Annex 82
Annex 82
1958] COMMERCIAL TREATIES 805
MODERN TREATIES OF FRIENDSHIP, COI\IMERCE
AND NAVIGATION
HERMAN WALKER, JR.*
The bilateral "treaty of friendship, commerce and navigation" is
one of the most familiar instruments known to diplomatic tradition.
The title, commonly used to describe a basic accord fixing the
ground-rules governing day-to-day intercourse between two countries,
designates the medium par e¼cellence through which nations
have sought in a general settlement to secure reciprocal respect for
their normal interests abroad, according to agreed rules of law.1
The precise content of the instrument as treaty-type, and the
manner in which that content is treated, has varied from era to era
depending on the needs of the time, the usages of the countries
involved and the foreign policy objectives in view.2 In United States
practice, however, it has evolved into a comprehensive charter of
relations in the domain of private affairs. In the course of that
evolution, it has figured repeatedly in the conduct of American
foreign relations from the earliest days, and with all manner of
nations, beginning with the treaty of Amity and Commerce with
France in 1778 and continuing into the present. The number of such
treaties concluded by the United States runs well over a hundred.3
This discussion focuses on the sixteen that have been signed since
1946.¼
*First Secretary of Embassy, Foreign Service of the United States, Paris.
This article is without official attribution.
1. Leading writers on international law do not seem to have commented
extensively on this treaty function. But see Fiore, International Law Codified
and Its Legal Sanction 373-74 (Borchard trans., 191:3).
2. For a brief discussion of the historical development of treaties of this
type (sometimes Jmown as "commercial" treaties, a term which also can refer
to instn,1ments of lesser scope), see Culbertson, Commercial Treaties, Z Encyc.
Soc. Sci. 24-31 (1930). Summaries of their purposive evolution in United
States policy may be found in Setser, Treaties to Aid American. B1tsfoess
Abroad, 40 Foreign Commerce Weekly 3 (September 11, 1950); Commercial
Treaty Program of the United States, U.S. Dept. of State Pub. 6565 (1958).
3. The treaty with France, 1778, 8 Stat. 12, T .S. No. 83 was ne.~t followed
by those with the Netherlands 1782, 8 Stat. 32, T.S. No. 249; Sweden
1783, 8 Stat. 60, T.S. No. 346; and Prussia 1785, 8 Stat. 84, T.S. No. 292 even
prior to the Constitutional Convention. A convenient compilation of treaty
texts, prepared under Senate auspices, is the four yolume Treaties, Conventions,
International Acts, Protocols and Agreements between the United
States of America and Other Powers (1776-1909 (2 vols.) Malloy ed.; 191()..
1923, Redmond ed.; 1923-1937, Trenwith ed.). Th-:! Trenwith volume contains
a table from which can be readily derived a chronological compilation of
treaties of this type, under whatever variant title.
4. Rcp1tblic of Cltfoa, 1946, 63 Stat. 1299, T.I.A.S. No. 1871; Ital:v, 1948,
63 Stat 2255, T.I.A.S. No. 1965, (Supplemented by Agreement of Sept. 26,
1951, Sen. E.xec. H., 82d Cong., 2d Sess.) ; Urttg1to'J', 1949, (Sen. Exec. D.,
81st Con., 2d Sess.); Ireland, 1950, 1 U.S. Treaties & Other Int'l Agreements
785, T.I.A.S. No. 2155; Coltembia, 1951, (Sen. Exec. M., 82d Cong., 1st Sess.,
Annex 82
806 MINNESOTA LAW REVIEW [Vol. 42:805
I. SCOPE AND CONTENT
In United States practice, although "friendship" is attributed
an honored place in the title and_ although the conclusion of a
treaty presupposes friendliness and good-will between the signatories,
these treaties are not political in character. Rather, they are
fundamentally economic and legal. Moreover, though "commerce"
, and "navigation" complete the title and accurately describe part of
their content, their concern nowadays is only secondarily with
foreign trade and shipping. They are "commercial" in the broadest
sense of that term; and they are above-all treaties of "establishment,''
concerned with the protection of persons, natural and juridical,
and of the property and interests of such persons. They define
the treatment each country owes the nationals of the other; their
rights to engage in business and other activities within the boundaries
of the former; and the respect due them, their property and
their enterprises.
Their current preoccupation with these matters has been especially
responsive to the contemporary need for a code of private
foreign investment ; and their adaptability for use as a vehicle in
the forwarding of an investment aim follows from their historical
concern with establishment matters. Familiar elements in them stood
ready to be amplified and reconditioned to meet contemporary needs
and circumstances.:. The pattern formed by the series of sixteen
signed since 1946 is accordingly distinguished in complexion from
that formed by the several different series concluded in past eras. 0
withdrawn from Senate June 30, 1953); Ethiopia, 1951, 4 U.S. Treaties &
Other Int'l Agreements 2134, T.I.A.S. No. 2864; Israel, 1951, 5 U.S. Treaties
& Other Int'l Agreements 550, T.I.A.S. No. 2948; Greece, 1951, 5 U.S.
Treaties & Other Int'l Agreements 1829, T.I.A.S. No. 3057; Denmark, 1951,
(Sen. Exec. I., 82d Cong., 2d Sess.); Japan, 1953, 4 U.S. Treaties & Other
Int'l Agreements 2063, T.I.A.S. No. 2863; Federal Republic of Gemumy,
1954, 7 U.S. Treaties & Other Int'l Agreements 1839, T.I.A.S. No. 3593;
Haiti, 1955, (Sen. Exec. H., 84th Cong., 1st Sess., withdrawn from Senate
Aug. 8, 1957) ; Iran, 1955, T.I.A.S. No. 3853; Nicaragua, 1956, (Sen. Exec.
G., 84th Cong., 2d. Sess.); Netherlands, 1956, T.I.A.S. No. 3942; Korea, 1956,
T.I.A.S. No. 3947. The treaties with Ethiopia and Iran represent considerably
abridged versions and vary also from the others in that they contain provisions
on consular rights. A subject matter usually dealt with in separate conventions,
by current United States practice. The Uruguay example also has a variant
detail in its title: "Economic Development" in lieu of "Navigation."
5. See Walker, Treaties for the Encouragement and Protectio,i of
Foreign Investment: Presmt United States Practice, 5 Am. J. Comp. L. 229
(1956).
6. The 12 treaties in the last-preceding series, the period between the two
World Wars, beginning with the German treaty of 1923, 44 Stat 2132, T.S.
No. 725, usually carried a number of articles dealing with consuls, consistent
with their scheme of devoting the major part of their space to trade
and shipping. By contrast, the major part of the significant establishment
rights, now usually spread over a dozen articles, was covered in a single
article which was given the lead position. I d. at art. I.
Annex 82
1958] COMMERCIAL TREATIES 807
Nevertheless, this pattern is at the same time of a kind with its
predecessors, and in the same direct line of evolution, having the
same broad design and covering generally the same subject-matter.
There has taken place merely a shift in inten1al emphasis away from
trade and shipping, and that which is ancillary to trade and shipping,
a shift facilitated by the recent development of alternative instruments
for dealing with international trade.1
Because of their common identification with common objectives
all sixteen of the current series show close kinship, but no two of
them of course are identical. The several units of the series each reveal
numerous variations, especially in their secondary details, owing
to having each been negotiated free-will with a different country and
having taken account of individual differences in viewpoint and condition.
They differ particularly in that, subsequent to the first two
(China, 1946 and Italy, 1948) the model form used to initiate
negotiations was completely recast in the interest of compactness,
greater clarity and legal sufficiency, and completeness of content.
Further, the form used in another two of them (Ethiopia, 1951 and
Iran, 1955) represents a specially abridged edition.8 The universality
of the program-as witness the geographical spread, the
variety in size and circumstance of the countries involved, and the
avowed willingness of the United States to treat equally all likeminded
countries-demands flexibility along with adherence to a
common core of purpose, orientation and basic content.
With the accretion of precedent and experience in framing acceptable
norms, the later ones tend towards a greater display of uni-
7. The e.~ecutive trade-agreement device, originally authorized by the
Trade Agreements Act of 1934, 48 Stat. 943, 19 U.S.C. §§ 1351-54 rev., 1948,
62 Stat. 1053, 19 U.S.C. §§ 1360-67. This type of agTeement provides a flexible
framework within which specific concessions in rates of duty can be reciprocally
negotiated, item-by-item. Originally, the negotiating program was bi-
1ateral; but since 1947 the negotiations and agrtements reached have been
principally under the aegis of the multilateral General Agreement on Tariffs
and Trade 61 (5) (6) Stat. A3, A2054 T.I.A.S. No. 1700. 37 countries, accounting
for approximately 80 per cent of the world's international trade, now
adhere to the GATT.
8. These abridgements were occasioned, on the one hand, by the lack
of any practical need for negotiating certain provisions or elaborations of
provisions occurring in the standard form of the treaty that could be regarded
as having secondary consequence or as largely irrelevant to relations with
the countries concerned and, on the other hand, by the desire to use the treaty
as a vehicle for dealing with the essentials of diplomatic and consular status.
For synopses of the content of typical recent treaties and comparison with·
that of the Ethiopia and Iran treaties, see tables in Commercial Treaties,
Hearing before a S1'bcommittee of the Senate Committee on Foreign Relations,
83d Cong., 1st Sess., 6-17 (1953) ; Commercial Treaties with lrmi,
Nicara91ca, atzd tlie Netherla1tds, Hearing before the Senate Committee on
Smatc Foreig1i Relations, 84th Cong., 2d Sess., 5-9 (1956).
Annex 82
808 MINNESOTA LAW REVIEW [Vol. 42:805
formity; the following synoptical outline of normal content follows
the later rather. than the earlier examples:
Preamble, general,purposes.
Entry, movement and residence of individuals.
Liberty of conscience and communication.
Protection of persons from molestation and police malpractices.
Protection of acquired property.
Standing in the courts.
Right to establish and operate businesses.
Formation and management of corporations.
Non-profit activities. .
Acquisition and tenure of property.
Tax treatment.
Administration and exchange controls.
Rules on international trade and customs administration.
Rules governing the state in business.
Treatment of ships and shipping.
Transit of goods and persons.
Reservations, definitions and general provisions.
Settlement of disputes.
Procedural clauses.
Protocol, an appendix of varying length, containing material
construing and clarifying the treaty text, and making accommodations
to take account of individual situations.9
This broad framework allows room for serving a variety of
subsidiary interests, for which no other practicable medium may be
available, or the regulation of which raises complications not readily
overcome by the normal rules of the treaty, or with respect to which
the other party to the negotiation may cherish a particular interest.
Thus, a detailed scrutiny of signed treaties would show that, in
addition to the subject matter outlined above, the treaty also has
been used as a vehicle for dealing with a number of special questions,
such as: freedom of reporting, social security, commercial arbitration,
commercial travelers, marine insurance and restrictive business
practices.10 On the other hand, just as some of these special
9. The Protocol, by serving inter alia as a convenient vehicle in attending
to special variations or preoccupations of individual countries, reduces the
amount of deviation between treaties, with respect to general outline, basic
content and array of principles. It also serves as a bulletin board for posting
certain tenets of construction which are considered desirable to record
formally but which may lead to mischievous inferences of being substantive
additions rather than precautionary explanations, if they are integrated into
the rule to which they relate.
10. Freedom of reporting and restrictive business practices are e..xamples
of particular subjects of interest to the United States on which satisfactory
multilateral progress under United Nations auspices has been wanting. See,
e.g., on freedom of reporting, Report of tlie United States Delegates to the
United Nations Conference o,i Freedom of lttformation, U.S. Dept. of State
Pub. 3150 (1948); on restrictive business practices, Domke, The United
Annex 82
1958) COMMERCIAL TREATIES 809
features are not to be found in earlier exampl-es of the series, so there
are missing from the later ones provisions on compulsory military
service and the practice of the professions, dropped because of
domestic developments.11
II. THE RULES OF TREATMENT
The attribute these treaties share which gives consistency to their
pattern, even more than the similarity of their subject matter, is
the way in which that subject-matter is molded into concrete provisions.
The considerations determining the character of the rules
applicable to the various topics covered are several. In the first place,
the protective objects in view require firm rules of law, established
on a relatively stable basis. These treaties are normally concluded
for an initial period of ten years certain am: indefinitely thereafter,
unless and until terminated upon the giving of one year's formal
notice.1
:i Durability requires in turn that the commitments be essentially
reasonable. Both this and the long list of subjects covered demand
rules framed in terms of principles that remain valid regardless
of an unpredictable future. Being occupied with essential principles
of equity and fair treatment, their negotiation does not provide
an arena for the trading of concessions or the bargaicing for an
Nations Draft Co,wmtion, 011, Restrictive B11,Sin,ess Practices, 4 Int & Comp.
L. Q. 129 (1955). Marine insurance (a post-1952 development) and commercial
arbitration illustrate subjects requiring ~.pecial hand.ling. See, e.g.,
discussion on marine insurance in Commercial Treaties, Heariug before a
Subcommittee of the Senate Committee 011, Foreign, Relations, 82d Cong., 2d
Scss., 36-37 (1952); and, for arbitration, \Valker, Commercial Arbitration in
U,iitcd States Treaties, 11 Arb. J. (n.s.) 68 (1956). Social Security exemplifies
a subject of practical interest to the other countries rather than to the
United States. See, Analysis of the Social Sewrity System, Hearings before
a Subcommittee of the House Committee 011.. Ways and Means, 83d Cong., 1st
Sess., 174-75 (1953).
11. For an interesting e.--..:planation, from a mainly European point of
view, of some of the factors involved in United States military service policy,
see Probst, Internalio,ial Demarcation of Compitlsory Military Service with
Special Emphasis on the Swiss-United States s:tuatioii, 45 Geo. L. J. 60
(1956). For the relationship between selective service legislation and treaty
provisions on military service, see particularly Pr!tition of Moser, 182 F.2d
734 (2d .Cir. 1950), rev'd sub 11-om. Moser v. United States, 341 U.S. 41
(1951) ; United States v. Rumsa, 212 F.2d 9V (7th Cir. 1954); United States
v. Grcdzens, 125 F. Supp, 867 (D.C. Minn. 1954) ; Ex parte Blazekovic, 248
F. 327 (D.C. Mich. 1918); Summertime v. Local Board, Div. No. 10, 248 F.
832 (D.C. Mich. 1917) ; Ex parte Larrucea, 249 F. 981 (D.C. Cal. 1917).
Domestic policy considerations affecting treaty provisions on the practice of
professions are brought out in : Commercial Treaties, H eariug before a S1tbcommittee
of the Senate Committee 01i Foreig1i Relations, 82d Cong., '2d
Sess., 35-40 (1952); Commercial Treaties, Hearings before a Snbcommittee of
the Seuate Committee 01i Foreign Relations, 83d Cong., 1st Sess., 28 (1953).
12. The 1815 treaty with Great Britain, 8 Stat. 228, T.S. No. 110, is still
in force, and there are e.--..:amples only less venerable with other countries,
e.g., Columbia, 1846, 9 Stat. 881, T.S. No. 54.
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810 MINNESOTA LAW REVIEW [Vol. 42:805
array of tangible quid pro quos. Negotiable rule-making, entailing
freely accepted limitations upon sovereign liberty of action, cannot
therefore exceed in intensity that which nations consider to be compatible
with international comity and internal law-making dignity.
The lively debate recently attending the proposed constitutional
amendment with which Senator Bricker's name is associated has
underscored the weightiness of this consideration. As the treaty of
friendship, commerce and navigation is the classic example of an
instrument having potential or actual impact on domestic law, a
great deal was heard of these treaties during the course of that
debate. Opponents of the proposed amendment were fearful lest it
frustrate the government's ability effectively to negotiate them in
future; proponents contended these fears were ill-founded.13 But if
the concurrence of both sides on their desirability and acceptability
as law of the land14 attests to the judiciousness with which treaty
provisions have been fitted into the known fabric of United States
law, the issue likewise exemplifies a concern not confined to the
United States. Other countries as well scrutinize carefully the way
treaty commitments affect their internal law. Accordingly, the
successful development of a treaty program of world-wide applicability
entails the construction of an equation in which must be
reconciled the need for positive, universally tenable rules of law,
with the equal need for moderation and a spirit of accommodation
within a distinctive framework of basic purpose.
These considerations have led to the extensive use of so-called
contingent standards as the cornerstone of rule-making. A contingent
standard is, as its name implies, one that defines the treatment
provided in relative terms. The specific content of the treatment,
at any given point of time and in connection with any given
13. The former view was frequently urged by both private and government
witnesses. For a typical general expression thereof see the subcommittee
minority report, S. Rep. No. 412, 83d Cong., 1st Sess., 45 (1953). For the
latter view, see testimony of Senator John W. Bricker, Treaties and Executive
Agreements, Hearings before a S1tbcommittee of the Senate Committee
on the lmJiciary oti S.J. Res. 1 and S.l. Res. 43, 83d Cong., 1st Sess., 8 (1953),
and in Treaties and E¾ectttive Agreements, Hearings before a Sttbcommittce
of the Senate Committee 01i the huliciary 011, SJ. Res.1, 84th Cong,, 1st Sess.,
297-98 (1955); also testimony of Dr. George A. Finch, id. at 506.
14. The Senate roll-call vote, on the question of advice and consent to
ratification of a group of five of them at a time when the controversy was
at its height, was virtually unanimous in favor, 99 Cong. Ree. 9316-17 (1953).
The Congress as a whole contemporaneously displayed a favorable disposition
towards these treaties by calling for an acceleration of the program for their
negotiation. See Section 7(k) of Mutual Security Act of 1952, 66 Stat. 146,
22 U.S.C. § 1667 (1952), amending Section 516(d) of the 1951 Act (65 Stat.
382). This provision was revised and reenacted by Section 413(b) (2) of the
Mutual Security Act of 1954, 68 Stat. 847, 22 U.S.C. § 1933 b(2) (Supp. IV,
1952).
Annex 82
1958] COMMERCIAL TREATIES 811
subject, is determinable not from a reading ·:.>f the treaty itself, but by
reference to an exterior state of law and fact. The objective is to
secure non-discrimination, or equality of treatment: a sort of
"equal protection of the laws" objective.
There are two principal contingent standards : the "most-favored
nation" clause and the "national treatment" clause. The former
assures non-discrimination as compared with other aliens or alien
things ; the latter, as compared with citizens of the country and
national things.16 Which of these clauses is made applicable to a
given subject can make a great deal of difference 'in the strength
of the treaty assurance vouch-safed. Under past regimes of extraterritoriality,
where aliens enjoyed special status, most-favorednation
treatment often meant privileged treatment and was accordingly
a standard sought in preference to national treatment in many
situations. But such situations are e.."t:Ceptional in the present era,
dominated as it is by ideas of nationalism, self-determination and the
sovereign equality of all nations.16 The most-favored-nation rule
can now, therefore, imply or allow the status of alien disability rather
than of favor. In applicable situations nowadays, the first-class treatment
tends to be national treatment; that which the citizens of the
country enjoy. The hallmark of the current treaty program is the
advanced degree to which it espouses the rule of national treatment;
and the achievement of this standard, in turn, is beset by the obstacles
growing out of the nationalism and etatisme of the age.
There is also a certain margin for the play of non-contigent
standards, or "absolute" rules, in the formulation of treaty provisions.
This is rule-making in independent terms, without reference
to the treatment given to others. Although non-contingent standards,
because of their implication of definiteness might at first blush appear
to provide the avenue to provisions of maximum positiveness
and efficacy, the utility of the approach is in fact quite limited. The
scope of these treaties is such that, to be manageable, their content
of rules must be stated essentially in a swnmary or simple fashion. A
15. As typically defined in the treaties : "The term 'national treatment'
means treatment accorded within the territories of a Party upon terms no
less favorable than the treatment accorded therein, in like situations, to
nationals, companies, products, vessels or other objects, as the case may be,
of such Party." Korea treaty, 1956, T.I.A.S. No. 3947, art. XXII, Para. 1.
Similarly, 11mtatis mt1tamli, £or most-favored-nation treatment, with the pole
of reference being "any third country" in lieu of "such Party" id. at para. 2.
16. For the passing of remaining vestiges of classic extraterritoriality,
see Young, The Etid of American. ConS1elar Jwrisdiction, in Morocco~ 51 Am.
J. Int'l L. 402 (1957). For a special-situation modem examples of extraterritorial
jurisdiction, see Rouse and Baldwin, The Ezercise of Criminal
J11risdiction 11nder the NATO Stattts of Forces Agreement, 51 Am. J. Int'l L
29 (1957).
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812 MINNESOTA LAW REVIEW [Vol. 42:805
summary contingent rule has definiteness, because its content is
measured against a determinable pole of reference. But a swnmary
non-contingent rule may often be considerably less than so, when reduced
to language of agreement between nations of unlike faculties
of appreciation and different cultural and juridic backgrounds. The
need for avoiding rigidity-freezing today's wisdom into tomorrow's
folly-can not, in our international tower of Babel be served by the
same semantics that have so successfully kept the American Constitution
abreast of the times; raisonnable is not the "reasonable"
of American jurisprudence, nor is our "due process of law" faithfully
translatable into a foreign language.
An attempt to construct a treaty primarily in non-contingent
terms can prove self-defeating because increases in specificity spawn
corresponding increases in reservations. This tends to rob the
reference rules of the very definiteness it was their aim to accomplish.
You agree to something concrete, but reserve your "public
policy" or your "internal legislation." This is for the two-fold
reason that prudent governments will wish escapes for future contingencies
and will also wish to avoid purporting to attribute to
aliens independent rights placing them in a privileged status over
citizens of the country. Contingent standards, by contrast, carry
built-in automatic equalization and adjustment mechanisms. Therefore,
the non-contingent standard generally finds its best utility in
a few contexts in which, no contingent standard being adequate,
some recognizable body of applicable international law and terms
of art has nevertheless evolved ;11 it is also used at times faute de
niieu.x, or to suggest a general guide-post of behavior en Principe,
or to solve some special problem.
III. THE CHOICE OF APPLICABLE STANDARD
The varying considerations that govern the choice and cast of the
standard or standards applicable, subject to subject, may be illus~
trated by a few concrete major examples, which will indicate the
range of the differences to which treaty provisions need to be
adapted.
A. Entry of lndividual,s.
Being concerned with the "whole man" as it were, these treaties
start their rule-making at the beginning-the point at which an
individual, a company, a consignment of goods, or a ship, identified
17. It is possible to use international law itself, by name, as a standard
in commercial treaties. See Wilson, The International Law Standard in
Treaties of the United States 87-105 (1953).
Annex 82
1958] COMMERCIAL TREATIES 813
by national ties with one of the signatory countries, appears at the
threshold of the other.
As concerns natural persons, rights-of-entry cannot, by definition,
be assured on a national treatment basis. Moreover, because of
our selective immigration control and the differential national
origins quota feature of our immigration fa.w, the United States is
not in a position to agree to a most-favored-nation treatment clause.
Therefore, the approach devised takes the form of a non-contingent
rule which positively assures the reciprocal admission, and indefinite
sojourn, of individuals who function in an international commerce or
investment capacity.18 Because it is positive, this commitment is subjected
to the reserved right of each country to exclude or expel
particular individuals who are deemed undesirable for health,
morality or security reasons.
A commitment so framed tends to be a least common denominator,
for the entry-control policies of other governments usually do
not involve national-origin quotas ; and the selection they practice
tends to be exercised less at point of entry than at the point of gainful
occupation within the country. The problem for them is not
necessarily solved by the wording of the entry-clause, as such, but
focuses upon the provision dealing with the business and occupational
rights of admitted persons, especially as they might affect
the national labor market ~d the petty trades. The United States
objective, generally speaking, is to establish the principle of national
treatment in this connection.19 Therefore, the safeguards
which the United States side can adequately provide for by careful
18. Present statutory authority for these "treaty trader' and ''treaty
investor" clauses is contained in Section 101 (a) (15) {E) of the Immigration
and Nationality Act of 1952, 66 Stat. 168, 8 U.S.C. § 1101 (1952). The
former was included in the Immigration Act of 1924 ( 43 Stat. 155), and the
"treaty investor" provision was introduced in the course of the extensive
revision of the immigration laws which resulted in the Act 0£ 1952. Hence
provisions on treaty investors appear only in treaties concluded since 1952. For
comment see Wilso~1 "Treaty Merchant" Clauses in Commercial Treaties of
tlie United States, -44 Am. J. Int'l L. 145 (1950); "Treaty Investor'' Clattses
in Commercial Treaties of the United States, 49 _i\rn. J. Int'l L. 366 (1955).
19. The standard rule is: "Nationals and companies of either Party
shall . be accorded national treatment with respect to engaging in all types
of commercial, industrial, financial and other activities for gain ... within the
territories of the other Party .... " (Korea treaty, op. cit. stipra note 15 at
art. VII, para. 1 as well as " • .. with respect to engaging in scientific, educational,
religious and philanthropic activities . . .'' id. at art. VIII, para. 2.
There is an e>.."l)ress reservation allowing a1ienage restrictions as to "transport,
communications, public utilities, banking involving depository or fiduciary
functions, or the exploitation of land or other natural resources." I d. at art.
VII, para. 2. Moreover, the practice of the professions is not included in the
recitation of rights for which commitments are undertaken (e.g., Netherlands
treaty, 1956, T.I.A.S. No. 3942, Protocol para. 8. See note 11, supra).
Annex 82
814 MINNESOTA LAW REVIEW [Vol. 42:805
framing of the entry-clause20 must be sometimes paralleled by an
understanding regarding the other country's administration of its
occupational permit system. 21
B. Entry of Goods.
The entry of goods is placed under the regime of the traditional
most-favored-nation treatment clause, the national treatment clause
being patently inapplicable, so long as nations maintain tariffs and
other differential regulations upon products of foreign origin. This
most-favored-nation clause is now in the unconditional form, and
has been since the United States abandoned the cumbersome "conditional"
form in 1922-23.22
The securing of non-contingent commitments regarding duties
( for e..""<:ample, the fixing of rates of duty) is not the function of a
general, long-term treaty, but rather of "trade agreements" especially
devised for that purpose and subject to revisions on short
notice. It is, however, possible to establish certain positive rules with
regard to administrative practices ; and the treaties have been a
vehicle for treating a number of these ( for example, public notice
of new or changed requirements, so that traders can be informed
and forewarned; and procedures whereby the decisions of customs
officers can be appealed). 23
20. By affirmative description, the assured entry right is limited to those
falling in a defined international trader or investor category; and the maintenance
of occupational restrictions attached to limited visas ( e.g., temporary
tourist or student visas) is left unambiguous, through insertion of an understanding
that: "Nationals of either Party admitted into the territories of the
other Party for limited purposes shall not enjoy rights to engage in gainful
occupations in contravention of limitations expressly imposed, according to
law, as a condition of their admittance.'' Korea treaty, op. cit. S1tpra note 15
at art. XXI, para. 4.
21. E.g., Federal Republic of Germany, 1954, 7 U.S. Treaties & Other
Int'l Agreements 1839, T.I.A.S. No. 3593, Protocol para. 8: ''With reference
to Article VII, paragraph 1, a Party may apply regulations under which
alien employees within its territories are required to have employment l)Crmits;
but, in keeping with the objectives of that paragraph, such regulations
shall be administered in a liberal fashion as to nationals of the other Party."
,vording of this sort, which emphasizes compliance with procedure without
impairment of main substance, is made possible by the circumstance that, as a
practical matter, Americans do not typically go abroad to seek work in the
kinds of capacity that local occupational restrictions are primarily designed
to protect.
22. The unconditional form of the most-fa.vored-nation clause is the
usual rule of international practice in commercial matters, e.g., GATT, 1947,
61 (5)(6) Stat. A3, A2054, T.I.A.S. No. 1700, art. I. Under it, all advantages
and rights accorded any third country accrue automatically, in contrast
with the "conditional" regime whereunder such advantages, if accorded
in return for a compensation, accrued only on payment of an equivalent compensation.
An understanding that the most-favored-nation clauses of the current
series of treaties are in principle unconditional is generally set forth
in their preambles. For materials illustrating the policy considerations involved
Annex 82
1958] COl!.HfERCIAL TREATIES 815
In dealing with trade there are a number of special problems for
which a simple most-favored-nation clause does not, in and of
itself, provide a solution. Among them are the following, for each
of which special provision has been necessary: ( 1). Quantitative
restrictions are often, in current practice, a more important control
over imports than the tariff. Countries often administer them
through allocations by country of origin; that is, giving named countries
a~ed allotments rather than opening the total amount to all
comers on a competitive, first-come first-served basis. What does
most-favored-nation treatment mean in a country allotment situation
?2
• (2). State-trading, or the control of imports by a statecontrolled
monopoly, has come to have an important part in the commercial
practices of many countries. The conduct of import trade
thus by entity, rather than by rules of generally applicable law concerning
rates of duty and amounts under quantitative regulations,
escapes the prescriptions of a most-favored-nation clause, which is
an objective rule of the game rather than a code of conduct for an
entity.25 (3). In a day when administered controls have been necessitated
by balance-of-payments difficulties, and when the controls have
to necessarily distinguish between sources of supply according to the
respective availabilities of "soft" and "hard" currencies, a simple
most-favored-nation rule breaks down. It must be supplemented by
specially-drafted provisions which make a realistic adjustment to
this phenomenon, in a mutually agreeable manner.20 ( 4). Finally, the
emergence of international ( e.g., the General Agreement on Tariffs
and Trade) and regional ( e.g., the Benelux and the new Common
Market) organizations concerned with trade, have again necessiin
the shift to the unconditional form, see 1 Foreign Relations of the United
States 1923, 121-31 (1938) ; 2 Foreign Relations of the United States 1924,
183-92 (1939). See also Culbertson, Reciprocity 167-70, 238-79 (1937).
23. E.g., Korea treaty, op. cit. supra note 15 at art. XV, para. 1, Z.
24. The rule sought is a pro-rating according to the amount of the
commodity supplied historically ("during a previm::s representative period").
E.g., id. at art. XIV, para. 3(b) ; GATT, op. cit. sitpra note 22 at art. XIII,
para. 2 ( d), second sentence.
25. The rule sought is to oblige state-trading and monopolistic entities
to conform in their e.."<temal purchases and sales to e.."<clusively "commercial
considerations," that is, to act without favor or discrimination in keeping with
the aim of the most-favored-nation treatment principle. E.g., Korea treaty,
op. cit. sttpra note 15 at art. XVII, para. 1; GATT, op. cit. s1ipra note 22 at
art. XVII, para. 1 (b) .
26. The solution allows quantitative restriction:, to be applied in a manner
deviating from the rule of non-discrimination, tc• the extent they can be
rationally justified by state-of-reserves considera,:ions (e.g., the need for
closely managing limited holdings of convertible currencies, notably dollars).
For wording, see, e.g., Korea treaty, supra at art. XIV, para. 7. Compare
GATT, srtpra at art. XIV, and Annex J, for a more elaborate attempt to
regulate the complex: problem posed by exchange difficulties and the accompanying
phenomenon of inconvertibility and tight currency controls.
Annex 82
816 MINNESOTA LAW REVIEW [Vol. 42:805
tated the formulation of exceptions to the simple bilateral mostfavored-
nation rule. These exceptions have been designed, on the
one hand, to avoid treaty interference with their proper and successful
functioning and, on the other, to assure that essential United
States interests will be safeguarded.27
C. Entry of Ships.
In the field of international shipping, owing to the evolution of
international practice among major shipping powers, it has been
possible to espouse the rule of national treatment as the preferred
standard to apply to the entry of ships and their cargoes into the
ports and harbors of each country.28 The spreading of this rule
through a network of treaties is calculated to build a dam against
retrogression to flag discrimination29 which the United States and
other maritime nations struggled hard to overcome during the
course of the nineteenth century. 30 The simple national treatment
rule even here, however, is not unattended by complications arising
from the fact that the United States, in company with other countries,
does subsidize its own merchant marine and cannot agree
to extend equal subsidies to foreign flag vessels. The solution to this
problem has been through careful framing of the scope of the
27. A reservation for a true customs union (e.g., the Benelux) insulating
the trade between the members thereof from the ambit of the most-favorednation
clause, is customary. E.g., Korea treaty sitpra at art. XIV, para. 6(c).
A reservation to assure that the commitments of the treaty do not interfere
with the functioning of the GATT, so long as the United States is party
thereto, is also standard at present. E.g., id. at art. XXI, para. 3. But the
emergence of a new and untried economic integration entity such as the Common
Market (Treaty of Rome, signed March 25, 1957, establishing a European
Economic Community between France, Germany, Italy and the Benelux
countries. Rome, 1957, 51 Am. J. Int'l L. 865 (1957)) poses potential problems
for U.S. trade interests for which no simple formula is adequate. For an
endeavor to provide prudently for future contingencies in this connection,
see Exchange of Notes attached to the Netherlands treaty, T.I.A.S. No. 3942
at 49-52 ( 1956) .
28. For a brief general discussion of navigation provisions in treaties
see Hawkins, Commercial Treaties and Agreements : Principles and Practice
34-44 (1951). .
29. The tenn "flag discrimination" refers to the policy of requiring by
law or regulation that particular types of cargo or portions of a country's
foreign trade be carried by vessels flying the national flag. This policy may
be embodied in a variety of restrictive measures, perhaps the most common
is the "50-50 law'' dividing cargoes equally between national and foreign
vessels. The "50-50 law" also may be applied by bilateral agreement between
the two contracting parties to divide carriage of the foreign trade equally
between the vessels of each. For a brief summary of discriminatory shipping
practices affecting the United States merchant marine, see Corter, United
States Shipping Policy, 122-26 (1956).
30. For early United States policy, see Setser, The Commercial Reciprocity
Policy of the United States 1774-1829 (1937).
Annex 82
1958] COMl!.fERCIAL TREATIES 817
national treatment clause, in a manner obviating the need for exceptions
or e."\.1)ress qualifications. 31
D. Entry of Capital.
There remains the major question of the entry of investment
capital and the establishment of corporations. Here, in distinction to
persons, goods and ships, there is no tangible form appearing at the
border. The entry of capital and corporations is a more elusive
phenomenon that takes concrete form in connection with pursuing
a purpose within the country. The "entry" problem, therefore, is
very closely interlinked with the rule governing the right of establishing
a business or making a lucrative investment: the right of
the alien interest to enjoy major participation in the economic life
of the country. Because of the present-day importance of the corporate
form of doing business, and of the powerful aggregates
of capital that can be assembled under the corporate form for
investment purposes, the way in which this question is resolved
can become one of decisive importance in the negotiation of a treaty.
Historically, treaties were concerned at best only to a limited
extent with the rights of corporate enterpril:e ; and the devising of
workable rules to deal with them has been an outstanding contribution
of the post-1946 treaties.32 The rule which is in principle sought
is that of national treatment. This implies, in effect, the policy of the
"open door" for foreign investment. Though this is a policy in line
vvith general American practice since the earliest days, both as to
our receptivity toward foreign capital coming here and our attitude
toward the, movement of American capital abroad, it is one not
attributed universal acceptance. The development of bilaterally
t.greed rules on the subject are accompanied by several special prob-
31. By rule of construction ( i.e., the rule of the treaty does not affect
the conditions which the Government, in its proprietary capacity, might
choose to stipulate in connection with lending or 6ranting its own money),
a national Jaw reserving to carriage by national flag vessels of a certain
percentage of government-financed cargo, is als•:> saved without e.~press
reservation. A case in point is the Act of August 26, 1954 (68 Stat. 832,
46 U.S.C. § 1241 (Supp. IV, 1952)) which amended the Merchant Marine
Act, 1936, 49 Stat. 2015 to require that as a general rule at least 50 per cent
of foreign aid cargoes shall be carried in privately owned United States flag
vessels. An earlier law (Public Resolution 17 (1934) 48 Stat. 500, 15 U.S.C.
§ 616(a) (1952)) requires that in general 100 per cent of cargoes financed
by Export-Import Bank loans be transported in United States flag vessels, but,
because of e.~ceptions provided in the law, in practice United States vessels
carry approximately 50 per cent o! such cargoes. See Gorter, op. cit. sztpra
note 29 at 106-08. This legislation is to be distinguished from the "50-50 laws"
of certain coW1tries which apply to cargoes for private account
32. For a discussion of this subject, see Walker, Provisions 01i Companies
iii United States Commercial Treaties, 50 Am. J. Int'l L. 373 (1956).
Annex 82
818 MINNESOTA LAW REVIEW [Vol. 42:805
lems. On the United States side, there are two major ones. First,
despite the historical liberality of American law toward the foreign
investor, there are certain sensitive lines of business, specially
affected with a public interest, in which the law or administrative
regulation has developed either latent or actual restraints on alien
participation. These have been designed to preclude the possibility
of alien control ( e.g., deposit banking, domestic air transport, radiocommunications).
33 However, the legal policies of other countries
often manifest like tendencies, so that a consensus normally is
easily established concerning a minimum list of activities to be reserved
from the national treatment standard as to the right of establishment.
The problem which tends to be peculiar to the United States
arises from the prerogatives enjoyed by our states over the admission
of out-of-state corporations for domestic business. It is national
policy that the treaty power should respect this state prerogative.
This restraint on the latitude of the national government to assume
national treatment commitments undoubtedly figured among the
reasons explaining the lack of provisions on corporations in past
United States treaties. The opportunity for pursuing the subject
in the post-1946 treaties came with the devising of a special "federal
clause," which assimilates the alien corporation to the corporations
of sister states.34 Both are equally "foreign" in jurisprudence generally,
and are so considered for treaty purposes. The treaty alien
is thereby assured of treatment on a par with the bulk of his actual
competitors in interstate and intra-state commerce. In the context of
an economy which operates in fact preponderantly on an interstate
basis, and enjoys as such constitutional protection against state
harrassments, this solution assures a quantum of rights sufficiently
33. See note 19, supra, for a typical reservation. Examples of federal
statutes thus saved include: the Civil Aeronautics Act of 1938 (52 Stat. 978,
1005, 49 U.S.C. § 401(13), 521(b) (1) (1952) -domestic airlines); the
Communications Act of 1934 ( 48 Stat. 1086, 47 U.S.C. § 310 (1952)-radio
broadcasting licenses) ; the Federal Power Act of 1920 ( 41 Stat. 1065 ( d),
16 U.S.C. § 797(e) (1952)-licenses for water power facilities on public
lands and navigable streams). The reciprocity requirements of the Mineral
Leasing Act of 1920 ( 41 Stat. 437, 30 U.S.C. § 181 (1952)) involve a special
situation and are treated separately in the Protocol. See, e.g., Korea treaty
op. cit. siipra note 15 at Protocol, para. 6. For e......:planation of the special
nature of these requirements, see the discussion of their origin in De Novo,
The Movement for an Aggressive American Oil Policy Abroad, 1918-1920,
61 Am. Hist. Rev. 854, 870-72 (1956).
34. Typical wording goes: "National treatment accorded under the provisions
of the present Treaty to companies of the Republic of Korea shall, in
any State, Territory or possession of the United States of America, be the
treatment accorded therein to companies created or organized in other States,
Territories, and possessions of the United States of America." Korea treaty,
siepra at art. XXII, para. 4 .
Annex 82
1958] COMJ,fERCIAL TREATIES 819
ample to render it a negotiable one-acceptable alike to the foreign
country and the United States Senate. It has made possible the
reciprocal provision for national treatment vis-a-vis countries willing
to accept the national treatment principle as a matter of their own
general policy.
Negotiating compromises have been necessary in the measure
that other countries have not been prepared to undertake formal
commitments concerning the establishment of alien-controlled investments
in their territories. Some countries insist that their national
interest requires retention of freedom of action in determining
what alien-controlled investments they will permit from time to time
in the future. The right of these countries to retain this sovereign
right uncommitted must be respected. There is no useful purpose to
be served, from the point of view either of the prudent investor or of
hannonious international relations, in attempting to use these
treaties as a vehicle for forcing countries to agree to allow inv~tments
they do not want. The so-called right to uscreen" foreign
investments is hence recognized explicitly or implicitly in a number
of treaties that are considered otherwise satisfactory. There is a
great variation in the way this is done, because it is a highly individual
affair. The aim is to attain as much clarification of the country's
intended policies as may be practicable and, especially, to guarantee
duly established investors against subsequent discrimination.
The failure to find a welcome as to entry is of much less importance
than would be a failure, once having entered and invested in good
faith, to be protected against subsequent harsh treatment.
Aside from countries that require retention of general screening
prerogatives, there are certain others prepared to accept in general
the concept of national treatment, subject tc, a reservation re1ated
to balance-of-payments difficulties. Because of past and current
c:..xperience with exchange shortage problems, they do not wish to
be committed to accept investments likely to engender demands for
foreign exchange ( e.g., for remittance of earnings) disproportionate
to the constructive contribution the investments are calculated to
make to visible national production. The consequent screening
reservations adopted in some of the treaties are in terms open to a
certain latitude of interpretation because of the difficulty of formuJating
precise criteria by which cause can be objectively correlated to
effect.3r; In purport and intent, however, they are limited and
35. See, e.g., Korea treaty sitpra at Protocol, para. 7: ''Either Party
may impose restrictions on the introduction of foreign capital as may be
necessary to protect its monetary reserves as provided in Article XII, paraAnnex
82
820 MINNESOTA LAW REVIEW [Vol. 42:805
qualified, leaving the emphasis on national treatment as the major
rule in the treaty text.
However, all the treaties assure national treatment to permitted
investments. If there is full or qualified exception to the national
treatment rule to allow the screening of an investment at its point of
initiation, there is no recognized impairment of the standard as
concerns post-initiation treatment. For while practical treaty negotiating
objectives must conced_e the notion of selectivity and
differential control on entry of investments, its historical protective
role would be lost if it began admitting the legitimacy of discriminating'
against investments legally present in the territory. There is also
a supplementary, cumulative most-favored-nation treatment rule
covering aU aspects of an investment activity.3G
E. Acquisition of Interests.
One of the corollaries to the rules concerning the establishment
and activities of persons, natural or juridical, is the right to acquire.
The underlying right of establishment logically carries with it
"necessary and proper" ancillary rights; and the national treatment
rule, if recognized for the underlying right, would normally be
supposed to carry over to the things ancillary thereto.37 But a couple
of apparent ancillary rights, both describable under the rubric
"acquisition" of property, raise particular problems. The subject is
therefore handled independently for this reason, as well as for the
reason that provision for property acquisition has been traditionally
a feature of treaties, whether or not in connection with business or
investment, and that acquisition of property does not require
physical presence in the country.
The regulation of property tenure figures among the normal
prerogatives of the states ; and various of the states have in past
made plain their desire to restrict alien tenure in one degree or
graph 2." The provision so referred to reads : "Neither Party shall impose
exchange restrictions . . . except to the extent necessary to prevent its
monetary reserves from falling to a very low level or to effect a moderate
increase in very low monetary reserves. . . ." Thus the reservation, though
leaving a considerable margin of appreciation as concerns what or what may
not be "necessary," is susceptible of being invoked, in any event, only when the
country's monetary reserves are in a fragile situation requiring careful management
36. This means both (a) that most-favored-nation treatment is assured
in those exceptional instances where it might be more advantageous than
national treatment, and (b) that at least rnost-favored-nation treatment is
assured in situations not covered by the national treatment commitment.
37. For a case applying the famous doctrine of McCulloch v. Maryland,
18 U.S. ( 4 Wheat.) 316 (1819), in a treaty context, see Jordan v. Tashiro,
278 U.S. 123 (1928).
Annex 82
1958] COMMERCIAL TREATIES 821
another.38 The development of a viable and acceptable United States
treaty policy has therefore had to resolve the dilemma posed by the
need for respecting state prerogatives, on the one hand, and, on the
other, for obtaining definite reciprocal commitments in effectuation
of the international objectives in view. The accommodation devised
contains two elements : ( 1). The first is a reciprocal commitment for
national treatment in the acquisition and tenure of such leaseholds
as might be necessary to the carrying out of any treaty-authorized
purpose (e.g., .residence or a factory site). Since appropriately
drawn lease arrangements can afford a reasonable degree of security,
the indispensable access to property required for the conduct of a
treaty-recognized business or investment is thus assured. (2).
However, as to tenure of property over and above this and as to
acquistion of title in all cases, a so-called "de facto reciprocity"
formula is offered. Through this formula, first appearing in the 1937
treaty with Siam, 30 the American abroad :is in principle assured
national treatment. But this assurance is· subjected to the proviso
that this quantum of treatment may be withheld to the extent that
the laws of the state of his domicle ( state of charter, in case of a
corporation) contain alien disabilities.40 The states thus retain their
basic legislative freedom, to which is linked the responsibility for
deciding what treatment their citizens will obtain in the foreign
country. A most-favored-nation rule does not preclude the exten-
8ion of the national treatment provision contained in one of the
38. For recent surveys of e.-<lsting State restrictions in this field, which
differ in some particulars, see 1 Powell on Real Property 372--404 (1949);
McGovney, The Anti-Japanese Land Laws of California and Ten Other
States, 35 Cali£. L. Rev. 7, 21-24, 59-60 (1947) ; Blumrosen, Co,istitutional
Law-Eqtull Protection,-Validity of State Restr,iints on Alien Ownership
of Laud, 51 Mkh. L. Rev. 1053, 1055-57 (1953). For relationship of State
restrictions to treaty provisions on this subject, see Blythe v. Hinckley, 180
U.S. 333 (1901) ; Geofroy v. Riggs, 133 U.S. 258 (1890); Hauenstein v.
Lynham, 100 U.S. 483 (1879) ; Chirac v. Chirac, 15 U.S. (2 Wheat.) 259
(1817) ; Fairfa.""<'s Devisee v. Hunter's Lessee, 11 U.S. (7 Cranch) 603
(1812); Ware v. Hylton, 3 U.S. (3 Dall.) 199 (1?96).
39. 53 Stat. 1731, T.S. No. 940.
40. A typical e."'l:arnple of the formula is as follows: "Nationals and
companies of the United States of America shall be accorded, within the
territories of the Kingdom of the Netherlands, national treatment with respect
to acquiring by purchase, lease, or otherwise, and with respect to owning,
occupying and using land, buildings and other real property. However, in
the case of any such national domiciled in, or any such company constituted
under the Jaws of, any State, Territory or possession of the United States of
America that accords less than national treatment :o nationals and companies
of the Kingdom of the Netherlands in this respect, the Kingdom of the
Netherlands shall not be obligated to accord to such national or company
treatment more favorable in this respect than such State, Territory or
possession accords to nationals and companies of the Kingdom of the
Netherlands." Netherlands Treaty, 1956, T.I.A.S. No. 3942, art. IX, para. 2.
In a number of treaties, this formula does not appear, the obligations of the
other party being variously framed in a less exten~ive manner.
Annex 82
822 MINNESOTA LAW REVIEW [Vol. 42:805
mid-nineteenth century treaties that remains still in force.41
By contrast, as to personalty, whether tangible or intangible,
both national treatment and most-favored-nation treatment are
cwnulatively provided. But this is subject to a necessary qualification:
namely, an exception allowing restraints to be maintained to
prevent alien acquisition of shares in enterprises to a degree in conflict
with the reservations maintained concerning certain sensitive
fields of activity above cited. 42
The provisions on acquisition also extend to the right to buy
into, or to buy up existing domestic corporations, in order to open
to the treaty-investor an alternative to operating through the form
of a direct branch. Provision for this right and its companion, the
right to form a domestic corporation, has occasioned an interesting
development in international jurisprudence, in that the giving of
treaty prot~tion to the alien-controlled domestic corporation means
that the signatory country has asswned an international obligation
vis-a-vis one of its own creatures, and has recognized the right
of the other signatory to intervene in behalf thereof. In view of what
a lemed scholar has ascertained to be the probable state of international
law in this respect, 43 this obligation has not been left to
implication in the treaties' wording.
F. Protection of Persons and Property.
Probably the most important purpose a treaty is designed to
serve-even more than the settling of rules to govern entry, establishment,
acquisition, and the conduct of business-is the protection
of persons, property and other acquired interests from ill-usage and
spoliation. Here, national treatment and most-favored-nation treatment
with regard to protection of the laws, access to the courts,"'
41. Treaty of 1853 with Argentina, 10 Stat. 1009, T.S. No. 4, art. IX.
At that epoch, several other treaties, not now in force, signed with countries
of the Western Hemisphere contained this rule, e.g., Salvador, 1850, 10 Stat.
891, T.S. No. 308. But the policy of not safeguarding State laws was not
extended elsewhere even then. For an accowit of a contemporary European
treaty that had to be renegotiated because the American plenipotentiary had
not observed this policy, see 5 Miller, Treaties and Other International Acts
ur the United States of America. 868-69, 878-81, 891-94 (1937), concerning
the Treaty of 1850 with Switzerland, 11 Stat 587, T.S. No. 353.
42. See note 19, S1ipra. This exception is to close the technical loophole
of allowing aliens to acquire an interest in corporations engaged in reserved
"sensitive" activities, by purchasing stock through the national treatment
right to acquire personalty.
43. Jones, Claims 01i Behalf of Nationals Who Are Shareholders fo
Foreign Corporations, 26 Brit. Yr. Bk. Int'I L. 257 (1949) says that "ex hypothesi,
no state can intervene on behalf of a corporation against its own
government."
44. Further on this particular subject, see Wilson, Access to Coi,rts
Provisions in United States Commercial Treaties, 47 Am. J. lnt'l L. 20 (1953).
Annex 82
1958] COMMERCIAL TREATIES 823
and so on, while of course generally provided, are not sufficient."6
Certain non-contingent principles that immunize the treaty alien and
his property from possible vagaries of national law and administration
are also needed. This is a reflection of the basic standard of
treatment that enlightened international practice in countries owe to
their alien guests. Thus, in addition to other rules, it is provided
that the treaty alien, in the peaceful pursuit of his lawful occasions,
shall enjoy freedom of movement, freedom of conscience, and freedom
of communication; that he shall be extended the "most constant
security and protection" by the authorities, and not be subject to
molestations; and that, if placed in custody, he shall enjoy the right
of having his consul immediately notified, be promptly informed
of the charges against him, receive a prompt trial with benefit of
competent counsel, and be always treated humanely.46 His property
cannot be searched or seized except for due cause and in lawful and
reasonable manner.
Most importantly, any sequestration or expropriation must be
accompanied by prompt, just and effective compensation: that is,
convertible valuta representating the worth of the property, paid
expeditiously.47 This is an especially valuable right in a day when
nationalizations, often entailing great losses to the private owners,
has tended to become not uncommon. The provision is given force
through the' use of words that have meaning in international jurisprudence,
and by a provision for the submfasion of othenvise unresolvable
disputes to the International Court of Justice ( a submission
provision which, in fact, applies to all parts of the treaty). ' 8
IV. CONCLUDING REMARKS
The traditional treaty of friendship, commerce and navigation,
which in its recognizable modern form found its most widespread
45. For a general discussion of the national treatment status of aliens
under the law in the United States, see Gibson, Aliens and the Law (1940).
Basically, a treaty serves to embody in the form of reciprocal commitment the
fundamental protections aliens receive as a matter of course under the Constitution
and Jaws of the United States.
46. These matters are given the emphasis of simple assertion, and early
mention in the organization of the treaty, e.g., Korea treaty, 1956, T.I.A.S.
No. 3947, art. II, para. 2, and art. III, prefaced by a general admonition for
equitable treatment at all times. I d. at art. I.
47. "Property of nationals and companies of either Party shall not be
taken within the territories of the other Party except for a public purpose,
nor shall it be taken without the prompt payment of just compensation. Such
compensation shall be in an effectively realizable form and shall represent the
full equivalent of the property taken. . . ." Korea treaty, S1epra at art. VI,
para. 4.
48. This important "compromissory clause" is found in standard form
in the Korea treaty supra at art. XXIV, para. 2. It is also standard for this
provision to be preceded by a consultation clause designed to facilitate the
settlement of difficulties before they develop into di~.putes. Id. at para. 1.
Annex 82
824 MINNESOTA LAW REVIEW [Vol. 42:805
use during the nineteenth century and the first third of the present
one, has continued to enjoy a place in the diplomacy of the United
States in the post-World War II years of international affairs. This
is because it affords a ready-made and versatile medium capable
of adaptation to present needs, for the satisfaction of which no
suitable alternative medium has yet been devised, notwithstanding
the latter-day proliferation of multilateral organizations and new
techniques for approaching the world's economic problems. The
need is present because private persons and business continue to
venture abroad-indeed are encouraged to venture themselves and
their capital abroad, where they require the protection of their government-
in a world divided into independent sovereign states not
yet subject to an adequate corpus of international law of recognized
applicability to the area of the treaty's major concern. This area
has historically been a concern of these treaties: the rights and status
of the person, and of his property and enterprise.
The intergovernmental regulation of these rights, by the establishment
of reciprocally binding rules of law, requires a certain community
of ideals regarding the respect for private property, the
dignity of the individual, and the degree to which the foreigner
should be allowed to participate in the economic life of the country.
It also requires mutual forebearance, and an interest in undertaking
formal Iong:-term commitments towards the foreigner, binding as
~oainst internal legislative and administrative freedom. The outward
limits of any treaty to which the United States subscribes are
accordingly set by the extent of the rights it is willing to accord
in face of its own state and federal legislation, just as the inner
limits are set by what are considered to be the minimal provisions
of an efficacious treaty.
The technical tasks presented by a negotiation, though often
ta.."{ing upon the ingenuity, are solvable when there exists reciprocal
willingness on the level of principle in the margin lying between
these two limits. The lack of a sufficiently worldwide consensus on
this level of principle still seriously clouds the prospects for any
satisfactory multilateral code of protection for foreign investment,
as is sometimes advocated. Yet at no time in history have Americans
had a heavier stake of business and other interests in foreign countries.
Meanwhile, the traditional bilateral approach offers the opportunity,
in the context of a general regulation of relations commencing
with the idea of "friendship," to accomplish step-by-step such
progress as is now possible in building international rules of law
for the protection of persons and their legitimate interests abroad.
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All use subject to https://about.jstor.org/terms Annex 83
THE POST-WAR COMMERCIAL TREATY PROGRAM
OF THE UNITED STATES•
DURING the decade 1946-1956, the United States completed
the negotiation of commercial treaties with
sixteen countries. These countries, in geographical
distribution, size and national circumstance, comprise rather
a cross section of the world outside the Soviet bloc. In Asia
those represented include Nationalist China, Korea, Japan,
Iran and Israel; in Africa, Ethiopia; in Latin America, Colombia,
Haiti, Nicaragua and Uruguay; in Europe, Denmark,
the Federal Republic of Germany, Greece, Ireland,
Italy and the Netherlands.1 As the Department of State
avowedly stands ready to negotiate with every like-minded
country, others will undoubtedly be added to the list in due
course.
These treaties, more fully known as treaties of " friendship,
commerce, and navigation ", are long-range instruments
of a general type made familiar by international practice of
former years. In contradistinction to limited-purpose trade
agreements dealing with commerce in the narrow sense, they
are designed to establish the ground rules regulating economic
intercourse in the broad sense, and they accordingly
must reflect a meeting of minds regarding proper international
standards of behavior on a variety of subject matters.
• The views expressed here are those of the author only and do not ne<:es•
sarily reflect the position of the Department of State.
I China, 1946 (63 Stat. 1299); Italy, 1948 (63 Stat. 2255) supplemented by
Agreement of September 26, 1951 (S. Exec. H, 82d Cong., 2d SeM.); Urugua-,,
1949 (S. Exec. D, 81st Cong., 2d Sess.); Ireland, 1950 (1 UST 785); Colombia,
1951 (S. Exec. M, 82d Cong., 1st Sess., withdrawn from Senate June 30, 1953);
Ethiopia, 1951 (4 UST 2134); Greece, 1951 (5 UST 1829); Israel, 1951 (5 UST
550); Denmark, 1951 (S. Exec. I, 82d Cong., 2d Sess.); Japan, 1953 (4 UST
2063); Federal Republic of Germany, 1954 (TIAS 3593); Haiti, 1955 (S. Exec.
H, 84th Cong., 1st Sess., withdrawn from Senate, August 8, 1957); Iran, 1955
(TIAS 3853); Nicaragua, 1956 (S. Exec. G, 84th Cong., 2d Sess.); Netherlands,
1956 (TIAS 3942); Korea, 1956 (TIAS 3947). The treaties with Ethiopia and
Iran represent considerably abridged versions and vary also from the others
in that they contain provisions on consular rights, a subject matter usually
dealt with in separate conventiom in current United States practice.
7
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58 POLITICAL SCIENCE QUARTERLY [VoL. LXXIII
Because of the nature of the treaties and the scope of the ne•
gotiation effort, the current treaty program of the United
States, though little remarked during these ten years of crisis
and more spectacular endeavor, is thus one of some magnitude;
and its unfolding illustrates the adaptability of a traditional
device to present international requirements.
Background and Objectives
The program now under way carries forward one of the
oldest continuing diplomatic activities of this nation, reach•
ing back to the Revolutionary War. From 1778 onward,
with varying degrees of intensity from era to era, the corn•
mercial treaty device has been repeatedly used in the conduct
of American foreign relations. In terms and content, the
purpose of the treaties has been to promote trade relations
and to protect shipping and the citizen and his interests
abroad, according to legal principles. Throughout, they
have maintained this evident purpose. But historically they
have also had other purposes. As suggested by the wording
of their full title and preamble, they have been designed to
strengthen normal friendly relations between the signatories.2
Depending on the era in which the treaties were negoti•
ated, they have as well been responsive to varying special
motivations. In pre-Constitutional days, for example, they
betokened and helped secure recognition of American independence.
8 In the first half of the nineteenth century, the
period in which the American clipper became mistress of the
seas, they were employed to open foreign ports to American
shipping. The conclusion of the treaties with countries of
Latin America in this period, through emphasizing the sov•
ereignty and rising importance of those countries and their
ties with the United States, served to emphasize the Monroe
Doctrine; and in the era of intense power competition for
2 A typical preamble (e.g., that of the recent Netherlands treaty) recites, as
first justification of the treaty: "desirous of strengthening the bonds of peace
and friendship traditionally existing between them."
a Our first, the Treaty of Amity and Commerce with France, signed on
February 6, 1778, was followed on the same day by signature of the Treaty of
Alliance. Before the Revolutionary War formally ended, commercial treaties
were signed also with the Netherlands (1782) and Sweden (1783); and there•
after also with Prussia (1785), prior to the Constitutional Convention.
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No. I] U. S. COMMERCIAL TREATIF.S 59
colonies and spheres of influence, they served to support the
open-door principle.
Following World War I, special motivations such as these,
pertaining to a new-born and then to a rising nation intent
upon developing its own economy and establishing its place
in the world community, no longer obtained. That warestablished
the United States as a world Power of first rank, a
leading international creditor and a major exporter of manufactures.
But the normal and evident purposes of promoting
commercial intercourse remained, being intensified by the
new foreign economic interests of the nation. A new series
of negotiations was therefore undertaken during that period,
with special emphasis on international trade.• The reciprocal
trade agreements program which subsequently developed,
however, after 1934, provided a more precise and efficacious
medium for attaining trade promotion objectives/> A new
consideration which then emerged, and which lent special
impetus to the program following World War II, was the
need for encouraging and protecting foreign investment, responsively
to the increasing investment interests of American
business abroad and to the position the United States has
now reached as principal reservoir of investment capital in
a world which has become acutely "economic-development"
conscious. The pre-existing content of the commercial treaty
(now often known as "FCN treaty") was therefore overhauled
with a view to improving and strengthening its relevance
to investor needs; 6 and the eventuating new edition
• This program resulted in the conclusion of treaties with twelve countries,
beginning with the Treaty of Friendship, Commerce and Consular Rights
with Germany, 1923, and including Austria, Finland, Estonia, Latvia, Norway,
Honduras, El Salvador, Poland, Hungary, Siam (Thailand) and Liberia.
6 The Trade Agreements Act of 1934, so prominently identified with
Cordell Hull, as periodically extended and revised. Under this legislation
bilateral agreement:; were concluded with 28 countries, 1934-46, prior to adop•
tion of the policy of conducting trade agreement negotiations principally
within the framework of the General Agreement on Tariffs and Trade
(GATT) (q.v., infra). By contrast only two commercial treaties of the type
herein discussed were concluded between 1934 and 1946 (those with Siam and
Liberia).
6 See my article" Treaties for the Encouragement and Protection of Foreign
Investment: Present United States Practice", 5 American Journal of Com•
parative Law 229-247 (1956). See also, e.g.: Vernon G. Setser, "Treaties to
Aid American Busines., Abroad", 40 Foreign Commerce Weekly 3-5. S8·39
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60 POLITICAL SCIENCE QUARTERLY [VoL. LXXIII
of this traditional treaty type has been repeatedly recommended
in an authoritative way, in both official and private
circles, as a vehicle for building an international " climate "
favorable to private investment.7
The current program then, in so far as the United States is
concerned, has been specially actuated by investment-related
motives. This primary investment objective is, however,
sought in the context of a larger regulation of bilateral intercourse
in the private sector, and in company with the other
objectives appertaining to such instruments. The treaty thus
retains its familiar outline and scope. There have always
been substantial investment elements in treaties of this type
because they have always dealt with the protection of the
citizen abroad, his property (capital) and his right to engage
in business activities (that is, to make and operate investments).
Their reworking for investment ends, accordingly,
has simply entailed the recasting, elaboration and supplementation
of familiar features. Their trade and cultural and
shipping elements are also maintained, in perspective; and
they remain, too, vehicles for generally strengthening neighborly
ties between peoples, though there is no element of
political alliance in them. In this way, they afford an ample
(Sept. 11, 1950); Robert R. Wilson, "Postwar Commercial Treaties of the
United States", 43 American Journal of International Law 262-287 (1949),
"Property-Protection Provisions in United States Commercial Treaties", 45
ibid. 83-107 (1951), "Access-to-Courts Provisions in United States Commercial
Treaties", 47 ibid. 20-48 (1953), and "Natural-Resources Provisions in United
States Commercial Treaties", 48 ibid. 355-379 (1954).
7 For example, sec. 516(d) of the Mutual Security Act of 1952 (66 Stat. 146),
reenacted and revised in 1954 (68 Stat. 847); House Committee on Foreign
Affairs, Subcommittee on Foreign Economic Policy, Report on The Mutual
Security Act and Overseas Private Investment (83d Cong., 1st Sess., 1953), pp.
26-29; President's Materials Policy Commission, Resources for Freedom (H.
Doc. 527, 82d Cong., 2d Sess.), vol. I, p. 68; Department of Commerce, A Study
of Factors Limiting American Private Foreign Investment (Summary of Pre•
liminary Findings and Recommendations, July 1953), p. 31: Commission on
Foreign Economic Policy (" Randall Commission "), Report to the President
and the Congress Oanuary 1954), p. 17; Resolution of the Board of Directors
of the National Association of Manufacturers, quoted in the House Com•
mittee Report, p. 26; Chamber of Commerce of the United States, What the
National Chamber Stands for in World Affairs (June 1952), pp. II, 13-14;
National Foreign Trade Council, various Final Declarations of their annual
New York conventions-e.g., that of 1950, pp. 16-17.
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No. I] U. S. COMMERCIAL TREATIES 61
framework within which can be harmonized the views and
interests of both the United States and each other country;
the latter may not be, and often is not, animated by quite the
same desires and needs in negotiation as the United States.
In sum, they are multi-purpose treaties, if anything even
more so now than in the past. They seek to deal with the
whole citizen, in his person and his property, who has lawful
concerns in another country: his rights of entry and residence;
his personal freedoms, such as liberty of conscience
and due process of law; his rights to legal benefits and recourse
to the courts in pursuit and defense of his interests;
his rights to establish and conduct business enterprises, to engage
in both lucrative and nonprofit activities; his right to
acquire, possess and dispose of property, and to receive a
high standard of respect for his property; the rules of financial
policy, as represented by taxes and exchange regulations,
to which he is subject. They now deal alike with juridical
persons (companies). They deal also with the various aspects
of the international movement of goods and ships, and with
such miscellaneous matters as the behavior of state-controlled
business enterprises, the letting of government contracts and
concessions, and restrictive business practices.
The Relative Role of Commercial Treaties
Because these treaties cut across or impinge upon fields of
interest of other international agreements, and of multilateral
conferences and organizations, the question therefore
arises of their consonance with, and their purposiveness in
light of, the ever-growing complex of international agreements
and organizations. Where does this essentially traditionalist
bilateral approach fit in the pattern of multilateralism
and specialized arrangements that has evolved with the
growing complexity of international society?
The principal existing multilateral conventions involving
the United States, which have a large world-wide participation
and which deal with topics also covered in the commercial
treaties, are the International Monetary Fund, the General
Agreement on Tariffs and Trade (the GATT), and the
Paris Industrial Property Convention. The first of these is
involved in the exchange-control article of the commercial
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62 POLITICAL SCIENCE QUARTERLY (VoL. LXXIII
treaty; and the relationship of the two may be very briefly
summarized as follows. The stipulated objective of the Fund
is to eliminate governmental restrictions on international
payments for "current transactions", particularly those affecting
the flow of international trade; and according to the
Fund Articles of Agreement (Article VI, section 3), each
member specifically retains virtually complete freedom of
action with respect to capital transfers.8 The primary objective
of the treaty, on the other hand, is to provide for the
servicing of investor-as distinguished from trading-needs
and requirements.9 It therefore supplements the Fund by
establishing agreement on matters with respect to which the
Fund leaves an area of discretion; it does this interstitially,
and the integrity of the Fund is safeguarded by a reservation
preserving all obligations a country may have to that organ.10
As to relationship with the GATT, the treaty does not
deal with specific tariff and quota concessions, which it is
the primary purpose of the GATT to attack. But it does
repeat certain general rules of behavior contained in the
GATT; and here again, as in the case of the International
Monetary Fund, possible conflict between the treaty and the
GA TT is avoided by a reservation expressly making the lats
Text in Annex A, Final Act and Related Documents of the United
Nations Monetary and Financial Conference at Bretton Woods (Washington,
1944). See also statement of purposes of the Fund, as set forth in Article I
of the Agreement, clauses (ii) and (iv).
9 This objective is indicated by the key wording of the treaty's exchangecontrol
article (e.g., Article XII, par. S, of Netherlands treaty): " If either
Party imposes exchange restrictions in accordance with paragraph 2 of the
present Article, it shall, after making whatever provision may be necessary
to assure the availability of foreign exchange for goods and services essential
to the health and welfare of its people, make reasonable provision for the
withdrawal, in foreign exchange in the currency of the other Party, of:
(a) the compensation referred to in Article VI, paragraph 4, (b) earnings,
whether in the form of salaries, interest, dividends, commissions, royalties,
payments for technical services, or otherwise, and (c) amounts for amortization
of loans, depreciation of direct investments, and capital transfers to the
extent feasible, giving consideration to special needs for other transactions."
10 E.g., Article XII, par. 2, second sentence, of the treaty with the Netherlands:
"It is understood that the provisions of the present Article do not
alter the obligations either Party may have to the International Monetary
Fund or preclude imposition of particular restrictions whenever the Fund
specifically authorizes or requests a Party to impose such particular restrictions."
This wording is carefully chosen to permit both the treaty and the
Fund to operate side by side, so long as the former does not actually inter•
£ere with the latter.
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No. l] U.S. COMMERCIAL TREATIES 63
ter prevail.11 Despite the subordination of the treaty thus
provided, however, the treaty is calculated to serve at least
three practical purposes. First, especially as the GATT still
operates on a provisional basis, the treaty provides a basic
agreement to fall back on if, for any reason, the GA TT
should cease to be in effect between the treaty signatories.
Second, it provides now such a basic agreement with respect
to those countries which are not party to the GATT (for example,
Ethiopia, Ireland, Israel). Third, the treaty seeks to
supplement the GA TT by making bilateral advances with
respect to certain matters on which multilateral agreement
has not proved possible in the GATT. Examples are the
treaty rule concerning nondiscrimination in the furnishing
of government services; and the so-called " 30-day" or "en
route " rule, which provides a certain period of grace between
the time new trade restrictions are promulgated and
their going into effect.12
In the case of industrial property, the treaty merely reaffirms
the national-treatment rule contained in the international
convention; and no problem of conflict or variance
arises. Mention should also be made of the treaty's coverage
of commercial arbitration, a subject dealt with in the Geneva
Protocol of 1923 on the enforcement of arbitration contracts
11 As exemplified by the Netherlands treaty, the paralleling materials are
in Articles XIV, par. 1 (most-favored-nation treatment as to customs duties),
pars. 2-4 (nondiscriminatory administration of prohibitions and restrictions
affecting imports or exports), and par. 6 (exception for balance-of-payments
difficulties); XV, par. 1 (public notice and equitable administration of new
customs regulations), par. 2 (appeals and penalties, in customs administration)
and par. 3 (marking requirements); XVI, par. 1 (internal treatment of im•
ported goods); XVII, par. 1 (operations of state-trading entities), par. 2 (a)
(purchase of government supplies); XXI (c) (transit of goods); and certain
customary exceptions in Article XXII. The clause providing for crossrelationship
between the two instruments is paragraph 4 of Article XXII:
"The provisions of the present Treaty relating to the treatment of goods
shall not preclude action by either Party which is required or specifically
permitted under the General Agreement on Tariffs and Trade during such
time as such Party is a contracting party to the General Agreement. Similarly,
the most-favored-nation provisions of the present Treaty shall not apply
to special advantages accorded by virtue of the aforesaid Agreement."
12 The former-e.g., Article XVII, par. 2 (c), of the Netherlands treaty-has
been generally accepted in the treaties signed to date; but the latter (e.g.,
Article XV, par. 2, second sentence, of Japan treaty) has been omitted from
some of them (e.g., those with Ireland, Israel and Germany) and is in the
Netherlands treaty in modified form.
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64 POLITICAL SCIENCE QUARTERLY (VoL. LXXIII
and the Geneva Convention of 1927 on the enforcement of
arbitration awards.13 These instruments have been adhered
to by many European countries, but not by the United States
and most other non-European countries. The treaty approaches
this subject in a way which is consistent with that
of the Geneva instruments and which adherents and nonadherents
to those instruments alike can accept. In effect,
the treaty affords a bilateral medium through which the general
objectives sought in the Geneva instruments are being
subscribed to by additional countries.14 Finally, there is in
process of formation a multilateral organization dealing with
shipping.115
In the domain of bilateral agreements, the principal type
in United States practice covering subject matter also included
in the commercial treaty is the convention for the
avoidance of double taxation with respect to taxes on income,
and for the mutual protection of revenue, more briefly known
as the double-tax convention.16 This convention is a detailed
13 Texts may be found, for example, in International Yearbook on Civil
and Commercial Arbitration, vol. I, pp. 239-43 (1928).
14 The unique form of the provision as it appears in the Netherlands
treaty suggests this result: "In conformity with subparagraphs (I) and (2)
hereof, awards duly rendered pursuant to any such contracts, which are final
and enforceable under the laws of the place where rendered, shall be deemed
conclusive in enforcement proceedings brought before the courts of compe•
tent jurisdiction of either Party. (I) As regards recognition and enforcement
in the United States of America, such awards shall be entitled in any court
in any State thereof only to the same measure of recognition and enforcement
as awards rendered in other States thereof. (2) As regards enforcement in the
Kingdom of the Netherlands, such awards shall be dealt with in the same
way as awards as referred to in the Convention on the execution of foreign
arbitral awards concluded at Geneva on September 26, 1927." An arbitration
provision is missing from the treaties with Uruguay and Ethiopia. For an
account of this subject, see my article " Commercial Arbitration Provisions
in United States Treaties", 11 Arbitration Journal (new series) 68-84 (1956).
115 Convention on the Intergovernmental Maritime Consultative Organization,
signed at Geneva March 6, 1948 (S. Ex. L, 80th Cong., 2d Sess.).
16 Such conventions had entered into force with 19 countries by April 1,
1957 and in addition one convention, that with Austria, was awaiting ratification.
For discussion of the program, see: E. Roy Gilpin and H. Gilmer Wells,
"International Double Taxation of Income: Its Problems and Remedies",
28 Taxes 9-32 (1950); Burton W. Kanter, "United States Income Tax Treaty
Program", 7 National Tax Journal 69-88 (1954); and address by Eldon P.
King, Director, International Tax Relations Division, Internal Revenue
Service, Department of the Treasury, "The Income Tax Conventions with
Germany and Japan, and Prospective Conventions with Latin America ", deThis
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No. I] U. S. COMMERCIAL TREATIES 65
technical instrument concerned with which country will tax,
or not tax, income that is potentially subject to taxation by
both, and with measures of cooperation between the taxing
authorities of the two signatories: that is, with jurisdiction
and the system and basis of taxation. The commercial treaty,
on the other hand, is concerned broadly with the principle
of nondiscrimination in the levy and collection of taxes, whatever
be the system; and thus the two instruments supplement
and reinforce one another. In the one connection in
which the treaty covers a double-tax subject,17 it provides an
elementary rule of equity to rely upon in those instances in
which a double-tax convention is not in force between the
signatories. Necessary cross-relationship is provided through
a reservation assuring that the more general instrument, the
treaty, cannot interfere with the specific arrangements that
may be made in the more specialized instrument, the doubletax
convention.
The commercial treaty, finally, can impinge to a degree
upon other types of agreements which other countries make
among themselves, such as, for example, conventions on assistance
judiciare or agreements relating to social security
benefits. But negotiating experience so far has not revealed
any dissonances which on this account require substantial
adjustments in, or reservations to, the affected commercial
treaty provisions normally favored by the United States
when it enters negotiation (aside from normal reservations
for recognized territorial trade preferences).18
livered before the International Fiscal Association, New York, May 6, 1955.
A parallel series of conventions deals with the avoidance of double taxation
with respect to estates (inheritance); and their relationship to the commercial
treaties is the same. Thirteen such conventions were in force on April I,
1957. (The numbers in force on January I, 1958 were, respectively, 20
and 13.)
17 This provision (e.g., Article XI, par. 4, of Netherlands treaty) assures
that a company of one party will be taxable in the other only on the business
it does in the latter, rather than on the basis of its "world income" as
might be possible under the national-treatment clause.
18 The exchange of notes appended to the Netherlands treaty-dealing with
the problem of harmonizing the strict most-favored-nation rules of the treaty
with the preferences that might develop among countries participating in a
future European integration arrangement-and the Commonwealth preference
reservation in Article XX, par. ~ (b), of the Irish treaty-just as the customary
United States reservations for its preferential trading arrangements with Cuba
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66 POLITICAL SCIENCE QUARTERLY [VOL. LXXIII
A recitation of actually operative international agreements,
multilateral and bilateral, then reveals: first, that the commercial
treaty serves a definite practical purpose in those
cases when it is dealing with the same subject as other agreements;
and, second, that only a fraction of its content is
concerned with or duplicates things otherwise regulated by
interstate agreements of concern to the United States. This
second fact-namely, that the commercial treaty provides the
only vehicle so far devised and demonstrably capable of utilization
for treating an important range of subject matterprovides
the major explanation and justification for its active
use in the conduct of foreign policy of the United States.
To start with, it fills a void conspicuously left by the persistent
lack of any successful multilateral agreement, either
piecemeal or frontal, on the ground rules which should govern
in the foreign investment process: the treatment of the
alien entrepreneur, his enterprise and his property. Indeed,
past experience strongly suggests that multilateral endeavors
in this area are foredoomed to failure, under present circumstances,
owing to the lack of any sufficiently elevated international
consensus or community of interest concerning the degree
to which and conditions under which the alien should
be welcomed to participate in a nation's economic life; and
that, accordingly, the bilateral country-by-country approach
is apparently as yet the only feasible one.
Scope of the Treaties
Topics in addition to exchange control, trade and taxation,
on which progress has been recorded in the commercial treaties
over the past ten years, include those listed below. The.se,
together with the provisions mentioned above, summarize
the general content and purposes of the treaties.
Companies.19 The general standard of national treatment
-that is, nondiscrimination as between the alien and the citiand
the Philippines-illustrate the typical kinds of adjustments that some•
times have to be made to allow for the international commitments of a party
to the commercial treaty.
19 For a fuller discussion, see my "Provisions on Companies in United
States Commercial Treaties", 50 American Journal of International Law
373.93 (1956).
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No. l] U. S. COMMERCIAL TREATIES 67
zen-has in principle been normal for many years in United
States treaties (as well as those of many other countries), in so
far as natural persons are concerned. However, prior to
World War II, the same was not true of juridical entities.
These were in practice either ignored, or else dealt with in
only a limited or restricted way,20 or else assured only of
most-favored-nation treatment. But in the current series of
treaties, a comprehensive endeavor is made to extend the
same liberal standard to companies and the activities of companies.
This outstandingly important advance over previous
international practice has obvious pertinence to the value of
these treaties for investment purposes, in view of the predominant
way in which foreign investment is made in modern
times through the corporate device. The right of corporations
to engage in business on a national-treatment basis
may be said to constitute the heart of the treaty as an investment
instrument.21
Beyond this, the treaties represent a perhaps overdue response
to the need for crystallization of internationally recognized
rules concerning the status and rights of corporations,
whether or not in the investment setting. The treaty provisions
on companies are accordingly not confined to investment
corporations, but extend to juridical entities generally.
Thus express provision is made for the nonprofit entity, and
its activities, a subject toward which past international treaty
practice has tended to manifest even greater reserve than
toward the business corporation.22 Again, on the subject of
20 See, e.g., the reservation which was included in all the treaties of the
inter-war period: "The right of such corporations and associations of either
High Contracting Party so recognized by the other to establish themselves
within its territories, establish branch offices and fulfill their functions therein
shall depend upon, and be governed solely by, the consent of such Party as
expressed in its National, State, or Provincial laws." Article XII, second par.,
of 1923 treaty with Germany.
21 This is basically set forth in Article VII, par. l, of the Netherlands
treaty: " Nationals and companies of either Party shall be accorded national
treatment with respect to engaging in all types of commercial, industrial,
financial and other activity for gain (business activities) within the territories
of the other Party, whether directly or by agent or through the medium of
any form of lawful juridical entity."
22 Treaties of various nations have tended to limit such company provisions
as they have contained to corporations organized for business purposes. The
United States policy of including also nonprofit entities began, however, with
the German treaty of 1923. See Article XII, first paragraph, thereof.
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68 POLITICAL SCIENCE QUARTERLY [VoL. LXXIII
juridical status of entities, these treaties have sponsored a
return to the "classical" theory: that is, that the mere fact
of lawful creation in either country shall ipso facto be sufficient
to endow the entity with lawful being and recognition
in the other, without any additional tests, such as where it
maintains its seat, the nationality of its ownership or direction,
the character of its aims or otherwise.23 The contribution
which the current treaties make in this connection is
pointed up by the debate and confusion which have marked
the subject of the proper tests applicable to the recognition
of juridical personality of foreign entities,24 and by the great
extent to which the simple classical test has been departed
from in international practice, over the last half century.23
The resolution attained has been made possible by the clear
distinction maintained, in the treaty's provisions, between
the civil and the functional capacities of companies.26 Cognately,
provision has been made for the free privilege of the
nondomesticated foreign company, which is not engaged in
business in the other country, to sue and be sued in the courts
of the latter.27 On the other hand, provision is also made
for " piercing the corporate veil ", in order to assure protection
of the real parties-in-interest lying behind the corporate
fa~ade, in certain instances in which the corporate entity has
a nationality different from that of such parties and hence
23 For example, see wording of Article XXIII, par. 3, of the Netherlands
treaty: "As used in the present Treaty, the term 'companies• means corpora•
tions, partnerships, companies, foundations, associations, and other legal enti•
ties or juridical persons, whether or not with limited liability and whether
or not for pecuniary profit. Companies constituted under the applicable laws
and regulations within the territories of either Party shall be deemed com•
panies thereof and shall have their juridical status recognized within the
territories of the other Party."
24 E.g., the observation of Sigmund Timberg that, as to a recognized test,
"in the corporate field, we find confusion and uncertainty." " Corporate
Fictions", 46 Columbia Law Review 533, 572 (1946).
23 The United States treaties of the inter-war period, for example, required
as a condition precedent to recognition that the company maintain a "central
office " in the country of its creation and pursue no aims in the host
country contrary to the laws thereof. Article XII, German treaty of 1923.
26 That is, logically the mere acknowledgment of the fact of being of an
entity need not be qualified when the purposes for which qualifications are
desired can be adequately served by appropriately wording the provisions
dealing with the operation of the entity within the country.
21 E.g., Article V, par. I, second sentence, Netherlands treaty.
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not technically entitled to claim protection from the country
of which the latter are nationals.28
Property Protection. The extent to which the institution
of private property has of late come under question or attack
has underscored the need for reaffirming and reinforcing traditional
international law regarding the protection which a
government owes to the property of the alien.29 In addition
to providing generally for" the most constant protection and
security" and prohibiting unreasonable searches and seizures,
30 the treaties therefore introduce injunctions against
arbitrary impairments of established interests 81 and give
greater definition to the obligation to pay just compensation
for property expropriated or otherwise taken. The formula
evolved in connection with the latter, in view of its importance,
warrants quotation:
Property of nationals and companies of either Party shall
not be taken within the territories of the other Party except
for a public interest, nor shall it be taken without the
prompt payment of just compensation. Such compensation
shall be in an effectively realizable form and shall represent
the equivalent of the property taken; and adequate provision
shall have been made at or prior to the time of taking
for the determination and payment thereof.32
Moreover, a protocol has been devised to assure that, when
the affected property belongs to a juridical entity which itself,
because of its nationality, is not entitled to treaty protection
(for example, it is chartered under the laws of a third
28 For example, an American corporation is assured the right to organize
and control a subsidiary under the laws of the other country; and such subsidiary,
although having the nationality of the latter, rather than United
States nationality, is given treaty rights which the United States is enitled to
espouse.
29 The great difficulty, apparently, of achieving such a result in a multilateral
forum at present is illustrated by the silence or ambiguities regarding
obligation to pay compensation in event of expropriation manifested by such
documents as: General Assembly, United Nations, Resolution 626 (Seventh
Assembly 1952) regarding resources: Article 12 of the abortive Havana Charter
of 1948 for an International Trade Organization (see William Diebold,
"The End of the ITO", Princeton Essays in International Finance No. 16,
1952, pp. 18-19) and the projected United Nations Covenant on Human
Rights.
ao Netherlands treaty, Article VI, pars. 1 and 2.
81 Ibid., par. 3. s2 Ibid., par. 4.
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70 POLITICAL SCIENCE QUARTERLY [VoL. LXXIII
country), the obligation to pay compensation nevertheless
holds as to such persons entitled to treaty protection as may
ultimately hold interests in the entity, to the extent of their
interest. This provision reads as follows:
The provisions of Article VI, paragraph 4, providing for
the payment of compensation shall extend to interests held
directly or indirectly by nationals and companies of either
Party in property which is taken within the territories of the
other Party.33 (Italics supplied)
Waiver of Sovereign Immunity. The commercial treaties,
beginning with the Italian treaty in 1948, have been a vehicle
through which the United States government has espoused
the restrictive theory of sovereign immunity, to the extent set
forth as follows:
No enterprise of either Party, including corporations, associations,
and government agencies and instrumentalities,
which is publicly owned or controlled shall, to the extent
that it engages in commercial, industrial, shipping or other
business activities within the territories of the other Party,
claim or enjoy, either for itself or for its property, immunity
therein from taxation, suit, execution of judgment or other
liability to which privately owned and controlled enterprises
are subject therein.34
This reflected a shift in United States policy which had been
in the making for some time, tracing back conceptually to
the Court of Claims Act of 1853 and the Tucker Act of 1887,
through the Admiralty Acts of the l 920's and the Tort
Claims Act of 1946.35 The practical purpose, from the treaty
standpoint, was to narrow the range of competitive inequality
between private and state-owned business enterprise. Af~
ter this clause had appeared in several treaties, the shift culminated
in the so-called Tate letter of May 19, 1952, in which
the Department of State announced that it would thereafter
favor the restrictive theory as to immunity claims advanced
83 Ibid., Protocol, par. 6. 34 Ibid., Article XVIII, par. 2.
35 Respectively, 10 Stat. 612; 24 Stat. 505; 46 U.S.C., chs. 20 and 22; and
28 U.S.C., eh. 171. The basis for the treaty rule had been fairly well laid by
1948 by the approach taken by the courts to immunity claims of foreign
government commercial corporations. See " Sovereign Immunity for Com•
mercial Instrumentalities of Foreign Governments", 58 Yale Law Journal 177
et seq. (1948).
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No. I] U. S. COMMERCIAL TREATIES 71
on behalf of any foreign government.86 Thus, finally, the
United States joined the camp of the continental nations
which had earlier abandoned the "classical " theory of sovereign
immunity.
Human Rights. These treaties in the broad sense have
always been concerned in a major way with human rightsthe
respect and protection owed by each member of the international
community to the stranger within its gates. Indeed,
provisions on the rights of persons-so-called "establishment
" provisions-commonly form the first sections of
such treaties.37 The current treaties have proceeded with
obtaining confirmation of basic principles in this area of affairs,
at a time when the United Nations continues to encounter
frustration in its pursuit of a generally acceptable
universal convention on human rights. The treaties do not,
of course, share the latter project's ambition to provide a
charter for all individuals, including the protection of citizens
against their own government, but are limited to the duties
that nations owe to the alien. Moreover, they are confined
to matters of more or less traditional treaty concern, to
the exclusion of the sociological dispositions of national laws
and traditions.
In addition to providing for the protection of the alien's
property, already alluded to, the treaties provide for: the
protection of his person against molestations; his right to
equal protection of the laws; his right, if arrested, to humane
treatment, to communicate with his consul, to be informed
promptly of the accusations against him, to a prompt trial, to
ample opportunity to prepare his defense, and to the services
of counsel of his choice; his liberty of movement and residence;
his freedom of conscience and his right to worship,
36 Letter from the Acting Legal Adviser to the Attorney General, Depart•
ment of State Bulletin, June 23, 1952, pp. 984-85. The special significance of
the State Department's views results from the fact that the judiciary tends
to seek guidance from the political branch when a question of this kind
arises. On this point see concurring opinion of Justice Frankfurter in Republic
of Mexico v. Hoffman 324 U. S. 30, 38 (1945).
87 If the titles normally given to these treaties were more fully spelled out,
they could suitably be termed treaties of "friendship, establishment, invest•
ment, commerce and navigation". The rights of persons covered in the es•
tablishment provisions extend, of course, to such matters as engaging in
business and occupations, and the protection of their property.
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72 POLITICAL SCIENCE QUARTERLY [VOL. LXXIII
either publicly or privately, according to his own faith; his
right freely to communicate with others; and his right to engage
in both gainful and nonprofit work.88
Freedom of Information. Cognately, the treaties since
1948 have normally contained a provision assuring the right
without interference to gather and report the news, more exactly
"to gather and to transmit material for dissemination
to the public abroad ". Here again these instruments have
been used as vehicles for attaining in principle an objective
concerning which a multilateral effort, under United Nations
auspices, was unable to agree on a generally acceptable convention.
39 This further illustrates the resiliency and adaptability
of the traditional commercial treaty to the needs of its
time; and also the potentiality it holds for achieving step by
step, in the quiet atmosphere of patient and amicable bilateral
discussions, a variety of objectives which have not proved
attainable through more spectacular or ambitious conventional
media.
Settlement of Disputes. The inclusion, beginning with the
China treaty of 1946, of an unqualified provision for the submission
of otherwise unresolvable disputes to the International
Court of Justice for adjudication is a landmark in the
treaty policy of the United States. These treaties represent
for the first time the unreserved acceptance by the United
States of an international tribunal's jurisdiction, in a major
and systematic manner, as to future disputes.40 Prior to the
signing of the first of these treaties, the Senate had adopted
the Connally resolution through which the United States accepted
the optional clause of the Court Statute, subject to
as These matters are covered, in the Netherlands treaty, mainly in Articles
II, par. 2; III, both pars.; V, par. l; VII, par. I; and VIII, par. 2. ·
89 See Report of United States Delegates to the United Nations Conference
on Freedom of Information (Geneva, 1948) (Department of State Publication
3150); Robert R. Wilson, "International Law and Proposed Freedom of Information",
39 American Journal .of International Law 790-93 (1945).
40 There was a precedent in the International Civil Aviation Convention of
1944. See memorandum submitted by the Department of State in justification
of the court clause in the first of the current series, the China treaty of
1946, in Hearing before a Subcommittee of the Committee on Foreign Relations
... 80th Congress, 2d Session, on a Treaty ... [with] China, April 26,
1948, pp. 29-30. The normal wording of the clause may be found in the
Netherlands treaty, Article XXV, par. 2.
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No. I) U. S. COMMERCIAL TREATIES 73
certain reservations.41 The type of controversies potentially
arising over the interpretation or application of the terms of
a bilateral commercial treaty would appear to be altogether
proper for reference to an international court, without raising
the kinds of questions that occasioned the Connally reservations.
The standard form of compromissary clause now
used in the commercial treaties, however, leaves open the
precise procedure to be followed in referring a dispute.
Miscellaneous. In concluding the recitation of the subject
matter of the treaties, mention should be made of a provision
which has been designed to curb restrictive business
practices (" cartels "), another topic on which multilateral efforts
to find a viable consensus among nations has proved
unsuccessful.42 This provision of the treaty is a modest and
imprecise statement, being in terms of an agreement on a
point of view, rather than an exact legal rule, and being considerably
short of an impracticable endeavor to export the
Sherman Antitrust Act.43 Finally, it may be noted that a
navigation article reaffirms a liberal regime of treatment to
be applied to international shipping. The rules set forth reflect
the practices which have historically been developed by
leading maritime nations, and are designed to curb ultranationalistic
or protectionist tendencies, of which there is
considerable evidence, in the shipping field. On the multilateral
front, in comparison, there is in process of creation an
Intergovernmental Maritime Consultative Organization (as
a specialized agency in relationship with the United Nations),
44 designed to provide an international forum for the
41 Sen. Res. 196, August 2, 1946. The reservations were for (a) disputes
which might be entrusted to another tribunal, (b) disputes concerning matters
essentially within the domestic jurisdiction of the United States, and (c) disputes
arising under multilateral treaty except under certain conditions.
42 See, e.g., Martin Domke, "The United Nations Draft Convention on Restrictive
Business Practices ", International and Comparative Law Quarterly,
January 1955, pp. 129-40.
43 The provision is missing from the treaties with China, Ethiopia, Iran
and the Netherlands. The normal wording may be found, for example, in
Article XVIII, paragraph I, of the Japan treaty of 1953. It expresses disap•
proval of restrictive practices that have harmful effects on international
trade, calls upon the parties to consult about any such practices, and commits
each to undertake such corrective action as it might deem appropriate.
•• Supra, note 15. The ratification of the United States was deposited on
August 17, 1950.
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74 POLITICAL SCIENCE QUARTERLY (Voc. LXXIII
airing of shipping problems but which does not purport, as
does the treaty, to impose explicit obligations as to the treatment
any country will grant to another's vessels. The value
of reconfirming traditional rules through treaty is pointed
up by the fact that the various differences of interest among
nations has led to great delays in arriving at the adherences
necessary to the coming into force of the IMCO Convention
(drafted at an international conference in 1948), even though
by definition the Organization is to be only •· consultative
and advisory ".46
Nature and Limitations of the Treaties
The treaties deal with the subjects within their purview in
language of simple elementary principle, of a constitutionlike
character. Their avoidance of detail and of statute-like
elaboration and specificity is in keeping with their essential
character. Being comprehensive instruments, cutting across
a wide range of interests, they must correspondingly be fashioned
with broad strokes, if they are to be at all manageable.
Being designed to serve as a basic charter of relations for a
long period of years, they must be confined to fundamentals
so framed as to preserve their validity over the vicissitudes
and changing conditions of an indefinite future. Predominantly,
therefore, the norms of treatment set forth are of a
contingent character, permitting an endlessly flexible adaptation
of content within the integument of a governing legal
principle. These norms are mainly national treatment or
most-favored-nation treatment, or both, as the case may be.46
In the establishment provisions-those dealing with the rights
of persons and enterprises-the former is normally sought, as
being obviously much the stronger of the two; for a country
is not in general likely to accord any aliens better treatment
than it accords its own nationals, whereas the most-favored
46 Article 2 of the Convention. By the terms of Article 60, the Convention
will come into force when adhered to by 21 countries of which 7 must each
have at least 1,000,000 tons of shipping, a number still short of attainment
as of April 1, 1957, and the Convention was not in force on January 1, 1958.
46 In certain very fundamental matters (e.g., freedom of conscience, compensation
for expropriated property) these norms are passed, in order to assure
the treaty alien a basic minimum protection regardless of the treatment
others might receive.
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No. l] U.S. COMMERCIAL TREATIES 75
nation standard allows any amount of discrimination against
aliens as a class.
In this characteristic of the treaties lie both their strength
and their weakness. On the one hand, the essential moderation
and reasonableness of constructing a dike against
discrimination, of attending to first things first without purporting
further to circumscribe or prescribe either country's
legislative policy, make the negotiation and conclusion of the
treaties possible as a practical matter. Governments can with
prudence undertake long-term commitments of a foundation
character, but may not be at all prepared to freeze their freedom
of action and judgment regarding the details of legislative
and internal policy, especially over so broad an area as is
covered by a commercial treaty.47 On the other hand, nondiscrimination
may of itself fall considerably short of creating
conditions prerequisite to investment and trade, for the legal
system and policies of a country may be quite inhibitory
without being at all discriminatory. This truism has led, for
example, to the development of the trade agreement device,
now expanded into the GATT,48 to effectuate progress in the
47 The moderation of the treaties, and their avoidance of interference with
domestic policy except to the extent of assuring the alien a basic measure of
protection on a reciprocal bilateral basis, in conformity with international
usage, undoubtedly account for the tolerant regard which many proponents
of the so-called Bricker Amendment aparently hold for these treaties, notwithstanding
that they create obligations with respect to many matters over
which the several states exercise legislative authority. The roll-call vote by
which the Senate gave its advice and consent to ratification of a group of
five of these treaties, on July 21, 1953, at the height of the controversy over
the Amendment, was 86 yeas to I nay (Congressional Record for that date, p.
9623). Senator Bricker has testified that the Amendment is not in his judgment
calculated to interfere with the conclusion of such treaties (Hearing
before the Senate Judiciary Subcommittee on S.J. Res. 1 and S.J. Res. 4J,
1953, p. 8; Hearing before Senate Judiciary Subcommittee on S.J. Res. 1,
1955, pp. 297-98); and similarly Dr. George Finch, a leading expert witness in
favor of the Amendment, has challenged the opposition's fears lest the
Amendment make impossible the conclusion of such treaties in future (1955
Hearing, p. 506).
48 The General Agreement on Tariffs and Trade, concluded at Geneva in
1947, to which 37 countries are now party. For text, with proposed revisions,
see Department of State brochure of March 1955; and for a brief explanatory
account, Department of State Publication 5813, April 1955. It is in
force generally through a " Protocol of Provisional Application". Its status
in the United States is that of an executive agreement, on authority derived
from the Trade Agreements Act; and Congress has so far taken the position,
in the domestic controversy over the GA Tr, that it neither approves nor
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76 POLITICAL SCIENCE QUARTERLY (VoL LXXIII
absolute lowering of duty rates and the general level of barriers
to international trade. But so far there has not evolved
any feasible device for accomplishing results in the field of
investment comparable with those sought through the trade
agreement-GATT mechanism in the field of trade.
The principal criticisms which might accordingly be directed
at the treaties concern their failures to provide
stronger or more specific rules, especially as regards the investor.
A list would include the following: (1) The extent
to which particular treaties recognize " screening ", that is,
a signatory's reserved right to determine whether particular
investments by foreigners will be allowed (a departure from
that aspect of the national-treatment principle which assures
the treaty alien a right equally with the citizen to initiate an
investment).49 (2) Failure to require that no established interest
of any kind may be impaired by government action except
upon payment of prompt, just and effective compensation.
60 (3) Failure to prohibit the nationalization of private
industry or, at least, to require that there may be no expropriation
until after the compensation has been agreed upon
and paid.51 (4) Absence of specific commitments regarding
disapproves it. There is projected an Organization for Trade Cooperation
(OTC), to provide a regular international machinery for administering the
GATT; and United States participation in this Organization will require
congressional authorization.
49 The National Foreign Trade Council objected to the Ethiopia treaty,
for example, because of its acknowledgment of the screening right (Letter to
the Senate Committee on Foreign Relations, reproduced on p. 21 of the
Hearing on that and other commercial treaties held before the Subcommittee
of that Committee, May 9, 1952). Screening is without prejudice, of course,
to the important treaty principle of national treatment for enterprises after
their initiation.
60 See, for example, the suggestion of National Foreign Trade Council,
ibid., p. 22. The treaty rule parallels the United States federal constitutional
requirement as to " property taken ". The greater obligations entailed by a
commitment to pay for impairment of any established interest would surpass
present federal law and practice (e.g., with regard to " consequential
damages"). Further, see Department of State memorandum, ibid., p. 28, in
reply to the Council's suggestion.
61 The treaty does not attempt to outlaw any expropriation, but merely to
regulate the manner and consequences of an expropriation; and it is doubtful
whether an attempt to forbid expropriation would be considered a tenable
restraint on sovereignty. A prior-payment commitment, for its part,
would preclude the federal " declaration of taking" procedure.
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No. I] U.S. COMMERCIAL TREATIES 77
the entry of foreign technical personnel, and of clearer rights
for American accountants and other professional categories.G2
(5) Insufficiently categorical guarantees regarding the remittance
of earnings and the repatriation of capital.Ga (6) Lack
of precision and advance in the rule regarding the awarding
of government contracts and concessions.G4
These and other possible shortcomings, which may be
found to exist notwithstanding that the current treaty series
is probably the most far-reaching and affirmative that has yet
been extensively negotiated by any country, are ascribable to
several causes which on the whole would appear to be unavoidable,
at least under present circumstances. One cause,
the comprehensive nature of treaties of this type, has already
been mentioned. A second would lie in the intractability of
certain of the subject matters: that is, the bafflement encountered
in attempting to draw up exact rules that would be
realistic and susceptible of practicable application over a
future period. This would be true, in part at least, of items
(5) and (6) listed above, lacking some kind of viable joint
administrative machinery yet to be invented. A third cause
lies in the fact that, as these treaties are negotiated through
the free-will consent of sovereign nations, and by the very
nature of the case represent self-agreed limitations on each
country's freedom of action, they are perforce confined to
reasonable commitments which governments can prudently
see their way clear to assuming as a matter of enlightened
self-interest. Governments can hardly be expected to be
G2 Federal law prior to 1952 authorized treaty provision for special entry
privileges only for international traders, but in that year an additional cate•
gory was provided for the principal investor. See IOI(a) (15) E (i) (ii) of the
Immigration and Nationality Act of 1952. See Robert R. Wilson, " Treaty•
Investor Clauses in Commercial Treaties of the United States", 49 American
Journal of International Law 366-70 (1955). At the time the Act was under
consideration, a spokesman for the National Foreign Trade Council recom•
mended the inclusion of a clause also on technical personnel, but Congress
did not accept it. Joint Hearings before the Subcommittees on the Judiciary
•• • 82d Cong., 1st Sess . • • • on Bills to Revise the Laws Relating to lmmi•
gration, etc., 1951, pp. 314 et seq.
158 The treaty stipulates only a rather imprecise " reasonable provision " in
the light of the exchange stringency situation. Supra, note 9.
M The treaty rule-Article XVII, par. 2(b), of Netherlands treaty, for example-
provides only for " fair and equitable treatment, as compared with that
accorded " to third countries.
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78 POLITICAL' SCIENCE QUARTERLY [VoL. LXXIII
eager to bind themselves to rigid or special-privilege engagements
to the alien when there is no necessity for their doing
so. A corollary to the doctrine of sovereign equality of nations,
moreover, is that the treaties must be mutual in their
provisions, with the consequence that they can in general
contain only such commitments as the United States itself is
prepared to undertake.1111
Treaties of the type here under discussion do not entail
bargaining for concessions. Rather, they deal with matters
of right principle, to which both signatories are willing to
subscribe formally; and they can in the large serve only to
define and reduce to stable international engagement an existing
state of national policies rather than to create new policy.
A country, therefore, which is persuaded that it must
particularly retain control over the extent to which aliens
may be allowed to acquire economic influence within its
boundaries is not likely to be prepared to waive its "screening"
rights in favor of the open door, even with respect to
the ordinary run of commercial and industrial activities regarding
which the United States advocates a "no-screening"
rule in its standard treaty proposals. Other countries, while
admitting that there should be competitive equality between
the alien and the citizen in initiating investments, and thus
agreeing in principle with the open-door approach, may nevertheless
nurture fears lest the unregulated entry of foreign
capital during times when they are very short of dollar exchange
might allow certain investments to be made which
will create demands for remissions of earnings out of proportion
to the net contributions such investments make to the
national economy.116 On the other hand, reservations to the
1111 Special adjustments, however, have to be made to care for the federal
system, as regards the meaning of "national treatment" as applied to companies-
e.g., Netherlands treaty, Article XXIII, par. 4 (a)-for which there is
usually no equivalent on behalf of the other country. See also the special
provision regarding ownership of real property likewise occasioned by the
United States federal system, included in a number of the treaties (Article IX,
par. 2, Netherlands treaty), the only firm right which the United States is
prepared to accord being with regard to leasehold rights as to property
needed for treaty-authorized purposes (ibid., Article IX, par. 1).
118 Certain balance-of-payments reservations are accordingly found, relative
to the introduction of capital, in the treaties with Denmark (Protocol, par.
7); Japan (Protocol, par. 6); Germany (Protocol, par. 16); and the Netherlands
(Protocol, par. 14).
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No. 1] U. S. COMMERCIAL TREATIES 79
national-treatment rule as regards the initiation of an investment
must also be maintained with respect to certain sensitive
areas of business activity (for example, deposit banking)
because of the alien disabilities which are present in state or
federal law or administrative regulation on the United States
side.117 Similarly, shortcomings of the nature of those listed
as (2), (3) and (4) above, even were they correctible with the
consent of foreign countries, are necessitated by the inability
of the United States to go further than the treaties actually
provide, either because stronger rules would pass the bounds
of established law and practice or because the federal government
is unwilling to use the treaty power to override conflicting
state legislation, actual or potential, in the premises.
Conclusion
Perhaps as time goes on, ways may be found for remedying
or narrowing some flaws which may be said to persist in the
treaty structure, even after ten years of extensive and varied
negotiating experience and of experimentation with ways of
making these instruments more effective. Certainly a comparison
of successive texts appearing during the ten years,
especially those completed during the first half of that period,
will reveal evidence of a continuing effort to improve their
content over that of the China treaty of 1946-which set the
pattern for the series after World War II. For example,
since that pioneering instrument, there has been a thorough
reorganization and restatement of the provisions, with a view
to better clarity and conciseness, fewer ambiguities and qualifications.
The rights of corporations to engage in the normal
run of business activities, on a national-treatment basis, have
been defined in more legally sufficient terms; 58 and formulae
have been devised for viably protecting those categories of
enterprise which because of their sensitive nature (for example,
deposit banking, as above mentioned) are as a matter of
ri7 Examples in the federal jurisdiction: 16 U.S.C. 797(e) (hydroelectric
licenses); 46 U.S.C. 19, 252, 802, ll5l(c), ll59, ll71, I244(c) (shipping opera•
tions); 47 U.S.C. 310 (radio licenses); 49 U.S.C. 401 (13), 52l(b) (I) (domestic
airlines).
118 In the China treaty, the firm legal commitment was most-favored-nation
treatment, accompanied by a general policy objective of "adhering generally
to the principle of national treatment ... in conformity with the applicable
laws and regulations." Article III, par. 3.
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80 POLITICAL SCIENCE QUARTERLY (VoL. LXXIII
course excepted from the operation of the national•treatment
clause applicable to other businesses.59 Greater definition
has been given to the rights of arrested persons; there have
been added a clause to provide for the right of free communication
and a paragraph regarding social security benefits; and
rights with regard to legal aid and the cautio judicatum solvi
have been spelled out. The rule with regard to expropriations
has been amplified; and certain provisions to deal to an
extent with the phenomenon of the state as entrepreneur
have been devised. The provisions on exchange controls and
commercial arbitration have been recast into more realistic
and effective terms; greater attention has been given to management's
right to employ essential personnel without government
interference; and it was also during this period that
a provision on restrictive business practices was introduced.
But there are limits on the lengths to which treaties can
be carried; indeed, only three innovations of significance
(saving, of course, minor improvements, clarifications and ne•
gotiated adjustments) have appeared in those signed since
1951; and none since the treaty of 1953 with Japan.60 Since
the negotiating prototype thus has perhaps attained its inner
growth for the time being, subject always to further perfections
in detail suggested by additional study and experience,
prospects for progress in the immediate future perhaps lie
more in the direction of an increase in the treaty network
ti9 The provision developed to this effect, which had its origin in a general
injunction against impairing established interests originally included in the
Uruguay treaty of 1949 (Article IV), and in a special provision regarding
banking in the Colombia treaty (Protocol, par. 5), first apeared in the treaty
of 1953 with Japan: "However, new limitations imposed by either Party
upon the extent to which aliens are accorded national treatment, with. re•
spect to carrying on such activities within its territories, shall not be applied
as against enterprises which are engaged in such activities therein at the
time such new limitations are adopted and which were owned or controlled
by nationals and companies of the other Party." Article VII, par. 2.
60 The provision mentioned in the preceding note; the clause on visa
rights for investors, first authorized by Congress in 1952; and a special provision
regarding a free market as to marine insurance (e.g., Article XV, par.
5, Netherlands treaty). On the other hand, two provisions previously carried
were abandoned: the article regarding exemption from compulsory military
service (which last appeared in the 1950 treaty with Ireland); and a provision
regarding the practice of professions (excluded by Senate reservation from the
treaties signed in 1951 and 1953, and thereafter omitted in compliance with
the Senate's views).
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No. I] U. S. COMMERCIAL TREATIES 81
numerically than in basic improvements in the content of the
typical product. But what rate of progress might be expected
in completing negotiations with additional countries
is impossible to predict. These treaties, unspectacular and
seemingly simple in their terms though they be, cut across
the interests of all ministries of a government and potentially
pose many problems requiring careful study by any
government contemplating a negotiation. In awaiting attention,
they must compete with an unprecedented welter of demands,
critical and otherwise, upon the time and energy of
governments, in the present state of world affairs. They
must do so, moreover, in a day when their making has apparently
lost, perhaps temporarily, the popularity it previously
en joyed; 61 and when their underlying individual-initiative
premises are singularly under question in many quarters.
In the circumstances, the record of accomplishment of the
treaty program to date, compared for example with that of
similar programs conducted in past periods,62 is by no means
unimpressive. This is so in terms both of the number of
treaties brought to signature and of their contribution to the
formulation of an enlightened body of law and practice regarding
the treatment of the alien and his legitimate interests.
They vary greatly among themselves in detail, as
befits instruments individually and consensually negotiated,
but together they form a pattern bonded by a common core
of viewpoint and purpose. It is this, rather than the mere
fact of sixteen individual treaties, which gives them cumulatively
their larger significance.
HERMAN WALKER, JR.
PARIS, FRANCE
61 Whereas, prior to World War II, there were many examples of treaties
of this general type in the practice of many countries, the United States appears
to be the only country which has systematically sought such treaties
during the past ten years.
62 In the two decades between the two World Wars, the United States con•
cludecl such treaties with twelve countries. For a comparable decade of
treaty activity, it is necessary to go back to the 1850's, when something over
a dozen such treaties were concluded, including some of lesser scope than
the full-length prototype of the day.
Annex 84
TIES
lishct
of
ased
ould
vestreatl
for
osed
:had
nent
,cess
:gins
ctof
2
JJC1unching the U.S. Postwar
PCN Treaty Program
1hc negotiation of FCN treaties dates from the very founding of the republic.
' '?he War of Independence severed the legal ties between the United States of
America and the British Empire and placed the new nation outside the imperial
trading system. Aware that the United States would need new trading partners
to purchase its surplus commodities and to provide it with manufactured goods,
the Continental Congress in 1776 authorized the preparation of a model FCN
ttcaty for use in negotiations with the major European powers.1 In July of that
yoar, it adopted a Declaration of Independence in order to provide a legal basis for
other nations to treat with the new republic.1 The earliest PCN treaties thus were
Intended to obtain recognition of U.S. independence and to esbl>lish trade and
maritime relations with the powers of Europe. 3
The first FCN treaty was signed with France in 1778,4 on the same day that
lhc United States concluded its treaty of alliance with that coontry.5 Tue FCN
1reaty was signed first and thus it became the first treaty concluded in the history
QC the United States. 6 During the War of Independence, the United States also
I. ~ urly history of the FCN treaties is sketched in Doron S. Be.n-Aw, 11ie Origin, of
J•Jftrwn fan Commcrd11l Poliey and Diplomacy (New York: St. Martin's Presa, 1993).
2. l)avldAnnltage, The Dtdarotlon oflndependenu: A Glo!,111 History (Cambridge, MA: Harvard
\.lnlvenityPreu, 2007), pages 35-36.
,\, Department of State, Oflice of Public Affairs, Commudol T,uty Program of the United States
(Wethington, DC: Gawrtune12t Ptinting Office, 1952), NARA, Record Group 59, Department
of State File No. 6U.004/ 3--453.
4.11ebruary6, 1778, 8 Stat.12, T.S. No. 83.
~- Department of State, Office of PubllcAlfain, CommerQ4J lruly Program of tlu United States
(Wuhington, DC: Governmmt Printing Office, 1952), NARA, ~cord Group 59, Department
of State File No. 611.004/3-453.
6, John BU$Ctt Moore, The Principles of Amulcon Dlpl<lffl4cy (New York: Harper and Brothen,
1918), page 12.
I
Annex 84
58 FIRST BILATERAL INVESTMENT TREATIBS
concluded FCN treaties with the Netherlands in 17827 and with Sweden in 1783. 8
Following the end of the war, Congress established a commission comprising
John Adams, Benjamin Franklin, and Thomas Jefferson to negotiate additional
FCN treaties. From 1778 until the second term of the Truman administration,
the United States would negotiate some 130 such treaties.9
Although the initial series of PCN treaties was directed at establishing U.S. relations
with Europe, during the antebellum period the United States undertook to
negotiate FCN treaties with the newly independent Latin American countries.10
FCN treaties concluded before the Civil War, however, were not limited to Europe
and Latin America. For example, a leading object of Caleb Cushing's mission to
China in 1844 was to conclude an FCN treaty with that country.11 In the fir.it half of
the nineteenth century, the United States placed particular importance on the navigation
provisions of the treaties, which gained access to foreign ports for U.S. ves•
sels and which protected the right of U.S. vessels to engage in neutral trade with
belligerent countries.12
In the years following the Civil War, the pace of negotiations slowed.
Industrialization in the United States reduced the need to import manufactured
goods, while the construction of a transcontinental tail.road allowed U.S. producers
to concentrate on serving a large domestic market The United States maintained
high tariffs to protect American industry against foreign competition and
de-emphasized the promotion of international trade. After World War I, how·
ever, the growing U.S. industrial surplus created a need for new markets. Thus,
after that war, trade emerged as by far the most important element of the FCN
treaties.13 By the mid-1920s, the United States was engaged in highly productive
?. Treaty of Amity and Commerce, United States-Netherlands, signed October 8, 1782, 8 Stat.
32, T.S. No. 249.
8, Treaty of Amity and Commerce, United States-Swedeo, signed April 3, 1783, 8 Stat. 60, T.S.
No.346.
9. Herman Walker Jr., "Provisions on Companies in United States Commercial Treaties,• 50
Amtriun Journal of International Law 373, 374 n. 4 (1956). According to Wallcer, thia estimate
was published by the Department of State in 1952, Fora brief surveyofU.S. FCN treaty practice,
,u Eric V. Youngqui.tt, "Uoitcd States Commercial Treaties: Their Role in Foreign Economic
Policy,• 2 Stiulks in Law and &onom~ Dtvclc,pmentn (1967).
10. Memorandum from Winthrop Brown dated February 13, 1950, NARA, Record Group 59,
Department of State File No.611.004/3-850.
11. Deparbnent of State, Office of Public Affairs, Commercial 1re,ity Program of tht Uniud S'4hs
(Washington, DC, Government Printing Office, 1952), NARA, Recotd G11oup 59, Department
of State File No. 611.004/3-453.
12. Ibid. Oo the ruvigation provisions generally, ,uDon C. Piper, "Navigation Provisioiu in the
United States Commercial Treatles,• u A.merjun JourMI of ComparatlwLa:141184 (1962); Harry
C. Hawk.ins, Commercial Treatlu l!t Agreement$: Principles 6' Practice (New York: Rinehart,
1951), pages 34--44.
13. Department of State, Office of'PublicA.tfaira, Cmnmer,ial Tre,ity Program of the Unit"1 Stata
(Washington, DC: Government Printing Office, 1952), NARA, Recotd Group 59, Deputment
of State File No. 611.004/3-453.
Annex 84
.L INV.ESTMBNT TREATIES
ndwithSwedenin 1783.8
commission comprising
1 to negotiate additional
Truman administration,
s.'
I at establishing U.S. relaited
States widertook to
11 American countries.10
:re not limited to Europe
eb Cushing's mission to
mtry. 11 In the first half of
•importanceonthenavi,
reign ports for U.S. vesge
in neutral trade with
f negotiations slowed.
> impoi:t manufactured
id allowed U.S. produc-
1e United States main>
reign competition and
'.er World War I, howor
new markets. Thus,
tt element of the FCN
din highly productive
:d October 8, 1782, 8 Stat,
riJ 3, 1783, 8 Stat. 60, T.S.
'.:ommercial Treatie$, • 50
~ to Walker, this estimate
U.S. FCN treaty practice,
ole in Focc!gn Economic
JARA, Record Group 59,
'KT"'" of the Unitul Swn
~ Group 59, Department
igatioo Provisions in the
eLaw 184 (1962); Harry
, (New York: Rinehart,
r-am of the Unitul States
Group 59, Department
Launching the U.S. Postwar FCN Treaty Program 59
negotiations with several countries in Central America and Europe. It concluded
FCN treaties with Germany14 in 1923, Estonia15 in 1925, El Salvador16 in 1926,
Honduras11 in 1927, and Austria,18 Latvia,19 and Norway2° in 1928. The Great
Depression and the embrace of autarltic economic policies throughout the world
created an inhospitable environment for negotiations21 and no further treaties
were concluded until the mid-1930s. Ultimately, 12 treaties were concluded during
the iQterwar period. 22
With the trade provisions growing in importance, the United States during
the 1920s incorporated into the treaties a clause requiring unconditional most•
favored-nation (MPN) treatment with respect to trade. 23 An unconditional MFN
treatment clause requires .a country to extend to the other treaty par!}' treatment
that is at least as favorable as the treatment that the country extends to any other
country. Thus, if an importing country lowers the tariff on a partictJ.1:ar product
imported from a particular exporting country, it must lower the tariff on that
same product imported from any other exporting country to which it has promised
unconditional MFN treatment. Tue clause that had appeared in prior treaties
was a reciprocal MFN treatment clause. Under that clause, a country was obligated
to extend MFN treatment to other treaty parties only if they redprocated
toward that country. An unconditional MFN treatment clause thus leads to a
more rapid liberalization of trade because all trade concessions made by a country
14. Treaty of Friendship, Commerce and Consular Rights, United States-Germany, December
8, 1923, 44 Stat. 2132, T.S. No. 725. 'Ihe treaty with Germany formed the model foe those concluded
onr the ensuing 15 yean.
15. Truty of Friendship, Commerce and Consulu Rights, United States-&tonia, signed
December 23, 1925, 44 Stat. 2379, T.S. No. 736.
16. Treaty of Friendship, Commuce and Consulu Righa, Unitl!d Sta~s-BI Salvador, signed
February 22, 1926, 46 Stat. 2817, T.S. No. 827.
17. Treaty of Friendship, Commerce and Consular Rights, United Stale$•Honduras, signed
December 7, 1927, 45 Stat. 2618, T.S. No. 764.
18. Treaty of Friendship, Commerce and Con,ular Rights, United States-Austria, signed June
19, 1928, 47 Stat. 1876, r.s. No. 838.
19. Treaty of Friendship, Commerce and Consular Rights, United States-Latvia, signed April
20, 1928,45 Stat. 2641, T.S.No. 765.
20. Treaty of Friendship, Commerce and Consular Rights, Unired States-Norway, signedJune
5, 1928, 47 Stat. 2135, T.S. No. 852.
l1. 'Ihese policies are described in more detail inJdfrey A. Frieden, Global Cipitalism: Its PaU
11nd R.lu 111 tm Twentieth Century (New York: WW. Norton, 2006).
22. Commercu,/ Treatks, Hearing Before a Subcommi~ of the Committee on Foreign
Relations, 82d Cong. 2d Sess. (1952), page 3.
23. The history and rationale of this change are described in William B. Kelly Jr., "Antecedent&
of Pre&ent Commercial Policy; in WJ.liam B. Kelly,Jr., ed., Studw in United States Commtrtial
Poli'} (Chapel Hlll: Un!ven.ityofNorth Carolim Press, 1963).
l
l I
l
t
I l
I l
Annex 84
60 PfRST BILATERAL JNVJ!STMENT TREATIES
are immediately generalized to all treaty parties with which that country has an
unconditional MFN treatment obligation, even if those parties do not provide the
same concession in return. 24
The FCN treaties were not sufficient in themselves to opeo markets to
U.S. exports because they did not reduce tariffs, instead promising only non•
discriminatory treatment. Most of the FCN treaty provisions addressed other
aspects of trade, such as the treatment of merchants in the territory of the
host state.
Because tariffs were taxes and could be reduced only by an act of Congress,
efforts by the State Department to negotiate reductions in tariffs were impeded
by the Department's inability to ensure that Congress would enact legislation to
implement any reductions to which the United States might agree during negotiations.
25 To remedy this situation, in 1934, Secretary of State Cordell Hull persuaded
Congress to enact the Reciprocal Trade Agreements Act (RTAA), which
authorized the State Department to conclude treaties that reduced tariffs by as
much as 50 percent without further approval from Congress. Although the State
Department continued to conclude FCN treaties, much ofits effort shifted to the
negotiation of trade agreements under the 1934 legislation. In the three years
a&er the RTAA was enacted, the State Department concluded 15 trade agreements
under the act?1 By contrast, it concluded only three FCN treaties during
the entirety of the Roosevelt Administration-with Finland27 in 1934, Siam (now
Thailand)28 in 1937, and Liberia29 in 1938.
World War II reduced commercial affairs •to a bare minimum, •lo and the
United States suspended the negotiation of FCN treaties during the war years,
even when negotiations were already in progress. For example, the negotiation of
an FCN treaty with India ended abruptly when the State Department received a
24. A$ Lloyd Gardner notes, the United States sought more rapid libenlizatioo oftnde because
its enhanced productive capacity following World War I demanded larger export mu:kets. Lloyd
C. Gardner, Er.onomicAspeas ofNw Deal Diplomacy (Madi.,on: UDivemty of Wisconsin Pren,
1964), page 40.
25. David A. Lalr.e, Power, Protuticm, 11nd Pm Trade: Intun11tlonal Sourus of US Commerclol
Smtegy 1887-1939 (Ithaca, NY: Comell University Pre., 1989), page 204.
26. John M. Rothgeb Jr., U.S. Tr11de Polq: Balancing &onomlc D?'eanu and Political Realitla
(Washington, DC: Congtt&Sional Q.μa.rterly Press 2001), page 47,
27. Treaty of Frienddiip, Commerce and Consular Rights, United States-Finland, signed
February 13, 1934, 49 Stat. 2659, T.S. No. 868.
28. Treatyof Priendahip, Commerce and Navigation, Un.!ted States-Siam, signed November 13,
1937, 53 Stilt.1731; T.S. No, 940,
29. Treaty of Friendah.ip, Commerce and Navigation, United States-Liberia, &igned August 8,
1938, 54 Stat. 1739, T.S, No. 956.
30. Dean Acheson, Present at the Crea&n: My Yt.zrs ill the Stau Department (New Yark: W.
W. Norton, 1969), page 17.
Annex 84
310 flllST BILAT.llllAL lNV.llSTMBNT Tll!ATU!S
NEGOTIATING AN FCN TREATY WITH IRAN
'Ihe Truman administration submitted a draft FCN treaty to Ir:an informally in
February 1948, but no negotiations resulted.112 Two years later, the U.S. embassy
believed that the time might be right to make another approach, but again no
negotiations occurred,113 largely because of Iranian objections to the provision
requiring national treatment with respect to the right to establish investment.114
By summer of 1954, however, circumstances had created inducements for
both parties to negotiate a treaty. 'Ihe Iranian government was seeking increased
treaty protection for Iranians living in the United States. In particular, Iran was
concerned about Iranian businessmen in the United States who did not have
immigration status to remain in the country. us U.S. oil companies were seeking
greater protection for their investment in Iran, 116 particularly in the wake of the
nationalization of the Anglo-Iranian Oil Company in 1951. Although the United
Kingdom had suggested that all that would be necessary for the oil companies
would be an investment protection treaty, the United States believed that to suggest
a treaty limited to investment protection would offend the Iranian government.
117 Rather, the United States wished to propose an FCN treaty that would
provide Iranians with improvements in their penonal status in the United States,
while also protecting U.S. investment in Iran. 111
Recalling that the Iranian government had paid .. scant attention• to the standard
draft treaty presented in 1948, the State Department decided to propose
a shortened version of the FCN treaty similar to that concluded with Ethiopia
in 1951. Notably, the abridged version did not require national treatment with
respect to the establishment of investment.119 lhe .. essential nucleus• of the treaty
was the provisions requiring compensation for expropriation and national treatment
of American business enterprises onc.e established. The State Department
believed that the provision on expropriation combined with the compromissory
clause providing for adjudication of disputes by the International Court of Justice
"should afford valuable assurances to the American oil companies and other
112. Telegram dated June 4, 1950,&om the U.S.embusyin Tehran to the Department of State,
NARA, Record Group 59, Department of State Pile No. 611.884/6·450.
113. Instruc:tioD dated June 22, 1954, from the DepartmeD.t of State to the U.S. embassy in
Tehran, NARA, Record GToup 59, Department of State File No. 611.884/6-2254.
114. Instruction dated July 23, 1954, lrom the Department of State to the U.S. embassy lo
Tchrui, NAM, ~ord Gn>vp 59, D~tofSt:lw Pile No. 6u.~n-l3S4.
115. Instruction dated June 22, 19.S., from the Department of State to tile U.S. embu.y in
Tehran, NAM, Record Group 59, Departmmt of State File No. 611.884/6·2254.
116.lbid.
117.Jbid.
118.lbid.
119.lbid.
!
!
I
I
!
I
I I
I j
f.
¼ l
I t
I
I f I I
I
f
Annex 84
NVl!STMJ!NT TUATil!S
r to Iran informally in
later, the U.S. embassy
pproach, but again oo
:tion.s to the provision
tablish investment.n•
ated inducements for
WU seeking increased
In particular, Iran was
tes who did not have
mpanies were seelting
uiy in the wale of the
.Although the United
for the oil companies
,s believed that to sug.
d the Iranian govunCN
treaty that would
s in the United States,
1ttention• to the stan-
1t decided to propose
eluded with Ethiopia
:ional treatment with
nucleus• of the treaty
:>n and national treathe
State Department
h the compromissory
ional Court ofJustice
:ompa.oies and other
the Department of State,
).
: to the U.S. anbusy in
l◄/6-2254.
to the U.S. aohas,y in
l◄/1-2354.
· to the U.S. embassy in
14/6-2254.
Alier the Truman Years 311
American investors:120 'Ihe immediate reaction of the Iranian ambassador when
he saw the proposed treaty was that the abridged version •might be much more
workable than the extremely detailed version which bad been discussed with bis
Government some years ago:m
.After reviewing the proposed treaty, the Iranian government was chiefly concerned
with certain provisions that would have to be extended to the Soviet Union
or other Iron Curtain countries under treaties with those countries granting them
MFN treatm.ent. 'n For example, Iran feared that the exchange c,ontrols provision
would grant certain non-American investments priority in obtaining foreign
exchange.123 The posS1'ble extension of treaty benefits to the Soviet Union was not
Iran's only concern, however. Iran also bristled at a treaty provision requiring a
•modern standard of justice,• a provision that did not appear in other U.S. FCN
treatieS and that could be interpreted as casting aspersions on the Iranian legal
system.'u
Iran soon proposed a number of changes, many of them related to concerns
about the Soviet Union and its satellites. Iran feared that econOJJlic penetration
by such countries could threaten its national independence, a fear that the State
Department acknowledged to be legitimate.1
2S For example, han wanted language
in the Preamble indicating that the provisions of the treaty had been agreed
on a reciprocal basis. Such language would provide grounds for refusing to extend
similar rights to the Soviet Union under an MPN treaty ·obligation. Iran also
proposed limiting treaty protection to privately-owned companies, thereby preventing
Soviet enterprises from claiming protection. At the same time, however,
la.n wanted a secret exchange of letters deeming all Iranian companies operating
within the Unned States to fall within treaty protection, even if entirely financed
by the Iranian government U6
120. luatruction dated July 23, 195-4, from the Departmeut of State to the U.S. embucy in
Tehran, NARA, Record Group 59, Department of State Pile No. 611.88-t/ 7-235-4,
121. Memorandum headed "Message of Condolence from the Shah; dated September 8, 19S4,
NARA, Record Group S9, Department of St.ate File No. 611.884/9-85◄.
122. -nlegram dated September 1S, 1954, from the U.S. embusyln Tehran to the Depanmentof
St.ate, NARA, Record Group 59, Department of State File No. 611.884/9-1554.
123. Telegram ~ted October 2, 19S-4, from the U.S. embaar, in Tehran to tbe Department of
State, NARA, Record Group 59, Department of State File No. 611.88◄/10-25◄.
12-4. Telegram dated September 15, 1954,fromthe U.S. embusyln Tehran to the Department of
State, NARA, Record Group 59, Department of State File No. 6U.3M/9-l.S5-4; Despatch dated
October 16, 1954,from the U.S. embusy in Tehran to the Department of State, NARA, Record
Group S9, Department of State File No.611.884/10-1654.
125. Statement of 'Ihorsten V. Karltjarvl, Commercui1 Truty ,.,W. INn, N'u:.a"'P" and 1lic
Ndherlonds, Haring Before the Committee on PoreigD Relationl,JaJy 3, 1956, 84th Cong. 2d
Seas.(19S6).
126. Despatch dated Octobu 16, 195-4, &om the U.S. embusy in Tehran to the Departmmt of
Sttlle, NARA, Record Group 59, Departznent of State Pile No. 611.884/ 10-16S◄.
Annex 84
311 PIRST BtLATP.&AL INVBSTM:J!NT T&BATIP.S
Some of Iran's proposed changes were directed not at denying benefits to the
Soviet Union but at weakening treaty protection for U.S. nationals and companies.
For example, Iran proposed that the prohibition on unreasonable or discriminatory
measures be rephrased as a prohibition on unlawful or discriminatory
measures. Iran also proposed rephrasing the upropriation provision to eliminate
protection for "interests in property,• apparently with the goal of excluding
U.S. interests in the international oil consortium from treaty protection.117
Iran had two objections to the provision on exchange controls. First, it wanted
to retain sole disaetion to determine whether achange controls were warranted.
111 Second, it did not wish to make foreign achaoge available to facilitate
•hot money"' transfers.119 Finally, Iran wanted to delete Crom the compromissory
clause language conferring jurisdiction on the Court to decide disputes involving
the"appllcation•ofthetreaty.130
The State Department was sympathetic to Iran's concern about MFN treatment,
but to accomplish the same goal suggested alternative language referring to
reciprodty.131 The United States also agreed to place the right of entry for traders
and investors on an MFN basis, in order to address Iranian concerns about Soviet
penetration.131 Regarding the concern about "bot money,• the State Department
explained that reasonable restrictions on capital to avoid a serious outflow of "hot
money• in the form of scarce foreign exchange would not violate the exchange
controls article. 1"
Otherwise, however, the United States largely objected to Iran's proposals. For
example, the State Department replied that a secret eu.hange oflettets was out of the
question, both on policy grounds and because Article 102 of the U.N. Charter prohibited
secret agreements.1l4 U.S. negotiators noted that changing "unreasonable• to
"unlawful• would destroy the effect of the provision. w They said that the expropriation
provision was one of the most lmp<rtant in the treaty a.nd that any substantial
127.lbid.
128. Ibid.
129.lbid.
130.Ibid.
131. Telegram dated November 1, 1954, from the U.S. embassy in Tehran to th.e Department of
State, NARA, Record Group 59, Department of State File No. 611.884/11·154.
132. Memorandum headed "FCN Treaty with Iran,• dated June 1-4, 1955, NARA, Reeon!
Group 59, Department of State File No. 611.88'4/6·1'455.
133. lnstroction dated November 10, 1954, from the Department of State to the U.S. embassy
in Tehran, NARA, Record Group S9, Department of State File No. 611.884/1 t-1054; D~tdt
dated October 16, 19S'4, from the U.S. embassy in Tehran to the Department of State, NAM,
Record Group 59, Departll:wlt of State Pile No. 611.88-4/10-1654.
13'4. Telegram dated December 18, 1954, from the Department of State to the U.S. embassy iD
Tehran, NARA, Record Group 59, Departznent of State File No. 611.884/12-1854.
13S. Telegram dated November 13, 1954, from the Depar~t of State to the: U.S. embuq in
Tehran, NARA. Record Group S9, Department of St.ate File No, 611.88'4/11-135'4.
Annex 84
• INVESTMENT TIU!ATI.ES
denying benefits to the
:. nationals and compalll'ea&
onable or discrimwful
or discriminatory
.on provision to elitniith
the goal of excludn
treaty protection. U7
1trols. First, it wanted
'I! controls Were wari
available to facilitate
n the compromissory
de disputes involving
n about MFN treat.
anguage referring to
t of entry for traders
rncerns about Soviet
e State Department
ious outflow of "hot
:oiate the acliange
:an's proposals. For
?tterswas out of the
U.N. Charter pro-
(unteasonabJe• to
that the exproprialat
any substantial
,t.h e l>epartme,at of
i, NAM, Record
the u:s. embassy
l-1054; DefPatch
ofS~NAM,
U.S. eiubassy ill
54.
U.S. embassy In ....
tr the Truman Yeua 313
,hange would be very difficult for the United States to accept 136 Tuey noted that
lrect investment contributed to Iran's development and thus the treaty should
· 111courage it 137 They aigued that language giving each party sole dis(ntion to
tennine whether to impose exchange controls was unnecessary because a party's
~tion would be presumed correct in the fust instance, and the U.S. negoton
doubted that a dispute under the provision would arise in any event 13' 'Ihey
inded the Iranian negotiators that Iran had agreed on numerous prior occasions
compromissory clauses covering disputes relating to the application of a treaty.1:t9
• 1n December, the embassy reported that the Iranian negotiators had been
ly receptive to the U.S. comments and had endeavored to accommodate
, views wherever possible. 'Ihe embassy then expressed concern that the
artment's negative reaction to so many of Iran's proposals was aeating the
pression that the United States was prepared to conclude a treaty only on its
ins.1~ 1he Department held firm, however, and ultimately prevailed on each of
,e investment-related issues. The United States nevertheless did agree to some
dUications to its proposed draft. For example, the treaty omits the provision
ding the right to utilize specialized personnd for internal purposes.
fXhe treaty was signed on August 15, 1955,141 Among its provisions was Jange
terminating a 1928 treaty under which Iranian courts applied U.S. law to
· cases involving U.S. nationals.142 In this way, the United States surrend
the last vestige of extraterritoriality in lran.1'° 'Ihe State Department noted
treaty provisions requiring prompt payment of just compensation for exproted
propertya.nd the submission of treaty disputes to the International Court
ustice represented "'almost a complete reversal of the Iranian poaition in the
lo-Iranian expropriation] controversy and may repair much of the damage
lllting from that dispute.•144
, Telegralll dated January 14, 1955, Crom the Deputment of State to the U.S. embassy in
n, NARA,Record Group 59, Department of State File No. 611.884/1-455.
, Telegram dated November 12, 1954, from the Department of State to the U.S. esnbwyln
Nln,NARA,Record Group 59, Department of Stal£ File No. 611.884/11-1254.
0, Telegram dated November 27, 1954, from the U.S. embassy In Tehan to the Department
State, NARA, Record Group S9, Department o( State File No. 611.88-4/11-2754-; Telegram
Nd Decembet 17, 1954, from the U.S. embauy in Tehran to the Department olState, NARA.
rd Group 59, DepartlllentofState File No. 611.884/ 12-1754.
,TreatyoiAmity,Bc:onomlcRelationsandConsuluRJghtc,enteredlntoforceJune l6, 19S7,
899, TI.AS 3853, 284 UNTS 93.
Memorandum beaded -PCN Truty with uan,• dated Ju11.e 14, 1955, NARA, Record
59, Department of State File No. 611.88-4/6-1455.
, Curnnt ECOMmk Dewlopmfflts, June 21, 1955, page 11, NARA, Record Group 59,
ntolStateLotF.ilea.
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Annex 85
HERMAN WALKER, JR.
Treaties for the Encouragement and
Protection of Foreign Investment: Present
United States Practice
THE CURRENT United States interest in treaties for the encouragement
and protection of foreign investment weds two national policies of long
standing. Treaties in support of American citizens and their interests
abroad, in line with the prevailing international needs and usages of each
era, have been a normal and repeatedly used feature of American diplomacy
since the days of the War of Independence. Concurrently, the Republic
has from its earliest years favored the free international movement
of private capital. This was true when it was an undeveloped,
capital-deficient ex-colony; it remains true now that it has become a world
power and reservoir of capital, able to help satisfy the investment requirements
of others. Then, to the great benefit of its own economic
growth, it embodied in its legal system principles favorable to foreign
capital ;1 now through treaty negotiations it seeks to project similar principles
onto the international plane, a consummation responsive alike to
its own economic position and to the contemporary urge for accelerated
economic development being manifested by the members of the world
community.2
HEluuN WALKER, JR., Member of the Foreign Service, was at the time of writing Adviser
on Commercial Treaties, Office of International Trade and Resources, Department of
State. This article is personal, and without official attribution.
1 Alexander Hamilton in his celebrated Report on Manufactures, an analytical set of recommendations
addressed to the first Congress in 1790, had urged such a policy in the following
words:
"It is not impossible that there may be persons disposed to look with a jealous eye on the
introduction of foreign capital as if it were an instrument to deprive our own citizens of the
profits of our own industry. But perhaps there never could be a more unreasonable jealousy.
Instead of being viewed as a rival, it ought to be considered as a most valuable auxiliary;
conducing to put in motion a greater quantity of productive labor and a greater portion of
useful enterprise than could exist without it .. .. [E]very farthing of forei~ capital .. . is a
precious acquisition." (Taussig, ed., State Papers and Speeches on the Tariff, Harvard 1892,
pp. 39-40).
1 For a recent authoritative exposition of this view, see section entitled "Promoting the
International Flow of Goods and Capital" in the President's Economic Report transmitted
January 24, 1956 (H. Doc. 280, 84th Cong., 2d sess.), carried in the Department of State
Bulletin, vol. XXXIV, pp. 253-57.
229
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Annex 85
230 THE AMERICAN JOURNAL OF COMPARATIVE LAW
I
Treaties for investment purposes deal with the basic legal conditions
which influence the degree to which potential investors are willing to
venture their capital in undertakings in a foreign land. They aim, on a
joint consensual basis, to establish or confirm in the potential host country
a governmental policy of equity and hospitality to the foreign investor.
This means, above all, assurance that the enterprise and property
of the alien will be respected and that he will be accorded equal protection
of the laws alike with citizens of the country. This fundamental idea,
then. is the raw material from which the variegated content of the treaties
is elaborated.
The principal vehicle advocated by the United States Government
thus to deal by agreement with the ground rules affecting investment is
the bilateral treaty of friendship, commerce, and navigation-"FCN
treaty" or "commercial treaty" for short. In the last ten years, such
treaties have been signed with 15 countries,3 and others are in course of
negotiation. The FCN treaty-type became the chosen instrument presumably
because it afforded a ready-made framework into which the desired
provisions could conveniently be fitted, and because past experience
had demonstrated its negotiability. The diplomatic desiderata of precedent
and tested practicability favored it.
This type of treaty is an instrument widely used by nations over the
years to provide the juridical basis for their economic intercourse and to
strengthen ties of good neighborliness in their everyday relations. It acquired
in time a familiar and distinctive form and character, as a normal
medium through which to provide extensively for the rights of each country's
citizens, their property and other interests, in the territories of the
other, and for the rules mutually to govern their trade and shipping.
Around this central theme, this treaty-type has repeatedly proved its
3 China, 1946 (63 Stat. pt. 2, 1299); ItaJy, 1948 (63 Stat. pt. 2, 2255) supplemented by
Agreement of September 26, 1951, S. Exec. H, 82d Cong., 2d Sess.); lrel,and, 1950 (1 UST 785);
Colombia, 1951 (S. Exec. M, 82d Cong., 1st Sess., withdrawn from Senate, June 30, 1953);
Greece, 1951 (TIAS 3057); Israel, 1951 (5 UST, pt. 1, 550); Denmark, 1951 (S. Exec. I, 82d
Cong., 2d Sess.); Japan, 1953 (4 UST, pt. 2, 2063); FederaJ Republic of Germany, 1954 (S. Exec.
E, 84th Cong., 1st Sess.); Haiti, 1955 (S. Exec. H, 84th Cong., 1st Sess.); Nicaragua, 1956
(S. Exec. G, 84th Cong., 2d Sess); Netherlands, 1956 (S. Exec. H, 84th Cong., 2d Sess); Uruguay,
1949 (S. Exec. D, 81st Cong., 2d Sess.); Ethiopia, 1951 (4 UST, pt. 2, 2134); and Iran
(S. Exec. E, 84th Cong. 2d Sess). These treaties faU into three patterns. Those succeeding
the China and Italy treaties reflect an extensive reorganization and condensation of the
content. The Ethiopia and Iran treaties represent a further abridgment of this material,
and add provisions on diplomatic and consular rights. AU are substantially similar, however,
with regard to the points discussed in this article, except as otherwise noted and except that
the Ethiopia and Iran treaties lack some of the refinements found in the others. They all
bear the same title, except that in the Uruguay case the term "economic development" occurs,
and "amity and economic relations" in the case of Ethiopia and Iran.
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Annex 85
WALKER: TREATIES AND FOREIGN INVESTMENT 231
·flexibility and its adaptability to the varying needs of different eras. Its
history of use by the United States antedates the Constitution. Our first
treaty, in fact, was a Treaty of Amity and Commerce, concluded in 1778
with France,4 as part of the arrangement which brought that country
into our Revolutionary War as an ally. Numerous other examples followed,
with countries of all conditions and locations, and with varying
emphases and motivations, depending on the circumstances of the day. 6
In more recent times, following World War I, such treaties were designed
especially to promote international trade; and they afforded the
medium through which this country embraced the unconditional form
of the most-favored-nation clause. But latterly, since the enactment of
the reciprocal Trade Agreements Act in 1934, other conventional tools
of a special sort have been fashioned and employed to serve trade promotion
and regulation: the bilateral trade agreement and now the GATT
(the General Agreement on Tariffs and Trade).6 With the consequent
decrease of emphasis on the FCN treaty's role in international trade, the
instrument lay ready to hand following World War II to be retooled to
fit the newly-crystallized investment need.7 This retooling did not mean
abandonment of the old; the treaty remains one of commerce and navigation,
inter alia. It meant rather a shift in orientation and internal balance,
with the refinement, building up, and supplementing of familiar
features especially pertinent to investor requirements. How this has been
done may be described as follows.
'Others of the pre-Constitution era included those with the Netherlands (1782), Sweden
(1783), and Prussia (1785).
'A recent publication mentions the figure "more than 130," counting those of smaller
scope and size (Department of State Fact Sheet entitled "Commercial Treaty Program of
the United States," March 1952, p. 3). For the various purposes historically served by these
treaties, see ibid and Setser, "Treaties to Aid American Business Abroad," XL Foreign Commerce
Weekly (U.S. Dept of Commerce, Sept. 11, 1950), pp. 3 et seq.
• Originally negotiated at Geneva, 1947, and now adhered to by 35 countries. The present
text, with pending revisions, was published in a State Department pamphlet under date of
March, 1955; and a summary explanation in Department of State Publication 5813, April,
1955.
1 The change in the country's international capital position did not, of course, suddenly
occur at this point of time. Even before the first World War, when the United States was
the world's leading creditor nation, American investments abroad were growing, especially
beginning about 1900. The graph of its creditor status between the two Wars, moreover, was
uneven, there being periods in the 30's and early 40's when the net capital flow was markedly
inward; and considerable foreign investment continues still to be made here. For the evolution
of the United States position, see Lewis, America's Stake in International Investments
(Brookings, 1948); Sammons, "International Investment Position of the United States,"
XVIII Foreign Commerce Weekly (January 27, 1945) 5-7; Pizer and Cutler, "International
Investments and Earnings," Survey of Current Business (U.S. Department of Commerce),
August 1955, pp. 1~20. See also, e.g., the summaries in Young, The International Economy
(3rd ed. 1951) 497- 502; and the OEEC Report on International Investment (Paris, 1950)
13-28.
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Annex 85
232 THE AMERICAN JOURNAL OF COMPARATIVE LAW
II
"Investment" may be summarily defined as the joining of an investor
(a person) and capital (property) into a gainful enterprise (a business
activity). FCN treaties traditionally have contained so-called establishment
provisions dealing more or less with these three elements: the right
of citizens of each country to establish and carry on business activities
within the other and to receive due protection there for their persons and
property. The range of activities covered, though originally tending to
be confined primarily to international trade and that which was relevant
or incidental thereto, came in time to cut across commerce and industry
generally. Moreover, the basic rule to govern the conduct of such activities
has long since been settled, in United States treaty practice, as
"national treatment": that is, equality of treatment as between the alien
and the citizen of the country. The former thus is entitled freely to carry
on his chosen business under conditions of non-discrimination, and to
enjoy the same legal opportunity to succeed and prosper on his merits
as is allowed citizens of the country. It has become settled, also, that he
and his property shall receive not only equal protection, but also a certain
minimum degree of protection, as under international law, regardless of a
Government's possible lapses with respect to its own citizens.
In respect of the range of covered activities and the quality of the
protection vouchsafed, therefore, past treaties have contained the ingredients
of an investment policy. The same has not been so, however, in
respect of the persons for whom rights were provided, as these treaties
were concerned with "citizens" or "nationals," and were concerned with
corporations not at all or only to a minor degree. This attitude of reserve
toward corporations was manifested in the treaties of the inter-War period,
as follows:
"The right of such corporations and associations of either High Contracting
Party so recognized by the other to establish themselves within its territories,
establish branch offices and fulfill their functions therein shall depend
upon, and be governed solely by, the consent of such Party as expressed in
its National, State, or Provincial laws."8
This deficiency was a most serious one from the investment viewpoint,
since international investment in modem times is predominantly by corporate,
rather than individual enterprise. The first task in developing a
8 E.g., Article XII, Treaty of Friendship, Commerce and Consular Rights with Germany,
1923. U.S. treaty policy regarding corporations is discussed in the author's article "Provisions
on Companies in United States Commercial Treaties," SO Am. Jour. Int. Law, 373-93
(1956).
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Annex 85
WALKER: TREATIES AND FOREIGN INVESTMENT 233
treaty pattern after the late War, consequently, was to devise ways of
providing adequately for the rights of corporations. This posed a special
problem for the United States: namely, how in the reciprocal context of
an FCN treaty to formulate commitments which would be meaningful
while at the same time avoiding interference with the constitutional prerogatives
of the several States of the Union over the admission and regulation
of foreign corporations.9 But it so happens that a corporation is
"foreign" in any given State by virtue of having been chartered in another,
any other, jurisdiction; and a corporation of a sister State is
"foreign" equally with one of a foreign country. The solution found, accordingly,
was an interpretative clause which for treaty purposes simply
assimilates the corporations of the other Party, in any State of the Union,
to those of other States of the Union.10
With this interpretative formula, the way was open to deal with corporations
as fully as with individuals; and this has been done by extending
to corporations, in measure equally with natural persons, the benefits
of the national treatment and other rules of the treaty, in all situations
pertinent to corporations. But so to provide for corporations of each
Party in the territories of the other is still insufficient; investors choose
to operate abroad not only through branches of corporations of their own
country, but also very frequently through subsidiaries chartered under
the laws of the foreign country where operations are conducted. Systematic
treatment, therefore, required the introduction of provisions to
cover this situation, a step representing something of a departure from
traditional treaty concepts. Normally and classically, a country extends
diplomatic protection abroad for objects which are, and because they
are, juridically identified with it--e.g., for individuals who are its nationals,
for entities which owe their existence to its laws, for ships which
fly its flag. Here however, treaty protection is gained for entities not so
identified; the "corporate veil is pierced" for the purpose of making economic
interest, rather than legal relationship, the justification and the
basis for protection.11
• This constitutional principle was settled by the Supreme Court in Paul v. Virginia, 8
Wall. 168 (1868); and the treaty-making problem it posed was alluded to in Hearing before
the Committee on Foreign Relations U.S. Senate, 68th Cong., 1st Sess. on Treaty of Commerce
and Consular Rights with Germany, January 25, 1924, p. 21.
10 E.g., Article XXII, paragraph 4, of the 1953 treaty with Japan. This formula is only
superficially nonreciprocal, as it in fact equates the alien corporation to the bulk of its competitors
in interstate business.
11 To this extent, the treaty may be said to reflect what has been called an "enterprise"
theory. See, e.g., Kronstein, "The Nationality of International Enterprise," 52 Columbia
Law Review 983 d seq. (1952). Compare the axiom propounded by Jones "ex hypot~, no
state can intervene on behalf of a corporation against its own government," "Claims on
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Annex 85
234 THE AMERICAN JOURNAL OF COMPARATIVE LAW
With corporations suitably fitted into the framework of the establishment
provisions, the foundation for an investment treaty was laid; and
there remained to complete the conversion process by revising and filling
in the content of that framework. Partly this involved the restatement of
existing provisions; partly, the addition of new material. In the treaties
of the inter-War period, the group most recently concluded prior to those
of the current program, the main rules bearing on the establishment,
conduct, and protection of enterprise, had for the most part comprised
a single article12 out of the approximately thirty articles to which those
treaties tended to run. The amplification and supplementation of this
material, together with compression and pruning of the remaining material,
has eventuated in a text in which investment-related provisions
constitute upwards of half the total. 13
In the treaties of the 20's and 30's, the rights of entry of individuals
had been subjected to a sweeping immigration laws exception. Now, however,
firm rights are provided for the entry and indefinite sojourn of
international traders and principal investors.14 Though equal provision
for subordinate investor-enterprise employees is not yet possible owing
to lack of statutory authority, such personnel is to an extent provided
for, in that management is assured freedom of choice in the engaging of
essential executive and technical employees in general, regardless of their
nationality, without legal interference from "percentile" restrictions and
the like; and of accountants, engineers and so on, for special internal audits
and surveys, without regard for local professional licencing requirements.
16
Behalf of Nationals Who are Shareholders in Foreign Corporations," 26 Br. YB of Int. Law,
(1949) 225, 257. For two recent discussions relative to the same subject, see M. Domke,
"Piercing the Corporate Veil in the Law of Economic Warfare," Wisconsin L. R. Uanuary
1955) 77; R. Berger, "'Disregarding the Corporate Entity' for Stockholders' Benefit," 55
Columbia L. R. (1955) 808.
11 E.g., Article I of the treaty of 1923 with Germany.
11 For example, the subject of consular rights was detached, and, in the treaties following
that with Italy in 1948 (note 3, supra), a condensed statement of the navigation provisions
was developed.
H E.g., Article I, paragraph 1, of the 1953 treaty with Japan. The visa provision for "traders"
has been in all since the 1946 treaty with China; but that for "investors" became possible
only with enactment of the Immigration and Nationality Act of 1952 (Sec. 101 (a) (15) (E)
(ii)). See Robert R. Wilson "Treaty-Investor Clauses in Commercial Treaties of the United
States," 49 A.J.I.L. (1955) 366-70.
15 E.g., Article VIII, paragraph 1, of the 1953 treaty with Japan:
"Nationals and companies of either Party shall be permitted to engage, within the territories
of the other Party, accountants and other technical experts, executive personnel,
attorneys, agents and other specialists of their choice. Moreover, such nationals and companies
shall bf' permitted to engage accountants and other technical experts regardless of
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Annex 85
WALKER: TREATIES AND FOREIGN INVESTMENT 235
The rule regarding freedom of access to the courts has been clarified
and expanded, notably by the incorporation of: a national treatment
standard; a clause to prevent the frustration of this right through domestication
or registration requirements, in the case of companies; 16 an
agreement that the cautio judicatum solvi- shall not be exacted in any
discriminatory manner;17 and a provision supporting arbitration as a
method of settling private controversies, where the parties have contracted
to adopt that procedure.18
The usual provisions regarding the protection and security of property
have been given more definite content by amplification of the concept
of the "just compensation" required in the event of expropriation or other
taking.19 Article VI, paragraph 3, of the treaty with Japan, for example,
reads:
"Property of nationals and companies of either Party shall not be taken
within the territories of the other Party except for a public purpose, nor shall
it be taken without the prompt payment of just compensation. Such compensation
shall be in an effectively realizable form and shall represent the full
equivalent of the property taken; and adequate provision shall have been
made at or prior to the time of taking for the determination and payment
thereof."
In addition, a provision has been developed to provide in general that
expropriations and sequestrations, should they occur, shall be implemented
in a non-discriminatory manner (so as, for example, to preclude
the extent to which they may have qualified for the practice of a profession within the territories
of such other Party, for the particular purpose of making examinations, audits and
technical investigations exclusively for, and rendering reports to, such nationals and companies
in connection with the planning and operation of their enterprises, and enterprises in
which they have a financial interest, within such territories."
The second part of this provision appeared for the first time in the 1949 treaty with Uruguay.
11 Idem, Article IV, paragraph 1 :
"Nationals and companies of either Party shall be accorded national treatment and
most-favored-nation treatment with respect to access to the courts of justice and to administrative
tribunals and agencies within the territories of the other Party, in all degrees of
jurisdiction, both in pursuit and in defense of their rights. It is understood that companies
of either Party not engaged in activities within the territories of the other Party shall enjoy
such access therein without registration or similar requirements."
17 Idem, Protocol paragraph 1.
18 ldem, Article IV, paragraph 2. This subject is discussed in the author's article "Commercial
Arbitration in United States Treaties," in 2 Arbitration Journal (1956) 68 et se,q.
11 The twelve treaties of the 20's and 30's spoke simply of "just" compensation, given
through "due process". In the China treaty of 1946, the statement was expanded to
"prompt, just and effective," and this in turn evolved into the wording above-quoted beginning
with the treaties signed in 1951.
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Annex 85
236 THE AMERICAN JOURNAL OF COMPARATIVE LAW
an unequal selection of enterprises for nationalization).20 Moreover, to
account for the possibility of injurious governmental harassments short
of expropriation or sequestration, there is included a general injunction
against "unreasonable or discriminatory" impairments of vested interests.
21
The basic principle of national treatment with respect to engaging in
business activities and doing the things necessary or incidental thereto,
which forms the heart of the treaty as an investment instrument, has
been elaborated to mention the various juridical forms under which an
activity can be conducted; to emphasize the owners' prerogatives of control
and management; and to assure that also the enterprise, qua enterprise,
will receive the stipulated treatment.22 Attention, furthermore, has
been paid to providing some kind of rule with respect to areas of activity
which, because of their sensitive nature (e.g. deposit banking, domestic
air transport), are in principle excepted from the national treatment commitments
applicable to the normal run of commercial and industrial
activity. To such areas, the minimum rule of most-favored-nation treatment
is extended, so that each Party is obligated to grant treatment at
least as favorable a~ that enjoyed by other aliens.23 In addition, in recognition
of the fact that the exceptions may not always be, and often are
not invoked in practice, a qualification to this exception has been introduced,
so as to restore the benefits of the national treatment standard to
20 E.g., Article VI, paragraph 4, second sentence of treaty with Japan:
"Nationals and companies of either Party shall in no case be accorded, within the territories
of the other Party, less than national treatment and most-favored-nation treatment
with respect to the matters set forth in paragraphs 2 and 3 of the present Article. Moreover,
enterprises in which nationals and companies of either Party have a substantial interest
shall be accorded, within the territories of the other Party, not less than national treatment
and most-favored-nation treatment in all matters relating to the taking of privately owned
enterprises into public ownership and to the placing of such enterprises under public control."
This provision first appeared in the treaty of 1948 with Italy.
11 ldem, Article V, paragraph 1. This provision first appeared in the treaty of 1949 with
Uruguay.
23 I de-m, Article VII, paragraph 1 :
"Nationals and companies of either Party shall be accorded national treatment with
respect to engaging in all types of commercial, industrial, financial and other business activities
within the territories of the other Party, whether directly or by agent or through the
medium of any form of lawful juridical entity. Accordingly, such nationals and companies
shall be permitted within such territories: (a) to establish and maintain branches, agencies,
offices, factories and other establishments appropriate to the conduct of their business; (b)
to organize companies under the general company laws of such other Party, and to acquire
majority interests in companies of such other Party; and (c) to control and manage enterprises
which they have established or acquired. Moreover, enterprises which they control,
whether in the form of individual proprietorships, companies or otherwise, shall, in all that
relates to the conduct of the activities thereof, be accorded treatment no less favorable than
that accorded like enterprises controlled by nationals and companies of such other Party."
23 J dem, Article VII, paragraph 4.
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Annex 85
WALKER: TREATIES AND FOREIGN INVESTMENT 237
any enterprise which has at one time, as by act of grace, actually been
allowed to enter upon operations in the excepted area.24 That is, either
Party may prohibit or limit alien entry into an excepted field of activity;
but if, nevertheless, entry has been in fact permitted, the enterprise in
question is protected against later discriminations.
Since the sweeping national treatment rule is not feasible, or else is not
adequate, in the matters of real property tenure and of taxation, special
articles have been needed for those subjects-the first because of inhibitions
laid on treaty-making by certain State laws, and the second because
of the highly technical nature of the subject-matter and the desirability
of having a self-contained rule, independent of the manner and degree to
which the national treatment standard might be applicable to engaging in
activities. The present treaties continue the practice, followed since
1911,26 of assuring equality to the treaty alien with respect to leaseholds
of property needed in the United States for treaty-sanctioned activities.
As to the rights of the American in the other country, some provide
merely the same rule, mutatis mutandis ;28 but in others the right is enlarged,
to assure full national treatment as to all manner of acquiring
and holding real property generally, whether by ownership, lease, or otherwise.
27 Mutuality is restored in such instances by a formula which reserves
to the other country the right correspondingly to reduce this quantum
of treatment in the case of American nationals domiciled in, or
corporations chartered by, any State of the Union which maintains alien
disabilities in its land laws. Further, there have been added mutual national
treatment provisions with respect to acquisition and ownership of
securities and other personal property ;28 the protection of patents and
industrial property generally ;29 and the right to dispose of property of
every kind, both real and personal. 30
In the field of taxation, the cumulative standards of both national
M Itkm, Article VII, paragraph 2, second sentence:
"However, new limitations imposed by either Party upon the extent to which aliens are
accorded national treatment, with respect to carrying on such activities within its territories,
shall not be applied as against enterprises which are engaged in such activities therein
at the time such new limitations are adopted and which are owned or controlled by nationals
and companies of the other Party."
15 Treaty of Commerce and Navigation of that year with Japan, Article I, first paragraph.
28 E.g., treaty of 1953 with Japan, Article IX, paragraph 1.
27 E.g., treaty of 1948 with Italy, Article VII, paragraph 1 (b); treaty of 1956 with the
Netherlands, Article IX, paragraph 2.
28 E.g., treaty of 1953 with Japan, Article IX, paragraph 2. The present stage of evolution
of this provision was first reached in the treaty of 1950 with Ireland (Article VII, paragraph 2).
19 E.g., Article X, treaty of 1953 with Japan.
30 Idem, Article IX, paragraph 4.
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Annex 85
238 THE AMERICAN JOURNAL OF COMPARATIVE LAW
treatment and most-favored-nation treatment are in principle maintained,
in language suited to the requirements of orderly tax administration.
31 Moreover, the principle is made subject to certain exceptions, for
example, double-tax conventions and special tax concessions granted only
on a reciprocity basis. On the other hand, a stipulation has been added
to the effect that a company of one Party doing business in the other shall
be taxable by the latter, not on the basis of the company's "world income"
as might be permissible under the national treatment rule, but
only in respect of such part of its business as is conducted therein.32
Among the new provisions added to the instrument is an article on
exchange controls, 33 a subject of considerable contemporary importance
to businessmen. The drafting of a treaty rule, however, is complicated
not only by the comparative intractability of the subject, but also because
neither of the normal treaty standards of national or most-favored-nation
treatment is adequate or realistic to the regulation of international currency
movements in periods of exchange stringency. A further special
factor relevant to the making of bilateral agreement is the existence of
the International Monetary Fund, having a recognized competence and
responsibility in the field. The treaty rule, by appropriate language, accordingly
acknowledges the paramountcy of this organism, which is especially
charged with freeing the channels of trade and "current" (as distinguished
from "capital") transactions; and centers its attention on
laying down principles to govern the policies of each Party in servicing
investor requirements, especially the remission of earnings and the transfer
of capital, to the extent that their Fund commitments and their
monetary reserves situation allows them latitude.
Another new area to which attention is given is the phenomenon of
the state-in-business. In this connection, a provision is included for the
waiver of claims to sovereign immunity on the part of state-owned commercial
enterprises that have occasion to do business abroad.H Con-
31 Idem, Article XI, paragraph 1-3. The rule is stated in terms of comparative "burdensomeness".
32 Idem, Article XI, paragraph 4.
33 Idem, Article XII. The core provision (paragraph 3) reads:
" . .. it shall, after making whatever provision may be necessary to assure the availability
of foreign exchange for goods and services essential to the health and welfare of its people,
make reasonable provision for the withdrawal, in forei~ exchange in the currency of the
other Party, of: (a) the compensation referred to in Article VI, paragraph 3, of the present
Treaty, (b) earnings, whether in the form of salaries, interest, dividends, commissions, royalties,
payments for technical services, or otherwise, and (c) amounts for amortization of loans,
depreciation of direct investments, and capital transfers, giving consideration to special
needs for other transactions . . . "
84 Idem, Article XVIII, paragraph '!:
"No enterprise of either Party, including corporations, associations, and government
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Annex 85
WALKER: TREATIES AND FOREIGN INVESTMENT 239
versely, a provision has been developed to assure that if a state-owned
enterprise engages in a commercial activity, within its own country, in
competition with an established private enterprise of the other Party,
it shall not avail itself of any subventions or other special privileges that
would give it an unfair competitive advantage.31>, This provision, being
experimental and outside the national treatment context, is necessarily
•cautious, in view of the absence of any generally acknowledged guideposts.
Thirdly, an adaptation of the most-favored-nation principle has
been introduced to regulate the awarding of government concessions and
contracts,30 a literal most-favored-nation clause not being compatible
with the realities of contract or concession-letting, and a national treatment
clause not being compatible with national policy.
The various arrangements of special concern to investors are in
tum, in company with all the other arrangements of the treaty, given
added force by provision for submission of otherwise unresolvable disputes
over interpretation or application of the treaty's terms, to the
International Court of Justice for adjudication.37 The unreserved acceptance
of this jurisdiction for the ultimate determination of treaty rights
and obligations, on an impartial legal basis, may perhaps be said to rank
in significance with the systematic provision for corporation rights, in
signalling the outstanding advances which current treaty policy has effected
over that prevailing in previous years.
III
In classifying the instrumentality which has been chosen by the United
States Government jointly with like-minded governments of other countries
to forward investment objectives, two characteristics stand out.
First, the FCN treaty is not a special-interest vehicle, but rather one
into which investor requirements, with scarcely an express reference to
"investment," are fitted as integral parts of a larger regulation of private
affairs in international relations. Such a treaty is concerned with the
agencies and instrumentalities, which is publicly owned or controlled shall, if it engages in
commercial, industrial, shipping or other business activities within the territories of the
other Party, claim or enjoy, either for itself or for its property, immunity therein from taxation,
suit, execution of judgment or other liability to which privately owned and controlled
enterprises are subject therein."
This provision first occurs in the 1948 treaty with Italy (Article XXIV, paragraph 6).
36 This provision first appeared in the 1948 treaty with Italy (Protocol, paragraph 2). It is
missing from those with Colombia, Japan, Germany, Ethiopia, and Haiti.
38 E.g., treaty of 1953 with Japan, Article XVII, paragraph 2. The rule is in terms of "fair
and equitable treatment as compared with that accorded to the nationals, companies and
commerce of any third country."
.., Idem, Article XXIV, paragraph 2.
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Annex 85
240 THE AMERICAN JOURNAL OF COMPARATIVE LAW
rights and interests abroad of all citizens, as well as with a much ampler
cross-section of foreign commerce and business than is discoverable within
the definition of "investment." Secondly, the instrument is negotiated
on a bilateral, rather than a multilateral, basis. It has been at times suggested
that a different approach be used: a multilateral convention, or
special agreements confined to "investment" as such. The advantages
ascribed to these alternatives would be that a multilateral convention is
calculated to bring sooner universal results through a single negotiation
among a large number of countries; and that a special-purpose agreement,
for its part, would be speedier because it would allow the negotiations
to concentrate on a single subject-matter to the exclusion of extraneous
complications.
Experience, however, does not give much ground for hope that a generally
acceptable multilateral investment convention, containing a body
of provisions satisfactory from the investor viewpoint, is attainable under
present circumstances. Each of the at least three major projects for
multilateral conventions of an investment nature, which have been undertaken
over the last quarter century, has been attended by failure.
First was the conference on the treatment of foreigners, convoked at
Paris in 1929 under the auspices of the League of Nations after careful
preparations. 38 The sessions of this conference ended without accord and
with little real prospect that resumed sessions, indefinitely postponed by
the onset of the Great Depression, would prove substantially more fruitful.
Second was the section on Economic Development and Reconstruction
in the Charter for an International Trade Organization. Here, under
pressure to settle trade problems, the conference delegates reached a
draft agreement also on investment, but at the cost of compromises and
deficiencies that rendered the result markedly short of satisfactory ;39 and
this Charter has now been abandoned in favor of an instrument confined
exclusively to commercial matters, the General Agreement on Tariffs and
Trade, the subject on which a viable meeting of minds proved possible
owing to the existence of a community of reciprocal interests in the pro-
38 League of Nations doc. C. 97. M.23. 1930. II reports the proceedings of the conference,
and C. 174. M.53. 1928. II. 14, the draft text of a convention, with explanations, which was
before it for consideration. For a brief appraisal of the outcome, see Potter, "International
Legislation on the Treatment of Foreigners," 24 Am. J. Int. Law (1930) 748-51; for a more
detailed account, Cutler, "The Treatment of Foreigners in Relation to the Draft Convention
and Conference of 1929," 27 ibid. (1933) 224-46.
39 Final Act and Related Documents of the United Nations Conference on Trade and
Employment (Havana, 1948), especially Article 12. On businessmen's objections to the
Charter's investment section, see Diebold, The End of the I .T.O. (Princeton, Essays in
International Finance, No. 16, October 1952), pp. 18- 19.
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Annex 85
WALKER: TREATIES AND FOREIGN INVESTMENT 241
motion of international trade. Third was the 1948 inter-American conference
at Bogota, which attempted a general economic agreement. The
eventuating draft was vitiated by exceptions and, after a renewed at.:.
tempt at the Pan-American Union in Washington in 1949 to reconcile
differences, the project was dropped.40
The cause of these failures would seem to be an inherent one. An investment
convention, to be worth-while, must embody firm reassurances
to the alien, to private capital, and to private business. Since multilateral
undertakings tend to a least-common-denominator position, an effective
investment document presupposes a high level of international consensus
concerning the sanctity of private property, the advantages of private
enterprise, and the acceptability of alien participation in the country's
economy; it presupposes also a shared incentive to encourage and protect
the foreigner and his capital. This basic international community of attitude,
will, and interest patently is nonexistent in the present state of
affairs, and its development is not aided by the fact that investment
questions are susceptible of being regarded as touching upon sensitive
issues of domestic sovereignty, internal economic policy, and national
political philosophy.
Even to the extent that an adequate avowed consensus can be found
en p,incipe, many persistent divergences arise over details, owing to variances
in national legal systems and in the provisions of legislation. Whether
such details be great or small in significance, their number can accumulate
into a massive total in connection with a far-reaching instrument of
multiple aspects such as an investment convention, in the setting of a
large and variegated gathering. 41 All must somehow be reconciled before
the objective of exact texts can be reached; the process of reconciliation
can be virtually interminable, and the end, if not frustration, can as likely
be an array of compromises, reservations, and equivocations tantamount
40 For text see "Economic Agreement of Bogota" (9th Int. Conf. of American States)
issued by the Pan American Union (Washington, 1948); and for an indication of the divergencies
which finally prevented consummation of the agreement, see report of the Special
Commission on Reservations concerning the Economic Agreement of Bogota (Pan American
Union, Washington, July 13, 1949, Spanish original).
u The difficulty faced in finding general accord on a single small segment of a total investment
agreement is illuminated, for example, in Professor Nussbaum's analysis of experience
with the Geneva instruments of 1923 and 1927 on commercial arbitration, "Treaties
on Commercial Arbitration," 56 Harvard L.R. (1942) 219 el seq. Similarly, as to the problem
of an acceptable rule on the nationality of corporations, see 1927 Report of the League of
Nations Committee of Experts on the "Nationality of Commercial Corporations and their
Diplomatic Protection," 22 Am Jour. Int. Law, Spee. Supp. (1928) 171, 177-78; and Voelkel,
"A Comparative-Study of the Laws of Latin America Governing Foreign Business Corporations,"
14 Tulane L. R. (1939) 42, 68-70.
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Annex 85
242 THE AMERICAN JOURNAL OF COMPARATIVE LAW
to frustration. The reaching of satisfactory results is not helped by the
phenomenon that a country which may be quite willing to profess sympathy
for the foreign private investor, and may indeed in practice actually
accord him fair treatment, may nevertheless be less than eager to
bind itself internationally to do so, whether because of domestic political
complications or otherwise. Finally, what a country may be willing to
undertake on a selective bilateral basis may be considerably different
from the engagements it is prepared to assume indiscriminately vis-a-vis
all the world.
The production attained so far in the current FCN treaty program of
the United States Government, under which this government has consistently
over the past ten years stood ready and desirous of negotiating
with each and every like-minded country at the latter's convenience,
may be taken to betoken the difficulties implicit in multilateralism in the
:field of investment. The total to date is signed treaties with :fifteen scattered
countries, a number of them not yet in force. While they are all of
a type, and are all interlinked by a common bond of principle and foundation
substance, they are otherwise rather kaleidoscopic in variety-in
their superstructural content, their reservations and exceptions, their
organization, style and wording, their shades of emphasis, their date of
signature, the rate and duration of their negotiation, and the time required
to effectuate rati:fication.42 Each of these instruments reflects
presumably a mutually satisfactory regulation of paired interests and
bilateral relationships. But it is not easy to visualize just how they might
be amalgamated into a composite unit which would reflect an equally
satisfactory fusing of plurilateral relationships and an equally viable
pooling of multiple interests. On a single important investment question,
national treatment for business enterprise, for example, the whole is
conspicuously less than the sum of its parts, owing to the variations in
the exceptions and the approach to "screening" ;43 and the variations
u For range of conspicuous difference compare, for example, the voluminous China treaty
of 1946 with the compact Ethiopia treaty of 1951; the German treaty of 1954, which contains
a Protocol with 24 paragraphs of clarification and adjustment, with the Greek treaty of 1951,
which has none, but which in turn is quite differently organized from others of its contemporaries.
The total time required, from the first steps to signature, has ranged from 18 months
to 8 years, in the case of the fifteen treaties so far completed since 1946; the Irish treaty of
1950 came into force within eight months of signature, but the Uruguay treaty of 1949 is still
unperfected. A detailed tabulation of all the variances, treaty from treaty, aside from those
of an inconsequential verbal character, would require more space than the present article
occupies.
43 By this is meant the qualifications which are placed on the extent to which national
treatment is assured with respect to initiating an investment in ordinary commercial and
industrial enterprises, an objective sought wherever possible in the U.S. treaty proposals.
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Annex 85
WALKER: TREATIES AND FOREIGN INVESTMENT 243
otherwise in content suggest that what appeals to one country does not
necessarily appeal to another. It is not easy to visualize, either, how a
collective negotiation, bracketed within the Procrustean confines of a
scheduled conference, could bid to produce equal results among the coun~
tries concerned, much less among the far larger number of countries
which would be expected to participate.
Conversely, these treaties illustrate also the feasibilities of bilateralism:
the case-by-case approach, marked by flexibility in timing, in length of
deliberation, and in the peripheral adjustments needed to take account
of individual national circumstances and to achieve an agreeable balance
of reciprocal advantage. They likewise illustrate the feasibility of the
broad-gauged FCN treaty, as compared with the specialized, uni-purpose
"investment" agreement. The former has an accordion-like quality. It
can be of variable scope; and, so long as it contains the basic investmentinterest
content, it can be shortened or lengthened to suit the desires and
needs of each country. That none of the treaties so far signed actually
has been pared down to its investment hard-core, or anywhere near so,
evidently signifies that countries willing to entertain the subject are very
apt to choose to do so in the framework of a comprehensive settlement
of their relations with the United States.
An FCN treaty in its fully realized form is a house of many mansions,
concerned with all citizens and their interests, great and small, and
whether or not of an economic nature; it is implicitly concerned also, in
a major way, with the intangibles of good will between nations in their
everyday relations. Although the United States may now in general be
motivated primarily by investment considerations in seeking such treaties,
the other side may share this motivation only to a secondary extent.
For example, the preambles to the treaties with Japan and Germany,
in summarizing the general purposes in view, list the promotion of commercial
intercourse ahead of the encouragement of investment, and the
treaty with Ethiopia lays particular stress on peace, friendship, and good
diplomatic relations. Again, while conclusion of a treaty means perforce
that both sides concur on the mutual desirability of investment provisions,
in the case of a country having little or no capital to export the
The treaties with Ethiopia and Iran, for example, altogether lack a national treatment rule
concerning this phase of the investment process; the rule in the treaty with China is an
imprecise "adhering generally to the principle" (Art. III, par. 3), in the case of corporate
investments; the treaty with Ireland contains a reservation for that country's Control of
Manufactures Act (Art. VI, par. 4 and the Minute of Interpretation applicable thereto); and
those with Denmark, Japan, Germany, and the Netherlands in their respective Protocols
contain limited reservations framed in balance-of-payments terms.
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Annex 85
244 THE AMERICAN JOURNAL OF COMPARATIVE LAW
legal rights vouchsafed investors can appear on their face to constitute a
lopsided bargain unless balanced by rights utilizable in actual practice
by that country's own citizens. Provisions on such matters as visa rights
for merchants, and rights for citizens of humble station to work in the
common occupations and enjoy work.men's compensation and social security
benefits, can thus assume material significance in the process of
reaching a meeting of minds on purely "investment" questions.
Difficulty, moreover, is encountered in trying to identify only certain
provisions as "investment provisions" and segregate them into a separate,
self-contained packet. The building and operation of a motor factory
by a big corporation clearly is "investment" in its major "economic
development" connotation; but how can and why should treaty protection
be written that does not cover also, at the other end of the business
scale, the individual entrepreneur engaged in a sales activity? Investors,
inter alia, are interested in treaty provisions regarding lawful protection
for their rights, and access to the courts of justice, familiar subjectmatter
for FCN treaties; but why should the benefits of such provisions
be confined to only those persons classed as "investors," even assuming
that an acceptable treaty definition of "investor" could be devised?
Fundamental personal rights, such as freedom of conscience and humane
treatment from policemen and jailors, do not fall under the "investment"
heading; but can the investor be considered properly protected unless
such traditional FCN treaty rights are assured him? Even the navigation
and trade provisions of the treaty, for that matter, are not without an
investment bearing. On the one hand, trade and shipping entail capital
outlays ("investment") and, on the other, investors going into a foreign
country usually have an interest in importing equipment and supplies
and in utilizing maritime transportation.
In a real sense, therefore, the FCN treaty as a whole is an investment
treaty; not a mosaic which merely contains discrete investment segments.
It regards and treats investment as a process inextricably woven
into the fabric of human affairs generally; and its premise is that investment
is inadequately dealt with unless set in the total "climate" in
which it is to exist. A specialized "investment agreement" based on a
narrower premise would be to that extent unrealistic and inadequate.
This is by no means to say that special agreements dealing with fragments
of the investment complex do not have their place. In fact, the
United States has underway programs for the negotiation of at least two
kinds of such special-purpose agreements. One is the double-tax convention,
which deals specifically with the highly important subject of
taxation, in a detailed and technical way which is impracticable in a
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Annex 85
WAI.KER: TREATIES AND FOREIGN INVESTMENT 245
general treaty of the FCN type." The other is the so-called investment
guaranty agreement, an arrangement of a derivative administrative character
designed to protect the interests of the United States Government
when acting as insurer under the "investment guaranty" program provided
for in a recent Act of Congress.' 6 Neither is designed to replace or
substitute for the general FCN treaty; each, rather, reinforces and supplements
the other.
IV
The factors which cause foreign investments to be made or not to be
made are varied and numerous, and include those of a political, economic,
social, and environmental nature which are beyond the reach of treaties.
A treaty is a legal instrument, dealing with rules of law; in tum, the
extent to which a treaty can practicably deal even with legal conditions
is limited. It can purport to assure that a country's laws and regulations
will be nondiscriminatory in content and even-handed in their administration;
but this is no guarantee that the legal regime, even though scrupulously
nondiscriminatory, will in its details appear tolerable or attractive
in the eyes of the entrepreneur who alone can decide whether capital
will actually be ventured. A forbidding tax may be no less forbidding
because it falls on everyone alike.
Limitations on the possibilities of the treaty device would appear to
follow implicitly also from the idea of sovereign equality of nations,
which governs interstate relations in the modem era. Treaties cannot be
"Conventions for the avoidance of double taxation with respect to taxes on income have
been concluded with 18 countries so far ("List of Treaties and Other Agreements Concluded
between the United States of America and Other Countries Relating to Double Taxation,"
Department of State, Office of Legal Adviser, March 15, 1956). For discussion of the program,
see, e.g., Gilpin and Wells, "International Double Taxation of Income: Its Problems and
Remedies," 28 Taxes (C.C.H., Chicago) {1950) 9-32; Kanter, "United States Income Tax
Treaty Program," 7 National Tax Jour. (1954) 69-88; and address by Eldon King (Dir.,
Intemat'l Tax Relations Division, IRS, United States Treasury Department), "The Income
Tax Conventions with Germany and Japan, and Prospective Conventions with Latin America,"
delivered before the International Fiscal Association, New York, May 6, 1955.
46 The present statutory provision, which stems from the Marshall Plan legislation of 1948,
is sec. 413(b) of the Mutual Security Act of 1954 (P.L. 665, 83rd Cong.), and provides for
insurance against convertibility or expropriation risks, or both, upon payment of a stipulated
premium, for qualified new American investments approved by both Governments. As of
May 1, 1956, the necessary covering agreements had been made with 26 countries as to both
types of insurance, and with 4 others as to convertibility insurance only. As of that date,
approximately $106,000,000 of insurance was outstanding under the program. Information
on the program may be found in the "Investment Insurance Manual" issued by the Foreign
Operations Administration (Washington, Oct. 1954); and in a recent staff report of the House
Committee on Foreign Affairs (Investment and Informational Media Guaranties and the
Mutual Security Program, Committee Print, May 1, 1956).
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Annex 85
246 THE AMERICAN JOURNAL OF COMPARATIVE LAW
negotiated faster than each country is of a mind to negotiate; nor can
they be negotiated at all except as each feels that its national interests
will thereby be served. The eventuating agreements, being free-will, must
consequently be reciprocal and innocent of special privilege. It is therefore
hardly to be expected that another nation will wish to bind itself
more tightly than the United States conversely is willing to be bound,
at both federal and state levels; at least, unless persuasive and acceptable
quid pro quos are given. But whether extraneous bargaining power (such
as government loans, grants, tariff concessions) may feasibly be used to
obtain treaty commitments is quite doubtful. Insofar as unilateral guarantees
were sought, going beyond the norm of national treatment, the
spectre of extraterritoriality would arise; and there at least would be an
implication that commitments which the United States did not consider
fit and proper to assume, for its part, were nonetheless fit and proper for
someone else. Such a course, in any event, would suggest that the rules
which ought to prevail are not matters of right principle in the common
good, as should be the premise of an investment arrangement, but are
rather mere matters of private advantage and profit, suited to the haggling
of the market place. It would presuppose, finally, that the national
security considerations and other high policy purposes now actuating
United States programs for assisting other nations should be subordinated
to the objective of inducing them to accept American private capital.
In sum, the limits of an investment treaty are set by the degree to
which the United States is willing to bind its own domestic policy and
to waive the alien disabilities actually or potentially present in federal
and state statutes. Thus, for example, such a strong investor-interest
provision as one forbidding nationalization of private enterprise, or
stipulating that expropriation may occur only if the compensation has
been agreed upon and paid in advance, is not possible so long as the
United States is unprepared to undertake such a predetermined restriction
upon its own power of eminent domain. Further limits, in tum, are
set in each case by the reservations which the foreign country concerned
deems requisite for reasons of its own public policy, a circumstance which
accounts in considerable measure for the variations among the several
treaties so far signed. Their array of differences in the approach to
"screening," for example, reflects the differing degrees to which different
countries may insist that the "open door" principle, traditionally favored
by the United States, be qualified by retention of the government's right
to determine the acceptability of foreign investments on a case-by-case
basis.
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Annex 85
WALKER: TREATIES AND FOREIGN INVESTMENT 247
The treaties developed for promotion and protection of foreign investment
thus remain, despite the many improvements effected in them as
compared with earlier treaties, essentially moderate in their content
and purport. However, moderation is not synonymous with ineffectiveness.
These treaties focus, in fundamental terms of enduring value over
the long range, upon the line between policy favorable and policy unfavorable
to foreign investment: namely, hospitality to and equality
for the foreigner under the law, and respect for his person and his property.
When this exists, the foundation exists; and perhaps the most
effective role which treaties are capable of playing is in the laying of a
sound and stable foundation. This fundamental role consists partly,
but only partly, in the legal commitments which the document contains.
Equally it consists in the general attitude which a country's willingness
to assume these formal engagements signifies. These treaties are above
all treaties of "friendship," as their title indicates; and their conclusion
is evidence of a friendly disposition, an intangible which may be quite
as important to the investor as the letter of his legal rights.
https://nyti.ms/29j3Uzm
ARCHIVES | 1994
Herman Walker, 83, Professor And U.S. Foreign Officer, Dies
By WOLFGANG SAXON MAY 13, 1994
About the Archive
This is a digitized version of an article from The Times’s print archive, before the start of online
publication in 1996. To preserve these articles as they originally appeared, The Times does not alter,
edit or update them.
Occasionally the digitization process introduces transcription errors or other problems. Please send
reports of such problems to [email protected].
Herman Walker Jr., a former Foreign Service officer and emeritus professor of
history, economics and political science at SUNY College at New Paltz, N.Y., died on
Sunday at the New Paltz Nursing Home. A resident of New Paltz, he was 83.
He had been ill for a long time, said his wife, Evelyn Acomb Walker, an emiritus
professor of history at New Paltz.
A native of Nashville, Dr. Walker graduated Phi Beta Kappa from Duke
University, where he received his Ph.D. in 1937. He also studied at the University of
Paris and received a master's degree from Harvard University.
He worked as an economist and legislative analyst for the Department of
Agriculture. In World War II he served in the Army Air Force and the Office of
Strategic Services. Negotiated Friendship Treaty
From 1946 until his retirement from the Federal Government in 1962 he was
successively a treaty adviser to the Department of State, First Secretary in the United
States Embassy in Paris, vice chairman of the United States delegation to the
General Agreement on Tariffs and Trade conference in Geneva, and chairman of the
Trade Agreements Commission.
In those years he helped shape the format for the Friendship, Commerce and
Navigation Treaty adopted by the United States after World War II. He also played a
Annex 86
role in negotiating political and economic treaties with France and other countries.
After leaving Government service, Dr. Walker taught at Duke and at George
Washington University until he moved to New Paltz State College in 1965 as
chairman of the division of history and political economy. From 1969 until he
reached emeritus status in 1977 he was chairman of the department of economics
and political science.
In addition to his wife, Dr. Walker is survived by a son from his previous
marriage to the late Betty Friemel Walker, Steven F. Walker of Highland Park, N.J.;
and a sister, Martha Summer of Bradenton, Fla.
A version of this obituary; biography appears in print on May 13, 1994, on Page B00008 of the National
edition with the headline: Herman Walker, 83, Professor And U.S. Foreign Officer, Dies.
© 2019 The New York Times Company
Annex 86
Annex 87
r<eproaucea rrom tne une1ass111ed / lJec1ass1t1ed Holdings ot the National Archives ·/ :.:'j/ l~
Office Memoran ·d~~'ft~~~ ·s·1ATEs GOVERNMENT
. t
TO
fOf ~onn 1 H · •~, ! : : . .~ l ·
: H - Mr. JAN ,1: 1~~,_: /' DATE: December 29, 1951
. J,/') 1 ,,./ !
FROM , E - Mr. Thorp vv7 I
~~ nf ~t.,at.; .,.I s SUBJEC.T: Early Senate Consideration ~~- ~------- ___... .,,_ s-; gned During 1951.
During the past year, the u. s. has signed treaties of
friendship, commerce and navigation with Colombia (April 26),
Greece (August 3), Israel (August 23) and Denmark (October l);
a treaty of amity and economic relations with Ethiopia (September 7); :'"_,,,.,,
and an agreement with Ita.1.y supp~ementing the treaty of fri endship,
commerce and navigation of 1948 (September 26). Two of these:
instruments have al.ready been transmitted to the Senate: those.·
with, respectively, Colombia (Exe,cutive M) and Israel (Executive R),
82d Congress Ist session. The Report and Message on t.~e Ethiopi~ ·
treaty is now ready to be sent to the Secretary and Vfuite House
far transmittal; and it is expected that the other three will.
~ery shortly be ready for transmittal.
..
'.Ihese ~ix instruments were all negotiated in connection wit,,~ _,/
the Department's program of extending and modernizing the treaty
protection of .American citizens, corporations, capital, trade and
shipping abroad, with special emphasis on establishing conditions
favorable to private investment. The importance attached to keeping
this program moving forward suggests the eminent desirability of
Senate a_ctiori on these si..-c instruments during the 1952' session.
(' ...
I /
It seems ljJcely that this result might most probably be accomplished.
if the Foreign Relations Committee were able to schedule them for
relatively early consideration, before the Senate becomes preoccupied
with other items on its agenda or with pressure for adjournment.
The major treaties of this group are of a type which has already
been given Senate considerati on and approval in connection with
its advice and consent to the ratification of the treaty of
friendship, commerce and navigation of 1948 with Italy {Executive E,
80th Congress, 2nd session), the treaty of friendship, commerce and
economic develoμnent of 1949 with Uruguay {Executive D., 81st Congress,
2nd session), and the treaty of friendship, commerce and navigation
· of 1950 with Ireland (Executive H, 81.st Congress, 2nd session).
'DC'/."' ~t is not believed that any of them i~ controversial, or that
consideration of them is li.lcely to impose a great burden on the
k:<'S-l ..},{-- Oormnittee. I should therefore appreciate your see~ng what can
; ·• -~ , __
1
_J\ __ h~ done to ha-ve them expediently scheclntled for action.
l -·--7 / t} C~pies to:-
1~~1,:~---'. OSA - Mr •. Gerberich
i,._ f GTI - Mr,.. Lincoln
t/ NE - Mr. Waldo
AF - Mr. Wellons
EDT :CP :Jn'falker: j n iM·~
\ { '
t1
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,tl
~
0) -....
•
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0
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.0..1.
COMMERCIAL TREATIES WITH IRAN, NICARAGUA,
AND THE NETHERLANDS
HEARING
BEFORE TBE
COllMITrEE ON FOREIGN RELA.TIONS
UNITED STATES SENA.TE
EIGHTY-FOURTH CONGRESS
SECOND SESSION
ON
Executive E, 84th Congress, 2d session
A TRlCATY OF AMITY, ECONOMIC RELATIONS, AND CONSULAR
RIGHTS WITH IR.\.N
Executive G, 84th Congress, 2d session
A. T,8•Mf!i OF FRI.~NUSHIP, COMMERCE, AND NAVIGATION
WITH THE REPUBLIC OF NICARAGUA
AND
Executive H, 84th Congress, 2d session
A TREATY OF FRIENDSHIP, COMMERCE, AND NAVIGATION
WITH THE KINGDOM OF THE NETHERLANDS
JULY 3_. 1956
~luted for the use of the Committee on Foreign Relations
UNITED STA.TJIIS
GOVERNMENT PRINTING OITICB
WASHINGTON : 1956
Annex 88
COMMITTEE ON FOREIGN RELATIONS
WALTER F. GEORGE, Georgia. ClafrJIIOII
THEODORE FRANCIS GREEN, Rhode Island ALEXANDER WILEY, Wlscxmli,u ...
1. W. FULBRIGHT, Arkansu H. ALEXANDER SMITH. New J'ersey
1OHN J. SPARKMAN, Alabama BOURKE B. BIOKENLOOPER, Iowa
HU!BERT H. HUMPHREY, Mlnnedota WILLIAM LANGER, North Dakota
MIKE MANSFIELD, Montana WILLIAM :r. KNOWLAND, Call!omia
WAYNE MORSE, ~on GEORGE D. AIKEN, Vermont
-BUSSELL B. LONO,'Loulslaua HOMER E. CAPEHART, Indian.a
' Oux. MilCT, C'llftf of Sul
c. c. 0'D4T, Clerk
II
Annex 88
..
CONTENTS
Statement by-
Thorsten V. Ka1ijarvi1 Deputy Assistant Secretary of State for
Economic Affairs, accompanied by Vernon G. Seuier, Chief, Commercial
Treaties Branch, and John J. Czyza.k, Asaistant to the Legal Adviser, Department of State ________ ____ ______ ___ __ ___ _
m
1
Annex 88
Annex 88
COMMERCIAL TREATIES WITH IRAN, NICARAGUA,
. AND THE NETHERLANDS
TUESDA~, JULY 3, 1956
UNITED STATES SENATE,
COMMITTEE ON FOREIGN RELATIONSh
W <Uhington, . 0.
The committee met, pursuant to call..,_ at 10:30 a. m., in the committee
room, United States Capitol tsuilding, Senator Walter F.
George ( chairme.n) presiding.
Present: Senators George (chairman), Fulbright, Slikkman, Mansfield,
Smith of New Jerse~1• Langer, Knowla.nd, and · en.
The CHAIRMAN. We will hearJou now, Mr. Kalijarvi on the 3
commercial treaties and ask 1,ou · you can combine your statement
on the 3 pointing out such differences as may exist.
Mr. LLIJARVI. Mr. Chairman, I have a short prepared statement,
a little over 2 pages,. and I think perha~s it will be better for me to·
read it. I will just summarize the position of all three treaties.
The CHAIRMAN. All right, sir.
STATEMENT OF THORSTEN V. KALIJARVI, DEPUTY ASSISTANT
SECRETARY OF STATE FOR ECONOMIC AFFAIRS, ACCOMPANIED·
BY VERNON G. SETSBR, CHIEF, COM:HERCIAL TREATIES BRANCH,
AND JOHN J. CZYZAK, ASSISTANT TO THI LEGAL ADVIS~R,
DEPARTMENT OF STATE
Mr. KALIJARVI. First of all, the Department appreciates very much,
the co.mmittee making a _place on its crowded calendar for these three
agreements which we feel are very important.
I am appearing before the committee in support of three. treaties
of friendsliip, commerce, and navigation-with the Netherlands,
Ni~a, and Iran. These treaties are similar to others considered
by the committee during the past several years, particularly- treaties
with Germany, Japan, Denmark, Greece, Israel, and Ethiopia.. They
deal with the customary subj_ects, such as the right to carry on business,
protection of'persons and property, n·ondiscriminatory treatment
o! trade and·· shipping_ and;, in th:e case of the Ir.im treaty, consulB.P
nghts and privileges.
The 3 treaties now befhre the committee bring to 15 the total
number of the same g_en~ type_ tp.~t baye_ b~n negotiated during
the present program, whieft wu 1D1tiated at· t'.fiir end of the Second
~ otld W ~ This pro~ ia now being carried f<?rwaxd:in accordance
Wlth the directions of the Co~ as expressed m section 413 of the
Ml!tual ·Security Act of 19~ {.l'ublic La.w 665.,_ ~3d Cong., 1st sees:},:
~~h r~eate-as t,9 gener,al substance a . ~roV1S1on of the 1952 ~t.
1.nis S~tjon F,Q.v.ides. that the President' shall accelerate a p~.
I • • •
1
Annex 88
iJ
2. COMMERCIAL TREATIES
of negotiating treaties for commerce a.nd trade * * * which shall
include provisions to encourage and facilitate the fiow of private
investment to nations participating in programs under this act."
Although the principal immediate incentive in the netotiation of
these treaties, is the desire to help cre&te conditions fa.vorable t.o
foreign private investment, the treaties have a broader purpose which
is to establish a general legal framework for the maintenance of economic
and other relations between the parties to the treaties. A particularly
desirable effect of the treati~1.from the United States point
of view, is to strengthen the ho.nds of the Government for the proteetion
of the interests of American citizens abroad in many fields of
activity.
The three treaties now under consideration a.re of the traditional
type, based upon existing precedents; they ·contain no innovations
raising problems of reconciliation with domestic law. They- differ
somewhat among themselves and from other treaties negot1a.ted in
the past. The principal varia.tions, which result from necessary adjustments
to meet negotiating problems; are de.scribed in the reports
of the Secretary of State that a.re printed with the treaty texts.
Senator KNowLAND. Might I interrupt just a moment here?
EQUAL TREATMENT FOR AMERICAN CITIZENS
Is there anything in any 9£ these treati~ that would permit discrimination
_against any American citizen because of race, creed, or color?
Mr. KALIJARVI. Are y-ou referring to re~on?
Senator !}:NOWLAND. Religion, or anything else. In other words,
a.re all American citizens treated as American citizens? The issue
has been raised in certain agreements negotiated some years ago
with a Middle Eastern country. It was not negotiated during this
ru)ministration. I do want to know if all American citizens are
treated equally, regardless of what their race, creed, or color may be,
under these treaties. ·
Mr. KALIJARVI. Yes, it is my understandin~ they are.
I have with me Mr. Setser, who has negotiated these. agreements
before, and he can answer fully in that respect.
Mr. SETSER. There is nothing on that score, there is no distinction
between American citizens on any ground.
Sena.tor MANSFIELD. There is no Dharan clause?
Mr. S~TSER. No, no. ·
Senator KNowLAND. That question will a.rise in future treaties that
come before us, so I trust the Department will have that in mind.
Mr. KALIIARVI. Yes sir. ·
The treaties with Nicar~& and the N etherla.nds resemble very
closely the Trea.ty of Friendship, Commerce, a.nd Navigation with the
Federal Republic of Germany, which was considered and approved
by this committee and the Senate last session.
PROVISIONS 01' IRAN TREATY
The treaty with Ir~~ on the other hand, differs appreciably from
the Netherlands and ~iearagua instruments both ~ .to form:. and
substance. It is an a.bridged and sim.pijfied versjon of the treaty
~' ~ut inco?J>?ra~, nev:ertbeless, tli~ subs~ce o( most of -f:be
protective proV1S1ons· of· the longer· treaties. It does not· deal-with
....
I.
Annex 88
_COMMERCIAL TREATIES 3
rigb.ti· ot entry and establishment of foreign-owned enterprises', but
assures in the same way as the longer treaties nondiscriminatory
treatment of such enterprises once they a.re established.
The' omission of entry :Qrovisions in this case ea.me a.bout because
of the fear on the pa.rt of Iranian officials that to specify entry rights
in any treaty would facilitate economic penetration by neighboring
countries that would create a danger to national inde{>endence-a fear
for which we could not deny there may be some basIS.
The Iran treaty, as indicated by its title, deals also with consular
privileges and immunities, a subject not included in most of the
treaties of the :present series. The Iran treaty is ve!)' similar to the
Treaty of Amity and Economic Relations with Ethiopia., signed
September 7, 1951, approved by the Senate July 21, 1954, and now in
force.
SCOPE AND BENEFITS OF THE TREATIES
There are now represented in the network of treaties so far concluded
under this program countries in near!y every major region of
the world: South and Central America; Western, Southern, and
Southeastem Europe; the Near East; Africa; Central Asia, and the
Far East. This means that through these treaties we have secured
a rather widespread acceptance by governments many of the basic
concepts of free enterprise, of equality of competitive opportunity for
the businessman, of private property rights, including the right to
just compensation in case of ~ropriation by the State, of humane
treatment of the alien a.nd his mterests in all respects.
While the principles incorporated in these treaties may seem basic
and commonplace to us, that is not the case in ma.ny parts of the
world. Therefore,- negotiation of treaties of friendship, commerce,
and navigation is seldom easy. We hope and believe that this group
of treaties, into which we have put a great deal of effort, together with
those like them that have been considered here before, can make a.t
least a modest contribution to the development of the rule of law and
of fair treatment of the foreigner and his enterprise, arid thereby to
an improvement in the general welfare of our own country and of the
other ·parties to the treaties.
Senator SMITH. How long do these treaties last, Mr. Kalijarvi?
Mr. LLIJARVI. They run 10 years, subject to denunciation on t~
year's notice, and they will run, unless denounced--
Sena.tor SMITH. For 10 years? ···
Mr .. LLIJARvr. Yes.·
With the committee or the cha.irm~n's permission, it might be desh-able
to insert into the record at this point a. list of the agreements that
have been entered int-0 of this type since World War II; and there are
also treaties concluded before 1920; treaties concluded b~tween 1920 and
1940, because there is a long, distinguished ·history of these agre.ements.
We also have submitted to the committee staff a tabular statement
inde~ the provisions of the Netherla.nd's and Iran treaties, as well
as the Nicaraguan one, against the Treaty of Japan, approved uj
1953; with the chairman's permission, we would like to insert that in
the rooord at this point.
The CHAIRMAN. Very well.
Annex 88
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t I
l
i
(
4 OOMMERCIAL TREATIES
(List of treaties of fri~ndship, commerce. and naviption and tabular
comparison are ftS follows:)
LIST Of' TREATIES OF FRIE'.'1D6HJP, COMlilERCI!:, AXD XAV1114TION
TRMATIES SJt:NJ-:0 :,.INCE WORLD WAR JI
China-Treat.y of friendship, commerce, and mwigation signed .. at "N-:\ttking
November 4, 1946 (ent.ererl into fort'e XoY. 30, 1948).
Colombia-Treaty of friendship{ commen-e, and 1111.,·igation ~igned at Washington
April 26, 1951 (not- iu forceJ .
Denmark-TreatJ of friendship, commerc<>. and nn\'igat-ion signed l\t Copenhagen
Octobt"r l, 1u51 (not in force) .
Ethiopia-Treat~· of amity nnd economi<' relation~ siirned at. Addi~ Ababa September
7, 1951 tt>ntered into force ()<'t. 8, 1953).
Finland-Protocol modifying the trc:11~· of friendspip, commt-rce, and cou~ular
riJtht:, (103-!) ::'igned at Wn~hington December -!, 1!}52 (entered into force
s;pt. 2-1. 1953).
G<>rm:my--Agrecmcnt concerninit np1>li<"ation of the treaty of friendship,
commerl'e. snd consulnr righi -.. ( l!l23) ,-.ignrd ttt Yonn June 3, Hl53 (en~red
into fore<> Oct. 22, 195-n.
Treaty of friend.--hip, commerce, and na..-igation signed at. Wa.-.bington
October 29, HIS-4 (will enter into force July 1-l, 1956).
Gre<'ce-Treaty of fri<'nd-:hip, commerce. and na,·igation :-igned st .-\then.-;
August 3, 1951 (entered into force Oct. 13, 1954).
Haiti- Treaty of friend~hip, commerl'e and na,·igation signed e.t- Port-au-Prince
irarcb 3, 1955 lnot in force) .
ban-Treaty of amity, economi<' relations, and consular right$ s igned at Tehran
August 15, 1955 (not in force) .
Ireland- Treaty of friendship, commerce, and naYigation signed at Duolin
January 21. 1950 (entered into force Sept. 14. 1950).
J,-rael- Treaty of friendship, commerce, and navigation .-;igned at: Washingt.on
August 23, 1951 (entered iuto force Apr. 3, 1954).
ltaly-Treatr of friendship. <'Omtnerce, and n:wigation .::igned at Rome February
2, 19-t~ (entered into forl'e .July 26, 19-t!l).
Agret>ment i;;upplementing the treat-y of friendship. commerce, and na\"igation
(1948). ~ie:ned at wa~hine:ton September 26. 1951 (not in force).
Japan-Treat.y uf Cri,•uct-..hip. ('ommer~e. nnrl n:tdgatiou sig:ned at Tokyo April 2,
1953 (entered into force Oct. 30, 195'3).
Netherlands-Treaty of friendship, commer<"e, and navigation signed at The
Hague March 27, 1956 (not in force). ·
Kicaragua-Treaty of friendship, commerce, and navigation signed at ·M•nagua
Januan• 21, 1956 (not in force).
l"ruguay-'t'reaty of friendship, commerce, and economic development signed at
~lonh.>,·ideo ~ovember 23, 1949 (not in force).
TREATIES CONCLUDED 1920-tG
Austria- Treaty of frit-ndship, commerce, @d consular rights signed at \ "ienna
June 19, 1928.
El Salvador-Treat'.\· of friendship, commerce, and consular rights Bigned at
San Salvador February 22, 1926.
&t-0nia-Treaty of friendship, commerce, and consular rights signed at Washington
December 23, 1925.
Finlana-Treat.y of friendship, commerce, and consular rights signed at Washington
February 13, 1934.
Germany-Treaty of friendship, commerce, and consular rights aigned at Waahingt.
on December 8, 1923.
Honduras-Treaty of friendsb!:ei_ commerce, and consular right.a signed at
Tegucigalpa December 7, lv-.e-,.
Iraq-Treaty of oommeree and navigation signed at Baghdad~ 3, 1938.
Latvia-Treaty of friendship, commerce, and cooaular rights signed at Riga
April 20, 1928.
Liberi.-Treaty of friendship, commerce,. and navigation signed at Monrovia
August 8, 1938. ·
Norway-Treaty of friendship, commerce, and consular rights signed at Washington
June 5, 1928.
Tbail.arid--Treaty of friendship, commerce, and navigation signed at Bangkok
November 13, 1937.
Annex 88
COMMERCIAL TREATIES 5
Turkey-Treaty of commerce and navigation signed at. . .\.ukara October 1, 1929.
Treaty of establishment and sojourn signed at Ankara October 28, 1931.
TREATIES CONCLUDED BEFORE 1~
Argentina-Treaty of friendship, commerce, and navigation signed at San Jose
Jui~· 27, 1853.
Belgium-Treaty of commerce and navigation signed at Washington :\-larch 8,
l8i.5.
Bolivia-Treaty of peace, friendship, commerce, and na,-igation signed at La Paz
~laJ· 13, 1858.
Borneo--Convention of amity, commerce, and navigation signed at Brunei June
28, 1950.
Colombia-Treaty of peace, amity. na,·igation, and commerce signed at Bogota
December 12, 1846.
Cost-a Rica- Treaty of friendship, commerce, and na,·igatiou signed at 'Washington
July 10, 1851.
Denmark-Convention of friendship, commerce, and uavigation signed at Washington
April 26, 1826.
France--Convention of navigation and commerce signed at Washington June 24,
1822.
!\lorocco-Treaty of peace and friendship si~~d at Meknes September 16, 1836.
:\Iuscat-Treaty of amity and commerce signed at Muscat September 21. 1833.
Xetherlands-Convention of commerce and na\"igation signed at- Washington
August 26, 1852.
Para~uay-Treaty of friendship, commerce, and ua,·igat.ion signed at Asuncion
February 4, 1859.
Spain-Treaty of friendship and general relations signed at :\ladrid July 3, 1902.
Switzerland-Com·ention of friendship, commerce, and extradition signed at
Bern X O\·ember 25, 1850.
l'nited Kingdom-Convention to regulate commerce and na,·igation signed at
London July 3, 1815.
YugoslaYia-Treaty of commerce and navigation signed at Belgrade October 14
1881.
TABULAR Co:uPARISON
This table indexes the pro,·isions of the pending treaties offriendship, commerce.
and naYigation with the Ketherlands :md Xicaragua and tht> treaty of amity and
economic relations with Iran against comparable provisions in the like treat.y of
1953 with Japan (Executive 0, 83d Cong .. 1st sess.), which rec~fred Senate approval
Jul)• 21, 1953. Where the pending treaty lacks a comparable provision,
however, or in some instnnce.s v,here another treat.\" affords a readier basis for
compari!:'OD, cross-reference is made to an appro,:ed treaty ,nth some other
countr'\'.
This table i,:; not int<>nded to be int-erpretative. but is designed as an aid to the
comparati\-e analysis of the texts. by indicating where pro,·isions dealing with the
same subject matter in a similar, but not necessarily identical. manner may be
found. X oteworth~- variances between compared pa..qages are shown by the
notation ''cf." or by parenthetical comments; but no effort is made to indicate
minor differences.
Proposed treaties ---------,----------,----------1 . .\pprol"ed treaty, Japan
Netherlands Tratr
Art. I, per. l ••......... 0 •• .\rt. I .••••••••••••••••••
. \rt. n, p:u-. 2.............. .\rt. XIX, par. 1. •••••••
• \rt. n, par. 1............. ..\rt. n, par. ! .......... .
.\rt. II, par. 2.......... ... Art. II, par. 3 .......... .
. .\rt. ll, par. 3 ........ .... . 1:t nn:f."i,!i:··1··(•cidi·
nattonaJ and mosifavored•
DMIOD treat•
~t).
80058-G&-2
.\rt. II, par. 2 ..•.•.•••••
.\rt. n. par . ... . ........ .
• \rt. III, p,ar. 1. ••.••.•••
Iran Traty
.\at. rv, par. 1. ..••••••. · Xo tdentleal pro,·1s1011
(bo..-e'f'l'r, d. art. V
par. l) •
.\rt. X, par. l. .......••.
Mt. ll, par. 1. (Cl Art. n, par. l, Etbtopla
t,naty.)
Xo coml)6rable pro\'1-
sloo.
.\rt. U,d)llr. ~ ••.•.•••••
Art. n. par. 3 •••••••••••
Art. II, par. 4 (Jes., refer·
enoe to lnlel'1laUOllal
law standard).
Art. XIX, pw. 1 .
.\rt. I, par. l.
Xo comparable ~vlsloa
(art. II, par. 2. Oennan
treaty) •
Art. I, par. 2.
.\rt. I, par. 3.
.\rt. n, par. 1 .
Annex 88
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!-
l t ; .r
6 COMMERCIAL TREATIES
Propo.a beatles - - -------T""""--------------------1 Appro\'ed tr.aty, Japan
Netherlands Treaty Nioaracu Treaty Iran Treaty
M t. III, par. 2 .••• •••••••• .!rt. Ill, par. 2 .••••• : ••. Art. n. par. 4 (with c:er•
taln variations).
Art. IV, par, 1. •.•• . •.• • ••• .\rt. IV, pe.r.1. .••••.... No comparable provl•
Art. IV, par. 2 (provides
for ltsS extensive cover•
age than Japan treaty).
Art. V, par. 1. . .....••..•.
Art. V, par. 2 (provlslons
somewhat more speelftc
than In Japan Treaty).
• .\rt. VI, par. 1. .••. . ••••••
slou.
Art. IV, par. 2 ••••••.•.• ••••• do •••••••.••• ••.•••••
A1t. V, par, 1 ••••••.••. . . .\rt. Ill, par. 2 . •••. ...••
.\rt. V, por. 2.......... . .\rt. III, 11ar. 3 (more
general thnn In Japnn
treat)•) .
.\rt. VI , par. 1. . ...... . . .-\rt. IV, par. 2 (lldds
international law
standud). •
Art. VI, par. 2 ..........•• Art. VI, par. 2 • ••.. . ..•• Ar t. I\', par. 3 ..••...•. •
Art. VI, par. 3 . . .•..•...•• Art. VI, par, 3 ... . . . ••.• Art. JV1 par, 1 (somewhat
or03dl'r than In
Jn1>4n treaty· er. art.
VIII, por. 1, Ethiopia
treaty),
Art. \"l, par. -l. •• • . . . . . . .. ..\rt. VI, par. ~- . .... .. . ..\.rt. IV, par. 2 ••• •••••••
Art. VJ, piv-. 5..... . .• . .. . .\rt. VI, par. 3. .• . . . . . . . No comparablo pro,·i·
•Slon.
• .\.rt. VII, par. 1. • •••••• ••• Art. VII, par. J. .. •.••• ~ o comparable provl•
slon. (CC. art. IV,
l)llr. -i.)
.\rt. VII, par. 2 (differs
somewhat from Japan
treaty; et. art. VII, par.
2, Germany treaty).
Art. VII, par. 3 •••...•••..
Art. vn, par. •···········
. \rt. Vlll, par. 1.! ...••.. .
Art. Vllbpar. 2 (dllTers ••••• do .................. .
somew atrrom Ja1>11u
treaty ; er. art. vu,
par. 2, Germany
treaty).
• .\.rt. VII, par. 3......... Ko eomparablo provl•
slon.
Art. VII, par. 4 ... . ..... ..... do . •••. . . ........•.••
..\.rt. V Ul, par. 1 (In• A rt. 1 V, par. 4 (llmltcludes
exception for t!d provision).
l'mploy~ natlonallt)·
laws).
Art. Ylll, par. 2..... . . ... ..\.rt. Vlll, par. 2 .••• .... .\rt, 11, par. 2 (c) (limit•
ed provision).
Art. IX, par. t. ........ . Art. V, par. 1 (most•
favored nation Instead
of national treatment).
Art. II, par. 2.
Art. III, par. 1.
Art. Ill, par. 2.
Art. IV• par. l.
.-\rt. JV, por. 2 .
Art. VI, por. I,
Art. VI, par. 2.
• .\.rt. V, par. I.
.\1t. VI, per. 3.
Art. VI, par. 4.
An. VII, par. I •
..\.rt. VII, par. 2.
Art VU, po.r. 3.
Art. Vlli par. 4.
Art. vn , por. 1 •
..\.rt. Vlll, pu. :i.
.. \.r t. IX, par. 1 Olmlted Art . IX, par. 1.
to treatment of Netherlands
nationals in
UnJt.ed Staws.)
Art. ~ 1 par. 2 (accords
. UnJ'le<l States naUonab
not.tonal treatment),subjfft
to reciprocity. (Cf.
art. IX, par. 2, Israel
treaty).
):o com~ble provi• No com(lllrable provt- No oomparable provl•
'alon. (Cl. lift. IX, ston. (Cf. art. V, par. slon. (Cf. art. IX.par .
par. 1.) I). I).
Art. IX, par. 3 ... . ••..••.. • .\.rt. IX, par. 3 ••••.•....
Art. IX, par . .2 ••••••••••
.\rt. V, par. 1 (b) (not
so blect to national or
moat • ravored • nation
treatment).
No comparable provl•
slon. (Cr. ari. v, par.
1).
Art. IX, par. 2 .
Art. IX, par. f (adds na• Art. IX, par. 3.
tlonal treatment as to
aoqwsUJon oertatn property;
cf. art. VII, par._1,
Ireland &reaty).
Art. IX, JIW, 6 (aewod
sentence recardlng
rlcbts of comJ)&llles ts
new).
Art. IX, l)llr, 4 ••• _ •... . Art. V, par. I (c) (less Art. IX, ()81'. 4.
natlonol treatment
Art. X, par. 1.. .••••.•• • •• Art. X, par. 1 • . . , .•.••••
A.rt. X, par. 2... ...• .. ..• . Art. X, par. 2 •. •.. . .....
Art. XI, pe.r. 1 .. ••.••••.••
Art. XI, par. 2 . ••••.•••.••
..\.rt. XI, par. ll ....... . ... .
A.rt. XI, par. , .... ... .... .
Art. XI, par. 1 . . • •••• s ••
.Art. XI, par. 2 ..••••••••
An. X!, par. 3 ..•. ; • ••••
Art. X1, par. 4 .•••.•.•••
A.rt. ~par. 6...... ...••• Art. ,!!&_ par. 6 • . ••••••••
.Art. All, par. 1.... •.. . . . . Art. All, pat. 1. .....•••
Art. xn, par. 2.......... . Art. XII, par. 2 . •. . : .•..
role).
Art. V, par. 2 (" Eaectlve
protecUon" ill
place national and
most•favored natJon
treatment). .
No comparable provision.
Art. VI, par. I. . . . . . . . .
No comparable provision
. \rt. \"I, pat. l. .. . . . ...
Art. \ ' I, par. ll (airnpler
provision, Umtk'd to
companies· IICl' :srt. X,
par."8, .Etblopla treaty)
Art. VJ, par. 2 ...•••••••
No comparable provl•
• slon.
Art. VII, par. 1. •.••••••
ArUclo X .
~ o comparable provi•
sJon. (See art. X, par.
2, Oermauy treat:,.)
Art. XI, par. 1.
Art. XI., par. 2.
Art. XI., par. 3 .
Art. XI, par. 4.
Art. Xlill8f. 6.
Mt. XI , par, 1.
Art. xn, par. 2.
Annex 88
I I
COMMERCIAL TRE~TIES 7
Prol)Oled treaties ---------..---------..---------1 Approved treaty, 1apan
Netherlands Treaty Nicaragua Treaty IranTreaQ'
Art. xu. par. 3........... Art. xn, par. 3 .••.•••••
Art. XII, par.,........... Art. xn, par., ...•.••••
Art. XII, par. 11........... Art. XII, par. 6 .•...•••.
Art. vn, par. 2 •••••••••
Art. VII, par. 3 •••••••••
No comparable provl•
slon. (Cl. Ethiopia
treaty, art. XI.)
Art. XII, par. 6........... No comparable prol"l·
slon.
No comparable- pro,1·
aton.
Art. XIII ...•..•... ...•.•.
Art. XIV, par. 1.. ••••••••
Art. XIV, par. 2 •••• ••••••
Art. XIV, par. 3 ••••••••••
Art. XIV, par. 4 ••••••••••
Art. XIV, par. 11 ••••••••••
Art. XUI ...•••.•••......•.•• do ....•••.....•......
Art. XIV, par. L ••..... Art. VID, par. 1. ••..•••
Art. XIV, par. 2 •••••••• Art. VIII, par. 2 •• ••••••
Art. XIV, par. 3........ Art. VIU, par. 3 ....... .
Art. XIV, par., •••••••. Art. VIlI, par. 4 •• ••••••
Art. XIV, par. 5........ No comparable provi•
slon. (Cl. art. XII,
EUiiopla treaty.)
Art . .XIV, par. 6.......... No comporable provl• Art. VIII, per. 11 (cen•
slon. erally comparable in
substance; see art.
XII, par. 6, Ethiopia
Art. XV, par. 1 ("reason.•
able time" In plaoe of
30-day or "enroute"
rule; cl. art. XV\ per. l,
011rma.ny treaty,.
Art. xv. par. 2.. ••••••••••
Art. xv, par. 3 •••••••••••
Art. XV, par., .......... .
treaty).
Art. XV, par. l... . ..... Art. IX, par. 1 (&) (c).
(Abbreviated rule; see
art. xrr, per. 1,
Ethiopia treaty).
Art. XV, par. 2 •••••••••
Art. XV, par. 2, 2d
sentence.
No comparable provl•
slon.
Art. IX, par 1 (d)
(abbrevi&led rule).
Art. IX, par. l (e) .••••••
No comparable provl•
slon.
Art. XV, par.!"........... Art. XVII, p11r. 3 ••••••• Art. IX, par. 3 ••••.•.. ••
Art. XVI, par. 1.. ••.•.•..
Art. XVI, par. 2 ••••••••••
Art. XVII, par. 1. •••••.••
Art. XVII, par. 2 .••••••••
No comparable provision.
Art. XVIII, par. 1. •••••••
Art. XVI, par. 1........ No comparable provi·
slon.
Art. XVI, par. 2 .•••••••••..• do •••.•••••. ....•.•..
Art. XVII, par. 1. .••• .. Art. XI, par. l.. ...•....
Art. XVII\.par. 2. •••••• Art. XI, par. 2 .•••••••••
Art. XVIla., par. 1.. ••.• No compamble provl•
sion.
Art. XVIII, par. 2 Art. XI, par. 8 •.•....•..
Art. XU, par. 3.
Art. XII, par. 4.
Art, XII, par. 5.
No comparable provl·
slon. (See ut. XU,
par. 6, Germany trea.
i1.>
Art.XIII.
Art. XIV, par. 1.
Art. XIV, par. 2.
.\rt. XIV, par. 3.
Art. XIV, par. 4.
Art. XIV, par. 11.
.\rt. XIV, par. 7.
Art. XV, par. l.
Art. XV, par. 2.
Art. xv, par. 2, 2d
sentence.
No com~ble provt•
slon. (See Art. XV,
par. 3, Germany
treaty.)
Art. XV, par. a, (adds
"subject to provisions
of art. XII").
Art. XVI. par. 1.
Art. XVI, par. 2.
Art. XVII, per. l
Art. XVII. par. 2.
Art. XVIII, par. 1.
Art. XVIII, par. 2 .....••.
Art. XIX, par. L. ...•.•..
Art. XIXi_par. 2. (See
(claUS8 at end is n11w).
Art. XVIII, par. S ••••••
Art. XIX, par. 2 .•••.••.
.\rt. XIX, par. 3 ••. .••..
No oomparable . provi•
slon. (See art. XVIII,
par. 2. Israel treaty.)
Art. XI, par. 4.......... Art. XVIII, par. 2.
Art. X, par. 2........... Art. XIX, par. '2,
Art. X, por. S........... Art. XIX, par. 3, 6
(added provision on
admission foreign ves•
art. XXu (0 for "fisheries"
excepUon.) : se1s ou, reciprocity
Art. XII.X, pars. 3, 4
(wded prov.ialon on
traD5portaUon to or
from J!o()rt).
Art. XIX, par. 4 ••••••••
; basis).
Art, X, por. 4......... .. Art, XIX, par. 4.
Art. XIX, par, 6. (More
speoUlc provislon, on
v..ia In d.lstress; aee
art. XXI, Oermany
treaty.)
Art. Xl~l par. 6 (ab· Art. X, Ptlf, 6, (Same Art. XIX, par. 5.
brevlatea _ 1>_rovls(on; as Nicaracua treaty.)
aee art. XIX, par. 6,
Denmark ireaty).
Art. XIX, par. 6 (broader
exoeption for war v•
sela).
Art. XIX, par. 6. . .... .. ..\rt. X, par. 6. •.•.••••.• Art. XIX, par. 7.
,\.rt. XX, par. L .•...•.•.• No compamble provi• No oomparable prol"i·
lion. ston.
Art. XX, par. 2. ••••••••••••••• do ••••••••••.•.•••••••• ..• do .••••..•••.••••...•
Art. XXI._ •.••••••••••.• Art. X.X ••••.•••••••.•••••••• do •••••.•••.•••.•••••
Art. XXII, par. 1..• •••••• Art. XXI, par, 1, Art. Art. VIII, par. 6 (a);
XIV, par. 6 (a). art. XX, par. 1 (lea
provision on companies;
- art. XVI,
Art. XXII. par, 2 (adds Art. XXI, par 2, 4 (odds
Nllervatlon for Nethtt• relen'a&lon for Nlcelauds).
ragua).
par.I Ethloplatreaty),
Art • .ix, par. I .•••.••••
No com~ble provi•
stem. (Bee art. XXII,
par. 1. Oermany
trMty.) .
No comparable provl•
ston. (See art. XXII,
par. 2., Germany
treaty,)
Art.XX.
Art. XXI, par. 1, art.
XIV, par. 6 (a}.
Art. XXI, par. 2.
Annex 88
8 COl.llmkCIAt TREATIES
Propoeed tnatles ---------------+"'----'"-----'-----~--------1 Approved tnaty, 1apao-·
Netherlanda Treaty Nioilralua Tnaty Iran Treaty
Art. xxn, par. a .... ·-··- . Art. x~ par. 8 (b, c) ••
Art. XXII, par. 4 •. ·--··· Art XX1, par, 3 .• -••-·-
Art. VIIIJ par. 6 (b, c) ••
Art. Vlll, p11r. 8, con•
eluding aentenoe.
A.rt. xxn, par. 8 •••••••••
A.rt. xxn, par. 6_ ••••••••
Art. xxm, par. 1.. ••••• -
Art. XXIII, par. 2 .•......
Art. xxm, par. a ....... .
Art. xxm, par. 4 (added
material re1ardfn& treat•
ml'nt Unl&f<I Statescom•
plUJel hi Netherlands).
Art. XXIV (addNI provt•
sion re&ardlllJ Nether•
lands colonies).
Art. XXV, par. L ...... .
Art. XXV, par. 2 •••••••••
Art. :XXVI ••• ·-··········
Art.',XXVII ••••••. _ ..•.••
No comparable pro\·lslon.
Do .. -.••.•••..•.......
Art. XXI,•pv. Ii ••••••••
Art. ·vnt, par. 2, COU·
eluding sentenoe.
Art. XXII, par. 1 •.•.•••
No comparable provl•
slon. .
Art. XX, par. 2 •••••••.•
No comparable provl•
elon. ·
Art. XXII, par. 2 •••••••••••• do •••••••••••• : ••••.
Art. xxnii'. par. a....... Art. III, par. 1. • ••••••••
Art. XX . , par. 4 .••••.. No oompa\'able provt•
SIOD, '
slon.
Art. XXIII .••..•• ••.. .. Art. xxm ............ .
Art. XXIV, par. 1.. ..•. Art. XXI, par. 1. .••.•••
Art. XXIV, par. 2 •••... Art. XXI, par. 2 •. _ •....
No comperal>Je prov1• Art. XXIL ..••..•.•••..
~1QD (no ~tnuertementa
to be 1erml•
nated).
Art. XXV ••••. •... •.• . . Art. XXIII.. ..•.•.•....
Art X, par. a (adds No comparable provl•
"tluoufb normal oom• slon.
mercia cbannela").
Art. XVI, par. 3 •••..•••.•••• do •••••. •.•••••••••••
Art. XII. (Of. art. In,
par. 1, Ethiopia
in&ty.)
Art. XDiipar. 1. (CC.
art. II , Ethiopia
treaty.)-
Art. Xlll, par. 2. (See
art. Ill; par. 2, EW•
o~treaty.)
Art. XIV, par. 1. (See
art. IV, par. 1, Ethl•
opJa tlaty, also art.
XIV, par. ~ United
Xln1dom uonaular
Convention, TIAB
:UOf.)
Art. XIV, par. 2. (See
art. IV, par. 2, Ethiopia
treat:,, also art.
XIV, par. 2 United
Klnrdom Oon1Ular
Convention.)
Art. XIV, par. 3. (See
art. IV, par. 3, Ethiopia
a-ea ty .)
Art. -!Y, par. 1. (Ct.
art. vu;par.1'-Unltad
B:lngdom UODIU·
Jar Oon•eniton.)
Art. X~-lW• 2. (Of.
art. All, par. 1,
United Ktncdom Con·
Sl1lar O011vent1on· tJeo
art. IV, par, 4, Ethiopia
treat:,.)
Art. XVI, par. 1. (Bee
art. V, par. J, Etblopla
treat:,; cf, also an.
Xm, Unlt.ed Ktnc·
dom Consular O(m.
vantloD.)
· Art.XVI, par. 2. (See
art. V, ~- 2, E&hloPte
tr"Nty,)
Art . .XVI, par. 3. (Bee
arL V, ~ . 8, Bthlo·
pta treaty.)
Art. x~ par. e (b, c);
Art. X.X:1, ~Ill'. 3.
Art. XXI, par. 4,
Art. XXI, pnr. 5.
Art. XXII, par. 1,
Art, XXII, par. 2,,
Art. xxn, par. 3.
Art. XXII, par. 4.
Art . .XXID. (See Den•
mark treaty, art. xxm.)·
Art. XXIV, par. 1,
Art. XXIV, par. 2.
No comwable provls10D
(no edatlne asn,ements
to be termlnated).
Art.XXV.
Art. V, JPV.1, concluding
clauee.
No comparable provl·
slon. (See art. XVI,
par. 3.r Colombia treaty
wltbCll'lwn before Sen·
ate action.)
Annex 88
I
COMMERCIAL TREATHlS 9
Propc.d tnatlel
----------.----------.---------, Appro~ed &rMty, 1apan
Netherlands Tr.ty Nicaragua Treaty
Protocol, par. 1.. .•••••••. No comparable pro't'I·
lloD.
Iran Tr.ty
Art. XVII. (Cf. art.
IV, par. t, and an. V, I:; . 4, Ethiopia
Art. 'l.J m. ·cot. an.
Ill, par. 2, Ethiopia
treat7-:~ an. x, XI, U )pn&dom
Con1u ar Con•en•
tlon.)
Art. i:IX. (Cf. art.
XV, United Kingdom
OaolullrCcmftDUoll).
No oom()lnlble pro•I•
aioll.
Protocol, per. 2 ••••••••••• Protocol, par. 1.. •••••••• Art. XX, par., ........ .
Protocol, par a (new) ..... 'No comparable pro•l• No oomparablo provf.
. slon. slon..
Protocol, per. 4 • . (SeooDd ••••• do •..••••••.•.••••.••••••. do •••••••••••••••••••
eent.eD<le la new).
Protocol, par. 6........... Protoool, par. 2 .......... . .... ~ ................. .
Protocol, par. 6........... Protocol, par. L........ No oo~le ~vtv.
lllon. (Of. N't. IV,
par. 2.)
Pro&oool, par. 7 (new) ••••• No comparable pro't'f. No comparable provt•
don. don.
Prot.oool, par. 8 .••••••.••..•••. do ••..•••....•.•••.•• N~~1:.f'°ft
par. 2.)
Protocol, pv. 9 •••.•.•••••....• do .••.••.....••.••..• No comparable provf.
lion.
Plotoool, par. lo (new) •.•• ••••. do ••••••••••.•••.••••...•• do .•..•.••••.•• · •••••
Pro(oool, par. 11 • ••••••••• ••••. do •....•... ..••••. ••• •..•• do . ••••••••.•••••••••
Protocol, par. 12 ••••••. • ••••••• do .•••.•••••.•••.•••• ••••• do • •••••••••••••••••
Protoool, par. 18 ••••••••••••••• do ••••••••••••••••••• ••••• do •• - ••••• ••••.•••••
Protoool, par. H (adda ••••• do •••••••••••••••••••••••• do •••••••••• - ••.••••
nifenDOI to "speoaladve
baDma1 opera&
lcm"}.
Protoool, par. 16 .............. . do •• -.. ••••••••••• --···~··· · · ............ ..
Protocol, par. 16.·-······ Protocol, par. 7 •••••••••••••• do •••.•••••••••
Protoool, par. 17 •••••••••• No oomparable provt- ••••• do.-•••••••••••••••
slon.
Protoool, par. 18 (new) •••• . .... do •..••••••••••••••••••••• do ••••••••••••••..•••
Protocol, par. 19.......... Protocol, par. 8.......... Art. XX, par. 8 •••••••••
Protocol, par.~.......... Protoool, par. 9.......... No OOll1l)llSb1- provf.
sf.on.
Nooomparableprovillon .• Protoool. pe,r. a ...........•... do •••••• - •••••••••••
Protoool, par. 6 ••••••••••••••. do •.••..•.•••••••.•••
No comJ!,Al'SbJe provision.
(See Protocol,
par. 1, Germany
UU(.y.)
No comparable provl•
slon. {See Protocol,
par. 2, Germany
treaiy.)
No compvablep rovl•
slon.
No comparable proVI•
lion. (See Protocol,
par. 4, Germany
treaty).
Protocol, par. 1.
Prococol, par. 2.
No comparable provt•
aloD.
Senate raervauon relat•
fDf to art VIII, per. 2.
No comparable provtalon.
(CC. Pro&ocol,
par. 10, Germany
treaty.)
No comparable provl•
lion.
No oomllU&ble provision, ccr. Protooo1, par. a,
Denmart treaty.) .
No aomllUllble provfllon
(See Minutia, 114 art.
XI, Denmark katy.)
No oomPll'&ble provision,
(Cf. Protocol, par. 14,
Oerman7 Crl&ty.)
Protoool, par, 0.
Protoool, par. 10.
Protoool, par. 11.
No CIOIDDlr&bla pro'ridan.
(See Protocol, par. :IO,
~ traiy.)
No oommiabJI proflQOD.
Protoool, par. 12.
~-13 (add.I
tor 1aawu.
No~pro'rilbl.
(ot art. IV, par. 2,
~ aenteDoe.)
No oomparable provblon. Protoool, par. ,.
(Ot protoool, pv. 10).
No oomparal>Ja provflioo...
~DC>t.recvd• :i~r-lnfAllm-
Protocol, par. 11 ••••••••••••.•• do... ......... ...... . Protoool, par. 8.
No ooml)llnlble pro'ri• •• ••• do.·-·· ••r·········· No oompuablepro'ftllon.
lloD.
Annex 88
10 COMMERCIAL TREATIES
Senator KxowLA.ND. I notice in your statement that:
They contain no iunov&tions raising problems of reconciliation with domest.ie
Jaw.
Just for t.he record, I would like to ask whether there is anything
in these treat,ies that would permit or allow, for instance, professional
practice within the States or anything within the customary State
laws, with which Americans must comply in order to practice professionally
medicine, dentistry, or law, as the case may be?
.Mr. KALIJ.<\RVI. No; there is nothing. That situation was met
some years ago, and we appreciate very much t.he committee's concern
on that point,.
TREATY WITH HAITI NOT CONSIDERED
The CH.URMAlll. I thlnk it might be well to call attention to the
fact that t.he committee is not ta.king up, today at least, the treaty
with Haiti.
j\fr, KALI.JARVI. That is correct. .
The CHAIRMAN. For reasons which you understand, but which I
think rould be stated to the committee:
There is opposition to that treaty because of the omission of the
clause relating to freedom of worship and conscience. There are
objections filed with the State Department by the National Council
of Churches of Christ in the United States, the National Association
of Evangelicals, and the Baptist Joint Committee on Public Affairs.
I might say that there a.re numerous letters from religious organizations
objecting to the Haitian treaty simply because of the omission.
All these other treaties do contain a guaranty of complete religious
freedom in each of these countries.
:Mr. K.~LIJARVI. That is right.
Senator FULBRIGHT. Of Americans in that country.
The CHAIRMAN. That is right; yes.
Ml'. LLIURVJ. Yes. We have nothing to offer because our
Constitution guarantees religious freedom.
The CHAIRMAN. Any further questions?
Senator LANGER. Do these treaties differ substantially from those
that. we had under William Jennings Bryan, Secretary of State?
}.fr. KALI.JARVI. There has been a modernization and streamlining
of the agreements, Sent1.tor, since the Second World War.
Senator LANGER. I understand. Are they very similar to those
under Woodrow Wilson?
Mr. LLIJARVI. They are basically the same. There a.re substantial
elaborations in them of investments and other experiences that we
have had since that time that, give additional protection and rights
to the Americans abroad.
TREATY ENFORCEMENT
Senator LANGER. For example, Mexico appropriated the _oil lands.
Mr. KALIJARVI. You mean under its 1917 constitutional provision?
Senator LANGER. Yes.
Mr. lu.tIJARVI. I am informed we had n~such treaty with Mexico
at the time.
Senator LANGER. If you had had a treaty with Mexico, would it
have been a violation?
Annex 88
COMMERCIAL TREATIES 11
Mr. KALIJARVI. Yes, with the treaties as drawn up at the present
time.
Senator LANGER. What could you have done about it?
Mr. KALIJARVI. We could have made representations to the Mexican
Goverflm~t.itt we could have attempted to secure compensation
through such means and instrumeDts as are available to us-the
intem.a.tional courts, diptomat.ic means, and otherwise.
Sena.tor L . .\NGER. Supposing, for example, the treaty with Nicaragua
is violated-not denounced but viola.ted-wha.t can you do
about it?
Mr. KALIJARVI. \Ve have a claim against the Nicaraguan
Government.
Sena.tor· LANGER. And you try that, would you, in Nicaraguan
courts?
Mr. KALIJARVI. "\Veil, presumably the first position to be taken
would be a representation to the Nicaraguan Government pointing out
the difference between the action proposed or eontemplated and the
ag1·eemcnt . . ~f the Nicaraguan Government w:ent a.head in spite of
that, then presumably we would continue ow· representations and
seek for an adjudication then in an inten1ational tribunal. I would
e.ssume that the co~pany would attempt, if the corporation were
located there, would attempt to e.xhaust the remedies available to it
in the domestic courts, but if a governml•nt, say, in Nicaragua, proceeded
to nationalize, the chances are that the courts would furnish
little or no relief and the Gov('1·nme.nt of the United States would have
t,o intercede in behalf of its nationals.
MBMORANDUM OF THE BAR ASSOCB.TIO~ OF THE CITY OF NEW YORK
The CHAIIUUN. I will have to go, and before ~oing, I wish to put
into the record and call yow· attention to it espec1a.lly, Mr. Kalijarvi,
and the State Department, a. very thoughtful memorandum filed with
the committee by the New York City Bar Association on the treaty
with. Iran. It is not objectin~ to the treaty, but they do ask certain
pertinent questions which I think the State Department should answer
and put into the record so that we may reply to the city bar association.
Mr. KALIJARVI. Yes, sir.
The CHAIRMAN. In ith they raise certain questi~s for the future,
and ask why provision s ould not be inserted concerning enforcibility
of arbitration awards, along the lines contained in the Germ.an treaty.
It might not be that you would answer all of those to the complete
satisfaction of the bar association, but I think that should be put into
the record.
(The statement refeITed to and the comments of the Department of
Stat.e are as follows:)
JUNE 25, 1956.
DsAR S1:NATOR GmoaoE: The committ.ee on foreign law of the Association of the
Ba.r of the City of New York engaged in a. ca.reful ana.lysia of certain of the provisiooa
of two recently signed commercial treaties between the United Sta.tes and
Haiti and Iran respectively.
I enclose two copies of the comments embodying this work of the committ.ee,
which it is felt may be of int.erest and 888istance to you a.nd the Committee on
Foreign Rela~ions.
Yours sincerely,
J .il111s N. HYoJC,
ChaiNn411,1 CommiUet on Foreip Law, 1966-67,
Annex 88
12 COMMERCIAL TREATIES
THE Assocr.o.T10N OF THE BAR OF THE C1TY OF NEw YoRK, CoinuTTEE o:-FoREIGK
LAw, COMMENTS o.-.: THE T1utAT1Es OF FRIEXDSHIP, CoMMERcE,
.Hrn x."·10AT10N BET\\'EEx THE Ul\'ITED STATEs oF A1,Ea1cA .,ND TeE. RtPuauc
OF HAITI, o,. MARCR 3, 1955, AND IRAN, OF AUGUST 16, 1965 ' ·
. The eommitt.ee on foreign law of the Associat;on of the Bar of the City of New
York has, at it.$ rneetiugs in 1955-56, engaged in an analysis of certain of the
provisions of the two recently signed commercial treaties with Haiti and· 1ran.
These comments are limited to those pro,·isions which apply to subjects with
which the members of the committee feel qualified, on the basis or professional
e.~perience, to express an informed opinion.
These two treaties \\·ere negotiated in purnuance of the Department of State's
program of drafting u~to-date and comprehensive commercial tre.aties with as
many nations as practicable, with the aim of affording as much encouragement and
protection t.o the carrying on of trade witli, and participation in investments in,
the countries invoked. Such treaties are in the interest or American commercial
and im·~-t-ing interest~, although since treaties with sovereign nations are im·olved,
they art> necessarily cast in a reciprocal form. To that end a so-called model
draft treaty was prepared by the Department some years ago, and continuously
impro,·ed ou the basis of experience in recent treaty negotiations. The various
treaties concluded to date fall into a definite pattern, rather than each being
negotiated on a completely ad hoe basis. There a.re, nevertheless, variances in
the en.et language of the provisions of the two treaties wit-h Haiti and Iran, some
of which may be of significance, t.nd "·luch will be commented on herein.
The comments which follow are not intended so much as specific criticisms of
the particular treaty as it has been negotiated, or in any \\'ay as an indication
that the committee opposes their ratification by the Senate. Their primary
purpose is to be of constructive assist&nce to the State Department in negotiating
further treaties of the same type, as well as (if deemed necessary) negotiating
prot.oeols or interpretory letters with regard to the particular treaties ~nder
consideration.
1. Provisiom concerning acce83 to couru
The Haitian and Iranian treaties contain proYisions in articles V (1) and III (2)
respecth·el.r (which, except for rather minor textual differences, follow closely
the provisions of the draft treaty) guarnnteeing, on a mutual basis the right of
nationals and companies of either party to free access to the courts and administrative
agencies of the other, on both a national and a more-favored-nation
basis. A protocol to the Haitian treaty provides that the term "access" to courts
includes legal aid and security for costs and judgment. Ko such protocol has
been made in connection with the Iranian treaty, and, unless there are local
circumstances peculiar to Iran and to procedures in that country's courts, with
which the committee is not familiar, it is felt- that the precedent set in the case of
the Haitian treaty should be followed in tbe case of the Iranian treaty.
It has been also suggested that it would be appropriate in this connection to
include provisions in commercial treaties for the reciprocal rendering of judicial
assistance, for instance, in the taking of depositions. In the absence of such a
treaty erovision, American practicing lawyers have run into serious practical
difficulties in obtaining testimony abroad in such form as ctJl be used in American
courts. However, international judicial assistance is the subject of legislation
now before Congress, which \\·ould appoint a commission to examh;1e the entire
problem a.nd, it is hoped, draft a model treaty or pro~col to existing tree.ties,
which, taking the complexities of the problem into accot1nt, will provide a means
for imp_ro,;ng the situation on a reciprocal basis. It appears unlikely that the
State DeP.'-rtment will participate in the negotiation of provisions in genernl
commercial treaties covering thJs subject until t.he proposed commission has
submitted its recommendations. The committee1 therefore, does not make any
su~estions at this time in regard to the desirability of including provisions in
this ~rd in the Haitian and Iranian treaties1 except to point out that there is
a need for treaty arrangements in the field, which should be negotiated, either in
oonneotion with commercial treaties, orin special treaties in the field of reciprocal
judicial 888istance.
-A somewhat similar problem exists in connection with the reciprocal enforcement
of foreign judgmenta, although t,be committee feels that, here, conventions
should be negotiatea only with countries whose judicial system.a and standards
are such that we would have confidence in the fairness of judgments rendered by
that country's courts.
Annex t 8
CO:MMERCIAL TREATIES 13
1. &f orument of arbitration awards
Both the Haitian and Iranian treaties contain provisions concerning arbitration
(art. V (2) and III (3) respectively). The language in the Haitian treaty is that
of the so-called draft treaty, that the Iranian treaty is brief and more general.
The provisions of both treaties concerning the enforceability of awards ate
couched in the negative (i. e .• an award entered in a proceeding shall not be denied
enforcement because of the alienage of one or more of the arbitrators, e~.) instead
of the posith•e, as in the case of the treaty with West Germany of October 29,
1954 {art. VI (2)) where such awards are decla.red conclusive and enforceable
(subject to certain qualifications). The committee prefers the provision contained
in the West German treaty especially in the ease of treaties with more
important trading nations. .
s. Coneular protution of the righta of nationau
Both treaties contain provisions (Haiti art. III; Iran art. II ( 4)) which are
intended to insure protection to citizens of the countries involved, in cue of their
arrest by the authorities of the other. The provisions in the Iranian treaty are
couched in somewhat more general terms than in the case of the Haitain treaty.
Thus it is provided that on demand of the arrested national, his diploma.tic or
consular representative is to be notified without unnecessary delay and that such
representative have full opportunity t-o safeguard the interests of the arrest-eel
nat.ional (which would seem to be a good provision). The corresponding proYision
in the Haitian treaty (which follows the model treaty in this regard) requires that
the consul be notified immediately which is preferable. However the Iranian
t.reaty does add a. desira.ble __ guarantee that the disposition of the case be prompt
and impart.ial. Article XIX, dealing with the powers of consuls, also authorizes
the consul to a.rrange for leg!:l assistance. Unfortunately the sections of the
Iranian treaty (arts. XII-XIX) whi<'h apply to consular rights are not quite as
extensive as some of our recent consular com·entions (e. g., with Costa Rica)
which specifically guarantee, for example, the right of private access by the consul
to the .arrested na.tional, nor does the treaty require the government to notify
t.he consul of the detention of a national of the country he represents, the consul's
rights depending solely on a prior "demand" on the part of the arrested national.
The authorities of the receiving state before whom the consul may assist bis
nationals a.re not defined, so as to include the authorities of local political subdi"
isions (a possible loophole), and it is suggested that in addition the treaty should
explicitly empower a. consul to confer in his official capacity with all authorities
of the receiving state concerning any criminal or civil proceedings to which one
of his nationals is a party.
While the committee does not belieYe, on the basis of the above comparison
of the Iranian treaty '";th other commercial and consula.r treaties to which the
United States is a party, that this particula.r treaty entirely lacks ~th, so t-o
speak, :in affording protection to United States citizens (indeed some of the language
is an improvement over comparable provisions in other treaties), it· does
believe that, except where local conditions in Iran or elsewhere, such as the lack
of capable lawyers, suggest otherwise, the more specific provisions found in the
other recent treaties are generally to be preferred, and that, if pos8ible, a protocol
be negotiated to cover the point of requiring the government to notify the consul
whenever one of his nationals is detained.
4, Prormiona with regard to taiation
There is a serious question as to the ad,·isability of including provisions with
regard to taxation in commercial treaties, other perhaps, than a general pledge
of national and most favored treatment. Tax iaws and regulations tbro~ghout
t-he world are complicated and technical. It should be the policy of the United
States to negotiate specific bilateral conventions to avoid double ta.~ation with
. as many countries as possible. Eighteen such conventions have been ratified
through March 30, 1955. This approach is preferable to the rather broad language
usually found in commercial treaties, and as is found in both the Haitian
and Iranian treaties.
Subject to the above general comment, it is noted that inevitably there is some\\
·hat of an inconsistency between the provisions of both treaties, which in effect
ban more burdensome t&."'Ces than those borne by nationals of other countries and
the simultaneous emtence of treaties against double taxation which involve
concessions to some countries and not others.
In article VI (3) of the Iranian t.reaty it is provided that ••companies" (why
not individuals or partnerships?) are not, In the tennory of the other country
Annex 88
14 COMMERCIAL TREATIES
to be subject to taxes on any income or capital not attribut.able to operations or
investment within such territory. This is all right as far as it goes, but the question
of when earnings are attributable to one country rather than another is
quite often the exact point at issue in any particular controversy, and the treaty
does not provide any solution. Would some form of agreed arbitration of such
a question be an acceptable answer to the problem?
6 . Conaular proviaion&
The treaty with Iran contains (articles XII to XIX) provisions concerning the
powers and immunities of consuls, which are often found in separate consular
conventions rather than in a general commercial treaty.
It. is belie,·ed t.hat these provisions are relath·ely standard iu the light of current
and accepted international practice. They provide for the qualified immunity of
consular premises. exemptions from custorrls duties, tax exemption of official premises
and official compensation, lack of jurisdcition of the receiving state over the
consul's official acts aud documents, and the right of a consul to communicate
with his fellow nationals.
However, the consul's immunit.y from taxution is not. absolute, and he is subject
to taxation on income from sources in the receiving state, other than official compensation,
on the ownership or occupation of immovable property, and on the
passing of property at death, nor do any exemptions apply if the consul is a
national of or a lawfully authorized immigrnnt in the receiving state.
It has been suggested (a) that a consul be wholly free of taxation in the
receiving stat.e, and that the exceptions referred to above are illogical, and (b)
that there is no renson why a consul should not, in the absence of a violation of
the general national interest of the sending state, be amenable to process from,
and his files subject to production before, the courts of the receiving state. It is
strongly suggested that such a modification of current practice, a.long with a requirement
that the consul officially represent the nationals of the sending state
in legal proceedings in the receiving state involving the status (e. g., marriage,
divorce) of such nationals, would greatl)' simplify the proof of many official acts
of forei~ governments and generally modernize cumbersome problems of jurisdiction
m international transactions. The committee feels that, whatever meri~
there may be t.o these suggestions. they should be embodied in a general reuegotia,.
tion of consular conventions, and not in the particular treaty with Iran which the
committee ie considering.
6. Prornsiom with regard to ownership of property
Both treaties contain br.oad provisions dealing with the right to acquire property
of various types in the territories of the other party, and for the protection of those
rights. But, because of the broad sweep of the language, which means that the
phraseology is, necessarily-, imprecise. there are always loophole, through which
the foreigner's rights, which a.re seemingly so broadly protected, may be eroded.
On the other hand, the committee recognizes the difficulties of more precise drafting
in this field, and the fact that, in a controversy, especially where national
feelings are aroused, broad provisions may be as effective to protect the interests
of investors abroad, at least as a foundation for diplomatic representations.
There are many differences in detail between the two treaties. .In par:ticula.r,
the Iranian treaty has been drafted in more general terms than the Haitian treaty,
which follows more closely the language of the model draft treaty. It will serve
no useful purJ)OSe to re\riew these differences in detail, other the.n to point out the
following:
(a) The Haitian treaty (a.rt. IX) guarantees to nationals and companies of the
other party the right to national treatment in leasing and occupying real property,
and national and most-favored-ne.tion treatment in regard to purcliasing or otherwise
~uiring interests in personal property, subject to restrictions on alien
ownership in certain fields such as banking and exploration of natural resources.
The Iranian treaty (art. V (1)) guarantees the right to lease, for suitable periods
of time, real property needed for residence purposee or the conduct of activities
under the treaty, together with the right to purchase and dispose of personal
property. In addition, mOBt-favored-no.tion treatment is assured (possibly 88 a
qualification in the broad sweep of the previous guaranties).
(b} In regard to inventions and tra<iemo.rks the Iranian treaty (a.rt. V (2))
guarantees, upon compliance with applicable laws concerning registration, etc.
effective protection to nationals and companies of the other party in their exclu·
sive use thereof. The Haitian treaty (a.rt. X) promises national and m08t.f:
t.vored-nation treatment in these matters.
Annex 88
COMMERCIAL TREATIES 15:
, (c) So far as the rights to establish a business or to make an investment are
concerned, the Haitian treaty (art. VII) follows closely the provisions of the
model treaty, which generally speaking are favored by the committee. National
and·most-favored-nation treatment is pledged1 although certain rights are reserved
to limit the rights of aliens generally m certain fields. The comparable provision
of the Iranian treaty is far briefer and more limited. There is no guaranty of the
right to establish A.11 enterprise. However, once nationals or companies of the
other party are permit-t.ed to establish an enterprise, they are to be fre~I~· permitted
to conduct their activities in the host country "upon terms no less favorable
than other enterprises of whatever nationality engaged in similar activities,"
includiog a guaranty of the right to continued control and management of such
ent~rprises. The committee feels that the omission in the case of Iran of the
right to establish a business as in the "model" treaty upon which the Haitian
and other recent treaties are based, is a serious defect, although there may be good
reasons for such omission with which it is not, familiar.
(d) There is a further omission in the Iranian treaty, which the committee
feels should be corrected iu a protocol. The provisions with respect to conducting
a business refer to nationals and companies of the other country. ~o provision
is made to protect the rights of companies organi,:ed under local laws, in which
nations or companies of the ot,her country have a controlling interest-. In the
Haitian treaty, this right of investment in local companies is specifically recognized
in article VII, and both national and most-favored-nat1on treatment is
guaranteed to such controlled enterprises. Further, in connect-ion with the
guarantee against expropriation of property without full and effective- compensation,
which is found in both treaties, a protocol to the Haitian treaty specifically
provides that such provision extends to interests held directly or indirectly in
property taken within the territory of the host state.
(e) Again, in connection with the right of individuals to enter the country in
order to engage in businessl the provisions of the model treat:v (and of the Haitian
treaty) are more definite tnan, aud preferable to, those of the Iranian treaty. The
right of entry in order to carry on trade and to develop or direct an enterprise in
which such persons (or their employers) have invested is guaranteed by Article
II of the Haitian treaty (&S supplemented by protocol). In the case of Iran
(art. II (1) most-favored-nation treatment only is promosed, and there is no pro-vision
with regard to the rights of employees of traders or investors to enter t.he
country. Here again, Iran seems to have reserved to itself the right to exclude
American businesses from its territory (although, to be sure, once admitted, it
does agree to furnish a certain amount of protect-ion).
(j) Both treaties contain provisions against expropriation or other taking of
property, except for a public use, and only upon prompt payment of full and
effective compensation. In this regard, the committee, while in agreement that
these provisions of the tteaty do accord with enlightened legal princi.ples, and
(within necessary limitations as to the effectiveness of treaties} that they afford
considerable protection to United States investments in Haiti and Iran, believes
that definitions of the words "property" and "taken" might be included,, possibly
by way of a supplemental protocol, which would-
, (lJ Conform the definition of "property" to that in the postwaT treaties
of peace, so as to cover all types of property, including intangibles ~cf. art.
78 par. 9 (c) of the peace treaty with Italy) ; and
(2) Broaden the definition of "taking" 80 88 to include measures which,
though falling just short of a seizure of the full title to the property. effectively
deprive its owner of the use and enjoyment thereof, for eitample, the appointment
of a custodian.
, . Promfiom toith regard to waiver of Bovereigtt immunity and .state trading
The provision in the Haitian and Irani8Jl treaties dealing with sovereigu
immunity are identical in the two treaties and reproduce the pl'ovisions iu the
model draft treaty. It reads as follows (Haiti, art. XVIII (2); Iran, art. XI (4)):
"No eaterprise of either High Contracting Party including corporations ass<r
ciutions, and government agencied and instrmnentahties, which is publicly owned
or controlled shall, if it en~es in commercial, industrial shipping or other business
activities within the territories of the other High Contracting Party, claim or
enjoy, either for it!!elf or for its property, immunity therein from taxation, :-;uit,
execution of judgrnent or other hability to which privately owned and controlled
-enterprises are subject thereiu."
The principle embodied in this provision i::i iJ1 accord with forward looking legal
principles. It of course is consistent with the position taken in the famous Tate.
letter of 1952 (26 Department of State Bulletin 984). It does not attempt a
Annex 88
16 COMKEBCIAL TREATIES
solution of the thorny problem of distinguishing on the facts of a given situation
wbe~ber !' particular activity of the state is an act jure gestionis or jure imperii.
It will still be for the courts to decide whether for example ·purekming ekees for
the Army is a business or governmental activity. As uone of the many attempts
to define the distinction has been wholly successful, it is probably therefore best
to leave the matt.f'r for judicial interpretation. Given tbe term$ of the treaty,
it may be expected that immunity will not be granted except in· verv clear cases 'of
activities of purely governmental character. ·
One difficulty is howe,·er posed by the Iranian treatv when one compares the
above-quoted provisions in article XI with article XV (2), which reads:
"Lands and buildings situated in the territories of either High Contracting
Party of which t-he other High Contracting Part\• is the legal or equitable owner
and which are used exclusively for gov~mmental purposes by that owner, shall
be exempt from taxation of every kind, national, state, provincia.l and municipal,
other than assessments le,·ied for services or local improvements by which the
premises are benefited."
Assume that the Iranian Go,·ernment establishes a Government. aviation
company which operates both comm~rcial and go,•ernmental services, i. e. combines
the functions of, let us sav, both P11.n American and Military Air Trnnsport
Service. The company is a Go,·ernment agency or instrumentality owned or
controlled by the Iranian Go\'ernmeut- within thP meaning of art.icle XI (4) of
t.he treaty with Iran. The compan1. does engage in commercial activities within
the United States. Under nrticle XI (4) its property, includin11: lands and builde
ings, is subject to taxation. But suppose one of these butldinv, is used exclusively
for governmental purposes within the meaning of artich• XV (2); it would then,
under that article be immune from taxation. The difficulty is that article XI
is fundamentally based on Ol\'oership and the nature of the o""ner's activities,
while article XV (2) is oosed on the use to which the property is devoted. The
conflict bet~·een the two provisions is accentuated b,• the fact that article XV
refers to situations in which the state is either the legal or equitable owner, which
would seem to embrace various types of arrangements used for Government
a.gencies and instrumentalities whether or not utilizing the corporate form.
In future treaties this inconsistency should be eliminated br drafting which
would make it clear that the principle of article XI ( 4) pre,·ails over that of article
XV (2). In other words, if the agency or instrumentality does engage in business,
all its property is subject to taxation even though some of it be used for strictly
governmental purposes. It would also be advisable in redrafting the text of
article XV (2) and article XI (4), to make clear whether property which under
the former article is immune from taxation, is also immune from uccution.
Both treaties (Haiti art. XVII, and Iran, art. XI (1) (2)) also contain provisions
which are desi1med to insure, so far as can be. competitive equality between the
private enterprises owned by nationals or companies of one country, on the one
hand, and government-owned or controlled enterprises of the host count,ry, on the
other. The committee approves the purp06e of these provisions, which follow
the model draft treaty. It does suggest that the phrase "in accordance with
customary business practice" which qualifies the promise of an "adequate opportunity
to compete for participation in purchases and sales by or to government
controlled enterprises or monopolies" be eliminated. because, in many areas of the
world, such practices may well have the effect, if they are not deJiberately so designed,
of discriminating against foreign enterprises. It is also noted that.
in the case of Iran, there i8 no guarantee of competitive equality in the award of
c•oncessions.
The Iranian treaty also contains a paragraph (art. XI (3)) not found i~ the
Haitian treaty, based on art. XVIII (2) of the model draft treaty, wl}ich pledges
in quite general terms, and subject to several qualifications, conditions ..o. f competitive
equality between publicly owned or controlled trading or manufacturing
enterprises, of the host countr7, and privately owned and controlled enterprises
of nationals and companies o the other country. It is doubtful how far this
protection applies to loca.lly organized companies controlled by a foreign investor.
8 . PrOflUiona tDith r~ard to the e:urcise of liberal prof eaaiona
While it is recognized that it is within a country's jurisdiction to enact rules-and
ugulations for the general admission to liberal .pr.ofessions, it should also be noted
that a too-restrictive exercise of a country's prerogative in thi& fi.eld may impede
the flow of international trade and investments.
Closer attention should be ,dven to the drafting of pertinent clauses in· the
treaties, i. .e. article VIII {l) of the treaty with Haiti, and article IV (4) last sen-
Annex 88
COMMERCIAL TREATIES 17
tence of the treaty with Iran. The committee observes, as to the main inadequacies
of the language of the resr,ective clauses, the following:
It is too narrow to mention only 'accountants and other technical experts,"
as is the case in the treaty with Haiti. To be sure, the treaty with Iran lists some
professions such as attorneys, but also omits architects, en~ineers, or scientists.
An atomic physicist, a geolo~ist, or an agricultural specialist may oppose being
classified as "technical expert. '
The duration for which such experts are retained does not seem to be a controlling
factor. There is no reason why an American company may not engage permanently
overseas auditors for its overseas operations. Therefore the criterion
in article VII of the Haiti treaty, that the employment shall be on a temporary
basis, is not satisfactory.
Whether the expert is engaged to make reports or for some other purpose, does
not appear to be so important. He would not be engaged unless his work were
intended to benefit the operations of the persons by whom be was retained. It
is important, however, that the foreign expert who ls not admitted to practice in
the foreign country emphasizes this fact and the restrictions to which he is subj~ct just as the American counsellor at law in Paris will clearly indicate "not admittea1
to the bar of Paris."
The language in the Haiti treaty (identical in this respect with that of article
VIII of the treaty with West Germany), is too confined in that the expert must be
retained either "by nationals and companies in connection with the planning and
operation of their enterprises, a.nd enterprises in ~,.hieh they ha.ve a. fina.neiaJ
interest, within such territories." More often than not such experts will be engaged
for the purpose of reporting on the possible acquisltiou of a future financial
interest in such territory.
The committee, in summary, believes that a treaty clause permitting the employment
of experts of one's own choice and nationality regardless of qualifications
in such foreign country is highlr desirable and important, but that its precise
wording merits careful consideration.
Willis L. M. Reese, Chairman; Paul 0. Bleecker; Peter Borie; Martin
Domke; Phanor J. Eder; Austin T. Foster; Philip C. Jessup;
Doris Jonas; Austin A. Laber; Andre Maximov; Charles P. Noyes;
F. E. Oppenheimer; Albert J. Parreno; Howard R. Patch, Jr.;
Otto C. Sommerich; Robert F. Weiasenstein.
QUESTION~ RAISED 11Y NEw YoaJC CITY BAR Assoc1ATION MEMORANDUM ON
THE TREATY WITH IRAN
1. The Bar ~ociation of the City of New York, in the attached comments
on the Ha.itia.n and Iranian treaties (the Haitian treaty is not being considered),
points out the desirability of including in future treaties provisions for the repicrocal
rendering of judicial assistance, for instance, in the taking of depositions.
Would you give your views on this proposal?
2. The bar association favors a provision concerning the enforceability of
arbitration awards along the lines contained in the German treaty (art. VI (2)).
The provisions in the three treaties now being considered are more general,
except for the Dutoh treaty which contains a different provision relating to
State cow-ts. Why was it not feaeible to use the German model provision in
this r~ard?
3. The bar association points out that the consular provisions of the Iranian
treaty are not quite as extensive as recent consular conventions and suggests
that a protocol be negotiated to cover the J?Oint of requiring the Government to
notify the counsel whenever one of his nationals is detained. Would you comment
on this suggestion?
4. The bar aasooiation points out that the Iranian treaty contains a provision
to the effect that companies of one nation, are not, in the territory of the other
country to be subject to taxes on any income or capital not ~ttributable to operations
or investments within such territory. The question pf when earnings are
attributable to one country rather. than another is often thf'J e%act poin.t at issue
in any particular controverey. "Would some form of agreed arbitration of such
a question be an acceptable answer to the .problem T" the association asks.
5. The bar uaooiation makes a number of auggeatlons concerning the provisions
on ownerahip of property in th& !Jianian treaty. It considere the lack of guarantee
of the right to eita&lfah an enterpriae a serious defect. There is no provision to
prot.ect the right& of companlee organlaed under local Jawa, in which natioDS or
Annex 88
18 COMMERCIAL TREATIES
companies of the other country have a controlling interest and this, the bar
association feels should be corrected in a protocol. There is no provision with
regard to the rights of employees of traders or investors to enter the country.
And finally, the association suggests that the words "property" and "taken"
should be defined in a supplemental protocol in accordance with their suggestion.
(Seep. 7.) What are your views on these comments and suggestions?
6. The association points out an alleged inconsistence between two provisions
of the Iranian treaty on state trading. One provision states that no government
enterprise in the nature of a business activity shall claim or enjoy tax immunity
not enjoyed by private enterprises. The other states that government lands and
buildings of one nation situated in the other and used for governmental ~urposes
are immune from taxes. The association avers that these two provisions can
work against each other and suggests · that in future treaties this in consistence
be eliminated by making clear that the first provision prevails over the second
one. It also suggests that the phrase "in accordance with customary business
practice" in art. XI (1) (2), which qualifies the promise of an "adequate opportunity
to compete for participation m purchases and sales by or to government
controlled enterprises or monopolies" be eliminated. What are your views on
these two suggestions?
7. With regard to the exercise of the liberal professions, the bar feels that it is
too narrow to mention only "attorneys, agentst accountants, and other technical
experts, executive personnel, interpreters ana other specialized employees of
their choice." ls it feasible to broaden this provision?
RESPONSE or TBE DEPARTMENT OJ' STATE TO TB!) QUESTIONS RAISED BY THE
BAR AssocIATION OF THE CITY oF NEW YoRJC
Generally, the Department finds the comments of the committee on foreign
law of the Bar Association of the city of New York to be constructive and cogent.
The officers immediately concerned with the negotiation of commercial treaties
have the various suggestions under study with a view to utilizing them insofar as
practicable in connection with future negotiations. Because of the necessity of
exercising extreme care in matters relating to treaty provisions, it is not possible
to give comprehensive and final answers to the above questions at the present
time. Brief answers follow for each of the questions however.
1. Judicial assistance is a subject with which the United States has had little
experience as far as regulation by treaty is concerned. It would appear to be
difficult to deal with it without encounterin~ problems in Federal-State relations.
Possibly the New York City B&r Association could propose specific provisions
adapted for use in bilateral treaties. •
2. The Department is in full agreement with the bar association's view that
the arbitration provision in the German treaty constitutes a desirable model for
treaties with the principal commercial states. That provision does not differ
greatly in essential substance from the provision in the Netherlands treaty. The
German model was before the Netherlands neg<>tiators, but they preferred the
form that appears in the Netherlands treaty. The provision in the Iran treaty
was drafted an a very simplified form, in keeping with the general style of that
treaty.
