The WTO Strikes Again

Late last week, the World Trade Organization (WTO) issued what the media is calling a “historic” ruling on the applicability of Article XXI, which allows nations to take trade limiting actions in the name of national security. The decision will inevitably be appealed and thus will get caught up in the dispute over the Appellate Body, but it’s worth making some comments now since, even though the case is not about the U.S. steel and aluminum tariffs, the decision has implications for them since they are also being litigated at the WTO, and the complainants are using many of the same arguments.

The case that was decided last week concerned Ukraine’s objections to Russia’s actions in blocking the shipment of goods between Ukraine and Kazakhstan or the Kyrgyz Republic that transited Russia—actions Russia defended on the grounds of national security. In making its defense, Russia argued that Article XXI is self-defining; that is, that each country has the right to define its own national security any way it wants, and the WTO has no right to second-guess such decisions. That is the same position the United States has taken on its steel and aluminum tariffs, and, in fact, the United States supported the Russian position in its case through a brief it filed with the WTO, even though the United States has not supported Russia in its conflict with Ukraine. (The European Union, which has also not supported Russia in the Ukraine conflict, took Ukraine’s side in the WTO debate.)

The WTO panel decided that the national security exception is justiciable; it is a standard that is within the WTO’s authority to review and to determine whether a nation’s actions fall within the standard. Having decided that, the panel then went on to review the actions taken by the Russian government and determined that they are consistent with the panel’s interpretation of national security in Article XXI.

For all of you wonks out there, here is the actual text of Article XXI:

Article XXI Security Exceptions
Nothing in this Agreement shall be construed
(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or
(b) 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
(c) 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.

The argument revolved around the applicability of subsection (b)(iii)—the “war or other emergency” provision, and here is the relevant part of the panel’s conclusion:

d. With respect to whether Russia has met the requirements for invoking Article XXI(b)(iii) of the GATT 1994, the Panel finds that:
i. as of 2014, there has existed a situation in Russia's relations with Ukraine that constitutes an emergency in international relations within the meaning of subparagraph (iii) of Article XXI(b) of the GATT 1994;
ii. each of the measures at issue was taken in time of this emergency in international relations within the meaning of subparagraph (iii) of Article XXI(b) of the GATT 1994;
iii. Russia has satisfied the conditions of the chapeau of Article XXI(b) of the GATT 1994; and
iv. accordingly, Russia has met the requirements for invoking Article XXI(b)(iii) in relation to the measures at issue, and therefore the measures at issue are covered by Article XXI(b)(iii) of the GATT 1994.

So, this means that Russia wins but not for the reason it argued. In retrospect, no one should be surprised that a WTO panel, when confronted with the argument that it did not have authority to do something, went ahead and decided that it did. In the end, Russia prevailed because the panel concluded that what was going on between Russia and Ukraine was, in fact, an “emergency” contemplated in Article XXI.

This is not good news for the United States. Having determined that Article XXI is justiciable in this case, other panels will likely come to the same conclusion in other cases. (In addition to the U.S. case, there is another one pending between the United Arab Emirates and Qatar). That means the United States will have to argue that its action fits the definition of “emergency,” which will be a heavier lift than it was for the Russians, where an actual on-the-ground conflict is taking place.

In that regard, the report’s language is not helpful to the United States. For example, it defined an emergency in international relations per subsection (b)(iii) as “a situation of armed conflict, or of latent armed conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state.” It also found that “political or economic differences between members are not sufficient, of themselves, to constitute an emergency in international relations for the purposes of subparagraph (iii).” Those are significant humps for the United States to get over.

Finally, however, it must be noted that the war—in Geneva as well as in Ukraine—is not over. The decision will be appealed, and if the United States continues to block new Appellate Body appointments, it is unlikely an appeal will be settled by the time the Appellate Body loses its ability to function in December. In that case, this decision will not go into effect, and future similar decisions will suffer the same fate if they are appealed. (The panel process will continue to churn out decisions.)

In a perverse way, that outcome could be an incentive for the United States to remain in the WTO, even if it loses the steel case. In the absence of an Appellate Body, the United States will be off the hook; while if it left the organization, other nations would be free to retaliate against us. The sad thing is that in either case, the WTO and the trading system lose.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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