Since its inception in 1995, the World Trade Organization (WTO) has facilitated increased trade throughout the world’s economies during a period of increasing globalization. Along with its facilitation role, the WTO has also worked to settle disputes between member states through its Dispute Settlement Body process. Through its reciprocal rules and its dispute settlement mechanism, the WTO has given a measure of order and consistency to trade relationships never before seen.
166 sovereign states have acceded to the WTO, an achievement partly attributable to critical carve outs in the WTO that disclaim authority over non-trade issues. The most critical of these today is the Security Exception. This exception prohibits the WTO from interfering with a state’s right to take any action “which it considers necessary for the protection of its essential security interests.”
On its face, the Security Exception is the ultimate loophole to the WTO’s rules. But the Exception was dormant until recently, when Russia and the United States separately invoked the Exception to claim that their actions were not subject to review by a WTO panel because the Exception is “self-judging” and immune to judicial review.
Now, the United States has advanced this position as part of the escalating trade war between it and China, focused on advanced semiconductor technologies. To combat China’s advancing computing industry, the US took a two-prong approach: first, it created its own domestic semiconductor subsidy policy in the CHIPS Act, and second, it issued broad export controls with respect to China. China responded with a WTO challenge, which the US claims is “non-justiciable” because its national security is at stake.
This paper will discuss the background behind the US and China’s escalating trade war, and discuss the semiconductor global value chain and how China’s ambitions to expand their role therein led to the current trade war. It will then examine the US’s two-pronged approach to combat China in the semiconductor field, with a focus on US export controls and the CHIPS Act. Finally, it will examine China’s WTO challenge to the new US export controls, analyze the WTO’s Security Exception jurisprudence, and discuss the future of the WTO in the Security Exception era.