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The U.S. broke a huge global trade taboo. Here’s why Trump’s move might be legal.

- June 7, 2018
Volkswagen cars are lifted inside a delivery tower at the company’s plant in Wolfsburg, Germany. (Michael Sohn/AP)

It’s been a rocky few weeks for U.S. trade partners. On June 1, the United States imposed trade barriers on steel and aluminum imports from the E.U., Canada and Mexico, after the exemptions that the U.S. granted earlier ran out.

The U.S. justified these measures through a rarely used national security exception built into World Trade Organization (WTO) rules. These longtime allies then countered by targeting politically sensitive U.S. exports, from bourbon and Harley-Davidsons to peanut butter.

Here’s the unexpected twist: The U.S. measures may have been unwarranted, but they are likely legal. The countermeasures by U.S. trade partners, on the other hand, are undoubtedly justified, but they are most likely illegal.

The U.S. just broke a big trade taboo

By turning to the national security exception, the U.S. has broken an abiding taboo in trade relations — for the 70 years the WTO and its predecessor regime, the General Agreement on Tariffs and Trade, have been in place, member countries have invoked the national security exception just six times. It has been formally used as a defense in legal proceedings only once. And the WTO has never ruled on its usage by a member state.

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In 1947, GATT negotiators included a national security exception in the form of Article XXI as a last-resort option in the event that a country’s trade commitments threatened its national security.

Countries have always understood that security interests come first. None other than Adam Smith liked to remind everyone that “defence … is of much more importance than opulence.” But the result is that Article XXI is what John Jackson, the great scholar of the GATT, called a “catch-all clause” that is “so broad, self-judging, and ambiguous that it obviously can be abused.”

For 70 years, countries avoided the security exception

The world’s trading regime avoided this abuse for decades because countries agreed that the security exception was too risky to call upon, precisely because it was so unconstrained. That just changed. By invoking this exception in peacetime, using it as the reason to impose new tariffs on U.S. allies, and referencing reasons unrelated to security — like slow progress in the NAFTA renegotiations — the U.S. has completely broken with its own practice.

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Past U.S. administrations steered clear of using the exception, even when it might have made sense to do so. Here’s an example: In 1984, when Nicaragua first challenged the legality of U.S. sanctions on the Sandinista regime, the U.S. opted to be found in violation of GATT rules, rather than set a dangerous precedent by invoking the security exception.

This is a new and dangerous precedent

Until now, countries understood that to open that door could be the end of the global trade regime. As U.S. House Democrats put it in a 2006 letter to the U.S. Trade Representative:

“If the U.S. […] for any reason that it deems ‘necessary to its essential security interests’ can invoke a self-defining ‘essential security’ exception, what is to prevent other countries from using this exception to block U.S. exports or other U.S. rights such as enforcement of intellectual property rights without ample justification?”

The answer is, not much — and that’s why the U.S. move creates such a dangerous precedent. The first to exploit that precedent may be Russia, which has invoked the same national security exception in an ongoing WTO dispute against Ukraine. Remarkably, in its own submission in that dispute, the U.S. took Russia’s side and stuck to its position that the national security exception is “self-judging,” “non-justiciable,” and “unreviewable” by any WTO panel, effectively giving Russia a pass.

So which measures are legal, and which are not?

Canadian Foreign Affairs Minister Chrystia Freeland called the U.S. move illegal, as did French President Emmanuel Macron. It’s impossible to know for certain how a WTO panel might handle this question, precisely because no panel has ever ruled on the issue. But the drafting history of the security exception actually offers the U.S. position a lot of support.

In this view, the clause really is “self-judging”: a country’s security interest is whatever that country says it is. From a practical standpoint, it is also unlikely that a WTO panel would be bold enough to challenge the U.S. definition of its own security interests, especially at a time when the U.S. is exerting increasing pressure on the WTO’s dispute settlement mechanism by blocking the appointment of WTO judges.

What about U.S. trade partners’ reactions? The E.U., Canada and Mexico have announced immediate retaliation. Here’s the wrinkle: Retaliation in the WTO is only legal if formally authorized by the WTO, after countries engage in the dispute settlement process, which includes arbitration over compliance and the amount of retaliation. Countries can retaliate legally only if a party is in continued violation after a ruling. This process has never taken less than two years.

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In skipping this process, the E.U. has attempted to justify its moves by declaring that the U.S. tariffs are actually a safeguard measure, a type of trade remedy designed to help countries deal with unforeseen import surges — this means countermeasures could be allowed.

Although legally ingenious, the E.U. stance is unlikely to hold water: The U.S. has explicitly invoked the national security exception — Section 232 of U.S. trade law. Safeguards fall under Section 201. All of which means the retaliation by U.S. trade partners is most likely illegal. U.S. trading partners are taking the law into their own hands.

What’s the bottom line here? The U.S. move has prompted its trade partners to respond in an extralegal fashion. And that, from the standpoint of the Trump administration, which is broadly skeptical of the multilateral trade regime, may be its greatest tactical victory.

By forcing the hand of its trade partners, the Trump administration has shifted the exchange onto a field where there are few rules to constrain state behavior. The last time states played out their commercial grievances on that field was in 1930, when the Smoot-Hawley Tariff Act raised tariffs on hundreds of U.S. imports. That move didn’t end well.

Krzysztof J. Pelc is a William Dawson Scholar and associate professor in the Department of Political Science at McGill University. This article draws on his book, “Making and Bending International Rules” (Cambridge Press, 2016).