Members of the World Trade Organization are increasingly using security as a reason to restrict trade and investment in a discriminatory way. Borderlex’s Iana Dreyer spoke to Mona Paulsen about how they can be made – somewhat – accountable for not abusing their powers.
Recently described as a ‘black hole’ of the global trading system, the essential security exception has been frequently used by major trading powers in recent years.
The exemption justifies countries’ non-compliance with the foundational trading rules established in 1947 with the General Agreement on Tariffs and Trade. These rules were carried over into the World Trade Organization and its various agreements covering trade in goods, services and intellectual property.
Many fear that the system as we know it will simply cease to function if the trend persists.
“If members are not going to remain committed to the rules, then we are in a system that will just not work,” Mona Paulsen said in a recent conversation with Borderlex in London.
“There are many smaller countries that are concerned about their firms and that they will just get lost in a sea of security concerns,” says the London School of Economics academic.
The national security exception came to the international limelight in a WTO context during legal disputes involving Ukraine and Russia after the latter annexed Crimea, and between Qatar and Saudi Arabia.
The security exception that has captured imaginations beyond the small world of trade law experts are the steel and aluminium tariffs enacted by the Trump administration five years ago based on cold-war-era Section 232 legislation. Rather tellingly, the Biden administration never abolished them.
The trend continues.
Some actions fit into geopolitical conflict. Recently Western powers rescinded Russia’s most-favoured-nation rights after its military attack on Ukraine in February this year. They also enacted sweeping sanctions against Russia.
Other actions do not give rise to a classic notion of defence or military interests. There is a growing tendency in the United States to see climate protection under the national security lens, thus warranting discriminatory trade and investment measures.
The world is watching with puzzlement as the EU develops an anti-coercion instrument, asking themselves what kind of new developments it could bring as a tool that tackles inherently political and economic security-related issues through trade policy.
“Powerful WTO members are increasingly saying: ‘Sorry, we can’t talk about security, but our economy is security, our data is security, our tech is security, our environment is security and our health is security’”, deplores Paulsen. “Are we going to get lost in this?”
Boundless exceptions to rule-book
The law academic studied how Article XXI of the General Agreement on Tariffs and Trade came about after World War II.
Article XXI includes broad, vaguely-worded national security exceptions to all rules governing trade in goods. This applies not least to the ‘most favoured nation’ and ‘national treatment’ principles, core non-discrimination tenets of the global trade rule book.
This canonical WTO article states that “nothing in the agreement” may “prevent any [member] from taking any action which it considers necessary for the protection of its essential security interests”.
There are caveats as these measures must be related to trade in fissionable materials, arms trafficking, for the purpose of supplying the military, taken in times of war or other emergency in international relations, or in order to take action in pursuit of obligations under the United Nations Charter to maintain international peace and security.
Crucially, Article XXI also exempts members from “furnishing any information the disclosure of which it considers contrary to its essential security interests”.
This is a critical paragraph. It waives any transparency and notification obligations enshrined in the GATT rule-book. It is still unclear how this implicates disclosures of trade measures to relevant committees in Geneva, in regular country trade policy reviews, and during dispute settlement proceedings.
“One of the key motivations for having the multilateral trading system after the second world war was to help governments rebuild and re-establish the global economy,” explains Paulsen.
The aim was to move away from zero-sum beggar-thy-neighbour trade policies of the pre-war period and to create “an open level playing field” for all countries involved. The goal was prosperity understood globally and not in national terms to the detriment of others.
“They made trade liberalisation the rule and security the exception. To preserve the newly created trading system, the drafters planned for invocation of security in exceptional times, and where real security interests were threatened,” Paulsen explains.
There are other exceptions included in the WTO rule book, as encapsulated in GATT Article XX which covers issues such as environmental protection. These enjoin members to be reasonable in their response, to not distort trade excessively and to act in a non-arbitrarily discriminatory way.
The security exception is different. It has no boundaries. “There is no end point to it”, says Mona Paulsen.
Until recently, members largely refrained from taking the route of justifying trade restrictions with security. But that pandora’s box is now open and many are happily going down the security rabbit hole.
Creating space for members to communicate on security
In the current context of growing international tensions, the trend is here to stay, and there is little that can be done in a member-driven organisation such as the WTO.
“The WTO is not a world government, it is not a world court, it is not a world policeman,” says Paulsen. “So when a government says, look we can’t provide information, one [has to] trust them.”
Many international frictions can be quietly avoided as WTO members can discuss a new trade restriction taken by a member for health, food safety, or environmental reasons in dedicated committees hosted at the secretariat in Geneva – all on the basis of notifications sent by countries that enact them.
“WTO members need space to discuss – and disagree with – the intersection of security and trade policies”, writes Paulsen in a forthcoming new paper for the Journal of International Economic Law.
Paulsen’s latest research shows that members already raise security issues within committees.
WTO member notifications at times include security alongside a range of other justifications for health, safety or environmental reasons. Export controls and cybersecurity measures are all raised by members in a range of committees.
Paulsen’s research also reveals that they have done this for many years, even before the Trump years and the Covid-19 pandemic.
The researcher thinks it is possible to build on this practice and improve communication channels among WTO members. Choosing that path would help maintain trust among members and guarantee some accountability for countries raising security arguments in their trade decisions.
Since members are explicitly allowed not to provide substantive discussions on security, approaches must be low-key and pragmatic.
This is about ensuring that countries “are at least acknowledging to other members that [they] have gone through a process, that [they] at least thought this through, that it is not a strategy or a tactic that can be confused with protectionism,” says Paulsen.
Possible WTO reform item?
Members have recently launched discussions on institutional changes and practices as part of their pledge made at the last ministerial conference in June 2022 to deliver on a WTO reform package.
The Ottawa Group of reform-minded WTO members set up in 2018 have long been discussing ways to improve the low-key, boring-sounding, but vital aspects of the institution – namely transparency and notifications.
Paulsen’s policy suggestions aim to feed into these reflections.
Improvements to notifications can be made by nudging countries into at least retroactively disclosing trade measures enacted in emergency situations for security reasons, Paulsen believes.
“Governments may not want to advertise imminent security-rooted actions, but they should commit to setting time frames so that security does not become a new status quo,” she writes in her forthcoming paper.
There can be a more systematic way of handling notifications across WTO agreements and their committees. Possible innovations could include finding a way for members to make partial disclosures, with some information remaining classified.
Such methods already exist in WTO dispute settlement procedures to handle sensitive business information. They could form the basis for more systematic tracking of security measures of member countries without encroaching on their core security interests.
These proposals do not require a change to the rule-book nor to the balance of power away from member countries.
A role for the WTO secretariat
Paulsen also suggests that the WTO secretariat could be empowered to do a little more to support the smaller members.
It only requires a large enough coalition of middle powers and smaller countries to support such moves and nudge the WTO secretariat into pressing for a little more disclosure and accountability from the big players, Paulsen argues.
Such small but meaningful steps could help avoid a major institutional drift, she hopes.
“The worst-case scenario is that members stop using the WTO altogether.”
Without WTO-wide discussions, there is the risk that the powerful few that expansively use security change the WTO by “reframing the relationship between trade and security without discussion with all members”.
Left unchecked, an “unspoken reorientation of trade to the terms of the few” could entail institutional drift, Paulsen says.
The coming months will show if enough WTO members see the importance of keeping communication channels open in these turbulent times – for the sake of global prosperity.
Mona Paulsen’s forthcoming paper, Let’s Agree to Disagree: A Strategy for Trade-Security will be published in late 2022 in the Journal of International Economic Law.