"Each of our nations is going to take steps to deny most favored nation status to Russia”.
by Dr. Ruwantissa Abeyratne in Montreal
It is a platitude to say that war and trade do not mix, particularly when it comes to preferential treatment and non-discrimination under the celebrated “Most Favoured Nations Treatment” (MFN) clause of the World Trade Organization. The clause is perennial both in content and practice where trading nations for hundreds of years have conducted international trade on the fundamental principle that a country providing a trade concession to one trading partner extends the same treatment to all trading partners alike. Although codified in treaty form under the WTO umbrella it has almost become a principle of customary international law, where for example the United States considers the MFN principle as representing “permanent normal trade relations" that effectively preclude any hint of preferential status in its trade legislation.
Over the past few days in the conflict in Ukraine the MFN clause has been stripped off its protective and benevolent garb by several nations, opening Russia’s trade to drastic tariffs. Ukraine was the first, which on 2 March 2022 invoked exceptions to the MFN principle calling for a complete economic embargo on Russia and the removal of MFN protection to Russia citing three counter provisions. The first provision cited by Ukraine is Article XXI of the GATT (General Agreement on Tariffs and Trade) 1994 which provides that when it comes to the security of a State nothing in the Agreement must be construed inter alia to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests…taken in time of war or other emergency in international relations; or to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security”.
The second provision cited is Article XIV bis of the GATS (General Agreement on Trade in Services) which provides inter alia that nothing in the Agreement must be construed: to require any Member to furnish any information, the disclosure of which it considers contrary to its essential security interests; or to prevent any Member from taking any action which it considers necessary for the protection of its essential security interests: relating to the supply of services as carried out directly or indirectly for the purpose of provisioning a military establishment…taken in time of war or other emergency in international relations; or to prevent any Member from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.
The third security exception cited by Ukraine is Article 73 of the TRIPS (Trade Related Intellectual Property Rights) Agreement which says that nothing in the Agreement must be construed to require a Member to furnish any information the disclosure of which it considers contrary to its essential security interests; or to prevent a Member from taking any action which it considers necessary for the protection of its essential security interests relating to fissionable materials or the materials from which they are derived or relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; taken in time of war or other emergency in international relations; or to prevent a Member from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.
At the time of writing The United States was expected to follow suit with an announcement by President Biden. Referring to the unity of The United States, The European Union States and the G7 States the President is reported to have said : "Each of our nations is going to take steps to deny most favored nation status to Russia”.
There is one semantic snag in the three exceptions to the MFN principle as invoked by Ukraine, and that is ambiguity and ambivalence in the word “ considers” which is linked to “contrary to its essential security interests” and “necessary for the protection of its essential security interests”. The word “considers” is subjective and vulnerable to self judgement, obviating the application of any objective criteria. Although the three provisions clearly bring to bear the inexorable principle that defence is more important than free trade, it leads to an anomaly as Roger P. Alford writes in the Utah Law Review in 2011: “ The security exception is an anomaly, a unique provision in international trade law that grants the Member States freedom to avoid trade rules to protect national security. In the long history of GATT and the short history of the WTO, that freedom has never been challenged seriously. Member states understand the exception to be self-judging and presume that it will be exercised with wisdom and in good faith”.
There is a certain deliberate ambiguity in international law provoked by a need in legal texts – particularly in treaties – to leave things open without being specific. Treaties are the outcome of international relations and diplomacy which are often shrouded in political compromises. Often, words such as “reason to believe” confer authority, as in the Tokyo Convention of 1963 Article 6 of which provides: “ the aircraft commander may impose … reasonable measures including restraint which are necessary” to deal with an unruly passenger incident, upon condition that “he has reasonable grounds to believe that a person has committed, or is about to commit … an offence or act which jeopardizes the safety of the aircraft or of persons or property therein or good order and discipline on board”. There is neither reference nor guidance in the treaty as to what “reason to believe” or “reasonable measures” are. Along the same lines the MFN exceptions give any State the authority to impose tariffs on a State in matters of trade and to break the MFN non discriminatory rule if it “ considers” the activity of a State to be contrary to its security interests. For that matter, Article 2 (4) of the United Nations Charter provides an example of ambiguity or lack of clarity when it says “ All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations” . The words “shall refrain” could have been avoided (as the word “refrain” means “to hold oneself back” which is not the same as desisting) and the provision could have said “ All Members shall NOT in their international relations USE threat or force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations. This would have been peremptory and much clearer.
In an open and obvious war situation a certain amount of subjectivity of judgment may be acceptable but in other situations of tension or apprehension between States, as Alford sagely argues, the least we can do is invoke the security exceptions in “wisdom and in good faith” as the imposition of tariffs or sanctions could backfire on the imposing State and other States as well; cripple communities and the ordinary citizen.
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