The dispute Russia – Measures Concerning Traffic in Transit (DS512) relates to multiple restrictions on traffic in transit from Ukraine through Russia to third countries. In particular, Russia banned all international cargo transit from the territory of Ukraine that is destined primarily for Kazakhstan and the Kyrgyz Republic.
This is a landmark case not only for Ukraine but also for the WTO and world trade in general. The main question confronting the panel in this dispute was whether violations of Ukraine’s transit rights by Russia may be justified under the security exception of Article XXI of the General Agreement on Tariffs and Trade 1994 (GATT 1994). Until now, no other WTO Member had invoked the security exception, and the predominant view within the WTO has been that Article XXI could open the door to frequent use of this exception as a justification for purely protectionist measures. The panel report was circulated on 5 April 2019. The objective of this review is the identification of the panel’s key conclusions, which might have systemic implications for the functioning of the WTO multilateral trading system.
II. MEASURES AT ISSUE
Ukraine complained about four categories of measures applied by the Russian Federation:
(i) The 2014 transit restrictions and bans;
(ii) The 2016 general transit ban and transit restrictions;
(iii) The 2016 product-specific transit ban and transit restrictions; and Ukraine claimed that the measures at issue fail to comply with Russia’s obligation under Articles V, X of the GATT 1994 and related commitments in Russia’s Accession Protocol.
Russia, in turn, deemed it unnecessary to rebut Ukraine’s claims and did not address factual evidence and legal arguments provided by Ukraine. Russia, thus, (i) focused on jurisdiction objections and (ii) invoked the provisions of Article XXI(b)(iii) stating that transit restrictions against Ukraine were adopted to ensure its “essential security interests … in time of war or other emergency in international relations”.
Russia claimed that the panel lacks jurisdiction to review its invocation of Article XXI(b)(iii)6 due to the alleged “self-judging” nature of the present exception. According to Russia, the panel has to limit its findings to recognizing that Russia has invoked Article XXI without engaging in any further analysis. Ukraine, in turn, considered Article XXI as an affirmative defence for a measure that would otherwise fail to comply with obligations under the GATT 1994.
The panel, however, ruled that it has the power to review whether the requirements of Article XXI are satisfied since the Dispute Settlement Understanding (DSU) lacks any special or additional rules of procedure applying to disputes involving Article XXI.7 The panel also noted that for action to fall within the scope of Article XXI(b), it must objectively be found to meet the requirements in one of the enumerated subparagraphs of Article XXI. Accordingly, the panel cleared up all doubts regarding its jurisdiction to review invocation of the security exception, and concluded that disputes under Article XXI(b)(iii) are justiciable.
IV. SECURITY EXCEPTION UNDER ARTICLE XXI(B)(III) OF THE GATT 1994
First, the panel has examined whether the measures were “taken in time of war or other emergency in international relations” under Article XXI(b)(iii). The emergency in international relations was interpreted by the panel as “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 has to be noted that the present measures were introduced in a broader context of Ukraine-Russia relations and related to a change in government in Ukraine in February 2014 as well as to Ukraine’s decision to pursue political and economic integration with the EU, which meant refusing to join the Moscow-led Eurasian Economic Union. These events in Ukraine led to an escalation of conflict between the states, which Russia tried to address by using economic sanctions and free trade limitations tools.
In the case at hand, Russia referred to the emergency in international relations that occurred in 2014 and contended that this dispute raised issues “concerning politics, national security and international peace and security”.10 Ukraine argued that Russia had not discharged its burden of proof as the 2014 emergency was not identified or described in an adequate manner.
Quite remarkably, the panel began its analysis with the explanation that ‘it is not relevant to this determination which actor or actors bear international responsibility for the existence of this situation to which Russia refers. Nor is it necessary for the panel to characterize the situation between Russia and Ukraine under international law in general’.
In the course of its analysis, the panel explained that it had evidence that, starting from March 2014, the situation between Ukraine and Russia had deteriorated and became a matter of concern on the international stage. By December 2016, it was recognized by the UN General Assembly as involving armed conflict. Further evidence of the gravity of the situation, according to the panel, is the fact that, since 2014, economic sanctions were imposed against Russia by the international community.
Based on this, the panel concluded that (i) the situation between Ukraine and Russia since 2014 constitutes an emergency in international relations14, and (ii) each of the measures at issue was taken in time of’ an emergency in international relations, within the meaning of Article XXI(b)(iii).
