The EU/US v. Russia Trade Wars: Revisiting GATT Article XXI and the International Law on Unilateral Economic Sanctions

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The EU, US, and Russia are far from reaching any détente in the economic warfare waged between some of the world’s economic powerhouses. On 11 September 2014, the US and EU announced a deepening of their current joint economic sanctions over Russian actions in the Ukraine, this time imposing sanctions targeting Russian banks and oil companies. The new EU September 12 sanctions exclude Russian banks from raising long-term loans in the EU, ban any exports of dual-use equipment for military use in Russia, ban future EU-Russia arms deals, and prohibit EU export of oil industry technology to Russia. The United States has also announced that it would likewise deepen and broaden sanctions against Russia’s financial, energy, and defense industries. In response, Russia announced a “full embargo” on food imports from the United States, the European Union, Canada, Australia, and Norway, which it subsequently expanded in September to include used cars, clothes, and consumer products, in retaliation for the latest round of EU and US sanctions. On 12 September 2014, Russian Economy Minister Aleksey Ulyukaev announced that the latest round of US and EU sanctions “provides grounds for appeal to the WTO..and [Russia] will appeal.”

Does Russia have a plausible case against the US and the EU at the WTO?

The latest EU sanctions against Russia come at a particularly difficult price, risking the EU’s relapse into recession, when Russia’s ban on food imports are estimated to cost the EU about $9 billion in lost production, or about 6% of EU production. Poland has asked the EU to take Russia to the WTO for its full embargo of EU food imports. Russian President Vladimir Putin maintains that Russia’s comprehensive import ban on US and EU food products are simply “prompted by the need to protect domestic agricultural producers” said to have been hard hit by the EU and US sanctions. On the other hand, the EU and US refer to Russia’s continuing breaches of international law in the Ukraine as the overriding basis for the imposition of sanctions, with EU President Herman Van Rompuy stressing that the EU sanctions package “is meant as a strong warning: illegal annexation of territory and deliberate destabilization of a neighbouring sovereign country cannot be accepted in 21st century Europe…”, and US President Obama declaring the new US sanctions “will continue to increase the cost on Russia and on those responsible for what is happening in Ukraine…[the United States is] imposing sanctions on specific individuals responsible for undermining the sovereignty, territorial integrity, and government of Ukraine… [including] sanctions on Russian officials — entities operating in the arms sector in Russia and individuals who provide material support to senior officials of the Russian government.”

The escalating trade wars between the US and EU against Russia bring to the forefront interrelated questions on the nature of self-judged security exceptions under international trade law, and the largely unsettled state of international law on unilateral economic sanctions [see Lori Damrosch, Enforcing International Law Through Non-Forcible Measures, Recueil de Cours: Collected Courses of the Hague Academy of International Law 269 (1997): 9-250]. The US and EU sanctions are unilateraleconomic sanctions, since they are not imposed pursuant to any UN Security Council resolution under Article 41 of the UN Charter (explicitly authorizing measures such as “complete or partial interruption of economic relations”). While the US and EU unilateral economic sanctions clearly “demonstrate the sanctioning country’s opinion of another’s policies” (see Andreas Lowenfeld, International Economic Law, 2d ed., p. 698), their international legality depends on their scope, the modalities of their implementation, and territorial (or extraterritorial) effects on the targeted State. Unilateral economic sanctions could potentially breach fundamental principles on non-intervention [UN Charter Article 2(7)]; the sovereign equality of States [UN Charter Article 2(1)]; the peaceful settlement of international disputes [UN Charter Article 2(3)]; and States’ good faith duties of international cooperation under the UN Charter and the UN Declaration on Principles of International Law Concerning Friendly Relations and Cooperation Among States (‘Friendly Relations Declaration’). Unilateral economic sanctions could also cause serious deprivations of the internationally protected economic, social and cultural rights of citizens of the targeted State. Other forms of unilateral sanctions (such as suspension of diplomatic relations with the targeted State), however, could permissibly fall within the domaine reserve and sovereign prerogatives of States (e.g. retorsions).

The legality of the US and EU sanctions could be anchored on both the general law of international responsibility as well as international trade law. To be deemed as permissible lawful countermeasures under Article 49 of the Articles of State Responsibility, the US and EU unilateral economic sanctions must be shown to be: 1) taken by the US and EU in their capacities as “injured States” in relation to Russia’s internationally wrongful acts in Ukraine; 2) proportional to the objective of inducing Russia to comply with its international obligations, and not imposed as punishment for wrongful conduct; 3) temporarily imposed on Russia while it fails to comply with its international obligations; and 4) taken in a way as to enable Russia to ultimately resume performing its obligations. In the Gabciko-Nagymaros Project, the International Court of Justice also required that the countermeasure be “reversible” [Gabcikovo-Nagymaros Project (Hungary v. Slovakia) Judgment, ICJ Reports 1997, at para. 87].

Considering Russia’s declared intent to sue the US and the EU at the World Trade Organization (WTO), however, more pertinent defenses for the US and EU could be drawn from GATT Article XXI, specifically paragraphs (b)(iii) and (c):

“Nothing in this Agreement shall be construed…

(b) to prevent any contracting party from taking any action that it considers necessary for the protection of its essential security interests… (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.”

