Germany, France and the UK have announced they have set up a mechanism allowing “legitimate trade” with Iran to continue in wake of US sanctions. The scheme, limited to “essential” goods for now, could be joined by more countries.

The new payment system is called INSTEX – short for ‘Instrument in Support of Trade Exchanges’. As of now, it is aimed at facilitating trade between the companies of the three nations and Iran. “In the long term,” the mechanism will be “open” to enterprises from third countries, the joint statement said, adding that Berlin, London and Paris will “explore how to achieve this objective.”

The system will initially focus on “the sectors most essential to the Iranian population” – such as food, pharmaceutical and medical devices, the statement said. While the sale of such goods are technically exempt from US sanctions, many pharmaceutical and agricultural companies stopped trading with Iran under the threat of secondary sanctions.

Foreign Minister @HeikoMaas and his British & French colleagues on the creation of the #SPV: #INSTEX will support European trade with Iran. Focus is initially on goods essential to the Iranian population: pharmaceutical, medical devices and agri-food goods.#JCPoAhttps://t.co/SqejDOSXkU — GermanForeignOffice (@GermanyDiplo) January 31, 2019

Some media reports described the use of INSTEX as “expandable,” suggesting that it could be used for non-humanitarian goods in the future. The statement, however, mentions nothing of this sort. Such course of action would likely set the EU on a direct collision course with the US.

The three nations also said that they are committed to “pursue the further development of INSTEX with interested European countries to make this instrument in support of trade exchanges with Iran” without mentioning the EU directly.

The new mechanism aims at preserving the 2015 Iranian deal, also known as the Joint Comprehensive Plan of Action (JCPOA), and is “conditioned upon Iran’s full implementation of its nuclear-related commitments,” the statement says.

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The INSTEX headquarters will be based in Paris, France’s Foreign Minister Jean-Yves Le Drian told journalists.

The ministers hailed the future mechanism as an important step in preserving the JCPOA, saying it would help the European states to stay committed to their part of the treaty.

“Today we have taken a significant step forward in delivering our commitment under the Iran nuclear deal to preserve sanctions relief for the people of Iran,” the UK Foreign Minister Jeremy Hunt said, calling the move a “clear practical demonstration” of the three nations’ commitment to the “historic” deal.

Statement by @FedericaMog on the creation of INSTEX (Instrument for Supporting Trade Exchanges): https://t.co/UeFzYSg6V7 — European External Action Service - EEAS 🇪🇺 (@eu_eeas) January 31, 2019

German Foreign Minister Heiko Maas said he was “glad” to see INSTEX being established, adding that it would “make it clear” that Europe is “determined” to “resolutely go its own way” even if “some other [states] see things differently.” EU Foreign Affairs Chief Federica Mogherini also welcomed the launch of the payment mechanism. [LINK]

“It is a first step taken by the European side... We hope it will cover all goods and items,” Iranian Deputy FM Abbas Araqchi told state TV on Thursday, commenting on the issue. Tehran is expected to create a “corresponding entity” to make the whole system operational.

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The EU countries have been considering the idea of a special payment channel with Iran since last year, after the US’ dramatic withdrawal from the landmark nuclear deal, signed by Tehran and six world powers in 2015. Washington then reintroduced its sanctions against Iran.

As the project initially stalled, Tehran criticized the EU for strategic indecision, and cited “dollar domination” and Washington’s threats to European companies as a key factor for the delay.

The US hasn’t reacted to the new payment channel but, last November, Secretary of State Mike Pompeo warned of “swift punishment” for other countries doing business with Iran.

Earlier, the EU introduced legislation to shield EU companies from re-imposed US economic restrictions on Iran. However, the measure failed to prevent European business giants, including Total, Volkswagen, Daimler, Peugeot, Renault and Siemens, from quitting business in the country.

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