Mercado Común del Sur/Southern Common Market
MERCOSUR, is a major trade bloc of the southern Western Hemisphere. Full members are Argentina, Brazil, Paraguay, and Uruguay. Associate members are Bolivia, Chile, Colombia, Ecuador and Peru. Venezuela was added as a full member in 2005, but the congresses of Brazil and Paraguay have not ratified the action.
||Keywords: Permanent Tribunal of Review, dispute settlement, Protocol of Olivos, tires
The organization's purpose is to link economies, promoting free trade toward the goal of regional economic integration. Its constitutive treaty is the Treaty Establishing a Common Market;
MERCOSUR's major organs are:
Recent Developments: Permanent Tribunal of Review validates MERCOSUR exception criteria
- Council of the Common Market;
- Common Market Group;
- Trade Commission;
- Economic and Social Consultative Forum;
- Permanent Tribunal of Review;
On April 25, 2008, the Permanent Tribunal of Review (TPR) of MERCOSUR issued a new decision in the long-running dispute between Argentina and Uruguay concerning importation of remolded tires from Uruguay into Argentina.
Uruguay initiated an appeal at the TPR alleging failure of Argentina to comply with TPR Order No. 1/2005. Order 1/05 obligated Argentina to modify a domestic statute (Law No. 25.626) that prohibited the importation from Uruguay of remolded (retreaded) tires into Argentina.
The new TPR Order 1/08 commenced with a review of the origins of the current dispute. After Argentina passed statute 25.626 prohibiting importation of remolded tires from Uruguay in 2002, Uruguay referred the matter to MERCOSUR for arbitration. By Order 1/05 the TPR found the Argentine statute infringed on free trade within the meaning of the governing documents of MERCOSUR. Order 1/05 rejected the Argentine argument that Law 25.626 was a non-economic measure subject to the security and/or health and welfare exceptions in Article 50 of the Treaty of Montevideo (TM). Order 1/05 prohibited Argentina from taking measures inconsistent with its contents, stating that the offending statute should be repealed or changed by Argentina. Subsequently, Uruguay instituted compensatory measures under Article 31 of the Protocol of Olivos (PO), after Argentina did not remedy the offending statute. Argentina complained the compensatory measures were excessive, and the TPR assembled and issued Order No. 1/2007 of June 8, 2007, finding the compensatory measures justified and consistent with applicable norms.
Argentina then enacted Law No. 26.329, conditioning importation of remolded tires (of whatever country of origin) on previous exportation to that country of used tires of Argentine origin. Uruguay requested the current TPR action pursuant to PO Art 30.
Argentina argued implementation of Law 26.329 fulfilled the obligation imposed by Order 1/05 and met the test of Article 50, TM. Argentina noted the new law eliminated the prohibition on importation applicable to remolded tires, replacing it with a nondiscriminatory disposition not directed at Uruguay, intended to maintain stability in the quantity of used tires in its territory. It argued the measure was justified by article 50, TM and by "symbiotic" jurisprudence on Article XX of the GATT of 1994 , incorporating GATT jurisprudence because Order 1/05 provided no guidance on the concept of necessity for implementing measures affecting free trade, or on means least restrictive to trade to meet valid policy objectives.
Argentina determined the new law to be a "necessary" measure for the protection of health and life of persons and animals or the preservation of plant life from risks derived from the accumulation of discarded tires. It considered the relative importance of the interests or values that the measure was intended to protect; the measure's contributions toward the end pursued; the restrictive effect on international commerce; and comparative alternatives (it determined there were none). It cited by analogy the case of the EU against Brazil involving remolded tires, stating that it firmly establishes that remolded tires have a shorter lifespan than new tires, resulting in more discards.
Finally, Argentina claimed Uruguay failed in its obligation as appellant to prove what other alternatives it might have had, noting the new law to be quite different than that originally at issue, non-discriminatory, not arbitrary, and justifiable.
Uruguay pointed out it had not received formal notice of the substitute law from Argentina but divined Argentina's intent from the circumstances by which the law was delivered to Uruguay. It argued that any derogation from the principle of free trade must be interpreted restrictively, with the burden of proof of acceptability of the restriction on its proponent, in this case, Argentina. It argued that Argentina substituted for the original measure found improper in Order 1/05 another measure unjustifiably restricting commerce as defined in Order 1/05. Uruguay also argued that under Order 1/05 the new measure was discriminatory, disproportional, and in violation of ordering clauses 3 and 4.