Second, the panel examined ‘whether the conditions of the chapeau of Article XXI(b) of the GATT 1994 are satisfied’.
In this regard, the panel struggled with interpretation of the “which it considers” clause trying to identify whether it qualifies either “the determination of invoking Member’s essential security interests and the necessity of the [challenged] measures” or solely “the determination of their necessity”.
Russia, clearly, insisted on the first option, stating it is entirely upon the discretion of the invoking Member to determine the necessity of measures to protect security interests. Ukraine, predictably, viewed the chapeau as requiring an objective analysis of the necessity of Russia’s measures to protect security interests.
The panel interpreted “essential security interests” as relating to the quintessential functions of the state, namely, the protection of its territory and its population from external threats, and the maintenance of law and public order internally.18 Due to the nature of essential security interests, the panel stated that it is at the discretion of the Member to define them19 but, at the same time, cautioned that the good faith principle must be considered.
The panel subsequently noted that the invoking Member has to articulate its essential security interests arising from the emergency in international relations.21 Although Russia failed to do so, the panel still accepted its reference to certain characteristics of the 2014 emergency concerning the security of the Ukraine-Russia border22 since, in the present case, the emergency in international relations is very close to the ‘hard core’ of war or armed conflict.
As to the good faith principle, the panel viewed it as rather a relaxed standard, stating that it only demands demonstrating a minimum requirement of plausibility of the measure in relating to essential security interests.24 No wonder Russia was able to comply with this, regardless of reasonable Ukrainian remarks that the challenged measures are motivated by Russia’s economic interests and its desire to prevent Ukraine’s economic integration with the EU.25
In the eyes of the panel, however, the measures at hand had nothing to do with Ukraine’s decision to sign the EU-Ukraine Association Agreement but rather related to the emergency in international relations.26 Consequently, the panel ruled that Russia’s measures were taken with a view to an emergency in Russia’s relations with Ukraine affecting the security of the Ukraine-Russia border and, for these reasons, enjoy justification under Article XXI(b)(iii).
Having done so, the panel analysed Ukraine’s claims as to the inconsistency of Russia’s measures with Articles V and X of the GATT 1994 and Russia’s Accession Protocol. The panel has done so anticipating that if its findings on Article XXI(b)(iii) would be reversed in the event of an appeal (which did not happen), the Appellate Body would have to complete its analysis.27 Russia, in turn, did not rebut any argument or evidence regarding Ukraine’s claims since it considered that the measures at issue comply with the GATT 1994 and its Accession Protocol based on Article XXI(b)(iii).
V. ARTICLE V OF THE GATT 1994
A. the first sentence of article v
Ukraine claimed that the measures at issue fail to guarantee freedom of transit though the territory of Russia for traffic in transit coming from Ukraine and/or going to Kazakhstan or the Kyrgyz Republic in violation of the first sentence of Article V:2. Notably, Ukraine argued that where a WTO Member prohibits traffic in transit from the territory of another country with which it shares a border, such a measure necessarily fails to guarantee freedom of transit.
The panel established that the first sentence of Article V:2 requires each WTO Member to guarantee freedom of transit thought its territory for any traffic in transit “entering from” and “exiting to” any other WTO Member.29 Accordingly, if a measure prohibits traffic in transit from another Member from entering at all points along a shared land border, it will necessarily violate the first sentence of Article V:2. Applying this interpretation to the measures at issue, the panel easily determined that they prohibit traffic in transit to enter Russia from the territory of Ukraine. On balance, the panel found that had the measures been taken in “normal times” (not in time of an ‘emergency in international relations’), Ukraine would have a prima facie case of inconsistency of the challenged measures with the first sentence of Article V:2.30
B. The second sentence of Article V
Ukraine argued that the challenged measures make distinctions based on the place of departure and entry (the Ukraine-Russia border), the place of exit (the Russia-Kazakhstan border), and the place of destination (Kazakhstan and the Kyrgyz Republic) and the place of origin of the traffic in transit, in violation of the second sentence of Article V:2.31 The panel had no difficulties in agreeing with Ukraine’s arguments32, however, it similarly states that Ukraine would have a prima facie case of inconsistency of the challenged measures only if they had been taken in ‘normal times’.
