On Monday, May 13, China submitted its “Proposal on WTO Reform”, a synopsis of the Chinese government’s latest thoughts on how the World Trade Organization (WTO) should adapt to a number of challenges. As observers were quick to pick up, China described the WTO as being in an “existential crisis” and issued criticism towards a “certain member”, the United States. Yet it has gone largely unnoticed that China for the first time addressed how to solve the WTO’s Achilles’ heel: the national security exception.

Article XXI of the General Agreement on Tariff and Trade (GATT) allows WTO members to bypass other trade rules to protect essential national security interests. As stated in the Proposal, China believes that the national security exception is being abused by the U.S.’s imposition of tariffs on steel and aluminum and restrictions on technological acquisitions. The Chinese government now holds that the national security exception needs “to be further clarified and regulated within the WTO framework.” For that purpose, they suggest changing the notification requirements for countries that impose tariffs based on the national security exception and that WTO members should be allowed to take remedial measures if they have been affected by misuse of the national security exception.

Neither China’s white paper on the WTO issued in June last year or its position paper on WTO reform from November brought up these proposals. China’s current grievances with national security standing in the way of trade and investment have not changed significantly over the last year. The Chinese government’s previous policy documents were issues after Trump’s tariffs on steel and aluminum had been imposed and both the U.S. and multiple European countries have conducted security screening of tech acquisitions.

What has changed is that the Appellate Body in April interpreted the national security exception for the first time ever. The ruling, which concerned a dispute between Russia and Ukraine, concluded that the Appellate Body has jurisdiction to determine whether either of the conditions to impose the national security exception are satisfied, which has been a matter of dispute. In this case, the Appellate Body ruled that the measures were taken during a time of “emergency in international relations”, one out of three criteria for imposing the national security exception. (The other two criteria are that the protective measures relate to either fissionable materials or weapons.)

The Chinese government has welcomed the ruling. The ruling may strengthen China’s challenge against the U.S.’s tariffs on steel and aluminum. The Proposal’s reference to restrictions on tech acquisitions indicate that China also wants the WTO to restrict states from what Beijing considers to be protectionist measures conducted in the name of security. Just a week after the ruling, Chinese officials said Australia’s de facto ban on Huawei installing 5G networks, which was based on concerns about security, broke WTO rules.

Yet multiple countries impose restrictions of different kinds on inbound foreign direct investment and 5G installments. China’s position on the role of national security in trade and investment could, therefore, affect its relations with many countries, not only the U.S. and Australia. And as I have written before, China commands an opaque legal structure for security screening of incoming foreign direct investments. The Chinese government has not spelled out why their screening system, and other security-based economic restrictions, are legitimate while those of other governments are not.

In order to curb abuse of the GATT’s national security exception, countries first have to agree which kind of measures meet the standard of being “essential security interests” and which actions may be considered related to those interests. The Proposal give a hint of the Chinese government’s intentions, but given the Proposal’s brevity, it may at best start a discussion, rather than outlining a concrete plan for WTO reform.

Header Image: © WTO

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