The Security Exception in the GATT: An Analysis of Article XXI in the General Agreement on Tariffs and Trade 1994

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Master’s Thesis in International Trade Law 30 ECTS

The Security Exception in the GATT

An Analysis of Article XXI in the General Agreement on Tariffs and Trade 1994

Author: Lisa Haglund

Supervisor: Professor Kaj Hobér

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List of Abbreviations

AB Appellate Body

Contracting Parties Signature parties to GATT 1947 DSB Dispute Settlement Body

DSU Understanding on Rules and Procedures Governing the Settlement of Disputes (Dispute Settlement Understanding) GATT General Agreement on Tariffs and Trade

EaEU Treaty on the Establishment of the Eurasian Economic Union EC European Communities (prior to 2009)

EU European Union (after 2009)

MFN Most-Favoured-Nation Treatment

Member Member of the World Trade Organization The Agreement General Agreement on Tariffs and Trade UAE United Arab Emirates

UN United Nations

UN Charter Charter of the United Nations

UN General Assembly The General Assembly of the United Nations US United States of America

VCLT Vienna Convention on the Law of Treaties 1969 WTO World Trade Organization

WTO Agreements Marrakesh Agreement Establishing the World Trade Organization

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1 Introduction

1.1 Introductory background

The General Agreement on Tariffs and Trade (‘GATT’ or ‘the Agreement’) is one of the essential agreements of the World Trade Organization (WTO). The GATT stipulates principles that prohibit discrimination between countries when it comes to trade. The purpose of the GATT is to liberalize trade to improve the economy and create peace.

However, there is a need for constraints on these principles. One restriction is found in Article XXI of the GATT, the security exception. This exception makes it possible, under certain circumstances, for a Member to withdraw from its obligations of the GATT and establish barriers to trade if a Member finds such actions necessary for the protection of its essential security interests. One situation when this could be justified is when there is an ongoing war or other emergency in international relations.

A series of WTO disputes involving the security exception have emerged in the last four years. In 2016, a dispute was brought to the WTO by Ukraine regarding Russia’s restrictions on traffic in transit from Ukraine, to third countries, via Russia.¹ Ukraine alleged that Russia had failed to carry out its obligations according to Article V of the GATT, which regulates ‘freedom of transit’. In response, Russia invoked Article XXI of the GATT based on the situation between Ukraine and Russia during that time.² Another dispute arose in 2017 when Qatar alleged that the UAE had imposed “measures taken in the context of coercive attempts at economic isolation”.³ In response, the UAE has contended that Qatar’s support for and funding of terrorist organizations raised serious national security issues for the UAE.⁴ In addition, disputes have arisen in relation to the US imposition of tariffs on steel and aluminium imports under section 232 (“Safeguarding

1 Panel Report, Russia – Traffic in Transit, (WT/DS512/R).

2 Referring to the ‘Euromaidan Events’ in 2013-2014 and the annexation of Crimea. See further in Chapter 2.3.

3 Request for Consultations by Qatar, United Arab Emirates – Goods, Services and IP rights,

(WT/DS526/1). On 30 September 2019, the Chair of the Panel informed the DSB that the Panel expected to issue its final report to the parties in the second half of 2020, see Communication from the Panel, United Arab Emirates – Goods, Services and IP rights, (WT/DS526/4).

4 Minutes of Meeting held on 23 October 2017, (WT/DSB/M/403), p. 7.

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national security”) of the Trade Expansion Act of 1962.⁵ This has resulted in at least nine disputes brought to the WTO for dispute settlement in 2018.⁶

Article XXI of the GATT was for the first time subject to dispute settlement in the WTO in the dispute between Russia and Ukraine.⁷ There is no doubt to the fact that the Members have been reluctant to use the security exception. One reason for this may have been the uncertainty of what would have been the outcome if the exception was invoked in a dispute. The Members may have considered it better that the application of Article XXI of the GATT was left unknown.

Nevertheless, the reason for the uncertainty is that the wording of the security exception in Article XXI of the GATT creates three main issues. The first issue is whether the exception can be reviewed by the WTO’s dispute settlement bodies, a panel or the Appellate Body (AB). The reason for this is the obscure wording of the article and that some Members of the WTO deem that the organization, which serves the purpose of regulating trade, should not interfere with the Members’ security issues. The second issue, closely related to the first, is to what extent the Member invoking a security exception is its own judge on whether the invocation should be justified under Article XXI of the GATT. Furthermore, the third issue is the applicable scope of the security exception.

There is uncertainty regarding what measures that could be justified under Article XXI of the GATT.

National security is a sensitive and highly important matter to all Members of the WTO and could easily create disagreements among the Members. On top of the disputes involving security issues, the WTO finds itself to be in somewhat of a crisis. The US is currently blocking the appointment of new members to the AB. This blockade prevents the possibility to have a dispute reviewed by the AB if a panel report is appealed. Thus, the dispute settlement system loses an important part of its ability to serve the Members in solving their trade disputes. It is further noteworthy that the US has opposed to that security or political issues are subject to dispute settlement in the WTO.

5 Voon, T, "The Security Exception in WTO Law: Entering a New Era." AJIL Unbound 113 (2019), p. 47.

6 Ibid. p. 47. See the disputes on www.wto.org:

https://www.wto.org/english/tratop_e/dispu_e/dispu_subjects_index_e.htm?id=G232.

7 The panel report was adopted 26 April 2019. Article XXI of the GATT has been subject to disputes before, however not since the establishment of the WTO.

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1.2 Purpose

The security exception in Article XXI first appeared in the GATT 1947, before it was incorporated into the GATT 1994 upon the creation of the WTO. Since then, there have been different views on how to interpret the exception. One main reason for this is the wording “which it considers”, that is found in Article XXI (a) and (b) of the GATT 1994.

Some Members claim that this wording makes the exception ‘self-judging’ and therefore no dispute settlement body of the WTO, a panel or the AB, have jurisdiction to review an invocation of the exception. From a historical perspective, the most common view has been that the exception is totally self-judging with the motivation that the WTO is not the right forum for political and security issues and therefore lacks the authority and competence to review issues related to the security exception.

An important reason why the uncertainty regarding the self-judging element remains is because it existed a different set of rules governing the dispute settlement procedure prior to 1995. With the creation of the WTO, the Dispute Settlement Understanding (DSU) rules came into force which led to the possibility for a panel and the AB to have jurisdiction being changed.

