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National Security Exception in an Era of Hegemonic Rivalry: Emerging Impacts on Trade and Investment

Handbook of International Investment Law and Policy

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Abstract

The December 2018 arrest of a Huawei executive in Canada – at the request of the United States – and the retaliatory invocation of national security by China to arrest two Canadians highlight the transformative age of hegemonic rivalry. Both the United States and China are locked in a long-term contest for overall influence and ultimately control the global governance architecture. The hegemonic rivalry will significantly impact global trade and investment particularly in the context of national security. The issue of national security will play an increasingly pivotal role in sovereign decision making with respect to trade and investment. Among the likely emerging impacts of the injection of national security in international economic law: increasingly enhanced scrutiny of foreign investment and trade; a re-conceptualization of “national security”; the increasing pressure on nations to align with either the United States or China and the likely increase in sovereign involvement in capital markets both defensively and offensively as well as regulatory updates particularly with respect to disclosure triggers.

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Notes

  1. 1.

    https://www.nytimes.com/2018/12/11/technology/huawei-executive-canada-bail-decision.html (arrest of Huawei CFO for violating US law).

  2. 2.

    See Gherke J, Pompeo M (Dec 14, 2018) China’s “unlawful detention of two Canadian citizens is unacceptable. https://www.washingtonexaminer.com/policy/defense-national-security/mike-pompeo-chinas-unlawful-detention-of-two-canadian-citizens-is-unacceptable (“China detained two Canadian diplomats – one businessman, another a former diplomat – just days after Canada arrested a top executive from Huawei, a major technology company that the US government accuses of violating sanctions on Iran. The detentions are widely regarded as Chinese retaliation against Canada, but officials on all sides maintain that none of the arrests have anything to do with political motivations.”)

  3. 3.

    See Kevin Rudd on US-China relations: this is a new and dangerous phase (Jan 23, 2019). https://www.afr.com/opinion/kevin-rudd-on-uschina-relations-this-is-a-new-and-dangerous-phase-20190122-h1acu6 (“Last year represented a fundamental strategic turning point in the 40-year history of US-China relations. This is not just an American view; it is also the Chinese view.”)

  4. 4.

    See Slawotsky J (2018) The national security exception in US-China FDI and trade: lessons from delaware corporate law. Chinese J Comp Law 6(2): 241–245. https://doi.org/10.1093/cjcl/cxy012 (noting triad of hegemonic pillars of power: economic, military, and technological).

  5. 5.

    The hegemon “dictates the rules of the game and punishes deviators.” See Bahrisch OF, Kim JS (2011) Hegemonic power and technology advancement. In: Kim T et al (eds) Grid and distributed computing. GDC 2011. Communications in computer and information science, vol 261. Springer, Berlin/Heidelberg, p. 563. For example, no other sovereign was able to successfully overcome Swiss bank secrecy. See also http://www.forbes.com/sites/robertwood/2014/08/19/ten-facts-about-fatca-americas-manifest-destiny-law-changing-banking-worldwide/#300593551961 (noting ability of the United States to essentially override domestic laws of foreign nations). The example of Swiss banking is illustrative. As recently as 2005, Swiss banking was considered a safe place to stash money anonymously. See John Grisham, The Broker, p. 366. (Noting the inviolably of Swiss banking secrecy, “the Swiss were immune to pressure from foreign governments … they were the Swiss!”). Yet, only a few years later, the ability of the United States to enforce its taxation system on foreign financial institutions and pressurize the Swiss banks to disclose the names of account holders eliminated this anonymity. See also https://www.justice.gov/opa/pr/justice-department-announces-four-banks-reach-resolutions-under-swiss-bank-program-0

  6. 6.

    See infra.

  7. 7.

    See Slawotsky J (2017) The clash of architects: impending developments and transformations in international law. Chinese J Global Governance 3(2):83–159. https://doi.org/10.1163/23525207-12340025) (discussing the effects of China’s ascendancy and how this will affect international law and global governance as well as potentially impacting domestic governance of sovereigns militating towards a Chinese governance model).

  8. 8.

    See Junhua W (Oct 15, 2018) Taking sides –US or China. https://asia.nikkei.com/Opinion/Taking-sides-US-or-China (“The deterioration of the U.S.-China relationship has now gone far beyond what we can call a trade war. U.S. President Donald Trump and his administration have expanded the rivalry from an economic battle to all-out confrontation with Beijing over military and even ideological fields.”).

  9. 9.

    https://www.weforum.org/agenda/2016/12/the-world-s-top-economy-the-us-vs-china-in-five-charts/ (China is second but close to surpassing the United States.)

  10. 10.

    An Interactive Look at the US-China Military Scorecard. https://www.rand.org/paf/projects/us-china-scorecard.html (analyzing the significant rise in Chinese military power)

  11. 11.

    See Kania EB (Nov 28, 2017) Battlefield singularity. https://www.cnas.org/publications/reports/battlefield-singularity-artificial-intelligence-military-revolution-and-chinas-future-military-power (China is rapidly approaching parity and has ambitions for supremacy in AI-driven warfare).

  12. 12.

    The use of the national security rationale by the United States to impose tariffs in 2018 as well as the increasing scrutiny of Chinese foreign investment globally based upon national security all herald a more frequent resort to national security-based international economic law decisions. See, e.g., Presidential Order Regarding the Proposed Takeover of Qualcomm Incorporated by Broadcom Limited. https://www.whitehouse.gov/presidential-actions/presidential-order-regarding-proposed-takeover-qualcomm-incorporated-broadcom-limited/ (March 12, 2018) (“There is credible evidence that leads me to believe that Broadcom [] through exercising control of Qualcomm [] a Delaware corporation, might take action that threatens to impair the national security of the United States”) (emphasis added).

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    See Hambling D (Sept 14, 2018) Why the U.S. is backing killer robots. https://www.popularmechanics.com/military/research/a23133118/us-ai-robots-warfare/

  14. 14.

    See Manson K (November 16, 2018) Robot -soldiers, stealth jets, and drone armies: the future of war. https://www.ft.com/content/442de9aa-e7a0-11e8-8a85-04b8afea6ea3 (“The advance of artificial intelligence brings with it the prospect of robot-soldiers battling alongside humans – and one day eclipsing them altogether.”)

