International Law Advisory - EU Draft Regulation Implementing Trade Restrictions on Iran

On March 13, 2007 the European Commission adopted its proposal for Council Regulation setting forth specific trade restrictions to be imposed on Iran. [1] The Regulation—which must still be formally adopted by the Council of the European Union—is intended to further implement the restrictive measures which were already agreed to on February 27, 2007 in Common Position 2007/140/CFSP.[2] The Common Position introduces a number of restrictions and licensing requirements on the import and export of goods and technology related to Iran’s nuclear program, including the freezing of assets that could contribute to Iran’s nuclear program.

The purpose of the future Regulation is essentially twofold: (1) to provide additional guidelines and tasks for the European Commission and Member States to ensure a uniform implementation of the restrictive measures, and (2) to identify goods, technology, services, individuals, and legal entities that would be subject to such measures.

The scope of the implementing measures can be summarized as follows:

1. An outright prohibition on the export to any person in, or for use in, Iran, or the import from Iran of goods or technology, including software as listed in Annex I to the Regulation. The Annex I list will reflect those items already set forth in the Nuclear Suppliers Group and Missile Technology Control Regime lists, as well as any other items designated by the United Nations.

2. A new authorization regime will apply to goods and technology specifically listed in Annex II of the Regulation. Most of the items in question are defined by reference to the list of “dual use” goods set out in Council Regulation 1334/2000, as amended. Companies or persons seeking to export such items will need to apply for specific authorizations to relevant Member State export control agencies.  Member States will be prevented from granting any authorization if “there are reasonable grounds to believe” that such items will contribute to Iran ’s nuclear program. Furthermore, any decision by a Member State prohibiting such export will need to be notified to the other Member States and the Commission. The purpose of this notification is to make sure that a Member State will consult with any other Member State that might have in the past denied an export authorization in respect of a similar transaction.

3. An outright prohibition on providing, directly or indirectly, technical and other financial assistance in relation to items identified in Annexes I and II. An authorization will be required prior to the conclusion of a technology licensing agreement or a joint venture with Iranian nationals or with legal entities domiciled in Iran that involves technologies listed on either Annex I or Annex II.

4. Despite the outright prohibition in relation to goods and technology listed in Annex I,  the Member States will be entitled to provide an authorization upon the following conditions: (a) confirmation on a case-by-case basis by the United Nations that the transaction will not contribute to Iran’s nuclear weapons program; (b) the contract for delivery of the goods, technology or assistance includes appropriate end-use guarantees; and (c) there is a commitment by Iran not to use the transaction for its nuclear program.

5. A freeze of funds and assets that are owned, held or controlled by individuals and legal entities listed in Annex IV to the Regulation, following their prior identification by the United Nations. An additional list will be drawn up and published in Annex V, which will include those individuals and entities subsequently identified by the Council in accordance with the criteria set forth in the Common Position. This suggests that the EU would be entitled to set up its own list of individuals and entities to supplement the designation initially made by the United Nations. However, for those listed, the Regulation provides for certain limited circumstances under which the release of frozen funds could nevertheless occur. 

It will be the responsibility of the Commission to update and amend the different Annexes on the basis of decisions adopted by the United Nations and the Council. Also, penalties for infringement of the Regulation will need to be set out by the individual Member States under the general guideline that they will need to be “proportionate, effective and dissuasive”.

The European Commission submitted its proposal through an accelerated procedure; it is expected that the draft Regulation will be formally adopted by the Council before the end of this month and without consultation of the European Parliament. Finally, and while there is still room for amendments by the Council on the draft Regulation, the final text should closely mirror the Commission proposal.

We will keep you informed of developments concerning the Commission's proposal, and other aspects of the UN and EU economic sanctions against Iran .  Although it appears very unlikely that the scope of these sanctions will in the foreseeable future approach that of the broad US embargo against Iran, the EU regime nevertheless contains important restrictions, particularly for those entities dealing directly (and in various circumstances indirectly) with Iran's nuclear industry.

Should you have any questions in the meantime, please contact Guy Soussan at +32 2 626 0535 or Laura Atlee at +32 2 626 0516 in Brussels, or David Lorello at +44 20 7367 8007 in London.

[1] Read complete version of the draft Regulation.

[2] See our March 1, 2007, International Law Advisory, EU Adopts Common Position Imposing Trade Restrictions on Iran.