WTO Panel decision in Brazil - Tyres supports safeguarding environmental values

Update: The Mercosur Exemption Reversed – Conflict between WTO and Mercosur Rulings and Its Implications for Environmental Values (December 31, 2008)

The recent decision of the World Trade Organization's Panel in the Brazil - Tyres[1] case has the potential to become a milestone in WTO jurisprudence on trade and the environment. At issue was Brazil's ban on imports of retreaded tyres. The European Communities (EC) challenged the ban as a violation of WTO rules, whereas Brazil defended the measure as necessary to protect health and the environment. The Panel held that, although the ban was necessary to protect health and the environment, it was applied in a WTO-inconsistent manner because Brazil failed to enforce a similar ban on used tyre imports. Thus, the Panel decision effectively directed Brazil to impose further trade restrictions so as to advance its environmental objective. Previous WTO decisions have not gone this far in safeguarding environmental values.

Brazil has indicated that it will accept the Panel's ruling and implement the additional ban on used tyres. The European Communities, however, has decided to appeal. It remains to be seen, therefore, whether the WTO Appellate Body will uphold the Panel's "green" decision.

Background

Retreaded tyres are produced by reconditioning used tyres; they have a shorter lifespan than new tyres and are sold at a cheaper price. Brazil imposed the ban on retread imports in 2000, claiming such imports led to a faster accumulation of waste tyres, which create health and environmental hazards by providing breeding grounds for mosquito-borne diseases such as dengue fever, yellow fever, and malaria, and by causing tyre fires that are difficult to control. Furthermore, Brazil claimed, it is not only costly to collect waste tyres scattered in its vast territory, but also technologically impossible to dispose of waste tyres without negative environmental consequences.

There is an exemption for retreaded tyres produced in members of MERCOSUR - the free trade arrangement among Brazil, Argentina, Uruguay, and Paraguay. Brazil established this exception after it lost to Uruguay in a MERCOSUR arbitration, which ruled that its ban violated MERCOSUR obligations.

Brazil originally also imposed a ban on used tyre imports, but that ban has been suspended through domestic court injunctions obtained by Brazilian retread producers. It is cheaper for the Brazilian producers to import used tyres than to collect them domestically.

The EC is a net exporter of retreaded tyres, for which there is only a limited demand in European markets. Its retread exports declined substantially after Brazil imposed the ban. The EC claimed that the ban was not designed to protect the environment, but rather to protect Brazil's domestic retread industry from foreign competition.

Major Legal Issues

An import ban violates the General Agreement on Tariffs and Trade (GATT) Article XI:1, which prohibits quantitative restrictions on imports or exports. The question, however, is whether the ban can be justified by one of the GATT exceptions. In this case, Brazil invoked GATT Article XX(b) that excepts measures "necessary to protect human, animal or plant life or health."

Is the ban "necessary" to protect human health and the environment?
- The link between retreaded tyres and health/environmental risks

A threshold issue was to determine whether retreaded tyres could cause health and environmental concerns. (The Panel accepted the use of the term "environment" in this case as shorthand for "animal or plant life or health" within the meaning of Article XX(b).) According to the EC, retreaded tyres are not waste tyres and do not in themselves cause health concerns. Since all products eventually turn into waste, and since many low- quality products have short lives, the EC argued, if Brazil's ban were allowed, there would be no reason why other members could not restrict imports of any product having a shorter life than competing domestic products. The Panel dismissed the EC's argument by noting that there had been other WTO cases in which the risk being addressed through a measure did not involve the exact product at issue. For example, the Panel pointed out, the health risk addressed in U.S.-Gasoline[2] related to air pollution caused by the consumption of gasoline rather than to gasoline itself. "While retreaded tyres are distinct from waste tyres," the Panel stated, "waste tyres are nothing other than tyres that have reached the end of their lifecycle as tyres."[3]

