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275

The Solange-Method as a Tool for Regulating Competing Jurisdictions

Among International Courts and Tribunals

NIKOLAOS LAVRANOS*

I. INTRODUCTION

In the past decade, the proliferation or multiplication of international courts and tribunals, competition between these courts, and the possible fragmentation of international law as a result of the lack of a hierarchical structure, has received increasing attention from a vast array of scholars and practitioners.1 It was therefore, appropriate that a conference on this topic entitled, “International Courts and Tribunals in the 21st Century: The Future of International Justice” be organized to reflect on the current situation and how to move forward.2

This article outlines two issues that were raised in the first panel of the conference for which this author was invited to

* J.D., LL.M., Senior Researcher, Faculty of Law, ACIL, University of Amsterdam; Max Weber Fellow at the EUI, Florence, as of September 1, 2008. This article has been written as part of my NWO-sponsored research project, “Competing Jurisdiction Between the ECJ and Other International Courts and Tribunals” (2005-2009). I am indebted to Nicolas Vielliard for his assistance. The author can be contacted at nlavranos@yahoo.com. 1. See YUVAL SHANY, REGULATING JURISDICTIONAL RELATIONS BETWEEN NATIONAL AND INTERNATIONAL COURTS (2007) [hereinafter SHANY, REGULATING JURISDICTIONAL RELATIONS]; YUVAL SHANY, THE COMPETING JURISDICTIONS OF INTERNATIONAL COURTS AND TRIBUNALS (2003) [hereinafter SHANY, COMPETING JURISIDICTIONS]; Nikolaos Lavranos, The MOX Plant and Ijzeren Rijn Disputes: Which Court is the Supreme Arbiter?,19 LEIDEN J. INT’L L. 223, 223-46 (2006) [hereinafter Lavranos, The MOX Plant]. 2. A conference organized by the Project on International Courts and Tribunals (PICT) in cooperation with the Permanent Court of Arbitration and the Grotius Centre for International Legal Studies, held at the Peace Palace, The Hague, Nov. 30 – Dec. 1, 2007 [hereinafter PICT Conference at The Hague].

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comment upon. The first, more preliminary, question was whether signs of the fragmentation of international law could be detected as a result of the multiplication of international courts and tribunals. The second question was whether there is a need for further general or specific rules to regulate overlapping jurisdiction among those courts. More specifically, the question was put as to whether in this context, comity would be an appropriate general approach to handle competing jurisdiction.

The analysis below follows the order of these questions. Accordingly, Part II presents several case-studies which illustrate the various effects of overlapping jurisdictions. Part III discusses possible solutions to avoid the negative effects associated with divergent or conflicting rulings by different courts and tribunals on the same legal issue. The focus will be on comity, specifically, on the more forceful variation of it, namely, the so-called Solange- method (Solange means “as long as” in German)3 developed by the German Federal Constitutional Court.

II. CASE-STUDIES ON THE EFFECTS OF THE MULTIPLICATION OF INTERNATIONAL COURTS AND TRIBUNALS

In this part, several case-studies will be presented to illustrate the effects that a multiplication of international courts and tribunals can have when they come to divergent or conflicting rulings or simply negate the existing jurisdiction of another court or tribunal. The multiplication of international courts and tribunals is not problematic on its own. On the contrary, it signals preparation on the part of states to use courts and tribunals for settling their disputes more often, rather than using armed forces. In other words, the multiplication of international courts and tribunals indicates a movement towards a rule of law based dispute settlement between states.4 Such multiplication, however, may raise problems when courts arrive at divergent or even conflicting rulings—as has been the case on several occasions. The primary sources of these problems stem from the lack of a hierarchical, legally binding relationship, between all the courts and tribunals.

3. Nikolaos Lavranos, Das So-Lange-Prinzip im Verhältnis von EGMR und EuGH, 41 EUROPARECHT 79, 79-92 (2006) [hereinafter Lavranos, Das So-Lange-Prinzip]. 4. See Ernst-Ulrich Petersmann, Multilevel Judicial Governance of International Trade Requires a Common Conception of Rule of Law and Justice, 10 J. INT’L ECON. L. 529, 529 (2007) [hereinafter Petersmann, Multilevel Judicial Governance of International Trade].