In its analysis, the TPR expressly confined itself to determining whether Law 26.329, in its modification of the regime imposed by Law 25.626, complied or not with the terms of Order 1/05, and, if so, whether Uruguay should have ended the compensatory measures when compliance with Order 1/05 was achieved. Explicitly stating it had no authority to consider matters already decided by Order 1/05, the TPR reviewed a list of matters decided in that Order:
With this basis, the TPR determined the previous finding of "no grave nor irreversible damage" directly undercut the continued Argentine argument that importation of remolded tires presents a threat ("situation of risk to the life and health of persons, animals, and plant life") triggering a valid "necessity" to respond. The TPR also concluded application of a rigid criterion as requested by Argentina would possibly cause future prohibitions of a great quantity of materials in general use whose toxicity is potentially much greater than that of remolded tires.
- The single principal of free trade governs the matter.
- The party invoking an exception to free trade must prove it.
- The viability of the exception is subject to the following four factors:
- Whether the measure in question effectively restricts free trade;
- Whether the character of the measure is discriminatory;
- Whether the measure is justified or not;
- Whether the measure is proportional, considering that derogations from free trade must be evaluated restrictively.
- The prohibition in Argentine statute 25/626 did not reduce environmental damage applicable to the case.
- The alleged damage pursuant to the criteria of the case is neither grave nor irreversible.
The TPR did not consider Argentine arguments based on reasoning already rejected in Order 1/05. Characterizing the new law as clearly a restraint on free trade, and clearly discriminatory, in that it treats differently foreign and domestic products, the TPR rejected Argentine arguments of changed circumstances. Lacking grave or irreversible damage, the TPR found the Argentine statute to be disproportional. The TPR thus concluded that the measure failed the four compliance criteria for exceptions established by Order 1/05 and found Argentina's obligations under Order 1/05 not fulfilled. It also found Uruguay justified in maintaining compensatory measures pending Argentina's fulfillment of its Order 1/05 obligations.
The TPR is a very young arbitral organization (formed in 2004). This order continues the development of its jurisprudential approach. In its various orders concerning this dispute the TPR has determined that the integrative process established by the Treaty of Asunción, MERCOSUR's foundational authority, has one guiding legal principal: free trade. This determination (contrary to that of the ad hoc Tribunal overturned by Order 1/05) categorizes countervailing concerns as exceptions to be construed narrowly. As it did in Orders 1/05 and 1/07, the TPR rejects attempts by Argentina to import criteria from other institutions (notably the concept of "necessity" for measures to protect life and health directly drawn from GATT article XX). This position is consistent with the TPR conviction that the integrative process requires autonomy of decision making. Order 1/08 validates the findings of Order 1/05 and cements the MERCOSUR criteria for establishing the validity of exceptions to the free flow of trade. How the criteria are developed in future disputes involving different arbitrators, and how the TPR responds to political and other pressures will be interesting to observe.
U.S. Navy JAG Corps Commander (Ret.)
1 December 2008
Laudo No. 1/2008, Laudo del Tribunal Permanente de Revisión en el asunto N°1/2008 "Divergencia sobre el cumplimiento del Laudo N°1/05 iniciada por la República Oriental del Uruguay (art. 30 Protocolo de Olivos)" , April 25, 2008 [hereinafter Order 1/08],
(Award Number 1/2008, Award of the Permanent Revision Tribunal in the topic No. 1/2008 "Divergency about the fulfilling of Award No. 1/05 initiated by the Oriental Republic of Uruguay (Art. 30 Protocol of Olivos)", April 25, 2008 hereinafter Order 1/08) available in Spanish at http://www.mercosur.int/msweb/portal%20intermediario/es/
controversias/LAUDO%20N_1%20DE2008.pdf (last visited August 4, 2008).
Laudo No. 1/2005, Laudo del Tribunal Permanente de Revisión Constituido para Entender en el Recurso de Revisión Presentado por la República Oriental del Uruguay contra el Laudo Arbitral del Tribunal Arbitral ad hoc de fecha 25 de Octubre de 2005 en la Controversia "Prohibición de Importación de Neumáticos Remoldeados Procedentes del Uruguay", December 20, 2005 [hereinafter, Order 1/05], (Award Number 1/2005, Award of the Permanent Revision Tribunal who convened to understand the appeal presented by the Republic of Uruguay versus the arbitration award handed down from the Arbitration Tribunal ad hoc on October 25, 2005 regarding the controversy over the prohibition of the importation of remolded tires originating from Uruguay December 20, 2005 available in Spanish at http://www.mercosur.int/msweb/portal%20intermediario/es/controversias/
arquivos/TPR_Laudo001-2005_Importacion%20de%20Neumaticos%20Remoldeados.pdf (last visited August 4, 2008).