The Panel then examined whether the accumulation of waste tyres creates health and environmental risks. It accepted the evidence presented by Brazil that numerous waste tyres scattered in its territory provide perfect breeding grounds for mosquito-borne diseases, and can cause tyre fires that harm humans, animals and plants alike. As for the EC's argument that the risks posed by waste tyres are due to Brazil's poor management of waste tyres, the Panel stated that, even if proper management of waste tyres may significantly reduce such risks, "that does not negate the reality that waste tyres get abandoned and accumulated and that risks associated with accumulated waste tyres exist in Brazil."[4]

- The "necessity" test

In deciding whether the ban was "necessary" to achieve Brazil's stated objective, the Panel followed the established approach in Article XX cases. It engaged in weighing and balancing several factors: the relative importance of the policy objective pursued by the measure; the contribution of the measure to the realization of the policy objective; and the restrictive impact of the measure on international commerce. While recognizing that an import ban is as trade-restrictive as a measure can be, the Panel believed that "the objective of protecting human health and life against life-threatening diseases, such as dengue fever and malaria, is both vital and important in the highest degree."[5] In evaluating the ban's contribution to this objective, the Panel decided it was unnecessary to examine the actual impact of the ban on the reduction of waste tyres; instead, it would suffice to know whether the ban is capable of contributing to such objective. Since all retreaded tyres have a shorter lifespan than new tyres, the Panel logically concluded that the ban can contribute to the reduction of waste tyre accumulation in Brazil.

Under Article XX jurisprudence, a measure is "necessary" only if there is no less trade-restrictive alternative reasonably available. The Panel examined a number of alternatives identified by the EC, which ranged from preventive measures, such as promotion of public transportation, to various disposal methods, such as landfill, stockpiling, energy recovery and recycling. It found that while these measures could each contribute to the reduction of waste tyres or address some aspects of the heath/environmental risks involved, none of them, either individually or collectively, would safely eliminate the risks arising from waste tyres, as intended by the import ban. Hence, the Panel concluded, they were not reasonably available alternatives to the ban.

Is the ban applied consistently with the requirement of the chapeau?

A measure justifiable under Article XX(b) must also meet the requirement of the chapeau of Article XX that it is "not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade."

1. Arbitrary or unjustifiable discrimination

The EC argued that the manner in which Brazil applied the ban constituted arbitrary and unjustifiable discrimination because (i) the ban did not apply to MERCOSUR countries, and (ii) Brazilian producers were allowed to import used tyres, even though such imports produce the same environmental externalities as imports of retreaded tyres. The Panel agreed that the ban was implemented in a manner that resulted in discrimination between MERCOSUR and non-MERCOSUR countries and between Brazil and other WTO members. The question then is whether such discrimination is "arbitrary or unjustifiable" within the meaning of the chapeau.

- The MERCOSUR exemption

The Panel found the discrimination arising from the MERCOSUR exemption was neither "arbitrary" nor "unjustifiable." According to the Panel, this discrimination was not arbitrary because Brazil adopted the exemption to comply with the ruling of a MERCOSUR tribunal rather than as a result of its own capricious or unpredictable decision. The Panel then examined the volumes of retreaded tyres imported from MERCOSUR countries and found that such imports had not been significant enough to undermine Brazil's ability to fulfill its objective. Based on this "effect" test, the Panel concluded that, as of the time of its ruling, the discrimination arising from the MERCOSUR exemption was not unjustifiable.

It should be noted that, while allowing the MERCOSUR exemption, the Panel did not exclude the regional trade arrangement categorically from the application of Article XX. On the contrary, it indicated that "the fact that we give due consideration to the existence of Brazil's commitments under MERCOSUR ... does not imply that the exemption must necessarily be justified."[6] Indeed, the Panel's ruling suggests that should the imports from MERCOSUR countries increase significantly in the future, the exemption may become "unjustifiable."