  15. 15.

    Defensive capabilities will become increasingly crucial as well.

  16. 16.

    See 14 Ways AI Will Either Benefit Or Harm Society (March 1, 2018). https://www.forbes.com/sites/forbestechcouncil/2018/03/01/14-ways-ai-will-benefit-or-harm-society/#3bd4e14d4ef0 (“[I]t is believed that Facebook’s newsfeed algorithm influenced an election outcome that affected geopolitics.”).

  17. 17.

    https://www.weforum.org/agenda/2017/06/the-global-economy-will-be-14-bigger-in-2030-because-of-ai/

  18. 18.

    https://www.reuters.com/article/us-usa-trade-china/trump-administration-to-use-review-panel-to-curb-china-tech-investments-idUSKBN1JN1K0 (“U.S. President Donald Trump said on Wednesday he will use a strengthened national security review process to thwart Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions.”)

  19. 19.

    https://foreignpolicy.com/gt-essay/understanding-trumps-trade-war-china-trans-pacific-nato/ (“The Trump administration’s legal justification for its 2018 steel and aluminum tariffs was a little-used U.S. statute that allows the president to raise such barriers in cases where U.S. national security is threatened. In mid-2018, the Commerce Department also started looking into whether imported automobiles might pose a similar threat – a sign that the administration was seriously considering imposing duties as high as 25% on foreign cars and auto parts, which would affect more than $200 billion worth of trade.”)

  20. 20.

    See US wont partner with countries that use Huawei systems (Feb 21, 2019). https://www.reuters.com/article/us-huawei-tech-usa-pompeo/us-wont-partner-with-countries-that-use-huawei-systems-pompeo-idUSKCN1QA1O6 (US NSA adviser advising nations that embracing Huawei will lead to a loss in US intelligence and military cooperation.)

  21. 21.

    Such measures would include for example urging allies to ban an adversary’s 5G. See https://www.bloomberg.com/news/articles/2018-11-23/u-s-urges-key-allies-to-avoid-using-huawei-equipment-wsj-says (“The U.S. government is contacting key allies to get them to persuade telecommunications companies in their countries to avoid using equipment from China’s Huawei Technologies Co....Officials from the U.S. have reached out to counterparts and executives in countries including Germany, Italy and Japan about perceived cybersecurity risks, the Journal said, citing unidentified people familiar with the matter.”)

  22. 22.

    Johnson K, Groll E (October 4, 2018) It’s no longer just a trade war between the U.S. and China. https://foreignpolicy.com/2018/10/04/its-no-longer-just-a-trade-war-with-china-pence-spying/ (“The U.S. confrontation with China that has been ramping up over the past year due to heightened trade tensions, military showdowns, and diplomatic ill will escalated to new levels on Thursday with a double-barreled assault on Beijing’s growing economic and geopolitical heft.”)

  23. 23.

    Remarks by Vice President Pence on the Administration’s Policy Toward China (Oct 4, 2018). https://www.whitehouse.gov/briefings-statements/remarks-vice-president-pence-administrations-policy-toward-china/

  24. 24.

    Law at the End of the Day Principled Realism: Thoughts on the New U.S. National Security Strategy http://lcbackerblog.blogspot.com/2018/01/joel-slawotsky-principled-realism.html

  25. 25.

    See Slawotsky J. Law at the end of the day principled realism: thoughts on the new U.S. National Security Strategy. http://lcbackerblog.blogspot.com/2018/01/joel-slawotsky-principled-realism.html. Citing 2017 United States National Security Strategy, p 25 (emphasis added).

  26. 26.

    A counterargument states that US strategy was in reality an effort at containment. See Backer LC (Nov 8, 2010) Encircling China or embedding it? Law at the end of the day. http://lcbackerblog.blogspot.com/2010/11/encircling-china.html (noting Chinese concerns that United States policy was aimed at containing a rising China).

  27. 27.

    Compare infra the Soviet Union as a rival to the United States.

  28. 28.

    Just a few years ago, the United States perceived itself as “the exceptional nation.” See Obama B (May 28, 2014) Remarks by the President at the United States Military Academy Commencement Ceremony. https://www.whitehouse.gov/the-pressoffice/2014/05/28/remarks-president-united-states-military-academy-commencementceremony. (“In fact, by most measures, America has rarely been stronger relative to the rest of the world … Our military has no peer … Meanwhile, our economy remains the most dynamic on Earth; our businesses the most innovative. Each year, we grow more energy independent. From Europe to Asia, we are the hub of alliances unrivaled in the history of nations. America continues to attract striving immigrants … So[,] the United States is and remains the one indispensable nation. That has been true for the century passed and it will be true for the century to come.”) (emphasis added).

  29. 29.

    https://www.justice.gov/opa/speech/file/1107256/download

  30. 30.

    See Huang Z (22 February 2017) Chinese president Xi Jinping has vowed to lead the ‘new world order’. http://finance.yahoo.com/news/chinese-president-xi-jinping-vowed-084654413.htm

  31. 31.

    https://www.bloomberg.com/news/articles/2015-05-14/u-s-china-rivalry-whose-money-will-the-world-follow-

  32. 32.

    See Silver V, Prasso S (March 19, 2019) Italy’s embrace of China’s “Belt and road” is a snub to Washington. https://www.bloomberg.com/news/articles/2019-03-19/italy-s-embrace-of-china-s-belt-and-road-is-a-snub-to-washington (discussing China’s potential influence in Europe).

  33. 33.

    https://www.ft.com/content/b64d7f2e-8f4d-11e8-b639-7680cedcc421

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    See S.R. Why China Is Creating A New “World Bank” for Asia (2014), http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-6

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    New $100 Bn BRICS Bank Opens in China to Challenge US-led Lenders (2015). http://news.yahoo.com/brics-bank-opens-business-xinhua-015809429.html

  36. 36.

    Time US leadership woke up to new economic era (2015), http://larrysummers.com/2015/04/05/time-us-leadership-woke-up-to-new-economic-era/

  37. 37.

    Id. (emphasis added).

  38. 38.

    https://www.caixinglobal.com/2018-12-18/hugh-white-the-new-east-asian-jigsaw-101360537.html

  39. 39.