3. The consular proYisions were included in the treaty with Iran·for the reason
that it was not considered feasible a.t this time to negotiate a detailed consular
convention. Hence the provisions are less extensive tha.n those in regular consular
conventions. It was thought thatl. in view of the vast number of local jurisdictions
in the United States and of the aifficulty of keeping local officers informed
as to treaty provisions, it would be entirely proper to make it a responsibility of
the alien t.o request the authorities to notify his consul.
4. It is thought thn.t· the establishment of the general rule that companies
should not be subject to t&."'Ces on income or capital not attributable to operations
or investments within the territories of the taxing country is about all that's feasible
in a general treaty of the type of that with Iran. More deta.iled rules as to
the attribution of income, etc., are in the field of treaties for the avoidance of
double taxation. Any significant tax controversy arising between the United
States and Iran coul~,};owever, be adjudicated or otherwise dealt with under the
provisions of article A.A.I. · · "
5. It fa agreed that it would be desirable t.o have in the Iran treaty a guaranty
of the right to establish an enterprise, but ft was not obt&inable in this case for
reasons that have been indicated eJsewhere.··· We·tllink that the righta of companies
organbed under.the laws·of·one ~untr1.: but·controlled by nationals and
companies of the· other are protleot.ed: by ·articl(l IV . .paragraph 4 of the Iran treaty;
The business of such a company would be an •1enterprise which nationals and
Annex 88
CO~RCIAL TREATIES 19
companies of either high contracting party a.re permitted to establish or acquire"
within the meaning of that paragraph. The right of employees of tradera
or investors to enter the country is dealt with on a moet-favored-natio.n basis in
article II, pe.ragraph 1, · and article XX, yuagraph 4. That good definitions ol
"property' and "taken" would be helpfu is admitted, and consideration should
perhaps be given to developing them. In the light of experience, however, it ia.
aifficult to formulate a definition which would not have the effect of narrowing the
scope of the treaty standard sought.
6. Consideration will be given to clarifying in future treaties the provisions
relating to Government enterprises engaged in business activities. The reasons
for suggesting the elimtnation of "in accordance with cust.omary business practice'.'
from article XI, paragraph 1, are not fully understood. Without some such qualification
as the phrase establishes, "adequate opportunity" migbt be interpreted so
broadly that serious difficulties might be created for governmental agencies in this
country. The intent of the whole of this paragraph is to require t.o the fullest
extent practicable governments to follow the principles and practic,es of the
market place.
7. Considero.tion of a revision of the list of specialist personnel for which freedom
of employment is provided, as in article IV, paragraph 4 of the Iran treaty, could
well be undertaken. The itemization is only for illustrative purposes, however,
all classes of specialists being covered by the concluding class "specialized employees."
In any broadening of the provision, co.re would have to be exercised to avoid
conflict with the este.bli.shed policy of the Senate of preventing any overriding of
State laws restricting the practice of professions by aliens. ·
The CHAIRMAN. Senator Fulbright will take over the chair now,
as I must leave.
Senator SMITH. I have some questions here. I would like to ask of
Mr. Kalijarvi and have him answer, which the staff has prepared.
Senator FULBRIGHT. I would suggest you do ask them now, if yo~
ea.re to, as it will take but a. few minutes.
Sena.tor SMITH. Very well.
1\-Ir. Kalija.rvi, here are some general questions we a.re asking forth~
record. .
EFFECT ON DOMESTIC LEGISLATION
1. In the past, the committee has been concerned with questions
of the pra.ctice of professions, of copyright, and of social security.
Is there any provision in ~he three treaties of the type to which the
committee has attached reservations in the past?
Mr. KALIJARVI. The answer is no. On the professional and copy ..
right matters, they have been negotiated with the committee's considerations
or concern in mind, and there a.re no objectionable provi-·
sions that we know of in these agreements on those points.
Senator SMITH. Second. To what extent will provisions of these
treaties affect Federal or State laws?
Mr. KALUARVI. There will be a relationship, of course, but the
conflict of laws which ha.ve been concerning us in the past we think
has been reduced to a minimum in these agreements, and there is no
basic inconsistency between the agreements and Fed.era.I and State
la.ws. ·
THE SIMPLIFIED FORM OF TREATY
Senator SMITH. Three. At the time the Senate considered the
treaty of amity and economic relations with Ethiopia, the committee
was concerned ·lest ·the simple form of that treaty might become a
precedent for others. It was assumed that the form was specially
designed for Ethiopia. However, the Secretary ·of State's letter on
the Iran treaty states tha.t the· treaty reeemblea most nearly the
Ethiopian treaty. Is there a tendency t.oward usage of the less
specific form of commercial treaties?
Annex 88
20 COMMERCIAL TREATIES
Mr. KALIJAftVI. I think there has been a change in respect to the
approach to these problems, especially as concerns the underdeveloped
countries where the negotiating of the longer provisions, that is the
treaties of friendship, commerce and navigation, and consular e.rran~e,..
ments is extremely difficult, and there is under contemplation
negotiation with some countries that is quite similar, Senator, to
both the Ethiopian and Iranian treatie.9. ·
Senator SMITH. Theni we are moving on toward a simpler form
with the underdevelopect countries. •
Mr. KALIJARVI. That is right.
QUESTIONS ON THE IRAN TREATY
Senator SMITH. There are some special questions that I would like
to ask for the record.
Has Iran ratified the treaty?
Mr. KALJ.JARVI. No, it has not.
Senator SMITH. Two. The Secretary of State's letter states that
this treaty includes certain provisions normally found in consular
conventions. Is it intended to negotiate a consular convention at
a later date?
Mr. KALIJARVI. That is correct; a more detailed Consular Convention
might be negotiated at a later date. It is thought, however, that
the consular provision in this treaty will take care of our needs in
that respect in Iran for some time.
Mr. SMITH. Three. The letter also points out that the commitments
in article IV relate largely to the assurance of nondiscriminatory
treatment once business enterprises have been established and do not
deal with rights of entry and establishment.
Could you explain the significance of this more fully?
Mr. KALIJARVI. Well, there is a broader provjsion tha.t we seek to
get into our agreements, and under normal circumstances-well,
I shouldn't say "normal circumstances," but with most countries
we a.re able to provide for no screening of American enterprise as it
comes in. This is the best provision that we can get with a con.ntry
such as Iran, where we guarantee that the Americans, once they are
in, will not be discriminated ~a.inst.
The omission of entry provisions in this case caine about because
of the fea.r on the part of Iranian officials that to specify entry rights
in any trea.ty would facilitate economic penetration by neighboring
countries that would create a danger to na.tiona.l independence.
Senator SMITH. You testified about that a little bit earlier.
Mr. KAL11ARv1 . Yes.
Sena.tor SMITH. Now, four: Article II, paragraph 2 provides that
the nationals of one party in the territory of the other party shall
alsobe
permitted to engage in the practice of professions for whieh they haye q,u.e,lified
under the applicable legal provisions governing admission to professions.
Do those "applicable legal provisions'~ encompass Stat~Javr,a in the
United States?
Mr. LLUARVI. Yes; they do.
Senator 8111TH. So much for Iran.
Annex 88
COMMERCIAL TREATIES
QUESTIONS ON NICARAGUAN TREATY
Now, the next is in regard to the treaty with Nicaragua..
One. Has Nicaragua. ratified this treaty?
21
Mr KALIJARVI. No. ..,
Senator SMITH. Two. Is the social security and workmen's compensation
provision (a.rt. IV) consistent with past practice in these
tree.ties?
Mr. KALI.JARVI. Yes, I am informed they are.
Senato.r $MITH. Three. Article VI, paragraph 4, limits the right
to expropritite property topublic
purpoees and reasons of social utility as defined by law.
What does "social utility" mean?
Mr. KALIJARVI. May I turn to Mr. Setser on that point, please?
Mr. SETSER. Senator, it has been customary in all of these treaties
to specify in similar language that expropriation is only for public
purposes, and the intent was to specify in this one that there should
be a, public object in any ta.king of private property.
Sena.tor SMITH. Well, this says "public purposes and reasons of
social utility."
Mr. SETSER. It was simply an additional suggestion in this case by
Nicaraguan authorities. We don't think they had any other object
than simply to express in their own language the idea of expropriation
for public purpose.
Sena.tor. MANSFIELD. Mr. Chairman, might I suggest to the Senator
from ~~W Jersey that the State Department be requested to spell
out what they mean by "social utility" and give us the definition of
that term.
Senator SMITH. That is what the question was, "What does 'social
utility' mean?"
Your sugg_estion is that they be asked to spell that out.
Senator MANSFIELD. Yes, they could supply a memorandum O.il it.
Senator FULBRIGHT. For incorporation in the record, do that,
please.
(The informa.tion referred to is as follows:)
T-am TAKING OP' PROPERTY FOR PUBLIC PURPOSES
The. introduction of the phrase "and reasons of social utility aa detined by la,w.''
in the clause relating to expropriation in a.rticle VI1 paragrai:,>h 4, of the Nicaragua
treaty came about in the following manner. This treaty 18 based upon & draft
supelled by the Department of State, and· we used, of course, oonc~ts and terms
familiar to us. Some of our terms and concepts may not be familiar to offlcial8
in other countries, and they sometimes like to substitute for our terms, language
that more nearly corresponds to that used in their own country. In this case,
the Nicaraguan negotiator proposed the additional phrase quoted abov41 presumably
because it would ma.ke the la~age of the treaty clause very mmilar
to that in the property prot.ecti~n P!OVJSiou (art, ~) of the Nicaraguan Constitution.
We believe there is no SigDificant difference between the phrase. "for a
public purpose" as understood in this country and the fhraae "for reasons of
social utility" as understood in Nicaragua. In both ~e United States and
N~ the right of eminent domain extends to any propertiy the taking. of
which· tq.e. COMtitutioIJ.8] authorities find to be neceesary in the publio interest.
The aigntfioant part of the provision in question is, of course, that part whieli
prescribes that property may not be taken, whatever the purpose, without prompt
and just compensation.
Senator SKITH. Four. Is the reservation of rights in a.rticle VII,
paragraph 2, e. customary cla.use in these treaties? ·
Annex 88
22 COMMERCIAL TREATIES
Mr. SETSER. The question is-is the list ·of exceptions customary?
Senator SMITH. The reservation of rights in article VII.
Mr. SETSER. It is considered necess&.r'1- to assure that tliere will be
no conflict in the treaties with the Federal and State laws in a number
of respects.
· Senator SMITH. And, number five: Does article XX, pled~i ·1g the
parties to cooperate in the interchange of technical and scientific
knowledge with a view to improv~ living standards, commit the
United States to do anyth~ in addition to what it does now? Would
it, in the absence of a technical assistance program?
Mr. LLIJARVI. I would think not.
Senator SMITH. Six. Are artiicles XI, par~r~~f' and-article XIV,
paragraph 6 (c) , designed alo~ with article , para.gra.ph 4, to
facilitate Nicaraguan participation in a Centre.I American economic
union?
Mr. lu.LIJARVI. Would you repeat those? .
Senator SMITH. The question is: Are these articles designed to facilitate
Nicaragua.a. participation in a Central American economic union?
Mr. KALIJARVI. Yes.
Senator SMITH. That is their purpose?
Mr. KALIJARVI. That is right.
Senator SMITH. Seven. Does the provision defining "coffee," article
XVI (3), affect United States domestic laws?
Mr. KALUARVI. This is designed to conform to our law.
Senator SMITH. Designed to conform with our law?
Mr. KALIJARVI. Yes. .
Senator SMITH. Thank you. That is all for Nicaragua.
QUESTION ON THE NETHERLANDS TREA,TY
Now, Mr. Chairman, I have questions on the Netherlands treaty.
Number one: Has the Netherlands ratified this treaty?
Mr. KAL1JARVI. No. . .
· Senator SMITH. Two. The exchange of notes, in effect, provides
that at such time as an agreement of European ecohomic unity is
reached, the Netherlands need not accord national or mo•st-favorednation
treatment to the Vnited States and its nationals. .Are we, in
effect, thereby, providing special. inducements to the Netherlands to
assist· in the development of closer European economic unity at theexpense
of benefits to United States citizens?
. Mr. KALuARVI. May I ask Mr. Setser to answer that question,
please?
· Mr. SETSER. The principal uurpose of the exchange of notes is to
permit or to relieve the Netherlands Government from a.ccording the
United States most-favored-nation treatment principally in·. trade
matters, when such privileges would c~eate difficulties for a program
of Ew-opean integration but_ it provides_ also that the United States
might withdraw similarly from the Netherlands equivalent concessions,
so that.it is reciprocal in its terms. It is designed, of course1 ro
facilitate Netherlands pa.rticipation in European economic org~izatfone.
· Senator SKITB. We are l>roteeted by being per~t~ed to. withdra~.
s4ni}ar _privileges jf they withdraw tl,iem? .
Mr. SE'l'SltB. That is right. .
■
Annex 88
COMMiRCIAL TRF.lA'l'IES
STATUS OF RATIFICATIONS
Senator FULBRIGHT. Would the Senator yield for a question?
Senator SMITH. Yes.
23
Senator FULBRIGHT. Why must we always ratify first? In all
three cases they are waiting on us. Why don't they ratify them?
Mr. KALIJARVl. I don't think we must necessarily ratify first~ Mr.
Cha.irman.
Senator FULBRIGHT. That seems to be the pattern. Why don't
they go a.head or, put it the other way, why must we ratify first?
Mr. SETSER. In the case of I~an, a bill for approval of the treaty is
before the Iranian Senate. It is still in session. It has not been
acted upon yet. There was no indication that they are awaiting
action by the United States Senate.
The Netherlands treaty has been laid before the States General,
but th:ey have not proceeded to action on it ye~, but again we do not
think there was any desire to delay, awaiting action by the United
States.
Senator SMITH, That is the situation, though, as the chairman
points out, in all three treaties. You said they haven't acted, we are
exp~ted to act first.
Mr. KALIJARVI. May I make this observation here: I don't know
of any concerted or intentional delay until we shAU have ratified.
We are confronted by the desire to get these argeements approved
before the Congress adjourns.
Senator SMITH. Did we initiate most of these agreements?
Mr. K.ALIJARVI. Yes, most of these agreements we initiated.
Senator SMITH. It is to our interest then .to get them approved and
to get the other countries to approve them also?
Mr. KALIJARVI. That is right.
OTHER PROVISIONS OF NICARAGUAN TREATY
Senator SMITH. The third question: The provisions concerning the
rights to hold real property in this treaty are broader a.nd more detailed
than any since 1951. They provide that nationals of either
party may acquire real property m the other, subject, however, to
State and Territorial laws. If a State or temtory accords a Dutch
national or company less favorable treatment than. its own residents
in this matter, ce.n the Netherlands accord a resident-of that State
less fa.vora.ble treatment in the Netherlands? Has this formerly
been used? Is it expected to be used in future treaties of this nature?
Mr. KALI.JARVI. I am informed that it goes back before the war,
Senator.
Senator 8111TH. You mean that this is an old provision?
Mr. KALIJARVI. An old provision.
Sena.tor SMITH. You mean before the war, in a Netherle.nds treaty,
it.doesn't apply to others, this is a Netherle.nds treaty? ·
Mr. KALIJABVI. We have had it in other treaties-not with thtr
Netherla.nds. ·A :provision somewhat similar to it was included in a.
treaty with Siam in 1937, a.nd it is a provision we incorporate whenever
we can.
Senator SK!'rs. The fourth question: The broadened provision conce~
commercial arbitration provides tha.t a.wards made thereunder
· shall De entitled in any court in a.ny State of the United States to the
same measure of recognition and enforcement as awards rendered in
Annex 88
24 COMMERCIAL TREATIES
other States of the United States. Will this provision require any
change in any State laws?
Mr. KALI.JARVI. I would think not.
Senator SMITH. This is No. 5: has the restrictive business practice
provision been omitt.ed in this treaty?
M-r-.- lu.LI.JARVI. May I ask Mr. Setser to answer that, with respect
to business practices and provisions.
1'1r. SETSER. The Net.herlands Government found those provisions
unacceptable. because their attit.ude toward the formation of cartels
and the control of restrictive business practices is different from ours,
and they did not wish to c.ommit, themselves on the subject.
Senator SMITH. You don't.·~eorisid~r t..hat a matter of any serious
,concern?
Mr. SETSER. We would like to obtain accept,ance of the same policies
that "·e follow in this count,ry, but we cannot always obtain it, and
in the case of the Netherlands, that. is one of the cases where we.could
not obtain it.
Senfttor SMITH. :\fr. Chairman, tha.t completes the series of questions
that the staff thought we ought to have replies t-0, in the record.
Senator FULBRIGHT. Any further questions?
(No response.)
Thank you very much. Mr. Kalijarvi.
Do you have anything further to A<ld?
Mr. KALIJARVI. No.
Mr. MARCY. Senator. this should go in t.he re<-or<l along wit.h the
action of the committee on these treaties.
Senator FULBRIGHT: Thif:v le~r from• the American Arbitration
Association shall be made a part of the record.
(Letter from American Arbitration Association to t.he chairman of
the Committee on Foreign Relations under date of June 22, 1956.
is as follows:)
Hon .. WALTZB F. GEORGE,
AMERICAN ARBITRATION ASSOCIATION,
New. York, N. Y., J11.tu ft, 1956.
Chairman, Committu Ot\ F<1r'ti4n ~.
United States Senate,
W cuhington, D. C.
MY DEAll SENATOR: The Commit.tee on Foreign Relations will soon consider
the treaties of friendship, con;imer~z-· and n&viga_tion. between the United States
and Haiti of March 3, 1955,.-and w~n tli'e-'Nethefla.nds of March 27, 1956.
These treaties embody, as a nuraber ·of-.other COQlmercill,l treaties. have,. a provision
which will facilitate the reciprocal enforcement of arbitration agreements
and of arbitl'al awards in trade controversies between nationals of the respective
countries.
The State Department is to be highly commended for its contribntion to the
advancement and use of trade arbitration, by embodying the important provision
in bilateral. commercial treaties. We also note that when the enforcement of
foreign awards against Americans is being sought in any State of the Union, the
law prevailing in the respective State has to be observed. The a.pplication of
State arbitration laws is thereby salegμarded.
This association ba.s been dealing with foreign-trade arbitration, in the interest
-of the American business community for more than 30 years. We sincerely
beli~ve that the provision on recip~ enforcement of arbitration agreements
and awa.t:ds protects American Qitert!Bts in the settlement of foreign-trade disp~
t.es. We therefore recommend a favorable consideration of the treaties with
Haiti and the Netherlands.
V ery-ainoerely youra,
SYLVAN GoTSBAL, Preaident.
(Whereupon, ,the eom.xmttiee proceeded to the consider&tioo of other I
matt.ere.) . . r • •
Annex 88
Annex 89
COMMERCIAL .TREATIES
HEARING
liEl.<'ORE A
SUllCO)l)IITTEE OF TIIE
COlI!Il'f1,_E~~ ON .FORJ➔~IGN R}JLA'l,IONS
UNITED STATES SENATE
EIGHTY-SECOND CONGRESS
SECO~D SESSION
ON
TR'flATIES OF PRIENDSHIP, CO:\IMERCI◄;, AND NAVIGATION
BE'l'\\'NE~ 'l'Hl.-: CNI'l'El> S'£.ATE~ ANI> COLOMBIA, ISRAEL,
'ETHIOPIA, l'I'ALY, Dl•~N:\IARK, AND GRJ<::ECI~
EXI•;cuTIYBS I\[ AND R, EIGll'.rY-SECOND CONGRESS, FIRST
SESSION, AND EXECUTIVES F, H, I. AND J, EIGH'l'Y-SECOND
CONGHRSS, s1,:co:'IID SESSION
21MO
MAYO, 1052
J)rlnted for the use of the Committee on Foreign Relations
UNITED STATBB
GOVERNMENT PRINTING Ol'J'lCB
WASHINGTON : lOGI
•·
Annex 89
CO:\l!\IITTF.E ON FOREIG~ UELATIOXS
TOM CONNALLY, Tc1R.i, C'flolrman
WALTF:R F. GEORGE, Grorgia ALEXANDF.R WILJ.:Y, Wisconsin
TlIF.ODORE 1-'RANCIS ORF.EN, Rhode Island H. ALEXAN"OER SMlTII, New Jerscr
BRIEN McMAHON, Conn<'Ctlcut BOURKE D. IIICKENLOOPEU, Iowa
J. W. FUL'BRIGUT, Arkansa., IIEN"RY CABOT LODGE, JR., ;'.1.fossach1iscu-1
JOHN J. SPARKMAN, Alabama CHARLES W. TOBEY, Now Ul\mpshirc
GUY M. OILLE'l'TE, Iowa OWEN' DREWSTEH, Maino
l<'RAS'C1' o. Wn.coit, Chit/ of Staff
CARL MARCY', Staff Auo<'ialt
C. C. O'DAY', Cieri..
MORZLJ,A R. llANSIN, A11i8tant Citric
:'<.AS-Cl" IIANSCRIU.S', AuWant Citric
8P.ECJAL St1BCOMMI'l'TEE ON C'OMMERCIAL TREATIES AXD CONSULAR
CoNVESTio:-is
Jon:,; J. SPARK~IA?I:, Alab1,ma, Chairman
1. w. FULBRlOHT, Arkansas BOUHKF. n. HICKE'.'H~oorER, Iow:l
II
Annex 89
COMMERCIAL TREA11IES -----
FRIDA'!', MAY 9, 1962
{TN(TF.D RT.\TES 8EX.\TE,
CoM!\IITTl-:1': ON }'unEIGX I{ EL.\ TIOXS,
SPBCOl\lMIT1'1-:1-; ox Co~un:nc1.-\L TnEATIES
AXD Coxst·L.\H Coxv1-:NT1oxs,
lJ~asldnuton, D. 0.
The subeoinmiU.N~ nwt, pursuant to not ief', in the eonunittrc
hearing 1·001n, United States Cnpitol, at l O n. n1., SN1ntor John
Spnrkman (ehairnrn.n of the subconunittee) prPsitling.
Prf'scnt: S<)Juttors Spnrkman (C'lrnirnrnn of the subc01nmittcc) and
HickenlooJ)(lr.
Srnntor SPARKMAN". LC't the ronuuittcc co1ne to or<lcr, pleas<',
ThC' nwmlwrs of thh:: subronunit.tf'<', in nddition to myself, are
Srnntor }i'ulbl'ight, who is out of town, and Senn.tor Hit·ke'nlooper.
The chnirmnn of tho Conunit-tnc on Foreign RC'lntions. Senator
C'onnnlly, hns asked t.his subcommittee to considPr six tr('fi ties of friendship.
ronunC'f'<'<' and navi~ntion, now pC'nding IH'fore the rommittN•.
Tlw t rt.•n ties IH.h\. bnfore us nrt> the followin~:
Ext•cutivc ~I (82d Cong., 1st scss.), treaty of friendship, conuncrce,
and navigation with Colombia;
Exceutivc H. (82d Con~., 1st scss.), tr<'nty of friendship, co1nmerce,
and nnvigution with Israel;
Exccut.ivc }"' {82d Cong., 2d sess.), t,rcuty of amity and economic
rclntions with Ethiopia);
Execut.ivc II (82d Cong., 2d scss.), agrcerncnt supplementing treaty
of friendship, comnwrce, and navigation with Italy;
}~xccutive I (82d Cong., 2d scss.), t.renty of friendship, commerce,
and iin.vi~ation with Denmark; and
Executive J (82d Con~., 2d sess.), treuty of friendship, conunerce,
and nn. vigu tion wi t.h Grccct.•.
I propose, if it is agreeable to the subro1nn1ittco, to ask represent.ntives
of tho Dopartn1cnt of State first to direct thoir comn1onts to t.ho
six commercial treaties and then to the two consular conventions.
In r<•ccnt years t.ho Senate has givt\n its advice o.nd consC'nt to tr<•ati<•s
of fri(.'lldship, c01nn1ercH, and navigation with Ituly in 1948, erugnny,
1949, and Ireland, 1950. Tlwsu postwar treaties are part of the progrutn
that t.lw Dt•pm•t.nwut of Stnto hns buon curying on on•1· n pl•riod
of ~years set•king to 1nod<•rnizc t,renties with a nu1nbcr of countries with
whon1 <'arliC'r t.r(•at.ies Wl'l'e 1wgotiatPd in t.lic nineteenth century.
'l'hc Dl•ptut.rnt•nt of Stut(•, in a recent publication, has dC'scribccl
tlwsl' t reatics asa
chartt'r of the Amerk.an citizen's rights when he is in a foreign country. They
assure him for the moRt. part the fundamental personal liberties t.hat la• c11joys in
this country. They pledge constant protection and security for his person and
r,roJ)<'rt,~·. They allow him to engage in the normal run of bu!-ines...; pursuits,
· whether by himself or in a.~sociation with oth<'fs, and in general assure to him the
privileges necessary to carry on his busilu".&" Affecth-cly.
1
Annex 89
2 COMMERCIAL TREATIES
The first witnC'ss this 1non1ing will be ~fr. lfo.rold Lindt.'r, ])pputv
Assistnnt Secn,tary of State fo1· Economie Atfnirs. ~Ir. Lindl'l', wiil
you prol'C'cd, plcnsc, sir, in your own wn.y?
STATEMENT OF HAROLD F. LINDER, DEPUTY ASSISTANT SECRE·
TARY OF STATE FOR ECONOMIC AFFAIRS, DEPARTMENT OF
STATE
~fr. L1.xo1-;n. Scnat..n r, the t.reatit'S with Colmnbia, Gr<'l'C(\, I~rn.C'l,
Rthiopin, nnd l>t•iunnrk which u.re now l>l'forc. you bring to nint• tho
umnhl'l' of t.I·t•aties of this gt•nernl type whiC.'h Juin~ het•n sigtll'(l on
lwhnlf of the l!nitt•tl States since the wnr. You will n•cnll t.hnt, the
first t\vo trealit1s of this Sl'l'il'S, tho~H with Chinn, nntl Itnlv, \\"l'l't' eonsidN
·t,tf hy the c01nn1itlt't' in 1948 n:.Hl thoi-:p with Grugun_r' nnd In1lu.nd
2 years lnt(•r, nud that tho~e trcntit'S Wt'l'<' appron•<l hy the Sennte.
Thr tr<•nty with Itnly has now lwc.\n supplcmt•ntl'd hy nn ngn'<.'IHl'llt,
~lso bt•fon\ you, dPsignrd to bring it nbr(.•nst of th•n.•loptn('nts rt'llt•ctcd
111 t ht• n10rc r l'C'C'n t ones.
Sll\lILARITII:.:S AND DIFFEUEN"CES BETWEE:,.. THI;; COM~t:EHCI.\L THB.\'l'll:.:S
"\Vhil<' tlwre are difft•l'<'llCt's among thC'so nine h't•aties, fundanwnt.•
ally t.Jwy aro alike. 'l'ho tt-·ent ics wit.Ii Cohunhin, Dl'nmnrk, nn<l
• Isnll'l follow dosp)y tho trl'nt.y with Uruguur.v, whi<•h in tm11 wns n.
rN:tntf'd form of the one with Itah·. Tht• tn,ntY with Grt'<'<'l' i~ nlso
bust•<l on the l ~ru~un.ry 111odel, but. with t'lrnngt•s in Hll\l h'rs of form.
'rhl' t,rl'aty with hthiopia is a specially adn.pt<'d vN-sion of tlw docun1t'nf.
1u•gotiat('d with t.ho othrr countri(s, inYolving considrrnhlo
abridgm(\nt of the usual provisions nnd the addition of nrt.irl{'S on
diplonuitic nnd consular offit't'l'S no longer usuul in this typo of tn•n.t.v.
All th{'S<' trl\~ties also rt'flect difTt.•reiwcs of varying extent in nrnt tci-s
of dC't,ail, both as a r{'sult of new or improvod provisions which hn.vo
heC'n developed frmn timl' to tin1c by Uie Depnrhnent of Stnk. with
counsel, of course, fron1 othC'r agencies and us a result of the tuljustments
t.hnt inevitably occur during the give-nnd-tako of nc.•gotiation.
'For ~xamplc, the bnsic ('Sto.blishnwnt provisions have been t'Xknsively
· restated in the trrn.t.y with Israd, additional provisions on
shipping are included iu the Greek treaty, and a provision rt.•~arding
the use of the tern1 "coffee" has been added to tho trcat,y with Co ..
lombia. But the general obje<•tivcs remnin the samo a.nil. with t.ho
departures that tnay be noted in the cnso of Ethipoia, all the treaties
go about realizing these objectives in essentially the samo way.
The more notable differences in the several treaties now before you,
both as among themselves and as compared with those pro~iously
approved by the Senate, are summarized in t.he report of tho S('cretary
of State attached in ench caso to tho President's n1cssngo of
t.ransmittal. I want to sub1nit now, for tho convenicnco of the corn•
tnitt-C'e, copies of n tabular comparison which indicates in grl'nt.cr
<lctail the similarities and differences of thcso inst.rumonts on a
provision-by-provision basis. In my opening ren1srks I shall not
at.tempt t.o repf\at or <'laborate on that information{ leaving the
discussion of details to be guided by the questions t 1c committee
might have. To assist in providing specific information about particu•
Annex 89
• I
COMMERCIAL TREATIES 3
lar provisions, I ha,·o with inc two offico.rs of tho Department who have
been inuncdintcly responsible for the technical aspects of these
trcat.ics.
I have these exhibits.
Sennt.or SPARKMA~. They will ho received 1111d made a part of the
conunitteo files.
(Thl' cxhibit.s ref<'rrcd to were received and mado a part of the
committee tile.)
Senator SPARKMA~. It was not your idea to have thoso printed in
the record, but simply to ho mndo exhibits?
~Ir. Lt~nEn. Tha.t' is correct.
CO~IMF.llCIAI, THEATY PltOGRAM
'l'he rommm·eial tr<1aty program is the oldi'st continuing economic
pro~rnrn of our Govrrntncnt. It dat<'s back to tho bo~inning of our
nnt1onal indopend<'nro and hns beon kl'pt up, with tninor interruptions,
c\·or since. As n. rulo tho first troat,y conf'lml<'d with a foreign
countrr hns tended to ho n t,r<'atv of friendship, comnwrce, and
navigntion, which set-s the framoworl< in which our economic relations
can bo ronductt~d on n stn.blo hnsis for tho future. The instrumt~nt
aims nt <'St,nhlishing t.110 rulr of lnw in our ovcr_vday r(i)ntions with
the country conr<'rncd, at protcct.ing our citizens n,nd t.lwir property
in t.lw foreign (•om1t.1T, nt protnoting our trn.d<', ond at, t·Nltt<"ing discriininnt.
ions agninst our shipping. An idQa o{ tho endurjng chnro.cter
of these tront.ios mn.y be l!Hincd from the fact thnt tho trca.t.y with
Donmurk now lwfon• ~-ou is to l'l'J>ln.cc n. tn~nt.y 1wgot.inted wit,h that
count.r_v in 1826 nnd the treaty with Colon1bia '"·ill take tho place of
one si~nN1 in 1~4H.
1\IODERN PHASES OF THE TREA'rY PROGUAM
,rhile this is a trn<lit ionnl progru1u wit.ha. history of over a. century
an<l a hn.If, its rnodern phaso dates from the years hnn1ediatcly nftcr
the First ""odd \\1'ar. At thnt time, a broadened and revitalized
program devoted part,iculnrly to the expansion of our foreign trade
was dovclor,cd under tho dircetion of Srcret-ary Charlrs Evans
lluglws. Negotiations were rarri('d on llXtern~ively unt,il the outbrcnk
of \Vorld \Var II, rcsult.ing in the conclusion of treaties with 12
countries.
While the cua·ront progrnn1 is a continuation of thnt instituted
under Secretary .Huglws, r<'mnining similnr in fundnnwntnls to what
has gone heforr, t.lw present program reflects new mnphnsis O<'cnsioncd
hy problNns whirh have tnkcn on inrrN1scd iinportnnco in recent,
years. Tho consular provisions have hron detached in the interest, of
1norc cffect.ive trent1ncnt of enrh subject n1nttcr. 'l'he forn1 and
content, of tho treaty hns been e:xpnnrled and rcvnnlped; nnd the pncc
of ne~ot.iation has ncreleratcd. In this connection it. n1av he noted
· that 1n the first 6 y<'nrs aft<'r the end of ,vorld \\ror I thi·cc treaties
were conchull'<l. In tlw snnw length of tint<' uftcr ,vorld '\Yar II uiuo
tl'onties have been signed, although the co1runit1nents contained in
.the cutTcnt treaties tend to be tnoro far-reaching, and tho gont'ral
international climate is less svmpaUrntic t.o the free-enterpriso pron1ises
on which these treaties are based. ~f oreover, as you will recognize,
Annex 89
4 COMMERCIAL TREATIES
governm{'nts all ovN· the world are constantly preoC'cupied with prrssing
un<l <'riti<'nl problrms-not exactly nn atmosphrrc conduC'i\'c to
nrgot in t ions of ng1'l't'IH{'Ilts of the typo now before you.
EMPHASIS O!li ENCOURAGING PRIVATE INVEST!\tBNT ABROAD Tnnot·ou
GREATER PROT.ECTION OF TH}~ 1x,·i,;sTOH
J>c,rhaps tht• most. importnnt rt'sp('ct. in which the curr('nt, tr<'atirs
<liffor from t-host> of the twrntit>s nnd thirtirs is in tho grr.ntly incrt'n~t•tl
f'rnphnsis on tlu• l'Heourn~l'llll'llt of Anwricnn privnt P inn•stnwnt
nbrond, hy tlu.• rxpnnsion nn<I ~tr(\ngtht•ning of provh,ions rl'lnting to
the protC'ction of tlw inYt'~tor nnd hh~ intt'rc.·st~. Thi~ dt>Yt'lopnwnt.,
of rom·~,·, rl'ill'l't s t lw l>l'Ol'(1ss of continuous ndj ust nwn t to t IH• twt'ds
and conditions of t lw l'rn in which nrgot int ion t nkt•s pltlCl', 'rho
Unit<'d RtntC's cnm<' out. of tlw wnr with a grl'ntly rxpnnd(•<l industrinl
machine nnd, nlonr nmong thr mnjor nntions of the world, with a
surplus of privatl' C'npitnl nYnilnhlr for <'Xport. To 01wo111·n~<" the
invrstmrnt of thi~ rnpitnl in th<' proclrn~tion of ~ooch, nnd S('l'\' i<'~s
nbrond wns n mnt t<'r of impo1·hu1<'e to our donwstie t•conomy nntl to
econo1uic <lrvl'lopnwnt. nnd world prospl'rity g<•nrrn.lly. .:\pnrt from
these purdy f'l'Onom ic· considt•rn t ion~, moreover, forC'ign itn-C'st rnC'nt
can strcngth<'n thP <·mmnon .d(•f l'HSl'' nnd promote the pre,·nlPn<·c of
idcns of indiviclunl lihPrh· nrnl indivitlunl initin.tivc 1mdcr lnw.
'fhc bnsic nim of t lw~(' n,,w 1n·ovigions hns lH' <'U to snf <'gmwd the
invrstor ngninst t ht' rnmbw,i1ws~ hnznrds of fordgn OJ><'rnt ion~, nn
objrct.ivt.\ rmphnsiietl hr thr (\mgrPss in the .·\C't for lnh'rnntionnl
Dovl'lopment. of 1950. Tht>l'<' i~ no inh'nt, lwrr, of com·s<", to shil'ld
the investo1· from t-lw rC'onomic risks to which V('nturc cnpitnl is ~ubjcct,
n mn.tkr which ennnot. nnd shouhl not he rl'nchecl through
1ntC'rnntionnl ngrt•<•n~l'Ht. llow<'\'<'r, th<'l'<' nro grnYc lwznrd~ of n,
nonhusinrss natur<' whi<'h hn,·e lw<'OIH('. rhm·nctl'ristic in cvt'l·st•n~
businrss operations since the wnr. Thl'Y nssumc 1nnny forms: l1wquitnblc
tnx statutes, ('onfisrnton· <'Xproprintion lnws, rigid employmrnt
controls, spcciul fnvors to Stnt("-OWHC'd husiJWSSt'S, drnstic C'Xdmngo
restrictions, nnd oth<'l' diseriminntion~ ngninst foreign cnpitnl. 'rnkcn
togethl'r, they can hC' n formidnhlc ohstnclt' lo t.hc Anwricnn inv<'stor,
for th<'y impnir from the Yl'lT stort thC' J>t'OSJH'('t of fuir {'Olll}>l'tition
and a rN1sonnhle profit. Y <'t • t hf'sC' hnzt\rds nrl\ not infrequ0n t ly l(,~nl
ro.thC'r than <'conomic, and tht\,. ('HU be chc('kNl to a suhstnntinl rxt<'nt
by treaties which rstnblish rnutunlly n~l'('('(l stmuln1·ds of trt•ntmrnt for
the citizens o.nd ('l\tC'rprisrs of ono country within the territorirs of
another.
RIGHTS OF CORPORATIONS R1':COG~IZF.D
Perhaps the most striking ndvancc of the post.war trrat.irs OYC'r
earlier treaties is tlw cogniznnrr taken of the wiclC'sprl'nd use of thn
corporate form of busin<'ElS orgnnizntion in present-day e<'onomic
affairs. In the treat.i.es ant(.\dat.inJ;t ,vorld War II American corpora ...
tions were specificnlly assured ,only gmull prot<•ction ngainst possible
discriminatory trcntment in foreign <'Onnt !'l<'S. In the postwar trrntirs,
however, corporations are accorded essentially tbe same t-ren.ty rights
as individuals in such vit.nl mnt.trNl ns t,h<' ri~ht to do hm~incss, taxation
on a. nondiscriminatory hnsis, t ht• nrquisition nnd rnjoyment of
real and personal proport,y, ·and t~w npplicntion of cx<'hango controls.
Annex 89
- l
COMMERCIAi, TREATIES 5
}~urlht'rmor<', the dtiz<'ns nnd corporations of one country nre given
substuntiul rights in comH•ct.ion with formin~ local suhsidinrirs under
th" rorporation laws of tho other <'ountt·y nnd ('Ontrollin~ and managing
the atrairs of s\U·h local compnni<'s. 'l'hc l(•gal renson inhibiting
a more f'•-:f('nt~;•:<' provi~ion for corporations in <'nrliPr trPnt ies (namely,
the f(\S('f\'l~f.; ri :Jats or t,he states l\S to the ndmis~ion of for<>ign corporatiot1Sj
ha.~. bet•n solv<>~i in tll<' t•urrt•nt treati<'s by a formula which
equat<."S thl' ah<'n <'orporntlon to other out-of-stnt.c <'Orpomt ions, rath<>r
than to tlu• donwsti<· <'Orpomtion, for purposes of Hnntionnl t.n•fitmcnt''
in the lTnit<'d Statc.•s.
rnouu~~lS .\IU~IXO Ol'T OF ST.\'rt-: OWNEHSHIP OF E('O'.';O'.\UC
ENTf:HPHISI·:S
..:\nothf'r signifi<·nnt. ft1nturc of the postwnr t.rent.i<'s of inf(lrC'st to tho
prospective invrstor is tho hody of provisions wliil'h denls with problems
auising from tlw stnt(' own('rship of cconon1ic t>lltC'rprisc. 'J'hero
is a growing temit.'ncy abroad for tho rPal con1pctitor of pl'ivnto business
t,o hl" tlw gov~rnmcnt it.sC'lf. 'l'he D~purt.mf'nt or Stnto hn.s,
accordingly. t'lHlf't\.vort'Cl to work out trent.y provisions designed to
reduce t-hc hnznrds of unfnir competition from. stttt(l-ronti•ollerl busiues..~
t's. 'l'hC'SP dtnHH'S 1>1·0,Tidc nssurn.n<'es of most-fnxored-nation
treatmrnt in the conduct of stntc .. trnding 01wrntions nnd in the
n.wnrding of goYl'rnmcnt contrnrts und concessions. They also l'Stal>lish
hrolldcne<l rule's govprning the rnrryinJ,! out of nntionnlization
progrnn1s. 'l'ht1rc o.r("' ns well twwly dl•,·eloprd J>ro,·isions, found first
1n t.he H)48 tr<'aty with ltuly, to nssure Anwricnn private husincss
concerns whieh must t~ompet.e with fon•i~n stutl"•-ownC'd concerns tho
samo economic fnvors thnt the lnttl•r recei\"(•d from their government,
and t-0 nssut'P t.lrn.t ~tnt.l'-OWtlf'<l <'onm1C'rcinl C'nterpriscs of the one
country t•ngn.g<.•d in Lusin<'ss in the "thcr c.·ountry will not be immune
from tnxntion, suit, or otht•r normal liabilities by reason of their public
chnra<'ter.
PHOVISIO~ OX EXCHANGE CONTROL
Another important devclopnrnnt in the post-,Vorld ,var 11 trcutics
is t.ho provision on exchange controls. 'l'he formulation of sueb a
provision posC's difficulties. )lany foreign countl'ics have o. genuine
need to protect their limitrd forciw1-exchange reserves in order to
insure that the bigh("'st-priority nel'<ls of their economy are met. At
the san1e time, there is n n~al net'd for liberal provisions on withdrawals
of eaniings that will afford n, proprr protcrtion to invl'stors. ,v c have
sought to achieve a fair bn.lnnoo between the t,wo factors.
OLDER PROVISIONS RJ.1VISED
In addition to tho inn.ovations int.ro<lu<:e<l to better the climate for
invt•stnwnt, snbst.ant.iu.l improvl'mcnt.s have been introduced in provisions
of lon~t•r standing. 'fho rules on cxproprint.ion of property
have been worked out in n1ore det,ail; more explicit assurances have
been formulated on basic personal freedoms and protection for the
individual; and clauses have been added on frct'do1n of c01un1unication
and of reporting. Provisions on comn10rcial arbitration and the
employment of technical personnel have been added; and traditional
Annex 89
6 COMMXRCIAL TUATli'JJ
provisions for nondiscriminatory treatment of shipping have been
au-engthened.
The continulng procose of revamping of the standard provisions
has benefited these treaties as a whole, both as to contol1t and Ian•
guage. What we hope constantly to achieve is stronger articles,
fewer exceptions and, above all, a document which ctln give the
American citizen who goes abroad, whether for business, pleasure,
livelihood, or.study, a firm and clear body of rights and privileges.
• I
MUTUALITY OF RIGHTS ACCORDED BY TIU) TREATIES
So .far I havo spoken mainly abput the ri~hte these treaties assure
and the protection they givo to American citizens arid businesses· in
foreign countries. However, these treaties are not one-sided. They
are dra.wn up in mutual terms, in keeping with their character as
freely · negotiated instruments between friendly sovereign equals.
Rights e.ssured to Americans in fore~n countries are assur,ed in
equivalent measure to foreigners in tlus country. In undertaking
treaty commitments tho.t would formally confirm to foreigners a
substantial bodr of rights in the United States, the Department of
State has exorcised great care to· frame provisions that would ho in ,
conformity with Federal law. The exception is that article VII of
the supplementary agreement, with Italy provides for the development
of arrangements not provided for by existi!ig Federal statute
regard~ totalization of social-security benefits. Furtbormore,
where tlie subject matter covers fields in which the States have a
paramount interest, such as the formation a,nd regulation of corporations
and the ownership of proporty, the treaty provisions have been
worked out, with the eame careful regard for the States' prerogatives
and policies that has traditionally characterized agreements of this
type. • LIMIT.A.TION8 AND OBJECTIVES OP THE TREATU!l8
These docume~t& are concerned primarily wi\1) legal conditions and
with the effect such conditions may have on econornic activities
carried on across international boundaries. While they: are compre•
hensive documents, they are not able to remove all legal impedimenta
to investment, owing both to the inherent nature of sucb a
ireaty and the complexity of present-day economic affairs. While·
these treaties are concerned with everyday matters, the,: ar-0 not
exclusively economic in nature or purpose; they are also, and perhaps ·
above . ill, treaties of friendship. 'fheir objoctives are the normal
objectives of friendship between nations: to protect the foreigner, to
maintain good order in everyday aff'airs, to encourage mutually beneficial
relations, to stre~then tho rule of law in the dealings of one
nation with another. They aro practical expressions of good faith
and good neighborliness as much as they are legal con tracts. Their
wol'tli reats ae much on their equity and reasonableness .as on the
number-and scope of the privil~es they specify; and their spirit,
which goes beyond the limits p.nd wording of the treati88 themselves,
ia in e'fery way ae important a• the letter of the undertakings they
aotuall:r make. · · · · · · · • : · · 1 • · · · · • • .
· The· -Department of State for many reagons r~rde theae treaties
&a an important element in promoting our national interests and build-·
Annex 89
COMMERCIAL TRWA'rlE8 7
ing a stronger economy-within the free world through the traditional
American mean's of private enterprise; and it is most gratified that
your committee ie fuiding time from a very crowded calendar to give
them its study and attent,ion.
Thank you, Mr. Chairman.
Senator SPARKMAN. Thank you, Mr. Linder.
ENCOUUAOEMENT OF PRIVATE INVESTMENT
· Now lot me ask you a few questions ·pertaining to this. You are
familiar with the provision in the proposed Mutual Security Act "Of
1952, written in by the House in the following language-or, rather,
reported ?ut by the House COll!JJlittoe; t!!~ House has not acted on it
yet (readmg): , .. / .--:-- . ·-·;~. ..___ _
The Department of fttafe shall accelerate a program of negotfatf ng eommercfal
and tax treaties or ot)i1)r arrangement.a where more suf table ol'-~xpeditloue, which
shall include provfsidns to encourage and.facilitate the flow of privato lnvestmont
to countries part~patJng under this Act\ · --... . \_
Are these pi-oposed treati~s 'which we hav; before us no~esigned
to accomplijib tbi_s irD6so? I · ✓'
Mr. L1Nt,li.m. I t · k witho1tt 9ue~tion; Mr. CliairmQnt t ey provide
a clqnate in w 'eh private- investment cap flow. Tney\ do not,
guaranteq private investment/but 1 think it is fair to say that without
such tre~ties certain impeditq(1lts iJxist which would retard tlie flow
of investfnenta, and. to tfiat ~~1:1,t,J _think they stimulate them.\
Sena~ SPAR Kif AN;, yo~ Ith~ th~y-represent~a--etep forward?
Mr. L NDER. Very deflndely. - 1 I J , / 1
Senato SPARKM~N. Wh.t .. i8 the b,ect ! yille unconditional/ moetfa.
vored-nation clau,es in these trea.~ies? / ( ·, -........ /
.\ \ , ,, •. ./ \ I
· MosT-i-ivonEn .. NATtoN ct.AUBES··AND "~AT10NAt/TREATMiJN'l'"
\_ -·· \ \ ,, /
Mr. L1N0'0R: Well, I have · referred to both/ most-fa.voted-nation
clauses and I --~ave also referred to tJie expl'ession "na.tional treat,.
ment." The m'Qst-favored-nation cl&uso guarantees to us that we
shall receive equivalent treatment to any treatment.,ccorded to an_y
other nation. "Natlt>n~l treatment" insures th,-t, our own national&
or cQrporations will rece1ve-tr~atment equa} .to·the treatment accorded
to the nationals of the country-with which wo have the treaty.
Senator SPARKMAN. That is, their nationals in this country?
Mr. LINDER, No; their nationals in their own country.
Senator SPARKMAN. I see; so as to make uniform national treatmQlt.
Mr. LINDER. That is correct.
. Senator SPARKMAN. Let me ask you, do some of the trea.ties contain
the most--fa.vorcd-na.tion clause and others contain the national-treatr
ment clause? .
Mr. LINDER. I think it is fair to say that all treatiea contain both.
The~ ~re time& when th~ moat-favored-nation clause is more important,
than the nationa.l-treatme11t clause, because the ct>untry with
whom we h&'Ve the treaty tna.y hive accorded rights to other forelgnel'8
which· are better than the rights they hav~ accorded to their own
nationals. On the other han<I, there are timea when the national•
treatment clause is more important, because right.a accorded to the
nationals of that country may not have been accorded thus Car to ELny
llMo-11 I
Annex 89
8 COMMJ<.;RCIAL 'l'UEA1'1ES
other foroign~r ; and, thcrofore, wo strive to g"t in thnt case nutioual
trcat,tnon t.
Soun.tor SPAHKMAN, Ancl you hnvo workt,d in th~Ho tron.till~ to gt,t
tho mHt fnvort•tl po~it.ion fm· our nntionnh~'l
~-11'. L1Nl)J.:1t. \'lt, luwt1, ~ir.
PH.O'l'}!C'l'ION AOAIN~'l' NA'l'IONAl,IZA'l'ION
Sm1ntor Sl'AllKMAN. l>o tlll'SC' trN\tit\s ~ivt, AnwricnnH nu,• prot,t•t•t.ion
in tlw ('U~o of nut.ionnliintion of pro1wrtit•t:J atft•t\tt,cl with Anwrit·nn
int,(•l'(•Hl '!
Mt·. l,1ND1m. I t.hink th('Y ~ivt., n grt,nt tlt1nl of prot.uction, Mr.
Chairmnn. Tim bnsic rulo, or ('OtlrRC, iR that if tlwro is to bu l\t\t,ionn.1-
izution-·~-nnd wo do not f,•d t.lutt.- \\'n t•n.n 1w~ot.int ... n t.rc.•n t,.v which woulcl
dt'UY anothor go\'t•rnmrnt t.lw ri~ht, to rn1tiounlizP \>ro1wrt.,· ---·t.lwrn
rnuYt bo f 01· tho Anwricnn in t.t•1·l1Ht prompt, j uHt,, 1u1< l'ff t•ctt v,, ,·omponsnt.
ion.
In auldit.ion to thn.t, t.)wro 1m11-1t. Im nntimml t.rt•nt,mt'nt or m0Rtfn.
vored"1mt.ion t rt•ntnll'nt,, whiduwtll' iN tho h,~t ttir from om· point of
vfow. In otlwr worc1~, tllt'y ,·nm10t. untionnli1.t~ u~ wlwn tht•)' ,lo not
uu.tionnfom otll('l' industl'ic.•8 t'HJ.tU.~t•d, m· of.lwa· IJuHim•~~t•s m,~n~t•cl, in
tlw sruno tv1w of bU8lllt'H~. Th,•v t!an't, pick UR out. Ho thut w,, IH'como
<liHcrimiJu\tC'cl 01,tnim~t. •
'l'hcso Mtttndurds of n.a goocl t.r(in.t.numt OR t lwir own Jul.tioJul.l~ ~(\t,, or
as good t1·t•atuwnt ns t.lw nntionnl of n.n,v ot.llt'r c·otmt rr g,,t,R, au·,• not
enough. In mlclition to thnt,, wt, ~o ha\('.k to our hnRic th,ng: 'fhu.t. t,llt'rn
must hl, full <·ompt•usnt.ion, mul t.hnt it must bn prompt mul ju~t. ontl
cffcctivt', and that it mu~t also contain proviRions which will pormit t.lrn
convl'rsiou of t.hn.t compP11snt.ion from a loc•nl currN1cy hnck into
dollars; nnd, fm·t.lwr, in mltlit.ion t.o thnt., Wt' hnv" takt•n tlw poHition·I
think 1no~t cffoctivf'lr- t.hnt co11ntrit1N that propmw J1t\f.l01H\.lizat.ion
nmst hnvo plmmt.1d tlw 'thin~ ~Hflit•it•ntl_v RO t lrnt t.lwy nro nhfo to mout
tlw conditions of our tl·t1 n.t i<'~. 'l'lw,v rni,•t just An\'· t.lwy ar,1 ~oing t.o
nationafo,,e wit.hout 1nnkin~ J>rovision in nclvnnc,• for tlu\t. nationn.lizntion,
without knowing whl'l'O tht, mmu1y is Foin~ to t•onw from, how
tlwv nro ~oin~ to nn.t.ionnlizo, whn.t the crit,('ffll. of" ju~t. comprnsnt.ion"
arfl ·goin~ to bt,; and, in ot.lwr worcls, just, clecido thnt tlll'y nr" going to
nu tionali 1.e.
TAXATION PROVISIONS
Senator SPARKMAN, Do tho..~o troatit•K give prot.oct.ion to Amt1ric1ms
and An1~ric&J1 corporat,ions against diRcrinunn.tory truntmont with
fl~spoct to tn.xation?
Mr, LIND)m. 'l'hcso U.t'(\ not tax trt•n.tfoi:1; that iR to sny, tlwy do not
prov1do for--
Senn.tor SrAnKMAN. I undN-i,,toml in your dir<'ct stn.tt•mout vou did
inoludt' somo roferon<'o to ttixntion. · ..
Mr. L1No>m. 'l'hoy do includo a guaranty thnt we will not bti tn.xNl
in OJlV countrv, and no American corporation will bo tn.xod, l>oyoncl the
activltiee of that (iorporo.t,ion within thu country. 'l'hat is to sn.,v, if a
largo Anrnrican cor1,1oration hn.s a ·subsidiarv o)lernting in a Coroigu
country, the only tlung t.lan fort,ign country can tnx is tho htuiliuuss tha,
is. conducted wiibin its territory. '1'o that tlxtent t.ho unswe1· suroly
is "Yee.'' ,
Annex 89
COMMEH<'IAI, TU~A·ru-:s 0
Furtlwrmon•, w,, do hn.Yu proviHionR which will iu~UJ'(\ thnt. w,~ will
not he t.nxt•d, or our <·orporu.tion~ will not ho taixt•tl, l>l'yornl t.11(' t.nx
t.hnt is t.'llfl<•t.l'Cl by thnt gon't'mtwnt and nffcct.~ it~ own 1u\.t.ionnlR,
u.nu nl~o w,, luwo Uw gum;w1t,i,•~ with rm~pccL to 111.m~t.f,ivorml nu.Lion.
8mrnt.or 8PAttKMAN. In otlll'r wor,I~, thoso \u·ovi~ionR npply to thu
1nutt.,11~ of t.ltxnt.ion OH wl'll ni:4 t.liu,v do to nnyt ,in~ olRu·r
~tr. Lrn1Hm. 'l'lwy tlo.
8t•JU1t.or SJ•AJtKAUN. 8onw or t.heHfl COJlVPntion~ )'t, ft'l' to the GNu•J·nl
A~rt•t•nwnt, on Tn.ri1fR mul 'rrntlu. ))o tht•:-10 refN·onces imply in n.ny
wn \' t O ('ctll~1'(1~1-1imml n.1•1u·oval or t.lmf.'f
~ft. Lu-an:u. 'l'lwy < o not., ~ir; hut, T would Hirn t.o nn~w"r, if I mny,
sir, fort lw rN•ord, Umt Rtnt.t.'nwnt. a JiUlt- hit mm·t~ cm·t•fully hv r<•ncliu~
on <'Xt•t•t·pt from n lt,t.tN' which wu nddrcsKod to Rent\.t<,r ~-tillikin in
r<'SJ>N!t, to t.hi!-4 point. Our Jpt.ter rend:
Tho pnrpo8(1 of t.hi~ klrnl or pro,·l~lon IR not. tA, ohtnln 80111,to approvnt or tho
l(Otlllrnl n.~rnn11m11 t. I~ 1111r11otto il'l 14implv to l"lnrify tho rclatfo11~hip hct.wccm tho
t.roa,t.y nll(I t h(i C:1•1wml Al.!.roo111011t 011 'tnrilTK u111l TrfMlo, whoro tho two im~tru•
111011t~ c1xh1t Khlo h~· l-itlo, KO ~ to uhvii,h• poi-i-ihlo cnnfu1d1111 tm11t•ur11i11~ tho int.or•
nntiorml ri~htK nnct ohliμ.ntlun~ of I\ t•onutr,· whic·h hi pnrt.y to hoth im1trumo11Ut.
'l'ho JH't1,·ir4i1111 IK t.h\114 in t.ho intoroHhl of oNlort.,, t rol\t .. v proc•o1luro. Hoin,< frnmt'<l
fn t.ho for111 1u11I ~tyl11 of n rt1!'41\rvntion1 to 1u·11,·ftfo for I\ c11nf i111,cut•y, ft dot>.."! nnt in
1111~· wny himl tho lfulto<l Htato~ ~ t11 pnrUcipaUon or nonpart.lrlpntinn In tho
Oo1wrnt Af,; r1 1t11111111t on T1,rilltJ nrnl 'l'rndo.
'l'ho ~ .. 11ntt- hnH nlr<>nd~· ~inm l\th·ko nnd tio11gont tH rn.titlt•ntiol\ of two troaUti~
,~nntniultu.t n 1u1nrl\' i1l<>11ti<•I\I t•lt\tlRO whi<•h nhm r1,fori,. to th" dmrtc•r for nn lutor•
111\t i-: 1101 t rn<' I' 11r~n11i1.nti1111 ('J'rcal y c ,f l·'rh•nclsl1 ii,, < 'om 1111m•o, nnd Fct1nomlo
no\'nl" lu1w11t wit.h lTrtmuny, Rl~nrwl No,·omhor 2:i. 1\l4H, i;\l~t. Com~., 2<1 R0~:-1.
• • nrnl Tn•nt ~· of Friml(lship, Commort·o, l\l\ll 1'&\'l~at.ion with 1 rolantl,
~1.,;1w<l Jn111rnry 21. rnr,m. • • • Wo «lo m,t. t•on~lttor thnt ~cnatr R<'t.ion on
t.lwt-o trc•atit•s con!l.tituto~ l\)lpro,·al hy tho Sn11nlc of tho Or1wm\ Agrrmnont on
Tariff~ n11<1 'l'm<k.
1rn1i•1,an-:Nct-:s 1'0 COPl'JUOlJ'r MA'l"l'J•:na
Rt•nntnr S11.\HKMAN. An~ t.lwrt.' nn,v provi~ionM in thl'8e trl'ntit.'~, 01·
nnv mm of tlwm, t.hnt, nffoct, t.lrn co))yri~ht lawR'l
~h. L1Nll'tm. No; t hC'ro nrt, not.
Rl•nntor HrAHKMAN. 'l'lw t·opyright. lnws of tlm Unih•d Rt.ntl•s?
~lr. LtNnEn. I do not, think t.her<' nru.
Rt\nntor 8t>AUKMAN. I helfovo wo luwo hnd a h1U(lr from tho St.nhl
D<•Juu·t.nwnt with r<•ft1rNwt, to t.hut, hn,,·c we not? It, might, ho W<'ll
to mt.·orpo1·n tt, that, in t h(' r<'<'onl nt t.his 11oint.
'l'lwrt' wiU ho plnr<'d in t.h<' r<'cortl nt thiM point, nn <'Xchnngt' of
Jou~rs lu~(,WNll\ ~[r. Arthur 11,isht'r, U(•gi!i\h1r of Coryright~ of t.llO
Lihrnry of Congrrs~, nnd ~[r. Adrion S. lt"ishN·, L('gn A<lvisl,r to the
D('pnri.mcnt. of Stnt.o, und<'t' dnt.rR of April 2a nntl ~f ny O, 1052.
f!ot•\'ltlmrr On·11:•:,
Tm,; f.rnn .,nv 01-· C0Nn1t1-: i,.~.
Mr. Aom.a.N ~. 1"1~1um.
Wa~hington tli, 1'. C., A1>ril 23, l!Jli2.
/,,gal • ttl,1iHa , l>t-pa rl mrnt ,l Nlat,·, Wt1.'!l1i11gfon ;!/i, l>. ( '.
))1-:An l\1 u. }.'1~tu:n: 'l' ht•ro am prt'1w11t ly p,1nth11~ hdon~ t.h(' St>nl\t~ l•'or<'hr:n
RclaU011s Comrnittc•o lrt.11\tlt•I( of rrlc•ntl~hip, t•omm<'rl't', n11<1 mwip;Rtlo11 with
f'olon;hll\, <1rf'N'<', l~rMI, Ethfouln, ltnly, n11cl T>"nmf\rk, l"imlhlr to thoN<' rntlfl~<l
wlt.hin the pn..~t. fow V<'l\l'f' with Uru~mw anti lroll\ml. In contlt'rtion with tht'~t\
latt~r two trcntlt•i-1, tllt'rc nppcarcd In ti,o rrr,mt or the Senato l•'orelgn ltrlaU011s
Annex 89
10 COMMERCIAL TREATIES
Cornmittre a statement to the offeot that neither treaty touched on any question
of <'Opyrit,tht..
In ,·i<'w of the fart that the ~ix pending treaties have provisions ~imilor to thoEio
~mbodir<l In the trcati<'~ rcJatf11,; to Uruguay auci Ireland, it would R<'cm to follow
·that tht• P."nding treaties also cio not relate in any malm<'r to qu('stion~ of l'OPY·
rff(ht. l\indly Advise me whether or not my undensta11<Jh1g is correct i11 this
respect.
Smrc>rcly yours,
ARTHUR Fr~m•:H,
Negister of,l'opyrigltf~.
])•:P.\RT!\lt;NT OF 8TATt,~,
ll'ashitigtot1, ~llay 6, 1902.
l\fr, ARTJlt.:R Fri..tn:R,
R,gi~ter of Copyright~, Copuri(IJ,t Offitr, ?'he /,il,rary nf Congrr.'t8,
~h lhi:AR :\In. Fit-111:rn: lh•ft•rt•11,•r is mu<J,, lo your Ji,t t1•r of .\pr il 23, 1!152, in
whit•h ~·011 rNJll<'!-t ronfirmntion of your und1•r~tn1ulin~ th»t <·crtnin tr .. ntif's which
are pl't'sC'ntl~· 1w11ding hf'for(• tht~ f'i<'1U\tc Forcl~n Relation~ f'ommltt<'c do not
relate in an~· manner to q1wstion!f of <·opyright.
You are A.tl\'i:wd thnt your t111dt•r;.;tnt1di11g in thi~ m~pC'c-t ,~ rorrcct mul that tho
trcnti<'s of frh1111lship, l'Ollllll<'rc(', nnd narignt1011 with Colomhinf Dc•nrnark,
Gr('C<'<', and brR<-1, th<' trN\ty of ,mtlty nn<l <'<'Ollomil• r<'h\tion8 with F;thiopia,
and ttw ap;ff.'om<'nt ~11ppll'mf'nti11~ thn trcnt.~• of friN1<lsh[p, commr.r£'r., nnd rmvi•
gRtion with ltftly do not r<'late to cop~·right mnttt•~.
Sinr('rely yours,
JAf'K TI. TATE,
.trting 1,rgnl A<lt,i8er.
Senator S1•ARKl\1A~. ~fr. Linder, in a st.ut('mont that has boon submitted
in letter forn1 from till' National Foreign Trado Council a
suggestion is made for a broadN· investment clause. Aro you familiar
with that?
l\fr. LINDER. Sir, I saw the letter just as I ca1ne in. I really ho.vo
not hnd an opportunitv to study it.
Senator SPAUKMAN. ·He starts out discussing it on page 5 and con•
tinu('s on page 6. I wonder if you could discuss that auJ h'll us why
tho State Dopnrt,ment. has not been able to get this broad coverage.
irr. LINDER. 1Ir. Chairman, I am a little loath to discuss it because
I have given it only the 1nost supcrficinl reading.
CONVERTIBILITY IN EVENT 01-' ~ATIONALIZATION'
Senator SPARKMAN. I wonder if I might nsk this question, that
might at least show it a little moro clC'nrlv on tho 1·ccord. As I under•
stand, these treaties provide for convertibility in the event of nationalbation
or taking over. ·
]\fr. LINDER. They do, sir.
Senator SPARKMAN. Th('y provide first tor r01npensation, ru1d that
that compensation shall bo in dollars rather thun it1 tho currency of
the country, for the amount that was 01·iginally inveatod in tho company.
The }"oroign Trade Council, as I understand it, recommends
that the entire amount that has gone in, the <'arnings that ho.vo bcon
plowcd back in, should ho covered also.
Mr. LINDER. Wo think they arc rov<'rNI.
Senator SPARKMAN. You think they arc covered by these treaties?
?\fr. LINDER, I think they arc. As I un<lcrstau<l, the way this
trea~y would be interpreted in case of an expropriation is that this
specific clause does not .in any way impniy just c6tnpc~sation, and just
compensation and equitable con:.pJmmtlon nrnet be 1n terms of the
value which then exist.a.
Annex 89
COMMERCI~L TREATJE-8 11
Senator SrAHKMAX. The question was raised 08 to ambiguity in tbo
provision. 'flio Foreign Trade Council particularly points out a
qunlifving phrase 11wbich thoy hove supplied." The contention of
tho Forcib~l. 'l'rn<le Council is thnt, this might ho hold to apply only to
tho nn1ount of capital originnlly suppli<•<l, nnd that it would not cover
tho investnumts t.hat had bN\n plow('d bnck.
Now, is it :vour int<•rprC't.ation that it doos cov('r t.hc reasonable
value of tho ciitirc capital struct.urc'?
:\lr. LtNDI~n. Yes, sir; that is mv intorprC'tation, and I 0.111 sure,
while I didn't. take an active pn.rt, ~in the 1wgotin.tion of any one of
these, that that is clearly understood on t.1w part. of each signatory to
any or om· trcat.ic-s. 1 don't. think it won1cl mnko any sense whntovor
to talk only in t.<•rt-11s of nn origi11ul inYt'st,numt. \V. U. Grnce & Co.
nuule nn in,·<•st.m('nt in ChilC' 120 :rc-nrs ngo, or cm•t.ftinlv n. long, long
numhrr of yC'nrs ngo, nnd thcr<' ,iuiv hnvc hr<'ll nn necumulation of
earnings in that con1pany onw n vrrr long pr.riod of tinw. Sut·<~ly if
that prop<.'rty were to hn 't•xpropriatc<l hy the Chil<'nn Govornnwnt. tlH'
original 111,·C'stnwnt could not m ony sN1sc he r<•garded ns a jm~t nnd
cquit.ahlo standard for compcnsnt.ion. \Vhnt must be dotorm.ined L~.
tlw value of the property ns it (.'Xist.s nt. the time it is cxproprintc(ll and
while, ns I say, I have a r£'rtnin rrluctaneo to discuss this in <tctail
(a) hecnusc I am not n lnwn\r nnd (b) bernnse I have not r•~tul carefully
the comment, of the l•'orf'ign 'rradc Council, I fop} n•nso1Ul.hlv
certain of 1ny ~round in ~to.ting ns I hav<~, that it clo<'s con~r the invc-si.nwnt,
n~ it rx,~t~ nt. t hc> tim<' of Pxpropriati011.
:\Ir. Jh;1t~ux \VAI,KJ•;n, ,Jr. (Office of Assi:--t.n.nt Sccretu.n· of Stntc
for Jt~conomic Affairs). \Vn have a SJH'cific clnuso on cx1>roprin.tiou
which says:
Such compensation shall be in an dfortiv<'ll rcnliznhlc form and shaJI represent
the full cquivnlcut of the property tnkt>t1; nn< ndcquatc l>rovislon shall havo h<'cn
mado at or prior to the time of t.hc expropriation for < ctermining And ctfecti11g
euoh compensation.
Senator SPARKMAN. Now let us go one st.cp further. That is as
far ns rompcnsation. I wonder if you can point out the clause relat.ing
to converte.bilitr at tho sa1no time.
Mr. L1No1-m. Tho clnust, in tho trcat.y with Colombia, for example,
~1r. Chairman, is article XII, SC'ction 3'. That says-
If either party imposes exchange restrictions in accordance with paragraph a
above--
which pcr1nits ccrt.ain typ<'s or exchange rrstrictions necessary to
preserve tho economy of the countryit
shaU, after making what<'V<'r provision may b~ nccr~sru-y to &C\Surc t1w avuilability
of foreign exchange for goods and scrvircs csscnthll to the health and w~ltaru
of its pe:>pll•, mako reasonable pro,·ision for the withdrawal, in for<' i~n (''H•hn11g1•
in the currc>11cy of the othC"r partr, of: (n) the compcnsaHon referred to in artit'lo
VJ, paragraph 3, of the prORl'nt trcatytho
ono to which I Im vc prC'vious1y made ref orence-
(b) earnings, whether in the form or salaries, inter<',at1 dlvidendel commissions,
royaltiM, payments for t.erhniral M'rvkes, or othorw1Se, and (OJ amounts for
amortization of loans, dt>preriation of direct invcstmonts, and capital transfers,
giving consideration to special needs for other transactions,
This is sub~idiary to t.hnt, and it ~uarantccs whore there is a. 1nultiple
rate of exchange. If you would like me to read that, I can go on.
Annex 89
12 COMMERCIAL TREATIES
SNmtor SPARKMAN. \Vhoro doo~ this phraso to which tho Council
points orcur'!
~lr. W AJ,~KEn. It is in a difTrrcnt. pnragl'nph, sir.
~l'JUltor SPARKMAN', I wtmdPr if you could rt>nd t.hnt S('tltrn,·~.
lt •~ hnrd to t-t\11, wlwn words u.re just liftPd out of contPXL such ns
this.
?\·fr. \V.H,K t,;H (rNHlin~):
Nf'it.lH'r part.y shall t,nke unrt•asonnLle or ctisc•riminntorv llll'RSllrc•s that woulcl
f mpair tlw It,~nlly l\l'qnirt•<l right..q or i11tt•rt•1:1t::J within ittJ ·territories o( nntio111\lt-t
and compn11il't1 ot' the other party in tho enterprise~ which they ha vc •·stabJishC'd
or in thl' t·apital, tikills, arts or tt•ch!iology which t )l('y hove 1mppliccl; nor shall
either party unrea.'1ot1ahly 1mpt•cl<l 1u\tlo11al:1 on<I t•ompnni('ll of tho other purt,y from
obtah11ng on e<1uitnbh• trr1m1 the <'Rpital, skills, art..~ nml technology it need~ for
its el'onumic 9evclopmeut. .
1\lr. LtNDF.n. T nm infornw,1, ~ir, f.hat Umt, is supph.1mentnl to ond
in no wny re8t-rids or limits t.llt' brontl hnsi~ for compen8u.tion which
wo lun•t• just bt•t•n d iseussing.
Sc,un.tor SPARKMAN. Thl'n it is your opinion t.Jmt the objt•ction.
raisl'll with rcf<'n'nro to t.luit mnttl'l' by tho Nn.t ionn.l Fort•ign 'rru<lc
Comwil is not justifit•d?
11r. LtNDEH. Sir, I would ~a.y n.hsolutd.v, (\XCt'pt t lint I have not
rend every word of the Xu.tionnl J'or<•ign Tr1ule Coundl's Jetter. I
just 1·ecPh·C'tl it ns I cn.rno into this room. I would snv t·n.tt•gorit'n.lly,
with only tho reservation that if I find our Lt-gnl .A~I vhw1· hns nny
resl'rvation, he will communicatr it to th<' committer.
SPnntor S11AHKMAN. I wonclt>r if it rnight not ho wdl simplr to hn.vo
tho Legal Department addrnss a lottor to us to bo put in tho record
on that question.
1\·lr. LINDE~. \Ye wiJI bo happy to do it, sir. .
(The follow1ng information wns_suhsC'quent.ly fm·mslu:~'1 :)
:\IAY 21, l!Jfj2,
lion •• Jo11s .T. SrARKMAIN,
Committee o,a J,'orl'ig11 Nclatioris, Unittd Btates Smale.
1\ly Jh:An ~h;NATOR SrARKMAN: I rcft•r tot.he hcnring llt'lcl hy your snhcom.
mit,t.cc, May H, on tho pending cummcrl'ial trcat,iN1 and to the <ttwstion mil-t•d
during the courso thereof conct'rning whnt these t.rcatitl~ provide a~ to rumpt•n::1a•
t,ion for property which lg expropriated, wlt.h particulnr rcforc11cc to tho cffl•Ct of
art.iclo VIII of the treaty with Grt•t•cc. The Ll•gal Ad\'h1or's Oflko has prcpnrcd
a bri<'f statenrnnt,, enrlo~<'cl hl'rcwith, which confirm~ tlw opinion I cxpr<'i-.~rd in
this matter. I offer the J,cg1'1 Ad,·isor's stntcmout for inclusion at an approprioto
JllRcc in t h<' rct•ord, in ordl'T thnt there not be the ::ilight<'~t douht about t.ho correct
ons\\'<'r to this important qu<.•~t.ion.
~inccrcly ~·ours.
Enclosure.
IIAROJ,o F. J.rnm:R,
De1n,ty As3istant Srcretary for Bt·owm1ic Affairs.
STATl::MJi:NT 01'~ TUE On·1cE OF TUE LF.C:AL ADVISEn-:\1.\y 16, 1052
Artklc VI I I or the treaty wit.h Greece, and t.hc similar provi~ion of tho othor
treaties before the sullcommittcc, is entirely independent of• and in no way modi ..
fics, the provision::J of article VII J>arngraph 3, and comparable pro\'isiom1 uf the
ot.her treaties, which establishes the rule of compensation applirable when propl'rty
is expropriated through natfonalizatiof'l or othnrwiMc. Article VII, paragraph 3,
of t.hc treaty with Greece ~tat.es the governing rule in all cases of oxpropriat,ion,
that compensation shall ho payable on the basis of the full value of the proporty
taken, at tho time or the taking. Compensation based on the value of the initial
investment would not meet t,ho standard of tho treaty or of lntcrnatfouut law, if
it were less than the value at the time of takin~: if tho value of t,hc initial investment
WNO greater than the \'aluo at the t.ime of taking, a country i8 obliged only
~ provide compensation for the ,·alue at the time of taking.
Annex 89
I
,;
l
COMMERCIAi~ TRFJiTIES 13
Sl•nn.lor SrAnKMAN. I may sny t.hnt at the Ntd of ~fr. Lincfor's
tC'stimony I will insert. in the rC'cord, if t.lH'n~ is not objection, t.he
lcttl'r frmn tho Nntionnl Foreign Trndo Cou11dl, Inc., n<ldrcsscd to
me on 11n.y 8.
St•nnt,or H1cKt-:NLooP1•m. Cnn we idt•nt.ifv, nt lt.•nst for my h<~ncfit,
~lr. Chnirmnn, the National Porcign Tnulo Coun('il'l Of whu.t is it
compost•d '?
~lr. L1N1>1-:1i. I prcfor to hnve ~r r. Vt•rnon d('seriho it, if I may.
~lr. VmtNON. The Nntionnl Fort>ign TraHfo Council is nn orgnni-znt
ion whieh hus lwm1 in the fipfd of promoting fo)'(•ign trade and
intt•rmltionnl invm~trmmt, for rnt.lwr n long time. I would sn.y t.lwy uro
prohnhly "the" orgnnhmtion in tho fil•ld nt. this moment in the United
Stnt<'s.
Hc.•.rmt.or HPAUKMAN. It is l~ Wl'll-known ntul J't\J)Jttnhfo orgo.ni1.ution?
~lr. VmtNoN. \V<•ll-known nntl l'(•Jrntuhle, nnd ils 111t•mbl\rship looks
lik(l n glossnry of Stnndnrd & Poor\1.
S<•nntor lltcKBNt,00111-m. 'l'hrou~hout thu lTnitud 8tntrs?
)Ii-. V1,;nxoN 'rhut.'s l'ight.
St•nntor SPA UKMAN. H<•nnt.or llickt•11loo1wr, do vou want to ask
~lr. Lin,lc-r sonrn <tll<'stions'? •
\re hnvu hnd .\lr. Lindt1r1
l-l stuh•1nent, which wnR n prepnred statcuwnt,.
You hnvn n copy of it there in your file, u.nd I n<ld1·t1sscd these
qtwst ion~ to him.
H<•nntor I hcKt:NLOOPEH. 'l'hrro is ono line of quPsl ioning I would
likr to tuttlrrss, probnhly t.wo or three qm•stions, to ~fr. Linder.
Did you nsk ~lr. Linder nil of these qul•stions?.
8Nrntor SPAHKMAN, Yt1s.
m •:LA1'IONSHlP OF TRHATIES 1'0 GAT'l'
81-;NATon lhcK1-~N1,ooP1-;n. I mn sorry to usk you to rt~Jwn.t, l\lr.
Linch•r, hut, I would like to know, f'SJ>l'cinlly, do nny of thc•so convent.
ions in nny way, und undt•r n.ny circumRhmct•s, ut•cording t.o your
intcrprct.ntion nnd tho DC'J>nrt.mcnt's inl<'I'IH't•t.ntion, involve us in
the Gcncrnl Agrt•t•mrnt on 'l'nriffs n.nd '1'1·at.fo'?
l\lr. L1N1>1•;n. They do not., sir. I introdttc<'d nnc.l rc~nd, in order to
be surt, thnt we wcro quite t•xplicit nbout is, n stall'nwnt which is
quoted from a lett<-r which wo uddt·cssPtl to Senn.tor ~Iilliken very
roc<'ntlv·-ns a matter of fact, a couph~ of months ngo, the Inst <lay of
l◄'cbrmiry. If you would like me to do so, I shnll ho vc•ry glnd to read
thnt to you ngnin.
Senator S1tA1tKMAN. I mny sn.y, Senn.tor llickenloopcl', that we
have a lett<'r from thu St.at.o Dcpnrttnent signPd hy ~Jr. John M . Leddy,
Director, Offico of ~;ronomic D<'f<'ns~ nnd ~l'rndo l'olicv, in which he
brings out the same point, and snys (n•n<ling): ..
* * * it does not in any wav bind U1e U11it.('d St.atf'~'I a,q to participation or
uonpart.icipation in the General Agrl->cmcnt on Tariffij and 'l'radc.
l\lr. L1Nn1-;R. Senator, would you prt•fcr that I road this statement?
Srnntor lhcK1';N1,oor1-rn. If you havo nlren.dy put it in t.ho rPcord,
there is no uso in putting it in ngnin. Is it nln•ndy in the record?
11r. L1No1<;R. I have read it cnrcfully and we will be glad to provide
it for the record.
Senator H1cKt:Nr~ooPEn. If you have already rend it in the r<'cord,
th<'n~ is no use in repenting it here.
Annex 89
14 COMMERCIAL TREATIES
Senator SPARKM.\N. Wit.bout objootion, we will also put this h\Uer
in tho record, which is to tho commit.teo in 1u1ewer to this J>nrticular
inquiry.
('l'ho communication is ns follows:)
Mr. CARI, l\hnc,·,
lh:l'AR1'Ml-;NT 01-' HTA'l'F.,
Wo11lii"fllo11 1 J.'rl,ruary ~!J, J.IJ5.!.
St(•D As,ociatc, Committee on Fordg,i Udati,111~,
r .'uilnl Stutu« Srw,lt'.
DEAR l\ln. MARCY: 1'hi:-1 i~ in r,•:-1pn11st• to ~·om i1up1iry, 1l11ri11~ our rt'l'«'III ll'k•
}>horn• con,·t•l'Mntlon, n.~ to whnt 1:-t t h«' ))t•J1nrt 11w11t ':-1 \'ll'W of t lw pro,•i:,1i1111 rt'ft•rri111,t
to tho 001wral A~rtm111c-11t 011 TnrltT:-1 nll(l Tract,, in tht• 'l'r<•atit•~ of F1 imHf~hip,
Co1u111cru._•, aud :Navh,i;ation wit.h Uennmrk (nrt. XX I, ,,ar. :4), ( ,r<'l'l'<' (nrt .. X l I.
pnr, -t), J1-1m<'l (nrt, XXI, JHlr. a) n11d Ethiopit, (nrt. XI , p1~r. U), nll of whil·h l\re
now pending lwforc- till' Ht•imt,,.
1'h<' pllrpo:-tt• of t.hlR kin<I of pro\'if lon is nut to obtain K,•1mtti npprovnl of tlw
~<'nor al Bf(rc('r,umt. Jt:4 1>11r1>0,'4t' i:-1 simpl v to <'lnrif ~· t lw rt•lnt 1onl'lhip hPt WN•n
tho trt•l\ty nml till' Ut>1wrnl A~rP11111<•11t 011 'l'tuilfs n11<l Tr1Ldt•, wlwr«' tlw t.wo i11:,1tr11-
IHl'Hl:-1 t•xi:,1l sidu hy ~id1•1 MO ft.'( to obvinh.• J>O~sibl<• 1•ouf11:--ion ,·011<·1•rni11~ tlw i11tl'r•
11ntio11nl ri~ht:-1 nnd ohli~Btions of R t•111mt rv whid, is pnrt ~· lo hut.h i11-it r1111uH1ts.
'l'ht• provi~ion i:,1 thu:,1 in the i11tnf'~t:-1 of or<l<-rl~· tr1'1\fy pro<•Nlllfl', Hri11~ fm1nc-tt
in tlw form and t1t,yh, of o rt't1f'rvatio11, to pro\·lcto for n t·ontillf.(f'n,•,\·, it clcll':-1 not in
nny way hind tll<' llnitl'd ::-:tnh•s n.-i to pnrt il'ipl\tion or 110111mrtit•ipatlo11 i11 tho
( :m,cral Agreement on TarifTt1 aud Tru.dti, .
'rho 8<'111\h' hos nlrt•ncly μ:ivPn nclvk•• mul t·onsl'III to rntitit•ntion of two t r<'nt i1•~
C'Ontnining a ll<'Rrly i<lt•ntl<•nl dn11~" whh•h nl)o;o n•fn:,1 to th1• t'hnrtt•r for nn i11tPr-
11at.ionn1 trndc• or1,taniiat ion (Trl'IH ~·· of Fri,•nd:-:hip, Comnwn·,•, m11l J.:1•011omici
DovulOJ)IIU'tll with Urll~llt\\', tth,tnNl NO\'(\mher 23, rn-w, 81Ht Coll~ .• 2d HeHH.,
ffouato I•:x,•cuti\"c n, nrt-, X\'111, IH\r. 3; ntul TrN\t.y of l•'ri('lul:.ihip, ('0111111t•r,·t•,
and Navip:ntion with lrt•h\lul, i-ig1wcl ,Jf\rnmr~· 21. 1050 (TI.\S 2155), art. X X, p1u.
2). W <' <lo not C'Olt~iclrr that ~cnntt, Rl•tion on t hr~<" t r<'at i<'l'I <•011:.ititut<'H RpJ)ruvnl
by the ~nat<' of tho f:<'1tf'ral Af!;r<'<i111m1t. on Tnri1Tio1 n11d Traci(',
Sin<.•orcly your~,
JullN 1\1. T.•:nllY,
l)irfctor, Oflice of Ec,momic /)ffnise cwd 1'radt• l'olfru.
(Tho following additional i11fornmt.ion wus subsrquontly supplied:)
Hon. JOHN J. SrA.RKMAN,
Committee Oil Foreign Relationa,
United St,des Senutr.
fh:t'AI\T~lt:NT ot· HTAT,t,;,
Wushi11uton, May SI, 195£.
l\ly D1MR St;NATOR S1•ARKMAN: I uttdcrHtand thnt in(_Juirv hM hc<'n mndo as to
whl,thcr the pro,·iou~ "tatcment of the Dt•part mont. of St.ah•, with ref rrc-nco to
t ho Bit(niftoanc<' of t ho provlRlon cmumrninJ( thn Gf'neral Ap,rf'<'tllt>nt on 'l'Rrlffit
and 'Irado, i11 th(l variou" commcrolal truatios J)('llding boforo tho committ<'u, is
applicablo 8~cifically to tho troaty of frl<ln<leihip eommorco, and na\'i~at.ion with
D,mmark. 1'ho an~wt•r is in the atlirmnt i\'<'. 'flH• n<lditional matt•rinl fmuut in
article XXI, paragraph 3, or that treaty WBH iucluchid for a J)Utcly kclmical
roa~on; uamclv, to providti for tho Hihtation in which Denmark, thonp;h not a
JU('mbor of tho·ocnt•ral Agroo1ncnt on 'faritYH and Trade, was oxporloncinR bnlanco.
of-paymout~ diflicultioi,. 1'ho a<l<litional material itJ compnrahl(l with the ad,lit
iona.1 protocol att.achccl to tho troat.y of fric1uh,hip, con,mcrcti, and uconomic dcvt•
lopm<>nt wit.h Uruguay.
Ali Mr. l,tnd<.•r Hto.tcrl in his testimony bufor(l thl' committee, the Depnl't1H1•nt
h<>lil•vNI that the provision in tho tl'f'aty with J>onmark dm't4 not, commit tho
United States aH to parf.iclpation or nonpnrtillipntion in t h<' GC'm•rnl Agrt'f'lllcnt
on Tariff'H and Trado Rnd that &•nato approval of t hiH t.roat.y cannot bo N'gardcd
M comditutinJC Sc-nntc approval or the genoral agreement.
Siuoorely youffl, •
RAYMOND VERNON,
Acting Dirtclor, Office of Eronomir. /)efcnse nncl Trade l'oli<:y.
Senator }hCKENLOOPER. Tho whole burden of n1y question is, aro
we backing into that hy some involved inwrprctivc provision in any
Annex 89
COMMERCIAL TREA'l'IES 15
of tlwHo tradP trN1.tit•s whit·h wonhl put us in n. pmut1on wht•ro W('
lmvP <·onunittl'd om•spJyps to tlu• Ot•Jwrnl Agrt•l•nwnt ou Tnt·iffs nnd
'J'rn.clt• '!
~h-. LtNDER. 'l'lw nnswpr t.o t hn.t. i~, " No, sir."
s,,mitor JIH.:1u;N1.oop1-;n. Tht• g,•nN·nl pu1·pos,• of t h,•i-;t• t r<•nt it•s, as
of nil tlw otlwr t1·t•n.tit•s or frit•n,h;hip, comnwr<·t•, urnl so fort.h of u
Himiltu· tyJH· • .I tnkt• it, it; to ~utu·n.ntt•P nud n~~m·t• ,,,,unlity of trt•nt.-
1nt•Jtt. of Anwri<'lllll-l, Anwrit•n.n nu.t.innnlH, on n 1·,•t·iprocnl hu.sh~, t.hn.t. iN,
rN•iprocntin~ t'<\uitnhfo mu.I fnil' trt.•utnwuL 'l'lwso trt•n.tit'\s contnin
ct•rtn.in spt•t·ilit•< snft•gmu·,1s which t,lw l't!8P<'ct.iYt' mit ions ngrtto t,O·
t'nfm·t•t• so fnr UN tlw uctivit.r of the Anwrit·1ul 1U1tiounlN au·t• conrt•rnNl
ill bm~iiu.•&~ mul lnuh, u.nd B;) on.
1\lr. L1NJH:U. Ami traw•l. 'J'hnt iH COl'J'('<.'L
St~nt\tor llwK 1-;s 1,001> •;it. Thn t, is 1ny undt•1-st mu.lint,t of l,ho pm·posl'
of t.h~ t rt~at.ies. ·
NEW FEA'rtTHt: IN IT.\l,IA~ PHOTOCOI, IU;J,ATIJ\-0 TO SOCIAfrS~CUIUTY
JU~ N J:..a'l'I'H
Is tht'rr. nnvthin~ unustml t.hn.t you ('tmld sn.y in nny way <lifft•rt.111-
tiatt•s t.lu~so J>urti(·ulat· tl'cnt.i(~s which ur,, lwfo1·0 us totlnv in spc,cific
provisions from tlw f~t.>twral p1'0vision~ of tlw tt·N1t ius· aln•a<ly in
rorco, historically in fol'N' , hl'tWl'Nl tlw Unit('(\ Stnt,t•s anti otlwr
nat.ions'f
l\1r. L1NuJ-m. I think tht•rt' is onl.r 0110.
8,•1mt.or lhcKEN1,001•1-;n, I nwnn, art, t.lwrt1 any innovations?
~fr. L1Nn1-;u. Yt's. I think t.lwr(' is ont1 in rt'SJwr.t, of t.lw prot<wol
which Wl' m·<• uskiu~ ~·our np1n·oval on with Ital~·, and that cxccptioJL
I allud,•<l to in my Ntat<mwnt, and if I mny quoto it ngnin I would say
thnt. nrtirfo VII o( Uw snpplN1wntarv agrl'C'.1n~nt, with Italy providl\s
for t.ho d(Wt~lop1n(\nt of nt'l'Ollgf'lnN1ts not, providt•cl for bv }'t~d('ral
stn.tuh\ rc.•~nrdinl! t.ot.n.lization of social-sl'cm·1t.v bmwfit.s. ..
I havo ht•ro for sub1niSHion a 1nemol'andum front tlw }.,~d~rnl
Security Agmwy which Rt•ts thnt fort.h n\oru t·ompfotdy thnn I run
able t.o do. It. 1s a tcl'l1nit•nl pl'ohlNn, hut in f'Ss(mc<' it provicl(•s for r-.
co11sic.lt•1·11.tion by ca\ch ot the count.l'it•s of the sodul-st•c.•.urity benefits
ean1ed hy any nntionnl wit,hin his own count.n•. In ot.lu.~r wOl·<ls, if
an It.nlin.n ha<l wm·k,,d in Italy fm· 10 YN,rs nntf workt'd in tlw Uniwd
Statl'S for 15 Y08.l'8 t.ht'tl' is an ndjustin~nt tnado ~() thnt he in cft('.l't
gets tho bt•nofit, in <•alculat,ing tlw pu.ymonts duo l1itn by t.'ach com1-
trv undur ,mcial socul'itv, for his vca1-s of work in ltalv o.s wt'll as his
yea1'8 of wot·k horc an<l vico VC'l'S&. 'rlrnt. is the onh; provision that
I hPliove diffl'rs suhstnnt.inlly, t,x<•t•pt for, im\>rov1•1nPi1ts mut t,ightening
up both in la\ugua~t• nn~I il1 suhstru1co t, u1t is the nnt.uro.l 1·csult
of, we hopo, compt,h'nt twi,totin.t ion.
&nator I-lrcKENLOOPl-m. What is thu Nq>ln.un.t.ion or tho justification
of tho.t JU'ovision, in view of Ute (n.~t t.hn.t manifestly nt· ll~ast
now, and wo usun10 fo1· ~ long titnc in tbc futul'e- at h,nst now,
and }?l'ohahly will be in t.lu, futuro-gn•nt.ly in t'Xct•ss of th~ aocialsccur,
ty benC'fits in any ot.lwr conntr~·, so t.lrnt so1nro11C', for mstnnce
fro1n Ito.ly, could <.·01no OVl'r lwrt• nnd work for 15 or 20 yNu'S and go
' . .
Annex 89
16 COMMERCIAL TREATU~S
hat'k to lt.nlv and r<'tfr(, VPr\' nit•t•lv on UaoRl' be1wtitt:\, with the til•-in
undt'I' tho It.alian R\'!'\tmn. · ·
1\lr. L1ND};1t. I think, Air, thut. thC'rt' hns hPl1H n 1,t<'H<1ral movC'nt<'Ht
all ovN· t.lU' induHtrinl world. pna·ti<"nlnr]y in ,Vt1stt•n1 }1~uropt,, to
immrt' tlrnt. workt'l~ who for mw r,•n~on or otlwr miJ,?rttlP from mw
<'otintry to nnotlwr nr(_l not. 1wnnfowd, mul in ~fl'N·t t.lwir i;()(•inl R<'<'Urit v
iR guni·nnlt'l'tl. I t.hink thnt thiH i~ nn ntt.t'tnpt -I h,•lit1Vt' it, i~ nit
at.t.Nnpt,-to <lo till' snnw kiHd of thing with rc.•~Jl<'«'t. t.o 1mvhodv who
<~onwR t.o thiR t·mmtrr, 01· nnv A1n«•ril'an who works nbron~l. ·
8(•Jrntor H1c·K1-!NI.OOP1-:n. f nwrPI~· l'nistt the.• HIii,!~•'~• ion thut, it. nu1r
hl' an at t<'mpt, to int.t•nrnlionnlizc.• social Hl'l't1rit._v.
~-lr. LtNDY.:n. 'J'hf\ HnlinuR tlo not ft't tlw hNwfits ou our sc.inlt• for
the., pt•riod durin~ whkh thC',. workm in Italy.
SNuitor HwK1-:N1,00PER. 1 would n~Rtmw uot.
~lr. L1Nn1-;n. The.,~· gc.•t. NOil\<' sort. of ('01nhinat.ion or t.lu, two whirh
hns hC'l'll work.-,1 out. with <'nrh rount ry-pnvinJ? n lll'O 1·nha. sharP. -A~
I Ray, eir, in f<'f3J)t•ct. of thr t.,1t•hnic-nl t\..C\Pt't:h, of t. titl, I would lik(' to
1nnkc n,·niln.hlo to tht' <·mnm i Ht't' this Ahl tt•mt•n t. prPJ>ar<'d by t ht~
}'t1tlt1rnl Sl!cul'i t \' At,tt'llC\·.
8N1ntor ~PAltNMA~. \\'ithont. objl'<•t,ion, wt, will irnwrt- t.hnt in the
rN•orc.l at. this f>Oint.
('rho st.nt,t'Jllt'llt rt1fl'l·rc.•u to is M follows:)
8TATl!:MlCNT PRtPARtb RY 'rUIC J.,f!Dt:RAJ, 81tClfRITY A<iltNC\' Usl>ER l)ATE or
.~ICRRlTAIIY 14. rnr.2-1-:,u•r,ANATION OF THE t,;ocu1.-SF.CURIT\' PROVl!\ION$
(ART. VII) or TH~ UNITl:U HTATJi;tt•ITAI,IA~ tlup1•1.runiNTAln· Aua}:1-;MKNT,
8JUNlm ON St::PTEMR&R 20, 1V51
At 1>rc8(lnt workers who have M>mc ~o\'orago under tho old-age and sur\'h•or~
insurance ayf\t.eme or moro than uno count-ry may suffer lo888s in tholr bott<'flt
rJghtl\. Jn H<>lnt> l'MCij Uu., incli\'idualij ln\'ol\'cd niay fail to m<'ct the oli~ibilit.y
rectulrcmont~ of one or both systems bc('-&\111<' or gaps in their C'rnploylH<'nt n•cords,
and thus no ben<'ftts at all may oo payabl<'. In ord<'r to t•lhnmau- thl•Rc lo~S<'~,
varlom, t-:11ro1>0an (')ountrioe have t'nt<'r«id Into agroom«-ntR with ('fteh othor in
order to protect tho benl'ftt right11 of workoffl who havo employnll'ut. in moro t.han
0110 country, 1'he countrlos wlth which lt.alv ha.'4 already con<lludud treaties
lnrludo U('ll(ium, }'ram'<', and ~witr.f'rland. Tl1c Uulwd StRtt'II thua far has no
Jntl'rnatlonal agN'<'ml'nt In 01>0ratfon.
While no figure..~ arc availablo on tho cxt<?nt of the movom('nt of workers 1><'t,
ween the United States and Italy, It 8('(mu, likely that tht.' number of ,rorkel'!I
with oovorago under the JnRurance. syRtom11 of bot.h oountrics is small. N cvr.r•
tho le•, ('()Ordination of the "\'O syMtcm~ to tako care or th('sc <'&.~t.'fl seem~ d<'slr•
abll', tn or<for to prcvt'nt tho hard111hlp whlrh may 111onwthn<'11 ocNar in t ht1 ah!llfln~e
of coordination. A~ tho numher or cattee will not. be largo, U1~ total admfnie•
trat.ive hurden should not be Mro&t..
Artlcl.- VII or tbo supplementary agreement J>fO\'idcs authority for coordinat•
In~ 80('fat.lnsuranoo R,St<>mtJ. J,,ollowing arc tho m"Jor pro,·lslons of article VII:
(l) Th~ lAngual(O of tho agreement would anthorl7.e t.hc hnmcdiAto coordinntfGu
only nf tho "principal olcl-ago and sur,•lvon lnsurauoo Ayatem" of each
~untry. The coordination oould lnter be extandcd to RJ)(lcial old•a,J<' and eur•
vlvore insurau<'e system, or to ineurance systems providing protection againlit
pcr1nanent disability. .
· (2) Ser,;f~ time \mder both syf't.erns wotild be cornblnod and counted lot
determining cllgibilltv for bcnofU.a undor eat'h system.
(8) Servloo which hu already .boeh oredlood ltnder ~oth. tiy&t,ems, if any, woulcl
no~ be Included tn any oomblniug or omploymel\t periods. ·
(4) Benefit.a based on oomblned ftOtviOQ would be reduood to t.ake.account of the
fact that all c)f the worker'R BDrvica Is co\mtod under each program. This would
be done by reduc,lng each benefit amount by tho tatlo which tho period of Umo
apent,under tho ot.her aye~n, bears to \bQ total period bf "me spen\ under both
m.tema. '
· · (&)' An Individual might elect whothor or not tho ooordlnaUon provisions shllll
apply to him.
Annex 89
COMMERCIAL TUATimS 17
(6) The agreement providM t.hnt if t.ho l\taintouanco or Migrant.s' PN1i-ion
Rights Convention of 1U35 b ndoptod by both countries, tho convention shnll
eupcr.1or.cto any lnronslKtcnt. prm·l~ioll~ In the Qf(r<ic•nwnt.. (Tho 1035 ~onvtmHon
inclurleR provisions e8t.ahliid1i11Ji: multilateral soclal-i11surancc coordination among
tho countries adopting that corwcnt.ion.)
Whilo the Bf(TC'cmcnt indicntt>~ that. oach svstem is to baiw henoftt.M on combined
porlotl~ or ~rviec.•, it. doc8 not. t-pcrify how Much bcndlt amount~ nro to he comJ>HtNI.
lt Ii, contcmplatecl that a mc>thod would he tttl('d which would not require fl credit•
lni,t nnrlor 011~ system of Wf\JZ:e8 rcct•ivod und<'r th~ ot.lu~r, hut only & cN'ctitin~ of
eorvicc J>l•riocl~. Bv RO doinK, t,ho adminit,trativc difllcnlt.icR involved in such
problcnu~ M tho ooi,vori;lon of Italian currency into American, Blld tho rover~,
would l>o avotclNl.
'l'ho haaic fram«'work of thC! coordination ls ('!4tf\btishocl In tho agrcoment.
Prcccdcnt.M alrcrul\' cxh1t. for thit1 t.~•p<' or coordination, nnd we bdlc\"o that no
aorious dlfflcultios' woulci bo oncmtllton'cl in efT<'etuat.ing tho agreement. J~ach
country would bear what.over lncrm\HC.lu co~ts would arhic undc>f its K)'Atcm aa a
remlt. of additional panncmts r{•t1Ulting from tho ngrccnumt,, \\ hito wo have not
been ahlo t-0 mako CO:it ('stimat<>s, hl•rnusc fiJ(urt~~ on workt•ra with covt•rap:o uncfor
bot.h &\'t1tcmK &rt' not, avnllahlt•, W<' b<'licvo that th~ addlt.ioual coRt.s will be Mtnall.
'.l'ho· I<'cdcrnl ~iourit,y Af{<'ncy favofti tho coordination provi1::1ionl'J contaiucd in
section Vil of tho agroomcut.
PROT1';CTION OF AMEUlCAN BUSINESSMEI\ JN MOROCCO
Sctu\tor Htc1a;N1.00P1-m. I want to get bnck, ~fr. LiJult,r, if you
know anything about this particular nutU.t'r-it, nmy not be in your
bniHwick OV("r t.l,l\rc- to a mn.ttcr which hns been hl•for~ this comn1ittco
ropcntcdly in tho pnst. It directly hwolves n trcnt.y of commorco,
trado, nnd friendship, and hns been tho occasion ro .. two rather
positive posit.ions to.ken not only by this co1nmittuo but by the
Congr<'ss, nnd whi<'h according to my view, which mav not be wrong,
havo bt'cn not only ignored but flouted by the Dcpnri.1nent. That is
tho ~loroc<'an situation nnd what nppnr<'11tly hns moved this Con1trcss
to consider that our American citizens in ~forocco ho.vo not roccivc<l
the gua1't\J\too<l oqunlity of tr<'n.tmont under tho existing treaty with
?\forocco. As I en.y, that mny ho wro11g; I don't know. Dut it has
bcon suffici(,\ntly prosontcd so tbat it bas boon tho occasion of two
actions by this commit.tN, nnd two actions b~• tho Cougr(.lSS on that
lino. But the situation has not seemed to be improved any.
· Aro :you fl\miliar wit.h that ~loroccan situation?
Mr. jJ1NDEn. I am not fa1niliar witb it, sir. ~Io.ybo ~Ir. Vernon
can speak to that.
Mr. VEnNoN, I ,think so.
Right at tho moment, sir, as ~ou no doubt know, that issue is
hl'foro tho Intcrnat.ionnl Court of ,Tustiee. ·
Senator IIIQKJ.~NLOOPER, Yes. And n1ay I sa.y. that in my unschooled
and-probably inadequat.o opinion, it has no business boforo
the International Court of Justico at all. I have had a little superficial
examination of tlmt, and at loast in tho absence of further J.>roof
I do not think it ove.r had any business being t.akon to the International
Court of Justice, and I don't think we had anv business joining in that
matter in the Court of Justice. I mean, I just wanted to make my
position dt\ar so wo will know from what stnndpoint we are arguing .
. ~1r. VERNON. IA't me giv~ just for a moml'.nt or two aomo of tlie
coneidorationa whic~, locl us to conrludo that it was not easy to determine
just what tho rights of the Amori<'ans were. Tho American
rights in ~Iorocco accumulated out of a wholo ,eries of treaties going
back to the eighteenth century. That ie when tho earliest one wat1.
Annex 89
18 COMMleRCJAL TRKATJES
Somo of the rights depend upon such a complicated issue as tho
following: Whether, if we have moat-favorcd-nntion rights, and if as
a result of tho n1ost-favorcd-11ation right wo _get a l'ight which was
expressly given to anotlwr country, SU(•h as E~land, nnd thon the
treaty by which England acquirod certain rights is nbrogatoo, do
we continue to have tho rights which we acquired indirectly through
the most-favorcd~nation trootmont, notwithstanding the abrogation
of tho U. K. treaty with Morocco.
Thoro was also a problem-of whot,her and to what extent custom
and usage would give us a right which was not expressly stn.tc<l in a
tronty.
I sat down wit.h our lawyers trying to trace back the eff cct of t.he
accumulation of t,hesc principfos UJ>on our righta and cn1ne away with
tho very certain conviction, which was shared by anyone who had to·
go into this in detail, that at a n1inimum one could say our rights
were complex and far frmn crystal clear.
We woro also concerned that whatever t,he rights 1nay have been
AS a result of these longf'r standing treaties, whet.h~r in fact rocent
agreements under t.ho aegis oft.ho Econo1nic Cooperation Act 1nodificd
them.
'l'ho result was a fogal jmnhlo complicated by the fact that it could
bo interpreted not in terms of domestic law but in tei·ms of tho rather
more obscure provisions of international ln.w.
In those circu1nstances wo felt, and I think there is room for honest
difference of judgmont on this1 that tho best possible approach was
to try to got a clarification f.rom the lnt.ernat.ional Cuurt of Just.ice.
l'ACTORB IN THE FRENCH MOROCCAN Sl'l'tTATION
. Senator H10KENLOOPER. Our treaty was with A·f orocco, where the
violations wero alleged.
Mr. V EBNON. That is correct.
Senator H10KENLOOPER. And France took it. int-O t.he International
· Court.
ilr. VERNON. On behalf of ~forocco. France hftS a relationship
with ~lorocco which we have recognized by treaty, taking over the
responsibility tor l\Iorocco's foreign relations; therefore she was within
her rights, acting on behalf of ~Iorocco and herself, to bring the suit.
Senator HrnKENLOOPJo;R. Nevertheless we have fountl, on two orthree
occasions, that· tho treaty has been violated a number of timC's.
Isn't that true?
Mr. VERNON. I hesitate to relv on my judgment on this, or on n1y
1nemory on this, because ·really· the jumble of bot,h fact and law is.
involved. One thing is clear, that a lot"of t.hings the Moroccans and
French have done have not been right in equity or any abstract concept
of Justice that you might want to think of, and we havo not by
any means been happy about the t~atment in certain respects that
the Americans have received in Morocco. There is no question about
that.
Senator H1CKENLOOPER. May lask you this: Havc·t.he Moroccans
· themselv~ ever refused to comply with the tt<'aty, under their own
s~am? In other words, aren't the Moroccans perfectly willin~ to
catry out the treaty t ~ut tbe fact is the French, through their activities
there, prevent the Moroccans from cak"rying out the t,reaty and tbo
Annex 89
COMMERCIAL TREA'l'IE8 19
l•'rench supcrimJ>oso sJ>ccial advantages to Jl'"rench pcoplo in ~lorocco
in trade and oth('rwiso which nre not ~ivon to American cit i1.en~·?
~fr. VERNON. That is an aw(ullv difficult one to answer.
This is one o( t ho runsons why it~ is so difficult to answer: I use this
ns an illu~tration rather t.han the wholt• group. 'l'he <'lll'rl'ncy in
which the llrellCh ~loroccan trade is conducted is tho l~rouch ft:anc.
'l'ho ~Iorocca.ns may be porhaJ>s willing tho.t in imJ>orts into ~forocco
thl'rc should be no discrimination aguinet dollnrs, but. in a sense it
is not their ox t.lmt is gored. 'rhr. l'urrt'ncv that is used for trading in
tho area is the ·Fr<,nch franc, and runs on "t110 Fr<'nch franc hy renson
-of, let ue eay, open import.a into the J4""ronch ~loroccnn an•a, and the
l'l'-SU}ting w,;akness in the }"rcnch franc because of tho loss of dollars,
is a J>roblom whid1 hits }"ranee and not ~f oroc<>o.
I suppose it is t.ruc to say t.hnt ~forocco wculd he hnppv if the
J.""ronch pormittod all the expenditures of }"rench dollarR t,btit would
he involved in frt\o import.s iJlto ~f orocco, hut I expPct it is also true to
sav thnt their willingnl'ss to ()(lrtnit that is not a rl'ffect.ion of t,he.ii♦ •
willingnoss to oxtencl us favors which France would not be willing to
•oxtond us, but rather n knowledge that it does not cost them anything
to extend then1 to us.
Senator H1cK1-~Nr,ooPER. I understand thcr<' arc son10 )lropositions
in currency exchan~e whieh any country wiU hav-0 to mo~t equally,
:and should i( thorc lS equnlit.y o·r trel\tlnont, but it is the unusual a1id
•l'Xt.raordinary export and import liconeo systein and the Jwnaltil\s
which are put on American goods and Anwrico.n trade t.hcrc whicl1 are
not im:posed upon the }""ronch, and all those things, which aro practical
inhibitions and coercive things against Americans opl'rating in
~(orocoo, and tre.11tmont which is not accorded with the stune sovC'rity
to the J:1"ronch and perhaps one or two othors with }"rcnch favor.
!\1t. V•~RNON. That is true, sir, and the t·cwN'St- is tru(' also, that
tht•ro aro art•as in which An1cricans rnn do things that l1""rcnchmen
.,•an't do. That is whv in the first insto.ncC' vou haY<' n large.\ Atn('riC'tu1
colony trading in ~forOC'C'O. 'l'hl'rO arc c~rtain J)l'()(lucts whi<·h tho
An1ericans mav import fret•ly which a }'ronchman is prohibitt~d fron1
importing freely.
Sc.·nator H1cK•~N1,ooP1-m. Do the li,t·(ln<'h prohibit t.hc }'rt•uchmt'n
frotn il-::tJlorting th<'m, or do the ~Iorol'<'nt1s?
~rr. VnnNON. 'l'he l1'rt'nd1. '!'hat sounJs rt\thcr curious, hut the
answer is si1nply this-
8c.•1mtor lhcKJ-:NLOOPi-at. \VhY should wt.• ho c.·rili<·izml for o~rating
h1 8ll area WO aro priVill\gl'U t,o operate in whon the }'rench could rniso
the rC'strictions and tlu• Ji,r(\neh <'Ottld opcwatci iu t-ho sn.nrn area if thoy
wontcad to, when it. is within th<'ir <·ont.rol.
~Jr. Vi,~nNON. That is true.•, sir, on<l whnt this refl(.lcts is the Cnct
t]mt thrro has been n. reco1,,,nition of Anwrh·n.n rights, which is the
rcnson in tho first instn.ncc why An1(1ricans nro living tlrnrc and trading
t.l1<'ro. In some situntions th<.• r<'sult, hns h(\(\J\ thnt. the J1"r(\nl'h, in
.1•ecoguition of tlwso spc.,cinl treaty rights, ho.v<' pcm1itwd Amt,ricnns
to i1uport a largl' list of proc.lucts providucl thn.t tho Anwricans found
the cx<·ho.ng~ in somo wn,y or anotlu~r, but have prohibit(.\d FrNu.·hnwn
fron1 iinportmg th~ so.mo prOllucts bcco.uso U\C'y know pcrf(\ctl,.v well
the uxchange tho Jrl't'nch would use would havo to conrn out, dn·<'ctly
-0r indil'ectly, of the J.i'ronch reserves in Pnris.
Annex 89
20 COMMERCIAL TREATIJCB
,·· Senator'HlcKENLOOPER. I 1norely .tnent.ion t.ho 1nattor. It is not·
boforo this committee-this 1110mi.ng, but I n1011t.ion it wondering, aftur
we do g,,t i:nto th,,ee treaties of friendship, just how· they protect tho
rights of A1noricnne that aro actually guarantood mulurtho trt,atv bofot·o
ua. It is a 1uostiou of whl're· flow 'tho bon<'fits, and I would hopo tluit
they would >t, oquitablo and give equal hl'nofits to ·nations tlmt we
-treat with and, hv the same tokon, that wo would ho uttorlv zoalous
in seeing that :An1oricru1 natio11ale recoivo thuir full rights undm· the
,t«'eatiee we make. - · ·
: · I do not havo any moro quostions. ·· ·, · .
Senator SPAUKMAN. 'rhank you . vury 1nud1 • . You will · stay hN·o,
Mr, Linder, I ·assume. · ·.· ·. . ·
Mr. LINDER. Ir you "'ant 1no to I will be hero.
• • • ' • • ~ • • . ' • ' I • t • I ••• • I
..._. ' Poa1T10N or THE ·NA'l'IONAt. l"OREION'TiU.DE couNc1L
f t ' l •~ •. • • ' I , I I ~ 1 • f
·."Se11stor8PARK~A.N. ·l~1night be well tosiay. I do ~ot know whothor
some other- quefft1ons- -will coin~ up4 · It probably will not tnko very.
long~ 1 • I .suggest the fottor from tlto N $tional }'oreign Trado Council, .
lno., ui1dor datt~ of !\fay 8, 1952, appuar in tho rocord at this point·
and that -it» be followecl~-by· any conu;nenta wh~h th~ Dopart1ne11t or
StatA ~ay wish, to subinit:... . . . . . . · . •
1
• '. ; : •: • • • • ; ' :_N A1'10N~t.., FoREiON 1't\A 011 Cou!'Ct!6J l Ne ••
. . . · · . . · . . , Neu, York 6, N, } ., MGI/ 8. 1061.
llon. Jo~t( J. SPARKMAN, . •. , . • -~ • • ; · .
. Umted. Sl~ltf Senalt• · . • . . . · . . . .
' ~e',"ati Ofllce ll11ilding. ~ a~nington, · 1~. C. · . .
' DEA'R Sia: 'rho National Foreign 'l'rado Counolll1M boon ad\'lscd that ,·ou have
been appointed tiy tho chairman of the. 8enato l<'on-lgn Uela\lOUM Committee,
chairman ol a eubcommitt.ee 1,0 tako te1t,ln1ony and make recommendation relative
to t,be consent and advice to bo glvon Ip reeJ>oot of t-N'atiM h«'rotoforo signed on
behalf or tho United States with certain. other. countries. 'fho trcatios concerning
whJoh "'o wish to cosnniont aro: · · ' . .
Treatf of Frlondebfp\ CC1mmorco, and Navigation between tho Unlt.od States and
tho Rcrubllc or Co1omhla ·
T-reaty o 1''rlond1Shlt>, Commerce, and Na-vlgation between the Unltod States and
Denmark ·
~ty of-Amity.and Eoonomlo Uolatl0na with l~thiopla
Treaty of l<'rlondship, Commerco, and Navigation botweon tho United Statoa
and qreoco
Troatv of'l Pricnd!d,lp. Conunoroo, i.nd Navl~atlon with IRraol
A&~inont with Italv supplomentlng the 1 rcatt of t-·rt~ndship, Commoroe, and
Navigation or 1 D<:&8 . . •
We have·been advl80d further t.hat you havo deRignated l•'riday morning, May 0,
l9&i; ai.tbe tlmo for hearings ln thhs oonnoctlon. ,ve regret that lt appC'an to be
lmpOMlble for \IA to arrange for a wltneRS to bo prcsont an<l tcittify at. that tlmo and
lo lieu theroor \\'O are l'08pootfully submltth1g In this oomnumloatlon our vlowa tn
connection with thoso trt'atioa. ·
., t .. , ; f I • i I ,"
Ta■A.TI' or P&lllN1>8HIP, COllllllRO", AND NAYlOATIOH Rl:TWIUIN THfol UNl1'11lD STATll:I
. , , , • , • 1 • 1 . : 4\Nl> •T~& R~PUBLlC QI' COI.OICPIA
,· Under date ot Oc.,tobor o, 1051, \\·o wrote Hon. Torn C6nuall~, chairinan of tho
'rorc,lgn Hclatlons Commit.we. giving our vlewe relatlvo to the treaty with Colom-
·bta. For yaur_roady !'Qforonco, wo attach noroto a copy of this Iott.or. . •
.The only additional comment which wo would liko to mako with rogard t.o thle
treA.ty ta io tnake rofcrtmoo to t,he paragraphs In this lottorientltlod r~pect.l vely.
"Tli4- Jn1011tn1ent Clause" and ,.The Ueetrlotlvo Uuslneaa Practice Clausu." Our
views with respect to the lnvc1tmcnt clause and t,be ro11trlctlve but1h1eM praotloe
olauae aro the reault of study slnoo Octobor 9, 1D6l, and woro thororore no~ oovorod
In our let.tor to Sona tor Connally. ·
I , ..
Annex 89
COM.l\lERCIAI, TRti:A'rlEA 21-
TREATY OP AMITY AND ,ECONOMIC lrnl,ATIONlll W_l'l'~I J:TIUOl'IA .
\Ve re~J)€'Ctft1U~· \lrg(' t.hnt the ~Clll\1(' ~ha\l not ~l\'O i1)l fn,·orablf' ·~·d\'f{'O nnd
con!-lrnt to tho ahovo-c'Jlt.if.lrd trt•nty. ( )ur rt•IL"I011M for tl\klng this J>0.'41,t.iQll Jn ros1u•
ct, of this trtiat,\' l\ro f\..'4 follow~: ·
It Is apparent. from t.lu• conttmt mui phrn.-inolOJCY of t.hi:-c t.rt•Rt~• that, th<' ohRtacloa
to umtual 11nderata1uling on Mevt,ml pht\.~tJM of l'onrnwrcial. r<•latiom1 woro. l\O,t. ovoroomo.
In fact .• it ,womM douht.ful whothl'r, at tho pr,u,1cnt id.age of l•~t)uopia••
t".Conomlc devctopmt,ut. any Hl\ti~(yiug mut.ual con,·icto1ou", or oom1non ,Kro11nd for
stlpulatfona r.egardlug nrlvato invo13t01cnt .• {'l\tl bo found. ~loreoypr, a . reecn\ .
canv~ of reprmmntatlvo nwmhc~ oft.ho council has not dcvoh~J>od •11y oxprc~jq11i.
of POMitlvo lnturel't in 11ownt.lal invctltmcnt in 1hat. <'otmtr~·. J'horcforo, ,i. ~nii,
undcMlrablo to dllut<' tit~ patfrrn of our hilat.crnl trcnticti by rcRortlng_in this c~o
to suoh woak-phr&Kes u- . .. . , . . , . , ,.
ureuonablo opporhmitv for thu inv,~shnunt, of capital, 4Lnd for tho cs\abUshru"-"t.
of appropriate commcrclal, indulit rial, or other t>ntorprhws • • •" or "natiqnala ·
or compani<'tt • • • which arc JXlr.mith'd to <·stablitib or acquire e,tq;.
i • • • ,. . . . pt 8C8 • ' ! , · , · , • t I •
Tho ohjnotionK to the second olauMC of artl('lo \'Ill (1) ancl to tho ,iccond sontonco.
of artlolo VIII (4), aro contain<'d in Um ln\'ost.m<'nt claut1<' scctiou. . . • ; , ·;
While th<'ro Rro otll(\r f<'at.ureK in this .t.r(1aty which might. prove ot pr~tlr.at.
intoro11t to American huAinotJs, th<' &MKref_(ato a:dv"nt~o woulct not 11ocm io ·ou~.;
wohcht. tho disadvantage of ostabllshi\lg au ,,ndeAiral>lo.precctlont In our t.i:eaty ..
wriUn,c, at thll4 Junoturo. . . ·. · · . , • . , •
Since thq objectionable weakn<'~s of thf~ treaty h, confined practically,,~ PArA•
gra1>lte 1, 4. and 5 of arliolo VUI, tho Sonatc miMht comddor .glvin~ Jt.A aclvl~
and consent to the ratification or this t.rcat.y, with a TeSCrvatioo deleting ~ra-,,
,vaph 4 of arUalo VIII In it.~ cntiroty and tlio·words ."arQ pt•rmittod to" .from tqo
K<'cond Uno parawa1,11 ·s articl<• VIII, a11rl anrnnding artlclb VIU (1) in accordance .
with ,tho suggested P,rovittions 11ot f ort-h In tho e<'ct.ton or this letter cntttlQd 0 The
Invoittmont Clause.' •· . ' . . .. . . .
AGREEMENT 8\ll'Pl,li:MENTINO T!Ul TR&ATY OF FRU~NDSHIP, C<HilllERt~V.. AND NA\11•
OATlON OF 1-'t:RRUARY 2t 1918• RETWEl!!N THIil UNlTl!:D STA1'Jo:8 AND TIIR ITALIAN
RllPURLIO , .
"'o ~J>f!cltully urg~ that thn &nafo l(.lve ltR fayorahl<' advfoe aml coni.ent to
th<' ahovn on titled ~mont. or treaty sutij<'ct, however, to tho followh'IR comment:·
Art Ide I or t hlH pN,ding ap;l'CC'mN1t. or trt•nt.y ap~arR to ho a Romr.what wntcrod-·
down Vl'rsiou or tho lo,·t>~tnwnt elauAo hcroinaft.,•r dealt wlt.h. It i~ our ooU~f that
the comment In the ~aral(raphs d<'all,(lg ~1p1 .t~ts matter would ap·11ly to article I
of thlij ~mJ>plNu('ntal Italian t.l'('aty. ' ' '"' ri , •
W<' alECo call attrntlon tot ho fact that. artlclo XVIII (3) of the ltalf~• t.rcaty of
J.'cbruary 21 UHS. i~ thr. rcstrlotiyo_ bu~inl'l'\S practice clam~o h(\refnafu-rdealt wlt.h~ ·
It ma~ bet 1at If your <lommlttct, I~ favorably dlH~ANI toward the rcco11m1cndatlon
<-ontalncd tn tho mNnorandum attached to this totter l'ntltloc) ''Uostrlctlve
nuslnoAA Praotloo Clau11cR in J>roposcd TrcatlN\ wlth Denmark GfO{'eo, IHl'at'I, and ·
Co1ombla0 you woulrl del'm It. appropriatr. in conn('('tion with tho rfttlfll'atfon of
the supplr.moutal agreem('nt to rcqurst t.ho modlft~ation of artlclt' XVIII (3) of ,
tho original tl'(\aty. ·
TREATIES OJ' FRIENDAIIIP, COl\lfl!KR<'E, AND NAVIOATJON 1'flTWIDEN' THID UNITIDD
STATES AND DJl:NMAUK1 ORF:>:CJt AND 18RU:L
\Vo ros~ct.tutly urge that t.ho favorablo advlco and conSt'nt of tho Sonate be
p;l\•t'n to the ahovC•CRJ>tlont'd t h~ troatln~ of fri"nd~hip, commerce, and na,·lgatlon,
eubJt•ct., howe,·('r. to t.l\o commout contnln<'rl In our lntt<'t of Ooto\)(lr 9, HlM,
dealing with tho treaty with ~olombiA Insofar as said oommont applios to those·
t.rcatlC>s and subject furthor to tho commrnt~ hrr<'inarter cont.alnod rolativo to
tho h1vt'atmcnt cJauso and tho rcgtrlotivo bushu•~s praoUco clause.
THID INVIIIS'l'MBNT OJ.AUS■
Tho cl1mRo r<'lorrt'd to by this caption Is article VI of Ute troaty with 1lonmark,
article VIII or tho treaty with Oreocc. and artiolo VI (4) or t.hc troat.y witb lsraol.
The clause In the tro•ty wit.h Denmark is less comploto than tho oorrOHpondlug
olaui.os of tho othor two treatlos,
nereronoo is also macle to tho fact that t.ho subi.tanr.o or thfg olau:ic 1~ contalnod
in artlolo I of t.lto agreement ~up1>lcment.lng tho Italian troaty. A oor~pondlng
Annex 89
22 COMMERCIAL TREATIES
olauee ls also to be found In the 1940 treaty with Urup;uay (art. IV)i tho 1H50
tre~ty w4\h 1~1and (art. V) and the 1951 treaty with Colombia (art. V ( 4)). i
For rc4'(1.y svteronoo we quote u follows tho clauso M it appears in tho troaty
with Oreeoo:
11 ABTICLS VIU
"Neither party shall tako unre880nable or dlt'orlminatory m€'&sures that would
Impair the legally acquired rlght.8 or int.erost8 wit.hfn l~ territoric.'s of natlonal:4 and
c9mpanles of the otbor part.y in the entcrprLte11 which they havo eMtabli~hod or in
the oapltM, •klll8, arh, or teolmologv which they ha~ i!~llcd; aor ahall either
p_arty unre~onably impede nat.lonalM and companies of tho other party from
o~t~~ M . equltab~ t.er.ms the .oap1.~Wt l§kitfe, arts and w,ohnology needed for
eoonomio tliveloprntlnt!' ·
This provision Is a veffllon of a provision of tho Bogota agreament which has
nuver· been submitted to tho Senato for ratiftcatlon. Th~ Habana ohartor of tho
ln~mat~nal Trado Or~anl1ation also oontalnod a ~imllar provhllon but this like.
wfee has· never received approval of tho Senate.
Thq tre~ty comn\lttcc of tho Na,tlonal Foreign Trade Council has pointed out
to us that tltle r)auite prohibits only "unreaHOoablo or df8orfmloatory measures
• • ••• ~hioh hnp8:fr a~quircd rights and that tho Implication in the clause ie
th.~~ by ~~UJ'.88 ~htch are nelth9r unrcuonable nor dlacrlmlnatory tho Govern•
m.~t of one l>~Y to tho treaty may properly hnp&fr within its territory the
aogulred tights of uationals of Uie other party to the treaty.
In our opfnton, tho Importance of the defect in this clause as pointed out above
ff~~p}.1-.•led by receQ~ developments In Iran. Tho C'.ovcrnment of that country,
because It f._pp.arcntly beUoved nationalization to be dealrablo as a natlona)_polioy,
~n~ loalslatlon to nullify the Oov·ernmont's contract with the Anl(lo-rranfan
01, Op. ~pd ·the_reby impaired, If\ fact ¥tually destroyed, Important, acquired
rf~h~ qf_ ~~t ~mpa.ny in Iran. ,
tA, seob'ti.d dant,;oll>u11 imptf'catlon 1h the phr68e0lhgy employed fs bMed upon tho
quallfylng phraso "which thoy have tmppllod.'' As applied to capital, It suggests
th#'~ Qnly aa to ~ho atnount of capital originally "eupplfcd" by remittance of
fQ,elgn fun~_s, w~uld the etlpulations of this article provide any security. Historically,
American direct lnvestml'nt hu grown tremendouety not only from
fund, remitted for Investment, but by reinvestment of eaminpe within the foreign
op,uf\iry. Thero "1louid bo n~ ~mbJguity or n,deunderstandfng on the point that.
the l~v~tor',- ln~~ts are to be protected as well In respect of this ·'plow-back"
8' bi ~O\lt of the ori~iual "remitted" capital. That this Js not an acadcmlo
l9A4, '8 cloar (rom tho discussions in prosl'088 with the Government of Ura1.il
r~l~ th~ eorvice 9f American investment.a in that country. Unfortunately,
we have· no modem comn1erclal treaty with that nation; but lf we had ono reading
• dQ~ tbe Bo_iG.ta 1tipulatlon quoted above, it would ho a very precarious MRllr•
ance of eqult.ablo treatment. 1'i view9f w~M ~ folt to be deftclencloa hi clarity of this articlo, wo respoctfully
UfiO that Uio Investment cl~uso u it appears in pending treaties now under co11-
=r:iton \>y tho United States Senato be so amended as to give Additional pro•
· n to rights. acquired by American nationals in forei~n countries. If the
t<QVetnment of C\ foreign country ha\'lng " treaty of friendship, oommerco, and
navigatlon with tho United Statea of tho post \Vorld \Var It typo takes proJ)crty
of an American national for public purposes, it must pay duo compensaUon with
rea~t thtreof. It is urged for your consideration th.at if tho government of a
foreign country takee the mca,,urcs whloh would destroy or Impair tho right& or
Interests of an American national lrrespoctlvo of tho purposes underlying such
deetfUot.lon ot hnpalrmont, oorreapondlng payment should be mad~.
If the flnt part of tJ1e inveetint>ut clause could be so modified as to read:
''N~ltJ1or party ehall tako moasures that. would impair the ri{l;hte or intoresta
wUhln lu '8rrltorioa of national11 and oompanle11 of the other ~arty excapt on J>ayment
of pro1npt, adequatl', and offootivo c·omponsation" wo fool that a du~lrable
result would bo aocompliehod.
Wo also feel that tho balance of article VITI of the treaty wft.h Grecco, reading:
11
• • • nor shall either party unreaeonably lmpooo national1t and companies
of the other party from obtaining on cquitahle terrn8 the ca1>ital1 skills, arts, an<! ,
te~hnology noodcd for ooonomlo development."
should be deleted In It.a entirety. lt Is to be &Numed tha$ it would be the United
Staie..·whlah would be lnhlbltod by this language from unreuonably Impeding
n~tlonals and oompanfo3 of the other party from obtaining on equitable terrni,
, , f< :. , 1 •, I I t
I l
Annex 89
CO..~.MERClAL TRBA'l'lES 23
.
tho capital skills, etc., reforrt'd t-0, It eeems to ue that the meaning of the
phrMes "uproasonably hnpcdo" and "equitable «'rms" arc BO obscure and the
implications thcl'C.'Of 150 broad as to make the inclusion of such a rrovislon In a
treaty entirely inappropriato and undesirable from the point o vlow of the
United States. This language or a modification thl'roor is contained tn the
trcatir~ with Colombia (1Lrt. Vl-•l), IHracl (art. Vl-4), Ethiopia (art. Vlll-4)
and Italy (n.rt .. I of the supplomontal treaty with Italy). It does not appoer In
tho treaty with Denmark.
TIIE R~STKlCTlVE IIUSINEKS PRACTICE CLAUSS
The J'08trictivo lmslnc>ss practice clau1:10 to which we refer has, we bellove been
incorporated substantially without ohango in all of the post World War II
treaties of lrlondship, commorco, and nav~ation comrncncing with the 1948
treaty with Italy and it reads (treaty wJt.h Denmark, art. XVIIl-1) aa follows:
111. 1'he two )lartles agree that bu~incss practircs whirb restrain compcUUon,
limit accc!R to markots or f ostcr monpoli8tlc control, aud which are cugagcd in
or made effcrtive by ono or rnoro pri\'att• or public commercial enterprises or by
combinatJon, agreement or ot.lu.•r arrangement among such cnt<'rpriscs may havo
harmful dfcct~ upon rommcrc<- betwocn their rcs1x-ctl\'O territories. Accordlnlgy
oaC'h party Rgrecs upon tho request of tho other party to commit with respect to
any such practices and to take such measures as it dooms appropriate with a
viow to climinat.ing such harmful ofl'cct.8. ·• .
'l'ho National l<'oroign 1'rade Council believes firmly in the princfplcs of private
eutorpriso and business conductl'd 011 a compollti\'o blLl!ls. Until recently it had
viewed the restrictive bu8inct1a practice clause as being merely a comdcmnation
of practices contrary to the letter and spirit of existing Amorican law.
More recent study of this provision and particularly of tho second sentence
has caused us to revise our ideas. At the preirent time, taking into consideratio11
tho fact that trt'atics duly cnt.on.'<l into become under tbc Constitution the
eupromo law of the land, and bearing in 1nind the delicate relationship established
bl tho Con1$titution between the powers of Congress and tho ~wers of the
F~xeoutive, we have como to have real apprehension that this clause as now
drafted may result in transferring t.o the oxccuti\'e branch of our Government
certain powers heretofore reserved to CongreS& .
AU.ached hereto ploase fiud a memorandum dealing with thls subject ln aome
detail which we behove will be of interest to your committee.
Uespeotfully submit~.
W1L1,lAU B. 8WJNOLW, Pruidtnl.
R11sTR1CT1v& llt1s1N&ss PaAcT1c1: CLAui,xs 1N PROPOSED Ta>lATISi W1T11
DENMARK, 01tll!ICE, l&RAflL, AND COLOMBIA
Art.iclo XVIll-1 of the proposed treaty of friendship, commerce, and navl~atfon
with the Kln$dom of Denmark, now under consideration by the Com'mittce on
Foreign Relatlons of tho Senate of tho United States, contains a provision dcilgned
to ellminato harmful efroota upon oommer~ between the Unttod Statea and
Donmark arising from business )>raotlces whlch restrain compotlUon, lftnlt acOO&t
to n1arkcta or foat.or monopoJlstfc.: control u tonow,: •
u AJ\TlCLB ltVll1
0 l. The two parUca ~ree that business practices which restrain competttfon,
limit acoos., to markets or foswr monopolistic control, ancl which 111'8 engaged in
or made offcctl~ bv ono or more pri\'&te or public oommorclal enterprittes or by
aombinatfon, agreornent, or other arran~ment among such cntetprlttei may h•vo
harmful effect.R upon commoroe between their respectivo tcrritorleis. Aecordtngty,
each party a«reee upon the request of the other part,y to consult with rospeot to
any suoh practices and to take Ruch m~atmres u it deema appropriate with a view
to ellmtuatlng 11noh harmful elf cots. u
Tho second scntonoo ot the provision quoted above gh·os causo for panlcular
ooncern In that. it would bind tbe Unltecl Btatel' ••to tako auoh measures ,., I~
deems -appropriate with a view t.o olliriittating wch harmful effect.ft." Thera la at.
least room for tho COnRtruotton tbat -each partv oonunlts iteetf to titnt.c\ 1'i1eaaures
whloh will ollmlnate the harmful etfect.s of restraints on com1>eti~ion, leaving
I A oountet1)art orthla t'llUM appeara ID tbt propoeed t1Mtlet wlth O~ (art, Xl\l), Dnlil (art. XVJll),
and Colombia (art. X\'Ul),
Annex 89
24
only to the discretion of the parties the choice of the meMure or measures which wm be appropriate for this purpose. Since a treatv constitutes the flupreme
law of the land,' it may certainly be argued that the United States could be
held liable before an international tribunal should it fail to take some measure
or measures, whether by .&et of Congress or by executive action, to carry out
the mandate ot the treaty with Denmark.1
Presumably, the consultation agreed to under article XVIll-1 would take
place with the executive branch or our Government 4 and the executive branch.
rather than Congres.i, would be directed to take "such measures ~ it deems
appropriate with a view to elitninating such harmful effects." 'l'hus read, it ma)·
be argued t.bat tho provision in guestion would result in a surrender by Congress
to the ex~cμti\·e branch of our Government of a portion of its powers regulating
our foreign commerce which is now entrusted to Congrcs!J under article II or the
United States Constitution. Following this lino of argument to it~ logical conclusion,
lt seems clear that the Executive would not be required to seek congressional
approval or measures which it deemed appropriate to the extent. that 1:!Uch
·measures were within the general power of the Executive to carry into effect.
For example, the administration could through the Office of International Trad<!
impose export restrictions, thus forcing industry to abandon or change any
practice which had been a subject of complaint.
Again, following this line of argument, the executive branch in fulfilling the
obligations assumed under the proposed treaty, would not in any way be limited
by the existing antitrust laws of the United States,• but in fact the executive
branch would be committed to take such measures M it might deem appropriate
•with a view to eliminating harmful effeot:3 from "business practices which restrain
·competition, limit access to markets, or foster monopohstlo control • • •"
whether or not such practices in a particular c~c were in violation of the anti
·trus~ laws of the United States. In effect, therefore, the executive branch of
the Government would be committed to different criteria from the existing
arlooria applicable to American enterprises at home or abroad.
· · 1f a treftty were not involved, tliere ta little question but that tt would lxunconstltutional
for Congress to delegate its antitrust po were in the manner con-
_· ten;iplated. • . However a treaty mado under the authority of the United S~a~R
becomes the eupre-ne law of the land 7 and there is support for the propos1tlon
that that which Congre~s mBy not do und~r the Constitution, I. e., tho delegation
of it.~ power to regulate commerce, may still be aecompliRhed pursuant to a treaty
entered int.o "under the authority of the United States."• ·
The full import of the con~ssional surrender of power over foreign oo'llmerce
which Is inherent in article .XVIIl (1) of the proposed treaty is perha1,>s more
J)()intedly revealed by thr> potential impact of this article on existing lrguJtation.
There lre in·effoot today a number of laws enacted by Congress which grant somo
form of antitrust exemption to activitlee affecting our foreign commerce which
might be construed to be rest-totive practbes within the meaning of article
·xvIII (1) • . For example, the Capper-Volstead Act. ' permits persons engaged in
the product~on of agricultural yroducts to market such products in interstate and
forelg_il commerce by means o marketing agencies in common. Lot us ~upposo
~ the ·oovernment or Denmark we!'6 to make the. contention that agreements
establishing such collective marketmg agencies pursuant to tho Capper-Vol~tead
Act were &dve~l)' re~tricting trade ·between the United StatcR and Denmark.
Under article XVIII (1) tho executive branch .of our Government, according to
the argument stated above, would be obligated to tako measures to eliminate tho
harmful effeot.s of suoh restrictive practices1 including, tr desired, the withdrawal
of .4PP.f9Vals previouslv extended to the co1lective marketing agreements. Since
, the m-ovl'slons of the treaty supersede the law~ of Congress _previously enacted, 10
, the Exec~tlve ac~ion would overrule the prior congressiona~ dotermina~ion that
• United States C~ttutlon, art. VI. -
· • • Hackworth, Olaeet of Intema\lonal Law.t vol. V, p. UH et leQ,: Preuss, Prooeedlnp of &be AmertOID
, Bocle&J of IntematrOMl Law, Washington, u. 0 .1 Apri], 1961, p. 82{ 98-99.
•The ~eeuUve bas exrJuslve tmpervJs1on of mtematlonal ... Ja tons-U. 8. v. CurtfH-ll'rfgltt Erport
. C:Wpo,ttfOft (Mu. 8 .• 80tri 81 L. Ed. ffl (1936)): u. s. v. Corrollo (30 F. Bupp.a (D. 0. Mo.1939)): u. s. v.
:·,B 'tf fwfl-0., (,6 0 F. Bupp. Q> 0 , O. Md. lG4$)). . v. H,uon (3 Da I. •~. 1 L. Rd. 6&8 (U. e. 1796)).
,u • Pa11et11a "'1111fN a,,,.~,,, v. R,,,. (293 u. e. 388, '1t L. Ed. m o~». ,
'Untt.ed 8&a&ee Oonatl&atloo art. VI. ·
· ·· • M'ltlotuf •: Holllnul (262 U. 8. 416, ~ (191JO)): U. 8. v. Curuu. Wrlolt Etport Corz,orotton, supra,
DOYS. . ·. .· · I
· •Actor Fel;,ruary 18, 1022, eh. S'Ti,42 8tat. 388: 7 u. e. u., aece. 291, m.
II Wm Y, 111".fff <J.O.all, 198, 1 • Bd. 6Cl8 (U. 8. 179&)).
Annex 89
COMMERCIAL TREATIES 25
such collective marketing ap;rcemcntb were not lumnfut to our foreign commerce
and should ho pcrmit.w,t by law."
If, on th<' oth<>r hand, it h-1 not. intended to interfere with the power of Conl(rcss
to regulate OUl' for<'igu comnwrce or to open the way to the nullification of the
congr<>i-::f-ional enactment:-: dC':-crihed above (and there• i~ no indication or a contrary
intent), art.irle XVIII (1) ishould be amended so as to eliminate any question
on this t:>Curc. Por that purpo~l' rc\'h,ion aloug till' following lines is suggcst.('
d:
"Accordingly each party ugrccti upo11 the request of the other party to consult
with r<>spect to any isuch practicl•S and to take such measuers S.'i it dcemi:J aru>ropriat<'
with a view to <iliminating ~uch harmful efft,cth: Provided, however, That
in order to accomplil'jh the aforc:-:aid purpos<>!-1 the United StaWM of America
shall be obligated to take only mea.c;urc:s heretofore or hereafter enacted by
Congrcs~."
\Vhile existing treaties of friendship, comnwrc<', and navigation with Italy
(art. XVIII) anrl Irt•laud (art. X\'111 (1)) contain similar "r~trictivc business
practice" provision,12 it is not. too late• to prevent. a more widcsprl•ad u~e of the
clause as originally drafted. The aml'rHlment su~gestc<l al.Jove may, a.'i a matter
of fir8t. imprcsi-ion, appear to he too onc-i..idccl in fa\'or of the United States.
However, the Unitl'd 8tatef- is the only country in thn world, with the possible
exception or France, wlwrc a trnaty ca.11 l.>t>come a part of the supreme law of the
land without the necc:-;sity of implemcmting lawis enacte<l by the legislative body.ii
It, isecmR necessary, therefore>, by ~p<'rific r<>ferencc In the treaty clau~e to make it
clear that the me88uros to he udopwd by the United Statcij mu~t be those which
are cuactcd by Congrt•~s. ,
Hon. 1"'ou CosNAt,t,Y, .
Chairman, /i'oreign Rtlutio11t Committee,
. Vnited States Senate, lJ'ashington, D. C.
OCTOBER 9, 1951 ..
Dt-~AR 8rn: The.- National Foreign Tracie Council, on the ba'iif, of a report from
it.'i treaty committee, has reviewed tho_provision:i of the Treaty of· Jfriendhip,
Commerce and Navigation between tho United .~tates aud the Republic or Co1om
bla. oxoouted April 26, 1051, which ift now bofori} the Senato Foreign Relations
Committeo and dc~ires respectfully to urge that the Senate Kive its advice and
consent t,hcrct.o aR provided by the Constitution. The ~ational Foreign Trade
Council feels that the State Departml"nt should be commr,ndcd for its activity in
negotiating a treaty of [roindsbip, commerce and navigation the provi·ilonsof which
arc in general along lineR meeting in a substant.ial mannM the views of the member:t
of the council.
On the 885Umption that provisio118 of the treaty with Colombia will ~rvo as a
model for corresponding pro,·isions in other tr<•aties to lw ncgotlat-cd, the council's
treaty committee hns formulated as to certain provi'lion~ t.1wreof the following
suggestions the adoption or which it is believed would be dcnirablo:
Articu Ill, paragraph 1, and arlide VI, paragraph 1.-The words u1n no ca..;e
less than that required bv international law,, Rhould be added at the end of each
of the~ paragraphs. This phra.-;e luurappoare<.l in most other commercial troatiol:l
to whki, t,1io United States is a party and in the judgment of your committee is
11 Othl'r exompl('!I of l'xi!tlng laws which permit some form of exemption from our antitrust laws to actlvltkls
nffectlng our forel11:n comm<'roo are:
(I) Shipping Act of 1016 (act of Septt'mber 7, 1916, cb. 451, S9 Stilt. 728, as amonded; .f6 U.S. C., aoo:,,
801 812, 814, fU5) permits ratf' &Jl'et'tnenl, b(>tw('('n common carriers by water.
(2) Webb Export Trade A$$0tll\11on9 Act (act of Apr. 10, 1918, eh. ro, 40 Stat. 516; 16 U. 8. O., eees.
61~) permits e:aport-trad3 assoclatlom.
(8) Merchant Marine Act or 1920 (act or Junes, tn>, eh.~. 41 Stat. 988; 4G U. 8. c., see. 861), per.
mlta an u.,oclatlon or marln<' ltuUranoo oompanleR ror the purpo...,__, of apportioning risks.
(4) Civil Aeronautl<'8 Act of 1938 (act or Juno 23, 1938, eh. 001, s2 Stnt. 977·\ 49 u. S. o., 9CCS, 1~, 489,..
491, 492, 647, M8} pt>rmlts rate agreement/JI and poollng or apportion ng earnings, Jaw;, tTaftlc,.
service, or equl1>rnent. .
(6) lntentate Commeroe Act (act of Feb. f , 1887, eh. UK, H 8tat. 739, as amondNl: 4911. 8. 0., sees.
5 ff&, 3la, 213, 228, 311) permits rate and PQOUng KN)('cnent., between common carders.
(6) Fls\itng OooperaUve Marketing Acf (act Of June~. 1934, eh. 742, 48 Stat. 1213; St U_. 8. 0 ., aecs;
321, 622) perml~ l)ffl;QJ\8 enga,:ed n the tl~h<'ty tnd'lltry to cnk>r Into aontracta ana agrt1ementa
providing (or marketing B!rt'ncles In common. .. . •
11 Soo also agreements for economic cooperation wlt.h Italy, 1''rnnce, l>enmark, oocuplrd 0ermany
(French and Brltfsh ,.ones). Orttoe, Iceland, lr<'land, Belgtwn, Netlwrlauds, Lu1emoors. Norway,
8wed:m. United Klnl'dom, Thatlllnd, Trtcste, and Turk~.
11 Holman, lnternattonl\1 Proposals Affecting Bo-Callt'd Buman Rlalitl!, Law end Contemporary Plot,..
lems, vol. 14, No. 3 (1949), p, 487. ·
Annex 89
26 COMMERCIAL TREATIES
important in that it I\Ugp;~sts whRt we lwlicvc to boa t,;lgnifi<·ant prindrlc, nanw)y,
that int.o~·m\t.ioual law dooH N'qnire go\'(•mnu..•ntR to give prot-<.•ction o tho pcr~un
and tho property of nationalR of anothrr country.
'Article 11 I, 11aragra11h 2.-Tho wordR '' of hii~ choi<'o" Rhould bo ndd<'d at. t.l1c ond
of this paragraph. Thi!i paragraph indkaws t-hnt a national or one- country
accused of crime in the other countr.1 may enjoy tlw tight, among ot.hc~, of oh•
taining 11the services of competent counl:lCl." Obviou~ly he ~hould havo tho tight
to sluct such coun~cl.
Articlt l'I I, paragraph 1, and article VJ 11, parngmzil, 1.-Tho propo~al of tho
National Foreign Trade Council Committee on ln~nranco relating to tho Rpecific
inclusion of 41insuranco" in tho l'numoratecl ontcrpriS<~s entitled to national or mo!:ltfavorod-
nation treatment Elhould b<• approved nud accepted. The insurauco commfttoo
advl14Cd that specific rofcrono to lns,1rRnco not havil\g hcon made in <ixisting
trcati<'s with somo countric!i, tho St.ate Department ha.-1 boun uuablo t.o makt•
adequat~ roprcP.Cntations on behalf of American companicR doing business in such
count.rics wh~n discriminatory laws or practices were ndopt<'d and onforcod.
Article I Y, paragraph 4,-Ncit.hc,r tho uso of tho word~ "particular types of
activity" nor t,ho refol"l'ncc to article VIII, paragraph 1 is olcar. It Is recommended
that this paragraph be clarified.
Articl~ X .-This article does not but should deal with copy· ightR ag well as trademarks,
etc. (It was recommondod that, if Colomhia i!i not. a momhcr of t.hc
'International Conference for the Protection of Industrial Property, it. Ahould
become a member.)
Artitle· X I v'.-It bt suggested that a now paragraph, reading a,..q follows, be added
&o follow paragraph ?. of this articlo:
"Neither party Mba\l imposo any prohibition or rot\trlction or di~riminatory tax
preventing or hindoring the importer or exporter of goods or either country from
obtaining imHirance on such good~ hi transit in companies or their own choice."
Article X' X 1"1, paragraph 4,-This paragraph providcR for terminating on 1
:vear'e writ.ten notice the provisions of paragraph 1 or article XIV as~uring mo~t-•
favored-natlon treatment as to <'Ut3toms dutiea aud othor rotated mattcrR. It.
therefore avoids the necessity of denouncing thecnt.ire trraty becam~c of a change h•
policy affecting customs dut.ies which might be Inconsistent with the relevant
treaty provision. The treaty committee bolicves that tho freedom of'actton thus
granted to both partieA ts desirable and should be commond<ld.
The ~ommtttee would also take t.his opportunity to refer again to the nood for
treaty provl11lons specifically assuring American enterprl!\Cs OJ>Clratf ng abroad the
right'to secure entry for and utnho tho services of American nationalH in administrative,
technical, and confidential capaclt.ies. Thie e1ubjoot was discu~~d in a
letter to Senator Connally from the council, dated April 23, 1951, as woll as in a
letter to the former chairmt1n, &nator Vandonbrcrg, dawd Juno 1, 104S.
· Very truly yours.
(Stgned) RoBERT F. LOREE,
Chairman, National Foreign Trad~ Coun<'il.
. (Communications of the Department of State relative to the foregoing
letter from the National Foreign Trade Council:)
Hon. JOHN J. SPARKMAN,
Commitue on Forlign Relations,
MAY 15, 1052~
, , United Statu Senau.
My DEAR S1.1NATOR SPARl<MAN: There ls enclosed herewith a memorandum
"°ncernlng the pending Treaty of Amity and Economic Relations with Ethiopia,
aa requested during the course of hearings before your subcommittee last J..,riday,
May 9t..l.n light of the objection expressed by Mr. Swingle, president of the NatJon~
l"oreign Trade Coun.cil, in bis letter of May 8 to you. Tho memorandum
bas been prepared for the record.
·. Comments regarding the. points raised fn Mr. Swlngle'a letter with reference to
oertain clauses in the pending troatics with Colombia, Denmark, Greece, and
lerael and the supplementary agreement with Italy, will be forwarded separately ..
Sincerely yours, · ·
. ' . ' :· HAROLl) F. LINDER
, · ·' · · · Aeling· A11istant Seetttory for Economic Affair,~
·~··Enoloaure: Memorandum with attachment.
Annex 89
COMMERCIAL TREATIES 27
MEMORANDUM
There follow the Stnto Dcpartment'ti comments upo11 tho lcttn of '!\fay 8, 1052,
from l\lr. Swingl<', pr('si<l<'nt. of tho National Foreign Tracie C'ouncil, to S<'nator
Hr.arkman, regarding the pending trcut,y of Amit v and Economic Relations with
l•,thiopia. •
Th(' Htntc Dc•rmrt.nwnt. con!-iders the tr<'nty with Et.hiopia to hr nn outRtnndingly
p;ood one, in all tho <·irc111nstanccs, and particularly ur~<'s it!<( appro\'al. It, contains
provisions of ~ruat value (I) to our diplomntic and co11 i-;11lnr ('stnhlishlll<'lltR
in Ethiopia, cert nin of which, a:-: indicatl'd in onr. oft he ('Xchn11~1•s of not,·s ntturhed
to the trr.aty, ~o bti)·onrl whnt. th<' Ethiopian Cion'rrimcnl is norrnully pr,•par('d to
~ra11t.; (2) to our citi:u.•111:1 in Elhio()ia. tlw l'Xchangc of notes r<'garding Uw spcl'inl
ri~hts of Amerh•nu:i hcforc E thiopian justiro l>t'ing 1•spccinlly 1iotcworthy; nud
(3) to tho growth of our trad<' and the <hi\'clopnwnt. of ollU'r Amcrfrnn inll•rests in
Et.hiopin. A8 the fir:--t trN\t.y of the sort that Ethiopin ha.-; cond11d<•d with any
nation since th<• wnr, it. mny l>e rcignr<lccl ns having cousitlcrnhlc politicnl
1:1ig11itit't\llCH,
Th<l objection of thC' Nationnl For('i~n Trndn Council to this trcnt.y seems to be
hRs£•d prim•ipnlly or C'ntircly 011 t h<.• grouud t hnt. it do1:s not go for l'nou~h in ohli~
nt ing Ethiopia to r<'eni\'n .\nwric·a11 it1\'l•s tnrn11t.. How<·,·<>r, t.his lnck of commit-
1m•11t concerning the entry of i11v1Jst111cnt. capilul was not, as suggcs ll'd in :\tr.
~wingln'8 l<'ttc•r, a faihn·(• to on•rc•omc an ob1)taclc to mutnnl und<'r~tandiug. On
t ho l'Ont.rary, it WIL'l 1•,·i<lcnt thnt., in Et hio\>ia'N existing cir<'umst nnces, Et.hiopia.
could not he cxpcctNl to u111.fortak<> treaty imitation8 upon her right. to r<•~ulnte
the entry of fortiiin il1v1•stmc11t,. No l.>1.mcfit was to bo gained from n.ttcmptmg in
this t rcaty to force Elliiopia to act•ept An1<.' ricnn invest mcnt, C!ipc>dally as 110
Amcriean would likely wish to v<'nturc his l'npital in Ethiopia anyhow except with
tho express sanction of the Ethiopin.n <.:ovcrnment.. The t.rcaty docs, of course,
contnin valuabh• ns~ura11ces, of Ute i:-ort normally sought i11 one of these t'rcnlics,
l'OlH'l'min.-< Uw protection of in vcstm<'nts which arc act unlly made 110w or hercnftc-
r in Ethiopia.
The State Department doc-snot rcgat'd t.hiM treaty Mat all "diluting the pl\ttern
of our hill\tcral t.rcatiel'I," a8 suggr.stcd in l\lr. 8wi11gle's let tcr. It is spcciall~·
rlesi~uC'd for n country liko Ethiopia; not for a couutry of W<>stcrn Europe. It is to
be jurlgl'd by itR 1nnny posith·c m•t•ompliflhmcnts in relation to Ethiopia rather
than by its omii:,!<Sio111:1. As it s t.amlt1, Jt, is a stronger treaty than most nations
commonly make wilh 0110 another. It r<>/>r<'.scr.~ a great advance over our existing
commercial trcat.y (that of 1Hl4} wit 1 Ethiopia, and should scr\'c well until
Ethiopia reaches the stage of bt,ing able to enter into a still more ambitious treaty.
Hon. JOHN .J. 81'ARhMAN,
Committee on Foreign ficlations,
United Stairs l,erwtr.
Dt-!rAllTMl-:NT OF RTATF.,
Washington, May 16, 195t.
MY DEAH St.:NATon Sl'AlthMA~; Th<'rc is c•n<'losC'd a m<'moro.ndum, ns rcqu<>~tC'd
during the courRc of the hl'aring held h:v yuur Hllb(·ommiU C'l' on 1•' rirlay, l\f ft)• n,
<'Onccrning quc~tious raised bv l\tr. 8wingh•, president of the NntionR.l },'oreign
Tradu Counl'il, in his letter of ~18:i,· 8 to you with reference to the pC'ndinp; trl'atics
of fricn<l'ihip, commerce, and navigation with Colombia, Denmark, GrC'l'C'C, and
I~racl and the supplementary agreement with Italy. A 1ncmorandum conc<'rning
the National 'Foreign 'rradc Council'g ,·iows on the trraty with Ethiopia ha..q
hccn sent under S<'paratc co,·<>r. ·
This Department give~ moi-t, careful consid<'ration to t.he suggl'8tions whirh the
J.'orei~n Trade Council offers from time to time with a view to making the treat i<'s
R morC' effective in8t.runwnt of Aml•ri<'nn forcifl;n policy. JlowC\·n, M will appear
from the at.tnrhcd m<'morandum, W€' arc unable to concur in t.hc advisability of
the changeR which the council now propose~ be made in the several in~trunwnts
pending b<'forc the conunitt<'e, AgrC'cmeut 011 thci;e treaties has been reached
a£t<'r lengthy and often difficult negotiations conduct<.'d at the instance of thl'
United States GO\'crnmcnt nnd on the bash~ of United States proposals: and 1t
would not appear advantageous to riRk rcopcuinp; negotiations for t.ho purpo)(e
or securing non€'.si-ential chan~es, especially in rlaniscs alreadv apf>cnriug an
hitherto approved t,rcatic8. None of the changes suggC8tcd \)y t 10 council
Annex 89
28 COMMERCIAL TREATIES
~ppears necessary, and at least one appea!"S to be contrary to thl' intcrt•st!i of the
United States.
If there arc any further materials you rnh,;ht require, plm1.qc do not. h('Ritatn to
call on us, for we arc most an~io11s to he> of whatcn,r &.'lsistancr \\'(' ran in fn<'ilitat.
ing the committcc'i, consideration or the8c treaties.
Sincerely yours,
llAllOJ,ll F. l,ISDER;
Acting Assistant Secretary for Economic ilffuirs.
l\1EMORA?\DUM
There follow comment8 or the State Department on the two points raised in the
letter of i\lny 8 from ~lr. Swingle-, pre~ideut of the N at.iona! Foreign Trade
Council, concerning thn pending treaties of fricnch,hip, commerce, and na\'iga.tion
with Colombia, Denmark, Greece and Israel, ancl the :mpplementary agreement
with Italy. .
So-rnllrd inve.•dment da11se.-1'hc quoted provision, as found in art.iclc VIII
of the treaty with Greece, is one or t.he least or num~· clau~e1, rclf\t.ing to innistment
in the treaty. It first occurred, in a larger form, in t.ho Hl49 trnaty or friendship,
commerce, and economic development, wit.h Uruguay (art. IV), heretofore appro\'
ccl by the Renate; and it, was not then criticizer\ by the Xationnl ForC'ign
Trade Council in the letter which it. !lCnt to the ScnBt<', recommendin~ approval
of the Uruguay treaty (letter to 8enator Connally, from Mr. Thomas, then president
of the organization, dated March 6, Hl50). The Uruguay \'(•rsion, howcv('r,
contained one pas:;age which ha,.c, been abanrloncd in the current trcatic:;, in light
of further stud.v and in rcsponso to a particular objection sttb:icqucntlv raised by
the National Foreign 'l'radc Council: namely, a ~tipulation that nctthcr party
should" without appropriate r<'a.~on deny OJ>portunities and facilities for the investment
of capital by nationals and companic-; of tlw other Jlarty."
The State Department does not agree with the objcctiomt or the recommendation
contained in the National Foreign Trade Council':: letter.
The National Forei~n Trade Council recommendation, as set forth in hot.tom
or page 6 of its letter, is that the t,reaty rule requiring prompt., just, and C"tfcct.ivc
payment of comf.en~ation for c~propriatccl property, including int.ercst~ in property
(a.-,, art. VI , par. 3, of the Greek treaty), he extended t.o require compensation
in the event of any "meast1rcs that. would impair t,ho right.s or interests" of
any kind which national~ of one country may have in the other. This Depart•
ment does not believe that this recommendation ~presents a commitment which
the United States could, for its part, undertake. Thi!:! is for the rcMou that such
a provision would appear to require compcnl'lation in circumst.ancc:-1 in which the
United States Government docs not under the Constitut.ion and laws or the Unit.cd
f:tates pay compensation, While the United Stat-c8, of couri;e, pavs compcnH&tion
for property and property interests which it. take:;, it docs not pay compensation
for all "los!'Je~" which Government action may cause. For example, the
Federal Government docs not pay compensation for so-called cc cornscqucnt.ial
damages" occasioned by a condemnation of propert-y, notwithi,tanding that the
condemnation may cause the private owner coniiidcrahlc lo~scs in the nature of
consequential damages. There is no obligation upon tho United fitat.c~ Govt'rnment
to com~n::mte a distiller for the loss of business brought 011 by a prohibition
law; nor a utility company for the economic coni:iequences of the format.ion or a
Govcrnmcnt.suoported rural electrification system; nor individuals or hn:,iinm;.s
concerns for the loss of prospective profits resulting from price control !aw~.
There are many other instances of Government-caused losses, or allcgcrl lossc~,
which the United States Government under the Constitution and laws declines
to make good. The State Department cannot recommend a treaty provision
which would go beyond established United State~ policy in this connection and
grant foreign nationals more f avorable treatment than citizens receive in the
United States.
The Department of State recognizes the limitations ot th(' provision rcpr('sent('rl
by article VIII of the Greek treaty. ll.owcvcr, it I~ believed to serve a useful
purpose in that ft affords ono more ground, in addition to all the other grounds
set forth In the treaty, for contesting foreign actions which appear to be injurious
to American interests. A given measure of a foreign 1, government might-, for
example, be fully consistent with the national treatment or most-favored-nation
treatment rules of tho treaty, and also short of expropriation, but y<>t arbitrary
and unreasonable as it affected some vested American interest in the country
concerned. In that event, tho only treat.y ground fot protest might be general
Annex 89
.
COMMERCIAL TREATIES 29
lan~u~g<· !-UCh RR found in articlc-s I and VIII of the Gl'(>ck treaty. It remains,
howcwr, that the r<'al prot <•et ion of an Am<>rican investment abroad rl'sts for the
mo~t part on the morn ~pPcific provi~ions of the t.rcaty; the clause in quc-stion
d()('s not qualify t.hc-sc more i-pccific provi!-lion~, hut is merC'ly 1:1omcthing
add it ionat.
Tlw conchuling pae;i-:a~l' of the pro\'ision (r<'lati\'o to hnpcdi•n<'nts on the outflow
of in,·<'S1tmc•nt capital, as quotNt on thn top of page 7 of the l"tt<'r in ref<>r<'ncc)
i~ uot phrn!-('(l in a way to <'t<'nt<> a sour<'e of emharra!-sm<'nt to the Unit<'rl 8tat<'s.
Thc- commitnwnt iR nwrc•ly not. unrcusonahly to impede tlw outllow of free C'ntcrprii-:<'
im·<'shn<.•nt. capital. Th<•re is no undertaking po~itivcly to ,,ncouragc the
outflow of capital or to supply any <'apital. All commitm<'nts in the trE'aty ar<',
on t hP otlwr hand, ~uhjPct. to a hroad national sc•curity rc>sPt\'ation. This pa~sagl',
thf'rt•forc•, would npp<'ar to he a mocl<•rat<' assr,rtion of this Gov<'rnm<>nt's
fo.\'ornblt• attitude towar<l thP prh·atc inn·stmcnt proc(•ss which it. is among the
111ajor aims of the trr•aty u~ a whol<' to fo~t<'r and prot<•ct.
Urstridfrr l>11si11r86 prarticrs duu.'ic.-This claw,c>, which hm; appc>l\r<'d in !-!<'V<>ral
previou~ly npprovc,d t r<'atil'1--, is ch•"igncd to ('nlist t lw C'oopc>rat ion of for<'ip;n
go\'<'rnnwnts in the con~r<':--sionn11y nppro,·('(I cfforti-; of this Go,·<'rnmPnt. to
T<'<htc<~ and ren10\'c the n<l\'C'r;,;c df<-cts of cnrtc-ls and oth<'r r<>strictivc practices
011 inl<'rnational tmrl<'.
It will he ohscr\'cd that thr r.1nU~<' is not. 1--C'U-executi11g, anrl it is al~o t'autiously
worded ot.hc•rwi;,;<'. The commitments arc (1) tu consult, i. c., to hold discusi-;ionR,
and (2) to tak<• such action n:-- <'ach partv deems appropriat(>, in it~ own dis<'retion
and in iti:i owu way, with a view to climinatiu~ the harmful cffl'ct~ of d<'fin<'d
prnct icC's 011 intcrnat ionnl t radc. \Vhile t h<' holding of consultations would bo
nn ('XC'Cuti\'<' function, any action that. the UnitNt State's might. sec fit to tak~
would be the normal <'omhination of r.OnJU"CSsional, <>xccutive, and ju,Hcial action
t hnl <.•xist s upnrt from t h<' t r<'nt y. The claus<' hn~, furt h<'rmor<', b('en draft<'d in
~u<'h 111n111u•r n~ to a\'oicl conflict with the Wchb-Pom<'n•n<' Act. anrl the 0U1c-r
cnactnwnts which rcpr<'i-;('nt exceptions to the ha~ic antitrust law of the- Unite-cl
~tat<•~. Th<> clnu~t• is not r<'garcfod a~ cr<'ating n<'w suh~tauti\'c antitrust law
or ucw l)ro('Nlun•s of antitr11st <'nforc<'tlU'nt in th<' United Stat<'!>.
It. mny l)(' i.tat<!d cat<'gorioally that the rcHtricti\'C husiuc-ss prn.ctic<'~ claw,<' i~
not in any way dci,iJ;1;n('(l to m1hancc cxccuti\'c power or to alter establi!'!h<'d congre~~
ionol-ex,•cutivC'-judicial r<!lation~hips in the formulation an<l Hxticution of
antitrust polic-y. In the Htate D<'partmcnt's view, the Executive would he hound,
in carryi11~ out th<' clau5:<', to proc•'<'cl in conformity with 1-1tntut('s duly l'naetC'd
by the Congress: and th1ir<' hi no intent to authorizP. thP contrary. A provi!-O
spelling out. the internal processes by which the Unit<'<l ~tatc8 act~ is th<'r('forc
u1111ccet-i-a.ry; it would also appNn to he inappropriate in an international instrument,
~ince it is not the concern of a forl'ign government.
(Tho following ndditionnl comments of the Nationnl Foreign Trado
Council were subsequently received and incorporat{'d in tho record:)
Hon. ,Ton:... J. Rt>AnKMAN,
Unift'd St<ite.l!I S,motr,
X ATIONAL FoREU,N TRA1n1 Cou:-.cu .• !Ne.,
.\'cw York (J, N. Y.J May 1:2, 105?.
Senate Office Building, lJ'ashingtnn, D. C.
Dt~AR ~IR~ • • *
With reforenco to article VII of tho supplementary treaty with Italy we enclose
a memorandum in rC'lt\tion to the social security honcfit~ t111tler t.ho taws of the two
countric:'l. We ~licve thh1 may be holpful to ~~our committee in the study of this
provision.
Very truly you~,
WILLIAM S. SwlNoLE, Presi<lcnl.
MEMORANDUM ON ARTICl,1:l VU OF THE 8UPPLEMEXTARY TRl-.:A'IY WITH ITALT
Article VII of tho pro})o~r.cl Italian n.~coment provides for combining covcra~e
undor t.h<' ~ocial-~curlt,v ~\':,items of the· two countric-s in accordance wltb cert.at n
broad principle~ which <·lo i,ot. spell out any of thft dotails of how Much a combining
provision would operate in actual practic~. For some time wo have bocn trying to
asc<-rtain-whcther or not t.ho Pcdoral Security Agency has dovclopccl any concrete
planK for implementing tho a~reom<>nt if and when it is ratiflorl. Our <-fforts in
this direction have been unJ)roductive. Without such informAtion, it is impo~siblo
Annex 89
30 COMMERCI~ TREATIES
to evaluate the cfTcct or tho proposed agreement on our domcstio social-security
program.
Tho following example will illustrate tho typo or questions in connootion with
any suoh proposal. AB.~umo that an Itallan workman ontor«J the United States
after 15 years of covomgo unclcr tho Italian social-security law. Ho obtains
employment in tho Unit<>d Stat~:; and dies, lC'aving a widow and ohitdrcn, after
working for only 1 year in omploynll'nt covered bv tho Socin! s,,curitv :\et.
Ordinarily, in order for his widow and ohildron to bo oligiblo for survivor benefits,
tho wage earner mn!it bavo had insured omploymont in 6 of tho 13 quarters pre•
ceding his death. \Vould the employment undor the Italian schomo ho con"lidorod
in determining t lw clig_ibility of tho widow and children under the United State!'I
Social Security Act.? If survivor payment~ arn to be made nndor both laws, how
would the propol"tion of tho rcspcctivo payments bo determined?
It socms to us that it is almost impos.~iblo to develop a fair and equitable
arrangement for combining cov<'ra~c under United St.ates and foreign sodnlsecurity
sohomes which aro so radically difforent in thoir concopt:i. Lacking l\ny
information as to how the proposed agreement would be implomontcd, howc\·cr,
makes it extremely difficult at this stage to do moro than "nise these questions allfi
to inP.ist on complete information as to the types or cases in which tho agreement
would be applicable and the mechanics which would be cmployl'd in its opomtion.
It should also ho noted that t.his is a precedent-setting agreement., sine<' the
President's mos.qago Rtates, 11 Another provii:don incorporated for the first timo in
an a~roement to which the United States i~ a party is that cont,nin<'d in article
VII.' This rat'ies the question as to whether or not it is the policy of thn Unit<.'d
States to oxtcnd t.his tyt)(' of agr,~ment to othor countries. Thi~ fact alone i:;honld
\\'arrant the Senate Foreign Rolations Committee making careful and exhaustive
iovestigation into the po:-,siblc implications of such agreements for our donw.,Hic
social-security program.
EXPJ,ANATlON oF How THE lT!l.tTEO RT.\'1'E~-TTAY.ux TRluTY MrnHT OPER \Tt~ 1~
CERTAIN TYPES ot-· CA~1':i-:'\hy lfi, Hl52
The provisions of the United ~tates-Italian a~reement establish the general
method of coordinating benefits which is to be used. 'fhe following is a brief
explanation prepared by the Social Security Administration M to how benefit
coordination mit:ht be brought about as regards the old-age and survivors insur•
ance benefits of the two countries.
There would he eligibility for coordination only if ( 1) the worker had at least
3 vears of emplovment after 1937 under each system, and (2) the worker gains
Insured status under one or both programs by reason of the combination of periods
of service.
W11en there ls eligibility for coordination, tl1c worker1 or his surviving depend•
en~, may elect whether or not to have the coordination proviBions apply. If
coordination is elected, the workers' combined servico periods would be used in
determining his benefit rights, or those of his survivors, under each system.
Eacn Rystcm would use combined periods of service in dcterrninin.!!t eligibility
for benefits. Each system would uRe its own qualifyin~ requirements in determining
who could rcceh·e benefit...:i, \Vhilc each system would determine benefit
amounts on the basis of co~nbined service, it would not be necessary to transfer
information about the level of earnings-transfers of records of service would be
sufficient.
Arter the initial benefit computation on the basis of combined service, each
system would reduce the benefit accordinE, to the relative amounts of service under
the two svstems.
Attached are appendix J, e;iving the insured status requirements of the two
programs, and appendix II, giving illustrations of cases which might. ari~e under
coordinatton. While the illustrations go into S'lmc detail in describing the
benefits pay$blc under the United States system, they present only in roush outline
enough information about the benefits payab!e under the Italian system to
show how the b&sic principles would operate.
The illustrative cases in appendix ll are organized according to the insured
status of the worker before and after the t'->taliz~tion of his pcrir>ds of service under
tbe two systoma. There arc nine p'>aslble types of CEiSCS which may arise, based
on the effect of the ooordination u~n the worker's insured status. The following
table shows these nine categories of cases:
I
Annex 89
COMMERCIAL 1REATIES 31
Country ln which worker bas lmured status Dat& bonents under ooordlnatlon
oould ftrst be pa14. under
Delore ooordlnaUou Arter coordination our proposals
First ....•• •••••• , Neither_ ••••••.•..•.••••.. Neither ••••.••.•••••••..•. Never.
Second ..••••• ••. •.••. do .• •••.••. •......••••. Italy ....... . •.•........•.. July 1963,
Third ..•.•••..••.•.•. do ....••.••••.•.•.•.•.. United Stat<>S ......•....•• July 1957.
}'ourth . ......... . -.. .. do .••... _ . .. ..... _ ..... 'i_ ..... Both countrlM • .••.••••••• Do.
Firth .•.••.••.•. Italy .... ......... ... ...... ltnlfi······················ Never. Sixth ...•...•.•. ..... do ....... .............. Bot I countries •.•• •••••.•• July 1957 •
&v€'nth •••••••• United States •..•.. . ...•. . United Staws ..•......•... N<'ver.
Eighth ......•...
Ninth .••••••.•.
..... do .....................
Doth countries .•...••.•••.
Both countrios •.• ..•..•••.
... .. do . ...... .. ... .. ... . ...
Effective date or agreement •
Never •
A~ shown in the table nhovc>, group ciJ(ht. ca...,Ps arc the only C™5NI 1n which
l><'lu·fit~ t•nn h<' paid n~ soon o~ th<> C'oordinotion herom(•R (~ffcrtivc. The earliest
date' for the hf~inninK of hc•nrfit. pa~·nwnt~ in any of the other J(roups of cai-cs is
Julv H)57. 1 he reMon why thc~e hc>nefit pa~·ments ranuot he ma.de earlier h~
explair1cd for earh t~·pc of <•SM in app<'ndix II, ,meter "Comments."
,\ ppc>ndix II ('Ollt ain~ illust rnt ions of ca."ies whit-h miμht arise in each of the
groups in which there' mi~ht be <>li~ibilit.y for benefits under coordination.
ThP eoordlnation plan is not cxJ>l'l'tNl to affect in aily substantial manner the
act u&risl stntm1 of tlrn ini.uranrc l'>ystl'm. While it- i~ not possible to estimate
the cost of C'oordination to cit.hcr lhe ltf\lian or the rnited States system, it is
expected that., sin re onl~· a v<>ry f cw <'8.$Cs will he aff ertcd, the cost will bo neglip;
ihl<>. Whst.e,·~r Rtuall a<lrlitional expenditures may be in,·olvcrl would be
jm~Wforl in view of the ront.rihutions paid on behalf of the persons affected, who
now cont.rihnte to the United ~·Hates system but do not, work long enough to
draw benefits,
APl'Jrnorx: J.-Issumm STA1't'~ RF.QUIREMENT:'\ OF THF: !TAI.IAN AND UNITED
STATl-:s PnonRAMf-1 A~ Ol-' MAY 7, H>52
1-ntured ~latus requirnnents of Unite1l States program
Indlvlllual die~. or ~aches age 65, In-
1953 or earlier... . • . . . . . . . • . . . . . • . • . • . . . • . . • . . • . • . . . • • • . • . • . • . • . • . • • • .... . ...... .
19M ••••••• •.•.•••••.• ••.•• •••••.••••. ••.•••••• •••••• •••••••.•••••••.•.•.•.•.••••
19~ .. •. ••. ••••••• .•••.•• •• .••.•••••.•...•.••••••..•••••.•.•.•••.•.•.••.....•.•••
1056 ...•... ....•.•. . . . ... . . ................•...•...•...•.•.•..••......... ... ••.•.
1967 •••• . •••••••••••••.•.••••.•• • .....•.•.•••••• • .•••••••. • ••••••••••••••••••••••
1958 ..•......•••.• .• ...................... . •.•.. . •........ ............ .. . ........
1959 ..........•................... . ... . ............. .......•...•.................
tll60 ..................... .. ........ . ... . ........................ ................ .
1961 •••••• •• .•••.•.•••.. •..•...•.•.......••..•.•••••••.•.•.•••••••...•••••.••••••
1962 •••.•••• .•••• •••••.• •..•••.•••.. ···········-································· 1963 •......................................................................... ...
i=:::::::::::.:::.::::::::::::::::::::::::::::::::::::::::·:::::.::::::::::::·:
1966 ..... •. . .•.....•...•.................•...•....•............. .................
1967 •• ••••••.••••••••• ••.•• ..••. ..•..•.. •• •. ••• ..•.••••• ••.••••••••• ••.•••••. •••
1168 ..••....•.......•.•.•........................................................
1960 ...••. .. •...• •..•• •..••• ..••...•...•.•... • .. .••.. •... •.•.. .....• .•..•........
1970 .••..•...••.••••.• ~---············ ····-·~--···~-· -~--~--•··············-····· 197101 later ••••••••••• . ••• - ••••.•.••.••. •• •.••• •••• ••. .••••.••..•••.•.• . •.•.•...
Numbclr of yesra or
~e1rvloe which will
meet the require•
ments of the United
States system-Dies,
or reacbea a10 65
J6nuary
through
Juno
July
throu1h
JJeoember
Also, a worker who has worked under the llnited States system for roughly
1½ years out of the 3 years immediately preceding bis death may be insured on
the basis of such etn.ployment for some types of RUrvi\•orehip protection, The
children under age 18, and the widow caring for such children, may qualify under
this last 3-year provision.
Annex 89
32 COMMERCIAL TREATIES
INSURED STATUS REQUIREMENTS Ot' lTAJ.IAN PROORAM
For old-age benefits under the Italian system, the immrc<l status requirement
is taken as being 15 years of coverage. The Italian iu~ured status requirement
(or Rurvivor benefits is taken 88 being a total of o vca~ of covl'ragc, with the addi•
·tional requirement that 1 vcar•s coverage must have been in the 5 VC'ft~ imme•
diately preceding death. These rcqmrements follow the general BJ)J>roach of the
actual, more detailed provisions of the Italian sy~tcm. (It will bo noted that the
"recency" test of the Italian program {or survivor:;hip ])rotcction is an additional
requirement which must be met, while the recency test of the United State'~ :iYS•
tem is an alternative method of meeting the insured statm~ requirements of the
program.)
APPENDIX 11.-ILLUSTRATIVE CASES SnoWINO OPERATION' OF CoORDl!li'ATION
UNDER UNITED 8TATl-1S-ITAl,IAN Tnt-aTY
Group 2. Not insured under either system without coordination; insured under
the Italian system, with coordination:
B works for 3 years, from 1950 through 1052, under the United States ~ystem.
lie works for 4 vears, from 1960 through 1063, under the Italian system. He dies
in Julv 1066. •
Without coordination, B cannot of course 1pcet the length of service require-ment
of either system. With coordination his 7 yea~ of combined service arc
sufficient to meet the length of servico requirement of the Italian pro~ran, hut
not of the United States program. (AB shown in the preceding table 7¼ yca1s
would be required under the United States system; the alternative requirement
(or limited survivorship protection, as noted, would be l½ ycar:i of employment
during the 3 years immediately preceding his death.)
\Vith coordination, the benefits for B's survivor8 under the Italian sy:;tcm would
first he computed based on the 7 yearl'l of service under the t.wo systems. They
would then be reduced to four-sevenths of thi:, amount, 08 four-scn•nths of B's
service was under the Italian system.
Comment.-It might be noted that there could bo no casM in group 2 until Hftcr
June 1063, and then only in survivor cases. Group 2 cases could nc\·er arise
before July 1963 because a worker who meets the 3-y('ar qualifying requirements
would also be able to meet the Uniterl StateR insured status requirement whil'h
applied before that date. There could be no retirl'ment cases in ~roup l even
after the middle of 1963, as anyone mcetin~ the Italian lengt.h of i-erv1{'e require•
mcnt could also meet that. of the United Stateij isystem. There could he some
survivor cases flftnr June 1964, 88 after that date the survivofflhiJ> r<.>quiremcnt!i
of the Italian sv:-.tl':n would be more liberal in eomo wavt,; than tho:st' of tlw trnited
States system. • ·
Group 3. Not insured under either system without tot.111ization: in:,urC'd under
the United Stat~ system, but not the Italian i:iystcm, with totalization:
C works under the Italian system for 6 vcars, from 1044 to }9.H), lie works
under the United States sy!:item for 6 years, ·rrom 1956 through 1961. He rea('hcs
age 65 and rottrea in January Hl66 .
.AJ3 the length of sc·rvicc requirement under the United States system i~ 7}', years
for an individual reaching age 65 in January 1966 C is not, insured under the United
Stat.cssystem without coordination. He is not of course insured under t,he Italian
system without coordination. With coordination t.he 12 years of comhincd ~er\'•
ico would still not meet the Italian requirement of 15 years, but would me<>~ the
United States requirement.
It is assumed that C received wages of $200 per month while under the ll nitcd
States system, and that he had a wife age 65 or over when he retired. The
amount of his monthly old-age bencfit.'l under the United States system based
upon totatized service would be $40 under tho initial computation, and hi~ wifo's
benefit would be $20. The 1951 now start would be used in computing his averago
monthly wage and benefit amount in the computation. Al:4 C's Italian service
ls before 1951 it has no effect on the romputation of the average monthly wage,
ae period, before 1051 were not used tn the computation.
C's benefit and that of his v:ifo arc then reduced t.o ont>•half of t.h(> amount as
originally computed, as one-haU of hil:4 total service w~ u11der tho Unit-cd States
etvstem. The reduced monthly benefit for C is $20, a11~ his wife,s benefit is $10.
hese amounts would be paid under the United StaOOij system.
Comment.-The Socia\ Security Administration proposed that when the new
start is used in determining the average moot.Iv wage, under the United States
system, the benefit reduction under the United Stat.c.s system should be based on
Annex 89
COMMERCIAL TREATIES 33
the relative amount~ of service aft.<'r January 1, 1951 , unlcsR insured status dcpcnd8
on t.hc mm of Italian sorvico before January 1, 1951, in which ea.so the reduction
would be b&-Jerl on the relative length.-; or service pcriocl-. after January 1,
1937. As C's insured status docs depend upon Italian service before 1051 the
reduction in this case is based on tho total service under the t.wo s)·stcm8 after
January 1, 1937.
Group 3 c&'i('l'4 could not arise beforo the middle of 1957, as a worker with the
required 3 year~ of service under the United States system would meet. the insured
status requirements of the program until that date. Af tor that date there would
be both retirement, and survivor cases falling in group 3.
Group 4. Not insured under either system without coordination; insured under
both svst.cms wit,h coordination:
I> works for 4 year~, from 1 H52 through 1955, under the United States system.
He work!i for 4 ycari:J, from Hl56 through 1~50, under the Italian system. He dies
in .Januarv 1960.
\\'ithou·t coordination, D cannot meet the insured status requirements of either
system? (As shown in the table, the United Htat.cs requirement for a worker who
di«.:s in ,Januarv 1\160 would be -lH·years.) With coordination, D would meet the
insured stat118 rcquircment.s of bot.h program~.
The benefits for D's survivors under the Italian svstem would first be computed
based on the combined 8 Yea~ of ::;crvicc under t.Iw t,wo s\·st.ems. The\' would
then be reduced to one-hair of this amount, as one-half of D's service was under
the Italian system.
It is a~smncd that D rereivcd wage~ of $200 per month while uuder the rnitcd
Stat.es system, and that ho wa.~ survived b~· a widow and two children under
age 18. The amount of tho monthly bcmcfits based on combined scr,·ice would
be, under tho init.ial computsltion: widow, $44.30; fir::1t child, $30.HO; second child,
$36.UO. The IY51 "new flt.art" would of course be used in computing hi~ averago
monthly WB)l;C in the computat.ion, The hC'ncfit o.motmts would t.hcu he reduced
to one-half of the amount.s a. .. originally computed, as one-half of D's total i:-ervicc
was under the Unit<>d Statcl, ~,·:,;tem. The reduced h<.'nefits, M payable to D's
sun·ivors, would bP: widow, $22.20; first child, $18.50; second child, ~18.50.
Comment.-Group •l cases could noL arise before the middle of Jn57. (.As in
gToup 3 cases, a worker with the required 3 ycan. of service under the l'nit.cd
States system would meet the insured status requirements of this pro~ram until
that date.)· Aft,er .June H)57, both retirement and survivor cases could arise in
,group 4.
Group 6. Insured under Italian system only without coordination; insured
under both system~ with coordination:
F works under t.he Italian system for 20 years, from 1051 through 1970. He
works under t.he United Stat-0s s~·i-t~m for 7 years, from 1971 through 1977. He
:reache~ age 66 and retires in January 1978.
F n1cet~ the Italian length of ~cr\'ice requirements without coordination. He
docs not meet. the United State~ requirement (10 ,·ears for workers reaching age
65 after Hl70) without coordinat.ion, but does meet tho United States requiretnents
with coordination.
\Vithout coordination, F would qualify for benefits under the Italian system
based on 17 yeaffl of service. \rith coordination, ho would qualify for bencfttR
computed on the comhined tot.al of 2-l year~ of service and then reduced to
seventeen twenty-fourth~ of this amount, a.'i seventeen twenty-fourths of F's
service W&."\ under the It-alian svstem.
It is assumed that F received wages of $200 per month while under the Uuitcd
States sy~tem, and that he had a wife &ged 65 or over whon he retired. The
amount of the monthly benefits ba.<,cd on combined service would be1 under the
Initial computation: F's own benefit., $65; his wife's benefit, $32.50. l'he benefit
amounts would then be reduced to seven twent:v-fourths of tho amount as originally
computed, as seven twentv-fourth~ of F's total service wa.'i under the
United States system. The aniounts of the reduced benefits would be: }<~'~
own benefit, $19; his wife'R benefit, $050. These arc the benefits which would
be paid under the United States svstcm.
Comment.-Gronp 6 cases could not arise until July 1957, when the ini:;ured
status requirements of the United States sy~tem first exceed 3 years. After that
date, both survivor and retirement cas(\s could fall in this group.
Group 8. Insured under United States system only without coordination;
insured under both systems with coordination:
11 works under the ltaliam evstcm for 10 years, from 1937 through 1040.
He works under the United Stat.cs system for 6 years, from 1947 through 1952.
He roaches age 05 and retires in January 1053.
Annex 89
34: COMMERCIAL TREATIES
Even without coordination, It Is Insured under the United StRtcs systom, as
the length of service requirement for a worker who retires in January 1953 is
but 1½ years of eervlco. \Vlth coordination, his combined total of 16 years of
sorvlco onahlcs him to also mcot the Italian rcqnlrcmonts.
With roordlnation, F would qualify for benefits under the Italian eyst.em
computed on the combined total of 16 years of Rcrvico, and then rcducl'd t,0 tunsixteenths
of thls amount, as ten-sixteenths of H's service was under the Italian
system.
It ls assumed that H recolved wages of $200 per month while under tho United
States system, and that he had a wife aged 65 or over when he retired. Tho
amounts of the monthly bcneflt.s based on combined service would be, under tho
initial computation: U,s own benefit, $65; his wife's b~neftt, $32.50. 1'his computation
would be based on the 1961 "new Atart.,'' and n•~ averago monthly wago
would bo based on his wages tn 1951 and 1952.
In this CRRO, thero would bo no reduction in the berwflt amountR M originally
eomputcd, if our suggestions arc adopted. As JI did not dnpond on Italian scrvict:)
before 1{)51 for insured statu~ tho reduction, if any, would be bMed on thtfrelativo
service periods after 1950. llowevcr, as there Is no Italian service after 1050 in
this c~e, there would be no benefit reduction.
Comment.-This group of cases is of particular interest., as it Is the only typo of
oaso, under onr proposals, in which bcncflts could bo paid under coordinution
before the middle of 1957. Thu~, for the first fow yoars under the agreement,
the only benefits payablo by reason of the coordinn.tion would bo tho~o J>ayal>lo
under the Italian Kystcm.
In the caso of Il the amounts of tho br.neflts payable under tho United St.atos
t!YStcm were not affected. Howovr.r, the hl'l\eflts paynhle under the United
States syatom in group 8 cas('s will ordinarily bo lowered if thero was Italian
service after 1950, or if the worker's insured status depends on Italian service
beforo 1051. ·
Senator SPARKirAN. !\-fr. Roy LoifTion?
~lr. LEIFFLEN. Yes, sir.
Sonator SPARKMAN. Will you come around, Mr. Leifflcn?
14"or the record, will you give your name ancl the capacity in which
you appear, to the roportor?
STATEMENT OF ROY LEIFFLEN, REPRESENTING THE ASSOCIATION
or MARINI UNDERWRITERS OF THE UNITED STATm
SAFEG~ARDS AGAINST DISCRIMINATION IN MARINE JNSUR.ANCE
ADVOCATED
!\-lr. LEIFFLEN. My name is Roy Leiffil'n, and I am appearing as
oounsel for the Association of ~larino Underwriters of the United
States, which is an organization comprised of 35 of the leading insur.
ance companies engaged in tho marine-insurance businoss in this
country. I have a prepared statemt'nt in support of the position of
the American marine underwriters, that tho United States should, in
treaties of commerce and friendship, provide ado9uate safeguards
against the gi:owing prevalonce of discrimination in tlie field of marine
insurance which prevents American n1arine-insurance companies from
competing for tho marine insurance on imports and exports.
In connection with the treaties unrlo1· consideration today, insofar
as we know, only Colombia nnd Italy have discriminatory_ laws or
·practices, hut we are prinuu·ily interested in setting a pattern because
1t seems to us it is far better to include a prohibit10n against discrimination
in a conunorcial treaty rather than to wait until a country
enacts discriminatorJ laws or regulations and .thon attempts by diplomatic
n~tiation to have them sbrogated. ·,
I h~ve already submitted copies of my statement, Senator, but I will
be glad to read it if you wish. .
Annex 89
COMMERCIAL TREATlES 35
Senator SPARKMAN. It is not nocossary at all. Tho statE.•ment will
be printed in full in tho record.
(The statement of l\1r, Roy Lcifficn is as follows:)
8TAT1'JMENT ON llRHALF OF TJIF. ASSOCIATION OF MARINE UNl>ERWBlTERS OF THE
UNlTF.I> STATE!J
Thi!i Atatem"nt is suhmilt<'d in FIUppott. or the po~itlon or American marine
unrlt'rwriter11 that tho United fitat.f's 1-1hould in trratif's of commcroo ancl fricn<l~
hip provide adequat-0 R&ff'guardR again1tt the growin~ pN'val<'nce or di~crlmination
m the field of marine h1Kurance which prevents American marine in~uranco
companic!i from competing for t ho marine in!iurance on imports and exports.
At th(• out"ut Wt' wii-h to rmphnsizc that th<- American marine in~urancc market
bclif'V<'R firmly in the principlr of fr<'f" computitlon in marine insurance ancl ~ceks
on1v thc- riRht to compPtc for tlm marin<' ini,1nranc<'.
The problom of diKcrimination, ,._·hi<'h i1-1 largelv a devC'lopmcnt of the postwaT
period, and which threatenH the d<ivl•lopmc>nt of int<.'rnationa1 tra<lc it~clf, hnH
bccomf" a E-uhj••ct. of intnnutional concf•rn, hoth on the private and polltirat level.
Private in~urnncc intt•rt•sts in the Wt•l.-ltt'rll ll<'mi:.J>lwr<' ha,•(• in t hu <'ouri-<' of
thr('f' h{!mi.-pheric conferonc<>M T'('C'O~nizNt the importance of eliminating i,a1ch
practice~. At the Firlit Hemispheric Conf<>r<'noc, helct in N(iw York Cit.v in rn-rn,
a rt•:-iolution WO.'i 11rcscnh'd by the Chil<•an dl'lcgation r,•lntivc to tho "(iuarnntcc
of freedom to privato (•nterpri!-1(, in tho in"luranc(' f\<·lcl." Th<• r<'solution we.-.
approv<'d ancl itH prinripln reafl\rnwd in th" &>oond Hctni!-phnlc Conf<'rt'nc<' h<'lrl
In Mmdco City in 1048 and In tho Third ll<'tni!tpherlc ConfcNmcc, h<ihl in Aantiago,
Chilca, in October 1060.
Slnailarly, tho proposed charter of tho International Tra<le Organization,
provid<•~:
"ART. 53. Tho mcrnh<'l'1' tcco~nl1." that. <'<'rtain ~<'r\'i<'e~ 1-1uch f\.~ tran~portn.tion,
telr(~ommunirationl-1, in~nrance a1ul hn11ki11~, ftt'(' ~Ubl-ltantial f'lt•mcnt~ of int.ernational
trade, and that any restrictive huxinrst1 prarlicc!i in relation to them ha\'o
harmful <'ffC'ct~ similnr to 1 ho:-IO dcl(crihc>rl in par. I of Art. 46!'
I.Mt \'<'ar the International Chamb(•r or C-ommorcc J>H•Rrntcd thf' quc~tion
hC'fore tho Tmn~port. and Communication"l Commi~~lon or the Unit<'1I Nation!\
Social and Rconomic C,ouncil. That Commhi!-ion \llll'IHf'll ltc>~olutton 12 by a vote
of 10 to 3 {Rusl'lia, Poland, and By<'lorn~~ia vot n~ againflt) which rcco1,eniz<.id
that diimriminatory moa.-;urcs against mnrine inliuranoo ma:v inhirf~rc with the
free flow or international trade an<l recomm<'wi<·d a 11tudy or' the ~ituation by the
Social and Economic Council. Thi:i r<'Rolutlon wa.,; approved by the Council in
Julv.
The International Union of Marine Underwriters, havinp: among its mombershir.
the marine in1-1uraul'e a.-t~oclat ions or ncarl v all th~ f rcc count riP8 of t lw worlc
lik<'wi~c pa.q~ed a rei;iolution condemning such practices at it::i annual meeting held
in &pt<'mhcr or Inst. ycnr in Rwit:r.e1 land.
It is Rubmittcid therefore that thel'(> i~ abundant evidence of the scriou~ proportion~
which thetio practices have reached, and it. is felt, that the Unit,•d StatoR
flhould tako a realistic approach to the problem in ncgotiatlng future treaties of
commerce and friendship.
In addition to conforming to current fntcrnat.ional opinion ovidenccd by th.o
forcgoint,t, such action would conform to congressional policy that a at.rong American
marmc insurance mnrket itJ <'ssential to the national ccononw and defornm of
this country. 'fhc Houso Committee on 1\lt-rchant 1\larinl' and 1''i!-ihcrics rcc<'ntly
statl"d:
"The Congres.q has several times fn the p&At forcefully st.ntcd ite po~ition with
regard to fostering the growth of the Amt•rican marino insurance market" (II.
UCJ>t, 220, 81st Cong., 1st scss., on II. U. 1340). •
1'ho committee was r('fcrring to the principll', first enunriatcd in tho declaration
of policv of the Merchant Marine Act of 1920 and more recently in the M<'rohant
Ships Sales Act of IU46 (Public Law 371, iOt.11 Cong., act of March 8, 1046),
tJ1at:
"] t is noccasarr for the national security and development. and maintenance of
the domestic an<1 the mq>ort and import foreign commerce of the Unit<-d States
that the United States have an efficient and adequate American owned merchant
marine • • • supplemented by efficient American owned facilities for shipbuilding
and ship repair, marino insurance, and other auxiliary sorvieea."
The Congress has consist.cntly r<'cognizcd that a strong American marino
insurance industry can only exist in an atmosphere of free international compctiAnnex
89
36 COMMERCIAL TREATIES
tion. Legislation dcaliug with marine Insurance has never sought to protect
American marino insurance industry from foreign comJ)ctition but to 1>laco it in a
position to compete on equal terms internationally. The action roquc~tcd herein
1s similarly dcsi~ned to preserve tl1at free iutcrnational competition which Congress
has recognized is essential to a st.rong rnarino insurance industry.
Discrimination in marine im~ura11cc in its several forms, including Jaws, regulations,
tax('s and duties, has t>ith<'r <lir<'ctly or indirectly r<'quirrd nmrinn immmnt>o
on imports and exports to and from foreign countries to be placed in the nntional
markets, thus effectively prevcnt.ing American companies not admitted to do
business in the foreign country from competing for t.110 busiuei;s, as wull as preventing
tho hnportor aud cx1>ortcr from srlccting tho mo~t ad,·antaguon~ nnd
cconornlo insurance, and in mnuy cases, causing dl'li,y, uncurtaiuty, nud confu~ion.
In protected rnarino insurance market~ highl'r rates 1m.! usually duni,,t<>d he•
cause t.hcro is no intcrnat-lonal compotit.ion. The oddcd expense is, of con~o,
passed dir<'rtly to the nit imatc commmcr of the goods. ~i,nilarly, t.110 dt•lay,
uncertainty, and confusion directly inhibit. t.110 flow of goods in i11tt>r11ational t.rarlc.
Tho troatios of fricn<l~hip and comnuirco with Coloml>ia, b1raul, und Dl·mnark
(art. XIV, iubsec. 3), Ethiopia (art. XIII, subscc. 2), Grecco (art. XVII, subscc. 1)
provide:
"Nationals and companies of either party shall be accorded national trcatmont
and most favoured nation treatment wit.h respect to all matters relating to im•
portation and exportation."
There is uothiug on this point in the ngrc~tnl'nt su1>pletnc11ti11g the troaty with
Italy and the original trcRty contains narrower languago.
The foregoing rlause fails to afford any gunraut.y Rgainst the digcriminntory
practicl's in qum,tion. It. docs not, prnvcnt a part.y to 1mch treaty from requiring
its own nat.ionals to place tlu.•ir marine imn1ranco iu the national market, thus
preventing tho free selection by the Jlartie~ to internt.Ltiouul trn11~actio11s of tho
most favorablo in~urance market.. :\lorcovcr, if a ))arty to t-uch trcnty thus
rest.ricts its own nationals in the selcrtfon of tho insurance market it may :-imilurly
restrict. the nationals of tho United Stat(•:i,
For this rc>a..,,;on, and for the reason that the gravity and prevalence of ~uch
di:-criminatory practicm-1 require atlirmativo lan~1111~0 in ordor to a'isuro their
elimination, the following or similar wordl'l ~houM be mscrted following t ho above
quotecl words or in ~ome other appropriate ~lace it, romnwrcial trcnt fos:
".Neither Party shall impo~c any prohibition or rcst.riction or dii-crimiuatory
tax preventing or hindering the importer or cxport<'r of good~ of either country
from obtaining marine in!'\umnco on ~uch good:-4 in compnnic:i of either Part.y."
This matter haN horetoforo been discussed with the Defartmont of State and
a memorandum similar to thii4 one ha.~ been ~uhmit.tec to the Dcpartnu.mt.
Although the Department h~ adopted a sympat.hotic attitude toward the pm;it ion
of American marine insurance underwriters 1t has not inserted in a commercial
treaty any provisions which would enable tho Amurican marine im1uraucc undcrwTiters
to compete for this insurance in t ho traditional American manner.
It is, t.bcrctore, rcRpectfully requested that if the Senate ratitle~ thc~e treaties
it be on the understanding, condition, or rcMCrvation that the clause HUggPsted
herein bo made an integral vart. of tho trcatiu~.
DISCRIMINATORY PRACTICES OF ITALY AND COLOMBIA ON MARINE
INSURANCE
Senator SPARKMAN. You st.ato that two countries havo discriminatory
provisions in their legi.slo.tion. Who.t two countries aro they?
Mr. LEIFFLEN, Colombin. nnd Italy.
Senator SPARKMAN. Italy and Colombia aro involved in those
treaties. In what way arc thos~ provisions discriminatory?
Mr. LEIFFLEN. Colomhia practices its discrimination through its
laws and through tbo office -0f exchange control, penalizing i.Jnportcrs
and exporters who place insurance in com_panics not authorized to do
an insurance business in the Republic of Colom\>ia.
Italy, insofar as we know, bas no statutory discriminatory provision,
but it exercises discrimination by means of -its foreign exchange control
board. .
Annex 89
COMMERCIAL TREATIES 37
Senn.tor SPAnKMAN. Do you fcrl that t.ho provisions in the presently
proposed lrent.ws are not sufficient.ly tight on t.lmt'?
1vlr. LEU'FLEN. I don't tl1ink it covt•rs the situation at all, Ronn.tor,
for thht tNi.son: Even the so-calfocl nat.ionnl trcatrnont which Mr.
Lindf'r WRR tnlking nhout is not cffectivo. If, say, Coloinhia imposes a
1·estriction on it.sown nnt.ionnls wit.h r<'l\J)C'Ct to whore tlwy pince insuranct•,
we cannot rxpcct t.hc1n under the nnt.ionnl trC'ntnwnt clnusc 1o
givo o.n.y Ul'UC'r t.rrotmrnt to an A1n<•rican importer or <'XJ>Ol'tC'r who is
c.lcnling wit.h 1n<•rclmnt~, huvers or ~rllrrs in t.ho R<'puhlic of Col01nhil\.
Senn tor SrAnKMAN. Let ine ask this question, to sec if I understand
just what you mean. You mran. a shippC'r from Now York shipping
good~ into Colombia., if hr took out insurnnco on the goods he was
shipping with n Nl'W York insumnrc compnny, how would Colombin
int.<,1·f<"re with that'?
i\h·. L1-;1Ft' r,1-;:-.. Tlll'rc nro Yarious type's of contracts of purchase
and snh•. Insnrnnr" is a l(•rm of the coi1tt·uct butwoen tho buyc1· nnd
the scll('r, and in some t.ypl's the insm·nnce is taken out· by tho
Colom.binn purchosC'r or s(•llt•r, mul if ho is rrquir<.'d hy Colombian luw
to tnko it out in o. Colomhin.n insurnnco compnny, you havo 01w of the
trrms of the snlc c.1ictatNl by tt ~o,·prnmei1.t, which is historicnlly-nnd
that is the wny wn like to S<'O it c.·ontinuo- is n nu1.Ucr of opc.m 1wgotintion
hl't,WN'll tho buyrr nnd the Rcllel' in n <·omp<'titi\'c murkot.
Senntor SPAHKMAN. 'rlll'rc would hu not.hiug to prohihit tho shippl'r
in the cns<' 1 gnvo, from t-nking out his insm·nnce in N t•w York, n.nd thot
ct•rt.ninly could not be i.nt.crf(lrcd with by Colomhin.
~fr. L1-~1FFI,BN. Tlint is right..
Senn.tor Sr.\HKMAN. 'fhe qul'slion would be if insurance was to be
p_rovided by tho buy<'r in Colombin, 01· in tlw evN1t of shipJ>iug out of
Colombia if it wos to be provided by the shi1>PN' in Colombia. 'l'hcn
it would hove to h<' tnkl'n hy u Colombinn compuny; ~s that right?
l\Ir. Lt:n-·1-·u;l'\, Yl's, sir, thnt h~ right. In some cnst•s it goes further.
Ji~or instnncc, in Argent.inn. there is a luw thnt if the goods coming into
Argentina or going out of Argnntina aro at tho risk of the Argcntino
pm·chasrr or sl'llC'r, ns tho case may be, tho insurance must be to.ken
out with on Argw1t.ine insuranc~ company or <'lsc tht\ro is a largo penalty.
Thut. also hns on off e<'-t on the terms of the contract which takes ono
tcr1n of the c·ontrnct out of tlrn sphl'ro of free nC'gotiation between the
buyer and Sl'llrr, und tlmt is whn.t t.ho Amoricun insurance companies
want to proYide against, bC'eause historically it is a frco market.
Senator St>AHKMAN. You bclic,rc t.hat in negotiating these agreements
that should ho ono 1nnt.tcr that should ho included in the
negotiations?
lfr. Lt~lFFJ,EN'. Yl's, sir, in negotiating commercinl treaties wo think
our Dcpal't.mcnt of State should ondovaor to i.ndude a prohibition
against govfnunontal int.er!orcnce with the J>lacc1nent of 1ntuino
iJ1sm·anc<' so it will be left to the buyer and seller to decide who is to
take out, the insuranco and in what tnarkct, oxactly like the financing,
what the trrms will bo-10 days, 30 day~, 2 11101,ths; the 1ncthod by
which the commodity will be pn.ckl'd. All those matters ~rot we feel,
as nch·ocatl's of private indust.ry and busin('ss, mattrrs whicn shoulu
not be dictated 6y any _government.
Sonat.or SPARKMAN. SonA.tor Hickonloopor, have you any quest.ions
on this point?
Senator H10KENLOOPtm. Mr. Chairman, I think I understand the
position . .
Annex 89
38 COMMERCIAL TREATIES
NATIONAL TREATlli1NT WlTH RESPECT TO TIU: P8AC'l'JCJ.; Oi' J>l\Oi'l-~SSIONS
I would like to ask ~fr. Linder somo questions. 'l'his noto wns just
sont. 1no by a 111on1bor of the Scnnt(II who nsk<'d n10 to inquh·o into itt
and it is horo. This h6'~ to do with articlo Vlll in tho troat.y with
lsraol. I bu.vo just asked ~lr. ~in.rev to check tho othor tr(!nt.ios.
}>orh~J>s you can toll n10 whether tho s&in10 articlo is in any of tho ot h('r
trca.tlos.
'l'ho entire nrtido VllI apparontly is nn atto1npt, to givo grt'at lt1titmlo
and privilcgo to tho nationals of either pnrt,1 to uso thr.it· own
tcchnicn.1 and professional cxpl'rts within tho t.<'rr1tory of thu ot.ht\r;
and then, in pnragro.ph 2 of article VIII, it roads as follows:
Nationals of elthor party ehall not be barred from 1nact.isit1~ tho prof«'~~ion!II
within tho torrltorios of tho othor part.v ll\<"rcl.,· by r<'n~on of thoir alionRg(' i butt hoy
shall be pormlttod to cngBge in proll's.~ionnl ncti\'it.i<'s thor<'in upon <'Otnplinm•o
with thn requlromcnt.e regardinp; qualifications, rt'i::tid<'nc<-, nnd comp<'tent'<' thnt
are applioablo to nationals of euoh other party.
Now, as I rend that, it would 1nonn t.hn.t, nnt.ionnls or IRr1wl having
first boon properly admitt.Nl lwro nnd hnving mot, nny uxn.minntions
for pro£csRtonnl or tochnicnl com1wt.Nll'(' t.hnt mnv npply t.o Anwric.·m1
citizens, <'nn go on indefinit(.'ly prnctising t.ht'ir i)rof <'s~ions ht't'o nnd
remain alit'ns at nll timi:is. ·
~lr. LtNrn;n. No. Do von wnnt mo to rflply, sir'?
Sonat.or lhcKRNLOOPEn: I sn.y, t.hn.t is t.lu, wnv l would int.t'l'JWt~t
that, No. 2, and I would liko to comn1cnt. on Urnt. ·
:First, is a Rimilar provision to nrticlu VIII in tl10 t.r(•nt.y with Isrncl
in any other treaty?
Mr. WAT,KNR. ft hns heen in our troati~ sincl' 192:t
Mr. L1No1-;n, An<l it do(\S not carry tho implirnt.ion that vou rN1.d
into it. Jt. rath<'r m<'nns that a citizen of Jsrn.el or o.nr ot.hcr rount.ry
witb whom wo hav<' such an ogrof:'nu.mt may, upon hfling propt,1·ly
admittod to tlw lTnitncl States, not ho hnrrt'rl hy ronson of lwing n.
citizen of Isra<'l fron1 doing whnt, anybody else in this count.ry nrny do.
In the ea.so of cortnin pl'ovisions tl1nt is n. maU.cr rugulatt,d by t.110
Stato and, as I undorstnntl it,, a citizen of lt1rnl'l, if ho wants to ]lrnct ico
medicine in, sn.y, }"loridn or New York, lw hns to do whnt,twm· tho
roquiromonta of thoso Stntl's arc.
Sonntor lhcKENLOOPI-~n. I mn not fmnilinr with this sulljuct.. I
mean, I can't n1nko any positi\'o allegation, but. it runs in my tnind
that thoro are a nmnhcr of Stntos that have n flat prohihition ngninst
lioonsing of nn nlicn to pra<'tico cortoin prof(\~~ions or businl'ss<'S which
roguirc n. epociflc profossionnl lict'nso. This woulrl ahrognt.o thnt., I
take it.
~-fr. WALKF.R. Insofnr ns tho olionngo rcquirrmcnt, is concerned,
thnt is correct. That has hl'on t.renty policy since 1023. It lms l>l'~n
in 1nost treaties sinco thon. '!'his is n moro <'Xplicit st.n.tmnont or tho
rule that hns been in effect. It is national tronhnont on tho prnct.ico
of professions.
(Tho following information was snhsl'quent.)~r supplied by the
Dcpartml'nt of State:)
Ei~ht t,reail<'s (thoso with Au"t.rla, Bl Salvador, Qer1rikny, HondurM, Htmiaryr
Liberia, Norway, and Urut(l1ay) provldo for nntion11l treatment generally; an<1
two (Italy and Ireland) ao provide oxcept for the prnctfoo of law, whloh In turn is
oovorcd by a most-favorcd-naUon clauso. }~lvo of th~ l'<'malning 111,c alRo bontnin
natlooal-ueatment olausoa, but subject to quall8cmt ior.lt', 1'he treaty wi~h Poland
Annex 89
COMMRllCIAL TREATl&'3 39
f'Wt•pt<'d Jnof<'~~ionR rN~<'t\'Nt to ,•lti:r.••111-1 hy lawR In for<'o on ,Jun!' Jr,, 1981; And
v.rovidNt furt.h<-r for moKt •fRvnrfld-m,t Ion t rt•Rt mont. on t•onrlit ion of rouipro<'lt.y.
l'lw t r<•aty with Jt'inh\llct ,'<mf "imi t ho rt•~••r,·at ion 11irn..orar Rl-1 may be 1wrmlt.tod
by loral law,'' hut. Hll(>J>lt•111N1tN thiA with a 1no,it-f1worfltl•111\Uon (')RUM't. The
tN'Rtit•N with China, l•,11to11in, a11d I.at.vii\ contain Rn <'X<'<'J>tlon for 1>roff>AAlon&
"r<-~1•r\0Nt <'Xt•lmnv<'IY to 11ation,\l14 of tho l!Ollntry," without t,1J)N1lfylng whothor a
profr~~iun rnn bt\ oon~ltl,\rt•d <'Xt•lt11-1i VPly rt'Hf'fVt•d to ti1t i 7.1'11:-i if <>J>ull to othi•r
alit•ns by virt.110 or a trl'nty with any third country. 'l'ht• t.n,aty with Siarn
nwrdy pro\'idt•i:1 for mo~t-f1worc•tl-11nti11n tr"atm('nt, on rondition of rtJl'lprocit.y.
St•nnt,01· 1 hcK1-:N 1,oop1,:n. 'flwt·t,fort, I woultl inu,rpr,,t. it that if an
nliN1, uncfor tlm 1u-o,·ision~ in th<'RO tl'<•t\t il'S, who if~ nu on,rinoor or a
dot'tor or n h\W,\'('1' or of nu.,· ot h<'r prof<•s~iou, otll'l' has n pr<>Jlnr t'ntry
into this t·ount1·v; t.hat h,, if lu., is hul't~ untll'l' propur cnt,ry, tlll'n t.Jio
fn<'t t.lmt, hu is "nu nliNl would not, bn.r hiln--tlmt n.lonn·-·frou1 tho
pnwt,i,·in~ of his proft•ssion if hu t·ould 1m•ut. t.lw (•thwn.t,ionnl stntuln r<l~
or whnlt>\'t.•r tho ~tnndor<l~ are within th" nr<•n nwt. bv Anwri<'tUl~.
~lr. L1NDl~n. lie woulu Lo l'('<tttirc.·d to mct•t. nil 'stu.ndnl'ds cxcc1>t
tht• ono of c.·itiiwnship.
St•nn.tor 1 I H'Kt:N 1.oor1,:n. And t,hC'rcforn n. St.ah~ ln.w in conflict with
thnt, would foll undt'l' thi~ trmit.v.
~I r. LtNl>l-m. Aml unc.h•r otlu~r h'c.•tit it•~ t.hn.t we lmvo hn.d for mnny
YC.'Hl'S,
• ('l'hn following infor1nntion wn.s subsl'<tuuntly furnished:)
Jfon, ,JOJIN J. ~l'Al\1.MAS1
I 'uifrtl Stnte1t Snrntr.
MAY 10, 1952.
~ty than ~1-:sA·1·011 St•AHi\M.\N: I havo bt•tm informed hv Acting Ai;si1-1tant
8ocrohnv or 8tnto J.ind1Jr that. somo q11<'l'ltio11s ha\'C atlR<'n ,•on;<'rning artirh• VI 11,
Jl"ta~rn\;h 2 of tlw 'l'r<'nty or 'Friendship, Conunorl'C, nnd Navigation with li-irarl
(ExN·ut ,·o ll), Ei~hty-:wron<t Congr('s~, fiN1tst>sslon, whirh h~ now ln•h1g rou~i<i<'rC'd
by tho HHb<•ommit.h'<' or which yon nro t.ho chairman. 'l'his nrticlo rcn<iij RS follow8:
• "2. Nntional~ or l'itlu~r Party Hhall 1,ot be• harrl"d from practising thu prorPssions
within t-hu torritori<'l4 of tho othor J>nrty m<'r<'ly bv rNL-;011 of tht•ir nli<'IIRp;<~; but
t.hoy 1:1hall Im iwrmit frd to OUKn~o in prololillional ,wtivitics thoroin upon complianc.'
6 with t ho rcquin•monta rt•garding q unlifil'ationt1, rcsidt•m·c, and compt•tonco
thnt. arc nJ>plic.-nblc to 11ntfono.ls of su<'h othl"r Party."
This nrth-lt• m<'n1111 thnt n national or J~ral'l Ahall not l><' hancd from praetking
a profo~tdon in tho United 8t.n«!B moroly booauso of hiR nlicuago. Al\ tho artido
e1tat('s, ho mul\t c:omply with ~tut.<, ll\WS rcgl\rdiug qunlifh-ationl-4, N'Sidonr~ and
uompt,tcnco in hit4 J>rofo:.;."lion l\'hirh a Stato applies to any l'it izt'n of the Unit.ed
8tntos. IC a State, for <'Xamplc, rcquln•s a writkn cxuminntion, ttsid<>nco in tho
Stato, 1.,1.c., boforo Jt. will J{mnt n ht•t•nso to a J>h)'Hit•ian, tho J)l\rt icular forclJen
naUonal mmJt moot all •moh requirtmwnta. 'J'ho only roqulrcmont, 1r it exists in
ftny Stnte, which may not be imt>t>-•md, is that the iudi\'idual 001u~irned boa United
Stutes c:itiztm,
Connt<'rparts of thi~ pro\'istou RTRntlng nntional trN,t.tnont with tt~poct 1o tho
praC't.lCO of pr<'lft'f(."ionl-1 aro contai11C'cl in at, IN\M, 10 tr.,at,k'fl l>f't.1\'N'n tht• Unitro
~tat<'a and 0U1ur c,>11utrio~ to whioh thri mh·ico nnd cousont or the Sonato hl\vo
hoon ~vcn nft,or full eou~ltlt•ration. Thnso an~ tin• tn•at.in:,i botw<'l'II tho U11ih•d
St.atns and n~rmany of 1023 (art. I, par. 1): with At1~tria or 1928 (art. t, par. l);
with El Salvador of 1026 (Art. I, par. 1); with' Uondura..q or 1H27 (nrt .. l, par, 1);
with I h111~ary of 1H25 (art. I, par. 1) ; with l..iht'rla of mas (art,. I• J>ftr. l); with
Uruguay of 10-19 (art. v. par. l (a)); with lrol&nd or rnr,o (art. V , par. 1 (a),
<>xcopting only law): and wath (tab of Hl-18 (art. I. par. 2 (a) f'XCC\pting only law).,
lt, it1 Ahlo containod in 1hr truat~• wft.h Colombia (F.xrcutivc ~I, 82tl Cong., 1st se~.,
art .. \'ll, par. 1), whh-h I~ )lN'S('ntly IX'ln~ consld<'tt'd hy your rommitt.<'t'.
Tho Jlraotl('{' of ,ho \Tnit(•tl Rtatc~ Uo\'t'rntn<'llt,10 lnrlurlt• 11ati01lal h't"Rtment
))rovlionR N'fl}'M'ctln~ tho J>raeUoo of prof0tli:1io11A in bilateral frioncit1hiJ> and oom•
meroo trcatlt'fl hM thul'l l:('(m follo\\'t."d for ll<'ftrly 30 voam, and hM b<-on tef><'Ah'<Uy
meroo tr,iatios baa thus ht~•n followed for Jll'&rly 30 yt'N'I, and has been repeatedly
~JlprovNl by the Senate- itJ ittt advict's amt consents to ratlflcatlon11 of these t.rcatfos.
Tho 1.!fl\Ctlce was cstahli~ht•cl and hat1 lwrn follow('{l hcca11HO it h~ in tho tntere'1t of
the Government and pl'Oplo of tho U11ited States. Amcricamt aro engaged in
Annex 89
40
buah\<'M and JU,)f ,•Rl-llon~ I\U ovm· t h<1 worhl. Th,,y hl\\'t' l'\' ')llt't'h'<I, 1uut t h,, l ~ nit(11I
HtAh\R Uovt'rnm,,nt hAtt dt-t•mt•tl lt. &l>l>h)llriah, to tHlJ>J>ort., fltfurt~ to J>roh,,,t I lwm
In thl•lr TIKht frefll~· tn 1m~\lt' l(•l(lthu11to hu~hu-~ niul 1m,f,,~ io11t,l n,1th·1th,11 with•
out dlt'orimh1atlon on ar,mm,t, or tlwir Anu•rh'.lm oil limntthip . 8hH'\1 firm muumltlllt'I\~
In t,rt•at lt•s oot\VN'n fort•i,tu cou ntri,•~ l\ntl tlw lT ul h1tl ~tnh•i-. h•111w,•t ltuc I h i!4
rl,tht. ltt t.ho m0ttt. t•IT11t't h·o mamwr h~· whl,·h th,~n ri~ht:,t mn~· IK' :,11•,•11rt•1I, t.110
Unih1d ~tl\U'~ lm~ 11onJ{ht nml ad11t,w,I t ht' <'x,,,•ution of t rt'al lt•14 wil h fnrt•i)ln
count rlt,i whh,h ,•,mt.alu Plll,•h t•ummlt.111,•nt~.
Hhtm• t.l't'l\t h•~ h•\'olw N•t•lprn,~I ohlil(RtlnnM, t hti l l tilh•d ~t "(.(.':( ,·ntmnt. ,•sp,•,·t to
1't't'UN' th,, pr111,•,•t i1111 of rl~ht~ of :\uwrh•,,11 l'iti,.1•11:- In prnl'l in• prnft•:-1:-iln11~ nhrnn,1,
or to t'llft8~' l11 11t h,•r ~ninf11I pul'!'lutt~. wlt.11011t lwi111i1: lll''l~u,•cl to Mt•o1·cl t't•t•iprcwnl
tN'atmt'nt. in th,• l ' nU,•tl ~tnh'H to 1u\tio11nh1 or tlw 1mrti,•11lnr f11rt•i~11 1•1•1mtrv.
}'orhmRh'ly, th,, l l11lt1•tl l°'tnh•:i IH nhh• to n,·,·,ml l'\'t•iprodt.y with 111ininu1m i111t;r ..
ft'N' lll'l' with lu,•~,l h.•~h1lnt io11, ~llll'\1 011r t•o11nt ry luU{ nhn,~·s ht•,•n h,).-.pit:,hlc• t n
Jl<'r,1011:-l ,·ont rllmll• to t h,, hullilln~ or 1, h,,,,11 hy nn,I ,•:icpn1utin,.-c ,•,·nnomy. .\~ n
Nm~t'l\llt'l\t'l' of t.hl~ tmclltl,H11\I h,).~pltnllt y, tlwn• fHt' 011 tin~ whnh• ft•t' nn,l rt•lnUv
«'l~· minor h•~al N'14trit•tion~ hupotwtl hy ltwnl 111\\l'I uu 1\1•,•mmt, of nli1•1u,~1•, fnr
f,•wt•r t hnn an, to ht.• fomHl 111 t tw h"'·~ of t\hnu.~ . t. nll ut lwt 1'1l11nt rit•1-1, A:-- n rt':-11l t.
l,y tlw~,• n•,•lprllcnl tn•ut~· ~,•m111ilnw111,-., th,• \'11ih•1l ~lt\h'!'( h11:-; ~nhw,l mo.-.1 ur
tlu• nd\'1rntn,tl'~ for A11writ•1rn ,•lth.,•11:-t. A n•,·,•1~111 or t hi~ l'i:tnhli:-ih1•cl Pnitc•cl
~tnh'!I f)l'R<'tlt••• woultl he• n rt•lrollrt':-1111\·1• s tt•p i11,•,m~l, tc•11I with "1111 hnrtnfnl to tho
fnh•n•~t~ or tlu• \ l11itt'll ~tRh'S nud ur A1111•rh•t\l\ l'iti1.1'11~.
~lm'\' rt'I)' ~·our:-i,
,IArK n. T., ..... :.
:lc-li1111 l,l"g11l • l./1•isrr.
N .\1'10:-.i A 1, 'l'IO~ATM ·~~·l' Wl'l'H JU:~l't:("\' '1'0 ~,•n,~ ~·rn·w, l•!t)t'( • ,\'\'10~ .\ ,,,
JU,~l1W 10\ It; :\ ~ n Pll ll • ..\ !':'I'll ltul11C' Al "l'I \'l'rn:~
St,1u1tor I( 1cta~r-a,001•trn. Art it•lt- Yl If, ~,,,·t ion :\:
Natlmml!-4 nml ,•01111m11it•~ of ,,it ht•r lmrt~· ~h"ll 1111 n,·,•111·,h•tl .""' i,n1nl t rc•nt 11u-11t
~1,d ll\Ot'l-fn,•on•,l•m\t lon t rt' l\t H\t' tlt w t h tt'l'\IWl'I to t'l\lt(n~l11~ m l'lt•lt•ntilh•, ,•ch1t·1\tlot111I,
r,,tif(lm1M l!\11tl ))hilt\nt hropit• tll.'ti\'IUt•~ \\ it Inn I he• h •rrit oric'~ \)f tlH• ot lwr
l'art.y I atul ttlu\ll ht' n,·c·onl,•cl t ht• rillht to forn1 t\.'(:-<111•u,t10111"1 fur t hl\t purpn:-:,, 11111!,•r
tht' ll\W!\ of M\ll'h nthn Pnrt~·. ~othlllt( ln tlw 1m•iw111 t.r,•1,ty Nhnll '1,• dt•t•11wd to
l(fAllt or lml•IY l\11~· rh.tht to t' llt(t\ftt' In llolit h•nl nl'l l\'it i,•s.
Is Uuit an innovnt ion in t,t•t'ntit\.~?
~fr. LtNtn,;u. ~o, ~ir; it. is not.. It wa\s in t.lw Urugun~·nn 'rrt'nt.v
anti tbo Italinn and Irish trt'tlti,m.
St'lu,tor I hcta: N 1,ou11i,m, It iK not, in t.lu., ot.hl,r t1't'nt.it1s hl'fl'lofol'o,
hist.orit•nlly?
---~lr. l,tNDt1lt, I don't kno"., how far btwk; but I know it w1\s in
thoso t.hroe t1·,,nt,,t'fl,
&nntor l hch'KN 1.0011KH, \Y ,,n th,,n ,,s l ,mllm"Mtnntl it., in t.ht'$O
tl't'ut.it•s that wo ~f\Vfl fm·mN·lv adot>t•t'<i, nntl in t.lwNt' t,rPnC.i,,~ t.hnt. aro
now proposNt, any orgauti~~t?t;on or ~rOUll of 1wopfo from nnv of t.lw
tr~nty (.'tlunt,1·•1.ls can t~omu hl'rt' anti t.h,,y lm.vo t\ gun1·ontt;t,d right
undur tl1is t,rt,ntv to forn\ Mllt'h orgnni1.l\t.imtR t'llgU.).'tt'tl in ~wil1l\t.ifit·,
edurationn.1, roligious, or t>hilanthropic l\t.'t,ivitfos nR tht'V plt'llRt.' E10
long, I a~unu,, l\S they do not violato c,·hnuml ln.ws ofsonu, kind.
But tht'to is Vt)ry littlt' limit to t.his t.hing.
)lr. L1N1n:n, As I undorst.n.mt it, Sont1.h>1', it iu1.y8 thnt t.htW nrny d~
t.ho stuno things that. 1\ nnt.ionnl of this <'ount,t·y nmy do in t,hat t'Nlllt'Ct,,
and t.hnt wo n\nr do tho snmo things us n nnt.ionnl of t,hf'ir t•mmtt·v
may do and th1it in any ovout, if tU\V otht'l' fm·,,ign t•om\ta·y is ~ivru\
more 1ufva1,tngl'o\ls trt'l\t,meut., wo shi,11 ~luu·t, in t.l1nt ta·,,ut.nwnt• auul,
by tho samo tokl'n, if wt, giv<' tnoru n<lvn.ntt1gNms t.1·,1nt.numt to "
tliird country they will ho.vo the bl\l\~tlt, of t.hat morl, n,hantngoous
trcatlnout.
Annex 89
..
COMMlmCtAI, TUEA'l'U:~ 41
~l'nntm· llu:Kt~s1.ocwt-!H, I wn~ nnf. nwn1·t, thnt. thnt Jll'OYiNion hnd
ht't'I\ in l'Xil'lt,,rn;,, with nt.lH'r ,•mmtl'it•!-1. H hn!-1 fn!-l('innting- po~~ihilit,ic.•~ .
.:\tr. Lt:'1.mm. It, hnH on tlw whol" lwl'11 mw thnt wn hn.vo sought.
\\'t' hnvt• ~ou~ht it. for our mi~~ionnr~· iwtivit.it•~, tuul 1 think it. h11~
bt•t•n hnnh•r for Ul'I to oht.nin rnt lwr t hnn t ho rt'\·1•,~••·
HPnntor llu·1u::--.;1.00111rn. 'l'lrn.t. i~ nil, tl1111~ ,·ou.
A~ I ~n~·. thii,1 incpairy wn~ mntlt• on th<' l't'()lf(\~t.'of nnoth('r H"1u1tor,
l\l'lk in~ t hn t I i)l(p1ir,, inh• t hiH mn tt ,,r.
~l'JU\.t or g,,A 1u, M.-\ ~. i 1 ny I nl'lk n ~implt• cJltt•i,;t.ion fot• t lw rt•t'<ll"tl?
An nli,•n il'I n 1w1~on who WU!-1 horn nhrontl nnd lm8 not lwt'l\ nnt ur11li1.t•tl'f
~fr. L1N1n:u. 'l'hnt iN ri~ht ..
~,•nntor ~,•.,uKM .\S. Aftt•r ht• h~ nnturnlii',t•tl IH' is Jw lm,l,!t'l' nn nli,•11'!
:\lr. Lt:"\lH:H. 'l'hnt h~ ,·ot'l't•t•t.
('l'lw follow in~ t·omm,mit•nt ion~ Wt'l't' t't't't~h· t'tl for im~l'rt.ion Mnh~t••
t.)\ll'llt, to t.lu- IH'nrini,!:)
Jlon. ToM ('o:-i!l.iAU,'\',
'1'111-: ~e,;no:ntt,· ,,.. ( '0Mr.o:1w1-:,
H'111hi,i11hn• :tt,, l>. <'. 1 Mou II'.!, l!l,'i:!.
('/111inmw, ( 'omm,llf't' tin Forf'ign lif'l•lliom,,
t. t1itnl Stotr:1. So111t.-, U'nslii "lllot1 i,'i, I>. C '.
lh:AK Mn. ('11.,rnMAN: I nm 1,tln1l to hA,·c• thl14opport1111it~· l\~nh1 toc•11clnri-1• 1ht•
pro.zrn111 fo1· th,• 11t')l.t1tlatio11 uf 1no<1,•1·11i:,.1•d 1,tt•111•ml ,·om1u1•t1•h~l tr1•nth•1'1 wit.h
111 h•n•s h•t I fort•ip, n 1·m111 t rit•l'I,
;\1-iil,• fr11111 t'l'ttni11 1·1•1i1w1111•11t:-1 n111l vnri:,tio11:-1 111 tlt•tnil, I un,h•tl'ltantl tlmt four
of th,• th-,• ,·om1111•rl'i"l tn•l\ti,•~ tlmt '"'"' h,•,•n t'n1ll'h11h•1I 1l11ri111i( thl' P'""'' ~·t•1\r •thn:-
1• with ( 'olomhin, Ur1•1·1•1·, l~rnd, n111l P1•11urnrk · ,·onhdn i-uh.,timtinlly tln•
1-1\1\lt' pro\' i~io11"' ll"' llll' 1,t1•111•rt\l 1·0111m1•n•lt\l t r,·1,1i1•:- with I n•1tu1tl 1\111 l \ 'r11~111w, to
whl,•h t ht• ~•unit• i,tnw It~ 1•011:-1•11t in Hl!",O. Tlat• tift h, ttmt with l•~t hiopill, l~ nn
nhricl1,t1•1I for111 1h•~hlmld to 1whi1•,·1• I h,• :-:ntrn' ~•·111•rnl ohj,•t•I in•. In mltlit 1011, Owrn
l:-1 t h11 It n\ion l-11pp\t•1111111tnr~ ni,tt't'11111,•11 t w liil'!, is i11tt-11tl1•1l to hrh,M tho 1 U-lH t rt•Rt y
\\ it h thnt l'Ollllfl'.,· nhr1•1\1-t or ll\lt•r th•, ·t'lopm,·111~.
;\nll'ril'nn l111~i111':--i-111,·11 who h1\\·1• hn·1•:-tnw11t or trn1lc• r1•ll\tlnns with t.l11•~t•
t•111mtri1•s, or who 1•.r1• 1·1111h•111ph,th1t,C 1-11wh 1·c•h\tio111-1hip~, 111\\'t' n ~•11uh1t• ~Ink,• in
ll\111\t'l't\llS 11rn\'biit111s or th•~--,. tn•1\ti1•s. Tht'l'-1' provi:-11\11~ i11t•h1th• t Ill' 01\l'l'I \\ hh•h
C.'(lllt'l'tll tlu• prof c•,·t ion of tlll'ir pt•ri-om1 nn,l prop,•rt ~- in t ht• ot lwr 1•1111 nt rii•~ i11-
, ·11ln11l, flu• pt•n11itt1•1l rnn.,;t' of th,,jr twti\'itit•:- in thost• nn•1\.-:, tht• l'(lt1tli1iu11s or
tlll'ir in,·1•:-;tnwnt mHl with,lrnwnl of fu11,h, 1 n1ul 11111 t,rt•ntm,•nt of importA mul
C' :"I: pt II' 1 ~ •
. \s ,·011 um.,· know, t hi• }),, pnrh111•11 t of Colllllll!fcu ht\!l N1 t>t>11tl_,. •~n ,thini,[
~,~,•It\\ ntfrntion to Uw pr,1hlt•111s of fadlitntinli( mutunlly prolltnhlt• 1,rl\'nh• \'nitc•«\
~tnt~i,1 in,·t•iillllt' ll11'1 in for,•i)m 1·01111trit•s. Th,• t'tlt11llllnnl'l mutc•r whil'lt ron•l~n
t•11tc•rpris1•s Hu\y l'K1 ••stnhlMw1l nnct O)Wtl\tc•tl in 1 ht• \'nriuus r<•nnt ril•:-t1 t hl• ohli~n•
th111i-1 whid, tlw~· tll\ll'lt n.-::-umt•, nn1t the• ri~ht:-i of whirh tht',\' t'l\ll ft•t•I 1\... .i -t1rt•tl, nn•
out~huulintt ntnnnf( tl11•:-1• pruhlt•m!{. It 1~ 1 h1•rc•fnt1• pnrt il•ull\rl~· J,lmt if ,vin)t Ulf\t.
tlw mo,h•rnit.t•1l t'tlll\lllt'l'l'iol tn'l\1ii•s t'tlntnin ••xpHl'it prn\'h,ions 011 tlw~• tJllt'~•
Hun~. 111 our opinion, tht•y lfhoultl ~o far to\\nr,t t•n•nti111,t -~~o for 1\.-.( J,1.0\'t'fll•
lnt'II h\l n~rt•1•nu•11 t~ t•tm ·- t hn t nm,•h tlt•sirt•tl f R \"t1rnhlt1 l'linu\h' ll\'l'\'S!<t\r y to ntt rt\t't,
Am1•th•1m t•.npitnl f\1111 h •,•lmnloi,c~·.
Tlwl'lt' t'OIHlllt'rt' inl f rt'ntl,•s l'nll do 1\0 llltltt•, or t'(llltSt', f hnn l'Stah\hih 1 ht• stniulRttls
to ht• n11pli1•cl rt11•i,•rtw1,t1~· hy t hc• l'ont rnt't in~ j,(t1\·,1r111m•n ti- in t ht':-tt' 1111\th'r:-1.
Vnrinntc otlwr f1wumh ,, t't•mlitl1\l\1'1 must IK' prt•~1•11t. hd,11·1• h111i\'i1hml tlrms will
11,mu•h ,·,•11111rt•s wlww t ht•st• l\..'ISt1rnt1l't'l'I t•1m t•onw into plo~·. llowt•n•r, our tth-••
ru11.si11t1!'l with Anwrknn h11sl111•s11.tm•n lu\\"t' r,,,·,•nh•tl tlll'tr l'K•lit•f thnt th,• \''Ot1t•h1-
l'ion tlf t'(ll\\llll' tt•il\l trt•I\Ht•s or tlw t,\'J)l' lltlW lit•for,, ~·our t'tlllltnith't' is OIU' or ttu,
mo:-.t u st•fu\ 1'1frp." t lw < ~,,,·,,r11m1•11t t' l\ll tnkt• to nid pri\'nh• \ '11ifrtl ~tntc•1-1 forl'iJ,lll
hl\·t•storl-1, l nm sun• tht•y will wt'lt·om1• ~·our t1ppro,·1,t or tht•:-:,, tn•t~ti,•~.
:,O:itH't'rt•ly your:-,
( ·11.,n,.1-:~ ~A \\'\' Im,
Sr,·1·rt11q1 of C111tllllt'fft'.
Annex 89
42
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COMMERCIAL 'TREATIES
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• • ~-: , - AMBRICAN AR1UTRA1'ION A!.SOCI.\TIO!'-l,
' i; :,'tt:-.< ;'· : . , New York SO, N. Y., Atay 14, 195S,
lron. ' 1'6~ CONNALLY; •
Chairman, Commrttee,on Forei'gn Relations,
Vf\ited Statta Senate, lVa!hington, D. C.
!\fy DEAR SENA'l'OR: Your commltke is consid<'rin~ the treati<'s of commc-rce,
friendship and navigatio_n wJch·tho United Stat<.'s recently conclud<•d with l>cn ..
mark, Israel, Colttirl~1 • Greece, and the agreement supplementing the commercial
treatv i ·it-h lta1v.
. All these treaties ooritain a provi~ion facilitating tbc mutual cnforcem<.'Ht or
arbitration a~ree,mcnts and awards in commercial disputes heiwren citiz<.'ns of
the respective oountrios. The State Department is to be hi~hly commcnctcd for
introducing this modern feat11rc in bilateral treaties, thus making a real contribution
to tho advancement and use of arbitration.
This 68$ociation, which has hcen dealing with international comm~rcial urhitrntion
in the intl'rci:,ts of American trade and commerce for more than 25 .,·cars,
considers this J>fovision of the troatil's a valuable frature and a successful effort in
the protection o~rican trade intcrC'~ts.
The standas:d· . · tion provisions in these trcat.ics wHl p:t1arm1t<-c the American
trader the offect1 · ,~o of arbitration abroad. When, on the other hand, cwcntion
of awards rendered in a foreign countr,y is souKht in any State of the U11ion,
they are subject to the law prc\'ailinj{ in the rcs~ctive State Rnd have to comply
with its requirements. Thus, tho rightJi or the States of the Union are prc~<.'rvcd,
in regard to the ai,plication of their arbitration laws.
The association welcomes the efforts, as embodied in tho trC'atics, to sccurc tho
enforcement of arbitration a~reemcnts and awards in the interests of American
trade. It recommends in this respect favorablo consideration of the treaties.
Ven· sincerely vours, ·
· · A. C. CROFT, J>rtsidcr1l.
(NOTE.-'l'he subcomn1ittco then considered the consulo.t· convt.•ntions.
This portion of the hearing was printed as appendix to Ex.
Rept. 8, 82d Cong., 2d sess., Consular Conventions with Iceland and
with Great Britain.) .. __
---8ooatff SPARKMAN.-· Thank you very 1nuch.
(The bearing was adjourned at 12: 10 p. m.).
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Annex 90
SENATE {
TREA'fY OF AMITY, ECONOMIC RELATIONS, AND CONSULAR
RIGHTS WITH IRAN
MESSAGE
dOM
THE PRESIDENT OF THE UNITED STATFB
ffANSlllTTINO
A TREATY O.F AMITY, ECONOMIC RELATIONS, AND CONSULAR
RIGHTS BETWEEN THE UNITED STATES OF AMERICA AND IRAN,
SIGNED AT TEHRAN ON AUGUST 16, 1955
JA!fUABY 12, 1966.-Treaty was read the first time and the injunctlon of secrreoy
waa removed therefrom. The treaty, the President's meaage of tranamitw.l,
&nd all acoompanylng papen were referred to the Commft\ee on Foreign Relat
iona and ordered to be printed for the uee of the Senate
THE WHITE HousE, January 12, 195C.
To tAt Senate oj the United States:
With a view to receiving the advice and consent of the Senate to
ratification, I transmit herewith a treaty of amity, economic relations,
and consular rights between the United States of America and Iran,
signed at Tehran on August 15, 1955.
I transmit also, for the information of the Senate, the repoi-t by the
Secretary of StatP with l'espect to the treaty.
DWJGHT D. EISENHOWER.
(Enclosures: (1) Rel?ort of the Sec,·etary of State; (2) treaty of
am.ity, economic 1·elnt1ons1 and <-onsular rights, signed at T<'hran
August 15, 1956.)
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Annex 90
2 TRt;ATY WITH IRAN
The PnESID>;NT,
The White House:
DEPAHTMJo;N•r oF STATF,
1-Va!ihingtm, , IJ,crmber £S, 195/i. ·
fh<• undcrsignf'd, the Sccrnt.ary of 8tate, has tlw honor to suhmit
to the Pr<'sidm1t, with a vi<>w to its transmission tot.he Senate to receiv<·
the advi<·c and cons<'nt of tJ1at hody to ratification, if the PrE>,ai<fent
approve thN<'of, n trnty of amity, economir. relations, and consular
rights between the United 8tates of Amf'.rica and Iran, signed al
rrchro.11 on August 16, 1955.
This treaty places economic r('lo.tions hct.wcPn thc- United Htat.es awl
Iran on a bilateral treaty ho.sis similar to t.ho.t whic·h tixisted under t.hr
treaty of fricrnlship and comm£>rce hctwe,•n t.h,~ United 8tatcl' of
Am,•ricu. an,1 Persia signt>d at Consto.nt.inopre on December 1:i, 1856
(1 J 8to.t. 709), and t£>nninatrd May 10, 1928. It replaces the pro ..
visional a~ccmcnt n•lating to commercial and other r<'lations, concluded
at Tl'hran .May 14, 1928 ~47 Stal. 2644) and the provi8ional
e.grccml.'nt n•lating to pers~nnl status and family law,. concluded at
Tehratt.July 11, 1928 (47 Stat. 2652), and thus cstab 1sbes thl' r«.'liti9us
of tbe two cow1tri'es on a morl' modem nnd adequate basis than
has hcretoforti existed.
This treaty, although <·omparablc in major substance with recent.
treaties of friendship, commerce, aud navigation, such as those with
Japan signed April 2 1953, and approved by tho Senate July 21,
1953 (S. Ex. 0, 83d Cong., .lst sess.), and the Federal Republic of
Gf'\rmany, signed October 29 1954, and approved by the Seno.l<i
Jui,- 27, 1955 (8. Ex. E, 84th Cong., 1st 8888.), is shorter and simpler
in its provisions. It most n".a.rly resembles the treaty of amity and
economic relations with Ethiopia, signed Se_ptember 7, 1951, and
approved l,y the Senate July 21, 1954 (8. Ex. F, 82d Cong., 2d aess.).
Like all these and certain other recent treaties, it contains provisionA
relating to basic personal freedom, property rights, taxation, exchange
regulation, rights to engage in business, treatment of imports and
exports, navigation, and other matters affecting the status a.nd activities
of citizens and enterprises of one country within the territories of
the other.
As docs t.he treaty with Ethiopia, the present treaty contains provisions
relating to privileges and immunities of consular officers and
to exemption from taxation of the property, effects, and salaries of consular
officers and employees. It also conta.ins provisions relating
to the acquisition of land and buildings for governmental purposes.
In substance these provisions are comparo.blo to provisions in recent
consular conventions between the United States and other countries,
such as that with the United Kingdom, signed June 6, 1951, whkh
received tho approval of the Senate and is now in force (Treaties and
Other International Acts Series 2494). The present treaty is nQL
intended to and does not include detailed and comprehensive provisions
found in the consular conventions, such as/rovisions relating
to not.a.rial services and protection of shipping an seamen, but dor.s
provide the basic minimum or provisions needed for consular offic<'rs
to function effectively.
The prf'st>nt h'C'O.l,Y do('S not coutain t.lw provisions, foun~ in rccr.nt
treaties of fri.-11ds.tup, commtwce, and navigation, rclatinJ to work•
men's comprnsal ion and social security, nor docs it contam any pm-
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Annex 90
TREATY W1ITH IRAN 3
vision <lea.ling with the placement o( marine insurance. The commitments
stipulated, primarily in article IV, in regard to the general
conduct of business enterprises relate la.rgely to the assurance o(
noncliscriminatory treatment once such entel]>rises are established,
und do not deal with rights o( entry a.nd establishment..
The provisions of the present treaty regarding entry into force and
1 erminati~n· arc ~imilar to· t-hose o.rdinari)_y inclu~ed in treaties of this
1,ype. It 1s provided that, the treaty shall enter mto force one month
u.f tcr tJie day of excl1ange of ratifications and shall remain in force
for 10 yt-.ars from that day and indefinitely thereafter, subject to
t,ermination at the eud of the 10-year period or at any time thereafter
"n J year's written notice by either Government to the other
Government..
Respectfully suhmittcd.
JoHN FosTER D ULLEf-!.
Endmmr«-: 'l'rt•aty of amity, ('conomic rf>lations, und consular rights,
sigucd at 'rE>hran August 1!>, 1955.
TRE.\'J'Y OF AMI'J'Y, Ef10KOMI<: RELA'rlONH, AND CON~
ULAR RIGHTS BETWF;EN 'J'Hf'; UNITED H'rATE~ o~-A~
1ER1CA AND IRAN
'I'll<' Fnit<'<l 8to.tc-.s o( Amrl'icn arul (ran, d('sirous of cmi;>hasizing·tlll'
frirncUy relations whi<'h ha,~t• Ion~ prevnilrd het.ween their peoples, of
rt•n.ffim1ing ~h(' high princip)cg in th<\ f('gulation of human affairs to
whidt t Ii~) an• committed, of t'll('Onra,png mutually hencficial tro.d<•
u.nd investments and <'loser economi<· rntc>rcourse genera.Uy between
thfir p<'oples, and of regulating <'.onsuln.r relations, have reeo]ve<t to
ror1clucl<', on thP. basis of r<'ciprocaJ <'qu111ity of treo.t.me.nt, a 1'rra.h-·
of Amity, Economi(.' Rf'lo.tions, and Cons1.1lu.r Rights, a.wl lave
nppointf'd as t,hcir Plenipotentiaries:
und
The President of the United Sta.tes of America:
.\fr. Scldc>n Chapin, AmLasswlor Extraordinary a.11d Plt.•nipot,
entiary of th<' Unitccl Htates of America o.t Tehran;
His Imperial Majesty, the Shah of Iran:
His Excellency Mr. Mostafa 80.miy, Untlcr Secretary of
the Ministry of Foreign Affairs;
W·lao, having communir.atc<l to <'ach other their full powers founcl
lo hr in ciur form, have agrrrd upon the following artid<'S:
ARTICLE J
'l'her<' ~hall h<! firm ancl enduring pf'M~<' and sm<'ere fricnd1d1i1>
lwt,wt>,•n t 111• Unit-<'d Ste.t.m~ of America and Iran.
ARTICLE JI
I. Nationals of either High Contracting Party shall be permitted,
upon terms no lcss favorable than thoHO aroorded to nationals of anv
third countr~l to enter and remain in the territories of the other Hig\1
Contracting ra.rty for the purpose of carrying~n trade between their
own country and the tR.rritorics of su<·h other High Contracting Part.~·
Annex 90
4 TREATY WITH IRAN
and engaging in related commercial activities, and for the purpose of
developing and directing the operations of an enterprise in whieh
they have invested, or in which they are actively in the process of
i.uveeting, a substantial amount of capital.
2. Nationals of either High Contracting Party within the terrirories
of the other HiJh Contractμig Party shall, either individually or
thro~ aeaociat1ons, and so lo~ u their acti'!iti.es &l'e not contmry
to puQi~ order safety or morals: (a) be penmtted to tra-..el therein
freely and reside at places of their choice; (b) enjoy freedom of oonscien~~
and the right to hold religious services; (o) he permitted to
engage in philanthropic, educational and scientific activities; and
(d) liave the riidtt to gather and transmit information for diBBADJioat.
ion oo the pulilic abroad, and otherwise to communicate with other
persona insiae and out.aide such territories. lfhey. shall also he permitt.
ed to ~ in the practice of professions for which they have
qualified under the applicable legal provisions governing admission to
professions.
3. The provisions of paragraphs 1 and 2 of t' ,,:, ,t>:'"~Dt Article shall
be subject .to the right of either High Contracting Party to apply
measures which are nee~ to maintain public order, and to protect
public health, morals and safety, including the rigb.t to expel, to
exclude or to limit the movement of aliens on the said grounds.
4. Nationals of either High Contracting Party shall receive the most
constant protection and security within the territories of the other ![i,5\1 Contracting Party. When any such national is in custody, he
in every respect receive reasonable and humane treatment; and,
on hia demand, the diplomatic or consular representative of his country
shall without unnecessary delay be notified and accorded full opportunity
t.o safeguard his interests.· ... He shall be promptly informoo of
the accusations against hitn, allowed all facilities reasonably neceuar,
to hie defense aad given a prompt and impartial disposition of his
case.
ARTICLE m
1. Com~nies constituted under th~ applicable laws and regulations
of either HiJh Contracti~ Party shall have their juridical status
recognized within the territories of the other High Contracting Party.
J.t i; u_raderatood, however, that re~nition of juridical status cloes not
oi iteelf confer rigJ.,.ta upon compamea to .engage in the activities for
wtJ1h they are o~anized. As used in the present Treaty,"com~ies"
moom corporations, partnershi~, companies and other UBOC1&tiona,
whether or not with limitoo lialillity and whether or not for pecuniary
p2~tN atiooals and oompanice of either HiJh Contracting Party shall
have freedom of acceea to the courts of ~tice and administrat,ive
'«encies within the territories of the other · Contracting P~y, in
all degrees of juri!diction, both in defenee an pursuit of their rights,
to the end that prompt and impartial justice be doue. Such &cce&f
shall be allowed, in any event, upon terms no l888 favorable than those
11pplicable to nationals and companies of such other High Contracting
Party or of anr third oow,try. It ia understood that companies not
engaged in activities within the country shall enjoy the right of such
&CCe88 withmtt any requirement of registration or domestication.
3. 1'be private settlement of dis~utea of a civil nature, involving
natiouals and companies of eit.ber High Contracting Party, shaJJ not
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Annex 90
TREATY WITH IRAN 5
be discouraged within the territories of the other High Contracting
Party; and, in cases of such settlement by arbitration, neither the
olienage of the a.rbitrators nor the foreign situs of t,he arbitration proceedings
shall of themselves be a bar to the enforceability of awards
duly rp,sulting t-herefrom.
.,\ R'fl<'l,f; IV
l. Each High Contractint:t Party shall at all times accord fair and
equitable treatment to nationals and companies of the other Hi~h
Uonu·actin~ Party, and to their property and enterprises; shall refram
from applymg unreasonable or discriminaoory measures that would
impa.ir their legally acquired right,s and interests; and shall assure
that their lawful cont,ractual rights are afforded effective means of
enforcement, in conformity with the applicable laws.
2. Property of nationals and companies of either High Contracting
Party, including interests in propt.fty, shall receive the most constant
protectionl'&nd security within the territories of the other High
Contracting Party, in no case less than that required by internatione.l
law. Such property shall not be taken except for a public purpose,
nor shall it be taken without the prompt payment of just compensation.
Such compensation shall be in an effectively realizable form and
shall represent the full equivalent of the property taken; and adequalifJ>
rov:ision shaJl hn.ve been made at or prior to the time of taking for the
determination and payment thereof.
3. The dwellings, offices, warehouses1 factories and other premises
of nationals and compa.nies of either High Contracting_ Party located
within the territories of the other High Contracting Party shall not
be subject to entry or molestation without just cause. Official
searches and examinations of such premises and their contents, shall
he made only RC<'orciing to law and with careful regard for the oonvcn•
ienoo of the occupants and the conduct of business.
4. Enterprises which nationals and companies of either High Contracting
Party are permitted to establish or acquire, within the territories
of the other H~h Contracting Party, shall be permitted freelv
to conduct their activities therein, upon terms no less favorable than
other enterprise& of whatever nationality engaged in similar activities.
Such nationals and companies shall anjoy the right to continued
control and management of such enterpr18CS; to engage attorneys,
agen-ts, accountants and other technical experts, executive peraonnel,
interpreters and other specialized employeea of their choice; and to do
all other things necessary or incidental to the effective conduct of
their affairs.
A llTICJ,1'; V
t. Nationals and companies of either High Coutractiug Party shall
be permitted, within the U\rritorics of the other High Contracting
Part.y: (a) to lease, for suitable periods of time, real property needed
for their residen<!e or for the conduct, of activities pursuant to the
present Treaty; (b) to purchase or otherwise acquire ~rsonal property
of all kinds; and (c) to dispose of property of all kinds by aale, testament
or otherwise. The treatment M-.corded in these r~ta shall
in no event be le88 favorable than that, accorded nat1onala and
companies of any third country.
2, Upon °'?mp~ce with the &ppli~ble ~WB and regulatio!1a
respect.mg registrataon and other formalihea, nationals and oompamca
Annex 90
6 TREATY WITH IRAN
of eit-her High Contracting Party shall be acri,rded within tl1t> territories
of the other High Contract.ing ·Part.v effective prot-ed iou 111
-t,he e.xclusive use of inventions, trademarks and t,rade names.
ARTICLE VI
1. Nationals and companies of either High Contra<'ting Party shall
nof. he subje<'t to t.he payment of taxes, fees or charges withiu tlw
t-erritories of the other High Contn.<•ting Party, or _to requirements
with respect to the levy and collection thP-1·eof I more ourdensome than
those home by nationals, residents and companies of any third
country. In the case of, nationals of either High Contra<'ting Party
residing within the territories of the other J.Iigh ContraC'ting f a.rt .. v,
and of nationals and companies of either High Contracting Part.y
eng~ed in trade or other gainful pursuit or in non-profit activiti<>~
therem, such payments and requirement.~ shall not he more burdf.>.nsome
than those borne by nationals and l'Ompanies of such ot.lwt·
High Contracting Party.
2. Each High Contra.cting Party, howc>vl'r, r<'serves the right to:
(a) extend specific tax advantages only on the basis of t·eciprocity,
or pursuant to agreements for the avoidance of double taxation or
the mutual protection of revenue; and (b) apply special requirement.s
as to the exem-ptions of a personal nature allowed to non-residents
in connection with income and inheritance taxes.
3. Companies of either High Contracting Party shall not bJ subje<'t,
within the territories of the other High Contracting Party, to taxes
upon any income, transactions or capital not attributable to the
operations and investment thereof within such territories.
ARTICLE VII
1. ~e.ither High Contracting Party shaJJ apply restrictions on thC'
making of payments, remittances, and other transfers of funds to or
from the temtories of the other High Contracting Party, except (a)
to the extent necessary to llSSUre the. availability of foreign exchangl'
for payme.nts for goods and services essential to the health and. welfare
of its people, or (b) in the case of a member of the International
Monetary Jlund, restrictions ijpecifically approved by th" J.'und.
2. If either High Contracting Paa·ty applies exchange restrictions,
it she.JI promptly make reasonable prov1S1011 for tho withdraw"}, in
foreign exchange in the currency of the other High Contracting Party.
of: (a) the compensation referred to in Artido IV, paragraph 2, of the
present Treaty, (b) earnings, whether in the form of salaries, inter<'St,
dividends, commissions, royalties, payment.e for technical servicC'S,
or otherwise, and (c) amounts for amortization of loans, depreciation
of direct investments and capital transfers, giving consideration to
special needs for other transactions. If more than one ratu of NC•
change is in forco, the rate applicable to such withdrawals shall be· a
rate which is specifically approved by the In~rnational Monetary
Fund for euch tranea.ctions or, in the absence of a rate so approverl,
&n effective rate which, inclusive of any taxes or surcharges on exchange
transfers, is just and reasonable. ·
3. Either High Contracting Party applying exchange restrictions
shall in general administer tbom in a manner not to influence -dis..
advantageously the competitive position of the commerce, transport
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TREATY WITH IRAN 7
or investment of capital of the other High Contracting Party in comparison
with the commerce, transport or investment of capital of any
third country; and shall afford such other High C~mtractin~ Party
u.deg.ua~ opportunity for co!1sultation at any time regardmg the
n.ppllcation of the present Article.
ARTICLE VIII
1. Each High Contracting Party shall accord to products of the
other High Contracting Party, from whatever place and by whatever
type of carrier arriving, and to products destined for exportation to
t~e territories of such other High ContTacting Party, by whatever
route and by whatever type of carrier, treatment no less favorable
than that ar.corded like products of or destined for exportation to
any third country1 in all matters relating to: (a) duties, other charg~,
regulations and tormalities, on or in connection with importation
and exportation; and (b) internal taxation, sale, distribution, storage
and use. The same rule shall apply with respect to the international
transfer of payments for imports and exports.
2. Neither High Contracting Party ehall impose restrictions or
prohibitions on the importation of any product of the other High
Contn.cting Party or on thP exportation of any product to the territories
of the other High C ,1tracting Party unless the importation
of the like product of1 or the exportation o/ the like product to, all
third countries is similarly restricted or prohibited.
3. If either High Contracting Party imposes quantitative re.strictions
on the importation or exportation of o.uy product in which the
other High Contracting Party has &n impo1to.nt interest:
(a) It shall as a general rule give prior public notice of the
total amount of the product, by qunntit.y or value, that may be
imported or exported during o. specified period, and of any change
in such amount or period; and
(b) If it makes allotments to any third country, it shall afford
such other High Contracting Party a share proportionate to the
amount of the product, by quantity or value, supplied by or to
it during a previous representative period, due consideration being
given to any special factors aff ectmg the trade in such product.
4. Either High Contracting Party may impose prohibitions or
restrictions on sanitary or other customary grounds of a non-commercial
nature, or in the mterest of preventing deceptive or unfair practices,
provided such j.rohibitions or restrictions do not arbitraril_y discrinunat,
e &g!l.inst the commerce of the other High Contracting Party.
5. Either H~h Contracting Party me.7 adopt mt'asures necessary to
888ure the utilization of accumulated mconv~rtible currencies or to
deal with a stringency of foreign exchange. However, such measures
shall deviate no more than necessary from a pclicy designed to promote
the maximum development of non-discrinunatory multilateral trade
and to expedite the attainment of a balance-of-payments position
which will obviate the necessity of such measures.
6. Each HiJh Contracting Party reserves the right to accord special
advantages: {a) to products of its national fisheries, (b) to adjacent
countries in order to facilitate frontier traffic, or (c) by virtue of a
customs union or free trade area of which either Hi~h Contracting
Party, after consultation with the other High Contracting Party, may
Annex 90
8 TR~.tTY WITH :RAN
become a member. Each Hig4 Contracting Party, moreover, reserves
tights and ob!igations it may have under the General Agreement oo
Tariffs and Trade, and special advantages it may accord pursuant
th6;~to.
ARTICLE IX
1. In the administration of its customs regulations and procedures,
each Hidi Contracting Party shall: (a) r"'Omptly publish all requirements
ol general application affecti~ importation and exportation;
(b) apply such reqwrements in a uruform, impartial and reasonable
manner; (c) refrain, as a general practice,. from enforcir.g new or more
burdensome requirements until after public notice thereof; (d) provide
:in appeals procedure by which prompt and impal'tial review of administrative
action in customs matters can be obtained ; and ( e) not
impose greater than nominal penalties for infractions resulting from
cleric&l errors or from mistakes made in good faith.
2. Nationals and companies of either ~h Contracting Par·ty shall
be accorded treatment no less f &vorable than that accorded nationals
and companies of the other High Contracting Party, or of any third
country, with respect to all matters relating to importation and
exportation.
3. Neither High Contracting Party shall impose any measure of a
discriminatory nature that hinders or prevents the importer or exporter
of products of either country from obtaining manne ,neurance
on such products in companies of either High Contracting Par ty.
ARTICLE X
1. Between the territories of the two High Contracting Parties th~re
shall be freedom of commerpe and navi_g_ation.
2. Vessels under the flag of either High ContractinJ Party, e.n<l
carrying the papers rc(luircd by its law in proof o( nat1onality, shall
be deemed to be vessels of that High Contracting Partv both on the
high seu and within the ports, places and waters of the other High
Contracting Party.
3. Vessels of either High Contractipg Party shall have liberty, on
equal terms with vessels of the other High Contracting Party and on
equal terms with vessels of any third country, to come with their
c~oes to all ports, places and waters of such otner High Contracting
Party open to foreign commerce and navi,atioo. Such vessels and
cargoes shall in all respects be accorded national treatment and mostfavored-
nation treatment within the ports1 places and waters of such
other High Cont.racting Party; but each High Contracting Party may
reserve exclusive rights and privileges to its own vesaels with r"8pect
to the coasting trade, inland navigation and national fisheries.
4. V cssels of either High Contractin~ Party shall be accorded
national treatment and most-favored-nat1on trt>.atment by the other
~ Contracting Party with respect to the right to carry all product.
that may be carried by vessel to or from the ' ~nitoriea of such other
High Contracting Party; and such i)roduct. shall be accorded treatment
no less favorable than that accorded like products, carried in
veaaela of such other High Contracting Party, with ~ect to: (a)
duties and ohUJes of all lunds, (b} the administration of the euatoma,
and (c) bounties, drawbacks and other privileges of thia nature.
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Annex 90
TREATY WITH IRAN 9
5. Vessels of either High Coutracting Party that are in distress
shall be permitted to take refuge in the nearest port or haven of the
other_ High Contracting Party, and shall receive friendly treatment
and assistance.
6. The term "vessels", as used herein, means all types of vessels,
whether privately owned or operated, or pubJidy QWne<I or operated;
but this tenn does not, except with reference to par~aphs 2 and 5
of th-, present Article, include fishing vessels or vessels of war.
ARTICLE Xl
1. Each High Uontracting Party undertakes (a) that enter,i>rises
owned or controlled b1 its Government and that monopolies or
agencies gra.nted exclusive or special pri~~ee within its territories,
shall mak:e their purchases and sales mvolvt_!!g either imports or exports
affecting the commerce of the other High Contracting Party
so)el1. in a.ccordance with commercial considerations, including price,
q_ualityf availability, marketability, transportation and other conditions
o purchase or sale; and (h) that th~ nationals, companies and
commerce of such other High Contracting Party snall Qe afforded
adequate opportunity, in accordance with customary busines& practice,
to comp~te for participation in such purcbft.868 and sales.
2. Each Hillh Contracting Party shall accord to the nationals,
companies and" commer<'..e of the other High Contracting Party fair
and ~uitable. treatment, as compared witli that accorded to tbe nationals,
companies and commerce of any third country, with respe<'t
to: (a) the governmental purchase of supplies, (b} tlie awarding o(
government contracts, and (c) the sale of any service sold by the Government
or by any monopoly or agency granted exclusive or special
prinlegcs.
3. The High Contra<:ting Parties recognize t lio.t. conditions o(
comj>Otitive equality should be maintained in situations in which
publicly_ owned or controlled trading or manu(acturing enterpriS(>s or
either High Contracting Party engage in competition, within the
territories thereof, with privately owned and <>ontrolled ~nteryrises
of nationals and companies of the other Hi~h. Contractin~ Party.
Accordingly, such private enterprises shall, m sm·h situations, he
entitled to the benefit of any special advanta.g,,s of an economic
nature accorded such public entca,,rises, wheth~r in t.he nature of
subaiwea, tax exemptions or otherwme. The foregoing rule shall not
apply, however, to special advantages given in ('.Onnection with:
(a) manufacturing goods for government use, or supplying goods and
services to the Government for government use; or (b) supplying at
prices substantially below competitive prices, the needs of particular
population groups for essential goods and servicrs not otherwise
practically obtainable by such l!OUps. '
4. No enterprise of either High Contracting Party, including
co~rations, associations, and government agencies ancl instrumentalities,
which is publicly owned or controlled shall, if it engages in
commercia11 industrial, shipp_ing or other businC88 activities within
the 'terrikJnes of the other High Contracting Party, claim or enjoy,
either for it.elf or for its property, immunity therein from taxation,
suit~ execution of judgment or otbor liability to which privately
owned and controlled enterprises are subject therein.
Annex 90
10 TREATY · WITH IRAN
ARTICLJo) XH
14:ac·h High Contl'acting Party shall havr tl:m right to send to the
otluff High ( ~ontl·acting Party consular n•pt·eRc•ntiltivt>.s, who, ha.v~
pr<lscnt◄•d their credentials 11.nd having been recognized in a consular
capacity, sl1all bci provided, fre(i of charge, with <•xequaturs or other
authorization.
