Who Are We Sanctioning? America or Iran?

 

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By Reza Marashi

In the aftermath of a historic nuclear deal, U.S.-Iran relations are in flux. Washington and Tehran communicate more directly and frequently today than at any time since 1979 – but this fact alone does not guarantee that all remaining points of contention will be resolved. With political and cultural ties improving incrementally, the sparsity of economic ties between Washington and Tehran stand out. As the rest of the world’s economies reinvigorate trade relationships with Iran, a litany of unilateral American sanctions prevents U.S. businesses from pursuing similar opportunities. The cost of sanctions to the American economy is often overlooked, yet continues to grow.

In a recent report, I worked with two colleagues to examine these costs, and the results were astounding. Using an econometric “gravity model,” we assessed the trade that America lost as a result of sanctions on Iran since 1995. Based on the U.S. government’s statistics on the number of job opportunities that $1 billion of foreign trade produces, our report also assessed the number of job opportunities lost in the U.S. due to the Iran sanctions. Finally, our report estimated the states in the U.S. where these job opportunities likely were lost.

Unsurprisingly, the United States is by far the biggest loser of all sanctions enforcing nations. From 1995 to 2012, the U.S. sacrificed a whopping $134.7 to $175.3 billion in potential export revenue to Iran – greater than the losses of all other countries combined. This is surprisingly high, particularly compared to the non-existing debate about the cost of sanctions. Over the past four years, this number has continued to rise.

Congress has passed most sanctions on Iran with no more than a handful of nay votes. In 2011, the Senate even passed sanctions against Iran’s Central Bank 100-0, in spite of objections from the Obama administration about the potential havoc these sanctions could cause in the oil markets. Concerningly, none of the lawmakers’ debates raised the cost of sanctions to the U.S. economy. The absence of such discussion was concerning mindful of the ongoing efforts to reduce the U.S. unemployment rate – an objective directly undermined by the thousands of job opportunities lost due to the Iran sanctions.

These estimates reflect the loss solely from export industries, and do not include the detrimental economic effects of other externalities of Iran-targeted sanctions, such as higher global oil prices. Moreover, since Iran’s imports would be higher in the absence of sanctions, and sanctions have depressed Iranian GDP, the economic costs to sanctions-enforcing nations are greater due to lost exports. Consequently, the full cost to the U.S. economy is likely even higher than the report indicates.

The dollar loss of foregone export revenue represents only part of the cost of sanctions enforcement. There is also a human element, measured in terms of jobs needed to support higher export levels. On average, the lost export revenues translate into between 51,043 and 66,436 lost job opportunities each year. In 2008, the number reached as high as 214,657-279,389 lost job opportunities. Texas and California are likely the biggest losers in terms of lost employment, due to their size as well as the attractiveness of their industries to Iran’s economy.

The structure of Iranian imports also provides important insight into lost trade between the U.S. and Iran. To understand future potential losses (or gains), it is instructive to study the Iranian government’s stated areas of economic emphasis, which include, among others: energy-intensive industries; power generation; telecommunications; automobiles; aviation and shipping; roads and railways; banking and insurance; and mining. Taking both U.S. and Iran perspectives into account, a diverse range of sectors stand out as likely areas of future trade – or future losses, depending on whether remaining U.S. sanctions are lifted.

The cost of sanctions to the U.S. economy must be recognized as America deliberates how to proceed in its trade relations with Iran. Any debate that does not acknowledge such costs will be incomplete at best, and misleading at worst. The nuclear deal has proven that diplomacy can accomplish in two years what decades of sanctions could not. Looking ahead, decision-makers in Washington must ask themselves if the cost of sanctions to the U.S. economy is worth bearing, where other diplomatic options exist.

Reza Marashi has been the Research Director of NIAC since 2010

Understanding US Trade Embargo with Iran

Despite the implementation of the Joint Comprehensive Plan of Action (“JCPOA”) – the nuclear accord between the United States, other major world powers, and Iran – U.S. persons remain broadly prohibited from engaging in most transactions with Iran or Iranian parties.  Nonetheless, the JCPOA did herald certain new license authorizations that permit U.S. persons to engage in specific trade-related activities with Iran.  It will be important for U.S. persons – defined to include U.S. citizens, permanent resident aliens, entities organized under the laws of the United States (as well as their foreign branches), and persons physically located within the United States – seeking to engage in trade-related activities with Iran – to ensure their compliance with U.S. sanctions regulations, including by consulting legal counsel as necessary.

