Exclusive Interview with Former WTO Appellate Body Chairman James Bacchus: National Security, Tech War, and the WTO

The future of the WTO seems to be at a crossroads as it is facing a wide range of challenges, from stalled negotiations, to a paralyzed Appellate Body, to increased conflict between national security and trade. China Trade Monitor recently had a conversation with WTO expert James Bacchus to talk about national security and the U.S.-China tech war through the lens of the WTO.

Bacchus is a former WTO Appellate Body Chairman and member of Congress, now a Distinguished University Professor of Global Affairs and Director of the Center for Global Economic and Environmental Opportunity at the University of Central Florida.

CTM: What is your vision for global trade rules and the WTO for the next 10 years? I noticed that in your recent piece in the Hill, you emphasized the economic costs of de-globalization. Do you find it's a harder argument to make nowadays, because I've heard people say, we know there's economic loss, but it is negligible compared to the national security risk we're taking by engaging with these adversarial countries. Do you agree with the current perception that national security trumps economic interests?

Bacchus: I don't agree with those who contend that we need to hurt ourselves economically for the sake of protecting our national security. It's a question of balance. The weaker our economy, the weaker our national security. It’s a question of balance, which must be judged on a case-by-case basis.

Let me read you something that an American negotiator for the United States said in 1947 about the creation of the national security exception in the General Agreement on Tariffs and Trade, what we now know as Article XXI. That American said then, and I quote: "It is really a question of balance. We have got to have some exceptions. We cannot make it too tight, because we cannot prohibit measures which are needed purely for security reasons. On the other hand, we cannot make it so broad that under the guise of security, countries will put on measures which really have a commercial purpose."

I think this was true in 1947, and it's equally true today. The question remains one of balance. And the United States, of course, has changed its position completely since then. It now argues that the WTO has absolutely no legal authority to second guess anything that the United States says or does in the name of national security and what it determines exclusively is in its national security interest. Well, this begs the question: If that’s the case, then why is Article XXI there? Why does it impose limitations on the exercise of an exception based on national security to what would otherwise be GATT obligations?

And the problem now is that no real effort is being made to strike that balance. It’s being left to WTO jurists who, to my mind, have reached the right results with a lot of the right reasoning. I can quibble, but by and large, they’ve done their job, and they’ve done it in the right way. But the Members of the WTO themselves have not stepped back and asked themselves this question: Here in the 21st century, given the vast advances in technology, have we reached the point where national security issues are so blended, so blurred with commercial issues that we need to take another look at how we perceive, and perhaps even how we word, this national security exception. No one is doing that. No one's done that. And the United States, which should be raising that question in the WTO, is instead retreating from the WTO.

There's no need to pay these economic costs. And we should instead be looking to pursue multilateral solutions, which have always worked the best.

CTM: As part of the multilateral solution, since WTO members have different views about Article XXI, do you think members will try to modify Article XXI based on recent cases?

Bacchus: I don’t think it’s a question of modifying Article XXI, and furthermore, I think it might take us decades to do so. I think it may be a matter of formal legal interpretations of Article XXI under Article IX.2, which require a three-fourths majority of WTO members. I think the jurists, in the Traffic and Transit case, and the Saudi – IP case, and, most recently, in the Steel and Aluminum Tariffs case and in the Origin Marking case involving Hong Kong, by and large have gotten it right in their reasoning and in their results.

But there is an open question, which is: Just how much has the world been transformed to the point where because of advances in technology, there is the impossibility of a precise demarcation between commercial and national security issues? This was in the background throughout the latter part of the last century with all of the debates in the United States and elsewhere about export controls, but it’s now in the forefront. And perhaps the Members of the WTO need to grapple with this.

The case law is pretty strict in saying that an emergency in international relations must be something that’s military in nature. The WTO jurists draw this from the language of Article XXI, where the textual language language speaks of a time of war or other emergency in international relations. This is a reasonable clarification of that treaty text, because given that connection in the text, one would think that other emergencies in international relations might be, if not military conflicts in a time of war, at least in the nature of such things.

