New WTO Ruling on National Security in Qatar-Saudi Arabia Case and its Impact on South Korea-Japan Dispute

Introduction

In June 2020, the World Trade Organization issued a panel report (Panel Report)[1] involving challenges to the legality of the national security exception under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). Saudi Arabia filed a Notification of an Appeal,[2] putting the Panel Report before the now dysfunctional Appellate Body.[3] The Panel Report's analysis of the national security exception will nevertheless likely have an impact on a current dispute between South Korea and Japan,[4] thus warranting a closer look, in combination with the evolving view of Japan on the national security exception.

Summary of the Panel Ruling on the Security Exception in Qatar-Saudi Arabia Case

The Saudi Arabia case concerns a set of the Saudi Arabian government's measures, actions, and omissions that Qatar claimed to have prevented beIN, a Qatari business, from obtaining legal representation in civil and administrative enforcement procedures.[5] Qatar also claimed that Saudi Arabia failed to institute criminal procedures against the Saudi Arabian infringer. Saudi Arabia defended its action by invoking the security interest exception under Article 73(b)(iii) of the TRIPS Agreement. Saudi Arabia contended that its actions/omissions were justified because it had severed diplomatic and consular relations with Qatar to protect its national security from the dangers of terrorism and extremism (para. 7.258).

Saudi Arabia challenged the Panel's jurisdiction, arguing that the "real dispute" is not a "trade dispute" but rather a "political, geopolitical and essential security dispute" (para. 7.8). The Panel rejected this argument (para. 7.16). Saudi Arabia's jurisdictional challenge on the national security exception under Article 73(b)(iii) was also rejected by the Panel (para. 7.23). Noting the identical wording of Article 73(b)(iii) and Article XXI(b)(iii) of GATT 1994, the Panel cited the reasoning articulated in Russia – Traffic in Transit, the first WTO case enunciating the security exception under Article XXI of GATT 1994 (paras. 7.230 and 7.231).

The Panel stated that the severance of diplomatic relationship does not necessarily result in non-application of the multilateral agreements under the WTO's legal framework (para. 7.22). However, the Panel found that "'a situation … of heightened tension or crisis' exists" and such situation "is related to Saudi Arabia's 'defense or military interests, or maintenance of law and public order issues'" (para. 7.257). The Panel concluded that "when a group of States repeatedly accuses another of supporting terrorism and extremism, … that in and of itself reflects and contributes to a 'situation … of heightened tension or crisis'[] between them that relates to their security interests" (para. 7.263). The Panel reiterated that "the standard applied to the invoking Member was whether its articulation of its essential security interests was 'minimally satisfactory' in the circumstances" (para. 7.281). Despite that, the Panel concluded that only measures preventing beIN from obtaining legal representation in civil enforcement procedures may be justified by the security exception, but not the non-application of criminal procedures and penalties to a Saudi Arabian entity (para. 7.294).

Japan's Positions on the Security Exception and the Potential Impact of the Qatar-Saudi Arabia Case on the Current Dispute between South Korea and Japan

The Panel's analysis of the national security exception will likely have an impact on the dispute between South Korea and Japan, where South Korea has accused Japan of imposing export restrictions affecting products in violation of Japan's WTO obligations.[6] These affected products—including fluorinated polyimide, resist polymers, and hydrogen fluoride—are used primarily in the production of smartphone and TV displays, and of semiconductors. But Japan claimed that national security concerns exist on the application of those materials to military use by South Korean firms.[7] South Korea claimed that Japan's export restriction was "based instead on political considerations unrelated to any legitimate export control considerations"[8] since the restriction came in the wake of the South Korean Supreme Court's ruling allowing victims of forced labor during World War II to seek compensation from Japanese companies.[9]

At a Dispute Settlement Body (DSB) meeting on June 29, 2020, Japan cited GATT Article XXI as legal authority for the challenged export ban on dual-use goods.[10] Specifically, Japan stated that "Article XXI [] fully recognizes the rights of WTO members to adopt export control policies and implement an export control system in order to prevent unintended export of goods that can be potentially diverted for use in weapons and for other military uses, and the right of members to decide on the enforcement of such restrictions."[11] One month later, at another DSB meeting, Japan stated that it "view[ed] dialogue as the best way of resolving this matter rather than dispute settlement,"[12] implying its objection to the WTO's jurisdiction.