    See Our bulldozers, our rules. The Economist (2 July 2016). Describing obor as a means “of extending China’s commercial tentacles and soft power”. See also President Xi Jinping Delivers Important Speech and Proposes to Build a Silk Road Economic Belt with Central Asian Countries (PRC Ministry of Foreign Affairs, 7 September 2013) http://www.fmprc.gov.cn/mfa_eng/topics_665678/xjpfwzysiesgjtfhshzzfh_665686/t1076334.shtml, noting BRIs critical importance to China.

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    See Campbell C (12 May 2017) China says it’s building the new silk road. Here are five things to know ahead of a key summit. Time.

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    Capri A (2017) China’s growing influence on Middle East shouldn’t be lost on an impulsive trump administration. Forbes. https://www.forbes.com/sites/alexcapri/2017/06/21/china-obor-qatar-middle-east-america/#469a0d4a70e8

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    See http://www.economist.com/news/china/21701505-chinas-foreign-policy-could-reshape-good-part-world-economy-our-bulldozers-our-rules (“In 2014 the foreign minister, Wang Yi, singled out OBOR as the most important feature of the president’s foreign policy.”). See also Campbell C (May 12, 2017) China says it’s building the new silk road. Here are five things to know ahead of a key summit. http://time.com/4776845/china-xi-jinping-belt-road-initiative-obor/ (“In 2015, China transferred $82 billion to three state-owned banks for OBOR projects. It also set up the Asian Infrastructure Investment Bank (AIIB) primarily to fund OBOR, of which the $100 billion of initial capital may be doubled soon.”)

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    Robert Lawrence Kuhn, Xi Jinping’s Chinese Dream http://www.nytimes.com/2013/06/05/opinion/global/xi-jinpings-chinese-dream.html

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    See China’s “Belt and Road” court to challenge current US-led order. https://www.ft.com/content/b64d7f2e-8f4d-11e8-b639-7680cedcc421

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    See International commercial courts eye expanded role (Jan 30, 2019). http://www.china.org.cn/china/2019-01/30/content_74423850.htm (“China’s top court said the country’s two international commercial courts will play a bigger role this year in helping resolve disputes related to the Belt and Road Initiative and improving the global credibility of the judiciary.”)

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    See Xi Jinping’s “One Belt, One Road” Strategy Is Showing the Way To A New World Order, http://www.scmp.com/comment/insight-opinion/article/2054143/xi-jinpings-one-belt-one-road-strategy-showing-way-new-world?utm_source=&utm_medium=&utm_campaign=SCMPSocialNewsfeed

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    See Karen Yeung, https://www.scmp.com/economy/china-economy/article/2178037/trade-war-rages-china-may-step-efforts-create-alternative-us Dec 18, 2018 (“As the trade war rages on and China grows more frustrated with the US dollar hegemony which gives the US such authority on the world stage, it may step up efforts to create an alternative payments system to rival the American currency.”)

  49. 49.

    See Slawotsky J (2009) Sovereign wealth funds as emerging superpowers: how U.S. regulators should respond. Georgetown J Int Law 40:1239, 1266.

  50. 50.

    Das S (September 7, 2018) How the U.S. has weaponized the Dollar. https://www.bloomberg.com/opinion/articles/2018-09-06/how-the-u-s-has-made-a-weapon-of-the-dollar (“But the real power of the dollar is its relationship with sanctions programs. Legislation such as the International Emergency Economic Powers Act, the Trading With the Enemy Act and the Patriot Act allow Washington to weaponize payment flows. The proposed Defending Elections From Threats by Establishing Redlines Act and the Defending American Security From Kremlin Aggression Act would extend that armory.”)

  51. 51.

    See Harris G (Nov 9, 2018) Trump has only sticks, not carrots. https://www.nytimes.com/2018/11/09/sunday-review/trump-sanctions-iran-foreign-policy.html

  52. 52.

    See, e.g., https://www.voanews.com/a/china-pakistan-agree-to-conduct-bilateral-trade-in-yuan/4645164.html (trade between China and Pakistan to be conducted in Yuan not dollars); https://af.reuters.com/article/investingNews/idAFKBN1JV0OX-OZABS (Nigeria starting to trade with China in Yuan not Dollars); https://www.centralbanking.com/central-banks/reserves/foreign-exchange/4028831/myanmar-adds-yuan-and-yen-as-trade-settlement-currencies (Myanmar allows trade settlement in Yuan and Japan’s Yen).

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    See Europe’s central banks confirm yuan holdings (January 16, 2018). https://www.reuters.com/article/bundesbank-reserves-yuan-belgium/update-2-europes-central-banks-confirm-yuan-holdings-idUSL8N1PB3Y5 (“More central banks in Europe revealed plans on Tuesday to hold yuan as part of their foreign currency reserves, highlighting the Chinese currency’s rise into an elite league of the world’s major reserve currencies.”)

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  55. 55.

    Petro-yuan may prove a bigger headache to United States than trade wars. https://www.thenational.ae/business/energy/petro-yuan-may-prove-a-bigger-headache-to-us-than-trade-wars-1.719021 (“While the world has been engrossed with the latest spats over tariff wars, and who and when countries will retaliate against the United States, the Chinese have very quietly set the ball rolling to end the US dollar’s hegemony in international oil trade.”)

  56. 56.

    America’s new attitude towards China is changing the countries’ relationship (Oct 18, 2018). https://www.economist.com/briefing/2018/10/18/americas-new-attitude-towards-china-is-changing-the-countries-relationship

  57. 57.

    Bhala R (1998) National security and international trade law: what the GATT says, and what the United States does. Univ Pa J Int Econ Law 19:263 (primary motivation of GATT was to stabilize economies, encourage vigorous trade and therefore promote peace).

  58. 58.

    National security based conduct is understood as encompassing proactive measures, since waiting for the threat to actualize and endanger the nation may prove too late for an effective response. See Bhala R (1998) National security and international trade law: what the GATT says, and what the United States does. Univ Pa J Int Law 19:263, 275 (“[i]f a sanctioning member had to wait until a hostile power acquires nuclear weapons, a destabilizing number or type of non-nuclear arms, or a physical invasion, then it would be too late for trade sanctions to have any protective effect.”)

