US Puts World Trade At Risk in Cuba Fight

The Cuban missile that downed a civilian American aircraft last spring has set off a chain of events that now threatens to push the world's trading system into unexplored territory. At issue: Can a country, such as the US, restrict free trade in the name of national security?

The US, despite its long-time leadership on free trade, retaliated against the Cuban shootdown with a law that penalizes foreign firms operating in the US that also do business with Cuba.

The so-called Helms-Burton law is now under attack at the World Trade Organization (WTO), which could end up ordering the US to drop the law because of no compelling US "national interest" in the case. Given the WTO's shaky support in the US, such a ruling might lead to a US pullout from the world body and unravel the delicate multilateral trade agreements that created WTO.

"Both sides have put the bar very high," says Philippe Moreau Defarges, of the Paris-based French Institute of International Relations.

The US law was challenged by the European Union. The next step is for the WTO to decide on setting up a panel on the case.

"If this dispute comes to the panel stage, the WTO will have to decide whether this legislation is in the US national interest or not. At that point, the US has to decide whether or not it will accept the rules of world commerce or hold to a traditional vision of national sovereignty," says Mr. Defarges. "If the US pulls out of the WTO, the organization will be destroyed."

The US commitment to free trade has been in doubt since the end of the cold war, during which time the US sometimes used open access to its markets to keep anti-communist countries onboard. And since the US failed to get much of what it was seeking in the negotiations leading up to the WTO's creation, the American official mood toward the world body appears to be less than fully supportive.

Since it was founded, the WTO has taken on 53 trade disputes, such as imports of hormoned beef to selling scallops outside of Europe as "Coquilles Saint-Jacques." But the Helms-Burton dispute is the first where a nation is gearing up to defend its action on the basis of national interest.

If the WTO finds the US defense credible, it opens the door to other nations using the same provision, known as Article 21, which could undermine the WTO's ability to keep trade borders open. A negative ruling puts the fledgling organization on a collision course with the US Congress.

The US is signaling that such a defense is likely if the dispute comes to a panel. "We plan to use it and we will win," said a US official, on condition of anonymity.

In defense, the US ambassador to the WTO, Booth Gardner, says, "Cuba's jet attack was only the latest in a series of actions by the Cuban government over 35 years that have directly affected the interests of the United States.

"The WTO was established to manage trade relations between member governments - not diplomatic or security relations that may have incidental trade or investment effects. The [European] Community and the member states may wish to consider whether the WTO is well equipped to address, let alone resolve, the type of disagreement they have brought to this body."

European officials insist that they do not intend to back down. "The US is trying to frighten us away from pressing a panel, and just let sleeping dogs lie. But if every time a country faces a decision it doesn't like, it can invoke Article 21, the system will be undermined. The WTO will have to consider its own credibility," says a European official, also on condition of anonymity.

Both European and American officials are looking to US elections Nov. 5 to signal the next direction for this dispute. Europeans make a distinction between the actions of the US Congress and a US administration that they see as reluctantly enforcing Helms-Burton legislation.

"We are not counting on a change in the Congress," adds the European official. "We are doing what we need to do to defend ourselves from extraterritorial lawmaking. But the next move comes after US elections, and the only compromise that would be acceptable is the withdrawal of Helms-Burton legislation."

Ever since the world's trading partners began developing rules for liberalizing world trade after World War II, the so-called national security exemption has been an option as a defense in trade disputes. Drafters of the 1947 General Agreement on Tariffs and Trade said that states should retain the right to protect their own national security as they see it, but not to use that argument to justify any or all actions in restraint of trade.

Under old GATT rules, interpreting this exemption was a question of balance; and the spirit in which members interpret these provisions is the only guarantee against abuses. The defense has been invoked rarely, and findings of GATT were never binding.

However, under stronger WTO dispute resolution rules, panel findings after appeal are binding. A nation may refuse to accept a dispute resolution panel on the first request, but not on the second. And, unlike GATT rules, panel findings of the WTO are not subject to a consensus vote.

The US rejected the first EU call for a panel on Oct. 16. If the EU renews its request next month, the panel will be established Nov. 20.