Application of WTO Law to Disputed Territories: A Fresh Perspective Arising from Annexation of Crimea and Recent Antidumping Investigation against Imports from China

On 17 August, the Russia-led Eurasian Economic Union (comprising Armenia, Belarus, Kazakhstan, Kyrgyz Republic, and Russia) announced an anti-dumping investigation into imports of titanium dioxide from China. Typically, such investigations are initiated on the basis of a written application submitted “by or on behalf of a domestic industry” (Article 5.1 of the WTO Anti-Dumping Agreement). Yet, in this instance, the domestic industry asking for the imposition of anti-dumping duties is a company located in Crimea, annexed by Russia from Ukraine in 2014.

This raises the question of compliance with WTO law within the context of trade remedy investigations: whether producers located in Crimea could be considered a “domestic industry” of Russia in the meaning of the WTO Anti-Dumping Agreement. It remains uncertain how a WTO dispute settlement panel might answer this question.

From the perspective of public international law, Crimea still belongs to Ukraine. This view has been expressed by the UN General Assembly. In particular, General Assembly Resolution 68/262 condemns the occupation of Crimea by Russia and calls upon States not to recognize any alteration to the status of Crimea, thereby referring to the duty of non-recognition and non-assistance to the occupied regimes (articles 40 and 41 of ILC Articles on State Responsibility).

The WTO, on the other hand, has not been so forthcoming with characterizing Russia’s actions in Ukraine from the perspective of public international law, including its annexation of Crimea. Notably, in Russia – Measures Concerning Traffic in Transit, the panel stated, in the context of applying the security exception in the General Agreement on Tariffs and Trade (GATT), that: “[i]t is not this Panel’s function to pass upon the parties’ respective legal characterizations of those events …” (para. 7.5.) Likewise, the WTO Secretariat note “The Crisis in Ukraine: Implications of the War for Global Trade and Development” refers to Russia’s annexation of Crimea as “the Crimea crises of 2014.”

Existing legal framework and competing approaches

Existing WTO law does not provide a clear answer to the question of whether and how to engage in trade with disputed territories. One of the central difficulties stems from the WTO’s separation of the issue of the application of WTO law to disputed territories from the issue of their legal status under public international law.

Under Article XII(1)(2) of the Marrakesh Agreement Establishing the WTO, WTO membership does not only include States, but separate customs territories can also be WTO Members. This allows the WTO to focus exclusively on trade-related issues while refraining from taking any position with respect to the international status of disputed territories.

Moreover, pursuant to Article XXVI:5(a) of the GATT, “[e]ach government accepting this Agreement does so in respect of its metropolitan territory and of the other territories for which it has international responsibility.” It is unclear when such international responsibility arises. Originally, an interpretive note to Article XXVI provided that the territories for which the Contracting parties have international responsibility do not include areas under military occupation. But the note was deleted in 1957, leaving no guidance as to whether such responsibility might arise for the occupying power (WTO Analytical Index, GATT 1994, Article XXVI). WTO jurisprudence is, thus far, silent on that matter.

There is a notable division within legal scholarship regarding how to approach this issue. Some authors have argued that the duty of non-recognition imposes limits on the applicability of GATT, emphasizing the need to interpret the “international responsibility” provision in the context of public international law. The Appellate Body has confirmed that “the General Agreement is not to be read in clinical isolation from public international law.” (US – Gasoline, p. 17) Likewise, it has been pointed out by Tom Moerenhout that while the occupying power bears specific international obligations with respect to occupied territories, arising primarily from international humanitarian and human rights law, it does not have the right, for example, to claim rights for their own civil population that have been illegally transferred to the occupied territories.

By contrast, other scholars adhere to a more practical, trade oriented, approach, viewing the WTO as a self-contained regime. The rationale here is that dealing with politically divisive issues is damaging for the WTO, which should only concern itself with creating favorable conditions for world trade. As a result, under this view, the issue of the legitimacy of territorial claims must be decoupled from the issue of territorial application of WTO law: the scope of application of WTO law must be defined by territory under de facto control rather than de jure sovereignty, even in cases of unlawful occupation. 

What can the ongoing anti-dumping investigation offer to this debate?