Order 1/05 also revoked the decision of the ad hoc tribunal that had first considered the issue with contrary conclusions, resulting in an Uruguayan appeal. Laudo del Tribunal Ad Hoc del Protocolo de Olivos, sobre la controversia " Prohibición de Importación de Neumáticos Remoldeados ", October 25, 2005 (Award of the Protocol of Olivos ad hoc Tribunal about the controversy "Prohibition of Importation of Remolded Tires" hereinafter ad hoc Tribunal, available in Spanish at http://www.mercosur.int/msweb/portal%20intermediario/es/
controversias/arquivos/TPR_Tribunal%20AdHoc_Laudo%20Neumaticos_ES.pdf (last visited Aug. 4, 2008).
Treaty Establishing the Latin American Integration Association, Art. 50, Aug. 12, 1980, 20 I.L.M. 672. available at http://untreaty.un.org/unts/60001_120000/11/17/00020835.pdf (last visited Aug. 13, 2008). Article 2(b), Annex I of the Treaty of Asunción establishing MERCOSUR, available at
http://www.sice.oas.org/trade/mrcsr/mrcsrtoc.asp, incorporates by reference the exceptions in Article 50 of the Treaty of Montevideo.
Olivos Protocol for the Settlement of Disputes, Feb. 18, 2002, 42 I.L.M. 2 (entered into force in January 2004) available in Spanish at http://www.sice.oas.org/Trade/MRCSR/olivos/polivos_s.asp (last visited Aug. 11, 2008).
Laudo No. 01/2007, Laudo del Tribunal Permanente de Revisión constituido para entender en la solicitud de pronunciamiento sobre exceso en la aplicación de medidas compensatorias - Controversia entre Uruguay y Argentina sobre prohibición de importación de neumáticos remoldeados procedentes del Uruguay, Jun. 8, 2007 [hereinafter Order 1/07],
(Award No. 01/2007, Award of the Permanent Revision Tribunal who convened to understand the subjugated verdict of compensatory measures given in excess - regarding the controversy between Uruguay and Argentina over the prohibition of the importation of remolded tires originating from Uruguay June 8, 2007) available in Spanish at http://www.mercosur.int/msweb/portal%20intermediario/
es/documentos/TPR%20Laudo%2001%20-%2007.pdf (last visited August 13, 2008). See also Robin M. Blackwood, MERCOSUR Tribunal Interprets Retaliatory Trade Actions under Protocol of Olivos, (2008), Reports on International Organizations (RIO), American Society of International Law, http://www.asil.org/rio/ (last visited Aug. 4, 2008).
The statute, approved on Nov. 28, 2007, reads in pertinent part:
Article 3. The importation of remolded tires - N.C.M. 4012.11.00, 4012.12.00, 4012.13.00 and 4012.19.00- of whatever origin will only be authorized in quantities equal to or less than the number of used tires - N.C.M. 4012.20.00- of the same type that would have been exported to that destination from the Republic of Argentina in the same fashion that such importation was authorized.
Available in Spanish from Federación Argentino del Neumático at http://www.faneumatico.org.ar/noticia12.htm (last visited Aug. 1, 2008.)
See General Agreement on Tariffs and Trade 1994, April 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 187, 33 I.L.M. 1153 (1994). GATT 1994 must be read in conjunction with GATT 1947, 55 U.N.T.S. 194. Article XX, available at http://www.sice.oas.org/Trade/ur_round/58b2.asp#Article%20XX (last visited Aug. 12, 2008), allows certain restrictions "necessary to protect human, animal or plant life or health". The similar provision of the TM is framed in terms of "measures relating to . . . [p]rotection of human, animal and plant life and health". It does not impose the "necessity" requirement.
See Panel Report - Brazil - Measures Affecting Imports of Retreaded Tires, WT/DS332/R (June 12, 2007) p.175, para.7.130. Notwithstanding this finding, the Panel found that Brazil had failed to prove its import ban on EU retreaded tires was justified.
These clauses state:
3. By a majority, determines that the Republic of Argentina is prohibited upon notice of the present order, from adopting or employing any measure that is contrary to this pronouncement or which obstructs its application.
4. By a majority, determines that the present decision will have effect until Mercosur, by proper institutional means, approves a consensual norm about the question at issue in this action relative to the theme of importation of remolded tires.
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