An Instrument of Extortion?
The National Security Exception under Art. XXI GATT
On August 6th 2020, US senators drafted an open letter threatening German companies involved in constructing the new gas pipeline Nord Stream II with sanctions. Nord Stream II is the second underwater pipeline project that was meant to deliver gas from Russia through the Baltic Sea to Germany and is operated by the Nord Stream AG, which is fully owned by the Russian state’s gas company Gazprom. The project has always been subject to heated political discussions, as Germany viewed Russian gas as a bridge in the transition towards renewable energy sources. While Germany wanted to secure its energy supply and saw the issue as a matter of self-determination, the US feared that its ally would become too dependent on Russia, which became a military threat after the annexation of Crimea.
The sanctions – secondary sanctions e.g. excluding companies involved in the construction from importing into the US – are in breach of Art. XI (General Elimination of Quantitative Restrictions) and VIII GATT (Fees and Formalities connected with Importation and Exportation). The US justified their behavior by invoking Art. XXI GATT, labelling the issues at stake a matter of national security and arguing that this removes them from any judicial review. Unfortunately, a legal opinion from the scientific service of the German parliament assumed that this is valid without elaborating on the legal issue. The paper cursory referred to the wide discretion of the Members and the lack of enforcement of WTO Law due to the appellate body crisis. Sanctioning an allied state is never the polite way. But obstructing energy infrastructure projects that are vital for the survival of the domestic economy is a considerable encroachment on the right to self-determination. Now, after the Russian invasion of Ukraine and the still unsolved explosion of the pipeline, the debate has fallen silent. This leaves a core question unanswered: How far does the exception under Art. XXI GATT reach into the matters of self-determination of other Members? Can Art. XXI GATT really exist as an instrument of universal extortion under WTO law?
National Security Exception
The relevant part of the security exception is Art. XXI:2 lit. b GATT: “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 (…) taken in time of war or other emergency in international relations (…).”
To find out if this is a viable justification, one must first answer the question if the provision is reviewable by the WTO Panel at all. Then one has to define the terms “emergency in international relations”, „essential security interests”, and “necessity” and prove that each of these are subject to review as well.
The WTO Panel in the latest case relating to the interpretation of these terms, “Russia – Measures Concerning Traffic in Transit”, opined that “[t]he text of the chapeau of Art. XXI(b) can be read in different ways and can thus accommodate more than one interpretation of the adjectival clause “which it considers”, meaning that the subjective element “it considers” could mean either of three things: It could refer to only the necessity of the measures, the necessity and the ‘essential security interest’ or to the whole clause, involving the situational aspect of ‘in the time of war or other emergency in international relation’.
It would be contrary to the purpose of the GATT of establishing security and reliability in international trade if the legitimacy of the invocation were fully self-judging, creating a carte blanche for every breach of GATT provisions. Art. 1.1 of the Dispute Settlement Understanding (DSU) states that the rules and procedures of the DSU apply to all legal conflicts that arise based on the covered agreements.. The terminology used in Art. XXIII GATT. “the application by another contracting party of any measure” and “the existence of any other situation…”, shows clearly that no provision of the GATT is a priori self-judging. Historically, the text dates back to the New York Drafts Art. 37 from 1947, where the delegates heavily discussed a version of a truly self-judging provision but ultimately dropped it in favor of the current text.
Emergency in International Relations
Scholars agree that “emergency in international relations” has always been understood as rather broad, but never self-judging. In “Russia – Traffic in Transit” the panel referred to resolutions of the UN General Assembly to give evidence of the international community’s collective understanding of the term. Systematically, most of the other terms in Art. XXI GATT are precise and point towards a military conflict, such as “fissionable materials”, “arms, ammunition, and implements of war”, and “time of war”. Therefore, it is coherent to interpret the term “emergency in international relation” as at least some kind of armed conflict. Considering that the term “considers necessary for the protection of its essential security interests” gives a wide prerogative once an “emergency in international relations” exists, it seems reasonable to interpret the former term restrictively to compensate for the vagueness of the latter. This leads to the second requirement, an “action which it considers necessary for the protection of its essential security interests”, again raising the question of a self-judging understanding. Three different criteria need to be met: security interests, second, essentiality and necessity of the actions undertaken.
