An Unnamed Problem With the Iran Nuclear Deal
Since the Joint Comprehensive Plan of Action was released four weeks ago, one of the provisions that has gotten the least attention has been the so-called “grandfather clause.” The accusation has been made, with which I and many others agree, that the text of the deal obviates any implementation of “snap-back” of sanctions by exempting existing contracts from re-imposition of penalties. So once the initial flood of business washes ashore in the Islamic Republic – once those initial contracts are signed – “snap-back,” even if you could get others to agree to it, wouldn’t do any significant damage.
You can see why the administration might be uncomfortable with that assessment.
Enter Adam Szubin, the Treasury Department’s acting undersecretary for terrorism and financial intelligence, who testified before the Senate Banking Committee last week that “there is no grandfather clause. No provision in the deal gives signed contracts special status.”
Well, except this one:
“In such event [the re-imposition of sanctions], these provisions would not apply with retroactive effect to contracts signed between any party and Iran or Iranian individuals and entities prior to the date of application.”
Please don’t take my word for it. It’s in section 37 of the “Nuclear” heading just following the preamble and general provisions. Page 20.
So there will be enormous sums of money at stake, a clause (above) that plainly appears to grandfather-in contracts executed after the lifting of sanctions, and the only dispute resolution mechanism (outlined in section 36 on pages 19 and 20, if you want your head to explode) is a Rube Goldberg-esque multi-stage process that relies on good faith and an interest in positive-sum solutions – hardly strength areas of the Ayatollah – and ends with the melt-down of the whole apparatus.
And with Iran having $100 billion in unfrozen assets to burn (it can’t ALL go to murder Syrian and Israeli civilians) and companies rushing in to the unusual virgin territory of a mid-sized economy with a growing middle class, what’s the logical way this shakes out? Snap-back of sanctions and billions in cancelled contracts for primarily non-American companies? Or a grandfather clause?
Which gets us to, arguably, the least-discussed but possibly most problematic flaw of the deal: it is too short to be thorough and too convoluted to achieve clarity. The Obama administration has been touting support for the deal by a group of eminent nuclear physicists, as if expertise on the interacting boson model gives one special insight into Middle East politics. Meanwhile, what they needed in the room were a couple of competent contract lawyers (for which, sadly, there are no Nobel prizes). The document itself is shorter and less-precise than mortgage paperwork. Which is probably because a bank is serious about being repaid.
Secretary of State John Kerry has repeatedly claimed that there is nothing in the Iran deal about trust. He does not trust Iran, he says, which is why the verification aspects of the deal are, he claims, so robust. They are not. But for the sake of argument, let’s say they were. Secretary Kerry seems to think this document will operate like a contract executed between two parties in the United States. But when American parties disagree about the terms of their contract, they can seek resolution in court. And when the court makes a decision, it has the unquestioned power to enforce that decision.
So while most of us are focusing on the obvious and glaring failures of the deal, this might quietly be its worst deficiency: there is no clarity or authority. Each party seems to have its own interpretation of what it agreed to; Iran’s claims are, as anyone paying attention would expect, particularly generous. The only possible enforcement mechanism is “snap-back” of sanctions and, as shown above, a convincing case can be made that the grandfather clause renders that provision toothless. And, regardless of what the nuclear physicists say, there’s no reason to think most of the P5+1 would ever agree to “snap-back” anyway.
If you’re going to base the safety of the entire world on a few pieces of paper, they’d better be damn well constructed. This document is weak and untrustworthy – much like the people who are trying to sell it to you.
Greenberg is an ordained Reform rabbi and the senior vice president of the Salomon Center for American Jewish Thought. A former staffer at the American Israel Public Affairs Committee, you can follow him @JGreenbergSez.