WTO INTERIM PANEL RULING FAVOURS EU IN RETREADED TYRES DISPUTE WITH BRAZIL

A WTO dispute panel appears to have made a preliminary ruling in favour of the EU's complaint against Brazil's import restrictions on 'retreaded tyres.' According to Brazilian newspapers, a confidential interim report circulated to the two parties on 12 March ruled that Brasilia's policy of allowing imports from its Mercosur trade bloc while banning them from the rest of the world was not consistent with WTO rules. Nevertheless, Brazilian officials have expressed a degree of satisfaction with the 300-odd page decision, suggesting that the findings would, if maintained, allow them to retain the measures with only modest adjustments.

The dispute over retreaded tyres -- old tyres that are reprocessed for a second and final use -- dates back to 2005, when Brussels filed its complaint at the WTO. Brazil has justified its import restrictions on environmental, fire hazard, and health grounds, contending that the shorter lifespan of retreaded tyres linked them more heavily than imported new ones to pollution and other adverse effects caused by all waste tyres. Claiming that an earlier ruling by a Mercosur arbitration panel compelled it to exclude Argentina, Paraguay, Uruguay, and Venezuela from the ban, Brasilia has argued that it was simply not equipped to deal with the far greater amount of additional waste that would be generated by EU imports. According to the O Estado de São Paulo newspaper, the EU supplied 95 percent of Brazil's imports of retreaded tyres prior to the ban, accounting for roughly 25 percent of its total market.

During the course of the case, environmental groups including the Centre for International Environmental Law (CIEL), as well as Brazilian human rights and anti-pollution organizations, had submitted 'amicus curiae' ('friends of the court') briefs to the panel explaining why the import restrictions were necessary. The spat has been the subject of heavy debate precisely because it sits uneasily athwart an intersection between rules to promote open trade and those to promote environmental protection. The case is also notable for being the first in which a developed country has challenged an ostensibly environmental measure taken by a developing one. Numerous Members, including Argentina, Australia, China, Mexico, Paraguay and the US joined the dispute as third parties.

The panel agreed with the EU that Brazil's policies violated GATT prohibitions on most types of quantitative import restrictions and failed to meet the country's national treatment and non-discrimination obligations (see BRIDGES Trade BioRes, 2 February 2006 http://www.ictsd.org/biores/06-02-03/story1.htm). According to Brazilian newspaper O Globo, the panel also rejected Brazil's argument that it lacked sufficient capacity to safely dispose of used tyres.

Brazil maintains that its actions were justified under GATT Article XX, which spells out the circumstances in which Members may deviate from their WTO obligations to restrict trade - for instance, in order to safeguard exhaustible natural resources and public health (see BRIDGES Weekly, 14 June 2006, http://www.ictsd.org/weekly/06-06-14/wtoinbrief.htm). However, the so-called 'chapeau', or introductory paragraph of that article, specifies that such measures are permitted so long as they "are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination... or a disguised restriction on international trade."

Brussels counters that Brazil's arguments are not justifiable, not only because it imports retreaded tyres from elsewhere in Mercosur: it also continues to import used tyres to convert them into retreaded tyres domestically. The EU argues that Brazil needs to improve its system for disposing of waste tyres.

In response to the report, Brazilian Environment Minister Marina Silva noted that there was a substantial difference in environmental terms between disposing of 100,000 tyres from Uruguay and doing the same for 80 million tyres from the EU.

Roberto Azevedo, a senior official in the Brazilian foreign ministry, insisted that nothing in the report would obligate Brazil to reopen its market to imports of retreaded tyres, as the EU appeared to be claiming. Despite the adverse nature of the interim ruling, the panel had affirmed that Brazil had the right to implement such import restrictions for health and environmental reasons. Azevedo suggested that this meant that some 'adjustments' would ultimately suffice to allow Brazil to maintain its import ban, according to O Estado de São Paulo.

In addition to the health and environmental hazards, substantial commercial interests are at stake in the dispute. O Globo reports that while used tyres can be imported for as little as USD 0.20, they fetch as much as USD 70 once retreaded. Brazilian tyre makers were critical of the interim ruling, even though not all of them agreed with Brasilia's arguments. A representative of the retreaded tyre industry claimed that it was conceivable that Brazil would end up having to import EU retreaded tyres, while maintaining a ban on importing old used tyres to retread.

The final ruling is expected to be circulated to the parties in late April and to the public in June. WTO dispute panels rarely reverse interim reports in their final decisions.

ICTSD reporting; "OMC obriga País a aceitar importação de pneus usados da União Européia" O ESTADO DE SAO PAULO, 13 March 2007; "Brasil perde disputa sobre importação de pneus na OMC," O GLOBO, 13 March 2007.