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The lack of a singular hierarchy means that the various courts and tribunals are not bound by each other’s jurisprudence, permitting them to act, formally and legally speaking, in “clinical isolation.”5

The case-studies below cover a wide range of international law, from environmental law, trade law, and human rights law, to general international law issues such as individual and state responsibility. Moreover, jurisdictional overlap also takes place between different legal orders, for example, the European Community (EC), the North America Free Trade Agreement (NAFTA), its South-American counterpart, Mercado Com un del Sur (MERCOSUR), vis-à-vis international trade law, as well as EC law vis-à-vis European Convention on Human Rights (ECHR) law.

This underlines the fact that the problem of competing jurisdictions is not confined to a certain area of international law but rather is of general importance requiring a similarly general solution. The case-studies are each introduced by a short summary of the facts, followed by a synopsis of the relevant points of the decision, as far as they concern jurisdictional aspects, and concluded with a short analysis.

The first case concerns the MOX Plant dispute which involved three separate dispute settlement proceedings: (i) the Convention for the Protection of the Marine Environment of the North-East Atlantic (OSPAR) arbitral tribunal’s decision,6 (ii) the United Nations Convention on the Law of the Sea (UNCLOS) arbitral tribunal’s decision,7 and (iii) the European Court of Justice’s (ECJ) judgment.8 For the purposes of this article, the relevant question in these proceedings asks whether the ECJ has exclusive jurisdiction over the case, thereby precluding the involvement of the other tribunals.

That question was also the focus in the second case regarding the IJzeren Rijn (or Iron Rhine) disputeand the IJzeren Rijn arbitral tribunal’s award.9

5. The term “clinical isolation” is used by analogy in reference to Gabrielle Marceau, A Call for Coherence in International Law—Praises for the Prohibition Against Clinical Isolation in WTO Dispute Settlement, 33 J. WORLD TRADE L. 87, 115-52 (1999). 6. OSPAR Final Award (Ir. v. U.K.) (OSPAR Arb. Trib. July 2, 2003), available at http://www.pca-cpa.org. 7. MOX Plant (No. 10) (Ir. v. U.K.), 126 I.L.R. 334 (Int’l Trib. L. of the Sea 2001). 8. Case C-459/03, Comm’n v. Ireland, 2006 E.C.R. I-4635. 9. See Permanent Court of Arbitration, PCA Awards Series, http://www.pca- cpa.org/showpage.asp?pag_id=1056 (last visited Jan. 26, 2009).

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The third case deals with the Mexico Soft Drinks10 case brought before the World Trade Organization (WTO) and its relationship with the NAFTA dispute settlement system.

The fourth case examines the Brazilian Tyres11 case brought before the WTO and its relationship with the dispute settlement system of the MERCOSUR.

The fifth case concerns the International Court of Justice’s (ICJ) recent Genocide Convention12 ruling in which the ICJ discussed the jurisdiction of the International Criminal Tribunal for the former Yugoslavia (ICTY) regarding the application of a broader Nicaragua test by the ICTY.

Finally, the last case turns to the European Court of Human Rights’ (ECtHR) Bosphorus judgment13 in which the ECtHR clarified its jurisdiction vis-à-vis the ECJ concerning the level of fundamental rights protection in Europe.

A. The MOX Plant Dispute

1. The Facts

For many years, Ireland has been concerned with the radioactive discharges of the MOX plant situated in Sellafield, UK, that are being released into the Irish Sea.14 After having tried, unsuccessfully, to obtain information from the United Kingdom about the discharges of the MOX plant, Ireland instituted proceedings against the United Kingdom by raising two different claims.15

10. Panel Report, Mexico—Tax Measures on Soft Drinks and Other Beverages, WT/DS308/R (Oct. 7, 2005) [hereinafter Tax Measures Panel Report]. 11. Appellate Body Report, Brazil—Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R (Dec. 3, 2007) (adopted Dec. 17, 2007) [hereinafter Brazil Appellate Body Report]. 12. Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosn. & Herz. v. Serb. & Mont.), 2007 I.C.J. 91 (Feb. 26). 13. Bosphorus Hava Yollari Turizm ve Ticaret AS v. Ireland, 2005-VI Eur. Ct. H.R. 1. 14. See generally Peter Brazel, Dep’t of Env’t, Heritage and Local Gov’t, Ir.,My Neighbor Doesn’t Like Nuclear: Relations Between “Nuclear” & “Non Nuclear” Countries, Presentation at PIME Conference (Feb. 14, 2006), http://www.ecolo.org/documents/documents_in_english/Ireland-PETER-BRAZEL.doc [hereinafter Presentation by Peter Brazel]. 15. For dispute materials see Permanent Court of Arbitration, http://www.pca- cpa.org. See also, Yuval Shany, The First MOX Plant Award: The Need to Harmonize Competing Environmental Regimes and Dispute Settlement Procedures, 17 LEIDEN J. OF INT’L LAW 815, 815-828 (2004) [hereinafter Shany, The First MOX Plant Award].

