INTRODUCTION
Recently, a World Trade Organisation (‘WTO’) panel had given its decision against the United States of America (‘US’) in the steel and aluminium tariffs case. In 2018, through a proclamation the then US President, Donald Trump announced tariffs on all imported steel and aluminium products. This was done by invoking the national security exception under Article XXI of the General Agreement on Tariffs and Trade 1947 (‘GATT’). The panel held that these tariffs were a breach of the WTO rules. The imposition of these tariffs needs to be seen in conjunction with the recent US decision to curb the semiconductor imports . This decision is also taken by considering the threat to national security from the disruption of the semiconductor industry in Taiwan. Resultantly, China has challenged this unilateral decision of the US in the WTO. While national security comes as an important exception to GATT, its excessive use goes against WTO’s objectives of entering into reciprocal and mutually advantageous agreements.
Through this paper, the authors would analyse the panel report in line with the increasing US’ unilateralism and changing paradigm of geo-political conflicts. This raises a broader question about the importance of laying down a clear enunciation of Article XXI’s scope and reimagining the national security paradigm, especially against the backdrop of conflict between a nation’s sovereignty and the multilateral trading system.
FACTS AND PANEL’s REASONING
In April 2017, the US Secretary of Commerce, in pursuance of powers u/s 232 of the Trade Expansion Act 1962, launched investigations into the effect of imported steel and aluminium on national security. On the next day itself, the US President signed a memorandum to expedite the investigation. The findings of the steel and aluminium reports highlighted the displacement effect of excessive import of both items on the domestic industry. As per the findings, the erosion of domestic capacity coupled with global excess production weakened the internal economy and “threatened to impair the national security as defined in Section 232. The scope of Section 232 shall be discussed in a later section. In light of the findings, the US President levied 25% and 10% ad valorem import duties on steel and aluminium imports respectively from all countries, except Canada and Mexico.
REASONING
The US argued that the measures taken were “considered necessary for the protection of its essential security interests, taken in time of emergency in international relations”. According to them, the prerogative provided by Article XXI is entirely self-judging, i.e., the country should itself be satisfied as to the circumstances which would be considered necessary. The Panel rejected the US view (para 7.116) and proceeded to deal with Article XXI through a two-step enquiry.
Firstly, it undertook an extensive examination of the semantic underpinnings of Article XXI(b) and concluded that discretion is granted to all members to take actions that they “consider” necessary for their essential security interests. However, the subsequent three subparagraphs are exhaustive in enumerating the circumstances under which this discretion is to be exercised (para 7.101). The essential security interests should relate to the following three facets as laid by the subparagraphs: (i) relating to fissionable materials or the materials from which they are derived; (ii) relating to traffic in arms, ammunition or such traffic in other goods required directly or indirectly for the purpose of supply to military establishment, and (iii) taken in time of war or other emergency in international relations. This authorises the panel to review if the measures fall under them (para 7.113).
Secondly, the phrase “other emergency in international relations” was construed to signify a situation of severity at least comparable to war (para 7.127). The factors relied on by the US authorities predominantly focused on the domestic situation of the industries and didn’t pass the threshold of Article XXI(b)(iii). This inquiry was in line with the WTO’s panel decision in the Russia-Transit case which was the first case to be decided on national security. Although the WTO panel reports are not binding except on the two parties, the panel in the case of the tariffs have used the same reasoning to ensure that a balance between sovereignty and multilateral trading is maintained. In conclusion, the panel called upon the US to bring its impugned measures in conformity with its GATT obligations. However, after the panel report, the US released a statement that the WTO ruling is based on a flawed interpretation. This indicates that even after the WTO decision, the US government would not follow the decision. Further, it would be in vain even if it decides to appeal this decision in the WTO’s appellate body. This is because the US itself has blocked the appointment of members to the appellate body. This shows the US’ behaviour in various instances to promote America’s First Policy.
To get a better picture, it is imperative to understand the US’ perspective. Resultantly, the next section undertakes an appraisal of the US’ attitude towards its national security concerns and WTO obligations by analysing one of the main contentions made by the US. We argue that US’ contention insinuates a tendency towards cloaking of economic competitiveness under national security considerations.
