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Apr 5, 2019 | 22:57 GMT

6 mins read

The WTO Protects Its Power in a Landmark National Security Case

The World Trade Organization (WTO) headquarters are seen in Geneva on April 12, 2018.
(FABRICE COFFRINI/AFP/Getty Images)
Highlights
  • A WTO panel has ruled that Moscow was within its rights to block Kiev's access to Russian rail transit over national security concerns, marking the first such decision in the body's history.
  • But while the panel cleared Russia in this instance, it also stated that it has jurisdiction to decide such cases, implying that countries will have less leeway to cite national security concerns to impose protectionist policies.
  • This makes it less likely that the WTO will side with the Trump administration on its steel and aluminum tariffs or that the United States will cease blocking appointments to the organization's appellate body, which hears panel appeals.
 

For 25 years, the World Trade Organization (WTO) has not had to rule on a major national security case; now, however, it has — and that could set a precedent for all future national security-related cases, including trade disputes launched by U.S. President Donald Trump. On April 5, a WTO panel ruled in Russia's favor that it had the right, under GATT Article XXI, to suspend certain trade concessions to Ukraine that are related to access to Russia's rail networks. In its ruling, the WTO argued that there has been an emergency in international relations between Russia and Ukraine since 2014, meaning Moscow did have the right to sever Kiev's access to the transport links. The decision, however, is not yet final, as Ukraine can appeal the decision to the WTO's appellate body.

The Big Picture

The World Trade Organization is under attack on several fronts. One of the most important assaults is the question of whether members can invoke national security to violate other parts of the body's pact. The WTO's predecessor, GATT XXI, enshrined the principle of national security, but there are fears that the modern-day organization could lose legitimacy if all members suddenly began citing national security concerns to avoid adhering to WTO regulations. Amid this backdrop, the WTO has ruled on a case related to national security for the first time.

But while the WTO ruled that Russia could invoke national security to suspend Ukraine's access to its railroads, the body also determined that it has a right to review such cases. And that does not bode well for the United States, which has cited national security as a reason for enacting tariffs on steel and aluminum, as well as (potentially) vehicle and auto tariffs, arguing that the WTO has no right to review cases related to national security. That, in the end, could put some of the world's biggest powers on a collision course with the globe's umbrella trading organization.

The WTO Enshrines Its Power

At first glance, GATT Article XXI seems to give countries the authority to suspend any of its obligations at the WTO on the basis of national security. Some, however, had expressed concern that if countries began abusing the clause, it could start a snowball effect in which members routinely invoke national security as a blanket justification for protectionism. The article states that "Nothing in this Agreement shall be construed [...] to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests." In legal terms, too, there was the question as to whether the body could review countries' decisions to invoke national security to impose trade restrictions; in other words, did Russia, the United States or any country have the exclusive right to determine whether its measures against other WTO members were essential to protect its security interests?

In the end, the WTO's panel rejected Russia's argument that GATT Article XXI was "totally 'self-judging.'" Instead, the panel said Russia had to apply Article XXI in good faith, thereby granting the commission the jurisdiction to review the case on two grounds: first, on whether Moscow did invoke national security in good faith, and second, on whether Russia's measures (in this case, the refusal to grant Ukraine access to Russian rail transit) were "plausible" means of protecting national security interests. Ultimately, the panel determined that since 2014, the dispute between Russia and Ukraine has constituted a valid national security reason for Moscow to sever Kiev's access to Russian railroads.

The ruling is not going to sit well in Washington, which has argued that the WTO has no right to rule on such cases.

No Carte Blanche for Trump's Tariffs

In the end, the ruling is not going to sit well in Washington, which has argued that the WTO has no right to rule on such cases. And like Russia, it also argues that it has the exclusive right to judge what represents a threat to national security. As it is, the United States is already facing a WTO case after justifying its steel and aluminum tariffs on national security grounds and would certainly face another legal challenge if it cites the same concerns in imposing auto tariffs.

It is not clear, however, whether the Trump administration's tariffs would actually fall within the WTO's jurisdiction based on the two aforementioned grounds. On the first point, the United States detailed its arguments in its Section 232 report, arguing that economic interests are a national security interest. Domestic opponents of the tariffs, however, have significantly disputed both the justification's language as well as the decision to use national security as an excuse to impose tariffs. A future panel could contend that the United States did not make its determination in good faith and that it used national security as a legal argument to evade congressional authority over tariffs. Based on that, the WTO could argue that the tariffs are just safeguards — which are subject to a different part of the WTO agreement — in disguise.

But even if a WTO panel eventually rules against the Trump administration's Section 232 tariffs, the United States is unlikely to accept any such decision lying down. Instead, Trump — if still in office by the time the WTO panel hands down a ruling — would likely maintain the tariffs, choosing only to eliminate them at his leisure. In such a situation, the United States would likely block the appointment of new members to the WTO's appellate body when it falls below three members later this year, since it would not have to comply with any ruling until the panel ratifies a ruling — which would be impossible if it lacks a three-person quorum. Of course, if Trump loses the 2020 election, his successor could also remove the tariffs, using the WTO ruling as political cover.

A High Bar To Clear

Regardless of the U.S. actions, the WTO has set high standards to beat. Because the WTO has ruled that it has a say in such cases, countries wishing to benefit from Article XXI must uphold the WTO's standards — rather than their own — to invoke the clause. This, accordingly, will complicate countries' efforts to trot out national security arguments to impose thinly veiled protectionist measures that would run afoul of other WTO commitments. Whatever the case, the WTO panel's landmark decision appears to have set a precedent that might not please some of the world's bigger powers at a time when the institution itself is under continued assault.

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