- Imports of used tyres

As for the discrimination arising from used tyre imports, the Panel found it not "arbitrary" but "unjustifiable." The discrimination was not arbitrary because the imports were made through injunctions granted by Brazilian courts, which the Panel believed were not capricious or unpredictable. However, the Panel also found the granting of injunctions directly contradicted the rationale of the ban on retreads since "it effectively allows the very used tyres that are prevented from entering into Brazil after retreading to be imported before retreading."[7] In this regard, the Panel again employed an effect test. It found that used tyre imports had been taking place in such a large amount that the achievement of Brazil's declared objective was being "significantly undermined."[8] Consequently, it found the discrimination arising from used tyre imports "unjustifiable."

Since Brazil did not claim the conditions prevailing in Brazil were different from those in other WTO members, the Panel held that the ban was being applied in a manner that "constitutes a means of unjustifiable discrimination between countries where the same conditions prevail."[9]

2. Disguised restriction on international trade

Based on the same rationale as that underlying its finding on unjustifiable discrimination, the Panel found that the ban was applied in a manner that constituted a disguised restriction on international trade, "since imports of used tyres are taking place to the benefit of the Brazilian retreading industry in such quantities as to seriously undermine the achievement of the stated objective of avoiding the further accumulation of waste tyres in Brazil."[10]

Implications

If Brazil restores its ban on used tyre imports, as it is expected to do under the Panel's ruling, Brazilian retread producers will have to rely on domestically-generated used tyres for production. Consequently, more used tyres can be collected domestically, contributing to a reduction of waste tyre accumulation in Brazil.

Tyre retreading is an environmentally-friendly measure; free trade in retreaded tyres may well lead to a more efficient allocation of resources for retreading and for disposing of tyre waste on a global basis. However, insofar as the importing country is concerned, such trade can also worsen its environment, as Brazil has demonstrated in this case. Trade in waste or recycled products, therefore, may present a different set of issues from trade in new products.

This case is the first in GATT/WTO history that involves a recycled waste product. Significantly, the Panel decision is consistent with the principles of the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal,[11] the most comprehensive international agreement to date concerning waste trade. The Basel principles include minimization of waste generation (the reduction principle) and local disposal of wastes to the extent possible (the proximity principle). Furthermore, the Convention recognizes the sovereign right of a State to ban imports of hazardous and other wastes, and prohibits the export of such wastes to developing countries without their prior consent. Thus, the Basel norms endorse restrictions on trade in waste products and advocate the right of a sovereign nation to discriminate against foreign-generated waste.

The Panel did not invoke the Basel Convention explicitly, evidently because the Convention does not cover tyre waste directly. But the Panel adopted the Basel norms implicitly in its interpretation of the "necessity" test under Article XX(b). For instance, when noting the EC's argument that the reduction principle of the Basel Convention applies to hazardous waste only, the Panel commented: "[p]olicies to address "waste" by non-generation of additional waste are a generally recognized means of addressing waste management issues."[12] In assessing the health/environmental risks posed by waste tyres and in evaluating alternative methods of tyre disposal, the Panel made numerous references to the Basel Technical Guidelines on the Identification and Management of Used Tyres,[13] which were adopted by the Parties to the Convention in recognition of "the serious health and environmental problems" used tyres may cause.

Conceptually, the most difficult barrier in integrating the Basel norms into WTO law lies in the apparent conflict between the WTO principle of nondiscrimination and the Basel principle of differential treatment of wastes generated in different countries. In the context of GATT Article XX, the nondiscrimination requirement of the chapeau presents the challenge. Previous WTO cases do not provide much guidance in this regard, as they concern either generally polluting products (such as gasoline and asbestos) or endangered species (such as sea-turtles), in which nondiscrimination between the importing and exporting countries is inherently consistent with the objective of protecting health and the environment. In light of the specific facts of this case, the Panel was able to interpret the chapeau as requiring consistent application of the policy objective within the importing country's domestic system. This interpretation resolved the potential conflict of norms in a way that is consistent with the purpose of the policy exceptions of Article XX.

About the Author
Julia Ya Qin, an ASIL member, is an Associate Professor of Law at Wayne State University Law School.

Footnotes