  59. 59.

    See Presidential Proclamation on Adjusting Imports of Aluminum into the United States (8 March 2018) (emphasis added) https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-aluminum-united-states/; see also Kemp T (23 May 2018) ‘US Launches Investigation into Automobile Imports on a “National Security” Basis’. https://www.cnbc.com/2018/05/23/president-trump-asks-for-national-security-investigation-of-automobile-imports.html (“The U.S. Department of Commerce started an investigation into automobile imports to determine whether they ‘threaten to impair the national security’ of the United States.”)

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  61. 61.

    See “Australia’s New Foreign Minister Marise Payne Supports Blocking Chinese Telcos from 5G Network, Citing National Security” (27 August 2018). https://www.scmp.com/news/asia/australasia/article/2161522/australias-new-foreign-minister-marise-payne-supports-blocking (discussing the blocking of Chinese companies from Australian 5G network based upon national security concerns).

  62. 62.

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    See Salladin AW, Schmidt AJ (2015) CFIUS post-ralls: ramifications for sovereign wealth funds. Int Rev Law 4:1. https://doi.org/10.5339/irl.2015.swf.4 (discussing CFIUS).

  64. 64.

    Presidential Order Regarding the Proposed Takeover of Qualcomm Incorporated by Broadcom Limited (12 March 2018) https://www.whitehouse.gov/presidential-actions/presidential-order-regarding-proposed-takeover-qualcomm-incorporated-broadcom-limited/ (emphasis added).

  65. 65.

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  66. 66.

    See Fife R, Chase S (23 May 2018) Trudeau Cabinet blocks Chinese takeover of Aecon over national security concerns. https://www.theglobeandmail.com/politics/article-ottawa-blocks-chinese-takeover-of-aecon-over-national-security/ (Canada blocks Chinese investment on national security grounds).

  67. 67.

    See National security risk? Australia bans multibillion-dollar Chinese investment in power grid. Australasia (11 August 2016). http://www.scmp.com/news/asia/australasia/article/2002313/deal-australia-ban-chinese-investment-power-grid (blocking Chinese bidders).

  68. 68.

    See Enterprise Act 2002: guidance on changes to the turnover and share of supply tests for mergers (11 June 2018). https://www.gov.uk/government/publications/enterprise-act-2002-guidance-on-changes-to-the-turnover-and-share-of-supply-tests-for-mergers (additional national security scrutiny on national security; new rules apply to businesses developing military and dual-use technology, computing hardware and quantum technology).

  69. 69.

    See Jennen B, Buergin R (27 February 2018) For Merkel, some China investments are more welcome than others. Bloomberg. https://www.bloomberg.com/news/articles/2018-02-27/merkel-fixes-sights-on-china-as-chinese-investors-target-germany (“Chinese investment is increasing in very strategic sectors. … The problem is going to be if there is only interest to have technology flow from Germany to China, and of course if there are security questions”); Pronina L, Follain J, Okov S (3 May 2018) EU is ready to fight back against China’s growing trade dominance. Bloomberg. https://www.bloomberg.com/news/articles/2018-05-03/europe-embarks-on-a-china-strategy-with-a-majority-for-screening (“Europe is set to tighten controls over foreign investment, a sign of growing wariness of China’s efforts to use its $11 trillion economy to become a dominant global power”); see Macron wants limits on Chinese investments, takeovers in Europe’s strategic industries. South China Morning Post (23 June 2017) http://www.scmp.com/business/companies/article/2099613/macron-wants-limits-chinese-investments-takeovers-europes (“French President Emmanuel Macron vowed on Thursday to convince China’s closest allies in Europe that curbing foreign takeovers in strategic industries was in their interest, warning EU governments not to be naive in global trade”).

  70. 70.

    https://www.brookings.edu/testimonies/chinas-relations-with-u-s-allies-and-partners-in-europe/ (German anxiety over China’s rise focuses “China [] gearing up to be a major competitor for Germany’s key industries” … [and] “has quickly broadened to include China’s broader geopolitical and geoeconomic aspirations (including through the Belt and Road Initiative) – and the growing political influence in the EU.”)

  71. 71.

    See Alderman L (15 March 2018) Wary of China, Europe and others push back on foreign takeovers. New York Times. https://www.nytimes.com/2018/03/15/business/china-europe-canada-australia-deals.html (“Europe is pushing for more stringent vetting of foreign investments, with an eye on Beijing. Australia has been blocking bids by Chinese buyers for strategic assets. And in Canada, a Chinese takeover of a major contractor faces a national security test.”); see also Wingrove J (24 May 2018) Canada blocks Chinese takeover of aecon on security concerns. Bloomberg. https://www.bloomberg.com/news/articles/2018-05-23/trudeau-blocks-chinese-takeover-of-aecon-on-security-grounds (“The Canadian government blocked a proposed takeover of construction firm Aecon Group Inc. by a unit of China Communications Construction Co. in the latest move by Western nations weighing national security concerns associated with Chinese investment”).

  72. 72.

    See Pronina L, Follain J, Okov S (3 May 2018) EU is ready to fight back against China’s growing trade dominance. Bloomberg. https://www.bloomberg.com/news/articles/2018-05-03/europe-embarks-on-a-china-strategy-with-a-majority-for-screening (“There is a sea change of perception” toward China, said Francois Godemont, director of the Asia program at the European Council on Foreign Relations. He cited a “wave of investments” for having fueled the shift, along with an inability of the EU and China to resolve their respective market issues to date. In addition, he said, an awareness of political change in China including the removal of term limits has “soured the mood.”)

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    See Chilton AS, Milner H, Tingley D (30 May 2017) Reciprocity and public opposition to foreign direct investment. http://scholar.harvard.edu/files/dtingley/files/cmt-mergers.pdf?m=1465167375 (discussing how perceptions of unfairness is building resentment and protectionism).

  74. 74.

    See Chinese State-Owned and State-Controlled Enterprises: Policy Options for Addressing Chinese State-Owned Enterprises (2012) https://www.uscc.gov/sites/default/files/2.15.12drake_testimony.pdf (“China’s aggressive support policies create an unfair advantage for Chinese SOEs in the Chinese home market, in the U.S. market, and in third country markets. The scope of the problem requires a comprehensive U.S. response, one that combines elements of trade policy, investment policy, and domestic competition policy.”)