AR'rICLE XIII
l. <.:onsular r<•pn•S('ntativ(ls of each High Vontru.cting Party shall
be ptirmittrd to r<.>side in th<' territory of the otlwr Hi~I• Contracting
Party at the plact•s where consular officers of any third country are
permitted to rt•sid<> and at other places by copsent of the other High
Contracting Party. Consular officers and employees shall enjoy the,
privifog<',s and immunities accorded to offic~rs and t!mployees ol their
rt.nk or status by general international usage and shall be permitted
to ,~x<•rciS<.• -all functions which are in accordance with such ·usage;
in any event they shall be treated, subject to reciprocity, in a manner
no. l(~ss (avorabfo than ,similar officers and employe.es of any third
count_ry.
2. The consular offices shall not be ontercd by the police or othor
local authorities without the consent of the consul'l.r officer, except that
in the case of fim or other disaster, or if the local authorities have
probable cause to believe that a crimo of violence has been or is a.bout
to be committed in the consμla.r office, consent to entry shall he preFmmed.
In no <·ase shall tihey examine 01· scizf' t.lw papera Uwre
,tc•posited.
ARTICLJi; XIV
1. All furniture, equipment and supplies consignt-d t.o or with.drawn
from customs custody for a consular or diplomatic office of either High
Contracting Party for official use shall he exempt within the territories
of the other High Cont:-acting Party from all customs duties and internal
revenue or other taxes imposed upon or br reason of importation.
2. The baggage, effects and other articles unport.ed exclusively for
the personal use of consular officers and diplomatic and consular
employee.a and members of their families residing with them, who aro
nationals of the sending state and arc not engaged ir. any private
occupation for _gain in the territories of the receiving state shall be
exempt from all customs duties and internal revenue or other taxes
imposed upon or by reason of importation. Such exomptions shall be
granted with respect to the property acc:ompanying the person entitled
thereto on first arrivRl and on subsequent arrivals, o.nd Lo that
consigned to such officers and employees during the period in which
they continue in status.
3. It is undPrstood, however, that: (o) para_graph 2 of tlu, present
Artide shall apply as to consular offfoors and chplomatic and consular
employ<'es only when their names hav<? hMn communicated to the
appropriatfl aut.horities of the receiving stato and thoy have hoou
duly rocognizcd in their offlcin.l oapacity; (b) in tho case of consignments,
oit-her High Contracting Party may, as a ",on<li\ion to tho
granting of exemption, require that a notification of any euc}a consignment
bf, given, in a prescribed manner; and (c) nothing herein
authorizt'B importations speoificall.v prohibited by Jaw.
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Annex 90
TREATY WITH IRAN 11
ARTICLE XV
I. 'fhe Govf'rnmN1t or f'ither High Contracting Party may, in t.l11•
turritory of tl1<.~ othc•1-, a<'.quirt•, own, letr.sc for any period of tirrw, or
ot.ht~rwist~ tiolci and ocrupy, such lands, l:•.1ildings1 a,nd appurt~nanc<'S
as may he nf'ct•s..qary and a.ppmpriat<' for governmental, other than
militarr,. purposes. If m.,cler the local law. t~'-' permission of tht\ \o~o.l
authonttes must tw ohtame,I as R prereqms,te to any such arqu1rmg
oi' hoMing, s1t<'h permiRBion shall h .. given on request.
2. Lands ancl huil<linb,s situated in tn.e territories of t•it.her High
f'ont-racting Party, of which t.lw othor High Contracting Party is the
hwi.l or ,,quitahh• owrwr nn<I which arc USC'cl exr.lusivd.v for gov<•rnnwnt.
al purposN1 h.,· that, owru~r, shall bl• exempt from taxation of
ev<'ry kind, natiorml, sta.to, provindu.l and municipal, oth~r than
asscssm01.1ts l<wi,•<I for 1wrvic<'~ or loef\l puhli1•. improv .. ments hy whirh
the prcm1st1s nr<• twnefitC'd.
A R'T'!CJ.},; XVI
l. No tax or otlH'r Rirnilnl' ('ltnrg<· of nn.,· kin,1, wlwtlwr or n national.
slah', provin<"ial, or mtmi<'ipul nat.urf', 8hall be l<•viNi or rolh•dC'd
within th(.' t<'rritoriP!-1 of f lw r·<•<·<•iving stat<' in reApC'rt of t hf' offi<·iA.1
PmolumC'nts, r,o.luri<•H, wagt•f! or allowan<•('s r<'c('ivecf (a) hy n <·ornm)ur
officf>r of t.he sf'nding stot,, n,.q c·omp<•nsation for his consular sc>rvicN11
or (b) by a <·onsular Pmplo.r<'<' thC'reof as compm.sation for his Stirvic",s
at a consulate. Likewise, <'.Onsular otli<-C'rs nnd t•mployees, who ar<'
p<•rrt'lan<'nt <'mplo,"<'<'S of th<' SC'nding state an<l ar1• not engagc,1 in
private OCC'-llpation for gain within the tC'rritories of the receiving
sto.tc, Ahall he <'X<>mpt from nll taxes or ot.h<>r l,imilar charges, thf\
l<'ge.l incidl'll<'<' of whi<·h would otll<'l'WiS<' foll upon stl<'h offo·ers or
<'mployces.
2. The pr,w,•ding 1m1·agroph Rhnll not a.ppl,v in r,~spect of taxes
o.ncl othC'r i-Jimi1a1· f'ho.rges upon: (a) the ownership or occupation of
· immovahh, prop('rty Rituated within the• t.-rritorit•s qf Uu, receiving
stt1.te; (h) in<-.ome <l<'rivf'd from Rourct's within sud1 territoriN1 (c•xcept
the <'.om.pm\sation mt'l1tiom,cl in th(> prN·eding pnrngraph); or (c) thi•
passing of propN-ty at. tleo.th. .
:i. The pro,·isions of t.he presAnt Article shall havo like o.pplica.tion
to diplomati,: officers and employees, who shall in addition he accorricd
all ex<'mptions allow<>d them und<'r g<>n<•ra.l international usa.gP.
A RTICl,E XVU
The oxt>mptions proYided for in ArticlPs XIV o.n<I XVI shall not
apply to nationn.Js o{ the s<,nding state who o.ro also nationals of tho
r·ccciving state, 01· to any other person who is a national of the receiving
state, nor to pe1-sons having immigrant status who have been lewfuJlv
admitted for permanent rt'Sidence in th" rPceiving state.
ARTICLE XVIU
Voneular offi<!(H'8 and employcee are not ~uhject to local jurisdiction
for acts done in their official charaeter and within the scope of their
authority. No consular officer or employee shall be required to present
his official files before the courts or to makP dt'clft.rat.ion with
respect to their contonte.
Annex 90
12 TREATY WITH tRAN
ARTICLE XIX
A consular officer shall have Jie right wit.bin his district to: ('1)
interview, communicate with, assist and advise any national of the
sending state; (b) inquire into any incirlents whicl• have occurred
affectinf the interests of any such national ; and (c) assist o.ny such
natiooa in proceedings before or in relations with" tJw autJlorities or
the receiving state and, where necessary, arrange for legal assistance
to which he is entitled. A national of the sending state shall have
the right at all times to communicate with a consular dfieer of his
country and, unless subject to lawful dE'.t.ent-ion, t-0 visit. him at the
consular office.
AR1'ICLE XX
1. The pr<•~on t Troaty shall not preclude t.lw npplication or
m<>nsures:
(a) regulatiug the importatiou or rl.Xporto.tion of ~old or silver;
(b) .relating to fissionable mo.terinls, thr me.ho-active by,
i-oducts thereof, or the sources th<>reof;
' (c) regulating the production of or t.raffi<' in arms, runmu11itio11
and implements of war, or traffic in otJ1er mattwials carried on
directly or indirect.ly for the purpose of supplying a military
establishment; and '
(d) necessary to fulfill the obligations of o. High Contracting
Party for the maintenance or restoration of international peac~
and security, or neeessary to protect its essential security interests.
2. The prnsent 1'reat.v does not accord nny rights to engo.izc in
political activities.
3. 'flte stipulatio11s of the prcse.nl- 'frent.y sbo.11 not extend to
advant.a.ges accorded by the United States or America. or its Territories
and posfMISions, irrespective of any future change in their
politic~l status, to one another, to t,he Republic of Cuba, to the
Republic or the Philippines, t-0 thl' Trust Territory of the Pacific
Islands 01· t.o the Panama Uaual Zoue.
4. The provisions of Article II, Paragraph 1, shall be c·.oustrued as
extending to nationals of ci: :1er High Contracting Party seeking to
enter 1,he territories of the ot-her High Contro.ctihg Party solely for
the purpose of developing and directing t.l1e. operations of an enterprise
in the territories of such other High Contract.ing Party in which
their employer has im~estecl or is actively in the process of investing
a substantial amouut of capit.al: provided that such employer is a
national or company of the same nationality as the applicant and that.
the applicant is employed by such national or compan)' in o. responsible
capacity.
AHTICLE XX1
1. Ea.eh High Contracting Party shall accord sympathetic consideration
to, and shall afford adequate opportunity for consultation regard ..
ing, such representations as the other High Contracting Party may
m&Ke with respect to any matter affecting t,ho operation of the prosent
Treaty.
2. Auy disputo between tbe High Contracting Parties as to the
interpretation or application of the present Treaty, not satisfactorily
adjustA,d by diplomacyJ shall be submitted to the International Court
of Justice, unle18 the ·High Contracting Parties agree to settlement by
aome other pacific means.
Annex 90
TREATY WITH IRAN 13
ARTICLE XXII
I. The present Treaty sl.teJl replace the following agreements be~
wt>en the United States of America and Iran:
(a) the provisional &g!'eement relating to commercial and other
relations, concluded at Tehran May 14, 1928, and
(b) the provisional agreement relating to personal status and
fatnily law, concluded at Tehran July U, 1928.
2. Not.hing in the present Treaty shall tie construed to supersede an,:
provision of the trade agreement and the supplenientary exchange of
notes between the United States of America and Iran, concluded at
Washington •, pril 8, 1943.
AllTICLE XXIII
I. The present Trea_!y shall be ratified, an<l the ratifications thereof
shall be exchanged at Tehran as soon as possible.
2. The present Treaty shall ent-er into force one mouth after the
duy of exchange of ratifications. It shall remain in force for ten
y<~o.rs and shall continue in force thereafter until terminated as
provided herein. ,
3. Eitber · High Contracting Pe.rty mo.y, b! giving one year's
written notice to th~ other High Coutracting Party, terminate the
present Treaty at the end of the initial ten-year period or at any
time thereafter.
IN WITNESS WHEREOF the respective Plenipotentiaries have signed
the present Treaty and have affixed hereunto their seals.
DoNE in duplicate in the English and Persian languages, both
t!qually authentic, at Tehran this fifteenth day of August one thousand
nine hundred fifty-five, corresponding with tJie twenty-third day of
Mordad one thousand three hundred and thirty-four.
8ELDJ,;N CHAPIN
0
MosTAFA 8A1UY
[BEAL]
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Remarks
Michael R. Pompeo
Secretary of State
Press Briefing Room
Washington, DC
October 3, 2018
REMARKS
MICHAEL R. POMPEO, SECRETARY OF STATE
OCTOBER 3, 2018
Remarks to the Media
Share
Annex 91
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SECRETARY POMPEO:Good morning, everyone. I want to update you on three issues, four if you
want to count the – my upcoming trip to Asia, including North Korea.First, the situation in Iraq;
the second, a statement about the ruling this morning from the International Court of Justice;
and finally, I want to talk about my effort to put America’s diplomatic corps back on the field.
To the situation in Iraq, Iran is the origin of the current threat to Americans in Iraq. It is to blame
for the attacks against our mission in Basra and our embassy in Baghdad. Our intelligence in this
regard is solid. We can see the hand of the ayatollah and his henchmen supporting these attacks
on the United States.
On Friday, I ordered the temporary relocation of U.S. Government personnel from our consulate
general in Basra. I also warned the Iranian Government that we will hold it directly responsible
for any harm to Americans or our diplomatic facilities, whether perpetrated by Iranian forces or
by associated proxies or elements of those militias.
These latest destabilizing acts in Iraq are attempts by the Iranian regime to push back on our
efforts to constrain its malign behavior. Clearly, they see our comprehensive pressure campaign
as serious and succeeding, and we must be prepared for them to continue their attempts to hit
back, especially after our full sanctions are re-imposed on the 4th of November.
The United States will continue to stand with the people of Iraq as they chart a future based on
Iraqi interest, not those dictated by Iran. Even with the temporary relocation of our staff, we are
supporting the delivery of clean water to the 750,000 residents in Basra.
Now let me turn to the ICJ ruling from today. I’m announcing that the United States is terminating
the 1955 Treaty of Amity with Iran. This is a decision, frankly, that is 39 years overdue. In July, Iran
brought a meritless case in the International Court of Justice alleging violations of the Treaty of
Amity. Iran seeks to challenge the United States decision to cease participation in the Iran nuclear
deal and to re-impose the sanctions that were lifted as a part of that deal. Iran is attempting to
interfere with the sovereign rights of the United States to take lawful actions necessary to protect
our national security. And Iran is abusing the ICJ for political and propaganda purposes and their
case, as you can see from the decision, lacked merit.
0:00 / 14:57
Annex 91
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Given Iran’s history of terrorism, ballistic missile activity, and other malign behaviors, Iran’s claims
under the treaty are absurd. The court’s ruling today was a defeat for Iran. It rightly rejected all of
Iran’s baseless requests. The court denied Iran’s attempt to secure broad measures to interfere
with U.S. sanctions and rightly noted Iran’s history of noncompliance with its international
obligations under the Treaty on the Nonproliferation of Nuclear Weapons.
With regard to the aspects of the court’s order focusing on potential humanitarian issues, we
have been clear: Existing exceptions, authorizations, and licensing policies for humanitarianrelated
transactions and safety of flight will remain in effect. The United States has been actively
engaged on these issues without regard to any proceeding before the ICJ. We’re working closely
with the Department of the Treasury to ensure that certain humanitarian-related transactions
involving Iran can and will continue.
That said, we’re disappointed that the court failed to recognize it has no jurisdiction to issue any
order relating to these sanctions measures with the United States, which is doing its work on Iran
to protect its own essential security interests.
In light of how Iran has hypocritically and groundlessly abused the ICJ as a forum for attacking
the United States, I am therefore announcing today that the United States is terminating the
Treaty of Amity with Iran. I hope that Iran’s leaders will come to recognize that the only way to
secure a bright future for its country is by ceasing their campaign of terror and destruction
around the world.
The third item, putting the diplomatic team from the United States Department of State back on
the field: I want to talk about the fact that there are 65 nominees now sitting with the United
States Senate. That’s over a quarter of all the senior-level confirmable positions that the United
States Department of State is tasked with using to achieve its diplomatic outcomes. And I want
every single American to know that what Senator Menendez and members of the Senate are
doing to hold back American diplomacy rests squarely on their shoulders.
Both Republicans and Democrats agree that a fully staffed State Department is critical to
American national security. Indeed, when I was before the Senate Foreign Relations Committee,
Senator Menendez told me, quote, “The problem is we have an emaciated State Department
under this administration,” end of quote. Well, we’ve now done our part to fix that. He now needs
to do his, and the Senate needs to do its part.
Annex 91
These candidates are quality candidates. They are not sitting on the Senate floor because of
objections with respect to their quality, their professionalism, or their excellence and their ability
to deliver American foreign policy. Wave after wave of these extremely qualified nominees have
been sent to the United States Senate.
Let me give a few examples: John Richmond. He’s been stuck for 85 days while we try to make
necessary progress on combating human trafficking, a priority for this administration and a
shared priority of Senator Menendez. We have Kim Breier, the President’s nominee to head up
Western Hemisphere Affairs, stuck for 204 days while the crisis in Venezuela and Central America
continues to rage. David Schenker, the President’s nominee to lead the Bureau of Near East
Affairs, is held up while the humanitarian crisis continues and while Iran continues to undermine
peace and stability throughout the Middle East.
Russia is seeking to prey on our elections, but Ellen McCarthy, a 30-year veteran of the
Intelligence Community and the President’s choice to head the Bureau of Intelligence and
Research sits on the Senate floor.
As American forces are engaged against terrorists around the world, Clarke Cooper, an
experienced military professional designated to lead the Bureau of Political-Military Affairs waits
for the Foreign Relations Committee to act on his nomination.
You should know that as a former member, I completely appreciate the Senate’s advice and
consent role and their duty to conduct oversight. And I understand their need to be fair and
honest brokers. But that’s not what is being engaged in. We need these people. What’s
happening is unprecedented. We have members of the United States Senate who – for whom
partisanship has now driven delay and obstruction of getting America’s diplomatic corps into
every corner of the world.
It will impact our operations, our ability. We don’t have a COO, the under secretary for
management now coming on two years with no one filling that position, and enormous, complex
operations keeping our diplomats safe around the world don’t have a senior leader to manage
those operations. There are real, direct impacts of not having these people confirmed and I
implore the United States Senate to take these quality, talented people and allow them to do
what it is they have agreed to do on behalf of the United States.
Annex 91
And with that, I’m happy to take a couple questions.
MS NAUERT:(Inaudible). We’ll start with Lesley from Reuters.
QUESTION:Thank you very much. Mr. Secretary, does the ruling of the World Court, does that
have any practical impact on what the U.S. is – on U.S. sanctions, number one? And number two,
what other – what assurances can you give that this will not impact any humanitarian aid?
Because the Court actually said that it was not enough, that the U.S. – that the U.S.’s assurances
were not adequate.
SECRETARY POMPEO:The United States has been very clear: We will continue to make sure that
we are providing humanitarian assistance in a way that delivers for the people we have spoken
very clearly about, the Iranian people. We care deeply about them. We will make sure that we
continue to afford the flexibility so that that assistance can be needed.
Having said that, the choices that are being made inside of Iran today – to use money to foment
terror around the world, to launch ballistic missiles into airports throughout the Middle East, to
arm proxy militias in Iraq and in Syria and in Lebanon – those are dollars that the Iranian
leadership is squandering. They could be providing humanitarian assistance to their own people
but have chosen instead a different path, a path of revolutionary effort around the world
showing utter disregard for the humanitarian needs of their own people.
MS NAUERT:Nick Kalman from Fox.
QUESTION:I wanted to ask about North Korea, Mr. Secretary. The North Koreans have a new
commentary saying the end-of-war declaration issue should’ve been resolved half a century ago
in light of your trip coming up. Will it be resolved this weekend? And if not, what would be the
reasoning against offering this?
SECRETARY POMPEO:So I’m not going to comment on the progress of the negotiations on the
end-of-war declaration or any other items, only to say this: I’m very happy to be going back to get
another chance to continue to advance the commitment that Chairman Kim and President
Trump made back in Singapore in the second week of June. I’m optimistic that we’ll come away
from that with better understandings, deeper progress, and a plan forward not only for the
summit between the two leaders, but for us to continue the efforts to build out a pathway for
denuclearization.
Annex 91
MS NAUERT:Next question, Michel from Al Hurra.
QUESTION:Yeah, thank you. Mr. Secretary, Russia has delivered today S-300 systems to Syria.
You said in the past that it’s a serious escalation. Are you planning to take any measures in this
regard? And my second question on Iraq. Any comment on the election of Barham Salih as the
president and the designation of Adel Abdul Mahdi as the prime minister?
SECRETARY POMPEO:So I’ve had a chance to speak with the new speaker of the house and the
new president. I’ve not had a chance to speak with the new – the president designee as of yet. I
hope to do so. And I am equally hopeful that they will follow through on the commitments that
they made when we spoke. These are people that we know pretty well. They’ve been around the
Iraqi Government scene for some time, and what we talked about was building out an Iraqi
Government that was an Iraqi Government of national unity that was interested in the welfare
and future good fortunes for the Iraqi people, not controlled by the Islamic Republic of Iran. It’s
something that was a shared set of objectives, and I’m very, very hopeful that we can continue to
work with the Iraqi people and the soon-to-be-completed, formed new Iraqi Government to
deliver against that.
Your first question was about the S-300. I’m certainly not going to comment on our intention on
how we will address that, but my comments before were true. Having the Russians deliver the S-
300 into Syria presents greater risk to all of those in the affected areas and to stability in the
Middle East. We consider this a very serious escalation.
QUESTION:Thank you.
MS NAUERT:Last question. Kylie from CBS News.
QUESTION:Hi, Secretary. Question. Can you explain to us a little bit the practical reality of the
U.S. terminating the amity with Iran, and just how we’ll see that play out? And then secondly, just
because we’re going to North Korea, is there any timeframe for what the U.S. wants to achieve
given that last week we heard President Trump say that they’re not – the U.S. is not playing a time
game, but you said that you want rapid denuclearization of North Korea completed by January
2021?
SECRETARY POMPEO:Those are entirely consistent with each other. We want it fast, but we’re
not going to play the time game. My comment about 2021 was not mine. I repeated it, but it was
Annex 91
a comment that had been made by the leaders who’d had their inter-Korean summit in
Pyongyang. They’d talked about 2021 when they were gathered there, and so I was simply
reiterating this as a timeline that they were potentially prepared to agree to.
President Trump’s comments are exactly right. This is a long-term problem. This has been
outstanding for decades. We’ve made more progress than has been made in an awfully long
time. And importantly, we’ve done so in a condition which continues to give us the opportunity to
achieve the final goal, that is the economic sanctions continue to remain in place, the core
proposition; the thing which will give us the capacity to deliver denuclearization isn’t changing. If
you heard the comments at the UN Security Council, complete unanimity about the need for
those to stay in place.
The Russians and the Chinese had some ideas about how we might begin to think about a time
when it would be appropriate to reduce them, but to a country, they were supportive of
maintaining the UN Security Council resolutions and the sanctions that underlay them. That is a –
that is a global commitment that I’m not sure there’s many issues in the world you can find such
unanimity. And so my efforts this week will be one more step along the way towards achieving
what the UN Security Council has directed the North Koreans to do.
QUESTION:And the practical fallout from pulling out of the treaty?
SECRETARY POMPEO:We’ll see what the practical fallout is. The Iranians have been ignoring it
for an awfully long time. We ought to have pulled out of it decades ago. Today marked a useful
point with the decision that was made this morning from the ICJ. This marked a useful point for
us to demonstrate the absolute absurdity of the Treaty of Amity between the United States and
the Islamic Republic of Iran.
MS NAUERT:Thank you, everybody. We have to go now.
SECRETARY POMPEO:Thanks, everyone.
TAGS
Annex 91
International Criminal Court Iran Iraq North Korea Oce of the Spokesperson
Sanctions Secretary of State Secretary Trip The Secretary of State
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Annex 91
Annex 92
The Statute of the
International Court
of Justice
A Commentary
Third Edition
Edited by
ANDREAS ZIM1'v1ERMANN CHRISTIAN J. TAMS
in collaboration with
KARIN OELLERS-FRAHM
CHRISTIAN TOMUSCHAT
Assistant Editors
FELIX BOOS ELENI METHYMAKI
OXFORD
UNIVERSITY PRESS
Annex 92
792 Statute of the IC}
4. Critical Date
137 1he 'cricical dace' for decermining che admissibilicy of an application is che date on which
the application is filed. 499 Consequently, in principle lacer events have no impact on che
power of the Court to entertain the merits of a case. However, under specific circurnstances
it may appea r exceedingly formalistic to dismiss an application on procl·dural
grounds, in particular if shortly after the filing of the application the defects were cured
or where immediately afterwards the applicant could again institute proceedings againsl
the respondent thac would be held admissible.500 On the other hand, it may occur that in
the course of the proceedings a case is d eprived o f its object. In chat case, rhe Court docs
nor continue with the examination of the matter. Accordjng to its own words, in such
instances it is ' not called upon co give a decision'.501 In che Nuclear Tests cases, affirming
chat the dispute had become moor, it was relieved from the ducy co acknowledge 1har,
although it had indicated provisional measures under Arcicle 41, it in face lacked jurisdiction.
In all the ocher cases where che issue has been discussed, the Court has declined ro
uphold the objecrion.502
5 . Decision on Preliminary Objections
138 Article 79, para. 9 of the Rules determines how preliminary objections should be dc:tlt
with after having been considered. In any event, the Court is required co hand down its
decision in the form of a judgment. The legal position is scrajghtforward either when
it finds a preliminary objection unfounded, in which case ic will be rejected, or wdlfounded,
in which case it will be upheld. If a parry-the potential respondem-<loe~ Bot
appear before the Court, in which case jurisdktion and admissibility will be examined
ex officio without any objection having bee n rajsed, the Court is bound to find, in case
the requisite requirements are met, char it has jurisdktion.503 In many instances, however,
arguments pertaining to jurisdiction and adm issibility are interwoven with the mt:rits
of the dispute. The Rules wh.ich were applicable until 1972 conferred upon the Court a
grear measure of discretion in chat respect. In case of doubt, the Courr was aurhorized ro
499 Sourh WtstAfr,ca cases, Preliminary Objeclions, !CJ Reports (1962), pp. 319,344; Bordera,uiTransbordrr
Armed Actions (Nicaragua,·. Honduras), Jurisdiction and Admissibility, !CJ Reports (1988), pp. 69, 95, p,ir.1.
66; Lockerbie (Libya v. UK; Libya v. USA), Preli m inary Objmions, JC] Reports (1998), pp. 9, 26. para. 11-1
and pp. 115, 130-1, para. 43; Land and Maritime Boundary, Preliminary Objecrions, !CJ Reports (19'.IS).
pp. 275, 318-9, para. 99; Ame:rt \~mant of 11 April 2000, Judgmen1, !CJ Reports (2002), pp. 3, 17--8, pJr.1.
40; Qutrrions ~/.,,rmg 10 tht Obligation to Prosecute or Extradite, Provisional Measures, ICJ Reports (20091.
pp. 139, 148--9, para. 46.
ioo Croatian Genoride, Prelim inary Objections, ICJ Reports (2008), pp. 412, 438 et seq., paras. 8 1 et seq.
501 Nuclear Tests (Australia v. France; New Zealand v. France), Judgment, IC] Repons (I 974), pp. 215.
272-4, para. 62 and pp. 457, 478, para. 65.
m lockerbit (Libya v. UK; Lib),a v. USA), Preliminary Objections, ICJ Repom (1998), pp. 9, 26-9, par•"·
46-51 and pp. 1 15, 131--4, paras. 45- 50; An-est U'&rrant of 11 April 2000, Judgmenc, IC] Reports (2002).
pp. 3, I 4-5, para. 32: Legat!ty of Uu of Force (Serbia 011ti Monrt>n~gro v. Belgium), Preliminary Objccrions, IC!
Reporcs (2004), pp. 279, 297, para. 43. ,o, This happened in the Fishtrits jurisdiction cases beiween the Un iced Kingdom and Germany. on dw
one hand, and Iceland, on che ochcr, if. Fisheries Jr,riulirtion (UK v. Iceland; Federal Republic of German•·
v. Iceland), Jurisdiction, ICJ Repons (1973), pp. 3, 22, para. 46 and pp. 49, 66, para. 46. For che risks inherent
in such a finding cf 'Th irlw1y, Non-Appw,mu before the Tnterna1io11al Court af justice (1985), pp. 172-3. Cf
also von Mangoldt/Zimmermann on Art. 53 MN 54- 57.
TOMUSCHAT
Annex 92
Article 36 793
join a preliminary objection to the merirs.504 Thus, an issue which had been extensively
discussed in a first round at rhe preliminary stage of the proceedings could come up for
discussion a second time.505 This discretion was curtailed by rhe reform of the Rules in
1972. 506 Now consideration of a preliminary objection can be reserved for the merits
stagL· only if the objection does nor have an 'exclusively preliminary character' (Article
79, para. 9). In other words, if such exclusively preliminary character exists, the Court
n,usr deal with rhe objection immediately, until it has come to a clear conclusion, without
being able to postpone a final determination until the very end of the proceedings. On
rhc orher hand, if an objection lacks an exclusively preliminary character, it will indeed
have co be considered along with the merits.
In the application of the new version of the Rules, the Court has in a number of pro- 139
cecd ings declared that a given objection does not possess an exclusively preliminary characrt:
r. The first relevam case was the dispute between Nicaragua and the United States.
Here, the multilateral treaty reservation ( Vandenberg clause) was considered to be so
closely related to the SL1bstance of the dispute that it could nor be exhaustively dealt with
ar a preliminary srage.507 This finding, however, did nor appear in rhe dispositif of the
relevant judgmem but was solely expressed in its legal grounds. This was reversed in the
Lockerbie cases, where the Court had to determine whether the claims brought forward
by Libya had lost their object as a result of the cwo resolutions adopted by the Security
Council on the incidenr.508 In this case, a finding was made also in the dispositif rhat the
objection raised by the United l(jngdom and the United States did not have an exclusively
preliminary character- and would thus have to be addressed at the merits stage.509
A fi.:w months later, the Court ruled in rhe dispute between Cameroon and Nigeria510
rhat rhe eighth preliminary objection by Nigeria to the effect chat any pronouncement
on rhe maritime boundary between rhe cwo countries affected the rights and interests of
rhir<l countries was so intimately bound to the merits that it could not be adjudicated
upon at the preliminary stage of the proceedings. This finding was reflected both in the
leg:1I considerations as well as in the dispositijof the judgment. 511 Essentially, a declaration
char :111 objection does not have an exclusively preliminary character is nothing more
rhan its joining to rhe merits as under the old system of the Rules. 1he sole difference lies
'"' 1946 Rules of Court, An. 62, para. 5: After hearing the parries the Court shall give its decision on the
objection or shall join rhe objection to the merits. If the Courc overrules the objection or joins it co the merits,
i1 ,h"II once more fix t ime-limits for the further proceedings.'
~,' l'rominenr examples are the Right of Passage over Indian Territory, Preliminary Objections, !CJ Reports
( 1')57), pp. I 25, 149 et seq .. where the fifth and the sixth preliminary objection (domestic jurisdiction and time
limi!) were joined ro che merits to be conside,ed again in rhe final judgrnenr, [CJ ReportS (1960), pp. 6, 32-6,
and dw Barcelona Traction case, with cwo stages: Preliminary Object ions, JCJ Reports (1964), pp. 6, 41 « seq.
and Scrnnd Phase, Judgment, ICJ Reports (1970), pp. 3, 32 et ;eq., where the right of diplomatic protection in
fovo11 r uf shareholders in a j uristic person incorporated in another State was at issue.
'••· C{ deArechaga, supra, fn. 429, pp. 1- 11 et seq., as well as che comments by the Court itself in Nicaragua,
Meri1s. ICJ Repom (1986), pp. 14, 29-31 .
s,r Nicaragua, Jurisdiccion and Admissibility, !CJ Reporrs (1984), pp. 392, 425-6, para. 76, and p. 442,
par.1. 113 (I) (a); Merits, JCJ Reporcs (1986), pp. 14, 31- 8, para.,. 42- 56.
1
"' SC Res. 748 (1992) and 883 (1993).
' '"' l.o,·kerbie (Libya v. UK; Libya v: USA), Preliminary Objections, !CJ Reporcs (1998), pp. 9 . 28- 9, para.
50, r, .1 I , para. 53 (3) and RE:...! 15, 133-4, para. 49, p. 136, para. 53 (3).
'''' l.,md and Maritime Boundary, Preliminary Objections, !CJ Reports (1998), pp. 275 et seq.
111 /hid., pp. 322-5, paras. l 12-7, and 326, para. 118 (2).
TOMUSCHAT
Annex 92
140
794 Statute of the IC]
in the changed requirements for ordering the postponement of its consideration co the
merits scage. I
The Court is free to choose the grounds on which to dismiss a case either for lack of
jurisdiction or as being inadmissible. It does nor have to follow a specific order nor is there
any rule making it compulsory co adjudge first issues of jurisdiction before proceeding
admissibility.512 The Court generally bases its decision on the ground which in its view is
'more direct and conclusive'. In pure legal logic, it would seem inescapable chat the Courr
would have co rule first by order of priority on objections co jurisdiction.513 However,
such a strict procedural regime would be all the more infelicitous since the boundary
between the two classes of preliminary objections is co some extent dependent on subjective
appreciation.514 The Court therefore chooses the ground which is best suited to
dispose of the case ('direct and conclusive'). Thus, in Certain Property it examined only
two of the preliminary objections raised by Germany.515 It has departed, however, from
this general proposition with regard to the right of a parry to have access to the Court in
accordance with Article 35. In the view of the Court, this objection assumes precedence
over all others.516 In any event, the Court has emphasized that in principle a party raising
preliminary objections is entitled co have these objections answered at the preliminary
stage of the proceedings.517
6 Applications Lacking any Jurisdictional Basis
141 There may be cases where the applicant acknowledges that the respondent it has identified
has not accepted the jurisdiction of the Court or where lack of jurisdiction is
so obvious that it might amount co a violation of the rights of the defence to register
such applications as ordinary cases in the General List held by the Court (Article 26,
para. 1 (b) of the Rules). Regarding rhe former group of instances, Article 38, para. 5 of
the Rules provides:
When rhe applicant Scare proposes co found the jurisdiction of the Court upon a consent chere10
yec co be given or manifested by the Scare against which such application is made, rhe application
shall be transmitted to char Scare. It shall not however be entered in the General List, nor any action
be taken in rhe proceedings, unless and until the Seate against which such application is made
consents co rhe Court's jurisdiction for the purposes of the case.
In fact, if the respondent does nor consent to the jurisdiction of the Court when the
application is brought to its knowledge, the case cannot proceed. In such cases, it is nor
even necessary co make a formal determination to that effect. Under the 1946 Rules,
where even such 'phoney' cases were registered, rhe Court made a formal order to remove
512 Norwegian loans, Judgment, !CJ Reports (1957), pp. 9, 25; cf Aerial Incident of 27 July 1955 (Israel
v. Bulgaria), Preliminary Objections, !CJ Reports (1959), pp. 127, 146; Aegean Sea Continental Shelf,
Judgment, !CJ Repom (1978), pp. 3, 16-7, paras. 39-40; Aeriallncident of JO Augz,st 1999 (Pakistan v. India).
Jurisdiction, !CJ Reports (2000), pp. 12, 23-4, para. 26; Legality of Use of Force (Serbia and Montenegro
v. Belgium), l'reliminary Objections, !CJ Repom (2004), pp. 279, 298-9, para. 46.
513 This was the position taken by Hersch Lauterpacht and Gerald Fitzmaurice, cf Firzmaurice, 'Hersch
Lauterpacht- The Scholar a, Judge: Parr II', BYIL 38 (1962), pp. 1- 83, 56- 7.
514 Cf also Sep. Op. Bhandari in the Marshall Islands v. UK case, Pre.liminary Objections, !CJ Reports
(2016), pp. 1057, 1059, para. 10.
515 Certain Property, Preliminary Objeccions, [CJ Reporrs (2005), pp. 6, 27, para. 53.
516 legality of Use of For(e (Serbia and Monrenegro v. Belgium), Preliminary Objections, lCJ Reparts
(2004), pp. 279,298, para. 45; Bosnian Genocide, Judgmenr, !CJ Reports (2007), pp. 43, 85, paras. 102- 3.
m Territorial and Maritime Dispute, Prel iminary Objections, !CJ Reporcs (2007), pp. 832, 852, para. 51.
TOMUSCHAT
Annex 93
~
UNI -TED NATIONS
GEN-ERAL
ASSEMBLY
Twenty-sixth session
Agenda item 90
Distr.
GENERAL
A/8568
10 December 19n
F;NGLISH
ORIGINAL: FRENCH
REVIEW OF THE ROLE OF THE INTERNATIONAL COURT OF JUSTICE
Report of the Sixth Committee
Rapporteur : Mr , Alfons KLAFKOWSKI (Poland}
TABLE OF CONTENTS
I~ INTRODUCTION • . . .
II. PROPOSALS AND AMENDMENTS . . .
III. DEBATE ••. • ...•• .
-A. The role of the International Court of Justice
within the framework of the United Nations ••
1. The place of the Court and of the judicial
settlement of disputes in the system established
by the United Nations Charter
2 . The role played by the Court .•
B. Factors relevant to the present situation of the
Court . . • • . . • .
1. General factors
(a) The state of international society
(b) The content of international law and its
application by the Court •••••..•
.
.
.
2. Factors relating to the organization, jurisdiction
and procedures -and methods of work of' the Court
71-26085
(a) Organization of the Court.
(1) The composition of the Court
(2 ) The method of nomination and term of
office of judges •..•••. ; •.
Paragraph
l - 5
6 - 19
20 - 67
21 - 23.
21 - 22
23_
24 - 49
24 - 29
24 - 25
26 - 29
30 - 49
30 37
30 - 32
33 - 34
Page
3
4
10
10
10
12
12
12
12
13
15
15
15
15
Annex 93
A/8568 -
English
Page 2
TABLE OF CONTENTS (continued)
(3) · Recourse to chambers~ as provided in
Articles 26 and 29 of the Statute , and
the creation of regional chambe~s
(4) The question of judges ad hoe
(b) The jurisdiction of the Court
(1) Contentious cases .••
(i)
(ii)
(iii)
(iv)
(v)
General coI!l!llents
The question of the compulsory
jurisdiction of the Court
Access to the Court
Disputes relati ng to the
interpretation or application
of treaties
Other suggestions
(2) Advisory juriodiction.
(c) Procedures and methods of work ••
C. The question of the review of the role of the Court
-1 . General comments
2 . The question o~ ·the revision of the Statute •
3. The questi'on of measures other than amendment
of the Statute ••• • . • .
4. The question of the es~ablishment of an
ad hoe committee • • • •
IT. VOTING
V. RECOMMENDATION BY THE SIXTH COMMITI'EE •
· Paragraph
35 36 16
37 17
38 - 46 17
38 - 44 17
38 17
39 - 40 18
41 42 18
43 19
44 19
45 46 . 20
47 .- 49 21
50 67 21
50 - 54 21
55 - 57 23
58 - 6o e4
61 - 67 25
68 - n 27
12 29
I . . .
Annex 93
(c) Procedures and methods ·of work
A/8568
·Engl.ish
Page 21
47. A number of representatives considered that it was necessary to simplify and
expedite the Court ' s procedure. Several of them noted, however, that the l~ngtb
of proceedings was very often due to the parties t~emselves, which requested long
extensions of time-limits and postponements. It was generally agreed that the
Court's control over the duration of written and oral proceedings should be
strengthened. Mention was also made of a suggestion that the Court should be·
enco~aged to take a decision on preliminary objections ·as quickly as possible
and to refrain from joining them to the merits unless it was stri<;:tly essential.
48. Several representatives mentioned the high cost of proceedings before the
Court. Some of them, however, observed that since the general expenses of the
Court were paid by the United Nations, the parties were required to pay only the
fees of their counsel, and that arbitration was generally considered even more
expensive. Reference was made to the idea of establishing a multilateral
assistance fund to finance litigation costs; it was also suggested that the United
Nations should draw up a list of qualified international jurists whom States
could employ~ with the costs being paid from the fund in question.
49 . In addition, it was suggested that Article 25 and Article 55, paragraph 2,
of the Statute should be amended to raise slightly the present quorum and to
abolish the casting vote of the President.
C. The question of the review of the role of the Court
1. General comments
50, It was recalled that General Assembly resolution 2723 (XXV), by which
Member States and States Parties to the statute of the International Court of
Justice were invited to submit their views and suggestions concerning the role of
the Court, had been the result of a compromise between the States that advocated
the establishment of a committee to undertake such a review and those that were
not prepared at that time to establish such a committee. It was pointed out
that the report prepared by the Secretary-General on the basis of the replies
from Governments (A/8382 and Add.1-4) reflected that same divergence of opinions.
Some representatives, noting th~t only a quarter· of the States consulted had
replied to the questionnaire, argued that the review of the role of the
I .. .
Annex 93
A/8568
English
Page 22
International Court of Justice was not a burning issue and was generally vi ewed
with. scepticism. others, however, considered that the report testified to th~
importance and urgency of the matter for Governments, and expressed the view
that it contained numerous suggestions, from as many Governments as normally
r eplied .to such questionnaires, which mer ited further con?i deration.
51. Those r epresentatives opposed to a review of the role of the Court attached
signifi cance to the fact that the Court had declined the invitation which the
Assembly had extended to it in paragraph 3 of its resolution 2723 (XXV). other
representatives, however, interpreted the. Court ' s reply as meaning that it would
prefer to await concrete proposal s from the General Assembly before adopting any
position.
52. A number of delegations considered that the strengthening of the Court ' s
role was an important problem which had been raised at an opportune moment, and
that what ~as now needed ~as a careful study of the replies received from
Governments with a view to developing ~ consol idated body of recommendations for
future action. Others held that the fact that not all States had replied to
the Secretary- General's questionnaire proved the need for reflecting at greater
length on t he problems it raised, and possibly for some reconsideration of the
questionnaire so that all States might be encouraged to undertake a constructive
examination of the difficulties facing the Court. The representatives of other
delegations believed that the r eview of the role of the Court had already achieved
such objectives as were feasible . It was also said that the replies of
Governments dealt largely with peripheral matters and that the role of. the Court
might be weakened by any attempt to introduce minor reforms which would do
nothing to r esol ve t he substantive problems.
53. In support of their view, some of those opposed to a further review of the
role of the Court held that s i nce the position of the Court was the outcome of a
political situation and of the transformation which international law was
undergoing, it could not be solved by new instruments .or different machinery .
As the President of the Court had pointed out in h. is message to the Secretary- ,
General dated 18 June l971 (A/8382, paragraph 393), the decision lay with States .
Other repre~entatives, howev~r, while recognizing that the Court's role depended
essentially on the attitude of States, did not see this as a reason for abandoning
the attempt to make technical impr• vements in the Court. It was pointed out
that the attempt was all the more Justified in that changes in an institution
could sometimes affect the attitudes of States towards it . It· was further
I . ..
Annex 94
NewsR.oom
WESTLAW
Annex 94
New·sR.oom
WESTLAW
Annex 95
The Statute of the
International Court
of Justice
A Commentary
Third Edition
Edited by
ANDREAS ZIM1\i1ERMANN CHRISTIAN J. TAMS
in collaboration with
KARIN OELLERS-FRAHM
CHRISTIAN TOMUSCHAT
Assistant Editors
FELIX BOOS ELENI METHYMAKI
OXFORD
UNIVERSITY PRESS
Annex 95
General Principles of Procedural Law 997
bv action ultra petita; 150 moreover, it found that the substantive excesses of power conc~
rned only the failure to stare sufficient reasons for some of the relevant findings. 151
;\ possibly infra petira omission by the legal operator ro address some question asked in
rh..: special agreement (or analogously in the application of the claimant) should be distingLiished
from a non liquet. This latter notion concerns the impossibility ro decide on the
nier-its either because of insufficienr information as to facts (although in many cases the
judge will be encicled in such cases ro reject rhe claim for non-satisfaction of the burden
of proof) or because of absence of clariry as to rhe applicable law. In these cases, the judge
considers chat he or she cannot decide without infringing the rules regulating his or her
function, i.e., without breaching the law. In our courexr, the issue was conversely framed
;is ,111 omission which did not seem, a priori, to be motivated by such reasons, all the
more since the judge did not scare them at all in the judgment. The answer to the question
posed muse start by a careful interpretation of the judgmenc. If it turns out that the
judge, expressly or impliedly, addressed the question but rejected the claim, or considered
ch,1t the question did not need to be decided in the light of other pronouncements in the
juJgment, or considered that he or she was unable to decide for some of the reasons stated
above in this section, cadit quaestio. If, conversely, the judge failed to address the relevant
issues without any apparent motive, perhaps by simple inadvertence, the judgment is
cldective. The matter ought to be brought back to that judge under the original ride of
jurisdiction, or co be submitted ro some other organ (or alternatively solved by negotiation).
By the nature of things, such situations of defective infra petita action are rare in
g..:neral international law. They occur with some more frequency within the framework of
an nulment proceedings ofICSID awards: there, the annulment committees have treated
fa ilure co exercise jurisdiction as an excess of power. 152
for a commentary on matter, of evidence, burden of proof, and handling of facts, reference
should be made ro a separate contribution in the present volume. m
D. Substantive Principles Related to the Proceedings
I. General Classification
111..:re are rwo different rypes of substamive principles relevant ro the procedural law of 47
international tribunals such as the ICJ. The first class comprises principles of substance
directly linked to rhe pronouncements of rhe Court, namely the principle of res judicata
and the duty to state the reasons for its decision. These principles are the object of specific
provisions of the Statute (Articles 59 and 56 respectively) and will be addressed in the
concriburions dealing with these provisions.154 The second class of substantive principles
flows from the principle of loyalty berween the parties; it includes the prohibition of
"" Ibid., p. 313, para. 440.
"' Ibid., pp. 384 et seq.
, ., Compani✓t de Aguas de! Aconquija S.A. nnd Vivendi Univer,af S.A. v. Argentine Republic, ICSID Case No.
I\IU\/97/3, Decision on Annulment, 3 July 2002, para. 86; MaJ.aysian Historical Safvors, SDN, BHD v. The
(,in,,mmentofMal.aysia, ICSID Case No. ARB/05/10, Decision on Annulment, 16 April 2009, para. 80.
'" See Benzing, Evidentiary Issues. For the position of the present auchor on these issues, MN 43 a seq. of
1hc li rsr edition of this commentary could still be consulted.
" • Cf Brown on Art. 59 MN 30 et uq.; and Damrosch on An. 56 MN 1- 26 respectively.
Annex 95
998 Statute of the JC]
abuse of procedure, estoppel, and the maxim nemo commodum capere potest de sua proprin
injuria. All of these principles rest upon the general principle of good faith.
II. The General Duty of Loyalty between the Parties (Principle
of Good Faith)
48 The most fundamental principle of substantive law applicable to judicial proceedings in
general is the proposition that, by engaging in proceedings before an incernational tribunal,
the parties enter into a legal relationship characterized by mutual trust and confidence.
Thus, the parties are bound by a general commitment ofloyalcy among themselves
and towards the Coun.155 This duty flows from the principle of good faith recognized in
general international law and stipulated also in Article 2, para. 2 UN Charter as a general
duty of the Member States. 156 The principle of good faith has a series of 'concretizations'
in the field of procedural law.157
First, it requires the parties not to undertake any action which could frustrate or
substantially adversely affect the proper functioning of the procedure chosen, the point
being to protect the object and purpose of the proceedings. As has already been said, the
proceedings are also characterized by their adversarial nanirl' ancl thl' opposing claims of
the parties. Thus, ic is perfectly open to a parry to further its own interests even at the
expense of the other pany. But this selfishness has some limits. It cannot disregard requ.
irements of a proper functioning of rhe procedure as such.158 Thus, a parry may nor
deliberately present false or forged pieces of evidence.159 It may noc impede the production
of evidence by the other party by having recourse to pressure or any other equivalent
device either. Second, the principle forms the basis of the more specific rule on the prohibition
of abuse of procedure. 160 Third, it is the basis for the application of procedural
estoppel or of d1e maxim nemo commodum cape,-e potest de sua propria tu1pitudine. The
last rwo propositions can be applied to evidenriary issues. To that extent, they can be said
to govern the proceedings of international tribunals. It is proposed to focus here on the
three aspects of abuse of procedure, estoppel, and nerno commodum.
1. Ihe Prohibition of Abuse of Procedure
49 Abuse of procedure is a special application of the prohibition of abuse of rights, which is
a general principle applicable in international law as well as in municipal law.161 It consists
of the use of procedural instruments or rights by one or more parries for purposes char
are alien to those for which the procedural rights were established, especially for a fraudulent,
procrastinatory, or frivolous purpose, for the purpose of causing harm or obtaining
an illegitimate advantage, for the purpose of reducing or removing the effectiveness of
some other available process, or for purposes of pure propaganda. To these situations,
action with a malevolent intent or with bad fairh can be added. In a synthetic definition,
it can be said that abuse of procedure consists in the use of procedural instruments and
15
' Cf Sereni (1955), p. 1714.
156 On this provision, see Kolb, in Simma, UN Charter, An. 2, para. 2, passim.
' 5' CJ the detailed analysis in Kolb (2000), pp. 579 et seq.
'" Cf ibid., pp. 587 et seq. (in the context of negotiation).
,;; See Reisman/Skinner, Fraudulent Evidence before P"blic International li·ibunals (2014).
i6<J C/ infa, MN 4~ et seq.
161 Kolb (2000), pp. 429 et seq. There is no room here co venture inco a description of the various concents
of che principle.
KOLB
Annex 95
General Principles of Procedural Law 999
entitlements with a fraudulent, malevolent, dilatory, vexatious, or frivolous intent, with
the aim to harm another or to secure an undue advantage to oneself, with the intent to
deprive:: the prucxe<l.ings (or some other related proceedings) of their proper object and
purpose or outcome, or with the intent to use the proceedings for aims alien to the ones
for which the procedural rights at stake have been granted (e.g., pure propaganda). 162 The
existence of such an abuse is not easily co be assumed; it must be rigorously proven. The
concept of abuse of procedure cannot be caught completely in the abstract, since it can
relate to a variety of different situations.
The case law of the IC] is replete with instances where the principle of abuse of pro- 50
cedure has been invoked. The Court, however, has never found the conditions for an application
of the principle to be fulfilled. But it did not reject the concept as such; it merely
affirmed that its application was not warranted in the cases under consideration. In each
case, its analysis seems co have been correct.
The contentious cases in which the principle has so far been invoked are the following: 163
• Ambatielos (claim of abuse of procedure by excessive delay in presentation of a claim); 164
• Right of Passage over Indian Territory ( claim of abuse of procedure by application in coo
shore a rime span after deposit of an optional declaration, 'surprise arcack');165
• Barcelona Traction (claim of abuse of procedure by a new application with the same
arguments after having discontinued a case);166
• Nicaragua (claim of futility and political propaganda intent by request of provisional
measures);167
• Border and Transborder Armed Actions (claim of abuse of procedure by institution of
judicial proceedings in parallel with the Concadora Process; claim of abuse by the political
inspiration of the request and by its arcificiality)/68
• Arbitra!Award o/31 July 1989 (claim of abuse of procedure by invoking a decbrnrion
of the presidenr of rhe arbitral tdbunal in order to cast doubt on the validity of the
award); 169
• Certain Phosphate Lands in Nauru (claim of abuse of procedure co the extent
that Nauru demanded from the respondent an attitude which it did not itself
display); 170
• Application of the Genocide Convention (claim of abuse of procedure by the request for
provisional measures due to political motives and repetition of the requesr);171
'
62 Gestri, 'Considerazioni sulla teoria delrabuso del diritto alla luce della prassi internazionale', RD/77
( 1994), pp. 27 et seq., 43 et seq. As has been said by the Australian High Court in the Csr Ltd. v. Cigna Insurance
Australia Ltd. case, ILR 118 (1997), pp. 409- 10: 'The counrerpart of a court's power to prevent its process
being abused is its power co protect the inregriry of those processes once sec in motion.'
' 6l CJ ibid., pp. 640 et seq.
164 Ambatielos, MeriLS, !CJ Reports (1953), pp. 10, 23.
'
65 Right of Passage over Indian Territory, Preliminary Objections, !CJ Reports (1957), pp. 125, I 46-7.
'
66 Barcelona Tmction, Preliminary Objection, ICJ Repons (1964), pp. 6, 24-5.
'
67 Nicaragua, Provisional Measures, JCJ Reports (1984), pp. 169, 178-9, paras. 21- 5.
168 BQrder and Transborder Armed ActiQns (Nicaragua v. Honduras), Jurisdiction and Admissibiliry, ICJ
Reports (1988), pp. 69. 91- 2, paras. 51 tt seq., pp. 105-6, para. 94.
169 Arbitral Award of 31 July 1989, Judgmenc, !CJ Reporcs (1991}, pp. 53, 63, paras. 26-7.
'
70 Nauru, Judgmenr, [CJ Reports (I 992), pp. 240, 255, paras. 37- 8.
''' Bomian Genocide, Provisional Measures, ICJ Reporrs (1993), pp. 325, 336, para. 19; Bomi.an Genocide,
Preliminary Objections, !CJ Reporcs (1996), pp. 595, 622, para. 46.
KOLB
Annex 95
1000 Statute of the IC]
• Aerial Incident of 10 August 1999 (claim of abuse of procedure by invocation of a reservation
to an optional declaration whose content was purportedly directed only against
Pakistan, thus being discriminarory); 172
• Avena (clai m of abuse of procedure by delay in the presentation of che requesc). 173
The conclusion to be drawn from t h ese precedencs is nor chat abuse of procedure is an
unrecognized principle, for, as it will be shown in the fo llowing paragraphs, it has been
applied by other international tribunals. le is rather chat the threshold for admitting an
abuse is quire high, and possibly exacting. Moreover, in most ICJ cases, t he claims that
there had been an abuse of procedure were made in a rather unconvincing way, as an appendix
to orher, more compelling arguments.
To the contrary, rules on abuse of procedure have developed with particular sc rengrl 1
in certain branches of internarional law. Thus, in human rights law, petitions and communications
are declared inadmissible when there is an abuse of procedure. This ha~
been the case, fo r example, under rhe mandate system of the League of Nations and
under che UN trusteeship syscem ; 74 and lacer under ancient Article 27, para. 2, or
the ECHR, now Article 35, para. 3, ECHR (1950), l7S Rule 96, cl. c, of the Rules
of Procedure of the Human Rights Committee unde r the CCPR (20 12);76 Article
56, para. 3 of the African Charter o n Human Rights (requests written in disparaging
or insul ting language),177 or Article 22, para. 2, of the Convention against Torture
n Aerial lnddmt af JO August 1999, Judgmcnt, !CJ Reports (2000), pp. 12, 30, para. 40.
'7' Avena, Judgmenc, !CJ Reports (2004), pp. 12, 37-8, para. 44.
1' 4 Schwelb. 'The Abuse of the Righr of Petition', Revue des droitsde J'lJomme3 (1970), pp. 313 er seq., 324-6.
n Convenrion on the Proteetion of Human Rights and Fundamenral Freedoms, 4 November 1950, ETS
No. 5, Art. 35, para. 3: 'The Court shal.l declare inadmissible any individual applica1ion ... wich it considers
... an abuse of the righ1 of application.' See e.g., Appanah, 'A la recherche poschume de l'incemion d"
requcranr: l'idencifica1ion delicate de la requcte abusive au sens de la Convencion', Rtv1'e trimestrirlle des droi1>
de l'homme 26 (20 1 5), pp. I 053 et seq.; Jungwiert, 'Sur la requere abusive devam la Cour europeenne des droil\
de l'homme', in Essay, in Honor off P. Costa (2011), pp. 329 n seq.; Flauss, Tabus de droit dans le cadre de la
Convention europc!enne des droits de l'homme', Revue univm,lle d,s droits d, l'l,omme 4 (l 992), pp. 46 I et WJ,;
Horrclier, 'La requete a busive au sens de l'arcicle 27, 2 d e la Convention e uropeenne d es droits de l'hommc'.
&t!ue trimestrielk ,us droits de !'homme 2 (1991), pp. 301 erstq.; Spielmann/Spielmann, 'La nocion d'abu,
des droir.s de l'homme a la lumiere de la Convention europeenne de sauvegarde des droits de l'homme et de.
libenc!s fondamentalcs', in L'abru d, droit tt les concepts lqufoaknts: Principe tt applications acmelks (Council of
Europe, ed., 1990), p p. 60 et seq.; Palmieri, 'Cabuso del dirirto di ricorso individuale d inanzi all a Commissiont
europea dci dirirti dell' uomo', in Essays in Honor of G. Sperduti (1984), pp. 623 tt seq.; Monconduic, 'L'ab11<
du drok de recours inclividuel dcvant la Commission europeenne des droits de l'homme', AFDI 17 (I 971), PI'·
347 et seq. The inccrpierarion is resrrictivc: Aydin 11. Tttrluy, Appl. No 23178/94, ECHR 1997-Vl, paras. 59-
6!; Andronicou and C,mraminou v. Cypru, Appl. No 25052/94, ECHR 1997-Vl, paras. 163-5; Assenov anti
Othm v. Bulgaria, Appl. No. 24760/94, ECHR 1998-VIII, pa ras. 87- 9; Buscarini and Others v. San Mari11//.
Appl. No. 24645/94, ECHR 1999-I, pp. 605,613, par:!$. 20-1. Jn the more recent case law, see Saba v. ftalj·,
Appl. No. 36629/I 0, I July 20 I 4, paras. 49 etseq.; Flom Quiros v. Spain, Appl. No. 75183/10, 19 July 2016.
para. 2 l; Bagd,mavicitiS e.a. 11. Russia, Appl. No. l 9841/06, 1 J October 20 J 6, para. 64; Ka,utginis 11. Gruce.
Appl. No 27662/09, 27 October 20 I 6, paras. 23---4.
176 Rules of Procedure of rhe Human Rights Committee, UN Doc CCPR/C/3/Rev.I0(2012), Art. 96, cl. c:
Ges1ri, supra, fn. 162, p. 31; Cassese, 'The Admissibility ofCommuniacions 10 the Uni red Nations on Human
Righcs Violations', Rev~,tks droirs de l'homme 5 (1972), pp. 375 et seq. See KL. 11. Denmark (191!0), in: Hum1111
Rights Committee, Selected Decisions under Optional Protocol (1985) (CCPR/C/OP/1, p. 26).
177 African C harter on Human and Peoples' Rights, 27 June 1981, 1520 UNTS 2 17, Arc. 56, parn. 3;
Palmieri , 'Apcr,;u du reglemenr interieur de la Commission africaine des droits d e l'homme er des pcuplcs', in
La Chan, africaine des droits ,u l'homme et des peupk, (Palmieri, ed., 1990), p. 128.
KOLB
Annex 95
General Principles of Procedural Law 1001
(1984). 178 There is manifestly a non-negligible danger that p rivate individuals will
abuse human rights remedies for frivolous or quixotic causes; and henr:e the screening
under this heading has been established. Internacional administrative law and the case
law of the administra tive tribunals is replete with refere nces to misuse of authority,
including on the procedural p:ane. 179
The same is true for investment arbitration. 180 Thus, a claim may be declared inadmissible
if certain faces have been fo rged and falsified, since this is a breach of good
faith (i.e., a sore of clean hands doctrine). 181 By the same token, if an investmenc was
acquired in violation of municipal law or in bad faith, it is noc to be considered a 'procecred
investment' and the arbitration clause may not be applied. This leads to a lack
of jurisdiction of the arbirral cribunal. 182 The same occurs when no real investment
was made at all; or if the investment was purchased with che sole aim of commencing
arbirral procedures. 183 Fu rther, the principle of abuse of procedure applies co the cases
where the investor restructures his assets-e.g. , by the creation of new corporations, by
acquiring a new corporate narionali ry whic h allows the appU cacion of a BIT1M- with
the sole aim to gee access co arbitration. If a purportedly new claim is substantially the
sa me as a previous one a nd is resubmitted under some circumventing legal construction
(e.g. , transfer of the claim co anothe r entity), it will be dismissed under the rule
on abuse of procedure. 185 The rule o n abuse of procedure plays further a residual role
for a series o f other siruarions, e.g., the plea char proceedings arc misused solely fo r the
purpose co puc political pressure on the Scace so as co have it abandon some cri mina l
proceedings. 186
Finally, within the law of the sea, Article 294 UNCL0S187 gives the tribunal chosen by
che parties to decide their dispu1e the power co scrutinize whether the claimant's request
related co the coastal State's exercise of its sovereign righrs unde r Article 297 constitutes
,tn abuse of procedure and co declare ir inadmissible in limine Litis. 188
078 Convention against Torture and Other Cruel, Inhuman or Degrading Treatme nt or Punishment, 10
Dc,c,nber 1984, l465 UNTS l 12, Art. 22, para. 2; Gemi, mpra, fn. 162, p. 32-3.
1
' See Kolb, Good Faith in International Law (2017), pp. 169 et seq. See already Amerasinghc,
' I )c1 ourncment de pouvoir in International Administrative Law', ZaoRV 44 ( 1984), pp. 439 et 1eq.
'"' De Brabandere, '"Good Faich", "Abuse of Process" and che Initiation oflnvcsanencTreacy Cla'Jms',JIDS
.1 (2012), pp. 609 et seq.
'"' lncty1a Va/Ji.roktana S.L z, Republic of El Salvador, ICSID Case No. ARB/03/26, Award, 2 August 2006,
P·"·"· 226 et seq.
"' ibid., para. 208.
''' Europe Crment fovesnnem & Trade S.A. v. Rep11blic ofTurkry, JCSID Case No. ARB(AF)/07 /2, Award, 13
August 2009, para. 174 and Cememownia 'Nowa Ht1ta' S.A. v. Republic ofTurkry, ICSID Cuc No. ARB(AF)/
Oh/ l , Award, 13 September 2009, para. 159. False statements were also the issue here.
" ' Phoenix Action, Ltd. v. 1be Cuch Rept1blic, ICSID Case No. ARB/06/5, Award, l 5 April 2009, paras.
IO<o ,·t seq.; TSA Spectmm de Argentina SA. v. Argentine Republic, ICSID Case No. ARB/05/5, Award, 19
O.-crn1ber 2008, paras. 134 et seq., with the piercing of the corporate veil; Pac Rim Cayman LLC v. Republic
of!-1 Salvador, lCSID Case No. ARB/09112, Decision on rhe Respondent's Jurisdictional Objections, I June
211 I!, paras. 2.99 et seq.
'" Waste M,magem,m, Inc. v. United Mexican Stam, ICSID Cue No. ARB(AF)/98/2, Award, 2 June 2000,
p.trJ,. 49-50.
'"· The plea was finally wichdrawn du:ing the pleadings: Rompmol Group N. V v. Romania, ICSID Cue
No. ARB/06/3, Decision on Respondent', Preliminary Objeccions on Jurisdiction and Admissibility, 18 April
2008, p.iras. 111 et seq.
,., · U11itcd Nations Convention on the Law of the Sea, l O December I 982, I 833 UNTS 397, Arr. 294.
o-- f-crrara, 'Article 298: Preliminary P:occedings', in Unitrd Nations Convention on the Law of the Sea: A
C:o111111,·111a ry (Proelss, ed .. 2017), pp. l 896- 9; Nordquist (ed.), United Nations Convention 011 th, law of the
KO LB
Annex 95
1002 Statute of the IC]
51 An interesting situation possibly giving rise to an abuse of procedure would present
itself if a State that had lost a case before the ICJ were to move co the political organs of
the United Nations in order to evade or to delay the execution of the judgment. Since the
competences of political and judicial organs are different, there is no reason to conclude
automatically chat there has been an abuse of procedure if a political organ is seised after a
judicial procedure. 189 For there may be many valid reasons to seek a more complete solution
of the dispute than the one offered by a judicial institution when important political
aspects are at stake. Bur if there was evidence suggesting that the State in question merely
sought tO delay the execution of the judgment, or to escape che obligations flowing from
it, the political organ could find in limine chat an abuse of procedure had been established
and char rhe case thus could not be heard.190 This aspect does not relate direccly to the
procedure of rhe Court, but ir indirectly couches upon it, since it concerns the efficacy or
the Court's rulings.
Many other instances of abuse of procedure could be envisaged, e.g., the 'flooding'
of the Court with procedural objections of any type, in order to frustrate the efficacy of
the proceedings; the late invocation of bases of competence if there is a disadvantage ro
the other party;1~1 the raising of a new request in the course of proceedings if it is prejudicial
to the procedural position (equality) of the other party (alternativa petitio non tst
audienda).192 Often, such questions are addressed by the constirurive texts of rhe tribunals.
Thus che Statute and the Rules of Court provide for the timing in the presentation
of arguments.19' The content of chese provisions can also be read as a sanction of the
principle on prohibition of abuse of procedure, because it is essentially for that reason
char they have been drafted.
2. The Principle of Estoppel
52 The principle of estoppel (or of the prohibition of venfre contra Jactum proprium)194 'operates
on the assumption chat one party has been induced co act in reliance on the assurances
or other conduct of another party, in such a way that it would be prejudiced
were the other parry later to change its position'.195 Thus, under certain resuictive conditions,
196 the law does not permit the first party to change its position to the detriment
of the second; or, if it changes its position, it will become liable for the damage caused
Sea 1982, A Commtntary, vol. V (1989), pp. 75 et seq. See also Cannone, /I tribunale internazionale d,,l dfrittu
de/ mare (1991), pp. 134 et seq.; Rosenne, 'Setdemenr of Fisheries Disputes in the Exclusive Economic Zone ,
AJIL 73 (1979), pp. 100 et seq.; Caflisch, 'Le reglement judiciaire et arbiual des dilferends dans le nouveau
d roic inrernational de la mer', in Essays in HtmorofBindschedler (1980), pp. 355-6.
189 For a more general treatment of che inrerrelation between the Court and the political organs of dw
United Nations, cf Gowlland-Debbas/Forteau on Art. 7 UN Charter MN 20- 52.
190 Cf already Salvioli, 'Les reglcs generales de la paix', Ree. d,,s Cours 46 (1933-IV), pp. 9-163, 138-9.
Cf also the more re,erved position of Ciobanu, Preliminary Objections Related to the Jurisdiction of the Uniu·d
Nations Po/jtical Organs (1975), p. 139.
' 9' Cf paras. 42--4 of rhe interim orders in the legality of Use of Force (Yugoslavia v. Belgium; Yugoslavia
v. Netherlands), Order of 2 June 1999, !CJ Reporrs (1999), pp. 124 et seq., 542 etreq.
192 CJ Kolb (2000), pp. 646-9.
193 Cf e.g., Ans. 48 et seq. of the Rules.
194 On this principle cf Kolb (2000), pp. 357 u seq. (with many references), and also McGibbon, 'Estoppel
in lnrernational Lav/, ICLQ 7 (1958), pp. 468 et seq.; Marrin, L'estoppel en droit inrernationa! public (1979).
195 Mosler, ' General Course on Public International Law', Ree. des Cours 140 (1974-IV), pp. l - 320, 147.
1?6 These conditions would seem co be the following: (1) a free, dear, and unequivocal initial conduct by one
party, legally imputable to it; (2) an effective and honafide reliance by another parry on that conduct, inciting
it ro adopt a certain conduct on ics part; (3) damage suffered by char second parry resulting from its reliance on
KOLB
ICSID Review, Vol. 33, No. 1 (2018), pp. 181–211
doi:10.1093/icsidreview/six032 Published Advance Access April 10, 2018
ARTICLE
Abuse of Process under International Law
and Investment Arbitration
Yuka Fukunaga1
Abstract—Philip Morris Asia initiated an investment arbitration against Australia with
respect to Australia’s tobacco plain packaging measures only a few months after it
made its investment in Australia. The initiation of the arbitration raised a concern that
the scope of protection under investment agreements and investment arbitration may
be manipulated by multinational corporations. The tribunal in this case dismissed all
the claims of Philip Morris Asia as inadmissible because it considered that the
initiation of the arbitration constituted an abuse of process. While the decision is a
positive development of law, at least from the perspective of respondent States, the
tribunal did not sufficiently analyze the source and content of the principle of abuse
of process. Against this background, this article seeks to clarify what the principle of
abuse of process means under general international law and how it should be applied
in investment arbitration. For this purpose, this article first examines the application of
the principle by international judicial and quasi-judicial bodies other than investment
arbitration. It then discusses how the principle should be applied in investment
arbitration in light of its particular nature.
I. INTRODUCTION
On 22 June 2011, Philip Morris Asia, incorporated in Hong Kong, initiated
investment arbitration against Australia, claiming that Australia violated its
obligations under the bilateral investment treaty (BIT) between Hong Kong
and Australia2 by enacting and enforcing tobacco plain packaging measures with a
view to reducing smoking.3 The initiation of the arbitration has intensified the
already existing concern that measures pursuing legitimate public policy objectives
such as public health could be subject to review by investment arbitration and
found to violate international investment agreements. The case has also raised a
concern that the scope of protection under international investment agreements
and investment arbitration may be manipulated by multinational corporations,
1 Professor, School of Social Sciences, Waseda University, Tokyo, Japan. The author is grateful to Professor
Laurence Boisson de Chazournes and the participants of the University of Missouri School of Law-ASIL Works-in-
Progress Conference: Issues in International Dispute Resolution for their valuable comments and suggestions. All
errors are the responsibility of the author.
2 Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and
Protection of Investments (signed 15 September 1993, entered into force 15 October 1993).
3 Philip Morris Asia Limited v The Commonwealth of Australia, UNCITRAL, PCA Case No 2012-12, Award on
Jurisdiction and Admissibility (17 December 2015) paras 5–8.
The Author(s) 2018. Published by Oxford University Press on behalf of ICSID. All rights reserved.
For Permissions, please email: [email protected]
Annex 96
because Philip Morris Asia, the claimant in this case, obtained access to
investment arbitration under the BIT by acquiring the shares of Philip Morris
Australia and Philip Morris Limited (PML) in Australia only a few months before
the initiation of the arbitration.4
In its decision on jurisdiction and admissibility, the Tribunal in Philip Morris
Asia concluded that all the claimant’s claims were inadmissible because it
considered that the initiation of the arbitration constituted an abuse of right (abuse
of process).5 The Tribunal stated that its decision was supported by investment
arbitration case law, according to which ‘the commencement of treaty-based
investor-State arbitration constitutes an abuse of right (or abuse of process) when
an investor has changed its corporate structure to gain the protection of an
investment treaty at a point in time where a dispute was foreseeable.’6 The
decision may be seen as a positive development of law, at least from the
perspective of State parties to international investment agreements, which are
concerned that the protection under the agreements may be extended to investors
and investments that they did not intend to protect at the time of conclusion of the
agreements.7
However, in deriving this principle of abuse of process, the Tribunal in Philip
Morris Asia relied exclusively on past investment arbitration decisions and did not
consider any other international legal instruments or cases. Moreover, a careful
reading of the decisions cited by the Tribunal reveals that there is no settled case
law in investment arbitration on the principle of abuse of process. Does this mean
that the Tribunal in Philip Morris Asia created the principle ex nihilo? Or does the
principle exist under international law? If it exists, what is its content, and is it
applicable to investment arbitration? This article reviews the principle of abuse of
process under international law as well as its application in international
investment arbitration, and discusses whether and how the principle should be
applied in investment arbitration.
This article is structured as follows: First, it seeks to clarify the meaning of the
principle of abuse of process under international law by discussing the concept
and examining applications of the principle in the International Court of Justice
(ICJ, or the Court). It also discusses the application of treaty provisions that
explicitly incorporate the principle of abuse of process, such as those of the First
Optional Protocol to the International Covenant on Civil and Political Rights
(ICCPR) and the European Convention on Human Rights (ECHR). Second, it
reviews how the principle of abuse of process has been applied in investment
arbitration, including Philip Morris Asia, and discusses how the application in
investment arbitration is different from that in other international judicial and
quasi-judicial bodies, and why. Finally, it considers whether and how the principle
of abuse of process should be applied in investment arbitration in the future.
4 ibid paras 6, 96–97. The claimant alleged in the proceedings that it had controlled Philip Morris Australia and
PML even before the acquisition of their shares in February 2011, but the Tribunal concluded that the claimant failed
to substantiate the allegation. ibid paras 496–509.
5 ibid paras 535–88.
6 ibid para 585.
7 Eric de Brabandere, ‘‘‘Good Faith’’, ‘‘Abuse of Process’’ and the Initiation of Investment Treaty Claims’ (2012)
3 J Intl Disp Settlement 609, 610–12.
182 ICSID Review VOL. 33
Annex 96
II. ABUSE OF PROCESS UNDER INTERNATIONAL LAW
A. Abuse of Process as a General Principle of Law
(i) Concept
It is generally accepted that the principle of abuse of rights is a general principle of
law, applicable to international courts and tribunals.8 The principle concerns not
whether a certain right exists, but rather how the right should be used. In other
words, it applies only where a certain right does exist. If there is no right, there is
no abuse of rights. Moreover, the principle demands that rights not be used in an
‘abusive’ way, although what constitutes an ‘abusive’ use of rights is not explicitly
articulated in any of the international law instruments. One author defines abuse
of rights as an exercise of a State’s rights ‘either in a way which impedes the
enjoyment by other States of their own rights or for an end different from that for
which the right was created, to the injury of another State.’9 It is also pointed out
that ‘as legal rights are conferred by the community, the latter cannot countenance
their anti-social use by individuals.’10
The principle of abuse of rights is closely linked to the principle of good faith,
which is considered a ‘fundamental principle of every legal system.’11 In particular,
with respect to the performance of treaties, Article 26 of the Vienna Convention
on the Law of Treaties (VCLT) provides that every treaty ‘must be performed by
[the parties] in good faith.’12 According to the ICJ, the provision ‘obliges the
Parties to apply [a treaty] in a reasonable way and in such a manner that its
purpose can be realized.’13 In other words, the provision requires that treaty
obligations ‘be carried out according to the common and real intention of the
parties.’14 The principle of abuse of rights prescribes the same obligation as
the principle of good faith in a negative way:15 the former principle prohibits the
exercise of treaty rights that is contrary to the latter.16
The principle of abuse of process is a procedural aspect of the principle of abuse
of rights. As such, it is accepted as a general principle of law, and incorporated in
the constitutive instruments of some international judicial and quasi-judicial bodies.
What is specifically prohibited under the principle of abuse of process is abusive
use of the right to procedures, particularly judicial and quasi-judicial procedures.
8 Robert Kolb, La bonne foi en droit international public: contribution a` l’e´tude des principes ge´ne´raux de droit (Presses
Universitaires de France 2001) 442–61. See also Yearbook of the International Law Commission 1960, vol 2, A/CN.4/
SER.A/1960/ADD. 1 (1961) 41 paras 70–73; L. Oppenheim, International Law: A Treatise (8th edn, H. Lauterpacht
ed, Longman, Green & Co. 1955) 346–47.
9 Alexandre Kiss, ‘Abuse of Rights’ in Max Planck Encyclopedia of Public International Law, para 1. See also
Michael Byers, ‘Abuse of Rights: An Old Principle, A New Age’ (2002) 47 McGill LJ 389.
10 Sir H Lauterpacht, The Function of Law in the International Community (OUP 1933) 286.
11 Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals (CUP 1953, 2006), 105. See
also Nuclear Tests (Australia v France), Judgent (20 December 1974) [1974] ICJ Rep 253, para 46; Nuclear Tests (New
Zealand v France), Judgment (20 December 1974) [1974] ICJ Rep 457, para 49.
12 See Nuclear Tests (Australia v France), Judgment (n 10) para 46; Nuclear Tests (New Zealand v France), Judgment
(n 10) para 49.
13 Gabcˇı´kovo-Nagymaros Project (Hungary/Slovakia), Judgment (25 September 1997) [1997] ICJ Rep 7, para 142.
14 Cheng (n 11) 114, 118. See also ibid.
15 Kolb (n 8) 440–41.
16 Sir Gerald Fitzmaurice, The Law and Procedure of the International Court of Justice, vol 1 (Grotius Publications
Limited 1986) 12. It is worth noting that Article 300 of the United Nations Convention on the Law of the Sea
(UNCLOS), titled ‘Good faith and abuse of rights,’ provides that ‘States Parties shall fulfil in good faith the
obligations assumed under this Convention and shall exercise the rights, jurisdiction and freedoms recognized in this
Convention in a manner which would not constitute an abuse of right.’
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The right to judicial and quasi-judicial procedures is one of the fundamental
rights of States under international law as a reflection of the obligation of States to
settle international disputes by peaceful means17 and their freedom to choose
means of dispute settlement.18 Moreover, States may obtain the right to a specific
court by agreeing on a founding treaty or other relevant instruments of the court.
For example, a State obtains the right to have recourse to the ICJ by ratifying the
Charter of the United Nations.19 Similarly, a State obtains the right to submit
disputes to the International Tribunal for the Law of the Sea (ITLOS) by ratifying
or acceding to the United Nations Convention on the Law of the Sea
(UNCLOS).20 Once a State obtains the right to a specific international court, it
is entitled to initiate the proceedings of the court and present evidence and
submissions before the court by using such right as long as the right falls within
the scope of jurisdiction of the court, which is defined by an agreement between
the disputing parties as well as by the founding treaty or other instruments of the
court. When the State initiates the proceedings of the court, the court has the
jurisdiction over the State’s claims and is obliged to exercise the jurisdiction as
long as all the relevant requirements for jurisdiction are met.21 Failure to exercise
the jurisdiction would restrain the right of the disputing parties to the court.
However, according to the principle of abuse of process, if a State has the right
of access to an international court yet uses it in an abusive way, the court shall
refrain from exercising its jurisdiction over the State and its claims.22 In practice,
abusive use of the right to an international court may occur at different stages of
court proceedings. For example, a State may abuse its right to an international
court when it files a case with the court. In such cases, the principle of abuse of
process demands that the court refrain from commencing a review of the case.
Alternatively, if a State presents evidence and submissions in an abusive way
during court proceedings, the court would have to terminate the proceedings. For
the purpose of this article, it is important to note that, if the filing of a case by a
State is considered abusive, the court would be required to dismiss the case as
inadmissible. In other words, the principle of abuse of rights needs to be considered
as a question of admissibility rather than one of jurisdiction. Although the
distinction between jurisdiction and admissibility is not totally clear,23 the former
often implies the competence of a court to review a case while the latter is mostly
concerned with the propriety of using the competence.24 The principle of abuse of
rights involves questions of admissibility since the principle does not negate the
court’s jurisdiction as such, but only prevents the exercise thereof.25
17 See Charter of the United Nations, art 2(3).
18 See Charter of the United Nations, art 33(1).
19 Charter of the United Nations, art 93(1); Statute of the International Court of Justice (opened for signature 26
June 1945, entered into force 24 October 1945), art 35(1).
20 United Nations Convention on the Law of the Sea, 1833 UNTS 3 (opened for signature 10 December 1982,
entered into force 16 November 1994) (UNCLOS), annex VI. Statute of the International Tribunal for the Law of
the Sea, art 20(1).
21 See Arbitral Award of 31 July 1989, Judgment (12 November 1991) [1991] ICJ Rep 53, para 120.
22 Even if the Court has jurisdiction, it is not ‘necessarily be bound to . . . exercise’ it. Sir Gerald Fitzmaurice, The
Law and Procedure of the International Court of Justice, vol 2 (Grotius Publications Limited 1986) 447.
23 Hugh Thirlway, The Law and Procedure of the International Court of Justice (OUP 2013) 1708–11.
24 Yuval Shany, Questions of Jurisdiction and Admissibility before International Courts (CUP 2015) 129–33. See also
Fitzmaurice (n 22) 438–40.
25 Oil Platforms (Islamic Republic of Iran v United States of America), Judgment (6 November 2003) [2003] ICJ Rep
161, para 29.
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Despite the general acceptance of the principle of abuse of process, it is hardly
clear under what circumstances the use of the right to judicial and quasi-judicial
procedures constitutes an abuse. While the practice of judicial and quasi-judicial
bodies, which will be examined in the remaining part of this section, sheds some
light on the meaning of ‘abuse,’ the term by its nature encompasses ambiguity and
flexibility, and its specific content can be determined only in connection with the
facts of a particular case.26
Nevertheless, it could at least be said that the term ‘abuse of process’ connotes a
sense of maliciousness, unreasonableness and arbitrariness.27 Maliciousness is
concerned with the subjective intention of an actor. For example, having recourse
to an international court with the sole purpose of harassing the defendant would
be malicious.28 In the meantime, unreasonableness has a broader scope than
maliciousness because it is assessed in light of the impact of an act regardless of
the intention of an actor. More specifically, the use of the right to an international
court would be considered unreasonable if it harms the interests of the other
disputing party, or if it undermines the effectiveness or purpose of the court.29
Arbitrariness is also a broad concept that is often used interchangeably with
unreasonableness.30 Thus, for example, having recourse to a specific international
court, instead of other competent international courts and tribunals, may be
considered unreasonable or arbitrary if the selected court does not serve the
applicant’s legitimate interest while it causes significant hardship for the respondent.
31 In addition, if a State files a case with an international court without
reasonable grounds or in an untimely manner, thereby causing prejudice to the
respondent and compromising the proper functioning of the court, the filing of the
case would be considered unreasonable or arbitrary.32
(ii) Practice of the ICJ
Although neither the ICJ Statute nor the ICJ Rules explicitly provides for the
principle of abuse of process, its applicability to the ICJ proceedings is undeniable
since it constitutes a ‘general principle[] of law recognized by civilized nations’
under Article 38(1)(c) of the ICJ Statute. Moreover, the Court has the inherent
power, and the obligation under certain circumstances, to examine whether a
disputing party engages in an abuse of process. In this regard, the Court held in
Nuclear Tests that it has inherent power ‘to take such action as may be required . . .
to ensure the observance of the ‘‘inherent limitations on the exercise of the judicial
26 Cheng (n 11) 134.
27 Kolb (n 8) 468–69. According to Cheng (n 11) 134, ‘[w]hen either an unlawful intention or design can be
established, or the act is clearly unreasonable, there is an abuse prohibited by law.’ Schachter notes that the principle
of abuse of rights is ‘associated with fairness and reasonableness.’ Oscar Schachter, International Law in Theory and
Practice (Martinus Nijhoff Publishers 1991) 56.
28 Vaughan Lowe, ‘Overlapping Jurisdiction in International Tribunals’ (1999) 20 Austria YB of Intl L 191, 202–03.
29 Kolb writes that abuse includes the use of judicial procedures for purposes ‘that are alien to those for which the
procedural rights were established,’ that are ‘procrastinatory or frivolous,’ that are ‘propagand[istic],’ or that are
‘malevolent’ or in ‘bad faith,’ as well as for the purpose ‘of causing harm or obtaining an illegitimate advantage,’ or ‘of
reducing or removing the effectiveness of some other available process.’ Robert Kolb, ‘General Principles of
Procedural Law’ in Andreas Zimmermann and others (eds), The Statute of the International Court of Justice: A
Commentary (OUP 2012) 871, para 49.
30 Olivier Corten, ‘Reasonableness in International Law’ in Max Planck Encyclopedia of Public International Law,
para 17.
31 Yuval Shany, The Competing Jurisdictions of International Courts and Tribunals (OUP 2003) 258–59. See also
Michael Akehurst, ‘Jurisdiction in International Law’ (1974) 46 Brit YB Intl L 145, 189–90.
32 Chester Brown, A Common Law of International Adjudication (OUP 2007) 248–49.
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function’’ of the Court, and to ‘‘maintain its judicial character.’’’33 The inherent
power of the Court can be implied from Article 30 of the ICJ Statute, which
provides that ‘The Court shall frame rules for carrying out its functions. In
particular, it shall lay down rules of procedure.’34 Under certain circumstances, the
Court has not only the inherent power but also the obligation to decide not to
examine issues before it.35 For example, if reviewing a case were incompatible with
its status and functions, it would be precluded from reviewing the case.36 Therefore,
if an applicant State files a case in an abusive way, the Court should declare it
inadmissible and should refrain from exercising its jurisdiction.37 In the past, the
ICJ has examined the respondent’s objection to admissibility based on the principle
of abuse of process, without questioning the applicability of the principle.
Nevertheless, the Court sets a rather high standard for a claim of an abuse of
process, and it has never sustained an objection to admissibility based on abuse of
process.38 At least two reasons can explain the Court’s hesitance to declare an
abuse of process and the inadmissibility of applications. First, the Court’s
hesitance can partly be attributed to disputing parties’ reluctance to bring up an
issue of abuse of process in the first place. It is relatively rare that a disputing party
alleges an abuse by the other disputing party as a basis for its objection to
admissibility. Even in cases where a party raised an issue of abuse, it did so only in
passing. The Court does not examine the issue of abuse unless one of the
disputing parties raises and argues it,39 perhaps in view of the serious nature of an
allegation of abuse.
Second, more importantly, the Court seems to consider that it may limit the right
of States to access the Court only ‘under extreme circumstances.’40 It should be
noted that the principle of abuse of process prevents the exercise of jurisdiction of
the Court, which has been established by consensus between the disputing parties,
in consideration of potential harms to one of the disputing parties or to the Court.41
It is understood that such consensual jurisdiction should be overridden by general
considerations ‘only on account of exceptional circumstances’ where harms resulting
from the exercise of jurisdiction is sufficiently clear and serious.42 To put it
33 Nuclear Tests (Australia v France), Judgment (n 11) para 23; Nuclear Tests (New Zealand v France), Judgment
(n 10) para 23, quoting Case concerning the Northern Cameroons (Cameroon v United Kingdom), Preliminary Objections,
Judgment (2 December 1963) [1963] ICJ Rep 15, 29. For example, with its inherent power, the Court may exercise
judicial economy and decide not to examine some of the issues raised by disputing parties in order to ensure the
efficiency of its operation. Luiz Eduardo Salles, Forum Shopping in International Adjudication: The Role of Preliminary
Objections (CUP 2014) 190–205. See also Chester Brown, ‘The Inherent Powers of International Courts and
Tribunals’ (2006) 76 BYIL 195, 215–22, 228–29.
34 Elihu Lauterpacht, ‘‘‘Partial’’ Judgments and the Inherent Jurisdiction of the International Court of Justice’ in
Vaughan Lowe and Malgosia Fitzmaurice (eds), Fifty Years of the International Court of Justice: Essays in Honour of Sir
Robert Jennings (CUP 1996) 456, 477–78. A similar provision is included in the constitutive instruments of other
international courts and tribunals. See eg The Statute of the International Tribunal for the Law of the Sea, art 16.
35 It may be argued that the Court has such power but not the obligation, see Shany (n 24) 148–63.
36 Shabtai Rosenne, The Law and Practice of the International Court 1920–2000 (4th edn, Martinus Nijhoff
Publishers 2006) 532–39.
37 Hugh Thirlway, ‘The Law and Procedure of the International Court of Justice 1960–1989, Supplement 2005:
Parts One and Two’ (2006) 76 BYIL 1, 12–14. As has already been pointed out above in this subsection, an abuse
does not negate the existence of the Court’s jurisdiction as such, but only prevents the exercise thereof.
38 See eg Kolb (n 7) 640–46. Other than the cases discussed below in the text of this Section, see eg Aerial Incident
of 10 August 1999 (Pakistan v India), Jurisdiction, Judgment (21 June 2000) [2000] ICJ Rep 12, para 40; Application of
the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v Yugoslavia),
Preliminary Objections, Judgment (11 July 1996) [1996] ICJ Rep 595, para 46.
39 Chittharanjan Fe´lix Amerasinghe, Jurisdiction of International Tribunals (Martinus Nijhoff 2002) 243.
40 Arbitral Award, Judgment (n 21) para 120.
41 Christian Tomuschat, ‘Article 36’ in Zimmermann and others (n 29) 633, para 119.
42 ibid para 119.
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differently, the determination of abuse requires a careful review of relevant factual
circumstances in light of the fact that it would restrain the exercise of the right to
the Court that the disputing parties have under the Charter of the United Nations.
The fact that the Court has never sustained an objection to admissibility based on
an allegation of abuse of process suggests that the alleged abuses have never been so
‘extreme’ or ‘exceptional’ as to render the applications inadmissible.
Under what circumstances would the ICJ find that an act of a disputing party
constitutes an abuse of process and therefore renders its application inadmissible?
In the past, the ICJ examined whether mere untimeliness of the filing of an
application, either too-late filing or too-early filing, can constitute an abuse of
process. For example, in the Ambatielos case, the respondent claimed that
there were undue delay and abuse of the process of the Court in that, although reference
of the dispute to the compulsory jurisdiction of the Court has been continuously possible
since the 10th December 1926, no such reference took place until the 9th April 1951.43
The ICJ rejected the respondent’s claim, stating that it did not consider that the
applicant ‘did anything improper in instituting proceedings against the United
Kingdom on April 9th, 1951, in conformity with the relevant provisions of the
Statute and Rules of Court.’44 In the case of Right of Passage, the respondent
claimed that the application violated the reciprocal right of the respondent under
Article 36(2) of the ICJ Statute and constituted an abuse of process because it was
filed only a few days after the applicant’s declaration under the provision.45 The
ICJ rejected the claim, stating that the ICJ ‘Statute does not prescribe any interval
between the deposit’ of a declaration under Article 36(2) and the filing of an
application, and that any delay in the receipt of the declaration did not deprive the
respondent of any right of reciprocity under the provision so as to constitute an
abuse of process.46 The findings in the above cases suggest that an untimely filing
of an application does not normally constitute an abuse of process because there is
no rule prescribing the timing of filing.
In fact, the Court is generally reluctant to declare a certain conduct or the lack
thereof as an abuse unless there is an explicit provision requiring or prohibiting
such a conduct. For example, in Land and Maritime Boundary between Cameroon
and Nigeria, the respondent raised an objection to the Court’s jurisdiction,
claiming that the applicant infringed the principle of good faith and abused the
system instituted by Article 36(1) of the ICJ Statute, by not informing the
respondent of its intention to accept the Court’s jurisdiction and file an
application.47 However, the Court rejected the objection, stating that ‘[t]here is
no specific obligation in international law for States to inform other States parties
to the Statute that they intend to subscribe or have subscribed to the Optional
Clause.’48 According to the Court, although the principle of good faith is ‘one of
the basic principles governing the creation and performance of legal obligations
43 Ambatielos Case (Merits: Obligation to Arbitrate), Judgment (19 May 1953) [1953] ICJ Rep, 10, 13–14, 23.
44 ibid 23.
45 Case concerning Right of Passage over Indian Territory (Portugal v India) Preliminary Objections, Judgment (26
November 1957) [1957] ICJ Rep, 125, 132.
46 ibid 147–48.
47 Land and Maritime Boundary between Cameroon and Nigeria, Preliminary Objections, Judgment (11 June 1998)
[1998] ICJ Rep 275, paras 22, 36.
48 ibid para 39.
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. . . , it is not in itself a source of obligation where none would otherwise exist.’49
It should be added that, while the Court has never found that the untimely filing
of an application constituted an abuse of process, it has implied that such filing
might constitute an abuse of process if it causes prejudice to the respondent under
certain circumstances. For example, in Phosphate Lands in Nauru, the Court stated
that it ‘recognizes that, even in the absence of any applicable treaty provision,
delay on the part of a claimant State may render an application inadmissible’ in
certain circumstances.50 It further noted that ‘it will be for the Court, in due time,
to ensure that [the applicant’s] delay in seising it will in no way cause prejudice to
[the respondent] with regard to both the establishment of the facts and the
determination of the content of the applicable law.’51
While untimely filing is the only factor that the Court has examined so far as a
potential source for an abuse of process, there may be other factors that render an
act of a disputing party an abuse. For example, an application to the Court by a
State contrary to its commitment to use another dispute settlement procedure may
be considered an abusive use of the right to the Court.52 In this regard, in Border
and Transborder Armed Actions, the respondent argued that the applicant was
precluded by the principle of good faith from initiating the ICJ procedure because
it had entered into a commitment to use another dispute settlement procedure.
Although the ICJ did not directly examine the question of good faith because it
rejected the respondent’s argument on a factual basis, it did not deny the
possibility that that filing of an application with the ICJ in contradiction to a
previous commitment would violate the principle of good faith and therefore be
declared inadmissible.53
Judicial propriety is another factor that may be taken into account in
determining whether an application constitutes an abuse of process. For example,
in Northern Cameroons, the Court stated that it ‘is not compelled in every case to
exercise [its] jurisdiction’ because ‘[t]here are inherent limitations on the exercise
of the judicial function.’54 In its view, the Court ‘must be the guardian of the
Court’s judicial integrity’55 and ‘must discharge the duty . . . to safeguard
the judicial function.’56 The Court dismissed the application, considering that the
circumstances of the case had ‘rendered any adjudication devoid of purpose’ so
that ‘for the Court to proceed further in the case would not . . . be a proper
49 ibid, quoting Border and Transborder Armed Actions (Nicaragua v Honduras), Jurisdiction and Admissibility,
Judgment (20 December 1988) [1988] ICJ Rep 69, para 94.
50 Certain Phosphate Lands in Nauru (Nauru v Australia), Preliminary Objections, Judgment (26 June 1992) [2004]
ICJ Rep 12, para 32.
51 ibid para 36. The Court concluded that the application in this case had not been rendered inadmissible by
passage of time. ibid. Undue delay of the filing of an application may also be considered an ‘implied waiver of rights.’
See Avena and Other Mexican Nationals (Mexico v United States of America), Judgment (31 March 2004), [2004] ICJ
Rep 12, para 44. The existence of prejudice suffered by the respondent is also a factor to be taken into account when
the Court decides the question of admissibility in other contexts. In Barcelona Traction, the respondent argued that it
had agreed to the discontinuance of the original proceedings because the applicant misled it, and that it suffered
prejudice because of the new application filed after the discontinuance of the original proceeding. The respondent
contended that the applicant was now ‘estopped or precluded from denying that by, or in consequence of, the
discontinuance, it renounced all further right of action.’ Barcelona Traction, Light and Power Company, Limited,
Preliminary Objections, Judgment (24 July 1964), [1964] ICJ Rep 6, at 24. The ICJ declined the respondent’s plea
because it concluded that the respondent did not suffer prejudice, based on the comparison between the respondent’s
position in the new proceedings and what it would have been in the original ones. ibid 24–25.
52 See Phosphate Lands in Nauru, Judgment (n 50) paras 37–38.
53 See Border and Transborder Armed Actions, Judgment (n 49) 105–06.
54 Northern Cameroons, Judgment (n 33), 29.
55 ibid.
56 ibid 38.
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discharge of its duties.’57 It could be drawn from this finding that an application
asking the Court to make a judicially improper review constitutes an abuse of
process.
B. Abuse of Process under Treaty Provisions
The constitutive instruments of some judicial and quasi-judicial bodies explicitly
provide that a claim constituting an abuse of process shall be inadmissible. While
these bodies rarely admit that claims constitute an abuse of process, their practice
suggests, at least to some extent, under what circumstances a claim is regarded as
an ‘abuse.’
First, Article 294(1) of UNCLOS provides that a court or tribunal ‘shall
determine at the request of a party, or may determine proprio motu, whether the
claim constitutes an abuse of legal process,’ and that ‘[i]f the court or tribunal
determines that the claim constitutes an abuse of legal process . . . , it shall take
no further action in the case.’58 The provision is considered a ‘procedural
safeguard’ against abusive use of the dispute settlement procedures under
UNCLOS.59 However, there have been no cases where claims were found to
constitute an abuse of legal process under the provision. For example, in Barbados
v Trinidad and Tobago, the Tribunal found that ‘the unilateral invocation of the
arbitration procedure cannot by itself be regarded as . . . an abuse of right
contrary to general international law’ because it is a ‘straightforward exercise of
the right conferred by the [UNCLOS], in the manner there envisaged.’60
Moreover, in Philippines v China, the Tribunal noted the ‘serious consequences
of a finding of abuse of process’ under Article 294, and stated that the procedure
under the provision is triggered ‘in only the most blatant cases of abuse or
harassment.’61
Second, a similar provision is incorporated in the Optional Protocol to the
ICCPR, according to which the Human Rights Committee receives and considers
communications from individuals claiming to be victims of violations of any of the
rights set forth in the ICCPR. Having defined in Articles 1 and 2 the scope of and
conditions for the competence of the Committee, the Optional Protocol provides
in Article 3 that ‘[t]he Committee shall consider inadmissible any communication
. . . which it considers to be an abuse of the right of submission of such
communications . . . .’ Thus, the Committee is required to refrain from reviewing
a communication constituting an ‘abuse’ even if the communication falls within
the scope of its competence. While the provision does not explicitly mention under
what circumstances a communication is considered an abuse of the right of
submission, the drafting history suggests that it was incorporated in response to a
view that the Committee should be allowed to treat an unreasonable delay in the
57 ibid.
58 See also International Tribunal for the Law of the Sea: Rules of the Tribunal (adopted 28 October 1997), art
96.1.
59 Chagos Marine Protected Area Arbitration (Republic of Mauritius v United Kingdom of Great Britain and Northern
Ireland), PCA Case No 2011-03, Award (18 March 2015) paras 311–12, 315.
60 Barbados v Republic of Trinidad and Tobago, PCA Case No 2004-02, Decision (11 April 2006) para 208.
61 The South China Sea Arbitration (Republic of the Philippines v People’s Republic of China), PCA Case No 2013-19,
Award on Jurisdiction and Admissibility (29 October 2015) para 128.
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submission of a communication as an abuse of the right of submission.62 The
concern may have been that an excessive delay in submission makes it difficult for
the Committee to conduct a proper review based on sufficient evidence.
Moreover, it may have been considered that looking back and reviewing a
State’s conduct after a long period of silence could jeopardize the stability of legal
orders.
Although there have been several cases where a State party alleged that the late
filing of a communication constituted an abuse under Article 3, the Committee
upheld such an allegation only in a few of them. For example, in Gobin v
Mauritius, the Committee noted that ‘there are no fixed time limits for submission
of communications under the Optional Protocol and that mere delay in
submission does not of itself involve abuse of the rights of communication.’63
That said, the Committee concluded that the communication in this case should
be regarded as an abuse under Article 3 because the alleged violation by the State
party took place at periodic elections held five years before the submission of the
communication and no convincing explanation in justification of the delay was
provided.64 In Serna, the Committee followed the approach taken in Gobin v
Mauritius, stating that ‘the period of time elapsing before [the] submission, other
than in exceptional circumstances, does not in itself constitute an abuse of the
right to submit a communication.’65 The Committee further stated that an abuse
may be found ‘where an exceptionally long period of time has elapsed before the
submission of the communication without sufficient justification,’ and that ‘[i]n
determining what constitutes an excessive delay, each case must be decided on its
own merits.’66 In accordance with this view, while the communication in this case
was submitted 16 years after the alleged violation by the State party arose, the
Committee concluded that the delay did not constitute an abuse because the
violation still persisted at the time of the submission and the authors had filed
numerous legal and administrative complaints during those 16 years without
success.67 The late filing of a communication is not the only reason that has been
invoked as an abuse of process. For example, in Serna, the State party claimed
that the ‘communication amounted to an abuse of the right to submit
communications, inasmuch as the authors had deliberately submitted unclear
information to the Committee.’68 However, the Committee found that the
submitted information did not contain misleading elements and therefore did not
constitute an abuse.69
Third, a provision similar to Article 3 of the Optional Protocol is also
incorporated in the ECHR. Article 35(3)(a) of the ECHR provides that the
European Court of Human Rights (ECtHR) ‘shall declare inadmissible any
individual application submitted under Article 34 if it considers that . . . the
application is . . . an abuse of the right of individual application.’ According to a
guide of the ECtHR,
62 Dominic McGoldrick, The Human Rights Committee: Its Role in the Development of the International Covenant on
Civil and Political RightS (Clarendon Press 1994) 129.
63 Mr Vishwadeo Gobin v Mauritius, CCPR/C/72/D/787/1997, Decision (16 July 2001) para 6.3.
64 ibid.
65 Rosa Marı´a Serna and others v Colombia, CCPR/C/114/D/2134/2012, Decision (9 July 2015) para 8.6.
66 ibid.
67 ibid.
68 Serna (n 65) para 4.4.
69 ibid para 8.5.
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any conduct of an applicant that is manifestly contrary to the purpose of the right of
individual application as provided for in the Convention and impedes the proper
functioning of the Court or the proper conduct of the proceedings before it constitutes an
abuse of the right of application.70
The guide enumerates ‘five typical categories’ of abuse:
(i) misleading information;
(ii) use of offensive language;
(iii) violation of the obligation to keep friendly-settlement proceedings
confidential;
(iv) application manifestly vexatious or devoid of any real purpose; and
(v) all other cases that cannot be listed exhaustively.71
It is interesting to note that the guide considers not only the existence of harm
to the defendant, ie, a State party but also the existence of harm to the purpose
and proper functioning of the ECtHR as criteria for abuse of process.
In practice, the ECtHR rarely dismisses applications on the ground of abuse.72
For example, in Bestry v Poland, the ECtHR first suggested that ‘[i]ncomplete and
therefore misleading information may also amount to abuse of the right of
application, especially if the information concerns the very core of the case and no
sufficient explanation is given for the failure to disclose that information.’73 That
said, the ECtHR concluded that the application in the case did not amount to an
abuse because it did not concern ‘the very core of the case.’74 In SL and JL v
Croatia, the ECtHR stated that ‘[a]n application may exceptionally be rejected on
that ground if, among other things, it is knowingly based on untrue facts . . . , the
most egregious example being applications based on forged documents.’75
However, the ECtHR also insisted that ‘any deliberate attempt [of the applicant]
to mislead the Court must be established with sufficient certainty.’76 It concluded
that the application was not an abuse because the applicants did not ‘deliberately
provide[] false information.’77
Finally, it is worthwhile briefly to mention the practice of the International
Criminal Court (ICC), which takes a different approach from the Human Rights
Committee and the ECtHR. The Rome Statute of the ICC does not explicitly or
implicitly provide that a case may be dismissed as inadmissible based on abuse of
process.78 Nevertheless, the Appeals Chamber has noted that
70 ECtHR, Practical Guide on Admissibility Criteria (2014), http://www.echr.coe.int/Documents/Admissibility_
guide_ENG.pdf, para 148.
71 ibid.
72 See eg David Harris, Michael O’Boyle, Edward Bates, and Carla Buckley, Harris, O’Boyle, and Warbrick, Law of
the European Convention on Human Rights (3rd edn, OUP 2014) 79–81. For the practice of the European Commission
of Human Rights under the equivalent provision. See Amerasinghe (n 39) 758–60.
73 Bestry v Poland, App no 57675/10, ECHR, Judgment (3 November 2015) para 44.
74 ibid.
75 SL and JL v Croatia, App no 13712/11, ECHR, Judgment (Merits) (7 May 2015) para 48.
76 ibid.
77 ibid para 49. See also Gross v Switzerland, App no 67810/10, ECHR, Judgment (30 September 2014), Joint
Dissenting Opinion of Judges Spielmann, Ziemele, Berro-Lefe`vre, Zupancˇicˇ, Hajiyev, Tsotsoria, Sicilianos, and
Keller.
78 Article 17(1) of the Rome Statute of the ICC, which enumerates impediments that render a case inadmissible,
does not identify abuse of process as one of such impediments. Moreover, while art 4(1) of the Rome Statute provides
that the ICC shall ‘have such legal capacity as may be necessary for the exercise of its functions and the fulfilment of
its purposes,’ according to the Appeals Chamber, the provision cannot ‘be construed as providing power to stay
proceedings for abuse of process’ because such power ‘is not generally recognised as an indispensable power of a court
of law, an inseverable attribute of the judicial power.’ Prosecutor v Thomas Lubanga Dyilo, Decision on the Defence
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[the] doctrine of abuse of process had ab initio a human rights dimension in that the
causes for which the power of the Court to stay or discontinue proceedings were largely
associated with breaches of the rights of the litigant, the accused in the criminal process,
such as delay, illegal or deceitful conduct on the part of the prosecution and violations of
the rights of the accused in the process of bringing him/her to justice.79
The Appeals Chamber also acknowledged that Article 21(3) of the Rome Statute
‘requires the exercise of the jurisdiction of the Court in accordance with internationally
recognized human rights norms,’80 including, in particular, the right to a fair
trial. Based on the above understanding, the Appeals Chamber concluded that where
a fair trial becomes impossible and thereby the object of the judicial process is
frustrated, the proceedings can be stayed.81 The finding suggests that human rights
considerations, in particular a fair trial, could necessitate the application of the
principle of abuse of process in international criminal procedures.82
The approach of the ICC is in contrast to that of the Human Rights Committee
and the ECtHR, where human rights considerations make them cautious not to
uphold lightly abuse of process allegations. It can also be implied that the principle
of abuse of process should be applied differently in light of the nature of a judicial
or quasi-judicial body and that of applicable substantive law.
III. ABUSE OF PROCESS IN INVESTMENT
ARBITRATION: PAST
This section first discusses the applicability of the principle of abuse of process in
investment arbitration, and points out that a particular aspect of the principle
comes into play with respect to the initiation of investment arbitral proceedings. It
then analyzes past investment arbitration decisions concerning the principle of
abuse of process, including Philip Morris Asia.
A. General Considerations
First of all, investment arbitral tribunals have the obligation to decide cases in
accordance with applicable law,83 and it is generally understood that applicable
Challenge to the Jurisdiction of the Court pursuant to Article 19 (2)(a) of the Statute of 3 October 2006 (14
December 2006) ICC-01/04-01/06 (OA4), Appeals Chamber, para 35. The Appeals Chamber stated that it was
‘driven’ to the conclusion that the Rome Statute ‘does not provide for stay of proceedings for abuse of process as
such.’ ibid.
79 ibid para 36.
80 ibid.
81 ibid paras 37–39. See also Situation in the Democratic Republic of the Congo in the Case of the Prosecutor v Thomas
Lubanga Dyilo, ICC-01/04-01/06, Trial Chamber I, Redacted Decision on the Defence Application Seeking a
Permanent Stay of the Proceedings (7 March 2011) para 195; Situation in the Central African Republic in the Case of the
Prosecutor v Jean-Pierre Bemba Gombo, ICC-01/05-01/08, Trial Chamber III, Decision on the Admissibility and Abuse
of Process Challenges (24 June 2010) paras 252–53; Situation in the Central African Republic in the Case of the Prosecutor
v Jean-Pierre Bemba Gombo, ICC-01/05-01/08, Trial Chamber III, Decision on Defence Request for Relief for Abuse
of Process (17 June 2015) paras 8–11, 18.
82 However, in practice, the ICC has been reluctant to dismiss cases as abuse of process. Helen McDermott,
‘Seeking a Stay of Proceedings for Irregular Apprehension before International Courts: Fighting a Losing Battle
against the Pursuit of International Criminal Justice’ (2016) 14 J Intl Crim Just 145, 161–64. See also Jean-Bosco
Barayagwiza v The Prosecutor, International Criminal Tribunal for Rwanda, Appeals Chamber (3 November 1999)
paras 73–101.
83 ICSID Rules of Procedure for Arbitration Proceedings (ICSID Arbitration Rules) (April 2006) r 42(1). Arbitration
Rules of the United Nations Commission on International Trade Law (UNCITRAL Arbitration Rules) (2010) art 35(1).
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law in treaty-based investment arbitration includes rules of international law.84 In
many cases, the parties explicitly agree or tribunals explicitly decide that relevant
rules of international law, together with relevant investment agreements, are
applicable to investment arbitration.
Even if they do not explicitly do so, the parties and tribunals acknowledge, by
implication, that at least some rules of international law apply to investment
arbitration, by agreeing that arbitration is to be conducted under an investment
agreement. For example, the rules of interpretation under the VCLT and
customary international law inevitably apply to the interpretation of an applicable
investment agreement even if the parties do not explicitly agree to the application
of such rules. More importantly for the purpose of this article, rights under
investment agreement are necessarily subject to limitations under rules of
international law. Given that an investor’s right to have recourse to investment
arbitration is conferred by international law, such right is inherently limited by
international law including the principle of abuse of process.85 In this regard, the
Tribunal in Abaclat v Argentina stated that ‘[t]he theory of abuse of rights is an
expression of the more general principle of good faith’ and that ‘[t]he principle of
good faith is a fundamental principle of international law, as well as investment
law.’86 The Tribunal further stated that ‘the theory of abuse of rights is, in
principle, applicable to ICSID proceedings and has, in fact, been previously
applied by several ICSID and non-ICSID tribunals in investment cases.’87
Moreover, the Tribunal in Phoenix Action v Czech Republic noted that ‘[n]obody
shall abuse the rights granted by treaties, and more generally, every rule of law
includes an implied clause that it should not be abused.’88 The fact that the
principle of abuse of process, as a general principle of law, is by nature a common
principle of domestic law of civilized nations further confirms the applicability of
the principle to investment arbitration.
In addition, it is unquestionable that investment arbitral tribunals have inherent
powers to decide procedural questions, including that of abuse of process.89 For
example, Rule 19 of the International Centre for Settlement of Investment
Disputes (ICSID) Rules of Procedure for Arbitration Proceedings (Arbitration
Rules) provides that a ‘[t]ribunal shall make the orders required for the conduct of
the proceeding.’ Similarly, Article 17(1) of the United Nations Commission on
International Trade Law (UNCITRAL) Arbitration Rules 2010 provides that an
‘arbitral tribunal may conduct the arbitration in such manner as it considers
appropriate, provided that the parties are treated with equality and that at an
appropriate stage of the proceedings each party is given a reasonable opportunity
of presenting its case.’
In practice, although several tribunals have confirmed the applicability of the
principle of abuse of process to investment arbitration, they are generally cautious
84 Eric De Brabandere, Investment Treaty Arbitration as Public International Law: Procedural Aspects and Implications
(CUP 2016) 125–26.
85 Sir Hersch Lauterpacht, The Development of International Law by the International Court (CUP 1982) 162 (‘It is
only at a rudimentary stage of legal development that society permits the unchecked use of rights without regard to its
social consequences.’).
86 Abaclat and others v Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility (4
August 2011) para 646.
87 ibid.
88 Phoenix Action, Ltd v Czech Republic, ICSID Case No ARB/06/5, Award (15 April 2009) para 107.
89 John Gaffney, ‘‘‘Abuse of Process’’ in Investment Treaty Arbitration’ (2010) 11 JWIT 515, 521–23.
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not to lightly accept an objection based on the principle. For example, the
Tribunal in Flemingo v Poland acknowledged that the principle of abuse of process
could be a ‘mechanism[] to avoid parallel proceedings,’ but did not uphold the
respondent’s objection to jurisdiction based on the principle because, according to
the Tribunal, the mere fact that, as in this case, ‘both a controlling shareholder
and a controlling shareholder of the former [gave] notice of separate claims under
respective bilateral investment treaties against the same host State for the same
subject-matter, when one of them does not pursue its claim’ ‘cannot by itself
constitute an abuse of’ process.90 Similarly, the Tribunal in Lauder v Czech
Republic found that ‘there [was] no abuse of process in the multiplicity of
proceedings initiated by’ the claimant because ‘[t]he existence of numerous
parallel proceedings [did] in no way affect the Arbitral Tribunal’s authority and
effectiveness, and [did] not undermine the Parties’ rights’ while ‘the present
proceedings [were] the only place where the Parties’ rights under the [applicable
investment agreement] can be protected.’91 In the meantime, in Ampal-American v
Egypt, the Tribunal noted that ‘while the same party in interest might reasonably
seek to protect its claim in two fora where the jurisdiction of each tribunal is
unclear, once jurisdiction is otherwise confirmed, it would crystallize in an abuse
of process for in substance the same claim is to be pursued on the merits before
two tribunals.’92 The Tribunal concluded that the ‘abuse of process constituted by
the double pursuit’ in parallel proceedings had ‘crystalized’ in the case.93 The
overall hesitance of investment arbitral tribunals to uphold objections based on the
principle of abuse of process is understandable considering the similar hesitance of
the ICJ and other judicial and quasi-judicial bodies, as discussed in the previous
section.
Nevertheless, it is important to highlight that, notwithstanding the general
reluctance of investment arbitral tribunals, objections based on the principle of
abuse of process have been upheld by several tribunals with respect to the initiation
of investment arbitral proceedings. In fact, most of the allegations of abuse of process
that have been made in investment arbitration concerned the initiation of arbitral
proceedings. As will be discussed below, there are important differences between
the application of the principle of abuse of process with respect to the initiation of
investment arbitral proceedings and the application of the same principle by the
ICJ and other international judicial and quasi-judicial bodies.
B. Important Differences from Other International Judicial and
Quasi-Judicial Bodies
Before pointing out the differences, it should be recalled that, in investment
arbitration, it is almost always investors that initiate arbitral proceedings, and their
90 Flemingo Duty Free Shop Private Limited v The Republic of Poland, Award (Redacted) (12 August 2016) para 347.
91 Ronald S. Lauder v The Czech Republic, UNCITRAL, Final Award (3 September 2001) para 174. See also ibid
paras 176–80.
92 Ampal-American Israel Corporation and others v Arab Republic of Egypt, ICSID Case No ARB/12/11, Decision on
Jurisdiction (1 February 2016) para 331.
93 ibid para 333. For more about the applicability of the principle of abuse of process to the issue of parallel
proceedings, see Hanno Wehland, The Coordination of Multiple Proceedings in Investment Treaty Arbitration (OUP 2013)
218–26. For another possible scenario of abuse of process, see The Renco Group, Inc v Republic of Peru, ICSID Case No
UNCT/13/1, Partial Award on Jurisdiction (15 July 2016) paras 174–88. See also Herve´ Ascensio, ‘Abuse of Process in
International Investment Arbitration’ (2014) 13 Chinese J Intl L 763, 767–77; Gaffney (n 89) 529–30; de Brabandere (n
7) 626–35; Emmanuel Gaillard, ‘Abuse of Process in International Arbitration’ (2017) 32 ICSID Rev-FILJ 17, 19–27.
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right to investment arbitration is almost always provided in investment agreements,
apart from limited exceptions. In addition, these agreements do not identify specific
investors that have the right to investment arbitration, but rather provide general
criteria that determine which investors and investment can have the right to
investment arbitration. As a result, an investor that did not have the right to
investment arbitration under an investment agreement at the time of the
ratification of the agreement could acquire such right after the ratification of the
agreement if it subsequently meets the criteria. A closer look of past investment
arbitral decisions reveals that an allegation of abuse of process with respect to the
initiation of arbitral proceedings concerns the allegedly abusive acquisition of the
right to investment arbitration by a claimant investor after the ratification of an
investment agreement—and often immediately before the initiation of arbitral
proceedings.
Then, a question arises as to whether the abusive acquisition of the right to
investment arbitration or, more accurately, an abusive attempt to acquire the right,
can be properly regarded as abuse of process. As indicated in the beginning of
Section II.A., the principle of abuse of process presupposes the existence of the
right to judicial or quasi-judicial procedures. If there exists no such right, there is
no abuse of process. Thus, if there is no right to investment arbitration, there can
be no question of abuse of process. This might suggest that the investment arbitral
tribunals, which examined the question of an abusive attempt to acquire the right
to investment arbitration as that of abuse of process, were wrong because the
question concerns whether such right exists and not how the existing right is used.
In other words, an investor claimant attempting to acquire the right to investment
arbitration in an abusive way cannot acquire such a right.
Having said that, an investment arbitral tribunal may be justified in examining
an abusive attempt to acquire the right to investment arbitration as a question of
abuse of process, if it distinguishes the right to investment arbitral proceedings
given to a specific investor and the general right to investment arbitration provided
in an investment agreement. According to the distinction, abuse of process with
respect to the initiation of investment arbitral proceedings concerns not the right to
investment arbitration that is acquired by the specific claimant investor but rather
the right to investment arbitration that is generally provided in an investment
agreement. In other words, an investor’s abusive attempt to acquire its own right
to investment arbitration is the abusive use of the general right to investment
arbitration under an investment agreement. Thus, although an abusive attempt
does not grant a specific investor the right to investment arbitration, it does not
negate the existence of the general right to investment arbitration under the
agreement, and therefore, there can be a question of abuse of process in the sense
that a claimant investor may use such general right in an abusive way.
The application of abuse of process in investment arbitration, as a question of
an abusive use of the general right to investment arbitration, entails two important
differences from the application of the principle in other international judicial and
quasi-judicial bodies.
First, this particular type of application of abuse of process should be examined
not as a question of admissibility but rather as that of jurisdiction. In other
international judicial and quasi-judicial bodies, the principle of abuse of process is
examined as a question of admissibility because the principle presupposes the
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existence of the right to international judicial and quasi-judicial bodies of a specific
applicant and, consequently, the existence of the jurisdiction of these bodies over
the applicant and its claims, as discussed in the previous section.94 For the ICJ, for
example, a question of abuse of process concerns whether the applicant uses its
right to the ICJ in an abusive way and whether, as a consequence, the ICJ should
refrain from exercising the jurisdiction that it has over the applicant and its claims.
On the other hand, the abusive attempt to acquire the right to investment
arbitration does not accord such right to a specific claimant investor, and therefore,
a tribunal does not have jurisdiction over the investor and its claims. While the
general right to investment arbitration does exist under an investment agreement,
regardless of the abusive conduct of the claimant, that does not mean that the
tribunal has jurisdiction over the claimant. Therefore, a question for the tribunal is
whether the claimant abuses the general right to investment arbitration in an
attempt to acquire its own right to investment arbitration over its specific claims,
and whether, as a consequence, it fails to establish the jurisdiction of an
investment arbitral tribunal over its claims.95 Although the distinction between
jurisdiction and admissibility is not consistently applied by investment arbitral
tribunals, the two are conceptually different and have different consequences.96
Thus, it is not appropriate to examine this particular type of abuse of process as a
question of admissibility.
In relation to the first point, it is interesting to note the unique distinction made
by the Tribunal in Abaclat between ‘material good faith’ and ‘procedural good
faith.’ According to the Tribunal, the first kind of good faith is concerned with ‘the
context and the way in which the investment was made, and for which the investor
seeks protection,’ while the second kind is concerned with ‘the context and the
way in which a party, usually the investor, initiates its treaty claim seeking
protection for its investment.’97 The issue of abusive attempt to acquire the right
involves the first kind because, strictly speaking, such attempt does not concern
how an investor initiates arbitral proceedings, but rather how the investor makes
investment in order to obtain the right to initiate investment arbitral proceedings.
The Tribunal in Abaclat rightly suggested that the first kind of good faith should
be examined as a question of jurisdiction or the legality of investment.98
Second, considering the particular nature of the principle of abuse of process
with respect to the initiation of investment arbitral proceedings, it may not be
appropriate to apply in investment arbitration the same criteria for abuse that is
used by other international judicial and quasi-judicial bodies. On the one hand,
the ICJ and other international judicial and quasi-judicial bodies have been very
cautious in determining an abuse of process in the light that a determination of
such an abuse would restrain the exercise of the right that States have. Moreover,
94 See Section II.A.(i) of this article.
95 For the concepts of jurisdiction and admissibility in investment arbitration, see eg David Williams QC, ‘Chapter
22: Jurisdiction and Admissibility’ in Peter Muchlinski, Federico Ortino, and Christoph Schreuer (eds), The Oxford
Handbook of International Investment Law (OUP 2008) 868, 919–20.
96 Jan Paulsson, ‘Jurisdiction and Admissibility’ in Gerald Aksen and Robert Briner (eds), Global Reflections on
International Law, Commerce and Dispute Resolution: Liber Amicorum in Honour of Robert Briner (ICC Publishing 2005)
601 (‘Mistakenly classifying issues of admissibility as jurisdictional may therefore result in an unjustified extension of
the scope for challenging awards . . . ’). In Paulsson’s words, ‘It may be difficult to establish the dividing line between
the two. There is a twilight zone. But only a fool would argue that the existence of a twilight zone is proof that day
and night do not exit.’ ibid 603.
97 Abaclat, Decision on Jurisdiction and Admissibility (n 86) para 647.
98 ibid para 658. The question of the legality of investment ultimately determines that of jurisdiction.
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these bodies take into account factors such as the untimeliness of filing and the
submission of misleading information in making such determinations. On the
other hand, the question for investment arbitral tribunals being the existence of
the right of a specific claimant investor rather than its use, the caution exercised by
the ICJ and other international judicial and quasi-judicial bodies may not be
needed for investment arbitral tribunals. It should be recalled in this regard that,
unlike in the ICJ and other international judicial and quasi-judicial bodies, abuse
of process in investment arbitration would not restrain the exercise of the existing
right. Additionally, many of the factors considered by other judicial and quasijudicial
bodies in examining the issue of abuse of process may not be relevant to
investment arbitral tribunals as these factors presuppose the existence of
jurisdiction. For example, the untimeliness of filing or the submission of
misleading information would not be relevant unless the jurisdiction of an
international court properly exists. That said, a threshold of abuse should not be
lowered from the one that is adopted by other international judicial and quasijudicial
bodies as long as an investment arbitral tribunal applies the principle of
abuse of process. Although applications of an international law principle may vary
depending on fields or forums, the core concept should remain consistent
throughout every field of international law.99 Thus, the determination of an abuse
of process in investment arbitration should require the examination of maliciousness,
unreasonableness and arbitrariness on the side of the claimant.
The following two subsections examine how past tribunals have applied the
principle of abuse of process with respect to an allegedly abusive attempt to
acquire the right to investment arbitration.
C. Philip Morris Asia
It is worthwhile to start with a review of the factual circumstances and legal
findings of Philip Morris Asia. The case concerns Australia’s Plain Packaging
measures, substantive issues of which have already been discussed elsewhere100
and, therefore, will not be addressed in this article. The focus of the Award (and
of this article) is on the admissibility of the claims, which was contested by the
respondent on the basis of the principle of abuse of process.
The claimant, Philip Morris Asia is a limited liability company incorporated
under the laws of Hong Kong and the regional headquarters for the Asia region of
the Philip Morris International group of companies (PMI Group).101 The
claimant controls and manages business decisions of Philip Morris Australia and
its wholly owned subsidiary, PML, which operates the PMI Group’s sales of
tobacco in Australia.102 Both Philip Morris Australia and PML had been owned
by Philip Morris Brands Sa`rl (‘Philip Morris Brands Sa`rl’), a Swiss branch of the
99 See Phoenix Action, Award (n 88) paras 77–78.
100 See eg Tania Voon and Andrew Mitchell, ‘Time to Quit? Assessing International Investment Claims Against
Plain Tobacco Packaging in Australia’ (2011) 14 J Intl Econ L 515, 530–41. See also Eva Nanopoulos and Rumiana
Yotova, ‘‘‘Repackaging’’ Plain Packaging in Europe: Strategic Litigation and Public Interest Considerations’ (2016) 19
J Intl Econ L 175.
101 Philip Morris Asia, Award (n 3) paras 1, 6.
102 ibid paras 6, 96–97. The claimant alleged in the proceedings that it had controlled Philip Morris Asia and PML
even before the acquisition, but the Tribunal concluded that the claimant failed to show it had control over the
Australian investments before it acquired them in February 2011. ibid paras 496–509.
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PMI Group,103 but were transferred to Philip Morris Asia, the claimant in the
case, in February 2011, in the course of the global restructuring of the PMI
Group, which began in early September 2010.104 According to the claimant, the
objective of the restructuring was ‘to reduce costs and improve efficiencies by
streamlining its legal entity structure, rationalizing business process, centralising
activities, and developing shared services,’ and to address ‘the political risk that
PMI was facing in several countries including Australia with the proliferation of
new regulations on packaging and marketing of tobacco products.’105 Through the
restructuring, Philip Morris Asia obtained access to investment arbitration under
the Australia-Hong Kong BIT with respect to its investment in Philip Morris
Australia and PML. It should be noted here that Philip Morris Brands Sa`rl would
not have access to investment arbitration with respect to Philip Morris Australia
and PML even if they remained in its ownership because Australia does not have
an investment agreement with Switzerland, and, therefore, Swiss investors have no
legal basis to have recourse to investment arbitration against Australia. It can
therefore be reasonably assumed that at least one of the motives of the transfer
from Philip Morris Brands Sa`rl to Philip Morris Asia was to obtain access to
investment arbitration under the BIT.
In the arbitral proceedings, Australia, the respondent, raised objections to the
jurisdiction of the tribunal and the admissibility of the claimant’s claims.
Regarding the admissibility, it argued that ‘the doctrine of abuse of rights forbids
the Claimant from exercising the right’ to have recourse to investor-state
arbitration under the investment agreement.106 In response, Philip Morris Asia,
the claimant, contended that ‘the scope and content of the abuse of rights doctrine
is uncertain and exceptionally applied’ (footnote omitted), but did not deny the
applicability of the doctrine.107 The difference between the parties was the criteria
for the application of the principle of abuse of rights. On one hand, the respondent
asserted that a ‘foreseeability test’ should be applied. In its view, ‘the manipulation
of corporate nationality at a time when the dispute is in existence or is foreseeable
to a sufficient degree’ constitutes an abuse of rights.108 More specifically, the
respondent argued that gaining protection under an investment agreement with
the knowledge of the risk of a ‘specific future dispute’ was ‘unfair.’109 On the other
hand, the claimant contested the appropriateness of the foreseeability test.110 In
the claimant’s view, the respondent has to prove bad faith on the claimant’s part to
demonstrate an abuse of rights, and the standard of ‘abusiveness’ is ‘met only in
exceedingly rare circumstances involving egregious conduct akin to fraud,’ such as
the use of forged and fraudulent documents as evidence of a claimant’s status as
investor and the ‘internationalization’ of domestic disputes that had already
accrued.111
Having rejected the respondent’s jurisdictional objections, the Tribunal
examined whether the claimant’s initiation of the arbitral proceedings under the
103 ibid para 97.
104 ibid paras 97–98, 143.
105 ibid para 98.
106 Philip Morris Asia, Award (n 3) para 400.
107 ibid para 411.
108 ibid paras 420–25 (emphasis added).
109 ibid paras 422, 441, 443.
110 ibid paras 431–40.
111 ibid paras 414, 417–18.
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BIT constituted an abuse of right and therefore rendered the claims inadmissible.
First, the Tribunal made a distinction between the situation where ‘an investor
who is not protected by an investment treaty restructures its investment in such a
fashion as to fall within the scope of protection of a treaty in view of a specific
foreseeable dispute’ and the situation where an investor does the same, but ‘in
respect of an existing dispute’.112 According to the Tribunal, a tribunal would lack
jurisdiction ratione temporis in the latter case,113 while it would have jurisdiction in
the former. Second, the Tribunal reviewed past investment arbitration decisions
concerning the abuse of process (abuse of rights), and concluded that:
the initiation of a treaty-based investor-State arbitration constitutes an abuse of rights
(or an abuse of process, the rights abused being procedural in nature) when an investor
has changed its corporate structure to gain the protection of an investment treaty at a
point in time when a specific dispute was foreseeable.114
If a tribunal determines that an investor is abusing its right, it would have to
declare the investor’s claims inadmissible and refrain from exercising the
jurisdiction that the tribunal has over them. Third, with respect to a test to
determine whether a specific dispute is foreseeable or not, the Tribunal suggested
that ‘a dispute is foreseeable when there is a reasonable prospect . . . that a
measure which may give rise to a treaty claim will materialize.’115 Finally, it found,
in view of the facts of the case, that ‘it was reasonably foreseeable [at the time of
the restructuring] that [the Plain Packaging measures] would eventually be
enacted and, consequently, a dispute would arise.’116 The Tribunal added that the
‘main and determinative, if not sole, reason for the restructuring was the intention
to bring a claim under’ the BIT, and that the claimant failed to prove other
reasons for the restructuring.117 The Tribunal concluded that ‘the initiation of this
arbitration constitute[d] an abuse of rights,’ and that it was ‘precluded from
exercising jurisdiction over this dispute’ as the claims were inadmissible.118
Two remarks can be made about the findings in Philip Morris Asia. First, the
Tribunal in the case examined the issue of abuse of process as a question of
admissibility.119 The Tribunal might have sought to follow the approach of other
international judicial and quasi-judicial bodies, which have examined the issue of
abuse of process as a question of admissibility. However, the analogy is not totally
accurate considering that the nature of abuse of process objections with respect to
the initiation of investment arbitral proceedings is different from that of abuse of
process objections in other international judicial and quasi-judicial procedures, as
this article has already pointed out.120 On one hand, an international judicial or
112 ibid para 539 (emphasis added).
113 ibid.
114 ibid para 554 (emphasis added).
115 ibid.
116 ibid paras 555–69.
117 ibid paras 570–84.
118 ibid para 588.
119 While the Tribunal might have followed the line of arguments of the respondent, the respondent did not
necessarily regard the issue of abuse of process as a question of admissibility, at least judging from the publicly
available documents. The respondent argued, in its response to the notice of arbitration, that ‘there could be no
‘investment’ for the purposes of Article 10 of the BIT and any reliance on Article 10 of the BIT would constitute an
abuse of right. It follows that the arbitral tribunal lacks jurisdiction or that the claims that PM Asia now seeks to bring
under the BIT are inadmissible.’ Philip Morris Asia, Australia’s Response to the Notice of Arbitration (21 December
2011) para 31 (emphasis added).
120 See Section III.B. of this article.
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quasi-judicial body applies the principle of abuse of process in examining whether
it should refrain from exercising the jurisdiction that it has over an applicant and
its claims. On the other hand, the question for the Tribunal in Philip Morris Asia
was whether the attempt of the claimant to acquire the right to investment
arbitration under the BIT was abusive and therefore must fail. If an investor fails
to acquire the right to investment arbitration, an investment arbitral tribunal
cannot have jurisdiction over the investor and its investment. In short, the
Tribunal in Philip Morris Asia should have examined the issue of abuse of process
as a question of jurisdiction.
Second, in determining whether the claimant did, in fact, act in an abusive
manner, the Tribunal in Philip Morris Asia applied the foreseeability test, which is
not used in any of the international judicial and quasi-judicial bodies discussed in
this article. Although the mere lack of practice in other judicial and quasi-judicial
bodies does not necessarily negate the value of the test in investment arbitration,
especially considering the particular nature of abuse of process objections with
respect to the initiation of investment arbitral proceedings, the appropriateness of
the test is not without question. In particular, it should be recalled that the term
abuse is understood to connote a sense of maliciousness, unreasonableness, and
arbitrariness.121 Whether an investor’s attempt to acquire the right to investment
arbitration with respect to a foreseeable dispute entails maliciousness, unreasonableness
and arbitrariness would require a comprehensive analysis of the facts of a
particular case. In other words, the mere fact that an investor attempts to acquire
the right to investment arbitration with respect to a foreseeable dispute would not
suffice to establish the maliciousness, unreasonableness, and arbitrariness of the
investor. In drawing its conclusion that the foreseeability test should be applied,
the Tribunal in Philip Morris Asia relied exclusively on past investment arbitration
decisions. While the exclusive reliance on investment arbitral decisions is perhaps
justifiable in light of the limited relevance of the practice of other international
judicial and quasi-judicial bodies, the foreseeability test is far from an established
criterion even in investment arbitration, as will be discussed in the following
subsection.
D. Other Investment Arbitration Decisions
As acknowledged by the Tribunal in Philip Morris Asia,122 this is not the first
investment arbitration case to address the abuse of process, and the Tribunal in
Philip Morris Asia heavily and exclusively relied on past investment arbitration
decisions on this issue. Although some of the decisions have already been
discussed elsewhere,123 this section reviews them from a different perspective to
highlight the following two points. First, many of the investment arbitration cases
cited by the Tribunal and the parties in Philip Morris Asia addressed the issue of
abuse not as a question of admissibility but as that of jurisdiction. More
specifically, the question for the tribunals in these cases was whether the
‘investment’ or the ‘investor’ at issue was protected by the relevant investment
121 See Section II.A.(i) of this article.
122 Philip Morris Asia, Award (n 3) para 538.
123 See eg Utku Topcan, ‘Abuse of the Right to Access ICSID Arbitration’ (2014) 29 ICSID Rev-FILJ 627, 634–44;
de Brabandere (n 7) 621–26.
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agreements and arbitration rules and, therefore, fell within the jurisdiction of the
tribunals. Second, while a few of the investment arbitral cases cited by the
Tribunal and the parties in Philip Morris Asia applied the foreseeability test, they
also took into account broader factual circumstances. In particular, the tribunals
in these cases examined the conduct of the claimant to determine whether it
exceeded a threshold of maliciousness, unreasonableness and arbitrariness.
(i) Jurisdiction ratione temporis
The review starts with Venezuela Holdings v Venezuela and Tidewater v Venezuela,
which were relied on by the Tribunal in Philip Morris Asia. The question in these
cases was whether the initiation of the arbitral proceedings constituted an abuse
because the claimants obtained access to investment arbitration with respect to
pre-existing disputes. In other words, in light of the well-established jurisprudence
that a tribunal’s jurisdiction ratione temporis is limited to a dispute that arises after
the claimant obtains protection under a relevant investment agreement, the
tribunals examined whether the disputes before them had existed before the
claimants obtained such protection.
For example, in Venezuela Holdings, the Tribunal observed that ‘in all systems of
law, whether domestic or international, there are concepts framed in order to
avoid misuse of the law’ or ‘abuse of right,’124 and examined whether the
restructuring of the claimant investor was ‘deemed as an abuse of right and as a
consequence whether or not it has jurisdiction under’ the investment agreement.
125 More specifically, the main issue for the Tribunal was whether the
dispute existed at the time the claimant obtained access to investment arbitration
through restructuring. In the tribunal’s view, while restructuring aimed at gaining
access to investment arbitration under an investment agreement was ‘perfectly
legitimate’ with respect to future disputes, restructuring with the same objective
with respect to pre-existing disputes ‘would constitute . . . an abusive manipulation
of the system of international investment protection under the ICSID Convention
and the BIT.’126 In this case, although the Tribunal did not dismiss the claimant’s
claims in toto as an abuse of rights, it delimited its jurisdiction only to include any
dispute arising after the date of restructuring.127
Similarly, the Tribunal in Tidewater insisted on the distinction between future
disputes and pre-existing disputes. According to the Tribunal, ‘it is a perfectly
legitimate goal, and no abuse of an investment protection treaty regime, for an
investor to seek to protect itself from the general risk of future disputes with a host
state [through restructuring]. But the same is not the case in relation to preexisting
disputes between the specific investor and the state.’128 Moreover, there was an
agreement between the parties in the case that the claimants ‘could not have
expected to obtain protection for pre-existing disputes; they expected to obtain
prospective protection only against any actions in breach of the treaty the
124 Venezuela Holdings and others v Bolivarian Republic of Venezuela, ICSID Case No ARB/07/27, Decision on
Jurisdiction (10 June 2010) para 169.
125 ibid para 185.
126 ibid paras 204–05.
127 ibid paras 205–06.
128 Tidewater Investment SRL and Tidewater Caribe, CA v Bolivarian Republic of Venezuela, ICSID Case No ARB/10/5,
Decision on Jurisdiction (8 February 2013) para 184 (emphasis added).
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Respondent might take after restructuring.’129 The Tribunal rejected the respondent’s
objection to jurisdiction based on the fact that the dispute did not exist at the
time of restructuring.130
Thus, according to these tribunals, jurisdiction ratione temporis of an investment
arbitral tribunal is limited to future disputes, and an attempt to extend the
jurisdiction to pre-existing disputes must fail. Moreover, the Tribunal in Venezuela
Holdings specifically suggested that a claimant investor’s attempt to extend the
right to investment arbitration over a pre-existing dispute would constitute an
abuse of rights. Although the conclusion of the tribunals to exclude pre-existing
disputes from the scope of jurisdiction ratione temporis is justifiable, the tribunals
did not explicitly explain why the claimants’ initiation of investment arbitration
with respect to pre-existing disputes was considered an abuse. If the tribunals were
to apply the principle of abuse of process, they should have examined whether the
claimants’ acts entailed maliciousness, unreasonableness and arbitrariness. Having
said that, considering that the use of investment arbitration with respect to preexisting
disputes is not what is intended under investment agreements, the
initiation of investment arbitration with respect to such disputes may well be
regarded malicious, unreasonable and arbitrary. However, a final determination of
maliciousness, unreasonableness, and arbitrariness needs to be based on a careful
review of factual circumstances.131 In any event, the tribunals could have reached
the same conclusion without applying the principle of abuse of process because the
scope of jurisdiction ratione temporis is limited as a corollary of the principle of
non-retroactivity of treaties.132
(ii) Jurisdiction ratione materiae
Phoenix Action, Cementownia v Turkey, and ST-AD v Bulgaria were cited by the
parties’ submissions in Philip Morris Asia, although they were not directly relied
upon by the Tribunal in the case. As discussed below, unlike Philip Morris Asia,
the tribunals in Phoenix Action, Cementownia, and ST-AD addressed the issue of an
abuse of process in the context of examining whether the claimants’ investments
were ‘protected investment’ under relevant investment agreements and arbitral
rules and therefore fell within the scope of jurisdiction ratione materiae.
The Tribunal in Phoenix Action first noted that the purpose of protection under
the ICSID arbitration was to protect legal and bona fide investments.133 The
tribunal then examined whether the claimant made bona fide investments that
could fall within the jurisdiction ratione materiae. The Tribunal answered in the
negative because the claimant was well aware of the difficult circumstances of the
investment at the time of acquisition, and had no business plan or activity
regarding its investment except to gain access to ICSID arbitration by
129 ibid para 143 (emphasis added).
130 ibid paras 183–92.
131 The question of jurisdiction ratione temporis does not arise with respect to a foreseeable dispute, because a
claimant investor initiates arbitral proceedings when such dispute crystalizes into an actual dispute after the protection
under an investment agreement and investment protection became applicable to its investment. See Philip Morris Asia,
Award (n 3) paras 527–34.
132 Article 28 of the VCLT provides that the provisions of a treaty ‘do not bind a party in relation to any act or fact
which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect
to that party.’ See also Rene´e Rose Levy and Gremcitel SA v Republic of Peru, ICSID ARB/11/17, Award (9 January
2015) para 147.
133 Phoenix Action, Award (n 87) para 100.
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transforming a pre-existing domestic dispute to an international dispute.134 The
Tribunal found that the initiation of the proceedings was ‘an abuse of the system
of international ICSID investment arbitration’ and that ‘to accept jurisdiction in
this case would go against the basic objectives underlying the ICSID convention as
well as those of bilateral investment treaties.’135 Based on these findings, the
Tribunal concluded that the claimant’s investment did ‘not qualify as a protected
investment’ under the ICSID Convention and the relevant investment
agreement.136
The Tribunal in Cementownia took a similar approach to the Phoenix Action
tribunal. The Tribunal first acknowledged the trend of other tribunals that an
investment for the sole purpose of gaining access to international jurisdiction was
not ‘a bona fide transaction’ and was not protected by investment arbitration.137
The Tribunal then found that the claimant ‘intentionally and in bad faith abused
the arbitration’ in view of the facts that the claimant ‘fabricated’ a transaction to
gain access to investment arbitration and that it was also ‘guilty of procedural
misconduct’ during the arbitral proceedings which caused ‘excessive delays.’138
The Tribunal in ST-AD confirmed that the approach of Phoenix Action was
applicable to arbitral proceedings under the UNCITRAL Arbitration Rules in
examining the respondent’s ‘claim of bad faith in the initiation of the
arbitration.’139 Having noted that the ‘essential purpose of the Claimant’s
investment [ie, acquisition of shares of domestic companies in the respondent]
was for it to gain access to international jurisdiction,’ the Tribunal found that the
claimant’s initiation of the arbitral proceedings was ‘an abuse of the system of
international investment arbitration,’ and that ‘to accept jurisdiction in this case
would go against the basic objectives underlying bilateral investment treaties.’140 It
concluded that the investment agreement mechanism ‘was not designed to protect’
the claimant’s investment, which was ‘domestic investments disguised as international
investments or domestic disputes repackaged as international disputes for
the sole purpose of gaining access to international arbitration.’141
The tribunals in the above three cases examined whether the claimants’
investments were ‘protected’ under relevant investment agreements and arbitration
rules and, therefore, fell within the jurisdiction ratione materiae. According to these
tribunals, what is protected under the agreements is bona fide or good faith
investment, which do not include the fabrication of international investment from
domestic investment in an attempt to acquire the right to investment arbitration.
142 Their findings are consistent with the increasing trend in investment
134 ibid paras 136, 138, 142.
135 ibid para 144. It should be noted that this case concerned the respondent’s treatment of two Czech companies,
owned by the claimant, an Israeli company. What was unique is that the owner of the claimant was originally a Czech
national, but fled to Israel, obtained an Israeli nationality, established the company, and obtained the share of the
two Czech companies from his wife and daughter, who had been the legal owners at that time. ibid paras 22, 41,
137, 139.
136 ibid para 145.
137 Cementownia ‘Nowa Huta’ SA v Republic of Turkey, ICSID Case No ARB(AF)/06/2, Award (17 September 2009)
para 154.
138 ibid paras 136, 156–59.
139 ST-AD GmbH v Republic of Bulgaria, UNCITRAL, PCA Case No 2011-06, Award on Jurisdiction (18 July 2013)
para 405.
140 ibid paras 421, 423.
141 ibid para 423.
142 The tribunals could have found that they did not have jurisdiction ratione temporis over the dispute because it
pre-existed at least as a domestic dispute.
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arbitration practice according to which investment agreements protect only good
faith investment.143 It could be said that the limitation of protection to good faith
investment has the same effect as the principle of abuse of process in that both
exclude malicious, unreasonable or arbitrary investments from the scope of
arbitration. In fact, if the scope of the good faith requirement and that of the
principle of abuse of process are identical, investment arbitral tribunals would not
need to apply the latter. For example, the issue of jurisdiction over a foreseeable
dispute comes down to whether a claimant investor’s attempt to acquire the right
to investment arbitration with respect to such dispute is malicious, unreasonable
and arbitrary and therefore does not meet the good faith requirement.
(iii) Jurisdiction ratione personae
There are also a few cases where the respondent claimed that the claimant was not
a ‘protected investor’ under a relevant investment agreement and arbitration rules,
and was, therefore, not covered by a tribunal’s jurisdiction ratione personae,
although such claims proved unsuccessful.
For example, in Tokios Tokele_s v Ukraine, the respondent claimed that the
claimant, a Lithuanian entity, was not an ‘investor’ protected by Article 25 of the
ICSID Convention because it was ‘owned and controlled predominantly by
Ukrainian nationals’ and had ‘no substantial business activities in Lithuania and
maintain[ed] its sie`ge social . . . in Ukraine,’ and therefore that its corporate veil
should be ‘pierced.’144 The respondent argued that the claimant was ‘in terms of
economic substance, a Ukrainian investor in Lithuania, not a Lithuanian investor
in Ukraine,’ and allowing it to pursue international arbitration against its own
government ‘would be inconsistent with the object and purpose of the ICSID
Convention.’145 Although the Tribunal did not uphold the respondent’s claim, it
implied that the corporate veil should be pierced if the claimant’s conduct
constituted an ‘abuse of legal personality’ such as concealing its national identity
from the respondent and creating an entity for the purpose of gaining access to
investment arbitration.146 Moreover, a strong dissent to the decision by the
president of the Tribunal took a narrower view of the ‘investor’ under Article 25 of
the ICSID Convention. In the president’s view, Article 25, interpreted in light of
the object and purpose of the ICSID Convention to protect international
investment, requires a review of the economic reality of the claimant-investor,
particularly in cases like this one where it is crystal clear that no question of any
foreign investment is involved.147
Similarly, in ConocoPhillips v Venezuela, the respondent claimed that a corporation
of convenience with no business purpose but to have access to ICSID
arbitration was an ‘abuse of corporate form and blatant treaty or forum
143 For example, the Tribunal in Inceysa stated that investment in violation of good faith cannot benefit from the
protection of an investment agreement. Inceysa Vallisoletana SL v Republic of El Salvador, ICSID Case No ARB/03/26,
Award (2 August 2006) para 239.
144 Tokios Tokele_s v Ukraine, ICSID Case No ARB/02/18, Decision on Jurisdiction (29 April 2004) paras 21–23.
145 ibid paras 21–22.
146 ibid para 56. See also ibid para 54, quoting Barcelona Traction, Light and Power Company, Limited, Judgment
(5 February 1970), [1970] ICJ Rep 3, at 3, para 56 (‘ . . . the veil is lifted, for instance, to prevent the misuse of the
privileges of legal personality, as in certain cases of fraud or malfeasance, to protect third persons such as a creditor or
purchaser, or to prevent the evasion of legal requirements or of obligations’).
147 Tokios Tokele_s v Ukraine, ICSID Case No ARB/02/18, Dissenting Opinion to Decision on Jurisdiction (29 April
2004) paras 23–30.
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shopping.’148 The Tribunal acknowledged that ‘[t]here is jurisdiction only if the
parties to the dispute have each consented and throughout the process each is
treated on an equal footing,’ and that the ‘equality of position in the present
context is . . . a further factor supporting the growing body of decisions placing
some limits on the investor’s choice of corporate form . . . .’149 Eventually, the
Tribunal rejected the respondent’s objection to jurisdiction, stating that, while the
only purpose of the claimant’s restructuring was to be able to have access to
ICSID proceedings, no claim had been in prospect at the times of the
restructurings, and the claimants continued to be involved in the investment.150
In general, it is totally reasonable for an investor to organize and reorganize its
corporate structure to meet various business needs, including having access to
investment arbitration. Accordingly, the corporate structure should not be a reason
to deprive an investor of access to investment arbitration. That said, the arbitral
decisions on jurisdiction ratione personae suggest, similar to the arbitral decisions
involving jurisdiction ratione materiae, that only investors whose corporate
structure is organized and reorganized in good faith is protected by investment
agreements. Thus, this limitation has the same effect as the principle of abuse of
process in that both exclude malicious, unreasonable or arbitrary investors from
the scope of investment arbitration. As has already been indicated, as long as
arbitral tribunals examine whether a claimant investor is organized in good faith,
they would not need to apply the principle of abuse of process. For example, it
could be argued that an investor that uses a corporation of convenience with no
substantial business activities as a ‘fraudulent device’ to gain access to investment
arbitration with respect to foreseeable disputes does not meet the good faith
requirement, and therefore is not qualified as an investor ‘protected’ under
investment agreements, regardless of the application of the principle of abuse of
process.151
(iv) Admissibility/Exercise of jurisdiction
The tribunals in Pac Rim v El Salvador, Gremcitel v Peru, and Transglobal Green v
Panama took the same approach as the Tribunal in Philip Morris Asia in the sense
that they considered that an abuse of process by the claimant would preclude a
tribunal from exercising its jurisdiction over the claimant’s claims, although they
did not explicitly distinguish between jurisdiction and admissibility.152 They also
applied the foreseeability test in determining whether the claimant engaged in an
abuse, although they did so more restrictively compared to the tribunal in Philip
Morris Asia.
148 ConocoPhillips Petrozuata BV, ConocoPhillips Hamaca BV, and ConocoPhillips Gulf of Paria B v Bolivarian Republic of
Venezuela, ICSID Case No ARB/07/30, Decision on Jurisdiction and Merits (3 September 2013) para 268.
149 ibid para 274.
150 ibid paras 279–80.
151 See Autopista Concesionada de Venezuela, CA v Bolivarian Republic of Venezuela, ICSID Case No ARB/00/5,
Decision on Jurisdiction (27 September 2001) paras 123–26; Aguas del Tunari, SA v Republic of Bolivia, ICSID Case
No ARB/02/3, Decision on Respondent’s Objections to Jurisdiction (21 October 2005) para 330.
152 In addition to the cases in the text, see also Lao Holdings NV v Lao People’s Democratic Republic, ICSID Case No
ARB(AF)/12/6, Decision on Jurisdiction (21 February 2014). In Lao Holdings, the Tribunal considered, in obiter dicta,
that ‘it is clearly an abuse for an investor to manipulate the nationality of a company subsidiary to gain jurisdiction
under an international treaty at a time when the investor is aware that events have occurred that negatively affect its
investment and may lead to arbitration. In particular, abuse of process must preclude unacceptable manipulations by a
claimant acting in bad faith who is fully aware prior to the change in nationality of the ‘‘legal dispute.’’’ ibid paras 69–
70, 76.
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For example, the Tribunal in Pac Rim first acknowledged that the approach
regarding jurisdiction ratione temporis was ‘materially different from’ the approach
regarding abuse of process.153 According to the Tribunal, while it would have
jurisdiction ratione temporis over a dispute that existed and continued after the date
when the claimant obtained access to investment arbitration by its change of
nationality, it would be precluded from exercising such jurisdiction by the
principle of abuse of process if the claimant had changed its nationality knowing of
an actual or specific future dispute.154 Moreover, it clarified that the claimant’s
claims would constitute an abuse of process if the claimant could ‘see an actual
dispute or [could] foresee a specific future dispute as a very high probability and
not merely as a possible controversy’ at the time of restructuring.155 Despite the
similarity of the foreseeability test in this case to the one adopted in Philip Morris
Asia, its application in this case was rather restrained. The Tribunal in Pac Rim
considered that, although the claimant had been aware of difficulties with the
respondent’s measures, it had a reasonable expectation that these difficulties would
be removed, and that the claimant was only claiming compensation for the period
after its change of nationality.156 The Tribunal rejected the respondent’s objection
to jurisdiction based on abuse of process.
In Gremcitel, although the Tribunal left open the question of whether abuse of
process is an issue of jurisdiction or an admissibility,157 it unequivocally stated that
‘an abuse of process objection must be distinguished from a ratione temporis
objection.’158 It further acknowledged that, while ‘an organization or reorganization
of a corporate structure designed to obtain investment treaty benefits is not
illegitimate per se, including where this is done with a view to shielding the
investment from possible future disputes with the host state,’159 ‘a restructuring
carried out with the intention to invoke the treaty’s protections at a time when
the dispute is foreseeable may constitute an abuse of process depending on the
circumstances.’160 Based on this understanding, the Tribunal found that the
present dispute was foreseeable at the time of the restructuring, and that the only
discernible purpose of the restructuring was to obtain access to investment
arbitration under the investment agreement.161 It should be emphasized here,
though, that the foreseeability was not the only reason for the Tribunal to find an
abuse of process in this case. The Tribunal concluded that the restructuring
constituted an abuse of process, in consideration of other circumstances of the
case, in particular, the claimants’ another attempt to ‘manufacture’ the Tribunal’s
jurisdiction by ‘untrustworthy, if not utterly misleading’ documents.162
The Tribunal in Transglobal Green examined the issue of abuse of process under
the heading of ‘jurisdictional objections,’ but the Tribunal stated that ‘the
153 Pac Rim Cayman LLC v Republic of El Salvador, ICSID Case No ARB/09/12, Decision on the Respondent’s
Jurisdictional Objections (1 June 2012) para 2.101.
154 ibid paras 2.104, 2.107.
155 ibid para 2.99.
156 ibid paras 2.83–2.86.
157 Gremcitel, Award (n 132) para 181.
158 ibid para 182.
159 ibid para 184.
160 ibid para 185.
161 ibid paras 187–91.
162 ibid paras 193–94. The documents were backdated to make it appear that one of the claimants acquired indirect
ownership of the investment well before the initiation of the arbitral proceedings. ibid paras 152–55.
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existence of abuse of process is a threshold issue that would bar the exercise of the
Tribunal’s jurisdiction even if jurisdiction existed.’163 According to the Tribunal, a
determination of whether an abuse of process has occurred had to be made in
consideration of
all the circumstances of the case, including, for instance, the timing of the purported
investment, the timing of the claim, the substance of the transaction, the true nature of
the operation, and the degree of foreseeability of the governmental action at the time of
restructuring.164
The Tribunal concluded that the claimants abused the international investment
treaty system because they started to involve in the investment when it was clear
that there was a problem with it only for the purpose of creating ‘artificial
international jurisdiction over a pre-existing domestic dispute.’165
Thus, the application of the principle of abuse of process in the above cases is
similar to that in the Tribunal in Philip Morris Asia. However, their conclusions
that they should refrain from exercising jurisdiction because the claimant engaged
in an abuse of process were drawn not exclusively from the fact that the claimants
made investment when the dispute was foreseeable but also from other factors.
For example, according to the Tribunal in Pac Rim, it would not be an abuse for a
claimant investor to have made investment while foreseeing a dispute if it has a
reasonable expectation that the dispute would be resolved. In addition, what led
the Tribunal in Gremcitel to determine the claimant’s abuse was not only the
foreseeability of the dispute but also other circumstances, such as the fact that the
claimant submitted untrustworthy documents to it. The consideration of broader
factors ensures that only conduct involving maliciousness, unreasonableness and
arbitrariness would be considered an ‘abuse.’
Finally, could the initiation of investment arbitration in Philip Morris Asia be
considered as abuse in light of the above considerations? First, considering that the
Plain Packaging measures had not yet been adopted by the Australian Parliament
at the time of the restructuring, it would not have been unreasonable for the
claimant, when it obtained access to investment arbitration under the BIT, to
consider that the dispute regarding the measures would not crystalize.166 Second,
even assuming that the Tribunal was right in that the dispute was foreseeable at
the time of the restructuring, this should not end an analysis of the Tribunal.
In particular, as the Tribunal itself implied, obtaining access to investment
arbitration may not be the sole purpose for the restructuring of the claimant.
Moreover, the Tribunal stopped short of analyzing whether the claimant’s attempt
to acquire the right to investment arbitration harms the interest of the respondent
or the objective of investment arbitration. Overall, it has to be said that the
Tribunal’s reasoning does not sufficiently establish that the claimant’s act was
malicious, unreasonable or arbitrary.
163 Transglobal Green Energy, LLC and Transglobal Green Panama, SA v Republic of Panama, ICSID Case No ARB/13/
28, Award (2 June 2016) para 100 (emphasis added).
164 ibid para 103 (footnotes omitted).
165 ibid paras 100, 116.
166 Philip Morris Asia, Award (n 3) paras 397, 457.
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IV. ABUSE OF PROCESS IN INVESTMENT
ARBITRATION: FUTURE
This section discusses whether and how the principle of abuse of process should
be applied in investment arbitration in the future.
First, should the principle of abuse of process be applied in investment
arbitration? The answer is yes. As previously discussed in this article,167 the
principle constitutes a general principle of law and therefore applies to investment
arbitration conducted under an investment agreement, regardless of an express
agreement between the parties as to the applicable law. The right to investment
arbitration given to an investor by an investment agreement is inherently subject to
limitations under rules and principles of international law.
Second, how should the principle be applied in investment arbitration? More
specifically, should it be applied separately from the jurisdictional requirements
under investment agreements and arbitration rules, or as a part thereof? One
option is to include an explicit provision in an investment agreement that specifies
that an investor cannot acquire the right to investment arbitration by abusive
conduct. It is noteworthy in this regard that Article 8.18(3) of the Comprehensive
Economic and Trade Agreement between the European Union and Canada
(CETA) provides that ‘an investor may not submit a claim under [the section of
CETA on resolution of investment disputes between investors and States] if the
investment has been made through . . . conduct amounting to an abuse of
process.’ A similar provision could be inserted in future investment agreements.168
In the meantime, even in the absence of such an explicit provision, the principle of
abuse of process could be considered as constituting a part of the jurisdiction
requirements under investment agreements. In particular, considering that many
investment arbitration tribunals have interpreted the term ‘investment’ under
investment agreements as covering only the investment that is made in good
faith,169 a malicious, unreasonable or arbitrary attempt to acquire the right to
investment arbitration could not fall within the scope of investment that States
parties to an investment agreement intend to protect.170 In fact, if the notion that
only good faith investment can be protected by international investment
agreements is sufficiently shared among tribunals, and the good faith requirement
is consistently applied, there would be no need to apply the principle of abuse of
process separately from the jurisdictional requirements under investment
agreements.
167 See Sections II.A.(i) and III.A. of this article.
168 To some extent, investment that is made through an abusive conduct could also be excluded from the scope of
protection by a denial of benefits clause. For example, Article 10.12(2) of the Dominican Republic-Central America
Free Trade Agreement (CAFTA) provides that ‘a Party may deny the benefits of this Chapter [on investment] to an
investor of another Party that is an enterprise of such other Party and to investments of that investor if the enterprise
has no substantial business activities in the territory of any Party, other than the denying Party, and persons of a non-
Party, or of the denying Party, own or control the enterprise’ (emphasis added). Although this provision does not
explicitly mention an abuse, it could be said that an investor and its investment that fit the description of this
provision are not in good faith and that they are, therefore, not protected. For example, in Pac Rim, having rejected
the respondent’s objection to jurisdiction based on the abuse of process, the Tribunal found that the claimant
nevertheless could not receive any benefits under the CAFTA, in accordance with Article 10.12(2) of the CAFTA
because the claimant, a national of the United States, had ‘no substantial business activities’ in the United States, and
was owned by Canada, a non-CAFTA party. Pac Rim, Decision on Jurisdiction (n 153) paras 4.63–4.82, 4.92.
169 See Section III.C.(ii) of this article.
170 United Nations Conference on Trade and Development (UNCTAD), Investment Policy Framework for
Sustainable Development (2015) at 85, 94.
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Finally, what should be the criteria for determining whether the claimant’s
conduct amounts to an abuse? First of all, the approach for the determination
should be generally consistent with the approach used in other international
judicial and quasi-judicial bodies, given that investment agreements cannot and
should not ‘be read and interpreted in isolation from public international law.’171
In particular, the threshold for the application of the principle of abuse of process
should be as high as what is adopted in the jurisprudence of other international
courts and tribunals, including the ICJ.172 This has been confirmed by several
investment arbitral tribunals. For example, the Tribunal in Chevron pointed out
that ‘in all legal systems, the doctrine[] of abuse of rights [is] subject to a high
threshold’ and ‘[i]t is only in very exceptional circumstances that a holder of a
right can nevertheless not raise and enforce the resulting claim.’173 It added that
‘[t]he high threshold also results from the seriousness of a charge of bad faith
amounting to abuse of process.’174 The Tribunal in Rompetrol went further to state
that the respondent’s objection based on abuse of process was ‘evidently a
proposition of a very far-reaching character,’ and that ‘so far-reaching a
proposition needs to be backed by some positive authority in the Convention
itself, in its negotiating history, or in the case-law under it.’175 The Tribunal also
insisted that a determination of abuse requires a close analysis of special
circumstances of a particular case.176 Along the line of the above findings, the
Tribunal in Philip Morris Asia also recognized that ‘the threshold for finding an
abusive initiation of an investment claims is high.’177
That said, the same criteria in other international judicial and quasi-judicial
bodies cannot simply be transposed to investment arbitration, considering that the
principle of abuse of process is applied in a particular way in investment
arbitration. That is, on the one hand, the criteria for the determination of abuse in
other international judicial and quasi-judicial bodies concern how the right of an
applicant to these bodies is used on the premise that the applicant has such a right
and that, as a corollary, these bodies have jurisdiction over the applicant and its
claims. Moreover, the determination that the right is used in an abusive way would
prevent these bodies from exercising the jurisdiction. For example, the untimely
filing of an application that could constitute a basis of abuse of process in the ICJ
and the Human Rights Committee relates to how the applicant uses its right to the
procedures of the ICJ or the Human Rights Committee on the premise that
the applicant has such right. Similarly, the criteria used by the ECtHR, such as the
submission of misleading information, use of offensive language, and violation of
171 Phoenix Action, Award (n 88) paras 77–78.
172 See Tulip Real Estate and Development Netherlands BV v Republic of Turkey, ICSID Case No ARB/11/28, Decision
on Annulment (30 December 2015) paras 91–92. See also Ahmadou Sadio Diallo (Republic of Guinea v. Democratic
Republic of the Congo), Compensation, Judgment (19 June 2012) [2012] ICJ Rep 324, Declaration (Judge Greenwood)
para 8 (‘International law is not a series of fragmented specialist and self-contained bodies of law, each of which
functions in isolation from the others; it is a single, unified system of law and each international court can, and
should, draw on the jurisprudence of other international courts and tribunals, even though it is not bound necessarily
to come to the same conclusions.’).
173 Chevron Corporation & Texaco Petroleum Corporation v The Republic of Ecuador, UNCITRAL/PCA, Interim Award
(1 December 2008) para 143.
174 ibid.
175 The Rompetrol Group NV v Romania, ICSID Case No ARB/06/3, Decision on Jurisdiction and Admissibility (18
April 2008) para 115.
176 ibid.
177 Philip Morris Asia, Award (n 3) para 539.
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confidentiality, question the appropriateness of the use of the procedures by an
applicant after proceedings have been duly commenced.
On the other hand, while the criteria for the determination of abuse in
investment arbitration also concern how the right to investment arbitration is used,
it is not the right of a specific claimant investor but the right that is generally
provided in an investment agreement. In other words, the question of abuse in
investment arbitration involves whether a specific claimant investor abuses the
general right to investment arbitration under an investment agreement in an
attempt to acquire its own specific right to investment arbitration.178 The
determination of abuse would negate the existence of the investor’s right as well
as the jurisdiction of investment arbitration. Thus, most of the criteria used in
other judicial and quasi-judicial bodies that presuppose the existence of jurisdiction
cannot be transposed to investment arbitration.
Given that the criteria used by other international judicial and quasi-judicial
bodies cannot be transposed to investment arbitration, the practices of investment
arbitral tribunals would be the only source that could provide guidance for
determining whether an attempt to acquire the right to investment arbitration
constitutes an abuse. In this regard, while there is yet no settled case law in
investment arbitration, the Tribunal in Philip Morris Asia was right in pointing out
that some investment arbitral tribunals have applied ‘legal tests . . . revolving
around the concept of foreseeability.’179 However, the Tribunal disregarded the
fact that these tribunals took into account not only the foreseeability of a dispute
but also other factors such as the existence of the claimant’s substantial business
interests in the investment and the claimant’s conduct at the initiation of the
proceedings. In fact, considering that the concept of abuse entails maliciousness,
unreasonableness and arbitrariness, the determination of abuse requires a careful
examination of the circumstances of a particular dispute.
V. CONCLUSION
This article examined the principle of abuse of process under international law
and its application in the ICJ and other judicial and quasi-judicial bodies. It also
analyzed past investment arbitration decisions concerning the principle, and
pointed out that the principle is applied differently in investment arbitration
because the principle concerns a claimant investor’s use of the general right to
investment arbitration under an investment agreement in an attempt to acquire its
own right to investment arbitration, and therefore the application of the principle
negates the existence of jurisdiction of an investment arbitral tribunal rather than
prevents the exercise thereof. Accordingly, this article suggested that the principle
should be applied as a part of the jurisdictional requirements and that the
comprehensive circumstances of a dispute should be taken into account in the
determination of abuse.
Several State parties to investment agreements are concerned that the protection
under the agreements may be extended to investors and investments which they
did not intend to protect at the time of ratification. The principle of abuse of
178 See Section III.A. of this article.
179 Philip Morris Asia, Award (n 3) para 554. See Section III.C.(iv) of this article.
210 ICSID Review VOL. 33
Annex 96
process could be used to address such legitimate concern. However, without a
clear and shared understanding of the principle, it could end up increasing the
inconsistency that already exists in the interpretation and application of international
investment law.180 It is therefore essential to clarify the source of the
principle and the criteria for its application.
180 Lauterpacht (n 85) 162–64. See also Corfu Channel Case (UK v Albania), Judgment (9 April 1949) [1949] ICJ
Rep 4, Separate Opinion (Alejandro Alvarez) 48.
WINTER 2018 Abuse of Process under International Law and Investment Arbitration 211
Annex 96
Annex 97
AVTH(HTl(.ATI;:09
U ~ t.'lNfRNM[Nl
INfOll:MA.1 ION
C PO
NEGOTIATIONS WITH IRAN: BLOCKING OR
PAVING TEHRAN'S PATH TO NUCLEAR WEAPONS?
HEARING
BEFORE THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
MARCH 19, 2015
Serial No. 114--39
Printed for the use of the Committee on Foreign Affairs
Available via the World Wide Web: httpJ/www.foreignaffairs.house.gov/ or
http://www.gpo.gov/fdsys/
!l.422POF
U.S. GOVERNMF;NT J'UllLISJIING OFPII.$
WASHINGTON : 2016
For ,11ile by the Superintende.nt or Donimenta. US. Government Publ.ishinc Offitelnu.
me1 bookolor..gpo,gov Phone: I.OIi fr,.. ffH;6) Sl2--1800: DC •r-• 1202) 512-1800
Fu 12021 612-2104 Moil: Stop lDCC, Wo1hlngton, DC 20402-0001
Annex 97
COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE. California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
!LEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER. California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. MCCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE. Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA. Califomia WlLLIAM KEATING, Massachusetts
TOM MARINO. Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN. South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DESANTIS, 1'1orida TULSI GABBARD, Hawaii
MARK MEADOWS. North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, !llinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DEsJARLAJS. Tennessee
REID J. RIBBLE, Wisconsin
DA VlD A. TROTT, Michigan
LEE M. ZELDIN, New York
TOM EMMER, Minnesota
AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director
JASON SrEINBAL'M. Democraiic Staff Director
(I[)
Annex 97
CONTENTS
WITNESSES
The Honorable Antony J. Blinken, Deputy Secretary of State, U.S. Department
of State ....................................................................................................... .
Mr. Adam J. Szubin, Acting Under Secretary, Office of Terrorism and Financial
Intelligence, U.S. Department of the Treasury ......................................... .
LEITERS, STATEMENTS, ETC., SUBMIITED FOR THE HEARING
The Honorable Antony J. Blinken: Prepared statement ..................................... .
Mr. Adam J . Szubin: Prepared statement ............................................................ .
APPENDIX
Page
5
16
8
18
Hearing notice ................ ......................................................................................... 60
Hearing minutes ...................................................................................................... 61
'rhe Honorable Gerald E. Connolly, a Representative in Congress from the
Commonwealth of Virginia: Prepared statement .............................................. 63
Written responses from the Honorable Antony J . Blinken to questions submitted
for the record by:
The Honorable Edward R. Royce, a Representative in Congress from the
State of California, and chairman, Committee on Foreign Affairs .............. 64
The Honorablc neana Ros-Lehtinen, a Representative in Congress from
the State of Florida .......... ................................................................................ 67
The Honorable Christopher H. Smith, a Representative in Congress from
the State of New Jersey ................................................................................... 68
(III)
Annex 97
Annex 97
NEGOTIATIONS WITH IRAN: BLOCKING OR
PAVING TEHRAN'S PATH TO NUCLEAR
WEAPONS?
THURSDAY, MARCH 19, 2015
HOUSE OF REPRESENTATIVES,
COMMITTEE ON FOREIGN AFFAIRS,
Washington, DC.
The committee met, pursuant to notice, at 8:30 a.m., in room
2172 Rayburn House Office Building, Hon. Edward Royce (chairman
of the committee) presiding.
Chairman ROYCE. This hearing will come to order, and the committee
here today will continue to evaluate the administration's nuclear
diplomacy with Iran. That is the subject of the hearing today.
Negotiators face a high-stakes deadline next week. We will hear
the administration's case today. But it is critical that the administration
hears our bipartisan concerns here.
Deputy Secretary Blinken, this is your first appearance before
the committee, and I congratulate you on your posit ion. I wish you
well.
And after the hearing, I trust you will be in touch with Secretary
Kerry, Under Secretary Sherman and others that are involved in
the negotiating process to report on the committee's views and I
think this is very important.
This committee has been at the forefront of examining the threat
of a nuclear Iran. Much of the pressure that has been brought on
the Islamic Republic of Iran and that brought them to the table
was put in place by Congress, and it was put in place over the objections
of the executive branch.
Now, that is the executive branch whether it was Republican or
Democratic administrations, but it is the House of Representatives
that has driven this process, and we would have more pressure on
Iran today if the administration hadn't pressured the Senate to sit
on the Royce-Engel sanctions bill that this committee produced and
passed in 2013 and passed, by the way, unanimously-and passed
off the House floor 400 to 20.
So Congress is proud of this role and we want to see the administration
get a lasting and meaningful agreement. But, unfortunately,
the administration's negotiating strategy has been more
about managing proliferation than preventing it , and a case in
point that I bring up is Iran's uranium enrichment program-the
key technology needed in developing a nuclear bomb.
Reportedly, the administration would be agreeable to leaving
much of Iran's enrichment capability in place for a decade. If Con(
1)
Annex 97
2
gress will be asked to roll back its sanctions on Iran, which will
certainly fund Iran's terrorist activities when we roll back those
sanctions, then there must be a substantial rollback of Iran's nuclear
program.
And consider that international inspectors report that Iran has
still not revealed its past bomb work despite its commitment to
those inspectors to the IAEA to do that, and the IAEA is still concerned
about signs of Iran's military-related activities including designing
a nuclear payload for a missile.
Iran has not even begun to address these concerns and last fall
over 350 members wrote to the Secretary of State expressing deep
concerns about this lack of cooperation from Iran. How can we expect
Iran to uphold an agreement when they are not meeting their
current commitments?
Indeed, we were not surprised to see Iran continue to illicitly
procure nuclear technology during these negotiations or that
Tehran was caught testing a more advanced centrifuge that would
help produce bomb material quicker-a new grade of supersonic
centrifuge right in the middle of this process.
This was a violation of the spirit and, in my view, the letter of
the interim agreement. Iran's deception is all the more reason that
the administration should obtain zero notice anywhere anytime inspections
on Iran's declared and undeclared facilities.
You have to have a verification regime in this process that is
going to work for us. And t here is also the fact that limits placed
on Iran's nuclear program as part of the final agreement now being
negotiated are going to expire.
They will expire, and that means the final agreement is just another
interim step. What you call the "final" agreement is an interim
step with the real final step being Iran treated as any other
non-nuclear weapons state under the Nonproliferation Treaty, thus
licensing it to pursue industrial-scale enrichment.
With a deep history of deception, covert procurement, and clandestine
facilities, Iran is "not any other country." It is certainly not
any other country to be conceded in an industrial-scale nuclear program.
Any meaningful agreement must keep restrictions in place for
decades, as over 360 Members of Congress, including every member
of this committee, are demanding in a letter to the President this
week.
Meanwhile, Iran is intensifying its destructive role in the region.
The Islamic Republic of Iran is prof.ping up Assad in Syria while
its proxy, Hezbollah, threatens Israe .
Iranian-backed Shi'a militia are killing hopes of a unified, stable
Iraq and last month an Iranian-backed militia displaced the government
in Yemen, formerly a key counterterrorism partner to the
United States.
Many of our allies and partners see Iran pocketing an advantageous
nuclear agreement and ramping up its aggression in the
region as a result of the hard currency that they will have at their
disposal as the sanctions are lifted.
So this committee is prepared to evaluate any agreement to determine
if it is in the long-term national security interests of the
United States and our allies.
Annex 97
3
Indeed, as Secretary Kerry testified not long ago, any agreement
will have to pass muster with Congress. Those were his words. Yet,
that commitment has been muddied by the administration's insistence
in recent weeks that Congress will not play a role, and that
is not right.
Congress built the sanction structure that brought Iran to the
table, and if the President moves to dismantle it, we will have a
say.
So I now turn to the ranking member, Mr. Eliot Engel of New
York, for his opening remarks.
Mr. ENGEL. Thank you very much, Mr. Chairman. Thank you for
calling this very important and timely hearing.
Mr. Deputy Secretary, Mr. Under Secretary, welcome to our committee.
We are grateful for your service and we look forward to
your testimony and I want to congratulate both of you on your new
positions.
The chairman's remarks are very similar to mine. We have
worked very hard on this committee to have bipartisanship because
both the chairman and I agree that if there is one place where we
need bipartisanship more than any other place, it involves foreign
policy.
And so wherever possible we try to talk with one voice, and I
want to associate myself with the chairman's remarks. We have
seen a lot of speculative reporting in the press about might or
might not be included in the comprehensive nuclear deal with Iran.
Today, we are going to send over a letter to the President signed
by 360 Members of Congress in both parties, a majority of each
party, talking about some of the things that we are concerned with
and we would hope that we could get a prompt response from the
White House.
It is truly a very bipartisan letter expressing Congress' strong
feelings about things that need to be in the agreement. I want to
emphasize-re-emphasize what the chairman said. There really
cannot be any marginalization of Congress.
Congress really needs to play a very active and vital role in this
whole process and any attempts to sidestep Congress will be resisted
on both sides of the aisle. We have seen a lot of speculative
reporting in the press about what might or might not be included
in a comprehensive nuclear deal with Iran.
We don't technically even know right now if there is going to be
a deal, but if there is I think we would all be wise to review the
details before passing judgment on whether it is a good deal or bad
deal or simply a deal we can live with.
I think it is safe to assume that we are not going to see what
I would consider a perfect deal. I have said all along that Iran
should have been required to freeze enrichment during the negotiations
but they weren't and it is clear that a freeze is not on the
table for a comprehensive agreement.
At this stage, we need to focus on making the deal as good as
it can be. I am hoping that our witnesses can shed light on a few
key areas that, for me, could tip the scales between a bad deal and
a deal that we might be able to live with.
Annex 97
4
First, as part of any comprehensive agreement, we need total
clarity about where Iran stands in terms of its ability to weaponize
its nuclear material. How far along are they?
Secondly, will the deal give us sufficient time to respond if Iran
reneges and presses full throttle toward a nuclear weapon. Is a 1-
year break-out period the time until Iran has sufficient enriched
uranium to then build a bomb? Is that enough time to catch their
violation and react?
Next, how would a comprehensive agreement stop Iran from pursuing
a nuclear weapon covertly if they make a decision to sneak
out rather than break out? Iran's leaders don't deserve an ounce
of trust. We need very strong safeguards.
Lastly, how will we be certain that sanctions relief won't just
open the faucet for funding terrorism or fueling the regime's already
abysmal human rights record?
In my view, these questions lay out clear markers for what we
need to see. Here is the bottom line. If we say yes to a deal, will
it be worth unraveling the decades of sanctions and pressure that
the United States and our partners have built against Iran?
But if we say no, would we be able to hold the sanctions coalition
together, and if we maintain or even increase our sanctions,
wouldn't Iran just move full speed ahead toward a bomb?
I know these negotiations have gone on for months and months.
I know the P5+1 is under intense pressure to produce something.
But we cannot allow those factors to push us into a bad deal being
sold as a good deal.
The administration has argued that reaching a deal is the best
chance to solve a nuclear crisis diplomatically and avoid another
war in the Middle East, that dialing up sanctions at this stage
would undermine the talks.
And as I have repeatedly said, I am willing to see what is actually
in the deal before passing judgment and I strongly urge my
colleagues to do the same.
But make no mistake, Congress will play an important role in
the evaluation of a final deal. Again, I want to say that I will not
stand by and allow Congress to be marginalized.
Any permanent repeal of sanctions is by law Congress' discretion ,
and before we do that we must be completely convinced that this
deal blocks all of Iran's pathways to a nuclear bomb.
So I look forward to your testimony and hope we can have a
frank discussion of these issues and, again, Mr. Chairman, thank
you for calling this hearing today.
Chairman ROYCE. Thank you, Mr. Engel.
This morning we are pleased to be joined by senior representatives
from State and from Treasury. Mr. Tony Blink.en is the Deputy
Secretary of State. Previously, he served as the assistant to the
President and was principal deputy national security adviser.
Mr. Blinken also worked as the Democratic staff director for the
U.S. Senate Foreign Relations Committee, and just confirmed last
December, we welcome him for his first appearance before this
committee.
Mr. Adam Szubin is the Acting Under Secretary for the Office of
Terrorism and Financial Intelligence at the Department of the
Annex 97
5
Treasury. He previously served as the director of Treasury's Office
of Foreign Assets Control.
We welcome him back, and without objection, the witnesses' full
prepared statements will be made part of the record.
Members here will have 5 calendar days to submit any statements
to you or any questions and any extraneous material for the
record. We'll ask you to please summarize your remarks, and Mr.
Secretary, if you would begin.
STATEMENT OF THE HONORABLE ANTONY J. BLINKEN,
DEPUTY SECRETARY OF STATE, U.S. DEPARTMENT OF STATE
Mr. BLINKEN. Mr. Chairman, thank you very much. It is pleasure
to be here.
I want to thank you, Ranking Member Engel and the members
of this committee for having us here today and to give us this opportunity
to discuss our efforts to reach a comprehensive solution
to the challenge posed by Iran's nuclear program.
As we speak and as you mentioned, Secretary of State Kerry,
Secretary of Energy Moniz, Under Secretary of State Sherman are
in Switzerland with our P5+1 partners negotiating with the Government
of Iran over the future of its nuclear program.
Our goal for these negotiations is to verifiably ensure that Iran's
program is exclusively for peaceful purposes. To that end, we seek
to cut off the four pathways that Iran could take to obtain enough
fissile material for a nuclear weapon.
There are two uranium pathways through its activities at the
Natanz and Fordow enrichment facilities, a plutonium pathway
through Iran's heavy water reactor at Arak, and a potential covert
pathway.
To cut off all of these fathways, any comprehensive arrangement
must include exceptiona constraints on Iran's nuclear program and
extraordinary monitoring and intrusive and transparency measures
that maximize the international community's ability to detect any
attempt by Iran to break out overtly or covertly
As a practical matter, we are working to ensure that Iran, should
it renege on its commitments, would take at least 1 year to produce
enough fissile material for one nuclear weapon.
That would provide us with more than enough time to detect and
act on any Iranian transgression. In exchange, the international
community would provide Iran with phased, proportionate and reversible
sanctions relief tied to verifiable actions on its part. If Iran
were to violate its commitments, sanctions would be quickly reimposed.
It is Iran's responsibility to convince the world by building a
track record of verified compliance that its nuclear program is exclusively
peaceful. That is why we are seeking a time frame for a
comprehensive deal of sufficient length to firmly establish such a
track record . .
Only then would Iran be treated like any other non-nuclear
weapons state party to the nuclear Nonproliferation Treaty with all
the rights but also all the obligations of an NPT state, including
continued monitoring and inspections and a verifiably binding commitment
to not build a nuclear weapon.
Annex 97
6
The Bush administration first proposed this concept for Iran.
Dozens of countries around the world responsibly adhere to the
NPT. Much has been said recently about the fact that a deal with
Iran would have an eventual end date.
In fact, some constraints would be removed after a significant period
of time, others would remain in effect even longer and some
would last indefinitely, including a stringent and intrusive monitoring
and inspections regime.
Iran would have to fully implement the IAEA safeguards agreement
and the additional protocol. Together, these give inspectors
access to all declared nuclear facilities and to any suspected
undeclared facilities.
So even after some core constraints are completed, far more intrusive
inspections will be required of Iran than before this agreement.
Some have argued that Iran would be free to develop a nuclear
weapon at the conclusion of the comprehensive joint plan of action
if we achieve it. That is simply not true.
To the contrary, Iran would be prohibited from developing a nuclear
weapon in perpetuity and we would have a much greater ability
to detect any effort by Iran to do so. Iran would be allowed to
have a peaceful civilian nuclear program, continuously verified by
the IAEA.
Our goal is to reach an agreement on the major elements of the
deal by the end of this month and to complete the technical details
by the end of June. There has been a lot of reporting in the press
about where we are. This is what I can tell you as of today.
In Switzerland, the negotiations have been substantive and intense.
We have made some progress on some of the core issues. Significant
gaps remain on some of the other issues between what we
and our partners in the P5+1 believe ·must be part of the comprehensive
deal and what Iran is willing to do.
While the negotiations are taking place, it is vital, in our judgment,
that we avoid any actions that would lead the world to believe
that the United States was responsible for their failure.
Such actions include enacting new sanctions legislation now.
New sanctions-at this time, including through ·so-called trigger legislation,
are unnecessary. Iran knows very well that if it refuses a
reasonable agreement or reneges on its commitments, new sanctions
can and will be passed in a matter of days.
New sanctions now would be inconsistent with our commitments
under the interim agreement. They would undermine our sanctions
coalition. They would give Iran an excuse to walk away from the
talks or take a hard line that makes an agreement impossible to
achieve while blaming the failure on us.
In our judgment, we also must avoid actions that call into question
the President's authority to make commitments that the
United States will keep. Negotiating with a foreign nation is the
President's responsibility.
If there is confusion on this basic point, no foreign government
will trust that when a President purports to speak for our country,
he actually does.
In this case, such confusion could embolden hardliners in Iran,
divide us from our allies, poison the prospects for a deal and make
Annex 97
7
it much more difficult to sustain international support for the existing
sanctions, never mind new ones, if negotiations collapse.
That international support is critical to the success of the sanctions
regime that Congress took such an important role in building.
Up until now, we have kept other countries onboard despite the
hardship it has caused some of them, in large part because they
are convinced we are serious about reaching a diplomatic solution.
If they lose that conviction, the United States, not Iran, could be
isolated and the sanctions regime could collapse.
Congress has played and will continue to play a central leading
role in these efforts. Congressional legislation gave us the tools to
get Iran to the negotiating table and, as has been noted, only Congress
has the authority to lift sanctions as part of any comprehensive
solution.
Since signing the interim deal, we have been on the Hill dozens
of times to update on the progress of the talks-in all, more than
200 briefings, meetings, hearings and phone calls.
If we reach an agreement we will welcome intense robust scrutiny.
We also will expect that any critics explain not only why the
deal is lacking but also what would be a better alternative and how
it could be achieved.
Our nuclear discussions with Iran do not alter our commitment
to the security of our allies in the region who are deeply affected
by Iran's efforts to spread instability and support terrorism. That
commitment will not change with or without a deal.
We will retain the necessary tools and the determination to continue
countering Iran's troubling behavior. Indeed, the most important
thing we can do to keep Iran from feeling further emboldened
is to deny them a nuclear weapon and we will continue to support
those in Iran demanding greater respect for the universal human
rights and rule of law that they deserve and we will continue to
insist that Iran release Saeed Abedini, Amir Hekmati and Jason
Rezaian and help us find Robert Levinson.
Thank you very much.
[The prepared statement of Mr. Blinken follows:)
Annex 97
8
WRTTTEN STATEMENT
ANTONY BLINKEN
DEPUTY SECRETARY OF STATE
U.S. DEPARTMENT OF STATE
HOUSE FOREIGN AFFAIRS COMMITTEE
"Update on Iran Negotiations·•
March 19,2015
Good morning, Chairman Royce, Ranking Member Engel, distinguished members
of the Committee. Thank you for inviting me here today to discuss our efforts to
reach a comprehensive solution to the challenge posed by Iran's nuclear program.
Today, as we speak, Secretary of Slate John Kerry, Secretary of Energy Ernest
Moniz, and Under Secretary of State Wendy Sherman are in Switzerland with our
PS+ I partners negotiating with the government of Iran over the future of ils nuclear
program. Our goal for these negotiations is one I know you share, which is to
verifiably ensure Iran does not acquire a nuclear weapon. This is about making the
United States safer, making our allies across the Middle East safer, and making the
world safer.
Since these negotiations arc on-going, it is inappropriate to share the details in this
forum. But what r do hope to do today is share some of the cure principles guiding
our efforts to reach a long-term comprehensive joint plan of action that verifiably
ensures that Iran's nuclear program is for peaceful purposes. I will also share our
broader view of Iran, beyond the confines of its nuclear program. and why ii is
important that we reach a deal that prevents Iran from obtaining a nuclear weapon.
Cuttioi Off Pathways to a Bomb
We continue to believe that the best way to ensure that, as a practical matter, Iran
cannot obtain a nuclear weapon is to effectively cut off the four pathways Iran
could take to obtain enough fissile material for a nuclear weapon. These are the
two uranium pathways, through its activities at the Nataoz and Fordow enrichment
facilities; a plutonium pathway, through Tran's heavy water reactor at Arak; and a
potential covert pathway.
To cut off all of these pathways, any comprehensive arrangement must include
tight constraints on Iran's nuclear program and extraordinary monitoring and
intrusive transparency measures that maximize the international community's
Annex 97
9
2
ability to detect any attempt by Tran to break out, overtly or covertly. As a practical
matter, our goal is to en~'Ure that, should Iran renege on its commihnents, it would
take at least one year to produce enough fissile material for one nuclear weapon.
That would provide us more than enough time to detect and act on any Iranian ·
transgression.
Tn exchange, the international community would provide Iran with phased
sanctions relief tied to verifiable actions on its part. Such relief would be
strll(,1ured so that it can be easily reversed, and sanctions can be quickly reimposed,
iflran were to violate its commitments.
There is a deep deficit of trust between the international community and Iran. It is
Iran's responsibility to establish- by building a track record of verified compliance
- tbal its nuclear program is exclusively peaceful. That is why we are seeking a
timeframe for a comprehensive deal of sufficient length to firmly establish such a
track record. Only then would Iran be treated like any other non-nuclear-weapon
State Party to the Nuclear Non-Proliferation-Treaty (NPT), with all the rights and
obligations of an NPT state, including continued monitoring and inspections, and a
verifiably binding commitment to not build a nuclear weapon. This is not a novel
concept, in fact it was first proposed during the Bush Administration for lran, and
dozens of countries around the world responsibly adhere to the NPT.
Much has been said recently about the faL1 lhat a deal with Iran would have an
eventual end date. On the contrary, we see the deal as creating a series of phases to
ensure that Iran's program is exclusively peaceful going forward. While some
constraints would be removed after a significant period of time. others would
remain in effect longer, and some would last indefinitely. For example, Iran's NPT
obligation not to develop or acquire a nuclear weapon would continue indefinitely,
as would its obligation to implement its Comprehensive Safeguards Agreement
with the International Atomic Ener1,,y Agency (IAEA). MoreovCI', a et:nterpiece of
the proposed deal is that Iran would accept the Additional Protocol, which is not
currently in place, as legally binding, and which would allow the IAEA to continue
to have more stringent and intrnsive access to nuclear-related information and
locations indefinitely. The same is true regarding Iran's implementation of
Modified Code 3.1. which imposes an ongoing obligation to provide early
notification of design information for any new nuclear facilities.
This means that loog after the nuclear constraints in the deal have been fully
implemented, the international community would be in a better position to detect
any Iranian steps toward a nuclear weapon or other failure to meet its obligations.
Annex 97
10
3
Jn fact, with over a decade of additional knowledge from the inspections regime,
we wo11ld be in an even better place to respond to such actions.
Some have argued that Iran would be free to develop a nuclear weapon at the
conclusion of a comprehensive joint plan of action. That is simply not true. To the
contrary, [ran would be prohibited from developing a nuclear weapon in perpetuity
- and we would have a much greater ability to detect any effort by Iran to do so
and to lake appropriate measures in response, with the support of the international
community. lr,m would be allowed to have a peaceful, civilian nuclear program
continuously verified by the IAE/\.
We aim to have a political understanding of the major elements of the deal by the
end of the month and to complete the technical details by the end of June. Jn
Switzerland, I understand the negotialioos have been substantive and intense, and
that we have made progress on some issues. However, there continue to be gaps
between what we and 011r partners in the P5+ I believe must be part of a
comprehensive solution and what Iran is willing to do.
As we have said from the beginning, nothing is ab,reed to until everything is 3b'Teed
to, and it may be we will not know if a deal is possible until the last minute. Sol
cannot tell you where we will be a week from now, or by the end of the month.
But what I can promise you, and what President Obama l1as pledged, is that we
will not agree to a bad deal. What does that mean? As T noted earlier, an
acceptable deal must effectively close down all four pathways Iran collld take to
obtain enough fissile material for a nuclear weapon. It must include strict curbs on
its nuclear program and robust transparency and monitoring measures that give the
international community confidence in the peaceful nat11re of Iran's nuclear
program and the ability to promptly detect overt and covert breakout. It must
include all the elements already spelled out in the Joint Plan of Action (JPOA).
And, fundamentally, it must make: the: United States, 011r allies and partners in the
Middle East, and the world safer.
Progress so Far
It is important to understand what these negotiations have already accomplished in
.tenns of our collective security. Before the JPOA was concluded in November
2013, Iran's nuclear program was rushing toward larger enriched uranium
stockpiles, greater enrichment capacity, the production of plutonium that could be
used in a nuclear weapon, and ever shorter breakout time. Today, as the result of
the c-0nstraints in the JPOA, Iran has halted progress on its nuclear program and
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4
rolled it back in key areas for the first time in a decade. The JPOA has also given
us b'Teatet" insight and visibility into Iran's existing nuclear prOb'Tlllll through more
intrusive and frequent inspections. Both we and our allies are safer today than a
year ago as a result of the JPOA.
Before the JPOA, Iran had about 200 kilograms of 20 percent enriched uranium in
a form that could be quickly further enriched to weapons-grade level. It produced
much of that material at the Fordow facility, buried deep underground. Today, Iran
has no such 20 percent enriched urdnium. It has diluted half and converted the
other half to a fonn that cannot be so readily funher enriched, suspended all
uranium enrichment above 5 percent, and removed the connections at Fordow that
allowed them to efficiently produce 20 percent enriched uranium.
Before the JPOA, Iran was making progress on the Aralc reactor, which, had it
become operational, together with a reprocessing facility, would have provided
Iran with a potential plutonium path to a nuclear weapon. Today, the Arak reactor
is frozen in place:
Before the JPOA, Tran had installed roughly 19,000 centrifuges, of which roughly
I 0,000 were enriching uranium, most at the Natanz facility. Today, Iran's
enrichment capacity is frozen at those levels and Iran's stockpile of 3.5 percent low
enriched w-anium in hexafluoride form is capped at its pre-JPOA level.
Before the JPOA, inspectors had less frequent access to Iran's nuclear facilities.
Today, the JPOA has enabled IAEA inspectors to have daily access to Iran's
enrichment facilities and a deeper understanding of Jran 's nuclear program. They
have been able to learn things about Iran's centrifuge production, uranium mines,
and other facilities that are important to monitoring Iran's program going forward
and to detecting any attempts to break out. And the lAEA has consistently reported
that Iran has lived up to its commitments under the JPOA.
Just as we have asked Iran to uphold its commitments under the JPOA, we have
lived up to our commitment of providing Iran with limited financial relief - which
should be worth about $14 to $15 billion from the start of the JPOA through June
2015. But that relief is dwarfed by the vast amounts denied to Tran under the
existing sanctions regime. For example, in 2014 alone, oil sanctions deprived Iran
of over $40 billion in oil revenue-more than four times the estimated value of the
JPOA during the same period. And what oil revenues Iran is allowed to generate
go into heavily restricted accounts that now encumber the great majority of Iran's
more than S100 billion dollars worth of foreign reserves. Virtually the entire
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5
sanctions architecture remains in place. Indeed, throughout the existence of the
JPOA, we have maintained the robust economic pressure on lr.t.n. And that doesn't
even take into consideration the dramatic fall in oil prices, which has no doubt
added to pressure generated by our vigorous enforcement of existing sanctions.
The JPOA was not intended to be a permanent solution. That is why we continue
to strive toward a long-term comprehensive plan of action, and why it is so
important that all of us give these negotiations every chance to succeed. If the
negotiations fail, it is critical that our allies and partners understand - that the
world understands it was because the Iranian government was unable to take the
steps necessary to assure the international community of the peaceful nature of its
nuclear program. That will place us in a bener position to sustain the existing
sanctions, intensify the pressure on Tran and take whatever other actions are needed
to prevent Iran from acquiring a nuclear weapon.
While the negotiaJions are taking place, it is vital that we prevent any actions that
would lead the world to believe the United States was responsible for their failure.
Such actions include enacting new sanctions or other measures that will be
incredibly damaging to ongoing negotiations. We do not believe that the country's
interests are served by Congressional attempts to weigh in prematurely on this
sensitive and consequential ongoing international negotiation aimed at achieving a
goal that we all share: using diplomacy to prevent Iran from developing a nuclear
weapon. Moreover, new sanctions at this time - including through so~alled
"trigger" legislation - are unnecessary. Iran knows that if it refuses a reasonable
deal or reneges on its commitments, new sanctions can and will be passed within
days. And new sanctions now would be inconsistent with our commitments under
the JPOA, they could undermine our sanctions coalition, create tensions withiD a
currently unified PS+ l, and provoke Iran into walking away from the negotiating
table or taking an impossibly hard line that makes a deal impossible to achieve,
while:: blaming the failure on us.
Unfortunately, the alternative to a deal is not the status quo. Should the talks fail,
which remains a distinct possibility, we assess that Iran could well start advancing
its nuclear program again to pre-JPOA levels or beyond. Instead ofkc:eping its
uranium enrichment at under 5 percent. as it has since the JPOA went into effect,
Iran could start enriching again at 20 percent or even beyond, as some Iranian
parliamentarians have suggested. Instead of capping its stockpile of 3.5 percent
low enriched uranium hexafluoride at pre-JPOA levels, Iran could grow it rapidly.
Instead of suspending substantive work on the Arak heavy water reactor, Iran could
restart its efforts to bring this reactor on line. Instead of providing unprecedented
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6
access to international inspectors at its nuclear facilities, it could refuse the TAEA
access, inhibiting our ability to detect a breakout attempt. Instead of limiting work
on advanced centrifuges, it could resume its efforts to increase and significantly
improve its enrichment capability in a relatively short timeframe.
And finally, if our international partners believe that the United States has acted
prematurely by adding new sanctions now in the absence of a provocation by Tran
- as most countries surely would - their willingness to enforce the existing
sanctions regime or to add to it in the event negotiations fail will wane. And a
fractured international consensus notwithstand.ing, even if we were to layer
additional sanctions on I.ran, their nuclear advances would far outpace any
potential marginal pressure created by those sanctions. This is why the support of
the international community remains crucial, and why new sanctions now are a
dangerously imprudent step. Without full international compliance, the sanctions
regime will be dramatically diluted. Up until now, we have kept other countries on
board - despite the hardship it has caused 10 some of their economic interests - in
large part because they are convinced "'e are serious about reaching a diplomatic
solution. If they lose that conviction, the United States, not Iran, could be isolated,
and the sanctions rebrime could collapse. Ultimately, the United States and its
allies in the Middle East would be less safe.
In short, a collapse in negotiations caused by us, or perceived to be caused by us
rather than by the Iranians, would lead to a growing Iranian nuclear program and a
collapsing international sanctions regime. Now is not the time to provoke such a
collapse.
Congress has a significant role to play in these discussions and bas been playing it
for years. It is existing congressional legislation that helped us get Iran to the
negotiating table. The whole point of sanctions was to create this dynamic, and it
has worked, but it has only worked when coupled with the type of robust
diplomacy that is currently underway. Since sib'Tling the JPOA, we have been on
the Hill dozens of times over the past year to update you and your staff about the
progress of the talks - in all, more than 200 briefings, hearings, meetings and
phone calls. And if a deal is finaliz.ed, Congress will certainly have a robust role to
play in potentially taking action on future statutory sanctions relief once Tran has
demonstrated a track record of living up to its commitments.
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7
Beyond the Nuclear Pro~am
Over the last months, we have heard many voices express their concerns about
negotiating with a government that still rallies around the slogan, "Death to
America!" We share your concerns. Iran bas taken advantage of the current
upheaval and uncertainty in the Middle East to attempt to advance its interests.
Iran continues to support the brutal regime ofBashar al-Asad in Syria and
undermine Middle East peace by sponsoring terrorist groups like Hizballah. II
continues to foment sectarian tensions in Iraq, and general instability in the region.
Our nuclear discussions with Iran do not alter our commitment to the security of
our allies in the region, who are deeply affected by Iran's efforts to spread
instability. fndeed the nuclear discussions are in furtherance of this goal because a
nuclear-armed lran could be more aggressive in projecting its power throughout
the region. And ifwe are able to reach a comprehensive deal over the nuclear
program, we will retain the necessary tools - and detennination - to coolioue
countering Iran's troubling behavior and defend U.S. interests. We are making this
point reb'lllarly to our key allies, including Israel and the Gulf states. Already, we
are working in close and continuing contact with our regional partners to expand
and strengthen their own capacity as we simultaneously reinforce the robust
regional security architecture we have already built - one tbat is comprised of a
substantial force posture and broad range of advanced military capabilities. We
will continue to restrict Iran's ability to move money and material for illicit
purposes through sanctions and direct action when necessary. And we will
continue to take steps, in coordination with partners, to address Iran's support for
terrorist organizations and other destabilizing activities in the region.
We will also continue to raise our voice in support of the talented and brave Iranian
people, and support their desire for greater respect for universal human rights and
the rule of law. Whether at the United Nations, the State Department, or at the
White House, we continue to speak up clearly and consistently against human
rigbts violations in Iran and have called on lhe Iranian government to guarantee the
rights and freedoms of its citizens.
J also want to emphasize that we continue to insist that Iran release Saeed Abedini,
Amir Hekmati, and Jason Rezaian from detention so they can come home to their
families. Likewise, we continue to call on Iran to woric cooperatively with us so
that we can find Robert Levinson and bring him home. Secretary Kerry and Under
Secretary Sherman have raised our concerns about these U.S. citizens directly with
Iran and will continue to do so until all of them are back home.
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g
In sum, we will not relax our efforts to hold Iran accountable for its nefarious
actions, regardless of the outcome of nuclear negotiations. But it is essential to
understand that the most im.portanl thing we can do to keep Iran from feeling
further emboldened to spread instability is to deny them the ability to obtain a
nuclear weapon. That is why the nuclear negotiations are so importanl, and why
this is a challenge that must be dealt with now.
Thank you.
###
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Chairman ROYCE. Mr. Szubin.
STATEMENT OF MR. ADAM J. SZUBIN, ACTING UNDER SECRETARY,
OFFICE OF TERRORISM AND FINANCIAL INTELLIGENCE,
U.S. DEPARTMENT OF THE TREASURY
Mr. SzUBIN. Thank you and good morning, Chairman Royce,
Ranking Member Engel, distinguished members of the committee.
It is a pleasure to be here today and thank you for the invitation.
This is my first appearance, as you noted, before a congressional
committee in my new role as Acting Under Secretary for TFI at the
Treasury Department.
In my time at Treasury, including 9 years leading the Office of
Foreign Assets Control, or OFAC, I have devoted the majority of
my working hours to building, honing and implementing sanctions
on Iran-both executive sanctions and the strong congressional bipartisan
sanctions that you all have enacted. So I am particularly
appreciative of being able to testify here today on this vital issue.
The global architecture of our sanctions on Iran is unprecedented
both in terms of its strength and the international foundations that
underpin it. Working together with our partners around the world
and with Congress, we have assembled a coalition that has fundamentally
altered Iran's economic posture.
As a result, we today have a chance of resolving one of the
world's most vexing and persistent security threats. At this critical
juncture in the talks, it is important to note that Iran remains
under massive strain and has no viable route to an economic recovery
without negotiated relief from international sanctions.
This strain is visible across every sector in Iran's economy. First,
their financial lifeline-oil. In 2012, Iran was exporting about 2.5
billion-I am sorry, 2.5 million barrels per day of oil to some 20 jurisdictions.
Today, Iran is exporting 60 percent less oil than just 3 years ago
to just six jurisdictions. The losses, of course, have been compounded
by the steep drop in global oil prices such that Iran's chief
revenue source is today bringing in less than one quarter of what
it brought in for Iran just 3 years ago.
Just as troubling for Iran is the fact that it can't freely access
those revenues. It has a reduced stream of revenues that, thanks
to Congress, are going into restricted accounts, either frozen or tied
up in banks around the world.
Foreign investment in Iran has dropped precipitously. From 2004
to 2013, as foreign capital was pouring into developing countries,
Iran saw an 80-percent drop in foreign investment.
Iran's oil minister recently estimated that Iran's oil, gas and
petro-chem sectors will need approximately $170 billion to recover.
The Iranian rial has depreciated 52 percent since 2012 and has lost
12 percent of its value just under the JPOA period alone as we
have been negotiating.
The IMF for this coming year projects that Iran's economy wiU
enter stagnation, with GDP growth falling to .6 percent. This is the
lowest projected rate of any country the IMF looks at in the Middle
East and North Africa region, including countries like Afghanistan
that sell no oil.
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Finally, Iran's banking sector remains isolated and holds a high
proportion of nonperforming loans. As you can hear, their economy
is under strain, but this sanctions pressure cannot be sustained
without work.
Accordingly, over the JPOA period we have worked very intensively
to enforce our sanctions. In the past 15 months, we have targeted
nearly 100 actors, individuals and companies who were either
helping Iran evade sanctions or helping Iran conduct other
misconduct.
We have imposed nearly $½ billion in penalties on companies
that were conducting illicit transactions under our Iran sanctions
and we will not soften our enforcement of existing sanctions.
Now, as we speak, negotiators are hard at work trying to secure
a joint comprehensive plan of action. Regardless of whether or not
these negotiations succeed, I want to assure this committee that
the Treasury Department and the administration as a whole are
prepared for whatever comes next.
If we are able to secure a comprehensive understanding, we will
structure nuclear-related sanctions relief in a way that is phased,
proportionate and reversible. We will need to see verified steps on
Iran's part before sanctions are lifted and we believe that powerful
U.S. legislative sanctions should not be terminated for years to
come so that we continue to retain important leverage years into
a deal.
Alternatively, if we determine that a comprehensive deal with
Iran cannot be obtained, the administration, working with Congress,
is prepared to ratchet up the pressure. Over the past decade,
we have developed very subtle insights into Iran's financial flows,
its economic stress points and how it attempts to work around
sanctions.
We stand ready to raise the costs on Iran substantially should
it make clear that it is unwilling to address the international community's
concerns. Of course, while we must prepare for every contingency,
we remain hopeful that we can achieve a peaceful resolution
to this serious and long-standing threat.
Thank you again for inviting me to appear here today and I look
forward to taking your questions.
[The prepared statement of Mr. Szubin follows:J
Annex 97
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Written Testimony or Adam J. Siabin
Acting Uader Secretary for Terrorism and Financial Intelligence
Uoittd States Department or the Treuury
U nitcd States Bouse or Rtprtseatatives
Committee on Foreign AfTain
Rtariag: "Negotiations with Iraa:
Blocking or Paving Tehran's Path to Nuclear Weapons?"
March 19, 2015
Good morning. Chairman Royce. Ranking Member Engel, and distinguished members of the
committee: Thanlc you for inviting me to appear before you today to discuss the negotiations
over lran's nuclear program. I am pleased to be here wilh my colleague from the State
Depanmenl, Depuly Secretary Tony Blinken. l will focus my testimony on our sanc1ions poslure
with respect 10 Iran - the massive and mounting cos1s or pressure on Iran's ec.onomy today, our
actiom under the Joint Plan of Action 10 provide Iran with limited pockets of relief while
maintaining the overall sanctions architecture, and. finally, how we are positioned to move
forward in the sanctions lane if the negotiations either succeed or break down.
This is my first appearance before a Congressional committee in my new role as Acting Under
Secretary of the Treasury, and J greatly app=iate your giving me lhe opponunity to 1estify here.
The challenges posed by Iran constiw1e a core threat lo our na1ional security, and 1hey have
occupied the majority of my time for the last decade.
I can say honestly that T did not expect that to be the case when I joined the Treasury Depanment
in 2004. At the time. Congress had just created TFI - a re-organization and refocusing of
Treasury components - as part of the government-wide response to the terrible attacks of
September I 1"'. Thar history is still embedded in our office's name, the "Office of Terrorism and
financial Intelligence." Stuart Levey was recruited from the Justice Department to be the first
t::nder Secretary for TFI, and he asked me to join him when he moved over Our mandate at the
time was to track and disrupt the flows of funds to terrorist organizations, and we set our sil!hts
on the most dangerous groups, including al-Qa'ida. Lashkar-e Tayyiba, Rizballah. and Hamas.
Working alongside the tremendously tale111ed countenerrorism professionals at Treasury and
beyond, we pursued strategies at the micro and macro levels, both targeting individual financiers,
donors, and conduits, as well as undenalcing broader efforts to S1reng1hen the resilience of
financial systems worldwide and bring transparency to hawalas, charilics, end exchange houses
that had long funclioned wi1hou1 meaningful oversight. That work continues 10 this day, of
course, even as 1he threats evolve, and we are turning our hard-won experience to the significant
challenge of ISTL, a terror group thal is as barbaric as ii is well-funded.
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This work was what brought me to the Treasury Dcpanment, and it is what I expcct.ed would
ocrupy m<l!lt of my time at TFI. 1n 2006, though, TFI was asked to develop a strategy to
dramatically intensify the pressure on lran's government, in an attempt to counter a range of
destabilizing Iranian bebavior. most notably its failure to address the internatiooal commuoity's
concerns regarding its nuclear program. The challenge was daunting. The United States already
had a broad trade and economic embargo against Iran. and the conventional wi$dom al the time
was lhat the United States was " sanctioned out/ with little leverage left to exert on Iran. Under
the strong leadership of Stuart Levey and then David Cohen, TFI proved otherwise. Indeed, the
women and men of UI devised and earned uut a slllltegy that fundamentally altered lran's
economic standing in the world. A critical part of this strategy was worlcing closely with foreign
partners, particularly our European allies. In my time al Treasury, including my nine years
leading the Office of Foreign Assets Control (OFAC). I have devoted most of my working hours
to this effort.
By no means was Treasury alone in this campaign. From the beginning. our sanctions strategy
relied upon the inUepid efforts of the U.S. intelligence community and its partners, since targeted
sanctions cannot work without intelligence to guide them. The U.S. Mission to the Un.ited
'Kations successfully negotiated four U.N. Security Council resolutions that sharpened the global
understanding of the threat posed by the Iranian nuclear program and set forth what nations
across the world were expected to do in countering that threat. The State Department. here in
Washington and at its embassies throughout the world, worked hand-in-glove with Treasury in
helping our foreign partners enforce those resolutions and guard against evasion A slew of
enforcement and regulatory agencies, including the Justice Department the Commerce
Dcpartrnenl, the Office of the Comptroller of the Cu!TCll.cy, and the Fed, joined Of AC in
pursuing a tough sanctions enforcement policy, deteniDl! would-be evaden and leavinl! no doubt
about our seriousness. And, perhaps most important. beginning in 2010. Congress brought the
considerable power of the U.S. Legislature 10 this effort, broadening and deepening the impaCI of
our sanctions, and pioneering new ways to incentiviz.e foreign actors to distance themselves from
problematic Tranian banks and firms.
The results were stanling. Iran was subjected to mounting pressure that was notable as much for
its intensity as f(JI' its in1emational cohesion. and it imposed strains on Iran's economy that were
visible from without and within. I will provide a closer look at the impacts of these sanctions
and Iran's current economic prospects below. Hut there can be no doubt that this global,
sustained campaign helped bring Iran to the negotiating table. As a result, today we at least have
a chance of achieving a diplomatic resolution to one of the world's most ve,ing and persistent
security threats.
2
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Saacrioas Impact lo Date: Iran's Economy in 2015
As we enter a critical period in the PS-I negotiations, I would like to provide a quick assessment
of the current state of Iran's economy.
Iran's oil revenues are the starting point for any assessment, and the key factor in determining
the health of the country's balance sheets and its overall economy. At the beginning of 2012,
Iran was exporting roughly 2.5 million barrels of crude oil a day to some twenty jurisdictions.
Today, Iran iscxporting about 1.1 million barrels a day lo only six customers. Because of this
nearly 60 percent decline in Iran's oil C)(pons. Iran lost more than $40 billion last year alone.
(This sum is more than four times the total estimated value to Iran of the JPOA sanctions relief
that year.) All in all, ~ 2012. our oil sanctions have denied Iran more than $200 billion in
lost exports.
These massive losses have been compounded by the steep drop in global oil prices. Over the
pliSI year, the average price of II barrel of oil has fallen to about $60 per bmel today. A.s a result,
lran • s chief export and revenue source is earning less than a quarter of what it was earning at its
peak just three years ago.
As one might e>tpect for an economy so dependent on oil revenues, Iran is struggling to sustain
its fiscal standing. For Iran's upcoming fiscal year (March 2015 to March 2016), President
Rouhani proposed a budget that assumed oil would sell for S72 per barrel and - at that
aspirational level - his plan called for raising taxes, canceling subsidies. reducing contributions
to Iran's sovereign wealth fw1d, and scrapping inveslmcnl proje1:t.s. If oil continues lo sell below
S72 per barrel, those cuts will need to be deepened.
Just as troubling for Iran is the fact that the reducecl revenues that it does earn arc not freely
accessible. Spurred by a poweTful act of Congress and our cooperation with foreign
govcmments, banks acro,s the world arc holding Iran's foreign reserves under corutraint.s,
allowing releases only for limited purposes, with an eye toward promoting the success of the
current negotiations.
Without ieady access tu its hard currency reserves. lran has been limited in its ability to stabilize
the rial. Under pressure from a number of directions, the rial has depreciated by about 52
percent since January 2012, including a fall of about 12 percent since the announcement of the
JPOA in November 2013. This has made imported goods more expensive, caused upward
pressure on inOation, and hurt the Iranian economy by causing significant uncertainty about
future prices.
Beyond its energy sector, Iran remains subject to sanctions targeting its petrochemical,
insurance, shipping, and shipbuilding sectors. as well as its ports and its trade in cenain crucial
metals and industrial materials. Nearly every source of foreign revenue for Iran is being
squeeud.
3
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21
And Iran's banking system is in peril, isolated from the international financial system, overextended,
and holdill!I a hi!!h proportion of non-performing loans.
The bottom line is that. despite a recent uptlck in lran's GDP, Iran's economy remains under
massive strain, and has no viable route to a broader recovery without relief from international
sanctions.
Sanctions in the JPOA Period
The JPOA, reached by the PS+I and Iran in November 2013, halted progress on Iran's nuclear
program, rolled it back in key respects. and provided for enhanced ae<:ess to and inspections of
its nuclear facilities. As a result, it allowed the United States and our partoe11 to pwsuc
negotiations with the confidence that Iran was not simply buying time to advance its program
under diplomatic co,·cr.
In exchange for taking these verifiable sleps, Iran received limited, targeted, and reversible relief
from some defined sanctions. Out the JPOA left in place the broader architecture of our nuclear
sanctions - measures that have so effectively pressured Iran's banking, oil. trade, and
transportation sectors. And. of course, the nuclear steps that Iran took under the JPOA did not
alter the U.S. sanctioos targeting Iran's support for terrorism or commission of human ri!!hts
violations.
Going into the JPOA period, we knew that these negotiations would be intensely challenging and
would require Jran to make difficult choices that it might not ultimately be prepared to make.
For this reason we knew we needed to retain the getieral architecture of the sanctions throughout
the JPOA period, and needed to actively combat Iranian attempts to evade the sanctions. Had the
pressure eroded due to sanctions relaurion or unchecked attempts at evasion, Iran's incentive to
make those difficult choices would likewise have diminished. And so, since the start of the
JPOA period. the United States has taken action agllins1 nearly 100 Iran-related individuals and
entities, combating sanctions evasion and other Iranian misconduct.
Our sanctions are not just words on the books- we vigorously enforce them And that
enforcement bas been as tough as ever over the coorsc of the JPOA. demonstrating plainly to the
world that Iran is not open for business. During the JPOA period, we have imposed more than
S4S0 million in penalties on violators of the Iran sanctions. We are also thankful to our foreign
partners who continue to enforce the sanctions in place, as international unity remains key to a
successful outcome in the negotiations.
We will not relet1t in I~ efforts, and we will continue to take action against anyone, anywhere,
who viol ales or attempts 10 violate our sanctioos. Iran's leaders lcnow this, Md accordingly
4
,'.
i
> I
Annex 97
22
know that their only hope for meaningful sanctions relief is 10 reach a comprehensive plan of
action that addresses the international community's concerns about its nuclear program.
Ntxt Steps
Creatio11 intense economic pressure, on its own. was never the sanctions' ultimate purpose. The
goal of the sanctions was to help bring Iran 10 the negotiating table, where, in exchange for
demonstrating to the world the exclusively peaceful nature of its nuclear program and for
accepting far-reaching constraints on that program, it would be able to receive relief from
nuclear-related sanctions.
Now we are engaged io those negotiations, cestlng whether Iran is wi!ljng to ralce veriflable and
concrete steps that will ensure that it cannot obtain a nuclear weapon. For this Administration,
preventing Iran from obtaining a nuclear weapon is a national security priority of the highest
order. As President Obarna has made clear, time and again, we will do everything in our power
to make sure that cannot happen.
The question is whether we can achieve that objective peacefully, a priority that I know this
Commiuee shares.
A,, we speak, negotiators frum the PS+ I are hard at work trying to secure a political framework
for a comprehensive deal with Iran. We may get a deal; we may not Regardless of whether or
not the negotiations succeed, I want to assure this Committee thal the Treasury Department, and
the Administration more broadly. are prepared for what comes next.
lfwe are able to secure a comprehensive deal, we will structure the nuclear-related sanctions
relief in a way that is staged and commensurate with verifiable steps on Iran's part. We believe
that legislative sanctions should be suspended first before they are terminated by Con!l)"ess, so
that we continue to retain important leverage years into a deal. Put simply, Iran will oat receive
comprehensive relief from nuclear-related sanctions absent proof that it has concretely and
verifiably carried out what is e~pccted of it as pan of a comprehensive deal.
Mo,-eover, even ifwe are able to secure a nuclear deal with Iran, the Uni led States will continue
10 counter Iran· s support for terrorism, its commission of human righ1s abuses, and its
destabilizing activities throughout the Middle East, including through the active use of our
financial tools.
Alternatively, if we detennille 1ha1 a comprehensive deal with Iran cannot be obtained, the
Administration, working with Congress, can move to ratchet up the pressure on Iran from
sanctions. Over the past decade, we have developed tremendous insight into Iran's financial
flows, its economy's mess points, and how it attempts lo evade sanctions. Our team stiinds
ready to raise the costs on Iran , ubstantially should it make clear that it is unwilling to address
Annex 97
23
the international community's concerns. Close cooperation with our international partners will
be critical should we have to go that route.
In either eventuality, we arc commiucd to working wi1h Congress to ensure that our sanctions
con1inue lo serve our nalional security goals. whether to ensure that Iran abides by the conditions
of a deal i fil can accept those conditions, or to raise I.he costs substantially if Iran demonstrates
tl1a1 further negotiations arc futile.
Thank you again for inviting me to appear here today, and I look forward to addressing your
questions.
6
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24
Chairman ROYCE. Thank you, Mr. Szubin.
If I could go to my first question here-it goes to the sunset. Deputy
Secretary Blinken, a major concern here is the expiration date.
In as little as 10 years, all of the restrictions and other measures
that you are touting here today are going to come off and Iran's nuclear
program is going to be then treated as though it was the
equivalent of the Netherlands.
So why 10 years? Does the administration believe or hope that
the Iranian regime will have moderated within that time frame?
Mr. BLINKEN. Thank you, Mr. Chairman.
First of all, there is no agreement on the duration of various obligations.
All of that is the subject of current negotiations. So whether
some aspects are 10 years, more or less, that is all to be negotiated.
I think looking at this as a sunset is not the accurate way to look
at what we are trying to achieve. What we are proposing and seeking
to achieve is a series of constraints and obligations.
Some will end after a long period of time, others will continue
longer than that and still others will be indefinite, in perpetuity.
The bottom line is that even after certain obligations are completed
by Iran, it cannot become a nuclear weapon state.
It will be legally bound under the nonproliferation treaty not to
make or acquire a nuclear weapon. There will be legally binding
safeguards on material to verify and deter its diversion. It will
have to sign and implement a comprehensive safeguards agreement
and the additional protocol.
Chairman ROYCE. But that is why we are here today. You are
putting this stock in Iran's signature to the NPT and its safeguards
agreement, right? They have had those same commitments. They
have been violating those commitments for years.
That is why this process. I would just-I would just point that
out. And the other point I would make is that 10 years or whatever
that time frame is, they are then going to be treated as any other
non-nuclear weapon NPT state, and that means no sanctions, no
restrictions on procurement, no restrictions on the stockpile or the
number of centrifuges it can spend at that point, 10 years out, or
on the purity level to which it may enrich uranium.
And I will just give you an example of where this would put Iran.
They would enrich uranium at that point to levels near weapon
grade, I am presuming, claiming the desire to power a nuclear
navy because that is what Brazil is doing. So I am going to assume
that they are going to do the same thing there.
And that would all be permissible. It would all be blessed under
this agreement, as I read it, no matter who is in charge of Iran in
10 years.
And that's why Ranking Member Engel and I have a letter going
to the ·President, signed by over 350 Members of Congress, demanding
that the verifiable constraints on Iran's program last decades,
not, as being discussed, a shorter period of time. So I just
want to make that point.
Let me go to my next question, and that goes to the 1-year
breakout. The administration has set a benchmark- a 1-year
breakout period. But is a year sufficient to detect and then reverse
Annex 97
25
potential Iranian violations and why not insist on a period of 2 or
3 years?
Mr. BLINKEN. Mr. Chairman, we think that a 1-year breakout
time not only is sufficient but, indeed, is quite conservative.
We believe that with the verification and inspections and monitoring
that we will insist on in any agreement that would give us
more than enough time not only to detect any abuse of the agreement
but also to act on it.
If you look at what various experts have said, many have said
that a far lesser period of time would be sufficient to detect and
act on any violations.
Chairman ROYCE. Well, let-
Mr. BLINKEN. This is-let me abo, just if I can just add to this
very quickly, Mr. Chairman.
One year is very conservative. First of all, that is the most-if
everything went perfectly for Iran. Second, the idea that any country,
including Iran, would break out for one bomb's worth of material
is highly unlikely. Like I said, we are--
Chairman ROYCE. Okay. But let me go to this question then. Will
you insist that the IAEA inspectors have anywhere anytime access
to all facilities in Iran including Revolutionary Guard bases, from
what we know about what has gone on there, and will Iran have
to satisfy all questions that the IAEA has regarding Iran's covert
research on a nuclear warhead including access to key scientific
personnel and paperwork?
Mr. BLJNKEN. So without going into the details because all of this
is this still subject to negotiation, we will insist that the IAEA have
the access is must have in order to do its job and to verify.
Chairman ROYCE. Yes, I understand your perspective of what is
necessary to do their job. But mine is a specific list of criteria based
upon my discussions with the IAEA, and I want to make certain
that those are found and then are followed.
And then lastly, it seems the administration plans to push the
Security Council to adopt a new resolution to basically bless this
agreement and relax sanctions, but at the same time you are pushing
off Congress.
Why push for U.N. action but not Congress?
Mr. BLJNKEN. We are not pushing off either. I think, as you said
and as Ranking Member Engel said, Congress will have to exercise
its authority to lift sanctions at the end of an agreement if Iran
complies and, indeed, keeping that until the end, until we see that
Iran is complying, is the best way to sustain leverage.
Chairman ROYCE. Well, our concern here is if you push us off for
10 years, let us say, in theory, and if this is consequential enough
to go to the U.N. Security Council at the outset under a resolution
under Chapter 7, which by definition deals with a threat to peace,
breaches of the peace and acts of aggression, then it would certainly
be consequential enough to be submitted to the Senate for
advise and consent. That is the point I wanted to make.
Mr. BLINKEN. So the Security Council-this is an international
agreement. It is an agreement that would be made with the other
members of the Security Council, with Iran.
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26
Under these circumstances, it would be normal for the Security
Council to take note of any agreement and then to create a basis
for lifting the U.N.-related sanctions.
Chairman ROYCE. But let me--
Mr. BLINKEN. Yes, Congress will eventually have to decide
whether to lift U.S. sanctions.
Chairman ROYCE. My time has expired, but suggesting that Congress
has a role to play by voting on sanctions relief years from
now once a deal has run its course, that to me is disingenuous. But
that is my view of it.
We will go to Mr. Engel for his questions. Thank you.
Mr. ENGEL. Thank you, Mr. Chairman.
Let me, first, also emphasize that the trepidation that all of us
have about these negotiations involves, at least for me, what the
chairman said, that any deal that would sunset in 10 years or however
much we were very, obviously, concerned about and I know
you are well and we, obviously, want to push that back as much
as we possibly can because we really just don't trust Iran.
And I think the chairman is right on the mark in terms of our
concern with the sunset in 10 years or so. Another thing that has
bothered us, you know, and again, as the chairman mentioned, he
and I had legislation which passed the House 2 years ago by 400
to 20 and unanimously out of this committee, which involved
strong sanctions, and had the Senate followed suit and been signed
into law I think we would have been in a much stronger position
now.
But one of the things that is really annoying to all of us is that
we are sitting and negotiating with Iran over its nuclear program
at a time when Iran continues to be a bad actor all around the
world.
You take a look at capitals that Iran essentially controls, now
Yemen being added to that-Baghdad, Damascus, Beirut. This is
not a regime that looks like it wants peace. Iran continues to fuel
terrorism around the globe.
It is the number one, in my opinion, state supporter of terrorism
around the globe. So I believe that a nuclear agreement should not
whitewash the fact that Iran remains a destabilizing actor in the
region and funds terrorism.
Now, the Iranian Revolutionary Guard Corps theoretically could
take advantage of any sanctions relief that results from an agreement
between the P5+1 and Iran because money is fungible. So
how could such relief be structured to minimize any benefits to the
Iranian Revolutionary Guard Corps?
Mr. BLINKEN. Thank you very much, Ranking Member Engel.
First, let me just say we share your deep concerns about Iran's
activities in the region-destabilizing activities, support for terrorism
and, of course, its own abuse of human rights at home,
which is why we will and we will continue to vigorously oppose
those efforts.
And, indeed, throughout the interim agreement we have pushed
back very hard on proliferation activities, WMD-related activities,
terrorism support activities, sanctioning designating individuals,
intercepting cargoes, et cetera, and working with our partners as
we have been for more than 6 years to build up their capacity.
Annex 97
27
With regard to any money that Iran receives as a result of relief
from sanctions, I would turn to my colleague to discuss this. But
let me just say I think what we see is that Iran is in a very deep
economic hole and a large part of the reason that Rouhani was
elected as President was to respond to the desire of the people to
try and get out of the hole.
So in one instance at least we believe that a significant portion
of any revenues they receive would go to trying to plug their economic
holes at home.
That said, you are exactly right. Money is fungible and presumably
that would free up some resources for the IRGC. That said,
we also believe that denying Iran a nuclear weapon is the single
most significant thing we could do to prevent further emboldening
Iran it its actions in the region.
Mr. ENGEL. And let us me just say, before Mr. Szubin talks, that
is precisely what we are concerned about because Iran is in a deep
economic hole.
By having an agreement and releasing that, helping them, so to
speak, get out of that hole, we want to, obviously, make sure, and
you do as well, obviously, to make sure that the safeguards are in
there as well.
That is what makes me nervous because once you lose that leverage
it is very, very hard to get back. Mr. Szubin?
Mr. SzuBIN. Yes. Ranking Member Engel, thank you and I will
say as well that is a concern we have been keenly focused on.
The truth is the size of the hole that Iran is in, across almost
any indicator you look at, is far deeper than the relief that is on
the table, even the substantial relief, should Iran make good on all
of the commitments that are being set out by the negotiators.
We are talking about a hole that could be described, in one sense,
as a $200-billion hole, which are the losses that we assess they
have suffered since 2012 due to sanctions.
In just the energy infrastructure, as I mentioned during my
opening statement, their minister came out recently and said they
need $170 billion just to regain their footing in that sector alone.
The average Iranian has seen steady decreases in their standard
of living, decreases in their purchasing power, even since Rouhani
came into office, even since the JPOA went into effect.
And so it is going to be a tremendous effort, a years-long effort,
for Iran to right itself, and that is not going to happen overnight.
Finally, I just want to reiterate what Deputy Secretary Blinken
said. None of our sanctions targeting the nefarious activities that
you mentioned are going away. None of those are on the table for
discussion.
So with respect to the Quds Force interventions in Yemen and
Syria, we-and Hezbollah, very notably, we will continue to pressure
any forms of support that we see.
Mr. ENGEL. Let me ask you one final quick question because you
mentioned Hezbollah, and I want to say that we all agree that Iran
continues to support terrorism and sow instability in the Middle
East.
However, the director of national intelligence did not include Iranian
terrorism or Hezbollah or any terrorist threat for that matter
Annex 97
28
in the 2015 worldwide threat assessment of the U.S. intelligence
communities.
Can you tell me why? That didn't make any sense to me. Or you
can-we can talk and you can send me a letter about it.
Mr. SzUBIN. Yes, I am happy to get back to you on that. But my
understanding is, first of all, Hezbollah remains front and center
in our concerns. I think the director was talking about the immediate
front-burner concern that we have with !SIL and that was
the focus of his remarks.
But it remains a foreign terrorist organization. It remains very
much in the spotlight of our efforts to counter it, to push back on
it, to isolate it around the world.
Mr. ENGEL. And could not exist if it wasn't for Iran?
Mr. SZUBIN. That is correct.
Mr. ENGEL. Thank you. Thank you, Mr. Chairman.
Chairman ROYCE. Thank you, Mr. Engel.
We go now to Ileana Ros-Lehtinen.
Ms. Ros-LEHTINEN. Thank you so much, Mr. Chairman.
Mr. Blink.en, during your confirmation hearing in the Senate you
had promised Senator Rubio and the Foreign Relations Committee
that you and the administration would consult Congress on any
policy changes the administration was seeking toward Cuba.
That turned out to be a complete falsehood. I worry that the
Cuba example was a deliberate attempt by the administration to
keep Congress in the dark regarding the Castro negotiations.
And why is this important? Not only because of the Cuba deal
but of how that implicates the Iranian deal. Keeping us in the dark
it foreshadows the administration's approach to Congress and keeping
us out of the loop on the Iranian deal. The administration has
made it clear that it does not want Congress to vote on the Iranian
deal anytime soon.
But you just said to Mr. Royce that the U.N. Security Council
will be having a vote, a binding vote, on the Iranian deal. Just to
make it clear, you will be going to the U.N. Security Council to ask
for a vote on the Iranian deal-yes or no?
Mr. BLINKEN. We will be going to the Security Council presumably,
because this is an international agreement, implicating-Ms.
Ros-LEHTINEN. Yes?
Mr. BLINKEN [continuing). All the members of the Security Council
to take note of the deal and if there are any requirements-Ms.
Ros-LEHTINEN. Vote on the deal?
Mr. BLINKEN. If there are any requirements of the Security
Council pursuant to the deal--
Ms.Ros-LEHTINEN. To vote?
Mr. BLINKEN rcontinuingJ. To make clear that it will make
good--
Ms. Ros-LEHTINEN. Congress can wait for the U.N. Security
Council.
Mr. BLINKEN fcontinuingl. On its commitments just as Congress
will have to vote and decid~
Ms. Ros-LEHTINEN. We have 10 years from now.
Mr. BLINKEN [continuing]. On any lifting sanctions.
Ms. Ros-LEHTINEN. Sure. No problem. And Palestinian statehood-
there have been reports last night that in order for PresiAnnex
97
29
dent Obama to continue his temper tantrum toward Prime Minister
Netanyahu, what we will be doing in the United Nations is
push in the shadows for a vote on Palestinian statehood in order
to pressure Israel to be at the negotiation table with the Palestinians.
Is that true? Is that press report true?
Mr. BLINKEN. No. The administration's support for Israel is absolutely
unshakable. We have done more for Israel's security over the
last 6 years--
Ms. Ros-LEHTINEN. Oh, that support is very clear. Thank you.
Thank you. No, that support is very clear.
Mr. BLINKEN [continuing]. Than any administration has.
Ms. Ros-LEHTINEN. Thank you. And I am going to ask you another
question on Iran for a minute.
But I wanted to ask Mr. Szubin, your Cuba sanctions regulatory
revisions earlier this year took a very broad view of the administration's
licensing authority under the Trading with the Enemy Act,
and I fear that the administration is using Cuba as a test case, as
I said, for normalizing relations with Tehran and will utilize its licensing
authority to provide broad relief for Iran.
Under the JPOA, the U.S. is committed to removing nuclear-related
sanctions on Iran. However, as the author of the Iran sanctions
law, the concept of an exclusively defined nuclear-related
sanction on Iran does not exist in U.S. law because the sanctions
are intertwined with Iran's human rights record, its ballistic missile
program and its support for terrorism.
So I ask you, Mr. Szubin, which sanctions will you seek to suspend
and ultimately lift under a final agreement and will you come
to Congress to ask for authorities before such action is taken?
Mr. SZUBIN. Thank you, Congresswoman.
With respect to the actions we took in the Cuba amendments
amending our regulations, I will note that the licensing authority
is one that has been drawn on by administrations, Democratic and
Republican, over the last decade and I have been involved under
both presidencies, and it is an authority that-
Ms. Ros-LEHTINEN. Thank you. We will leave-it is going to take
a long time.
Mr. Blinken, Iran has been cheating, skirting the rules, violating
international agreements, you have heard, from both Mr. Engel
and Mr. Royce on that.
What mechanism do we have to enforce any violation? Will there
be penalties imbedded in the nuclear deal? If you could be specific.
Mr. BLINKEN. Thank you. First, I should note that the IAEA has
said repeatedly that Iran has complied with its obligations under
the interim agreement.
Ms. Ros-LEHTINEN. Is that all that the IAEA has said? Has the
IAEA also not said that Iran is not complying and is not letting
thorn in, as the IAEA has asked?
Mr. BLINK.EN. No. It has said that under the agreement Iran has
complied. It has also said- you are correct-that outside of the
agreement Iran, of course, is seeking to do whatever--
Ms. Ros-LEHTINEN. So you look at their reports and say-you
cherry pick and you say, okay, the IAEA is happy with this?
Mr. BLINK.EN. No.
Annex 97
30
Ms. Ros-LEHTINEN. You should give the totality of what they
have been saying--
Mr. BLINKEN. No, no.
Ms. Ros-LEHTINEN [continuing]. And how frustrated that agency
has been with Iran throughout all of these negotiations.
Mr. BLINKEN. No, no. I want to be clear, to answer your question,
that the IAEA said that with regard to its obligations under the interim
agreement, Iran has complied.
You are also absolutely correct that outside of the agreement, including
the critical question of the possible military dimensions of
Iran's program in the past or for that matter now, it has not complied
with what the IAEA is seeking and, indeed, that will have to
be part of any agreement.
And as to enforcement, it is very straightforward. As the Under
Secretary said, as I said, in the event Iran were to renege on any
commitment it made the sanctions would snap back in full force.
Ms. Ros-LEHTINEN. And I am sure that Iran is just shaking at
that because that is very--
Mr. BLINKEN. That is why they are at the table.
Ms. Ros-LEHTINEN. Oh, yes. Absolutely.
Chairman ROYCE. Thank you.
We go to Mr. Brad Sherman of California, ranking member of the
Asia Subcommittee.
Mr. SHERMAN. We should remember why we are in this situation.
The executive branch under the Bush administration refused to enforce
sanctions and violated American statutes for the benefit of
Iran for 8 continuous years.
The Bush administration prevented Congress from passing and
used all of its power in Congress to prevent us passing new statutory
sanctions. Now, that doesn't fit with the image we have of
President Bush until you realize that at the time the sanctions all
focused on international oil companies, which was not President
Bush's target of choice.
Had we continued President Bush's policies-well, we should
know that during the Bush administration Iran went from zero to
5,000 installed centrifuges-had we continued those policies, Iran
would have $300 billion more available to it in cash right now because
we have frozen $100 billion, and $200 billion has been lost
to Iran in lost oil sales.
But it is not the executive branch but Congress that has had it
right for the last 15 years, which is why I take such offense when
I hear the administration say, Congress, if we have a view, we are
interfering and undermining. When you read the United States
Constitution you will see that when it comes to economic sanctions
and international economics, all the power is vested in Congress
except to the extent that the President negotiates a treaty that is
ratified by the Senate.
Yet, I fear that what the administration is doing is using foreign
ropes to tie the hands of the United States Congress because the
foreign minister of Iran was able to cite Article 27 of the Vienna
Convention on Treaties saying, well, the United States will be in
violation of international law if Congress doesn't do whatever the
President promises Congress will do.
Annex 97
31
I would-and the administration feeds into that when a high administration
official declares foreign policy runs through the executive
branch and the President and does not go through other channels.
I fear that we will have a situation where the executive branch
comes to us and says, you have to take this action. You are prohibited
from taking that action because you are going to hold the
United States up to ridicule for being in violation of international
law.
I would hope that you would look at the memo issued by the
Carter Department of Justice that stated Congress may enact legislation
modifying or abrogating executive agreements, and that if
that was formally turned over to the Iran delegation, that would
get us support under Article 46 of the Vienna Convention on Treaties.
I should point out for the record that in 2007, Senator Clinton
introduced, with the co-sponsorships of Senator Obama and Senator
Kerry, the Oversight of Iraq Agreements Act, which stated
that any status of forces agreement between the United States and
Iraq that was not a treaty approved by two-thirds of the Senate or
authorized by legislation would not have the force of law and prohibited
funding to implement that.
For the record, because I just don't have time _to give you at this
moment, I would like you to explain whether under the standards
of the Obama administration the introduction of that act by those
three senators constituted an interference with policy undermining
President Bush's policy, etcetera.
But I want to focus on a particular question. There is a question
here. I fear that you have misled this committee in telling us that
once Iran has the rights of a non-nuclear state, subject to the additional
protocol, that you will be able to stop sneak out because you
have said first that, well, they can't develop a nuclear weapon because
that would be illegal. That is a preposterous argument. Obviously,
they are willing to break the law.
And the next point is that you have conjured up this idea there
will be inspections. The question is, inspections of suspected sites.
There is nothing in the additional protocol that adds to the NPT.
The NPT was in force and it took 2 years after it was widely suspected
that Fordow was a secret site for the IAEA to get there.
So why do you tell us that oh, this IAEA, it has worked fine for
Japan and the Netherlands-it will work great for Iran-when it
won't allow us to get in quickly to suspected sites? Mr. Deputy Secretary.
Mr. BLINKEN. Thank you very much.
First, if Iran makes an agreement it will make it with the full
knowledge that if it violates the agreement there will be severe
consequences.
Mr. SHERMAN. I was talking about sneaking, not being detected.
Secret sites.
Mr. BLrNKEN. The inspections regime that we will insist on, first
of all, for any initial duration-let me finish, if I may, please-will
be beyond that, that any country has had anytime, anywhere in the
world.
Annex 97
32
That will-from cradle to grave of the production progressmines,
mills, factories, centrifuge facilities. That will create a basis
of knowledge of the people, the places, the documents, that will last
far beyond the duration of any of those provisions.
Then beyond that, its obligations under a safeguards agreement,
under the additional protocol, under Modified Code 3.1. All of those
taken together will, with any other measures that we might
achieve on top of that and those remain to be negotiated, give us
the confidence that the inspectors will have the ability to detect in
a timely fashion any efforts by Iran to break out of the agreement.
Mr. SHERMAN. So you need an intrusive inspection regime, you
will have it for a few years and then, for reasons you can't explain,
the blindfolds will go on and we will hope that we can prevent
sneak-out thereafter.
I yield back.
Mr. BLINKEN. The blindfolds won't be on. They will be off.
Chairman ROYCE. Okay.
So Mr. Dana Rohrabacher of California, chairman of the Subcommittee
on Europe, Eurasia, and Emerging Threats.
Mr. R0HRABACHER. Thank you very much, Mr. Chairman. It does
get a little tiring to keep being reminded that President Bush is
responsible for all of our problems. After all of these years they are
still blaming President Bush.
Mr. SHERMAN. If the gentleman will yield. I blame the executive
branch and I spent four of it blaming the current executive branch.
Mr. R0HRABACHER. Thank you very much.
I am-are we actually more concerned about the mullah regime
in Iran having possession of a nuclear weapon versus what we
seem to be just talking about-is their ability to manufacture a nuclear
weapon?
Don't we see this-do you see that in this debate, Mr. Secretary,
and shouldn't we be-I think, frankly, with Mr. Netanyahu's
speech as well as what we have been hearing here, I think the
American people are being lulled into a false sense of securitythat
if we just prevent them from being able to manufacture the
weapon that these crazy mullahs aren't going to have their hands
on the ability to have possession a nuclear weapon.
Mr. BLINKEN. The issue is--
Mr. R0HRABACHER. You have to push a button on it.
Mr. BLINKEN. I apologize. Thank you.
Like it or not, Iran has mastered the fuel cycle and we can't
bomb that away, we can't sanction that away and, unfortunately,
we probably can't negotiate that away.
So they have the-
Mr. R0HRABACHER. Negotiate what away?
Mr. BLINKEN. The fuel-their mastery of the fuel cycle. They
have the knowledge of how to put together a weapon.
So the issue is whether the program that they have is so limited,
so constrained, so inspected, so transparent, that as a practical
matter they cannot develop material for a bomb, or if they did we
would detect it and have time to do something about it.
Mr. R0HRABACHER. That is not my question. Whether they can
manufacture it or not, couldn't they get one from Pakistan or from
Annex 97
33
China or from Korea or perhaps somebody stole a couple nuclear
weapons as the Soviet Union was collapsing?
Mr. BLlNKEN. Yes. No, your point is very well taken, which is exactly
why, as a my colleague said, even if there is an agreement,
the various sanctions and stringent efforts we are malting around
the world to prevent Iran from proliferating or from receiving the
benefits of proliferation will continue.
Mr. ROHRABACHER. Well, the only-the only way we are going to
prevent these bad guys from having the nuclear weapon-we keep
saying Iran. We don't really mean Iran. The people of Iran are really
nice people.
In fact, I understand they like Americans more than just about
any other country in the world. It is the mullah regime. It is these
the bloody mullahs that are supporting terrorism around the world,
that are repressing their own people.
Isn't the real answer trying to make ourselves partners with
those people in Iran who want a more democratic country, a more
democratic country, and has not this administration passed up
time and time again the opportunity to work with the people of
Iran to free themselves from these mullahs?
Mr. BLINKEN. Congressman, I think you are exactly right that
the actions of the regime are the problem, whether it is destabilizing
activities in the region, whether it is support for terrorist
groups including Hezbollah and whether it is, indeed, their abusive
human rights at home, which is exactly why across the board,
whether it is standing up and supporting those who are trying get
greater rights in Iran, whether it is worlting with our partners in
the region to increase their defensive capacities, whether it is pushing
back on proliferation and on support for terrorism through the
actions we have taken, that is exactly why we are doing that and
that is exactly why those actions will continue.
Mr. ROHRABACHER. Well, I would suggest-I would suggest that
I give you an A+ in terms of being able to focus people's attention
on these negotiations dealing with the ability for them to manufacture
a weapon.
I would give you an F- when it comes to whether or not we can
try to get rid of the threat by helping the people of Iran institute
a democratic government there.
This administration from day one in order to-frankly, the irony
of this is, I believe this administration is bending over backwards
not to try to threaten the mullah regime in Iran in order to get a
nuclear deal which will make no difference at all because it still
leaves the mullahs with the right to own and possess a nuclear
weapon that they didn't manufacture themselves, which leaves us
vulnerable to these very same-
Mr. BLINKEN. I want to assure you they won't have the that
right, period.
Chairman ROYCE. We go now to Mr. Albio Sires of New Jersey.
He is the ranking member of the Subcommittee on the Western
Hemisphere.
Mr. SIRES. Thank you, Mr. Chairman. Thank you for being here.
I think you can take back to the department how concerned this
body is that we don't seem to be part of any of this negotiation and
we don't seem-that we seem to be bypassed.
Annex 97
34
I remember when the Secretary was here. We talked about Cuba,
and I asked him point blank about negotiations. They said that
nothing was going on in exchange for Alan Gross.
Now we have a situation similar to what we had in those hearings.
One of the questions that I have is, can you speak to how the
U.N. Security Council resolutions are being handled in the negotiations?
Because once these sanctions are lifted, I think it is going to be
virtually impossible to reimpose them because I don't think Russia
and China are going to go along with it. They have veto powers.
So how are we handling this?
Mr. BLINKEN. Thank you. First, on your first point, Congressman,
I have to say having been part of this, you know, there have
been by our count, since the interim agreement was signed, more
than 200 briefings, hearings meetings, phone calls with Members
of Congress on the ramifications.
Mr. SIRES. With all due respect, we don't get-you know, we
don't get much on those briefings. That is like, you know, these
classified briefings that we get-I can get more information on anything
in my district than what I get here.
Mr. BLINKEN. You will understand that in-while negotiations
are going on it is difficult sometimes to provide all of the details.
It is something that is going back and forth on a virtually continuous
basis. That said, I would be happy to talk to you further
about this.
Mr. SIRES. But the problem is some of this stuff leaks out and
then we look like-the press comes to us and we look like well, we
don't know what is going on with the administration. You know, I
mean--
Mr. BLINKEN. Don't always believe what you read.
Mr. SIRES. Yes, I know. I don't believe what I listen to when people
come in front of me either, you know. Can you talk a little bit
about the sanctions, about the--
Mr. BLINKEN. Yes, absolutely. So, again, and I will also invite my
colleague to do the same thing, just as with our own sanctions,
with regard to U.N. sanctions, first of all, we would preserve sanctions
related to the non-nuclear aspects of Iran's behavior.
Second, any U.N.-related sanctions also would be-have to be
lifted in a way that shows, first, Iranian compliance with various
obligations under the agreement.
So they too in some fashion would have to be sequenced depending
on Iran's fulfilling its obligations. We want to see a demonstration
that Iran is serious. But all of that, including the sequencing,
is under negotiation.
But Adam, do you want to add to that?
Mr. SZUBIN. Only to add that you are absolutely right to focus
on the ability to restore sanctions in the event of a breach. That
is something that, obviously, is very much at the forefront of our
mind when we look at any possible sanctions relief is, is it reversible.
And it is a trickier question when you talk about U.N. Security
Council resolutions where we are obviously not the only member of
that council. But we are very focused on that in the negotiations
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35
to make sure that if there is a violation there isn't the ability for
one country to stand in the way of snapping back those sanctions.
Mr. SIRES. Have you had these conversations with China and
Russia, you know, on this issue?
Mr. SZUBIN. Yes, absolutely. That is very much part of the conversations
that we have among the negotiating partners as well as,
obviously, the conversations we have with the Iranians, yes.
Mr. SIRES. Thank you, Mr. Chairman.
Chairman ROYCE. Thank you.
We go now to Mr. Steve Chabot of Ohio.
Mr. CHABOT. Thank you, Mr. Chairman.
Iran has repeatedly violated its obligations under the Nuclear
Nonproliferation Treaty. It has built secret nuclear focilities. It has
illicitly procured nuclear materials. It has denied IAEA inspectors
access to the suspected facilities.
So isn't it foolish to trust them now? Wouldn't a bad deal be
throwing Israel under the proverbial bus? And, because of Iran's
intercontinental ballistic missile goals, placing the U.S. at great
risk as well? Now, I know you are going to say something to the
effect that we are not trusting or this is trusting and verifying, but
there are a whole lot of us on both sides of the aisle who, clearly,
aren't buying it.
Mr. BLINKEN. Thank you, Congressman.
You are exactly right. Iran has repeatedly violated various obligations,
which is exactly why it is in the position that it is in
now-that is, facing the isolation and the sanction of the entire
world and exactly why it is at the table now trying to negotiate an
agreement.
Those violations are what led to our ability to impose the most
severe sanctions on Iran of any country in history and convinced
other countries to come along.
Mr. CHABOT. We are, clearly, concerned that we are going to end
up in a bad deal. Let me go to the second question I have for you.
President Obama, clearly, has disdain for the winner of the
Israeli elections held this week. Maybe the only group I can think
of that he might have more disdain for is the elected representatives
of the American people-this Congress.
Since Israel will be the most directly affected by a bad deal with
Iran, how is the administration going to repair relations with our
key ally in the region?
Mr. BLINKEN. Congressman, in my judgment, no administration
has done more for Israel's security than this administration. If you
look at the measures we have taken, the steps we have taken to
provide for Israel's security over the past 6 years, they are exceptionally
extraordinary and, indeed, Prime Minister Netanyahu has
called them such, and that will-that will endure.
Mr. CHABOT. That is the least credible answer I have heard all
morning, that this-no President has done more for the AmericanIsraeli
relationship than this President.
Mr. BLINKEN. No, that is not what I said.
Mr. CHABOT. That is--
Mr. BLINKEN. I said for Israel's security.
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Mr. CHABOT. Security, relations, whatever. This President-there
has been no President that has damaged relations between the
United States and Israel more than this President.
Let me go to my third question. One of the concerns about a bad
deal with Iran has always been proliferation in the region-that
there is a nuclear arms race with the Saudis, the Gulf States, Turkey
and perhaps others developing enrichment programs and eventually
nuclear weapons.
There are indications that the Saudis in particular are so
alarmed that a bad deal is in the cards that they are already moving
in that direction. What is your response?
Mr. BLINKEN. Thank you, Congressman.
Well, of course, if there is no deal Iran could rush to a nuclear
capacity and a nuclear weapon tomorrow, which I imagine is exactly
what would spark an arms race.
So, indeed, the best way to prevent countries from feeling the necessity
to do that is to prevent Iran from getting a weapon. The
model that is being set by this agreement, if there is an agreement,
is hardly one that other countries would want to follow if they decided
that they needed to acquire the capacity to build a nuclear
weapon because the Iranian model is a decade or more of isolation
and sanctions and, indeed, anything that emerges from this agreement
will require such intrusive inspections, access and monitoring
I doubt any country would want to follow that model.
The answer is exactly what we have been doing, which is to do
everything we can to prevent Iran from getting a weapon so other
countries don't feel the need to do it and to build up their capacity
to defend themselves.
Mr. CHABOT. Well, our concern, obviously, is that we are going
to end up with a bad deal-they are going to get nuclear weapons
and the other countries in the region are going to feel threatened.
Then all the other countries are going to end up with them and
Israel is right in the middle of that, and God help us if that is
where we end up.
My final question: What is the difference between the road that
we traveled down with North Korea and we are now traveling
down with Iran, other than Iran is a far more dangerous country
than North Korea?
There are a lot of us who believe that we have seen this movie
before and we know how it is going to end.
Mr. BLINKEN. Thank you. They are very different cases.
The North Korean program was far more advanced. First of all,
when the Clinton administration was in office, Iran, we believe,
had the material for nuclear weapons and there is some analysis
that suggests that it already had nuclear weapons before the
agreed framework was signed. By the time President Obarna came
in, of course, North Korea had nuclear weapons.
Iran has neither. It is not-doesn't have the weapons, doesn't
have the material for the weapons. It hasn't tested and, of course,
North Korea, as you know, has also tested. So they are in far different
situations.
The inspections regime that existed at various points for North
Korea was far, far less than what Iran faces right now under the
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37
interim agreement and certainly far less than it would face under
any comprehensive agreement.
Mr. CHABOT. Well, my time has expired. But, again--
Mr. BLINKEN. And we have also taken lessons. I want to assure
you we have taken lessons from tha~
Mr. CHABOT r continuing 1. There is great skepticism on both sides
of the aisle here and, I believe, for good reason. I yield back the
balance of my time.
Chairman ROYCE. Mr. Ted Deutch of Florida, ranking member on
the Subcommittee on the Middle East and North Africa.
Mr. DEUTCH. Thank you, Mr. Chairman, and thanks to you and
Ranking Member Engel. Thanks to our witnesses, Deputy Secretary
Blinken and Acting Under Secretary Szubin. It is great to
have you both here in your new roles.
Let me start with this. I understand that we are now approaching
a deadline and I want to express my thanks, as I have every
single time I have had the opportunity, for the focus on working
to bring my constituent, Bob Levinson, home.
But as we approach these last days, let me just say that raising
the issue at this point can no longer suffice, and that with respect
to Pastor Abedini and Amir Hek.mati and Jason Rezaian and Bob
Levinson, if anyone is to take Iran seriously, that there is any commitment
that they can make that can be adhered to, then the best
show of good faith that they can make would be to return those
Americans. I urge you to make that a priority. That is number one.
Next, I have been clear. I know we are not supposed to prejudge
any deal . but there are certainly things that would concern us in
any deal that I think it is okay for us to address and I want to just
go through a few of those.
First, a couple of straightforward questions. Deputy Secretary
Blinken, will a final agreement and the technical annexes and side
agreements be made public? Will they be readily available to Congress
and to the public?
Mr. BLINKEN. Thank you.
Can I just start by saying, first of all, we strongly, strongly agree
with your statement about the American citizens who are unjustly
imprisoned in Iran.
I want to assure you this is something that we are working on
virtually every day. The only issue that comes up regularly within
the context of the nuclear discussions, apart from those discussions,
is the-is our American citizens. We are working on it very, very
vigorously. We want to bring them home and we very much share
your commitment to do that.
Mr. DEUTCH. Thank you.
Mr. BLINKEN. With regard to whether the agreement will be
made public, certainly, the core elements will. I don't know at this
stage because we don't know exactly what form any agreement
would take, whether certain pieces would be-would remain mad,e
classified and be subject to classified review, what parts would be
public. I can't tell you at this stage because we don't know the
exact--
Mr. DEUTCH. The greater the transparency the easier it will be
for people toAnnex
97
38
Mr. BLINKEN. I think we saw with the interim agreement that
we reached that it was made public and Congress had full access
to it.
Mr. DEUTCH. Congress had full access to it. The American people
didn't. Let me just go on.
Next, again, just a couple of straightforward questions. Does
Iran-Secretary Blinken, does Iran remained the world's most active
state sponsor of terror?
Mr. BLINKEN. Whether it is the most active, it certainly for sure
in the very top percentile.
Mr. DEUTCH. And is the administration in any way considering
removing them from the state sponsor of terrorism list?
Mr. BLINKEN. No.
Mr. DEUTCH. Thank you.
Now, when it comes to the issues that we are dealing with that
concern me in any deal, one, we have talked about the number of
centrifuges and the infrastructure. A question I have is whether
the ultimate number of centrifuges is reduced from the close to
20,000 to 6,000 or 7,000 or 3,000, whatever the number is, what
will happen to the rest?
Will any of them be dismantled? Will they go into a closet? Will
they go into an attic? Will they be readily available for Iran at the
expiration of the deal?
Mr. BLINKEN. All of that is subject to the negotiations. That remains
to be determined. I think you are right to point in general
to the centrifuges. Obviously, that is a key component. But it also
important to understand it is not the only component.
Mr. DEUTCH. I understand. I understand, and I only have a little
time. But I would encourage-I would suggest that if the ultimate
deal doesn't require that a single one of those centrifuges is dismantled,
it is going to make it awfully difficult for a lot of us to
be comfortable that this is a serious enough step to prevent them
from breaking out.
Next, I just-I think you can understand, and I am not going to
have time to get to my other-so I will just focus on this. I think
you can understand the frustration that we have when both you,
Secretary Blinken and Mr. Szubin, both talked about phased, proportionate
and reversible sanctions relief but then went on to acknowledge
the plan to go to the United Nations Security Council
and to make clear that at the U.N., Venezuela, Malaysia, Nigeria
may get a chance to vote on this deal now but Congress, ultimately,
will have a chance to vote on this perhaps 5, perhaps 10, perhaps
15 years in the future.
That is what we are being told. I hope you can understand the
frustration and how can-and the real question I have is how can
the sanctions relief be reversible if the plan is to go to the United
Nations to reverse all of the multilateral sanctions, leaving only the
American sanctions in place?
Mr. BLINKEN. Again, I just want to try to make it clear that this
is, if it happens, an international agreement that has other parties
to the agreement. That is done through the Security Council.
The Security Council would take note of any agreement and it
would make clear that it is prepared, once Iran demonstrates that
it is meeting its commitments, which would be at some point in the
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39
future because there would be a series of commitments under the
deal, at that point to suspend or lift any international sanctions.
Our own sanctions, again, would be under our own discretion
and ultimately Congress has to pass judgment on that.
Mr. DEUTCH. And Mr. Chairman, if I could just ask to have Mr.
Szubin provide to us, because I am out of time, provide to us after
this hearing a breakdown to the extent that you have done it of the
$700 million that has been released every-the money that has
been released every few months under the interim deal, and if you
have done analysis on a deal of what a final deal might look like
of sanctions relief, to the extent that $10 billion, $20 billion, $50
billion of the frozen money was released all at one time where any
that money in the case of the interim deal has gone in Iran, where
it would go under the-under the permanent deal and whether it
would simply wind up going to benefit the Revolutionary Guard,
the military and their terrorist activities.
I thank you and I yield back.
Chairman ROYCE. Without objection, so ordered. And we go to
Mr. Mike McCaul of Texas.
Mr. MCCAUL. Thank you, Mr. Chairman.
Mr. Secretary, Section 1, 2 and 3 of the Atomic Energy Act, as
you know, requires that all significant U.S. nuclear cooperation
agreements must be approved by both houses of Congress.
Last year, Congress approved two such agreements, one with
South Korea and the other one with Great Britain, who are our allies.
However, in this case, when we are dealing with the world's
leading state sponsor of terrorism, the position of this administration
is that that should not be subject to approval by the United
States Congress.
I don't quite understand that distinction. Can you explain that
to me?
Mr. BLINKEN. Thank you, Congressman.
I think the issue is what is the best form of an agreement in
order for us to have the flexibility that we need to make sure that
Iran is living up to its obligations and to be able to reimpose sanctions
quickly if it is not. We-what we are seeking is-and the
issue here is really whether this is a legally binding agreement or
not.
If it is a legally binding agreement, it would be subject to the
rules of international law on how you get into an agreement and
how you get out of it, which can be quite burdensome.
So having a nonbinding agreement allows us to have the flexibility
we need if necessary to snap back sanctions immediately, not
wait for international partners to agree or not agree.
With regard to whether it is a treaty or not and so subject to the
advice and consent of the United States Senate, as you know, the
vast bulk of international agreements that we have made underDemocratic
administrations and Republican administrations in the
nonproliferation area and the foreign policy area more generally in
fact are not treaties and are not subject to the advice and consent
of the Senate.
And I can go through the list under the nonproliferation area.
We have everything from the missile technology control regime,
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40
which has been very successful in creating voluntary export licensing
around the world, the nuclear security guidelines--
Mr. MCCAUL. And my time is limited, and I appreciate what you
are saying. I just think we are treating our allies different from a
state sponsor of terror and I think that the American people,
through its representatives, should be weighing in this deal. But I ·
know we disagree on that point.
ICBMs-this concerns me greatly. There has been no-this has
been off the table, not part of the discussions at all, and the intelligence
community and the Pentagon in its annual report on military
power of Iran have noted that by-as early as 2015 of this
year they may have ICBM technology- missile ranges that could
potentially reach as far as the United States of America.
And then the Ayatollah, the Supreme Leader, says that to limit
this program would be a stupid idiotic expectation and that the
Revolutionary Guard should definitely carry out their program and
should mass produce.
Why in the world isn't this on the table and does that not concern
you about their intent here?
Mr. BLINKEN. Yes. The missile program is absolutely a concern
which is, again, why we have been working very vigorously around
the world to deny, where we can, Iran the technology for that program
and to push back against proliferation.
In that effort, whether there is an agreement or not, we will persist
in those sanctions and the various measures we are taking will
continue regardless of whether there is an agreement.
The scope of this agreement, if there is one, is the nuclear program.
That is what our partners have agreed to. That is what is
being negotiated. It is not a missile agreement.
Now, there are aspects of it that come into this that are critical
in terms of Iran's capacity to make, potentially, a nuclear weapon
to a missile and, indeed, we are focused on that because that does
fall within the confines of what we are-
Mr. MCCAUL. Well, because that is the delivery device for a nuclear
warhead.
Mr. BLINKEN. Exactly. Exactly.
Mr. MCCAUL. And so they are not backing down on that, which
kind of makes me question, you know, their whole good faith analysis
here. You know, if I could just say, when I read their own
words, President Rouhani, who you say is taking a different tack
and trying to be a peacemaker here, says that in Geneva agreement
world powers surrendered to the Iranian nation's will, and
that is in his words.
And then, you know, they said that the centrifuges were spinning
and will never stop. When Prime Minister Netanyahu gave his
speech at the joint session of Congress, Iran was they were blowing
up a mock of the USS Nimitz in the Red Sea, simultaneously.
I question the good faith here. You have an extraordinary challenge,
sir, and I wish you all the best. But I cannot-I just have
to question the good faith on the part of Iran.
Mr. BLINKEN. Sir, you are exactly right. It is not a question of
good faith.
Annex 97
41
It is a question-and by the way, whether it is President
Rouhani or the foreign minister or any others, it is not that we
think these are good guys who like the United States.
It is that there are some people who are somewhat more pragmatic
about what Iran needs to do for its own interest in the future
and they believe that negotiating an agreement and getting some
relief from the pressure that they have been under is what makes
the most sense for their country, again, not because they like us
or have good intentions.
The other thing I would say that I think is important is that
there are abhorrent statements made on a regular basis by Iran's
leaders on all sorts of issues. In some instances, though, some of
these statements are made for domestic political purposes.
We sometimes have a tendency to see Iran as the only country
on Earth that doesn't have politics. In fact, it has very intense politics
and there is a lot of politics going on right now between those
in Iran who would want an agreement, again, because they believe
it is in the interest of the country, and those who don't want one,
and some of the statements you are seeing, as objectionable and as
abhorrent as they may be, some of those designed for political consumption
at home to push back against those who do not want an
agreement. Thank you.
Chairman ROYCE. I hear ''Death to America" on an ongoing basis
regardless of the politics and that is concerning for us.
We go now to David Cicilline of Rhode Island. Mr. Cicilline?
Mr. CICILLINE. Thank you, Mr. Chairman. Thank you very much
for being here and for giving us your insight on this very important
issue.
I am hopeful that the ongoing negotiations will ultimately result
in an agreement that we can get behind and I think, as our chairman
and our ranking member said, many of us have a lot of questions
about the details of a final agreement and in a letter I think
we will express to you what some of those concerns are.
As I listen to the-my colleagues today, you know, guaranteeing
that actors to a negotiated agreement are going to behave in a certain
way is always difficult and we have no guarantee of that.
And so it seems to me what the goal of this agreement should
be is to be sure that we set it out so that it is difficult for them
to violate the agreement, that we make it certain that we can detect
it if they do and that we have an opportunity to respond to
it.
I mean, that is really the best we can do other than imagining
that we can control the decisions of lots of other people.
And so with respect to that, last year the Pentagon's Defense
Science Board released a report that found the U.S. Government
mechanisms for detection and monitoring of small nuclear enterprises
or covert facilities are "either inadequate or, more often, do
not exist."
So in that context, how will we know and what are we doing to
ensure that we would learn if Iran was pursuing a covert program,
particularly after the sunset of a comprehensive agreement, and
will the additional protocols in the NPT address this?
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42
But isn't that a fair question to know? We are not particularly
good at that from the sounds of it in general, and with respect to
Iran in particular what are the protections?
Mr. BLINKEN. Thank you very much, Congressman.
Yes, I think you make a very important point and, indeed, I am
well aware of the rerort by the Defense Science Board. We are factoring
in the reports recommendations as we work on and think
about any agreement with Iran.
I think it underscores the absolute necessity of having the most
intrusive significant monitoring access transparency regime anywhere,
anytime, anyplace in the world, and in terms of what happens
in perpetuity it underscores the absolute necessity of having
at the very least the combination of the additional protocol, Modified
Code 3.1, and a safeguards agreement.
