[Congressional Record Volume 141, Number 171 (Wednesday, November 1, 1995)]
[Senate]
[Pages S16516-S16523]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




NATIONAL SECURITY PROVISIONS OF THE GATT TREATY AS APPLIED TO ECONOMIC 
                               EMBARGOES

  Mr. D'AMATO. Mr. President, I rise today to offer a brief explanation 
of article 21 of the GATT, otherwise known as the General Agreement on 
Tariffs and Trade, especially as it relates to the imposition of 
secondary economic sanctions against Iran. This is particularly 
pertinent because of my bill, S. 1228, the Iran Foreign Oil Sanctions 
Act.
  Briefly, the provisions of article 21, are so broadly written, that 
legislation such as S. 1228 is possible, and in fact, 

[[Page S 16517]]

sustainable under the GATT. Furthermore, the concept has been tested 
before, in relative terms as it relates to economic sanctions imposed 
upon Cuba in the 1960's, Nicaragua, and even against Czechoslovakia in 
the 1940's.
  I want to add that even when President Reagan imposed similar 
sanctions against the Soviet Union in the 1980's, in retaliation to the 
imposition of martial law in Poland, a Federal court upheld sanctions 
against Dresser France.
  I feel that this point must be made clear for those who feel that 
there would be a challenge to this once it became law, or that it would 
cause legal disputes. In light of this, I ask unanimous consent that 
the following documents be printed in the Record, explaining the 
legality of secondary boycotts under the GATT: First, a memo dated June 
28, 1983, from Sherman Unger, then legal counsel for the Department of 
Commerce, on the subject of the legality of import sanctions under 
GATT; an article from the New York Times from August 25, 1982, entitled 
``Judge Backs U.S. Bid to Penalize Company on Soviet Pipeline Sale,'' 
that details an attempt by Dresser France to defy President Reagan's 
secondary boycott against foreign companies supplying oil pipeline 
equipment to the Soviet Union; and finally, an analytical index Guide 
to GATT Law and Practice, explaining article 21 in GATT, the national 
security exception.
  In their totality, these documents will help to explain the legality 
and I hope that they will go some way toward settling any doubts about 
S. 1228.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                            General Counsel of the


                                  U.S. Department of Commerce,

                                    Washington, DC, June 28, 1983.
     Memorandum to Lionel H. Olmer, Under Secretary for 
       International Trade, from Sherman E. Unger, General 
       Counsel.

 Export Administration Act--International Legality of Proposed Import 
                                Sanction


                                summary

       Proposed amendments to the Export Administration Act would 
     authorize subjecting violators of national security export 
     controls to sanctions in the form of import restrictions. The 
     proper exercise of this authority would be consistent with 
     United States obligations under the General Agreements on 
     Tariffs and Trade (GATT) and under other potentially 
     applicable trade agreements. GATT legality would not preclude 
     the possibility of a claim of ``nullification or impairment'' 
     under GATT Article XXIII, but the relationship of such 
     sanctions to security interests and the likelihood of their 
     relatively insignificant impact on a country's exports 
     greatly reduce the risk of GATT-sanctioned counter-measures.


                               background

       The Administration bill would amend section 11 of the 
     Export Administration Act of 1979, as amended (the ``EAA'') 
     \1\
     Footnotes at end of article.
---------------------------------------------------------------------------
       ``(3) Whoever violates any national security control 
     imposed under section 5 of this Act, or any regulation, order 
     or license related thereto, may be subject to such controls 
     on the importing of its goods and technology into the United 
     States or its territories and possessions as the President 
     may prescribe.'' \2\
       The bill reported by the Senate Banking Committee contains 
     a similar amendment, but the import controls on a violator 
     are not limited to ``its'' goods and technology, and the 
     sanction is also applicable to a violation of ``any 
     regulation issued pursuant to a multilateral agreement to 
     control exports for national security purposes, to which the 
     United States is a part.'' \3\
       Under the present statute and regulations, violators of the 
     export controls under the EAA are subject to criminal 
     penalties and to administratively imposed civil fines and 
     denial or limitation of access to exports from the United 
     States.\4\ When a violator is outside the United States, it 
     may not be possible to acquire personal jurisdiction over 
     that person for purposes of criminal proceedings or the 
     collection of civil fines. The export control authority of 
     the EAA can be used to deny a violator access to U.S. exports 
     even if the violator elects not to contest the administrative 
     enforcement proceedings and remains outside of United States 
     territory.\5\ Thus, denial of export privileges may be the 
     only available sanction in certain cases. Whether this 
     sanction will provide a meaningful penalty to deter further 
     violations will depend upon the extent to which the violator 
     needs continued access to U.S.-origin goods and technology. 
     The ability to restrict imports, as well, would increase the 
     economic impact on any violator and, for some, might be key 
     to achieving an effective sanction.


                             GATT Legality

       GATT Article XI bars ``prohibitions or restrictions'' on 
     imports, with certain exceptions not applicable to the EAA 
     sanctions under consideration. Article XI applies to 
     prohibitions or restrictions on the importation of ``any 
     product of the territory of any other contracting party.'' 
     Thus, the origin of the affected imports, rather than the 
     nationality or place of business of the sanctioned violator, 
     would be controlling. Absent an exception in the GATT, an 
     affected contracting party could challenge the 
     import sanction as an illegal restraint on the exports of 
     its products to the United States.\6\
       The United States would be able to defend a proper use of 
     the import sanction against violators on the basis of 
     exceptions provided in Articles XX and XXI of the GATT.
       Among the general exceptions in Article XX is that in 
     subparagraph (d) with respect to measures ``necessary to 
     secure compliance with laws or regulations which are not 
     inconsistent with the provisions of [the GATT] . . . ''. To 
     qualify for an exception under the terms of Article XX, 
     measures must not constitute ``a means of arbitrary or 
     unjustifiable discrimination between countries where the same 
     conditions prevail'' or ``a disguised restriction on 
     international trade.''
       It should not be subject to serious question that denial of 
     import privileges to violators would constitute a measure to 
     secure compliance with the export control laws, with the 
     likely economic consequences of such a sanction serving as a 
     deterrent. The real issue, therefore, would be whether the 
     export controls themselves are consistent with the GATT.
       Article XI bars prohibitions or restrictions through export 
     licenses with respect to the exportation or sale for export 
     of any product destined for the territory of any other 
     contracting party. The application of this prohibition is 
     limited by exclusions stated in paragraph 2 of the Article, 
     but none of these is applicable to national security export 
     controls.
       For purposes of this memorandum, I shall assume that the 
     import sanction is imposed in connection with a violation of 
     a control restricting the export of a product destined for 
     the territory of a contracting party. It should be noted, 
     however, that most of the controlled destinations under U.S. 
     national security controls are Communist countries that 
     are not GATT contracting parties. Where an export license 
     must be applied for in connection with an export of a 
     national security controlled product to a Free World 
     destination, the basic purpose of licensing (with limited 
     nuclear-related exceptions) is to assure that the 
     indicated destination is bona fide and that diversion to a 
     controlled destination is not in prospect. As the purpose 
     of these licensing requirements is not to deny these Free 
     World destinations access to the products, and as the 
     trade impact in fact is nil because licenses are rarely 
     denied to these destinations, it is arguable that such 
     controls are not the kind of trade practice which Article 
     XI should be deemed to prohibit. This argument would gain 
     force if Article XI were invoked in a case involving the 
     unauthorized export of a U.S.-origin product from the 
     territory of the contracting party lodging the complaint. 
     It is not unlikely that such reexport controls would be 
     involved in a complaint, as it is this jurisdictional 
     reach that distinguishes U.S. controls from those of its 
     major trading partners.
       Even if Article XI were applicable to the national security 
     export control being enforced, the United States should be 
     able to GATT--justify its actions under the security 
     exception in Article XXI. This provides in pertinent part:
       ``Nothing in this Agreement shall be construed . . . (b) to 
     prevent any contracting party from taking any action which it 
     considers necessary for the protection of its essential 
     security interests (i) relating to fissionable materials or 
     the materials from which they are derived; (ii) relating to 
     traffic in arms, ammunition and implements of war, and to 
     such traffic in other goods and materials as is carried on 
     directly or indirectly for the purpose of supplying a 
     military establishment; (iii) taken in time of war or other 
     emergency in international relations. . . .''
       The use in Article XXI of the term ``which it considers 
     necessary'' is indicative of the deference to the judgment of 
     contracting parties when they wish to justify measures on 
     security grounds. The very limited testing of this Article in 
     GATT proceedings has confirmed this deference.\7\ Professor 
     Jackson quotes statements from the GATT preparatory 
     conference that ``some latitude must be granted for security 
     as opposed to commercial purposes'' and that ``the spirit 
     in which the Members of the Organization would interpret 
     these provisions was the only guarantee against abuse.'' 
     \8\ The United States invoked Article XXI in successfully 
     defending its export controls against a Czechoslovak 
     challenge in 1949. In May 1982, Argentina complained to 
     the GATT Council that the trade sanctions (not limited to 
     military or strategic items) imposed by the United 
     kingdom, the European Community, Canada and Australia 
     violated various GATT requirements and could not be 
     justified under Article XXI. The complaint remains 
     unresolved.
       The scarcity of official interpretations of Article XXI is 
     due not only to the very few complaints in which it has been 
     invoked, but also to the fact that the broad wording of the 
     Article XXI exception relieves contracting parties of the 
     obligation to provide notification of security-related 
     measures.

