The WTO Panel Ruling on the National Security Exception: Has the Panel ‘Cut’ the Baby in Half?

Recently, media attention has been captured by the unravelling trade war between the declining western hegemon and the rising eastern mega-power with other discussions, such as the reform of the WTO dispute settlement system, reflecting the points of the growing divergence between the two.

Against this backdrop, the  Russia – Traffic in Transit (DS 512) dispute between Ukraine and the Russian Federation would not have attracted attention if not for one tiny detail: the Russian Federation invoked the national security exception contained in Art. XXI of the GATT. Pandora’s Box has been opened. The WTO panel found itself in a tricky situation. Amidst the severe crisis, which threatens the very existence of the WTO dispute settlement system, the panel entered murky legal terrain – adjudication of the trade measures related to national security. The national security clause had never been interpreted before – for good reason.

This post is an attempt to briefly reflect upon the panel’s ruling on the contentious issue of the national security exception. I begin by outlining the historical context of the recent transit dispute. The post then summarizes the legal claims brought by Ukraine and the justifications raised by the Russian Federation. Subsequently, the findings of the panel are discussed. The conclusion delves into the potential implications of the present decision.

In a number of the ongoing trade disputes, the parties have expressed their desire to rely upon the national security exception. The present ruling will be likely celebrated by the WTO Members that have brought legal claims against the additional steel and aluminium tariffs imposed by the United States (Section 232 tariffs). In a nutshell, if the panel’s ruling is not appealed, especially in the part pertinent to the objective review of the subparagraphs (i)-(iii) of Article XXI, then the United States national security justification in those disputes would not stand the scrutiny.

It appears, though, that the panel’s findings do not shed much light on how to resolve the unfolding trade conflict between Qatar, the United Arab Emirates and Saudi Arabia. (DS526, DS567 and DS576) The tension between these countries has a more political flavour and is not easily regarded a mere protectionism under the guise of national security.

The historical context of the recent transit dispute

The current military conflict between Ukraine and the Russian Federation has entailed far-reaching implications for their trade relations. Before the crisis, the Russian Federation was one of the main export markets for Ukrainian producers. A massive fall in the bilateral trade has occurred since 2013: in that one year, exports to the Russian Federation dropped from US$15.1 billion in 2013 to US$9.8 billion in 2014. (Secretariat report, p.15) This trend continues to dominate trade relations between the two countries. The decline in exports has been further augmented by the numerous trade-distortive measures (economic sanctions) imposed by the Russian Federation. (More about some of these restrictions here)

In light of the above, in 2016 the Ukrainian government initiated the dispute to question the WTO-consistency of the restrictions on the transit of the Ukrainian goods destined for Central Asia through the territory of the Russian Federation. 

Legal claims submitted by Ukraine

In essence, Ukraine contended that restrictions on traffic in transit by road and rail from Ukraine through the territory of the Russian Federation constitute a violation of Articles V and X of the GATT 1994 as well as the related commitments in Russia’s Accession Protocol. These restrictions included various measures imposed starting from 2014; a new wave of harsher hurdles came into being in 2016.

The arguments of the Russian Federation

The main thrust of the Russian argument was that transit restrictions are justified by the national security exception as necessary for the protection of its essential security interests. Art. XXI of the GATT provides that:

“Nothing in this Agreement shall be construed

…

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

(i)   relating to fissionable materials or the materials from which they are derived;

(ii)  relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment;

(iii)   taken in time of war or other emergency in international relations;”

According to Russian submission, the panel lacked the jurisdiction to review the matter and as a result, it was deprived of a right to engage in the substance of Ukraine’s claims. The Russian Federation argued that it did not have to provide any factual evidence in support of its invocation of the security exception. The United States echoed this view in its third-party submission, yet distinguished between the jurisdiction of the panel and the justiciability of the security clause. (More on this distinction here) To the contrary, Ukraine contended that the security clause is an affirmative defence, which does not alter the rules on the jurisdiction embedded in the GATT 1994 and the DSU.

The findings of the panel

• The WTO tribunals’ jurisdiction over the security exception

At the outset, the panel asserted that the invocation of the security clause is within its terms of reference. (Panel Report, para. 7.56) The panel assumed the jurisdiction to interpret the clause in order to define the exact scope of the review once the security exception is invoked. (Panel Report, para. 7.58) After interpreting the text of the security exception and analysing the negotiating history, the panel showed little sympathy for the argument that it lacks jurisdiction or that the matter is non-justiciable and rejected both claims. (Panel Report, para. 7.103)

• The ambit of the self-judging nature of the security clause

Both the Russian Federation and the United States strongly emphasized the self-judging nature of Art. XXI, which in their view, flows logically from the wording “which it considers”.

While there is much to quibble about when it comes to the self-judging nature of the security clause, the panel focused on a number of particular aspects:

• Whether the wording “which it considers” qualifies the requirements of the subparagraphs (i)-(iii). To put it differently, whether the prerequisite ‘taken in time of war or other emergency in international relations’ entails an objective or a subjective standard.
• Whether the wording “which it considers” entitles every WTO Member to define for itself what constitutes ‘essential security interests’?
• Whether the wording “which it considers” confers upon the WTO Member unfettered discretion to determine ‘necessity’ of the measure?

