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Info Service on WTO and Trade Issues (Dec22/24) Geneva, 22 Dec (Kanaga Raja) — A dispute panel at the World Trade Organization has ruled that a requirement applied by the United States that imported goods produced in Hong Kong, China be marked to indicate that their origin is “China” is inconsistent with its WTO obligations. In a ruling (WT/DS597/R) issued on 21 December, the Panel found that the US origin marking requirement is inconsistent with Article IX:1 (most favoured nation obligation) of the GATT 1994. The US had justified its actions by invoking its “essential security interests” under Article XXI(b) (the security exceptions provision) of the GATT 1994. However, the Panel ruled that the US has not demonstrated that the situation at issue constitutes “an emergency in international relations”, and, therefore, the origin marking requirement is not justified under Article XXI(b)(iii). The Panel recommended that the US bring its measure into conformity with its obligations under the GATT 1994. [Earlier, on 9 December, four dispute panels at the WTO had ruled that additional duties and related measures imposed by the US on imports of steel and aluminium products under Section 232 of the US Trade Expansion Act of 1962 were inconsistent with its WTO obligations. [The complaints against the US were brought by China, Norway, Switzerland, and Turkiye, and each of the four panels were comprised of the same three panelists. The complainants had claimed that the US measures were safeguards and/or prohibited measures in violation of Article XIX of the GATT 1994 as well as the WTO Agreement on Safeguards. The complainants also claimed that the US measures were in violation of Articles II, I, and XI of the GATT 1994, respectively, concerning the duties, exemptions, and quotas imposed under these measures. [In response, the US had invoked the “security exceptions” provision in Article XXI of the GATT 1994 in relation to the measures at issue. However, regarding Article XXI of the GATT 1994, the Panels also did not find that the measures at issue were “taken in time of war or other emergency in international relations” within the meaning of Article XXI(b)(iii) of the GATT 1994. The Panels, therefore, found that the inconsistencies of the measures at issue with Articles I:1 and II:1 of the GATT 1994 were not justified under Article XXI(b)(iii) of the GATT 1994. See SUNS #9709 dated 13 December 2022.] BACKGROUND TO THE HONG KONG, CHINA-US DISPUTE According to the Panel report, on 30 October 2020, Hong Kong, China requested consultations with the United States pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), Article XXII:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994), Article 7 of the Agreement on Rules of Origin (ARO), and Article 14.1 of the Agreement on Technical Barriers to Trade (TBT Agreement) with respect to the measures and claims at issue in the dispute. Consultations were held on 24 November 2020, and on 14 January 2021, Hong Kong, China requested the establishment of a panel. At its meeting on 22 February 2021, the Dispute Settlement Body (DSB) established a panel pursuant to the request of Hong Kong, China in document WT/DS597/5. According to the Panel report, Hong Kong, China challenges the requirement applied by the United States as published by the United States Customs and Border Protection (USCBP) in the Federal Register Notice of 11 August 2020 (11 August Federal Register Notice) that imported “goods produced in Hong Kong, … may no longer be marked to indicate “Hong Kong” as their origin, but must be marked to indicate “China” (origin marking requirement)”. The USCBP published the 11 August Federal Register Notice pursuant to the “Executive Order on Hong Kong Normalization” signed by the President of the United States Donald J. Trump on 14 July 2020. The Executive Order suspends the application of Section 201(a) of the United States-Hong Kong Policy Act of 1992, 22 U.S.C. S 5721(a), to a variety of United States statutes, including Section 304 of the Tariff Act of 1930. According to the Panel report, Hong Kong, China, in its panel request, identifies the “measures at issue” as the following:
According to the Panel report, Hong Kong, China requests that the Panel find that the origin marking requirement is inconsistent with the United States’ obligations under Articles 2(c) and 2(d) of the ARO, Article 2.1 of the TBT Agreement, and Articles I:1 and IX:1 of the GATT 1994. Hong Kong, China further requests that the Panel recommend that the United States bring its measures into conformity with its WTO obligations. The United States requests that the Panel find that the United States has invoked its essential security interests under Article XXI(b) of the GATT 1994 and so report to the DSB. FINDINGS AND CONCLUSIONS According to the Panel report, the dispute concerns a requirement in US law that goods produced in Hong Kong, China be marked to indicate that their origin is “China”. The United States enacted this origin marking requirement