  75. 75.

    See http://europa.eu/rapid/press-release_IP-19-1532_en.htm (new EU mechanism approved).

  76. 76.

    For example, blocking transactions may potentially implicate international investment agreements and give rise to claims either at the ICJ State – State venue or International Centre for Settlement of Investment Disputes (ICSID) Investor–State arbitration. See Hsu L (2017) The role and future of sovereign wealth funds: a trade and investment perspective. Wake For Law Rev 52:837, 847.

  77. 77.

    See Wang H (2018) How may China respond to the US Trade approach? Retaliatory, inclusive and regulatory responses. Columbia J Asian Law (“From the perspective of global trade, retaliation is a lose-lose situation in most situations and could bring enormous costs to both sides. It will hurt the target country. Retaliation by China would create an uncertain global economic environment that would slow the growth of the United States even if it is presumed that retaliation would not have much direct effect on the U.S. economy….As a highly adversarial approach, it escalates protection and creates a vicious circle of retaliatory protectionism. For the retaliating country, retaliation could also incur actual and reputational costs, as well as counterretaliation, particularly if a significant trading partner is implicated.”)

  78. 78.

    China may also perceive that these measures are brought in the context of the USA–China rivalry. See Backer LC (8 November 2010) Encircling China or embedding it? Law at the end of the day http://lcbackerblog.blogspot.com/2010/11/encircling-china.html (“For a considerable period of time, Chinese officials have been focusing on the possibility that the United States intends to surround it to prevent it from more forcefully asserting its own interests in the region…[T]he Chinese suggest that American policy has been to engage China economically while creating an effective military encirclement that would enhance the American position in the event of conflict.”)

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    Pronina L, Follain J, Okov S (3 May 2018) EU is ready to fight back against China’s growing trade dominance. Bloomberg. https://www.bloomberg.com/news/articles/2018-05-03/europe-embarks-on-a-china-strategy-with-a-majority-for-screening. Notwithstanding this objection, the EU has in fact established such a mechanism. See http://europa.eu/rapid/press-release_IP-19-1532_en.htm (new EU mechanism approved).

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    See Soble J (7 April 2017) Why the U.S. fears a Chinese bid for Westinghouse electric”. https://www.nytimes.com/2017/04/07/business/us-china-toshiba-westinghouse.html?_r=0 (“Westinghouse is believed to have been targeted by Chinese spies. If a Chinese entity were to buy the company, China could obtain secrets without the cloak and dagger”).

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    See Slawotsky J (2009) Sovereign wealth funds as emerging superpowers: how U.S. regulators should respond. Georgetown J Int Law 40:1239, 1251.

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    See Chaisse J (2015) Demystifying public security exception and limitations on capital movement. Univ Pa J Int Law 37:583, 594–595.

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    See Chaisse J (2015) Demystifying public security exception and limitations on capital movement Univ Pa J Int Law 37:583, 589.

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    See Kong Q (2017) Emerging rules in international investment instruments and China’s reform of state-owned enterprises. Chin J Global Gov 3:73 (“SOEs are exactly established to execute national strategic goals”).

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    See Fife R, Chase S (23 May 2018) Trudeau Cabinet blocks Chinese takeover of Aecon over national security concerns. https://www.theglobeandmail.com/politics/article-ottawa-blocks-chinese-takeover-of-aecon-over-national-security/ (emphasis added).

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    See Chaisse J (2015) Demystifying public security exception and limitations on capital movement. Univ Pa J Int Law 37:583, 594–595 (emphasis added).

  87. 87.

    See Lima M. Global law: legal answers for concrete challenges (Petrobras as an exemplar of corruption issues in SOEs) at 122 “[S]upplier firms and operators in the Petrobras drilling process ‘coincidentally’ have as shareholders some of the same construction and contractor enterprises.”

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    See Leutert W (2016) China’s reform of state-owned enterprises. Asia Policy 21:83, 86. https://www.brookings.edu/wp-content/uploads/2016/07/Wendy-Leutert-Challenges-ahead-in-Chinas-reform-ofstateowned-enterprises.pdf

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    https://www.scmp.com/economy/china-economy/article/2182552/chinas-state-owned-companies-enjoy-record-profits-even-private (Chinese SOEs enjoying record profits).

  90. 90.

    See Brewster R, Stern PJ (2018) Introduction to the proceedings of the seminar on corporations and international law. DJCIL 28:413, 415. https://scholarship.law.duke.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1526&context=djcil (“[L]arge multinational corporations may have greater expertise in understanding international law, particularly as compared to developing states, and use this expertise as a means of resisting and reshaping global regulatory development.”). See also Backer LC (2016) The emerging normative structures of transnational law: non-state enterprises in polycentric asymmetric global orders. BYU J Public Law 31:1, 50 (corporations can be deployed to advance state goals).

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    See Larson AP, Marchick DM (2006) Foreign direct investment and national security: getting the balance right council on foreign relations press 21 (“In certain cases, government ownership and control can create national security issues, particularly when the foreign company’s decisions become an extension of the government’s policy decisions rather than the company’s commercial interests.”)

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    See https://www.dw.com/en/chinas-xi-pushes-new-silk-road-in-france/a-48055637 https://www.economist.com/europe/2019/03/21/italys-plan-to-join-chinas-belt-and-road-initiative-ruffles-feathers. Shinozaki K, Kastner J (Feb 19, 2019) Germany follows UK in casting doubt on US Huawei ban. https://asia.nikkei.com/Economy/Trade-war/Germany-follows-UK-in-casting-doubt-on-US-Huawei-ban (US allies may not adhere to US pressure to ban Huawei). See also See Horowitz J, Ewing J. Italy may split with allies and open its ports to China’s building push. https://www.nytimes.com/2019/03/06/world/europe/italy-ports-china.html (“Italy appears poised to help China extend its vast global infrastructure push deeper into Western Europe.”)

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    See Johnson K (March 14, 2018) Trump opened “Pandora’s box” with tariffs. Pandora’s box, https://foreignpolicy.com/2018/03/14/trump-opened-pandoras-box-with-tariffs-232-steel-article-21-wto/

  94. 94.

