7.5.1 Main arguments of the parties

7.27. Russia asserts that there was an emergency in international relations that arose in 2014, evolved between 2014 and 2018, and continues to exist.Footnote ⁶¹ Russia asserts that this emergency presented threats to Russia's essential security interests.Footnote ⁶² Russia argues that, under Article XXI(b)(iii), both the determination of a Member's essential security interests and the determination of whether any action is necessary for the protection of a Member's essential security interests are at the sole discretion of the Member invoking the provision.Footnote ⁶³

7.28. While Russia acknowledges that the Panel was established with standard terms of reference under Article 7.1 of the DSUFootnote ⁶⁴, it argues that the Panel nevertheless lacks jurisdiction to evaluate measures taken pursuant to Article XXI of the GATT 1994.Footnote ⁶⁵ In Russia's view, the explicit wording of Article XXI confers sole discretion on the Member invoking this Article to determine the necessity, form, design and structure of the measures taken pursuant to Article XXI.Footnote ⁶⁶ Russia considers that the issues that arise from its invocation of Article XXI(b)(iii) go beyond the scope of trade and economic relations among Members and are outside the scope of the WTO:

7.29. Russia regards Article XXI(b) of the GATT 1994 as preserving the "right" of each Member to react to wars and other emergencies in international relations in the way that the Member itself considers necessary. Any other interpretation of Article XXI(b) would "result in interference in [the] internal and external affairs of a sovereign state".Footnote ⁶⁸ Accordingly, it is sufficient for a Member to state that the measures taken are actions that it considers necessary for the protection of its essential security interests, taken in time of war or other emergency in international relations. A Member's subjective assessment cannot be "doubted or re-evaluated by any other party" or judicial bodies as the measures in question are not ordinary trade measures regularly assessed by WTO panels.Footnote ⁶⁹

7.30. Russia therefore submits that the Panel should limit its findings to recognizing that Russia has invoked Article XXI of the GATT 1994, "without engaging in any further exercise, given that this panel lacks jurisdiction to evaluate measures taken with a reference to Article XXI of the GATT".Footnote ⁷⁰

7.31. Ukraine interprets Article XXI of the GATT 1994 as laying down an affirmative defence for measures that would otherwise be inconsistent with GATT obligations.Footnote ⁷¹ Ukraine rejects the notion that Article XXI provides for an exception to the rules on jurisdiction laid down in the GATT 1994 or the DSU.Footnote ⁷² Ukraine considers that the Panel has jurisdiction to examine and make findings and recommendations with respect to each of the provisions of the covered agreements cited by either Ukraine or Russia, in keeping with the Panel's terms of reference under Article 7 of the DSU and the general standard of review under Article 11 of the DSU.Footnote ⁷³ Ukraine also considers that, if Article XXI of the GATT 1994 were non-justiciable, it would imply that in a dispute involving a measure that is WTO-inconsistent, the invoking Member, rather than a panel, would decide the outcome of the dispute by determining that the WTO-inconsistent measure is nonetheless justified. In Ukraine's view, such unilateral determination by an invoking Member would be contrary to Article 23.1 of the DSU.Footnote ⁷⁴

7.32. Ukraine argues that Russia, by merely referring to an emergency in international relations that occurred in 2014, fails to discharge its burden to show the legal and factual elements of a defence under Article XXI(b)(iii) of the GATT 1994, namely, that there was a serious disruption in international relations constituting an emergency that is alike a war that is sufficiently connected to Russia so as to result in a genuine and sufficiently serious threat to its essential security interests and therefore to justify each and every measure at issue as being necessary to protect those interests.Footnote ⁷⁵ Ukraine also argues that Russia's allegation that the basis for the measures and the original circumstances leading to their imposition were publicly available and known to Ukraine is of no consequence in determining whether Russia has satisfied its burden of proof.Footnote ⁷⁶ Ukraine submits that the facts before the Panel show that Decree No. 1 was adopted due to the entry into force of the economic part of the EU-Ukraine Association Agreement, and that the text of the instruments implementing the 2014 measures shows that these were taken "[i]n view of detection of gross violations during the transit of such goods through the territory of the Republic of Belarus".Footnote ⁷⁷ Finally, Ukraine argues that the determination of whether the action was taken in time of war or other emergency in international relations under subparagraph (iii) of Article XXI(b) is to be objectively made by the Panel.Footnote ⁷⁸

7.33. Ukraine argues that, although the text of Article XXI(b) expressly states that it is for the invoking Member to decide what action it considers necessary for the protection of its essential security interests, this does not mean that the Member enjoys "total discretion".Footnote ⁷⁹ Had the standard been "total discretion", there would have been no reason to include separate paragraphs in Article XXI and to distinguish between different types of security interests that may be invoked in order to justify a measure that is otherwise inconsistent with the GATT 1994.Footnote ⁸⁰ Furthermore, a panel's objective assessment must include an examination of whether a Member invoking Article XXI has done so in good faith, notwithstanding the absence of an introductory paragraph similar to the chapeau to Article XX.Footnote ⁸¹

7.34. As to the standard of review under Article XXI(b)(iii), Ukraine argues that a panel's objective assessment must include an examination of whether the invoking Member has applied Article XXI in good faith and therefore has not abused the invocation "to pursue protectionist objectives or to apply a disguised restriction on trade".Footnote ⁸² Ukraine argues that, based on the ordinary meaning of the text of Article XXI(b) and similar to the analysis under the subparagraphs of Article XX, justification under Article XXI also requires that there be a rational relationship between the action and the protection of the essential security interest at issue.Footnote ⁸³ This analysis involves a consideration of the structure, content and design of the challenged measures. The phrase "for the protection of its essential security interests" should be interpreted in the light of the case law on Article XX of the GATT 1994 (in particular, regarding Article XX(a) on the protection of public morals) to mean that "all WTO Members have the right to determine their own level of protection of essential security interests", from which it would follow that a panel must not second-guess that level of protection.Footnote ⁸⁴ However, it is for panels rather than for Members to interpret the phrases "for the protection of its essential security interests" and "which it considers necessary" in accordance with customary rules of interpretation of public international law.Footnote ⁸⁵ In light of those interpretations, a panel must then establish: (i) whether the interests or reasons advanced by a defendant in connection with the measures at issue can reasonably be considered as falling within the meaning of the phrase "its essential security interests" and (ii) whether the measures at issue are directed at safeguarding the defendant's security interests, meaning that there is a rational relationship between the action taken and the protection of the essential security interest at issue.Footnote ⁸⁶ If a panel finds that the Member's measure is taken "for the protection of its essential security interests", a panel would then review whether, based on the facts available, the defendant "could reasonably arrive at the conclusion that the measures taken are necessary for protecting its essential security interests".Footnote ⁸⁷

7.5.2 Main arguments of the third parties

7.35. Australia argues that Article 7 of the DSU vests the Panel with jurisdiction to examine and make findings with respect to each of the relevant provisions in the covered agreements that Ukraine and Russia have cited.Footnote ⁸⁸ Russia's invocation of Article XXI(b)(iii) of the GATT 1994, which Australia considers to be an exception to Members' obligations under the GATT 1994, places the provision squarely within the Panel's jurisdiction.Footnote ⁸⁹

7.36. Australia regards the language "which it considers necessary" in the first part of Article XXI(b) to indicate that it is for a Member to determine both its essential security interests and the actions it considers necessary for their protection. However, this deference to the determinations of a Member does not preclude a panel from undertaking any review of a Member's invocation of Article XXI(b).Footnote ⁹⁰ Rather, in reviewing the "necessity" of an action under Article XXI(b), a panel is limited to determining whether the Member in fact considers the action necessary, for example, by reference to the Member's statements and conduct. Australia considers that although the nature and scope of review of the "necessity" aspect is limited, a panel does have a broader role in determining whether that (necessary) action was taken "for the protection of " a Member's essential security interests. In Australia's view, to arrive at such a determination, a panel should examine if there is a "sufficient nexus" between the action taken and the Member's essential security interests.Footnote ⁹¹

7.37. Brazil argues that, by invoking Article XXI, Russia did the opposite of excluding the Panel's jurisdiction: it obliged the Panel to examine the provision by bringing it into the "matter" at hand.Footnote ⁹² Moreover, an exclusion of jurisdiction would deprive the complainant of its right to a decision and would be contrary to Article 3.3 of the DSU.Footnote ⁹³ Brazil considers Article XXI to be an affirmative defence. Brazil interprets Article XXI(b) as containing both a "subjective" component, i.e. a judgment regarding the necessity of a measure, and an "objective component", which relates to the presence of at least one of the circumstances listed in subparagraphs (i) through (iii).Footnote ⁹⁴ Although the language "which it considers" in the first part of Article XXI(b) confers a great deal of discretion on the Member regarding the necessity of the measure, a panel must nevertheless review the Member's motivation for invoking Article XXI(b)(iii) to ensure that there is some connection between the measure and the state of war or other emergency in international relations, and whether there is a "plausible link" between the measure and the purpose stated in the Member's motivation for imposing the measure.Footnote ⁹⁵

7.38. Brazil considers that, unlike the determination of whether an action relates to fissionable materials, traffic in arms, or war, in subparagraphs (i), (ii) and (iii) of Article XXI(b), the question of what constitutes an emergency in international relations is "quite subjective and quite difficult to discern without entering into a discussion on what constitutes a Member's national security interest".Footnote ⁹⁶ Nevertheless, Brazil considers that the invoking Member bears the burden of adducing evidence that the challenged measures constitute action taken in time of war or other emergency in international relations.Footnote ⁹⁷ An invoking Member must also demonstrate some degree of connection between the measure and the state of war or other emergency in international relations, and whether there is a plausible link between the measure that the Member wishes to justify and the purpose stated in its motivation.Footnote ⁹⁸

7.39. Canada argues that if Article XXI of the GATT 1994 is invoked by a Member in a dispute, then its applicability is justiciable unless consideration of the Article has been excluded from a panel's terms of reference.Footnote ⁹⁹ Canada further observes that the DSU provides that panels do not have the discretion to decline to exercise the jurisdiction conferred on them by their terms of reference, nor do they have the discretion not to discharge the obligations imposed on them by Article 11 of the DSU.Footnote ¹⁰⁰ While Canada considers that Article XXI is an exception which can be invoked by a Member to justify measures that would otherwise not be consistent with its WTO obligations, it also regards Article XXI as "structurally and textually different from Article XX".Footnote ¹⁰¹ It therefore cautions against importing tests developed in the jurisprudence to interpret provisions such as Article XX.Footnote ¹⁰²

7.40. Canada interprets Article XXI(b)(iii) as providing for a "subjective" standard, according to which the invoking Member determines the interests, actions and necessity of actions, as well as the satisfaction of the conditions in subparagraph (iii).Footnote ¹⁰³ While Canada considers the subjective standard and the particularly sensitive nature of the subject matter of Article XXI to mean that an invoking Member must be accorded a "high level of deference" by a panel, it also considers that an invoking Member must substantiate (albeit at a low standard) its good faith belief that the elements for its invocation of Article XXI(b)(iii) exist.Footnote ¹⁰⁴

7.41. China argues that the Panel has jurisdiction to review Russia's invocation of Article XXI of the GATT 1994 on the basis of the Panel's standard terms of reference and Articles 7.1 and 7.2 of the DSU.Footnote ¹⁰⁵ China considers that Russia has invoked Article XXI as a defence to Ukraine's claims of inconsistency.Footnote ¹⁰⁶ China urges the Panel to exercise extreme caution in its assessment of Russia's invocation of Article XXI(b)(iii), in order to maintain the delicate balance between preventing abuse of Article XXI and evasion of WTO obligations, on the one hand, and not prejudicing a Member's right to protect its essential security interests, including a Member's "sole discretion" regarding its own security interests, on the other hand.Footnote ¹⁰⁷ China refers to the principle of good faith embodied in Article 26 of the Vienna Convention on the Law of Treaties and argues that Members invoking Article XXI(b) should adhere to the principle of good faith.Footnote ¹⁰⁸

7.42. The European Union argues that Article XXI of the GATT 1994 does not provide for an exception to the rules on jurisdiction laid down in the DSU or to the special rules on consultations and dispute settlement contained in Articles XXII and XXIII of the GATT 1994.Footnote ¹⁰⁹

7.43. Given the absence in Article XXI of an equivalent to the chapeau in Article XX, the analysis of Article XXI should consider whether a measure addresses the particular interest specified, and that there is a sufficient nexus between the measure and the interest protected.Footnote ¹¹⁰ The European Union argues that the terms "which it considers" in the first part of Article XXI(b) qualify only the term "necessary". Therefore, the existence of a war or other emergency in international relations in subparagraph (iii) should be interpreted to refer to objective factual circumstances which can be fully reviewed by panels.Footnote ¹¹¹ While "essential security interests" should be interpreted so as to allow Members to identify their own security interests and their desired level of protection, a panel should, on the basis of the reasons provided by the invoking Member, review whether the interests at stake can "reasonably" or "plausibly" be considered essential security interests.Footnote ¹¹² A panel must also review whether the action is "capable" of protecting a security interest from a threat. The European Union considers that the terms "which it considers" imply that "in principle" each Member may determine for itself whether a measure is "necessary" for the protection of its essential security interests.Footnote ¹¹³ A panel should nevertheless review this determination, albeit with due deference, to assess whether the invoking Member can plausibly consider the measure necessary and whether the measure is "applied" in good faith. This requires the invoking Member to provide the panel with an explanation as to why it considered the measure necessary.Footnote ¹¹⁴ Finally, the European Union argues that, when assessing the necessity of the measure and the existence of reasonably available alternatives, a panel should ascertain whether the interests of third parties which may be affected were properly taken into account.Footnote ¹¹⁵

7.44. Japan argues that consideration of Russia's invocation of Article XXI of the GATT 1994 is within the Panel's terms of reference.Footnote ¹¹⁶ However, Japan also considers that Article XXI of the GATT 1994 is an "extraordinary provision" in that it recognizes the vital importance of Members' essential security interests, and the fundamental nature of their sovereign right to pursue such vital interests. This is reflected in the "deferential language" used in the provision. This being so, it may impose an "undue burden" on the WTO dispute settlement system to require panels to review a Member's invocation of Article XXI. Japan therefore urges the parties to make every effort to seek a mutually acceptable solution "in order to maintain the effective functioning of the WTO".Footnote ¹¹⁷

7.45. Japan also notes the critical importance of national security interests to Members' fundamental sovereignty and the risk of the Panel adopting any interpretation that could impair a Member's ability to decide on the need to adopt measures necessary to protect its national security.Footnote ¹¹⁸ Japan therefore urges the Panel to "grant appropriate deference to the Members' judgement as to the necessity of taking actions to protect their essential security interests".Footnote ¹¹⁹ At the same time, Japan acknowledges that subparagraph (b)(iii) carefully circumscribes the situations that would allow Members to invoke a defence based on each Member's essential security interests. In addition, in Japan's view, considering the object and purpose of the GATT 1994 and the preparatory work for the ITO Charter, the discretion accorded to Members in deciding upon the actions that are necessary to protect their essential security interests is "not unbounded and must be exercised with extreme caution".Footnote ¹²⁰

7.46. Moldova disagrees with Russia's argument that the mere invocation of Article XXI(b)(iii) prevents WTO panels from reviewing trade issues that would otherwise be WTO-inconsistent.Footnote ¹²¹ Moldova therefore considers that, while Members have the right to define for themselves their essential security interests, and declare the necessity of protecting those interests, WTO panels have the right to review whether such Members apply WTO-inconsistent measures in good faith and in accordance with the requirements of Article XXI.Footnote ¹²²

7.47. Moldova considers that the Panel needs to assess whether the invoking Member "genuinely believes" that the measure taken is necessary to protect such Member's essential security interests. Moldova argues that the jurisprudence concerning the "necessity" of a measure sought to be justified under Articles XX(a), (b) or (d) of the GATT 1994 could be relevant to a panel's assessment of the necessity of action under Article XXI(b). Accordingly, Moldova argues that a panel assessing whether an action is "necessary" for purposes of Article XXI(b) should undertake a "weighing and balancing exercise", which considers the importance of the essential security interests or values at stake, the extent of the contribution to the achievement of the measure's objective, and its trade restrictiveness, complemented by an analysis of whether the measure is "apt to make a material contribution to the achievement of its objective".Footnote ¹²³ Such an exercise should also include a determination of whether a WTO-consistent alternative measure is reasonably available to the invoking Member.Footnote ¹²⁴ A panel should also determine if the measures at issue protect "essential security interests", which must meet a higher standard than, and can be distinguished from, "non-essential security interests".Footnote ¹²⁵ Moldova considers that the invoking Member should demonstrate to a panel that "in addition to establishing the objective prerequisites in Article XXI(b)[] regarding the existence of an essential security interest", the measure does not "intentionally serve protectionist purposes".Footnote ¹²⁶

