The WTO members have been supporting a particularly broad interpretation of ‘security exceptions’ under GATT to support domestication of International Trade rules, in their own interest. In the present article, the Authors analyse whether the ruling  of the Panel in the Hong Kong Origin -Requirement case clarifies position of law on National Security as exception to free trade or goes too far in entrenching scope of state’s power in taking legitimate security measures. 

In DS/597, the WTO Dispute Settlement Panel gave a decision against the U.S. Measure. The measure, officially titled United States — Origin Marking Requirement, mandated all goods coming from Hong Kong to label their country of origin as “Hong Kong, China” rather than Hong Kong. This was by virtue of a presidential executive order signed by Donald Trump in 2020. The order suspended the application of S. 201(a) of the United States-Hong Kong Policy Act of 1992 to the customs statute (19 USC §1304).

The altered condition requirement was in response to the enactment of National Security Law by China in Hong Kong which, inter alia criminalised acts of secession, collusion and terrorism. Subsequently, U.S. came to conclusion that Hong Kong no longer had sufficient autonomy and hence, warrants no differential treatment from China.

The Hong-Kong had alleged violation of general Most-Favoured-Nation (MFN) clause (Art. I.1), Marks of origin (Art. IX) and concurrent violation of Agreement on Rules of Origin (“hereinafter ARO”) in its written submission. Herein, we summarise and analyse the two main findings of the Panel with respect to self-judging nature of Art. XXI (b) and scope of emergency in international relations as found in the Panel-body Report in DS/597.

Whether Art. XXI (B) is self-judging

WTO members can implement protective measures to safeguard their essential security interests under subsequent sub-paragraphs of Art. XXI (b). The issue that came before the Panel as whether the phrase ‘which it considers’ i.e., self-judging mechanism in chapeau of Art. XXI (b) extended to whole of Art. XXI (b) as well or not. The Panel gave finding to the effect that the expression “which it considers” as contained in the chapeau of Article XXI (b) does not encompass the subparagraphs clauses in the said provision. Consequently, the subparagraphs enshrined in Article XXI (b) would be subject to the Panel’s review. 

The Blinkers-approach 

In interpreting the self-judging clause, the Panel emphasises heavily upon grammatical language and text of the provision ignoring the object and clause of Security exceptions citing Art. 31 of Vienna Convention on the Law of Treaties (VCLT) as a relevant escape clause for ignoring both. Such approach is also known as Blinker approach for the narrow scope for ascertaining meaning of treaty provision that it entails. This approach of body thus gets reflected in observations of the Panel in para 7.90 –

Comporting with the rules of treaty interpretation, neither the context nor the object and purpose of a treaty can validate an interpretation that is not supported by the ordinary meaning of the treaty terms and override another interpretation that does result from those treaty terms.

WTO and its covered agreements are a balance of struck negotiation of members between trade and non-related trade concerns (China Raw-Materials Case). The approach adopted by the Panel in DS/597 departs from the interpretative approach adopted in past disputes concerning- measures distorting equal market access obligations. In China-Publications and Audio-Visual Products case, the Panel while finding that China’s regulations on imported audio-visual products was in violation of its National Treatment obligations under Art. XVII of GATS, noted that the treaty interpretation is an integrative course of operation as to apply rules and principles in a mutually connected and reinforcing manner. Therefore, in logical course of nature, the treaty interpreter shall have recourse to object and purpose of Treaty. 

This flexible rule of interpretation conventionally finds support in U.S-Gasoline case, wherein Appellate Body held that the general exceptions under GATT have to be interpreted on a case-by-case basis with regards to legal and factual context showing intent and purpose. In U.S. Shrimps case (1998), Thailand, India and Pakistan argued that the term ‘exhaustible’ would have to be given its ordinary meaning to mean any finite natural resource. However, the Panel rejected the argued contention stating that giving such meaning would make Art. XX (g) superfluous in nature and would be in violation of general rules of treaty interpretation to give meaning to all terms of the treaty. 

The Panel has made an error by solely relying on the literal meaning of the treaty without taking into account its overall purpose and the implications of such an interpretation on the substantive rights of WTO members. Moreover, they did not consider the findings of previous disputes mentioned in Art. 31 of VCLT.

The substantive part of the issue

In the past, the interpretation approaches differed and led to the current finding that exceptions can only be partly self-judging. However, previous Panel reports provided the party invoking the measure with some discretion to prove the genuineness of the measure in good faith.