    Lee J (2018) Commercializing national security? National security exceptions’ outer parameter under GATT Article XXI. Asian J WTO Int Health Law Policy 277, 291 (“In other words, Akande and Williams posit that only specific ‘essential security interests’ subject to the sub-paragraphs (b)(i), (ii) and (iii) are able to fulfil the requirements of security exceptions of the provision. This observation is both meaningful and important because the term ‘essential security interests’ are not in vacuum but instead stated in the specific context of three elements under sub-paragraphs (b)(i), (ii) and (iii). As mentioned above, the focus of this article is placed on paragraph (b) of the provision. As such, the term ‘essential security interests’ is arguably not open-ended but stands to cover only three specific instances described in the three sub-paragraphs.”)

  95. 95.

    Id. at 296 (2018).

  96. 96.

    Id. (Since they are not enacted in response to “fissionable materials or the materials from which they are derived,” “relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials … for the purpose of supplying a military establishment,” and “taken in time of war or other emergency in international relations.”)

  97. 97.

    Id. (“But they set forth specific requirements such that a simple showing of economic concern, mere reference to an economic harm, or remote relevance to military activity does not satisfy them.”)

  98. 98.

    Id. at 302 (2018) (“The wording of the [GATT national security exception] article apparently conveys the meaning that it should guard against improper imposition of trade-barriers for commercial, business or political purposes under the guise of national security. Otherwise, the measure may turn out to be an illegitimate carte blanche or a ‘self-proclaimed’ waiver.”) (emphasis added)

  99. 99.

    Appellate Body Report, European Communities – Customs Classification of Frozen Boneless Chicken Cuts (EC – Chicken Cuts), WT/DS269/AB/R, adopted 27 September 2005, paras 238–239

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    See World Investment Report 2018. https://unctad.org/en/PublicationsLibrary/wir2018_overview_en.pdf (“New investment restrictions or regulations mainly reflected concerns about national security and foreign ownership of land and natural resources.”)

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    Wong E, Rappeport A (Nov 21, 2018) In race for global power, U.S. and China push nations to pick a side. https://www.nytimes.com/2018/11/21/us/politics/usa-china-trade-war.html

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    See Henke J (November 21, 2018) EU and China break ultimate trade taboo to hit back at Trump. https://www.politico.eu/article/eu-and-china-break-ultimate-trade-taboo-to-hit-back-at-trump/ (“Anger over U.S. President Donald Trump’s steel tariffs is pushing Europe and China to rip up one of the most sacrosanct unwritten rules in international trade policy: Don’t question national security.”)

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    See Slawotsky J. Law at the end of the day principled realism: thoughts on the new U.S. National Security Strategy. http://lcbackerblog.blogspot.com/2018/01/joel-slawotsky-principled-realism.html

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    Politi J. US warns of Chinese influence at multilateral lenders. https://www.ft.com/content/0fd1c990-030e-11e9-99df-6183d3002ee1 (“The main accusation coming from the Trump administration is that the World Bank and similar institutions are encouraging China’s sweeping efforts to finance infrastructure projects around the world, including through the Belt and Road Initiative, or BRI.”) (emphasis added)

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    Brinkley J (Sept 27, 2018) Trump is close to shutting down the WTO’s Appeals Court. https://www.forbes.com/sites/johnbrinkley/2018/09/27/trump-is-close-to-shutting-down-the-wtos-appeals-court/#eadb0c17ab6b (“Dennis Shea, the U.S. ambassador to the WTO, said in a speech in May that the Appellate Body had become a rogue organization that routinely breaks the rules under which it is supposed to operate.”)

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    Wong E, Rappeport A (Nov 21, 2018) In race for global power, U.S. and China push nations to pick a side. https://www.nytimes.com/2018/11/21/us/politics/usa-china-trade-war.html

  107. 107.

    As Singapore’s Prime Minister noted, “[i]f you are friends with two countries which are on different sides, sometimes it is possible to get along with both, sometimes it’s more awkward when you try to get along with both.”

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    Tao L (Jan 22, 2019) Huawei founder says west would be “foolish” not to buy its 5G products as they are leading edge. https://www.scmp.com/tech/big-tech/article/2182995/huawei-founder-says-west-would-be-foolish-not-buy-its-5g-products-they (“They are foolish and will lose money if they don’t buy [our products],” …“We have many things that the European and American countries need, and they will have to purchase from us.”)

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    See Cohen T, Scheer S. Israel’s chip sales to China jump as Intel expands. https://www.reuters.com/article/us-israel-china-tech-exclusive/exclusive-israels-chip-sales-to-china-jump-as-intel-expands-idUSKCN1R00DF (“Israel’s exports of computer chips to China soared last year as Chinese companies bought more semiconductors made at Intel’s Kiryat Gat plant.”)

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    Ackerman G, Levingston I (January 28, 2019) Israel is stuck in the middle of Trump’s conflict with China. https://www.bloomberg.com/news/articles/2019-01-28/trump-s-freeze-on-china-exposes-israeli-tech-firms-to-chill-wind (“During a visit to Israel this month, U.S. National Security Adviser John Bolton was due to raise concerns about China technology penetration, in particular through Huawei Technologies Co. and ZTE Corp.”)

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    USMCA Article 32.10.

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    See Junhua W (Oct 15, 2018) Taking sides – US or China https://asia.nikkei.com/Opinion/Taking-sides-US-or-China (“While China is not named, the clause is squarely aimed at isolating Beijing. Likewise, Washington will certainly ask for a similar clause in its trade negotiations with Japan, the European Union or any other nations. They too will be likely forced to choose between the U.S. and China.”)

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    Sanger DE, Barnes JE, Zhong R, Santora M (January 26, 2019) In 5G race with China, U.S. pushes allies to fight Huawei. https://www.nytimes.com/2019/01/26/us/politics/huawei-china-us-5g-technology.html?action=click&module=Top%20Stories&pgtype=Homepage (“Britain is not the only American ally feeling the heat. In Poland, officials are also under pressure from the United States to bar Huawei from building its fifth generation, or 5G, network. Trump officials suggested that future deployments of American troops – including the prospect of a permanent base labeled “Fort Trump” – could hinge on Poland’s decision. And a delegation of American officials showed up last spring in Germany, where most of Europe’s giant fiber-optic lines connect and Huawei wants to build the switches that make the system hum. Their message: Any economic benefit of using cheaper Chinese telecom equipment is outweighed by the security threat to the NATO alliance.”)