Those things taken together, the storehouse of knowledge that
will be built up by the exceptional transparency measures, we believe
that all of those things taken together will give us the ability
to detect any efforts by Iran to break out or to sneak out.
But I think the report underscores the absolute essential nature
of those components of any agreement.
Mr. CICILLINE. Thank you. And would you speak for a moment
about kind of what you see as the kind of scenario if no agreement
is reached?
There has been a lot of discussion about the urgency of enacting
additional sanctions, which I think Congress would do immediately
and the President would support. But to the extent that happens,
do you foresee that that actually would prevent the development of
a nuclear weapon?
I mean, the goal here we shouldn't lose sight of is not just to impose
pain on Iran but impose conditions such that they don't develop
a nuclear weapon. That is the ultimate goal.
And I am wondering if you would speak to what is the alternative
of a good comprehensive agreement here. What do you likely
see even if additional sanctions were imposed if these talks fall
apart? Do we prevent a nuclear Iran in that scenario?
Mr. BLINKEN. Well, I think it depends very much on how an
agreement is not reached. That is to say, if it is clear at the end
of this process that Iran is simply not able and will not make a reasonable
agreement, then, clearly, that calls not only for sustaining
the existing pressure but adding to it in an effort to get them to
rethink that very unfortunate position and, indeed, to bear down
on all fronts in its efforts to acquire technology for a nuclear program
and the resources for a nuclear program. So that is where we
would want to go.
Now, if on the other hand, we are at the end of March very close·,
having gotten agreement on many of the key elements but not all
of them, and because nothing is agreed until everything is agreed
we can't put the whole thing together, then I can see a circumstance
where it might be useful to take the time that we still
have until June under the nature of the interim agreement that we
signed. So we have to see exactly where we are.
The third possibility, of course, is that for whatever reason we
are perceived as having been responsible for the failure to reach an
agreement or at least there is enough mud in the waters to create
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43
that impression, that-were that to happen, which absolutely cannot
and must not happen, that would make it more challenging,
not only to add new sanctions and add more pressure but just to
sustain the pressure that we have because it is very important to
keep remembering that this is not just about us.
The power, the efficacy oft.he sanctions that Congress has produced
and that we have been implementing is exponentially magnified
by the participation of other countries around the world. If
that goes away a lot of the power of the sanctions will.
Mr. CICILLINE. Thank you. I yield back.
Ms. Ros-LEHTINEN. Thank you so much.
Mr. Poe of Texas.
Mr. POE. I thank the gentlelady.
I have a lot of questions and I think you can answer many of
them with just a yes or no. They are not gotcha questions. But unless
I ask you to explain the answer, don't explain the answer, if
you would.
The 10-year agreement or however many years it is going to be.
Is the deal that the sanctions will be lifted-all of the penalties, I
should say-after the agreement is over with whenever that is?
With Iran, are the penalties coming t.o an end?
Mr. BLINKEN. Congressman, it would be-it would be phased.
That is, we would insist on Iran demonstrating compliance and
then certain sanctions might be at that point suspended, not ended.
And after still more compliance, at some point sanctions would actually
be ended, assuming Congress agreed to end them.
Similarly, on the international front with the U.N., we would be
looking at demonstrated compliance by Iran and then suspension
and then ending. And then if Iran didn't do what it was supposed
to do or if it cheated or reneged, we would have snap back provisions
both here and internationally.
Mr. POE. Okay. The purpose of this agreement is to prevent Iran
from getting nuclear weapons. Would you agree that Israel is probably
concerned, being a neighbor, about Iran getting nuclear weapons?
Mr. BLINKEN. Yes.
Mr. POE. And the United States are both concerned about-the
United States as well?
Mr. BLINKEN. Yes.
Mr. POE. The ICBM issue-that is not even being discussed as
a part of this agreement, is it?
Mr. BLINKEN. That is correct.
Mr. POE. And the Supreme Leader has said they want to get rid
of Israel first and then take on us-calls us the Great Satan. And
one way to get to us is the ICBMs, correct?
Mr. BLINKEN. That is correct.
Mr. POE. ICBMs aren't needed to eliminate Israel. They have got
other missiles that can already go and reach Israel. Is that correct?
Mr. BLINKEN. That is correct.
Mr. POE. We are not talking about trying to prevent the ICBMs.
All we are trying to do, if I understand the State Department's position,
is to keep them from getting technology.
Mr. BLINKEN. What we are trying to do apart from this agreement--
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Mr. PoE. Is that correct? We are trying to get them--
Mr. BLINKEN. The contours of this agreement go to the nuclear
program and to the United Nations Security Council resolutions regarding
that program. That is what needs to be satisfied. Those are
the terms of the negotiations that our partners sign on to.
Mr. POE. Okay.
Mr. BLINKEN. Separate and apart from that, though, we are
working very hard to prevent Iran from getting the technology.
Mr. POE. That is what I just asked you. It is a yes or no. We are
trying to prevent them from getting technology. But isn't it true
that Iran is pursuing the development of ICBMs in their country?
Mr. BLINKEN. I am sure that is true, yes.
Mr. POE. So it is true. So they are building the missiles. We are
not trying to stop them, except we just don't want them to get the
technology from the North Koreans or the Chinese or Russians.
Mr. BLJNKEN. Well, that is why they need-that is why they need
to develop it and they need to get technology from other countries
with knowledge--
Mr. PoE. Reclaiming my time. They are developing intercontinental
ballistic missiles. Is that correct?
Mr. BLINKEN. They are trying to do so, yes. That is correct.
Mr. POE. And we are not dealing with that issue, I don't think,
at all.
Mr. BLINKEN. We are, but just not part of this- Mr.
POE. Excuse me, sir. Excuse me.
Mr. BLINKEN. Sorry, Congressman.
Mr. POE. We are trying to prevent them from getting nuclear
weapons, which I think at the end of the day if this agreement is
signed and delivered they will get them eventually and then they
may have the capability to send them to us.
I think this is a long-term threat to the world and especially the
United States and Israel and peace-loving countries. Iran gets nuclear
capability. Assume this. Would you agree that Saudi Arabia
will get it next? Turkey will get it? Egypt will get it? And who else
knows in the Middle East to balance the power over the Middle
East?
Mr. BLINKEN. Yes, it sigificantly increases the likelihood, which
is why we are trying to prevent them from getting one.
Mr. POE. Just a couple of more questions.
The 2015 Worldwide Threat Assessment put out by the Director
of National Intelligence, you said that this report focused on ISIS.
If it is a worldwide assessment-worldwide-wouldn't you think
that it would mention Hezbollah? You think it might? Should?
Mr. BLINKEN. Hezbollah is a foreign terrorist organization. It remains
designated. It remains a focus of our activities.
Mr. POE. But it is not mentioned as a worldwide threat in this
report. That confuses me. If the Federal Government comes out
with a report and it reports on everything, and it is a worldwide
threat assessment of terrorism, we leave off of the state sponsor of
terrorism-Iran-and we leave off their puppet, who is causing
mischief all over the world-Hezbollah- that seems a little bit confusing
to me.
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So would you recommend that maybe the intelligence agency go
back and have an addendum to this worldwide report and add
these other two organizations?
Mr. BLINKEN. What I can te11 you is, led by the intelligence agencies,
we are pushing back every single day on Hezbollah's activities--
Mr. POE. So you think they ought to add to the report that
Hezbollah and Iran are terrorism threats to the world?
Mr. BLINKEN. Let me go back and look at the report.
Ms. Ros-LEHTINEN. Thank you. Thank you, Judge Poe.
Ms. Frankel of Florida.
Ms. FRANKEL. Thank you, Madam Chair. Thank you, gentlemen,
for being here today.
Well, it does sound like the one thing that we all agree on is that
Iran should not be able to get a nuclear weapon. I have a couple
of questions. I want to-if I could just state them first and then
you can answer.
First-my first question is if there is no deal, how long would it
take Iran to-at this point, do you think, to break out to have a
nuclear weapon?
It is interesting because I hear the frustration of so many of my
colleagues about, you know, not trusting Iran. I think we-no one
trusts Iran. But if we do not get a deal, we do not get a deal, is
the alternative-the realistic alternative a military operation?
What would that look like? And if there was a military operation,
how long do you think that could delay Iran from getting a nuclear
weapon and what do you think would be the interim collateral
damage? I mean, what would you-I am sure you have discussed
this.
You know, what is the scenario of not having a deal? Now, and
just to add to that, you have said, well, if there is no deal, then
we are going to increase the sanctions. But I am assuming that you
have made the calculation that we have taken them-that this is
a time to get a deal. So you can respond to those thoughts.
Mr. BLINKEN. Thank you very much, and I think that you raise
very important questions.
First, with regard to the break-out time, this is something we
can, I think, best deal with in a classified setting. But what I can
tell you broadly is this, that currently the break-out time is a matter
of a few months, if everything went just right.
But, of course, we would-even under the interim agreement, we
would see that immediately. But that is-that is where we are. So
if there was no deal, that is where they would be.
But, presumably, under various scenarios they would then seek
to speed to increase the number of centrifuges, and increase the
other capacity, move forward on Fordow, move forward on Iraq.
And as a result of all of that over some period of period of time
the break-out time would drop, presumably, even further.
What are the alternatives? Well, I think that is a critical question
because at the end of the day any agreement that is reached
has to be evaluated, first of all, under the terms of the agreement.
That is the most important thing. People will have to decide whether
the agreement holds up, makes sense and advances our security.
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46
But I think it is also going to be very important for those who
would oppose the agreement, if there is one, to say what the alternative
would be and how it would be achievable. Those are critical
questions because we are not operating in a vacuum and in an abstraction.
So a lot, again, as I suggested earlier, depends on why there
would be no deal. That is, if it was clear that Iran simply was not
going to make an agreement and the international community recognized
that, I think we would be in a position not only to sustain
the sanctions that we have now but to increase the pressure and
increase the sanctions.
Now, however, if for whatever reason that didn't happen, if Iran
started speeding to a weapons capacity and to a bomb, then a military
option has always been on the table. It would remain on the
table. If military action were taken, it could certainly set back
Iran's program for some period of time.
But, again, it is important to understand that because Iran has
the knowledge and that we can't bomb that away, we can't sanction
it away, that at some point they would resume their activities.
They would probably go underground. We would lose the benefit
probably of the international sanctions regime and pressure and
Iran would be in a better position than it is today and, certainly,
than it would be under an agreement.
Ms. FRANKEL. And, if you could, because I am sure you have
talked about this, what would be the ramifications especially in the
region if all of a sudden there was a war with Iran? What would
be the consequences, for example, to Israel? What would you expect?
Mr. BLINKEN. Well, I think, first of all, if Iran were in a position
where it was rushing to a nuclear weapon, many of the concerns
that have been raised by other members of the committee in terms
of what other countries in the region would do would be front and
center.
That is, it would be, I think, very tempting for other countries
to feel that they needed to pursue a nuclear weapon to protect
themselves. That is exactly one of the reasons we are trying to prevent
Iran from getting a weapon. We do not want to see an arms
race in the region.
In terms of Israel, it faces an existential threat from Iran and,
indeed, one of the reasons we are trying to prevent Iran from getting
a weapon is in defense of our close ally and partner, Israel.
Ms. FRANKEL. But would you-would you expect further acts of
terrorism?
Mr. BLINKEN. Oh, I would-I would expect that Iran unshackled
with a weapon or speeding toward one, would feel further
emboldened to take actions in the region, including against Israel.
Ms. Ros-LEHTINEN. Thank you, Ms. Frankel.
Subcommittee chair, Mr. Duncan, is recognized.
Mr. DUNCAN. Thank you, Madam Chair. And this has been a
very informative hearing. Yesterday, we had a hearing on Iran as
well. Mr. Deputy Secretary, do you believe Iran is present and active
in the Western Hemisphere?
Mr. BLINKEN. Yes.
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47
Mr. DUNCAN. Do you believe their influence is steady? Do you
think it is increasing, as General Kelly may say, or do you believe
it is not?
Mr. BLINKEN. I think they are trying in various parts of the
world including in our own hemisphere to position themselves and
to take advantage of any openings that they have.
Mr. DUNCAN. The State Department report that came out in
.2013 says that the Iranian threat in the Western Hemisphere is
waning. Are you aware of that?
Mr. BLINKEN. I am yes.
Mr. DUNCAN. Okay. If Iran is-is Iran still on the state sponsor
of terrorists list?
Mr. BLINKEN. Yes.
Mr. DUNCAN. Okay. So they are still aiding and abetting terrorist
organizations like Hezbollah all over the world, ccrrect?
Mr. BLINKEN. Yes.
Mr. DUNCAN. Okay. What is going to-what is going to change
with this agreement with regard to their being on the state sponsor
of terrorists list, as of the administration?
Mr. BLINKEN. Nothing.
Mr. DUNCAN. So we are negotiating with a country that is not
willing to quit exporting terrorist items to terrorist organizations
that could threaten the United States and its friends and allies,
right?
Mr. BLINKEN. So we are negotiating in order to deny them a nuclear
weapon which would further embolden those activities. And
at the same time, we are making it very clear that whether or not
there is an agreement we will continue to be taking action against
its efforts to do all of the things you just cited.
Mr. DUNCAN. Iran has continually violated past obligations with
regards to sanctions and sanctions relief and all of that. What is
to make us think that they are not going to violate this?
Mr. BLINKEN. Because of the penalties that they would have to
pay. The reason that they are at the table now is because they violated-
Mr. DUNCAN. But it is not legally binding on us. Do you-will
you all of a sudden think it is going to be legally binding on them?
Mr. BLINKEN. I don't think--
Mr. DUNCAN. How do you think they-how do you think they
view that statement?
Mr. BLINKEN. Oh, I think the issue is not whether it is legally
binding. The issue is whether it is very clear, and it will be, that
if they violate the agreement there will be serious consequences.
It doesn't matter if that is legally binding or not. The sanctions
will come back into full force and there will be more sanctions.
Mr. DUNCAN. North Korea has the same sanctions and they violated
those and they have the bomb now.
Mr. BLINKEN. But, again, with regard to Iran the very reason
they are at the table is because they spent years and years and
years violating their obligations. Thanks to Congress, thanks to the
administration, thanks to our international partners, we exerted
significant pressure on them and now, faced with that pressure,
they are seeking to make an agreement.
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Mr. DUNCAN. I think pressure works. I think the sanctions
worked. I think Mr. Szubin talked about some of the repercussions
of that.
Now, let me move on. In April 2014, Secretary of State J ohn
Kerry said that the Obama administration will consult with Congress
about sanctions relief contained in a final agreement and he
said, well-and this is his quote: "Well, of course, we would be obligated
under the law," he said, adding "What we do will have to
pass muster with Congress. We well understand that."
Yet, the Secretary's testimony in the Senate last week, excuse
me-Deputy Secretary Blinken said and Under Secretary Cohen indicated
that the Obama administration would not submit a potential
agreement to Congress for a vote. Instead, the administration
will sign what is termed a political agreement.
So What is the difference between what Secretary Kerry said in
2014 and what is being said by the administration now?
Mr. BLINKEN. No, I don't there is a difference, sir. I think the
Secretary is exactly right. First of all, in our judgment, at least, we
have consulted extensively throughout the duration of these negotiations-
as I cited earlier, more than 200 hearings, meetings,
calls, briefings.
If there is an agreement, obviously, we will go through that in
great detail in Congress in open sessions and closed sessions, in
meetings, in calls. And as we have been clear all along, the agreement
at some point will call-will require the lifting of sanctions
and only Congress can decide whether to do that or not.
So Congress will have a vote and, indeed, keeping that Sword of
Damocles hanging over the heads of the Iranians-that is, the
knowledge that the sanctions have been suspended but not ended
and that Congress has the authority to end them-we think wi11
be leverage to make sure that they make good on their commitments.
Mr. DUNCAN. Okay.
Madam chair, I don't have a whole lot of other questions.
Ms. Ros-LEHTINEN. Thank you so much.
Mr. DUNCAN. A lot them I asked. Thank you. I yield back.
Ms. Ros-LEHTINEN. Because although there is a vote on and we
have two votes, the subcommittee-I mean, the full committee will
come back. But we would never break without the opportunity of
recognizing Mr. Connolly for his 5 minutes.
Mr. CONNOLLY. I thank my friend.
Unfortunately, I have to begin by chastising my friend. You
know, my friend, the chair, who is truly my friend, referred to the
President having a temper tantrum about Prime Minister
Netanyahu, and Mr. Chabot, my friend from Ohio, and he is also
my friend, said there is no President who has done more to damage
the U.S.-Israeli relationship.
I cannot let that go by. A foreign leader has insulted the head
of state of the United States Government. It is not a temper tantrum
and it didn't start with President Obama. It started with Bibi
Netanyahu.
You can decide for yourself whether it was appropriate for him
to speak to a joint session. But the process is beyond dispute.
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It was an insult to this government. Friends don't act that way,
and I would say to my friend, Mr. Chabot from Ohio, it would come
as news to Shimon Peres, the outgoing President of Israel who gave
President Obama the highest award that the Israeli Government
can give, for his support of Israel.
At some point, does the partisan rhetoric ever stop? Where are
your loyalties with respect to the prerogatives of this government
and our country? And the shameless way Mr. Netanyahu has conducted
himself deserves reproach and I think the President has actually
shown restraint.
And I say this as somebody who has a 35-year record of unwavering
support for Israel. I am not a critic of the Israeli Government.
But I am a critic of how this Prime Minister has treated my President-
everyone's President-and I cannot sit here and listen to the
waving away of bad behavior that is an insult to my country.
We have one President, whether you like him or not, whether
you want to take political issue with him or not. Fair enough. That
is fair game.
But when a foreign leader insults him, that should not be fair
game and that should never be apologized away because it damages
relationships long-term. It puts a divide where there was
never a divide in public opinion in my country and I worry about
that long term. I hope you do too.
Let me say, Mr. Deputy Secretary, it seems to me there are five
issues that Congress has to be concerned about. There is the broad
extensional question, are we better with a deal or without.
I would argue that same Prime Minister of Israel has never supported
any agreement with Iran even though we are where we are,
and he would like zero centrifuges. He would like zero enrichment
capability.
He would like a complete roll back so that there is no nuclear
capability, and so would I. But I don't know anybody who can
achieve that, realistically, and if you feel that, if those are your
goals, the only option is what has euphemistically been called the
kinetic option if you are not willing to accept any nuclear capability
and I am not sure the American people support that. I am not even
sure the Israeli people support that. Would you agree with that
analysis, Mr. Deputy Secretary?
Mr. BLINKEN. Thank you. I would agree. As we discussed earlier,
that Iran has knowledge of the fuel cycle. They know how to make
a bomb if they choose to do it and we can't bomb that away. We
can delay it. We can't eliminate it. It is knowledge.
Mr. CONNOLLY. Let me-let me say I think there are five issues.
If we move on--okay. Let us accept that and so we need an agreement.
We are going to get the best agreement or we need to seek
the best agreement we can.
I think with respect to my colleagues in Congress including myself
there are five issues that have to be addressed and that the
administration is going to have to convince us you have addressed
efficaciously to the best of your ability to our satisfaction.
One is what capability is left in place? Number of centrifuges,
percentage of enrichment-something we can live with? Something
we got to worry about? Two, cheating, and that-the inspection regime
to me is all important. If there are holes in the inspection reAnnex
97
50
gime I don't see how you are going to get any confidence in the
agreement.
Thirdly, sanctions-how do we phase in the lifting of sanctions
assuming an efficacious agreement and how expeditiously can we
reimpose them? Our worry up here is that we might be okay but
our allies may not.
Fourth, the threshold time frame-there are a lot of-there is a
lot of legitimate concern up here that it is too fast, that Iran can
quickly rush to nuclear capability under the reported terms of the
agreement.
And, finally, the expiration of an agreement- the time frame for
expiration. A lot of people are very concerned about the that, that
it is almost an open invitation to a future Iranian Government to
proceed.
Thank you very much, Madam Chairman.
Ms. Ros-LEHTINEN. Thank you, Mr. Connolly, and it is not my
temper tantrum to cut you off. We really are out of time.
Mr. CONNOLLY. I know. I know.
Ms. Ros-LEHTINEN. And to all the committee members and witnesses,
we have two votes on the floor. We will recess briefly and
then come back to get to the most amount of members that we can
get to before our witnesses have to depart.
And so with that, the committee stands in recess. Thank you.
[Recess.)
Chairman ROYCE. We will re-adjourn and go to Mr. Tom Emmer
of Minnesota.
Mr. EMMER. Thank you, Mr. Chair, and thank you to both the
witnesses for being here today.
Just a couple of questions because you pretty much have been
running the range today in front of the committee. But first, Mr.
Blinken, thank you for being here, again, and thank you for your
service.
Your opening remarks were assuring to somebody like me who
wants to see the branches as they were constructed work the way
they are supposed to and I just want to confirm, if you will bear
with me.
I believe it is Article 1 Section 8 says that it is the sole responsibility
of Congress to enter into agreements with foreign nations,
which would include treaties or agreements such as the one that
we have been discussing, and I believe that you confirmed that
again this morning that it will be Congress's obligation to finalize,
ratify any negotiated agreement.
Mr. BLINKEN. Because Congress imposed and legislated the sanctions
on Iran, if those sanctions are ever to be lifted Congress must
be the one to do it. Congress has the-only Congress has the authority
to do that.
Mr. EMMER. But that is what is already in place. That part aside,
any agreement with the details that the administration is participating
in the negotiations in right now it is Congress that not
only-I think your words this morning will play a very important
role-that was number one, which indicates to me there will be
much communication once this framework, if it is reached by the
end of this month--once that is reached there will be some significant
communication.
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Mr. BUNKEN. Absolutely.
Mr. EMMER. And after that, assuming that can you can arrive at
the final details by the end of June, then I just want to make sure
that I understand your position on behalf of the State Department
is that Congress will have to approve or will not any final agreement.
Mr. BLINKEN. No, Congressman, that is not our position. This
would not be a treaty that would be subject to the advice and consent
of the Senate.
This would be an agreement that, obviously, as I said before, for
its terms to be implemented, assuming that sanctions are to be lifted,
Congress would have to play that role and it could decide
whether or not to do that.
And you are absolutely right that just as we have sought to consult
fully throughout this process in hearings and briefings and
meetings and phone calls, you are absolutely right that if there is
an agreement in the coming weeks that we would consult intensely
with Congress on that agreement. Every aspect of that agreement
would be----
Mr. EMMER. But all you-but all you are going to ask for, based
on what you are testifying to this morning, is that Congress lift the
sanctions. You are not going to ask for Congressional approval of
the final agreement.
Mr. BLlNKEN. That is correct.
Mr. EMMER. So if it is not legally binding then, as Secretary of
State Kerry has discussed, what do you actually believe that you
are getting out of it then? And let me just add to it because I am
trying to be very measured.
It disturbs me greatly to have people talk about giving an organization
that is not interested in peace around the globe, that is actually
and being an aggressor and trying to roil up_ problems-we are
going to give them all kinds of hard currency. Explain to me how
this is a good idea.
Mr. BLINKEN. So two things. Thank you, Congressman. First,
with regard to whether it is legally binding or not, if this is really
a question of international law, first and foremost, if you make a
legally binding agreement then it is subject to various provisions
of international law which actually make it more difficult to do
things we may have to do if Iran violates the agreement.
There are all sorts of treaty law formalities that we would have
to go through if we said Iran is violating the agreement.
We would have to present a legally defensible reason to cease our
implementation of our commitments under the agreement. We
might get into a debate with our international partners if they did
not agree. I am making--
Mr. EMMER. Well, I am going to run out of time, with all due respect.
I am going to run out of time. So I just-I think that this
is the problem that the administration has had and now the administration
and Congress are having is this breakdown in an understanding
of respective positions in the process, and the idea that
this administration is going to get approval from the U.N. Security
Council as opposed to coming to Congress is not only disturbing,
it is wrong, from my perspective.
Mr. BLrNKEN. Thank you, Congressman.
i ;
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Could I just mention-you know, again, I just want to be clear.
We will have to go, if there is an agreement, to both. That is, there
are sanctions that are pursuant to the United Nations Security
Council that have been implemented by the Council so the Council
will have the authority and will have to decide whether to lift them
or not, suspend them or not.
Similarly, our own sanctions have been imposed and legislated
by Congress. Only Congress can decide whether to end them. And,
as you know, the vast majority of the international agreements
that we strike around the world, a key tool of our foreign policy
and national security policy, are nonbinding.
Mr. EMMER. Thank you. Mr. Chair, I am going to yield back.
But I just want to make the ·comment that it is amazing to me
that this administration apparently puts Congress and the U.N. on
the same level in terms of who they are going to deal with.
Chairman ROYCE. If the gentleman will yield. I am not sure it
is on the same level because I think the U.N. vote will come immediately.
Mr. EMMER. Again, I was trying to be measured.
Chairman ROYCE. You were being measured and I appreciate
that, Tom.
I do think that it is going to be a considerable amount of timti
under the calculus that the administration is working under when
they intend to come to Congress for that vote and that is very, very
concern concerning. But I appreciate the gentleman raising this
issue.
We go now to Brian Higgins of New York.
Mr. HIGGINS. Thank you. Mr. Secretary, is this the most complicated
negotiation that the administration has been involved with
internationally?
Mr. BLINKEN. It is-I think the answer is yes. I am searching my
mind to think of anything that could rise to a higher level of complexity.
You know, arguably, the new START agreement was complicated.
But I would I have to say this probably tops the list.
Mr. HIGGINS. Yes. Now, the interesting thing is, you know, it is
still an agreement. You hear varying reports saying that, you
know, 90 percent is done and 60 percent is done. But, you know,
the bottom line is that it is still very fluid.
Mr. BLINKEN. That is correct.
Mr. HIGGINS. And those issues that remain will always be the
most critical issues because they are the most difficult to find mutuality
on.
Mr. BLINKEN. That is correct.
Mr. HIGGINS. But, clearly, the issue of fuel and enrichment capacity
are central to this and inspections and verification. How
many pounds of enriched uranium is Iran though to have currently?
Mr. BLINKEN. So they have a stockpile of low enriched uranium
at about 3.5 percent that is, I recall, is about 7,000 kilos . Is that
correct?
Mr. HIGGINS. And under the current draft framework, what
would become of that 3.5 percent enriched uranium?
Mr. BLINKEN. So you will understand I can't get into the details.
This is all subject to negotiations. But one of the elements, and you
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53
are right to point to it, that would be important in figuring out
their break-out time is the available stockpile of material that they
have to work with.
So centrifuges-the number of the centrifuges is one component.
The configuration of the centrifuges is another. The stockpile is a
third. And depending on how you put those elements together you
limit their break-out time.
But I can't tell you what the limitation might be under an agreement
because that is all subject to the negotiation.
Mr. HIGGINS. The proliferation of centrifuges 10 years ago, really,
under Rouhani, there were probably, you know, less than 200 centrifuges.
Now there is over 19,000. Now we are talking about advanced
centrifuges. We are talking about next gene'ration centrifuges. We
are talking about, as you mentioned in your response, a knowledge
that you can't destroy.
Is it-is it plausible, is it-is it realistic to accept the uraniumIranian
argument that they need so many centrifuges in order to
sustain a civil peaceful nuclear program?
Mr. BLINKEN. Well, look, obviously, we are highly skeptical of
that argument. The fact of.the matter is that they, clearly, had the
military aspirations for their program at least through 2003.
That is, certainly, the assessment that our intelligence community
made at the time. And, of course, so many aspects of this program
strongly suggest that they are seeking or have been seeking
a nuclear weapons capacity.
That said, their argument, for what it is worth, is that they do
want to build a nuclear power program for the country. They, obviously,
have vast oil resources so why they would need it is a very
good question.
They say that they want to devote oil to exports. They want to
have the nuclear program for domestic energy production. They
talk about a post-carbon future, which other countries talk about.
But all of that said, their activities, of course, suggest the opposite
and if that is really what they were focused on, they could presumably,
you know, buy nuclear fuel abroad instead of produce it.
Mr. HIGGINS. Well, let me ask you this. What percentage of Iranian's
domestic nuclear power is nuclear?
Mr. BLJNKEN. It is very de minimis but I will get you the exact
number. But what they-what they purport to be looking at is a
much more significant piece of their domestic energy program
being provided by nuclear.
That is the argument they make for why they would need a significant
enrichment capacity in the future and, again, we are certainly
skeptical of that, especially given their oil resources.
Mr. HIGGINS. The-you know, it is just, you know, again, very,
very difficult within the context of what Iran is engaged in today.
Qasem Soleimani, head of the Quds Forces, is on the ground in
Iraq today, probably, you know, directly leading the Shi'a militias
in Iraq today to defeat ISIS.
He saved Bashir al-Assad in the 11th hour to preserve Syria as
a land bridge into Lebanon, to Hezbollah, which acts as a proxy for
Iran.
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And yet here we sit with them face to face in negotiations. I do
understand the complexity of diplomacy and the fact that you use
diplomacy with your enemies more than your-but this is a very,
very, very hard thing not only technically from the standpoint of
a negotiator-and we do appreciate your efforts-but politically as
well. You know trust is a hard thing and America is an extraordinary
superpower.
But I do believe that even if, you know, in the end we have to
exercise a military option because negotiations fail, I do think we
have to demonstrate to the international community that every
diplomatic avenue was exhausted before that can happen and that
is, unfortunately, the responsibility of America as the indispensable
world power.
I yield back.
Mr. BLINKEN. Thank you.
Chairman ROYCE. I thank the gentleman for yielding.
We are going to Mr. Ted Yoho of Florida.
Mr. YOHO. Mr. Chairman, I appreciate it and I am not really
sure where to start, I have so many questions, and just looking for
clarification.
I think the best way to start is that there was a quote from
President Dwight Eisenhower 60 years ago when he announced the
Atoms for Peace program: "One lesson is clear. Civilian nuclear
programs flourish only through cooperation and openness. Secrecy
and isolation are typically signs of a nuclear weapons program."
I don't think that has differed and, you know, we look at Iran
over the last 30 years and if you have you read, and I am sure you
have, Ambassador John Bolton's book, "Surrender is Not an Option,"
Iran has been moving steadily in this direction ever since
then. They have played the cat and mouse game. They have lied
and deceived.
It is a pure game of sophistry, and sophistry, as we all know, is
a well orchestrated deception, misdirection and we call that a lie,
in the country. And I see that going on with our nuclear negotiations
and I mean that in the sense that I think it is great that we
are negotiating to prevent them from getting nuclear arms but I
think we are all in agreement they are going to get nuclear arms.
I have sat here for 2 years. I am going into the third year. We
have had expert after expert after expert sitting where you are that
said Iran within 6 months-that is when I first got here in January
2013-within 6 months to a year has enough fissile material for
five to six bombs.
And so that has been over a year so I can only assume, because
the experts like you have told us, they are going to have that. And
for us to say no, they are not, and then you look at Iran has prevented
the IAEA to go in to inspect, we have got evidence that they
have detonated a nuclear trigger in the region of Parchin but they
won't let the IAEA go in.
And going back to what President Eisenhower said is if they are
not going to be forthright and honest and open, is it prudent for
the United States of America to go forward with this versus backing
up from the negotiation table and say, when you are serious,
Iran, let us know and we will take the sanctions off.
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Mr. Szubin, you brought up that Iran is in a crisis mode. They
are in a hole. It will take over a $160 billion to get out of it. Yet,
yesterday on the Western Hemisphere meeting we had the experts
again and the report from the State Department said that Iran and
Hezbollah has got the most activity they have ever had in the
Western Hemisphere since 2009.
Iran is working with Iraq to beat ISIS so they are funding a war
in Iraq. They have funded the takeover of Yemen, and I ask you
is that the nation-is that the status of a nation that is in crisis
and they are starving and they are on their last dollar?
Would they be investing money into that or would they investing
it into their own country? What are your thoughts on that?
Mr. SzUBIN. Thank you, Congressman. If I could take the last
part of your question and then-Mr.
YOHO. Sure.
Mr. SZUBIN [continuing). Actually defer to my colleague.
Mr. YOHO. And I have got another one I want to ask you real
quick so go ahead.
Mr. SzUBIN. Sure. So I did not say that they were on their last
dollar and, obviously, we are talking about a sophisticated large industrialized
country. What I talked about the were indicators of the
economic strain on their society and the economic strain is massive.
That doesn't mean that they don't have the thousands of dollars
or even hundreds of thousands of dollars to provide to nefarious actors
in their region or even in Latin America and, unfortunately,
some of this activity, as dangerous as it is, comes cheap.
Mr. YOHO. Right. And their goal is-again, we hear over and
over again Fidel Castro met with the Ayatollah roughly 10 years
ago, said we have a common enemy-that enemy is America and
our goal is to bring them jointly together to its knees.
I don't see that any different, and with the narrative coming out
of there, the rhetoric you hear, it is like Chairman Royce says, you
know, "Death to America."
You can pick up a paper pretty much every week and you will
find that in there. To move forward, thinking that we are stopping
them-and Henry Kissinger said the move that we are-we are
moving to prevent proliferation to managing it.
So I think we should come clean with the American people, say
they going to have a nuclear weapon. I think that we should put
emphasis on what are we going to do the day that they do have
that and have our foreign policy because you are already seeing
Saudi Arabia and Egypt wanting to run a nuclear program.
Are we going to monitor them? Are we going to say, no, you
can't? And then at what point do you intervene? And so I think all
of this we are going through, I appreciate you going through it. But
I think we are putting emphasis on something to say we are trying
to prevent it and we know they are not going to prevent it.
Mr. BLINKEN. Thank you very much, Congressman.
I would say, first of all, as in many things and most things President
Eisenhower was very wise--
Mr. YOHO. Yes, he was.
Mr. BLINKEN [continuing]. And so I think apply very appropriately
to what we are looking at now, and it is precisely because
of Iran's efforts to cheat and to dodge its responsibilities and dodge
Annex 97
56
its commitments and proceed with a program that the world has
called them out and the world has exerted extraordinary pressure
on them and that is why they are at the table.
And the only reason that they are there is in order to relieve
some of that pressure and the fact that that pressure could be reimposed
is the strong incentive they would have to make good on
the agreement.
And I would note again that under the interim agreementunder
the terms of the agreement they have made good on those
commitments for its duration. Going forward, we have to have, and
we will have for there to be any agreement, the most exceptional
intrusive monitoring, access and inspection regime than any country
has ever seen.
That is the only thing that can give us confidence that we are
not trusting Iran's word. We are looking at its actions and we wi11
find out if it is violating its commitments.
That is what this is about. At the end of the day, again, we have
to deal with-and by the way, I should say we don't accept the
proposition that they would get a nuclear weapon. The entire effort
that we are making is to make sure that they don't.
If there is no agreement, then there is a good chance that they
will rush to a weapon or, certainly, rush to have the capacity to
make one.
Mr. YOHO. Does that make all those experts previously that said
that they were going to have it wrong?
Mr. BLINKEN. I think what they wer~I would have to go back,
Congressman, and see what-exactly what they said. I think what
they were talking about was what is their capacity, where are they
in terms of the capacity of producing a weapon should they choose
to do it.
I believe that is what they are talking about and what would the
time line be. We are pushing that back. We are making sure that
if they did decide to do that we would see it and we would be able
to do something about it. That is what this is about.
Mr. YOHO. My time has expired and I appreciate it. Thank you,
Mr. Chairman.
Mr. BLINKEN. Thank you.
Chairman ROYCE. I thank the gentleman and I thank Secretary
Blinken and Mr. Szubin. Thank you very much for your testimony
here today.
I also want to remind you about the points that we made here,
the points that we made in the opening statements. I implore you
to convey those views immediately, if you would, to Secretary
Kerry and the negotiating team.
You heard deep concerns over the sunset provision here, the fact
it is only 10 years, over the question of verification of the agreement
itself and whether at th~as fart of this process whether
Iran is going to be required to revea its clandestine work that it
has took on trying to develop a nuclear weapon in the past as part
of any final agreement.
You can't have real verification going forward unless you have
that revealed to the IAEA. You heard our concerns about previous
military activities on the part of the regime, previous testing, what
actually went on at the sites that they won't give us access to, as
Annex 97
57
well as Iran's vast ballistic missile program that is underway as we
speak and about Congress' role in this.
So, there is a number of the other issues raised as well so I hope
you can convey that there are some profound bipartisan concerns
that need to be heard, as a deal may be announced any day.
And while our hearing was taking place there is news breaking
from Switzerland that a draft is circulating there among the parties
and in that draft Iran would have 6,000 spinning centrifuges
for the next decade.
So I know the committee is frustrated to read the press about
drafts circulating. It does says something about the administration's
commitment to transparency when the press has the information
and we are reading it off the news wire. So--
Mr. BLINKEN. Mr. Chairman, just on that point-Chairman
ROYCE. Yes.
Mr. BLINKEN [continuingl. My understanding is that there is no
draft-that that report is erroneous and, indeed, our spokesperson
clarified that.
Chairman ROYCE. That is good news. So we appreciate that.
Mr. BLINKEN. Thank you.
Chairman ROYCE. So when there is a draft, please share it with
the members of this committee and of the Congress.
We thank you again for your testimony, and for now, we will
stand adjourned.
Mr. BLINKEN. Thank you, Mr. Chairman.
[Whereupon, at 11:07 a.m., the committee was adjourned.]
.!
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APPENDIX
MATERIAL SUBMITIED FOR THE RECORD
(59)
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Annex 97
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FULL COMMITI'EE HEARING NOTICE
COMMITTEE ON FOREIGN AFFAIRS
U.S HOUS.EOF REPRESENTATIVES
WASHTNGTOK. DC 20515-6128
Edward R. Royce (R-CA), Chairman
March 12, 2015
TO: MEMBERS OF THE CO:'lfMITTEE ON FOREIGN AFFAIRS
You are respectfully requested to auend an OPEN hearing of the Committee on Foreign Affairs,
to be held in Room 2172 of the Rayburn House Office .Building (and available live oo the Committee
website at htJp:li:,nyw.FQreignAffairs housc.goy\:
DAT£:
TIME:
SUBJECT:
WITNESSES:
Thursday, March 19. 2015
8:30a.m.
Negotiations with Iran: Bloclcin11 or Paving Tehran's Path to Nuclear Weapous?
The Honorahle Antony 1 Blinken
Deputy Secreury of State
U S. Department nfState
Mr. Adam J. Szobin
Acting Under Secretary
OfficeofTenorism aod financial Inlelligence
U.S. Depaltment of the Treasury
By Direction of the Chairman
rf•4 Concalnw Oft l''ordl"~'Wf, ,cd.r 1,111UJ:~111fo:1/ltkJ ~-v:.-.mNic IOpcrJ<:,U tdrf1"»NbneJ 1/J'(IU ,wl11 ,.,._.Jc(,r,tri:,/J«~piNJC
1-J/ XJ2,J)!,!IJ1J '11 b»Jfiar bwJJ~ .tp--, l1t ~ • i.{~ m:nt. """,_.IJll..,_T pr,~,. ()w.,IJQnl wllin~ .-, ,¥!«...,,/ ~ -11,~na-.J'
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Annex 97
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COMMITTEE ON FORF.lGN AFFAIRS
MINUTES OF FULL COMMJTIE€ HEARING
Doy Th11nuy Dote _ _..0J.""V.,_/'1"-1/2"'0'-'1"-S _ _JJloom _ _ -'2"'1'-"72=-----
Startlne Time l;JSem Endlnc Time ll;07m
Rocules bJ (.._to __J (._to __J c_,o _J (._to __J C-_to _J (._lo__)
PNOidlog M~b<r(1)
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Ottck all oft•tfo/lDw/Jfg tur gppiy,
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h«ulln (dooecl) S...ion D
Teln-aed IZl
TITLE 01' BEARING:
£1ectruaJcaU, Recwded {lapod)[Z]
Swnognp~le Record [l]
N~ru with J,o,r: BlocJ.ing or Pa•ing T~hran ~ Path to N11dMr Wffl"111S1
COMMTI"O:J: MEMBERS PRESENT:
SulltUc'-1
NON-COMMl'ITEI: MEMBERS PR.!SENT:
non~
JIEAIUNG WlTNISSIS: Same M .mHWII notice 1t1.1clledT Yatt) No□
(If ·no", pka,t lut IM/aw tmd lnc/lldt lith, ag,m,y. dq,ort#lffll, or orgo,,aalion.)
:;I'ATEMENTS ,OR Till RECORD: (ii# any 11atemm1J su/Jmftttdft, tire ,,_.d)
sn, • Rq,. GenU eo1111eUy
QFll. CJ,iJn,,,ur l!.dtNr;l R. Roya
QFR • Rep. 1/~ana R-'-elltiNn
(lFR • Rep. C/rru S..itl,
nMZ l5Cff'tl>VLl:D TO UCONVl:m __ _
ot
TIME ADJOURNJ:D Jl:07•m
Annex 97
PnlW'>.7
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62
HOUSE COMMITTEE ON FOREIGN AFFAIRS
HnJ. CoMMTTmF. Hr-.ARING
MP.J.18T::R PIIF.'m~T Ml'J.1111'//
Edward R. Ro,·ce, CA X Eliot L. EnRel, NY
Christopher H. Sn~th, NJ X Brad Sherman, CA
neana Ros-Lelltinen. FL GreJ(on· W. Meeks, NY
Dana Rohrabacher, CA X Albio Sires. NJ
Steve C'hllbot. OH X Gtrald E. C'onnoll~. VA
Joe Wilson. SC X lbeodoro E. Doulch, FL
Mii:bJd T. MtC'aul, TX X Brian Hirmn.,, NY
Too Poe, TX Karen Bas.s, CA
Mall Salmon. AZ X William Keating. MA
Danell Issa. CA X Da,id Cicilline, Rl
Tom Marino, PA Alm Gnvson. FL
Jeff Duncan. SC X AmiBero.CA
Mo Brooks, Al X Alm S. Lowenthal. CA
Paul Cool.. CA X Grace Men!!. NY
Randy Weber. TX X Loi> F11111l.el, FL
Senn Peny, PA Tulsi Clahbard, HI
Ron DeSanris. FL X Joaquin Casrro, TX
Man: Meadows, NC X Robin Kell)', 11..
Ted Yoho. FL Brendan Bo\•le, PA
Curt Claw.aon. FL
Scott. DesJarlois. TN
Reid Ribble. WI
OB\'eTrott.MI
Lee Zeldin, NY
TomEnllill!!r, MN
Annex 97
63
St1tm1,nt for the R«ord
Mr. C-nol/.r of 1'"11'1(1,,i,,
The P5~ I ocgOWlliog panoor, b:Lvc ,clf-impo,cd a late Man:b deadline to n:ach a frmn<W<>rit fur a fioaJ cwclcar
"ljn>:mail \\ith !Jin The ncgoti .. ions lll: oum:ntly b::u,g C<lllductcd under the a,spic.:s oftbc loin1 Plan of A<tioo
(JPOA). which has olre>dy been cmndod twice. Presidenl Obafn• ond s«rtWy of SI.UC Ke,ry have reiletall:d "'3t • third
extension b...-yood the- hatd deadline in June is oc:itkr feasible oor nr..-o.."S.W)· to giwgc \\ilcthcr 1rao bas Krious ia.tcalions
to reach• final agreement that i• :aoccfublc 10 •II (Wt"" E,cn for lhnsc who han: bcco ~ pa,11>:11 u, the
pursuit of a .fin.aJ agrocmcol our patience is wo.u:ulQ thin..
Since Jntary 70, 20 14, the P:Hl countriu h3vc (()nductcd a mu1til».eral cffon toe~ the Islamic Republic on an
iss1J1.: ofprofou.nd import to thi: reg.ion - pr""VC.'fltinK lr.¥1 f'rcm obt.ainin3,0 nuckar \YCQJ!Oft The JPOA h3sam-sa.-.d the l,on
noolw p,og,am oo several ftoots aod 1w ncl..ily reversed aai,Js ltao ....S. " ·lule devclopins its pJ08t11111 outside die
purviev.· ofioo:macional in,pe<:tors. Bef~ lhe JPOA \\"tllt intoeffec-t, tran v.-as enrich1ns uranium stOCkpilcs, constrvctin5
a hea.! wattr rt40t0< et Arai<, readying ~.(KIi> addirionaJ centrifuges for ope,.;o,,, and a)IO\,;ng iMp<Cl<lrsonly spof8Chc
:i=ss to nuclear facilities Ul\dcnheJPOA. Iran haselimin:lled>II 211pera,,101nchod uranium, "''f'Codcd all
cnricl,men1 >ho,-e l perecnl stopped c:ooslruction al Arai.. kept 9.000 ecnlrifugcs ofllino. ml pttwidcd iMpeaon \\ill!
dai~· occess 10 ilJ nuclear facilities. Further. our domo,tic cmbaigo and financial. banking. pclroleum. lrade. 1e.rrorism.
and hwnan rights S3netion, remain in place under the JPOA.
This succc.u has not stOl)pod some in'Clponsiblc actors from using lhc ncgotillloD! to make Ctu5 and m..qo,ccrc o,-cnurc,
d,sipd 10 undermioe tb, talks and n,aJize ,i,on 1enn political slins. S<nalor Tom Conoa'• oi-leocr 10 !ho l<Odon of
the 1$1am;c Rc:poblic oflr.111. sign,:d by 46 of his Repoblic,n Sci>ale colleagues, ""' • bruch of any undersllolding of the
,q,aration ofpowcn. Lsracl.i Prin,c MinistaNe1.1ni-ahu's IJll1isan coi111Sioa ,;ith bis Ambnssodor, Mr. D<:nn<r. aod
Speaker Boclux:r to""°""' !he privilege of addn:ssina • Joiot Senion of Coos,cu on th: n,bjcd of the P:I~ I ocgotjaticm,
"u simi.lmiy affi:mi,-..:. h dfO\t: a pAl'Qsan wedge wbcrc none Ml ~"\':r cxiRcd bcforo. it PfO\'idcd a gratuitous insutt to
our head ofstllc, and it bypassed any rcawnable norm of diplomatic protOCOI. rt ,,-as a shameful epilOde cha d.iminishcs
the ,erious issue wt,ich onc:nsibty caused Mr. Netanyahu to pwh aside diplom.a:tic nketies: namely die hani~ nuclc;,.r
acgolialiou. By actinA io ,..c1, • blm.ualy porti,aa way. Mr. Nct1ny11lw dilutro dx: focus &cm tbat CCClr.lJ. c><i$lallial
i~skae, 10 one of parochial p;:utisan politics • his and oors.
Additionally. wl,ile ,,,. have heard ccuntl.., objections. vioblc oll<:maiives h>vc not been as fonhcom,ng. The value o(lhe
interim aareen-.cnt as our bcst.o.~llable option fOf ptt,·~nring Iran f,om obtairilng a nuclear "'C.lr.PO" should nol be
Wldcmllled. Al• No\'crnbcr hearing bcli,n, the Subcomroirux: oo tbc Middle E>sl >Dd Nonh Africa. Gco:n1 Michael
H>)den iUled tha! the euphemiSlicolly (elmod "\:in<1i<:' option "ould ac1uall) ..,,.1,:ra1c lr.in'spur1<1it and development
or a nucle:u- "'""P)n, It would also dcpri~ 111 of ooe of 1hc "'°"' ,al"3ble c:ompon,:nts of the JPOA which is enhanocd
sut"VC1llancc of Iran's nuclea.r pl'Og}W1I, Wc..should hccdGencr.:11 H.-,yden"s waming3nd be penicularty ,uspe,ctofpolicr
~scriptiom that s:cmin,gly p<ccludc a negotiated scttlc:mcn.1 to lra.o"s nuclear prognan
I ha,~ joined the Cbaimml and lbnking Member of this C'omminee and a biportisan coali1ioc of my oollc,gue• in ..-rilin&
10 !he Presi~I IO funllc:r a oon.<lructi,·c di>k>gu< on "hal --auld con,tic111< u, aooepiable final oan,em<nl. Ultimalel)'. v.-e
"'"" an 'II"''""""' that bloo., alloflrao·s palhwo)~ to a bomb. This woold include a curtailed oucloat iob,t,ucsun:. full
di,clo""" o:g,arding the Jm1 potential milituy dimension> of Iran·, nuclear prog,vn. a fiaolOU8 iaspcctioo, rc-gimc thal
aJlo,H international inspeccon to \-erif)· rran·scompliMce. ond an o,-,raJl assu-r.tnee lha:1 the Iranian nuclear program
would nor be c.ipablcof producing afluck:ot ~pon before 91-·c could stop it. In k~ns wrth both 1hc JPOA and an offer
mad.: by Ill< Bulh ,l.dmirwlralioo lo lf1ln it, 2008. o fuw !lgrt<rn.:nl ,hould not SIIOJCt its oncrou, n:quu<RIWI' ur!lil we
ba\'C c:oa.fidcncc tb.d. lnm ·, nuclear prognrn is cxclus.ivcly pcKCful
It is IQ11°$ ov.n actions thal have isol~tcd the Islamic Republic from the rest oldlc world. Human rights abuse,..
pf'OYC)CGl'iYC intC1'-'Cntion into qionoJ conflicts, and en illicit nuck:.lr program ha\.l: noccuitl&Cd the oonstrvctioo of a
broad and cficcti\'C ll&lctiom n.:gimo. We a.re approachia,g a croesroads at ,vb.k:h ~ must mab: 11 decision ID citbct
continue in&o & mulrilale~ agreement designed to safeguard global security and sa:abdity or l'el'Cf110 its d.ntntc::live
traJectory. Regard I CH of lr.m's dcC111on. it 11 the policr oflhe Unu:ed States that Iran Yi 111 not obUJn a nuclear ¥>capon.
Annex 97
64
Q11t1ri«NU for the" Rcconl Suba1itted to
D<pwry Sc,tttary Antony Blinka, by
Rq,..-..nlalivc Edward R. Royce (I)
Hou• Corami1tc-e o• roreip Affain
l-'c-bruAl')• 25. 201~
Wo11ld :a (."N~ tc.~hnirin require the United Sulc~ rn " ·aivo. r.a~,cnd. rK t!fhcr\\ik:: modify th.: cxi,tiag 00ffl\..."1tic
S31\d1Cl1$ rcgunc't If so. how'! Spccific.'\U~·. " 'bJcb d~tic s.,nctioos lllld dcs1gnc.tioms wouJd be affixtcd''
On April 2. 2015, lho P5+ I and lnin .,nounced an Wldcrttonding rcg>rdins U1e kc} par.unetert of a
compreherui'v'C deal "ilh l,an co addn:ss its nuckarprogran. As llle Admin1smtion 's fact sht-el summarii.ing this
undtn11111d;ng. the "l'aromel<r> for a Joint C'.omprel,en,ive Plan of Aeoo, roptding the lslomic it.public of 1..,, ••
Nuclear PIOJl'3ll1."...,,, a new UN Sccuriry C'.oundl rc,olUlion would cndooc 1"': compn:hcnsiYc deal and UJiC its full
impleruenlation, lift pas< UN S«urity Council =otutions on the lr.m nuei,,ar issue simulJaneous "ith lb< oompl•tion ~
Iran ofnucleor-rtblod acliont oddn:ssing •II kc) COCICCfflS (Cllrichmen~ Ford.ow. Arai.. PMD, Alld hv<sl)artnc)~ and rct..
uabli~ ettc provisions of1hc rtsolutions dealing "ith transfersofsensib\'C technolaaict and a.cti,ities In ad.dirion, the
new UN Security Council n:solutioo ••O\lld il>C<XpOratC importurt n::striNiom: Oft COll\"CDtioo.3.1 annt and baJhrtic miuilcs~
J$ wcU as pn:wisions that.allow fortelatcd c.vgoin,pccti(M)S aodusetftoou:s. Whik il bas yet to bo ~rocd.1tisour ,icw
rho• these should remain in plaoe for an •1<1eodod period or t~.
Any r,cw Security Council n:oolution would nol coo,,:it U.S. polilioal c:ommrunc:ou under a dcoJ ,..;lh lrui into
lcsa.J•)· bindina obligations. The Uoitod States would oo< be k~ily bound to rcmo,..: any ofib dornc>tic ••nctiou
With ,upcct to U.S. domcKic sanctiom. as the Administration ·s fad s:bc:ct pro,1idcs. lra ._;11 n::ccfrc n:licf from
certain U.S.•-·rolaced sanc<ionsOll!y after the L\Eh ho, ,-.rifiod thol [,.. bos taen oil or its J..eJ •.cl• .. .,.•••ed
Sl.l;p!. Morcu,i:r. ~wcb.rtcdun.: ofU.S. uu.clw1t.rulatt.-d saoa.iOll.ltoa lnw will bi.; n;laicn.-d for much ofdwdwtllKlfl o(tbc:
deal aocl a1•ow for snap-1,ocl; of ,aoctions in the cvco, or lig.o.i!ian< 0<>n-9CrfOtmo11cc by lmn of it! commi1meou.
~ :
n.""ts th~ w.ii\o'Ct' authorit) Con,r-ress has pt0\•1dt:d 311~ the Presiden, to w3Jvt .111 provts:ions 0(1.JI SlJ\Ct>On$ mdcfirri1&:."ly?
4ILl!IS1,
The PrtSJdtnt ma) exercise a wa1vcrof114!Utory sanctions·or 3. ~ne\\al of such , .... ai,'Cr 1f d,c statulOry standard
for the ;q,phablc Y1-aivcrprovision is met. including complrfflg with .:in:, sw.u.tory time limits on the period of the waiYCr
or its renewal. ll'Cre are a nurnber of differenr. SDMory provifiol'IS tkar requirefhe imposition of san<non.1 in relafion to
~t.l\iticc invol\iog lr:ana The \\i'aiva-authoffll.CI provided to the Ptc!idc,n.1 under tbctc pim.isioos differ depending on the
SWulory suctions povision. la. ea.s(:S where tbe appl~c ,,ai,-er authoriUCS in.1.pOSC-s a tatlD limit requiring the
President ro renew the wai"\'er at ccrtun int.en.als. the PrcsKJcnt Ot his designee must determine at the ciin,e of ead'i renewal
chal <he waiver siaridard continues to be met.
22alilm.l:
Ho" did the Ad.nliai.sttution dctenninc that a ~-car "'ould be sufficicot to dclocl and rc\Cl"iQ po<ent..a.al Iranian "iolatioos'/
Wba< !actoi> did Ila; Adioinislnltioo bike inw acc:wnt lo •<>di thi, owube~ liul, •on¥ did !be U.S. WI< u, flllll ti..
clandcsti.Dc ufWWD caridimcot compJc.'1.: at Natan.z.7 Hoo.· "'U it ditco,..-cK'd?
An,wer:
--Under a long-term comptchcnsive aohition, ban would be subjc:d to rJgnitiQO'tJy cnhi1nocd transparency ~d
monilD<Ul.K m.cil5WC3 10 ~()· tbc cxcJusi,-cly pcac:cfuJ '1.UW\.: of ill JNCkar pro,sra:n We ate conficknt that II one )'Cll
breakout window a.·ould gi,i: us wrfkicnt tinr to ctr~cth"CIJ1 rc,pood t.o aD: Jmniao breakout effort.. should Iran take a
cltdsion to do to. We would be happy to provide more detailed inf'orma11on m a chwifiod :,e;Uing.
~:
lo an agree...,,•, -.ill thoAdministralion in,ist thot IAEA inspectorsha,·e "lll)·l'here, anr time"nccess 10 all .,... aod
tiictlitic, in Iran, including Re,oluriolW) (itUJld hale<? If not, v.hai litmuuions oo occes, v.11Uld }OU be willing 10 ~17
Annex 97
65
Aamn:
There is no quts:tion that a wmprehensi~ deal m11.s1 ensure dl.lt Iran 1s subject lO S1gnificarll>· cnhanc:cd
traaSpatCJl'1" .:2.tld monitoring m:aicm:s to nrify the cc.lu:1,l\:l:ly peaceful oaturc of its nuck.ar prosnm and to quickly
dc~ca any S1anJlls to bn:ak out. Under a ,wcl= deal lr:111 will implan..-nt tl•: AdduiOAll Protocol, '11-bich will
si_grufic;mtl~ UWlnoe lhe IA.EA 's abitit~ to inve~ quest.Ons Aboul CO\·en nuclear accfrilies LD Iran and conduct:
inlrusiw- in.spoctions of Iran.all f.t.cilities. Wc .:ue also sccking 3dditi0f'l:ll U'MSpatt:ne)' me.a.sure-sbcJ'Ond the AP.
~=
Will the Adlllmismdlon ~ire that Iran 1131J,fy :,JI que,t1om th.11 the IAEA bu about the "-1bk lll!hbry duncns1onsof
its nuclear program. tncluding ace~ to key scientific: pcr.sonncl and JJilpenvork? W,11 ~w .agree co a deal wit:hour
1hosc n:iquircmcnES'>
~: .
Iran mlollt tale specific concrete rlepl to resol-..e CM IAEA ·sconcems about PMOand \I,( continuc- to worlc; on thi1,
issue. The.re wilt be no Sftftctior1s relief umil Iran ha.s mke11 :agreed steps to a.ddffss 1t,e IAEA ·s c.onccms abciv1 PMO.
2lialisl.lu:
The int<nm ag,tement suw:s that all "nucleor-,.lalcd" $llll<O(W1S would be n;-mo,<Cd under• final lflreane<ll. Whot
specific ..,,ctions ,.;11 you seek IO SU$J)Ond 30d ultil!W.tly lift under a long-«nnae,eom,n1? l'lea.9e p,o-.idt3 lill of ,ucl,
sandioos with tbc .applie4bk references in undcrl~ staMc. E>,:.ccutivc onk:11. ID1 n..'gWatioas.
'!hi.·~ ar-c 9ouw;: silllt'tlOC\S th3t we ni;aclc:.,r-.rclatcd. ,omc ~ an: n1on:- nc~nll. and som.: 1h:n have m~hiplc
r:u.iooah::s. A'J a general rule. w.: tun1~ said dint. we a·ilt not ncgoti.lto oo our sanctions n,,tlll'd.ini h\llR,ll[I righu. and
tc.rmri.,:m HCl\\C\'CI. f(ir ~ llOOCticms -cvith multiple m ilX\:11.::~. we have toof;ht to balance our neat in p,C5Cn-c thee
sand ion,. measura \\ith our natica~ security pnorit, of re.10lving the fnn nuc~ llSLAe. Ar the ~t hM s:ud. our
moSI urgent issue with lf'Wl is its pos.s.tble acquisiCJon cf nl,,tC:lc;.u Y.-eap:ios. whteh we are ckitenmnod to ~-cn.t. We ate
th;r.:tbh~ prcpnrcd to l"oosidcr Ulc suspcnsic-n of ccrto:in tl"ICI\SU.l'CS th..,t invo}w nruh.ijllc r.nionalc., and co ronsidcr lifting
!hem aft« lrani3D impkmrol.lllon of1be <omprob<n,ive dc31 has been full) teslod. evaluated. and~ OYCr an
.:>.1.:ndcd period.
~;
The iolcrim ,u,oonci,t coils for Imo IO abide b)· all UNSC n:oolutions - u,cludilll! the n,quln:mcnt tb.'11 "lraD sbJII 00(
undcn.akc any ac:ti,-ity related to ballistic mi.ssik-s capable of delh"C'nng nuclear "capons·• )d it doct not cxplicicl~
mention Iran's Nlliatic missile program. WiH restrictions on Iran's ballisltC missile progtam be included in the final
32rcement? lfnot. whM t:S n:lfional and muhih1tc'1.l s:u,c:tlOtls \\'ill continue to oppl)"fO their miHile proen,n? Please
provide a lut of such unc:1ioo, with 'die applic:1blc r::fcroncc~ in tmdcrh'lD.8 mMc. E.xcc.UIO"C ordcu, and J\:gutation,
4al:Jln:
'1~ d-:al we- :kl\:'. ucgotlatlnij r~s on Iran's nuelc::ir prcyram. no,oa tclbsuc ltUWlcs. Tb.Qt said. we .vc
acckill~ an am.DSOll1CDt in which UN Security Council restrictions o• convcutiooal anns and ballillie IOU.Siles will ~-in
place for a considl•rnblc period of nmc We abo iutc:nd to cootinuc our dbu lO O'JII.IDlcr mmilc polifcJ111icm ro Iran~
including through the.,.. of U.S. w,woni. export controls, and the 34-<lOun~· Mia,1< Tecl,nolog_. Conaol Regime
(P..1TCR). ~ well as through qion.11 M"curity irtiti~-vcs with ot1r po.nners in the f'C'gion ~ m.1s.1,llt dc~n.&e.
What sanctions will the Admini.st~tion maintain on I~ in ttipOnU to Iran's continued sponlOtShip ofcen"Onsm -
including pfOllj)ing up A..-d in Syria. oopporting the ovcnh1ow of a l:.S. po.r1nCr in Yemen, and SIIPl)lying rockcu IO
Ha.mas sid Helboll.1h7 Pleas,! pro\tide a list of suc:h saic11()fls wirh the applicable ~e~s io \aldeft}ing stal\1tc,
E~eaarive orders. 81d regula1ions.
Annex 97
66
~ '.
0a April 2. 2015. the P5+1 ond ltao "'1110w>ced.., undcrs1>ndias rogatdiog lho ~•i parant<l<rsof •
comptehtnsi"e deal wilh fran to address its nuiel~ progran. As the Adminittl'Uion ·s fact sheet swnmari1io1 this
u.nd<maruliog. the "Pann,ct<rs for a Joi,11 Compn,b:mi,.e Piao of Action regarding the &12.mic Republic oflna 01
Nuclear Program."• ,..,cs, 1.r.m"-ill n,cci\~ rclioffroru ccrum U.S. secondary auclCN•rclalod sandions c,:,ly aftcrtbo
l111emational Atomic EneriY Agency has verified chat Iran bas !al.•• maj<w nuclear-rtlaied steps lhat extend itS b<oal:oot
timctoa:lea.a<Wle,"CoU'
As the Adntwstmtioo bas mode clear. Wider aoy deal with lrao wilh r<,pcct to its nuclca, pro-,:,am. we wiU
mainrain nnd conrinuc to :rmrcuivcly cnfnra:: unction,.: n::la:od to Tran ·s human rig.ht!I abu~'\. soppnn for tcrmrimi. and
dcstabiliring actJ\itics tn the region. k you lato,,._ rflc Uaitod Stites m.11lGtauu a b1'03d atl'D)' of s:ancttom on 1r:aD. for its
suppc,n for terrorism. 1he Assad regime in Syria. and other destabtfizing actil-ity. One kcr s.~aion is lr.i.n's 5bbaS as a
st:ttc: sponsor of 1C1TOrism and th\: sanelions COO!kqLlt(IC,!S th.u tlow t"rom such n dcsignstioo.
Simil.Qrly. we .. ;u mAi.nt.lin Gad coai.auc to vigorously alf«cc sanctions ogai.ost IJ:nni30 iadividuls 3Dd cothics
~ tnpac in destabilitina acth•ilies in the rcsion. engage in ,errorist xu. or provide suwc,,t to terrori~ or ttrrorist
groups. Sanctions on lra,ii1111nch\'1du.aJs or enblics who commit. threaten LO commit. or support LeTTOrism pursuant U>
E.«u<i.e Order 13124 and the Global Tenorism S,,ctions Regul11io11J. 31 CPR Part 594 ... -ill n,n,ain in pbc,e, including
.$31\C'tions on thoJc &..~nnincd to ha\'c provided nuitcrial suppon. to pcr50ns dcsign:ucd ro, WM:"tions und.:r this E."".w.rtivc
Order
In addition ..... -c ,, ill continue to sancrion inchviduals and entilies f0t ttrrorism--rc1attd act1,'lries under ochcr
relevant aut.h<witics, inchoding rtlevantpM.ision., oflh< C.omprtllen,ive I,.,. Sanctions, Aconuntat,,lil)·, and Oh....,,,eot
Aet of1010 :and the I.ran Thn:31 Rcrlu<tion and Si-ri• Human Righ« Act of 2012.
Moroovcr. 1rani3n 1.n.dh-iduals and entities ",11 ~atinue 10 be subjccc ro sanc:o.ons for their destabilizing ac..tl\·iucs
in the ,.g;oo_ iru:ludingpn,,idiog s.,ppon to the Assad res,me in S)ria under E.xeo.i1i" Orders B~71 and B182 and the
Syritn Saoc:tions Rcgulatioos, Jl CFRPartS-12. totbc Hooth.is in Yemen under E,ccuti,-.: Order 13611 UM! lhc Yeruco
Sonctioos Rq,,ul,tioos. JI CFR Pan 552. and, other itk."Vll<ll outbon<ics tarECWI& ,uc:J, ldi,"ico-
In additi011 to continued mbust enforcc.moN of terrorism• and rcgioo:tl stability-tcl.11a:d a.nrttom as outlined
abo,r, U.S. support 10 our rogiooal pottnors will cootinuo 10 be lho best dolorronl ~ lnuuan -•~on in the tes,oa.
Wi:. \-\-ill wnti.nuc wllll.' robuil.actiouto(.'IUW)1.l.:rthclh.n:.aupo:,,.xl by Imo i.u the Jcxiuu wk.l ~ortt 't\itb ourlJill"lB:n lU ~P
ll>awl O<tivruc, that dcsubi.lizr znd lh=t<n ii, ooighbon.
Annex 97
Question 1;
67
Questions for the Rttord Submilled to
Deputy Secreta ry Antony J. Blfoken
Reprnentatin Deana Ros-Lehtinen
Hou,e Committee on Foreign AJTain
March 19, 2015
The aoswrr to this auestjon is not within Che oorvin, of the Department or Statr, The
Deoartmfftl or State defm 19 the Dcoacsmcnt o[Ptfr■Kt
Months ago, when it was announced that Iran had launched its own airstrilces in Iraq, both the
US and Iraq claimed no knowledge - that Iran acted alone. Given that the Iraqis currently do not
have any fixed wing assets or an integrated air defense system to maintain their own air
sovereignty, to what extent does the U.S. control Iraqi airspace? Given all the assets the US has
in Iraqi airspace - fi,ed wing. rocary, and unmanned - wouldn' t some level of de=nfliction
need to take place between lhe U.S. and lra,1 for Iran to carry out airstrike,? Does the U.S.
coordinate all airmrikes in Iraq againM lS!L?
Questi0o 2:
There are repom that Iran has additional covert nuclear sites that haven't been declared.
Is this report accurate? Will any nuclear agreement include any covert sites that may exist but
have yet to be found/declared? If a covert facility is found, or if Iran is found to be continuing to
work on a dual civilian/military program, will that terminate the agreement? What -..ill our
response be?
Iran will be agree.ing to one of the most robust and intrusive inspections and transparency
regimes ever negotiated for any nuclear program.
The IAEA will have regular access to all of Iran's declared facilities, including Arak,
Fordow, and Natanz. Inspectors will also have access to the entire uranium supply chain that
supports Iran's nuclear program. n-om start to finish.
These elements provide the best hedge that we've ever had against a covert path -
because Iran would need an entire covert supply chain to feed into a covert enrichment facility.
lran will also immediately begin implementing the Additional Prococot (AP) oflhe
IAEA. Iran's implementation of the AP would provide the IAEA with expanded access to sites
and facilities in Iran and impose additional reporting requirements on Iran's nuclear program.
Under the AP, the IAEA can request access to inveSligate any suspicious sites. And under the
JCPOA, we have negotiated a further international mechanism that e,,ables timely access if
challenged. Iran can't just refuse.
And 1nm will commit to ratify the AP, making these commitments to great~r
transpare,,cy and more intrusive inspections permanent.
Annex 97
~:
68
Quntions Cor lht R«ord Submitttd lo
Deputy Secrdary Aulony J. Blinken
Reprnenuili~·n Otria Smith (l)
Bouse Committee on Foreign Alfain
March 19, 2015
Thus my question is. if Iran can'1 protecl the numan rights of its own people as required by
trcati~ it hassig,ncd nor abide by its own constitution-Article 13 of which slalcs that Christians
and other religious minorities are free to practice their faith-how can we believe that Iran will
abide by any nuclear agreement it signs with the U.S?
A!wu!::
This deal is not about trusting Iran. It is about verifiably ensuring that Iran's nuclear
program is for only peaceful purposes - and 1hat comes through credible steps that Iran will have
to 1.81ce.
The JCPOA does not inhibit our ability to detect and act to prevent Iran from getting a
nuclear weapon, but on the contrary it makes us significantly more capable of responding
quickly if it does. Bringing Iran's nuclear activities into compliance with intema1ional standards
could also incentivize lran·s compliance with its international obligations.
2l!Wi2!!.:
Why haven't we insisteo that Iran release Pastor Abedini a.s a precondition to continued
negotiations, especially arter the President personally committed 10 his family to have him
released by the time of his son's birthday on March 17?
~
Regardless of the rutcome of the P5+1 talks with Iran, we ..,,,ill continue to call on Iran to
immediately release Saeed Abedini. as well as detained U.S. citizens Jason Rezaian and Amir
flel<mari. We will continue to request that the Iranian government to work cooperatively \\ith us
to locate Robert Levinson.
While we have raised these cases on the sidelines of the nuclear talks, we have been very
clear that the PS+ I negotiations arc related strictly to Iran's nuclear program and 1he importance
of Iran bringing that program into compliance with their international obligations. Our
discussions with Iran about our concerns over Mr. Abedini, Mr. Rezaian, Mr. Hekmati, and Mr.
Levinson are a separate issue from the nuclear talks.
These U.S. citizens should be returned to their fan1ilies as soon as possible. and we will
continue to raise 1hese cases with Iranian officials and until they are all home. Their freedom
should not be tied to the outcome of these negotiations on Iran's nuclear program.
0
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American
Journal of
International
Law
July 200s
Vol. 99 No. 3
Published by
The American Society of International Law
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All use subject to https://about.jstor.org/terms Annex 98
FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS
By Kal Raustiala.
International agreements exhibit a wide range of variation. Many are negotiated as legally
binding agreements, while others are expressly nonbinding. Some contain substantive obligations
requiring deep, demanding policy changes; others demand little or simply ratify the status
quo ante. Some specify institutions to monitor and sanction noncompliance; others create no
review structure at all. Thus, there is considerable variation both in the form of international
agreements- in their legal bindingness, as well as in the range of structural provisions for monitoring
and addressing noncompliance- and in the substantive obligations they impose. This
variation in form and substance raises several fundamental questions about the role of international
agreements in world politics. 1 Why do states differentiate commitments into those which
are legally binding and those which are not? What relationship exists between legality and the
substantive provisions of an accord, and between legality and structural provisions for monitoring
behavior? What is the relationship between substantive obligations and monitoring provisions?
Finally, what difference, if any, do these choices make as to the effectiveness of an agreement?
This article presents a conceptual framework for analyzing the architecture of international
agreements. Using the concepts of form and substance, it examines three features of agreements,
two related to form and one to substance. Legality refers to the choice between legally binding
and nonlegally binding accords2 (for simplicity, I term this a choice between contracts and pledges).
Substance refers to the deviation from the status quo that an agreement demands. Structure
refers to provisions for monitoring and penalizing violators. Each of these terms represents a
distinct design element. Yet there are systematic trade-offs among them. Only by understanding
these trade-offs can we understand the design and operation of agreements.:i The framework
advanced in this article makes these trade-offs clear, while also reorienting current research in
international law. For example, one area that recent scholarship has focused on is compliance
with pledges.4 But without attention to the relationships between legality, substance, and structure,
much of this work is inconclusive.5 In other areas where progress has been made, as in the
choice of legal form, the prevailing explanations are incomplete and can be improved by accounting
systematically for the connections between design features.
· Visiting Professor, Columbia University School of Law. I thank Kenneth Abbott, Karen Alter, Anthony Aust,
Andrew Guzman, Oona Hathaway, Laurence Helfer,J an Klabbers, Eric Posner, Joseph Raz, Anne-Marie Slaughter,
and participants in workshops at the University of Chicago, UCLA, and the University of California at Berkeley for
comments on earlier versions. I am also grateful to Christopher Belelieu for research assistance. Some of the ideas
in this article were developed in previous writings and conversations with my frequent collaborator David Victor.
1 As of July 2005, there were over fifty thousand in the UN database. See United Nations Treaty Collection,
Overview, available at < http://untreaty.un.org/English/overview.asp >.
2 See, e.g., Anthony Aust, The Theory and Practice oflnformal International Instruments, 35 INT'L& COMP. L.Q. 787
( 1986); Hanmut Hillgenberg, A Fresh Look at Soft Law, I O EuR. J. INT'L L. 499 ( 1999).
, An early exemplar of this approach is RICHARD B. BILDER, MANAGING TI-IE RISKS OF INTERNATIONALAGREEMENT
( 1981).
•
1 E.g., COMMITMENT ANO COMPLIANCE: THE ROLE OF NON-BINDING NORMS IN THE INTERNATIONAL LEGAL
SYSTEM (Dinah Shelton ed., 2000) [hereinafter NON-BINDING NORMS]; Daniel E. Ho, Compliance and lntemationcd
Soft Law: Why Do Countries Implement the Baste Accord? 5 J. INT'L ECON. L. 647 (2002).
'' The same can be said about compliance generally. See Kai Raustiala & Anne-Marie Slaughter, International Law,
and International Relations, and Compliance, in HANDBOOK OF INTERNATIONAL REl.ATlONS 538 (Walter Carlsnaes
et al. eds., 2002).
581
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582 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
Using this framework, I make several claims about the architecture of agreements. First, I
argue that the notion of "soft law" agreements is incoherent. Under the prevailing approach,
pledges are being smuggled into the international lawyer's repertoire by dubbing them soft law.
Just as frequently, scholars declare that contracts containing vague or imprecise commitments
are actually soft. In so doing, these commentators are conflating the legality of agreements with
structure (in particular, enforcement features) or substance (e.g., rule precision), or effects with
causes (i.e., looking to behavioral effects to demonstrate international law's existence).6 Both
sets of moves elaborate a conceptual category-soft law agreements-that has no compelling
basis in state practice or legal theory. J argue instead for a sharp demarcation between pledge
and contract. I show why this demarcation makes sense and how it unlocks puzzles in agreement
design.
Second, I provide a causal account of the choice between pledges and contracts. 7 States choose
on the basis of a combination of functional concerns of credibility and flexibility, the configuration
of power, and the demands of domestic interest groups and the structure of domestic
institutions. These factors roughly correspond to three theories of international relations: institutionalism,
realism, and liberalism. I also argue that pledges, though nonlegal agreements,
are emphatically the province of international lawyers: to understand how nonlegal agreements
work, one must understand how legal agreements work.8
Third, I sketch the relationships between legality, structure, and substance. Prevailing accounts
of the choice between pledge and contract focus on a functional trade-off between ex ante credibility
and ex post flexibility, and are consistent with two contradictory ways that legality influences
the content of substantive obligations. I argue that liberal theory, which privileges domestic
political variables and institutions, helps explain when contracts are substantively deep and demanding
and when they are shallow and weak. Likewise, legality influences the structure of compliance
review, as does the nature of substantive obligations. The core point is twofold. We cannot
understand the form or substance of an international accord in isolation because the connections
between the various elements shape empirical outcomes. And we cannot understand the
connections between form and substance without looking to domestic politics and institutions.
Finally, I conclude with some prescriptive claims about the design of agreements. The central
thrust of my analysis- that there are systematic trade-offs between form and substance- suggests
that advocates as well as analysts should pay more attention to the complex architecture of
international agreements and treat agreement design holistically. In particular, I argue that
the widespread preference for contracts often unduly weakens the substance and structure of
multilateral agreements when states are uncertain about compliance costs. States often compensate
for the risk of their own noncompliance by weakening monitoring or watering down
commitments. This tendency can be exacerbated by the need for widespread adherence and the
opportunity to exercise power this need creates. Pledges mitigate these tendencies, permitting
states to accept more r isks in the face ofuncertainty. Consequently, although pledges are often
6 E.g.,Jutta Brunnee &Stephenj. Toope, International Law and Constructivism: Elements of an lnteractional Theory
of International Law, 39 COLUM.J. TRANSNAT'LL. 19, 65 (2000) ("[L)aw's existence is best measured by the influence
it exerts.").
7 This question tracks one that is sporadically investigated in contract law: Why do parties opt out of the legal system?
For example, "[t]he diamond industry has systematically rejected state-created law. In its place, . . . the industry
[has) developed an elaborate, internal set of rules, complete with distinctive institutions and sanctions .... "
Lisa Bernstein, Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry, 21 J. LEGAL
STUD. 115, 115 (1992). However, as Herbert Bernstein and Joachim Zekoll argue, "It is extremely difficult to
determine, with any degree of certainty, how widespread the use of permanent 'no-law' agreements is in actual
American business practice .... [N)o such agreement will ever surface in a court of law unless the parties differ as
to its effect." Herbert Bernstein &J oachim Zekoll, The Gentleman's Agreement in Legal Theory and in Modern Practice:
United States, 46 AM.J. COMP. L. SUPP. 87, 88 (1998).
~ They are also a central feature of transgovernmental networks, an increasingly important mode of cooperation.
See generally ANNE-MARIE SLAUGHTER, A NEWWORLD 0ROER(2004) (arguing that governments are increasingly
working together through transnational networrks, on issues ranging from trade to terrorism, to respond
to the challenge ofinterdependence); Kal RaustiaJa, The Architecture of International Cooperation: Transgovemmental
Networks and the Future of International Law, 43 VA. J. INT'L L. I (2002).
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 583
viewed as second-best alternatives, 9 they can, under some circumstances, be first-best. I suggest
why and when this is likely to be true.
I. THREE DIMENSIONS OF INSTITUTIONAL DESIGN
The tripartite conceptual framework in this article is a radical simplification. It does not
address important aspects of agreement design, and it dichotomizes those dimensions it does
address. 10 This simplicity, however, has a great virtue: it clarifies the interaction of these elements.
How these elements relate to each other is the key theme of this article. Because the interaction
of design elements has not received systematic attention, even this basic framework illuminates
important questions about the architecture of agreements.
Legality
The contemporary international system is suffused with agreements. However, international
cooperation need not involve a legally binding or even a written accord. Indeed, many important
agreements have been tacit or unwritten. 11 International accords also need not be public.
Secret agreements formed a central part of President Woodrow Wilson's critique of the old international
order. Less in favor today, they nonetheless were used throughout the twentieth century.
12 "Gentlemen's agreements" also have a long history. 13 Thus, the variety of international
agreements is great.14 Nevertheless, in most cases ofinterest, written open agreements are drafted
to codify and clarify the terms of cooperation. This class encompasses both contracts and pledges.
The Vienna Convention on the Law of Treaties defines treaties (contracts) as "international
agreement[s] concluded between States in written form and governed by international law."15
Although treaties are fairly well-defined under international law, if circularly so, the boundaries
of soft law are more indeterminate. In practice, usage of the term varies widely. Decisions by
international organizations, their internal policies, negotiated agreements between states (or
their constituent elements), and even resolutions of the UN General Assembly have all been
declared a form of soft law. My focus here, however, is on explicit agreements between states.
Agreements display significant variation in legality. Examples of contracts include the I 945
UN Charter, the 1985 South Pacific Nuclear Free Zone Treaty, 16 the 1989 Convention on the
Rights of the Child, 17 the 1995 Convention on Stolen or Illegally Exported Cultural Objects, 18
and the 2001 Convention on Persistent Organic Pollutants. 19 Pledges include the 1975 Helsinki
0 E.g., Oscar Schachter, The Twilight Existence of N()Tlbinding International Agreements, 7 l AJ IL 296, 304 ( 1977)
("[N]onbinding agreements may be attainable when binding treaties are not ... "). Schachter "was one of the first
promoters of the concept of'soft law' alternatives to rigid treaty and custom, and perhaps the first to note the
potential legal import of'quasi-legal agreements' and General Assembly resolutions." Jose E. Alvarez, In Memoriam:
Commemorating Oscar Schachter, the Teacher, I 04 CO LUM. L. REV. 556, 558 (2004).
10 Some of these dimensions have been examined elsewhere. See, e.g .. SCOTT BARRElT, ENVIRONMENT AND
STATECRAIT: THE STRATEGY OF ENVIRONMENTAL TREATY-MAKING (2003); Barbara Koremenos et al., The Rational
Design of International Institutions, 55 INT'L ORG. 761 (200 I). Precision of obligations might arguably merit inclusion
as a criterion. I do not focus on precision for reasons discussed below: as the rules-standards literature illustrates,
rule precision is not per se advantageous and the significance of precision is closely linked to the structure
of review, in particular when institutions are tasked with elaborating standards ex post.
11 See, e.g .• Charles Lipson, Why Are Some International Agreements Informal? 45 INT'L ORG. 495 ( I 99 I).
12 See, e.g .• ANTHONY AUST, MODERN TREATY l..AWAND PRACTICE 26 (2000).
13 See Hillgenberg, supra note 2, at 500; Schachter, supra note 9, at 299.
14 R. R. Baxter, International Law in "Her Infinite Variety," 29 INT'L & COMP. L.Q. 549 ( 1980).
15 Vienna Convention on the Law ofTreaties, opened for signature May 23, 1969, Art. 2, para. l(a), 1155 UNTS
331 (entered into force Jan. 27, 1970).
16 South Pacific Nuclear Free Zone Treaty (Treaty of Rarotonga), Aug. 6, 1985, 24 ILM 1440 (1985).
17 Convention on the Rights of the Child, Nov. 20, 1989, 1577 UNTS 3 (entered into force Sept. 2, l 990).
18 UNIDROIT Convention on Stolen or lllegally Exported Cultural Objects.June 24, I 995, 34 ILM 1322 ( 1995),
available at, < http://www.unidroit.org/>.
19 Stockholm Convention on Persistent Organic Pollutants, May 22, 200 I, 40 ILM 532 (200 l),available at <http://
www.pops.int>.
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584 THE AMERICAN JOURNAL OF INTERNATIONAL IAW [Vol. 99:581
Final Act,20 the 1985 Plaza Accord on Exchange Rates,21 the 1988 Basel Accord on capital adequacy,
22 the 1992 Non-Legally Binding Authoritative Statement on Forest Principles,23 the 1997
NATO-Russia Founding Act,24 and the 2004 pact of the Paris Club of creditor states to forgive
Iraqi sovereign debt.25 Many observers have noted the increased prominence of pledges in international
cooperation.26 While pledges sometimes evolve into contracts, many pledges remain
non binding permanently.27 In international monetary affairs, we even observe the reverse: the
transformation from contract to pledge.28
Substance
Whether pledge or contract, an international accord can vary significantly in its obligations.
Substance refers to the substantive commitments the pact contains-for example, does it require
a state to refrain from developing nuclear weapons, to restrict fish harvests, or to provide for a
twenty-year patent term? Because substance is multifaceted, to simplify my analysis I focus on
one key dimension. As others have previously argued, agreements vary widely in depth. Depth
is "the extent to which [an agreement] requires states to depart from what they would have done
in its absence."29 Some accords are deep: they require states to make major changes in policy.
Others are shallow: they codify what states are already doing or demand only minor changes
in behavior. Depth clearly varies for each party to an agreement; what is deep for one state may
be shallow for others. Moreover, states may often reserve out of specific provisions, altering the
depth of the agreement for them_:io I put aside these admittedly significant differences and try
to capture the overall, or average, depth of an agreement. This is to simplify greatly, but the alternative-
to consider the differences among 120 parties, or more-makes analysis impossible.31
2° Conference on Serurity and Co-operation in Europe: Final Act, Aug. 1, 1975, 73 Dt::P'TST. BULL. 323 (1975),
14 ILM 1292 ( 1975) [hereinafter Helsinki Final Act).
t i Announcement of the Ministers of Finance and Central Bank Governors of France, Germany, Japan, the
United Kingdom, and the United States, Sept. 22, 1985, 24 ILM 1731 ( 1985 ), available at <http://www.g8.utoronto.
ca/finance/fm850922.htm> [hereinafter Plaza Accord].
22 The International Convergence of Capital Measurement and Capital Standards (Basel Accord), July 1988,
and its amendments are available on the Web site of the Bank for International Settlements, at <http://www.bis.
org/publ/bcbs04a.htm >. In January 1999, a new capital accord was proposed by the Basel Committee that came
to be known as Basel II. International Convergence of Capital Measurement and Capital Standards: A Revised
Framework, June 2004, available al < http://www.bis.org/publ/bcbsca.htm>.
2
'.
1 Non-LegaJly Binding Authoritative Statement of Principles fora Global Consensus on the Management, Conservation
and Sustainable Development of All Types of Forests, Aug. 14, 1992, 3 Report of the United Nations
Conference on Environment and Development, UN Doc. NCON F .151/26, Annex II I ( 1992) [hereinafter Forest
Principles Statement], available al <http://www.un.org/documents/ga/confl 51/aconfl 5 I 26-3annex3.htm>.
24 Founding Act on Mutual Relations, Cooperation and Security, May 27, 1997, NATO-Russ., 36 ILM I 006
( 1997), available at <http://www.nato.int/docu/basictxt/fndact-a.htm>.
2
" See Paris Club Press Release, The Paris Club and the RepublicoflraqAgreeon DebtRelief(Nov. 21, 2004),
amilableat <http://www.dubdeparis.org/rep_upload/Priraq21nov04.pdf>;seealsoSC Res. 1483 (May 22, 2003),
42 ILM 1016 (2003).
26 E.g., Aust, supra note 2; Alan E. Boyle, Some Reflections on the Relationship o[Treaties and Soll Law, 48 INT'L
& COMP. L.Q. 90 I ( 1999); Jack L. Goldsmith & Eric A. Posner, lnternalimial Agreements: A Rational Choice APfrroach,
44 VA.J . INT'L L. 113 (2003); Laurence R. Helfer, Regime Shifling: The TRIPS Agreement and New Dynamics of lnl<1rnatiqnat
Intellectual Property Lawmaking, 29 YAU:J. INT'L L. 1 (2004); Hillgenberg, supra note 2; Edith Brown Wei_ss,
lntroduclwn to INTERNATIONALCOMPUANCEWTTH NONBINDINC ACCORDS I (Edith Brown Weiss ed., l 997);Jess1ca
T. Mathews, Power Shifl, FOREIGN AFF.,Jan./Feb. 1997, at 50.
27 Though nonlegally binding, pledges a re often connected to the development of customary law. Pledges
"sometimes have provided the necessary statement oflegal obli$'ation (opinio Juris) lo evidence the emergent custom
and have assisted to establish the content of tl1e norm." Dinah Shelton, lntrodu.ction: Law, Non-Law and the
Problem of'Sofl Law,' in NON-BINDING NORMS, supra note 4, at I.
2s Miles Kahler, Conclusion: The Causes and Consequences of Legalization, 54 INT'L ORG. 661, 661-83 (2000); Beth
A. Simmons, The Legalization of International Monetary Affairs, 54 INT'L ORC. 573 (2000). Simmons argues that
"[i]nternational monetary legalization can be characterized by an inverted 'J' pattern: legalization was nonexistent
under the classical gold standard ... [and] peaked between 1946 and 1971." Id. at 600.
29 George W. Downs et al., Is lhe Good News About Compliance Good News About Cooperation? 50 INT'L ORG. 379,
383 (1996).
,w See Vienna Convention on the Law ofTreaties, supra note 15, Arts. 19-23 (dealing with reservations to
u·eaties).
31 [ndividualized assessments require extensive attention to specific national policies-an endeavor that is
enormously, even paralyzingly complicated. However, some general claims about the distribution of depth are
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 585
The concept of depth does not capture some critical aspects of the substance of agreements.
For example, there is a large difference between security alliances and agreements on postal
cooperation, even if examples of both require large deviations from prior behavior. But because
depth is a variable that cuts across all types of agreements, and because it reflects the degree
to which states in the aggregate are committing themselves to change their behavior, depth
captures a critical component of cooperation. The World Trade Organization regime32 is an
exemplar of deep cooperation.33 Extensive rules govern a wide array of trade issues and demand
meaningful changes from many parties. Conversely, the Non-Proliferation Treaty34 and the UN
Framework Convention on Climate Change (FCCC)35 are shallower. The former codified the
existing behavior of most states; the latter demanded minor obligations related to reporting and
review. I should underscore that codifying behavior can, at times, be significant in that it may
prevent change in the status quo-as is certainly true for the Non-Proliferation Treaty. (A sophisticated
reading of depth might track agreed obligation against the behavioral trend line,
rather than against existing behavior. But I do not engage such subtleties here.)
Again, this concept of depth is a simplification. Yet depth is important because it captures
the extent to which states commit themselves to serious changes in behavior.
Structure
Structure refers to the rules and procedures created to monitor parties' performance. An
agreement's structure comprises those elements that seek both to provide information about
performance and to deter and punish noncompliance. This conception is again purposely limited.
Structure does not refer to whether an agreement is "enforced," in the sense that parties
in fact are deterred from noncomplying. Structure refers only to the mechanisms for monitoring
and enforcing performance. Effective enforcement is an outcome that may vary on the basis of
a range of other factors: the nature of the parties, the legality and substance of the agreement,
the precise sanctions employed, and so forth.
Extensive variation is found in the structure of agreements. 36 Some accords employ third-party
dispute resolution accessible only to states, while others grant standing to individuals. Some
require only self-reporting, some include on-site inspections, and some penalize violators. Some
create no structure of review at all. To simplify this complexity, I again use binary categories:
weak and strong. Weak structures are those in which review of performance and sanctions for
nonperformance are minimal or nonexistent. In agreements in this category, the parties may
self-report, but those reports are not analyzed or are only analyzed collectively. This category
also includes systems with no review at all. Strong structures are those in which a central body
issues a specific determination about a specific party. Such determinations may concern compliance,
based either on the body's own investigations (a "police patrol" system) or on claims of
private actors (a "fire alarm" system).37 Strong structures may, but need not, include sanctions;
weak structures never include this feature. Strong review structures add value to raw information
about behavior, through publicizing, analyzing, or taking action based on that information.
The issuance of party-specific decisions, in other words, constitutes an essential part of strong
structures.
plausible. Powerful states are likely Lo be able to shape commitments to their liking. Consequently, generalized
assessments of agreement depth should usually mask the bearing of more depth by weaker states and less depth
by stronger stales. States whose commitments in an agreemenl are especially deep are less likely lo participate; those
whose commitments are especially shallow are most likely to participate.
32 WORLDTRADEORGANIZATION,THELEGAL TEXTS:TuEREsULTSOFTifEURUGUAYROUNDOFMULTIL\TERAL
TRADE NEGOTIATIONS ( 1999), available at <http://www.wto.org> [hereinafter LEGAL TEXTS].
33 Downs et al., supra note 29, at 391-92.
:
14 Treaty on the Non-Proliferation of Nuclear Weapons.July I, 1968, 21 UST 483, 729 UNTS 161 (entered into
force Mar. 5, 1970).
35 Framework Convention on Climate Change, May 9, 1992, S. TREATI' Doc. No. I 02-38 ( 1992), 1771 UNTS
I 08, available at <http://unfccc.int/2860.php> [hereinafter FCCC].
:sG See, e.g., ADMINISTRATIVEAND EXPERT MONITORING OF INTERNATIONAL TREATIES(Paul c. Szaszed., 1999);
THE FUTIJR£ OF U .N. HUMAN RIGHTS TREATY MONITORING (Philip Alston & J ames Crawford eds., 2000).
:n Kai Raustiala, Police Patrols & Fire Alarms in the NAAEC, 26 LOY. L.A. INT'L&COMP. L REV. 389. 391 (2004).
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586 THE AMERICAN JOURNAL OF INTERNATIONAL IAW [Vol. 99:581
Scope of the Argument
In advancing this simple tripartite framework, I limit my analysis to agreements between
states. I do not analyze the use of agreements between states and nonstate entities or substate
units of federal states. While conceptually narrow, this category encompasses the vast maj ority
of major agreements in existence today.
States bargain over international agreements intensively because there are myriad ways to
craft an accord. My framework glosses over numerous details, but it is of help in systematically
dividing up the many choices states face. Most important, I use this framework to illustrate some
basic connections between these three dimensions. By exploring these connections we can
improve our understanding of international cooperation and the role of law within it.
II. LAW AND INTERNATIONAL AGREEMENTS
Of the three dimensions discussed above-legality, substance, and structure-legality commands
central interest for legal theory because it delimi ts the scope oflaw. At bottom, the distinction
between contracts and pledges is a d istinction between the use of law and the avoidance
of law. Contracts create legally binding obligations for states, while pledges create only
p olitical or moral obligations. 38 One can loosely analogize this difference to the distinction
between law and social norms domestically. Norms are important in many settings; they can
produce "order without law."39 Indeed, society could not function without such norms. But
norm-based obligation is not the same as legal obligation, even if the two often overlap. Much
recent scholarship aims at unlocking the connection between law and norms-and understanding
why actors favor one or the other in specific circumstances.40
Though the primary aim of this article is to elaborate the ways that legality, substance, and
structure interact, I fi rst parse the meaning of legality in some detail. I do this because of the
p rominence of the concept of soft law and the significance oflegality for state practice. 41 Many
scholars argue or assume that the distinction between legally binding and nonbinding agreements
is not sharply demarcated-that there is in fact a spectrum oflegality.42 I claim that legality
is best understood as a binary, rather than a continuous, attribute. The binary nature oflegal
obligation gives added force to the argument, developed later in this article, that pledges offer
unappreciated benefi ts under conditions of uncertainty.
The Problem of Soft Law: Continuous an.d Binary Conceptions of Legality
There is no such thing as "soft law." The concept of soft law purports to identify something
between binding law and no law. Yet as an ana lytic or practical matter no meaningful intermediate
category exists. Prior critiques of soft law are generally normative in nature, sometimes
focused on the supposed dilution of interna tional law's influence that results from using (or
38 On the difference, see ANTHONY CLARK AREND, L EGAL Ruu:s AND INTERNATIONALSOCIE1Y 13- 39 ( 1999);
JAN Kl.ABBERS, THE CONCEPT OF TREATY IN INTERNATIONAL LAW 121, 157 (1996).
39 ROBERT c. ELLICKSON, ORDER WITHOUT LAW: How NEIGHBORS SETrLE DISPUTES ( 1991 ).
40 See, e.g., ERIC A. POSNER, LAW AND SOCIAL NORMS (2000); Confe rence, Social Norms, Social Meaning, and the
Economic Analysis of Law, 27 J. LEGAL STUD. 537 ( 1998).
11 Agreements are rarely (if ever) labeled soft law. Instead, analysts claim that they are soft law. The idea goes
back decades. Even in 1983 Sir Joseph Gold could write, "The concept of'soft law' in international law has been
familiar for some years, although its precise meaning is still debated." J oseph Gold, Strengthening the Soft lnternatwnal
Law of Exchange Arrangements, 77 AJIL 443, 44.3 ( 1983); see also Ignaz Seidl-Hohenveldern, International
Economic "Soft Law," 163 RECUEIL DES COURS 165 (1979 II).
•
2 The categories of substance and structure in my framework are clearly continuous in nature; I only d ichotomize
them for analytical clar ity. T he category oflegality is different. As Klabbers notes, Hume wrote that "[h)alf
r ights and obligations, which seem so natural in common life," are "perfect absurdities"when it comes to the law.
Jan Klabbers, The Redundancy of Soft Law, 65 NORDICJ . I NT'L L. 167, 167 (1996); see also Prosper Weil, Towards
Relative Norrnativity in International Law? 77 AJIL 413 ( 1983).
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 587
talking about) soft law.'13 My critique is more fundamental: soft law agreement is not a coherent
concept; nor does it accord with state practice.
The category of soft law has been deployed to encompass two distinct types of agreement.
The first is nominally non binding but is nonetheless claimed to have soft legal qualities. Many
consensus documents that emerged from the wave of UN-sponsored summits in the 1990s are
exemplars. The second type, by contrast, is nominally binding but is claimed to be merely soft
law owing to deficiencies of the accord, typically in rule precision or enforcement provisions.
Under my framework the former is a pledge, and the latter a contract crafted to be shallow and/
or to have a weak review structure. This categorical distinction between pledge and contract
is more faithful to negotiators' intentions and more useful analytically, because it permits us
to evaluate law's relative influence and role. It is this distinction that I defend here.
Consider state practice first. Even a cursory look at state practice demonstrates that international
law is a tool that governments employ with care. Thus, perhaps the strongest argument
for rejecting the concept of soft law agreements is empirical. Governments, the architects of
agreements, behave as if legal agreements are decisively different from nonlegal agreements.
They do not accidentally or cavalierly choose between pledges and contracts when negotiating
agreements. Nor do they calibrate the legality of pacts in a continuous fash ion, designating
some softer law, some harder law, some not at all legal, and so forth across a demarcated continuum
oflegality. Instead, states carefully choose the legal nature of their agreements dichotomously.
44 Only very rarely is there subsequent dispute over the binding quality of an agreement.
45 The negotiation of the Helsinki Final Act, for example, was marked by the importance
the parties put on its nonbinding nature.46 President Gerald R. Ford explicitly declared that
"the document I ... sign is neither a treaty nor is it legally binding on any participating state."4
;
A more recent example, also involving the United States and Russia, is the 2002 Moscow Treaty
on Strategic Offensive Reductions.48 The United States sought a pledge, but Russia insisted on
a contract.49 Presidents Vladimir Putin and George W. Bush went publicly back and forth on
the issue; Putin's preference for a contract eventually prevailed.50 State practice, in short, is inconsistent
with the continuous or spectrum view of legality in agreements.
~
3 For example, Bilder argues that the concept of soft law is dangerous in that it "depreciate(s) the cunsency of'
law. Richard Bilder, Beyond Compliance: Helping Nations Coo-perate, in NON-BINDING NORMS, supra note 4, at 65, 72;
see also Weil, supra note 42.
H Negotiators rarely, if ever, label accords "soft law." On the impor tance of the distinction to governments,
see Bilder, supra note 43; Weil, supra note 42. But see Steven R. Ratner, Does International ww Matter in Preventing
Ethnic Conflict? 32 N.Y.U.J. INT'L L. & POL. 591, 661-63 (2000) (suggesting that many government officials are
unaware of the hard-soft distinction and, moreover, often do not care about that distinction) .
..; There are occasional hard cases, such as Maritime Delimitation and Territorial Questions Between Qatar
and Bahrain (Qatar v. Bahr.), 1995 IC] REP. 6 (Feb. 15) (ICJ holding that an exchange of notes between Qatar and
Saudi Arabia and Bahrain and Saudi Arabia constituted a treaty between Qatar and Bahrain). This case is a
favorite of those who claim that the line between binding and nonbinding pacts is not always easy to discern. A
treaty between states is clearly binding, however, and hard cases like Qatar involve highly unusual, even unique,
arrangements. And as KJabbers illustrates, the cases in which judicial bodies purportedly apply soft law turn out,
on inspection, to show otherwise. KJabbers, supra note 42, at 172-77.
46 See DANIEL c. THOMAS, THE HELSINKI EFFECT: INTERNATIONAL NORMS, HUMAN RIGHTS, AND THE DEMISE
OF COMMUNISM (200 I); Harold S. Russell, The Helsinki Declaration: Brobdingnag or Lilliput? 70 AJ IL 242, 246-49
( 1976) (Russell was chief U.S. negotiator); Erika B. Schlager, A Hard Look at Compliance with 'Soft' law: The Case
of the OSCE, in NON-BINDING NORMS, supra note 4, a t 346.
47 European Security Conference Discussed by President Ford, 73 DEP'TST. BULL. 204,205 ( 1975). The Organization
for Security and Co-operation in Europe (OSCE), the follow-on organization for the broader Helsinki
process, continues to rely on nonbinding commitments. See generally Ratner, supra note 44.
48 Treaty on Strategic Offensive Reductions (SORT), May 24, 2002, U.S.-Russ., 41 ILM 799 (2002), available
at< http://www.state.gov/t/adtrt/18016.htm# l >. The U.S. Senate consented to the Treaty on March 6, 2003, and
the Russian Duma on May 14, 2003. See President Putin: Strategic Offensive Reductions Treaty Is Crucial, PRAVDA,
May 13, 2003,available at <h ttp://newsfromrussia.com/main/2003/05/13/46889.html>; Merle D. Kellerhalsjr.,
U.S. Senate Unanimously Approves Moscow Treaty (Mar. 7, 2003), available at <http://www.useu.be/Categories/
Defense/Mar0703MoscowTreaty.html>.
4
!
1 Peter Slevin, Ambitious Nuclear Arms Pact Faces a Senate Examination, WASH. P0ST,July 7, 2002, at A8.
;,o "This new, legally-binding Treaty codifies the deep reductions announced by President Bush ... and by
President Putin at [the] Summit .... " Fact Sheet: Treaty on Strategic Offensive Reductions (May 24, 2002), available
al <http://www.whitehouse.gov/news/releases/2002/05/20020524-23.html>.
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588 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
Rethinking Soft Law
Scholars continue to be drawn to the concept of soft law agreements despite the weak evidence
of state practice. Yet the category of soft law agreements faces conceptual problems as
well. To be sure, the notion of soft law accords with a common intuition: in a decentralized,
nonhierarchical legal system, some pacts and some rules are clearly more consequential than
others.51 The proliferation of agreements in the postwar era, especially in relation to multilateral
public goods-oriented cooperation, has led to numerous accords that lack the traditional
indicia of international law. In noting the increased prevalence of pledges, international lawyers
have sought to incorporate this development in the discipline by labeling these agreements soft
law (rather than treating them as nonlaw). As noted above, some agreements that expressly purport
to be contracts are also said to be soft law because they are deficient in precision or enforcement
measures. Under the rubric of soft law fall both pledges and those contracts that lack
features deemed necessary for an accord to be "hard" law. Some analysts even argue that the soft
quality of a commitment does not depend on the nature of the pact that contains it but, rather,
on the particularities of the commitment itself 5
2 Allegedly, language that is otherwise embodied
in a legally binding agreement, yet is vague, hortatory, or heavily qualified, is also soft law.53
Thus, scholars speak of both soft law agreements and soft law provisions within ostensibly hard
law agreements.
For example, Friedrich Kratochwil states that
highly specific declarations referring to particular controversies are construed as obligations
of "hard" law, even if made in unconventional contexts, while certain declarations of
principle, or agreements on guidelines, only have a "soft" character, even if made b-yformal
instruments. A soft construction suggests itself, in that case, precisely because principles and
guidelines are of a higher order of abstraction.54
Likewise, Christine Chinkin argues that "[t]he use of a treaty form does not of itself ensure a
hard obligation .... [I]f a treaty is to be regarded as 'hard', it must be precisely worded and
specify the exact obligations undertaken or the rights granted. "55 An example in Chinkin's view
is the International Covenant on Economic, Social and Cultural Rights (ICESCR), 56 which contains
obligations qualified by phrases like "as appropriate." While these writers identify an
important fact about many international commitments-that they are intentionally weak or
imprecise- dubbing them soft law is not only inconsistent with state practice. It also obfuscates
rather than illuminates their character. As these examples suggest, assumptions about precision
and flexibility often undergird claims about soft law, especially for putative contracts. Imprecise
commitments are declared to be soft because they impart discretion to parties, or use general
phrases whose content is open to interpretation. Yet imprecision does not alter the legal quality
; i Klabbers, supra note 42, at 179. This intuition, of course, is equally true of domestic legal norms. Some are
influential, some pointless or moot, some very effective, some wholly ineffective. None of this is germane to their
status as law.
;
2 E.g., FRIEDRICH V. KRATOCHWIL, RULES, NORMS, AND DECISIONS: ON THE CONDITIONS OF PRACTICAL AND
LEGAL REAsONING IN INTERNATIONAL RELATIONS ANO DOMESTICAFFAlRS 200--01 ( 1989) (noting that "it is highly
significant that the hardness or softness of(rules] can no longer be derived simply from the formality or genesis
of the instrument"); see also Boyle, supra note 26, at 906-07; Pierre-Marie Dupuy, Soft Law and the International
Law of the Enuironment, 12 MICH. J. l NT'L L. 420, 429-30 (l 991 ); Weiss, supra note 26, at 3.
;J "Sometimes the term 'soft law' also refers to the provisions in binding international agreements that are
hortatory rather than obligatory." Weiss, supra note 26, at 3.
:)4 KRATOCHWIL, supra note 52, at 203.
"
5 Christine M. Chink.in, The Challenge of Soft Law: Develapmenl. and Change in International Law, 38 INT'L &
COMP. L.Q. 850, 851 ( 1989); see also Ratner, supra note 44, at 614-15; Shelton, supra note 27, at 4 (refen-ing to
the "[r]ecent inclusion of soft law commitments in hard law instruments"). Paul Szasz likewise claimed that soft law
includes "hortatory rather than obligatory language contained in an otherwise binding instrument." Paul C.
Szasz, General Law-Making Processes, in THE UNITED NATIONS AND INTERNATIONAL LAW 27, 32 (Christopher C.
Joynered., 1997).
,,n International Covenant on Economic, Social and Cultural Rights, Dec. 19, 1966, Art. 19, 993 UNTS 3, l 0.
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2005) FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 589
of rules. These provisions are better understood as akin to standards, rather than rules. 57 Standards
are ubiqui tous in domestic law (e.g., "reasonable person," "due process," "good faith").
In fact, many domestic statutes contain language quite similar to that in the ICESCR.55 In domestic
contexts the imprecise nature of standards does not alter their legal character. As the rulesstandards
debate demonstrates, standards offer many advantages; hence, it is unsurprising that
states often choose standards over rules when crafting international agreements.
One might argue that standards in domestic law operate differently from standards in international
law because the domestic examples are really forms of delegation to j udges. Standards
delegate substantial decision-making power to courts;judicial decisions render the vague provision
concrete in a specific case. This, however, is an argument about the structure of agreements
rather than their legality or substance. Conflating the lack of delegation in an agreement's
structure with its legal quality thus confuses two distinct issues. International accords can easily
be negotiated to provide for an adjudicative body that is delegated the task of interpreting standards
ex post. Indeed, the WTO Appellate Body regularly engages in just such interpretation,
elaborating ambiguous terms and filling gaps.59 If the ICESCR created a similar dispute settlement
body, the provisions referred to above could likewise be elaborated and adjudicated.60 In
sum, there is nothing inherent in the provisions of the ICESCR that renders them soft; they are
standardlike commitments that are intentionally unconnected to a structure of authoritative
delegated interpretation.
Thus, calling imprecise provisions "soft law" muddles several issues. Obligations in the Covenant
are legally binding because the parties intended them to be legally binding. That the Covenant
lacks a structure of ex post elaboration does not alter this intent-though it clearly may
alter the effectiveness of these obligations. To be sure, international law is likely to be more effective
when enforcement is possible-all else equal (below I discuss why all else is rarely equal).
But legal obligation can exist even if it cannot be enforced. 61 Declaring all legal rules that are
not susceptible of enforcement to be soft law not only misses this fundamental point,62 but also
makes law's definitional qualities dependent on the very effect these qualities are typically claimed
to produce. This approach-international law comprises those rules that affect state behavior63
-
becomes circular once any claim about the relative influence of international law is made. Conflating
legality and substance thus stymies the study oflaw's relative influence on state behavior.
This reasoning is particularly damaging because, as much interdisciplinary scholarship
suggests, international agreements influence behavior through many causal pathways: lowering
transaction costs, creating focal points, mobilizing domestic actors, enhancing monitoring, and
altering the nature of justification, among others.64 While legality may render commitments less
57 Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE LJ. 557 (1992); Cass R. Sunstein, Problems
with Rules, 83 CAL. L. REV. 953 ( 1995).
58 The Hostage Act, for instance, requires the president to "use such means, not amounting to acts of war and
not otherwise prohibited by law as he may think necessary and proper" to obtain the release of a U.S. citizen held
hostage by a foreign government. 22 U.S.C.S. § I 732 (2005). Likewise, the National Environmental Policy Act
requires the use of"all practicable means ... to improve and coordinate federal plans, functions, programs and
resources." 42 U.S.C. §433 l(b) (2000 & Supp. I 2002).
59 Joel P. Trachtman, The Domain of WI'O Dispute Resolution, 40 HARV. l NT'L L.J. 333, 337-38 ( 1999). Another
example is the arbitral award construing "best efforts" in the U.S.-UKAir Services Agreement. Samuel M. Witten,
The U.S.-UK Arbitration Concerning Heathrow Airport User Charges, 89 AJIL 174, 176 ( 1995).
60 Michael J. Dennis & David P. Stewart.justicia.bility of Economic, Social, and Cultural Rights: Should There Be an
International Complaints Mechanism to Adjudicate the Rights to Food, Wate1~ Housing, and Health? 98 AJI L 462 (2004).
61 Many rnles of constitutional law have little prospect of judicial enforcement. Yet we do not consider these
rules to be "soft law." There is no jurisprudential reason to treat international legal rules differently.
62 R.R. Baxter, for example, wrote that some commitments had the "characteristic of not creating legal obligations
which are susceptible of enforcement, in whatever sense the concept of 'enforcement' is employed. They
are all 'soft' law." Baxter, supra note 14, at 554.
o:s Brun nee & Toope, supra note 6; see also Carlos S. Nino, The Duty to Punish Past Abuses of Human Rights Put into
Context: The Case of Argentina, I 00 YALE L.J. 2619, 2621 ( 1991) ("[A) necessary criterion for the validity of any
[legal rule] ... is the willingness of ... states and international bodies ... to enforce it.").
""See, for example, the instructive table on international norms and institutions from the perspective of regime
theor ists and international lawyers, in Anne-Marie Slaughter Burley, International ww and International Re/,a.tions
Theory: A Dual Agenda, 87 AJIL 205,220 (1993).
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590 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
easily reversed and therefore more credible, it is neither a necessary nor a sufficient cause of
change in state behavior. To move fon-vard in our understanding of how international cooperation
is organized and sustained, we must carefully distinguish law as an independent variable
from behavior as a dependent variable.65
One might still argue that the difference between terming a vague, but nominally legally
binding agreement a "soft law agreement" vs. terming it, as I do here, "a shallow contract" is
semantic. But for several reasons the distinction is not merely semantic. First, legality is important
to state officials, as evidenced by the often-considerable debate over whether a proposed
pact will be a contract or a pledge. Little, if any, state practice supports the concept of law that
is soft, but nonetheless law. Second, as discussed further below, an agreement's legality often
has implications for domestic law, which in some cases may explain why states-and private
actors-argue over legality. Third, the politics oflegal agreement as opposed to political agreement
are distinctive. Legalization "mobilizes different political actors and shapes their behavior
in particular ways. "66 Thus, the behavioral result of a pledge or a shallow contract may be similar
or even identical, but the reasons for that behavioral outcome are distinct. Indiscriminately
lumping any agreement that appears weak or flexible under the rubric of soft law conflates distinct
concepts and obscures our ability to tease out the particular influences of law, substance,
and structure.
I have devoted considerable attention to legally binding agreements that are nonetheless said
to be soft. Let me briefly touch on the opposite: agreements that are avowedly nonlegal yet, it
is claimed, are endowed with some soft legal effect. Typically, this claim attaches to declarations
and decisions of multilateral conferences, such as the 1995 Beijing Declaration,67 or similar
collective and public resolutions of states. The animating idea is that these declarations are
intended to influence state behavior and therefore possess some minimum indicia of international
law. This idea conflates intentions with formal qualities. Law does not comprise all efforts
to shape state action. And, like the claim that putatively legal commitments are in fact soft law,
there is a dearth of state practice in support of the idea that formally nonlegal agreements are
actually quasi-legal. No evidence suggests that state actors view commitments that external analysts
have labeled soft law, such as the Beijing Declaration and the Basel Accord on Capital Adequacy,
as legal commitments at all. Rather, they frequently stress their nonlegal character.68 This
is not to deny that states often negotiate pledges that have the rough look and feel of legally
binding texts. But they do not expressly or impliedly claim that these agreements are lawlike
accords in disguise. That many nonbinding commitments ultimately influence state behavior
illustrates the complexity of world politics, not the legal character of those commitments.
My criticism of the concept of soft law is not meant to imply that nonlegal pacts fall outside
the domain of international lawyers. For several reasons, both pledges and contracts ought to
be central parts of contemporary lawyers' repertoires. The choice between pledge and contract
is a choice between employing and avoiding law. Lawyers have special expertise on the effects of
law. This choice is not a simple one, and understanding its fundamental effects is crucial to good
agreement design. Moreover, many of the features of pledges are similar-or can be drafted
to be similar- to those familiar to lawyers from treaty law. And some of the factors that explain
6
" Likewise, it is essential to recognize that legal and political agreements are quite closely aligned but nonetheless
empirically and causally distinct. In this sense my argument draws on the Oppenheimian tradition. See, e.g.,
Benedict Kingsbury, Legal Positivism as Normative Politics: lnt,ernational Society, BaJ,ance of Power and Lassa Oppenheim's
Positive International Law, 13 EUR.J. lNT'L L. 40 l, 40.3 (2002).
66 Kahler, supra note 28, at 661.
67 Fourth World Conference on Women, Beijing Declaration and Platform for Action, Sept. 15, 1995, UN Doc.
NCONF.177/20 & Add.I (1995).
68 As the Basel Committee, which negotiated the Basel Accord and Basel II, supra note 22, makes dear, "The
Committee does not possess any formal supranational supervisory authority, and its conclusions do not, and were
never intended to, have legal forc.e" (emphasis added). The Basel Com mi nee on Banking Supervision (n.d.), availab/,e
at < http://www.bis.org/bcbs/aboutbcbs.htm >.
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 591
the operation of contracts, such as reciprocity and transaction costs, apply to pledges as well.
Finally, pledges, as many scholars have noted, frequently beget contracts.69
States "cooperate without law all the time."70 As pledges grow in importance in international
relations, lawyers must neither ignore them nor attempt to render them quasi law through conceptual
redefinition. Rather, legal scholars and political scientists alike must systematically study
the two forms of cooperation and the differential effects each produces.
Ill. THE CHOICE OF LEGAL FORM IN INTERNATIONAL AGREEMENTS
While the pledge-contract distinction is fundamental, few theories have been advanced as to
how this choice is made. Until recently, political scientists ignored issues of legal form-and
international law itself-entirely.71 International lawyers have long been interested in the phenomenon
of soft law but have generally eschewed theories of why and when states choose to
create or avoid legally binding commitments. The few efforts to date have rarely moved beyond
more or less ad hoe lists of factors that appear to influence the legality of agreements. These
lists are helpful, but-much like multifactor lists in adjudicatory doctrine-they are often unsatisfyingly
malleable and indeterminate.
In the existing scholarship on choice ofinstruments, a core set of arguments appear repeatedly.
These arguments are broadly "functionalist."72 Functionalistexplanations assume rational actors;
these actors design institutions based on the differing outcomes anticipated. As Robert Keohane
explains, "Functional explanations in social theory ... are generally post hoe in nature ....
[They assume] that institutions can be accounted for by examining the incentives facing the
actors who created and maintain them."73 Effects, in short, are causes. Below I discuss the prevailing
functionalist explanation oflegality in international agreements, critique that explanation,
and offer some additions to it.
Functional Arguments
What desired effects drive states to choose a pledge or a contract? Why do states not always
negotiate contracts? One recent, and representative, study suggests the following reasons why
states choose pledges over contracts. 74 Pledges ( 1) offer greater flexibility; (2) are more preliminary,
and hence less precedential and public; (3) can be made with parties not diplomatically
recognized or incapable of signing treaties; and (4) rarely require ratification and legislative
action (hence take "effect" faster). The last reason focuses on domestic law and politics: variables
associated with liberal theories of international relations. I return to this approach below. The
third flows from doctrinal aspects of public international law. The first two, however, are core
elements of the functional approach.
Many functional analyses stress the importance of flexibility to states. For example, Charles
Lipson argues that pledges are sometimes preferred because they make fewer informational
demands on governments than contracts. 75 As a result, a pledge enables states to adjust or exit
69 The various human rights conventions arguably build on and extend the Universal Declaration of Human
Rights, which is non binding. See Universal Declaration of Human Rights, GA Res. 217 A (III), UN Doc. N8 I 0,
at 71 (1948).
70 Goldsmith & Posner, supra note 26, at 116.
71 As the late Abram Chayes liked to say, political scientists fear using the "L word." That fear is fading. See,
e.g., LEGALIZATION AND WORLD POLITICS (Judith Goldstein et al. eds., 200 l ); Barbara Koremenos, Loosening the
Ties That Bind: A Learning Model of Agreement Flexibility, 55 INT'L ORG. 289, 290-91 (2001).
72 The functional claims in the literature are remarkably uniform. See, e.g., BILDER, supra note 3; Kenneth W.
Abbott & Duncan Snidal, Hard and Soft Law in International Governance, 54 INT'L ORG. 421 (2000); Aust, supra
note 2; Boyle, supra note 26; Goldsmith & Posner, supra note 26; Hillgenberg, supra note 2; Lipson, supra note 11;
Weiss, supra note 26; see also Chinkin, supra note 55; Dupuy, supra note 52; Mary Ellen O'Connell, The Rok of Soft
Law in a Global Order, in NON-BINDING NORMS, supra note 4, at 100.
73 ROBERTO. KEOHANE, AFTER HEGEMONY: COOPERATION AND DISCORD IN THE WORLD POLITICAL ECONOMY
80 (I 984).
74 Hillgenberg, supra note 2, at 501.
7
~ Lipson, supra note 11.
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592 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
the agreement more easily later on. This flexibility is advantageous when uncertainty is high. 76
Thus, pacts within the Organization of Petroleum Exporting Countries (OPEC) are pledgesoil
market conditions change rapidly-whereas arms control accords are usually contractsunderlying
changes in weaponry or in the distribution of power are likely to be slow.77 Pledges
also avoid a prominent public commitment, and hence have lower reputational costs. Finally,
pledges are faster to negotiate and come into "force" immediately. Kenneth Abbott and Duncan
Snidal similarly argue that the major advantage of pledges is flexibility. Pledges, they claim,
also produce greater opportunity for compromise when state preferences are deeply divergent. 78
And, as others have noted, pledges do not bring into play the interpretive rules of the Vienna
Convention on the Law ofTreaties.79
Despite these advantages it is obvious that many (if not most) agreements are contracts. Functionalists
generally point to the need for credibility of commitments to explain the predominance
of contracts. Credibility is a core concern in an anarchic system with no central body to
enforce agreements. Unlike pledges, contracts "signal .. . intentions with special intensity and
gravity,"80 and therefore bolster the credibility of commitments. Moreover, as a matter of domestic
law, contracts must often be ratified by legislatures. This process adds to the signaling
dynamic.81 Flexibility, while often useful, can be problematic when agreements require states
to undertake costly actions that depend on complementary actions by other states. Thus,
contracts, with their ex post inflexibility, increase the incentive to make the agreement-specific
investment ex ante. Even with a contract, of course, credibility is a problem because states may
renege on their commitments. Realists frequently note this en route to casting doubt on the
capacity of states to cooperate effectively beyond a few circumscribed areas.82 Nonetheless,
contracts are widely believed to be more credible than pledges, even if analysts may differ over
how credible contracts (or pledges) generally are. This is true both because contracts evidence
greater seriousness and because, by explicitly using international law, contracts tie the commitment
to the body ofinternational legal rules. If states believe that contracts raise the likelihood
of compliance by others, they will be more likely themselves to comply. Abbott and Snidal elaborate
this argument by claiming that states prefer contracts (or "hard law")83 under four conditions:
when the risk of opportunism is high; when noncompliance is hard to detect; when they
may serve as a sorting device to form clubs oflike-minded parties; and when executive branches
use them as a means of committing other branches of government.84
In sum, credibility and flexibility lie at the core of functionalist analysis. Rational states trade
off ex ante credibility for ex post flexibility. The central explanatory variables are (1) uncertainty
in the underlying cooperative issue; (2) desire for speed or confidentiality; (3) the risk of opportunistic
behavior by other states; and (4) diversity in interests and preferences. When the potential
76 Id.; see also GEORGE w. DOWNS & DAVID M. ROCKE, OPTIMAL IMPERFECTION? DOMESTIC UNCERTAJNTI AND
INSTITUTIONS IN INTERNATIONAL RELATIONS ( 1995); Koremenos, supra note 71; Beth A. Simmons, International
Efforts Against Money Laundering, in NON-BINDING NORMS, supra note 4, at 244, 262 (noting that the use of pledges
"may be the most appropriate way to deal with rapidly changing financial practices and market conditions") .
n Lipson, supra note 11, at 519- 20; see also Koremenos, supra note 71; Simmons,supra note 76, at 262. There
are arms control pacts that are pledges, especially in the areas of technology export controls. David S. Gualtieri,
The System of Non-Proliferation Export Controls, in NON-BINDING NORMS, supra note 4, at 467; see also Anastasia A.
Angelova, Compelling Compliance with InternationalRegi,rnes: China and the Missile Technology Control Regime, 38 CO LUM.
J. TRr\NSNAT'L L. 420 ( 1999).
;~ Abbott & Snidal, supra note 72, at 423,438 (stressing the costs associated with delegation); see also P. W. Birnie,
Legal Techniques of Settling Disputes: The "Soft Settlement Approach," in PERESTROIKA AND INTERNATIONAL LAW I 77
(W. E. Butler ed., 1990); Dupuy, supra note 52, at 429-30; Seidl-Hohenveldern, supra note 41, at 193; Szasz,
supra n◊le 55.
n Goldsmith & Posner, supra note 26, at 130-32.
Ro Lipson, supra note 11, at 508; see also Goldsmith & Posner, supra note 26, at 124-25; Andrew T. Guzman,
The Cost of Credibility: Explaining Resistance to Interstate Dispute Resolution Mechanisms, 31 J. LEGAL STUD. 303 (2002).
~
1 Lisa L. Martin, The United States and International Commitments: Treaties as Signaling Devices (2003)
(unpublished manuscript, on file with author).
R
2 E.g., Downs et al., supra note 29.
~:i A category similar to contracts, but with focus on precision and delegation as well.
ll-i Abbott & Snidal, supra note 72, at 429-30. In the international relations literature, opportunism refers to
d eliberate noncompliance (or cheating) in a prisoner's dilemma or in other analogous situations.
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 593
for opportunism is high, uncertainty low, or preferences broadly aligned, contracts are favored.
But when uncertainty is high, opportunism low, preferences highly divergent, or speed or confidentiality
of the essence, pledges are favored. And though not stressed by functionalists, functionalism
suggests that pledges ought to be relatively common in coordination situations. In
coord ination situations incentives to violate commitments-once agreed upon- are quite low. 85
Similarly, this functional analysis implies that pledges ought to be relatively more common during
the postwar period, as the number of states in the international system increased dramatically
and divergences between North and South became pronounced. This functional theory,
and its corollaries, is testable and explains a significant portion of state behavior. Yet it suffers
from several limitations.
The Limits of Functionalism
A critical question is how the different factors interrelate. If uncertainty is high (predicting
a pledge), yet the risk of opportunism is also high (predicting a contract), what happens? How,
in short, are these factors traded off?
Empirically, it is not hard to find cases that seem inconsistent with the functional approach,
or at least suggest modifications to it. For example, despite the functionalist prediction that states
will prefer pledges under high uncertainty, many agreements on subjects of high uncertainty
are actually contracts. Thus, climate change is marked by significant uncertainty, yet the 1992
UN Framework Convention on Climate Change86 and the Kyoto Protocol to the FCCC87 are
both contracts. At the same time as the FCCC was being negotiated, the same set of states was
drafting what was to have been a contract on forest management. Instead, it became a pledge,
the Non-Legally Binding Authoritative Statement on Forest Principles,88 even though preference
cleavages were quite similar in both cases. Most important, uncertainty about forests is
low, not high. Hence, the resulting pattern turned out to be the opposite of that predicted by
functional accounts.
The risk of opportunism, however, may be the key causal variable. In climate change the risk
is high. Emissions reductions are costly, yet a stable climate is a public good. In forest preservation
the risk is low: healthy forests are a quasi-public good, but much of their benefit
accrues to the state itself. If opportunism is the key variable, these simultaneous choices among
a stable set of states- a contract for climate change, but a pledge for forest protection-make
sense. This amended functional approach suggests that pledges will be observed only when the
risk of opportunism is low and uncertainty high. Even this theory, however, faces anomalies.
OPEC commitments are famously plagued by opportunism, yet commonly said to exemplify
a pledge. 89 (Path dependence and tradition may also play a role, leading states to favor certain
forms of agreement in certain areas simply because of a long history of doing so.) Functional
accounts face another problem: they tend to d1·aw the distinctions between contracts and pledges
in overly stark terms. For example, considerable flexibility can be built into contracts in the drafting
process. Some contracts, such as fisheries regimes, incorporate provisions for ex post adjustments
to commitments. Others include escape clauses, reservations, sunset deadlines, or exit
s:, The incentive to defect is not zero. Some coordination games create incentives for one party to defect publicly
to move the equilibrium. In general, however, "no incentive exists for surreptitious cheating. Since the point
of diverging from an established equilibrium is to force joint movement to a new one, defection must be public."
Lisa L. Martin, The Rational, State Choice of MuJtilateralism, in MULTILATERALISM MATITRS: TuE TuEORY ANO PRAXIS
OF AN INSTITUTIONAL FORM 9 l, I 02 (John Gerard Ruggie ed., 1993). Coordination games refer to situations
in which no party has an incentive to defect surreptitiously from the agreed standard, though there may be disagreement
about the choice of the standard. A common example is driving on the right or the left: no party has
an incentive to deviate once the standard has been chosen.
86 FCCC, supra note 35.
~, The Kyoto Protocol is an amendment to the FCCC. l t was opened for signature on March 16, 1998, and
came into force on February 16, 2005. Kyoto Protocol to the United Nations Framework Convention on Climate
Change, Dec. I 0, 1997, UN Doc. FCCC/CP/ 1997 /7 /Add.2, available at <http://unfccc.int/resource/docs/convkp/
kpeng.html>.
88 Forest Principles Statement, supra note 23.
s9 Lipson, supra note l I, at 519- 20.
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594 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:58 l
provisions. In short, there are many ways to make an agreement flexible. As a result, we cannot
satisfactorily explain the choice to negotiate a pledge simply as the product of a preference for
flexibility on the part of negotiators.
Similarly, pledges are not the only solution to preference cleavages. Many contracts grow out
of deep divisions. States can use substantive ambiguity to address preference heterogeneity. The
recently negotiated Cartagena Protocol on Biosafety90 graphically illustrates the ability of negotiators
to draft contracts that paper over differences.91 Contracts sometimes span preference
cleavages by simply postponing resolution of a controversial issue: the Cartagena Protocol itself
grew out of j ust such a provision in the Convention on Biological Diversity.92 To be sure, in many
instances pledges have been used to bridge cleavages. Yet contracts can be used for the purpose
as well. Why was a contract chosen for global human rights cooperation in the International
Covenant on Civil and Political Rights93 but rejected for East-West human rights cooperation
during the Cold War?94 Why was a contract rejected for a forests accord but accepted for a contemporaneous
climate accord?
In the last analysis, the choice between pledge and contract is difficult to account for with a
purely functional approach. While pledges clearly facilitate compromise between divergent states,
contracts are often employed when preferences are heterogeneous. Many p ledges can be found
between similar states.95 State choices, moreover, often do not appear to reflect uncertainty;
and since flexibility can be built into a contract directly, governments need not, and frequently
do not, resort to pledges when faced with high levels ofuncertainty. One way to strengthen the
explanatory power of functionalism is to focus on opportunism. However, this revision also
meets with some empirical anomalies: pledges have been used in situations where opportunism
appeared likely (e.g., OPEC, the "30% Club" in the nitrogen oxides agreement in Europe, the
Paris Club of creditor states96
) or have been strongly proposed in such situations, even if not
adopted (the Bush-Putin arms negotiations). But these problems are fewer, suggesting that the
risk of opportunism may be central to the choice between legal and nonlegal agreement.
The fact that flexibility can be readily produced in contracts may explain yet another problem
with functional accounts: the apparent lack of pledges in many key areas of cooperation. While
functionalists do not predict a particular quantity, the theory suggests that pledges should be
very common. Uncertainty is endemic in world politics; and many cooperative situations are not
plagued by opportunism, either because the level of cooperation is low or because the situation
is a coordination game. Yet it is difficult to argue that pledges dominate major multilateral negotiations.
Admittedly, pledges are not uncommon. But they do not constitute the primary mode
of agreement in areas such as the environmentt and human rights, where uncertainty is arguably
highest and, at least for human rights, the risk of opportunism low. They are unusual-some
say nonexistent-in arms control.97 They are similarly scarce in trade, investment, and intellectual
property. They do not necessarily predominate even in areas characterized by coordination
<JO Cartagena Protocol on Biosafety to the Convention on Biological Diversity.Jan. 29, 2000, 39 ILM l 027 (2000),
available at <http://www.biodiv.org/>.
91 Sabrina Safri n, Treaties in Collision? The Biosafety Protocol and the World Trade Organization Agreements, 96 A J IL
606, 628 (2002).
92 Convention on Biological Diversity.June 5, 1992, 1760 UNTS 79, available at <http://www.biodiv.org/>.
93 International Covenant on Civil and Political Rights, Dec. 16, 1966, 999 UNTS 171 [hereinafter JCCPR].
94 In part, the choice of a contract for the ICCPR may reflect the prior existence of a pledge, in the form of the
1948 Universal Declaration of Human Rights. See note 69 supra.
9
" Transgovernmental networks of r·egulators, for instance, frequently employ pledges and tend to be most
active among states that are broadly similar in preferences and regulatory approaches. Raustiala, supra note 8.
96 On the "30% Club," see text at notes 195-96 infra. On the Paris Club, see its Web site, <http://www.dubdeparis.org>.
97 See Richard L. Williamson Jr., International Regulal.ion of Land Mines, in NON-BINDING NORMS, supra note 4, at
505, 517. Pledges in the arms control area are concentrated in the export control arena, which Williamson considers
distinct. Williamson notes that "there are no non-binding instruments negotiated by the relevant parties that would
constitute a soft law arms control insuument." Id. at 517; see also Gualtieri, supra note 77 (discussing export control
regimes and noting that the Non-Proliferation T reaty and the 1972 Convention on the Prohibition of the Development,
Production and Stockpiling of Bacteriological (Biological) and Toxin Weapons and on Their Destruction,
Apr. I 0, 1972, 26 UST 583, l O 15 UNTS 163, are binding, but that supplier group arrangements such as the
Zannger Committee and Nuclear Supplier Group are not).
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 595
games, such as air traffic control.98 Moreover, pledges appear concentrated in distinct areas, such
as international monetary affairs.99 This is not to claim that pledges are rare, but rather to claim
that functionalism implies that pledges should be quite common.
In sum, functionalism explains much about the design of agreements. But it faces a twofold
problem: the alleged advantages of either pledges or contracts are much more contingent in
practice than the theory suggests, and the relative frequencies of the two choices are imbalanced:
pledges appear to be less common than a reasonable reading of functional theo.-y suggests.
Those pledges that do exist are clustered in certain areas of cooperation.
The Domestic Politics of International Cooperation
In this section I look to the role of domestic politics and institutions as a means to supplement
and amend functional accounts.100 This approach draws on liberal international relations theory.
101 Because on its own liberal theory says liittle about whose preferences get realized in world
politics, I also look to realist premises about power. 102 These premises carry particular weight
when examining endogenous change in agreement features.
The liberal framework. Liberal international relations theory makes three core assumptions.
First, individuals and private groups are the fundamental actors. Second, these actors use the
state as a means to their preexisting ends. Third, the configuration of interdependent state
preferences ultimately determines state behavior. Liberal theorists recognize the importance
of realist conceptions of power but stress that liberalism provides a unique understanding of
power: one rooted in a society's "willingness to pay" for certain ends. 103 I make three further
assumptions. First, I assume that states care moderately about compliance with international
law. This concern is not ovenvhelming-states, to be sure, violate their legal obligations-but
it is present. This assumption is realistic rather than heroic: substantial evidence indicates that
many states try seriously to comply with international law, 104 and that they seek to ensure, when
negotiating agreements, that they can comply with them. Second, I assume that states are moderately
risk averse. 105 They are cautious about undertaking commitments in the face of uncertainty.
Third, as a starting point I assume that the respective choices of the legality, substance,
and structure of an agreement do not influence one another. This assumption is not realistic,
but it is useful for laying out the basic argument. I later relax this assumption and show how
these choices interrelate. Supplementing functional accounts with liberal insights helps illuminate
how and why legality, substance, and structure interact in the design of agreements.
I consider three explanatory factors: domestic preferences, domestic institutions, and relative
state power. Domestic preferences refer to the demands of domestic constituencies for or against
cooperation. My first hypothesis is that governments negotiate agreements-and negotiate
agreements in a particular form-not primarily in hopes of solving functional problems but
in response to demands of domestic constituencies. Failure to satisfy the preferences of these
"constituencies for cooperation" gives rise to domestic costs for governments. 106
98 For example, the Chicago Convention on International Civil Aviation is a contract. Convention on International
Civil Aviation, Dec. 7, 1944, 61 Stat. 1180, 15 UNTS 295,availableal <http://www.icao.int/cgi/goto_ m.pl?icao/
en/takeoff. h un > .
99 See Plaza Accord, supra note 2 I; Basel Accord & Basel II, supra note 22.
100 Hence, I am not claiming that functional accounts are fatally flawed. Rather, "domestic politics complements
... functionalist explanations for legalization by supplying an explanation for government preferences."
Kahler, supra note 28, at 667.
101 Andrew Moravcsik, Taking Preferences Seriously: A Liberal Theory of International Politics, 51 INT'L ORG. 513
( 1997); Anne-Marie Slaughter, International Law in a World of liberal States, 6 EUR. J. INT'L L. 503 ( 1995).
IO'l "States first define preferences- a stage explained by liberal theories of state-society relations. Then they
debate, bargain, or fight to particular agreements-a second stage explained by realist and institutionalist (as
well as liberal) theories of strategic interaction." Moravcsik, supra note I 0 1, at 544.
io:i Id. at 523-24.
10
•
1 BrLD£R,supra note 3, at 7-1 0; ABRAM CHA YES & ANTONIA HANDLER CHA YES, THE NEW SOVEREIGNTY: COMPLIANCE
WITH INTERNATIONAL REGULATORY AGREEMENTS 1-28 ( 1995 ); Raustiala & Slaughter, supra note 5.
io,, 00\'INS & ROCKE, supra note 76, at 16.
ior, Kahler, supra note 28, at 675, uses a similar concept of"compliance constituencies."
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596 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
What are these preferences? Preferences about cooperation obviously vary widely. Some domestic
actors will strongly oppose a pact, while others will demand one. But there is little evidence
that demandeurs prefer pledges as a first-best choice. Rather, as many commentators have
noted, they almost always favor contracts. 107 For example, the recent land mines convention 108
was spearheaded by an alliance of nongovernmental organizations (NGOs). These NGOs did
not seek a pledge: they demanded a contract.109 Likewise, the pharmaceutical and entertainment
industries in the United States did not demand a pledge when they sought to strengthen
intellectual property protection in the 1980s; they demanded, and received, a contract, the TradeRelated
Intellectual Property Agreement of the WTO, or TRIPS. 110 The systematic preference for
contracts accords with the prevailing view that pledges are weak, ineffective, and inferior to
contracts. 111 (A similar belief underlies the claim that contracts are more credible than pledges,
though this claim can have a self-fulfilling quality.) In many areas of cooperation-such as the
environment, arms control, trade, and human rights-the preference for contracts is pervasive.
Indeed, in these areas negotiations that end in a pledge are often dubbed fa ilures, while those
that produce contracts, though subject to criticisms about substance or structure, are largely
considered successes. 112 For example, as Dinah Shelton states regarding international labor law,
"It is notable that here, as in other contexts, non-state actors favor binding instruments .... "113
Elsewhere she argues similarly that "[i]t was clear at the Rio Conference on Environment and
Development that [NGOs] had a strong preference for a binding Earth Charter over the ultimately-
adopted Rio Declaration, and that states were unwilling to accept a legally binding text
because of the consequences flowing from legal obligations. "114 Likewise, Douglass Cassel claims:
The long-term question may be not whether human rights hard law is, in fact, more likely
than soft law to induce compliance, but whether it is so perceived by NGOs, issue networks,
elites, the media, and even governments. It seems that the binding nature of the norm is
significant. Human rights hard law tends to be perceived as raising the moral, political, and,
of course, legal stakes of non-compliance .115
Correctly or incorrectly, many domestic groups demand contracts when they favor cooperation.
116 Liberal theory suggests that this bias helps explain why contracts are so common. I do
not claim that domestic constituencies always favor contracts (indeed, they may oppose any
107 See Douglass Cassel, Inter-Arnerican Human Rights l.aw, Soft and Hard, in NON-BINDING NORMS, supra note 4,
at 393; O'Connell, supra note 72; Shelton, supra note 27, at 9-10; Williamson, supra note 96; cf Christine M.
Chinkin, Normative Develaprnent in the International Legal System, in NON-BINDING NORMS, supra note 4, at 21, 31
(arguing that nongovernmental organizations "view the soft/hard law distinction as carrying little weight").
108 Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-Personnel Mines
and on Their Destruction, Sept. I 8, l 997, 36 ILM 1507 (1997), available at <http://www.icrc.org>.
109 Williamson, supra note 97.
110 MICHAEL P. RYAN, KNOWLEDGE DIPLOMACY: GLOBAL COMPETITION AND THE POLITICS OF INTELLECTUAL
PROPERTY ( l 998);see Agreement on Trade-Related Aspectsoflntellectual Property Rights, Apr. 15, 1994, Marrakesh
Agreement Establishing the World Trade Organization, Annex 1 C, reprinted in LEGAL TEXTS, supra note 32,
at 321.
111 See, e.g., Ratner, supra note 44, at 653 (arguing that there is "an implicit assumption that hard law will affect
behavior more than will soft law").
112 See William K. Stevens, Lessons of Rio: A New Prominence and an Effective Blandness, N .Y. TIMES, June 14,
l 992, § I, at I O ("Environmentalists attacked the [nonbindin&" forest principles] as hopelessly weak, even a step
backward ... "). This view has changed little over the intervening decade. See, e.g., Maria Adebowale et al., Environment
and Human Rights: A New Approach to Sustainable Development (Int'I Inst. for Env't & Dev., May 200 l),
available at <http://www.iied.org/docs/wssd/bp_envrights.pdf> (noting that "('soft law') treaties such as the Rio
agreements are an inadequate basis for effective control of [globalization)").
11
:
1 Dinah Shelton, Commentary and Conclusions, in NON-BINDING NORMS, supra note 4, a t 449, 458. That said,
pledges are common in the International Labour Organization system.
114 Shelton, supra note 27, at 9-10.
11 :, Cassel, supra note 107, at 401.
116 Domestic preferences are asymmetric in another dimension. There are always domestic actors that oppose
cooperation as well as those that prefer it. Those that prefer a new agreement to the status quo (which may or
may not be "no agreement") generally demand a contract. But it does not follow tl1at domestic actors that prefer
the status quo therefore demand pledges. Rather, there are three relevant choices: pledges, contracts, and no
agreement. While there is little empirical evidence, it. appears to be rare for domestic actors to demand pledges
as a first-best choice. And domestic actors opposed to new cooperation generally oppose any pact at aU, though they
may ultimately prefer a pledge to a contract.
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2005] FORM AND SUBSTANCE IN I NTERNATIONAL AGREEMENTS 597
agreement at all). I claim only that domestic actors that prefer cooperation exhibit a decided
tendency in favor of contracts. T his preference skews the supply of agreements away from what
a pure functional theory would predict. The result is more contracts, and fewer pledges.
Domestic institutions and the approval of agreements. Liberal theory stresses the preferences of
private actors. But it also looks to domestic institutions as important intervening variables. Typically,
international accords-especially contracts-must be approved by some domestic process.
In democratic states the executive branch often negotiates agreements and presents them to the
legislature-or part of the legislature- for formalized consent prior to ratification. In parliamentary
democracies such as the United Kingdom, the executive controls the legislature and
thus the process of legislative approval may be largely proforma. In presidential systems the
legislative role is more profound.117
T he choice between pledge and contract is not unrelated to these domestic procedures.
Unlike a contract, a pledge in the United States is not subject to congressional action. The Case
Act mandates that "any international agreement .. . other than a treaty" be transmitted to Congress
"as soon as practicable ... but in no event later than sixty days thereafter."118 The Act refers
to sole executive agreements-those subject to no congressional approval-and congressionalexecutive
agreements, which go before both houses of Congress. The implementing regulations
of the Case Act, however, do not require the transmittal of non binding agreements. For the Act
to apply, "[t)he parties must intend their undertaking to be legally binding .... Documents
intended to have political or moral weight, but not intended to be legally binding, are not international
agreements [for the purposes of this Act]." 119 This fact may help explain both why the
U.S. government (and, by analogy, that of other states) sometimes prefers pledges and why domestic
actors rarely do. Pledges favor the executive branch. They are more confidential and less
prominent; members of Congress are less likely to hold hearings on pledges; debate is likely
to be rare; and negotiations can take place more quickly. 120 These claims should not be overstated-
congressional hearings were held on the Helsinki Final Act-but pledges rarely attract
high levels of political attention. 121 The lack of applicability of the Case Act with regard to
pledges, even in comparison to sole executive agreements, lessens the likelihood that Congressand
domestic interest groups- will be aware of an agreement or able to capitalize politically
on criticism of it. 122 Of course, the Case Act and the dynamics it spawns do not apply to other
governments. But the preceding illustrates how domestic institutions influence preferences
over legal form.
Governments may also prefer pledges because they fear that the political prominence of contracts
will increase domestic scrutiny in the future. For example, Richard Cooper has argued
that one reason monetary regimes are commonly pledges is that
the world economy is very asymmetric in its functioning. For technical reasons, it is both
likely and desirable that one or a few currencies will emerge with special status in market
transactions. Even when this fact is fully known and acceptable, it cannot always be formally
acknowledged and sanctified in treaties, in part for reasons of status .... There thus
emerges a discrepancy between what governments say in formal negotiations and what
they do, or are willing happily to accept, in day-to-day operations ....
117 According to David Sloss, some 25% of global treaties, as opposed to bilateral or regional treaties, submitted
to the Senate between 1993 and 2000 were rejected. David Sloss, lnu,7Ultional Agreements and the Political Safeguards
of Federalism, 55 STAN. L. REV. 1963, 1984-85 (2003).
118 Case-Zablocki Act, 1972, J U.S.C.S. §112b(a) (2005). The United Kingdom has a similar rule: pledges do not
have to be published, whereas contracts do. Aust, supra note 2, at 789-90.
119 U.S. Dep't of State, International Agreements, Coordination, Reporting and Publication oflnternational
Agreements, 22 C.F.R. §181.2(1) (2005).
120 A set of states may also choose to negotiate a pledge so as to avoid registration with the United Nations,
pursuant to Article l 02 of the UN Charter.
121 THOMAS, supra note 46, at 91-156.
122 This phenomenon is similar to, but distinct from, what Lisa Martin has called the "evasion hypothesis."
That is the claim that the president uses sole executive agreements or congressional-executive agreements to
circumvent Senate involvement. Martin finds that thet-e is little empirical support for that claim. See generally LISA
L. M ARTIN, DEMOCRATIC COMMIT MENTS: LEGISLATURES AND I NTERNATIONAL C OOPERATION (2000).
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Formal arrangements induce sovereign states to insist on formal symmetry in status, parti
to cater to nationalist sentiment at home. Informal arrangements carry no such compulsion. 1 3
In other words, pledges usefully insulate governments against domestic political pressures.
Domestic institutions thus create some incentives for government officials to favor pledges over
contracts. The degree to which domestic institutions actually explain the choice between pledge
and contract is a topic for further research. Some pledges do become politically prominent, and
unless an agreement is classified interest groups or legislators will have no difficulty finding
out about it. More important, the lack oflegislative attention to pledges is a double-edged sword .
When states need to signal seriousness about a commitment, a contract will serve them better
than a pledge. But a contract has another signaling advantage irrespective of its legal quality
on the international plane: it typically requires some domestic action before ratification. By
involving legislatures in approval, a contract indicates widespread domestic support and is therefore
more credible. 124 By the same logic pledges are easier to reverse by future governments.
In the United States, for example, as a constitutional matter the president can terminate a contract
as easily as a pledge. 125 But politically it is harder because the contractual form carries a
stronger signal of intent and because the Senate has bought into the agreement through its
advise-and-consent role. Likewise, courts construe statutes that facially contradict binding treaty
commitments as consistent with the international obligation whenever possible. 126 Pledges,
which do not create the legal obligations the interpretive canon seeks to protect, are thus more
liable to be held as reversed by legislative action and may therefore be less valuable to the executive
ex ante.
Constitutional systems differ in many respects, and I have focused here on U.S. law and practice.
But it seems reasonable to assume that, where domestic constitutions provide for a legislative
consent process, that process likely applies more frequently to contracts than to pledges.127
Domestic institutional differences create incentives that help account for and accentuate the
contractual bias of domestic interest groups. Because they often want new agreements, and
because contracts typically provide greater access to the policy process, these groups will favor
contracts above and beyond whatever preference for them already exists. Thus, domestic actors
may prefer contracts for at least two reasons. One is perceptual: the belief that contracts are more
effective than pledges at shaping state behavior. The second is tactical: domestic institutions
in many states, especially democracies, require more process for contracts and therefore create
more opportunity for influence by private actors. Contracts are likely to correlate with the preferences
of strong domestic constituencies for a third reason. The stronger the domestic support,
the more likely a state is to comply with its commitments. All else equal, a state with strong domestic
support for an agreement will want to signal its reliability through a contract. Government
officials will sometimes favor pledges (because they seek to keep the agreement on a low
profile politically) but will often favor contracts, because they need to signal credibility. And
they will often favor contracts because they want to satisfy the demands of politically powerful
domestic actors. The predicted result is an oversupply of contracts.
Power, public goods, and club goods. Individual states generally cannot unilaterally determine
whether an accord will be a contract or a pledge. But realist theory suggests that the preferences
of powerful states dominate the determination of legal form-and they often do. However,
otherwise-weak states sometimes have significant contextual power that can influence the terms
123 Richard N. Cooper, Prolegomena to the Choice of an International Monetary System, 29 INT'L ORG. 63, 95-96
(1975); see also Gold, supra note 41.
124 Kenneth A. Schultz, Domestic Opposition and Signaling in International Crises, 92 AM. POL. SCI. REv. 829 ( 1998).
125T he dominant view is that the president may terminate u·eaties without the Senate's consent. See, e.g., LOUIS
HENKIN, FOREIGN AFFAIRS AND THE UNITED STATES CONSTITUTION 211-12 (2d ed. 1996).
126 In the United States, this is due to the "Channing Betsy" canon of constmction. See Curtis A. Bradley, 17ie
Charming Betsy Canon and Separation of Powers: Rethinking the Interpretive Role of International Law, 86 GEO. L.J.
479 ( 1998).
127 I say "likely" advisedly, since the various studies on .national reception of treaties typically do not discuss
pledges at all.
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 599
of an agreement. This is sometimes termed veto power, referring to the power to withhold agreement.
Veto power depends crucially on the nature of the good in question. In issue-areas that
produce club goods veto power is nonexistent or trivially weak. Club goods are goods that are
nonrivalrous in consumption. However, the benefits of cooperation regarding club goods are
by definition excludable. 128 Only members of the "club" can enjoy the good; hence, others face
an incentive to j oin the club to gain access to that good. Consequently, a threat to remain outside
the club is rarely credible. 129 Indeed, the opposite holds true: numerous states outside, say,
the European Union or the WTO are eager to enter; few are eager to exit. The advantages of
cooperation flow only--0r at least predominantly-to participants. Conversely, veto power is
strong with regard to public goods. 130 Public goods create incentives to free ride. States that
desire an agreement find themselves vulnerable to the exercise of veto power by potential free
riders. T he provision of side payments to satisfy these hold-out states is one result of the exercise
of veto power; change in the legality, substance, and structure of agreements is another.
A third potential result of veto power-no agreement-is important, but its measurement encounters
severe methodological obstacles.
Consequently, while pledges truly are "often a compromise between those States which did
not favor any regulatory instrument and those which would have preferred the conclusion of
a treaty,"131 this claim rests uitically on the type of problem under consideration. When governments
desire wide par ticipation in a public goods regime, whether because of fears of leakage,
relative gains, or free riding, the threat to remain outside the regime is credible, and recalcitrant
states can force the negotiation of a pledge rather than a contract-or can scuttle the pact
altogether.
A Liberal Analysis of Legality
Let me summarize the argument so far. Liberal theory posits that states channel and respond
to the demands of domestic actors. Many of these groups favor contracts-in part because of
the structure of domestic institutions and in part because of the prevailing belief that contracts
are more credible and more effective than pledges. This preference provides one potential explanation
of the observed bias toward contracts. Yet states plainly care about other factors as
well, such as flexibility in the face of uncertainty or confidentiality, and these factors militate toward
pledges. How do states respond to these varied pressures?
We lack good answers, but we know that contracts prevail in international cooperation. Liberal
theory suggests that domestic demands for contracts ought to outweigh concerns over uncertainty
(which push toward pledges). There are two reasons why domestic pressures may outweigh
the desire for flexibility. First, state officials tend to have short time horizons: they are known
to discount future events. 132 While they may care about flexibility in the face ofuncertainty, the
need for flexibility arises ex post. Domestic pressures frequently exist ex ante. Second, the tendency
to discount flexibility is accentuated because implementation (and perhaps noncompliance)
will often be a problem for a later government, not the negotiating government. Both
of these factors can be subsumed under the rubric of time preference. If governments exhibit
time preference, and there is good reason to believe that they do, domestic pressures may reasonably
be expected to operate prior to functional variables such as flexibility. 133
128 See generally RICHARD CORNES & TODD SANDLER, THE THEORY OF EXTERNALITIES, PUBLIC GOODS, AND CLUB
GOODS (2d ed. 1996).
129 Unless the state in question has preponderant power. See, e.g., Richard H. Steinberg, In the Shadow of Law
or Power? Consensus-Based Bargaining and Outcomes in the GAIT/WfO, 56 INT'L ORG. 339 (2002).
130 GLOBAL PUBLIC GOODS: INTERNATIONAL COOPERATION INTHE 2 lSTCENTURY (Inge Kaul et al. eds., 1999).
"
11 Chinkin, supra note 55, at 861.
132 The implications of d iscounting have been heavily addressed in the literature on the European Union. See,
e.g., KAREN J. ALTER, ESTABLISHING THE SUPREMACY OF EUROPEAN I.AW: THE MAKING OF AN INTERNATIONAL RULE
OF I.AW IN EUROPE (2001); Paul Pierson, The Path to European Integration: A Historical lnstitulional Analysis, 29
COMP. POL. STUD. 123, 135-36 (1996).
13
'
1 The concern for credibility, however, is a functional variable that operates ex ante, but also tends to push
governments toward the negotiation of contracts rather than pledges.
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600 TIIE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
Another observable implication of this argument is that the mix of pledges and contracts
should vary according to the level of domestic demand for cooperation. All else equal, we should
observe a higher percentage of contracts when domestic constituencies for cooperation are politically
powerful, and a lower percentage when they are weak. Moreover, liberal analysis predicts
that contracts will be relatively favored when legislative approval is needed to signal credibilityperhaps
because the obligations in question require legislative action to be implemented. Where
credibility is less important, or governments possess other means to enhance credibility, or the
obligations in question can be implemented by the executive branch, pledges become more
attractive.
The empirical evidence is generally, though not entirely, consistent with these broad claims.
Absent good data on international agreements, much of this evidence is impressionistic. 134
Pledges appear comparatively uncommon in agreements on the environment, human rights,
and trade-areas that exhibit active domestic constituencies known to favor contracts. There
are exceptions, notably the aforementioned Helsinki Final Act, but also the many nonbinding
agreements of the International Labour Organization. 135 But aside from the last, these pledges
are exceptional. Indeed, the Helsinki Final Act and the Forest Principles Statement both illustrate
veto power. In each, the power of certain states-those essential to the viability of the agreement-
led to the negotiation of pledges rather than the contracts desired by many other states
and domestic pressure groups.
By contrast, pledges appear most common in areas of technocratic cooperation where domestic
interest groups are relatively inactive. This result is consistent with the foregoing analysis.
Where domestic pressures are weak, states appear to have greater latitude in the choice
oflegality and, as a result, more frequently negotiate pledges. Situations where pledges appear
especially common include securities regulation, anti trust enforcement, sovereign debt restructuring,
and monetary cooperation. In these areas transgovernmental networks of government
officials are particularly active and often employ nonbinding "memoranda of understanding"
on an agency-to-agency basis. 136 Because these agreements engender so little political attention,
they are rarely documented. 137 Such accords are frequently seen as extensions of domestic regulatory
activities, which are already within the purview of the executive branch. Often these agreements
address coordination problems, for which standards need to be agreed upon, but once so
agreed are self-enforcing. That much of this cooperation employs pledges is consistent with the
functional claim made earlier that pledges ought to be most common in coordination situations.
In these more technocratic and arcane areas, the available empirical evidence suggests that the
prevalence of pledges roughly, if inconsistently, rises as uncertainty rises-as functional theory
predicts. For example, as international capital and foreign exchange markets have grown and
intensified, monetary agreements have declined in legalization. 138 Exchange rate pacts such as
the Plaza and Louvre Accords 139 addressed issues of high uncertainty-governments have only
limited control over the fundamentals that determine exchange rates-and were pledges. Similarly,
the Forty Recommendations on money laundering of the OECD's Financial Action Task
Force (FATF) is a pledge, as are the Basel Accord on Capital Adequacy and the Paris Club
agreements on sovereign debt. 140 These examples are consistent not only with the functional
134 Several efforts are under way to create extensive data sets of international agreements and their provisions.
However, these data sets are nearly always focused o:n contracts.
135 The ILO has sponsored more than two hundred pledges and approximately the same number of contracts.
See Database of International Labour Standards, at <http://www.ilo.org/ilolex/english/recdispl.htm>.
136 SLAUGHTER, supra note 8; Raustiala, supra note· 8, at 22.
1
'
7 Aust, supra note 2, at 791-92. Aust also argues that pledges are most likely in such technocratic areas of
cooperation. Id. at 789, 791.
'
38 Simmons, supra note 28, at 598-600.
139The Plaza and Louvre Accords of 1985 and 1987 were attempts at exchange rate and macroeconomic policy
coordination. For more on the Plaza Accord, see supra note 21. For more on the Louvre Accord, see YOICHI
FUNABASHI, MANAGING THE DOLLAR: FROM THE PLAZA TO THE LOUVRE (2d ed. 1989).
I-IO See, e.g., FINANCIAL ACTION TASK FORCE ON MONEY LAUNDERING, THE FORTI' RECOMMENDATIONS (June 20,
2003), avauab/,e at <http://wwwI.oecd.org/fatf7pdf/40Recs-2003 _ en.pdf>; Basel Accord and Basel II, supra note 22.
On the recent Paris Club Iraqi debt decision, see Paris Club Press Release, supra note 25; Craig S. Smith, Major
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2005) FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 601
expectation that uncertainty will influence the form of commitments, but also with the liberal
claim that pledges are most common in areas oflow domestic salience-or, as Cooper suggests,
in areas in which governments seek to keep domestic salience low.
The framework advanced in this article also helps clarify when pledges or contracts will be
used to bridge preference cleavages. It sheds light on why, for example, the Helsinki Final Act
was cast as a pledge, whereas other contemporaneous human rights accords were contracts.
Unlike the global human rights conventions, the Helsinki Accords were fundamentally about
East-West cooperation. Thus, the United States and the USSR each had enormous veto powerthe
implied threat to stay out of any pact mattered because the exercise was pointless without
them. For universal human rights accords such as the International Covenant on Civil and Political
Rights, no single state or group of states possessed sufficient veto power to succeed in demanding
a pledge.
As these arguments illustrate, liberal theory does not produce fully accurate predictions of
state behavior. But it usefully supplements fonctional arguments. This richer analysis can be
fruitfully extended by systematically considering the interactions between form and substance
in international agreements.
IV. PLEDGES, CONTRACTS, AND THE SUBSTANCE OF AGREEMENTS
Governments are the architects of agreements; they collectively determine the substantive
terms of their obligations. I define the substance of an agreement as the depth or shallowness of
the commitments. 141 Deep agreements require significant changes from the status quo; shallow
agreements require little or no change. Examining variation in depth through the lens ofliberal
theory can illuminate when and why states choose pledges or contracts. Most important, it can
show how legality influences substantive obligations and vice versa. Legality and depth are interactive,
not independent, variables.
Deep and Shallow Multilateralism
Many scholars have noted the variety in depth of international agreements. Environmental
accords, for example, are often shallow. Trade agreements are generally thought to be deeper,
as are many arms control accords. 142
Is there a connection between agreement depth and legality? Functional theory suggests two
contrasting arguments: that contracts are likely to be associated with shallow commitments and
that contracts are likely to be associated with deep commitments. Both are broadly consistent with
functional premises. Because functional arguments cannot distinguish when one or the other
should occur, they pose a puzzle.
The logic of the first argument about depth and legality is as follows. Credibility reflects expectations
about performance. The more shallow the commitment, the more likely performance
will be, and therefore the more credible the commitment ex ante. Negotiating commitments as
contracts should lead to a reduction in the depth of those commitments, all else equal, because
states seek a "compliance cushion" or large margin of error. 143 Likewise, pledges are preferred
if commitments must be deep because they do not raise acute compliance concerns. A pledge
"enables states to adjust to the regulation of many new areas of international concern without
fearing a violation (and possible legal countermeasures) if they fail to comply."144 Legality and
depth, in sum, are negatively correlated.
Creditors Agree to Cancel 80% of Iraqi Debt, N .Y. TIMES, Nov. 22, 2004, at A6. The Paris Club agreements are nonbinding,
though the creditor nations then typically negotiate binding bilateral accords, based on the Paris Club
agreement, with the debtor state.
1
•
1 Following the definition in Downs et al., supra note 29.
1•2 Id.
1
•
3 As Simmons argues, "[G]overnments are hesitant to make international legal commitments if there is a
significant risk that they will not be able to honor them in the future ... . [C]ommitment is associated with
conditions that one can reasonably anticipate will ma.ke compliance possible." Simmons, supra note 28, at 599.
IH Steven R. Ratner, International Ln.w: The Trials of Global No.,111s, FOREIGN POL'Y, Spring 1998, at 65, 68.
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602 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
This dynamic implies that we should observe high levels of compliance with contracts. This
implication follows from the initial premises: if contracts are deliberately rendered shallow, then
they are easy to comply with by definition. While measurement of compliance is challenging,
most international lawyers believe that contracts do exhibit high compliance. Louis Henkin
stated in his famous aphorism that "almost all nations observe almost all principles of international
law and almost all of their obligations almost all of the time." 143 Substantial numbers of
scholars have seconded Henkin's claim. Whatever the merits of this claim, it corresponds with
the argument I have described, as well as with the oft-noted phenomenon oflowest-commondenominator
treaties. Indeed, the major reason Henkin was right is not that international law
is powerful but that international agreements are often shallow and codify what states would do
anyway. States build compliance cushions into contracts, making the commitments credibleyet
also shallow.
The second argument asserts that legality and depth are positively correlated. Functionalists
assert that states fear the prospect of cheating by other parties, especially when they negotiate
deep commitments. 146 Deep commitments are costly to implement; hence incentives to defect
are high. Casting such commitments as contracts raises the costs of nonfulfillment. Thus, the
deepest, most costly commitments are contracts to maximize the probability of compliance by
other parties. This prediction of a positive correlation is consistent with the experience of the
WTO, the North American Free Trade Agreement, and many arms control agreements, which
are often deep and legally binding.
One way to think about these contrasting functional arguments is in terms of risk. Are states
more concerned about the risk of their own noncompliance, or the risk that other parties will fail
to comply? The first is illustrated by a negative correlation, the second by a positive correlation.
Both correlations are logically plausible, and both are consistent with functional theory. Both
also enjoy some empirical support. Liberal theory, however, suggests that differing domestic
political dynamics explain when negative or positive correlations are likely to be observed.
In proffering a liberal explanation for this puzzle, I highlight two factors, both focused on
domestic politics. The first is the organizational structure of the relevant domestic constituencies,
understood in Olsonian or collective action terms. 147 The second is the degree to which domestic
actors are directly affected by the consequences of noncompliance and hence have continuing
incentives to monitor compliance. Both of these factors in turn influence the credibility
of political demands (threats) by domestic actors for agreement features, and therefore, in the
liberal paradigm, both influence the choices of governments. Differences in these factors help
explain who prevails in the interest-group politics of cooperation. Consequently, they help explain
when depth and legality are positively correlated and when they are negatively correlated.
Organizational structure refers to the distribution of gains and losses associated with cooperation.
As Mancur Olson noted decades ago, concentrated benefits and diffuse harms produce
political power for those who benefit and weakness for those harmed. Olson's claims imply that
interest groups that are concentrated and stand to gain from cooperation, such as export interests
in the trade context, can credibly demand that unless their governments negotiate the accords
they desire-in most cases, deep contracts-they will withhold political support.148 Similarly,
domestic actors that lack these attributes will be less likely to see their political demands met.
Direct impacts refer to the degree to which domestic actors are directly harmed by violations
in other parties. Harm creates incentives for extensive and persistent monitoring of compliance
by domestic actors. To continue the example of economic accords, exporters are directly harmed
by violations of trade agreements. Moreover,. information about market access in other states
is an inherent by-product of their normal business. When violations occur, these groups know
immediately and apply pressure on governments; indeed, they often fashion the political and
14
j LOUIS HENKIN, How NATIONS BEHAVE: LAW AND FOREIGN POLICY47 (2d ed. 1979).
146 E.g., Abbott & Snidal, supra note 72, at 429.
H ? MAN CUR OLSON, THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOODS AN DTHE THEORY OF GROUPS ( 1971 ).
148 See also Judith Goldstein & Lisa L. Martin, Legalization, Trade Liberalization, and-Domestic Politics: A Cautionary
Note, 54 INT'L ORG. 603 (2000).
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 603
legal claims that states bring against other states. 149 Rational governments anticipate this continual
monitoring and the resultant political pressures it may raise. The likelihood of continuing
pressure from domestic actors-resulting from the direct impacts they experience-helps make
domestic demands credible (or, alternatively, raises the domestic costs of failure to satisfy those
demands).
Contrast the situation of export groups in trade with human rights or environmental NGOs.
The latter may also desire deep contracts. But these groups lack the political power of export
interests. Because they will not be directly affected by noncompliance in other states, it is less
credible that they will closely monitor implementation over the long term. 150 And, at least in the
environmental arena, there is only modest evidence that they do so. 151 Human rights NGOs do
place a high premium on monitoring, but in practice can address only a small range of potential
violations. 152 Environmental and human rights NGOs clearly pressure states to produce the
agreements they desire, but the political leverage at their command is comparatively weak.
Most important, they lack the organizational advantages of firms in the trade arena. The benefits
from human rights and environmental accords are typically diffuse. The costs, by contrast,
are usually concentrated, leading (often) to strong opposition by other domestic actors. As a
result, states are more likely to negotiate shallow contracts here than in areas like trade.
In short, the pattern of agreement design-the varied balances struck between form and substance-
can be more easily explained once we examine the domestic political underpinnings of
cooperation. Environment and human rights accords are generally shallower than trade, investment,
and arms control accords, in part because of the differential political power of the domestic
groups that demand cooperation in these areas. We generally observe a positive correlation
between depth and legality when the domestic demandeurs of cooperation are politically
privileged, and a negative correlation when they are not. This claim may seem obvious, but the
functional approach to agreement design, with its focus on unitary state actors, does not make it.
This line of argument raises the question why governments supply shallow contracts rather
than deep pledges when they face relatively weak or conflicting pressure from domestic actors.
As an empirical matter, deep pledges are uncommon.153 Another way of posing the question
is to ask, why do many domestic actors put such a high premium on contracts?
I have already offered some answers to this question. Domestic actors may prefer contracts
because of the domestic process advantages they offer: greater opportunities for notice, comment,
and influence. Domestic actors may believe that contracts are simply more effective than
pledges-which, all else equal, they generally are. And it may be that agreement form is more
politically salient, hence more valuable to domestic groups, than substance. That an accord is
legally binding may be readily understood by the public, donors, and members. That an accord
is deep and demanding is often a much more complicated assessment that may be realized only
over time. A contract, however shallow, may also insulate state officials from the charge that they
ignored a politically salient problem. Singly or in conjunction, these factors create incentives
for states to supply shallow contracts rather than deep pledges.
Let me briefly consider an alternative functi.onal approach to the connection between legality
and depth. As noted earlier, incentives for cooperation vary, depending on the nature of the
149GREGORYC.SHAFFER,DHEN0INGINTERE5TS:PUBLIC-PRNATEPARTNERSHIPSINW.T.O.LITIGATION(2003).
150 "Many international NGOs strongly identify with the norms of environmental and human rights regimes
but often experience no direct, material harm from their violation." Ronald B. Mitchell, Sources a/Transparency:
Information Systems in International Regimes, 42 INT'LSTU0. Q. 109, 120 (1998).
151 Kai Raustiala & David G. Victor, Conclusions, in TH£ IMPLEMENTATION AND EFFECTIVENESS OF INTERNATIONAL
ENVIRONMENTAL COMMITMENTS: THEORY AND PRACTICE 659 (David G. Victor et al. eds., 1998) [hereinafter
IMPLEMENTATION ANO EFFECTIVENESS].
152TuEFUTUREOFU.N.HUMANRIGHTSTREATYMONITORING,supranote36.OonaHathaway'sargumentabout
human rights treaties rests critically upon relaxation of pressure by non state actors on states that sign and ratify
agreements, leading, in some cases, to back.sliding in behavior. Oona A. Hathaway, Do Hum.an Rights Treali.es Make
a Difference? l l l YALE LJ. I 935 (2002); cf Ryan Goodman & Derek Jinks, Measuring the Effects of Hum.an Rights
Treaties, 14 EUR.J. INT'LL. 171 (2003).
10
' One exception is the 1988 Toronto declaration on climate change. Environment Canada Conference Statement,
The Changing Atmosphere: Implications for Global Security? ( 1988) (available from World Meteorological
Organization); see IAN H. ROWUNDS, TuE POLITICS OF GLOBAL ATMOSPHERIC CHANGE 190-92 ( 1995 ).
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604 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
good at stake. So, too, do incentives to penalize noncompliers. In a club good situation, parties
can punish noncompliant states with exclusion, including such limited forms of exclusion as
those practiced in the WTO. 154 In a public good situation, exclusion is counterproductive and
unlikely. To see this, consider a state that violates an air pollution treaty. Other parties gain
nothing by forcing the noncomplier to exit the regime.155 Indeed, they are made worse off. That
is one reason many such agreements contain "managerial," rather than enforcement-based,
noncompliance systems. 156
How might this difference affect the relationship between legality and depth? Casting a pact
as a contract raises the costs of noncompliance, all else equal. Thus, all else equal, contracts
ought to be relatively less likely for club goods than for public goods because alternative ways
of deterring noncompliance-namely, (partial) exclusion-<:an be applied to club goods. Contracts,
in other words, are less necessary in club good situations. This reasoning may help account
for the bias toward contracts in some public goods cooperation, such as the environment. But
it fails to account for the fact that trade accords are almost all contracts as well. And so are other
reciprocity-based accords, such as the Geneva Conventions. 157 Indeed, contrary to this hypothesis,
pledges appear even less common for trade than for the environment. While the role of
sanctions in agreement design is important, there is little support for this functional claim.
Power
The liberal approach to form and substance can be extended by considering the role of power.
A negative correlation between legality and depth can be exacerbated when state preferences
diverge. States that desire a contract may have to coerce or compel other states to agree. The
degree to which such pressure is necessary also depends on the distinction between club and
public goods. Public goods create veto power. States with veto power may demand a shallow
agreement or side payments to cooperate (or both). At the limit, they may abandon the negotiations
altogether. These demands can decrease the depth of the accord and, as I discuss below,
may also weaken its review structure.
On the other hand, veto power rarely attaches to club goods. One might expect this feature
to mitigate a negative correlation between legality and substance, and, as noted previously,
trade agreements typically evidence a positive correlation. Human rights accords present some
unique qualities. States acquire weaker veto power than in the public goods setting, but it is not
as weak as with club goods. Human rights accords do not depend on universal adherence to
be effective in any state. They can readily be implemented unilaterally, and are often seen as primarily
expressive rather than regulative. 158 The degree of veto power that states wield regarding
such accords flows largely from the desire to have near-universal participation. In general, human
rights agreements exhibit a special pattern: they are riddled with reservations at a high rate.
Reservations operate to reduce the depth of the accord, and in this sense the limited veto power
states wield in human rights cooperation manifests itself much as veto power does in public
goods settings: as a constraint on the depth of agreements, and occasionally as a constraint on
their legality.
1
" ' The WfO permits suspension of benefits by a wronged party in the event of noncompliance with an Appellate
Body ruling. This is tantamount to exclusion from a subset of the regime's benefits, i.e., market access in the
wronged state.
155This point is true of trade regimes as well. But as a political matter, rather than an economic one, it has little
traction.
156 Downs et al., supra note 29, at 380-81.
1
"
7 I consider the Geneva Conventions to be reciprocity based in a structural/political, rather than a legal, sense.
Geneva Convention [I) for the Amelioration of the Condition of the Wounded and Sick in Armed Forces in the
Field, Aug. 12, 1949, 6 UST 3114, 75 UNTS 31; Geneva Convention [II) for the Amelioration of the Condition
of the Wounded, Sick, and Shipwrecked Members of Armed Forces atSea,Aug. 12, 1949, 6 UST3217, 75 UNTS
85; Geneva Convention [Ill] Relative to the Treatment of Prisoners ofWar, Aug. 12, 1949, 6 UST 3316, 75 UNTS
135; Geneva Convention [IV] Relative to tl1e Protection of Civilian Persons in Time of War, Aug. 12, 1949, 6
UST 3516, 75 UNTS 287.
i:.K E.g., Hathaway, supra note 152, at 2004-11.
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 605
V. THE STRUCTURE OF AGREEMENTS
I use the term "structure" to refer to rules, procedures, and institutional bodies for the collective
monitoring and enforcement of parties' performance. Structure is central to international
agreements; international relations theorists have long stressed that a primary function of
accords is to disperse information and allow strategies ofreciprocity to operate efficiently. 159
Like legality and substance, agreement structure varies widely. Some accords create courts or
tribunals. Sometimes these courts can impose sanctions. Other agreements do not provide for
sanctions, or often any structure of review at all. In between these extremes lie many alternatives.
Scholars have frequently folded the structure of review into a hard law-soft law spectrum,
treating it as one more factor that determines whether a pact is hard or soft. But structure is a
distinct design feature, one that may influence the effects of agreements regardless of whether
they are contracts or pledges.
Types of Structures
The most familiar type of review structure is a court. Third-party adjudication strikes many
lawyers as an essential component of a legal system. Yet the international legal system is distinguished
by the rarity of courts and the weakness of those that exist. In practice, most agreements
neither create courts nor employ sanctions as enforcement tools. 160 The dispute settlement
clauses in many of the agreements that do contain them have never been invoked. In addition,
international courts clearly lack the authority and coercive bite of domestic courts. 161 Yet the
number of international courts is rising. 162 International accords also provide for a wide array
of noncourt review structures.
For clarity I dichotomize the category of agreement structure into strong and weak. Strong
review structures render individualized decisions about state performance. These decisions may,
but need not, be accompanied by sanctions. They also need not address particular disputes;
they may be statements about individual actors and their performance. Weak review structures
either make no such evaluations or make evaluations only about collective party behavior. In
either case, the evaluation does not specify any tangible sanction. Structure, as I define it, should
not be conflated with whether an agreement is effectively enforced, in the sense of deterring
or punishing violations. These are outcomes. Structure refers only to the specific mechanisms or
procedures for monitoring the parties' performance and meting out penalties. Like the choices
of legality and substance, the choice of agreement structure is endogenous; in practice, states
trade off structural provisions against legality and substance.
The Consequences of Different Structures
Different structures of review create different incentives for state behavior. Functional theory
predicts that these incentives will explain the choice of structure in particular cases; liberal theory
predicts that domestic political institutions and preferences (related, in many cases, to perceived
consequences) will explain the choice of structure; and realist theory predicts that relative power
will translate whatever preferences states have into outcomes. No matter which theoretical
1
"
9 See, e.g., Robert 0. Keohane, Reciprocity in lntemalional Relations, 40 INT'L ORG. I ( 1986); Lisa L. Martin, The
Political Economy of International Cooperation, in GLOBAL PUBLIC Goons, supra note 130, at 51.
160 Andrew Guzman argues that sanctions are rare in part because they represent "a net loss to the parties--0ne
party faces a cost that is not recovered by the other." Andrew T. Guzman, The Design of International Agreements, 17
EUR.j. lNT'L L. (forthcoming 2006). The theoretical puzzle of why states do not generally provide compensation
mechanisms within their international agreements remains to be explained.
161 "A fundamental (and frequent) criticism of international law is the weakness of mechanisms of enforcement."
Lori Fisler Damrosch, Enforcing lntemationa/, Law Through Non-Forcible Measures, 269 RECUEIL DES COURS 9, 19
( 1997).
162 Thomas Buergenthal, Proliferaticn of International Courts and Tribunals: ls It Good or Bad? 14 LEIDEN J. INT' L
L. 267 (2001 ); Symposium, The Proliferation of International Tribunals: Piecing Together the Puzzle, 31 N.Y.U.J. INT'L
L. & POL. 679-933 (1999).
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606 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
approach one favors, the empirical impact of different structures should be understood. Yet
the dearth of research on this topic makes any such claims tentative.
Unsurprisingly, strong structures, particularly courts, are believed to be more likely to promote
compliance. However, the probable impact of international courts qua courts-as seats oflegal
discourse-should be separated from the enforcement powers that courts may be presumed
to have in the domestic context but rarely possess internationally. Even in the wro, where the
Appellate Body can determine noncompliance and authorize withdrawal of trade concessions
by a "wronged" state against a noncompliant state, the court itself does not wield the power to
enforce directly or even to authorize other centralized enforcers; it merely plays a gatekeeping
role with regard to what is fundamentally a self-help process. Thus, even the strongest international
court does not actually have the power to enforce its decisions at all like that of a domestic
court.
Nevertheless, this deficiency does not render international courts useless. Regardless of the
extent of their enforcement powers, courts of all stripes are widely believed to be institutions of
principle, rather than power; they force actors to be more reasonable. 163 For example,Joseph
Weiler has argued that "when governments are pulled into [ an international] court and required
to explain, justify, and defend their decision, they are in a forum where diplomatic license is
far more restricted, where good faith is a presumptive principle, and where states are meant
to live by their statements."164 This claim reflects the view that legal discourse is by nature, if
not antithetical to assertions based on power, at least in tension with the brute use of power.
Justification is commonly thought to be a necessary element of judicial decisions. 160 Simply by
channeling state claims-by requiring justification-courts are said to induce more compliant
behavior by parties. The implicit assumption here is that word and deed can only diverge so
much before countervailing pressures arise: while word can shift to match deed, iflegal proceedings
constrain the kinds of arguments that can validly be made, deed may shift as well. Some
constructivist arguments go further and claim that engagement in legal processes changes state
identity and thus state interests and actions, further promoting cooperation and compliance.166
Courts may also enhance reputation and reciprocity. Social scientists have long noted the
importance of both in sustaining cooperation, particularly in situations characterized by suboptimal
equilibria (such as the prisoner's dilemma) where the parties cannot enter into enforceable
contracts. Centralized dispute settlement fosters cooperation by enhancing the flow of information
about the parties' behavior. In the process it deters noncompliance, whether or not the
dispute settler can enforce its decisions coercively. 167
The medieval law merchant is a famous example. The law merchant system adjudicated disputes
and retained information about prior behavior by long-distance traders. The system "succeeds
even though there is no state with police power and authority over a wide geographical
realm to enforce contracts. Instead, the system works by making the reputation system of
enforcement work better." 168 By similarly highlighting and deterring violations of commitments,
international courts may promote compliance even if they lack-as indeed they typically do
lack-coercive powers of enforcement. For this process to work, however, states must fear being
excluded from the pact or from acquiring desired goods. For agreements involving club goods
this is a reasonable assumption. For public goods it is less plausible. Dispute settlement can also
'"~ ALTER, supra note 132, at 211-32.
IH< J. H. H. Weiler, A Quiet Revolution: The European Court of justice and Its Interlocutors, 26 COMP. POL. Snm. 510,
519 (1994).
w, "According to the requirements of most, if not all legal systems, a judgment not only has to contain at a
minimum the 'decision' reached but has also to provide reasons in support of the particular choice made by the
judges." KRATOCHWIL, supra note 52, at 212.
16
" See AREND,supra note 38, at 129-33;Jutta Brunnee, The Kyoto Protocol: Testing Ground for Cry,npliance Theories?
63 HEIDELBERG J. lNT'L L. 255, 261 (2003).
167 Paul R. Milgrom et aJ., The Rol,e of lnstituticms in the Revival of Trade: The I.Aw Merch.ani, Private Judges, and the
Champagne Fairs, 2 ECON. & POL. l (1990).
168 id. at 19; see also J ames McCall Smith, The Politics of Dispute Settlement Design: Explaining Legalism in Regional
Trade Pacts, 54 INT'L ORG. 137, 138 (2000) (asserting that legalized dispute settlement in trade accords "tends
to improve compliance by increasing the costs of opportunism").
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 607
clarify legal rules, which in turn may promote compliance. Managerial theory, for example, argues
that noncompliance is partly due to ambiguity of commitments. 169 Courts, by adjudicating disputes,
refine ambiguous obligations and hence stimulate future compliance. The important point
is this: all these arguments suggest that strong review structures, even if they lack enforcement
powers like those of domestic courts, can promote compliance with international agreements. To the
degree that they possess enforcement powers, compliance is even more likely to be promoted.
Unlike strong structures ofreview, weak structures do not make individualized determinations.
As a result, they are at least presumptively less likely to influence state behavior. Three
reasons support this view. First, because determinations of performance are collective ( or nonexistent),
reputational signals are highly attenuated. Second, the normative pressure to engage
in justificatory discourse, emphasized by so many theorists of courts, is nonexistent or highly
diluted because states need not defend their own policies or actions. Third, by definition weak
review structures cannot authoritatively endorse even self-help enforcement measures by states.
Despite these relative deficiencies, weak review structures do not wholly lack impact. By prodding
governments to report on implementation, they may stimulate more bureaucratic attention
to international commitments. They may also disseminate information to other states and
increase transparency.170 Some studies of weak review structures suggest that they can help states
to "learn," collectively, how to implement complex collective commitments, thus promoting
compliance. 171 Finally, they may empower domestic actors interested in the accord. Over time
these effects may promote better compliance and a more effective agreement. These causal chains
are long, however, and contingent. In general, weak structures generate only limited influence
over state behavior.
Structure and Legality
Contracts are negotiated with a wide array of review structures, some strong, many weak. The
review structure of some agreements is set forth in separate, optional protocols. Pledges present
a more striking pattern. Pledges rarely include strong review. The paradigmatic strong structure-
the court-does not appear to be included in any existing pledge. One partial exception
to the lack of strong review is the above-mentioned FA TF Forty Recommendations, aimed at money
laundering. The FATF uses a system ofreview in which each state's legislation and activities are
evaluated by the others, "compliance" being enforced by reputational concerns and the threat
of expulsion.172 Similarly, the Helsinki process involved regular follow-up meetings aimed at
a "thorough exchange of views ... on the implementation of the provisions of the FinalAct."173
These meetings played an important role in the effectiveness of the Act. 174 The OSCE process,
which builds on Helsinki, extends this model even further, with extensive and continuous discussion
of implementation by the parties and continued use of pledges rather than contracts. 175
Though important, these examples are the exceptions that prove the rule.
Why is strong review so rare in pledges? From a functional perspective there are good reasons
to expect the opposite: if strong monitoring procedures raise the costs of noncompliance,
then states ought to be more willing to embrace them when the standard is not legally binding.
(Put differently, when rules are binding, states may seek weak review as a way of ensuring that
169 CHAVES & CHAVES, supra note I 04, at 1-28.
170 Mitchell, supra note 150.
171 CHAVES & CHAVES, supra note 104; Raustiala & Vietor, supra note 151.
172 Simmons, supra note 76, at 261 ("The key to the F ATF's success seems to flow from the serious and sustained
attention the organization gives to monitoring and assessment."); see also note 140 supra.
m Helsinki Final Act, supra note 20, Follow-up to the Conference, 14 JLM at 1325, para. 2(a).
IH Schlager, supra note 46, at 355.
175 The official OSCE Handbook notes that "the fact that OSCE commitments are not legally-binding does not
detract from their efficacy. Having been signed at the highest political level, they have an authority that is arguably
as strong as any legal statute under international law." OSCE SECRETARIAT, THE HANDBOOK OF THE ORGANIZATION
FORSECURITI' AND CO-OPERATION IN EUROPE (OSCE) 3 (3d ed. 2002), available at <http://www.osce.org/>.
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608 THE AMERICAN JOURNAL OF INTERNATIONAL l.AW [Vol. 99:581
their own noncompliance is not discovered or addressed.) Indeed, as Beth Simmons states in her
analysis of the FATF, "it is less likely that mechanisms for mutual monitoring and surveillance
would have been agreed to in a binding legal context."176
Yet the FATF is aberrational. While contracts contain a myriad of structures both weak and
strong, pledges nearly always have weak ones. One explanation for this pattern is that pledges
may be largely symbolic: if states did not intend to implement pledges, they would not include
institutions for monitoring or enforcement in them. This argument, however, raises several problems.
Empirically, states often do implement pledges, and some appear quite effective (I discuss
this further below). But even if pledges are merely symbolic, what explains their prevalence? Both
states and domestic audiences have plenty of experience with pledges. If pledges are meaningless,
we would not observe them in equilibrium. 177 Moreover, if pledges are simply cheap talk,
why do states expend so much effort in bargaining over their terms? 178 Symbolism alone cannot
explain the prevalence of pledges. Perhaps pledges are crafted with weak structures because they
are seen as stepping-stones to "real" treaties-permitting the structure of review to be added
later when the contract is struck. Many pledges, however, remain pledges forever. While the
causal story is unclear, the empirical pattern is clear: pledges typically lack strong review. Yet,
as I argue below, pairing pledges with strong review structures may be an optimal cooperative
approach under certain circumstances.
Structure and Substance
Does the choice of review structure affect the substantive obligations contained in an accord?
As with legality and substance, a functional view of structure and substance leads to two contradictory
predictions. The first is that strong review structures correlate with deep agreements; the
second, that strong review correlates with shallow agreements.
The first rationale should now be familiar. Strong review structures disperse information, enhance
the influence of states' reputations, clarify rules, and force states to justify their actions.
They also may employ coercive enforcement measures. All these features improve compliance.
Consequently, strong review serves to dampen the likelihood of opportunism, rendering cooperation
more robust. States that prefer a deep agreement will construct strong review structures
to ensure that violations are deterred or revealed. For example, a comprehensive study of
regional trade pacts claims that "the more ambitious the level of proposed integration, the more
willing political leaders should be to endorse legalistic dispute settlement."179 In short, substance
and structure are positively correlated.
The second line of reasoning reverses this logic. The deeper the agreement, the less likely it will
be to feature strong review. Faced with a deep set of commitments, states fear the ramifications
of noncompliance but recognize that it is possible, even likely. Hence, the effects of strong review
are precisely what leads states to eschew it. British diplomat Patrick Szell finds "an inevitable
correlation between the strictness of a treaty's compliance and enforcement regimes and the
stringency of its substantive obligations. One should expect countries to be ready to undertake
tougher commitments if they see that supervision will be light, and vice versa."180
176 Simmons, supra note 76, at 262.
171 Realists might argue that pledges are simply what political scientists call "cheap talk": symbolic, costless action.
Cheap talk can become a self-perperuating equilibrium outcome; for example, all job applicants claim to be hardworking
since, if they failed so to state, it would make them stand out. In such a "pooling equilibrium" all actors
behave the same way, by engaging in cheap talk pledge-making. But this is unlikely in the case of multilateral
pledges. They are too costJy, both in transaction costs and in risking the incitement of political action, to be negotiated
simply to avoid not negotiating them.
178 Chinkin, supra note 56, at 860; Dupuy, supra note 52.
179 Smith, supra note 168, at 148.
180 Patrick Szell, The Development of Multi/,ateral Mechanisms for Monitoring Compliance, in SUST AINABLF. DEVELOPMENT
AND INTERNATIONAL LAW 97, 107 (Winfried Lang ed., I 995);seealso Shelton,supra note 27, at 15 ("It may
even be possible that some stronger monitoring mechanisms exist in soft law precisely because it is non-binding and
states are therefore wilJing to accept the scrutiny they would reject in a binding text."); Simmons, supra note 76.
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 609
Which claim is most consistent with the evidence? Empirically, both find some support. Szell
provides several examples of the latter dynamic from environmental agreements, whereas trade,
investment, and arms agreements tend to exemplify the former. As with the legality-substance
relationship, liberal theory helps clarify this pattern; the substance-structure connection also
varies according to the type of agreement. This variation derives from differences in domestic
politics and interest group power. As noted, private actors in trade are both organizationally privileged
and likely to monitor implementation and compliance over time because noncompliance
affects them directly. Private actors in other areas, such as environmental protection, are weaker
on both counts and hence wield less political power. Thus, trade accords such as the WfO Agreements
feature deep structure and strong review because the domestic actors that favor these
accords are politically privileged. By contrast, the environmental agreements that Szell refers
to feature weak review structures, especially as their substance becomes deeper and deeper.
Environmental organizations may prefer a strong review structure but, lacking the organizational
advantages of firms in trade, they cannot exert enough influence to achieve their aims.
Rather than negotiate agreements with strong review structures-what one would expect if
states really wanted to ensure compliance-states choose weak review to be able to manage the
uncertainty of complying with those commitments. These agreements are designed to be weak.
Although human rights accords are similarly characterized by a negative correlation between
structure and substance, there is a twist: while most provide for weak review, the various optional
monitoring protocols permit those states-and only those states-that desire strong review to
opt for it. This is consistent with the unusual nature of human rights pacts, in which no true
collective dilemma exists. Arms agreements present yet another pattern: extensive and often
strikingly intensive monitoring but little formal dispute settlement. States clearly want to know
whether other parties are complying and accordingly design stringent review provisions far
more elaborate and intrusive than those found in other types of accords. 181 Like trade accords,
arms accords are marked by a positive correlation between depth and structure ofreview. But
judicial settlement of disputes over compliance with arms agreements, unlike those concerning
trade pacts, offers little: states will much prefer to respond to another party's violation by breaching
than to seek a neutral judgment about it. The empirical patterns of agreement design, in
short, are driven by the structure of domestic politics and interests, as well as by functional concerns
about credibility and flexibility.
In the preceding sections I have endeavored to highlight, using the tripartite framework
advanced in this article, some of the basic connections between form, substance, and structure
in international agreements. Several key points emerge from this discussion. First, trade-offs
are endemic and agreement features cannot be understood in isolation. Second, these trade-offs
cannot simply be explained by functional logic-though functionalism is a powerful explanatory
approach. In an interdependent world international cooperation spawns, and is spawned
by, domestic politics; hence it is unsurprising that domestic politics and institutions affect the
patterns of cooperation we observe.
Finally, this article's positive analysis of the design of international agreements also leads to
policy prescriptions. Advocates as well as analysts ofinternational accords must pay more attention
to the complex architecture of agreements and treat their design holistically. For example,
if an increase in the depth of substantive obligations in an agreement is offset by weaker monitoring
and review, the agreement may be rendered no more effective, and possibly, even less so.
In general, the analysis here suggests that concerns about reputation, credibility, and uncertainty
often lead states to negotiate international commitments that may be legally binding but
are shallow and lack strong review structures. As a result, compliance with these commitments
may be high, but their impact on actual behavior is low. 182
181 Kenneth W. Abbott, "Trust but Verify": The Production of Information inAnns Control Treaties and Other International
Agreements, 26 CORNELL INT'L L.J. l, 36-38, 53-54 (1993).
182 Raustiala & Victor, supra note 151.
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610 THE AMERICAN JOURNAL OF INTERNATIONAL LAW
VI. THE UNDERSUPPLY OF PLEDGES
[Vol. 99:581
How can more effective agreements be created? Greater reliance on pledges offers a potential,
though limited, solution to the dilemma of high compliance but low effectiveness that often
results from the choice of a shallow or weakly structured contract. 183 By minimizing concerns
about legal compliance, pledges may permit states to negotiate more ambitious and deeper
agreements that are tied to stricter monitoring and review provisions. This approach holds special
promise for conditions ofuncertainty, where rational governments seeking credibility may
choose to ensure that international accords will produce compliance by decreasing their depth
and the severity of review. Pledges do not eliminate this problem, but they may limit it enough
in particular circumstances to justify greater reliance on them.
While the advantages of pledges are deductively plausible, empirical evidence suggests that
pledges may promote deeper commitments than comparable contracts, and are equally, if not
more, effective at changing state behavior. I do not mean to imply that pledges are more effective
tools for cooperation than contracts, all else equal. Rather, the central point of this article is
that in agreement design all else is rarely equal. Consequently, pledges, which may more effectively
influence behavior in situations of uncertainty, deserve more serious attention.
Compliance vs. Effectiveness
The argument in favor of pledges rests on the now well-understood conceptual distinction
between compliance and effectiveness. Compliance refers to conformity between behavior and
a specified rule. Compliance has many causes, and can be inadvertent, coincidental, or an artifact
of the legal standard. Consequently, the sheer fact of compliance with a given commitment
tells us little about the impact of that commitment. Effectiveness refers to observable changes
in behavior that result from a specified rule. Thus, to say an accord is effective is necessarily
to make a causal claim, whereas to say that a state is in compliance with an agreement entails
no causal claim.
Even when defined in this modest manner, many international rules are not effective. The
critical issue is the relationship between the stringency of the legal standard and the baseline
of behavior. When the legal standard mimics the behavioral baseline- whether intentionally
or coincidentally-<:ompliance is high (because the accord is shallow) but effectiveness low. Yet
the converse is also possible: rules can be effective even if compliance is low. All else equal, more
compliance with a well-crafted standard is better. Yet rules that are not broadly observed can still
be effective if they induce desired changes in behavior that otherwise would not have occurred.
This statement carries special weight given the nature of international law. Because treaties
are an endogenous cooperative strategy of states, rather than an externally imposed set of rules,
the parties themselves largely determine the levels of compliance. Collectively setting the legal
standard at a low level is one way states can ensure compliance with their commitments, make
those commitments credible, and safeguard reputations for future bargains-all the while providing
the contracts that many domestic groups demand. But this approach does not ensure
that these agreements will be effective. Instead, it often ensures that they will be ineffective. 184
Pledges, Contracts, and Effective Agreements
Why do we observe so many ineffective agreements? One reason, I have argued, is that faced
with future uncertainty states will often build in compliance cushions-altering the substance and
183 For another view in this issue on the effectiveness of nonbinding agreements, see Steven A. Mirmina, Reducing
the Proliferation of Orbital Debris: Alternatives to a Legally Binding Instrument, 99 AJIL 649 (2005).
UH A completely shallow agreement-one that simply ratified the status quo ante-would not be effective at all,
since it would not change state behavior. As I noted earlier, this claim can be challenged by the fact that an accord
may be aimed at forestalling future backsliding; an example would be the Non-Proliferation Treaty. But aside from
this, shallow agreements, even when perfectly complied with, are by definition ineffective (or have little effectiveness)
since they do not demand that states deviate from prior behavior. If such a shallow agreement induced
overcompliance for some reason, that agreement would plausibly be called effective.
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2005] FORM AND SUBSTANCE IN INTERNATIONAL AGREEMENTS 611
structure of accords to increase the probability of compliance over time. The fear of noncompliance
ex post results in shallower substantive rules ex ante. The exercise of veto power by recalcitrant
states can augment this tendency. When public goods are at issue, veto power is common
and shallow agreements should be even more likely. The end result has been noted by many
lawyers and political scientists alike: numerous shallow, ineffective international agreements.
A converse set of concerns may also exist. In some areas of international cooperation, deep
contracts may prevail and actually be too effective at changing behavior. The power of domestic
actors in the trade context, for example, may lead to contracts that are too deep. Such contracts
create risks for state credibility and for compliance; they are brittle rather than flexible. Some
analysts have suggested that the WTO faces just such a problem.185 I call these twin sets of concerns
the "overly shallow" and "overly deep" problems. The overly shallow problem appears
to be far more common, and hence I address this first.
One way to counteract the overly shallow problem is to use pledges rather than contracts. 186
By sidestepping concerns about legal compliance, pledges reduce-though they do not eliminate-
the incentives to weaken substantive commitments or the structure of review in situations
of uncertainty. The downside of this strategy is that pledges create weaker incentives to
implement shared commitments, though they do not eviscerate all such incentives. As discussed
throughout this article, several factors drive states' behavior vis-a-vis their international commitments.
These factors relate to legality but are not dependent on the legality of commitments.
1 87 Pledges can trigger many of these processes in much the same way-albeit more
weakly-than contracts. As Judith Goldstein and Lisa Martin argue, "Mechanisms that deter
(noncompliance] include domestic costs of violations, enforcement provisions, and reputational
concerns. These mechanisms are identical to those identified in standard theories of international
institutions, suggesting that extensive international cooperation does not always require
legalization. "188 In short, the factors that push states to comply with contracts often apply, albeit
more weakly, to pledges as well. Yet pledges break the ex ante concern to ensure ex post legal
compliance, reducing the incentive for states to weaken the substance of their commitments
at the negotiating phase.
Again, all else equal a contract will be more effective than a pledge. But the crux of this article
is that all else is rarely equal. In view of the high transaction costs of negotiating contracts, even
a finding that pledges are nearly as effective as contracts, under certain conditions, is significant
from a policy perspective. The opposing argument, of course, is that pledges will be largely
empty: states may negotiate deep pledges but do little or nothing to implement them. This is
the chief reason pledges are criticized as a tool of cooperation. But what matters most from the
perspective of effectiveness is whether the losses associated with the increased propensity to violate
pledges are outweighed by the gains from deeper, clearer, more ambitious, or more effectively
monitored commitments. While one needs to read the evidence carefully-and more
research is needed-there are good reasons to believe that such losses will not necessarily overshadow
the gains.
A few studies posit that the gains from using pledges rather than contracts can be marked. The
Helsinki Final Act is the most widely noted example; another is the Basel Accord on Capital
Adequacy. 189 "The fact that (the] Helsinki agreements were not cast in the form oflegally binding
treaties," Erika Schlager argues, "ultimately permitted more ambitious norms to be adopted, best
illustrated by the 1990 Copenhagen Document .... Many of the significant provisions of the
Copenhagen Document would have been unacceptable to legal advisors as treaty obligations
185 Goldstein & Martin, supra note 148, at 631-32.
186 I owe much to the perceptive thinking of David Victor on this issue.
187 Goldstein & Martin, supra note 148; Raustiala & Slaughter, supra note 5.
IRS Goldstein & Martin, supra note 148, at 622.
iRo See, e.g., Ho, supra note 4; David Zaring, /nt,emational Law by Other Means: The Twilight Existence of lnternatumal
Financial Regulato1y Organizati011S, 33 TEX. INT'L L.J. 281, 282, 287-92 (1998).
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612 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
without clearer definitions .... "190 Clare Shine suggests that pledges can be more specific, ambitious,
and innovative-thus ultimately more useful. 191
Similarly, in several environmental cases states have been more willing to adopt international
commitments that are clear and ambitious when presented in the form of pledges rather than
contracts. These pledges have led to observable change in behavior, change that appears greater
than it probably would have been under a politically feasible contract. In the case of the North
and Baltic Seas, pacts to address marine pollution have been made in both contract and pledge
form. 192 The pledges emerged from a high-level political process, aided by scientific assessment
and collective, periodic reviews ofimplementation. The pledges were more ambitious than the
contracts, and because commitments were drafted more clearly-specifying percentage cuts of
major pollutants-they were more easily assessed in the review process and proved fairly effective
in changing behavior.193 In another case, the Protocol Concerning the Control of Emissions of
Nitrogen Oxides and TheirTransboundary Fluxes to the Long-Range Transboundary Air Pollution
Convention, 194 a contract, called for a freeze on emissions. A group of states went further
and agreed to cut emissions by 30 percent, but designed that commitment to be a pledge. 195
The evidence suggests that, thanks to the pledge, states participating in the "30% Club" cut emissions
more than they probably would have done otherwise and made more meaningful regulatory
efforts to meet the stricter target. 196 And in the aftermath of the GAIT Tuna/Dolphin
controversy of the early 1990s, the La Jolla Agreement, a pledge aimed at protecting dolphins
in the Pacific, was negotiated. The La Jolla Agreement "proved extremely effective," reducing
the dolphins' mortality in the region by 75 percent in six years. 197
Pledges are likely to be most effective when states are cooperating in a novel area of high uncertainty,
leading governments to be especially cautious. In addition, some studies (as well as
theory and common sense) suggest that pledges work better when they are tied to strong structures
ofreview. 198 Yet, as I noted earlier, such pledges are rare. The FATF system is a partial exception;
other exceptions include the Helsinki review process, the OSCE system, the Paris Club system
of sovereign debt restructuring, and the Marshall Plan system for allocating aid in the wake of
World War II. 199 As Thomas Schelling argues, the Marshall Plan experience suggests that regularized
review can be quite effective even in the absence of binding rules. Indeed, Schelling
claims that the "multilateral reciprocal scrutiny" under that system probably had greater effect
than a more regularized, rule-bound system would have had.200 This kind of multilateral scrutiny
is likely to work best when the states involved cooperate extensively on many other matters,
and thus have greater concerns about reputation and more elaborate and entrenched policy
100 Schlager, supra note 46, at 353-54; see also Ratner, supra note 44, at 610 (arguing that the OSCE experience
suggests that soft law commitments may be more valuable and effective than commonly believed).
1 m Clare Shine, Se/,ected Agreements Concluded Pursuant to the Convention on tJie Conservation of Migralory Spedes of Wild
Animals, in NON-BINDING NORMS, supra note 4, at 196, 222; see also Edith Brown Weiss, Understanding Compliance
with International Environmental I.Aw: A Baker's Dozen Myths, 32 U. RICH. L. REV. 1555 ( I 999).
192 See Jon Birger S!g~rseth, The Making and lmplemenJ.ation of North Sea Commitments: The Politics of Environmental
Participation, in IM PLEMENTATION AND EFFECTIVENESS, snpra note 151, at 327.
19'.I Id.
194 Protocol to the 1979 Convention on Long-Range Transboundary Air Pollution Concerning the Control
of Emissions of Nitrogen Oxides and TheirTransboundary Fluxes, Oct. 3 1, 1988, available at <http://www.unece.
orglenv/lrtap >.
19
" Marc A. Levy, European Acid Rain: The Power of Tote-Board Diplomacy, in INSTITUTIONS FOR THE EARTH:
SOURCES OF EFFECTIVE INTERNATIONAL ENVIRONMENTAL PROTECTION 75 (Peter M. Haas et al. eds., 1993).
196 J~rgen Wettested, Participation in NOx Policy-Making and Implementation in the Netherlands, UK, and Norway:
Different Approaches but Similar Results? in IMPLEMENTATION AND EFFECTIVENESS, supra note 151, at 381.
197 INTERNATIONAL ENVIRONMENTAL LAW AND POLICY 999-1000 (David Hunter et al. eds., 2d ed. 2002). for
the text, see LaJ olla Agreement for the Reduction of Dolphin Mortality in the Eastern Pacific Ocean, Apr. 1992,
available at <http://www.oceanlaw.net/texts/lajolla.htm>.
198 Raustiala & Victor, supra note 151, at 659-707.
199 On the Marshall Plan as a model, see Thomas C. Schelling, The Cost of Combating Global Warming, FOREIGN
AfF., Nov./Oec. 1997, at 8, 10-12.
200 Id. at 10.
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2005] FORM AND SUBSTANCE IN TNTERNATIONAL AGREEMENTS 613
linkages. It may also be true, though it is untested here, that liberal states are more likely to cooperate
successfully through pledges than nonliberal states or mixed groups of states.201
Pledges are by no means a panacea. But the conventional wisdom-that contracts are always
superior to pledges, and that pledges are decidedly second-best options- is not backed by conclusive
empirical evidence or theoretical conjecture. Empirical examples, while limited, support
the idea that pledges can be quite effective. Moreover, the political incentives facing states often
induce them to make contracts weaker (more shallow, and with weaker structures of review)
than they ought to be by any objective standard of effectiveness. This article has attempted to
show that states can and do trade off substantive obligations against the legality and monitoring
of agreements. When states must contend with abundant uncertainty about the costs of commitments
or the best way to organize cooperation, pledges may be especially useful. Under these
conditions, pledges may be first-, rather than second-, best options.
The Danger of Deep Contracts
While pledges may be useful when concerns with compliance lead to contracts that are too
shallow, agreements can also be too deep. If an agreement is overly deep, the danger is not that
effectiveness is sacrificed for legal compliance. Rather, the difficulty of complying with overly
deep commitments may lead to numerous violations, which could undermine future credibility
or create political backlash against international cooperation.202 When deep contracts are tied to
a strong structure of review, such as third-party dispute resolution, these dangers are magnified.
The WfO constitutes the leading example of an overly deep contract. The WfO embodies
depth of substance, contractual form, and strong review. As Goldstein and Martin observe, the
unintended effects of this combination
could interfere with the pursuit of progressive liberalization of international trade ....
. . . Reducing the ability of governments to opt out of commitments has the positive effect
of reducing the chances that governments will behave opportunistically by invoking phony
criteria for protecting their industries. On the other hand, tightly binding, unforgiving
rules can have negative effects in the uncertain environment of international trade. When
considering the realities of incomplete information about future economic shocks, we suggest
that legalization may not result in the "correct" balance between these two effects of
binding.203
The dangers of overdepth are magnified by strong review, particularly when independent tribunals
adjudicate compliance.204
Clearly, claims of overdepth, like claims of underdepth, are contestable normative judgments.
Observers will disagree about the optimal depth of any agreement. Nonetheless, as Goldstein
and Martin argue, increasing depth is not always beneficial, and indeed can have detrimental
consequences. Obligations that demand too much from the parties and lack the ex post flexibility
to respond to unanticipated problems or new developments may lead to an unraveling of the
treaty as parties withdraw their participation (to the degree that states can anticipate these problems,
they may simply not sign the accord ex ante). Though overly deep contracts are rare, the
WTO is probably not unique. The International Monetary Fund's structural adj ustment accords,
201 See, e.g., Raustiala & Victor, supra note 151, at689-97. For a skeptical take, see.Jose E. Alvarez, Do LiberalStaJ,es
Behave Better? A Critique of Slaughter's liberal Theory, 12 EUR.J. INT'L L. I 83, 246 (2001).
202 See, e.g., Laurence R. Helfer, Overkgalizing Human Rights: International Relations Theory and the Commonwealth
Caribbean Backlash Against Human Rights Regimes, 102 CO LUM. L. REV. I 832 (2002).
203 Goldstein & Martin, supra note 148, at 603- 04.
204 Nevertheless, international courts often show themselves to be politically astute. In the context of the wro
Appellate Body, see Richard H. Steinberg.Judicial lawmaking at the WTO: Discursive, Constitutional, and Political
Constraints, 98 AJIL 247 (2004).
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614 THE AMERICAN JOURNAL OF INTERNATIONAL LAW [Vol. 99:581
the European system of human rights, and perhaps the Rome Statute of the International Criminal
20· Court represent other examples of agreements whose depth may exceed the optimal level. 0
VII. CONCLUSION
Agreements form the core of contemporary cooperation. While the nineteenth century was
the heyday of customary international law, the twentieth century witnessed a dramatic increase
in the use of international agreements-both contracts and pledges. The twenty-first century
may usher in a cooperative system based on transgovernmental networks and increasing reliance
on pledges and unwritten understandings.206 But even a networked world will require explicit
agreements. Hence the need to understand the architecture ofinternational agreements.
The recent flourishing of interdisciplinary work in law and international relations provides
an increasingly powerful base from which to tackle these questions. My central claim here is that
the tripartite framework oflegality, structure, and substance clarifies the design of agreements
and, most significantly, illuminates the trade-offs states encounter as they craft bargains in an
anarchic world. I have also critiqued the prevailing approach ofinternational relations scholarship
to the design of agreements, which is functional analysis. Though useful, functional
accounts in themselves cannot solve persistent puzzles of design that liberal theory can elucidate.
A focus on the domestic underpinnings ofinternational cooperation is consistent, moreover,
with the increasing recognition that the domestic and the international spheres are no longer
hermetically sealed-if they ever were.
To be sure, the foregoing analysis has raised as many questions as it has answered. But the
purpose of this approach is to promote more systematic analysis of agreement design, not to
propose a definitive explanation of the construction of agreements. Carefully breaking down
the architecture of agreements furthers the design of more effective and robust international
accords. Though this article is primarily positive and conceptual, it suggests some prescriptions
as well. Scholars, statesmen, and activists alike have too often assumed that contracts are the best
choice for cooperation, and pledges a feeble substitute. But pledges can have surprising power.
And while pledges represent the avoidance oflegal entanglement, they are critically important
for international lawyers to understand. The existence of trade-offs between form and substance
necessitates a holistic comprehension of agreement design. International lawyers need to know
when circumstances are propitious for the use oflaw, and when, conversely, effectiveness instead
dictates nonlegal agreement. Only by grasping when law ought to be avoided can we effectively
counsel when law ought to be employed.
20
'' The withdrawal by the United States of its signature of the Rome Statute is an example of a state's decision
not to participate because of ex ante concerns about overlegalization.
206 SLA.UGHTER, supra note 8; Raustiala, supra note 8.
The European Journal of International Law Vol. 16 no.4 © EJIL 2005; all rights reserved
...........................................................................................
EJIL (2005), Vol. 16 No. 4, 579–612 doi: 10.1093/ejil/chi134
........................................................................................................................................................
The Design of International
Agreements
Andrew T. Guzman*
Abstract
States entering into international agreements have at their disposal several tools to enhance
the strength and credibility of their commitments, including the ability to make the
agreement a formal treaty rather than soft law, provide for mandatory dispute resolution
procedures, and establish monitoring mechanisms. Each of these strategies – referred to as
‘design elements’ – increases the costs associated with the violation of an agreement and,
therefore, the probability of compliance. Yet even a passing familiarity with international
agreements makes it clear that states routinely fail to include these design elements in their
agreements. This article explains why rational states sometimes prefer to draft their
agreements in such a way as to make them less credible and, therefore, more easily violated.
In contrast to domestic law, where contractual violations are sanctioned through zero-sum
payments from the breaching party to the breached-against party, sanctions for violations of
international agreements are not zero-sum. To the extent that sanctions exist, they almost
always represent a net loss to the parties. For example, a reputational loss felt by the
violating party yields little or no offsetting benefit to its counter-party. When entering into
an agreement, then, the parties take into account the possibility of a violation and recognize
that if it takes place, the net loss to the parties will be larger if credibility-enhancing
measures are in place. In other words, the design elements offer a benefit in the form of
greater compliance, but do so by increasing the cost to the parties in the event of a violation.
When deciding which design elements to include, the parties must then balance the benefits
of increased compliance against the costs triggered in the event of a violation.
* Professor of Law, Boalt Hall School of Law, University of California at Berkeley. Email: guzman@law.
berkeley.edu. I owe thanks to Stephen Choi, Jeff Atik, Allen Ferrell, Ryan Goodman, Oona Hathaway,
Larry Helfer, Louis Kaplow, Kal Raustiala, Steven Shavell, Beth Simmons, Joel Trachtman, Fred Tung,
and participants at faculty seminars at Harvard Law School, Loyola Law School, Temple University’s
James E. Beasley School of Law, the University of Toronto School of Law, UCLA Law School, and Yale
Law School, for helpful comments and discussions. Special thanks go to Daniel Frederick and Nicholas
James. Jennie Wang and Rachel Anderson provided excellent research assistance.
Annex 99
580 EJIL 16 (2005), 579–612
1 Introduction
States enter into international agreements all the time, and these agreements vary
widely along several dimensions.1 Some are formal treaties, while others fall short of
that classification, being labelled instead ‘soft law’;2 some include dispute resolution
procedures while others do not;3 and some provide for sophisticated monitoring mechanisms
that are absent from other agreements.4 When states draft their agreements
they often make choices – like the choice of soft law or the decision to omit provisions
for dispute resolution or monitoring – that serve to weaken the force and credibility of
their commitments.5 This behaviour is puzzling. International law is routinely criticized
for being too weak and failing to offer effective enforcement mechanisms. If this is
indeed a problem, one would expect states to seek out ways to enhance the strength
and credibility of their commitments. After all, states enter into international agreements
as a way of exchanging promises about future conduct. These agreements have
value only if the promises exchanged serve to bind the parties. The agreements are,
therefore, more valuable if they can bind the parties more effectively. If international
law is weak, we should expect states to do everything in their power to increase the
strength, credibility and ‘compliance pull’ of their agreements.
In the domestic context, for example, the parties to a contract typically want their
written agreements to be enforceable. This enforceability allows them to rely on one
another’s promises and enter into a more profitable exchange.6 States cannot write
enforceable promises in the same way as private parties, but one would expect them
to use the tools at their disposal to make their agreements more, rather than less,
1 This article offers an explanation for some, but not all, of the diversity that exists in international agreements.
Some of the other sources of diversity within agreements are discussed in the Autumn 2001 symposium
issue of International Organization. See Koremenos, Lipson, and Snidal, ‘The Rational Design of
International Institutions’, 55 Int Org (2001) 761; Koremenos, Lipson, and Snidal, ‘Rational Design:
Looking Back to Move Forward’, 55 Int Org (2001) 1051.
2 E.g., the North American Free Trade Agreement (NAFTA) is the product of a formal treaty while the
Basle Accord is not a treaty. See Basle Committee on Banking Supervision, ‘International Convergence
of Capital Measurement and Capital Standards’ (July 1998), available at http://www.bis.org/publ/
bcbs04a.htm; see generally, Lee, ‘The Basle Accords as Soft Law: Strengthening International Banking
Supervision’, 39 Va J Int’l L (1998) 1; Oatley and Nabors, ‘Redistributive Cooperation: Market Failure,
Wealth Transfers, and the Basle Accord’, 52 Int Org (1998). 1, at 35–54.
3 E.g., bilateral investment treaties (BITs) typically include dispute resolution procedures, as does the
WTO, whereas the Geneva Convention Relative to the Treatment of Prisoners of War does not. See, e.g.,
Treaty Concerning the Reciprocal Encouragement and Protection of Investment, 14 Nov. 1991,
U.S.-Arg., arts. II-V, S. Treaty Doc. No. 103-2, at 3–6 (1993); Geneva Convention Relative to the Treatment
of Prisoners of War, 75 UNTS (1949) 135.
4 E.g., the International Covenant on Civil and Political Rights (ICCPR) provides for the submission of
reports by the parties when so requested by the Human Rights Committee (‘the Committee’), and the
Committee is authorized to review and comment on these reports: see ICCPR, 999 UNTS (1966) 171
(1966), art. 40(1)(b), (4); see also Raustiala, ‘Police Patrols, Fire Alarms & the Review of Treaty Commitments’,
mimeo, at 2 (2003) (on file with author).
5 A soft law agreement reduces the credibility of the commitment relative to a treaty because it represents
a lower level of commitment. Omitting dispute resolution and monitoring procedures has a similar effect
because these procedures serve to identify and publicize violations.
6 This is a simple insight from contracts. It is discussed in detail in Section 2.
Annex 99
The Design of International Agreements 581
credible. Yet states do not do so. They routinely fail to draft agreements to maximize
the credibility of their promises. They frequently enter into soft law agreements; most
agreements, including treaties, do not include mandatory dispute resolution provisions;
7 and mechanisms for monitoring and review are often weak or non-existent.8
Neither legal nor political science scholars have a theory to explain why states are so
hesitant to use these credibility-enhancing strategies.9
The central claim of this article is that state resistance to such strategies is the product
of tension between two objectives pursued by states when they enter into an
agreement.10 The first is the desire to make the agreement credible and binding. This
is analogous to the desire on the part of private parties to make their agreements
enforceable. The design elements of hard law, dispute resolution, and monitoring all
promote this goal.11 The observation that each of these design elements promotes
credibility and compliance yet is often not incorporated in an agreement is at the
heart of the puzzle addressed in this paper.
The second part of the explanation is related to the sanctions triggered by the violation
of an international agreement. In the domestic context, a contractual breach is
normally punished through monetary damages paid by the breaching party to the
breached-against party. This is a zero-sum transfer in the sense that what is lost by
7 See Guzman, ‘The Cost of Credibility: Explaining Resistance to Interstate Dispute Resolution Mechanisms’,
31 J Legal Stud (2002) 303. Domestic contracts do not normally include dispute resolutions provisions
either, but, unlike international agreements, they can rely on the background legal system for
enforcement. International contracts provide a better example of private parties seeking to ensure the
credibility of their agreements. These contracts typically include a choice of law clause and frequently an
arbitration clause, which identifies the law that is to govern the dispute and the forum in which a dispute
will be resolved.
8 See Raustiala, supra note 4. Domestic contracts do not always provide for monitoring, but they tend to do
so where monitoring is most important. E.g., secured creditors will normally include monitoring provisions
of some sort in their credit agreements when the amount involved is large enough to justify the
costs of monitoring.
9 See, e.g., Raustiala, ‘Form and Substance in International Agreements’, mimeo (2002) (stating that
international lawyers ‘have produced few theories of why states chose to use or avoid legality’) (on file
with author); Guzman, supra note 7, at 307 (‘The reluctance of states to include binding dispute resolution
clauses in their agreements has received limited attention from international law scholars.’). But see
Sykes, ‘Protectionism as a “Safeguard”: A Positive Analysis of the GATT “Escape Clause” with Normative
Speculations’, 58 U Chicago L Rev (1991) 255 (offering a public choice explanation of the escape
clause provisions contained in Art. XIX of GATT).
10 As this sentence makes clear, this article embraces an institutionalist view. It is worth noting that there
is considerable debate about the proper way to model state behaviour, and institutionalism is only one of
the possible choices, with the other common ones being realism and constructivism. The merits and
demerits of these approaches have been exhaustively catalogued, debated, and discussed elsewhere, and
it serves no purpose to revisit that debate here. For discussions of these approaches, see Abbott, ‘Modern
International Relations Theory: A Prospectus for International Lawyers’, 14 Yale J Int’l L (1989) 335
(institutionalism); Koh, ‘Why Do Nations Obey International Law?’, 106 Yale LJ (1997) 2599 (constructivism);
Koh, ‘Transnational Legal Process’, 75 Nebraska L Rev (1996) 181 (constructivism); M.E.
Brown, S.M. Lynn-Jones, and S.E. Miller (eds.), The Perils of Anarchy: Contemporary Realism and International
Security (1995) (realism).
11 Throughout this article the term ‘design elements’ will be used to describe the credibility enhancing
devices that represent the focus of the article – hard law, dispute resolution, and monitoring.
Annex 99
582 EJIL 16 (2005), 579–612
one party is gained by the other.12 When agreements between states are violated,
however, the associated sanctions do not have this zero-sum character.13
When a state violates an international commitment it suffers, to the extent that it
faces any sanction, a loss of reputation in the eyes of other states, perhaps combined
with some form of direct sanction.14 These sanctions represent a loss to the state that
has violated its obligation, but do not provide an offsetting gain to the party to whom
the obligation was owed. The sanction, therefore, is a net loss to the parties – one
party faces a cost that is not recovered by the other.15
When the parties enter into an agreement, they recognize the potential for this
future loss and the fact that credibility-enhancing design elements serve to increase
this net loss in the event of a violation. The desire to increase the credibility of commitments,
then, is tempered by a desire to avoid this loss. It is the tension between these
competing goals of credibility and loss avoidance that explains the fact that states use
the design elements discussed in this article – hard law, dispute resolution, monitoring
– in some but not all international agreements.
The article proceeds as follows. Section 2 describes in detail why the failure of
states to design their agreements in such a way as to maximize the credibility of their
commitments is a puzzle, especially in light of what we know about the exchange of
promises in the domestic setting.16 Section 3 explains how the desire for greater credibility
and compliance interacts with the fear of losses generated in the event of a violation.
Section 4 presents the predictions yielded by the theory regarding the use of
credibility-enhancing devices. Section 5 explores some of the implications of the theory,
including predictions about when credibility-enhancing devices are most likely.
Section 6 concludes.
2 The Puzzling Diversity of International Commitments
When states enter into an international agreement, they have complete control over
what is and is not included. Among the decisions that must be made are: the choice
between hard and soft law; the decision to include or exclude dispute resolution provisions;
and the decision to include or exclude monitoring, reporting and verification
12 There are, of course, transaction costs, including lawyers’ fees, but these are put to one side. In many
cases these fees will be modest, and perhaps even zero, because most disputes are settled prior to trial,
and some are settled before lawyers are even hired.
13 See infra note 33.
14 See Guzman, ‘A Compliance-Based Theory of International Law’, 90 Calif L Rev (2002) 1823.
15 States could, of course, provide for money damages in their agreements. In fact, they almost never do so.
The reason for state resistance to money damages is itself something of a puzzle and this article does not
attempt to explain this fact. It may be that money payments are not considered an effective deterrent, or
that the political costs associated with either paying money damages or accepting them in compensation
for a violation are significant. Alternatively, there may be a sense among states that money damages
would be ignored too easily. Whatever the reason, this article simply recognizes this fact and assumes
that money damages are not available. For a more detailed discussion of this issue, see Section 5B.
16 Along the way, Section 2 considers existing explanations for the resistance to credibility-enhancing
devices in international agreements, including some that rely on domestic political forces.
Annex 99
The Design of International Agreements 583
provisions.17 This section explains why we would expect states to use these design elements
to increase the credibility and effectiveness of international agreements, and
shows that the failure of states to use them more often should be puzzling to international
law scholars. It also reviews and evaluates existing arguments advanced to
explain why these elements are so rarely used. Some of these arguments have merit
and the explanation advanced here is intended as a complement to these claims, not a
substitute. Other arguments advanced in the literature, however, have little to recommend
them and should be dismissed.
The first design element of interest to this article is the soft law/hard law divide,18
which will be referred to as the choice of ‘form’.19 When states enter into an agreement,
they have the option of adopting either form.20 If they evidence an intent to be
‘bound’, the agreement is labelled a treaty, and if they do not demonstrate such an
intent, it is labelled ‘non-binding,’ or soft law.21 Though the precise place of soft law
within the framework of international law is uncertain, it is clear that traditional
17 The choice regarding dispute resolution and monitoring is, of course, not a binary one. There are a wide
variety of ways each of these design elements could be incorporated. The article frequently speaks of a
choice to include or exclude such elements, but this should be recognized as a shorthand for the actual
choice that includes not only whether or not to include the design elements, but how strong to make them.
18 There is no single agreed-upon definition of soft law. One approach is to identify what soft law is not. It is
not ‘hard law’, by which is meant treaties or custom, nor is it a purely political understanding without a
legal component. Rather, soft law is what lies between these two alternatives. See Abbott and Snidal,
‘Hard and Soft Law in International Governance’, 54 Int Org (2000) 421, at 422. For more about ‘soft
law,’ see Wellens and Borchardt, ‘Soft Law in European Community Law’, 14 ELRev (1989) 267; Handl
et al., ‘A Hard Look at Soft Law’, 82 Am Soc Int’l L Proc (1988) 371; Gruchalla-Wesierski, ‘A Framework
for Understanding “Soft Law” ’, 30 McGill LJ (1984) 37. The term ‘soft law’ is used herein to denote law
that falls short of the classical definition of international law. See Raustiala, supra note 9 (describing the
term soft law). This is a common usage of the term, but it is not the only one. Some use the term to
describe rules that meet the classical definition but are imprecise of weak. See Weil, ‘Toward Relative
Normativity in International Law’, 77 Am J Int’l L (1983) 413, at 414 n.7 (‘It would seem better to
reserve the term “soft law” for rules that are imprecise and not really compelling, since sublegal obligations
are neither “soft law” nor “hard law”: They are simply not law at all.’); Dupuy, ‘Soft Law and the
International Law of the Environment’, 12 Mich J Int’l L (1991) 420; O’Connell, ‘The Role of Soft Law in
a Global Order’, in D. Shelton (ed.), Commitment and Compliance: The Role of Non-binding Norms in the
International Legal System (2000), at 100, 109–110; Chinkin, ‘The Challenge of Soft Law: Development
and Change in International Law’, 38 ICLQ (1989) 850.
19 In other writing I have commented on the conceptual problems that soft law presents for international
legal scholars. See Guzman, supra note 14, at 1878–1883.
20 See A. Aust, Modern Treaty Law and Practice (2000).
21 The terms ‘binding’ and ‘non-binding’ are sometimes used as synonyms for hard and soft law respectively
but these terms are somewhat misleading because binding commitments – meaning treaties – often do
not include enforcement mechanisms of any kind, let alone the sort of coercive enforcement mechanisms
that we are used to in domestic law. Non-binding agreements, on the other hand, are commonly thought
to affect the behaviour of states, and do so in part because they impose some sort of obligation on the signatories.
We cannot, therefore, distinguish these two categories of commitment based on whether there is
a sanction for non-compliance or whether state behaviour is affected. If non-binding agreements affect
behaviour, a failure to comply must entail some consequences. On the other hand, it is clear that violation
of a binding agreement imposes only limited costs on states. The most that can be said about the distinction
between binding and non-binding agreements, then, is that a violation of the former will, all else
being equal, impose greater costs on the violating state than violation of the latter.
Annex 99
584 EJIL 16 (2005), 579–612
international law scholarship considers soft law less ‘law’ than the ‘hard law’ of treaties
and, for that matter, custom.22 By this it is meant that soft law is less obligatory
than hard law and, presumably, has less impact on behaviour.23 This article accepts
as given the conclusion that, all else being equal, soft law impacts state behaviour less
than do treaties in the sense that a given set of substantive obligations is more likely
to affect behaviour if it takes the form of a formal treaty.24
But soft law is not the only design element that can affect the ‘compliance-pull’ of
an agreement. States also choose whether or not to adopt formal dispute resolution
processes.25 These can range from a framework for consultation to a formal system of
binding adjudication.26 Though some high-profile agreements, such as the WTO27
and the Law of the Sea Convention,28 include mandatory dispute resolution mechanisms,
22 Van Dijk, ‘Normative Force and Effectiveness of International Norms’, 30 FRG YB Int’l L (1987) 9, at 20.
Perhaps the most traditional position views agreements other than treaties as nothing more than evidence
of custom. See Dupuy, supra note 18, at 432. Under another view, soft law ‘tends to blur the line
between the law and the non-law, be that because merely aspirational norms are accorded legal status,
albeit of a secondary nature; be that because the intended effect of its usage may be to undermine the status
of established legal norms’: Handl, supra note 18, at 371.
23 One additional clarification is needed here. Some commentators use a definition of soft law that encompasses
formal treaties whose substantive obligations are weak. Thus, e.g., a formal treaty that has no clear requirements,
but instead consists of a set of goals, aspirations, or promises to pursue certain general objectives,
would be considered ‘soft’ under this taxonomy. See Baxter, ‘International Law in “Her Infinite Variety” ’, 29
ICLQ (1980) 549, at 554; Chinkin, supra note 18, at 851. It is certainly true that the impact of an agreement
is affected by both its form (binding versus non-binding) and its substantive provisions. That is, a formal treaty
can certainly have its impact reduced if the substance of the agreement is watered down. Furthermore, one
could talk in general terms about a treaty being ‘strong’ or ‘weak’ based on how much pressure it puts on
states to change their behaviour, and this would depend on both the form and substance of the agreement. All
that said, it remains useful to distinguish between the impact of a choice of form and the impact of a change in
the substance of a treaty. For this reason, this article will retain the terms ‘binding’ and ‘non-binding’, as well
as hard and soft law, to refer to the formal legal status of an obligation. Treaties will be referred to as binding or
hard; other agreements as non-binding or soft. This is done to clarify the discussion and demonstrate the fact
that many binding agreements impact on state behaviour less than some non-binding agreements.
24 This is assumed to be true even if the treaty has no monitoring, dispute resolution provisions or other
enforcement mechanisms. Thus, it is the treaty form itself that increases the commitment, the costs of
violation, and the likelihood of compliance.
25 At various points this article will refer to the decision to include or exclude dispute resolution provisions. In
fact, states face a range of options with regard to dispute resolution rather than a binary choice. When the article
refers to this choice, then, it should be taken to mean a choice among the full variety of possible strategies,
ranging from little or no system to deal with dispute to a very structured and formal mandatory process.
26 An example of the former can be found in the Convention on International Trade in Endangered Species
of Wild Fauna and Flora (CITES), 12 ILM (1973) 1085, which provides for negotiations between disputing
parties and which allows for arbitration of disputes, but only with the consent of both parties. See
ibid., at Art. XVIII. An example of the latter can be seen in bilateral investment treaties (BITs). See, e.g.,
Treaty Concerning the Reciprocal Encouragement and Protection of Investment, 14 Nov. 1991, U.S.-Arg.,
arts. II-V, S. Treaty Doc. No. 103-2, at 3–6 (1993), 31 ILM (1992) 124, at 129–132; Vandevelde,
‘U.S. Bilateral Investment Treaties: The Second Wave’, 14 Mich J Int’l L (1993) 621.
27 See Understanding on Rules and Procedures Governing the Settlement of Disputes (Annex 2 to the Agreement
Establishing the World Trade Organization), 15 Apr. 1994, reprinted in 33 ILM (12994) 1226.
28 See United Nations Convention on Law of the Sea, 10 Dec. 1982, Art. 76, UN A/Conf.62/122, 21 ILM
(1982) 1261.
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most agreements do not provide procedures of that sort.29 The conventional view of
dispute resolution, and the one adopted in this article, assumes that it increases the
incentive toward compliance because it provides a mechanism to identify violations
and may provide for some formal sanction.30 The third design element that increases
credibility is the use of monitoring procedures. There are, of course, a wide range of
ways to monitor compliance, ranging from self-reporting or occasional and informal
statements of state conduct to formal inspections of state behaviour and compliance
by neutral observers.31
A International Agreements as Contracts
International agreements are, at root, an exchange of promises among states. This is
true whether they are full-blown treaties or merely statements of intent; whether
they require wholesale changes to domestic practices or merely reflect existing behaviour;
and whether or not they include provisions for enforcement. Because our understanding
of promises made at the international level is quite poor, there is much to be
gained by looking to other areas of law where we have a better set of theoretical and
conceptual tools with which to work. In particular, scholarship on the law of contracts
offers a sophisticated understanding of promises made in the domestic context.
It is, therefore, helpful to think of international agreements as a form of contract and
bring to bear on the study of those agreements some of the insights from the contracts
literature. Of course, there are important differences between promises exchanged by
states and those exchanged by private parties. In fact, this article points to one such
difference to help explain why states often enter into agreements that are less binding
than one might expect. Nevertheless, analogy to contracts is useful because it offers a
good starting point for the study of international agreements.
Consider one of the most basic ideas from contract theory, the Coase theorem.32 In
the absence of transaction costs, the parties will negotiate an efficient contract, meaning
one that generates the maximum possible joint surplus.33 The terms of the contract
will then provide for some distribution of that surplus. In a contract between a
buyer and a seller, for example, the seller will offer higher and higher quality up to the
point where the buyer’s willingness to pay for higher quality is less than the cost of
further quality increases. The ultimate sale will include a price adjustment to reflect
29 See Guzman, supra note 7, at 304.
30 Dispute resolution may provide an additional benefit, in that it serves to reduce the use of costly sanctions,
especially when there has been no violation, because a finding that there has been no violation
can prevent the unjustified use of such sanctions.
31 See, e.g., supra note 4. Kal Raustiala categorizes the different monitoring systems as either strong or
weak. His category of strong systems include ‘police patrols’, by which he means investigation and evaluation
of behaviour by a central authority, and ‘fire alarms’, by which he means a determination by a
central authority based on self-reporting or claims by other parties. See Raustiala, supra note 4.
32 Coase, ‘The Problem of Social Cost’, 3 J L & Econ (1960) 1.
33 In discussions of international institutions the effort to maximize the total joint surplus of the parties to
an agreement is sometimes referred to as ‘rational design’. See Koremenos, Lipson, and Snidal, supra
note 1, at 781.
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this higher quality, though precisely how the gains generated by the contract are
divided will vary based on the market power of the parties. Notice that this interaction
generates the optimal quality level – higher quality would not be worth the cost,
lower quality would reduce the total benefit enjoyed by the parties by more than the
cost savings.
This simple theory of negotiation is well established in the contracts literature, but
how does it affect the way in which we view inter-state agreements? Before proceeding,
we must make some assumptions about state behaviour. This article assumes that
states are rational beings; that they act in their own self-interest, at least as that interest
is defined by the political leaders of the state; and that states are aware of the impact
of their actions on the behaviour of other states. These represent standard assumptions
about state conduct, but our understanding of state behaviour remains sufficiently
contested that it is worthwhile to identify them explicitly.34 The assumptions imply
that when states enter into international agreements they will, like domestic parties
entering into a contract, seek to maximize the joint benefits to the parties.35
With the above assumptions in mind, imagine two (or more) states engaged in
negotiation over some set of issues. For example, Mexico and the United States might
be concerned about a set of environmental issues that affect both states. The states
may have different priorities and different goals, and each may pursue its own interests
without regard for the interests of the other. Whatever agreement they ultimately
reach, however, our assumption that they will reach an efficient agreement
ensures that there is no alternative agreement that could make both parties better off.
Suppose, for instance, that the United States prefers tougher environmental standards
than does Mexico. If those standards are sufficiently important to the US, it will
get the standards it wants in exchange for some other concession – perhaps better
treatment for illegal immigrants within the United States. Alternatively, if the cost to
Mexico of higher standards is greater than what the US is willing to pay, lower standards
will prevail in the agreement because the compensation demanded by Mexico
for its acceptance of higher standards would exceed the willingness to pay of the
United States. The parties will increase the level of agreed-upon standards as long as
34 The assumptions made here are conventional institutionalist ones. See Abbott, ‘Modern International
Relations Theory: A Prospectus for International Lawyers’, 14 Yale J Int’l L (1989) 335; R. O. Keohane,
After Hegemony: Cooperation and Discord in the World Political Economy (1984), at 27; Raustiala and
Slaughter, ‘International Law, International Relations and Compliance’, in W. Carlsnaes et al. (eds.),
Handbook of International Relations (2002).
35 Note that these assumptions about state behaviour are consistent with both a public interest model of
governance, in which states pursue the welfare of their citizens, and an alternative public choice model,
in which governmental leaders pursue their own private goals: see Guzman, ‘Choice of Law: New Foundations’,
90 Georgetown LJ (2002)_883, at 900 (discussing how public choice issues can be handled in an
international law context). The most able scholar using public choice analysis in the international context
is Alan Sykes. See Schwartz and Sykes, ‘The Economic Structure of Renegotiation and Dispute Resolution
in the World Trade Organization’, 31 J Legal Stud (2002) 179; Schwartz and Sykes, ‘Toward a
Positive Theory of the Most Favored Nation Obligation and its Exceptions in the WTO/GATT System’, 16
Int’l Rev L & Econ (1996) 27; Sykes, ‘Protectionism as a “Safeguard”: A Positive Analysis of the GATT
“Escape Clause” with Normative Speculations’, 58 U Chi L Rev (1991) 255.
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the US is willing to pay more than Mexico demands – leading them to an agreement
that maximizes their joint welfare. No other agreement could, when combined with
some transfer payment, make both parties better off.
The domestic contract law story ends at this point – it is assumed that, having
reached an agreement that maximizes joint welfare, the parties will enter into a binding
legal contract.36 The contract would reflect the efficient bargain; disputes between
the parties would typically be resolved by the domestic court system or, perhaps,
some form of mandatory private arbitration; and monitoring would be provided for,
up to the point where the marginal benefit of additional monitoring is outweighed by
its marginal costs. Entering into such a contract encourages both sides to uphold
their end of the agreement, permits greater reliance by each party, and allows the
parties to achieve the joint gains that motivated the contract in the first place.37
A glance at international agreements reveals that they appear inconsistent with
the above description.38 Specifically, agreements among states frequently do not
make use of familiar and accessible mechanisms to increase the credibility of commitments.
States often enter into soft law agreements rather than treaties, typically fail to
provide for any dispute resolution procedures,39 and frequently require little or no
monitoring or verification of performance.40
36 Domestic parties do occasionally enter into agreements that are not binding. E.g., in the course of the
negotiation of a loan, two parties may sign a ‘letter of intent’ which lays out the terms of the ultimate
agreement but is not itself legally enforceable. Agreements of this sort are often, though probably not
always, intended to help the parties make sure that they have a common expectation about ongoing
negotiations. In any event, and whatever their purpose, it is clear that such agreements are atypical of
domestic law agreements, and private contracting normally takes the form described in the text.
37 See text accompanying note 44.
38 Variance in the use of credibility-enhancing devices is almost certainly related in part to the subject matter
of the agreement. E.g., it is conventional wisdom that dispute resolution is more common in trade
and human rights than in, e.g., arms agreements: see, e.g., Smith, ‘The Politics of Dispute Settlement
Design: Explaining Legalism in Regional Trade Pacts’, 54 Int Org (2000) 137. Similarly, it is said that
monitoring is more common in the environmental context: see, e.g., E. B. Weiss and H. K. Jacobson,
Engaging Countries: Strengthening Compliance with International Environmental Accord (2000), at 91. This
article does not attempt to evaluate these empirical claims or to test the theory against them in a formal
way. Section 4, however, discusses when the theory predicts that credibility-enhancing devices are most
likely and offers some comments suggesting how well these predictions accord with what we observe.
More formal testing of the theory is left for future work.
39 And they almost never provide for dispute resolution procedures that attempt to impose something analogous
to expectation damages.
40 To illustrate the basic difference between what analogy to domestic contracting suggests and what we
observe in the international context, consider how odd it would seem to see sophisticated business parties
enter into negotiations, expend significant resources, produce a complex agreement, and then intentionally
make that agreement non-binding and unenforceable. Similarly, one would be surprised to see an agreement
that is legally binding, but that declares itself unenforceable before any court or tribunal. Indeed, the
use of agreements that are intentionally not adjudicable before any body is so alien to conventional contract
law that it is hard even to know what it means for a contract to be legally binding if there is no enforcement:
see Uniform Commercial Code § 1–201(3, 11) (defining ‘Contract’ and ‘Agreement’). Finally, a lawyer who
negotiated a complex, long-term agreement and then failed to provide for the use of available and costeffective
monitoring procedures would be criticized for an error of judgement. Not only do all of these things
happen in the world of inter-state agreements, they represent standard operating procedure.
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Before proceeding further, it is important to recognize that all the design elements discussed
in this article are related.41 Each of them alters the extent to which an agreement
provides an incentive for states to comply. Signing a treaty rather than soft law, including
mandatory dispute resolution, and choosing to put monitoring procedures in place,
all increase the impact of an agreement on state behaviour. Furthermore, it is possible to
trade the compliance benefits of one of these elements off against those of another. For
example, a treaty that has stringent monitoring and reporting obligations but no dispute
resolution procedures might have the same impact on behaviour as an agreement
with limited monitoring and reporting but a mandatory dispute resolution procedure.42
That there is a trade-off among these elements, however, does not explain state
behaviour because from a contracting perspective, one would expect states to use
each of the elements to increase the credibility of their commitments.43 Like the parties
to a domestic contract, states wish to maximize the joint benefits from an agreement.
Consistent with that desire, the parties will adopt enforcement techniques that
ensure performance unless the total joint cost of performance is greater than the total
joint benefit. Specifically, they want to provide an incentive to perform, even if it turns
out that performance is costly to one of the parties, as long as performance yields net
benefits to the parties taken together. In domestic contracts, of course, the law
attempts to provide a system of damages and other remedies that leads to efficient
results. It is for this reason that expectation damages represent the standard remedy
for contract violation – they encourage efficient breach.44
The standard enforcement tools of international law are, of course, a great deal
weaker than those present in domestic systems. In particular, states cannot rely on a
system of coercive enforcement to ensure an efficient level of damages.45 The enforcement
41 I am not the first to make this observation. In a recent draft article, Kal Raustiala has observed that the
choice of form (i.e., treaty v. soft law) can be traded off against the substance of an agreement: see Raustiala,
supra note 9, at 34.
42 See Kaplow, ‘The Value of Accuracy in Adjudication: An Economic Analysis’, 23 J Legal Stud (1994)
307, at 352–354 (explaining the relationship between increased accuracy and costly sanctions in the
domestic context).
43 As already discussed, see supra the text accompanying notes 35–37: contract theory tells us that states
should increase the level of commitment up to the point at which the costs of violation are equal to the
benefits thereof. If some combination of design elements generated excessive commitment states would
provide for some lower level of commitment. In the international arena, however, it is hard to believe that
any combination in the design elements can generates optimal, let alone excessive, incentives to comply.
44 See R. A. Posner, Economic Analysis of the Law (4th edn., 1992), at 117–126; Barton, ‘The Economic
Basis of Damages for Breach of Contract’, 1 J Legal Stud (1972) 277, at 283–289; Shavell, ‘Damage
Measures for Breach of Contract’, 11 Bell J Econ (1980) 466. But see Friedmann, ‘The Efficient Breach
Fallacy’, 18 J Legal Stud (1989) 1 (challenging the claim that expectation damages yield an efficient
outcome). In domestic law there are other efficiency goals – specifically efficient insurance and efficient
precaution – that may lead one to favour less than expectation damages. These objectives, however,
have less applicability to inter-state agreements and, in any case, the level of damages provided by the
background rules of international law seems too low even if these other goals are taken into account.
45 See, e.g., Damrosch, ‘Enforcing International Law Through Non-Forcible Measures’, 269 Recueil des
Cours (1997) 19 (‘A fundamental (and frequent) criticism of international law is the weakness of mechanisms
for enforcement.’); Falk, ‘The Adequacy of Contemporary Theories of International Law – Gaps
in Legal Thinking’, 50 Va L Rev (1964) 231, at 249 (1964) (‘Among the most serious deficiencies in
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mechanisms are sufficiently weak that, as far as I am aware, no commentator argues
that enforcement measures in international law are sufficient to secure optimal levels
of compliance.46
Given the weakness of the international enforcement system, one might expect
that international agreements would include mechanisms intended to increase the
likelihood of compliance. In fact, such mechanisms are not routinely included in
agreements, and sanctions are normally not provided for. Where sanctions are provided,
they are often not severe, and often only prospective.47 Simply put, in many
agreements, the tangible sanctions for a failure to comply with international law are
very weak. Though there may also be a reputational sanction,48 there is no reason to
think that reputation is sufficient to provide for an efficient level of breach between
states. Reputational sanctions are limited in magnitude and can be unpredictable,
and even a total loss of reputation may not be enough to deter a violation of international
law.49 Reputational sanctions are also likely to under-deter breach because the
actions of the parties may not be observable to third parties. In the absence of a disinterested
adjudicator, the breached-against party cannot credibly demonstrate that
the other party was at fault.
Before proceeding it is worth pausing to address a potential objection. It might be
said that a rule of customary international law imposes on a violating state the
obligation to ‘make full reparation for the injury caused by the internationally
wrongful act’.50 If one has sufficient belief in the power of customary international
law, one might ask if states rely on this background rule and therefore do not find it
necessary to provide for damages in their agreements. Analogizing to the domestic
sphere, the argument would be that private parties relying on the default remedies of
contract law may not feel it necessary to include a liquidated damage clause of other
contractual language governing damages.
A realistic appraisal of both the power of customary international law and the status
of this particular rule, however, makes it clear that this claim is implausible. First,
international law is the frequent absence of an assured procedure for the identification of a violation.’);
Franck, ‘Legitimacy in the International System’, 82 Am J Int’l L (1988) 705, at 705 (observing ‘[t]he
surprising thing about international law is that nations ever obey its strictures’ because ‘the international
system is organized in a voluntarist fashion, supported by so little coercive authority’).
46 But see Damrosch, ‘Enforcing International Law Through Non-forcible Measures’, 269 Recueil des Cours
(1997) 19–22 (arguing that there are more sanctions for violation of international law than is generally
recognized).
47 See, e.g., the WTO Dispute Settlement Understanding, Art. 22(4) (‘The level of the suspension of concessions
or other obligations authorized by the DSB shall be equivalent to the level of the nullification or
impairment.’).
48 See R. O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (1984), at
105–108; R. Axelrod, The Evolution of Cooperation (1984); Guzman, supra note 14.
49 See Downs and Jones, ‘Reputation, Compliance, and International Law’, 31 J Legal Stud (2002) 95 (discussing
reputation as it affects international law).
50 See Draft Articles on Responsibility of States for Internationally Wrongful Acts, adopted by the International
Law Commission at its 53rd session (Sept. 2001), Supp. No. 10 (A/56/10), chap. IV.E.1, at
www.un.org/law/ilc/convents.htm (this site also contains the authoritative commentaries).
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it does not seem to be the case that there exists a rule requiring reparation in the
event of a violation of international law. The determination of what is and what is not
customary international law is, of course, contentious, and it is beyond the scope of
this article to attempt a comprehensive analysis of the question in this context.51 It is
enough to note that we do not witness a consistent pattern of reparations being paid
between states when international obligations are violated.
Furthermore, even if this is, indeed, a rule of customary international law, it is only
relevant when states have chosen to enter into a hard law agreement and include a
dispute resolution mechanism. The hard law form is necessary because the rule only
binds states in the event of a violation of a treaty. States, therefore, could only consider
the reparations obligation relevant in instances in which they select the hard
law form. If anything this deepens the puzzle addressed in the article since a customary
international law requiring reparation would make hard law even more powerful
and effective relative to soft law.
Similarly, if this obligation were thought to be both effective and desirable we
would expect more, rather than less, use of dispute resolution since the obligation to
make reparation requires some authority to determine whether or not there has been
a violation. And where states have determined that they do not want to provide for
dispute resolution we would expect to see them routinely opting out of this obligation
to make reparations. This is so because whatever concerns states about dispute resolution
(for instance, fear of losing a case, fear of being perceived to be in violation of
the law) should concern them about the reparation obligation. For example, a state
making a reparation payment is also admitting guilt, so if states avoid dispute resolution
because they do not want to be declared to have violated international law one
would also expect them to avoid the reparations obligation.
Even if one were to accept, contrary to the practice of states, the claim that there
exists a customary international law rule requiring the payment of reparation in
response to a violation of international law, this rule could only serve as a substitute
for credibility enhancing devices if it is equally effective. Again, this is not the place for
a complete discussion of the problems with customary international law, but it is
clear that it is at best a weak force acting on states. As such, it is hard to believe that it
offers a substitute to the credibility-enhancing devices discussed herein.
Finally, even if one believes that a rule of customary law exists, and that it is effective,
the compensation it calls for is often quite modest. For example, a state that violates
international law ‘is under an obligation to give satisfaction for the injury caused by that
act insofar as it cannot be made good by restitution or compensation. Satisfaction may
consist in an acknowledgement of the breach, an expression of regret, a formal apology
or another appropriate modality.’52 This form of ‘reparation’ hardly seems sufficient to
explain why states avoid the credibility-enhancing devices discussed in this article.
51 See Goldsmith and Posner, ‘A Theory of Customary International Law’, 66 U Chicago L Rev (1999)
1113; Swaine, ‘Rational Custom’, 52 Duke LJ (2002) 559.
52 Draft Articles, Art. 37.
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B Existing Explanations
1 Explanations for the Presence of Soft Law53
This article is not the first to ask why states use soft law, and there are a number of
existing explanations for why states enter into soft law agreements.54 The two most
salient – flexibility and domestic issues – are presented below. The flexibility argument
is largely unconvincing but the claims about domestic politics are surely an
important part of the explanation for soft law.
2 Flexibility
The basic flexibility argument is that ‘[s]oft legalization allows states to adapt their
commitments to their particular situations rather than trying to accommodate divergent
national circumstances within a single text. This provides for flexibility in implementation’.
55 In simple terms, states choose soft law because it is less binding on them
and, therefore, gives them greater flexibility.56 This flexibility is said to be desirable for
a variety of reasons, including to help states deal with an uncertain world,57 to reduce
the costs of termination or abandonment,58 or to make renegotiation easier.59
53 There is a significant literature on the subject of soft law. See the sources cited supra, at note 18. The general
view of soft law in international law is that it is in some sense less ‘binding’ than traditional sources
of international law, and states are accordingly less likely to comply: van Dijk, ‘Normative Force and
Effectiveness of International Norms’, 30 German YB Int’l L (1987) 9, at 20. Perhaps the most traditional
position views agreements other than treaties as nothing more than evidence of custom: see Dupuy,
supra note 18, at 432; Steinberg, ‘In the Shadow of Law or Power? Consensus-based Bargaining and
Outcomes in the GATT/WTO’, 56 Int Org (2002) 339, at 340 (‘[M]ost public international lawyers, realists,
and positivists consider soft law to be inconsequential.’).
54 See Hillgenberg, ‘A Fresh Look at Soft Law’, 10 EJIL (1999) 499; Lipson, ‘Why are Some International
Agreements Informal?’, 45 Int Org (1991) 495, at 500; Abbott and Snidal, supra note 18; Gruchalla-
Wesierski, supra note 18; Guzman, supra note 18.
55 Abbott and Snidal, supra note 18, at 445; Lipson, supra note 54, at 500 (‘[I]nformal bargains are more
flexible than treaties. They are willows not oaks.’).
56 To the extent that the argument here is that it may at times be desirable to have weaker or less precise
substantive provisions in an agreement, it is a question of what this article defines as the ‘substance’ of
the agreement, and it is discussed in Section 3F. This article uses a definition of ‘soft law’ that turns
entirely on questions of form – an agreement is soft if it is not a formal treaty. Given this definition, there
is no a priori reason why soft law instruments (meaning instruments that fall short of formal treaty
status) must be less precise. States could negotiate a detailed set of terms but have that exchange of
promises take the form of soft law. Similarly, states can enter into formal treaty commitments that lack
precision. Other scholars, in particular Abbott and Snidal, who are quoted above, see supra 56, use a different
definition of soft law. As a result, some arguments made by other authors about ‘soft law’ may in
fact be referring to characteristics of agreements (such as the precision of the substantive obligations)
that are defined in differently in this article.
57 See Abbott and Snidal, supra note 18, at 441 (stating that soft law helps states to deal with the fact that
‘[t]he underlying problems may not be well understood, so states cannot anticipate all possible consequences
of a legalized arrangement’); Lipson, supra note 55, at 518 (arguing that soft law ‘is useful if
there is considerable uncertainty about the distribution of future benefits under a particular agreement’);
Guzman, supra note 9, at 18 (‘governments need not predict the future and can easily adjust the
agreement or renege’).
58 See Lipson, supra note 55, at 518.
59 See Abbott and Snidal, supra note 18, at 435.
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The merit of flexibility, then, turns on the fact that soft law is less binding on states,
allowing them to respond to unexpected future events. The problem with the argument
is that flexibility of this sort reduces the value of the agreement to the parties.
When entering into the agreement states have an incentive to set terms that maximize
the expected payoff from that agreement. Granting each party the ability to unilaterally
change those terms reduces this expected payoff. Though a state prefers that
its own commitments be ‘flexible’ in this way, it would prefer that its counter-party be
held to its promise. In conventional contract language, an efficient treaty compels
performance unless the joint costs of performance exceed the joint benefits.60
3 Domestic Law and Politics
A different explanation for the use of soft law instruments concerns the domestic
processes by which international agreements are approved. The use of a soft law
instrument rather than a treaty triggers a different set of domestic practices and this
may affect the choice of form. These arguments, whatever the merits of any particular
claim, are surely part of the explanation for the use of soft law. This section simply
mentions three prominent explanations for soft law that turn on matters of domestic
law and politics.61
Soft law agreements differ from treaties in that they do not require formal ratification
and therefore can be implemented more quickly.62 They also lie more completely
within the domain of the executive branch of government.63 These traits may cause
soft law instruments to be used when speed is important or when legislative support is
lacking or uncertain. Soft law also differs from treaties in that treaties serve to ‘commit
[different] domestic agencies (especially legislatures) or political groups when
those officials are able to make international agreements with little interference or
control’.64 Thus, an executive that wants to enter into an agreement can use treaties
to more effectively bind these other actors. Finally, the choice between a treaty and
soft law is also likely to be influenced by domestic political interests. International
agreements reflect, among other things, the demands of domestic groups. When
interest groups pressure a government to enter into negotiations, they typically want
60 Some of the specific arguments about the merits of flexibility have additional problems. Claims that soft
law is desirable because it makes renegotiation or termination easier seem wrong on their face, except
inasmuch as they relate to matters of domestic politics, as discussed in Section 2B3. When negotiating
an agreement, the parties remain free to include any termination and renegotiation provisions they
wish, and can do so independently of the choice of form. They could, e.g., provide for termination without
notice, or with short notice, or on whatever conditions they choose. Similarly, the parties can provide
any amendment provisions they wish, regardless of the form of the agreement. E.g., the UN Charter
can be amended ‘by a vote of two thirds of the members of the General Assembly and ratified in accordance
with their respective constitutional processes by two thirds of the Members of the United Nations,
including all permanent members of the Security Council’: see United Nations Charter, Art. 108.
61 This section is intended to offer only a glimpse at the domestic law arguments. It is not intended to be
comprehensive. For more on the subject see Abbott and Snidal, supra note 18; Lipson, supra note 54.
62 Lipson, supra note 54, at 500.
63 Ibid., at 516 (‘It is plain . . . that executives prefer instruments that they can control unambiguously,
without legislative advice or consent.’).
64 See Abbott and Snidal, supra note 18, at 430.
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a treaty rather than soft law.65 This is what we would expect from a contractual perspective
– those who push for an international agreement want it to be in the most
credible and binding form possible. There is, of course, no guarantee that interest
groups pushing for a treaty will get what they want. Governments entering into the
agreement may decide to enter into a soft law agreement for any number of reasons,
including the fact that other interest groups may oppose a treaty. The point here is
that the political balancing of interests may cause a state to enter into a soft law
agreement as a form of compromise between groups seeking a treaty and those seeking
to avoid any commitment.
4 Explanations for the Rarity of Dispute Resolution
A small number of writers have commented on the reluctance of states to enter into
dispute resolution procedures,66 but they have failed to advance a convincing explanation
for this behaviour. Two main arguments have been advanced.
The first proposed explanation turns on the desire of states to retain control over
disputes. When a dispute arises, the argument goes, states prefer to resolve the dispute
through bargaining and diplomacy rather than third-party adjudication.67
Though this argument may explain why states do not refer cases to third-party
tribunals after disputes arise, it does not shed light on the question of why dispute
resolution is not included in agreements when they are signed.68 The presence of dispute
resolution, even if it is mandatory, does not prevent negotiation between the
parties. Until one of the parties turns to the dispute resolution procedures and,
indeed, even after the formal mechanism of dispute settlement has been put into
motion, the parties are able to discuss the dispute and enter into any settlement they
choose. The idea that dispute settlement procedures somehow prevent diplomatic
negotiation is simply wrong. It may affect the outcome of the negotiation because it
changes the consequences of a refusal to settle, but it does not prevent the negotiation
itself.
65 See Guzman, supra note 9, at 28 (‘[M]any domestic and transnational interest groups focus on bindingness
– on contractual form – as a necessary factor in international cooperation.’).
66 See Morris, ‘High Crimes and Misconceptions: The ICC and Non-party States’, 64 Law and Contemporary
Problems (2001) (‘States are particularly unwilling to enter into broad commitments to adjudicate future
disputes, the content and contours of which cannot be foreseen.’); Rovine, ‘The National Interest and
the World Court’, in L. Gross (ed.), The Future of the International Court of Justice (1976), i, at 462–473;
J.G. Merills, International Dispute Settlement (3rd edn., 1998).
67 ‘It is one thing to show that resort to the [International Court of Justice] is preferable to armed conflict; it
is quite another matter to demonstrate that judicial processes are as valuable as ordinary out-of-court
bargaining and discussion’: Rovine, supra note 67, at 314. ‘[T]here is a more fundamental reluctance to
submit to third-party adjudication that rests on the perceived advantages to States in some circumstances
of retaining control over the resolution of disputes’: Morris, supra note 66, at 17 (citing Rovine,
supra note 66.)
68 Because commentators attempting to explain the absence of dispute resolution provisions frequently fail
to distinguish between the inclusion of mandatory provisions in an agreement and the decision to submit
disputes to third party arbitration at the time of the dispute, it is impossible to know if they seek to
explain only the latter, in which case the arguments advanced seem right but the question asked is of
less interest to this article; or if they hope to explain the former, in which case the arguments are flawed.
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A second explanation sometimes advanced for the refusal to adopt dispute resolution
clauses relies on the notion that states are afraid of losing a case.69 Without a
larger theory of state behaviour it is hard to know why a state’s fear of losing a case
would outweigh its interest in winning a case. The most likely explanation for such
behaviour is risk aversion on the part of states.70 Risk aversion, however, is an unsatisfactory
explanation for the choice of soft law for at least two reasons.
First, states enter into many agreements and interact with other states on a regular
basis. Because each individual commitment represents only a small fraction of the total
set of interactions, it is hard to see why risk aversion would be a sensible strategy for
most agreements.71 It would make more sense to maximize the expected value of each
agreement and rely on the large number of agreements to diversify the total benefits to
the state. Second, the use of a dispute resolution clause may, in fact, reduce the level of
risk. Such a clause increases the probability of compliance, which, depending on the
range of future states of the world, may reduce the overall risk of the agreement.72
5 Explanations for the Rarity of Monitoring Strategies
There is only a small literature on monitoring and review mechanisms,73 and virtually
no discussion of why these mechanisms exist in some agreements but not in others.
74 There does not appear to be any available explanation of why states do not use
monitoring mechanisms more often to increase the credibility of their promises and
why the mechanisms used are often weak.75
69 ‘Most obviously, but most fundamentally, states resist judicial settlement because they fear losing’:
Rovine, supra note 66, at 317.
70 ‘[T]he more uncertain the adjudicated outcome of a particular dispute would be, the less willing a State
will be to seek binding third-party adjudication’: Morris, supra note 66; Merrills, supra note 66, at 293–
294 (‘when the result is all important, adjudication is unlikely to be used because it is simply too risky’).
71 The risk aversion explanation even fails for agreements that are central to the existence or welfare of a
state. Even under the most credible of international agreements the consequences of a violation are quite
limited. There is no authority to compel compliance, so the harm from losing a dispute before a dispute
settlement body is limited to the lesser of the costs of compliance and the costs of ignoring the decision of
that body.
72 It is also worth noting that there are a number of alternative ways to deal with the risk of an agreement.
States could, e.g., build in escape clauses triggered by poor economic performance, national crises, or
other contingencies that concern the parties. This strategy reduces the exposure to risk without reducing
the agreement’s effectiveness in those states of the world in which the parties want compliance. An
alternative strategy would be to weaken the substantive requirements of the agreement. This reduces
the benefits of the agreement, but also reduces the level of commitment. Taken together, this may generate
a higher expected return to the parties than an agreement with greater substantive provisions. Each
of these strategies provides flexibility to the parties in a more nuanced and targeted way than simply
including or excluding a dispute resolution provision.
73 See Raustiala, supra note 4.
74 See Helfer, ‘Overlegalizing Human Rights: International Relations Theory and the Commonwealth
Caribbean Backlash Against Human Rights Regimes’, 102 Colum L Rev (2002) 1832, at 1841 (pointing
out that even with the single field of human rights there is considerable diversity in human rights monitoring
mechanisms).
75 See, e.g., Frischmann, ‘A Dynamic Institutional Theory of International Law’, 51 Buffalo L Rev (2003)
679 (observing the most international environmental agreements that include a monitoring system rely
on self-reporting by states).
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3 Seeking Credibility, Avoiding Commitment
A Sanctions for Violations of International Law
The explanation for why states do not make more use of credibility-enhancing devices
takes account of the unique way in which state violations of law are sanctioned in the
international arena. In a typical domestic contracts case between private parties, a
contractual violation gives the aggrieved party the right to damages from the violating
party. These damages normally take the form of a cash transfer from one party to the
other. Because the penalty is a transfer, it has no impact on the joint welfare of the parties
– what is lost by one party is gained by the other. For this reason, when private
parties enter into a contract the fact that damage payments may have to be paid in the
future does not affect the expected benefits of the contract.76
In the international arena, however, the de facto consequences of a violation are
quite different. When an agreement is violated the offending state rarely pays
money damages to other states. In fact, violations are normally not compensated
in any direct fashion.77 One can think of examples in which a form of compensation
is provided, but even these examples rarely represent the sort of zero-sum
transfer that exists in the domestic case. For instance, the WTO’s dispute resolution
procedures have provisions for the suspension of concessions previously
granted to a violating party.78 Rather than being a zero-sum transfer, the suspension
of concessions is costly for both the sanctioning and sanctioned party.79 Furthermore,
a party is permitted to impose sanctions only up to the point where the cost
imposed on the violating party equals the ongoing costs of the violation, and the
sanctions must stop when the violative measure is ended.80 There is no compensation
for past violations.81
That violations are not penalized through a transfer of money or other assets
from the violating party to the aggrieved state, however, does not mean that they
are not penalized in any way. If international law matters at all, it is because there
is some sanction for its violation.82 There are two primary ways in which a state
can suffer harm as a result of its violation of international law: direct sanctions
and reputational sanctions.83 Direct sanctions are those imposed by other states
against a violating state because it violated the agreement. They are explicit punishments
for the violation. Direct sanctions are important to some international
76 What is meant here is that the actual transfer of funds from one party to the other does not itself affect
the value of the contract. The level of damages may, of course, affect the behaviour of the parties and
this, in turn, may affect the value of the agreement.
