WTO PANEL CREATED ON EU-BRAZIL RETREADED TYRE DISPUTE

The WTO Dispute Settlement Body (DSB) on 20 January established a panel to consider an EU complaint against Brazil's import restrictions on retreaded tyres. The EU argues that the measures are quantitative restrictions forbidden by WTO rules, and also violate the GATT principles of most-favoured nation (MFN) and national treatment by differentiating among Brazilian, Mercosur and other producers. Brazil counters that the problems associated with the disposal of such tyres mean that the restrictions are necessary to protect public health and the environment, and has suggested that it may invoke the general exceptions set out in Article XX of the GATT in its defence.

The measures in question

'Retreaded tyres' are car tyres which have been used once and reprocessed so that they can be used a second time, after which they become waste. In early 2004, at the behest of a tyre producers' group, the EU sent a team to Brazil to examine records and rules regarding the importation of such tyres. The investigation found in September 2004 that a number of measures were GATT-incompliant, namely, Brazil's import ban on retreaded tyres and its imposition of a fine of 400 Brazilian reais (BRL, roughly equivalent to 145 euros at current exchange rates) per unit on the marketing, transportation, storage, and warehousing of imported - but not domestically produced - retreaded tyres. Significantly, the investigation drew attention to the exemption of countries belonging to the Mercosur Latin American regional trade Agreement (Argentina, Uruguay and Paraguay and soon Venezuela) from the import ban and the financial penalties, as per the ruling of a Mercosur dispute panel in response to a Uruguayan complaint about the measures.

After informal talks with Brazil failed to resolve the issue, the EU requested consultations under the WTO dispute settlement understanding (DSU) on 23 June 2005 (WT/DS332/1). After the 20 July consultations also failed to resolve the issue, the EU requested the establishment of a WTO panel to settle the dispute at a 28 November 2005 meeting of the DSB. Although Brazil blocked its establishment at the time, WTO dispute rules prohibited it from doing so again, as a result of which the panel was created automatically on 20 January.

The EU complaint

At the 20 January meeting, the EU noted that it had raised its objections to the Brazilian import restrictions several times. The EU in its earlier request for a panel had argued that the measures were inconsistent with GATT Article XI:1, which prohibits the use of most quantitative restrictions on imports. They specifically objected to policies prohibiting the issuance of import licences as well as the 400 BRL/unit fine.

In addition, the EU alleged that the measures discriminated between Brazilian and non-Brazilian producers, thus running counter to the "national treatment" provision in Article III:4 of the GATT. In his speech, the EU delegate noted that the WTO requires its Members to be consistent in its application of health and environmental measures by having the same regulations for domestic products as for foreign imports, and contended that by failing to have domestically-applicable regulations on retreaded tyres, Brazil was not WTO-compliant.

The EU also claimed that Brazil discriminated between Mercosur countries and non-Mercosur countries by not applying the measures to imports from Mercosur countries, thus disobeying the MFN provision in Article I:1 of the GATT. They say this violates the Article XIII:1 rule against applying a quantitative prohibition or restriction on some but not all WTO Members.

Brazil's defence: environmental, health factors

Brazil has pointed to the adverse effects of waste tyres. Since retreaded tyres have a shorter life-span and as such are likely to become waste more quickly, they have a stronger link to the adverse environmental and health impacts of waste tyres than do new tyres. As such, imports of retreaded tyres in Brazil are subject to different rules than new tyres. However, the allegation that retreaded tyres are short-lifespan products that are almost waste has been contested, with some arguing that high-quality retreaded tyres are competitive with low-quality new tyres in some markets.

Brazil has said that it intends to seek an exemption from GATT rules, so the case will undoubtedly address whether the Brazilian measures are in fact legitimate health and environmental measures. To qualify for an exemption, the measures must be proven to be "necessary to protect human, animal or plant life or health" under GATT Article XX(b), and Brazil must demonstrate that the measures do not constitute arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade. Brazil points to the adverse effects of waste tyres, including their slow decomposition rates, fire risks, contribution to the spread of viral diseases, contamination of air, water and soil when burnt, high waste processing costs and hazardous pollutant content. They note that very few used tyres are produced by Brazilians and sold domestically and that imports from Mercosur countries are similarly very minimal, but that imports from other trading partners, such as the EU, involve larger quantities that have adverse environmental and health impacts.

On 20 January, the Brazilian delegate pointed out that the EU itself had long recognised the health and environmental risks posed by retreaded tyres, drawing attention to Brussels' extensive system of legislation and regulation on the matter, including its Waste Incineration Directive of 2000 and other directives dating back to 1975. He suggested that the EU "seems to count on Brazil to help it get rid of large volumes of unwelcome rubber wastes in a cheap and efficient manner", an allegation that the EU delegation described as "completely unfounded".

In an information document distributed the same day, Brazil pointed out that tyres are made of highly combustible and pollutant material, and are subject to extensive environmental controls in many countries. Open burning of waste tyres, it argues, is difficult to control or put out and leads to the release of highly toxic substances such as heavy metals, dioxins and furans which are known to cause cancer and other health problems. In addition, they suggest that stockpiled tyres are ideal breeding places for mosquitoes, which in turn transmit diseases such as yellow fever and dengue. The Brazilian government has suggested that its measures are supported by its constitutional duty to "defend and preserve the environment for the present and future generations" and to guarantee the right to health "by means of social and economic policies aimed at reducing the risk of illness".

The Mercosur case

The other issue at question is the fact that Mercosur countries are exempt from the import restrictions applicable to all other WTO Members including the EU. Although Article XXIV of the GATT permits states to confer preferential tariff treatment to fellow parties to recognised regional trade agreements (RTAs), jurisprudence has yet to conclusively clarify whether they can apply different quantitative or specifically environmental measures to RTA partners vis-a-vis other WTO Members.

Brazil does not subject Argentina, Paraguay and Uruguay to the tyre import measures as a result of a January 2002 decision by a Mercosur arbitration panel ordering it to change its laws. The panel was created in response to a Uruguayan complaint about the import ban. Although the 1980 Montevideo Treaty - which binds all members of the Latin American Integration Association (ALADI) including all Mercosur countries - has plant and animal safety exemptions similar to those in GATT's Article XX, Brazil did not use environmental or health reasons to defend its measures before the arbitration panel. The arbitrators did not raise the issue either, and Brazil amended its domestic laws in 2002 and 2003 to exempt Mercosur from the import measures.

A further wrinkle to the Mercosur story arose when Uruguay lost a case against a similar import ban on retreaded tyres in Argentina. In October 2005, a different Mercosur panel upheld Argentina's measures, which it had defended on health and environmental grounds under the Montevideo Treaty. However, the trade bloc's appeals tribunal reversed this decision in December 2005, saying that the measures did not fulfil the environmental and health objectives in the Montevideo Treaty. It subsequently reconfirmed this decision in January 2006.

The WTO panel process

Argentina, Australia, Korea, Japan and the US have requested third-party status in the WTO case. According to the timeline set out in the DSU, the terms of reference and composition of the panel must be agreed upon by 9 February, and the actual proceedings of the panel would begin by 8 March at the latest.

Additional Resources

To access relevant WTO documents, Brazilian statements and fact sheets, information on the Mercosur case and past reporting, visit ICTSD's web site for the case.

ICTSD reporting.