WTO rules include self-judging national security exemption
Fueled by tit-for-tat tariff increases, the trade war between the U.S. and China has only escalated over the past months. Recent negotiations have proved fruitless, and each country has now implemented tariffs targeting $50 billion worth of the other’s goods. China has taken steps to file a World Trade Organization complaint against the U.S. for its current trade practices, but President Donald Trump expresses skepticism of WTO authority. Trump stated in an interview with Bloomberg that the U.S. will withdraw from the WTO if it does not “shape up,” claiming that the organization upholds rules that disadvantage the United States.
Because the U.S. and China have yet to settle this dispute and retaliatory tariffs are only expected to rise, it is worth exploring the legal mechanisms that have allowed Trump to raise tariffs against China and their implications for the future of global trade.
Membership in the WTO
Both countries involved in this trade war are members of the WTO. Although a complex organization, the WTO primarily promotes free trade by enforcing rules of non-discrimination among all trading partners. Membership in the organization grants countries “Most Favored Nation” status, meaning that if a trading partner alters tariffs towards one nation it must do the same for all WTO members.
So how is Trump able to raise tariffs on imports from China, a fellow WTO member, in this trade war?
While Trump has been accused of increasing tariffs against China at whim and thwarting international law, his authority to do so derives from WTO rules themselves. Within the General Agreement on Tariffs and Trade (GATT), which still effectively makes up the legal framework of the WTO, there is an exception to the WTO Most Favored Nation status. Article XXI of the GATT exempts countries from non-discrimination rules if national security is at risk. Article XXI is exactly what President Trump has used to justify the levying of tariffs on Chinese goods.
Commerce Department Investigations
Soon after taking office, Trump suspected that certain U.S. industries vital to national security interests were disproportionately harmed by trade with China. He requested that Secretary of Commerce Wilbur Ross initiate investigations of steel and aluminum, in particular under Section 232 of the U.S. Trade Expansion Act of 1962. In January of this year, the Department of Commerce reported that steel and aluminum are indeed two industries critical to national defense, and the import of cheap steel produced by China and other nations has displaced American production and labor.
Thus, in the name of national security, Trump imposed tariffs on the subset of countries sending these products to the U.S. In addition to steel and aluminum imports, he has also limited technology transfers with China under Article XXI to prevent theft of U.S. trade secrets and intellectual property.
Altering Systems of International Trade
Trump’s use of the national security exemption to justify tariffs against China clearly falls within the legal framework of the GATT, but it has also raised questions about what exactly constitutes a national security threat. Because Article XXI is “self-judging,” it is up to the discretion of the WTO member to determine if trade in certain industries might compromise national security. Although Department of Commerce investigations undoubtedly provide evidence of security risks, they show that the U.S. interpretation of a security threat ranges from displacement of workers to theft of intellectual property.
Following the example of the U.S., other countries have invoked Article XXI to protect a variety of domestic “security interests.” Russia recently acted under the security exemption to restrict transit in the Ukraine, and more states may follow suit in exploring Article XXI as an option for unilaterally raising tariffs. While giving the U.S. more autonomy in responding to what it perceives to be trade threats, the interpretive leeway afforded by Article XXI poses a challenge. Any state can bend security exemptions in its favor, including states looking to retaliate against U.S. tariffs. Thus, reliance on Article XXI may only escalate the trade war with China and spark additional conflicts with other nations.
Current action under Article XXI has diminished the regulatory strength of the Most Favored Nation status and reveals institutional weaknesses in the WTO that must be addressed. Broad interpretations of the security exemption by the U.S. and others reflect the desire of some nations to return to a system of international trade in which state autonomy and domestic interests come first. As Trump speaks about withdrawing the U.S. from the WTO and mounting tensions endanger the international trade regime, it is time to reevaluate the intentions and structure of the WTO to better protect state sovereignty while continuing to stabilize and promote the flow of commerce.
Kate Lederer is a senior studying economics and political science. Her surfing career began and ended when she visited Lisbon, Portugal during her semester abroad this past spring. She can be reached at email@example.com.