2.1 National security exceptions under GATT Article XXI

GATT Article XXI provides for national security exceptions. It stipulates:

Article XXI is designed to cover situations in which Members feel that they need to adopt trade-restrictive measures necessary to protect national security interests.Footnote ²¹ It is intuitive to see the circumstances in which the rules of WTO disciplines must be set aside for the protection of national security (e.g., a war-time trade restriction imposed on materials that are used to build weapons, trade control of fissionable material that could be made into dangerous nuclear devices, and trade sanctions adopted according to a United Nations resolution). However, the inherent difficulty with an exception of this nature is the possibility of abuse. Caution was raised about this possibility, ultimately leading to a suggestion to limit the use of any national security exception to a decision by the United Nations Security Council.Footnote ²² According to this concern, there is a risk that Article XXI measures might be applied unilaterally and arbitrarily without any consensus and thus undermine the multilateral trading system in the absence of such a joint decision or resolution.Footnote ²³ But other views advocate autonomy for Members, in line with the text of Article XXI; in the GATT's third session, a view was advanced that every Member ‘must be the judge in the last resort on questions relating to its own security’.Footnote ²⁴

The provisions of Article XXI are cast rather broadly, without precise definitions for the key terms such as ‘essential security interest’.Footnote ²⁵ This raises interpretive issues. The drafter of the Article explained its wording as follows:

This explanation suggests that an effort was made to narrow down the scope of security interest to be protected under the Article by using the word, ‘essential’, which is to mean ‘real security interests’ as opposed to ‘anything under the sun’.Footnote ²⁷ However, this distinction does not remove the element of subjectivity as to what constitutes ‘essential’ security interests.

Article XXI:b attempts to narrow down the scope of security interests that warrant trade restrictions by relating them to the specific circumstances listed in the article. Generally speaking, the circumstances of (i) and (iii) are relatively clear,Footnote ²⁸ but the circumstance (ii) requires judgment and discretion, particularly relating to ‘traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment’.

The United States argues that the justification under Article XXI is self-judging,Footnote ²⁹ and this view is supported by academic literature.Footnote ³⁰ However, this proposition is predicated on the presumption that it will be exercised with wisdom and in good faith,Footnote ³¹ which seems to be in doubt in the US tariff case as further discussed below. Obviously, the WTO system will not be sustainable if a Member will be authorized to do anything that it claims necessary to protect an identified essential security interest. The following GATT case illustrates the point. In 1975, Sweden adopted a quota system against the imports of leather and plastic footwear and invoked Article XXI to justify the action.Footnote ³² Sweden argued that the quota was justified, because the decrease in domestic production of shoes had become a critical threat to the emergency planning of Sweden's economic defense as an integral part of the country's security capacity in vital industries.Footnote ³³ This rationale is similar to what the United States argues as the national security ground for trade protection; both maintain that domestic capacity in ‘vital industries’ is important for the protection of national security where there is no evidence to support the claim that they will not be able to obtain the products in question through international trade if there is indeed a shortage of these products.Footnote ³⁴

Allowing unlimited discretion under Article XXI may also raise an issue under the non-violation doctrine. A non-violation claim arises where any benefit accruing to a Member directly or indirectly under a covered agreement is being nullified or impaired, or the attainment of any objective of that agreement is being impeded as a result of the application of a measure by a Member, even if it may not conflict with the provisions of that agreement.Footnote ³⁵ For example, country A may agree to lower tariff rates with country B in return for increased market access in country B. Suppose that after the agreement country B invokes Article XXI and withdraws the promised market access claiming a national security ground, nullifying or impairing the benefit of the agreed market access. A non-violation claim would, arguably, enable country B to refer this measure to the DSB to restore the balance of concessions.

