Straight to Rebalancing? Non-violation Nullification or Impairment Claims for National Security Measures

The United States has recently been party to a series of WTO disputes relating to its national security measures, including its steel and aluminum tariffs in December 2022 and its origin marking requirements on imported goods from Hong Kong in January 2023. National security measures represent the ultimate display of sovereignty by a World Trade Organization (WTO) member. They are actions related to the “quintessential functions of the state” such as the “maintenance of law and public order internally.” For example, in 2016, Russia imposed bans and restrictions on Ukrainian transit by road and rail through its territory in the context of the geopolitical conflict between the two countries. These measures were successfully justified under General Agreement on Tariffs and Trade (GATT) Article XXI(b)(iii), which provides an exception for inconsistent measures that a member considers “necessary for the protection of its essential security interests.” However, the United States has consistently been unsuccessful in justifying these measures, losing every dispute settlement proceeding thus far.

Since the landmark Russia – Traffic in Transit case in 2019, the United States has maintained that GATT Article XXI(b) is self-judging and not justiciable under the WTO dispute settlement. As an alternative to dispute settlement, the United States has argued that any dispute involving this exception should lead immediately to a rebalancing of concessions through nullification and impairment claims. This option was highlighted again by Ambassador María Pagán in comments made at a Dispute Settlement Body (DSB) meeting in late January. Considering the likelihood that the United States will continue to refuse any adjudication of this provision and its growing reliance on the national security exception, the feasibility of this option becomes highly relevant.

Q1: What are nullification or impairment claims?

A1: Under GATT Article XXIII, WTO members can bring a claim for the nullification of benefit or impairment of an objective under the GATT as a result of (1) a violation of WTO rules, (2) a non-violation, or (3) the existence of any other situation. Where successful, the member challenged has to rebalance the damage to the benefits and expectations that the aggrieved member is entitled to by virtue of WTO membership. Depending on the type of claim, this can include compensation or suspension of the aggrieved member’s concessions where a negotiated settlement cannot be reached. Violation cases are the most common as Article 3.8 of the Dispute Settlement Understanding (DSU) provides that nullification or impairment is presumed to exist whenever a violation of WTO obligations has been established. However, “non-violation claims” are much rarer, as they relate to measures that do not violate WTO rules but nevertheless result in the nullification or impairment of an objective or benefit under the GATT. The original intention behind non-violation nullification or impairment (NVNI) claims was to safeguard the results of negotiated concessions and protect the broader balance of benefits that governments are entitled to expect as WTO members. For example, in 1996, the United States tried, albeit unsuccessfully, to argue that the strict domestic regulations governing the Japanese film market nullified or impaired the benefits of its negotiated tariff reductions under the GATT for U.S. companies trying to sell film and photographic paper, even if these measures were not violations of WTO law. “Situation” claims are even broader and can relate to any situation that results in “nullification or impairment.” To date, there has never been a successful non-violation claim, and a situation claim has never been attempted in WTO dispute settlement.

Q2: Why have NVNI claims become relevant in the context of national security?

A2: Given the sensitive nature of national security measures, members are often unhappy or even unwilling to remove these measures as a result of a WTO DSB recommendation or panel decisions regarding GATT Article XXI(b). For example, the United States announced that it would not comply with the panel reports in United States – Origin Marking (DS587) and United States – Steel and Aluminum Products (DS544, 552, 556, 564) and appealed them into the legal void that was created following the paralysis of the appeals process as a result of its refusal to appoint any new appellate body members. Instead, the United States proposed NVNI claims as an alternative to the adjudication of national security measures. It first proposed this as an option in a third-party oral statement in the Saudi Arabia – Measures Concerning the Protection of Intellectual Property Rights case and repeated the idea more recently in January 2023 at the conclusion of the United States – Steel and Aluminium Products disputes with Switzerland and Norway suggesting that either country “may consider a non-violation complaint pursuant to Article XXIII:1(b) of the GATT 1994 as described in DSU Article 26.1.”

The idea behind a NVNI claim is that rather than trying to agree on the scope of GATT Article XXI or the legality of a national security measure, which is unrealistic given the sensitive nature of these issues and the current political climate, it should be expensive or painful for a member to enact such a measure. Proceeding immediately to rebalancing would allow a complainant to be compensated without putting a member in the position of choosing between its “sovereignty” and its WTO obligations. Another added benefit, according to Nicholas Lamp, associate professor of international law at Queen’s University, is that non-violation complaints should be much faster to adjudicate because they are less confrontational and the legality of the measure is not being contested, making this examination less complex.

Q3: Can NVNI claims be applied to national security measures?

A3: The feasibility of NVNI claims in the context of national security has been the subject of discussion among leading trade scholarsSome scholars such as Simon Lester, the cofounder of WorldTradeLaw.net, question the feasibility and usefulness of NVNI claims in national security cases, while others such as Lamp see an opportunity to use this mechanism for these types of measures. Three main problems can be identified within the existing NVNI standards.

