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By: Shahriar Afshar The Iranian sanctions are a complicated mine field of do's and don'ts, with mostly don'ts. There are executive orders, OFAC rules, Congressional acts, and trade duties to keep track of. For the most part you should consult an attorney on any matter relating to doing business with Iran. But in the interim, here is summary of what could be considered a fragile and evolving US trade policy towards Iran, if we can call it that for now. On March 15, 1995, in Executive Order 12957, President Clinton declared a national emergency with respect to the actions and policies of the Government of Iran and imposed sanctions against Iran supplementing those imposed in 1987, invoking the authority of the International Emergency Economic Powers Act (IEEPA). The President substantially supplemented and amended those sanctions in Executive Order 12959 of May 6, 1995 (60 FR 24757, May 9, 1995). In implementation of these orders, the Office of Foreign Assets Control (OFAC) amended the Iranian Transactions Regulations on September 11, 1995. In Executive Order 13059 of August 19, 1997, the President clarified the steps taken with respect to the national emergency declared in Executive Order 12957 and expanded in Executive Order 12959. Since that time, a growing continent of Iranian Americans, US companies, and of course the Iranian Trade Association (ITA) have been advocating lifting the sanctions on Iran. A few key factors began to create some momentum on this front. In 1997, Iran elected a reformer President, creating an atmosphere of renewed hope for US-Iran engagement. But in addition, a few groups began to get active inside Washington, DC and around the USA, namely USA ENGAGE, an organization of over 600 major US companies opposing unilateral trade sanctions in general, with Iran included. ITA was also incorporated in 1997 and other groups began to enter the mainstream of lobbying and on occasion damage control with the Iran question here in the US. One industry that also made Iran a priority and was namely responsible for the initial trade opening with Iran was the agricultural sector. The farm lobby took to the hill, Capitol Hill, to lobby for the ability to sell their commodities to Iran, a market they once dominated in the late 1970's. In today's dollars, Iran could be worth over a billion dollars in US agricultural and grain sales. Interested in extending an olive branch to Iran, the administration responded, opening up agricultural and medical sales based on humanitarian needs to three sanctioned countries, including Iran. On July 26, 1999 OFAC announced the long anticipated, newly amended Iranian export regulations. Sanctions against Iran, Libya and Sudan were eased to allow American companies to sell them food, medicine and medical equipment. All three countries are listed by the State Department as exporters of terrorism and remain subject to military and business sanctions. It is embargoes that bar other dealings, including humanitarian aid, that are being eased. ``Sanctions on food, medicine and medical equipment do not generally advance our policy goals and may have adverse consequences in the humanitarian realm,'' Stuart Eizenstat, the deputy Treasury secretary, said. He added that companies selling humanitarian goods would need licenses from the Treasury Department. At the same time, the new policy offers U.S. companies, particularly farmers, an opportunity to boost exports. American farmers, feeling lingering effects of a global financial crisis, are suffering their worst economic period in a decade. The new policy offers farmers the opportunity to sell more than 13 million tons of grain, worth as much as $2 billion, to Iran, Libya and Sudan, administration officials estimated. Agricultural items permitted for export would include raw, processed and packaged foods, animal feeds, live food animals and seeds for food crops, Eizenstat said. The regulations do not allow sale of nonfood agricultural commodities such as cotton or tobacco, he said. On November 1, 1999 OFAC published its Revised Iranian Transactions Regulations in the Federal Register, spelling out the terms of the April 1999 policy announcement. On October 27, 1999 the Treasury Department issued an amendment to provisions relating to agricultural and medical sales appearing in the Iranian Transactions Regulations. These amendments are on commercial sales, exportation and reexportation of agricultural commodities and products, medicine, and medical equipment. Other administrative rules amended dealt with payment for and financing of commercial sales of agricultural commodities and products, medicine, and medical equipment, and on brokering sales of bulk agricultural commodities. Faced with Iran's growing discontent of a unilateral trading relationship, where the US can sell to Iran, but Iran cannot sell to the US, along with the continued effort to find a road back to Iran, on March 17, 2000, Secretary of State Madeleine Albright announced that economic sanctions against Iran would be eased to allow Americans to purchase and import carpets and food products such as dried fruits, nuts, and caviar from Iran. To implement