For nearly three decades, the United States has imposed a comprehensive trade and investment embargo with Iran with only limited and narrowly construed exceptions.  This trade embargo is codified at 31 C.F.R. Part 560, where it is otherwise known as the Iranian Transactions and Sanctions Regulations (“ITSR”).  The ITSR imposes broad prohibitions on the import into the U.S. of Iranian-origin goods and services; the export and re-export to Iran of U.S.-origin goods, technology, and services; U.S. person facilitation of transactions by a foreign person with Iran if such transactions would be prohibited if engaged in by a U.S. person; and all trade-related dealings or transactions by U.S. persons with Iran or Iranian parties.  The purpose of these sanctions prohibitions is to restrict U.S. economic activity with Iran.

However, the ITSR does contain certain exemptions and license authorizations and exceptions.  These include license authorizations for the export and sale of certain agricultural commodities, medicines, and medical supplies to Iran, as well as for the provision to Iran of certain hardware, software, and services incident to personal communications (such as smartphones and tablets).  A full list of such exemptions,  license authorizations and exceptions can be found at 31 C.F.R. § 560.210; Subpart E of 31 C.F.R. Part 560; and on the U.S. Department of the Treasury’s Iran Sanctions webpage.

While the JCPOA did not terminate the broad prohibitions of the ITSR, it did authorize certain additional trade-related activities with Iran.  Pursuant to the JCPOA, the Office of Foreign Assets Control (OFAC) issued a general license authorization (codified at 31 C.F.R. § 560.534) for the importation into the United States of Iranian-origin carpets and certain foodstuffs.  This means that U.S. persons can now engage in the importation of Iranian-origin carpets and certain foodstuffs into the United States without first obtaining specific license authorization from OFAC – provided that U.S. parties comply in full with the terms of 31 C.F.R. § 560.534 and other applicable U.S. law.

Further, OFAC issued a Statement of Licensing Policy (“SLP”) for U.S. and non-U.S. persons to request specific license authorizations to engage in transactions for the sale of commercial passenger aircraft and related parts and services to Iran under certain restrictive conditions.  OFAC’s issuance of a SLP is intended to signals that U.S. persons are entitled to submit specific license applications and OFAC will review such applications with a presumption in the applicant’s favor.  Nonetheless, U.S. persons are required to receive specific license authorization before engaging in any transactions that would be covered under the terms of the SLP.

Finally, OFAC issued General License H, authorizing U.S.-owned or –controlled foreign entities – as defined at 31 C.F.R. § 560.215(b) – to engage in transactions, directly or indirectly, with Iran or Iranian parties that would otherwise be prohibited under 31 C.F.R. § 560.215, which addresses prohibitions on foreign entities owned or controlled by U.S. persons.  Some have interpreted this provision as authorizing U.S. persons to engage in certain activities with Iran that had otherwise previously been prohibited.  With one limited exception, this is not the case.  General License H is intended to permit foreign entities that meet the definition of U.S.-owned or –controlled to engage in trade-related dealings with Iran.  However, U.S. persons at those entities are not permitted to engage in or otherwise facilitate transactions with Iran or Iranian persons, as U.S. persons remain prohibited from such transactions under the ITSR.

The JCPOA opened certain limited avenues for trade with Iran or Iranian persons, but the broad prohibitions of the ITSR remain in place.  U.S. persons considering engaging in trade-related activities with Iran should consult legal counsel prior to undertaking any proposed dealings and strive to deepen their understanding of legal implications in this context.  Violations of the ITSR can be met with serious civil and criminal penalties, and U.S. authorities have imposed such penalties on violating parties in the past.

* The contents of this communication are not and should not be regarded as constituting legal advice.  As noted above, U.S. and other persons should discuss any proposed activities involving Iran with legal counsel to ensure compliance with U.S. law.

Tyler Cullis is the Legal Fellow and Policy Associate at NIAC. He provides legislative and advocacy outreach, research and writing, and legal analysis. A law graduate of the Boston University School of Law, he specialized in the U.S. sanctions on Iran and the Iran nuclear issue. Tyler tweets at @TylerCullis.