Could Russia again invoke its “essential security interests” in relation to the war in Ukraine?

I. Introduction

Most recently, it seems that Russia will not initiate its withdrawal from the WTO, and has many investment treaties that are still in force. At present, there is still a possibility that investors may seek to bring claims under these investment treaties in relation to the measures taken by Russia arising out of its invasion of Ukraine to nationalise foreign firms and attempts to annex areas of Ukraine. History seems to be on course to repeat itself – given that previously, a wave of 10 known ISDS claims were brought arising out of Russia’s annexation of Crimea in 2014.  

In light of the continued existence of Russia’s obligations under these instruments, the goal of this piece is to analyse a well-rehearsed Russian defence, namely its “essential security interests” in the context of war or other emergency in international relations, and consider its application in relation to future WTO and investor-state claims. To begin with, this author sets out Russia’s previous success in claiming “essential security interests” before the WTO (see section II). Then, the analysis turns to two broader questions that warrant deeper consideration from the international community, namely whether a State (such as Russia) that itself causes the circumstances of a war or an emergency in international relations can invoke the protection of “essential security interests” (see section III), and the implications and future possibilities of the WTO decision (see section IV).

II. Russia’s previous success with “essential security interests” before the WTO 

In 2019, Russia successfully invoked its “essential security interests” against Ukraine before the WTO in Measures Concerning Traffic in Transit. In summary, Russia had imposed travel restrictions across the Ukraine-Russia border for traffic destined for Kazakhstan and the Kyrgyz Republic. When challenged by Ukraine before the WTO Panel, Russia sought to invoke Article XXI(b)(iii) of the 1994 General Agreement on Tariffs and Trade (“GATT”), a security exceptions clause which allows a WTO member to take any action “which it considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations”. In essence, the case can be distilled down to Russia’s invocation of an “emergency in international relations”(i.e. its annexation of Crimea) to escape its trade obligations.

The Panel decision is of interest. Mainly focusing on the interpretation of the security exceptions clause, the Panel disagreed with Russia that the entire clause was self-judging. While the Panel agreed that the content of “essential security interests” and the “necessity” of measures were self-judging, it adopted a hybrid approach and introduced control elements to prevent abuse: first, the Panel would apply an objective test to determine whether the factual circumstances of “an emergency in international relations” existed, and whether the measures were taken to address the “emergency” (Panel Report, paras 7.71, 7.77); and second, a Member must interpret and apply the clause in good faith, which in practice meant that the Member had to specify its essential security interests arising from the “emergency in international relations” and show that its acts were “plausibly” linked to the interests threatened (Panel Report, paras 7.132-7.133, 7.138-7.139).

Applying the test, the Panel considered that Russia had sufficiently identified the “emergency”, notwithstanding its restraint from directly relying on its annexation of Crimea, referring mainly to an analogy to a “hypothetical situation” (Panel Report, para 7115, 7.118). The Panel also objectively determined that Russia’s annexation of Crimea qualified as an “emergency in international relations” (Panel Report, paras 7.5, 7.121). Moreover, as there was an “emergency”, Russia was free to determine the content of its essential security interests and take measures to protect its interests (Panel Report, paras 7.123-7.126), albeit subject to the Panel’s review on good faith and plausibility. The Panel ultimately concluded that Russia’s travel restrictions were “plausibly” linked to the protection of its essential security interests (Panel Report, para 7.145).

The decision is interesting particularly because the Panel had emphasised that the clause was not open to abuse given the objective and control elements. However, the test has proven to be a very low threshold in practice for three reasons. First, the Panel’s objective inquiry into factual circumstances did not look past the existence of the “emergency” and at the issues of state responsibility and wrongfulness, which it stated was for other international fora to determine (Panel Report, para 7.5). Second, the content of “good faith” and “plausibility” were similarly set at a very low standard. It is important to recall that even though Russia had deliberately avoided referring to the annexation of Crimea, the Panel considered that Russia had sufficiently identified the “emergency” – there was no breach of good faith. In addition, “plausibility” was held to mean not so “remote from, or unrelated to” the “emergency” (Panel Report, paras 7.139, 7.145). Third, the obligation of “good faith” was limited to the interpretation and application of the security exception applying Articles 31(1) and 26 of the Vienna Convention on the Law of Treaties (“VCLT”) (Panel Report, paras 7.132-7.133, 7.1380). The Panel did not consider whether there was room to apply the doctrine of “good faith” outside of the VCLT, and specifically, whether Russia acted in “good faith” by invoking the factual circumstances which it had created.

