LexisNexis

Trade wars: EU blocking statutes on US sanctions against Iran, the Advocate General of the European Court of Justice calls for a review of the functioning of the regulation

Thursday 24 June 2021

​​​​​​​Laura Opilio
CMS Adonnino Ascoli & Cavasola Scamoni, Rome
laura.opilio@cms-aacs.com

Luca Morini
CMS Adonnino Ascoli & Cavasola Scamoni, Rome
luca.morini@cms-aacs.com

On 12 May 2021, the Advocate General (AG) of the Court of Justice of the European Union (CJEU) has delivered his opinion on the case C‑124/20 concerning the application of Council Regulation (EC) No 2271/96 (so-called EU Blocking Statutes). The regulation at stake is aimed at protecting the EU operators from the effects of the extra-territorial application of laws adopted by third countries which can affect the interests of EU members engaging in international trade.

More specifically, the issues submitted to the attention of the Court regard the application of Article 5 of EU Regulation No 2271/96 with respect to United States sanctions against Iran.

It should be noted that the protection provided by Article 5 consists in a general prohibition – imposed to EU subjects[1] – to comply with any requirement, prohibition, or foreign courts requests, based on the foreign restrictive laws (the ‘Restrictive Measures’).

In this context, the first question referred to the CJEU is whether Article 5 shall be only applied with regard to primary and direct Restrictive Measures or also for those actions of EU operators which are predicated on compliance with US secondary sanctions.

Second, the Court is requested to evaluate if an EU subject can terminate a continuing obligation with a counterparty subject to secondary sanctions without any need to prove that the reason for the termination was not to comply with US sanctions.[2]

Third, the High Court is required to decide whether the terminations in breach of Article 5 must necessarily be regarded as ineffective or if the purpose of the Regulation can be satisfied through fines and other penalties and, in any case, if an exemption can be provided where maintaining the business relationship with the counterparty exposes the EU operator to considerable economic losses on the US market.

In order to answer to such questions, the AG takes in consideration the general objectives and context underlying the Blocking Statutes, which consist in the development of a free world trade and in the abolition of restrictions on international trade.

In order to guarantee the above general objectives, he finds that Article 5 shall apply even in the event that the undertaking is complying with US secondary sanctions. Moreover, he affirms that an EU undertaking seeking to terminate an otherwise valid contract with a company subject to US (secondary) sanctions must demonstrate to the national courts that it did not do so in order to comply with the Restrictive Measures.

With regard to the third question, the AG explains that in case of non-compliance with EU blocking statute, the national courts must order the EU company to maintain the contractual relationship. Indeed, the prohibition set by Article 5 represents the main criterion for guaranteeing the objectives of the EU. However, according to the AG’s opinion, economic operators may apply to the Commission to obtain the authorisation to derogate from the rule at stake when the compliance would seriously harm their interests or those of the Union.

It is well worth mentioning that the AG also takes a position on the general functioning of the Blocking Statutes.

Notwithstanding the good intents and objectives of the EU regulation, indeed, the Blocking Statutes put EU undertakings in front of ‘impossible and quite unfair dilemmas brought about by the application of two different and directly opposing legal regimes’.

In other words, pursuant to the Blocking Statues, in certain cases the EU operators are forced to decide which regime not to comply with and to suffer the consequences of such unfair choice.

The cited consideration is of great importance for the evolution of the European legislation on trade wars. As known, indeed, even though the opinion of the AG is not binding for the Court or for the parties involved (let alone for the EU Member States), it is taken into special account by the CJEU when issuing the final decision and is particularly influential in the CJEU context.

However, as underlined by the AG, any review of the manner in which the statute presently operates is a matter of EU legislature and cannot be solved directly by the High Court.

Nonetheless, we hope that this opinion and the following decision might encourage the discussion on some distortions of the EU regulation counteracting third countries sanctions.

 

[1] Specifically, the Regulation applies to (i) any natural person being a resident in the Community and a national of a Member State; (ii) any legal person incorporated within the Community; (iii) any natural or legal person referred to in Article 1(2) of Regulation (EEC) No. 4055/86 (1); (iv) any other natural person being a resident in the Community; (vi) any other natural person within the Community under the jurisdiction or control of a Member State, acting in a professional capacity.

[2] In particular, the case at issue regards the hypothesis of a contracting party named on the Specially Designated Nationals and Blocked Persons List held by the US Office of Foreign Assets Control.