The seed ye sow, another reaps;
The wealth ye find, another keeps;
The robes ye weave, another wears;
The arms ye forge, another bears.[1]
One of the advantages of international trade is the incentive it provides states to avoid war. Through engagement in trade, states become reliant on each other, and are therefore not only invested in their own prosperity, but also the prosperity of partner states in order to maintain alliances and prevent trade disruption. Such alliances create a web of [economic] interdependence, the natural effect of which is peace[2] and stability.[3] Indeed, the creation of the World Trade Organisation (WTO) was, in part, intentioned to prevent another outbreak of war following WWII, and Europe is perhaps the clearest example of economic interdependence which has resulted in not only peace and stability in the region, but also labour mobility.[4]
However, in recent years, there is a growing trend of states partaking in economic warfare to further national interests. This includes through, what is widely termed, as the weaponisation of trade and trade-related rules. Whilst, on reflection, economic warfare is omnipresent (for example, the British Government had a Minister of Economic Warfare during WWII; and, in any case, there is a clear logical connection between war and economics for the former is an expensive feat), its role post-WWII is growing since the UN Charter effectively outlawed the use of force in war with few exceptions. Economic warfare is therefore perceived as a non-violent means of war. States can achieve [the same or better] results that were ordinarily only available via military might, through, for example, the imposition of debilitating sanctions and trade embargoes. In addition, the Covid-19 pandemic elucidated the fragility of the current international trading system wherein economic ties were truly tested in a time of hardship and scarcity. This seemed to have resulted in shifts in state policies: away from economic interdependence towards economic independence.
The WTO accounts for 98% of world trade.[5] Nearly all states across the world are members of the WTO, and it is almost impossible for states to engage in international trade without WTO membership. Thus, an understanding of the role of the WTO and its laws, whether in restricting or legitimising trade wars,[6] is crucial to understanding the operation of economic warfare as a whole.
This article focuses on a specific form of economic warfare: trade war using trade-related rules. In particular, it is concerned with the WTO and a rule under one of its agreements – the GATT 1994 – that justifies measures of economic warfare: Article XXI(b), GATT 1994 (Security Exceptions). Until recently, the Security Exceptions provision played little role in WTO disputes and had never been adjudicated upon in the WTO dispute settlement system. It is a unique provision enabling member states to adopt trade-restrictive measures to protect national security. However, in 2016, Ukraine brought a case against Russia with the latter invoking the Security Exceptions provision to justify its trade-restrictive measures. This provision is one example of how states may use laws to legitimise trade wars under the guise of national security concerns.
The Security Exceptions provision
The purpose of the GATT 1994 – which almost all states across the world are parties to by virtue of their WTO membership – is to liberalise trade. However, states cannot only be concerned about trade. Protection of societal values such as health, public morals, national security, and other interests is also vital. Yet, these values are often overtaken by the WTO-obligations of member states. Therefore, the GATT 1994 provides two balancing provisions enabling states to balance trade and non-trade values. These provisions are embodied in Article XX, GATT 1994 (General Exceptions), and Article XXI, GATT 1994 (Security Exceptions). In essence, these provisions allow member states to derogate from their obligations under the WTO and adopt trade-restrictive measures, provided that states fulfil the requirements of the provisions. In other words, they allow member states to adopt measures that would otherwise be GATT-inconsistent. Such exceptions under the GATT 1994 are exhaustive.
There is a large body of jurisprudence on Article XX, GATT 1994 (General Exceptions), but Article XXI, GATT 1994 (Security Exceptions) has played little role in the dispute settlement system under both the WTO as well as its predecessor, the GATT 1947.[7] No member state had ever invoked Article XXI, GATT 1994 (Security Exceptions) under the WTO, and thus, prior to 2019, there was no decision under the WTO with respect to Article XXI(b), GATT 1994.
The Security Exceptions provision enables member states to adopt/maintain measures which they consider necessary for the protection of their essential security interests. Such measures are categorised as: (1) measures relating to fissionable materials; (2) measures relating to trade in arms or in other materials, directly or indirectly, for military use; and (3) measures taken in time of war or other emergency in international relations.[8]
Indeed, the wording of the provision, particularly the phrase ‘which they consider necessary’, resulted in debates as to whether a dispute brought under clause (b) of the Security Exceptions provision is justiciable at all by the WTO dispute settlement body. Whilst all member states automatically consent to the WTO’s dispute settlement system when they sign up to the WTO, many states maintain that national security issues are political matters within the sovereign remit of a state, and thus, the WTO dispute settlement body does not possess jurisdiction to adjudicate on such issues. It is sufficient, they argue, that a state considers its measures necessary to protect security interests, and such subjective assessments are not open to objective evaluations.[9]
Notwithstanding, in its decision in 2019 concerning a dispute between Ukraine and Russia, the WTO Panel clarified the debate and held that Article XXI(b), GATT 1994 is indeed justiciable, and a WTO Panel possesses jurisdiction to review a member state’s invocation of the provision.