In the recently adopted panel report, Russia – Traffic in Transit, the Panel found itself to have jurisdiction to review the invocation of Article XXI, which was made by Russia in response to Ukraine’s claims that Russia had violated its obligations under the GATT 1994.⁸ However, in the comments from the third parties to the dispute that are given in the panel report, the view on jurisdiction has been changed and Russia’s invocation of Article XXI was only supported by the US. Several of the Members do seem to be of the opinion that a panel does have jurisdiction. However, the third parties to the dispute emphasized that the Panel should be careful in its review and declared that the Panel is limited in its work since Article XXI of the GATT to some extent may be self-judging.

In addition, there has been a discussion regarding the applicable scope of Article XXI of the GATT, especially the last subparagraph (iii) in Article XXI(b), “taken in time of war or other emergency in international relations”. In the dispute between Russia and Ukraine, the Panel found the three enumerated subparagraphs in Article XXI(b) to be objective requirements that should be objectively assessed to fall within the ambit of the wording to be justified by the exception. In addition, the wording “other emergency in

8 Panel Report, Russia – Traffic in Transit, (WT/DS512/R), adopted on 26 April 2019.

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international relations” could be given a wide interpretation, and in relation to the questions regarding jurisdiction and to what extent the security exception is ‘self- judging’, the scope of application may vary. That is why it is interesting to examine Article XXI of the GATT to find out if it creates a loophole in the Agreement.

Therefore, the first aim of this thesis is to examine the question of whether the dispute settlement bodies have jurisdiction to review an invocation of the security exception. The second aim is to analyze to what extent the exception is ‘self-judging’. The third aim, in consideration of the result of the earlier findings, is to examine the possible scope of application. The salient questions are as follows:

1. Do the dispute settlement bodies of the WTO have jurisdiction to review an invocation of Article XXI of the GATT?

2. To what extent is Article XXI of the GATT ‘self-judging’ in the sense that a measure could not be found to be inconsistent with the Agreement by a panel or the Appellate Body when a Member has invoked the security exception?

3. What is the scope of application of the security exception, especially Article XXI(b)(iii) of the GATT?

1.3 Methodology and materials

Since this thesis aims to examine the legal issues surrounding an exception of public international law, a traditional legal dogmatic method is applied in order to bring clarity to these issues and to provide a better understanding of how Article XXI of the GATT should be applied. The chosen method should be understood to mean that the accepted sources of law, which in this thesis are based on international law and WTO law, are used to determine the applicable law, de lege lata.⁹

The General Agreement on Tariffs and Trade is a treaty and it constitutes public international law. The method of analyzing the security exception in Article XXI of the GATT 1994 is based on the fundamental rules of international treaty law. When answering the first question, the WTO has its own set of rules governing the dispute settlement procedure; the Understanding on Rules and Procedures Governing the Settlement of Disputes (‘DSU’ or ‘Dispute Settlement Understanding’). These rules are

9 Kleinman, J, ‘Rättsdogmatiskt metod’, in (ed.) Korling, J, Mauro, Z, Juridisk metodlära, (2015) p. 21.

See also Article 38(1) of the ICJ Convention.

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binding upon all Members of the organization and thus provides the primary framework for answering the question regarding jurisdiction. The following question, to what extent Article XXI is ‘self-judging’, is a bit more complex and the exception must be interpreted.

The dispute settlement bodies of the WTO have, based on the provisions in the DSU, recognized the Vienna Convention on the Law of Treaties (‘the Vienna Convention’ or

‘VCLT’) to constitute the legal framework for the process of interpretation of the WTO Agreements and its provisions. Therefore, the question is examined using the legal sources that the Vienna Convention specifies are of relevance, such as, the treaty itself, subsequent agreements or other documents that might be of guidance. Another legal source is subsequent practice, even though this has not been established it is relevant to review the dispute settlement history to get a deeper understanding of why the issues surrounding Article XXI of the GATT remains. Further, recourse is taken to the preparatory works of the GATT 1947 to confirm and determine the meaning of the exception. The last question is based on the conclusions to be drawn from the earlier questions and is an analysis of the possible scope of application with the wording of the exception as the main legal source. The discussions and analyses in this thesis are made continuously, therefore there are concluding remarks at the end with some reflections on the future to come.

Through all these questions the report of the Panel in the dispute between Russia and Ukraine, Russia – Traffic in Transit, is reviewed to provide guidance and to bring clarity to how these issues have been handled in the WTO. Since this report is the only one existing regarding the issues surrounding Article XXI of the GATT, it is highly relevant.

The panel report was not appealed and thus was never reviewed by the AB. A report by the AB would have been of a higher legal value as guidance for answering these questions. Furthermore, other reports of panels and the AB are referred to in order to provide guidance on how to examine the different questions in a correct legal way in accordance with the procedures established by the WTO.

Overall, doctrine is used to provide a deeper understanding of the different legal sources and to clarify how the question of jurisdiction should be determined. Doctrine is also used to provide guidance on how the rules of treaty interpretation in the Vienna Convention should be applied. However, the applied doctrine is not used to provide possible ways of interpretation, since doctrine is not a legal source that could provide answers to the posed questions.

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1.4 Delimitations

The focus of this thesis is Article XXI of the GATT, consequently, similar exceptions in other WTO Agreements are not examined.¹⁰ The fundamental rules and the Members’

rights and obligations set out in the GATT are briefly described. However, only a few fundamental provisions and principles which are necessary for a better understanding of the issues and the analysis are touched upon. Furthermore, only the relevant provisions of the DSU are examined to answer the first question regarding jurisdiction. Another important treaty is the Vienna Convention which provides the fundamental rules of treaty interpretation. The treaty interpretation, especially the question regarding ‘self-judging’, is limited to using the relevant legal sources for the interpretation of Article XXI of the GATT provided by the VCLT. Thus, other sources could be used, however, those are not relevant for this thesis. Moreover, Article XXI(c) of the GATT refers to the Members’

obligations in the United Nations Charter, these obligations are only touched upon since they do not necessarily contribute to the discussions in this thesis. The notion of ‘security’

within the meaning of Article XXI of the GATT will be discussed. However, what security in general means will not be defined.