1. Challenged measures must not have been reasonably anticipated.
   
   One of the requirements of a NVNI claim, as explained by the panel in Japan – Film, is that “in order for expectations of a benefit to be legitimate, the challenged measures must not have been reasonably anticipated at the time the tariff concession was negotiated.” This is a high burden of proof to meet and makes these cases incredibly difficult to win. For example, an aggrieved member would have to argue that the United States’ steel and aluminum tariffs could not have been reasonably anticipated. On one hand, very few people saw the use of Section 232 for steel and aluminum tariffs coming, but on the other hand both Section 232 and GATT Article XXI have always provided for exceptional measures for national security reasons and existed at the time that these tariff concessions were made. This is one of the main reasons why no NVNI claims have been successful thus far.

2. Non-violation claims are not the same as violation claims.
   
   Within the DSU rules for nullification and impairment claims, the language for “non-violation” and “situation” claims is different. DSU Article 22 provides that the remedy for violation complaints is “mutually acceptable compensation,” and retaliation through the suspension of substantially equivalent concessions may be permitted in accordance with DSU Article 21.3. However, in the case of a non-violation complaint, DSU Article 26.1(b) calls for “mutually satisfactory adjustment” but does not mention suspension of concessions as an available remedy. Therefore, there is disagreement on the strength of the remedy available for violation complaints.
   
   Lester argues that the existence of DSU Article 26 precludes Articles 21 and 22 because it sets out its own process for rebalancing and therefore the remedies available for a non-violation complaint are not as strong. On the other hand, Lamp argues that a member may in any case request a panel under Article 21.5 and could then get suspension under Article 22.2. Lester in turn points out that the reference within Article 26.1(c) to an Article 21.3(c) arbitration process to determine “mutually satisfactory adjustment” is consistent with the idea that Article 26 sets out its own enforcement mechanism and that Article 22 is not available for non-violation complaints. The language of Article 22 also consistently refers to bringing a “measure into conformity,” supporting the view that it applies only to violation complaints.

3. A NVNI claim still requires an assessment of the legality of the measure.
   
   One of the key arguments in favor of a NVNI claim is that it avoids an assessment of the legality of a national security measure, and this is arguably what members such as the United States care about the most. However, DSU Article 26.1 states that the procedures for a non-violation complaint only apply where a party considers and a panel or the Appellate Body determines that a measure does not conflict with the provisions of a covered agreement. Therefore, a NVNI claim still requires an assessment of the legality of a measure by the panel or Appellate Body. Similarly, in the case of a “situation” claim, Article 26.2 provides that a panel must determine whether the matter is covered by paragraph 1(c) of Article XXIII, although what this entails precisely is rather unclear given that this paragraph has never been invoked.
   
   Even so, Lamp makes the argument that the examination of the legality of the measure should be less involved in non-violation cases as it is not being contested. However, out of the existing Article XXI disputes, only the Russia – Traffic in Transit case was determined not to be a violation. Arguably, the expanding range of national security measures that members are imposing and the lack of success by members invoking this exception does not suggest that future panels will be any more inclined to conclude that a measure is not a violation of WTO rules. A violation is a violation, even if the review is less comprehensive.
   
   An examination of the rules and procedures, therefore, suggests that a NVNI claim in the current legal framework is not a preferable alternative to dispute settlement proceedings. Making this an option would require lowering the burden of proof and clarifying the remedies and procedures available for NVNI claims. These are changes requiring an amendment to WTO rules, which seems equally unrealistic given the lack of consensus that exists on the scope of the national security exception.
    

Q4: Would NVNI claims for national security measures undermine the broader rules-based system?

A4: Putting the problems within the NVNI rules aside, if one imagines that a NVNI claim is possible, either under the current or new rules, there is still the matter of whether creating what is essentially a “loophole” to standard dispute settlement is a good idea. On one hand, it could be argued that the matter of compensation for nullification or impairment of benefits is more important than the legality or illegality of a national security measure. However, given the increasing scope of measures that are claimed to be in the name of national security, creating a mechanism to circumvent the application of a provision is a slippery slope. It would effectively be telling WTO members that “it is better to ask for forgiveness than permission.” At the very least, this sets a dangerous precedent that will undermine an already precarious rules-based system. The United States itself recognized the unusual nature of NVNI claims, arguing in 1990 that they “should remain an exceptional concept” and a “cautious approach” should be taken in applying them. Similarly, the panel in Japan – Film stated that “Members negotiate the rules that they agree to follow and only exceptionally would expect to be challenged for actions not in contravention of those rules.”

Another good point raised by Jesse Kreier, adjunct professor at Georgetown University Law Center, is that “bad facts make bad law.” The idea of NVNI claims for national security measures primarily makes sense in the case of measures related to economic security. This was arguably not the original intent of Article XXI, drafted at a time in which national security generally had military implications only. Now the line between economic security and national security is blurring and some would argue that “economic security is national security.” With this in mind, creating a loophole around WTO rules for national security measures in a climate where economic nationalism and anti-globalist unilateralism are on the rise would not bode well for the broader multilateral framework. Both the rules for NVNI claims and the potential consequences for the international trading system at large do not suggest that this is a good alternative to adjudication. The national security exception is and should remain subject to WTO dispute settlement—as is the case for every other provision within the rules-based system.

Emilie Kerstens is a research intern with the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. William Reinsch holds the Scholl Chair in International Business at CSIS.