WTO National Security Exception – Strike Two!

Authors’ note: U.S. trade policy may well be affected by the results of the November 3^rd election, which this column was written prior to. 

In February 2020,[1] we took note of the first adopted WTO dispute settlement panel to interpret the GATT 1994 Article XXI national security exception: Russia – Traffic in Transit.[2] Now in Saudi Arabia – Measures Concerning the Protection of Intellectual Property Rights (“Saudi – IP”),[3] we have a second panel that deals with the defence.

Addressing a complaint by Qatar, the Panel found that it had established a prima facie case that the Kingdom of Saudi Arabia (KSA) had failed to protect the intellectual property of Qatari rights holders from piracy of their broadcast rights for film and television programming, contrary to its obligations under the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).

The Saudis claimed that the measures were justified pursuant to the national security exception. As we have pointed out in an earlier Slaw series,[4] the national security exception is a subject of some controversy and division. Negotiated in the original GATT in 1947, it is included in WTO agreements and other trade agreements, including the NAFTA and the new CUSMA.The United States currently relies on a national security rationale to apply (and threaten future) tariffs pursuant to section 232 of the Trade Expansion Act of 1962 and this looms in the background to the WTO deliberations. In its third-party submission, it argued that national security exception is entirely self-judging. In its strenuous rebuttal of the Russia – Traffic in Transit reasoning the United States argued:

Each WTO Member likewise must determine whether a situation implicates its “security” interests (not being exposed to danger), and whether the interests at stake are “essential,” that is, significant or important, in the absolute or highest sense. By their very nature, these questions are political and can only be answered by the Member in question, based on its specific and unique circumstances, and its own perception of those circumstances.[5]

However, of the thirteen WTO members filing third-party submissions, [6] only Bahrain supported the U.S. position. Most interveners argued that the Panel had a duty to review the KSA defence, encouraging it to drive a “second nail” into the position championed by the United States. Following the majority view, the Panel adopted the approach set out in Russia – Traffic in Transit.

The complaint centred on the effect of “anti-sympathy” measures that the KSA introduced in June 2017, when the KSA severed diplomatic ties with Qatar. The Saudi government claimed that the Qatari government was harbouring and supporting terrorists and it introduced measures that cut off all contact to the KSA by Qatari citizens and firms. Qatar argued that since this prevented access to Saudi law firms, courts, and other administrative bodies, its citizens were unable to protect IP rights. Qatar claimed that a Saudi company, beoutQ, was broadcasting a wide variety of popular copyrighted material throughout the KSA that it took from a Qatari company, beIN, without authorization or payment. The “anti-sympathy” measures were effectively denying Qatar the protections and due process guaranteed by the TRIPS Agreement. Qatar also complained that the Saudi measures were preventing beIN’s corporate partners in third countries from pursuing their rights against beoutQ.

The Panel determined the Saudi measures represented prima facie breach of Article 42 and Article 41.1 and 61 of the TRIPS Agreement[7] as they:

(a) prevented beIN from obtaining Saudi legal counsel to enforce its IP rights before Saudi courts and tribunals and

(b) resulted in the KSA’s non-application of criminal procedures and penalties to beoutQ

For the purposes of this article we will not review the Panel’s Article 42 and 61 deliberations. Rather, we will focus on its analysis the application of Article 73(b)(iii) of the TRIPS Agreement which reads: 

Article 73

Security Exceptions

Nothing in this Agreement shall be construed:

(b) to prevent a Member 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;

At the outset of its analysis, the Panel noted the wording of Article 73(b)(iii) of the TRIPS Agreement is identical to that of Article XXI(b)(iii) of the GATT 1994 and decided to draw on the “analytical framework” provided in Russia – Traffic in Transit in the GATT 1994 context in order to “ guide the assessment of whether a respondent has properly invoked … Article 73(b)(iii) of the TRIPS Agreement.”[8] 

It noted that the Russia – Traffic in Transit ruled that Article XXI (b) set out “limitative qualifying clauses,” which “qualify and limit the exercise of the discretion accorded to Members” which are “… amenable to objective determination’.”[9] Following this line of reasoning, the Panel determined that it “had no discretion to decline to make any findings or recommendation in the case …”[10] and it applied the Russia – Traffic in Transit four-step test:

a. Whether the existence of a “war or other emergency in international relations” has been established. 

