ECLA Newsletter, July 2018


Caught in the crossfire

Trade wars and economic sanctions: Companies in the export business are facing turbulent times. The legal situation can change daily, making it is difficult to keep track of what is going on. This is especially true as foreign trade law becomes increasingly complicated. What export-oriented companies need to know, and how they can prepare themselves for the current uncertainties

By Harald Czycholl

In view of the U.S.’s withdrawal from the nuclear agreement with Iran and the announcement of new economic sanctions against the country, there is widespread uncertainty among European countries. According to current U.S. sanctions law, the new sanctions can also impact European companies, for example if they do business in Iran and are also active in the U.S.

Forward-looking companies have already included certain clauses in their contracts in recent years. Christopher Grefe, in-house counsel at ZF Friedrichshafen AG and head of the BUJ Expert Group on Foreign Trade Law, says: “It has to be carefully assessed whether the contract clauses are really any help in the case at hand. Due to the unilateral approach taken by the U.S. and the anti-blocking regulations announced by the EU, European companies may not be in a position to terminate supply relationships by making direct reference to the revived U.S. sanctions.”

Significant risks of non-compliance

Undermining U.S. sanctions, however, entails significant risk for companies. “As corporate criminal law exists the U.S., criminal law measures are conceivable against both the active parties like managing directors and against companies themselves,” warns Wolfram Meven, Partner at law firm Heuking Kühn Lüer Wojtek. Economic sanctions can also be very painful. For example, a globally operating European company could be excluded from U.S. dollar transactions and put on U.S. sanctions lists such as the SDN list, warns company lawyer Grefe. “Inclusion on a list of this kind would have serious consequences for U.S.-based business activities. But many non-U.S. companies would also feel obliged to refrain from doing business with a SDN-listed company.”

When it comes to economic sanctions that have not been unilaterally imposed by one country, like those imposed against Iran, but have been approved by the United Nations and implemented under European or national law, companies are well advised to strict compliance with these sanctions. “Violations of sanctions are punishable by fine in cases of negligence and imprisonment in cases of intent,” Meven explains.

U.S. punitive tariffs raise concern

Sanctions against Iran, however, are far from being the only construction site for export-oriented companies. The punitive tariffs imposed by the U.S. on imports of steel and aluminium are at least as severe. The EU was temporarily exempt from the punitive tariffs, but they came into force on 1 June.

The admissibility of tariffs is governed by the regulations provided for in agreements concluded within the framework of the World Trade Organisation (WTO). It focuses on the 1994 General Agreement on Tariffs and Trade (GATT), which aims to reduce barriers to trade and protectionist interference with competition on the world market. “However, this does not involve the complete abolition of tariffs,” says Marian Niestedt, partner at the law firm GvW Graf von Westphalen. On the contrary, the member states have committed themselves by means of lists to levy only a fixed maximum duty on certain goods.

Take contractual precautions

If trade is restricted by the conduct of a member state, WTO agreements provide for certain mechanisms, depending on the restriction, that can be used by a state to defend itself against trade distortions. To date, both China and the EU have requested that a dispute settlement procedure and formal consultations be initiated before the WTO.

Current developments show that companies are well advised to prepare thoroughly for the uncertainties involved in foreign trade. Changes in the legal situation must be implemented in compliance guidelines on a daily basis. In view of the constantly changing sanctions landscape, contractual precautions should also be taken and appropriate rights of withdrawal agreed, for example.

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