Protean ‘National Security’ in Global Trade Wars, Investment Walls, and Regulatory Controls: Can ‘National Security’ Ever Be Unreviewable in International Economic Law?

National security seems to be the protean norm du jour in international economic law these days.  On 23 March 2018, the United States’ Trump Administration imposed a 25% tariff against around US$60 billion of imports from China, 15 days after the United States imposed tariffs on imports of steel and aluminum (25% on steel imports, and 10% on aluminum imports) from around the world.  US President Trump accused China of “economic aggression”, and is leaving the door open for negotiations with all States to force them to take measures to eliminate the United States’ “$800 billion trade deficit with the world”.  Chinese President (for life) Xi Jinping’s administration subsequently announced preliminary retaliatory tariffs against over $3 Billion in American products such as apples, steel, and pork, even as US Treasury Secretary Steve Mnuchin stated that the tariff wars are part of the United States’ negotiation strategy with China. (Both sides are reported to be quietly negotiating, even amid the climate of mutually announced tariffs. China has started making concessions, such as relaxing its foreign investment rules and expanding imports of US semiconductors.)  Even as World Trade Organization (WTO) Director General Roberto Azevedo cautioned against the impact of such a trade war on the global economy, the WTO did not deny that under GATT Article XXI(b)(iii) (Security Exceptions), the United States could 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.”  President Trump’s two presidential proclamations declaring tariffs against aluminum imports and steel imports heavily refer to the impairment of the United States’ national security interests as the basis for imposing tariffs.  The United States provisionally exempted NAFTA partners Canada and Mexico from the steel and aluminum tariffs, using the bludgeoning effect of threatened tariffs in the pending NAFTA renegotiations.  Last weekend, South Korea acceded to the United States’ demands to revise their KORUS Free Trade Agreement, which US President Trump is now tying to the outcome of its forthcoming summit with Kim Jong Un of North Korea. Trade is now more deliberately leveraged as a national security issue.

Significantly, no State in the international community seriously challenges that the security exception in GATT Article XXI is a self-judged matter that takes a governmental measure out of the ambit of WTO law. (Qatar’s pending complaint against the United Arab Emirates (UAE) at the World Trade Organization – previously featured here – seeks review of any Member’s assertion of national security under GATT Article XXI, but it appears other Members such as the United States have taken the opposing view that “national security issues are political and not appropriate for the WTO dispute system.”)  Even the European Union, which threatened tariffs against the United States if it was not exempted from the US tariffs on steel and aluminum (it eventually got the exemption for all EU Members), did not challenge the factual basis behind the United States’ use of the national security justification in its presidential proclamations on tariffs against steel and aluminum imports.  The United States had invoked, as its factual basis for invoking national security, the supposed “weakening of (its) internal economy, leaving the United States almost totally reliant on foreign producers…that is essential for key military and commercial systems”.  Considering that President Trump had just boasted about the tremendous strength and independence of the United States economy at the World Economic Forum in January 2018, it was baffling that the United States made this seeming volte face to invoke GATT Article XXI.  The Trump administration has also invoked the President’s self-judged discretion to decide when national security is impaired in the case of foreign investment into the United States, most recently to block Singaporean company Broadcom’s US$117 billion takeover of Qualcomm, thereby increasing the number of blocked proposed acquisitions of United States businesses (by countries such as Germany, China, and Singapore) on national security grounds. 

And yet, it is not only the United States that has resorted to national security reasons in the past year for retaliatory trade measures, investment restrictions, and other international economic measures.  The European Commission anchors its new proposal to tax digital business activities; the forthcoming implementation of the General Data Protection Regulation (GDPR) (ensuring data privacy and protection rules applicable to all companies processing data of EU nationals, whether located in the EU or elsewhere); as well as the recently opened investigation of the massive data leak from Facebook and Cambridge Analytica, ultimately on the Commission’s many concerns about EU Members’ regional, national, and economic security.  China has set up its own national security review of foreign investments into China, mirrored by Australia’s recently strengthened national security review of foreign investments (China-sourced or otherwise) into critical infrastructure.  India and Sri Lanka have also raised national security concerns over China’s One Belt, One Road (OBOR) program.  Nigeria demurred from joining the recently-launched 44-member African Continental Free Trade Area, citing economic and security implications of the agreement.

Such muscular and frequent assertions of ‘national security’ as justifications for international economic measures does bring to the forefront the timeless debate on whether international courts and tribunals can review a State’s assertion of ‘national security’.  In this post, I maintain my key argument in 2012 that modern international law still does not subscribe to the classical view of ‘national security’ as a Schmittian exception – e.g. one that takes a measure justified by national security outside of the purview of any law – but instead continues to regulate the safety-valve functions of national security or national emergency clauses as exceptions, to the point that the mere assertion of national security cannot completely take out an economic measure from the purview of international economic regulations either.  Whether a State invokes ‘national security’ to impose or threaten measures for bargaining leverage in negotiations or to force reductions of trade deficits; or to impose new economic regulations, review, or restrictions against foreign businesses – the current framework of international law and international economic law has at least developed to the point that there will be some review of a State’s asserted national security justification, even if it is only for international tribunals to preliminarily decide whether they have jurisdiction over the disputes before them.  I refer to dispute settlement under the WTO, foreign investment arbitral tribunals, international investment court proposals such as China’s investment court for OBOR projects and the EU’s multilateral investment court, as well as traditional court adjudication under the International Court of Justice.