7.48. Singapore argues that the Panel has jurisdiction to consider Russia's invocation of Article XXI, on the basis of the Panel's standard terms of reference and Articles 7.1 and 7.2 of the DSU.Footnote ¹²⁷ Singapore considers that the language "it considers necessary" in the first part of Article XXI(b) indicates that the invoking Member is allowed to determine "with a significant degree of subjectivity" what action it considers necessary to protect its essential security interests.Footnote ¹²⁸ Singapore contrasts this "self-judging" aspect of Article XXI(b) with the text of Article XX.Footnote ¹²⁹ Singapore argues that the "key" phrase "it considers necessary" in the first part of Article XXI(b) has been deliberately drafted to give a Member wide latitude to determine both the action necessary for the protection of its essential security interests (including the nature, scope and duration of the measure) and the necessity of the measure.Footnote ¹³⁰ Singapore argues that a "significant margin of appreciation" should be accorded to a Member's assessments of its chosen level of protection and risk, as well as the necessity of a measure taken for the protection of its essential security interests.Footnote ¹³¹

7.49. On the other hand, Singapore considers that Members should exercise their discretion under Article XXI(b) in accordance with the principle of good faith and the doctrine of abuse of rights. Thus, a Member must, in good faith—albeit subjectively—consider that there is a threat to its essential security interest and that its chosen action is necessary for the protection of that essential security interest.Footnote ¹³² Singapore also argues that the determination of the existence of an "emergency in international relations" under subparagraph (iii) of Article XXI(b) is "inherently subjective", with the sensitivities implicated in a Member's assessment of its security threats being equally applicable to a determination of whether an "emergency in international relations" exists.Footnote ¹³³ Singapore submits that, even if the Panel were to conduct a "more intrusive" review of a Member's invocation of Article XXI(b), it should be limited to an examination of whether the disputed measure was implemented in a "non-capricious manner", rather than conducting an examination that "approximates an objective substantive review".Footnote ¹³⁴

7.50. Turkey argues that the text of Article XXI(b), especially the clause "which it considers necessary" means that "to a very large extent", it is left to the judgment of the invoking Member to determine which measures it considers necessary for the protection of its essential security interests. However, while the language of Article XXI leaves the determination of whether action is necessary for the protection of essential security interests to the Member taking the action, this discretion is not unqualified. Turkey regards the term "essential", which qualifies "security interests", to indicate an intention to draw a boundary to prevent abuses of power such as sheltering commercial measures behind the security exception.Footnote ¹³⁵ Suggesting that the Panel should be guided by the general exception rules of the GATT 1994, Turkey considers that a complaining Member should make its prima facie case of inconsistency, and then the responding Member should put forward, inter alia, its argument that the measure can be justified under Article XXI. A panel, when reviewing the responding Member's invocation of Article XXI, should consider the "large margin of discretion" accorded to the invoking Member.Footnote ¹³⁶

7.51. The United States, in a letter to the Chair of the Panel submitted on the due date for third-party submissions, argues that the Panel "lacks the authority to review the invocation of Article XXI and to make findings on the claims raised in this dispute".Footnote ¹³⁷ The reason advanced is that every WTO Member retains the authority to determine for itself those matters that it considers necessary for the protection of its essential security interests, as "reflected" in the text of Article XXI of the GATT 1994.Footnote ¹³⁸ The United States describes this as an "inherent right" that has been repeatedly recognized by GATT contracting parties and WTO Members.Footnote ¹³⁹

7.52. In its subsequent submissions, the United States clarifies that it considers the Panel to have jurisdiction in the context of this dispute "in the sense that the DSB established it, and placed the matter raised in Ukraine's complaint within the Panel's terms of reference under Article 7.1 of the DSU".Footnote ¹⁴⁰ However, it considers that the dispute is "non-justiciable" because there are no legal criteria by which the issue of a Member's consideration of its essential security interests can be judged.Footnote ¹⁴¹ The United States bases its position on its interpretation of the text of Article XXI, specifically, the "self-judging" language of the chapeau in Article XXI(b) "which it considers necessary for the protection of its essential security interests".Footnote ¹⁴² For the United States, the "self-judging" nature of Article XXI(b)(iii) establishes that its invocation by a Member is "non-justiciable", and "is therefore not capable of findings by a panel", obviating the possibility of making recommendations under Article 19.1 of the DSU in this dispute.Footnote ¹⁴³

7.5.3 Whether the Panel has jurisdiction to review Russia's invocation of Article XXI(b)(iii) of the GATT 1994

7.53. The Panel recalls that international adjudicative tribunals, including WTO dispute settlement panels, possess inherent jurisdiction which derives from the exercise of their adjudicative function.Footnote ¹⁴⁴ One aspect of this inherent jurisdiction is the power to determine all matters arising in relation to the exercise of their own substantive jurisdiction.Footnote ¹⁴⁵

7.54. Article 1.1 of the DSU provides that the rules and procedures of the DSU shall apply to disputes brought pursuant to the consultation and dispute settlement provisions of the agreements listed in Appendix 1 (the covered agreements). The covered agreements include, inter alia, the Multilateral Agreements on Trade in Goods, including the GATT 1994, more particularly Articles XXII and XXIII, as elaborated and applied by the DSU. Article 1.2 of the DSU provides that the rules and procedures of the DSU shall apply subject to such special or additional rules on dispute settlement contained in the covered agreements as are identified in Appendix 2 to the DSU. Appendix 2 of the DSU does not refer to any special or additional rules of procedure applying to disputes in which Article XXI of the GATT 1994 is invoked.

7.55. The Panel recalls that Ukraine requested the DSB to establish a panel pursuant to the provisions of the DSU and Article XXIII of the GATT 1994. On 21 March 2017, the DSB established the Panel in accordance with Article 6 of the DSU, with standard terms of reference as provided in Article 7.1 of the DSU. Article 7.2 of the DSU requires that the Panel address the relevant provisions in any covered agreements cited by the parties to the dispute.Footnote ¹⁴⁶

7.56. Given the absence in the DSU of any special or additional rules of procedure applying to disputes involving Article XXI of the GATT 1994, Russia's invocation of Article XXI(b)(iii) is within the Panel's terms of reference for the purposes of the DSU.

7.57. Russia argues, however, that the Panel lacks jurisdiction to review Russia's invocation of Article XXI(b)(iii). For Russia, the invocation of Article XXI(b)(iii) by a Member renders its actions immune from scrutiny by a WTO dispute settlement panel. Russia's argument is based on its interpretation of Article XXI(b)(iii) as "self-judging".Footnote ¹⁴⁷ According to this argument, Article XXI(b)(iii) carves out from a panel's jurisdiction ratione materiae actions that a Member considers necessary for the protection of its essential security interests taken in time of war or other emergency in international relations. Russia's jurisdictional plea is that, based on its interpretation of Article XXI(b)(iii), it has met the conditions for invoking the provision.

7.58. As previously noted, the Panel's evaluation of Russia's jurisdictional plea requires it, in the first place, to interpret Article XXI(b)(iii) of the GATT 1994 in order to determine whether, by virtue of the language of this provision, the power to decide whether the requirements for the application of the provision are met is vested exclusively in the Member invoking the provision, or whether the Panel retains the power to review such a decision concerning any of these requirements.

7.5.4 The measures at issue and their existence

7.105. In the preceding Section, the Panel found that it has jurisdiction to review Russia's invocation of Article XXI(b)(iii). The Panel recalls that Russia also argues that certain measures and claims are outside the Panel's terms of reference because Ukraine's panel request does not comply with the requirements of Article 6.2 of the DSU.

7.106. For presentational purposes, and in order not to interrupt the analysis of Article XXI, the Panel defers the exposition of its examination of the terms of reference to Section 7.7 of the Report. For the reasons provided in that Section, the Panel finds that the following measures are within its terms of reference (the measures at issue):

1. a. 2016 Belarus Transit Requirements: Requirements that all international cargo transit by road and rail from Ukraine destined for the Republic of Kazakhstan or the Kyrgyz Republic, through Russia, be carried out exclusively from Belarus, and comply with a number of additional conditions related to identification seals and registration cards at specific control points on the Belarus-Russia border and the Russia-Kazakhstan border.Footnote ¹⁸⁴

2. b. 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods: Bans on all road and rail transit from Ukraine of: (i) goods that are subject to non-zero import duties according to the Common Customs Tariff of the EaEU; and (ii) goods that fall within the scope of the import bans imposed by Resolution No. 778, which are destined for Kazakhstan or the Kyrgyz Republic.Footnote ¹⁸⁵ Transit of such goods may only occur pursuant to a derogation requested by the Governments of Kazakhstan or the Kyrgyz Republic which is authorized by the Russian Government, in which case, the transit is subject to the 2016 Belarus Transit Requirements (above).

3. c. 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods: Prohibitions on transit from Ukraine across Russia, through checkpoints in Belarus, of goods subject to veterinary and phytosanitary surveillance and which are subject to the import bans implemented by Resolution No. 778, along with related requirements that, as of 30 November 2014, such veterinary goods destined for Kazakhstan or third countries enter Russia through designated checkpoints on the Russian side of the external customs border of the EaEU and only pursuant to permits issued by the relevant veterinary surveillance authorities of the Government of Kazakhstan and the Rosselkhoznadzor, and that, as of 24 November 2014, transit to third countries (including Kazakhstan) of such plant goods take place exclusively through the checkpoints across the Russian state border.Footnote ¹⁸⁶

7.107. Ukraine has presented evidence of the existence of the above-referenced measures, and the Panel is satisfied that these measures exist.Footnote ¹⁸⁷ This being so, the next question is whether these measures are inconsistent with Russia's obligations under Articles V and X of the GATT 1994 and commitments in Russia's Accession Protocol, or whether there can be no such inconsistency in the circumstances, because the measures were "taken in time of war or other emergency in international relations", and meet the other possible conditions of the chapeau of Article XXI(b).

7.108. The Panel notes in this regard the particularity of the exception specified in Article XXI(b)(iii). This provision acknowledges that a war or other emergency in international relations involves a fundamental change of circumstances which radically alters the factual matrix in which the WTO-consistency of the measures at issue is to be evaluated. The Panel considers that an evaluation of whether measures are covered by Article XXI(b)(iii), as measures "taken in time of war or other emergency in international relations" (unlike measures covered by the exceptions under Article XX) does not necessitate a prior determination that they would be WTO-inconsistent if they had been taken in normal times, i.e. if they were not taken in time of war or other emergency in international relations. This is because, for the reasons explained in Section 7.5.6, there is no need to determine the extent of the deviation of the challenged measure from the prescribed norm in order to evaluate the necessity of the measure, i.e. that there is no reasonably available alternative measure to achieve the protection of the legitimate interests covered by the exception which is not violative, or is less violative, of the prescribed norm.

7.109. The Panel thus considers that, once it has found that the measures at issue are within its terms of reference and that Ukraine has demonstrated their existence, the most logical next step in its analysis is to determine whether the measures are covered by subparagraph (iii) of Article XXI(b), i.e. whether the measures were in fact taken during time of war or other emergency in international relations. Only if the Panel finds that the measures were not taken in time of war or other emergency in international relations would it become necessary to determine the consistency of the measures with the provisions of Articles V and X of the GATT 1994, which are the subject of Ukraine's claims.

7.110. Accordingly, the Panel next determines whether the measures at issue fall within the scope of subparagraph (iii) of Article XXI(b), as measures taken in time of war or other emergency in international relations.

7.5.5 Whether the measures were "taken in time of war or other emergency in international relations" within the meaning of subparagraph (iii) of Article XXI(b)

7.111. The Panel recalls its interpretation of "emergency in international relations" within the meaning of subparagraph (iii) of Article XXI(b) 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.Footnote ¹⁸⁸

7.112. Russia, in its first written submission, refers to an emergency in international relations that occurred in 2014, which led Russia to take various actions, including imposing the measures at issue.Footnote ¹⁸⁹ Russia affirms that the events constituting the emergency in international relations are well known to Ukraine and that this dispute raises issues concerning politics, national security and international peace and security.Footnote ¹⁹⁰ It also explains that one reason for formulating its invocation of Article XXI(b)(iii) in such general terms is that it is trying to "keep the issues such as wars, insurrections, unrests, international conflicts outside the scope of the WTO which is not designed for resolution of such crises and related matters".Footnote ¹⁹¹

7.113. Ukraine argues that Russia has not adequately identified or described the 2014 emergency, and has therefore not discharged its burden of proof.Footnote ¹⁹²

7.114. In its opening statement at the second meeting of the Panel, Russia posed a "hypothetical question" as to whether circumstances similar to those listed would amount to an emergency in international relations under subparagraph (iii) of Article XXI(b).Footnote ¹⁹³ These hypothetical circumstances, as formulated by Russia, are:

1. a. Unrest within the territory of a country neighbouring a Member, occurring in the immediate vicinity of the Member's border;

2. b. The loss of control by that neighbouring country over its border;

3. c. Movement of refugees from that neighbouring country to the Member's territory; and

4. d. Unilateral measures and sanctions imposed by that neighbouring country or by other countries, which are not authorized by the United Nations, similar to those imposed against Russia by Ukraine.Footnote ¹⁹⁴

7.115. When asked by the Panel how closely the hypothetical situation described above reflected the actual situation on the ground, the Russian representative explained that Russia had referred to the hypothetical "in order not to introduce again some information that Russia cannot disclose".Footnote ¹⁹⁵ The Russian representative then referred to a paragraph from Ukraine's 2016 Trade Policy Review ReportFootnote ¹⁹⁶ which, according to the Russian representative, explains, in Ukraine's words, "what is going on and how real these whole hypothetical questions are".Footnote ¹⁹⁷ The paragraph refers to "the annexation of the Autonomous Republic of Crimea and the military conflict in the east" as factors that had adversely affected Ukraine's economic performance in 2014 and 2015.Footnote ¹⁹⁸

7.116. Ukraine objects to Russia's use of Ukraine's 2016 Trade Policy Review Report, noting that prior panels have refused to attach importance to the Trade Policy Review Mechanism (TPRM) of Members in considering the arguments of a party in dispute settlement proceedings.Footnote ¹⁹⁹

7.117. Paragraph A(i) of the TPRM states that the TPRM is "not … intended to serve as a basis for the enforcement of specific obligations under the covered Agreements or for dispute settlement procedures". In two prior disputes, panels have rejected a complainant's reference to the report drawn up by the WTO Secretariat as part of the respondent's Trade Policy Review. In both instances, the reference was used as the basis for an argument that a measure was WTO-inconsistent.Footnote ²⁰⁰

7.118. The Panel notes that the Russian representative referred to the relevant paragraph from Ukraine's 2016 Trade Policy Review Report in order to show that the hypothetical situation put forward in Russia's opening statement at the second meeting of the Panel has been referred to by Ukraine—in another context, it is true—as being "the annexation of the Autonomous Republic of Crimea and the military conflict in the east". Russia therefore used the reference to paragraph 1.13 of Ukraine's 2016 Trade Policy Review Report solely to further identify the situation that it had presented in its first written submission in the following general terms: "the emergency in international relations that occurred in 2014 that presented threats to the Russian Federation's essential security interests".Footnote ²⁰¹ Russia had also previously asserted that the circumstances that led to the imposition of the measures at issue were publicly available and known to Ukraine.Footnote ²⁰² Russia did not refer to the relevant paragraph of Ukraine's 2016 Trade Policy Review Report as evidence that Ukraine (or Russia, for that matter) characterizes that situation as an emergency in international relations for the purposes of the present proceedings. The Panel therefore does not consider that paragraph A(i) of the TPRM applies to this situation, or that the Panel is thereby precluded from taking into account Russia's reference to paragraph 1.13 of Ukraine's 2016 Trade Policy Review Report.

7.119. Accordingly, Russia has identified the situation that it considers to be an emergency in international relations by reference to the following factors: (a) the time-period in which it arose and continues to exist, (b) that the situation involves Ukraine, (c) that it affects the security of Russia's border with Ukraine in various ways, (d) that it has resulted in other countries imposing sanctions against Russia, and (e) that the situation in question is publicly known. The Panel regards this as sufficient, in the particular circumstances of this dispute, to clearly identify the situation to which Russia is referring, and which it argues is an emergency in international relations.

7.120. Therefore, the Panel must determine whether this situation between Ukraine and Russia that has existed since 2014 constitutes an emergency in international relations within the meaning of subparagraph (iii) of Article XXI(b).

7.121. The Panel notes 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.

7.122. There is evidence before the Panel that, at least as of March 2014, and continuing at least until the end of 2016, relations between Ukraine and Russia had deteriorated to such a degree that they were a matter of concern to the international community.Footnote ²⁰³ By December 2016, the situation between Ukraine and Russia was recognized by the UN General Assembly as involving armed conflict.Footnote ²⁰⁴ Further evidence of the gravity of the situation is the fact that, since 2014, a number of countries have imposed sanctions against Russia in connection with this situation.Footnote ²⁰⁵

7.123. Consequently, the Panel is satisfied that the situation between Ukraine and Russia since 2014 constitutes an emergency in international relations, within the meaning of subparagraph (iii) of Article XXI(b) of the GATT 1994.