this policy, OFAC amended the Iranian Transactions Regulations once again to authorize, by general license, the importation into the US of, and dealings in, certain Iranian-origin foods and carpets and related transactions. One can now say that the US and Iran have a very limited, heavily regulated, but essentially bilateral trading relationship at this time. Almost immediately after the March 2000 announcement, US importers, Iranian Americans, and small entrepreneurs began requesting licenses from OFAC for the import of Iranian carpets, caviar, and other luxury goods. Even Iranian made furniture is now making it into the US. But as carpets fly in, there are no pistachios on the horizon. More on the pistachio problem later on. On August 18, 2000 OFAC published a notice on Guidance on Sponsorship of Certain Iranian Conferences. It seems a number of US companies were interested in rubbing elbows with Iranian government officials at conferences abroad. No problem. That's how business is done, but if you are subject to OFAC relating to Iran, then there is a small problem. Except as otherwise authorized by general or specific licenses, the Iranian Transactions Regulations prohibit sponsorship by U.S. persons of conferences, or events at conferences, organized or co-organized by the Government of Iran or persons in Iran. In the case of two conferences on the Iranian oil and gas industry - one held in a third country and one held in Tehran - co-organized by an entity of the Government of Iran and third-country nationals, it was determined to be contrary to current U.S. foreign policy to authorize a U.S. oil company to be a corporate sponsor of the conferences or events at the conferences, and a license request, accordingly, was denied. On April 2001 OFAC published an update to its List of Approved Government Procurement Bodies, previously published in October of 2000. This list includes over 60 Iranian government entities such as the Iran Government Trading Corporation (GTC), Namazi Hospital, and the Social Security Organization Hospital, Khorram Ahad. Since 1995, OFAC must have been maintaining a list of who is who in Iran. Coupled with other Administration sources, they separated these hospitals, organizations, and government related entities as not part of any coercive organs of the state. Hence, US persons are allowed to sell approved US goods by securing an OFAC license, to these 60 approved government procurement bodies of Iran. This practice also helps OFAC attorneys from reinventing or reinvestigating the same Iranian entity for every new license application. More recently, on May 31, 2001 OFAC publishes two notices on Comment Requests for Reporting and Procedures Regulations and Comment Request for Payments to Persons Who Hold Certain Categories of Judgments Against Iran. The Department of the Treasury invites the general public and other Federal agencies to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995. Currently, OFAC is soliciting comments concerning OFAC's information collection requirements contained within OFAC's Reporting and Procedures Regulations. OFAC is also soliciting comments concerning OFAC's information collection requirements contained within the procedures set forth for persons to establish eligibility for payments authorized by section 2002 of the Victims of Trafficking and Violence Protection Act of 2000 (Act). Section 2002 directs the Secretary of the Treasury to make payments to persons who hold certain categories of judgments against Cuba or Iran in suits brought under US Code. The procedures pertaining to establishing eligibility for such payments are set forth in Federal Register notices published on November 22, 2000 at 65 FR 70382 and December 15, 2000 at 65 FR 78533. So much for the Executive Orders and all of their related organs. In recent months however, it was another US sanction that has made headlines: The Iran Libya Sanctions Act of 1996. ILSA was passed in August of 1996 during a sanctions frenzied low point in US-Iran relations. Just a few months before in May 1995, President Clinton had banned all trade with Iran by Executive Order. With the swift passage of ILSA, sponsored by then Chairman Ben Gilman (R-NY) of the House International Relations Committee, Iran's economic faith seemed all but secured. ILSA prohibits US and non-US companies from investing more than $20 million in Iran or $40 million in Libya Unless the US decides to issue a waiver, these companies, their parent companies, and subsidiaries face substantial penalties from the US government. ILSA was erratically applied, nonetheless it damaged the EU-US relationship, antagonized Iran, and led its proponents into believing that it would get Iran to play ball. None of it worked as planned. ILSA did manage to provide a superhighway for foreign oil companies into Iran while US companies watched from the sidelines. According to a recent Reuters article, Libya and Iran may still off limits for U.S. oil companies, but the OPEC member states are at the top of the world charts for new petroleum exploration ventures. A survey published by UK consultants, Robertson Research, found that Libya pushed Iran into second place among international oil