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Section 232 Tariffs Reviewable by WTO, Panel Says

Friday, April 12, 2019
Sandler, Travis & Rosenberg Trade Report

In its first-ever decision on the matter, the World Trade Organization ruled recently that trade restrictions imposed by member countries on national security grounds are reviewable. The decision could open the door for the WTO to strike down U.S. tariff increases on steel and aluminum products.

Article XXI of the GATT 1994 allows WTO members to impose trade restrictions for national security reasons. The Trump administration has said this provision justifies its tariff hikes on steel and aluminum, which were imposed under a domestic law (known as Section 232) designed to address the threatened impairment that imports of such goods pose to U.S. national security (because they threaten the viability of “core U.S. industries”). The administration has also argued that because Article XXI allows each WTO member to decide for itself what actions are essential to its national security, such decisions are not reviewable by the WTO.

However, in a case brought by Ukraine against Russian restrictions on transportation to and from that country, a WTO dispute settlement panel ruled last week that the WTO does have the authority to review actions taken under Article XXI. According to the panel, that provision establishes that WTO members may impose trade restrictions to protect national security interests that (a) relate to nuclear materials or traffic in defense items or (b) are taken in time of war or other emergency in international relations, which includes armed conflict, latent armed conflict, heightened tension or crisis, or general instability engulfing or surrounding a state. The panel noted that WTO members have most often invoked Article XXI on the basis of such circumstances and “have endeavoured to separate military and serious security-related conflicts from economic and trade disputes.”

Under this standard it could be difficult for the U.S. to justify its Section 232 tariff increases in the WTO cases that China, the European Union, Canada, Mexico, and others have brought against the steel and aluminum tariffs or in similar cases that could be filed if the U.S. levies Section 232 tariffs against automobiles and auto parts, which could occur as early as mid-May.

However, those cases are unlikely to have any practical effect on the actual imposition of the tariffs, at least for the foreseeable future. For one thing, while the WTO could rule in the steel and aluminum tariff cases later this year, those decisions would undoubtedly be appealed, and the WTO’s Appellate Body will cease to function at the end of 2019 if the Trump administration continues to block the appointment of new justices. In addition, it is unlikely that a White House that has said a WTO ruling on these tariffs would “undermine the legitimacy of the WTO’s dispute settlement system and even the viability of the WTO as a whole” would act to comply with any final decision that might ultimately be issued.

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