The significant possibility of abuse suggests that the WTO panel and the Appellate Body are likely to require a Member invoking an Article XXI measure to demonstrate a nexus between the protection of its essential security interests and the measure in question, even if the Member has discretion in the judgement of its necessity. The previous panels and the Appellate Body clarified the applicable standard of review; i.e., they will not conduct a de novo review of the national authorities’ investigations,Footnote ³⁶ but they will nevertheless require the Member to evaluate all relevant factors and provide a reasoned and adequate explanation of how the facts support their determinations.Footnote ³⁷ Under this standard, the panel and the Appellate Body is likely to consider whether the United States has provided a reasoned and adequate explanation as to its conclusion of the necessity of its measures for the protection of its national security interests. The evidence of such consideration and explanation is also indicative of a good faith in the adoption of the tariffs under Article XXI.

2.2 Are the US steel and aluminum tariffs justified under the national security exception?

Several Members have criticized the US steel and aluminum tariffs as being unjustified under GATT Article XXI for national security concerns, and rather have been adopted as a disguised trade protection.Footnote ³⁸ The United States has attempted to protect the declining domestic steel and aluminum industries for decades, imposing a number of trade measures;Footnote ³⁹ thus, given the history of trade protection, switching to Article XXI under the umbrella of national security has not inspired much credibility to the other Members.Footnote ⁴⁰

It is not always straightforward to determine whether a trade measure is applied for a legitimate security concern, or if it is a disguised trade protection. A determination needs to be made as to whether (i) there exists an essential security interest to be protected by a trade measure and (ii) whether the Member adopting the measure has considered all relevant factors and provided a reasoned and adequate explanation as to its conclusion of the necessity of its measure for the protection of its national security interests. For the US steel and aluminum tariffs, it is necessary to examine the investigation reports by the Department of Commerce (the Steel and Aluminum Reports)Footnote ⁴¹ to make such a determination, as these reports form the basis for the imposition of the tariffs.

The Steel and Aluminum Reports conclude that trade restricting measures, such as tariffs or quotas, are necessary, because (i) steel and aluminum are needed for national defense requirement and critical US infrastructure, and domestic steel and aluminum production yielded by healthy and competitive US markets is necessary for national security applications; and (ii) trade measures are necessary to support the domestic industries weakened by imports.Footnote ⁴² At least procedurally, the United States conducted investigations and reached these conclusions in the legal frameworks designed to address national security, under Section 232 of the Trade Act,Footnote ⁴³ not under the other provisions, such as Section 201, used for trade protection.

Regardless of the applied domestic law for the investigation, the first substantive question is whether there exists an essential security interest. The reports identify the essential security interests involved as ‘national defense’ and ‘critical infrastructural needs’.Footnote ⁴⁴ The former includes ‘fabricating weapons and related systems for the nation's defense’, and the latter includes a wide range of infrastructure, including, in the case of steel, ‘chemical production, communications, dams, energy, food production, nuclear reactors, transportation systems, water, and waste water systems’,Footnote ⁴⁵ and in the case of aluminum, ‘energy (electric power transmission and distribution (over 6,000 power plants)); transportation (aircraft, automobiles, railroad freight cars, boats, ships, trains, trucks, trailers, wheels); containers and packaging (cabinets, cans, foils, storage bins, storage tanks); construction (bridges, structural supports, conduit, piping, siding, doors, windows, wiring); and manufacturing (machinery, stampings, castings, forgings, product components, consumer goods, heating and cooling devices, and utility lighting fixtures).Footnote ⁴⁶

There is little debate as to whether a national defense requirement would qualify as an essential security interest. The identified infrastructural needs will be more controversial; the range of infrastructural components is likely too broad to be ‘essential’ national security interests under Article XXI, as items of everyday use without particular security connotations (e.g., such as windows, cabinets, consumer goods) could also be included within this scope. The reports do not offer any explanation at all as to why such a broad range of items, including, for example, all kinds of transportation devices and all components of construction, are relevant to essential national security interests. Arguably, to qualify as a national security exception under Article XXI, the scope of critical infrastructural needs must be reduced, and adequate explanation should be given as to why the included infrastructure items serve essential security interests justified under the Article.