7.124. It thus remains for the Panel to determine whether the measures taken by Russia with respect to Ukraine were "taken in time of" the emergency in international relations. In this regard, the Panel notes that the 2016 Belarus Transit Requirements were introduced by Russia on 1 January 2016, the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods were introduced on 1 July 2016, and the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods were introduced by Russia in November 2014. All of the measures were therefore introduced during the emergency in international relations and thus were "taken in time of" such emergency for purposes of subparagraph (iii).

7.125. On the basis of the foregoing considerations, the Panel concludes that each of the measures at issue was "taken in time of" an emergency in international relations, within the meaning of subparagraph (iii) of Article XXI(b) of the GATT 1994.

7.5.6 Whether the conditions of the chapeau of Article XXI(b) of the GATT 1994 are satisfied

7.127. The Panel recalls that, in paragraph 7.63 above, it posited that the adjectival clause "which it considers" in the chapeau of Article XXI(b) can be read to qualify only the "necessity" of the measures for the protection of the invoking Member's essential security interests, or also the determination of these "essential security interests", or finally and maximally, to qualify as well the determination of the sets of circumstances described in each of the subparagraphs of Article XXI(b). In paragraph 7.101 above, the Panel rejected the last of these possible interpretations.

7.128. The Panel has yet to address the remaining two possible interpretations of Article XXI(b). In other words, the question remains whether the adjectival clause "which it considers" in the chapeau of Article XXI(b) qualifies both the determination of the invoking Member's essential security interests and the necessity of the measures for the protection of those interests, or simply the determination of their necessity.

7.129. Russia argues that the adjectival clause means that both the determination of a Member's essential security interests, and the determination of the necessity of the action taken for the protection of those interests, is left entirely to the discretion of the invoking Member. Several of the third parties also consider that Members have wide discretion to identify for themselves their essential security interests.Footnote ²⁰⁶ Ukraine argues that, while all Members have the right to determine their own level of protection of essential security interests, that does not mean that a Member may unilaterally define what are essential security interests.Footnote ²⁰⁷ According to Ukraine, it is for panels, rather than for Members, to interpret the term "essential security interests", which forms part of the WTO covered agreements, in accordance with customary rules of interpretation of public international law.Footnote ²⁰⁸ Consistent with its interpretation of Article XXI(b)(iii), Ukraine argues that Russia has failed to identify the essential security interests that are threatened by the 2014 emergency, and has not explained or demonstrated the connection between the measures and its essential security interests.Footnote ²⁰⁹ While Russia also argued that, pursuant to Article XXI(a) of the GATT 1994, it cannot be required to further explain its actions, beyond what it has declared in its first written submission and opening statement at the first meeting of the Panel, Ukraine considers that Russia cannot invoke Article XXI(a) of the GATT 1994 to evade its burden of proof under Article XXI(b)(iii).Footnote ²¹⁰

7.130. "Essential security interests"Footnote ²¹¹, which is evidently a narrower concept than "security interests", may generally be understood to refer to those interests 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.

7.131. The specific interests that are considered directly relevant to the protection of a state from such external or internal threats will depend on the particular situation and perceptions of the state in question, and can be expected to vary with changing circumstances. For these reasons, it is left, in general, to every Member to define what it considers to be its essential security interests.

7.132. However, this does not mean that a Member is free to elevate any concern to that of an "essential security interest". Rather, the discretion of a Member to designate particular concerns as "essential security interests" is limited by its obligation to interpret and apply Article XXI(b)(iii) of the GATT 1994 in good faith. The Panel recalls that the obligation of good faith is a general principle of law and a principle of general international law which underlies all treaties, as codified in Article 31(1) ("[a] treaty shall be interpreted in good faith …") and Article 26 ("[e]very treaty … must be performed [by the parties] in good faith") of the Vienna Convention.Footnote ²¹²

7.133. The obligation of good faith requires that Members not use the exceptions in Article XXI as a means to circumvent their obligations under the GATT 1994. A glaring example of this would be where a Member sought to release itself from the structure of "reciprocal and mutually advantageous arrangements" that constitutes the multilateral trading systemFootnote ²¹³ simply by re-labelling trade interests that it had agreed to protect and promote within the system, as "essential security interests", falling outside the reach of that system.

7.134. It is therefore incumbent on the invoking Member to articulate the essential security interests said to arise from the emergency in international relations sufficiently enough to demonstrate their veracity.

7.135. What qualifies as a sufficient level of articulation will depend on the emergency in international relations at issue. In particular, the Panel considers that the less characteristic is the "emergency in international relations" invoked by the Member, i.e. the further it is removed from armed conflict, or a situation of breakdown of law and public order (whether in the invoking Member or in its immediate surroundings), the less obvious are the defence or military interests, or maintenance of law and public order interests, that can be generally expected to arise. In such cases, a Member would need to articulate its essential security interests with greater specificity than would be required when the emergency in international relations involved, for example, armed conflict.

7.136. In the case at hand, the emergency in international relations is very close to the "hard core" of war or armed conflict. While Russia has not explicitly articulated the essential security interests that it considers the measures at issue are necessary to protect, it did refer to certain characteristics of the 2014 emergency that concern the security of the Ukraine-Russia border.Footnote ²¹⁴

7.137. Given the character of the 2014 emergency, as one that has been recognized by the UN General Assembly as involving armed conflict, and which affects the security of the border with an adjacent country and exhibits the other features identified by Russia, the essential security interests that thereby arise for Russia cannot be considered obscure or indeterminate.Footnote ²¹⁵ Despite its allusiveness, Russia's articulation of its essential security interests is minimally satisfactory in these circumstances. Moreover, there is nothing in Russia's expression of those interests to suggest that Russia invokes Article XXI(b)(iii) simply as a means to circumvent its obligations under the GATT 1994.

7.138. The obligation of good faith, referred to in paragraphs 7.132 and 7.133 above, applies not only to the Member's definition of the essential security interests said to arise from the particular emergency in international relations, but also, and most importantly, to their connection with the measures at issue. Thus, as concerns the application of Article XXI(b)(iii), this obligation is crystallized in demanding that the measures at issue meet a minimum requirement of plausibility in relation to the proffered essential security interests, i.e. that they are not implausible as measures protective of these interests.

7.139. The Panel must therefore review whether the measures are so remote from, or unrelated to, the 2014 emergency that it is implausible that Russia implemented the measures for the protection of its essential security interests arising out of the emergency.

7.140. The Panel recalls that the 2016 measures (i.e. the 2016 Belarus Transit Requirements and the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods): (a) restrict transit by road and rail from Ukraine which is destined for Kazakhstan or the Kyrgyz Republic from transiting directly across the Ukraine-Russia border, requiring instead that such traffic detour through Belarus, and meet additional conditions relating to identification seals and registration cards at specific control points; and (b) prohibit altogether such transit for certain classes of goods unless such transit is exceptionally authorized.Footnote ²¹⁶

7.141. Ukraine characterizes the 2016 measures as retaliation by Russia for Ukraine's decision to pursue economic integration with the European Union (through the EU-Ukraine Association Agreement which includes a DCFTA) rather than with Russia through the EaEU. Ukraine does not indicate whether it considers that decision, and consequently the 2016 measures, to be related also to the emergency in international relations that had arisen in early 2014.Footnote ²¹⁷ While the evidence presented by Ukraine establishes that the 2016 measures were direct or immediate responses to the entry into force of the DCFTA between the European Union and Ukraine, this is only a partial explanation of the background to Russia's adoption of the 2016 measures.

7.142. The Panel considers that there is a clear correlation between the change in government in Ukraine in early 2014, the newly sworn-in government's decision to sign the EU-Ukraine Association Agreement in March 2014, the deterioration in Ukraine's relations with Russia (as evidenced by the March 2014 UN General Assembly resolution concerning the territorial integrity of Ukraine), and the sanctions that have been imposed against Russia by several countries.Footnote ²¹⁸ In other words, Ukraine's decision to pursue economic integration with the European Union rather than with the EaEU cannot reasonably be seen as unrelated to the events that followed, and led to the emergency in international relations, during which Russia took a number of actions in respect of Ukraine, including the adoption of the 2016 measures.

7.143. The 2014 measures (i.e. the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods) operate to ban transit of goods subject to Russian sanctions from transiting across Russia from its border with Belarus.Footnote ²¹⁹ These bans were imposed specifically to prevent circumvention of the import bans that Russia had imposed under Resolution No. 778.Footnote ²²⁰ The Resolution No. 778 import bans were responses taken by Russia in August 2014 to the sanctions that other countries had imposed against it earlier in 2014 in response to the emergency in international relations.

7.144. Moreover, all of the measures at issue restrict the transit from Ukraine of goods across Russia, particularly across the Ukraine-Russia border, in circumstances in which there is an emergency in Russia's relations with Ukraine that affects the security of the Ukraine-Russia border and is recognized by the UN General Assembly as involving armed conflict.

7.145. In these circumstances, the measures at issue cannot be regarded as being so remote from, or unrelated to, the 2014 emergency, that it is implausible that Russia implemented the measures for the protection of its essential security interests arising out of that emergency. This conclusion is not undermined by evidence on the record that the general instability of the Ukraine-Russia border did not prevent some bilateral trade from taking place along parts of the border.Footnote ²²¹

7.146. This being so, it is for Russia to determine the "necessity" of the measures for the protection of its essential security interests. This conclusion follows by logical necessity if the adjectival clause "which it considers" is to be given legal effect.Footnote ²²²

7.147. The Panel has been referred to EC – Bananas III (Ecuador) (Article 22.6 – EC) in which the arbitrators interpreted the phrase "if that party considers" in Articles 22.3(b) and 22.3(c) of the DSU as providing a margin of appreciation to the party which was nevertheless subject to review by the arbitrators.Footnote ²²³ The arbitrator's decision regarding the scope of review under Article 22.3 of the DSU was based on the fact that the discretion accorded to the complaining party under the relevant subparagraphs of that provision was subject to the obligation in the introductory words to Article 22.3 of the DSU, which provides that "[i]n considering what concessions or other obligations to suspend, the complaining party shall apply the following principles and procedures".Footnote ²²⁴ There is no equivalent obligation anywhere in the text of Article XXI that expressly conditions the discretion accorded to an invoking Member under the chapeau of Article XXI(b).

7.5.7 Overall conclusion

7.149. Accordingly, the Panel finds that Russia has met the requirements for invoking Article XXI(b)(iii) of the GATT 1994 in relation to the measures at issue, and therefore the measures are covered by Article XXI(b)(iii) of the GATT 1994.

7.6.1 Introduction

7.150. In this Section, the Panel addresses Ukraine's claims of inconsistency with Articles V and X of the GATT 1994 and commitments in Russia's Working Party Report, as incorporated into its Accession Protocol by reference.

7.151. Russia does not present rebuttal arguments or evidence regarding Ukraine's claims, as it considers that the measures at issue are "consistent with the provisions of the WTO Agreement, including the GATT and the Accession Protocol" on the basis of its invocation of Article XXI(b)(iii) of the GATT 1994.Footnote ²²⁵

7.152. The Panel recalls the statement of the Appellate Body in US – Wool Shirts and Blouses that nothing in the DSU requires panels to consider or decide issues that are not "absolutely necessary to dispose of the particular dispute" between the parties.Footnote ²²⁶ Indeed, the Appellate Body cautioned that to do so would "not be consistent with the aim of the WTO dispute settlement system" to secure a "positive solution to a dispute" under Article 3.7 of the DSU.Footnote ²²⁷

7.153. Having found that the measures were taken in time of an "emergency in international relations" (and meet the other conditions of Article XXI(b)), the Panel does not consider it necessary to additionally examine their WTO-consistency in a different factual context and on a different legal basis, i.e. as if the measures at issue had not been taken in time of an "emergency in international relations".

7.154. However, the Panel is mindful that, should its findings on Russia's invocation of Article XXI(b)(iii) be reversed in the event of an appeal, it may be necessary for the Appellate Body to complete the analysis. Accordingly, in Section 7.6.2, the Panel proceeds to analyse those aspects of Ukraine's claims which, were it not for the fact that the measures were taken in time of an "emergency in international relations" (and met the other conditions of Article XXI(b)), would enable the Appellate Body to complete the legal analysis.Footnote ²²⁸

7.155. Additionally, Russia has invoked Article XXI(b)(iii) of the GATT 1994 in relation to all contested provisions of the WTO Agreement, including commitments in its Accession Protocol. Accordingly, in Section 7.6.4, the Panel addresses whether Article XXI(b)(iii) may be invoked by Russia in relation to commitments in its Accession Protocol.Footnote ²²⁹

7.6.2 Article V:2 of the GATT 1994

7.6.3 Remaining claims under the GATT 1994 and Russia's Accession Protocol

7.6.4 Applicability of Article XXI(b)(iii) of the GATT 1994 to commitments in Russia's Accession Protocol

7.7.1 Identification of the measures and claims, and their relationship to each other

7.260. In its opening statement at the first meeting of the Panel, Russia argued that Ukraine's panel request fails to meet the requirements of Article 6.2 of the DSU in a number of respects:

1. a. Ukraine's panel request fails to make clear how the measures in each of the two distinct groups set forth in the panel request operate together.Footnote ³⁷²

2. b. The panel request does not adequately explain which treaty provisions are alleged to be infringed by each of the challenged measures in the two distinct groups.Footnote ³⁷³

3. c. Ukraine's first written submission presents the challenged measures in a completely different manner from the presentation in its panel request, i.e. "as four individual measures that are not connected and do not operate together". Russia considers that, as respondent, it was placed in an uncertain situation in presenting its defence because it was required to guess what the Panel would identify as the measures at issue on the basis of the Panel's interpretation of the substance of the alleged violation.Footnote ³⁷⁴

7.261. Russia thus argued that Ukraine's panel request, both in general, and in particular with respect to the identification of the specific measures, fails to satisfy the requirements of Article 6.2 of the DSU.Footnote ³⁷⁵

7.262. Ukraine responded that its presentation of the specific measures at issue in two separate sections of its panel request does not necessarily mean that the measures identified within each section must be presumed to operate together.Footnote ³⁷⁶ Nor is there any requirement in Article 6.2 of the DSU for a complainant to identify how all of the measures at issue operate together unless it is necessary in order to present the problem clearly.Footnote ³⁷⁷ In addition, Ukraine argued that Russia's complaint regarding the reorganization of the presentation of the measures in Ukraine's first written submission does not address why the descriptions of the measures in the panel request were not sufficiently clear. Ukraine argued that the measures as described in its first written submission correspond fully to the measures as identified in its panel request.Footnote ³⁷⁸ Finally, Ukraine argued that the panel request plainly connects the specific measures at issue with the relevant provisions of the covered agreements that Ukraine claims have been infringed.Footnote ³⁷⁹

7.263. In what follows, the Panel first describes the presentation of the measures and claims in Ukraine's panel request, and in Ukraine's first written submission, respectively, before addressing Russia's arguments that the panel request does not satisfy the requirements of Article 6.2 of the DSU.

7.7.2 Whether Ukraine's panel request satisfies the requirements of Article 6.2 of the DSU

7.277. The relevant portion of Article 6.2 of the DSU reads:

7.278. Article 6.2 of the DSU has two distinct requirements, namely: (a) the identification of the specific measures at issue; and (b) the provision of a brief summary of the legal basis of the complaint.Footnote ⁴⁰¹ Article 6.2 defines the scope of the dispute between the parties, thereby establishing and delimiting the panel's jurisdiction and serving the due process objective of notifying the respondent, and the third parties, of the nature of the case.Footnote ⁴⁰² Moreover, in order to "present the problem clearly", within the meaning of Article 6.2, a panel request must "plainly connect" the challenged measure(s) with the provision(s) claimed to have been infringed so that a respondent can "know what case it has to answer, and … begin preparing its defence".Footnote ⁴⁰³ Compliance with the requirements of Article 6.2 of the DSU must be demonstrated on the face of the panel request. Consequently, defects in the panel request cannot be cured by the subsequent submissions of the parties.Footnote ⁴⁰⁴

7.279. In what follows, for each of the measures identified in Ukraine's panel request in the first and second groups of measures, the Panel determines whether the identification of the measures and claims satisfies the requirements of Article 6.2.

7.7.3 Whether the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods are within the Panel's terms of reference

7.324. In this Section, the Panel addresses Russia's additional argument that the category of measures described in Ukraine's first written submission as the "2014 transit bans and other transit restrictions", and by the Panel as the "2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods" (2014 Belarus-Russia Border Bans)Footnote ⁴⁵¹, are outside the Panel's terms of reference because these measures were no longer in existence at the time of Ukraine's panel request.

