequent procedures are initiated before the IMF and the OECD, it would be an even more interesting case of entering uncharted normative waters. From the investment arbitration perspective, a ruling on NPMs could contribute to the consolidation of the legitimacy of international investment law. Legitimacy could also play a role in the ICJ’s case if the analysis focuses on customary international law and the law of treaties, for one could argue that the same reasons that led judges to take a restrictive approach in the Nuclear Tests cases could compel them to take a firm stance here.Footnote 173
Finally, it is also worth considering the situation in a broader perspective. On the one hand, the US sanctions concern a state that, due to its long isolation, is not a party to certain fundamental treaty bodies, starting with the WTO. On the other hand, the case may constitute a testing ground for US efforts to undermine multilateralism. Should the US sanctions prove effective, President Trump is likely to rely on unilateralism even more willingly, to the benefit of the principal challenger of the post-Cold War global order — Russia. However, should the EU or its investors be able to pierce the sanctions with a blocking statute and the recently established European mechanism for financing trade with Iran,Footnote 174 calls for the protection of multilateralism without the United States will gain critical credibility. While, even in this scenario, Trump may declare success in his efforts to curtail allies’ free-riding on multilateral cooperation, this seems the least of current worries.
