Nov 4, 1986


GENEVA OCTOBER 31 (IFDA, CHAKRAVARTHI RAGHAVAN)- A GATT panel has in effect suggested that GATT Contracting Parties should undertake "a formal interpretation" of article XXI dealing with security exceptions, as had been contemplated in 1982, to prevent their excessive use or for other purposes.

Article XXI provides a general exception from GATT obligations, enabling a Contracting Party to take actions to protect "its essential security interests.

The panel, which adjudicated the dispute over U.S. trade embargo against Nicaragua, found itself unable to effectively adjudicate the dispute or provide relief to Nicaragua, due to the terms of reference and current GATT practices, but has obliquely suggested ways other Contracting Parties could help Nicaragua.

The panel has referred to Nicaragua's PLEA that the Contracting Parties should be given a general waiver to enable those wishing to do so to give special and more favourable treatment to Nicaraguan products, and thus compensate Nicaragua for the effects of the embargo.

The GATT procedures and practices, the panel noted, precluded it from making such a recommendation, but Nicaragua had the right to make such a request directly, and the panel's report should not be interpreting as prejudging a decision by the Contracting Parties on such a request.

In this connection the panel recalled its finding that the consequences of the embargo on Nicaragua’s trade and economy were severe and that the embargo had seriously upset the competitive relationship between the embargoed products and other directly competitive products.

On the embargo issue itself the panel said: "trade embargoes, such as the one imposed by the United States against Nicaragua ... ran counter to the basic aims of GATT, namely, to foster non-discriminatory and open trade policies, to further the development of less developed Contracting Parties, and to reduce uncertainty in trade relations".

This conclusion, the panel has said, is independent of whether or not such an embargo is justified under article XXI of the General Agreement.

"GATT could not achieve its basic aims unless each Contracting Party, whenever it made use of its rights under article XXI, carefully weighed its security needs against the need to maintain stable trade relations", the panel said.

The report of the panel is expected to be considered by the GATT council at its next meeting scheduled for November 5-6.

Like other GATT documents, the report of, the panel have not been made public, and are available only to GATT members, but IFDA has obtained a copy.

The complaint by Nicaragua arose over the tow-way us trade embargo, imposed by President Reagan on May 1, 1985. Nicaragua raised the issue in the GATT council, and after us refusal to hold bilateral consultations under article XXII, Nicaragua asked for a panel to adjudicate the dispute.

The U.S. contended that its actions were covered by article XXI, and thus could not be examined or adjudicated upon, and that in any event the only ultimate decision of the Contracting Parties in such a dispute could be authorising Nicaragua to suspend its obligations under GATT in respect of U.S. and such a recommendation would be meaningless in view of us prohibition of all exports to Nicaragua.

Ultimately the GATT council named a three-member panel chaired by Martin Huslid of Norway and consisting of D. Salim of Indonesia and H. Villar of Spain, to go into the dispute.

The panel was precluded from judging the validity or motivation for the us invocation of the security provisions of GATT’s but was asked to establish the extent to which Nicaragua’s benefits had been nullified or impaired by the U.S. action, "and to make such findings as will assist the Contracting Parties to further action in this matter".

The panel has made no finding on the extent to which Nicaragua’s rights have been impaired since in its view in the circumstances of the case (U.S. banning of all exports) the GATT Contracting Parties of could do nothing "to re-establish the balance of advantages, which had accrued to Nicaragua under the general agreement prior to the embargo".

Nicaragua had asked the panel to recommend the immediate withdrawal of the embargo and the granting to the Contracting Parties a general waiver that would enable them to give differential and more favourable treatment to products of Nicaraguan origin to restore the balance of rights under the general agreement and any additional measures of assistance or compensation deemed appropriate.

The panel has not done any of these.

However, noting that the U.S. has declared that it would not remove the embargo without a solution to the underlying political problem, the panel has said it would not be appropriate to the Contracting Parties to make such a recommendation, unless they found the embargo to be inconsistent with the general agreement.

On the issue of a general waiver sought by Nicaragua, the panel has said that it would be acting contrary to GATT practices if it made a recommendation that would change the obligations of third parties.

However the panel said, Nicaragua had the right to submit such a proposal directly to the Contracting Parties, and the panel's decision not to make a recommendation on purely procedural grounds should not be interpreted as prejudging a decision by the Contracting Parties on such a request.

The panel recalled in this connection that the consequences of the embargo to Nicaragua’s trade and economy were severe, and "the embargo had seriously upset the competitive relationship between the embargoed products and other directly competitive products".

Against U.S. objections, the panel has set out in the report the Nicaraguan arguments as to why the U.S. action is illegal, and in its conclusions has noted Nicaragua's contention that GATT could not operate in a vacuum and its provisions should be interpreted within the context of the general principles of international law, taking into account inter alia the judgement of the international court of justice and UN resolutions.

In the case brought by Nicaragua against the U.S. at The Hague, the international court had ruled that "since no evidence at all is available to show how Nicaraguan policies had in fact become a threat to essential (United States) security interests... the court is unable to find that the embargo was necessary to protect those interests".

The panel said that without refuting Nicaragua's arguments, the panel found the issue to be outside its mandate (of examining the case in the light of the relevant GATT provisions), "although they might be inadequate and incomplete for the purpose".

Referring to the limitations imposed to the panel, its limited terms of reference and existing GATT rules and procedures, the panel said that if it was accepted that the interpretation of article XXI was reserved entirely to the Contracting Party invoking it (as the U.S. contended), how could the Contracting Parties (acting collectively) ensure that this general exceptions to all obligations was not invoked excessively or for purposes other than those set out in this provision"?

Also, if the Contracting Parties gave a panel the task of examining a case involving article XXI without authorising it to examine the justification of a Contracting Party in invoking it, did they limit adversely the affected Contracting Party' s right to have its complaint investigate? Were the powers of the Contracting Parties under article XXIII (2), for settlement of disputes, sufficient to provide redress to Contracting Parties subject to a two-way embargo?

The panel suggested that these questions should be taken into account by the Contracting Parties in undertaking a formal interpretation of article XXII, as had been contemplated in a 1982 decision.

The 1982 decision, holding out the possibility of a formal interpretation and asking the GATT Council to study the issue further, arose in the context of the trade embargoes imposed against Argentina over the Malvinas war with Britain by countries who were not involved in the conflict - the other members of the EEC, Canada, Australia and New Zealand.

In a note to the GATT Council, Nicaragua has underlined that the panel had not fully discharged its responsibility, particularly by its failure to establish the nullification or impairment of benefits to Nicaragua or in recommending a withdrawal of the embargo.

Nicaragua has however said that it could accept the panel's recommendation that the GATT contracting parties themselves should resolve some of the issues raised through a formal interpretation of article XXI, provided it was done in accordance with the "understanding" in 1979 about dispute settlement and action on panel reports.

In that understanding, it was agreed among other things that action by the Contracting Parties on panel reports in disputes brought by a third world Contracting Party, "should be taken in a specially convened meeting, if necessary", and that in such cases not only the trade coverage of measures complained of should be taken into account, but also their impact on the economy of the third world Contracting Party concerned".