US – Origin Marking Requirement: Did the WTO Panel Get the Balance Right between Trade Security and National Security?

On 21 December 2022, the WTO Dispute Settlement Panel ruled against the United States (US) on the product labeling requirement for all goods from Hong Kong to be marked “China” as their country of origin. This requirement came from the executive order that then US President Donald Trump signed on 14 July 2020 by suspending the application Section 201(a) of the United States-Hong Kong Policy Act of 1992 (which affirmed the continued application of US laws with respect to Hong Kong) to the customs statute (19 USC §1304), among other things. The product labeling requirement was adopted in response to China’s decision to undermine Hong Kong’s autonomy by enacting the National Security Law. In light of this development, the US Government formed the view that Hong Kong was no longer sufficiently autonomous to justify different treatment from the People’s Republic of China.

The Panel found that the US origin marking requirement was discriminatory against Hong Kong in breach of Article I:1 of the GATT 1994, Articles 2(c) and 2(d) of the Agreement on Rules of Origin, and Article 2.1 of the Agreement on Technical Barriers to Trade. In so doing, the Panel dismissed the US argument that the origin marking requirement was justified for national security reasons pursuant to Article XXI(b) of the GATT 1994. Contrary to the US view that this clause is “self-judging” in nature, the Panel considered it capable of objective determination. On that basis, the Panel concluded that the US failed to demonstrate that the situation at issue constituted an emergency in international relations and, therefore, the origin marking requirement was not justified under Article XXI(b).

This ruling is significant due to the extensive reasoning the Panel developed to settle the interpretive dispute over the “self-judging” clause. As such, it could have wider repercussions on the interpretation and application of “self-judging” clauses found elsewhere in various treaties beyond the multilateral trade regime. However, the Office of the US Trade Representative has rejected the Panel’s report due to ‘the flawed interpretation and conclusions’, adding that this ruling ‘underscores the need for fundamental WTO reform’.

This post offers my assessment of the ruling, drawing on the decade-long work I completed on the concept of security in international law, recently published by West Point Press as an open access monograph. In my view, the interpretive approach developed by the Panel is indeed flawed and is even inconsistent with the reasoning adopted in previous cases. My assessment is limited to key aspects of the ruling in relation to Article XXI(b) of the GATT 1994 and, as such, it does not address other interpretive issues regarding the origin marking requirement.

The “Self-Judging” Clause

At the core of this dispute is the jurisdictional clause in Article XXI(b) of the GATT 1994; in particular, the use of discretionary language (‘it considers’) in it. The relevant part of the text reads:

Nothing in this Agreement shall be construed

(a)…

(b) to prevent any Member 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 of 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; or

(c)…

The interpretive dispute involving this clause is, in essence, whether the entire clause is self-judging and does not allow the Panel to assess the legality of its application by a State. Discretionary elements are arguably limited to the choice of trade-restrictive action that may be taken for the protection of essential security interests but do not extend to the assessment of whether the requisite conditions precedent to such action as enumerated in sub-paragraphs (i)-(iii) are satisfied.  

The Panel adopted the latter position by segregating the sub-paragraphs from the chapeau for grammatical reasons. According to the ruling, there are grammatical difficulties in linking the third sub-paragraph beginning with ‘taken’ to the phrase ‘considers necessary’; instead, reading it as relating to the word ‘action’ is grammatically sound (paras 7.36-7.69). The Panel tested this reading of the grammatical structure in three official language versions of the clause (paras 7.70-7.87).

There is no surprise in this finding. Indeed, it is the position that the Panel has consistently adopted in recent cases: Russia – Measures Concerning Traffic in Transit (para. 7.65), Saudi Arabia – Measures Concerning the Protection of Intellectual Property Rights (para 7.247), and United States – Certain Measures on Steel and Aluminium Products (Complaints by China at paras 7.111-7.113; Complaints by Norway at paras 7.99-7.101; Complaints by Switzerland at paras 7.129-7.131; Complaints by Turkey at paras 7.126-7.128).

There is a nuanced difference in the interpretive approach, however. In the previous cases, the Panel examined different interpretive elements in accordance with the general rule of treaty interpretation, as provided for in Articles 31 and 32 of the Vienna Convention on the Law of Treaties, and considered all these elements in a single combined operation – the standard approach that has been widely adopted (for example, China – Publications and Audiovisual Products at para 399; Golder v United Kingdom at para 30). In Russia – Traffic in Transit, the Panel indeed considered the general object and purpose of the WTO Agreement to promote the security and predictability of the multilateral trading system, stating that interpreting the clause as an ‘outright potestative condition’ would be entirely contrary to that object and purpose (para 7.79). This Panel also reviewed the negotiating history of the Agreement to confirm its interpretation of the clause (paras 7.83-7.100). This holistic approach has also led many scholars to similar conclusions (for example, Schlowmann and Ohlhoff at 430-49; Hahn at 587-597).