firms in the league of the most popular countries for investment in new exploration activities in the wake of last year's oil price boom. ILSA was due to quietly sunset in August 2001, but opposing groups, including the American Israeli Public Affairs Committee (AIPAC) had other plans. A bill seeking reauthorization of ILSA for another five years will be submitted soon in the Congress, as sponsored by Senators Gordon Smith (R-OR) & Charles Schumer (D-NY). In May of 1998, Secretary of State Madeline Albright announced that although the Iranian deal with Total (France), Gazprom (Russia), and Petronas (Malaysia) in the development of Iran's South Pars gas field constitutes activity covered by ILSA, the US would not be imposing sanctions. The national interest waiver authority on a case by case basis comes under Section 9(c) of the Act. Secretary Albright also decided that it would not be appropriate to grant country-wide waivers under Section 4(c) of ILSA. In November of 1999, Shell Exploration BV confirmed that it had signed a deal with the National Iranian Oil Company, or NIOC, to develop the offshore Soroush and Nowruz oil fields, located off Khark Island in the northern part of the Persian Gulf . Development costs for the two fields will total $800 million. Recoverable oil reserves at Soroush are estimated to be 400 million barrels and 700 million barrels at Nowruz . To date, there are no indications that the US will apply ILSA against Shell. Robertson Research polled 85 international oil companies, including U.S. firms, and surveyed 146 oil and gas producing countries outside North America. The conclusion was that ILSA has not discouraged companies like French Total, Anglo-Dutch Shell (quote from Yahoo! UK & Ireland:SHEL.L) or Italian Eni from investing in big Iranian projects. None have been prosecuted under the extraterritorial legislation that has been strongly resisted by the European Union. In the late 1990's, the U.S. reiterated the President's commitment to implement ILSA. The U.S. intended to implement the Act in a deliberate and fair manner, taking into consideration its international obligations. Taking into account the measures taken by the EU, in particular those announced with respect to Iran, the U.S. will continue to work with the EU toward the objectives of meeting the terms 1) for granting EU Member States with a waiver under Section 4.C. of the Act with regard to Iran, and 2) for granting companies from the EU waivers under Section 9.C. of the Act with regard to Libya. If however, action is taken against EU companies or individuals under ILSA, or waivers as described in the Understanding are not granted, or are withdrawn, the Commission will request the WTO to restart, or to re-establish, the panel, which will then follow its natural course. The EU considers such [extra-territorial] legislation to be unacceptable both in law and in principle. The Council recalls in particular in this regard the deep concern it expressed in its conclusions of 15 July 1996 over the extraterritorial effects of the Helms-Burton and D'Amato [ILSA] Acts. In addition to the President, Vice President, and Secretary of State Powell, there are other important players that will play a major role in developing a new Iran policy and or ILSA renewal. Here are the top three picks. Richard Armitage now confirmed by the Senate, is the new Deputy Secretary of State. President Bush also nominated Richard N. Haass for the rank of Ambassador during his tenure of service as Director of Policy Planning at the Department of State. William Burns will be the new Assistant Secretary of State for the Near East. All three of these men will have a central role to play in a new Iran policy, of what some have termed, "smart sanctions". There is an ongoing debate in Washington, DC as to the merits of smart sanctions. Other Congressional policy makers are Chairman of the House International Relations Committee, HenryHyde (R-Il), who has appointed former Chairman Ben Gilman (R-NY)as the Subcommittee Chairman for Middle East & East Asia, essentially deferring to him all Iran and ILSA related issues. Hence Congressman Gilman's opposition to Iran continues to be cultivated in the International Relations Committee. The US is still trying to recapture its $500 million agricultural export market to Iran that it once enjoyed in 1979. In today's dollars that would be over a billion dollars, some say two, lost every year in agricultural sales. According to the US Labor and Commerce Departments, each one billion dollars in US exports creates some 17,000 jobs in this country. US manufacturing and heavy machinery makers like Caterpillar and Boeing also have the ability to export billions to Iran every year. It is more difficult to create jobs than to lay people off. When the US government implements legislation and Executive Orders without quantifying its true fiscal impact as projected over the life of the bill, say 5 years, then the leadership is doing a great disservice to the US national interest, tax payers, farm belt, and job seekers. Here is the latest on ILSA. May
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May 24, 2001: June