in 2020 (together with other measures) in reaction to certain events in Hong Kong, China that prompted a determination in US law that Hong Kong, China was no longer “sufficiently autonomous to justify differential treatment in relation to the People’s Republic of China”. Hong Kong, China challenges the consistency of the US origin marking requirement with the GATT 1994, the TBT Agreement, and the ARO. The claims relate primarily to the most-favoured nation (MFN) obligation. In response, the United States invokes the security exception in Article XXI(b) of the GATT 1994. In its report, the Panel noted that in over 70 years of existence, the dispute settlement systems, both under the WTO and before that under GATT, were not called upon to interpret the exception in Article XXI(b). This has changed in recent years. Several disputes concerning the security exception have been brought, two panel reports have already been issued, and others are forthcoming, it said. On whether Article XXI(b) of the GATT 1994 is self-judging such that it excludes any review of the challenged measure by a panel, the Panel noted that the United States requests the Panel to find that the United States has invoked its essential security interests under Article XXI(b) of the GATT 1994 and to so report to the DSB. “Effectively, this would mean that we would not review the challenged measure at all, whether under the claims or under the security exception,” said the Panel. Indeed, the United States argues that it would be “legally erroneous” to decide on the merits of the claims before assessing the invocation of Article XXI(b), it added. “Furthermore, the United States puts forward arguments under Articles 7.1 and 19 of the DSU as to why we should not make any finding of inconsistency or any recommendations.” The United States’ position is based on its understanding that Article XXI(b), by its terms, is entirely self-judging, the Panel noted. In the US view, this means that it is the invoking Member alone that determines whether an action is necessary for the protection of the Member’s essential security interest in the relevant circumstances, and such action, therefore, cannot be found by a panel to be inconsistent with the covered agreements. Hong Kong, China disagrees that an invoking Member’s action cannot be reviewed at all under Article XXI(b), the Panel said. The Panel noted that in line with the findings made by the panel in Russia – Traffic in Transit, Hong Kong, China submits that the exception in Article XXI(b) is only partly self-judging, and is, furthermore, subject to the invoking Member demonstrating that the measures at issue meet a minimum requirement of plausibility in relation to the proffered essential security interests. There is, accordingly, in Hong Kong, China’s view, some scope for review of an invoking Member’s action under Article XXI(b), the Panel said. The Panel further said that the parties’ debate on whether there is any scope for review of a challenged measure by a panel when Article XXI(b) is invoked is a debate about the scope and extent of the self-judging nature of Article XXI(b). By the term “self-judging”, both parties mean the same thing, namely that the elements of Article XXI(b) that they respectively consider to be self-judging, are governed by the invoking Member’s own appreciation and judgment, i.e. its own determination as opposed to that of a panel. What the parties do not agree on is whether the unilateral determination derived from this specific language covers all or only part of Article XXI(b); in other words, whether all of the elements of Article XXI(b) are self-judging, the Panel said. “The parties further disagree whether those elements that are or may be self-judging mean that a panel’s review of those elements is excluded altogether or whether the invoking Member’s unilateral determination is nevertheless reviewable in some limited way.” The Panel said the interpretive question that it needs to resolve is whether the phrase “which it considers” in the chapeau of Article XXI(b) extends to the subparagraphs following the chapeau. Having examined the structure of the text of Article XXI(b) in all three authentic languages, the Panel said it has discerned a clear meaning, namely that the phrase “which it considers” does not extend to the subparagraphs. The Panel said this is the case even if one were to accept the structure advocated by the United States, namely that the subparagraphs are the continuation of a single relative clause that starts in the chapeau. It said even under this proposed structure (which does not work for the third of the three subparagraphs), nothing connects what is in those subparagraphs to the verb “consider”. That verb thus does not do “double duty”, but instead only relates to the adjective “necessary” in the chapeau, it added. “Therefore, in our assessment, the United States’ reading is not supported by the text,” said the Panel. The Panel said the grammatical structure of Article XXI(b) as discerned from the text, thus, suggests that what is in the