As mentioned above, the Russia –Traffic in Transit panel report is a key component of this thesis, however, only the parts of it which are relevant for the discussions and the analysis are reviewed and taken into consideration. Furthermore, even though Article XXI of the GATT has never been subject to dispute settlement under the DSU procedure rules, the exception does have a dispute settlement history which is reviewed but the review is limited to the most relevant disputes for this thesis.

1.5 Presentation of outline

Following this introductory chapter, the second chapter of this thesis introduces the reader to the history of trade liberalization, the WTO, the GATT, and the security exception in Article XXI. Further, the issues relating to the exception are described and the first and only panel report, Russia – Traffic in Transit, is introduced. The third chapter includes a review of the dispute settlement procedure, as it was previously designed and the current rules governing the procedure. The question regarding a panel’s or the AB’s jurisdiction

10 See for example the General Agreement on Trade and Services (GATS) Article XIVa and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) Article 73.

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is examined. In the fourth chapter, Article XXI of the GATT is being interpreted to examine to what extent the provision is ‘self-judging’. The dispute history of the exception is reviewed which provides a deeper understanding of why the exception has not been reviewed by a panel or the AB earlier. The fifth chapter is an examination of the applicable scope of Article XXI of the GATT, especially the third subparagraph in Article XXI(b) which was discussed in the panel report in the dispute between Russia and Ukraine. In the sixth, and final chapter of this thesis concluding remarks are made regarding whether Article XXI of the GATT creates a loophole in the Agreement and the future surrounding the exception and the WTO.

2 The GATT and the Security Exception

2.1 The history of trade liberalization and the GATT

During the history of trade liberalization, free trade has been said to contribute with at least two important advantages.¹¹ Firstly, it contributes to the growth of the economy through the use of comparative advantages.¹² Secondly, it counteracts war and contributes to peace and security between states.¹³ The common thought is that states who trade with each other are less likely to declare war against each other, since they will try to find a peaceful solution, i.e. the risk of armed conflict is reduced.¹⁴

At the end of 1947, after almost two years of negotiations, twenty-three nations became signatories to the GATT.¹⁵ The underlying idea behind the GATT is to remove trade barriers between states and to liberalize trade.¹⁶ This is achieved through the GATT by principles that constrain governments from imposing or continuing a variety of

11 Lester, S, Mercurio, B, Davies, A, World Trade Law: Text, Materials and Commentary, (2012) p. 12.

12 Ibid. p. 12.

13 Ibid. p. 12.

14 Ibid. p. 16.

15 Protocol of Provisional Application to the General Agreement on Tariffs and Trade, Oct. 30 1947, 61 Stat. pts. 5, 6, TIAS No.1700, 55 UNTS 308. See also Lester, S, Mercurio, B, Davies, A,. p. 58. Further, the nation participants in GATT were not called Members in the end since there was no organization to become a member to, thus, the signatory parties to GATT 1947 were called ‘Contracting Parties’. See Jackson, J, Davey, W, Sykes, Jr. A, Legal problems of International Economic Relations, Cases, Materials and Text, (2008) p. 220.

16 Jackson, J, Davey, W, Sykes, Jr., p. 354.

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measures that restrain or distort international trade.¹⁷ Examples of such measures are tariffs, quotas, international taxes and regulations which discriminate against imports as well as customs procedures and a plethora of other “non-tariff measures” that discourage trade.¹⁸ The GATT is a treaty that deals almost entirely with trade in products.¹⁹

Over time, several multilateral negotiation rounds have been carried out with the object of trying to liberalize trade.²⁰ In 1994, the Uruguay Negotiation Round was concluded which led to the Marrakesh Agreement Establishing the World Trade Organization (the WTO Agreements).²¹ Through this agreement the WTO was established to create, among other things, an institutional framework for the conduct of trade relations among its Members and providing a forum for negotiations.²² Further, the WTO Agreement established the GATT 1994, which incorporated the GATT 1947.²³ The incorporation includes all the amendments, tariff concessions, accession protocols and other decisions taken under the GATT 1947, as well as the understandings reached on the interpretation of the GATT provisions.²⁴

Today, the WTO oversees an extensive body of international trade rules involving many areas of trade, not only products that are governed by the GATT.²⁵ An important feature with the WTO Agreements is the Dispute Settlement Understanding procedure rules, which is the fundamental treaty governing the dispute settlement procedure in the WTO.²⁶ The DSU is therefore central regarding jurisdiction of disputes brought to the WTO for settlement.

The essential treaty for this thesis, the GATT, commences with Article I that stipulates the fundamental General Most-Favoured-Nation Treatment (MFN) principle which provides that government import or export regulations should not discriminate between other countries’ products.²⁷ If a Member is granted an advantage, such as lower customs

17 Ibid. p. 215.

18 Ibid. p. 215.

19 Ibid. p. 215.

20 Lester, S, Mercurio, B, Davies, A., p. 58.

21 Aust, A, Handbook of international law, (2010) p. 354.

22 Article I, II.1. and III.2 of the Marrakesh Agreement Establishing the World Trade Organization.

23 It was incorporated through the WTO Agreement. See also Lester, S, Mercurio, B, Davies, A., p. 73.

24 Van Houtte, H, The Law of International Trade, (2002) pp. 79.

25 Wouters, J, De Meester, B, The World Trade organization - A legal and Institutional analysis, (2007) p.

vii.

26 Aust, A, p. 354.

27 See Appellate Body Report, Canada – Autos, (WT/DS139/AB/R / WT/DS142/AB/R), para. 84.

Appellate Body Report, EC – Seal Products, (WT/DS400/AB/R / WT/DS401/AB/R), para. 5.86.

Appellate Body Report, EC – Tariff Preferences, (WT/DS246/AB/R), para. 101. See also Jackson, J,

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duty rate for their products, all other WTO Members have the right to the same advantage.²⁸ Another central principle is established in Article III of the GATT, the National Treatment obligation, which prohibits discrimination against imports with the purpose to avoid protectionism in the application of internal tax and regulatory measures.²⁹ However, these principles are not without exceptions. One of these is the security exception found in Article XXI of the GATT.