77 See supra note 15.
78 See Understanding on Rules and Procedures Governing the Settlement of Dispute (DSU), Art. 22.
79 With a public choice perspective it is possible that the sanctions are zero sum, as discussed infra Section 3E.
80 Supra note 79, Art. 22(4).
81 See ibid.
82 Guzman, supra note 14.
83 See supra note 14 for a detailed discussion of why states comply with international law and the impact of
both direct and reputational sanctions.
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agreements,84 but most agreements do not provide for explicit sanctions of this sort.85
This leaves reputation as an important factor in the compliance decision of states.
A state that violates an international commitment signals to other states that it
does not take its international promises seriously and that it is willing to ignore its
obligations. When that state seeks to enter into agreements in the future, its potential
partners will take into account the risk that the agreement will be violated, and will
be less willing to offer concessions of their own in exchange for promises from that
country. If there is enough suspicion, potential partners may simply refuse to deal
with the state. A violation of international commitments, then, imposes a reputational
cost that is felt when future agreements are sought. A state known to honour
its agreements, even when doing so imposes costs, can extract more for its promises
than a state known to violate agreements easily. When making a promise, a state
pledges its reputation as a form of collateral. A state with a better reputation has more
valuable collateral and, therefore, can extract more in exchange for its own promises.
B The Impact of Costly Sanctions
The key to explaining why states so frequently avoid credibility-enhancing devices is
that the sanction for a violation of international law is costly to the parties.86 That is,
reputational loses felt by one party are not captured by the other party to the agreement.
Imagine, for example, that the United States and Russia enter into an arms
agreement under which both parties agree to reduce their stockpile of nuclear weapons.
If Russia subsequently violates the agreement, countries around the world will
observe that violation and Russia will suffer a reputational loss as a result. This loss is
not captured by the United States.87 When the agreement is violated, then, one party
suffers a loss but the other party does not enjoy an offsetting gain.88
84 E.g., bilateral investment treaties provide for direct sanctions in the form of compensation to investors
who have been mistreated by a host state: see Guzman, ‘Explaining the Popularity of Bilateral Investment
Treaties: Why LDCs Sign Treaties that Hurt Them’, 38 Va J Int’l L (1998) 639; Robin, ‘The BIT
Won’t Bite: The American Bilateral Investment Treaty Programme’, 33 Am U L Rev (1984) 931;
R. Dolzer and M. Stevens, Bilateral Investment Treaties (1995), at 97–117.
85 See Guzman, supra note 7, at 304 and n.3 (observing that of 100 treaties surveyed only 20 included dispute
resolution provisions, and of those, 12 were BITs).
86 The theory of costly sanctions and their use in the domestic context is laid out in Shavell, ‘Criminal Law
and the Optimal Use of Nonmonetary Sanctions as a Deterrent’, 85 Colum L Rev (1985) 1232; Polinsky
and Shavell, ‘The Optimal Use of Fines and Imprisonment’, 24 J Pub Econ (1984) 89; Kaplow, ‘A Note on
the Optimal Use of Nonmonetary Sanctions’, 42 J Pub Econ (1990) 245. The theory developed here is
related to these earlier papers, though I am not aware of any previous work applying these ideas in the
international context.
87 The United States may benefit from its now more accurate estimate of Russia’s willingness to comply,
but this represents only a small fraction of the harm suffered by Russia whose reputation is harmed
worldwide. This example is given in the context of a bilateral agreement. In the case of multilateral
agreements a similar but more complex reasoning applies: see Guzman, supra note 7, at 319–320.
88 Similar reputational effects may be at work in domestic law, but the presence of zero-sum damages creates
a separate incentive to enter into contracts with efficient terms. Furthermore, the role of reputation
is diminished in the domestic environment because credibility is provided by the legal system – parties do
not have to rely as heavily on their reputations when they wish to enter into agreements.
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The Design of International Agreements 597
Now, consider once again the decision of the parties when they enter into an agreement.
To keep the analysis simple, suppose they must choose between a treaty and a
‘non-binding accord’. The difference between these instruments is that the treaty is
more likely to induce compliance – this is why treaties are considered the most effective
instrument of cooperation.89 A treaty, however, is a double-edged sword. If there
is a compliance benefit, it must be that a violation of the treaty imposes greater costs
than a violation of the accord – that is, the reputational and direct harms associated
with a violation must be greater for a treaty. When choosing between a treaty and a
soft law instrument, then, the parties face a trade-off. A treaty generates higher levels
of compliance, which (assuming the parties select terms optimally) increases the joint
payoff, but in the event of a violation it imposes a larger penalty on the violating state.
To see how this trade-off operates as the parties draft their agreement, notice that
there are three categories of outcomes relevant to the choice between soft and hard
law. The first category includes those states of the world in which the parties to the
agreement will comply whether or not the agreement includes design elements intended
to enhance the credibility of the commitments. That is, international law provides
sufficient incentives even if a soft law agreement is chosen. In this category, the
parties are neither better nor worse off if they opt for a formal treaty over a soft law
agreement.90
The second category consists of all circumstances in which there would be compliance
if a treaty is chosen, but violation otherwise. This is the category of all cases in
which the increased compliance pull of the treaty makes the difference between compliance
and violation. Because compliance is preferred to violation, the parties are
better off in this category if they choose a formal treaty.
The third and final category of cases includes those in which there is a violation
even if a formal treaty is used. In these states of the world the use of a formal treaty
would impose a larger reputational cost on the parties than would be the case if they
chose a soft law agreement. There is no compliance benefit to offset this cost, so in
these cases the parties are better off with a soft law agreement.
In deciding between hard and soft law, then, the states face a trade-off between the
second and third categories above. In the former, the use of hard law increases cooperation
and gains to the states but in the latter hard law brings net costs. To maximize
the total value of the agreement the states must balance these concerns.
C The Optimal Agreement
This section considers what the above theory predicts about the strength or weakness
of agreements among states.91 We begin with the assumption that the parties to an
agreement are able to anticipate and provide for every possible contingency. We also
assume that a dispute resolution authority is available (or can be created) and that this
89 See Lipson, supra note 54, at 508 (‘The effect of treaties, then, is to raise the political costs of noncompliance.’).
90 If the choice of hard law implies some additional costs such as ratification costs, then the parties would
do better if they chose soft law.
91 The discussion here draws on Shavell, supra note 86, at 1241–1246.
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authority has perfect information about both the agreement and the facts of the dispute.
Though thoroughly artificial, these assumptions help to explain how agreements
are affected by the fact that only costly sanctions are available. The assumptions are
then relaxed to generate a more realistic picture of international agreements.
Under these extreme assumptions we expect the parties to tailor the agreement to
the three outcome categories described in the previous section.92 First, any behaviour
with total benefits that outweigh its costs will be permitted under the agreement. This
set of substantive obligations maximizes the total value of the agreement. Second,
harmful behaviour that cannot be deterred by any available sanction will be permitted.
Because sanctions are costly to the parties, providing for them when the behaviour
cannot be prevented would only increase the harm resulting from that behaviour.93
Finally, behaviour that is harmful and that can be deterred will be prohibited under
the agreement and will be subject to dispute resolution procedures. As part of the
effort to deter this behaviour, the parties are likely to enter into a formal treaty with
dispute resolution provisions and monitoring.94 Because the behaviour can be
deterred, of course, no violation will ever take place.
So if the parties could craft a complete agreement, they would prohibit only behaviour
that is harmful and that could be deterred. The agreement would be optimal in
the sense that it would generate as much desirable cooperation as possible without
ever actually imposing the costly sanction.95
States cannot, of course, enter into agreements that provide for every possible contingency,
so we must relax these assumptions. It is clear that states cannot identify
every behaviour that they would like to prevent because they cannot anticipate every
circumstance. Thus, for example, the parties to a trade agreement might wish to permit
the use of safeguard measures when domestic industries are threatened, but it
may be impossible to verify when that is the case.96 The agreement, then, is likely to
permit some safeguard measures the parties would prefer to prohibit and to prohibit
some measures the parties would like to have permitted.
With respect to deterrence, the parties to the agreement will be unable to perfectly
identify behaviour that can or that cannot be deterred. In particular, some conduct
that cannot be deterred will nevertheless be prohibited. Furthermore, to the extent
that the parties use credibility-enhancing devices, such as hard law, dispute resolution,
and monitoring, these devices will increase the reputational sanctions imposed
when conduct that cannot be deterred takes place.
92 See text accompanying note 90.
93 If, e.g., under certain circumstances a state (or its leaders) stands to gain so much by abrogating an environmental
treaty that it will do so even if all available credibility-enhancing devices are in place, then the
higher sanctions brought on by these devices represent a cost to the parties with no offsetting gain.
94 It may be possible to deter the behaviour without using all of the credibility-enhancing devices, in which
case a subset of them may be used. All that matters is that the sanction be high enough to deter the conduct.
95 See Shavell, supra note 86, at 1241–1242.
96 The fact that safeguards are, according to many experts, always or almost always inefficient need not
concern us because what we call the objectives of states are in fact the goals of decision makers within
the states: see supra note 35 and accompanying text.
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In the world of imperfect agreements, then, greater use of costly credibilityenhancing
devices generates two main effects. First, it increases compliance, which
generates benefits for the parties. Second, it leads to the use of costly sanctions when
an obligation is violated – an outcome that imposes losses on the parties. When deciding
whether or not to use credibility-enhancing devices, then, states must consider
this basic trade-off between the benefits of increased compliance and the costs of reputational
sanctions.
For our purposes, the most important implication of this trade-off is that the presence
of costly sanctions discourages the use of credibility-enhancing devices, at least
when compared to the case of costless sanctions, such as money damages. By choosing
a hard law form, for example, the parties to an agreement generate benefits in the
form of increased compliance and costs in the form of imposition of the costly sanction.
If the costs are larger than the benefits, of course, states will resist the hard law
form.
D A Numerical Example
The above discussion is somewhat abstract, so the following numerical example is
provided to illustrate the main argument regarding the choice of design elements. To
keep the example simple, only one design element – dispute resolution procedures – is
considered. The analysis of the other design elements discussed in the paper would be
identical.
Assume that there are two countries, labelled A and B. They face a prisoner’s
dilemma, which they are attempting to resolve through an international agreement.
For concreteness, imagine that the agreement imposes obligations on each party with
respect to domestic environmental policies. The question at hand is whether the
agreement should include a dispute resolution provision.97
Assume that if both parties comply with the terms of the agreement, they each
receive a payoff of 5.98 If one or both of the parties violate the agreement, the payoffs
are affected by the presence or absence of a dispute resolution clause. If there is no
such clause and both parties violate their commitments, they each earn zero. If one
party violates the agreement while the other complies, the complying party faces a
loss of 5, while the party that violates the agreement receives a positive payoff. These
payoffs reflect the fact that the violating party avoids the costs of domestic changes
but may still get the benefit of compliance by its counter-party. The complying party,
on the other hand, makes costly changes to its domestic regime but does not get the
expected benefit of compliance by the other state.
97 For simplicity we assume that the parties are choosing whether or not to include an established set of dispute
resolution provisions. In reality, of course, states may be able to construct any number of different
dispute resolution mechanisms. The example captures this wider set of options if one imagines the states
choosing between any pair of approaches to the question of dispute resolution.
98 The game as presented should be thought of as the present discounted value of a repeated game rather
than a one shot game. This is important because the game must be repeated for cooperation to emerge as
a possibility in the absence of an enforcement mechanism.
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The size of the payoff received by the breaching party is a random variable, labelled
N. The range of possible values of N is such that the agreement will be breached in
some cases, but not in others.99 In the absence of a dispute resolution clause, then, the
game can be represented as follows:
If the states include a dispute resolution clause, a breached-against party can bring
the breaching party before a neutral tribunal which has the authority to declare that
the state is in violation of the agreement.100 The presence of this dispute resolution
procedure increases the likelihood of compliance because a state that loses before the
tribunal suffers a reputational loss.101 The loss comes about because the state that
loses before a tribunal finds it more difficult to establish international agreements in
later periods with either its counter-party in this agreement or third parties.102
Assume that this reputational loss imposes a cost of 2 on a state.
If the parties adopt the dispute resolution clause described above, the game can be
represented as follows:
Finally, assume that the probability of compliance in the absence of a dispute resolution
procedure (which is determined by the variable N) is 50 per cent, and the
addition of such a procedure increases that probability to 60 per cent. Now consider
whether the states prefer to include a dispute resolution mechanism or not when they
negotiate the agreement. If they conclude the agreement without providing for
99 This variable could represent any number of factors exogenous to the discussion, including economic
shocks, domestic political developments, international events, and so on.
100 One could imagine stronger dispute resolution provisions. For example, the tribunal could be authorized
to impose some form of sanction. All that matters for present purposes is that the dispute resolution provisions
work to increase the costs of a violation.
101 See Guzman, supra note 14.
102 Without a dispute resolution clause, it is assumed for simplicity that there is no reputational loss in the
event of a violation. It is straightforward to incorporate a positive reputational loss even in the absence of
a dispute resolution clause.
Cou ntry B
Cooperate Defect
Country A Cooperate (5, 5) (-5, N)
Defect (N, -5) (0, 0)
Coun try B
Cooperate Defect
Country A Cooperate (5, 5) (-5, N-2)
Defect (N-2, -5) (-2, -2)
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I I I I
The Design of International Agreements 601
dispute resolution, they each expect to earn 5 with 50 per cent probability (i.e., if
there is compliance), generating an expected payoff of 2.5.103
If instead they provide for dispute resolution, they expect to earn 5 with 60 per cent
probability and lose 2 with 40 per cent probability, yielding an expected payoff of 2.2.
Thus, even taking into account the increased compliance generated by the dispute
resolution clause, the parties are better off without such a clause. This is so because
when there is a violation, a net cost is imposed on the parties (meaning that one suffers
a loss that is not offset by the other’s gain). In this example, the benefits of
increased compliance are outweighed by that loss.
With a small change in the assumptions, one can generate the opposite result.
Assume that everything remains the same except the dispute resolution clause
increases the probability of compliance to 70 per cent rather than 60 per cent as previously
assumed. In that case, the parties still expect to receive 2.5 if they do not have
dispute resolution, but if they provide for dispute resolution, they can expect to enjoy
a gain of 5 with 70 per cent probability and a loss of 2 with 30 per cent probability,
yielding a net expected gain of 2.9 (5*0.7−2*0.3). With this modified set of assumptions,
a dispute resolution clause is beneficial to the parties.
The intuition behind this result is straightforward. A dispute settlement clause is
attractive because it increases the likelihood of compliance and, therefore, the probability
of the cooperative outcome. As the impact of dispute resolution on compliance increases,
so does the use of dispute resolution clauses. On the other hand, even in the presence of a
dispute resolution clause, breach will sometimes occur. Because the reputational loss is a
net loss to the parties rather than a transfer between them, increasing that loss reduces
the payoff to the parties in those states of the world in which there is a breach.
When negotiating an agreement, therefore, the parties must take into account both
the increase in compliance that is generated by the dispute resolution clause and the
resulting joint loss that occurs when there is a breach. These offsetting effects will lead
them to include dispute resolution provisions in some agreements but not in others.
E Public Choice
The above discussion has proceeded on the assumption that injuries to one state that
take the form of reputational losses or direct sanctions represent a net loss to the parties
– that is, the harm to the violating party is not offset by a gain to the other party.
That assumption may be problematic if a particular form of political economy is at
work in the sanctioning state.
When direct sanctions are applied, it is at least conceivable that the political leaders
applying those sanctions may benefit. Thus, for example, if a government imposes
trade sanctions in retaliation for what is perceived to be a violation of the trade obligations
of another state, this may enhance the political support of the government, despite
the fact that it harms the citizens of the sanctioning state.
103 By assuming that the variable N is the same for both states we ensure that if one violates the agreement
the other one does as well. This assumption is not necessary for the results.
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To the extent sanctions generate benefits to the sanctioning party, their influence
resembles that of transfers. That is, the loss to one party is at least partially offset by
benefits to the other party. Where this is true, the parties have a reduced incentive to
avoid the use of sanctions because they are able to get the compliance benefits of the
sanctions with a lower cost in the event of a violation. If this is the case, the design
elements of interest in this article – hard law, dispute settlement mechanisms, and
monitoring – are less costly to include in the agreement. Notice that if the political
economy works in the way described here, it is even more surprising that credibilityenhancing
devices are not used more often. Once we recognize the relevance of public
choice it is clear that the predictions of the theory104 are sensitive to such issues.
Thus, for example, areas in which political leaders enjoy benefits when they impose a
sanction (trade agreements, perhaps) are more likely to feature credibility-enhancing
devices.
F Substantive Provisions and Weak Agreements
The design elements discussed in this article are procedural or structural aspects of
agreements. The article intentionally limits the discussion to a small number of procedural
issues because their use can be observed directly in an agreement, and because
the observed practice of states seems especially surprising. It is hard to say, a priori,
which substantive obligations one would expect to find in an agreement. The substantive
terms are the product of bargaining between the states and the positions of
the states are the product of a complex domestic political dynamic. On the procedural
side, however, the case for strong and credible agreements is much more compelling.
The same theory, however, could be applied to any aspect of an agreement that
increases the commitment of the parties but imposes a net loss on the parties in the
event of a violation. This includes both other procedural provisions of agreements
and substantive provisions.
Like the elements already discussed, the substance of international agreements
varies widely from one agreement to another. By substance I refer not to the particular
topic or subject matter of an agreement, but rather to what is sometimes called
‘depth’.105 Depth can be defined as ‘the extent to which [an agreement] requires states
to depart from what they would have done in its absence’.106 The notion of depth is
intended to capture the fact that some agreements place a considerable burden on
states and demand significant changes in behaviour, while other agreements do little
more than ‘codify’ what states are already doing.107
There are obviously many other ways in which the substance of an agreement may
vary, but this article restricts itself to a discussion of depth. It might be argued that
the notion of depth is itself unsatisfactory because it requires speculation about a
104 See Section 4.
105 See Downs, Rocke, and Barsoom, ‘Is the Good News about Compliance Good News About Cooperation?’,
50 Int Org (1996) 379, at 383; Raustiala, supra note 9, at 7.
106 See Downs, Rocke, and Barsoom, supra note 107, at 383.
107 See Raustiala, supra note 9, at 7.
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counter-factual set of actions, because it is impossible to quantify, and because a single
agreement may demand large changes in some states and virtually no changes in
others.108 Without resisting any of these critiques, the concept is useful for our purposes,
which are limited to a discussion of the fact that the depth of an agreement
between states may diverge from what the states would choose but for the fact that
sanctions are costly.109
As with the design elements that are the main focus of this article, states are free to
adopt whichever substantive provisions they wish. Under a traditional model of contracting,
one would expect them to select terms that maximize the value of the agreement.
Such terms generate an efficient contract when combined with efficient
penalties in the event of default. Unlike the design elements discussed in the article,
however, there is no simple way to observe the relationship between the chosen terms
of an agreement and the efficient terms.
The theory advanced in this article, however, suggests that states may select substantive
terms that are systematically weaker than those that would maximize the
benefits to the states if a costless (i.e., zero-sum) system of damages were available. To
see why this is so, consider a simple example. Suppose that the United States and
India wish to enter into an agreement that will facilitate the practice of using Indian
residents as telephone support for the US-based customers of American firms. The
American government wants to enter into the agreement to assist its firms in the
computer, airline and other industries that rely heavily on telephones for customer
service. India is interested in the agreement for the obvious reason that it will provide
employment to its residents. Imagine that the states agree on the preferred substantive
terms of the agreement, which deal with the provision of training programmes by
108 E.g., the TRIPs Agreement required substantial changes to the law of intellectual property in many
states, including most developing countries, but was largely consistent with the existing regimes in the
United States and Europe.
109 A clear example of how the theory presented here might impact on the substance of an agreement is the
common use of escape clauses. An escape clause allows the parties to an agreement to suspend their
compliance if certain conditions are satisfied. E.g., Art. XIX of the GATT and the WTO’s Agreement on
Safeguards allow WTO members to suspend their obligation under certain circumstances. Like the
design elements discussed throughout this article, the use of escape clauses is influenced by two offsetting
effects. First, it reduces the level of commitment of the states in a manner analogous to how the
omission of a dispute resolution clause reduces the incentive to comply with the terms of the agreement.
The safeguards do provide that a member implementing a safeguard is to ‘maintain a substantially equivalent
level of concessions’: Agreement on Safeguards, Art. 8(1). This requirement offsets the impact of
the safeguards provisions on the level of commitment, but only partially. The state adopting a safeguard
measure is given the discretion to determine how to maintain the level of concessions, and this discretion
obviously reduces the extent to which the state is constrained in its actions. Secondly, because the
escape clause allows a state to suspend its commitment, it reduces the sanction for doing so in a manner
analogous to the way in which the omission of a dispute resolution clause reduces the sanction for a violation.
When drafting an agreement, then, states must consider both the reduced likelihood of compliance
with the (other) terms of the agreement and the reduction in total loss if there is such non-compliance.
There are, of course, other explanations for the use of escape clauses, and the explanation offered here is
intended to be complementary to these earlier theories: see Sykes, ‘Protectionism as a ‘Safeguard’, 58 U
Chi L Rev (1991) 255; Rosendorff and Milner, ‘The Optimal Design of International Trade Institutions:
Uncertainty and Escape’, 55 Int Org (2001) 829.
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India, access for US companies to recruitment opportunities, a commitment by the
United States to underwrite some of those programmes, and a promise to support and
permit American firms to use Indian phone operators.
Having established the value-maximizing terms, the states could incorporate them
into the agreement, as would be expected if they were private parties negotiating a
contract. The states, however, are concerned about the possibility of future violations.
In particular, the United States is concerned about criticism from domestic constituencies
who would prefer that the jobs be in the United States.
If this were a private contract, the parties would either proceed with the contract
and include the value-maximizing terms or abandon the contract altogether.110 If
they proceeded with the contract, they would rely on an efficient sanctions regime to
ensure that the United States would breach if and only if it were efficient to do so. In
the event of such a breach, India would receive damages in compensation.
Because India and the United States are entering into an international agreement,
however, and because we assume that sanctions are costly,111 they behave differently.
In particular, they must concern themselves with the fact that if the United
States violates its commitment under the agreement, the relevant sanction will not be
a transfer from the US to India. To keep the example simple, assume that the only
sanction will be a reputational one, and that the harm to the US from that sanction
would be more than de minimus. To the other costs and benefits of the agreement,
then, the parties must add the cost borne by the United States in the event that it violates
the agreement. This reduces the total expected value of the agreement. If the
parties choose a weaker set of substantive commitments – perhaps eliminating the
American funding of some training programmes – it is less likely that the United
States will violate its commitment, and less likely that it will suffer the reputational
harm. In drafting the agreement, then, the parties must balance a desire to include
the efficient terms against a desire to avoid the consequences of a violation. This may
lead them to enter into an agreement with weaker substantive terms.
4 Predictions of the Theory
This paper explains that state reluctance to use credibility-enhancing devices is the
consequence of the fact that sanctions for violations of international law are costly.
The theory also generates some predictions about when one would expect more or
less use of these design elements.
A Bilateral v. Multilateral Agreements
The non-zero-sum nature of sanctions in the international arena is a fundamental
difference between international agreements and private contracts, and drives the
110 They would proceed with the contract if its total expected value, taking into account the costs and benefits
incurred by both parties and the risk of a breach, were positive.
111 See supra note 15.
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main results of this paper. When a state violates a commitment it suffers a reputational
loss for which there is little offsetting gain to its counter-party. The reputational
sanction, however, is not a pure loss. Other states get a benefit in the form of
improved information about the reputation of the violating state. The more these
informational benefits are internalized by the parties to the transaction the more
attractive are credibility-enhancing devices.
In many bilateral contexts it is reasonable to ignore these informational benefits
because the bulk of them go to states that are not party to the agreement. The
non-violating state gains only a small fraction of the informational benefits. In a multilateral
agreement, however, more of the informational benefits are captured by parties
to the agreement. This reduces the cost of a credibility-enhancing device in the event of
a violation. In the extreme, a universal organization would capture all of the informational
benefits that result from a violation. In that case it seems likely that the sanctions,
rather than being negative-sum as they are in most bilateral cases, would be
zero-sum or perhaps even positive-sum. The notion here is that the violation allows
states to form a more accurate view of the violating state’s willingness to comply with
commitments, which is valuable. Following a violation, then, states as a group have
better information as they seek cooperative arrangements. Though the effect on the
violating state is negative, it is reasonable to expect that better information yields a net
benefit to all states.112 The ability to capture the informational benefits of a violation
offers an explanation for why agreements with near-universal membership, such as
the WTO, sometimes have a formal treaty structure and dispute resolution.
More generally, the more the parties to an agreement are able to internalize the
informational benefits that flow from a violation, the less costly are credibilityenhancing
devices. Thus, an agreement whose parties have many dealings with one
another and relatively few dealings with non-parties will capture a large share of the
informational benefits. This might explain, for example, why regional agreements
such as NAFTA or some regional human rights agreements (e.g., The Inter-American
Commission of Human Rights) take the form of formal treaties and provide for dispute
resolution.
B High Stakes v. Low Stakes Agreements
The benefits of the use of credibility-enhancing devices are felt in those states of the
world in which there would not be compliance but for these devices. If this set of cases
is larger the incentive to adopt such devices obviously increases. More specifically,
where the compliance decision of states is likely to be influenced by reputational
issues, the use of credibility-enhancing devices is more likely. Where reputation is
unlikely to affect decisions, these devices will be used less often. Put another way,
credibility-enhancing devices are more likely to be used when the marginal impact of
such devices on compliance is larger.
112 See Guzman, supra note 7, at 319–320 (explaining why it is not certain that the net effect will be an
increase in welfare).
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One implication of this relationship between reputation and compliance is that
‘high stakes’ agreements, such as those that concern national security or arms control,
tend not to provide for dispute resolution provisions. Reputation is limited in its
ability to impose costs on states and as the stakes increase, the likelihood that reputation
will tip the balance falls. For very high stakes issues, then, dispute resolution
offers very modest compliance benefits.113
High stakes agreements may use monitoring provisions, but this is explained by the
fact that these provisions do more than simply impose reputational costs in the event
of a violation. They also turn high stakes agreements into low stakes commitments.
Monitoring makes it more likely that a violation will be observed shortly after it
occurs. This reduces the expected benefits from a violation since it reduces the time
period during which its counter-party continues to comply. In this sense, monitoring
can serve to change a high stakes agreement into a low stakes one. Imagine, for
example, an arms control agreement which requires the parties to limit the number
of nuclear missiles they have in their possession. If a monitoring arrangement makes
it impossible to exceed the agreed-upon number by more than a small amount without
being detected, the gains from violation are reduced. A decision to violate the
agreement, then, would offer only modest advantages over a decision to withdraw
from the agreement because the state’s counter-party would observe the violation
before any large-scale violation and would react by demanding compliance or by terminating
its own compliance.
C High Compliance v. Low Compliance
The costs of credibility-enhancing devices are only felt when an international obligation
is violated. It follows that these devices are more attractive, all else being equal,
when the probability of a violation is small. Imagine, for example, an agreement that
the parties recognize is very likely to be violated, even if credibility-enhancing devices
are used. This means that the expected reputational loss is relatively large. For any
given increase in compliance, therefore, the devices are less attractive. Thus, parties
entering an agreement which they expect to yield a high level of compliance are more
likely to find credibility-enhancing devices worthwhile than parties entering into an
agreement where the expected level of compliance is low.
5 Implications of the Theory
The main purpose of this article is to explain why states are reluctant to use credibilityenhancing
tools such as hard law, dispute resolution mechanisms and monitoring.
The explanation provided, however, has implications for a range of questions related
to international agreements. This section highlights of few of these implications. It is
113 High-stakes agreements are frequently, though certainly not always, formal treaties. Though this is contrary
to what the theory suggests, the domestic reasons to prefer a treaty seem likely to offer an explanation.
The desire of the executive branch to bind domestic actors (e.g., Congress) as much as possible
seems a likely explanation of the treaty form.
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neither an exhaustive cataloguing of implications nor a complete discussion of the
ones mentioned.
A The Interpretation of International Agreements
Each of the design elements discussed offers negotiators a tool to modulate the level of
credibility and the probability of compliance, but increased compliance comes at the
cost of a loss to the parties in the event of a violation. Because the design elements all
feature this trade-off they are, to some degree, substitutes. For example, the decision
to include a dispute resolution mechanism may generate compliance incentives that
resemble those of a monitoring system, and one may be chosen over the other
because of their respective impacts if one party violates the agreement.
Recognizing the interdependence of the various aspects of treaty drafting sheds
light on how one should interpret and evaluate international agreements. The simple
lesson for drawing normative judgments about agreements is that one cannot evaluate
or interpret a treaty by looking at a single design element. If interpretation is to be
based on the intent of the parties, it must take into account all aspects of the agreement.
To see this, consider the example of the International Labour Organization
(ILO) Declaration on Fundamental Labour Rights, which imposes a set of international
labour standards.114 The Fundamental Declaration is binding on all member
states of the ILO, and has become a focal point in the discussion of international
labour rights. It is particularly important in the debate about the proper relationship
between trade and labour. Among the arguments in this debate is the claim that
trade sanctions are necessary to enforce the rights laid out in the Fundamental Declaration
because no other effective mechanism exists.
The claim that no other effective enforcement strategy exists is quite possibly correct.
The ILO itself provides no enforcement mechanism beyond some monitoring
procedures,115 and unilateral strategies of enforcement, such as boycotts, military
intervention, diplomatic protests, social labelling, and so on, lack both credibility and
good evidence that they influence state behaviour.116 For present purposes, then,
114 These standards include: freedom of association and the effective recognition of the right to collective
bargaining; the elimination of all forms of forced or compulsory labour; the effective abolition of child
labour; and the elimination of discrimination in respect of employment and occupation: ILO Declaration
on Fundamental Principles and Rights at Work, International Labor Conference, art. 2, 86th Session,
Geneva, June 1998
115 See Alvarez, ‘The New Treaty Makers’, 25 BC Int’l & Comp L Rev (2002) 213, at 222.
116 See Trebilcock, ‘Trade Policy and Labour Standards: Objectives, Instruments and Institutions’ (University
of Toronto Law and Econ. Research Paper No. 02-01, 2002), available at http://papers.ssrn.com/
sol3/delivery.cfm/SSRN_ID307219_code020501530.pdf?abstractid = 307219, at 16–18; Diller, ‘A
Social Conscience in the Global Marketplace? Labour Dimensions of Codes of Conduct, Social Labeling
and Investor Initiatives’, 138 Int’l Labor Rev (1999) 99; Blackett, ‘Global Governance, Legal Pluralism
and the Decentralized State: A Labour Law Critique of Codes of Corporate Conduct’, 8 Ind J Global Legal
Stud (2001) 401; Howse, ‘The World Trade Organization and the Protection of Workers’ Rights’J Small
& Emerging Bus L (1999) 131, at 159–161. Compensation-based strategies involve the making of some
form of payment to states that achieve a positive change in their practices. They are criticized both
because they involve the dubious practice of compensating states that have tolerated the worst labour
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assume that trade is the only available tool and that threats of trade sanctions are, in
fact, effective.117
The question for trade and labour, then, is whether states should be permitted to
impose trade sanctions on states that violate the ILO Declaration.118 This is, of course,
a complex question and a full discussion is beyond the scope of this article.119 For this
discussion it is only necessary to consider whether the absence of effective enforcement
other than trade advances the case for such trade sanctions. The lesson from
this article is that, far from supporting a claim for trade sanctions, the ILO’s failure to
adopt enforcement procedures or other sanctions should be viewed as evidence
against them. Though states agreed to the substantive provisions of the Fundamental
Declaration, they only did so within the context of the Declaration, the ILO and the
associated enforcement mechanisms. The fact that the agreement does not feature
practices, and because they generate perverse incentives. Compensation for improvement that is not
accompanied by a scheme for penalizing a deterioration in those same standards generates an incentive
for states to lower their standards so they can subsequently be improved and the state can capture the
payment: Chang, ‘Trade Measures to Protect the Global Environment’, 83 Geo LJ (1995) 2131. The effectiveness
of social labelling – the placing of a label on products that are produced by workers able to exercise
their core labour rights – is also subject to significant limitations. The primary weakness of labelling is
the voluntary nature of compliance and the lack of enforcement mechanisms: see Bloomfield,
‘ “Sweating” the International Garment Industry: A Critique of the Presidential Task Force’s Workplace
Codes of Conduct and Monitoring System’, 22 Hastings Int’l & Comp L Rev (1999) 567 (discussing more
generally problems of enforcement and monitoring in voluntary codes of conduct for multilateral corporations);
Groos, ‘International Trade and Development: Exploring the Impact of Fair Trade Organizations
in the Global Economy and the Law’, 34 Texas Int’l LJ. (1998) 379, at 408 (‘WTO rules mandate that
goods cannot be subject to statutory labeling requirements or differentiated on the basis of how they are
produced’). To the extent enforcement stems from consumer preferences, social labelling also suffers from
a collective action problem. The individual consumer has an incentive to purchase lower priced goods
produced under poor labour conditions, relying on other consumers to bear the cost of the higher priced
goods produced under core labour standards: see Trebilcock, supra this note; Van Wezel, ‘To the Yukon
and Beyond: Local Laborers in a Global Market’, 3 J Small & Emerging Bus L (1999) 93; Garg, ‘Child Labor
Social Clause: Analysis and Proposal for Action’, 31 NYU J Int’l L & Pol (1999)_473, at 504–505.
117 There is serious debate about whether trade sanctions are an effective tool to influence labour policies.
The most important empirical evidence on the question is in G. C. Hufbauer et al., Economic Sanctions
Reconsidered: History and Current Policy (2nd edn., 1990).
118 It is assumed that the WTO does not already provide an exception of this sort. This is the dominant view,
but it is challenged by some scholars: see Howse and Mutua, ‘Protecting Human Rights in a Global Economy’
(20 February 2002), available at http://www.ichrdd.ca/english/commdoc/publications/globalization/
wtoRightsGlob.html; Howse, supra note 116.
119 I have expressed my views on the subject elsewhere: see Guzman, ‘Trade, Labor, Legitimacy’, 91 Calif L
Rev (2003) 885. The key articles in the trade and labour literature include Sykes, ‘International Trade
and Human Rights: An Economic Perspective’, University of Chicago Law and Economics Working Paper
No. 188 (2003), available at www.law.uchicago.edu/Lawecon/WkngPprs_176-200/188.aos.humanrights,
pdf; Trebilcock, ‘Trade Policy and Labour Standards: objectives, Instruments and Institutions’,
University of Toronto Law and Economics Research Paper No. 02-01 (December 2001), available at http:/
/ssrn.com/abstract = 307219; Charnovitz, ‘The Influence of International Labor Standards on the World
Trading System: An Historical Overview’, 126 Int’l Labor Rev (1987) 565; Howse and Mutua, supra note
118; Leary, ‘Workers’ Rights and International Trade: The Social Clause (GATT, ILO, NAFTA, US laws)’, in
J. Bhagwati and R. Hudec (eds.), Fair Trade and Harmonization (1996), ii, at 177; Langille, ‘Eight Ways to
Think About International Labour Standards’, 31 J. World Trade (1997) 27; Howse, supra note 117.
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dispute resolution procedures and sanctions should be viewed as an intentional
choice made by the parties; not as an unfortunate oversight that can be corrected by
subjecting the Fundamental Declaration’s substantive rules to the WTO’s dispute
settlement process.120 There is simply no reason to infer from the existence of the Fundamental
Declaration that states consented to comply with its provisions in any
environment except the one established by the ILO. In particular, there is no evidence
that they would have consented to the substantive provisions if they faced trade sanctions
in the event of a violation or if their behaviour was subject to dispute resolution
procedures.
The general lesson, then, is that states enter into agreements, including the enforcement
mechanisms, intentionally and attempt to draft those agreements in such a way
as to maximize their value. If enforcement mechanisms were omitted it should be
presumed that this was done because the states did not feel the compliance benefits of
those mechanisms were large enough to justify the costs that would be imposed in the
event of a violation.
B Damages and International Law
The basic puzzle of why states do not increase the credibility of their commitments
has been explained in this article by the fact that in the event of a violation the parties
to an agreement suffer a net loss rather than simply a transfer from one party to the
other. As a result, states may fail to enter into what would be value-maximizing
agreements if zero-sum transfers were available.
In other words, if it were possible to eliminate the loss to the parties that results from a
violation and, instead, have damages take the form of a zero-sum transfer from one party
to the other, more efficient forms of cooperation would be possible. Even though reputational
and direct sanctions would not be eliminated, the presence of transfers would
reduce their importance by increasing the credibility of and compliance with international
agreements without adding to the disincentive that the former sanctions generate.
The ideal form of damages would, of course, be money damages. These represent
pure transfers from one state to the other, can be made in any amount, and
payment is easily verifiable. Despite these advantages, states appear reluctant to
call for the use of money damages in their agreements. I do not have a complete
explanation for why they are so resistant,121 and am aware of no compelling
120 See ILO Declaration on Fundamental Principles and Rights at Work, 18 June 1998, 37 ILM (1998)
1233.
121 I offer here two possible reasons why money damages may be unpopular. These are merely suggestive. I
am not confident that either is an important part of the explanation for the resistance to money damages.
First, states may avoid money damages because they serve as an ineffective incentive device for
states. Because damages could be paid out of general revenues, the political costs of having to pay a fine
may be small. Second, it may be that there are significant political costs to paying an award mandated by
an international body. Indeed, there may even be political costs to receiving such an award. Imagine,
e.g., an agreement between two states regarding environmental issues. There may be political resistance
to the notion that one’s counter-party can violate and simply pay damages. Accepting the award as full
compensation may, therefore, be politically costly for government.
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theory on the subject, but the observed resistance to money damages cannot be
ignored.122
Despite this resistance, however, there are at least some instances where states
have accepted the use of money damages, suggesting that they might be encouraged
to do so more often. Bilateral investment treaties (BIT), for example, typically provide
for the payment of money damages from states to private parties whose investments
have been expropriated.123 Similarly, some human rights agreements include dispute
resolution and a requirement of compensation to the victims of human rights
abuses.124 Within the EU the Court of Justice has the authority, under certain circumstances,
to impose a monetary penalty on a Member State.125 Given the benefits of
money damages, states should consider adopting at least some form of monetary
sanction for other violations. The easiest to imagine are those with relatively direct
financial effects such as injury resulting from violations of trade obligations. In at
least some cases – think, for example, of an illegal anti-dumping measure – the harm
is almost purely economic and could be estimated with reasonable accuracy. In at
least these cases, the use of money damages may be palatable because the harm is
closely tied to economic harms.
C The Role of Soft Law
This article advances a new explanation for why states choose soft law when they
could choose to make their commitments through treaties. The merit of a treaty is
that it provides a relatively high level of commitment – allowing a state to rely on the
promises made by its treaty partner. In other words, the commitment is more credible.
The credibility provided by a treaty, however, comes at a price in the form of a
higher cost associated with breach. When deciding between a treaty and other forms
of commitment, then, the parties take that loss into account.
There is considerable confusion and ambiguity in how international law views soft
law. This is, in part, due to the fact that commentators have tried to reconcile soft law
with classical definitions of international law, which do not mention this form of
agreement. This doctrinal approach is awkward because it implies that soft law is not
law at all, leaving little room for discussion among legal scholars. A more promising
approach starts with the question of how international agreements of all kinds affect
the incentives and behaviour of states. In this sense, we begin with an eye toward
compliance issues.126 Although one can find discussions of compliance in both the
122 See Bhagwati, ‘After Seattle: Free Trade and the WTO’, 77 Int Aff (2001) 15.
123 Guzman, supra note 85; Vandevelde, supra note 26.
124 See, e.g., International Covenant on Economic, Social and Cultural Rights (ICESCR), Art. 9(5)
(‘Anyone who has been the victim of unlawful arrest or detention shall have an enforceable right to
compensation.’).
125 See Treaty Establishing the European Community, Art. 228(2).
126 I have written on compliance issues in the past: see Guzman, supra note 14.
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legal and international relations literature,127 I are unaware of any well-developed
attempt to address soft law in this way.128
The discussion in this article suggests that soft law is simply another form of legal
promise. Like a decision to exclude dispute resolution provisions, soft law represents
a choice by the parties to enter into a weaker form of commitment. Just as the
absence of dispute resolution does not imply that an agreement is not ‘law’, the
decision to use soft law should not exclude the agreement from study or somehow
render it less relevant.
Rather than focus on doctrinal questions of what is soft or hard law, scholars
should recognize that states draft their agreements to lie at a particular point on a
spectrum of credibility and effectiveness. In doing so, they are trading off the credibility
of their commitments against the cost of a violation. Ultimately, then, the study of
international law should treat soft law in much the same way as it should treat treaties
– as a device that promotes international cooperation. The differences between
treaties and soft law – for example, the significant differences in their domestic effect –
should be taken into account, but both should be considered legal commitments with
the potential to affect behaviour.
In addition, soft law should not be viewed as a ‘second-best’ outcome.129 The fact
that states have reached an agreement does not imply that it in some sense should be a
treaty. States may prefer to enter into soft law agreements as a way of maximizing
their joint benefits, and there is no a priori reason why this should be viewed as a less
desirable form of cooperation.
D Drafting Agreements
This article explains why states enter into agreements that contain quite limited
enforcement mechanisms. This need not mean that they are disingenuous about the
commitments being made. It may instead mean that they are reluctant to accept the
joint loss that would be triggered by a violation. This point has implications for the
way in which we view agreements and the ways in which agreements should be
structured. The importance of using damages or some other sort of transfer has
already been discussed, and, as pointed out, a system of damages would go a long
way toward overcoming state resistance to more credible or binding commitments.
If damages are not available, however, other strategies must be considered. One
lesson from this article is that states should not be discouraged from entering into
agreements that appear weak and fail to make use of available design elements to
127 See L. Henkin, How Nations Behave (1979), at 46–48; Chayes and Chayes, ‘On Compliance’, 47 Int Org
(1993) 175, at 176; T. M. Franck, Fairness in International Law and Institutions (1995); Koh, supra note
10; Raustiala and Slaughter, supra note 34; Keohane, supra note 34, at 25.
128 See Ratner, ‘Does International Law Matter in Preventing Ethnic Conflict?’, 32 NYU J Int’l L & Pol
(2000) 591, at 654. But see E.B. Weiss (ed.), International Compliance with Nonbinding Accords (1997);
Shelton (ed.), supra note 19 (analysing ‘soft law’ in environment and natural resources, trade and finance,
human rights, and multilateral arms control).
129 See Schacter, ‘The Twilight Existence of Nonbinding International Agreements’, 71 Am J Int’l L (1977)
296, at 304 (‘non-binding agreements may be attainable when binding treaties are not’).
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increase the incentives toward compliance. It is possible that such agreements represent
the highest value form of cooperation for the states involved, and it should therefore
be pursued.130
6 Conclusion
International agreements are at the foundation of international cooperation and
international law. Yet we have no more than a crude understanding of why states
structure agreements as they do. This article explains why states are not more
enthusiastic about including credibility-enhancing devices in their agreements. The
paper has explicitly addressed the choice of soft versus hard law, the inclusion or
exclusion of dispute settlement, and the provision or omission of monitoring mechanisms,
but the same reasoning could apply to any credibility-enhancing strategy
that improves the probability of compliance but also increases the joint loss in the
event of a violation.
The insight of this article represents only a small piece of the larger set of questions
such as: Why do states behave the way they do? How do international agreements
affect behaviour? When will international law succeed and when will it fail to constrain
states? Which institutional strategies might be used to increase the power of
international law? Though much more work remains to be done on all of these questions,
this article has lessons for the way in which we view agreements. It is clear, for
example, that the commitments made by a state in an international agreement
should be viewed as a single undertaking that includes not only the substantive commitments,
but also the procedural elements of the agreement. It is also apparent that
mechanisms to allow for zero-sum sanctions in the event of a violation should be
investigated and pursued. This article mentions the advantages of money damages,
but other forms of sanction may exist that would increase the credibility of commitments
without reducing the total benefits of the agreement in the event of a violation.
More generally, further research is called for on a wide range of questions that relate
to international agreements and the ways in which states make commitments. These
are fundamental questions for international law whose answers will greatly increase
our understanding of the discipline.
130 The major caveat to this conclusion relates to the public choice issues that are always present in international
relations. Depending on one’s public choice assumptions, it may be unwise to give negotiators the
ability to enter into agreements that do not include rigorous obligations and enforcement strategies. E.g.,
if one believes that those who negotiate agreements have a strong incentive to achieve some concrete
agreement, even when the substantive impact of the agreement is virtually nil, then it may be desirable
to impose discipline on negotiators by forcing them to choose between truly effective agreements and no
agreement at all: see, e.g., Stephan, ‘The Political Economy of Choice of Law’, 90 Geo LJ (2002) 957, at
961 (‘[T]he people who negotiate international agreements, as well as the people who serve the institutions
that promote these negotiations, have powerful incentives to achieve some kind of agreement
regardless of substantive outcome.’).
Annex 99
United Nations A/72/869–S/2018/453
General Assembly
Security Council
Distr.: General
22 May 2018
Original: English
18-08213 (E) 240518
*1808213*
General Assembly
Seventy-second session
Agenda item 65
Peacebuilding and sustaining peace
Security Council
Seventy-third year
Letter dated 11 May 2018 from the Permanent Representative of
the Islamic Republic of Iran to the United Nations addressed to
the Secretary-General
I have the honour to enclose herewith a letter dated 10 May 2018 from the
Minister for Foreign Affairs of the Islamic Republic of Iran, M. Javad Zarif, regarding
the unilateral and unlawful decision of the United States to withdraw fro m the Joint
Comprehensive Plan of Action (see annex).
I should be grateful if you would have the present letter and its annex circulated
as a document of the General Assembly, under agenda item 65, and of the Security
Council.
(Signed) Gholamali Khoshroo
Permanent Representative of the Islamic Republic of Iran
Annex 100
.• •.
Please recycle@ -~~";:,~
A/72/869
S/2018/453
2/5 18-08213
Annex to the letter dated 11 May 2018 from the Permanent
Representative of the Islamic Republic of Iran to the
United Nations addressed to the Secretary-General
As you are aware, on 8 May 2018, the President of the United States announced
his unilateral and unlawful decision to withdraw from the Joint Comprehensive Plan
of Action (JCPOA), in material breach of Security Council resolution 2231 (2015), to
which the JCPOA is annexed. Simultaneously, he signed a presidential memorandum
instructing relevant US authorities “to cease the participation of the United States in
the JCPOA” and “to reimpose all United States sanctions lifted or waived in
connection with the JCPOA”, thus committing multiple cases of “significant
non-performance” with the JCPOA, and in clear non-compliance with Security
Council resolution 2231 (2015). These acts constitute a complete disregard for
international law and the Charter of the United Nations, undermine the principle of
the peaceful settlement of disputes, endanger multilateralism and its institutions,
indicate a regress to the failed and disastrous era of unilateralism, and encourage
intransigence and illegality.
Unlike the Islamic Republic of Iran, which has scrupulously fulfilled its
undertakings under the JCPOA, as repeatedly and consistently verified by the
International Atomic Energy Agency (IAEA), the United States has consistently
failed — since “implementation day”, and particularly after the assumption of office
by President Trump — to abide by its commitments under the JCPOA. I have brought
the most significant cases of US non-performance to the attention of the Joint
Commission, inter alia, through 12 official letters to the High Representative of the
European Union for Foreign Affairs and Security Policy, in her capacity as
Coordinator of the JCPOA Joint Commission.
In my letter of 2 September 2016, I registered Iran’s complaints about US
failures to perform its obligations eight months after “implementation day” by not
issuing the necessary licences for the sale or lease of passenger aircraft, by hindering
Iran’s free access to its assets abroad, by obstructing re-engagement of the
non-American banking and financial community with Iran and by the reintroduction
of certain sanctions under Executive Order 13645, which was supposed to be
terminated in its totality. That letter also referred to the failure of the US President to
use his constitutional authority to prevent “the US Visa Waiver Program Improvement
and Terrorist Travel Prevention Act of 2015” from violating US obligations under the
JCPOA.
In my letter of 17 November 2016, I underlined the necessity of the use of the
US President’s constitutional authority to prevent the coming into force of the “Iran
Sanctions Extension Act”, which constituted the reimposition of the sanctions lifted
under the JCPOA, which is clearly prohibited by the JCPOA. The same letter
underlined that “Iran has hitherto exercised enormous restraint in the face of
lackluster implementation of JCPOA by some participants, in particular the United
States, especially with regard to banking and financial services as well as persistent
public and private harassment of Iran’s business partners by various US institutions,
agencies and instrumentalities.”
Subsequently, in my letter of 16 December 2016, I informed the JCPOA Joint
Commission that, as a result of the extension of the “Iran Sanctions Act” (ISA) on
14 December 2016, “the United States committed a significant breach of its
obligations under the JCPOA by reintroducing the sanctions under ISA. ”
In my letter of 28 March 2017, I protested to the Joint Commission that, “Since
the assumption of office by the new US administration, what used to be ‘lackluster’
implementation of the JCPOA by the previous administration has now turned into
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total and open hostility towards the deal, threatening to render the entire bargain
meaningless, unbalanced and unsustainable.” The letter underlined that the Trump
administration had “maliciously intended to prevent normalization of trade with Iran
and to deprive Iran from the economic dividends clearly envisaged in the JCPOA, by
ensuring continued — and even exacerbated — uncertainty about the future of
economic relations and cooperation with Iran”, inter alia, through the illegal “review
process” and by “the pattern of provocative statements against the JCPOA by senior
US administration officials”.
In my letter of 28 May 2017, I brought several instances to the attention of the
Joint Commission illustrating that, even when the United States purported to comply
by renewing the required waivers, “it aimed to reverse Iran’s benefit from the
JCPOA … and to ‘call into question the US’s long-term support for the nuclear
accord’ in order to increase uncertainty and dissuade engagement with Iran”.
In my letter of 19 July 2017, I produced conclusive evidence which corroborated
that the United States was following a systematic policy aimed at dissuading Iran’s
economic partners from engaging with Iran in clear contradiction of US commitments
under the JCPOA, in particular paragraphs 28 and 29. In this respect, I referred to an
official statement by the White House Principal Deputy Press Secretary in which she
officially acknowledged through a ‘public statement’ that President Trump, “in his
discussions with more than half a dozen foreign leaders … underscored the need …
to stop doing business with … Iran”.
In my letter of 13 August 2017, I warned the Joint Commission that the United
States was destroying the ‘atmosphere’ needed for the ‘successful implementation’ of
the JCPOA in an exhibition of bad faith. Specifically, I referred to President Trump ’s
rhetoric and his administration’s distortions — in blatant violation of the letter, spirit
and intent of the JCPOA — in order to allege non-compliance by Iran in spite of
repeated verifications by the IAEA.
In my letter of 19 August 2017, I provided one example of how the United States
sought to affect the professional work of the IAEA. While objecting to the US
Permanent Representative’s travel to Vienna “to discuss the US Government’s
concerns about the Iran nuclear deal with the International Atomic Energy Agency ”
and to “press IAEA on Iran deal compliance”, I insisted that the publicly stated
purpose of such visits raises several serious concerns over further violations of the
letter and spirit of the JCPOA and Security Council resolution 2231 (2015), which
could also undermine the credibility of the Agency — vital to the non-proliferation
regime in general, and the JCPOA in particular.
In my letter of 18 September 2017, I informed the Joint Commission that the
United States Government was manufacturing fabricated excuses either to get out of
the JCPOA outright or to make it impossible and irrational for Iran to continue its
good faith, patient and scrupulous adherence with the agreement. Several facts at that
time were indicating that the US was concocting “decertification” of Iran’s
compliance, in spite of all IAEA reports and US State Department repeated
admissions. I underlined in that letter that the US administration cannot hide behind
such domestic procedure that it is maliciously initiating itself, and will have to bear
full responsibility for the aftermath in Congress. I indicated that, “while the Islamic
Republic of Iran has a clear preference for the survival and continued scrupulous
implementation of the JCPOA, and while it has proven its good faith and exercised
maximum restraint in the face of continued and persistent US violations and
intransigence, the renowned patience of Iranian people is not limitless, and the
options of the Iranian Government are not limited”.
In my letter of 16 October 2017, referring to the unlawful decertification within
a US domestic procedure on 13 October 2017, I underscored that the United States
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was actively seeking to deprive Iran of enjoying the benefits of American sanction -
lifting obligations under the JCPOA. As such, they constituted a grave breach of the
very letter and substance of paragraphs 26, 28 and 29 of the JCPOA. In the same
letter, I reiterated that the Islamic Republic of Iran will never accept illegal demands
and expects other JCPOA participants to do likewise.
In my letter of 1 February 2018, I officially objected to the ultimatum by
President Trump on 12 January 2018, demanding that other JCPOA participants
follow him in unlawfully altering the terms of the agreement. I urged other JCPOA
participants to remain cognizant of their shared responsibility to safeguard the
agreement by holding the United States accountable for its reckless and unlawful
actions, and refraining from any statement or action that may be interpreted as
conceding or acquiescing to US attempts to alter, amend or otherwise undermine the
JCPOA.
In my letter dated today, I specified measures that need to be taken through the
Joint Commission to address the wrongful acts by the United States against Iran and
international law, including its unlawful withdrawal from the accord and the
reimposition of sanctions.
As you have seen from these correspondences, the United States had been
persistently violating the terms of the agreement almost from its inception, eve n
preventing other JCPOA participants from fully performing their obligations. Those
violations included systematic failures, late, lackluster, defective, superficial and
ineffective nominal implementation, undue delays, new sanctions and designations,
derogatory anti-JCPOA statements by senior officials — in particular the President
himself — refusal to issue any Office of Foreign Assets Control licences in the past
16 months, as well as concerted efforts by the US Government’s agencies and
instrumentalities to actively dissuade businesses from engagement with Iran.
The unlawful US act of unwarranted withdrawal from the JCPOA renders it
responsible for the most blatant material breach of its obligations under the
agreement. The US has also flagrantly violated Security Council resolution 2231
(2015), which was sponsored, inter alia, by the United States itself and adopted
unanimously by the Council. The United States must, therefore, be held accountable
for the consequences of its reckless and wrongful act, which flies in the face of the
United Nations Charter and international law.
The prolonged and multiple cases of significant non-performance by the US
over the last three years — particularly in the last 16 months — its active obstruction
of performance by other JCPOA participants, its bad faith nominal implementation,
and its unlawful and unwarranted cessation of implementation of its commitments
under the JCPOA and the official reimposition of unlawful sanctions have caused
irreparable harm to Iran and its international business relations. The United States
should be held responsible for these damages, and the Iranian nation must be
compensated.
The JCPOA is a multi-party agreement based on reciprocity. Its scope,
provisions and time frames are based on a delicate, negotiated and multilaterally
accepted balance that cannot be widened, altered or renegotiated. Its benefits to the
Iranian people cannot be subjected to any conditionality other than those nu clearrelated
voluntary measures specifically stipulated solely in the JCPOA and its
annexes. Some of the most significant economic benefits to Iran from the JCPOA
derive from the sanctions-lifting obligation of the United States. If the JCPOA is to
survive, the remaining JCPOA participants and the international community need to
fully ensure that Iran is compensated unconditionally through appropriate national,
regional and global measures.
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The Islamic Republic of Iran has been in full compliance with its commitments
under the JCPOA. This fact has been repeatedly verified by the IAEA, as reflected in
its Director-General’s reports to the IAEA Board of Governors and the United Nations
Security Council since “implementation day” in January of 2016. In line with Iran’s
commitment to legality and the peaceful resolution of international disputes, the
Islamic Republic of Iran has decided to resort to the JCPOA mechanism in good faith
to find solutions in order to rectify the United States’ multiple cases of significant
non-performance and its unlawful withdrawal, and to determine whether and how the
remaining JCPOA participants and other economic partners can ensure the full
benefits that the Iranian people are entitled to derive from this global diplomatic
achievement. If, after the exhaustion of available remedies, our people ’s rights and
benefits are not fully compensated, it is Iran’s unquestionable right — recognized
also under the JCPOA and Security Council resolution 2231 (2015) — to take
appropriate action in response to persistent, numerous unlawful acts by the US,
particularly its withdrawal and reimposition of all sanctions.
I urge the United Nations to keep the United States accountable for its unilateral
and irresponsible conduct, which will detrimentally affect the rule of law,
multilateralism and the very foundations of diplomacy.
(Signed) M. Javad Zarif
Annex 100
In the name of God, the Compassionate, the Merciful
His Excellency x, Jmplng. honorable President of the People's Republic of China
His Excellency Emmanuel Macron, honorable President of the French Republic
Her Excellency Angela Merkel, honorable Chancellor of Germany
His Excellency Vladimir Putin, honorable President of the Russian Federation
Her Excellency Theresa M.iy, honor.iblc Prime Minister of the United Kingdom
Excellency,
8 May 2019
It 1s now a year since the United States announced its withdrawal from the JCPOA. Today,
not only has it re-imposed all of its unlawful and unilateral nuclear sanctions, it 1s officially and
publicly pursuing the pohcy of 'maximum pressure' and 'zero oil sales' for Iran. The US withdrawal
from the JCPOA constitutes a clear violation of UNSCR 2231, ard 1s an aff·ont to the •.viii of the
international community. Yet unfortunately lt did not receive the appropriate and required reaction
by the Security Council, or the remaining participants of the JCPOA.
This action by the United States has rendered a significant part of the JCPOA ineffective, and
substantially destroyed the balance between the gives-and-takes in the accord, which were attained
after almost twelve years of complicated and difficult negotiations. After the US withdrawal, and
upon your request, I offered a window of a few weeks ror the remaining JCPOA participants to
compensate for the e fects and consequences of the U.S. withdrawal and to restore the lost balance
to tne accord The 'few weeks' window was extendec upon your reques:, and now has reached a full
ye;;r.
During this time, the lsla·-,ic Republic of Iran invoked the mechanism env sioned in
Paragraph 36 of the JCPOA, and the Joint Commission of the JCPOA met twice at the level of political
directors and twice at the ministerial level. In these meetings, the remaining JCPOA participants
exphc1tly acknowledged that the lifting of sanctions-and the economic divioends aris'ng from it for
Iran-constitutes an essential part of the JCPOA. The foreign ministers of your countries committed
to design "practical solutions" aimed at normalizing and even enhancing economic cooperation with
l•an, including tnrough establishing effective banking channeb, continuation in the export of oil, gas
and petrochemical products, continuation of cooperation in transportation, export credits. support
for economic actors Involved in trade, financial and investr1ent cooperation with Iran (and
protecting ther1 against the U.S.' extraterritorial sanctions), and encouraging further investment 1n
Iran.
But, unfortunately, apart fro issuing numerous poli,ical statements, no operational
mechanism to counter U.S. sanctions and to compensate for themhave been ptJt In place. In the
meantime, almost all foreign economic intcrcsts-includingall from European JCPOA participantshave
leh Iran; foreign contracts and agreements-even w th e,tities from JCPOA participants-have
1
Annex 101
f
m
been annulled, transportation and shipping have been disrupted, Iranian flights to the territories of
most of the JCPOA participants have been stopped or limited, and flights to Iran are mostly
cancelled. Fu(thermore, banking relations are almost entire l y blocked, and Iran's oil export has
decreased significantly. After a year, no prospect has been presented for Iran's ben efit from the
dividends of sanctions lifting. After a year, even the European special financial channel, INSTEX,
which is merely one of more than ten commitments undertaken by the foreign ministers, has not
been operationalized and there is not much hope m Its efficacy in ensuring financial transactions
between Iran and other countries.
As you are aware, on 4 May 2019, the government of the Un ited States hit t'he JCPOA with
yet another strike and refrained from extending Its arbitrary exemptions for even the continuation
of some of the nuclear projects enshrined in the JCPOA, making it impossible for Iran to sell or
exchange its enric.hed uranium and heavy water. This manifests that the clear policy of the United
States is co directly prevent the Implementation of the JCPOA, and undoub tedly all consequences
will be solely borne that government.
Excellency;
During the past one year, with exceptional self-restraint, the Islamic Republic of Iran created
many opportunities and possibilities for diplomacy, b ut unfortun ately no good use of these
opportunities was made. In my letter dated 6 June 2018, I made it clear to some of y ou that "there
shall be no doubt that concurrent c ontinuation of the JCPOA and sanctions is impos sible." Also,
stating that "for the time-being'' Iran's actions will remain in the framework of the JCPOA, I warned
that "the next step which will not be too far away, is to cease performing Iran's co mmitments in
whole o· in part, which is among Iran's rights under paragraph 36 of the JCPOA."
Now, after elapse of a year, the Islamic Republic of Iran, considers "ceasing performing some
of its commitments under the JCPOA" inevitable-in order to preserve the JCPOA by restoring its
balance. Therefore, I v:ould like to bring the following to your attention:
1. In response to the US withdrawal from the JCPOA and the re-imposition of its unlawful
sanctions, the Islamic Republic of Iran, in accordance with its rights under paragraph s 2n ;ind
36 of the JCPOA, will "cease performing its commitments under the JCPOA in part". Details
will be notified by the Foreign Minisrer to the distinguished coordinator of the JCPOA. 2. If mechanisms related to meeting Iran's rightful demands are operationalized within 60 days
-particularly if the level of Iran's oil exports return to the level existing in April 2018 and the
undisturbed return of its revenues is guaranteed-the ab ove-mentioned decision will be
reversed. Otherwise, in line with paragraphs 26 and 36 of the JCPOA, the Islamic Republrc of
Iran will further reduce its voluntary measures and will continue this trend In the next
stages.
3. The Islamic Republic of Iran stands ready, at any time, to resum e implementing irs volunt;iry
commitments if, and to the same extent as, its rightful demands from the JCPO.A are met.
4. If, sixty days from now, the project of Modernization of Arak Heavy Water Reactor is not
returned to its completion process based on the agreed upon time-table, the Islamic
Republic of Iran will abandon the joint project of completing this reactor and will rewrn to
the original design, the knowfedge and technology of which are available to Iran.
2
Annex 101
..
..
•• .. .
t
•
~
~ . .._ . ~
.
My country has so far been v1g1lant in maintaining the JCPOA as a valuable achievement of
diplomacy, and to this end has endeavored unilaterally to preserve 1t against the destructive
attempts of the Unlted States. You are well aware that despite being deprived of the dividends of
sancuons lifting, the Islamic Repuolic o lriin h.is been fully compliant with all its comm,trnents in the
JCPOA, as certified by now fourteen consecutive reports of the IAEA.The above-mentioned measures
have only been adopted after one year since the unla..,vful withdrawal by the U.S., and are solely
meant to restore balance in the implementation of the JCPOA. But If Iran, under whatever pretext, is
subjected to any r esolution of the Security Council, not only will the process of implementation of
the JCPOA come to .:in absolute end, but Iran will also trigger the process of withdrawing from the
NPT, in accordance with paragraph 1 of Article X therein.
We stand ready to continue our consultations with the remaining JCPOA participants at all
levels.
Excell ency;
I would like to take this opportunity to bring another issue to your .:ittention. During past
four decades, the Islamic Republic of Iran has been hosting millions of immigrants and refugees from
Afghanistan, and as its humanitarian responslbllity has shovm them excellent hospitality. Nov", near
three rn Ilion Afghans live in Iran and enjoy all the advantages of Iranian nationals, including health
and education. Considering costs such as Job opportunity removal, education, outflow of foreign
currency, and using subs101es by the government for food. medicine, health and fuel, municipal
services and transportation, the annual cost of Afghan nationals residing in Iran 1s estimated to be
around eight oillion Euros annually. On the other nand, for the past several decades, the Islamic
Republic of Jr;in has been fighting a difficult and unremitting fight against narcotics produced in
Afghanistan and trafficked through Iran to other dest nations, especia ly to Europe, by international
drug traffickers. This fight has taken a heavy human and financial toll on lJS; more than 4000
members o' our law enforcement forces and our border patrol have lost their lives, and annually an
amount of more than 150 million Euros Is being scent. Un'ortunatcly, US sanctions have resulted 1n
a cons derable decrease 1n our financial resources, and therefore the government 1s obliged to limit
both these expenses and expenses ansing from other international serv ces.
It 1s evident that full resoonsibilitY for all consequences of the current s1tuat1on hes fully on
the shoulders of the U.S. government.
Best qeg.:>rds,
Hassan ROUHANI
3
Annex 101
Annex 102
I '
Annex 102
I •
Annex 102
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Today we announce a strategic decision/ JCPOA
either win-win or lose-lose; we won’t let US turn
it into win-lose/ Today not end of JCPOA but the
day of new step in its implementation/ JCPOA
beneficial to region, world, detrimental to Iran’s
enemies/ American hardliners, Zionism, regional
reactionaries anti-JCPOA, anti-Iran
President described the Joint Comprehensive Plan of Action
(JCPOA) beneficial to the region and the world and detrimental
to the enemies of Iran, stressing, “American hardliners, Zionism and regional reactionaries have been
-and are- anti-JCPOA and anti-Iran”.
Wed 08 - May 2019 - 10:02
Speaking in a cabinet session on Wednesday, Dr Hassan Rouhani
said, “After the Joint Comprehensive Plan of Action (JCPOA), the
people of Iran took to the ballot box and announced with their 24
million votes that they favour moderation, prudence and
constructive interaction with the world”.
Stressing that the enemies of the Iranian nation have been against
the JCPOA since the beginning, he said, “American hardliners,
Zionism and regional reactionaries have been -and are- anti-JCPOA
and anti-Iran”.
“Anyone can have criticisms towards anything, and this is the right
of people, but animosity towards the JCPOA is –and has beenparticular
to Zionists, regional reactionaries and American
hardliners,” he said.
The President also said, “The JCPOA is beneficial to the region and
the entire world, and detrimental to the enemies of Iran, and this is
why they have put all their efforts on destroying and wrecking down
this glorious structure since 2015”.
“After the new US administration took office, which was the result of
an unconventional, unusual situation in this country, the
administration did not live up to its commitments made to the voters
regarding its slogan of peace and withdrawing forces from the
region,” said Rouhani.
JCPOA’s enemies are
the same enemies to
Iran and our people
Trump’s goal was to
provoke Iran to exit
JCPOA immediately
It was Iran’s skill and
wisdom that we didn’t
play in his field
We have given
deadlines to JCPOA
member states several
times
Enjoying rights
proportionate to
commitments is an
obvious principle
We are announcing the
reduction of our
commitments, not
withdrawal from it
Today, we chose
diplomacy over war
again
Annex 103
•
•
•
•
•
•
•
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He added, “Today, an extremist group that is running the affairs in the White House has taken the
authority from even the President, and this has made problems not only for the peoples of the
region, but also America’s friends in Europe, Canada and Mexico”.
Dr Rouhani added, “Today, all those who were allies to the United States, and all enterprise owners
and entrepreneurs around the world are suffering. In such conditions, Zionism, the reactionaries and
internal groups in the US, especially AIPAC, put pressure on the government to withdraw from the
JCPOA”.
Stating that, “JCPOA’s enemies are the same enemies to Iran and our people,” he said, “Trump’s goal
was to provoke Iran to exit JCPOA immediately”.
The President of the Islamic Republic of Iran also went on to say, “It was Iran’s skill and wisdom that
we didn’t play in his field”.
“We have given deadlines to JCPOA member states several times,” said Rouhani, adding “Iran’s
actions have been within the framework of JCPOA’s legal mechanisms”.
“Seven months ago, I announced at the United Nations that our strategy is commitment against
commitment and violation against violation; today, we act based on those words,” he said.
He continued, “IAEA has announced 14 times that Iran has fully complied with its commitments,”
adding, “Enjoying rights proportionate to commitments is an obvious principle”.
“I sent letters to JCPOA parties that we have waited one year at your request,” said the President,
continuing, “This strategic patience indicates the Iranian nation’s power and greatness”.
He said, “Today is not end of JCPOA but the day of new step in its implementation,” adding, “Today,
we stop selling our enriched uranium and heavy water deposits; this decision is for 60 days”.
“We will begin our two next steps regarding the level of enrichment and Arak Heavy Water Reactor if
we don’t get the desired results,” added Rouhani.
“If the parties to JCPOA come to negotiation table and meet our main interests, especially in oil and
banking fields, we will return to the previous point,” added Rouhani.
Dr Rouhani went on to say, “We have explicitly told the other parties to JCPOA that if they take Iran’s
case to UNSC, they will face a very decisive actions”.
Stating that, “Today we will announce a strategic and important national decision,” the President
said, “JCPOA will be either win-win or lose-lose. We won’t let US turn it into a win-lose situation”.
He continued, “JCPOA is still standing, but today, we showed the other side of the coin to the world,”
adding, “We are announcing the reduction of our commitments, not withdrawal from it”.
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Dr Rouhani stated, "In a simpler language, we felt that there was a need for surgery and the oneyear-
old painkillers were not enough; today's action is a surgical procedure to save the JCPOA, not to
end it, and we believe that if our nation and our system work integrated in this direction, the world
receives the message of the nation of Iran well”.
He continued, “We always favour peace and moderation; we have never began violating an
agreement and will not begin a war, but will give decisive response to any aggressor”.
The President of the Islamic Republic of Iran also went on to say, “We are still ready for negotiation
within the framework of the JCPOA; not a word more or less”.
It is not acceptable that the JCPOA remains in action but the price is ours to pay, said the President,
adding, “If the deal is important for security, peace and development of the region, everyone must
pay its price”
He added, “Know that Iran is standing strong and we will put differences aside against US
pressures,” stressing that “Today, we chose diplomacy over war again”.
news id: 109589 - sessions
Ⓒ2018 Official website of the President of the Islamic Republic of Iran
Address: Pasteur St., Pasteur Sq., Tehran
Phone number: +98(21)64451
Annex 103
7/10/2019 Javad Zarif on Twitter: "Irony of IAEA Board meeting on US request: a. US abhors JCPOA, axed & violates it, and punishes all who obser…
https://twitter.com/JZarif/status/1148917515256500225 1/2
384Retweets 1,054Likes
Javad Zarif
@JZarif
Irony of IAEA Board meeting on US request:
a. US abhors JCPOA, axed & violates it, and punishes all
who observe it;
b. US has no standing to raise JCPOA issues;
c. Iran fully complied with JCPOA per 15 IAEA reports;
d. Iran's actions are lawful under para 36 of accord:
4:30 AM - 10 Jul 2019
Follow
125 384 1.1K
Annex 104
How Iran Exhausted the Procedure of Dispute Resolution Mechanism
(As Set out in Paragraph 36 of the .JCPOA)
(Letter dated lO May 2018): lr;m referro<I the
non-complian~e i!:sl!l.e of ..,U_S_ unla,,.-ful
mrilateral withdrawal from the JCPOA" lo the ._ ___ ~
Joint C.Ommllsion as the ugrav e.;t ma.terial
breach" of the JCPOA. for its re ,olution.
\Vrthin
15 days
To resolve the r-el:ated ls;~ues of the ~a.nc:.tion
lifting t1t1der the JCPOA "" the ro,ult of the ro imposition
of the mtlawful US nucle>r- rebled
sm d:i.ou:..
2-5 M.ay 20l5: the extraordinary Joint
Commission was held on the 15"' day
after the notification of Iran.
6 July 2018: Meetiug of the Minis ters of
F oreii(n Affairs ''''"' held upon the re(Jlles1
of Iran.
Tue Ad,isory Bou d (AB) in parallel "'ith
or in heu of the. Miinisterial Meetin_~ was not
requested by any participants.
(Letter dated 6 N O\'embe-r 2018): Iran stated
that ",of all the commitments made by
rem,ini.ng JCPOA participant,., none has
resulted in practical rolution.s~' and reemphariz
«l that "the JCPOA acl:nol\dedges
Inn,!:- d:iscretio~ right to "ce~e: performing
it.3 commitments: 1.m.de:r the JCPOA in whole or
in part."' Iran expressly declared lh,.t it has
''inimto<I Dispute R.e«>lntion MeclraEism under
Paragraph 36 -of the JCPOA on 10 May 2Dl8
and acting in good faith, refrained from ap plying
2
(Letter dated 10 May 2018); Iran requested
from the coordinator of the JCPOA Joint
Commission to hold an urgent meeting of the
Joint Commission, and at the same time
reserved its llllqll.esti.o11able rights to react and
protect national interest under JCPOA and UN
SC Resolution.
25 May 2018 : While the remaining participants
of the JCPOA made certain commitments and
practical solulions, !ran belie,,<ed th111 such steps
were not proportionate. A, the issue wa, not
resolved to the .. fofaction of Iran withm 15 day,,
,at the aame d.ay (25 :Ma:y), Iran. requestl:!d to have
the iMinirterial Meeting in accord>nee n,itl,
Paragraph 36.
6 July 2018: A, ,pecifi2,:1 in Par>graph S of the
State:meDI, the remaining p;uticip;mt, (al the
Mini,terial level) committed themselve, to II
spa<:ified obj ectives aimed at "p.nnidiog
pracrit:al siolutiona in order ro maintain the
normalin .tion of' tr .. d.e s.nd economic relatiom:
wit.It Ir!lln" .
(Letter dated 21 August 2-018); Iran ttated that
" D:l resp011Se to-the request -of the Head.:; of Sbte
and Govemment of the remamin~ JCPOA
participant,., agreed to delay Iran'• adoption of
me;ag.m,e..5 e.nvi!!',a_ged unde, paragraph 36 for Ji
period o.f ·nreeb to e-n 3!hle them to take nece5~
me:a.!-lir·@!i to remedy'' ..
k m made it clea1 that ~'aclwg within iU: rights
re.coe-.nized UJtsr alia under pw:agraph :J.6 of tbe
JCPOA. will er•duallv and b..o<I on a planned
time:tabie ceas; pe:rfo~ing it! oommitme:nts under
the JCPOA" in part."
-• 11 t)
(....____~)
Annex 104
How Iran Exhausted the Procedure of Dispute Resolution Mechanism
(As Set out in Paragraph 36 of the JCPOA)
(Letter dated 10 May 2018): Inn referred the
non-<:omplian« issue of "U.S. unlawful
unilitenl withdmvil n-om the JCPOA" to the
Joint Comminion u th• "gnvut m2terw (Letter dated 10 Ma~· 2018); Iran requested bruch" of the JCPOA. fo.r its resolution.
fro:m the coordinator of the JCPOA Joint
Within
Commission to hold an urgent meeting of the
Joint Commission, and at the same time
15 days reser.-ed its unquestionable rights 10 react and
d, protect national interest under JCPOA and UN
To rfSOlve the rwted lssu.es of the sanction SC Resolution.
lifting under the JCPOA u the result of the re- 2
imposition of the uni.awful US nuclea.r-rthted
sanctioru. 25 May 2018: \\>bile the remaining participants
of the JCPOA made certain c<>mmitments and
practical solutions, Iran belie\·ed that such steps
25 :\by 2018: the extraordinary Joint ,,~~ were not proportionate. As the inue wu not
Commission was !held on the 15= day ruol\'ed to the ntisfaction of Iran within I 5 cbys,
after the notification of Iran. ~ at ·the ume day (25 l\hy), Inn nquested to hJ.\·e
the Ji.lininerul MHting in :accordance n-ith
6 Jnly 2018: :\feeting of the :\linistm of ~
Pangnph36.
Fortip Affairs was held upon the request '
of Iran. 6 July 2018: A.s specified in P:angnph S of the
I ~ Statement, the renwning participants (at the
l\fuiisterw l!\·el) committed themseh-es to II
tpecified objocti\'H aimed at "pro,-idinr;
The Ad,isory Board (AB) in parallel \,ith praclic1l 1olutioo1 in order io m1int1in the
or in lieu of the :Ministerial :\leetinJ1, was not oormaliutioo of trade and 0<:onomic relatiozu
requested by any participants. witlllran".
~ ~ (Lener dated 21 August 2018); Iran stated that
(Lettir dated 6 Nonmber 2018): Iran stated
.. in respoDH to the reque>t of the Heads of St:ate
and Gonmment of the remiini.ng JCPOA
that "of all the commitments made by p:articipants, ar;reed to delay tr.in' s adoption of
re=illing JCPOA participants, cone hu meuuru en,-iu;ed under par2gnph 36 for a
resulted in pnctic.al solutions" and re- period of weeks to enable them to tab necenuy
emphuized that "the JCPOA aclmowledges meuuru to remed)·".
Iran's discretio,wy right to "ceue performing Inn nude it dur that "acting within its rights
its commitments under the JCPOA in whole or recognized inur alia under p:angnph 36 of the
in put." Iran expre,ll)· docb.red that it hu E------E} JCPOA, will gradually and bu,ed on • planned
"initwed Dispute R60lution ~leclwiism under timetable ceue performing its commitmmts under
Pangnph 36 of the JCPOA on 10 l\uy 2018 the JCPOA" in put."
and acting in good fa.i1h, refnined from applying
the 'rtmed)·' and did not immediately re.ort to "«ue performing its commitments undu the ---G ,I,
JCPOA". The remaining JCPOA puticipants
diA nnt r,-i.,.i Hut hrt (Letter dated 7 April 2019): ''This compounds
the pre\~ous significant non-performances by
E3JEU, follo\,ing prolonged and utter failure to
8 May 2019: As the issue was not resoh·ed to take any meaningful practical measure in
performance of their JCPOA obligations
its satisfaction, Iran announced to cease
(undertaken i11ter alia on 15 May and May 25,
performing its commitments under the JCPOA , G-and 6 July 201S)." Iran urged "the E.3/EU to
in part. in the e:<erc.ise of its rights under resoh·e this issue in a satisfactory manner
Paragraphs 26 and 36; 1\ithin reasonable time" and at the same time
reser\-ed its ri:lbt under Pu.graph 36 of the
JCPOA.
7/8/2019 Javad Zarif on Twitter: "Today, Iran is taking its second round of remedial steps under Para 36 of the JCPOA. We reserve the right to conti…
https://twitter.com/JZarif/status/1147806420936658944?ref_src=twsrc%5Eg… 1/1
767Retweets 2,545Likes
Javad Zarif
@JZarif
Today, Iran is taking its second round of
remedial steps under Para 36 of the JCPOA. We
reserve the right to continue to exercise legal
remedies within JCPOA to protect our interests
in the face of US #EconomicTerrorism. All such
steps are reversible only through E3
compliance.
2:55 AM - 7 Jul 2019
Follow
401 767 2.5K
Javad Zarif @JZarif Jul 7
Having failed to implement their obligations under JCPOA—incl after US withdrawal—EU/E3
should at minimum politically support Iran’s remedial measures under Para 36, incl at IAEA.
E3 have no pretexts to avoid a firm political stance to preserve JCPOA & counter U.S
unilateralism.
112 351 1.4K
Annex 105
( __ )
7/8/2019 Javad Zarif on Twitter: "We have NOT violated the #JCPOA. Para 36 of the accord illustrates why: We triggered & exhausted para 36 after…
https://twitter.com/JZarif/status/1145749802975711233 1/2
980Retweets 2,808Likes
Javad Zarif
@JZarif
We have NOT violated the #JCPOA.
Para 36 of the accord illustrates why:
We triggered & exhausted para 36 after US withdrawal.
We gave E3+2 a few weeks while reserving our right.
We finally took action after 60 weeks.
As soon as E3 abide by their obligations, we'll reverse.
10:43 AM - 1 Jul 2019
Follow
357 980 2.8K
Annex 106
~ISPUTE RESOLUTION MECHANISM
36. If lran believed that any or all of the E3/EU+3 were not meeting their
commitments under this JCPOA, Iran could refer the issue to the Joint
Commission for resolution; similarly, if any of the E3/EU+3 believed that Iran
was not meeting its commitments under this JCPOA, any of the E3/EU+ 3 could
do the same. The Joint Commission would have 15 day to resolve the issue,
unless the time period was extended by consensus. After Joint Commission
consideration, any participant could refer the i sue to Ministers of Foreign
Affairs, ifit believed the compliance issue had not been resolved_ Ministers
would have 15 days to resolve the issut:, unless the time period was extended
by consensus. After Joint Commission consideration - in parallel with (or in lieu
of) review at the Ministerial level - either the complaining participant or the
participant whose pcrfonnance is in question could request that the issue be
considered by an Advisory Board, which would consist of three members (one
each appointed by the participants in the dispute and a third independent member). The
Advisory Board should provide a non-binding opinion on the
compliance issue within I 5 days. If, after this 30-day process the issue is not
resolved, the Joint Commission would consider the opinion of the Advisory
Board for no more than 5 days in order to resolve the issue. If the issue still ha
not been resolved to the satisfaction of the complaining parti ipant, and if the
complaining participant deems the issue to constitute significant nonperformance, then that
participant could treat the unresolved issue as grounds
to c as performing its omrnitments under this JCPOA in whole or in part
und/or notify th UN Security Council that it b Ii ves th issue constitut s
significant non-perfonnance.
n-..... ---.... ---1... ,L -~•L..- 1,-.n,....A
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n.~~IML-t9ta•llrllwa.Jl'M-liu" ..,...,.._ ___ .._iau...,_-i.Jlqi ... _ ..
111r-,-•,_....fiMl.rlM1Cto.l.TlrtoJl""'"'-IIM'O,....._
i.ttl_.,. ..... 9'lllrllrah""._K1llW..,,...ltldl
.-."..'.•..~. •11M,c,(l~•-,.•~111MIWtlo,HI-I
( __ )
Annex 107
Non Paper
Iran's decision to exercise its rights under paragraphs 26 and 36 of the JCPOA
Background
1. The JCPOA is a multi-party agreement based on reciprocity. Its scope, prov1S1ons and
timeframes are based on a delicate, negotiated and multilaterally-accepted balance that cannot
be widened, altered or renegotiated. Its benefits to the Iranian people cannot be subjected to
any conditionality other than those nuclear-related voluntary measures specifically stipulated
solely in the JCPOA and its annexes. Some of the most significant economic benefits to Iran
from the JCPOA drive from the sanctions-lifting obligation of the United States.
2. Unlike the Islamic Republic of Iran, which has scrupulously fulfilled its undertakings under
the JCPOA, as repeatedly and consistently verified by the IAEA for 14 times, the United States
has consistently failed - since "implementation day", and particularly after the assumption of
office by President Trump -to abide by its commitments under the JCPOA. The US continues
to exert maximum pressure to dismantle the JCPOA and the UNSC resolution 2231. These
malign policy if continued, will be detrimental to the peace, stability and security in the region
and beyond.
3. On 8 May 2018, the President of the United States announced his unilateral and unlawful
decision to withdraw from the Joint Comprehensive Plan of Action, in material breach of
Security Council Resolution 2231 (2015) to which the JCPOA is annexed. Simultaneously, he
signed a Presidential Memorandum instructing relevant U.S. authorities "to cease the
participation of the United States in the J CPOA" and "to re-impose all United States sanctions
lifted or waived in connection with the JCPOA", thus committing multiple cases of
"significant non-performance" with the JCPOA, and in clear non-compliance with the
Security Council Resolution 2231.
4. The United States had been persistently violating the terms of the agreement almost from its
inception, even preventing other J CPOA Participants from fully performing their obligations.
"Those violations included systematic failures, late, lackluster, defective, superficial and
ineffective nominal implementation, undue delays, new sanctions and designations, derogatory
anti-JCPOA statements by senior officials-in particular the President himself, refusal co issue
OFAC license, as well as concerted efforts by the U.S. government's agencies and
instrumentalities to actively dissuade businesses from engagement with Iran.
5. During this time, the Islamic Republic oflran invoked the mechanism envisioned in Paragraph
36 of the JCPOA, and the Joint Commission of the JCPOA met tw1ce at the level of political
directors and twice at the ministerial level. In these meetings, the remaining J CPOA
participants el.."Plicitly acknowledged that the lifting of sanctions-and the economic dividends
arising from it for Iran--constitutes an essential part of the JCPOA. 'The foreign ministers of
remainingJCPOA participants committed to design "practical solutions" aimed at normalizing
and even enhancing economic cooperation with Iran, including through establishing effective
1
Annex 107
banking channels, continuation 111 the export of oil, gas and petrochemical products,
continuation of cooperation in transportation, export credits, support for economic actors
involved in trade, financial and investment cooperation with Iran (an.cl protecting them against
the U.S.' extraterritorial sanctions), and encouraging further investment in Iran. 1
6. But, unfortunately, apart from issuing numerous political statements and support, no
operational mechanism has been put in place to counter U.S. sanctions and to compensate for
them in terms of sanction lifting effects, as specified in Annex II of the JCPOA that allows
for the normalization of trade and economic relations with Iran.
Legal Basis
l. Since 8 May 2018, including through the official letters, Iran has notified the JCPOA
participants that the US withdrawal and re-imposition of sanctions lifted under the J CPOA is
a "significant Non-performance" by a member of EU/E3+3 and is a grave violation of the
UNSC Resolution 2231, accordingly Iran had invoked provision of paragraphs 26 and 36 of
the JCPOA. Thereupon, the Islamic Republic of Iran in response to the request of the heads
of Governments of the remaining JCPOA participants pledging prompt remedial actions,
agreed to postpone adoption of the measures envisaged under paragraphs 26 and 36 of the
J CPOA, and exercising utmost prudence, while continued to fully implement all its
commitments under the JCPOA, as verified by 14 subsequent IAEA DG reports.
2. Para 26 of JCPOA states: " ... There will be no new nuclear-related UN Security Council
sanctions and no new EU nuclear-related sanctions or restrictive measures. The United States
will make best efforts in good faith to sustain this JCPOA and to prevent interference with
the realization of the full benefit by Iran of the sanctions lifting specified in Annex II. The
U.S. Administration, acting consistent with the respective roles of the President and the
Congress, will refrain from re-introducing or re-imposing the sanctions specified in Annex II
that it has ceased applying under this JCPOA, without prejudice to the dispute resolution
process provided for under this JCPOA. Tbe U.S. Administration, acting consistent with the
respective roles of the President and the Congress, will refrain from imposing new nuclearrelated
sanctions. Iran has stated that it will treat such a re-introduction or re-imposition
of the sanctions specified in Annex II, or such an imposition of new nuclear-related
sanctions, as grounds to cease performing its commitments under this JCPOA in
whole or in part."
3. Para 36 ofJCPOA states: "Ifiran believed that any or all of the E3/EU+3 were not meeting
their commitments under this JCPOA, Iran could refer the issue to the Joint Commission for
resolution ... if the complaining participant deems the issue to constitute significant nonperformance,
then that participant could treat the unresolved issue as grounds to cease
performing its commitments under this JCPOA in whole or in part ... "
1 . Please see statement from the J oint Commission of the JCPOA, 6 July 2018 which is attached.
2
Annex 107
Iran's Decision
1. It is almost one year that the US unilaterally decided to unlawfully re-impose its sanctions
against Iran, and followed by provocative and malign activities. In the absence of effective and
meaningful measures by the other JCPOA participants to remedy the most devastating effects
of the US actions, the Islamic Republic of Iran has decided to undertake practical measures to
exercise its recognized rights under Paragraphs 26 and 36 of the JCPOA, to secure its rights
and restore balance to the obligations set forth in the J CPOA.
2. Iran in exercise of its rights under paragraphs 26 and 36 of the JCPOA, and in response to the
US withdrawal from the JCPOA and the re-imposition of its unilateral sanctions, has decided
"to cease performing its commitments in part" as of 8 may 2019. These voluntary measures at
first stage are: a) keeping its uranium stockpile under 300 KG up to 3.67%, b) making available
heavy water, in excess of 130 metric tons, for export to the International market. In fact, the
latest decision of the US, in contradiction of the J CPOA as well as the UNSCR 2231 regarding
the international nuclear cooperation, has made the implementation of these provisions
impossible by impeding the sale, transfer or exchange of enriched uranium and heavy water
produced by Iran.
3. If mechanisms related to meeting Iran's rightful demands are operationalized within 60 days,
particularly if the level of Iran's oil exports return to the level existing in April 201!8, the above
mentioned decision will be reversed. Otherwise Iran in implementing paragraph 26 of the
JCPOA will further reduce its voluntary measures and will continue this trend in the next
stages. At the second stage Iran will "cease performing its commitments in part" with regard
to the following voluntary measures in 60 days: a) keeping its level of uranium enrichment at
up to 3.67%, b) redesigning and rebuilding a modernized Heavy water research reactor in
Arak.
4. Indeed, the aforementioned violations by the US administration, and recent provocative
actions, inter alia, the US decision to halt Iran's oil trade and sanction international nuclear
cooperation with Iran, provided for Iran "grounds to cease perfonning its commitments \lllder
the JCPOA in whole or in part" as stipulated in Paragraph 26 of the JCPOA. Therefore, the
current decision by Iran is fully consistent by the terms of the JCPOA, including those related
to dispute resolving mechanism enshrined in paragraph 36 of it.
5. In implementation of the decision at the first stages, the Islamic Republic of Iran, exercising
utmost restraint, did not touch upon the cooperation with the IAEA through provisional
application of the Additional Protocol.
6. The International Community has a responsibility to maintain the agreement and preserve its
effectiveness. The US unilateral actions has rendered the significant part of the JCPOA
ineffective, and substantially destroyed the balance between the gives-and-takes, which were
attained after almost twelve years of complicated and difficult negotiations.
7. Iran has shown its utmost restraint in response to the decision by the US, and by now has
continued to meet its obligations under the JCPOA, and has cooperated fully with the IAEA
verification requirements and the IAEA continued to carry out its verification and monitoring
activities without any restriction or hindrance that has been confirmed 14 times by the IAEA
3
Annex 107
Director General's reports. In tum, Iran should continue to receive the economic benefits it
is entitled to, this imbalance approach to the rights and obligations cannot be sustainable.
8. Iran still believes on the importance of diplomacy and multilateralism as a practical means to
resolve disputes. Iran will continue to support the JCPOA and is ready to consult with
international community, in particular remaining JCPOA participants to find effective
practical ways to preserve the J CPOA.
9. Iran Reaffirms the significance of the JCPOA and would like to express its readiness to
reconsider the decision, if the current unacceptable situation is addressed to the satisfaction
of the Islamic Republic of Iran and the meaningful balance restored and expected benefits
from sanction lifting ensured. Now, it is the remaining countries' turn to prove their good will
and take serious and practical steps to preserve the J CPOA.
4
8/12/2019 Print
www.president.ir/en/109588/printable 1/2
Iran stops some of its measures under JCPOA/
We are no longer committed to limitations on
keeping enriched uranium, heavy water deposits/
60-day deadline to remaining parties to live up to
their commitments, esp. in banking, oil sectors
The Supreme National Security Council issued a statement
addressing the Joint Comprehensive Plan of Action (JCPOA)
member states, stating that the Islamic Republic of Iran has
shown considerable restraint in the past one year after the illegal withdrawal of the United States
from the JCPOA and violations of United Nations Security Council resolutions”.
Wed 08 - May 2019 - 09:42
The statement, which addresses member states to the JCPOA in separate letters by the Supreme
National Security Council (SNSC) and the head of the council President Hassan Rouhani, stresses, “In
order to protect the security and national interests of the people of Iran, and in implementation of its
rights set forth in Paragraph 26 and 36 of the JCPOA, the Islamic Republic of Iran stops some of its
measures under the JCPOA from today, 08 May 2019”.
The full text of the statement is as follows:
In the Name of Allah, the Most Beneficent, the Most Merciful
Statement by the Supreme National Security Council of the Islamic Republic of Iran
In order to protect the security and national interests of the people of Iran, and in implementation of
its rights set forth in Paragraph 26 and 36 of the JCPOA, the Supreme National Security Council the
Islamic Republic of Iran has issued an order to stop some of Iran’s measures under the JCPOA from
today, 08 May 2019. The decision was announced in an important letter by Dr Rouhani, President
and Head of the Supreme National Security Council of the Islamic Republic of Iran, to the leaders of
the member states, Germany, Britain, China, Russia and France.
Now, one year after the United States' illegal withdrawal from the JCPOA and violation of United
Nations Security Council resolutions, that country has re-implemented its unilateral, illegal sanctions
contrary to all internationally recognised principles. This blatant bullying behaviour of the US has,
unfortunately, not been appropriately addressed by the Security Council or the remaining members.
The Islamic Republic of Iran has shown considerable restraint in the past one year at the request of
the other members, giving them considerable time to compensate for the impacts and consequences
of US’ withdrawal from the JCPOA. During this time, the Joint Commission of JCPOA has been held
two times at the level of deputies and two times at the level of foreign ministers, and the remaining
Annex 108
8/12/2019 Print
www.president.ir/en/109588/printable 2/2
countries have explicitly stated in these meetings that the lift of sanctions and Iran’s enjoying of its
economic benefits were a critical part of the JCPOA. They promised to design “practical solutions” to
normalise and promote economic cooperation with Iran.
Unfortunately, the goodwill and wise self-restraint of the Iranian people have remained unanswered,
and no operational mechanisms have been set up to compensate for US sanctions except for the
issuance of political statements. Therefore, in order to secure its rights and restore balance to the
demands of the parties to the agreement, the Islamic Republic of Iran has no option other than
"reducing commitments".
In this regard, it is being stated that the Islamic Republic of Iran does not commit itself to respecting
the limits on the keeping of enriched uranium and heavy water reserves at the current stage. The
remaining countries will be given sixty days to fulfil their obligations, especially in banking and oil
fields. If they fail to meet Iran's demands in the time given, then the Islamic Republic of Iran will
suspend compliance with the uranium enrichment limits and measures to modernise the Arak Heavy
Water Reactor. Whenever our demands are met, we will resume the same amount of suspended
commitments, but otherwise, the Islamic Republic of Iran will suspend the implementation of other
obligations step by step.
The Islamic Republic of Iran is ready to continue its consultations with the remaining members of the
JCPOA at all levels, but will show a strong and immediate response to any irresponsible action,
including referral to the UN Security Council or implementation of further sanctions. In his letter to
the leaders of the member states, the President of the Islamic Republic of Iran has clearly pointed
out the types of reactions of the Islamic Republic of Iran.
Currently, the Islamic Republic of Iran has said it final word to the member states and the
international community. We entered nuclear talks with goodwill, made an agreement with goodwill,
implemented the agreement with goodwill, and provided enough time to the other members after the
withdrawal of the United States with goodwill. Now, it is the remaining countries’ turn to prove their
goodwill and take serious and practical steps to preserve the JCPOA.
The window that is now open to diplomacy will not remain open for a long time, and the United
States and the remaining members will be fully responsible for the failure of the JCPOA and any
possible consequences.
Supreme National Security Council of the Islamic Republic of Iran
news id: 109588 - Messages and Letters
Ⓒ2018 Official website of the President of the Islamic Republic of Iran
Address: Pasteur St., Pasteur Sq., Tehran
Phone number: +98(21)64451
Annex 108
Annex 109
Rosenne's Law and Practice of
the International Court:
1920- 2015
VOLUME II
JURISDICTION
Fifth Edition by
Malcolm N. Shaw QC
BRILL
NIJH OF F
LEIDEN • BOSTON
Annex 109
906 Chapter 13. Matters of Jurisdiction
II .2 30. D ISTINCTI ON BETWEEN O BJECTION AND D EFENCE. Toe distinction
between a preliminary objection, especially to the admissibility, and a
defence to the merits, is a lso subtle. As a rough rule of thumb, it is
probable that when the facts and arguments in support of the objection
are substantially the same as the facts and arguments on which the
merits of the case depend, or when to decide the objection would require
decisio n on what, in the particular case, are su bstantive aspects of the
merits, the plea is not an objection but a defence to the merits. Several
examples may be .given to show the flexibility with which the Court
approaches this type of proble m. Thus, to take the pl ea of the nati.onal
character of t he claims, in the Panevezys-Saldutiskis Railway case the
Permanent Court he ld it to be in princip le of preliminary character, but
in the particular case a defence. In the Nottebohm (Second Phase) case,
the present Court recognized its preliminary character. In the Barcelona
Traction (New Application) case the Court was unable to come to any
decision on th is aspect in the preliminary objection proceedings, and
therefore joined the objec_tion to the merits. With regard to the plea of
non-exhaustion oflocal remedies, in the Panevezys-Saldutiskis Railway
case it was admitted and upheld as a preli minary objection, but only
after the preliminary objections had been joined to the merits and the
Permanent Court had established that it cou ld decide the issu e without
prejudging the merits. In the Ambatielos (Merits: Obbgation to Arbitrate)
case, however, the present Court held it to be a defence directed to the
admissibility cognizable in that case by the Arbitral Commission to be
set up in accordance with that j udgment.203 In the lnterhandel case th e
same objection was advanced as an objection to the j urisdiction, but
specifically held by the Court to be an objection to the admissibility. 204
In the Barcelona Traction (New Application) case the objection to the
adm issibility was j oined to the merits, s ince allegations of denia l of
justi ce constituted the major part of the merits.
In the Electricity Company of Sofia case, the Permanen t Court
dismissed as a preliminary objection th e argum ent that the dispute was
not a legal dispute within the meaning of Article 36, paragraph 2, of the
203 [1952] 39; [1953] 23. ln the arbitral proceedings these questions were specificul ly
included in tbe special agreement and the International Arbitration Commission did not haw
to consider whether they were of a preliminary or other character. Nevertheless it stated in the
award that it regarded the exhaustion of local remedies rule as referring to the admissibility
of the claim and not as a defence to the merits. XII RlAA 83; 23 ILR 334; Stuyt, Survey 4.17,
2°' [19.59) 6, 26.
Annex 109
§ Il.231. Character of the Decision on Prelimina,y Objection 907
Statute, or one which could be decided in application of Article 38 of the
Statute, when the argument ratione materiae in support of this objection
formed part of the merits of the dispute. 205 However, the present Court in
the Right of Passage case first joined simi Jar contentions to the merits,
dismi ssed them as an objection, a nd then went on to di smiss them as a
defence to the merits.206 Other contentions held not to be preliminary
have included questions of judgment in the form of an injunction, and
questions of set off. 201 It a lso appears that the Court will consider whether
it has heard fu ll argument on a plea advanced as a preliminary obj ecti on.
Such a plea may lose that character if the Court is not satisfied that it has
been fully argued by the parties, in which case they will be free to take
it up again a t a later stage.208
It appears as a matter of principle that the rejection of any such plea
as a preliminary objection, as opposed to its dismissal as s uch, is without
prejudice to the freedom of the parties to take it up again in support of
their case on the merits, as was specifically mentioned in the Electricity
Company of Sofia case.
Jl.231. CHARACTER OF THE DECISION ON PRELIMINARY OBJECTION. As
seen, the view that the Court should be able to dispose of preliminary
objections in proceedings which would not in any way prejud ge the
final outcome of the argument on the merits, was first propounded
in the Mavrommatis Palestine Concessions case.209 This philosophy
was the bas is of the P e rmanent Court's later approach to the problem,
both in the drafting of the Rules and in deciding matters relating to
its jurisdiction. However, the formula i s an oversimplification, and
in the German Interests in Polish Upper Silesia case the Permanent
Court, whi le retaining the principle, nevertheless drew attention to
its limitations in passages which contain both positive and negative
elements. Thus:
205 A/877 (1939) 77- 78, 82----83.
206 [1957] 125, 149; [1960] 6, 32, 36. A similar argument was raised in the Aerial Incident
of 27 July 1955 case, but was not decided by the Court. ln the oral pleadings Bulgaria agreed
that consideration of that objection could be deferred to the merits. Pleadings 362.
2m Chorz6w Factory (Jurisdiction) case, A9 (1927) 33.
208 Cf. Ambatielos (Prel. Obj.) case, (1952] 28, 45; Ambatielos (Merits: Obligation to
Arbitrate) case, (1953] 10, 21; Barcelona T;-action (New Application) (Prel. Objs.) case,
(1964] 6. 43. See also eh. 27, §IU.39 3. = A2 (1924) 10.
--
WT/DS512/R
5 April 2019
(19-2105) Page: 1/137
Original: English
RUSSIA - MEASURES CONCERNING TRAFFIC IN TRANSIT
REPORT OF THE PANEL
Annex 110
'-~ ) WORLD TRADE
" ~ ORGANIZATION
WT/DS512/R
- 2 -
TABLE OF CONTENTS
1 INTRODUCTION ........................................................................................... 19
1.1 Complaint by Ukraine .................................................................................... 19
1.2 Panel establishment and composition .............................................................. 19
1.3 Panel proceedings ......................................................................................... 19
1.3.1 General .................................................................................................... 19
1.3.2 Additional Working Procedures for the Protection of Business Confidential
Information ......................................................................................................... 20
1.3.3 Request for enhanced third party rights by certain third parties ....................... 20
1.3.4 Russia's request for a preliminary ruling ....................................................... 20
1.3.5 Russia's complaint of alleged breaches of confidentiality by a third party .......... 20
1.3.6 Other procedural complaints ....................................................................... 21
2 FACTUAL ASPECTS........................................................................................ 21
3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS ................... 21
4 ARGUMENTS OF THE PARTIES ...................................................................... 22
5 ARGUMENTS OF THE THIRD PARTIES ........................................................... 22
6 INTERIM REVIEW ......................................................................................... 22
7 FINDINGS .................................................................................................... 22
7.1 Overview of Ukraine's complaints ................................................................... 22
7.2 Russia's response ......................................................................................... 24
7.3 Factual background....................................................................................... 24
7.4 Order of analysis .......................................................................................... 29
7.5 Russia's invocation of Article XXI(b)(iii) of the GATT 1994 ................................. 30
7.5.1 Main arguments of the parties ..................................................................... 30
7.5.2 Main arguments of the third parties ............................................................. 33
7.5.3 Whether the Panel has jurisdiction to review Russia's invocation of
Article XXI(b)(iii) of the GATT 1994 ........................................................................ 38
7.5.3.1 Meaning of Article XXI(b)(iii) of the GATT 1994........................................... 39
7.5.3.1.1 Whether the clause in the chapeau of Article XXI(b) qualifies the
determination of the matters in the enumerated subparagraphs of that provision ........ 40
7.5.3.1.2 Negotiating history of Article XXI of the GATT 1947 .................................. 43
7.5.3.1.3 Conclusion on whether the clause "which it considers" in the chapeau of
Article XXI(b) qualifies the determination of the matters in the enumerated
subparagraphs of that provision ............................................................................. 50
7.5.3.2 Conclusion on whether the Panel has jurisdiction to review Russia's invocation of
Article XXI(b)(iii) of the GATT 1994 ........................................................................ 50
7.5.4 The measures at issue and their existence .................................................... 51
7.5.5 Whether the measures were "taken in time of war or other emergency in
international relations" within the meaning of subparagraph (iii) of Article XXI(b) ........ 52
7.5.5.1 Conclusion ............................................................................................. 55
7.5.6 Whether the conditions of the chapeau of Article XXI(b) of the GATT 1994 are
satisfied .............................................................................................................. 55
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7.5.6.1 Conclusion ............................................................................................. 59
7.5.7 Overall conclusion ...................................................................................... 59
7.6 Ukraine's claims of WTO-inconsistency of the measures at issue ......................... 59
7.6.1 Introduction .............................................................................................. 59
7.6.2 Article V:2 of the GATT 1994 ....................................................................... 60
7.6.2.1 Article V:2, first sentence ......................................................................... 60
7.6.2.1.1 Main arguments of the parties ............................................................... 60
7.6.2.1.2 Main arguments of third parties ............................................................. 61
7.6.2.1.3 Analysis .............................................................................................. 62
7.6.2.1.4 Conclusions ......................................................................................... 65
7.6.2.2 Article V:2, second sentence .................................................................... 65
7.6.2.2.1 Main arguments of the parties ............................................................... 65
7.6.2.2.2 Main arguments of third parties ............................................................. 66
7.6.2.2.3 Analysis .............................................................................................. 66
7.6.2.2.4 Conclusions ......................................................................................... 67
7.6.3 Remaining claims under the GATT 1994 and Russia's Accession Protocol .......... 68
7.6.3.1 Introduction ........................................................................................... 68
7.6.3.2 Article V:3 .............................................................................................. 69
7.6.3.2.1 Main arguments of the parties ............................................................... 69
7.6.3.2.2 Main arguments of third parties ............................................................. 69
7.6.3.3 Article V:4 .............................................................................................. 70
7.6.3.3.1 Main arguments of the parties ............................................................... 70
7.6.3.4 Article V:5 .............................................................................................. 70
7.6.3.4.1 Main arguments of the parties ............................................................... 70
7.6.3.5 Article X of the GATT 1994 ....................................................................... 71
7.6.3.5.1 Main arguments of the parties ............................................................... 71
7.6.3.5.2 Main arguments of third parties ............................................................. 73
7.6.3.6 Russia's Accession Protocol ...................................................................... 73
7.6.3.6.1 Paragraph 1161 of Russia's Working Party Report .................................... 73
7.6.3.6.1.1 Main arguments of the parties ............................................................. 73
7.6.3.6.2 Paragraph 1426 of Russia's Working Party Report .................................... 73
7.6.3.6.2.1 Main arguments of the parties ............................................................. 73
7.6.3.6.3 Paragraph 1427 of Russia's Working Party Report .................................... 74
7.6.3.6.3.1 Main arguments of the parties ............................................................. 74
7.6.3.6.4 Paragraph 1428 of Russia's Working Party Report .................................... 75
7.6.3.6.4.1 Main arguments of the parties ............................................................. 75
7.6.4 Applicability of Article XXI(b)(iii) of the GATT 1994 to commitments in Russia's
Accession Protocol ................................................................................................ 76
7.6.4.1 Introduction ........................................................................................... 76
7.6.4.2 Paragraph 1161 of Russia's Working Party Report ....................................... 77
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7.6.4.2.1 Paragraph 1161 of Russia's Working Party Report and Article XXI(b)(iii) of the
GATT 1994 .......................................................................................................... 77
7.6.4.2.2 Paragraph 1161 of Russia's Working Party Report and Article V:2 of the GATT
1994 .................................................................................................................. 78
7.6.4.3 Paragraph 1426 of Russia's Working Party Report and Article XXI(b)(iii) of the
GATT 1994 .......................................................................................................... 78
7.6.4.4 Paragraph 1427 of Russia's Working Party Report and Article XXI(b)(iii) of the
GATT 1994 .......................................................................................................... 80
7.6.4.5 Paragraph 1428 of Russia's Working Party Report and Article XXI(b)(iii) of the
GATT 1994 .......................................................................................................... 81
7.6.4.6 Conclusion ............................................................................................. 82
7.7 Panel's terms of reference and the existence of the measures ............................ 82
7.7.1 Identification of the measures and claims, and their relationship to each other .. 82
7.7.1.1 Presentation of the measures and claims in Ukraine's panel request .............. 83
7.7.1.2 Presentation of the measures and claims in Ukraine's first written submission 85
7.7.2 Whether Ukraine's panel request satisfies the requirements of Article 6.2 of the
DSU ................................................................................................................... 86
7.7.2.1 First group of measures – identification of the specific measures at issue and
the legal basis of the complaint ............................................................................. 87
7.7.2.2 Second group of measures – identification of the specific measures at issue and
the legal basis of the complaint ............................................................................. 87
7.7.2.2.1 First sub-category of measures .............................................................. 88
7.7.2.2.2 Second sub-category of measures .......................................................... 88
7.7.2.2.2.1 Arguments of Russia .......................................................................... 89
7.7.2.2.2.2 Arguments of Ukraine ........................................................................ 89
7.7.2.2.2.3 Analysis ........................................................................................... 90
7.7.2.2.3 Third sub-category of measures ............................................................. 95
7.7.2.2.4 Identification of the legal basis of the complaint ....................................... 95
7.7.2.3 Conclusions on whether Ukraine's panel request satisfies the requirements of
Article 6.2 of the DSU ........................................................................................... 95
7.7.3 Whether the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778
Goods are within the Panel's terms of reference ....................................................... 96
7.7.3.1 Whether the existence of the 2014 Belarus-Russia Border Bans goes to the
Panel's terms of reference ..................................................................................... 98
7.7.3.2 Whether Ukraine has established the existence of the 2014 Belarus-Russia
Border Bans in its panel request ........................................................................... 100
7.7.4 Summary of the Panel's findings on the measures that are within its terms of
reference ........................................................................................................... 102
8 CONCLUSIONS............................................................................................ 103
APPENDIX – SUBSEQUENT CONDUCT CONCERNING ARTICLE XXI OF THE GATT
1947 ............................................................................................................... 106
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LIST OF ANNEXES
ANNEX A
WORKING PROCEDURES OF THE PANEL
Contents Page
Annex A-1 Working Procedures of the Panel, as amended 4
Annex A-2 Additional Working Procedures Concerning BCI 9
ANNEX B
PROCEDURAL RULINGS
Contents Page
Annex B-1 Enhanced Third-Party Rights Ruling 12
Annex B-2 Confidentiality Ruling 16
Annex B-3 Admissibility Ruling 30
ANNEX C
ARGUMENTS OF THE PARTIES
UKRAINE
Contents Page
Annex C-1 First executive summary of the arguments of Ukraine 33
Annex C-2 Second executive summary of the arguments of Ukraine 43
RUSSIAN FEDERATION
Contents Page
Annex C-3 First executive summary of the arguments of the Russian Federation 53
Annex C-4 Second executive summary of the arguments of the Russian Federation 60
ANNEX D
ARGUMENTS OF THE THIRD PARTIES
Contents Page
Annex D-1 Executive summary of the arguments of Australia 69
Annex D-2 Executive summary of the arguments of Brazil 73
Annex D-3 Executive summary of the arguments of Canada 76
Annex D-4 Executive summary of the arguments of China 81
Annex D-5 Executive summary of the arguments of the European Union 84
Annex D-6 Executive summary of the arguments of Japan 89
Annex D-7 Executive summary of the arguments of Moldova 94
Annex D-8 Executive summary of the arguments of Singapore 99
Annex D-9 Executive summary of the arguments of Turkey 103
Annex D-10 Executive summary of the arguments of the United States 106
ANNEX E
INTERIM REVIEW
Contents Page
Annex E-1 Interim Review 112
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CASES CITED IN THIS REPORT
Short Title Full Case Title and Citation
Argentina – Footwear (EC) Appellate Body Report, Argentina – Safeguard Measures on Imports
of Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR
2000:I, p. 515
Argentina – Textiles and Apparel Appellate Body Report, Argentina – Measures Affecting Imports of
Footwear, Textiles, Apparel and Other Items, WT/DS56/AB/R and
Corr.1, adopted 22 April 1998, DSR 1998:III, p. 1003
Australia – Apples Panel Report, Australia – Measures Affecting the Importation of
Apples from New Zealand, WT/DS367/R, adopted 17 December
2010, as modified by Appellate Body Report WT/DS367/AB/R, DSR
2010:VI, p. 2371
Australia – Salmon Appellate Body Report, Australia – Measures Affecting Importation
of Salmon, WT/DS18/AB/R, adopted 6 November 1998, DSR
1998:VIII, p. 3327
Argentina – Import Measures Appellate Body Reports, Argentina – Measures Affecting the
Importation of Goods, WT/DS438/AB/R / WT/DS444/AB/R /
WT/DS445/AB/R, adopted 26 January 2015, DSR 2015:II, p. 579
Canada – Aircraft Panel Report, Canada – Measures Affecting the Export of Civilian
Aircraft, WT/DS70/R, adopted 20 August 1999, upheld by Appellate
Body Report WT/DS70/AB/R, DSR 1999:IV, p. 1443
Canada – Periodicals Appellate Body Report, Canada – Certain Measures Concerning
Periodicals, WT/DS31/AB/R, adopted 30 July 1997, DSR 1997:I, p.
449
Canada – Renewable Energy / Canada –
Feed-in Tariff Program
Appellate Body Reports, Canada – Certain Measures Affecting the
Renewable Energy Generation Sector / Canada – Measures Relating
to the Feed-in Tariff Program, WT/DS412/AB/R / WT/DS426/AB/R,
adopted 24 May 2013, DSR 2013:I, p. 7
Canada – Wheat Exports and Grain
Imports
Appellate Body Report, Canada – Measures Relating to Exports of
Wheat and Treatment of Imported Grain, WT/DS276/AB/R, adopted
27 September 2004, DSR 2004:VI, p. 2739
Chile – Price Band System Panel Report, Chile – Price Band System and Safeguard Measures
Relating to Certain Agricultural Products, WT/DS207/R, adopted 23
October 2002, as modified by Appellate Body Report
WT/DS207AB/R, DSR 2002:VIII, p. 3127
China – Auto Parts Appellate Body Reports, China – Measures Affecting Imports of
Automobile Parts, WT/DS339/AB/R / WT/DS340/AB/R /
WT/DS342/AB/R, adopted 12 January 2009, DSR 2009:I, p. 3
China – Broiler Products Panel Report, China – Anti-Dumping and Countervailing Duty
Measures on Broiler Products from the United States, WT/DS427/R
and Add.1, adopted 25 September 2013, DSR 2013:IV, p. 1041
China – HP-SSST (Japan) / China – HPSSST
(EU)
Appellate Body Reports, China – Measures Imposing Anti-Dumping
Duties on High-Performance Stainless Steel Seamless Tubes ("HPSSST")
from Japan / China – Measures Imposing Anti-Dumping
Duties on High-Performance Stainless Steel Seamless Tubes ("HPSSST")
from the European Union, WT/DS454/AB/R and Add.1 /
WT/DS460/AB/R and Add.1, adopted 28 October 2015, DSR
2015:IX, p. 4573
China – Publications and Audiovisual
Products
Appellate Body Report, China – Measures Affecting Trading Rights
and Distribution Services for Certain Publications and Audiovisual
Entertainment Products, WT/DS363/AB/R, adopted 19 January
2010, DSR 2010:I, p. 3
China – Rare Earths Appellate Body Reports, China – Measures Related to the
Exportation of Rare Earths, Tungsten, and Molybdenum,
WT/DS431/AB/R / WT/DS432/AB/R / WT/DS433/AB/R, adopted 29
August 2014, DSR 2014:III, p. 805
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Short Title Full Case Title and Citation
China – Rare Earths Panel Reports, China – Measures Related to the Exportation of Rare
Earths, Tungsten, and Molybdenum, WT/DS431/R and Add.1 /
WT/DS432/R and Add.1 / WT/DS433/R and Add.1, adopted 29
August 2014, upheld by Appellate Body Reports WT/DS431/AB/R /
WT/DS432/AB/R / WT/DS433/AB/R, DSR 2014:IV, p. 1127
China – Raw Materials Appellate Body Reports, China – Measures Related to the
Exportation of Various Raw Materials, WT/DS394/AB/R /
WT/DS395/AB/R / WT/DS398/AB/R, adopted 22 February 2012,
DSR 2012:VII, p. 3295
Dominican Republic – Import and Sale
of Cigarettes
Appellate Body Report, Dominican Republic – Measures Affecting
the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R,
adopted 19 May 2005, DSR 2005:XV, p. 7367
EC – Asbestos Appellate Body Report, European Communities – Measures
Affecting Asbestos and Asbestos-Containing Products,
WT/DS135/AB/R, adopted 5 April 2001, DSR 2001:VII, p. 3243
EC – Bananas III (Article 21.5 – Ecuador
II) / EC – Bananas III (Article 21.5 –
US)
Appellate Body Reports, European Communities – Regime for the
Importation, Sale and Distribution of Bananas – Second Recourse
to Article 21.5 of the DSU by Ecuador, WT/DS27/AB/RW2/ECU,
adopted 11 December 2008, and Corr.1 / European Communities –
Regime for the Importation, Sale and Distribution of Bananas –
Recourse to Article 21.5 of the DSU by the United States,
WT/DS27/AB/RW/USA and Corr.1, adopted 22 December 2008,
DSR 2008:XVIII, p. 7165
EC – Bananas III (Ecuador) (Article 22.6
– EC)
Decision by the Arbitrator, European Communities – Regime for the
Importation, Sale and Distribution of Bananas – Recourse to
Arbitration by the European Communities under Article 22.6 of the
DSU, WT/DS27/ARB/ECU, 24 March 2000, DSR 2000:V, p. 2237
EC – Chicken Cuts Appellate Body Report, European Communities – Customs
Classification of Frozen Boneless Chicken Cuts, WT/DS269/AB/R,
WT/DS286/AB/R, adopted 27 September 2005, and Corr.1, DSR
2005:XIX, p. 9157
EC – Computer Equipment Appellate Body Report, European Communities – Customs
Classification of Certain Computer Equipment, WT/DS62/AB/R,
WT/DS67/AB/R, WT/DS68/AB/R, adopted 22 June 1998, DSR
1998:V, p. 1851
EC – IT Products Panel Reports, European Communities and its member States –
Tariff Treatment of Certain Information Technology Products,
WT/DS375/R / WT/DS376/R / WT/DS377/R, adopted 21 September
2010, DSR 2010:III, p. 933
EC – Poultry Appellate Body Report, European Communities – Measures
Affecting the Importation of Certain Poultry Products,
WT/DS69/AB/R, adopted 23 July 1998, DSR 1998:V, p. 2031
EC – Selected Customs Matters Appellate Body Report, European Communities – Selected Customs
Matters, WT/DS315/AB/R, adopted 11 December 2006, DSR
2006:IX, p. 3791
EC – Tariff Preferences Appellate Body Report, European Communities – Conditions for the
Granting of Tariff Preferences to Developing Countries,
WT/DS246/AB/R, adopted 20 April 2004, DSR 2004:III, p. 925
EC and certain member States – Large
Civil Aircraft
Appellate Body Report, European Communities and Certain Member
States – Measures Affecting Trade in Large Civil Aircraft,
WT/DS316/AB/R, adopted 1 June 2011, DSR 2011:I, p. 7
EC and certain member States – Large
Civil Aircraft
Panel Report, European Communities and Certain Member States –
Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R,
adopted 1 June 2011, as modified by Appellate Body Report
WT/DS316/AB/R, DSR 2011:II, p. 685
Japan – Agricultural Products II Appellate Body Report, Japan – Measures Affecting Agricultural
Products, WT/DS76/AB/R, adopted 19 March 1999, DSR 1999:I, p.
277
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Short Title Full Case Title and Citation
Japan – Alcoholic Beverages II Appellate Body Report, Japan – Taxes on Alcoholic Beverages,
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1
November 1996, DSR 1996:I, p. 97
Mexico – Corn Syrup (Article 21.5 – US) Appellate Body Report, Mexico – Anti-Dumping Investigation of
High Fructose Corn Syrup (HFCS) from the United States –
Recourse to Article 21.5 of the DSU by the United States,
WT/DS132/AB/RW, adopted 21 November 2001, DSR 2001:XIII, p.
6675
Mexico – Taxes on Soft Drinks Appellate Body Report, Mexico – Tax Measures on Soft Drinks and
Other Beverages, WT/DS308/AB/R, adopted 24 March 2006, DSR
2006:I, p. 3
Peru – Agricultural Products Appellate Body Report, Peru – Additional Duty on Imports of
Certain Agricultural Products, WT/DS457/AB/R and Add.1, adopted
31 July 2015, DSR 2015:VI, p. 3403
Peru – Agricultural Products Panel Report, Peru – Additional Duty on Imports of Certain
Agricultural Products, WT/DS457/R and Add.1, adopted 31 July
2015, as modified by Appellate Body Report WT/DS457/AB/R, DSR
2015:VII, p. 3567
Russia – Railway Equipment Panel Report, Russia – Measures Affecting the Importation of
Railway Equipment and Parts Thereof, WT/DS499/R and Add.1,
circulated to WTO Members 30 July 2018 [appealed by Ukraine 27
August 2018]
Russia – Tariff Treatment Panel Report, Russia – Tariff Treatment of Certain Agricultural and
Manufacturing Products, WT/DS485/R, Add.1, Corr.1, and Corr.2,
adopted 26 September 2016, DSR 2016:IV, p. 1547
US – 1916 Act Appellate Body Report, United States – Anti-Dumping Act of 1916,
WT/DS136/AB/R, WT/DS162/AB/R, adopted 26 September 2000,
DSR 2000:X, p. 4793
US – Anti-Dumping Measures on Oil
Country Tubular Goods
Appellate Body Report, United States – Anti-Dumping Measures on
Oil Country Tubular Goods (OCTG) from Mexico, WT/DS282/AB/R,
adopted 28 November 2005, DSR 2005:XX, p. 10127
US – Anti-Dumping Measures on Oil
Country Tubular Goods
Panel Report, United States – Anti-Dumping Measures on Oil
Country Tubular Goods (OCTG) from Mexico, WT/DS282/R, adopted
28 November 2005, as modified by Appellate Body Report
WT/DS282/AB/R, DSR 2005:XXI, p. 10225
US – Carbon Steel Appellate Body Report, United States – Countervailing Duties on
Certain Corrosion-Resistant Carbon Steel Flat Products from
Germany, WT/DS213/AB/R and Corr.1, adopted 19 December
2002, DSR 2002:IX, p. 3779
US – Continued Zeroing Appellate Body Report, United States – Continued Existence and
Application of Zeroing Methodology, WT/DS350/AB/R, adopted 19
February 2009, DSR 2009:III, p. 1291
US – Continued Zeroing Panel Report, United States – Continued Existence and Application
of Zeroing Methodology, WT/DS350/R, adopted 19 February 2009,
as modified as Appellate Body Report WT/DS350/AB/R, DSR
2009:III, p. 1481
US – Cotton Yarn Appellate Body Report, United States – Transitional Safeguard
Measure on Combed Cotton Yarn from Pakistan, WT/DS192/AB/R,
adopted 5 November 2001, DSR 2001:XII, p. 6027
US – Countervailing and Anti-Dumping
Measures (China)
Appellate Body Report, United States – Countervailing and Anti-
Dumping Measures on Certain Products from China,
WT/DS449/AB/R and Corr.1, adopted 22 July 2014, DSR 2014:VIII,
p. 3027
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign
Sales Corporations", WT/DS108/AB/R, adopted 20 March 2000,
DSR 2000:III, p. 1619
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Short Title Full Case Title and Citation
US – Hot-Rolled Steel Appellate Body Report, United States – Anti-Dumping Measures on
Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R,
adopted 23 August 2001, DSR 2001:X, p. 4697
US – Lamb Appellate Body Report, United States – Safeguard Measures on
Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand
and Australia, WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May
2001, DSR 2001:IX, p. 4051
US – Large Civil Aircraft (2nd complaint)
(Article 21.5 – EU)
Panel Report, United States – Measures Affecting Trade in Large
Civil Aircraft (Second Complaint) – Recourse to Article 21.5 of the
DSU by the European Union, WT/DS353/RW and Add.1, circulated
to WTO Members 9 June 2017 [appealed by the European Union 29
June 2017]
US – Line Pipe Appellate Body Report, United States – Definitive Safeguard
Measures on Imports of Circular Welded Carbon Quality Line Pipe
from Korea, WT/DS202/AB/R, adopted 8 March 2002, DSR
2002:IV, p. 1403
US – Nicaraguan Trade GATT Panel Report, United States – Trade Measures Affecting
Nicaragua, L/6053, 13 October 1986 (unadopted)
US – Oil Country Tubular Goods Sunset
Reviews
Appellate Body Report, United States – Sunset Reviews of Anti-
Dumping Measures on Oil Country Tubular Goods from Argentina,
WT/DS268/AB/R, adopted 17 December 2004, DSR 2004:VII, p.
3257
US – Orange Juice (Brazil) Panel Report, United States – Anti-Dumping Administrative Reviews
and Other Measures Related to Imports of Certain Orange Juice
from Brazil, WT/DS382/R, adopted 17 June 2011, DSR 2011:VII, p.
3753
US – Shrimp Appellate Body Report, United States – Import Prohibition of
Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6
November 1998, DSR 1998:VII, p. 2755
US – Sugar Quota GATT Panel Report, United States – Imports of Sugar from
Nicaragua, L/5607, adopted 13 March 1984, BISD 31S/67
US – Tuna II (Mexico) (Article 21.5 –
Mexico)
Appellate Body Report, United States – Measures Concerning the
Importation, Marketing and Sale of Tuna and Tuna Products –
Recourse to Article 21.5 of the DSU by Mexico, WT/DS381/AB/RW
and Add.1, adopted 3 December 2015, DSR 2015:X, p. 5133
US – Wheat Gluten Appellate Body Report, United States – Definitive Safeguard
Measures on Imports of Wheat Gluten from the European
Communities, WT/DS166/AB/R, adopted 19 January 2001, DSR
2001:II, p. 717
US – Wool Shirts and Blouses Appellate Body Report, United States – Measure Affecting Imports
of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R,
adopted 23 May 1997, and Corr.1, DSR 1997:I, p. 323
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JUDGMENTS OF INTERNATIONAL COURTS AND TRIBUNALS CITED IN THIS REPORT
Short Title Full Case Title and Citation
Case Concerning the Northern Cameroons International Court of Justice, Preliminary Objections, Case
Concerning the Northern Cameroons, (Cameroon v. United
Kingdom) (1963) ICJ Reports, p. 15
Case Concerning Oil Platforms International Court of Justice, Merits, Case Concerning Oil
Platforms, (Islamic Republic of Iran v. United States of
America) (2003) ICJ Reports, p. 161
Case of Military and Paramilitary Activities in
and Against Nicaragua
International Court of Justice, Merits, Case of Military and
Paramilitary Activities in and Against Nicaragua, (Nicaragua v.
United States of America) (1986) ICJ Reports, p. 14
Certain Expenses of the United Nations
International Court of Justice, Advisory Opinion, Certain
Expenses of the United Nations, (United Nations) (1962) I.C.J.
Reports, p. 151
Nuclear Tests Case International Court of Justice, Questions of Jurisdiction and/or
Admissibility, Nuclear Tests Case, (Australia v. France) (1974)
ICJ Reports, p. 253
Prosecutor v. Tadić International Criminal Tribunal for the Former Yugoslavia,
Decision on the Defence Motion for Interlocutory Appeal on
Jurisdiction, Prosecutor v. Tadić, (1995), Case No IT-94-1-A
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ABBREVIATIONS USED IN THIS REPORT
Abbreviation Description
1982 Decision Decision Concerning Article XXI of the General Agreement
2014 Belarus-Russia
Border Bans on Transit of
Resolution No. 778
Goods, or 2014 Belarus-
Russia Border Bans
Prohibitions on transit from Ukraine across Russia, through
checkpoints in Belarus, of goods subject to veterinary and
phytosanitary surveillance and which are subject to the import bans
implemented by Resolution No. 778, along with related
requirements that, as of 30 November 2014, such veterinary goods
destined for Kazakhstan or third countries enter Russia through
designated checkpoints on the Russian side of the external customs
border of the EaEU and only pursuant to permits issued by the
relevant veterinary surveillance authorities of the Government of
Kazakhstan and the Rosselkhoznadzor, and that, as of 24
November 2014, transit to third countries (including Kazakhstan) of
such plant goods takes place exclusively through the checkpoints
across the Russian state border
2016 Transit Bans on
Non-Zero Duty and
Resolution No. 778 Goods
Bans on all road and rail transit from Ukraine of: (a) goods that are
subject to non-zero import duties according to the Common
Customs Tariff of the EaEU, and (b) goods that fall within the scope
of the import bans imposed by Resolution No. 778, which are
destined for Kazakhstan or the Kyrgyz Republic. Transit of such
goods may only occur pursuant to a derogation requested by the
Government of Kazakhstan or the Government of the Kyrgyz
Republic, which is then authorized by the Russian Government, in
which case, the transit is subject to the 2016 Belarus Transit
Requirements (below)
2016 Belarus Transit
Requirements
Requirements that all international cargo transit by road and rail
from Ukraine destined for the Republic of Kazakhstan or the Kyrgyz
Republic, through Russia, be carried out exclusively from the
Belarus-Russia border, and comply with a number of additional
conditions related to identification and registration cards at specific
control points on the Belarus-Russia border and the Russia-
Kazakhstan border
A350 Airbus A350 Aircraft
April 1989 Decision Improvements to the GATT Dispute Settlement System Rules and
Procedures, Decision of 12 April 1989, L/6489, 13 April 1989
BCI Business Confidential Information
CIS-FTA Treaty on a Free Trade Area between the members of the
Commonwealth of Independent States, done at St Petersburg, 18
October 2011, retrieved from:
http://rtais.wto.org/rtadocs/762/TOA/English/FTA%20CIS_Text%2
0with%20protocols.docx
Covered agreements Agreements listed in Appendix 1 (of the Understanding on Rules
and Procedures Governing the Settlement of Disputes)
CU Customs Union
DCFTA Deep and Comprehensive Free Trade Area
Title IV (Trade and Trade-Related Matters) of the Association
Agreement between the European Union and its Member States, of
the one part, and Ukraine, of the other part, L 161/13, Vol. 57, 29
May 2014, ISSN 1977-0677
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Abbreviation Description
De facto measure Restrictions on the traffic in transit from the territory of Ukraine
through the territory of the Russian Federation to countries in
Central and Eastern Asia and Caucasus other than the Republic of
Kazakhstan and the Kyrgyz Republic by de facto applying Decree
No. 1 and Resolution No. 1 to transit from the territory of Ukraine
to third countries other than the Republic of Kazakhstan and the
Kyrgyz Republic
Decree No. 1 Decree of the President of the Russian Federation No. 1, "On
measures to ensure economic security and national interests of the
Russian Federation in international cargo transit from the territory
of Ukraine to the territory of the Republic of Kazakhstan through
the territory of the Russian Federation", dated 1 January 2016
Decree No. 319 Decree of the President of the Russian Federation No. 319, "On
Amendments to the Decree of the President of the Russian
Federation No. 1 of 1 January 2016", dated 1 July 2016
Decree No. 560 Decree of the President of the Russian Federation No. 560, "On the
application of certain special economic measures to ensure security
of the Russian Federation", dated 6 August 2014
Decree No. 643 Decree of the President of the Russian Federation No. 643, "On
amendments to the Decree of the President of the Russian
Federation No. 1 of 1 January 2016 'On measures to ensure
economic security and national interests of the Russian Federation
in international cargo transit from the territory of Ukraine to the
territory of the Republic of Kazakhstan through the territory of the
Russian Federation'", dated 30 December 2017
DSB Dispute Settlement Body
DSU Understanding on Rules and Procedures Governing the Settlement
of Disputes
EaEU Eurasian Economic Union
EaEU Treaty Treaty on the Establishment of the Eurasian Economic Union, done
at Astana, 29 May 2014, retrieved from:
https://www.wto.org/english/thewto_e/acc_e/kaz_e/WTACCKAZ85
_LEG_1.pdf
EU-Ukraine Association
Agreement
Association Agreement between the European Union and its
Member States, of the one part, and Ukraine, of the other part,
Official Journal of the European Union, L 161, Vol. 57, 29 May
2014, ISSN 1977-0677
GATS General Agreement on Trade and Services
GATT General Agreement on Tariffs and Trade
GATT 1947 General Agreement on Tariffs and Trade 1947
GATT 1994 General Agreement on Tariffs and Trade 1994
GLONASS Global Navigation Satellite System
(Russian translation: Globalnaya Navigazionnaya Sputnikovaya
Sistema)
Helms-Burton Act Cuban Liberty and Democratic Solidarity (LIBERTAD) Act
ICJ International Court of Justice
Import Licensing
Agreement
Agreement on Import Licensing Procedures
Annex 110
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Abbreviation Description
ITO International Trade Organization
LA/MSF Launch aid / member State financing
PJSC Notice Public Joint-Stock Company "Russian Railways" Notice on assessing
the fee for placing/removal of GLONASS seals at Moskovskaya,
Privolzhskaya, Yugo-Vostochnaya (South-Eastern) Railways, dated
17 May 2016
PJSC Order Public Joint-Stock Company "Russian Railways" Order No. 529r, "On
approval of the procedure for installing (removing) of the
identification means (seals) operating on the basis of the
technology GLONASS", dated 28 March 2016
Plant Instruction Instruction No. FS-AS-3/22903 of the Federal Service for Veterinary
and Phytosanitary Surveillance (Rosselkhoznadzor), dated 21
November 2014
Ramírez – López Treaty Treaty on Maritime Delimitation in the Caribbean Sea
Resolution No. 1 Resolution No. 1 of the Government of the Russian Federation, "On
measures related to the implementation of the Decree of the
President of the Russian Federation No. 1 of 1 January 2016", dated
1 January 2016
Resolution No. 778 Resolution of the Government of the Russian Federation No. 778,
"On measures for implementation of the Decree of the President of
the Russian Federation No. 560 of 6 August 2014 'On the
application of certain special economic measures to ensure security
of the Russian Federation'", dated 7 August 2014
Rosselkhoznadzor Russian Federal Service for Veterinary and Phytosanitary
Surveillance
Russia's Accession
Protocol
Protocol of the Accession of the Russian Federation,
WT/MIN(11)/24; WT/L/839, 17 December 2011
Russia's Working Party
Report
Report of the Working Party on the Accession of the Russian
Federation to the WTO, WT/ACC/RUS/70 and WT/MIN(11)/2, dated
11 November 2011
SPS Agreement Agreement on the Application of Sanitary and Phytosanitary
Measures
TBT Agreement Agreement on Technical Barriers to Trade
TPRM Trade Policy Review Mechanism
TRIPS Agreement Agreement on Trade-Related Aspects of Intellectual Property Rights
Ukraine's 2016 Trade
Policy Review Report
Trade Policy Review Body, Trade Policy Review, Ukraine,
Government Report prepared by Ukraine, WT/TPR/G/334
UN Charter Charter of the United Nations, done at San Francisco, 24 October
1945, UN Treaty Series Vol. 1, p. XVI
UN General Assembly General Assembly of the United Nations
US Draft Charter United States, Department of State, "Suggested Charter for an
International Trade Organization of the United Nations", Publication
2598, Commercial Policy Series 93, September 1946
Veterinary Instruction Instruction No. FS-NV-7/22886 of the Federal Service for
Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor),
dated 21 November 2014
Vienna Convention Vienna Convention on the Law of Treaties, done at Vienna, 23 May
1969, UN Treaty Series, Vol. 115, p. 331
Annex 110
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Abbreviation Description
WTO World Trade Organization
WTO Agreement Marrakesh Agreement Establishing the World Trade Organization
Annex 110
WT/DS512/R
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EXHIBITS CITED IN THIS REPORT
Panel Exhibit Short Title (where
applicable)
Full Title
UKR-1, RUS-1 Decree No. 1 Decree of the President of the Russian Federation No. 1, "On
measures to ensure economic security and national interests
of the Russian Federation in international cargo transit from
the territory of Ukraine to the territory of the Republic of
Kazakhstan through the territory of the Russian Federation",
dated 1 January 2016
UKR-2, RUS-2 Decree No. 319 Decree of the President of the Russian Federation No. 319,
"On amendments to the Decree of the President of the
Russian Federation No. 1 of 1 January 2016 'On measures to
ensure the economic security and national interests of the
Russian Federation in international cargo transit from the
territory of Ukraine to the territory of the Republic of
Kazakhstan through the territory of the Russian Federation'",
dated 1 July 2016
UKR-3, RUS-4 Resolution No. 1 Resolution of the Government of Russian Federation No. 1,
"On measures related to the implementation of the Decree of
the President of the Russian Federation No. 1 of 1 January
2016", dated 1 January 2016
UKR-4 Resolution No. 732 Resolution of the Government of the Russian Federation No.
732, "On amendments to some acts of the Government of
the Russian Federation", dated 1 August 2016
UKR-5 Resolution No. 388 Resolution of the Government of the Russian Federation No.
388, "On introduction of amendments to Appendix to the
Resolution of the Government of the Russian Federation No.
1 of 1 January 2016", dated 30 April 2016
UKR-6, RUS-5 Resolution No. 147 Resolution of the Government of the Russian Federation No.
147, "On approval of requirements to the identification
means (seals) including the ones functioning on the basis of
the technology of global satellite navigation system
GLONASS", dated 27 February 2016
UKR-7 PJSC Order Order of PJSC "Russian Railways" No. 529r, "On approval of
the procedure for installing (removing) of the identification
means (seals) operating on the basis of the technology
GLONASS", dated 28 March 2016
UKR-8, RUS-6 Resolution No. 276 Resolution of the Government of the Russian Federation No.
276, "On the procedure of exercising control over the
international road and rail cargo transit from the territory of
Ukraine to the territory of the Republic of Kazakhstan or the
Kyrgyz Republic through the territory of the Russian
Federation", dated 6 April 2016
UKR-9, RUS-3 Decree No. 560 Decree of the President of the Russian Federation No. 560,
"On the application of certain special economic measures to
ensure security of the Russian Federation", dated 6 August
2014
UKR-10, RUS-7 Resolution No. 778 Resolution of the Government of the Russian Federation No.
778, "On measures for implementation of the Decree of the
President of the Russian Federation No. 560 of 6 August 2014
'On the application of certain special economic measures to
ensure security of the Russian Federation'", dated 7 August
2014
UKR-11 Resolution No. 830 Resolution of the Government of the Russian Federation No.
830, "On amendments to the Resolution of the Government
of the Russian Federation dated 7 August 2014 No. 778",
dated 20 August 2014
UKR-12 Resolution No. 625 Resolution of the Government of the Russian Federation No.
625, "On amendments to the Resolution of the Government
of the Russian Federation dated 7 August 2014 No. 778",
dated 25 June 2015
Annex 110
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Panel Exhibit Short Title (where
applicable)
Full Title
UKR-13 Resolution No. 842 Resolution of the Government of the Russian Federation No.
842, "On amendments to the Resolutions of the Government
of the Russian Federation dated 7 August 2014 No. 778 and
dated 31 July 2015 No. 774", dated 13 August 2015
UKR-14 Resolution No. 981 Resolution of the Government of the Russian Federation No.
981, "On amendment of the Annex to the Resolution of the
Government of the Russian Federation dated 7 August 2014
No. 778", dated 16 September 2015
UKR-15 Resolution No. 1397 Resolution of the Government of the Russian Federation No.
1397, "On amendment of Item 1 of Resolution No. 778 of the
Government of the Russian Federation dated 7 August 2014",
dated 21 December 2015
UKR-16 Resolution No. 157 Resolution of the Government of the Russian Federation No.
157, "On amendment of the Annex to the Resolution of the
Government of the Russian Federation dated 7 August 2014
No. 778", dated 1 March 2016
UKR-17 Resolution No. 472 Resolution of the Government of the Russian Federation No.
472, "On amendment of the Annex to the Resolution of the
Government of the Russian Federation dated 7 August 2014
No. 778", dated 27 May 2016
UKR-18 Resolution No. 608 Resolution of the Government of the Russian Federation No.
608, "On amendments to the Resolution of the Government
of the Russian Federation dated 7 August 2014 No. 778",
dated 30 June 2016
UKR-19 Resolution No. 897 Resolution of the Government of the Russian Federation No.
897, "On amendment to Annex to the Russian Federation
Government Resolution dated 7 August 2014 No. 778", dated
10 September 2016
UKR-20 Resolution No. 1086 Resolution of the Government of the Russian Federation No.
1086, "On amendment of the Annex to the Resolution of the
Government of the Russian Federation dated 7 August 2014
No. 778", dated 22 October 2016
UKR-21, RUS-10 Veterinary Instruction Instruction No. FS-NV-7/22886 of the Federal Service for
Veterinary and Phytosanitary Surveillance
(Rosselkhoznadzor), dated 21 November 2014
UKR-22, RUS-11 Plant Instruction Instruction No. FS-AS-3/22903 of the Federal Service for
Veterinary and Phytosanitary Surveillance
(Rosselkhoznadzor) dated 21 November 2014
UKR-47
Federal Law No. 410-FZ of the Russian Federation, "On
Suspending by the Russian Federation of the Treaty on a Free
Trade Area with respect to Ukraine", dated 30 December
2015
UKR-53 European Commission
Press Release
Press release "The trade part of the EU-Ukraine Association
Agreement becomes operational on 1 January 2016", dated
31 December 2015, European Commission, available at:
http://europa.eu/rapid/press-release_IP-15-6398_en.htm
UKR-58 Treaty on the Establishment of the Eurasian Economic Union,
done at Astana, 29 May 2014, available at:
https://www.wto.org/english/thewto_e/acc_e/kaz_e/WTACCK
AZ85_LEG_1.pdf
UKR-70 Resolution No. 790 Resolution of the Government of the Russian Federation No.
790, "On amendments to the Resolution of the Government
of the Russian Federation dated 7 August 2014 No. 778",
dated 4 July 2017
UKR-71 Decree No. 293 Decree of the President of the Russian Federation No. 293,
"On extending certain special economic measures in the
interest of ensuring the security of the Russian Federation",
dated 30 June 2017
UKR-75
Instruction No. FS-EN-7/19132 of the Federal Service for
Veterinary and Phytosanitary Surveillance
(Rosselkhoznadzor), dated 10 October 2016
Annex 110
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Panel Exhibit Short Title (where
applicable)
Full Title
UKR-76 Decree of the President of the Russian Federation No. 628,
"About suspension of validity by the Russian Federation of
the free trade area concerning Ukraine", dated 16 December
2015
UKR-78 UNIAN Information
Agency Article
UNIAN Information Agency, "Putin signed and amended the
law on the suspension of the FTA with Ukraine", dated 30
December 2015, available at:
https://economics.unian.net/finance/1226612-putinpodpisal-
zakon-o-priostanovlenii-zst-s-ukrainoy.html
UKR-80 RBK article RBK, "Putin suspended the free trade agreement with
Ukraine", dated 16 December 2015, available at:
http://www.rbc.ru/politics/16/12/2015/567178fe9a7947944e
73b0a4
UKR-84 Print-screen of the website of the President of the Russian
Federation, "The law on suspension of the FTA agreement
with Ukraine is signed", dated 30 December 2015, available
at: kremlin.ru/acts/news/51091
UKR-88 Official Site of the Rosselkhoznadzor, "Regarding Regulation
by Rosselkhoznadzor of Quarantined Plant Products Transit",
dated 24 November 2014
UKR-89 UN General Assembly
Resolution No.
68/262, 27 March
2014
UN General Assembly Resolution No. 68/262 "Territorial
integrity of Ukraine", 27 March 2014, A/RES/68/262
UKR-91 UN General Assembly
Resolution No.
71/205, 19 December
2016
UN General Assembly Resolution No. 71/205 "Situation of
human rights in the Autonomous Republic of Crimea and the
city of Sevastopol (Ukraine)", 19 December 2016,
A/RES/71/205
UKR-94 Resolution No. 1292 Resolution of the Government of the Russian Federation No.
1292, "On amendments to the Annexes to Resolution of the
Government of the Russian Federation of 7 August 2014 No.
778", dated 25 October 2017
UKR-98, RUS-13 Decree No. 643 Decree of the President of the Russian Federation No. 643,
"On amendments to the Decree of the President of the
Russian Federation No. 1 of 1 January 2016 'On measures to
ensure economic security and national interests of the
Russian Federation in international cargo transit from the
territory of Ukraine to the territory of the Republic of
Kazakhstan through the territory of the Russian Federation'",
dated 30 December 2017
UKR-102 The Regions of Central
Asia, Eastern Asia and
Caucasus
Map of Central Asia, Map of the Caucasus and Central Asia,
and the UN Classification of Countries by Region, Income
Group, and Subregion of the World
UKR-111 EU-Ukraine
Association Agreement
Association Agreement between the European Union and its
Member States, of the one part, and Ukraine, of the other
part, Official Journal of the European Union, L 161, Vol. 57,
29 May 2014, ISSN 1977-0677
UKR-112 Notice concerning the provisional application of the
Association Agreement between the European Union and the
European Atomic Energy Community and their Member
States, of the one part, and Ukraine, of the other part,
Official Journal of the European Union, L 311/1, 31 October
2014
RUS-8 Federal Law No. 281-
FZ
Federal Law No. 281-FZ of the Russian Federation, "On the
Special Economic Measures", dated 30 December 2006
RUS-12 Federal Law No. 390-
FZ
Federal Law No. 390-FZ of the Russian Federation, "On
Security", dated 28 December 2010
RUS-14
Telegram of "Ukrzaliznytsia" (Ukrainian Railways) No. CZM-
14/946, dated 6 June 2014
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Panel Exhibit Short Title (where
applicable)
Full Title
RUS-15 Print-screen of the website of the State Border Guard Service
of Ukraine, retrieved from: https://dpsu.gov.ua/ua/news/nalyganshhini-
stvorjujutsja-zagoni-prikordonnoi-samooboroni/
RUS-16
Resolution of the Cabinet of Ministers of Ukraine No. 20, "On
approval of the list of checkpoints through the state border of
Ukraine, through which the goods are imported in transit
mode", dated 20 January 2016
RUS-17
Regulation of the Cabinet of Ministers of Ukraine No. 106-r,
"On the closure of checkpoints across the state border",
dated 18 February 2015
RUS-18 Telegram of "Ukrzaliznytsia" (Ukrainian Railways) No. CZM-
14/1134, dated 8 July 2014
RUS-19 Resolution of the Cabinet of Ministers of Ukraine No. 1147,
"On the prohibition of importation of products originating in
the Russian Federation into the customs territory of Ukraine",
dated 30 December 2015
RUS-20 Decree of the President of Ukraine No. 133/2017, "On the
Decision of the National Security and Defense Council of
Ukraine 'On application of personal special economic and
other restrictive measures (sanctions)'", dated 28 April 2017
RUS-22 Decree of the President of Ukraine No. 58/2018, "On the
decision of the Ukrainian National Security and Defense
Council 'Urgent measures on security of the national interests
of the state in the sphere of aircraft engine building'", dated
1 March 2018
RUS-23
Decree of the President of Ukraine No. 57/2018, "On entry
into force of the Decision of the Council on National Security
and Defense of Ukraine of 1 March 2018, 'On application of
personal special economic and other restrictive measures
(sanctions)'", dated 6 March 2018
RUS-24 Resolution No. 959 Resolution of the Russian Federation No. 959, "On imposition
of import customs duties in respect of goods, originating from
Ukraine", dated 19 September 2014
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1 INTRODUCTION
1.1 Complaint by Ukraine
1.1. On 14 September 2016, Ukraine requested consultations with the Russian Federation (Russia)
pursuant to Articles 1 and 4 of the Understanding on Rules and Procedures Governing the Settlement
of Disputes (DSU) and Article XXII of the General Agreement on Tariffs and Trade 1994 (GATT 1994)
with respect to the measures and claims set out below.1
1.2. Consultations were held on 10 November 2016 between Ukraine and Russia. These
consultations failed to resolve the dispute.2
1.2 Panel establishment and composition
1.3. On 9 February 2017, Ukraine requested the establishment of a panel pursuant to Article 4.7
and Article 6 of the DSU, and Article XXIII of the GATT 1994 with standard terms of reference.3 At its
meeting on 21 March 2017, the Dispute Settlement Body (DSB) established a panel pursuant to
Ukraine's request in document WT/DS512/3, in accordance with Article 6 of the DSU.4
1.4. The Panel's terms of reference are the following:
To examine, in the light of the relevant provisions of the covered agreements cited by
the parties to the dispute, the matter referred to the DSB by Ukraine in document
WT/DS512/3 and to make such findings as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements.5
1.5. On 22 May 2017, Ukraine requested the Director-General to determine the composition of the
panel, pursuant to Article 8.7 of the DSU. On 6 June 2017, the Director-General accordingly
composed the Panel as follows6:
Chairperson: Professor Georges Abi-Saab
Members: Professor Ichiro Araki
Dr Mohammad Saeed
1.6. Australia, Bolivia, Brazil, Canada, Chile, China, the European Union, India, Japan, Korea,
Moldova, Norway, Paraguay, Saudi Arabia, Singapore, Turkey and the United States notified their
interest in participating in the Panel proceedings as third parties.
1.3 Panel proceedings
1.3.1 General
1.7. The Panel held an organizational meeting with the parties on 28 June 2017.
1.8. After consultation with the parties, the Panel adopted its Working Procedures7 and timetable8
on 12 July 2017.
1.9. The Panel held a first substantive meeting with the parties on 23 and 25 January 2018.
A session with the third parties took place on 25 January 2018. The Panel held a second substantive
meeting with the parties on 15 May 2018.
1 WT/DS512/1 and WT/DS512/1/Corr.1.
2 WT/DS512/3.
3 Ibid.
4 See WT/DSB/M/394.
5 WT/DS512/4.
6 Ibid.
7 The Panel's Working Procedures were revised on 11 January 2018. See the Panel's
Working Procedures, adopted on 12 July 2017, as revised on 11 January 2018, in Annex A-1.
8 The timetable for the Panel proceedings was revised on 31 January 2018 and on 17 January 2019.
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1.10. On 31 July 2018, the Panel issued the descriptive part of its Report to the parties. The Panel
issued its Interim Report to the parties on 29 January 2019. The Panel issued its Final Report to the
parties on 28 March 2019.
1.3.2 Additional Working Procedures for the Protection of Business Confidential
Information
1.11. After consultation with both parties, the Panel adopted Additional Working Procedures
concerning the protection of Business Confidential Information (BCI), on 25 August 2017.9
1.3.3 Request for enhanced third party rights by certain third parties
1.12. On 10 November 2017, Australia, Canada and the European Union jointly requested the Panel
to grant to all of the third parties certain additional third-party rights in these proceedings. The Panel
invited the parties and other third parties, on 20 November 2017, to comment on the joint request.
On 1 December 2017, Ukraine, Russia and certain of the other third parties (Brazil, China, Japan,
Singapore and the United States) provided comments on the joint request. In a communication
dated 9 January 2018, the Panel informed the parties and third parties that it had decided to grant
the following enhanced third-party rights to all of the third parties:
a. The right to attend the portions of the party session of the first substantive meeting at
which the parties deliver their opening oral statements, and closing oral statements,
respectively; and
b. The right to receive the provisional written versions of the parties' opening oral statements
and closing oral statements, respectively, at the portions of the party session of the
first substantive meeting at which those statements are delivered, as well as the final
versions of such oral statements at the end of the day on which they are delivered.
1.13. The Panel's decision is set out in Annex B-1.
1.3.4 Russia's request for a preliminary ruling
1.14. In its first written submission, Russia requested that the Panel issue a ruling, no later than
the date for filing the parties' second written submissions, that the category of measures identified
in Ukraine's first written submission as the "2014 transit bans and other transit restrictions" is
outside the Panel's terms of reference.10
1.15. On 13 March 2018, the Panel issued a communication to the parties in which it advised that
it had decided to address the issue of whether the 2014 transit bans and other transit restrictions
are outside the Panel's terms of reference, together with the merits, and would therefore defer its
ruling on that issue until the issuance of the Report.11
1.16. The Panel's ruling on whether the 2014 transit bans and other transit restrictions are outside
the Panel's terms of reference, and other issues concerning the Panel's terms of reference, is
addressed in Section 7.7 of this Report.
1.3.5 Russia's complaint of alleged breaches of confidentiality by a third party
1.17. In a letter to the Panel dated 14 March 2018, Russia complained that the European Union,
a third party in this dispute, had violated confidentiality obligations under various provisions of the
DSU and of the Working Procedures by publishing the European Union's third-party submission and
third-party statement on the website of the European Commission's Directorate-General for Trade.12
By communication dated 16 March 2018, the Panel invited the European Union and any other
third parties, as well as Ukraine, to provide any comments on Russia's complaint by 21 March 2018.
Accordingly, on 21 March 2018, the European Union, Australia, Brazil, Canada, the United States
9 See the Panel's additional Working Procedures concerning BCI in Annex A-2.
10 Russia's first written submission, para. 31.
11 Communication of the Panel to the parties, dated 13 March 2018.
12 Russia's letter to the Chair of the Panel, dated 14 March 2018.
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and Ukraine each provided comments on Russia's complaint. On 23 March 2018, the Panel invited
Russia to respond to these comments by 4 April 2018. On that date, Russia provided its response.
1.18. On 16 May 2018, the Panel issued a ruling in which it declined to take any action in respect
of the published European Union third-party submission and third-party statement on the grounds
that it did not consider that such publication violated the confidentiality obligations under Article 18.2
of the DSU, the Working Procedures or any other applicable confidentiality obligations. Particularly,
the Panel did not agree with the proposition that legal arguments and opinions of parties in WTO
dispute settlement proceedings were inherently confidential, or capable of designation as confidential
information under the third sentence of Article 18.2 of the DSU. The Panel's ruling is set out in
Annex B-2.
1.3.6 Other procedural complaints
1.19. In an email message dated 28 March 2018, Ukraine alleged that Russia had failed to file
Exhibit RUS-20 (UKR) in accordance with paragraph 25 of the Working Procedures because it filed
this exhibit by means of reference to a web link. In a communication to the parties dated
6 April 2018, the Panel noted that Russia had promptly submitted a paper version of
Exhibit RUS-20 (UKR) by 5:00 p.m. on the due date for submission, and that in accordance with
paragraph 25(b) of the Working Procedures, Exhibit RUS-20 (UKR) therefore formed part of the
factual record in this dispute. The Panel also noted that, due to the size of the exhibit, the PDF file
containing Exhibit RUS-20 (UKR) could not be attached to an email message. The Panel therefore
requested Russia to provide Exhibit RUS-20 (UKR) to Ukraine in one of the other formats set forth
in paragraph 25(b) of the Working Procedures, namely, on a USB key, a CD-ROM or a DVD.
1.20. In an email message dated 18 May 2018, Russia complained that Ukraine had failed to file
Exhibits UKR-106 (BCI) through UKR-115 in accordance with subparagraph (a) of the
Panel's invitation to the second substantive meeting dated 27 April 2018. Russia submitted that,
owing to this failure, the Panel should not accept and consider these exhibits. In a communication
to the parties dated 22 May 2018, the Panel declined Russia's request, observing that while the
electronic versions of the exhibits were not provided to Russia or submitted to the
Dispute Settlement Registry until 18 May 2018, Ukraine had previously served paper copies of
Exhibits UKR-106 (BCI) to UKR-115 on Russia and on the Panel on 15 May 2018, at the second
substantive meeting. The paper copies of those exhibits constitute the official versions of those
exhibits for purposes of the record of the dispute under paragraph 25(b) of the Working Procedures.
1.21. During the second substantive meeting on 15 May 2018, Russia alleged that Ukraine had
untimely filed Exhibit UKR-106 (BCI) in a manner inconsistent with paragraph 7 of the
Working Procedures. Russia rejected Ukraine's assertion that Exhibit UKR-106 (BCI) was "necessary
for purposes of rebuttal" and requested, in a letter dated 13 June 2018, that the Panel strike
Exhibit UKR-106 (BCI) from the record. In a communication to the parties dated 23 July 2018, the
Panel granted Russia's request, observing that, in the first round of arguments, Ukraine's arguments
concerning the existence of the measures in question related to the legal existence of the measures
in Russia's legal system without reference to any specific instances of application,
i.e., Ukraine's arguments related to the existence of the measures "as such". At the second
substantive meeting, Ukraine reiterated its "as such" argument while also submitting the contested
exhibit concerning the application of the measure, in one instance, as evidence in support of its main
argument. In the Panel's view, this did not make such evidence "necessary for the purposes of
rebuttal" within paragraph 7 of the Working Procedures. The Panel's ruling is set out in Annex B-3.
2 FACTUAL ASPECTS
2.1. This dispute concerns various measures imposed by Russia on transit by road and rail through
the territory of Russia, as well as the publication and administration of those measures. Additional
information concerning the measures and the factual background against which they were adopted
is set forth in Sections 7.3 and 7.7 of this Report.
3 PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
3.1. Ukraine requests that the Panel find that the measures at issue are inconsistent with
Russia's obligations under the first sentence of Article V:2, the second sentence of Article V:2, Article
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V:3, Article V:4 and Article V:5 of the GATT 1994, and with paragraph 2 of Part I of the Protocol of
Accession of the Russian Federation (Russia's Accession Protocol)13, which incorporates
commitments in paragraph 1161 of the Report of the Working Party on the Accession of the
Russian Federation to the WTO (Russia's Working Party Report)14; as well as Article X:1 of the
GATT 1994 and commitments in paragraph 1426 of Russia's Working Party Report, as incorporated
into its Accession Protocol by reference; Article X:2 of the GATT 1994 and commitments in
paragraph 1428 of Russia's Working Party Report, as incorporated into its Accession Protocol by
reference; commitments in paragraph 1427 of Russia's Working Party Report, as incorporated into
its Accession Protocol by reference; and Article X:3(a) of the GATT 1994. Ukraine further requests,
pursuant to Article 19.1 of the DSU, that the Panel recommend that Russia bring its measures into
conformity with its WTO obligations.
3.2. Russia invokes Article XXI(b)(iii) of the GATT 1994 and requests the Panel, for lack of
jurisdiction, to limit its findings to recognizing that Russia has invoked a provision of Article XXI of
the GATT 1994, without engaging further to evaluate the merits of Ukraine's claims. Russia considers
that the Panel lacks jurisdiction to evaluate measures in respect of which Article XXI of the
GATT 1994 is invoked.
4 ARGUMENTS OF THE PARTIES
4.1. The arguments of the parties are reflected in their executive summaries, provided to the Panel
in accordance with paragraph 19 of the Working Procedures adopted by the Panel (see Annexes C-1
and C-4). They are also reiterated where relevant in the Panel's analysis.
5 ARGUMENTS OF THE THIRD PARTIES
5.1. The arguments of Australia, Brazil, Canada, China, the European Union, Japan, Moldova,
Singapore, Turkey and the United States are reflected in their executive summaries, provided in
accordance with paragraph 20 of the Working Procedures adopted by the Panel (see Annexes D-1
through D-10). Turkey made oral arguments to the Panel but did not submit written arguments.
Bolivia, Chile, India, Korea, Norway, Paraguay and Saudi Arabia did not submit written or oral
arguments to the Panel.
6 INTERIM REVIEW
6.1. The Panel issued its Interim Report to the parties on 29 January 2019. Both parties submitted
written requests for review of precise aspects of the Interim Report on 14 February 2019. Neither
party requested an interim review meeting. On 28 February 2019, both parties submitted written
comments on each other's written requests for review.
6.2. The parties' requests made at the interim stage, as well as the Panel's discussion and
disposition of those requests, are set out in Annex E-1.
7 FINDINGS
7.1 Overview of Ukraine's complaints
7.1. Ukraine's main complaints may be succinctly stated as follows:
a. Since 1 January 2016, Ukraine has not been able to use road or rail transit routes across
the Ukraine-Russia border for all traffic in transit destined for Kazakhstan. Rather, under
Russian law, such traffic may only transit from Ukraine across Russia from the
Belarus-Russia border, and is also subject to additional conditions related to identification
seals and registration cards, both on entering and on leaving Russian territory, at specific
control points on the Belarus-Russia border and the Russia-Kazakhstan border
respectively. As of 1 July 2016, all traffic in transit destined for the Kyrgyz Republic has
been subject to the same restrictions.
13 WT/MIN(11)/24 and WT/L/839, dated 17 December 2011.
14 WT/ACC/RUS/70 and WT/MIN(11)/2, dated 17 November 2011.
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b. Since 1 July 2016, traffic in transit by road and rail from Ukraine, which is destined for
Kazakhstan and the Kyrgyz Republic, is not permitted to transit across Russia at all
(i.e. not even via the Belarus-Russia border) for particular categories of goods. The
categories of goods are: (i) those subject to customs duties greater than zero according
to the Common Customs Tariff of the Eurasian Economic Union (EaEU), and
(ii) goods listed in an annex to Resolution No. 778 of the Government of the
Russian Federation (Resolution No. 778)15 and which originate in specific countries that
have imposed economic sanctions on Russia.16 Although there is a procedure which
exceptionally permits transit of these goods from Ukraine to Kazakhstan and to the
Kyrgyz Republic (through a derogation procedure involving a request by the Governments
of Kazakhstan or the Kyrgyz Republic and an authorization granted by
Russian authorities), it is unclear how this derogation procedure operates and to date, no
such derogations have been granted.
c. The transit restrictions referred to in paragraph 7.1(a) above, and the transit bans referred
to in paragraph 7.1(b) above, are also applied by Russian authorities to traffic in transit
by road or rail from Ukraine which is destined not only for Kazakhstan and the
Kyrgyz Republic, but also for Mongolia, Tajikistan, Turkmenistan and Uzbekistan.
d. Finally, as of 30 November 2014, transit from Ukraine of goods subject to veterinary
surveillance which are listed in Resolution No. 778 is not permitted through Belarus.
Rather, such goods with a final destination of Kazakhstan and third countries may transit
across Russia only from specific checkpoints on the Russian side of the external customs
border of the EaEU and only pursuant to permits issued by the relevant veterinary
surveillance authorities of the Government of Kazakhstan and pursuant to permits issued
by the Russian Federal Service for Veterinary and Phytosanitary Surveillance
(Rosselkhoznadzor). Transit to third countries (including Kazakhstan) of plant goods which
are listed in Resolution No. 778 shall also, as of 24 November 2014, take place exclusively
through the checkpoints on the Russian state border.17
7.2. Ukraine claims that the above-referenced transit restrictions and bans are inconsistent with
Russia's obligations under Article V of the GATT 1994 and related commitments in
Russia's Accession Protocol. Ukraine also claims that Russia has failed to publish and administer
15 Resolution No. 778 of the Government of the Russian Federation bans the importation of various
agricultural products, raw materials and foodstuffs, as listed in the Resolution, which originate from the
United States, EU Member States, Canada, Australia and Norway, which had imposed economic sanctions on
Russia. (Resolution of the Government of the Russian Federation No. 778, "On measures for implementation of
the Decree of the President of the Russian Federation No. 560 of 6 August 2014 'On the application of certain
special economic measures to ensure security of the Russian Federation'", dated 7 August 2014,
(Resolution No. 778), (Exhibits UKR-10, RUS-7).)
16 On 13 August 2015, the import bans imposed by Resolution No. 778 were extended to the listed
goods originating from Albania, Montenegro, Iceland, Liechtenstein and Ukraine. (See Resolution of the
Government of the Russian Federation No. 842, "On amendments to the Resolutions of the Government of the
Russian Federation dated 7 August 2014 No. 778 and dated 31 July 2015 No. 774", dated 13 August 2015,
(Resolution No. 842), (Exhibit UKR-13).) On 13 August 2015, the Russian Government adopted
Resolution No. 842 which, among other things, amends Resolution No. 778 to add further countries to the list
of countries whose exports are subject to the Resolution No. 778 import bans, including Ukraine. However,
with respect to Ukraine, Resolution No. 842 provides that the import bans shall be applied as of 10 days from
the date on which the Russian Government is notified of action by Ukraine to implement the economic part of
the EU-Ukraine Association Agreement (referred to in Resolution of the Russian Federation No. 959
"On imposition of import customs duties in respect of goods, originating from Ukraine", dated
19 September 2014, (Resolution No. 959), (Exhibit RUS-24)), but by no later than 1 January 2016. Another
resolution of the Russian Government, enacted on 21 December 2015, specified that the import prohibitions in
respect of the goods listed in Resolution No. 778 would apply to goods of Ukrainian origin as of
1 January 2016. (See Resolution of the Government of the Russian Federation No. 1397, "On amendment of
Item 1 of Resolution No. 778 of the Government of the Russian Federation dated 7 August 2014", dated
21 December 2015, (Resolution No. 1397), (Exhibit UKR-15).) The duration of the import bans has been
extended a number of times, most recently by Resolution No. 790, which extends the import bans until 31
December 2018. (See Resolution of the Government of the Russian Federation No. 790, "On amendments to
the Resolution of the Government of the Russian Federation dated 7 August 2014 No. 778", dated 4 July 2017,
(Resolution No. 790), (Exhibit UKR-70).) For other amendments to Resolution No. 778, see fn 385 below.
17 For an explanation of the measures as identified by Ukraine in its panel request and as subsequently
identified in its first written submission, see paras. 7.264-7.275 below.
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various instruments through which these measures are implemented in the manner required by
Article X of the GATT 1994 and by commitments in Russia's Accession Protocol.
7.2 Russia's response
7.3. Russia does not specifically address the factual evidence or legal arguments adduced by
Ukraine in support of its substantive claims under the GATT 1994 and Russia's Accession Protocol.
Rather, Russia argues that certain claims and measures are outside the Panel's terms of reference,
on the bases that: (a) Ukraine's panel request does not comply with the requirements of Article 6.2
of the DSU, and (b) Ukraine has failed to establish the existence of one of the challenged measures.
7.4. Principally, however, Russia asserts that the measures are among those that Russia considers
necessary for the protection of its essential security interests, which it took, "[i]n response to the
emergency in international relations that occurred in 2014 that presented threats to the
Russian Federation's essential security interests".18 Russia invokes the provisions of
Article XXI(b)(iii) of the GATT 1994, arguing that, as a result, the Panel lacks jurisdiction to further
address the matter. Accordingly, Russia submits that the Panel should limit its findings in this dispute
to a statement of the fact that Russia has invoked Article XXI(b)(iii), without further engaging on
the substance of Ukraine's claims.19
7.3 Factual background
7.5. The issues that arise in this dispute must be understood in the context of the serious
deterioration of relations between Ukraine and Russia that occurred following a change in
government in Ukraine in February 2014. Both parties have avoided referring directly to this change
in government and to the events that followed it. It is not this Panel's function to pass upon the
parties' respective legal characterizations of those events, or to assign responsibility for them, as
was done in other international fora. At the same time, the Panel considers it important to situate
the dispute in the context of the existence of these events.
7.6. Ukraine had, since 18 October 2011, been a party to the Treaty on a Free Trade Area between
the members of the Commonwealth of Independent States (CIS-FTA)20, with Russia, Belarus,
Kazakhstan, the Kyrgyz Republic, Tajikistan, Moldova and Armenia.21 On 29 May 2014, Russia,
Belarus and Kazakhstan signed the Treaty on the Establishment of the Eurasian Economic Union
(EaEU Treaty)22, with Armenia and the Kyrgyz Republic joining in January and August of 2015,
respectively. The EaEU Treaty entered into force on 1 January 2015.23
7.7. While it took part in the initial negotiations to establish the EaEU, Ukraine decided, following
on the "Euromaidan events", not to join the EaEU Treaty. Instead, it elected to seek economic
integration with the European Union.24 Accordingly, on 21 March 2014, the newly sworn-in Ukrainian
Government signed the political part of the "Association Agreement between the European Union
and its Member States, of the one part, and Ukraine, of the other part" (EU-Ukraine Association
Agreement).25 The objectives of the EU-Ukraine Association Agreement are to facilitate Ukraine's
closer political and economic integration with Europe.26 The economic part of the EU-Ukraine
18 Russia's first written submission, paras. 16, 19, 33 and 74; and closing statement at the first meeting
of the Panel, para. 6.
19 Russia's opening statement at the first meeting of the Panel, paras. 45-47.
20 Treaty on a Free Trade Area between the members of the Commonwealth of Independent States,
done at St Petersburg, 18 October 2011, retrieved from:
http://rtais.wto.org/rtadocs/762/TOA/English/FTA%20CIS_Text%20with%20pr….
21 Ukraine's first written submission, para. 19. The CIS-FTA entered into force on 20 September 2012.
(Ibid.)
22 Treaty on the Establishment of the Eurasian Economic Union, done at Astana, 29 May 2014, retrieved
from: https://www.wto.org/english/thewto_e/acc_e/kaz_e/WTACCKAZ85_LEG_1.pdf, (Exhibit UKR-58).
23 Ukraine's first written submission, para. 21.
24 Ibid. paras. 16, 20 and 24.
25 Association Agreement between the European Union and its Member States, of the one part, and
Ukraine, of the other part, Official Journal of the European Union, L 161, Vol. 57, 29 May 2014, ISSN
1977-0677, (EU-Ukraine Association Agreement), (Exhibit UKR-111), p. 170. See also Ukraine's first written
submission, para. 24.
26 EU-Ukraine Association Agreement, (Exhibit UKR-111), p. 6.
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Association Agreement provides for a Deep and Comprehensive Free Trade Area (DCFTA) between
the European Union and Ukraine.27 This part of the EU-Ukraine Association Agreement was signed
on 27 June 2014.
7.8. In March 2014, Ukraine, along with certain other countries, introduced a resolution in the
General Assembly of the United Nations (UN General Assembly), which welcomed the continued
efforts by the UN Secretary-General and the Organization for Security and Cooperation in Europe,
as well as other international and regional organizations, to support "de-escalation of the situation
with respect to Ukraine".28 The UN General Assembly recalled "the obligations of all States under
Article 2 of the Charter to refrain in their international relations from the threat or use of force
against the territorial integrity or political independence of any State, and to settle their international
disputes by peaceful means".29 A subsequent UN General Assembly Resolution in December 2016
condemned the "temporary occupation of part of the territory of Ukraine", i.e. the "Autonomous
Republic of Crimea and the city of Sevastopol" by the Russian Federation, and reaffirmed the
non-recognition of its "annexation".30 This resolution makes explicit reference to the
Geneva Conventions of 1949, which apply in cases of declared war or other armed conflict between
High Contracting Parties.31
7.9. The events in Ukraine in 2014 were followed by the imposition of economic sanctions against
Russian entities and persons by certain countries.
7.10. On 7 August 2014, Russia imposed import bans on specified agricultural products, raw
materials and food originating from countries that had imposed sanctions against it (initially, the
United States, European Union Member States, Canada, Australia and Norway).32 Russia also
imposed certain restrictions in connection with the transit of goods subject to these import bans,
prohibiting their transit through Belarus, and permitting their transit across Russia only through
27 The DCFTA is contained in Title IV of the EU-Ukraine Association Agreement. (EU-Ukraine Association
Agreement, (Exhibit UKR-111), pp. 13-137.) This part of the EU-Ukraine Association Agreement provides for
the progressive formation of a free trade area covering goods and services. (Ibid. Article 25, p. 13.) In its
opening statement at the second meeting of the Panel, Ukraine explains that the "economic part" of the EUUkraine
Association Agreement contains a "free trade agreement establishing the Deep and Comprehensive
Free Trade Area (DCFTA)". (Ukraine's opening statement at the second meeting of the Panel, para. 60.) The
Panel refers to the DCFTA unless it specifically means the economic part of the EU-Ukraine Association
Agreement.
28 UN General Assembly Resolution No. 68/262 "Territorial Integrity of Ukraine", 27 March 2014,
A/RES/68/262, (UN General Assembly Resolution No. 68/262, 27 March 2014), (Exhibit UKR-89), p. 2. This
Resolution—introduced by Ukraine, Germany, Poland, Lithuania, Canada and Costa Rica—was supported by
100 UN Member States, with 11 voting against (including Russia), 58 abstentions and 24 absent. (UN General
Assembly Official Records, A/68/PV.80, 80th meeting, 27 March 2014, p. 17.)
29 UN General Assembly Resolution No. 68/262, 27 March 2014, (Exhibit UKR-89), p. 1.
30 UN General Assembly Resolution No. 71/205 "Situation of Human Rights in the Autonomous Republic
of Crimea and the city of Sevastopol (Ukraine)", 19 December 2016, A/RES/71/205, (UN General Assembly
Resolution No. 71/205, 19 December 2016), (Exhibit UKR-91). This Resolution received 70 votes in favour,
26 against (including Russia) and 77 abstentions. (UN General Assembly Official Records, A/71/PV.65,
19 December 2016, pp. 40-41.)
31 Ibid. p. 2. The specific reference is to the prohibitions on the occupying Power compelling protected
persons to serve in its armed or auxiliary forces. (See Article 130 of the Convention relative to the Treatment
of Prisoners of War, done at Geneva, 12 August 1949, UN Treaty Series, Vol. 75, p. 135; and Article 147 of the
Convention relative to the Protection of Civilian Persons in Time of War, done at Geneva, 12 August 1949, UN
Treaty Series, Vol. 75, p. 287.)
32 These import bans are imposed by Resolution No. 778, (Exhibits UKR-10, RUS-7). The import bans
had been authorized by the President of the Russian Federation the previous day through Decree of the
President of the Russian Federation No. 560, "On the application of certain special economic measures to
ensure the security of the Russian Federation", dated 6 August 2014, (Decree No. 560), (Exhibits UKR-9,
RUS-3). Decree No. 560 established the original parameters for the Russian Government to impose import
bans on certain agricultural products, raw materials and foodstuffs originating in the countries that had decided
to impose economic sanctions against Russian legal entities or individuals, or joined in such a decision.
Decree No. 560 was subsequently extended by Decree No. 320 of 24 June 2015, Decree No. 305 of
29 June 2016 and Decree No. 293 of 30 June 2017. Decree No. 560 was in force until 31 December 2018.
(Decree of the President of the Russian Federation No. 293, "On extending certain special economic measures
in the interest of ensuring the security of the Russian Federation", dated 30 June 2017, (Decree No. 293),
(Exhibit UKR-71).) Both parties advised in the interim review stage that Decree No. 560 has since been further
extended until 31 December 2019 by Decree No. 420, which was adopted by the President of the
Russian Federation on 12 July 2018.
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designated checkpoints on the Russian side of the external border of the EaEU. These 2014 transit
restrictions are among those challenged by Ukraine in this dispute.33
7.11. In September 2014, following discussions with Russia, both the European Union and Ukraine
agreed to postpone the application of the economic part of the EU-Ukraine Association Agreement
until 31 December 2015.34 Also in September 2014, the Russian Government adopted
Resolution No. 959, which provided that Ukrainian goods would be subject to tariffs at the EaEU
rates as of 10 days from the date on which the Russian Government was notified of action by Ukraine
to implement the economic part of the EU-Ukraine Association Agreement.35
7.12. On 13 August 2015, the Russian Government adopted Resolution No. 842 which, among other
things, amended Resolution No. 778 to add further countries to the list of countries whose exports
are subject to the Resolution No. 778 import bans, including Ukraine. However, with respect to
Ukraine, Resolution No. 842 provided that the import bans would be applied from the effective date
of Resolution No. 959 (referred to above), but no later than 1 January 2016.36 Subsequent
negotiations between the European Commission, Ukraine and Russia, aimed at achieving solutions
to Russia's concerns about the DCFTA, had failed by December 2015.37 On 21 December 2015, the
Russian Government adopted Resolution No. 1397, which provided that the import bans in respect
of the goods listed in Resolution No. 778 would apply to goods of Ukrainian origin as of
1 January 2016.38 The European Union and Ukraine have provisionally applied the DCFTA as of
1 January 2016.39
7.13. In response to the provisional application by the European Union and Ukraine of the economic
part of the EU-Ukraine Association Agreement, the Russian State Duma passed a law on
22 December 2015, effective as of 1 January 2016, purporting to suspend the CIS-FTA with respect
to Ukraine.40 The Russian State Legal Department stated that Russia's suspension of the CIS-FTA
with respect to Ukraine was due to the entry into force of the economic part of the
EU-Ukraine Association Agreement "without reaching a legally binding agreement that would meet
33 See para. 7.1.d above.
34 RBK, "Putin suspended the free trade agreement with Ukraine", dated 16 December 2015, available
at: http://www.rbc.ru/politics/16/12/2015/567178fe9a7947944e73b0a4, (RBK article), (Exhibit UKR-80); and
Press Release, "The trade part of the EU-Ukraine Association Agreement becomes operational on
1 January 2016", dated 31 December 2015, European Commission, available at: http://europa.eu/rapid/pressrelease_
IP-15-6398_en.htm (European Commission Press Release), (Exhibit UKR-53). As stated above in fn
27, the "economic part" of the EU-Ukraine Association Agreement contains a free trade agreement establishing
the DCFTA. (See Ukraine's opening statement at the second meeting of the Panel, para. 60.) The EU-Ukraine
Association Agreement entered into force on 1 September 2017, following the deposit of the last instrument of
ratification or approval. (See Official Journal of the European Union L 193/1, 25 July 2017.) In October 2015,
the Russian Prime Minister was reported as stating that Russia's position was that Ukraine could not
simultaneously participate in free trade areas with both Russia and the European Union. Russia considered that
this situation would pose a threat of re-export of European goods in the guise of Ukrainian goods. (RBK article,
(Exhibit UKR-80).)
35 Resolution No. 959, (Exhibit RUS-24), p. 2. A Ukrainian news agency report in December 2015 also
referred to statements by the Russian Prime Minister that, if Ukraine chose to belong to a trade zone different
from the CIS-FTA, it would lose the zero-tariff benefits of the FTA with Russia and that, as of 1 January 2016,
tariffs on imports into Russia of Ukrainian goods would be 6% on average. (UNIAN Information Agency, "Putin
signed and amended the law on the suspension of the FTA with Ukraine", dated 30 December 2015, available
at: https://economics.unian.net/finance/1226612-putin-podpisal-zakon-o-prio…,
(UNIAN Information Agency Article), (Exhibit UKR-78).)
36 Resolution No. 842, (Exhibit UKR-13).
37 RBK article, (Exhibit UKR-80); and UNIAN Information Agency Article, (Exhibit UKR-78).
38 Resolution No. 1397, (Exhibit UKR-15).
39 Ukraine's first written submission, para. 25. Ukraine refers to the European Commission Press
Release, (Exhibit UKR-53). The political part of the EU-Ukraine Association Agreement, which was signed on
21 March 2014, has been provisionally applied since 1 November 2014. (Notice concerning the provisional
application of the Association Agreement between the European Union and the European Atomic Energy
Community and their Member States, of the one part, and Ukraine, of the other part, Official Journal of the
European Union, L 311/1, 31 October 2014, (Exhibit UKR-112).)
40 Federal Law No. 410-FZ of the Russian Federation, "On Suspending by the Russian Federation of the
Treaty on a Free Trade Area with respect to Ukraine", dated 30 December 2015, (Exhibit UKR-47); and
Decree of the President of the Russian Federation No. 628, "About suspension of validity by the
Russian Federation of the free trade area concerning Ukraine", dated 16 December 2015, (Exhibit UKR-76).
See also UNIAN Information Agency Article, (Exhibit UKR-78).
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the interests of Russia" and the fact that "such an act constitutes a fundamental change of
circumstances, which were essential for Russia at the conclusion of the [CIS-FTA]."41
7.14. Russia is also alleged by Ukraine to have banned imports of various Ukrainian goods since
2013, according to a request for consultations filed by Ukraine in October 201742, in connection with
the following alleged Russian measures:
a. a general ban on the importation of Ukrainian juice products, including baby food (since
July 2014);
b. a ban on the importation of alcoholic beverages, beer and beer beverages produced by
three Ukrainian producers (since August 2014);
c. a ban on the importation of confectionary products produced by a specific confectionary
producer (since July 2013) as well as a more general ban on imports of all
Ukrainian confectionary products (since September 2014); and
d. a ban on the importation of wallpaper and wall coverings produced by four
Ukrainian producers (since April 2015).43
7.15. In the same request for consultations, Ukraine also challenges what it refers to as transit bans
on Ukrainian juice products and confectionary products, which are said to apply as a result of the
import bans, "separately and in addition to" the transit bans at issue in this dispute, which also affect
the same products.44
7.16. Also, as of 1 January 2016, Russia:
a. imposed customs duties at the EaEU rates on imports of goods from Ukraine45;
b. included goods of Ukrainian origin within the import bans on agricultural products,
raw materials and food that it had imposed since August 2014 under Resolution No. 778
in response to countries that had imposed sanctions against it46; and
c. imposed certain restrictions and bans on transit, namely: (i) restrictions on transit by road
and rail from Ukraine, destined for Kazakhstan (and subsequently, for the
Kyrgyz Republic), requiring that such transit from Ukraine across Russia may occur only
from Belarus and subject to additional conditions related to identification seals and
registration cards, both on entering and on leaving Russian territory, at specified control
points on the Belarus-Russia border and the Russia-Kazakhstan border, respectively47;
and (ii) "temporary" bans on transit by road and rail from Ukraine of:
i. goods which are subject to non-zero import duties according to the
Common Customs Tariff of the EaEU; and
41 Print-screen of the website of the President of the Russian Federation, "The law on suspension of the
FTA Agreement with Ukraine is signed", dated 30 December 2015, available at: kremlin.ru/acts/news/51091,
(Exhibit UKR-84). See also fn 34 above.
42 WT/DS532/1, dated 19 October 2017. The Panel refers to Ukraine's request for consultations in
WT/DS532/1 solely as factual background but does not link it to Ukraine's complaint in the present dispute.
(See Article 3.10 of the DSU).
43 See WT/DS532/1, dated 19 October 2017, paras. 1, 13, 16, 23, 34, 48 and 55. The alleged
WTO-inconsistencies include Articles I:1, V, X and XI:1 of the GATT 1994, various provisions of the
Agreement on Technical Barriers to Trade (TBT Agreement), provisions of Russia's Accession Protocol, and the
Agreement on Trade Facilitation. (Ibid. paras. 13, 15, 22, 31, 33, 43, 45, 47, 54, 65 and 67.)
44 WT/DS532/1, dated 19 October 2017, paras. 17 and 49.
45 Resolution No. 959, (Exhibit RUS-24).
46 Resolution No. 1397, (Exhibit UKR-15).
47 See para. 7.1.a above.
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ii. goods which fall within the scope of the import bans on agricultural products,
raw materials and food imposed pursuant to Resolution No. 778, which are destined
for Kazakhstan or the Kyrgyz Republic.
7.17. The 2016 transit restrictions and bans in item (c) above are among the measures that are
challenged by Ukraine in this dispute.48
7.18. Russia, for its part, has separately alleged that Ukraine has imposed economic sanctions
against Russia since 2015, as is evident from the following:
a. A request for consultations filed by Russia in May 201749, which alleges that Ukraine has
imposed import bans on Russian food products, spirits and beer, cigarettes, railway and
tram track equipment, diesel-electric locomotives, chemicals and certain plant products,
which were allegedly adopted by Ukraine on 30 December 2015.50 The consultations
request also covers a number of other measures allegedly adopted by Ukraine in 2016,
including: (i) restrictions on the importation or distribution of printed materials,
motion pictures, TV programs and other video products originating from Russia51;
(ii) the exclusion of Russian-used vehicles from an excise duty reduction on used
vehicles52; (iii) a number of personal, economic, and other sanctions in respect of Russian
persons (e.g. preventing movement of capital from Ukraine in respect of legal entities with
Russian shareholding, blocking of assets, bans on doing business)53; and
48 See para. 7.1.b above.
49 WT/DS525/1, dated 1 June 2017. The alleged WTO-inconsistencies include Articles I:1, III:4, X and
XI:1 of the GATT 1994; Articles II, III, XI, XVI and XVII of the General Agreement on Trade in Services
(GATS); and various provisions of the Agreement on Import Licensing Procedures (Import Licensing
Agreement), the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) and
the TBT Agreement as well as aspects of Ukraine's WTO Accession Protocol. (Ibid. paras. 2 and 4-8.) The Panel
refers to Russia's request for consultations in WT/DS525/1 solely as factual background but does not link it to
Ukraine's complaint in the present dispute. (See Article 3.10 of the DSU.)
50 WT/DS525/1, p. 1. Russia refers in its consultations request to Resolution of the Cabinet of Ministers
of Ukraine No. 1147, "On the prohibition of importation of products originating in the Russian Federation into
the customs territory of Ukraine", dated 30 December 2015, (Exhibit RUS-19), as amended; and Resolution
No. 28 of 20 January 2016 "On Amendments to the List of Goods Originating in the Russian Federation and
Prohibited for Imports into Ukraine", which has not been submitted as an exhibit in this dispute. (Ibid. p. 1.)
51 Ibid. pp. 2 and 7. Russia's consultations request refers to Law No. 1780-VII of 8 December 2016,
"On Amendments to Certain Laws of Ukraine in relation to Restricting Access to Foreign Printed Materials with
Anti-Ukrainian Content to the Ukrainian Market" and Law No. 159-VIII of Ukraine, dated 5 February 2015 and
Law No. 1046-VIII of Ukraine, dated 29 March 2016 "On Amendments to Article 15-1 of Law of Ukraine
"On Cinematography"". (Ibid.)
52 Ibid. pp. 3-4. Russia's consultations request refers to Law No. 1389-VIII of 31 May 2016,
"On Amendments to Subsection 5 of Section XX "Transitional Provisions" of the Tax Code of Ukraine regarding
the Promotion of Development of the Used Vehicles Market". (Ibid. p. 3.)
53 Ibid. pp. 4-7. Russia's consultations request refers to (a) Resolution No. 829-R of the Cabinet of
Ministers of Ukraine, dated 11 September 2014, "On Proposals for application of Personal Special and Other
Restrictive Measures"; (b) Law No. 1005-VIII of 16 February 2016 "On Enactment of Certain Laws of Ukraine
Aimed at the Improvement of the Privatization Process"; (c) Decree No. 756 of the Ministry of Economic
Development and Trade of Ukraine, dated 28 April 2016, "On Application of Special Economic Sanctions –
Temporary Suspension of Foreign Economic Activity within the Territory of Ukraine – In Respect of Foreign
Economic Entities"; (d) Decree No. 63/2017 of the President of Ukraine, dated 16 March 2017, "On Decision of
the National Security and Defence Council of Ukraine of 15 March 2017 'On Application of Personal Special
Economic and other Restrictive Measures (Sanctions)'"; (e) Resolution No. 12 of the Board of the National Bank
of Ukraine, dated 21 February 2017, "On Amendments to Certain Regulations of the National Bank of Ukraine";
(f) Resolution No. 25 of the National Bank of Ukraine, dated 21 March 2017, "On Amendments to Resolution of
the National Bank of Ukraine of 1 October 2015 No. 654"; and (g) Resolution No. 399 of the National Bank of
Ukraine, dated 1 November 2016, "On Amendments to Resolution [of] the National Bank of Ukraine of 1
October 2015 No. 654". Russia's consultations request also refers to Decree No. 133/2017 of the President of
Ukraine, dated 15 May 2017, "On Decision of the National Security and Defence Council of Ukraine of 28 April
2017 "On Application of Personal Special Economic and Other Restrictive Measures (Sanctions)"".
(WT/DS525/1, pp. 4-7.) In its second written submission in this dispute, Russia refers to Decree of the
President of Ukraine No. 133/2017, "On the Decision of the National Security and Defense Council of Ukraine
'On application of personal special economic and other restrictive measures (sanctions)'", dated 28 April 2017,
(Exhibit RUS-20). Russia states that this Decree contains a consolidated list of special economic measures
(i.e. sanctions) applied by Ukraine in respect of Russian legal and natural persons. (Russia's second written
submission, para. 28.)
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(iv) the suspension of accreditation of journalists and representatives of certain Russian
mass media.54
b. Russia's contentions that Ukraine has restricted transit of banned Russian goods through
designated checkpoints at the Russia-Belarus border.55
c. Russia's contentions that sanctions imposed by Ukraine in respect of Russia have
expanded in 2018, with Ukraine allegedly banning the exportation of certain Ukrainian civil
aviation products, among other things.56
7.19. Russia also asserts that Ukraine suspended traffic through certain railway corridors on the
Ukraine-Russia border in June 2014, and suspended traffic through certain checkpoints on the
Ukraine-Russia border in May and July of 2014 and then in February 2015.57
7.4 Order of analysis
7.20. This is the first dispute in which a WTO dispute settlement panel is asked to interpret
Article XXI of the GATT 1994 (or the equivalent provisions in the General Agreement on Trade in
Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS Agreement)).58
7.21. Ukraine presents its case as an ordinary trade dispute in which Russia has imposed measures
that are inconsistent with certain of its obligations under the GATT 1994 and commitments in
Russia's Accession Protocol.
7.22. Russia, on the other hand, considers that the dispute involves obvious and serious national
security matters that Members have acknowledged should be kept out of the WTO, an organization
which is not designed or equipped to handle such matters. Russia cautions that involving the WTO
in political and security matters will upset the very delicate balance of rights and obligations under
the WTO Agreements and endanger the multilateral trading system.
7.23. Consistent with this position, Russia does not present arguments or evidence to rebut
Ukraine's specific claims of inconsistency with Articles V and X of the GATT 1994, or commitments
in Russia's Accession Protocol. Russia's case is confined to arguments that certain measures and
claims are outside the Panel's terms of reference, and its overarching argument that the Panel lacks
54 WT/DS525/1, dated 1 June 2017, p. 7. Russia's consultations request refers to
Resolution No. 185-VIII of the Verhovna Rada, "On the Temporary Accreditation Suspension of Journalists and
Representatives of Certain Russian Mass Media by Public Authorities", dated 12 February 2015. (Ibid.)
55 Russia's second written submission, para. 27 (referring to Resolution of the Cabinet of Ministers of
Ukraine No. 20, "On approval of the list of checkpoints through the state border of Ukraine, through which the
goods are imported in transit mode", dated 20 January 2016, (Exhibit RUS-16).)
56 Ibid. para. 29 (referring to Decree of the President of Ukraine No. 58/2018, "On the decision of the
Ukrainian National Security and Defense Council 'Urgent measures on security of the national interests of the
state in the sphere of aircraft engine building'", dated 1 March 2018, (Exhibit RUS-22); and Decree of the
President of Ukraine No. 57/2018, "On entry into force of the Decision of the Council on National Security and
Defense of Ukraine of 1 March 2018 'On application of personal special economic and other restrictive
measures (sanctions)'", dated 6 March 2018, (Exhibit RUS-23)).
57 Ibid. para. 25. Ukraine suspended traffic through railway corridor 8 "Chervona Mohyla" (or
"Krasnaya Mogila") by way of a telegram from the Ukrainian railway company Ukrzaliznytsia, in which the
latter invoked Article 29 of the Railway Code of Ukraine, on the basis of "force majeure circumstances".
(Ibid. (referring to "Telegram of "Ukrzaliznytsia" (Ukrainian Railways) No. CZM-14/946", dated 6 June 2014,
(Exhibit RUS-14).) Ukraine suspended traffic through the Izvaryne checkpoint by the Ministry of Revenue and
Duties of Ukraine. (Ibid. (referring to "Print-screen of the website of the State Border Guard Service of
Ukraine", retrieved from: https://dpsu.gov.ua/ua/news/na-lyganshhini-stvorjujutsja-zagoni-prikord…,
(Exhibit RUS-15).) Ukraine suspended traffic through the checkpoint Uspenskaya-Kvashino in
accordance with the telegram of Ukrzaliznytsia, also on the basis of "force majeure circumstances". (Ibid.
(referring to "Telegram of 'Ukrzaliznytsia' (Ukrainian Railways) No. CZM-14/1134", dated 8 July 2014,
(Exhibit RUS-18).) Finally, the Cabinet of Ministers of Ukraine suspended traffic through 23 checkpoints on the
Ukraine-Russia border. (Ibid. (referring to Regulation of the Cabinet of Ministers of Ukraine No. 106-r, "On the
closure of checkpoints across the state border", dated 18 February 2015, (Exhibit RUS-17).)
58 See Article XIVbis of the GATS and Article 73 of the TRIPS Agreement.
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jurisdiction to address any of the issues in this dispute owing to Russia's invocation of
Article XXI(b)(iii) of the GATT 1994.
7.24. The novel and exceptional features of this dispute, including Russia's argument that the Panel
lacks jurisdiction to evaluate the WTO-consistency of the measures, owing to Russia's invocation of
Article XXI(b)(iii) of the GATT 1994, require that the Panel first determine the order of analysis that
it deems most appropriate for the present dispute.59 Accordingly, the Panel considers that it must
address the jurisdictional issues first before going into the merits.
7.25. The Panel must therefore determine, first, whether it has jurisdiction to review
Russia's invocation of Article XXI(b)(iii) of the GATT 1994.60 If the Panel finds that it does not, then
it will be unable to make findings on Ukraine's claims of inconsistency with Articles V and X of the
GATT 1994 and with commitments in Russia's Accession Protocol.
7.26. As the Panel explains in greater detail in Section 7.5.3 below, Russia's argument that the
Panel lacks jurisdiction to address the matter is based on its interpretation of Article XXI(b)(iii) of
the GATT 1994, i.e. as being totally "self-judging". Consequently, in order to address
Russia's jurisdictional objection, the Panel must first interpret Article XXI(b)(iii) of the GATT 1994.
7.5 Russia's invocation of Article XXI(b)(iii) of the GATT 1994
7.5.1 Main arguments of the parties
7.27. Russia asserts that there was an emergency in international relations that arose in 2014,
evolved between 2014 and 2018, and continues to exist.61 Russia asserts that this emergency
presented threats to Russia's essential security interests.62 Russia argues that, under
Article XXI(b)(iii), both the determination of a Member's essential security interests and the
determination of whether any action is necessary for the protection of a Member's essential security
interests are at the sole discretion of the Member invoking the provision.63
7.28. While Russia acknowledges that the Panel was established with standard terms of reference
under Article 7.1 of the DSU64, it argues that the Panel nevertheless lacks jurisdiction to evaluate
measures taken pursuant to Article XXI of the GATT 1994.65 In Russia's view, the explicit wording
of Article XXI confers sole discretion on the Member invoking this Article to determine the necessity,
form, design and structure of the measures taken pursuant to Article XXI.66 Russia considers that
59 The Appellate Body has stated that panels are free to structure the order of their analysis as they see
fit, unless there is a "mandatory sequence of analysis which, if not followed, would amount to an error of law"
or would "affect the substance of the analysis itself". (Appellate Body Report, Canada – Wheat Exports and
Grain Imports, para. 109. See also Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in
Tariff Program, para. 5.5.)
60 See also Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 36.
61 Russia's first written submission, para. 16; and opening statement at the second meeting of the
Panel, para. 26.
62 Russia's first written submission, para. 16. Russia characterizes the situation that gave rise to the
need to impose the transit measures at issue in this dispute as an internationally wrongful act, or an unfriendly
act of a foreign state or its bodies and officials, which involved unilateral actions applied in respect of Russia,
particularly by the European Union and Ukraine "in violation of the UN Charter and that are impairing the
authority of the UN Security Council". (Russia's second written submission, paras. 19 and 21.) Russia also
maintains that the original circumstances that led to the imposition of the challenged measures "were publicly
available and known to Ukraine". (Russia's opening statement at the first meeting of the Panel, para. 30.
See also Russia's second written submission, para. 18.)
63 Russia's first written submission, para. 47; and closing statement at the first meeting of the Panel,
para. 16. See also Russia's opening statement at the second meeting of the Panel, paras. 22-23; and response
to Panel question No. 1 after the second meeting of the Panel, paras. 1-3.
64 Russia's opening statement at the first meeting of the Panel, para. 45. Moreover, Russia alleges that
certain measures and claims are outside the Panel's terms of reference owing to alleged defects in Ukraine's
panel request and in Ukraine's demonstration of the existence of certain measures. (See ibid. paras. 6-28.)
65 Russia's opening statement at the first meeting of the Panel, para. 46. See also Russia's first written
submission, para. 7.
66 Russia's opening statement at the first meeting of the Panel, para. 46.
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the issues that arise from its invocation of Article XXI(b)(iii) go beyond the scope of trade and
economic relations among Members and are outside the scope of the WTO:
[T]he WTO is not in a position to determine what essential security interests of a
Member are, what actions are necessary for protection of such essential security
interests, disclosure of what information may be contrary to the essential security
interests of a Member, what constitutes an emergency in international relations, and
whether such emergency exists in a particular case.67
7.29. Russia regards Article XXI(b) of the GATT 1994 as preserving the "right" of each Member to
react to wars and other emergencies in international relations in the way that the Member itself
considers necessary. Any other interpretation of Article XXI(b) would "result in interference in [the]
internal and external affairs of a sovereign state".68 Accordingly, it is sufficient for a Member to state
that the measures taken are actions that it considers necessary for the protection of its
essential security interests, taken in time of war or other emergency in international relations.
A Member's subjective assessment cannot be "doubted or re-evaluated by any other party" or
judicial bodies as the measures in question are not ordinary trade measures regularly assessed by
WTO panels.69
7.30. Russia therefore submits that the Panel should limit its findings to recognizing that Russia has
invoked Article XXI of the GATT 1994, "without engaging in any further exercise, given that this
panel lacks jurisdiction to evaluate measures taken with a reference to Article XXI of the GATT".70
7.31. Ukraine interprets Article XXI of the GATT 1994 as laying down an affirmative defence for
measures that would otherwise be inconsistent with GATT obligations.71 Ukraine rejects the notion
that Article XXI provides for an exception to the rules on jurisdiction laid down in the GATT 1994 or
the DSU.72 Ukraine considers that the Panel has jurisdiction to examine and make findings and
recommendations with respect to each of the provisions of the covered agreements cited by either
Ukraine or Russia, in keeping with the Panel's terms of reference under Article 7 of the DSU and the
general standard of review under Article 11 of the DSU.73 Ukraine also considers that, if Article XXI
of the GATT 1994 were non-justiciable, it would imply that in a dispute involving a measure that is
WTO-inconsistent, the invoking Member, rather than a panel, would decide the outcome of the
dispute by determining that the WTO-inconsistent measure is nonetheless justified. In
Ukraine's view, such unilateral determination by an invoking Member would be contrary to
Article 23.1 of the DSU.74
7.32. Ukraine argues that Russia, by merely referring to an emergency in international relations
that occurred in 2014, fails to discharge its burden to show the legal and factual elements of a
defence under Article XXI(b)(iii) of the GATT 1994, namely, that there was a serious disruption in
international relations constituting an emergency that is alike a war that is sufficiently connected to
Russia so as to result in a genuine and sufficiently serious threat to its essential security interests
and therefore to justify each and every measure at issue as being necessary to protect those
67 Russia's closing statement at the first meeting of the Panel, para. 6. Russia also argues that the
Panel, and the WTO more generally, "being trade mechanisms are not in a position to determine whether
sovereign states are at war. Similar logic applies to 'other emergency in international relations'. Only sovereign
states may declare the status of their relations with other sovereign states." (Ibid. para. 13.)
68 Ibid. para. 12.
69 Russia's opening statement at the second meeting of the Panel, para. 23. See also Russia's second
integrated executive summary, para. 31. Russia therefore considers that Article XXI(b) of the GATT 1994, as
well as Article XXI(a) are "self-judging". (Russia's closing statement at the first meeting of the Panel,
para. 11.)
70 Ibid. para. 20.
71 Ukraine's opening statement at the first meeting of the Panel, para. 95. Ukraine points to the fact that
the phrase "[n]othing in this Agreement", which introduces Article XXI, is the same phrase that introduces the
general exceptions provision in Article XX. (Ibid.)
72 Ibid. para. 96. Ukraine also notes that the DSU does not contain a provision providing for a security
exception, nor does any other provision of the GATT 1994 or of the other WTO covered agreements offer a
basis for excluding Article XXI from the jurisdiction of WTO panels and the Appellate Body. (Ibid.)
73 Ibid. paras. 98-99.
74 Ibid. paras. 103-107.
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interests.75 Ukraine also argues that Russia's allegation that the basis for the measures and the
original circumstances leading to their imposition were publicly available and known to Ukraine is of
no consequence in determining whether Russia has satisfied its burden of proof.76 Ukraine submits
that the facts before the Panel show that Decree No. 1 was adopted due to the entry into force of
the economic part of the EU-Ukraine Association Agreement, and that the text of the instruments
implementing the 2014 measures shows that these were taken "[i]n view of detection of gross
violations during the transit of such goods through the territory of the Republic of Belarus".77 Finally,
Ukraine argues that the determination of whether the action was taken in time of war or other
emergency in international relations under subparagraph (iii) of Article XXI(b) is to be objectively
made by the Panel.78
7.33. Ukraine argues that, although the text of Article XXI(b) expressly states that it is for the
invoking Member to decide what action it considers necessary for the protection of its
essential security interests, this does not mean that the Member enjoys "total discretion".79 Had the
standard been "total discretion", there would have been no reason to include separate paragraphs
in Article XXI and to distinguish between different types of security interests that may be invoked in
order to justify a measure that is otherwise inconsistent with the GATT 1994.80 Furthermore, a
panel's objective assessment must include an examination of whether a Member invoking Article XXI
has done so in good faith, notwithstanding the absence of an introductory paragraph similar to the
chapeau to Article XX.81
7.34. As to the standard of review under Article XXI(b)(iii), Ukraine argues that a panel's objective
assessment must include an examination of whether the invoking Member has applied Article XXI in
good faith and therefore has not abused the invocation "to pursue protectionist objectives or to apply
a disguised restriction on trade".82 Ukraine argues that, based on the ordinary meaning of the text
of Article XXI(b) and similar to the analysis under the subparagraphs of Article XX, justification under
Article XXI also requires that there be a rational relationship between the action and the protection
of the essential security interest at issue.83 This analysis involves a consideration of the structure,
content and design of the challenged measures. The phrase "for the protection of its essential
security interests" should be interpreted in the light of the case law on Article XX of the GATT 1994
(in particular, regarding Article XX(a) on the protection of public morals) to mean that "all
WTO Members have the right to determine their own level of protection of essential security
interests", from which it would follow that a panel must not second-guess that level of protection.84
However, it is for panels rather than for Members to interpret the phrases "for the protection of its
essential security interests" and "which it considers necessary" in accordance with customary rules
of interpretation of public international law.85 In light of those interpretations, a panel must then
establish: (i) whether the interests or reasons advanced by a defendant in connection with the
measures at issue can reasonably be considered as falling within the meaning of the phrase
"its essential security interests" and (ii) whether the measures at issue are directed at safeguarding
75 Ukraine's opening statement at the first meeting of the Panel, paras. 150 and 158; and opening
statement at the second meeting of the Panel, para. 64. See also Ukraine's second written submission,
paras. 133-136 and 138.
76 Ukraine's closing statement at the first meeting of the Panel, para. 6; and second written submission,
para. 137. Moreover, Ukraine argues that Russia may not rely on Article XXI(a) of the GATT 1994 to evade its
burden of proof under Article XXI(b)(iii) of the GATT 1994. (See Ukraine's closing statement at the first
meeting of the Panel, para. 11; and second written submission, paras. 159-163.)
77 Instruction No. FS-NV-7/22886 of the Rosselkhoznadzor, dated 21 November 2014, (Veterinary
Instruction), (Exhibits UKR-21, RUS-10). See also Ukraine's first written submission, paras. 27, 32-33, and 58;
and second written submission, para. 138.
78 Ukraine's opening statement at the first meeting of the Panel, paras. 148-149.
79 Ibid. para. 135.
80 Ibid. paras. 109-110; and Ukraine's response to Panel question No. 1 after the second meeting,
para. 5.
81 Ukraine's opening statement at the first meeting of the Panel, paras. 122-123.
82 Ibid. paras. 122 and 125. (fn omitted)
83 Ibid. paras. 137-139.
84 Ibid. para. 141. Ukraine submits that it is "not contested in these proceedings that it is for each
WTO Member to define what matters affect its national security and what level of protection it pursues. Each
WTO Member's position might be different and may evolve over time. Both matters fall outside the scope of
review of a panel." (Ukraine's response to Panel question No. 2 following the second meeting of the Panel,
para. 78.)
85 Ukraine considers that not every security interest will be an "essential" security interest.
(Ukraine's opening statement at the first meeting of the Panel. paras. 143-145.)
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the defendant's security interests, meaning that there is a rational relationship between the action
taken and the protection of the essential security interest at issue.86 If a panel finds that the
Member's measure is taken "for the protection of its essential security interests", a panel would then
review whether, based on the facts available, the defendant "could reasonably arrive at the
conclusion that the measures taken are necessary for protecting its essential security interests".87
7.5.2 Main arguments of the third parties
7.35. Australia argues that Article 7 of the DSU vests the Panel with jurisdiction to examine and
make findings with respect to each of the relevant provisions in the covered agreements that Ukraine
and Russia have cited.88 Russia's invocation of Article XXI(b)(iii) of the GATT 1994, which Australia
considers to be an exception to Members' obligations under the GATT 1994, places the provision
squarely within the Panel's jurisdiction.89
7.36. Australia regards the language "which it considers necessary" in the first part of Article XXI(b)
to indicate that it is for a Member to determine both its essential security interests and the actions
it considers necessary for their protection. However, this deference to the determinations of a
Member does not preclude a panel from undertaking any review of a Member's invocation of
Article XXI(b).90 Rather, in reviewing the "necessity" of an action under Article XXI(b), a panel is
limited to determining whether the Member in fact considers the action necessary, for example, by
reference to the Member's statements and conduct. Australia considers that although the nature and
scope of review of the "necessity" aspect is limited, a panel does have a broader role in determining
whether that (necessary) action was taken "for the protection of" a Member's essential security
interests. In Australia's view, to arrive at such a determination, a panel should examine if there is a
"sufficient nexus" between the action taken and the Member's essential security interests.91
7.37. Brazil argues that, by invoking Article XXI, Russia did the opposite of excluding the
Panel's jurisdiction: it obliged the Panel to examine the provision by bringing it into the "matter" at
hand.92 Moreover, an exclusion of jurisdiction would deprive the complainant of its right to a decision
and would be contrary to Article 3.3 of the DSU.93 Brazil considers Article XXI to be an
affirmative defence. Brazil interprets Article XXI(b) as containing both a "subjective" component,
i.e. a judgment regarding the necessity of a measure, and an "objective component", which relates
to the presence of at least one of the circumstances listed in subparagraphs (i) through (iii).94
Although the language "which it considers" in the first part of Article XXI(b) confers a great deal of
86 Ukraine's response to Panel question No. 2 following the first meeting of the Panel, paras. 76-80. See
also Ukraine's response to Panel question No. 1 following the second meeting of the Panel, paras. 8 and 10.
87 Ukraine's response to Panel question No. 2 following the first meeting of the Panel, para. 81. Ukraine
submits that the wording of the phrase "which it considers necessary" suggests that the standard of review
cannot be the same as the standard of review with respect to the necessity test under Article XX of the
GATT 1994. (Ibid.) In its closing statement at the second meeting of the Panel (at para. 5) and in its response
to Panel question No. 1 following the second meeting of the Panel (at para. 11), Ukraine uses the term
"plausibly" (rather than reasonably) to describe this standard of review.
88 Australia's third-party submission, paras. 8-10.
89 Australia's third-party statement, paras. 2 and 9.
90 Ibid. para. 11.
91 Ibid. paras. 15 and 17. (emphasis original) Australia submits that, if action taken by a Member is not
capable of making some contribution to protecting its essential security interests, it would be reasonable for a
panel to determine that the action was not in fact taken for such a purpose under Article XXI(b).
(Ibid. para. 18.)
92 Brazil's third-party statement, para. 8.
93 Ibid. para. 9. Brazil refers to "the negotiation history" of Article XXI of the GATT 1994 and state
practice to argue that it was never the intention of the Members that the WTO in general or the WTO dispute
settlement mechanism in particular would be the proper venue to "discuss security matters".
(Brazil's third-party submission, para. 5.) However, Brazil notes that Members were at the same time mindful
that Article XXI could be "improperly used to prevent measures of a strictly commercial nature from being
challenged in the dispute settlement mechanism". (Ibid. para. 6.) Brazil concludes that, in order to strike a
balance, "there was an option to limit the circumstances in which Article XXI may be invoked, which seems to
indicate that it was a common understanding that differences regarding the application of Article XXI would not
necessarily fall outside the purview of a Panel, should a Member consider that those circumstances were not in
place." (Ibid.)
94 Brazil's third-party statement, para. 16. Brazil argues that a panel should begin its analysis by
determining whether one or more of the circumstances in subparagraphs (i) through (iii) are present. If none
are present, then the panel need not proceed with the rest of the analysis. (Ibid. para. 17.)
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discretion on the Member regarding the necessity of the measure, a panel must nevertheless review
the Member's motivation for invoking Article XXI(b)(iii) to ensure that there is some connection
between the measure and the state of war or other emergency in international relations, and whether
there is a "plausible link" between the measure and the purpose stated in the Member's motivation
for imposing the measure.95
7.38. Brazil considers that, unlike the determination of whether an action relates to
fissionable materials, traffic in arms, or war, in subparagraphs (i), (ii) and (iii) of Article XXI(b), the
question of what constitutes an emergency in international relations is "quite subjective and quite
difficult to discern without entering into a discussion on what constitutes a Member's national
security interest".96 Nevertheless, Brazil considers that the invoking Member bears the burden of
adducing evidence that the challenged measures constitute action taken in time of war or other
emergency in international relations.97 An invoking Member must also demonstrate some degree of
connection between the measure and the state of war or other emergency in international relations,
and whether there is a plausible link between the measure that the Member wishes to justify and
the purpose stated in its motivation.98
7.39. Canada argues that if Article XXI of the GATT 1994 is invoked by a Member in a dispute, then
its applicability is justiciable unless consideration of the Article has been excluded from a
panel's terms of reference.99 Canada further observes that the DSU provides that panels do not have
the discretion to decline to exercise the jurisdiction conferred on them by their terms of reference,
nor do they have the discretion not to discharge the obligations imposed on them by Article 11 of
the DSU.100 While Canada considers that Article XXI is an exception which can be invoked by a
Member to justify measures that would otherwise not be consistent with its WTO obligations, it also
regards Article XXI as "structurally and textually different from Article XX".101 It therefore cautions
against importing tests developed in the jurisprudence to interpret provisions such as Article XX.102
7.40. Canada interprets Article XXI(b)(iii) as providing for a "subjective" standard, according to
which the invoking Member determines the interests, actions and necessity of actions, as well as the
satisfaction of the conditions in subparagraph (iii).103 While Canada considers the subjective standard
and the particularly sensitive nature of the subject matter of Article XXI to mean that
an invoking Member must be accorded a "high level of deference" by a panel, it also considers that
an invoking Member must substantiate (albeit at a low standard) its good faith belief that the
elements for its invocation of Article XXI(b)(iii) exist.104
7.41. China argues that the Panel has jurisdiction to review Russia's invocation of Article XXI of the
GATT 1994 on the basis of the Panel's standard terms of reference and Articles 7.1 and 7.2 of the
DSU.105 China considers that Russia has invoked Article XXI as a defence to Ukraine's claims of
inconsistency.106 China urges the Panel to exercise extreme caution in its assessment of
Russia's invocation of Article XXI(b)(iii), in order to maintain the delicate balance between
preventing abuse of Article XXI and evasion of WTO obligations, on the one hand, and not prejudicing
a Member's right to protect its essential security interests, including a Member's "sole discretion"
regarding its own security interests, on the other hand.107 China refers to the principle of good faith
95 Brazil's third-party submission, paras. 28-30.
96 Ibid. para. 8. For this reason, and in light of the absence of a common understanding of the scope of
rights and obligations under Article XXI, Brazil cautions the Panel against "any interpretation that could impair
a Member's ability to decide on the need to adopt the measures necessary to protect its national security".
(Ibid. para. 9.)
97 Brazil submits that Article XXI(a) of the GATT 1994 should not be interpreted as precluding the need
for a Member to motivate its recourse to the exceptions of Article XXI(b). (Brazil's third-party statement,
para. 26.)
98 Ibid. paras. 28-29.
99 Canada's third-party statement, para. 4.
100 Canada's letter to the Chairman of the Panel, dated 14 November 2017.
101 Canada's third-party statement, para. 6.
102 Ibid. para. 5.
103 Ibid. para. 6.
104 Ibid. para. 8.
105 China's third-party statement, paras. 3-5.
106 Ibid. para. 6.
107 China's third-party statement, para. 18.
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embodied in Article 26 of the Vienna Convention on the Law of Treaties and argues that Members
invoking Article XXI(b) should adhere to the principle of good faith.108
7.42. The European Union argues that Article XXI of the GATT 1994 does not provide for an
exception to the rules on jurisdiction laid down in the DSU or to the special rules on consultations
and dispute settlement contained in Articles XXII and XXIII of the GATT 1994.109
7.43. Given the absence in Article XXI of an equivalent to the chapeau in Article XX, the analysis of
Article XXI should consider whether a measure addresses the particular interest specified, and that
there is a sufficient nexus between the measure and the interest protected.110 The European Union
argues that the terms "which it considers" in the first part of Article XXI(b) qualify only the term
"necessary". Therefore, the existence of a war or other emergency in international relations in
subparagraph (iii) should be interpreted to refer to objective factual circumstances which can be
fully reviewed by panels.111 While "essential security interests" should be interpreted so as to allow
Members to identify their own security interests and their desired level of protection, a panel should,
on the basis of the reasons provided by the invoking Member, review whether the interests at stake
can "reasonably" or "plausibly" be considered essential security interests.112 A panel must also
review whether the action is "capable" of protecting a security interest from a threat. The
European Union considers that the terms "which it considers" imply that "in principle" each Member
may determine for itself whether a measure is "necessary" for the protection of its essential security
interests.113 A panel should nevertheless review this determination, albeit with due deference, to
assess whether the invoking Member can plausibly consider the measure necessary and whether the
measure is "applied" in good faith. This requires the invoking Member to provide the panel with an
explanation as to why it considered the measure necessary.114 Finally, the European Union argues
that, when assessing the necessity of the measure and the existence of reasonably available
alternatives, a panel should ascertain whether the interests of third parties which may be affected
were properly taken into account.115
7.44. Japan argues that consideration of Russia's invocation of Article XXI of the GATT 1994 is
within the Panel's terms of reference.116 However, Japan also considers that Article XXI of the
GATT 1994 is an "extraordinary provision" in that it recognizes the vital importance of
Members' essential security interests, and the fundamental nature of their sovereign right to pursue
such vital interests. This is reflected in the "deferential language" used in the provision. This being
so, it may impose an "undue burden" on the WTO dispute settlement system to require panels to
review a Member's invocation of Article XXI. Japan therefore urges the parties to make every effort
to seek a mutually acceptable solution "in order to maintain the effective functioning of the WTO".117
7.45. Japan also notes the critical importance of national security interests to
Members' fundamental sovereignty and the risk of the Panel adopting any interpretation that could
impair a Member's ability to decide on the need to adopt measures necessary to protect its national
security.118 Japan therefore urges the Panel to "grant appropriate deference to the
Members' judgement as to the necessity of taking actions to protect their essential security
108 China's third-party statement, para. 19.
109 European Union's third-party submission, para. 14; and third-party statement, para. 4.
The European Union argues that the "matter" before the Panel in this case includes the defence under
Article XXI invoked by Russia, as the Panel does not have special terms of reference.
(European Union's third-party statement, para. 4.) The European Union further argues that it would be
contrary to the objectives of the DSU reflected in Articles 3.2 and 23 to interpret Article XXI of the GATT 1994
as being non-justiciable because it would mean that the invoking Member would unilaterally decide the
outcome of a dispute. (Ibid. para. 5.)
110 Ibid. para. 11.
111 Ibid. para. 14.
112 Ibid. para. 17.
113 Ibid. para. 21. The European Union submits that the term "necessary" in Article XXI(b) should be
given the same meaning as in Article XX. (Ibid.)
114 Ibid.
115 Ibid. para. 23. The European Union argues that this is required by the preamble of the
Decision Concerning Article XXI of the General Agreement (1982 Decision). (Ibid.)
116 Japan's third-party submission, para. 30.
117 Japan's third-party statement, paras. 7-8.
118 Ibid. para. 10 (referring to Australia's third-party submission, para. 25; and
Brazil's third-party submission, para. 9).
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interests".119 At the same time, Japan acknowledges that subparagraph (b)(iii) carefully
circumscribes the situations that would allow Members to invoke a defence based on each
Member's essential security interests. In addition, in Japan's view, considering the object and
purpose of the GATT 1994 and the preparatory work for the ITO Charter, the discretion accorded to
Members in deciding upon the actions that are necessary to protect their essential security interests
is "not unbounded and must be exercised with extreme caution".120
7.46. Moldova disagrees with Russia's argument that the mere invocation of Article XXI(b)(iii)
prevents WTO panels from reviewing trade issues that would otherwise be WTO-inconsistent.121
Moldova therefore considers that, while Members have the right to define for themselves their
essential security interests, and declare the necessity of protecting those interests, WTO panels have
the right to review whether such Members apply WTO-inconsistent measures in good faith and in
accordance with the requirements of Article XXI.122
7.47. Moldova considers that the Panel needs to assess whether the invoking Member "genuinely
believes" that the measure taken is necessary to protect such Member's essential security interests.
Moldova argues that the jurisprudence concerning the "necessity" of a measure sought to be justified
under Articles XX(a), (b) or (d) of the GATT 1994 could be relevant to a panel's assessment of the
necessity of action under Article XXI(b). Accordingly, Moldova argues that a panel assessing whether
an action is "necessary" for purposes of Article XXI(b) should undertake a "weighing and balancing
exercise", which considers the importance of the essential security interests or values at stake, the
extent of the contribution to the achievement of the measure's objective, and its trade
restrictiveness, complemented by an analysis of whether the measure is "apt to make a material
contribution to the achievement of its objective".123 Such an exercise should also include a
determination of whether a WTO-consistent alternative measure is reasonably available to the
invoking Member.124 A panel should also determine if the measures at issue protect
"essential security interests", which must meet a higher standard than, and can be distinguished
from, "non-essential security interests".125 Moldova considers that the invoking Member should
demonstrate to a panel that "in addition to establishing the objective prerequisites in Article XXI(b)[]
regarding the existence of an essential security interest", the measure does not "intentionally serve
protectionist purposes".126
7.48. Singapore argues that the Panel has jurisdiction to consider Russia's invocation of Article XXI,
on the basis of the Panel's standard terms of reference and Articles 7.1 and 7.2 of the DSU.127
Singapore considers that the language "it considers necessary" in the first part of Article XXI(b)
indicates that the invoking Member is allowed to determine "with a significant degree of subjectivity"
what action it considers necessary to protect its essential security interests.128 Singapore contrasts
this "self-judging" aspect of Article XXI(b) with the text of Article XX.129 Singapore argues that the
"key" phrase "it considers necessary" in the first part of Article XXI(b) has been deliberately drafted
to give a Member wide latitude to determine both the action necessary for the protection of its
119 Japan's third-party statement, para. 10.
120 Ibid. para. 11.
121 Moldova's third-party submission, para. 18.
122 Ibid. para. 21. Moldova points to the creation of the WTO as an international organization with a
binding dispute settlement system administered by the DSB and the fact that the only mechanism for
"opting-out" of the application of the obligations under the covered agreements is through the mechanism
envisaged in Article XIII:1 of the WTO Agreement, which Russia did not invoke when it acceded to the WTO.
(Ibid. paras. 23-24.)
123 Moldova's third-party statement, para. 19.
124 Ibid. para. 22.
125 Ibid. para. 20.
126 Ibid. para. 21.
127 Singapore's third-party statement, paras. 8-11.
128 Ibid. paras. 13-14. Singapore argues that WTO provisions which involve some margin of appreciation
for a Member, such as the determination of the appropriate level of protection under the SPS Agreement, are
not "anywhere close" to being as express and definitive regarding their "self-judging" nature as Article XXI(b).
Therefore, a higher level of deference—i.e. a "significant margin of appreciation"—should be accorded to a
Member's chosen level of protection, assessment of risk and the necessity of the measure taken for the
protection of its essential security interests. (Ibid. paras. 18-19.)
129 Given the textual differences between Articles XX and XXI, Singapore does not agree with an
interpretation of Article XXI(b) which seeks to apply to that provision the analytical framework or necessity test
developed under Article XX. (Singapore's third-party statement, para. 15.)
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essential security interests (including the nature, scope and duration of the measure) and the
necessity of the measure.130 Singapore argues that a "significant margin of appreciation" should be
accorded to a Member's assessments of its chosen level of protection and risk, as well as the
necessity of a measure taken for the protection of its essential security interests.131
7.49. On the other hand, Singapore considers that Members should exercise their discretion under
Article XXI(b) in accordance with the principle of good faith and the doctrine of abuse of rights.
Thus, a Member must, in good faith—albeit subjectively—consider that there is a threat to its
essential security interest and that its chosen action is necessary for the protection of that essential
security interest.132 Singapore also argues that the determination of the existence of an "emergency
in international relations" under subparagraph (iii) of Article XXI(b) is "inherently subjective", with
the sensitivities implicated in a Member's assessment of its security threats being equally applicable
to a determination of whether an "emergency in international relations" exists.133 Singapore submits
that, even if the Panel were to conduct a "more intrusive" review of a Member's invocation of
Article XXI(b), it should be limited to an examination of whether the disputed measure was
implemented in a "non-capricious manner", rather than conducting an examination that
"approximates an objective substantive review".134
7.50. Turkey argues that the text of Article XXI(b), especially the clause "which it considers
necessary" means that "to a very large extent", it is left to the judgment of the invoking Member to
determine which measures it considers necessary for the protection of its essential security interests.
However, while the language of Article XXI leaves the determination of whether action is necessary
for the protection of essential security interests to the Member taking the action, this discretion is
not unqualified. Turkey regards the term "essential", which qualifies "security interests", to indicate
an intention to draw a boundary to prevent abuses of power such as sheltering commercial measures
behind the security exception.135 Suggesting that the Panel should be guided by the general
exception rules of the GATT 1994, Turkey considers that a complaining Member should make its
prima facie case of inconsistency, and then the responding Member should put forward, inter alia,
its argument that the measure can be justified under Article XXI. A panel, when reviewing the
responding Member's invocation of Article XXI, should consider the "large margin of discretion"
accorded to the invoking Member.136
7.51. The United States, in a letter to the Chair of the Panel submitted on the due date for
third-party submissions, argues that the Panel "lacks the authority to review the invocation of
Article XXI and to make findings on the claims raised in this dispute".137 The reason advanced is that
every WTO Member retains the authority to determine for itself those matters that it considers
necessary for the protection of its essential security interests, as "reflected" in the text of Article XXI
of the GATT 1994.138 The United States describes this as an "inherent right" that has been repeatedly
recognized by GATT contracting parties and WTO Members.139
7.52. In its subsequent submissions, the United States clarifies that it considers the Panel to have
jurisdiction in the context of this dispute "in the sense that the DSB established it, and placed the
matter raised in Ukraine's complaint within the Panel's terms of reference under Article 7.1 of the
DSU".140 However, it considers that the dispute is "non-justiciable" because there are no legal criteria
130 Singapore's third-party statement, para. 13.
131 Ibid. para. 19.
132 Ibid. para. 21. Singapore also argues that responses to threats to essential security interests involve
the subjective judgment of a Member and depend on the particular context and circumstances involved.
(Ibid. paras. 16-17.)
133 Ibid. para. 23.
134 Ibid. para. 22.
135 Turkey's third-party statement, para. 7.
136 Ibid. para. 8.
137 Letter from the United States to the Chair of the Panel, dated 7 November 2017, para. 4.
138 Ibid. para. 2.
139 In addition, the United States asserts that "[i]ssues of national security are political matters not
susceptible for review or capable of resolution by WTO dispute settlement." (Ibid.)
140 United States' third-party statement, para. 4; and response to Panel question No. 1, para. 17. The
United States distinguishes between "jurisdiction"—meaning, in the present context, the "extent of power of
the Panel under the DSU to make legal decisions in this dispute"—and "justiciability", in the sense of whether
an issue may be subject to findings by the Panel under the DSU. The United States also defines "justiciability"
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by which the issue of a Member's consideration of its essential security interests can be judged.141
The United States bases its position on its interpretation of the text of Article XXI, specifically, the
"self-judging" language of the chapeau in Article XXI(b) "which it considers necessary for the
protection of its essential security interests".142 For the United States, the "self-judging" nature of
Article XXI(b)(iii) establishes that its invocation by a Member is "non-justiciable", and "is therefore
not capable of findings by a panel", obviating the possibility of making recommendations under
Article 19.1 of the DSU in this dispute.143
7.5.3 Whether the Panel has jurisdiction to review Russia's invocation of
Article XXI(b)(iii) of the GATT 1994
7.53. The Panel recalls that international adjudicative tribunals, including WTO dispute settlement
panels, possess inherent jurisdiction which derives from the exercise of their adjudicative function.144
One aspect of this inherent jurisdiction is the power to determine all matters arising in relation to
the exercise of their own substantive jurisdiction.145
7.54. Article 1.1 of the DSU provides that the rules and procedures of the DSU shall apply to
disputes brought pursuant to the consultation and dispute settlement provisions of the agreements
listed in Appendix 1 (the covered agreements). The covered agreements include, inter alia, the
Multilateral Agreements on Trade in Goods, including the GATT 1994, more particularly Articles XXII
and XXIII, as elaborated and applied by the DSU. Article 1.2 of the DSU provides that the rules and
procedures of the DSU shall apply subject to such special or additional rules on dispute settlement
contained in the covered agreements as are identified in Appendix 2 to the DSU. Appendix 2 of the
DSU does not refer to any special or additional rules of procedure applying to disputes in which
Article XXI of the GATT 1994 is invoked.
7.55. The Panel recalls that Ukraine requested the DSB to establish a panel pursuant to the
provisions of the DSU and Article XXIII of the GATT 1994. On 21 March 2017, the DSB established
the Panel in accordance with Article 6 of the DSU, with standard terms of reference as provided in
Article 7.1 of the DSU. Article 7.2 of the DSU requires that the Panel address the relevant provisions
in any covered agreements cited by the parties to the dispute.146
7.56. Given the absence in the DSU of any special or additional rules of procedure applying to
disputes involving Article XXI of the GATT 1994, Russia's invocation of Article XXI(b)(iii) is within
the Panel's terms of reference for the purposes of the DSU.
7.57. Russia argues, however, that the Panel lacks jurisdiction to review Russia's invocation of
Article XXI(b)(iii). For Russia, the invocation of Article XXI(b)(iii) by a Member renders its actions
immune from scrutiny by a WTO dispute settlement panel. Russia's argument is based on its
as whether a matter is capable of being adjudicated, or suitable for adjudication. (United States' third-party
statement, para. 3; and response to Panel question No. 1, paras. 16-19.)
141 United States' response to Panel question No. 1, paras. 18 and 22.
142 United States' third-party statement, paras. 5, 11-12 and 34-36. (emphasis original) Additionally, in
response to a question from the Panel, the United States argues that Members agreed to remove the
invocation of the essential security exception from multilateral judgment when they agreed to the
"self-judging" text included in Article XXI. (United States' response to Panel question No. 1, para. 22; and
General US Answer to questions from the Panel and the Russian Federation, paras. 1-15.)
143 United States' response to Panel question No. 1, para. 17. See also United States' third-party
statement, paras. 2-3, 5 and 7.
144 See International Court of Justice, Questions of Jurisdiction and/or Admissibility, Nuclear Tests Case
(Australia v. France) (1974) ICJ Reports, pp. 259-260; and International Court of Justice,
Preliminary Objections, Case Concerning the Northern Cameroons (Cameroon v. United Kingdom) (1963)
ICJ Reports, pp. 29-31. The Appellate Body has stated that WTO panels have certain powers that are inherent
in their adjudicative function. (See Appellate Body Report, Mexico – Taxes on Soft Drinks, para. 45.)
145 This is known as the principle of Kompetenz-Kompetenz in German, or compétence de la compétence
in French. The Appellate Body has held that panels have the power to determine the extent of their jurisdiction.
(See Appellate Body Reports, US – 1916 Act, fn 30 to para. 54; and Mexico – Corn Syrup (Article 21.5 – US),
para. 36.)
146 See also Appellate Body Report, Mexico – Taxes on Soft Drinks, para. 49. The Appellate Body has
also stated that, as a matter of due process and the proper exercise of the judicial function, panels are
required to address issues that are put before them by the parties to a dispute. (Appellate Body Report,
Mexico – Corn Syrup (Article 21.5 – US), para. 36.)
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interpretation of Article XXI(b)(iii) as "self-judging".147 According to this argument, Article XXI(b)(iii)
carves out from a panel's jurisdiction ratione materiae actions that a Member considers necessary
for the protection of its essential security interests taken in time of war or other emergency in
international relations. Russia's jurisdictional plea is that, based on its interpretation of
Article XXI(b)(iii), it has met the conditions for invoking the provision.
7.58. As previously noted, the Panel's evaluation of Russia's jurisdictional plea requires it, in the
first place, to interpret Article XXI(b)(iii) of the GATT 1994 in order to determine whether, by virtue
of the language of this provision, the power to decide whether the requirements for the application
of the provision are met is vested exclusively in the Member invoking the provision, or whether the
Panel retains the power to review such a decision concerning any of these requirements.
7.5.3.1 Meaning of Article XXI(b)(iii) of the GATT 1994
7.59. The Panel begins by recalling that Article 3.2 of the DSU recognizes that interpretive issues
arising in WTO dispute settlement are to be resolved through the application of customary rules of
interpretation of public international law. It is well established—including in previous WTO disputes
—that these rules cover those codified in Articles 31 and 32 of the Vienna Convention on the Law of
Treaties (Vienna Convention). Article 31(1) provides:
A treaty shall be interpreted in good faith in accordance with the ordinary meaning to
be given to the terms of the treaty in their context and in the light of its object and
purpose.
7.60. Article XXI(b)(iii) of the GATT 1994 is part of the "Security Exceptions" set forth in Article XXI,
which provides:
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.
7.61. The introduction to Article XXI states that "[n]othing in this Agreement shall be construed"
followed by three paragraphs that are separated by the conjunction "or". Paragraph (a) of Article XXI
describes action that may not be required of a Member, and paragraphs (b) and (c) describe action
which a Member may not be prevented from taking, notwithstanding that Member's obligations
under the GATT 1994.
147 See Russia's first written submission, paras. 5-6 and 40-48; opening statement at the first meeting
of the Panel, para. 46; and closing statement at the first meeting of the Panel, paras. 8 and 12.
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7.5.3.1.1 Whether the clause in the chapeau of Article XXI(b) qualifies the determination
of the matters in the enumerated subparagraphs of that provision
7.62. Paragraph (b) of Article XXI includes an introductory part (chapeau), which qualifies action
that a Member may not be prevented from taking as that "which [the Member] considers necessary
for the protection of its essential security interests".
7.63. The text of the chapeau of Article XXI(b) can be read in different ways and can thus
accommodate more than one interpretation of the adjectival clause "which it considers".
The adjectival clause can be read to qualify only the word "necessary", i.e. the necessity of the
measures for the protection of "its essential security interests"; or to qualify also the determination
of these "essential security interests"; or finally and maximally, to qualify the determination of the
matters described in the three subparagraphs of Article XXI(b) as well.
7.64. The Panel starts by testing this last, most extensive hypothesis, i.e. whether the adjectival
clause "which it considers" in the chapeau of Article XXI(b) qualifies the determination of the sets of
circumstances described in the enumerated subparagraphs of Article XXI(b). The Panel will leave for
the moment the examination of the two other interpretive hypotheses, which bear exclusively on
the chapeau.148
7.65. As mentioned above, the mere meaning of the words and the grammatical construction of the
provision can accommodate an interpretation in which the adjectival clause "which it considers"
qualifies the determinations in the three enumerated subparagraphs. But if one considers the logical
structure of the provision, it is apparent that the three sets of circumstances under subparagraphs (i)
to (iii) of Article XXI(b) operate as limitative qualifying clauses; in other words, they qualify and limit
the exercise of the discretion accorded to Members under the chapeau to these circumstances. Does
it stand to reason, given their limitative function, to leave their determination exclusively to the
discretion of the invoking Member? And what would be the use, or effet utile, and added value of
these limitative qualifying clauses in the enumerated subparagraphs of Article XXI(b), under such
an interpretation?
7.66. A similar logical query is whether the subject-matter of each of the enumerated
subparagraphs of Article XXI(b) lends itself to purely subjective discretionary determination.
In answering this last question, the Panel will focus on the last set of circumstances, envisaged in
subparagraph (iii), to determine whether, given their nature, the evaluation of these circumstances
can be left wholly to the discretion of the Member invoking the provision, or is designed to be
conducted objectively, by a dispute settlement panel.
7.67. As previously noted, the words of the chapeau of Article XXI(b) are followed by the three
enumerated subparagraphs, which are relative clauses qualifying the sentence in the chapeau,
separated from each other by semicolons. They provide that the action referred to in the chapeau
must be:
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".
7.68. Given that these subject matters—i.e. the "fissionable materials …", "traffic in arms …", and
situations of "war or other emergency in international relations" described in the enumerated
subparagraphs—are substantially different, it is obvious that these subparagraphs establish
alternative (rather than cumulative) requirements that the action in question must meet in order to
fall within the ambit of Article XXI(b).
7.69. The connection between the action and the materials or the traffic described in
subparagraphs (i) and (ii) is specified by the phrase "relating to". The phrase "relating to", as used
148 See Section 7.5.6 below.
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in Article XX(g) of the GATT 1994, has been interpreted by the Appellate Body to require a "close
and genuine relationship of ends and means" between the measure and the objective of the Member
adopting the measure.149 This is an objective relationship between the ends and the means, subject
to objective determination.
7.70. The phrase "taken in time of" in subparagraph (iii) describes the connection between the
action and the events of war or other emergency in international relations in that subparagraph.
The Panel understands this phrase to require that the action be taken during the war or other
emergency in international relations. This chronological concurrence is also an objective fact,
amenable to objective determination.
7.71. Moreover, as for the circumstances referred to in subparagraph (iii), the existence of a war,
as one characteristic example of a larger category of "emergency in international relations", is clearly
capable of objective determination. Although the confines of an "emergency in international
relations" are less clear than those of the matters addressed in subparagraphs (i) and (ii), and of
"war" under subparagraph (iii), it is clear that an "emergency in international relations" can only be
understood, in the context of the other matters addressed in the subparagraphs, as belonging to the
same category of objective facts that are amenable to objective determination.
7.72. The use of the conjunction "or" with the adjective "other" in "war or other emergency in
international relations" in subparagraph (iii) indicates that war is one example of the larger category
of "emergency in international relations". War refers to armed conflict. Armed conflict may occur
between states (international armed conflict), or between governmental forces and private armed
groups, or between such groups within the same state (non-international armed conflict). The
dictionary definition of "emergency" includes a "situation, esp. of danger or conflict, that arises
unexpectedly and requires urgent action", and a "pressing need … a condition or danger or disaster
throughout a region".150
7.73. "International relations" is defined generally to mean "world politics", or "global political
interaction, primarily among sovereign states".151
7.74. The Panel also takes into account, as context for the interpretation of an "emergency in
international relations" in subparagraph (iii), the matters addressed by subparagraphs (i) and (ii) of
Article XXI(b), which cover fissionable materials, and traffic in arms, ammunition and implements of
war, as well as traffic in goods and materials for the purpose of supplying a military establishment.
While the enumerated subparagraphs of Article XXI(b) establish alternative requirements, the
matters addressed by those subparagraphs give rise to similar or convergent concerns, which can
be formulated in terms of the specific security interests that arise from the matters addressed in
each of them. Those interests, like the interests that arise from a situation of war in
subparagraph (iii) itself, are all defence and military interests, as well as maintenance of law and
public order interests. An "emergency in international relations" must be understood as eliciting the
same type of interests as those arising from the other matters addressed in the enumerated
subparagraphs of Article XXI(b).
7.75. Moreover, the reference to "war" in conjunction with "or other emergency in international
relations" in subparagraph (iii), and the interests that generally arise during war, and from the
matters addressed in subparagraphs (i) and (ii), suggest that political or economic differences
between Members are not sufficient, of themselves, to constitute an emergency in international
149 Appellate Body Reports, US – Shrimp, para. 136; China – Raw Materials, para. 355; and
China – Rare Earths, para. 5.90.
150 Shorter Oxford English Dictionary, 6th edn, A. Stevenson (ed.) (Oxford University Press 2007),
Vol. 2, p. 819. The Panel observes that in the GATT 1994, the term "emergency" is used in only two places.
First, the term is employed in Article XXI(b)(iii) as part of the phrase "other emergency in international
relations". Second, the term appears in the title of Article XIX, which refers to "emergency action on imports of
particular products". The word "emergency" is not, however, used in the text of Article XIX itself.
151 Black's Law Dictionary, 8th edn, B.A. Garner (ed.) (West Group 2004), p. 836. The same concept is
used in Article 2(4) of the UN Charter, which provides that "All Members shall refrain in their international
relations from the threat or use of force against the territorial integrity or political independence of any state,
or in any other manner inconsistent with the Purposes of the United Nations." (Charter of the United Nations,
done at San Francisco, 26 June 1945, 1 UN Treaty Series XVI, available at:
https://treaties.un.org/doc/Publication/UNTS/No%20Volume/Part/un_charte….)
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relations for purposes of subparagraph (iii). Indeed, it is normal to expect that Members will, from
time to time, encounter political or economic conflicts with other Members or states. While such
conflicts could sometimes be considered urgent or serious in a political sense, they will not be
"emergencies in international relations" within the meaning of subparagraph (iii) unless they give
rise to defence and military interests, or maintenance of law and public order interests.
7.76. An emergency in international relations would, therefore, appear to refer generally to a
situation of armed conflict, or of latent armed conflict, or of heightened tension or crisis, or of general
instability engulfing or surrounding a state.152 Such situations give rise to particular types of interests
for the Member in question, i.e. defence or military interests, or maintenance of law and public order
interests.153
7.77. Therefore, as the existence of an emergency in international relations is an objective state of
affairs, the determination of whether the action was "taken in time of" an "emergency in international
relations" under subparagraph (iii) of Article XXI(b) is that of an objective fact, subject to objective
determination.
7.78. As a next step, the Panel considers whether the object and purpose of the GATT 1994 and
the Marrakesh Agreement Establishing the World Trade Organization (WTO Agreement) also
supports an interpretation of Article XXI(b)(iii) which mandates an objective review of the
requirements of subparagraph (iii).
7.79. Previous panels and the Appellate Body have stated that a general object and purpose of the
WTO Agreement, as well as of the GATT 1994, is to promote the security and predictability of the
reciprocal and mutually advantageous arrangements and the substantial reduction of tariffs and
other barriers to trade.154 At the same time, the GATT 1994 and the WTO Agreements provide that,
in specific circumstances, Members may depart from their GATT and WTO obligations in order to
protect other non-trade interests. For example, the general exceptions under Article XX of the
GATT 1994 accord to Members a degree of autonomy to adopt measures that are otherwise
incompatible with their WTO obligations, in order to achieve particular non-trade legitimate
objectives, provided such measures are not used merely as an excuse to circumvent their GATT and
WTO obligations. These concessions, like other exceptions and escape clauses built into the
GATT 1994 and the WTO Agreements, permit Members a degree of flexibility that was considered
necessary to ensure the widest possible acceptance of the GATT 1994 and the WTO Agreements.
It would be entirely contrary to the security and predictability of the multilateral trading system
established by the GATT 1994 and the WTO Agreements, including the concessions that allow for
departures from obligations in specific circumstances, to interpret Article XXI as an outright
potestative condition, subjecting the existence of a Member's GATT and WTO obligations to a mere
expression of the unilateral will of that Member.
7.80. In the Appendix to this Report, the Panel surveys the pronouncements of the
GATT contracting parties and WTO Members to determine whether the conduct of the
GATT contracting parties and the WTO Members regarding the application of Article XXI reveals a
common understanding of the parties as to the meaning of this provision. The Panel's survey reveals
differences in positions and the absence of a common understanding regarding the meaning of
Article XXI. In the Panel's view, this record does not reveal any subsequent practice establishing an
152 This interpretation of an emergency in international relations is consistent with the preparatory work,
referred to in paragraph 7.92 below, which indicates that the United States, when proposing the provision of
the Geneva Draft of the ITO Charter that was carried over into Article XXI of the GATT 1947, and in referring to
an "emergency in international relations", had in mind particularly the situation that existed between 1939 and
1941. During this time, the United States had not yet participated in the Second World War, yet owing to that
situation, had still found it necessary to take certain measures for the protection of its essential security
interests.
153 This understanding is well-entrenched historically in diplomatic practice. See, e.g. Article 11 of the
Covenant of the League of Nations: "Any war or threat of war, whether immediately affecting any of the
members of the League or not, is hereby declared a matter of concern to the whole League … [i]n case any
such emergency should arise …". (Covenant of the League of Nations, done at Paris, 28 June 1919, League of
Nations Treaty Series, Vol. 108, p. 188.)
154 See Appellate Body Reports, EC – Computer Equipment, para. 82; EC – Bananas III (Article 21.5 –
Ecuador II) / EC – Bananas III (Article 21.5 – US), para. 433; Argentina – Textiles and Apparel, para. 47; and
EC – Chicken Cuts, para. 243.
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agreement between the Members regarding the interpretation of Article XXI in the sense of
Article 31(3)(b) of the Vienna Convention.155
7.81. It is notable, however, that a significant majority of occasions on which Article XXI(b)(iii) was
invoked concerned situations of armed conflict and acute international crisis, where heightened
tensions could lead to armed conflict, rather than protectionism under the guise of a security issue.
It therefore appears that Members have generally exercised restraint in their invocations of
Article XXI(b)(iii), and have endeavoured to separate military and serious security-related conflicts
from economic and trade disputes. The Panel does not assign any legal significance to this
observation, but merely notes that the conduct of Members attests to the type of circumstance which
has historically warranted the invocation of Article XXI(b)(iii).
7.82. In sum, the Panel considers that the ordinary meaning of Article XXI(b)(iii), in its context and
in light of the object and purpose of the GATT 1994 and the WTO Agreement more generally, is that
the adjectival clause "which it considers" in the chapeau of Article XXI(b) does not qualify the
determination of the circumstances in subparagraph (iii). Rather, for action to fall within the scope
of Article XXI(b), it must objectively be found to meet the requirements in one of the enumerated
subparagraphs of that provision.156
7.5.3.1.2 Negotiating history of Article XXI of the GATT 1947
7.83. This conclusion that the Panel has reached based on its textual and contextual interpretation
of Article XXI(b)(iii), in the light of the object and purpose of the GATT 1994 and WTO Agreement,
is confirmed by the negotiating history of Article XXI of the GATT 1947.157
7.84. The Panel recalls that the GATT 1947 arose out of a proposal by the United States to establish
an International Trade Organization (ITO), an organization through which the United States and
other countries would harmonize policies in respect of international trade and employment.158 The
155 It is to be noted that statements of position of individual GATT contracting parties made prior to
April 1989 should be understood in the context of the positive consensus rule that then applied to the
establishment of dispute settlement panels, the setting of their terms of reference, and the adoption of panel
reports. In a Decision of the GATT CONTRACTING PARTIES taken in April 1989, the contracting parties agreed
to implement a number of improvements to the GATT dispute settlement rules and procedures, including the
establishment of panels or working parties at the Council meeting following that at which the request first
appeared on the Council's regular agenda, unless at that meeting the Council decided otherwise.
(See Improvements to the GATT Dispute Settlement System Rules and Procedures, Decision of 12 April 1989,
L/6489, 13 April 1989, section F(a) (the April 1989 Decision). See also ibid. section F(b) on the establishment
of panels and working parties with standard terms of reference.) For the application of the April 1989 Decision
to a 1991 request by Yugoslavia for the establishment of a panel to examine certain measures imposed by the
European Communities, see paras. 1.63-1.66 of the Appendix to this Report.
156 The Panel notes that Ukraine and Russia both referred to the interpretations of the International
Court of Justice (ICJ) of security exceptions in bilateral treaties between Nicaragua and the United States (in
Case of Military and Paramilitary Activities in and Against Nicaragua), and between the Islamic Republic of Iran
and the United States (in Case Concerning Oil Platforms) in the course of their arguments. (Ukraine's second
written submission, paras. 81-91; and Russia's opening statement at the second meeting of the Panel,
paras. 28-40.) The Panel considers that the conclusions of the Court in both cases were limited to the specific
provisions of the bilateral treaties under consideration. In Case of Military and Paramilitary Activities in and
Against Nicaragua, the Court did not purport to interpret Article XXI of the GATT 1947, but merely referred to
the provision a contrario in order to highlight the absence of the adjectival clause "which it considers" from the
security exception at issue (International Court of Justice, Merits, Case of Military and Paramilitary Activities in
and Against Nicaragua (Nicaragua v. United States of America) (1986) ICJ Reports, p. 116.) Similarly, in
Case Concerning Oil Platforms, the Court's conclusions were limited to a security exception lacking the same
adjectival clause. (International Court of Justice, Merits, Case Concerning Oil Platforms, (Islamic Republic of
Iran v. United States of America) (2003) ICJ Reports, p. 183.) Consequently, the Panel does not consider these
cases to be material to its interpretation of Article XXI(b)(iii) of the GATT 1994.
157 The Appellate Body has previously had recourse to the preparatory work of the ITO Charter as a
supplementary means of treaty interpretation in order to confirm the meaning of corresponding provisions in
the GATT 1994. (See, e.g. Appellate Body Reports, Japan –Alcoholic Beverages II, fn 52, DSR 1996:I, 97,
p. 104; Canada – Periodicals, p. 34, DSR 1997:I, p. 449; and US – Line Pipe, para. 175.)
158 Preparatory work on the ITO Charter began in November 1945 with the issuance by the
United States of a document entitled "Proposals for Expansion of World Trade and Employment".
(See United States, Department of State, "Proposals for Expansion of World Trade and Employment",
Publication 2411, Commercial Policy Series 79, November 1945, p. 1.) In February 1946, the Economic and
Social Council of the United Nations adopted a resolution calling for an international conference on trade and
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text of the ITO Charter was negotiated over four sessions between October 1946 and March 1948.
Towards the end of the first negotiating session (held in London between October and
November 1946), the Preparatory Committee decided to give prior effect to the tariff provisions of
the ITO Charter by means of a general tariff agreement which would provisionally apply among a
subset of ITO members until the ITO Charter entered into force.159 The provisions of the general tariff
agreement were to be taken from the provisions of the ITO Charter then being negotiated.160 The
texts of the ITO Charter and of the general tariff agreement were negotiated in parallel through the
second negotiating session (held in New York between January and February 1947) and the third
negotiating session (held in Geneva between April and October 1947).
7.85. The United States originally proposed, in a draft submitted to the Preparatory Committee in
September 1946, the inclusion of a single general exceptions clause that would apply to the
General Commercial Policy chapter of the ITO Charter.161 The clause began with "[n]othing in
Chapter IV of this Charter shall be construed to prevent the adoption or enforcement by any Member
of measures" followed by paragraphs that included a number of the general exceptions later
appearing in Article XX of the GATT 1947, as well as others later reflected in Article XXI of the
GATT 1947 (specifically paragraphs (c), (d), (e), and (k)).162
7.86. The draft of the ITO Charter prepared at the New York negotiating session in February 1947
(the New York Draft) similarly contained a single general exceptions clause in the chapter on
General Commercial Policy.163 Article 37 of the New York Draft provided that:
Subject to the requirement that such measures are not applied in a manner which would
constitute a means of arbitrary or unjustifiable discrimination between countries where
the same conditions prevail, or a disguised restriction on international trade, nothing in
Chapter V shall be construed to prevent the adoption or enforcement by any Member
of measures:
employment, and established a Preparatory Committee of 19 countries to prepare a draft charter of the ITO.
(See United States, Department of State, "Suggested Charter for an International Trade Organization of the
United Nations", Publication 2598, Commercial Policy Series 93, September 1946, foreword (US Draft
Charter).)
159 See, e.g. Preparatory Committee on the International Conference on Trade and Employment,
Procedures for Giving Effect to Certain Provisions of the Proposed ITO Charter by Means of a General
Agreement on Tariffs and Trade Among the Members of the Preparatory Committee, Report of the
Sub-Committee on Procedure to Committee II, E/PC/T/C.II/58, pp. 12-14.
160 Report of the First Session of the Preparatory Committee of the United Nations Conference on Trade
and Employment, E/PC/T/33, Annexure 10, "Multilateral Trade-Agreement Negotiations, Procedures for Giving
Effect to Certain Provisions of the Charter of the International Trade Organization by Means of a General
Agreement on Tariffs and Trade Among the Members of the Preparatory Committee", section B, p. 48 and
section K, p. 51. According to the Report, the General Agreement on Tariffs and Trade "should conform in
every way to the principles laid down in the Charter and should not contain any provision which would prevent
the operation of any provision of the Charter". (Ibid.)
161 Article 32 of the US Draft Charter. (US Draft Charter, Chapter IV "General Commercial Policy",
section I "General Exceptions", "General Exceptions to Chapter IV", Article 32, p. 24.)
162 Ibid. The US Draft Charter also included a clause in Chapter VI "Intergovernmental Commodity
Arrangements" providing that any "justiciable issue" arising specifically from any ruling of the Conference
interpreting Article 32, paragraphs (c), (d), (e) or (k), dealing with security, could be referred as a dispute to
the ICJ. (Ibid. Article 76, pp. 45-46.)
163 The first draft of the ITO Charter resulting from the London round of negotiations in November 1946,
the London Draft, merely included a placeholder for a general exceptions clause to Chapter V on General
Commercial Policy, Article 37, which was "[t]o be considered and drafted at a later stage". (Report of the First
Session of the Preparatory Committee of the United Nations Conference on Trade and Employment, E/PC/T/33,
Appendix "Charter of the International Trade Organization of the United Nations", p. 33.) The London Draft did,
however, contain a general security exception clause in Chapter VII on Inter-Governmental Commodity
Arrangements, as well as a clause providing for referral to the ICJ on the security paragraphs of Article 37
specifically. (Ibid. Article 59, p. 37 and Article 86, p. 41.) The partial draft of the general tariff agreement
concluded at this stage also included a placeholder envisaging the possibility of a general exceptions clause
modelled after Article 37 of the ITO Charter. (Report of the First Session of the Preparatory Committee of the
United Nations Conference on Trade and Employment, E/PC/T/33, Annexure 10, "Multilateral Trade-Agreement
Negotiations, Procedures for Giving Effect to Certain Provisions of the Charter of the International Trade
Organization by Means of a General Agreement on Tariffs and Trade Among the Members of the Preparatory
Committee", Article IV, p. 52.)
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(a) Necessary to protect public morals;
(b) For the purpose of protecting human, animal or plant life or health, if corresponding
domestic safeguards under similar conditions exist in the importing country;
(c) Relating to fissionable materials;
(d) Relating to the traffic in arms, ammunition and implements of war and to such traffic
in other goods and materials as is carried on for the purpose of supplying a military
establishment;
(e) In time of war or other emergency in international relations, relating to the
protection of the essential security interests of a Member;
…
(k) Undertaken in pursuance of obligations under the United Nations Charter for the
maintenance or restoration of international peace and security.164
7.87. The separation of these exceptions into two distinct clauses was first suggested during the
third negotiating session in Geneva. In May 1947, the United States proposed that the security
exceptions that appeared in the clause be moved to the end of the ITO Charter so that they would
be general exceptions to the whole Charter and not just the chapter on General Commercial Policy.165
The United States also proposed that this new provision contain the introductory language "[n]othing
in this Charter shall be construed to prevent the adoption or enforcement by any Member of
measures", which would then be followed by the list of paragraphs transferred from Article 37.166
7.88. The specific language for the new security exceptions that would apply throughout the whole
of the Charter was developed from a proposal submitted by the United States delegation at the
Geneva negotiating session in July 1947.167
7.89. According to Vandevelde's study of the internal documents of the United States delegation
negotiating the ITO Charter, the US delegation arrived at the language of this proposal after
deliberating as to whether an ITO member should effectively be able to avoid any Charter obligation
by the unilateral invocation of its essential security interests, or whether any element of the security
exceptions should be subject to review by the Organization.168 The members of the delegation were
164 Report of the Drafting Committee of the Preparatory Committee of the United Nations Conference on
Trade and Employment, E/PC/T/34, pp. 31-32. The New York Draft also retained a slightly modified version of
the security exception to the chapter on Inter-Governmental Commodity Arrangements, as well as the clause
providing for referral to the ICJ on a provisional basis. (Ibid. Article 59, pp. 43-44 and Article 86, pp. 51-52.)
The draft of the general tariff agreement concluded at this stage contained substantially the same general
exceptions clause in relation to the chapter on General Commercial Policy. (Drafting Committee of the
Preparatory Committee of the United Nations Conference on Trade and Employment, Draft General Agreement
on Tariffs and Trade, E/PC/T/C.6/85, Article XX, pp. 31-32.) The draft of the general tariff agreement did not,
however, contain a clause providing for referral of security issues to the ICJ. (Ibid. Article XXIV, p. 34.)
165 United States Delegation, Second Session of the Preparatory Committee of the United Nations
Conference on Trade and Employment, E/PC/T/W/23, p. 5; and United States Delegation, Second Session of
the Preparatory Committee of the United Nations Conference on Trade and Employment, Draft Charter,
E/PC/T/W/153, Article XIX, p. 9.
166 United States Delegation, Second Session of the Preparatory Committee of the United Nations
Conference on Trade and Employment, E/PC/T/W/23, p. 5. The draft of the general tariff agreement concluded
as of 24 July 1947 reflected these developments, including a general exceptions clause separated into two
subsections, one containing those justifications later reflected in Article XX of the GATT 1947 (including the
language of the chapeau to Article XX of the GATT 1947) and the other containing those justifications later
reflected in Article XXI of the GATT 1947 and preceded by the new introductory language proposed by the
United States. (Report of the Tariff Negotiations Working Party, General Agreement on Tariffs and Trade,
E/PC/T/135, Article XIX, pp. 53-54.)
167 United States Delegation, Second Session of the Preparatory Committee of the United Nations
Conference on Trade and Employment, E/PC/T/W/23, p. 5.
168 See K. Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and
Navigation Treaties, (Oxford University Press 2017), pp. 145-154. Vandevelde's study of the history of
US postwar FCN Treaties includes a chapter on the ITO Charter. As stated in the introduction to his book,
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divided between those who wanted to preserve the United States' freedom of action in relation to
its security interests by providing that each ITO member would have independent power to interpret
the language of the exception169, and those who believed that such a means for unilateral action
would be abused by some countries and destroy the efficacy of the entire Charter.170 At issue was
whether the proposed draft should provide that nothing in the Charter would preclude any action
"which [a member] may consider to be necessary and to relate to" the various enumerated topics,
such as fissionable materials, traffic in arms or an emergency in international relations, or whether
the original language from Article 37 of the New York Draft, which used the phrase "relating to"
should be retained.171
7.90. Those favouring the position that some elements of the security exceptions should be subject
to review by the Organization considered that the risk of abuse by some countries outweighed
concerns regarding the scope of action left to the United States by the Charter.172 One delegate
advocating this position stated that "it would be far better to abandon all work on the Charter" than
to place a provision in it that would, "under the simple pretext that the action was taken to protect
the national security of the particular country, provide a legal escape from compliance with the
provisions of the Charter".173
7.91. After a vote, those favouring the above position prevailed.174 Their position, that the scope of
unilateral action accorded to a Member invoking the security exceptions would be limited to the
necessity of the measure and would not extend to the determination of the other elements of the
Vandevelde's research relied on materials on the negotiating histories of US postwar FCN Treaties and of the
ITO Charter which are maintained in the US National Archives and Research Administration (NARA) facility in
College Park, Maryland, USA. (K. Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship,
Commerce, and Navigation Treaties, (Oxford University Press 2017), pp. 5-9.)
169 Vandevelde recounts that the US delegation considered and rejected a proposal drafted by the
US War Department's representative on the US delegation to add a new paragraph to the proposed security
exception. The new paragraph would have provided that each ITO member would have independent power of
interpretation of the language of the exception, and that the provisions of Article 86 of the Charter relating to
disputes concerning the interpretation and application of the Charter would not apply to the security exception.
(K. Vandevelde, The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation
Treaties, (Oxford University Press 2017), p. 148 (referring to Second Meeting of the UN Preparatory Committee
for the International Conference on Trade and Development Geneva, Minutes of Delegation Meeting, July 4,
NARA, Record Group 43, International Trade Files, Box 133, Folder marked "Minutes US Delegation (Geneva
1947) April-June 20, 1947").)
170 Ibid. p. 149 (referring to Second Meeting of the UN Preparatory Committee for the International
Conference on Trade and Development Geneva, Minutes of Delegation Meeting, July 4, NARA, Record Group
43, International Trade Files, Box 133, Folder marked "Minutes US Delegation (Geneva 1947) April-June 20,
1947").
171 The language, "and to relate to", was considered to make clear that the invoking member could take
unilateral action, while the original language from Article 37 of the New York Draft, which used the phrase
"relating to", was considered to indicate that the determination to be made by an ITO member was limited to
whether a measure it adopted was necessary, and not also whether the measure related to the enumerated
topics. (Ibid. p. 148 (referring to Second Meeting of the UN Preparatory Committee for the International
Conference on Trade and Development Geneva, Minutes of Delegation Meeting, July 4, NARA, Record Group
43, International Trade Files, Box 133, Folder marked "Minutes US Delegation (Geneva 1947) April-June 20,
1947").)
172 Ibid. p. 149 (referring to Second Meeting of the UN Preparatory Committee for the International
Conference on Trade and Development Geneva, Minutes of Delegation Meeting, July 4, NARA, Record Group
43, International Trade Files, Box 133, Folder marked "Minutes US Delegation (Geneva 1947) April-June 20,
1947").
173 Ibid. (referring to Second Meeting of the UN Preparatory Committee for the International Conference
on Trade and Development Geneva, Minutes of Delegation Meeting, July 4, NARA, Record Group 43,
International Trade Files, Box 133, Folder marked "Minutes US Delegation (Geneva 1947) April-June 20,
1947").
