To the extent that they affect trade in goods, services or investments, the economic sanctions imposed on Russia and Russia’s retaliatory sanctions on Western products could give the World Trade Organization (“WTO”) Dispute Settlement Body an opportunity to consider the General Agreement on Tariffs and Trade (“GATT”) Security Exceptions that apply in the WTO. Russian Economy Minister Aleksey Ulyukaev’s September 12, 2014, comments to reporters that Russia is prepared to appeal the economic sanctions imposed to the WTO, seemed to point to a possible dispute. Since the economic sanctions imposed by the E.U., the U.S., Russia and other nations likely violate WTO obligations if they affect trade in goods or similar obligations, any of these sanctions could be challenged. In such a case, the Party maintaining the measure would likely have to resort to the Security Exception in GATT 1994 Article XXI to justify its sanction, thus giving the WTO the opportunity to interpret the extent and application of the Security Exceptions. However, President Putin’s more recent comment that the best way to respond to the sanctions is to develop the domestic market, coupled with Russia’s apparent decision to fight sanctions with sanctions, tend to point to political resolution of these measures rather than WTO dispute settlement.
The Security Exceptions in GATT 1994 Article XXI have not been considered by the WTO and were not fully considered by the GATT. The Report of the only GATT Panel to consider the Security Exceptions, United States – Trade Measures Affecting Nicaragua (L/6053) (“Nicaragua Panel”), was never adopted and the Nicaragua Panel proceeded under terms of reference that precluded it from considering the validity of or motivation for the U.S. invocation of Article XXI(b)(iii).
The Security Exception in Article XXI(a), which allows a WTO Member to refuse to furnish any information if it considers that the disclosure of the information would be contrary to its essential security interests, does not impose any restrictions on application of the exception. The WTO Member is free to define its essential security interests, does not impose any restrictions on application of the exception. The WTO Member is free to define its essential security interests and to refuse to disclose information when it considers that release of such information would be contrary to those security interests. The Member’s right to act in this case is absolute.
As drafted, the Security Exceptions in Article XXI(b) and (c) are qualified. Article XXI(b) allows a WTO member to take 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 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 or other establishment; and taken in time of war or other emergency in international relations. Article XXI(c) allows a WTO Member to take any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security. Although these exceptions are qualified, many have taken the view that WTO Members have an absolute right to rely on the Security Exceptions to justify any action that violates WTO obligations.
The differing views of the Security Exceptions are described in the Report of the Nicaragua Panel. Before the Nicaragua Panel, the U.S. argued that “Article XXI applied to any action which the contracting party taking it considered necessary for the protection of its essential security interest.” The U.S. also stated that the terms of Article XXI make it clear that, “the validity of the security justification is [left] to the exclusive judgment of the contracting party taking the action. The United States could therefore not be found to act in violation of Article XXI.” The Nicaragua Panel expressed the alternative view that, “[i]f it were accepted that the interpretation of Article XXI was reserved entirely to the contracting party invoking it, how could the Contracting Parties ensure that this general exception to all obligations under the General Agreement is not invoked excessively or for purposes other than those set out in this provision?” The Nicaragua Panel also noted that this approach could also limit the adversely affected contracting party’s right to have its complaint fully investigated (see paragraph 5.17). Thus, the Security Exceptions either allow WTO Members to take action in violation of their trade obligations with impunity or their application is restricted to the specific circumstances listed in Article XXI.
Review of the Security Exceptions would give the WTO Dispute Settlement Body an opportunity to resolve these different views by setting the parameters of permissible actions under GATT 1994 Articles XXI(b) and (c). A consideration of current sanctions would be particularly useful as it would, at a minimum, allow the WTO to determine whether the current crisis in the Ukraine constitutes an emergency in international relations that could justify the economic sanctions imposed by the U.S., the E.U.s and others on Russia and whether it could justify Russian sanctions on imports from other countries. It is not clear that the Ukrainian crisis could justify all of these sanctions. Interpretation of the Security Exceptions would also provide guidance that could inform consideration of the Security Exception in other fora, such as government procurement. It is important to recall that GATT obligations, including the Security Exceptions, became the basis of many trade agreements. Consequently, WTO interpretation of the Security Exception would have a broader effect on international trade.
It is unlikely that a Dispute Settlement Panel under the WTO would drastically restrict application of the Security Exceptions. Although exceptions are to be narrowly interpreted and strictly applied to ensure that their application does not unnecessarily restrict trad, the Security Exceptions are broadly drafted. Even if a Panel restricts recourse to the Security Exceptions, WTO Members would likely continue to have wide latitude to take actions that would otherwise violate trade obligations, so long as those actions relate to the specific circumstances described in Articles XXI(b) and (c). It is our view that interpreting the Security Exceptions to impose reasonable restrictions on WTO Members would be appropriate. The Security Exceptions are part of a balanced agreement intended to liberalize trade between Members. Giving any WTO Member the right to justify any action would undermine that balance, to the detriment of the trading community.
It its Report, the Nicaragua Panel referred to the November 1982 Decision Concerning Article XXI of GATT and noted that the Decision referred to the possibility of a formal interpretation of Article XXI and to further consideration of this matter by the Council. Since there has been no further action, the scope of the Security Exceptions remains unresolved. While it is not clear that any of the current sanctions would be taken to WTO dispute settlement, such a case would give the WTO a much needed opportunity to consider the extent of the GATT Security Exceptions.
*Authored by Gordon LaFortune