Security Exceptions in WTO

The drafters of GATT Article XXI were conscious that while States solely judge their essential security interests, they should also be cautious against undermining the entirety of GATT altogether.  This need for balance has always been central to the usages of GATT Article XXI, as recounted by the drafters of GATT Article XXI with respect to documented practices on the 1970 Arab League boycott against Israel; the 1975 Swedish global import quota system for footwear and its subsequent termination by Sweden; the April 1982 suspension of imports of Argentine products by the European Economic Community, Canada, and Australia; the May 1985 United States prohibition against all Nicaraguan imports and all exports to Nicaragua; and the the 1991 European Community trade measures against Yugoslavia. (Analytical Index of GATT, pp. 602-604).  At the very least, there has never been a consensus (hard or otherwise) among WTO Members that GATT Article XXI operates to completely remove a challenged measure from the WTO system, although the United States has often taken this position.  As the Chairman of the commission that drafted GATT Article XXI stressed, it is the spirit in which the Members interpret GATT Article XXI that would ultimately guarantee against pretextual security measures that actually have commercial purposes.  (Analytical Index of GATT, p. 600).  The landmark fact that the WTO is now constituting the panel in the Qatar complaint versus the United Arab Emirates – where the GATT Article XXI defense has been raised – at least shows that a panel will make a threshold determination as to whether or not any Member’s insistence that a challenged measure is justified under GATT Article XXI ultimately deprives all WTO panels of any jurisdiction over a dispute.  That in itself is a far cry from a Schmittian interpretation of GATT Article XXI, where a Member can (supposedly) automatically insulate a measure from any challenge whatsoever through its self-judged assertion of GATT Article XXI(b)(iii).

Foreign Investment Arbitral Tribunals

Investment treaty arbitration tribunals likewise overwhelmingly reject the notion that a State’s invocation of national security or national emergency ipso facto deprives any arbitral tribunal of jurisdiction, much less any assertion that the national security or national emergency defense is unreviewable. The widespread use of national security clauses in international investment agreements, as the United Nations Conference on Trade and Development (UNCTAD) concluded in its 2009 report, suggests that: “Whatever policy a country adopts, it is important that the goal of preserving the sovereign right of each country to adopt any kind of measures it considers appropriate to respond to economic crisis and to protect its strategic industries does not come at the price of having a discouraging effect on foreign investors and undermining the attractiveness of the country as a foreign investment location.” (p. 137)  Very few investment tribunals (such as in the award in Continental Casualty v. Argentina, or to a certain extent, the annulment decision in Sempra v. Argentina which ultimately found that the tribunal acted in manifest excess of powers by wholly failing to apply the ‘essential security interests’ provision in the investment treaty), have been willing to interpret ‘essential security interests’ clauses in investment treaties in a manner that causes the complete non-applicability of the investment treaty itself the moment that a State asserts its ‘essential security interests’.  At the very least, the investor-state arbitral jurisprudence consistently shows that tribunals will exercise jurisdiction to admit some review of such national security clauses or defenses invoked by host States. [See also pp. 273-300 in Mary E. Footer, Julia Schmidt, Nigel D. White, and Lydia Davies-Bright (eds.) Security and International Law, Hart Publishing 2016.] Thus, while parties can verily dispute whether the circumstances do involve the contemplated ‘essential security interest’ provisions in investment treaties (and what qualifies as national security or an essential security interest), there is no dispute whatsoever that a tribunal indeed has the competence to determine the threshold applicability of such investment treaty provisions on national security to claims against host States. 

New Proposals for Investment Courts in the EU and China

Details are scarce thus far on the proposed EU multilateral investment court or China’s recently announced three international courts in Beijing, Xi’an, and Shenzhen for One Belt, One Road (OBOR) disputes.  What appears clear from preliminary reports (see here and here) on these permanent investment courts is that they are intended to exercise exclusive jurisdiction over all investment disputes, with the goal of ultimately displacing investor-State arbitration.  It has been said thus far that investment treaties may form part of the applicable law before these courts, which would, in many instances, likewise involve ‘essential security interests’ provisions in these treaties.  Arguably, it would be highly unlikely that these international courts – which are supposed to displace investor-State arbitration – would immediately decline jurisdiction when a State declares ‘national security’ .  Otherwise, the wide and exclusive jurisdiction purportedly to be vested in these international courts to resolve investment disputes would be easily defeated, if these courts were to accept such a Schmittian interpretation of national security or ‘essential security interests’ clauses that would – as if by magical incantation – automatically shield these States from the courts’ jurisdiction the moment ‘national security’ is declared.

Adjudication at the International Court of Justice

Finally, one only has to recall the landmark cases where the International Court of Justice has robustly reviewed ‘essential security interests’ provisions in treaties to determine the legality of the State’s use of such provisions, to see that the Court has thus far never proclaimed the existence of an unreviewable ‘Schmittian exception’ under international law.  In Case Concerning Oil Platforms (Judgment of 6 November 2003), the Court explicitly reviewed the United States’ assertion of essential security interests, even determining on both facts and the applicable law that: