The case of Russia – Railway Equipment

On 5 April, amidst the high drama of the Trade Wars, a WTO dispute resolution panel released the legal equivalent of a bombshell in its report on a dispute between Russia and the Ukraine. Russia—Measures Concerning Traffic in Transit may not sound particularly exciting, but this report could well become one of the most significant in WTO history. It is a clear assertion of the rule of law during a period when the global rules-based system is under strain. However, and for that very reason, it could be setting the WTO on a dangerous path of confrontation with President Trump and the dispute over his s. 232 steel and aluminium tariffs. Its effects will similarly be felt on the Arabian peninsula, given the dispute of the ongoing commercial boycott of Qatar by its neighbours.

Why exactly is this report so important? For the first time, a WTO panel was called upon to interpret the security exceptions of Article XXI of the GATT. Safeguarding national security goes to the heart of sovereignty, and so the rules governing when security interests prevail over trade interests – and when they do not – are highly sensitive. Here, the Ukraine was complaining that Russia had broken its GATT obligations. Russia invoked Article XXI on the strength of the Crimean crisis of 2014 and its aftermath.

Russia claimed that its mere invocation of Article XXI should be decisive in its favour. The Panel should have made one finding – “Russia has invoked Article XXI of the GATT 1994” – and left the entire dispute at that. The United States has advanced the same argument for decades and intervened in this dispute along the same lines.

As the Panel pointed out, there is no basis in the text of either the GATT or the Dispute Settlement Understanding (the “DSU”, under which panels are constituted) for treating Article XXI differently from any other article invoked by a party. It sought to buttress this position by noting that Article 7.2 DSU requires panels to address the relevant provisions of the covered agreements that are cited by the parties to the dispute. Using Article 7.2 in this way is more innovative than it seems. It is generally considered an infra petita rule, i.e. a rule that requires the tribunal to address each point raised by the complainant and not the defendant (the defendant may rely on a panel to apply available defences without raising them because “the court knows the law”, the principle of iura novit curia). Here, however, Article 7.2 was being used to justify the Panel’s jurisdiction – quite probably unnecessarily.

An alternative argument advanced by Russia and the US was that the language of Article XXI makes it a “self-judging” provision. The term “self-judging” has accrued several different meanings in its use by different countries and it is unclear precisely which was intended. In any case, the rather tart response of the Panel was that it was capable of drawing that particular conclusion itself if it saw fit, but to do so it was necessary to consider the wording.

So much for the jurisdictional issue. What about the interpretation of Article XXI? The parts relevant to the case read:

“Nothing in this Agreement shall be construed…

b. To prevent any Member from taking any action which it considers necessary for the protection of its essential security interests…

iii. Taken in time of war or other emergency in international relations…”

By way of background, a Member invoking Article XX (General exceptions) must demonstrate objective facts. In contrast, it has always been clear from the words “it considers” in Article XXI(b) that the security exceptions are at least partially subjective. In other words, at least some of the legal tests establishing whether a security exception does apply take the form “does the Member really think X” rather than “is X true”? In principle, it is much easier to argue that you think something is true than that something is true, and the subjective language here perhaps reflects acute sensitivity around national security on the part of those drafting GATT in the aftermath of the Second World War.

Until this Panel’s ruling, there was no jurisprudence about exactly how much of Article XXI(b) is subjective (or indeed on Article XXI generally). Having decided that Article XXI was indeed within its jurisdiction, the Panel tackled this problem by identifying three scenarios.

  • Scenario one. The words “it considers” qualify the rest of paragraph (b) including the subparagraphs. The Member invoking the security exception under subparagraph (iii) only needs to: consider that there is a war or another emergency in international relations; consider that there are “essential security interests” at stake; and consider that its action is necessary in that light. This approach was supported by Canada in its submission.
  • Scenario two. The words “it considers” qualify the rest of paragraph (b) excluding the subparagraphs. Unlike the first scenario, the Member must actually demonstrate that the action was taken in time of war or other emergency.
  • Scenario three. The words “it considers” qualify only the word that follows them (“necessary”). In addition to actually demonstrating that the action was taken in time of war or other emergency, and unlike the first and second scenarios, the Member must also actually demonstrate that essential security interests are at stake.

The Panel very firmly ruled out scenario one. It pointed out that all of the subparagraphs limit the discretion of a Member to invoke their essential security interests, and that this purpose would be weakened – possibly to the point of redundancy – if they were construed subjectively. It noted that all of the subparagraphs contained matters that were capable of being assessed objectively. Finally, it drew on previous jurisprudence stating that the general object and purpose of the WTO Agreement and its annexes is “to promote the security and predictability of the reciprocal and mutually advantageous arrangements and the substantial reduction of tariffs and other barriers to trade”. The Panel decided that this was incompatible with “subjecting the existence of a Member’s GATT and WTO obligations to a mere expression of the unilateral will of that Member”.

It’s worth pausing here for a second to consider the approach the Panel took to reach this interpretation. The Vienna Convention on the Law of Treaties provides for general rules of interpretation under Article 31. It also provides for “supplementary means of interpretation” (mostly negotiating history) under Article 32 in two rather different situations – to resolve ambiguities left by the general rules of interpretation and to confirm the results of the general rules of interpretation. The Panel devoted considerable space in the report to tracing the negotiating history of Article XXI, in accordance with Article 32, but was very clear that this was a confirmatory exercise. This (strictly unnecessary) exercise has the appearance of a determined effort to buttress a controversial outcome.

Having decisively ruled out scenario one, the Panel opted for scenario two on the grounds that what constitutes an essential security interest intrinsically “depend on the particular situation and perceptions of the state in question, and can be expected to vary with changing circumstances”. As a result, it is for “every Member to define what it considers to be its essential security interests”. This does not, however, give Members a blank cheque. As always, a Member must act in good faith; in this context that means that they must demonstrate that their determination is genuine. While this is a lower standard than (say) reasonableness, the more outlandish the claim that essential security interests are at stake, the more difficult it may be to convince an adjudicator that the claim is honestly held. Thus the Panel said “it is… incumbent on the invoking Member to articulate the essential security interests said to arise from the emergency in international relations sufficiently enough to demonstrate their veracity”. The “sufficiency” of the articulation will depend on how removed the situation is “from armed conflict, or a situation of breakdown of law and public order”. In coming to this rather specific conclusion about “sufficiency”, the Panel considered the meaning of the phrase “war or other emergency of international relations” and more specifically what is characteristic about it that links it to the notion of “essential security interests”.

The Panel report represents a milestone for the international rule of law. Whilst the Panel did determine that Russia was within its rights to invoke Article XXI(b)(iii) on the facts, while there may well be an appeal, and while the dispute settlement regime does not technically operate through precedent, the report has nevertheless thrown down the gauntlet to President Trump and his liberal use of national security justifications in trade policy. How he chooses to respond, should the US fail in invoking Article XXI in its current disputes, the WTO will face a moment of truth; the rule of law in international trade will either enjoy a great triumph or suffer a Pyrrhic victory.