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April 2019

All is fair in trade and war – Panel Ruling on interpretation of security exceptions in Russia-Traffic in Transit


By  Jayant Raghu Ram

Introduction

On 05th April 2019, the WTO circulated the Panel report in Russia – Traffic in Transit (DS512), a dispute which was initiated by Ukraine against Russia. In its complaint, Ukraine challenged various transit restrictions imposed by Russia for goods exported from Ukraine. For example, Russian measures restricted (i) transit through road and rail routes across Ukraine-Russia Border for goods from Ukraine, which are destined to Kazakhstan, (ii) transit through road and rail routes at all for particular categories of goods from Ukraine to Kyrgyz Republic and Kazakhstan, (iii) similar traffic in transit for goods from Ukraine destined to Mongolia, Tajikistan, Turkmenistan, etc.

Ukraine’s complaint was that the challenged measures were in violation of the various provisions of GATT Article V:2. Article V:2 provides that:

“There shall be freedom of transit through the territory of each contracting party, via the routes most convenient for international transit, for traffic in transit to or from the territory of other contracting parties. No distinction shall be made which is based on the flag of vessels, the place of origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of goods, of vessels or of other means of transport.” (emphasis added) 

Russia claimed that the measures were enacted by Russia in 2014 in the context of political and military tensions prevailing then between Russia & Ukraine. Russia argued that the impugned measures were necessary for the protection of its essential security interests, which it took due to a prevailing emergency in international relations that arose in 2014 and continued to exist. Accordingly, Russia claimed that its measures were justified under Article XXI(b)(iii) of GATT. Article XXI allows a Member to derogate from its obligations under the GATT for protecting its security interests. Paragraph (b) of Article XXI permits a Member to take any action which it considers necessary for protection of its essential security interests, taken in three circumstances. One of these circumstances recognized in sub-clause (iii) of clause (b) covers action “taken in time of war or other emergency in international relations".

Russia also argued that as per the text of Article XXI, Russia alone had the sole discretion as the invoking Member, to determine the necessity of the measures taken. Thus, the Panel had no jurisdiction to evaluate the justifiability of Russia’s measures with the provisions of Article XXI.

The Panel noted that the objectives of "security" and "predictability" of the multilateral trading system established by the WTO Agreements (see Article 3.2 of the DSU) foreclosed the possibility of an invoking Member from unilaterally interpreting Article XXI. The Panel noted that there are no special or additional rules or procedure for disputes concerning Article XXI. Therefore, the impugned measures were within the Panel’s terms of reference and could be reviewed under the provisions of the ordinary dispute settlement procedures under the GATT and the DSU.

The Panel ruled that the power to review whether the requirements of Article XXI have been met is not entirely self-judging. The Panel ruled that there existed no basis for treating the invocation of Article XXI as an exception shielding a challenged measure from all scrutiny. The Panel noted that "emergency in international relations" generally refers to a situation of armed conflict, or latent armed conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state; giving rise to interests for the Member in question, i.e. defence or military interests, or maintenance of law and public order interests.[ See endnote 1]

The Panel stated that recognizing the existence of "other emergency in international relations" under Article XXI(b)(iii) requires objective examinations based on facts. In the present case, the Panel noted that, beginning in 2014, relations between Ukraine and Russia had deteriorated to such a degree that it became a matter of concern to the international community, so much so that the situation was recognized by the UN General Assembly as involving an armed conflict. The Panel also noted that a number of countries had imposed sanctions against Russia in connection with the situation. On this basis, the Panel concluded that the situation between Russia and Ukraine constituted an emergency in international relations. Further, since the measures were taken in 2014 and 2016, which was the period of the conflict, the Panel concluded that the measures were "taken in time of" the emergency.

The Panel also discussed what might constitute an "essential security interest". While it recognized that every Member had the discretion to define what it considers to be in "its essential security interests", it drew a red line by holding that this did not mean that a Member was free to elevate any concern to that of an "essential security interest". The Panel also drew strength from the good faith principles of the Vienna Convention on the Law of Treaties for interpreting Article XXI(b)(iii) to hold that the designation of a concern as an essential security interest must be in "good faith".

Moreover, the Panel observed that the measure must be connected and be plausible in relation to the essential security interest articulated by the defending Member. The invoking Member thus had to articulate what the essential security interest was that arose from an emergency in international relations and that the impugned measures were connected to or related to the emergency. The Panel observed that even though Russia had not explicitly articulated its essential security interest, the Panel recognized that the emergency with Ukraine affected Russia’s security at the border with Ukraine.

Since the Panel found that Russia was justified in invoking Article XXI, the Panel did not deem it necessary to rule on Ukraine’s grievances under Article V of the GATT.

Conclusion

Russia - Traffic in Transit is the first dispute where a Panel has interpreted the provisions of Article XXI. The Panel has struck balance between a Member’s right to invoke the security exception under WTO law with the duty of a Panel to scrutinize the impugned measures against the provisions of the security exceptions.
The Panel Report, subject to the review by Appellate Body, offers something to cheer about to both set of WTO Members i.e. those invoking Article XXI for defending its trade restrictive measures and Members challenging such measures as WTO inconsistent. On the one hand, the Panel has confirmed the jurisdiction to conduct an objective examination of the measure while at the same time it has accorded significant deference to the Members own assessment of its security interests upon an objective examination.

The Panel report in Russia – Traffic in Transit has important ramifications for WTO disputes challenging the United States’ Section 232 measures. By not refusing to adjudicate the provisions of Article XXI, the decision therefore comes as a much-needed bulwark against the United States consistent position that measures taken under Section 232 are non-justiciable.[ See endnote 2]

Though neither Ukraine nor Russia have yet announced their intention to appeal, it would be interesting to see how the Appellate Body reviews the Panel’s decision and if it would confirm the Panel’s findings.

[The author is a Senior Associate in International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]

End Notes:-

  1. The Panel also referred to the 1947 negotiations of the International Trade Organization (ITO) Charter, the GATT’s stillborn predecessor, on the security exceptions provisions. The Panel noted the broad position of ITO negotiators, particularly that of the US delegation, was that of caution against any security provision having too wide an exception. ITO negotiators had recognized the imperative for a balance in interpreting the security exceptions.
  2. The United States, as a third party, submitted that the dispute is non-justiciable because there was no legal basis for judging a Member’s consideration of its essential security interests. The US argued that the self-judging nature of Article XXI(b)(iii) establishes that its invocation by a Member is not amenable to a panel’s jurisdiction.

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