Walking on Thin Ice: Balancing Trade and Security Interests at the WTO

[Dr Alexandr Svetlicinii is an Associate Professor of Global Legal Studies at the University of Macau, Faculty of Law. Dr Xueji Su is a Postdoctoral Fellow at the City University of Hong Kong, School of Law.]

The delivery of the World Trade Organization’s (WTO) panel reports in United States – Certain Measures on Steel and Aluminium Products (DS544 brought by China, DS552 by Norway, DS556 by Switzerland, DS564 by Turkey) and United States – Origin Marking Requirement (DS597 by Hong Kong, China) marked the passage of widely awaited rulings on the interpretation of the security exceptions under Article XXI of the General Agreement on Tariffs and Trade (GATT). In United States – Origin Marking Requirement, Hong Kong, China challenged the US’ decision to change the marking requirements for the goods originating from Hong Kong, China from “Hong Kong” to “China”. The US considered the adoption of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region in June 2020 as a threat to its national security. The failure of the US to justify its non-compliance using security exceptions provoked a barrage of critical remarks from the US trade officials, voicing the refusal to implement the WTO rulings. The US Trade Representative (USTR) Katherine Tai denounced the panel report as it “gets deep into creating requirements and parameters for what is or is not a legitimate national security decision. I think that the WTO is getting itself on very, very thin ice.”

Are WTO panels making overreaching decisions on the essential security matters of the Members? Whether national security is “self-judging” is a subject more political than legal. As we have demonstrated, WTO Members in fact harbor an implicit consensus on the bounds of the security exceptions: that is, the security exceptions should be confined to most essential security interests. Therefore, instead of lingering over the matter of “self-judging”, it is now the time to move onto more nuanced issues: the boundaries that WTO panels have drawn for national security exceptions. This post offers our insights on this question in three respects: first, the limitations of judicial review; second, the standard of proof; and third, the application of security exception in the case of conflicts involving third parties, an increasingly relevant issue of our time. 

Is Security a Carte Blanche for Non-Compliance?

At the time of delivery of the above-mentioned reports, WTO panels had already pronounced in two disputes concerning security exceptions: Russia – Measures Concerning Traffic in Transit (DS512 brought by Ukraine) and Saudi Arabia – Measures Concerning the Protection of Intellectual Property Rights (DS567 brought by Qatar). In these disputes, the panels found that the sub-paragraphs of Article XXI GATT are capable of objective, factual determination and hence ‘operate as limitative qualifying clauses’ tempering the discretion of the Members. The WTO panel in the Russia – Traffic in Transit dispute considered that “the ‘balance’ that was struck by the security exceptions was that Members would have ‘some latitude’ to determine what their essential security interests are, and the necessity of action to protect those interests”. At the same time, it was expected that the “potential abuse of the exceptions would be curtailed by limiting the circumstances in which the exceptions could be invoked to those specified in the subparagraphs of Article XXI(b) GATT”. Therefore, USTR Tai correctly underscored the panels’ approach that the contours of actions “taken in time of war or other emergency in international relations” under subparagraph (iii) of Article XXI GATT are not “self-judging” and it is well within the authority of the panels to investigate the factual context of a dispute. 

Nevertheless, Tai’s allegation that WTO panels determine what its Member States’ essential security interests are is somewhat misplaced. The panels did not object to the Members’ autonomy in determining what constitutes their “essential security interest”. The term “essential security interest” is inscribed in the chapeau of Article XXI GATT, while the phrase “taken in time of war or other emergency in international relations” that the panels attended to situates under subparagraph (iii). In Russia – Traffic in Transit, the panel found that “essential security interests” may “generally be understood to refer to those interests relating to the quintessential functions of the state, namely, the protection of its territory and its population from external threats, and the maintenance of law and public order internally”. In Saudi Arabia – IP Rights, the panel saw no basis in the security exception clause of the Agreement on Trade-Related Aspects of Intellectual Property Rights for demanding greater precision in articulating “essential security interests”, and in Russia – Traffic in Transit, the respondent prevailed without explicitly articulating its essential security interests. 

In United States – Origin Marking Requirement, the panel again stressed that it did not question “the importance placed by the United States and other WTO Members, on the protection of human rights and democratic principles, or other values or interests they consider important, which may find reflection in their articulation of their essential security interests.” Nevertheless, the panel emphasized that “measures adopted by Members to advance such interests, if defended on the basis of Article XXI GATT, will need to meet the conditions for its application, which WTO panels will continue to have the responsibility to assess in any dispute brought by WTO Members to the DSB [Dispute Settlement Body] in relation thereto”. Such conditions are stipulated in the sub-paragraphs of Article XXI GATT rather than its chapeau; including, among others, the existence of “war or other emergency in international relations” under subparagraph (iii). 