174 Ibid. p. 149 (referring to Second Meeting of the UN Preparatory Committee for the International
Conference on Trade and Development Geneva, Minutes of Delegation Meeting, July 4, NARA, Record Group
43, International Trade Files, Box 133, Folder marked "Minutes US Delegation (Geneva 1947) April-June 20,
1947"). Vandevelde records that some members of the US delegation reasoned that, as a practical matter, the
United States would not need a right to engage in unfettered unilateral action. (Ibid. (referring to Second
Meeting of the UN Preparatory Committee for the International Conference on Trade and Development Geneva,
Minutes of Delegation Meeting, July 4, NARA, Record Group 43, International Trade Files, Box 133, Folder
marked "Minutes US Delegation (Geneva 1947) April-June 20, 1947").)
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provision, was reflected in the United States' proposal of 4 July 1947. The proposed Article 94 of the
ITO Charter provided that:
Nothing in this Charter shall be construed to require any Member to furnish any
information the disclosure of which it considers contrary to its essential security
interests, or to prevent any Member from taking any action which it may consider to be
necessary to such interests:
a) Relating to fissionable materials or their source materials;
b) Relating to the traffic in arms, ammunition and implements of war and to such traffic
in other goods and materials as is carried on for the purpose of supplying a military
establishment;
c) In time of war or other emergency in international relations, relating to the protection
of its essential security interests;
d) Undertaken in pursuance of obligations under the United Nations Charter for the
maintenance of international peace and security.175
7.92. The United States delegation's interpretation of its proposal for the security exception is
reflected in discussions of the provision during the Geneva negotiating session on 24 July 1947.
In response to a question from the delegate for the Netherlands as to the meaning of the term
"essential security interests" and "emergency in international relations"176, the delegate for the
United States replied:
I suppose I ought to try and answer that, because I think the provision
[subparagraph (e) of Article 37 of the New York Draft] goes back to the original draft
put forward by us and has not been changed since.
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 essential security interests and, at the same
175 Second Session of the Preparatory Committee of the United Nations Conference on Trade and
Employment, Draft Charter, E/PC/T/W/236, Annex A, p. 13. The United States proposed that this new article
replace the national security exceptions applicable to both the chapter on General Commercial Policy and the
chapter on Inter-Governmental Commodity Arrangements. (Ibid.)
176 The delegate's specific questions were:
What do we mean—"emergency in international relations"? Is that "immediate", through a war?—
or what is the "emergency in international relations"?
The second point that is troubling me here is, what are the "essential security interests" of a
Member? I find that kind of exception very difficult to understand, and therefore possibly a very
big loophole in the whole Charter.
For instance, I might say that at present we have a time of emergency as a number of Peace
Treaties have not yet been signed and that therefore it might still be essential to have as much
food in my country as possible. This would then force us to do everything to develop our agriculture,
notwithstanding all of the provisions of this Charter. This example might be a little far fetched, but
I only give it here to prove what is really worrying me about this subparagraph of which I still
cannot get the proper meaning.
(Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment,
Verbatim Report, Thirty-Third Meeting of Commission A Held on Thursday, 24 July 1947, E/PC/T/A/PV/33, p. 19
(as corrected by Second Session of the Preparatory Committee of the United Nations Conference on Trade and
Employment, Corrigendum to Verbatim Report of Thirty-Third Meeting of Commission A,
E/PC/T/A/PV/33.Corr.2).)
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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.
With regard to subparagraph (e), the limitation, I think, is primarily in the time. First,
"in time of war". I think no one would question the need of a Member, or the right of a
Member, to take action relating to its security interests in time of war and to determine
for itself—which I think we cannot deny—what its security interests are.
As to the second provision, "or other emergency in international relations," we had in
mind particularly the situation which existed before the last war, before our own
participation in the last war, which was not until the end of 1941. War had been going
on for two years in Europe and, as the time of our own participation approached, we
were required, for our own protection, to take many measures which would have been
prohibited by the Charter. Our exports and imports were under rigid control. They were
under rigid control because of the war then going on.177
7.93. Ultimately, the delegate for the United States emphasized the importance of the draft security
exceptions, which would allow ITO members to take measures for security reasons, but not as
disguised restrictions on international trade:
I think there must be some latitude here for security measures. It is really a question
of a 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.
We have given considerable thought to it and this is the best we could produce to
preserve that proper balance.178
7.94. During that same discussion, the delegate for Australia questioned the possible effect of
moving the security exceptions to the end of the Charter, away from the provisions providing for
consultations and dispute settlement. In particular, the delegate questioned whether this would
mean that the security exceptions would not be subject to consultations and dispute settlement.
The delegate for the United States responded as follows:
… I think that the place of an Article in the Charter has nothing to do with whether or
not it comes under Article 35 [predecessor to Articles XXII and XXIII of the GATT 1947].
Article 35 is very broad in its terms, and I think probably covers any action by any
Member under any provision of the Charter. 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
the 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 35 as it now
stands. In other words, there is no exception from the application of Article 35 to this
or any other Article.179
177 Second Session of the Preparatory Committee of the United Nations Conference on Trade and
Employment, Verbatim Report, Thirty-Third Meeting of Commission A Held on Thursday, 24 July 1947,
E/PC/T/A/PV/33, pp. 20-21 (as corrected by Second Session of the Preparatory Committee of the United
Nations Conference on Trade and Employment, Corrigendum to Verbatim Report of Thirty-Third Meeting of
Commission A, E/PC/T/A/PV/33.Corr.3, pp. 20-21). (emphasis added) See also Second Session of the
Preparatory Committee of the United Nations Conference on Trade and Employment, Corrigendum to Verbatim
Report of Thirty-Third Meeting of Commission A, E/PC/T/A/PV/33.Corr.1; and Second Session of the
Preparatory Committee of the United Nations Conference on Trade and Employment, Corrigendum to Verbatim
Report of Thirty-Third Meeting of Commission A, E/PC/T/A/PV/33.Corr.2.
178 Second Session of the Preparatory Committee of the United Nations Conference on Trade and
Employment, Verbatim Report, Thirty-Third Meeting of Commission A Held on Thursday, 24 July 1947,
E/PC/T/A/PV/33, p. 21.
179 Second Session of the Preparatory Committee of the United Nations Conference on Trade and
Employment, Verbatim Report, Thirty-Third Meeting of Commission A Held on Thursday, 24 July 1947,
E/PC/T/A/PV/33, pp. 26-27. See also ibid. p. 30; and Second Session of the Preparatory Committee of the
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7.95. The delegate for Australia stated that it should be clear that the terms of the proposed
Article 94 would be subject to the provisions of paragraph 2 of Article 35 (predecessor to
Article XXIII:1 of the GATT 1947) and on the basis of the assurance from the delegate for the United
States that this was so, stated that Australia did not wish to make any reservation to Article 94.180
7.96. The version of Article 94 of the Geneva Draft of the ITO Charter, adopted on 22 August 1947,
was entitled "General Exceptions" and contained wording nearly identical to that appearing in
Article XXI of the GATT 1947:
Nothing in this Charter shall be construed
(a) to require any Member to furnish any information the disclosure of which it considers
contrary to its essential security interests, or
(b) to prevent any Member 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 Member from taking any action in pursuance of its obligations under
the United Nations Charter for the maintenance of international peace and security.181
7.97. By September 1947, these developments were also reflected in the draft text of the
general tariff agreement in a separate provision entitled "Security Exceptions", which mirrored the
language of Article 94 of the Geneva Draft of the ITO Charter.182
United Nations Conference on Trade and Employment, Corrigendum to Verbatim Report of Thirty-Third Meeting
of Commission A, E/PC/T/A/PV/33.Corr.3, p. 1 (referring to p. 29 of the Verbatim Report).
180 Second Session of the Preparatory Committee of the United Nations Conference on Trade and
Employment, Verbatim Report, Thirty-Third Meeting of Commission A Held on Thursday, 24 July 1947,
E/PC/T/A/PV/33, p. 28; and Second Session of the Preparatory Committee of the United Nations Conference on
Trade and Employment, Summary Record of the 33rd Meeting of Commission A Held on Thursday, 24 July
1947, E/PC/T/A/SR/33, pp. 4-5. Later in July 1947, the Sub-Committee on Chapters I, II and VII also deleted
the clause providing for referral to the ICJ on the security subparagraphs. (Second Session of the Preparatory
Committee of the United Nations Conference on Trade and Employment, Report of the Legal Drafting
Committee on Chapters I, II and VIII (Part A – Introduction), E/PC/T/139, pp. 23-34.) Throughout
August 1947, the proposed text was subject to several additional amendments by a Legal Drafting Committee
and then by Commission A, including restructuring the provision to introduce the three subparagraphs to
paragraph (b), as well as adding the words "directly or indirectly" to subparagraph (b)(ii). (See Second Session
of the Preparatory Committee of the United Nations Conference on Trade and Employment, Report of the Legal
Drafting Committee on Chapters I, II and VIII (Including Noting and Membership of the Executive Board),
E/PC/T/159, pp. 41-42; Second Session of the Preparatory Committee of the United Nations Conference on
Trade and Employment, Summary Record of the Thirty-Sixth Meeting of Commission A Held on Tuesday,
12 August 1947, E/PC/T/A/PV/36, pp. 16-21; and Second Session of the Preparatory Committee of the United
Nations Conference on Trade and Employment, Summary Record of the 40th (2) Meeting of Commission A Held
on Friday, 15th August 1947, E/PC/T/A/SR/40(2), pp. 9-11.)
181 Report of the Second Session of the Preparatory Committee of the United Nations Conference on
Trade and Employment, E/PC/T/186, p. 56.
182 The draft of the general tariff agreement prepared as of 30 August 1947 included a general
exceptions clause separated into two subsections, one containing those justifications later reflected in
Article XX of the GATT 1947 (including the language of the chapeau to Article XX) and the other containing
language identical to that in Article 94 of the Geneva Draft of the ITO Charter. (Second Session of the
Preparatory Committee of the United Nations Conference on Trade and Employment, Report of the Legal
Drafting Committee of the Tariff Agreement Committee on Part II of the General Agreement, E/PC/T/189,
Article XIX, pp. 47-49.) In September 1947, these subsections were separated into Articles XX and XXI, and
entitled "General Exceptions" and "Security Exceptions", respectively. (Second Session of the Preparatory
Committee of the United Nations Conference on Trade and Employment, Tariff Agreement Committee, Redraft
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7.98. The Panel considers that the foregoing negotiating history demonstrates that the drafters
considered that:
a. the matters later reflected in Article XX and Article XXI of the GATT 1947 were considered
to have a different character, as evident from their separation into two articles;
b. the "balance" that was struck by the security exceptions was that Members would have
"some latitude" to determine what their essential security interests are, and the necessity
of action to protect those interests, while potential abuse of the exceptions would be
curtailed by limiting the circumstances in which the exceptions could be invoked to those
specified in the subparagraphs of Article XXI(b); and
c. in the light of this balance, the security exceptions would remain subject to the
consultations and dispute settlement provisions set forth elsewhere in the Charter.
7.99. The Panel is also mindful that the negotiations on the ITO Charter and the GATT 1947 occurred
very shortly after the end of the Second World War. The discussions of "security" issues throughout
the negotiating history should therefore be understood in that context.
7.100. The negotiating history therefore confirms the Panel's interpretation of Article XXI(b) of the
GATT 1994 as requiring that the evaluation of whether the invoking Member has satisfied the
requirements of the enumerated subparagraphs of Article XXI(b) be made objectively rather than
by the invoking Member itself. In other words, there is no basis for treating the invocation of
Article XXI(b)(iii) of the GATT 1994 as an incantation that shields a challenged measure from all
scrutiny.
7.5.3.1.3 Conclusion on whether the clause "which it considers" in the chapeau of
Article XXI(b) qualifies the determination of the matters in the enumerated
subparagraphs of that provision
7.101. The Panel concludes that the adjectival clause "which it considers" in the chapeau of
Article XXI(b) does not extend to the determination of the circumstances in each subparagraph.
Rather, for action to fall within the scope of Article XXI(b), it must objectively be found to meet the
requirements in one of the enumerated subparagraphs of that provision.
7.5.3.2 Conclusion on whether the Panel has jurisdiction to review Russia's invocation of
Article XXI(b)(iii) of the GATT 1994
7.102. It follows from the Panel's interpretation of Article XXI(b), as vesting in panels the power to
review whether the requirements of the enumerated subparagraphs are met, rather than leaving it
to the unfettered discretion of the invoking Member, that Article XXI(b)(iii) of the GATT 1994 is not
totally "self-judging" in the manner asserted by Russia.
7.103. Consequently, Russia's argument that the Panel lacks jurisdiction to review Russia's
invocation of Article XXI(b)(iii) must fail. The Panel's interpretation of Article XXI(b)(iii) also means
that it rejects the United States' argument that Russia's invocation of Article XXI(b)(iii) is "nonjusticiable",
to the extent that this argument also relies on the alleged totally "self-judging" nature
of the provision.183
of the Final Act, General Agreement on Tariffs and Trade and Protocols in Light of Discussions Which Have
Taken Place in the Committee, E/PC/T/196, pp. 50-53. See also Second Session of the Preparatory Committee
of the United Nations Conference on Trade and Employment, Verbatim Report of the Eleventh Meeting of the
Tariff Agreement Committee, E/PC/T/TAC/PV/11, pp. 23-26.)
183 Another way of making the argument that a Member's invocation of Article XXI(b)(iii) is
non-justiciable is by characterizing the problem as a "political question", as was also advanced by the
United States. The ICJ has rejected the "political question" argument, concluding that, as long as the case
before it or the request for an advisory opinion turns on a legal question capable of a legal answer, it is
duty-bound to take jurisdiction over it, regardless of the political background or the other political facets of the
issue. (See, for example, International Court of Justice, Advisory Opinion, Certain Expenses of the United
Nations, (United Nations) (1962) I.C.J. Reports, p. 155. See also International Criminal Tribunal for the Former
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7.104. Russia's invocation of Article XXI(b)(iii) being within the Panel's terms of reference under
Article XXIII of the GATT 1994, as further elaborated and modified by the DSU, the Panel finds that
it has jurisdiction to determine whether the requirements of Article XXI(b)(iii) of the GATT 1994 are
satisfied.
7.5.4 The measures at issue and their existence
7.105. In the preceding Section, the Panel found that it has jurisdiction to review
Russia's invocation of Article XXI(b)(iii). The Panel recalls that Russia also argues that certain
measures and claims are outside the Panel's terms of reference because Ukraine's panel request
does not comply with the requirements of Article 6.2 of the DSU.
7.106. For presentational purposes, and in order not to interrupt the analysis of Article XXI, the
Panel defers the exposition of its examination of the terms of reference to Section 7.7 of the Report.
For the reasons provided in that Section, the Panel finds that the following measures are within its
terms of reference (the measures at issue):
a. 2016 Belarus Transit Requirements: Requirements that all international cargo transit by
road and rail from Ukraine destined for the Republic of Kazakhstan or the Kyrgyz Republic,
through Russia, be carried out exclusively from Belarus, and comply with a number of
additional conditions related to identification seals and registration cards at specific control
points on the Belarus-Russia border and the Russia-Kazakhstan border.184
b. 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods: Bans on all road and
rail transit from Ukraine of: (i) goods that are subject to non-zero import duties according
to the Common Customs Tariff of the EaEU; and (ii) goods that fall within the scope of the
import bans imposed by Resolution No. 778, which are destined for Kazakhstan or the
Kyrgyz Republic.185 Transit of such goods may only occur pursuant to a derogation
requested by the Governments of Kazakhstan or the Kyrgyz Republic which is authorized
by the Russian Government, in which case, the transit is subject to the 2016 Belarus
Transit Requirements (above).
c. 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods: Prohibitions on
transit from Ukraine across Russia, through checkpoints in Belarus, of goods subject to
veterinary and phytosanitary surveillance and which are subject to the import bans
implemented by Resolution No. 778, along with related requirements that, as of
30 November 2014, such veterinary goods destined for Kazakhstan or third countries enter
Russia through designated checkpoints on the Russian side of the external customs border
of the EaEU and only pursuant to permits issued by the relevant veterinary surveillance
authorities of the Government of Kazakhstan and the Rosselkhoznadzor, and that, as of
24 November 2014, transit to third countries (including Kazakhstan) of such plant goods
take place exclusively through the checkpoints across the Russian state border.186
7.107. Ukraine has presented evidence of the existence of the above-referenced measures, and the
Panel is satisfied that these measures exist.187 This being so, the next question is whether these
measures are inconsistent with Russia's obligations under Articles V and X of the GATT 1994 and
commitments in Russia's Accession Protocol, or whether there can be no such inconsistency in the
circumstances, because the measures were "taken in time of war or other emergency in international
relations", and meet the other possible conditions of the chapeau of Article XXI(b).
Yugoslavia, Decision on the Defence Motion for Interlocutory Appeal on Jurisdiction, Prosecutor v. Tadić (1995),
Case No. IT-94-1-A, paras. 23-25.) Moreover, the Panel notes that in Mexico –Taxes on Soft Drinks, the
Appellate Body expressed the view that a panel's decision to decline to exercise validly established jurisdiction
would not be consistent with its obligations under Articles 3.2 and 19.2 of the DSU, or the right of a Member to
seek redress of a violation of obligations within the meaning of Article 23 of the DSU. The Panel therefore
considers that this way of characterizing the problem as a basis for the Panel to decline to review Russia's
invocation of Article XXI(b)(iii) is also untenable. (Appellate Body Report, Mexico – Taxes on Soft Drinks,
para. 53.)
184 See para. 7.357.a below.
185 See para. 7.357.b below.
186 See para. 7.357.c below.
187 See fns 381-383, 385 and 387 below, and paras. 7.265-7.267, 7.269.a and 7.353 below.
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7.108. The Panel notes in this regard the particularity of the exception specified in Article XXI(b)(iii).
This provision acknowledges that a war or other emergency in international relations involves a
fundamental change of circumstances which radically alters the factual matrix in which the
WTO-consistency of the measures at issue is to be evaluated. The Panel considers that an evaluation
of whether measures are covered by Article XXI(b)(iii), as measures "taken in time of war or other
emergency in international relations" (unlike measures covered by the exceptions under Article XX)
does not necessitate a prior determination that they would be WTO-inconsistent if they had been
taken in normal times, i.e. if they were not taken in time of war or other emergency in international
relations. This is because, for the reasons explained in Section 7.5.6, there is no need to determine
the extent of the deviation of the challenged measure from the prescribed norm in order to evaluate
the necessity of the measure, i.e. that there is no reasonably available alternative measure to
achieve the protection of the legitimate interests covered by the exception which is not violative, or
is less violative, of the prescribed norm.
7.109. The Panel thus considers that, once it has found that the measures at issue are within its
terms of reference and that Ukraine has demonstrated their existence, the most logical next step in
its analysis is to determine whether the measures are covered by subparagraph (iii) of Article XXI(b),
i.e. whether the measures were in fact taken during time of war or other emergency in international
relations. Only if the Panel finds that the measures were not taken in time of war or other emergency
in international relations would it become necessary to determine the consistency of the measures
with the provisions of Articles V and X of the GATT 1994, which are the subject of Ukraine's claims.
7.110. Accordingly, the Panel next determines whether the measures at issue fall within the scope
of subparagraph (iii) of Article XXI(b), as measures taken in time of war or other emergency in
international relations.
7.5.5 Whether the measures were "taken in time of war or other emergency in
international relations" within the meaning of subparagraph (iii) of Article XXI(b)
7.111. The Panel recalls its interpretation of "emergency in international relations" within the
meaning of subparagraph (iii) of Article XXI(b) as a situation of armed conflict, or of latent armed
conflict, or of heightened tension or crisis, or of general instability engulfing or surrounding a state.188
7.112. Russia, in its first written submission, refers to an emergency in international relations that
occurred in 2014, which led Russia to take various actions, including imposing the measures at
issue.189 Russia affirms that the events constituting the emergency in international relations are well
known to Ukraine and that this dispute raises issues concerning politics, national security and
international peace and security.190 It also explains that one reason for formulating its invocation of
Article XXI(b)(iii) in such general terms is that it is trying to "keep the issues such as wars,
insurrections, unrests, international conflicts outside the scope of the WTO which is not designed for
resolution of such crises and related matters".191
7.113. Ukraine argues that Russia has not adequately identified or described the 2014 emergency,
and has therefore not discharged its burden of proof.192
7.114. In its opening statement at the second meeting of the Panel, Russia posed a
"hypothetical question" as to whether circumstances similar to those listed would amount to an
188 See para. 7.76 above.
189 Russia's first written submission, para. 16.
190 See, e.g. Russia's closing statement at the first meeting of the Panel, para. 6; and closing statement
at the second meeting of the Panel, para. 3.
191 Russia's closing statement at the second meeting of the Panel, para. 5.
192 Ukraine professes not to know what Russia means when it refers to an emergency in international
relations that arose in 2014, stating that Ukraine and the Panel "are still left in the dark as to what particular
emergency in international relations causes the Russian Federation to adopt the measures at issue in order to
protect its essential security interests". (Ukraine's second written submission, para. 142. See also
Ukraine's opening statement at the second meeting of the Panel, para. 64.) Russia, on the other hand, insists
that Ukraine knows very well what emergency it is referring to. (Russia's opening statement at the first
meeting of the Panel, para. 30; and closing statement at the second meeting of the Panel, para. 4.)
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emergency in international relations under subparagraph (iii) of Article XXI(b).193 These hypothetical
circumstances, as formulated by Russia, are:
a. Unrest within the territory of a country neighbouring a Member, occurring in the immediate
vicinity of the Member's border;
b. The loss of control by that neighbouring country over its border;
c. Movement of refugees from that neighbouring country to the Member's territory; and
d. Unilateral measures and sanctions imposed by that neighbouring country or by other
countries, which are not authorized by the United Nations, similar to those imposed against
Russia by Ukraine.194
7.115. When asked by the Panel how closely the hypothetical situation described above reflected
the actual situation on the ground, the Russian representative explained that Russia had referred to
the hypothetical "in order not to introduce again some information that Russia cannot disclose".195
The Russian representative then referred to a paragraph from Ukraine's 2016 Trade Policy Review
Report196 which, according to the Russian representative, explains, in Ukraine's words, "what is
going on and how real these whole hypothetical questions are".197 The paragraph refers to "the
annexation of the Autonomous Republic of Crimea and the military conflict in the east" as factors
that had adversely affected Ukraine's economic performance in 2014 and 2015.198
7.116. Ukraine objects to Russia's use of Ukraine's 2016 Trade Policy Review Report, noting that
prior panels have refused to attach importance to the Trade Policy Review Mechanism (TPRM) of
Members in considering the arguments of a party in dispute settlement proceedings.199
7.117. Paragraph A(i) of the TPRM states that the TPRM is "not … intended to serve as a basis for
the enforcement of specific obligations under the covered Agreements or for dispute settlement
procedures". In two prior disputes, panels have rejected a complainant's reference to the report
drawn up by the WTO Secretariat as part of the respondent's Trade Policy Review. In both instances,
the reference was used as the basis for an argument that a measure was WTO-inconsistent.200
193 Russia's opening statement at the second meeting of the Panel, para. 24.
194Ibid.
195 Russian representative's oral response to the second question at the second meeting of the Panel.
196 Trade Policy Review Body, Trade Policy Review, Ukraine, Government Report prepared by Ukraine,
WT/TPR/G/334. Trade Policy Reviews are conducted by the Trade Policy Review Body based on two
documents: a policy statement (report) by the Member under review and a comprehensive report drawn up by
the WTO Secretariat on its own responsibility.
197 Russian representative's oral response to the second question at the second meeting of the Panel.
198 Trade Policy Review Body, Trade Policy Review, Ukraine, Government Report prepared by Ukraine,
WT/TPR/G/334, para. 1.13.
199 Ukrainian representative's oral comments on Russian representative's oral response to the
Panel's second question at the second meeting of the Panel; and Ukraine's combined response to Panel
question Nos. 2 and 3 after the second meeting, para. 16 (referring, in particular, to paragraph A(i) of Annex 3
to the WTO Agreement).
200 In Canada – Aircraft, the complainant referred to the report drawn up by the WTO Secretariat in
connection with Canada's Trade Policy Review to argue that Investissement-Québec assistance to the regional
aircraft industry conferred a "benefit" by "provid[ing] export guarantees for projects considered too risky by
private financial institutions". Recounting the objective in paragraph A(i) of the TPRM, the panel "attach[ed] no
importance to the [TPR] of Canada in considering [the complainant's] arguments concerning
Investissement-Québec assistance to the regional aircraft industry". (Panel Report, Canada – Aircraft,
paras. 9.267 (quoting Trade Policy Review Body, Trade Policy Review, Canada, Report by the Secretariat,
WT/TPR/S/53, p. 59), and 9.274-9.275). In Chile – Price Band System, the complainant argued that the
Price Band System at issue was in the nature of a variable tariff, and for this purpose, referred to the report
drawn up by the WTO Secretariat in connection with Chile's Trade Policy Review, which stated that "[t]he price
stabilization mechanism works as a variable levy since the duty imposed on these goods varies according to
their import price." (Panel Report, Chile – Price Band System, para. 4.47.) The panel stated that, in the light of
paragraph A(i) of the TPRM, "such a Report should not be taken into account in the context of dispute
settlement proceedings." (Ibid. fn 664 to para. 7.95.)
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7.118. The Panel notes that the Russian representative referred to the relevant paragraph from
Ukraine's 2016 Trade Policy Review Report in order to show that the hypothetical situation put
forward in Russia's opening statement at the second meeting of the Panel has been referred to by
Ukraine—in another context, it is true—as being "the annexation of the Autonomous Republic of
Crimea and the military conflict in the east". Russia therefore used the reference to paragraph 1.13
of Ukraine's 2016 Trade Policy Review Report solely to further identify the situation that it had
presented in its first written submission in the following general terms: "the emergency in
international relations that occurred in 2014 that presented threats to the
Russian Federation's essential security interests".201 Russia had also previously asserted that the
circumstances that led to the imposition of the measures at issue were publicly available and known
to Ukraine.202 Russia did not refer to the relevant paragraph of Ukraine's 2016 Trade Policy Review
Report as evidence that Ukraine (or Russia, for that matter) characterizes that situation as an
emergency in international relations for the purposes of the present proceedings. The Panel therefore
does not consider that paragraph A(i) of the TPRM applies to this situation, or that the Panel is
thereby precluded from taking into account Russia's reference to paragraph 1.13 of Ukraine's 2016
Trade Policy Review Report.
7.119. Accordingly, Russia has identified the situation that it considers to be an emergency in
international relations by reference to the following factors: (a) the time-period in which it arose and
continues to exist, (b) that the situation involves Ukraine, (c) that it affects the security of
Russia's border with Ukraine in various ways, (d) that it has resulted in other countries imposing
sanctions against Russia, and (e) that the situation in question is publicly known. The Panel regards
this as sufficient, in the particular circumstances of this dispute, to clearly identify the situation to
which Russia is referring, and which it argues is an emergency in international relations.
7.120. Therefore, the Panel must determine whether this situation between Ukraine and Russia that
has existed since 2014 constitutes an emergency in international relations within the meaning of
subparagraph (iii) of Article XXI(b).
7.121. The Panel notes that it is not relevant to this determination which actor or actors bear
international responsibility for the existence of this situation to which Russia refers. Nor is it
necessary for the Panel to characterize the situation between Russia and Ukraine under international
law in general.
7.122. There is evidence before the Panel that, at least as of March 2014, and continuing at least
until the end of 2016, relations between Ukraine and Russia had deteriorated to such a degree that
they were a matter of concern to the international community.203 By December 2016, the situation
between Ukraine and Russia was recognized by the UN General Assembly as involving armed
conflict.204 Further evidence of the gravity of the situation is the fact that, since 2014, a number of
countries have imposed sanctions against Russia in connection with this situation.205
7.123. Consequently, the Panel is satisfied that the situation between Ukraine and Russia since
2014 constitutes an emergency in international relations, within the meaning of subparagraph (iii)
of Article XXI(b) of the GATT 1994.
201 Russia's first written submission, para. 16.
202 Russia's opening statement at the first meeting of the Panel, para. 30.
203 UN General Assembly Resolution No. 68/262, 27 March 2014, (Exhibit UKR-89).
204 UN General Assembly Resolution No. 71/205, 19 December 2016, (Exhibit UKR-91). This resolution
makes explicit reference to the Geneva Conventions of 1949, which apply in cases of declared war or other
armed conflict between High Contracting Parties. (Ibid. p. 2.)
205 Russia responded to these actions on 7 August 2014 by passing Resolution No. 778 and imposing
sanctions on countries that had imposed sanctions against Russia. (Resolution No. 778, (Exhibits UKR-10,
RUS-7).) Decree No. 560 established the original parameters for the Russian Government to impose import
bans on certain agricultural products, raw materials and foodstuffs originating in the states that had decided to
impose economic sanctions against Russian legal entities or individuals, or joined in such a decision.
(Decree No. 560, (Exhibits UKR-9, RUS-3).) Resolution No. 778 originally imposed import bans on listed
agricultural products, raw materials and food originating from the United States, EU Member States, Canada,
Australia and Norway. Decree No. 560 was subsequently extended by Decree No. 320 of 24 June 2015,
Decree No. 305 of 29 June 2016 and Decree No. 293, (Exhibit UKR-71). It was in force until 31 December
2018. Both parties advised in the interim review stage that Decree No. 560 has since been further extended
until 31 December 2019 by Decree No. 420, which was adopted by the President of the Russian Federation on
12 July 2018.
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7.124. It thus remains for the Panel to determine whether the measures taken by Russia with
respect to Ukraine were "taken in time of" the emergency in international relations. In this regard,
the Panel notes that the 2016 Belarus Transit Requirements were introduced by Russia on
1 January 2016, the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods were
introduced on 1 July 2016, and the 2014 Belarus-Russia Border Bans on Transit of
Resolution No. 778 Goods were introduced by Russia in November 2014. All of the measures were
therefore introduced during the emergency in international relations and thus were "taken in time
of" such emergency for purposes of subparagraph (iii).
7.125. On the basis of the foregoing considerations, the Panel concludes that each of the measures
at issue was "taken in time of" an emergency in international relations, within the meaning of
subparagraph (iii) of Article XXI(b) of the GATT 1994.
7.5.5.1 Conclusion
7.126. The Panel finds as follows:
a. As of 2014, there has existed a situation in Russia's relations with Ukraine that constitutes
an emergency in international relations within the meaning of subparagraph (iii) of
Article XXI(b) of the GATT 1994; and
b. each of the measures at issue was taken in time of this emergency in international relations
within the meaning of subparagraph (iii) of Article XXI(b) of the GATT 1994.
7.5.6 Whether the conditions of the chapeau of Article XXI(b) of the GATT 1994 are
satisfied
7.127. The Panel recalls that, in paragraph 7.63 above, it posited that the adjectival clause "which
it considers" in the chapeau of Article XXI(b) can be read to qualify only the "necessity" of the
measures for the protection of the invoking Member's essential security interests, or also the
determination of these "essential security interests", or finally and maximally, to qualify as well the
determination of the sets of circumstances described in each of the subparagraphs of Article XXI(b).
In paragraph 7.101 above, the Panel rejected the last of these possible interpretations.
7.128. The Panel has yet to address the remaining two possible interpretations of Article XXI(b).
In other words, the question remains whether the adjectival clause "which it considers" in the
chapeau of Article XXI(b) qualifies both the determination of the invoking Member's essential
security interests and the necessity of the measures for the protection of those interests, or simply
the determination of their necessity.
7.129. Russia argues that the adjectival clause means that both the determination of a
Member's essential security interests, and the determination of the necessity of the action taken for
the protection of those interests, is left entirely to the discretion of the invoking Member. Several of
the third parties also consider that Members have wide discretion to identify for themselves their
essential security interests.206 Ukraine argues that, while all Members have the right to determine
their own level of protection of essential security interests, that does not mean that a Member may
unilaterally define what are essential security interests.207 According to Ukraine, it is for panels,
rather than for Members, to interpret the term "essential security interests", which forms part of the
WTO covered agreements, in accordance with customary rules of interpretation of
public international law.208 Consistent with its interpretation of Article XXI(b)(iii), Ukraine argues
206 See Australia's third-party statement, paras. 9-21; Brazil's third-party submission, paras. 4-5 and
8-9; third-party statement, paras. 21-30; and response to Panel question No. 6; Canada's third-party
statement, paras. 6-8; and response to Panel question No. 6, para. 8; China's third-party statement, paras.
18-19; and response to Panel question No. 6, para. 6; Japan's third-party submission, paras. 32-38;
Singapore's third-party statement, paras. 14-19; United States' third-party statement, paras. 1, 11-12, 34-35;
and response to Panel question No. 6, para. 31.
207 Ukraine's opening statement at the first meeting of the Panel, paras. 141-142.
208 Ibid. para. 142. For similar views expressed by third parties, see European Union's third-party
submission, paras. 49-55 and 61-63; and third-party statement, paras. 17-23; Moldova's third-party
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that Russia has failed to identify the essential security interests that are threatened by the 2014
emergency, and has not explained or demonstrated the connection between the measures and its
essential security interests.209 While Russia also argued that, pursuant to Article XXI(a) of the
GATT 1994, it cannot be required to further explain its actions, beyond what it has declared in its
first written submission and opening statement at the first meeting of the Panel, Ukraine considers
that Russia cannot invoke Article XXI(a) of the GATT 1994 to evade its burden of proof under Article
XXI(b)(iii).210
7.130. "Essential security interests"211, which is evidently a narrower concept than
"security interests", may generally be understood to refer to those interests relating to the
quintessential functions of the state, namely, the protection of its territory and its population from
external threats, and the maintenance of law and public order internally.
7.131. The specific interests that are considered directly relevant to the protection of a state from
such external or internal threats will depend on the particular situation and perceptions of the state
in question, and can be expected to vary with changing circumstances. For these reasons, it is left,
in general, to every Member to define what it considers to be its essential security interests.
7.132. However, this does not mean that a Member is free to elevate any concern to that of an
"essential security interest". Rather, the discretion of a Member to designate particular concerns as
"essential security interests" is limited by its obligation to interpret and apply Article XXI(b)(iii) of
the GATT 1994 in good faith. The Panel recalls that the obligation of good faith is a general principle
of law and a principle of general international law which underlies all treaties, as codified in
Article 31(1) ("[a] treaty shall be interpreted in good faith …") and Article 26 ("[e]very treaty … must
be performed [by the parties] in good faith") of the Vienna Convention.212
7.133. The obligation of good faith requires that Members not use the exceptions in Article XXI as
a means to circumvent their obligations under the GATT 1994. A glaring example of this would be
where a Member sought to release itself from the structure of "reciprocal and mutually advantageous
arrangements" that constitutes the multilateral trading system213 simply by re-labelling trade
interests that it had agreed to protect and promote within the system, as "essential security
interests", falling outside the reach of that system.
submission, paras. 21, 27-35 and 37-41; third-party statement, paras. 10-18 and 20-22; and response to
Panel question No. 6, paras. 18 and 20-24.
209 Ukraine's second written submission, para. 156. Ukraine argues that it is not enough for Russia to
assert that, as measures affecting transit rather than imports, there is no protectionist motive behind the
measures. According to Ukraine, Russia must show that the issues are designed to protect Russia's essential
security interests. (Ukraine's second written submission, para. 158.)
210 See Russia's opening statement at the first meeting of the Panel, paras. 43-44; closing statement at
the first meeting of the Panel, paras. 6, 10-11 and 18; and opening statement at the second meeting of the
Panel, paras. 21-23. See also Ukraine's second written submission, para. 161. Ukraine notes also that none of
the measures which Russia seeks to justify under Article XXI(b)(iii) was notified to Members in accordance with
paragraph 1 of the 1982 Decision. (Ibid. para. 162.) The 1982 Decision is discussed in para. 1.28 of the
Appendix to this Report.
211 The term "essential security interests" appears in Article XXI of the GATT 1994, Article XIVbis of the
GATS, Article 73 of the TRIPS Agreement, Article 10.8.3 of the TBT Agreement and Article III:1 of the Revised
Agreement on Government Procurement. The term "national security" appears in Articles 2.2, 2.10, 5.4 and
5.7 of the TBT Agreement, and Article III:1 of the Revised Agreement on Government Procurement.
212 See generally, Appellate Body Reports, US – Shrimp, para. 158; US – FSC, para. 166;
US – Cotton Yarn, para. 81; and US – Hot-Rolled Steel, para. 101. The Appellate Body has provided specific
examples of the reflection of the principle of good faith, for example, in the chapeau to Article XX of the
GATT 1994 (Appellate Body Report, US - Shrimp, para. 158); in the exercise of a Member's judgment in good
faith under Articles 3.7 and 3.10 of the DSU (Appellate Body Reports, Peru – Agricultural Products,
paras. 5.15-5.28; and US – FSC, para. 166); in the concept of reasonableness in paragraph 2 of Annex II of
the Anti-Dumping Agreement (Appellate Body Report, US – Hot-Rolled Steel, para. 101); and in the general
applicability of Article 26 of the Vienna Convention to all WTO obligations (Appellate Body Report,
US – Cotton Yarn, para. 81).
213 See the third recital of the preamble of the WTO Agreement and the second recital of the preamble
of the GATT 1994.
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7.134. It is therefore incumbent on the invoking Member to articulate the essential security interests
said to arise from the emergency in international relations sufficiently enough to demonstrate their
veracity.
7.135. What qualifies as a sufficient level of articulation will depend on the emergency in
international relations at issue. In particular, the Panel considers that the less characteristic is the
"emergency in international relations" invoked by the Member, i.e. the further it is removed from
armed conflict, or a situation of breakdown of law and public order (whether in the invoking Member
or in its immediate surroundings), the less obvious are the defence or military interests, or
maintenance of law and public order interests, that can be generally expected to arise. In such cases,
a Member would need to articulate its essential security interests with greater specificity than would
be required when the emergency in international relations involved, for example, armed conflict.
7.136. In the case at hand, the emergency in international relations is very close to the "hard core"
of war or armed conflict. While Russia has not explicitly articulated the essential security interests
that it considers the measures at issue are necessary to protect, it did refer to certain characteristics
of the 2014 emergency that concern the security of the Ukraine-Russia border.214
7.137. Given the character of the 2014 emergency, as one that has been recognized by the
UN General Assembly as involving armed conflict, and which affects the security of the border with
an adjacent country and exhibits the other features identified by Russia, the essential security
interests that thereby arise for Russia cannot be considered obscure or indeterminate.215 Despite its
allusiveness, Russia's articulation of its essential security interests is minimally satisfactory in these
circumstances. Moreover, there is nothing in Russia's expression of those interests to suggest that
Russia invokes Article XXI(b)(iii) simply as a means to circumvent its obligations under the
GATT 1994.
7.138. The obligation of good faith, referred to in paragraphs 7.132 and 7.133 above, applies not
only to the Member's definition of the essential security interests said to arise from the particular
emergency in international relations, but also, and most importantly, to their connection with the
measures at issue. Thus, as concerns the application of Article XXI(b)(iii), this obligation is
crystallized in demanding that the measures at issue meet a minimum requirement of plausibility in
relation to the proffered essential security interests, i.e. that they are not implausible as measures
protective of these interests.
7.139. The Panel must therefore review whether the measures are so remote from, or unrelated to,
the 2014 emergency that it is implausible that Russia implemented the measures for the protection
of its essential security interests arising out of the emergency.
7.140. The Panel recalls that the 2016 measures (i.e. the 2016 Belarus Transit Requirements and
the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods): (a) restrict transit by road
and rail from Ukraine which is destined for Kazakhstan or the Kyrgyz Republic from transiting directly
across the Ukraine-Russia border, requiring instead that such traffic detour through Belarus, and
meet additional conditions relating to identification seals and registration cards at specific control
points; and (b) prohibit altogether such transit for certain classes of goods unless such transit is
exceptionally authorized.216
214 See para. 7.114 above.
215 Russia also attempts to show that it genuinely has national security interests that it considers to be
under threat. For example, Russia emphasizes that the 2016 measures were expressly enacted in accordance
with a 2006 law authorizing the imposition of economic sanctions for national security reasons,
Federal Law No. 281-FZ. This 2006 law, entitled "On the Special Economic Measures" authorizes the President
of the Russian Federation, acting on the basis of proposals of the Security Council of the Russian Federation, to
impose economic sanctions where circumstances require the "immediate reaction to an internationally wrongful
act or to an unfriendly act of a foreign state …, when such act poses a threat to the interests and security of
the Russian Federation". (Federal Law No. 281-FZ of the Russian Federation, "On the Special Economic
Measures", dated 30 December 2006, (Federal Law No. 281-FZ), (Exhibit RUS-8).) The Panel considers that
this demonstrates that the 2016 measures were adopted by Russia as a response to acts considered by the
President of the Russian Federation and the Security Council of the Russian Federation to pose a threat to
Russia's interests and security.
216 See paras. 7.1.a, 7.1.b, 7.16.c, 7.106.a and 7.106.b above.
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7.141. Ukraine characterizes the 2016 measures as retaliation by Russia for Ukraine's decision to
pursue economic integration with the European Union (through the EU-Ukraine Association
Agreement which includes a DCFTA) rather than with Russia through the EaEU. Ukraine does not
indicate whether it considers that decision, and consequently the 2016 measures, to be related also
to the emergency in international relations that had arisen in early 2014.217 While the evidence
presented by Ukraine establishes that the 2016 measures were direct or immediate responses to
the entry into force of the DCFTA between the European Union and Ukraine, this is only a partial
explanation of the background to Russia's adoption of the 2016 measures.
7.142. The Panel considers that there is a clear correlation between the change in government in
Ukraine in early 2014, the newly sworn-in government's decision to sign the
EU-Ukraine Association Agreement in March 2014, the deterioration in Ukraine's relations with
Russia (as evidenced by the March 2014 UN General Assembly resolution concerning the territorial
integrity of Ukraine), and the sanctions that have been imposed against Russia by several
countries.218 In other words, Ukraine's decision to pursue economic integration with the
European Union rather than with the EaEU cannot reasonably be seen as unrelated to the events
that followed, and led to the emergency in international relations, during which Russia took a number
of actions in respect of Ukraine, including the adoption of the 2016 measures.
7.143. The 2014 measures (i.e. the 2014 Belarus-Russia Border Bans on Transit of Resolution No.
778 Goods) operate to ban transit of goods subject to Russian sanctions from transiting across
Russia from its border with Belarus.219 These bans were imposed specifically to prevent
circumvention of the import bans that Russia had imposed under Resolution No. 778.220
The Resolution No. 778 import bans were responses taken by Russia in August 2014 to the sanctions
that other countries had imposed against it earlier in 2014 in response to the emergency in
international relations.
7.144. Moreover, all of the measures at issue restrict the transit from Ukraine of goods across
Russia, particularly across the Ukraine-Russia border, in circumstances in which there is an
emergency in Russia's relations with Ukraine that affects the security of the Ukraine-Russia border
and is recognized by the UN General Assembly as involving armed conflict.
7.145. In these circumstances, the measures at issue cannot be regarded as being so remote from,
or unrelated to, the 2014 emergency, that it is implausible that Russia implemented the measures
for the protection of its essential security interests arising out of that emergency. This conclusion is
not undermined by evidence on the record that the general instability of the Ukraine-Russia border
did not prevent some bilateral trade from taking place along parts of the border.221
7.146. This being so, it is for Russia to determine the "necessity" of the measures for the protection
of its essential security interests. This conclusion follows by logical necessity if the adjectival clause
"which it considers" is to be given legal effect.222
7.147. The Panel has been referred to EC – Bananas III (Ecuador) (Article 22.6 – EC) in which the
arbitrators interpreted the phrase "if that party considers" in Articles 22.3(b) and 22.3(c) of the DSU
as providing a margin of appreciation to the party which was nevertheless subject to review by the
arbitrators.223 The arbitrator's decision regarding the scope of review under Article 22.3 of the DSU
was based on the fact that the discretion accorded to the complaining party under the relevant
subparagraphs of that provision was subject to the obligation in the introductory words to
Article 22.3 of the DSU, which provides that "[i]n considering what concessions or other obligations
217 Ukraine's first written submission, paras. 24 and 26-31.
218 See paras. 7.7-7.12 above.
219 For a description of the 2014 measures, see para. 7.106.c. above and paras. 7.326-7.327 below.
220 For an explanation of the relationship between the sanctions imposed against Russia and the
Resolution No. 778 import bans, see paras. 7.9-7.12 and 7.16.b and fns 15, 16 and 32 above.
221 See, e.g. Ukraine's opening statement at the second meeting of the Panel, para. 36; and response to
Panel question No. 4 after the second meeting of the Panel, para. 27.
222 This is also confirmed by the negotiating history of Article XXI. (See para. 7.92 above.)
223 Decision by the Arbitrator, EC – Bananas III (Ecuador) (Article 22.6 – EC). See Ukraine's opening
statement at the first meeting of the Panel, para. 133; and second written submission, para. 168;
European Union's third-party submission, paras. 62-64; and third-party statement, paras. 21-22; and
United States' third-party statement, para. 16.
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to suspend, the complaining party shall apply the following principles and procedures".224 There is
no equivalent obligation anywhere in the text of Article XXI that expressly conditions the discretion
accorded to an invoking Member under the chapeau of Article XXI(b).
7.5.6.1 Conclusion
7.148. The Panel finds that Russia has satisfied the conditions of the chapeau of Article XXI(b) of
the GATT 1994.
7.5.7 Overall conclusion
7.149. Accordingly, the Panel finds that Russia has met the requirements for invoking
Article XXI(b)(iii) of the GATT 1994 in relation to the measures at issue, and therefore the measures
are covered by Article XXI(b)(iii) of the GATT 1994.
7.6 Ukraine's claims of WTO-inconsistency of the measures at issue
7.6.1 Introduction
7.150. In this Section, the Panel addresses Ukraine's claims of inconsistency with Articles V and X
of the GATT 1994 and commitments in Russia's Working Party Report, as incorporated into its
Accession Protocol by reference.
7.151. Russia does not present rebuttal arguments or evidence regarding Ukraine's claims, as it
considers that the measures at issue are "consistent with the provisions of the WTO Agreement,
including the GATT and the Accession Protocol" on the basis of its invocation of Article XXI(b)(iii) of
the GATT 1994.225
7.152. The Panel recalls the statement of the Appellate Body in US – Wool Shirts and Blouses that
nothing in the DSU requires panels to consider or decide issues that are not "absolutely necessary
to dispose of the particular dispute" between the parties.226 Indeed, the Appellate Body cautioned
that to do so would "not be consistent with the aim of the WTO dispute settlement system" to secure
a "positive solution to a dispute" under Article 3.7 of the DSU.227
7.153. Having found that the measures were taken in time of an "emergency in international
relations" (and meet the other conditions of Article XXI(b)), the Panel does not consider it necessary
to additionally examine their WTO-consistency in a different factual context and on a different legal
basis, i.e. as if the measures at issue had not been taken in time of an "emergency in international
relations".
7.154. However, the Panel is mindful that, should its findings on Russia's invocation of
Article XXI(b)(iii) be reversed in the event of an appeal, it may be necessary for the Appellate Body
to complete the analysis. Accordingly, in Section 7.6.2, the Panel proceeds to analyse those aspects
of Ukraine's claims which, were it not for the fact that the measures were taken in time of an
"emergency in international relations" (and met the other conditions of Article XXI(b)), would enable
the Appellate Body to complete the legal analysis.228
7.155. Additionally, Russia has invoked Article XXI(b)(iii) of the GATT 1994 in relation to all
contested provisions of the WTO Agreement, including commitments in its Accession Protocol.
Accordingly, in Section 7.6.4, the Panel addresses whether Article XXI(b)(iii) may be invoked by
Russia in relation to commitments in its Accession Protocol.229
224 See Decision by the Arbitrator, EC – Bananas III (Ecuador) (Article 22.6 – EC), para. 52.
225 Russia's first written submission, paras. 9 and 76. See ibid. paras. 33, 37, 48 and 74.
226 Appellate Body Report, US – Wool Shirts and Blouses, p. 19, DSR 1996:I, 323, p. 339.
227 Ibid.
228 See, e.g. Appellate Body Reports, US – Shrimp, para. 124; and EC – Asbestos, para. 78.
229 In this Section, when referring to Ukraine's claims of inconsistency with particular commitments in
Russia's Accession Protocol, the Panel will, for ease of reference, refer to such claims according to the
paragraph of Russia's Working Party Report which sets forth the commitment. Paragraph 2 of Part I of
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7.6.2 Article V:2 of the GATT 1994
7.6.2.1 Article V:2, first sentence
7.6.2.1.1 Main arguments of the parties
7.156. Ukraine argues that the 2016 Belarus Transit Requirements, the 2016 Transit Bans on
Non-Zero Duty and Resolution No. 778 Goods, and the 2014 Belarus-Russia Border Bans on Transit
of Resolution No. 778 Goods do not guarantee freedom of transit through the territory of Russia for
traffic in transit coming from Ukraine and/or going to Kazakhstan or the Kyrgyz Republic, and
therefore, that the measures are inconsistent with the first sentence of Article V:2.
7.157. Ukraine argues that the measures at issue violate the first sentence of Article V:2 of the
GATT 1994 by restricting freedom of transit in an "absolute manner".230 In Ukraine's view, where a
Member completely prohibits traffic in transit from a neighbouring country from transiting through
its territory, such a measure will "necessarily" be inconsistent with the first sentence of Article V:2.231
Ukraine additionally contends that the 2016 Belarus Transit Requirements and 2016 Transit Bans on
Non-Zero Duty and Resolution No. 778 Goods preclude the use of all routes across the
Ukraine-Russia border, routes that are "direct" and therefore necessarily qualify as "routes most
convenient for international transit".232 Ukraine considers that the following factors may be relevant
to the determination of which routes are most convenient for international transit: (a) the mode of
transport; (b) the length of the transit route; (c) access to the transit route; (d) any administrative
formalities and charges associated with the route; (e) the operator's right to choose a mode of
transport; (f) the cost of using a transit route; and (g) the provenance, destination and
characteristics of the goods.233
7.158. Ukraine also claims that the restriction on entry and exit through certain checkpoints along
the Belarus-Russia border and the Russia-Kazakhstan border under the 2016 Belarus Transit
Requirements is inconsistent with the first sentence of Article V:2. Ukraine argues that the restriction
on entry and exit removes the "freedom to choose the most convenient route".234 Ukraine also
considers that the additional conditions related to identification seals and registration cards that
form part of the 2016 Belarus Transit Requirements "impose an additional burden" on traffic in
transit and thereby do not guarantee freedom of transit as required by the first sentence of
Article V:2.235
7.159. Ukraine similarly considers that the authorization requirement under the derogation
procedure of the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods does not
guarantee freedom of transit as required by the first sentence of Article V:2.236 Ukraine considers
that transit of the non-zero duty goods and Resolution No. 778 goods "is as good as prohibited" due
to the burdensome nature of this requirement.237 Ukraine also argues that the restriction on entry
and exit through certain checkpoints along the Estonia-Russia, Finland-Russia and Latvia-Russia
borders under the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods is
inconsistent with the first sentence of Article V:2 because it makes "certain most convenient routes
unavailable for traffic in transit".238
7.160. Finally, the Panel notes Ukraine's interpretive argument, developed at the first meeting of
the Panel, that "where a measure is applied to goods transiting via the most convenient routes of
Russia's Accession Protocol incorporates by reference the paragraphs of Russia's Working Party Report that are
listed in paragraph 1450 of that Report, including paragraphs 1161, 1426, 1427 and 1428.
230 Ukraine's first written submission, para. 236.
231 Ibid. paras. 237 and 240.
232 Ibid. paras. 237-238; and Ukraine's opening statement at the first meeting of the Panel, para. 77.
Ukraine recalls Canada's statement that what constitutes the most convenient route(s) "can … only be
determined having regard to all of the circumstances relevant to the traffic in transit, including, for example,
the 'conditions of the traffic'". (Ukraine's opening statement at the first meeting of the Panel, para. 78.)
233 Ibid.
234 Ukraine's first written submission, para. 249.
235 Ibid. para. 252.
236 Ibid. paras. 253-255.
237 Ibid. para. 254.
238 Ibid. para. 246.
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passage and is found to violate other parts of Article V of the GATT 1994, including the second
sentence of Article V:2, then such a measure is also inconsistent with the obligation of a Member to
guarantee the freedom of transit via the most convenient routes" pursuant to the first sentence of
Article V:2.239 Ukraine has nonetheless advanced several independent arguments alleging
inconsistency with the first sentence of Article V:2.
7.161. As previously noted240, Russia does not present any arguments in response to Ukraine's
specific claims of inconsistency with the first sentence of Article V:2.
7.6.2.1.2 Main arguments of third parties
7.162. Brazil disagrees with Ukraine that a finding of inconsistency with the first sentence of
Article V:2 will necessarily follow from a finding of inconsistency with any other paragraph of Article V
of the GATT 1994.241 For example, Brazil suggests that inconsistency with the obligation in
Article V:4 to ensure that "[a]ll charges and regulations … shall be reasonable" will not necessarily
entail inconsistency with the first sentence of Article V:2.242 Brazil also does not believe that the
imposition of certain procedural controls or restrictions on traffic in transit will automatically result
in inconsistency with Article V:2.243
7.163. Canada agrees with Ukraine that a finding of inconsistency with the first sentence of
Article V:2 will necessarily follow from a finding of inconsistency with any other paragraph of
Article V, as these other paragraphs "more precisely define the scope and limits of the right, and
therefore the corresponding obligations embodied in that freedom".244 Canada submits that
Article V:2 does not prevent Members from imposing certain restrictions and burdens on traffic in
transit, and does not equate to an unqualified right of free passage.245 Canada also considers that it
is at least "conceivable" that a transit route that involves entry and transit via the territory of a third
country could nevertheless amount to a route that is the "most convenient" route.246
7.164. The European Union disagrees with Ukraine that a finding of inconsistency with the first
sentence of Article V:2 will necessarily follow from a finding of inconsistency with any other
paragraph of Article V, and points to disparities in scope between the first sentence of Article V:2
and other paragraphs of Article V.247 The European Union also considers that the Panel need not,
and should not, decide this question in the abstract for the purpose of resolving this dispute.248 The
European Union considers that the following factors may be relevant to the determination of which
routes are "most convenient for international transit": geography; the mode of transport (by road,
rail, water, air, or pipelines); the specificity of the different types of goods that are in transit; the
total number of transit routes; their varying convenience for international transit from the
perspective of a reasonable trader; and criteria such as distance, time, safety, as well as road and
infrastructure quality.249 The European Union also states that the first sentence of Article V:2 not
only requires the availability of the most convenient routes but also the absence of restrictions for
using these routes.250 Finally, the European Union considers it to be "hardly conceivable" that an
indirect route requiring a detour through Belarus for Ukrainian carriers destined for Kazakhstan and
the Kyrgyz Republic could qualify as a route "most convenient for international transit".251
239 Ukraine's second written submission, para. 32. See also Ukraine's opening statement at the first
meeting of the Panel, para. 72; and first written submission, para. 191.
240 See paras. 7.3 and 7.22-7.23 above.
241 Brazil's response to Panel question No. 8, p. 5.
242 Ibid.
243 Brazil's third-party submission, paras. 13-14.
244 Canada's third-party submission, paras. 10 and 17; and response to Panel question No. 8, para. 10.
245 Canada's third-party submission, para. 21.
246 Canada's third-party statement, para. 12. Canada additionally stated that a determination of which
route constitutes the "most convenient" route should have regard to all of the circumstances, such as the
means of transit, the products in transit, differentials in the distances using different routes, any resulting
differentials in cost and time, and any other "conditions of traffic". (Ibid. para. 11 (referring to
Japan's third-party submission, para. 12).)
247 European Union's response to Panel question No. 8, paras. 25-28.
248 Ibid. para. 29.
249 European Union's third-party statement, paras. 31-38.
250 Ibid. para. 37.
251 Ibid. para. 38.
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7.165. Japan disagrees with Ukraine that a finding of inconsistency with the first sentence of
Article V:2 will necessarily follow from a finding of inconsistency with any other paragraph of
Article V.252 However, Japan agrees with Ukraine that a measure that blocks all access into the
territory of a Member would likely be inconsistent with Article V:2 unless the measure could be
justified on some basis other than Article V of the GATT 1994.253 Japan clarifies, however, that the
first sentence of Article V:2 does not require unqualified, unrestricted access, but only guarantees
freedom of transit via those routes most convenient for international transit.254 Japan also proposes
that once a complaining Member makes a prima facie case that there are other routes that are more
convenient than those designated by the respondent Member, the burden of proof should shift to
the respondent Member to explain why it considers the designated routes "most convenient" for
international transit.255 Japan submits that whether a given route is "most convenient" must be
determined having regard to objective factors such as "the means of transit, available routes,
distances or costs".256
7.6.2.1.3 Analysis
7.166. The first sentence of Article V:2 of the GATT 1994 provides that:
There shall be freedom of transit through the territory of each [Member], via the routes
most convenient for international transit, for traffic in transit to or from the territory of
other [Members].
7.167. Ukraine advances several arguments in support of its claims of inconsistency with the
first sentence of Article V:2 of the GATT 1994.257 The Panel will only address those arguments
necessary to enable the Appellate Body to complete the analysis.258 The Panel first examines
Ukraine's argument that "where a WTO Member prohibits traffic in transit from the territory of
another country with which it shares a border, such a measure necessarily does not guarantee
freedom of transit" as required by the first sentence of Article V:2.259
7.168. The Panel notes that the first sentence of Article V:2 creates an obligation for each Member
to guarantee freedom of transit "through the territory of each [Member] … for traffic in transit to or
from the territory of other [Members]".260 The use of the conjunction "or" logically creates two
separate obligations under the first sentence of Article V:2. Namely, each Member is required to
252 Japan's response to Panel question No. 8, para. 17.
253 Japan's third-party submission, para. 4.
254 Ibid. para. 5.
255 Ibid. para. 9.
256 Ibid. para. 12.
257 Ukraine advances the following alternative arguments:
(a) inconsistency with any other paragraph of Article V of the GATT 1994 will necessarily result in
inconsistency with Article V:2 (Ukraine's first written submission, paras. 198 and 224);
(b) the 2016 Belarus Transit Requirements and the 2016 Transit Bans on Non-Zero Duty and
Resolution No. 778 Goods preclude the use of the "direct" and therefore "most convenient" routes
(Ukraine's first written submission, paras. 230, 232 and 236-238);
(c) the cumulative effect of the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods and
the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods is to block all transit over the
Belarus-Russia border (Ukraine's first written submission, para. 238);
(d) the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods are, in effect, bans on all
traffic in transit because the scope of the bans and the government authorization requirement are so
burdensome as to render such transit near impossible (Ukraine's first written submission, paras. 253-255);
(e) the requirement to enter via certain checkpoints under each measure makes certain "most
convenient routes" unavailable for traffic in transit (Ukraine's first written submission, paras. 246 and 249);
(f) the additional conditions related to identification seals and registration cards attached to the 2016
Belarus Transit Requirements impose an additional "burden" on traffic in transit and thereby do not guarantee
freedom of transit (Ukraine's first written submission, paras. 251-252); and
(g) the authorization requirement attached to the 2016 Transit Bans on Non-Zero Duty and Resolution
No. 778 Goods does not guarantee freedom of transit. (Ukraine's first written submission, para. 254.)
258 The Panel recalls that a panel has the "discretion to address only those arguments it deems
necessary to resolve a particular claim". (Appellate Body Report, EC – Poultry, para. 135. (emphasis original)
See also Appellate Body Reports, Dominican Republic – Import and Sale of Cigarettes, paras. 124-125; and
US – Anti-Dumping Measures on Oil Country Tubular Goods, paras. 134-135.)
259 Ukraine's first written submission, para. 237.
260 Emphasis added.
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guarantee freedom of transit through its own territory for traffic in transit to the territory of any
other Member, or from the territory of any other Member.
7.169. The immediate context provided by the other provisions of Article V also informs the
interpretation of the first sentence of Article V:2. The Panel recalls that Article V:1 defines the term
"traffic in transit" as any "goods … [whose] passage across such territory … is only a portion of a
complete journey beginning and terminating beyond the frontier of the [Member] across whose
territory the traffic passes". This informs the scope of Article V:2 by suggesting that each Member
incurs obligations in relation to "traffic in transit" only during the portion of the journey when such
traffic passes through that Member's territory.
7.170. Similar to Article V:2, Articles V:3, V:4 and V:5 also employ the terms "traffic in transit" and
the terms "to" or "from" in relation to the territory of other Members.261 However, Article V:6
distinctly creates an obligation to accord to "products which have been in transit" treatment no less
favourable than that which would have been accorded had the products been transported "from their
place of origin to their destination". The difference in terminology between Article V:6 and the other
paragraphs of Article V suggests that the terms "from" and "to" as used in Articles V:2 through V:5
have a distinct meaning from the terms "from [the] place of origin" and "to [the place of] destination"
as used in Article V:6. This is also supported by the text of the second sentence of Article V:2, which
draws an explicit distinction between places of "origin", "departure", "entry", "exit" and "destination".
7.171. The text and context of Article V:2 thus suggest that the phrases "from the territory" and
"to … the territory" in the first sentence of Article V:2 should be construed as referring to the place
of entry and place of exit of the traffic in transit, and not the place of origin or destination.
7.172. Accordingly, under the first sentence of Article V:2:
a. Each Member is required to guarantee freedom of transit through its territory for any traffic
in transit entering from any other Member, and
b. Each Member is required to guarantee freedom of transit through its territory for traffic in
transit to exit to any other Member.
7.173. To establish inconsistency with the first sentence of Article V:2, it will consequently be
sufficient to demonstrate either that a Member has precluded transit through its territory for traffic
in transit entering its territory from any other Member, or exiting its territory to any other Member,
via the routes most convenient for international transit.
7.174. As a result, where a measure prohibits traffic in transit from another Member from entering
at all points along a shared land border, the measure will necessarily be inconsistent with the
first sentence of Article V:2.
7.175. The 2016 Belarus Transit Requirements mandate that all international cargo transit by road
or rail from Ukraine which is destined for Kazakhstan or the Kyrgyz Republic shall be carried out
exclusively from Belarus and comply with a number of additional conditions related to identification
261 See Article V:3 ("traffic coming from or going to the territory" of other Members), Article V:4 ("traffic
in transit to or from the territories" of other Members) and Article V:5 ("traffic in transit to or from the
territory" of other Members) of the GATT 1994.
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seals and registration cards at specific control points on the Belarus-Russia border and the
Russia-Kazakhstan border.262
7.176. The 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods ban road and rail
transit departing from Ukraine and destined for Kazakhstan or the Kyrgyz Republic of: (a) goods
that are subject to non-zero import duties according to the Common Customs Tariff of the EaEU;
and (b) goods that fall within the scope of the import bans imposed by Resolution No. 778 of the
Government of the Russian Federation, unless such transit is requested by Kazakh or Kyrgyz
authorities and authorized by Russian authorities, in which case such transit is subject to the 2016
Belarus Transit Requirements.263
7.177. The 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods ban the transit
of all goods subject to veterinary and phytosanitary surveillance and that fall within the scope of the
import bans imposed by Resolution No. 778 through Russia from checkpoints in Belarus, and instead
require that such veterinary goods destined for Kazakhstan or third countries enter Russia through
designated checkpoints along the external border of the EaEU and be subject to clearance by the
appropriate Kazakh or Russian authorities, and that such plant goods destined for Kazakhstan or
third countries enter Russia exclusively through the same checkpoints.264
7.178. For reasons explained in Section 7.7, the only aspect of the 2014 Belarus-Russia Border
Bans on Transit of Resolution No. 778 Goods within the Panel's terms of reference is the application
of the bans to transit from Ukraine.265 The Panel recalls that all transit departing from Ukraine and
destined for Kazakhstan and the Kyrgyz Republic has, since 2016, been subject to the 2016 Belarus
Transit Requirements. Nevertheless, the 2014 Belarus-Russia Border Bans on Transit of Resolution
No. 778 Goods would still, according to the terms of the instruments implementing the measure,
apply to transit from Ukraine and destined for places other than Kazakhstan and the Kyrgyz Republic.
7.179. Applying the aforementioned definition of "traffic in transit" as outlined in Article V:1266, the
goods covered by the 2016 Belarus Transit Requirements, the 2016 Transit Bans on Non-Zero Duty
and Resolution No. 778 Goods, and the 2014 Belarus-Russia Border Bans on Transit of
Resolution No. 778 Goods qualify as "traffic in transit" for the purposes of Article V:2 of the
GATT 1994.
7.180. Addressing next whether the measures prohibit traffic in transit from another Member from
entering at all points along a shared land border, the 2016 Belarus Transit Requirements, by
262 See para. 7.357.a below. For additional information regarding these measures, see
paras. 7.265-7.267 below. The primary legal instruments implementing these measures are Decree of the
President of the Russian Federation No. 1, "On measures to ensure economic security and national interests of
the Russian Federation in international cargo transit from the territory of Ukraine to the territory of the
Republic of Kazakhstan through the territory of the Russian Federation", dated 1 January 2016, (Decree No. 1),
(Exhibits UKR-1, RUS-1) as amended by Decree of the President of the Russian Federation No. 319, "On
amendments to the Decree of the President of the Russian Federation No. 1 of 1 January 2016 'On measures to
ensure the economic security and national interests of the Russian Federation in international cargo transit
from the territory of Ukraine to the territory of the Republic of Kazakhstan through the territory of the Russian
Federation'", dated 1 July 2016, (Decree No. 319), (Exhibits UKR-2, RUS-2). Section 1(a) of Decree No. 1, as
amended by Decree No. 319, applies to road and rail cargo transportation "from the territory of Ukraine to the
territory of the Republic of Kazakhstan or the Kyrgyz Republic through the territory of the Russian Federation".
The Panel construes section 1(a) of Decree No. 1 as applying to both (a) transiting cargo via road or rail which
begins its journey in the territory of Ukraine and is destined for Kazakhstan or the Kyrgyz Republic, and (b)
transiting cargo via road or rail which begins its journey in another country and then transits through the
territory of Ukraine, and is destined for Kazakhstan or the Kyrgyz Republic.
263 See para. 7.357.b below. For additional information regarding these measures, see
paras. 7.266-7.267 and paras. 7.347-7.349 below. As the 2016 Transit Bans on Non-Zero Duty and
Resolution No. 778 Goods also apply to road and rail transit "from the territory of Ukraine to the territory of the
Republic of Kazakhstan or the Kyrgyz Republic", the Panel similarly construes this measure as applying to
both: (a) transiting cargo via road or rail which begins its journey in the territory of Ukraine and is destined for
Kazakhstan or the Kyrgyz Republic; and (b) transiting cargo via road or rail which begins its journey in another
country and then transits through the territory of Ukraine, and is destined for Kazakhstan or the
Kyrgyz Republic. (See fn 262 above.)
264 See para. 7.357.c below. For additional information regarding these measures, see paras. 7.269.a,
7.326-7.328 and 7.341-7.354 below, as well as fns 385, 387, 456, 458 and 482 below.
265 See paras. 7.354-7.355 and 7.357.c below.
266 See para. 7.169 above.
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mandating that traffic in transit may only enter Russia from Belarus, expressly prohibit traffic in
transit from entering Russia from Ukraine.
7.181. The 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods expressly prohibit
traffic in transit from entering Russia from Ukraine. Additionally, even where transit is exceptionally
authorized under the derogation procedure, such traffic in transit is still required to enter Russia
exclusively from Belarus, and is therefore expressly prohibited from entering Russia from Ukraine.
7.182. The 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods, as applied to
traffic in transit from Ukraine of Resolution No. 778 goods, prohibit traffic in transit from entering
Russia from the territory of any Member other than those countries from which entry is exclusively
permitted, as listed in the measure.267
7.6.2.1.4 Conclusions
7.183. The Panel concludes that, had the measures been taken in normal times, i.e. had they not
been taken in time of an "emergency in international relations" (and met the other conditions of
Article XXI(b)), Ukraine would have made a prima facie case that the following measures were
inconsistent with the first sentence of Article V:2 of the GATT 1994:
a. the 2016 Belarus Transit Requirements, because these measures prohibit traffic in transit
from entering Russia from Ukraine;
b. the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods, because these
measures prohibit traffic in transit from entering Russia from Ukraine; and
c. the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods, because
these measures prohibit traffic in transit from Ukraine from entering Russia from any
Member other than those countries from which entry is exclusively permitted, as listed in
the measure.
7.184. The Panel declines to address Ukraine's additional arguments that the measures are
inconsistent with the first sentence of Article V:2.
7.6.2.2 Article V:2, second sentence
7.6.2.2.1 Main arguments of the parties
7.185. Ukraine argues that the second sentence of Article V:2 prohibits Members from making any
distinction which is based on the place of "origin, departure, entry, exit or destination, or on any
circumstances relating to the ownership of goods, of vessels or other means of transport".268
Ukraine argues that the 2016 Belarus Transit Requirements violate the second sentence of Article
V:2 by impermissibly making distinctions based on the place of departure and entry
(the Ukraine-Russia border), the place of exit (the Russia-Kazakhstan border), and the place of
destination (Kazakhstan and the Kyrgyz Republic) of the traffic in transit.269 Ukraine argues that the
2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods violate the second sentence of
Article V:2 by impermissibly making distinctions based on the place of origin (goods originating from
countries listed in Resolution No. 778, as amended to include Ukraine, and goods that are subject
to an import duty other than zero under the Common Customs Code of the EaEU), the place of
departure and entry (the Belarus-Russia border, under the derogation procedure), the place of exit
(the Russia-Kazakhstan border), and the place of destination (Kazakhstan and the Kyrgyz Republic)
of the traffic in transit.270 Ukraine also considers that the 2014 Belarus-Russia Border Bans on Transit
of Resolution No. 778 Goods violate the second sentence of Article V:2 because they make
267 Under the Veterinary Instruction, (Exhibits UKR-21, RUS-10), entry for such goods is exclusively
permitted at nine identified checkpoints on the border between Russia, on the one hand, and Finland, Estonia,
Latvia and Ukraine, on the other hand. For more detail, see paras. 7.269.a and 7.341-7.354 below and fns 456
and 458 below.
268 Ukraine's first written submission, para. 259.
269 Ibid. paras. 281-282.
270 Ukraine's first written submission, paras. 283-284.
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impermissible distinctions based on the place of origin (goods originating from countries listed in
Resolution No. 778, as amended to include Ukraine)271, the place of entry (a limited number of
checkpoints on the external border of the EaEU), and the place of destination (imposing different
permit requirements depending on whether the goods are destined for Kazakhstan or third countries)
of the traffic in transit.272
7.186. As previously noted273, Russia does not present any arguments in response to
Ukraine's specific claims of inconsistency with the second sentence of Article V:2.
7.6.2.2.2 Main arguments of third parties
7.187. Canada agrees with Ukraine that the second sentence of Article V:2 prohibits Members from
making any distinction which is based on the place of origin, departure, entry, exit, destination and
any circumstances relating to the ownership of goods, vessels, or other means of transport.274
Canada additionally submits that the closed list in the second sentence of Article V:2 suggests that
any measures that discriminate based on other criteria should instead be dealt with under
Article V:5.275
7.188. Japan also agrees with Ukraine that the second sentence of Article V:2 prohibits Members
from making any distinction which is based on the place of origin, departure, entry, exit, destination
and any circumstances relating to the ownership of goods, vessels or other means of transport.276
Japan also proposes that the objective structure, design and operation of the measure, and not the
subjective judgment of the Member imposing the measure, should be examined to conclude whether
any such distinctions have been made.277
7.6.2.2.3 Analysis
7.189. The second sentence of Article V:2 provides that:
No distinction shall be made which is based on the flag of vessels, the place of origin,
departure, entry, exit or destination, or any circumstances relating to the ownership of
goods, of vessels or of other means of transport.
7.190. The 2016 Belarus Transit Requirements mandate that all international cargo transit by road
or rail departing from Ukraine and destined for Kazakhstan or the Kyrgyz Republic must enter Russia
exclusively from Belarus and comply with a number of additional conditions related to identification
seals and registration cards at specific control points on the Belarus-Russia border and the
Russia-Kazakhstan border.
7.191. The 2016 Belarus Transit Requirements expressly apply only to traffic in transit departing
from Ukraine (thereby making distinctions based on the place of departure) which is destined for
Kazakhstan or the Kyrgyz Republic (thereby making distinctions based on the place of destination)
and require that such traffic enter Russia only from Belarus (thereby making distinctions based on
the place of entry). The additional conditions related to identification seals and registration cards
apply only to traffic in transit that is subject to the 2016 Belarus Transit Requirements. These
conditions also involve the same prohibited distinctions.
7.192. The 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods ban road and rail
transit departing from Ukraine and destined for Kazakhstan or the Kyrgyz Republic of: (a) goods
that are subject to non-zero import duties according to the Common Customs Tariff of the EaEU;
and (b) goods that fall within the scope of the import bans imposed by Resolution No. 778, unless
271 Ukraine's first written submission, paras. 275 and 280.
272 Ibid. paras. 276-279; and response to Panel question No. 12 after the first meeting of the Panel,
para. 135.
273 See paras. 7.3 and 7.22-7.23 above.
274 See Canada's third-party submission, para. 24.
275 Ibid. para. 25.
276 Japan's third-party submission, paras. 18-19.
277 Ibid. para. 19.
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such transit is requested by Kazakh and Kyrgyz authorities and authorized by Russian authorities,
in which case such transit is subject to the 2016 Belarus Transit Requirements.
7.193. The 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods expressly apply only
to traffic in transit departing from Ukraine (thereby making distinctions based on the place of
departure) which is destined for Kazakhstan or the Kyrgyz Republic (thereby making distinctions
based on the place of destination). The 2016 Transit Bans apply to the transit of particular goods,
namely, goods that are subject to customs duties on their importation to the EaEU and goods that
originate in countries that are listed in Resolution No. 778, as amended to include Ukraine (thereby
making distinctions based on the place of origin). Additionally, even if traders exceptionally receive
authorization, such traffic in transit is still subject to the 2016 Belarus Transit Requirements and
thus required to enter Russia exclusively from Belarus (thereby making distinctions based on the
place of entry).
7.194. The 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods ban the transit
of all goods subject to veterinary and phytosanitary surveillance and that fall within the scope of the
import bans imposed by Resolution No. 778 through Russia from checkpoints in Belarus, and instead
require that such veterinary goods destined for Kazakhstan or third countries enter Russia through
designated checkpoints along the external border of the EaEU and be subject to clearance by the
appropriate Kazakh or Russian authorities, and that such plant goods destined for Kazakhstan or
third countries enter Russia exclusively through the same checkpoints. The 2014 Belarus-Russia
Border Bans on Transit of Resolution No. 778 Goods (to the extent that they fall within the Panel's
terms of reference) apply to traffic in transit from Ukraine and destined for places other than
Kazakhstan and the Kyrgyz Republic.278
7.195. The 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods, as applied to
traffic in transit from Ukraine of Resolution No. 778 goods, require such traffic in transit to enter
Russia from certain countries on the external border of the EaEU (thereby making distinctions based
on the place of entry).279 The measure applies to goods originating from countries listed in
Resolution No. 778, as amended to include Ukraine (thereby making distinctions based on the place
of origin). The additional conditions relating to entry through designated checkpoints and clearance
apply only to traffic in transit subject to the 2014 Belarus-Russia Border Bans on Transit of Resolution
No. 778 Goods. These conditions also involve the same prohibited distinctions.
7.6.2.2.4 Conclusions
7.196. The Panel concludes that, had the measures been taken in normal times, i.e. had they not
been taken in time of an "emergency in international relations" (and met the other conditions of
Article XXI(b)), Ukraine would have made a prima facie case that the following measures were
inconsistent with the second sentence of Article V:2 of the GATT 1994:
a. the 2016 Belarus Transit Requirements, because these measures make distinctions based
on the place of departure (Ukraine), the place of destination (Kazakhstan and the
Kyrgyz Republic) and the place of entry (Belarus, where entry is exclusively permitted) of
the traffic in transit;
b. the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods, because these
measures make distinctions based on the place of departure (Ukraine), the place of
destination (Kazakhstan and the Kyrgyz Republic), the place of origin (countries listed in
Resolution No. 778, as amended to include Ukraine) and the place of entry (Belarus, where
entry is exclusively permitted) of the traffic in transit; and
c. the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods, because
these measures make distinctions based on the place of entry (certain countries from
which entry is exclusively permitted, as listed in that measure) and the place of origin
(countries listed in Resolution No. 778, as amended to include Ukraine) of the traffic in
transit.
278 See paras. 7.177-7.178 above. For more detail, see paras. 7.341-7.353 below.
279 See fn 267 above.
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7.6.3 Remaining claims under the GATT 1994 and Russia's Accession Protocol
7.6.3.1 Introduction
7.197. Having found that the measures were taken in time of an "emergency in international
relations" (and meet the other conditions of Article XXI(b)), the Panel has not considered it necessary
to examine the WTO-consistency of the measures as if they had been taken in a different factual
context or on a different legal basis.280 However, in the event of the Panel's findings on
Article XXI(b)(iii) being reversed on appeal, the Panel has considered those aspects of
Ukraine's claims which would enable the Appellate Body to complete the legal analysis.
7.198. In particular, the Panel has examined whether, had the measures been taken in normal
times, i.e. had they not been taken in time of an "emergency in international relations" (and met
the other conditions of Article XXI(b)), Ukraine would have made a prima facie case that the
measures at issue were inconsistent with the first and second sentences of Article V:2 of the
GATT 1994. The Panel has outlined the key features of the measures at issue, and concluded that
the measures would have been prima facie inconsistent with these provisions, for the reasons
outlined in Section 7.6.2.
7.199. The Panel has already concluded that, had the measures been taken in normal times, every
aspect of them would have been prima facie inconsistent with either the first or second sentence of
Article V:2 of the GATT 1994, or both. Ukraine's claims under Articles V:3, V:4 and V:5 challenge
the same aspects of the measures.281 The Panel considers that addressing these claims would not
add anything to the ability of the Appellate Body to complete the analysis, nor add anything to the
ability of the DSB to make "sufficiently precise recommendations and rulings"282 in the event that
the Appellate Body were to make findings of inconsistency with either the first or second sentence
of Article V:2, or both.
7.200. In relation to Ukraine's remaining claims, the Panel recalls the statement of the
Appellate Body in Argentina – Import Measures that it failed to see how a finding relating to "the
publication of [a] WTO-inconsistent measure would contribute to securing a positive solution to this
dispute".283 Accordingly, where a measure is found to be WTO-inconsistent, findings relating to the
publication or administration of the same measure are unlikely to be necessary or useful in resolving
the matter.284 Ukraine's claims under Articles X:1, X:2 and X:3(a) of the GATT 1994 challenge the
same measures, or constituent legal instruments implementing aspects of these measures. The
Panel considers that addressing these claims would not add anything to the ability of the
Appellate Body to complete the analysis, nor add anything to the ability of the DSB to make
"sufficiently precise recommendations and rulings"285 in the event that the Appellate Body were to
make findings of inconsistency with the first or second sentence of Article V:2, or both. These
considerations are equally applicable to Ukraine's claims under paragraphs 1426, 1427 and 1428 of
Russia's Working Party Report, which all relate to the publication or administration of the same
contested measures.
280 See paras. 7.153-7.154 above.
281 See summary of Ukraine's arguments below.
282 Appellate Body Report, Australia – Salmon, para. 223 (quoted in Appellate Body Reports,
US – Wheat Gluten, para. 180; and US – Lamb, para. 191). See also Appellate Body Report,
Argentina – Footwear (EC), para. 98.
283 Appellate Body Reports, Argentina – Import Measures, para. 5.200. The panel in
Argentina – Import Measures elected to exercise judicial economy in respect of Japan's claims under Article X:1
of the GATT 1994 in circumstances where it had already determined that the challenged measures were
inconsistent with Articles III:4 and XI:1 of the GATT 1994, reasoning that it did not consider additional findings
of inconsistency in relation to the same measure under Article X:1 "necessary or useful in resolving the matter
at issue". (See ibid. para. 5.188.) The Appellate Body upheld the panel's exercise of judicial economy and the
panel's reasoning, noting that as Argentina would "have to modify or withdraw the TRRs measures to comply
with the recommendations under Articles III:4 and XI:1, the TRRs measure—in its current form and with its
current content—will cease to exist". (Ibid. para. 5.200.)
284 Since Argentina – Import Measures, several panels have exercised judicial economy over claims
under Article X:3(a) where a measure has already been held to violate other substantive provisions of the
GATT 1994. (See, e.g. Panel Reports, Peru – Agricultural Products, para. 7.501; and
Russia – Railway Equipment, para. 7.939.)
285 See fn 282 above.
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7.201. As a result, the Panel does not consider it necessary to address Ukraine's remaining claims
under Articles V:3, V:4, V:5, X:1, X:2 and X:3(a) of the GATT 1994 and paragraphs 1426, 1427 and
1428 of Russia's Working Party Report. Accordingly, the Panel has only summarized the relevant
arguments of the parties and third parties in the following Section of the Report.286
7.6.3.2 Article V:3
7.6.3.2.1 Main arguments of the parties
7.202. Ukraine argues that the 2016 Belarus Transit Requirements and the 2016 Transit Bans on
Non-Zero Duty and Resolution No. 778 Goods impose "unnecessary delays or restrictions" on traffic
in transit, and therefore, that these measures are inconsistent with Article V:3.
7.203. In Ukraine's view, a measure will be inconsistent with Article V:3 whenever it subjects traffic
in transit to any delays or restrictions which that are go beyond what is necessary "to put traffic in
transit under a transit procedure in order to ensure that the goods move through the territory (and
eventually leave the territory)".287 Ukraine contends that, in examining whether such delays or
restrictions are "unnecessary", the Panel should consider: (a) the trade restrictiveness of the
measure, (b) the degree of contribution of the measure to the achievement of its objective, and
(c) whether less restrictive alternative measures are reasonably available.288
7.204. Ukraine consequently argues that the following aspects of the measures at issue subject
traffic in transit to "unnecessary delays or restrictions" in the sense of Article V:3.289 First, Ukraine
argues that the limitation to certain designated checkpoints under the 2016 Belarus Transit
Requirements and the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods is
unnecessary to ensure that goods are put under an appropriate transit procedure, as this objective
could be equally achieved at other existing control points.290 Second, Ukraine argues that the
requirement of government authorization under the 2016 Transit Bans on Non-Zero Duty and
Resolution No. 778 Goods is an "unnecessary" restriction because it has no clear relationship to the
objective of ensuring that goods undergo an appropriate transit procedure.291 Finally, Ukraine argues
that the identification seals and registration card conditions attached to the 2016 Belarus Transit
Requirements constitute "unnecessary" restrictions and delays because such traffic in transit must
already undergo the identification procedures required by the EaEU.292
7.205. As previously noted293, Russia does not present any arguments in response to Ukraine's
specific claims of inconsistency with Articles V:3, V:4 and V:5 of the GATT 1994.
7.6.3.2.2 Main arguments of third parties
7.206. Brazil proposes that whether delays or restrictions are "necessary" under Article V:3 must
be examined on a case-by-case basis, including assessing "the trade restrictiveness of the
procedures, its degree of contribution to the public interest at stake and the risk of non-fulfilment".294
Brazil also considers that restrictions or delays can be "necessary" to achieve legitimate objectives
that are not exclusively related to transit regulation, such as in "force majeure" circumstances.295
286 The Panel has, however, addressed the relationship between paragraph 1161 of Russia's Working
Party Report and Article V:2 of the GATT 1994 in Section 7.6.4.2.2. Nonetheless, the relevant arguments of the
parties and third parties in relation to this paragraph are summarized in the following section.
287 Ukraine's first written submission, para. 303. See also Ukraine's second written submission, para. 46.
288 Ukraine's first written submission, para. 319.
289 Ukraine argues that each of the measures place "restrictions" on transit and cause "delays" related to
re-routing. (Ibid. paras. 342-344.)
290 Ibid. paras. 345-349.
291 Ibid. para. 350.
292 Ibid. paras. 351-364. See also Ukraine's response to Panel question No. 12 after the first meeting of
the Panel, para. 135.
293 See paras. 7.3 and 7.22-7.23 above.
294 Brazil's third-party submission, paras. 14-15.
295 Brazil's third-party submission, para. 14; and response to Panel question No. 10.
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7.207. Canada disagrees with Ukraine's interpretation of the scope of Article V:3.296 Canada argues
that the delays and restrictions covered under Article V:3 are those imposed as part of requiring
"that traffic in transit be registered with [Members'] customs authorities", including "the formalities
and documentation requirements that are part of entering the traffic at the proper customs
house".297
7.208. The European Union also disagrees with Ukraine's interpretation of the scope of Article V:3.
The European Union argues that the delays and restrictions covered under Article V:3 are those that
specifically result from the application of customs laws and regulations.298
7.6.3.3 Article V:4
7.6.3.3.1 Main arguments of the parties
7.209. Ukraine's claims of inconsistency with Article V:4 are confined to one aspect of the
2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods. Specifically, Ukraine argues
that the authorization requirement under the derogation procedure of the 2016 Transit Bans on
Non-Zero Duty and Resolution No. 778 Goods constitutes an "unreasonable regulation" imposed on
traffic in the sense of Article V:4.299
7.210. In Ukraine's view, whether a regulation is "unreasonable" should involve an analysis of:
(a) the rationale or purpose of the measure, and (b) whether the means used to achieve that
rationale are "adequate and fair".300 Ukraine consequently argues that: (a) it is unreasonable to
make access for traffic in transit entirely dependent on the discretion of the government of the
country of destination, (b) it is unreasonable to implement a measure that does not provide any
information about what conditions need to be satisfied in order to secure authorization, and
(c) the measure goes beyond what is required to ensure that goods move through and eventually
leave the territory of the transit Member.301
7.6.3.4 Article V:5
7.6.3.4.1 Main arguments of the parties
7.211. Ukraine argues that the 2016 Belarus Transit Requirements, the 2016 Transit Bans on
Non-Zero Duty and Resolution No. 778 Goods, and the 2014 Belarus-Russia Border Bans on Transit
of Resolution No. 778 Goods accord less favourable treatment to traffic in transit from Ukraine
compared to third countries, and therefore, that the measures are inconsistent with Article V:5.
7.212. Ukraine proposes that, to establish inconsistency with Article V:5, it must be shown that:
(a) the measure is a "regulation" that is "related to or associated with" traffic in transit; (b) there
has been differential treatment accorded to traffic in transit from or to any Member as compared to
third countries; (c) there has been "less favourable treatment", or a detrimental impact on the
conditions of competition, for traffic in transit from the contesting Member; and (d) there is a
"genuine relationship" between the measure at issue and the adverse impact on competitive
opportunities.302
7.213. Applying the foregoing analysis, Ukraine argues that each of the measures is inconsistent
with Article V:5. Ukraine argues that the 2016 Belarus Transit Requirements and the 2016 Transit
Bans on Non-Zero Duty and Resolution No. 778 Goods accord differential treatment on the basis of
whether the traffic in transit has come from Ukraine and is going to Kazakhstan and the
Kyrgyz Republic.303 Ukraine also argues that the 2016 Transit Bans on Non-Zero Duty and Resolution
No. 778 Goods and the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods
296 Canada's third-party submission, paras. 31-32.
297 Ibid. paras. 33 and 36. (footnotes omitted)
298 European Union's response to Panel question No. 10, para. 32.
299 Ukraine's first written submission, paras. 366 and 393.
300 Ibid. paras. 384-385.
301 Ibid. paras. 400-404.
302 See ibid. paras. 409-431.
303 Ukraine's first written submission, paras. 444 and 448-449.
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accord differential treatment on the basis of whether the traffic in transit has originated from a
Resolution No. 778 country, as amended to include Ukraine, or is destined for Kazakhstan.304
Ukraine argues that this differential treatment alters the conditions of competition for traffic in transit
from Ukraine as compared to third countries, and therefore accords "less favourable treatment" by:
(a) creating delays and additional costs related to rerouting, (b) imposing additional costs such as
those related to identification and registration cards, and (c) impeding access to the export market
for which the goods are destined.305
7.6.3.5 Article X of the GATT 1994
7.6.3.5.1 Main arguments of the parties
7.214. Ukraine's claims of inconsistency with Article X of the GATT 1994 are confined to certain
instruments that implement aspects of the 2016 Belarus Transit Requirements and the 2016 Transit
Bans on Non-Zero Duty and Resolution No. 778 Goods. Ukraine argues that these measures fall
within the scope of Article X:1 because they affect the transportation of goods, and fall within the
scope of Article X:2 because they have "regard to" or are "connected with" importation or
exportation.306
7.215. More specifically, Ukraine claims that the following legal instruments implementing aspects
of the measures above were not published promptly as required by Article X:1 of the GATT 1994:
a. Public Joint-Stock Company "Russian Railways" Order No. 529r of 28 March 2016
(PJSC Order)307 and the Public Joint-Stock Company "Russian Railways" Notice of
17 May 2016 (PJSC Notice)308, both of which implement aspects of the 2016 Belarus
Transit Requirements and the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778
Goods. Ukraine argues that these legal instruments were inadequately published for the
purposes of Article X:1, as they were only published on the website and print version of
the business magazine "RZD-Partner Documents", to which only paying subscribers have
access.309
b. Decree No. 319310, which extended the geographical scope of the 2016 Belarus Transit
Requirements to traffic in transit from Ukraine destined for the Kyrgyz Republic, and
imposed the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods. Ukraine
argues that this legal instrument was not published promptly for the purposes of
304 Ukraine's first written submission, paras. 445-447 and 449.
305 Ibid. paras. 451 and 453-454. The Panel also notes that Ukraine initially proposed that any
inconsistency with the second sentence of Article V:2 would necessarily demonstrate "less favourable
treatment" for the purposes of Article V:5; however, Ukraine later appears to have withdrawn this argument.
(See Ukraine's second written submission, para. 61.)
306 Ukraine's first written submission, paras. 521, 523-524 and 564.
307 Order of PJSC "Russian Railways" No. 529, "On approval of the procedure for installing (removing) of
the identification means (seals) operating on the basis of the technology GLONASS", dated 28 March 2016,
(PJSC Order), (Exhibit UKR-7). The PJSC Order implements the requirements of the 2016 Belarus Transit
Requirements (set forth in paragraph 1(b) of Decree No. 1) to affix identification seals on road and railway
transport of traffic in transit from Ukraine destined for Kazakhstan (and the Kyrgyz Republic) on entry into
Russia and to remove such seals on exit from Russia, as elaborated by Resolution of the Government of the
Russian Federation No. 276, "On the procedure of exercising control over the international road and rail cargo
transit from the territory of Ukraine to the territory of the Republic of Kazakhstan or the Kyrgyz Republic
through the territory of the Russian Federation", dated 6 April 2016, (Resolution No. 276), (Exhibits UKR-8,
RUS-6) (as amended by Resolution of the Government of the Russian Federation No. 732, "On amendments to
some acts of the Government of the Russian Federation", dated 1 August 2016, (Resolution No. 732),
(Exhibit UKR-4)). (Ukraine's first written submission, para. 107.) See also Decree No. 1, (Exhibits UKR-1, RUS-
1).
308 This notice sets forth the fee for the placement and removal of the GLONASS identification seals, as
required by the instruments listed in fn 307 above. (Ukraine's first written submission, para. 105.)
309 See ibid. paras. 530-539.
310 Decree No. 319, (Exhibits UKR-2, RUS-2).
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Article X:1, as this instrument was brought into effect on 1 January 2016, while it was
published only on 3 July 2016.311
7.216. Ukraine claims that the following legal instruments were enforced prior to their official
publication, contrary to Article X:2 of the GATT 1994:
a. The PJSC Order312, because this legal instrument was inadequately published for the
purposes of Article X:2, as it was only published on the website and print version of the
business magazine "RZD-Partner Documents", to which only paying subscribers have
access.313
b. Decree No. 319314, because this instrument was enforced on 1 January 2016, while it was
officially published only on 3 July 2016.315
c. Decree No. 643316, which amended Decree No. 1317, so as to extend the duration of the
2016 Belarus Transit Requirements and the 2016 Transit Bans on Non-Zero Duty and
Resolution No. 778 Goods, because this instrument was enforced on 30 December 2017,
while it was only officially published on 4 January 2018.318
7.217. Ukraine claims that the following legal instruments are administered in an unreasonable
manner, contrary to Article X:3(a) of the GATT 1994:
a. Decree No. 1, as amended by Decree No. 319 and Decree No. 643, which imposes the
2016 Belarus Transit Requirements and the 2016 Transit Bans on Non-Zero Duty and
Resolution No. 778 Goods, because Russia has administered these instruments at the
Belarus-Russia border without providing reasoned explanations to traders.319
b. Decree No. 319320, because the derogation procedure under this instrument contains no
criteria governing the exercise of Russia's discretion to permit derogations from the bans,
thereby permitting the possibility of arbitrary administration.321
7.218. Russia argues that the scope of Article X is limited to "issues of importation, exportation,
internal sale and transportation", and does not intersect with "the scope of Article V of the GATT
which is limited to issues of transit".322
311 See Ukraine's first written submission. paras. 541-543. See also Ukraine's response to
Panel question No. 12 after the first meeting of the Panel, para. 135.
312 PJSC Order, (Exhibit UKR-7).
313 Ukraine's first written submission, para. 581.
314 Decree No. 319, (Exhibits UKR-2, RUS-2).
315 Ukraine's first written submission, paras. 583-584.
316 Decree of the President of the Russian Federation No. 643, "On amendments to the Decree of the
President of the Russian Federation No. 1 of 1 January 2016 'On measures to ensure economic security and
national interests of the Russian Federation in international cargo transit from the territory of Ukraine to the
territory of the Republic of Kazakhstan through the territory of the Russian Federation", dated
30 December 2017, (Decree No. 643), (Exhibits UKR-98, RUS-13). Decree No. 643 extended the duration of
Decree No. 1, and therefore the duration of the 2016 Belarus Transit Requirements and the 2016 Transit Bans
on Non-Zero Duty and Resolution No. 778 Goods.
317 Decree No. 1, (Exhibits UKR-1, RUS-1).
318 Ukraine's opening statement at the first meeting of the Panel, paras. 61-63; and second written
submission, para. 64. See also Ukraine's response to Panel question No. 12 after the first meeting of the Panel,
para. 135.
319 Ukraine's first written submission, paras. 643-647.
320 Decree No. 319, (Exhibits UKR-2, RUS-2).
321 Ukraine's first written submission, paras. 648-650 and 653-654. See also Ukraine's response to Panel
question No. 12 after the first meeting of the Panel, para. 135.
322 Russia's response to Panel question No. 11 after the first meeting of the Panel, p. 4.
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7.6.3.5.2 Main arguments of third parties
7.219. Brazil argues that measures within the scope of Article V will typically qualify as
"requirements, restrictions or prohibitions on imports or exports" within the sense of Article X:1.323
7.220. Canada argues that the term "affecting their … transportation" in Article X:1 should be
construed as referring to measures affecting the transportation of "products", as included in the
phrase "classification or the valuation of products for customs purposes", not "imports or exports"
as included in the preceding phrase "requirements, restrictions or prohibitions on imports or
exports".324 Canada argues that this broader construction of Article X:1 is supported by the
object and purpose of Article X, which is to promote transparency in relation to measures of general
application relating to trade.325
7.221. The European Union also argues that the term "affecting their … transportation" in Article X:1
should be construed as referring to measures affecting the transportation of "products", not "imports
or exports".326 The EU agrees that this broader construction of Article X:1 is supported by the object
and purpose of Article X, which is to promote transparency in relation to measures of general
application relating to trade.327 The European Union notes in support of this proposition the title of
Article X, which reads "Publication and Administration of Trade Regulations".328 The European Union
additionally argues that, in the specific context of Article X, the term "imports" should be interpreted
as "covering any goods that physically enter into the territory of the Member concerned", although
conceding that in other provisions of the GATT, the term "imports" must be understood as excluding
traffic in transit.329
7.222. Japan argues that measures within the scope of Article V will typically qualify as
"requirements, restrictions or prohibitions on imports or exports" within the sense of Article X:1, or
alternately, as measures affecting the "distribution" or "transportation" of imports or exports.330
7.6.3.6 Russia's Accession Protocol
7.6.3.6.1 Paragraph 1161 of Russia's Working Party Report
7.6.3.6.1.1 Main arguments of the parties
7.223. Ukraine argues that the first sentence of paragraph 1161 of Russia's Working Party Report
"confirms the application of Article V of the GATT 1994" to any Russian measures governing the
transit of goods.331 Consequently, Ukraine argues that it will be sufficient to establish that Russia
has acted inconsistently with Article V to demonstrate inconsistency with paragraph 1161.332
7.224. Russia does not present any arguments in response to Ukraine's claims of inconsistency with
paragraphs 1161, 1426, 1427 and 1428 of Russia's Working Party Report.
7.6.3.6.2 Paragraph 1426 of Russia's Working Party Report
7.6.3.6.2.1 Main arguments of the parties
7.225. Ukraine argues that paragraph 1426 of Russia's Working Party Report applies to a broader
category of legal instruments than Article X:1 of the GATT 1994 in that it applies to any measures
"pertaining to or affecting trade in goods, services, or intellectual property rights".333 Nonetheless,
323 Brazil's response to Panel question No. 14, p. 7.
324 Canada's response to Panel question No. 14, paras. 22-23.
325 Ibid. para. 24.
326 European Union's response to Panel question No. 14, para. 42.
327 Ibid. paras. 37 and 40.
328 Ibid. para. 39.
329 Ibid. para. 43.
330 Japan's response to Panel question No. 14, para. 33.
331 Ukraine's first written submission, para. 164.
332 Ibid.
333 Ibid. paras. 490-491 and 517.
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Ukraine submits that measures that fall within the scope of Articles V and X:1 of the GATT 1994
necessarily pertain to or affect "trade in goods" within the scope of paragraph 1426.334
Ukraine further argues that paragraph 1426 of Russia's Working Party Report and Article X:1 of the
GATT 1994 "contain the same substantive obligation of prompt publication", and consequently that
inconsistency with Article X:1 of the GATT 1994 will automatically imply inconsistency with
paragraph 1426 of Russia's Working Party Report.335
7.6.3.6.3 Paragraph 1427 of Russia's Working Party Report
7.6.3.6.3.1 Main arguments of the parties
7.226. Ukraine argues that Russia has violated the commitments in paragraph 1427 of
Russia's Working Party Report because it has failed to publish, prior to their adoption, 20 legal
instruments that implement aspects of the 2016 Belarus Transit Requirements, the 2016 Transit
Bans on Non-Zero Duty and Resolution No. 778 Goods, and the 2014 Belarus-Russia Border Bans
on Transit of Resolution No. 778 Goods.
7.227. More specifically, Ukraine claims that the following legal instruments were not published
before adoption as required by paragraph 1427 of Russia's Working Party Report:
a. The PJSC Order336, which implements aspects of the 2016 Belarus Transit Requirements
and the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods. Ukraine
argues that this legal instrument was inadequately published for the purposes of
paragraph 1427, as it was only published on the website and print version of the business
magazine "RZD-Partner Documents", to which only paying subscribers have access.337
334 Ukraine's first written submission, para. 518; and response to Panel question No. 11 after the first
meeting of the Panel, para. 127.
335 Ukraine's first written submission, paras. 499 and 516-518.
336 PJSC Order, (Exhibit UKR-7).
337 Ukraine's first written submission, paras. 603 and 605.
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b. Several resolutions implementing the measures at issue338, as well as Decree No. 643.339
These instruments implement various aspects of the 2016 Belarus Transit Requirements,
the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods, and the 2014
Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods. Ukraine argues that
each of these legal instruments was published either after or on the date of their adoption,
which Ukraine defines as the date on which the finalized measures were approved within
the territory of the Russian Federation.340
7.6.3.6.4 Paragraph 1428 of Russia's Working Party Report
7.6.3.6.4.1 Main arguments of the parties
7.228. Ukraine argues that, as with paragraph 1426 of Russia's Working Party Report, measures
that fall within the scope of Article V and Article X:1 of the GATT 1994 necessarily pertain to or affect
"trade in goods" within the scope of paragraph 1428.341 Ukraine further claims that paragraph 1428
"expands the scope of application and the substantive publication requirement of Article X:2 of the
338 These resolutions are:
(a) Resolution No. 778, (Exhibits UKR-10, RUS-7);
(b) Resolution of the Government of the Russian Federation No. 830, "On amendments to the
Resolution of the Government of the Russian Federation dated 7 August 2014 No. 778", dated 20 August 2014,
(Resolution No. 830), (Exhibit UKR-11);
(c) Resolution of the Government of the Russian Federation No. 625, "On amendments to the Resolution
of the Government of the Russian Federation dated 7 August 2014 No. 778", dated 25 June 2015,
(Resolution No. 625), (Exhibit UKR-12);
(d) Resolution No. 842, (Exhibit UKR-13);
(e) Resolution of the Government of the Russian Federation No. 981, "On amendment of the Annex to
the Resolution of the Government of the Russian Federation dated 7 August 2014 No. 778", dated
16 September 2015, (Resolution No. 981), (Exhibit UKR-14);
(f) Resolution No. 1397, (Exhibit UKR-15);
(g) Resolution of the Government of the Russian Federation No. 1 "On measures related to the
implementation of the Decree of the President of the Russian Federation No. 1 of 1 January 2016" , dated
1 January 2016, (Resolution No. 1), (Exhibits UKR-3, RUS-4);
(h) Resolution of the Government of the Russian Federation No. 147, "On approval of requirements to
the identification means (Seals) including the ones functioning on the basis of the technology of global satellite
navigation system GLONASS", dated 27 February 2016, (Resolution No. 147), (Exhibits UKR-6, RUS-5) (as
amended by Resolution No. 732, (Exhibit UKR-4);
(i) Resolution of the Government of the Russian Federation No. 157, "On amendment of the Annex to
the Resolution of the Government of the Russian Federation dated 7 August 2014 No. 778", dated
1 March 2016, (Resolution No. 157), (Exhibit UKR-16);
(j) Resolution No. 276, (Exhibits UKR-8, RUS-6);
(k) Resolution of the Government of the Russian Federation No. 388, "On introduction of amendments
to Appendix to the Resolution of the Government of the Russian Federation No. 1 of 1 January 2016", dated
30 April 2016, (Resolution No. 388), (Exhibit UKR-5);
(l) Resolution of the Government of the Russian Federation No. 472, "On amendment of the Annex to
the Resolution of the Government of the Russian Federation dated 7 August 2014 No. 778", dated
27 May 2016, (Resolution No. 472), (Exhibit UKR-17);
(m) Resolution of the Government of the Russian Federation No. 608, "On amendments to the
Resolution of the Government of the Russian Federation dated 7 August 2014 No. 778", dated 30 June 2016,
(Resolution No. 608), (Exhibit UKR-18);
(n) Resolution No. 732, (Exhibit UKR-4);
(o) Resolution of the Government of the Russian Federation No. 897, "On amendment to Annex to the
Russian Federation Government Resolution dated 7 August 2014 No. 778", dated 10 September 2016,
(Resolution No. 897), (Exhibit UKR-19);
(p) Resolution of the Government of the Russian Federation No. 1086, "On amendment of the Annex to
the Resolution of the Government of the Russian Federation dated 7 August 2014 No. 778", dated
22 October 2016, (Resolution No. 1086), (Exhibit UKR-20);
(q) Resolution No. 790, (Exhibit UKR-70); and
(r) Resolution of the Government of the Russian Federation No. 1292, "On amendments to the Annexes
to Resolution of the Government of the Russian Federation of 7 August 2014 No. 778", dated 25 October 2017,
(Resolution No. 1292), (Exhibit UKR-94).
339 Decree No. 643, (Exhibits UKR-98, RUS-13). (Ukraine's response to Panel question No. 12 after the
first meeting of the Panel, para. 135.)
340 Ukraine's first written submission, paras. 595 and 604-606; and opening statement at the first
meeting of the Panel, para. 63.
341 Ukraine's first written submission, para. 548.
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GATT 1994" because paragraph 1428 prohibits measures from becoming "effective" prior to
publication while Article X:2 prohibits measures from being "enforced" prior to "official"
publication.342 As Ukraine considers that a measure can only be "enforced" once it has been made
"effective", Ukraine consequently contends that "a violation of Article X:2 automatically implies a
violation of paragraph 1428."343 Ukraine proceeds to argue that the contested instruments are
inconsistent with paragraph 1428 of Russia's Working Party Report for the same reasons that they
are inconsistent with Article X:2 of the GATT 1994.344
7.6.4 Applicability of Article XXI(b)(iii) of the GATT 1994 to commitments in Russia's
Accession Protocol
7.6.4.1 Introduction
7.229. Ukraine makes several claims of inconsistency with Russia's Accession Protocol based on
commitments contained in paragraphs 1161, 1426, 1427 and 1428 of Russia's Working Party
Report.345 The Panel has already concluded that the measures at issue are covered by
Article XXI(b)(iii), and consequently that it is not necessary to address each of Ukraine's claims of
inconsistency with Articles V and X of the GATT 1994. The applicability of Article XXI(b)(iii) to those
provisions of the GATT 1994 is explicitly contemplated by the introduction to Article XXI, which
provides that "[n]othing in this Agreement shall be construed".
7.230. Conversely, neither panels nor the Appellate Body have previously considered the
applicability of Article XXI(b)(iii) of the GATT 1994 to commitments in the Accession Protocol of any
acceding Member.346 Several disputes have, however, previously considered the applicability of
Article XX of the GATT 1994 to individual commitments in China's Accession Protocol. The Panel
considers these disputes to be relevant insofar as they inform its analysis of the relationship between
a Member's Accession Protocol and provisions of the GATT 1994.
7.231. The Appellate Body has held that the relationship between provisions in
China's Accession Protocol and provisions in the WTO Agreement must be determined on a
case-by-case basis.347 In some disputes, this analysis has led to a determination that Article XX of
the GATT 1994 could be invoked to justify a breach of an independent obligation under
China's Accession Protocol348, while in others, the same analysis led to a determination that
Article XX could not be invoked in relation to the contested provision.349 In China – Rare Earths,
342 Ukraine's first written submission, paras. 569-570.
343 Ibid. para. 571.
344 Ibid. para. 585.
345 As noted in footnote 229, these paragraphs are incorporated into Russia's Accession Protocol by
reference. (See Russia's Accession Protocol, para. 2 of Part I; and Working Party Report, para. 1450.)
346 The Panel recalls that in prior disputes involving the interpretation of China's Accession Protocol,
panels and the Appellate Body proceeded on the assumption that paragraph 1.2 of that Protocol served to
make certain obligations enforceable under the DSU where this issue was not contested by the parties.
(Appellate Body Reports, China – Rare Earths, fn 422. See also Appellate Body Reports, China – Auto Parts,
paras. 213-214; and Panel Reports, China – Rare Earths, para. 7.85.) The Panel observes that paragraph 2 of
Part I of Russia's Accession Protocol is identical in all relevant respects to paragraph 1.2 of China's Accession
Protocol. Both paragraphs provide that the WTO Agreement to which each Member accedes "shall be the
WTO Agreement" as "rectified, amended or otherwise modified by such legal instruments as may have entered
into force" before the relevant date of accession, and also provide that the Protocol "shall be an integral part of
the WTO Agreement". Moreover, neither Ukraine nor Russia has contested the enforceability of the provisions
of Russia's Accession Protocol and Working Party Report under the DSU. Consequently, the Panel proceeds on
the premise that the commitments in paragraphs 1161, 1426, 1427 and 1428 of Russia's Working Party Report
are enforceable under the DSU.
347 Appellate Body Reports, China – Rare Earths, paras. 5.50 and 5.57.
348 For instance, in China – Publications and Audiovisual Products, the Appellate Body addressed
whether Article XX(a) of the GATT 1994 applied to a provision on trading rights in paragraph 5.1 of
China's Accession Protocol. (Appellate Body Report, China – Publications and Audiovisual Products,
paras. 214-215.) The Appellate Body concluded that China could rely upon the introductory clause of
paragraph 5.1 of its Accession Protocol to justify any violation as necessary to protect public morals in China,
within the meaning of Article XX(a) of the GATT 1994. (Ibid. para. 233.) For the analysis of the Appellate Body
on this issue, see ibid. paras. 216-233.
349 For instance, in China – Raw Materials, the Appellate Body examined whether Articles XX(b) and
XX(g) of the GATT 1994 applied to paragraph 11.3 of China's Accession Protocol, which obliged China to
eliminate export taxes and charges. (Appellate Body Reports, China – Raw Materials, para. 278.) The
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the Appellate Body held that the specific relationship between individual provisions in
China's Accession Protocol and provisions of the GATT 1994 must be ascertained "through scrutiny
of the provisions concerned, read in the light of their context and object and purpose, with due
account being taken of the overall architecture of the WTO system as a single package of rights and
obligations, and any specific provisions that govern or shed light on the relationship between the
provisions of different instruments".350 The Appellate Body also noted that such an assessment must
be predicated on a "thorough analysis of the relevant provisions on the basis of the customary rules
of treaty interpretation, as well as the circumstances of each dispute".351
7.232. The Panel considers that the approach outlined by the Appellate Body in China – Rare Earths
is equally applicable to the relationship between Russia's Accession Protocol and Article XXI(b)(iii)
of the GATT 1994. In the Panel's view, the architecture of the WTO system confers a single package
of rights and obligations upon Russia, of which the GATT 1994 and its Accession Protocol are
constituent parts. In particular, where obligations under Russia's Accession Protocol are closely
linked to obligations under the GATT 1994, the Panel considers that this constitutes a strong
argument for the applicability of Article XXI(b)(iii) to such commitments.
7.233. The Panel proceeds to apply the analytical framework outlined by the Appellate Body to
determine the applicability of Article XXI(b)(iii) to the commitments in individual provisions of
Russia's Working Party Report.352 In doing so, the Panel considers: (a) the text of each provision,
as well as any express textual references, or lack thereof, to the GATT 1994 or other covered
agreements; (b) the context provided by other relevant provisions in Russia's Accession Protocol
and Working Party Report; (c) the content of each provision and its relationship to obligations under
the GATT 1994; (d) the overall architecture of the WTO system as a single package of rights and
obligations; and (e) the specific circumstances of this dispute.353
7.6.4.2 Paragraph 1161 of Russia's Working Party Report
7.6.4.2.1 Paragraph 1161 of Russia's Working Party Report and Article XXI(b)(iii) of the
GATT 1994
7.234. Paragraph 1161 of Russia's Working Party Report provides, in relevant part, that:
The representative of the Russian Federation confirmed that the Russian Federation
would apply all its laws, regulations and other measures governing transit of goods
(including energy), such as those governing charges for transportation of goods in
transit by road, rail and air, as well as other charges and customs fees imposed in
connection with transit, including those mentioned in paragraphs 1155 and 1156 in
conformity with the provision of Article V of the GATT 1994 and other relevant provisions
of the WTO Agreement.
7.235. Paragraph 1161 requires Russia to apply certain measures in "conformity with the provisions
of Article V of the GATT 1994 and other relevant provisions of the WTO Agreement".354 The explicit
textual reference to "other relevant provisions of the WTO Agreement" provides support for the
applicability of other provisions of the covered agreements. Additionally, the ordinary meaning of
the term "relevant" is whether such provisions have a "bearing on" or are "connected with" the
matter, or are "legally pertinent or sufficient".355 Applying this definition, the Panel considers that
other provisions of the covered agreements will be "relevant" to paragraph 1161 provided that they
have a demonstrable legal bearing upon Article V of the GATT 1994. Article XXI(b)(iii) clearly falls
Appellate Body concluded that China could not rely on Articles XX(b) and XX(g) in relation to paragraph 11.3.
(Appellate Body Reports, China – Raw Materials, para. 307.) For the analysis of the Appellate Body on this
issue, see ibid. paras. 279-306.
350 Appellate Body Reports, China – Rare Earths, para. 5.55. (emphasis added)
351 Ibid. para. 5.57.
352 Ibid. paras. 5.50 and 5.57.
353 Ibid. para. 5.74.
354 Emphasis added.
355 Shorter Oxford English Dictionary, 5th edn, A. Stevenson (ed.), (Oxford University Press, 2003),
Vol. 2, p. 2522.
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within this definition, as it is directly applicable to Article V of the GATT 1994 through the phrase
"[n]othing in this Agreement shall be construed".
7.236. The immediate context provided by the other provisions of Russia's Working Party Report
also informs the interpretation of paragraph 1161, particularly those discussions under the shared
subheading "Regulation of Trade in Transit". The Panel observes that, for instance, in
paragraph 1160 of Russia's Working Party Report, the representative for Russia confirmed that in
relation to certain bans on transit, "in general, such provisions were applied for reasons of safety,
health or national security."356 There is no record of any Members contesting or objecting to this
assertion.
7.237. Finally, the content of paragraph 1161 of Russia's Working Party Report and its relationship
to obligations under the GATT 1994 is also relevant to the Panel's analysis.357 The Panel observes
that the commitments in paragraph 1161 and obligations under the GATT 1994 are closely linked in
that paragraph 1161 requires Russia to apply measures governing transit of goods "in conformity"
with Article V of the GATT 1994. If Article XXI(b)(iii) were inapplicable to this provision, this could
thus potentially allow Ukraine to succeed on a claim of inconsistency with commitments in Russia's
Accession Protocol, and not an identical claim under the GATT 1994.
7.238. For these reasons, the Panel considers that Russia can rely on the phrase "other relevant
provisions of the WTO Agreement" in order to justify any inconsistency with the commitments in
paragraph 1161 of Russia's Working Party Report as necessary for the protection of its essential
security interests taken in time of an "emergency in international relations" within the meaning of
Article XXI(b)(iii) of the GATT 1994.
7.6.4.2.2 Paragraph 1161 of Russia's Working Party Report and Article V:2 of the GATT
1994
7.239. The Panel recalls its conclusion that, had the measures been taken in normal times, every
aspect of them would have been prima facie inconsistent with either the first or second sentence of
Article V:2 of the GATT 1994, or both. Based on the foregoing analysis, the Panel considers that
paragraph 1161 of Russia's Working Party Report merely reiterates Russia's commitments under
Article V of the GATT 1994. Moreover, the Panel recalls that Ukraine's claims under paragraph 1161
of Russia's Working Party Report are substantively identical to Ukraine's claims under Article V.358
7.240. The Panel therefore considers that, had the measures been taken in normal times, i.e. had
they not been taken in time of an "emergency in international relations" (and met the other
conditions of Article XXI(b)), the measures would have also been prima facie inconsistent with
paragraph 1161 of Russia's Working Party Report to the extent that they would also be prima facie
inconsistent with either the first or second sentence of Article V:2 of the GATT 1994, or both.
7.6.4.3 Paragraph 1426 of Russia's Working Party Report and Article XXI(b)(iii) of the
GATT 1994
7.241. Paragraph 1426 of Russia's Working Party Report provides, in relevant part, that:
The representative of the Russian Federation confirmed that from the date of accession,
all laws, regulations, decrees, decisions, judicial decisions and administrative rulings of
356 Emphasis added.
357 The Panel recalls that in China – Publications and Audiovisual Products, the Appellate Body observed
the close interlinkage between the obligations assumed under paragraph 5.1 of China's Accession Protocol and
the GATT 1994, given that paragraph 5.1 was "clearly concerned with trade in goods". (Appellate Body Report,
China – Publications and Audiovisual Products, para. 226. (emphasis original)) The Appellate Body additionally
noted that paragraph 5.1 should not "be interpreted in a way that would allow a complainant to deny China
access to a defence merely by asserting a claim under paragraph 5.1 and by refraining from asserting a claim
under other provisions of the covered agreements relating to trade in goods that apply to the same or closely
linked measures". (Ibid. para. 229.) This was material to the Appellate Body's conclusion that China could rely
on Article XX(a) as a defence to its obligations under paragraph 5.1 of its Accession Protocol. (Ibid. para. 233.)
358 Ukraine's only argument of inconsistency with paragraph 1161 of Russia's Working Party Report is
that a demonstration of inconsistency with Article V of the GATT 1994 will also demonstrate inconsistency with
paragraph 1161. (See Ukraine's first written submission, para. 164.)
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general application pertaining to or affecting trade in goods, services, or intellectual
property rights, whether adopted or issued in the Russian Federation or by a competent
body of the CU, would be published promptly in a manner that fulfils applicable
requirements of the WTO Agreement, including those of Article X of the GATT 1994,
WTO GATS Agreement, and the WTO TRIPS Agreement.
7.242. Paragraph 1426 requires Russia to publish certain measures promptly in a manner that
"fulfils applicable requirements of the WTO Agreement, including those of Article X of the
GATT 1994".359 The explicit textual reference to "applicable requirements of the WTO Agreement"
provides support for the applicability of other provisions of the covered agreements. The text of
paragraph 1426 also explicitly refers to Article X of the GATT 1994 as an example of a provision
containing such "applicable requirements". The ordinary meaning of the term "applicable" is whether
such requirements are "able to be applied (to a purpose etc.)", or are "relevant", "suitable" or
"appropriate".360 The ordinary meaning of the term "requirement" is "[s]omething called for or
demanded", or "a condition which must be complied with".361 In the Panel's view, just as Article X
of the GATT 1994 is specified to contain "applicable requirements" to paragraph 1426,
Article XXI(b)(iii) clearly contains "applicable requirements" to Article X of the GATT 1994. This
follows from the fact that Article X is subject to Article XXI(b)(iii) through the phrase "[n]othing in
this Agreement shall be construed".
7.243. Other provisions of Russia's Working Party Report also inform the Panel's interpretation of
paragraph 1426. In particular, the Panel contrasts the language used in paragraph 1426 with that
used in paragraph 1427. Paragraphs 1426 and 1427 both create obligations relating to the
publication of certain measures "pertaining to or affecting trade in goods, services, or intellectual
property rights". However, unlike paragraphs 1161, 1426 and 1428, paragraph 1427 specifically
omits any textual reference to "relevant provisions" or "applicable requirements" of the
"WTO Agreement", and instead includes its own specific reference to "cases of emergency" and
"measures involving national security". In the Panel's view, the absence of any equivalent textual
reference in paragraph 1427 further underpins the significance of the phrase "applicable
requirements of the WTO Agreement" in paragraph 1426.
7.244. Finally, the content of paragraph 1426 and its relationship to obligations under the
GATT 1994 are also relevant to the Panel's analysis. The Panel observes that the commitments in
paragraph 1426 and obligations under the GATT 1994 are closely linked in that paragraph 1426
contains the same requirement to ensure that measures relating to trade in goods are "published
promptly" as that contained in Article X:1 of the GATT 1994.362 If Article XXI(b)(iii) were inapplicable
to this provision, this could thus potentially allow Ukraine to succeed on a claim of inconsistency
with commitments in Russia's Accession Protocol, and not an identical claim under the GATT 1994.
7.245. For these reasons, the Panel considers that Russia can rely on the phrase "in a manner that
fulfils applicable requirements of the WTO Agreement" in order to justify any inconsistency with the
commitments in paragraph 1426 of Russia's Working Party Report as necessary for the protection
of its essential security interests taken in time of an "emergency in international relations" within
the meaning of Article XXI(b)(iii) of the GATT 1994.
359 Emphasis added.
360 Shorter Oxford English Dictionary, 5th edn, A. Stevenson (ed.) (Oxford University Press, 2003),
Vol. 1, p. 102. (emphasis original)
361 Ibid. Vol. 2, p. 2542.
362 Paragraph 1426 creates a commitment to publish promptly "all laws, regulations, decrees, decisions,
judicial decisions and administrative rulings of general application pertaining to or affecting trade in goods,
services, or intellectual property rights", whereas Article X:1 of the GATT 1994 creates an obligation to publish
promptly "[l]aws, regulations, judicial decisions and administrative rulings of general application, made
effective by any [Member], pertaining to the classification or the valuation of products for customs purposes, or
to rates of duty, taxes or other charges, or to requirements, restrictions or prohibitions on imports or exports
or on the transfer of payments therefor, or affecting their sale, distribution, transportation, insurance,
warehousing, inspection, exhibition, processing, mixing or other use". While the scope of the provisions differs,
both impose obligations on Russia relating to the publication of measures concerning trade in goods.
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7.6.4.4 Paragraph 1427 of Russia's Working Party Report and Article XXI(b)(iii) of the
GATT 1994
7.246. Paragraph 1427 of Russia's Working Party Report provides, in relevant part, that:
The representative of the Russian Federation further confirmed that, except in cases of
emergency, measures involving national security, specific measures setting monetary
policy, measures the publication of which would impede law enforcement, or otherwise
be contrary to the public interest, or prejudice the legitimate commercial interest of
particular enterprises, public or private, the Russian Federation would publish all laws,
regulations, decrees (other than Presidential decrees), decisions and administrative
rulings of general application pertaining to or affecting trade in goods, services, or
intellectual property rights, prior to their adoption and would provide a reasonable
period of time, normally not less than 30 days, for Members and interested persons to
comment to the responsible authorities before the relevant measure was finalized or
submitted to the competent CU bodies.
7.247. Paragraph 1427 omits any reference to "relevant provisions" or "applicable requirements" of
"the WTO Agreement" or the GATT 1994, but instead refers specifically to exceptions to the
obligations undertaken in that paragraph for "cases of emergency" and "measures involving national
security".
7.248. The context provided by the other provisions of the Multilateral Trade Agreements informs
the Panel's interpretation of paragraph 1427.363 In particular, paragraph 1427 creates obligations
relating to measures "pertaining to or affecting trade in goods, services, or intellectual property
rights". Consequently, the Panel considers the use of the term "emergency" across those covered
agreements relating to trade in goods, services and intellectual property rights to be material to
its understanding of the phrase "cases of emergency" in paragraph 1427. In this respect, Panel notes
that the only context in which the word "emergency" is consistently used across the GATT 1994, the
GATS and the TRIPS Agreement is in creating a general exception for actions taken by a Member
which it considers necessary for the protection of its essential security interests "taken in time of
war or other emergency in international relations".364 This suggests that an "emergency in
international relations" is the type of "emergency" contemplated in paragraph 1427 of
Russia's Working Party Report.
7.249. The content of paragraph 1427 and its relationship to obligations under the GATT 1994 are
also relevant to the Panel's analysis. Unlike paragraphs 1161 and 1426, paragraph 1427 distinctly
creates several commitments which have no direct counterpart in the GATT 1994.365 The scope of
the measures covered by paragraph 1427 also differs from Articles X:1 and X:2 of the GATT 1994.366
363 The Panel recalls that, in China – Rare Earths, the Appellate Body concluded that paragraph 1.2 of
China's Accession Protocol served to make that Protocol and the Multilateral Trade Agreements part of "a single
package of rights and obligations with respect to China as a WTO Member". (Appellate Body Reports,
China – Rare Earths, para. 5.72.) The Appellate Body consequently noted that any analysis of the individual
provisions in China's Accession Protocol should take into account "the overall architecture of the WTO system
as a single package of rights and obligations and any other relevant interpretive elements". (Ibid. para. 5.74.)
364 See Article XXI(b)(iii) of the GATT 1994 ("taken in time of war or other emergency in international
relations"); Article 31(b) of the TRIPS Agreement ("in the case of a national emergency or other circumstances
of extreme urgency or in cases of public non-commercial use"), and Article 73(b)(iii) of the TRIPS Agreement
("taken in time of war or other emergency in international relations"); and Article III:1 of the GATS ("except in
emergency situations"), Article X:1 of the GATS ("on the question of emergency safeguard measures"), and
Article XIVbis:1(b)(iii) of the GATS ("taken in time of war or other emergency in international relations").
365 The text of paragraph 1427 creates at least three separate obligations to: (a) publish the covered
measures prior to their adoption; (b) provide a reasonable period of time, normally not less than 30 days, for
Members and interested persons to comment to responsible authorities before such measures are finalized or
submitted to the competent CU bodies; and (c) take any such comments into account. However, in the specific
circumstances of this dispute, Ukraine has only argued that Russia has acted inconsistently with its obligation
to publish certain legal instruments prior to their adoption. (See Section 7.6.3.6.3 above.)
366 Paragraph 1427 concerns any "laws, regulations, decrees (other than Presidential decrees), decisions
and administrative rulings of general application pertaining to or affecting trade in goods, services, or
intellectual property rights", whereas Article X:2 of the GATT 1994 only concerns any measures of general
application "effecting an advance in duty, or other charges on imports under an established and uniform
practice, or impose a new or more burdensome requirement, restriction or prohibition on imports, or on the
transfer of payments therefor". (For the scope of Article X:1 of the GATT 1994, see fn 362 above.)
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However, the commitments in paragraph 1427 and obligations under the GATT 1994 are still closely
linked to the extent that both impose obligations on Russia relating to the publication of measures
concerning trade in goods.
7.250. For these reasons, the Panel considers that Russia can rely on the phrase "except in cases
of emergency" in order to justify any inconsistency with paragraph 1427 of Russia's Working Party
Report as necessary for the protection of its essential security interests taken in time of an
"emergency in international relations" within the meaning of Article XXI(b)(iii) of the GATT 1994.
7.6.4.5 Paragraph 1428 of Russia's Working Party Report and Article XXI(b)(iii) of the
GATT 1994
7.251. Paragraph 1428 of Russia's Working Party Report provides that:
The representative of the Russian Federation confirmed that, from the date of accession,
no law, regulation, decree, decision or administrative ruling of general application
pertaining to or affecting trade in goods, services, or intellectual property rights,
whether adopted or issued in the Russian Federation or by a competent body of the
[Customs Union (CU)], would become effective prior to publication, as provided for in
the applicable provisions of the WTO Agreement, including the GATT 1994,
the WTO GATS Agreement, and the WTO TRIPS Agreement. The Working Party took
note of this commitment.
7.252. Paragraph 1428 requires Russia to ensure that certain measures do not become effective
before publication "as provided for in the applicable provisions of the WTO Agreement, including the
GATT 1994".367 As mentioned above, the ordinary meaning of the term "applicable" is whether such
provisions are "able to be applied (to a purpose etc.)", or are "relevant", "suitable" or
"appropriate".368 The ordinary meaning of the term "provided" is "on the condition, supposition, or
understanding that" or "it being stipulated, or arranged that".369 Consequently, the Panel considers
that the ordinary meaning of the text of paragraph 1428 could support two possible interpretations.
First, the phrase "as provided for" could be construed as merely stating that obligations equivalent
to paragraph 1428 are also stipulated in "applicable provisions of the WTO Agreement". Conversely,
the phrase "as provided for" could be construed as specifying that other provisions of the
WTO Agreement are "applicable" to the obligations in paragraph 1428.
7.253. Other provisions of Russia's Working Party Report also inform the Panel's interpretation of
paragraph 1428. In particular, the Panel has already examined the textual differences between
paragraphs 1426 and 1427.370 The Panel considers that this analysis is equally applicable to the
differences between paragraphs 1427 and 1428. In the Panel's view, the absence of any equivalent
textual reference in paragraph 1427 underpins the significance of the phrase "the applicable
provisions of the WTO Agreement" in paragraph 1428.
7.254. Finally, the content of paragraph 1428 of Russia's Working Party Report and its relationship
to obligations under the GATT 1994 is also relevant to the Panel's analysis. Unlike paragraphs 1161
and 1426, paragraph 1428 distinctly commits Russia to ensure that the covered measures are not
made effective before publication, which has no explicit counterpart in the GATT 1994. The scope of
the measures covered by paragraph 1428 also differs from Articles X:1 and X:2 of the GATT 1994.371
However, the commitments in paragraph 1428 of Russia's Working Party Report and the obligations
under the GATT 1994 are still closely linked to the extent that both impose obligations on Russia
relating to the publication of measures concerning trade in goods.
367 Emphasis added.
368 See para. 7.242 and fn 360 above.
369 Shorter Oxford English Dictionary, 5th edn, A. Stevenson (ed.) (Oxford University Press, 2003),
Vol. 2, p. 2382.
370 See para. 7.243 above.
371 Paragraph 1428 concerns any "laws, regulations, decrees, decisions or administrative rulings of
general application pertaining to or affecting trade in goods, services or intellectual property rights", whereas
Article X:2 of the GATT 1994 concerns any measures of general application "effecting an advance in duty, or
other charges on imports under an established and uniform practice, or impose a new or more burdensome
requirement, restriction or prohibition on imports, or on the transfer of payments therefor". (For the scope of
Article X:1, see fn 362 above.)
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7.255. For these reasons, the Panel considers that Russia can rely on the phrase "as provided for
in the applicable provisions of the WTO Agreement" in order to justify any inconsistency with the
commitments in paragraph 1428 of Russia's Working Party Report as necessary for the protection
of its essential security interests taken in time of an "emergency in international relations" within
the meaning of Article XXI(b)(iii) of the GATT 1994.
7.6.4.6 Conclusion
7.256. The Panel considers that Russia could justify any inconsistency with the commitments in
paragraphs 1161, 1426, 1427 and 1428 of Russia's Working Party Report as necessary for the
protection of its essential security interests taken in time of an "emergency in international relations"
within the meaning of Article XXI(b)(iii) of the GATT 1994.
7.257. The Panel also considers that, had the measures been taken in normal times, i.e. had they
not been taken in time of an "emergency in international relations" (and met the other conditions of
Article XXI(b)), Ukraine would have made a prima facie case that the measures were inconsistent
with paragraph 1161 of Russia's Working Party Report to the extent that they would also be prima
facie inconsistent with either the first or second sentence of Article V:2 of the GATT 1994, or both.
7.258. The Panel does not consider it necessary to address further Ukraine's claims based on
commitments in paragraphs 1426, 1427 and 1428 of Russia's Working Party Report.
7.7 Panel's terms of reference and the existence of the measures
7.259. In this Section of the Report, the Panel addresses a number of issues related to its terms of
reference and to the existence of the measures at issue.
7.7.1 Identification of the measures and claims, and their relationship to each other
7.260. In its opening statement at the first meeting of the Panel, Russia argued that Ukraine's panel
request fails to meet the requirements of Article 6.2 of the DSU in a number of respects:
a. Ukraine's panel request fails to make clear how the measures in each of the two distinct
groups set forth in the panel request operate together.372
b. The panel request does not adequately explain which treaty provisions are alleged to be
infringed by each of the challenged measures in the two distinct groups.373
c. Ukraine's first written submission presents the challenged measures in a completely
different manner from the presentation in its panel request, i.e. "as four individual
measures that are not connected and do not operate together". Russia considers that, as
respondent, it was placed in an uncertain situation in presenting its defence because it
was required to guess what the Panel would identify as the measures at issue on the basis
of the Panel's interpretation of the substance of the alleged violation.374
7.261. Russia thus argued that Ukraine's panel request, both in general, and in particular with
respect to the identification of the specific measures, fails to satisfy the requirements of Article 6.2
of the DSU.375
7.262. Ukraine responded that its presentation of the specific measures at issue in two separate
sections of its panel request does not necessarily mean that the measures identified within each
372 Russia's opening statement at the first meeting of the Panel, paras. 15-16. More specifically, Russia
argues that Ukraine's panel request fails to establish the "nexus" between the measures within each distinct
group. (Ibid. para. 21. See also Russia's opening statement at the second meeting of the Panel, paras. 7-8.)
373 Russia's opening statement at the first meeting of the Panel, paras. 15-16. See also Russia's opening
statement at the second meeting of the Panel, para. 8.
374 Russia's opening statement at the first meeting of the Panel, paras. 19-20 (referring to
Appellate Body Report, EC – Selected Customs Matters, para. 136). See also Russia's opening statement at the
second meeting of the Panel, para. 9.
375 See Russia's opening statement at the first meeting of the Panel, para. 23.
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section must be presumed to operate together.376 Nor is there any requirement in Article 6.2 of the
DSU for a complainant to identify how all of the measures at issue operate together unless it is
necessary in order to present the problem clearly.377 In addition, Ukraine argued that
Russia's complaint regarding the reorganization of the presentation of the measures in
Ukraine's first written submission does not address why the descriptions of the measures in the
panel request were not sufficiently clear. Ukraine argued that the measures as described in its first
written submission correspond fully to the measures as identified in its panel request.378
Finally, Ukraine argued that the panel request plainly connects the specific measures at issue with
the relevant provisions of the covered agreements that Ukraine claims have been infringed.379
7.263. In what follows, the Panel first describes the presentation of the measures and claims in
Ukraine's panel request, and in Ukraine's first written submission, respectively, before addressing
Russia's arguments that the panel request does not satisfy the requirements of Article 6.2 of the
DSU.
7.7.1.1 Presentation of the measures and claims in Ukraine's panel request
7.264. Ukraine's panel request refers separately to a "first group of measures" and the "legal basis
for the complaint" in respect of those measures (section II of the panel request), and a
"second group of measures" and the "legal basis for the complaint" in respect of those measures
(section III of the panel request).
7.265. Section II.A. of Ukraine's panel request, which is entitled "First Group of Measures", states
that Russia has imposed measures concerning traffic in transit from the territory of Ukraine to the
territory of the Republic of Kazakhstan, through the territory of Russia. These measures mandate
that all international cargo transit by road and rail transport from the territory of Ukraine to the
territory of the Republic of Kazakhstan, through the territory of Russia, be carried out exclusively
from the territory of Belarus and comply with a number of additional conditions related to
identification seals and registration cards at specific permanent or mobile checkpoints. It is also
noted in this section that the above-referenced measures apply as well to traffic in transit from
Ukraine destined for the Kyrgyz Republic, as of 1 July 2016.380
7.266. Section II.A. of Ukraine's panel request further identifies as a measure a ban on all road and
rail transit of: (a) goods that are subject to non-zero import duties according to the
Common Customs Tariff of the EaEU, and (b) goods falling under the 2014 import bans set forth in
the list annexed to Resolution No. 778.381
7.267. Section II.A. of Ukraine's panel request then sets forth the legal instruments through which
it understands the above-referenced measures to be imposed. These instruments include
Russian Presidential Decrees (Decree No. 1 and Decree No. 319, which amends Decree No. 1), as
376 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 42; and
opening statement at the second meeting of the Panel, para. 18.
377 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 42.
378 Ibid. para. 63.
379 Ibid. paras. 65-68.
380 Request for the establishment of a panel by Ukraine, WT/DS512/3 (Ukraine's panel request), section
II.A., p. 2.
381 Resolution No. 778 imposes bans on the importation of various agricultural products, raw materials
and foodstuffs, as listed in the Resolution and originating from the United States, EU Member States, Canada,
Australia, and Norway. (See Resolution No. 778, (Exhibits UKR-10, RUS-7).) On 13 August 2015, the import
bans imposed by Resolution No. 778 were extended to the listed goods originating from Albania, Montenegro,
Iceland, Liechtenstein and Ukraine. (See Resolution No. 842, (Exhibit UKR-13).) Another resolution of the
Russian Government, enacted on 21 December 2015, specified that the import prohibitions in respect of the
goods listed in Resolution No. 778 would be applied to Ukraine as of 1 January 2016. (See Resolution No. 1397,
(Exhibit UKR-15). See also Russia's opening statement at the first meeting of the Panel, para. 6.)
On 1 January 2016, the date of the amendment of Resolution No. 778, the European Union and Ukraine had
agreed to apply provisions of the DCFTA that are part of the EU-Ukraine Association Agreement. (Ukraine's first
written submission, para. 25.) The duration of the import bans has been extended a number of times, most
recently by Resolution No. 790, which extends the import ban until 31 December 2018. (See Resolution No. 790,
(Exhibit UKR-70).)
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well as a resolution of the Russian Government implementing Decree No. 1 (Resolution No. 1, also
dated 1 January 2016).382, 383
7.268. With respect to the "legal basis of the complaint", section II.B. of Ukraine's panel request
states that the measures identified in section II.A. are inconsistent with a number of provisions of
Articles V, XI:1 and X of the GATT 1994, along with paragraphs of Russia's Working Party Report,
as incorporated into Russia's Accession Protocol by reference.384 In addition to identifying the claims
of WTO-inconsistency, this section of Ukraine's panel request provides a brief explanation as to why
the measures in question are considered inconsistent with the cited provisions of the covered
agreements.
7.269. Section III.A. of Ukraine's panel request identifies a second group of measures, which it
describes as "other measures concerning traffic in transit from the territory of Ukraine through the
territory of the Russian Federation". These other measures are further described in three
sub-categories.
a. The first sub-category encompasses measures requiring that, from 30 November 2014,
transit of goods subject to veterinary and phytosanitary surveillance, and which are
included in the list approved by Resolution No. 778, dated 7 August 2014, and subsequent
amendments, be generally prohibited through checkpoints of the Republic of Belarus.385
Additionally, transit of such goods destined for Kazakhstan may only take place upon
permits issued by the Committee of Veterinary Control and Surveillance of the Ministry of
Agriculture of the Republic of Kazakhstan (indicating the Russian checkpoints on the
external border of the EaEU), while transit of the same goods destined for third countries
can take place only upon permits issued by the Rosselkhoznadzor.386 Ukraine's panel
request then provides a list of the various legal instruments by which it understands Russia
to impose the measures in this first sub-category.387
b. The second sub-category is described as "restrictions on the traffic in transit from the
territory of Ukraine through the territory of the Russian Federation to countries in
Central and Eastern Asia and Caucasus other than the Republic of Kazakhstan and the
Kyrgyz Republic by de facto applying Decree No. 1 and Resolution No. 1 to transit from
the territory of Ukraine to third countries other than the Republic of Kazakhstan and the
Kyrgyz Republic".388
c. The third sub-category refers to "any other related measures adopted and/or applied by
the Russian Federation concerning traffic in transit from the territory of Ukraine to
382 Decree No. 1, (Exhibits UKR-1, RUS-1); Decree No. 319, (Exhibits UKR-2, RUS-2); Resolution No. 1,
(Exhibits UKR-3, RUS-4) (as amended by Resolution No. 388, (Exhibit UKR-5); and Resolution No. 732, (Exhibit
UKR-4)).
383 Section II.A. of Ukraine's panel request also identifies the following legal instruments through which
the measures identified in section II.A. are imposed: Decree No. 560, (Exhibits UKR-9, RUS-3),
(as subsequently extended by Decree No. 320 of 24 June 2015 and Decree No. 305 of 29 June 2016);
Resolution No. 147, (Exhibits UKR-6, RUS-5) (as amended by Resolution No. 732, (Exhibit UKR-4));
PJSC Order, (Exhibit UKR-7); and Resolution No. 276, (Exhibits UKR-8, RUS-6) (as amended by
Resolution No. 732, (Exhibit UKR-4)). Both parties advised in the interim review stage that Decree No. 560 has
since been further extended until 31 December 2019 by Decree No. 420, which was adopted by the President
of the Russian Federation on 12 July 2018. Section II.A also identifies Resolution No. 778, (Exhibits UKR-10,
RUS-7) and its amendments. (See fn 385 below for a full list of amendments to Resolution No. 778.)
384 Ukraine's panel request, section II.B., pp. 3-4.
385 Resolution No. 778 is amended by the following resolutions of the Government of the
Russian Federation: (a) Resolution No. 830, (Exhibit UKR-11); (b) Resolution No. 625, (Exhibit UKR-12);
(c) Resolution No. 842, (Exhibit UKR-13); (d) Resolution No. 981, (Exhibit UKR-14); (e) Resolution No. 1397,
(Exhibit UKR-15); (f) Resolution No. 157, (Exhibit UKR-16); (g) Resolution No. 472, (Exhibit UKR-17);
(h) Resolution No. 608, (Exhibit UKR-18); (i) Resolution No. 897, (Exhibit UKR-19); (j) Resolution No. 1086,
(Exhibit UKR-20); and (k) Resolution No. 790, (Exhibit UKR-70).
386 Ukraine's panel request, section III.A., p. 4.
387 Ibid. p. 5. Ukraine's panel request identifies the following legal instruments through which Russia
imposes these measures: Veterinary Instruction, (Exhibits UKR-21, RUS-10); Instruction No. FS-AS-3/22903 of
the Rosselkhoznadzor dated 21 November 2014, (Plant Instruction), (Exhibits UKR-22, RUS-11); and any
additional measures that prolong, replace, amend, implement, extend or apply these measures, as well as other
related measures. (Ukraine's panel request, section III.A., p. 5.)
388 Ibid.
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countries in Central/Eastern Asia and Caucasus through the territory of the
Russian Federation, including measures that implement, complement, add to, apply,
amend or replace any of the measures mentioned in section II.A. or section III.A".389
The introductory words to this sub-category of the panel request indicate that this
sub-category is necessitated by Russia's alleged "fundamental lack of transparency
concerning some of the measures at issue" and "failure to observe the transparency and
publication obligations" under the GATT 1994 and its Accession Protocol.390
7.270. With respect to the "legal basis of the complaint" for the second group of measures so
identified, section III.B of Ukraine's panel request states that these measures are inconsistent with
a number of provisions of Articles V, XI:1 and X of the GATT 1994, along with various paragraphs
of Russia's Working Party Report, as incorporated into Russia's Accession Protocol by reference.391
In addition to identifying the claims of WTO-inconsistency, this section of Ukraine's panel request
provides a brief explanation as to why the measures in question are considered inconsistent with
the cited provisions of the covered agreements.
7.7.1.2 Presentation of the measures and claims in Ukraine's first written submission
7.271. In section IV of its first written submission, Ukraine presents four "categories" of measures,
as opposed to the arrangement under two "groups of measures" in its panel request.392 The four
categories of measures in section IV of Ukraine's first written submission (and the terminology
chosen by the Panel to describe these categories of measures) are:
a. "2016 general transit ban and other transit restrictions" (the 2016 Belarus Transit
Requirements);
b. "2016 product-specific transit ban and other transit restrictions" (the 2016 Transit Bans
on Non-Zero Duty and Resolution No. 778 Goods);
c. "De facto application of the 2016 general and product-specific transit bans in Decree No. 1,
as amended, to traffic in transit destined for Mongolia, Tajikistan, Turkmenistan and
Uzbekistan" (the de facto measure); and
d. "2014 transit bans and other transit restrictions" (the 2014 Belarus-Russia Border Bans
on Transit of Resolution No. 778 Goods).393
7.272. Ukraine considers that the first category of measures, which the Panel refers to as the 2016
Belarus Transit Requirements, corresponds fully to the measures identified in section II.A. of
Ukraine's panel request as the requirements that international cargo transit by road and rail from
the territory of Ukraine destined for the territories of the Republic of Kazakhstan and the
Kyrgyz Republic, through the territory of Russia, be carried out exclusively from the territory of
Belarus, and comply with a number of additional conditions related to identification seals and
registration cards at specific permanent or mobile checkpoints.394
7.273. The second category of measures, which the Panel refers to as the 2016 Transit Bans on
Non-Zero Duty and Resolution No. 778 Goods, Ukraine considers to correspond fully to the measures
identified in section II.A. of Ukraine's panel request as the ban on all road and rail transit of: (a)
goods that are subject to non-zero import duties according to the Common Customs Tariff of the
EaEU, and (b) goods that fall within the scope of the import bans imposed by Resolution No. 778,
including the exceptional derogation procedure for such goods.395
7.274. The third category of measures, the de facto measure, Ukraine considers to correspond to
the measures identified in the second sub-category of the second group of measures in section III.A.
389 Ukraine's panel request, section III.A., p. 5.
390 Ibid.
391 Ibid. section III.B., pp. 5-6.
392 Ukraine's first written submission, section IV, entitled "The measures at issue".
393 Ibid. para. 54.
394 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 63.
395 Ibid.
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of Ukraine's panel request, namely, "restrictions on the traffic in transit from the territory of Ukraine
through the territory of the Russian Federation to countries in Central and Eastern Asia and Caucasus
other than the Republic of Kazakhstan and the Kyrgyz Republic by de facto applying Decree No. 1
and Resolution No. 1 to transit from the territory of Ukraine to third countries other than the
Republic of Kazakhstan and the Kyrgyz Republic".396
7.275. The fourth category of measures, which the Panel refers to as the 2014 Belarus-Russia
Border Bans on Transit of Resolution No. 778 Goods, Ukraine considers to correspond to the
measures identified in the first sub-category of the second group of measures in section III.A of
Ukraine's panel request, namely, the 2014 prohibitions on the "transit of goods subject to veterinary
and phytosanitary surveillance and which are included in the list approved by Resolution … No. 778
… through the checkpoints of the Republic of Belarus", along with special checkpoint and permit
requirements for such goods destined for Kazakhstan and other countries.397
7.276. In section V of its first written submission, Ukraine presents its arguments of
WTO-inconsistency of each of the categories of measures.398 This discussion is arranged on the basis
of the claims of inconsistency with: (a) Article V of the GATT 1994 and paragraph 1161 of
Russia's Working Party Report; (b) Articles X:1 and X:2 of the GATT 1994 and paragraphs 1426,
1427 and 1428 of Russia's Working Party Report; and (c) Article X:3(a) of the GATT 1994.399 Within
the discussion of the claims of inconsistency with the specific provisions (and subparagraphs of those
provisions), Ukraine discusses serially the relevant categories of measures alleged to infringe the
specific provisions.400
7.7.2 Whether Ukraine's panel request satisfies the requirements of Article 6.2 of the DSU
7.277. The relevant portion of Article 6.2 of the DSU reads:
The request for the establishment of a panel shall be made in writing. It shall indicate
whether consultations were held, identify the specific measures at issue and provide a
brief summary of the legal basis of the complaint sufficient to present the problem
clearly.
7.278. Article 6.2 of the DSU has two distinct requirements, namely: (a) the identification of the
specific measures at issue; and (b) the provision of a brief summary of the legal basis of the
complaint.401 Article 6.2 defines the scope of the dispute between the parties, thereby establishing
and delimiting the panel's jurisdiction and serving the due process objective of notifying the
respondent, and the third parties, of the nature of the case.402 Moreover, in order to "present the
problem clearly", within the meaning of Article 6.2, a panel request must "plainly connect" the
challenged measure(s) with the provision(s) claimed to have been infringed so that a respondent
can "know what case it has to answer, and … begin preparing its defence".403 Compliance with the
requirements of Article 6.2 of the DSU must be demonstrated on the face of the panel request.
Consequently, defects in the panel request cannot be cured by the subsequent submissions of the
parties.404
396 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, paras. 43 and 63.
397 Ibid. para. 63.
398 Ukraine's first written submission, section V, entitled "WTO-inconsistency of the measures at issue".
399 Ukraine did not pursue its claims under Article XI:1 of the GATT 1994 in its first written submission.
400 Ukraine's first written submission, para. 156 et seq.
401 As the Appellate Body has held in previous disputes, these two requirements constitute the "matter
referred to the DSB", which forms the basis of a panel's terms of reference under Article 7.1 of the DSU.
(Appellate Body Reports, US – Countervailing and Anti-Dumping Measures (China), para. 4.6; and
Argentina – Import Measures, para. 5.39.)
402 Appellate Body Reports, US – Countervailing and Anti-Dumping Measures (China), para. 4.6; and
Argentina – Import Measures, para. 5.39.
403 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 162. (fns omitted)
404 Nevertheless, subsequent submissions, such as the complainant's first written submission, may be
consulted to the extent that they may confirm or clarify the meaning of the words used in the panel request.
(Appellate Body Reports, US – Countervailing and Anti-Dumping Measures (China), para. 4.9;
Argentina – Import Measures, para. 5.42; and US – Carbon Steel, para. 127.)
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7.279. In what follows, for each of the measures identified in Ukraine's panel request in the first
and second groups of measures, the Panel determines whether the identification of the measures
and claims satisfies the requirements of Article 6.2.
7.7.2.1 First group of measures – identification of the specific measures at issue and the
legal basis of the complaint
7.280. Section II.A. of Ukraine's panel request identifies the following measures:
a. Requirements that international cargo transit by road and rail from the territory of Ukraine
destined for the territories of the Republic of Kazakhstan or the Kyrgyz Republic, through
the territory of Russia, be carried out exclusively from the territory of Belarus, and comply
with a number of additional conditions related to identification seals and registration cards
at specific permanent or mobile checkpoints.
b. A ban on all road and rail transit of: (i) goods that are subject to non-zero import duties
according to the Common Customs Tariff of the EaEU, and (ii) goods that fall within the
scope of the import ban imposed by Resolution No. 778.
7.281. The specific measures within this group appear to be connected by the fact that they are
implemented through a common set of legal instruments, namely, Decree No. 1, and
Decree No. 319, which amended Decree No. 1 in material respects.405
7.282. The Panel considers that the identification of each of the measures within the first group of
measures in section II.A. satisfies the requirements of Article 6.2 of the DSU.
7.283. Russia contends that the legal basis for the complaint in respect of the above-mentioned
measures is provided only in respect of the group of measures, rather than for each of the measures
within the group.406 Russia does not explain why it reads Ukraine's panel request in this manner and
the Panel does not share that reading. The opening words of section II.B. of Ukraine's panel request,
entitled "Legal Basis for the Complaint", read: "Ukraine considers that the measures identified in
section II.A. are inconsistent with the following WTO provisions". Ukraine's use of the term "the
measures" rather than "group of measures" makes clear that the claims of WTO-inconsistency that
follow are made in relation to each of the measures within the first group of measures identified in
section II.A. of Ukraine's panel request.
7.284. The Panel therefore considers that the panel request adequately describes the legal basis of
the complaint in relation to the measures identified within the "first group of measures" for each of
the claims made in section II.B. of Ukraine's panel request.
7.7.2.2 Second group of measures – identification of the specific measures at issue and
the legal basis of the complaint
7.285. As previously noted407, the measures identified in the second group of measures in
section III.A. of Ukraine's panel request comprise:
a. 2014 prohibitions on transit, from Ukraine across the territory of Russia and through
checkpoints of the Republic of Belarus, of goods that are subject to veterinary and
phytosanitary surveillance and that fall within the scope of the import bans imposed by
Resolution No. 778, along with requirements that the transit of any such goods destined
for Kazakhstan and other third countries occur on the basis of permits issued by the
appropriate Kazakh or Russian veterinary and phytosanitary surveillance authorities and
through designated checkpoints;
405 See para. 7.267 above.
406 Russia's second written submission, para. 10.
407 See para. 7.269 above.
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b. the "de facto application of Decree No. 1 and Resolution No. 1 to transit from the territory
of Ukraine to third countries other than the Republic of Kazakhstan and the
Kyrgyz Republic"; and
c. related transit measures that implement, complement, add to, apply, amend or replace
any of the measures identified in both sections II.A and III.A. of Ukraine's panel request,
of which Ukraine may not be aware owing to Russia's alleged failure to comply with its
transparency and publication obligations.
7.286. The Panel agrees with Russia that it is difficult to discern a relationship among the measures
within this second group that would warrant them being grouped together, especially since the
third sub-category of measures (in item c. above) also covers measures related to those within the
first group of measures in section II.A. of the panel request. However, Ukraine's decision to group
these measures together in its panel request does not of itself render the identification of the
measures unclear.
7.287. The Panel next considers whether the identification of the measures within each
sub-category of the second group of measures in section III.A. of Ukraine's panel request satisfies
the requirements of Article 6.2 of the DSU.
7.7.2.2.1 First sub-category of measures
7.288. The first sub-category of the second group of measures (item a. in paragraph 7.285 above)
are prohibitions, put in place in November 2014, on transit from Ukraine across Russia, through
checkpoints in Belarus, of goods subject to veterinary and phytosanitary surveillance and that are
subject to the import ban implemented by Resolution No. 778, along with related requirements that
the transit of any such goods destined for Kazakhstan or other third countries occur through
designated Russian checkpoints and that all such goods be subject to clearance and on the basis of
permits issued by the appropriate Russian or Kazakh veterinary and phytosanitary surveillance
authorities. Specifically, Ukraine challenges these measures as they affect transit from the territory
of Ukraine through the territory of Russia.408
7.289. The Panel concludes that Ukraine's panel request clearly identifies the first sub-category of
the second group of measures.
7.7.2.2.2 Second sub-category of measures
7.290. In its panel request, Ukraine describes the measure in item b. in paragraph 7.285 above as
the de facto application of "Decree No. 1 and Resolution No. 1 to transit from the territory of Ukraine
to third countries other than the Republic of Kazakhstan and the Kyrgyz Republic". The Panel refers
to this measure as the "de facto measure" in the remainder of this discussion.
7.291. At the Panel's request, the parties engaged specifically on whether the identification of the
de facto measure in Ukraine's panel request satisfied the requirements of Article 6.2 of the DSU.409
Therefore, although the Panel is addressing this issue in the context of evaluating Russia's more
general objection that none of the measures or claims was sufficiently precisely identified, it is
necessary to refer to arguments that the parties made more specifically about the de facto measure.
408 See the first sentence in section III.A. of Ukraine's panel request, and the underscored sentence
prior to the paragraph beginning "Second" in section III.A. of Ukraine's panel request. (Ukraine's panel
request, pp. 4-5.)
409 The Panel raised this issue on its own motion, through a question that it posed to the parties in
advance of the first meeting. (See Communication to the parties, "Request for discussion of specific issues to
be included in the parties' oral statements", dated 12 January 2018, Question No. 2.) The Appellate Body has
previously referred to the widely accepted rule that an international tribunal is entitled to consider the issue of
its own jurisdiction on its own initiative, and to satisfy itself that it has jurisdiction in any dispute that comes
before it. (Appellate Body Reports, US – 1916 Act, para. 54 and fn 30 thereto; Mexico – Corn Syrup
(Article 21.5 – US), para. 36; and EC and certain member States – Large Civil Aircraft, para. 791; and
Panel Reports, US – Anti-Dumping Measures on Oil Country Tubular Goods, paras. 7.19-7.20;
EC – IT Products, para. 7.196; China – Broiler Products, para. 7.515; and US – Large Civil Aircraft (2nd
complaint) (Article 21.5 – EU), para. 7.358.)
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7.7.2.2.2.1 Arguments of Russia
7.292. Russia argues that Ukraine's description of the de facto measure in its panel request is
insufficiently clear for purposes of Article 6.2 of the DSU.410 Russia considers that it is not possible
to determine the geographical scope of application of the de facto measure from the reference in
the panel request to "countries in Central and Eastern Asia and Caucasus other than the
Republic of Kazakhstan", taking into account the number of countries covered by such a
description.411 In addition, the description of the de facto measure in the second sub-category of the
second group of measures (set forth in paragraph 7.269.b above), in combination with the third
sub-category of the second group of measures (set forth in paragraph 7.269.c above) does not
enable the respondent to discern whether the measure is written or unwritten, or whether it is being
challenged on an "as such" or "as applied" basis.412 Russia considers that the measure in question
constitutes "an imprecise open-ended list with the possibility for the claimant to put any new element
on the table".413
7.7.2.2.2.2 Arguments of Ukraine
7.293. Ukraine argues that the measure that it challenges, which it describes in its first written
submission as the "de facto application of the 2016 general and product-specific transit bans in
Decree No. 1, as amended, to traffic in transit destined for Mongolia, Tajikistan, Turkmenistan and
Uzbekistan" was identified in its panel request in a manner that satisfies the requirements of
Article 6.2 of the DSU.414 Ukraine argues that there is no requirement under Article 6.2 of the DSU
to identify in a panel request whether a measure is written or unwritten, or is challenged on an "as
such" or "as applied" basis.415 Moreover, the measure as described in the second sub-category of
the second group of measures (in section III.A. of the panel request) is clearly distinct from the
general and product-specific transit bans and other restrictions identified in the first group of
measures in section II.A. of the panel request.416 According to Ukraine, the measure described in
the second sub-category of the second group of measures in section III.A. of the panel request,
through the phrase "by de facto applying Decree No. 1 and Resolution No. 1 to transit from the
territory of Ukraine to third countries other than the Republic of Kazakhstan and the Kyrgyz Republic"
was clearly identified as a distinct measure comprising "the application in fact of the measures
introduced by Decree No. 1 and Resolution No. 1 to traffic in transit destined for territories other
than those covered by Decree No. 1 and Resolution No. 1".417
7.294. Ukraine also rejects the argument that the reference in the panel request to the legal
instruments in question being applied to transit destined for territories in "Central and Eastern Asia
and the Caucasus other than the Republic of Kazakhstan and the Kyrgyz Republic" amounts to an
"open-ended list" of measures that fails to meet the requirements of Article 6.2 of the DSU.418
In Ukraine's view, on the basis of the United Nation's definitions of the regions in question, the
geographical specification in the second sub-category of the second group of measures identified in
section III.A. of the panel request clearly referred to traffic destined for "Tajikistan; Turkmenistan;
Uzbekistan; China; Hong Kong China; Macao, China; Chinese Taipei; the Democratic People's
Republic of Korea; Japan; Mongolia; the Republic of Korea; Georgia; Azerbaijan; and Armenia".419
410 Russia's opening statement at the first meeting of the Panel, para. 23.
411 Ibid. para. 22. See also Russia's second written submission, paras. 14-15.
412 Russia's opening statement at the first meeting of the Panel, para. 22.
413 Ibid. See also Russia's opening statement at the second meeting of the Panel, para. 13.
414 Ukraine's opening statement at the first meeting of the Panel, para. 53; and response to Panel
question No. 1 after the first meeting of the Panel, para. 12.
415 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 45.
416 Ibid. para. 49.
417 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 51. Ukraine
argues that, contrary to Russia's understanding, "the matter before the Panel includes the de facto application
of Decree No. 1 and Resolution No. 1, and thus the restrictions on traffic in transit imposed by both
instruments" and not "any measure affecting traffic in transit from the territory of Ukraine to countries in
Central/Eastern Asia and Caucasus". (Ukraine's opening statement at the second meeting of the Panel,
para. 24.)
418 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, paras. 58-60.
See also Ukraine's opening statement at the second meeting of the Panel, para. 24.
419 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, paras. 59-60; and
Map of Central Asia, Map of the Caucasus and Central Asia, and the UN Classification of Countries by Region,
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This is not an open-ended list, and the fact that Ukraine elected, in its first written submission, to
demonstrate the existence of the measure with respect to transit destined for a subset of those
destinations, does not affect the conclusion that the geographical specification in the panel request
was not open ended.420
7.7.2.2.2.3 Analysis
7.295. Section III.A. of Ukraine's panel request identifies the de facto measure in the following
manner:
[R]estrictions on the traffic in transit from the territory of Ukraine through the territory
of the Russian Federation to countries in Central and Eastern Asia and Caucasus other
than the Republic of Kazakhstan and the Kyrgyz Republic by de facto applying
Decree No. 1 and Resolution No. 1 to transit from the territory of Ukraine to third
countries other than the Republic of Kazakhstan and the Kyrgyz Republic.421
7.296. This identification refers explicitly to transit restrictions that arise out of the application of
Decree No. 1 and Resolution No. 1. The transit restrictions effected through Decree No. 1 and
Resolution No. 1 are described in the first three paragraphs of section II.A. of Ukraine's panel
request, and concern the requirements that international cargo transit by road and rail from the
territory of Ukraine destined for the territory of Kazakhstan, through the territory of Russia, be
carried out exclusively from the territory of Belarus, and comply with a number of additional
conditions related to identification seals and registration cards at specific control points.
7.297. Before evaluating the description of the de facto measure in Ukraine's panel request, the
Panel recalls the level of scrutiny that panels must apply in determining whether a panel request
meets the specificity requirement under Article 6.2 of the DSU. The Appellate Body has stated that
the identification of the specific measures at issue, pursuant to Article 6.2, is different from a
demonstration of the existence of such measures, which would require that a complainant present
relevant arguments and evidence in its submissions.422 While a measure cannot be identified without
some indication of its contents, the identification of a measure within the meaning of Article 6.2
need only be framed "with sufficient particularity so as to indicate the nature of the measure and
the gist of what is at issue".423 Thus, according to the Appellate Body, an examination regarding the
specificity of a panel request does not entail substantive consideration as to what types of measures
are susceptible to challenge in WTO dispute settlement.424
7.298. The standard outlined above was developed by the Appellate Body in US – Continued Zeroing
in the process of reversing the panel's finding in that dispute that an examination of the specificity
of a panel request would entail a consideration of the types of measures susceptible to
WTO dispute settlement. The panel had found that the panel request did not satisfy the requirement
in Article 6.2 to identify the specific measures at issue because it failed to "demonstrate the existence
and the precise content of the purported measure" and because "the continued application" of
anti-dumping duties resulting from 18 anti-dumping duty orders did not constitute a measure for
the purposes of WTO dispute settlement proceedings.425 The Appellate Body considered that the
panel request had sufficiently linked together the following three elements in seeking to identify the
measures at issue426:
Income Group, and Subregion of the World, (The Regions of Central Asia, Eastern Asia and Caucasus),
(Exhibit UKR-102).
420 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 61.
421 Ukraine's panel request, section III.A., p. 5.
422 Appellate Body Report, US – Continued Zeroing, para. 169.
423 Ibid. (emphasis added)
424 Ibid.
425 Ibid. para. 167 (quoting Panel Report, US – Continued Zeroing, para. 7.56).
426 Ibid. para. 166.
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a. The panel request made "explicit reference" to the duties at issue, imposed through
18 anti-dumping duty orders, each on a "specific product" exported from "a specific
country"427;
b. The panel request indicated that the complainant was challenging the "continued
application" of the anti-dumping duties pursuant to certain administrative proceedings428;
and
c. The panel request stated that the duties at issue were calculated at levels "in excess of
the anti-dumping margin which would result from the correct application of the
Anti-Dumping Agreement". The complainant stated specifically in its panel request that
the respondent's investigating authority "systematically" used the zeroing methodology in
all types of reviews pertaining to anti-dumping duties and relied on margins calculated
with the zeroing methodology in sunset reviews.429
7.299. The Appellate Body concluded that, with these three elements, taken together, the
respondent could reasonably have been expected to understand that the complainant was
challenging the continued application of the zeroing methodology in successive proceedings, through
each of the 18 anti-dumping duty orders.430
7.300. Given these facts, the Panel understands the panel request in US – Continued Zeroing to
have identified the measures at issue "with sufficient particularity so as to indicate the nature of the
measure and the gist of what is at issue" because it explicitly: (a) provided an indication that the
measure was applied to determine the duties imposed on products from "specific countr[ies]";
(b) identified the unwritten measure at issue (i.e. the zeroing methodology); (c) specified the basis
on which the measure was challenged (i.e. "the continued application of … anti-dumping duties"
according to the zeroing methodology and the "systematic[]" use of the zeroing methodology); and
(d) identified the legal instruments in which that methodology was used (i.e. "18 anti-dumping duty
orders").
7.301. Reading the standard developed by the Appellate Body in US – Continued Zeroing as tied to
the precise aspects of the panel request in that dispute, the Panel does not consider that
Ukraine's identification of the de facto measure in its panel request satisfies Article 6.2 of the DSU.
As the Panel will explain further below, the panel request in this dispute does not identify with
sufficient precision: (a) the destinations of the goods that are subject to the de facto measure,
(b) the nature of the de facto measure as an unwritten measure, (c) the nature of the de facto
measure as a single measure, (d) the "as such" character of its challenge concerning the de facto
measure, and (e) the legal instruments underpinning the de facto measure. These aspects of
Ukraine's panel request, taken together, lead to the conclusion that Ukraine has not identified the
de facto measure with requisite sufficient particularity.
7.302. In the present dispute, the de facto measure is described as involving the application of the
restrictions in Decree No. 1 and Resolution No. 1, to traffic in transit from Ukraine, for third-country
destinations in Central and Eastern Asia and Caucasus, other than Kazakhstan and the
Kyrgyz Republic. Ukraine considers that the regions of Central Asia, Eastern Asia and the Caucasus
cover the following countries: Tajikistan; Turkmenistan; Uzbekistan; China; Hong Kong, China;
Macao, China; Chinese Taipei; the Democratic People's Republic of Korea; Japan; Mongolia;
the Republic of Korea; Georgia; Azerbaijan; and Armenia.431 In support, Ukraine submits:
(a) a UN map of Central Asia that identifies the countries of Kazakhstan, the Kyrgyz Republic,
427 Appellate Body Report, US – Continued Zeroing, para. 165. The 18 anti-dumping duty orders at
issue were also listed in the annex to the European Communities' panel request, and a citation was included for
each order. (Ibid.)
428 Ibid.
429 Ibid. The complainant also stated in its panel request that it "ha[d] identified in the annex to this
request a number of anti-dumping orders where duties are set and/or maintained on the basis of the
above-mentioned zeroing practice or methodology with the result that duties are paid by importers … in excess
of the dumping margin which would have been calculated using a WTO consistent methodology". (Ibid.)
430 Ibid. para. 166.
431 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 60; and The
Regions of Central Asia, Eastern Asia and Caucasus, (Exhibit UKR-102).
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Tajikistan, Turkmenistan and Uzbekistan as "Central Asia"432; (b) a map of "the Caucasus and
Central Asia" produced by the U.S. Central Intelligence Agency that identifies, in addition to the
Central Asian countries identified in the UN map, the countries of Georgia, Armenia and
Azerbaijan433; and (c) excerpts from a publication of the Population Division of the UN Department
of Economic and Social Affairs that classifies countries by region, income group and sub region. In
that publication, the region of "Eastern Asia" is classified to cover China; "China, Hong Kong [special
administrative region]"; "China, Macao [special administrative region]"; "China, Taiwan Province of
China"; "the Democratic People's Republic of Korea"; "Japan"; "Mongolia" and the "Republic of
Korea".434 That publication also identifies Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan
and Uzbekistan as being part of "Central Asia", which is classified, along with countries in
"Southern Asia", as part of "South-Central Asia".435 However, there is no reference in this publication
to the region referred to as "the Caucasus". Rather, the countries of Armenia, Azerbaijan and Georgia
are presented as part of "Western Asia", along with Turkey, Cyprus, Iraq and the various Gulf States
and countries of the Middle East.
7.303. On the basis of the maps submitted by Ukraine, it appears that the countries included within
the regions of "Central Asia, Eastern Asia and the Caucasus" cover those that share land borders
with Russia to the Southeast (Georgia and Azerbaijan), and to the East (China, Mongolia and
North Korea), as well as those that share land borders with Kazakhstan. Indeed, aside from Ukraine
and Belarus, the only countries with which Russia shares land borders that would be specifically
excluded from the geographical scope of the de facto measure, as identified in Ukraine's panel
request, are the European Union (Estonia, Finland, Latvia, Lithuania and Poland) and Norway.
7.304. Transit measures by their nature apply to goods that fall within the definition of "traffic in
transit" under Article V:1 of the GATT 1994.436 Owing to the requirement that the passage of such
traffic in transit across the territory of a Member begin and end in a territory other than the territory
of that Member, the destination of the goods in question is ordinarily an important component of a
transit measure.437 Moreover, when a Member alleges that a transit measure is in fact being applied
to traffic in transit destined for countries other than those set forth in the measure itself, and that
this application constitutes a separate, unwritten transit measure, it is even more important that the
destinations in question be precisely identified.438
7.305. Given the nature of the measure as a transit measure, which is unwritten and consists of
the de facto application of a written measure that applies to transit destined for two countries, to
what appears to be potentially as many as 15 countries in regions as large and diverse as "Central
and Eastern Asia and Caucasus other than the Republic of Kazakhstan and the Kyrgyz Republic", the
432 The Regions of Central Asia, Eastern Asia and Caucasus, (Exhibit UKR-102), p. 2. (pagination of PDF
file)
433 Ibid. p. 3. (pagination of PDF file)
434 Ibid. p. 5. (pagination of PDF file)
435 Ibid. (pagination of PDF file)
436 Article V:1 of the GATT 1994 provides that "[g]oods … shall be deemed to be in transit across the
territory of a contracting party when the passage across such territory, with or without trans-shipment,
warehousing, breaking bulk, or change in the mode of transport, is only a portion of a complete journey
beginning and terminating beyond the frontier of the contracting party across whose territory the traffic
passes."
437 This is particularly so when a complainant brings a claim under the second sentence of Article V:2 of
the GATT 1994, which provides that "[n]o distinction shall be made which is based on … the place of …
destination."
438 In EC and certain member States – Large Civil Aircraft, the Appellate Body explained that, because
the very existence and precise contours of a measure that is unwritten may be uncertain, complainants are
expected to identify such measures in their panel requests as clearly as possible. (Appellate Body Report,
EC and certain member States – Large Civil Aircraft, para. 792.) In this appeal, the Appellate Body concluded,
on its own motion, that the United States' challenge to an unwritten LA/MSF programme was not identified as a
specific measure in the United States' panel request and was therefore outside the panel's terms of reference.
The Appellate Body considered that the references in the United States' panel request to individual provisions
of LA/MSF could not, at the same time, be read to also refer to a distinct measure consisting of an unwritten
LA/MSF Programme. (Appellate Body Report, EC and certain member States – Large Civil Aircraft, paras. 790,
792 and 795.)
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Panel has serious doubts as to whether Russia would have been able to understand the nature of
the measure and the gist of what was at issue.439
7.306. Ukraine argues that the reference in its panel request to the countries in Central and
Eastern Asia and Caucasus other than those of the Republic of Kazakhstan and the Kyrgyz Republic
is not an "open-ended list", but a clear reference to Tajikistan; Turkmenistan; Uzbekistan; China;
Hong Kong, China; Chinese Taipei; the Democratic People's Republic of Korea; Japan; Mongolia; the
Republic of Korea; Georgia; Azerbaijan; and Armenia.440 Ukraine states that Mongolia, Tajikistan,
Turkmenistan and Uzbekistan are part of the "countries in Central and Eastern Asia and Caucasus",
and that the reference to these countries in its first written submission thus confirms the wording
used in its panel request.441 The Panel agrees with Ukraine that it was free, in its first written
submission, to elect to show the existence of the de facto measure with respect to transit destined
for only a subset of countries that it had previously clearly identified in its panel request. However,
the present issue involves the question of whether the superset of destination countries that
comprises the de facto measure was sufficiently clearly identified in the panel request in the first
place. The reference to "countries in Central and Eastern Asia and Caucasus" in Ukraine's panel
request operates more like a placeholder for countries that Ukraine would later specify in its
first written submission. This vagueness in the description of the destination countries in the
panel request renders the identification of the de facto measure insufficiently precise to meet the
requirements of Article 6.2 of the DSU.
7.307. Additionally, the Panel notes that Ukraine's panel request does not explicitly state whether
the de facto measure identified in the second sub-category of the second group of measures in
section III.A. of its panel request is: (a) an unwritten measure, (b) a single measure (as opposed to
multiple measures), or (c) being challenged on an "as such" basis. Those aspects of the measure
and the way it is being challenged are not clarified until Ukraine's first written submission.
Ukraine's panel request identifies the de facto measure by noting that Russia "imposes restrictions"
on traffic in transit "by de facto applying Decree No. 1 and Resolution No. 1 to transit from the
territory of Ukraine to third countries other than the Republic of Kazakhstan and the
Kyrgyz Republic". The use of the terms "restrictions" and "de facto applying" could reasonably be
interpreted to mean that Ukraine challenges individual instances of the de facto application of
Decree No. 1 and Resolution No. 1. It is not until Ukraine's first written submission that it becomes
apparent that Ukraine challenges a single, unwritten measure (consisting of the de facto application
of Decree No. 1 as amended, beyond the scope of its explicit terms) on an "as such" basis.
7.308. The omission of the "as such" character of Ukraine's challenge concerning the de facto
measure is particularly important considering the Appellate Body's statements in US – Oil Country
Tubular Goods Sunset Reviews. In that dispute, the Appellate Body urged complainants to be
"especially diligent" in setting out "as such" claims in their panel requests "as clearly as possible".442
The Appellate Body added that it would expect that "as such" claims "state unambiguously" the
specific measures of municipal law challenged by the complainant and the legal basis for the
allegation that those measures are WTO-inconsistent. Through "such straightforward presentations
of 'as such' claims", panel requests should leave respondents "in little doubt" that another Member
intends to challenge those measures "as such".443
439 The Panel notes that other panels have found measures to be insufficiently specified for purposes of
Article 6.2 of the DSU where they were described too broadly in a panel request. For example, in
Australia – Apples, New Zealand's panel request referred to both "measures specified in and required by
Australia pursuant to the Final import risk analysis report for apples from New Zealand" and, "in particular" to
a list of 17 requirements spelled out in the report and identified in the panel request through bullet points.
(Panel Report, Australia – Apples, para. 7.1446.) The panel found that "given the length and complexity of
Australia's [report]", the broad reference in New Zealand's panel request to "measures specified in and
required by Australia pursuant to the [report]" failed to satisfy the requirement of sufficient clarity in the
identification of the specific measures at issue set forth in Article 6.2 of the DSU. (Ibid. para. 7.1449.)
440 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, paras. 58-60. See
also Ukraine's opening statement at the second meeting of the Panel, para. 24.
441 Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 62.
442 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 173.
(emphasis original)
443 Ibid.
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7.309. Although the Appellate Body upheld the panel's finding in that dispute that the measure at
issue was identified with sufficient precision pursuant to Article 6.2 of the DSU, the Appellate Body
did so on the specific basis that: (a) the panel request explicitly stated that it was challenging the
"irrefutable presumption" found in "US law as such"444; (b) the wording and logic of the panel request
demonstrated that the complainant would establish the WTO-inconsistency of the specific US legal
provisions embodying the "irrefutable presumption"445; and (c) the relevant measure was listed
under a shared heading with other "as such" claims, so such a heading could not have been limited
to "as applied" claims.446
7.310. In the present dispute, the panel request does not specify the "as such" challenge concerning
the de facto measure in such a manner. First, as stated above, the panel request does not specify
the "as such" nature of Ukraine's challenge concerning the de facto measure. Second, the wording
of the relevant section of Ukraine's panel request, as reproduced in paragraph 7.295 above, does
not suggest whether Ukraine aims to establish the WTO-inconsistency of the de facto measure as a
measure of general and prospective application or as individual instances of application. Third, the
heading for section III.A. of the panel request, entitled "The Measures at Issue", and the descriptions
of the measures above and below the de facto measure, do not indicate whether Ukraine intended
to challenge any other measures on an "as such" basis.
7.311. Finally, the Panel observes that the de facto measure is identified in Ukraine's panel request
as comprising the de facto application of one set of legal instruments (Decree No. 1 and
Resolution No. 1), while it is described in Ukraine's first written submission as comprising the
de facto application of a different set of legal instruments (Decree No. 1, as amended). Decree No. 1
"as amended" can be understood to mean Decree No. 1 as amended by Decree No. 319.
Decree No. 319 introduced amendments to Decree No. 1, effective as of 1 July 2016, to
(a) extend the requirement that all international cargo transit by road and rail from Ukraine destined
for Kazakhstan enter Russia via Belarus and be subject to additional conditions related to
identification seals and registration cards, to international cargo transit by road and rail destined for
the Kyrgyz Republic; and (b) impose a ban on road and rail transit of goods that are subject to nonzero
import duties according to the Common Customs Tariff of the EaEU, as well as goods falling
within the scope of the import bans imposed by Resolution No. 778.
7.312. Ukraine did not refer to Decree No. 319 in the section of its panel request that identifies the
de facto measure. The Panel considers that the failure to refer specifically to Decree No. 319 in the
identification of the de facto measure in the second group of measures in section III.A. of
Ukraine's panel request could reasonably have led Russia to conclude that Ukraine was only
challenging the de facto application of restrictions on transit effected by Decree No. 1 and
Resolution No. 1. This is reinforced by the fact that Ukraine's panel request did explicitly refer to
Decree No. 319 in the first group of measures in section II.A. In the circumstances, Russia could
reasonably have inferred that the absence of a reference to Decree No. 319 in the identification of
the second group of measures in section III.A. of the panel request was deliberate.447
7.313. This is further supported by the fact that the identification of the de facto measure in the
second sub-category of the second group of measures in section III.A. of the panel request uses the
term "restrictions" rather than "bans". The reference to Decree No. 319 in section II.A. of the
panel request, by contrast, describes this instrument as involving a "ban". The use of the word
"restrictions" rather than "bans" to describe the de facto measure could also reasonably have led
Russia to conclude that the de facto measure was concerned with the de facto application of the
restrictions on transit (i.e. the restrictive conditions requiring that transit from Ukraine occur
444 Appellate Body Report, US – Oil Country Tubular Goods Sunset Reviews, para. 165. (emphasis
original)
445 Ibid. para. 166.
446 Ibid. para. 167.
447 Although the third sub-category of the second group of measures described in section III.A. of the
panel request refers to amendments to any of the measures mentioned in sections II.A. and III.A., this
sub-category is prefaced by the explanation that this inclusion is necessary owing to Russia's failure to comply
with the transparency and notification obligations under the GATT 1994 and Russia's Accession Protocol in
respect of some of the measures. The existence and content of Decree No. 319 was clearly known to Ukraine
at the time of its panel request, as it specifically refers to this instrument in the context of its discussion of the
first group of measures in section II.A. Therefore, in the circumstances, it would not have been reasonable for
Russia to infer, from the references to amendment measures in the third sub-category of measures described
in section III.A., that Ukraine was referring to the amendments to Decree No. 1 effected by Decree No. 319.
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exclusively through Belarus and the "additional restrictive conditions" such as the application of
identification seals and the use of registration cards, all of which are referred to in Decree No. 1),
rather than the ban on transit of: (a) goods that are subject to non-zero import duties according to
the Common Customs Tariff of the EaEU, and (b) goods falling within the scope of the import ban
imposed by Resolution No. 778.
7.314. The Panel recognizes that Ukraine's apparent expansion of the scope of the de facto measure
in its first written submission, to include the de facto application of Decree No. 319 in addition to
Decree No. 1, does not strictly affect the question of whether the measure was described with the
requisite clarity in Ukraine's panel request. As previously noted, compliance with the requirements
of Article 6.2 of the DSU must be demonstrated on the face of the panel request. The Panel makes
the observations above only to indicate that, even if it had concluded that Ukraine's panel request
identified the de facto measure with sufficient specificity to meet the requirements of Article 6.2 of
the DSU, the Panel considers that the de facto measure Ukraine describes in its first written
submission is different from the measure it identifies in its panel request.
7.315. The Panel finds that the identification of the de facto measure in Ukraine's panel request
fails to satisfy the requirements of Article 6.2 of the DSU to identify the specific measures at issue
and is therefore outside the Panel's terms of reference.
7.7.2.2.3 Third sub-category of measures
7.316. The third sub-category of the second group of measures (item c. in paragraph 7.285 above)
covers any related transit measures that implement, complement, add to, apply, amend or replace
any of the measures identified in both sections II.A and III.A. of Ukraine's panel request of which
Ukraine may not be aware owing to Russia's alleged failure to comply with its transparency and
publication obligations.448 The legal instruments listed in Ukraine's panel request and of which
Ukraine clearly was aware (for example, Decree No. 319, which amended Decree No. 1), would not
fall within this sub-category.
7.317. The Panel concludes that Ukraine's panel request clearly identifies the third sub-category of
the second group of measures.
7.7.2.2.4 Identification of the legal basis of the complaint
7.318. Russia also contends that the legal basis for the complaint in respect of the measures
comprising the second group of measures is provided only in respect of the group, rather than for
each of the measures within the group.449 The opening words of section III.B. of Ukraine's panel
request, entitled "Legal Basis for the Complaint", read: "Ukraine considers that the measures
identified in section III.A. are inconsistent with the following WTO provisions". As with the similar
objection made by Russia in respect of the first group of measures, Ukraine's use of the term
"the measures" rather than "group of measures" makes clear that the claims of WTO-inconsistency
that follow are made in relation to each of the measures within the second group of measures
identified in section III.A. of Ukraine's panel request.450
7.319. The Panel therefore considers that the panel request adequately describes the legal basis of
the complaint in relation to the measures identified within the "second group of measures" for each
of the claims made in section III.B. of Ukraine's panel request.
7.7.2.3 Conclusions on whether Ukraine's panel request satisfies the requirements of
Article 6.2 of the DSU
7.320. The Panel finds that the identification of the de facto measure in Ukraine's panel request
fails to satisfy the requirements of Article 6.2 of the DSU to identify the specific measures at issue
and is therefore outside the Panel's terms of reference.
448 See Ukraine's opening statement at the second meeting of the Panel, paras. 25-26. Ukraine argues
that the use of the phrase "related measures" has not changed the essence of the measures that fall within the
Panel's terms of reference. (See ibid. para. 27.)
449 Russia's second written submission, para. 10.
450 See para. 7.283 above.
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7.321. The Panel finds that the identification of the other measures in Ukraine's panel request
satisfies the requirements of Article 6.2 of the DSU to identify the specific measures at issue.
7.322. The Panel finds that Ukraine's panel request adequately describes the legal basis of the
complaint in relation to the measures identified within the "first group of measures" for each of the
claims made in section II.B., and in relation to the measures identified within the "second group of
measures" for each of the claims made in section III.B., of Ukraine's panel request.
7.323. The Panel finds that Russia has failed to establish that Ukraine's panel request does not
present the problem clearly, as required by Article 6.2 of the DSU, because, in Russia's view, the
panel request does not make clear how the measures that comprise each of the two distinct "groups
of measures" set forth in the panel request operate together, or adequately explain which treaty
provisions are alleged to be infringed by each of the challenged measures in the two groups of
measures.
7.7.3 Whether the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778
Goods are within the Panel's terms of reference
7.324. In this Section, the Panel addresses Russia's additional argument that the category of
measures described in Ukraine's first written submission as the "2014 transit bans and other transit
restrictions", and by the Panel as the "2014 Belarus-Russia Border Bans on Transit of Resolution No.
778 Goods" (2014 Belarus-Russia Border Bans)451, are outside the Panel's terms of reference
because these measures were no longer in existence at the time of Ukraine's panel request.
7.325. The 2014 Belarus-Russia Border Bans are the alleged bans identified in the first sub-category
of the second group of measures in section III.A. of Ukraine's panel request452, namely, the
2014 prohibitions on transit from Ukraine across Russia, of goods subject to veterinary and
phytosanitary surveillance, and which are included in the list approved by Resolution No. 778,
through checkpoints of the Republic of Belarus, along with special checkpoint and permit
requirements for such goods destined for Kazakhstan and other countries.453
7.326. To recall, in August 2014, the Russian Government passed Resolution No. 778, which
temporarily bans the importation into Russia of various agricultural products, raw materials and
foodstuffs set forth in a list annexed to the Resolution that originate from certain countries, including
the United States, EU Member States, Canada, Australia and Norway, that had imposed sanctions
against Russia.454 The list of products to which the import ban applies has also been modified several
times.455
7.327. The 2014 Belarus-Russia Border Bans provide that veterinary and plant goods subject to the
import bans under Resolution No. 778 may only transit through designated checkpoints located on
the Russian side of the external border of the EaEU.456 The 2014 Belarus-Russia Border Bans are
implemented by instructions contained in two letters issued by the Rosselkhoznadzor:
Instruction No. FS-NV-7/22886, dated 21 November 2014, (the Veterinary Instruction), which
451 In the previous Sections of this Report, the Panel refers to "2014 transit bans and other transit
restrictions" as the "2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods". In this Section,
however, for ease of reference, the Panel will refer to these measures as the "2014 Belarus-Russia Border
Bans".
452 See Ukraine's response to Panel question No. 1 after the first meeting of the Panel, para. 63.
453 For a description of the 2014 measures, see paras. 7.1.d and 7.106.c above, and paras. 7.326-7.327
below.
454 See para. 7.10 above.
455 Resolution No. 830, (Exhibit UKR-11); Resolution No. 981, (Exhibit UKR-14); Resolution No. 157,
(Exhibit UKR-16); Resolution No. 472, (Exhibit UKR-17); Resolution No. 897, (Exhibit UKR-19);
Resolution No. 1086, (Exhibit UKR-20); and Resolution No. 1292, (Exhibit UKR-94).
456 See para. 7.269.a above. The Panel interprets the Plant Instruction in the context of the
contemporaneous Veterinary Instruction, given that both instruments were issued on the same date by the same
government authority, in reference to the same ban on products under Resolution No. 778. The Panel therefore
considers that "the checkpoints" referred to in the Plant Instruction, properly construed, must be those
checkpoints listed in the Veterinary Instruction. This interpretation of the two Instructions was also put forward
by Ukraine in its panel request, in which Ukraine asserted that the entry of both veterinary and plant goods was
only allowed "through the checkpoints located at the Russian part of the external border of the Customs Union".
(Ukraine's panel request, Section III.A., p. 4.) For more detail, see fn 458 below.
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applies to veterinary goods covered by Resolution No. 778 as of 30 November 2014457; and
Instruction No. FS-AS-3/22903, dated 21 November 2014, (the Plant Instruction), which applies to
plant goods covered by Resolution No. 778 as of 24 November 2014.458
7.328. Russia, in its first written submission, requested a preliminary ruling that the
2014 Belarus-Russia Border Bans are outside the Panel's terms of reference.459 Russia considers that
these alleged bans did not exist at the date of Ukraine's request for consultations
(21 September 2016), or at the date of its request for establishment of a panel
(10 February 2017).460 Russia argues that the Veterinary Instruction and the Plant Instruction were
"superseded" by Decree No. 1, dated 1 January 2016, and by Resolution No. 1, also dated
1 January 2016.461 According to Russia, Decree No. 1 therefore "effectively abolished any
requirements that were set out in the Letters of Rosselkhoznadzor in question in respect of
Ukraine".462 In its opening statement at the first substantive meeting of the Panel, Russia clarified
its argument as follows:
a. When the Veterinary Instruction and Plant Instruction were adopted, Ukraine was not
included in the list of countries whose goods were subject to Resolution No. 778. Therefore,
the 2014 measures "could not [apply] and were not applied to the goods from Ukraine".463
b. Resolution No. 778 was amended on 1 January 2016 to add Ukraine to the list of countries
whose goods were subject to Resolution No. 778. However, also on 1 January 2016,
Decree No. 1 and Resolution No. 1 were adopted to permit the transit of goods from
Ukraine across Russian territory only through "the checkpoint situated on the state border
of the Russian Federation inside its Russia-Belarus sector".464
c. Decree No. 1 and Resolution No. 1, as measures adopted by the Government of the
Russian Federation, are superior in the Russian legal hierarchy to the instructions issued
457 Veterinary Instruction, (Exhibits UKR-21, RUS-10).
458 Plant Instruction, (Exhibits UKR-22, RUS-11). The Veterinary Instruction specifically prohibits transit
across Russia through Belarussian checkpoints, owing to the detection of "gross violations" during the transit of
Resolution No. 778 goods through the Republic of Belarus, and limits entry to nine identified checkpoints on
the border between Russia, on the one hand, and Finland, Estonia, Latvia and Ukraine, on the other hand.
(Veterinary Instruction, (Exhibits UKR-21, RUS-10).) The Plant Instruction, conversely, simply states that the
transit of phytosanitary goods covered by Resolution No. 778, destined for third countries including
Kazakhstan, will take place "exclusively through the checkpoints across the state border of the
Russian Federation". (Plant Instruction, (Exhibits UKR-22, RUS-11).) The Plant Instruction does not, on its
face, refer to prohibiting transit across Russia through Belarussian checkpoints, or the nine checkpoints
identified in the Veterinary Instruction. However, in an official statement issued by the Rosselkhoznadzor, it
was explained that the Plant Instruction was intended to prevent the "illegal delivery of quarantined products
from the territory of Belarus" and "false transit by the Belarusian and Kazakhstani competent services".
(Official Site of the Rosselkhoznadzor, "Regarding Regulation by Rosselkhoznadzor of Quarantined Plant
Products Transit", dated 24 November 2014, (Exhibit UKR-88).)
459 Russia's first written submission, para. 31; and opening statement at the first meeting of the Panel,
para. 6.
460 Russia's first written submission, paras. 3, 27 and 30; and opening statement at the first meeting of
the Panel, para. 6.
461 Russia's first written submission, para. 26. Decree No. 1 provides that all road and railway cargo
transportation from Ukraine to Kazakhstan, through the territory of Russia, shall be carried out only from the
territory of Belarus and shall be subject to additional conditions related to identification seals and registration
cards, at specific control points to be established by the Russian Government. Decree No. 1 was amended in
various respects by Decree No. 319 on 1 July 2016, including by extending the restrictions on traffic in transit
from Ukraine, destined for Kazakhstan, to traffic in transit from Ukraine, destined for the Kyrgyz Republic.
Decree No. 319 also imposed a temporary prohibition on the transit from Ukraine, across the territory of
Russia, of goods that would be subject to import duties above zero if imported into Russia, as well as goods
covered by Resolution No. 778. (Decree No. 1, (Exhibits UKR-1, RUS-1); and Decree No. 319, (Exhibits UKR-2,
RUS-2).) Decree No.1 has been extended to apply until 30 June 2018 by Decree No. 643, (Exhibits UKR-98,
RUS-13).
462 Russia's first written submission, para. 26.
463 Russia's opening statement at the first meeting of the Panel, para. 5.
464 Ibid. para. 6.
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by the Rosselkhoznadzor, which is a Federal Service reporting to the Government of the
Russian Federation.465
7.329. Accordingly, Russia argues that there has "not been a single day when the measures
contained in the Letters of Rosselkhoznadzor were applied to the transit of goods from Ukraine".466
7.330. Ukraine, in its first written submission, acknowledges that the Veterinary Instruction was
formally amended by Instruction No. FS-EN-7/19132 of the Rosselkhoznadzor on 10 October 2016,
to provide that "traffic in transit of goods that are subject to control by the state veterinary
surveillance, from the territory of Ukraine into the territor[ies] of the Republic of Kazakhstan and
the Kyrgyz Republic must be carried out according to [Resolution No. 1]".467 While conceding that
veterinary goods covered by Resolution No. 778 "moving specifically from" the territory of Ukraine
to the territories of Kazakhstan and the Kyrgyz Republic are accordingly no longer subject to the
Veterinary Instruction, Ukraine argues that the Veterinary Instruction continues to apply to traffic in
transit not covered by Resolution No. 1.468 Ukraine further argues that if neither instruction ever
applied with respect to Ukraine, there would have been no need to adopt Instruction No. FS-EN-
7/19132, providing that the traffic in transit of veterinary goods from the territory of Ukraine into
the territories of Kazakhstan and the Kyrgyz Republic must be carried out in accordance with
Resolution No. 1.469 Consequently, according to Ukraine, (a) veterinary goods covered by Resolution
No. 778 transiting from countries other than Ukraine, and (b) veterinary goods covered by
Resolution No. 778 transiting from Ukraine but to destinations other than Kazakhstan and the Kyrgyz
Republic, remain subject to the Veterinary Instruction.470
7.7.3.1 Whether the existence of the 2014 Belarus-Russia Border Bans goes to the Panel's
terms of reference
7.331. Russia argues that the 2014 Belarus-Russia Border Bans do not have any legal effect with
respect to transit from Ukraine, and therefore that the measures do not exist, and are accordingly
outside the Panel's terms of reference. Russia's request for a ruling that the 2014 Belarus-Russia
Border Bans are outside the Panel's terms of reference relies on what it considers to be a "general
rule" in WTO jurisprudence, according to which "the measure covered by a panel's terms of reference
must be a measure in existence at the time of the establishment of the panel."471 It refers to the
Appellate Body Report in EC –Chicken Cuts in support of this proposition.472
7.332. The EC – Chicken Cuts dispute involved two original measures that had been explicitly
identified in the complaining parties' panel requests. The issue for the panel and Appellate Body was
whether two subsequent measures, which had come into existence after the date of the panel
requests and therefore had not been explicitly identified in the panel requests, were nevertheless
within the panel's terms of reference. In this specific context, the Appellate Body stated that the
term "specific measures at issue" in Article 6.2 of the DSU suggests that:
[A]s a general rule, the measures included in a panel's terms of reference must be
measures that are in existence at the time of the establishment of the panel. However,
465 Russia's opening statement at the first meeting of the Panel, para. 6.
466 Ibid.
467 Ukraine's first written submission, paras. 59 and 244; and Instruction No. FS-EN-7/19132 of the
Rosselkhoznadzor, dated 10 October 2016, (Exhibit UKR-75). See also Ukraine's opening statement at the first
meeting of the Panel, paras. 9-11.
468 Ukraine's first written submission, paras. 59 and 244. Ukraine similarly argues that Decree No. 1 and
Resolution No. 1 would supersede the Plant Instruction, but only to the extent of a conflict between them,
because Presidential decrees and Government resolutions are superior to agency instructions in the Russian
legal hierarchy, and in this case, the relevant decree and resolution were also promulgated later in time.
(Ukraine's first written submission, para. 60; and opening statement at the first meeting of the Panel,
para. 13.)
469 Ukraine's second written submission, para. 18.
470 Ukraine's first written submission, para. 244; and opening statement at the first meeting of the
Panel, para. 11.
471 Russia's first written submission, para. 25.
472 Ibid. (referring to Appellate Body Report, EC – Chicken Cuts, para. 156).
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measures enacted subsequent to the establishment of the panel may, in certain limited
circumstances, fall within a panel's terms of reference.473
7.333. In other words, in EC – Chicken Cuts, the terms of reference issue arose because the two
subsequent measures had not been explicitly identified in the complainants' panel requests (owing
to the fact that they did not then exist). The question was whether they were nevertheless
sufficiently identified in the panel requests for purposes of Article 6.2 of the DSU on account of their
relationship to two original measures that had been explicitly identified in the panel requests.
7.334. The situation before this Panel is therefore different from the situation in EC – Chicken Cuts.
The 2014 Belarus-Russia Border Bans are identified in Ukraine's panel request.474 The issue is
whether these measures in fact existed at the relevant time.
7.335. It is clearly established that the issue of the existence of a measure goes to the merits of a
case. It is not a jurisdictional issue. In EC and certain member States – Large Civil Aircraft, the
European Communities sought a preliminary ruling that alleged launch aid / member State financing
(LA/MSF) subsidies to support the development of the Airbus A350 aircraft (A350) were outside the
panel's terms of reference because the subsidies did not exist at the time of the United States' panel
request for the establishment of a panel. The panel noted that the dispute between the parties
concerned the factual question of whether there were any LA/MSF measures in existence with
respect to the A350 at the time of the panel request. The panel stated that, where the existence or
non-existence of a challenged measure is a disputed question of fact, it is not an appropriate matter
for determination in a preliminary ruling. The panel therefore addressed this issue in its evaluation
of the United States' substantive claims.475
7.336. In US – Continued Zeroing, the Appellate Body rejected the panel's view that, in order to
successfully raise claims against a measure, the complaining Member must first demonstrate the
existence and the precise content of the measure, according to the requirements of Article 6.2 of
the DSU.476 The Appellate Body explained that the identification of the specific measures at issue,
pursuant to Article 6.2 of the DSU, is different from a demonstration of the existence of such
measures. Only in respect of the latter would the complaining party be expected to present relevant
arguments and evidence during the panel proceedings to show the existence of the measures.477
7.337. The Appellate Body's approach in US – Continued Zeroing was followed by the panel in
US – Orange Juice (Brazil), which rejected the United States' request for a ruling that Brazil's alleged
"continued zeroing" measure was outside the panel's terms of reference because the measure as
described in the panel request did not satisfy the requirements of Article 6.2. The panel considered
that it was reasonably clear from the description of the measure in its panel request that the
complainant challenged the United States' "continued use" of "zeroing procedures" as
"ongoing conduct". The panel noted that, in order for it to rule on the United States' request for a
preliminary ruling, there was no need for it to go further, and pronounce on whether such
"ongoing conduct" was susceptible to challenge in WTO dispute settlement, or decide whether the
alleged "ongoing conduct" measure actually existed.478
7.338. In Russia – Tariff Treatment, Russia sought a preliminary ruling that one of the measures,
concerning a particular tariff line, did not exist at the time of the establishment of the panel.
The panel quoted the Appellate Body's statement in US – Continued Zeroing, adding that a
complaining party is not required to establish the existence of a specific measure at issue in its panel
473 Appellate Body Report, EC – Chicken Cuts, para. 156. (underlining added; footnote omitted)
474 In its first written submission, Ukraine clarifies that its reference to the Plant Instruction in its panel
request contained a typographical error. (See Ukraine's first written submission, fn 77 to para. 55; and opening
statement at the first meeting of the Panel, para. 18.) Russia also seems to have understood that particular
reference to be a typographical error. (See Russia's first written submission, para. 24.)
475 See Panel Report, EC and certain member States – Large Civil Aircraft, paras. 7.108-7.117.
476 Panel Report, US – Continued Zeroing, para. 7.50.
477 Appellate Body Report, US – Continued Zeroing, para. 169. See also Ukraine's response to
Panel question No. 1 after the first meeting of the Panel, paras. 21-22, where, in connection with arguments
concerning a different measure, Ukraine refers to the Appellate Body's statement in US – Continued Zeroing to
support its argument that Article 6.2 of the DSU does not require that the existence of the measures at issue
be demonstrated in a panel request.
478 Panel Report, US – Orange Juice (Brazil), paras. 7.41-7.42.
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request. Rather, such demonstration is to be made in the complaining party's written submissions
and at a panel's meetings with the parties.479
7.339. In conclusion, the existence of the 2014 Belarus-Russia Border Bans is an issue that goes to
the merits of the case, rather than to the delimitation of the scope of the terms of reference.
7.7.3.2 Whether Ukraine has established the existence of the 2014 Belarus-Russia Border
Bans in its panel request
7.340. The Panel next considers whether Ukraine has established that the
2014 Belarus-Russia Border Bans in fact existed at the time of its panel request. The answer to this
question depends on whether Ukraine has established that the 2014 Belarus-Russia Border Bans
continue to have legal effect with respect to transit from Ukraine, notwithstanding the promulgation
of Decree No. 1 and Resolution No. 1 on 1 January 2016. In this respect, Ukraine argues that there
is no evidence before the Panel expressly or implicitly of the repeal of the 2014 Belarus-Russia
Border Bans, and that, to demonstrate the existence of these measures at the time of the
establishment of the Panel, Ukraine is not required to provide evidence of actual application of these
transit measures.480
7.341. As noted previously, the 2014 Belarus-Russia Border Bans are implemented by two
Rosselkhoznadzor instruction letters of November 2014.481 The Veterinary Instruction prohibits, as
of 30 November 2014, the transit of veterinary goods covered by Resolution No. 778 and destined
for Kazakhstan or third countries across Russian territory through checkpoints in the territory of
Belarus. Rather, transit of such goods must take place through specific checkpoints located on the
Russian side of the external border of the EaEU.482 The Plant Instruction does not, on its face, prohibit
the transit of plant goods covered by Resolution No. 778 across Russian territory from checkpoints
in the territory of Belarus, but instead requires that, as of 24 November 2014, transit of such goods
destined for third countries, including Kazakhstan, occur exclusively through "the checkpoints across
the state border of the Russian Federation".483
7.342. The parties agree that goods of Ukrainian origin were not originally subject to
Resolution No. 778 and thus, that neither the Veterinary Instruction nor the Plant Instruction
originally applied to transit of goods of Ukrainian origin. However, the Veterinary Instruction and
Plant Instruction by their terms nevertheless applied to the transit from Ukraine of goods covered
by Resolution No. 778 (i.e. specified veterinary and plant goods originating from countries listed in
Resolution No. 778).
7.343. The Russian Government subsequently amended Resolution No. 778 so that it also applied
to the specified veterinary and plant goods of Ukrainian origin, as of 1 January 2016.484 At the same
time, the Russian President promulgated Decree No. 1, which is entitled "On the measures ensuring
economic security and national interests of the Russian Federation in the cases of international
transit cargo transportation from the territory of Ukraine to the territory of the Republic of
Kazakhstan through the territory of the Russian Federation". Decree No. 1 requires that, as of
1 January 2016, transit from Ukraine destined for Kazakhstan could only enter Russian territory from
479 Panel Report, Russia – Tariff Treatment, Annex A-1, para. 6.7.
480 See Ukraine's opening statement at the second meeting of the Panel, paras. 6-7.
481 See para. 7.327 above.
482 The introduction to the Veterinary Instruction provides that the prohibition on transit of veterinary
Resolution No. 778 goods across Russia from the checkpoints in the territory of Belarus is necessitated by the
"detection of gross violations during the transit through the territory of the Republic of Belarus" of veterinary
Resolution No. 778 goods. (Veterinary Instruction, (Exhibits UKR-21, RUS-10).)
483 However, see fns 456 and 458 above.
484 Russia's opening statement at the first meeting of the Panel, paras. 5-6; and Ukraine's second
written submission, para. 14. This was effected through two resolutions of the Government of the Russian
Federation: (a) Resolution No. 842, (Exhibit UKR-13), which added Ukraine to the list of countries whose
veterinary and plant goods were subject to Resolution No. 778, but with a proviso that the import ban applying
to such goods of Ukrainian origin would be applied from the effective date of paragraph 1 of Resolution No. 959
of the Government of the Russian Federation, dated 19 September 2014, but no later than 1 January 2016;
and (b) Resolution No. 1397, (Exhibit UKR-15), which amended Resolution No. 778 to provide that the import
ban on specified veterinary and plant goods would be applied to Ukraine from 1 January 2016.
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the territory of Belarus, and subject to additional conditions related to identification seals and
registration cards as well as control points to be established by the Russian Government.485
7.344. The parties agree that, to the extent that there is any inconsistency between the
Veterinary and Plant Instructions, on the one hand, and Decree No. 1, on the other, the latter would
prevail, owing to the fact that it is superior in the Russian legal hierarchy.486
7.345. The Veterinary and Plant Instructions concern the transit of goods subject to
Resolution No. 778 that are destined for Kazakhstan and other third countries. The requirements in
those instructions (i.e. that such goods may not enter Russia through Belarus and can only enter
through certain designated checkpoints situated on the Russian state border) would be superseded,
as regards transit from Ukraine of such goods, by the requirement in Decree No. 1 that all transit
from Ukraine (which would include goods covered by Resolution No. 778 transiting across Russia
from Ukraine) that is destined for Kazakhstan (and from 1 July 2016, the Kyrgyz Republic), be
carried out exclusively from the territory of Belarus, and comply with the additional conditions related
to identification seals and registration cards, at specific control points, as set out in Decree No. 1.
7.346. Therefore, it is clear that, as of 1 January 2016, the 2014 Belarus-Russia Border Bans did
not apply to transit from Ukraine of goods covered by Resolution No. 778 that are destined for
Kazakhstan or the Kyrgyz Republic. The question is whether the 2014 Belarus-Russia Border Bans
continued to apply to transit from Ukraine of goods covered by Resolution No. 778 that are destined
for countries other than Kazakhstan or the Kyrgyz Republic. The Panel considers that the answer to
that question depends on the scope of application of the amendment to Decree No. 1 effected by
Decree No. 319, namely, the temporary prohibition on the transit of goods covered by Resolution
No. 778.
7.347. Decree No. 319 not only expanded the restrictions applying to transit from Ukraine destined
for Kazakhstan to apply to transit from Ukraine destined for the Kyrgyz Republic. It also introduced
what is referred to as a "temporary" prohibition on the transit of goods covered by Resolution No.
778.487 The terms of this amendment to Decree No. 1, introduced by Decree No. 319, are as follows:
To introduce a temporary prohibition for motor road and railroad transportation of goods
covered in the Russian Federation by the rates of import customs duties specified in the
Common Customs Tariff of the [EaEU] different from zero and the goods included into
the list of agricultural produce, raw materials and foodstuffs endorsed by the
Government of the Russian Federation in pursuance of Decree of the President of the
Russian Federation No. 560 of August 6, 2014 on the Application of Individual Specific
Economic Measures for the Purposes of Security of the Russian Federation.488
7.348. The prohibition introduced by Decree No. 319 is not, by its express terms, confined to transit
from Ukraine of goods covered by Resolution No. 778, or to the transit of goods covered by
Resolution No. 778 that are destined for any particular countries. If the prohibition applied to the
transit of goods covered by Resolution No. 778 regardless of the country from which the goods
entered Russia, or the country of destination, the 2014 Belarus-Russia Border Bans would, since 1
July 2016, have been entirely superseded by Decree No. 1, as amended by Decree No. 319.
7.349. However, the title to Decree No. 1 (as amended by Decree No. 319) expressly states that it
applies to transit from Ukraine which is destined for Kazakhstan or the Kyrgyz Republic. Therefore,
the Panel considers that the scope of the prohibition on the transit of goods covered by Resolution
No. 778, effected by Decree No. 319 above, is limited to transit from Ukraine of such goods where
the destination of the goods is either Kazakhstan or the Kyrgyz Republic, and not other destinations.
485 Decree No. 1, (Exhibits UKR-1, RUS-1). Decree No. 1 was amended by Decree No. 319 to extend
these requirements to Ukrainian traffic in transit destined for the Kyrgyz Republic, as of 1 July 2016.
(Decree No. 319, (Exhibits UKR-2, RUS-2).) The control points were established by Resolution No. 1,
(Exhibits UKR-3, RUS-4).
486 See, e.g. Ukraine's first written submission, para. 60; and Russia's first written submission, para. 26.
487 The temporary prohibition introduced by Decree No. 319 also applies to the transit of goods that are
subject to non-zero import duties according to the Common Customs Tariff of the EaEU. (Decree No. 319,
(Exhibits UKR-2, RUS-2).)
488 Decree No. 1, as amended by Decree No. 319, (Exhibit RUS-1), section 1.1. (underlining original)
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7.350. This being so, it appears that Decree No. 1, as amended by Decree No. 319, does not entirely
supersede the legal operation of the 2014 Belarus-Russia Border Bans with respect to the transit
from Ukraine of goods covered by Resolution No. 778. The 2014 Belarus-Russia Border Bans would
continue to apply to the transit from Ukraine of goods covered by Resolution No. 778 that are
destined for countries other than Kazakhstan or the Kyrgyz Republic.
7.351. The Panel's conclusion that the 2014 Belarus-Russia Border Bans have some residual legal
effect as regards transit from Ukraine of goods covered by Resolution No. 778, notwithstanding the
promulgation of Decree No. 1 and Decree No. 319, is complicated somewhat by Ukraine's allegation
that the Russian authorities are de facto applying the measures implemented by Decree No. 1, as
amended, to traffic in transit from Ukraine which is destined for Mongolia, Tajikistan, Turkmenistan
and Uzbekistan. Clearly, if this were the case, the scope of operation of the 2014 Belarus-Russia
Border Bans would, in fact, be even more limited owing to the corresponding expansion in the scope
of operation of Decree No. 1, as a factual matter.
7.352. However, the Panel has ruled that the de facto measure is outside its terms of reference.489
Therefore, the Panel does not reach any conclusion as to whether Ukraine has established, as an
evidentiary matter, that Decree No. 1 is in fact being applied to transit from Ukraine of goods
destined for these other countries.
7.353. The Panel therefore concludes that, while Decree No. 1 (as amended by Decree No. 319)
supersedes the 2014 Belarus-Russia Border Bans as they apply to the transit from Ukraine of goods
covered by Resolution No. 778 that are destined for Kazakhstan or the Kyrgyz Republic, Decree
No. 1, as amended, does not by its terms affect the legal operation of the
2014 Belarus-Russia Border Bans as they apply to transit from Ukraine of goods covered by
Resolution No. 778 that are destined for countries other than Kazakhstan or the Kyrgyz Republic.
Accordingly, the Panel finds that Ukraine has established that, as of the date of
Ukraine's panel request (10 February 2017), the 2014 Belarus-Russia Border Bans continued to
exist, notwithstanding the adoption of Decree No. 1 (as amended by Decree No. 319), in that they
had legal effect with respect to transit from Ukraine of goods covered by Resolution No. 778 destined
for countries other than Kazakhstan or the Kyrgyz Republic.
7.354. For the sake of clarification, the Panel would add that it is aware that the
2014 Belarus-Russia Border Bans also apply to transit, from countries other than Ukraine, of goods
covered by Resolution No. 778. However, Ukraine's panel request confines its challenge to the transit
restrictions in the 2014 Belarus-Russia Border Bans to those that apply to "traffic in transit from the
territory of Ukraine through the territory of the Russian Federation". This limitation is clear from the
underscored paragraph that summarizes the effect of the instruments that implement the first
sub-category of the second group of measures in section III.A.:
As a result of the restrictions imposed by these Instructions combined with the
restrictions imposed by Decree No. 1, the goods falling within the scope of these
Instructions are prohibited for transit from the territory of Ukraine through the territory
of the Russian Federation to the territory of the Republic of Kazakhstan and the Kyrgyz
Republic.490
7.355. Owing to this limitation in Ukraine's panel request, the only aspects of the
2014 Belarus-Russia Border Bans that are within the Panel's terms of reference are those that apply
to transit from Ukraine.
7.7.4 Summary of the Panel's findings on the measures that are within its terms of
reference
7.356. In this Section of the Report, the Panel finds that the de facto measure, i.e. the measure
referred to in the second sub-category of the second group of measures in section III.A. of
Ukraine's panel request as "de facto applying Decree No. 1 and Resolution No. 1 to transit from the
489 See para. 7.315 above.
490 Ukraine's panel request, section III.A., p. 5. (underlining original; italics added) See also ibid.
section III.A., first sentence, p. 4.
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territory of Ukraine to third countries other than the Republic of Kazakhstan and the
Kyrgyz Republic", is outside its terms of reference.
7.357. The Panel finds that the following measures are within its terms of reference:
a. The 2016 Belarus Transit Requirements: Requirements that all international cargo transit
by road and rail from Ukraine destined for the Republic of Kazakhstan or the Kyrgyz
Republic, through Russia, be carried out exclusively from Belarus, and comply with a
number of additional conditions related to identification seals and registration cards at
specific control points on the Belarus-Russia border and the Russia-Kazakhstan border.
b. The 2016 Transit Bans on Non-Zero Duty Goods and Resolution No. 778 Goods: Bans on
all road and rail transit from Ukraine of: (a) goods that are subject to non-zero import
duties according to the Common Customs Tariff of the EaEU, and (b) goods that fall within
the scope of the import bans imposed by Resolution No. 778, which are destined for
Kazakhstan or the Kyrgyz Republic. Transit of such goods may only occur pursuant to a
derogation requested by the governments of Kazakhstan or the Kyrgyz Republic which is
authorized by the Russian Government, in which case, the transit is subject to the 2016
Belarus Transit Requirements (above).
c. The 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods: Prohibitions
on transit from Ukraine across Russia, through checkpoints in Belarus, of goods subject to
veterinary and phytosanitary surveillance and which are subject to the import bans
implemented by Resolution No. 778, along with related requirements that, as of 30
November 2014, such veterinary goods destined for Kazakhstan or third countries enter
Russia through designated checkpoints on the Russian side of the external customs border
of the EaEU and only pursuant to permits issued by the relevant veterinary surveillance
authorities of the Government of Kazakhstan and the Rosselkhoznadzor, and that, as of
24 November 2014, transit to third countries (including Kazakhstan) of such plant goods
take place exclusively through the checkpoints across the Russian state border.
8 CONCLUSIONS
8.1. For the reasons set forth in this Report, the Panel concludes as follows:
a. With respect to the Panel's jurisdiction to review Russia's invocation of Article XXI(b)(iii)
of the GATT 1994, the Panel finds that:
i. it has jurisdiction to determine whether the requirements of Article XXI(b)(iii) of the
GATT 1994 are satisfied.
b. With respect to the measures and claims within the Panel's terms of reference, the Panel
finds that:
i. the identification of the de facto measure in Ukraine's panel request fails to satisfy the
requirements of Article 6.2 of the DSU to identify the specific measures at issue and is
therefore outside the Panel's terms of reference.
ii. the identification of the other measures in Ukraine's panel request satisfies the
requirements of Article 6.2 of the DSU to identify the specific measures at issue.
iii. Ukraine's panel request adequately describes the legal basis of the complaint in
relation to the measures identified within the "first group of measures" for each of the
claims made in section II.B., and in relation to the measures identified within the
"second group of measures" for each of the claims made in section III.B., of Ukraine's
panel request.
iv. Russia has failed to establish that Ukraine's panel request does not present the
problem clearly, as required by Article 6.2 of the DSU.
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c. With respect to the existence of the 2014 Belarus-Russia Border Bans on Transit of
Resolution No. 778 Goods as of the date of Ukraine's panel request, the Panel finds that:
i. Ukraine has established that, as of the date of Ukraine's panel request
(10 February 2017), the 2014 Belarus-Russia Border Bans on Transit of Resolution No.
778 Goods continued to exist, notwithstanding the adoption of Decree No. 1 (as
amended by Decree No. 319).
d. With respect to whether Russia has met the requirements for invoking Article XXI(b)(iii)
of the GATT 1994, the Panel finds that:
i. as of 2014, there has existed a situation in Russia's relations with Ukraine that
constitutes an emergency in international relations within the meaning of
subparagraph (iii) of Article XXI(b) of the GATT 1994;
ii. each of the measures at issue was taken in time of this emergency in international
relations within the meaning of subparagraph (iii) of Article XXI(b) of the GATT 1994;
iii. Russia has satisfied the conditions of the chapeau of Article XXI(b) of the GATT 1994;
and
iv. accordingly, Russia has met the requirements for invoking Article XXI(b)(iii) in relation
to the measures at issue, and therefore the measures at issue are covered by
Article XXI(b)(iii) of the GATT 1994.
8.2. The Panel also concludes as follows:
a. With respect to Ukraine's claims under the first sentence of Article V:2 of the GATT 1994,
the Panel considers that, had the measures been taken in normal times, i.e. had they not
been taken in time of an "emergency in international relations" (and met the other
conditions of Article XXI(b)), Ukraine would have made a prima facie case that:
i. the 2016 Belarus Transit Requirements were inconsistent with the first sentence of
Article V:2, because these measures prohibit traffic in transit from entering Russia
from Ukraine;
ii. the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods were
inconsistent with the first sentence of Article V:2, because these measures prohibit
traffic in transit from entering Russia from Ukraine; and
iii. the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods were
inconsistent with the first sentence of Article V:2, because these measures prohibit
traffic in transit from Ukraine from entering Russia from any Member other than those
countries from which entry is exclusively permitted, as listed in the measure.
b. With respect to Ukraine's claims under the second sentence of Article V:2 of the
GATT 1994, the Panel considers that, had the measures been taken in normal times,
i.e. had they not been taken in time of an "emergency in international relations" (and met
the other conditions of Article XXI(b)), Ukraine would have made a prima facie case that:
i. the 2016 Belarus Transit Requirements were inconsistent with the second sentence of
Article V:2, because these measures make distinctions based on the place of departure
(Ukraine), the place of destination (Kazakhstan and the Kyrgyz Republic), and the
place of entry (Belarus, where entry is exclusively permitted) of the traffic in transit;
ii. the 2016 Transit Bans on Non-Zero Duty and Resolution No. 778 Goods were
inconsistent with the second sentence of Article V:2, because these measures make
distinctions based on the place of departure (Ukraine), the place of destination
(Kazakhstan and the Kyrgyz Republic), the place of origin (countries listed in
Resolution No. 778, as amended to include Ukraine) and the place of entry (Belarus,
where entry is exclusively permitted) of the traffic in transit; and
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iii. the 2014 Belarus-Russia Border Bans on Transit of Resolution No. 778 Goods were
inconsistent with the second sentence of Article V:2, because these measures make
distinctions based on the place of entry (certain countries where entry is exclusively
permitted, as listed in that measure) and the place of origin (countries listed in
Resolution No. 778, as amended to include Ukraine) of the traffic in transit.
c. With respect to Ukraine's remaining claims under the GATT 1994, the Panel does not
consider it necessary to address Ukraine's claims under Articles V:3, V:4, V:5, X:1, X:2
and X:3(a) of the GATT 1994.
d. With respect to Ukraine's claims under Russia's Working Party Report, as incorporated into
its Accession Protocol by reference, the Panel considers that:
i. Russia could justify any inconsistency with paragraphs 1161, 1426, 1427 and 1428 of
Russia's Working Party Report as necessary for the protection of its essential security
interests taken in time of an "emergency in international relations" within the meaning
of Article XXI(b)(iii) of the GATT 1994; and
ii. With respect to Ukraine's claims under paragraph 1161 of Russia's Working Party
Report, the Panel considers that, had the measures been taken in normal times,
i.e. had they not been taken in time of an "emergency in international relations" (and
met the other conditions of Article XXI(b)), Ukraine would have made a prima facie
case that the measures were inconsistent with paragraph 1161 to the extent that they
would also be prima facie inconsistent with either the first or second sentence of Article
V:2 of the GATT 1994, or both; and
iii. The Panel does not consider it necessary to address further Ukraine's claims based on
commitments in paragraphs 1426, 1427 and 1428 of Russia's Working Party Report.
8.3. Having found that Russia has not acted inconsistently with its obligations under the GATT 1994
or with commitments in Russia's Accession Protocol, the Panel makes no recommendation to the
DSB pursuant to Article 19.1 of the DSU.
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APPENDIX – SUBSEQUENT CONDUCT CONCERNING ARTICLE XXI OF THE GATT 1947
INTRODUCTION
1.1. Russia has directed the Panel to analyse the "historic perspective" in order to support its
interpretation of Article XXI.1 In particular, Russia has drawn the attention of the Panel to the
following documents: (a) statements made by Czechoslovakia in 1949, in the context of its dispute
with the United States over certain export controls; (b) statements made by Ghana in 1961, in the
context of opposing Portugal's accession to the GATT 1947; (c) statements made by the
European Communities and the United States in 1982, in the context of the dispute between the
European Communities and Argentina over certain import measures; (d) statements made by the
United States in 1985, in the context of its dispute with Nicaragua over an embargo on Nicaraguan
goods; and (e) statements made by the European Communities in 1991, in the context of the dispute
between the European Communities and Yugoslavia over the withdrawal of certain preferences.2
1.2. The Panel recalls that in interpreting the terms of a treaty in accordance with the customary
rules of interpretation, it is empowered to consider any "subsequent practice in the application of
the treaty which establishes the agreement of the parties regarding its interpretation".3 The Panel
also recalls that pursuant to Article 13 of the DSU, it is empowered to seek information from "any
relevant source" in making its findings.4 Accordingly, the Panel has conducted a survey of the
discussions referred to it by Russia and related documents in order to examine the attitudes of
GATT contracting parties and WTO Members on occasions when matters pertaining to Article XXI
were addressed in the context of the GATT and WTO.5 The Panel's conclusions on this survey are
contained in paragraphs 7.80 and 7.81 of the Panel Report.
1.3. The Panel wishes to note that it does not consider that certain documents referred to it by
Russia establish any relevant conduct of "the parties" in the sense of Article 31(3)(b) of the
Vienna Convention. In particular, the Panel notes that statements made by Ghana to justify the
imposition of an import ban against Portugal in 1961 were made prior to Portugal's accession, during
which the parties had not yet assumed any obligations to one another under the GATT 1947.6 In the
Panel's view, invocations of Article XXI by a contracting party in order to defend measures taken
against a non-contracting party, as well as any invocations of Article XXI by non-contracting parties
during accession negotiations, cannot establish a pattern of practice between "the parties" in the
sense of Article 31(3)(b) of the Vienna Convention. Accordingly, the Panel has omitted from this
1 Russia's first written submission, para. 40. This Appendix uses the term "European Communities" to
refer to both the European Economic Community and the European Community prior to 2009, and the term the
"European Union" to refer to the European Union after 2009. On 1 November 1993, the Treaty on European
Union (done at Maastricht, 7 February 1992) entered into force. On 1 December 2009, the Treaty of Lisbon
amending the Treaty on European Union and the Treaty establishing the European Community (done at Lisbon,
13 December 2007) entered into force. On 29 November 2009, the WTO received a Verbal Note (WT/L/779)
from the Council of the European Union and the Commission of the European Communities stating that, by
virtue of the Treaty of Lisbon, as of 1 December 2009, the European Union replaces and succeeds the
European Community.
2 Ibid. paras. 41-46.
3 Article 31(3)(b) of the Vienna Convention provides that: "[t]here shall be taken into account, together
with the context: ... [a]ny subsequent practice in the application of the treaty which establishes the agreement
of the parties regarding its interpretation."
4 Article 13 of the DSU provides that: "[p]anels may seek information from any relevant source and may
consult experts to obtain their opinion on certain aspects of the matter."
5 This document examines the subsequent conduct of GATT contracting parties and WTO Members in
GATT and WTO fora from the period of 1 January 1948 (entry into force of the GATT 1947) to 6 June 2017
(composition of the Panel in this dispute). By including documents in this survey, the Panel does not intend to
attribute any legal significance to the type of document examined or the contents of any such documents. The
Panel notes only that it has examined such documents in order to conclude that this record does not reveal any
subsequent practice establishing an agreement between the Members regarding the interpretation of
Article XXI in the sense of Article 31(3)(b) of the Vienna Convention. (See para. 7.80 of the Panel Report.)
6 See, e.g. GATT Contracting Parties, Nineteenth Session, Summary Record of the Twelfth Session held
on 9 December 1961, SR.19/12, p. 196.
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survey such invocations of Article XXI made in the context of accession negotiations to the
GATT 1947 and WTO Agreement.7
1.4. Additionally, the Panel observes that on several occasions, GATT contracting parties and
WTO Members have unilaterally invoked Article XXI in the context of notifying measures to various
GATT and WTO bodies.8 The Panel recalls the statements of the Appellate Body in EC – Chicken Cuts
that it is unlikely that a "concordant, common and discernible pattern" of practice can be established
from the pronouncements of one or very few parties to a multilateral treaty.9 The Panel also recalls
the Appellate Body's caution about deducing agreement, without more, from "a lack of reaction" or
protest by other Members.10 Accordingly, the Panel does not consider that it can ascribe any weight
to the silence of other GATT contracting parties and WTO Members as to these notifications. The
Panel has consequently omitted from this survey such unilateral invocations of Article XXI except
where they provoked debate.
1.5. The following Section proceeds to summarize the relevant conduct of GATT contracting parties
and WTO Members, subsequent to the conclusion of the GATT 1947, when matters pertaining to
Article XXI were addressed in the context of the GATT and WTO.
SUBSEQUENT CONDUCT OF GATT CONTRACTING PARTIES AND WTO MEMBERS
United States v. Czechoslovakia (1949)
1.6. In 1948, the United States enforced its "Comprehensive Export Schedule" by imposing export
controls on US exports going to certain parts of Europe.11 At the time, the United States licensed
products in short supply or of military significance to Western European countries that were
participating in the Marshall Plan, but exports of such products to Eastern European countries that
did not participate in the Marshall Plan became subject to export controls. Czechoslovakia fell into
the group of non-participating Eastern European countries, for which reason products destined for
its borders were subject to export licensing controls. The United States explained that one of the
purposes of the export control regime was "to prevent the shipment to Eastern Europe of things that
would contribute significantly to the military potential of that region".12 Czechoslovakia asserted that
the United States' use of the term "military potential" referred to "an entirely different thing" than
what was covered by the terms of Article XXI(b)(ii), in particular, the term "military establishment".
Czechoslovakia claimed that the US export control measure was inconsistent with the basic principles
of Articles I and XIII of the GATT. Czechoslovakia also requested all relevant information concerning
the administration of restrictions and the distribution of licences by the United States pursuant to
Article XIII.13 In response, the United States referred to Articles XXI(b)(i) and XXI(a) of the GATT.
The United States stated that it considered it to be "contrary to its security interest—and to the
7 See, e.g. GATT Contracting Parties, Twenty-Sixth Session, Report by the Working Party on the
Accession of the United Arab Republic, L/3362, paras. 20-22; GATT Contracting Parties, Accession of Thailand,
Questions and Replies to the Memorandum on Foreign Trade Regime (L/4803), L/5300, pp. 5 and 18-26; and
GATT Contracting Parties, Accession of Saudi Arabia, Questions and Replies to the Memorandum on the Foreign
Trade Regime (L/7489 & Add.1), L/7645/Add.1, pp. 27 and 32.
8 See, e.g. Committee on Technical Barriers to Trade, Notification by Thailand, G/TBT/Notif.95/123, p. 1
(referring to consumer protection and national security as its objective and rationale for undertaking a
particular measure); and Committee on Market Access, Notification Pursuant to the Decision on Notification
Procedures for Quantitative Restrictions by the Seychelles, G/MA/QR/N/SYC/1, pp. 23, 25, 35, 36, 45 and 49.
9 Appellate Body Report, EC – Chicken Cuts, para. 259.
10 Ibid. para. 272.
11 GATT Contracting Parties, Third Session, Statement by the Head of the Czechoslovak Delegation
Mr. Zdenèk AUGENTHALER to Item 14 of Agenda (CP.3/2/Rev.2), GATT/CP.3/33, p. 3 (referring to the official
publication of the US Department of Commerce – "Comprehensive Export Schedule" No. 26, issued on
1 October 1948, p. 18.)
12 Ibid. p. 5. (referring to the statement of Mr. Willard L. Thorp made at the General Assembly in Paris
on 4 November 1948).
13 Ibid. pp. 5-6. Czechoslovakia stated that the notion of "war or military potential" is an extremely
elastic notion, embracing the reserves of man-power and economic resources of a country including the extent
to which both have been militarized. In addition, this concept also embraces a time element, that is, not only
the possibility to develop military strength but also the degree of actual preparedness. Thus, according to
Czechoslovakia, Article XXI should be interpreted narrowly so as to avoid a situation in which "practically
everything may be a possible element of war potential". (Ibid.)
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security interest of other friendly countries—to reveal the names of the commodities that it considers
to be most strategic".14
1.7. At the June 1949 meeting of the GATT Council, Czechoslovakia requested a decision on whether
the United States had failed to carry out its obligations under the GATT through its administration
of the export licenses.15 The United Kingdom expressed the view 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".16 Pakistan stated that Article XXI embodied "exceptions to all other
provisions of the Agreement, [and] should stand by itself notwithstanding the provisions of other
Articles including Article I, and therefore the case called for examination only under the provisions
of that Article".17 Cuba stated that Czechoslovakia's request should be dismissed because it lacked
a factual basis. Moreover, Cuba considered that the United States had justified its case under Article
XXI "whose provisions overrode those of Article I".18
1.8. In response to Czechoslovakia's request for a decision under Article XXIII, only Czechoslovakia
voted in the affirmative.19 Czechoslovakia noted that it did not consider that the contracting parties
had made a legally valid decision or correct interpretation of the General Agreement, and that it
would regard itself free to take any steps necessary to protect its further interests.20
United States – Suspension of Obligations with Czechoslovakia (1951)
1.9. In 1951, the United States requested the GATT Council to formally dissolve its reciprocal
obligations with Czechoslovakia under the GATT 1947, and to withdraw the benefits of
trade-agreement tariff concessions from Czechoslovakia.21 The United States justified this request
by arguing that the assumption that it was in its and Czechoslovakia's mutual interests to promote
the movement of goods, money and people between them was no longer valid.22 Although the
United States did not formally refer to Article XXI of the GATT 1947, it argued that "manifestations
of Czechoslovak ill-will" towards the United States and the progressive integration of
Czechoslovakia's economy into the Soviet bloc had led the United States to request that the GATT
obligations between the two countries be dissolved.23 Czechoslovakia considered the
United States' request to be "another attempt [by the United States] to achieve political ends by
means of economic pressure".24 Czechoslovakia was of the view that the "General Agreement should
not be misused for the enforcement of political intentions" and for "forceful, unilateral imposition of
a foreign will, by means of the violation of agreements".25
14 GATT Contracting Parties, Third Session, Reply by the Vice Chairman of the United States Delegation,
Mr John W. Evans, to the Speech by the Head of the Czechoslovak Delegation under Item 14 on the Agenda,
GATT/CP.3/38, pp. 2-3 and 9-11. In addition, the US delegate provided dollar estimates of approved
Czechoslovakian licences for different products such as electrical equipment and machinery to demonstrate
that the United States had been highly selective in imposing controls for security reasons and had not denied
licences where the product was for peaceful use. (Ibid.) See also GATT Contracting Parties, Third Session,
Reply of the Head of the Czechoslovak Delegation, Mr. Zdenèk AUGENTHALER, to the Speech of the
Vice-Chairman of the USA Delegation, Mr. John W. Evans, under Item 14 of the Agenda, GATT/CP.3/39,
pp. 2-3.
15 See GATT Contracting Parties, Third Session, Summary Record of the Twenty-Second Meeting held on
8 June 1949, GATT/CP.3/SR.22, p. 4.
16 Ibid. p. 7; and GATT Contracting Parties, Third Session, Corrigendum to the Summary Record of the
Twenty-Second Meeting, GATT/CP.3/SR.22/Corr.1.
17 GATT Contracting Parties, Third Session, Summary Record of the Twenty-Second Meeting held on
8 June 1949, GATT/CP.3/SR.22, p. 6.
18 Ibid. p. 5.
19 Ibid. p. 9. The vote was one affirmative, 17 negative, three abstentions and two absents. (Ibid.)
20 Ibid. p. 10.
21 GATT Contracting Parties, Sixth Session, Statement by the United States, Termination of Obligations
between the United States and Czechoslovakia under the Agreement, GATT/CP.6/5, p. 1.
22 Ibid. According to the United States, Czechoslovakia had persecuted and harassed American firms,
imprisoned American citizens, and confiscated the property of American citizens without justification. (Ibid.)
23 Ibid.
24 GATT Contracting Parties, Sixth Session, Termination of Obligations between the United States and
Czechoslovakia under the Agreement, Statement by Czechoslovakia, GATT/CP.6/5/Add.1, p. 2.
25 Ibid. p. 3.
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1.10. The GATT CONTRACTING PARTIES declared that the United States and Czechoslovakia were
free to suspend, each with respect to the other, the obligations of the GATT.26
United States – Imports of Dairy Products (1951)
1.11. In 1951, the Netherlands and Denmark each circulated a memorandum to the
GATT contracting parties noting the imposition by the United States of certain import controls on
dairy products under Section 104 of the Defense Production Act.27 Section 104 stated that these
import controls were "necessary for the protection of the essential security interests and economy
of the United States in the existing emergency in international relations".28 The Netherlands and
Denmark considered these restrictions to be inconsistent with Article XI of the GATT 1947.29 In
response, the United States circulated a memorandum noting that these objections had been
formally communicated to Congress.30 The United States also included two statements made to the
Senate Banking and Currency Committee by the Assistant Secretary of State and Under Secretary
of Agriculture recommending the repeal of Section 104.31 The Assistant Secretary of State had
asserted to the Committee that "the restrictions required by Section 104 appear to the Department
clearly to violate the provisions of the [GATT]."32 The Under Secretary of Agriculture also noted to
the Committee that "[i]t seems unlikely that we will be able to convince these [objecting] countries
that certain imports, which would at most have a limited effect on our agriculture, would endanger
the essential security interests and economy of the United States."33 The Under Secretary stated
additionally that "if we use the security exception of the [GATT] to justify protection of a few selected
products, this would give other countries a good excuse for using the same exception to justify any
protective barriers by which they may wish to limit their imports of our farm products."34
1.12. At the September 1951 meeting of the GATT contracting parties, the Netherlands and
Denmark reiterated their objections to the measure.35 Denmark also noted that it agreed with the
remarks of the Canadian representative in an earlier speech that "it was obvious that defence
production and national security would seem to have little connection with the import control of
cheese."36 Italy, New Zealand, Norway, Australia, France, Canada, Finland, the United Kingdom and
Sweden also noted their opposition to the measure.37 Canada asserted that it was difficult "to find
any grounds for the action whatsoever".38 The United States did not contest that the measure
infringed the GATT 1947, and responded that Section 104 had been recommended as a last-minute
26 GATT Contracting Parties, Sixth Session, Item 21 – Termination of Obligations between the United
States and Czechoslovakia under the Agreement, Declaration Proposed by the Delegation of the United States,
GATT/CP.6/5/Add.2.
27 GATT Contracting Parties, Sixth Session, Item 30 – Imports Restrictions on Dairy Products into the
United States, Memorandum submitted by the Netherlands Delegation, GATT/CP.6/26; GATT Contracting
Parties, Sixth Session, Item 30 – Restrictions on Imports of Dairy Products into the United States,
Memorandum submitted by the United States Delegation, Addendum, GATT/CP.6/28/Add.1, p. 1; and
GATT Contracting Parties, Sixth Session, Item 30 – Restrictions on Imports of Dairy Products into the United
States, Memorandum submitted by the Danish Delegation, GATT/CP.6/28. See also GATT Contracting Parties,
Sixth Session, Summary Record of the First Meeting held on 17 September 1951, GATT/CP.6/SR.1, p. 4.
28 GATT Contracting Parties, Sixth Session, Item 30 - Restrictions on Imports of Dairy Products into the
United States, Memorandum submitted by the Danish Delegation, GATT/CP.6/28, para. 3.
29 GATT Contracting Parties, Sixth Session, Item 30 – Imports Restrictions on Dairy Products into the
United States, Memorandum submitted by the Netherlands Delegation, GATT/CP.6/26, p. 3; and
GATT Contracting Parties, Sixth Session, Item 30 – Restrictions on Imports of Dairy Products into the
United States, Memorandum submitted by the Danish Delegation, GATT/CP.6/28, para. 3.
30 GATT Contracting Parties, Sixth Session, Item 30 – Restrictions on Imports of Dairy Products into the
United States, Memorandum submitted by the United States Delegation, Addendum, GATT/CP.6/28/Add.1,
p. 1.
31 Ibid. pp. 4 and 7.
32 Ibid. p. 3.
33 Ibid. p. 6.
34 Ibid.
35 GATT Contracting Parties, Sixth Session, Summary Record of the Tenth Meeting held on
24 September 1951, GATT/CP.6/SR.10, pp. 3-4.
36 Ibid. p. 4.
37 Ibid. pp. 4-7. Czechoslovakia also noted that while it did not particularly suffer from the measure in
question, it hoped that the contracting parties would always be prepared to defend the spirit of the GATT.
(Ibid. p. 7.)
38 Ibid. p. 6.
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amendment by a committee "which had limited acquaintance with international problems".39 The
United States asserted that the measure should be regarded as an "isolated incident and must not
be held as an indication of any reorientation of the basic policy of the United States".40 The
United States noted that vigorous efforts were being made by the executive branch to secure the
repeal of the measure, and asked that its government be given the opportunity to complete this
action.41 The Council agreed to keep this matter on its agenda.42
1.13. At the October 1951 meeting of the GATT contracting parties, a resolution was adopted
affording the United States a reasonable period of time to repeal the measure, subject to a reporting
obligation.43 In 1952, the United States provided a report noting that Section 104 had been revised
but not repealed.44 At the October 1952 meeting of the GATT contracting parties, several contracting
parties expressed their continuing opposition to the measure.45 The United States acknowledged
that the measure was inconsistent with the GATT 1947 and noted that it would not object to other
contracting parties withdrawing reasonably necessary concessions.46 The GATT CONTRACTING
PARTIES agreed to convene a Working Party to examine the issue.47 In November 1952, the Working
Party recommended that the GATT contracting parties authorize the Netherlands to impose a
retaliatory quota on wheat flour from the United States.48 This recommendation was adopted as a
resolution at the November 1952 meeting of the GATT CONTRACTING PARTIES.49
1.14. The GATT CONTRACTING PARTIES re-authorized this retaliatory quota on an annual basis
until 1959, pursuant to the recommendations of subsequent Working Parties.50
39 GATT Contracting Parties, Sixth Session, Summary Record of the Tenth Meeting held on
24 September 1951, GATT/CP.6/SR.10, pp. 7-8.
40 Ibid. p. 8.
41 Ibid.
42 Ibid. p. 9.
43 GATT Contracting Parties, Sixth Session, Summary Record of the Twenty-Seventh Meeting held on
27 October 1951, GATT/CP.6/SR.27, p. 8. For the draft resolution, see GATT Contracting Parties, Sixth Session,
Item 30 – Resolution of the Contracting Parties on the United States Import Restrictions on Dairy Products
imposed under Section 104 of the United States Defence Production Act, Proposal by the Chairman after
Consultation with Interested Delegations, GATT/CP.6/51. For the adopted resolution, see GATT Contracting
Parties, Decisions, Declarations and Resolutions of the Contracting Parties at the Special Session held on
March-April 1951 and the Sixth Session held on September-October 1951, GATT/CP/130, pp. 14-15.
44 See GATT Contracting Parties, United States' Restrictions on Dairy Products, Report by the United
States Government pursuant to the Resolution of 26 October 1951, L/19, p. 1. See also GATT Contracting
Parties, United States' Restrictions on Dairy Products, Supplementary Report by the United States Government
pursuant to the Resolution of 26 October 1951, L/19/Add.1.
45 See GATT Contracting Parties, Seventh Session, Summary Record of the Tenth Meeting held on
28 October 1952, SR.7/10, pp. 2-8. The Netherlands, New Zealand, Denmark, Canada, Italy, Norway, Cuba,
Australia, United Kingdom, India, Czechoslovakia and South Africa expressed objections to the measure, and
Pakistan expressed gratitude that the United States had taken some steps to mitigate the effects of the
restrictions. (Ibid.)
46 Ibid. pp. 8-9.
47 Ibid. p. 9.
48 Working Party 8 on Netherlands Action under Article XXIII:2, Report to the Contracting Parties, L/61,
p. 3. The Netherlands had requested that it be allowed to impose an upper limit of 57,000 metric tons on the
import of wheat flour, but the Working Party recommended that the Netherlands impose an upper limit of
60,000 metric tons. (Ibid. pp. 1-3.)
49 GATT Contracting Parties, United States Import Restrictions on Dairy Products, Draft Resolution, L/59;
and GATT Contracting Parties, Seventh Session, Summary Record of the Sixteenth Meeting held on
8 November 1952, SR.7/16, p. 7.
50 Negotiating Group on Dispute Settlement, Communication from the United States,
MTN.GNG/NG13/W/40, fn 4 to p. 9. See also GATT Contracting Parties, United States Restrictions on Dairy
Products, Resolution Proposed for Adoption by the CONTRACTING PARTIES, L/154; GATT Contracting Parties,
United States Import Restrictions on Dairy Products, Resolution of 5 November 1954, L/280; GATT Contracting
Parties, Tenth Session, Report of the Working Party, Waiver Granted to the United States in Connexion with
Import Restrictions Imposed under Section 22 of the United States Agricultural Adjustment Act, L/464;
GATT Contracting Parties, Eleventh Session, Waiver Granted to the United States in Connexion with Import
Restrictions Imposed under Section 22 of the United States Agricultural Adjustment Act, Report of the Working
Party, L/590; GATT Contracting Parties, Twelfth Session, United States Import Restrictions on Agricultural
Products, Report by the Working Party on Agricultural Waivers, L/754; and GATT Contracting Parties,
Thirteenth Session, United States Import Restrictions on Agricultural Products, Report by the Working Party on
Agricultural Waivers, L/918.
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United States – Section 232 of the Trade Expansion Act (1968)
1.15. In 1968, the United Kingdom and Japan submitted a notification to the Committee on Trade
in Industrial Products expressing concern that certain powers given to the President of the
United States under the Trade Expansion Act of 1962 could disrupt foreign trade.51 During the
Committee's first examination of the notified barriers in 196952, Japan expressed concern over the
"lack of a definition of 'security'" and "the wide discretion as to form of action and the lack of a timelimit
for carrying out investigations" under the Trade Expansion Act of 1962.53 The United States
responded that the legislation "was in conformity with Article XXI", and pointed out that "the
existence of an institutional framework for national security cases could be regarded as a safeguard,
since it ensured full consideration of the merits of each case before action was taken."54 In 1970, at
the next examination of these notifications by a Working Group convened for this purpose, the
Working Group concluded that there was a "divergence of view as to the meaning and scope of
certain essential concepts in the GATT, in particular … the scope of some of the exceptions …
especially Articles XX and XXI".55
1.16. In 1970, the Joint Working Group on Import Restrictions was notified of a global quota
maintained by the United States on petroleum oil products.56 At the April 1970 meetings of the
Joint Working Group57, the European Communities and Canada asserted that they considered these
restrictions to be inconsistent with the GATT 1947.58 The European Communities did not accept that
these restrictions could be justified by national security considerations and considered that the
restrictions had been applied to the benefit of the petroleum industry of the United States.59 The
European Communities also asserted that a recent US Task Force had given arguments against the
maintenance of the system for security reasons.60 The United States responded that the restrictions
had been applied under Section 232 of the Trade Expansion Act of 1962 "in accordance with
Article XXI", given the "high degree of industrialization of the United States as well as its remoteness
from some major oil supplying countries".61
See also GATT Contracting Parties, Report of the Working Party on Italian Import Restrictions, L/1468,
paras. 5-6. In 1961, a Working Party was convened to examine a variety of Italian import restrictions and
prohibitions. Before the Working Party, Italy asserted that prohibitions or restrictions on certain items were
justified under the "provisions of Article XX or Article XXI of the General Agreement". (Ibid. para. 5.) The
Working Party did not respond specifically to this invocation, but noted in general that they deplored "the
continued use of discriminatory restrictions for which no justification could be found". (Ibid. para. 6.)
51 Committee on Industrial Products, Inventory of Non-Tariff Barriers, COM.IND/4, pp. 231-232. The
notification referred to "escape clause tariff action", or the powers under the Trade Expansion Act of 1962 to
increase the rate of import duty on any item in order to effect additional protection of a domestic industry.
(Ibid. p. 231.)
52 See Committee on Trade in Industrial Products, Note by the Secretariat on the Meeting of the
Committee held 19-25 June 1969, COM.IND/W/7, para. 1.
53 Committee on Trade in Industrial Products, First Examination of Part 4 of the Inventory of
Non-Tariff Barriers, Part 4 – Specific Limitations on Imports and Exports, COM.IND/W/12, p. 269.
54 Ibid. pp. 269-271.
55 Committee on Trade in Industrial Products, Draft Report of Working Group 4 on Non-Tariff Barriers,
Examination of Items in Part 4 of the Illustrative List (Specific Limitations on Trade), Revision,
Spec(70)48/Rev.1, para. 4; and Committee on Trade in Industrial Products, Report of Working Group 4 on
Non-Tariff Barriers, Examination of Items in Part 4 of the Illustrative List (Specific Limitations on Trade),
COM.IND/W/49, para. 5.
56 Joint Working Group on Import Restrictions, Import Restrictions, Addendum, Industrial Products,
L/3377/Add.2, pp. 1-2; and Committee on Trade in Industrial Products, Working Group 4, Specific Limitations,
COM.IND/W/28, p. 4. The United States had limited imports to 12 per cent of domestic production. (See Joint
Working Group on Import Restrictions, Notes on Individual Import Restrictions, COM.IND/W/28/Add.1, p. 49.)
Notifications could be provided to the Joint Working Group by countries maintaining the restrictions as well as
their trading partners. (Joint Working Group on Import Restrictions, Report of the Joint Working Group on
Import Restrictions, L/3391, para. 5.)
57 Ibid. para. 1.
58 Committee on Trade in Industrial Products, Joint Working Group on Import Restrictions, Notes on
Individual Import Restrictions, COM.IND/W/28/Add.1, p. 49. During these meetings, there was also debate on
whether certain restrictions maintained by Japan and Switzerland on various fissile chemical elements could be
justified under Article XXI. (Ibid. pp. 71 and 73.)
59 Ibid. p. 49.
60 Ibid.
61 Ibid.
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1.17. Although the Council agreed that the Joint Working Group on Import Restrictions should
continue its review of import restrictions, the Joint Working Group did not meet again after 1970.62
Austria – Penicillin and Other Medicaments (1970)
1.18. In 1970, the Joint Working Group on Import Restrictions was notified of certain restrictions
maintained by Austria on penicillin, tyrothricin and related medicaments, which took the form of
either import licensing restrictions or quotas.63 At the April 1970 meetings of the
Joint Working Group64, a question was posed to Austria as to "what part of Article XXI might cover
this restriction".65 Austria responded that it regarded the restriction to be necessary under
Article XXI(b)(ii) of the GATT 1947 "in order to have available a local source of supply in case of
emergency".66 In 1971, these restrictions were considered again by the Group of Three.67
The Group of Three noted Austria's explanation that the restrictions were maintained for defence
reasons, but concluded that as "other countries find it possible to do without restrictions, it should
… be possible for Austria to do the same".68 In 1972, these restrictions were considered again by
the Group on Residual Restrictions.69 At the January 1972 meeting of the Group, the United States
recalled the recommendation of the Group of Three that Austria should eliminate the restrictions on
these products "as other countries did not find it necessary to maintain them for security or other
reasons".70 At the July 1972 session of the Committee on Trade and Development, in the context of
discussions on the Second Report of the Group of Three71, Austria asserted that it would not be
possible to liberalize imports of these products "for reasons previously stated", but noted that
"sympathetic consideration would be given in this connexion to any trade problems faced by
developing countries."72
62 See Group on Quantitative Restrictions and Other Non-Tariff Measures, Past GATT Activities Relating
to Quantitative Restrictions and Other Non-Tariff Measures, Background Note by the Secretariat, NTM/W/2,
para. 13.
63 Joint Working Group on Import Restrictions, Import Restrictions, L/3377, pp. 23-24; and Committee
on Trade in Industrial Products, Working Group 4, Specific Limitations, COM.IND/W/28, p. 6. The Joint Working
Group's documents from April 1970 and November 1970 label these restrictions as "global quotas", but
documents from June 1970 label these as "discretionary licensing" restrictions. (Joint Working Group on Import
Restrictions, Import Restrictions, L/3377, pp. 23-24; Committee on Trade in Industrial Products, Working
Group 4, Specific Limitations, COM.IND/W/28, p. 6; and Committee on Trade in Industrial Products, Joint
Working Group on Import Restrictions, Table of Import Restrictions (Chapters 25-99), COM.IND/W/28/Rev.2,
p. 8.) Later documents from the Group on Residual Restrictions appear to clarify that these products were
subject to either import licensing restrictions or global quotas. (See Group on Residual Restrictions, Additional
Products Suggested for Examination, Note by the Secretariat, COM.TD/W/140, p. 14; and Group on Residual
Restrictions, Proceedings of the Meeting of the Group held on 24-25 January 1972, Note by the Secretariat,
COM.TD/85, para. 58.)
64 Joint Working Group on Import Restrictions, Report of the Joint Working Group on Import
Restrictions, L/3391, para. 1.
65 Joint Working Group on Import Restrictions, Notes on Individual Import Restrictions,
COM.IND/W/28/Add.1, p. 95.
66 Ibid. Although the Council agreed that the Joint Working Group on Import Restrictions should
continue to annually or biennially review such import restrictions, the Joint Working Group did not meet again
after 1970. (See Group on Quantitative Restrictions and Other Non-Tariff Measures, Past GATT Activities
Relating to Quantitative Restrictions and Other Non-Tariff Measures, Background Note by the Secretariat,
NTM/W/2, para. 13.)
67 See Group on Quantitative Restrictions and Other Non-Tariff Measures, Past GATT Activities Relating
to Quantitative Restrictions and Other Non-Tariff Measures, Background Note by the Secretariat, NTM/W/2,
para. 14. The Group of Three was convened by the Committee on Trade and Development, and consisted of
the Chairman of the contracting parties, the Chairman of the Council and the Chairman of the Committee on
Trade and Development. (See Committee on Trade and Development, Report of the Committee on Trade and
Development to the Contracting Parties, L/3487, para. 9.)
68 Group of Three, Preliminary Report of the Group of Three, W(71)2, p. 23; and Group of Three,
Report of the Group of Three, L/3610, p. 21.
69 Group on Residual Restrictions, Note on Proceedings of the Meeting of the Group held on
24-25 January 1972, Prepared by the Secretariat, COM.TD/85, para. 1.
70 Ibid. para. 58.
71 The Group of Three had noted in their Second Report that Austria had not "found it possible so far to
liberalize imports of penicillin, tyrothricin and medicaments as recommended in L/3610". (Group of Three,
Second Report, L/3710, p. 20.)
72 Committee on Trade and Development, Proceedings of the Twenty-First Session, Note Prepared by
the Secretariat, COM.TD/87, para. 13.
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1.19. Austria continued to maintain certain restrictions on penicillin and related medicaments until
December 1990, when these were abolished as part of the Uruguay Round negotiations at the
request of the United States.73
Sweden – Import Restrictions on Certain Footwear (1975)
1.20. In 1975, Sweden notified the GATT Council of its intention to introduce a global import quota
system for leather shoes, plastic shoes and rubber boots. Sweden advised that it was introducing
this system "in order to allow time to remedy the serious difficulties that have arisen in this sector
of the industry", referring to downward trends in the Swedish shoe industry that had begun in the
1960s and had accelerated during the 1970s.74 Sweden considered that the reasons underlying this
development were the relatively high production costs in Sweden, combined with the traditional
liberal trade policy pursued by the Swedish Government, which thereby encouraged and made
possible a very substantial increase in the volume of imports. Sweden considered that "[t]he
continued decrease in domestic production has become a critical threat to the emergency planning
of Sweden's economic defence as an integral part of its security policy."75 Sweden's security policy
necessitated the maintenance of a minimum domestic production capacity in vital industries, such
capacity being considered by Sweden to be "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".76 At the October 1975 meeting of the GATT Council, several contracting parties expressed
concern at the Swedish decision, taken at a time of high unemployment in their own countries.77
They noted that Sweden had not provided a detailed economic justification for the measures, and
expressed doubts as to the justification for these measures under the GATT.78 Sweden responded
that it considered the measure to be taken in conformity with "the spirit of Article XXI", but added
that it did not wish to deprive contracting parties of the possibility to consult and therefore declared
its readiness to consult bilaterally with interested contracting parties even if such a consultation was
not formally required by Article XXI.79 Many delegations reserved their rights under the GATT and
took note of Sweden's offer to consult.80
1.21. In March 1977, Sweden notified the GATT Council that it intended to terminate the quotas in
respect of leather shoes and plastic shoes as of 1 July 1977.81
European Communities v. Argentina (1982)
1.22. In 1982, Argentina brought to the GATT Council's attention the suspension by the European
Communities, Canada and Australia of imports from Argentina.82 Argentina noted that there had
73 See Committee on Trade and Development, Action by Governments Relevant to the Provisions of
Part IV, Addendum, COM.TD/W/170/Add.7, p. 2; Group on Quantitative Restrictions and Other Non-Tariff
Measures, Inventory of Non-Tariff Measures (Industrial Products), Part IV, Specific Limitations, NTM/INV/IV,
Inventory Number IV.A.4; Group of Negotiations on Goods, Communication from Austria, Uruguay Round –
Market Access, MTN.GNG/NG1/W/63, p. 2; and GATT Council, Trade Policy Review Mechanism, Austria, Report
by the Secretariat, C/RM/S/19A, para. 46.
74 Communication from Sweden, Sweden – Import Restrictions on Certain Footwear, L/4250, paras. 1
and 3.
75 Ibid. para. 4. See also GATT Council, Minutes of Meeting held on 31 October 1975, C/M/109, p. 8;
and GATT Council of Representatives, Thirty-First Session, Report on Work since the Thirtieth Session, L/4254,
pp. 17-18.
76 Communication from Sweden, Sweden – Import Restrictions on Certain Footwear, L/4250, para. 4.
See also GATT Council, Minutes of Meeting held on 31 October 1975, C/M/109, p. 9.
77 Ibid.
78 Ibid. See also GATT Council of Representatives, Thirty-First Session, Report on Work since the
Thirtieth Session, L/4254, p. 18.
79 GATT Council, Minutes of Meeting held on 31 October 1975, C/M/109, p. 9.
80 Ibid. See also GATT Council of Representatives, Thirty-First Session, Report on Work since the
Thirtieth Session, L/4254, p. 18.
81 Communication from Sweden, Sweden – Import Restrictions on Certain Footwear, Addendum,
L/4250/Add.1. Relatedly, at the December 1983 meeting of the Group on Quantitative Restrictions and Other
Non-Tariff Measures, it was recorded by the Secretariat that some delegations wondered "how a discriminatory
restriction, such as that imposed by one contracting party on imports of footwear, could be compatible with the
provisions of Article XXI". (Group on Quantitative Restrictions and Other Non-Tariff Measures, Meeting held on
5-8 December 1983, Note by the Secretariat, NTM/5, para. 27.)
82 Communication from Argentina, Trade Restrictions Affecting Argentina Applied for Non-Economic
Reasons, L/5317.
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been no pronouncement by the UN Security Council authorizing the application of Article XXI(c) of
the GATT.83 Argentina stated that the measures adopted by the European Communities (other than
the United Kingdom), Canada and Australia were entirely without justification, coming from countries
with which the Argentine Republic had maintained relations. Such measures therefore constituted a
hostile act and "flagrant economic aggression".84 Further, such measures were not derived from any
"economic or commercial issue", but from the unjustified interference in a long-standing territorial
dispute in the region of the Malvinas Islands.85 Argentina stated that the measures adopted by the
United Kingdom similarly had no justification, even under Article XXI(b) of the GATT, since the
Security Council resolution which had recognized that there was a breach of the peace situated the
problem solely in the region of the Malvinas Islands, and consequently the metropolitan territory of
the United Kingdom was not affected.86 The European Communities, Canada and Australia issued a
joint communication stating that they had taken the measures at issue in light of the situation
addressed in UN Security Council Resolution 502, on the basis of their "inherent rights of which
Article XXI of the General Agreement is a reflection".87
1.23. At the May 1982 meeting of the GATT Council, Argentina reiterated that the measures were
not applied for "economic and trade reasons", but were based on reasons of a "political nature and
were meant to exert political pressure on the sovereign decisions of Argentina in order to intervene
in a conflict in which only one of the countries was involved".88 Argentina stressed that
UN Security Council Resolution 502 had not asked for or authorized the adoption of any measures
such as the trade sanctions taken, nor were the measures justified under Article XXI.
Argentina considered that the "concerted coercive action" taken by a number of economically
powerful countries violated the letter and the spirit of the GATT.89 The European Communities
stressed that the measures were taken on the basis of their inherent rights, of which Article XXI was
a reflection, and did not require notification, justification or approval, as confirmed by 35 years of
implementation of the GATT.90 Canada stated that the situation which had necessitated the measures
needed to be resolved by appropriate action outside the GATT, as the GATT had neither the
competence nor the responsibility to deal with the political issue that had arisen. Canada also noted
that Article XXI did not contain a definition of "essential security interests", and that many
contracting parties had taken the same or similar actions for political reasons. In the present case,
the action had been taken to encourage a peaceful settlement by temporarily suspending the normal
operation of some provisions of the GATT. Canada considered that the fact that the action had been
taken was not really unprecedented; what was unprecedented was the examination of the action in
the GATT.91 Australia endorsed the statements of the European Communities and Canada, and stated
that the Australian measures were in conformity with the provisions of Article XXI(c), which did not
require notification or justification.92
1.24. Peru, Brazil, Uruguay, Zaire, Colombia, Dominican Republic, Cuba, Pakistan, Romania and
Poland expressed opposition to, or concern at, what they considered was a dangerous precedent
involving the use by contracting parties of trade and economic measures for non-trade reasons, and
which were not justified under the GATT.93 India, Yugoslavia, Indonesia, Hungary and
83 Communication from Argentina, Trade Restrictions Affecting Argentina Applied for Non-Economic
Reasons, L/5317, para. III.
84 Ibid. para. IV.
85 Ibid. Argentina referred in this regard to UN Resolutions 2065 (XX), 3160 (XXVIII) and 31/49 (XXXI).
(Ibid.)
86 Ibid. para. V.
87 Communication from the Commission of the European Communities, Australia and Canada, Trade
Restrictions Affecting Argentina Applied for Non-Economic Reasons, L/5319/Rev.1, para. 1(b).
88 GATT Council, Minutes of Meeting held on 7 May 1982, C/M/157, p. 2.
89 Ibid. p. 4.
90 Ibid. p. 10.
91 Ibid. pp. 10-11.
92 Ibid. p. 11.
93 Ibid. pp. 4-9. For example, Brazil drew attention to subparagraph (iii) of Article XXI(b), and stated
that the present case could set a dangerous precedent if the measures were considered necessary for the
protection of essential security interests taken in time of war or other emergency in international relations,
because such interests had not been demonstrated. While this matter could be considered to be an emergency
in international relations, Brazil stressed that this was the case only in respect of the region in question, as
defined by the Security Council, whose action had a bearing on the GATT in light of Article XXI(c). Brazil also
stated that it was difficult to accept that the countries in question, except for one, were taking this action in
protection of their essential security interests. (GATT Council, Minutes of Meeting held on 7 May 1982,
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Czechoslovakia considered more generally that the GATT Council should approach the issues in this
case with caution.94 Japan also considered that the interjection of political elements into GATT
activities would not facilitate the Organization's carrying out of its functions.95
1.25. The Philippines noted that UN Security Council Resolution 502 referred only to Argentina and
the United Kingdom, while the joint communication issued by the European Communities, Canada
and Australia gave the impression that the European Communities, Canada and Australia had taken
these measures in the exercise of their inherent rights, of which Article XXI was a reflection. The
Philippines questioned this argument as applied to the European Communities, which was not a
contracting party to the GATT 1947.96 Spain considered that the actions of the United Kingdom could
be justified under Article XXI(b)(iii), but had doubts that the same could be said for other States,
which were not technically in the same position as the United Kingdom with respect to Argentina.97
1.26. The United States considered that, regrettably, contracting parties had in the past used
sanctions involving trade in the context of their security interests as they perceived them. However,
the GATT had never been the forum for resolution of disputes whose essence was security and not
trade, and for good reasons, such disputes had seldom been discussed in the GATT, which had no
power to resolve political or security disputes. Trade measures could not be "split off" as if taken in
a vacuum, since the specific justification of international measures could not be discussed in the
context of broadly embargoed trade.98 The United States also expressed the view that the GATT, by
its own terms, left it to each contracting party to judge what was necessary to protect its essential
security interests in time of international crisis. This was wise, since no country could participate in
the GATT if in doing so it gave up the possibility of using any measures, other than military, to
protect its security interests.99 New Zealand questioned whether the GATT was the appropriate body
in which the circumstances that had led to the imposition of economic sanctions should be debated.