6, 2001: Recalling the pistachio problem, Robert Schramm, Representing the California Pistachio Commission, brought some great insite on the Pistachio question, during this speech at the May 2000 ITA Event in Washington, DC. In November 1979, US imports from Iran were some 22 million pounds. The sanctions on Iranian pistachios and other import items, which President Carter imposed, lasted until the Algerian Accord was signed in 1981. During the sanction time the Iranian traders developed the European market. After the signing of the Algerian Accord, Iranian pistachios once again were allowed entry into the US. Iranian pistachio imports increased from 3 million pounds in 1981 to 34 million pounds in 1985. During 1984, the California industry experienced economic injury because of the large supply of Iranian pistachio imports. This led the industry to begin researching the Iranian trading practices and the resulting economic effects on the California industry. Based on the findings of this research, the industry filed antidumping and countervailing duty trade actions with the US International Trade Commission and the International Trade Administration, Department of Commerce. This effort resulted in a combined antidumping and countervailing ad valorem duty of 283 % on raw pistachios and a countervailing ad valorem duty of 318% on roasted pistachios in 1986. These duties effectively stopped the Iranian pistachio imports. The current duty for pistachios from other countries is less than one percent and Generalized System of Preferences for pistachios from Turkey. The US industry knew it would have to protect these awards in the yearly International Trade Administration administrative reviews, but another intervening action hindered the imports of Iranian pistachios Ð President Reagan's 1987 Iranian sanctions. At this time the US production was 33 million pounds and Iranian production was at 250 million pounds. Why Iran or the importers did not challenge the awards in the administrative reviews we will never know. With some fifty million dollars in 1985 trade, one would think an effort would have been made to reduce or eliminate the duties. Instead, once again, Iran focused its marketing attention on Europe - a consumer population of some 340 million. In 1997, Iran experienced a serious pistachio food-safety and marketing problem in Europe that in effect, opened the European market for the first time to California pistachios. The European Commission banned Iranian pistachios for three months and as a result, European importers soon found that California pistachios could compete quite well against Iranian pistachios. Once again a government intervened to provide the US pistachio industry a strong competitive advantage. The Clinton Administration's March 2000 decision to remove certain sanctions, including the embargo on pistachios, was a smart foreign relations move. We know there are some 54,000 Iranian pistachio growers and probably more carpet weavers who would appreciate the opportunity to export to the U.S. The removal of the pistachio embargo has spurred the domestic industry to vigilance with respect to the actions against unfairly traded pistachios from Iran. But the U.S. industry has some domestic obstacles, namely, working hard to keep communication lines open with Iran. Through several international conferences, we have extended an olive branch to the Iranian pistachio industry, but the information provided in these conferences by Iran can be described as extremely limited. Where as, our client the California Pistachio Commission, a quasi State of California government entity, has operated with complete transparency. Summarizing the U.S. industry's objective with the Iran pistachio industry, the following are its goals: - solve Iran's unfair trade practices, - solve the food safety issue, Europe consumption of pistachios dropped from 86,000 metric tons to 34,000 metric tons in one year, - urge Iran to have complete transparency with respect to their growing, and processing practices, and - the publication of timely statistics. We believe that through open and sincere dialogue the two industries can work together to solve any problems the industry is facing and increase world consumption of pistachios. However, it would help if our own countries normalize relations or amend its rules so the two industries can work together. At least the Department of Treasury should amend its rules to permit the export of U.S. pistachios to Iran and Iran should remove its prohibition on imported pistachios from any country. The U.S. pistachio industry is up to the challenge of defending its unfair trade awards and is looking forward to working with the Iranian pistachios industry after the U.S. and Iran removes the many statutory and regulatory obstacles on the U.S. industry. The US-Iran trade relationship is fragile and uncertain at best. The ultimate goal should be to develop and sustain a mutually benefitial and bilateral trading relationship, where Iranian goods are welcome in the US and Americans can sell or invest in all levels of the Iranian economy. But to date, the politics has kept trade in the back seat. Its time to let trade lead the way.
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