2.2 The security exception in Article XXI of the GATT

2.2.1 Article XXI of the GATT

Article XXI of the GATT focuses on different aspects of national security and allows an exception from treaty obligations for non-economic reasons.³⁰ While negotiating the GATT 1947, the drafters gave a good deal of thought to the security exception which they thought should be included.³¹ The drafters wanted the exception to be limited to take care of “real security interests” and prevent the adoption of “measures which really have a commercial purpose”.³² Article XXI has never been amended; the wording of the Article XXI has been the same since 1948.³³

The chapeau of the security exception in Article XXI of the GATT 1994 stipulates that a Member has the right to make exceptions from all other articles in the GATT. This is when the situation is such that the Member has an ‘essential security interest’ which it considers is in need of protection or to take action in relation to its obligations under the United Nations Charter.³⁴ The meaning of this is that a Member does not have to comply with the fundamental principles, such as the MFN or National Treatment, or any other article in the GATT if the situations are such that it falls within the ambit of Article XXI.

There is no need for any discussion with the other Members, nor does a Member need to

Davey, W, Sykes, Jr. A., p. 215. See also Lester, S, Mercurio, B, Davies, A., p. 65. See also Van Houtte, H, p. 39.

29 Jackson, J, Davey, W, Sykes, Jr. A., p. 215.

30 Sørensen, K, ‘Trade in Goods’, in (ed.) Olsen, B. E. Steinicke, M, Sørensen, K, WTO Law: from a European Perspective, (2006) p. 228. Hahn, M J, Vital Interests and the Law of GATT: An Analysis of GATT’s Security Exception, Michigan Journal of International Law, (1991) p. 564.

31 World Trade Organisation, Guide to GATT Law and Practice – ANALYTICAL INDEX, vol. 1 (1995), p. 600. Quoting the reports in (EPCT/A/PV/33), at 20-21 and Corr.3; see also (EPCT/A/SR/33), p. 3.

32 Ibid. p. 600.

33 Ibid. p. 610.

34 Article XXI of the GATT. Seth, T, WTO och den internationella handelsordningen, (2004) p. 174.

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have permission to use this exception before taking action in relation to the article.³⁵ Article XXI of the GATT reads as follows:

Nothing in this Agreement shall be construed

(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or

(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests

(i) relating to fissionable materials or the materials from which they are derived;

(ii) relating to the 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 establishment;

(iii) taken in time of war or other emergency in international relations; or

(c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

Article XXI(a) allows the Members to not furnish any information when it considers that such disclosure would be contrary to its essential security interest.³⁶ This provision seems to provide the Members with full freedom to act as they wish regarding the disclosure of information in relation to their national security.³⁷ The US relied on this provision during the discussions with Czechoslovakia in 1949, when Czechoslovakia, which at the time were subject to export controls, requested information regarding the US’s export licensing system.³⁸ The US responded by referring to Article XXI of the GATT and stated that it was contrary to the US’s security interest “and to the security interest of other friendly countries – to reveal the names of the commodities” that they considered to be the most strategic.³⁹ Article XXI(a) is only an exception to not furnish information which means that no trade restrictive measures should be able to rely on this part of the security exception.

Further, the more extensive exception in Article XXI(b) regulates military measures for the protection of essential security interests.⁴⁰ Subparagraph (i) allows a Member to impose necessary measures for the protection of its essential security interest in relation to fissionable materials. This provides a Member with the possibility to restrict the export

35 Seth, T, p. 174.

36 Sørensen, K, p. 228.

37 Ibid. p. 228.

38 GATT Contracting Parties, Third Session, on 30 May 1949 (GATT/CP.3/33), p. 3. Statement by the Head of the Czechoslovak Delegation Mr. Zdenèk AUGENTHALER to Item 14 of Agenda

(CP.3/2/Rev.2). Referring to the official publication of the US Department of Commerce –

"Comprehensive Export Schedule" No. 26, issued on 1 October 1948, p. 18.

39 Ibid. p. 5. Referring to the statement of Mr. Willard L. Thorp made at the General Assembly in Paris on 4 November 1948.

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or import of such materials.⁴¹ There are several international arrangements which have the aim of limiting trade with nuclear materials.⁴²

Subparagraph (ii) states that Members may also take necessary action in relation to traffic in arms, ammunition and other goods and materials with the purpose of supplying military establishments.⁴³ This provision enables a Member to restrict the export and import of arms including ‘dual use’ goods such as sophisticated computers and other technologies that could be suitable for both military and civilian use.⁴⁴ This exception was discussed by the Preparatory Committee, which stated that “if a Member exporting commodities is satisfied that the purpose of the transaction was to supply a military establishment, immediately or ultimately”, the provision would cover the situation.⁴⁵ In general, it seems to be plenty of variation to what sorts of goods which could be necessary for the purpose of supplying a military establishment.

Subparagraph (iii), the most controversial of them all, allows for Members to take actions which they consider necessary for the protection of their security interests in time of war or other emergency in international relations. The notion of war may be well defined, however, it is far more difficult to define ‘other emergency in international relations’.⁴⁶ The wording of this subparagraph makes it possible for a wide interpretation of this provision and leaves a wide discretion to decide when a Member has an emergency.⁴⁷ The exception in subparagraph (iii) has been relied on several times during the history of the GATT.⁴⁸ An example was when Sweden, in 1975, introduced a global import quota system for certain footwear.⁴⁹ The Swedish Government referred to Article XXI of the GATT and stated that the “decrease in domestic production has become a critical threat to the emergency planning of Sweden’s economic defense as an integral

41 Ibid. p. 228.

42 Ibid. p. 228. See also the Treaty on Non-Proliferation of Nuclear Weapons from 1970 which is administered by the Zangger Committee and supported by the Nuclear Suppliers Group.

43Sørensen, K, p. 228.

44 Ibid. pp. 228.

45 Thirty-sixth meeting of commission “A” held on Tuesday 12 August 1947 in Geneva (EPCT/A/PV36), p. 19. See also (EPCT/W/264).

47 Ibid. p. 229.

48 L/3362 – Accession of the United Arab Republic (1970). L/4250 – Sweden Import Restriction on Certain Footwear (1975). L/5319/Rev.1 – Falkland Malvinas – Argentina Situation (1982). L/6053 – GATT Panel Report, US-Nicaraguan Trade. L/6948 – EC Yugoslavia (1991). See more under chapter 4.4 regarding subsequent practice and the dispute settlement history regarding Article XXI of the GATT.