The dispute between Ukraine and Russia
- Background
In the case of Russia—Measures Concerning Traffic in Transit (2019),[10] Ukraine challenged Russia’s restriction of international transit cargo travelling by road and rail from Ukraine to the Republic of Kazakhstan and the Kyrgyz Republic, and Russia’s complete transit ban for certain categories of goods which were also destined for the Republic of Kazakhstan and the Kyrgyz Republic. Ukraine claimed that the transit restrictions and bans were inconsistent with Russia’s obligations under Article V, GATT 1994 (Freedom of Transit) and Russia’s related commitments in its Protocol of Accession.
In a first under the WTO dispute settlement system, Russia invoked Article XXI(b), GATT 1994, arguing that its measures were necessary for the protection of its essential security interests in respect of the ‘emergency in international relations’ that occurred in 2014 and which continue to exist. Russia further argued that the Panel did not have jurisdiction to entertain Ukraine’s claim because a national security exception should be considered ‘totally self-judging’, and the Panel should therefore limit its finding to a statement that Russia invoked the exception, without any further engagement with the substance of Ukraine’s claim.[11]
- The Panel’s decision
Noting that this was the first time a WTO Panel was faced with interpreting Article XXI, GATT 1994,[12] and owing to the ‘novel and exceptional features’ of the dispute, [13] the Panel progressed by first considering the issue of jurisdiction before moving to the merits.
On the issue of jurisdiction, the Panel held that Russia’s argument concerning the self-judging nature of the provision failed,[14] and that it is not [only] up to the invoking member state to make a determination that it has satisfied the provision. Rather, Article XXI(b), GATT 1994 requires an objective evaluation of whether the requirements of the provision are in fact satisfied.[15] Thus, on the facts of the case, the Panel found that it had jurisdiction to determine whether the requirements of Article XXI(b)(iii), GATT 1994 were satisfied.[16]
Turning to an assessment of whether Russia’s measures were in fact taken ‘in time of war or other emergency in international relations’ as required by the provision, the Panel turned to Russia’s argument that in 2014, there was an emergency in international relations leading to its adoption of the measures in question. The Panel stated that it was not necessary to determine which actor bore the international responsibility for the existence of this emergency situation, and nor was a characterisation of the situation under international law required.[17] The Panel concluded that as of 2014, there indeed existed an ‘emergency in international relations’ between Russia and Ukraine[18] and Russia had taken these measures in that time.[19]
The panel then turned to the question of necessity – that is, whether the measures were necessary for Russia in order for Russia to protect essential security interests. The Panel noted that whilst it was up to member states to define for themselves what they consider to be essential security interests, such definitions must be sufficiently articulated to demonstrate their veracity.[20] In addition, the measures must meet a minimum requirement of plausibility under the obligation of good faith in relation to the essential security interests put forward (that is, that the measures must not be implausible as measures protective of those interests).[21] The Panel concluded that there was indeed sufficient plausibility that Russia’s measures were linked to the emergency in international relations,[22] it was for Russia to determine the necessity of its measures,[23] and in conclusion, Russia had indeed met the requirements under Article XXI(b)(iii), GATT 1994[24] and its measures against Ukraine were therefore justified under Article XXI(b), GATT 1994.
The significance of the case
The finding of the WTO Panel in the above case is significant for a number of reasons. Foremost, is the significance of the finding that security exception provisions are justiciable and not self-judging. A number of third-party submissions were made with respect to the interpretation of Article XXI(b), GATT 1994 in the above case, including submissions by Australia, Brazil, Canada, China, Japan, Moldova, Singapore, Turkey, and the USA.[25] Whilst most of these member states submitted that the Panel possessed jurisdiction to review a member state’s invocation of the Security Exceptions provision, they also noted the deference that the Panel must give to member states in determining the necessity of the measures to protect essential security interests. Thus, the provision possessed elements of both subjective and objective determination. However, the USA maintained its long-standing position that the Security Exception provision is not subject to review by the WTO Panel and therefore the dispute before the Panel was non-justiciable.[26]
Second, similar to the WTO Appellate Body’s decision in EC-Asbestos (2001) concerning the invocation of Article XX(b), GATT 1994 (General Exceptions – Health), the Panel in the above case left the test of ‘necessity’ to the determination of Russia. This is controversial, because in doing so, it is likely that member states will almost always be able to prove that their trade-restrictive measures are necessary to protect essential security interests if they fulfil the other requirements of the provision. In the context of economic warfare, states could use this wide latitude to their advantage.
Third, with the deadlock in the WTO Appellate Body, it is difficult to envisage how member states can appeal decisions. Given the little WTO jurisprudence on Security Exceptions, the Panel’s findings are significant as states may (as they already are) invoke this exception to justify trade-restrictive measures and leave victim states with no option to appeal. This is evident in three disputes initiated by Qatar against the UAE, Bahrain, and Saudi Arabia, wherein all three latter states invoked the Security Exception provision to justify their trade-restrictive measures.[27] Whilst the Panel lapsed in the case against the UAE, the case against Bahrain and Saudi Arabia remains live. Many member states, including the USA[28] and Egypt,[29] openly expressed their support and associated themselves with the statements of the three states, noting that issues of national security are political matters which are not appropriate for adjudication in the WTO dispute settlement system.
