Rob Howse on why Congress overriding the Iran Treaty would undermine/collapse the US economy

     Rob Howse and Jacob Lew underline an argument about the emptiness of Republican claims to sabotage the mulilateral treaty with Iran which most people don’t know.  It is worth taking in and emphasizing to our fellow citizens and Congress to uphold the Treaty.
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     International finance, as Rob Howse underlines, works according to specific agreements.  While the US is a great economic power, its ability to strong-arm others, particularly banks and businesses in other countries, is very limited.  For example, European powers invested heavily in Iran in oil until the US made the issue of stopping a nuclear weapon (if the Iranians are indeed pursuing one) primary.  But now two years of negotiations have produced a strong agreement about this. The goal has been achieved.  it is the height of foolishness to believe that the Europeans and the UN will go back to sanctions, let alone inscribe stronger sanctions after Iran has agreed to strong inspections and limits for 10 years on a peaceful program and forever on a nuclear weapon.
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    Worse yet, if Congress forces the US to back out and try to punish all foreign banks and companies who will not cooperate, they can cite in international tribunals the very Treaty the United States has negotiated.   The US can then attempt to allege a national security exception for a trading agreement (not a human rights or environmental one since these bodies do not allow such exceptions, even when based on democratically passed laws…).  But in this case, it would have to claim this having backed out of a multilateral treaty, securing Iranian cooperation in ending Iran’s possibility of pursuing a nuclear weapon, negotiated by the President. What international adjudicative body will not award the biggest damages against the US, given this agreement, for cowardly attempts to back out of this American-led agreement and punish foreign companies.  And what steps will other countries take against the US given its new, hypocritical, idly belligerent, economic war on the world and its move to launch an unpredictable, very threatening, even larger war in the Middle East?
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   Such losses would sabotage America’s own economy not to mention, as Obama underlined, the dollar as the world’s currency.  As Rob says archly below, Senator Schumer is Wall Street’s man (aside from Israel and AIPAC). Wall Street would experience severe damages…
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   In Howse’s pointed formulation,

   “The peace party, led by the Administration, has offered a detailed and intricately crafted diplomatic settlement. The war party that dare not say its name has provided only a dogmatic appeal to human desperation, that if we pummel Iranians enough, and then pummel our allies and trading and finance partners enough, they will do our will.  Such a strategem would, to say the least, betray the values that make America great and undermine our moral credibility in the world; at the same time it is a wild fantasy, albeit a perverted one.”

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    Rob gets into the technical aspects of international trade agreements, many of which are, as he does not say, harmful to American working people (and others).  But he suggests the excellent point that these agreements also tie down Goliath (the largest war economy in the world).  The US can’t just growl – pace Bush, Cheney and the Republican neocon ninnies all mouthing the same nonsense they did about Iraq – and get others to go along.  That is a mercy.  As he suggests, it would be a curse on Republicans for the silly servants of the ultra-rich and Israel – in this case, with somewhat contradictory interests – to get their way.
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    More importantly, Obama said, the somewhat bipartisan American position is that Iran must be prevented from getting a nuclear weapon by war.  But that would be, contra Obama,  an horrific, unjust, imperial war, leading to greater crises in the Middle East (with Israel having nuclear weapons and very likely, being threatened by these developments over the next 10 years).  If Congress sabotages this agreement, that war will be.  In contrast, Obama emphasizes the importance of the Treaty.  He is right to do so.  And we should all work to support it.
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    At DU last week, I heard former Israeli admiral and head of the Shinbet, Ami Ayalon who argued that the treaty is, for the Israeli security establishment, a “done deal.”  He is going around the US speaking in favor of Congress accepting the agreement (in this regard, he represents most intelligence officials and military officers in Israel). In answer to a question, he sharply criticized Netanyahu’s course. But the American Republican/neocon corpse doing Netanyahu’s and Sheldon Adelson’s – the Las Vegas casino magnate, funder of Netanyahu’s and Mitt Romney’s campaigns – bidding, is still twitching.  It needs to be put to rest…
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      Previous posts in this series can be found here, here and here.
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International Law and Economic Policy Blog
TTIP and the Iran Deal: European Business Should Be Protected Against US Unilateral Sanctions 

