By Claude Barfield

In a trade policy action that has received little
publicity, the Joe Biden administration recently lined up squarely with the
stance of the Donald Trump administration on the national security exception to
world trade rules — and likely placed itself athwart the World Trade
Organization (WTO) on this complicated issue. Here is the background.

Going back the origins of the post–World War II multilateral trading system in the General Agreement on Trade and Tariffs (GATT), there has always existed a national security exception to negotiated trade rules (this rule was carried over to the WTO in 1994: GATT Article XXI). The exception was rarely invoked, as all feared that such actions could open a floodgate of protectionist measures disguised as national security imperatives.

The Trump administration — in a transparently cynical move — invoked a national security exception from underlying US trade law (Section 232 of the Trade Expansion Act of 1962) on widely available steel and aluminum products, even on staunch US allies. The action produced a well-deserved storm of criticism. A number of nations have challenged the action as a violation of US WTO obligations.

Next, in 2019, a WTO panel handed down the first decision involving the national security exception in a case between Russia and Ukraine. In blocking the transit of goods between Ukraine and several neighbors, Russia cited the national security rationale, and it also argued that the decision was self-validating and not reviewable by the WTO judicial system. The US intervened to support the Russian legal arguments. 

Briefly, here are the highlights of the panel decision. First, it rejected the Russian — and US — argument that the issue could not be reviewed by a WTO panel. That panel ruled that the national security exception can be reviewed “objectively” to determine whether the action taken had a plausible connection to national security and specifically was necessary to protect such security.

Article XXI also allows national security trade actions “taken in time of war or other emergency in international relations.” In its exposition, the panel severely restricted the conditions that would support a national security exception. Because the WTO adjudicatory system is suspended due to conflicts over the future of the system itself, the panel in effect is suspended, though it could be challenged and appealed in the future.

This brings us to the position of the Biden administration. Invoking the national security exception once again, the Trump administration had labeled products from Hong Kong as “made in China” and thus endangering US security. Hong Kong has challenged this designation and asked for a dispute panel to settle the matter. Ten days ago, the Biden administration answered Hong Kong with a ringing defense of the Trump administration’s arguments regarding the WTO national security exception.

In defending its “essential security interests,” the US stated:

The clear and unequivocal U.S. position, for over 70 years, is that issues of national security are not matters appropriate for adjudication in the WTO dispute settlement system. . . . The WTO cannot, consistent with Article XXI of the General Agreement on Tariffs and Trade 1994, consider those claims or make the requested findings.

The US went further in its reaction, tying this issue to the drive
for overall WTO reform: “Infringing on a Member’s right to determine, for itself, what
is in its own essential security interests would run exactly contrary to the
efforts to revitalize and reform the WTO that are necessary to ensure that it
lives up to its potential.”

Here are some thoughts on the US stance last week. First, it is still the early days, and the Biden administration still does not have its trade team in place. That said, it is inconceivable that such a strong reaffirmation of the US position on WTO rules and national security would not have been cleared through political channels at the White House. Second, it portends a difficult, possibly intractable juxtaposition of multilateral trade rules with the realities of strategic technological competition — specifically, how the US and its allies will deal with China’s state capitalistic model that fuses economic and military policy together. Given this circumstance, the extremely narrow room for Article XXI put forward by the initial WTO panel will not be allowed to stand by the US — as foretold by the Biden administration’s decision to extend sweeping Trump administration restrictions on Chinese technology companies.

At this point, it is unclear how all of this will play out at the
WTO and also in negotiations with US allies to create a united front against
Beijing’s predatory trade and investment regime. But this nexus of trade,
security, and technology issues will pose one of the most confounding
challenges for the Biden administration.

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