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    See United States won’t partner with countries that use Huawei systems. https://www.reuters.com/article/us-huawei-tech-usa-pompeo/us-wont-partner-with-countries-that-use-huawei-systems-pompeo-idUSKCN1QA1O6 Feb 21, 2019 (“U.S. Secretary of State Mike Pompeo on Thursday warned that the United States would not be able to partner with or share information with countries that adopt Huawei Technologies Co Ltd. systems, citing security concerns.”)

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    Sanger DE, Barnes JE, Zhong R, Santora M (January 26, 2019) In 5G race with China, U.S. pushes allies to fight Huawei. https://www.nytimes.com/2019/01/26/us/politics/huawei-china-us-5g-technology.html?action=click&module=Top%20Stories&pgtype=Homepage

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    See https://www.ft.com/content/e90c3800-aad3-11e8-94bd-cba20d67390c (Australia).

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    Schulze E, Taylor C (January 18, 2019) Huawei could be banned from 5G in Germany. https://www.cnbc.com/2019/01/18/huawei-5g-ban-in-germany.html (“The German government is considering banning Huawei from providing 5G equipment in the country saying security concerns are of ‘high relevance’.”); Fadden R (January 23, 2019) For the security of Canadians, Huawei should be banned from our 5G networks https://www.theglobeandmail.com/opinion/article-for-the-security-of-canadians-huawei-should-be-banned-from-our-5g/ (“There are plenty of reasons why intelligence professionals are alarmed by Huawei’s involvement in our 5G networks, particularly, the close relationship between Huawei and a Chinese government with a history of cyberespionage. Add the fact that China’s 2017 National Intelligence Law gives Beijing the power to compel Huawei’s support for its intelligence work, and it should be a clear-cut case.”); France considers bill amendment to target Huawei (Jan 21, 2019). https://www.reuters.com/article/us-france-huawei/france-considers-bill-amendment-to-target-huawei-les-echos-idUSKCN1PF25E (“France is considering introducing a bill amendment to empower its security and defence watchdogs to make retroactive checks to telecoms operators’ equipment once installed, targeting China’s Huawei.”)

  118. 118.

    See Huawei risk can be managed, say UK cyber-security chiefs (Feb 18, 2019). https://www.bbc.com/news/business-47274643 (“The UK’s National Cyber Security Centre’s decision undermines US efforts to persuade its allies to ban the firm from 5G communications networks.”); Corcoran T (January 23, 2019) Canada is being lured into a dangerous anti-China trade syndrome. https://business.financialpost.com/opinion/terence-corcoran-canada-is-being-lured-into-a-dangerous-anti-china-trade-syndrome (“Those risks can be managed without sweeping corporate bans that conflate security with trade and investment issues.”); McCarth K (Feb 19, 2019) Germany tells America to verpissen off over Huawei 5G cyber-Sicherheitsbedenken https://www.theregister.co.uk/2019/02/19/germany_huawei_5g_security/ (“German is expected to snub US pressure to cut Huawei out of its next-generation 5G networks, rejecting claims that the Chinese manufacturer is a security risk.”)

  119. 119.

    Shinozaki K, Kastner J (Feb 19, 2019) Germany follows UK in casting doubt on US Huawei ban. https://asia.nikkei.com/Economy/Trade-war/Germany-follows-UK-in-casting-doubt-on-US-Huawei-ban (noting Germany, the U.K. and New Zealand are questioning U.S. pressure to ban Huawei) (emphasis added)

  120. 120.

    See Turak N (Jan 21, 2019) Canada’s vast pension fund is sticking with China even as political tensions mount. https://www.cnbc.com/2019/01/21/canadas-vast-pension-fund-is-sticking-with-china-amid-tensions.html https://www.cnbc.com/2019/01/21/canadas-vast-pension-fund-is-sticking-with-china-amid-tensions.html (“Canada’s massive pension fund, among the world’s top 10 in terms of size, is sticking to plans to expand its holdings there [China].”)

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    See Pressman A, Chandler C (Feb 20, 2019) Why the U.S. effort to crush Huawei isn’t working. http://fortune.com/2019/02/20/data-sheet-huawei-shanghai/ (“Two key U.S. allies, defying pressure from Washington, signaled their willingness include the Chinese giant’s products in high-speed telecommunications networks. [And] Shanghai announced it will use Huawei equipment to roll out the world’s first 5G railway station. And Huawei’s chairman, in a combative interview with the BBC, declared “there’s no way the U.S. can crush us.”); Jaipragas B (March 8, 2019) I’d side with rich China over fickle US: Malaysia’s Mahathir Mohamad. https://www.scmp.com/week-asia/politics/article/2189074/id-side-rich-china-over-fickle-us-malaysias-mahathir (“If forced to take sides in the high-stakes geopolitical rivalry and trade war between the United States and China, Malaysian Prime Minister Mahathir Mohamad would prefer the economic largesse of Beijing.”); Italy lining up Chinese deals despite deputy premier’s national security warnings (March 15, 2019). https://www.scmp.com/news/china/diplomacy/article/3001815/italy-lining-chinese-deals-despite-deputy-premiers-national (“Many of Italy’s business players are lining up for deals in parallel with the planned signing of a memorandum of understanding that will give Rome a role in the massive ‘Belt and Road Initiative’, China’s trans-continental infrastructure project[] Companies involved include gas pipeline operator Snam, engineering company Ansaldo Energia and leading banks.”)