In the debate over the Iran deal among US legislators, high-profile enemies such as New York Senator Charles Schumer attack the Administration’s suggestion that the one alternative to this agreement is war-bombing Iran’s nuclear facilities.  Such critics hold out that continued or perhaps intensified sanctions could bring Iran to its knees, submitting to demands for a “better” deal. The hiccup is that the rest of the world is likely to lift sanctions and do business with Iran.  Hence, Schumer and company  have to insist that the US take punitive action against foreign economic interests that are willing to engage with Iran (so-called secondary sanctions).   Such punitive action would, it is suggested, bring other countries into line and produce collective economic pressure that brings Iran to heel.
This reasoning is understandable from the groupies of Netanyahu: it has been a key element of the Israeli leader’s Gaza policy of siege.  That is, the notion that reducing a people to economic desperation will break their will.  But is this realistic, or rather is it based upon a distorted and craven understanding of human nature?
The enemies of diplomacy with Iran have scoured the JCPOA with a fine tooth comb, operating from the most negative and cynical assumptions of how each provision will be interpreted, and how Iran will implement it.  On the other hand, when it comes to the defense of their own strategy they have offered barely more than a dogmatic assumption that an economic siege can cause so much suffering and despair in Iran that it will capitulate; and that through another set of brutal penalties, we can force the hand of those who disagree-namely the rest of the world sans Netanyahu.

The peace party, led by the Administration, has offered a detailed and intricately crafted diplomatic settlement. The war party that dare not say its name has provided only a dogmatic appeal to human desperation, that if we pummel Iranians enough, and then pummel our allies and trading and finance partners enough, they will do our will.  Such a strategem would, to say the least, betray the values that make America great and undermine our moral credibility in the world; at the same time it is a wild fantasy, albeit a perverted one.

Enter today US Treasury  Secretary Jack Lew.  In the New York Times nyti.ms/1IQDwW8 Lew offered a reality check. Cutting off European and other businesses and financial institutions would  be an economic disaster for the United States, Lew persuasively argued.  Our  exporters and investors need access to global payment networks, and we have debt service obligations in other places, including Japan, that require continuing economic and financial relations. I would add that, ironically, Charles Schumer purports to represent New York in the Senate; following Lew’s impeccable  reasoning, New York as a financial center would be hardest hit of all by cutting off foreign economic actors from our financial networks, which means cutting off our networks from them.

Secretary Lew also mentioned the WTO.  Most likely punitive secondary sanctions of the kind contemplated by Schumer and company  would have to be justified under the national security exception in the GATT (Article XXI) and in related agreements-very pertinently the GATS that covers financial services. The US has often taken the view that the national security exception in the GATT is self-judging.  The fact that the wording of Article XXI refers to measures that a nation “considers” to be necessary for its national security is the textual hook for saying national security is self-judging.

But under the investment treaties the United States has entered into with numerous countries it has signed on to obligations that could not so easily be waived on the basis of a self-judging national security provision.  As is clear from litigation under the Argentina-US BIT, the language in BITs is likely not to qualify the requirement of necessity with an expression such as “considers”, which could imply extreme deference if not self-judging by the state taking sanctions.  Plainly said, if the enemies of the Iran deal had their way, under the existing investment agreements that are binding on the United States, the US could be liable for hundreds of millions if not billions of dollars of damages if foreign companies doing business in the America were penalized for transactions with Iran.

Secondary sanctions already exist to some extent.  But their premise is a multilateral consensus on sanctions, reflected in the UN Security Council resolutions.    

Continuing or intensifying secondary sanctions is a whole new game where the Congress rejects the Iran deal but our allies and trading partners disagree and are unwilling to renew their own sanctions.  In those changed circumstances, secondary sanctions would be an affront to our allies and trading partners, attacking their sovereignty and impeding their choice to deal with Iran in the circumstance of the Congress’s closure of the path of diplomacy.  It would be nigh impossible to show that secondary sanctions were necessary to the national security of the United States where the Congress threw out the window a tangible fully worked-out diplomatic alternative.

The United States is currently attempting to finalize economic agreements with important partners-TTIP with the Europeans and TPP looking out toward the Pacific.  Investor-state dispute settlement (ISDS) is often regarded as a threat to national sovereignty. But ISDS can protect the sovereignty of America’s economic partners by allowing monetary claims against the United States if it punishes foreign firms that deal with Iran.   

Both the EU and the TPP partners of the United States should demand clear language in these accords, cutting off at the pass the possibility that non-US business entities could be punished for dealings with Iran. Such sanctions should be prohibited where they are unilateral, and not justified by an agreed framework for responding to violations.  Since the Obama Administration has pioneered the path of diplomacy and cooperation, it could scarcely object to such a clause. Further, some enemies of diplomacy with Iran have ventured that even if Congress does not halt America’s participation in the deal, a future President might unravel it.  Significant financial consequences if such an effort were to try to force the hand of America’s allies and trading partners would have at least some dissuasive effect on future efforts to undo the Iran deal.  With fast track now in place, the Congress would only be able to stop such a safeguard provision by nixing the trade agreements altogether.  Something many Republicans would have second thoughts about doing. 
Posted by Rob Howse on August 14, 2015
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The Opinion Pages | OP-ED CONTRIBUTOR
The High Price of Rejecting the Iran Deal
By JACOB J. LEW AUG. 13, 2015