49 L/4250 – Communication from Sweden, Sweden – Import Restrictions on Certain Footwear (1975), para. 4. See also GATT Council, Minutes of Meeting held on 31 October 1975, (C/M/109), p. 9.

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part of the country’s security policy”.⁵⁰ Further the Government motivated the measure with a need for a minimum domestic production capacity since it is essential “to secure the provision of essential products necessary to meet basic need in case of war or other emergency in international relations”.⁵¹ Several of the Contracting Parties expressed their doubts on whether the measure could be justified under the GATT, but no further actions were taken, and Sweden terminated the quotas two years later.⁵²

Another example was when the US issued an Executive Order prohibiting all imports and services of Nicaraguan origin and all exports from the US regarding goods to, or destined for, Nicaragua.⁵³ The US stated that the action had been taken for national security reasons and were covered by Article XXI(b)(iii) of the GATT; and that this provision left to each contracting party to judge what actions it considers necessary for the protection of its essential security interest.⁵⁴ The view stated by the US that it was left to each Contracting Party to judge what actions that are considered necessary have been shared by several of the Contracting Parties throughout the years.⁵⁵ However, this view seems to have been changed drastically with the panel report in the Russia – Traffic in Transit dispute.⁵⁶

Finally, Article XXI(c) of the GATT provides that a Member may take action to comply with their obligations under the Charter of the United Nations (UN Charter) for the maintenance of international peace and security, even if it contravenes with the GATT. This permits trade related sanctions that are authorized by the UN Security Council under the UN Charter.⁵⁷ The reference to the UN Charter in this provision is the only of its kind in the GATT.⁵⁸ During the Preparatory Work related to the security exception, it was suggested that actions that are taken for ‘political matters’ or ‘essential interests of Members’ which were brought before the United Nations and the provisions of Chapter IV and VI of the UN Charter “should not be subject to the provisions of this

50 L/4250, para. 4. See also (C/M/109), p. 9.

51 L/4250, para. 4. See also (C/M/109), p. 9.

52 (C/M/109), p. 9.

53 L/5803 – Communication from the United States, United States - Trade Measures Affecting Nicaragua (1985).

54 Minutes of Meeting held on 11 September 1985, (C/M/191), p. 41 and 46.

55 Read more in Chapter 4.4 regarding subsequent practice and dispute settlement history of Article XXI.

56 Read more in Chapter 2.3 regarding the parties and the third parties arguments on Russia’s invocation of Article XXI of the GATT.

57 Sørensen, K, p. 229. Van Houtte, H, p. 42.

58 Wouters, J, De Meester, B., p. 60.

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Charter”.⁵⁹ Furthermore, it was suggested that actions taken for the maintenances or restoration of international peace and security, should not be in “conflict with the provisions of this Charter”.⁶⁰ However, these suggestions were never included in the final draft of the GATT.⁶¹ The GATT does not make any distinction between actions falling within the scope of the UN Charter and the WTO Agreements.

2.2.2 The issues related to Article XXI of the GATT

There is no doubt to the fact that national security is a highly important matter to all states, which means that a state would normally want to control its own security as much as possible and to a great extent have the possibility to impose measures to regulate the matter. Therefore, it is not surprising that there is not a common view among the Members of the WTO on how the exception regarding national security should be used and interpreted.⁶² There has been, and to some extent still is, a view that security issues should be kept out of the WTO since it is not the right forum for these issues and is neither capable nor authorized to deal with such matters.⁶³ The GATT does not provide any clear answer to this issue. The GATT does not explicitly state that national security matters are excluded from the Agreement.

The view that the WTO is not the right forum can be supported by the wording of Article XXI of the GATT. This is because the wording ‘which it considers’ is found twice in the article, both in Article XXI(a) and (b). It can be argued that this wording provides the Member with the right to be its own judge on whether Article XXI has been invoked in accordance with the Members’ obligations under the GATT. The consequence of this view is that the WTO might lack jurisdiction to review measures imposed by a Member which considers the measure to be an action necessary for the protection of its essential security interests. This view can be divided into two aspects. Firstly, it can be seen as that the WTO completely lacks jurisdiction and is not in any way authorized to review an invocation of Article XXI of the GATT. Secondly, another way of dealing with it, is to

59 World Trade Organization, Guide to GATT Law and Practice – ANALYTICAL INDEX, vol. 1 (1995), pp. 609. Referring to the Havana Reports. Chapter IV of the UN Charter regulates ‘The General

Assembly’ and Chapter VI of the UN Charter regulates ‘Pacific Settlement of Disputes’.

60 Ibid. p. 609.

61 Ibid. p. 610. Referring to CONTRACTING PARTIES - Sixth Session - Summary Record of the Twelfth Meeting Held at the Palais des Nations, Geneva on Wednesday, 26 September

1951(GATT/CP.6/SR.12, p. 4.).

62 See the third parties comments in the Panel Report, Russia – Traffic in Transit (WT/DS512/R), paras.

7.35 – 7.52.

63 Panel Report, Russia – Traffic in Transit (WT/DS512/R), para. 2.22.

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conclude that Article XXI of the GATT is ‘self-judging’, totally or partially. The difference with seeing the exception as self-judging would be that the WTO has jurisdiction, however, it is limited in its possibilities to make findings regarding the measure behind the invocation of the exception. If the exception is totally self-judging, then it is virtually impossible to review and make any findings regarding the invocation.

However, if the exception is partially self-judging, the measure could be reviewed to some extent. The reason that this could be possible lies in the structure of Article XXI of the GATT. As an example, Article XXI(b) is divided into three subparagraphs which could be qualified as self-judging or not. For instance, in Article XXI(b)(iii) the following wordings are found: ‘necessary’, ‘essential security interests’ and ‘war or other emergency in international relations’. It could then be questioned if all of these parts should be seen as self-judging or be subject to review by the WTO.