[[Page S 16518]]

       If the GATT were to be invoked with respect to controls on 
     industrial goods being exported for industrial use, it might 
     be contended that the controls are not within the Article XXI 
     reference to traffic in ``other goods and materials . . . 
     carried on directly or indirectly for the purpose of 
     supplying a military establishment.'' Weighing strongly 
     against the success of any such contention, however, is the 
     fact that, from the earliest years of the GATT, the United 
     States and the major industrialized countries of the West 
     have operated a coordinated system of export controls with 
     very broad product coverage and often with little or no 
     concern as to whether supply of a military establishment was 
     involved. In fact, in the early years of the GATT, Western 
     embargoes of Communist countries were not confined to 
     strategic goods, but included common industrial raw 
     materials, so as to impair the growth of the economic base 
     that could support a military effort. The targets of these 
     controls included Czechoslovakia, a GATT contracting party.
       If there is little likelihood of a successful GATT 
     challenge to the security-related export control measure 
     itself, might import sanctions imposed against a violator of 
     that control nonetheless be found to be ``arbitrary or 
     unjustifiable discrimination between countries'' or a 
     ``disguised restriction on international trade'', preventing 
     justification under the Article XX general exception? GATT 
     negotiating history is not helpful in interpreting 
     these provisions.\9\ Import sanctions are unlikely to be 
     overtly discriminatory between countries, for, as already 
     noted, restrictions would apply to imports of a violator, 
     irrespective of the country of origin. In practice, the 
     impact of the import restraints would fall most heavily on 
     the country where most of the violator's production 
     occurs. It is conceivable, however, unlikely, that a 
     pattern of selective use the import sanction could develop 
     over time sufficient to sustain a claim of unjustifiable 
     discrimination. The type of situation that could more 
     reasonably be expected to lead to a GATT challenge and 
     possible success would be a transparent use of the import 
     sanction to achieve protectionist objectives. 
     Circumstances suggesting such abuse would include the 
     targeting of sanctions toward particular products 
     accounting for troublesome import competition for domestic 
     producers and the imposition of import restraints of such 
     breadth or duration as to give them an economic impact 
     disproportionate to other penalties for violation of 
     export controls. (Note that denial of export privileges 
     can serve both as a penalty and as a protective device--a 
     blanket cut-off of a violator's access to U.S. goods and 
     technology reduces that person's ability to engage in 
     further diversions of strategic items).
       Justification of import sanctions under Article XX would 
     also require a showing that the measures were ``necessary'' 
     to secure compliance--whereas Article XXI permits a 
     contracting party to take measures ``which it considers 
     necessary'' to protect its essential security interests. 
     Where Article XX is applied to enforcement measures relating 
     to security controls, however, it is reasonable to expect the 
     same GATT deference to a party's assessment of its security 
     needs and reluctance to render a decision on what would be 
     viewed as a ``political'' matter.


                      nullification or impairment

       The imposition of the import sanction against one of its 
     companies could cause a contracting party to invoke Article 
     XXIII claiming that the reduction of its exports to the U.S. 
     has ``nullified or impaired'' benefits accruing to it under 
     the GATT. It is not necessary to claim or establish that a 
     GATT obligation has been breached. Art. XXIII: ((b) and (c). 
     If the complaint is not satisfactorily adjusted between the 
     parties concerned, it may be referred to the GATT disputes 
     machinery and result in a panel proceeding and a GATT 
     Council recommendation or ruling. The contracting parties 
     could authorize the complaining country to suspend the 
     application of concessions or obligations under the GATT 
     to the country imposing the measures found to nullify or 
     impair benefits.
       Given the extreme rarity of Article XXIII complaints 
     actually proceeding to authorized retaliation, it is hard to 
     believe that an import sanction case would ever lead to this 
     result. Specific factors weighing against a finding of 
     nullification or impairment are 1) the likelihood that other 
     producers in the country concerned would remain free to 
     supply the exports to the U.S. barred to the violator 2) the 
     likelihood that the economic impact of the sanction would be 
     insignificant in relation to the concerned country's overall 
     trade and 3) the likelihood that the contracting parties 
     would avoid acting with respect to security-related measures 
     even though they would not have to rule on their legality.


                          other considerations

       United States treaties such as our Friendship, Commerce and 
     Navigation treaties typically provide ``most favored nation'' 
     treatment for imports from the other country. In general, 
     import sanctions would seem even less vulnerable under such 
     treaties then under the GATT. First, an enforcement system 
     that treats similarly situated violators the same, without 
     regard to country of origin, arguably does not violate an MFN 
     obligation. Secondly, these treaties typically contain a 
     ``security'' or ``vital interests'' exception more broadly 
     worded than GATT Article XXI. However, a consideration that 
     could induce a country to invoke such a treaty rather than 
     GATT procedures would be concern over the difficulty of 
     getting such cases decided in GATT and the belief that the 
     World Court would be more willing to adjudicate.
       The EAA import sanction amendment has been criticized as an 
     example of the allegedly improper extraterritorial extension 
     of U.S. export controls. Although the sanction is available 
     whether the violation involves conduct within United States 
     territory or abroad, it is undoubtedly recognized that the 
     sanction would most likely be applied to persons beyond the 
     reach of U.S. legal process. It is to be expected that the 
     violations charged would often involve activity abroad, such 
     as unauthorized reexports, which other governments claim is 
     beyond the regulatory jurisdiction of the United States. The 
     new sanction, of course, does not extend the jurisdictional 
     reach of the regulations. Like the existing authority to deny 
     export privileges, it simply supplies an enforcement tool 
     that can be effective against persons outside the United 
     States. In any possible challenge to the import sanction 
     under the GATT, these questions of legal jurisdiction 
     should be irrelevant. The Article XX exception is for 
     measures to secure compliance with laws or regulations 
     ``which are not inconsistent with the provisions of this 
     Agreement.'' The Agreement contains no provision affecting 
     rule-making jurisdiction, so claimed jurisdictional 
     excesses ought not to bear on GATT justification based on 
     Article XX. It should not be a surprise, nonetheless, if a 
     government that finds cause to complain in the GATT of a 
     U.S. export control action involving conduct abroad seeks 
     to inject the jurisdictional issue. That government may 
     well recognize that it has no real chance of having 
     positive action taken on its complaint yet it may hope to 
     get a GATT panel report to include some potentially useful 
     criticism of the jurisdictional reach of the controls.
       Finally, it should be noted that the factors that would be 
     most important in sustaining the international legality of 
     the proposed import sanction would be, for the most part, 
     inapplicable to the other proposed EAA amendment that would 
     permit controls to be imposed against imports from a country 
     as to which export controls had been applied for foreign 
     policy purposes. The Article XXI exception would be 
     unavailable unless the controls could somehow be brought 
     within that Article's characterization of ``security 
     interests''. In contrast with sanctions against companies and 
     individuals, sanctions against countries would entail literal 
     conflict with the terms of pertinent GATT articles and MFN 
     provisions in treaties.
       In conclusion, the reasonable use of the import sanction 
     against violators of security-related controls can be 
     justified under pertinent GATT and treaty provisions. A 
     government's good faith in imposing import controls is more 
     likely to be questioned, due to the protectionist potential 
     of such measures. Notwithstanding the traditional deference 
     in official proceedings to a country's security-related 
     justification of its measures, it will be important for our 
     government to avoid measures which debase the national 
     security standard and invite corresponding measures damaging 
     to our trading interests and to the integrity of the 
     international system of trade discipline.


