A curious realisation from the newly released panel report for China – Additional Duties on Certain Products from the United States (DS558) – for thinking through the legal characterisation of security measures under WTO law.
After the United States – Certain Measures on Steel and Aluminium Products (DS544/552/556/564) panel reports were circulated on 9 December 2022, we knew the analytical framework for determining whether a member acted ‘consistent with’ Article XXI. We also knew that there is a different standard for evaluating security measures in assessing the applicability of safeguards provisions. Is it possible the measures were taken ‘pursuant to’ another GATT provision, as provided for in Article 11.1(c) of the Safeguards Agreement? Is there a difference between the phrases ‘consistency with’ and ‘pursuant to’? Yes.
On 16 July 2018, the United States (US) requested consultations with China concerning China’s duties on US products. The composed panel was William Ehlers (Chair), Cristian Espinosa Cañizares, and Mónica Rolong. This dispute is the companion to the US – Steel and Aluminium Products (China) (DS544), which authored views on the applicability of the WTO safeguards regime to the US Section 232 measures.
In DS544, the panel concludes that the US measures were inconsistent with GATT Articles I and II. China claims that the Section 232 measures are safeguard measures inconsistent with GATT Article XIX and the Safeguards Agreement (enabling China to seek compensation by imposing duties unilaterally). The US disputes the applicability of Article XIX and the Safeguards Agreement. These are security measures! The DS544 panel agrees. It finds that the US measures were ‘sought, taken, or maintained pursuant to a provision of the GATT 1994 other than Article XIX, namely GATT Article XXI, within the meaning of Article 11.1(c) of the Safeguards Agreement. Article 11.1(c) of the Safeguards Agreement provides the following:
(c) This Agreement does not apply to measures sought, taken or maintained by a Member pursuant to provisions of GATT 1994 other than Article XIX, and Multilateral Trade Agreements in Annex 1A other than this Agreement, or pursuant to protocols and agreements or arrangements concluded within the framework of GATT 1994. [emphasis added]
Article 11.1(c) removes measures from the scope of the Safeguards Agreement, including the rules specified in the other subparagraphs of 11.1. Observing how other provisions set requirements, the panel finds that the terms ‘pursuant to’ corresponds to ‘the threshold issue of applicability’, leaving as a separate inquiry whether the measures are consistent with other GATT provisions. (7.79).
In this case, the relevant provision for evaluating whether actions were pursuant to Article XIX or not is Article XXI. As “pursuant to” is about applicability and not conformity, the panel assesses ‘relevant aspects of the design and application of the measures with specific reference to their legal characterisation under Article 11.1(c) of the Agreement on Safeguards.’ (7.83) The panel considers the national security considerations in the domestic legal instruments for the Section 232 measures (which includes the tariffs and country exemptions), namely the Department of Commerce steel and aluminium reports and Presidential Proclamations. The panel reviews how the US offered notifications and responded to WTO bodies following the adoption of the Section 232 measures. Based on this review, the panel finds that the US consistently referred to its actions as responding to national security interests. Accordingly, the panel concludes that the ‘central aspect of the design and application of the measures’ was related to ‘the United States’ determination of a threat to its national security under the relevant domestic laws.’ (7.96). The panel finds in para. 7.96:
While the domestic legal status or statements by a Member to official WTO bodies are not determinative of the legal characterisation of measures under the covered agreements in dispute settlement, the Panel considers such evidence to be relevant within the context of an objective assessment under Article 11.1(c) of the Agreement on Safeguards.
Accordingly, the US determination of a threat to its national security under Section 232 was a ‘central aspect of the measures with respect to their legal characterisation as being sought, taken, or maintained pursuant to Article XXI.’ (7.96) There is very little assessment here, despite analysts critiquing the Section 232 national security bases. The panel finds the DOC Steel and Aluminium reports persuasive in showing a serious security risk that the US domestic industries could not meet US security needs. In conclusion, the US measures are pursuant to Article XXI; therefore, the Safeguards Agreement does not apply.
What happens next?