The debate on this matter has produced more questions than answers. The recently opened anti-dumping investigation initiated by a company located in occupied Crimea could potentially revitalize this ongoing discussion by introducing fresh perspectives and uncovering deeper challenges for the de facto control approach.

Firstly, proponents of the de facto control approach find validation in the language of GATT Article XXVI:5(a). Frequently overlooked in this context, however, is that this argument is firmly embedded in the pre-WTO times, specifically in the procedure of obtaining original membership. Notably, scholars advocating for such an approach rely on state practice involving Israel/the West Bank and Gaza, Morocco/Western Sahara, and Turkey/Northern Cyprus. Crucially, in all these instances, the occupying power obtained membership through original membership and the occupations took place prior to the establishment of the WTO.

It is important to note that, with regard to the process of obtaining membership, the GATT 1947 differentiated between original members who were to become members by “acceptance” under Article XXVI, and later members who would acquire membership by “accession” under Article XXXIII. Subsequently, the Marrakesh Agreement Establishing the WTO provided two pathways for obtaining a WTO membership: “original membership” under Article XI:1, which allowed Contracting Parties to the GATT 1947 to join the WTO, and the accession procedure outlined in Article XII.

The purpose of this blog is not to scrutinize the applicability of the de facto control approach to the members that joined the WTO through original membership. Instead, my contention is that even assuming the relevance of such an approach in those cases, its applicability to the members that joined the WTO through an accession process (such as Russia) is less compelling.

According to GATT Article XXVI:1, “the date of this Agreement shall be 30 October 1947.” Consequently, the phrase “[e]ach government accepting this Agreement” in Article XXVI:5(a) can only be understood as referring to the procedure for becoming a Contracting Party to the GATT 1947, rather than becoming a WTO member. The latter involves accepting the Agreement Establishing the WTO and Multilateral Trade Agreements annexed thereto. While it might be argued that Article XXVI:5(a) remains applicable to “original Members,” there is no substantiation for the assertion that this provision, and, thus, the reference to territories under international responsibility, is applicable to countries that joined WTO through accession without undergoing the procedure outlined in Article XXVI of becoming Contracting Parties to the GATT 1947.

Secondly, even if one assumes the applicability of Article XXVI:5(a) to all WTO Members, the language of this provision does not seem to be supportive of covering all instances of obtaining de facto control through occupation.

Article XXVI:5(a) stipulates that each government, upon agreeing to this Agreement, does so in respect of the territories under its international responsibility, except those expressly notified “at the time of its own acceptance.” Additionally, Article XXVI:5(b) enables governments, following notification under the exception in sub-paragraph (a), to give notice at any time, expanding their acceptance to territories originally excluded. Taken together, it seems to suggest that the scope of Article XXVI:5 is limited, allowing governments to only apply the GATT to the territories for which they had international responsibility at the time of their own acceptance of the GATT.

In the present case, Crimea was annexed two years after Russia became a WTO member in 2012. Considering that Russia did not have international responsibility for Crimea at the time of accession, it could be argued that the de facto control approach is not applicable, leading to the conclusion that producers in Crimea cannot be considered as Russia’s domestic industry.

Thirdly, the main argument in favor of the de facto control approach is that it would result in the expansion of trade, benefiting both the residents of occupied territories and the broader international community. Yet, the present anti-dumping investigation suggests that it could yield opposing results.

Trade remedies (anti-dumping, countervailing and safeguard measures) represent the most frequently invoked derogation from WTO obligations not to charge tariffs in excess of bound commitments (GATT Article II) and in the case of anti-dumping and countervailing duties not to violate non-discrimination provision (GATT Article I). To ensure some constraints when applying these measures, WTO law includes rules on how these measures can be imposed.

The concept of “domestic industry” is an important part of such constraints. It establishes who may file a petition requesting the initiation of an investigation. Moreover, a determination of injury to such domestic industry is a fundamental precondition for the imposition of the measures.

Expanding the scope of “domestic industry” by applying the de facto control approach introduces the risk of exploiting regulatory gaps. When illegal occupation is used to derogate from fundamental obligations under WTO law, this would lead (and this is only from trade perspective) to undermining tariff commitments and compromising the overall integrity of the global trade system.

