This is a guest post from Csongor István Nagy, professor of law, University of Szeged and HAS-Szeged Federal Markets “Momentum” Research Group
In this post, I demonstrate three points. First, at the present stage of development the security exception is only slightly judicialized. Second, acts adopted under this exception may nullify lawfully acquired benefits and, as a corollary, may give rise to non-violation claims. Third,member states whose interests are impaired may have the right to rebalance under Article XIX GATT (safeguard measures).
This post is based on a recent publication, “World Trade, Imperial Fantasies and Protectionism: Can You Really Have Your Cake and Eat It Too?” 26(1) Indiana Journal of Global Legal Studies87-132 (2019). It is available here.
Article XXI GATT: theoretically yes, practically no
While security measures are reviewable, they are subject to rather weak clogs. The language of Article XXI GATT gives states an immensely wide discretion and no panel is expected to be keen on second-guessing national policy in this most sensitive field. Although the provision is certainly not fully self-judging (its scope is limited to specified cases, so it is, at least in this sense, not self-judging), it gives states an extremely wide discretion that, as a matter of practice, is almost unlimited. This makes the question rather academic. It would be very difficult to question that the endeavor to maintain a steel and aluminum industry of a certain capacity is reasonably related to national security. The maintenance of sufficient production capacity of materials necessary for the fabrication of military equipment is a text-book example of the use of the national security exception. It worked even in the EU internal market: in Campus Oil Limited, Ireland obliged importers to purchase a certain percentage of their requirements from a state-owned refinery. The Court of Justice of the European Union held, under the European equivalent of Article XX GATT, that the maintenance of sufficient domestic capacity could be justified with reference to public security.
However blatantly abusive and inconsistent the measure is, its connection to national security can be reasonably established. Given the link between steel and aluminum and the military industry, the maintenance of sufficient domestic production capacity seems to be justified, let alone the legitimacy crises that would emerge if the DSB started to review national security policy under some sort of a proportionality standard.
Lawful but legally objectionable (non-violation claim): world trade is not about free cake
The fact that a measure is justifiable under Article XXI GATT does not mean that it is not legally objectionable.
The ultimate reason why the tariffs on aluminum and steel are unfair and sparked an outcry is not necessarily their introduction but the fact that the US increased tariffs while expected others to honor their tariff promises (bindings). The major problem and unfairness of the aluminum and steel tariffs is that they nullify trade benefits other states “paid for”. States offered bound tariffs during various world trade rounds in exchange for comparable concessions from other countries. The system of bound tariffs is based on mutually agreed concessions; hence, any unilateral withdrawal goes counter to WTO’s most basic notion of fairness. While all beneficiaries ought to be aware that the competitive relationship between domestic and import products is dependent on various contingencies beyond the tariff itself and that WTO law does contain various exceptions, there is no reason to tolerate state measures frustrating legitimate expectations and turning the price of delivered benefits to ashes.
The above considerations are exactly the ones accommodated in Article XXIII(1)(b) GATT, which is meant to preserve the reciprocal balance of concessions. The concept of non-violation claims obviates situations where a member state wants to eat its cake and have it too. World trade is not about free cakes but about quid pro quo, so tariff-bindings cannot be dried out without consequences.
The difference between “rebalancing” and “retaliating”
Some countries adopted rebalancing duties in response to the tariffs on aluminum and steel. Although the United States did not refer to this provision when justifying the tariffs, it has been argued that they qualify as a safeguard measure and, in turn, Article XIX GATT allows states to withdraw concessions to offset the loss of benefits. But can the measures adopted with reference to national security (Article XXI GATT) be regarded as a safeguard measure (Article XIX GATT).
The interpretation is framed by four tenets that may be deduced from the AB’s recent decision in Indonesia – Safeguard on Certain Iron or Steel Products(WTO Doc. WT/DS490/AB/R/Add.1 & WT/DS496/AB/R/Add.1, Aug. 15, 2018). First, the characterization of the state adopting the safeguard measure is not decisive, although relevant. Second, characterization as a safeguard measure and its legality (permissibility) under Article XIX must not be conflated. A measure need not be lawful to have the character of a safeguard. Third, a safeguard needs to violate a provision of GATT. Fourth, it needs to have a protectionist gravity: Article XIX refers to national measures that aim to protect a domestic industry against imports. Characterization is based both on the object and the effects (as the AB put it: “design, structure, and expected operation”). It does not suffice if the measure, in effect, protects the local industry. To qualify as a safeguard measure, it also needs to have a corresponding design and structure.