In Saudi Arabia-IPR case, the Panel while dealing with whether Saudi Arabia in invoking Art. 73 (b) of TRIPS agreement was of self-judging nature or not noted that such exceptions would have to be limited in the manner of the State’s obligation to interpret and apply this clause in good faith. This obligation finds place in Art. 26 of VCLT as general principle of International law for parties to perform treaty obligation in good faith and not to apply such exceptions as a means to circumvent its obligations under GATT (Russia Transit-in-Tariff Case). 

It is expected that the U.S. would make similar arguments regarding the self-judging nature of Art. 73(b) of TRIPS in the Saudi Arabia-IPR case as a third party. However, the Panel’s interpretation of Art. XXI(b) by strictly segregating sub-paragraph clauses and the chapeau to determine that measures related to “essential security” are subject to the Panel review is strengthened by their interpretation of the scope of emergencies in international relations.

Emergency in international relations

The Panel reiterates the strict standard of interpretation in deciding if a situation or circumstance is an ‘emergency in international relations’. The body defines emergency as ‘a state of affairs that occurs in relations between states or participants in international relations that is of the utmost gravity, in effect, a situation representing a breakdown or near-breakdown in those relations’ (para 7.290). The Panel requires the situation to be similar in gravity to a war, but not necessarily involving defence and military interests. They decide that the situation between the US and Hong Kong is not serious enough to be called an emergency in international relations because they still have a going trade relationship at present. 

By using such strict approach, the Panel takes away the member country’s power to invoke even legitimate security measures in volatile conditions of serious nature but not enough to constitute a war-like situation. The Panel compares the situation to two cases that were considered emergencies in international relations (one, the armed conflict between Russia and Ukraine, and other being the severing of diplomatic, consular, and economic ties between Qatar and Saudi Arabia) and says that the US situation is not as serious as compared to these situations. They dismiss the US’s assessment because it does not meet the criteria set by the previous cases, for not having sanctions on imports from Hong Kong and no breakdown of economic ties.

It is important to note that in the case being discussed, the specific facts were considered to determine if there was an emergency in international relations, but this does not mean that those same facts will always be used in future cases. In contrast, the concept of “public emergency” as a basis for derogation in international human rights law has been interpreted more broadly in practical use. Despite specific qualifiers included in treaty language (such as “public emergency which threatens the life of the nation” in Article 4 of the International Covenant on Civil and Political Rights), derogation has been applied to a wide range of emergency situations, including natural disasters, terrorist threats, food shortages, rapid spread of infectious diseases, and economic crises. The European Court of Human Rights has similarly adopted a flexible approach by allowing national authorities some discretion in determining the presence of a public emergency. (for example, A and Others v UK, paras 175-181). 

States can be given a margin of appreciation in interpreting emergencies without defining them precisely, as relying on treaty interpretation to make an objective determination risk drawing arbitrary lines. This could lead to the development of a specific set of criteria that may encourage states to escalate conflicts by imposing sanctions and severing diplomatic ties to meet the criteria set by the Panel.

Analysis

The Panel’s approach in the Honk-Kong Origin Marking Requirement case (DS/597) points too much emphasis on textual segregation and grammar of Art. XXI (b) and does not allow for any flexibility in making determination for members. The scope of strict understanding follows upon the determining scope of ‘emergency’ which would be relatively difficult to satisfy, if we go by meaning that the Panel-body puts forth in DS/597 dispute to mean a complete breakdown or situations of utmost gravity. 

Going by such understanding could undermine the Panel’s authority to make fair decisions about security exceptions. A better approach would be to make sure that a state exercises discretion in good faith, without causing harm to other protected interests as held in Saudi-Aaribia IPR case (paras 7.281-7.282) and Russia Tariff in Transit case (paras 7.131.-7.132). 

The Panel should have restricted the findings to whether measure at issue was violative, rather to limit the scope of phrase ‘emergency in international relations’ which does diminish the rights of parties under Art. 17 (13) of DSU, but in absence of Appellate-Body, will be left in abeyance.

WTO framework is a balance of negotiations struck at consequent GATT rounds culminating in the form of WTO and covered Agreements binding on every member. The balance of non-related trade concerns must thus be seen in light of legitimate power of member States to protect the country’s security interests by invoking protection measures subject to application in good faith interpretation of such measures.

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Basil Gupta and Prithvi Raj Chauhan are 3rd year B.A., LL.B. (Hons.) students at National Law University, Jodhpur.

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Image: Anthony Wallace