The consequences of the different interpretations are mainly that the applicable scope of the exception may vary. If the interpretation is that the exception falls outside the WTO’s jurisdiction, or that the exception is totally self-judging, the consequence would be that neither a WTO dispute settlement body, nor any Member, can find that another Member has wrongfully invoked the exception. As a result, this interpretation means that any Member could invoke the exception as it would like without any limitations and the applicable scope cannot be reviewed, nor be limited. This interpretation would make it easy for a Member to abuse the security exception and thusly create a loophole in the GATT. However, if jurisdiction is at hand and the exception is interpreted in a way which would make it partially self-judging, for instance, the subparagraphs (i)-(iii) of Article XXI(b) are found not to be connected to ‘which it considers’, i.e. the subparagraphs are not interpreted as ‘self-judging’, then the exception could be subject to review by a dispute settlement body. The risk of abuse of the exception would then be limited and the possibility of undermining the GATT is essentially reduced.

The applicable scope of Article XXI has been unreviewed until recently. Article XXI(a) and (c) should be relatively limited. This is because no trade restrictive measures should be able to rely on the exception to disclose information in Article XXI(a).

Regarding Article XXI(c) the invocation is limited to measures in the event of sanctions called for by the UN Security Council. On the other hand, the applicable scope of Article XXI(b) seems to be less clear and might be subject to wide interpretations. Subparagraph (i) is limited to fissionable materials which makes it straight forward in its interpretation.

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Subparagraph (ii) might be given a wide interpretation through the wording ‘other goods and materials’. In a similar way subparagraph (iii) brings uncertainty to the applicable scope by the wording ‘other emergency in international relations’. In addition, it is uncertain whether a measure invoked under Article XXI(b)(i)-(iii) needs to be related to an ‘essential security interest’ within the meaning of the provision or if a measure has to be ‘necessary’ to deal with the protected interest.

Therefore, the three main questions to answer regarding Article XXI of the GATT is whether jurisdiction exists, if the exception is totally or partially self-judging and what the applicable scope might be. The question regarding jurisdiction could be answered mainly through the rules governing the dispute settlement procedure. However, the ‘self- judging’ is in a greater need for interpretation which is based on customary international law. The applicable scope does also have to be interpreted, however, it will not be possible to provide any definite answer on how wide the applicable scope actually is. An important thing to recognize is that the interpretations of these three aspects may create a significant impact on the possibility to undermine the GATT.

In the Russia – Traffic in Transit dispute a panel of the WTO for the first time found itself to have jurisdiction to review the invocation of Article XXI of the GATT.⁶⁴ The Panel concluded that the exception is at least partially self-judging and therefore examined the applicable scope of Article XXI(b)(iii) of the GATT.⁶⁵ This panel report is the only one of its kind at the moment and is of great value for the discussions in this thesis and therefore the dispute will be introduced in the following section.

2.3 Russia – Traffic in Transit

2.3.1 Background to the dispute

The dispute between Russia and Ukraine must be seen in the light of a series of events that occurred in Ukraine at the end of 2013 and early in 2014, the ‘Euromaidan events’.⁶⁶ An important feature in these events was that Ukraine had taken part in the initial negotiations of the EaEU treaty⁶⁷, which was signed by Russia, Belarus and Kazakhstan in May 2014.⁶⁸ However, following the change of government in Ukraine in February

64 Ibid. para. 7.102.

65 Ibid. para. 7.126.

66 Ibid. paras. 7.5 and 7.7. (The ‘Euromaidan’ events).

67 Treaty on the Establishment of the Eurasian Economic Union, done at Astana, 29 May 2014.

68 Panel Report, Russia – Traffic in Transit (WT/DS512/R), para. 7.6.

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2014, the new government chose not to sign the EaEU treaty, and instead the Government of Ukraine decided to seek economic integration with the European Union and later signed the EU-Ukraine Association Agreement.⁶⁹

Another important feature was the annexation of Crimea. In March 2014, a resolution was introduced to the General Assembly of the United Nations (UN General Assembly) by Ukraine and several other countries concerning Russia’s annexation of Crimea.⁷⁰ The resolution recalled the obligation of all States under Article 2 of the UN Charter, to settle their international disputes by peaceful means, and refrain from the threat or use of force against the territorial integrity or political independence of a State.⁷¹ The situation was once again subject to a resolution in December 2016.⁷² In that resolution the UN General Assembly condemned the “temporary occupation of part of the territory of Ukraine”, i.e.

the “Autonomous Republic of Crimea and the city of Sevastopol”, by the Russian Federation.⁷³ The resolution reaffirmed the non-recognition of the “annexation”.⁷⁴ The Resolution made explicit reference to the Geneva Conventions of 1949, which apply in cases of declared war or other armed conflicts between the High Contracting Parties.⁷⁵ These events were followed by economic sanctions from several countries against Russia.⁷⁶ In return, Russia, among other things, imposed bans on products and import restrictions on certain goods.⁷⁷

In September 2016, Ukraine brought this dispute to the WTO for dispute settlement concerning the measures imposed by Russia on transit by road and rail through the territory of Russia.⁷⁸ Ukraine alleged Russia for imposing measures that were inconsistent

69 Ibid. para. 7.7; Referring to Ukraine’s first written submission, para 16, 20, 24; and Association Agreement between the European Union and its Member States, of the one part, and Ukraine, of the other part, Official Journal of the European Union, L 161, Vol, 57, 29 May 2014, ISSN 1977-0677, p. 170. The economic part of the EU-Ukraine Association Agreement provides for a Deep and Comprehensive Free Trade Area (DCFTA) between the European Union and Ukraine. This part of the EU-Ukraine Association Agreement was signed on 27 June 2014.

70 UN General Assembly Resolution No. 68/262 “Territorial Integrity of Ukraine”, 27 March 2014, A/RES/68/262, p. 2.

71 Ibid. p. 2.

72 UN General Assembly Resolution No. 71/205 “Situation of Human Rights in the Autonomous Republic of Crimea and the city of Sevastopol (Ukraine)”, 19 December 2016, A/RES/71/205. This Resolution received 70 votes in favour, 26 against (including Russia) and 77 abstentions. (UN General Assembly Official Records, A/71/PV.65, 19 December 2016, pp. 40-41.)

73 Ibid.

74 Ibid.

75 Report by the Panel, Russia – Traffic in Transit (WT/DS512/R), para. 7.8. UN General Assembly Resolution No. 71/205 “Situation of Human Rights in the Autonomous Republic of Crimea and the city of Sevastopol (Ukraine)”, 19 December 2016, A/RES/71/205, p. 2.

