ASIL Insights

--By John H. Jackson, Professor of Law, University of Michigan & Andreas F. Lowenfeld, Professor of Law, New York University 

Rarely has a move by the U.S. government to impose its political views on other countries' economies aroused as much anger as has the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996, widely known as the Helms-Burton Act. President Clinton originally opposed the Act, but signed it into law in March 1996, following the downing by the Cuban Air Force of two light planes flown by members of an anti-Castro organization based in the United States. 

Helms-Burton does several things. It freezes the 35 year-old U.S. embargo against trade with and investment in Cuba, which applies not only to U.S. firms but also to overseas firms owned or controlled by "U.S. persons". It opens third country companies "trafficking" in Cuban property once owned by Americans to suits in the United States by the former owners, suits that could result in damages equal not to the value of trade being conducted by the defendants, but to the value of the property once owned by the American plaintiffs, and possibly even to three times that value. And it requires exclusion from the United States, even for visits, of officers or controlling shareholders -- and their families -- of companies that "traffic" in property formerly owned or claimed to by owned by American nationals. 

Even before the bill was passed, European, Canadian, and Mexican officials asserted that the United States was unlawfully exercising its jurisdiction extraterritorially, in that it was threatening to punish lawful activity -- trade, investment, and tourism -- carried out by residents of, say, Canada or Great Britain with an independent country, Cuba. In response, President Clinton has twice suspended, for six-month periods, the provision of Helms-Burton authorizing suits against "traffickers" in the United States by former owners. The Europeans, however, assert that suspension is not good enough. The very threat of such suits, like a sword of Damocles, creates a disincentive to investment or long-term trading relationships. The EU has now taken its case to the World Trade Organization and its new dispute settlement procedures. 

The WTO complaint against the U.S. raises a list of possible inconsistencies with various parts of the WTO treaty texts. Although the arguments to be made about these are not yet clear, at least to the public, the U.S. may have valid defenses to the substance of some of the complaint. 

One subject of this complex case is particularly perplexing and cuts across the many specific complaints and arguments. This is the subject of the "national security exceptions" in the WTO treaty texts, both GATT Article 21 applying to trade in goods, and GATS Article 14 applying to trade in services. Some argue these would provide a defense for the U.S. to many if not all of the U.S. Helms-Burton measures, even if some of these measures would otherwise be considered to be inconsistent with U.S. treaty obligations. These exceptions, however, if given a broad interpretation could undermine the whole WTO treaty and impair the security and stability of the world trading system for which the WTO has been created. 

On the other hand, national security is obviously extremely important to all nations, and for an international organization to disregard the importance of this subject and to easily override national concerns and policy conclusions relating to it, could lead powerful trading nations to ignore or disregard the rules of such organization. A key interpretation question for the national security exception is whether this exception permits a WTO member to decide for itself, to "auto-determine", whether the criteria for invoking the exception exist. If the answer is yes, then arguably a government need only invoke the exception to end a proceeding against it, no matter what the underlying facts of the case are. 

The critical language of the national security exception reads: 

(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....
(ii) relating to the traffic of arms....
(iii) taken in time of war or other emergency in international relations;..."

Cases in the GATT prior to the WTO are "guidance" for the WTO, but very few GATT cases (and so far, no WTO cases) have addressed the meaning of Article XXI. There is some GATT practice supporting "auto-determination", but the only time a GATT panel has favored this approach, its view was constrained by particular "terms of reference" to the panel, which are not today present in the case. 

It was the United States, more than any other participant in the Uruguay Round, that urged adoption of a dispute settlement system that could not be frustrated by a prospective defendant. Now that system has been invoked by the European Union to require creation of a three-person panel to hear the complaint against Helms-Burton. On the merits, the United States might well have a number of defenses. And on the question of auto-determination, the U.S. case is at least plausible -- more plausible than a contention that Cuba in 1997 poses a security treaty to the United States giving rise to an emergency in international relations. But some reports suggest that the United States is not prepared to take its chances in court. It is walking away from the arena, just as it did in the Nicaragua case before the World Court a decade ago. It seems to us that the greatest threat is not to the EU from Helms-Burton or to the United States from Cuba, but to the world trading system and its firm but still fragile system for compulsory adjudication and enforcement of trade disputes. 

The U.S. is the largest single user of the WTO dispute settlement procedures, having already brought 25 complaints (out of a total of 68). It has announced its satisfaction with the dispute procedures and indicated how important they are to U.S. foreign economic policy. The new WTO procedures explicitly obligate members to abide by the procedures in all disputes between members concerning their rights and obligations under the WTO agreement and the Understanding On Dispute Settlement "in isolation or in combination with any other covered agreement." For the U.S. to boycott the proceeding would not only be damaging to the WTO institution, but would damage U.S. policy as other WTO members viewed the U.S. as jeopardizing everyone's longer term interests in building a viable world trade system, for the sake of short run political considerations. Other WTO members, including some now the subject of U.S. complaints, could more easily diminish the importance of the U.S. complaints when the U.S. takes such a position. This could affect crucial cases now pending, such as bananas and beef hormones treatment by the EC, automobile trade treatment by Indonesia and Brazil, and treatment of film trade by Japan. Without U.S. participation in the Helms-Burton case, a dispute panel is likely to be less well informed and less educated by arguments that could lean towards the notion of auto-determination or other intermediate measures of great deference to national government "national security" determinations. 

But even with full participation of the U.S. before a panel, there are still tough policy decisions. It would not be in the interest of the U.S. to develop a complete auto-determination interpretation of the national security exception, allowing governments to protect shoe or bubble-gum industries merely by invoking the exception with not even a threshold or "reasonableness" criterion. Governments could also be tempted to invoke the exception to justify discriminatory trade actions to favor a particular nation whose friendship is needed for military and political policy concerns, or to justify certain regional trade arrangements that do not fulfill the normal GATT/WTO criteria for approval. A panel (and an appellate body panel if an appeal occurred) would need to consider judiciously and with great care competing policy objectives of the national security language. It is even conceivable that a line could be drawn that would prevent such abuse mentioned above, yet defer to the U.S. in the Helms-Burton case. In any event, the careful consideration of this subject would take some time under the WTO procedures, and might give additional breathing space to the parties to reach a settlement. After all, it is likely not to be in the interests of the European Community to create a precedent that intruded too far on national determinations about "essential security interests."