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How the P5+1 Proposal Blocks Meaningful Re-imposition of Sanctions on Iran

The Dead End of Snapback Sanctions


By Owen Alterman——--June 25, 2015

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In the run-up to the June 30, 2015 deadline for a comprehensive agreement on Iran's nuclear program, one of the key issues in contention has ostensibly been resolved. Reuters and the Associated Press have reported that the P5+1 agreed among themselves on a mechanism for so-called "snapback" sanctions. US Ambassador to the United Nations Samantha Power struck a similar note in her testimony before Congress on June 16, 2015. In principle, this snapback mechanism would enable the six powers to restore sanctions on Iran were Iran to violate its commitments under the deal.
Snapback sanctions are intended to address the basic structural problem in any nuclear deal: the imbalance in the order of performance. On the one hand, the six powers' performance under the agreement is front-loaded: the P5+1 are expected if not to lift all sanctions immediately (as Iran still publicly demands), then to lift sanctions incrementally in the near term of the agreement. On the other hand, Iran's performance is back-loaded. The Islamic Republic would commit itself to holding back its nuclear program for a full ten years or more, under the agreement's various provisions. That means that, left alone, once the sanctions are lifted, Iran could cheat, with little the P5+1 could do to punish it. Problems like this, which arise often in potential business dealings, can be resolved. The most ready example is a loan agreement, in which the lender wires the money on day one and the borrower performs (by repayment) over time. In that situation, the lender secures its loan through liens, charges, or mortgages. If the borrower fails to perform, then the lender moves to take possession of its collateral. In practice, of course, the process is not so simple. In exercising its rights, the lender may face significant transaction costs in delays and legal fees. The lender also assumes the risk that the collateral loses value or that a court will stop the lender from taking control of the collateral at all. An Iranian nuclear deal has a similar dynamic, with Iran potentially not performing and the P5+1 left to look for recourse. In theory, Iran could deposit billions of dollars into an escrow account, and the P5+1 could take control of the money if Iran fails to perform. That, it seems, is not realistic. Instead, negotiators turned to the idea of the snapback sanctions: a tool for hitting back against the Iranian economy in the event of non-performance. Here, though, the P5+1 face even greater odds than a lender. If a lender wants recourse after a borrower's non-performance, then the lender can exercise remedies that a state provides by law. If the borrower resists, then the lender can go to court. If a state has an independent judiciary, then the lender can have confidence that, eventually, to some degree, he will have recourse.

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The second weakness of the process is in enforcement

Faced with an Iranian breach of the agreement, the P5+1 face three challenges: adjudication, enforcement, and the lag time between sanctions re-imposition and impact. The first problem is one of adjudication: who will determine whether Iran is in breach. In standard legal agreements, a court sits in this position or, if the parties prefer, arbitrators. International law, however, lacks a binding court that can make enforceable decisions. That leaves arbitration, and the P5+1 and Iran could set up an arbitration panel to decide whether Iran has violated the deal. This panel could use the standard structure of the P5+1 and Iran each selecting an arbitrator and those two arbitrators selecting the third member of the panel. Talks, though, do not seem to be moving in that direction. Instead, according to the Reuters and AP reports, representatives from each of the P5+1 states and Iran would themselves be the adjudicating panel. In other words, the parties themselves would be involved in the adjudication directly, not one step removed from what should be an independent panel of arbitrators. Moreover, if this P5+1-plus-Iran group would need to decide by consensus (as reported), then the system could truly be paralyzed. Reuters also reported that the decision by the panel would be non-binding, giving a legal basis for states to ignore the ruling completely. According to the AP, a final decision would come after a majority vote among the five permanent UN Security Council members. Still, that vote might – though this is unclear – only happen if the dispute resolution panel first finds, by consensus, that Iran is in breach, a finding that could well be blocked by a single holdout state among the P5+1.

The third weakness of the snapback sanctions mechanism is in the lag time before the sanctions economic have any impact

The second weakness of the process is in enforcement. Even were a hypothetical arbitration panel to find Iran in breach in a hypothetically binding ruling, key countries might not actually snap the sanctions back. To date, the Iran sanctions regime has held together remarkably well, with leading economies adhering to UN Security Council decisions. That pattern might not hold in the future. At a later date, holdout states – perhaps Russia, perhaps China, perhaps non-P5+1 states such as India – might prove less willing to implement the sanctions regime. The third weakness of the snapback sanctions mechanism is in the lag time before the sanctions economic have any impact. Economic sanctions do not bite from the day they are imposed. It takes time for businesses to step back from contracts, and then for the impact to seep into the economy and be translated into political pressure. As the Washington-based Iran Task Force has noted, much of the impact of sanctions is a psychological impact on business decisions, difficult to reinstate once the sanctions are lifted following the signing of the comprehensive agreement. These dynamics give Iran a built-in advantage; once sanctions are lifted, the default position is that they are not in place.

This choice of conflict resolution mechanism is telling

Of the three problems, the central one is the adjudication issue which, if resolved, could enable at least the United States and European Union to re-impose a sanctions regime under cover of the agreement's terms. The details of the agreement still await. At this stage, though, the mechanism the sides have chosen seems to favor Iran, with the Iranian government directly in the decision making chamber. Each of the P5+1 states would be individually part of the adjudication process – again, not represented by a single arbitrator one step removed from the parties' official representatives. Depending on how the mechanism operates, this might enable Iran to seek out a single P5+1 state as a weak link to torpedo a sanctions snapback, and depending on the agreement's terms, potentially without the issue reaching the majority vote of the five Security Council permanent members at all. In her testimony, Ambassador Power promised Congress that the US "will retain the ability to snap back multilateral sanctions architecture back in place, without Russian or Chinese support." Time will tell whether the result is that straightforward. This choice of conflict resolution mechanism is telling. In the negotiations with Iran, the P5+1 states have deployed their all-star diplomats and lawyers, who surely know that they could choose an arbitration mechanism. Instead, they chose a political mechanism, which thereby keeps the decision in the hands of governments rather than outsources it to independent arbitrators.

Other rewards could, in principle, outweigh this risk.

Some will argue that Iran would not have agreed to an arbitration process. Others will argue that the P5+1 states are to blame, in that at least some of them want to retain control over re-imposing sanctions. Either way, the decision to use a political and not a legal body to decide on sanctions is an early indication that sanctions will not snap back. If the parties truly wanted snapback sanctions, they would have chosen a set of tools that would actually implement them. This does not, in itself, mean that the emerging deal is a bad one. Other rewards could, in principle, outweigh this risk. It does mean, though, that those seeking to keep Iran to the deal will need leverage other than the sanctions. This leverage could include carrots or sticks. Israel should hope the leverage does not include carrots, since those carrots could well include global powers acquiescing to Iranian interests in the region. Instead, Israeli policymakers should start thinking about sticks. Beyond the military option, these sticks could include unilateral sanctions imposed by the United States or European governments in the event that the P5+1 decision making mechanism runs aground. Israel should think, even now, how such a mechanism could be created, and when and how to encourage it.


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INSS Owen Alterman -- Bio and Archives

Institute for National Securities Studies, INSS is an independent academic institute.

The Institute is non-partisan, independent, and autonomous in its fields of research and expressed opinions. As an external institute of Tel Aviv University, it maintains a strong association with the academic environment. In addition, it has a strong association with the political and military establishment.


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