Context

Germany, France and Britain (E3) have officially set up a European mechanism to facilitate non-dollar trade with Iran called INSTEX – Instrument In Support Of Trade Exchanges.

About

• INSTEX will allow trade between the EU and Iran without relying on direct financial transactions.
• It will focus on humanitarian trade. It has been registered in France and will be run by German Commerzbank manager Per Fischer.
• The E3 reaffirm that their efforts to preserve the economic provisions of the Joint Comprehensive Plan Of Action (JCPOA) are conditioned upon Iran’s full implementation of its nuclear-related commitments, including full and timely co-operation with the IAEA.

Why such a mechanism?

• The move will allow the European Union to circumvent U.S. sanctions in an effort to continue humanitarian trade with Iran.
• It will uphold what is left of the Joint Comprehensive Plan of Action, commonly known as the Iran nuclear deal.
• Recent U.S. sanctions halted a significant portion of trade between Iran and its European partners.

Features of INSTEX

• It will support legitimate European trade with Iran, focusing initially on the sectors most essential to the Iranian population – such as pharmaceutical, medical devices and agri-food goods.
• It aims in the long term to be open to economic operators from third countries who wish to trade with Iran and the E3 continue to explore how to achieve this objective.
• The operationalisation of INSTEX will follow a step-by-step approach: The E3 together with INSTEX will continue to work on concrete and operational details to define the way the company will operate
• The E3 will also work with Iran to create an effective and transparent corresponding entity that is required to be able to operationalise INSTEX.
• It will function under the highest international standards with regards to anti-money laundering, combating the financing of terrorism (AML/CFT) and EU and UN sanctions compliance. In this respect, the E3 expect Iran to swiftly implement all elements of its FATF action plan.
• The new special purpose vehicle will have a supervisory board consisting of diplomats from all three countries: Miguel Berger of Germany, Maurice Gourdault-Montagne of France and Simon McDonald of Britain.
• The E3 underline their commitment to pursue the further development of INSTEX with interested European countries to make this instrument in support of trade exchanges with Iran operational by following the steps set out above.

Significance

• The key component of the new SPV is sovereign participation of the shareholders and senior officials involved with management.
• The France, Germany and Britain "sharing risk exposure" could help reduce the likelihood of further U.S. sanctions, pointing out that INSTEX has sovereign backing and therefore, may not be liable to U.S. pressure like private counterparts.
  

  The Joint Comprehensive Plan of Action (JCPOA): It is a detailed agreement with five annexes reached by Iran and the P5+1 (China France, Germany, Russia, the United Kingdom, and the United States) in July 2015. The nuclear deal was endorsed by UN Security Council Resolution 2231, adopted on July 20, 2015. Iran’s compliance with the nuclear-related provisions of the JCPOA will be verified by the International Atomic Energy Agency (IAEA) according to certain requirements set forth in the agreement. Recently, President Trump announced that the United States would withdraw from the JCPOA and reinstate U.S. nuclear sanctions on the Iranian regime and subsequently did the same.