To make a long story short, the panel concludes that the inconsistent measures are unjustified under GATT Article XXI(b)(iii).
Let’s turn back to DS558, the new report. China imposes tariffs on US goods because China takes the position that the Section 232 measures are ‘safeguard measures’ (this was before the DS544 panel rules otherwise). The US does not agree with China’s characterisation of the Section 232 measures as safeguard measures, bringing a dispute to the WTO over China’s tariffs. The parties dispute the relevance of GATT Article XIX and the Safeguards Agreement. The US argues that the Safeguards Agreement is irrelevant as its Section 232 measures protect security interests and counters that China’s additional duties are inconsistent with GATT Articles I and II (7.9).
Again, we turn back to the same question: if the Section 232 measures are taken pursuant to GATT Article XXI, then the Safeguards Agreement does not apply by virtue of Article 11.1(c) of that Agreement. The US notes the ‘compelling’ DS544 panel assessment of the Section 232 measures (7.39). In line with the DS544 panel, the DS558 panel finds that the terms “pursuant to” refer to the applicability of the Safeguards Agreement. There is no explicit reference to consistency with the GATT. The panel concludes, at para 7.91:
The Panel's understanding of Article 11.1(c) is that, in the case of measures sought, taken, or maintained by virtue of or under “provisions of GATT other than Article XIX”, the Agreement on Safeguards does not apply, irrespective of whether the measures are consistent with such other provisions. [emphasis added]
Article 11.1(c) excludes measures from the scope of the Safeguards Agreement, knowing that the Safeguards Agreement aims to secure WTO consistency of measures described in Article 11.1(a) and (b) of that Agreement.
Next, what does it mean for a measure to ‘have been sought, taken, or maintained pursuant to’ GATT Article XXI?
The panel must determine if Article XXI ‘is the legal basis […] by virtue of or under which a Member has sought, taken, or maintained a measure.’ It evaluates the ‘design and expected operation of the Section 232 measures (para 7.109). To do so, it examines Section 232 (domestic legal basis), the Secretary of Commerce investigations that produced the DOC Steel and Aluminium reports, and Presidential Proclamations to evaluate the tariffs, country exemptions, and product coverage of the 232 measures to assess the ‘national security objectives’ pursued by the US. The panel notes the US's concern with maintaining capacity ‘in an unexpected or extended conflict or national emergency.’ (7.105) Again, the panel weighs how the US asserted its national security objectives in WTO communications and concludes in para. 7.111:
The Panel observes that the United States’ national security objectives are reflected in the application (tariffs, quotas) and non-application (exemptions, exclusions) of the Section 232 measures. The prescribed procedure for the adoption, modification, and removal of the Section 232 measures, and especially the provisions made for consultations with domestic authorities such as the United States' Secretary of Defense, further support the Panel's view.
The US characterisation of the measure plays a key role, which China argues should not be the determining factor. Nevertheless, the panel supports its conclusion with evidence from US domestic authorities and US notifications concerning the measures. (7.113) The panel recites the Secretary of Commerce’s assessment of the ‘weakening of the United States’ internal economy’ owing to the impact of imports on the US domestic aluminium and steel industries as an impairment to its national security. (7.115). The conclusion is in para 7.116, as follows:
The references to the economic welfare of the United States' domestic industries in the instruments considered above thus constitute one aspect of the United States' determination that there exists a threat to its national security. This aspect of the Section 232 measures cannot be divorced from its background and context, which reflect the measures' national security objectives and confirms that they were sought, taken, or maintained pursuant to Article XXI of the GATT 1994. [emphasis added].
Remember that when examining this exact evidence, the DS544 (and companion disputes) found the Section 232 measures were unjustified under Article XXI(b)(iii) as actions taken ‘in time of war or other emergency in international relations.’ But this does not play a part in the DS558 analysis here. The DS558 panel focuses on the DS544 panel’s assessment of Article 11.1(c) and emphasises that its task was not to assess consistency with Article XXI. The panel report does not indicate that the panel interrogated the US authorities when assessing the design, goals, and application of the Section 232 measures.