WASHINGTON — THE Iran nuclear deal offers a long-term solution to one of the most urgent threats of our time. Without this deal, Iran, the world’s leading state sponsor of terrorism [sic – the leading rogue state/aggressor/terrorist with drones and secret prisons to this moment is the United States’s government], would be less than 90 days away from having enough fissile material to make a nuclear bomb. This deal
greatly reduces the threat of Iran’s nuclear program, making Iran’s breakout time four times as long, securing unprecedented access to ensure that we will know if Iran
cheats and giving us the leverage to hold it to its commitments.

Those calling on Congress to scrap the deal argue that the United States could have gotten a better deal, and still could, if we unilaterally ramped up existing sanctions, enough to force Iran to dismantle its entire nuclear program or even alter the character of its regime wholesale. This assumption is a dangerous fantasy, flying in the face of economic and diplomatic reality.

To be sure, the United States does have tremendous economic influence. But it was not this influence alone that persuaded countries across Europe and Asia to join the current sanction policy, one that required them to make costly sacrifices, curtail their purchases of Iran’s oil, and put Iran’s foreign reserves in escrow. They joined us because we made the case that Iran’s nuclear program was an uncontained threat to global stability and, most important, because we offered a concrete path to address it diplomatically — which we did.
In the eyes of the world, the nuclear agreement — endorsed by the United Nations Security Council and more than 90 other countries — addresses the threat of Iran’s nuclear program by constraining it for the long term and ensuring that it will be exclusively peaceful. If Congress now rejects this deal, the elements that were fundamental in establishing that international consensus will be gone.

The simple fact is that, after two years of testing Iran in negotiations, the international community does not believe that ramping up sanctions will persuade Iran to eradicate all traces of its hard-won civil nuclear program or sever its ties to its armed proxies in the region. Foreign governments will not continue to make costly sacrifices at our demand.
Indeed, they would more likely blame us for walking away from a credible solution to one of the world’s greatest security threats, and would continue to re-engage with Iran. Instead of toughening the sanctions, a decision by Congress to unilaterally reject the deal would end a decade of isolation of Iran and put the United States at odds with the rest of the world.

Some critics nevertheless argue that we can force the hands of these countries by imposing powerful secondary sanctions against those that refuse to follow our lead.

But that would be a disaster. The countries whose cooperation we need — including those in the European Union, China, Japan, India and South Korea, as well as the companies and banks that handle their oil purchases and hold foreign reserves — are among the largest economies in the world. If we were to cut them off from the American dollar and our financial system, we would set off extensive financial hemorrhaging, not just in our partner countries but in the United States as well.
Our strong, open economic relations with these countries constitute a foundation of the global economy. Nearly 40 percent of American exports go to the European Union, China, Japan, India and Korea — trade that cannot continue without banking connections.

The major importers of Iranian oil — China, India, Japan, South Korea, Taiwan and Turkey — together account for nearly a fifth of our goods exports and own 47 percent of foreign-held American treasuries. They will not agree to indefinite economic sacrifices in the name of an illusory better deal. We should think very seriously before threatening to cripple the largest banks and companies in these countries.

Consider the Bank of Japan, a key institutional holder of Iran’s foreign reserves. Cutting off Japan from the American banking system through sanctions would mean that we could not honor our sovereign responsibility to service and repay the more than $1 trillion in American treasuries held by Japan’s central bank. And those would be direct consequences of our sanctions, not to mention the economic aftershocks and the inevitable retaliation.

We must remember recent history. In 1996, in the absence of any other international support for imposing sanctions on Iran, Congress tried to force the hands of foreign companies, creating secondary sanctions that threatened to penalize them for investing in Iran’s energy sector. The idea was to force international oil companies to choose between doing business with Iran or the United States, with the expectation that all would choose us.

This outraged our foreign partners, particularly the European Union, which threatened retaliatory action and referral to the World Trade Organization and passed its own law prohibiting companies from complying. The largest oil companies of Europe and Asia stayed in Iran until, more than a decade later, we built a global consensus around the threat posed by Iran and put forward a realistic diplomatic means of addressing it.

The deal we reached last month is strong, unprecedented and good for America, with all the key elements the international community demanded to stop Iran from getting a nuclear weapon. Congress should approve this deal and ignore critics who offer no alternative.

Jacob J. Lew is the secretary of the Treasury.

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