Russia trade

Germany Gives US Both Barrels Over Sanctions

Rohre für Nord Stream 2
Danger in the air: Germany fears the US sanctions will affect its Nord Stream 2 gas pipeline. Source: dpa

In the eyes of Europeans, Donald Trump may be guilty of many things, not least his isolationist trade policies. But when it comes to sanctions against Russia, the two seem to be in agreement: neither want the US’s newly signed legislation designed to punish the country for meddling in its elections last year.

The US President, who inked the law under pressure, believes the measures could thwart his attempts to smooth things over with the Kremlin. For the Europeans, on the other hand, it’s all about energy. The Germans especially are furious that their access to Russian fossil fuels, especially relating to the Nord Stream 2 Russia-Europe gas pipeline, could be jeopardized as a result.

“By signing off on the new sanctions against Russia, the American president continues to pursue his policy of abolishing trade pacts, establishing new trade barriers and attacking free trade,” said Social Democrat leader Martin Schulz, Angela Merkel’s main rival in Germany’s elections this fall.

German business associations also insisted that Europe must ensure its economic interests are not endangered. “The Americans are imposing their laws onto third parties. This is a violation of international law,” said Ulrich Ackermann, the managing director of the foreign trade portfolio at the German Mechanical Engineering Industry Association (VDMA).

“Basically, there is consensus among legal experts that such extraterritorial sanctions are against the law.”

Dirk Hagemann, foreign trade law expert

And Volker Treier, deputy chief of the Association of German Chambers of Commerce and Industry, said Nord Stream 2 could be directly under threat as a result of the sanctions. “Projects important to energy security could come to a halt if German companies are no longer allowed to participate in Russian gas line projects,” he said.

The US Congress forced the Sanctions Act, which also covers Iran and North Korea, on Mr. Trump by coming up with a veto-proof majority. They restrict Russian companies’ access to Western funds and target military and intelligence personnel believed to have been involved in elections meddling.

Many lawmakers are skeptical of Mr. Trump’s Russian agenda, fearing that he is at best too soft on its authoritarian leader Vladimir Putin and at worst in possible collusion with him. As a result, the sanctions can only be revoked through an act of Congress, weakening Mr. Trump’s negotiating position.

The Europeans are afraid of getting dragged into the conflict between the US and Russia. But more than anything, they’re annoyed about potential sanctions against Russian energy companies that could affect Nord Stream 2. Even before Mr. Trump signed the sanctions into law, European policymakers were speaking out against it.

“We have to defend our economic interests even if that means defending them against America,” said Jean-Claude Juncker, the president of the European Commission, the EU’s executive arm. “And that’s exactly what we’re going to do.”

The Financial Times obtained a Brussels memo that said the EU should “stand ready to act within days” if the bill was “adopted without EU concerns taken into account.”

It’s unclear what such countermeasures could be. But as part of its arsenal of potential defensive instruments, the EU could submit a complaint against Washington to the World Trade Organization. It could also slap higher tariffs on certain US imports.

However, the efficacy of going through the WTO is debatable. The EU could ask for permission to impose a so-called “blocking statute,” which would strip the new US law of its legal force in Europe, but the effect would be largely symbolic.

04 p07 US Foreign Trade 2016-01

Some high-ranking Germans have said that what the US is doing is illegal. Economics minister Brigitte Zypries called the new legislation “in violation of international law” even before Mr. Trump had signed it.

The law allows the US government to punish foreign countries for their cooperation with Russia. To some experts, this is also a violation of international law, which permits national governments to sanction their own companies and citizens, but provides no such powers when it comes to foreign entities or people.

“Basically, there is consensus among legal experts that such extraterritorial sanctions are against the law,” said Dirk Hagemann, a German lawyer who specializes in foreign trade law.

German companies face a dilemma. German law forbids German firms from participating in boycotts organized by foreign governments. There is also an EU law that similarly blocks businesses from getting involved in other countries’ sanctions battles. But if these companies ignore the American sanctions, they run the risk of being punished by Washington.

There may be a loophole. Companies that make a conscious decision to adjust their business practices according to sanctions aren’t required to cite their reason for doing so.

But Germany’s biggest get out clause could be Mr. Trump himself. Even though the sanctions now give him tremendous leverage over European and its energy policy, he is unlikely to blackmail them. He has said the legislation is too heavy handed and could “affect our allies,” and is annoyed at Congress for tying his hands.

“Comments made by Donald Trump suggest that he rejects key components of the law and that his administration takes the concerns of the EU and the international business community seriously,” said Wolfgang Büchele, head of the German Committee on Eastern European Economic Relations.

 

Dana Heide is a political correspondent for Handelsblatt in Berlin. Moritz Koch is Handelsblatt’s Washington correspondent. Torsten Riecke is Handelsblatt’s international correspondent. Klaus Stratmann covers energy policy and politics for Handelsblatt. Till Hoppe reports on politics for Handelsblatt. To contact the authors: d.heide@vhb.de, koch@handelsblatt.com, riecke@handelsblatt.com, stratmann@handelsblatt.com, hoppe@handelsblatt.com

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