In contrast, the Panel in US – Origin Marking Requirement relies heavily on the grammatical construction of the clause, dismissing the need to test that reading against the context and the object and purpose of the treaty (para 7.90). The Panel’s assessment of the context of the clause and its object and purpose is limited to identifying anything that runs contrary to the grammatical construction of the provision discerned by the Panel (paras 7.112, 7.136, 7.150). The Panel also gives little consideration to State practice that has exempted trade-restrictive measures on national security grounds from review under the dispute settlement procedure (for example, US export control against Czechoslovakia, trade restrictions imposed on Argentina by the European Communities, Australia, and Canada, and US trade embargo against Nicaragua; see Alford at 706-25 for details). The Panel dismissed it only ‘bear[ing] on the application of Article XXI to the facts of that case, not on the nature of the provision’ (para 7.158). Curiously, this issue appears to be discussed in relation to a subsequent agreement in the sense of Article 31(3)(a) of the Vienna Convention on the Law of Treaties, rather than as a subsequent practice in the sense of Article 31(3)(b).

The Panel provides little support for this interpretive approach, with only one footnote reference to the International Law Commission’s drafting records of the Vienna Convention (fn 130). But the quoted text relates to the primacy of the treaty text as the authentic expression of the parties’ intentions, not the primacy of literal analysis over context or object and purpose. The Panel’s interpretive approach may nonetheless find support (although not cited in its ruling) in the Competence of the General Assembly advisory opinion, in which the International Court of Justice noted that:

the first duty of a tribunal which is called upon to interpret and apply the provisions of a treaty, is to endeavor to give effect to them in their natural and ordinary meaning in the context in which they occur. If the relevant words in their natural and ordinary meaning make sense in their context, that is an end of the matter. If, on the other hand, the words in their natural and ordinary meaning are ambiguous or lead to an unreasonable result, then, and then only, must the Court, by resort to other methods of interpretation, seek to ascertain what the parties really did mean when they used these words (p. 8).

The Court quoted this text in Guinea-Bissau v. Senegal as a statement of the principles reflected in Articles 31 and 32 of the Vienna Convention and as codified under customary international law (para 48).

Despite this nuanced difference in the interpretive approach, the Panel reached the same conclusion as the previous cases – Article XXI of the GATT 1994 is not entirely self-judging. However, the literal approach adopted by the Panel has a follow-on impact on the interpretation of the clause.

First, the Panel failed to challenge the self-judging nature of the chapeau by focusing on its segregation from the sub-paragraphs. Indeed, the Panel appears to have accepted that what the State considers necessary to protect its essential security interests is subject to unilateral determination (para 7.60). This concession overturns the previously established position that the State’s discretion to designate particular concerns as essential security interests is limited by its obligation to interpret and apply this clause in good faith (Russia – Traffic in Transit at paras 7.132-7.134; Saudi Arabia – Intellectual Property Rights at para 7.250).

Second, the segregation of the chapeau from the sub-paragraphs does not necessarily mean that it leaves no discretion for States to determine what constitutes an emergency in international relations. It is conceivable, as discussed below, to interpret the provision as leaving a margin of appreciation when it comes to assessing a situation even in the absence of discretionary language such as ‘it considers’.

The Meaning of ‘Emergency in International Relations’

In an attempt to make an objective determination, the Panel proceeds to examine the meaning of ‘emergency in international relations’ and what situations may qualify as such. Here again, the Panel relies heavily on a literal approach by defining emergency as ‘a state of affairs that occurs in relations between states or participants in international relations that is of the utmost gravity, in effect, a situation representing a breakdown or near-breakdown in those relations’ (para 7.290).

Based on this literal interpretation, the Panel defines the term restrictively by requiring that the gravity and magnitude of tension be comparable to a war in terms of its adverse impact on international relations (para 7.297), while conceding that the situation does not need to involve defense and military interests (para 7.301). Accordingly, the Panel concludes that the situation confronting the US in relation to Hong Kong failed to meet the requisite level of gravity to constitute an emergency in international relations, given the continuing trade relation between the two parties (para 7.354).