                               footnotes

     \1\ 50 U.S.C. app. Sec. 2410(c) (Supp V, 1981).
     \2\ Section 8(6) H.R. 2500, 98th Cong., 1st Sess., 129th 
     Cong. Rec. H. 1992 (April 12, 1983); Section 8(6) S. 979, 
     98th Cong., 1st Sess., 129th Cong. Rec. S. 4183, 4186 (April 
     6, 1983).
     \3\ Section 7 S. 979, 98th Cong., 1st Sess.
     \4\ 50 U.S.C. app. Sec. 2410 (a)-(c); 15 CFR Sec. Sec. 387.1, 
     388.3 (1982).
     \5\ 15 CFR Sec. 388.8.
     \6\ The imposition of the import sanction arguably would not 
     violate the ``most favored nation'' (MFN) requirements of 
     Articles I and XIII of the GATT. Presumably, such sanctions 
     would be applied in a source-neutral manner, that is, to bar 
     all imports by or from the violator irrespective of the 
     country of origin. The clear applicability of Article XI 
     makes it unnecessary to pursue the question of MFN, but the 
     issue of discrimination is addressed below with respect to 
     the availability of an exception under the GATT.
     \7\ See Jackson, World Trade and the Law of GATT, 748-752 
     (1969).
     \8\ Id., at 748-49.
     \9\ Id., at 744.
                                                                    ____


                [From the New York Times, Aug. 25, 1982]

    Judge Backs U.S. Bid to Penalize Company on Soviet Pipeline Sale

                        (By Clyde H. Farnsworth)

       Washington, Aug. 24.--A Federal judge today cleared the way 
     for the Commerce Department to penalize an American company 
     for refusing to comply with President Reagan's sanctions 
     against supplying equipment for the Siberian natural gas 
     pipeline.
       The company, Dresser Industries, has declined to order its 
     French subsidiary to defy a French Government order to 
     deliver equipment to be used for the Soviet pipeline.
       In another move against the company, two Administration 
     sources said, Cabinet members recommended during a meeting 
     held in unusual secrecy that Dresser and Dresser France, the 
     subsidiary, be placed on an American ``denial list.'' The 
     action would prevent the subsidiary from having any 
     commercial relations with the United States.
       They said the blacklist was one of the options that 
     President Reagan was asked to consider in an options paper 
     that went to him tonight in California after the meeting, 
     which was under the chairmanship of Secretary of State George 
     P. Shultz.

[[Page S 16519]]

       Another meeting began at the Justice Department tonight to 
     prepare for enforcement of the denial order once the pipeline 
     equipment is actually loaded on a Russian freighter, the 
     Borodin, at Le Havre. The loading, which was to take place 
     today, has reportedly been delayed until Wednesday.
       The sources stressed that it was still up to the President 
     to decide on a course of action in the developing 
     confrontation with France and other Western European 
     countries over the pipeline and the extraterritorial reach of 
     American laws.
       United States District Judge Thomas O. Flannery, turning 
     down a last minute appeal by Dresser, refused to bar the 
     Administration from punishing the company.


                      judge denies dresser request

       The judge was asked by a lawyer representing Dresser, John 
     Vanderstar of the Washington law firm of Covington & Burling, 
     to issue a temporary restraining order that would prohibit 
     the Government from issuing penalties against Dresser. 
     However, the judge said that Mr. Vanderstar had failed to 
     show that the Dallas-based company would suffer ``immediate 
     and irreparable harm'' if the order was not issued.
       Dresser France has agreed to supply three compressors, 
     worth $2 million, that it has already built. The Russians 
     have ordered a total of 21 compressors from Dresser, worth 
     $18 million to $20 million, to pump natural gas through the 
     3,600 mile pipeline. The company argued that if its 
     subsidiary did not ship the equipment, it would be liable to 
     criminal and civil penalties in France.
       On the other hand, if it did ship the compressors, it would 
     violate the ban on supplying pipeline equipment to the 
     Russians imposed by President Reagan under an executive 
     decree last June 22. The American Export Administration Act 
     of 1979, under which that decree was issued, also calls for 
     civil and criminal penalties against violators.
       That ruling extended American export controls not only to 
     the foreign activities of United States companies, but also 
     to foreign companies that use American technological licenses 
     to manufacture products of their own. The controls were 
     intended to deny American technology for the pipeline in 
     retaliation for Soviet-inspired repression in Poland.
       ``The plaintiff is in a terrible jam,'' Mr. Vanderstar 
     said. ``Congress simply cannot have intended to authorize the 
     Secretary of Commerce, no matter how good his intentions, to 
     impose sanctions against this company.''
       Richard Willard, Acting Assistant Attorney General in the 
     civil division of the Justice Department, told the judge that 
     injunctive relief would ``severely damage the foreign 
     relations of the United States.'' He emphasized that this was 
     an issue on which the President felt strongly.
       He also said that the United States was not prepared to 
     concede that the French Government order to Dresser France to 
     ship the compressors represented even a ``valid exercise of 
     French law.''
       On the other hand, the French and other Europeans, who have 
     filed a strong protest against the American sanctions, argue 
     that Europe cannot accept the right of the United States to 
     extend its jurisdiction to companies established outside its 
     territory.
       Although it is the subsidiary of a Dallas-based company, 
     Dresser France is a French company and operates under French 
     laws.
       Many other American subsidiaries in Europe and European 
     companies that produce pipeline equipment under American 
     license are affected by the June 22 order of the President. 
     The reason that Dresser became the target is that, according 
     to an Administration source, ``it just happened to have the 
     earliest delivery schedule.''
       Commerce Secretary Malcolm Baldrige, who was cited as a 
     defendant in Dresser's petition for injunctive relief, said 
     he was ``pleased with the judge's ruling.'' But neither he, 
     nor Secretary of State Shultz, nor any other participant at 
     the Cabinet-level meeting would comment on the results of the 
     hearing.
       The President has justified his action by citing both the 
     Polish repression and the financial and political advantages 
     the pipeline would bring to the Soviet Union. Europeans are 
     both financing and providing equipment for the line to 
     diversify energy sources and to provide employment for 
     depressed industries.
       The President said that the Russians stand to earn $10 
     billion to $12 billion a year from the gas and could use the 
     proceeds to become an even greater military threat.
       The penalties that may be levied against Dresser are 
     discretionary, meaning that at one extreme the Government 
     need do nothing at all. At the other extreme, officials 
     explained, the United States could seek extradition of chief 
     executives of offending companies and seek to jail them in 
     the United States.
       Although Secretary of State Shultz has supported the 
     sanctions, he had gone on record before joining the 
     Administration as opposing the use of trade as an instrument 
     of United States foreign policy.
       He was quoted once, for instance, as saying that trade 
     cannot be ``turned on and off like a light switch,'' and 
     called for a ``predictable set of rules'' to avoid domestic 
     and foreign confusion.