Gravity Test: “War or Other Emergency in International Relations”

Following the panels’ reading of “war and other emergency in international relations” in the preceding disputes, the panel in United States – Origin Marking Requirement similarly concluded that “an emergency in international relations… lies closer to the extreme of a breakdown in relations between two or more countries, or Members”. In this way, the DSB has essentially proposed a “gravity test” for the invocation of Article XXI(b)(iii) GATT. Notably, the panel also clarified that the “re-labelling” of trade interests as “essential security interests” would be viewed as a misuse of the security exception. 

In the Steel and Aluminium disputes, the US similarly invoked the security exception, claiming that the additional tariffs imposed on those imports were taken in times of “other emergency in international relations”. In the view of the US, the existing global excess capacity in the steel and aluminium industries should be qualified as an emergency under Article XXI(b)(iii) GATT. The panel dismissed this claim and contended that the term “war” that appears in the same sentence with “other emergency in international relations” requires the latter to be at least comparable in its gravity or severity with the former. In response to the US’ argument on the grounds of global excess capacity, the panel contemplated several non-confrontational resolutions such as multilateral efforts to address the problem through the G20 Global Forum on Steel Excess Capacity. As a result, the panel concluded that the situation at stake did not reach the requisite degree of gravity or severity to be considered as “emergency in international relations” and therefore, the US failed to satisfy the requirements for successful invocation of the security exception.

A similar, stringent reading is reproduced in United States – Origin Marking Requirement. In the present dispute, despite the existence of political conflict between the US and China in relation to the adoption of the National Security Law for Hong Kong, the fact that the parties (US and Hong Kong, China) continued to carry out normal economic and trade relations led the panel to find the absence of an “emergency in international relations” that would reach the requisite gravity threshold. 

Conflicts Involving Third Parties

Another pertinent question is whether internal conflict or tension of other WTO Members or a war between third parties could be a matter of essential security interests of an uninvolved Member. This question is imperative for it concerns whether trade restrictive measures for the purpose of humanitarian intervention could be justified under Article XXI GATT. Interestingly, the panel in United States – Origin Marking Requirement admits that the emergency situation stipulated in Article XXI(b)(iii) GATT does not have to originate from the territory of the Member invoking security exceptions or from its bilateral relations. Thus, a war taking place between two or more countries but without the direct involvement of the invoking Member could also be characterized as an “emergency in international relations”. This reading potentially allows the security defence for measures adopted in relation to Russia-Ukraine war by the countries that do not directly participate in this conflict. 

Furthermore, the panel in United States – Origin Marking Requirement has also attended to interventions in internal conflicts taking place on the territory of other Members. The panel acknowledged in obiter dictum that a human rights and democracy situation in a third country could potentially constitute “essential security interests” of other WTO Members, as the term “essential security interests” remains “self-judging”. Yet, the gravity threshold must be met. Therefore, if acting under sub-paragraph (iii) on internal conflict or emergency within other Members, the invoking Member is bound to demonstrate that the situation with human rights and democracy in a third country has led to breakdown or near-breakdown of trade relations between the invoking Member and the Member concerned. As a result, for a Member to exonerate its trade-restrictive actions on the ground of domestic conflicts of other Members, it must show that such conflicts have already affected international relations where the invoking Member participates. Such conflicts render the expectation of normal trading relations between the two Members and the compliance with WTO law obligations no longer reasonable. This approach should preclude the WTO Members from adopting trade-restrictive measures against other Members while carrying out normal trade and economic relations – a circumstance that marks the majority of the ongoing international political, economic and social tensions between nations.

Concluding Remarks

In recent disputes invoking security exceptions, the DSB has been saddled with a sensitive task to walk the line between security interests and liberal trade, a task couched as “Hobson’s choice’ or “Catch-XXI”. As we argued elsewhere, despite copious political rhetoric, WTO Members in fact harbor a common expectation concerning the interpretation of the security exceptions; that is, the security exceptions should only be invoked in the most severe cases of interstate confrontation which are closely related to wars, armed conflicts and similar situations endangering the territory, population and political system of a state. The interpretations formulated by the WTO panels in these recent disputes reassuringly confirmed and reinforced this common expectation. 

Specifically, the panels left the interpretation of the term “essential security interests” open so as to accommodate various interests of the Members. However, the reliance on Article XXI(b)(iii) GATT would require an occurrence of an extreme form of deterioration of international relations. Certainly, this degree of gravity in international relations will be rarely met. Hence, this interpretation of the security exceptions significantly curtails the policy space for the WTO Members to impose trade-restrictive measures in the form of targeted unilateral sanctions or tit-for-tat measures under the aegis of Article XXI(b)(iii) GATT.