77 Ibid. para. 7.10. These import bans are imposed by Resolution No. 778, (Exhibits UKR-10, RUS-7).

78 Ibid. paras. 1.1 and 2.1.

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with Russia’s obligation under the WTO Agreement, especially Article V of the GATT 1994 which regulates ‘Freedom of Transit’.⁷⁹ Russia had imposed measures which restricted traffic in transit, from the territory of Ukraine, through the territory of Russia, to third countries.⁸⁰ In response to Ukraine’s alleged inconsistency of obligations with the GATT, Russia invoked Article XXI(b)(iii) of the GATT 1994.⁸¹ Russia contended that there was a lack of jurisdiction to review the measures in respect of which Article XXI of the GATT 1994 was invoked.⁸² Russia asserted that the measures were among those that Russia considered necessary for the protection of its essential security interests which it took “in response to the emergency in international relations that occurred in 2014 that presented threats to the Russian Federation’s essential security interests”.⁸³

2.3.2 The parties’ main arguments to Russia’s invocation of Article XXI(b)(iii) Russia asserted that there had been an emergency in international relations which arose in 2014, evolved between 2014 and 2018, and continued to exist when the dispute was brought to the DSB for dispute settlement.⁸⁴ Russia claimed that its essential security interests were threatened.⁸⁵ Regarding to what extent Article XXI(b)(iii) of the GATT is self-judging, Russia argued that the “determination of a Member’s essential security interests and the determination of whether any action is necessary for the protection” of that interest should be left to the ‘sole discretion’ of the invoking Member.⁸⁶ Russia referred to the wording of Article XXI and argued that it prevents a panel from having jurisdiction to evaluate the measures imposed under Article XXI.⁸⁷ Russia stated that the security exception preserves the right to react to wars and other emergencies and thus an interpretation of the article would mean that a panel exceeds the right of non-interference in domestic affairs of a sovereign state.⁸⁸

79 Ibid. para. 3.1.

80 Request for consultations by Ukraine (WT/DS512/1).

82 Ibid. para. 3.2.

83 Ibid. para. 7.4. Referring to Russia’s first written submission, paras. 16, 19, 33 and 74; and closing statement at the first meeting of the Panel, para. 6.

84 Ibid. para 7.4. Referring to Russia’s first written submission, para. 16; and opening statement at the second meeting of the Panel, para. 26.

85 Ibid. para 7.4 Referring to Russia’s first written submission, para. 16.

86 Ibid. paras. 7.27 and 7.28. Referring to Russia’s first written submission para. 16. And closing statement at the first meeting of the Panel, para. 16.

87 Ibid. para. 7.28. Referring to Russia’s opening statement at the first meeting of the Panel, para. 46.

88 Ibid. para. 7.29. Referring to Russia’s closing statement at the first meeting of the Panel, para. 12.

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On the other hand, Ukraine argued that Article XXI of the GATT laid down an affirmative defense and that it did not provide for an exception regarding the rules of jurisdiction.⁸⁹ Thus, a panel has jurisdiction to examine and make findings of the provision based on the Dispute Settlement Understanding procedure rules.⁹⁰ Ukraine further argued that a panel should interpret the term ‘essentials security interests’ in accordance with customary rules of interpretation of public international law.⁹¹ According to Ukraine, Russia had failed to prove that there was a situation that could satisfy the requirements in Article XXI(b)(iii) and held that this examination should be made objectively.⁹² Ukraine argued that the Panel should establish if the measures at issue, in relation to the interests or reasons behind them, could reasonably fall within the meaning of “its essential security interests”; and if there was a rational relationship between the action taken and the protected essential security interests.⁹³

2.3.3 The main arguments of the third parties

Several Members of the WTO requested to join the dispute as third parties.⁹⁴ Of the Members who provided the Panel with their arguments regarding the question on whether the Panel had jurisdiction to review Article XXI of the GATT, the US was the only Member which clearly stated that it considered the security exception to be totally ‘self- judging’ and argued that the Panel lacked jurisdiction to review the invocation of the security exception and make any findings regarding the invocation.⁹⁵ The US held that the dispute was ‘non-justiciable’ and that the authority remained with the invoking party

89 Ibid. para. 7.31. Referring to Ukraine's opening statement at the first meeting of the Panel, paras. 95-96.

90 Ibid. para. 7.31. Referring to Ukraine's opening statement at the first meeting of the Panel, paras. 98-99.

91 Ibid. para. 7.31. Referring to Ukraine's opening statement at the first meeting of the Panel, para. 142.

92 Ibid. para. 7.32. Referring to Ukraine's opening statement at the first meeting of the Panel, para. 150 and 158; and opening statement at the second meeting of the Panel, para. 64. See also Ukraine's second written submission, paras. 133-136 and 138. Ukraine's opening statement at the first meeting of the Panel, paras. 148-149.

93 Ibid. para 7.34. Referring to Ukraine's response to Panel question No. 2 following the first meeting of the Panel, paras. 76-80. See also Ukraine's response to Panel question No. 1 following the second meeting of the Panel, paras. 8 and 10.

94 Ibid. paras. 1.12 and 5.1. The third parties that provided arguments to the dispute regarding the question of the jurisdiction and to what extent Article XXI of the GATT is self-judging was: Australia, Brazil, Canada, China, the European Union, Japan, Moldova, Singapore, Turkey, the United States. Further Bolivia, Chile, India, Korea, Norway, Paraguay and Saudi Arabia did not submit written or oral arguments to the Panel.

95 Ibid. paras. 7.51 and 7.52. Referring to Letter from the United States to the Chair of the Panel, dated 7 November 2017, para. 4 and; United States’ response to Panel question No. 1 paras. 16-19.

