The World Trade Organization (WTO) handed a victory to Russia in a Ukrainian transit dispute in its first ever ruling on a national security exemption, which could have profound implications for pending Section 232 disputes at the WTO and potential automobile tariffs to be imposed by United States President Donald Trump.
The panel also confirmed that the WTO has the authority to determine whether the requirements of national security exemptions are satisfied, diminishing US arguments that national security was not subject to review.
“An emergency in international relations would, therefore, appear to refer generally to a situation of armed conflict, or of latent armed conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state,” it said.
National security exemptions are at the center of pending disputes at the WTO between the US and nine countries and regions over the Section 232 blanket tariffs and retaliatory countermeasures on US imports.
These countries and regions - including China, India, the European Union, Canada, Mexico, Norway, Russia, Switzerland and Turkey - challenged the national security justification for the Section 232 tariffs and quotas, alleging that the US' actions are inconsistent with WTO rules.
The United States has filed its own complaints over the retaliatory tariffs imposed against US exports by Canada, China, the EU, Mexico and Turkey.
The US has argued that even if the steel and aluminium measures are inconsistent with US obligations under the General Agreement on Tariffs and Trade (GATT), a WTO panel cannot examine whether the Section 232 measures violate the GATT because the US considers the measures to be necessary for the protection of its essential security interests under GATT Article XXI – the so-called “national security exception.”
Auto Section 232
The WTO's ruling could also affect automotive tariffs that could potentially be imposed by Trump.
In mid-February, US Secretary of Commerce Wilbur Ross formally submitted to Trump his report on the Section 232 investigation into the effects of automobiles and auto parts imports on national security, although the content of the report has not yet been made public.
Potential Section 232 tariffs on imported automobiles and auto parts, under which the same legal premise is used for tariffs and quotas on US imports of steel and aluminium, are a bigger concern for global automakers because they have invested billions of dollars over the past few decades to take advantage of international trade and cost arbitrage. The possibility of such tariffs threatens to wildly disrupt existing trade patterns, industry experts have said.
WTO still at impasse
Even with the first ruling on national security, the WTO still faces a dilemma in dealing with the Section 232 challenges.
On one hand, the US could pull out of the organization if the WTO rules against the national security rationale behind Section 232. On the other, if the WTO rules in favor of the US, other countries could similarly impose tariffs or quotas on a wide range of products by citing national security concerns.