Daily Times

The World Trade Organization (WTO) recently issued a landmark ruling, in a case involving a dispute between Russia and Ukraine. What makes the decision so important? The WTO panel ruled on Article XXI of the General Agreement on Tariffs and Trade (GATT). Prior to delving into the substance of this ruling and the implications flowing from the same, it is pertinent to provide a brief context of what Article XXI is all about.

Article XXI of the GATT, written in very broad terms, relates to “security exceptions”(vis-à-vis trade obligations under the GATT) and is distinct from other exceptions listed in the GATT, for instance under Article XX, to the extent that it has largely been observed to be “self-declaratory”. In other words, under Article XXI, each WTO Member is effectively able to determine and define what it considers to be its own “essential security interests”, without having to establish, on the basis of an objective criteria, the reasons why its action is “necessary” to protect said interests. From a cursory reading of the text of Article XXI, it is clear that there is great potential for abuse of this provision, particularly considering the fact that the term “essential security interest” is not defined anywhere in the text of the GATT.

The recent landmark ruling of the WTO panel, however, seems to be a positive step forward from the predominant interpretation of Article XXI, especially considering President Trump’s consistent line of argument on the alleged lacking capacity of the WTO to rule on the validity of a State’s invocation of Article XXI. Inevitably, this ruling will have an impact on the current issue of the US’ ostensible “protection” of its steel industry

In 1985, the United States invoked Article XXI in support of its measures prohibiting all imports of goods and services from Nicaragua, whilst also banning all US exports to Nicaragua. Nicaragua sought a GATT panel resolution of the dispute, challenging the US’ contention that Article XXI allowed the latter to determine the action it deemed necessary to protect its “essential security interests”. Interestingly, the panel constituted in this case, while being critical of US actions, emphasized that its terms of reference precluded it from reviewing the US’ decision to invoke Article XXI. Nonetheless, the panel observed that States relying on Article XXI should strive to maintain a balance between maintaining their sovereignty/security and preventing abuse that could potentially result from wrongful invocation of this provision.

The recent landmark ruling of the WTO panel, however, seems to be a positive step forward from the predominant interpretation of Article XXI, especially considering President Trump’s consistent line of argument on the alleged lacking capacity of the WTO to rule on the validity of a State’s invocation of Article XXI. Inevitably, this ruling will have an impact on the current issue of the US’ ostensible “protection” of its steel industry. This is true even though WTO panels and the Appellate Body formally lack the authority to establish precedent.

Coming back to the Russia – Measures Concerning Traffic in Transit dispute that was just adjudicated upon, the panel, at paragraph 7.43 of its report, highlighted the argument of the European Union stating that panels should “review” determinations of this kind (i.e. where WTO Members invoke Article XXI). In fact, the EU asserted that a panel should “albeit with due deference… assess whether the invoking Member can plausibly consider the measure necessary and whether the measure is ‘applied’ in good faith”. Further, the EU clarified that “this requires the invoking Member to provide the panel with an explanation as to why it considered the measure necessary”. This argument is in consonance with the spirit of multilateralism, i.e. that there cannot be a free-for-all.

At paragraph 7.132 of the report, the panel emphasized that Members are not “free to elevate any concern to that of an ‘essential security interest’.” This is a huge development and diverges quite clearly from the predominant understanding of invocations of Article XXI as being solely and exclusively within the discretion of States to determine. In fact, the panel goes a step further in affirming that “the discretion of a Member to designate particular concerns as ‘essential security interests’ is limited by its obligation to interpret and apply Article XXI(b)(iii) of the GATT 1994 in good faith”. The panel based its reasoning inter alia on the fact that “the obligation of good faith is a general principle of law and a principle of general international law which underlies all treaties”, making reference to the Vienna Convention on the Law of Treaties 1969. This is also a positive development considering increasing concerns vis-à-vis the fragmentation of international law.

Additionally, the panel highlights that Article XXI cannot, and should not, be used by Members “as a means to circumvent their obligations under the GATT 1994”. Of course, this decision will not be immune from criticism, particularly from the US, which has deliberately tried to weaken the dispute settlement system of the WTO. In fact, the US has been incredibly hostile towards the dispute settlement system, launching various assaults against it, with the intention of dismembering this system (as part of its general push against multilateralism). Nonetheless, this decision is a breath of fresh air and should be welcomed by proponents of multilateralism and the rule of law the world over.

The writer is a lawyer