Shortly after Russia’s invasion of Ukraine, several nations, led by Canada and Ukraine, suspended the application of the World Trade Organization’s Most Favoured Nation (MFN) treatment to Russian goods. MFN is a foundational principle of WTO law, contained in Article I of the General Agreement on Tariffs and Trade (GATT). It promises that all WTO members will receive the same treatment as each other – the lowest tariffs on all goods offered by each WTO member will be made available to all. The effect of this trade sanction against Russia will not be lost on its president – Vladimir Putin’s masters’ thesis was allegedly on the importance of the MFN principle to international trade. The actual impact of the revocation of MFN on Russia may be less significant and the legal issues behind it are complex and troubling.
With regards to the US, non-MFN tariffs are generally seen as quite punitive. However, in the case of Russian goods, they are much less harmful because Russia is mainly a natural-resource exporter, and US non-MFN tariffs on natural resources are normally low, in some cases zero. US imports from Russia in 2021 were US $30 billion, with imports of the top four tariff lines (mineral fuels, precious metals, iron and steel, fertilizers) worth $15 billion. But tariff increase from revoked US MFN on those four products amounts to only $14 million (+0.1%). The situation is different for Canada’s revocation of MFN status for Russian goods. It will add 35% tariffs to all Russian imports. But Canada imports only roughly $1 billion worth of goods from Russia per year. The EU also revoked MFN status for Russia, affecting US $105 billion worth of exports. It is not yet clear yet how significant this will be on various products. The UK has not yet indicated that it intends to revoke MFN treatment for Russia, but if it did, the move would be largely symbolic as the UK does not important a significant quantity of goods from Russia.
The legal justification for the revocation of MFN status for Russia is that of Essential Security – Article XXI of GATT (or XIV bis of GATS). It reads in part: “Nothing in this Agreement shall be construed (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests (iii) taken in time of war or other emergency in international relations.”
The Essential Security provision of WTO law has been used frequently in recent years, notably by the Trump Administration in its questionable justification for tariff increases on steel. Many believe that over-use of Essential Security will hollow out the provision and also render WTO obligations meaningless since they can be abandoned at each member’s unilateral declaration of a security emergency. Its use must therefore be approached with caution.
Indeed, the Russian Ambassador to the WTO responded to the revocation of MFN by Ukraine declaring: “The Russian Federation would like to stress that we should refrain from discussing in the WTO, which is a trade-related organization, and its bodies, issues and events, which are out of the scope of the WTO and are under the focus of other international organizations and diplomatic agencies.”
The ambassador went on to say: “Russia notes with regret the efforts of certain Members towards politicization of the WTO and fragmentation of the multilateral trading system instead of engaging constructively in substantive dialogue on the key issues of the global trade agenda. On the contrary all Members need to combine their efforts to improve the WTO’s functioning and demonstrate its continued relevance for international trade.”
Russia hints, with some justification, at concerns felt by many members that the Essential Security provision of WTO law is being abused, harming the credibility of the WTO.
Based on Article XXI’s wording, WTO Members do not need authorization from the WTO to invoke the security exception – it can be invoked unilaterally (“that it considers”, not “that a panel determines.”) In that sense, it is sort of the “all bets off” provision of the WTO – an invitation to engage in protectionism.
It seems fairly obvious that the invasion of Ukraine by Russia is a “war or other emergency in international relations.” Moreover, WTO Members are able “to protect their essential security interests.” “Essential” here is different from “national.” It does not need to be a direct threat to Canadian or US national security. There may be an indirect threat due to the emergency in international relations. A Member’s essential security interests probably also include the respect for all internationally recognized borders and the prohibition of territorial acquisition by military force. Suspicions of Russia’s intention to invade the Baltics and engage NATO seem to further underscore this justification.
Under Essential Security, WTO Members can therefore adopt whatever measures they consider necessary. Actions are not restricted to those war-related products such as arms. They can include tariffs on all products or other sanctions.
The fact that the tariffs imposed on the basis of security suggests that Canada, the US and others are aware of the implications of invoking Article XXI. Canada is imposing a 35% tariff on Russian goods, not a 300% one. The tariffs are also time limited to 6 months, probably so the revocation appears reversible.
The broadly-worded nature of Article XXI was designed to enable Members to interpret it as they wish, according them the ability to strike an appropriate balance between trade and security. Countries imposing the tariffs on Russia also know that state practice helps establish the legitimacy of state action in the future. This is why it is important that Members explain as precisely as possible why they are invoking Article XXI – otherwise it’s open for abuse.
A WTO panel examined the Essential Security provision of GATT Art XXI in a dispute, ironically brought by Ukraine against Russia in 2019 (Russia-Measures Concerning Traffic in Transit, WT/DS512). Prior to this case, there had been some debate whether essential security-based departures from WTO obligations was reviewable at all by WTO courts because of the self-judging language.
In this dispute, the annexation of Crimea by Russia in 2014 led to the imposition of economic sanctions by various countries against Russian entities. In response, Russia imposed transit bans and other restrictions preventing the transit of goods from Ukraine to Kazakhstan and other bordering countries. Ukraine brought a dispute to the WTO claiming this was a breach of the GATT. Russia asserted that the measures were necessary for the protection of its essential security interests under Article XXI.
Russia further argued the WTO panel lacked jurisdiction to evaluate its measures. Interestingly, the US aligned with Russia’s interpretation of the purely self-judging nature of Article XXI of the GATT in the dispute (meaning that they felt that it should not be open to review by the WTO courts). But the US aided Ukraine by imposing economic sanctions on Russia at the time of the invasion.
Russia refused to provide any factual evidence or legal arguments in the dispute, forcing the panel to consider only publicly available information. Still, the panel came up with a standard of “not implausible” in the lawful application of the security justification – a fairly low bar. It ruled in favour of Russia holding it was acceptable for them to use the Essential Security provision to enforce the transit restrictions on Ukrainian goods.
The Russia-Transit panel was very careful to tread lightly on WTO members’ sovereignty in terms of its characterization of the Crimean annexation under international law. The panel ruled that it was “not relevant” to its determination whether Russia bears “any international responsibility for the existence of this situation to which Russia refers.” Despite winning the case, Russia objected to the panel’s reference to the “international community’s” condemnation of the annexation of Crimea. The panel ended up replacing the phrase “international community” with “the UN Resolution” – narrowing the language somewhat in the final report.
Much as the revocation of MFN status unfolding today in the context of the ongoing invasion of Ukraine, the Russia-Transit demonstrates the highly problematic nature of incorporating essential security into international trade law. Permitting its use indiscriminately undermines the benefits of WTO membership and invites protectionist abuse. Disallowing it could side-line the WTO as an economic body, detaching from the most important aspects of international law, such as territorial integrity. In order to strike an appropriate balance, WTO members relying on the Essential Security provisions must clarify precisely how and why they are using them and suspend WTO benefits only to the extent that they are strictly necessary.