VI. Other claims under Articles V and X of the GATT 1994
Since Ukraine challenged the same aspects of the measures at issue as violating Articles V:3, V:4 and V:5, the panel deemed it unnecessary to complete an analysis under the present parts of Article V. Similarly, the panel ruled that an analysis of Ukraine’s claims under Articles X:1, X:2 and X:3(a) would not add any value to the ability of the DSB to make sufficiently precise recommendations and rulings.
VII. Russia’s Accession Protocol
Ukraine also challenged the consistency of the measures at issue with Russia’s Accession Protocol, stating that the first sentence of para. 1161 of Russia’s Working Party Report mirrors Article V of the GATT 1994, which implies that violation of Article V automatically ends up in violation of para. 1161.35 Ukraine raised the same argument with regard to paras. 1426-1428 (reaffirming obligations under Article X the GATT 1994) of Russia’s Working Party Report.
It worth noting that there is no clear answer in the WTO jurisprudence as to the applicability of the exceptions under the covered agreement to Members’ accession protocols, which do not expressly incorporate such exceptions. In China – Rare Earths, the Appellate Body noted that “the relationship between provisions in Members” Accession Protocols and provisions in the WTO Agreement must be determined on a case-by-case basis’.
In casu, the panel believed that “the architecture of the WTO system confers a single package of rights and obligations upon Russia, of which the GATT 1994 and its Accession Protocol are constituent parts”.38 To do so, the panel examined the text, context and content of each challenged provision and found textual references to WTO-covered agreements and to security exceptions therein. Notably, the panel considered such phrases as “other relevant provisions of the WTO Agreement” (para. 1161), “in a manner that fulfils applicable requirements of the WTO Agreement” (para. 1426), “except in cases of emergency” (para. 1727), “as provided in the applicable provisions of the WTO Agreement” (para. 1428) as establishing a close link between the Accession Protocol and the GATT 1994 and, accordingly, as justifying the applicability of Article XXI(b)(iii) to the Accession Protocol. Subsequently, the panel found that Russia, while violating commitments under its Accession Protocol, enjoys justification under Article XXI(b)(iii) as its measures were taken in time of an “emergency in international relations”.39 For these reasons, the panel made no recommendation to the DSB according to Article 19.1 of the DSU.
VIII. Conclusions and post-developments
It is difficult to overestimate the importance of the present ruling since the WTO panel for the first time in the WTO history touched upon the national security exception and its correlation with other obligations under covered agreements.
First, the panel ruled that it has jurisdiction to review the WTO Members’ invocation of the security exception. Second, the security exception is not “self-judging” and may not be invoked at the sole discretion of a violator. It was clarified that while subparagraphs (i)(iii) are subject to the panel’s objective review, the chapeau of Article XXI(b) envisages rather a subjective standard to be defined by the invoking Member. Thus, the phrase ‘which it considers necessary’ must be understood as the WTO Member has the discretion to designate what it considers to be an “essential security interest”. Finally, the need for balance has always been central to the invocation of justifications under the GATT 1994. Therefore, the assessment of the security exception cannot be invoked by an unfretted discretion of the violator and is limited by a good faith requirement, which is a general principle of law and a principle of general international law.
Regardless of high expectations, neither Russia nor Ukraine appealed the report and it has been adopted by the DSB. This, accordingly, implies that WTO Members would not see for a while the Appellate Body’s way of interpretation of Article XXI.
Russia considered the outcome of the dispute as well-balanced, as Article XXI did work to a large extent as a “get-out-of-jail” card for the respondent,40 while Ukraine expressed its disappointment with the results. Additionally, Ukraine and the EU outlined that the report gave the impression that Ukraine and the EU worked towards a free trade agreement following tensions with Russia.
In turn, the US considered the panel’s ruling as problematic and was not satisfied with the panel’s reasoning over the desired “self-judging” nature of the national security exception. At the same time, the US was not happy with the fact that the panel made the case for the respondent. It appears that the US and other critics of the DSB would leave their footprints on the further fate of the Appellate Body and such dissatisfaction might end up in further blockage of appointments of Appellate Body members.
Finally, it would be especially interesting to look at how this ruling will influence panels’ interpretive choices in other pending cases involving Article XXI (notably, Saudi Arabia – Goods, Services and IP rights, United Arab Emirates – Goods, Services and IP rights, Bahrain – Goods, Services and IP rights, US — Steel and Aluminium Products series of cases).