US sanctions against persons involved in the construction of the Nord Stream 2 pipeline project: Europe’s energy sovereignty under threat – Part II

By Cedric Ryngaert and Tom Ruys

In our previous post, we have argued that the imposition of US sanctions on persons involved in the construction of the Nord Stream 2 (NS2) pipeline between Russia and Germany is in tension with the customary international law of jurisdiction, insofar as such sanctions go beyond mere access restrictions and involve, for instance, the blocking (freezing) of assets. In this second post, we review the permissibility of US NS2 sanctions under two other, trade-related regimes, namely the law of the World Trade Organization (WTO) and the bilateral Friendship, Commerce and Navigation Treaty between the US and Germany of 1954. We argue that various NS2 sanctions – including access restrictions – potentially violate US obligations under these regimes, and that, on this basis, Germany could trigger international dispute-settlement with the US. 

Establishing that ‘primary’ sanctions between a sanctions sender and the targeted State contravene existing trade agreements or investment agreements between them can be a relatively straightforward exercise. By contrast, violations of WTO law and the FCN Treaty are far harder to establish for the ‘secondary’ sanctions at play here. In particular, the NS2 sanctions would not appear to go against the ‘most-favoured nation’ and national treatment principles enshrined in the relevant treaties. Even so, other conventional rules may be at stake. In a nutshell, the threat to exclude companies from importing into the United States sits uneasily with Article XI GATT, whereas the exclusion from US procurement is difficult to reconcile with Article VIII of the revised 1994 Agreement on Government Procurement. Visa restrictions may in turn infringe para. 4 of the GATS Annex on Movement of Natural Persons. As for the FCN Treaty, Article II ensures access to the other party’s territory for purposes of engaging in commercial activities. Asset freezes further raise questions under Article V(4) of the FCN Treaty, according to which property of companies of either Party shall not be taken without just compensation. Lastly, Article XII(3) prohibits exchange restrictions (including transfers of moneys) that are ‘unnecessarily detrimental’. 

The opinion of the Wissenschaftliche Dienste of the German Bundestag, already discussed in our previous post, takes the view that, even though the NS2 sanctions engage the US’ conventional obligations, there is little Germany can do. The reasons are twofold. First, the US can simply hide behind the (notorious) ‘security exception’ in the WTO agreements (esp. Art. XXI(b)GATT) and the FCN Treaty (Art. XXIV(d)). Second, recourse to the WTO dispute settlement mechanism is undermined by the paralysis of the Appellate Body. These points fail to convince. On the one hand, the ICJ has previously affirmed that whether certain measures are ‘necessary’ to protect essential security interests ‘is not purely a question for the subjective judgment of the party’ (see Nicaragua (para. 282) and Oil Platforms (paras. 73, 78). An ICJ ruling in the pending 1955 Treaty of Amity case between Iran and the US may shed further light on the judicial review of conventional security exceptions in bilateral treaties. Even with regard to the more flexibly worded security exceptions in the WTO agreements – which speak of measures ‘which [a State] considers necessary for the protection of its essential security interests’ – the claim that they are entirely ‘self-judging’ has recently been dismissed in case DS512 (Russia – Measures concerning traffic in transit) and case DS567 (Saudi Arabia – Measures concerning the Protection of intellectual property rights). For instance, the Panel in DS512 found that measures ought to ‘meet a minimum requirement of plausibility in relation to the proffered essential security interests’. Ultimately, it is highly doubtful that the NS2 sanctions could satisfy the test laid out in case DS512. For instance, even if the US might invoke the Russian annexation of Crimea (as the WD opinion suggests), a plausible connection with the NS2 sanctions seems hard, if not impossible, to establish.

Lastly, while recourse to WTO dispute settlement may not be a viable option given the state of the Appellate Body, one should not pass lightly over the compromissory clause in the 1954 FCN Treaty: pursuant to Article XXVII(2), any dispute between the Parties as to the interpretation or application of the Treaty which is not solved through diplomacy or some other agreed means shall be submitted to arbitration or, upon agreement, to the ICJ. Given the escalation of secondary sanctions and the increasing ‘weaponization’ of the dollar for US foreign policy purposes and to the detriment of third countries’ economic and political sovereignty, perhaps the time has come for Germany to ‘put its money where its mouth is’ and trigger arbitral proceedings.