• On August 09, 2002 Argentina enacted Act no. 25.626 by which prohibits the imports of remoulded tires.
• In the LVI Ordinary Reunion of the Common Market Group (Grupo Mercado Común, GMC) celebrated in Brazil on November 2004, Uruguay informed about the possibility of implementing the dispute settlement mechanism by virtue of the ban imposed by Argentina to the import of remoulded tires by enacting the Act no. 25.626.
• The parties had a bilateral reunion on December 23, 2004 to make direct negotiations among them, pursuant to art. 4 and 5 of Olivos Protocol, without reaching a consensus on their differences.
• Given this, on February 23, 2005 Uruguay communicated the Mercosur Secretariat its intention to start arbitration according to Chapter VI and following of the Olivos Protocol.
• Uruguay argues:
o Before the Act num. 25.626 there was and administrative decision that prohibited the import of used tires into Argentina.
o The contested act, by extending that prohibition to remoulded tires is ignoring the differences between used and remoulded tires.
o Remoulded tires generate neither problems of transit security nor environmental problems different from the ones generated by new tires.
o The exceptions to determine restrictions to free trade among members of the Mercosur considered in article 50 of the Montevideo Treaty do not apply in this case. Regarding the exception based on protection to security (art. 50, b), Uruguay argues remoulded tires are safe. Regarding the one based on the protection of life and health of people, animals and vegetables (art. 50, d) Uruguay argues that the durability of a remoulded tire is the same as a new tire, therefore not adding any environmental impact.
o Argentina is violating articles 1 and 5 of the Treaty of Asunción by unduly inhibiting the free movement of goods within the Mercosur. Besides, Uruguay argues that Argentina is violating: Annex I of the Treaty of Asunción, principles of International Law, and principles of Integration Law. Adding that the ‘principle of estoppel’ is applicable to the case at hand.
• Argentina answered:
o The Act no. 25.626 is a non-economic prohibition that for Argentina is according to the provisions on art. 50 of the Treaty of Montevideo recognized by the Annex I of the Treaty of Asunción.
o The disputed Act is a preventive measure to avoid the potential damage that remoulded tires can cause to the environment, the health of people, animals, and vegetables compromising the development of present and future generations.
o Argentina recognizes and accepts the principles that promote free trade within the Mercosur, but argues that the new act is pursuant to the exceptions allowed on art. 50 of Treaty of Montevideo, giving three main reasons:
 The legally protected interest is the life and health of people, animals, and vegetables.
 The trade of remoulded tires between Argentina and Uruguay was marginal and not significant based on the amount of exports between the countries.
 The principle of proportionality does not apply because what are at stake are life, health and quality of life of its inhabitants.
o Argentina referred to these kinds of exceptions in other multilateral blocs like the European Union, the International Health Organization, and the GATT-WTO. Also made reference to the precautionary principle in Environmental Law.
o Argues that both, the principles of free trade and of environmental protection are equally part of the rules of the Mercosur.
o The disputed act is exceptional, proportional, non-discriminatory, is intended to protect one of the values mentioned in art. 50 of the Treaty of Montevideo, and there are no less restrictive alternative to intra-zone trade.

Issues:

• Specific Issues for Attention

The arguments raised by Argentina considering that both principles of free trade and environmental protection are equally part of the Mercosur.

Argentina brought in that exceptions to free trade are also considered in the European Union and other multilateral agreements as long as is proven that the restrictive measure is adopted with the aim of protecting the environment.

The reasoning from the Ad Hoc Arbitral Tribunal deciding the priority of the principle of environmental protection over the principle of free trade.

The Permanent Tribunal of Revision (TPR) of the Mercosur revoked the Ad Hoc Arbitral Tribunal award and ordered Argentina to repeal the act imposing the import ban.

The TPR used precedents from the Court of Justice of the European Union to base its decision because this case is the first one to be brought by the TPR.

• Procedural Practice Issues

Jurisdiction: Ad Hoc Arbitral Tribunal constituted according to the Dispute Settlement System of the Mercosur pursuant to the Olivos Protocol. According to the Protocol, if the parties are not successful in the negotiation stage, they can communicate to the Administrative Secretariat of the Mercosur their decision to start arbitration according to Chapter VI of the Protocol (art. 9 Olivos Protocol)

Standing: Uruguay alleges to have been injured by Argentinean Act no. 25.626 by which is banned the import of remoulded tires into Argentina. Before the contested act was enacted, there was a prohibition for the import of used tires but not remoulded ones. According to this, between 1997 and 2001, Uruguay’s industry produced remoulded tires that were exported to Argentina without restriction. Since the enactment of the new act this exports have been suspended.
The Olivos Protocol, which rules the arbitral procedure for dispute settlement in the Mercosur, requires the countries in a dispute to attempt to solve it through direct negotiations before starting arbitration. Argentina and Uruguay first went through negotiations without reaching a solution. Uruguay decided to start the ad hoc arbitral procedure according to Chapter VI of Olivos Protocol. The Arbitral Tribunal acknowledges the compliance of all the terms and conditions required by the Olivos Protocol for starting the arbitration.