If the infrastructural needs are too broad to be justified under Article XXI, may the steel and aluminum tariffs be justified for the national defense requirement alone? The Steel and Aluminum Reports clarify that only small percentages of domestically produced steel and aluminum products are needed to meet the requirement of the Department of Defense.Footnote ⁴⁷ This suggests that there is no shortage of steel and aluminum required for the national defense requirement. The reports nevertheless argue that the United States needs commercially viable domestic producers to meet the defense needs, because no producer could afford to construct and operate a modern steel mill solely to supply defense needs, which are very diverse.Footnote ⁴⁸ According to this view, domestic producers should attract sufficient commercial business to supply those diverse national defense needs.Footnote ⁴⁹ The reports also describe the weakened conditions of domestic producers and recommend corrective trade measures.

The issue is whether the United States has offered a reasoned and adequate explanation as to why the tariffs are necessary even if the national defense requirement is a legitimate security interest. The reports do not show that domestic industries are in such conditions that they cannot meet the diverse defense needs. Even if domestic producers presently find it difficult to meet demands or if there is a clear risk of failure in the future (neither of which is demonstrated by the reports), the reports fail to consider all relevant factors, such as the availability of less trade-restrictive alternatives to assess the necessity of the trade measure. The determination of the reports also presumes that the United States cannot rely on the supply of imports to meet its defense needs if domestic production is or will be insufficient, and there is no discussion as to whether this presumption is reasonable. For these reasons, the reports fail to provide a reasoned and adequate explanation of whether the tariffs are necessary to protect essential national security interests, including national defense requirement, under Article XXI.

There are also significant policy ramifications. Should the US argument be accepted, granting the importing countries complete discretion on the judgment of essential national security under Article XXI and allowing trade restriction measures to be adopted with no demonstration as to the necessity of such broad measures or consideration of alternative, less trade-restrictive measures, it will open the gate for the rampant application of security interest exceptions to all kinds of products under all kinds of circumstances. If an Article XXI measure could be applied to all categories of steel and aluminum imports without justification of their necessity, it could also be applied to a myriad of other products, such as automobiles and semiconductors, all sorts of other ‘strategic’ base materials, and even shoes as shown by the above case!

Finally, the United States asserted that issues of national security are political matters not susceptible to review or capable of resolution by WTO dispute settlement, and every Member retains the authority to determine relevance on the national security issue under Article XXI.Footnote ⁵⁰ This position amounts to granting the Members complete discretion on the judgment of national security under Article XXI, but WTO disciplines do not support such discretion, as this would not be consistent with the balance sought by the drafters in the application of Article XXI exceptions.Footnote ⁵¹ The United States argues that its claim under Article XXI is a self-judging matter, unreviewable by the WTO,Footnote ⁵² but no provision is found in the WTO Dispute Settlement Understanding (DSU) that supports the exclusion of Article XXI from the examination of the DSB. Members have a degree of discretion in the judgment of essential security interests and the necessity of its measures, but it is subject to the standard of review as explained by the panel and the Appellate Body. The unrestricted use of Article XXI measures would lead to the destabilization of the multilateral trading system.

3.1 Retaliatory measures against the steel and aluminum tariffs

Several Members affected by the US steel and aluminum tariffs, including the EU, China, Mexico, Canada, India, Russia, and Turkey, adopted retaliatory measures in the form of their own tariff increases on imports from the United States.Footnote ⁵³ The retaliatory measures, implemented on various dates from April to December of 2018, include tariff increases from 5% to 50% on a variety of agricultural, industrial, and steel and aluminum products exported from the United States (e.g., sweet corn, rice, fruits, nuts, liquor, cigarettes, cloth and clothes, steel products, aluminum waste and scrape, wine, meat, alcohol, coal, plastic products, wood, paper, machinery, motor cars, and motor cycles).Footnote ⁵⁴