This implies that a measure adopted to protect the local industry may qualify as a safeguard measure even if the state did not refer to Article XIX GATT and even if the measure is not legal under Article XXI GATT.
It may be reasonably asserted that WTO law’s different exceptions operate in parallel. The fact that a measure meets the requirements of Article XXI should not exclude the possibility of also meeting the requirements of other exceptions, such as Article XX or Article XIX. This is confirmed by the fact that the purview of the exceptions overlap, and WTO law does not indicate any hierarchy in this regard. For instance, under Article XXI a member state may shelter the national steel industry having unexpected difficulties due to increased imports to make sure that it would have steel production capacities in case of emergency or war. In this sense, the maintenance (protection) of the national industry furthers national security. However, the very same endeavor and logic may justify a measure under Article XIX. None of these provisions is superior to the other.
In most cases, it makes no difference which exception justifies the measure; the only thing that matters is that it is justified. However, Article XIX has a very special facet: it is the only provision that authorizes member states to use self-help. This is a huge advantage given that in case of other exceptions the transgressor enjoys the benefits of its transgression ex tunc, while the victim may retaliate only ex nunc.
How to distinguish security measures from “security + safeguard” measures? Proposal for a doctrine modelled after antitrust law’s distinction between “naked” and “ancillary” restraints
As virtually all measures restricting trade shelter the national economy, it is essential to draw a clear line between the exceptional state measures that may attract unilateral retaliation (safeguards) and measures where self-help is strictly prohibited. The starting point of such a delimitation should be the quint-essence of safeguards: these are conditioned but genuine protectionist measures that strive to shelter a local industry. It is not the public interest that compels regulatory considerations or national security that warrants the restriction of trade, it is simply the fact that imports cause difficulties to the domestic industry: a circumstance that naturally pertains to international trade and, in principle, does not justify state intervention in WTO law. Article XIX, in fact, sanctions protectionist measures in case of devastating difficulties that were not contemplated by states when promising the concessions. In this sense, Article XIX is sort of a clausula rebus sic stantibus, which permits states to temporarily suspend a commitment, provided they “refund the price” they were paid (that is, they loose trade benefits of an equal value).
WTO law could use the “naked/ancillary” restraints doctrine elaborated in antitrust law.A naked restraint is an agreement whose direct purpose is the restriction of competition. On the other hand, in case of an ancillary restraint, the parties engage in legitimate cooperation (joint venture, research & development), and the emerging restrictions are merely the by-products of this legitimate aim. Here, the agreement’s direct purpose is a legitimate cooperation, and the accompanying restriction is merely collateral to this legitimate aim.
Translating this to Article XIX: if the protection to the local industry accrues as an ancillary effect (side effect) of a genuine endeavor to protect the local public interest (Article XX) or to stand up to unfair trade practices (dumping, countervailing duties), that should not be regarded as a safeguard measure. One the other hand, if the very purpose of the measure is to preserve a local industry, it should qualify as a safeguard measure.
For instance, when the US government threatened Mexico to jack up tariffs if Mexico did not halt illegal immigrants across the southern border, this could be regarded as an ancillary restraint: the main goal was to put economic pressure on Mexico in an inter-state conflict to get a political result, the protective effects were the by-products of this. In the same vein, if a country embargos British products because, allegedly, an epidemic of mad cow disease rages in the United Kingdom, this should not be considered a safeguard measure, although it certainly protects the local beef industry. On the other hand, if the measure’s primary objective is to secure the existence of a local industry of a certain size, that would be a “naked restriction” of trade and rebalancing under Article XIX should be available. Although the policy to maintain a local mining capacity of iron because that is needed for military equipment may be perfectly legitimate under the national security exception (Article XXI), its primary purpose is to protect the local industry against imports.
