Centre for Internet & Society

The election of Donald Trump has marked a foundational challenge to the rules-based international order based on “free and fair trade”.

The article by Arindrajit Basu was published in the Wire on May 8, 2019.

From stonewalling appointments at the appellate body of the WTO’s dispute settlement body (DSB) to slapping exorbitant steel and aluminium tariffs on a variety of countries, Trump has attempted to desecrate an institution that he views as being historically unfair to America’s national interests.

Given this potentially cataclysmic state of affairs, a WTO panel report adopted last month regarding a transport restriction dispute between the Russia and Ukraine would ordinarily have attracted limited attention. In reality, this widely celebrated ruling was the first instance of the WTO mechanism mounting a substantive legal resistance to Trump’s blitzkrieg.

The opportunity arose from the Russian Federation’s invocation of the ‘national security exception’ carved into the Article XXI of the General Agreement on Tariffs and Trade (GATT-the primary WTO covered agreement dealing with trade in goods.)

This clause has rarely been invoked by a litigating party at the DSB and never been interpreted by the panel or appellate body due to the belief among WTO member states that the exception is ‘self-judging’ i.e. beyond the purview of WTO jurisdiction sovereign prerogative to use as they see fit.

Over the past couple of years, the provision has taken on a new avatar with trade restrictions being increasingly used as a strategic tool to accomplish national security objectives. In addition to the Russian Federation, in this case, it was used by the UAE to justify sanctions against Qatar in 2017and notably by the US administration in response to the commencement of WTO proceedings by nine countries (including India) against its steel and aluminum tariffs.

India itself has also cited the clause in its diplomatic statements when justifying revocation of the Most Favoured Nation Status to Pakistan, although this has not yet resulted in proceedings at the WTO.

Even though the panel held in favour of Russia, this report lays down the edifice for dismantling the Trump Administration’s present strategy. By explicitly stating that Article XXI is not entirely beyond review of the WTO, the panel report gives a cause de celebre for all countries attempting to legally battle Trump’s arbitrary protectionist cause disguised as genuine national security concerns.

At the same time, it might act as a source of comfort for Huawei and China as it allows them to challenge the legality of banning Huawei (as some countries have chosen to do) at the WTO.

History of Article XXI

Article XXI had an uncertain presence in the legal architecture of the WTO from its very inception. It had its origins in the US proposal to establish the International Trade Organisation. The members of the delegation themselves were divided between those who wanted to preserve the sovereign right of the United States to interpret the extent of the exception as it saw fit and others who felt that this provision would be abused to further arbitrary protectionism. The delegate of Australia was also skeptical about the possible exclusion of dispute resolution through a mere invocation of the security exception.

Given this divergence, the drafters of the provision  thus sought to create a specific set of exceptions in order to arrive at a compromise that “would take care of real security interests” while limiting “the exception so as to prevent the adoption of protection for maintaining industries under every conceivable circumstances”.

To attain that objective, the provision in the ITO Charter, which was reflected in Article XXI of GATT 1947 was worded thus:

Nothing in this Agreement shall be construed

to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests;

or to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests (i) relating to fissionable materials or the materials from which they are derived; (ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; (iii) taken in time of war or other emergency in international relations; or

to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security

Article XXI has been historically invoked in cases where national security is devised as a smokescreen for protectionism. For example, in 1975, Sweden cited Article XXI to justify global import restrictions it had had slapped on certain types of footwear. It argued that a decrease in domestic production of said kinds of footwear represented ” a critical threat to the emergency planning of its economic defense.” There was sustained criticism from some states, who questioned Sweden’s juxtaposition of a national security threat with economic strife, claiming that they too were suffering from severe unemployment at the time and the Swedish restrictions would be devastating for their economic position.

The Swedish problem dissipated when Sweden withdrew the restrictions but the uncertain peril of Article XXI remained.

In another instance, the US themselves had previously relied on the security exception to justify measures prohibiting all imports of goods and services of Nicaraguan origin to the US in addition to all U.S. exports to Nicaragua.It argued that Article XXI was self-judging and each party could enact  measures it considered necessary for the protection of its essential security interests. In fact, it was successful in keeping its Article XXI invocation outside the terms of reference (which establishes the scope of the Panel’s report), which precluded the Panel from asserting its jurisdiction and examining the provision. It is worth noting, though, that  the Panel was critical of the US for utilising the provision in this case and emphasised the need for balancing this exception against the need to preserve the stability of global trade.

The recent spate of national security driven justifications to subvert the adjudicatory powers of the WTO provided a necessary opportunity for the panel to clarify its stance on this issue.