The United States argues that the retaliatory measures are inconsistent with WTO rules, including GATT Article I: requiring the most-favored-nation (MFN) treatment (principle of non-discrimination among trading partners) to all exporting countries, because they ‘fail to extend to products of the United States an advantage, favor, privilege or immunity’ granted by the retaliating importing countries ‘with respect to customs duties and charges of any kind imposed on or in connection with the importation of products originating in the territory of other Members’.Footnote ⁵⁵ The United States also argues that the additional duties nullify or impair the benefits accruing to the United States directly or indirectly under the GATT 1994.Footnote ⁵⁶ The United States referred the retaliatory measures to the WTO DSB for adjudication.Footnote ⁵⁷

The retaliating Members argue that the US tariffs are safeguards,Footnote ⁵⁸ emergency import restraints applicable in the form of additional tariff or quota when increased imports cause serious injury to a competing domestic industry of the importing country.Footnote ⁵⁹ For example, the EU characterized the US measures as ‘safeguard measures in the form of a tariff increase on imports of certain steel and aluminum products (at rates of 25% and 10%, respectively), effective from 23 March 2018 and with an unlimited duration’,Footnote ⁶⁰ and concluded that ‘notwithstanding the United States’ characterization of these measures as security measures, they are safeguard measures’.Footnote ⁶¹ The United States objects to this conclusion and denies that its measures are safeguards, maintaining its position that they are ‘tariffs on imports of steel and aluminum articles that threaten to impair the national security of the United States’.Footnote ⁶²

3.2 Are US steel and aluminum tariffs safeguard measures under the SA?

As discussed above, the complainants argue that the United States applied a safeguard measure without complying with the provisions of the SA.Footnote ⁶³ Under Article 8.3 of the SA, the exporting country's right to retaliation in response to a safeguard is suspended for the first three years that a safeguard measure is in effect, but this is only where the safeguard measure has been taken as a result of an absolute increase in imports and that such a measure conforms to the provisions of the SA.Footnote ⁶⁴ This means that the suspension does not apply in cases in which a measure does not conform to the provisions of the SA,Footnote ⁶⁵ and several complaining countries adopted the retaliatory measures for non-compliance with the SA provisions on the part of the United States.

Thus, the legality of these retaliatory measures hinges upon whether the US measures are safeguards under the SA. If not, the provisions of the SA do not apply, as the United States argues, and the retaliatory measures are not justified under the provisions of the SA. To answer this question, it is necessary to examine the nature of a safeguard measure, considering its key elements. In Indonesia–Iron or Steel Products, the EU argued that the defining features of a safeguard measure are the suspension of an obligation and/or the withdrawal or modification of a concession.Footnote ⁶⁶ The Appellate Body did not consider this argument to be sufficient. It found that the measure ‘must be designed to prevent or remedy serious injury to the Member's domestic industry caused or threatened by increased imports of the subject product’.Footnote ⁶⁷

The Appellate Body provided a useful analytical guideline to determine whether a measure is a safeguard:

Applying this guideline to the determination of the US measures, the first prong – the suspension of a GATT obligation or withdrawal or modification of a GATT concessionFootnote ⁶⁹ – is met. The US measures indeed suspend its obligation under the concession by imposing the additional tariffs on steel and aluminum products.Footnote ⁷⁰ The question is the second prong – whether the measure is designed to prevent serious injury to the domestic industry.Footnote ⁷¹ The following discussion examines whether the US measures fulfill this second prong.

First, the US domestic law applied for the imposition of a safeguard measure is Section 201 of the Trade Act,Footnote ⁷² but the US measures were adopted under Section 232 of the Trade Act, not Section 201 dealing with safeguards.Footnote ⁷³ The grounds for the Section 232 action were national security concerns, as stipulated by the President's Proclamation.Footnote ⁷⁴ Second, the domestic procedures that led to the adoption of the measures were also under Section 232,Footnote ⁷⁵ and none of the Section 201 procedure, including the injury assessment, was followed. Consequently, no notification was made to the WTO Committee on Safeguards during the process of adopting the US measures. Thus, the manner in which the US measures are characterized under US domestic law (Section 232), the domestic procedures that led to the adoption of the measure, and the absence of any relevant notifications to the WTO Committee on Safeguards, indicate that the US measures were not applied as safeguards under the SA.