subparagraphs is not subject to the invoking Member’s own determination but is instead subject to objective determination by a panel. The role of the subparagraphs, thus, would be to circumscribe (and limit) the circumstances in which the invoking Member may take action which it considers necessary for the protection of its essential security interests, said the Panel. “We have considered the ordinary meaning of Article XXI(b) focusing primarily on the grammatical structure of the provision. Based on the structure that we discern from the text, the phrase “which it considers” in the chapeau of Article XXI(b) does not extend to the subparagraphs.” The Panel said it follows from this reading that Article XXI(b) is only partly self-judging in that the subparagraphs are not subject solely to the invoking Member’s own determination. “Instead, the subparagraphs are subject to review by a panel and a finding that the circumstances set out therein do not apply, means that the action cannot be justified under the exception.” In its overall conclusion on the interpretive question at issue, the Panel found that Article XXI(b) is not entirely self-judging insofar as the unilateral determination granted to the invoking Member through the phrase “which it considers” in the chapeau of that provision does not extend to the subparagraphs. Instead, the subparagraphs are subject to review by a panel. “We have, thus, established that there is some scope for review by a panel when Article XXI(b) has been invoked. This answers the threshold question that we had set out to address, namely whether Article XXI(b) is self-judging such that it excludes any review by a panel as argued by the United States. As this is not the case, we reject the United States’ request to (only) find that the United States has invoked its essential security interests and so report to the DSB.” On whether the US origin marking requirement is inconsistent with Article IX:1 of the GATT 1994, the Panel noted that Hong Kong, China claims that the origin marking requirement is inconsistent with Article IX:1 because it leads to goods produced in Hong Kong, China having to be marked as originating in China, a different WTO Member, and thus treats those goods less favourably than like goods of other countries. The United States argues that Hong Kong, China fails to establish that the origin marking requirement accords “different treatment, much less “less favorable” treatment” to products of Hong Kong, China, inconsistent with Article IX:1. In its conclusion on Article IX of the GATT 1994, the Panel said that the origin marking requirement accords to products that the United States has determined to originate in Hong Kong, China treatment that is different from the treatment accorded by the United States to like products of any third country. This difference in treatment results from the United States requiring that products of Hong Kong, China be marked with a mark of origin indicating the name of another WTO Member (China), whereas goods of any third country must be marked with the name of that third country, and not with the name of another WTO Member, it said. This difference in treatment modifies the conditions of competition to the detriment of products of Hong Kong, China, because, as a result, products of Hong Kong, China are required to compete in the US market with an indication that their origin is that of another WTO Member (China) and not with an indication of their origin as determined by the United States (i.e. Hong Kong, China). The Panel said those products are thus denied the possibility to compete in the US market under their own name, and thus to influence, develop, or benefit from, any value that may be attached, currently or in the future, to their origin. The Panel thus found that the origin marking requirement accords to products of Hong Kong, China treatment with regard to marking requirements that is less favourable than the treatment accorded to like products of any third country and is thus inconsistent with Article IX:1 of the GATT 1994. On whether the US origin marking requirement is justified under Article XXI(b)(iii) of the GATT 1994, the Panel noted that the United States refers to actions by the Government of China and Hong Kong, China’s authorities since November 2019, including the adoption of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (National Security Law) in June 2020. For the United States, these actions have eroded democracy and human rights in Hong Kong, China, which, it considers, represents a threat to its own national security. Consistent with its position that Article XXI(b) is entirely self-judging, the United States takes the view that a panel is not to review the merits of this defence and submits arguments only in response to questions by the Panel. According to the Panel, for Hong Kong, China, the United States has not demonstrated the objective applicability of any of the subparagraphs of Article XXI(b). Hong Kong, China also submits that the United States has not demonstrated that its alleged concerns about