US UNILATERALISM
In this case, the US contended that they were allowed to impose the tariffs under Section 232 of the Trade Expansion Act. Section 232(b) provides the power to the President to adjust the imports of the article under such ‘quantities’ and ‘circumstances’ which threaten to impair national security. The application of this section can be under purely economic considerations like the impact of foreign competition or substantial unemployment as provided under Section 232(c). This makes it necessary to demarcate two components of the US’ action as visible from the panel’s opinion: (i) US’ conception of essential security interests as encompassing the economic health of domestic industries, and (ii) the excess imports and surplus global capacity representing an emergency in international relations. The panel construed the situation presented in (ii) as only going so far as to define ‘national security interests’ in (i). It was not sufficient to import a sense of emergency, as needed by XXI(b)(iii).
Logically, if US’ contention is allowed, every country would be free to make an arbitrary domestic legislation prioritising its own interests. These actions will reduce WTO to a puppet as countries would consider the panel’s decision to be binding only when the decision comes in its favour. This would stand contrary to the preamble that desires a substantial reduction of tariffs and other barriers of trade by entering into mutually advantageous agreements. Additionally, the 2017 data shows that the many US steel imports are from developing countries. This observation is important because the WTO law provides special and differential treatment for developing countries. Contradictorily, instead of treating developing countries as special, US is furthering its own economic interests in every activity. This is in pursuance of furthering its America’s First Policy. Such economic nationalist actions can potentially push the world to a global trade war.
CHANGING PARADIGMS AND TOUGH CHOICES
An important contention can be raised by critics which are left unanswered by the panel. There are no objective criteria as to the point when economic concerns would translate into an emergency in international relations. Keeping aside the normative tenability, it is undeniable that there has been a paradigmatic shift towards the increasing inextricability of national security with trade and economic concerns. Countries have started to become increasingly insecure about economic competitiveness and have been framing their economic fissures, rightly or wrongly, in the language of geopolitical tensions. Tatiana Pazeres highlights several instances of this sovereign behaviour in her article. In this changing paradigm, the analogy drawn with warfare doesn’t help, since the modern geo-political paradigm has transcended the archetype of violent warfare. Iryna Bogdanova also discusses how cyber-attacks, data protection, and human rights concerns present themselves as fecund categories for emerging national security concerns. The behaviour of US, especially in undertaking measures such as the one challenged in the panel report, deserves a serious examination with this new economic security perspective. Against this backdrop, the permissibility of pre-emptive measures before the situation blows up into grave conflict between states is also an issue to mull over. Whether the imposition of ad valorem taxes can be justified on this line of reasoning is a difficult question to answer.
There are two ways to see the increasing invocation of Article XXI: the country perceives national security concerns in ‘good faith’; there is a furtive attempt to push economic concerns under its garb. In the first situation, there is a need to reimagine Article XXI to demarcate pernicious invocations from newer, genuine threats to national security. The second situation is symptomatic of the lack of alternate avenues before countries to protect their domestic industries. This diagnosis necessitates consideration as well, something not capable of being discussed in this blog.
CONCLUSION
A conjoint analysis of the panel report and the US’ unilateral tendencies lends credence to the allegations of misuse of Article XXI by the US. However, the same is also illustrative of the increasing convergence of economic faultlines and national security concerns. We have argued for a fresh understanding of the content of Article XXI in this regard. The countries will anyway continue to invoke this provision since the pandora box has been opened. This can be out of good faith on their part or the lack of alternate measures. In the end, it remains a battle of perspectives: WTO’s refusal to recognize economic fissures as necessitating an emergency v. the countries’ outlook towards these issues. This is ironic keeping in mind how in the pre-2017 situation there were no WTO disputes where this exception was invoked. This was done to prevent a hornet’s nest.
Priyanshi Kothari and Kartik Sharma are second year undergraduate students at the National Law School of India University, Bengaluru.
Image: Jim Mone/AP Photo
The JFIEL Conference 