In the multilateral trading systems under the WTO, the national security exception plays a crucial role in balancing trade liberalisation against the security interest of a sovereign nation. The proper use of the national security exception is of particular importance in the disputes with mixed political, diplomatic and military elements. The EU has recently accused China of breaching WTO obligations by taking restrictive trade measures against Lithuania, thereby affecting free trade between the EU and China. This paper argues that the allegation would be frustrated by the application of the WTO’s national security exception, as the dispute is rooted in Lithuania’s breach of its commitment to the One-China principle, which is crucial to China’s sovereignty and territorial integrity. Outside the WTO ruling system, a unilaterally imposed international sanction would be insufficient to alleviate the dispute between China and Lithuania and would lead to a deadlock in the multilateral trading system.

I. Introduction
II. China–Lithuania Diplomatic Crisis
    A. Breach of the One-China Commitment
    B. Lithuania’s Strategic Considerations
III. T he EU ’s Request for Consultations againstChina and Its Impact
IV. T he Role of the National Security Exceptionin the EU -China Dispute
    A. National Security Exception: Demarcation of Real Trade Dispute
    B. Common Understanding between the EU and China
    C. National Security Issues in the EU–China Dispute
V. Coercion Measures outside the WTO System?
VI. Conclusion
References

• Ke Li(Senior Instructor at Faculty of Law of the University of Macau, China)