New Zealand stated that it has also imposed sanctions on Argentina for reasons similar to those
given by the European Communities, Canada and Australia. New Zealand considered that it had an
inherent right as a sovereign state to take such action and that such actions were in conformity with
New Zealand's rights and obligations under the GATT.100 Singapore expressed the view that the
wording of Article XXI allowed a contracting party the right to determine the need for protection of
its essential security interests, while also recognizing the danger of a broad interpretation of
Article XXI.101 Norway also considered that the European Communities, Canada and Australia did
not contravene the GATT in taking the measures in question.102
1.27. At the June 1982 meeting of the GATT Council, Argentina formally requested an interpretation
of Article XXI of the GATT 1947: (a) to know whether Article XXI exempted contracting parties from
obligations regarding notification and surveillance procedures; (b) to determine the natural rights
which could be inherent for contracting parties and had been invoked in relation to Article XXI in
general; (c) to establish whether any contracting party, including one not involved in a problem
between two other contracting parties, could interpret "per se" that there existed an emergency in
international relations as referred to in Article XXI(b)(iii) and consequently take unilateral measures;
and (d) to determine whether one or more contracting parties could take action under Article XXI(c)
without the prior existence of a specific provision adopted by the United Nations authorizing the
application of restrictive trade measures.103 This proposal was supported by a number of contracting
parties.104 Canada did not support the proposal, expressing the view that the case of Ghana was the
only appropriate precedent for the present case, and asserting that it provided an example of the
C/M/157, p. 5.) Pakistan did not consider the situation addressed by UN Security Council Resolution 502 to be
an "extreme" emergency in international relations, of the sort permitted under the spirit of the GATT. (GATT
Council, Minutes of Meeting held on 7 May 1982, C/M/157, p. 7.)
94 Ibid. pp. 7-9.
95 Ibid. p. 9.
96 Ibid. p. 7.
97 Ibid. p. 6.
98 Ibid. p. 8.
99 Ibid. p. 8.
100 Ibid. p. 9.
101 Ibid. p. 7.
102 Ibid. p. 10.
103 GATT Council, Minutes of Meeting held on 29-30 June 1982, C/M/159, pp. 15-16.
104 Brazil, Cuba, India, Uruguay, Colombia, Spain, Peru, Romania, Nigeria, Yugoslavia, the Philippines
and the Dominican Republic (with Venezuela and Ecuador as observers). (Ibid. pp. 17-18.)
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notion of national security being interpreted in a broad sense by the government of that country.105
Australia doubted the need for an interpretation of Article XXI, given its infrequent use thus far.106
The United States considered that debate in the Council would not serve a useful purpose, stressing
that the GATT had no role in a crisis of military force.107 Japan, New Zealand and Norway similarly
expressed doubts that a note interpreting Article XXI would lead to useful results.108
The European Communities suggested that if the Council were to adopt a decision, the proposal
should have a chance of obtaining a consensus.109 The Chair subsequently reported that informal
consultations with delegations to arrive at suggestions for resolving the matter had not resulted in
conclusions that could lead to such suggestions.110
The 1982 Decision regarding Article XXI
1.28. On 29 November 1982, the contracting parties adopted a Ministerial Declaration in which the
contracting parties decided, in drawing up their work program and priorities for the 1980s, to
"abstain from taking restrictive trade measures, for reasons of a non-economic character, not
consistent with the General Agreement".111 On 30 November 1982, the
GATT CONTRACTING PARTIES adopted a Decision Concerning Article XXI of the General Agreement
(1982 Decision), setting forth procedural guidelines for the application of Article XXI, until such time
as the GATT CONTRACTING PARTIES might decide to make a formal interpretation of Article XXI.112
Under the 1982 Decision, the GATT CONTRACTING PARTIES noted that: (a) the exceptions
envisaged in Article XXI "constitute an important element for safeguarding the rights of contracting
parties when they consider that reasons of security are involved"; (b) recourse to Article XXI could
constitute an element of disruption and uncertainty for international trade, and "affect benefits
accruing to contracting parties under the GATT"; and (c) consequently, "in taking action in terms of
the exceptions provided in Article XXI", contracting parties should take into consideration the
interests of third parties which might be affected. The GATT CONTRACTING PARTIES therefore
undertook to ensure that contracting parties should be informed to the fullest extent possible of
trade measures taken under Article XXI, and noted that all contracting parties affected by actions
taken under Article XXI retained their full rights under the GATT.113
United States – Imports of Sugar from Nicaragua (1983)
1.29. In 1983, the President of the United States announced that the United States would be
reducing Nicaragua's allocation of the total import quota for sugar. The President stated that by
denying to Nicaragua a foreign exchange benefit, the United States "hoped to reduce the resources
available to [Nicaragua] for financing its military build-up, and its support for subversion and
extremist violence in the region".114 This announcement was subsequently implemented pursuant to
the President's authority under the Tariff Schedules of the United States to give due consideration
to the interests of domestic producers in the sugar market.115
1.30. Following the announcement, Nicaragua requested consultations with the United States,
arguing that the measure would create "serious adverse trade effects".116 The consultations did not
achieve a mutually satisfactory solution, and Nicaragua subsequently requested the establishment
of a panel.117 At the July 1983 meeting of the GATT Council, the United States stated that "[t]he
motives for the measure were not strictly trade considerations; and it followed that any examination
105 GATT Council, Minutes of Meeting held on 29-30 June 1982, C/M/159, p. 18. For the statements of
Ghana referred to by Canada, see, e.g. GATT Contracting Parties, Nineteenth Session, Summary Record of the
Twelfth Session held on 9 December 1961, SR.19/12, p. 196.
106 GATT Council, Minutes of Meeting held on 29-30 June 1982, C/M/159, p. 19.
107 Ibid.
108 Ibid. p. 20.
109 Ibid. p. 21.
110 GATT Council, Minutes of Meeting held on 2 November 1982, C/M/162, p. 18.
111 GATT Contracting Parties, Thirty-Eighth Session, Ministerial Declaration adopted on 29 November
1982, L/5424, p. 3.
112 Decision Concerning Article XXI of the General Agreement of 30 November 1982, L/5426.
113 Ibid.
114 GATT Panel Report, US – Sugar Quota, L/5607, para. 2.3.
115 Ibid.
116 Communication from Nicaragua, US – Sugar Quota, L/5492.
117 Communication from Nicaragua, US – Sugar Quota, Recourse to Article XXIII:2 by Nicaragua,
L/5513.
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of this matter in purely trade terms would be sterile or disingenuous."118 The United States also
questioned the utility of resolving this issue by establishing a panel, stating that "[a] political solution
could resolve the trade aspect of this dispute; but a GATT panel could not appropriately examine or
assist in the resolution of the political or security issues that lay at its core."119 India considered that
the Council should follow established GATT practice and establish a panel, as Nicaragua had
requested a panel after fulfilling the proper procedures and that "[i]t was not for the Council to judge
the merits of the case at this stage."120
1.31. The Council agreed to establish a panel121, and the panel's composition and terms of reference
were announced at the October 1983 meeting of the GATT Council.122
1.32. Before the panel, Nicaragua argued that the United States had violated Articles II, XI and XIII
and Part IV of the GATT 1947 by reducing its sugar quota below the level agreed upon in the United
States schedule of concessions.123 Nicaragua also cited the "fundamental principle" embodied in
paragraph 7(iii) of the 1982 Ministerial Declaration that "no contracting party should use trade
measures to exert pressure for the purposes of solving non-economic problems."124 In response, the
United States argued that it was "neither invoking any exceptions under the provisions of the
General Agreement nor intending to defend its actions in GATT terms".125 In the view of the
United States, while the action did affect trade, it was not taken for trade-policy reasons.126
Consequently, any attempt to discuss the issue in purely trade terms, "divorced from the broader
context of the dispute", would be disingenuous.127 The panel considered that within its terms of
reference, it could examine the measures "solely in the light of the relevant GATT provisions,
concerning itself with only the trade issues under dispute", and therefore did not consider
Article XXI.128 The panel proceeded to conclude that the reduced sugar quota was inconsistent with
the United States' obligations under Article XIII:2 of the GATT 1994, and exercised judicial economy
over Nicaragua's other claims.129
1.33. At the March 1984 meeting of the GATT Council, Nicaragua commended the panel's findings
and added that it had been perplexed by "the US reasons for adopting the measure, the refusal to
have recourse to exceptions provided under the General Agreement, and the questioning of the
GATT's competence to examine this case".130 Nicaragua "wondered what would the United States
consider to be the competent forum for discussing the justification of a measure designed to restrict
access to a market which had the effect of reducing export earnings".131 The United States reiterated
its view that examination of the matter in purely trade terms within the GATT was disingenuous,
noting that "the reduction in Nicaragua's sugar imports had not secured any economic or trade
benefit for the United States."132 The United States added that while it would not object to the
adoption of the report, a resolution of its broader dispute with Nicaragua would be required before
it would remove the contested measure.133 Venezuela, Mexico and Argentina considered that the
US measure had contravened the Ministerial Declaration134, and Cuba, the Dominican Republic and
Switzerland criticized the United States for using economic measures to secure political objectives.135
Several contracting parties including Venezuela, Mexico and Brazil and the United Kingdom, on
behalf of Hong Kong reiterated the importance of positively resolving the case through the
118 GATT Council, Minutes of Meeting held on 12 July 1983, C/M/170, p. 12.
119 Ibid.
120 Ibid.
121 Ibid. p. 13. Colombia, Spain, Brazil, Singapore, Argentina, Switzerland and Finland (on behalf of the
Nordic countries) supported Nicaragua's request for a panel. (Ibid.)
122 GATT Council, Minutes of Meeting held on 3 October 1983, C/M/171, p. 12.
123 GATT Panel Report, US –Sugar Quota, L/5607, para. 3.1.
124 Ibid. para. 3.9.
125 Ibid. para. 3.10.
126 Ibid.
127 Ibid. para. 3.11.
128 Ibid. para. 4.1.
129 Ibid. paras. 4.3-4.6.
130 GATT Council, Minutes of Meeting held on 13 March 1984, C/M/176, p. 8.
131 Ibid.
132 Ibid.
133 Ibid.
134 Ibid. p. 9.
135 Ibid. p. 10.
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GATT's dispute settlement system.136 Argentina added that it could not understand why the Panel
had not examined the motivations for the measure outside of trade considerations, and that it
"regretted that the United States had been unable to advance any argument based on the
General Agreement to justify its measure".137 Poland stated its firm belief that no measure having
adverse trade implications for another contracting party could be dismissed as irrelevant for the
GATT.138
1.34. The Council took note of these statements and adopted the panel's report.139
1.35. At the May 1984 meeting of the GATT Council, Nicaragua noted that the United States had
recently increased its total sugar import quota without allocating any share of this increase to
Nicaragua.140 Nicaragua asked the United States to inform the Council of its intentions regarding the
recommendations of the contracting parties. The United States maintained its earlier position that
the lifting of the measures would first require a "resolution of the broader dispute".141 At the
November 1984 meeting of the GATT Council, Nicaragua noted that not only had the United States
failed to implement the panel's recommendations, it had once again applied a measure limiting
Nicaragua's sugar quota.142 Nicaragua noted that "[i]f the measure corresponded to security
considerations, Nicaragua wondered why the United States had not invoked Article XXI."143 The
United States maintained its previous position.144 The Council took note of these statements.145
European Communities v. Czechoslovakia (1985)
1.36. In 1985, Czechoslovakia notified the Group on Quantitative Restrictions and Other Non-Tariff
Measures that it considered Italy and the United Kingdom to be maintaining a discriminatory
embargo on exports of certain electronic products to Czechoslovakia.146 The United Kingdom and
Italy asserted that the measures were maintained under Article XXI(b) of the GATT 1947.147 In
1986, Czechoslovakia submitted an additional notification, responding to the United Kingdom that
"the imports of computers and related equipment … mentioned in the Czechoslovak notification are
not related to either fissionable materials or traffic in arms or to traffic in other goods carried on for
the purposes of supplying a military establishment."148 Czechoslovakia also asserted that "[t]he two
contracting parties in this case cannot be said to be in a state of belligerency or other emergency
situation."149 Czechoslovakia considered that the United Kingdom had not demonstrated "a genuine
causal link between its security interests and the trade action taken", and therefore did not consider
the action to be in conformity with the GATT 1947.150
136 GATT Council, Minutes of Meeting held on 13 March 1984, C/M/176, pp. 8-9.
137 Ibid. p. 9.
138 Ibid. p. 10.
139 Ibid. p. 11. Argentina, Australia, Brazil, Cuba, Colombia, Poland, India, Norway on behalf of the
Nordic countries, Uruguay, Dominican Republic, United Kingdom on behalf of Hong Kong, Hungary, Portugal,
Peru, Jamaica, Austria, Egypt, Romania, Switzerland, Chile, Singapore, Nigeria, Yugoslavia, Canada, Trinidad
and Tobago, Senegal and Zaire supported the adoption of the panel's report. (Ibid. p. 9.)
140 GATT Council, Minutes of Meeting held on 15-16 May 1984, C/M/178, p. 27.
141 Ibid. Argentina and Cuba expressed their concern with the United States' failure to comply with the
recommendations. (Ibid. pp. 27-28.)
142 GATT Council, Minutes of Meeting held on 6-8 and 20 November 1984, C/M/183, p. 65.
143 Ibid.
144 Ibid. Several contracting parties such as Argentina, Brazil, Cuba, Hungary, India, Uruguay and
Poland expressed their concern with the United States' ongoing failure to comply with the recommendations.
(Ibid. pp. 65-66.)
145 Ibid. p. 66.
146 Group on Quantitative Restrictions and Other Non-Tariff Measures, Inventory of Non-Tariff Measures
(Industrial Products), Addendum, NTM/INV/I-V/Add.10, Inventory Numbers IV.B.17.1 (p. 59 of PDF file) and
IV.B.18 (p. 61 of PDF file). Czechoslovakia characterized the measure maintained by Italy as an "embargo" on
exports of electronic systems to Czechoslovakia, and the measure maintained by the United Kingdom as an
embargo on exports of computers and related equipment. Italy responded that there was no embargo, but an
inter-ministerial Committee which examined each export license application. (Ibid.)
147 Ibid.
148 Group on Quantitative Restrictions and Other Non-Tariff Measures, Inventory of Non-Tariff Measures
(Industrial Products), Addendum, NTM/INV/I-V/Add.12, Inventory Number IV.B.18 (p. 9 of PDF file).
149 Ibid.
150 Ibid.
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United States v. Nicaragua (1985)
1.37. In 1985, the United States circulated a communication stating that it had imposed a complete
import and export embargo on Nicaragua and declared a national emergency due to the
extraordinary threat to national security posed by Nicaragua's policies and actions.151 At a special
meeting of the GATT Council requested by Nicaragua in May 1985, Nicaragua argued that this
measure "violated both the general principles and certain specific provisions" of the GATT 1947.152
Nicaragua argued that the US Administration, in declaring a national emergency to deal with a
perceived threat by Nicaragua, seemed to have lost any sense of proportion and was trying to
override the principles of international trade.153 Nicaragua said that it was absurd to suggest that it
could pose a threat to the national security of the United States, pointing to the relative power and
size of the two countries as well as the absence of any "armed conflict between the United States
and Nicaragua".154 Nicaragua also noted that "the United States, in stating to the Security Council
that its measures were principally intended to prevent Nicaragua from having the benefit of trading
with the United States, had thereby acknowledged that this was not a matter of national security
but one of coercion."155
1.38. The United States stated that it took the measures for "national security" reasons and that
the measures fell within the exception contained in Article XXI(b)(iii).156 The United States
emphasized that Article XXI left it to each contracting party to judge what measures it considered
necessary for the protection of its essential security interests.157 According to the United States, it
was not for the GATT to approve or disapprove this judgement.158 The United States also considered
that GATT, as a trade organization, had "no competence to judge such matters" and that its
effectiveness in addressing trade issues would only be weakened if it became a "forum for debating
political and security issues".159 Nicaragua responded that Article XXI "was not to be applied in an
arbitrary fashion" and required "some correspondence between the measures adopted and the
situation giving rise to their adoption".160 Nicaragua also considered that "since this matter involved
commercial and trade measures, the GATT, as the institution responsible for the conduct of
international trade, should express a view on this issue."161
1.39. Cuba, Argentina, Peru, Brazil, Spain, Czechoslovakia, Romania, Yugoslavia and Portugal
considered that the measures taken by the United States were incompatible with Article 7(iii) of the
1982 Ministerial Declaration162, and Poland, Chile, Hungary, Austria, Sweden, Switzerland, Jamaica
151 Communication from the United States, US – Nicaraguan Trade, L/5803. The measures were
embodied in an Executive Order issued by President Reagan, and comprised: (a) a prohibition on all imports
into the United States of goods and services of Nicaraguan origin; (b) a prohibition on all exports from the
United States of goods to or destined for Nicaragua; (c) a prohibition on Nicaraguan air carriers engaging in air
transport to or from points in the United States, and transactions relating thereto; and (d) a prohibition on
vessels of Nicaraguan registration from entering the United States' ports, and a prohibition on transactions
related thereto. (Communication from the United States, US – Nicaraguan Trade, L/5803, p. 2.)
152 GATT Council, Minutes of Meeting held on 29 May 1985, C/M/188, p. 2. Nicaragua specifically alleged
that the US measures contravened Articles I, II, V, XI, XIII, XXXVI, XXXVII and XXXVIII of the GATT 1947.
Nicaragua also alleged that US measures violated the spirit and provisions "of the UN Charter, the resolutions
of the UN General Assembly and Security Council, the decisions of the [ICJ], the Charter of the Organization of
American States, and other international instruments, including the Bilateral Treaty of Friendship, Commerce
and Navigation". (Ibid. p. 4.)
153 Ibid. p. 3.
154 Ibid. Nicaragua also criticized the refusal from the United States to enter into dialogue, as well as
"the US policy of force, serious threats of increased military aggression and disregard of international legal
provisions and of the bodies and tribunals responsible for ensuring their observance". (Ibid. p. 2.)
155 Ibid. p. 4. Nicaragua argued that "the measures had been taken as a form of coercion for political
reasons, and formed part of a US policy of political, financial, trade and military aggression against Nicaragua",
which included the mining of the country's ports and campaigns to prevent the harvesting of coffee and other
products. (Ibid. p. 2.)
156 Ibid. p. 4.
157 Ibid. pp. 4-5.
158 Ibid. p. 5.
159 Ibid. pp. 4-5.
160 Ibid. p. 16.
161 Ibid.
162 Ibid. pp. 5-7, 9, 10 and 12. See also Ministerial Declaration adopted on 29 November 1982, L/5424
(1982 Ministerial Declaration). Paragraph 7(iii) of the 1982 Ministerial Declaration provides that the GATT
CONTRACTING PARTIES, in drawing up the work programme and priorities for the 1980s, undertake,
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and China, as an observer, criticized the use of economic measures to secure political objectives.163
Argentina and Brazil additionally asserted that the measures were incompatible with the Charter of
the United Nations (UN Charter), and Argentina cited incompatibility with the 1982 Decision.164
1.40. Cuba, Poland and Chile asserted that the GATT was the proper forum for discussing disputes
with trade implications.165 Poland noted that this was required to ensure that "GATT's conciliatory
functions and responsibilities have practical meaning."166 Chile did not consider that an invocation
of Article XXI implied that the trade consequences of measures taken under it could not be discussed
under the GATT.167 Hungary noted that while ideally politics and trade should be kept separate, a
total separation was not realistic and was "evidenced by the provisions in the General Agreement
covering cases in which political and commercial considerations were in opposition".168
1.41. Canada conversely considered that "this was fundamentally not a trade issue", and urged the
two parties to seek a solution outside of the GATT context.169 The European Communities stated
that its concern was to protect the GATT multilateral system from being damaged by any
ill-considered development of a situation that could neither be dealt with nor settled in the GATT
framework.170 The European Communities agreed that the GATT was not the appropriate forum
because the US measures were only part of a broader situation and the GATT had never had the
authority or competence to settle "disputes essentially linked to security".171 Japan agreed that even
though "the issue now before the Council obviously had a trade aspect, that aspect stemmed from
deep roots and it had to be admitted that GATT was not competent to grapple with those roots".172
1.42. Spain and Czechoslovakia considered that the measures taken by the United States could not
be justified under the provisions of Article XXI.173 Cuba and Peru argued that Nicaragua could not
possibly threaten the security of the United States, and Cuba considered that the United States was
"putting forward various political pretexts, including a reference to Article XXI" in order to "punish
Nicaragua for not serving US interests".174 Cuba asserted that "recourse to Article XXI had to be
backed by certain facts" to effectively guarantee against an abuse of the GATT system.175
Brazil noted that the right to invoke Article XXI "should only be exercised in the light of other
international obligations such as those assumed under the UN Charter".176 Czechoslovakia stated
that the United States' interpretation of Article XXI would enable any contracting party wanting to
justify introduction of certain trade measures against any other contracting party to simply refer to
Article XXI and declare that its security was threatened. On the contrary, Czechoslovakia considered
that Article XXI "dealt with emergency situations and therefore had to be applied according to the
specific provisions in paragraphs b(i), (ii), or (iii)".177
1.43. India argued that "a contracting party having recourse to Article XXI(b)(iii) should be able to
demonstrate a genuine nexus between its security interests and the trade action taken; the security
exception should not be used to impose economic sanctions for non-economic purposes".178 India did
not consider that the United States had established such a nexus.179
1.44. Sweden agreed with the United States that it was "up to each country to define its essential
security interests under Article XXI", but noted that "contracting parties should be expected to
individually and jointly "to abstain from taking restrictive trade measures, for reasons of a non-economic
character, not consistent with the General Agreement".
163 GATT Council, Minutes of Meeting held on 29 May 1985, C/M/188, pp. 5-15.
164 Ibid. pp. 6-7. The 1982 Decision is discussed in paragraph 1.28 of this Appendix.
165 Ibid. pp. 5-8.
166 Ibid. p. 8.
167 Ibid.
168 Ibid.
169 Ibid. p. 12.
170 Ibid. p. 13.
171 Ibid.
172 Ibid. p. 14.
173 Ibid. pp. 9-10.
174 Ibid. pp. 5-6.
175 GATT Council, Minutes of Meeting held on 29 May 1985, C/M/188, p. 5.
176 Ibid. pp. 7-8.
177 Ibid. p. 10.
178 Ibid. pp. 10-11.
179 Ibid. p. 11.
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exercise their rights under that Article with utmost prudence."180 Finland, Switzerland, Norway,
Iceland, Egypt and Portugal expressed similar views.181 Sweden further considered that the
United States had not shown such prudence in choosing to give "a too far-reaching interpretation"
of Article XXI.182 The European Communities agreed that Article XXI "left to each contracting party
the task of judging what was necessary to protect its essential security interests", but noted that
such discretion should be exercised in a spirit of "responsibility, discernment, moderation, ensuring
above all that discretion did not mean arbitrary application".183
1.45. Australia stated that the United States was permitted under Article XXI "to take action of this
kind with no requirement to justify such action", noting that the UN Security Council was the
appropriate forum for the discussion of such issues. Nevertheless, Australia believed that contracting
parties should avoid any action which could threaten GATT's credibility and undermine attachment
to the principles of an open multilateral system. Australia considered that, while in principle,
Nicaragua retained its GATT rights, in practical terms the US action had rendered this right
inoperative.184 Canada expressed a similar view.185
1.46. Nicaragua circulated a draft decision to the contracting parties for their consideration, but the
Council agreed to defer any determination on this matter to its next meeting.186 Nicaragua
subsequently requested consultations with the United States in relation to this matter.187 At the
July 1985 meeting of the GATT Council, Nicaragua requested the establishment of a panel.188 The
United States reiterated the futility of resolving this issue through GATT procedures, as the trade
effects of the measure had already been acknowledged and the export embargo had removed any
opportunity for Nicaragua to retaliate.189 The United States considered Nicaragua's request for a
panel as "a further attempt … to politicize GATT".190 The United States also contended that under
Article XXI(b) a panel "could neither examine the national security reasons for the US action, nor
determine the appropriateness of invoking the security exception".191 The European Communities
considered that each party had to judge on its own whether to invoke Article XXI. The
European Communities questioned what a panel could do in this case, since it could not interpret
Article XXI and the United States had already recognized trade prejudice.192 The
European Communities said that it could not oppose a contracting party's request for a panel,
provided the terms of reference clearly did not include interpretation of Article XXI.193 Canada
expressed full agreement with the United States that only the individual contracting party itself could
judge questions involving national security, noting that a panel could not make that judgment.194
Nevertheless, Canada considered that measures taken under Article XXI could have trade effects
which could be considered by a GATT panel. Canada considered that every contracting party had a
right to request and to receive a hearing of a panel on any GATT-related issue, even where a panel
was unlikely to be able to make a useful finding. Canada agreed that a panel would serve no useful
purpose in the present case, since nullification and impairment of benefits had already been admitted
and Nicaragua had no means to retaliate under Article XXIII:2.195 The Council agreed to engage in
informal consultations and defer any determination on this matter to its next meeting.196
180 GATT Council, Minutes of Meeting held on 29 May 1985, C/M/188, p. 10.
181 Ibid. pp. 11-15.
182 Ibid. p. 10.
183 Ibid. p. 13.
184 Ibid. pp. 12-13.
185 Ibid. p. 12.
186 Ibid. p. 17.
187 Communication from Nicaragua, US – Nicaraguan Trade, L/5847.
188 GATT Council, Minutes of Meeting held on 17-19 July 1985, C/M/191, p. 41. Colombia, Argentina,
Poland, Uruguay, Peru, Brazil, Cuba, Chile, Spain, Romania, Jamaica, India, Hungary, Yugoslavia, Trinidad and
Tobago and Czechoslovakia, as well as Venezuela and Mexico as observers, supported Nicaragua's request to
establish a panel. (Ibid. p. 42.)
189 Ibid. p. 41.
190 Ibid. p. 42.
191 Ibid. p. 43.
192 Ibid. p. 44.
193 Ibid.
194 Ibid. p. 45.
195 GATT Council, Minutes of Meeting held on 17-19 July 1985, C/M/191, p. 45.
196 Ibid. p. 46.
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1.47. At the October 1985 meeting of the GATT Council, the United States agreed to the
establishment of a panel on the condition that it "could not examine or judge the validity of or
motivation for the invocation of Article XXI:(b)(3) by the United States".197 At the March 1986
meeting of the GATT Council, the panel was established with the aforementioned carve-out from its
terms of reference.198
1.48. Before the panel, Nicaragua argued that the embargo imposed by the United States had
deprived Nicaragua of benefits under Articles I:1, II, V, XI:1, XIII, XXIV, XXXVI, XXXVII and XXXVIII
of the GATT 1947.199 Nicaragua argued that the embargo therefore constituted a prima facie
nullification or impairment of benefits accruing to Nicaragua under the General Agreement.
Nicaragua stressed that whether the invocation of Article XXI(b)(iii) was justified or not, benefits
accruing to Nicaragua under the General Agreement had been seriously impaired or nullified as a
result of the embargo. Nicaragua argued that it had been recognized both by the drafters of the
General Agreement and by the contracting parties that an invocation of Article XXI did not prevent
recourse to Article XXIII. Nicaragua said that it had no reason to expect that an embargo would cut
off all trade relations with the United States when the United States' tariff concessions were
negotiated (i.e. between 1949 and 1961) and that the embargo had in fact nullified or impaired the
benefits accruing to Nicaragua under all of the trade-facilitating provisions of the General
Agreement.200
1.49. The United States reiterated its position that its actions were valid under Article XXI, but that
the panel could not in any event examine the validity of, nor the motivation for, its invocation of
Article XXI(b)(iii) within its terms of reference.201 The United States agreed that a measure not
conflicting with obligations under the General Agreement could be found to cause nullification and
impairment, and that an invocation of Article XXI did not prevent recourse to the procedure of
Article XXIII. However, the United States argued that nullification or impairment could not be
presumed in cases in which Article XXI was invoked.202 Rather, this was dependent on the facts and
circumstances of the particular case, including the expectations that the contracting party bringing
the complaint could reasonably have had when it negotiated its tariff concessions. The United States
did not consider it meaningful for the Panel to propose in the present case a ruling on the question
of whether nullification or impairment could be caused through measures under Article XXI.203
1.50. The panel stated that it had not considered the question of whether the terms of Article XXI
precluded it from examining the validity of the United States' invocation of that Article because this
examination was precluded by its mandate.204 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."205 In examining the embargo in the light of Article XXIII:1(b), the panel noted the
question of whether the nullification or impairment of the trade opportunities of Nicaragua through
the embargo constituted a nullification or impairment of benefits accruing to Nicaragua within the
meaning of Article XXIII:1(b). In the panel's view, this question raised basic interpretive issues
relating to the concept of non-violation and nullification and impairment which had not been
addressed by the drafters of the GATT or decided by the contracting parties. Against this background,
the panel felt that it would only be appropriate for it to propose a ruling on these issues if such a
197 GATT Council, Minutes of Meeting held on 10 October 1985, C/M/192, p. 6.
198 GATT Council, Minutes of Meeting held on 12 March 1986, C/M/196, p. 7. The agreed terms of
reference were as follows: "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)(3) 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". (Ibid.)
199 GATT Panel Report, US – Nicaraguan Trade, L/6053 (unadopted), para. 4.3.
200 Ibid. para. 4.8.
201 Ibid. para. 4.6.
202 Ibid. para. 4.9.
203 Ibid.
204 Ibid. para. 5.3.
205 Ibid.
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ruling would enable the contracting parties to draw practical conclusions from it in the case at
hand.206 The panel reasoned that, as long as the embargo was not found to be inconsistent with the
General Agreement, the United States would be under no obligation to follow a recommendation by
the contracting parties under Article XXIII:2 to withdraw the embargo.207 Moreover, even if it were
found that the embargo nullified or impaired benefits accruing to Nicaragua independent of whether
it was justified under Article XXI, the contracting parties could, in the circumstances of the present
case, take no decision under Article XXIII:2 that would re-establish the balance of advantages which
had accrued to Nicaragua under the General Agreement prior to the embargo. In the light of all
these considerations, the panel decided not to propose a ruling on the basic question of whether
actions under Article XXI could nullify or impair GATT benefits of the adversely affected contracting
party.208 However, the panel noted that embargoes such as those imposed by the United States,
independent of whether they were justified under Article XXI, ran counter to the basic aims of the
GATT 1994 and encouraged each contracting party to "carefully weigh[] its security needs against
the need to maintain stable trade relations".209
1.51. At the November 1986 meeting of the GATT Council, Nicaragua expressed disappointment
that the panel report had neither determined the level of nullification or impairment of
Nicaragua's rights under the GATT 1947, nor made any specific recommendations.210 Nicaragua also
noted that it "remained clear that the United States had imposed the embargo not for reasons of
security, but for political coercion" and noted that the case involved a "clear misuse of Article XXI".211
Nicaragua requested that the Council recommend a removal of the embargo, authorize special
support measures to compensate Nicaragua for damage caused by the embargo, and prepare an
interpretive note on Article XXI which would reflect the elements of this case.212 Nicaragua also
asked that in making such recommendations, the Council give consideration to the ruling of the
International Court of Justice (ICJ) "as proof that the conditions necessary for invoking Article XXI
had not been met".213 Nicaragua added that it could not support the adoption of the report until the
Council was in a position to make such recommendations.214
1.52. The United States said that the panel had reached sound conclusions in a difficult situation
and recommended that the Council adopt the report.215 The United States stated that it continued
to believe that this dispute should never have been brought to GATT. There were and had been
many instances of trade sanctions that had been imposed by various contracting parties for reasons,
it could be surmised, of national security. Rarely had those situations even been raised in GATT, and
never before had a party insisted on a panel, because contracting parties, including those against
whom sanctions had been imposed, had tacitly recognized that GATT, by its traditions, its
competence, and the terms of Article XXI, could not help resolve such matters, and that pressing
the issue would only weaken GATT's intended role.216 In this regard, the United States observed that
"GATT was not a forum for examining or judging national security disputes. When a party judged
trade sanctions to be essential to its security interests, it should be self-evident that such sanctions
would be modified or lifted in accordance with those security considerations."217 The United States
also agreed with the panel's decision not to address the "novel and delicate question of nullification
and impairment in a situation of Article XXI trade sanctions" when the outcome of such question
"could create a precedent of much wider ramifications for the scope of GATT rights and obligations
206 GATT Panel Report, US –Nicaraguan Trade, L/6053 (unadopted), para. 5.6.
207 Ibid. para. 5.9.
208 Ibid. para. 5.11.
209 Ibid. para. 5.16.
210 GATT Council, Minutes of Meeting held on 5-6 November 1986, C/M/204, p. 7. Uruguay, Nigeria,
Argentina, Colombia, Cuba, Peru, Hungary, Trinidad and Tobago, Czechoslovakia, Yugoslavia, Romania, Poland,
India, Mexico and Tanzania, as an observer, supported Nicaragua's request to lift the embargo. Uruguay,
Argentina, Colombia, Cuba, Peru, Hungary, Czechoslovakia, Yugoslavia and Romania supported Nicaragua's
request to take measures to compensate Nicaragua. Uruguay, Nigeria, Argentina, Colombia, Czechoslovakia,
Yugoslavia and Romania supported a re-examination of Article XXI in depth during the Uruguay Round
negotiations. (Ibid. p. 10.)
211 Ibid. p. 8.
212 Ibid.
213 Ibid. p. 7.
214 Ibid. p. 17.
215 Ibid. pp. 8-10.
216 Ibid. p. 8.
217 Ibid.
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but which would serve no useful purpose in the particular matter before the [p]anel".218 The
United States considered that nullification or impairment in situations where no GATT violation had
been found was a "delicate issue, linked to the question of 'reasonable expectations'."219 According
to the United States, 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.220
1.53. Chile noted that "Article XXI should be invoked only when absolutely necessary to protect
national security interests, and not to punish another contracting party."221 Nigeria stated that
Article XXI could only be invoked "in cases of a state of war or emergency", and that neither was
the case with the US embargo as "[t]he ICJ had found no evidence that Nicaragua's policies
threatened the United States and thus had found no justification for the embargo."222
Argentina asserted that it was clear to the international community at large that Article XXI had
been improperly invoked and that "the ICJ had confirmed that the US embargo was not compatible
with GATT."223 Peru rejected the use of trade measures for political coercion "unless such action was
approved by the UN Security Council" and noted that the UN General Assembly had condemned the
embargo.224 Colombia, Trinidad and Tobago and Czechoslovakia expressed similar views.225
Sweden expressed concern that the restricted terms of reference in this dispute should not prejudice
the mandate of future panels, noting that panels "should be able to examine all relevant
GATT Articles, including Article XXI".226 Jamaica also expressed concern that the restricted terms of
reference had been agreed upon without prior examination by the contracting parties.227
1.54. Hungary argued that Article XXI provided discretion to the contracting parties to judge
whether circumstances warranted its invocation, but noted that "the most powerful trading nations
should demonstrate the greatest self-restraint."228 The European Communities reiterated its view
that the United States "alone had the sovereign right to determine its national security interests",
and noted that Article XXI was an "essential safety valve" which the European Communities did not
support being subject to further interpretation, discussion, or negotiation either in the Council or in
the new round.229 That said, the European Communities also considered that the discretionary rights
inherent in Article XXI should not be arbitrarily invoked.230 Several GATT contracting parties also
reiterated views expressed at earlier meetings of the Council.231
1.55. The Council concluded that it could not adopt the panel's report without consensus, but agreed
for the Chair to engage in informal discussions and to keep this matter on its agenda.232
1.56. At the April 1987 meeting of the GATT Council, Nicaragua reiterated its position that it could
not support the adoption of the report until the Council was in a position to make
recommendations.233 It noted that such recommendations would need to consider the decisions of
other fora, in particular, the ICJ "which had concluded that the embargo was not necessary to protect
any US security interest, as well as Resolutions 40/188 and 41/164 of the United Nations General
218 GATT Council, Minutes of Meeting held on 5-6 November 1986, C/M/204, p. 9.
219 Ibid.
220 Ibid.
221 Ibid. p. 10.
222 Ibid. pp. 10-11. Nigeria also noted that "[a]ny action which clearly undermined the United Nations
Charter had to be seen as a gross abuse of rights conferred by the General Agreement." (Ibid.)
223 Ibid. p. 11.
224 Ibid. p. 13.
225 Ibid. pp. 12-14.
226 Ibid. pp. 11-12.
227 Ibid. p. 15.
228 Ibid. p. 13.
229 Ibid. p. 16.
230 Ibid.
231 Ibid. pp. 11-15. Sweden reiterated its view that it was the sole prerogative of each
GATT contracting party to determine whether or not to invoke Article XXI. Peru and Poland reiterated their
opposition to the use of trade measures for political reasons. India reiterated its view that a contracting party
having recourse to Article XXI should be able to demonstrate a genuine nexus between its security interests
and the trade action taken. Japan reiterated its view that the roots of the present dispute were too deep to be
addressed in the context of the General Agreement. (Ibid.)
232 Ibid. p. 17.
233 GATT Council, Minutes of Meeting held on 15 April 1987, C/M/208, pp. 17-18.
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Assembly which called for the immediate cessation of the embargo".234 Nicaragua also argued that
certain amendments that the United States had proposed to UN document A/C.2/41/L.2 suggested
that it did consider the GATT to have competence to rule on this matter.235
The United States maintained its earlier position that resolution of this matter did not lie within the
GATT and that the panel's findings confirmed this position. The United States reiterated that with
respect to this and other similar issues brought before the Council in the past, the GATT, by its
traditions, its competence, and the terms of Article XXI itself, could not resolve cases where trade
sanctions were imposed for national security reasons.236 The Council agreed to engage in informal
consultations and defer any determination on this matter to its next meeting.237
1.57. At the July 1987 meeting of the GATT Council, Nicaragua circulated a draft decision adopting
the panel report, but recommending that the United States take into consideration the negative
trade effects of the embargo and authorizing contracting parties wishing to do so to grant trade
concessions to Nicaragua.238 Nicaragua reiterated its view that "no one believed that Nicaragua was
a threat to any country's security" and that it "could not accept that the United States had the right
to invoke Article XXI and still less to impose the embargo".239 The United States maintained its
earlier position that resolution of this matter did not lie within the GATT and condemned
Nicaragua's draft resolution as politically motivated.240 The United States also asserted that the
panel's report had found that "the United States was under no obligation to remove the embargo",
and reiterated its position that the United States "had acted in full conformity with its GATT rights
and obligations".241 The Council agreed to engage in informal consultations and defer any
determination on this matter to its next meeting.242 At the November 1987 meeting of the
GATT Council, Nicaragua noted that the President of the United States had proposed that the
embargo be renewed for an additional six months.243 Nicaragua expressed its intention to request
that the contracting parties implement paragraph 21 of the Understanding Regarding Notification,
Consultation, Dispute Settlement and Surveillance at its Forty-Third Session.244 The Council took
note of these statements.245
1.58. At the June 1989 meeting of the GATT Council, Nicaragua noted that the President of the
United States had sent a message to Congress in April 1989 extending the national emergency and
economic sanctions against Nicaragua indefinitely.246 Nicaragua also read out an official
United States document stating that trade sanctions were an essential element of the United States
policy regarding Nicaragua, and that, in the United States' view, present conditions in Nicaragua did
not justify the lifting of trade sanctions.247 Nicaragua noted that this document "did not refer to the
protection of the United States' essential security interests, but exclusively to Nicaragua's internal
matters" and thus "infringed the fundamental principles of the United Nations Charter and other
instruments of international law" and could not be justified under Article XXI.248 Nicaragua called on
234 GATT Council, Minutes of Meeting held on 15 April 1987, C/M/208, p. 17.
235 Ibid. p. 18.
236 Ibid.
237 Ibid.
238 GATT Council, Minutes of Meeting held on 15-17 July 1987, C/M/212, pp. 24-25. Cuba supported the
adoption of this decision, and the European Communities, Switzerland, Canada, Australia, Austria, Japan,
Finland on behalf of the Nordic countries, Israel, Turkey, Singapore, Yugoslavia and Indonesia requested the
continuation of informal consultations aimed at seeking a consensus solution to this matter. An alternate text,
adopting the panel report but solely recommending that other parties grant trade concessions to Nicaragua,
was circulated by six Latin American countries. (Ibid. pp. 25-28. See also Communication from Argentina,
Brazil, Colombia, Mexico, Peru and Uruguay, US –Nicaraguan Trade, C/W/525.)
239 GATT Council, Minutes of Meeting held on 15-17 July 1987, C/M/212, p. 28.
240 Ibid. p. 25.
241 Ibid. p. 26.
242 Ibid. p. 29.
243 GATT Council, Minutes of Meeting held on 10-11 November 1987, C/M/215, p. 40.
244 Ibid.
245 Ibid. Several contracting parties including Nicaragua, the United States, Brazil, Cuba, Argentina,
Mexico, Colombia, Peru, Romania and Uruguay reiterated their views on the matter at the Fourth Meeting of
the Forty-Third Session. (See GATT Contracting Parties, Forty-Third Session, Summary Record of the Fourth
Meeting held on 2 December 1987, SR.43/4, pp. 12-16.)
246 GATT Council, Minutes of Meeting held on 21-22 June 1989, C/M/234, p. 37.
247 Ibid. The document went on to state that, if Nicaragua fulfilled its Esquipulas commitments and held
free, fair and open elections, this might resolve the emergency which had led the US Administration to impose
trade sanctions. (Ibid.)
248 Ibid. p. 38.
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the contracting parties to "impose a limit on the irresponsibility with which the United States had
claimed to interpret the provisions of Article XXI".249 Nicaragua also noted that it still could not
support the adoption of the panel's report, as to do so would create a dangerous precedent by
denying Nicaragua the right to have its complaint examined in accordance with Article XXIII:2.250
The United States expressed surprise that Nicaragua had brought this issue back to the Council some
two and a half years after the first consideration of the panel report, and renewed its request for the
adoption of the panel's report, as it believed no other resolution of the matter was realistic.251 The
United States also asserted that the panel "had confirmed that the United States was within its rights
to invoke Article XXI".252 The Council took note of these statements.253
1.59. In March 1990, Nicaragua circulated a communication noting that the United States had lifted
the embargo and other economic measures on Nicaragua.254 At the April 1990 meeting of the
GATT Council, Nicaragua welcomed the removal of the embargo, but noted that the dispute had
demonstrated that the GATT "did not have mechanisms to establish a proper balance between rights
and obligations".255 The United States stated that "in light of changed circumstances and recent
events, the conditions which had necessitated action under Article XXI of the General Agreement
had ceased to exist" and it had consequently terminated the embargo.256 The United States also
noted its intention to restore Nicaragua's sugar allocation.257 Cuba stated that the embargo "had
been imposed for political reasons and its lifting was a reminder of its political nature and coercive
character".258 The Council took note of the statements.259
1.60. The panel report in United States – Trade Measures Affecting Nicaragua was never adopted.260
Negotiating Group on GATT Articles
1.61. The Negotiating Group on GATT Articles also reviewed Article XXI in meetings in November
1987 and June 1988, on the basis of communications submitted by Nicaragua261, a Secretariat
background note262 and a communication submitted by Argentina.263 The Negotiating Group was
unable to agree on any of the proposals regarding Article XXI, and the Chairman's Report to the
Group of Negotiations on Goods did not list Article XXI among the provisions that it was
considering.264
249 GATT Council, Minutes of Meeting held on 21-22 June 1989, C/M/234, p. 41.
250 Ibid. p. 40.
251 Ibid. p. 38.
252 Ibid. The European Communities reiterated its view that invocation of Article XXI was at the
discretion of governments but that this "did not necessarily mean an arbitrary step or measure". (Ibid. p. 40.)
253 Ibid. p. 42. In a Decision of the GATT CONTRACTING PARTIES taken in April 1989, the contracting
parties agreed to implement a number of improvements to the GATT dispute settlement rules and procedures,
including the establishment of panels or working parties at the Council meeting following that at which the
request first appeared on the Council's regular agenda, unless at that meeting the Council decided otherwise.
(See Improvements to the GATT Dispute Settlement System Rules and Procedures, Decision of 12 April 1989,
L/6489, 13 April 1989 (the April 1989 Decision), section F(a). See also ibid., section F(b) on the establishment
of panels and working parties with standard terms of reference.) The procedural rules adopted under the
April 1989 Decision applied to the GATT Council discussions concerning European Communities v. Yugoslavia
(1991), discussed below, and the Helms-Burton legislation in 1996 (see discussion in United States v. Cuba
(including Helms-Burton Act) (1962-2016), while the equivalent rules under the DSU applied to the situation
involving Nicaragua and Honduras (also discussed further below).
254 Communication from Nicaragua, US – Nicaraguan Trade, L/6661.
255 GATT Council, Minutes of Meeting held on 3 April 1990, C/M/240, p. 31.
256 Ibid.
257 Ibid.
258 Ibid. p. 32. The European Communities reiterated its view that discretionary but not arbitrary use of
Article XXI was to be recommended. (Ibid.)
259 Ibid.
260 See GATT Council, Status of Work in Panels and Implementation of Panel Reports, Report of the
Director-General, C/172, p. 1.
261 Communication from Nicaragua, Negotiating Group on GATT Articles, MTN.GNG.NG7/W/34; and
Communication from Nicaragua, Negotiating Group on GATT Articles, MTN.GNG.NG7/W/39.
262 Article XXI, Note by the Secretariat, Negotiating Group on GATT Articles, MTN.GNG.NG7/W/16.
263 Communication from Argentina, Negotiating Group on GATT Articles, MTN.GNG.NG7/W/44.
264 Negotiating Group on GATT Articles, Status of Work in the Negotiating Group, Chairman's Report to
the GNG, MTN.GNG/NG7/W/73.
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Negotiations Leading to the Adoption of the April 1989 Decision (1988-1989)
1.62. As stated above265, the GATT CONTRACTING PARTIES jointly agreed, in adopting the
April 1989 Decision, that any panel or working party would be established at the GATT Council
meeting following the meeting at which the request first appeared on the Council's regular agenda,
unless at that meeting the Council decided otherwise.266 Prior to the adoption of the April 1989
Decision, trade ministers considered a proposal which provided that, where the Council could not
agree on whether a matter fell within the scope of Article XXIII of the GATT, a panel would make a
recommendation on the jurisdictional issue as a preliminary matter, with bracketed text stating
"including the question of whether the matter is appropriate for resolution through the panel
process".267 By 6 December 1998, a Secretariat note stated that this language in the proposal was
to be deleted. The final draft text of the report from the Trade Negotiations Committee Meeting
omitted this language and included only the text that formed part of the April 1989 Decision; namely,
that "a decision to establish a panel or working party shall be taken at the latest at the Council
meeting following that at which the request first appeared as an item on the Council's regular
agenda".268
European Communities v. Yugoslavia (1991)
1.63. In 1991, the European Communities circulated a communication stating that it had suspended
the benefit of certain trade concessions that had been granted to Yugoslavia on a preferential
basis.269 The European Communities referred in this context to its "vigorous efforts over recent
months to put a stop to bloodshed in Yugoslavia", including promoting cease-fire agreements which
unfortunately had not led to the "full cessation of hostilities".270 The European Communities stated
that the measures had been taken upon consideration of its "essential security interests and based
on GATT Article XXI", as it was faced with "continuing risks of political instability in this region of
Europe, with potentially destabilizing consequences elsewhere".271 In response, Yugoslavia
circulated a communication noting that it did not presently claim that the measures violated any
GATT provisions as "the majority do not relate to the contractual obligations under the GATT or could
be justified under Article XXI".272 However, Yugoslavia did express concerns about the negative trade
effects of the measure as well as the use of punitive economic measures to secure political
objectives.273 Yugoslavia also requested that it be notified of any additional measures pursuant to
the 1982 Decision, and noted that it reserved its rights under the GATT.274
1.64. Following this communication, Yugoslavia requested consultations with the
European Communities in relation to these and certain other measures.275 The consultations did not
265 See fn 253 of this Appendix.
266 See the April 1989 Decision, section F(a). See also ibid., section F(b) on the establishment of panels
and working parties with standard terms of reference.
267 Group of Negotiations on Goods, Report to the Trade Negotiations Committee meeting at Ministerial
level, Montreal, December 1988, MTN.GNG/13, pp. 59-60.
268 Trade Negotiations Committee Meeting at Ministerial Level, Montreal, December 1988, Trade
Negotiations Committee, MTN.TNC/7(MIN), 9 December 1988, p. 29; Mid-Term Meeting, Trade Negotiations
Committee, MTN.TNC/11, 21 April 1989, p. 27.
269 Communication from the European Communities, Trade Measures Taken by the European
Communities against the Socialist Federal Republic of Yugoslavia, L/6948, p. 1. The measures comprised:
(a) the suspension of the bilateral trade agreement between Yugoslavia and the European Communities,
(b) the reapplication of certain quantitative limitations on textile products from Yugoslavia, (c) withdrawal of
Generalized System of Preferences benefits from Yugoslavia, (d) suspension of the trade concessions granted
to Yugoslavia as part of the Treaty establishing the European Coal and Steel Community, and (e) suspension of
bilateral trade agreements between Member States of the European Communities and Yugoslavia. (Ibid. p. 2.)
270 Ibid.
271 Communication from the European Communities, Trade Measures Taken by the European
Communities against the Socialist Federal Republic of Yugoslavia, L/6948, p. 2.
272 Communication from Yugoslavia, Trade Measures Against Yugoslavia for Non-Economic Reasons,
L/6945, p. 2.
273 Communication from Yugoslavia, Trade Measures Against Yugoslavia for Non-Economic Reasons,
L/6945, pp. 2-3.
274 Ibid. p. 3. Yugoslavia also noted that it reserved its right to propose that the GATT contracting
parties issue a "formal interpretation" on Article XXI under this Decision. (Ibid.)
275 Request for consultations under Article XXIII:1 by Yugoslavia, EEC - Trade Measures Taken For
Non-Economic Reasons, DS27/1. In addition to the measures notified by the European Communities,
Yugoslavia also challenged a decision to apply selective positive measures in favour of "those parties which
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achieve a mutually satisfactory solution, and Yugoslavia subsequently requested the establishment
of a panel.276 In its request, Yugoslavia asserted that the measures were taken "for purely political
reasons" and were inconsistent with the GATT and paragraph 7(iii) of the
1982 Ministerial Declaration.277 Yugoslavia stated that the measures could not be justified under
Article XXI, as the situation in Yugoslavia did not correspond to the "notion or meaning" of
Article XXI(b) and Article XXI(c), and no relevant UN body had authorized economic sanctions
against Yugoslavia.278 At the February 1992 meeting of the GATT Council, Yugoslavia reiterated its
request for a GATT panel.279 The European Communities queried whether the withdrawal of
preferences violated Article I of the GATT, and noted that as the situation was delicate and
continually evolving, its primary objective was not to hamper the peace processes that had been
engaged in securing a political solution in Yugoslavia.280 The European Communities stated that it
was willing to engage in consultations, but that the establishment of a GATT panel "could only
exacerbate the problem".281 Yugoslavia's request for the establishment of a GATT panel was
supported by Chile, Cuba, and Venezuela.282 India also supported the request. It asserted that trade
measures for non-economic reasons should only be taken within the framework of a
UN Security Council decision, and noted that Yugoslavia's request "encompassed an issue which was
covered by GATT provisions".283 The Council agreed to revert to this matter at its next meeting.284
1.65. At the March 1992 meeting of the GATT Council, Yugoslavia reiterated its request for a
panel.285 Yugoslavia asserted that the continued discrimination by the European Communities was
wrong, as the peace process in Yugoslavia was proceeding well and the non-economic reasons
underlying the measures had "completely changed".286 The European Communities acknowledged
the right of Yugoslavia to request the establishment of a panel, but considered the timing to be
inopportune as the European Communities was "deeply involved" in the ongoing peace process and
did not consider that a panel established at the present time would aid that process.287
The European Communities recognized that under the April 1989 Decision, a panel had to be
established at the second Council meeting at which it was requested, unless at that meeting the
Council decided otherwise. The European Communities queried whether, given that the measures
had been taken for non-economic reasons, a different course of action could be taken, such as
establishing the panel but "delaying its activation subject to further clarity in the situation".288 The
European Communities also reserved its right to reflect further on what the standard terms of
reference should be in disputes involving measures taken for non-economic reasons.289
The United States affirmed Yugoslavia's right to request a panel, but noted that the problems that
had given rise to the measures were not capable of resolution by the Council and should be resolved
politically.290 Canada expressed similar views.291 New Zealand noted that while the GATT process
needed to be observed, the "trends in the political situation" should be ascertained before any GATT
contribute to progress towards peace". Yugoslavia asserted that this additional measure created a dangerous
precedent for GATT practice. (See Recourse to Article XXIII:2 by Yugoslavia, EEC - Trade Measures Taken For
Non-Economic Reasons, DS27/2, pp. 1-2.)
276 Request for consultations under Article XXIII:1 by Yugoslavia, EEC - Trade Measures Taken For
Non-Economic Reasons, DS27/1, p. 1. The request for establishment of a GATT panel was made pursuant to
Article XXIII:2 and also paragraphs C.1 and F(a) of the April 1989 Decision. (See fn 253 of this Appendix.)
277 See Recourse to Article XXIII:2 by Yugoslavia, EEC - Trade Measures Taken For Non-Economic
Reasons, DS27/2, p. 2. Yugoslavia specifically alleged that the measures contravened, inter alia, Articles I and
XXI of the GATT 1947. (Ibid.)
278 Ibid. p. 2.
279 GATT Council, Minutes of Meeting held on 18 February 1992, C/M/254, p. 35. Chile, Cuba, Venezuela
and India supported Yugoslavia's request for the establishment of a panel. (Ibid. pp. 35-36.)
280 Ibid.
281 Ibid. p. 36.
282 Ibid.
283 Ibid.
284 Ibid.
285 GATT Council, Minutes of Meeting held on 18 March 1992, C/M/255, p. 14. India, Pakistan,
Argentina, Chile, Peru, Cuba, Mexico and Venezuela all made statements supporting Yugoslavia's right to the
establishment of a panel. (Ibid. pp. 15-17.)
286 Ibid. p. 14.
287 Ibid.
288 GATT Council, Minutes of Meeting held on 18 March 1992, C/M/255, p. 15. The European
Communities asserted that the April 1989 Decision was silent on this issue. (Ibid.)
289 Ibid. pp. 15 and 18.
290 Ibid. p. 15.
291 Ibid.
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consideration of the measures.292 Argentina asserted that Yugoslavia had the right to have a panel
examine any question relating to the application of GATT provisions, including "measures taken for
non-economic reasons and invoked under Article XXI".293 Mexico affirmed Yugoslavia's right to
request a panel, but noted that the GATT was "perhaps not the most appropriate forum to discuss
those issues, much less to solve them".294 Japan affirmed Yugoslavia's right to request a panel, but
noted that the circumstances were "rather unique" and that its preferred approach was for the
parties to seek a solution through dialogue.295 Tanzania affirmed Yugoslavia's right to request a
panel, but noted that it would not want to see a peaceful solution in Yugoslavia impaired by
GATT dispute settlement procedures.296
1.66. The Chair of the GATT Council stated that the Council had to decide on the establishment of
a GATT panel in light of the rules in the April 1989 Decision. The Chair recalled a previous
understanding that, under the rules in the April 1989 Decision, a contracting party had the right to
a panel at the second Council meeting following that at which the request first appeared as an item
on the Council's regular agenda, unless at that meeting, the Council decided otherwise. The Chair
therefore proposed that the Council agree to establish a panel with standard terms of reference
unless, as provided for in the April 1989 Decision, the parties agreed to other terms of reference
within 20 days.297 The GATT Council agreed to establish a panel with standard terms of reference
unless otherwise agreed by the parties.298 The panel did not proceed owing to the subsequent
dissolution of the State of Yugoslavia.
Nicaragua v. Honduras and Colombia (1999)
1.67. In 1999, Nicaragua imposed a tax on all goods and services imported, manufactured or
assembled, coming from or originating in Honduras and Colombia, and cancelled licences for all
fishing vessels under Honduran and Colombian flags, as a response to the ratification of the bilateral
Treaty on Maritime Delimitation in the Caribbean Sea (Ramírez-López Treaty) between those
states.299 In January 2000, Colombia requested consultations with Nicaragua in relation to these
measures.300 These consultations did not achieve a mutually satisfactory solution, and in
March 2000, Colombia requested the establishment of a panel.301
1.68. At the April 2000 meeting of the DSB, Colombia reiterated its request for a panel.302
Nicaragua responded that the Ramírez-López Treaty infringed its "sovereign rights in the
Caribbean Sea by imposing limits unilaterally, illegally and arbitrarily through reciprocal recognition
by Honduras and Colombia of their expansionist aims in the Caribbean Sea to the detriment of
Nicaragua's territorial rights".303 Nicaragua considered that Colombia and Honduras had created
"serious international tension" in the form of despatching Honduran troops at its northern border
and conducting military manoeuvres by deploying war planes and ships in the region of its
continental shelf.304 Nicaragua asserted that the Organization of American States had recognized
the "state of serious international tension" by appointing a special envoy to assess the situation.305
Accordingly, Nicaragua considered that its measures were consistent with "Article XXI of the
GATT 1994 and Article XIVbis of the GATS, which reflected a state's inherent right to protect its
292 GATT Council, Minutes of Meeting held on 18 March 1992, C/M/255, p. 17.
293 Ibid.
294 Ibid.
295 Ibid.
296 Ibid.
297 Ibid. pp. 17-18.
298 Ibid. p. 18.
299 Request for the establishment of a panel by Colombia, Nicaragua – Measures Affecting Imports from
Honduras and Colombia, WT/DS188/2, p. 1; and Dispute Settlement Body, Minutes of Meeting held on
7 April 2000, WT/DSB/M/78, p. 12.
300 Request for consultations by Colombia, WT/DS188/1.
301 Request for the establishment of a panel by Colombia, WT/DS188/2. Colombia specifically alleged
that the measures were inconsistent with Articles I and II of the GATT 1994, as well as Articles II and XVI of
the GATS. (Ibid. p. 1.)
302 Dispute Settlement Body, Minutes of Meeting held on 7 April 2000, WT/DSB/M/78, item 4.
303 Ibid. para. 51.
304 Ibid. para. 52. Nicaragua also referred to complaints made by Miskito communities bordering
Honduras and the increase in the defence budget of Honduras adopted by the Congress of the Republic. (Ibid.)
305 Ibid. para. 53.
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security, and therefore constituted a general exception to multilateral trade rules".306 Nicaragua
noted that it had not adopted the measures for trade purposes or to protect domestic industry, but
rather to safeguard its essential security interests.307 Nicaragua recognized Colombia's right to
request establishment of a panel, but doubted the utility of having a panel examine the matter,
asserting that "it had been customary practice in the WTO that the contracting party applying the
measure should be the sole judge in matters that concerned its essential security interests, in
particular if such interests could be threatened by any actual or potential danger."308 According to
Nicaragua, if the panel "gave itself powers that belonged to political fora that could result in a
dangerous and unacceptable precedent".309 Nicaragua was also of the view that, "before establishing
a panel to examine this matter, the General Council should take a decision on the competence of
panels to deal with highly political issues and should make a formal interpretation of Article XXI of
GATT 1994."310 Honduras disputed Nicaragua's assertions regarding the movement of troops and
military equipment. Honduras also noted that the DSU provided it with the possibility of restoring its
rights, but considered the subject of maritime limits to fall outside of the mandate of the WTO.311
The DSB agreed to revert to this matter at its next meeting.312
1.69. At the May 2000 meeting of the DSB, Colombia reiterated its request for a panel.313 Nicaragua
reiterated its position that Article XXI of the GATT 1994 "could not be subjected to an examination
by a panel", and asserted that the 1982 Decision had given the Ministerial Conference and
General Council "exclusive authority" to interpret Article XXI to the exclusion of any other body.314
Japan, Canada, the European Communities and Honduras expressed the view that issues of national
security were sensitive and should be addressed with great caution.315 The European Communities
asserted that the panel could examine the facts to determine whether the matter concerned a
national security issue or a trade policy measure.316
1.70. The DSB agreed to establish the panel317, but the panel was never composed.318
1.71. In July 2006, in the context of the Trade Policy Review of Nicaragua, Colombia noted that
Nicaragua had suspended the application of the tax to goods and services imported from or
originating in Honduras since March 2003. 319 Colombia argued that this made the "discrimination of
Nicaragua's trade policy against Colombia much more obvious", and asked to have the trade practice
put on record in the conclusions of the Trade Policy Review.320 Nicaragua maintained that the tax
was applied in conformity with Article XXI of the GATT 1994 in order to protect Nicaragua's essential
security interests.321
India v. Pakistan (2002)
1.72. During the 2002 Trade Policy Review of Pakistan, India asserted that Pakistan had consistently
denied MFN status to India in violation of the basic principles of the GATT 1994 and the WTO.322
306 Dispute Settlement Body, Minutes of Meeting held on 7 April 2000, WT/DSB/M/78, para. 54.
Nicaragua specifically argued that the measures were fully justified under Article XXI(b)(iii) of the GATT 1994
and Article XIVbis:1(b)(iii) of the GATS Agreement. (Ibid. para. 60.)
307 Ibid. para. 55. Nicaragua also asserted that there had been no nullification or impairment under
Article II of the GATT 1994 because Nicaragua had not exceeded its scheduled tariff ceilings. (Ibid. para. 60.)
308 Ibid. para. 58.
309 Ibid. para. 59.
310 Ibid.
311 Ibid. para. 61.
312 Ibid. para. 62.
313 Dispute Settlement Body, Minutes of Meeting held on 18 May 2000, WT/DSB/M/80, para. 26.
314 Ibid. paras. 29-30.
315 Ibid. paras. 32-35.
316 Ibid. para. 35.
317 Ibid. para. 40.
318 See Note by the Secretariat, Update of WTO Dispute Settlement Cases, WT/DS/OV/34, p. 60.
319 Trade Policy Review Body, Trade Policy Review, Nicaragua, Minutes of Meeting held on
24 and 26 July 2006, WT/TPR/M/167, para. 35.
320 Ibid.
321 Trade Policy Review Body, Trade Policy Review, Nicaragua, Minutes of Meeting held on
24 and 26 July 2006, WT/TPR/M/167, para. 131.
322 Trade Policy Review Body, Trade Policy Review, Pakistan, Minutes of Meeting held on
23 and 25 January 2002, Addendum, WT/TPR/M/95/Add.1, p. 21.
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Pakistan responded that the India-Pakistan relationship had to be viewed in the context of the
"difficult political relations between the two countries over the course of the past 50 years".323
Pakistan noted that after the 1965 war, trade and diplomatic relations had been terminated by both
sides, and the subsequent process of normalization had been slow and on an item-by-item basis
through limited trade and shipping routes.324 Pakistan therefore considered that both India and
Pakistan had acted consistently with Article XXI(b)(iii) by treating each other as exceptions to
MFN principles.325
1.73. At the 2008 Trade Policy Review of Pakistan, India reiterated that Pakistan was denying MFN
status to India, to which Pakistan responded that trade relations between India and Pakistan were
continuously liberalizing and improving.326
United States v. Brazil (2003)
1.74. In 2003, the United States circulated a communication to the Committee on Import Licensing
raising concerns about Brazil's import licensing system for certain lithium compounds and the
compatibility of the system with the Import Licensing Agreement.327 The United States disagreed
with the inclusion of these lithium compounds in a measure regulating goods related to the
production of nuclear energy, as the United States domestic industry had reported that these lithium
compounds had no nuclear application but were rather used as a raw material in various commercial
products.328 The United States therefore requested that Brazil provide additional information about
the operation of the system.329 The United States repeated these concerns at the October 2003
meeting of the Committee on Import Licensing.330 The Committee took note of these statements.331
In 2004, Brazil circulated a communication responding to the questions of the United States, in
which Brazil asserted that the restrictions were maintained because lithium could have an application
in the production of nuclear energy.332 At the September 2004 meeting of the Committee on Import
Licensing, the United States observed that the explanation given by Brazil was "tenuous", as it did
not demonstrate that the lithium compounds had any nuclear application outside of its "common
commercial use".333 The United States asserted that in practice, these licensing requirements acted
as quantitative restrictions and noted that Brazil's response "engendered some suspicion that there
might be other more protectionist reasons for the requirement".334 The United States noted that it
would circulate further questions to Brazil in writing, and Brazil responded that such questions would
be conveyed to its government.335 The Committee took note of these statements.336
323 Trade Policy Review Body, Trade Policy Review, Pakistan, Minutes of Meeting held on
23 and 25 January 2002, Addendum, WT/TPR/M/95/Add.1, p. 21.
324 Ibid.
325 Ibid.
326 Trade Policy Review Body, Trade Policy Review, Pakistan, Minutes of Meeting held
16 and 18 January 2008, Addendum, WT/TPR/M/193/Add.1, pp. 101-102. Pakistan expressed similar views at
its 2015 Trade Policy Review. (Trade Policy Review Body, Trade Policy Review, Pakistan, Minutes of Meeting
held 24 and 26 March 2015, Addendum, WT/TPR/M/311/Add.1, pp. 17 and 52.)
327 Committee on Import Licensing, Brazil's Import Licensing Requirements for Chemical Products and
Goods Related to Nuclear Applications, Questions from the United States to Brazil, G/LIC/Q/BRA/1. Article XXI
of the GATT 1994 applies to the Import Licensing Agreement by reference through Article 1.10 of that
Agreement.
328 Ibid. p. 1.
329 Ibid. p. 2.
330 Committee on Import Licensing, Minutes of the Meeting held on 2 October 2003, G/LIC/M/18, p. 8.
331 Ibid.
332 Committee on Import Licensing, Brazil's Import Licensing Requirements for Chemical Products and
Goods Related to Nuclear Applications, Replies from Brazil to Questions from the United States,
G/LIC/Q/BRA/2, p. 2.
333 Committee on Import Licensing, Minutes of the Meeting held on 30 September 2004, G/LIC/M/20,
pp. 2-3.
334 Committee on Import Licensing, Minutes of the Meeting held on 30 September 2004, G/LIC/M/20,
p. 3.
335 Ibid. pp. 3-4. The United States circulated a communication reiterating these concerns and posing
further questions in November 2004. (See Committee on Import Licensing, Questions from the United States to
Brazil, Brazil's Import Licensing Requirements for Lithium Compounds, G/LIC/Q/BRA/3.)
336 Ibid. p. 4.
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1.75. At the June 2005 meeting of the Committee on Import Licensing, the United States noted that
they had not yet received a response to their questions.337 Brazil reiterated that the restrictions were
justified because of the potential risks and uses of lithium compounds "including for nuclear ends".338
The Committee took note of these statements.339 At the June 2006 meeting of the Committee on
Import Licensing, the United States noted that they had still not received a response to their
questions, as recently circulated with supplementary questions.340 The United States also asserted
that "it seemed clear that none of the requests for information that the U.S. was making, involved
the national security provisions of Article XXI of the GATT 1994, since the information was requested
for commercial purposes."341 Brazil responded that there had been no change in its policy, but that
it had taken note of the concerns of the United States.342 The Committee took note of these
statements.343 Similar views were expressed at subsequent meetings of the Committee on Import
Licensing until 2009.344 In 2009, Brazil circulated a communication to the Committee on Import
Licensing responding to the questions of the United States, in which Brazil reiterated that "since
some lithium compounds have an application in the production of nuclear energy", this restriction
"was treated as a matter of national security".345
1.76. At the October 2009 meeting of the Committee on Import Licensing, the United States
thanked Brazil for its response.346 At the April 2010 meeting of the Committee on Import Licensing,
the United States thanked Brazil again and noted that it did not have further questions at the time.347
European Union v. Brazil (2013)
1.77. During the 2013 Trade Policy Review of Brazil, the European Union posed a question to Brazil
regarding its import licensing restrictions on nitrocellulose.348 The European Union asserted that
industrial nitrocellulose was a different product from military-grade nitrocellulose, and argued that
as the former was a safe product which did not pose any problems related to national security, it
was not justifiable to impose a de facto import ban on the product.349 Brazil responded that it did
not necessarily agree that industrial nitrocellulose posed no problems related to security, as low
concentrations of the product could be used as an explosive.350 Brazil noted that it was however
currently reviewing its legislation on controlled products.351
1.78. At the April 2014 meeting of the Committee on Import Licensing, the European Union
reiterated its concerns about Brazil's import licensing scheme for nitrocellulose.352 The
European Union argued that the Brazilian producer of nitrocellulose benefited from the restrictions
as a monopoly supplier in the closed local market.353 The European Union also stressed that the
"essential security exceptions in the provision of Article XXI of the GATT 1994 were to be applied on
337 Committee on Import Licensing, Minutes of Meeting held on 15 June 2005, G/LIC/M/21, p. 3.
338 Ibid.
339 Ibid. p. 5.
340 Committee on Import Licensing, Minutes of Meeting held on 21 June 2006, G/LIC/M/23, p. 3.
See also Committee on Import Licensing, Questions from the United States to Brazil, Brazil's Import Licensing
Requirements for Lithium Compounds, G/LIC/Q/BRA/3/Add.1.
341 Committee on Import Licensing, Minutes of Meeting held on 21 June 2006, G/LIC/M/23, p. 4.
342 Ibid. p. 3.
343 Ibid. p. 4.
344 See, e.g. Committee on Import Licensing, Minutes of Meeting held on 2 April 2007, G/LIC/M/25,
p. 3; Committee on Import Licensing, Minutes of Meeting held on 28 April 2008, G/LIC/M/27, pp. 5-6;
Committee on Import Licensing, Minutes of Meeting held on 20 October 2008, G/LIC/M/28, pp. 3-4; and
Committee on Import Licensing, Minutes of Meeting held on 30 April 2009, G/LIC/M/29, p. 8. Brazil also
emphasized that controls on lithium products in other countries were not uncommon, and maintained that this
was a matter of national security due to the application of lithium compounds in the production of nuclear
energy. (See Committee on Import Licensing, Minutes of Meeting held on 20 October 2008, G/LIC/M/28, p. 4.)
345 Committee on Import Licensing, Replies from Brazil to Questions from the United States,
Brazil's Non-Automatic Import Licensing Procedures, G/LIC/Q/BRA/13, p. 1.
346 Committee on Import Licensing, Minutes of Meeting held on 19 October 2009, G/LIC/M/30, pp. 6-7.
347 Committee on Import Licensing, Minutes of Meeting held on 12 July 2010, G/LIC/M/31, pp. 5-6.
348 Trade Policy Review Body, Trade Policy Review, Brazil, Minutes of Meeting held on
24 and 26 June 2013, Addendum, WT/TPR/M/283/Add.1, p. 103.
349 Ibid.
350 Ibid.
351 Ibid.
352 Committee on Import Licensing, Minutes of Meeting held on 15 April 2014, G/LIC/M/39, p. 17.
353 Ibid.
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traffic in implements of war and to goods for the purpose of supplying a military establishment, but
not to the non-military industrial sector."354 The European Union requested that Brazil remove the
licensing requirements and asked for additional information regarding grants of such licenses over
the last five years.355 Brazil took note of these comments and asked that the European Union provide
its comments and questions in writing.356 The Committee took note of these statements.357
1.79. The European Union subsequently circulated a communication to the Committee on Import
Licensing containing these questions to Brazil.358 At the October 2014 meeting of the Committee on
Import Licensing, the European Union reiterated its concerns and further asserted that industrial
nitrocellulose was only used for "commercial purposes such as for applications like printing inks,
wood lacquer, or nail varnish".359 Brazil responded that it disagreed with the European Union's view
that industrial and military nitrocellulose were substantially and chemically different products, as
regardless of its intended use, "the product poses risks".360 The Committee took note of these
statements.361 Brazil contemporaneously circulated a communication responding to the
European Union's questions in which Brazil asserted that nitrocellulose was a hazardous material at
any concentration, and controls on the product were therefore legitimate for "security and safety
reasons".362 Similar views were expressed at subsequent meetings of the Committee on Import
Licensing363, and the European Union circulated further questions to Brazil in 2016.364 Discussions
between the European Union and Brazil on this issue continued into 2018.365
United States v. Cuba (1962-1996)
1.80. In 1962, the United States imposed an embargo prohibiting imports into the United States of
all products of Cuban origin, in addition to all goods imported via Cuba, and ordering a continuing
prohibition on all exports from the United States to Cuba.366 In 1968, Cuba submitted a notification
to the Committee on Trade in Industrial Products stating that the embargo constituted a non-tariff
barrier which adversely affected Cuba's trade.367 During the Committee's first examination of the
notified barriers in 1969368, Cuba emphasized that the embargo differed from the previously
examined trade barriers because it was not limited to particular products or particular commercial
interests, but instead was "designed to reduce a small country to submission by starvation".369 The
United States responded that the embargo had been imposed for reasons of "individual and collective
self-defense" and to "promote national and hemispheric security", and invoked Article XXI as
354 Committee on Import Licensing, Minutes of Meeting held on 15 April 2014, G/LIC/M/39, p. 17.
355 Ibid.
356 Ibid.
357 Ibid.
358 Committee on Import Licensing, Questions from the European Union to Brazil Regarding the
Importation of Nitrocellulose, Questions from the European Union to Brazil, G/LIC/Q/BRA/18.
359 Committee on Import Licensing, Minutes of Meeting held on 20 October 2014, G/LIC/M/40, p. 8.
360 Ibid. p. 9.
361 Ibid.
362 Committee on Import Licensing, Replies from Brazil to Questions from the European Union,
Questions from the European Union to Brazil Regarding the Importation of Nitrocellulose, G/LIC/Q/BRA/19,
p. 3.
363 See Committee on Import Licensing, Minutes of Meeting held on 21 April 2015, G/LIC/M/41, p. 6;
Committee on Import Licensing, Minutes of Meeting held on 20 October 2015, G/LIC/M/42, pp. 6-7; and
Committee on Import Licensing, Minutes of Meeting held on 21 April 2016, G/LIC/M/43, pp. 7-8. Brazil
subsequently emphasized the risk that nitrocellulose posed to human health as another justification for the
measure. (Committee on Import Licensing, Minutes of Meeting held on 21 April 2015, G/LIC/M/41, p. 6.) Brazil
also asserted that nitrocellulose was reportedly employed in certain criminal activities, such as ATM robberies.
(Committee on Import Licensing, Minutes of Meeting held on 21 April 2016, G/LIC/M/43, p. 8.)
364 Committee on Import Licensing, Questions from the European Union to Brazil, G/LIC/Q/BRA/20. For
Brazil's response, see Committee on Import Licensing, Replies from Brazil to the European Union,
G/LIC/Q/BRA/21.
365 See, e.g. Committee on Import Licensing, Follow-Up Questions from the European Union to Brazil,
Import Licensing System of Brazil, G/LIC/Q/BRA/22; and Committee on Import Licensing, Replies from Brazil
to Questions from the European Union, Import Licensing System of Brazil, G/LIC/Q/BRA/23.
366 GATT Council, Trade Policy Review Mechanism, United States, Statement by Cuba, Spec(90)4, p. 2.
367 Committee on Industrial Products, Inventory of Non-Tariff Barriers, COM.IND/4, pp. 228-229.
368 Committee on Trade in Industrial Products, Note by the Secretariat on the Meeting of the Committee
held 19-25 June 1969, COM.IND/W/7, para. 1.
369 Committee on Trade in Industrial Products, First Examination of Part 4 of the Inventory of
Non-Tariff Barriers, COM.IND/W/12, p. 311.
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justification for its actions.370 Cuba responded that the invocation of Article XXI was inadequate
because the United States had unilaterally adopted coercive measures without securing any
authorization from the international legal community, in particular the UN Security Council.371
1.81. In 1986, Cuba circulated a communication expressing concern over a measure imposed by
the United States removing quotas for sugar imports unless the supplying country guaranteed that
it would not import sugar from Cuba for re-export to the United States.372 At the May 1986 meeting
of the GATT Council, Cuba argued that this measure violated the GATT and stated that the
United States was undermining free trade, not only by harming Cuba, but also by trying to hamper
its normal trade with third countries.373 The United States responded that the measure was a
reflection of the long-standing trade embargo against Cuba which the United States had maintained
for national security reasons.374 Nicaragua, Argentina, Brazil, Hungary, Peru, Czechoslovakia, Poland
and Uruguay all opposed the measure, considering it to be politically motivated, coercive and
discriminatory.375 The Council took note of the statements.376
1.82. In 1987, in the context of the meetings of the United Nations Conference on Trade and
Employment, the Cuban Vice-Minister for Foreign Trade made a statement asserting that the
embargo imposed by the United States violated the objectives and principles of the GATT, including
those enumerated in Articles I, II and V and Part IV.377 The Vice-Minister also noted that the
United States had unjustifiably invoked Article XXI, "since it is no secret that Cuba has not
threatened, is not threatening nor will ever threaten the United States: on the contrary, the latter
country has threatened and is threatening our security through sabotage, spying, violation of our
land, sea and air frontiers, and has organized and supported armed aggression against our people
as on the occasion of the mercenary landing at the Bay of Pigs".378
1.83. In 1988, in the context of the discussion of the United States embargo against Nicaragua at
the Fourth Meeting of the Forty-Third Session, Cuba noted that the United States had justified its
embargoes against both Nicaragua and Cuba on grounds of national security.379 Cuba responded
that "[i]f two small countries could pose a threat to an enormous military and economic power such
as the United States, many countries might find themselves subject to similar measures by that
country."380 Cuba called on the contracting parties to recognize the rights of Nicaragua.381
1.84. In 1989, in the context of the Trade Policy Review Mechanism, the United States submitted a
report to the GATT Council summarizing its domestic trade framework.382 In this report, the
United States cited "U.S. foreign policy and national security goals" and the President's "wartime
and national emergency powers" as the justification for the Office of Foreign Assets Control's
administration of the economic embargo against Cuba.383 In response, Cuba circulated a
communication stating that the embargo contradicted the United States' commitments under the
370 Committee on Trade in Industrial Products, First Examination of Part 4 of the Inventory of
Non-Tariff Barriers, COM.IND/W/12, p. 311.
371 Ibid. Cuba based its arguments upon its reading of paragraph (c) of Article XXI. (Ibid. p. 313.)
372 Communication from Cuba, United States – Measures Affecting Cuban Sugar Exports, L/5980.
373 GATT Council, Minutes of Meeting held on 22 May 1986, C/M/198, p. 33. Cuba specifically argued
that the US measures violated Part IV and GATT Articles dealing with quantitative restrictions,
non-discrimination and most-favoured-nation treatment. (Ibid.)
374 Ibid. p. 34.
375 Ibid. p. 33.
376 Ibid. The same contracting parties reiterated these views at the First Meeting of the Forty-Second
Session in 1986. (See GATT Contracting Parties, Forty-Second Session, Summary Record of the First Meeting
on 24 November 1986, SR.42/1, pp. 11-13.)
377 GATT Contracting Parties, Forty-Third Session, Cuba, Statement by Mr. Alberto Betancourt Roa, Vice
Minister, Ministry of Foreign Trade, SR.43/ST/10, p. 7.
378 Ibid.
379 GATT Contracting Parties, Forty-Third Session, Summary Record of the Fourth Meeting on
2 December 1987, SR.43/4, p. 14.
380 Ibid.
381 Ibid.
382 GATT Council, Trade Policy Review Mechanism, United States, Report by the United States of
America, C/RM/G/3.
383 Ibid. p. 81.
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GATT 1947 and paragraph 7(iii) of the 1982 Ministerial Declaration.384 Cuba also asserted that the
invocation of Article XXI by the United States was inappropriate, "[s]ince Cuba has not provoked
any 'national emergency', there is no 'wartime' nor any serious international tension."385
Cuba expressed similar views on several subsequent occasions between 1990 and 1996.386
United States v. Cuba (including Helms-Burton Act) (1996-2016)
1.85. In 1996, Cuba circulated a Communication noting the adoption by the United States of the
Cuban Liberty and Democratic Solidarity (LIBERTAD) Act (Helms-Burton Act).387 Cuba argued that
the objective of the Helms-Burton Act was to "intimidate the world business community and prevent
it from participating in the ever-widening economic opportunities for foreign investment" in Cuba.388
Cuba also asserted that the measure constituted a violation of its sovereignty by attempting to
legislate on its internal matters, namely, the property of Cuban nationals.389 At the March 1996
meeting of the Council for Trade in Goods, Cuba argued that the Helms-Burton Act was incompatible
with various provisions of the GATT 1994 and other WTO Agreements.390 The United States
responded that it had recognized the need to take strong measures after the recent shooting down
of two unarmed US civilian aircraft by the Cuban government, and asserted that "persons who
knowingly and intentionally did business in Cuba using confiscated property were furthering wrongs
committed against the former owners of this property, and were undermining the interests of the
USA and its citizens".391 Canada stated that the Helms-Burton Act was not a "useful tool" for
achieving democratic reform in Cuba and noted that the legislation "was designed to chill investment
in Cuba".392 The Council for Trade in Goods took note of these statements.393 Several Members
reiterated their views at the April 1996 meeting of the General Council.394
1.86. In May 1996, the European Communities requested consultations in respect of the
extraterritorial application of the United States' trade embargo against Cuba under the
Helms-Burton Act and related US legislation and regulations.395 These consultations did not achieve
a mutually satisfactory solution, and the European Communities subsequently requested the
establishment of a panel. 396 At the October 1996 meeting of the DSB, the European Communities
384 GATT Council, Trade Policy Review Mechanism, United States, Statement by Cuba, Spec (90)4, p. 5.
Cuba specifically cited incompatibility with Articles II, XI:1, XIII:1, XXXVI and XXXVII of the GATT 1947.
(Ibid. pp. 5-6.)
385 Ibid. p. 5.
386 See, e.g. GATT Council, Trade Policy Review Mechanism, United States, Minutes of Meeting held on
11-12 March 1992, C/RM/M/23, pp. 26-27; GATT Council, Minutes of Meeting held on
29 September – 1 October 1992, C/M/259, pp. 77-78; GATT Council, Trade Policy Review Mechanism,
United States, Minutes of Meeting held on 16-17 February 1994, C/RM/M/45, p. 24; and Communication from
Cuba, Analysis of the Effects of the Embargo Imposed by the Government of the United States of America
against Cuba, L/7525.
387 Communication from Cuba, United States - Cuban Liberty and Democratic Solidarity Act of 1996,
WT/L/142. The Helms-Burton Act, amongst other things, empowered the President to "encourage" other
countries to restrict their trade and credit relations with Cuba, withheld payments to international financial
institutions which approved loans to Cuba, and denied entry into the United States for companies with certain
investments and assets in Cuba. (See Negotiating Group on Market Access, Market Access for Non-Agricultural
Products, Non-Tariff Barriers - Requests, Communication from Cuba, TN/MA/NTR/2, pp. 6-7.)
388 Ibid. p. 2.
389 Negotiating Group on Market Access, Market Access for Non-Agricultural Products, Non-Tariff
Barriers-Requests, Communication from Cuba, TN/MA/NTR/2, pp. 2-3.
390 Council for Trade in Goods, Minutes of Meeting held on 19 March 1996, G/C/M/9, pp. 3-4.
Cuba specifically alleged that the measure was incompatible with the principles of MFN treatment, Article XI
and Part IV of the GATT 1994, the Agreement on Trade-Related Investment Measures, and the commitments
of the United States to ensure freedom of access in trade in services. (Ibid.)
391 Ibid. p. 6.
392 Ibid. p. 5. Mexico, Chile, the European Communities, Nicaragua and India also expressed concern
about the Helms-Burton Act, and in particular its extra-territorial implications. (Ibid. pp. 5-6.)
393 Ibid. p. 6.
394 General Council, Minutes of Meeting held on 16 April 1996, WT/GC/M/11, pp. 5-9. Bolivia, Canada,
the European Communities, Mexico, India, Nicaragua, Madagascar, Jamaica, the Philippines, Australia,
Switzerland, Norway, Colombia, Trinidad and Tobago, Japan, Sri Lanka and Iceland expressed their concern
about the Helms-Burton Act, and in particular its extra-territorial implications. (Ibid. pp. 5-10.)
395 Request for consultations by the European Communities, United States – The Cuban Liberty and
Democratic Solidarity Act, WT/DS38/1.
396 Request for the establishment of a panel by the European Communities, WT/DS38/2 (European
Communities' panel request), pp. 1-2. The other challenged measures included: (a) denial of access to the US
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reiterated its request for a panel, noting that its concern with the legislation "was not its objectives,
but the extra-territorial means chosen to achieve those objectives".397 The United States asserted
again that the Helms-Burton Act was a response to the shooting down of two civilian aircraft by the
Cuban government.398 The United States described this incident as the latest in a series of actions
taken by the Cuban government over the past 35 years that had directly affected US interests, and
noted that the Helms-Burton Act, other US laws and regulations, as well as the Cuban embargo
which dated from the 1960s "reflected the abiding US foreign policy and security concerns with
regard to Cuba pursued by eight US Presidents".399 The United States asserted that the
Helms-Burton Act was "designed to promote a swift transition to democracy in Cuba" and noted that
the European Communities had not suggested that the US policy with regard to Cuba generally, or
the Helms-Burton Act in particular, was motivated by trade protectionism.400 The United States noted
that several of the challenged measures had been in force for years or decades, and had been
expressly justified by the United States under the GATT 1947 as measures taken in pursuit of its
essential security interests.401 The United States questioned the utility and desirability of pursuing
this issue through the WTO, arguing that the WTO had been established to manage "trade relations",
not "diplomatic or security relations" with negligible trade and investment effects.402 The
United States refused to join a consensus to establish a panel, and urged the European Communities
to explore other options.403 Cuba asserted that the Helms-Burton Act was incompatible with the
GATT 1994, but noted that it would reply to the "political statement" by the United States in other
fora such as the UN General Assembly.404 The DSB agreed to revert to this matter at its next
meeting.405
1.87. At the November 1996 meeting of the DSB, the European Communities reiterated its request
for a panel.406 The United States maintained its earlier position, and noted that it did not believe
that a panel would lead to a resolution of the dispute, but rather, would pose serious risks to the
WTO as a nascent organization.407 Cuba responded that unlike the United States, Cuba had never
launched an invasion, or initiated any military actions or intelligence operations against the
United States.408 Cuba asserted that if anything, "Cuba would be in a better position than the US to
resort to Article XXI of the GATT 1994."409 Cuba noted, however, that the DSB was not the
appropriate forum to enumerate an endless list of such grievances.410
1.88. The DSB agreed to establish the panel with standard terms of reference.411 In 1997, the
European Communities requested that the panel suspend proceedings while a mutually agreeable
tariff rate quota for sugar (through a prohibition on the allocation of any of the sugar quota to a country that
was a net importer of sugar unless that country certified that it did not import Cuban sugar that could indirectly
find its way to the US); (b) denial of transit of EC goods and vessels of EC Member States through US ports
where the vessels carried goods or passengers to or from Cuba, or carried goods in which Cuba or a Cuban
national had any interest; (c) prohibiting US persons from financing transactions involving confiscated property
owned by a US national; (d) a right of action in favour of US citizens to sue EC citizens and companies in US
courts to obtain compensation for Cuban properties "trafficked" by such EC citizens or companies and
confiscated by the Cuban Government from persons who were US nationals; and (e) denials of visas and
exclusion from the US of persons (including the spouses, minor children and agents of such persons) involved
in confiscating or "trafficking" in confiscated property owned by US nationals or persons. (European
Communities' panel request, pp. 1-2.)
397 Dispute Settlement Body, Minutes of the Meeting held on 16 October 1996, WT/DSB/M/24, p. 6.
Australia, Bolivia, Canada, India and Switzerland also expressed their concern about the potential
extra-territorial application of the Helms-Burton Act. (Ibid. pp. 7-9.)
398 Ibid. p. 6.
399 Ibid. pp. 6-7.
400 Ibid. p. 7.
401 Dispute Settlement Body, Minutes of the Meeting held on 16 October 1996, WT/DSB/M/24, p. 7.
402 Ibid.
403 Ibid. p. 7.
404 Ibid. p. 8.
405 Ibid. p. 9.
406 Dispute Settlement Body, Minutes of the Meeting held on 20 November 1996, WT/DSB/M/26, p. 2.
New Zealand and Norway expressed their concerns regarding the extraterritorial application of the measures.
(Ibid. pp. 2-3.)
407 Ibid. p. 2.
408 Ibid. pp. 2-3.
409 Ibid. p. 3.
410 Ibid.
411 Ibid. p. 2.
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solution was negotiated.412 The European Communities and the United States subsequently reached
an Understanding that the United States would consult with Congress with a view to obtaining a
waiver for the European Communities from the Helms-Burton Act.413 The panel's authority lapsed in
April 1998.414 At the April 1998 meeting of the DSB, Cuba expressed its continuing conviction that
the measures were illegal and reserved its right to revert to this matter.415
1.89. Cuba and the United States have reiterated their views about the Helms-Burton Act and the
embargo more generally on several subsequent occasions.416
CONCLUDING REMARKS
1.90. As discussed in paragraphs 7.80 and 7.81 of the Panel Report, the Panel considers that the
foregoing survey of the pronouncements of the GATT contracting parties and WTO Members does
not reveal any subsequent practice establishing an agreement between the Members regarding the
interpretation of Article XXI in the sense of Article 31(3)(b) of the Vienna Convention.
__________
412 Communication from the Chairman of the Panel, WT/DS38/5.
413 See Trade Policy Review Body, Trade Policy Review, United States, Minutes of Meeting held on
12 and 14 July 1999, Addendum, Communication by the United States, Outstanding Responses to Questions,
WT/TPR/M/56/Add.1, p. 25.
414 Note by the Secretariat, Lapse of the Authority for Establishment of the Panel, WT/DS38/6.
415 Dispute Settlement Body, Minutes of the Meeting held on 22 April 1998, WT/DSB/M/45, pp. 15-16.
416 See, e.g. Dispute Settlement Body, Minutes of the Meeting held on 22 June 1998, WT/DSB/M/46,
pp. 17-18; Trade Policy Review Body, Trade Policy Review, United States, Minutes of Meeting held on
12 and 14 July 1999, Addendum, Outstanding Responses to Questions, WT/TPR/M/56/Add.1, p. 25; Trade
Policy Review Body, Trade Policy Review, United States, Minutes of Meeting held on
14 and 17 September 2001, Addendum, WT/TPR/M/88/Add.1, p. 242; Trade Policy Review Body, Trade Policy
Review, United States, Minutes of Meeting held on 14 and 16 January 2004, Addendum, WT/TPR/M/126/Add.3,
p. 117; Negotiating Group on Market Access, Non-Tariff Barriers Imposed by the United States Impeding and
Prohibiting Cuba's Trade, Communication from Cuba, TN/MA/W/71, pp. 1-12; Negotiating Group on Market
Access, Market Access for Non-Agricultural Products, Non-Tariff Barriers - Requests, Communication from
Cuba, TN/MA/NTR/2, pp. 6-7; Trade Policy Review Body, Trade Policy Review, United States, Minutes of
Meeting held on 22 and 24 March 2006, Addendum, WT/TPR/M/160/Add.1, pp. 162-166; Trade Policy Review
Body, Trade Policy Review, United States, Minutes of Meeting held on 9 and 11 June 2008, Addendum,
WT/TPR/M/200/Add.1, p. 165; Trade Policy Review Body, Trade Policy Review, United States, Record of
Meeting held on 29 September and 1 October 2010, WT/TPR/M/235, pp. 58-59; Trade Policy Review Body,
Trade Policy Review, United States, Minutes of Meeting held on 16 and 18 December 2014, Addendum,
WT/TPR/M/307/Add.1, p. 221; and Trade Policy Review Body, Trade Policy Review, United States, Minutes of
Meeting held on 19 and 21 December 2016, Addendum, WT/TPR/M/350/Add.1, pp. 159-160.
Annex 110
Annex 111
STANDARD DRAFT
TREATY .OF FRIENDSHIP, COMMERCE
AND NAVIGATION
, ·
I
Annex 111
- 302 -
ARTICLE XXI
General Exceptions
( 4
Paragraph 1: General Exception~
Paragraph 2; Territorial Preferences
Paragraph 3; GATT. Exception
'
Paragraph 4: Restrictions on· Employment
Prot~c~l. Paragraph 6: Status of· Puerto Rico
General:
Article xxr is essentially a convenient
device wtthin the overall scheme of· the treaty for
grouping in one place exceptions from the provisions
of the treaty generally or from groups of related
provisions, This technique eliminates the repetitive
provision of exceptions and permits a more cohesi·ve
presentation. Much the same technique was used in the
General Agreement on Tariffs and Trade (61 Stat. (5}
and (6); 4 Bevans 639) and the proposed Ka~ana
Charter for an International Trade Organization
(.Department of State Publication 3206) .
There are three distinct categories of
exceptions in Article XXl. The first, contained in
Article XXI(.1} 1 consists of a group of exceptions,
varied in character, that have become customary in
international instruments dealing with establishment
and trade matters. The standard version of Article
XXI(ll includes the most essential exceptions, as
for example, for national security, At various times
other exceptions were added at the instance of the
treaty partner, A particular example is the exception
for mea~ures to protect national treasures of
archaeological, historic or artistic value, In a
few cases the exception for political activities
Annex 111
- 303 -
was placed in Article XXI rather than in Ar~icle
VIII(2} 1 in large measure because it belongs !n
the former as· logically as in the latter ,
The secona eat egory consists- of e.xc epti.ons
to the trade prov1s1~n~ of the treaty 1 specifically
for the trade preferences of· the treaty partners and
for their obligation~ under GATT. Both of these
exception~ touch upon· vital elements of United States
trade pol1cy 1 and both tend to oecome critical is$ues
in negotiations with cou~tries favoring a less liberal
approach to ~or1d trade , The United States requires
Article XXI(2) to maintain the integrity of its
existing commitments fo~ prefer ential trade treatment,
On the other hand, it vas United States policy to
seek to limit oilateral trade preferences generally,
in the interest of encouraging fr~er multilateral
trade, Tt sou~ht to preserve only those preferences
which pre- existed and ~ere specifically sanctioned
by GAIT, Its own preferences came within this category,
but in s01ne negotiations the treaty partner endeavored
to obtain treaty recognition for prospective trade
arrangements that were difficult to justify on any
grounds permissible under GATT or the treaty, such
as the customs union exception in Article XIV(6}.
Adoption in 1974 of the Generalized System
of Preferences for trade ~ith developing countries
was an exception to the policy of sanction ing only
pre-existing preferences, but this action was taken
pursuant to a GATT waiver and comes within the terms
of the GATT exception,
The GATT exception is essential to preserve
freedom of action needed in order to comply with
obligations assumed by the United States under GATT ,
or to enable it to take measures permissible under
GATT in furtherance of its multilateral trade objec~
tiyes, In effect, the GAIT exception tends to suspend
all but a f e'w lesser f ea tur es of the trade provisions
while the treaty partners are contrac ting parties to
GAIT , and most negotiating issues involving Article
XXr(.3) arose in the context of a hypothetical postAnnex
111
- 304 -
GATT s:1,tuation or· in the situa,tion that wou·ld
prevail if one trea·ey partner withdrew- from· GATT,
The last ·ca·tegor·y of' e.xcepttons invo.lve.s
the provisions of· Article XX!(4) • which reserve the
explicit right of th:e' 'United' States to 1Daintain its
laf>or or· oc·cupa tional control's at th.e frontier through
the applicatio~ oC it~ immigratio~ law-s rather than
through wor·k per'llli t s· ol:'· other internal police con· ....
trol~, as in th~ case of· som~ treaty partners.
1. The present Treaty shall not preclude(ll
the application of· measures,
Cal regulating the importation or exportation
of gold or silverC2l;
(bl
(cl
(3}
relating to fissionable materials ,
(41
to radioac ti-ve by-products .of the
utilizatio~ or processing thereof or
to material~ that are the s-0urce of
fissionable materials(S}i
(61 01 regulating the production of
or traffic in arms, ammunition and
implements of war, o r traffic in other
materials carried on directly or
indirectly for the purpose of supplying
a military establishment(S) ;
Annex 111
L.
C.
·-- ··---------- -----=
- 305 -
ld) necessary to °fu_lf ;f.11 the obligation·s
of a Party for· the maintenance or
restgr~tio~ of· internation~l peace or
(9)
security or necessary to ~rot~ct
(101 its essential ~ecurity interest~
(lll(l2l(13l,, and
(d} deny·i~g to ·any com·pany- in the ownership
or direction of· wh:lch nation·als of any
h d
- . (14}
t ir country or countries have
directly or indirectly a controlling(lS)
.. · (16)
interest I the advantages of· the
present Treaty, except with respect to
recognition of juridical status and
- (17) with respect to access to courts •
(1) The wording of the introductory clause is intended
to make clear that the reservations are discretionary
and not automatic or· mandatory, The provision, more~
over, does not provide any_ guide to the manner of
applying the reservation~ in a discriminatory mannert
as for example, hy requiri~g that the resulting
discrimination· be subject to the rule of most ..... favor·ed .....
nation treatment.
(.2) This exception has been customary in United States
agreements on trade relations since the inception
of the reciprocal trade agreements program, See,
for example, Article XII of Reciprocal Trade Agreement
Annex 111
- 306 -
of 1935 with. Canada (49 Stat, 3960; 6 Bevans· 74-l;
Article 45 (al (.iv) of. the prop·o.sed H'.ayana Charter
fo~ an tnternatiQnal Trade 0Fganizitton; and Article
XXUJ (b} of the General Agreement on Tari.ff s and
Trade,
The rese~vation is limited to i~portation
and exportation·, Tne· rtgh.t of an alien nation·a1
or· com·pany to exploft ·gol"d or· si·lver a,s a n~tural
res-ou·rce would fle_ gov'e-rned hy- tb.e prov'tstons of·
Article vrt so 'lon~ as the product of such exploitatio-
n· is sold in th.e dom·est;tc market,
?t m~y be not.ed that this reservation· was
adop·ted at a time w-h.en the United States maintained
restrict :ton·s on the ho 1·d ing o -f · monetary gold by
private interests pursuant to the Gold Reserve Act
of 1934 (48 Stat, 3371 and supplementary legislation ,
(3) This reservation is derived from Article 9q(ll(bl
(1} of the proposed !TO Charter and Article XXI(.b)(i}
of GATT,
(.4} This provision was included in the treaty to make the
coverage mor·e com.plete and more consistent in ter~
minology with the pro-visions of the Atomic Energy
Act of 1946 (60 Stat. 755} and subsequent legi~lation
on this subject,
,.
(5} The Atomic ~nergy Act of 1954 1 as amended, impoaes
alienage restrictions with respect to the issuance of
licenses for commercial de-velopme_nt (_42 U .. s '-C. 2133
(d}} and also for medical therapy, research and
development (42 u.s,c, 2134(dll. Both the statute
and the administrative regulations (.10 C, F~R, 50)
make provision for piercing the corporate veil,
(61 This reservation is derived from the provisions Qf
reciprocal trade agreements ., (see Article X'I.I. of the
1935 Agreement w-itn. Canada, Article 99(.ll(b)liil
of the proposed ITO Charter~ and Article XXI(bl(ii}
of GATT.)
) i
Annex 111
- 307 -
(.7) The provision extendi_ng the reservation to ·the pro~:
duction of aims, amlllunition and implements of wa~
was added to the treaty l o make it clear that tne
reservation applied to matters dealt w-ith in the
establishment prov':f.s~on·s of· the treaty as well as
th.e trade provis-ion·a-·, It is not· con·tained in the
cor·respond;lng provist·on·s of the propos'ed ITO Charter
or of GATT,
(8} Tne traffic in otheT ~aterials for the purpose of
supplying a military est~blishment is intended ta
include all mat er ;tal s, e-ven if not nee essar ily of·
a warlike nature, s-uch,.as foo·dstuffsa furniture
for an army cantonment 1 or· communications gear,
The crucial element is the intended use, There
does not appear to bave been any constderation of
whether this prov~sio~ extends to ~upplies for -post
exchanges1 officers• clubs and other amenities,
but it m:tgh.t be held that the term ••indirectly't
could be construed to cover such articles,
(91 The intent of this reservation is to ·preserve the
right of the treaty partners to ~arry out their
obligations under the Charter of the United Nations,
It is derived indirectly from Article 99(1) (cl of
the proposed ITO Charter and more explicitly fro~·
Article XX(ll(cl of GATT,
(101 The national security reservation is broader than
the comparable reservations tn the proposed ITO
Charter (Article 9901 (b) (i:1.il} and GATT (Ai;ticle
XXI(c}), which. are limited by their terms to times
of war or of· eme!gency in international relationa,
Presumably the reservation would be invoked in most
cases in emergency situations hut thi~ formulation
avoids, for example, such com~lications as the legal
definition of national emergency and the procedural
requirements for declaring a state of eme!gency,
Annex 111
- 308 -
(111 T~is reservation preserves the right of each treatr
partner to depart from nation~! and from mos~~
f avor·ed..-.na t ion· trea·tmen t ln ~pp-ropr ;late c :frcuins·tances,
(121 T~is reservation· c.ov·erij expor·t. and import regulations
on strategic materials and United States export
con'trol·s affecting suc1i. mater:tals are deemed to be
justified by thi~ reservatio~,
(13)' The broaq freedo111 of· action extended to each treaty
partner by- the essential securitr res-ervatio_n . was
explicitly quest :toned in on·ly one negotiation·~ where
the matter was dispos·ed of· oy an unwritten under~
standing · to the effect that each treaty partner
recognized the po t ·en t ial f 01;· .. d iscr imina tor·r actions
running cou'nter to treaty oojectives but w-ou.ld apply
the reservatio~ in such a manner as to avoid impair~
ment of· the treaty partner's interests to the maximum
degree possible.
(14) This reservation is a provisio~ for piercing the
cor~orate veil with the oBjective of preventing
nationals or companies of third parties from obtaining
rights under the treaty throu·gh the device of obtain-.
ing and exercising interests in companies of the treatr
partner, Such corpor~te interests in effect would
be ob'taining a ttfree ride'' inasmuch as they would be
ahle to obtain ad~antages for vhich their own govern~
ment was unwilling to negotiate, Absent such a
provision, such corpor~te interests could take ad~
vantage of the definition of "companies" in Article
XXII(.3} 1 which establishes place of incorporation
as the sole test of the nationality of· a corporation,
Article XXIIC3) does not impose a "seatlt test or test
based on II siege social e '\ or place of princ ipa 1 es tabli
shmen t, which contain some elements of p-i~rctng the
corpor~te veil, as the determinant of· a company•s
nationality, Accordingly, third party corporate
interests could indirectly but effectively obtain
useful trea~y rights by taking advantage of liberal
incor~oration laws in the territories of the treaty
partner, This reservation leaves each treaty partner
Annex 111
I L
. ,· l . (15)
- 309 -
free to take protective measures against such an
eventuality by pierci~g the cor~or~te veil of·
com·panies charteTed· under th:e laws of th.e other
treaty partner.
To date the United States h.as not· chos·en
to ·exercise its r1gn.ts· under this prov'tsion, . If
it chose to do ·so,· .it would be entitled to latitude
of· interpretatio~ tn the sense that it could exa~ine
not only the c,s·tensi'6.l'e -management and direction
of the company but cou'ld also look behind the
superficialities to ascertain the real control as
well as the identity of· the interests on behalf of
which or· for whose actual benefit control was being
ex ere ised.
It may oe not·ed that the first four clauses
of Article XXI(lJ involve matters primarily of Federal
responsibility . .. The fifth clause, however,. involves
corporatio~ laws 1 which are enacted mainly by the
States •
In this context control means ownership or its
equivalent.
(16) The reference to •tadvantages't is intended to apply
to rights that would accrue to companies under the
treaty in their capacity as companies, It thus
should be distinguished from the provision (.Prot'ocol,
paragraph 2} relating to the protection ot indirect
interests in e~propriated property, The later pro~
vision is stated in terms of property and not of
companies, and the nattonality of the entity holding
or controlling the property is immaterial, The
material fact is ., th.e ow·nersh:1.p of an interest,
however indirect 1 in that property oy a United
States citizen or company,
(171 Th.e e.xception to the third party rule is based on
the cons id era t ion' that a Company of the treaty partner
has a right to oe accepted as a legal entity and allo'lofed
'I
Annex 112
UNITED NATIONS
EG:.ONOfAIC · .. · ·
AND
SOCIAL COUNCIL
NATIONS UNIES
CONSEIL
ECONOMIQUE
ET SOCIAL
RESTRICTED
E/PC/T/W/23
6 M:~.Y 1947
SECOND SESSION OF THE PRr::PJ .. RATORY co:~.IDEITTEE Oli' THE
UNITED NATIONS CONF.mRENC.E ON TRADE ·AND EMPLOYMENT.
UNITED SThTES . DEL.11:Gii.!RION .
Th3· :tollcridng amendments to A.rticlt:~ 15. to 23 and Article
(l) Article 15 should ·be· revised as follows (square·
. '
brackets ·E J indicate deletions·, underlining indicates additions):
11Ar t .icl... 15:-
. .
N,. t.iot.. ~; l Tre,. t r:,c;;t un Inte rnal Tax:r::.tlon
and· Rc:~uTatlort ·~---··· ·· .... ·
. . . i . . . . The ·Mc:'l!.bers ·agrHo ~ha t _· ·na'i'tlior"' irit'lfrnr~f 'tiixes nor" other
• • • : • • • • • • • •. • t ~ • •
.. •i:.ilternal ·ohi rges nor internal lawi, , regi.ira'tions ·or· requireine'nts
·should ·be us~d- tu a tiora··prot·e·c·tto·i{ ~i·t·-l6try ~r .. 1n·a:1reo·t1y-·t~r
any national produc·~J- .. . ..i : :· _;_ .. ··,·n> ..
d:/. l. :· .Tho P;O<.U~t~ of ·any ·M~~b~r: o~~t-;y imported into any
' '
othe; MeillbeT ·oountry ihali b,~· ~~e~pt fr-~'m '1~ternal taxes.· a.nd
• • . • • • • • . • ' • : • ' : . • -: • ,... : • :. ,•t : • : : : . •
· other i'ritern:al· ·c·harges or· any- kI'nd··:11fgher" tliaii those .. imposed~
directly. o·; :indi;~·ot:ly;. o·n . iike· irocfii°&t i'··o·; .:.nat.l'ona:i·-- origin·: .
· .. ..
: Moreo-ver-,-'. in :oas~s . in 'Wh:ioh:. tne:re:::is·. iiO"':sub'sta·ntial ·-'a..omest'ic .
. ·. . . . . , . ... . , . : ' .
pro,~uction of _lik~ proc.ucts of .natio~e.l: ori~in,~·Me.uibor shall
impose new o'r higher internal" t ·e.j:-e·s·"-bh : t~ij"' ~roducts; ~f other
'Men:bcr oountr.ies ·:t~r the ·purp'cHre · ot · -~fft,r·d::tng"prc>te·otion. to the
production £!. comp~titive·· produot·s~-
Annex 112
E/PC/~/w/~3
p1;1.ge 2.
[3..J £.:. The produc~s at-any Member country impor1ied ~n_to
any other Member country ·shtil.l b~ accorded treatment ·no le_~s ... · ·
:favourable than that accorded to· like products o·f -nationai o;-1.gin
in respect··of all laws, regulations or requirements affecting
' . . . .. . . . . ... . ... ·.
their interq~l.. sale·, oftering .for . sale, purchase, transportation,
. . . . . . . . . .. . .
distribution, exhibition or- use of any kind whatsoever. The
· provisions Qt this paragraph shall be ~der$t.ood to preclude the
I.
ap~lioation of internal requirements restricting the amount or
' . . : .• .
proportion of Lai/ any imported pr~d~ct permitted to be mixed,
,processed, exnibited, or used, Provided that any suoh requirement
in force on th~ d~y of the signature of th!s Charter may be
continued until the expiration of one year from the day on which
this Charter enters in~~ force,£!:, in the~ of laws,
regulations~ requirements relating~ cinematograph films, .
until~ expiration E.! three years from lli day£!! which~
. . '
Charter enters int.o tor~e; ·ffehich period may be extendeg]° ~
reguirements mar~ continued ~or additional periods in .respect of
an. y product _if the Organization {.oon~urs that th.e requirement
concerne·ci i-s less restrictive of international t~ade -than other
mea~~es permissible under ~his Chart~rJ ~ after consultation
w-ith -the ·-ot-he-r M--e-m--b-e-r-s whose trade -is substantially aetected l?Z_
fil regui~ement, . determines ~ in ~ special oi-rcumstances
· alternati~e .measur~s R,ermi.ssible under this Charter "would ru2i ~
-practicable. R~q-uire~e-nts permitted to be maintained under 5he
I • • • ., : • : •
. , fo;egoing provi.s£7' ~ - paragraph shall be subject to negotiation
for .. their liberalization or elimination in the manner provided - """""""......,_ .,. _______ -- - -
f9r in respect of tarifts' and pr~ferences ~d~r Article 24.
Annex 112
E/PC/T/w/23
page ·3.
[4. The pro~isions ,of paragr~phs i -~nd ~. -Of this ~rticle
shall not be construed to prevent .the application of internal
laws, regulations or requirements, other than taxes, relating to
the distribution or e~hibitio,p of c~nemo.t.ograJ?h films. Any laws,
regulations or requirements so applied sha.11, howe_ver, be subject
to negotiation for their liberalization or elimination in the
manner provided for in respect of tariffs ~nd preferences under
Article 24J '
[§] ~. The provisions of this hrticle shall not apply to
the procurement by governmental agencies of Lsuppliey products
pnrohased for governmental {_usi] purposes and not for commercial
purposes such~ resal e Lnor toil .Q!. ·use in the production. of
goods for sale."
( 2) A new J~rticle should be inserted between Articles 15
and 16, reading as follows:
11hrticle 15A
!he product~ 2!_ any:~ember count:sl. ~xported
~ any other Member country shall !!2.1 .~ .subJeot to
any measure imposed .Q!_ either the exporting£!: the.
importing country requiring such exports to be
· financed, shipped· .Q!. in·sured E.r enterpris0s 2.1 any
prescribed nationali&."
·{ 3) J..:r,t-iot.e 16: Delete the second sentence of pai,agraph 6.
( 4) J,.rticle 17 : .
..
A. Paragraph 1 of hrticle .17 shou~d be :revised as
follows :
Annex 112
E/Pd/T/W/23
Page 4.
"1. No anti-dum.~1~g· duty or charge shall be imposed on
any product of any Member country imported into any other Member
oountry in exoess of an amount equal to the margin of dumping
under which such product is being imported. For the purposes of
this Article, the margin of dumping shall be understood to mean
the amount by which the price ·or the product exported from one
country to another is less than£,J(a)the comparable price f~r
the like product /]o buyerff:/ ill consumption in the domestic
market of the exporting country, or, in the absence of such
domestic price,!! less~ either (b) the highest comparable
price fat whicli7 for the like product ff.a soly fQr export to
any third .country fJ.n the ordinary course Af oommerciJ, or (c)
the oost of production of the prnduct in the country of origin
plus a reasonable addition far sel+ing· cost and profit; . with
due allowance in each case for differ~nces in taxation, and
tor other differences affecting price comparability ,!l! the
ordinary course _2! commerce."
B. The second sentence ~f paragraph 2 of Article 17 should
be revised as follows:
"The term 'countervailing duty• shall be understood
to mean an additional St separate duty imposed for the
purpose of offsetting any bounty or subs.idy ••• " eto.
c. Delete paragraph 6 of Article 17.
(5) Article 18: Delete sub-paragraph 2(o) and
re-letter (d) as (c).
(S) Article 19:
A. At the end ~f paragraph 1 ~f Article 19, add the
following sentence:
Annex 112
E/PC/T/W/23
Page 5.
The Organization_!! authorized to investigate
and reoommend _!e Members specific measures f2E_ ~
simplification and standardization of customs formalities~
techniques and for the elimination of
. unnecessary customs requirenents.
B. Item (d) of paragraph 4 of Article 19 should be
revised as follows:
''(d) Foreign exchange £regulation,i7 transactions;"
c. A oew item should be added to the list included in
paragraph 4, as follows:
"(1) Port facilities."
This would necessitate transferring the word "and" from
sub-paragraph (g) to the end of (h) and changing the period to
a oomma.
(7) Article 21: In paragraph 3, line 8, add the words
"retroactively 2!:" after the word "applied•: . ·
(~) Article 37: It is proposed that items (c), (d), (e),
,(j) and (k) be removed from Article 37, which relates only to
Chapter V, and that a new Article be inserted ~tan appropriate
place toward the end of the Charter which would make these items
general exceptions to the entire Charter. It is proposed that
the new Article contain the following introductory language:
"Nothing in this Charter shall be construed to
prevent the adoption q_£ enforcement _QX any Member £1..
measures (the foregoi ng would be followed by a list
of the items transferred from Article 37).
Annex 113
5 rvf'l., ;- 5 - 5
PROPOSED TREAff OP FRIENDSHIP, COMMERCE,
AND NAVIGATION BETWEEN THE UNITED STATES
AND THE ITALIAN REPUBUC
HEARING
SU JJCO)l)ll'ITEt~ O~~ THE
COMMI'ITEE ON )'OREIGN RELATIONS
UNITJt1D STAT~ SENATE
..
EIGHTIETH CONGRt-:ss
~•:c·o~I) :o(t::-:t,.lOS
OS
A i>JlOl'O~t;l) 1·1u:AT\' OF Flllt:su~HIP, COMM£1tC£,
,\Sil NA\'10,\1'10~ 1n,;·rw1-;t;s THE USJTED
81.,\T&'i ;\SD TUE IT.\U.\S JtEPUDLIC
.\l'ltlL 30, UM8
Printed tnr the u..eof the t.'flnnnlttt.ie on •·o~lan llelatlona
VIIITIID aTATaa
OOQUMD"'I' PalNTPCO OftlCII
WAIBDIO'IOK z lNI
Annex 113
•
. .
COMMITl'EB ON roaEION RELAflON8
A&TBU& a. VANDSN81AO, ........ ~ •
.AaT■Ua CAPP••· ~ TOM CONNALLY.,,_
WALUCI a. WBITl,.fa.. ..... WALTI& r. 01010•, ~
.ALIXANflla WILIY, ......... aoasaT r. WAONI&. N• Ylflr
B. ALIXANUI& HUTa, NIW J,nq SLll&T D. TBOll&I, UIM,
aou■KI • • ■ICKINLOOPIR, Ion AUSN ... 8ARKLIY, ~
MIN&Y CAIOT LOl>Ol,Ja.,Mrn '-"' O.&&L A. BATCll,NtwMnn
•
JI.I-O. 1'' ILCIOS, at,/f/ a.,
0 . C . O'l>AY, '11rl
•
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Annex 114
LAW AND POLICY IN
INTERNATIONAL BUSINESS
VOLUME20
1988-1989
Annex 114
CONTROLLING NUCLEAR PROLIFERATION:
LEGAL STRATEGIES OF THE UNITED STATES
JONATHAN B. ScllwARTZ*
U.S. efforts to establish a coherent international ntu:lear policy
haw J'uulud in a compkx set of treaties, statutes, and J'egulations
designed to curb the p,-oliferation of ntu:lear weapons and
regulau the sharing of ntu:leaT maurials and uclmolog:, foT
Peaufal purposes. This A-rtu:le examines the kgal codification of
U.S. nucleaT nonp,-olifnation policy. It e:tplores the effectiveness
of international arms contTol measuTes, expo,-, Testrictions, and
statutory sanctions as means of effectuating U.S. policy. Thi auth.
OJ' concludes that the effectiveness of U.S. legal controls is di•
minished by ex.uptions aeated to accommodau various foreign
polu, objectives and by intro.government tension conuming the
odministTation of the law.
INTRODUCTION
President Harry Truman stated prophetically at the dawn of the nuclear
age that the world faced a choice between "renunciation of the use
and the development of the atomic bomb" and "a desperate armament
race which might well end in disaster."1 American proposals for the complete
internationalization of nuclear energy at the end of the Second
World War went for naught,• however, and it was not until a quarter
--i'be author is a mcmbcT of the Office al the Legal Adviser, United States Depanment of State.
The views apressal are penoo.al and do not nea=uily rdlcct those ol the United State!
GovernmcnL
l. P.n:sidan's Special Message to the Congress on Atomic F.oergy, PullUC PAPDS 362, 366
(Oa. 3, 1945) (Harry S. Truman). The bomb dropped on Hiroshima ntleased the energy equivalent
o{ 12,500 fOOS o{ TNT and killed over 100,000 people. J. Sam.L, Till: FATE OF THE EilTII, t 1, 47
(1982). Today's nuckar ancnals COlltain some 50,000 dmces,, many with a power one hundred times
the Hiroshima bomb. Id. at 3.
2. In 1946, the United Sl.atl!S proposed the acatioo ol an i.ntematiooal authority to assume
mooopoly comrol CM:r nuclear energy, a sdiane o{ sanaions against violators by simple majority voce
ol the t:nited Nations Security Council and eventual l'l!.'li.nqu.ishment ol the U.S. arsenal (the "Barudi"
plan). The Soviet Union bl<dcd this dTon fearing that the elimination of its vct0 in the Security
Council would subject it to t:.S.-sponsored. United Nations (UN) military action, that the control
o{ nuclear energy by a W estem-domi.nated organization would be used to hamper Soviet ffl>llODlic
de9dopmenl and bream Soviet securiq· rootrols, and that the U.S. might not carry out its pledge to
1
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
century had passed and five nuclear weapon states had emerged that a
comprehensive nuclear nonproliferation treaty was concluded. That pact,
the Treaty on the Non-Proliferation of Nuclear Weapons (NPT),3 has
failed to attract the adherence of a number of key states, and its provisions
fall short of a complete assurance against further proliferation among its
members. Thus, even were the nuclear-weapon states to make significant
arms control progress, the danger would persist of both regional and
worldwide competition in nuclear armaments.
The United States, perhaps more than any other nation, has agonized
over how to control that competition. It was the first nuclear-weapon
state, and is still a leader in nuclear technology. After an initial embargo
on nuclear exports/ the U.S. instituted the 1953 "Atoms for Peace" program,'
which was accompanied by a significant revision of the Atomic
Energy Act in 1954.• These initiatives launched a new strategy of sharing
the benefits of nuclear energy in exchange for peaceful use undertakings
by recipient countries. Central to this strategy was the development in
1957 of the International Atomic Energy Agency (IAEA) to assume the
burden of safeguarding U.S.-origin items.7 With the entry into force of the
NPT in 1970, the IAEA was assigned responsibility for safeguarding all
nuclear materials in NPT member territories.• This legal structure was
expanded further in 1978 with Congressional enactment of the Nuclear
Non-Proliferation Act (NNPA).• The NNPA was·responsive to perceived
disarm. Su STANFORD .ARMs CoNTROL GROUP, hnDNATIONAL Anis CoNTII.OL-1.ssL'ES M"D
AGREEMDn'S 66-72 (1976); 11 M. WHITDIAN, DIGEST OF INTDNATIONAL I.Aw§ 5 (1968).
3. Nuclear Non-Proliferation Treaty, opened for .sipaturt July 1, 1968, 21 U.S.T. 483,
T.IAS. No. 6839, 729 U.N.T.S. 161 {cntcnd into force Man:h 5, 1970) [hcninaftcr NYT).
4. Atomic Energy Aa of 1946, eh. 724, 60 Stat. 755-75 (rodified as amended at 42 U.S.C. §§
2011-2296 (1982)). Section t(b)(2) of the original aa prohibited information sharing until "dfcai\-e
and enforceable safeguards against iu use for dcstruaive purposes can be devised." Id. § l(b)(2)
Section 5(a)(2) mandated govcrnmcnt ownership of all fissionable material in the U.S., and section
5(a)(3) included embargo measures on the export or impon of any fissionable material Id. §§
5(a)(2)-(3).
5. President's Address Before the General Assembly of the United Nations on Peaceful Uses of
Atomic Energy, PL"BLIC PAPERS 813 (Dec. 8, 1953) (Dwight D. Eisenhower). For a description of
the background and implcmcntion of the "Atoms for Pcaa:" initiative, stt B. SamT, hrTI:Jt."iATIONAL
Nua.EAR TEOfNOLOG\" TIIANSFDl 45-57 (1983).
6. Atomic Energy Aa of 1954, eh. 1073, 68 StaL 919-61 (rodified as amended at 42 U.S.C. §§
2011-2296 (1982)) [bcmnaftcr AEAi
7. Statute of the International Atomic Energy Agency, opened for signature October 26, 1956, 8
U.S.T. 1095, T.I.A.S. No. 3873, 276 U.N.T.S. 3 (entered into force July 29, 1957) [hcrcinaftcr
IAf.A Statute].
8. Su NYT, supra note 3, an. 111(1) (each nonnudear weapon state pany obligated to conclude
safeguards agrttmcnt with IAf.A to verify fullfilmcnt of its obligations).
9. Nuclear Son-Proliferation Aa of 1978, Pub. L No. 95-242, 92 Stat. 120-152 (1978), 22
2 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROUFERATION
loopholes in U.S. law, highlighted by India's so-called "peaceful nuclear
explosion" in 197410 and the emerging challenges of more mature foreign
nuclear programs incorporating sensitive technologies. 11 The NNPA, the
NPT, and IAEA safeguards remain today the central legal instruments
for advancing U.S. nonprolif eration interests.
The great importance of nonproliferation to U.S. national security is
not matched by widespread understanding of how these legal instruments
address the proliferation threat. The relevant treaties, statutes, and regu:.
lations are complex, dealing with a highly technical subject, and are administered
by six domestic agencies. The applicable legal principles arc
almost never tested, analyzed, or explicated by the courts.11 There is also
a relative paucity of legal writing on the subject. 18
The purpose of this article is to help remedy this shortcoming by surveying
current U.S. nonproliferation legal policy in three areas: (1) international
arms control measures which seek the renunciation of nuclear
weapons or prohibit their deployment in geographical regions; (2) conditions
of supply designed to decrease the likelihood of diversion of nuclear
U.S.C. §§ 3201-82 and 42 U.S.C. §§ 20tt-2160(a) (1982) (hereinafter NNPA).
10. Sa ENvul()N)(D"T .U."D NATURAL RE,ouaa:s PoucY O1VJSION, CoNGlUSSJ0NAL
~Of SERVICE, 98n1 Cose., 1ST SESS., NUCI.EAR PROUFEllATJON FACTBOOlt 2 Ut. Comm.
Print 1985) [hcmnaftcr FACTBOOlt). For its devitt, India used plutonium derived from a Canadiansupplied
researdi rcaaor which probably contained U.S.-supplied heavy water. India argued that
bcause its USl was pan of a program to inmitigate the uses of nuclear cxplosivcs for peacdul purposes,
its aaioo was consistent with its peaaful use assurana:s to Canada and the United States. Sa
Betts, [,ulia, Pakistan, and Iran, in :SON-PR0I..IFDlATIOS A..-.."D U.S. FoRDGN Pm.ICY 106-08 UY~.
ed. 1980); Stt also . .\RMs CoNTllOL A.."ID 0ISAR.MAMDIT AGENCY, DOCUMENTS 0N l)Js..
ARMAMIXT 333-34 (1978) [hettinaftcr l>oaJMENn ON ~) (testimony of Deputy
Under Sea-rwy of~ Josq>h Nye before a subcommittee of the Senate Foreign Relations C-ommitttt
on May 24, 1978). For a description of the history of "pcacdul nuclear cxplosivcs," sec Emclyanov,
°" fM p~ l:se of .Vvcuar Ezplositnu, in STOCJtHOUI INTDNATIO!'IAL 1'EAa: ~Cl
L,'S'ITTUTE, Nuai.ut PRol.lFDlATION PROlllDB 215 (1974) (hemnafter Nua..LU Paoun:uTK>
N PllolllDIS].
11. C.Oncrrn about the spread of scnsitin: nuclear technologies was heightened in the mid-t970s
by European contracts in sensitive areas with South Korea, Pakiswi, Argentina and Brazil.
F~ supra noa: 10, at 2.
12. illustrative is Cranston ,·. Reagan, 611 F. Supp. 247 (D.D.C. 1985), which challenged two
pcacdul nuclear roopaatioo agreements for alleged inc:onsistmcics with the Atomic Energy Act. The
t: .S Di.stria Coun hdd the case non justiciable on political question grounds.
13. The most comprehensive survey of the Sudcar Non-Proliferation Aa is found in Bmaucr,
TIii Xvcuar ,\·on-Prolifmuil>n .~et of 1978, 10 LAw & PoL'Y hrr'L Bus. I 105 (19'.'8). written by
an acanive branch participant in the drafting of the NNPA. A thorough anal)-sis of the !\PT may
be found in Mohamed Shaker's three volume study, TH£ Noa.LU Nos-Paoun:RATION TREATY
(1980) . .So significant legal studies of t..:.S. sanaions legislation seem to have appeared in the field of
nuclear DOD-proliferation. For a brief analysis, Stt L SCHED,XA."i, Tm: b.TDL'1ATIO:SAL ATOMIC
UiPGY AGE:SC\" A.'"D WotU.D SliOLU ORJ>o 183-85 (1987).
1988] 3
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
materials to nuclear weapons; and (3) coercive sanctions threatened
against foreign states to deter actions of special nonproliferation concern.
A variety of other approaches to nonprolif eration can also be found in
U.S. law: security alliances14 and security assistance programs11 designed
to reduce the incentives for nuclear weapons acquisition; effons to ensure
a reliable supply of nuclear fuel18 and to assist in waste disposal,1 7 to slow
the dispersion of sensitive technologies 18
; and, programs to reduce the
presence of weapons-usable nuclear materials abroad ... In the main, how-
14. The U.S. alliances most Cnqumtly cited as assisting in cktaring the acquisition of nuclear
weapons arc those with NATO, Japan and Korea North Atlantic Treaty, ope,udfor signatvre April
14, 1949, 63 Stat. 2241, T.IAS. No. 1964, 34 U.N.T.S. 243 (mtered into fortt August 24, 1949);
Treaty of Mutual Cooperation and Scrurity, Jan. 19, 1960, United States-Japan, 11 U.S.T. 1632,
T.IAS. No. 4509 (mtered into fora: JUDe 23, 1960); Mutual Dcfmse Treaty, Oct. t, 1953, United
Statcs-Kotta, 5 U.S.T. 2368, T.I.A.S. No. '3097 (entered into foett Nov. 17, 19.54). Su, e.,., W.
POTI"l!:a, NVCLUJl Powu AND NoNPROUFERATION-AN OOYllDISCIPLDIAJlY Pt:asncnvE 'D,
200 (1982).
t 5. The link bctwem security assistance programs and nuclear DOD-proliferation mds is best
exemplified by§ 620E(e} of the Foreign Assistance Act of 1961, which requires an annual Presidential
certification that the assistantt program to Pakistan will "rcd11tt signific.antly the risk that
Pakistan will possess a nuclear cxplosift device." Foreign Assistance Act of 1961 § 620E(e), 22
U.S.C. § 2375{e) (1982 & Supp. IV 1986) aanuled "1 Pub. L. No. 100-202, § l0l{e), 101 Stat.
1329-70 {1987).
16. Nuclear Non-Proliferation AC!.§ 101, 22 U.S.C. § 3221 (C-ongnssional policy directing necessary
and feasible aaions to aaure reliable fuel supplies for nations adhering to non-prolif eratioo
policies designed to prevent proliferation); Nuclear Non-Proliferation AC!. § 104(a), 22 U.S.C. §
3223(a) (directing Presidmt to ~ aeation of international nuclear fuel authority to provide international
fuel assurantts ).
17. Nuclear Non-Proliferation AC!. § 105, 22 U.S.C. § 3224 (directing Presidmt to arrange for
international fuel cyde evaluation fo a>osider, among other subjects, methods to deal with spent fuel
storage}; Atomic Energy Aa § 131(0, 42 U.S.C. § 2160(0 (prottdurcs for aettpting foreign-spent
fuel for storage in the U.S.); Nuclear Waste Policy AC!. of 1982 § 223, 42 U.S.C. § 10203 (1982)
(providing for tedmical a.ssistance to nonnudear-wcapon states in the storage of spent nuclear fud}.
18. The two semitift technologies arc enrichment-the ability to purify uranium to obtain the
fissionable isotope U-235-and reprocessing-the ability to separate plutonium chemically from other
flSSion products in fuel that has been irradiated in a reactor. ffighly enriched uranium and separated
plutonium can both be used in nuclear weapons. Assurance of fuel supply and assistance in waste
disposal address two of the motiYariom for acquiring these sensitift tcdmolagies: the desire to c:xtraa
as much energy value from existing stoeks of nuclear material as possible by enriching or re-enriching
uranium or recoYCring plutonium for UJC a., fuel; and, the desire to rcproa:ss spent fuel to avoid the
spc,cial health and safety hazards it poses. Su Gilinsky, Military Polffltial of Civilian Nvcua,Pown,
in Nua.EAR l'RounaATioN: PROSPECTS FOR CoNT1tot. 41 (B. Boskcy & M. Wdlrich ed.
1970).
19. For example, the Depanmcnt of Energy (DOE) and the Arms Control and Disarmament
Agency (ACDA) actively assist foreign nations in modifring their research reaaon to use lower
enriched fuels. DOE also atttpts spent highly enriched research reactor fuel for ,eproccssing and
disposal since it still contains highly enriched uranium. Su lleport to the Congress Pursuant to See-
4 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROUFERATION
ever, it is through arms control pacts, export restrictions, and statutory
sanctions that the United States legally codifies its dedication to stemming
the spread of nuclear weapons.
AllMs CoNTROL 'fllE.A TIES
Although some have argued there may be isolated instances where acquisition
of nuclear explosives by additional states could benefit U.S. se:curity
interests,• both Congress and the Executive have declared all nuclear
proliferation a threat to U.S. interests.11 Reasons commonly cited for
this policy are that:
-Even a small nuclear arsenal could pose a direct security threat to the
U.S. and its allies. It might counter-balance V.S. conventional superiority
and force an intolerable choice between risking nuclear retaliation or using
overwhelming forcc, perhaps including nuclear force, in · the first
instance;
- The introduction of nuclear explosives into a region could be politically
destabilizing, touching off a local nuclear arms race with possible spillover
effects in other regions;
- The actual use or threat of use of nuclear explosives or their accidental
detonation could escalate a local conflict into one involving the superpowers,
with the ever-present risk of global nuclear conflict;
-Additional members of the nuclear club might lack effective command
tion 601 m the Nuclear Non-Proliferation Act m 1978 (1987) (for the year ending Decmibcr 31,
1986) at 18-22 (hereinafter Report Pursuant to Section 601).
20. Sa, 1.g., W. PO'ITl'll, w.pra oote 14, at 11 (summarizing oommentators who dispute that
more nudear-WQJJOD states wou1d nccessariJy be hazardous); SU also, Military r.plications of the
TnalJ °" the NOII-Pn,lifaralioa of Nv.cutJr Wtapmu: Hearings &fort the Senau ea.-. on Armed
Snvius. 91st Coog., 1st Sess. S4 (1969) (whether acquisition of nuclear weapons by artain
additional states would dear.ase the prospect m nuclear war) [hereinafter Hearing on Military
/af>licalitnui
21. The NNPA aJntains the following statement of policy:
The Coogrcss finds and declares that the proliferation m nuclear explosive devices or m
the direa capability to manufacture or otherwise acquire such devia:s poses a grave threat
to the security interests of the United States and to continued international progress toward
world peatt and dcvelopmenL
Nudear Non-Proliferation Aa § 2, 22 U.S.C. § 3201.
President Reagan, upon assuming office, declared that as a basic guideline of U.S. policy, the
United States would "seek to prevent the spread of nuclear explosives to additional oountries as a
fundamental national security and foreign policy objeaive; ... " President's Statement on Nuclear
Nooprolif'eralioo Policy, 17 WEDLY Cola. Pus. Doc. 768, 769 Uuly 20, 1981).
1988) 5
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINF.sS
and control structures or physical security capabilities, increasing the danger
of unauthorized use of nuclear weapons;
-Increasing numbers of nuclear-weapon states would make the task of
nuclear disarmament substantially more difficult; and
-Given the public commitment by the United States to nonproliferation,
acquisition of nuclear weapons by a U.S. ally could undermine U.S.
credibility. u
The most direct legal means for countering these dangers is for the U.S.
to secure nonproliferation undertakings by as many other nations as possible.
Thus far, three types of international instruments have been developed
for this purpose: treaties barring the transfer or acquisition of nuclear
weapons; treaties establishing regional zones free of nuclear
weapons; and broader arms control treaties with a secondary restraining
effect on proliferation, such as nuclear test bans.
No Transfer or Acquisition Treaties.
The NPT is the most important international instrument outlawing the
transfer or acquisition of nuclear weapons by additional states. It divides
the community of nations into two categories: those nations having tested
a nuclear explosive device prior to January 1, 1967 (the "nuclear-weapon
states"-the U.S., the USSR, England, France, and China)» and those
nations which did not (the "nonnuclear-weapon states"). In the NPT, nuclear-
weapon states undertake not to transfer nuclear explosives to any
state whatsoever, and not to assist, encourage, or induce any nonnuclear
weapon state to manufacture or otherwise acquire explosives." The nonnuclear-
weapon state parties undertake not to manufacture or otherwise
acquire explosives and not to accept assistance for developing nuclear explosives.•
Through these twin principles of restraint, the Treaty seeks to
22. Su W. POITDl, supra llOlC 14, at 12 (increase in numbers of nudcar-wcapoo sw.es .. -ou]d
compound problems of arms control negotiations); Hearing on .\lilitary laplicat»ns, svpra DOlt 19,
at 5-4-55 (additional nuclear-weapon srates increases cnancc of nuclear war); Cot."NOL os FOIUlGs
REIAnoi.li, BI..OCIUNG TifE SP1lEAD or NVCUAR WEAPO~AMEllcA."" Al'iD EuaOPL\..'i PEaSPECTIYES
7 (1986) (amduding that the spread of nuclear weapons would, among od>cr pcoblcms,
magniJ\ the dcstruaiw:ncss of ~onal hostilities, incrc.asc the risk of superpower invol=nmt in
nuclear war, and create obstacles to arms control}.
23. !',;Yr, supra oote 3, an. IX, para. 3. Tbeomically, the 6ft pubijdy-ackno...-ledgai nudear..
-capon srates (which arc also the pc:rmancm mcmbc:rs of the United Nations Security Council) could
be joined by a Slatr proring it had SCCffl!y carried out a nuclear tes1 prior to the rut~ date in the
Treat}·- ~i. SH.-\Dll, supra note 13, \'OI. I at 196.
24. ~PT. supra DOie 3, ar~ I.
25. Id. art. D.
6 (Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
freeze the status of nuclear proliferation as of 1967.
The NPT does not provide for acquiescence in the current arms race
among nuclear-weapon states, however. All parties, particularly the nuclear-
weapon states, are committed under the Treaty "to pursue negotiations
in good faith on effective measures relating to cessation of the nuclear
arms race at an early date and to nuclear disarmament, and on a
treaty on general and complete disarmament under strict and effective international
control.',. Lack of progress in curbing the nuclear arms race
has led to increased criticism and could threaten the Treaty's viability after
its initial 25-year duration expires in 1995.17 The United States,
among others, has countered that the Treaty serves the security interest of
all its parties notwithstanding the level of progress in limiting "vertical
proliferation" among the superpowers.•
The NPT also does not seek to curtail trade promoting the peaceful
applications of nuclear energy, so long as that trade is carried out in conformity
with the basic nontransfer and nonacquisition principles of the
Treaty relating to nuclear weapons.19 To verify that those principles are
being adhered to, the Treaty requires international "safeguards" under
the auspices of the IAEA to be applied to all the peaceful nuclear activities
of the nonnuclear weapon state parties. 80 These safeguards consist of
independent acrounting by the IAEA of nuclear materials, supplemented
by physical containment and surveillance techniques including on-site inspections
by IAEA representatives.11 In the event an inspection discovers
26. Id. art. VI.
Tl. Sa CouNat.. me FOllDGN REIAnoss, supra ootc 22, at 16. Anide X of the NPT provides
for a amfcrcna: in 1995 "to deride whether the Treaty shall continue in fOl"I% inddinitcly, or shall be
atmded for an additional fixed period or period5. 'This derision shall be taken by a majority of the
Parties to the Treaty." NYT, mpa DOtC 3. By its terms, this provision would DO( appear to authorizr
the C-onfcrcncc to taminate the Treaty, but only to extend the Treaty, ~-en if onl)· for a single, "fixed
period" of shon duration. Su M. SHAllll., supra nott 13, at 863-64.
28. Sa, e.g., Tlmtl Rnnno CmajtTn&a of IN TrealJ on IN Non-ProlifmJtilm of .",'uclear
H'taptnu: Heam,g, Before t1ie Suhana111.. on Arws Control, lntnnational SuuritJ and Samu and
on lrtllmalitmal &ono.ic Pow:, and Tratk of IN Senate Cowa•itut on Foreign Affairs, 99th
Coog., la Scss. 50 t1985j i~~- of Lewis Dunn, Assistant Dittaor for Sudear and Weapons
Control, ACDA, and Deputy Chairman of L".S. Delegation 10 the Res.;""- C.Onfcrc:ncc).
29. Article IV of the :SYf mxignizcs an '"inalienable right" of the Panics to emplo~· nuclear
mcrgy for pcac:rful purposes, rrquircs the Panics "to facilitate ... the fullest possible exchange of
equipment, materials and scientific and technological information for the pcac:rful uses of nuclear
mcrgy" and rrquircs Panics "in a position to do so" 10 bdp dcvdop the peaceful applications of
nuclear cnagy in the territories of nonoudear-wcapon swe parties. :SYT, supra note 3.
30. Id. an. Ill, para. 1.
31. Sa Edwards, lnternalio,sal Legal Aspects of Safeguards and IN ,\.on.Proliferatwn of .\"uckar
H'eapo,u, 33 Lvr'L & CoMP. L Q. 1, S-8 {19S4) (the author, who was Director of the lo\EA
Legal Dimioo from 1977-.,9. describes the Lo\EA safeguards system and its relationship to the SP'I).
1988} 7
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
noncompliance, under the IAEA's statute its Board of Governors must be
notified and must report the noncompliance to the United Nations Security
Council and General Assembly.a The purpose of this safeguards system
is to create a high enough probability that unauthorized uses will be
detected to seive as a disincentive for breaching the Treaty. This disincentive
provides assurance to other Treaty parties that the terms of the
Treaty are being respected and, in the event they are not, that the international
community will be apprised in time for an appropriate response. u
The Treaty also requires IA.EA safeguards to be applied to the export
of nuclear materials to nonnuclear weapon states not parties to the
Treaty ... This mechanism helps ensure that transfers beyond the Treaty
regime do not contribute to proliferation among non parties.• It also
serves the important function of limiting discriminatory effects favoring
The safeguards are applied in aa:onlance with agrcancnts cooduded between the panics and the
lntcmational Atomic Energy Act (IAEA Statutr). NYr, svpra IIIOCt 3, art. m, para. 4. Su OOY.JlHA•
TIONAL ATOMIC ElmlGY AGENCY, hffoRMATION CotaJLu Doc. INFCillC/153/Cornacd (1972)
[hereinafter INFCIRC/1531 (this cin:ular outlines a modd agrcancnt, approved by the IAEA Board
m Gowmon, to !«:rff as the basis for NPT safeguards negotiations). Su L 5<:HmoLuc, n,.pra oote
13, at 152-71; B. Saun, n,.pra note 5, at 103-06.
32. IA.EA Statute, ft/mJ note 7, an. XII, para. C. Safeguard ag,ummts oooduded pursuant to
the NYr permit such rqxirts cvm if a violation is DOIi established but the IA.EA cktamincs it "is not
able to verify that there has been DO diversion o( awuar aatnial ... to nuclear weapons or odier
nuclear cxplosi~ devices." INFCIR.C/153, n,.pra nott 31, para. 19 (emphasis in original).
33. Edwards, SU/mJ oote 31, at 14.
34. NPT, supra note 3, an. m, para. 2. Non-party rtt:ipienu may conclude the nettSS31'f safeguards
arranganents with the I.AI.A pursuant to a model ag,ummt devdopcd by the IAEA and
approval by the Board of Governors prior to the NYr for the purpose al safeguarding specific
projects or facilities, rather than an entire nudear program. Su bn°EJL"fATJONAL ATOMIC f..>mtGY
AGESCY, hm>RMATION CmaJUJt Doc. INFCIR.C/66/llev.2 (1968) (the Agency's Safeguards Systan)
[bemnafter INFCIR.C/66}. Su also L SalmiKAN, n,.pra nott 13, at 127-45; B. Saun,
supra note 5 at 101-03. To establish a oommon inta-pretatioo m which transfers nquire safeguards
under the NPT, the major NPT suppliers hall" cstablisbcd a "trigger list" found at l.Nn:aNATIONAL
ATOMIC ENDtGY AGENCY, bm>RKATION Cw::uua, Doc. INFCIR.C/209 (1974) -'iJie4 "1
INFCIRC/209/Add.6/Mod.1 (1978), INFCIRC/209/Mod.2 (198-4), INTCIR.C/209/Mod.3 (1985)
[hereinafter DlFCIR.C/209). The twenty-three panicipants in this arrangement an somcrimcs referred
to as the 1.anggcr C-ommitttt after their Swiss chairman, Claude Zangger. S« Report Pursuant
10 Sccrion 601, supra note 19, at 13.
35. In the case al the nuclear-weapon state panics, Article I explicitly prosaibcs trade which
would assist a oonnuclear-weapoo state to acquire nuclear explosives. NPT, n,.pra note 3. Nonoudear-
weapon state parties an: DO( under a similar specific injunction, but the United States and the
Soviet Union, which jointly drafted the Treaty, agreed during the DC"gOtiations that such a.ssistantt
would gi,·e rise to the presumption that the oonnudear-weapon Slate party expected 10 rccavc aplosivcs-
rclated aid in return, in dir= violation of Article Il which expressly prohibits rccapt ol "any
assistancr in the manufacture of nuclear weapons or other nuclear explosive dcYiccs." S« M.
SKAllll, supra note 13, at 263-66.
8 (Vol 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
nonparties, which, unlike the nonnuclear-weapon state parties, otherwise
would be permitted to receive nuclear items from NPT parties without
accompanying safeguards. Some discrimination is built into the Treaty,
however, since nonparties need only accept safeguards on the transferred
items themselves, whereas the nonnuclear-weapon state parties accept
safeguards on all their peaceful nuclear activities. This differential treatment
is sometimes cited, along with the Treaty's central principle of discrimination
between weapon states and nonweapon states, as evidence that
the burdens of the NPT fall predominantly and unfairly upon its
nonweapon parties.•
The United States has taken a number of steps in an effort to soften the
discriminatory effects of the Treaty. First, the U.S. has sought to alleviate
the security concerns of parties which renounce the acquisition of nuclear
weapons by providing both "positive" and "negative" security assurances.
The "positive" assurance took the fonn of a declaration, under the umbrella
of Security Council Resolution 255, adopted June 19, 1968,87 that
any aggression or threat of aggression with nuclear weapons against a
nonnuclear-weapon-state party would create a qualitatively new situation,
in which the U.S. would have to act immediately through the Security
Council to take measures necessary to counter the aggression or threat of
aggression. The Soviet Union and the United Kingdom, the other nuclearweapon
state parties to the NPT, made similar declarations.118 The value
of the positive assurance has been questioned, however. The Security
Council's decisions on enforcement measures are subject to veto by any of
the permanent members.• Since the permanent members are the five declared
nuclear-weapon states, it is likely one of them would be responsible
for any alleged nuclear aggression and through its veto could frustrate
action by the Security Council. 40
The U.S. supplemented its positive security assurance on June 12,
1978, with the negative assurance that it would not use nuclear weapons
against a nonnuclear-weapon-state party unless it was involved in an attack
on the United States or its allies in alliance or association with a
36. Su Sman, NOfl-Prolife-rotion Treai,: Status and Prospects, in NPT: PARADOXES AND
PROBLEMS 22-23 (A. Marks ed. 1975).
37. S.C. Res. 255 at 13 (1968), U.N. Doc. S/INF/23/Rev.l (1970).
38. 23 U.N. SCOR. (1430th mtg.) at 6-7, U.N. Doc. S/PV.1430 (1968).
39. U.N. CJ.iARTER, an. 27, para. 3.
40. Su, e.g., Goldblat, T1ae UN Secuni, Council lusoluticm of 19 June 1968 and the Securii,
of Non-Nuckar-Weapon Statu, in Nucu:.u PROLIFERATION PROBLEMS, supra note 10, at 238;
Coffey, Threat, Reassuranu and Nudear Proliferation, in NUa.E.AR PROLD"EllATION: PROSPECJ'S
FOil CowntOL, at 122-23 (1970).
1988] 9
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
nuclear-weapon state.41 A similar commitment, although geographically
limited, was undertaken by the United States through adherence to Additional
Protocol II to the Treaty for the Prohibition of Nuclear Weapons
in Latin America (the "Treaty of Tiatelolco") in 1971, which requires the
United States "not to use or threaten to use nuclear weapons against the
Contracting Parties" to that treaty.41 At the time of adherence, the U.S.
explained that it "would have to consider that an armed attack by a Contracting
Party, in which it was assisted by a nuclear-weapon state, would
be incompatible with the Contracting Party's corresponding obligations
under Article I of the Treaty,"41 implying that this would free the United
States of its treaty obligations to that state." The negative assurance
under the Protocol therefore parallels the 1978 statement by the United
States-nations renouncing nuclear weapons will not be targets of the
U.S. nuclear arsenal unless they establish military ties to other nuclear
weapon states hostile to U.S. interests.
Another concern expressed by some nonnuclear-weapon states about
joining the NPT has been that the required IAEA safeguards might have
deleterious commercial effects, either because they interfere in their business
operations or because safeguard procedures might lead to the loss of
industrial secrets. They have cited the particular fear that the privileged
class of nuclear-weapon states, which are not subject to safeguards, might
41. UNrnD STATES ARMs Cc:»rntoc AND DISAllMAMDIT AGENCY, ARMS Cm,T1tOL A."ID DisARMAMENT
AcllDUNTS, 87 (1982} [hcrrinaftcr ARMS CmmtOL A."W DlSA1lKA1fnn"
AGllDffNTS).
The United States will not use nuclear wcapous against any non-nuclear weapons state
pany to the NYf or any ooqiparablc iutcmationall)· binding oommitmmt DOl to acquire
nuclear explosive devices, except in the cast of au attack on the United States, its taritorics
or armed forces, or its allies, by such a state allied to a nuclear weapons state, or associated
with a nuclear wcapous state iu caJT)ing out or snaaining the attack.
Id. (quoting the declaration of President Carter made June 12, 1978}.
42. Additional Protocol IT to the Treaty of llatclolco, Feb. 14, 1967, an. 3, 22 U.S.T. 7S4,
T.I.A.S. No. 7137, 634 t:.N.T.S. 364 (entered into fortt Dec. 11, 1969; entered into fortt for the
United States May 12, 1971).
43. Proclamation by Prcsident Nixon on .Ratification of Additional Prowcol II to the Treaty for
the Prohibition of ~uclcar Wcapous in Latin America, rq,miud in~ Co'-"TltOL A.'"'D DISAJIXAMD,
T AGllEDfENTS, supra ucxc 41, at 78.
44. l;nder the customary law of treaties, a material breach by ooc party gives rise to a reciprocal
right of suspension for other affected parties. This rule is rdleacd in Article 60 of the Vimua Convention
ou the Law of Treaties, !I.fay 23, 1969, 1155 t.:.S.T.S. 331 (entered into force Jan. 27, 1980}.
The United States is DOl a pany to this Convention; howcvcr, it is gmcrally rccogniz:cd as a codification
of customary international law OD most points. Su Ml:ssAG£ f"ROM TIIE hEsu>DrT OF TIIE
U~TTED STATES TllA."iSMJTTD;G 11{£ VJDlNA eo~-vn.-nos ON TIIE LA~- OF TR£ATIES r~
in S. E.xu:. Doc. No. L, 92d Cong., 1st Scss., 1 (1971}.
10 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROUFERATION
obtain commercial advantages over their safeguarded competitors." Similarly,
some states have argued that a treaty regime calling for safeguards
in only one category of parties is unaa:eptably discriminatory as a matter
of principle.
In response to these concerns, on December 2, 1967, the United States
announced that once safeguards were applied under the Treaty, it would
voluntarily permit IAEA safeguards "on all nuclear activities in the
United States excluding only those with direct national security signifi:.
cance."" In 1980, a Treaty between the United States and the IAEA was
concluded for this purpose. n Under the Treaty, the United States establishes
an eligible list of nuclear facilities from which the IAEA may select
any number for the application of NPT-type safeguards." The United
States, however, remains free to remove facilities from the eligible list at
any time for national security reasons, or to transfer nuclear material out
of an eligible list facility.'• The safeguards imposed pursuant to· this voluntary
offer by the U.S., therefore, have primarily symbolic effect, but
they enable the United States to demonstrate its conviction that safeguards
are not incompatible with commercial interests, including the protection of
proprietary technologies.
The United States, finally, bas sought to temper one other discriminatory
effect of the NPT-its allowance of exports to nonparties which have
not undertaken broad safeguards commitments. Since 1978, United States
law has required the maintenance of IAEA safeguards on all of a recipient's
peaceful nuclear activities as a condition of export of significant nuclear
items. 18 This principle applies to any nonnuclear-weapon state re-
45. Sa, e.g., UNITED NATIONS Assoc:IATION OF THE UNITll> STATES OF AMEluCA, NliCL£AJl
PaOU£EllATION-TOWAllD Gl.oBAI. REs'rv.nrr 4 (1984) (hcrcinafter TOWAJU> Gu:>BAL
llEsnAnn"i
46. AnlS CoNntoL AND DlsAnfAMDrr AcllEDIElml, svpa note 41, at 201 (quoting statement
of Prcsidmt Johnson on Dttmiber 2, 1967).
47. Agn:cment foe the Application of Safeguards in the United States, Nov. 18, 1977, United
Swes-Intanational Atomic Energy Ag=c:y, 32 U.S.T. 3509, T.I.AS. No. 9889 (entered into fora:
Dettmbcr 9, 1980).
48. Id. an. 1{b). In practicr, the IA£A bas sdccted only a very small portion of eligible TJ.S.
facilities for application of safeguards. S« Houck, The Vol1intary Safeguards Offer of tAe Unit.ed
States: A Review of its History and l•plnufflalion, 27 OO"DL"lATIONAL ATOMIC E..'ff:RCY AGENCY
BUU- 13, 18 {Summer 1985). This praaicr stems from a decision at the rime the Treaty was
presented to the lAEA Board of Governors to sdcct facilities of advanced design involved dircaly in
international COIIIIl1Cttial oompetition, but not to overwhelm the IAEA's safeguards rcsoun:cs by including
all the two hundred oc so eligible nudcar facilities in the United States. Su ARMS Co~lllOL
AND ~ AclllEMDITS, supa note 41, at 204.
49. Id. an. l{b)-(c).
50. Nuclear .Son-Proliferation Act§ 306, 42 U.S.C. § 2157 (adding§ 128 of the Atomic Energy
1988) 11
Annex 114
LAW & POUCY JN INTERNATIONAL BUSINESS
cipient, whether or not pany to the NPT, and thus diminishes the alleged
advantage of nonparties in obtaining U.S.-origin nuclear commodities.
Whether or not these palliatives by the United States, and similar steps
taken by the other nuclear-weapon-state parties,11 have been a significant
factor, membership in the NPT has grown steadily since 1970. It is the
most widely subscribed to arms control treaty in history, with some 139
adherents to date. 11 The NPT is now the cornerstone of U.S. non proliferation
policy, particularly its safeguards undertaking which permits the
IAEA to verify compliance with the fundamental commitment of nonnuclear-
weapon-state parties not to acquire nuclear explosives.
Despite its unprecedented scope and important achievement in restraining
the proliferation of nuclear weapons, from a national security
perspective the Treaty still contains a number of weaknesses which, while
perhaps inevitable, detract from its role as a security guarantor.
(1) The Treaty does not seroe as a physical or technical barrier to tht
proliferation of nuclear weapons. The IAEA safeguards program required
by the Treaty is designed to ensure that nuclear material in peaceful
activities of the nonnuclear-weapon-state parties is not diverted to nuclear
explosives, but the IAEA has neither the authority nor the power to
prevent the misuse of materials under safeguards. u The Treaty similarly
Act).
St. Both the United Kingdom and the Soviet Union have provided "positive" security assuranas
pursuant to Security Council Resolution 255, sec note 38, supra, and, m<>re recently, "negative"
security assurances. See j. GoLDBLAT, AllMs CoNTROL AGUEMENTS: A HANDBOOlt 46 (1982). The
United Kingdom has entered into a voluntary safeguards agrttmcnt with the IA.EA comparable in
coverage to the United States IAEA Agreement. Su INTillNATIONAL ATOMIC ENERGY AGENCY,
lNFoJtMATION CIRCULAR DOC. INFCIRC/263 (1978) [hereinafter· INFCIRC/263). The Soviet
Union also has a voluntary safeguards agreement with the IAEA, but it is limited to a small category
of facilities sprofied by the Soviet Union. Set INTERNATIONAL ATOMIC ENERGY AGENCY, lNFORMA·
noN Cntcuu.R DOC. INFCIRC/327 (1985) reprinted in 24 l.L.M. 1411 (1985) [hereinafter
INFCIR/327].
52. See Omcr oF THE LEGAL ADVISER, Uz,,TTED STATD DEPARTMENT OF STATE, TREATIES
IN FoRCE 336-37 (1988) [hereinafter TIF) (listing 138 parties as of Jan. 1, 1988, including Taiwan-
whose authorities have stated they will continue to abide by the provisions of the Treaty despite
their expulsion from the UN and the IAEA-and SL Christopher and Nevis (now called SL Kitts and
Nevis), which declared upon independence its intention to abide by the Treaty pending a final decision
on whether to succeed or accede). Saudi Arabia joined the Treaty on October 3, 1988, to bring
the number of adherents to its requirements to 139. Iraq Tells Sdrultz. It Won't Uu Poison Gas
Against Rebel Kurds, L.A. Times, Oct. 4, 1988, pt. I, 10, col. t.
53. Under Articles XII(B) and XIl(C) of its statute, the IAEA may dirmly cunail or suspend
assistance being provided or call for the return of materials subject to lAEA safeguards. IA.EA Stat•
ute, supra note 7. These arc, of necessity, legal restraints rather than physical barriers, and if the
non-complying State proves ttcalcitrant, the only rccoursc for the IAEA, a.silk from suspending the
12 [Vol. 20
Annex 114
CONI'ROLUNG NUCLEAR PROUFERATION
contains no enforcement mechanism for violations, nor does it restrict the
permissible forms of nonexplosive nuclear activities. Thus, under the
NPT states may engage in activities allowing access to materials that
. could rapidly be converted for weapons applications, and the Treaty does
not assure any response in the event of a diversion.
(2) IAEA safeguards have hem criticiud from time to time as insufficient
for detecting diversions in a timely fashion." In particular, the in.:.
troduction of sophisticated fuel cycle activities involving large stocks of
weapons-usable materials (such as highly enriched uranium or separated
plutonium) will severely test the IAEA's technical capabilities.M To the
extent the IAEA is perceived as unable to detect significant diversions in a
timely fashion, the role of the NPT as a confidence-building measure will
be eroded.
(3) Military applications of nuclear mergy art not precluded by the
NPT. Except for nuclear weapons or other nuclear explosive devices, the
NPT does not proscribe the military application of nuclear energy by
nonnuclear-weapon states. N This compromise was necessary to allow,
State's rights and priYilcgo of mcmbcnhip pursuant to Article XIX of the IAEA statute, would be to
urge the Security Council to adopl enforcement measures under Chapter VII of the L'"N Charter for a
thnat to the pcac:r, breach of the pcac:r, or am of aggnssion. Su notes 36-39 supra and aa:ompanying
tat.
54. E.g. TowilD GLOBAL iusntAIJ.rr, supra ootc 45, at 4. Su gmn-allJ L. Sclu:n."MA..-i,
svpra Dille 13, at 230-41. Among the aiticisms arc that: Only one-third of the IAEA's budget is
.devoted to safeguards aaivitics since most mcmbcn pref er tcchnical ~ aaivitics; states which
sec safeguards as inuusivc provide late or inromplctc reports to the L.\.F.A; the lAEA employs only a
few hundred inspectors for over a thousand sites; geographical distribution requirements for the inspcaon
takt pttadc:oa over technical qualifications; there att no UDallllOU1lad inspections and countries
arc &tt to rtjrn any particuJar impec:tor; and, aaual safeguards arrangements for specific facilities
arc kept c:unfidcntial, so Olhcr states att unable to evaluate them. Su g=au, Schcinman,
Ntmf>Tolijeralim& R.tgi,u: Safegvards, Controls and Sanaions, in Tm NUCLE.u Cm,NECTION-A
~ OF Nua.LU PoWE:R A.>m Nua.E.All Pll01..1TDtATIO:S 193-202 (A. Weinberg, M.
AJooso & J. Barkeobus ms. 1985). At the same time, the lioitcd States has worked closely with the
lAEA to impnJft the safeguards regime. Su Nuclear Non-Proliferation Aa § 201(a), 22 1,;.S.C. §
3241 (undertaking to work with O(}ia- nations to "continue to wcngthcn the safeguards program of
the IAEA"); llcpon Pursuant to Section 601, supra DOtc 19 (describing various U.S. support programs).
Since 1980, IAE.A inspections haw risen by SO'lft, the tmw-cs of inspectors ha,·e lengthened,
as haft the proponioo of their time dcwtcd to inspections, and inspccrioo goal attainment and timcliocss
of inspcaion reporting bas i.ncrascd markedly while the number of di.sa-cpaocics requiring further
inftStigation bas decru.scd. Id. at 26-V.
55. S«, t.g., Nvdear Nonproliferalion-1..au: and Pouc,, 76 A.\C. Soc'v h,-r'L L. 77, 80
(1982) (mnarb by Senator Glenn).
56. !li"'P'f, svpra DOtC 3, an. II
1988) 13
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
among other things, for nonweapon parties to develop naval propulsion
systems using nuclear power. 67 Since the IAEA does not safeguard nuclear
material employed in military activities,68 the safeguard agreements
under the NPT permit unlimited quantities of nuclear material to be
withdrawn from safeguards for use in nonexplosive military activities."
This right of withdrawal has never been exercised by a party, 80 but it
represents a potentially significant exception to the Treaty's verification
requirement. Under arrangements with the IAEA, a party could remove
large stocks of sensitive nuclear materials from international inspection
without contravening the NPT.
(4) Parties may withdraw from the NPT on three months notice with
no residual obligations. Like several other arms control pacts, the NPT
recognizes a right of withdrawal where a party "decides that extraordinary
events, related to the subject matter of this Treaty, have jeopardized
the supreme interests of its country.',. 1 Three months advance notice must
51. See M. Wn.uuCH, NoN-PROLIFEJtATION Tli:ATY: FRAMEWou roa NUCLEAR AllMs
CoNTROL 68-69 (1969) (quoting U.S. public interpretation that NPT permits nuclear sub~ fud
transfers to nonnudear-weapon state parties because Treaty applies only to warheads or bombs).
58. The IAEA is chartered "to accelerate and enlarge the contribution of atomic energy to peace,
health and prosperity throughout the world" and to ensure that assistance provided by or through the
agency "is not used in such a way as to further any military purpose." lAEA Statute, supra note 7,
art. II. The statute of the lAEA describes its safeguards as intended to assure items under safeguards
"will not further any military purpose." Id. XII.A(t). Su M. WILLRICH, supra note 57, at 120
(doubtful IAEA could safeguard military activities).
59. JNFCIRC/153, supra note 31, para. 14. Prior to the withdrawal of nuclear material from
safeguards, the State must make clear to the lAEA that its activities will not be in conflict with the
NPT or other peaceful use assurances, and an arrangement must be concluded with the IAEA identifying
the period and circumstances of withdrawal. Thereafter, the IAEA which must be kept informed
of the quantity and composition of the withdrawn material must be returned to safeguards
when it is reintroduced into peaceful use. Id.
60. Two other situations potentially involving unsafcguarded nuclear activities by nonnuclearweapon
state parties also have not arisen: (1) the receipt of nuclear material or equipment from
another state for military, nuclear use; and (2) the indigenous development of nuclear material or
equipment for military use. Su, e.g., NPT, supra note 3, art. IIl(l)-(2) (requiring safeguard only on
"peaceful nuclear activities" and transfers for "peaceful purposes"). The advent of nuclear propulsion
programs by non-weapon parties would necessitate a clearer understanding of how the NPT's broader
confidence-building purposes can be fulfilled when material is kept outside of safeguards.
61. NPT, supra note 3, an. X(l). Su Limited Test Ban Treaty, art. iv, e>pmed for signature
August 5, 1963, 14 U.S.T. 1313, T.l.A.S. No. 5433, 480 U.N.T.S. 43 (entered into force Oct. 10,
1963) (three months advance notice required for withdrawal); Seabed Treaty, an. VIII, opnud for
signature February 11, 1971, 23 U.S.T. 701, T.I.A.S. No. 7337 (entered into force May 18, 1972)
(three months notice); Biological Weapons Convention, art. XIIl(2), opened for signature April 10,
1972, 26 U.S.T. 583, T.I.A.S. No. 8062, 807 U.N.T.S. 57 (entered into force March 26, 1975) (three
months); Treaty on the Limitation of Anti-Ballistic Missile Systems, an. XV(2) May 26, 1972,
14 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
be given by the withdrawing state to the other parties and to the United
Nations Security Council, including "a statement of the extraordinary
events it regards as having jeopardized its supreme interests.',.1 It is not
surprising that an escape clause was included in a Treaty dealing with
quintessential national security interests. Nevertheless, the effect is that a
nonnuclear-weapon state may free itself of its NPT nonexplosives undertaking
and, significantly, of its NPT obligation to accept international
safeguards, even on material transferred while it remained a party." In
the absence of other commitments, the materials could, after withdrawal,
be used by the state in contravention of the NPT's most fundamental
principles.
(5) Important nuclear· programs remain outside the Treaty regime.
This is perhaps the most serious shortcoming of the Treaty. The NPT
has the largest number of parties of any arms control pact, but· many of
the nuclear programs of greatest nonproliferation concern are still not covered,
including those of Argentina, Brazil, India, Israel, Pakistan, and
South Africa. Nonnuclear-weapon states refusing to adhere to the Treaty
retain the legal flexibility to acquire nuclear weapons and to carry out
nuclear programs without IAEA safeguards. All the states listed have retained
some of their nuclear facilities outside of the IAEA inspection system
and, while giving public assurances that their programs are peaceful
in nature or that they have no current intention to develop or introduce
nuclear weapons into their region, have refused to enter into binding international
commitments against proliferation .... (Other nonproliferation
treaty regimes, such as nuclear weapons free zones, encompass similar legal
undertakings to the NPT,86 but in practice their membership has not
United Statcs-t.:.S.S.R., 23 U.S.T. 3435, T.l.A.S. No. 7503 (entcrm into force Oct. 3, 1972) (six
months notice).
62. NPT, sur-o note 3, art. X.
63. The lack or safeguards prrprtuity is reflected in NPT safeguards agrttments, which provide
for a duration identical to the term of NPT membership. Su INFCIRC/153, sur-o note 31, para.
26. This oontrasts with non-NPT safeguards agrttments with the IAEA which, sina: a Board or
Governors decision in 1973, oontinue safeguards until itrms arc: no longer or safeguards rclrvana:. Su
L'iTI:RNATIONAL ATOMIC E."lE.RGY AGENCY, BoAJtD OF GovEJl.'.ORS Doc. GOY /1621 (1973) [hcrrinaftu
GOV/1621).
64. The requirement or such a binding international lrgal oommionent has bttn the focal point
or the IAE.4-'s dforts to rstablish a oonscnsus on the preconditions or nudcar supply. A "Committrr
on Assurances of Supply" (CAS) rstablished by the IAEA Board of Governors has spent the last
several years discussing the form and oontent or the drsired oommioncnt, with a small number or nonNPT
panics gcncrally disclaiming the need for more than unilateral declarations. Set ~cGoldrick,
Problnu of Assuronu of Nucuor Supplies, DEPT. OF STATE Buu.. 48, 52 (Sept. 1987).
65. The Treaty of Tiateloloo, an. 1(1), opnud fo-r signature Feb. 14, 1967, 22 U.S.T. 762,
1988) 15
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
extended beyond that of the NPT.) The nonnuclear-weapon states outside
of the NPT system as well as the two nuclear-weapon states which have
refused to accede to the NPT (China and France) also retain the legal
flexibility to supply nuclear materials and equipment without safeguards,
and to assist nonnuclear-weapon states in the manufacture or acquisition
of nuclear explosives, although several of them have stated that they will
not do so ...
In recognition of the shortcomings of the NPT, U.S. law mandates the
application of additional layers of bilateral controls as a condition of nuclear
cooperation. These will be discussed after first reviewing two other
categories of arms control treaties that play a lesser role in U.S. nonproliferation
law-nuclear weapons free zone treaties, and superpower
arms limitations with secondary nuclear nonprolif eration effects.
T.I.A.S. No. 7137, 634 U.N.T.S. 281, supplnumed ,,, Additional Protocol I, 22 U.S.T. 786,
T.LA.S. No. 10147, 634 U.N.T.S. 360, Additional Protocol ll, 22 U.S.T. 755, T.I.A.S. No. 7137,
634 U.N.T.S. 364 requires nudear materials and facilities to be used by its mcmbcn "adusively for
peacd'ul purposes" and proscribes "testing, use, manufacture, production or acquisition by any lllQJlS
whatsoever of any nudear weapons. ... " To verify these undertakings, IAEA safeguards are
required, id. an. 13, and a c.ounaI of Tutdoko mcmbcn is authorized to carry out supplementary
inspections. Id. an. 16. Different views have been expressed as to whether the treaty perm.its mcmbcn
to produce and detonate nudear aplosivcs for "pcamul" purposes. See M. SHAllll, svfwo note 13,
at 209-12. The more recent South Pacific Nudear Free Zone Treaty, ope,,,edfor signoturt Aug. 6,
1985 (entered in fora: Dec. 11, 1986), rtfwinud in 24 I.L.M. 1440 (hereinafter South Pacific
Treaty), prosaibes members from the manufacture or acquisition of "any nudear explosive device,"
requires verification by IAEA safeguards, and provides for special inspections at the direction of a
Consultative Committee of members. Id. at arts. 3(a), 8(2)(c) & 8(2)(d); Annex 4, para. 4. The
Treaty also specifically requires the application of IAEA safeguards on cxpon.s to nonnudcar-wcapon
states outside of the treaty regime. Id. an. 4(a).
66. France dccl.aml in 1968 that it would act as though it were a pany to the NPT while
refraining from joining the Treaty. Stt Di.Ja,.__, and Rtlattd. Matten 1968, 1968 U.N.Y.B. 9.
China, South Africa and Argentina have rcoently announced they will insist upon IAEA safeguards
for exports to nonnudear-wcapon states. In part to address the absence of significant nuclear exporters
from the NPT, a Nuclear Suppliers Group was formed in 1974 to mordinate policies to ensure
commercial rivalries would not lead to a degradation of non-proliferation controls on international
transfers. The Group (also referred to as the London Club) established oommon guidelines in 1976
which call for such controls as the application of IAEA safeguards on exports to nonnudear-weapon
stateS, physical protection, and special restrictions on the transfer of sensitive technologies. The current
guidelines can be found in INTERNATIONAL ATOMIC ENERGY AGENCY, bm>RKATION ClllcuLAR
Doc. INFCIRC/254 (1978) (hereinafter INFCIRC/254). Th«>K guidelines are followed by two
States not currently party to the NPT-Franc:c and South Africa, and some twenty-three States in all.
Stt Repon Pursuant To Section 601, sufwo, note 19, at 13.
16 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROUFERATION
Nucuar Weapons Free Zones
The NPT expressly preserves "the right of any group of states to conclude
regional treaties in order to assure the total absence of nuclear
weapons in their respective territories."" When the NPT was opened for
signature three such treaties existed-The Antarctic Treaty,88 The Outer
Space Treaty,• and the Treaty of Tlatelolco.70 A Seabed Treaty was
completed in 1972,71 and in 1985 the South Pacific Nuclear Free Zont
Treaty was concluded." The United States has associated itself with all of
67. NPT, supra note 3, art. VII.
68. The Antan:tic Treaty, of>nud for signature Dec. 1, 1959, 12 U.S.T. 794, T.IAS. No.
4780, 402 U.N.T.S. 71 (entered inti? fora: June 23, 1961). Article 1 stipulates that "Antarctica shall
be used ror peaceful purposes only" and prohibits "any measures or a military nature," including
"testing or any type or weapons." Id. art. I. Article V extends this ban to include "any nuclear
explosions." Id. art. V. Parties may dispatch national inspectors throughout the region to verify these
undertakings. ltl. art. VII. Su AIUB CoNTROL AND DlsARMAMnrr AGREEMENTS, supra note 41, at
20-21 (" All Contracting Parties ... have the right to designate observers to carry out inspections in
all areas or Antan:tica, . . . . ").
69. Outer Space Treaty, of>e'Md for signature Jan. 27, 1967, 18 U.S.T. 2410, T.IAS. No.
6347, 610 U.N.T.S. 205 (entered into fora: Oct. 10, 1967). Under Article IV, the parties "undertake
oot to place in orbit around the Earth any objects carrying nuclear weapons or any other kinds or
weapons or mass destruction, install such weapons on celestial bodies, or station such weapons in
outer space in any other manner." The moon and other celestial bodies arc to be used "exclusively for
peacdul purposes" and the testing or any type or weapons on the celestial bodies is prohibited. Id.
Articles X, XI and XIl provide for observation o( launchings, dissemination or information about
activities carried out in space, and reciprocal visits to projects on the celestial bodies, but do not
establish a oomprehcosive right or inspection to verify the treaty undertakings. See also STANFORD
ARM.s CoNTitOL GROUP, supra note 2, at 98-99 (The Outer Space Treaty exemplified "a trend away
from £orma) inspection toward reliance OD intelligcncc .... ").
70. Treaty o( Tutdolm, supra note 65. Article I or the Treaty obliges parties to "use exclusively
for peaceful purposes nuclear material and facilities which arc under their jurisdiction, and to
prohibit and prevent in their respective territories" any testing, "receipt, storage, installation, deployment
and any form or possession or any uudear weapons." Id. an. I. Additional Protocol I requires
its adbcrcnts to apply Article I or the Treaty "in territories for which, de jurt or de facto, they arc
internationally responsible and which lie within the limits of the geographical mne established in that
Tn:aty." Id. Protocol I. Currently, the Netherlands, the United Kingdom, the United States and
France are eligible to adhere to Additional Protocol I, and all but the latter have bemme parties. Su
11F, supra note 52, at 335. Additional Protocol II embodies the mmmitmcnt by the nuclear-weapon
states parties "not to mntributc in any way to the pcrf onnantt or acts involving a violation of the
obligations or Article I or the Tn:aty in the Territories to which the Treaty applies." Treaty of
11atelolm, mpra note 65, Protocol II. All five nuclear-weapon States have adhered to Additional
Protocol II. 11F, supra note 52, at 335.
71. Seabed Treaty, supra note 61. Article I bars cmpla=t of nuclear weapons and other
weapons or mass destruction or facilities for storing, testing or using such weapons on the seabed,
attan floor or its subsoil outside the twelve-mile territorial limit. Article III provides for verification
by national or multinational means or under United Nations auspices.
72. South Pacific Treaty, supra note 65. Article 3 or the Treaty bans acquisition of nuclear
1988) 17
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
these nuclear weapons free zones except for the last.n
The purpose of nuclear weapons free zones, as the name suggests, is to
exclude nuclear weapons from defined geographic regions. In so doing,
they seek the benefits of a nontransfer /nonreceipt treaty among the treaty
parties, and attempt to rid a region of nuclear weapons altogether so as to
remain outside superpower rivalries. In the latter respect these treaties
differ from the NPT, which does not require nonnuclear-weapon-state
parties to exclude nuclear weapons oontrolled by others from their territories.
74 This feature of the NPT was necessary to accommodate existing
security arrangements among the prospective parties.711 Nuclear weapons
free zones, on the other hand, have been established in areas where nuexplosives,
and Anide 5 dictates that "{e)ach pany undertakes to prevent in its territory the stationing
of any nuclear explosive device." The panics agn:c in Anidc 6 to prevent~ ex nuclear aplosivc
devices in their territories. A system of IA.EA safeguards and ad 1toc inspcaiom arc established by
Anide 8 and Anna 4 to vmfy these unc1aukings. Protocol t invites France, the UK and the U.S. to
a=:pt the obligations of Articles 3, 5 and 6 for their territories in the gcographical :zone; Protocol 2
calls upon the five nuclear-weapon states not to mntribute to violations ex the Treaty or its protocols
and not to use or threaten the use ex nuclear aplosivc devices against treaty parties or Protocol 1
territories; and, Protocol 3 requires the nudcar-wcapoo states not to test nudcar aplosivc dcvias in
the Treaty Zone.
73. The United States became a party to the Antaraic Treaty OD June 23, 1961, swpra DOit 68;
the Outer Space Treaty on October 10, 1967, nipra notr 69; the Seabed Treaty OD May 18, 1972,
swpra note 61; Additional Protorol II to the Treaty ex Tutdolro OD June 11, 1971, swpra DOit 65;
and Additional Protocol I to the Treaty of Tutdolro on Dcambcr 4, 1981, nipra ootc 65. With
respect to the South Pacific Nuclear Frtt Zone, the State Dq,anmcnt spokesman announced on February
5, 1987, that the "U.S. had decided that in view of our global security intcl'CSIS and responsibilities,
we arc not, undtt rurrcnt cin:wnstanccs, in a position to sign the Protocols." S« also Ila)·, So"'1I
Paafic Nuclear Free Zone, DEPT. OF STAil: 81,u.. 52 (Sept. 1987) (implementation of the gro .. ing
number of nuclear weapons frtt zones would undcnnine U.S. ability to mttl world-wick srcurity
rommitmcnts). Previously, the United States had announced scs-cn gcncral criticria for when it would
associate itself '"ith nuclear weapons free zones: (t) the initiative is from the nations in the region; (2)
all nations whose panicipation is dttmed imponant participate; (3) adequate wrificarioo ex romplian~
is provided; (4) it docs not disturb existing security arrangr:mmts to the detriment ol rqional
and international security; (5) all panics arc barred from dcYdoping or possessing any nuclear explosive
device for any purpose; (6) it imposes no rcstric:rions on international legal maritime and aerial
navigation rights and freedoms; and (7) it docs not affect the existing intcrnariooal 1cgal rights ol
panics to grant or deny other states transit privikgcs, including pon calls or a,,crilights. Stt DocrYDTS
os Dls..\JlY.A."IDI,, supra note 10, at 845.
74. Article II of the :SPT, svpra note 3, proscribc:s ruript, acquisition, and rootrol ol weapons
~- nonnuclear-wcapon state panics but docs not bar weapons deployment on their territories.
75. As the l.".S. noted at the time the NPT was negotiated, the Treaty docs "ncx prohibit N.~TO
ronsultation and planning on nudear dcfcnsc, nor ban deployment of l.i.S.~wncd and -controlled
nuclear weapons OD the territory cl ooonudcar NATO members." The U.S. also.noted that the NYT
would "not bar sua:cssion by a ocw federated European state to the nuclear status of one ex its
members." .-\JL'-15 CoNlllOL A.'ffl DISAJlYAMDIT AGll.u:wo-rs, supra note 41, at 84-85. S« ("lnall1
~i. 'Wll.LRIOf, mpra note 58, at 71-87.
18 (Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
clear weapons did not exist.
Even nuclear weapons free zone treaties, unless universally subscribed
to, do not completely "denuclearize" a region. Regional states can only
legislate among themselves and over areas for which they are sovereign. If
one state in a region refuses to join a nuclear free regime the treaty's
objective can be defeated.78 The Antarctic, Seabed, and Outer Space treaties,
which regulate areas beyond all national jurisdiction, are binding
only among party states." The United States has therefore taken a calcu:..
lated risk in accepting limitations on its own nuclear deployments in some
of these zones without a similar commitment from all other actual or potential
nuclear-weapon states.
Moreover, the two nuclear weapons free zone treaties applying to inhabited
areas {the Tlatelolco and South Pacific treaties) do not rule out
the transient presence of nuclear weapons, even in areas subject to national
jurisdiction. In adhering to Additional Protocol II to the Treaty of
Tlatelolco, for example, the United States expressly took note of the interpretation
set forth in the Final Act, that "governed by the principles and
rules of international law, each of the Contracting Parties retains exclusive
power and legal competence, unaffected by the tenns of the treaty, to
grant or deny nonContracting Parties transit and transport privileges.',.,8
76. This lack oC uniform participation is rcmgni=I in the aiteria traditionally relied upon by
the United Srau:s to determine whether to support a nuclear weapons free zone, Su Doa.'Ml:NTS ON
~. supa note 10, at 845, and is thus featured in a number of the treaties. The Treaty
oC Tiatcloloo, for aamplc, will not enter into force until all states eligible to join the Treaty and its
Additional Protocols have done so through signature and ratification. Treaty of Tlatcloloo, suJWa note
65, an. 28(1). However, the Treaty does permit a State "to waive, wholly or in part" the requirement
of full participation so that the Treaty's obligations bemmc immediately effective for that State. Id.
art. 28(2) (stating that "for those states which exercise this right, this Treaty shall enter into force
upon deposit of the declaration, or as soon as those requirements have been met which ha~-c not been
expressly waived."). All States which have ratified the Treaty, with the cxaption of Brazil and Chile,
have cxm:iscd this option. Su STAlffORD AJtMs Co?-TROL GROUP, supa note 2, at 295. Also, Cuba
has not signed, and Argentina has signed but has not ratified the Treaty, while Frana has signed but
not ratified Additional Protoool I. Thus, of all the eligible States, Argentina, Brazil, Chile and Cuba
ranain free of the Treaty's obligations, while of the nuclear weapons states, Frana is not a party to
Protocol I. Su W. P<YITI:R, supa note 14, at 203-04; STA."ffOllD ARMs Cm,"TROL GROUP, supa
note 2, at 293.
71. Su Vienna Convention on the Law of Treaties, supa note 44, art. 26 (treaties binding only
on parties). For example, China is not party to the Seabed Treaty. Su TIF, supa note 52, at 355.
78. Arms Control and Disarmammt Agreements, supa note 41, at 78. The South Pacific
Treaty provides:
Each Party in the cxcn:isc of its sovcmgn rights remains free to decide for itself whether
to allow visits by foreign ships and aircraft to its pons and airfields, transit of its airspaa
by foreign aira-aft, and navigation by foreign ships in its territorial sea or archipclagic
waters in a manner not covered by the rights of innol%nt passage, archipclagic sea lane
1988] 19
Annex 114
LAW & POLJCY IN llvTERNA.TIONAL BUSINESS
Thus, the United States retained the option, with host state consent, of
transporting nuclear weapons through pons or airfields of Tlatelolco parties
and using its own territories in the zone for that purpose.71
Nuclear weapons free zones nevertheless are a useful nonproliferation
tool in that they serve, in an incremental way, to dose off areas of the
planet (and, indeed, other planets) to the deployment of nuclear weapons.
Zones have been proposed for Africa, Central Europe, Scandinavia, the
Balkans, the Middle East, the Mediterranean, the Indian subcontinent,
and Southeast Asia. 80 The present reality of U.S. strategic doctrine, however,
is that deployment of nuclear weapons outside of U.S. territory is
deemed essential. • 1 Nuclear weapons free zones therefore provide the
United States with only a partial and inherently limited tool for achieving
global nonproliferation.
Other Arms Control Measures
Arms control measures directed primarily at superpower rivalries may
have the secondary benefit of furthering U.S. nonproliferation interests.
One measure pursued in the past was a ban on all nuclear weapons testing.
A comprehensive test ban might contribute to the barrier between
nonnuclear-weapon and nuclear-weapon states, by making development of
a functioning device by additional states more difficult. Universal adherence
to the Limited Test Ban Treaty (which applies to tests in the atmosphere,
space, and under water )89 and the eventual oompletion of a Comprehensive
Test Ban Treaty outlawing underground tests" could thereby
passage or transit passage al _straits.
South Pacific Treaty, mpra DOte 65, an. 5(2).
79. See Additional Prowcol I to the Tl'Cll)· The Tl'Cll)· of Tiatdoko, S. E.xu:.. llll'. !lio. 23,
97th Cong., 1st Sess. ,-.,4 (1981).
80. Su W. Porr£R, svpra DOte 14, at 203.
81. Su svpra DOte 73.
82. Limited Tes: Ban Treaty, mpra DOte 61. Amoog the ootable non-panies are China. Cuba,
and France. Su TIF, supra note 52, at 336. Pakistan rttmdy became a party with the deposit of iu
insmunmt of ratification with the United Kingdom on March 3, 1988. Dept. al Statt Bull. 68 Uune
195-8).
83. The preambles to the Limited Tesi Ban Treaty and the !lo'PT both acmowlcdgoe the desirability
of a ~discontinuance of all tc:sl aplosioos al nuclear wapom for all time" and ttmnl the
dctenninatioD ol the panics "to continue negotiatioos to this md." Limited Tesi Ban Tr-earr, S11pG
notc 61; XPT. supra oou: 3. On a bilatt:ral ham, the t:nitcd Swcs and the SO\ic:t l"nioD arc mgagal
in continuing discussions on ftrification ttcbniqucs to permit cmry into fonz al their more limiud
Tl"t'aty OD the Limitation o( Underground !liudcar Weapon Tcsu (abo mown as the Tbrahold Tot
Ban T~-, ••TfBT'J. -..;th Prooxx>I, July 3, 1974, Coital Statcs-Unioo al Sooc:t Socialist ltq,ublics,
and Treaty 011 t:nda-ground Xudear Explo5iom for Pcaaful Purposes (also mown as the
20 [Vol. 20
Annex 114
CONTROLUNG NUCLEAR PROUFERATION
help restrain weapons proliferation. With ever more sophisticated technology
and easier access to information about nuclear weapons, however, actual
testing of a nuclear device may be less important to potential prolif erators
today than it was twenty years ago. 84
A sccond, indirect approach to nonprolif eration is to prohibit the production
and stockpiling of further fissionable materials for weapons purposes.
The United States historically bas made this proposal in the super ..
power context, arguing that freezing existing stockpiles of the raw
materials for nuclear arsenals, subject to international verification, would
help cap the arms race and permit subsequent reductions.• Like a multilateral
test ban treaty, this approach bas the nonproliferation advantage of
using concrete progress on superpower arms control as a nondi.scriminatory
incentive for nonnuclear-weapon states to accept restraints on their
own programs.•
Pcaaful Nuclear Eiq,losiom Treaty, "PNETj, with Prouiool, May 28, 1976, United States-Union
of Soviu Socialist Republics, which SCl maximum yields £or UDdaground detonations- AKKs CoNntOL
A.>m DISAJtKAla1fT AcllEDaJrrs, nq,ra ooce 41, at 164-89.
84. Sa purau, Taylor, Cos,ancial Nucuar T~ aJ&d lnu:uar WmJJVA Prolif,mtioa,
in NUOiAJt l'RounllATION AND nu; Nua-NVCUAll CovHnur.s 117 (0. Marwah and A.
Schulz, ed. 197S} (arguing that the main hindrance to the building ol nuclear cxplosi9cs is the diffiruhv
in producing the requiral materials whcmls the actual designing and building of an apbift is
DOW rdativdy easy).
85. Thc call for a prohibition, or an-off, ol furthcs- production of fissionable materials for weapons
purposes was firsl pn fonnrcl by President Eisenhower at the General Assembly ol the United
Narioos in his 1953 "Atoms for Ptatr" addJus. Sa B. Sc:mn-, nq,ra ooce 5; Epstein. 1\ &11 on tJu
Produa»n of Fi.uitnuJJ>u Matmals for Weapons, 243 Sc::mmnc AKER1cAN 43, 44 Quly 1980).
Prcsidmt EisenhmRr originally made such a proposal to Soriet Premier Bulganin in 1956 which also
indudtd a proposal to ~rtdua their nuclear wrlpiks by transfaring agrttd amounts of fissionable
materials from miliwy to pcacrful purposes." The proposal was rtjca.cd by the Sovicl Union. STANFOII.
D .-uxs CoNnoL Gll0t.'P, svpra note 2, at 78. Such proposals haft been repeatedly made by
sucarding Administratiom. Sa Epsran, sv.pra oote 83, at 45 (tracing the rut-off proposals by the
Johnson and Sixoo adminisuatioos, and analyzing rurrent U.S. attitwks lDWards such an option).
86. The clisaiminatory na..-ure of the SPT is oltcn cited as a reason for the inuansigmtt of the
mnaining noo-parties.. S« Sman. swpra note 36, at 21; Nace, Nwuar Non.Proliferabim in t1ie BO's:
Carrot and Slid POW:,~ 13 BaoonYN J. brrL L 25, 40-41 (1987) {aplaining the
basis for the daim al discriminatioo ~ by the nonnudear swcs as the reason for their rductaDCZ
to ratify such U'CIDCS); Rowles, Nvdear POlllff and Nn.Prolifmstion: Tiu V-in, fro- Brazil, 14
VA.>m. J. TRA..'iSNATi. L 711, 781 (1981) (swing that ia) DOIMlisaiminato ban would rcprcscnt
a major advance in itrmgtbming the legal ammitmmu by non-nuclear weapons swes to forego the
devdopmcnt ol any nuclear explosive dcYice. j However, it is of OOW'SC very diffirult to dctcnninc
wbcthcr this is simply a a,owmicnt ideologial posture to mask other rcasoos for rcjeaing the NPT
1988] 21
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
CONDITIONS OF SUPPLY
Through adherence to the NPT the United States has undertaken to
ensure IAEA safeguards are applied to its nuclear exports to nonnuclearweapon
states for peaceful purposes. But U.S. controls go much further,
requiring an array of consent rights, guarantees, and assurances of
varying scope depending upon the items in question and the credentials of
the recipients. These controls are administered by five executive branch
agencies87 and the Nuclear Regulatory Commission and range from specific
statutory mandates to discretionary conditions imposed pursuant to
broad legislative authority. The result is a highly regulated, enormously
complex fabric of U.S. extraterritorial legal restrictions on nuclear
exports.
Broadly viewed, these restrictions are necessary adjuncts of the Atoms
for Peace program. It was thought at the end of the Second World War
that if internationalization of atomic energy proved infeasible, the United
States at least could suppress proliferation by withholding its atomic
secrets. The successful nuclear weapons tests of both the Soviet Union and
the United Kingdom showed the ephemeral nature of the U.S. nuclear
monopoly. Thereafter, President Eisenhower's policy decision to share
peaceful nuclear technology, as embodied in the Atomic Energy Act of
1954,88 required maximum assurances that U.S. exports would effect a
beneficial influence on the direction and content of foreign nuclear programs.
Otherwise, the pragmatic shift to cooperation with foreign nuclear
programs, now regarded as inevitable, would simply accelerate the pace of
proliferation.
Various U.S. controls have evolved since 1954, the most important resulting
from the Nuclear -Non-Proliferation Act of 1978.• Their success
hinges upon sufficient built-in flexibility that will permit a policy of total
denial for some, unreliable countries, while permitting sustained, reliable
nuclear trade with others that allows U.S. influence over their programs
and export practices. The structure of these controls inevitably reflects the
tug and pull of the legislative and executive branches. The Congress is
suspicious of according too much leeway to a President who may occasionally
subordinate nonprolif eration interests to other foreign policy interests.
The President, on the other hand, must tailor U.S. policies to accommodate
the wide diversity of nations with which the U.S. must deal. The
trend in the law, as in many other areas of foreign policy, has been to-
87. The five executive branch agencies arc the Dcpan:mcnts of Energy, C-ommcru, Sta1t, Dcfcn.
sc, and :\CDA.
88. Sec generally supra DO(C 6.
89. Sec supra IIO{C 9.
22 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROUFERATION
ward increasing congressional regulation and concomitant rigidity.
This pan of the Article presents an outline of the resulting U.S. nuclear
export controls. It first reviews the procedures for exporting nuclear reactors
and fuel and surveys the substantive controls applied to them. It then
briefly describes the procedures and controls on exporting other items of
potential nuclear proliferation significance-nuclear technology, components
and moderator material, and dual-use items with possible nuclear
applications.
Export Procedures for Nuclear Reactors and Fuel
The key commodities for a nuclear energy program are nuclear reactors
("equipment")90 and fuel ("special nuclear material").11 Under U.S. law,
neither may be transferred until two procedures have been completed.
First, an agreement for peaceful nuclear cooperation must be concluded
with the recipient country." This is an executive-legislative agreement"
90. The word "equipment" is ustd in this anide more narrowly than in U.S. law and regulations.
Under the NNPA, "equipment" includes utilization facilities (power and research reactors, and
the four major mmponents of these reaaon), production facilities (reactors for producing nuclear.
mawial through irradiation, as well as enrichment and rcprommng plants), and "romponcnts" determined
10 have potential significancr for nuclear aplosi~ purposes. Nuclear Non-Proliferation Aa §
4{a)(4), 22 li.S.C. § 3203(a)(4). Su 10 C.F.R. § 110.2 (1988) (NRC definitions).
91. "Special nuclear material" means plutonium, uranium-233 or uranium enriched above 0.711
pcrcmt by weight in the isotope uranium-235. Id.
92. This is stated i:ncfuutly in Section 123 of the Atomic Energy Aa 42 lI.S.C. § 2153, which
provides that '·[n)o cooperation" with foreign nations pursuant to various sections of the Atomic Energy
Aa may be undertaken until an agrccmcnt for cooperation is in place. Among the sections referred
to arc those authorizing exports oi equipment and special nuclear material. Su infra note 99.
The Atomic Energy Aa's export licensing procedures for equipment and special nuclear material also
assure the cxistcrn:e of an agreement sintt they require the Sttrctary of State to addnss "the extent to
which the cooperating pany has adhered to the provisions of the applicable agm:mcnt for roopcration."
Atomic Energy Aa § 126(a)(t), 42 U.S.C. § 2155(a)(l).
In 1978 Congress directed the President 10 institute a program to rmcgotiatc existing agnxmcnts
for cooperation to upgrade thrir prorisions in aa:onlancc with the new substanti~ requirements amtaincd
in the NNPA. ~udear Non-Proliferation Aa § 404(a), 42 t:.S.C. § 2153c(a). No deadline
was fixed for romplcting the renegotiation program and oontinued roopcration under existing agrccmmts
"'·as cxprmy authorized. Sudcar Son-Proliferation Act § 405(a), 42 U.S.C. § 2153d(a). Since
1978, new or amended agrttments have been entered into with Australia, Bangladesh, Canada,
China, Colombia, Egypt, Finland {not yet in fmu), Indonesia, Japan, Morocco, Norway, Peru, Sweden
and the lAEA. Su ltEPoaT PL"JtSU.vrr TO SECTION 601, supra note 19, at 75; TIF, supa note
52, at 44 (China); su also infra note 173 Uapan). The prc-1978 agrccmcnts still in fmu which have
not been renegotiated arc with Argentina, Austria, Brazil, India, Republic of Korea, Philippines,
Ponugal, South Africa, Spain, Switttrland, Thailand, the European Atomic Energy Community, and
Taiwan. Id.
93. Su L HDnaN, foJtEJCN AITAIRS AND THE Cm1snn:TION 173-76 (1972) (discussion of
accuti~lcgislati-ve agreements).
1988] 23
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINF.5S
that is authorized by the Atomic Energy Act so long as it contains delineated
provisions; .. otherwise the Atomic Energy Act calls for the President
to obtain specific congressional approval.• In either event, the Atomic
Energy Act requires the President to determine that perf onnancc of a
proposed agreement for cooperation "will promote, and will not constitute
an unreasonable risk to, the common defense and security,"" based upon
the recommendations of the Secretaries of Energy and State and the views
of the Nuclear Regulatory Commission and the Director of the Arms
Control and Disarmament Agency (who also must prepare a "Nuclear
Proliferation Assessment Statement").97 Thereafter, the Act requires the
President to submit the agreement to Congress for 90 continuous session
days, to afford it the opportunity to prohibit entry into the agreement by
enactment of a joint resolution of disapproval, or to specifically approve
the agreement if it does not contain all the required provisions.•
Exports of nuclear reactors or fuel under an agreement for cooperation
are processed through a second, independent licensing procedure. In the
normal case, the Nuclear Regulatory Commission issues export licenses
based upon specific statutory export criteria after receiving the executive
branch's judgment that the proposed export "will not be inimical to the
common defense and security."" The Secretaries of Energy, State, De-
94. Atomic Encrgy Aa § 123(a), 42 U.S.C. § 2153(a).
95. Atomic Energy Aa § 123(d), 42 U.S.C. § 2153(d). Thus far. no agm:mcnts ha,-e been
submitted UDder the prottdurc l'aluiring umgressionaJ approval, although some members al C.00...
grcss questioned whether the Prcsid~t should have sought C-ongrcssional approval for the 198S
agreement with China, Su lu:PoltT WITII llEsncT TO nn: AGREDaHT FOR Cool'f.llATION 81:TWEES
THE u~"TTD> STATES AND nu: :Ruti"'BLJC OF CHINA C.Oi-ra:a.."IDIC PEAa:n'L t.:SES OF :SuCLE.
AR ENmcY, H.R. REP . .So. 382, 99th Cong., 1st Scss. 7 (Nov. 20, 1985), and the 1987 agreement
with Japan. Su infra note 180. It bas never been tcslCd whether the President possesses
inherent Consitutional authority t0 conclude an agrttmcnt for cooperation; howcvcr, any agrttmmt
authorized by the President wouJd need to satisfy the export aitcria cl the Atomic ~ Act in
order to have the desired effect oC permitting nuclear trade.
96. Atomic Energy Act § 123(b), 42 U.S.C. § 2153(b).
97. Atomic Energy Aa § 123(a), 42 U.S.C. § 2153(a).
98. The first 30-day period is for mnsultation with the foreign affairs mmmiuces "oooa:rning
the consistency of the tcnns of the proposed agrccmcnt" .. ;th the l'aluirm>cnts of the Atomic Energy
Aa § 123(b), 42 t:.S.C. § 2t53(b); the next 60-day period is for the Congress to decide whether to
adopt a joint resolution disfavoring or, in the case of agreements submitted with a Presidential ~
tion, appro,,ing the agrttmcnL Atomic Energy Aa § 123(d), 42 l:.S.C. § 2153(d); cf. infra llDIC 101.
Siner a joint resolution authorizing en~· into an agreement would have the fora: al law, its cnaament
would ob\iate Llie nca:ssity of waiting the full 90-day statutory period unless othcrwi5c specified.
99. Atomic Energy Aa §§ 126(a)(l), 127, 42 U.S.C. §§ 215S(a)(l), 2156. The NRC has~
lished general licenses which obviate the need for cxpon--1>}·-apon reviews for some itmlS, su 10
C.F.R. § 110.20-.29 (Subpan C), and bas exempted other cxporu of no proliferation signific:an«
from licrnsing rcquiremcn:s. Ste 10 C.F.R. § 110.10-.11. Also, the Dcpanmcm of E.ncrgy, the U.S.
24 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
fense, and Commerce and the Director of ACDA are participants in the
formulation of the executive branch judgment, pursuant to statutorilymandated
interagcncy procedures. 100 The criteria applied by the NRC are
usually satisfied by the recipient government's undertaking to accept the
exports pursuant to the terms of an agreement for cooperation, since the
export criteria were adopted in 1978 to reflect existing assurances in
agreements for cooperation. 101 However, if the Commission is unable to
make the required statutory determinations, the President may still au:.
thorize an export by executive order if he "determines that withholding
the proposed export would be seriously prejudicial to the achievement of
United States nonprolif eration objectives, or would otherwise jeopardize
the common defense and security."1 ot
Govcrnment cxpona- oi nuclear materials, with State Department concurrcna:, is auth~riud to distribute
(transfer without littnse) limited quantities of special nuclear materials. Atomic Energy Act §§
53(c), 54, 42 U.S.C. ft 2073(c), 2074.
100. Atomic Energy Act § 126(a)(t), 42 U.S.C. § 2155(a)(1); Procedures Established Pursuant
to the Nuclear Non-Proliferation Ad. of 1978, 15 C.F.lL Pan 378, Supp. 1 (1988), 43 Fed. Reg.
25326 (1978), aranultd '1J 49 Fed. Reg. 20780 (1984) [hcmnafter NNPA Procedures].
101. This was not true in one respca, sintt pre-1978 agreements for cooperation did not contain
the ncccssary physical security assurances to satisfy the cxpon criteria established by the NNPA. The
Executive branch therd'orc obtained gmcric assurances from most cooperating partners; in those cases
where it did not, it is required to obtain specific assurances for each cxpon. Two agrccmcnts for
cooperation in force in 1978 did not satisfy other NNPA apon cril.Cria: (1) the Agreement with the
lAEA, which was amended as necessary in 1980, TIF, supra note 52, at 109; and (2) the agrttmmt
wilh the EURATOM, which has still not been amended. Cooperation with EURATOM has continued
under a statutory waiver authority aa:orded to the President where "failure to rontinue cooperation
with any group of nations ... would be seriously prejudicial to the achievement of United States
non-proliferation objectives or otherwise jeopardize the common defensc and security." Atomic Energy
Act § 126(aX2), 42 U.S.C. § 2155(a)(2). Sec, for example, Exec. Order No. 12,587, which atcnded
the period of nuclear cooperation with El.J"RATOM to March 10, 1988. 52 Fed. Reg. 7397 (1987).
102. Atomic Energy Act§ 126(b)(2), 42 G.S.C. § 2155(b)(2). Prior to any cxpon, the Executive
Order, along with an explanation, must be submitted for sixty continuous session days of Congressional
review. ltl. However, the law's prorision for a Congressional concurrent resolution veto of the
President's action is almost tt.rtainly invalid under Immigration and Naturalization Service v.
Chadha, 462 U.S. 919 (1983). Su notr 231 infra.
Two shipments of fuel to a U.S.-supplicd power reactor in India had been authoriud by Executive
Order when the NRC failed to make its required statutory fmdings. Exec. Order No. 12,055, 43 Fed.
Reg. 18,157 (1978); Exec. Order No. 12,218, 45 Fed. Reg. 41,625 (1980). In both cases the Executive
branch argued the NRC had misread the Atomic Energy Act in not fmding that the shipments satisfied
applicable cxpon criteria in light of a special NNPA grace period for nations not accepting fullscope
safcguard.s. Su, ,.g., M. NASH, DIGEST OF Ui.'lTID STATES PRAcna IN INTDt.>iATIONAL
I.Aw 1392 (1978); su also DEP'T STA-n: Buu.. 66-71 (Aug. 1980). The two cases provoked heated
Congressional debate, but only one house of Congress voted to override the President's action on each
occasion. Su Schorr, Tutmg Statulory Critnia JM FMeign Polig: Tiu Nuclear Non-proliftraticn
Ad of 1978 and tlu up,,rt of Nvckar Fuel to India, 14 N.Y.U. J. L-,-r'L L. & PoL'Y 419, 457-64
(1982); R«mt DnHlopw,n,ts, Nucuar Non-Proliferation: Export of Nuclear Fuel to India, 22
1988) 25
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
The requirement of both an agreement for cooperation and a specific
export license allows the Government to forbid transfers on national security
grounds even when all the nonprolif eration controls required as a
condition of export are guaranteed by an umbrella agreement for cooperation.
Conversely, where he determines that nonproliferation or national
security interests so demand, the President may seek congressional authorization
to conclude an agreement for cooperation lacking one or more statutory
requirements, or, on his own authority, he may exempt exports
from the licensing criteria, subject to congressional disapproval. The effect
of this regulatory structure is to impose rigid statutory requirements for
nuclear cooperation in the first instance, and to authorize flexibility in
administering those requirements based upon fundamental national security
or nonprolif eration concerns. In practice, the political dynamic has
tended strongly against using national security or nonprolif eration
grounds to permit exports which fail to satisfy the applicable statutory
criteria.
Substantive Export Requirements for Nu.clear Reactors and Fuel
De Facto Full Scope Safeguards
In addition to requiring an agreement for cooperation, U.S. law forbids
exports of nuclear reactors or fuel to nonnuclear-weapon states unless "at
the time of the export" the recipient country maintains IAEA safeguards
on all its peaceful nuclear activities.108 This can be described as a requirement
of de facto safeguards since it does not depend upon the legal basis
for the safeguards but only on their factual existence.1°' The requirement
HAllV. INT'L J. 227, 230-31 (1980).
103. Atomic Energy Act§ 128(a)(t), 42 U.S.C. § 2157{a){l). Post-1978 agreements for cooperation
must also stipulate full-scope IAEA safeguards as a condition of cooperation with nonnudcarwcapon
States. Atomic Energy Act § 123(a)(2), 42 U.S.C. § 2153(a)(2).
104. It is noteworthy that in some respects non-NPT safeguards agreements arc actually more
stringent than NPT safeguards agreements for the more limited items they cover. It has been IAEA
policy since 197 3 that "the duration of the agreement should be related to the period of actual use of
the items in the recipient State; .... " GOY /1621, sup,-a note 60, at 1. This contrasts with NPT
safeguards agreements which terminate upon a state's withdrawal from the NPT, which is permitted
on three months notice. NPT, supra note 3, art. X; INFCIRC/153, supra note 30, para. 26. The
IAEA has similarly not permitted non-NPT parties a right of withdrawal for military purposes in
their safeguards agreements because of the absence of a no-explosives commitmenL See JNFCIRC/66,
supra note 34, para. 82. One state, Albania, has recently concluded the first de jure full-scope safeguards
agreement outside of the NPT {and the Treaty of llatclolco), which requires safeguards on
all nuclear activities in Albania for 25 years, and thereafter on all nuclear material and equipment
subject to safeguards at the time of the agreement's expiration. See INTERNATIONAL ATOMIC ENDtcv
AGENCY, BoARD or GovERNORS Doc. GOV/2247 (1986) [hereinafter GOV/2247) (memorandum
26 [Vol. 20
Annex 114
CONTROUING NUCLEAR PROLIFERATION
also can be described as "full-scope" since the safeguards apply to all
peaceful nuclear activities in the recipient country at the time of export
and not merely to the export itself.
One rationale for requiring fuil-scope safeguards is the more transparent
a recipient's nuclear program is to the international community, the
less danger there is of clandestine explosive-related activities or other misuse
of an exported item. 1011 The full-scope safeguards requirement in U.S ..
law does not extend so far as to require safeguards on nonpeaceful nuclear
activities, however, since then even NPT parties might not be eligible to
receive U.S. exports. 108 A second policy basis for demanding full-scope
safeguards is the belief that U.S. exports are sufficiently attractive to induce
potential recipients to move toward the NPT norm of de jure fullscope
safeguards. 107 Finally, the de facto nature of the U.S. requirement
represents a compromise, permitting continued cooperation with nonNPT
parties so long as through one or more agreements with the IAEA they
arrange for safeguards on their nuclear activities. 108 Allowing continued
cooperation with nonNPT parties furthers the commercial interests of
U.S. exporters but also permits the U.S. government to maintain some
influence over these nuclear programs in furtherance of U.S. nonproliferation
interests.
on safeguards in Albania).
105. See, e.g., CoNGRESSIONAL QUARTERLY, THE NUCllAR AGE 123 (1984); Bettauer, supra
note 13, at 1136.
106. In fact, no NPT panics have exercised their right to engage in unsafeguarded military
activities, although the Canadian government is reponed to be oonsidering the oonstruction of ten
nuclear-powered submarines for its navy. Watson, Canada May Build 10 Nu.clear Subs, Wash. Post,
May 3, 1987, at A30, ool. 1.
107. See W. PO"ITER, supra note 14, at 48.
108. When the U.S. de facto safeguards requirement was added in 1978, seven oountries with
active agreements for cooperation with the U.S. were not NPT panics: Argentina, Brazil, India,
Indonesia, South Africa, Spain and Turkey. See Bcttaucr, supra note 13, at 1137. Indonesia, Spain
and Turkey arc now NPT parties, TIF, supra note 52, at 336-37, but they satisfied the de facto
requirement shonly before joining the Treaty. See Repon Pursuant to Section 601, supra note 19, at
73 (Spain); Repon of the President to the Congress Pursuant to the Nuclear Non-Proliferation Act of
1978, at 86 n.1 (1979) (for the year ending December 31, 1978) (Indonesia and Turkey). Argentina,
Brazil, India and South Africa still do not meet the U.S. requirement for full-scope safeguards. Report
Pursuant to Section 601, supra note 19, at 73. They each have substantial nuclear programs, so
the effect of this provision of U.S. law alone or in conjunction with other provisions has been to cut off
all significant nuclear cooperation with them. Other potential panners for which the law has had a
similar effect arc Israel and Pakistan. W. POlTER, supra note 14, at 48 (discussion of oompeting and
oonflicting foreign policy and non-proliferation objectives regarding Pakistan).
1988] 27
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
Peaceful Use Commitment
The remaining controls and guarantees imposed by U.S. law relate only
to U.S.-supplied items. Of primary importance is the legal assurance that
exports will not be used for any military or explosive purpose.109 This
requirement goes beyond the NPT by excluding all military uses of transferred
items. It was a deliberate step by the United States to segregate
peaceful and military cooperation in the uses of nuclear energy; military
cooperation is provided for in a separate section of the Atomic Energy Act
and is subject to its own requirements. 110
The distinction between military and peaceful activities gives rise to
four potential definitional questions.
Atomic Weapons Versus Nuclear Explosive Devices
Early U.S. agreements for civil cooperation precluded the use of transferred
items for "atomic weapons. " 111 In 197 4 India detonated its "peaceful
nuclear explosive device," calling into question the applicability of a
ban on "atomic weapons" to all nuclear explosive devices. 111 The distinction
drawn by India between "peaceful" and other nuclear explosive devices
had some validity since international legal instruments appeared to
treat the two as distinct categories.111 The United States argued, however,
that it was impossible in practice to distinguish between the two categories
109. Atomic Energy Act § 127(2), 42 U.S.C. § 2156(2). Agreements for rooperation must also
contain a peaceful, no-explosive usc commitment. Atomic Energy Act § 123(a)(3), 42 U.S.C. §
2153(a)(3).
110. Section 91(c) of the Atomic Energy Act authorizes exporting nuclear material and equipment
for military applications of atomic energy. 42 U.S.C. § 2121(c). Section 144 authorizes transfers
of Restricted Data for military applications. 42 U.S.C. § 2164.
111. E.g., Agreement for Cooperation Concerning Civil Uses of Atomic Energy, June 16, 1968,
United States-Japan, an. xA.(2), 9 U.S.T. 1383, 1390, T.I.A.S. No. 4133 (terminated July 17, 1988)
(hereinafter Agreement for Cooperation with Japan). This formulation implemented the prc-NNPA
Atomic Energy Act requirement of an assurance against usc "for atomic weapons, or for rcscarch on
or development of atomic weapons or for any other military purpose." Atomic Energy Act §
123(a)(3), as amnultd, 42 U.S.C. § 2153(a){3) (1954) (amended by Nuclear Non-Proliferation Act
of 1978, Pub. L. No. 95-242, 92 Stat. 120-152).
112. Su supra note 16 and aa:ompanying text.
113. See Treaty of Tiatclolco, supra note 65, an. 18{1) (permitting "explosions of nuclear devices
for peaceful purposes-including explosions which involve devices similar to those used in nuclear
weapons" so long as such explosions arc rompatible with the treaty's ban on testing or possession
of nuclear weapons and the treaty's definition of nuclear weapons); and NPT, supra note 3, art.
V (giving all parties right to receive potential benefits from any peaceful applications of nuclear explosions
under "appropriate international observation and through appropriate international procedures").
See also Treaty on Underground Nuclear Explosions for Peaceful Purposes, supra note 83,
an. Il(a) (defining "explosion" as an "underground nuclear explosion for peaceful purposes").
28 [Vol. 20
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CONTROLLING NUCLEAR PROUFERATION
and that it would interpret a ban on nuclear weapons to rover peaceful
nuclear weapons.114 Since 1978, U.S. law has required an explicit oommitment
against any explosive applications of items transferred under new
or amended agreements for cooperation. 11
•
Military versus Peaufal Applications of Nuclear Energy
The exclusion of ''military,, uses of U.S. exports raises a second defini:..
tional issue. Both U.S. law and the NPT distinguish "military,, from
"peaceful,, activities but do not provide criteria for applying the distinction.
Definitional criteria might include the user of the items (civil versus
military users), the use of the items (oombat-related or not), or the national
interests served by ·exports (enhancing military capabilities versus
serving civilian needs).119 In the arena of peaceful nuclear cooperation,
this issue has been addressed only through specific examples, as in agreements
recording the understanding that transferred items may be used to
produce radioisotopes for military hospitals and dectrical power for both
the civilian and military sectors without oontravening the peaceful use
undertaking.11"
114. The U.S. had told India as early as 1970 that peattfu1 nuclear explosions were not pe-rmitml
by the U.S.-lndia Agiummt (or Cooperation. Su I>oc:vm:Nn ON Dls.utM.uo:NT, svJwa note
10, at 333; W. l"oTI1!ll, svtro note 14, at 55. The U.S. made a gmcral stattrncol to this dfca
QJIICffDing all its aglffDICllts for pracdul nuclear cooperation in 1972. Su Bcttaucr, svro note 13, at
1142.
115. Atomic Enagy Au§ 127(2), 42 U.S.C. § 2156(2). These apart aiteria, applied by the
NllC, require a no-explosive usc assurance with n:spca to both future and past exports subject to an
aglffDICllt (or oooperation. ltl. In light of the U.S. interpretation of the phrase "atomic weapons", the
diplomatic: ac:hanga initiated by the Executive branch to oonfirm this point and the membership of
most moperating partners in the NPT, pre-1978 agreanmu for a,operation have been generally
deemed to satisfy this standard.. Su Bcttaucr, svra note 13, at 1142-43.
116. For aamplcs of how this "military versus pcamul use" distinction is drawn in internatioml
legal instruments. see Antarctic Treaty, suro note 68, an. 1 (limiting use of Antarctica to
'"peaa:ful purposes only," which is defined to permit military users in scientific research or other
pcacdul capaatia, but precludes "any measures of a ·military nature" iDduding weapons testing,
military mancuvas, and the introduction of military (ortific:atioos); Outer Spa« Treaty, sutro note
69, an. m (pamiuing uses "in aaxirdancc with international law"), an. IV (pn:duding the stationing
of nuclear weapons or other weapons of "mass destruction" in outer space and limiting the use of
c:dcstial bodies to non-military applications); and Biological Weapons Convention, sutra note 61, an.
I (probibition OD the usc of bac:taiological agents and toxins that "have no justification for prophylactie,
protcctive or other peattfuJ purposrsj.
117. E.f., Agiummt for Cooperation CoDCffning Peacdul Uses of Nudear Energy, Agreed
Minute, para. 6, Dec. 19, 1983, United StateS-Swcden, T.I.A.S. No. 10860 (entered into ion:e April
11, 1984).
1988) 29
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
Research and Development Restrictions
U.S. law not only prohibits explosive uses of transferred items, it also
bars the use of the items in "research on or development of any nuclear
explosive device." 118 Where a program is exclusively directed at production
of nuclear weapons, there is little question that preliminary steps
short of fashioning an explosive device would run afoul of the U.S. restriction.
But, particularly with the development of sensitive fuel cycles employing
weapons-usable materials, many activities could have the dual
purpose of legitimate peaceful research and acquiring weapons-related
expertise.
The United States addressed· a similar issue when certain allies expressed
concern that the NPT's prohibition on the "manufacture" of nuclear
explosive devices would unduly hamper their civil activities. In a
memorandum released to the Senate after the NPT negotiations, executive
branch officials explained to potential Treaty adherents that the United
States did not believe it was possible "to formulate a comprehensive definition
or interpretation" of the prohibition on manufacturing nuclear
weapons, but that the purpose of an activity and whether it was carried
out under safeguards would be relevant. 119 Moreover, according to the
memorandum, "clearly permitted would be the development, under safeguards,
of plutonium fueled power reactors, including research on the
properties of metallic plutonium, nor [sic] would Article II interfere with
the development or use of fast breeder reactors under safeguards. " 110 Several
cooperating partners of the United States are engaged in such research
programs under IAEA safeguards, which have been deemed consistent
with their peaceful use pledges to the U.S. 111
Peaceful Use "Contamination" of Non-Transferred Items
The peaceful use guarantee demanded by U.S. law applies not only to
transferred equipment and special nuclear material but also to special nuclear
material "produced through" their use. 11s This latter concept refers
to the nuclear process of convef#ng one element, such as uranium, into
another element, such as plutonium, that has possible proliferation signifi-
118. Atomic Energy Act § 127(2), 42 U.S.C. § 2156(2).
119. Nonproliferation Trear,: Hearings befDTe tAe Senate Comm. on FDTeip Relatiim.s, 90th
Cong., 2d Scss. 39 (1968) (extension of remarks by William C. Foster, Director, U.S. Anns Control
and Disarmament Agencr)-
120. Id.
121. For example, the new Agrccmcnt for Cooperation with Japan expressly amtcmplatcs use of
U.S.-origin plutonium for civil energy production. See note 180, infra.
122. Atomic Energy Act § 123, 42 l:.S.C. § 2153(a)(t).
30 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROUFERATION
cance. The application of the peaceful use guarantee to special nuclear
material "produced through the use or' transferred items ensures that the
causal byproduct of U.S. cooperation does not rontribute to nonpeaceful
applications of nuclear energy. ua
To date, the United States has followed a strict principle of "rontamination"
in applying the peaceful use guarantee to produced material.194
Whenever U.S. origin fuel is in a foreign reactor, or whenever a U.S.
reactor is being used, all the special nuclear material produced in the re:.
actor may only be used for peaceful purposes. In the case of a U.S. reactor,
this policy can be defended in simple causal terms, since no material
would have been produced without the use of the U.S. reactor. When U.S.
material ronstitutes only part of the fuel in a foreign reactor, a strictly
causal argument may be more difficult to sustain; the U.S. material may
not be necessary for the production of all the special nuclear material in
the reactor, depending upon a variety of technical factors. Nonetheless, the
United States has insisted upon peaceful use rontamination of all the produced
material because otherwise U.S. assistance might rontribute to a
project with potential nonpeaceful applications, something fundamentally
incompatible with the purpose of transfers under agreements for peaceful
nuclear cooperation. The rontamination principle has the added nonproliferation
benefit of increasing the rorpus of nuclear material dedicated
to peaceful uses beyond that directly supplied by the U.S.
Safeguards on Transferred Items
The peaceful use assurances received by the United States are supponed
by safeguards designed to detect the diversion of significant quantities
of nuclear material to proscribed activities. Current U.S. law requires
123. This daivation amc:q,t is also utilized by the IAEA in its safeguards practice to determine
the reach of safeguards in facility or material-specific agrccmmts. Su INFCIRC/66, supra note 34,
para. 19. It is c:ailcd for in bodi the Guiddincs For Nuclear Transfers, INFCIRC/254, supra note
66, and the Zangga- Group Trigger List, INFCIRC/209, supra note 34.
124. In Congressional hearings on the Agrcemmt for Cooperation with Australia, Administration
witnesses swat this c:ootamination policy was an immutable aspa:t of non-proliferation policy.
Su Uflilltl Slalu-Atutralian Agruant on tJw Peaufal Uses of Nuclear Energ,: Hearing before tlw
&,,au c-.;au on Fonip &lalitms. 96th Cong., 1st Scss. 6, 12, 37 (1979) (statements of Thomas
Il. Pic:kaing, Assistant Seaetary, Bureau of Omms and lntc:mational Environmental and Scientific
Affairs, Depanmmt of State, and Charles Van Don:n, Assistant Dim:tor, Nonprolifcration, U.S.
A.- Control and Disarmammt Agax:y); Propowl United States-Australia Agrument for Nuclear
Cooperation; Hearifl« Before S11k01UL. on lnJematiunal Securit] and Seienlifo Affairs and International
UIJMSlie Po&, and Tf'tl,IU of tJw H'1USI C--. on Foreign Affain, 96th Cong., 1st Scss.
5-6, 18 (1979) (sratemcnt of Louis V. Noscmo, Deputy Assistant Secretary of State for Nuclear
Energy and Energy Technology Afl'ain).
1988) 31
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
1AEA safeguards on transferred reactors and fuel as well as on "any special
nuclear material used in or produced through the use of transferred
items."116 This coverage satisfies the NYf obligation to require IAEA
safeguards on exports to nonnuclear-weapon states. The statutory requirement
of safeguards for special nuclear material "used in" transferred
items is somewhat anomalous, however, in that it prescribes a potentially
broader application of safeguards than the peaceful use assurance in U.S.
law that the safeguards address.1
• The executive branch response has
been to seek this broader coverage for both safeguards and peaceful use
guarantees in agreements for cooperation negotiated since t 978. lfl
Both before and after the establishment of the IAEA safeguards system,
the U.S. secured bilateral safeguards rights in its agreements for cooperation
with nonnuclear-weapon states, permitting U.S. representatives to
verify the nondiversion of U.S. supplied items where necessary.1
• The
United States, however, has arranged for the maximum IAEA role in carrying
out this safeguarding function. Initially, it was common practice to
conclude "safeguards transfer agreements" (STA's), in which the U.S., its
cooperating partner, and the IAEA agreed that the IAEA would assume
responsibility for applying safeguards as called for in the agreement for
125. Atomic Energy Act§ 127(1), 42 U.S.C. § 2156(1). The law abo nquircs lAEA safeguards
to be applied to preuiouslJ exported items as a moditioa of supply. Id. (emphasis added). This rcuoactivc
feature of the law, unlike the nquim:ncnt of full-scope safeguards, as discussed svpra note UIS,
has had no practical effect since all U.S. roopcrating partners have continued to maintain lAEA
safeguards OD previous U.S. aports ..
126. For example, non-U.S. origin special nudear material fucling a U.S. rcaaor would be
"used in" a U.S. item but not "produced through" its use. By the literal terms of U.S. law, it oould be
argued that such material would have to be subject to lAEA safeguards but not ffStriacd to pc.accful
purposes. Such a distinction muld arise, in practice, only after the ,epnx:osing and separation of the
pre-existing special nudear material from the newly produad material The drafting of the saf~
guards coverage is perhaps aplicable by the lAEA practice of nquiring safeguards to apply to nuclear
material both ip}roduced in or by the use of" safeguarded material in the ~ of full-scope
safeguards. INFCIRC/66, sv.pra note 34, para. 19.
127. E.g., Agreement for Cooperation With Swcdm, svpra note 117, an. 4 (pcacd"ul use guarantee),
an. 5, para. 2 (safeguards guarantee).
128. U.S. law calls for safeguards in agrttmmts for CXIOpCnlbOll, but docs not specify what form
those safeguards should take. Atomic Energy Ao. § 123(a)(l), 42 U.S.C. § 2153(a)(1). Sina: 1978,
agrumcnts with nonnudear-wcapon states have nquircd lAEA safeguards as an export aitcrion. Sa
Atomic Energy Act § 127(1), 42 U.S.C. § 2156(1). Some mcmbcn of Congress have argued that
I.Af.A safeguards or their equivalent arc mandatory for all agreements for coopcrarion, Cftll those
with nuclear-weapon states such as China. Su, e.g., 131 CoNC. RD:. H35979 (1985) (rmwb of
Rep. Udall on the Nuclear Cooperation Agreement Between the United States and the People's Republic
of China). Congress, however, approved the China agrccmcnt notwithstanding the absence of a
provision for IAEA safeguards. S.J. Res. 238, 99th Cong., 1st Scss., 99 StaL 1174 (1985).
32 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROUFERATION
a>opcration. in Bilateral U.S. safeguards rights were then held in reserve
as "fall-back" safeguards in the event the IAEA for any reason was not or
would not be performing its function. With the conclusion of the NPT,
the United States fu.--ther agreed in many cases to "suspend" the application
of these ST A's and to rely upon the IAEA's implementation of the
a>operating partner's NPT safeguards agreement. 130 In the most recent
agreements for oooperation with NPT parties, the United States has bypassed
altogether the step of concluding ST A's. These agreements specify
that the applicable NPT safeguards agreement will apply to U.S.-transferred
items, but if the IAEA is not or will not be implementing the NPT
safeguards agreement then either comparable IAEA safeguards or fallback
U.S. safeguards must be applied.m
When the IAEA applies an NPT safeguards agreement, it treats all
nuclear material within a country alike, regardless of origin. 181 Thus, one
consequence of a U.S. agreement to suspend an STA or to provide for the
immediate application of an NPT safeguards agreement is that the
IAEA's reoord-keeping system no longer distinguishes U.S. origin material
from any other. This makes the residual application of U.S. bilateral
safeguards extremely difficult unless accurate aa:ounting is continued bilaterally
with the cooperating partner.1 aa
Regardless of how the safeguards provision in a new agreement for cooperation
is formulated, U.S. law now requires that it remain in effect
"irrespective of the duration of other provisions in the agreement or
129. Such ttilala-al agreanmts with the IAEA ha-ve been amdudcd with Argentina, Ausuia,
Brazil, Colombia, India, Iran, Israel, Japan, Korea, the Philippines, Portugal, South Africa, Spain,
Swt.dcn, Swiu.crland., Turkey, Venezuela, and Taiwan. Su TIF, sufwa note S2, at 268-69.
130. This is aa:omplisbed by means of a suspension protocol among the U.S., its ooopcrating
partner, and the lAEA. Such protooo1s have been amdudcd with Austria, Iran, the Philippines. Portugal,
Swaim, Swiu.crland., Turkey, and Vcoczuda. ltl. at 269. The application of NPT safeguards
agteancots to U.S.-supplicd itrms has not n:sulted in a gap in safeguards coverage by permitting
military activities (allowed by the NPT but DOt by U.S. agreements for cooperation), because NPT
safeguan:ls agreements require an aSllUJ"aD0C to the IAEA that there arc no applicable bilateral peaceful-
use guaranttts cm saf~ mau:rials proposed for use in military aaivities. Su INFCIR.C/
153, nfwa note 31, para. 14.
131. E.f., Agrccmmt for Coopcraiion Wrth Sweden, sufwa note 117, an. S, paras. 2, 4.
132. Su INFClllC/tS3, supa note 31, paras. 7, 31, St (requiring a national sysiem of acmunting
and amtrol of nuclear mataial, divided into "material balance areas" without regard to
national origin).
133. Ra:mt agrttments ror cooperation aaonlingly require maintaWIClC al systems ol accounting
for, and amtrol of nuclear material and ttporting of inventories upon request. E.g., Agrccmcnt for
Cooperation with Sweden, sufwa note 117, an. 11 (amsultations), Agreed Minute (inventory lists
required with reporting on request).
1988] 33
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
whether the agreement is terminated or suspended for any reason."1
"
This express statement of "perpetuity" of safeguards is intended to resolve
any dispute under the law of treaties as to whether the expiration of an
agreement for cooperation or its suspension or termination for cause
would have the effect of lifting the safeguards guarantee.136 The Vienna
Convention on the Law of Treaties codifies the general principle that performance
is no longer required upon suspension or termination of a treaty
except with respect to "any right, obligation or legal situation of the parties
created through the execution of the treaty prior to its termination."1
"
The statements of some cooperating partners during the 1970s suggested
they might not share the U.S. view that safeguards constitute the relevant
type of "right, obligation or legal situation" for perpetuity to apply under
the Vienna Convention standard. 1a7 Making perpetuity explicit resolves
all disputes because the Convention recognizes the right of treaty partners
to agree in advance on the residual legal regime that will apply following
a treaty's expiration, suspension or termination.1118
Right of Return
Closely related to peaceful use assurances and safeguard procedures, at
least in theory, is the right to secure the return of transferred items if a
recipient nation does not adhere to its peaceful use assurances. U.S. law
requires that new agreements for cooperation contain a right to the return
of transferred fuel, reactors, and special nuclear material produced
through their use if a nonnuclear-weapon-state recipient terminates or abrogates
any IAEA safeguards agreement or detonates a nuclear explosive
device, even if no U.S.-supplied items are involved.119 This is, in effect, a
· 134. Atomic Energy Act§ 123(a)(l), 42 U.S.C. § 2153(a)(l).
135. Su Bettaucr, supra note 13, at 1134. It is also amgruent with lAEA practices under
GOV /1621, supra note 63, and the rcquittments of The Nucl~ Suppliers Guidelina, INFCIRC/
254, supra note 66.
136. Vienna Convention on the Law of Treatia, supra note 44, art. 70 § t(b).
137. The Indian Government was one partner of special concern. It had claimed that U.S. failure
to supply fuel to its Tarapur power station in accordance with the applicable agreements would
relicve it of its own undertakings to the U.S. ttgarding previously transferred items. E.g., Edlow
International Co., 9 N.R.C. 209, 241 (1979) (views of Chairman Ahearne).
138. Vienna Convention on the Law of Treatia, supra note 44, art. 70, para. 1. Under U.S.
law, perpetuity is only mentioned in the case of safeguards, and not for peaceful use guarantees or
other assurances and consent rights. Nonetheless, consistent with the view that non-proliferation controls
by their nature have perpetual duration, recent U.S. agreements for cooperation apply the concept
to all U.S. controls. E.g., Agreement for Cooperation with Sweden, supra ootc 117, art. 14(2).
139. Atomic Energy Aa § 123(a)(4), 42 U.S.C. § 2153(a)(4). A right of mum is not a
mandatory cxpon criterion, su Atomic Energy Act § 127, 42 U.S.C. 2156, but prc-NNPA agreements
for cooperation often contained a more limited return right as pan of the U.S. fall-back safe-
34 (Vol. 20
Annex 114
CONTROLLING NUCLEAR PROUFERATION
provision for "undoing" supply in the event a rountry's nuclear activities
raise grave doubts about its intention to romply with its assurances to the
United States.
Perhaps rights of return off er a marginal deterrent to misuse of nuclear
material, since the actual removal of substantial nuclear material rould
cause severe disruptions in a nuclear energy program. But the invocation
of the right of return requires a prior breach of fundamental legal undertakings
or withdrawal from the NPT, actions which a state would proba=bly
take only for paramount national interests not likely affected by the
threat of foreign right of return. Moreover, agreement on the technical
details for carrying out the return of transferred items rould pose formidable
difficulties and opportunities for delay.140 It is also uncertain whether
U.S. law (or public opinion) would allow imports of spent power reactor
fuel (the most likely subject of the right of return} in a timely manner. 141
No rountry seems ever to have exercised a right of return. It is also not an
export requirement of the NPT or other international guidelines to which
the United States subscribes.
Ph,si<,al Protection
U.S. law requires "adequate" physical security for exported nuclear reactors
and fuel and for special nuclear material used in or produced
through their usc.10 "Physical security" refers to protective measures
guard rights. E.g., 1968 Agrument for C.OOpcration with Japan.w.pranote111, an. IX, para 8(5),
an. XII, para r.
140. The itffllS subject to the agreement would need to be identified (and perhaps segrcgattd if
mised with ocher mataials), mmpcnsation to the foreign state would have to be arranged, and the
swus of the material upon its fflW'D might also have to be determined. Su, e.g., Agrttmcnt for
Cooperation with Swcdc:n. svpra note 117, art. 10, para 3 {requiring reimbursement and specifying
that fflUJ'Ded itffllS arc not to be subject to the Agrttment). Fmally, praaical arrangancnis for rcmoring
and transporting the itans would be nccrssary.
141. Currently, Seaion 131(() of the Atomic Energy Aa 42 U.S.C. § 2160((), requires 60 continuous
session days oocia: to Congress prior to aroeptana: of fon:ign spent fud unless, for "limited
quantities, n the President dedarcs an CiDCi gaicy and notifies designated congressional rommittecs.
Recmt litigation suggesis the National Environmental Policy Aa, Pub. L. No. 91-190, 83 StaL 852
(1970) {axlificd at 42 U.S.C. §§ 4321-61), may provide a basis for private challenges IO impons of
foreign inadiaJcd fud, ~ when undertaken for non-proliferation purposes. See Nonhwcst Inland
Warers Coalition v. United States Dep't of Energy, 852 F.2d 572 (9th Cir. 1988) (opinion unreported)
(formal enviromncntal review required prior IO transshipment of irradiated foreign rcscan:h
rcaaor fud by DOE through Puget Sound).
142. Atomic Energy Aa § 127(3), 42 U.S.C. § 2156(3). This is also a requirement in new
agrttmmts for c:oopcration. Atomic Energy Act § 123(a)(6), 42 U.S.C. § 2153(a)(6). The cxpon
aitaioo rdcrs to physical security for "facilities" as well as nuclear material, while new agrccmenlS
need only provide for physical security on nuclear material. This lack of parallelism is insignificant,
1988) 35
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
designed to deter or prevent unauthori:zed access or misuse of nuclear
materials by individuals or subnational groups. 141 It differs from safeguards
in its focus upon criminal conduct rather than state diversions of
nuclear material. Although there has not been a significant terrorist incident
involving nuclear material, the threat of even one such incident is
obviously a key motivating factor for ensuring that U.S. exports are adequately
protected. u,
The law itself does not define "adequacy." 141 In the NNPA, the
Nuclear Regulatory Commission was charged with promulgating regulations
"establishing the levels of physical security which in its judgment are
no less strict than those established by any international guidelines to
which the United States subscribes and which in its judgment will provide
adequate protection ... . "u• Foreign physical security measures providing
a level of protection equivalent to these NRC standards are, by law,
deemed "adequate. "u7
Current NRC regulations require physical security measures that provide,
at a minimum, protection comparable to the measures recommended
by an IAEA experts panel in the publication "The Physical Protection of
Nuclear Material.mu These recommendations cover such topics as the
relationship of licensing to physical security, the assignment of nuclear
since nuclear facilities are not deemed to pose special physical security concerns in the absma: of
nuclear material. /d. Su also Bcttauer, supra note l3, at 1146-47.
143. Su INIDlNATIOHAL ATOMIC ENERGY AGENcY, THE l'HYslCAL PR.o-n:cnOH OF NuCUA)
l MATEJUAI. 2, Doc:. INFCIRC/225/Rev. 1 [hereinafter THE PHYSICAL PR.o-n:cnos OF NuCUAJl
MATDUAI.) (describing elements of and requirmicnts for protection of nuclear material).
144. Su CovNaI. ON FOllDGN REI.AnoNS, supra note 22, at 9; Bcttauer, supra note 13, at
1144-47.
145. lneorctically, adequacy could be SttD as a function of the threats to be countered, the
specific measures deemed effective in countering them, and an underlying judgment as to what lCYd of
risk is tolerable. "This latter judgmcnt, in turn. could require either balancing the anticipated bmdits
of nuclear ooopcration against the threats to U.S. interests should nuclear material be misappropriated,
or it might be an implicit reference to an absolute standard of security which must be met
regardless of the advantages of nuclear trade. On the question of the different risks to nuclear material
and countamcasun:s against them, su Willrich, Ncmguvem-.unlal Nuckar Weapon Proliferation, in
STOCltHOLM INIDlNATIONAL PEAcr. R.r:sEAJtQI INsnnJn:, Nua...EAR PROUFERATION PROBU::WS
168 (1974).
146. Nuclear Non-Proliferation Aa § 304{d), 42 U.S.C. § 2156a. The NNPA also required the
Nuclear Regulatory Commission (NRC) to consult with the Scactarics of State, Energy, and Dcfcnse,
and the Dircctm- of ACDA in developing its physical protection regulations.
147. Atomic Energy Aa § 127(3), 42 U.S.C. § 2156(3).
148. 10 C.F.R. § 110.43 (1988); THE l'HYslCAL PRon:cnoN OF Nua.EAR MATDUAL, supra
note 143. The NRC has found the physical protection requirements of the Nuclear Supplicn Guidelines,
INFCIRC/254, supra note 66, to be comparable to the guiddincs desaibcd in THE l'HYslCAL
PR.on:cnoN OF Nua..EAR MATEJUAI. and, therefore, has also dttmcd them adequate.
36 [Vol. 20
Annex 114
CONTROLLJNG NUCLEAR PROUFERA TION
activities to physical protection categories according to their sensitivity,
and the specific physical protection requirements for nuclear material in
these different categories (e.g., screening of employees, physical barriers,
guards and prearranged forms of government response to incidents).149
Ordinarily, the NRC regulations permit reliance on written assurances
from the recipient government and "available relevant inf onnation" in determining
whether the required physical protection will be applied to U.S.
exports. 11
• The written assurances may take the form of ad hoe or generic
assurance statements, or confirmation than an export will be received pursuant
to an agreement for cooperation containing the necessary physical
protection guarantees.111 For the most sensitive materials, NRC regulations
additionally require a "(r]eview of the physical security program established
by the recipient country and of the implementation of the
national requirements, as considered through country visits and other information
exchanges," to ensure that the required physical security measures
will be applied. 10 Under the most recent amendments to the Atomic
Energy Act, the NRC is also specifically directed to consult with the Secretary
of Def ense concerning the adequacy of physical security on sensitive
exports, 118 using the "regular consultation process" with the executive
branch coordinated by the Department of State. uu
There is a tension in this regulatory structure between reliance upon a
foreign government's assurances, supplemented by knowledge of its laws
and regulations, exchanges of technical information, and occasional reciprocal
visits, and detailed oversight of the government's implementation of
its physical security program, including, perhaps, as it applies to particular
shipments. Because there is no supranational authority like the IAEA
to "verify" the application of physical security, there may be a temptation
to fill this void with bilateral inspections, as with fall-back safeguards
rights. A variety of considerations counsel caution in approaching physical
protection on the analogy of safeguards, however.
In physical protection, the U.S. and the recipient country share a strong
common interest in deterring and preventing the misuse of nuclear materi-
149. Sec THE PHYslcAL PROTECTION Of' !lit.'OLU MATDUAL, suJ,Ta note 143.
150. 10 C.F.IL § tt0.43(b) (1988).
151. Su ~"NPA Proa:dun:s, s-uJ,Ta DOtC 100, § S(c). Agreements for cooperation mnduded after
the maament o{ the !'ffl'PA gmcrally incorporate the standards of TKE PHYs1CAL PaOTICTJos Of'
NUCI.LAll MATEJUAL s-uJ,Ta llOlC 136, by rclcrcncc.. E.g., Agreement for Cooperation with Sweden,
niJ,Ta DOtC 117, Agrcal Minute.
152. 10 C.F.ll. § t10.43(a) (1988).
153. Atomic: F.nergy Aa § 133, 42 U.S.C. § 2160c (1982 & Supp. IV 1986).
154. Confcrcooc Report to ammpany H.ll. 4151, 99th Cong., 2d Scss. (1986) sec. 103. Su
NNPA Proccdun:s, SKJ,Ta llOlC 100, §§ S(b), (g), (1).
1988) 37
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
als. The recipient's interest in applying adequate measures is particularly
strong because the nuclear material is located on its territory. Unlike safeguards,
therefore, physical protection "verification" would do more than
create disincentives and provide public reassurances about a recipient nation's
intentions; it would serve essentially to second-guess the competence
of the recipient.
Physical security also differs from safeguards because its purpose is
fundamentally law enforcement, which most governments regard as falling
exclusively within their domestic jurisdiction. For example, although the
United States was recently successful in establishing a multilateral Convention
on the Physical Protection of Nuclear Material,1511 the Convention
deals primarily with nuclear materials in international transit, since most
participants in the negotiations opposed international supervision of their
domestic physical security activities. 111
• Notwithstanding the Convention's
useful procedures for international coordination on physical security measures,
1117 its history suggests the U.S. is likely to encounter stiff resistance
to proposals to conduct detailed supervision of another nation's domestic
physical security system.168 IAEA safeguards, on the other hand, have
come to be accepted as a necessary confidence-building measure supporting
peaceful nuclear commerce.
Finally, specific physical security needs, unlike safeguards, are difficult
to generalize and can depend upon unique circumstances known only to
the host government authorities, often on the basis of highly sensitive in-
155. The Convention on the Physical Protection of Nuclear Material, &/)nud for signature
March 3, 1980 (entered into fortt Feb. 8, 1987), reprinted in Sm. Exec. H., 96th Cong., 2d Scss.
(May 9, 1980), 18 I.L.:M. 1419, 11l22.
156. See Comments on the Draft Convention on Physical Protection of Nuclear Material, International
Atomic Energy Agency Doc. CPNM/80 (1979) Y-eprinud in INTalNATIONAL ATOMIC ENERGY
AGL"'iCY, LEGAL SERIES No. 12 (1982) [HDlllNAFTER CoMMENTS) (Comments of Cuba,
Spain, and India, et aL, contain expressions of opposition to international supervision of domestic
physical security activities). Therefore, the Convention rcquins panicular security levels to be maintained
on domestic materials only while they arc being shipped domestically through international
waters or air spaa:. Set supra note 155, an. 4, para 4. International shipments transiting a pany's
territory or being conveyed to or from its territory by a ship or aircraft under its jurisdiction need onlr
be protected at the Convention lC\·els "as far as practicable." Id., art. 3. The Convention docs, howC\'
CT, establish a prosecution or extradition obligation for offenscs related to nuclear materials even if
they arc not in international transit. Id. artS. 7-13.
157. The Convention establishes a system in which an exporting state pany, importing pany, or
traruited state party will have responsibility for "receiving assurance" that the Convention levels of
physical protection will be applied for each international shipment involving the territory of a pany.
Id. art. 4, paras. 1-3. The Convention also provides for international coordination in the event of
thefts of nuclear material. Id. art. 5.
158. Stt Comments, supra note 156.
38 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
formation. Foreign nations are thus much less likely to be tolerant of what
might be regarded as an intrusion on their security than of safeguards.
The same might be true of the United States if it were asked to allow
foreign supervision of its physical security progra_rns.169
Consent Rights
Peaceful use assurances, safeguards, and physical protection guarantees
are general legal conditions for U.S. exports of nuclear reactors and fuel.
The remaining U.S. legal controls are intended to provide the United
States with rights of consent over specific peaceful uses made of these
items. At the time of transfer the United States usually knows the immediate
use intended for an export. Nuclear exports, however, may have an
extended life. In the case of reactors, successive fuel bundles may be irradiated
in a single facility; in the case of nuclear fuel, processing either
before or after irradiation can yield isotopic compositions of special nonproliferation
concern. Consent rights therefore provide the United States
with the opportunity to affect a recipient's fuel cycle decisions as U.S.supplied
items are considered for additional uses.
The specific U.S. consent rights include: a right over the transfer of
nuclear exports to other countries ("retransf er");180 a right over the storage
conditions for particularly sensitive materials ("storage");181 a right
over the enrichment of uranium to higher concentrations of the fissionable
isotope U-235 ("enrichrnent");181 and a right over the physical or chemical
alteration of specified nuclear material, particularly irradiated nuclear
material, which may provide readier access to sensitive materials ("altera-
159. The United States, for example, has refused to accord access t0 all its nuclear facilities for
safeguards purposes. Stt sup,-a note ~ and accompanying mn. Some of these facilities perform both
civil and military f'unaions, such as enrichment and reprocessing plants.
160. This is both an expon criteria, At0mic Energy Act § 127(4), 42 t:.S.C. § 2156(4) (as
amended), and a requirement for new or amended agreements for rooperarion. Atomic Energy Act §
123(a)(5i, 42 t.:.S.C § 2153(a)(5;
161. This is not an expon criterion, but is required in new or amended agreements for rooperation.
Atomic Energy Aa § 123(a}(81, 42 t.:.S.C. § 2153(a)/8)
162. This was added as an expon criterion b,· Section 402 of the :--;uclear :--;on-Proliferation Aa,
42 t:.S.C. § 2153a(a). and applies --[e]xttpt as specificallv pro,ided in any ag=:ment for cooperation
.... " Sew or amended agreements muSt rontain a t.:.S. right of prior appro,·al O\'er enrichment of
designated matcriab, Atomic Energy .-\et§ 123·a••-1. 42 t·s.c. § 2153ra11·, Reading these two
sections togaher, agreements ronduded sintt 1978 ha,·e generallv pro,ided blanket authorization for
enrichment to twenty percent t.:-235 and required t.:.S. ron.sent for higher enrichment levels. £.g.,
Agreement for Cooperation with Sweden, supra note 117. an. 8. para. 3. The lnteragency Procedures
adopted pursuant t0 the :--;:SPA al.so provide ad,·antt appro"al to enrichment of :--;Re licensed expons
where enrichment has been identified 10 the executi,·e branch as the purpose of the expon at the time
oC review. !\'SPA Prottdurcs, supra oote 100, § nb)
1988) 39
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
tion or reprocessing"). 181 Two legal issues are posed by each of these consent
rights. First, to which items do the rights apply, and second, how arc
the rights to be exercised.
The Scope of the Consent Rights
By inadvertence or design, the text of the Atomic Energy Act applies
each of the consent rights to a different category of items. For example,
the retransf er right covers transferred nuclear reactors and fuel and any
special nuclear material produced through their use. 184 In contrast, the
storage right only requires U.S. approval of facilities before they contain
separated plutonium, uranium-233, or highly enriched uranium
transferred from the United States or "recovered" from either U.S.-origin
nuclear material or nuclear material used in a U.S.-origin reactor. 186 The
other consent rights similarly diverge in their coverage. 1
"
The varying coverage of the required consent rights poses practical and
theoretical difficulties. As an administrative matter, foreign countries (and
the United States, if the rights are applied reciprocally) must establish
extraordinarily complex systems to track the nuclear material subject to
each of the rights. It is impossible simply to denominate material as "sub-
163. Although it differs in scope for the two cases, this is both an cxpon criterion, Atomic Energy
Act § 127(5), 42 U.S.C. § 2156(5), and a requirement in new or amcncded agrcancnts for
ooopcration. Atomic Energy Act§ 123(a)(7), 42 U.S.C. § 2153(a)(7). U.S. agrttmmts for cooperation
have uniformly excluded simple "irradiation" from the reach of this consent right, e.g. Agrttment for
Cooperation with Sweden, supra note 117, art. 8, para. 2, perhaps because transfers of nuclear reactor
fuel have hiStorically been for this specific purpose.
164. This is the formulation in new or amended agreements for ooopcration. The cxpon criterion
for rctransfcrs docs not apply to special nuclear material produced through the use of transferred
reactors. Atomic Energy Act § 127(4), 42 t:.S.C. § 2156(4).
165. Atomic Energy Act § 123(a)(8), 42 U.S.C. § 2153(a)(8). The statute refers to "recovered"
nuclear material because of the ability to separate and recover specific isotopes through chemical
reprocessing.
166. The enrichment prior consent rights in new or amended agreements apply to transferred
nuclear material and nuclear material used in or produced through the usc of any transferred matcri.al
or rcaaors; as an cxpon criterion it applies only to transferred nuclear material. See supa note 162
and accompanying text. The reprocessing consent right in new or amended agreements has the same
scope as the enrichment right, while as an cxpon criterion it docs not apply to nuclear material "used
in or produced through the usc or' t:.S. origin reactors. See supra note 163 and accompanying text.
Despite their similar coverage in new or amended agreements, enrichment and reprocessing consent
rights arc actually not relevant to the same materials; as a general rule, unirradiated uranium mav be
enriched but not reprocessed, whereas spent fuel may be reprocessed but not enriched.
Finally, the alteration right in new or amended agreements applies only to plutonium, uranium-
235, highly enriched uranium and irradiated nuclear material satisfying the co,·erage for enrichment
and reprocessing and as an export criterion ic is limited in the same manner as reprocessing. Su
supa note 163 and accompanying text.
40 [Vol. 20
Annex 114
CONTROLLJNG NUCLEAR PROUFERATION
ject to the U.S. agreement," since different material will be subject to the
agreement in different ways-some for purposes of the retransfer right,
others for the enrichment right, and so on. 197 In fact, the necessity of creating
and administering perhaps a dozen separate tracking systems may
impose an administrative burden heavy enough to discourage nuclear cooperation
with the United States.
As important, the disparate coverages pose definitional issues that determine
precisely how U.S. controls will affect a cooperating partner's nu·clear
program. For example, the law can be read to cover nuclear material
"used in" nuclear material. 1
.. This has no settled meaning and could be
either an artifact of the statute's drafting or the creation of a new category
apan from nuclear material "produced" through the use of other nuclear
material. Since the law calls for new agreements to contain greater
consent rights than those previously granted,189 cooperating partners
should know precisely how the new controls expand upon those in existing
agreements. The uncertain scope of the coverage of these new controls
makes not only for difficult negotiations, but can foster a belief that
the United States is seeking to oontrol a cooperating partner's peaceful
nuclear program for reasons unrelated to nonproliferation concerns.
Administration of the Consent Rights
If U.S. motives arc not trusted, or if its requirements are obscure, enhanced
consent rights not only will be unachievable, but the United States
may lose cooperating partners and the concomitant ability to influence
their nuclear programs. The law already is inflexible concerning the basic
safeguards conditions for cooperation. The United States therefore no
longer exports significant nuclear items to countries refusing full-scope
safeguards and plays a very limited role, if any, in the nuclear programs
of most of the countries which have ref used to join the nonprolif eration
treaties (e.g., Argentina, Brazil, India, Israel, Pakistan, and South Africa).
170 Implementation of the consent right requirements of the law has
been approached with greater flexibility, in part to encourage the remain-
167. 1nc consent rights differ in coverage not only among themselves but also from the pcacdul
use, safeguards, right of mum and physical protection guarantees as discussed supra notes 84-105
and aaompanying tcXt.
168. E.g., Atomic Energy Act §§ 123(a)(6), (7), 42 t:.S.C. H 2153(a)(6), (7) (covering nuclear
material "used in" U.S.-origin nuclear matcri.al for purposes of a U.S. consent right over enrichment,
1cprocessing and alteration). Su also Atomic Energy Aa § 123 (a)(t), 42 1.".S.C. § 2153(a)(t)
(safeguards).
169. Su svpra note 92.
170. Su supra note 103.
1988) 41
Annex 114
LAW & POLICY IN INTER.\'ATIONAL BUSINESS
ing eligible cooperating partners to accede to the full panoply of U.S. legal
conditions. Three specific techniques have been employed in recent agreements
for cooperation.
First, with expanding U.S. controls there is greater likelihood that U.S.
consent rights will overlap those of other countries engaged in nuclear
trade with the cooperating partner. For example, a recipient of a U.S.
reactor might find spent fuel subject to both U.S. controls and those of the
fuel supplier. This increases the administrative burden of tracking nuclear
material and the possibility that permission to conduct the controlled activities
will be refused or intolerably delayed. Recent agreements, as encouraged
by the NNPA,171 have therefore provided for the possiblity of
arrangements with other supplier nations for the exercise of overlapping
U.S. consent rights. 171 This mechanism has not been utilized yet, so it
remains unclear how flexible U.S. law will be in practice. 171
Second, and of greater immediate importance, recent agreements also
have incorporated the principle of "proportionality" for calculating the
U.S. share of special nuclear material produced in a non-U.S. reactor
when both U.S. and third country fuels are used.1" The proportionality
formula differs from the "contamination" principle, applied in the case of
peaceful use assurances, because it permits consent rights over the produced
special nuclear material to be apportioned according to suppliers'
relative contribution of nuclear fuel. 1711 With the introduction of more
complex reactor types, especially breeder reactors, applying a principle of
proportionality presents technical and accounting issues. 176 But it reintroduces
an element of cau:5ation into U.S. claims over derived material,
171. Atomic Energy Act § 126(a)(l)(C), 42 U.S.C. § 2155(a)(l)(C).
172. E.g., Agreement for Cooperation with Sweden, supra note 117, an. 9.
173. The Atomic Energy Aa appears to amtemplate allocation of responsibility for exercising
consent rights to another supplier at the time of expon. Atomic Energy Aa § 126(a)(t)(C), 42 li.S.C.
§ 2155(a)(1 )(C). If such an arrangement is concluded pursuant to the provisions of an agreement for
cooperation after expon, presumably it would be treated as a subsequent arrangement in aa:ordancr
with Section 131 of the Atomic Energy Act, 42 U.S.C. § 2160. See infra note 177.
174. E.g., Agreement for Cooperation with Sweden, supra note 117, Agreed Minute, para. 12.
175. The meaning of a rule of proportionality for t:.S. consent rights was explored in detail in
the hearings on the Agreement for Cooperation with AUStralia. Set supra note 124.
176. A breeder reactor, so-named because it produces more plutonium than it consumes, can
contain a core of plutonium oxide and1or enriched uranium fuel elements and a blanket of uranium
depleted in the fissionable isotope U-235. The core fuel elements make the major contributions to
fission reactions, while the non-fissionable t: -238 in both core and blanket elements absorb neutrons
which produces plutonium. Each isot0pe thus may make a different contribution to the production
and burning of the plutonium in the reactor, creating significant complexities in administering a principle
of proportionality for the plutonium discharged from the reactor. Su TH£ Xt:CL£AR AG£, supra
note 105, at 41-45.
42 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
helping to delimit the scope of U.S. consent rights in a more easily defended
manner.
Finally, the United States has sought to foster the confidence of its cooperating
partners that U.S. controls will be exercised in a stable and
predictable manner by providing long-term consents. Historically, such
consents have been accorded on a case-by-case basis, introducing great uncertainty
into programs requiring multi-billion dollar investments. 171 The
Atomic Energy Act, however, provides that U.S. consent rights may be
exercised in advance of proposed activities, 178 and authorizes conditions of
approval to be contained in agreements for cooperation or agreements subject
to comparable congressional review procedures. 179
Several new agreements for cooperation have been concluded (including
a controversial agreement with Japan), and comparable arrangements
have been offered to the European Atomic Energy Community
177. Since 1978, individual approvals must be processed as "subsequent arrangements,'' see
Atomic Energy Act § 131, 42 U.S.C. § 2160, added 1,y § 303 of the Nuclear Non-Proliferation Act,
Pub. L. No. 95-242, § 303(a), 92 Stat. 127 (1979), in which the Secretary of Energy makes the
necessary statutory determinations, with the concurrence of the Secretary of State, and in consultation
with the Secretary of Defense, Director of ACDA and the Nuclear Regulatory Commission. Atomic
Energy Act § 13t(a)(l), 42 U.S.C. § 2160(a)(t); NNPA Procedures, supra note 100, § 15. In all
cases, proposed subsequent arrangements must be determined "not [to) be inimical to the common
defense and security," and for rctransfers the recipient must agree to the application of the U.S.
expon criteria. Atomic Energy Act § 127(4), 42 U.S.C. § 2156(4). In the case of reprocessing, transfers
for reprocessing, or transfers of greater than 500 grams of plutonium recovered through reprocessing,
the Secretaries of Energy and State must make the funher judgment that;
[s]uch reprocessing or rctransfer will not result in a significant increase of the risk of
proliferation beyond that which exists at the time that approval is requested ... [giving)
foremost consideration . . . to whether or not the reprocessing or retransfer will take place
under conditions that will ensure timely warning to the United States of any diversion well
in advance of the time at which the nonnuclear-wcapon state could transform the divened
material into a nuclear explosive device . . . .
Atomic Energy Act § 131(b)(2), 42 U.S.C. § 2160(b)(2); see also Atomic Energy Act § 133, 42
U.S.C. § 2160c (requiring Secretary of Energy to consult with Secretary of Defense and others on
adequacy of physical protection against intemational terrorism for sensitive nuclear materials during
international transpon).
Notice of all proposed subsequent arrangements must be published in the Federal Register fifteen
days before taking effect, Atomic Energy Act § 13l(a)(l), 42 U.S.C. § 2160(a)(l), and subsequent
arrangements involving reprocessing, transfers for reprocessing or transfers of more than 500 grams of
recovered plutonium must be reponed to Congress for 15 continuous session days, unless the President
determines an "emergency exists due to unforeseen circumstances," in which case the period is 15
calendar days. Atomic Energy Act § t31(b)(1), 42 U.S.C. § 2160(b)(1).
178. See Atomic Energy Act § 131(a)(3), 42 U.S.C. § 2160(a)(3) (timely consideration to be
given to requests for reprocessing of materials not yet exponed or irradiated).
179. Id.
1988) 43
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LAW & POLICY IN INTERNATIONAL BUSINESS
(EURA TOM), in which the United States has assured its cooperating
partners of U.S. consent to specified activities within the partner's designated
nuclear program so long as U.S. statutory requirements continue to
be met. 180 The cooperating partner must provide the United States with
detailed information about its activities, and the United States may revoke
i_ts consent if the activities pose a threat to U.S. national security or nonproliferation
interests, the standards embodied in U.S. law for providing
consent in the first instance.181
The faithfulness of programmatic consent to the law depends upon the
continuing, conscientious scrutiny of how that consent is being used in
180. The agreements already concluded arc with Japan, Finland, Sweden, and Norway. Agreement
for Cooperation Concerning Peaceful Uses of Nuclear Energy, Nov. 4, 1987, United StatesJapan,
H. Doc. No. 128, 100th Cong., 1st Sess. (entered into force July 17, 1988), Dep't. of State
Bull. 93 (Aug. 1988) [hereinafter Agreement with Japan); Agreement for Cooperation Concerning
Peaceful Uses of Nuclear Energy, May 2, 1985, United States-Finland, H. Doc. No. 71, 99th Cong.,
. 1st Scss. (not yet in force) [hereinafter Agreement with Finland); Agreement for Cooperation with
Sweden, supra, note 117; Agreement for Cooperation Concerning Peaceful Uses of Nuclear Energy,
Jan. 12, 1984, United States-Norway, H. Doc. No. 164, 98th Cong., 2d Scss. The agreements with
Finland and Sweden authorize source and low enriched uranium to be sent abroad for fuel cycle
services. Agreement with Finland, art. 3, § 2; Agreement with Sweden, art. 3, § 2. All four agreements
permit spent fuel to be sent to reprocessing facilities in the United Kingdom and France. E.g.,
Agreement with Japan, Implementing Agreement, art. 1. The agreement with Japan proved controversial
with some in Congress because it also provides for the return of plutonium to Japan after
reprocessing, as well as for reprocessing in Japan and the use of plutonium in advanced reactors, some
of which have not yet been built. See e.g., S. REP. No. 275, 100th Cong., 1st Scss. 8 (1987) (Senate
Foreign Relations Committee Report .recording 15-3 vote "to send to the President a letter indicating
the committee's unhappiness with the agreement.") But see 134 CoNG. Ru:. S2669-71, 2677 (daily
ed. Mar. 21, 1988) (Presidential response to letter, and Senate vote of 53 to 30 against a resolution
disapproving the agreement with Japan). These programmatic consents arc contained in Agreed Minutes
or Implementing Agreements which arc treated as an integral part of the underlying agreements
for cooperation for purposes of Congressional review. The offer of programmatic consent to
EURATOM parallels that already accorded Japan. See FACTBOOK, supra note 10, at 234-54 (Administration
policy statements); REPoRT PURSUANT TO SECTION 601, supra note 19, at 42, 46-47.
181. See Atomic Energy Act §§ 131(a), (b), 42 U.S.C. §§ 2160(a), (b) (national security and
non-proliferation tests for subsequent arrangements); Atomic Energy Act § 123(b), 42 U.S.C. §
2153(b) (requirement that agreements "promote" the national security). The executive branch analyses
accompanying the agreements containing programmatic consents have emphasized that all the sub.
stantive and procedural requirements for both agreements for cooperation and subsequent arrangements
had been met. E.g. Agreement for Cooperation with Sweden, supra note 117, at 83-84 (NonProliferation
Assessment Statement for Agreement with Sweden); Agreement with Japan, supra note
180, at 213-14 (analysis of consents in agreement prepared by executive branch); See CoNG. Ru:.
supra note 180 at S2669. The executive branch has not stated whether it believed this was required,
however. One lawsuit challenged the practice of including programmatic consents in agreements for
cooperation, but was dismissed on political question grounds. Cranston v. Reagan, 611 F. Supp. 247
(D.D.C. 1985), and an effort to block the Agreement with Japan on those grounds failed in the
Senate. See supra note 180.
44 [Vol. 20
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CONTROLUNG NUCLEAR PROUFERATION
practice. This requires a high degree of oversight, not only by the executive
branch over foreign nuclear activities, but by the Congress over how
the Executive is interpreting U.S. national security and nonproliferation
interests. 181
Controls on Other Exports of Possible Proliferation Significance
For nonproliferation purposes, U.S. law also regulates the export and
subsequent use or transfer of commodities other than nuclear reactors and
fuel having potential nuclear explosive significance. Unlike nuclear reactors
and fuel, however, export of these items does not require an agreement
for peaceful nuclear cooperation. These residual items fall into three
categories: (1) nuclear components and moderator material; (2) nuclear
technology; and (3) dual-use items with possible nuclear applications.