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to determine those matters which it considers necessary for the protection of its essential security interests.⁹⁶

The EU argued in line with the DSU procedure rules and noted that according to these rules there was no applicable exception to remove jurisdiction from a panel.⁹⁷ The EU stressed that there should be a ‘sufficient nexus’ between the imposed measure and the protected interests.⁹⁸ The other Members who had provided the Panel with their arguments, agreed with the EU, that a panel has jurisdiction to review the invocation of Article XXI of the GATT.⁹⁹ Most of them did express that the Panel’s jurisdiction was to some extent limited and that the Panel should be careful with its findings.¹⁰⁰ For instance, China urged the Panel to “exercise extreme caution in its assessment of Russia’s invocation of Article XXI(b)(iii)”.¹⁰¹

2.3.4 Article XXI of the GATT brought to dispute settlement

By bringing this dispute to the WTO for dispute settlement, a panel was for the first time asked to interpret Article XXI of the GATT 1994.¹⁰² As mentioned earlier in this thesis, Article XXI is controversial and has been subject to several disputes throughout the years, however, it has not been invoked since the creation of the GATT in 1994. With the invocation made by Russia, the question was once again raised if national security matters should be kept out of the WTO or not, and whether the organization is equipped and designed to handle such measures.¹⁰³

The invocation of Article XXI of the GATT 1994 required an interpretation of the jurisdiction and to what extent the security exception was self-judging. In other words, the Panel had to answer the questions on whether a panel or the AB have jurisdiction to review an invocation, the measures behind it, and if these could be justified under the Agreement.

96 Ibid. para. 7.52. Referring to Letter from the United States to the Chair of the Panel, dated 7 November 2017, para. 8.

97 Ibid. para. 7.42. Referring to European Union’s third-party submission, para. 14. Report by the Panel, Russia – Traffic in Transit (WT/DS512/R), paras. 7.42 and 7.43 see also footnote 109.

98 Ibid. paras. 7.42 and 7.43.

99 Panel Report, Russia – Traffic in Transit (WT/DS512/R), paras. 7.35 – 7.52.

100 Ibid. paras. 7.35 to 7.52.

101 Ibid. para. 7.41. Referring to China's third-party statement, para. 18.

102 Ibid. para. 7.20. Equivalent provisions are found in Article XIV of the General Agreement on Trade in Services (GATS) and Article 73 of the Agreement on Trade-Related provisions of Intellectual Property Rights (TRIPS Agreement).

103 Ibid. para. 2.22.

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3 Jurisdiction and Article XXI of the GATT

3.1 Dispute Settlement in the WTO and Jurisdiction

The possibility of solving disputes in the WTO may be limited since the fundamental principle of international law is that states are sovereign and equal, and should not be subject to the review of another state and do have the right to non-interference in their domestic affairs.¹⁰⁴ Further, the ‘territorial principle’ stipulates that a state is free to legislate and enforce that legislation within its territory except when this freedom is restricted by a rule of international law.¹⁰⁵ Therefore, by becoming a Member of the WTO, which stipulates rules of international law, a state must follow the obligations set out in the WTO Agreements.¹⁰⁶ Thus, the WTO does have a right to interfere in a state’s domestic affairs subject to what the Member has agreed to by becoming a Member. As a Member of the WTO, a state has the right to dispute settlement under the covered agreements and is further obliged to take part in dispute settlement procedures brought against it.¹⁰⁷

Since the GATT is a part of the WTO Agreements, which are binding on all Members of the WTO, the Members of the WTO must comply with the rights and obligations set out in the GATT. According to Article XXI of the GATT, as mentioned above, a Member has the right to make exceptions from its obligations if it considers it necessary in relation to its essential security interest. The main rule, in the case of a dispute related to Article XXI of the GATT, is that the dispute falls under the jurisdiction of the WTO since Members have resigned their right of non-interference when it comes to trade related issues under the WTO Agreements.

In the following section 3.2, the history of the dispute settlement procedure during the GATT 1947 era is introduced to provide a deeper understanding to why the question of jurisdiction in relation to Article XXI still remains, and to provide a foundation for the upcoming discussion regarding the question of to what extent the security exception is

‘self-judging’.

104 Shaw, M N, International law, (2017) p. 483.

105 Aust, A, p. 43.

106 Article 2.2 of the Marrakesh Agreement Establishing the World Trade Organization.

107 Articles 1.1 and 3.1 of the DSU and Articles XXII and XXIII of the GATT 1947.

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3.2 The evolution of the dispute settlement procedure

3.2.1 The dispute settlement procedure under the GATT 1947

As mentioned above, the GATT has always had the function of solving issues and disputes between the parties to the agreement even before the creation of the WTO. When the GATT came into effect in 1947, it did so with few provisions regarding dispute settlement.¹⁰⁸ In the 1950s, the dispute settlement procedure had developed to have a panel, which consisted of neutral trade experts, ruling on legal issues and submitting written reports to the GATT Council, which would make ‘appropriate recommendations’.¹⁰⁹ However, a unanimous vote was needed by the GATT Council to adopt, i.e. give legal effect to, a panel’s decision.¹¹⁰ Since the GATT Council was made up of all the Contracting Parties to the agreement, the respondent to the dispute could block an adverse panel decision from having legal effect.¹¹¹ Even though the parties generally have not used their power to block dispute settlement proceedings, or prevent them in any other way during the procedure, this veto power has been used in relation to invocations of the security exception in Article XXI of the GATT.¹¹²

3.2.2 The Uruguay Negotiation Round and the DSU

During the Uruguay Round of negotiations, the WTO was created and the primary legal framework for dispute settlement was established; the Dispute Settlement Understanding.¹¹³ The DSU streamlined and strengthened the dispute settlement procedure.¹¹⁴ The new system was compulsory, binding and enforceable.¹¹⁵ The DSU has improved the dispute resolution process, by making it more efficient, predictable and reliable.¹¹⁶ An important change from the GATT era was the creation of the standing AB with the purpose of legally reviewing panel reports.¹¹⁷ Another significant change was

108 Lester, S, Mercurio, B, Davies, A., p. 150. Articles XXII and XXIII of the GATT were the foundation of the dispute settlement procedure in the early years and provided for consultations and written

presentations and proposals if a benefit in the GATT has been impaired of nullified.

109 Ibid. p. 151.

110 Ibid. p. 151.

111 Ibid. p. 151.

112 Ibid. p. 152. This is further examined in Chapter 4 under “subsequent practice” and dispute settlement history regarding Article XXI of the GATT.

113 The Marrakesh Agreement Establishing the World Trade Organization, Article 2.2 and Annex 2.

Lester, S, Mercurio, B, Davies, A., p. 149. Jackson, J, Davey, W, Sykes, Jr. A., p. 215.

115 Ibid. p. 149.

116 Ibid. p. 149.

117 Ibid. p. 153.

The Security Exception in the GATT: An Analysis of Article XXI in the General Agreement on Tariffs and Trade 1994

Master’s Thesis in International Trade Law 30 ECTS