When countries use ‘security’ to restrict trade

By: |
May 10, 2019 1:34 AM

Although the WTO has expressed its right to adjudicate security exceptions invoked by members under Article XXI of GATT, it remains to be seen whether WTO members, particularly major powers, accept this point of view.

It is important to exercise utmost caution in using security as an excuse for restricting trade. Such a tendency is highly inimical to the orderly functioning of global trade.

A recent judgement by the World Trade Organisation (WTO) on a dispute between Russia and Ukraine has great implications for the controversial relationship between international trade and national security. Separately, the ruling has implications for India, too, as India has joined several other WTO members in disputing the steel and aluminium tariffs imposed by the US last year on national security grounds. The judgement would be utilised by various countries in the future to interpret the extent by which national security interests enable exceptions from obligations that WTO members need to extend to each other.

Ukraine took Russia to the WTO dispute settlement for the restrictions it imposed on transit of goods through Russia by road and rail meant mainly for movement from Ukraine to Kyrgyzstan and Kazakhstan, but also to Mongolia, Tajikistan, Turkmenistan and Uzbekistan. Russia countered the complaint by arguing it had done so on its essential security interests following the ‘emergency in international relations’ in 2014: primarily alluding to the outbreak of military hostilities with Ukraine in the year. More importantly, and in what has a direct relevance to the US trade actions on national security grounds, Russia invoked Article XXI of GATT (the General Agreement on Tariffs and Trade). The article, as Russia argued—as much as the US also had—allows security interests to determine trade restrictions even if they work against the spirit of the WTO; and such actions are ‘non-justiciable’ by the WTO. In other words, the WTO is not empowered to review trade restrictions introduced by countries on national security grounds.

The WTO has delivered an interesting judgement on the dispute. It has upheld Russia’s rights to impose the transit restrictions that it did in the light of the tense situation and hostile circumstances between the two countries. At the same time, it has indicated that the WTO is empowered to review and judge such measures. This indicates that countries can’t get away by invoking trade restrictions on security interests, and by alluding to Article XXI of GATT. While accepting that WTO members can ‘self-judge’ the circumstances that underscore threats to security, the WTO—according to the judgement—retains the right to adjudicate whether those same circumstances satisfy the requirements of Article XXI; in other words, whether the members are justified in using security for blocking trade, or whether invoking security amounts to a misuse of Article XXI.

The judgement’s implications are crucial for the relationship between international trade and security. Globally, geopolitics is becoming one of the most important determinants of trade. Countries are moving towards trade alliances on the basis of geopolitics. In some cases, mutual security interests are driving trade relations. The opposite is also equally true. Countries are taking to trade restrictions for ‘safeguarding’ essential security. However, such measures might also be efforts to ‘manage’ trade in specific fashions. The tariffs of the US on steel and aluminium imports imposed in March 2018 are a major example. The US imposed these tariffs under Section 232 of the US Trade Expansion Act of 1962, describing higher imports as detrimental to national security. It is the same section under which it is pursuing investigations on imports of automobiles and auto parts, for assessing the possibility of retaliatory action.

Both Russia and the US have argued that invocation of national security by employing Article XX1 is ‘non-justiciable’ by the WTO. But the WTO has overruled this contention. It now remains to be seen what it decides on the ongoing dispute between the US and India (along with several other countries) on American tariffs. If the current judgement is an indication, then the American rationalisation of the tariffs on national security—as decided by its own assessment of national security under Article XXI—might not hold. However, a new panel adjudicating the dispute might have a different view on the subject.

Both the US and Russia favour using national security exceptions for unilateral trade actions. This proclivity on part of large global powers, once established, might become a dangerous trend. It might lead to situations where other countries begin using security as a convenient tool for ‘managing’ trade. Furthermore, they might begin using Article XXI for protective economic policies—as the US already has, through its steel and aluminium tariffs. With trade increasingly getting digital and national security assuming complex proportions, the possibility of countries using national security as a ground for blocking cross-border data flows can’t be ruled out. Security, as it is, is central to most data localisation policies.

Although the WTO has expressed its right to adjudicate security exceptions invoked by members under Article XXI, it remains to be seen whether WTO members—particularly major powers like the US, Russia, China and the European Union—accept this point of view. After all, security is a sovereign concern and countries are best placed to judge threats to their security. While not undermining the sovereign rights of countries to act on core security interests, it is important to exercise utmost caution in using security as an excuse for restricting trade. Such a tendency is highly inimical to the orderly functioning of global trade.

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