III. Whether a State that itself causes a war or an emergency in international relations should be able to invoke the protection of “essential security interests”

Given the Panel’s reasoning, Concerning Traffic in Transit currently appears to support the proposition that a State such as Russia, which itself causes “a war or an emergency in international relations” may invoke the protection of “essential security interests”. The author argues that this has led to a perverse outcome in which Russia was able to rely on its annexation of Ukraine as a factual circumstance to excuse breaches of its trade obligations to Ukraine under the GATT. Given the factual similarities between Russia’s annexation of Crimea and its invasion of Ukraine, Russia might rehearse the same defence when faced with future claims. This is an issue which warrants further thinking and analysis from the international community, particularly in relation to the proper role of good faith and the appropriate level of review in such situations.

The role and challenges for good faith

Going back to the Panel’s decision, this could be read as adopting a thin strand of “good faith”, limited the interpretation and application of the security exceptions as rooted in Articles 28 and 31 of the VCLT. This is also broadly in line with the views of most third parties that expressed a position on the content of “good faith” which referred to “interpreting” and “applying” the GATT (see EU’s position at Panel Report, para 7.43; Moldova’s position at Panel Report, para 7.46; Singapore’s position at Panel Report, para 7.49). However, as alluded, there is the possibility for a thick strand of good faith to apply, i.e. whether a Member has itself invoked the security exceptions clause in good faith (see China’s position at Panel Report, para 7.41). This could welcome an inquiry into whether Russia’s invocation of the security exceptions clause would itself be in good faith, given its role in the annexation of Ukraine.

The thick strand of “good faith” could encompass the inquiry of whether a State has exercised its rights in good faith, and akin to the broader doctrine of abuse of rights (Bin Cheng, General Principles of Law, p 121). Moldova and Singapore had also referred to the doctrine in their submissions (see Moldova’s position at the Panel Report Addendum, p 96; Singapore’s position at the Panel Report Addendum, p 101). There is also some support in the WTO Appellate Body decision in Shrimp-Turtle referring to the abuse of rights as an application of the principle of good faith, which was built into the General Exceptions clause at Article XX of the GATT (WTO Appellate Body Report, para 158).

The doctrine of abuse of rights has rarely succeeded before international fora, and Ukraine did not plead this before the WTO Panel. However, even if it had, Ukraine could have faced the following hurdles. First, as the International Court of Justice noted, there have been many unsuccessful petitions involving “abuse of rights” for “want of sufficient proof” (Immunities and Criminal Proceedings (Equatorial Guinea v France) Preliminary Objections, para 147). While the Court has never articulated the standard of proof, this has always been a high bar in practice (see requirement of “exceptional circumstances” in the Separate Opinion of Judge Sebutinde in Immunities and Criminal Proceedings, para 34). In this context, there would likely be complex factual issues of causation and remoteness, specifically whether Russia’s annexation of Crimea was so interlinked with its subsequent trade restrictions imposed against Ukraine such that Russia should not be allowed to rely on the exceptions. Second, and a more challenging jurisprudential question, an argument on “abuse of rights” presumes that Russia has a right to which it is entitled and which it has then exercised in a capricious manner (Dissenting Opinion of Judge Read in Nottebohm, p 37). Given the structure of Article XXI as an “exceptions” clause (“nothing in this Agreement shall be construed to prevent any contracting party from taking any action […]”), it is questionable whether this exception confers any rights to Russia, which its exercise could then qualify as an abuse of rights. While the WTO Appellate Body in Shrimp-Turtle recognised that the doctrine of abuse of rights was embedded in the chapeau of the General Exceptions clause, it did not go on to consider whether the structure of an exceptions clause was compatible with an abuse of rights doctrine  (WTO Appellate Body Report, paras 157-158). The final outcome of that case also turned on the United States’ arbitrary and discriminatory application of its measures (WTO Appellate Body Report, para 186). Hence, there is no direct case on point on whether the abuse of rights doctrine would prevent a State from relying on the factual circumstances that it created under an exceptions clause.