The aspects of the US measures that are most central to the legal characterization of the measures, as cited in the above Appellate Body guidelines, seem to be those that are related to its claimed national security concerns, notwithstanding its validity under GATT Article XXI as discussed in the preceding section. The following factors support the conclusion that the US tariffs are not safeguards. The Proclamation does not mention injury to the domestic industries, let alone a proper injury analysis, while remedying injury is the core element of a safeguard under the Appellate Body guide.Footnote ⁷⁶ The Proclamation instead stresses the necessity to reduce imports of steel and aluminum products for national security concerns.Footnote ⁷⁷ The Commerce Department's investigation reportsFootnote ⁷⁸ examine the effect of imports of steel and aluminum on national security by analyzing the importance of steel and aluminum on national security, the adverse impact of imports on the welfare of the domestic steel and aluminum industries, and the adverse impact of the displacement of domestic steel industries and of global excess capacity on the welfare of domestic economy.Footnote ⁷⁹

However, parts of the investigation reports resemble the injury analysis required by the SA.Footnote ⁸⁰ The Steel Report analyzes relevant factors, including increases in imports, prices, employment, financial distress, and capital expenditure.Footnote ⁸¹ The resemblances, coupled with the long history of trade protection (anti-dumping measures and countervailing measures),Footnote ⁸² may create an impression that the United States applied safeguard measures. Despite these resemblances, however, the Steel and Aluminum reports are not the same type of report required by the SA. In addition to the analysis of the effect of steel imports on the domestic steel industry, which creates these resemblances, the Steel Report analyzes the importance of steel to US national security,Footnote ⁸³ which is not an injury analysis required by the SA.Footnote ⁸⁴ It also examines the impact of steel imports on the welfare of the overall domestic industry, which is also not a requirement under the SA.Footnote ⁸⁵ The Aluminum Report examines aluminum's importance to US national security (national defense and critical infrastructure),Footnote ⁸⁶ in addition to the effect of aluminum imports on the domestic aluminum industry. In other words, the Steel and Aluminum Reports are different from the investigation report required under the SA in terms of the scope and the subject of analysis (i.e., the effect on national security as well as on domestic industry).

As discussed above, the Appellate Body in Indonesia–Iron or Steel Products found that the measure must be designed to prevent or remedy serious injury to the Member's domestic industry caused or threatened by increased imports of the subject product to qualify as a safeguard.Footnote ⁸⁷ Such design is not found in the reports; they do not examine whether the alleged effect amounts to the serious injury of the domestic industries or a threat thereof as defined by the SA.Footnote ⁸⁸ Neither report, nor the Secretary's recommendation,Footnote ⁸⁹ makes a single reference to the existence of injury or the necessity to remedy the injury sustained by the domestic industries, but both instead point to the necessity of protecting the allegedly weakened domestic aluminum and steel industries for the protection of national security.Footnote ⁹⁰ The steel and aluminum tariffs, whether or not they are ultimately justified under GATT Article XXI, are applied as a measure to address the alleged security concern, not one that has been designed to remedy serious injury or a threat thereof.

The retaliation, adopted when there is an element of dispute as to the characterization of the original measure, is also inconsistent with the provisions of the DSU that require Members to refer disputes to the DSB for adjudication, not to adopt their own retaliatory measures unauthorized by the latter.Footnote ⁹¹ Article 23.2 of the DSU requires Members not to ‘make a determination to the effect that a violation has occurred, that benefits have been nullified or impaired or that the attainment of any objective of the covered agreements has been impeded, except through recourse to dispute settlement in accordance with the rules and procedures’ of the DSU and to ‘make any such determination consistent with the findings contained in the panel or Appellate Body report adopted by the DSB or an arbitration award rendered’ under the DSB.Footnote ⁹² Members must also ‘follow the procedures set forth in Article 22 to determine the level of suspension of concessions or other obligations and obtain DSB authorization in accordance with those procedures before suspending concessions or other obligations under the covered agreements in response to the failure of the Member concerned to implement the recommendations and rulings within that reasonable period of time’.Footnote ⁹³ Thus, the retaliating Members breached the provisions of the DSU by determining the US measures as safeguards and adopting the retaliating measures without a panel or Appellate Body report adopted by the DSB, where there was an element of dispute, and without authorization of such measures by the DSB.