The Panel concluded that KSA’s severance of diplomatic and commercial relations with Qatar on June 5, 2017, “… could be regarded as “the ultimate State expression of the existence of an emergency in international relations.’’[11] It cited Article 41 of the UN Charter[12] in this regard. Referring to several third-party submissions, the Panel concluded that “… ‘a situation … of heightened tension or crisis’ exists in the circumstances in this dispute, and is related to Saudi Arabia’s ‘defence or military interests, or maintenance of law and public order interests’ (i.e. essential security interests), sufficient to establish the existence of an ‘emergency in international relations’ that has persisted since at least 5 June 2017.”[13]

b. Whether the relevant actions were “taken in time of” that war or other emergency in international relations.

First the Panel noted that the “measures at issue are of a continuing nature … and neither party has suggested that the Panel must assign any dates to them for the purposes of examining the claims and defences before the Panel.”[14] As the matters complained of had been imposed since June 5, 2017, and been in place during the time the KSA had severed diplomatic and commercial ties, the Panel found that they had “taken in time of” the “emergency in international relations.”[15]

c. Whether the invoking Member has articulated its relevant “essential security interests” sufficiently to enable an assessment of whether there is any link between those actions and the protection of its essential security interests.

In this key part of the four-part step test, the Panel found that “essential security interests” was a narrower concept than “security interests” as per Russia – Traffic in Transit:

… [t]he 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, the panel considered that “it is left, in general, to every Member to define what it considers to be its essential security interests”.[16]

While the Panel did note the important limitation that Members relying on the exception had to do so in good faith,[17] it determined that the KSA had adequately set out its “essential security interests” as protecting itself “from the dangers of terrorism and extremism.”[18] It found that these interests “are ones that clearly “relat[e] 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.”[19]

The Panel noted that it was adopting the standard that “… articulation of [a Member’s] essential security interests were ‘minimally satisfactory’ in the circumstances”[20] and that it was “… not a particularly onerous one…” and that the application was “ … subject to limited review …”[21] This application of the exception need only be “… plausibly connected to the protection of those essential security interests.[22] The Panel concluded the KSA had met the “plausibility” test. [23]

d. Whether the relevant actions are so remote from, or unrelated to, the “emergency in international relations” as to make it implausible that the invoking Member considers those actions to be necessary for the protection of its essential security interests arising out of the emergency.

In the final step, the Panel reviewed the connection of the measures to the “emergency.”[24] Noting that the KSA position that the matters under review where in put in place due to threats of Qatari terrorism, the Panel first considered the aspect of the “anti-sympathy” measures in blocking all Qatari access to the KSA and its institutions, noting that as a result beIN was prevented from obtaining Saudi legal counsel to enforce its IP rights before Saudi courts and tribunals. It found that these measures met the ”‘ …minimum requirement of plausibility in relation to the proffered essential security interests … ”[25] and that they could be linked the Saudi “umbrella policy of ending or preventing any form of interaction with Qatari nationals”[26] It was therefore it was “not implausible” that the KSA “might take various formal and informal measures to deny Saudi law firms from representing or interacting with Qatari nationals for almost any purpose.”[27]

However, the Panel took a different view with respect to the non-application of criminal procedures and penalties to beoutQ. In the context of the KSA’s “umbrella policy,” It was “… unable to discern any basis for concluding that the application of criminal procedures or penalties to beoutQ would require any entity in Saudi Arabia to engage in any form of interaction with beIN or any other Qatari national.”[28] 

In a first outright rejection of the application of the national security defence by a WTO (or adopted GATT) panel, it pointed to “multiple” third-party submissions by Members whose rights were affected. In an interesting turn of logic, the Panel found “no rational or logical connection”[29] between the severing of diplomatic and commercial relations and the non-application of criminal penalties against acts of piracy against the Saudi company.