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First, Ireland wanted to obtain from the United Kingdom all available information regarding the radioactive discharges of the MOX plant by relying on Article 9 of OSPAR.16 Article 9(2) requires the contracting parties to make available information “on the state of the maritime area, on activities or measures adversely affecting or likely to affect it.”17 Second, Ireland believed that the discharge of the MOX plant contaminated its waters and, therefore, constituted a violation of UNCLOS. Accordingly, Ireland sought an award for the disclosure of information regarding the MOX plant from the United Kingdom on the basis of the OSPAR convention as well as a declaration that the United Kingdom violated its obligations under UNCLOS.18 After lengthy negotiations, Ireland and the United Kingdom agreed to establish arbitral tribunals under both the OSPAR and UNCLOS conventions in order to resolve the dispute.19

The dispute between the two EC member states also involved EC law, specifically EC legislation and the European Atomic Energy Community (EURATOM) treaty. Article 292 of the Treaty Establishing the European Community (EC Treaty), requires all disputes between EC member states involving EC law to be brought exclusively before the ECJ.20 Thus, this dispute raised the potential overlap of jurisdiction between the two arbitral tribunals and the ECJ.21 Eventually, as discussed below, the MOX Plant dispute came before the ECJ—at least with regard to the UNCLOS dispute.

2. The OSPAR Arbitral Tribunal Award

In its decision on July 2, 2003, the OSPAR arbitral tribunal asserted its jurisdiction over the case and rendered a final award.22 The tribunal held that the United Kingdom did not violate the OSPAR Convention by not disclosing the information sought by

16. See Shany, The First MOX Plant Award, supra note 15. 17. Convention for the Protection of the Marine Environment of the North-East Atlantic art. 9(2), Sept. 22, 1992, 32 I.L.M. 1069 [hereinafter OSPAR Convention]. 18. See Shany, The First MOX Plant Award, supra note 15, at 818. 19. Id. at 816. 20. PAUL CRAIG & GRÁINNE DE BURCA, EU LAW 203 (4th ed. 2008). 21. For a detailed analysis see Lavranos, The MOX Plant, supra note 1, at 213-41. 22. OSPAR Award, supra note 6. See also, Ted L. McDorman, Access to Information Under Article 9 of the OSPAR Convention (Ireland v. United Kingdom), 98 AM. J. INT’L L. 330, 330-41 (2004).

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Ireland.23 With respect to the possible implications of EC law to its decision and in particular, the possible jurisdiction of the ECJ, the tribunal refused to take into account any other sources of international law or European law that might potentially be applicable.24 Whereas Article 32(5)(a) of OSPAR states that the arbitral tribunal shall decide according to the “rules of international law, and, in particular, those of the OSPAR Convention,” the tribunal asserted that the OSPAR Convention was to be considered a “self-contained” dispute settlement regime, such that the tribunal could base its decision on the convention alone.25

3. Analysis

Despite the fact that a multitude of other relevant sources of international law or European law were applicable in this case, such as EC Directive 90/313,26 replaced by EC Directive 2003/4;27 ECJ jurisprudence;28 and the Convention on Access to Information, Public Participation in Decision Making and Access to Justice Regarding Environmental Matter (Aarhus Convention),29 the OSPAR arbitral tribunal did not consider itself competent to take these into account.30

More specifically, the OSPAR arbitral tribunal chose to interpret the relevant provision of the OSPAR Convention much more restrictively than the ECJ’s interpretation of comparable EC law provisions. While the tribunal was not legally bound to follow the ECJ’s jurisprudence, the similar context of the relevant OSPAR and EC law provisions, and the fact that the dispute was between two EC member states would have been sufficient reasons for the OSPAR arbitral tribunal to give judicial deference to the ECJ. By failing to do so, the tribunal created a fragmenting