The panel favoured the view that subparagraphs (i)-(iii) call for an objective review, while a determination of the “necessity” of the measure and what constitutes “essential security interests” was left for the WTO Members.

More specifically, the panel concluded that the subparagraphs (i)-(iii) “operate as limitative qualifying clauses”, implying that they limit the discretion granted to the WTO Members. (Panel Report, para. 7.65) The panel thus confirmed that the “war” or “other emergency in international relations” as well as the prerequisite “taken in time of” are objective facts, amenable to objective determination. (Panel Report, paras. 7.70-7.71) This conclusion prevents the security clause from becoming the catch-all provision for the WTO Members that favour unverified unilateral determinations when the security exception applies.

The panel provided the definition of what might be considered as ‘essential security interests’ (Panel Report, para. 7.130), yet it left the final determination in the hands of the WTO Members. In the panel’s view: “The specific interests that are considered directly relevant to the protection of a state from such external or internal threats will depend on the particular situation and perceptions of the state in question, and can be expected to vary with changing circumstances.” (Panel Report, para. 7. 131) Despite this, such unfettered discretion is limited by the obligation of good faith. (Panel Report, paras. 7.132-7.134)

• Interpretation of the “other emergency in international relations”

The wording ‘other emergency in international relations’ appears to be extremely confusing insofar as the concept of ‘emergency’ is not firmly entrenched in international law. Thus, the ambit of this concept remained undefined. Consequently, this vacuum has been filled by the panel.

The panel pointed out that “political or economic differences between Members are not sufficient, of themselves, to constitute an emergency in international relations for purposes of subparagraph (iii)”. (Panel Report, para. 7.75) Following this line of reasoning, the panel defined an emergency in international relations as “a situation of armed conflict, or of latent armed conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state”. (Panel Report, para. 7.76) The panel summoned the ghosts of the past to bolster this finding, making ample reference to the negotiating history of the Article XXI.  

It is ironic that the panel quoted the delegate for the United States to buttress its conclusion on a narrow definition of “other emergency in international relations”, who back in 1947 elucidated as follows: “we thought it well to draft provisions which would take care of real essential security interests and, at the same time, so far as we could, to limit the exception so as to prevent the adoption of protection for maintaining industries under every conceivable circumstance.” (Panel Report, para. 7.92)

Drawing inferences from the UN General Assembly Resolutions as well as from the fact that a number of states imposed unilateral sanctions against the Russian Federation in connection with the situation in Ukraine, the panel concluded that the situation between the two countries constituted an emergency in international relations since 2014. (Panel Report, paras. 7.122-7.123)

Preliminary reflections on the panel’s ruling

Overall, the panel’s ruling is an attempt to balance the ambiguous national security exception with some sort of judicial review exercised by the WTO tribunals. One must admit that the panel has made laudable efforts to achieve this.

Despite the fact that the panel asserted its jurisdiction over the security clause, the order of analysis demonstrates that in the panel’s view it has extremely restricted discretion to review the security clause invocation. Only to review the following: whether there was “an emergency in international relations”, whether the measure “was taken at the time of” such emergency, whether there was good faith determination of “essential security interests” and whether the measure meets “a minimum requirement of plausibility” in relation to such security interests.

Furthermore, the order of the analysis was informed by the peculiarities of the parties’ submissions. More precisely, the Russian Federation argued that it is exempted from the need to engage in the discussion of the merits by the mere invocation of the security clause. The issue of the burden of proof has been masterfully hidden by the veil of this argument. The panel followed this line of reasoning.

One outcome is disturbing for me. I struggle to grasp why the respondent was excused from meeting its burden of proof to demonstrate at least some distant causal relation between the measure and the protection of its essential security interests. Here is the quote: “While Russia has not explicitly articulated the essential security interests that it considers the measures at issue are necessary to protect, it did refer to certain characteristics of the 2014 emergency that concern the security of the Ukraine-Russia border.” (Panel Report, para. 7.136)

The implication for the parties, the ongoing WTO disputes and the WTO

It is not a hollow victory for the Russian Federation. The country is notorious for leveraging trade wars against its neighbours to receive political concessions. (More on these trade wars here, pp. 398-406) For example, the military conflict with Georgia (known as the 5-day war in August 2008) occurred alongside numerous trade restrictions imposed on the imports of Georgian agricultural products, including wine, starting from late 2005. This decision supplies another arrow in the quiver to use such tactics.

The recent reports in the Ukrainian media on the outcome of the dispute triggered a massive wave of criticism against the international institutions for their chronic inability to constrain powerful states from imposing their will on others. This frustration may be shared by many countries that have powerful neighbours.   

Looking beyond the mere legal debate and the further implications for the disputes in the docket, one must admit that the ruling touches upon the meta-question. One obvious elephant in the room is the possibility of more powerful states to flex their economic muscle against less powerful states amidst political turmoil and be exempted by the national security exception. Yet this assertion opens a whole other can of worms.