In its first written submission in the U.S. - IRA Tax Credits WTO dispute (DS623), the U.S. makes a number of arguments people might find interesting. First, there's a new invocation of the GATT Article XXI security exception related to the exclusion under the Internal Revenue Code (IRC) Section 30D Clean Vehicle Tax Credit of participation by a "foreign entity of concern" (FEOC) in the supply chain. There's also a GATT Article XX(a) argument that "China’s non-market policies and practices resulting in China’s global dominance of the clean vehicle and renewable energy sectors violate the U.S. public morals against unfair competition, forced labor, theft, and coercion."
But I'm going to focus here on the following U.S. argument related to the application of GATT exceptions to non-GATT goods agreements, with the TRIMS and SCM Agreements being the non-GATT goods agreements at issue:
136. China raises claims under Articles I and III of the GATT 1994, Articles 2.1 and 2.2 of the TRIMs Agreement, and Articles 3.1(b) and 3.2 of the SCM Agreement. It is—or should be—self-evident that WTO Members continue to have the authority under the WTO to take essential security measures and measures under the general exceptions for public policy reasons, such as protecting public morals, protecting life or health, countering use of prison labor, or conserving natural resources – just as they did under the GATT. Because some litigants for obvious reasons have recently controverted this commonsense conclusion,212 for the avoidance of any doubt, the United States sets out the legal and textual basis for the applicability of the essential security and general exceptions to the TRIMs Agreement and SCM Agreement.
137. As discussed in detail in Section VI.A., the ability to invoke exceptions under Articles XX and XXI of the GATT 1994 for claims under the TRIMs and SCM Agreements is clear. The ordinary meaning of the terms of the TRIMs and SCM Agreements—including their numerous explicit textual links to the GATT 1994—establish that exceptions under Articles XX and XXI of the GATT 1994 are available as defenses to TRIMs and SCM Agreement claims.
The U.S. argument that Article XXI applies beyond the GATT did not surprise me, but I hadn't been sure they would also take this view of Article XX. I have been wondering for a while now about USTR's view of the application of Article XX to non-GATT goods agreements, in part with environmental subsidy issues in mind. At one point I said the following in the context of the U.S. arguments in a previous dispute:
... the broader issue of GATT exceptions for non-GATT goods agreements seems of great importance for the likely upcoming debates about how subsidies for environmental purposes are considered under WTO rules. Ideally, governments would sit down and hash out clear rules in this area. Perhaps more realistically, though, the existing rules will have to be applied, and disputes will arise over whether particular measures are consistent with those rules. I can imagine that Article XX will be invoked as a defense in this context, based on the argument that it applies beyond the GATT, and then we will see the issue debated directly.
Well, it looks like now we are going to see it debated!
The U.S. argument that Article XX can be invoked in relation to claims under the SCM Agreement starts on p. 47 of the submission. Here are some key excerpts:
A. THE ORDINARY MEANING OF THE TERMS OF THE TRIMS AND SCM AGREEMENTS ESTABLISH THAT DEFENSES UNDER ARTICLE XX AND XXI OF THE GATT 1994 APPLY TO CLAIMS UNDER THOSE AGREEMENTS
...
2. The SCM Agreement Contains Multiple Provisions of Text Linking the SCM Agreement with the GATT 1994 and the Articles XX and XXI Exceptions
147. The SCM Agreement also includes numerous references to the GATT 1994, thus also establishing that Articles XX and XXI of the GATT 1994 are available as defenses to claims under the SCM Agreement. Perhaps most notably, in Part XI of the SCM Agreement concerning final provisions, Article 32.1 states, “No specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement”. The Article is accompanied by footnote 56, which states, “This paragraph is not intended to preclude action under other relevant provisions of GATT 1994, where appropriate.”