23. OSPAR Final Award, supra note 6, ¶ 78. 24. Id. ¶¶ 85-86. 25. Id. ¶ 143. See generally OSPAR Convention, supra note 17. 26. Council Directive 90/313, art. 4, 1990 O.J. (L 158) 56 (EC). 27. Council Directive 90/313, art. 11, 2003 O.J. (L 41) 26 (EC). 28. See Case C-186/04, Housieaux v. Délégués du Conseil de la Région de Bruxelles- Capitale, 2005 E.C.R. I-3299. See also Case C-233/00, Comm’n v. France, 2003 E.C.R. I- 6625; Case C-316/01, Glawischnig, 2003 E.C.R. I-5995; Case C-217/97, Comm’n v. Germany, 1999 E.C.R. I-5087; Case C-321/96, Mecklenburg v. Kreis Pinneberg, 1998 E.C.R. I-3809. 29. Council Decision 2005/370, 2005 O.J. (L 124) 1 (EC). The convention has been ratified by all EC member states and recently also by the EC itself. 30. OSPAR Final Award, supra note 6, ¶¶ 100-104.

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discrepancy between EC law and the OSPAR Convention as to the standard of access to information on environmental issues.

4. The UNCLOS Arbitral Award

In contrast to the straight-forward OSPAR proceeding discussed above, the UNCLOS proceeding appears to be more complicated because of the various dispute settlement options offered by UNCLOS.

Specifically, Articles 287 and 288 of UNCLOS provide that various forums can be selected by the contracting parties to settle their disputes; parties may use the International Tribunal for the Law of the Sea (ITLOS), the ICJ or ad hoc arbitral tribunals.31 Moreover, Article 282 explicitly recognizes the possibility of bringing a dispute before settlement bodies established by regional or bilateral agreements.32 Because the parties had not agreed to designate a particular dispute settlement forum, the dispute was submitted to arbitration in accordance with Annex VII Article 287(5) of UNCLOS.33 Pending the establishment of this ad hoc arbitral tribunal, however, Ireland requested from ITLOS interim measures under Article 290(5) of UNCLOS.34 Ireland asked that the United Kingdom be ordered to suspend the authorization of the MOX plant or at least take the measures necessary to halt the operation of the MOX plant instantly.35

Regarding the issue of jurisdiction, the ITLOS determined that the conditions of Article 290(5) of UNCLOS were prima facie met so that under Annex VII the arbitral tribunal had jurisdiction to decide on the merits of the case.36 Furthermore, the ITLOS ordered both parties to cooperate and enter into consultations regarding the operation of the MOX plant and its emissions into the Irish Sea, pending the decision on the merits of the arbitral award.37

31. United Nations Convention on the Law of the Sea arts. 287-288, opened for signature Dec. 10, 1982, 1833 U.N.T.S. 3. 32. Id. atart. 282. 33. MOX Plant (No. 10) (Ir. v. U.K.), supra note 7. 34. Id. ¶ 33. 35. Id. ¶ 27. 36. Id. ¶ 62. Note also, that even if the condition of Art. 290(5) were not prima facie found, the tribunal deemed that provisional measures may still be prescribed in emergency situations. Id. ¶ 64. 37. Id.

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The UNCLOS arbitral tribunal subsequently confirmed the finding of ITLOS that it did in fact have prima facie jurisdiction.38 In a second step, however, the arbitral tribunal considered it necessary to determine whether it had definite jurisdiction to solve the dispute in view of the United Kingdom’s objection that the ECJ had jurisdiction under Article 282 of the EC Treaty since EC law was also at issue.39 The arbitral tribunal accepted the United Kingdom’s objection and consequently stayed proceedings.40 Accordingly, the arbitral tribunal urged the parties to first determine whether or not the ECJ had jurisdiction before it would proceed with rendering a decision on the merits.41

The parties did not, however, have to take any action as the European Commission, supported by the United Kingdom, immediately began an Article 226 EC Treaty infringement procedure against Ireland for violating Article 292 of the EC Treaty and the identical provision in the EURATOM Treaty.42 The Commission argued that Ireland had instituted the proceedings against the United Kingdom without taking into account the fact that the European Community was a party to UNCLOS. In particular, the Commission claimed that by submitting the dispute to a tribunal outside the EC legal order, Ireland had violated the exclusive jurisdiction of the ECJ as enshrined in Article 292 of the EC Treaty and the similarly worded Article 193 of EURATOM.43 Furthermore, according to the Commission, Ireland had also violated the duty of loyal cooperation incumbent upon it under Article 10 of the EC Treaty and the similarly worded Article 192 of EURATOM.44

Thus, the MOX Plant case ultimately came before the ECJ; at least in as far as it concerned the UNCLOS proceedings, against the initial intentions of the member states involved in the dispute.

