Opening Pandora’s Box with Caution: WTO Hands down Guidance on Art. XXI GATT

Art. XXI of the GATT establishes one of the exceptions to the rules of the multilateral trading system. Named a ‘security’ exception, this provision is most frequently invoked to justify trade restrictions introduced in pursuit of certain political objectives. The problem that has been causing both headaches and excitement is that there is almost no case-law on the application of Art. XXI – until now. On 5 April 2019, the WTO published the Panel Report in the case of Russia – Measures Concerning Traffic in Transit.

Art. XXI and the Surrounding Vacuum

The part of Art. XXI that has been cited most frequently is (b)(iii) that allows a WTO Member to depart from the rules of the GATT if ‘necessary for the protection of its essential security interests’ and done ‘in time of war or other emergency in international relations.’ A person looking for a roadmap will struggle as there is almost no available guidance on Art. XXI. For example, the WTO Analytical Index, the instance of initial inquiry in any WTO law-related matter, provides only half a page quotation of China – Raw Materials where the Panel briefly touches upon Art. XXI only in order to clarify the meaning of Art. XI:2(a). The ambiguity and blurred nature of Art. XXI was a matter of concern since the times of drafting the GATT. The drafters relied on the ‘spirit’ of the Contracting Parties and their reasonable interpretation as the only guarantee that Art. XXI would be used in a balanced and faithful manner (id., 422).

In United States – Trade Measures Affecting Nicaragua, a GATT Panel came very close to providing authoritative guidance on the application of Art. XXI. In that case, the US President signed an executive order prohibiting virtually all trade with Nicaragua (id., para. 1.1). The US believed that it was permitted to do so in accordance with a broad reading of Art. XXI:(b)(iii), while Nicaragua read the provision narrowly and as merely allowing self-defence in trade terms (id., para. 5.2). The Panel ultimately refused to examine Art. XXI:(b)(iii) as it was precluded from doing so by its terms of reference (id., para. 5.3).

One of the instances best illustrating  how far abusing Art. XXI can go is the footwear import restrictions imposed by Sweden in 1970s. As Sweden featured high costs of production and open trade policies, cheap imported shoes caused its footwear industry to decline dramatically (id., para. 3). Interpreting this economic development as a threat to the whole security of the nation, Sweden introduced import quotas (id., para. 4). This case study is interesting in two aspects: first, the measures were launched erga omnes, not inter partes; second, nobody challenged the Swedish import restrictions before a GATT Panel.

The Panel Report

The Panel Report in Russia – Measures Concerning Traffic in Transit originates from a complaint brought by Ukraine in 2016. Unlike in United States – Trade Measures Affecting Nicaragua, the Panel was established with standard terms of reference (Panel Report, paras. 1.3-4, 7.56). The case concerned a variety of measures restricting the transit through Russia that were introduced in response to the tensions between the two nations since 2014 (Panel Report, paras. 2.1, 7.5-19).

In its defence, Russia invoked Art. XXI:(iii)(b) making it ‘the first dispute in which a WTO dispute settlement panel is asked to interpret Article XXI’ (Panel Report, para. 7.20). Essentially, the Panel’s analysis can be broken down into three parts: first, regarding the chapeau (Art. XXI:(b)), second, regarding what constitutes an ‘emergency in international relations,’ and third, on the matter of ‘essential security interests.’

Regarding the chapeau, the Panel took an unexpected move. Acknowledging that the grammatical and semantic analysis of the phrase ‘which it considers’ suggests a broad level of discretion, the Panel analysed the provision in the context of the whole Art. XXI and considered the latter as containing ‘limitative qualifying clauses’ (Panel Report, para. 7.65). The Panel concluded that the chapeau thus allows only for an objective determination and not for a broad (subjective) discretion of governments (Panel Report, para. 7.101). This finding is in a stark contrast with a great many scholarly publications which consider Art. XXI to be ‘self-defining’ and providing for an ‘inherently discriminatory remedy’ (Cann, 426).

On the second point, the Panel analysed the expression ‘emergency in international relations’ broadly and defined it as ‘a situation of armed conflict, or of latent armed conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state’ (Panel Report, para. 7.76). Attempting to stay clear of international politics, the Panel cautiously noted that it is not required to determine the nature of what has happened between Russia and Ukraine under international law (Panel Report, para. 7.121).

Finally, as to the ‘essential security interests,’ the Panel found that those interests are ‘interests relating to the quintessential functions of the state, namely, the protection of its territory and its population from external threats, and the maintenance of law and public order internally’ (Panel Report, para. 7.130). Given this narrow reading, the Panel made a U-turn providing further that ‘it is left, in general, to every Member to define what it considers to be its essential security interests’ (Panel Report, para. 7.131). Nevertheless, such a discretionary determination, according to the Panel, is subject to the principle of good faith (Panel Report, para. 7.133).

Ultimately, the Panel found in favour of Russia, establishing that the transit restrictions were justified by Art. XXI:(b)(iii) (Panel Report, para. 7.149).

Assessment and Consequences

What remains unclear in the Panel Report is the issue of notifications. Art. XXI, unlike other provisions of the GATT, does not require notifying about the measures introduced. However, in 1982, a decision was adopted clearly making notification compulsory for the purposes of clarity and predictability. Ukraine invoked this argument but the Panel mentioned it only very briefly in a footnote (Panel Report, n.210).

The impact of the Panel Report can be hardly exaggerated. Historically, the security exception in the GATT has been mostly abused by trade powerhouses in order to push its political endeavours globally (Cann, 416). Fortunately, the Panel took a hard stance on the broad discretionary language of the chapeau of Art. XXI:(b)(iii) and perceived it through the lens of objectivity and as not allowing self-judging invocation. Regrettably, the Panel understood the ‘essential security interests’ broadly. Under the Panel’s interpretation, governments can consider anything a matter of national security (such as the state of the footwear industry).

World trade has always been politicised. It is likely that this Panel Report will be appealed. Ironically, the very prospects of having an appeal are politicised too, as the looming crisis regarding appointments to the Apellate Body may make any appeals impossible this year.

Serhii Lashyn is a Master’s Student at the Central European University in Budapest.