7.325. The 2014 Belarus-Russia Border Bans are the alleged bans identified in the first sub-category of the second group of measures in section III.A. of Ukraine's panel requestFootnote ⁴⁵², namely, the 2014 prohibitions on transit from Ukraine across Russia, of goods subject to veterinary and phytosanitary surveillance, and which are included in the list approved by Resolution No. 778, through checkpoints of the Republic of Belarus, along with special checkpoint and permit requirements for such goods destined for Kazakhstan and other countries.Footnote ⁴⁵³

7.326. To recall, in August 2014, the Russian Government passed Resolution No. 778, which temporarily bans the importation into Russia of various agricultural products, raw materials and foodstuffs set forth in a list annexed to the Resolution that originate from certain countries, including the United States, EU Member States, Canada, Australia and Norway, that had imposed sanctions against Russia.Footnote ⁴⁵⁴ The list of products to which the import ban applies has also been modified several times.Footnote ⁴⁵⁵

7.327. The 2014 Belarus-Russia Border Bans provide that veterinary and plant goods subject to the import bans under Resolution No. 778 may only transit through designated checkpoints located on the Russian side of the external border of the EaEU.Footnote ⁴⁵⁶ The 2014 Belarus-Russia Border Bans are implemented by instructions contained in two letters issued by the Rosselkhoznadzor: Instruction No. FS-NV-7/22886, dated 21 November 2014, (the Veterinary Instruction), which applies to veterinary goods covered by Resolution No. 778 as of 30 November 2014Footnote ⁴⁵⁷; and Instruction No. FS-AS-3/22903, dated 21 November 2014, (the Plant Instruction), which applies to plant goods covered by Resolution No. 778 as of 24 November 2014.Footnote ⁴⁵⁸

7.328. Russia, in its first written submission, requested a preliminary ruling that the 2014 Belarus-Russia Border Bans are outside the Panel's terms of reference.Footnote ⁴⁵⁹ Russia considers that these alleged bans did not exist at the date of Ukraine's request for consultations (21 September 2016), or at the date of its request for establishment of a panel (10 February 2017).Footnote ⁴⁶⁰ Russia argues that the Veterinary Instruction and the Plant Instruction were "superseded" by Decree No. 1, dated 1 January 2016, and by Resolution No. 1, also dated 1 January 2016.Footnote ⁴⁶¹ According to Russia, Decree No. 1 therefore "effectively abolished any requirements that were set out in the Letters of Rosselkhoznadzor in question in respect of Ukraine".Footnote ⁴⁶² In its opening statement at the first substantive meeting of the Panel, Russia clarified its argument as follows:

1. a. When the Veterinary Instruction and Plant Instruction were adopted, Ukraine was not included in the list of countries whose goods were subject to Resolution No. 778. Therefore, the 2014 measures "could not [apply] and were not applied to the goods from Ukraine".Footnote ⁴⁶³

2. b. Resolution No. 778 was amended on 1 January 2016 to add Ukraine to the list of countries whose goods were subject to Resolution No. 778. However, also on 1 January 2016, Decree No. 1 and Resolution No. 1 were adopted to permit the transit of goods from Ukraine across Russian territory only through "the checkpoint situated on the state border of the Russian Federation inside its Russia-Belarus sector".Footnote ⁴⁶⁴

3. c. Decree No. 1 and Resolution No. 1, as measures adopted by the Government of the Russian Federation, are superior in the Russian legal hierarchy to the instructions issued by the Rosselkhoznadzor, which is a Federal Service reporting to the Government of the Russian Federation.Footnote ⁴⁶⁵

7.329. Accordingly, Russia argues that there has "not been a single day when the measures contained in the Letters of Rosselkhoznadzor were applied to the transit of goods from Ukraine".Footnote ⁴⁶⁶

7.330. Ukraine, in its first written submission, acknowledges that the Veterinary Instruction was formally amended by Instruction No. FS-EN-7/19132 of the Rosselkhoznadzor on 10 October 2016, to provide that "traffic in transit of goods that are subject to control by the state veterinary surveillance, from the territory of Ukraine into the territor[ies] of the Republic of Kazakhstan and the Kyrgyz Republic must be carried out according to [Resolution No. 1]".Footnote ⁴⁶⁷ While conceding that veterinary goods covered by Resolution No. 778 "moving specifically from" the territory of Ukraine to the territories of Kazakhstan and the Kyrgyz Republic are accordingly no longer subject to the Veterinary Instruction, Ukraine argues that the Veterinary Instruction continues to apply to traffic in transit not covered by Resolution No. 1.Footnote ⁴⁶⁸ Ukraine further argues that if neither instruction ever applied with respect to Ukraine, there would have been no need to adopt Instruction No. FS-EN-7/19132, providing that the traffic in transit of veterinary goods from the territory of Ukraine into the territories of Kazakhstan and the Kyrgyz Republic must be carried out in accordance with Resolution No. 1.Footnote ⁴⁶⁹ Consequently, according to Ukraine, (a) veterinary goods covered by Resolution No. 778 transiting from countries other than Ukraine, and (b) veterinary goods covered by Resolution No. 778 transiting from Ukraine but to destinations other than Kazakhstan and the Kyrgyz Republic, remain subject to the Veterinary Instruction.Footnote ⁴⁷⁰

7.7.4 Summary of the Panel's findings on the measures that are within its terms of reference

7.356. In this Section of the Report, the Panel finds that the de facto measure, i.e. the measure referred to in the second sub-category of the second group of measures in section III.A. of Ukraine's panel request as "de facto applying Decree No. 1 and Resolution No. 1 to transit from the territory of Ukraine to third countries other than the Republic of Kazakhstan and the Kyrgyz Republic", is outside its terms of reference.

7.357. The Panel finds that the following measures are within its terms of reference:

1. a. The 2016 Belarus Transit Requirements: Requirements that all international cargo transit by road and rail from Ukraine destined for the Republic of Kazakhstan or the Kyrgyz Republic, through Russia, be carried out exclusively from Belarus, and comply with a number of additional conditions related to identification seals and registration cards at specific control points on the Belarus-Russia border and the Russia-Kazakhstan border.

2. b. The 2016 Transit Bans on Non-Zero Duty Goods and Resolution No. 778 Goods: Bans on all road and rail transit from Ukraine of: (a) goods that are subject to non-zero import duties according to the Common Customs Tariff of the EaEU, and (b) goods that fall within the scope of the import bans imposed by Resolution No. 778, which are destined for Kazakhstan or the Kyrgyz Republic. Transit of such goods may only occur pursuant to a derogation requested by the governments of Kazakhstan or the Kyrgyz Republic which is authorized by the Russian Government, in which case, the transit is subject to the 2016 Belarus Transit Requirements (above).

3. c. The 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods: Prohibitions on transit from Ukraine across Russia, through checkpoints in Belarus, of goods subject to veterinary and phytosanitary surveillance and which are subject to the import bans implemented by Resolution No. 778, along with related requirements that, as of 30 November 2014, such veterinary goods destined for Kazakhstan or third countries enter Russia through designated checkpoints on the Russian side of the external customs border of the EaEU and only pursuant to permits issued by the relevant veterinary surveillance authorities of the Government of Kazakhstan and the Rosselkhoznadzor, and that, as of 24 November 2014, transit to third countries (including Kazakhstan) of such plant goods take place exclusively through the checkpoints across the Russian state border.

United States v. Czechoslovakia (1949)

1.6. In 1948, the United States enforced its "Comprehensive Export Schedule" by imposing export controls on US exports going to certain parts of Europe.Footnote ¹¹ At the time, the United States licensed products in short supply or of military significance to Western European countries that were participating in the Marshall Plan, but exports of such products to Eastern European countries that did not participate in the Marshall Plan became subject to export controls. Czechoslovakia fell into the group of non-participating Eastern European countries, for which reason products destined for its borders were subject to export licensing controls. The United States explained that one of the purposes of the export control regime was "to prevent the shipment to Eastern Europe of things that would contribute significantly to the military potential of that region".Footnote ¹² Czechoslovakia asserted that the United States' use of the term "military potential" referred to "an entirely different thing" than what was covered by the terms of Article XXI(b)(ii), in particular, the term "military establishment". Czechoslovakia claimed that the US export control measure was inconsistent with the basic principles of Articles I and XIII of the GATT. Czechoslovakia also requested all relevant information concerning the administration of restrictions and the distribution of licences by the United States pursuant to Article XIII.Footnote ¹³ In response, the United States referred to Articles XXI(b)(i) and XXI(a) of the GATT. The United States stated that it considered it to be "contrary to its security interest—and to the security interest of other friendly countries—to reveal the names of the commodities that it considers to be most strategic".Footnote ¹⁴

1.7. At the June 1949 meeting of the GATT Council, Czechoslovakia requested a decision on whether the United States had failed to carry out its obligations under the GATT through its administration of the export licenses.Footnote ¹⁵ The United Kingdom expressed the view that "every country must be the judge in the last resort on questions relating to its own security. On the other hand, every contracting party should be cautious not to take any step which might have the effect of undermining the General Agreement".Footnote ¹⁶ Pakistan stated that Article XXI embodied "exceptions to all other provisions of the Agreement, [and] should stand by itself notwithstanding the provisions of other Articles including Article I, and therefore the case called for examination only under the provisions of that Article".Footnote ¹⁷ Cuba stated that Czechoslovakia's request should be dismissed because it lacked a factual basis. Moreover, Cuba considered that the United States had justified its case under Article XXI "whose provisions overrode those of Article I".Footnote ¹⁸

1.8. In response to Czechoslovakia's request for a decision under Article XXIII, only Czechoslovakia voted in the affirmative.Footnote ¹⁹ Czechoslovakia noted that it did not consider that the contracting parties had made a legally valid decision or correct interpretation of the General Agreement, and that it would regard itself free to take any steps necessary to protect its further interests.Footnote ²⁰

United States – Suspension of Obligations with Czechoslovakia (1951)

1.9. In 1951, the United States requested the GATT Council to formally dissolve its reciprocal obligations with Czechoslovakia under the GATT 1947, and to withdraw the benefits of trade-agreement tariff concessions from Czechoslovakia.Footnote ²¹ The United States justified this request by arguing that the assumption that it was in its and Czechoslovakia's mutual interests to promote the movement of goods, money and people between them was no longer valid.Footnote ²² Although the United States did not formally refer to Article XXI of the GATT 1947, it argued that "manifestations of Czechoslovak ill-will" towards the United States and the progressive integration of Czechoslovakia's economy into the Soviet bloc had led the United States to request that the GATT obligations between the two countries be dissolved.Footnote ²³ Czechoslovakia considered the United States' request to be "another attempt [by the United States] to achieve political ends by means of economic pressure".Footnote ²⁴ Czechoslovakia was of the view that the "General Agreement should not be misused for the enforcement of political intentions" and for "forceful, unilateral imposition of a foreign will, by means of the violation of agreements".Footnote ²⁵

1.10. The GATT CONTRACTING PARTIES declared that the United States and Czechoslovakia were free to suspend, each with respect to the other, the obligations of the GATT.Footnote ²⁶

United States – Imports of Dairy Products (1951)

1.11. In 1951, the Netherlands and Denmark each circulated a memorandum to the GATT contracting parties noting the imposition by the United States of certain import controls on dairy products under Section 104 of the Defense Production Act.Footnote ²⁷ Section 104 stated that these import controls were "necessary for the protection of the essential security interests and economy of the United States in the existing emergency in international relations".Footnote ²⁸ The Netherlands and Denmark considered these restrictions to be inconsistent with Article XI of the GATT 1947.Footnote ²⁹ In response, the United States circulated a memorandum noting that these objections had been formally communicated to Congress.Footnote ³⁰ The United States also included two statements made to the Senate Banking and Currency Committee by the Assistant Secretary of State and Under Secretary of Agriculture recommending the repeal of Section 104.Footnote ³¹ The Assistant Secretary of State had asserted to the Committee that "the restrictions required by Section 104 appear to the Department clearly to violate the provisions of the [GATT]."Footnote ³² The Under Secretary of Agriculture also noted to the Committee that "[i]t seems unlikely that we will be able to convince these [objecting] countries that certain imports, which would at most have a limited effect on our agriculture, would endanger the essential security interests and economy of the United States."Footnote ³³ The Under Secretary stated additionally that "if we use the security exception of the [GATT] to justify protection of a few selected products, this would give other countries a good excuse for using the same exception to justify any protective barriers by which they may wish to limit their imports of our farm products."Footnote ³⁴

1.12. At the September 1951 meeting of the GATT contracting parties, the Netherlands and Denmark reiterated their objections to the measure.Footnote ³⁵ Denmark also noted that it agreed with the remarks of the Canadian representative in an earlier speech that "it was obvious that defence production and national security would seem to have little connection with the import control of cheese."Footnote ³⁶ Italy, New Zealand, Norway, Australia, France, Canada, Finland, the United Kingdom and Sweden also noted their opposition to the measure.Footnote ³⁷ Canada asserted that it was difficult "to find any grounds for the action whatsoever".Footnote ³⁸ The United States did not contest that the measure infringed the GATT 1947, and responded that Section 104 had been recommended as a last-minute amendment by a committee "which had limited acquaintance with international problems".Footnote ³⁹ The United States asserted that the measure should be regarded as an "isolated incident and must not be held as an indication of any reorientation of the basic policy of the United States".Footnote ⁴⁰ The United States noted that vigorous efforts were being made by the executive branch to secure the repeal of the measure, and asked that its government be given the opportunity to complete this action.Footnote ⁴¹ The Council agreed to keep this matter on its agenda.Footnote ⁴²

1.13. At the October 1951 meeting of the GATT contracting parties, a resolution was adopted affording the United States a reasonable period of time to repeal the measure, subject to a reporting obligation.Footnote ⁴³ In 1952, the United States provided a report noting that Section 104 had been revised but not repealed.Footnote ⁴⁴ At the October 1952 meeting of the GATT contracting parties, several contracting parties expressed their continuing opposition to the measure.Footnote ⁴⁵ The United States acknowledged that the measure was inconsistent with the GATT 1947 and noted that it would not object to other contracting parties withdrawing reasonably necessary concessions.Footnote ⁴⁶ The GATT CONTRACTING PARTIES agreed to convene a Working Party to examine the issue.Footnote ⁴⁷ In November 1952, the Working Party recommended that the GATT contracting parties authorize the Netherlands to impose a retaliatory quota on wheat flour from the United States.Footnote ⁴⁸ This recommendation was adopted as a resolution at the November 1952 meeting of the GATT CONTRACTING PARTIES.Footnote ⁴⁹

1.14. The GATT CONTRACTING PARTIES re-authorized this retaliatory quota on an annual basis until 1959, pursuant to the recommendations of subsequent Working Parties.Footnote ⁵⁰

United States – Section 232 of the Trade Expansion Act (1968)

1.15. In 1968, the United Kingdom and Japan submitted a notification to the Committee on Trade in Industrial Products expressing concern that certain powers given to the President of the United States under the Trade Expansion Act of 1962 could disrupt foreign trade.Footnote ⁵¹ During the Committee's first examination of the notified barriers in 1969Footnote ⁵², Japan expressed concern over the "lack of a definition of ‘security'" and "the wide discretion as to form of action and the lack of a time-limit for carrying out investigations" under the Trade Expansion Act of 1962.Footnote ⁵³ The United States responded that the legislation "was in conformity with Article XXI", and pointed out that "the existence of an institutional framework for national security cases could be regarded as a safeguard, since it ensured full consideration of the merits of each case before action was taken."Footnote ⁵⁴ In 1970, at the next examination of these notifications by a Working Group convened for this purpose, the Working Group concluded that there was a "divergence of view as to the meaning and scope of certain essential concepts in the GATT, in particular … the scope of some of the exceptions … especially Articles XX and XXI".Footnote ⁵⁵

1.16. In 1970, the Joint Working Group on Import Restrictions was notified of a global quota maintained by the United States on petroleum oil products.Footnote ⁵⁶ At the April 1970 meetings of the Joint Working GroupFootnote ⁵⁷, the European Communities and Canada asserted that they considered these restrictions to be inconsistent with the GATT 1947.Footnote ⁵⁸ The European Communities did not accept that these restrictions could be justified by national security considerations and considered that the restrictions had been applied to the benefit of the petroleum industry of the United States.Footnote ⁵⁹ The European Communities also asserted that a recent US Task Force had given arguments against the maintenance of the system for security reasons.Footnote ⁶⁰ The United States responded that the restrictions had been applied under Section 232 of the Trade Expansion Act of 1962 "in accordance with Article XXI", given the "high degree of industrialization of the United States as well as its remoteness from some major oil supplying countries".Footnote ⁶¹

1.17. Although the Council agreed that the Joint Working Group on Import Restrictions should continue its review of import restrictions, the Joint Working Group did not meet again after 1970.Footnote ⁶²

Austria – Penicillin and Other Medicaments (1970)

