In an earlier post, Joel and Simon commented on the importance of the Panel decision in the Brazil–Tyres case and indicated that there would be much more to discuss, especially how the Panel treated Brazil’s obligation under Mercosur. Here are some of my thoughts to share.
I believe the most significant contribution of the Panel decision is the new ground it developed for interpreting the chapeau of GATT Article XX. This new ground is also the key for understanding the Panel’s treatment of Mercosur.
The gist of the case is this: Brazil imposed an import ban on retreaded tyres, which are new tyres made out of used tyres but have a shorter lifespan than normal new tyres. The shortened lifespan of retreaded tyres results in a faster accumulation of waste tyres that cause special environmental and health hazards in Brazil’s tropical weather. The import ban, however, does not apply to Mercosur countries under an arbitration order of the Mercosur. Furthermore, while Brazil bans the imports of retreaded tyres, it allows the imports of used tyres from any country. Brazil did originally impose an import ban on used tyres, but had to suspend that ban pursuant to a domestic court order.
The Panel found that the import ban on retreaded tyres violated GATT XI, but was “necessary” to protect health within the meaning of Article XX(b). The Panel held, however, the ban did not meet the requirements of the chapeau of Article XX because it was applied in a manner that constitutes a means of “unjustifiable discrimination” and a “disguised restriction” on trade. The Panel’s decision is based on the finding that Brazil’s imports of used tyres are so substantial that they have “significantly undermined” the policy objective of the import ban on retreaded tyres. As for the Mercosur exemption, the Panel found that, at the time of its ruling, imports from Mercosur countries had not increased significantly, and therefore the exemption did not result in the ban being inconsistent with the chapeau. The Panel’s holding suggests that, should the imports from Mercosur countries increase substantially in the future, the exemption can be found to be inconsistent with the chapeau.
Thus, the Panel interpreted the chapeau requirements in this case by examining whether the declared policy objective of the ban has been “significantly undermined” by another measure (the imports of used tyres), or by the way in which the ban was implemented (the Mercosur exemption). In other words, the Panel examined whether the major loopholes existing in the Brazilian system have rendered the ban ineffective in achieving its declared policy goals. Using this approach necessarily requires the Panel to assess the impact of those loopholes quantitatively. And it was based on this quantitative assessment that the Panel reached its conclusions under the chapeau.
The Panel’s approach is new in Article XX jurisprudence. Previously, the chapeau had been substantively interpreted only in GATT XX(g) cases, namely, U.S.–Gasoline and U.S.–Shrimp. Given that XX(g) merely requires a “relating to” standard for justifying environmental measures, the AB more or less construed the chapeau as imposing a “necessary” standard, a higher one than that of “relating to”, as it suggested that there were alternative methods to achieve the same policy objective (such as reasonable efforts to collect foreign data in Gasoline, and negotiation in Shrimp). Article XX(b) and (d) cases, such as Korea–Beef, and EC– Asbestos, typically did not reach the stage of chapeau analysis because the measure in question would be either upheld or struck down under the stricter “necessary” standard of (b) or (d). One exception is the Panel decision in Argentina–Bovine Hides, in which the Panel held the measure in question was “necessary” under (d) but inconsistent with the chapeau because it was not “unavoidable.” This decision effectively interpreted (d) and the chapeau as requiring two different levels of necessity. The Panel decision was not appealed. The only AB decision involving a measure that has passed a “necessary” standard to the stage of chapeau analysis is U.S. – Gambling under GATS XIV(a). But that decision contains no substantive chapeau analysis, because the AB struck down the U.S. measure on the ground that the U.S. failed to prove its claim that the measure was not discriminatory at all. Hence, how to interpret the chapeau requirements in cases where the measure at issue has been found to meet the “necessary” standard under (a), (b) or (d) remains a puzzle under previous WTO decisions.
Now, the Tyre Panel has developed a new criterion for judging chapeau consistency: whether the declared policy objective of the measure in question has been significantly undermined by other measures of the government. This new criterion seems a permissible interpretation of the chapeau language (“such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade”). The Panel simply construed the words “applied in a manner” broadly, so as to cover not only the Mercosur exemption (which is part of the manner in which the ban was applied), but also the permitted imports of used tyres under the domestic court order (which is technically a different measure from the ban).
This new criterion also appears to be conceptually sound. It hinges on the policy objective of the measure, rather than looking at whether the measure is applied in a “rigid” or “unilateral” manner, standards applied by the AB in U.S.–Shrimp that are largely devoiced from the policy objective of the general exceptions. (One of the Panelists in this case had written critical comment on the AB interpretation of the chapeau, see Donald M. McRae, GATT Article XX and the WTO Appellate Body, in NEW DIRECTIONS IN INTERNATIONAL ECONOMIC LAW, ESSAYS IN HONOR OF JOHN H. JACKSON 219 (Bronckers & Quick eds., Kluwer 2000). For a further analysis and critique of the chapeau jurisprudence, see my article, at 251-273.)
While the Panel’s approach was prompted by the specific facts of this case, I believe the new criterion developed by the Panel can be generally applicable in interpreting the chapeau of GATT XX and GATS XIV. That is, if there is inconsistent application of the law in the country that significantly undermines the policy objective of the measure in question, the measure can be found to be inconsistent with the chapeau.
It is exciting to see new development of WTO jurisprudence in this important area. Brazil has indicated it will not appeal the decision. Presumably, it will keep the ban, but use the WTO ruling to fix the loopholes in its domestic system. If that happens, the Panel decision will have helped to promote environmental values in WTO law.
One additional comment on the Mercosure exemption: Brazil could have made an argument based on the “same conditions” element in the chapeau. It could have argued that Mercosur countries are located in the same geographic region that gives rise to the special health hazards from waste tyres, and are in similar stages of economic development that influence the demand for cheap retreaded tyres, whereas the EC has very different geographic and economic conditions affecting the consumption and health effect of retreaded tyres. This argument, if accepted, could have led to a finding that the ban was not applied in a manner that resulted in arbitrary or unjustifiable discrimination between the EC and Mercosure countries. Brazil may still use this line of reasoning to avoid conflicts between WTO and Mercosur obligations in the future if imports from Mercosur countries should increase substantially. But as a policy matter, Brazil would only want to make this argument if it is willing to share the burden of dealing with waste tyres with its fellow Mercosur countries.