A primary focus of the Trump Administration’s agenda has been to remake U.S. trade policy with measures largely viewed as protectionist and anti-free trade, and critics of this agenda may have found support from a World Trade Organization panel.
The administration has imposed tariffs on steel and aluminum imports by claiming authority under Section 232 of the Trade Expansion Act of 1962. Section 232 grants the executive branch authority to impose tariffs on goods in the interest of national security.
The stated rationale for the steel and aluminum tariffs is that these imports threaten the domestic steel and aluminum industries, and by extension threaten the national security interests of the U.S. since those commodities are critical in a time of war.
Section 232 tariffs are a ready-made antidote for a protectionist administration that seeks to undermine the past half century of agreements seeking to limit barriers to free trade, including the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA).
Despite their free trade goals, those agreements, along with many other international treaties and agreements, typically do not limit a country from taking actions deemed necessary to protect an essential security interest. National security is a broad exception to agreements that otherwise seek to reduce trade barriers and encourage free trade.
Critics of the Trump Administration’s use of Section 232 tariffs argue that the administration may be using “national security” as a pretext for what are purely economically motivated tariffs. According to critics, the true aim of the tariffs is to improve the bargaining position of the U.S. in renegotiating trade agreements and seeking new trade deals. The tariffs are not necessary to protect an essential security interest of the U.S.
Tariff Opponents Find Possible Ally
The opponents of the broad use of Section 232 tariffs may have now found an ally in a World Trade Organization (WTO) Dispute Settlement Body Panel. On April 5, 2019, a panel released a decision interpreting GATT and its national security exception in a case involving Russia and Ukraine.
The panel held that treaty members do not have unbounded discretion to invoke trade barriers on the grounds of the national security exception in Art. XXI of GATT. Specifically, the panel found that both the treaty and international law permitted the panel to inquire whether the party invoking the national security exception acted in good faith.
With U.S. support (via a third-party submission), Russia argued that the national security exception in GATT was entirely “self-judging” and therefore actions that a country claimed were necessary for national security were not subject to substantive review.
If adopted, the position of Russia and the U.S. would insulate countries from having their motivations and justifications examined by the WTO when a country determined that a trade measure that would otherwise violate GATT is implemented under a claim of national security.
The WTO panel rejected the position of Russia and the U.S. It held that the national security exception to GATT was not self-judging. It further determined that it has the authority to evaluate the contours of a claim of national security and that a party may not simply claim national security to evade its trade agreements. As the panel concluded:
The obligation of good faith requires that Members not use the exceptions in Article XXI as a means to circumvent their obligations under the GATT 1994. A glaring example of this would be where a Member sought to release itself from the structure of “reciprocal and mutually advantageous arrangements” that constitutes the multilateral trading system simply by re-labelling trade interests that it had agreed to protect and promote within the system, as “essential security interests”, falling outside the reach of that system.
Decision Opens Door to More Challenges
The panel’s decision tees up other WTO challenges to the Trump Administration’s use of Section 232 tariffs. It also has implications beyond the WTO. The national security exception in GATT is substantially similar to the national security exception in the North American Free Trade Agreement (NAFTA) and other investment treaties.
The willingness of the WTO panel to reach the national security question may mean that other WTO panels will review the U.S. rationale for invoking Section 232 tariffs and test whether those tariffs are purely economic or are indeed necessary to protect an essential security interest of the U.S. It may also mean that investors with treaty protections being overridden by Section 232 tariffs may decide to challenge those tariffs and/or seek damages related to the implementation of those tariffs through investor-state arbitration.
While not binding on a NAFTA tribunal, for example, this WTO panel decision could certainly be used as persuasive evidence that the national security exception can be reviewed in a future investment claim against the U.S. regarding the steel and aluminum tariffs.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Thomas G. Allen, Nicole Y. Silver, and Tomás Leonard are shareholders in Greenberg Traurig’s International Arbitration & Litigation Practice. Allen is a litigator who focusing his practice on international arbitration and cross-border disputes. Silver focuses her practice on international litigation and dispute resolution. Leonard focuses his practice on international arbitration and international litigation covering primarily foreign direct investment (FDI) in Latin American countries.
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