4.1 The quota agreements with South Korea, Brazil, and Argentina

The President's two-track approach to the steel and aluminum tariffs is as follows: he announced the extensive steel and aluminum tariffs and alerted exporting countries around the world, and at the same time, he also attempted to negotiate bilaterally with multiple countries on quota agreements to limit the import of steel and aluminum products into the United States in return for an exemption from the tariffs. In addition to tariffs, the Secretary of Commerce recommended quotas as an alternative means to address the problem. The quota agreement would serve the latter option, although the specific quota amount may be different from what was originally suggested. On 22 March 2018, the President issued proclamations temporarily excluding Australia, Argentina, Brazil, South Korea, the EU, Canada, and Mexico from the tariffs, with a deadline of 1 May 2018, for negotiations.Footnote ⁹⁴

The outcome was the conclusion of steel quota agreements with South Korea and Brazil and a steel and aluminum quota agreement with Argentina.Footnote ⁹⁵ Australia was exempted from the tariffs, but no quota was set,Footnote ⁹⁶ following an assurance that the country will not facilitate the dumping of inexpensive Chinese product through transshipment.Footnote ⁹⁷ The President extended the negotiation deadline for the EU, Canada, and Mexico until 1 June. No agreement was reached by then, leading to the subsequent imposition of steel and aluminum tariffs for these countries.Footnote ⁹⁸ There is a continuing negotiation, but it is not certain whether there will be an agreement to lift the tariffs in exchange for the quota-type agreement.

4.2 A question of legality: prohibition of gray-area measures under the WTO Agreement on Safeguards

The question also exists as to whether the steel and aluminum quota agreements are consistent with the provision of the SA prohibiting all gray-area measures, i.e., voluntary measures to reduce trade, such as voluntary export restraints (VERs), orderly market arrangements (OMAs), and voluntary restraint agreements (VRAs).Footnote ⁹⁹ For example, Mexico, in its request for consultation under the DSU, claimed that the United States breached Article 11.1(b) of the SA, ‘to the extent that the United States, through the application of the measures at issue, seeks any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side, in violation of the provisions of the Agreement on Safeguards’.Footnote ¹⁰⁰ This section examines the legality of the US steel and aluminum quota agreements under WTO disciplines.

Article 11.1(b) of the SA provides:

Further examples of similar measures provided by the Article include export moderation, export-price or import-price monitoring systems, export or import surveillance, compulsory import cartels, and discretionary export or import licensing schemes, any of which afford protection.Footnote ¹⁰²

This provision unequivocally prohibits all types of gray-area measures. The prohibition of all gray-area measures is one of the most important achievements of the SA, and perhaps of the Uruguay Round. Gray-area measures, which were settled outside the GATT and escaped from its scrutiny, proliferated in the 1970s and 1980s as a means of restricting imports. As of early 1991, 284 gray-area measures were known to be in existence whereas only 24 safeguard measures under Article XIX were in force,Footnote ¹⁰³ undermining the regulatory conditions for the application of safeguards. Threatened by the importing countries to adopt even harsher measures, such as prohibitively high tariffs or restrictive quotas, the exporting countries accepted gray area measures demanded by the importing countries. Gray-area measures also evolved into varied forms, including restrictions on the value (volume) of export sales, restrictions of market share, limits on the increase in export supplies, the setting of minimum export prices, and restrictions on the conditions and timing of distribution.Footnote ¹⁰⁴

