Security Interests, Trade Wars & the International Economic Law

Introduction

According to Roberto Azevêdo, the Director-General of the World Trade Organization (WTO), seeds of impending ‘trade war’ have been sown. He recently wrote:

“Global trade is under threat. Whether or not you call the current situation a trade war, certainly the first shots have been fired. This calls for our attention, and most importantly, our action.”

His statement is inchoate in the sense that it does intimidate without specifically pointing out the cause or reason of the befalling situation. The epicentre of the latest scene of the global trade is ‘the security interest’ – not only politically, but also legally. The instant write-up will show how the existing international economic law along with the US national law had kept an exception to the global trade law system, which has been invoked by the US President Donald Trump in his recent proclamations that imposed tariffs on China and other countries, and how far the exception can be dealt with by the dispute settlement system of the international trade and economic law.

The WTO and Security Interests

The World Trade Organization (WTO) was constituted in the Uruguay Round of trade negotiations. The legal texts of the agreement comprise a Final Act, An Agreement Establishing the WTO and four Annexes, each dealing with a separate conceptual theme like areas of trade (goods, services and intellectual property), dispute settlement, review mechanism and plurilateral agreements. Annex 1 provided a General Agreement on Tariffs and Trade, 1994 (GATT 1994), which had continued the earlier General Agreement of Tariffs and Trade, 1947 (GATT 1947). The GATT 1947 had an exception to the global trade law in its Article XXI (2) (b) that read:

“Nothing in this Agreement shall be construed

(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or
(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests
(I) relating to fissionable materials or the materials from which they are derived;
(ii) 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 a military establishment;
(iii) taken in time of war or other emergency in international relations; or
(c) 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.”

Read More: Globalization at a Crossroads, The changing economic world order

Alongside its national law, the United States has invoked this very clause in its case for tariffs, and this legal provision has provided the ‘ammunition’ of the gunshots, in the words of Roberto Azevêdo, fired at the global trade system. The tracing of the legal provision shows that the US is playing by the rules irrespective of the fact that had the legal provisions invoked against it, it would have responded quite differently and aggressively. The purpose of highlighting the legal provision is to bring home the point that the global system had kept an exception, which has been invoked by the US and this factor must be part of the analysis on the topic to have an informed view.

Having reverse-tracked the legal provisions dealing with security interests as an exception to the global trade law, the second question that begs discussion is that of the ‘security interest’ exception subject to adjudication by the dispute settlement system of the WTO, or is it beyond the scope of the adjudication by the dispute settlement system? The opinions of international lawyers differ on the point. While some consider the ‘exception’ to be ‘self-regulated’ by a state, others argue that it is not and that the dispute settlement system can adjudicate on its invocation. The latest case before the WTO dispute settlement system on the subject is the case between the UAE and Qatar, where the latter has challenged the ‘self-regulation’ of the exception by the former.

The US Law and Security Interests

In addition to the international law, the US President has also invoked Section 232 of the Trade Expansion Act, 1962, along with Section 604 of the Trade Act, 1974, in his Proclamation of 8th March 2018. The invocation of national law for international matters is not new for the United States. In shifting the US embassy from Tel Aviv to Jerusalem, President Trump invoked US national law i.e. the Jerusalem Embassy Act, 1995. Legally speaking, there are two issues related to this approach: first is the relationship of the US national law with the international law, which is at best tenuous, and the tendency in the US is to internationalize its national law leading to question marks on the effectiveness and legitimacy of international law; the second issue relates to the expansive power of the US President to unilaterally decide foreign relations of the United States without full authority from the US legislature. The two points must be kept in mind while approaching the issue as when and if the US legislature and its judiciary assert themselves, the outcomes can change materially.

The CPEC and Security Interests

From the point of view of Pakistan, and in the context of the One Belt, One Road (OBOR) Initiative and the China-Pakistan Economic Corridor (CPEC), the question of invocation of ‘security interests’ clause in bilateral treaties may become important as it is part of standard bilateral investment treaties. In future, ”China’s recently announced three international courts in Beijing, Xian and Shenzhen may be required to adjudicate about the clause.

Final Remarks

The international relations most often than not focus at examining things from political and economic perspectives. The legal points noted in the essay clearly show that legal triangulation of the international relations and foreign affairs is as important as their political, economic and strategic understanding.