Russia Wins a Landmark Dispute in the World Trade Organization

The World Trade Organization (the WTO) is a Geneva-based international organization with 164 members representing 98 percent of global trade. The idea of the WTO is to promote free trade between nations and ensure that global trade flows within the rules that exist under the framework of the WTO. One of the main functions of this organization is to resolve trade-related disputes between its members. On April 5, 2019, the WTO rendered a landmark ruling in the dispute Russia - Measures Concerning Traffic in Transit (DS512), which will have a big impact on the current international trade environment.

In short, the dispute was related to Russia’s ban on transit of goods from Ukraine through the territory of Russia, which was imposed after the 2014 Crimea annexation. The ruling in this dispute is significant as it was the first time when a WTO panel examined the responding party’s assertion that the deviation from the international trade rules is justified on its essential security interests. This article first, provides the factual background of the dispute, second, it provides important parts of the ruling, and finally, the article analyses the impact of this decision on the Section 232 steel and aluminum tariffs imposed by the United States.

Factual Background

The dispute concerned various measures, which were imposed by Russia on transit by road and rail through the territory of Russia after the annexation of Crimea in 2014. Ukraine argued that since January 1, 2016, Ukraine had not been able to use road or rail transit routes across the Ukraine-Russia border for all traffic in transit destined for Kazakhstan. Also, since July 1, 2016, traffic in transit by road and rail from Ukraine, which was destined for Kazakhstan and the Kyrgyz Republic, was not permitted to transit across Russia at all for particular categories of goods.

Russia responded that the challenged measures were taken “[i]n response to the emergency in international relations that occurred in 2014 that presented threats to the Russian Federation’s essential security interests.” Russia argued that any state has the sole discretion to determine its national security interests and adopt the measure that it considers necessary for the protection of such security interests. For Russia, once a state claims that a dispute involves a national security matter, a WTO panel cannot review and adjudicate on this claim.

The Ruling

The Panel stated that it could review Ukraine’s claim and examine whether the deviation from the global trade rules was justified on a national security grounds. In short, the Panel opined that whether or not the challenged ban was imposed “in time of war or other emergency in international relations” could be determined objectively, and the Panel agreed that the ban was indeed enforced during the conflict between Russia and Ukraine. As for essential security interests, the Panel stated that any WTO member has the right to determine its national security interests and adopt any measures that it considers necessary for the protection of such interests provided that the principle of good faith is adhered to. As the emergency between Russia-Ukraine involved a border-related conflict, for the Panel it was enough to conclude that Russia had the right to adopt the challenged ban and protect its security interest at the borders.

The Panel considered that mere political or economic differences between WTO members are not sufficient to establish an emergency in international relations as it is normal that states encounter political and economic instabilities with each other. For the Panel, an emergency in international relations is mainly related to armed conflict. The Panel concluded that there was an emergency in international relations, because in 2014-2016 “relations between Ukraine and Russia had deteriorated to such a degree that they were a matter of concern to the international community”, including the General Assembly of the United Nations. The Panel also concluded that the challenged ban was imposed in time of the deteriorated relations between Russia and Ukraine.

As for the question of what a state can do during an emergency in international relations, the Panel opined that a state decides itself if during such an emergency, its essential security interests are at stake and whether any action is required to protect such security interests. For the Panel, “essential security interests” include interests relating to the protection of a state’s territory and population from external threats. Because of the fact that such security interests may vary, it is left to a state to decide what it considers to be its essential security interests. However, this power is limited by its obligation of good faith. After reviewing the facts of the case, the Panel deemed that the 2014 emergency situation between Russia and Ukraine involved armed conflict as recognized by the United Nations and thus, Russia’s essential security interests were present. Also, for the Panel, Russia did not invoke its national security interests just to avoid its obligations because the Russia-Ukraine conflict affected the security of its borders and thus, Russia had the right to protect its security interests at the borders.

Impact of the Ruling

After rendering this ruling, an important question that arises is what effect this decision may have on the ongoing Section 232 steel and aluminum tariffs imposed by the United States. As it happened, in March 2018, the United States imposed a 25% tariff on imported steel and 10% on imported aluminum. The imposition of the tariffs was based on Section 232 of the Trade Expansion Act of 1962, which authorizes the President of the United States, through tariffs or other trade remedy means, to adjust the import of goods from other countries if it deems the quantity threatens its national security. The United States’ Section 232 tariffs were responded by retaliatory tariffs from other WTO Members including the European Union and Canada. Currently, the United States has a number of disputes at the WTO arising out of its Section 232 tariffs brought by the European Union, China, India, Canada, Mexico, Norway, Russia, Turkey and Switzerland. The Panel Report in Russia – Traffic in Transit goes against the United States’ position that the invocation of national security interests cannot be subject to review by a WTO panel. It will be interesting to see how the United States will justify its imposition of tariffs as a national security matter.

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MG Law Office, through the contribution of partners Archil Giorgadze and Nicola Mariani, joined by senior associates Irakli Sokolovski, Ana Kochiashvili, Tamar Jikia and associates Ana Chikovani, Elene Samadbegishvili, and Mariam Kalandadze is partnering with Georgia Today on a regular section of the paper which will provide updated information regarding significant legal changes and developments in Georgia. In particular, we highlight significant issues which may impact businesses operating in Georgia.

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