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Analysis

WTO Bellwethers Could Guide Fate Of Trump's Metal Tariffs

Law360 (June 8, 2018, 6:05 PM EDT) -- Top U.S. partners launched a crusade against President Donald Trump's steel and aluminum tariffs at the World Trade Organization this past week, but a pair of lower-profile cases already underway may offer clues as to how Geneva will examine the fraught intersection of trade policy and national security.

China, India, Canada, Mexico and the European Union have all challenged the administration's use of a Cold War-era national security law to impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum.

The complaints vary slightly, but at their core, they all allege that the U.S. is using the law, Section 232 of the Trade Expansion Act of 1962, to cloak economic protectionism in a veil of national security concerns. A final decision will likely turn on the interpretation of the WTO's exception for national security measures.

That exception — enshrined in Article XXI of the General Agreement on Tariffs and Trade — essentially gives WTO members permission to impose trade restrictions for national security reasons. But it has never been adjudicated by a dispute settlement panel before and has been effectively rendered a third rail of international trade law.

If a panel opts to interpret Article XXI in broad fashion, the fear among trade liberalization backers is that any country could forge ahead with any trade restrictions it wants and cry "national security" if any partner decides to mount a challenge.

The various cases against the steel and aluminum tariffs will continue to grab headlines, but there are two cases already underway that could shed light on the security exception and serve as a litmus test for whether Trump's tariffs will likely stand or fall.

In one case, Ukraine is challenging Russia over a slew of trade and transit restrictions. In the other, Qatar is challenging a de facto boycott from its neighboring Persian Gulf states spurred by the nation's purported sheltering of terrorists. Russia and the Gulf nations have each asserted that the restrictions have been made for national security purposes, bringing Article XXI squarely into play.

Former WTO Appellate Body judge and U.S. congressman James Bacchus told Law360 that while the concept of precedent does not exist in public international law the way it does in federal courts, there will be at least some temptation on the part of the WTO to create consistency in its rulings, especially on such a volatile subject as the national security exception.

"Whatever the outcome of these current disputes involving the exception for national security, WTO jurists will not be bound by them legally or technically, but clearly an effort will be made by the WTO jurists to be consistent in these rulings," Bacchus said.

WTO panels are constantly juggling two somewhat contradictory principles: the lack of binding precedents and the directive to provide "security and predictability to the multilateral trading system," as called for in Article 3.2 of the Dispute Settlement Understanding.

"As a practical matter, members of the WTO do not want national treatment to mean one thing one day in one part of the world and another thing the next day in another part of the world," Bacchus said. "They want national treatment to mean one and the same thing every day and everywhere."

Of the two, the Ukraine-Russia case is furthest along in the WTO pipeline. A decision is slated for delivery before the year is out, though the deadline could slip.

Even though a decision on the merits of the Article XXI national security exception is not technically binding for future panels, the case is likely to resolve one open question for future WTO jurisprudence: whether a panel can conduct an examination of Article XXI at all.

The U.S. and Russia have already stated that their answer to the question is no. In its third-party submission in the case, the Trump administration wrote that the panel "lacks the authority to review the invocation of Article XXI and to make findings on the claims raised in this dispute."

But the details of Article XXI suggest that a deeper examination is necessary, according to Jennifer Hillman, a Georgetown law professor and former Appellate Body judge.

Hillman said that Article XXI only provides a national security exception in three instances: trading in nuclear materials or in arms or ammunition, or during war or international emergency.

Russia has claimed that its restrictions on Ukrainian goods fall under the third prong of Article XXI, dealing with war or international emergency. At the very least, Hillman said, the case will provide a window into how deep a panel can go when presented with an Article XXI defense.

"I would think they're at least going to say you have to declare which of the three you're under and you have to provide some evidence of a time of war or whatever it is," she said.

That kind of threshold issue of examination, Hillman added, is particularly likely to live on in future Article XXI cases, even if panels might differ on the merits.

"If a panel were to say that its role is to examine which of three provisions you're under and to make sure that there was a time of war and at least do the basic fact-checking ... I think it's unlikely that the next panel coming along would take a completely different view, and certainly if the Appellate Body agreed with the panel," she said.

WTO litigation takes years, and any examination of the steel and aluminum tariffs will take even longer considering the administration's efforts to block the Appellate Body from maintaining a full roster of judges.

But the issue may ultimately be purely academic, as the administration has repeatedly bristled at the notion of abiding by adverse WTO decisions. National Economic Council Director Larry Kudlow reiterated that sentiment during a Wednesday press conference.

"We are bound by the national interests here more than anything else. We're always interested in the World Trade Organization," Kudlow said. "But international multilateral organizations are not going to determine American policy. I think the president has made that very clear."

The administration is already facing retaliatory sanctions for its metal tariffs, and would face more if it opted not to comply with a WTO loss, but the implications of looming panel decisions on national security remain profound.

"The legal question is the same as it is with all other WTO provisions: What does this provision mean? What do the words mean in the real world?" Bacchus said.

--Editing by Brian Baresch and Jack Karp.

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