But is that necessarily so? Must it be read in that way? Here, I’m not advocating a position. What I’m advocating is a dialogue by the Members of the WTO about this question. And if they reach a certain conclusion in that dialogue, they need not amend Article XXI, they could simply adopt a formal legal interpretation of Article XXI under Article IX.2 of the WTO agreement. This has never been done before, but the authority is clearly there for doing so in the agreement.

It would not be easy, especially with the three-fourths majority requirement. My point is that WTO members are not even considering this. They continue to act as if the legal interpretation option does not exist. Instead, increasingly, they're running away from the WTO, arguing that they should reserve the right to act outside the WTO. The problem is, if they enact a measure that affects trade, it will fall within the jurisdiction of the WTO, and, if they then ignore the WTO’s jurisdiction, then the WTO is marginalized and undermined.

CTM: You mentioned several cases in which the application of Article XXI was disputed. We know that China recently brought a case at the WTO to challenge the US export control measures related to semiconductors. Do you think the U.S. will be able to make a stronger national security argument than it did in the previous two cases, on Steel and on Hong Kong Origin Marking, where the panels did not accept the U.S. argument?

Bacchus: I would certainly strongly advise the United States to abandon this notion that it is the sole judge of the meaning of Article XXI. If that’s the US position once again, then the US will surely lose the case. The US argument that the discretion it's afforded under Article XXI(b) also applies to the sub-paragraphs under Article XXI, including sub-paragraph (c), is also one that has been rejected and will not prevail.

If I were the United States, I would instead center my arguments on the issue I've raised in our conversation, which is whether an emergency in international relations should be defined as being something that must be military in nature, because of the phrase "in a time of war."

The reasoning of the panel in the previous case, I think, is generally sound. The only legal hope the United States might have in this case would be to make a justification for drawing a distinction based on the national security situation as it relates to semiconductor production. And that would involve the opening of the door to economic considerations as a part of national security as it relates to Article XXI.

Obviously, to any layperson, the economic considerations do relate to national security. But what we're talking about here is the treaty language in the GATT as it relates to trade in goods and to an exception that has been carved out there. What I have suggested would I think be the only conceivable way the United States could have a chance of succeeding in this dispute, if it comes down to its ability to justify its actions by reliance on a defense.

Of course, the preceding issue, the initial issue, will be whether in fact the United States has violated these obligations the Chinese have identified in making their claims. Those are largely factual matters that will be determined by the panel. I have no view on that as I have not been privy to or examined the facts in the dispute.

CTM: So the U.S. will have to make a case that it is in an emergency time? Because clearly it has no war with China right now.

Bacchus: That’s the heart of the issue. We have a competition with China. We do not have conflict with China, nor do I hope we ever will. And I’m certain that the vast majority of Americans and Chinese alike would agree with me. But it is a time of tension in our relations. Your question is the relevant one. Does this time of tension in our bilateral relations rise to the level of an emergency in international relations?

Whatever our geopolitical debates with the Chinese government, we continue to trade very significantly and at great mutual profit with China. I believe the latest statistics show that our trade with China has increased despite the fact that we've imposed so many restrictions on our trade with China, in terms especially of tariffs on our imports. So, it can hardly be said that we’re not continuing to cooperate with the Chinese economically. We do that every day. And, to my mind, we should continue to do so on terms that are consistent with their WTO obligations and with ours.

Can an emergency in the international relations nevertheless exist? I don't know the answer to that question. If I were a jurist, I'd want to take some long length of time to think about it, and hear arguments, and look at the particulars of this specific situation. But I think that unless the United States simply wants to proceed with the same tired arguments that have been rejected in previous WTO disputes, then it is going to have to focus on this particular issue if it hopes to mount a defense in this case.

Now as I said, and I want to underscore, I'm not assuming that the United States has acted inconsistently with any of its obligations to China with the Semiconductor Act. That’s a matter for the WTO panel to decide. Whether there is an inconsistency may depend in part on how the act is implemented, for example, on how it is applied.