EU APPEALS WTO RULING IN RETREADED TYRE DISPUTE WITH BRAZIL

The EU has formally appealed a WTO ruling against Brazil's import restrictions on retreaded tyres, taking the unusual step of challenging a decision in which it was nominally victorious.

Brussels is complaining that the dispute panel "disregarded the actual facts in Brazil and went against established WTO law," and that as a result, the ruling is unacceptably easy for Brasilia to implement (see BRIDGES Weekly, 20 June 2007).

In the dispute, the EU had argued that the import measures were motivated by a desire to protect local tyre manufacturers from import competition, rather than by the pursuit of genuine public health objectives as claimed by Brasilia. The panel ultimately concluded that although the limitations were in theory justifiable to safeguard health and environmental considerations, Brazil applied them in a way that amounted to an unjustified and discriminatory restriction of trade.

While announcing the appeal on 3 September, the EU welcomed the panel's recognition that the restrictions were inconsistent with WTO rules. However, it disagreed with the "extremely narrow condemnation of Brazil, which makes it possible for Brazil to implement the ruling merely by stopping the importation of used tyres and without removing the import ban on retreaded tyres."

Retreaded tyres are used tyres reprocessed for a second and final use. Brazil had argued that these tyres had a shorter life span than new ones and therefore contributed to a faster accumulation of waste tyres, which in turn provide fertile breeding grounds for disease-carrying mosquitoes.

The panel effectively accepted Brazil's claim that the sheer volume of waste tyres was already beyond the country's capacity for environmentally responsible disposal, and said that the import restrictions and associated fines were necessary to meet the public health goals. WTO rules, specifically GATT Article XX(b), allow governments to limit trade when necessary in order to protect human, animal, or plant life and health.

Where Brazil erred, ruled the panel, was in how it applied the measures. The so-called 'chapeau', or introductory paragraph, of GATT Article XX specifies that permissible trade restrictions must not be applied "in a manner which would constitute a means of arbitrary or unjustifiable discrimination... or a disguised restriction on international trade."

The principal reason for this conclusion was that Brazil's retreaded tyre industry had actually imported large quantities of otherwise-banned used tyres between 2000 and 2005, after receiving numerous court injunctions allowing them to do so (government objections notwithstanding). Thus, that period saw used tyre imports soar, including from the EU, while imports of EU retreads ground to a halt. The panel found that the court-sanctioned imports of used tyres defeated the very purpose of the retread ban, and had benefited Brazilian tyre makers at the expense of their competitors elsewhere.

In June, Brazilian officials welcomed the ruling, pointing to the panel's acceptance of their health- and environment-related justifications for the import restrictions. At the time, some trade lawyers expressed surprise at the extent to which the panel agreed with Brasilia's arguments and left the door open for many of the limitations to be maintained with only minor modifications.

Sources in Brazil now suggest that the government is planning to give the tyre import ban the strength of federal law. This would put an end to the court injunctions that the panel deemed unacceptable, while leaving in place the import ban to which the EU objects.

Brussels: retread import ban did not reduce waste

Brussels argues that the panel should not have let Brazil off so lightly. Claiming to have "clearly shown that banning the import of retreads does not reduce waste," particularly "in a country such as Brazil where domestic used car tyres cannot be retreaded," it said that the panel was simply wrong to conclude that Brazil's import ban reduces public health risks.

Furthermore, the EU criticised the panel for "discount[ing] alternative measures that would serve public health in Brazil much more effectively," such as improving waste tyre disposal.

As for the panel's decision to refrain from addressing Brazil's exclusion from the import ban of tyres from Mercosur partners Argentina, Paraguay, Uruguay, and Venezuela, a statement from the European Commission called it "clearly discriminatory," saying that it "makes no sense from the perspective of protection of public health." Brazil had argued that the exception was necessary due to binding regional obligations; the panel had noted that the volume of tyres imported from those countries was currently not significant.

The case, which represents the first-ever challenge against trade restrictions imposed by a developing country for health and environmental reasons, was closely watched by green groups. Thus, while faulting the panel's interpretation of the exceptions in GATT Article XX, the EU took pains to emphasise that it was "strongly in favour of environmental and public health protection," but the Brazilian measures "were not intended to protect the environment at all, and… had no such effect."

Brussels insisted that it was appealing "these points of the panel's ruling to defend not only its trade interests, but also the general interest that WTO rules be applied so as to ensure real and effective protection of public health and the environment, rather than allowing protectionism."

According to the timetable for WTO dispute settlement, the appeal, which started on 3 September, should last for 90 days.

The EU's appeal (WT/DS332/9) is available online at http://docsonline.wto.org/.

ICTSD reporting.