Authors: Shpetim Bajrami and Sebastian Wuschka, LL.M.
Earlier this month, the International Court of Justice (ICJ) confirmed its jurisdiction with respect to an application filed by Iran against the United States of America. The case raises many interesting questions. In particular, the ICJ will for the first time thoroughly deal with economic sanctions in the upcoming merits phase. This could also have implications for the interpretation of established concepts of international investment law – in particular the standard of fair and equitable treatment (FET).
The roots of the dispute lie in Iran's nuclear disarmament obligations under the 1968 Treaty on the Non-Proliferation of Nuclear Weapons (NPT). For decades, Iran failed to effectively implement the safeguards prescribed by the International Atomic Energy Agency (IAEA). As a result, also the UN Security Council called on Iran in various resolutions (see, in particular, Resolution 1737 (2006)) to take all necessary measures to comply with its nuclear-related obligations. In 2015, the five veto powers, Germany and Iran, supported also by the EU, agreed on the Joint Comprehensive Plan of Action (JCPOA). Under the JCPOA, Iran essentially committed to implement its disarmament obligations under international law within a certain timeframe. In return, the nuclear-related economic sanctions imposed by the Security Council, the EU and the US against Iran are to be phased out. Whether the JCPOA constitutes a binding treaty under international law is disputed. Its legal, political and economic chances, on the other hand, are widely recognized. Despite the fact that IAEA reports confirmed Iran’s general compliance with the deal, the United States under President Trump withdrew from the JCPOA in May 2018 and (re-)imposed sanctions on Iran. These are the subject of the ICJ proceedings.
Against this background, the legal starting point for Iran's lawsuit may come as a surprise: Although the proceedings (primarily) concern the Trump administration's withdrawal from the JCPOA and the associated sanctions, Iran invokes the 1955 Treaty of Amity, Economic Relations, and Consular Rights (Treaty of Amity) – as it equally does in the Certain Iranian Assets case pending at the ICJ in parallel. Yet, Iran simply had no other option to bring the United States’ conduct before an international court. Neither state has generally submitted itself to the jurisdiction of the ICJ – or any other forum – and the JCPOA contains no dispute settlement clause.
As expected, the United States disputed the ICJ's jurisdiction based on the Treaty of Amity and also contended that the application constituted an abuse of process at the admissibility level. First, according to the United States, the case concerned a dispute regarding the JCPOA, not the interpretation or application of the Treaty of Amity, to which its dispute settlement clause refers. Secondly, the sanctions complained of by Iran did not fall within the substantive scope of the Treaty of Amity, but predominantly concerned trade and transactions between Iran and third countries or their companies and not the relationship between the United States and Iran itself (so-called "third country measures"). Finally, the fact that Iran was attempting to use the Treaty of Amity to attack the sanctions imposed without at the same time fulfilling its obligations under the JCPOA formed the basis of the United States’ argument regarding abuse of process.
The ICJ rejected all these preliminary objections. With regard to the first argument on jurisdiction, the Court unanimously found it to be within its powers to objectively identify the subject-matter of the dispute, taking into account the parties' submissions – in particular that of the applicant (see already ICJ, Fisheries Jurisdiction, ICJ Reports 1998, p. 447 ff.). The Court’s reasoning is quite straightforward: According to the dispute settlement clause of the Treaty of Amity, any dispute about its application or interpretation falls within the jurisdiction of the ICJ. Since, in the present case, one party to the dispute considered the Treaty of Amity to be relevant and the other did not, the jurisdictional requirement was in principle fulfilled. The fact that the dispute has arisen in a different, current (political) context does not – according to the ICJ – preclude the application or interpretation of the Treaty of Amity.
With respect to the second argument, the United States differentiated with regard to the legal consequences of the sanctions measures at issue. The vast majority of them would affect Iran's (or its companies' and nationals') trade or transactions with third countries (or their companies and nationals). In particular, the renewed inclusion of certain individuals on the US Treasury Department's Specially Designated Nationals and Blocked Persons List (SDN list), with whom US nationals or companies but also foreign companies active in the US are prohibited from having commercial relationships, did not affect the Iranian-US legal relationship. The ICJ recognized that not all sanctions directly addressed the Iranian state. Nonetheless, all of the measures were aimed at weakening the Iranian economy. As a result, the ICJ, again unanimously, found the United States' second objection consequently affected the scope of the substantive obligations under the Treaty of Amity. The decision on this objection was therefore postponed for the merits – an approach criticized by Judge Tomka.
The United States’ admissibility argument of abuse of process was equally unsuccessful, with only the judge ad hoc appointed by the US dissenting. The majority of the Court did not consider the high threshold for abuse of process to be met. In particular, the ICJ considered it not apparent to what extent Iran could obtain illegitimate advantages from a decision in its favor on the basis of the Treaty of Amity – even if the case also concerns the JCPOA.
The economic and legal consequences of the dispute are significant. The new or re-imposed sanctions under Executive Order 13846, which are at issue in the proceedings, particularly affect the oil, gas and energy sectors as well as the maritime industry. In connection with the United States’ withdrawal from the JCPOA, more than 400 individuals and companies have been put on the SDN list. As a consequence of the sanctions and their indirect effect, European but also Russian, Chinese and further Asian companies suspended or terminated their Iran business to safeguard their operations in the United States.
The ICJ must now address, among other issues, whether the sanctions violate the FET standard of the Treaty of Amity, as argued by Iran. The ICJ's decision could thus also be of importance to participants in investment arbitration proceedings, in which FET is currently the most frequently invoked standard of treaty protection.
In terms of remedies, Iran asks the ICJ to order the United States to lift the sanctions at issue, and to compensate Iran for their consequences. The outcome of the case in this regard remains uncertain. Even though the Court had already indicated provisional measures in this case in October 2018, ordering the United States to lift a number of the measures complained about, it could still reach the conclusion that the "third country measures" – at least in part – do not fall within the scope of the Treaty of Amity. At a time in which the new US President Biden has announced to re-enter the JCPOA (and a more investment-friendly climate and potentially a settlement of the case is thus within reach), this case also shows that the United States cannot completely escape international judicial scrutiny of the consequences of the Trump administration’s foreign policy, which prominently positioned itself in contradiction to core values of international law.