                        Compressors For Pipeline

       Compressors are devices that increase the pressure of a 
     gas, vapor, or mixture of gas and vapor by reducing the 
     volume of such fluids as they pass through the device. In a 
     pipeline, they are used to increase the amount of fuel that 
     can be pumped through a line of a given diameter.
       Dresser Industries manufactures a variety of compressors 
     used in transporting fuels, including centrifugal, 
     reciprocating, and axial compressors.
       There are 21 50-ton centrifugal compressors involved in the 
     current dispute, according to Edward Luter, Dresser's senior 
     vice president. They cost about $700,000 each.
       ``Each compressor order is to certain specifications,'' Mr. 
     Luter said yesterday in a telephone interview from Dresser's 
     Dallas headquarters.
                                                                    ____


                     Guide to GATT Law and Practice


                         i. text of article xxi

                    Article XXI--Security Exceptions

       Nothing in this Agreement shall be construed
       (a) to require any contracting party to furnish any 
     information the disclosure of which it considers contrary to 
     its essential security interests; or
       (b) to prevent any contracting party from taking any action 
     which it considers necessary for the protection of its 
     essential security interests
       (i) relating to fissionable materials or the materials from 
     which they are derived;
       (ii) relating to the traffic in arms, ammunition and 
     implements of war and to such traffic in other goods and 
     materials as is carried on directly or indirectly for the 
     purpose of supplying a military establishment;
       (iii) taken in time of war or other emergency in 
     international relations; or
       (c) to prevent any contracting party from taking any action 
     in pursuance of its obligations under the United Nations 
     Charter for the maintenance of international peace and 
     security.


           ii. interpretation and application of article xxi

                A. Scope and application of article XXI

       1. Paragraphs (a) and (b): ``it considers . . . essential 
     security interests'':
       During discussions in the Geneva session of the Preparatory 
     Committee, in response to an inquiry as to the meaning of 
     ``essential security interests'', it was stated by one of the 
     drafters of the original Draft Charter that ``We gave a good 
     deal of thought to the question of the security exception 
     which we thought should be included in the Charter. We 
     recognized that there was a great danger of having too wide 
     an exception and we could not put it into the Charter, simply 
     by saying: `by any Member of measures relating to a Member's 
     security interests,' because that would permit anything under 
     the sun. Therefore we thought it well to draft provisions 
     which would take care of real security interests and, at the 
     same time, so far as we could, to limit the exception so as 
     to prevent the adoption of protection for maintaining 
     industries under every conceivable circumstance. . . . There 
     must be some latitude here for security measures. 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''. The Chairman of 
     Commission A suggested in response that the spirit in which 
     Members of the Organization would interpret these provisions 
     was the only guarantee against abuses of this kind.\1\
     Footnotes at end of article.
---------------------------------------------------------------------------
       During the discussion of the complaint of Czechoslovakia at 
     the Third Session in 1949 (see page 556) it was stated, inter 
     alia, that ``every country must be the judge in the last 
     resort on questions relating to its own security. On the 
     other hand, every contracting party should be cautious not to 
     take any step which might have the effect of undermining the 
     General Agreement.\2\
       In 1961, on the occasion of the accession of Portugal, 
     Ghana stated that its boycott of Portuguese goods was 
     justified under the provisions of Article XXI:(b)(iii), 
     noting that
       ``. . . under this Article each contracting party was the 
     sole judge of what was necessary in its essential security 
     interest. There could therefore be no objection to Ghana 
     regarding the boycott of goods as justified by security 
     interests. It might be observed that a country's security 
     interests might be threatened by a potential as well as an 
     actual danger. The Ghanaian Government's view was that the 
     situation in Angola was a constant threat to the peace of the 
     African continent and that any action which, by bringing 
     pressure to bear on the Portuguese Government, might lead to 
     a lessening of this danger, was therefore justified in the 
     essential security interests of Ghana''.\3\
       During the Council discussion in 1982 of trade restrictions 
     applied for non-economic reasons by the EEC, its member 
     States, Canada and Australia against imports from Argentina 
     (see page 557), the representative of the EEC stated that 
     ``the EEC and its member States had taken certain measures on 
     the basis of their inherent rights, of which Article XXI of 
     the General Agreement was a reflection. The exercise of these 
     rights constituted a general exception, and required neither 
     notification, justification nor approval, a procedure 
     confirmed by thirty-five years of implementation of the 
     General Agreement. He said that in effect, this procedure 
     showed that every contracting party 

[[Page S 16520]]

     was--in the last resort--the judge of its exercise of these 
     rights''. The representative of Canada stated that ``Canada's 
     sovereign action was to be seen as a political response to a 
     political issue . . . Canada was convinced that the situation 
     which had necessitated the measures had to be satisfactorily 
     resolved by appropriate action elsewhere, as the GATT had 
     neither the competence nor the responsibility to deal with 
     the political issue which had been raised. His delegation 
     could not, therefore, accept the notion that there had been a 
     violation of the General Agreement''.\4\ The representative 
     of Australia ``stated that the Australian measures were in 
     conformity with the provisions of Article XXI:(c), which did 
     not require notification or justification''.\5\ The 
     representative of the United States stated that ``The General 
     Agreement left to each contracting party the judgment as to 
     what it considered to be necessary to protect its security 
     interests. The Contracting Parties had no power to question 
     that judgement''.\6\
       The representative of Argentina noted that it had attempted 
     to submit to GATT only the trade aspects of this case and 
     stated ``that in order to justify restrictive measures a 
     contracting party invoking Article XXI would specifically be 
     required to state reasons of national security . . . there 
     were no trade restrictions which could be applied without 
     being notified, discussed and justified''.\7\
       Paragraph 7(iii) of the Ministerial Declaration adopted 29 
     November 1982 at the Thirty-eighth Session of the Contracting 
     Parties provides that ``. . .the contracting parties 
     undertake, individually and jointly: . . . to abstain from 
     taking restrictive trade measures, for reasons of a non-
     economic character, not consistent with the General 
     Agreement''.\8\
       The question of whether and to what extent the Contracting 
     Parties can review the national security reasons for measures 
     taken under Article XXI was discussed again in the GATT 
     Council in May and July 1985 in relation to the US trade 
     embargo against Nicaragua which had taken effect on 7 May 
     1985.\9\ While a panel was established to examine the US 
     measures, its terms of reference stated that ``the Panel 
     cannot examine or judge the validity or motivation for the 
     invocation of Article XXI(b)(iii) by the United States''.\10\ 
     In the Panel Report on ``United States--Trade Measures 
     affecting Nicaragua'', which has not been adopted,
       ``. . . The Panel noted that, while both parties to the 
     dispute agreed that the United States, by imposing the 
     embargo, had acted contrary to certain trade-facilitating 
     provisions of the General Agreement, they disagreed on the 
     question of whether the non-observance of these provisions 
     was justified by Article XXI(b)(iii) . . .
       ``The Panel further noted that, in the view of Nicaragua, 
