Reviewing the Legal Challenges of Trade with Disputed Territories under International Law and the WTO

The regulation of international trade with disputed territories under international law, particularly within the contexts of occupation and humanitarian law, has long been a contentious issue.

Authors: Kosei Kato, Mai Kato, and Shizuku Kuroda*

There are multiple “disputed territories” around the world. According to an article by Olia Kanevskaia, published in the Journal of International Economic Law in May 2023, disputed territories are defined as territories “over which sovereignty is contested due to the control of an outside entity and which the international community does not recognize either as  parts of these entities or as separate sovereigns.” International trade with such territories is regulated by international humanitarian law but may also fall under the jurisdiction of the international trade law regime, which is centered around the World Trade Organization (WTO). In such cases, conflicts may arise between these two regimes regarding the regulation of international trade with disputed territories.

Kanevskaia’s article provides a comprehensive analysis of this issue. At the School of International Relations at the University of Shizuoka in Japan, undergraduate students specializing in international economic law, supervised by Yoshimichi Ishikawa, have spent a year reading and discussing this short essay. It aims to provide an overview of the legal issues arising from the regulation of international trade with disputed territories under international law, using Kanevskaia’s excellent article as a starting point. Additionally, it offers our own analysis and examination of these issues. Lastly, it should be emphasized that this short essay is dedicated solely to legal analysis and does not express or endorse any specific political stance regarding the status of any particular disputed territories.

1. Regulating Trade with Disputed Territories: International Law and UN Resolutions

The regulation of international trade with disputed territories under international law, particularly within the contexts of occupation and humanitarian law, has long been a contentious issue. While there is no specific and comprehensive legal framework directly governing such trade activities, certain international provisions and United Nations resolutions play a significant role in regulation. For instance, following Iraq’s invasion of Kuwait in 1990, the Security Council adopted Resolution 661, which imposed comprehensive economic sanctions that prohibited all international trade with both Iraq and the Kuwaiti territories occupied by Iraq.

Additionally, international law provides several principles for regulating trade with disputed territories. One notable example is the principle of non-recognition and non-assistance, which is fundamental in international law. This principle obligates third-party states not to recognize or assist entities involved in occupations deemed illegal under international law, as outlined in peremptory norms and conventions, such as the Fourth Geneva Convention, and the Hague Conventions.

The principle of non-recognition and non-assistance was addressed in the advisory opinion by the International Court of Justice (ICJ) on Namibia, where the ICJ declared South Africa’s administration of Namibian territory to be illegal. Consequently, the ICJ ruled that third-party states were obligated to terminate economic, political, and other relations with Namibia under South African administration. This case illustrates how restrictions can be imposed on trade relations with disputed territories. Similarly, the United Nations’ suspension of trade relations with the Iraq-occupied Kuwait territories stemmed from the principle of non-recognition and non-assistance.

Therefore, international trade with disputed territories is not explicitly classified as legal or illegal under public international law. However, cases like Iraq and Namibia demonstrate that when effective control over disputed territories is considered illegal, trade with such territories can be seen as supporting illegal activities. Consequently, such trade has often been restricted in these scenarios.

2. Disputed Territories and GATT/WTO: Legal and Practical Challenges

The current WTO system lacks explicit provisions for addressing international trade with disputed territories. The question is whether such territories fall within the WTO framework. If they do, they would be regulated by WTO rules, potentially providing clarity and consistency. If they do not, there would be ambiguity and potential conflicts with other international laws. In the article the author examines the applicability of Article XXVI:5 of the General Agreement on Tariffs and Trade (GATT), which allows Members to incorporate territories under their international responsibility into the GATT/WTO.

Kanevskaia argues that applying Article XXVI:5(a) GATT to disputed territories is problematic because an occupying power cannot fulfill the requirement “international responsibility” for such territories under international humanitarian law. She implies that evaluating Israel as having “international responsibility” towards Gaza poses significant issues. The Geneva Conventions consider transferring one’s population into occupied territories a serious violation. Therefore, according to her, it is questionable whether Israel can be seen as holding “international responsibility” over Gaza in this context. This raises the question of whether Israel meets the requirement of “international responsibility” as stated in Article XXVI:5(a) GATT, highlighting a potential conflict between WTO rules and international humanitarian law.

