The agreements reached between the US and Canada/Mexico, respectively, to bring an end to the Section 232 measures on steel and aluminum and the retaliatory measures adopted by Canada and Mexico contain the following provision:
“If the importing party takes such action [i.e. if the US re-imposes the Section 232 measures on steel and aluminum], the exporting country agrees to retaliate only in the affected sector (i.e., aluminum and aluminum-containing products or steel).”
Can this be read as an acknowledgment by the US that it was appropriate for Canada and Mexico to retaliate against the Section 232 measures? By imposing restrictions on the way in which Canada and Mexico can retaliate, the provision arguably lends legitimacy to the rebalancing that Canada and Mexico engaged in. If that is the case, what does this say about how the US views the legal status of its Section 232 measures?
It is hard to imagine that the US would accept retaliation (by stipulating the form in which it has to be implemented) in the case of a measure adopted for public health or environmental reasons, since the US would consider itself fully within its rights under the WTO Agreement and NAFTA to adopt such measures. Clearly, the US also feels entitled to adopt measures for national security reasons, but it seems willing to accept that other WTO Members are in turn entitled to rebalance their obligations against the US. As Simon and Huan Zhu have recently argued, this “rebalancing” solution to the national security conundrum has much to commend it, since it sidesteps the thorny question of legality and instead focuses on restoring the balance (if not necessarily the level) of concessions.
Is there any legal basis for such rebalancing? There are at least four ways to achieve rebalancing in response to national security measures – two are already available, and two are modelled on permissible responses to other types of measures:
- Rebalancing under Art. XXI
If there is a war or other genuine emergency in the relationship between the parties, both parties can invoke the essential security exception, so the rebalancing can happen under Art. XXI itself.
- Non-violation claims
As I have previously argued, WTO Members affected by national security measures could bring non-violation claims against those measures; if the parties reach no agreement on compensation, the affected WTO Member could impose retaliation under the procedures of DSU Art. 21 and 22.
- Rebalancing on the Safeguards Model
Simon’s and Huan’s proposal analogizes national security measures to safeguard measures; it would subject the rebalancing to procedural constraints and oversight by a newly-established Committee on National Security Measures.
- Rebalancing on the Cultural Exception Model
Another model for rebalancing is the Cultural Exception in Article 2005 of the Canada-US Free Trade Agreement, which still governs Canada-US relations with respect to cultural industries under NAFTA (pursuant to Annex 2106). The Cultural Industries exception provides:
Article 2005: Cultural Industries
- Cultural industries are exempt from the provisions of this Agreement [subject to certain limitations]
- Notwithstanding any other provision of this Agreement, a Party may take measures of equivalent commercial effect in response to actions that would have been inconsistent with this Agreement but for paragraph 1.
The fourth model strikes me as the closest analogue to the agreement embodied in the steel/aluminum settlements. The parties reserve the right to adopt certain types of measures (to protect cultural industries or for national security reasons) but accept that the other party may “retaliate … in the affected sector” or “take measures of equivalent commercial effect” in response to such measures.
The key difference between the rebalancing authorized by the Cultural Exception and the rebalancing envisaged by the steel/aluminum settlements is, of course, that the former is embedded in NAFTA, whereas the latter stands entirely apart from the international trade regime. Canada, Mexico and the US could of course integrate the steel/aluminum settlement into the renegotiated NAFTA – unless they feel that that would take the recognition of the legitimacy of revived Section 232 measures on steel and aluminum and of the inevitable retaliation against such measures a step too far.