     this provision should be interpreted in the light of the 
     basic principles of international law and in harmony with the 
     decisions of the United Nations and of the International 
     Court of Justice and should therefore be regarded as merely 
     providing contracting parties subjected to an aggression with 
     the right of self-defence. The Panel also noted that, in the 
     view of the United States, Article XXI applied to any action 
     which the contracting party taking it considered necessary 
     for the protection of its essential security interests and 
     that the Panel, both by the terms of Article XXI and by its 
     mandate, was precluded from examining the validity of the 
     United States' invocation of Article XXI.
       ``The Panel did not consider the question of whether the 
     terms of Article XXI precluded it from examining the validity 
     of the United States' invocation of that Article as this 
     examination was precluded by its mandate. It recalled that 
     its terms of reference put strict limits on its activities 
     because they stipulated that the Panel could not examine or 
     judge the validity of or the motivation for the invocation of 
     Article XXI:(b)(iii) by the United States . . . The Panel 
     concluded that, as it was not authorized to examine the 
     justification for the United States' invocation of a general 
     exception to the obligations under the General Agreement, it 
     could find the United States neither to be complying with its 
     obligations under the General Agreement nor to be failing to 
     carry out its obligations under that Agreement''.\11\
       2. Paragraph (a): ``disclose . . . any information'':
       During the discussion at the Third Session of a 
     Czechoslovak complaint concerning United States national 
     security export controls, in response to a request by 
     Czechoslovakia for information under Article XIII:3 on the 
     export licensing system concerned, the US representative 
     stated that while it would comply with a substantial part of 
     the request, ``Article XXI . . . provides that a contracting 
     party shall not be required to give information which it 
     considers contrary to its essential security interests. The 
     United States does consider it contrary to its security 
     interest--and to the security interest of other friendly 
     countries--to reveal the names of the commodities that it 
     considers to be most strategic''.\12\
       The ``Decision Concerning Article XXI of the General 
     Agreement'' of 30 November 1982 (see page 559 below) provides 
     inter alia that ``Subject to the exception in Article XXI:a, 
     contracting parties should be informed to the fullest extent 
     possible of trade measures taken under Article XXI''.\13\
       3. Paragraph (b): ``action'':
       (1) ``relating to fissionable materials or the materials 
     from which they are derived'':
       The records of the Geneva discussions of the Preparatory 
     Committee indicate that the representative of Australia 
     withdrew its reservation on the inclusion of a reference to 
     ``fissionable materials'' in the light of a statement that 
     the provisions of Article 35 [XXIII] would apply to Article 
     XXI; see below at page 560.\14\
       (2) ``relating to the traffic in arms, ammunition and 
     implements of war and to such traffic in other goods and 
     materials as is carried on directly or indirectly for the 
     purpose of supplying a military establishment'':
       During discussions in the Geneva session of the Preparatory 
     Committee, in connection with a proposal to modify Article 
     37(g) [XX(g)] to permit export restrictions on raw materials 
     for long-term defense purposes, the question was put whether 
     the phrase ``for the purpose of supplying a military 
     establishment'' would permit restrictions on the export of 
     iron ore when it was believed that the ore would be used by 
     ordinary smelting works and ultimately for military purposes 
     by another country. It was stated in response that ``if a 
     Member exporting commodities is satisfied that the purpose of 
     the transaction was to supply a military establishment, 
     immediately or ultimately, this language would cover it''. 
     \15\
       At the Third Session in 1949, Czechoslovakia requested a 
     decision under Article XXIII as to whether the US had failed 
     to carry out its obligations under Articles I and XIII, by 
     reason of the 1948 US administration of its export licensing 
     controls (both short-supply controls and new export controls 
     instituted in 1948 discriminating between destination 
     countries for security reasons). The US stated that its 
     controls for security reasons applied to a narrow group of 
     exports of goods which could be used for military purposes 
     \16\ and also stated that ``the provisions of Article I would 
     not require uniformity of formalities, as applied to 
     different countries, in respect of restrictions imposed for 
     security reasons''. \17\ It was also stated by one 
     contracting party that ``goods which were of a nature that 
     could contribute to war potential'' came within the exception 
     of Article XXI.\18\ The complaint was rejected by a roll-call 
     vote of 17 to 1 with 3 abstentions.\19\
       (3) ``taken in time of war or other emergency in 
     international relations'':
       The 1970 Working Party Report on ``Accession of the United 
     Arab Republic'' notes that in response to concerns raised 
     regarding the Arab League boycott against Israel and the 
     secondary boycott against firms having relations with Israel, 
     the representative of the UAR stated that ``the history of 
     the Arab boycott was beyond doubt related to the 
     extraordinary circumstances to which the Middle East area had 
     been exposed. The state of war which had long prevailed in 
     that area necessitated the resorting to this system. . . . In 
     view of the political character of this issue, the United 
     Arab Republic did not wish to discuss it within GATT. . . . 
     It would not be reasonable to ask that the United Arab 
     Republic should do business with a firm that transferred all 
     or part of its profits from sales to the United Arab Republic 
     to an enemy country''. \20\ Several members of the working 
     party supported the views of the representative of the UAR 
     that the background of the boycott measures was political and 
     not commercial.\21\
       In November 1975 Sweden introduced a global import quota 
     system for certain footwear. The Swedish Government 
     considered that the measure was taken in conformity with the 
     spirit of Article XXI and stated, inter alia, that the 
     ``decrease in domestic production has become a critical 
     threat to the emergency planning of Sweden's economic defence 
     as an integral part of the country's security policy. This 
     policy necessitates the maintenance of a minimum domestic 
     production capacity in vital industries. Such a capacity is 
     indispensable in order to secure the provision of essential 
     products necessary to meet basic needs in case of war or 
     other emergency in international relations''.\22\ In the 
     discussion of this measure in the GATT Council, ``Many 
     representatives . . . expressed doubts as to the 
     justification of these measures under the General Agreement . 
     . . Many delegations reserved their rights under the GATT and 
     took note of Sweden's offer to consult''.\23\ Sweden notified 
     the termination of the quotas as far as leather and plastic 
     shoes were concerned as of 1 July 1977.\24\
       In April 1982, the EEC and its member states, Canada, and 
     Australia suspended indefinitely imports into their 
     territories of products of Argentina. In notifying these 
     measures they stated that ``they have taken certain measures 
     in the light of the situation addressed in the Security 
     Council Resolution 502 [the Falkland/Malvinas issue]; they 
     have taken these measures on the basis of their inherent 
     rights of which Article XXI of the General Agreement is a 
     reflection''.\25\ Argentina took the position that, in 
     addition to infringing the principles and objectives 
     underlying the GATT, these measures were in violation of 
     Articles I;1, II, XI:1, XIII, and Part IV. The legal aspects 
     of these trade restrictions affecting Argentina were 
     discussed extensively in the Council.\26\ The measures were 
     removed in June 1982. Argentina sought an interpretation of 
     Article XXI; these efforts led to the inclusion of paragraph 
     7(iii) in the Ministerial Declaration of November 1982, which 
     provides that ``. . .  the contracting parties undertake, 
     individually and 

