China, Iran, and Neocon Push for Secondary Sanctions

The Foundation for Defense of Democracies (FDD), a Washington, DC-based neoconservative “think tank” that has consistently promoted hard-line policies against the Islamic Republic, came out with what it describes as “a comprehensive report . . . identifying 10 major Chinese energy companies that continue to do business with Iran in spite of international sanctions.”  According to FDD, “The report . . . documents these companies and their Iranian ties in unprecedented detail.  It provides a glimpse into how Chinese companies do business with Iran while enjoying access to North American markets, and in some cases, even U.S. government contracts.”

Among its other activities, FDD is the sponsor of an “Iran Energy Project, which has devoted a lot of energy to advocating tougher energy-related sanctions against Iran and cataloguing foreign companies doing business there.  So, the new report’s focus on Chinese companies’ involvement in the Islamic Republic’s energy sector is not surprising.

However, when one actually reads the descriptions of the “10 major Chinese energy companies” doing energy-related business in Iran, it becomes clear that none of these companies’ activities in Iran are prohibited or restricted by any of the international sanctions authorized by the United Nations Security Council.  In fact, Chinese diplomats have been very careful to insist that draft language advanced by the United States and its European partners to limit energy-related business activities in Iran be deleted before Beijing would approve the final text of the various sanctions resolutions approved by the Security Council.

Rather, these companies’ activities in Iran, in at least some cases, probably run afoul of U.S. secondary sanctions, as legislated by Congress.  In keeping with its longstanding position, FDD has issued to report to raise political pressure on the Obama Administration to “enforce” the most recent secondary sanctions law by imposing unilateral U.S. sanctions against Chinese energy companies doing business in Iran.

We have long been critical of congressional infatuation with Iran-related secondary sanctions bills — and successive U.S. administrations’ supine acquiescence to such measures.  We think, first of all, that secondary sanctions are bad Iran policy: they do not generate anything approaching strategic leverage over Iranian decision-making, but help to undercut whatever credibility Tehran might still be willing to ascribe to American professions of interest in “engagement.”

But, beyond this, secondary sanctions are lousy foreign policy: they potentially antagonize some of America’s most important international partners, for no constructive purpose.  One of the more antagonistic qualities of secondary sanctions is that, as a lawyer would put it, they represent an extraterritorial application of national law — in other words, they are blatantly illegal.  America’s closest allies — including Britain along with the rest of the European Union — have made clear that, if Washington were ever so foolish as to apply Iran-related secondary sanctions to an “EU” company, the EU would file a complaint against the United States in the World Trade Organization.

The United States would almost certainly lose such a case.  This is the consensus view of most trade lawyers, not just in Europe and other non-U.S. jurisdictions, but also in Washington, DC (including within the executive branch of the U.S. government).  That is one reason why, since Iran-related secondary sanctions were first authorized in U.S. law in 1996, no U.S. administration — not the Clinton Administration, not the George W. Bush Administration, and not the Obama Administration — has ever imposed secondary sanctions on a non-U.S. company over that company’s business activities in the Islamic Republic.  Not once.

Now the same people who brought you the Iraq war and would like to see the United States go to war with Iran want the Obama Administration to sanction companies domiciled in the country that is America’s biggest creditor.  We are skeptical that Beijing would be amused by this — and, at this point, Beijing has multiple channels through which to express its displeasure over such action, in ways that Washington would notice.

Flynt Leverett directs the Iran Project at the New America Foundation, where he is also a Senior Research Fellow.  Additionally, he teaches at Pennsylvania State University’s School of International Affairs.  Hillary Mann Leverett is CEO of Strategic Energy and Global Analysis (STRATEGA), a political risk consultancy.  She is also Senior Lecturer and Senior Research Fellow at Yale University’s Jackson Institute for Global Affairs.  This article was first published in The Race for Iran on 15 September 2010 under a Creative Commons license.

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