The anti-dumping investigation by the Eurasian Economic Union under consideration is illustrative in this regard. The Crimean company which initiated this investigation is explicitly recognized in the initiation notice as the only producer of the product under investigation within the entire Eurasian Economic Union. Thus, in the absence of the annexation of Crimea, the initiating of this investigation would not have been possible.

Likewise, the application of the de facto control approach is unlikely to yield positive results for the residents of Crimea. The imposition of trade remedies typically does not benefit consumers, leading to increased prices and a limited product selection, nor does it favor downstream industry, which may face higher production costs.

Finally, a jurisdictional challenge arises as to whether the panel can rule on the disputed territorial status of Crimea under the general rules of international law, as this matter, while falling outside its subject-matter jurisdiction if submitted separately, is necessary for resolving the issue within its jurisdiction.

The issue of jurisdiction over incidental issues has arisen before other international tribunals within the context of the International Criminal Court, the law of the sea, investment disputes and human rights (commented, in particular, in posts by Dapo Akande, Marko Milanovic and Valentin Schatz). It has posed challenges for the tribunals, as exemplified in the Coastal State Rights dispute (Ukraine v. Russian Federation) where the UNCLOS tribunal declined jurisdiction because it would require deciding on the issue of sovereignty over Crimea, while in Ukraine v. Russia (re Crimea), the European Court of Human Rights chose to address incidental questions of territorial sovereignty without declining jurisdiction.

In Mexico – Soft Drinks, the WTO Appellate Body stated that “[w]e see no basis in the DSU for panels and the Appellate Body to adjudicate non-WTO disputes.” (para. 56). Yet, there, despite its refusal to engage in matters beyond its jurisdiction, the Appellate Body did rule on Mexico’s compliance with WTO rule. It remains to be seen what approach panels might take in cases where making determinations on issues outside their jurisdiction becomes essential to resolve issues within their jurisdiction.

Despite the WTO’s traditional reluctance to engage in non-WTO issues, there are arguments to be made in favor of deciding on incidental issues. Firstly, refusal to address the question of territorial sovereignty would result in declining jurisdiction over the dispute. WTO adjudicating organs have compulsory and exclusive jurisdiction over all disputes regarding violations of WTO obligations. Refusal to exercise jurisdiction, as the Appellate Body explained in Mexico-Soft Drinks, would seem to deprive the complaining Member of the ruling which it is entitled to under DSU Article 3.3 and “diminish” its right to “seek the redress of a violation of obligations” under Article 23. This would be inconsistent with the panel’s obligation not to “diminish” the rights of WTO members under Article 19.2. (para. 53). Secondly, DSU Article 11 directs panels to “make an objective assessment of the matter before it” and to “make such other findings as will assist the DSB in making the recommendation or in giving the rulings.” Moreover, Article 7.2 mandates the panel not only to address the relevant provisions in WTO agreements but also “agreements cited by the parties to the dispute.” Taken together, those provisions could be interpreted as supporting the competence of panels to make determinations on non-WTO issues if they are necessary for a resolution of the question at issue. Finally, although the applicability of non-WTO law remains a controversial issue, there is nothing in the DSU that precludes panels from applying non-WTO law to decide claims before them. There is an established WTO jurisprudence confirming that panels can apply non-WTO rules in interpreting terms within WTO agreements.

Conclusion

The de facto control approach to the application of WTO law is constructed based on the language of GATT Article XXVI:5, specifically designed to address the colonial past, and state practice predating the WTO. The case of the annexation of Crimea offers a chance to reassess the relevance of this logic for today. Similarly, this approach has so far been analyzed in the context of the right to trade with disputed territories thereby focusing on the main argument in favor of this approach: incorporating such territories into world trade would advance the objectives of the WTO. The ongoing anti-dumping investigation, however, has brought to light the potential risks of such an approach, as it could be used for derogating from essential obligations under WTO law, thereby posing a potential threat to the entire global trade system.

As non-trade concerns become part of trade concerns, keeping trade separate from politics is no longer a realistic option. This, in particular, necessitates a reassessment of the longstanding practice of separation of the issue of the application of WTO law to disputed territories from the issue of their legal status under public international law.