1.18. In 1970, the Joint Working Group on Import Restrictions was notified of certain restrictions maintained by Austria on penicillin, tyrothricin and related medicaments, which took the form of either import licensing restrictions or quotas.Footnote ⁶³ At the April 1970 meetings of the Joint Working GroupFootnote ⁶⁴, a question was posed to Austria as to "what part of Article XXI might cover this restriction".Footnote ⁶⁵ Austria responded that it regarded the restriction to be necessary under Article XXI(b)(ii) of the GATT 1947 "in order to have available a local source of supply in case of emergency".Footnote ⁶⁶ In 1971, these restrictions were considered again by the Group of Three.Footnote ⁶⁷ The Group of Three noted Austria's explanation that the restrictions were maintained for defence reasons, but concluded that as "other countries find it possible to do without restrictions, it should … be possible for Austria to do the same".Footnote ⁶⁸ In 1972, these restrictions were considered again by the Group on Residual Restrictions.Footnote ⁶⁹ At the January 1972 meeting of the Group, the United States recalled the recommendation of the Group of Three that Austria should eliminate the restrictions on these products "as other countries did not find it necessary to maintain them for security or other reasons".Footnote ⁷⁰ At the July 1972 session of the Committee on Trade and Development, in the context of discussions on the Second Report of the Group of ThreeFootnote ⁷¹, Austria asserted that it would not be possible to liberalize imports of these products "for reasons previously stated", but noted that "sympathetic consideration would be given in this connexion to any trade problems faced by developing countries."Footnote ⁷²

1.19. Austria continued to maintain certain restrictions on penicillin and related medicaments until December 1990, when these were abolished as part of the Uruguay Round negotiations at the request of the United States.Footnote ⁷³

Sweden – Import Restrictions on Certain Footwear (1975)

1.20. In 1975, Sweden notified the GATT Council of its intention to introduce a global import quota system for leather shoes, plastic shoes and rubber boots. Sweden advised that it was introducing this system "in order to allow time to remedy the serious difficulties that have arisen in this sector of the industry", referring to downward trends in the Swedish shoe industry that had begun in the 1960s and had accelerated during the 1970s.Footnote ⁷⁴ Sweden considered that the reasons underlying this development were the relatively high production costs in Sweden, combined with the traditional liberal trade policy pursued by the Swedish Government, which thereby encouraged and made possible a very substantial increase in the volume of imports. Sweden considered that "[t]he continued decrease in domestic production has become a critical threat to the emergency planning of Sweden's economic defence as an integral part of its security policy."Footnote ⁷⁵ Sweden's security policy necessitated the maintenance of a minimum domestic production capacity in vital industries, such capacity being considered by Sweden to be "indispensable in order to secure the provision of essential products necessary to meet basic needs in case of war or other emergency in international relations".Footnote ⁷⁶ At the October 1975 meeting of the GATT Council, several contracting parties expressed concern at the Swedish decision, taken at a time of high unemployment in their own countries.Footnote ⁷⁷ They noted that Sweden had not provided a detailed economic justification for the measures, and expressed doubts as to the justification for these measures under the GATT.Footnote ⁷⁸ Sweden responded that it considered the measure to be taken in conformity with "the spirit of Article XXI", but added that it did not wish to deprive contracting parties of the possibility to consult and therefore declared its readiness to consult bilaterally with interested contracting parties even if such a consultation was not formally required by Article XXI.Footnote ⁷⁹ Many delegations reserved their rights under the GATT and took note of Sweden's offer to consult.Footnote ⁸⁰

1.21. In March 1977, Sweden notified the GATT Council that it intended to terminate the quotas in respect of leather shoes and plastic shoes as of 1 July 1977.Footnote ⁸¹

European Communities v. Argentina (1982)

1.22. In 1982, Argentina brought to the GATT Council's attention the suspension by the European Communities, Canada and Australia of imports from Argentina.Footnote ⁸² Argentina noted that there had been no pronouncement by the UN Security Council authorizing the application of Article XXI(c) of the GATT.Footnote ⁸³ Argentina stated that the measures adopted by the European Communities (other than the United Kingdom), Canada and Australia were entirely without justification, coming from countries with which the Argentine Republic had maintained relations. Such measures therefore constituted a hostile act and "flagrant economic aggression".Footnote ⁸⁴ Further, such measures were not derived from any "economic or commercial issue", but from the unjustified interference in a long-standing territorial dispute in the region of the Malvinas Islands.Footnote ⁸⁵ Argentina stated that the measures adopted by the United Kingdom similarly had no justification, even under Article XXI(b) of the GATT, since the Security Council resolution which had recognized that there was a breach of the peace situated the problem solely in the region of the Malvinas Islands, and consequently the metropolitan territory of the United Kingdom was not affected.Footnote ⁸⁶ The European Communities, Canada and Australia issued a joint communication stating that they had taken the measures at issue in light of the situation addressed in UN Security Council Resolution 502, on the basis of their "inherent rights of which Article XXI of the General Agreement is a reflection".Footnote ⁸⁷

1.23. At the May 1982 meeting of the GATT Council, Argentina reiterated that the measures were not applied for "economic and trade reasons", but were based on reasons of a "political nature and were meant to exert political pressure on the sovereign decisions of Argentina in order to intervene in a conflict in which only one of the countries was involved".Footnote ⁸⁸ Argentina stressed that UN Security Council Resolution 502 had not asked for or authorized the adoption of any measures such as the trade sanctions taken, nor were the measures justified under Article XXI. Argentina considered that the "concerted coercive action" taken by a number of economically powerful countries violated the letter and the spirit of the GATT.Footnote ⁸⁹ The European Communities stressed that the measures were taken on the basis of their inherent rights, of which Article XXI was a reflection, and did not require notification, justification or approval, as confirmed by 35 years of implementation of the GATT.Footnote ⁹⁰ Canada stated that the situation which had necessitated the measures needed to be resolved by appropriate action outside the GATT, as the GATT had neither the competence nor the responsibility to deal with the political issue that had arisen. Canada also noted that Article XXI did not contain a definition of "essential security interests", and that many contracting parties had taken the same or similar actions for political reasons. In the present case, the action had been taken to encourage a peaceful settlement by temporarily suspending the normal operation of some provisions of the GATT. Canada considered that the fact that the action had been taken was not really unprecedented; what was unprecedented was the examination of the action in the GATT.Footnote ⁹¹ Australia endorsed the statements of the European Communities and Canada, and stated that the Australian measures were in conformity with the provisions of Article XXI(c), which did not require notification or justification.Footnote ⁹²

1.24. Peru, Brazil, Uruguay, Zaire, Colombia, Dominican Republic, Cuba, Pakistan, Romania and Poland expressed opposition to, or concern at, what they considered was a dangerous precedent involving the use by contracting parties of trade and economic measures for non-trade reasons, and which were not justified under the GATT.Footnote ⁹³ India, Yugoslavia, Indonesia, Hungary and Czechoslovakia considered more generally that the GATT Council should approach the issues in this case with caution.Footnote ⁹⁴ Japan also considered that the interjection of political elements into GATT activities would not facilitate the Organization's carrying out of its functions.Footnote ⁹⁵

1.25. The Philippines noted that UN Security Council Resolution 502 referred only to Argentina and the United Kingdom, while the joint communication issued by the European Communities, Canada and Australia gave the impression that the European Communities, Canada and Australia had taken these measures in the exercise of their inherent rights, of which Article XXI was a reflection. The Philippines questioned this argument as applied to the European Communities, which was not a contracting party to the GATT 1947.Footnote ⁹⁶ Spain considered that the actions of the United Kingdom could be justified under Article XXI(b)(iii), but had doubts that the same could be said for other States, which were not technically in the same position as the United Kingdom with respect to Argentina.Footnote ⁹⁷

1.26. The United States considered that, regrettably, contracting parties had in the past used sanctions involving trade in the context of their security interests as they perceived them. However, the GATT had never been the forum for resolution of disputes whose essence was security and not trade, and for good reasons, such disputes had seldom been discussed in the GATT, which had no power to resolve political or security disputes. Trade measures could not be "split off" as if taken in a vacuum, since the specific justification of international measures could not be discussed in the context of broadly embargoed trade.Footnote ⁹⁸ The United States also expressed the view that the GATT, by its own terms, left it to each contracting party to judge what was necessary to protect its essential security interests in time of international crisis. This was wise, since no country could participate in the GATT if in doing so it gave up the possibility of using any measures, other than military, to protect its security interests.Footnote ⁹⁹ New Zealand questioned whether the GATT was the appropriate body in which the circumstances that had led to the imposition of economic sanctions should be debated. New Zealand stated that it has also imposed sanctions on Argentina for reasons similar to those given by the European Communities, Canada and Australia. New Zealand considered that it had an inherent right as a sovereign state to take such action and that such actions were in conformity with New Zealand's rights and obligations under the GATT.Footnote ¹⁰⁰ Singapore expressed the view that the wording of Article XXI allowed a contracting party the right to determine the need for protection of its essential security interests, while also recognizing the danger of a broad interpretation of Article XXI.Footnote ¹⁰¹ Norway also considered that the European Communities, Canada and Australia did not contravene the GATT in taking the measures in question.Footnote ¹⁰²

1.27. At the June 1982 meeting of the GATT Council, Argentina formally requested an interpretation of Article XXI of the GATT 1947: (a) to know whether Article XXI exempted contracting parties from obligations regarding notification and surveillance procedures; (b) to determine the natural rights which could be inherent for contracting parties and had been invoked in relation to Article XXI in general; (c) to establish whether any contracting party, including one not involved in a problem between two other contracting parties, could interpret "per se" that there existed an emergency in international relations as referred to in Article XXI(b)(iii) and consequently take unilateral measures; and (d) to determine whether one or more contracting parties could take action under Article XXI(c) without the prior existence of a specific provision adopted by the United Nations authorizing the application of restrictive trade measures.Footnote ¹⁰³ This proposal was supported by a number of contracting parties.Footnote ¹⁰⁴ Canada did not support the proposal, expressing the view that the case of Ghana was the only appropriate precedent for the present case, and asserting that it provided an example of the notion of national security being interpreted in a broad sense by the government of that country.Footnote ¹⁰⁵ Australia doubted the need for an interpretation of Article XXI, given its infrequent use thus far.Footnote ¹⁰⁶ The United States considered that debate in the Council would not serve a useful purpose, stressing that the GATT had no role in a crisis of military force.Footnote ¹⁰⁷ Japan, New Zealand and Norway similarly expressed doubts that a note interpreting Article XXI would lead to useful results.Footnote ¹⁰⁸ The European Communities suggested that if the Council were to adopt a decision, the proposal should have a chance of obtaining a consensus.Footnote ¹⁰⁹ The Chair subsequently reported that informal consultations with delegations to arrive at suggestions for resolving the matter had not resulted in conclusions that could lead to such suggestions.Footnote ¹¹⁰

The 1982 Decision regarding Article XXI

1.28. On 29 November 1982, the contracting parties adopted a Ministerial Declaration in which the contracting parties decided, in drawing up their work program and priorities for the 1980s, to "abstain from taking restrictive trade measures, for reasons of a non-economic character, not consistent with the General Agreement".Footnote ¹¹¹ On 30 November 1982, the GATT CONTRACTING PARTIES adopted a Decision Concerning Article XXI of the General Agreement (1982 Decision), setting forth procedural guidelines for the application of Article XXI, until such time as the GATT CONTRACTING PARTIES might decide to make a formal interpretation of Article XXI.Footnote ¹¹² Under the 1982 Decision, the GATT CONTRACTING PARTIES noted that: (a) the exceptions envisaged in Article XXI "constitute an important element for safeguarding the rights of contracting parties when they consider that reasons of security are involved"; (b) recourse to Article XXI could constitute an element of disruption and uncertainty for international trade, and "affect benefits accruing to contracting parties under the GATT"; and (c) consequently, "in taking action in terms of the exceptions provided in Article XXI", contracting parties should take into consideration the interests of third parties which might be affected. The GATT CONTRACTING PARTIES therefore undertook to ensure that contracting parties should be informed to the fullest extent possible of trade measures taken under Article XXI, and noted that all contracting parties affected by actions taken under Article XXI retained their full rights under the GATT.Footnote ¹¹³

United States – Imports of Sugar from Nicaragua (1983)

1.29. In 1983, the President of the United States announced that the United States would be reducing Nicaragua's allocation of the total import quota for sugar. The President stated that by denying to Nicaragua a foreign exchange benefit, the United States "hoped to reduce the resources available to [Nicaragua] for financing its military build-up, and its support for subversion and extremist violence in the region".Footnote ¹¹⁴ This announcement was subsequently implemented pursuant to the President's authority under the Tariff Schedules of the United States to give due consideration to the interests of domestic producers in the sugar market.Footnote ¹¹⁵

1.30. Following the announcement, Nicaragua requested consultations with the United States, arguing that the measure would create "serious adverse trade effects".Footnote ¹¹⁶ The consultations did not achieve a mutually satisfactory solution, and Nicaragua subsequently requested the establishment of a panel.Footnote ¹¹⁷ At the July 1983 meeting of the GATT Council, the United States stated that "[t]he motives for the measure were not strictly trade considerations; and it followed that any examination of this matter in purely trade terms would be sterile or disingenuous."Footnote ¹¹⁸ The United States also questioned the utility of resolving this issue by establishing a panel, stating that "[a] political solution could resolve the trade aspect of this dispute; but a GATT panel could not appropriately examine or assist in the resolution of the political or security issues that lay at its core."Footnote ¹¹⁹ India considered that the Council should follow established GATT practice and establish a panel, as Nicaragua had requested a panel after fulfilling the proper procedures and that "[i]t was not for the Council to judge the merits of the case at this stage."Footnote ¹²⁰

1.31. The Council agreed to establish a panelFootnote ¹²¹, and the panel's composition and terms of reference were announced at the October 1983 meeting of the GATT Council.Footnote ¹²²

1.32. Before the panel, Nicaragua argued that the United States had violated Articles II, XI and XIII and Part IV of the GATT 1947 by reducing its sugar quota below the level agreed upon in the United States schedule of concessions.Footnote ¹²³ Nicaragua also cited the "fundamental principle" embodied in paragraph 7(iii) of the 1982 Ministerial Declaration that "no contracting party should use trade measures to exert pressure for the purposes of solving non-economic problems."Footnote ¹²⁴ In response, the United States argued that it was "neither invoking any exceptions under the provisions of the General Agreement nor intending to defend its actions in GATT terms".Footnote ¹²⁵ In the view of the United States, while the action did affect trade, it was not taken for trade-policy reasons.Footnote ¹²⁶ Consequently, any attempt to discuss the issue in purely trade terms, "divorced from the broader context of the dispute", would be disingenuous.Footnote ¹²⁷ The panel considered that within its terms of reference, it could examine the measures "solely in the light of the relevant GATT provisions, concerning itself with only the trade issues under dispute", and therefore did not consider Article XXI.Footnote ¹²⁸ The panel proceeded to conclude that the reduced sugar quota was inconsistent with the United States' obligations under Article XIII:2 of the GATT 1994, and exercised judicial economy over Nicaragua's other claims.Footnote ¹²⁹

1.33. At the March 1984 meeting of the GATT Council, Nicaragua commended the panel's findings and added that it had been perplexed by "the US reasons for adopting the measure, the refusal to have recourse to exceptions provided under the General Agreement, and the questioning of the GATT's competence to examine this case".Footnote ¹³⁰ Nicaragua "wondered what would the United States consider to be the competent forum for discussing the justification of a measure designed to restrict access to a market which had the effect of reducing export earnings".Footnote ¹³¹ The United States reiterated its view that examination of the matter in purely trade terms within the GATT was disingenuous, noting that "the reduction in Nicaragua's sugar imports had not secured any economic or trade benefit for the United States."Footnote ¹³² The United States added that while it would not object to the adoption of the report, a resolution of its broader dispute with Nicaragua would be required before it would remove the contested measure.Footnote ¹³³ Venezuela, Mexico and Argentina considered that the US measure had contravened the Ministerial DeclarationFootnote ¹³⁴, and Cuba, the Dominican Republic and Switzerland criticized the United States for using economic measures to secure political objectives.Footnote ¹³⁵ Several contracting parties including Venezuela, Mexico and Brazil and the United Kingdom, on behalf of Hong Kong reiterated the importance of positively resolving the case through the GATT's dispute settlement system.Footnote ¹³⁶ Argentina added that it could not understand why the Panel had not examined the motivations for the measure outside of trade considerations, and that it "regretted that the United States had been unable to advance any argument based on the General Agreement to justify its measure".Footnote ¹³⁷ Poland stated its firm belief that no measure having adverse trade implications for another contracting party could be dismissed as irrelevant for the GATT.Footnote ¹³⁸

1.34. The Council took note of these statements and adopted the panel's report.Footnote ¹³⁹

1.35. At the May 1984 meeting of the GATT Council, Nicaragua noted that the United States had recently increased its total sugar import quota without allocating any share of this increase to Nicaragua.Footnote ¹⁴⁰ Nicaragua asked the United States to inform the Council of its intentions regarding the recommendations of the contracting parties. The United States maintained its earlier position that the lifting of the measures would first require a "resolution of the broader dispute".Footnote ¹⁴¹ At the November 1984 meeting of the GATT Council, Nicaragua noted that not only had the United States failed to implement the panel's recommendations, it had once again applied a measure limiting Nicaragua's sugar quota.Footnote ¹⁴² Nicaragua noted that "[i]f the measure corresponded to security considerations, Nicaragua wondered why the United States had not invoked Article XXI."Footnote ¹⁴³ The United States maintained its previous position.Footnote ¹⁴⁴ The Council took note of these statements.Footnote ¹⁴⁵