Finally, more recently, standing their ground on the non-justiciability of the provision, the USA also invoked the Security Exceptions provision in relation to a WTO dispute initiated against her by China.[30] In support of its position, the USA embarked on a lengthy grammatical analysis of the provision arguing that Article XXI(b), GATT 1994 was to be read as a single clause, and not as one introducing separate conditions.[31] This grammatical argument was analysed in depth by the WTO Panel in its decision published in December 2022. The Panel maintained its position that the clause is not self-judging or non-justiciable, and nor does it contain ‘a single relative clause’ such that only the invoking member state is to judge for itself whether the requirements of the provision are fulfilled.[32] In conclusion, the Panel found that the USA failed to discharge the burden required by the provision. The Panel was not convinced that the USA took its measures ‘in time of war or other emergency in international relations’, and therefore held that the USA’s trade-restrictive measures against China were unjustified under the GATT 1994.[33] The USA notified the WTO dispute settlement body of its decision to appeal the Panel’s decision earlier this year in January 2023.
Concluding, the WTO Agreements restrain measures used in large-scale trade wars, for example, through rules on tariffs and quotas. This is attributed to the desire of states to avoid such wars using unilateral trade measures, and thus the existence of these rules is no coincidence.[34] However, the GATT 1994 exceptions possess the ability to operate as a loophole. They can and are used to legitimise trade warfare. Whilst the invocation of such exceptions is subject to judicial review (including the use of the Security Exceptions provision as per the two published reports of the WTO Panel), many contentious questions remain unanswered, awaiting the definitive legal certainty of the WTO Appellate Body. Yet, from a practical standpoint, the fact remains that the WTO Appellate Body is deadlocked, and so, too, is the possibility of an alternative interpretation regarding the justiciability of the Security Exceptions provision, and the extent to which the provision may justify and legitimately fuel economic warfare.
References
[1] Percy Byshhe Shelley.
[2] Baron de Montequieiu, The Spirit of Laws (Thomas Nugent (tr.)).
[3] Pascal Lamy, Former Director-General of the WTO, ‘Managing Global Security: The Strategic Importance of Global Trade’ (Speech to the International Institute for Strategic Studies, Geneva, 8 September 2007) available at: www.wto.org/english/news_e/sppl_e/sppl66_e.htm.
[4] Loren Mooney, ‘Matthew O. Jackson: Can Trade Prevent War?’ (2014), available at: https://www.gsb.stanford.edu/insights/matthew-o-jackson-can-trade-prevent-war.
[5] WTO, ‘The World Trade Organization: The WTO in Brief’, available at: https://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr_e.htm.
[6] Teoman M. Hagemeyer-Witzleb, The International Law of Economic Warfare (Springer 2020), 114.
[7] Van den Bossche & Zdouc, The Law and Policy of the World Trade Organization (CUP 2017), 1410.
[8] ibid, 1412.
[9] See, for example, Russia’s argument in WTO, Russia: Measures Concerning Traffic in Transit – Report of the Panel (29 April 2019) WT/DS512/R, [7.29].
[10] WTO, Russia: Measures Concerning Traffic in Transit – Report of the Panel (29 April 2019) WT/DS512/R.
[11] ibid, [7.4].
[12] ibid, [7.20].
[13] ibid, [7.24].
[14] ibid, [7.103].
[15] ibid, [7.82].
[16] ibid, [7.104].
[17] ibid, [7.121].
[18] ibid, [7.123].
[19] ibid, [7.124].
[20] ibid, [7.134].
[21] ibid, [7.138].
[22] ibid, [7.145]
[23] ibid, [7.146].
[24] ibid, [7.149].
[25] ibid, [7.35] – [7.52].
[26] ibid, [7.52].
[27] Geraets, ‘WTO Issues Ruling in Russia – Traffic in Transit: Measures Justified on National Security Grounds Are Justiciable’ (2019), available at: https://www.mayerbrown.com/en/perspectives-events/publications/2019/04/wto-issues-ruling-in-russia-traffic-in-transit-measures-justified-on-national-security-grounds-are-justiciable.
[28] WTO, Minutes of the Meeting (23 October 2017) WT/DSB/M/403, [4.9].
[29] ibid, [4.7].
[30] WTO, United States: Certain Measures on Steel and Aluminium Products – Report of the Panel (9 December 2022) WT/DS544/R.
[31] ibid, [7.122].
[32] ibid, [7.128].
[33] ibid, [7.149].
[34] Teoman M. Hagemeyer-Witzleb, The International Law of Economic Warfare (Springer 2020), 115.