[[Page S 16521]]

     jointly: . . . to abstain from taking restrictive trade 
     measures, for reasons of a non-economic charter, not 
     consistent with the General Agreement'' \27\ and also led to 
     the adoption of the text below at page 559.
       On 7 May 1985 the US notified the contracting parties of an 
     Executive Order prohibiting all imports of goods and services 
     of Nicaraguan origin, all exports from the US of goods to or 
     destined for Nicaragua (except those destined for the 
     organized democratic resistance) and transactions relating 
     thereto. \28\ In Council discussions of this matter, 
     Nicaragua stated that these measures contravened Article I, 
     II, V, XI, XIII and Part IV of the GATT, and that ``this was 
     not a matter of national security but one of coercion''.\29\ 
     Nicaragua further stated that Article XXI could not be 
     applied in an arbitrary fashion; there had to be some 
     correspondence between the measures adopted and the situation 
     giving rise to such adoption.\30\ Nicaragua stated that the 
     text of Article XXI made it clear that the Contracting 
     Parties were competent to judge whether a situation of ``war 
     or other emergency in international relations'' existed and 
     requested that a Panel be set up under Article XXIII:2 to 
     examine the issue.\31\ The United States stated that its 
     actions had been taken for national security reasons and were 
     covered by Article XXI:(b)(iii) of the GATT; and that this 
     provision left it to each contracting party to judge what 
     action it considered necessary for the protection of its 
     essential security interest.\32\ The terms of reference of 
     the Panel precluded it from examining or judging the validity 
     of the invocation of Article XXI(b)(ii) by the U.S. 
     Concerning the Panel decision on this issue, see page 555 and 
     the discussion of Article XXIII below. When the Council 
     discussed the Panel Report, Nicaragua requested that the 
     Council recommend removal of the embargo; authorized special 
     support measures for Nicaragua so that countries wanting to 
     do so could grant trade preferences aimed at re-establishing 
     a balance in Nicaragua's pre-embargo global trade relations 
     and at compensating Nicaragua for the damage caused by the 
     embargo; and prepare an interpretative note on Article XXI. 
     Consensus was not reached on any of these alternatives. The 
     Panel Report has not been adopted. At the meeting of the 
     Council on 3 April 1990 Nicaragua announced the lifting of 
     the trade embargo. The representative of the US announced 
     that the conditions which had necessitated action under 
     Article XXI had ceased to exist, his country's national 
     security emergency with respect to Nicaragua had been 
     terminated, and all economic sanctions, including the trade 
     embargo, had been lifted.\33\
       In November 1991, the European Community notified the 
     contracting parties that the EC and its member States had 
     decided to adopt trade measures against Yugoslavia ``on the 
     grounds that the situation prevailing in Yugoslavia no longer 
     permits the preferential treatment of this country to be 
     upheld. Therefore, as from 11 November, imports from 
     Yugoslavia into the Community are applied m.f.n. treatment . 
     . . These measures are taken by the European Community upon 
     consideration of its essential security interests and based 
     on GATT Article XXI.''\34\ The measures comprised suspension 
     of trade concessions granted to the Socialist Federal 
     Republic of Yugoslavia under its bilateral trade agreement 
     with the EC; application of certain limitations (previously 
     suspended) to textile imports from Yugoslavia; withdrawal of 
     GSP benefits; suspension of similar concessions and GSP 
     benefits for ECSC products; and action to denounce or suspend 
     the application of the bilateral trade agreements between the 
     EC and its member states and Yugoslavia. On 2 December the 
     Community and its member states decided to apply selective 
     measures in favor of ``those parties which contribute to 
     progress toward peace.'' Economic sanctions or withdrawal of 
     preferential benefits from the Yugoslavia were also taken by 
     Australia, Austria, Canada, Finland, Japan, New Zealand, 
     Norway, Sweden, Switzerland, and the United States.
       At the Forty-seventh Session in December 1991, Yugoslavia 
     referred to the Decision of 1982 on notification of measures 
     taken under Article XXI (see page 559 below) and reserved its 
     GATT rights. In February 1992 Yugoslavia requested 
     establishment of a panel under Article XXIII:2, stating that 
     the measures taken by the EC were inconsistent with Articles 
     I, XXI and the Enabling Clause; departed from the letter and 
     intention of paragraph 7(iii) of the Ministerial Decision of 
     November 1982; and impeded the attainment of the objectives 
     of the General Agreement. Yugoslavia further stated:
       ``The situation in Yugoslavia is a specific one and does 
     not correspond to the notion and meaning of Article XXI (b) 
     and (c). There is no decision or resolution of the relevant 
     UN body to impose economic sanctions against Yugoslavia based 
     on the reasoning embodied in the UN Charger. . . . the 
     `positive compensatory measures' applied by the European 
     Community to certain parts of Yugoslavia [are] contrary to 
     the MFN treatment of `products originating in or destined for 
     the territories'--taken as a whole--`of all contracting 
     parties' ''.\35\
       In March 1992, the Council agreed to establish a panel with 
     the standard terms of reference unless, as provided in the 
     Decision of 12 April 1989, the parties agreed otherwise 
     within twenty days.\36\ At the April 1992 Council meeting, in 
     discussion of the notification of the transformation of the 
     Socialist Federal Republic of Yugoslavia (SFRY) into the 
     Federal Republic of Yugoslavia (FRY) consisting of the 
     Republics of Serbia and Montenegro, the EC representative 
     said that until the question of succession to Yugoslavia's 
     contracting party status had been resolved, the Panel process 
     which had been initiated between the former SFRY and the EC 
     no longer had any foundation and could not proceed.\37\ At 
     the May 1992 Council meeting, in a discussion concerning the 
     status of the FRY as a successor to the former SFRY as a 
     contracting party, the Chairman stated that ``In these 
     circumstances, without prejudice to the question of who 
     should succeed the former SFRY in the GATT, and until the 
     Council returned to this issue, he proposed that the 
     representative of the FRY should refrain from participating 
     in the business of the Council''. The Council so agreed.\38\ 
     At the June 1993 Council meeting this decision was modified 
     taking into account United Nations General Assembly 
     Resolution 47/1 to provide that the FRY could not continue 
     automatically the contracting party status of the former SFRY 
     and that it shall not participate in the work of the Council 
     and its subsidiary bodies.\39\
       4. Other invocations of Article XXI:
       The United States embargo on trade with Cuba, which was 
     imposed by means of Proclamation 3447 by the President of the 
     United States, dated 3 February 1962, was not formally raised 
     in the Contracting Parties but notified by Cuba in the 
     inventory of non-tariff measures. The United States invoked 
     Article XXI as justification for its action.\40\
       5. Procedures concerning notification of measures under 
     Article XXI:
       During the Council discussion in 1982 of trade measures for 
     non-economic reasons taken against Argentina (see page 557), 
     it was stated by the countries taking these measures that 
     ``Article XXI did not mention notification'' and that many 
     contracting parties had, in the past, invoked Article XXI 
     without there having been any notification or challenge to 
     the situation in GATT.\41\ Argentina sought an interpretation 
     of Article XXI. Informal consultations took place during the 
     Thirty-eighth Session in November 1982 in connection with the 
     adoption of the Council report to the Contracting Parties, in 
     so far as it related to these trade restrictions.\42\ As a 
     result, on 30 November 1982 the Contracting Parties adopted 
     the following ``Decision Concerning Article XXI of the 
     General Agreement'':
       ``Considering that the exceptions envisaged in Article XXI 
     of the General Agreement constitute an important element for 
     safeguarding the rights of contracting parties when they 
     consider that reasons of security are involved;
       ``Noting that recourse to Article XXI could constitute, in 
     certain circumstances, an element of disruption and 
     uncertainty for international trade and affect benefits 
     accruing to contracting parties under the General Agreement;
       ``Recognizing that in taking action in terms of the 
     exceptions provided in Article XXI of the General Agreement, 
     contracting parties should take into consideration the 
     interests of third parties which may be affected;
       ``That until such time as the Contracting Parties may 
     decide to make a formal interpretation of Article XXI it is 
     appropriate to set procedural guidelines for its application;
       The Contracting Parties decide that:
       ``1. Subject to the exception in Article XXI:a, contracting 
     parties should be informed to the fullest extent possible of 
     trade measures taken under Article XXI.
       ``2. When action is taken under Article XXI, all 
     contracting parties affected by such action retain their full 
     rights under the General Agreement.
       ``3. The Council may be requested to give further 
     consideration to this matter in due course''.\43\
       See the references to this Decision above in the case of EC 
     measures on trade with Yugoslavia.

 B. Relationship between article XXI and other articles of the General 
                               Agreement

       1. Articles I and XIII:
       During the discussion at the Third Session of the complaint 
     of Czechoslovakia that U.S. export controls were administered 
     inconsistently with Articles I and XIII (see page 556), the 
     US representative stated that these restrictions were 
     justified under Article XXI(b)(ii). In calling for a 
     decision, the Chairman indicated that Article XXI ``embodied 
     exceptions to the general rule contained in Article I''. In a 
     Decision of 8 June 1949 under Article XXIII:2, the 
     Contracting Parties rejected the contention of the 
     Czechoslovak delegation.\44\
       2. Article XXIII:
       During discussions in Geneva in 1947 in connection with the 
     removal of the provisions now contained in Article XXI and 
     their relocation in a separate exception (Article 94) at the 
     end of the Charter, the question was raised whether the 
     dispute settlement provisions of Article 35 of the New York 
     Draft [XXII/XXIII] would nevertheless apply. It was stated 
     that ``It is true that an action taken by a Member under 
     Article 94 could not be challenged in the sense that it could 
     not be claimed that a Member was violating the Charter; but 
     if that action, even though not in conflict with the terms of 
     Article 94, should affect another Member, I should think that 
     that Member would have the right to seek redress of some kind 
     under Article 37 as it now stands. In other words, there is 
     no exception from the application of Article 35 to this or 
     any other Article''.\45\ The 

[[Page S 16522]]

