Posted by on Mar 9, 2018

[Originally published 4/9/ 2015. Updated: 3/9/2018.]

Is it a necessary “safety valve” or the “ultimate threat” that could reverse and unwind the sometimes slow, but relatively constant progress in global trade liberalization?   When old friend and former Foreign Service colleague, Michael Virr, invited Catherine Walsh and me to discuss trade law with his Algonquin College (Ottawa) class, the topic was the GATT national security exception, which according to some, represents “the broadest and most controversial” of the GATT exceptions. The student’s played an active part in our discussion and both the students and their professor are to be congratulated for their passionate interest in trade law and their ability to engage in active, value-added dialogue on one of the discipline’s more complex subjects.

The modern national security exception was introduced as a part of the original 1947 General Agreement on Tariffs and Trade (GATT) and has since remained in place in WTO disciplines and as part of most other major Free Trade Agreements. GATT 1994 Article XXI reads:

Nothing in this Agreement shall be construed

  1. to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or
  2. to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests
    • relating to fissionable materials or the materials from which they are derived;
    • 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;
    • taken in time of war or other emergency in international relations; or
  3. to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

The GATT 1994 and many other WTO agreements include general and specific exceptions as well as carve-outs and exemptions from their mandated obligations.  A closer review of GATT Article XXI in comparison to other trade law exceptions reveals that Article XXI is distinct in that it is “self-declaratory.”  Unlike the case with other exceptions commonly found in trade agreements, under Article XXI each WTO member is able to determine and define what it considers to be its own “essential security interests” without the need to meet an objective standard and to take any action it considers necessary to protect such interests. The major rationale for the lack of objectivity inherent in Article XXI is the reluctance of sovereign governments to allow their judgment of what they deem to be in their country’s security interests become subject to review by another body (i.e. WTO Council or an arbitral panel). It is clear that there is potential for abuse that should not be ignored.  To date, a combination of prudence, restraint, and good sense – diplomacy is a good word for this – has helped the international trading system avoid the controversy implicit in reliance on this measure.

Upon review of GATT/ WTO cases in which Article XXI has been invoked,  it becomes quite clear that this particular Article may create a “slippery slope” for abusive and/or protectionist trade-barriers.  For instance, in 1975, Sweden cited Article XXI to justify its imposition of a global import restriction on certain footwear. Specifically, Sweden stated that a decrease in domestic production of footwear had reached the point of representing “a critical threat to the emergency planning of its economic defence” and therefore required and properly justified the imposition of an import ban. This broad application of Article XXI seems somewhat problematic, and even more so when considering restrictions on the use of exceptions found in Article XX (General Exceptions), which require that measures taken by a State not be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade.” Interestingly, the restrictions under Article XX do not apply to Article XXI.

In another case, the United States relied upon Article XXI in 1985 to justify measures prohibiting all imports of goods and services of Nicaraguan origin in addition to all U.S. exports to Nicaragua.  Here, the United States argued that Article XXI left it to each contracting party to judge what action it considered necessary for the protection of its own essential security interests. In response, Nicaragua initiated a complaint and sought a GATT Panel resolution.  The United States was successful in arguing for the terms of reference that precluded the Panel from examining the validity of the U.S. invocation of Article XXI.  While the Panel was critical of actions taken by the U.S. and stated that a party relying on the exception must balance its need to do so against the more fundamental need for stable trade regulation, the process itself lent support to the general and still predominant view that a GATT Panel cannot or simply does not have jurisdiction to review a State’s decision to invoke Article XXI.

The question becomes, how a proper balance can be struck between maintaining a state’s sovereignty to protect itself in true cases of national security and preventing abuse and the imposition of trade-barriers for purely commercial or political reasons. How can the world trading system best address this continuing conundrum? Is the exception a required part of international trade law?  Certainly, we have got to have some exceptions. The exception cannot be too tight, because we cannot prohibit measures which are needed purely for security reasons. On the other hand, we cannot make it so broad that, under the guise of security, countries will put on measures which really have a commercial or other purpose.