Are COVID-19 Related Trade Restrictions WTO-Consistent?

Countries dealing with the economic and public health-related impacts of COVID-19 have adopted a markedly nationalist approach to their response. More than 80 governments have placed restrictions of some sort (with many of those being notified to the WTO Secretariat) on the export of personal protective equipment and medication necessary to treat those affected by the virus. Prominent controversies have included the Trump administration’s decision to disallow exports of N95 masks from 3M’s American plant to Canada and Latin America (which has now been partially lifted), and India’s decision to ban exports of the hydroxychloroquine drug, which has also now been rescinded in part after pressure from the US and Brazil, among others. Similar export restrictions and other measures restricting international trade in goods essential for public health and economic purposes may be put in place as the situation evolves.

Bans or explicit limits on the quantity of a good which may be exported or imported are Quantitative Restrictions (QRs), covered directly by Art XI of the General Agreement on Tariffs and Trade (GATT). As a general rule, Art XI disallows such measures, directly affecting the legality of the export bans and limits introduced in response to COVID-19. This rule, however, is subject to exceptions contained in four provisions of the GATT itself – Art. XI:2, Art. XII, Art. XX and Art. XXI. Of these, it has been suggested here that Arts. XI:2 and XX can be used to justify the abovementioned measures. In fact, these provisions have been used by Members themselves as justifications when notifying QRs to the WTO Secretariat.

It is clearly good policy to foster open trade and collaboration between countries to fight a global pandemic that knows no borders. It has even been argued that a pandemic of this nature should require a substantial reduction of existing trade barriers for essential goods through an “inverse-exception”. While the present structure of the GATT does not go so far, I will suggest here that a challenge to the broad export bans/restrictions and other limitations imposed on trade in essential goods in response to COVID-19 may be possible under the GATT itself.

Measures Covered by Art XI:1

A WTO Member may take many kinds of trade-restrictive measures in response to the COVID-19 pandemic. The export bans and limitations described above are clearly QRs, covered explicitly by the term “quotas” in Art XI:1 (since they either absolutely ban exports or create a quota for a specific quantity of essential goods which may be exported). Art XI:1, however, also disallows restrictions created through import/export licenses and other measures. Understanding the scope of this residual provision will help identify the range of measures considered in this post.

In Colombia – Ports of Entry, the Panel held that a measure that both applies on or in relation to importation (or exportation, in this case) and amounts to a restriction on importation/exportation (both directly and indirectly, by creating a prohibitive disincentive to import/export etc.) would fall under the residual provision in Art XI:1. As the effects of COVID-19 continue to unravel for states, this broad scope means that many measures outside strict quotas and licensing requirements may be affected by the rule in Art XI:1. For instance, limitations on imports of goods considered a public health risk in light of evolving scientific evidence, limitations on physical infrastructure to facilitate imports and exports due to labour shortages and public health guidelines (such as closing/limiting access to some ports, similar to the case in Colombia – Ports of Entry) and increasing other importation/exportation related costs in a manner that dissuades trading activity may all fall within the scope of Art XI:1 and therefore be subject to the analysis of possible justifications presented below.

The Exception in Art XI:2

The first line of defence for a measure made in violation of Art XI:1 is the exception in Art XI:2, since the exception applies to the exclusion of the general exception under Art XX of the GATT (China – Raw Materials). Art XI:2(a) is directly relevant here, since it allows Members to impose temporary export restrictions to relieve critical shortages of foodstuffs and other products essential to the exporting country.

The Appellate Body’s decision in China – Raw Materials is instructive on the scope of the exception and how it is applied. As a preliminary matter, the AB held that the burden of proof lies on the Respondent seeking to justify an export restriction when the exception is invoked. The AB also held that the commodities in question have to be “absolutely indispensable or necessary” for the exporting country, and the shortage must be “critical”. This means that the shortage must cause a “crisis” in the exporting country, which it described as “a turning-point, a vitally important or decisive stage; a time of trouble, danger or suspense in politics, commerce, etc.” It therefore held that critical shortages for these purposes are:

“deficiencies in quantity that are crucial, that amount to a situation of decisive importance, or that reach a vitally important or decisive stage, or a turning point”.

