Iran success may broaden global sanctions

Significance Agreement between Iran and the P5+1 (France, Germany, the United Kingdom, Russia, China and the United States) on the former's nuclear programme in July 2015 has been heralded as a success for economic sanctions. They had a considerable economic impact and created a window of opportunity for negotiation. However, each sanctions regime must be considered on a case-by-case basis. Impacts Sanctions will require more systematic assessments of negative side-effects if they are to remain a viable foreign policy tool. Similar success with North Korea is unlikely owing to its commercial and political isolation, and China's support for the regime. Russia is also less likely than Iran to bend to EU sanctions given difficulties maintaining unity within the EU. Russia's ability to diversify trade partners and create domestic alternatives also make sanctions less likely to be effective. Sanctions on Syria are unlikely to succeed owing to the low success rates of sanctions in resolving armed conflicts.

Significance In 2020 the European Commission appointed a Chief Trade Enforcement Officer for the first time, signalling that Brussels is intent on enhancing its capacity to enforce standards agreed in trade deals. However, the EU's experience with South Korea suggests that holding trade partners to account over breaching standards will be difficult. Impacts Relations with trade partners could deteriorate if the EU is seen to be aggressive in enforcing its standards. Concern over China’s willingness to improve labour and environmental standards could impede ratification the EU-China investment agreement. The EU may be reluctant to sanction some partners, such as the United States, that breach labour or environmental standards.


Subject Denmark's defence policy. Significance Denmark's decision to acquire a new fleet of fifth-generation F-35 stealth joint-strike fighter jets to replace its ageing and non-stealthy fourth-generation F-16s ends a long period of uncertainty around the future of the Danish air force. The purchase of the F-35s will also solidify and deepen Denmark's political-military links to the United States and could open the door for increased cooperation with other northern European countries operating F-35s such as the United Kingdom, the Netherlands and Norway. Impacts The decision will increase the chances of Finland also selecting the F-35 in its upcoming competition to replace its current fleet of F-18s. Participation in future out-of-area operations may be limited, owing to the need to increase the share of the procurement budget. The deal will help solidify Denmark's orientation towards NATO and Washington and away from defence cooperation under the EU.


Subject MiFID II implementation and compliance Significance The EU’s flagship investor protection reform -- the Markets in Financial Instruments Directive II (MiFID II) -- will come into force on January 3, 2018, Valdis Dombrovskis, the EU Commissioner responsible for financial stability, confirmed on October 17, saying that there would not be a further delay. Despite already having been given an extra year's extension, banks are struggling to comply in time because of the directive's complexity. Regulators, too, are behind in expanding their capacity to enforce it. Impacts Firms across the world that do any of their business within the EU will have to comply, not just those registered in the EU. All firms trading in financial instruments must comply but those where this is a small part of their business may be caught unawares. MiFID II will come into effect before the United Kingdom leaves the EU and is likely to be written into UK law post-Brexit. The United States is keen to deregulate, but US firms whose EU activity is not compliant will be punished, possibly harming US-EU relations.


Subject EU direction post-Brexit. Significance Some Europhiles believe that the United Kingdom’s departure from the EU removes a veto-wielding disruptor, thereby enabling the EU to achieve deeper political and economic integration. However, opposition to integration will remain strong, with former UK policy allies in the EU now looking to occupy the ground left by the United Kingdom. Impacts German-French hopes to create European champion firms to bolster EU competition will strengthen following Brexit. The relative weight in the EU of countries opposed to using sanctions as a foreign policy tool, such as Italy and Hungary, will now grow. Future defence and security initiatives could be established outside EU structures in order to accommodate the United Kingdom.


Subject Outlook for the Five Eyes alliance. Significance The stability of the Five Eyes intelligence sharing partnership between Australia, Canada, New Zealand, the United Kingdom and the United States is under stress over Chinese participation in the members’ 5G telecommunications networks. Impacts Possible US concessions on the supply chains of Chinese firms would ease strain within the Five Eyes alliance. European corporates will redouble efforts to burnish their security credentials to capture 5G market share. London’s eventual decision on Huawei will influence the EU and Asian democracies.


Subject Bilateral relations between the United Kingdom and the United States. Significance UK Prime Minister Theresa May has been criticised for her eagerness to form a close relationship with US President Donald Trump, at a time when the new administration in Washington is lurching from crisis to crisis. However, as the United Kingdom heads towards negotiations on leaving the EU, it needs good relations across the Atlantic more than ever. Impacts Trump’s plans to roll back financial regulations will increase pressure for similar moves in the City of London. Good UK links with Republicans in Congress will be just as important as good relations with the White House. Investigations into links between the Trump administration and the Kremlin have the potential to overshadow other bilateral relations. The tone of the relationship will also be affected by the success or failure of Trump’s state visit to the United Kingdom later this year.


Subject Brexit and international security. Significance Brexit in any form will make defence and security cooperation between the United Kingdom and the EU more difficult. While intelligence-sharing and security cooperation are likely to continue, even if in a more cumbersome form, there is a high likelihood of declining defence cooperation and a divergence of UK and EU defence efforts. Impacts Brexit will force EU member states to build up their military. The United Kingdom and Ireland will strengthen security cooperation over fears of a return to violence in Northern Ireland. The United Kingdom may be excluded from security arrangements between the EU and external actors such as China and the United States.


Subject UK-US trade talks. Significance Hard-line Brexiteers have long viewed a trade agreement with the United States as an important political and economic benefit for the United Kingdom from leaving the EU. With Prime Minister Boris Johnson’s determination to deliver Brexit by October 31 with or without a deal -- the latter appearing more likely -- the prospect of UK-US trade negotiations has risen up the political agenda. Impacts Washington knows a trade deal is politically important to the Conservatives, strengthening its ability to drive a deal favourable to itself. It will be very difficult for London to address regulatory obstacles with the United States without increasing them in trade with the EU. London’s positions on such issues as Iran and Huawei will likely affect the UK’s overall leverage with the United States.


Significance The popular shift coincides with growing China scepticism within legislatures, which has already had a major impact on policy towards Chinese telecoms firm Huawei in the United Kingdom and Germany. Politicians are increasingly focused on the need to safeguard European values and interests vis-à-vis China. Impacts COVID-19 has also seen public views of the United States and Russia worsen; this could strengthen European unity and cooperation. Shifting European policy and opinion towards China will make Beijing less inclined to agree to an investment treaty with the EU. Concerns over China's behaviour and the effect of US sanctions on Huawei could see other countries follow the UK lead in banning the firm.


Significance Despite the increasing risk and the implications of a no-deal Brexit, Ireland and the EU remain united in support of the main issue preventing a Brexit deal, the backstop. Impacts A time-limited backstop is the most likely prospect for a Brexit deal compromise. Under a no-deal Brexit, Ireland would be under pressure to implement border checks and controls in order to protect EU rules. No deal would make it harder for the United Kingdom to negotiate free-trade agreements with the EU and the United States.


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