BRAZIL CALLS WTO RULING IN RETREADED TYRES DISPUTE 'FAVOURABLE'

Brasilia has expressed satisfaction with the ruling of a WTO dispute panel in the EU's high-profile complaint against its import limitations on 'retreaded tyres'. It claims that the decision was largely favourable to its environmental and health-related arguments for the restrictions. Brussels is studying the details of the ruling and will decide whether to appeal.

The report, released to the two parties on 23 April, will remain confidential until mid-June. Both sides have been reticent about the specifics of the panel's reasoning.

'Retreaded tyres' are old tyres that have been reprocessed for a second and final use. At issue in the case are a series of trade restrictions imposed by Brazil on retreaded tyres. The EU claimed that Brasilia's policy of allowing imports of retreaded tyres from its Mercosur trade bloc -- while banning them from the rest of the world -- violated WTO rules.

Not disputing that the restrictions appeared inconsistent with its obligations under the General Agreement on Tariffs and Trade (GATT), Brazil sought to justify them on environmental, fire hazard, and health grounds. It contended that the shorter lifespan of retreaded tyres links them more directly than imported new tyres to pollution and other adverse effects associated with all waste tyres, which become breeding grounds for mosquitoes that spread malaria and dengue fever. Therefore, Brazil argued that its trade restrictions should be exempt from sanction under GATT Article XX, which describes the circumstances under which Members may deviate from their WTO obligations -- for instance, restricting trade to safeguard exhaustible natural resources and public health.

However, the introductory paragraph, or 'chapeau', of Article XX specifies that such deviations 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."

This is why Brazil's continued imports of retreaded tyres from Mercosur countries - while those from elsewhere are banned - is potentially problematic. Brasilia pointed to a Mercosur arbitration panel decision that compelled it to exclude Argentina, Paraguay, and Uruguay from the import restrictions on such tyres. It has argued that obeying this decision was necessary to comply with its international obligations and domestic laws, and was thus justified under the exemptions set out in Article XX(d). Brazil insists that it is simply not equipped to deal with the far greater amount of additional waste that would be generated if EU retreaded tyre imports were allowed (see BRIDGES Weekly, 14 March 2007, http://www.ictsd.org/weekly/07-03-14/story2.htm).

In a press release issued in response to the panel report, the Brazilian foreign ministry described it as "amply favourable" to its arguments. The ministry "recognised with great satisfaction the sensibility of the panel with regard to the environmental and health challenges faced by the country."

Sources close to the proceedings said that the panel appeared to have ruled against the way in which Brazil was applying the restrictions, while affirming its need - and therefore right - to block trade in retreaded tyres to pursue health and environmental goals. This would in turn suggest that minor changes to the policy could make the import limits WTO-compliant.

These sources claim that the panel agreed that Brasilia's import restrictions did indeed meet the 'necessity test' of GATT Article XX(b) and (g) requiring measures to respectively be 'necessary to protect human, animal or plant life or health' or for the 'conservation of exhaustible natural recourses'. However, the panel also found that the measures were applied in an arbitrary fashion, and thus did not qualify as an exemption under the chapeau.

Brazil's foreign ministry said that "as expected, the panel maintained the findings of the interim report," which had been circulated to both sides in mid-March. At that time, Roberto Azevedo, a senior official in the ministry, said that the panel had affirmed that some 'adjustments' to the restrictions on retreaded tyre imports would ultimately suffice to allow Brazil to maintain the ban.

The devil will lie in the details: if the panel has in fact accepted that the import restrictions, in principle, are in conformity with Article XX, it may have made it possible for Brazil to modify their application to ensure that they fully qualify as exemptions.

Once the report is made public in mid-June, the EU and Brazil will have 60 days to file for an appeal.

ICTSD reporting; "Relatório final sobre a proibição da importação de pneus reformados foi rígido com a OMC," BRASIL FATOR, 25 April 2007.