China has filed a case at the World Trade Organization (WTO) against the United States for the export controls it placed on computer chips in October. The controls devised by the Commerce Department’s Bureau of Industry and Security (BIS) include a variety of tools to manage the export of U.S.-origin and certain foreign-produced commodities, software, and technology, as well as specific activities of U.S. persons involved in the computer chip sector regarding trade in goods and services with the People’s Republic of China (PRC). According to a BIS statement released when the new rules were announced, they aim to:

Restrict the PRC’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors. These items and capabilities are used by the PRC to produce advanced military systems including weapons of mass destruction; improve the speed and accuracy of its military decision making, planning, and logistics, as well as of its autonomous military systems; and commit human rights abuses.

 

The U.S. position is that these measures are immune to challenge because of WTO Article XXI, which exempts actions taken for reasons of national security. In particular, Article XXI states:

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 … (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.

Such language is common in international agreements because of the core principle that national security is the primary duty of national governments, a duty that stands above all others.

Beijing, however, believes there is a chance that the WTO will declare Washington’s national security reasoning regarding chips invalid. This hope is based on a WTO ruling only three days before China filed its suit that declared U.S. tariffs levied on steel and aluminum imports in 2018 do not qualify as national security measures under Section XXI. China was among those who had filed suit against the tariffs. Though imposed under President Donald Trump, President Joe Biden maintained them, issuing a proclamation shortly after taking office concurring with Secretary of Commerce Gina Raimondo, who “found and advised the President of his opinion that steel articles are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States.”

The WTO’s December 9 ruling that a member nation cannot unilaterally determine what is in its national security interests, and that any declared concern over its national security can be set aside by a WTO dispute panel of foreign judges, is an overreach of authority that threatens the meaning of national sovereignty at its most fundamental level. It is a grab for power that the WTO has been slowly building toward for several years.

In 2019, the WTO first asserted that it had the right to “review” actions taken under Article XXI to determine whether they were justified as being outside the reach of the WTO. The WTO bureaucracy has long chafed at the notion that anything is outside its reach. The case involved a dispute between Russia and Ukraine where Moscow blocked trade between Ukraine, Kazakhstan, and the Kyrgyz Republic that transited through its territory. The WTO was very crafty in its approach, covering its revolutionary interpretation by siding with Russia that its use of the national security exception was justified because of the heightened tensions between Moscow and Kyiv after the 2014 annexation of Crimea. It did the same the following year in a case between Saudi Arabia and Qatar, ruling against Riyadh’s claim that its trade actions could not be challenged because they were based on national security concerns, but still upholding Saudi actions because threats of terrorism and extremism had heightened tensions between the two countries.

Believing it had established precedent in its claim that it can review national determinations of security concerns, the WTO has now taken the next step in actually declaring a member nation’s concerns to be invalid. This cannot stand, as it is inherently illegitimate. Nothing can support the contention that a dispute panel has the capacity or authority to stand above sovereign nations and determine what is (or is not) within their security interests and dictate what they can (or cannot) do. The argument that the WTO should interpret all cases so that they are in accord with the basic mission of the organization is invalid because Article XXI was written to explicitly place vital national interests outside the core mission of the WTO, which is “to help producers of goods and services, exporters, and importers conduct their business.” This is clearly an inferior goal to the maintenance of national security.

The WTO was founded on classical liberal theory, which values the interests of merchants above those of statesmen. The WTO opened in 1995 amid the post-Cold War hubris that saw great power competition as a thing of the past. Trade and other forms of engagement were global, not international; a change in terminology that sought to change reality. But it was only a bubble in time that soon burst. Even classical thinkers like Adam Smith understood the priority of national security. For instance, Smith approved of paying bounties to produce naval stores in the American colonies and supported prohibiting the export of naval stores from the colonies to anywhere outside the British Empire. Such regulations made the empire less dependent on imported strategic goods while denying important goods to rivals.

British historian Correlli Barnett, in his book The Collapse of British Power, criticized Smith because "he could not foresee that national defense would come to depend not just on seaman and naval stores, but on total industrial and economic capabilities." This complaint is not entirely justified, inasmuch as Smith left the door open for an expanded application of mercantilist doctrine when he wrote: “It may be advantageous to lay some burden upon foreign imports for the encouragement of domestic industry, when some particular industry is necessary for the defense of the country. … It is of importance that the kingdom depend as little as possible upon its neighbors for the manufac­tures necessary for its defense.” While the Industrial Revolution was just getting started in Smith's day, it quickly expanded the horizons of security planning as it dramatically transformed the art of war. Computer chips are certainly as important today as naval stores were 250 years ago.

For this reason, it is possible that China will lose its WTO case on computer chips. Regardless, the outcome of the case does not matter and should not change U.S. policy. As Assistant Trade Representative Adam Hodge stated in response to the WTO steel and aluminum ruling, “the United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement and the WTO has no authority to second-guess the ability of a WTO Member to respond to a wide-range of threats to its security.”

This WTO procedure is illegitimate, and the United States should simply decline to participate. Furthermore, it should become stated U.S. policy that if China or any other country uses the WTO’s illegitimate interpretation as a pretext to take hostile economic actions against the United States, such actions will be considered new provocations subject to American retaliation. The United States cannot afford to give an inch on the core principle of national sovereignty.

William R. Hawkins is a former economics professor who served on the professional staff of the U.S. House Foreign Affairs Committee. He has written widely on international economics and national security issues for both professional and popular publications.

Image: Reuters.