     addition of a note to clarify that the provisions of 
     paragraph 2 of Article 35 [XXIII] applied to Article 94 was 
     rejected as unnecessary.\46\
       See the discussion above of the Czechoslovak complaint 
     concerning export controls, in which the Contracting Parties 
     make a decision under Article XXIII:2 as to ``whether the 
     Government of the United States had failed to carry out its 
     obligations under the Agreement through its administration of 
     the issue of export licences''.\47\
       During the discussion of the trade restrictions affecting 
     Argentina applied for non-economic reasons, the view was 
     expressed ``that the provisions of Article XXI were subject 
     to those of Article XXIII:2''. Argentina reserved its rights 
     under Article XXIII in respect of any injury resulting from 
     trade restrictions applied in the context of Article XXI.\48\
       Paragraph 2 of the ``Decision Concerning Article XXI of the 
     General Agreement'' of 30 November 1982 stipulates that ``. . 
     . when action is taken under Article XXI, all contracting 
     parties affected by such action retain their full rights 
     under the General Agreement''.\49\
       The 1984 Panel Report on ``United States--Imports of Sugar 
     from Nicaragua'' examined the action taken by the US 
     government to reduce the share of the US sugar import quota 
     allocated to Nicaragua and distribute the reduction in 
     Nicaragua's allocation to El Salvador, Honduras and Costa 
     Rica. The Panel Report notes that ``The United States stated 
     that it was neither invoking any exceptions under the 
     provisions of the General Agreement nor intending to defend 
     its actions in GATT terms . . . the action of the United 
     States did of course affect trade, but was not taken for 
     trade policy reasons.'' \50\
       ``The Panel noted that the measures taken by the United 
     States concerning sugar imports from Nicaragua were but one 
     aspect of a more general problem. The Panel, in accordance 
     with its terms of reference . . . examined those measures 
     solely in the light of the relevant GATT provisions, 
     concerning itself only with the trade issue under dispute.'' 
     \51\
       ``. . . The Panel . . . concluded that the sugar quota 
     allocated to Nicaragua for the fiscal year 1983/84 was 
     inconsistent with the United States' obligations under 
     Article XIII:2.
       ``The Panel noted that the United States had not invoked 
     any of the exceptions provided for in the General Agreement 
     permitting discriminatory quantitative restrictions contrary 
     to Article XXIII. The Panel did not examine whether the 
     reduction in Nicaragua's quota could be justified under any 
     such provision.'' \52\
       The follow-up on the Panel report was discussed in the 
     Council meetings of May and July 1984. The United States said 
     that it ``had not obstructed Nicaragua's resort to GATT's 
     dispute settlement process; it had stated explicitly the 
     conditions under which the issue might be resolved; and it 
     recognized that Nicaragua had certain rights under Article 
     XXIII which it had reserved and could continue to 
     exercise''.\53\ Nicaragua stated that it was aware of its 
     rights under Article XXIII.
       In July 1985, following a request by Nicaragua for the 
     establishment of a panel to review certain US trade measures 
     affecting Nicaragua, the right of a contracting party to 
     invoke Article XXIII in cases involving Article XXI was 
     discussed again in the GATT Council.\54\ At its meetings in 
     October 1985 and March 1986 respectively the Council 
     established a panel with the following terms of reference to 
     deal with the complaint by Nicaragua:
       ``To examine, in the light of the relevant GATT provisions, 
     of the understanding reached at the Council on 10 October 
     1985 that the Panel cannot examine or judge the validity of 
     or motivation for the invocation of Article XXI(b)(iii) by 
     the United States, of the relevant provisions of the 
     Understanding Regarding Notification, Consultation, Dispute 
     Settlement and Surveillance (BISD 26S/211-218), and of the 
     agreed Dispute Settlement Procedures contained in the 1982 
     Ministerial Declaration (BISD 29S/13-16), the measures taken 
     by the United States on 7 May 1985 and their trade effects in 
     order to establish to what extent benefits accruing to 
     Nicaragua under the General Agreement have been nullified or 
     impaired, and to make such findings as will assist the 
     Contracting Parties in further action in this matter''.\55\
       In the Panel Report on ``United States--Trade Measures 
     affecting Nicaragua'', which has not been adopted, the Panel 
     noted the different views of the parties regarding whether 
     the United States' invocation of Article XXI(b)(iii) was 
     proper, and concluded that this issue was not within its 
     terms of reference; see above at page 555. With regard to 
     Nicaragua's claim of non-violation nullification or 
     impairment, the Panel ``decided not to propose a ruling in 
     this case on the basic question of whether actions under 
     Article XXI could nullify or impair GATT benefits of the 
     adversely affected contracting party''.\56\
       When the Panel's report was discussed by the Council in 
     November 1986, the US representative stated that 
     ``Nullification or impairment when no GATT violation had been 
     found was a delicate issue, linked to the concept of 
     `reasonable expectations'. It was not simply a question of 
     trade damage, since no one doubted the existence of trade 
     damage. Applying the concept of `reasonable expectations' to 
     a case of trade sanctions motivated by national security 
     considerations would be particularly perilous, since at a 
     broader level those security considerations would 
     nevertheless enter into expectations . . . the Panel had 
     acted wisely in refraining from a decision that could create 
     a precedent of much wider ramifications for the scope of GATT 
     rights and obligations . . .''.\57\ The representative of 
     Nicaragua stated that her delegation could not support 
     adoption of the report, inter alia because it could only be 
     adopted once the Council was in a position to make 
     recommendations.\58\

   C. Relationship between article XXI and general international law

       The 1986 Panel Report on ``United States--Trade Measures 
     Affecting Nicaragua'', which has not been adopted, noted the 
     different views of the parties to the dispute concerning the 
     relationship between Article XXI and general international 
     law including decisions of the United Nations and the 
     International Court of Justice.\59\
       In discussion at the Forty-seventh Session in December 1991 
     concerning trade measures for non-economic purposes against 
     Yugoslavia, the representative of India stated that ``India 
     did not favour the use of trade measures for non-economic 
     reasons. Such measures should only be taken within the 
     framework of a decision by the United Nations Security 
     Council. In the absence of such a decision or resolution, 
     there was serious risk that such measures might be unilateral 
     or arbitrary and would undermine the multilateral trading 
     system''. \60\


                         III. PREPARATORY WORK

       In the US Draft Charter, and London and New York Draft 
     Charter texts, the Article on exceptions to the commercial 
     policy chapter included the provisions of what is now GATT 
     Article XXI (see Article 32, US draft; Article 37, London and 
     New York drafts). Also in these drafts, the exceptions clause 
     for the chapter on commodity agreements included provisions 
     excepting arrangements relating to fissionable materials; to 
     the traffic in arms, ammunition and implements of war and 
     traffic in goods and materials for the purpose of supply a 
     military establishment; or in time of war or other emergency 
     in international relations, to the protection of the 
     essential security interests of a member (Article 49:2, US 
     Draft; Article 59(2), London Draft; article 59(c), New York 
     Draft). At Geneva it was decided to take paragraphs (c), (d), 
     (e) and (k) of Article 37 and place them in a separate 
     Article. \61\ It was agreed that this Article would be a 
     general exception applicable to the entire Charter. \62\ The 
     corresponding security exception was also removed from the 
     commodity chapter. The security exception provisions became 
     Article 94 in Chapter VII of the Geneva draft Charter, which 
     was virtually identical to the present text of Article XXI.
       The text of Article 94 was extensively discussed at Havana 
     in the Sixth Committee on Organization. Article 94 became 
     Article 99 of the Charter on General Exceptions, of which 
     paragraphs 1(a) and (b) were almost identical to those of 
     Article XXI, the only differences being (i) an addition in 
     the first line of paragraph (b) as follows: ``to prevent any 
     Member from taking, either singly or with other States, any 
     action . . .'', and (ii) an addition to paragraph (b)(ii) as 
     follows: ``a military establishment of any other country''. 
     Article 99 also included a paragraph 1(c) exempting 
     intergovernmental military supply agreements \63\; a 
     paragraph 1(d) on trade relations between India and Pakistan 
     (dealt with in the General Agreement by the provisions of 
     Article XXIV:11); and a paragraph 2 providing that nothing in 
     the Charter would override the provisions of peace treaties 
     resulting from the Second World War or UN instruments 
     creating trust territories or other special regimes.
       However, ``on examining several of the proposals submitted 
     by delegations relating to action taken in connection with 
     political matters or with the essential interests of Members, 
     the Committee concluded that the provisions regarding such 
     action should be made in connection with an article on 
     `Relations with the United Nations', since the question of 
     the proper allocation of responsibility as between the 
     Organization and the United Nations was involved'', \64\ 
     Accordingly a new Article 86 of the Charter on ``Relations 
     with the United Nations'' was drafted, including the former 
     paragraph 1(c) of Article 94 [XXI:(c)].
       Article 86 of the Charter dealt with various institutional 
     questions such as the conclusion of a specialized agency 
     agreement between the ITO and the UN. It also stated, in 
     paragraph 3, that:
       ``3. The Members recognize that the Organization should not 
     attempt to take action which would involve passing judgment 
     in any way on essentially political matters. Accordingly, and 
     in order to avoid conflict of responsibility between the 
     United Nations and the Organization with respect to such 
     matters, any measure taken by a Member directly in connection 
     with a political matter brought before the United Nations in 
     accordance with the provisions of Chapters IV or VI of the 
     United Nations Charter shall be deemed to fall within the 
     scope of the United Nations, and shall not be subject to the 
     provisions of this Charter.
       ``4. No action, taken by a Member in pursuance of its 
     obligations under the United Nations Charter for the 
     maintenance or restoration of international peace and 
     security, shall be deemed to conflict with the provisions of 
     this Charter''.
       The interpretative notes to paragraph 3 provided that:

[[Page S 16523]]

