Trade
Working around the Article XXI loophole
Author: Mark Tokola, Korea Economic Institute of America
On 16 August 2023, the World Trade Organization (WTO) ruled that China had wrongfully imposed duties on US imports. Despite this, China continues to impose its illegal duties, pending its appeal to the defunct Appellate Body. China is exploiting a situation that the United States created.
The security exception, Article XXI, was included in the General Agreement on Tariffs and Trade (GATT) to allow for otherwise illegal measures taken purely for security reasons. The Obama, Trump and Biden administrations have all made clear that the US position is that a country’s use of Article XXI cannot be challenged in the WTO. Russia supports the US view, but China, the European Union and South Korea are among those who argue that the WTO has a right to investigate whether a country has made a plausible link between its use of Article XXI and an actual security interest.
The specific wording of Article XXI implies that there are standards to judge whether it has been used appropriately. It states that countries can take any action necessary for the protection of ‘essential security interests’, which among other things, includes actions taken during a time of war or emergency in international relations. If the protection of security interests had been intended to be a blanket exception, it would have been worded more simply.
As the GATT and WTO members understood that a snowballing use of Article XXI would endanger the world trading system, for 70 years they exercised self-restraint. The United States only invoked Article XXI to embargo Cuba in 1961 and Nicaragua in 1985, and the European Union used it to restrict imports from Argentina in 1982 and Yugoslavia in 1992.
Article XXI only surfaced again in 2014, when Russia invoked Article XXI(b)(iii) as taken in time of war or other emergency in international relations after its invasion of Crimea to justify its ban on the transit of goods from Ukraine destined for Kazakhstan and Kyrgyzstan through Russia.
In 2018, the Trump administration invoked Article XXI(b)(ii) — which allows states to protect access to their materials by restricting ‘the traffic in arms, ammunition and implements of war […] carried on directly or indirectly for the purpose of supplying a military establishment’ — to impose import restrictions on steel and aluminium. This was pure protectionism, as only a small portion of domestically produced or imported steel or aluminium is used for military purposes.
We may never learn how the Appellate Body would interpret US and Russian use of Article XXI, because since 11 December 2019, the United States government has blocked all appointments to the Appellate Body. The Appellate Body has not had enough members to hear a case for almost five years.
As international trade is increasingly entwined with the concept of economic security, allowing the security exception to be self-judging could be devastating to global trade. As the United States is almost certainly not going to change its opinion on the justiciability of Article XXI, one crude workaround might be for countries to retaliate by invoking their own self-judging right to resort to Article XXI. But it is easy to imagine that becoming a downward spiral toward protectionism under the guise of security.
China tried a different approach. In 2023, China imposed duties on several US products to offset US restrictions on trade in steel and aluminium. China did not invoke Article XXI but instead argued that the US had enacted a de facto safeguard measure cloaked as a security exception, which permitted China to right the balance by using Article XIX, regarding ‘safeguards’.
Another solution might be for the WTO to clarify its rules to make them conform with US and Russian opinion that the security exception is self-judging, while at the same time implementing new or existing processes to allow for counterbalancing measures. But this would concede that use of national security exceptions is beyond the WTO’s purview, despite the plain wording of Article XXI.
A more palatable approach might be for the United States, the European Union, South Korea, Japan and Australia to meet outside of the WTO to agree on trade rules, including the use of Article XXI. The United States would be unlikely to agree to any mechanism that could rule against security exceptions, but it might agree to an arbitration system to rebalance trade among economic allies. Short of that, even a requirement to explain and consult among like-minded countries might…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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