With respect to the global application of sanctions on the Saudi company, the Panel did not address the matter in the strictly bilateral context. Qatari victims would apparently face WTO consistent barriers to Saudi due process. Thus, both the complainant and the respondent could claim success. The Saudis had successfully defended the application of its umbrella policy against Qataris through the national security exception. The Qataris had been successful in challenging the non-application of anti-piracy measures in defence of one of its companies, albeit via third-party actions. 

The broader implications:

• The third-party submissions appear to point to a growing consensus at the WTO that the use of the national security exception is subject to review pursuant to WTO dispute resolution and the U.S. position to the contrary is not sustainable. A WTO Panel has an obligation to review a claim of a national security defence
• The Russia – Traffic in Transit decision has gained transaction and set out a standard for the exception has should be guided by the tests of “connection and plausibility.”[30]
• The applicable test is found in two elements: a diluted necessity test, subject to good faith (“it considers necessary”) and the objective (“for the protection of”).[31]
• The effect of challenged measures on third-party WTO members is a key consideration in gauging the limits of the application of national security defence. As per the EU’s third-party submission:

… when assessing the necessity of the measure, and particularly the existence of reasonably available alternatives, the Panel should ascertain whether the interests of third parties which may be affected were properly taken into consideration. Thus, the European Union would appreciate if Saudi Arabia could provide a plausible explanation of the reasons why “it considers necessary” to allow the systematic infringement of the intellectual property rights of EU right holders in order to protect its essential security interests [32].

___________________

[1] See https://www.slaw.ca/2020/02/25/wto-panel-sets-threshold-test-for-the-national-security-exception/

[2] Panel Report, Russia – Measures Concerning Traffic in Transit, adopted 26 Apr. 2019 (WT/DS512/R).

[3] Saudi – IP WT/DS567/R  https://www.wto.org/english/tratop_e/dispu_e/567r_e.pdf) June 16, 2020

[4] See our Slaw  “Pandora’s Box” series (Pt 1, Pt 2, Pt 3, Pt 4.

[5] Saudi – IP, WT/DS567/R/Add.1; Annex C; United State’s third-party submission, pg. 90 para. 9

[6] Australia, Bahrain, Brazil, Canada, China, the European Union, Japan, Norway, the Russian Federation, Singapore, the UAE, and United States 

[7] Saudí – IP, para. 7.221 

[8] Saudí – IP, para. 7.243

[9] See our Slaw article, WTO Panel Sets Threshold Test for the National Security Exception  https://www.slaw.ca/2020/02/25/wto-panel-sets-threshold-test-for-the-national-security-exception/

[10] Saudí – IP, para. 7.4.42

[11] Saudí – IP, para. 7.259

[12] Article 41 provides that the measures, short of the use of armed force, that may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations.

[13] Saudí – IP, para. 7.257

[14] Saudí – IP, para. 7.269

[15]Saudi – IP, para. 7.270

[16] Russia – Traffic in Transit, para. 7.130

[17] Russia – Traffic in Transit, para 7.132 -“ …  this obligation of good faith” requires that Members not use the security exception as a means to circumvent their WTO obligations.”

[18] Saudí – IP, para. 7.280

[19] Saudí – IP, para. 7.280 

[20] Saudí – IP, para. 7.281 

[21] Saudí – IP, para. 7.281 

[22] Saudí – IP, para. 7.281 

[23] Saudí – IP, para. 7.282 

[24] Saudi – IP, section &.4.3.3.4

[25] Saudi – IP, para. 7.288

[26] Saudí – IP, para. 7.286

[27] Saudí – IP, para. 7.286

[28] Saudí – IP, para. 7.289

[29] Saudí – IP para. 7.292

[30] Saudi – IP, WT/DS567/R/Add.1; Annex C; Brazil’s third-party submission, pg. 56 para. 29

[31] Saudi – IP, WT/DS567/R/Add.1; Annex C; EU’s third-party submission, pg. 66, para. 42

[32] Saudi – IP, WT/DS567/R/Add.1; Annex C; EU’s third-party submission, pg. 64, para. 21