In Face of a Global Trade War

BERLIN/WASHINGTON (Own report) – The EU announced its first defensive measures against US plans to penalize European companies’ business engagements with Iran, by reactivating the 1996 “Blocking Statute.” That law prohibits companies from terminating their business engagements with Iran, to avoid severe penalties in the United States. Some companies from Germany and other EU countries have already announced that they will cancel their contracts with Tehran to avoid endangering their business ventures in the US. German companies, involved in profitable ventures with Russia, could be facing a similar situation. Washington threatens to demand that businesses from Germany and the EU comply also with the April 6 sanctions announced by US President Donald Trump, against some Russian oligarchs and their companies. According to government advisors, German Russia-oriented businesses are “virtually panicking” because of the escalation of a global trade war.

No More Compensation

Whether the Trump administration will impose punitive tariffs on imports from Germany and the EU, is one of the key questions in the escalation of this global trade war still remaining to be answered. The US president has granted Berlin and Brussels a postponement until June 1, to avert punitive tariffs on steel and aluminum deliveries, but it is completely uncertain whether EU negotiators will have success. Trump’s threat to react to possible EU counter-sanctions with an escalation and more punitive tariffs on car imports is still looming. This would particularly affect the German automobile industry because the United States is one of its most important foreign markets.[1] Washington’s confrontational approach also seems to neutralize previous compensation models used in the context of western sanctions against Russia. When in 2014, western countries were prohibited, for the first time, from exporting certain goods to Russia, the German mechanical engineering sector, for example, could compensate its billions of losses with the billions in earnings through exports to the Unites States. The Trump administration cannot be expected to show such complaisance toward the export-oriented German industry.

Panic

On the contrary: Washington has ceased to coordinate its plans for sanctions against Russia with Berlin, but rather to impose them unilaterally. That is a hard blow for Germany’s industry. Because the US is penalizing companies of other countries, that do not comply with US punitive measures by imposing so-called secondary sanctions on them, German companies must de facto comply with US directives, without having had any say in their formulations. This also applies to the April 6 sanctions against Russia, announced by Trump that are aimed at prohibiting business with a list of oligarchs and their companies. Insiders estimate that this affects nearly 60 percent of Germany’s companies doing business in Russia. According to a German government advisor, German businessmen in Russia are “virtually panicking.” “It has become common practice for German companies to dispatch their representatives to the US Office of Foreign Assets Control (OFAC), the ‘watchdog’ over compliance with the catalogue of US sanctions, to receive a green light for business with their Russian partners.”[2] Most of the German companies can no longer take this risk; because of the key importance business in the US has for the German industry: The United States is its number one market and investment site.

Retraction Possible

Russia Defends Itself

For German companies, the situation has become more complicated, since Moscow began to apply its own initial countermeasures against the April 6 US sanctions, Any company supporting or abiding by US American or other foreign sanctions, may be penalized in Russia. Tuesday, a draft bill, to this effect, passed its first reading in the Russian Duma. If it becomes law, German companies doing business in Russia will inevitably be in an awkward position – between Moscow and Washington – and be forced to choose a side.[4]

Cancellation Probably Inevitable

The “Blocking Statute”

Because the Trump administration is rapidly expanding its unilateral sanctions – including threats to China – and forcing, in effect, companies in Germany and the EU into submission by threatening exorbitant punitive measures for their violation, the EU finds itself compelled to engage a counteroffensive. The union announced yesterday, it will reactivate the 1996 “Blocking Statute.” That law prohibits EU companies from abiding by unilaterally imposed US sanctions. For example, a company that closes its subsidiary or terminates it business relations with Tehran, out of fear of US sanctions, must expect legal consequences of the EU. At the same time, the EU Commission offers benefits, such as lower-interest loans from the European Investment Bank (EIB), to companies operating in Iran.[5] Berlin and Brussels are accompanying their EU’s counteroffensive against Washington with the offer of stabilizing transatlantic business relations at more favorable conditions for the USA. At their Wednesday night meeting in Sofia, the EU’s heads of states and governments decided to offer Trump an expansion of imports of liquefied US fracking gas to the EU, in exchange for abandoning tariffs on steel and aluminum.[6] This is worth good – and above all, profitable – relations with Washington for Germany and the EU.

Full article: In Face of a Global Trade War (German Foreign Policy)

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