In September 2016, Ukraine sued Russia at the World Trade Organization (WTO). Few people even noticed. However, this case has enormous consequences for the world economy and for President Trump’s trade agenda.
The Ukraine case will set an important precedent
Ukraine’s complaint is that Moscow is impeding its exports to third markets that cross Russian territory (mostly by rail). The key to the case is Russia’s response to Ukraine’s complaint. Russia is trying a legal defense that no country has ever used before in WTO litigation: national security.
Russia didn’t invent this defense. It’s been around since 1947, when it was written into Article XXI of the General Agreement on Tariffs and Trade (GATT), the original legal cornerstone of the world trading system. This article says, in part, that WTO rules can’t prevent a country “from taking any action which it considers necessary for the protection of its essential security interests,” including those “taken in time of war or other emergency in international relations.” The words are important. As taken up below, the crux of the matter is whether “it considers” and “necessary” are one, or two, different questions.
For its part, Russia says that its conflict with Ukraine is clearly a matter of national security and that, while its actions might run afoul of free trade rules, the WTO has no authority to stop it. Is this right?
The U.S. and Europe sharply disagree over security and trade
The United States and Europe have offered competing answers to this question. The United States says that, following on the words “it considers,” GATT Article XXI gives countries the right to define their national security for themselves. The European Union counters that, even if so, the WTO must decide whether the contested measure is “necessary” to achieve this definition of national security.
Not that the two sides haven’t found common ground in the past. Indeed, the United States has often worried about abuses of GATT XXI, just as Europe has cautioned that the WTO is not the right forum in which to solve all political problems.
The WTO realizes that this is an enormous and politically divisive question. But two other disputes may finally force the issue. In one case, Qatar is suing the United Arab Emirates for a trade embargo that has been justified using national security. In the other case, many of the United States’ closest allies have challenged Trump’s tariffs on steel and aluminum. Here, too, Trump has invoked national security as a rationale.
The WTO is likely to favor the European approach
All of these cases can still be settled out of court, in which case the WTO would be spared from having to rule on what GATT Article XXI means in practice. But if they are not settled, it is hard to imagine that the WTO will diverge too far from Europe’s position.
First, GATT XXI isn’t the only exception. It follows GATT XX, which includes 10 items that might provide protection for apparently violating other WTO laws. There are textual differences. Most notably, GATT XX opens with a paragraph that imposes restrictions on how these 10 items can be used.
GATT XXI doesn’t have this paragraph, but like three of GATT XX’s items, it has the word “necessary.” What this means is that GATT XX case law on “necessary” will probably be relevant. Previous decisions say that there must be a “nexus” between a measure being applied and the interest being pursued. This could be taken to mean that Russia gets to define its national security as it sees fit, but it still has the burden of explaining how impeding Ukraine’s exports to third markets is “necessary” in this regard.
Second, the U.S. view would undermine dispute settlement more generally. The WTO insists that only its judicial bodies can find a member guilty of trade infractions, not the members themselves. China is testing this logic by taking a case against U.S. tariffs that Trump issued under Section 301. Interestingly, this is a repeat of a 1990s case filed by the European Union against the same U.S. measure. Back then, the United States agreed to wait for a WTO ruling before acting on Section 301 in the future. This was seen as a victory against unilateralism, and not just by the United States, since several of the third parties in this dispute admitted to having similar provisions. In the Ukraine case, a U.S. decision that adopted the U.S. interpretation of GATT Article XXI would pave the way for a resurgence of unilateralism.
The United States warned that a ruling on GATT Article XXI could ruin the WTO. Yet, if the institution does not limit the ability of states to abuse GATT Article XXI for nonnational security-related objectives, it could undermine the existing international trade regime. This brings us back to Ukraine’s case. It is likely that the WTO will seize the opportunity to set a high bar on the “necessity” clause under GATT Article XXI. This would not prevent countries from defining their national security interests as they see fit. Instead, it would simply mean that they would have to explain why they are pursuing these national security interests through trade.
Marc L. Busch is a professor in the School of Foreign Service at Georgetown University and host of the podcast TradeCraft.