Components and Moderator Material
The opera(ion of nuclear reactors involves hundreds of pieces of hardware
and specialized chemicals for controlling the fission process. By regulation,
four pieces of equipment have been designated as "reactors" for
export purposes; pressure vessels, control rods, primary coolant pumps,
and on-line charging and discharging machines. 188 Pursuant to the
NNPA, the Nuclear Regulatory Commission was directed to designate
and to control the export of other component parts of reactors and substances
used in reactors which "are especially relevant from the standpoint
of export control because of their significance for nuclear explosive pur-
182. A vehicle for Congressional ovenight exists in section 602(c) of the NNPA, 22 U.S.C. §
3282(c), which requires the executive branch to keep three designated committees of Congress "fully
and currently informed . . . with respect to the current activities of foreign nations which are of
significance from the proliferation standpoint." In addition, annual written reports on the implementation
of U.S. nuclear cooperation policy are required to be submitted by the President to the Congress
as a whole. Nuclear Non-Proliferation Act § 601(a), 22 U.S.C. § 3281(a).
The risk that Congressional ovcnight might be eroded as a result of advance, long-term consents
was a primary focal point during Congressional review of the new U.S.-Japan Agreement. See, e.g.,
United States-Japan Nuclear Cooperation Agreement, Hearings Before the Comm. on For. Affairs of
the House of Rep., 100th Cong., 1st & 2d Sess. 429-520 (1988). Comptroller General opines that
long-term consents may be contained in agreements for cooperation but that consents contained in the
U.S.-Japan Agreement are unconsistent with law because, inter alia, Congress is deprived of its
oversight function for reprocessing and plutonium use in nonnuclear-weapon states. After congressional
review was completed, but before the Agreement entered into force, the executive branch gave
assurances to congressional ovenight committees that they would be informed of significant developments
in the Agreement. Id. at 521-24 (letter from Acting Secretary of State to Chairman of House
Foreign Affain Committee).
183. 10 C.F.R. § 110.2. See Atomic Energy Act § 11(cc), 42 U.S.C. § 2014(cc) (general definition
of "utilization facility").
1988] 45
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
poses." 184 These "components" and "moderator materials" may be exported
outside of an agreement for cooperation, but not without the application
of IAEA safeguards, an assurance against explosive use, and prior
U.S. consent over retransfers. 186 The other conditions applicable to fuel
and reactor exports are not demanded: de facto full scope safeguards, a
right of return, adequate physical protection, and consent rights over storage,
enrichment, and reprocessing or alteration of associated nuclear
materials. The NRC may license the export of components and moderator
materials if, after consultation with the executive branch, it determines
that the three required conditions are satisfied and that the export "will
not be inimical to the common defense and security." 188
There have been efforts from time to time since enactment of these controls
to align the conditions for component and moderator material exports
with those for nuclear reactors and fuel. 187 In support of these efforts, it
has been argued that U.S. policy should be more consistent: if full-scope
safeguards and rigorous nonprolif eration controls under an agreement for
cooperation are required for one form of nuclear cooperation, the same
framework should govern all forms of nuclear cooperation. It is pointed
out that the policy considerations favoring stringent controls-to assure
peaceful uses and to provide an incentive for recipients of U.S. technology
to accept full-scope safeguards-appear to apply with equal force to all
nuclear commodities. In response, it has been stressed that components
and moderator material are far less technically significant than reactors
and nuclear fuel. Such items provide an opportunity for the United States
to retain at least some links ·to the nuclear programs of countries otherwise
ineligible for nuclear trade, and allow for potential U.S. influence on their
184. Nuclear Non-Proliferation Act § 309(a), 42 U.S.C. § 2139(b) (ammding Atomic Energy
Act § 109(b)).
185. Id. As with nuclear reactors and fuel, the President may authorize export of these items by
executive order upon a national security or non-proliferation finding even if the statutory requirements
are not met. Atomic Energy Act § 109(b), 42 U.S.C. § 2155(b)(2).
186. The executive branch must concur in the NRC's non-inimicality finding. Atomic Energy
Act § 109(c), 42 U.S.C. § 2139(c). In practice, the NRC has established broad general licenses, with
. executive branch concurrence, obviating the need for individualized review of specified component and
moderator material exports to designated countries. 10 C.F.R. § 110.24 {deuterium); 10 C.F.R. §
110.25 (nuclear grade graphite); 10 C.F.R. § 110.28 (embargoed destinations); 10 C.F.R. § 110.29
(restricted destinations). See NNPA Procedures, supra note 100, § 9b (exports for which executive
branch review is not required). CJ id. §§ 16, 18 (generic approval for certain retransfers of
components).
187. One example is a Nuclear Explosives Control Act, introduced into the 97th, 98th and 99th
Congresses. See e.g., 131 CONG. REC. 1638 (1985) (remarks of Rep. Howard Wolpe); 129 CoNG.
REC. 2093 (1983) (same).
46 [Vol. 20
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CONTROLLING NUCLEAR PROLIFERATION
domestic programs and export policies. 188 In practice, limited (though
sometimes controversial) trade in components and moderator materials has
continued with several countries which are ineligible to receive U.S. reactors
or fuel. 188
Nuclear Technology
In addition to focusing upon tangible commodities, U.S. export restrictions
also apply to the transfer of information and services which might
facilitate a foreign nuclear program. The Atomic Energy Act requires
prior approval for United States persons "to directly or indirectly engage
in the production of any special nuclear material outside of the United
States." 180 This statutory _mandate is broad enough to reach such traditional
activities as the training of foreign reactor operators (even in the
United States) and assistance in designing foreign nuclear facilities. 181 It
also encompasses assistance which is considered more sensitive because of
its utility in nuclear activities which result in or provide access to weapons-
usable materials. This category is denominated "sensitive nuclear
technology" and covers the transfer of information, whether or not in tangible
form, "which is not available to the public and which is important to
188. See, e.g .• HOUSE CoMM. ON FOREIGN AFFAIRS, LEGISLATION TO AMEND THE NUCLEAR
NON-PROLIFERATION Acr or 1978, 97th Cong., 2d Sess. 397-98 (1982) (executive branch letter by
the Assistant Secretary of State for Congressional Relations).
189. Such trade with South Africa is now barred by the Comprehensive Anti-Apartheid Act of
1986, § 307(a)(1), 22 U.S.C. § 5057(a)(1) (Supp. IV 1986). A middle option between the export
criteria for components and moderator material and those for reactors and nuclear fuel are the controls
required in new or amended agreements for cooperation for components and moderator material
transferred under such agreements, which arc stricter than for such transfers outside an agreement.
See Atomic Energy Act § 123(a), 42 U.S.C. § 2153(a) (including full-scope safeguards). Although
agreements with these requirements have been concluded, it has not been U.S. practice to require
component and moderator material exports to take place under the agreements.
190. Atomic Energy Act § 57(b), 42 U.S.C. § 2077(b). The Act also controls two further categories
of nuclear information. Some information is classified as "restricted data" and may not be transferred
without a specific Presidential national security determination and an applicable agreement for
military cooperation. Atomic Energy Act § tt(y), 42 U.S.C. § 2014(y) (definition of restricted data),
Atomic Energy Act § 144, 42 U.S.C. § 2164 (requirements for transfer). This data relates primarily
to atomic weapons and naval propulsion. See id. The second category of controls applies to "Unclassified
Controlled Nuclear Information" and is administered by the Secretary of Energy. Atomic Energy
Act § 148, 42 U.S.C. § 2168, 10 C.F.R. § 1017 (1988). This information is controlled because,
although unclassified, it concerns U.S. atomic defense programs (for example, security measures for
nuclear weapons) and its unauthorized disclosure could reasonably be expected to have a significant
adverse effect on the health and safety of the public or the national security (for example, by significantly
increasing the likelihood of the illegal procurement of nuclear weapons or theft, diversion, or
sabotage of nuclear materials, equipment, or facilities). See id.
191. See 10 C.F.R. § 810 (1988).
1988] 47
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LAW & POUCY IN INTERNATIONAL BUSINESS
the design, construction, fabrication, operation or maintenance of a uranium
enrichment or nuclear fuel reprocessing facility or a facility for the
production of heavy water."191
The Department of Energy, with the concurrence of the Department of
State, is charged with determining whether a proposed activity involving
nuclear information transfers "will not be inimical to the interest of the
United States."191 To facilitate nonsensitive transactions, the Department
of Energy has by regulation established broad generally authorized categories,
based upon the nature of the transaction and/or the nonproliferation
credentials of the recipient nation.1
H In the case of sensitive nuclear
technology, the transfer may not be authorized unless additional criteria
are satisfied, including full-scope safeguards, peaceful use assurances, and
retransf er controls.1H
Because technology (when viewed as information) is not exhausted by
its initial use, the controls over sensitive nuclear technology also extend to
any additional facilities constructed "by or through" the use of the sensitive
technology and to the special nuclear material produced through their
use.198 Thus, if sensitive technology were ever to be transferred by the
United States, a difficult burden of proof question could arise as to which
future facilities of a similar type in the foreign jurisdiction should be
192. Nuclear Non-Proliferation Act § 4(a)(6), 22 U.S.C. § 3203(a)(6); 10 C.F.R. § 810.3
(1988). The export of some of the key components embodying this technology is subject to additional
controls. Under § 402(b) of the NNPA, 42 U.S.C. § 2153a(b), a "major critical component of any
uranium enrichment, nuclear fuel reprocessing, or heavy water production facility" requires an agreement
for cooperation specifically authorizing such transfers. It is reserved to the President to determine
when a component is "essential to the operation" of such facilities and thus a "major critical
component" for purposes of the statute. Id.
193. Atomic Energy Act § 57(b), 42 U.S.C. § 2077(b). If the transfer is to take place under an
agreement for cooperation, it is considered a "subsequent arrangement" for which the Secretary of
Energy takes the lead. See Atomic Energy Act § 131(a), 42 U.S.C. § 2160(a). If the transfer is to be
an outside agreement, the Atomic Energy Act also designates the Secretary of Energy as the lead
decision-maker. Atomic Energy Act § 57(b)(2), 42 U.S.C. § 2077(b)(2). See NNPA Procedures,
supra note 100, § 12.
· 194. E.g., 10 C.F.R. § 810.7 (1988). Categories established include furnishing public information,
assisting in radiological emergencies, implementing the U.5.-IAEA safeguards agreement, participating
in scientific meetings, and non-sensitive assistance to non-restricted countries (excluding assistance
in the fabrication of nuclear fuel containing plutonium). Id.
195. Atomic Energy Act §§ 127, 128, 42 U.S.C. §§ 2156, 2157. If the transfer is to take place
under an agreement for cooperation, slightly more stringent requirements arc imposed. See Atomic
Energy Act §§ 123(a)(3), (9), 42 U.S.C. §§ 2153(a)(3), (9).
196. Both the export criteria and new or amended agreements for cooperation require such facilities
and their products to be treated as though transferred directly from the United States (either
under or outside an agreement, as relevant). Atomic Energy Act § 127(6), 42 U.S.C. § 2156(6) (export
criteria); Atomic Energy Act § 123(a)(9), 42 U.S.C. § 2153(a)(9) (agreements for cooperation).
48 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
deemed subject to U.S. controls. 197 The sensitive nuclear technology controls
also present other difficulties in application. The statutory definition
emphasizes the "importance" of the information to the construction or operation
of sensitive facilities. 188 It is not specified whether this is an objec- .
tive standard, true for all countries, or whether its application depends ·
upon the pre-existing abilities of the recipient to engage in the sensitive
activities. The statutory definition also requires that the information not
be available to the public. 189 Since information would not be commercially
valuable if it were freely available to the public, its dissemination will
always be limited to some extent. The statute provides no guidance as to
when these commercial restrictions cease to qualify the information as
sensitive technology. These issues have not had to be addressed because
sensitive nuclear technology has not yet been transferred from the United
States under the new controls.
Dual-Use Commodities
The remaining U.S. nuclear export controls are administered primarily
by the Department of Commerce under the Export Administration Act. 200
The 1978 Nuclear Non-Proliferation Act required the establishment of
procedures for the Commerce Department to control the export of items,
other than those licensed by the NRC, "which could be, if used for purposes
other than those for which the export is intended, of significance for
nuclear explosive purposes."201 A "nuclear referral list" was compiled by
the Department of Commerce in consultation with other interested agencies
to identify the items of special nuclear concern subject to the Export
Administration Act. 202 These items range from metallurgical equipment
197. The Nuclear Suppliers' Guidelines, INFCIRC/254, mJrra note 66, app. § 6(b}, adopt a
slightly different approach, calling for IAEA safeguards on "any facilities of the same type ... constructed
during an agreed period in the recipient country."
198. Nuclear Non-Proliferation Act § 4(a}(6), 22 U.S.C. § 3203(a)(6).
199. Id. Department of Energy regulations provide a listing of categories of "public information,"
including, for example, information available in books or periodicals or presented at open meetings.
10 C.F.R. § 810.3 (1988) (defining "public information" and "open meetings").
200. SO U.S.C. §§ 2401-20 (1982), amended by Pub. L. No. 99-64, § 102, 99 Stat. 120 (1985).
The Department of State also regulates the export of munitions under the Arms Export Control Act,
22 U.S.C. § 2751 (1982). The applicable regulations, International Traffic in Arms Regulations,
(ITAR) encompass some commodities of recognized nuclear explosives significance. See 22 C.F.R.
Subchapter M (1988).
201. Nuclear Non-Proliferation Act § 309(c), 42 U.S.C. § 2139a (1978).
202. This is the subset of the Commodity Control List for which nuclear non-proliferation is
identified as the reason for control. See 15 C.F.R. § 378.2 (1988). The Commerce Department also
applies the procedures for nuclear non-proliferation review to commodities controlled for national
security reasons which arc destined for a nuclear end-user or end-use. Id.
1988] 49
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
which could be used in constructing a nuclear weapon to the electronics
necessary for evaluating a nuclear weapons test.108
The Department of Commerce also requires individual license reviews
for exports of any commodity or technical data which an exporter has
reason to know will be used "directly or indirectly" in designing, cons~
cting, or testing a nuclear weapon, or in designing, constructing, or
operating sensitive nuclear facilities, including facilities for the fabrication
of nuclear reactor fuel containing plutonium.104 Controls also exist for exports
of technology to foreign maritime nuclear propulsion projects,1011 and
for certain other technical data.108
When such controlled items are proposed for export, the Department of
Commerce consults with the Department of Energy to determine whether,
because of a proposed destination or other relevant considerations, the
license should be reviewed by a special interagency "Subgroup on Nuclear
Export Coordination."so7 This group is empowered to recommend action
on the proposed license, including conditioning approval upon governmental
or private assurances concerning the item's use and guarantees of access
to verify that use. Any disagreements among the agencies may be
submitted to senior level officials for resolution.108
The distinguishing feature of the commodities controlled under this system
is their "dual-use" character; the commodities are well-suited for
nonnuclear as well as nuclear applications. U.S. controls are thus potentially
(and in practice) far broader than the NPT standard, which requires
safeguards only on exports of equipment "especially designed or
prepared for the processing, use or production of special fissionable
material. "109 ·
There are costs to the approach adopted in U.S. law for dual-use items.
The inevitable delays and uncertainties of the export process apply to a
wide range of items. In cases where the United States insists upon assur-
203. 15 C.F.R. § 399.1, Supp. 1 (1988).
204. 15 C.F.R. § 378.3 (1988).
205. 15 C.F.R. § 378.5 (1988).
206. 15 C.F.R. § 379.4(c) (1988). Recently, the United States announced conclusion of an informal
arrangement among the leading potential Western suppliers of missile technology to limit the
-spread of nuclear weapons delivery capabilities. See Nuclear Nonproliferation 23 WEEKLY COMP.
PRES. Doc. 395 (Apr. 20, 1987). The United States will implement this regime partly. through Commerce
licensing decisions, and partly through State Oepartment decisions under the IT AR, supra note
193.
207. IS C.F.R. § 378, Supp. I (1988). The NNPA requires the Department of Commerce "as
required," to consult prior to ruling on a license request with the Departments of State, Energy, and
Defense and ACDA. Nuclear Non-Proliferation Act § 309(c), 42 U.S.C. § 2139a.
208. See NNPA Procedures, supra note 100, § 20(d).
209. NPT, supra note 3, art. III, para.(2).
so [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
ances, the recipient country may want to negotiate their precise terms or
may even refuse to accept the U.S. controls. As a result, the United States
may lose its attractiveness as a source for these commodities. The United
States, however, is in a better position to screen dual-use exports for nu- .
clear nonproliferation purposes than countries which rely upon a fixed list
of nuclear-specific commodities. The United States can take into account
such factors as end-user and end-use, which many countries cannot. This
can be a cause for frustration for U.S. regulators, since other exporting
nations may plead lack of legal authority to stop exports which the United
States has worked hard to prevent on nonprolif eration grounds.
SANCTIONS
The third central nonprolif eration tool employed in U.S. law is the
threat of sanctions. In the Atomic Energy Act,110 the Foreign Assistance
Act,m and the Export-Import Bank Act111 the United States warns
foreign nations that security, economic, or trade relations will be legally
restricted if they engage in conduct deemed to be of nonproliferation concern.
These threats are made on a unilateral basis and, in most cases, are
made to all countries without distinction. To date, the United States has
only halted ongoing assistance as a result of these sanctions provisions
once, cutting off economic and security assistance to Pakistan for three
years because of its receipt of sensitive technology from abroad without
saf eguards.118
A fundamental premise of these provisions is that the United States in
fact enjoys the leverage these laws seek to codify. It is assumed that the
threat of sanctions-backed up by domestic law binding upon the President-
will introduce a specific cost into the calculations of foreign leaders
when they consider actions of potential proliferation significance. 114 For
210. Atomic Energy Act § 129, 42 U.S.C. § 2158.
211. Foreign Assistance Act §§ 669-70, 22 U.S.C. §§ 2429-29a, amended l,y Pub. L. No. 99-83,
§ 1204, 99 Stat. 277 (1985).
212. Export-Import Bank Act of 1945, § 2(b)(4), 12 U.S.C. § 635(b)(4) (as amended). CJ. 22
U.S.C. § 262d(b) (Secretary of Treasury to instruct Executive Directors of multilateral banks, in
carrying out their duties, to "considn ... whether the recipient oountry has detonated a nuclear
device or is not a State Party to the Treaty on Nonproliferation of Nuclear Weapons or both")
(emphasis added).
213. Set Betts, sufJTa note to, at 130. When sanctions-triggering oonduct may have occurred but
the U.S. docs not engage in the trade or provide the assistance that would be affected there is no need
for a public determination of the statutes' applicability.
214. Statutory sanctions provisions can be seen as serving at least three other possible purposes:
(1) in the case of a threatened cessation of nuclear ooopcration, they may reflect a judgment that
foreign assurances of peaceful uses may not be reliable in the wake of the sanction-triggering behavior
1988] 51
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
the cost to seem real, the threat must be both credible and weighty. The
strategy of sanctions, moreover, assumes a rational approach to decisionmaking
by the foreign political process, and one which will not be derailed
by emotional resistance to what the United States is demanding
simply because of its intrusive nature. Finally, the sanctions path assumes
t_hat the United States is prepared to carry out the sanctions provided in
the law in order to retain the policy's credibility, and to avoid raising
doubts about the seriousness of the U.S. commitment to nonproliferation
objectives. 1111
The Structure of U.S. Sanctions Legislation
The nonproliferation sanctions in U.S. law generally follow a common
structure:
- They first describe the forms of assistance or trade which are at risk:
under the Foreign Assistance Act, funds for particular purposes;118 under
the Atomic Energy Act, eligibility for exports of nuclear materials, components,
and reactors; 117 and under the Export-Import Bank Act, eligibility
for guarantees, insurance or credits.118
- They next describe the acts which will trigger these sanctions: transfers
or receipts of sensitive technologies;119 illegal procurement of U.S. corn-
(e.g., violation of IAEA safeguards); (2) even where confidence in the foreign nation's undertakings to
the United States remains, the U.S .. may regard being seen as a source of nuclear or nonnuclcar
assistance to a state engaged in actions of proliferation concern as detrimental to its non-proliferation
interests; and (3) the statutory codification of political threats may be a symbolic expression to all
countries of the non-proliferation values of the United States. This article focuses ·on the threat of
sanctions as a manifestation of political leverage, however, because that is the role in which, as a
domestic legal tool, the sanctions most directly attempt to influence foreign government behavior.
215. Su generally, Scheinman, Nonproliferation Regime: Safeguards, Controls, and Sanctions,
in THE NUCLEAR CoNNECTION 177, 202-05 (A. Weinberg, M. Alonso & J. Barkenbus ed. 1985).
One of the costs of imposing sweeping sanctions, of course, is that the U.S. may thereafter forego all
influence over the target country's future actions.
216. At risk is aid authorized under the Foreign Assistance Act and the Arms Export Control
Act. Foreign Assistance Act §§ 669(a), 670(a)(1), (b)(1), 22 U.S.C. §§ 2429, 2429a (a)(1), (b)(1)
(1982 & Supp. IV 1986); Arms Export Control Act §§ 3, 4, 22 U.S.C. §§ 2753, 2754.
217. Atomic Energy Act § 129, 42 U.S.C. § 2158.
218. Export-Import Bank Act § 2(b)(4), 12 U.S.C. § 635(b)(4) (Supp. IV 1986).
219. The FAA sanctions apply to both enrichment transfers,§ 669(a), 22 U.S.C. § 2429(a), and
reprocessing transfers, § 670(a)(1), 22 U.S.C. § 2429a(a)(1). The AEA sanctions apply only to agreements
for the transfer of reprocessing equipment, materials or technology. Foreign Assistance Act §
129(2)(C), 42 U.S.C. § 2158(2)(C). In both cases, the recipient of the transfer must be a nonnuclcarwcapon
state, but both the transferor state and transferee state risk the imposition of sanctions. The
applicability of these provisions to transferors underscores the intended coercive effect of the law.
52 [Vol. 20
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CONTROLLING NUCLEAR PROLIFERATION
modities for a nuclear weapons program;190 violation of IAEA safeguardsm
or the conditions attached to U.S.-supplied nuclear commodities;
111 activities-or assistance to other countries in activities-with direct
nuclear weapons significance;111 or receipt, transfer, or detonation of a
nuclear explosive device.1
"
-In some cases, the provisions offer mitigating conditions under which
(alone or in conjunction with other conditions) the foregoing acts will not
trigger sanctions: if the transfers or activities are carried out under multilateral
auspices,1111 or pursuant to international understandings to which
the United States subscribes,118 or under international safeguards;117 if the
state subsequently has made "sufficient progress" toward terminating its
220. Foreign Assistance Act § 670(a)(1)(B), 22 U.S.C. § 2429a(a)(1)(B). This provision applies
to nonnuclear-weapon states that cxpon illegally or attempt to cxpon illegally from the United States
items "which would contribute significantly" to their ability to manufacture a nuclear explosive device,
and which the President determines were to be used for that purpose. Id.
221. Atomic Energy Act §§ 129(1)(B), (C), 42 U.S.C. §§ 2158(t)(B), (C) (nonnuclcar-wcapon
states which are found by the President to have "terminated or abrogated IAEA safeguards," or
"materially violated an IAEA safeguards agreement"); Expon-Impon Bank Act § 2(b)(4), 12 U.S.C.
§ 635(b)(4) ("materially violates, abrogates, or terminates" IAEA safeguards).
222. Atomic Energy Act § 129(2)(A), 42 U.S.C. § 2158(2)(A); Expon-Impon Bank Act, §
2(b)(4), 12 U.S.C § 635(b)(4).
223. Atomic Energy Act § 129(1)(0), 42 U.S.C. § 2158(1)(0) (engaged in activities with nuclear
material "having direct significance for the manufacture or acquisition- of nuclear explosive devices"),
Atomic Energy Act § 129(2)(B), 42 U.S.C. § 2158(2)(B) ("assisted, encouraged, or induced
any non-nuclear-weapon state" to engage in the activities described in Atomic Energy Act §
129(1)(0), 42 u.s.c. § 2158(1)(0)).
224. Atomic Energy Act § t29(t)(A), 42 U.S.C. § 2158(1)(A) (nonnuclcar-wcapon state found
to have "detonated a nuclear explosive device"); Foreign Assistance Act § 670(b)(1)(A), 22 U.S.C. §
2429a (b)(1)(A) (transfer of nuclear explosive device to nonnuclcar-wcapon state), Foreign Assistance
Act § 670(b)(t)(B), 22 U.S.C. § 2429a (b)(1)(B) (receipt or detonation by nonnuclcar-wcapon state of
nuclear explosive device); Expon-Impon Bank Act § 2(b)(4), 12 U.S.C. § 635(b)(4) (detonation by
nonnuclear-wcapon state).
225. Atomic Energy Act § 129(2)(C), 42 U.S.C. § 2158(2)(C) (reprocessing agreement "in connection
with an international fuel cycle evaluation in which the United States is a panicipant");
Foreign Assistance Act § 669(a)(1), 22 U.S.C. § 2429(a)(1) (enrichment transfers which are pledged
to be placed "under multilateral auspices and management when available"); Foreign Assistance Act
§ 670(a)(1), 22 U.S.C. § 2429a (a)(t) (reprocessing transfers "associated with the investigation, under
international evaluation programs in which the United States panicipates, of technologies which are
alternatives to pure plutonium reprocessing'').
226. Atomic Energy Act § 129(2)(C), 42 U.S.C. § 2158(2)(C) (reprocessing agreement "pursuant
to a[n] ... international agreement or understanding to which the United States subscribes"}.
227. Foreign Assistance Act § 669(a)(2), 22 U.S.C. § 2429(a)(2) (enrichment transfers under
IAEA safeguards when "all nuclear fuel and facilities" in the recipient country are also under IAEA
safeguards).
1988] 53
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
proscribed activities; 218 or, if the technology involved is one promoted by
the United States as an alternative to more sensitive processes.He
-In each case the President is afforded some authority to lift or avoid the
sanctions on national interest, national security, or nonproliferation
grounds. 180
-Finally, in these statutes Congress reserves to itself the right to review
the President's exercise of the statutory waiver authority, primarily
through a congressional notice and waiting period before the waiver may
take effect, during which expedited procedures are available for congressional
action to block the waiver.181
As with export controls, this structure represents a balancing of domestic
political interests as much as an effort to establish rules for international
behavior. The laws, of necessity, govern U.S. not foreign conduct.
They are an effort by the Congress to compel the Executive to administer
nonproliferation policy in a designated fashion, based upon Congress' constitutional
powers over appropriations and foreign commerce. HI In the
228. Atomic Energy Act§ 129(1)(D), 42 U.S.C. § 2158(1)(D); Atomic Energy Act§ 129(2)(B),
42 U.S.C. § 2158(2)(B).
229. Foreign Assistance Act § 670(a)(l), 22 U.S.C. § 2429a (a)(l) (reprocessing transfers
·"which are alternatives to pure plutonium processing").
230. Atomic Energy Act § 129, 42 U.S.C. § 2158 (Presidential determination that cessation of
nuclear exports "would be seriously prejudicial to the achievement of United States non-proliferation
objectives or otherwise jeopardize the common defense and security"); Foreign Assistance Act §
670(a)(2), 22 U.S.C. § 2429a(a)(2) (Presidential determination that cessation of nuclear exports or
economic or security assistance "would be seriously prejudicial to the achievement of United States
non-proliferation objectives or othe~ise jeopardize the common defense and security"); Foreign Assistance
Act § 669(b)(l), 22 U.S.C. § 2429(b)(l) (Presidential determination that termination of economic
and security assistance "would have a serious adverse effect on vital United States interest{sJ"
and receipt of "reliable assurances that the country in question will not acquire or develop nuclear
weapons or assist other nations in doing so"); Foreign Assistance Act § 670(b)(2Op)(A), 22 U.S.C. §
2429a (b)(2)(A) (1982 & Supp. IV 1986) (limited 30-day waiver if President determines "that an
immediate termination of assistance to that country would be detrimental to the national security of
the United States"); Export-Import Bank Act § 2(b)(4), 12 U.S.C. § 635(b)(4) (Supp. IV 1986)
("President determines that it is in the national interest for the Bank to guarantee, insure, or extend
-credit, or participate in the extension of credit in support of United States exports to such country").
231. Atomic Energy Act § 129, 42 U.S.C. § 2158; Foreign Assistance Act §§ 669(b)(2),
670(a)(3), 670(b)(2), 22 U.S.C. §§ 2429(b)(2), 2429a(a)(3), 2429a(b)(2). It should be noted that the
provisions cited above include authorization for a legislative veto. The legislative veto, a mechanism by
which one or both houses of Congress would, by resolution, overrule or "veto" a Presidential decision
authorized by statute, was held unconstitutional in Immigration and Naturalization Service v.
Chadha, 462 U.S. 919 (1983). In the sanctions context, it remains to be seen how the President would
respond to such Congressional action.
232. U.S. CoNST. art. I, §§ 8, 9 (foreign commerce, appropriations). Aside from the constitu-
54 [Vol. 20
Annex 114
CONTROLUNG NUCLEAR PROUFERATION
tug and pull between the branches, the Congress has conceded that rigid,
general legislation may not provide suitable rules for every situation the
President might face. Therefore, the applicability of the legal sanctions
depends in most cases upon difficult judgments entrusted to the President-
judgments which, either because of the vagueness of the statutory
standard, or the relative inaccessibility of the information upon which the
judgments are to be based, or the lack of congressional expertise, are very
difficult for Congress to review. Moreover, in nearly all cases the Congress
has recognized the necessity of affording the President authority to
waive the law where important national interests demand. Finally, although
the President is required by law to keep the Congress informed of
how these provisions are being administered,288 with the invalidation of
the legislative veto Congress now lacks an effective tool for overturning the
President's action short of enactment of new law. 184
A Brief Case Study
When viewed from abroad, it is uncertain whether the threat contained
in such a convoluted and uncertain web of sanctions conveys the kind of
clear statement of U.S. nonproliferation policy necessary to achieve the
desired effect. A short review of how the statutory sanctions provisions
have been· applied in one sensitive region-South Asia-illustrates the
tional question of whether the President's own foreign affairs powers could ever override these Congressional
directives, there is the further question of what precisely these statutes purport to mandate
the President to do. The statutes arc drafted to require imposition of sanctions either if certain events
occur or if the President makes specified findings. They seem to assume an Executive branch duty to
determine the existence of the events or for the President to make the specified findings in appropriate
circumstances but do not address operational issues such as burden of proof, reliability of intelligence
versus public information, or the timing for reaching a conclusion. In at least one case, see Foreign
Assistance Act § 670{a){1)(B), 22 U.S.C. 2429a(a)(1)(B), the legislative history suggests the President
has considerable flexibility in deciding how to implement the sanctions provisions. See H.R. REP. No.
99-39, 99th Cong. 1st Sess. 99 (in determining whether illegal export occurred, President may rely on
a conviction-and thus presumably await the outcome of trial--<>r make a determination based on "all
available evidence").
233. The waiver authorities by their terms require notification to Congress. In the case of waivers
under the FAA, moreover, a separate statute requires annual reports to Congress on the activities
of any country benefiting from a waiver. International Security and Development Cooperation Act of
1981, § 735, codified at 22 U.S.C. § 2429a-l. See also Nuclear Non-Proliferation Act, 602{c), 22
U.S.C. § 3282(c).
234. The AEA and FAA still contain concurrent resolution veto provisions; the Export-Import
Act docs not specify a means for the Congress to reverse the President's decision. The lack of a
Congressional veto in the case of a Presidential decision to continue or renew financial assistance may
not be highly significant in practice, since funds must be authorized and appropriated through affirmative
Congressional action for the President's decision to continue to be effective.
1988) 55
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
difficulty.
The dynamics of nuclear proliferation among the three key South Asian
actors-Pakistan, India, and China-are complex. In 1964, based upon
substantial assistance from the Soviet Union, China detonated its first nuclear
device. 181 Ten years later, India detonated its "peaceful" explosive
device. 286 Many observers attribute the Indian decision in large measure
to its fears of a nuclear-armed China, with which it had had (and continues
to have) serious border disputes. 187 The Prime Minister of Pakistan,
in turn, stated that "[i]f India builds the bomb, we will eat leaves or grass,
even go hungry but we will have to get one of our own." 288 While never
admitting it, Pakistan is widely reported to have devoted substantial resources
to arriving at a capability, if not an immediate intention, to produce
nuclear weapons. 239 Albeit oversimplified, this portrayal suggests the
highly interdependent nature of regional decisions to acquire nuclear explosive
capabilities. uo
U.S. sanctions legislation has applied inconsistently to each of these regional
actors and has changed over time. The nuclear explosions of China
and India predated the effective date of the statutory provisions.fl 1 Nevertheless,
because the provisions incorporate the NPT's distinction between
nuclear and nonnuclear-weapon states (whether a state's first test occurred
before January 1, 196 7), China is considered a nuclear-weapon
state and India a nonnuclear-weapon state for purposes of U.S. statutory
sanctions, which apply more strictly to nonnuclear-weapon states.141 Also,
the safeguards and guarantees that would be required as a condition of
nuclear cooperation with I~dia as a nonnuclear-weapon state are more
235. STANFORD ARMS CoNTllOL GROUP, supra note 2, at 145-46. Ironically, China's weapons
program seems to have been rapidly directed to counter a Soviet threat, although prompted originally
by fears of the United States. Id.; Mohan, Why Nations Go Nuclear, in NUCLEAR PROLIFERATION
IN THE 1980's 35-36 (W. Kincade and C. Bertram eds. 1982).
236. Set supra note 10.
237. See, e.g., STANFORD ARMS CoNTROL GROUP, supra note 2, at 304; Strong, The Nuclear
Weapons States: Why They Went Nuclear, in NUCLEAR PROLIFERATION IN THE 1980's, supra note
235, at 12; Betts, supra note 10, at t 19-23.
238. Betts, supra note 10, at 113.
239. Id at 114; FACTBOOK, supra note 10, at 4.
240. But see Mohan, supra note 235, at 38 (criticizing "chain theory" or proliferation as applied
to third world countries).
241. The AEA provisions arc prospective from March 10, 1978; the FAA provisions arc prospective
from 1977, except for section 670(a)(l)(b) which is prospective from 1985. The Export•
Import Act is prospective from October 26, 1977.
242. See, e.g., Atomic Energy Act § 129(1), 42 U.S.C. § 2158(1); Foreign Assistance Act §§
670(a)(t)(B), 670(b)(l)(B), 22 U.S.C. § 2429a(a)(l)(B), 2429a(b)(l)(B); Export-Import Act f
2(b)(4), 12 U.S.C. § 635(b)(4).
56 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
stringent than for China and, in fact, required a cut-off of cooperation in .
1980. Nuclear cooperation with China, in contrast, may be about to begin.
148 For all these reasons, India might see itself treated less favorably
than China by U.S.
Pakistan, in turn, might make the same claim about its treatment under
U.S. law vis-a-vis that of India. Because India's nuclear test predated U.S.
legal provisions, it has been "grandfathered" (though later-tests would not
be). Pakistan, on the other hand, faces a cut-off under U.S. law should it
test a first device. Further, India's use and development of sensitive nuclear
technologies has relied upon indigenous resources since the enactment
of U.S. sanctions legislation. Pakistan, in contrast, has acquired its
enrichment and reprocessing capabilities more recently from abroad. Since
U.S. law applies only to '·'transfers" or "agreements for the transfer" of
enrichment and reprocessing technology, Pakistan has encountered continuing
obstacles in its relations with the United States over the nuclear
issue.
In 1979, faced with mounting evidence of transfers to Pakistan of sensitive
technology and an inability to satisfy the applicable waiver standard,
President Carter halted economic and security assistance to Pakistan (nuclear
trade had previously been suspended).s•• The same year, the Soviet
Union invaded neighboring Afghanistan, driving millions of refugees into
Pakistan and placing it squarely on the front lines in the resistance to
Soviet occupation. Persuaded that U.S. national interests favored a renewal
of the assistance relationship with Pakistan (though not nuclear
cooperation), Congress in 1981 authorized the President to waive the legal
prohibitions on aid until 1987. su The President exercised that authority
in 1982.148
Public reports of a Pakistani nuclear weapons program continued, how-
243. Agreements with nuclear-weapon states need not provide for IAEA safeguards, full-scope
safeguards, or a right of return. Atomic Energy Act §§ 123(a)(1), (2), (4), 42 U.S.C. §§ 2153(a)(1),
(2), (4) (Supp. IV 1986). All that remains for cooperation to begin with China is compliance with the
Joint Resolution approving the Agreement. See supra note 128.
244. See note 213, supra and accompanying text.
245. Section 736 of the International Security and Development Cooperation Act of 1981, Pub.
L. 97-113, 95 Stat. 1561, added a new section, 620E, to the Foreign Assistance Act of 1961, 22
U.S.C. § 2375. Subsection d provided the President with the authority to waive the provisions of
section 669 of the Foreign Assistance Act for Pakistan (receipt of enrichment technology) until September
30, 1987 "if he determines to do so is in the national interest of the United States." This
responded to the President's apparent inability to certify under section 669(b)(l) that Pakistan had
provided reliable assurances it would not acquire or develop nuclear weapons.
246. Presidential Determination No. 82-7, 3 C.F.R. § 241, 47 Fed. Reg. 9805 (Feb. 10, 1982),
waived the provisions of section 669 for the full time period allotted, and also waived the provisions of
section 670(a)(t) relating to receipt of reprocessing technology without reference to any time period.
1988) 57
Annex 114
LAW & POLICY IN INTERNATIONAL BUSINESS
ever. Without revoking the President's waiver authority, Congress in 1985
attached two new conditions to the assistance program. First, the President
was required to certify annually that "Pakistan does not possess a
nuclear explosive device and that the proposed United States assistance
program will reduce significantly the risk that Pakistan will possess a nuclear
explosive device."H7 Second, in response to the conviction of an alleged
Pakistani procurement agent for the illegal export of nuclear triggering
devices from the United States, Congress added a new cut-off
provision to the Foreign Assistance Act. It applies to any nonnuclearweapon
state which illegally exports significant commodities from the
United States for a nuclear explosives program, after the amendment's
effective date. Ha
In September of 1987 the special waiver authority for Pakistan
expired. He After a variety of proposals were considered in the Congress, a
simple thirty month extension based upon a Presidential national interest
finding was enacted.Ho Before the President used this new authority,
however, a Canadian citizen with ties to Pakistan was convicted by a U.S.
court of attempting to smuggle enrichment equipment to Pakistan. On
January 15, 1988, the President determined that the equipment was to be
used by Pakistan in the manufacture of a nuclear explosive device.H1 This
would have triggered new sanctions against Pakistan for engaging in illegal
nuclear-weapons related procurement in the United States. However,
the President waived these new sanctions.us At the same time, he renewed
his waiver of the sanctions imposed on Pakistan for its earlier receipt
of unsafeguarded enrichment technology.918 In exercising these
waiver authorities, the President cited the importance of continuing U.S.
247. Section 902 of the International Security and Development Cooperation Act of 1985, Pub.
L. 99-83, 99 Stat. 268, 22 U.S.C. § 2375(e). The President has made the required certification three
times. See Presidential Determination No. 86-03, 3 C.F.R. § 427, 50 Fed. Reg. 50,237 (Dec. 10,
1985); Presidential Determination No. 87-3, 3 C.F.R. 275, 51 Fed. Reg. 40,301 (Oct. 27, 1986);
Presidential Determination No. 88-4, 53 Fed. Reg. 773 (Dec. 17, 1987).
248. Foreign Assistance Act of 1961, § 670(a)(1)(8), 22 U.S.C. § 2429a(a)(1)(8). See H. Rep.
99-39, 99th Cong. 1st Scss. 99 (1985) (provision prompted by "1984 oonviction of a Pakistani national
for attempting illegally to export to Pakistan equipment of potential application to nuclear
. explosives").
249. See notes 245-246, supra and accompanying text. Technically, this meant the sanctions
originally instituted in 1979 once again came into effect. However, because no budget had been approved
by Congress, Pakistan was not actually deprived of any appropriated funds.
250. H.R.J. Res. 395, 100th Cong., 1st Sess. 100 (1988), Pub. L. No. 100-102, § 557, 101 Stat.
1329-170, reprinted in 12 U.S. CooE, CoNc. & AoMIN. NEWS (Feb. 1988).
251. Presidential Determination No. 88-5, 53 Fed. Reg. 3325 Uan. 15, 1988) (paragraph 1).
252. Id., para. 2.
253. Id., para. 3.
58 [Vol. 20
Annex 114
CONTROLLING NUCLEAR PROLIFERATION
aid to securing the withdrawal of Soviet troops from Afghanistan and in
restraining the Pakistani nuclear program, as well as Pakistani assurances
and administrative steps to prevent future illegal procurement in the
United States.1
M
In sum, then, aid has continued to Pakistan notwithstanding its importation
of unsafeguarded sensitive nuclear technology, its suspected nuclear
explosives program, and its alleged illegal procurement activities in the
United States. This has only been possible through a combination 01'
Presidential waivers and special statutory authorities. In the future, continuation
of aid is contingent upon congressional renewal of the special
statutory authorities and annual presidential certifications designed to assure
that Pakistan is exercising restraint in its nuclear program.
Meanwhile, India, which has tested a device and also engages in unsaf
eguarded uses of sensitive nuclear technology, is eligible for assistance
without special executive or congressional action. China, as a· nuclearweapon
state, is even less at risk of triggering sanctions as a result of its
domestic nuclear program, and alone among the three regional states
could be eligible for nuclear cooperation with the United States.
Since both China and India had a demonstrated nuclear weapons
capability by the time U.S. sanctions legislation entered into effect, the
benchmark for evaluating the legislation's role as a nonproliferation tool
must focus upon Pakistan. According to presidential certifications in 1985,
1986, and 1987, Pakistan has stopped short of "possession" of a nuclear
weapon. As part of his certification, the President has attributed this restraint
to the continuation of U.S. economic and security assistance. 1111
Whether or not this is the case, it would certainly appear that Congress
has succeeded in forcing the executive branch to expend considerable diplomatic
capital in an effort to keep Pakistan from taking steps that would
trigger U.S. legal restrictions. To that extent Congress may feel that by its
sanctions legislation it has not only brought the issue of nonprolif eration
into broader public view but has also helped mold U.S. foreign policy
priorities.
The codification of U.S. nonprolif eration policy through legislative
sanctions, however, has had two unsettling effects in the South Asia context.
First, the continuation of major assistance programs to Pakistan-
despite the sanctions provisions and despite the widespread belief
that Pakistan is engaging in nuclear weapons-related activities-may give
the appearance that the United States is not committed to carrying out its
254. Id., paras. 2 & 3 and accompanying Justification for Presidential Determination to
Authoriu Security Assistance for Pakistan.
255. See supra note 247 and accompanying text.
1988) 59
Annex 114
LAW & POUCY IN INTERNATIONAL BUSINESS
nonproliferation policies when other national security interests compete.
This could diminish any influence the United States enjoys on the nuclear
issue, both with Pakistan and the other regional states. Second, an ironic
consequence of the increasingly refined statutory provisions is that the
United States may now contribute to nuclear proliferation in the region if
the President determines that Pakistan has become ineligible for aid. A
failure by the President to certify that Pakistan "does not possess a nuclear
device,"1116 for example, likely would be understood by India as confirmation
that Pakistan has crossed the nuclear threshold. Even if the Indian
government already makes its plans on the basis of this assumption,
the U.S. action could set off public pressures in India for an overt
weapons program, precisely the outcome both the President and the Congress
are seeking to prevent.
CONCLUSION
The use of law by the United States as a tool for slowing the spread of
nuclear weapons has elevated one among many possibly competing interests
to a central role in the Executive's conduct of foreign policy. Because
of its relative permanence and explicit character, legal codification of
nonprolif eration policy has symbolize,!" the U.S. resolve to give primacy to
nonproliferation values. The need to accommodate other interests and account
for differences among nations at the same time has necessitated exceptions,
either on the face of the law, in its application, or through its ad
hoe revision. Domestically, this at times has translated into tension between
the Executive and Congress over whether the law has been properly
administered. Internationally, it may have given rise to skepticism
over the U.S. commitment to nonproliferation.
To enhance the effectiveness of U.S. legal controls and overcome some
of these difficulties, efforts at multilateralization continue-through promotion
of universal adherence to the NPT,267 harmonization of supplier
policies,1118 and creation of an agreed program of international sanctions
against states that engage in actions of serious proliferation concern.111•
256. Id.
257. See Nuclear Nonproliferation Act § 2(c), 22 U.S.C. § 3201 (Congressional declaration of
policy to "strongly encourage" NPT adherence); REPoRT PuasuANT TO SECTION 601, supra _note
19, at 23-25 (executive branch actions to promote NPT adherence).
258. See Nuclear Nonproliferation Act § 403, 22 U.S.C. § 2153b (directive to President to seek
international agreement on expon policies); REPoaT PuasuANT TO SECTION 601, supra note 19, at
13-15 (executive branch actions to develop common cxpon policies, including upgrading of international
trigger lists for safeguards, promotion of comprehensive safeguards as a condition of supply, and
citlisting cooperation from newly emerging suppliers).
259. See Nuclear Nonproliferation Act § 203, 22 U.S.C. § 3243 (mandate to seek to negotiate
60 [Vol. 20
Annex 114
CONTROLUNG NUCLEAR PROLIFERATION
Coordinating U.S. legal policy with that of other nations also carries costs,
however: the NPT contains political compromises, permitting unsafeguarded
military uses of nuclear energy and withdrawal from the
treaty on only three months notice;160 the international norm underlying a
supplier consensus will almost certainly fall short of U.S. controls;m and
a meaningful multilateral approach to sanctions, if it ever were achievable,
would entail the loss of flexibility which U.S. statutes have thus far
sought to preserve.
Some form of multilateralism will nevertheless be necessary to address
the most significant defect in the current nonprolif eration regime-the
failure of key arms control treaties such as the NPT to attract the adherence
of states with growing unsafeguarded nuclear programs. The United
States cannot solve this problem alone through domestic legislation: U.S.
exports have not proved a sufficiently attractive inducement for these
countries to shape their policies to satisfy U.S. legal requirements for supply;
cutting off any residual links to their programs, including minor
components and dual-use items, also appears to have little prospect for
changing their attitudes; and, U.S. sanctions legislation has not provided
the leverage to shape their nuclear policies.
The United States will have to work with other states to exercise influence-
through trade arrangements, financial assistance, or security assurances,
for example-if it hopes to obtain nonproliferation commitments
from the threshold states that have preserved a weapons option. Otherwise,
the world risks a further widening of the "desperate armament
race" President Truman foretold at the dawn of the nuclear age.
common international sanctions for violations of material obligations regarding nuclear materials).
260. S11 supra notes 57-58 and accompanying text.
261. See Fischer, National Policy Issuu, in THE NUCLEAR CoNNEC110N, supra note 215, at
133, 146-47.
1988] 61
Annex 114
Annex 115
[
UNITED ST ATES
COMMERCIAL TREATIES
and
INTERNATIONAL LAW
ROBERT RENBERT WILSON
'
THE HAUSER PRESS
GALLEON BOOKS
New Orleans, La .
Annex 115
NATURAL RESOURCES 153
The treaty with Israel contains a rather broadly phrased
provision, in a national-treatment context, on engagement in
business activities and on participation in domestic corporations.
While each party reserves the right to limit the extent
to which aliens may carry on or have interests in "the exploitation
of land or other natural resources," and either party may
require that rights to engage in mining on the public domain
shall be dependent upon reciprocity, a most-favored-nation
clause applies "in any event" to these activities.99 · The Japanese
treaty has comparable provisions, but with reference to
the reserved right of imposing "new limitations" upon the
extent to which aliens are accorded national treatment as to
specified activities (including exploitation of land or other
natural resources), there is a rule against the application of
these limitations to enterprises owned or controlled by treaty
aliens at the time the new limitations are adopted. Each party
may require that rights to engage in mining shall be dependent
upon reciprocity. Furthermore, as to mentioned types of activities
(including exploitation of natural resources) Japan is
not obligated by the general most-favored-nation clause to accord
to Americans treatment more favorable than that accorded
to J apanese by the American 6tates or Territories in which
these Americans, respectively, are domiciled.100
It is now standard practice for the United States to include
in its treaties of friendship, commerce and navigation (usually
in accompanying protocols) a reciprocity clause with respect
to mining on the public domain and, as has been indicated above,
this would seem to bring the treaties into harmony with United
States federal law. Treaties signed with Uruguay, Denmark
and Colombia each specify most-favored-nation treatment, and
the same standard for the organization of companies of the other
party state. The Uruguayan treaty (Art. V, par. 2) specifies
this standard (with respect, inter alw, to mining) "in cases in
which national treatment can not be granted."
The rule of treaty interpretation which emphasizes the unity
of the various parts would seem to apply particularly to a
98 Continued
acquiring interests in, enterprises for engagin~ in commercial activities
... " and a most-favored-nation clause as to "inaustrial and other business
activities . ... "
99 Art. VII; Protocol, par. 4.
100 Art. VII; Protocol, par. 4.
Annex 115
154 COMMERCIAL TREATIES AND INTERNATIONAL LAW
commercial tl'eaty. It is obvious that, besides provisions which
refer directly to real property and to mining activity, many
other provisions might need, in a complete analysis; to be taken
into account. This would apply not only to what is in the general
exceptions article in each of the recently concluded treaties
(such as the exception relating to fissionable materials), but
also to such provisions as those concerning taxation, compensation
for expropriated property, the permissive rule in regard
to corporations owned or controlled by third-state nationals
or companies, and the provision, illustrated in the treaty with
Israel, concerning "equitable treatment." 101
oooc:»c:»
The traditional sensitiveness of peoples in regard to alien
participation in the exploitation of their natural resources has
naturally affected treaty policy. Discrimination on the basis
of nationality has frequently applied to such natural resources
as real property and minerals.
Bilateral treaties, which from a very early date have provided
for disposal of real property inherited by an alien who
by reason of his alienage was disqua.Jified to continue in possession,
have in some instances contained some type of provisions
on the acquisition, ownership and use of real property. Aside
from a few exceptional cases of extraterritoriality, there have
not been serious departures, in the history of United States
treaty-making, from the principle of mutuality with respect to
the acquisition of real property and the activity of mining.
Limitations upon the rights and privileges given aliens have
been the rule rather than the exception. From the side of the
United States, these limitations have been commonly associated
with the Constitutional division of power between the nation
and the States, and with a policy of leaving to the States the
regulation of land acquisition and use outside of federal territory
and the public domain. Rights of aliens to lease have been
specified in treaties more commonly than have rights to own.
Since the mid-nineteenth century there have at times been
indications of the willingness of certain foreign states to accord
national t reatment in matters of r eal property as well as per-
101 Art. I.
Annex 116
~ENERAL AGREEMENT ACCORD GENERAL SUR RESTRICTED
bN TARIFFS AND
["RADE
LES T ARIFS DOUANIERS ~~ .;138
Contracting Parties
Third Session
ET LE COMMERCE
Reply by ~he Vice,,Chairman of the United States
Delegation, Mr. John W. Evans, to the Speech by
the Head of the Czechoslovak Delegation
under Item 14 on the Agenda
Mr. Chairman:
2 June 1949
ORIGINAL: ENGLISH
I am extremely sorry that the Contracting Parties are going
to have to listen to a continuation of a debate that has exhausted
both the subject and the delegates in other international organizations
of which most of the Contracting Parties are members. The
chargee that have been made by the Czechoslovak Delegate in the paper
that he read on Monday of this week are essentially those that were ·
made by his delegation and that of the Soviet Union in the General
Assembly of the United Nations in November 1948 and in four se~Arate
meetings of the Economic Commission for Europe, the most recent
being the meeting that was concluded last week in Geneva.
On each of these occasions proposals by Czechoslovakia or other
countries of Eastern Europe have been rejected by· the organization
concerned. It is a temptation, therefore, to dismiss the latest
repetition of these charges as merely another move in a long
political debate and to spare the delegates the necessity of listening
once again to the answer that has satisfied their representatives
in the past. My delegation is not yielding to that temptation
because the Delegate of Czechoslovakia has, this time, framed his
charges in terms of the provisions of the General Agreement on
Tariffs and Trade, and we believe that the Contracting Parties are
entitled to hear the answer, also cast within the framework of those
_· .p rovisions.
Annex 116
. . . . .. . .
The Uru,ted S.ta.te.s is c~arged with violat~ng the l etter of the
: •_ • l ! • • •
General AgteemenCin the administration of its export controls and,
. . .
.. It~~ it~·we are also charged witn· violating its spirit by attempting
to stit'le the peace!ul economic life o! Czechoelovalda, I .~ ~oi:ng
' .
to prove the faleeness of both those charges with tnany 'more facts
than ma,y actually be required, for I am_anx:l.ous to r~ve any doubt
that mq have been created by their endless· repetitioni But before
I do so I must ask your patience while I clear away a grea~ deal ot
extrane,ous material in the Czechoslovak paper - a mass of underbrush
that ha.s no bearing on the real charge but that may obstruct our clear
view ·or the iss~e· if not removed, and, at the same time, I will correct
some substantial errore :of fact in· the· Czechoslovak speech - errors
of far' greater· sub'startce· than the ·error the French ·Delegate referred
to••in his remar~s· at ·1a·st :.koridayt·e . session,
·'The ·Czechoslovak·· Delegate has··quoted the United States Second
D~control Act~ The sin he finds ·in·• that Act is that one of its
purpo·ses is "to aid ·1n· carrying out the foreign policy- of the United
Stati s,11• and he conclu(ies from .this that the United States has placed
: .
"poll;tieal reasons" before the'. obligations of Article 92 of the ·.- ·· JI
Havana Charter. Does th~ Czech~slovak Delegate believe that a country's
·· foreign policy· u· necessarily inconsistent with the provisions of the
Charter? If he does, we are·tempted to ask whether, in such a
dilemna, the Government or··czechoslovakia follows the dictates of
the Charter or of its own:foreign policy, Actually, delegates will
·· .·recognize that the . r eference to foreign policy in the Second Decontrol
Act ~eans nothing whatever in terms of th~ present debate.
'l'he· Czechosiovak Delegate I S quotations from the General Agreement
:on Te.rifts and Trade are substantially accurate and hardly · ·:
require counient ex~ept ·to point out that ·he has Ollitted to quote two
e.xceptione provided in the .Agre~ment that may very well be pertinent
. ... .
Annex 116
I
I.
I
to the present discussion:
Gi\TT/CF .J/38
page 3
the exception in Article XXI (b)(i)
relating to fissionable materials or the mat erials from which they
are derived, and the exception in Article XXI (a) which exempts a
Contracting Party from any r equirement to furnish information the
disclosure of whi°ch it considers contrary to its essential security
interests ,
The Czechoslovak paper then devotes a good deal of space to a
quotation of a speech made by thr. Honourabl e Willard Thorp in one of
the earlier international debrit"'s on this subject before the Economic
Committee of the Urited Nations Assembly. The feature of Mr. Thorp's
speech that the Czechoslovak Del eg~t e considers damaging is the use
of the words "war potentic:.l" , It would be intt>r esting to know whether
the Czechoslovak GovernmtJnt ignores the war potential of commodities
exported from that country, Certainly no Contracting Party could
control the export of material s destined directly or indirectly for
a military establishment, or of fissionable mat erials, without having
r egard to their war pottJntial. I am sure that no del egate believes
that the use of these words by an /un~rican statesman has the slightest
I
bearing upon an accusation that the United States has in practice
gone further in lilniting its exports than is clearly permitted by the /
provisions of Article· XXI. However, the Czechoslovak Delegation has,
with the aid of a quotation from de ~ada~J~~ envisioned a frightening
extension of the meaning of 11·,mr potential" and, without presenting
any ~upporting evidence , has ~ssumed that this is the interpretation
of the words intended by Mr. Ttorp. I believe that we may dismiss
that quotation as having no bearing on the charge s .presented.
Btd ore we can get down to actual f acts it is appar er,tl~' "1'"n" c;iq;i_ry
to dispose of another quotat i on. Assistant Secretary of Commerce
Blaisdell recently made a st~t ~m0nt in support of the extension of ,
the United States export control l egislation. The Czechoslovak
Annex 116
~TT/CF.J/38
page 4
Del egate ~as quoted one phrase of that statement. "Except for commodities
in short supply, shipments to West ern Europe a.re being
licensed fa,irly freely but shiμnents to East ern Europe have been
ca:re~ully restricted . 11 It i s not difficult to guess what the Czechoslovak
Delegate has evidently r ead into this quotation, but all it
Certainly that ie entirely within our rights, if that r estriction
is based on the exceptions in the General Agreement on Tariffs and
Trade. And I believe that most of the delegates present will feel
greater security for their own future b~cause the United States is,
in· fact, making use of tbesa exceptions.
Then comes an indirect quot ation that must be disposed of,
the Czechoslovak pa.ruphrase of certain of the language in the
Foreign Assistance. Act of 1948, Section 112g. That Act provides
SRthority for the !oreign Economic Administrator to det ermine that
the needs of the devastated countries of Eur ope, participating in
the European r ecovery,.progranme, should be given precedence over
· exports to other European countries . And here I come t o the first
of a series of substantial errors in the Czechoslovak paper. For
this paraphrase o! th~ .i\)nerican l egislation fails t o includ~ the
following proviso,. in the very section cited in th.e Czechoslovak paper:
"Provided, .however, That such export may be authorized if' such
department, agency, or officer determines that such export is otherwise
in the na~onal interest of the United States. " In the light
of this provision it would seem to be nGcessary for the Czechoslovak
Delegatiqn to show that the Act had actually resul.ted in discrimination
that would be contra.rr t o the General Agreement on Tariffs
and Trad~, but he has not don.: so . So I submit, l'!lr. Chairman, that
this is one ~re qu'?tation in the Czechoslovak paper that may be
dismissed as not bearing upon the charges being debated here.
Annex 116
t
GATT/CP .J/38
page 5
Beginning on page 3 ot the Czechoslovak paper you will find a
sumnary of the filing r ~quirements in our export control r egulations,
contained in the Comprehensive Export Schedule of the United States
Department of Commerce , The Czechoslovak Del egate has derived from
the distinction that is made between various cat egories of countries
the conclusion that the administration of export controls involves
a discrimination contrary t o the provisions of the Gener al Agreement,
But such a conclusion ignor es the clear right that any Contracting
Party has - and a right which I am sure ·the Czeohoslovak Governm~nt
itself exercises - to make a distinction between diffe .. nt destinations \
in controlling the exportation of commodities cover ed by the exceptions
provided in that Agreement.
And, her e, Mr. Chainnan, I come to the most substantial misstatement
in the Czechosl ovak paper, That paper says that ."all.
commodities , whether ~ncluded in the so-called positive list . or not,
require a licence t or export0 to Group R destinations, except shipments
within the dollar value limits of a general licence". This stat ement
is simp.ly not true . On the same page of the Comprehensive $ch~dule
as other pr ovisions summarized in t he Czechoslovak paper ~ppear s a
description of gener al licence 11GR011 , and the explanation that for
all commodities on the so-called ClRO list, no licence is r equi red
t o any destination what ever. This omission in the Czechoslovak paper
t ouches on a point of r eal substance. I will r ef er t o this GRO list
later. For the moment I want simply to point out tha\ the failure
t o mention it in what purports t o be a f actual description of the
United States export controis has hardly ~esul.ted in a t air presentation
of the case ,
Now, l et me r ef er t o ~ne other maj or error in the~Cz~~hosl ovak
pnp-ar. In the fiDal paragraph of that pa.per - and appa•ently so
placed because it was expected t o carry consider able weight with the
Annex 116
GATT/CP.J/38
page 6-
Contracting Parties ·- is the statement that the United State~ Department
of State has failed to reply to a verbal note ·qn this subject
delivered to it .by the Czechoslovak Ambassador in Washington.
Perhaps this statement was .merely unintentionally misleading.
For the Czechoslovak Delegate may have been using the word "reply"
in a special sense of his own. But I am sure it has left maey deleg~
te·~ with the impression that the United States has ignored the
Czechoslovak representations. In any evE:nt I believe the Cont~acting ~ I
Parties will ~e interested in the actual history o.f. t.h ose .r ~pr~. sentations,
On December J, 1948 the Czechoslovak Ambassador in~a~hingtoQ
presented a note to the Acting ·Secretary of State, i~c~1:1~_ng a list
of rejected licence applications.
A. study of -the list was ·then u.ndertalcer:i,.:bu:t _it. pre~13n~ed._,
out. of the lOC applic9-tions on .t.~.. .l ist
the Department: of' Commerce, was unable: .to . .find •aDY. corr.espo~din.g appll
· '·· · cation· ·tor twenty-four. Twenty-one ca-ses .we.re ,4efi~. te.l.y· . ide.n .. tified
. ·"as having been ·a.tread;y apprbved. In·3J cases: t;h.~e were :.differences,
·:. :· in' 'amount·s ·or other de·tails,·. between tile item. ~nth~ list .~d the
. :,. .
·nearest ·1dentifiabl~•appllcation • . Thus a gr~at deal of ~im~ _w.Gs conswned
· in attempting. to reconcile tb.e Czechoslovak note wi_~h tne records
of the ·oepartmel'lt of Conmeree. Th~ difficulty of this ta~~--w~s, of
course, increased by tbe· tremen~ous n~b&r of li~.e.n ce . ap.p licq.t ions
received, seldom rwmi.ng less than -20,000 a week. So fa~ as I have
been able to learn., a large part of the list still remains unidentified.
While this work was going on, however, many rejected applications
for Czechoslovakia were re-submitted under our estab1:i,~hed appeals
procedure, which I· will describe later, and. _ are l-eing a~t.iv~.Jf eonddered
11-y' the Appeals Board.
On Maroh 4, 1949 the Secretary of.State ~resented a note to the
Czechoslovak Ambassador in"which. he further outlined the export control
Annex 116
Gi\ TT/CF .3/38
page 7
policy of the United States, ae had been requested, and stated that
the re- examination of the cases listed by. the Czechoslovak AJD.bassador
was proceeding. On March 12, 1949, the Czechoslovak .-unbassador acknowledged
the receipt of this note and concluded his ~~te with the
following paragraph:
. "The Czechoslovak Embassy wishes to express -its appreciation
for the State Department ' s advice that in accordance with our.
request the list of export licence applications in the attachment
to our note is -being re-examined and that pending applications will
be given careful consideration ?nd licensing action will be undertaken
even if only on a case-by-case basis. The Czechoslovak:
EmPassy expresses the hope that th~ re- examination will result in
early licensing actions in those numerous cases in which there i s
no question of short supply nor security •involved. 11
Now, I submit that this exchange presents a quite different
impression :than delegates have probably obtained from the concluding
paragraph of the ~zechoslovak Delegate.'s speech. Jmd I can tell you,
from my personal experience that the case presented by Czechoslovakia
has, subject to the consideration of national security; received-more
·than usual attention. One of t he fixed features of ·any system of
expor~ controls is that no one is ever satisfied with what he has
received, We have· a backlog of thousands of complaints from exporters
who believe they were not fairly treated. And many of the governments
represented around this table - governments which have co- ,0perated with
efforts of the United States to help rebuild the war damaged world -
have made representations to us asking f or more favourable treatment.
None of these appeals has received more serious attention than the
cases submitted by Czechoslovakia.
And now, Mr. Chairman, I believe I have cleared awa:y enough of t he
extraneous mtiterial in the Czechoslovak paper to enable me to come to
Annex 116
I
GfiTT/CP.J/38
page 8
the heart of the matter. If delegates have followed me by striking out
those portions of that paper that contain no actual substance they
will find that two points remain to be dealt with. One is the general
accusation that we are favouring Western Europe over Czechoslovakia
in the administration of controls on short supply items, and by impli~
ation, that we are doing so in an arbitrary manner that is in conflict
with the opening paragraph of ftrticle XX. The second is that in the
operation of our security controls we are exceeding the scope of the
security exceptions in ~rticle XXI. I propose to deal with these two
substantive charges in that order.
The first, of course, has not been supported by any facts as to
the actual volume of applications validated but simply by statements
of pc;il.i.cy made by United States spokesmen. It is true·, of course,
that the United States has adopted the policy of using its export
controls to promote the success of the European Recovery Prograzmne
and has co-operateq closely with the Organizati11m for European
Economic Co-operation. This is clearly in hannony with the l etter
and the spirit of the General hgreement. In fact, Article XX requires
that any controls exercised to promote the distribution of commodities
in short suppzy shall be c0nsistent with~ multilateral. arrangements
directed to an equitable international distribution of such products.
I am sure that the Czechosl ovak Delegate would not contend that ·the
OEEC lost its right to conduct such an international arrangement because
Czechoslov~ia, at the last minute, refused to participate in its
formation.
Annex 116
Gt.TT/CP.'J/38
pap 9
But, in actual practice, it has hardl.y proved necessary to promot
e European recovery by withholding good~ from Czechos~ovakia~ For
that country has not co~ to the United States for th~se goods that. haTe
been in the shortest supply. Those goods in general are the goods
that havd been pla cud en our sc-celled 11positive list11 • • .l\t no time
have we denied a licence tc Czechoslovakia en a positive list commodity.
Furthermore, the ' ctenials of nun-positive list conunodities have been of
a kind that clearly come within the security exceptions of the
General ;~greement.
That brings me t o the second of the two basic charges, that concerning
the operdtion of our security cvntrols . I shall be glad to
comply with a substantial p~rt of the r equest made by the-Czechoslovak
Delegate th~t we provide Czechoslovakid with all r el evant information
concerning the. administration of the se r ~strictions and the distribution
of licenc;es 11in accor dance with .i-.rticle XIII, paragraph ,3 11 •
I must point out, however, thut rtrticl~ XXI, a s I have mentioned
earlier, provides that a Contracting Party shall not be r equired to
give information which it considers contrary t o its ~ecurity interests.
The United States does consider it contrdry t o its security interest -
and t o the security inter est of other friendly countries - t o r eveal the
names of the commodities that it considers to be most strategic.
First, l et me lll.:lke clear th~t the designation at any par t icular
time of such a group of commodities is a matter of administrative
convenience and that", in practice , each application f or iln expo.rt
licence is consider ed sep~r at cly by an interagency committ~e , in which
the type of protiuct, the st at ~d end use and the nruned consignee are
all taken .into consider~tion , Thus, whi le all commodities of potential
use by a military establishment are subjected to partic~arly car eful
·scrutiny, not by any means all licences f or such commodities ar e
denied.
..
'
I
j'
l
l ,,,J
Annex 116
GA.TT/CF ,3/38
page 10
For the most part,., such eonmodities are confined to highly specialiaed
sub--divisions of broader statistical classifications, The
size, type, horse-power, or other factors which give the~ military
significnnee are considered.• But even .with these qualifications, the
comnodities we hav~ considered to be in this category fall w~thin about
two hundred of thd i,.pproximately. three thousn.nd statistical ~lassifications
in the Unit ed Status 0xpurt schedul<:3_, And ~Vt3n then, action is
based, as I h:i.ve said, on exar.:ina ti:.,n of each case,
The only evidence in the -Czechoslovak paper that purports· t o show
that actual denials of licences to Czechoslovakia have covered commodities
of no military significance is the list of examples beginning
on the bottom of page 8 of that statement. Unfortuna.tely, the descriPtion
of these COJlllilod.ities is highly misleading, and in a number of
cases we have been entirely unable to identify the applications to
which the example refers. However, .I think the following _facts will
be of interest.
The Czechoslovak statement r efers to the denials of licences
for electrodes, x-ray· tubes, ·and tungstc:_n wire, ( referred to as
"electric bulbs wire"). wnile it is correct thut some licences f or
these commodities have been denied, we have approved licences to
Czechoslovakia sinct:i March 1, 1948 for ~436,000 worth of electrical
equipnent.
The Czechoslove.k statement r (:lfers to the rejection of applications
for mining raachinery. It happens thut mining machin..:ry can be or
widely different typtis and of different er.d uses, We receiv~d from
Czechoslovakia an application f or a substantial quantity of mining
drills which were stated to be for coal minin_g. However, manufacturers
and mining engin~ers whu were Cvnsulted agreed that the type specified
was never employed in mining coal but w:is designed fo~ the. deep exploration
of mineral deposits. It happens that, while this application
Annex 116
Git TT/CP .3/38
page 11
was being cunsidered, the American press published an announcement of
the discovery of an important uranium deposit in Czechoslovakia. I am
sure it is not necessary for me to refer again to the exception in the
General ~greement with respect to cormnodities relating to fissionable
materials. But in case the Czechoslovak statement has left the Contracting
Parties with the impression that the United States has attempted to
deprive Czechoslovakia of machinery for its normal, peaceful activities,
I am sure they will be glad to learn that since March l, 1948 we have
approved licence applications for machinery to Cze9hoslovakia amounting
to $6,033,000.
My point in presenting these facts is to s~ow that our controls
for security reasons have been highly selective. We have had no desire
t o deny licence applications where the product was for a peaceful use.
But we have, admittedly, been handicapped by the difficulty of obtaining
accurate information, I have already referred to the case of the mining
drills, where the technicians were convinced that the end use could not
be as stated in the application. There have been many similar cases.
One of the most interesting had to do with a number of applications for
ball bearings, which were stated to be for use in the-manufacture of
(
agricultural machinery. Experts who examined the specifications, however,
were convinced that the size, type and degree of precision specified
showed them to be destined for use in aircraft, or other military
applications .
The Czechoslovak statement, while appealing to the provisions of
the GATT, also appeals to our sense of sportsmanship by referring to
the fact that some of the licence applications denied covered products
that had already been ordered from United States factories and on which
advance pa~nts had been made. This is another way of saying that
Czechoslovak importers - and for that matter American manufacturers and
exporters - have suffered hardship because the United States found it
Annex 116
· .- Gr. TT/GP • .3/.38
page 12
I . :'i .
necessary to intensify its security exP9rt controls on March.~, 1948.
I am ~ure .that delegates will know where to place th_e re,sp~~sibility
for the d~terioration in international relations that ~tje that intensification
necessary. But this does not alter the fact, . t,liat there have
been hardships and that undoubtedly some of the suf.fer.~r.s . we;r~ innocent
bystanders. In the a~nist_ration of its export .e.cmtrol.43;:::t,~refore,
the United States has recognized thut, with respect to p9t0 sport
supply controls and security c<.::ntrols, hardships will occur~ . . And in ;,1 1
j I
order to reduce these hardships to a minimum we h~ve ~stablished an
elaborate and expensive procedurd under which any applicant may bring
a rejected application before a board, which considers all aspects of
the case and which may r eversd the e~rlier decision unless the· essential
interests of the country ar~ such as t o outweigh the hardship involved.
This appeals procedure has been invoked on behalf of .38 licence
applications for Czechoslovakia. As of March 25 of this year, the
Board had found it necessary to deny 7 of these appeals. It had
approved one, and the remainder wer~ still pendin5• Once again, I
submit that if it were the intent of the United States arbitrarily to
deny licence applications t o Czechoslovakia, without careful consideration,
this procedure would h.:irdly have b~an nu,.de available.
Now I should like to turn for a moment to a n10re general accusation,
expressed or implicit, in the Cz~chuslovak paper; that is, that
the United States has tried to stifle the general flow of goods to that
country and thereby prevent the conduct of its peaceful .economic objectives.
nppe.rently in support of that accus~tion, the Czechoslovak
papE:r presents in an appendix figures t o show tha~ ~he perctntage of
total Czechosl ovak imports coming from-th~ United · 3tat1.;s -_h.~~ dropped
substantially since 1947 and 1948.
. - ~t -~ecst, 1 -~ssume _th~~ t~e was
. . . . ~ . ' '
the purpose, rather than to shvw that CzE:choslovo.ki.a .i ffidiscri.m inating
against United States exporters. There is no evid~ncc given to show
Annex 116
~TT/CF .3/38
page 13
that this relative drop of imports from the United States was also
an absolute decline. Nor does the Czechoslovak Delegation indicate
what portion of such a decline might be attributable to the actions
of Czechoslovakia and her Eastern neighbours in attempting to maximize
their own trade with each other. The implication, however, is
left that an absolute declin~ in United States exports to Czechoslovakia
resulted from our export controls. The Contracting Parties will
probably be interested, therefore, in the facts.
nnnual exports from the United States to Czechoslovakia in the
2 years 1937 and 1938 averaged something less than 19 million dollars.
In the 6 months from A~~7.l.st 1948 through January 1949 (the latast
period for which figures are available) the United States validated
export licences t o Czechcslovakia amounting to $12,838,274 - or at an
annual rate of over 25 million dollars, Most of the export licence
denials that have been appealed or protested by Czechoslovakia G.ro in
the field of machinery. The average annual export of machinery to
Czechoslovakia in 1937-1938 was $2,909,000. In the same 6 months'
period referred to above export licence valid~tions of machinery
for Czechoslovakia amounted to $3,943,043 or at an annual rate of
ove~ $7,600,000.
If any further evidence is needed tha~ the United States is
not interested in stifling trade with Czechoslovakia, consider the
significance of the GRO list. This is a list of nearly 1000 commodities
on which no licence is required for shipuent to any destination.
It includes those corronodities, n0t in short supply, the
milit~ry use of which is so unlikely that we do not consider it
necessary even tu look c.t the end use or the cc·nsignee. Commodities
are being added to this list as rapidly as it can be determined that
they are entitled to this treatment. Since the beginning of this
conference more than 500 items hav~ been added to the list, a fact
Annex 116
~TT/CP .J/38
page 14
which received considerable comment in the pr~ss but which, apparently,
did not reach the attention of the D~legation of Czechoslovakia.
I believe, Mr. Chairman, that we have fully answered the Czechos.
l ovak charges. I believe that, particularly in view of th1:1 absence
of any documenta.tiun of t ~:ose churges, we have g<.me a good deal further
than was required. We have shown that vur export c0ntruls in general
have not reduced Czechoslovakia's normal imports from the United States.
We have shown th~t our security controls ure selective and are within
the epecific exceptions provided by the Cu.TT. I hope we have also 1
shown that those controls are as essential to the ·security of other
nations as t o that c,f the United States,
We have also refrained from mnking count~r charges that would,
we are convinced, ba f ar mere justifi~d than the charges made by the
Czechoslovak Delegate - charges that might be difficult to prove but
that could certainly be 6Upported by more facts -than have been preeer:
ited by him.
We believe we have played fairly with the Contracting Parties
~ hope that they will now dismiss th~ accusation of Czechoslovakia
on the grounds that it is unsupported by the facts.
, )
CONTRACTING PARTIES
Third Session
SUMMARY RECORD OF THE TWENTY-SECOND MEETING
CP.3/SR22 - II/28
Held at Hotel Verdun, Annecy
on Wednesday, 8 June 1949, at 3.15 p.m.
CHAIRMAN: Hon. L.D. WILGRESS (Canada)
Subjects discussed:
l. Report on the negotiations affecting Schedule III between Brazil and United Kingdom and
United States of America. [NOT REPRODUCED BELOW]
2. Report of Working Party 2 on date of decision on proposal of the Government of Ceylon.
[NOT REPRODUCED BELOW]
3. Request of the Government of Czechoslovakia for a decision under Article XXIII.
Request of the Government of Czechoslovakia for a decision under Article XXIII as to whether or
not the Government of the United States of America has failed to carry out its obligations under the
Agreement through its administration of the issue of export licences. (cf. GATT/CP.3/23 and
GATT/CP.3/38 and GATT/CP.3/39)
Mr. AUGENTHALER (Czechoslovakia) read a reply (GATT/CP.3/39) to the speech by the
representative of the United States (GATT/CP.3/38), and in addition called attention to the possible
effects on international trade if an unfavourable decision were given to the Czechoslovakian application.
He said it was not only exports that might be unduly controlled on the pretext of national security;
on the ground that security could be undermined by dependence on foreign supplies, a country might
similarly restrict its imports, either discriminatorily or otherwise, by invoking the security clause of
the Agreement. This would encourage the tendency towards autarky which the Agreement professed
to eliminate.
Mr. EVANS (United States of America), referring to the last section of the 4th paragraph of
Mr. Augenthaler' s reply, said that if at any time it were thought that a decision had been based on
false premises, the interested party could have recourse to the appeal board which was instituted for
that purpose. In reply to the question asked by Mr. Augenthaler as to whether the regulations requiring
export licences for the export of goods to certain countries but not to others, did not contravene the
provisions of Article I, Mr. Evans remarked that the provisions of Article Iwould not require uniformity
of formalities, as applied to different countries, in respect of restrictions imposed for security reasons.
In conclusion he said that since no new facts had been presented by the Czechoslovakian representative
beyond what had already been given in the original statement, he would repeat his proposal that the
CONTRACTING PARTIES dismiss the request on the ground that the charge was not supported by
facts.
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Mr.HERRERA-ARANGO (Cuba) supported theUnited States proposal. He said that his personal
experience in dealingwith theUnited StatesGovernment had convinced him that the difficulties referred
to by the Czechoslovakian representative were due to the rigour of the officials and their stringent way
of administrating the issue of licences. The officials might be tenacious in their quests for information
and were often hard to convince, but this provided no ground for the accusation put forward by the
Czechoslovakian representative. On the basis of his experience, it seemed that the appeal board would
be an effectivemeans of redressing any erroneous decisions. The question asked by theCzechoslovakian
representative in relation to the provisions of Article I did not require an answer since the United States
representative had justified his case under Article XXI whose provisions overrode those of Article I.
His delegation therefore thought that the question should be decided at the present meeting and the
request by the Czechoslovakian delegation should be dismissed because of the lack of factual basis
for the charge.
Mr. AUGENTHALER(Czechoslovakia) replied that the appeal procedure referred to by theUnited
States representative was available only to exporters of the United States, and it was often inoperative
because in the event of a refusal of an export licence, an exporter, in order to avoid displeasure was
likely to choose not to resort to that procedure. Article I stated clearly that the provisions of
non-discrimination were to be observed with respect to all rules and formalities in connection with
importation and exportation. If exports were to be controlled, the same formalities must be applied
to all countries wishing to purchase from the country concerned. Article XXI referred to the traffic
in arms, ammunition and implements of war and other goods andmaterials for the purpose of supplying
a military establishment, but the United States Government had used and interpreted the expression
"war material" so extensively that no one knew what it really covered. The filing of an application
for an export licencewas therefore no mere formality. As regards theCuban proposal, Mr. Augenthaler
maintained that abundant facts had been supplied to the CONTRACTING PARTIES in the successive
documents submitted by the Czechoslovakian delegation and the request could not be refused on the
ground of insufficient information.
Mr. HASNIE (Pakistan) said he was glad that the question had been narrowed down to the provisions
of two Articles. As regards Article I, it was the opinion of his delegation that the United States
Government, as a pioneer of the General Agreement, would not have seen fit to violate the provisions
of such a fundamental Article and thus deliberately destroy the structure of theAgreement. Article XXI,
embodying exceptions to all other provisions of the Agreement, should stand by itself notwithstanding
the provisions of other Articles including Article I, and therefore the case called for examination only
under the provisions of that Article. While admitting that the Czechoslovakian case deserved careful
and sympathetic consideration, Mr. Hasnie was convinced that the action taken by the United States
Government was in the interest of security and peace. He thought the matter should not be delegated
to aWorking Party because he did not believe that tangible results could be produced by deliberations
in a sub-group and that no economy of time would be justified in dealing with a matter of such great
importance. He suggested that the information supplied was contradictory and too scanty to justify
a sweeping decision by the CONTRACTING PARTIES. Since the United States had affirmed that
its intention was merely to prevent the disruption of peace and order and had assured that it had no
desire to interfere with ordinary trade, and since the Czechoslovakian Government had complained
about restrictions being placed on goods which were not imported for war purposes, it appeared that
the dispute had arisen from amisunderstanding of facts by one party or the other and should be resolved
by detailed consultation between them. In his opinion, the CONTRACTING PARTIES should suggest
that the two governments approach each other through diplomatic channels and seek a solution.
Commenting on the complaint that theUnited States appeal procedurewas only available to its exporters,
he thought this was in accord with the general practice in jurisprudence and there would seem to be
no way of providing complaint facilities for people other than residents of the country. If an exporter
refused an order by an importer, it would seem to be the end of the matter except for negotiations
to be carried out by the governments. In view of the importance of the question, the CONTRACTING
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PARTIES should not decide upon the request, but should try to bring about an understanding between
the two parties which was not an objective achievable by deliberations in sub-committees.
Mr. SHACKLE (United Kingdom) thought that since the question clearly concerned Article XXI,
the United States action would seem to be justified because every country must have the last resort
on questions relating to its own security. On the other hand, the CONTRACTING PARTIES should
be cautious not to take any step which might have the effect of undermining the General Agreement.
The nature of the question seemed to suggest that it should be examined in detail by the two governments
concerned, and that no purpose would be served by a general decision given by the CONTRACTING
PARTIES. Therefore, so far as the CONTRACTING PARTIES were concerned, the request by the
Czechoslovakian delegation for a decision should be dismissed.
Mr. HERRERA-ARANGO (Cuba) agreed with the representative of Pakistan that the importance
of the case called for a full investigation, but he would not think that practical results could be produced.
Mr. AUGENTHALER (Czechoslovakia) reaffirmed that the provisions of Article XXI were
misapplied because the narrow reference in the text to war materials had been construed by the United
States Government to cover a wide range of goods which could never be so regarded.
Mr. EVANS (United States of America) replied that this was a distortion of facts; the United States
Government had never denied export licences to Czechoslovakia on any item on the positive list. Out
of 3,000 group items under the export classification, only 200 were affected by export control. Therefore
there were no grounds for the accusation that the provisions of Article XXI were extended to cover
everything; for the commodities thus controlled constituted an extremely small proportion of the exports
of the country.
The CHAIRMAN, in summing up, concluded that if a decision must be made under paragraph 2
of Article XXIII, it should be understood that the consultation referred to in paragraph 1 of the Article
had already taken place. Under paragraph 2, the CONTRACTING PARTIES should promptly investigate,
and should either make an appropriate recommendation to the contracting parties concerned or give
a ruling on the matter as appropriate. The complaint made by Czechoslovakia was based on Articles I
and XXI and the United States justified any discrimination which might have occurred on the basis
of Articles XX and XXI and particularly on the ground of security covered by the latter. The proposal
for a Working Party to be set up to examine the issue had not found support during the discussions,
and the representatives of Cuba and Pakistan had spoken against this suggestion. TheCONTRACTING
PARTIES, therefore, should give a decision in accordance with paragraph 2 of Article XXIII at the
present meeting. The Czechoslovakian representative had posed the question of whether or not such
regulations conform to the provisions of Article I. The Chairman, however, was of the opinion that
the question was not appropriately put because the United States Government had defended its actions
under Articles XX and XXI which embodied exceptions to the general rule contained in Article I. The
question should be put as expressed in the Agenda item, i.e. 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.
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Avotewas put by roll-call, as requested by the representative ofCzechoslovakia, with the following
results:
1 affirmative: 17 Negatives: 3 Abstentions: 2 Absent:
Czechoslovakia Australia India Burma
Belgium Lebanon Luxembourg
Brazil Syria
Canada
Ceylon
Chile
China.
Cuba
France
Netherlands
New Zealand
Norway
Pakistan
S. Rhodesia
South Africa
United Kingdom
United States
Mr. HASNIE (Pakistan) explained his vote by saving that it was necessary for him to vote against
the charge because this was not proved by factual evidence, and according to the principles of common
law innocence would have to be presumed unless it was proved otherwise.
Mr. AUGENTHALER (Czechoslovakia) stated on behalf of his Government that it could not
consider that theCONTRACTING PARTIES had made a legally valid decision or correct interpretation
of the General Agreement. In consequence, his Government would regard itself free to take any steps
necessary to protect its national interests. He enquiredwhether the decision could not be communicated
to all members of the Interim Commission for the International Trade Organization, so that they would
be informed of the interpretation given by the CONTRACTING PARTIES of the provisions of the
Havana Charter.
Mr. EVANS (United States of America) thanked the majority of the representatives on behalf
of his delegation and expressed his understanding of the position of those representativeswho abstained.
He requested that the proceedings of this meeting be released to the press.
The CHAIRMAN said, in reply to the Czechoslovakian representative, that the summary record
of this meeting would be sent, according to the usual practice, to all signatories of the Havana Final
Act and to other members of the United Nations. The meeting agreed that a press release should be
issued at the authorization of the Chairman.
The meeting rose at 6 p.m.
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ARTICLE XXI
UNITED STATES EXPORT RESTRICTIONS1
II/28
Decision of 8 June 1949
The CONTRACTING PARTIES decided to reject the contention of the Czechoslovak delegation
that 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.
_______________
1A complaint was brought by the Czechoslovak Government under Articles I and XXI that export
restrictions imposed by the United States did not conform to the provisions of Article I.
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EXTERNAL ACTION
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The EU's foreign policy chief Federica Mogherini, center, and Iranian Foreign Minister Javad Zarif, right.
By Katy Lee [email protected] Apr 2, 2015, 3:21pm EDT
Full transcript: the international statement on the Iranian
nuclear deal
| FABRICE COFFRINI/AFP/Getty Images
International negotiators have finally reached an outline agreement for a deal that will see
Iran limit its nuclear program in exchange for sanctions relief, after eight days of hugely
complicated talks in Switzerland. Negotiators have set themselves a June 30 deadline to
work out the full details of the deal.
Here's the full text of the statement on the deal, read by the EU's foreign policy chief,
Federica Mogherini, at a press conference in Lausanne on Thursday afternoon alongside
Iranian Foreign Minister Javad Zarif.
I'm going now to read a joint statement that we have agreed on with Foreign Minister Zarif
and all the others that have been negotiating so hard in these days.
We, the European Union High Representative and the Foreign Minister of the Islamic
Republic of Iran, together with the Foreign Ministers of the E3 + 3, China, France, Germany,
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the Russian Federation, the United Kingdom and the United States, met from 26 March to
2 April 2015 in Switzerland, as agreed in November 2013, to gather here to find solutions
towards reaching a comprehensive solution that will ensure the exclusively peaceful nature
of the Iranian nuclear program and the comprehensive lifting of all sanctions.
Today we have taken a decisive step. We have reached solutions on key parameters of a
joint comprehensive plan of action. The political determination, the goodwill and the hard
work of all parties made it possible and let us thank all delegations for their tireless
dedication.
This is a crucial declaration laying the agreed basis for the final text of the joint
comprehensive plan of action. We can now restart drafting the text and annexes of the
joint comprehensive plan of action, guided by the solutions developed in these days.
As Iran pursues a peaceful nuclear program, Iran's enrichment capacity, enrichment level
and stockpile will be limited for specific durations and there will be no other enrichment
facility than Natanz.
Iran's research and development on centrifuges will be carried out on a scope and
schedule that has been mutually agreed. Fordow will be converted from an enrichment site
into a nuclear physics and technology center. International collaboration will be
encouraged in agreed areas of research. There will not be any fissile material at Fordow.
An international joint venture will assist Iran in redesigning and rebuilding a modernized
heavy water research reactor in Arak that will not produce weapons-grade plutonium.
There will be no reprocessing, and spent fuel will be exported. A set of measures have
been agreed to monitor the provisions of the JCPOA including implementation of the
modified code 3.1 and provision of the additional protocol.
The International Atomic Energy Agency will be permitted the use of modern technologies
and will have announced access through agreed procedures including to clarify past and
present issues. Iran will take part in international cooperation in the field of civilian nuclear
energy which can include supply of power and research reactors. Another important area
of cooperation will be in the field of nuclear safety and security.
The European Union will terminate the implementation of all nuclear-related economic and
financial sanctions and the United States will cease the application of all nuclear-related
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secondary economic and financial sanctions simultaneously with the IAEA-verified
implementation by Iran of its key nuclear commitments.
A new UN Security Council resolution will endorse the JCPOA, terminate all previous
nuclear-related resolutions, and incorporate certain restrictive measures for a mutually
agreed period of time. We will now work to write the text of a joint comprehensive plan of
action including its technical details in the coming weeks and months at the political and
experts level. We are committed to complete our efforts by June 30.
We would like to thank the Swiss government for its generous support in hosting these
negotiations, and let me personally and on behalf of everybody also thank you all,
journalists and media from around the world, for having followed our work and somehow
also worked with us over this difficult but intense and positive week.
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U.S. Department of State
Diplomacy in Action
Press Availability on Nuclear Deal With Iran
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Go to the current State.gov website for up-to-date information. (http://www.state.gov/)
Press Availability
John Kerry
Secretary of State
Austria Center
Vienna, Austria
July 14, 2015
SECRETARY KERRY: Well, good afternoon everybody. I want to begin by thanking you, as others have, for your extraordinary
patience. I know this has been a long couple of weeks for everybody, including, above all, the press, who have waited long hours
during the day for very little news, and we’re very grateful for your patience. This is an historic day, but for me, it’s an historic day
because it represents the first time in six weeks that I’ve worn a pair of shoes. (Laughter.)
Today, in announcing a Joint Comprehensive Plan of Action, the United States, our P5+1 and EU partners, and Iran have taken a
measureable step away from the prospect of nuclear proliferation, towards transparency and cooperation. It is a step away from
the specter of conflict and towards the possibility of peace.
This moment has been a long time coming, and we have worked very hard to get here. A resolution to this type of challenge never
comes easily – not when the stakes are so high, not when the issues are so technical, and not when each decision affects global
and regional security so directly. The fact is that the agreement we’ve reached, fully implemented, will bring insight and
accountability to Iran’s nuclear program – not for a small number of years but for the lifetime of that program. This is the good deal
that we have sought.
Believe me, had we been willing to settle for a lesser deal, we would have finished this negotiation a long time ago. But we were
not. All of us – not just the United States, but France, the United Kingdom, Germany, Russia, China, and the EU – were
determined to get this right. And so we have been patient, and I believe our persistence has paid off.
A few months ago in Lausanne, we and our international partners joined Iran in announcing a series of parameters to serve as the
contours of a potential deal. Experts and commentators were, in fact, surprised by all that we had achieved at that point. After
three more months of long days and late nights, I’m pleased to tell you that we have stayed true to those contours and we have
now finally carved in the details.
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Now I want to be very clear: The parameters that we announced in Lausanne not only remain intact and form the backbone of the
agreement that we reached today, but through the detail, they have been amplified in ways that make this agreement even
stronger.
That includes the sizable reduction of Iran’s stockpile of enriched uranium and the number of centrifuges that it operates.
It also guarantees that Iran’s breakout time – the time it would take for Iran to speed up its enrichment and produce enough fissile
material for just one nuclear weapon – that time will increase to at least one year for a period of at least 10 years.
And contrary to the assertions of some, this agreement has no sunset. It doesn’t terminate. It will be implemented in phases –
beginning within 90 days of the UN Security Council endorsing the deal, and some of the provisions are in place for 10 years,
others for 15 year, others for 25 years. And certain provisions – including many of the transparency measures and prohibitions on
nuclear work – will stay in place permanently.
But most importantly, this agreement addresses Iran’s potential pathways to fissile material for a bomb exactly as we said it would
– with appropriate limitations and transparency in order to assure the world of the peaceful nature of Iran’s nuclear program.
Now, let me explain exactly how it will accomplish that goal.
To start, the participants have agreed Iran will not produce or acquire either highly enriched uranium or weapons-grade plutonium
for at least the next 15 years, and Iran declares a longer period of intent.
Iran’s total stockpile of enriched uranium – which today is equivalent to almost 12,000 kilograms of UF6 – will be capped at just
300 kilograms for the next 15 years – an essential component of expanding our breakout time. Two-thirds of Iran’s centrifuges will
be removed from nuclear facilities along with the infrastructure that supports them. And once they’re removed, the centrifuges will
be – and the infrastructure, by the way – will be locked away and under around-the-clock monitoring by the International Atomic
Energy Agency.
Uranium enrichment at Natanz will be scaled down significantly. For the next 15 years, no uranium will be enriched beyond 3.67
percent. To put that in context, this is a level that is appropriate for civilian nuclear power and research, but well below anything
that could be used possibly for a weapon.
For the next 10 years, Iran has agreed to only use its first-generation centrifuges in order to enrich uranium. Iran has further
agreed to disconnect nearly all of its advanced centrifuges, and those that remain installed will be part of a constrained and closely
monitored R&D program – and none will be used to produce enriched uranium.
Iran has also agreed to stop enriching uranium at its Fordow facility for the next 15 years. It will not even use or store fissile
material on the site during that time. Instead, Fordow will be transformed into a nuclear, physics, and technology research center –
it will be used, for example, to produce isotopes for cancer treatment, and it will be subject to daily inspection and it will have other
nations working in unison with the Iranians within that technology center.
So when this deal is implemented, the two uranium paths Iran has towards fissile material for a weapon will be closed off.
The same is true for the plutonium path. We have agreed Iran’s heavy-water reactor at Arak will be rebuilt – based on a final
design that the United States and international partners will approve – so that it will only be used for peaceful purposes. And Iran
will not build a new heavy-water reactor or reprocess fuel from its existing reactors for at least 15 years.
But this agreement is not only about what happens to Iran’s declared facilities. The deal we have reached also gives us the
greatest assurance that we have had that Iran will not pursue a weapon covertly.
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Not only will inspectors be able to access Iran’s declared facilities daily, but they will also have access to the entire supply chain
that supports Iran’s nuclear program, from start to finish – from uranium mines to centrifuge manufacturing and operation. So what
this means is, in fact, that to be able to have a covert path, Iran would actually need far more than one covert facility – it would
need an entire covert supply chain in order to feed into that site. And to ensure that that does not happen without our knowledge,
under this deal, inspectors will be able to gain access to any location the IAEA and a majority of the P5+1 nations deem
suspicious.
It is no secret that the IAEA also has had longstanding questions about the possible military dimensions of Iran’s nuclear program.
That is one of the primary reasons that we are even here today, and we and our partners have made clear throughout the
negotiations that Iran would need to satisfy the IAEA on this as part of the final deal. With that in mind, Iran and the IAEA have
already entered into an agreement on the process to address all of the IAEA’s outstanding questions within three months – and
doing so is a fundamental requirement for sanctions relief that Iran seeks. And Director Amano announced earlier this morning that
that agreement has been signed.
Now, our quarrel has never been with the Iranian people, and we realize how deeply the nuclear-related sanctions have affected
the lives of Iranians. Thanks to the agreement reached today, that will begin to change. In return for the dramatic changes that Iran
has accepted for its nuclear program, the international community will be lifting the nuclear-related sanctions on Iran’s economy.
And the relief from sanctions will only start when Tehran has met its key initial nuclear commitments – for example, when it has
removed the core from the Arak reactor; when it has dismantled the centrifuges that it has agreed to dismantle; when it has
shipped out the enriched uranium that it has agreed to ship out. When these and other commitments are met, the sanctions relief
will then begin to be implemented in phases.
The reason for that is very simple: Confidence is never built overnight. It has to be developed over time. And this morning, Foreign
Minister Javad Zarif expressed his hope that this agreement can be a beginning of a change of the interactions between Iran and
the international community.
That is why none of the sanctions that we currently have in place will, in fact, be lifted until Iran implements the commitments that it
has made. And some restrictions, including those related to arms and proliferation, will remain in place for some years to come.
And I want to underscore: If Iran fails in a material way to live up to these commitments, then the United States, the EU, and even
the UN sanctions that initially brought Iran to the table can and will snap right back into place. We have a specific provision in this
agreement called snapback for the return of those sanctions in the event of noncompliance.
Now, there will be some who will assert that we could have done more – or that if we had just continued to ratchet up the pressure,
Iran would have eventually raised a white flag and abandoned its nuclear program altogether. But the fact is the international
community tried that approach. That was the policy of the United States and others during the years 2000 and before. And in the
meantime, guess what happened? The Iranian program went from 164 centrifuges to thousands. The Iranian program grew
despite the fact that the international community said, “No enrichment at all, none.” The program grew to the point where Iran
accumulated enough fissile material for about 12 – 10 to 12 nuclear bombs.
I will tell you, sanctioning Iran until it capitulates makes for a powerful talking point and a pretty good political speech, but it’s not
achievable outside a world of fantasy.
The true measure of this agreement is not whether it meets all of the desires of one side at the expense of the other; the test is
whether or not it will leave the world safer and more secure than it would be without it. So let’s review the facts.
Without this agreement or the Joint Plan of Action on which it builds, Iran’s breakout time to get enough material – nuclear material
for a weapon was already two to three months. That’s where we started. We started with Iran two months away with enough fissile
material for 10 bombs. With this agreement, that breakout time goes to a year or more, and that will be the case for at least a
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decade.
Without this agreement, Iran could just double its enrichment capacity tomorrow – literally – and within a few years it could expand
it to as many as 100,000 centrifuges. With this agreement, Iran will be operating about 5,000 centrifuges for a fixed period of time.
Without this agreement, Iran would be able to add rapidly and without any constraint to its stockpile of enriched uranium, which
already at 20 percent was dangerous and higher than any of us were satisfied was acceptable. With this agreement, the stockpile
will be kept at no more than 300 kilograms for 15 years.
Without this agreement, Iran’s Arak reactor could produce enough weapons-grade plutonium each year to fuel two nuclear
weapons. With this agreement, the core of the Arak reactor will be removed and filled with concrete, and Iran will not produce any
weapons-grade plutonium.
Without this agreement, the IAEA would not have definitive access to locations suspected of conducting undeclared nuclear
activities. With this agreement, the IAEA will be able to access any location, declared or undeclared, to follow up on legitimate
concerns about nuclear activities.
There can be no question that this agreement will provide a stronger, more comprehensive, and more lasting means of limiting
Iran’s nuclear program than any realistic – realistic alternative. And those who criticize and those who spend a lot of time
suggesting that something could be better have an obligation to provide an alternative that, in fact, works. And let me add this:
While the nations that comprise the P5+1 obviously don’t always see eye-to-eye on global issues, we are in full agreement on the
quality and importance of this deal. From the very beginning of this process, we have considered not only our own security
concerns, but also the serious and legitimate anxieties of our friends and our allies in the region – especially Israel and the Gulf
States. And that has certainly been the case in recent days, as we worked to hammer out the final details.
So let me make a couple of points crystal-clear: First, what we are announcing today is an agreement addressing the threat posed
by Iran’s nuclear program – period – just the nuclear program. And anybody who knows the conduct of international affairs knows
that it is better to deal with a country if you have problems with it if they don’t have a nuclear weapon. As such, a number of U.S.
sanctions will remain in place, including those related to terrorism, human rights, and ballistic missiles. In addition, the United
States will continue our efforts to address concerns about Iran’s actions in the region, including by our providing key support to our
partners and our allies and by making sure we are vigilant in pushing back against destabilizing activities.
And certainly, we continue to call on Iran to immediately release the detained U.S. citizens. These Americans have remained in our
thoughts throughout this negotiation, and we will continue to work for their safe and their swift return. And we urge Iran to bring our
missing Americans home as well.
And we also know there is not a challenge in the entire region that would not become worse if Iran had a nuclear weapon. That’s
why this deal is so important. It’s also why we met at Camp David with the Gulf States and why we will make clear to them in the
days ahead the ways in which we will work together in order to guarantee the security of the region. The provisions of this
agreement help guarantee that the international community can and will address regional challenges without the threat of a
nuclear-armed Iran.
Second, no part of this agreement relies on trust. It is all based on thorough and extensive transparency and verification measures
that are included in very specific terms in the annexes of this agreement. If Iran fails to comply, we will know it, because we’re
going to be there – the international community, through the IAEA and otherwise – and we will know it quickly, and we will be able
to respond accordingly.
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And before closing, I would like to make – I would like to say thank you to some folks who really made a difference in the course of
all of this. And I want to begin by thanking my president, President Obama, who had the courage to launch this process, believe in
it, support it, encourage it, when many thought that the objective was impossible, and who led the way from the start to the finish.
The President has been resolute in insisting from the day he came to office that Iran will never have a nuclear weapon, and he has
been equally – equally strong in asserting that diplomacy should be given a fair chance to achieve that goal.
I want to thank my Cabinet colleagues – excuse me – for the many, many contributions that they have made – Treasury Secretary
Jack Lew, Defense Secretary Ash Carter, the entire DOD – the department, but I especially want to thank my partner in this effort
who came late to the process but has made an essential contribution to our achievement of this agreement, and that is Energy
Secretary Ernie Moniz, who has put many long days here in Switzerland – here and in Switzerland – during these negotiations
and, frankly, whose background as a nuclear scientist just proved to be essential in helping us, together with former foreign
minister and Vice President Salehi, to be able to really work through very difficult issues, some of the toughest and technical
issues.
I want to thank the members of Congress – my former colleagues – for their role in this achievement, particularly in designing and
passing sanctions legislation that did exactly what the UN resolution set out to do, and that is bring Iran to the table in order to
negotiate. It helped us achieve the goal of these negotiations, and I appreciate their counsel and I look forward to the next chapter
in our conversations. Whatever disagreements might sometimes exist, we all agree on a goal of a Middle East where our interests
are protected and our allies and our friends are safe and secure.
And I want to especially thank my friend and my exceptional colleague, the Under Secretary of State Wendy Sherman, who has
piloted – (applause) – she has led our team, which you can tell is still pretty enthusiastic, notwithstanding the long stay – and she
has really done so with just an amazingly strong will, with a clear sense of direction, very steady nerves, hardly any sleep – and
she’s been doing that for several years, folks, with amazing periods of time away from home and away from family. She and our
absolutely brilliant, tireless team of experts and diplomats have done an absolutely incredible job, and frankly, they deserve the
gratitude of our nation. (Applause.) I also want to thank those who’ve served on the U.S. negotiating team in the past who were not
here for the close but who were indispensable in helping to shape this negotiation – particularly former Deputy Secretary of State
Bill Burns, Jake Sullivan, who were absolutely essential in the earliest days.
I also want to thank my counterparts from every other delegation. All of the political directors were absolutely stunning in this. It’s
been a privilege of my public service to be able to work with the teams that I have worked with here and in the other cities we’ve
been. Our counterparts have made absolutely critical contributions to this. This was a team effort. French Foreign Minister Laurent
Fabius; British Foreign Secretary Philip Hammond; Russian Foreign Minister Sergei Lavrov; German Foreign Minister Frank-
Walter Steinmeier; and Chinese Foreign Minister Wang Yi.
I also want to thank the high representatives of the EU, there’s several – Javier Solana, Dame Cathy Ashton, and her successor,
Federica Mogherini, who helped shepherd these past weeks in such an effective way. I also want to thank her deputy to the high
representative, Helga Schmid, who, together with Wendy, they just formed an incredible unity, and they facilitated and guided our
talks with enormous dedication and skill.
All of these leaders and the legion of aids who contributed countless hours to assisting us really set a new standard for
international cooperation and hard work. And the fact that we have stood together and maintained our unity throughout these 18
months lends enormous weight and credibility to the agreement we have forged, but it also offers everybody a sign of possibilities,
a sign of encouragement for those who believe in the power of diplomacy and of negotiation.
Thank you also to the Government of Austria, which has very generously hosted this last round of talks – perhaps for a bit longer
than it may have expected – (laughter) – and it has also hosted countless rounds before this one, so they’ve made a very special
contribution to this. And I’ll tell you, all the police and the folks in the hotels and everybody in Austria, Vielen dank. We thank you
for a really remarkable welcome. (Applause.)
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I want to thank the other nations that have hosted these talks – this has been sort of a traveling circus – in particular Switzerland,
Oman, Turkey, Russia, Kazakhstan, Iraq, and my home country, the United States.
And I am particularly grateful – we are particularly grateful, all of us, to the sultan of Oman, for his very personal engagement and
support for the possibility of an agreement. He and his government were there to help every step of the way.
And I finally want to express my deep respect for the serious and constructive approach that Iran’s representatives brought to our
deliberations. The president of Iran, President Rouhani, had to make a difficult decision. We all know the tensions that exist.
Foreign Minister Javad Zarif, a tough, capable negotiator, and patriot, a man who fought every inch of the way for the things he
believed, and sometimes these were heated and passionate exchanges. But he and his team, while tough, always professional,
always dedicated to finding solutions to difficult problems. And we were, both of us, able to approach these negotiations with
mutual respect, even when there were times of a heated discussion, I think he would agree with me at the end of every meeting
we left with a smile and with a conviction that we were going to come back and continue the process. We never lost sight of the
goal that an agreement could bring and the best long-term interests of all concerned.
Now, we are under no illusions that the hard work is over. No one is standing here today to say that the path ahead is easy or
automatic. We move now to a new phase – a phase that is equally critical and may prove to be just as difficult – and that is
implementation. The 109 pages that we have agreed upon outline commitments made on both sides. In the end, however, this
agreement will live or die by whether the leaders who have to implement it on both sides honor and implement the commitments
that have been made.
There is reason to be optimistic. In January of last year, we took the first step by adopting the Joint Plan of Action. Man, were we
told by skeptics that we were making a mistake of a lifetime – that Iran would never comply, that this was a terrible agreement. But
you know what? They were dead wrong. All sides met their obligations. The diplomatic process went forward. And we are already
nearing almost two years of Iran’s compliance, full compliance, with the agreement.
The entire world has a stake in ensuring that the same thing happens now. Not only will this deal, fully implemented, make the
world safer than it is today, but it may also eventually unlock opportunities to begin addressing regional challenges that cannot be
resolved without this kind of an agreement being in place in the first place. The past 18 months have been yet another example of
diplomacy’s consummate power to forge a peaceful way forward, no matter how impossible it may seem.
Obviously, every country that has been at the table over the past 18 months has had its own domestic perspective to consider. The
United States is no exception. Back home, the future of Iran’s nuclear program has long been the focus of a lot of debate, and I
have absolutely no doubt that debate is going to become even more intense in the coming days. I’ll tell you what, we welcome the
opportunity to engage. These are vitally important issues, and they deserve rigorous but fact-based discussion. I’ve heard more
talk in the last days about concessions being made and people racing. We have not made concessions. Lausanne is more than
intact. And the facts are what should define this agreement.
From the start, President Obama and I have pledged that we would not settle for anything less than a good deal – good for
Americans and good for our partners, our friends, our allies, good for the future of the Middle East, and good for the peace of mind
of the world. That is what we pursued and that is what we insisted on through long months of hard negotiations, and that is
precisely what we believe we have achieved today.
I will just share with you very personally, years ago when I left college, I went to war. And I learned in war the price that is paid
when diplomacy fails. And I made a decision that if I ever was lucky enough to be in a position to make a difference, I would try to
do so. I believe this agreement actually represents an effort by the United States of America and all of its member – its colleagues
in the P5+1 to come together with Iran to avert an inevitability of conflict that would come were we not able to reach agreement. I
think that’s what diplomacy was put in place to achieve, and I know that war is the failure of diplomacy and the failure of leaders to
make alternative decisions.
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So we have a chance here and I hope that in the days ahead that people will look at this agreement hard for the facts that define it
and that we will be able to fully implement it and move forward.
I’d be happy to take a few questions.
MS HARF: The first question, it’s from Indira Lakshmanan of Bloomberg News. Go ahead.
QUESTION: Thank you, Mr. Secretary. Mr. Secretary, what do you say to critics who say that lifting the UN arms embargo will fuel
an arms race that endangers U.S. allies in the Middle East?
SECRETARY KERRY: Can you put it a little closer? I can’t hear you very well.
QUESTION: Sorry. What do you say to critics who say that lifting the UN arms embargo will fuel an arms race that endangers
U.S. allies in the Middle East, making it unlikely that Congress will endorse the deal? And what’s the Administration’s plan if
Congress rejects the agreement with a veto-proof majority? And last, what do you say to U.S. energy companies and other
businesses who will remain under U.S. primary sanctions, putting them at a disadvantage against nations who now will be allowed
to return to investment and trade in Iran? Thank you.
SECRETARY KERRY: Well, let me answer the second one first. With respect to companies that want to rush to do business in
Iran, it is absolutely true that because of the embargo by the United States, American companies will not be part of that rush –
unless specifically exempted, and very few are. So the reality is that, indeed, other countries will make a different choice. This is
something Congress is going to have to consider, whether or not over the course of time, Iran, if they fully comply, whether they
think it makes sense to continue.
But let me underscore, because this goes into your first question, and that is about the arms embargo. First of all, there were
seven participants in this negotiation. Three of them believe there should be no embargo whatsoever, and four of them believe
there should be a continuation. The result of the negotiation is that it not only continues for five full years, which is a pretty lengthy
period of time during which a lot of other things can begin to happen, but it also continues under Chapter VII, Article 41, so that it is
fully enforceable and has the force of the United Nations Security Council. Now, to have achieved that when three of the nations
could have said no deal and walked away or you could have had a different outcome I think is significant, number one.
Number two, and this is very important, the United Nations Resolution 1929, which is the resolution that basically brings us here
and set in motion the sanctions, says specifically that if Iran comes to negotiate – not even get a deal, but comes to negotiate –
sanctions would be lifted. We’re not doing that with respect to the arms embargo, even though not only have they come to the
negotiation, they have in fact negotiated a deal.
So we have plenty of time over the next few years to address whatever the next steps will be in that issue, but I think that we did
very well to hold on to that particular restraint, and we’ll see where we go in the future.
QUESTION: Congressional – the congressional override and the veto? On the – what will the Administration do if Congress has a
veto-proof majority rejecting the deal?
SECRETARY KERRY: If Congress were to veto the deal, Congress – the United States of America would be in noncompliance
with this agreement and contrary to all of the other countries in the world. I don’t think that’s going to happen. I really don’t believe
that people would turn their backs on an agreement which has such extraordinary steps in it with respect to Iran’s program as well
as access and verification.
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This agreement will withstand the test of scrutiny in the next days, and I look forward to being part of that debate, obviously. We
will brief Congress immediately. We will be deeply engaged in it. But I am confident that people will not choose to turn their back on
the rest of the international community, on this opportunity to change a relationship, and this opportunity which is the only viable
alternative to be able to guarantee there is a peaceful nuclear program and that they will not succeed or choose to get a weapon.
MS HARF: The second question is from Arash Azizi of Manoto.
QUESTION: Secretary Kerry, it wouldn’t be a surprise to you that the sanctions – both the nuclear sanctions and others – have
deeply hurt the Iranian people, from the airplanes that are falling, to the children who have needed medicine. When the Iranian
people watch this presser tonight, mostly are thinking when and how quickly will the sanctions lifted, and how quickly can they see
the result?
And they’ll also be wondering that in a political atmosphere, when every single Republican contender has promised to scuttle the
deal, aren’t you worried that the hard efforts that you’ve made during this last little while will be undone by the next Administration?
And what guarantees can this Administration make to prevent that?
SECRETARY KERRY: Well, as I said, there are a series of steps that are spelled out very, very clearly in this agreement that Iran
has agreed to take, that are necessary to expand the breakout time and to begin to build confidence. Those steps will begin the
moment after Congress has had its review time of this agreement. At that point Iran, when it sees the results, will begin to reduce
its enrichment, begin to dismantle its centrifuges and take the steps necessary to expand the breakout time and provide
confidence. So that is about 60 days away. And then a few months after that the IAEA will conclude and the other things will
happen. So somewhere in the vicinity of four to six months or so, depending on how rapidly Iran is able to perform its initial
functions. It’s really dependent on Iran how fast that will happen, but I expect it to be somewhere in a matter of months – maybe six
or so; hard to say exactly – and that will begin to make a difference.
With respect to this agreement, look, surviving the future, I really believe deeply that if Iran fully implements with two years already
under Iran’s belt, during which time Iran’s program has effectively been frozen, and they have begun to show people that they’re
not able or ready to make a bomb, I am convinced that no one will see the common sense of turning away from that so that all of a
sudden the next day Iran can go out and enrich more and do everything that you’ve just tried to prevent. I am convinced that
whoever is our next president will see the wisdom of this agreement and they will leave it in place.
MS HARF: Our final question is from Jay Solomon of The Wall Street Journal.
QUESTION: Thank you. Secretary Kerry, Iran’s most powerful political figure, Supreme Leader Ayatollah Khamenei, was not here
in Vienna, and has repeatedly voiced skepticism or suspicion about agreements with the United States. He’s also said in recent
days that his country will continue its opposition to U.S. foreign policy. What assurances did you get from Minister Zarif and other
Iranian officials that the supreme leader does, in fact, back this agreement? And why are you confident Tehran won’t back out of
the deal like they did in 2009 on the nuclear fuel swap? Thank you.
SECRETARY KERRY: Well, first of all, I never said I was confident that – I am like everybody else here, and I said this very
clearly in my comments a few minutes ago. I said the fact of the signing of this agreement does not eliminate all of the challenges.
It’s the implementation that will matter. And I’m not going to stand here and tell you that everything’s going to work without a bump,
without a hitch in the road, without some misunderstanding or some effort that needs clarification.
What I do know is that the negotiators absolutely affirmed to us on several occasions, and most importantly in the last 24 hours,
that they are operating with a full mandate from the president, Rouhani, and from the supreme leader.
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And in a negotiation, you lay down the procedures that are expected to be taken and you lay down the consequences for not doing
that. Both of those are absolutely evident and clear in this agreement, and so we obviously look forward to the implementation, but
I’m not the person to vouch for the fact – which I can’t – as to exactly every step or moment in time that’s going to be taken in the
next days in terms of compliance. But we have put in place ample mechanisms with respect to compliance and with respect to
accountability. So I feel very confident about our ability to protect our interests, to protect the security interests that are stake, and I
full, frankly, expect over the next days to see this process at least begin to be followed up on.
MS HARF: Thank you all very much.
QUESTION: For the Iranian (inaudible) --
MS HARF: Thank you. Thank you very much.
QUESTION: -- not saying anything.
SECRETARY KERRY: Well, I answered some, but you got to bear with me because this is the longest I’ve stood up for quite a
while, guys. So I’m going to move out. (Applause.)
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Bahrain Bilateral Investment Treaty
Signed September 29, 1999; Entered into Force May 31, 2001
106th Congress
2d Session
SENATE
Treaty Doc.
106-25
INVESTMENT TREATY WITH BAHRAIN
MESSAGE
FROM
THE PRESIDENT OF THE UNITED STATES
TRANSMITTING
THE TREATY BETWEEN THE GOVERNMENT OF THE UNITED STATES OF
AMERICA AND THE GOVERNMENT OF THE STATE OF BAHRAIN
CONCERNING THE ENCOURAGEMENT AND RECIPROCAL PROTECTION
OF INVESTMENT WITH ANNEX AND PROTOCOL, SIGNED, AT
WASHINGTON ON SEPTEMBER 29, 1999
MAY 23, 2000.-Treaty was read the first time and, together with the
accompanying papers, referred to the Committee on Foreign Relations and
ordered to be printed for the use of the Senate
U.S. GOVERNMENT PRINTING OFFICE
79-118 WASHINGTON : 2000
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LETTER OF TRANSMITTAL
----------
The White House, May 23, 2000.
To the Senate of the United States:
With a view to receiving the advice and consent of the Senate to ratification, I transmit herewith
the Treaty Between the Government of the United States of America and the Government of the
State of Bahrain Concerning the Encouragement and Reciprocal Protection of Investment, with
Annex, signed at Washington on September 29, 1999. I transmit also, for the information of the
Senate, the report of the Department of State with respect to this Treaty. The bilateral investment
treaty (BIT) with Bahrain is the third such treaty between the United States and a Middle Eastern
country. The Treaty will protect U.S. investment and assist Bahrain in its efforts to develop its
economy by creating conditions more favorable for U.S. private investment and thus strengthen
the development of its private sector.
The Treaty is fully consistent with U.S. policy toward international and domestic investment. A
specific tenet of U.S. policy, reflected in this Treaty, is that U.S. investment abroad and foreign
investment in the United States should receive national treatment. Under this Treaty, the Parties
also agree to customary international law standards for expropriation. The Treaty includes
detailed provisions regarding the computation and payment of prompt, adequate, and effective
compensation for expropriation; free transfer of funds related to investments; freedom of
investments from specified performance requirements; fair, equitable, and most- favored-nation
treatment; and the investor's freedom to choose to resolve disputes with the host government
through international arbitration.
I recommend that the Senate consider this Treaty as soon as possible, and give its advice and
consent to ratification of the Treaty at an early date.
WILLIAM J. CLINTON
LETTER OF SUBMITTAL
----------
Department of State,
Washington, April 24, 2000.
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The President,
The White House.
The President: I have the honor to submit to you the Treaty Between the Government of the
United States of America and the Government of the State of Bahrain Concerning the
Encouragement and Reciprocal Protection of Investment, with Annex, signed at Washington on
September 29, 1999. I recommend that this Treaty with Annex, be transmitted to the Senate for
its advice and consent to ratification.
The bilateral investment treaty (BIT) with Bahrain is the first such treaty signed between the
United States and a member of the Cooperation Council for the Arab States of the Gulf. The
Treaty is based on the view that an open investment policy contributes to economic growth. This
Treaty will assist Bahrain in its efforts to develop its economy by creating conditions more
favorable for U.S. private investment and thereby strengthening the development of its private
sector. It is U.S. policy, however, to advise potential treaty partners during BIT negotiations that
conclusion of such a treaty does not necessarily result in increases in private U.S. investment
flows.
To date, 31 BITs are in force for the United States--with Albania, Argentina, Armenia,
Bangladesh, Bulgaria, Cameroon, the Republic of the Congo, the Democratic Republic of the
Congo (formerly Zaire), the Czech Republic, Ecuador, Egypt, Estonia, Georgia, Grenada,
Jamaica, Kazakhstan, Kyrgyzstan, Latvia, Moldova, Mongolia, Morocco, Panama, Poland,
Romania, Senegal, Slovakia, Sri Lanka, Trinidad & Tobago, Tunisia, Turkey, and Ukraine. In
addition to the Treaty with Bahrain, the United States has signed, but not yet brought into force,
BITS with Azerbaijan, Belarus, Bolivia, Croatia, El Salvador, Honduras, Jordan, Lithuania,
Mozambique, Nicaragua, Russia, and Uzbekistan.
The Office of the United States Trade Representative and the Department of State jointly led this
BIT negotiation, with assistance from the Departments of Commerce, Treasury, and Energy.
The U.S.-Bahrain Treaty
The Treaty with Bahrain is based on the 1994 U.S. prototype BIT and satisfies the U.S. principal
objectives in bilateral investment treaty negotiations:
--All forms of U.S. investment in the territory of Bahrain are covered.
--Covered investments receive the better of national treatment or most-favored-nation (MFN)
treatment both while they are being established and thereafter, subject to certain specified
exceptions.
--Specified performance requirements may not be imposed upon or enforced against covered
investments.
--Expropriation is permitted only in accordance with customary international law standards.
--Parties are obligated to permit the transfer, in a freely usable currency, of all funds related to a
covered investment, subject to exceptions for specified purposes.
--Investment disputes with the host government may be brought by investors, or by their covered
investments, to binding international arbitration as an alternative to domestic courts.
These elements are further described in the following article- by-article analysis of the provisions
of the Treaty:
Title and Preamble
The Title and Preamble state the goals of the Treaty. Foremost is the encouragement and
protection of investment. Other goals include economic cooperation on investment issues; the
stimulation of economic development; higher living standards; promotion of respect for
internationally-recognized worker rights; and maintenance of health, safety, and environmental
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measures. While the Preamble does not impose binding obligations, its statement of goals may
assist in interpreting the Treaty and in defining the scope of Party-to- Party consultations pursuant
to Article 8.
Article 1 (Definitions)
Article 1 defines terms used throughout the Treaty.
Company, Company of a Party
The definition of "company" is broad, covering all types of legal entities constituted or organized
under applicable law, and includes corporations, trusts, partnerships, sole proprietorships,
branches, joint ventures, and associations. The definition explicitly covers not-for-profit entities,
as well as entities that are owned or controlled by the state. "Company of a Party" is defined as a
company constituted or organized under the laws of that Party.
National
The Treaty defines "national" as a natural person who is a national of a Party under its own laws.
Under U.S. law, the term "national" is broader than the term "citizen." For example, a native of
American Samoa is a national of the United States, but not a citizen.
Investment, Covered Investment
The Treaty's definition of investment is broad, recognizing that investment can take a wide variety
of forms. Every kind of investment is specifically incorporated in the definition; moreover, it is
explicitly noted that investment may consist or take the form of any of a number of interests,
claims, and rights.
The Treaty provides an illustrative list of the forms an investment may take. Establishing a
subsidiary is a common way of making an investment. Other forms that an investment might take
include equity and debt interests in a company; contractual rights; movable, immovable,
intangible, and intellectual property; and rights conferred pursuant to law, such as licenses and
permits. Investment as defined by the Treaty generally excludes claims arising solely from trade
transactions, such as a sale of goods across a border that does not otherwise involve an
investment.
The Treaty defines "covered investment" as an investment of a national or company of a Party in
the territory of the other Party. An investment of a national or company is one that the national or
company owns or controls, either directly or indirectly. Indirect ownership or control could be
through other, intermediate companies or persons, including those of third countries. Control is
not specifically defined in the Treaty; ownership of over 50 percent of the voting stock of a
company would normally convey control, but in many cases the requirement could be satisfied by
less than that proportion, or by other arrangements.
The broad nature of the definitions of "investment," "company," and "company of a Party" means
that investments can be covered by the Treaty even if ultimate control lies with non-Party
nationals. A Party may, however, deny the benefits of the Treaty in the limited circumstances
described in Article 12.
State Enterprise, Investment Authorization, Investment Agreement
The Treaty defines "state enterprise" as a company owned, or controlled through ownership
interests, by a Party. Purely regulatory control over a company does not qualify it as a state
enterprise.
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The Treaty defines an "investment authorization" as an authorization granted by the foreign
investment authority of a Party to a covered investment or a national or company of the other
Party.
The Treaty defines an "investment agreement" as a written agreement between the national
authorities of a Party and a covered investment or a national or company of the other Party that
(1) grants rights with respect to natural resources or other assets controlled by the national
authorities and (2) the investment, national, or company relies upon in establishing or acquiring a
covered investment. this definition thus excludes agreements with subnational authorities
(including U.S. States) as well as agreements arising from various types of regulatory activities of
the national government, including, in the tax area, rulings, closing agreements, and advance
pricing agreements.
ICSID Convention, Centre, UNCITRAL Arbitration Rules
The "ICSID Convention," "Centre," and `"UNCITRAL Arbitration Rules" are explicitly defined to
make the text brief and clear.
Article 2 (Treatment of Investment)
Article 2 contains the Treaty's major obligations with respect to the treatment of covered
investments.
Paragraph 1 generally ensures the better of national or MFN treatment in both the entry and postentry
phases of investment. It thus prohibits, outside of exceptions listed in the Annex,
"screening" on the basis of nationality during the investment process, as well as nationality-based
post- establishment measures. For purposes of the Treaty, "national treatment" means treatment
no less favorable than that which a Party accords, in like situations, to investments in its territory
of its own nationals or companies. For purposes of the Treaty, "MFN treatment" means treatment
no less favorable than that which a Party accords, in like situations, to investments in its territory
of nationals or companies of a third country. The Treaty obliges each Party to provide whichever
of national treatment or MFN treatment is the most favorable. This is defined by the Treaty as
"national and MFN treatment." Paragraph 1 explicitly states that the national and MFN treatment
obligation will extend to state enterprises in their provision of goods and services to covered
investments.
Paragraph 2 states that each Party may adopt or maintain exceptions to the national and MFN
treatment standard with respect to the sectors or matters specified in the Annex. Further
restrictive measures are permitted in each sector. (The specific exceptions are discussed in the
section entitled "Annex" below.) In the Annex, Parties may take exceptions only to the obligation
to provide national and MFN treatment; there are no sectoral exceptions to the rest of the Treaty's
obligations. Finally, in adopting any exception under this provision, a Party may not require the
divestment of a preexisting covered investment.
Paragraph 2 also states that a Party is not required to extend to covered investments national
and MFN treatment with respect to procedures provided for in multilateral agreements concluded
under the auspices of the World Intellectual Property Organization relating to the acquisition or
maintenance of intellectual property rights. This provision clarifies that certain procedural
preferences granted under intellectual property conventions, such as the Patent Cooperation
Treaty, fall outside the BIT. This exception parallels those in the Uruguay Round's Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the North American Free
Trade Agreement (NAFTA).
Paragraph 3 sets out a minimum standard of treatment based on standards found in customary
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international law. The obligations to accord "fair and equitable treatment" and "full protection and
security" are explicitly cited, as is each Party's obligation not to impair, through unreasonable and
discriminatory means, the management, conduct, operation, and sale or other disposition of
covered investments. The general reference to international law also implicitly incorporates other
fundamental rules of customary international law regarding the treatment of foreign investment.
However, this provision does not incorporate obligations based on other international
agreements.
Paragraph 4 requires that each Party provide effective means of asserting claims and enforcing
rights with respect to covered investments.
Paragraph 5 ensures that transparency of each Party's regulation of covered investments.
Article 3 (Expropriation)
Article 3 incorporates into the Treaty customary international law standards for expropriation.
Article 3 also includes detailed provisions regarding the computation and payment of prompt,
adequate, and effective compensation. Paragraph 1 describes the obligations of the Parties with
respect to expropriation and nationalization of a covered investment. These obligations apply to
both direct expropriation and indirect expropriation through measures "tantamount to
expropriation or nationalization" and thus apply to "creeping expropriations"--a series of measures
that effectively amounts to an expropriation of a covered investment without taking title.
Paragraph 1 further bars all expropriations or nationalizations except those that are for a public
purpose; carried out in a non-discriminatory manner; in accordance with due process of law; in
accordance with the general principles of treatment provided in Article 3(3); and subject to
"prompt, adequate and effective compensation."
Paragraphs 2, 3, and 4 more fully describe the meaning of "prompt, adequate and effective
compensation." The guiding principle is that the investor should be made whole.
Article 4 (Compensation for Damages Due to War and Similar Events)
Paragraph 1 entitles investments covered by the Treaty to national and MFN treatment with
respect to any measure relating to losses suffered to a party's territory owing to war or other
armed conflict, civil disturbances, or similar events. Paragraph 2, by contrast, creates an
unconditional obligation to pay compensation for such losses when the losses result from
requisitioning or from destruction not required by the necessity of the situation.
Article 5 (Transfers)
Article 5 protects investors from certain government exchange controls that limit current and
capital account transfers, as well as limits on inward transfers made by screening authorities and,
in certain circumstances, limits on returns in kind.
In paragraph 1, each Party agrees to permit all transfers relating to a covered investment to be
made freely and without delay into and out of its territory.'' Paragraph 1 also provides a list of
transfers that must be allowed. The list is non-exclusive, and is intended to protect flows to both
affiliated and non-affiliated entities.
Paragraph 2 provides that each Party must permit transfers to be made in a "freely usable
currency" at the market rate of exchange prevailing on the date of transfer. "Freely usable" is a
term used by the International Monetary Fund; at present there are five "freely usable" currencies:
the U.S. dollar, Japanese yen, German mark, French franc, and British pound sterling.
In paragraph 3, each Party agrees to permit returns in kind to be made where such returns have
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been authorized by an investment authorization or written agreement between a Party and a
covered investment or a national or company of the other Party.
Paragraph 4 recognizes that, notwithstanding the obligations of paragraphs 1 through 3, a Party
may prevent a transfer through the equitable, non-discriminatory, and good faith application of
laws relating to bankruptcy, insolvency, or the protection of the rights of creditors; securities;
criminal or penal offenses; or ensuring compliance with orders or judgments in adjudicatory
proceedings.
Article 6 (Performance Requirements)
Article 6 prohibits either Party from mandating or enforcing specified performance requirements
as a condition for the establishment, acquisition, expansion, management, conduct, or operation
of a covered investment. This prohibition includes, but is not limited to, imposition of any of the
specified performance requirements by means of a commitment or undertaking in connection with
the receipt of a governmental permission or authorization. The list of prohibited requirements is
exhaustive and covers domestic content requirements and domestic purchase preferences, the
"balancing" of imports or sales in relation to exports or foreign exchange earnings, requirements
to export products or services, technology transfer requirements, and requirements relating to the
conduct of research and development in the host country. Such requirements are major burdens
on investors and impair their competitiveness.
The last sentence of Article 6 makes clear that a Party may, however, impose conditions for the
receipt or continued receipt of benefits and incentives.
Article 7 (Entry, Sojourn, and Employment of Aliens)
Paragraph 1 requires each Party to allow, subject to its laws relating to the entry and sojourn of
aliens, the entry into its territory of the other Party's nationals for certain purposes related to a
covered investment and involving the commitment of a "substantial amount of capital." This
paragraph serves to render nationals of Bahrain eligible for treaty-investor visas under U.S.
immigration law. It also affords similar treatment for U.S. nationals entering Bahrain. The
requirement to commit a "substantial amount of capital" is intended to prevent abuse of treatyinvestor
status; it parallels the requirements of U.S. immigration law.
In addition, paragraph 1(b) prohibits labor certification requirements and numerical restrictions on
the entry of treaty- investors.
Paragraph 2 requires that each Party allow covered investments to engage top managerial
personnel of their choice, regardless of nationality. This provision does not require that such
personnel be granted entry into a Party's territory. Such persons must independently qualify for
an appropriate visa for entry into the territory of the other party. Nor does this provision create an
exception to U.S. equal employment opportunity laws.
Article 8 (State-State Consultations)
Article 8 provides for prompt consultation between the Parties, at either Party's request, on any
matter relating to the interpretation or application of the Treaty or to the realization of the Treaty's
objectives. A Party may thus request consultations for any matter reasonably related to the
encouragement or protection of covered investment, whether or not a Party is alleging a violation
of the Treaty.
Article 9 (Settlement of Disputes Between One Party and a National or
Company of the Other Party)
Article 9 sets forth several means by which disputes brought against a Party by an investor
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(specifically, a national or company of the other Party) may be resolved.
Article 9 procedures apply to an "investment dispute," which is any dispute arising out of or
relating to an investment authorization, an investment agreement, or an alleged breach of rights
conferred, created, or recognized by the Treaty with respect to a covered investment.
In the event that an investment dispute cannot be settled amicably, paragraph 2 gives an investor
an exclusive (with the exception in paragraph 3(b) concerning injunctive relief, explained below)
choice among three options to settle the dispute. These three options are: (1) submitting the
dispute or the courts or administrative tribunals of the Party that is a party to the dispute; (2)
invoking dispute--resolution procedures previously agreed upon by the national or company and
the host country government; or (3) invoking the dispute- resolution mechanisms identified in
paragraph 3 of Article 9.
Under paragraph 3(a), the investor can submit an investment dispute to binding arbitration 90
days after the dispute arises, provided that the investor has not submitted the claim to a court or
administrative tribunal of the Party or invoked a dispute resolution procedure previously agreed
upon. The investor may choose among the International Centre for Settlement of Investment
Disputes (ICSID) (Convention Arbitration), the Additional Facility of ICSID (if Convention
Arbitration is not available), ad hoc arbitration using the Arbitration Rules of the United Nations
Commission on International Trade Law (UNCITRAL), or any other arbitral institution or rules
agreed upon by both parties to the dispute.
Before or during such arbitral proceedings, however, paragraph 3(b) provides that an investor
may seek, without affecting its right to pursue arbitration under this Treaty, interim injunctive relief
not involving the payment of damages from local courts or administrative tribunals of the Party
that is a party to the dispute for the preservation of its rights and interests. This paragraph does
not alter the power of the arbitral tribunals to recommend or order interim measures they may
deem appropriate.
Paragraph 4 constitutes each Party's consent to the submission of investment disputes to binding
arbitration in accordance with the choice of the investor.
Paragraph 5 provides that any non-ICSID Convention arbitration shall take place in a country that
is a party to the United Nations Convention on the Recognition and Enforcement of Arbitral
Awards. This provision facilitates enforcement of arbitral awards. In addition, in paragraph 6, each
Party commits to enforcing arbitral awards rendered pursuant to this Article.
The Federal Arbitration Act (9 U.S.C. 1 et seq.) satisfies the requirement for the enforcement of
non-ICSID Convention awards in the United States. The Convention on the Settlement of
Investment Disputes Act of 1966 (22 U.S.C. 1650-1650a) provides for the enforcement of ICSID
awards.
Paragraph 7 ensures that a Party may not assert as a defense, or for any other reason, that the
investor involved in the investment dispute has received or will receive reimbursement for the
same damages under an insurance or guarantee contract.
Paragraph 8 provides that, for the purposes of this article, the nationality of a company in the host
country will be determined by ownership or control, rather than by place of incorporation. This
provision allows a company that is a covered investment to bring a claim in its own name.
Article 10 (Settlement of Disputes Between the Parties)
Article 10 provides for binding arbitration of Disputes between the United States and Bahrain
concerning the interpretation or application of the Treaty that are not resolved through
consultations or other diplomatic channels. The article specifies various procedural aspects of
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such arbitration proceedings, including time periods, selection of arbitrators, and distribution of
arbitration costs between the Parties. The article constitutes each Party's prior consent to such
arbitration.
Article 11 (Preservation of Rights)
Article 11 clarifies that the Treaty does not derogate from any obligation a Party might have to
provide better treatment to the covered investment than is specified in the Treaty. Thus, the
Treaty establishes a floor for the treatment of covered investments. A covered investment may be
entitled to more favorable treatment through domestic legislation, other international legal
obligations, or a specific obligation (e.g., to provide a tax holiday) assumed by a Party with
respect to that covered investment.
Article 12 (Denial of Benefits)
Article 12(a) preserves the right of each Party to deny the benefits of the Treaty to a company
owned or controlled by nationals of a non-Party country with which the denying Party does not
have normal economic relations, e.g., a country to which it is applying economic sanctions. For
example, at this time the United States does not maintain normal economic relations with, among
other countries, Cuba and Libya.
Article 12(b) permits each Party to deny the benefits of the Treaty to a company of the other Party
if the company is owned or controlled by non-Party nationals and if the company has no
substantial business activities in the Party where it is established. Thus, the United States could
deny benefits to a company that is a subsidiary of a shell company organized under the laws of
Bahrain if controlled by nationals of a third country. However, this provision would not generally
permit the United States to deny benefits to a company of Bahrain that maintains its central
administration or principal place of business in the territory of, or has a real and continuous link
with, Bahrain.
Article 13 (Taxation)
Article 13 excludes tax matters generally from the coverage of the BIT, on the basis that tax
matters should be dealt with in bilateral tax treaties. However, Article 13 does not preclude a
national or company from bringing claims under Article 9 that taxation provisions in an investment
agreement or authorization have been violated. In addition, the dispute settlement provisions of
Articles 9 and 10 apply to tax matters in relation to alleged violations of the BIT's expropriation
article.
Under paragraph 2, a national or company that asserts in a dispute that a tax matter involves
expropriation may submit that dispute to arbitration pursuant to Article 9(3) only if (1) the investor
has first referred to the competent tax authorities of both Parties the issue of whether the tax
matter involves an expropriation, and (2) the tax authorities have not both determined, within 9
months from the time of referral, that the matter does not involve an expropriation. The
"competent tax authority" of the United States is the Assistant Secretary of the Treasury for Tax
Policy, who will make such a determination only after consultation with the Inter-Agency Staff
Coordinating Group on Expropriations.
Article 14 (Measures Not Precluded)
The first paragraph of Article 14 reserves the right of a Party to take measures that it considers
necessary for the fulfillment of its international obligations with respect to maintenance or
restoration of international peace or security, as well as those measures it regards as necessary
for the protection of its own essential security interests.
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International obligations with respect to maintenance or restoration of peace or security would
include, for example, obligations arising out of Chapter VII of the United Nations Charter.
Measures permitted by the provision on the protection of a Party's essential security interests
would include security-related actions taken in time of war or national emergency. Actions not
arising from a state of war or national emergency must have a clear and direct relationship to the
essential security interests of the Party involved. This Treaty makes explicit the implicit
understanding that measures to protect a Party's essential security interests are self-judging in
nature, although each Party would expect the provisions to be applied by the other in good faith.
The second paragraph permits a Party to prescribe special formalities in connection with covered
investments, provided that these formalities do not impair the substance of any Treaty rights.
Such formalities could include reporting requirements for covered investments or for transfers of
funds, or incorporation requirements.
Article 15 (Application to Political Subdivisions and State Enterprises
of the Parties)
Paragraph 1(a) makes clear that the obligations of the Treaty are applicable to all political
subdivisions of the Parties, such as provincial, State, and local governments.
Paragraph 1(b) recognizes that under the U.S. federal system, States of the United States may,
in some instances, treat out-of-State residents and corporations in a different manner than they
treat in-State residents and corporations. The Treaty provides that the national treatment
commitment, with respect to the States, means treatment no less favorable than that provided by
a State to U.S. out-of-State residents and corporations.
Paragraph 2 extends a Party's obligations under the Treaty to its state enterprises in the exercise
of any delegated governmental authority. This paragraph is designed to clarify that the exercise of
governmental authority by a state enterprise must be consistent with a Party's obligations under
the Treaty.
Article 16 (Entry Into Force, Duration, and Termination)
Paragraph 1 stipulates that the Treaty enters into force 30 days after exchange of instruments of
ratification. The Treaty remains in force for a period of 10 years and continues in force thereafter
unless terminated by either Party as provided in paragraph 2. Paragraph 2 permits a Party to
terminate the Treaty at the end of the initial 10 year period, or at any later time, by giving 1 year's
written notice to the other Party. Paragraph 1 also provides that the Treaty applies to covered
investments existing at the time of entry into force as well as to those established or acquired
thereafter. The Treaty does not state an intention by the Parties to apply the Treaty's provisions
retroactively. Thus, under customary international law, the Treaty does not apply to disputes with
respect to acts or facts which took place before the Treaty came into force or to any situation
which ceased to exist before the date of entry into force of the Treaty.
Paragraph 3 provides that, if the Treaty is terminated, all investments that qualified as covered
investments on the date of termination (i.e., 1 year after the date of written notice of termination)
continue to be protected under the Treaty for 10 years from that date as long as these
investments qualify as covered investments. A Party's obligations with respect to the
establishment and acquisition of investments would lapse immediately upon the date of
termination of the Treaty.
Paragraph 4 stipulates that the Annex shall form an integral part of the Treaty.
Paragraph 5 states that all dates and periods mentioned in the Treaty are reckoned according to
the Gregorian calendar. The final clause of the Treaty provides that the English and Arabic
language texts are each authentic; however, in the event of divergence, the English text will
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prevail. Bahrain requested that the English text prevail in the event of divergence, in recognition
of the widespread use of the English language in international commercial transactions in
Bahrain.
Annex
U.S. bilateral investment treaties allow for exceptions to national and MFN treatment, where the
Parties' domestic regimes do not afford national and MFN treatment, or where treatment in
certain sectors or matters is negotiated in and governed by other agreements. Future derogations
from the national treatment obligations of the Treaty are generally permitted only in the sectors or
matters listed in the Annex, pursuant to Article 2(2), and must be made on an MFN basis unless
otherwise specified therein.
Under a number of statutes, many of which have a long historical background, the U.S. federal
government or States may not necessarily treat investments of nationals or companies of Bahrain
as they do U.S. investments or investments from a third country. Paragraphs 1 and 2 of the
Annex list the sectors or matters subject to U.S. exceptions.
The U.S. exceptions from its national treatment obligation are: atomic energy; customhouse
brokers; licenses for broadcast, common carrier, or aeronautical radio stations; COMSAT;
subsidies or grants, including but not limited to, government-supported loans, guarantees, and
insurance; State and local measures exempt from Article 1102 of the North American Free Trade
Agreement pursuant to Article 1108 thereof; and landing of submarine cables.
The U.S. exceptions from its national and MFN treatment obligations are: fisheries; air and
maritime transport, and related activities; banking, insurance, securities, and other financial
services; and one-way satellite transmissions of Direct-to-Home (DTH) and Direct Broadcasting
Satellite (DBS) television services and of digital audio services.
Paragraph 3 of the Annex lists Bahrain's exceptions from its national treatment obligation, which
are: ownership or control of television and radio broadcasting and other forms of mass media;
fisheries; and initial privatization of exploration or drilling for crude oil.
Paragraph 4 of the Annex lists Bahrain's exceptions from its national and MFN treatment
obligation, which are: air transportation; purchase or ownership of land; and until January 1, 2005,
purchase or ownership of shares quoted on the Bahrain Stock Exchange.
Paragraph 5 of the Annex ensures that national treatment is granted by each Party in all leasing
of minerals or pipeline rights-of-way on government lands. In so doing, this provision affects the
implementation of the Minerals Lands Leasing Act (MLLA) (30 U.S.C. 181 et seq.) and 10 U.S.C.
7435, regarding Naval Petroleum Reserves, with respect to nationals and companies of Bahrain.
The Treaty provides for resort to binding international arbitration to resolve disputes, rather than
denial of mineral rights or rights to naval petroleum shares to investors of the other Party, as is
the current process under the statute. U.S. domestic remedies, would, however, remain available
for use in conjunction with the Treaty's provisions.
The MLLA and 10 U.S.C. 7435 direct that a foreign investor be denied access to leases for
minerals on on-shore federal lands, leases of land within the Naval Petroleum and Oil Shale
Reserves, and rights-of-way for oil or gas pipelines across on- shore federal lands, if U.S.
investors are denied access to similar or like privileges in the foreign country.
Bahrain's extension of national treatment in these sectors will fully meet the objectives of the
MLLA and 10 U.S.C. 7435. Bahrain was informed during negotiations that, were it to include this
sector in its list of treatment exemptions, the United States would (consistent with the MLLA and
10 U.S.C. 7435) exclude the leasing of minerals or pipeline rights-of-way on Government lands
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from the national and MFN treatment obligations of this Treaty.
The listing of a sector or matter in the Annex does not necessarily signify that domestic laws have
entirely reserved it for nationals. And, pursuant to Article 2(2), any additional restrictions or
limitations that a Party may adopt with respect to listed sectors or matters may not compel the
divestiture of existing covered investments.
Finally, listing a sector or matter in the Annex exempts a Party only from the obligation to accord
national or MFN treatment. Both parties are obligated to accord to covered investments in all
sectors--even those listed in the Annex--all other rights conferred by the Treaty.
The other U.S. Government agencies that participated in negotiating the Treaty join me in
recommending that it be transmitted to the Senate at an early date.
Respectfully submitted,
MADELINE ALBRIGHT.
TREATY BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND
THE GOVERNMENT OF THE STATE OF BAHRAIN
CONCERNING THE ENCOURAGEMENT
AND RECIPROCAL PROTECTION OF INVESTMENT
The Government of the United States of America and the Government of the
State of Bahrain (hereinafter the "Parties");
Desiring to promote greater economic cooperation between them, with respect to
investment by nationals and companies of one Party in the territory of the other
Party;
Recognizing that agreement upon the treatment to be accorded such investment
will stimulate the flow of private capital and the economic development of the
Parties;
Agreeing that a stable framework for investment will maximize effective utilization
of economic resources and improve living standards;
Recognizing that the development of economic and business ties can promote
respect for internationally recognized worker rights;
Agreeing that these objectives can be achieved without relaxing health, safety
and environmental measures of general application; and
Having resolved to conclude a Treaty concerning the encouragement and
reciprocal protection of investment;
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Have agreed as follows:
ARTICLE I
For the purposes of this Treaty,
(a) "company" means any entity constituted or organized under applicable law,
whether or not for profit, and whether privately or governmentally owned or
controlled, and includes, but is not limited to, a corporation, trust, partnership,
sole proprietorship, branch, joint venture, association, or other organization;
(b) "company of a Party" means a company constituted or organized under the
laws of that Party;
(c) "national" of a Party means a natural person who is a national of that Party
under its applicable law;
(d) "investment" of a national or company means every kind of investment owned
or controlled directly or indirectly by that national or company, and includes, but
is not limited to, investment consisting or taking the form of:
(1) a company;
(2) shares, stock, and other forms of equity participation, and bonds, debentures,
and other forms of debt interests, in a company;
(3) contractual rights, such as under turnkey, construction or management
contracts, production or revenue-sharing contracts, concessions, or other similar
contracts;
(4) moveable and immovable property; and intangible property, including, but not
limited to, rights, such as leases, mortgages, liens and pledges;
(5) intellectual property, including, but not limited to:
copyrights and related rights,
patents,
rights in plant varieties,
industrial designs,
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rights in semiconductor layout designs,
trade secrets, including, but not limited to, know-how and confidential business
information,
trade and service marks, and
trade names; and
(6) rights conferred pursuant to law, such as licenses and permits;
(e) "covered investment" means an investment of a national or company of a
Party in the territory of the other Party;
(f) "state enterprise" means a company owned, or controlled through ownership
interests, by a Party;
(g) "investment authorization" means an authorization granted by the foreign
investment authority of a Party to a covered investment or a national or company
of the other Party;
(h) "investment agreement" means a written agreement between the national
authorities of a Party and a covered investment or a national or company of the
other Party that (1) grants rights with respect to natural resources or other assets
controlled by the national authorities and (2) the investment, national or company
relies upon in establishing or acquiring a covered investment;
(i) "ICSID Convention" means the Convention on the Settlement of Investment
Disputes between States and Nationals of Other States, done at Washington,
March 18, 1965;
(j) "Centre" means the International Centre for Settlement of Investment Disputes
Established by the ICSID Convention; and
(k) "UNCITRAL Arbitration Rules" means the arbitration rules of the United
Nations Commission on International Trade Law.
ARTICLE 2
1. With respect to the establishment, acquisition, expansion, management,
conduct, operation and sale or other disposition of covered investments, each
Party shall accord treatment no less favorable than that it accords, in like
situations, to investments in
its territory of its own nationals or companies (hereinafter "national treatment") or
to investments in its territory of nationals or companies of a third country
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(hereinafter "most favored nation treatment"), whichever is most favorable
(hereinafter "national and most favored nation treatment"). Each Party shall
ensure that its state enterprises, in the provision of their goods or services,
accord national and most favored nation treatment to covered investments.
2. (a) A Party may adopt or maintain exceptions to the obligations of paragraph 1
in the sectors or with respect to the matters specified in the Annex to this Treaty.
In adopting such an exception, a Party may not require the divestment, in whole
or in part, of covered investments existing at the time the exception becomes
effective.
(b) The obligations of paragraph 1 do not apply to procedures provided in
multilateral agreements concluded under the auspices of the World Intellectual
Property Organization relating to the acquisition or maintenance of intellectual
property rights.
3. (a) Each Party shall at all times accord to covered investments fair and
equitable treatment and full protection and security, and shall in no case accord
treatment less favorable than that required by international law.
(b) Neither Party shall in any way impair by unreasonable and discriminatory
measures the management, conduct, operation, and sale or other disposition of
covered investments.
4. Each Party shall provide effective means of asserting claims and enforcing
rights with respect to covered investments.
5. Each Party shall ensure that its laws, regulations, administrative practices and
procedures of general application, and adjudicatory decisions, that pertain to or
affect covered investments are promptly published or otherwise made publicly
available.
ARTICLE 3
1. Neither Party shall expropriate or nationalize a covered investment either
directly or indirectly through measures tantamount to expropriation or
nationalization ("expropriation") except for a public purpose; in a nondiscriminatory
manner; upon payment of prompt, adequate and effective
compensation; and in accordance with due process of law and the general
principles of treatment provided for in Article 2, paragraph 3.
2. Compensation shall be paid without delay; be equivalent to the fair market
value of the expropriated investment immediately before the expropriatory action
was taken ("the date of expropriation"); and be fully realizable and freely
transferable. The fair market value shall not reflect any change in value occurring
because the expropriatory action had become known before the date of
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expropriation.
3. If the fair market value is denominated in a freely usable currency, the
compensation paid shall be no less than the fair market value on the date of
expropriation, plus interest at a commercially reasonable rate for that currency,
accrued from the date of
expropriation until the date of payment.
4. If the fair market value is denominated in a currency that is not freely usable,
the compensation paid--converted into the currency of payment at the market
rate of exchange prevailing on the date of payment--shall be no less than:
(a) the fair market value on the date of expropriation, converted into a freely
usable currency at the market rate of exchange prevailing on that date, plus
(b) interest, at a commercially reasonable rate for that freely usable currency,
accrued from the date of expropriation until the date of payment.
ARTICLE 4
1. Each Party shall accord national and most favored nation treatment to covered
investments as regards any measure relating to losses that investments suffer in
its territory owing to war or other armed conflict, revolution, state of national
emergency, insurrection, civil disturbance, or similar events.
2. Each Party shall accord restitution, or pay compensation in accordance with
paragraphs 2 through 4 of Article 3, in the event that covered investments suffer
losses in its territory, owing to war or other armed conflict, revolution, state of
national
emergency, insurrection, civil disturbance, or similar events, that result from:
(a) requisitioning of all or part of such investments by the Party's forces or
authorities, or
(b) destruction of all or part of such investments by the Party's forces or
authorities that was not required by the necessity of the situation.
ARTICLE 5
1. Each Party shall permit all transfers relating to a covered investment to be
made freely and without delay into and out of its territory. Such transfers include,
but are not limited to:
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(a) contributions to capital;
(b) profits, dividends, capital gains, and proceeds from the sale of all or any part
of the investment or from the partial or complete liquidation of the investment;
(c) interest, royalty payments, management fees, and technical assistance and
other fees;
(d) payments made under a contract, including, but not limited to, a loan
agreement; and
(e) compensation pursuant to Articles 3 and 4, and payments arising out of an
investment dispute.
2. Each Party shall permit transfers to be made in a freely usable currency at the
market rate of exchange prevailing on the date of transfer.
3. Each Party shall permit returns in kind to be made as authorized or specified in
an investment authorization, investment agreement, or other written agreement
between the Party and a covered investment or a national or company of the
other Party.
4. Notwithstanding paragraphs 1 through 3, a Party may prevent a transfer
through the equitable, non-discriminatory and good faith application of its laws
relating to:
(a) bankruptcy, insolvency or the protection of the rights of creditors;
(b) issuing, trading or dealing in securities;
(c) criminal or penal offenses; or
(d) ensuring compliance with orders or judgments in adjudicatory proceedings.
ARTICLE 6
Neither Party shall mandate or enforce, as a condition for the establishment,
acquisition, expansion, management, conduct or operation of a covered
investment, any requirement (including, but not limited to, any commitment or
undertaking in connection with the receipt of a governmental permission or
authorization):
(a) to achieve a particular level or percentage of local content, or to purchase,
use or otherwise give a preference to products or services of domestic origin or
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from any domestic source;
(b) to limit imports by the investment of products or services in relation to a
particular volume or value of production, exports or foreign exchange earnings;
(c) to export a particular type, level or percentage of products or services, either
generally or to a specific market region;
(d) to limit sales by the investment of products or services in the Party's territory
in relation to a particular volume or value of production, exports or foreign
exchange earnings;
(e) to transfer technology, a production process or other proprietary knowledge to
a national or company in the Party's territory, except pursuant to an order,
commitment or undertaking that is enforced by a court, administrative tribunal or
competition authority to remedy an alleged or adjudicated violation of competition
laws; or
(f) to carry out a particular type, level or percentage of research and development
in the Party's territory.
Such requirements do not include conditions for the receipt or continued receipt
of an advantage.
ARTICLE 7
1. (a) Subject to its laws relating to the entry and sojourn of aliens, each Party
shall permit to enter and to remain in its territory nationals of the other Party for
the purpose of establishing, developing, administering or advising on the
operation of an investment to which they, or a company of the other Party that
employs them, have committed or are in the process of committing a substantial
amount of capital or other resources.
(b) Neither Party shall, in granting entry under paragraph 1 (a), require a labor
certification test or other procedures of similar effect, or apply any numerical
restriction.
2. Each Party shall permit covered investments to engage top managerial
personnel of their choice, regardless of nationality.
ARTICLE 8
The Parties agree to consult promptly, on the request of either, to resolve any
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disputes in connection with the Treaty, or to discuss any matter relating to the
interpretation or application of the Treaty or to the realization of the objectives of
the Treaty.
ARTICLE 9
1. For purposes of this Treaty, an investment dispute is a dispute between a
Party and a national or company of the other Party arising out of or relating to an
investment authorization, an investment agreement or an alleged breach of any
right conferred, created or recognized by this Treaty with respect to a covered
investment.
2. A national or company that is a party to an investment dispute may submit the
dispute for resolution under one of the following alternatives:
(a) to the courts or administrative tribunals of the Party that is a party to the
dispute; or
(b) in accordance with any applicable, previously agreed dispute-settlement
procedures; or
(c) in accordance with the terms of paragraph 3.
3. (a) Provided that the national or company concerned has not submitted the
dispute for resolution under paragraph 2 (a) or (b), and that ninety days have
elapsed from the date on which the dispute arose, the national or company
concerned may submit the
dispute for settlement by binding arbitration:
(1) to the Centre, if the Centre is available; or
(2) to the Additional Facility of the Centre, if the Centre is not available; or
(3) in accordance with the UNCITRAL Arbitration Rules; or
(4) if agreed by both parties to the dispute, to any other arbitration institution or in
accordance with any other arbitration rules.
(b) A national or company, notwithstanding that it may have submitted a dispute
to binding arbitration under paragraph 3 (a), may seek interim injunctive relief,
not involving the payment of damages, before the judicial or administrative
tribunals of the Party that is a party to the dispute, prior to the institution of the
arbitral proceeding or during the proceeding, for the preservation of its rights and
interests.
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4. Each Party hereby consents to the submission of any investment dispute for
settlement by binding arbitration in accordance with the choice of the national or
company under paragraph 3 (a) (1), (2), and (3) or the mutual agreement of both
parties to the dispute under paragraph 3 (a) (4). This consent and the submission
of the dispute by a national or company under paragraph 3 (a) shall satisfy the
requirement of:
(a) Chapter II of the ICSID Convention (Jurisdiction of the Centre) and the
Additional Facility Rules for written consent of the parties to the dispute; and
(b) Article II of the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, done at New York, June 10, 1958, for
an "agreement in writing."
5. Any arbitration under paragraph 3 (a) (2), (3) or (4) shall be held in a state that
is a party to the United Nations Convention on the Recognition and Enforcement
of Foreign Arbitral Awards, done at New York, June 10, 1958.
6. Any arbitral award rendered pursuant to this Article shall be final and binding
on the parties to the dispute. Each Party shall carry out without delay the
provisions of any such award and provide in its territory for the enforcement of
such award.
7. In any proceeding involving an investment dispute, a Party shall not assert, as
a defense, counterclaim, right of set-off or for any other reason, that
indemnification or other compensation for all or part of the alleged damages has
been received or will be received pursuant to an insurance or guarantee contract.
8. For purposes of Article 25 (2) (b) of the ICSID Convention and this Article, a
company of a Party that, immediately before the occurrence of the event or
events giving rise to an investment dispute, was a covered investment, shall be
treated as a company of the other Party.
ARTICLE 10
1. Any dispute between the Parties concerning the interpretation or application of
the Treaty, that is not resolved through consultations or other diplomatic
channels, shall be submitted upon the request of either Party to an arbitral
tribunal for binding decision in accordance with the applicable rules of
international law. In the absence of an agreement by the Parties to the contrary,
the UNCITRAL Arbitration Rules shall govern, except to the extent these rules
are (a) modified by the Parties or (b) modified by the arbitrators unless either
Party objects to the proposed modification.
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2. Within two months of receipt of a request, each Party shall appoint an
arbitrator. The two arbitrators shall select a third arbitrator as chairman, who shall
be a national of a third state. The UNCITRAL Arbitration Rules applicable to
appointing members of three-member panels shall apply mutatis mutandis to the
appointment of the arbitral panel except that the appointing authority referenced
in those rules shall be the Secretary General of the Centre.
3. Unless otherwise agreed, all submissions shall be made and all hearings shall
be completed within six months of the date of selection of the third arbitrator, and
the arbitral panel shall render its decisions within two months of the date of the
final submissions or the date of the closing of the hearings, whichever is later.
4. Expenses incurred by the Chairman and other arbitrators, and other costs of
the proceedings, shall be paid for equally by the Parties. However, the arbitral
panel may, at its discretion, direct that a higher proportion of the costs be paid by
one of the Parties.
ARTICLE 11
This Treaty shall not derogate from any of the following that entitle covered
investments to treatment more favorable than that accorded by this Treaty:
(a) laws and regulations, administrative practices or procedures, or administrative
or adjudicatory decisions of a Party;
(b) international legal obligations; or
(c) obligations assumed by a Party, including, but not limited to, those contained
in an investment authorization or an investment agreement.
ARTICLE 12
Each Party reserves the right to deny to a company of the other Party the
benefits of this Treaty if nationals of a third country own or control the company
and
(a) the denying Party does not maintain normal economic relations with the third
country; or
(b) the company has no substantial business activities in the territory of the Party
under whose laws it is constituted or organized.
Annex 126
ARTICLE 13
1. No provision of this Treaty shall impose obligations with respect to tax matters,
except that:
(a) Articles 3, 9 and 10 will apply with respect to expropriation; and
(b) Article 9 will apply with respect to an investment agreement or an investment
authorization.
2. With respect to the application of Article 3, an investor that asserts that a tax
measure involves an expropriation may submit that dispute to arbitration
pursuant to Article 9, paragraph 3, provided that the investor concerned has first
referred to the competent tax authorities of both Parties the issue of whether that
tax measure involves an expropriation.
3. However, the investor cannot submit the dispute to arbitration if, within nine
months after the date of referral, the competent tax authorities of both Parties
determine that the tax measure does not involve an expropriation.
ARTICLE 14
1. This Treaty shall not preclude a Party from applying measures which it
considers necessary for the fulfillment of its obligations with respect to the
maintenance or restoration of international peace or security, or the protection of
its own essential security interests.
2. This Treaty shall not preclude a Party from prescribing special formalities in
connection with covered investments, such as a requirement that such
investments be legally constituted under the laws and regulations of that Party, or
a requirement that transfers of currency or other monetary instruments be
reported, provided that such formalities shall not impair the substance of any of
the rights set forth in this Treaty.
ARTICLE 15
1. (a) The obligations of this Treaty shall apply to the political subdivisions of the
Parties.
(b) With respect to the treatment accorded by a State, Territory or possession of
Annex 126
the United States of America, national treatment means treatment no less
favorable than the treatment accorded thereby, in like situations, to investments
of nationals of the United States of America resident in, and companies legally
constituted under the laws and regulations of, other States, Territories or
possessions of the United States of America.
2. A Party's obligations under this Treaty shall apply to a state enterprise in the
exercise of any regulatory, administrative or other governmental authority
delegated to it by that Party.
ARTICLE 16
1. This Treaty shall enter into force thirty days after the date of exchange of
instruments of ratification. It shall remain in force for a period of ten years and
shall continue in force unless terminated in accordance with paragraph 2. It shall
apply to covered investments existing at the time of entry into force as well as to
those established or acquired thereafter.
2. A Party may terminate this Treaty at the end of the initial ten year period or at
any time thereafter by giving one year's written notice to the other Party.
3. For ten years from the date of termination, all other Articles shall continue to
apply to covered investments established or acquired prior to the date of
termination, except insofar as those Articles extend to the establishment or
acquisition of covered
investments.
4. The Annex shall form an integral part of the Treaty.
5. All dates and periods mentioned in this Treaty shall be reckoned according to
the Gregorian calendar.
IN WITNESS WHEREOF, the respective plenipotentiaries have signed this
Treaty.
DONE at Washington, this twenty-ninth day of September, 1999, in duplicate in
the English and Arabic languages, each text being authentic; however, in the
case of divergence, the English text shall prevail.
FOR THE GOVERNMENT OF THE UNITED
STATES
OF AMERICA:
FOR THE
GOVERNMENT OF
THE STATE OF
BAHRAIN:
[signature] [signature]
Annex 126
APPENDICES:
ANNEX
1. The Government of the United States of America may adopt or maintain
exceptions to the obligation to accord national treatment to covered investments
in the sectors or with respect to the matters specified below:
atomic energy; customhouse brokers; licenses for broadcast, common carrier, or
aeronautical radio stations; COMSAT; subsidies or grants, including, but not
limited to, government-supported loans, guarantees and insurance; state and
local measures exempt from Article 1102 of the North American Free Trade
Agreement pursuant to
Article 1108 thereof; and landing of submarine cables.
Most favored nation treatment shall be accorded in the sectors and matters
indicated above.
2. The Government of the United States of America may adopt or maintain
exceptions to the obligation to accord national and most favored nation treatment
to covered investments in the sectors or with respect to the matters specified
below:
fisheries; air and maritime transport, and related activities; banking, insurance,
securities, and other financial services; and one-way satellite transmissions of
direct-to-home (DTH) and direct broadcast satellite (DBS) television services and
of digital audio services.
3. The Government of the State of Bahrain may adopt or maintain exceptions to
the obligation to accord national treatment to covered investments in the sectors
or with respect to the matters specified below:
ownership or control of television and radio broadcasting and other forms of
mass media; fisheries; initial privatization of exploration or drilling for crude oil.
Most favored nation treatment shall be accorded in the sectors and matters
indicated above.
Annex 126
4. The Government of the State of Bahrain may adopt or maintain exceptions to
the obligation to accord national and most favored nation treatment to covered
investments in the sectors or with respect to the matters specified below:
air transportation; purchase or ownership of land; and until 1 January 2005,
purchase or ownership of shares quoted on the Bahrain Stock Exchange.
5. Each Party agrees to accord national treatment to covered investments in the
following sectors:
leasing of minerals and pipeline rights-of-way on government lands.
Annex 126
Annex 127
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*1522384*
15-22384 (E)
This record contains the text of speeches delivered in English and of the translation of
speeches delivered in other languages. The final text will be printed in the Official Records
of the Security Council. Corrections should be submitted to the original languages only. They
should be incorporated in a copy of the record and sent under the signature of a member
of the delegation concerned to the Chief of the Verbatim Reporting Service, room U-0506
([email protected]). Corrected records will be reissued electronically on the Official
Document System of the United Nations (http://documents.un.org).
United Nations S/PV.7488
Security Council
Seventieth year
7488th meeting
Monday, 20 July 2015, 9 a.m.
New York
Provisional
President: Mr. McCully . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (New Zealand)
Members: Angola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Lucas
Chad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Cherif
Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Barros Melet
China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Liu Jieyi
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Delattre
Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mrs. Kawar
Lithuania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Ibrahim
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Laro
Russian Federation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Churkin
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Oyarzun Marchesi
United Kingdom of Great Britain and Northern Ireland . . Mr. Rycroft
United States of America . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Power
Venezuela (Bolivarian Republic of) . . . . . . . . . . . . . . . . . Mr. Ramírez Carreño
Agenda
Non-proliferation
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S/PV.7488 Non-proliferation 20/07/2015
The meeting was called to order at 9.05 a.m.
Adoption of the agenda
The agenda was adopted.
Non-proliferation
The President: In accordance with rule 37 of the
Council’s provisional rules of procedure, I invite the
representatives of Germany and the Islamic Republic of
Iran to participate in this meeting.
In accordance with rule 39 of the Council’s
provisional rules of procedure, I invite His Excellency
Mr. Thomas Mayr-Harting, Head of the Delegation of
the European Union to the United Nations, to participate
in this meeting.
The Security Council will now begin its
consideration of the item on its agenda. Members of the
Council have before them document S/2015/547, which
contains the text of a draft resolution prepared in the
course of the Council’s prior consultations.
The Council is ready to proceed to the vote on
the draft resolution before it. I would like to thank all
Council members for their sponsorship of the draft
resolution, which is now a presidential text. I shall put
the draft resolution to the vote now.
A vote was taken by show of hands.
In favour:
Angola, Chad, Chile, China, France, Jordan,
Lithuania, Malaysia, New Zealand, Nigeria,
Russian Federation, Spain, United Kingdom of
Great Britain and Northern Ireland, United States
of America and Venezuela (Bolivarian Republic of)
The President: The draft resolution received 15
votes in favour. The draft resolution has been adopted
unanimously as resolution 2231 (2015).
I now give the floor to those members of the Council
who wish to make statements after the vote.
Ms. Power (United States of America): Today we
have adopted resolution 2231 (2015), enshrining the
Joint Comprehensive Plan of Action agreed to six days
ago in Vienna.
By now, many are familiar with the basic tenets
of the deal, which, if implemented, would cut off all
pathways to fissile material for a nuclear weapon for
the Islamic Republic of Iran, while putting in place
a rigorous inspection and transparency regime for
verifying Iran’s compliance. The Plan of Action will
cut the number of Iran’s centrifuges by two thirds and
prevent Iran from producing weapons-grade plutonium.
Iran will also get rid of 98 per cent of its stockpile of
enriched uranium, going from a quantity that could
produce approximately 10 nuclear weapons to a fraction
of what is needed for a single nuclear weapon. The deal
will quadruple Iran’s break-out time — the time needed
to produce enough weapons-grade uranium for one
nuclear weapon — from the current estimate of two to
three months to one year. It will also require Iran and
all States to comply with legally binding restrictions
on nuclear and conventional arms-related and ballistic
missile-related activities.
Ninety days from today, when our respective
capitals and legislatures have had a chance to carefully
review the deal’s provisions, the commitments in the
Joint Comprehensive Plan of Action should take effect.
Sanctions relief will begin only when Iran verifiably
completes the initial steps necessary to bring its nuclear
programme in line with the deal. It is important today
to step back from the Plan of Action to its larger
lessons — lessons about enforcing global norms,
the essential role of diplomacy, the need for ongoing
vigilance and the absolute necessity of the unity of the
Security Council; lessons that have implications both
for ensuring implementation of the deal and for tackling
other crises that confront us today.
This year we mark 70 years since the founding
of the United Nations, which its second Secretary-
General, Dag Hammarskjöld, famously said “was not
created to bring us to heaven, but to save us from hell”.
In the wake of the devastating loss of life in the Second
World War and the immeasurable suffering it caused,
representatives of nations around the world came
together with an aim — to save succeeding generations
from the scourge of war.
The first lesson we can learn from how this deal
was secured is that it is not enough to agree to global
norms, such as that against the proliferation of nuclear
weapons. The Council and all the countries of the
United Nations must actually take steps to enforce
global norms. In 2006, in response to Iran’s efforts to
develop a nuclear-weapons programme, the Security
Council put in place on the of toughest sanctions
regimes in its history, which was complemented by
robust sanctions imposed by the United States, several
other countries and the European Union (EU). Faced
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with Iran’s ongoing non-compliance, the United
Nations tightened its sanctions in 2007, 2008 and 2010.
The sanctions regime played a critical role in helping to
lay the groundwork for the talks that would give rise to
the Joint Comprehensive Plan of Action.
The second lesson is one that was most eloquently
articulated more than 50 years ago by President John
F. Kennedy and echoed last week by President Obama:
“Let us never negotiate out of fear, but let us never fear
to negotiate”. Given the devastating human toll of war,
we have a responsibility to test diplomacy. In 2010,
when then-United States Ambassador to the United
Nations Susan Rice spoke in the Chamber after the
Council strengthened sanctions on Iran, she cited the
ways in which Iran had violated its commitments to the
International Atomic Energy Agency (IAEA) and its
obligations under prior Security Council resolutions.
Yet she also said:
“The United States reaffirms our commitment to
engage in robust, principled and creative diplomacy.
We will remain ready to continue diplomacy with
Iran and its leaders” (S/PV.6335, p.5).
And when a credible opening emerged for negotiations,
that is exactly what the United States and the other
members of the P-5+1 — the United Kingdom, France,
Germany, Russia and China — and the EU did.
There were many occasions over these past
two years of grueling negotiations when any party
could have walked away. The distances just seemed
too great, the history between us searing and the
resulting mistrust defining. But the United States
and our partners knew that we had a responsibility
to try to overcome these obstacles and resolve the
crisis peacefully. One only has to spend a week in the
Security Council — any week — and hear accounts of
the bloodshed and heartbreak in Yemen, Syria, South
Sudan, Darfur, Mali, Libya or any other conflict-ridden
part of the world to be reminded of the consequences
of war. Sometimes, as bother the Charter of the United
Nations and history make clear, the use of force is
required, but we all have a responsibility to work
aggressively in diplomatic channels to try to secure our
objectives peacefully.
This nuclear deal does not change our profound
concern about human rights violations committed
by the Iranian Government or about the instability
Iran fuels beyond its nuclear programmes — from
its support for terrorist proxies to its repeated threats
against Israel to its other destabilizing activities in the
region. That is why the United States will continue to
invest in the security of our allies in the region and why
we will maintain our own sanctions related to Iran’s
support for terrorism, its ballistic-missiles programme
and its human rights violations.
And this deal will in no way diminish the United
States outrage over the unjust detention of United
States citizens by the Government of Iran. Let me use
this occasion to call once again on Iran to immediately
release all unjustly detained Americans: Saeed Abedini,
imprisoned for his religious beliefs; Amir Hekmati,
falsely accused of espionage; and Jason Rezaian, a
Washington Post correspondent who just a year ago was
covering the nuclear negotiations. I also call on Iran
to help locate Robert Levinson, who has been missing
from Iran since 2007. No family should be forced to
endure the anguish that the Abedini, Hekmati, Rezaian
and Levinson families feel, and we will not rest until
they are home where they belong.
But denying Iran a nuclear weapon is important not
in spite of these other destabilizing actions, but rather
because of them. As President Obama has pointed out,
“that is precisely why we are taking this
step — because an Iran armed with a nuclear
weapon would be far more destabilizing and far
more dangerous to our friends and to the world”.
So while this deal does not address many of our
profound concerns, if implemented it would make the
world safer and more secure.
Yet while reaching this deal matters, our work is far
from finished. In the months and even years ahead, the
international community must apply the same rigour to
ensuring compliance with the Joint Comprehensive Plan
of Action as we did to drafting and negotiating it. This
is my third point — implementation is everything. And
that is precisely why so many verification measures
have been built into this deal. The Joint Comprehensive
Plan of Action will grant the IAEA access when it needs
it and where it needs it, including 24/7 containment
and surveillance of Iran’s declared nuclear facilities.
Inspectors will have access to the entire supply chain
that supports Iran’s peaceful nuclear programme, from
mining and milling to conversion, enrichment, fuel
manufacturing, nuclear reactors and spent fuel. If the
terms of the deal are not followed, all sanctions that have
been suspended can be snapped back into place, and if
the United States or any other participant in the Plan of
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Action believes that Iran is violating its commitments,
we can trigger a process in the Security Council that
will reinstate the United Nations sanctions.
The fourth and final lesson we can learn from the
process that led us here today is that when our nations
truly unite to confront global crises, our impact grows
exponentially. The founders of the United Nations
understood that concept intrinsically and enshrined it
in the Charter, which calls on each of us “to unite our
strength to maintain international peace and security”.
In the twenty-first century, it is now an axiom that
our nations can do more to advance peace, justice and
human dignity by working together than any single
country can achieve on its own, and that, indeed, only
when we act as united nations can we address the
world’s most intractable problems.
Although we do not see that unity enough here at
the United Nations, the countries of the United Nations
did largely unite behind the cause of preventing nuclear
proliferation in Iran, and it was the persistent multilateral
pressure that came out of this unity, combined with a
critical openness to seeking a diplomatic solution that
gave the P-5+1 and EU negotiators the leverage they
needed to get the deal that would advance our collective
security.
In conclusion, the only proper measure of this deal
and all of the tireless efforts that went into it will be its
implementation. This deal gives Iran an opportunity to
prove to the world that it intends to pursue a nuclear
programme solely for peaceful purposes. If Iran seizes
that opportunity; if it abides by the commitments that
it agreed to in this deal, as it did throughout the period
of the Joint Comprehensive Plan of Action negotiations;
if it builds upon the mutual respect and diligence that
its negotiators demonstrated in Lausanne and Vienna;
and if it demonstrates a willingness to respect the
international standards upon which our collective
security rests, then it will find the international
community and the United States willing to provide a
path out of isolation and towards greater engagement.
We hope that Iran’s Government will choose
that path, not only because it would make the United
States, its allies and the world more secure — which
it will — but also because it will more fully empower
the Iranian people, whose potential all of us should
wish to see unlocked. But let us just think for one
moment how much more effective the Council would
be if we were to bring the same approach to tackling
other threats to international peace and security today:
rigourous enforcement; a willingness to be relentless in
our pursuit of tough, principled diplomacy, even when
the odds seem stacked against us; a commitment not
just to resolutions but to their full implementation; and
a willingness to overcome divisions to strengthen our
collective security.
If we did all that, we can only imagine what we
might be able to achieve to mitigate the horrific
suffering in Syria today, and what progress the United
Nations could make were we to bring the same political
will to advancing the human rights of the world’s most
vulnerable people as we have to cutting off Iran’s
pathways to a nuclear weapon. How many more girls
worldwide would be in classrooms? How many more
warlords and dictators worldwide would be behind
bars? It is humbling to imagine how much more we
could achieve. It should motivate us to do far more.
Mr. Liu Jieyi (China) (spoke in Chinese): A few
minutes ago, the Security Council unanimously adopted
resolution 2231 (2015), on the Iranian nuclear issue,
endorsing the Joint Comprehensive Plan of Action
reached on that matter by the P-5+1 — China, France,
the Russian Federation, Germany, the United Kingdom
and the United States of America — in Vienna on on
14 July.
In spite of ups and downs, the efforts made with
regard to the Iran nuclear issue over more than the past
10 years have finally resulted in a political solution.
With the conclusion of the Joint Comprehensive Plan
of Action, the international nuclear non-proliferation
regime has been safeguarded. Iran has made a political
commitment not to develop nuclear weapons, while at
the same time it has been given the legitimate right to
the peaceful uses of nuclear energy. A new chapter has
also begun on Iran’s relationship with all sides.
The conclusion of the Joint Comprehensive Plan of
Action brings far-reaching inspiration to contemporary
international relations. First, the setting up of a new
type of international relationship centred on mutual
benefit and win-win outcomes has a strong vitality. The
Iranian nuclear issueconcerns the immediate — and
even core — interests of all sides. Without a multi-win
and all-win spirit, the Joint Comprehensive Plan of
Action would not have been achieved. Even if it had
been, it would not have lasted for long.
Secondly, it is essential to stay the course in
seeking political solutions to major issues. However
the difficult the process may be, a political solution
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is always the only practical and viable path. The
Joint Comprehensive Plan of Action also serves as a
successful example of how to address other regional
and international hot-spot issues through political and
diplomatic means.
Thirdly, it is possible to achieve success so long as
confidence is maintained, political will is demonstrated
and tireless efforts are made in the course of seeking
political solutions. The Council’s adoption of resolution
2231 (2015), which endorses the Joint Comprehensive
Plan of Action, is an important step in the process of
implementing the agreement. This is a good beginning.
Implementing the agreement over the next 10 years
will be even more important, during which it will be
essential to adhere to the following principles.
First, the Council’s resolution and the Joint
Comprehensive Plan of Action must be implemented in a
balanced, precise and comprehensive manner. All sides
should effectively fulfil the commitments they have
made and seriously and effectively implement all the
provisions of the agreement. Secondly, in accordance
with the principles of mutual respect, equality and
mutual benefit, it is essential to appropriately resolve the
differences that may arise during the implementation
process, demonstrate goodwill and stay the course for
the implementation of the Joint Comprehensive Plan
of Action. Thirdly, it is necessary to constantly take
stock of experiences and good practices during the
implementation process, maintain the effectiveness of
the relevant mechanism and make positive efforts to
maintain world peace, promote regional stability and
improve relations among all sides.
China has all along worked constructively for
fruitful negotiations on the Iranian nuclear issue. We
will continue to make new contributions to implement
the Joint Comprehensive Plan of Action in a responsible
manner.
Mr. Delattre (France) (spoke in French): France
welcomes the adoption of resolution 2231 (2015), which
marks a historic moment both for international peace
and security and for the Security Council. Following
12 years of a nuclear crisis, after many months of
intensive months of negotiation, an agreement with
Iran was finally reached in Vienna on 14 July. First,
the agreement charts a demanding path towards
establishing trust in the exclusively peaceful nature
of Iran’s nuclear programme. It also serves to confirm
the relevance and robustness of the non-proliferation
regime. The agreement will also make a contribution
to regional and international stability, as an Iran with
nuclear weapons would further destabilize a region
already experiencing many crises. Conversely, with
this agreement we will together be able to write a new
chapter in the history of the region. Above all, the
authority of the Council and of our collective security
system has been strengthened thanks to this agreement.
If the commitments are upheld, one of the most serious
crises of the past 20 years will have been settled
peaceably through dialogue and negotiation.
This agreement is first and foremost a triumph
of method. As the Council is aware, from the outset
of the crisis, in 2003, along with Germany and the
United Kingdom, France gave priority to dialogue
through what came to be known as a dual approach,
namely, negotiations and sanctions. We believed that,
without firmness and pressure from the international
community, calls for dialogue would have been in
vain. Our American, Russian and Chinese partners,
and eventually the rest of the Security Council, rallied
around that approach. In that way, we were able to
establish the framework for dialogue that, 12 years
later, made it possible to arrive at an outcome.
This agreement is also the result of firmness.
Throughout the negotiations, France did not waver
from its position of being in favour of civilian nuclear
programme for Iran but against a nuclear weapon.
Against that backdrop, France resolutely joined in
the search for a negotiated solution. That course of
constructive resolve made it possible to arrive at a robust
and binding agreement that is also precise, complete
and credible and whose full implementation will
serve to address the expectations of the international
community and the concerns of Iran’s neighbours.
It is now up to the Security Council to endorse
the Vienna agreement and act as guarantor of its
implementation. Although the time for negotiations has
come to an end, now is the time for action and vigilance.
The process that has been put in place includes clear
and exact limits on Iran’s nuclear programme, a robust
oversight and verification system and the possibility for
automatically reinstating sanctions in the event of Iran’s
violation of its commitments. It is Iran’s responsibility,
in line with the timetable that has been established, to
implement the entirety of the measures agreed. The
International Atomic Energy Agency will play a key
role with regard to oversight and verification, as well
as in informing the Council as to Iran’s adherence to
its commitments. Along with its partners, France will
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rigorously and in good faith monitor compliance with
this agreement. We will judge Iran’s by its actions in
making this agreement a success. The role and unity
of the Council will also be a determining factor. The
lifting of Security Council sanctions is preconditioned
on Iran’s respect for its commitments. The Council must
continue to exercise vigilance throughout the period
covered by the agreement. Over the next 15 years, it
must be prepared to reinstate sanctions in the event of
shortcomings on the part of Iran.
Together, with eyes wide open, we are embarking
today upon a new chapter. But the most important part
is yet to be written, and the coming weeks will be
decisive.
Mr. Churkin (Russian Federation) (spoke in
Russian): Today’s resolution 2231 (2015), adopted
unanimously in support of the Joint Comprehensive Plan
of Action, marks a fundamental shift in the Security
Council’s consideration of the situation regarding
the Iranian nuclear programme, with a view towards
resolving the matter once and for all. By creating a new
reality, we are not just turning a page but beginning a
new chapter in the work of the Council. We expect that
all countries will quickly adapt to the new conditions
and contribute to the successful implementation of the
agreement.
The Security Council, and the international
community it represents, has supported a clear choice
to resolve the situation regarding the Iranian nuclear
programme through political and diplomatic means
based on international law — first and foremost the
Treaty on the Non-Proliferation of Nuclear Weapons.
A choice has been made in favour of mutual respect,
stability and cooperation. We are pleased that that
decision has been based on a gradual and reciprocal
approach, which our country consistently supported
throughout all stages of the negotiations.
The Council has today confirmed the inalienable
right of Iran to develop a peaceful nuclear programme,
including to enrich uranium, while also ensuring
comprehensive oversight by the International Atomic
Energy Agency (IAEA). This resolution also guarantees
lifting the burden of sanctions on Iran in the framework
of the implementation of the Joint Comprehensive Plan
of Action though a clear and transparent mechanism
that will be made operational through concrete steps
based on confidence in Iran’s nuclear programme,
including IAEA verification.
A reliable filter has been created in the framework
of the Joint Comprehensive Plan of Action and resolution
2231 (2015) that will guarantee that all disputes and
disagreements that could arise in the implementation of
the Joint Comprehensive Plan of Action will be subject
to collective consideration in the framework of the
joint commission, with the participation of the P-5+1,
Iran and the European Union. Moreover, the Security
Council maintains a leading role on issues regarding
the implementation of the Plan of Action. During
negotiations we knew that the Plan of Action would be
subject to Security Council approval, and we therefore
gave special attention to ensuring the prerogatives of
this organ and respect for the role of all its members,
including non-permanent members, in taking decisions
that are essential to implementing the agreement. We
are grateful to the IAEA for its readiness to assume
responsibility for monitoring and verification of Iran’s
obligations.
We hope that the agreement with Iran will help
other countries of the Middle East and the Persian
Gulf to refrain from destabilizing moves, including in
the nuclear sphere, and to ensure that the region does
not enter a new arms race. We are creating conditions
conducive to the establishment in the Middle East of
a zone free of weapons of mass destruction and to the
search for common approaches among countries of the
Middle East to addressing regional security issues and
uniting their collective efforts in the fight against the
terrorist threat. In a statement following the conclusion
of the negotiations, the President of the Russian
Federation, Vladimir Putin, underscored that Russia
will do all it can to ensure that the Vienna agreements
become fully operational in order to promote the
strengthening of international and regional security,
the global regime of nuclear non-proliferation, and the
mobilization of a broad regional coalition to counteract
the terrorist threat.
We underscore that the work of all the negotiating
teams deserve the highest praise. We commend in
particular the Governments of Austria and Switzerland,
which ensured optimal conditions for guaranteeing the
success of the negotiations. We would also like to praise
the consideration of our friends from Kazakhstan, who
organized several rounds of negotiations.
Reaching an agreement to resolve the issues
surrounding the Iranian nuclear programme
demonstrates that where there exists a political will
based on realism and respect for legitimate mutual
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interests, the international community can resolve the
most complex tasks. All participants in the negotiations
demonstrated their readiness to engage in collective
efforts. A reserve of trust has been built up that will
be very useful in the course of implementing the
agreement. We hope that this invaluable experience
of collective efforts, unburdened by ideological
geopolitical calculations, will also be used to resolve
other crisis situations where, perhaps, success will be
secured exclusively through joint work. Russia is ready
for this.
Mr. Rycroft (United Kingdom): The United
Kingdom welcomes the adoption of resolution 2231
(2015). The resolution endorses the Joint Comprehensive
Plan of Action agreed in Vienna last week. It creates
the baseline from which to recalibrate our broader
relationship with Iran, and it is an opportunity for
us all to re-engage economically and culturally with
an important regional Power as it takes on its proper
responsibility for improving regional stability. Today’s
adoption is an important milestone in the history of the
Council, the culmination of negotiations that have taken
place over more than a decade. The Joint Comprehensive
Plan of Action is a landmark achievement, and I join
my colleagues in expressing my congratulations and
gratitude to everyone involved in that process.
In the Council, we often call for the peaceful
resolution of disputes. In some cases, progress is
slow and situations remain unresolved, but while
in the past we have met to call on Iran to respond to
our concerns, today we can be proud that Iran has
committed to taking actions to address those concerns.
I am delighted that the Council has endorsed the deal
unanimously. It is a good deal — good for the United
Kingdom and the international community, good for
the region, and good for Iran. If implemented fully,
the resolution will address our proliferation concerns
through comprehensive commitments on the part of
Iran to limit its nuclear programme — commitments
that will be verified through extensive monitoring and
transparency. As soon as Iran takes steps on its nuclear
programme, it will receive comprehensive economic
and financial sanctions relief, enabling it to trade
more freely again with the rest of the world. Under full
implementation of the deal, Iran will be treated just like
any other non-nuclear-weapon State party to the Treaty
on the Non-Proliferation of Nuclear Weapons.
We now need to look ahead and make sure that we
all deliver on our commitments as we implement the
agreement. That will not be easy. There will inevitably
be difficulties and unforeseen obstacles, but we must
live up to our commitments, act in good faith and try
wherever possible to resolve together any problems in
implementing the deal. The role of the Security Council
will be important. We will maintain oversight in the
implementation of the agreement. We also need to take
significant steps to support its implementation. In some
areas, that will involve novel working methods for the
Council. We will have to be flexible and imaginative,
and get this right.
The deal gives us the chance to change the
relationship between Iran and the Security Council,
and change for the better the dynamics in the region
and beyond. We can now start the work of rebuilding
a deficit of trust that has arisen over decades; we can
start to normalize our relationships, which hold great
promise for the future. We will also encourage Iran
to play a transparent and constructive role in regional
affairs, including in the current crises in Yemen and
Syria. Iran has an opportunity to make a positive
decision about its responsibilities in the region.
The world is now a safer place in the knowledge
that Iran cannot build a nuclear bomb. I encourage all
of us in the Council to show the same determination,
courage and vision in supporting this project and
pursuing our other top priorities, as the negotiators on
all sides have demonstrated in getting us the agreement
we have endorsed here today.
Mr. Oyarzun Marchesi (Spain) (spoke in
Spanish): Today we celebrate the triumph of diplomacy
following an arduous and complex negotiating process
between the E-3+3 and Iran. I join in congratulating
all participants on their efforts and commitments.
I congratulate Iran, the United States, Russia, China
and our partners in the European Union, and of course
the United Kingdom, France and Germany. They have
demonstrated us that nothing is impossible where there
is political will. They have also given us new impetus
in addressing new challenges to international peace
and security, as we do daily here in the Council. Such
challenges can sometimes seem insurmountable in the
absence of inspiration such as that provided in this case
today.
Plutarch, writing in Parallel Lives in the late
first century A.D., ascribes to Alexander the Great a
statement that we here today could also endorse, to
the effect that dealing with the Persians on the basis
of dialogue rather than confrontation serves our
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interests and benefits us and them. The benefits will
be undeniable — Iran can return to normality and the
world will be a safer place.
We are also seeing a demonstration of the Security
Council’s effectiveness. In adopting resolution 1737
(2006), on 23 December 2006, the Council showed its
determination to place limits on Iran’s development
of sensitive nuclear technologies that could serve to
support its nuclear and missile programmes. Today, the
Council followed through on that determination. The
Council’s approach to the Iranian issue has undoubtedly
been decisive in reaching the agreement and shows
how, when we act united and with determination, we
can make the Council the most valuable guardian
of international peace and security. Moreover, in a
symbiotic process, the more effective this body is, the
stronger it is and the more capable it is to address future
challenges.
Before us now are opportunities and challenges.
The opportunities we now have stem from a balanced
agreement that strengthens the non-proliferation system
and offers an outstanding opportunity that should not
be missed. We also have the responsibility to take
advantage of the synergies the agreement offers. To that
end, we must ensure that the process is brought to an
optimal conclusion. Among the opportunities presented,
we must highlight the beneficial effect that the process
could have on the region because it will bring about an
element of stability, as the representative of the United
Kingdom just said. We must take advantage of this as as
a valuable basis to work towards combating the threat
of terrorism and bringing about the end of the conflict
in the Middle East.
But there are also challenges, which is why we
must implement what has been agreed to in a timely and
effective manner. Today, the Foreign Affairs Council of
the European Union will meet to take a decision about
the Union’s role under the terms of the agreement. Now
that the hardest part has been achieved, we here in the
Council must continue to show unity and determination
in duly implementing the agreement and establish
follow-up and monitoring mechanisms that will replace
current ones. We must find the most effective way of
monitoring the restrictions that will remain in place for
a certain amount of time.
Accordingly, as Chair of the Security Council
Committee established pursuant to resolution 1737
(2006), I feel deeply involved in this process and I
can guarantee that I will make every effort to uphold
my role throughout the transition phase, being as
pragmatic as possible and assisting Member States
in the full implementation of the agreement in their
respective relationships with the current regime. As
I said on the day that the United States submitted the
draft resolution, the greatest source of happiness for me
would be to see the 1737 Committee simply disappear,
as that would mean we are fulfilling the message the
tapestry that floats above this Chamber delivers on a
daily basis: the 1737 Committee, like the phoenix, will
die only to light up a future of peace and security. As
we forge that future the Council can count on the full
support and commitment of Spain.
Mrs. Kawar (Jordan) (spoke in Arabic): Jordan
welcomes the agreement reached on the Iranian
nuclear issue, as well as the political and diplomatic
efforts made by China, France, Germany, the Russian
Federation, the United Kingdom, the United States and
the European Union to achieve it.
Jordan has always called for a peaceful diplomatic
solution to the Iranian nuclear issue. Therefore,
Jordan supports any steps taken to entrench regional
and international peace and security and stability,
particularly in the current conditions prevailing in the
Middle East. We hope that the agreement signed between
the P5+1 and Iran will promote further confidence
among the States of the region. We also hope that it will
have positive repercussions on all States of the region
and on the security and stability of their peoples. And
we hope that it will serve as a constructive step towards
preventing a new arms race in the Middle East region
and that it will rid the region of all weapons of mass
destruction, including nuclear weapons.
In conclusion, we stress the importance of the
role of the International Atomic Energy Agency in
following up and implementing the agreement and
providing the Security Council with regular reports
on Iran’s implementation in accordance with the Joint
Comprehensive Plan of Action.
Mr. Barros Melet (Chile) (spoke in Spanish): We
express our satisfaction at the adoption of resolution
2231 (2015), by which the Security Council endorses
the agreement reached between Iran and the E3/EU+3
on the Iranian nuclear programme. We voted in favour
of the resolution because we value the agreement, as it
contributes to resolving differences on the programme’s
scope and prospects and reaffirms the right of all States
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party to the Treaty on the Non-Proliferation of Nuclear
Weapons to benefit from the peaceful uses of nuclear
energy.
We hope that the significant verification elements
in the agreement will make it possible to build
confidence among the parties, preserve the integrity of
the multilateral non-proliferation regime and strengthen
the role of the International Atomic Energy Agency
(IAEA), thereby promoting greater cooperation to
safeguard peace and stability in the Middle East.
The agreement has served to reaffirm the
irreplaceable value of negotiation and diplomacy in
conducting international relations. The responsibility,
flexibility and creativity that all the parties
demonstrated show the will and commitment to peace
and cooperation, which are the guiding principles of
our Organization.
At this historic juncture, from our seat in the
Council and on the Board of Governors of the IAEA,
we will provide our full support to the effective and
smooth implementation of this agreement. We therefore
hope to contribute to building confidence and creating
better conditions for the maintenance of regional and
global security.
Mr. Ramírez Carreño (Bolivarian Republic of
Venezuela) (spoke in Spanish): The Bolivarian Republic
of Venezuela co-sponsored and voted in favour of
resolution 2231 (2015), which ratifies the agreements
reached between the P5+1, the European Union and
the Islamic Republic of Iran. We are convinced that
through this resolution the Security Council is giving
its firm backing to an important agreement that ushers
in a new era in relations among the various States.
Venezuela welcomes this important agreement and
congratulates all the delegations that participated in
the negotiations process that led to the signing of this
important document — on the courage, persistence,
political will and commitment they showed throughout
the 18 months of intense negotiations. The results
achieved reveal the importance of political and
diplomatic efforts to find a peaceful solution to the
impasse, in accordance with Article 2 of the Charter
of the United Nations. It also shows once again that,
where there is political commitment among the
parties, peace and dialogue impose themselves in the
face of warmongering speeches that fuel distrust and
confrontation.
This agreement is the triumph of diplomacy over
war. The full implementation of the Joint Comprehensive
Plan of Action will guarantee the Islamic Republic of
Iran the right to exercise its sovereign right to the use
of nuclear energy for peaceful purposes with a view to
promoting its technological and energy independence.
We are also convinced that this instrument will
contribute positively to the birth of a new phase of
diplomatic relations between Iran and the States party
to the agreement, based on mutual trust and respect and
a collective commitment with a view to strengthening
international peace and security.
We are pleased that the agreements reached will in
the end allow for the final lifting of the Security Council
sanctions regime as well as other unilateral coercive
measures unlawfully applied in other areas related to
Iran’s nuclear programme, which include measures
restricting access to economic, commercial, financial,
technological, energy goods and services, inter alia,
which has had a negative impact on the Iranian people
and other States in their cooperative relations with
Iran. We reaffirm our full support and implementation
of this historic effort with a view to achieving the
welfare and progress of the Iranian people. We hope
that the agreement reached will mark the beginning
of a far-reaching political process that paves the way
to progress towards a peaceful solution to the other
conflicts taking place in the Middle East — including
regarding the Palestinian issue, Syria, Iraq, Yemen and
extremist terrorism — that are threatening peace and
stability in the region.
In conclusion, we believe that the international
community must now support and demonstrate
the same political will with a view to achieving
a nuclear-weapon-free zone in the Middle East in
conformity with the package of measures agreed at
the Review Conference of the Parties to the Treaty on
the Non-Proliferation of Nuclear Weapons, which is
necessary and of major importance in achieving peace
and stability in that troubled region.
Mr. Ibrahim (Malaysia): I thank you, Mr. President,
for giving me the floor to explain Malaysia’s vote on
resolution 2231 (2015), which the Council just adopted
and which we co-sponsored and voted in favour of.
At the outset, Malaysia wishes to congratulate the
delegations responsible for reaching this historic
agreement, namely, China, France, Germany, the
Russian Federation, the United Kingdom, the United
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States, the European Union and, of course, the Islamic
Republic of Iran.
We place on record our appreciation to those
delegations for their commitment and for remaining
steadfast in upholding key principles of constructive
engagement, dialogue and diplomacy in good faith
throughout the difficult negotiations. The Joint
Comprehensive Plan of Action, endorsed by the Council
via resolution 2231 (2015), is a positive step that augurs
well for international efforts aimed at enhancing
nuclear security. We look forward to the immediate and
constructive implementation of the Plan of Action by
all the parties concerned.
The agreement reached on 14 July is a landmark
understanding that, in our view, reaffirms the
principle of the peaceful use of nuclear technology
and, at the same time, appears to strike a balance in
terms of concerns about proliferation as provided
for under the regime established under the Treaty on
the Non-Proliferation of Nuclear Weapons (NPT).
Malaysia remains convinced that the NPT regime
continues to occupy a role of central importance in
the efforts to halt the proliferation of nuclear weapons,
as well as forming an essential foundation for the
pursuit of general and complete nuclear disarmament.
Nuclear non-proliferation and nuclear disarmament
are two sides of the same coin. In that connection, we
reiterate the call upon all the nuclear-weapon States to
reinvigorate efforts to implement their obligations under
the disarmament pillar of the NPT regime, including by
taking steps to reduce their nuclear weapon stockpiles
and decrease the operational readiness of the nuclear
weapons systems, among others.
As a member of the Council and of the Security
Council Committee established pursuant to resolution
1737 (2006), Malaysia looks forward to working with
other Council members in the implementation of the
Joint Comprehensive Plan of Action with a view to
working towards the eventual lifting of all United
Nations sanctions against the Islamic Republic of Iran.
Malaysia hopes that the successful implementation of
the Joint Comprehensive Plan of Action will positively
contribute to peace and stability in the Middle East
region and beyond.
Mr. Laro (Nigeria): We would like to begin by
congratulating the parties — the Islamic Republic of
Iran, China, France, Germany, the Russian Federation,
the United Kingdom, the United States and the
European Union — on the historic agreement reached
last week on the Iranian nuclear programme. The
agreement is a victory for diplomacy. It proves that, no
matter how difficult a subject is, with commitment and
determination, negotiations can produce results.
Nigeria voted in favour of resolution 2231 (2015)
because we are convinced that it will aid in the
process of implementing the agreement. The Joint
Comprehensive Plan of Action clearly spells out the
obligations of the parties. We urge them to implement
the plan transparently and in good faith.
We takes this opportunity once more to reaffirm
our support for the peaceful uses of nuclear energy,
in accordance with article IV of the Treaty on the
Non-Proliferation of Nuclear Weapons.
Mr. Lucas (Angola): The Angolan delegation
is very honoured to take part in this meeting of the
Security Council and to have cast its vote on the
historic resolution 2231 (2015), which represents the
triumph of multilateralism, negotiation and the peaceful
settlement of disputes. The agreement that the Council
has just endorsed is clear evidence that, however
complex or difficult it might be, negotiated solutions
can be achieved for any political problem if the parties
show political will and a commitment to seek peaceful
solutions and to avoid recourse to military means.
The present agreement has an additional and
special virtue, since, for many years, diplomacy has
been defeated in all Middle East disputes. The United
States, China, France, Germany, the United Kingdom,
the Russian Federation, the European Union and the
Islamic Republic of Iran deserve all of our praise for
being able to reach such an outstanding achievement
by concluding the Joint Comprehensive Plan of
Action as a contribution to the building of confidence
in the exclusively peaceful nature of Iran’s nuclear
programme. We hope that implementation of the Plan
of Action will produce the best possible results, that
the national Parliaments of the signatory States will
give their endorsement to the agreement, that the
International Atomic Energy Agency will assume its
essential and independent role in verifying compliance
with the Safeguards Agreement and that the sanctions
imposed on Iran will be lifted in accordance with the
provisions of the Joint Comprehensive Plan of Action.
It was our expectation — or, if preferred, our
wishful thinking — that the very difficult and
thoughtful negotiating process would allow for the
highest possible degree of understanding of each
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other’s views and expectations, thus making possible
the building of mutual confidence and triggering a
game change, namely, an innovative factor that might
create a new dynamic for the whole region. However,
in the current environment in the Middle East, the
closing — or the opening — of the distracting Iranian
nuclear programme, after such a long and complex
negotiating process between the main world Powers,
the permanent members of the Security Council and an
influential regional Power, is a limited outcome. Now
we want more. The people of the region deserve more.
And the agreements so far reached should be followed
by other outstanding initiatives that address very
serious regional issues.
It is our view that the permanent members of
the Council should deploy further efforts by taking
advantage of the negotiating dynamics opened up by
the Iranian nuclear programme, so as to reach out to
regional Powers and countries of the region to address
and resolve proxy wars and serious crisis situations
affecting the region, namely, the fight against the
Islamic State in Iraq and the Levant, the Syrian war,
the conflict in Yemen, the Palestinian issue and the
establishment of a political framework to repair the
rift between Sunni and Shiite majority countries in the
Middle East.
In our view, beyond the non-proliferation and arms
control issues, the establishment of new dynamics in
the entire Middle East region would be the greatest
accomplishment and most valuable legacy of the process
to which we are giving a boost today by adopting this
landmark resolution.
(Lithuania): Lithuania welcomes
the unanimous adoption of resolution 2231 (2015), on
the Joint Comprehensive Plan of Action agreed by the
European Union (EU), the E3/EU+3 and the Islamic
Republic of Iran on 14 July. We strongly believe that
this deal, based on Iran’s implementation of essential
changes to its nuclear programme in return for a phased
lifting of sanctions, offers a real, durable and verifiable
path to resolve a dispute spanning over a decade. It also
marks a victory for multilateralism and international
diplomacy, as it proves that sustained pressure by the
international community, including through United
Nations sanctions and their full implementation by
Member States, can create conditions that bring parties
to the negotiating table and keep them engaged in good
faith and in the spirit of compromise.
Lithuania applauds the perseverance and
determination of all those involved in that
extraordinary diplomatic endeavour. In particular, we
acknowledge the instrumental coordinating role played
by both former and current European Union High
Representatives for Foreign Affairs and Security Policy.
Since the core objective of the deal is to ensure the
international community’s trust in a peaceful measure
of Iran’s nuclear programme, the full implementation of
comprehensive transparency and verification measures
will be indispensable in ensuring its success. Iran’s
agreement to implement the Additional Protocol to
its Comprehensive Safeguards Agreement as well as
further transparency measures foreseen in the Plan of
Action will provide the International Atomic Energy
Agency (IAEA) with powerful tools to implement
continuous monitoring and will grant the Agency
extensive access to Iran’s nuclear sites. We also
welcome the road map agreed on by the IAEA and Iran
on 14 July that provides a specific time frame to clarify
past and present outstanding issues by the end of this
year.
In addition to the rigorous verification measures,
Iran will remain under the legally binding Charterbased
obligations to comply with the arms embargo
and refrain from ballistic missile-related activities.
The travel ban and assets freeze will also remain in
place, while the Council will continue to be actively
engaged in monitoring the implementation of the
Plan of Action. Finally, all current sanctions will be
reinstated in the event of significant non-performance
by Iran with regard to its commitments under the Joint
Comprehensive Plan of Action.
In conclusion, Lithuania is convinced that,
if implemented fully and in good faith, the Joint
Comprehensive Plan of Action will become a crucial
element in building trust between Iran and the
international community, open the door to a steady
improvement of relations with Iran and positively
contribute to regional and international peace and
stability.
Mr. Cherif (Chad) (spoke in French): Chad would
like to join previous speakers in welcoming the signing
in Vienna on 14 July by the Islamic Republic of Iran,
the P5+1 countries and the European Union of the Joint
Comprehensive Plan of Action on the Iranian nuclear
programme. Chad takes note of the parties’ joint
statement aimed at promoting transparency and creating
an atmosphere conducive to the implementation of the
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Plan of Action. Chad encourages them to implement
their commitments fully and in good faith.
It is important to recall that the Plan of Action,
which the Security Council has just endorsed in
resolution 2231 (2015), is the outcome of a long process.
The text of the agreement is voluminous, with more
than 100 pages and five annexes. The complexity and
length of the negotiations clearly demonstrate that the
parties were open-minded and persevered to overcome
doubts and difficulties throughout the process. Chad
would like to congratulate all the leaders, politicians,
diplomats and experts from all parties for the courage,
determination, tact and wisdom that they demonstrated
in reaching a negotiated solution to the Iranian nuclear
programme. We share their satisfaction in having
managed to reach an agreement that had not, in past
negotiations, been reached for more than 12 years.
We support future efforts to implement the agreement
reached on 14 July. Chad is convinced of the virtues of
dialogue and peace, which is why we voted in favour
of the resolution just adopted. Its unanimous adoption
clearly symbolizes the triumph of diplomacy and
the noble principles enshrined in the Charter of the
United Nations that call for the peaceful resolution of
differences without the use of threats or force.
Within the framework of that approach, we pay
tribute to the leadership of the United States and its
leaders’ fresh approach that focuses on dialogue,
peace and stability around the world. In that regard,
we completely agree with what President Obama said
when receiving the Nobel Peace Prize, on 10 December
2009 in Oslo:
“sanctions without outreach — condemnation
without discussion — can carry forward only a
crippling status quo.
Chad expects that the International Atomic Energy
Agency (IAEA) will monitor respect for the agreements
on guarantees and the implementation of the cooperation
framework agreed with Iran on 11 November 2013, as
well as the road map for clarification of the past and
current outstanding issues. With that in mind, Chad
encourages the IAEA and Iran to cooperate fully to
ensure the comprehensive, successful implementation
of the Joint Comprehensive Plan of Action. We also
hope that the sanctions and measures implemented
pursuant to the relevant provisions of the various
Council resolutions adopted between 2006 and 2015
pertaining to Iran will be completely lifted after the
Security Council receives an IAEA report that confirms
the adoption by that country of the implementation of
all measures outlined in the Plan of Action.
We would like to reiterate that, like all the other
States parties to the Treaty on the Non-Proliferation of
Nuclear Weapons, Iran is entitled to develop, conduct
research and produce nuclear energy for civilian
purposes. We hope that the agreement signed on 14 July
will make it possible for Iran to join the community
of nations and ensure its contribution to the promotion
and strengthening of international cooperation. In a
world threatened by conflict, every contribution should
be welcomed in maintaining international peace and
security.
In conclusion, we should like to reiterate our
encouragement and support to all parties of the 14 July
Vienna agreement. We call on them to respect the
commitments undertaken and to continue to engage in
dialogue until the end of the implementation of the Plan
of Action. Chad, which signed and ratified the Treaty of
Pelindaba, which makes Africa a nuclear-weapon-free
zone, dreams of a world rid of these weapons of mass
destruction, wherein the use of nuclear science and
technological research are done solely for peaceful
purposes. Therefore, we would like to note the very
pertinent and, unfortunately, very imperialist slogan
“Nuclear energy for all, nuclear weapons for no one”.
The President: I shall now make a statement in
my capacity as the Minister for Foreign Affairs of New
Zealand.
Today, the permanent members of the Security
Council, the European Union, Germany and Iran
have presented us with an agreement that, if fully
implemented, will provide a comprehensive and longterm
solution to the Iran nuclear issue. The truly historic
agreement reached in Vienna represents a triumph
of diplomacy and cooperation over confrontation
and mistrust. New Zealand commends all parties for
staying the course throughout what were complex and
challenging negotiations.
It is now crucial to ensure that the agreement is fully
and swiftly implemented and that small missteps and
misunderstandings not be allowed to derail the process.
We urge all parties to approach that task with the same
constructive intent that has led to this agreement,
and we encourage Iran to act swiftly to implement
all transparency measures and allow the International
Atomic Energy Agency access to the relevant sites.
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Through the adoption today of resolution 2231
(2015), we give international legal force to the agreement
reached in Vienna and extend the obligations it contains
across the broader United Nations membership. New
Zealand endorses the comments of High Representative
Mogherini, who has said that this is a good deal for
everyone — for the parties who signed up to it and for
the rest of the international community. Sadly, there
are too few days when we can say that constructive
and patient diplomacy has succeeded in bridging the
differences and overcoming the mistrust that contain
the seeds of conflict. Today we mark an opportunity to
change the nature of the relationship between Iran and
the international community, and we remind ourselves
that with the right approach and with the commitment
of key stakeholders, even seemingly intractable issues
can be resolved through diplomacy and dialogue. As
the Council confronts the extraordinarily difficult
challenges related to the Middle East peace process,
Syria, Iraq, Yemen and Libya, that is a message we
should reflect on today.
I now resume my functions as President of the
Security Council.
I now give the floor to the representative of the
Islamic Republic of Iran.
Mr. Khoshroo (Islamic Republic of Iran): Today’s
adoption by the Council of resolution 2231 (2015)
marks a significant development and a fundamental
shift in the Council’s consideration of Iran’s peaceful
nuclear programme over the past 10 years. The Joint
Comprehensive Plan of Action is the result of an extensive
series of collective efforts that for close to two years
have sought to give diplomacy a chance and end resorts
to pressure, coercion and threats. That fundamentally
different approach, a departure from the path travelled
in previous years, has helped all of us to opt for the best
possible way out, put an end to an unnecessary crisis
and accomplish a major achievement for all the parties
involved and the international community as a whole.
Today’s resolution and the Plan of Action that it
endorses also provide for terminating the Security
Council resolutions that placed unjustifiable sanctions
on Iran for its efforts to exercise its rights. The sanctions
were grounded on nothing but baseless and pure
speculation and hearsay. Nobody has ever presented
any proof that Iran’s programme has been anything but
peaceful. The International Atomic Energy Agency,
which has put Iran’s facilities through a record number
of inspections, has consistently reported that Iran has
duly stood by every single one of its commitments.
For example, in terms of inspection frequency, only
Japan has been subject to greater scrutiny than Iran,
while Japan has far more extensive nuclear facilities.
Last year, Iran even surpassed Japan in the number of
inspections it was subjected to.
The Security Council’s involvement was thus not
based on a suspicious nuclear weapon programme; it was
driven by the objective stated in resolution 1696 (2006),
of compelling Iran to suspend its lawful enrichment
programme. That demand was not only unnecessary
and uncalled for, but also ran counter to the unanimous
conclusions of the 2000 and 2010 Review Conferences
of the Parties to the Treaty on the Non-Proliferation of
Nuclear Weapons, which stipulated that Member States’
choices with regard to their fuel-cycle activities must be
respected. It also ignored the repeated demands of the
majority of the international community represented in
the Non-Aligned Movement.
The sanctions imposed on Iran by resolution
1737 (2006) through resolution 1929 (2010) were all
punishments for the Iranian people’s refusal to accept
that demand. In engaging with the E3+3, the Iranian
people have had the foresight to move forward without
losing sight of the past. While we therefore hope that
the Security Council will open a new chapter in its
relations with us, we cannot accept or forget its previous
treatment of Iran, starting with its inaction in the face
of Saddam’s aggression and use of chemical weapons
and continuing through its more recent approach to
Iran’s peaceful nuclear programme.
The solution we have arrived at is undoubtedly in the
interests of strengthening the nuclear non-proliferation
regime in its entirety, since it includes and recognizes
Iran’s right to develop nuclear energy for peaceful
purposes, including conducting uranium enrichment
activities and research and development on its territory.
The rights and obligations of States parties to the
Treaty on the Non-Proliferation of Nuclear Weapons
(NPT), as under any other international regime, must
go hand in hand. Obligations can be honoured and such
regimes, including that of the NPT, can be sustained
only if those rights are also achievable. No threats of
sanctions or war can sustain the NPT in the long run if
the great Powers fail to honour all three of its pillars,
including total nuclear disarmament and the right of all
to use nuclear energy, and if non-parties are rewarded
for their intransigence.
Annex 129
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Looking to the future, my Government hopes that
the Joint Comprehensive Plan of Action and resolution
2231 (2015) herald a new chapter in the relationship
between Iran, the Council and the Plan of Action’s
participants. Iran is both able and willing to comply
fully with its commitments under the Plan of Action,
because it is already committed to the fatwa of its
Supreme Leader, who has declared all weapons of mass
destruction, particularly nuclear weapons, to be haram,
or forbidden, which is also a principle of Iran’s defence
doctrine. We hope that our partners and the Council
will do the same with regard to their commitments
under the same documents.
The desire that the Council has expressed for
building a new relationship with Iran, its encouragement
of all Member States to cooperate with Iran within
the framework of the Plan of Action in the area of the
peaceful uses of nuclear energy and related projects,
and its emphasis on the fact that the Plan of Action
can help to promote and facilitate the development of
normal economic and trade contacts and cooperation
with Iran are all positive and encouraging signs.
While this deal focuses on the nuclear issue, Iran
expects it to have broader positive implications for our
region and the entire international community that
include the following. First, the deal, sealed on the basis
of mutual respect and understanding, is an important
victory for diplomacy over the pressure and coercion
exerted on Iran, which have produced no results over
the past 37 years. It reinforces our faith in diplomacy
as the most rational way to resolve differences in our
interconnected world, and it shows that diplomacy can
work and prevail over war and tension. It therefore
sends a clear message to those who still believe they
can achieve anything through force and coercion.
Secondly, the Joint Comprehensive Plan of Action
has the potential to help trigger major developments
in the region aimed at achieving greater cooperation
and coordination in addressing the real issues at hand.
We therefore earnestly hope that it helps turn a page
in our region that can enable countries to close ranks,
fight resolutely against violent extremism and move
towards greater cooperation in addressing the grave
threats facing the region and the world. While every
country in the region has a very high stake in defeating
terrorism, violent extremism and sectarianism, the Plan
of Action’s participants are facing similar challenges
to their security from such phenomena. With the dust
settled over the nuclear issue, we are now free to
focus on real issues and to benefit from an improved
environment conducive to wider cooperation among all
actors.
Thirdly, in the wake of this major development in
the region, we renew our confirmation to our neighbours
and friends in the Persian Gulf and the wider region that
Iran is ready to engage in good faith with all of them
based on mutual respect, good-neighbourliness and
brotherhood. We have many common challenges in our
region to address and many common opportunities to
benefit from. This is the time to start working together
against our most common and important challenges,
which include above all violent extremism.
Fourthly, the Israeli regime, following its general
policy to stoke tension in the region, has done all in its
power to sabotage and defeat any effort to resolve the
standoff over Iran’s nuclear energy programme. In so
doing, it has proved once more that it does not see peace
in our region to be in its interest and considers peace to
be an existential threat to itself. The Iranophobia that it
tries to spread in the region and beyond also serves that
nefarious purpose. We therefore alert our friends and
neighbours not to fall into Israel’s trap.
In this context, it is also not surprising that the Israeli
regime is the only obstacle in the way of establishing
a nuclear-weapon-free zone in the Middle East, the
concept for which my country initiated more than 40
years ago and has promoted ever since. We believe that
the nuclear warheads stockpiled by the Israeli regime
constitute a grave threat to peace and security in our
unstable region, and that the Security Council should
live up to its primary responsibility under the Charter
of the United Nations and take the action necessary to
neutralize this threat.
To conclude, let me recall that Iran, a nation
with a rich culture and civilization, has withstood
enormous millennial storms while being steadfast in
preserving its independence and identity. These have
not been acquired by oppressing others or reneging on
commitments. The steadfastness that our delegation
showed during the negotiations was based on the fact
that we only accept commitments that we can abide
by. As Iran is resolute in fulfilling its obligations, we
expect that our counterparts shall also remain faithful
to theirs. Only by honouring commitments, displaying
good faith and adopting the right approach can we
ensure that diplomacy will prevail over conflict and war
in a world that is replete with violence, suffering and
oppression. In this context, the Joint Comprehensive
Annex 129
15-22384 15/16
20/07/2015 Non-proliferation S/PV.7488
Plan of Action provides a solid foundation for further
and more effective diplomatic interaction.
Let me thank those Ambassadors who supported
the Joint Comprehensive Plan of Action and those
countries that helped this deal to happen. I also wish
to briefly react to some baseless accusations leveled
by some speakers in today’s meeting. It is ironic
that the Ambassador of the United States accused
my Government of destabilizing the region and of
terrorism. The country that invaded two countries
of our region and created grounds favourable to the
growth of terrorism and extremism is not well placed to
raise such accusations against mine. The feckless and
reckless actions of the United States in our region over
many years are at the root of many challenges that we
are now facing in our neighbourhood. Iran is a stable
country in an unstable region. As we want our stability
to endure, we promote stability in the region and help
our neighbours to stabilize and cooperate towards that
end.
In conclusion, let me also inform you, Mr. President,
that my delegation, upon instruction from my
Government, is forwarding the statement of the Islamic
Republic of Iran following the action taken today by the
Security Council, to be circulated as a document of the
Security Council.
The President: I now give the floor to Mr. Mayr-
Harting.
Mr. Mayr-Harting: The High Representative
of the European Union (EU) for Foreign Affairs and
Security Policy, Ms. Federica Mogherini, has asked
me to convey the following message to the Security
Council:
“The agreement reached in Vienna on 14 July
2015 between Iran and China, France, Germany,
Russia, the United Kingdom and the United
States of America, with the support of the High
Representative of the Union for Foreign and
Security Policy, on a Joint Comprehensive Plan of
Action is historic in nature.
“The agreement, once implemented, marks a
conclusion to the long-running diplomatic efforts
to reach a comprehensive, long-lasting and peaceful
solution to the Iranian nuclear issue that will
provide the necessary assurances on the exclusively
peaceful nature of Iran’s nuclear programme, on the
one hand, and the lifting of sanctions, on the other.
As such, it represents a significant achievement
and a tribute to the merits of patient diplomacy on
all sides.
“It is appropriate that the deal was struck in
Vienna, where all this began 12 years ago, when
the International Atomic Energy Agency started
to look into possible undeclared Iranian nuclear
activities. Since then, there have been many months
and years of at times difficult negotiations. A key
milestone in that process was the interim Geneva
agreement of 2013, the smooth implementation of
which provided the time and space necessary for
the complex negotiation process that followed. This
resulted in the Lausanne agreement in April 2015,
which set the parameters for the final deal.
“The E-3/EU+3 format was especially
effective. We feel that the European Union, in
particular through the High Representative, was
able to play a crucial facilitation role. Throughout
the whole process, the EU was the facilitator,
moderator and, in the final stages, penholder for
the Joint Comprehensive Plan of Action text and
its annexes. It is hard to imagine another actor that
could have done this. A key element of success was
maintaining the unity of the group and focus on
a shared goal. It is to the credit of all those who
participated that we stayed committed to reaching
a mutually beneficial deal. The fact that the selfimposed
deadline was overrun several times bears
witness to the shared view that a quality agreement
was vastly superior to a quick one.
“The agreement is good, durable and verifiable.
Iran has agreed to make changes to its nuclear
programme. The International Atomic Energy
Agency will have the access it needs to determine
when Iran has completed those actions and to
detect any future violation of the agreement. Iran
will receive phased sanctions-lifting in return. The
Plan of Action annexes set out in detail what is
required by all sides, providing clarity to facilitate
the implementation of the agreement. Together
with the conclusion to be made by the International
Atomic Energy Agency in that regard, the full
implementation by Iran of its commitments under
the Plan of Action will contribute to building
confidence in the exclusively peaceful nature of the
Iranian nuclear programme.
“It will be necessary for all sides to work now
towards implementing the Joint Comprehensive
Plan of Action. The resolution adopted today
Annex 129
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S/PV.7488 Non-proliferation 20/07/2015
by the Security Council is a key element in this
process. As agreed in Vienna, the European Union
will endorse the resolution in conclusions of the
Foreign Affairs Council, which is in session as we
speak. The European Union will also endorse the
Joint Comprehensive Plan of Action and commits
to abiding by its terms and to follow the agreed
implementation plan.”
In effect, European Union actions and commitments
under the Joint Comprehensive Plan of Action related to
the lifting sanctions will be carried out in accordance
with the timeline and modalities specified in the
Plan. As stipulated in the Plan, the termination of the
implementation of economic and financial sanctions
would come into effect once the International Atomic
Energy Agency has verified that Iran has implemented
all of its nuclear-related commitments. For the time
being, the provisions of the Joint Plan of Action agreed
in Geneva in 2013 have been extended for a further
six months, to cover the period until the International
Atomic Energy Agency has verified that Iran has
carried out its commitments.
The High Representative of the Union for Foreign
Affairs and Security Policy will continue her supporting
and coordinating role during the entire implementation
phase of the Plan of Action. The High Representative
hopes and expects that this positive development will
open the door to a steady improvement in relations
between the European Union, its member States
and Iran, as well as improved Iranian regional and
international relations, and that it will constitute the
basis of a more stable and secure region in the longer
term. It is essential that this opportunity be seized by
all.
The President: I now give the floor to the
representative of Germany.
Mr. Braun (Germany): The Joint Comprehensive
Plan of Action, reached in Vienna and endorsed today
by the Security Council in resolution 2231 (2015), is an
important, and possibly historic, step towards ending
the decade-long conflict concerning Iran’s nuclear
programme. As such, it has the potential to ease
concerns regarding peace and security in the region and
beyond. Allow me briefly to address its significance
from three different angles.
First, Germany firmly believes that the agreement
does in fact reduce the risk of a nuclear arms race.
After long and demanding negotiations, the E3+3 and
the European Union has achieved a credible framework
that will prevent Iran from acquiring nuclear weapons.
Iran has committed itself to comprehensive technical
restrictions and an unprecedented transparency regime
that will allow us to rule out any covert nuclear
activities.
The agreement is not merely built on trust or
goodwill; we have established a unique and longterm
set of confidence-building measures. Everything
we agreed on will be strictly monitored. A powerful
snap-back mechanism for sanctions will serve as an
additional incentive for Iran to abide by its obligations.
It will now be crucial to effectively implement the
agreement. The International Atomic Energy Agency
will have an important role in that regard. In exchange
for the nuclear restrictions, Iran will profit from early
and comprehensive sanctions relief. The resolution
adopted today is a decisive step in the right direction.
Secondly, the agreement also offers ample political
opportunities for Iran. It reflects a fundamental choice
by the Iranian Government. It is an expression of intent
to be a constructive part of the international community.
It is up to Iran to deliver on that commitment. We
express our hope that, in fulfilling the agreement, Iran
will seize this potential to bring about improvements in
other fields as well, from civil liberties to human rights
and the accommodation of regional security concerns.
Finally, we hope that the agreement reached in
Vienna will also have a positive effect on the relations
between Iran, the European Union and its member
States — and that it will improve Iran’s regional and
international relations. We also hope that it will open
the door to a more constructive Iranian foreign policy
and, ultimately, contribute to a more secure and stable
region.
The agreement reached in Vienna on 14 July has
proved that complex and long-standing conflicts can
be peacefully resolved if there is enough political will
and courage. It is a victory for diplomacy and for the
principles of the United Nations.
The President: There are no more names inscribed
on the list of speakers.
The meeting rose at 10.35 a.m.
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Annex 130
8/6/2019 Iranian-Backed Militias Set Sights on U.S. Forces – Foreign Policy
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W
REPORT
Iranian-Backed Militias Set Sights
on U.S. Forces
Airstrikes against Syria may galvanize support against the United States.
BY BORZOU DARAGAHI | APRIL 16, 2018, 1:52 PM
ith the Islamic State in retreat and anti-regime rebels losing ground, Iranianbacked
armed groups in Syria are turning the focus of their militancy to U.S.
troops on the ground.
Western military officials and independent analysts have long said it was only a matter
of time before U.S. forces on the ground in Syria were targeted by militias. Now, this
weekend’s U.S.-led airstrikes on alleged chemical weapons installations could hasten
such attacks.
The militias have “always had this anti-American tone, but when you have one threat
after another, you see they’re trying to send a specific message,” says Phillip Smyth, a
scholar at the Washington Institute for Near East Policy who has been tracking Iranianbacked
militias in Syria.
This month, the Baqir Brigade, one of a number of Iranian-backed militias operating in
Syria, announced on its Facebook page that it would begin attacks on U.S. military
personnel.
“We in the Baqir Brigade leadership announce the good news of the launch of military
and jihadi operations against the U.S. occupier and all those affiliated with it in Syria,”
the militia said in an April 6 statement that was carried by multiple media outlets the
following day. (Facebook appears to have shut down the page shortly afterward.)
In a report published last week, Smyth chronicled increasing militia hostility toward
U.S. forces in northern Syria that goes beyond the normal invective. He noted that the
Baqir Brigade declaration went beyond a statement to a call for jihad, or religiously
sanctioned holy war. “The group itself cannot declare jihad — it has to come from their
Iranian higher-ups,” he says.
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The Baqir Brigade declaration was a “huge thing,” says Nawar Oliver, a military analyst
at the Omran Center for Strategic Studies, a think tank in Istanbul. “The announcement
is not a joke. Eventually we might see action.”
The limited airstrikes overnight Friday damaged sites where, Western officials said,
chemical weapons were allegedly produced or distributed and then used against
civilians in rebel territories, including in the city of Douma on April 7. But the airstrikes
also appear to have galvanized Syrian President Bashar al-Assad’s supporters, who
flooded streets in pro-regime demonstrations.
“What happened on Saturday morning will complicate the political solution,” Lebanese
Hezbollah leader Hassan Nasrallah said in a speech Sunday. “It will inflame
international relations … and it will delay Geneva talks if not destroy them.”
Armed groups in Syria with direct or suspected connections to Tehran have become
increasingly vocal about their intention to target U.S. forces in Syria, mostly grouped in
the country’s north and northeast. Newly emboldened pro-Iranian militias across the
region have already shifted their focus from battling the Islamic State toward
Washington and its allies.
“After the fight against the Islamic State, now what they say is, ‘We’re No. 1 against
America, and everything else is No. 2,’” says Renad Mansour, an Iraqi-based researcher
for Chatham House who has spoken with leaders and members of pro-Iranian militias.
“In rhetorical terms, they’re making it clear Americans are their enemies. If a conflict
heats up between the U.S. and Iran, these guys are the agents on the ground.”
Just hours after the U.S. attack on alleged Syrian chemical sites, hundreds of Iranianbacked
militia fighters reportedly surrounded a U.S. air base to the west of Baghdad,
defying the orders of commanders in the city, according to the Lebanese newspaper Ad-
Diyar. U.S. military officials declined to confirm or deny the incident but cautioned that
all Iraqi forces, including militias, must obey the central government. “Coalition forces
maintain the right to defend themselves and our Iraqi partners against any threat,” U.S.
Army Col. Ryan Dillon said in response to an emailed question about the report.
After the U.S. invasion of Iraq in 2003, Shiite-led militias organized by Iran’s Islamic
Revolutionary Guard Corps targeted American forces, using armor-piercing roadside
bombs to attack U.S. patrols and firing mortars and missiles into bases. In Syria, U.S.
forces confined to far-flung bases with threadbare desert supply lines may be in a
particularly vulnerable position.
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Annex 132
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The U.S. military presence in northern Syria numbers around 2,000 Army, Marine, and
special operations forces, alongside smaller numbers of U.K. and French personnel. In
addition, at least 5,500 Defense Department contractors, half of them U.S. citizens, are
spread throughout Syria and Iraq, according to a report issued by U.S. Central
Command this month.
An American and a British soldier were reportedly killed in Syria on March 30, when a
roadside bomb struck their vehicle.
“The more the conflict winds down and the insurgency against the Assad regime fades
away, the more incentivized Iran and its proxies become to provoke a military
confrontation with the US,” says Ranj Alaaldin, a scholar the Brookings Doha Center.
“The U.S. can overwhelm them and inflict heavy damages from the air, but the 2,000
U.S. troops stationed in the east are no match for the tens of thousands of proxies Iran
has at its disposal.”
The most vociferously anti-American militias tend to be focused on the eastern
provinces, where they have been recruiting among pro-Assad Sunni tribes, as well as
from Syria’s tiny Shiite minority. Syrian forces under the Assad regime’s direct
command appear careful to avoid conflicts with the Americans, but Iranian-backed
militias have repeatedly tangled with U.S. forces in the country.
One pro-regime militia, Popular Resistance in the Eastern Region, distributed a
video this month claiming to show a mortar attack on a U.S. base in the Syrian town of
Ain Issa, north of Raqqa. The group has announced that it will attack both U.S. forces
and allied Kurdish militias working with them.
In recent days, Iran’s leadership has also signaled that it’s time to hasten America’s
departure from Syria.
Just hours before the United States launched its airstrikes, Ali Akbar Velayati, Supreme
Leader Ali Khamenei’s advisor on international affairs, appeared on state television
during a visit to Syria. “The Americans are too weak to remain in the east of the
Euphrates,” he said.
After the Syrian regime’s victory over rebels in Eastern Ghouta, where the most recent
alleged chemical attack took place, Velayati said the Americans will ultimately be
forced to leave.
“There is no possibility for them to stay. That is why they consider air attacks,” Velayati
said. “But I must say that the trajectory of war is determined on the ground, not in the
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VIEW
COMMENTS
skies.”
Borzou Daragahi is an Istanbul-based journalist who has covered the Middle East for more than 16 years. Twitter: @borzou
TAGS: IRAN, IRAQ, ISIS, MIDDLE EAST, MILITARY, REPORT, SYRIA, UNITED STATES
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Annex 132
With the July arrest of an Iranian diplomat in Germany
for his role in an alleged plot to bomb a rally of Iranian
dissidents in Paris, U.S. officials have warned allies to be
vigilant of Iranian terrorist plotting elsewhere. Indeed,
there is ample precedent for such concern. For decades,
Tehran has been dispatching operatives to Europe to carry
out assassinations and other acts of terrorism.
Though it had all the makings of an espionage thriller,
the event was anything but fiction. An Iranian diplomat
accredited to Tehran’s embassy in Vienna, Austria,
is arrested in Germany and charged with conspiracy
to commit murder and activity as a foreign agent. Authorities
suspect the diplomat, Assadollah Assadi, hired an Iranian
couple living in Belgium to carry out a bomb plot targeting a rally of
about 4,0001 Iranian dissidents at the Villepinte Congress Center2
near Paris and provided them with 500 grams of TATP explosives at
a meeting in Luxembourg in late June 2018.3 The target was the annual
meeting of the Paris-based National Council of Resistance of
Iran (NCRI), which is the umbrella political organization including
the Mujahedeen-Khalq, or MEK, a group once listed as a terrorist
group by the United States and European Union. Among the VIPs
attending the event on June 30 were former New York City mayor
and Trump lawyer Rudolph Giuliani and former House Speaker
Newt Gingrich, among others.4 When that same day the couple was
stopped in a leafy suburb of Brussels, Belgium, authorities say they
found powerful explosives and a detonation device in their car and
they were arrested “just in time.”5 Three people were subsequently
arrested in France, and the operation to arrest Assadi and three
others at a highway rest stop was taken so seriously by German
authorities that they shut down the highway for the period of time
it took to make the arrest.6
According to German prosecutors, Assadi was no run-of-themill
diplomat but rather an Iranian intelligence officer operating
under diplomatic cover. In a statement, prosecutors tied Assadi to
Iran’s Ministry of Intelligence and Security (MOIS), whose tasks
“primarily include the intensive observation and combatting of opposition
groups inside and outside Iran.”7
U.S. officials are pointing to this latest case as they seek to mobilize
allies to counter Iran’s support for terrorism around the world.
Speaking on background with members of the press en route to
Belgium from Saudi Arabia, one senior State Department official
made Washington’s concerns very clear:
“The most recent example is the plot that the Belgians foiled,
and we had an Iranian diplomat out of the Austrian embassy
as part of the plot to bomb a meeting of Iranian opposition
leaders in Paris. And the United States is urging all nations to
carefully examine diplomats in Iranian embassies to ensure
their countries’ own security. If Iran can plot bomb attacks
in Paris, they can plot attacks anywhere in the world, and we
urge all nations to be vigilant about Iran using embassies as
diplomatic cover to plot terrorist attacks.”8
In fact, this is just the latest example of how active Iranian intelligence
operatives have been in Europe as of late. In June 2018,
an investigation by Dutch intelligence led to the expulsion of two
Iranian diplomats based at the Iranian embassy in Amsterdam
from the Netherlands.9 This followed the assassination several
months earlier of an Iranian Arab activist who was gunned down
in the Dutch capital.10 In March 2018, Albanian authorities arrested
two Iranian operatives on terrorism charges after being caught
allegedly surveilling a location where Iranian New Year (Nowruz)
celebrations were about to begin.11 In January 2018, after weeks
of surveillance, German authorities raided several homes tied to
Iranian operatives who reportedly were collecting information on
possible Israeli and Jewish targets in Germany, including the Israeli
embassy and a Jewish kindergarten. Arrest warrants were issued for
10 Iranian agents, but none were apprehended.12 And just a month
before that, the German government issued an official protest to the
Iranian ambassador following the conviction of an Iranian agent for
spying in Germany. In that case, the agent scouted targets in 2016,
including the head of the German-Israeli Association.13
In other cases, Iranian diplomats involved in terrorism or surveillance
of possible targets for attack were quietly arrested and deported.
In April 2013, for example, two Iranian intelligence officers
posted to Bosnia and Herzegovina as diplomats were expelled from
the country after being involved in espionage and “connections to
terrorism,” according to information prepared by the National
Counterterrorism Center. And in 2012, four IRGC-Qods Force operatives
were found trying to attack Israeli targets in Turkey, and
another was arrested in Sofia, Bulgaria, where he was conducting
surveillance of a local synagogue.14 According to a 1987 U.S.
intelligence community assessment, several organizations within
the Iranian government are involved in terrorism. That appears
to remain the case today. The 1987 intelligence report offers some
specific examples:
“Department 210 of the Foreign Ministry serves as a primary
Iran’s Deadly Diplomats
By Matthew Levitt
10 CTC SENTINEL AUGUST 2018
Dr. Matthew Levitt is the Fromer-Wexler fellow and director of
the Reinhard program on counterterrorism and intelligence at
The Washington Institute for Near East Policy. He is the author
of Hezbollah: The Global Footprint of Lebanon’s Party of God
(Georgetown University Press, 2013).
Editor’s note: This article includes material from Hezbollah: The
Global Footprint of Lebanon’s Party of God by Matthew Levitt,
published by Georgetown University Press, 2013. Reprinted with
permission.
Annex 133
AUGUST 2018 CTC SENTINEL 11
operations center for coordination with Iranian intelligence
officers abroad, and is often used to instruct intelligence officers
about terrorist operations. The Revolutionary Guard,
which is the principal agent of Iranian terrorism in Lebanon,
uses its own resources, as well as diplomatic and intelligence
organizations, to support, sponsor, and conduct terrorist actions.”
15
The Assadi arrest is, therefore, just the most recent alleged example
of Iranian state-sponsored terrorism in which Tehran uses
visiting government officials or accredited diplomats to plot terrorist
attacks. Iranian diplomats were deeply involved in the 1992 and
1994 bombings of the Israeli embassy and AMIA Jewish community
center, respectively, in Buenos Aires.16 But they have a long track
record of just this kind of activity across Europe as well.
Looking Back at Iran’s Dissident Hit List
Immediately following the founding of the Islamic Republic, the
Iranian leadership embarked on an assassination campaign targeting
individuals deemed to be working against the regime’s interests.
Between 1979 and 1994, the CIA reported that Iran “murdered Iranian
defectors and dissidents in West Germany, the United Kingdom,
Switzerland, and Turkey.”17 Overall, more than 60 individuals
were targeted in assassination attempts.18 In many cases, Hezbollah
members functioned as the logistics experts or gunmen in these
plots.
The first successful assassination of an Iranian dissident in
Western Europe occurred in 1984. On February 7 that year, General
Gholam Ali Oveissi and his brother were fatally shot on a Paris
street by what French police described as “professional assassins.”
Police claimed there were “two or three men involved and that one
or two of them had fired a 9-millimeter pistol at the victims who
were walking on Rue de Passy.”19 Oveissi, the former military governor
of Tehran under the shah who was known as the Butcher
of Tehran, distinguished himself by responding to protests with
tanks. Just before his death, Oveissi claimed that he had assembled
a small counterrevolutionary army to retake Iran. Hezbollah’s IJO
and another group, the Revolutionary Organization for Liberation
and Reform, claimed responsibility for the killings. The day after
the attack, the Iranian government described the event as a “revolutionary
execution.”20
Oveissi’s assassination ushered in a period of great danger for
Iranian dissidents in Europe. On July 19, 1987, for example, Amir
Parvis, a former Iranian cabinet member and the British chairman
of the National Movement of the Iranian Resistance, suffered a
broken leg, cuts, and burns when a car bomb exploded as he drove
past the Royal Kensington Hotel in London. Several months later,
on October 3, 1987, Ali Tavakoli and his son Nader, both Iranian
monarchist exiles, were found shot in the head in their London
apartment.21 Both attacks were claimed by a previously unknown
group, the Guardians of the Islamic Revolution, which according
to a March 3, 1989, report by the Times of London, “is believe[d]
to be closely linked to the Hezbollah extremists in south Beirut, but
all its London-based members are Iranian.”22
On July 13, 1989, Dr. Abdolrahman Ghassemlou, secretary-general
of the Kurdish Democratic Party of Iranian Kurdistan (PDKI);
Abdollah Ghaeri-Azar, the PDKI’s European representative; and
Fazil Rassoul, an Iraqi Kurd serving as a mediator, were assassinated
in a Vienna apartment while meeting with a delegation from
the Iranian government. Although forced underground after the
1979 revolution, Ghassemlou and the PDKI were informed after the
Iran-Iraq War that the Iranian government was open to conducting
talks. On December 30 and 31, 1988, Ghassemlou had met with
an Iranian delegation headed by Mohammad Jafari Sahraroudi,
the head of the Kurdish Affairs Section of the Iranian Ministry of
Intelligence. The two met regularly until July 13 the following year,
when a meeting was held that included Sahraroudi; governor of the
Iranian province of Kurdistan Mostafa Ajoudi; an undercover Iranian
agent, Amir Mansour Bozorgian; and the victims. At one point
during the meeting, Rassoul and Ghassemlou proposed a break and
suggested that the negotiations resume the next day. Soon after,
gunshots were heard. In the shooting, the three Kurds were killed
and Sahraroudi was injured. Investigators found a blue baseball cap
in Ghassemlou’s lap, the same call sign that was left at the scene of
the murder of an Iranian pilot, Ahmad Moradi Talebi, in 1987 and
the 1990 murder of resistance leader Kazem Radjavi.23 Bozorgian
was taken into custody; however, he was later released and fled the
country, along with several other suspects.24
Just one month after the Vienna assassination, on August 3,
1989, a Hezbollah operative by the name of Mustafa Mahmoud
Mazeh died when an explosive device he was preparing detonated
prematurely inside the Paddington Hotel in London. His target
was Salman Rushdie, whose 1988 publication of The Satanic Verses
prompted Ayatollah Khomeini to issue a fatwa condemning the
writer, his editors, and his publishers to death, and to place a $2.5
million bounty on his head. Mazeh, a Lebanese citizen born in the
Guinean capital of Conakry, had joined a local Hezbollah cell in
his teens. Though he was being watched by security agencies, he
succeeded in obtaining a French passport in Abidjan, Ivory Coast,
from an official later arrested by the French authorities in Toulouse.
Mazeh apparently went to Lebanon and stayed in his parents’ village
before traveling to London through the Netherlands.25
Later, speaking about Khomeini’s fatwa against Rushdie, a Hezbollah
commander would tell an interviewer that “one member of
the Islamic Resistance, Mustafa Mazeh, had been martyred in Lon-
Former Mayor of New York City Rudy Giuliani attends the annual
gathering of Free Iran-Alternative 100 ASHRAF at the Villepinte
exhibition North of Paris, France, June 30, 2018. (Siavosh Hosseini/
NurPhoto via Getty Images)
Annex 133
12 CTC SENTINEL AUGUST 2018
don.”26 According to the CIA, attacks on the book’s Italian, Norwegian,
and Japanese translators in July 1991 suggested “that Iran
has shifted from attacking organizations affiliated with the novel—
publishing houses and bookstores—to individuals involved in
its publication, as called for in the original fatwa.”27 Today, a shrine
dedicated to Mazeh still stands in Tehran’s Behesht Zahra cemetery
with an inscription reading, “The first martyr to die on a mission to
kill Salman Rushdie.”28
Less than a year after the Vienna assassinations and the abortive
attempt on Rushdie’s life in London, Kazem Radjavi, former Iranian
ambassador to the United Nations and brother of the leader of
the Iranian opposition group MEK, was assassinated. On April 24,
1990, his car was forced off the road in Coppet, Switzerland, by two
vehicles, after which two armed men exited one of the vehicles and
opened fire. Again, a blue baseball cap was left at the scene, marking
the third use of this call sign at the site of a suspected Iranian
assassination.29
According to the report of the Swiss investigating judge, evidence
pointed to the direct involvement of one or more official Iranian
services in the murder. All in all, there were 13 suspects—all
of whom had traveled to Switzerland on official Iranian passports.30
One report indicated that “all 13 came to Switzerland on brandnew
government-service passports, many issued in Tehran on the
same date. Most listed the same personal address, Karim-Khan 40,
which turns out to be an intelligence ministry building. All 13 arrived
on Iran Air flights, using tickets issued on the same date and
numbered sequentially.” International warrants for the 13 suspects’
arrests were issued on June 15, 1990.31
No death, however, shook the Iranian expatriate community
more than the assassination of Chapour Bakhtiar, former Iranian
prime minister and secretary-general of the Iranian National Resistance
Movement. On August 6, 1991, Bakhtiar and an aide were
stabbed to death by Iranian operatives in Bakhtiar’s Paris apartment.
32 Previously, in July 1980, Bakhtiar had been targeted in another
assassination attempt led by Anis Naccache, which killed a
policeman and a female neighbor. One reason Hezbollah abducted
French citizens in Lebanon was to secure the release of Naccache,
who was imprisoned in France for the attempted killing.33
In a 1991 interview, Naccache recalled, “I had no personal feelings
against Bakhtiar … It was purely political. He had been sentenced
to death by the Iranian Revolutionary Tribunal. They sent
five of us to execute him.”34 Hezbollah, for its part, pushed hard
for Naccache’s release and on July 28, 1990, finally got its wish.
Naccache was released and deported to Tehran in a bid to improve
relations with Tehran that would lead to the release of French hostages
held in Lebanon.35
Death at the Mykonos Restaurant
The most daring and public assassinations Hezbollah carried
out at the behest of its Iranian masters occurred on September
17, 1992, when operatives gunned down Dr. Sadegh Sharafkandi,
secretary-general of the PDKI—the biggest movement of Iranian
Kurdish opposition to Tehran—and three of his colleagues at the
Mykonos restaurant in Berlin.36 This operation also involved Iranian
diplomats.
In its findings, a Berlin court ruled that the attack was carried
out by a Hezbollah cell by order of the Iranian government. In delivering
the opinion, presiding judge Frithjof Kubsch said the judges
were particularly struck by Iranian leaders’ assertions that they
could “silence an uncomfortable voice” any way they pleased. To
strengthen his point, he cited a television interview given by Iran’s
intelligence minister, Ali Fallahiyan, one month before the Mykonos
attack, in which Fallahiyan bragged that Iran could launch
“decisive strikes” against its opponents abroad.37 Furthermore, on
August 30, 1992, Fallahiyan admitted in an interview with an Iranian
television reporter that Iran monitored Iranian dissidents both
at home and abroad: “We track them outside the country, too,” he
said. “We have them under surveillance … Last year, we succeeded
in striking fundamental blows to their top members.”38
Much of the information surrounding the Mykonos plot was
relayed by an Iranian defector named Abolghasem Mesbahi, who
claimed to be a founding member of the Iranian Security Service.
According to him, the decision to carry out the attack was made by
the Committee for Special Operations, which included President
Rafsanjani, Minister of Intelligence Fallahiyan, Foreign Minister
Ali Akbar Velayati, representatives of the Security Apparatus, and,
most significantly, Supreme Leader Ali Khamenei.39
The “attack group,” organized by Fallahiyan, arrived in Berlin
from Iran on September 7, 1992. It was headed by Abdolraham
Banihashemi (also known as Abu Sharif, an operative for the Ministry
of Intelligence and Security who trained in Lebanon), who also
served as one of the attack’s two gunmen and who has been implicated
in the August 1987 assassination of a former Iranian F-14
pilot in Geneva.40 The operation’s logistics chief, Kazem Darabi, was
a former Revolutionary Guard and Hezbollah member who had
been living in Germany since 1980 and belonged to an association
of Iranian students in Europe. According to Argentine prosecutors,
“UISA [Association of Islamic Students in Europe] and the associations
that belonged to it worked closely with extremist Islamic
groups, particularly Hezbollah and Iranian government bodies such
as the embassy and consulate. UISA was the main organization
from which Iran’s intelligence service recruited collaborators for
propaganda and intelligence activities in Iran.”41
In a statement to German prosecutors, Ataollah Ayad, one of
Darabi’s recruits, made clear that Darabi was “the boss of Hezbollah
in Berlin.”42 Moreover, Darabi would also be linked to an attack
at the 1991 Iran Cultural Festival in Dusseldorf. Before the festival,
German intelligence reportedly intercepted a telephone call in
which Darabi was instructed by someone at the Iranian cultural
center in Cologne with ties to Iran’s Ministry of Intelligence to enlist
some “Arab friends” from Berlin and head to Dusseldorf. Armed
with pistols, gas, guns, and mace, Darabi and his accomplices assaulted
members of the Iranian opposition group MEK, who were
exhibiting books and pictures at the festival. Several MEK members
were seriously injured. Eyewitnesses later testified that Darabi appeared
to be the leader of the assault.43
Already concerned about Darabi’s activities in their country,
German officials attempted to deport Darabi in June 1992. However,
the Iranian government intervened and asked Germany to
allow Darabi to remain in the country.44 The second gunman, Abbas
Rhayel, and one of the co-conspirators, Youssef Amin, “were members
of Hezbollah,” according to Argentine prosecutors, adding they
received training at an IRGC center near Rasht in Iran.45 According
to German prosecutors, when the “Hit Team” arrived in Berlin and
command was transferred from Darabi to Banihashemi, two of the
co-conspirators who were not members of Hezbollah “were shut out
of the immediate involvement in the act.”46
The operational stage of the Mykonos attack began on the morn-
LEVITT
Annex 133
AUGUST 2018 CTC SENTINEL 13
ing of September 16, 1992, when Rhayel and Farajollah Haider,
another Hezbollah member of Lebanese origin, received an Uzi
machine gun, a pistol, and two silencers. The source of these arms
was never identified but was suspected to be linked to Iranian intelligence.
German investigators later traced both the pistol and
silencer to Iran. On the next morning, September 17, Rhayel and
Haider purchased the bags they would use to conceal the weapons
as they entered the Mykonos restaurant.47
On the night of September 17, 1992, Banihashemi and Rhayel
entered the restaurant at 10:50 PM, while Amin waited outside
to block the door. Haider and an Iranian known only as Mohammad,
who had previously been tasked with keeping the targets
under surveillance, waited several blocks away with the getaway
car. The car had been purchased several days earlier by Ali Dakhil
Sabra, who had served with Amin and Rhayel in Lebanon and then
come with them to Germany. When the targets emerged into view,
Banihashemi shouted, “You sons of whores” in Persian and opened
fire. Rhayel followed Banihashemi inside and shot both Sharfkandi
and Homayoun Ardalan, the PDKI’s representative in Germany.
Between the two assassins, 30 shots were fired. The assailants then
fled on foot to the getaway vehicle.48
The police investigation quickly revealed Iranian involvement in
the attack. On September 22, 1992, the bag containing the weapons
and silencers was discovered, and tests revealed significant similarities
between these weapons and those used in the assassination
of Iranian dissidents Akbar Mohammadi in Hamburg in 1987 and
Bahman Javadi in Cyprus in 1989. The police also matched the serial
number on the pistol used by Rhayel to a shipment delivered
by a Spanish dealer to the Iranian military in 1972. Rhayel’s palm
print was discovered on one of the pistol magazines, the blood of
one of the victims was identified on the pistol itself, and Amin’s fingerprints
were found on a plastic shopping bag inside the getaway
vehicle.49
According to German prosecutors, Abdolraham Banihashemi
“left the city by airplane after the crime and went via Turkey to Iran.
There, he was rewarded for his role in the attack with a Mercedes
230 and participation in profitable business transactions.”50 The
others were not so fortunate. Darabi and Rhayel were sentenced to
life in prison in Germany in April 1997, while Amin and Mohammad
Atris, a document forger who assisted the attackers, were given
terms of 11 years and about five years, respectively.51 While Amin
and Atris served out their shorter terms, in December 2007 Darabi
and Rhayel were released from prison and returned to Iran. Germany’s
Der Spiegel news magazine suggested they were released in
exchange for a German tourist arrested in Iran in November 2005.
Germany, it appears, was not the only country seeking collateral
for Darabi and Rhayel’s release; Israel had hoped to bargain for an
early release in return for information about Ron Arad, an Israeli
aviator shot down over Lebanon in 1986.52
The brazen assassination in public of four Iranian dissidents at
Mykonos, in the opinion of Germany’s highest criminal court, signaled
culpability for terrorism at the highest levels of the Islamic
Republic. The court judgment rejected the premise that the attack
was executed by “mavericks,” concluding that “the assassination
[was] put into action much more through the powers in Iran.” By
identifying President Rafsanjani and the Supreme Leader himself
as the orchestrators of the assassination, the judgment found that
“Iranian powers not only allow terrorist attacks abroad … but that
they themselves set in action such attacks.” When the Tehran regime
encountered political opposition, the court determined, its solution
was simply to have the opponents “liquidated.”53
Contending with Iranian Terrorism
And yet, the German court ruling in the Mykonos case did not
translate into durable and tangible action against Iran or Hezbollah.
Iran responded to the placement of a plaque memorializing the
victims of the Mykonos attack by displaying one of its own near the
German embassy in Tehran denouncing Germany for arming Saddam
Hussein with chemical weapons during the Iran-Iraq War. Apparently
concerned over the diplomatic ramifications, the German
ambassador to Iran distanced his government from the original
plaque’s assertion of Iranian responsibility for the Mykonos attack.54
While many European nations withdrew their ambassadors from
Iran following the ruling, this diplomatic freeze lasted only months.
And along with the release of perpetrators Darabi and Rhayel, none
of the Iranian leaders identified in the court judgment—Rafsanjani,
Fallahian, Velayati, or Khamenei—were ever held to account for
their roles in the attack.
Indeed, several of these officials—in particular, Velayati—were
involved in a number of international terrorist plots. Argentinean
officials have requested Velayati’s arrest and extradition multiple
times as he has traveled the world as a senior Iranian official. The
most recent request was made to Russia, where Putin hosted Velayati
on July 12, 2018, just a day after Assadi, the arrested Iranian
diplomat was formally charged in Germany. Similar requests for his
arrest made to the governments of Singapore and Malaysia were
also ignored.55As U.S. authorities have long assessed, without coordinated
international action, Iran is unlikely to be deterred from
carrying out such operations again in the future. In the wake of
Iranian terrorist plots abroad in the late 1980s, the U.S. intelligence
community concluded that “over the long term, Iran is likely to be
deterred from terrorism only if evidence of its culpability results in
strong, unified action by the international community, including a
willingness to impose sanctions. This could include the breaking
of relations, or the recall of ambassadors.” But to date, that has not
been the case.56
Today, law enforcement agencies around the world—and especially
in Europe—are cooperating much more closely to deal
with Iran and Hezbollah’s global terrorist and criminal activities.
For example, the U.S.-led Law Enforcement Coordination Group
(LECG) has met six times in various locations around the world to
address Hezbollah’s terrorist and criminal activities worldwide. The
latest meeting, held in Quito, Ecuador, was convened by the United
States and Europol and held under the auspices of Ameripol.57 The
LECG will next meet in Europe in late 2018, where more than 30
governments—along with officials from Europol and Interpol—will
convene to compare notes on Hezbollah activities in their far-flung
jurisdictions and strategize on how to best cooperate to counter
Hezbollah terrorist and criminal operations.
As a result of Iran’s direct involvement in this latest plot—and
with the benefit of hindsight into Iran’s long history of such active
operations in Europe—LECT officials are likely going to consider
expanding their focus to include the full range of Iranian agents and
proxies deployed by Tehran to carry out attacks abroad, including
Iran’s diplomats and diplomatic facilities. There would be utility in
that, not only because of Iran’s own attack plans but because of the
support Iranian agents provide time and again to Hezbollah plots.
Consider, for example, the series of 1985 Paris bombings or the hi-
Annex 133
14 CTC SENTINEL AUGUST 2018 LEVITT
1 Arron Merat and Julian Borger, “Rudy Giuliani calls for Iran regime change
at rally linked to extreme group,” Guardian, June 30, 2018.
2 Rina Bassist, “Tens of Thousands Demand Iran Regime Change at Mass
Exile Rally in Paris,” Jerusalem Post, June 30, 2018.
3 Warrant for Suspected Espionage, The Federal Prosecutor General at the
Federal Court of Justice (Der General Bundesanwalt beim Bundesgerichtshof),
July 11, 2018.
4 Nahal Toosi, “Giuliani, Gingrich to Address Controversial Iranian Group,”
Politico, June 28, 2018.
5 Kirsten Grieshaber, “Germany charges Iranian diplomat detained in bomb
plot,” Associated Press, July 11, 2018; Norman T. Roule, “Network of Terror
Leads to Charging of Iranian Diplomat,” Cipher Brief, July 12, 2018.
6 “Polizeieinsatz auf Rastanlage Spessart-Süd – Sicherheitsvorkehrungen
wegen sprengstoffverdächtigen Fahrzeugs,” Bavarian Police, July 1, 2018;
Robert-Jan Bartunek and John Irish, “Iran diplomat among six arrested
over suspected plot against opposition meeting,” Reuters, July 2, 2018.
7 Grieshaber.
8 “Background Briefing on Meeting With Saudi Officials,” Special Briefing,
U.S. Department of State, July 10, 2018.
9 “Netherlands expels two Iranian embassy staff: Dutch intelligence
service,” Reuters, July 6, 2018.
10 Stephanie van den Berg, “Be careful, murdered Iranian activist’s daughter
tells European exiles,” Reuters, December 12, 2017.
11 “2 Iranians arrested in Albania over terrorism-related charges,” Baghdad
Post, March 25, 2018.
12 “Iranian spies in Germany targeted Israel embassy, Jewish kindergartens,”
Times of Israel, January 10, 2018.
13 “Germany protests to Iran for spying on targets with ties to Israel,” Times
of Israel, January 9, 2018.
14 “Select Iran-Sponsored Operational Activity in Europe, 1979-2018,”
Bureau of Counterterrorism, Department of State, July 5, 2018.
15 “Iran’s Use of Terrorism,” Interagency Intelligence Assessment, Director
of Central Intelligence, September 1987, sanitized copy approved for
release December 4, 2013.
16 Matthew Levitt, Hezbollah: The Global Footprint of Lebanon’s Party of God
(Washington, D.C.: Georgetown University Press, 2013).
17 “Iranian Support for Terrorism in 1987,” Terrorism Review, Central
Intelligence Agency, February 25, 1988, declassified and approved for
release June 1999.
18 Thomas Sancton, “The Tehran Connection,” Time, March 21, 1994.
19 John Vinocur, “Exiled Iranian General Is Killed with Brother by Gunmen in
Paris,” New York Times, February 8, 1984.
20 Ibid.; “Murder of Iranian Exile Underlines Risk of Paris,” Globe and Mail,
February 9, 1984.
21 Michael Horsnell and Hazhir Teimourian, “Two Iranians Shot Dead in
London,” Times (London), October 3, 1987.
22 Hazhir Teimourian and Nicholas Beeston, “Iranian Extremist Cell in UK
Could Number under 12,” Times (London), March 3, 1989.
23 Argentina, Buenos Aires, Investigations Unit of the Office of the Attorney
General, Office of Criminal Investigations: AMIA Case, report by Marcelo
Martinez Burgos and Alberto Nisman, October 25, 2006 (hereafter cited
as Burgos and Nisman), p. 25.
24 “No Safe Haven: Iran’s Global Assassination Campaign,” Iran Human
Rights Documentation Center, May 2008, p. 26.
25 Anthony Loyd, “Tomb of the Unknown Assassin Reveals Mission to Kill
Rushdie,” Times (London), June 8, 2005.
26 H. E. Chehabi and Rula Jurdi Abisaab, Distant Relations: Iran and Lebanon
in the Last 500 Years (New York: St. Martin’s Press, 2006), pp. 292-293.
27 “Iran: Enhanced Terrorist Capabilities and Expanding Target Selection,”
Central Intelligence Agency, April 1, 1992.
28 Loyd.
29 Burgos and Nisman, pp. 24-25; Sancton.
30 “Patterns of Global Terrorism: 1990,” U.S. Department of State, April 1991,
p. 15.
31 Sancton.
32 Burgos and Nisman, p. 31; “Patterns of Global Terrorism: 1991,” U.S.
Department of State, April 1992, p. 30.
33 Patrick Marnham, “Jailed Iranian Puts Pressure on France,” Independent
(London), February 3, 1989.
34 Robert Fisk, “Two Faces of an Unlikely Assassin,” Independent (London),
October 27, 1991; Magnus Ranstorp, Hizb’allah in Lebanon: The Politics of
the Western Hostage Crisis (New York: Palgrave Macmillan, 1997), p. 95.
35 Ibid.
36 Burgos and Nisman, p. 33; “Iran Ordered Slaying of Kurdish Leaders:
German Prosecutor,” Agence France-Presse, May 27, 1993.
37 William Drozdiak, “German Court: Tehran Ordered Exile Killings; Verdict
Blaming Top Iranians Ruptures Ties,” Washington Post, April 11, 1997.
38 Rick Atkinson, “Killing of Iranian Dissenters: Bloody Trail Back to Tehran,”
Washington Post, November 21, 1993.
39 Burgos and Nisman, p. 37.
40 Ibid.; Ely Karmon, “Iranian Terror in Switzerland against Opposition
Activists,” IDC Herzliya, International Institute for Counter-Terrorism, April
20, 2009.
41 Burgos and Nisman, pp. 38-41.
jacking of TWA flight 847, both carried out by Hezbollah but with
the logistical support of Iranian agents, according to the National
Counterterrorism Center.58
The international response to Iran’s international terrorist activity
should not be limited to law enforcement action alone. Regulatory
action would also be helpful, and it is worth noting there have
been calls for the European Union to designate not just Hezbollah’s
military wing as a terrorist group but to include the organization
in its entirety, as well as expanded financial and diplomatic sanctions.
European states should consider designating more Iranian
institutions and personnel involved in Tehran’s illicit conduct, but
they should also consider working to isolate Iran diplomatically so
long as Tehran continues to abuse diplomatic privilege and use its
representatives abroad to murder people on foreign soil.
To that end, in the wake of the Assadi affair, the State Department
released timelines and maps depicting select incidents of Iranian-
sponsored operational activities in Europe from 1979 to 2018,
including both incidents involving Iran’s proxy, Hezbollah, as well
as those carried out by Iranian agents themselves.59 Developing an
appreciation for the extent of Iranian operations in Europe over the
years is important, and not just as some kind of academic exercise.
As authorities in Austria, Belgium, France, and Germany dig deeper
into the Assadi affair, they are likely to determine fairly quickly, as
investigators invariably did in previous Iranian plots, that these are
not rogue actions, but the actions of a rogue regime. CTC
Citations
Annex 133
AUGUST 2018 CTC SENTINEL 15
42 Mykonos Urteil [Mykonos Judgment], Urteil des Kammergerichts Berlin
vom 10, April 1997 [Judgment of the Court of Appeal of Berlin on April 10,
1997], OLGSt Berlin, (1) 2 StE 2/93 (19/93).
43 “Murder at Mykonos: Anatomy of a Political Assassination,” Iran Human
Rights Documentation Center, March 2007.
44 Burgos and Nisman, pp. 70-71.
45 Ibid., pp. 38-39.
46 Mykonos Urteil [Mykonos Judgment], Urteil des Kammergerichts Berlin
vom 10.
47 “Murder at Mykonos,” pp. 2-8.
48 Ibid., pp. 8-11.
49 Ibid., p. 12.
50 Mykonos Urteil [Mykonos Judgment], Urteil des Kammergerichts Berlin
vom 10.
51 Drozdiak.
52 “Germany Releases ‘Mykonos’ Assassins,” Der Spiegel, December 11,
2007.
53 Mykonos Urteil [Mykonos Judgment], Urteil des Kammergerichts Berlin
vom 10, p. 50.
54 “Germany and Iran Embroiled in Diplomatic Spat,” Deutsche Welle, April
28, 2004.
55 “Argentina asks Russia to arrest Iranian official over ’94 Jewish center
bombing,” Jewish Telegraph Agency, July 11, 2018.
56 “Iran’s Use of Terrorism.”
57 “Sixth Meeting of the Law Enforcement Coordination Group Focused
on Countering Hizballah’s Terrorist Activities in the Americas,” U.S.
Department of State, June 14, 2018.
58 “Select Iran-Sponsored Operational Activity in Europe, 1979-2018.”
59 Ibid.
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Volume III - Annexes 81-133