Beyond this guidance, there isn’t any jurisprudence specifically on the application of Art XI:2(a), a lacuna that may well be filled if one of the many export restrictions referred to above are challenged at the WTO. It is clear, however, that the export restriction must be instituted once a critical shortage has already arisen. The question of whether this is met in each individual case is an evidentiary one, but precautionary export restrictions to hoard essential goods not necessarily needed at the time of the ban (for instance, in countries where the crisis has not ballooned as much as others), instituted out of abundant caution, may arguably not fall within the scope of Art XI:2(a). Thus, where a Member cannot demonstrate that the hoarded level of essential goods will likely become necessary to fight the COVID-19 pandemic at some future stage, its export restrictions are unlikely to be justified by Art XI:2(a).

I would suggest that this should be the position under Art XI:2(a) – countries that do not need critical supplies should not be entitled to hoard them by preventing exports to countries where they are absolutely necessary. Any decision otherwise would amount to an illegitimate expansion of the limited exception contained in Art XI:2(a). Its effect would be to severely disadvantage countries (especially developing and least developed countries) that do not have domestic manufacturing capacity for these supplies, leading to worse outbreaks in countries that are more likely to have poorer public health infrastructure to begin with.

When relying on Art. XI:2 in this manner, it is useful to remember that its exception may be excluded from applicability because it is often subordinated to rules in other specialised WTO Agreements. In Indonesia – Import Licensing Regimes, for instance, the AB held that the exception in Art XI:2(c) did not apply by virtue of Art. 21.1 of the Agreement on Agriculture, which does not allow a provision in the GATT to be used to justify a violation of the AoA (Art. 4.2 in that case, which independently disallowed the QR imposed by Indonesia, and was applied together with Art XI:1 of the GATT). The regime governing COVID-19 related measures may, therefore, change from product to product, with specialised regimes that impose stricter standards and leave limited space for exceptions applying in some cases.

The General Exceptions in Art XX

Where a measure that violates Art. XI:1 cannot be justified under Art XI:2, it is possible for it to be justified under one of the general exceptions contained in Art XX of the GATT. The analysis under Art XX has traditionally been two-tiered, requiring that a measure satisfy one of the particular exceptions in sub-paragraphs (a) to (j) and the independent requirements imposed by the chapeau (US – Gasoline). The order of analysis, as explained in US – Shrimp, first requires looking at the measure itself under the sub-paragraphs and then at the manner in which the exception is applied under the chapeau.

The measures in question here would fall under Art XX(b), which allows Members to take measures “necessary to protect human, animal or plant life or health” that otherwise violate their GATT obligations. As a preliminary matter, it is clear that these bans have been instituted with the objective of protecting lives in the face of the COVID-19 pandemic. The only matter of controversy under the first tier of analysis would be whether they are “necessary” to do so.

In Brazil-Retreaded Tyres, the Appellate Body held that determining the necessity of a measure under Art XX(b) was a holistic operation that required a weighing and balancing of the importance of the interests or values at stake, the extent of the contribution to the measure’s objective and its trade restrictiveness. In EC-Asbestos, the AB held that as the importance of the interests or values at stake increase, the likelihood of the measure being justified under Art XX also increased. Given that COVID-19 has been classified as a pandemic by the WHO, Members’ interests in their citizens’ lives are at stake and are clearly of paramount importance. This suggests that the export bans and other restrictions described above have a high chance of being justified under this provision – a suggestion further strengthened by the high degree of protection from a mass outbreak of COVID-19 provided by these measures.

The only possible challenge, therefore, stems from the third prong of the “weighing and balancing” test – the degree of trade restrictiveness of the measure. Relying on Korea – Various Measures on Beef, the AB, in EC – Asbestos observed that the existence of an alternate, more WTO-consistent measure to achieve the same objective would increase the likelihood of a measure not being justified under Art XX(b). Members remain free, however, to determine the degree of protection they wish to maintain, and the existence of an alternative would affect a Member’s justification only if the alternative achieved a similar degree of protection as the challenged measure.