5. Judgment of the ECJ

The Court first analyzed whether or not the dispute fell within the acting competence of the EC, because Article 292 EC would

38. MOX Plant (No. 3) (Ir. v. U.K.), 126 I.L.R. 310 (Int’l Trib. L. of the Sea 2003). 39. Id. ¶¶ 15-16. 40. Id. ¶ 29. 41. Id. ¶¶ 30, 69. 42. Comm’n v. Ireland, 2006 E.C.R. I-4635, ¶ 1. 43. Id. ¶ 59. 44. Id.

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be triggered only if the case fell within the exclusive jurisdiction of the ECJ.45 The EC and its member states have concluded the Law of the Sea Convention as a mixed agreement.46 In this context the ECJ reaffirmed that mixed agreements have the same status in the Community’s legal order as agreements concluded by the EC alone.47 Consequently, when the EC ratified UNCLOS, the treaty became an integral part of the Community legal order. Based on UNCLOS the ECJ examined whether the EC had exercised its competence in the policy area (maritime pollution) that is at the center of the dispute between Ireland and the United Kingdom.48 The ECJ concluded that the matters covered by the provisions of UNCLOS relied upon by Ireland before the arbitral tribunal were “very largely” regulated by Community law.49 Ireland was thus relying on provisions that had become part of the Community legal order.50 This triggered the ECJ’s jurisdiction under Article 292 EC.51

The next issue was to determine whether that jurisdiction was indeed exclusive in view of the fact that UNCLOS provides for its own sophisticated dispute settlement system. Referring to its position in Opinion 1/91,52 the ECJ held,

[A]n international agreement cannot affect the allocation of responsibilities defined in the Treaties and, consequently, the autonomy of the Community legal system, compliance with which the Court ensures under Article 220 EC. That exclusive jurisdiction of the Court is confirmed by Article 292 EC. . . .53 An international agreement such as UNCLOS cannot affect

the ECJ’s exclusive jurisdiction regarding the resolution of disputes between member states concerning the interpretation and application of Community law.54 Hence, Ireland was precluded on the basis of Articles 292 and 220 EC from bringing the dispute

45. Id. ¶ 86. 46. Council Decision 98/392, 1998 O.J. (L 179) 1 (EC). 47. Comm’n v. Ireland, 2006 E.C.R. I-4635, ¶ 84. 48. Id. ¶ 96. 49. Id. ¶ 110. 50. Id. ¶ 126. 51. Id. ¶ 127. 52. Case C-1/91, Comm’n v. EFTA, 1991 E.C.R. I-6079. 53. Comm’n v. Ireland, 2006 E.C.R. I-4635, ¶ 123. 54. Id. ¶ 132.

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before the UNCLOS arbitral tribunal.55 The Court of Justice went as far as stating,

[T]he institution and pursuit of proceedings before the arbitral tribunal . . . involve a manifest risk that the jurisdictional order laid down in the Treaties and, consequently, the autonomy of the Community legal system may be adversely affected.56 The ECJ did not simply claim exclusive jurisdiction in this

case, but found it necessary to make further remarks. First, only the ECJ may determine whether, and to what extent, provisions of the international agreement in question fall outside its jurisdiction, and whether it may be adjudicated by another dispute settlement body.57 If member states doubt whether a dispute involves Community law aspects, they are essentially obliged to obtain an answer from the ECJ before bringing the case to another dispute settlement body. Second, the ECJ found that Article 292 EC must be understood as a specific expression of the member states’ more general duty of loyalty as enshrined in Article 10 EC.58 Thus, member states have a duty to inform and consult with the competent Community institutions (i.e., the Commission and/or the ECJ) prior to bringing a case before a dispute settlement body other than the ECJ.59 In this way, the Commission and the ECJ are eventually informed of a dispute settlement procedure that may interfere with Article 292 EC. This in turn puts the Commission in a position to start an Article 226 EC infringement procedure against a member state if it determines that Article 292 EC has been violated. This is, however, entirely in the discretion of the Commission. In contrast to the Commission, the ECJ has no authority to seize ex officio by itself a case in order to protect its exclusive jurisdiction.