European Communities v. Czechoslovakia (1985)

1.36. In 1985, Czechoslovakia notified the Group on Quantitative Restrictions and Other Non-Tariff Measures that it considered Italy and the United Kingdom to be maintaining a discriminatory embargo on exports of certain electronic products to Czechoslovakia.Footnote ¹⁴⁶ The United Kingdom and Italy asserted that the measures were maintained under Article XXI(b) of the GATT 1947.Footnote ¹⁴⁷ In 1986, Czechoslovakia submitted an additional notification, responding to the United Kingdom that "the imports of computers and related equipment … mentioned in the Czechoslovak notification are not related to either fissionable materials or traffic in arms or to traffic in other goods carried on for the purposes of supplying a military establishment."Footnote ¹⁴⁸ Czechoslovakia also asserted that "[t]he two contracting parties in this case cannot be said to be in a state of belligerency or other emergency situation."Footnote ¹⁴⁹ Czechoslovakia considered that the United Kingdom had not demonstrated "a genuine causal link between its security interests and the trade action taken", and therefore did not consider the action to be in conformity with the GATT 1947.Footnote ¹⁵⁰

United States v. Nicaragua (1985)

1.37. In 1985, the United States circulated a communication stating that it had imposed a complete import and export embargo on Nicaragua and declared a national emergency due to the extraordinary threat to national security posed by Nicaragua's policies and actions.Footnote ¹⁵¹ At a special meeting of the GATT Council requested by Nicaragua in May 1985, Nicaragua argued that this measure "violated both the general principles and certain specific provisions" of the GATT 1947.Footnote ¹⁵² Nicaragua argued that the US Administration, in declaring a national emergency to deal with a perceived threat by Nicaragua, seemed to have lost any sense of proportion and was trying to override the principles of international trade.Footnote ¹⁵³ Nicaragua said that it was absurd to suggest that it could pose a threat to the national security of the United States, pointing to the relative power and size of the two countries as well as the absence of any "armed conflict between the United States and Nicaragua".Footnote ¹⁵⁴ Nicaragua also noted that "the United States, in stating to the Security Council that its measures were principally intended to prevent Nicaragua from having the benefit of trading with the United States, had thereby acknowledged that this was not a matter of national security but one of coercion."Footnote ¹⁵⁵

1.38. The United States stated that it took the measures for "national security" reasons and that the measures fell within the exception contained in Article XXI(b)(iii).Footnote ¹⁵⁶ The United States emphasized that Article XXI left it to each contracting party to judge what measures it considered necessary for the protection of its essential security interests.Footnote ¹⁵⁷ According to the United States, it was not for the GATT to approve or disapprove this judgement.Footnote ¹⁵⁸ The United States also considered that GATT, as a trade organization, had "no competence to judge such matters" and that its effectiveness in addressing trade issues would only be weakened if it became a "forum for debating political and security issues".Footnote ¹⁵⁹ Nicaragua responded that Article XXI "was not to be applied in an arbitrary fashion" and required "some correspondence between the measures adopted and the situation giving rise to their adoption".Footnote ¹⁶⁰ Nicaragua also considered that "since this matter involved commercial and trade measures, the GATT, as the institution responsible for the conduct of international trade, should express a view on this issue."Footnote ¹⁶¹

1.39. Cuba, Argentina, Peru, Brazil, Spain, Czechoslovakia, Romania, Yugoslavia and Portugal considered that the measures taken by the United States were incompatible with Article 7(iii) of the 1982 Ministerial DeclarationFootnote ¹⁶², and Poland, Chile, Hungary, Austria, Sweden, Switzerland, Jamaica and China, as an observer, criticized the use of economic measures to secure political objectives.Footnote ¹⁶³ Argentina and Brazil additionally asserted that the measures were incompatible with the Charter of the United Nations (UN Charter), and Argentina cited incompatibility with the 1982 Decision.Footnote ¹⁶⁴

1.40. Cuba, Poland and Chile asserted that the GATT was the proper forum for discussing disputes with trade implications.Footnote ¹⁶⁵ Poland noted that this was required to ensure that "GATT's conciliatory functions and responsibilities have practical meaning."Footnote ¹⁶⁶ Chile did not consider that an invocation of Article XXI implied that the trade consequences of measures taken under it could not be discussed under the GATT.Footnote ¹⁶⁷ Hungary noted that while ideally politics and trade should be kept separate, a total separation was not realistic and was "evidenced by the provisions in the General Agreement covering cases in which political and commercial considerations were in opposition".Footnote ¹⁶⁸

1.41. Canada conversely considered that "this was fundamentally not a trade issue", and urged the two parties to seek a solution outside of the GATT context.Footnote ¹⁶⁹ The European Communities stated that its concern was to protect the GATT multilateral system from being damaged by any ill-considered development of a situation that could neither be dealt with nor settled in the GATT framework.Footnote ¹⁷⁰ The European Communities agreed that the GATT was not the appropriate forum because the US measures were only part of a broader situation and the GATT had never had the authority or competence to settle "disputes essentially linked to security".Footnote ¹⁷¹ Japan agreed that even though "the issue now before the Council obviously had a trade aspect, that aspect stemmed from deep roots and it had to be admitted that GATT was not competent to grapple with those roots".Footnote ¹⁷²

1.42. Spain and Czechoslovakia considered that the measures taken by the United States could not be justified under the provisions of Article XXI.Footnote ¹⁷³ Cuba and Peru argued that Nicaragua could not possibly threaten the security of the United States, and Cuba considered that the United States was "putting forward various political pretexts, including a reference to Article XXI" in order to "punish Nicaragua for not serving US interests".Footnote ¹⁷⁴ Cuba asserted that "recourse to Article XXI had to be backed by certain facts" to effectively guarantee against an abuse of the GATT system.Footnote ¹⁷⁵ Brazil noted that the right to invoke Article XXI "should only be exercised in the light of other international obligations such as those assumed under the UN Charter".Footnote ¹⁷⁶ Czechoslovakia stated that the United States' interpretation of Article XXI would enable any contracting party wanting to justify introduction of certain trade measures against any other contracting party to simply refer to Article XXI and declare that its security was threatened. On the contrary, Czechoslovakia considered that Article XXI "dealt with emergency situations and therefore had to be applied according to the specific provisions in paragraphs b(i), (ii), or (iii)".Footnote ¹⁷⁷

1.43. India argued that "a contracting party having recourse to Article XXI(b)(iii) should be able to demonstrate a genuine nexus between its security interests and the trade action taken; the security exception should not be used to impose economic sanctions for non-economic purposes".Footnote ¹⁷⁸ India did not consider that the United States had established such a nexus.Footnote ¹⁷⁹

1.44. Sweden agreed with the United States that it was "up to each country to define its essential security interests under Article XXI", but noted that "contracting parties should be expected to exercise their rights under that Article with utmost prudence."Footnote ¹⁸⁰ Finland, Switzerland, Norway, Iceland, Egypt and Portugal expressed similar views.Footnote ¹⁸¹ Sweden further considered that the United States had not shown such prudence in choosing to give "a too far-reaching interpretation" of Article XXI.Footnote ¹⁸² The European Communities agreed that Article XXI "left to each contracting party the task of judging what was necessary to protect its essential security interests", but noted that such discretion should be exercised in a spirit of "responsibility, discernment, moderation, ensuring above all that discretion did not mean arbitrary application".Footnote ¹⁸³

1.45. Australia stated that the United States was permitted under Article XXI "to take action of this kind with no requirement to justify such action", noting that the UN Security Council was the appropriate forum for the discussion of such issues. Nevertheless, Australia believed that contracting parties should avoid any action which could threaten GATT's credibility and undermine attachment to the principles of an open multilateral system. Australia considered that, while in principle, Nicaragua retained its GATT rights, in practical terms the US action had rendered this right inoperative.Footnote ¹⁸⁴ Canada expressed a similar view.Footnote ¹⁸⁵

1.46. Nicaragua circulated a draft decision to the contracting parties for their consideration, but the Council agreed to defer any determination on this matter to its next meeting.Footnote ¹⁸⁶ Nicaragua subsequently requested consultations with the United States in relation to this matter.Footnote ¹⁸⁷ At the July 1985 meeting of the GATT Council, Nicaragua requested the establishment of a panel.Footnote ¹⁸⁸ The United States reiterated the futility of resolving this issue through GATT procedures, as the trade effects of the measure had already been acknowledged and the export embargo had removed any opportunity for Nicaragua to retaliate.Footnote ¹⁸⁹ The United States considered Nicaragua's request for a panel as "a further attempt … to politicize GATT".Footnote ¹⁹⁰ The United States also contended that under Article XXI(b) a panel "could neither examine the national security reasons for the US action, nor determine the appropriateness of invoking the security exception".Footnote ¹⁹¹ The European Communities considered that each party had to judge on its own whether to invoke Article XXI. The European Communities questioned what a panel could do in this case, since it could not interpret Article XXI and the United States had already recognized trade prejudice.Footnote ¹⁹² The European Communities said that it could not oppose a contracting party's request for a panel, provided the terms of reference clearly did not include interpretation of Article XXI.Footnote ¹⁹³ Canada expressed full agreement with the United States that only the individual contracting party itself could judge questions involving national security, noting that a panel could not make that judgment.Footnote ¹⁹⁴ Nevertheless, Canada considered that measures taken under Article XXI could have trade effects which could be considered by a GATT panel. Canada considered that every contracting party had a right to request and to receive a hearing of a panel on any GATT-related issue, even where a panel was unlikely to be able to make a useful finding. Canada agreed that a panel would serve no useful purpose in the present case, since nullification and impairment of benefits had already been admitted and Nicaragua had no means to retaliate under Article XXIII:2.Footnote ¹⁹⁵ The Council agreed to engage in informal consultations and defer any determination on this matter to its next meeting.Footnote ¹⁹⁶

1.47. At the October 1985 meeting of the GATT Council, the United States agreed to the establishment of a panel on the condition that it "could not examine or judge the validity of or motivation for the invocation of Article XXI:(b)(3) by the United States".Footnote ¹⁹⁷ At the March 1986 meeting of the GATT Council, the panel was established with the aforementioned carve-out from its terms of reference.Footnote ¹⁹⁸

1.48. Before the panel, Nicaragua argued that the embargo imposed by the United States had deprived Nicaragua of benefits under Articles I:1, II, V, XI:1, XIII, XXIV, XXXVI, XXXVII and XXXVIII of the GATT 1947.Footnote ¹⁹⁹ Nicaragua argued that the embargo therefore constituted a prima facie nullification or impairment of benefits accruing to Nicaragua under the General Agreement. Nicaragua stressed that whether the invocation of Article XXI(b)(iii) was justified or not, benefits accruing to Nicaragua under the General Agreement had been seriously impaired or nullified as a result of the embargo. Nicaragua argued that it had been recognized both by the drafters of the General Agreement and by the contracting parties that an invocation of Article XXI did not prevent recourse to Article XXIII. Nicaragua said that it had no reason to expect that an embargo would cut off all trade relations with the United States when the United States' tariff concessions were negotiated (i.e. between 1949 and 1961) and that the embargo had in fact nullified or impaired the benefits accruing to Nicaragua under all of the trade-facilitating provisions of the General Agreement.Footnote ²⁰⁰

1.49. The United States reiterated its position that its actions were valid under Article XXI, but that the panel could not in any event examine the validity of, nor the motivation for, its invocation of Article XXI(b)(iii) within its terms of reference.Footnote ²⁰¹ The United States agreed that a measure not conflicting with obligations under the General Agreement could be found to cause nullification and impairment, and that an invocation of Article XXI did not prevent recourse to the procedure of Article XXIII. However, the United States argued that nullification or impairment could not be presumed in cases in which Article XXI was invoked.Footnote ²⁰² Rather, this was dependent on the facts and circumstances of the particular case, including the expectations that the contracting party bringing the complaint could reasonably have had when it negotiated its tariff concessions. The United States did not consider it meaningful for the Panel to propose in the present case a ruling on the question of whether nullification or impairment could be caused through measures under Article XXI.Footnote ²⁰³

1.50. The panel stated that it had not considered the question of whether the terms of Article XXI precluded it from examining the validity of the United States' invocation of that Article because this examination was precluded by its mandate.Footnote ²⁰⁴ The panel concluded that as it was not authorized to examine the justification for the United States' invocation of a general exception to the obligations under the General Agreement, "it could find the United States neither to be complying with its obligations under the General Agreement nor to be failing to carry out its obligations under that Agreement."Footnote ²⁰⁵ In examining the embargo in the light of Article XXIII:1(b), the panel noted the question of whether the nullification or impairment of the trade opportunities of Nicaragua through the embargo constituted a nullification or impairment of benefits accruing to Nicaragua within the meaning of Article XXIII:1(b). In the panel's view, this question raised basic interpretive issues relating to the concept of non-violation and nullification and impairment which had not been addressed by the drafters of the GATT or decided by the contracting parties. Against this background, the panel felt that it would only be appropriate for it to propose a ruling on these issues if such a ruling would enable the contracting parties to draw practical conclusions from it in the case at hand.Footnote ²⁰⁶ The panel reasoned that, as long as the embargo was not found to be inconsistent with the General Agreement, the United States would be under no obligation to follow a recommendation by the contracting parties under Article XXIII:2 to withdraw the embargo.Footnote ²⁰⁷ Moreover, even if it were found that the embargo nullified or impaired benefits accruing to Nicaragua independent of whether it was justified under Article XXI, the contracting parties could, in the circumstances of the present case, take no decision under Article XXIII:2 that would re-establish the balance of advantages which had accrued to Nicaragua under the General Agreement prior to the embargo. In the light of all these considerations, the panel decided not to propose a ruling on the basic question of whether actions under Article XXI could nullify or impair GATT benefits of the adversely affected contracting party.Footnote ²⁰⁸ However, the panel noted that embargoes such as those imposed by the United States, independent of whether they were justified under Article XXI, ran counter to the basic aims of the GATT 1994 and encouraged each contracting party to "carefully weigh[] its security needs against the need to maintain stable trade relations".Footnote ²⁰⁹

1.51. At the November 1986 meeting of the GATT Council, Nicaragua expressed disappointment that the panel report had neither determined the level of nullification or impairment of Nicaragua's rights under the GATT 1947, nor made any specific recommendations.Footnote ²¹⁰ Nicaragua also noted that it "remained clear that the United States had imposed the embargo not for reasons of security, but for political coercion" and noted that the case involved a "clear misuse of Article XXI".Footnote ²¹¹ Nicaragua requested that the Council recommend a removal of the embargo, authorize special support measures to compensate Nicaragua for damage caused by the embargo, and prepare an interpretive note on Article XXI which would reflect the elements of this case.Footnote ²¹² Nicaragua also asked that in making such recommendations, the Council give consideration to the ruling of the International Court of Justice (ICJ) "as proof that the conditions necessary for invoking Article XXI had not been met".Footnote ²¹³ Nicaragua added that it could not support the adoption of the report until the Council was in a position to make such recommendations.Footnote ²¹⁴

1.52. The United States said that the panel had reached sound conclusions in a difficult situation and recommended that the Council adopt the report.Footnote ²¹⁵ The United States stated that it continued to believe that this dispute should never have been brought to GATT. There were and had been many instances of trade sanctions that had been imposed by various contracting parties for reasons, it could be surmised, of national security. Rarely had those situations even been raised in GATT, and never before had a party insisted on a panel, because contracting parties, including those against whom sanctions had been imposed, had tacitly recognized that GATT, by its traditions, its competence, and the terms of Article XXI, could not help resolve such matters, and that pressing the issue would only weaken GATT's intended role.Footnote ²¹⁶ In this regard, the United States observed that "GATT was not a forum for examining or judging national security disputes. When a party judged trade sanctions to be essential to its security interests, it should be self-evident that such sanctions would be modified or lifted in accordance with those security considerations."Footnote ²¹⁷ The United States also agreed with the panel's decision not to address the "novel and delicate question of nullification and impairment in a situation of Article XXI trade sanctions" when the outcome of such question "could create a precedent of much wider ramifications for the scope of GATT rights and obligations but which would serve no useful purpose in the particular matter before the [p]anel".Footnote ²¹⁸ The United States considered that nullification or impairment in situations where no GATT violation had been found was a "delicate issue, linked to the question of ‘reasonable expectations’."Footnote ²¹⁹ According to the United States, applying the concept of "reasonable expectations" to a case of trade sanctions motivated by national security considerations would be "particularly perilous", since at a broader level, those security considerations would nevertheless enter into expectations.Footnote ²²⁰