The sub-paragraphs clearly give Members considerable policy space to determine the degree of protection they wish to maintain. Assuming Members want to maintain the highest possible degree of protection from COVID-19, this necessity test could still bar some of the export bans/restrictions discussed above – if Members are hoarding essential goods through export (and possibly import) restrictions at a level that exceeds any reasonable estimate of what they would need even at the worst possible height of the COVID-19 outbreak in their territories, hoarding essential goods only to a reasonable degree may be a less trade-restrictive measure that still achieves the highest possible degree of protection of the Member’s public health.

There is, however, a need to distinguish the analysis under Art XX(b) from that under Art XI:2(a). The approach adopted in these cases is distinct for two reasons. First, the necessity test under Art. XX(b) encompasses a broader temporal scope and is not restricted to measures applied “temporarily”, as is the case under Art XI:2(a). Second, Art XI:2(a) applies only if there is a “critical” shortage of a good “essential” for the exporting country. Neither of these requirements apply under Art XX(b)’s necessity test.

The absence of Art XI:2(a)’s explicit limitations in Art XX(b) suggests that COVID-19 related QRs/other measures have a higher chance of being justified under it. In both cases, restrictions applied in the immediate aftermath of the outbreak that hoard essential goods beyond a level that any Member could possibly need at the height of the outbreak are unlikely to be covered. Other long-term measures, however, may be covered by Art XX(b) but excluded from Art XI:2(a). For instance, as scientific practice evolves towards identifying the causes and origins of COVID-19 and the possible development of drugs/vaccinations to combat the virus, countries may see a surge in demand for drugs and other medical equipment necessary to generally protect their public health in the long-term. Export restrictions, in the form of QRs, on such goods may well be justifiable under Art XX(b), even if the exporting Member does not face a “critical shortage” of such goods and the restrictions in question are not applied “temporarily”. Clearly, therefore, the test under Art XX(b) is responsive to differing contexts in countries, with varied population demographics and levels of public health infrastructure requiring different long-term approaches to ensuring public health in response to COVID-19. The limited “critical shortage” test in Art XI:2(a), however, is not concerned with these considerations.

For a measure that passes the necessity test under a sub-paragraph, the next hurdle is the independent requirements of the chapeau. As the AB observed in US – Shrimp (among others), the question at this stage is whether the application of the measure amounts to a means of arbitrary or unjustified discrimination between countries where the same conditions prevail. As a general matter, the measures discussed here apply uniformly, rendering a challenge under the chapeau unlikely. This may not be true in case exceptions are created on a case-by-case basis for some Members or some measures have a disproportionately large effect on trade between some Members as against others – a three-part test that looks at the existence of discrimination between countries, the arbitrary/unjustified nature of this discrimination and whether same/similar conditions prevail in the countries being discriminated between would apply here.

Admittedly, this two-tiered analysis under Art. XX is not universally accepted. Lorand Bartels, for instance, has argued that no distinction at all can be drawn between the conditions in the chapeau and the sub-paragraphs and that they should be applied together. The Appellate Body’s deviation from the test, however, does not go that far. In Indonesia – Import Licensing Regimes, the AB simply held that the chapeau and sub-paragraphs impose independent requirements and that evaluating a measure under the chapeau before doing so under a sub-paragraph was not erroneous. It did, however, observe that the sequential two-tier analysis remains the default approach, and did not require any deviation from this analysis. In the case of most COVID-19 related export bans, a failure to meet the necessity requirement under Art XX(b) itself is more likely than a violation of the chapeau’s conditions, since the bans tend to apply uniformly and not in a targeted, discriminatory fashion, as discussed above. This suggests that a deviation from the two-tiered analysis under Art XX is anyway unlikely to have a bearing on the ultimate outcome.

Conclusion

This survey of potential grounds on which a challenge to export bans, limits and other measures that violate Art XI:1 instituted in response to COVID-19 can be made does not provide certain answers on any particular measure. The WTO-consistency of each measure will be substantially affected by the products included in it and the circumstances prevalent in the Member taking the measure. This means that Members facing different levels of actual or projected COVID-19 outbreaks with varying population sizes, domestic medical equipment/drug manufacturing capacities, public health infrastructure and population demographics, among other indicators, may see different results when the tests demonstrated above are applied to their measures. In general, however, one can only hope that a sense of co-operation prevails and trade in essential supplies remains open enough to enable every country facing this public health crisis to ward it off as best possible to keep its citizens safe.