Trade and Security

Pretextual Protectionism? The Perils of Invoking the WTO National Security Exception

By Matthew Kahn
Friday, July 21, 2017, 2:51 PM

On Wednesday, Axios wrote a piece outlining how President Trump’s own statements could threaten his trade policy objectives:

President Trump wants to invoke a national security provision to stop the ‘dumping’ of cheap steel into America, but trade lawyers believe Trump's public statements —and dubious legal reasoning—could expose the administration to significant legal problems.

Candidate Trump spent much of the 2016 campaign criticizing free trade and threatening to renegotiate international trade agreements or pull the U.S. out of the World Trade Organization (WTO). Now, as president, Trump has instructed the Commerce Department to investigate whether steel imports threaten national security and whether to invoke an obscure national security exception to circumvent the WTO’s restrictions on tariffs and nontariff barriers. (The same statute that authorizes the investigation—19 U.S.C. §1862—also gives the government domestic statutory authority to impose trade barriers for national security reasons.) His final decision, expected any day, could have unprecedented consequences for international trade and the laws and institutions that govern it.

Invoking this exception is no small matter: Lawyers call it “the nuclear option” and “the third rail” of international trade, deployed by world leaders acting like “cowboys.” U.S. military officials, policymakers, interest groups, and commentators warn that using the exception will have serious legal, policy, and commercial consequences. NATO members have considered retaliatory tariffs. Even the Canadians grumbled. And while many international trade experts insist the President would not dare, the market begs to differ: Steel stocks shots up last week after Trump doubled-down on his promise.

Below is a brief overview of the controversial move that the White House is considering, as well as background on the national security exception that they might invoke to justify it at the WTO.

What is Trump’s steel proposal, and why does it matter?

Trump’s prospective use of the national security exception focuses on China. Throughout the campaign, Trump derided China for dumping cheap steel into the U.S. market. In April, Trump directed the Commerce Department to investigate whether U.S. steel imports constituted a threat to national security. And as recently as last week, the president threatened to use steel tariffs to pressure China to take bolder steps to defuse the crisis on the Korean peninsula.

Axios already noted that the president actually cannot invoke the national security exception as a response to Chinese dumping:

the White House might never be able to use its preferred defense for steel tariffs using the GATT [General Agreement on Tariffs and Trade] because the WTO already has a superseding Anti-Dumping Agreement that specifically disciplines such cases—and it doesn't allow for a dumping case based on "national security" or contain any national security exceptions. Given that the administration has been clear that dumping is a centerpiece of its Section 232 investigation, a WTO member could choose bring a legal challenge under the Anti-Dumping Agreement to preempt the administration's Article XXI plan.

But regardless of how the legal argument would hold up, that the White House is even considering using the provision raises another specific fear: The president could invoke the national security exception as a pretext for unrelated protectionist objectives. The administration has repeatedly criticized foreign imports on grounds other than security. The White House might, therefore, struggle to convince the international community that the motive behind a particular invocation of the provision was limited to national security interests. (The quick change in his stated motive behind dismissing FBI Director James Comey may signal that the president himself may not even be able to toe the line for long.) If the rationale sounded pretextual, then not only would it undermine U.S. credibility abroad, but other countries may also use the security exceptions—which, as will be explained later, are likely unreviewable at the WTO—to justify the trade policies they prefer, reducing the international role of the WTO and potentially fomenting trade wars.

But the outcome is not much better if the president could demonstrate that he was genuinely using the exception for a bona fide national security purpose. Even when legitimately serving a security interest, invoking the exception risks normalizing a treaty provision whose use its drafters and original signatories feared and hoped would only increase buy-in to the GATT. If countries raised tariffs each time doing so might serve their national security interests, then there would be no place for an international trade arbitrator. In fact, among the stated objectives of the WTO is to promote “peace and security” by opening “national markets to international trade”—the point being that sacrificing some short-term interest might promote security in the long run.

What is the national security exception?