Evidence:
• Both parts presented documents, statistical data, graphics, technical considerations and experts’ statements done on the hearing.
• For the Tribunal it was proven that a remoulded tire is virtually as safe in its use as a new tire. The remoulded tire has durability between 30% and 100% than a new tire. That a remoulded tire cannot be remoulded again.
• Regarding the environmental damage produced by used tires, when they become waste, Uruguay did not answered the evidence presented by Argentina. The Tribunal states that it seems doubtless that at the end of its useful life the tires become an undesirable waste and potentially dangerous.

Decision: By majority the Arbitral Tribunal decided that the Argentinean Act no. 25.626 is compatible with the Treaty of Asuncion and its Annex I, with the derived rules of that Treaty and with the applicable provisions of International Law.

Enforcement: The decision was appealed by Uruguay before the Permanent Tribunal of Revision of the Mercosur.

• Reason:

• The Tribunal considers that the two principles, of free trade and environmental protection, are conflicting and the prevalence of one over the other has to be decided.
• The Tribunal made reference to the following instruments to affirm that environmental protection has become a priority issue among nations, including Mercosur:
o Framework Agreement on Environment of the Mercosur.
o Rio De Janeiro Declaration on Environment and Development (Eco-92).
o Decisions no. 22/00 and 57/00 from the Common Market Council (Consejo del Mercado Común) reaffirming the principle of free movement of goods in the regional territory and ratifying the recognized exceptions for it.
• The Tribunal addressed the issue of the restriction to Integration Law and argues that free trade cannot have an absolute priority since it is an instrument of human wellbeing and not an end in itself:

“66. The principles of integration are repeatedly acknowledged by all the members of Mercosur, having been ratified by various manifestations of Uruguay and Argentina in divers moments of this arbitral procedure. Based on free trade, without restrictions or barriers, the legal systematic of integration coexists with the principles of proportionality, of the limitation of the sovereignty reserve, of reasonability, and of commercial predictability. Certainly, the search for integration and the consecration of its foundation in free trade only can make sense as instruments for the implementation of the well being of the human beings that live in the region. Understand well being as a broad concept that include all the elements that contribute to improve the quality of life of the people. In this framework, free trade cannot enjoy an absolute priority, given that it is an instrument of the human well being and not a end in itself. The concept of a barriers-free market has to be tempered with other principles, equally consecrated by Law, such as efficiency, cooperation among peoples, preservation of the environment, prevention, caution, among others.”

• For the Arbitral Tribunal, cooperation and mutual support between economic and environmental policies are essential for the safe and sustainable development of the region.
• The Arbitral Tribunal made reference to the use of objective scientific criteria by the public power for policy decision-making. For the Tribunal, science is a critical player to justify environmental protection measures and serves as a basis for formulating the development of environmental policy. As science is not always capable of offering the necessary evidence to compare –with certainty- the potential of future events that certain human activity might cause to the environment, the Tribunal considers that must be admitted the necessity of incorporating such “scientific uncertainty” as a component of environmental policy. Based on this reasoning, the Tribunal refers to the precautionary principle as corollary of the finding of scientific uncertainty to the unquestionable need to implement environmental policies. This principle is the authorization to adopt measures and prevent potential risks.
• Regarding the principle of estoppel argued by Uruguay, the Tribunal does not consider it applicable to the case at hand.
• For the Tribunal the fact that the useful life of remoulded tires can oscillate between 30% and 100% is enough to base its decision.
• The import of remoulded tires represents the acceleration of environmental liabilities for Argentina.
• “100. Recognized the fundamental importance of environment protection and adopted the principles that guide the application of the rules of Environmental Law, especially the principles of cooperation among peoples, preventive and precautionary, as was previously analyzed (items 68 and following), the Tribunal understands that the defense of environment, as long as it is based on fair grounds, can be used as an exception to the general norms of regional integration and, particularly, to those that regulate free trade among the countries of the Mercosur.”
• “102. In the case at hand, remaining unquestioned the environmental damage caused by the waste of unserviceable tires and being equally immune to doubts that the entry of remoulded tires into a given country increases its environmental liabilities, when that increase is compared to the increase that would be caused by new tires, Argentina had good reason to approve Act no. 25.626 of 2002 and, through it, prevent entry into the country of used, recap or remoulded tires.”

• Performance:

• The decision was appealed by Uruguay before the Permanent Tribunal of Revision of the Mercosur.