1.53. Chile noted that "Article XXI should be invoked only when absolutely necessary to protect national security interests, and not to punish another contracting party."Footnote ²²¹ Nigeria stated that Article XXI could only be invoked "in cases of a state of war or emergency", and that neither was the case with the US embargo as "[t]he ICJ had found no evidence that Nicaragua's policies threatened the United States and thus had found no justification for the embargo."Footnote ²²² Argentina asserted that it was clear to the international community at large that Article XXI had been improperly invoked and that "the ICJ had confirmed that the US embargo was not compatible with GATT."Footnote ²²³ Peru rejected the use of trade measures for political coercion "unless such action was approved by the UN Security Council" and noted that the UN General Assembly had condemned the embargo.Footnote ²²⁴ Colombia, Trinidad and Tobago and Czechoslovakia expressed similar views.Footnote ²²⁵ Sweden expressed concern that the restricted terms of reference in this dispute should not prejudice the mandate of future panels, noting that panels "should be able to examine all relevant GATT Articles, including Article XXI".Footnote ²²⁶ Jamaica also expressed concern that the restricted terms of reference had been agreed upon without prior examination by the contracting parties.Footnote ²²⁷

1.54. Hungary argued that Article XXI provided discretion to the contracting parties to judge whether circumstances warranted its invocation, but noted that "the most powerful trading nations should demonstrate the greatest self-restraint."Footnote ²²⁸ The European Communities reiterated its view that the United States "alone had the sovereign right to determine its national security interests", and noted that Article XXI was an "essential safety valve" which the European Communities did not support being subject to further interpretation, discussion, or negotiation either in the Council or in the new round.Footnote ²²⁹ That said, the European Communities also considered that the discretionary rights inherent in Article XXI should not be arbitrarily invoked.Footnote ²³⁰ Several GATT contracting parties also reiterated views expressed at earlier meetings of the Council.Footnote ²³¹

1.55. The Council concluded that it could not adopt the panel's report without consensus, but agreed for the Chair to engage in informal discussions and to keep this matter on its agenda.Footnote ²³²

1.56. At the April 1987 meeting of the GATT Council, Nicaragua reiterated its position that it could not support the adoption of the report until the Council was in a position to make recommendations.Footnote ²³³ It noted that such recommendations would need to consider the decisions of other fora, in particular, the ICJ "which had concluded that the embargo was not necessary to protect any US security interest, as well as Resolutions 40/188 and 41/164 of the United Nations General Assembly which called for the immediate cessation of the embargo".Footnote ²³⁴ Nicaragua also argued that certain amendments that the United States had proposed to UN document A/C.2/41/L.2 suggested that it did consider the GATT to have competence to rule on this matter.Footnote ²³⁵ The United States maintained its earlier position that resolution of this matter did not lie within the GATT and that the panel's findings confirmed this position. The United States reiterated that with respect to this and other similar issues brought before the Council in the past, the GATT, by its traditions, its competence, and the terms of Article XXI itself, could not resolve cases where trade sanctions were imposed for national security reasons.Footnote ²³⁶ The Council agreed to engage in informal consultations and defer any determination on this matter to its next meeting.Footnote ²³⁷

1.57. At the July 1987 meeting of the GATT Council, Nicaragua circulated a draft decision adopting the panel report, but recommending that the United States take into consideration the negative trade effects of the embargo and authorizing contracting parties wishing to do so to grant trade concessions to Nicaragua.Footnote ²³⁸ Nicaragua reiterated its view that "no one believed that Nicaragua was a threat to any country's security" and that it "could not accept that the United States had the right to invoke Article XXI and still less to impose the embargo".Footnote ²³⁹ The United States maintained its earlier position that resolution of this matter did not lie within the GATT and condemned Nicaragua's draft resolution as politically motivated.Footnote ²⁴⁰ The United States also asserted that the panel's report had found that "the United States was under no obligation to remove the embargo", and reiterated its position that the United States "had acted in full conformity with its GATT rights and obligations".Footnote ²⁴¹ The Council agreed to engage in informal consultations and defer any determination on this matter to its next meeting.Footnote ²⁴² At the November 1987 meeting of the GATT Council, Nicaragua noted that the President of the United States had proposed that the embargo be renewed for an additional six months.Footnote ²⁴³ Nicaragua expressed its intention to request that the contracting parties implement paragraph 21 of the Understanding Regarding Notification, Consultation, Dispute Settlement and Surveillance at its Forty-Third Session.Footnote ²⁴⁴ The Council took note of these statements.Footnote ²⁴⁵

1.58. At the June 1989 meeting of the GATT Council, Nicaragua noted that the President of the United States had sent a message to Congress in April 1989 extending the national emergency and economic sanctions against Nicaragua indefinitely.Footnote ²⁴⁶ Nicaragua also read out an official United States document stating that trade sanctions were an essential element of the United States policy regarding Nicaragua, and that, in the United States' view, present conditions in Nicaragua did not justify the lifting of trade sanctions.Footnote ²⁴⁷ Nicaragua noted that this document "did not refer to the protection of the United States' essential security interests, but exclusively to Nicaragua's internal matters" and thus "infringed the fundamental principles of the United Nations Charter and other instruments of international law" and could not be justified under Article XXI.Footnote ²⁴⁸ Nicaragua called on the contracting parties to "impose a limit on the irresponsibility with which the United States had claimed to interpret the provisions of Article XXI".Footnote ²⁴⁹ Nicaragua also noted that it still could not support the adoption of the panel's report, as to do so would create a dangerous precedent by denying Nicaragua the right to have its complaint examined in accordance with Article XXIII:2.Footnote ²⁵⁰ The United States expressed surprise that Nicaragua had brought this issue back to the Council some two and a half years after the first consideration of the panel report, and renewed its request for the adoption of the panel's report, as it believed no other resolution of the matter was realistic.Footnote ²⁵¹ The United States also asserted that the panel "had confirmed that the United States was within its rights to invoke Article XXI".Footnote ²⁵² The Council took note of these statements.Footnote ²⁵³

1.59. In March 1990, Nicaragua circulated a communication noting that the United States had lifted the embargo and other economic measures on Nicaragua.Footnote ²⁵⁴ At the April 1990 meeting of the GATT Council, Nicaragua welcomed the removal of the embargo, but noted that the dispute had demonstrated that the GATT "did not have mechanisms to establish a proper balance between rights and obligations".Footnote ²⁵⁵ The United States stated that "in light of changed circumstances and recent events, the conditions which had necessitated action under Article XXI of the General Agreement had ceased to exist" and it had consequently terminated the embargo.Footnote ²⁵⁶ The United States also noted its intention to restore Nicaragua's sugar allocation.Footnote ²⁵⁷ Cuba stated that the embargo "had been imposed for political reasons and its lifting was a reminder of its political nature and coercive character".Footnote ²⁵⁸ The Council took note of the statements.Footnote ²⁵⁹

1.60. The panel report in United States – Trade Measures Affecting Nicaragua was never adopted.Footnote ²⁶⁰

Negotiating Group on GATT Articles

1.61. The Negotiating Group on GATT Articles also reviewed Article XXI in meetings in November 1987 and June 1988, on the basis of communications submitted by NicaraguaFootnote ²⁶¹, a Secretariat background noteFootnote ²⁶² and a communication submitted by Argentina.Footnote ²⁶³ The Negotiating Group was unable to agree on any of the proposals regarding Article XXI, and the Chairman's Report to the Group of Negotiations on Goods did not list Article XXI among the provisions that it was considering.Footnote ²⁶⁴

Negotiations Leading to the Adoption of the April 1989 Decision (1988–1989)

1.62. As stated aboveFootnote ²⁶⁵, the GATT CONTRACTING PARTIES jointly agreed, in adopting the April 1989 Decision, that any panel or working party would be established at the GATT Council meeting following the meeting at which the request first appeared on the Council's regular agenda, unless at that meeting the Council decided otherwise.Footnote ²⁶⁶ Prior to the adoption of the April 1989 Decision, trade ministers considered a proposal which provided that, where the Council could not agree on whether a matter fell within the scope of Article XXIII of the GATT, a panel would make a recommendation on the jurisdictional issue as a preliminary matter, with bracketed text stating "including the question of whether the matter is appropriate for resolution through the panel process".Footnote ²⁶⁷ By 6 December 1998, a Secretariat note stated that this language in the proposal was to be deleted. The final draft text of the report from the Trade Negotiations Committee Meeting omitted this language and included only the text that formed part of the April 1989 Decision; namely, that "a decision to establish a panel or working party shall be taken at the latest at the Council meeting following that at which the request first appeared as an item on the Council's regular agenda".Footnote ²⁶⁸

European Communities v. Yugoslavia (1991)

1.63. In 1991, the European Communities circulated a communication stating that it had suspended the benefit of certain trade concessions that had been granted to Yugoslavia on a preferential basis.Footnote ²⁶⁹ The European Communities referred in this context to its "vigorous efforts over recent months to put a stop to bloodshed in Yugoslavia", including promoting cease-fire agreements which unfortunately had not led to the "full cessation of hostilities".Footnote ²⁷⁰ The European Communities stated that the measures had been taken upon consideration of its "essential security interests and based on GATT Article XXI", as it was faced with "continuing risks of political instability in this region of Europe, with potentially destabilizing consequences elsewhere".Footnote ²⁷¹ In response, Yugoslavia circulated a communication noting that it did not presently claim that the measures violated any GATT provisions as "the majority do not relate to the contractual obligations under the GATT or could be justified under Article XXI".Footnote ²⁷² However, Yugoslavia did express concerns about the negative trade effects of the measure as well as the use of punitive economic measures to secure political objectives.Footnote ²⁷³ Yugoslavia also requested that it be notified of any additional measures pursuant to the 1982 Decision, and noted that it reserved its rights under the GATT.Footnote ²⁷⁴

1.64. Following this communication, Yugoslavia requested consultations with the European Communities in relation to these and certain other measures.Footnote ²⁷⁵ The consultations did not achieve a mutually satisfactory solution, and Yugoslavia subsequently requested the establishment of a panel.Footnote ²⁷⁶ In its request, Yugoslavia asserted that the measures were taken "for purely political reasons" and were inconsistent with the GATT and paragraph 7(iii) of the 1982 Ministerial Declaration.Footnote ²⁷⁷ Yugoslavia stated that the measures could not be justified under Article XXI, as the situation in Yugoslavia did not correspond to the "notion or meaning" of Article XXI(b) and Article XXI(c), and no relevant UN body had authorized economic sanctions against Yugoslavia.Footnote ²⁷⁸ At the February 1992 meeting of the GATT Council, Yugoslavia reiterated its request for a GATT panel.Footnote ²⁷⁹ The European Communities queried whether the withdrawal of preferences violated Article I of the GATT, and noted that as the situation was delicate and continually evolving, its primary objective was not to hamper the peace processes that had been engaged in securing a political solution in Yugoslavia.Footnote ²⁸⁰ The European Communities stated that it was willing to engage in consultations, but that the establishment of a GATT panel "could only exacerbate the problem".Footnote ²⁸¹ Yugoslavia's request for the establishment of a GATT panel was supported by Chile, Cuba, and Venezuela.Footnote ²⁸² India also supported the request. It asserted that trade measures for non-economic reasons should only be taken within the framework of a UN Security Council decision, and noted that Yugoslavia's request "encompassed an issue which was covered by GATT provisions".Footnote ²⁸³ The Council agreed to revert to this matter at its next meeting.Footnote ²⁸⁴

1.65. At the March 1992 meeting of the GATT Council, Yugoslavia reiterated its request for a panel.Footnote ²⁸⁵ Yugoslavia asserted that the continued discrimination by the European Communities was wrong, as the peace process in Yugoslavia was proceeding well and the non-economic reasons underlying the measures had "completely changed".Footnote ²⁸⁶ The European Communities acknowledged the right of Yugoslavia to request the establishment of a panel, but considered the timing to be inopportune as the European Communities was "deeply involved" in the ongoing peace process and did not consider that a panel established at the present time would aid that process.Footnote ²⁸⁷ The European Communities recognized that under the April 1989 Decision, a panel had to be established at the second Council meeting at which it was requested, unless at that meeting the Council decided otherwise. The European Communities queried whether, given that the measures had been taken for non-economic reasons, a different course of action could be taken, such as establishing the panel but "delaying its activation subject to further clarity in the situation".Footnote ²⁸⁸ The European Communities also reserved its right to reflect further on what the standard terms of reference should be in disputes involving measures taken for non-economic reasons.Footnote ²⁸⁹ The United States affirmed Yugoslavia's right to request a panel, but noted that the problems that had given rise to the measures were not capable of resolution by the Council and should be resolved politically.Footnote ²⁹⁰ Canada expressed similar views.Footnote ²⁹¹ New Zealand noted that while the GATT process needed to be observed, the "trends in the political situation" should be ascertained before any GATT consideration of the measures.Footnote ²⁹² Argentina asserted that Yugoslavia had the right to have a panel examine any question relating to the application of GATT provisions, including "measures taken for non-economic reasons and invoked under Article XXI".Footnote ²⁹³ Mexico affirmed Yugoslavia's right to request a panel, but noted that the GATT was "perhaps not the most appropriate forum to discuss those issues, much less to solve them".Footnote ²⁹⁴ Japan affirmed Yugoslavia's right to request a panel, but noted that the circumstances were "rather unique" and that its preferred approach was for the parties to seek a solution through dialogue.Footnote ²⁹⁵ Tanzania affirmed Yugoslavia's right to request a panel, but noted that it would not want to see a peaceful solution in Yugoslavia impaired by GATT dispute settlement procedures.Footnote ²⁹⁶

1.66. The Chair of the GATT Council stated that the Council had to decide on the establishment of a GATT panel in light of the rules in the April 1989 Decision. The Chair recalled a previous understanding that, under the rules in the April 1989 Decision, a contracting party had the right to a panel at the second Council meeting following that at which the request first appeared as an item on the Council's regular agenda, unless at that meeting, the Council decided otherwise. The Chair therefore proposed that the Council agree to establish a panel with standard terms of reference unless, as provided for in the April 1989 Decision, the parties agreed to other terms of reference within 20 days.Footnote ²⁹⁷ The GATT Council agreed to establish a panel with standard terms of reference unless otherwise agreed by the parties.Footnote ²⁹⁸ The panel did not proceed owing to the subsequent dissolution of the State of Yugoslavia.

Nicaragua v. Honduras and Colombia (1999)

1.67. In 1999, Nicaragua imposed a tax on all goods and services imported, manufactured or assembled, coming from or originating in Honduras and Colombia, and cancelled licences for all fishing vessels under Honduran and Colombian flags, as a response to the ratification of the bilateral Treaty on Maritime Delimitation in the Caribbean Sea (Ramírez-López Treaty) between those states.Footnote ²⁹⁹ In January 2000, Colombia requested consultations with Nicaragua in relation to these measures.Footnote ³⁰⁰ These consultations did not achieve a mutually satisfactory solution, and in March 2000, Colombia requested the establishment of a panel.Footnote ³⁰¹

1.68. At the April 2000 meeting of the DSB, Colombia reiterated its request for a panel.Footnote ³⁰² Nicaragua responded that the Ramírez-López Treaty infringed its "sovereign rights in the Caribbean Sea by imposing limits unilaterally, illegally and arbitrarily through reciprocal recognition by Honduras and Colombia of their expansionist aims in the Caribbean Sea to the detriment of Nicaragua's territorial rights".Footnote ³⁰³ Nicaragua considered that Colombia and Honduras had created "serious international tension" in the form of despatching Honduran troops at its northern border and conducting military manoeuvres by deploying war planes and ships in the region of its continental shelf.Footnote ³⁰⁴ Nicaragua asserted that the Organization of American States had recognized the "state of serious international tension" by appointing a special envoy to assess the situation.Footnote ³⁰⁵ Accordingly, Nicaragua considered that its measures were consistent with "Article XXI of the GATT 1994 and Article XIVbis of the GATS, which reflected a state's inherent right to protect its security, and therefore constituted a general exception to multilateral trade rules".Footnote ³⁰⁶ Nicaragua noted that it had not adopted the measures for trade purposes or to protect domestic industry, but rather to safeguard its essential security interests.Footnote ³⁰⁷ Nicaragua recognized Colombia's right to request establishment of a panel, but doubted the utility of having a panel examine the matter, asserting that "it had been customary practice in the WTO that the contracting party applying the measure should be the sole judge in matters that concerned its essential security interests, in particular if such interests could be threatened by any actual or potential danger."Footnote ³⁰⁸ According to Nicaragua, if the panel "gave itself powers that belonged to political fora that could result in a dangerous and unacceptable precedent".Footnote ³⁰⁹ Nicaragua was also of the view that, "before establishing a panel to examine this matter, the General Council should take a decision on the competence of panels to deal with highly political issues and should make a formal interpretation of Article XXI of GATT 1994."Footnote ³¹⁰ Honduras disputed Nicaragua's assertions regarding the movement of troops and military equipment. Honduras also noted that the DSU provided it with the possibility of restoring its rights, but considered the subject of maritime limits to fall outside of the mandate of the WTO.Footnote ³¹¹ The DSB agreed to revert to this matter at its next meeting.Footnote ³¹²