freedom and democracy in Hong Kong, China meet the conditions of Article XXI(b). In its overall assessment, the Panel said “in the specific context before us, we consider that it is clear that events in Hong Kong, China, as pointed to by the United States, are, and remain, the subject of tensions and expressions of concern at the international level.” It is also evident that the United States has taken certain actions in response to this situation, and specifically the measure at issue in this dispute; other countries have also adopted measures in response to the events in Hong Kong, China vis-a-vis Hong Kong, China. Accordingly, looked at broadly, these events have impacted on international relations between China, Hong Kong, China and a range of other WTO Members, some of whom have adjusted policy settings, said the Panel. It said that at the same time, based on its review of all the evidence on record, it does not consider that the situation the United States points to meets the requisite level of gravity to constitute an emergency in international relations under Article XXI(b)(iii). In particular, the Panel said it is of the view that the following considerations tend to run counter to a conclusion that the situation has escalated to a point of breakdown or near-breakdown in the relations between states or other participants in international relations. “We recall that the evidence before us shows that the United States and other Members took measures vis-a-vis Hong Kong, China (there is no evidence before us that there were measures taken vis-a-vis China).” Those measures adopted vis-a-vis Hong Kong, China targeted only certain areas of their relations and not others. Indeed, said the Panel, the evidence on record shows that the United States and Hong Kong, China’s international relations continue to involve cooperation in a number of policy areas. “We further note that trade has carried on between the United States and Hong Kong, China, largely as before, with the exception of the origin marking requirement and some export controls. In our view, all of this militates against a conclusion of a breakdown or near-breakdown in international relations that we have found to be consonant with an emergency in such relations.” In summary, the Panel considered that although there is evidence of the United States and other Members being highly concerned about the human rights situation in Hong Kong, China, the situation has not escalated to a threshold of requisite gravity to constitute an emergency in international relations that would provide justification for taking actions that are inconsistent with obligations under the GATT 1994. “Finally, we underscore that in arriving at this conclusion, we are in no way questioning the importance placed by the United States and other WTO Members, on the protection of human rights and democratic principles, or other values or interests they consider important, which may find reflection in their articulation of their essential security interests,” the Panel said. At the same time, measures adopted by Members to advance such interests, if defended on the basis of Article XXI, will need to meet the conditions for its application, which WTO panels will continue to have the responsibility to assess in any dispute brought by WTO Members to the DSB in relation thereto, the Panel emphasized. Based on the foregoing, the Panel concluded that the United States has not demonstrated that the situation at issue constitutes an emergency in international relations, and, therefore, the origin marking requirement is not justified under Article XXI(b)(iii). For the reasons set forth it its report, the Panel overall concluded as follows: a. Article XXI(b) is not entirely self-judging insofar as the unilateral determination granted to the invoking Member through the phrase “which it considers” in the chapeau of that provision does not extend to the subparagraphs. Instead, the subparagraphs are subject to review by a panel. b. The origin marking requirement is inconsistent with Article IX:1 of the GATT 1994 because it accords to products of Hong Kong, China treatment with regard to marking requirements that is less favourable than the treatment accorded to like products of any third country. c. The United States has not demonstrated that the situation at issue constitutes an emergency in international relations, and, therefore, the origin marking requirement is not justified under Article XXI(b)(iii). The Panel exercised judicial economy on Hong Kong, China’s claims that the origin marking requirement is inconsistent with Article I:1 of the GATT 1994, Articles 2(c) and 2(d) of the ARO, and Article 2.1 of the TBT Agreement. It concluded that, to the extent that the measure at issue is inconsistent with Article IX:1 of the GATT 1994, it has nullified or impaired benefits accruing to Hong Kong, China under that agreement. The Panel recommended that the United States bring its measure into conformity with its obligations under the GATT 1994. +
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