National security concerns are increasingly being used to justify trade barriers, triggering a cycle of retaliation among countries and violating the spirit of multilateralism. For instance, The US enacted the export control rules to restrict US firms from assisting Chinese production of advanced chips, precipitated by its concern over China’s increasing significance in trade networks and its growing military aggression. In response, China launched a “national security” investigation on imports of US chip manufacturers to ensure the security of its information infrastructure and imposed export curbs on metals used in chipmaking.
When China filed a dispute with the WTO against US export controls, the US proclaimed that WTO is not the place to decide national security and export controls. The US, rather than engaging with China and other peers in the multilateral system in addressing trade issues related to national security, prefers aligning with like-minded countries based on shared security interests.
Notwithstanding, such an unilateral approach presents two significant issues. Firstly, it undermines the democratic process embedded in the multilateral system for resolving trade disputes related to national security. Secondly, the erosion of WTO has negative consequences, particularly for small developing countries that lack the means to retaliate and depend on transparent dispute resolution mechanisms.
The view that trade-exchanges can have security externalities is not new and has been well recognized in international political economy circles. Gains from trade in terms of higher income may be used to acquire greater military capacity, threatening trade partners’ national security. This idea finds place in WTO agreements in the form of Article XXI of the GATT 1994, titled “Security Exceptions”. Under this article, member states can invoke trade barriers, breaching WTO obligations in order to protect its national security interests. However, the interpretation of this article was not very clear for a long time. Members maintained self-restraint in resorting to “securities exception” and treated Article XXI as a last resort until Sept 2016, when the first national security case was filed.
In September 2016 Ukraine filed a dispute with the WTO against Russia's transit restrictions on traffic from Ukraine to its Central Asian market through Russia. Russia argued that WTO cannot weigh the gravity of security concerns faced by a member and hence should not question its restrictions raised in defence of national security. Nevertheless, a panel of seventeen WTO members, including the US, was formed to look into the matter. The US agreed with Russia that disputes pertaining to national security are non-justiciable and invocation of Article XXI should be left to the discretion of the members. The other panel members concurred that such disputes are sensitive and countries have the right to resort to Article XXI to protect their national security. However, WTO panels need to review such cases to ascertain the legitimacy of invoking Article XXI.
This established the basis for peer review in such disputes. The panel conceded that Russia’s security interest pertains to ‘emergency in international relations’ and is aligned with the “hard core” of war or armed conflict. The panel, therefore, accepted that Russia’s restrictions on traffic were measures to guard its security interests and concluded that Russia had met the requirements for invoking Article XXI. The panel report was accepted as legally binding by the WTO Dispute Settlement Body in 2019. It became the first report defining the scope of “national security”.
The argument that national security disputes are justiciable by the WTO panel was upheld in another case relating to the protection of intellectual property rights. In 2018, Qatar filed a complaint against Saudi Arabia concerning the latter’s refusal to provide protection of intellectual property rights held by Qatari entities in Saudi Arabia. Saudi Arabia justified curtailing Qatari entities to Saudi courts for IPR matters, citing national security and guarding against terrorism. In this case, the WTO panel didn’t find sufficient grounds for invocation of the national security clause. Moreover, the panel held that Saudi’s action impinges on the rights of other WTO members as well. Consequently, the panel ruled in favour of Qatar.
In recent years, with the US blocking appointments to the appellate body, WTO has been ineffective in deciding on national security related trade disputes. For instance, disputes between UAE and Qatar (on goods, services and IPR), Japan and Korea (on products and technology), and US and Venezuela (on measures relating to trade in goods and services) are yet to be resolved. The US also refused to comply with the 2022 judgement of the WTO panel that US’ 2018 steel and aluminium tariff on China and other countries are not aligned with its national security imperatives and are against the spirit of non-discriminatory trade. This weakened the WTO as a platform for transparent deliberation on issues concerning national security and trade, and the implications of such issues on third parties.
Consequently, member countries are increasingly resorting to unilateral actions, retaliation and asserting national security defences to raise trade barriers. Also, the purview of national security is expanding with evolving strategic national interests and geopolitical environment. It now encompasses issues like technology, climate change, protection of democracy etc. For example, with the CHIPS and Science Act, the US put technology at the centre of its national security. Similarly, South Korea proposed tax breaks for domestic tech investment to bolster supply chain security and enhance national security. In recognition of environmental protection as a national security concern, the US and EU have proposed carbon-emissions-based taxes on Chinese steel and aluminium, with the EU proposing the CBAM tariff and the US enacting the IRA subsidy for domestically-produced clean goods.
The rampant assertion of national security to justify unfair trade practices harms developing nations the most. Developing nations are yet to reap full benefits of trade and do not have the means to counteract discriminatory trade policies. They need a rule-based system to appeal, negotiate and seek redressal from negative impacts of such policies. Therefore, it is imperative to restore faith in multilateralism and strengthen the WTO. Most importantly, clear strategies are needed to manage the opacity of security interests within the WTO.
On 5th July 2023 the US released a document outlining the objectives to reform the DSB. However, no specific proposals to negotiate the terms is discouraging. Moreover, the negation of WTO as a forum to debate and decide essential security interests of members is problematic. Member countries need to collectively frame rules to address trade and security concerns in the evolving geopolitical landscape. As Prof. Mona Pinchis-Paulsen at London School of Economics, rightly puts it, WTO members must have room for open discussions and disagreements about the overlap of security and trade policies. It is crucial to find a balanced approach that respects the evolving nature of national security concerns while preserving the principles of multilateralism to keep global trade networks functional.