1.69. At the May 2000 meeting of the DSB, Colombia reiterated its request for a panel.Footnote ³¹³ Nicaragua reiterated its position that Article XXI of the GATT 1994 "could not be subjected to an examination by a panel", and asserted that the 1982 Decision had given the Ministerial Conference and General Council "exclusive authority" to interpret Article XXI to the exclusion of any other body.Footnote ³¹⁴ Japan, Canada, the European Communities and Honduras expressed the view that issues of national security were sensitive and should be addressed with great caution.Footnote ³¹⁵ The European Communities asserted that the panel could examine the facts to determine whether the matter concerned a national security issue or a trade policy measure.Footnote ³¹⁶

1.70. The DSB agreed to establish the panelFootnote ³¹⁷, but the panel was never composed.Footnote ³¹⁸

1.71. In July 2006, in the context of the Trade Policy Review of Nicaragua, Colombia noted that Nicaragua had suspended the application of the tax to goods and services imported from or originating in Honduras since March 2003. Footnote ³¹⁹ Colombia argued that this made the "discrimination of Nicaragua's trade policy against Colombia much more obvious", and asked to have the trade practice put on record in the conclusions of the Trade Policy Review.Footnote ³²⁰ Nicaragua maintained that the tax was applied in conformity with Article XXI of the GATT 1994 in order to protect Nicaragua's essential security interests.Footnote ³²¹

India v. Pakistan (2002)

1.72. During the 2002 Trade Policy Review of Pakistan, India asserted that Pakistan had consistently denied MFN status to India in violation of the basic principles of the GATT 1994 and the WTO.Footnote ³²² Pakistan responded that the India-Pakistan relationship had to be viewed in the context of the "difficult political relations between the two countries over the course of the past 50 years".Footnote ³²³ Pakistan noted that after the 1965 war, trade and diplomatic relations had been terminated by both sides, and the subsequent process of normalization had been slow and on an item-by-item basis through limited trade and shipping routes.Footnote ³²⁴ Pakistan therefore considered that both India and Pakistan had acted consistently with Article XXI(b)(iii) by treating each other as exceptions to MFN principles.Footnote ³²⁵

1.73. At the 2008 Trade Policy Review of Pakistan, India reiterated that Pakistan was denying MFN status to India, to which Pakistan responded that trade relations between India and Pakistan were continuously liberalizing and improving.Footnote ³²⁶

United States v. Brazil (2003)

1.74. In 2003, the United States circulated a communication to the Committee on Import Licensing raising concerns about Brazil's import licensing system for certain lithium compounds and the compatibility of the system with the Import Licensing Agreement.Footnote ³²⁷ The United States disagreed with the inclusion of these lithium compounds in a measure regulating goods related to the production of nuclear energy, as the United States domestic industry had reported that these lithium compounds had no nuclear application but were rather used as a raw material in various commercial products.Footnote ³²⁸ The United States therefore requested that Brazil provide additional information about the operation of the system.Footnote ³²⁹ The United States repeated these concerns at the October 2003 meeting of the Committee on Import Licensing.Footnote ³³⁰ The Committee took note of these statements.Footnote ³³¹ In 2004, Brazil circulated a communication responding to the questions of the United States, in which Brazil asserted that the restrictions were maintained because lithium could have an application in the production of nuclear energy.Footnote ³³² At the September 2004 meeting of the Committee on Import Licensing, the United States observed that the explanation given by Brazil was "tenuous", as it did not demonstrate that the lithium compounds had any nuclear application outside of its "common commercial use".Footnote ³³³ The United States asserted that in practice, these licensing requirements acted as quantitative restrictions and noted that Brazil's response "engendered some suspicion that there might be other more protectionist reasons for the requirement".Footnote ³³⁴ The United States noted that it would circulate further questions to Brazil in writing, and Brazil responded that such questions would be conveyed to its government.Footnote ³³⁵ The Committee took note of these statements.Footnote ³³⁶

1.75. At the June 2005 meeting of the Committee on Import Licensing, the United States noted that they had not yet received a response to their questions.Footnote ³³⁷ Brazil reiterated that the restrictions were justified because of the potential risks and uses of lithium compounds "including for nuclear ends".Footnote ³³⁸ The Committee took note of these statements.Footnote ³³⁹ At the June 2006 meeting of the Committee on Import Licensing, the United States noted that they had still not received a response to their questions, as recently circulated with supplementary questions.Footnote ³⁴⁰ The United States also asserted that "it seemed clear that none of the requests for information that the U.S. was making, involved the national security provisions of Article XXI of the GATT 1994, since the information was requested for commercial purposes."Footnote ³⁴¹ Brazil responded that there had been no change in its policy, but that it had taken note of the concerns of the United States.Footnote ³⁴² The Committee took note of these statements.Footnote ³⁴³ Similar views were expressed at subsequent meetings of the Committee on Import Licensing until 2009.Footnote ³⁴⁴ In 2009, Brazil circulated a communication to the Committee on Import Licensing responding to the questions of the United States, in which Brazil reiterated that "since some lithium compounds have an application in the production of nuclear energy", this restriction "was treated as a matter of national security".Footnote ³⁴⁵

1.76. At the October 2009 meeting of the Committee on Import Licensing, the United States thanked Brazil for its response.Footnote ³⁴⁶ At the April 2010 meeting of the Committee on Import Licensing, the United States thanked Brazil again and noted that it did not have further questions at the time.Footnote ³⁴⁷

European Union v. Brazil (2013)

1.77. During the 2013 Trade Policy Review of Brazil, the European Union posed a question to Brazil regarding its import licensing restrictions on nitrocellulose.Footnote ³⁴⁸ The European Union asserted that industrial nitrocellulose was a different product from military-grade nitrocellulose, and argued that as the former was a safe product which did not pose any problems related to national security, it was not justifiable to impose a de facto import ban on the product.Footnote ³⁴⁹ Brazil responded that it did not necessarily agree that industrial nitrocellulose posed no problems related to security, as low concentrations of the product could be used as an explosive.Footnote ³⁵⁰ Brazil noted that it was however currently reviewing its legislation on controlled products.Footnote ³⁵¹

1.78. At the April 2014 meeting of the Committee on Import Licensing, the European Union reiterated its concerns about Brazil's import licensing scheme for nitrocellulose.Footnote ³⁵² The European Union argued that the Brazilian producer of nitrocellulose benefited from the restrictions as a monopoly supplier in the closed local market.Footnote ³⁵³ The European Union also stressed that the "essential security exceptions in the provision of Article XXI of the GATT 1994 were to be applied on traffic in implements of war and to goods for the purpose of supplying a military establishment, but not to the non-military industrial sector."Footnote ³⁵⁴ The European Union requested that Brazil remove the licensing requirements and asked for additional information regarding grants of such licenses over the last five years.Footnote ³⁵⁵ Brazil took note of these comments and asked that the European Union provide its comments and questions in writing.Footnote ³⁵⁶ The Committee took note of these statements.Footnote ³⁵⁷

1.79. The European Union subsequently circulated a communication to the Committee on Import Licensing containing these questions to Brazil.Footnote ³⁵⁸ At the October 2014 meeting of the Committee on Import Licensing, the European Union reiterated its concerns and further asserted that industrial nitrocellulose was only used for "commercial purposes such as for applications like printing inks, wood lacquer, or nail varnish".Footnote ³⁵⁹ Brazil responded that it disagreed with the European Union's view that industrial and military nitrocellulose were substantially and chemically different products, as regardless of its intended use, "the product poses risks".Footnote ³⁶⁰ The Committee took note of these statements.Footnote ³⁶¹ Brazil contemporaneously circulated a communication responding to the European Union's questions in which Brazil asserted that nitrocellulose was a hazardous material at any concentration, and controls on the product were therefore legitimate for "security and safety reasons".Footnote ³⁶² Similar views were expressed at subsequent meetings of the Committee on Import LicensingFootnote ³⁶³, and the European Union circulated further questions to Brazil in 2016.Footnote ³⁶⁴ Discussions between the European Union and Brazil on this issue continued into 2018.Footnote ³⁶⁵

United States v. Cuba (1962–1996)

1.80. In 1962, the United States imposed an embargo prohibiting imports into the United States of all products of Cuban origin, in addition to all goods imported via Cuba, and ordering a continuing prohibition on all exports from the United States to Cuba.Footnote ³⁶⁶ In 1968, Cuba submitted a notification to the Committee on Trade in Industrial Products stating that the embargo constituted a non-tariff barrier which adversely affected Cuba's trade.Footnote ³⁶⁷ During the Committee's first examination of the notified barriers in 1969Footnote ³⁶⁸, Cuba emphasized that the embargo differed from the previously examined trade barriers because it was not limited to particular products or particular commercial interests, but instead was "designed to reduce a small country to submission by starvation".Footnote ³⁶⁹ The United States responded that the embargo had been imposed for reasons of "individual and collective self-defense" and to "promote national and hemispheric security", and invoked Article XXI as justification for its actions.Footnote ³⁷⁰ Cuba responded that the invocation of Article XXI was inadequate because the United States had unilaterally adopted coercive measures without securing any authorization from the international legal community, in particular the UN Security Council.Footnote ³⁷¹

1.81. In 1986, Cuba circulated a communication expressing concern over a measure imposed by the United States removing quotas for sugar imports unless the supplying country guaranteed that it would not import sugar from Cuba for re-export to the United States.Footnote ³⁷² At the May 1986 meeting of the GATT Council, Cuba argued that this measure violated the GATT and stated that the United States was undermining free trade, not only by harming Cuba, but also by trying to hamper its normal trade with third countries.Footnote ³⁷³ The United States responded that the measure was a reflection of the long-standing trade embargo against Cuba which the United States had maintained for national security reasons.Footnote ³⁷⁴ Nicaragua, Argentina, Brazil, Hungary, Peru, Czechoslovakia, Poland and Uruguay all opposed the measure, considering it to be politically motivated, coercive and discriminatory.Footnote ³⁷⁵ The Council took note of the statements.Footnote ³⁷⁶

1.82. In 1987, in the context of the meetings of the United Nations Conference on Trade and Employment, the Cuban Vice-Minister for Foreign Trade made a statement asserting that the embargo imposed by the United States violated the objectives and principles of the GATT, including those enumerated in Articles I, II and V and Part IV.Footnote ³⁷⁷ The Vice-Minister also noted that the United States had unjustifiably invoked Article XXI, "since it is no secret that Cuba has not threatened, is not threatening nor will ever threaten the United States: on the contrary, the latter country has threatened and is threatening our security through sabotage, spying, violation of our land, sea and air frontiers, and has organized and supported armed aggression against our people as on the occasion of the mercenary landing at the Bay of Pigs".Footnote ³⁷⁸

1.83. In 1988, in the context of the discussion of the United States embargo against Nicaragua at the Fourth Meeting of the Forty-Third Session, Cuba noted that the United States had justified its embargoes against both Nicaragua and Cuba on grounds of national security.Footnote ³⁷⁹ Cuba responded that "[i]f two small countries could pose a threat to an enormous military and economic power such as the United States, many countries might find themselves subject to similar measures by that country."Footnote ³⁸⁰ Cuba called on the contracting parties to recognize the rights of Nicaragua.Footnote ³⁸¹

1.84. In 1989, in the context of the Trade Policy Review Mechanism, the United States submitted a report to the GATT Council summarizing its domestic trade framework.Footnote ³⁸² In this report, the United States cited "U.S. foreign policy and national security goals" and the President's "wartime and national emergency powers" as the justification for the Office of Foreign Assets Control's administration of the economic embargo against Cuba.Footnote ³⁸³ In response, Cuba circulated a communication stating that the embargo contradicted the United States' commitments under the GATT 1947 and paragraph 7(iii) of the 1982 Ministerial Declaration.Footnote ³⁸⁴ Cuba also asserted that the invocation of Article XXI by the United States was inappropriate, "[s]ince Cuba has not provoked any ‘national emergency’, there is no ‘wartime’ nor any serious international tension."Footnote ³⁸⁵ Cuba expressed similar views on several subsequent occasions between 1990 and 1996.Footnote ³⁸⁶

United States v. Cuba (including Helms-Burton Act) (1996–2016)

1.85. In 1996, Cuba circulated a Communication noting the adoption by the United States of the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act (Helms-Burton Act).Footnote ³⁸⁷ Cuba argued that the objective of the Helms-Burton Act was to "intimidate the world business community and prevent it from participating in the ever-widening economic opportunities for foreign investment" in Cuba.Footnote ³⁸⁸ Cuba also asserted that the measure constituted a violation of its sovereignty by attempting to legislate on its internal matters, namely, the property of Cuban nationals.Footnote ³⁸⁹ At the March 1996 meeting of the Council for Trade in Goods, Cuba argued that the Helms-Burton Act was incompatible with various provisions of the GATT 1994 and other WTO Agreements.Footnote ³⁹⁰ The United States responded that it had recognized the need to take strong measures after the recent shooting down of two unarmed US civilian aircraft by the Cuban government, and asserted that "persons who knowingly and intentionally did business in Cuba using confiscated property were furthering wrongs committed against the former owners of this property, and were undermining the interests of the USA and its citizens".Footnote ³⁹¹ Canada stated that the Helms-Burton Act was not a "useful tool" for achieving democratic reform in Cuba and noted that the legislation "was designed to chill investment in Cuba".Footnote ³⁹² The Council for Trade in Goods took note of these statements.Footnote ³⁹³ Several Members reiterated their views at the April 1996 meeting of the General Council.Footnote ³⁹⁴

1.86. In May 1996, the European Communities requested consultations in respect of the extraterritorial application of the United States' trade embargo against Cuba under the Helms-Burton Act and related US legislation and regulations.Footnote ³⁹⁵ These consultations did not achieve a mutually satisfactory solution, and the European Communities subsequently requested the establishment of a panel. Footnote ³⁹⁶ At the October 1996 meeting of the DSB, the European Communities reiterated its request for a panel, noting that its concern with the legislation "was not its objectives, but the extra-territorial means chosen to achieve those objectives".Footnote ³⁹⁷ The United States asserted again that the Helms-Burton Act was a response to the shooting down of two civilian aircraft by the Cuban government.Footnote ³⁹⁸ The United States described this incident as the latest in a series of actions taken by the Cuban government over the past 35 years that had directly affected US interests, and noted that the Helms-Burton Act, other US laws and regulations, as well as the Cuban embargo which dated from the 1960s "reflected the abiding US foreign policy and security concerns with regard to Cuba pursued by eight US Presidents".Footnote ³⁹⁹ The United States asserted that the Helms-Burton Act was "designed to promote a swift transition to democracy in Cuba" and noted that the European Communities had not suggested that the US policy with regard to Cuba generally, or the Helms-Burton Act in particular, was motivated by trade protectionism.Footnote ⁴⁰⁰ The United States noted that several of the challenged measures had been in force for years or decades, and had been expressly justified by the United States under the GATT 1947 as measures taken in pursuit of its essential security interests.Footnote ⁴⁰¹ The United States questioned the utility and desirability of pursuing this issue through the WTO, arguing that the WTO had been established to manage "trade relations", not "diplomatic or security relations" with negligible trade and investment effects.Footnote ⁴⁰² The United States refused to join a consensus to establish a panel, and urged the European Communities to explore other options.Footnote ⁴⁰³ Cuba asserted that the Helms-Burton Act was incompatible with the GATT 1994, but noted that it would reply to the "political statement" by the United States in other fora such as the UN General Assembly.Footnote ⁴⁰⁴ The DSB agreed to revert to this matter at its next meeting.Footnote ⁴⁰⁵

1.87. At the November 1996 meeting of the DSB, the European Communities reiterated its request for a panel.Footnote ⁴⁰⁶ The United States maintained its earlier position, and noted that it did not believe that a panel would lead to a resolution of the dispute, but rather, would pose serious risks to the WTO as a nascent organization.Footnote ⁴⁰⁷ Cuba responded that unlike the United States, Cuba had never launched an invasion, or initiated any military actions or intelligence operations against the United States.Footnote ⁴⁰⁸ Cuba asserted that if anything, "Cuba would be in a better position than the US to resort to Article XXI of the GATT 1994."Footnote ⁴⁰⁹ Cuba noted, however, that the DSB was not the appropriate forum to enumerate an endless list of such grievances.Footnote ⁴¹⁰

1.88. The DSB agreed to establish the panel with standard terms of reference.Footnote ⁴¹¹ In 1997, the European Communities requested that the panel suspend proceedings while a mutually agreeable solution was negotiated.Footnote ⁴¹² The European Communities and the United States subsequently reached an Understanding that the United States would consult with Congress with a view to obtaining a waiver for the European Communities from the Helms-Burton Act.Footnote ⁴¹³ The panel's authority lapsed in April 1998.Footnote ⁴¹⁴ At the April 1998 meeting of the DSB, Cuba expressed its continuing conviction that the measures were illegal and reserved its right to revert to this matter.Footnote ⁴¹⁵

1.89. Cuba and the United States have reiterated their views about the Helms-Burton Act and the embargo more generally on several subsequent occasions.Footnote ⁴¹⁶