The prevalence of gray-area measures created a systematic issue in the GATT, as it substantially undermined rule-based, open trade that the GATT system advocated.Footnote ¹⁰⁵ To remedy this problem, the new SA prohibited the gray-area measures altogether,Footnote ¹⁰⁶ replacing them instead with safeguards with a durational limit and with several procedural and substantive requirements for their applications. As an incentive for compliance with this prohibition, the SA suspends the exporting country's right to compensation or retaliation in response to a safeguard for the first three years that a safeguard measure is in effect, provided that the safeguard measure has been taken as a result of an absolute increase in imports and that such a measure conforms to the provisions of the SA.Footnote ¹⁰⁷ The prohibition is one of the most critical regulatory contributions made by the WTO legal disciplines, as this prohibition finally removed gray-area measures that are not consistent with the objectives of the multilateral trading system.

The core feature of a gray-area measure is that it is a voluntary restraint on trade in the form of an agreement. The US steel and aluminum quota agreements demonstrate both elements (i.e., trade restriction and agreement). The quota agreements apparently limit steel imports from South Korea, Brazil, and Argentina, as well as aluminum imports from Argentina, in accordance with the maximum quota amount set for each product category.Footnote ¹⁰⁸ They are also ‘agreements’, given that the quotas were settled by negotiation and mutual consent between the importing and exporting countries, albeit under duress that the alternative would be heavy tariffs without a set duration, as were the cases with many gray-area measures in the past. The Proclamations confirm the existence of the quota agreements.Footnote ¹⁰⁹

The quota agreements, which limit the amount of steel and aluminum trade, clearly fall in ‘any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side’ including ‘actions taken by a single Member as well as actions under agreements, arrangements, and understandings entered into by two or more Members’ that ‘a Member shall not seek, take or maintain’ under Article 11.1(b) of the SA.Footnote ¹¹⁰ Article 11.1(b) applies to any suspect gray-area measure, irrespective of whether it is related to a safeguard measure; the outcome of this evaluation is not affected by the characterization of the US steel and aluminum tariffs currently in question (i.e., whether or not they are safeguardsFootnote ¹¹¹) that led to the conclusion of the quota agreements.

There is also another observation that these negotiated measures are part of free trade agreements in some instances, such as the US–Korea FTA,Footnote ¹¹² raising an inquiry as to whether the exception under Article XXIV applies. Article XXIV does not authorize a Member to deviate from the prohibition such as SA Article 11.1(b).Footnote ¹¹³ Also, the US–Korea FTAFootnote ¹¹⁴ existed prior to the adoption of the quota agreement; although the quota was negotiated in conjunction with the US–Korea negotiation to amend the FTA initiated by the US demand,Footnote ¹¹⁵ the quota agreement was not necessary to meet the requirement of Article XXIV.Footnote ¹¹⁶ Additionally, the quota agreement is not officially a term of the FTA; thus, it is doubtful that an Article XXIV defense is even applicable against a challenge under Article 11.1(b).Footnote ¹¹⁷

The conclusion of the quota agreements is a concerning development for the multilateral trading system. Currently, South Korea, Brazil, and Argentina are the signatories to the bilateral quota agreements with the United States, but there is potential that more steel exporting countries, such as Canada, Mexico, and the EU, might join in quota agreements with the United States, because negotiations were on-going even after the adoption of the tariffs. For example, the United States, Canada, and Mexico continued to discuss the steel and aluminum tariffs, in the context of United States–Mexico–Canada Agreement (USMCA), which may result in quotas on imports of steel and aluminum from Mexico and Canada.Footnote ¹¹⁸ Talks between the United States and the EU may also lead to a quota arrangement.Footnote ¹¹⁹ As discussed in the preceding section, the quota agreements are inconsistent with one of the most important provisions of the SA and of the WTO legal disciplines, namely the prohibition of gray-area measures that would undermine the core objectives of the multilateral trading system.