Ms. Sunaina Bose, Research Intern, Institute of Chinese Studies
The United States Department of Commerce announced in the early hours of 7th June, that a deal had been stuck between the Trump administration and ZTE (Zhongxing Telecommunication Equipment) withdrawing the sanctions previously imposed on it. ZTE, a Chinese telecom manufacturing company, was sanctioned in April for violating US laws and exporting telecom equipment which contained American parts to Iran and North Korea. The sanctions were announced amidst the already hardening US stance on the Iran nuclear deal.
Within a few weeks, President Donald Trump pulled out of the Iran nuclear deal, otherwise known as the Joint Comprehensive Plan of Action (JCPOA), leaving his allies across the Atlantic scrambling to save their ongoing investments in Iran. One of the implications of US withdrawing from the deal involve re-impositions of their unilateral sanctions which were withdrawn in 2015 as a result of signing the deal. These include secondary sanctions that prevent non-US entities, conducting commercial transaction with Iran, from accessing US markets and financial systems.
In an attempt to salvage the nuclear deal, the European Union has invoked the ‘blocking statute’, a 1996 regulation that prevents EU companies from following unilateral sanctions and laws of any other nation. The EU has also offered to create alternative financial streams to support the Iranian economy. India, one of Iran’s significant oil partners, has also declared that it will only follow the sanctions imposed on Iran by the United Nations, and not unilateral sanctions imposed by other nations.
The remaining signatories of the deal maintain that JCPOA is still the best way to keep Iran’s nuclear activities in control while respecting its right to enrich uranium for peaceful purposes and have hence extended diplomatic and economic support to the nation. Iranian officials have in turn issued statements deciding to remain committed to deal as long as their economic activities are intact.
However the Iranian economy, especially the oil market, is expected to take a considerable hit, with major companies withdrawing from the Iranian market. Total (France), which is currently engaged in an attempt to secure a sanctions waiver from the US, is expected to hand over its shares of the South Pars oil field to the Chinese state-owned company CNPC. According to reports, Reliance Industries Limited (RIL) plans to stop imports from Iran before the 180 day ‘winding down’ period, due to significant exposure to US financial systems. Lukoil, a Russian enterprise, has also put its plans of investing in Iran on hold soon after US announced its withdrawal. Danish shipping group A P Moller Maersk, the world’s largest oil shipping container firm, ceased operations in Iran.
Under such circumstances experts have expressed concern over the deal entirely falling apart and Iran resuming its nuclear program. However, the recent revocation of sanctions imposed on ZTE has been cited as an example of possible negotiations with the Trump administration with respect to secondary sanctions on Iran.
The punitive measures imposed on ZTE by the United States prevented it from accessing US market for finance or supplies as a result of which it soon announced a shut down of its international operations. Simultaneously, national security concerns were also raised in the US regarding remote surveillance through ZTE equipment.
Nevertheless, the Trump administration decided to take back the injunctions imposed on ZTE in exchange of a $1 billion fine, $400 million in escrows as insurance against future fines and a promise to replace the executive board members within 30 days of the deal being signed. As a show of disapproval, the Senate Banking committee in the US had earlier voted in an overwhelming majority to put in place measures that would prevent Trump from unilaterally revoking the sanctions imposed on ZTE. The president also faced overwhelming bipartisan criticism in the Congress regarding the alleged threat to national security and the precedence it would set with respect to America’s larger policy towards Iran.
One of the many discourses around the ZTE sanctions drop has been regarding the creation of a model that can possibly be used by other signatory states to receive waivers and accommodations and continue their businesses in Iran, thereby weakening the sanctions regime, often referred to as ‘maximum pressure’, that the Trump administration is trying to create. Notably, Total, has begun lobbying the White House for a sanctions waiver over their South Pars oil field development project.
However the Trump administration put speculations to rest by continuing to maintain a harsh rhetoric over the Iran nuclear issue, putting forth its plans for an alternative ‘better’ deal as elucidated by the Secretary of State, Mike Pompeo. The latest sanctions slapped on Iranian entities and individuals for alleged human rights violations and export of terrorism at the end of last month only reiterated the hardliner stance that the US government is presently taking with respect to the West Asian nation.
Although the ZTE deal could potentially be interpreted as a break in the unrelenting sanction regime adopted by the Trump administration, the aforementioned recent development indicates that it is far-fetched to assume that it marks a change in US policies towards Iran and JCPOA. It is not an inflection in the Trump administration’s narrative towards Iran and may not prove to be a channel to renegotiate the nuclear deal with US. It should perhaps rather be seen in the ambit of the ongoing trade negotiations between US and China and the momentous Kim-Trump nuclear summit in Singapore. However the interesting takeaway from the ZTE episode is that the Trump administration has clearly demonstrated that it does not hold the same commitments to its sanctions when it comes to the Chinese as it does for Iran.