Where do we go from here?
First, Simon was right to emphasise to me right away that in its Article 11.1(c) analysis, the panel does not need to address Article XXI consistency formally. Instead, it must assess whether the measures ‘were sought, taken, or maintained pursuant to a provision of the GATT 1994.’ Having reread these reports, Simon remains right. And yet, the thin border between ‘consistency’ and ‘pursuant to’ seems to focus on the member’s characterisation of its measures, both domestically and at the WTO.
I think the DS558 panel presents a standard of review the US wanted the panel to use when evaluating consistency to GATT Article XXI in the Section 232 disputes (the ones it lost) – maximum deference to the US characterisation of its security objectives and that's it. In these Certain Measures on Steel and Aluminium Products disputes, the panels all find the Section 232 measures were taken ‘pursuant to’ GATT Article XXI (in the meaning of Article 11.1(c) of the Safeguards Agreement) but inconsistent with Article XXI. Although the DS 544 panel is highly deferential to the US understanding of its security objectives’ logic, design, and implementation regarding the safeguards argument, these panels never actually examine the US articulation of its essential security interests. Instead, the panels fixate on the situation giving rise to the US interests, leaving out any chance of asking questions about the connection between means and ends. (Petros Mavroidis, Kamal Saggi, and I have a forthcoming World Trade Review article on these disputes).
Does this translate to anything other than interesting academic fodder?
In a nutshell, this review should not prejudice an assessment of XXI consistency. In real practical terms, the DS558 panel report may be the most impactful for the governments currently negotiating with the US. The finding that the US acted “pursuant to” the WTO security exceptions remains a strong position for the US currently undertaking EU negotiations on the impacts of these Section 232 tariffs. It may further implicate (theoretically ongoing) ADR to settle the impacts of the measures with Norway and Switzerland. I’d like to know whether USTR will propose that all invocations of GATT Article XXI resemble the DS558 panel’s review, regardless of the safeguards defence. Would the members ever agree to such an interpretation?
When evaluating the consistency of Article XXI, the Certain Measures on Steel and Aluminium Products panel reports explain the irrelevance of US domestic authorities showing a national emergency as meeting the requirements of showing action during an emergency in international relations. But what about when evaluating the actions taken to protect the articulated security interests in the context of the circumstances (if found to be scoped in under Article XXI(b))? We don’t know the answer.
To conclude, this raises some other interesting questions. While it may be plausible to see future disputes engaging safeguard measures and XXI(b)(iii) invocations (hinging on a notion of emergency action in a highly integrated global economy), would this apply to the other circumstances listed in Article XXI(b)? While the panel’s review does not mention the obligation of good faith, how does this obligation still curtail abuses of invoking security to deviate from WTO obligations? Would members agree to an interpretation that brings in this lower standard of review as an alternative to non-violation complaints? Is this a window opening for an assessment relating the ends and means of security objectives to measures taken?
UPDATE: I revised the opening line following some offline discussions, for I appreciate it can lead to confusion. I did not mean to suggest the panel’s interpretation of Article 11.1(c) of the Safeguards Agreement translates to a test of Article XXI of the GATT. When I referred to the standard of review, I meant the deference accorded to the US legal characterisation of Section 232 measures. Knowing the US's longstanding insistence on self-judging actions to protect security interests in WTO disputes, I reflected that the US may have wanted a comparable assessment of its Section 232 measures under Article XXI. Specifically, the objective question of characterising the Section 232 measures rested on the domestic authorities’ legal bases and how the US notified its measures to WTO bodies (in essence, unilateral power to determine the circumstances and the characteristics of security actions inconsistent with WTO rules). To clarify, a panel cannot transplant the DS558 panel’s Art 11.1(c) assessment over to Art XXI! In discussing the panels’ approach to the legal characterisation of safeguards versus security measures, the blog opens up for discussion on the significant implications of rebalancing as opposed to justifying a violation that otherwise engages SCOO if the measures are not made WTO-consistent (see discussion comparing Article XX or XXVIII as Jesse Kreier & Brett Williams expand in comments).