       ``1. If any Member raises the question whether a measure is 
     in fact taken directly in connection with a political matter 
     brought before the United Nations in accordance with the 
     provisions of Chapters IV or VI of the United Nations 
     Charter, the responsibility for making a determination on the 
     question shall rest with the Organization. If, however, 
     political issues beyond the competence of the Organization 
     are involved in making such a determination, the question 
     shall be deemed to fall within the scope of the United 
     Nations.
       ``2. If a Member which has no direct political concern in a 
     matter brought before the United Nations considers that a 
     measure taken directly in connection therewith and falling 
     within the scope of paragraph 3 of Article 86 constitutes a 
     nullification or impairment within the terms of paragraph 1 
     of Article 93, it shall seek redress only by recource to the 
     procedures set forth in Chapter VIII of this Charter''.
       The purpose of these provisions was explained by the Sixth 
     Committee as follows:
       ``Paragraph 3 of Article [86], which like paragraph 4 is 
     independent in its operation, is designed to deal with any 
     measure which is directly in connection with a political 
     matter brought before the United Nations in a manner which 
     will avoid conflict of responsibility between the United 
     Nations and the Organization with respect to political 
     matters. The Committee agreed that this provision would cover 
     measures maintained by a Member even though another Member 
     had brought the particular matter before the United Nations, 
     so long as the measure was taken directly in connection with 
     the matter. It was also agreed that such a measure, as well 
     as the political matter with which it was directly connected, 
     should remain within the jurisdiction of the United Nations 
     and not within that of the Organization. The Committee was of 
     the opinion that the important thing was to maintain the 
     jurisdiction of the United Nations over political matters and 
     over economic measures of this sort taken directly in 
     connection with such a political matter, and nothing in 
     Article [86] could be held to prejudice the freedom of action 
     of the United Nations to settle such matters and to take 
     steps to deal with such economic measures in accordance with 
     the provisions of the Charter of the United Nations if they 
     see fit to do so.
       ``It was the view of the Committee that the word `measure' 
     in paragraph 3 of Article [86] refers only to a measure which 
     is taken directly in connection with a political matter 
     brought before the United Nations in accordance with Chapters 
     IV and VI of the Charter of the United Nations and does not 
     refer to any other measure''.\65\
       The Charter provisions in Articles 86 and 99 were not not 
     taken into the General Agreement. While Article XXIX:1 
     provides that ``The contracting parties undertake to observe 
     . . . the general principles of Chapters I to VI and of 
     Chapter IX of the Havana Charter'', the Note Ad Article 
     XXIX:1 provides that ``Chapters VII and VIII . . . have been 
     excluded from paragraph 1 because they generally deal with 
     the organization, functions and procedures of the 
     International Trade Organization''. In this connection, 
     during the discussion at the Sixth Session of the Contracting 
     Parties of the US suspension of trade relations with 
     Czechoslovakia it was stated with reference to Article 86, 
     paragraph 3 of the Havana Charter that ``although Chapter VII 
     of the Charter was not specifically included by reference in 
     Article XXIX of the Agreement, it had surely been the general 
     intention that the principles of the Charter should be 
     guiding ones for the Contracting Parties''.\66\
       The present text of Article XXI dates from the 30 October 
     1948 Geneva Final Act. It has never been amended. Amendment 
     of Article XXI was neither proposed nor discussed in the 
     1954-55 Review Session.


                         iv. relevant documents

       Geneva:
       Discussion: EPCT/WP.1/SR/11, EPCT/A/SR/25, 30, 33, 40(2), 
     EPCT/A/PV/25, 30, 33, 40(2).
       Reports: EPCT/103.
       Other: EPCT/W/23.
       Havana:
       Discussion: E/CONF.2/C.5/SR.14, E/CONF.2/C.6/SR.18, 19, 37, 
     and Add. 1.
       Reports: E/CONF.2/C.5/14, E/CONF.2/C.6/45, 93, 104.
       Other: E/CONF.2/C.6/12/Add.9, E/CONF.2/C.6/W/48.
       See also London, New York and Geneva document references 
     concerning Article XX.


                               FOOTNOTES

     \1\ EPCT/A/PV/33, p. 20-21 and Corr. 1; see also EPCT/A/SR/
     33, p. 3.
     \2\ GATT/CP.3/SR.22, Corr. 1.
     \3\ SR.19/12, p. 196.
     \4\ C/M/157, p. 10.
     \5\ C/M/157, p. 11.
     \6\ C/M/159, p. 19; see also C/M/157, p. 8.
     \7\ C/M/157, p. 12; C/M/159, pp. 14-15.
     \8\ L/5424, adopted on 29 November 1982, 29S/9, 11.
     \9\ C/M/188, pp. 2-16; C/M/191, pp. 41-46.
     \10\ C/M/196 at p. 7.
     \11\ L/6053, dated 13 October 1953 (unadopted), paras. 5.1-
     5.3.
     \12\ GATT/CP.3/38, p. 9.
     \13\ L/5426, 29S/23-24, para. 1.
     \14\ EPCT/A/PV/33, p. 29; see also EPCT/A/PV/33/Corr. 3.
     \15\ EPCT/A/PV/36, p. 19; see also proposal referred to at 
     EPCT/W/264.
     \16\ GATT/CP.3/38; GATT/CP.3/SR.22, p. 8.
     \17\ GATT/CP.3/SR.22, p. 4-5.
     \18\ GATT/CP.3/SR.20, p. 3-4.
     \19\ GATT/CP.3/SR.22, p. 9; Decision of 8 June 1949 at II/28.
     \20\ L/3362, adopted on 27 February 1970, 17S/33, 39, para. 
     22.
     \21\ Ibid., 17S/40, para. 23.
     \22\ L/4250, p. 3.
     \23\ C/M/109, p. 8-9.
     \24\ L/4250/Add.1; L/4254, p. 17-18.
     \25\ L/5319/Rev. 1.
     \26\ L/5317, L/5336; C/M/157, C/M/159.
     \27\ L/5424. adopted on 29 November 1982, 29S/9, 11.
     \28\ L/5803.
     \29\ C/M/188l p. 4.
     \30\ C/M/188, p. 16.
     \31\ L/5802; C/M/191, pp. 41-46.
     \32\ C/M/191, pp. 41,46.
     \33\ C/M/240, p. 31; L/6661.
     \34\ L/6948.
     \35\ DS27/2, dated 10 February 1992.
     \36\ C/M/255, p. 18.
     \37\ C/M/256, p. 32.
     \38\ C/M/257 p. 3 and Corr. 1.
     \39\ C/M/264, p. 3.
     \40\ COM.IND/6/Add.4, p. 53 (notification); MTN/3B/4, p. 559 
     (response citing binding reolution under Inter-American 
     Treaty of Reciprocal Assistance). See also Council discussion 
     May 1986 concerning US measures authorizing denial of sugar 
     import quota to any failing to certify that it does not 
     import sugar produced in Cuba for re-export to the US, stated 
     by US to be a ``procedural safeguard'' against tran-shipment 
     of sugar in violation of the embargo; C/M/198 p. 33, L/5980.
     \41\ C/M/159, p. 18.
     \42\ See L/5414 (Council report); see also C/W/402, W.38/5, 
     L/5426.
     \43\ L/5426, 29S/23.
     \44\ GATT/CP.3/SR.22, p. 9; II/28.
     \45\ EPCT/A/PV/33, p. 26-27.
     \46\ EPCT/A/PV/33 p. 27-29 and EPCT/A/PV/33/Corr. 3.
     \47\ GATT/CP.3/SR.22, p. 9.
     \48\ C/M/157, p. 9; C/M/159, p. 14; C/M/165, p. 18.
     \49\ 29S/24.
     \50\ L/5607, adopted on 13 March 1984, 31S/67, 72, para. 
     3.10.
     \51\ Ibid., 31S/73, para. 4.1.
     \52\ Ibid., 31S/74, paras. 4.4-4.5.
     \53\ C/M/178, p. 27.
     \54\ C/M/191, pp. 41-46.
     \55\ C/M/196, p. 7.
     \56\ L/6053 (unadopted), dated 13 October 1986, paras. 5.4-
     5.11.
     \57\ C/M/204.
     \58\ C/M/204. See also communication from Nicaragua at C/W/
     506.
     \59\ L/6053, unadopted, dated 13 October 1986, prs. 5.2.
     \60\ SR.47/3, p. 5.
     \61\ See proposal at EPCT/W/23, reports on discussions in 
     Commission A (commercial policy) at EPCT/WP.1/SR/11, EPCT/103 
     p. 3, EPCT/A/PV/25 p. 38-42.
     \62\ EPCT/A/PV/25 p. 39-42.
     \63\ See Havana Reports, p. 118, para. 32 and p. 145-147.
     \64\ Havana Reports, p. 153, para. (a).
     \65\ Havana Reports, p. 153-154, paras. (b)-(c).
     \66\ GATT/CP.6/SR.12, p. 4.

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