Some legal opinions refer to the term as self-judging and WTO Practice shows that some Members share this opinion. The US stated that “[i]ssues of national security are political matters not susceptible to review or capable of resolution by WTO dispute settlement.” Other Members such as the EU and Australia changed their opinions after the Falkland war sanctions against Argentina in 1982, now stating that it is incompatible with the individual procedural rights of a Member under the DSU to have self-judging clauses. The panel developed a flexible approach: The closer the situation is to a military conflict, the more discretion the Member has on defining what his security interests are. However, it still refrained from acknowledging the term as self-judging. Some scholars refer to the ICJ decision “Military and Paramilitary Activities in and against Nicaragua” as a comparative argument in favor of a self-judging interpretation because the court compared the security exception of the FCN agreement in dispute with Art. XXI GATT and ruled that contrary to the GATT, it did not contain the term “it considers” and therefore was not self-judging. As a corollary to this understanding, some suggest that the court considered Art. XXI GATT as self-judging. However, the ICJ found that the term is just a reminder that there is a greater prerogative for the invoking Member rather than a real self-judging clause that is non justiciable.
As the term “emergency in international relations” remains broad and the term “it considers necessary” gives undoubtedly a far-reaching prerogative, the term of “essential security interests” becomes the decisive setting. If Art. XXI GATT were a carte blanche for every Member that lost a WTO dispute by simply invoking the security exception afterwards, this would ultimately destroy the sophisticated WTO dispute settlement mechanism. The panel has found that Members are not “free to elevate any concern to that of an ‘essential security interest'”; and rather, “the discretion of a Member to designate particular concerns as ‘essential security interests’ is limited by its obligation to interpret and apply Art. XXI(b)(iii) of the GATT 1994 in good faith”.
The raison d’être of the term “essential” is two-fold: First, to clarify that the term “security interests” is in fact not self-judging, as it would serve no purpose in this case, and second, to remind the Members to invoke Art. XXI GATT only when absolutely necessary.
The panel recently understood the term as “(…) relating to the quintessential functions of the state, namely, the protection of its territory and its population from external threats (…).” Still, each member is free to define its essential security interests as long as they do not abuse their discretion to cover mainly trade-related interests.
Lastly, the Member States may only take measures that are necessary. There is a substantial section of Member States agreeing that their discretion is nearly unlimited, relying amongst other things on the fact that in comparison to older trade agreements, the concerned GATT provision on security exception uses the term “it considers necessary”. Nevertheless, there is still a dispute over whether the “necessity” part of the provision is self-judging or if it acts as a check to any possible abuse of the provision.
To limit the risk of abuse -a logical link between the sanction and the purpose that it is intended to serve is necessary.
Whereas Art XX GATT requires a sophisticated “necessity test” in which the panel reviews if a certain measure really earns the justification, there is no similar approach for Art XXI GATT because the more intimate legal interests at stake demand more freedom for the state to appreciate its sovereignty.
Although this principle is relatively manageable, two cases are never the same, and therefore one has to imagine this more as a spectrum:
The threatened trade sanctions by the US against German companies violate GATT and GATS regulations and are most likely not justified under the national security exception. In particular, the US’s position that Art. XXI GATT is fully self-judging is not convincing.
The situational example of the US invoking trade-sanctions against Germany also shows that there exists a tendency to abuse security exemptions under Art XXI GATT in the global trading environment. This is why there is a necessity for judicial review over such situations and invocations. Art. XXI GATT is not only interesting for academic discussions, but also as a matter of commercial and foreign policy practice, especially when political tensions between Member States are on the rise.
The Nord Stream II dispute has ignited a discussion on this the issue, but sanctions against companies doing business with Chinese companies such as Huawei, or Iranian companies, will likely become subject to the same questions.