Article XXVI:5(c) GATT states that for a customs territory under a contracting party’s international responsibility to join GATT, the party must declare the territory’s full customs autonomy. However, the author seems to be skeptical about such declarations due to political considerations, making it challenging to incorporate dispute territories into the GATT/WTO regime through this provision.

Despite this, Hong Kong’s accession to the WTO as a separate customs territory in 1995, fully supported by China, might show that full autonomy can be recognized in the context of Article XXVI:5(c) GATT. However, it is also noted that the situation with Hong Kong is different from the disputed territories being discussed here, because there was no military invasion or boundary dispute between China and Hong Kong.

3. Origin Labeling of Products from Disputed Territories under WTO

When a WTO Member that controls disputed territories enters into a free trade agreement (FTA), the WTO does not provide specific provisions for the treatment of such territories. This means the handling of disputed territories within FTAs can vary significantly based on the political motivations of the parties involved. For example, it is up to the FTA parties to decide whether preferential tariffs apply to goods imported from these disputed territories. Therefore, this does not necessarily result in legal issues concerning WTO Agreements.

However, in matters concerning rules of origin, determining which Member disputed territories belong to can be crucial. For example, the EU prohibits labeling products from the West Bank as “Israeli,” potentially leading to claims of discriminatory treatment under Article IX.1 GATT and Article 2.1 of the Agreement on Technical Barriers to Trade. This could be seen as discriminatory compared to the treatment of other disputed territories, like Western Sahara or the Turkish Republic of Northern Cyprus (TRNC). The European Union (EU) allows products from these territories to be labeled as originating from the controlling country, but does not allow the same for products from the West Bank, meaning they cannot be labeled as “Israeli.”

In theory, there is a possibility that Israel could bring the EU to the WTO, claiming this treatment as discriminatory in origin labeling. In such a scenario, Israel could assert that it controls customs matters in the West Bank, justifying labeling products from there as “Israeli.” The critical question then is whether the WTO panel will make a decision on the political issue of disputed territories.

Although the WTO’s primary role is to make decisions based on economic considerations, some Members might exploit these WTO decisions for political purposes. For example, a Member might claim that a WTO ruling on economic or customs control over disputed territories legitimize its political control. This could lead to the perception that the WTO is making political judgments, which would undermine its role and potentially create more challenges within the organization.

Conclusion

International trade with disputed territories is regulated by the regime of international humanitarian law, but it may also be governed by the international trade regime centered around the WTO. However, in the WTO framework, disputed territories are not clearly defined, nor are there provisions for incorporating such territories into its regime. As a result, significant ambiguity remains regarding how international trade with these territories, particularly in terms of origin labeling requirements for imports from these territories, is to be regulated.

Moreover, as highlighted in this piece, if the EU were to be challenged at the WTO over its origin labeling of imports from disputed territories by a Member controlling such territories, the WTO might be compelled to directly address the political issue of which Member these territories belong to. To avoid such a scenario, it is imperative that the WTO engages in rule-making to address the fundamental issue of how disputed territories are to be situated within the GATT/WTO system.

*Shizuku Kuroda: Undergraduate senior at the University of Shizuoka in Japan, studying International Economic Law within the School of International Relations. As of 2024, I have been focusing on international economic law for three years.

*Mai Kato: Undergraduate senior at the University of Shizuoka, majoring in International Economic Law in the Faculty of International Relations. Until last year, I was studying international law in general, but now I’m focusing my studies primarily on international economic law.

Kosei Kato
Kosei Kato
I am an undergraduate senior at the University of Shizuoka in Japan, majoring International Economic Law within the School of International Relations. I’m interest in international economic law, particularly in the area of trade with disputed territories.