Other possibilities in terms of the level of review

Apart from abuse of rights, it is worthy to highlight the jurisprudence in investor-state disputes which suggest more openness to a substantive review than the WTO Panel. Arbitral tribunals in LG&E, Continental Casualty, and Enron v Argentina had previously considered Argentina’s invocation of the exceptions clause under the Argentina-US BIT in the context of its economic crisis. According to the LG&E tribunal, there had to be a more substantive standard of review, including examining considerations of wrongdoing when deciding whether a state is entitled to invoke the protection of an exceptions clause. This was motivated “by logic” such that if “there [was] fault by the State, the exception disappears, since in such case the causal relationship between the State’s act and the damage caused is produced” (LG&E, para 256). Similarly, the Enron tribunal also considered that its judicial control had to “be a substantive one” and was not limited to whether the exception was invoked in good faith (Enron, para 339).

IV. Future possibilities

As mentioned in the beginning, the last goal of this piece is to consider future possibilities for Russia or other states to invoke “essential security interests”. It is this author’s view that the decision of the WTO could have repercussions on other investor-state claims. A quick survey shows many investment agreements which contain similarly worded security exception clauses, see Article 2102(1)(b)(i) of the NAFTA, Article 18 of the 2012 US Model BIT, Article 18 of the China-Japan-Korea 2012 Trilateral Investment Agreement, Article 18 of the 2014 ASEAN Comprehensive Investment Agreement, and Article 61 of the 2016 Russian Model BIT (not adopted for any Russian BITs in force).

While the WTO has often been referred to as a self-contained regime, investor-state arbitral tribunals have referred to WTO jurisprudence when appropriate. At this point, it is useful to turn to the third award in Continental Casualty which referred to the WTO jurisprudence in assessing the exception clause under the Argentina-US BIT. Of note, the Tribunal considered that because the Argentina-US BIT and Article XX of GATT (general exceptions) were formulated with the US Friendship, Commerce and Navigation treaties in mind, it was more appropriate to refer to WTO case law over the customary international test on necessity which the LG&E and Enron tribunals had adopted (Continental Casualty, para 192). While the Tribunal did not elaborate on which VCLT tool it was using to introduce WTO jurisprudence, it had already ruled out any reliance on subsequent agreement (Article 31(3)(a)), subsequent practice (Article 31(3)(b)), special meaning (Article 31(4)) under the VCLT (Continental Casualty, footnote 277), having held that the necessary communication from the US to Argentina on its interpretation of the BIT did not exist. The more plausible readings would be that the Tribunal (a) resorted to the supplementary means of interpretation under Article 32 of the VCLT, specifically the circumstances surrounding the BIT’s conclusion; or (b) was motivated by a wider desire to maintain jurisprudence constante given “extensive” GATT and WTO case law  (Continental Casualty, para 192).

At the current stage, it is therefore possible for WTO jurisprudence on the security exceptions clause to also be relied upon in other fora. However, it seems that mere similarity of the texts is not enough, and a state would also need to show either (a) communication to other contracting parties for the purposes of relying on Article 31(1)(a), 31(1)(b) or 31(4) of the VCLT; (b) “circumstances surrounding” the conclusion of the instrument under Article 32 of the VCLT; or (c) strong reasons for jurisprudence constante between the investor-state and WTO contexts.

Measures Concerning Traffic in Transit continues to bring up novel questions, and it would be interesting to see how the international judicial community resolves these questions in light of today’s context.