The national security exception exempts countries from WTO regulations under certain conditions. It exists to encourage countries to participate in the WTO; the drafters of the GATT recognized that countries would be loath to join any agreement that did not allow them to protect their security interests without fear of arbitration. They thus sought to create a specific set of exceptions in order to strike a balance that “would take care of real security interests” while limiting “the exception so as to prevent the adoption of protection for maintaining industries under every conceivable circumstances.”

To that end, Article XXI of the GATT sets out three conditions for exceptions on the basis of security interests:

Nothing in this Agreement shall be construed

  1. to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or
  2. to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests
    1. relating to fissionable materials or the materials from which they are derived;
    2. relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying;
    3. taken in time of war or other emergency in international relations; or
  3. to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security

The drafters thought these exceptions would ameliorate the most important concerns of potential signatories. Part (a) allows countries to protect sensitive national security information that might otherwise be required in WTO proceedings. That might be reasonably read to include information that in the U.S., would be classified under Executive Order 13526. But it could also include other information that carries security implications, like government opinions and priorities. In response to a Czechoslovak complaint about U.S. national security export controls in 1949, the U.S. delegation to the GATT invoked Article XXI(b) in declining to provide the “names of the commodities that it considers to be the most strategic.”

Part (b) exempts countries from taking otherwise prohibited actions related to the transfer nuclear material, the traffic in weapons and other tools of war, and other steps taken during times of war or other international emergencies. Contracting parties have invoked these provisions in a range of situations. In 1975, the Swedish government used “the spirit of” Article XXI to defend an import-quota on certain types of shoes, borrowing language from part (b)(iii) in formal documentation. It believed that low domestic production had threatened the country’s ability to “secure the provision of essential products necessary to meet basic needs in case of war or other conflict in international relations.” In another case, the United States raised the provisions to justify a trade ban against the Sandinista Nicaraguan government in 1985.

Part (c) applies narrowly to grant immunity from arbitration to countries that impose trade restrictions as a component of U.N. authorized sanctions regimes or other tools of international economic statecraft. Countries sometimes cite it to explain low trade levels with sanctioned countries on balance-of-payments documentation.

What counts as a “security interest?”

The drafting commissions recognized that ultimately, avoiding abuse depended on the restraint of WTO members. Countries on the receiving end of perceived unfair national security-related trade barriers unsurprisingly tend to argue for narrow interpretations of “national security interests” and urge caution when invoking the exceptions. The GATT and WTO, however, have generally interpreted the provision to mean, as one scholar summarized, citing case law, that “no WTO Member nor group of Members, and no WTO panel or other adjudicatory body, has any right to determine whether a measure taken by a sanctioning member satisfies the requirements.”

The lack of reviewability does not prevent public criticism for expansive definitions of “essential security interests”—the international community harshly criticized Sweden for the aforementioned footwear case. Still, the fact remains that contracting parties enjoy something approaching immunity from WTO review when exercising their national security prerogatives.

Probably the most prominent articulation of the self-judging nature of Article XXI was in a 1961 dispute between Ghana and Portugal. Ghana, a party to the GATT, cited Article XXI(b)(iii) as justification to boycott goods from Portugal, whose colonial government in Angola was at war with several revolutionary groups. Ghana justified an embargo against Portugal, arguing that "under this Article each contracting party was the sole judge of what was necessary in its essential security interest. There could therefore be no objection to Ghana regarding the boycott of goods as justified by security interests." The understanding from 1961 seems unmodified today, as there have been no rulings on Article XXI: Individual countries are their own judges for the purposes of the national security exception.

Where does that leave President Trump’s steel plan?

That Article XXI is a “self-judging” provision raises the stakes of if and how the president chooses to use it. Even if Axios is right to say that the provision will not help in the current China dumping matter, the history of the exception suggests it probably serves U.S. interests best by remaining obscure. But like so many domestic and international norms that past presidents have observed, the notion that the national security exception will remain an exception is not a matter of law but of the White House’s calculation and judgment. The future of the current system of international trade may hang in the balance.