2018 – part1 – 1 – 4

Bypassing the WTO or killing it softly?

US President Donald Trump’s march against multilateralism took an expected turn when his Administration announced the imposition of tariffs on steel and aluminium under a dusted off and infrequently used section 232 of the Trade Expansion Act of 1962. The suggested justification is national security, which is an exception provided for under Article XXI of the General Agreement on Tariffs and Trade (GATT).

It would not be the first time that tariffs or other restrictive trade practices have been imposed under this justification by the US and, judging from Douglas Irwin’s Clashing Over Commerce: A History of US Trade Policy, which chronicles US trade policy as a mediation between liberalism and protectionism, it may not be the last either.

The concern is that other countries may do the same (Qatar was subject recently to a trade embargo by some Gulf states that was justified on similar grounds) and there will, no doubt, be impact on the growth of international trade. Suggestions of retaliation loom, and if this is effected there is no way of knowing when the downward spiral will end.

Conventionally, such justifications for trade restrictions have been resolved outside of the GATT/World Trade Organization (WTO) mechanism on the basis of the political nature of the trade restrictions under this exception and the ambiguity of Article XXI of the GATT.

In instances where such issues are brought within the context of the GATT/WTO mechanism dispute settlement panels have declined jurisdiction. Thus, a GATT panel in “United States — Trade Measures affecting Nicaragua” refused to exercise jurisdiction on a US embargo imposed on Nicaragua during the Iran-Contra affair, noting that it had no review jurisdiction by its mandate and by the terms of Article XXI of GATT, and would express no view on whether the measure violated Article XXI of GATT.

The panel’s report was not adopted but provided a basis for the non-reviewability argument regarding Article XXI of GATT. More importantly, the exception is regarded by many as self-defining; each country deciding when and under what circumstances to invoke the exception.

The exception states in relevant parts that the GATT does not prevent a WTO member “from taking any action which it considers necessary for the protection of its essential security interests”. Thus, the self-defining nature of the national security exception suggests a subjective standard for assessing the necessity of a measure under Article XXI. Contrastingly, other GATT exceptions suggest an objective standard — a standard under which WTO judicial bodies may decide whether a measure is “necessary” and examine measures against this definition.

But the potential for abuse of the provision has tended to signal its reviewability. Like any other GATT provision, it is one that has limitations on its scope, and it is within a treaty that is subject to interpretation within a multilateral framework, given that the advent of the WTO is often championed as the triumph of legalism over diplomacy and power politics.

It is said that Trump’s current action is part of a scheme to undo the legitimacy of the WTO with his “America first” mandate, beginning first with its refusal to agree on the appointment of appellate body members (making it difficult for the WTO to address disputes) and a follow-up punch with national security tariffs which are deemed non-reviewable. And, if reviewable, an issue that would not be addressed on appeal in a timely manner, were a panel to exercise jurisdiction and rule against the US on the matter, providing some cover for the measure for a considerable period of time.

There is no gainsaying that Article XXI claims may not be properly addressed in the GATT/WTO mechanism. They signal an attempt to limit sovereignty by delegating to a dispute settlement body the mandate of what does or does not fit within that justification in accordance with a paradigm of its own, which may not be flexible or consistent with evolving notions of national security, even if self-determined.

This is an argument for bypassing the WTO and has been used on numerous occasions.

The GATT community persuaded Sweden to withdraw its national security protection over shoes which it imposed in 1970. WTO members have been successful in persuading Taiwan not to invoke the article in connection with the accession of the People’s Republic of China to the WTO. Colombia and Nicaragua have submitted their border dispute to the International Court of Justice in lieu of arguing the matter in the WTO. Finally, the United States and the EC reached a settlement in their dispute over the Helms-Burton Act.

Were such matters to be forced into dispute settlement there is the risk of non-compliance and possible retaliation by aggrieved parties requesting compensation to be approved by the WTO or the alternative of self-help by invoking similar justifications.

And if dealt with outside the GATT/WTO mechanism, there is an even greater risk of discriminatory trade measures where such measures are pursued by the more powerful WTO members. There are already discussions on potential exceptions or ‘carve outs’ for countries in respect of the tariffs on steel and aluminium.

This may mean an attack on the very legitimacy of the WTO as a multilateral institution in its commitment to principles of non-discrimination in trading relations among its members. The Trump Administration seems bent on not respecting, or is not particularly concerned about either the WTO’s legitimacy or a commitment to WTO rules even if this conflicts with the US’s position.

This is evident from President Trump’s 2018 trade policy agenda and 2017 annual report presented to Congress which states in relevant parts that:

“[T]he WTO has in some cases given (countries) unfair advantage over the United States…[O]ur trade policy should be consistent with, and supportive of, our national security strategy… (The Administration) will continue to use US trade laws and international enforcement mechanisms… Accordingly, the United States vigorously defends the use of US trade laws against challenges in a number of WTO disputes as a top Administration priority.”

Doubtless, this statement may very well be a signal that the flexibility of diplomacy and power politics is now to prevail over rules-based multilateralism, even though it refers to the use of international enforcement mechanisms. Or, put differently, we will use the WTO and abide by its rules only when it is convenient to do so.

Dr Delroy S Beckford is a Fulbright scholar, attorney-at-law, and adjunct lecturer in the Faculty of Law, The University of the West Indies, Mona. He is the author of Power and Judicial Activism in the WTO: The Appellate Body’s Interpretation of Trade Remedy Agreements .

Source: Jamaica Observer