The findings of the panel

The findings of the panel can be divided into three broad clusters:

1) The WTO tribunals’ jurisdiction over the security exception: Right from the outset, the panel clearly stated that it had jurisdiction to adjudicate the matter at hand. It rebutted Russia’s claim that any country invoking the exception had unfettered discretion in the matter

2) The ambit of the self-judging nature of the security clause: Both the Russian Federation and the United States, which had filed a third party submission, re-emphasised the supposed self-judging nature of the security clause due to the incorporation of the words “ which it[the WTO member] considers necessary for the protection of its essential security interests” in clause (2) of the provision.

However, the panel argued that the sub-paragraphs (i)-(iii) require an objective review by the Panel to determine whether the state of affairs indicated in the sub-paragraphs do, in fact, exist. In this way, the Panel added,the three sub-clauses act as “limiting qualifying clauses.” The determination of the measures that may be  ‘necessary’ for protecting their ‘essential security interests’ are then left to each WTO member. By interpreting the clause in this manner,the Panel deftly preserved the sovereign autonomy of member states while preventing the bestowing of carte blanche’ ability to take shelter behind the provision.

3) Determination of emergency in international relations: The use of the term “other emergency in international relations” as used in the provision is an amorphous one because the term ‘emergency’ is not clearly defined in international law. Therefore, the Panel relied on UN General Assembly Resolutions and the fact that multiple states had imposed sanctions on Russia to conclude that there was, in fact, an ‘emergency’ in international relations in this case. In doing so, the Panel upheld the transport restrictions imposed by Russia. However, the implications extend far beyond the immediate impact on the two parties.

Implications of the ruling

Before considering the implications of this report, we must consider that, like in other avenues of international law, the municipal legal principle of stare decisis does not apply to Panel or Appellate Body decisions. This means that future panels are not bound by law to follow the finding in this report.

However, WTO tribunals have often used the reasoning put forward in previous panel or Appellate Body reports to support their findings.

Steel and aluminium tariffs

The US, whose third party submission failed to sway the panel has recognised the potential implications of the report and disparaged it as being “seriously flawed”. They have also discouraged the WTO tribunals deciding the steel and aluminium tariff disputes from using it as precedent.

However, Australia, Brazil, Canada, China, European Union, Japan, Moldova, Singapore and Turkey had all filed third party submissions which encouraged the panel to assert its jurisdiction in the matter and have openly supported the panel’s approach – which would be a boost for the panels set up to adjudicate the Trump sanctions.

Given the groundwork laid out by the panel in this dispute, it would be difficult for the US to satisfy the panel’s understanding of ‘emergency in international relations’ as the Panel clearly stated that “political or economic differences between Members are not sufficient, of themselves, to constitute an emergency in international relations for purposes of subparagraph (iii)”.

Huawei and cybersecurity

In addition to steel and aluminium tariffs, the panel’s decision also has an impact on the rapidly unfolding Huawei saga. Huawei, which is the world’s largest telecom equipment company and is now taken the lead in the race to develop one of the world’s most critical emerging technologies: fifth generation mobile telephony.

However, Huawei has recently fallen out of favour with the US and other western countries amidst suspicions of them enabling the Chinese government to spy on other countries by incorporating backdoors into their infrastructure.

Various countries, including Australia, Japan, New Zealand have effectively banned Huawei from public participation while the US has prevented government agencies from buying Huawei infrastructure-triggering litigation by Huawei seeking to prevent the move.India has adopted an independent approach by allowing Huawei to participate in field trials of 5G equipment despite Indian agencies flagging concerns over the use of Chinese made telecom equipment.

On April 11, China complained about the Australian decision at the formal meeting of the WTO’s Council for Trade in Goods by highlighting its discriminatory impact on China. To defend itself, Australia may need to invoke Article XXI and argue that the ban fits in under one of the sub-paragraphs (i)-(iii) of clause (2) The report by this panel, may, therefore propel the WTO’s first big foray into cybersecurity and enable it to act as a multi-lateral adjudicator of the critical geo-political issues discussed in this piece.

The history of international law has been a history of powerful nations manipulating its tenets for strategic gain. At the same time, it has been a history of institutional resilience, evolution and change. The World Trade Organisation is no exception. Despite several aspects of the WTO ecosystem being severely flawed with a disparate impact on vulnerable groups in weaker nations, it has been the bulwark of the modern geo-economic order.

By taking the ‘national security’ exception head on, the panel has undertaken a brave act of self-preservation and foiled the utilisation of a dangerous trump card.

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