With this restrictive approach, the Panel leaves no discretion for States to make their assessment as to whether an emergency in international relations exists, even though some third parties such as Canada and the European Union shared the same assessment as the US (paras 7.319, 7.321). While refusing to set out clear criteria, the Panel reinforces its restrictive assessment by comparing the situation to the two previous cases which were found to constitute an emergency in international relations – one between Russia and Ukraine involved in an armed conflict; and the other between Qatar and Saudi Arabia whose diplomatic, consular and economic ties were severed. Through this comparison, the Panel dismisses the US assessment due to the absence of any record of imposing sanctions on the importation of goods from Hong Kong and because the situation had not resulted in a total collapse of the relations between the two parties (paras 7.356-7.357).

However, these are the factual elements that were considered relevant to satisfy the Panel that an emergency in international relations existed and, as such, were not meant to set any standards to guide the Panel’s assessment in subsequent cases. Indeed, in Saudi Arabia – Intellectual Property Rights, the Panel merely agreed with Saudi Arabia that the severance of diplomatic and economic ties could be regarded as ‘the ultimate State expression of the existence of an emergency in international relations’ (para 7.259). There is no indication that the severance of diplomatic and economic ties sets the minimum standard that disqualifies anything less as falling short of an emergency in international relations.

By contrast, the notion of ‘public emergency’ as the basis for derogation in international human rights law has been more flexibly construed in practice. Although the actual wording adopted in the treaty (for example, ‘public emergency which threatens the life of the nation’ in Article 4 of the International Covenant on Civil and Political Rights) is designed to qualify its meaning, derogation has in practice been invoked in a wide range of emergency situations such as natural disasters, threats of terrorism, food shortage, the rapid spread of infectious diseases, and economic crises (p. 109). The European Court of Human Rights has likewise adopted a flexible approach by granting national authorities a margin of appreciation in determining the existence of a public emergency (for example, A and Others v UK, paras 175-181).

Experiences from human rights law thus suggest that gravity-based restriction notwithstanding, states can be granted a margin of appreciation as an interpretive tool without fixing the meaning of an emergency. Such a deferential approach is preferable because any attempt to make an objective determination through treaty interpretation necessarily risks drawing an arbitrary line according to the adjudicator’s own preconceived idea of what an emergency in international relations would look like. There is even a risk that any discrete set of criteria developed as a result could encourage States to escalate the conflict by, for example, imposing sanctions and severing diplomatic ties to satisfy the criteria dictated by the Panel.

Concluding Thoughts

It is unclear why the Panel decided to adopt a different approach in the Origin Marking Requirement case by heavily relying on a literal analysis of the security exception clause in the GATT 1994. However, it is clear that the Panel’s approach is overly formalistic and unbalanced – leaving no margin of appreciation for the assessment of a situation, while abdicating its authority to evaluate discretionary action that the State may adopt as long as the Panel is satisfied that an emergency in international relations exists. It remains to be seen whether such a formalistic position is sustainable.

From a broader perspective, this Panel decision serves as an illustration of arbitrariness and inconsistency in international adjudication that could undermine the judicial authority to make an objective determination against the claim of a security exception. As I argued in my new monograph, the better approach is to limit the judicial inquiry to whether discretion is exercised in good faith – in other words, genuinely in pursuit of the security interest protected and not in a way that is calculated to cause any unreasonable prejudice to other legitimate interests protected under international law.

Such an approach is not alien to WTO dispute settlement (see Akande and Williams at 389-396). Indeed, it formed the basis for the Panel’s assessment of ‘essential security interests’ in Russia – Traffic in Transit (paras 7.131.-7.132) and Saudi Arabia – Intellectual Property Rights (paras 7.281-7.282). In this respect, the Panel’s assessment in US – Steel and Aluminium Products cases is more acceptable to the extent that its findings are based on the lack of relevant information as the basis for establishing an emergency in international relations, rather than its own assessment of whether a situation qualified as such. In these cases, none of the three factors that the US provided – namely, displacement of domestic steel/alunimium by excessive imports, the consequent adverse economic impact, and the global excess capacity in steel and aluminium – purported to identify or address the existence of an emergency in international relations (Complaints by Norway, paras 7.130-7.136). In my view, it is reasonable to expect States, when invoking a security exception clause, to provide relevant and sufficient information and reasons as part of the requirement to interpret and implement their obligations in good faith (pp. 127-135).

The thoughts and opinions expressed are those of the author alone and do not necessarily represent those of the US Military Academy, the US Naval War College, the US Government or any of its agencies.