WTO issues ruling on Russian sanctions on Ukraine

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On 5 April 2019, a decision of the World Trade Organisation (WTO) Panel in “Russia – Measures Concerning Traffic in Transit” (WT/DS512/R) (the Report) was published. The decision related to restrictions imposed by Russia on the flow of traffic in transit from Ukraine.  It is the first dispute in which a WTO dispute settlement panel has decided the issue of jurisdiction where a WTO Member argued that its trade-related restrictions were justified on national security grounds under the exception in Article XXI of the General Agreement on Tariffs and Trade 1994 (GATT).    

Importantly, the Panel found that it did have jurisdiction to review a WTO Member’s invocation of the national security exception, rejecting Russian and US arguments to the contrary.  The reasoning of the Panel could have a significant impact on other WTO disputes that are currently underway. At a general level, the Panel decided that it is not for a WTO Member on its own to determine whether it has satisfied the GATT national security requirement.  More specifically, the Panel held that Russia’s measures were taken during an “emergency in international relations” and were, therefore, covered by Article XXI.  However, as the Panel clarified that “political or economic differences” alone would not be sufficient, the Panel’s reasoning, albeit non-binding, puts in doubt the ability of the US to defend successfully the on-going challenges to its Section 232 measures on steel and aluminium imports and may impact on the determination of disputes initiated at the WTO by Qatar and Venezuela. 

Either Ukraine or Russia can now appeal to the Appellate Body against the findings in the Panel’s Report within 60 days of the Panel’s Report being circulated to the WTO Members.  

Background

In 2016, Ukraine initiated the dispute by challenging a number of Russian bans and restrictions on traffic in transit by road and rail from Ukraine across Russia.  Ukraine claimed that these measures were inconsistent with a number of Russia's obligations under the GATT. 

Russia did not address the substance of Ukraine's claim.  Rather, it invoked Article XXI GATT to argue that the Panel did not have jurisdiction to adjudicate on the dispute, as the national security exception is “totally self-judging”; in other words, the WTO Member State invoking the exception is able independently to determine its appropriateness. This is the first time that a WTO dispute settlement panel has decided the issue of jurisdiction where a WTO Member has argued that its trade-related restrictions were justified on national security grounds under the exception in Article XXI.

Russia's position in this dispute was consistent with the US's long-held position that the exception is “self-judging”. That position was also adopted by the US in this dispute where, as a third party participant, it argued that a dispute in which Article XXI GATT is invoked is “non-justiciable” because there is no legal criteria against which a WTO Member's national security interests can be judged.

The Panel's findings

The Panel rejected the Russian and US arguments and found that it had jurisdiction to review Russia's invocation of Article XXI GATT as there are no “special or additional rules of procedure” applying to that provision.  Further, the Panel concluded that Article XXI GATT requires an objective evaluation of whether the invoking WTO Member has satisfied the requirements of that provision and a WTO Member cannot make that determination alone. Consequently, Article XXI GATT is not “totally self-judging”.

The Panel went on to assess whether Russia's measures were taken “in time of war or other emergency in international relations” within the meaning of Article XXI.  It concluded that the situation between Ukraine and Russia since 2014 did constitute an “emergency in international relations” and the measures were a response to it.  Consequently, the Panel found that the Russian measures did satisfy some of the Article XXI criteria.

Importantly though, the Panel interpreted “emergency in international relations” by reference to a “situation of armed conflict, or of a latent armed conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state”.  It found that “political or economic differences” between WTO Members would not be sufficient in themselves to fall within the scope of Article XXI GATT. 

The Panel also considered that it is incumbent on the WTO Member invoking the exception in Article XXI GATT to articulate the essential security interests said to arise sufficiently to demonstrate their veracity and that the WTO Member must act in good faith.  

Wider implications

The Panel's findings could have a significant impact on a number of other important disputes pending before the WTO.  Notably, the UAE invoked Article XXI in its on-going dispute with Qatar triggered by the so-called “B4”'s  blockade of Qatar from 2017.  It is also anticipated that the US will invoke Article XXI in its dispute with Venezuela where Venezuela is challenging elements of the recent US sanctions against it, including the US decision to add certain Venezuelans to the US Specially Designated Nationals (SDN) List.

Similarly, in the WTO challenges to the duties imposed by the US on steel and aluminium imports under Section 232 of the Trade Expansion Act of 1962, the US has indicated that it will invoke Article XXI and will, no doubt, follow its previously stated opinion that its invocation of Article XXI is “non-justiciable”.   Whilst this Panel's findings are not binding on a future panel, the US's position would now appear to be harder to maintain in the event that the Panel's findings are not overturned on appeal.  It also remains to be seen if a future WTO panel will accept the US's claim that steel and aluminium imports constitute a security threat such that Article XXI can be legitimately invoked.

Importantly, going forward, this decision is likely to give WTO Members pause for thought before they impose trade sanctions and other protectionist measures.  At the very least, policy makers will now need to consider the risk of such measures being successfully challenged at the WTO. 

Should you have any questions on the matters discussed in this bulletin, please contact Matthew Townsend (Partner), Jonathan Benson (Senior Associate) or any other member of our International Trade and Regulatory Law Group (details of which can be found here​).  

1 Bahrain, Egypt, Saudi Arabia and the UAE.  

2 Nine challenges have been brought to the US’s Section 232 measures by Turkey, Switzerland, the Russian Federation, Norway, Mexico, Canada, the EU, India and China.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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