Japan's view on the security exception under GATT Article XXI has evolved over time. In the pre-WTO era of the GATT, Japan appeared to support a clear definition of security and caution against the wide discretion and the potential lack of time limits.[13] Japan also consistently advocated against the trade body making rulings over political issues,[14]especially where a trade-related dispute stems from deep roots in politics.[15]

After the advent of the WTO in 1995, Japan initially maintained the position that the WTO dispute settlement system was not a proper venue for adjudicating cases involving the security exception, as "an invocation of Article XXI of the GATT 1994 would import non-economic matters into the WTO, for which the WTO was not designed."[16] Yet, Japan recognized that sovereignty and the exercise of discretion in invoking the security exception is "not unbounded."[17] Rather, Japan considered it more as an issue of self-restraint ("must be exercised with considerable prudence") and preferred to resolve disputes through a mutually acceptable solution. Notwithstanding its preference, Japan offered five analytical principles in interpreting and applying Article XXI, (1) according deference to the invoking Member's judgment, (2) recognizing that the discretion is not unbound, (3) requiring the invoking Member to identify its specific essential security interests and explain why the action is necessary and how the requirements are satisfied, (4) examining essential security interests from the invoking Member's perspective, and (5) requiring the invoking Member to demonstrate a prima facie case while paying regard to sensitive information.[18]

Returning to the Saudi Arabia case, Japan, as a third-party, altered its proposition on the justiciability of the security exception, presumably in light of the Russia – Traffic in Transit ruling. Japan agreed that "the existence of an 'emergency in international relations' is a factual circumstance subject to an objective determination by a panel" (para. 7.238), thus indicating that the WTO panel's jurisdiction over the security exception. Furthermore, Japan supported panel's jurisdiction over and examination of the overall action rather than its individual component measures if such overall action "has its own unique effect through synergy between its component measures" (para. 7.240). Japan also posited that the severance of economic and diplomatic ties does not in itself constitute an emergency under the security exception (para. 7.238). Moreover, Japan suggested that the "extent and gravity" of "other emergency in international relations" be appropriately considered in light of that of "war" when determining an "example of an 'emergency.'"[19] Overall, Japan does not appear to deviate from its five analytical principles when interpreting Art. XXI.

Japan's evolving view on the national security exception can also be gleaned from Article 29.2 of the Comprehensive Progressive Agreement for Trans-Pacific Partnership (CPTPP), which suggests a broadened scope for sovereignty and deference to self-judgment. Article 29.2 provides that "Nothing in this Agreement shall be construed to: … (b) preclude a Party from applying measures that it considers necessary for the … protection of its own essential security interests,"[20] but it does not define "essential security interests." It is worth noting that neither Art. XXI of GATT nor Art. XIV bis of the GATS is specifically referenced in Article 29.2, suggesting that WTO jurisprudence may be inapplicable should a dispute arise. This omission contrasts the explicit references to the general exception provisions of Article XX of the GATT and Article XIV of GATS in Article 29.1 of the CPTPP. Thus, Japan, as well as other CPTPP parties, seems to seek broad discretion while presumably still being constrained by the generally recognized "good faith" principle in treaty interpretation.[21]

The analysis of Japan's view on the "national security exception" is important because of the place of Japan in the global trading system: Japan is the third largest and fifth most competitive economy with over 36 percent in the ratio of trade to GDP.[22] Moreover, the outcome of the case may impact the semiconductor industry, as both South Korea and Japan are prominent players and may consequently affect the rollout of 5G, as it relies heavily on semiconductors. It is also noted that the Regional Comprehensive Economic Partnership (RCEP) is apparently near conclusion, and both Japan and South Korea are among the original negotiating parties to this mega deal. It is unclear whether RCEP will adopt a similar provision as CPTPP regarding "essential security interests," as over half of CPTPP parties are also potential parties to the RCEP. It is also unclear whether the current dispute between Japan and South Korea will affect RCEP's scheduled conclusion.

In the current dispute, Japan's insistence that the WTO is not suited to address political issues suggests a reversion back to its pre-Saudi Arabia view on the WTO's jurisdiction. But as reiterated in the Saudi Arabia case, although the dispute may be seen to have some roots in politics, the WTO would likely still have jurisdiction because the dispute involves WTO agreements.

The references to "dual-use" capability and "non-proliferation of arms and sensitive military technologies" indicate that Japan may invoke GATS Article XIV bis:1(b)(1) "provisioning of military establishment" and GATT Article XXI(b)(ii) "supplying a military establishment." However, neither provision has been adjudicated by a WTO panel yet. Although Japan is not bound by its prior positions, it is likely that Japan may apply the five analytical principles to resolve the novel issue should the case proceed. Thus, Japan may need to demonstrate a prima facie case that the export restriction is necessary to prevent the affected products and technologies from military applications and prove the invocation was made in good faith, while enjoying deference to its judgment. A panel decision on the "dual-use" justification will likely influence decisions by other WTO members on other cutting-edge high-technologies, many of which are also capable of similar dual-use functions. The decision may also impact responses to military-civil fusion activities. The WTO is yet again facing the difficult question of "weaponized interdependence" and challenges brought by emerging and critical technologies and their implications on national securities.[23] And this time the stakes are even higher.

About the Author:

Jingyuan (Joey) Zhou is an SJD candidate in International Trade and Business Law at the University of Arizona James E. Rogers College of Law. Joey focuses her research on international trade law and policy, and resilient global governance. Joey received both a JD and an LLM in International Trade and Business Law from the University of Arizona College of Law and subsequently practiced in Phoenix, Arizona. She also received an LLM in Intellectual Property and an LLB from China University of Political Science and Law.