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    See Horowitz J, Ewing J. Italy may split with allies and open its ports to China’s building push https://www.nytimes.com/2019/03/06/world/europe/italy-ports-china.html

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    Tasha Wibawa New Zealand gets “punished” by Chinese tourists following Huawei ban, according to state media https://www.abc.net.au/news/2019-02-19/china-tourists-punishing-new-zealand-over-huawei-decision/10825340 (“Chinese state-owned media Global Times, claims Chinese tourists are considering abandoning their travel plans into the country as a way to ‘punish’ New Zealand over its decision to ban mobile company Spark from using Huawei equipment in its 5G upgrade. It also says the political relationship between the two nations is now ‘strained’.”); Murtaugh D, Scott J (Feb 21, 2019) Major Chinese port bans Australian coal imports, report says. https://finance.yahoo.com/news/china-australia-coal-tensions-rise-062505287.html (“A major port in northern China has reportedly banned coal imports from Australia – in a sign that Beijing may be flexing its economic muscles and warning nations not to bar its next-generation wireless technology.”)

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    Shinozaki K, Kastner J (Feb 19, 2019) Germany follows UK in casting doubt on US Huawei ban. https://asia.nikkei.com/Economy/Trade-war/Germany-follows-UK-in-casting-doubt-on-US-Huawei-ban

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    See Henke J (November 21, 2018) EU and China break ultimate trade taboo to hit back at Trump. https://www.politico.eu/article/eu-and-china-break-ultimate-trade-taboo-to-hit-back-at-trump/ (“Anger over U.S. President Donald Trump’s steel tariffs is pushing Europe and China to rip up one of the most sacrosanct unwritten rules in international trade policy: Don’t question national security.”)

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    Chatzky A (March 27, 2019) China’s belt and road gets a win in Italy. https://www.cfr.org/article/chinas-belt-and-road-gets-win-italy (“Chinese President Xi Jinping just returned from a visit to Europe to promote the Belt and Road Initiative (BRI), China’s unprecedented plan to expand its geopolitical reach. As Rome and Beijing signed a major deal on the BRI, several European leaders expressed alarm about the agreement’s ability to divide Europe.”)

  127. 127.

    There are exceptions such as nonpublicly traded Huawei.

  128. 128.

    See https://www.nytimes.com/2017/04/07/business/us-china-toshiba-westinghouse.html?_r=0 (“Westinghouse is believed to have been targeted by Chinese spies. If a Chinese entity were to buy the company, China could obtain secrets without the cloak and dagger.”)

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    See Slawotsky J (2013) Corporate liability for violating international law under the alien tort statute: the corporation through the lens of globalization and privatization. Int Rev Law 6:17 (“To be sure, there have been prior examples of corporations wielding state like power over private citizens. For example, the British East Indies Company (‘Company’) was a state-controlled company that was enormously influential over India and wielded both private and public actor power.”)

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    Slawotsky J (2012) The global corporation as international law actor. Va J Int Law Dig 52:79, 84. See also Ding R (2014) Public body or not: Chinese state-owned enterprise. J World Trade 48:167 (SOEs may contain both public and private characteristics.)

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    See Backer LC (2010) Sovereign investing in times of crisis: global regulation of sovereign wealth funds, state-owned enterprises, and the Chinese experience. Trans Law Contemp Prob 19:3, 10–11 (emphasis added).

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    Ding R (2014) Public body or not: Chinese state-owned enterprise. J World Trade 48:167, 187

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    Backer LC (2016) The emerging normative structures of transnational law: non-state enterprises in polycentric asymmetric global orders. BYU J Public Law 31:1, 50.

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    http://www.china-inv.cn/wps/portal/!ut/p/a0/04_Sj9CPykssy0xPLMnMz0vMAfIjc3Kt8jNTrKLM4v0MzA wMnYMNvAx8Hd0MHC0MXH39jb08vYPM9AuyHRUBdXAkpQ!!/

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    Germany ready to buy stakes in automakers, other companies to protect them. https://www.autoblog.com/2019/02/05/germany-buy-stakes-automakers-protection/ (state acquiring shares to prevent a foreign government from controlling corporation)

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    https://www.ft.com/content/8a6741b8-26a9-11e8-b27e-cc62a39d57a0

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    Germany ready to buy stakes in automakers, other companies to protect them (Feb 5, 2019). https://www.autoblog.com/2019/02/05/germany-buy-stakes-automakers-protection/

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    https://www.cebc.org.br/sites/default/files/investimentoschinesesnobrasil2016_en.pdf. p 8

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    https://www.reuters.com/article/us-moneygram-intl-m-a-ant-financial/u-s-blocks-moneygram-sale-to-chinas-ant-financial-on-national-security-concerns-idUSKBN1ER1R7

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    https://finance.yahoo.com/news/china-ant-financial-buy-100-203140637.html “Chinese fintech firm Ant Financial has agreed to buy $100 million of shares in Brazilian digital-payments company StoneCo (ticker: STNE), adding to a list of high-profile buyers that have taken interest in the IPO slated to price this week at a valuation of up to $6.2 billion.”)

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    Sterling T, Hepher T, Kar-Gupta S (February 27, 2019) Air France-KLM shares slump on surprise Dutch stake buy. https://www.reuters.com/article/us-netherlands-air-france-klm/air-france-klm-shares-slump-on-surprise-dutch-stake-buy-idUSKCN1QG0XM (“Shares in Air France-KLM fell sharply as the Dutch government amassed a 14 percent stake in the airline to counter French influence, in a surprise move highlighting tensions over the company’s strategic direction.”)

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    Tartar A, Rojanasakul M, Diamond JS (April 23, 2018) How China is buying its way into Europe. https://www.bloomberg.com/graphics/2018-china-business-in-europe/ (emphasis added)

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  1. IDC Law and Business Schools, Herzliya, Israel

    Joel Slawotsky

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    Julien Chaisse

  2. Professor of International Law; and Director of the Research and Innovation Theme in Democratic Citizenship, University of Portsmouth, Portsmouth, UK

    Leïla Choukroune

  3. Institute of Malaysia and International Studies, National University of Malaysia, Bangi, Selangor, Malaysia

    Sufian Jusoh

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Slawotsky, J. (2019). National Security Exception in an Era of Hegemonic Rivalry: Emerging Impacts on Trade and Investment. In: Chaisse, J., Choukroune, L., Jusoh, S. (eds) Handbook of International Investment Law and Policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-5744-2_2-1

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    National Security Exception in an Era of Hegemonic Rivalry: Emerging Impacts on Trade and Investment
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    DOI: https://doi.org/10.1007/978-981-13-5744-2_2-2

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