Looking at the US-China Trade War with emphasis on Art XXI

Invocation of Tariffs by the USA

President Trump gave his assent to impose duties of 25% on steel and 10% on aluminium imports through Presidential Proclamations on March 8, 2018. The power to impose such tariffs are provided to the POTUS under is section 232 of the Trade Expansions Act, 1962 which permits the executive to limit imports of products for national security purposes. Under this statute, citizens can petition the government to apply import restraints and the government must respond within one year by restricting imports or by providing reasons to not do so. The decision is based on investigations initiated by the Secretary of Commerce that determine the effects of imported products on the national security of the US. To determine whether the import restrictions are justified, the Secretary and the President should consider factors involving national defence requirements as well as examine the impact of imported articles on the economic welfare of the internal economy and domestic industries; the provision also emphasizes on the close relation of economic welfare to national security.

The President Proclamations justified the tariffs on the ground that the imported articles threaten the “closure of the domestic steel production facilities” and reduce their ability “to meet national security production requirements in a national emergency.” Initially, Canada and Mexico were exempted from the tariffs; subsequently, the US went on to grant temporary exemptions to the European Union, South Korea, Australia, Argentina, and Brazil.

Article XXI: Its Scope, Nature and Reviewability

Article XXI is the national security exception under the GATT which allows the Member States to take certain measures which would otherwise be prohibited under the garb of protecting the national security interest. The article provides exceptions in the following manner: (a) members are excluded from disclosure of information which it considers to be contrary to its essential security interests; (b) any action that a member state takes which it considers necessary for the protection of its essential security measures relating to regulation of fissionable materials, regulation of traffic and in arms and any action in pursuance of UN Charter obligations relating to maintenance of international peace and security is excluded; or (c) it contains a vaguely worded clause that allows for an action taken in time of war or other emergency in international relations. Few questions that arise with respect to Article XXI are: How near or impending should the threat be? Is there any threshold of necessity under Article XXI? To help me with these questions, I searched for cases and previous instances wherein this exception had been used.

Previous Invocations of Article XXI

Article XXI was invoked for the first time by the US to justify its sanction against Czechoslovakia. Czechoslovakia challenged the invocation of the provision in a broad way by the US. Although the challenge was rejected on substantive grounds, it is significant that the US did not challenge outside review of the invocation. However, there was a shift from this position in a case where the application of Article XXI as a justification for the US embargo on all transactions relating to imports from Nicaragua and exports to Nicaragua was challenged by Nicaragua. It was argued by the US that the language is self-judging. The GATT panel refused to exercise jurisdiction and asserted that it had no authority to examine the correctness of invocation of Article XXI. A similar line of argument was taken by the US in its submissions in the Russia—Traffic in Transit case, where it argued that a Member has the “discretion and responsibility” to decide “what is required to protect the security of its nation and citizens.” Article XXI was also invoked by the US to justify the presidential proclamation issued in 1962 which imposed an embargo on trade with Cuba. Most recently, Qatar requested consultations with UAE, Bahrain, and Saudi Arabia post imposition of the trade embargo against Qatar by these countries. Subsequently, Qatar asked for the establishment of panels. While Qatar has argued that the measures are against GATT, GATS, and TRIPS, UAE has argued that it is in the interest of its national security as Qatar funds terrorist organizations. Once again, the contention is with respect to the self-judging character/non-reviewability of Article XXI.

Arguments advanced by China

China has requested for consultations with the US and asserted that the measures are, inter alia, are inconsistent with the Agreement of Safeguards on the ground that there was a failure to provide a reasoned and adequate explanation for the imposition of tariffs and non-compliance with the procedural requirements. Additionally, it has argued that selective application of the measure is inconsistent with the obligation under Article I:1 of GATT. By doing so, China has negated the claim that it falls under Article XXI. It also provides an advantage to China because under Article 8.1 of the Safeguards Agreement, an affected country can request for consultations and the parties may agree for compensation for adverse effects of the measure. On failure to reach an agreement within 30 days of consultations, the exporting members are entitled to suspend, on 30 days written notice, “the application of substantially equivalent concessions or other obligations under GATT 1994, to the trade of the Member applying the safeguard measure.” The EU, India, Russia, and Thailand have requested to join the consultations.

Possible repercussions and Way Forward-

Although there is an element of self-determination with respect to measures under Art XXI which rarely seen in any other GATT provision, the exercise of determination is still subject to good faith as held by the ICJ in Djibouti v. France. However, Simon Lester has argued that the US can justify that its measure was taken in good faith since section 232 contains an elaborate procedure. The invocation of Article XXI for non-economic reasons is against the intention of the drafters as well as the Ministerial Declaration of 1982. The measures have prompted responses by nations; the European Union has launched its safeguard investigation and is contemplating action against the US, while China has imposed heavy duties on a list of US products. Further, the China-US relations have worsened with a parallel dispute regarding US’ allegations on China’s theft of trade secrets and forced technology transfers. In this regard, the highly contested views about the scope of Article XXI are required to be settled by a panel body to bring in clarity and to prevent the use of Article XXI for any restrictive measure.

Furthermore, as an agreement is unlikely to be reached between the Parties, it could ask a dispute panel to rule on the tariffs – which generally takes about 18 months. An Airbus-Boeing dispute, for example, took more than a decade to produce a final ruling. This is would be highly undesirable for China and the other Member States while affording the time to the USA. Ultimately, the judges in the WTO’s dispute settlement process could rule that the United States should end the tariffs. Washington could refuse to implement such a ruling but would then face the possibility of sanctions.

With the dispute thus not seeming to head to a satisfactory conclusion for either Party, it is suggested that fiscal measures could be a better alternative to achieve economic welfare as opposed to tariffs.


ABOUT THE AUTHOR

Advik Rijul Jha

Passport pic

Advik Rijul Jha is a Fourth Year (BA LLB) student at Jindal Global Law School, OP Jindal Global University, Sonipat, Haryana.

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