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National Security Exception: When Trade Rules Don’t Apply

Strategic Domestic Production

In April 2017, the U.S. Secretary of Commerce self-initiated investigations to determine the effects of imported steel and imported aluminum on U.S. national security. The investigations will be conducted under Section 232 of the Trade Expansion Act of 1962, which tasks the Secretary’s department with reviewing whether the articles in question (steel and aluminum in this case) are being imported “in such quantities or under such circumstances as to threaten to impair the national security.”

If that determination is positive, the statute gives the President authority to raise import barriers. Among other things, the department will consider domestic production needed for projected national defense requirements, the U.S. industry’s capacity to meet those requirements, and the impact of displacement of any domestic products by excessive imports.

What About WTO Obligations?

While the case for free trade is supported by compelling economic and moral arguments, no government would consider trade barrier reduction to be a higher priority than its obligation to protect national security. Consequently, since 1947 the GATT has contained a “national security exception,” found in Article XXI.

This article permits members to impose trade restrictions for purposes of national security without any condition or agreed-upon definition of a national security threat. States may choose to invoke the exception to protect strategic domestic production capabilities such as required to equip their military or produce energy. States may use trade sanctions in foreign policy or they may prohibit certain exports such as military arms to countries they consider hostile to their national security interests.

Balancing Act

The animating idea behind the rules-based system is that protectionism is harmful to economic development and prosperity. Members of the General Agreement on Tariffs and Trade (GATT) therefore agree to limit the use of such measures to specific circumstances like an unexpected surge of imports (known as “safeguards”) or in response to unfair practices by a trading partner (“trade remedy” laws). The United States’ use of Section 232 has been rare. The most recent prior investigation concerned iron ore and semi-finished steel. It dates back to 2001.

I’ll Be the Judge of That

Article XXI security exception claims are “self-judging” as a practical matter. Members rarely challenge use of the exception, so it has not featured in significantly in formal dispute settlement either under GATT 1947 or the WTO. Disputes have arisen in the context of U.S. export restrictions to Czechoslovakia in 1949, between the United Kingdom and Argentina over contested islands, and when the United States imposed embargoes against Nicaragua in the mid-1980s and Cuba in the mid-1990s.

In one of its first reports, the GATT panel in the U.S.-Czechoslovakia case in 1949 put it this way:

“every country must be the judge in the last resort on questions relating to its own security. On the other hand, every Contracting Party [to the GATT] should be cautious not to take any step which might have the effect of undermining the General Agreement.”

Keeping Exceptions the Exception

Each nation may determine its own interests, and members operate on the presumption that this discretion will be exercised in good faith. WTO members have generally abided by this sentiment in their actions.

They do so because they know the exception only works if all members treat it with prudence, since an abuse of the exception by one member could result in a cascade of counter-claims to the detriment of all. Given that the U.S. economy is deeply integrated with the world, it’s a good thing that we and our trading partners exercise restraint in applying the exemption.