148. Article 32.1 is an explicit textual link with the GATT exceptions in the SCM Agreement. Specifically, Article 32.1 of the SCM Agreement provides that no action against a subsidy can be taken “except in accordance with the provisions of GATT 1994, as interpreted by this Agreement.” Action taken under Article XX or XXI of the GATT 1994 is “in accordance with the provisions of GATT 1994”, and therefore, is taken pursuant to Article 32.1 of the SCM Agreement. Although Article 32.1 also contains the phrase, “as interpreted by this Agreement,” footnote 56 confirms that the paragraph is not intended to preclude action under other relevant provisions of the GATT 1994 (emphasis added). Therefore, Article 32.1 and footnote 56, read in conjunction, confirm that where an article is not interpreted by the SCM Agreement, the authority to take action under GATT provisions remain unchanged.
...
151. In addition to Article 32.1, the SCM Agreement contains 24 other references to the GATT 1994. These 24 references include numerous statements that SCM Agreement terms should be understood “in the sense of”, “in accordance with”, “as provided for”, “within the meaning of”, or “for the purposes” of GATT 1994 Articles VI and XVI.
...
B. THE STRUCTURE OF THE WTO AGREEMENT AND THE CONTEXT IT PROVIDES ALSO ESTABLISHES THAT THE GENERAL EXCEPTIONS AND THE ESSENTIAL SECURITY EXCEPTION APPLY TO THE MULTILATERAL AGREEMENTS ON TRADE IN GOODS, INCLUDING THE TRIMS AND SCM AGREEMENTS
164. The structure of the WTO Agreement and the context it provides also establish that Articles XX and XXI(b) are defenses to claims under the SCM Agreement. The Marrakesh Agreement is an umbrella, establishing among other things that all of the agreements in its annexes are a single undertaking.216 The core multilateral substantive obligations are contained in Annex 1. In particular, Annex 1A consists of the Multilateral Agreements on Trade in Goods (including the TRIMs and SCM Agreements), Annex 1B consists of the General Agreement on Trade in Services (GATS), and Annex 1C consists of the Agreement on Trade Related Aspects of International Property Rights (TRIPS Agreement)....
171. Within Annex 1A, the Multilateral Agreements on Trade in Goods, the first agreement listed is the GATT 1994. The GATT 1994 is a successor to the GATT 1947. The GATT 1947, and the slightly modified GATT 1994, contain the public morals and essential security exceptions in their respective equivalent of Articles XX and XXI. The remaining agreements in Annex 1A (including the TRIMs and SCM Agreements) are the product of negotiations in the Uruguay Round, undertaken with the purpose of elaborating upon the disciplines in the GATT 1994 and related matters involving trade in goods.
172. Two possibilities arise from this structure. The first, which the United States submits is the proper interpretation, is that the negotiators understood that the GATT 1947/1994 public morals and essential security exceptions apply to the new agreements on trade in goods contained in Annex 1A. The other possibility is that for some reason, the negotiators believed that those exceptions applied to the fundamental disciplines in the GATT 1994, but not to the elaborations upon those disciplines as set out in the other trade-in-goods agreements. This second interpretation is untenable.
I have the sense that I'm one of the few people in the field who thinks Article XX should apply beyond the GATT, including to the SCM Agreement. As I put it a while back: "I have been making a lonely case that GATT Article XX should apply to non-GATT goods agreements, based on the logic that the non-GATT goods agreements are all derived from some part of the GATT, so it makes sense that the GATT exceptions should apply. But no one seems convinced." It sounds like USTR agrees with me, at least to some extent, although I do wonder if they would apply their reasoning to all non-GATT goods agreements, including even claims under the SPS and TBT Agreements (their argument in Section VI.B of their submission, partially quoted above, suggests they would, but I see some room for maneuver here if they wanted to take a different position).
The U.S. submission mentions the negotiators, and I'm curious about the negotiating history on this point. I've never come across any discussion of the issue in the Uruguay Round negotiating documents that I've seen. It would be nice if someone were able to dig something up, and in that regard it will be interesting to see what other governments have to say in their third party submissions.