GATT Article XXI forms one of the key provisions recognizing flexibilities for States in the international trading system, permitting ordinarily trade-restrictive measures for significant State policies such as national security. (See China-Rare Earths Panel Report, 26 March 2014, para. 7.137.) Among the exceptions enumerated within GATT Article XXI, paragraph (b) affords the most latitude to the State implementing measures necessary for its essential security interests. A State taking such measures under GATT Article XXI(b) does not need to give any prior or contemporaneous notice to the WTO or its members that it is taking such measures. Neither is the State required to provide evidence of its assessment of “essential security interests” to the satisfaction of the WTO or its Members, or to seek approval or subsequent ratification of the measures from the WTO or its members. The 1982 Decision Concerning Article XXI of the General Agreement provides that “contracting parties should be informed to the fullest extent possible of trade measures taken under GATT Article XXI”. The wording of the 1982 Decision leaves considerable discretion to the State taking measures under GATT Article XXI as to the manner, timing, and mode by which it chooses to inform GATT Contracting Parties of the trade-restrictive measures. Both the EU and US have invoked GATT Article XXI in the past, with the then GATT Council refraining from any substantial review over the assertion of GATT Article XXI, from the the European Economic Community ban on imports from Argentina in 1982 at the height of the Falklands/Malvinas conflict; the US import ban against all Nicaraguan goods and services in 1985; to the European Community trade measures against Yugoslavia in 1991.

Lacking explicit Security Council authorization for their economic sanctions, the US and EU would be hard pressed to apply GATT Article XXI(c) to show that their sanctions were taken “in pursuance of obligations under the United Nations Charter for the maintenance of international peace and security.” While there is as yet no jurisprudence from the WTO Appellate Body and dispute settlement panels interpreting GATT Article XXI(c), the few instances of State practice where this provision have been invoked all involved the implementation of UN-authorized sanctions (e.g. Iraq, Fiji, Serbia, and Montenegro). The fact that the UN Security Council has expectedly not reached a vote on the crisis in Ukraine and the acts of UN SC Permanent Member Russia should not debar the applicability of GATT Article XX(c), which does not expressly or exclusively refer to Security Council- authorized actions. An argument could be made that the US and EU sanctions against Russia were taken as an internationally permissible countermeasure against Russia’s continuing failure to observe UN General Assembly Resolution 68/262 (“Territorial integrity of Ukraine”, 27 March 2014), which “calls upon all States to desist and refrain from actions aimed at the partial or total disruption of the national unity and integrity of Ukraine, including any attempts to modify Ukraine’s borders through threat or use of force or other unlawful means” (para. 1).

A Russian suit against the US and EU sanctions at the WTO would not likely prosper given the availability of broad defenses under GATT Article XXI, as well as the law of permissible countermeasures under Article 49 of the Articles of State Responsibility. Perhaps already anticipating the availability of the broad GATT Article XXI defense to Russia, the US and the EU have not taken the same route of bringing to the WTO its own challenges against the Russian import bans. (Earlier in this year, however, the EU already initiated consultation proceedings in regard to a Russian pork import ban issued in January 2014, challenging the proportionality of this particular import ban.) The coming days should reveal whether Russia maintains its resolve to bring the US and EU sanctions to the WTO.


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Martins Paparinskis says

September 23, 2014

I do not want to query with your suggested interpretation of primary obligations in GATT Article XXI – the pre-WTO (non-)practice can be given different weight, and reasonable people may disagree about the depth and breadth that self-judgment reaches in this rule. But there are two additional points regarding countermeasures as a circumstance precluding wrongfulness that might be relevant. (1) The nature of EU/US sanctions. To the extent that wrongful acts, rather than retorsions, are involved, one should probably view them through the lenses of third-party countermeasures, rather than injured-party countermeasures, raising therefore somewhat different questions (starting with, obviously, whether lex lata has moved beyond the saving clauses of Article 54 of the 2001 ILC Articles and Article 57 of 2011 DARIO to permit such countermeasures). (2) Whether a WTO Contracting Party can preclude wrongfulness of a breach of a WTO obligation by characterising it as a countermeasure to implement responsibility for the breach of a non-WTO obligation. The Mexico-Soft Drinks Appellate Body leaves the question open (dealing with countermeasures as an element of the primary rule of GATT Article XX(d), rather than a circumstance precluding wrongfulness under secondary rules in its own right), and one could imagine arguments on both sides. Just to be clear, this comment is not directed at your particular thesis, which may well be justified, but at the necessity of ticking off the third-party and lex specialis boxes before a conclusion re countermeasures is reached.

Diane Desierto says

October 7, 2014

Many thanks for the clarifying comments Martins. The main defenses in a WTO proceeding would obviously be the lex specialis norms [e.g. GATT Article XXI(c) and XXI(b)(iii)]. Countermeasures as a potential justification would at best be merely additional or supplementary to the lex specials defenses, recognizing that the WTO Appellate Body has recognized and applied general international law when not contradictory to or displaced by the DSU. [See US-Gasoline, 1996, p 17 ("GATT [is not to be read] isolation from public international law"); Korea-Measures Affecting Government Procurement, 2000, para. 7.96 ("[customary] international law...applies to the extent that the WTO agreements do not 'contract out' from it.")].

However, I stop short of strictly characterizing the US/EU sanctions as third-party countermeasures, precisely because the ILC purposely left this situation for future development, omitted from the plain text of Article 49 of the Draft Articles of State Responsibility or Article 51 of the Draft Articles of Responsibility of International Organizations. The legal status of third-party countermeasures remains an open question given equivocal state practice to date. If Article 49 ASR were to be applied, the nexus with 'injury' would, at best, be evidenced by UNGA Resolution 68/262.

Dimitrios A Kourtis says

October 7, 2014

Dear Dianne: I just want to thank you for your learned and lucid analysis, epitomizing the main legal issues under Art. XXI and the whole problematic on counter-measures. Hoping to read more from you on the topic! Once more, congratulations!