55. Id. ¶ 133. 56. Id. ¶ 154 (emphasis added). 57. Id. ¶ 135. 58. Id. ¶ 169 (“The obligation devolving on Member States, set out in Article 292 EC, to have recourse to the Community judicial system and to respect the Court’s exclusive jurisdiction, which is a fundamental feature of that system, must be understood as a specific expression of Member States’ more general duty of loyalty resulting from Article 10 EC.”). 59. Id. ¶ 179.

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6. Analysis

The MOX Plant dispute was the first case that highlighted the potential problems associated with exclusive ECJ jurisdiction and the multiplication of international courts and tribunals. The ECJ decided to defend its exclusive jurisdiction to the fullest as far as it concerned disputes between EC member states that potentially involved EC law. It did so by substantially limiting the freedom of EC member states to select a dispute settlement body of their choice. Only if the ECJ establishes that no EC law issues are involved, will EC member states be in a position to bring their dispute before another dispute settlement body. This way, the ECJ hopes to protect the uniform application of EC law in all EC member states. The different approaches by the OSPAR and UNCLOS arbitral tribunals, however, illustrate that the ECJ cannot force a party to take EC law or the ECJ’s jurisdiction into account. The UNCLOS arbitral tribunal showed comity by staying the proceedings and requesting the parties to check first whether the jurisdiction of the ECJ was triggered in this case. In contrast, the OSPAR arbitral tribunal did not show any comity towards the ECJ.

The MOX Plant dispute also revealed that the ECJ is quite helpless when it comes to defending its exclusive jurisdiction; it cannot prevent member states from going to another court. Only the Commission can take action against such a move if it considers it necessary and appropriate.

In sum, the MOX Plant dispute exhibits fragmenting effects as far as the OSPAR Convention vis-à-vis EC access on information law, while at the same time showing unifying effects by preserving the uniform application of EC environmental law as far as UNCLOS law is concerned.

B. The Ijzeren Rijn Dispute

1. The Facts

The Ijzeren Rijn (also known as Iron Rhine) case concerned a dispute between the Netherlands and Belgium as to which of the parties had to pay the costs for the revitalization of an old railway

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line.60 The Ijzeren Rijn railway line was one of the first international railway lines in mainland Europe in the 19th century, running from Antwerp through the Netherlands to the Rhine basin-area in Germany.61 Belgium had obtained a right of transit through the Netherlands on the basis of two treaties dating back to 1839 (Treaty of Separation) and 1897 (Railway Convention).62 After 1991 the railway line was no longer used.63 In the meantime, the Netherlands assigned an area (the Meinweg, close to the city of Roermond) which the railway line crosses as a “special area of conservation” according to the EC Habitats Directive.64 In 1994 the Netherlands also identified the Meinweg as a special protected area in accordance with the EC Birds Directive.65 The Birds Directive, however, was superseded by the Habitats Directive as far as what is relevant in the present dispute.66 In addition, the Meinweg area was identified as a national park and a “silent area” under domestic legislation.67

It is at this point that the relevancy of EC law in this dispute became apparent. In particular, Article 6 of the Habitats Directive,68 imposed strict conditions for any activities in a “special area of conservation” such as the Meinweg area.

Despite this designation of protected status for the Meinweg area, Belgium expressed its intention to start using the railway line again.69 As a result, discussions took place between Belgium and the Netherlands regarding the revitalization of the railway line.70 The impact studies that were conducted in order to assess the possibility of a revitalization determined that additional costs of about five hundred million euros would be involved in order to

60. The details of the dispute can be found at the website of the Permanent Court of Arbitration, supra note 15. See also, Ivan van Bladel, The Iron Rhine Arbitration Case: On the Right Legal Track? An Analysis of the Award and of its Relation to the Law of the European Community,18 HAGUE Y.B. OF INT’L L. 3, 3-22 (2005); THE HAGUE PERMANENT COURT OF ARBITRATION, THE IRON RHINE (IJZEREN RIJN) ARBITRATION (BELGIUM-NETHERLANDS) AWARD OF 2005 153-193 (2007). 61. PCA Awards Series, supra note 9, ¶¶ 16, 42. 62. Id. ¶¶ 31, 42. 63. Id. ¶ 19. 64. Id. ¶ 128. See also Council Directive 92/43 1992 O.J. (L 206) 7 (EC). 65. PCA Awards Series, supra note 9, ¶ 128. 66. Id. 67. Id. 68. Council Directive 92/43, 1992 O.J. (L 206). For recent cases concerning Art. 6 of the Habitats Directive, see Case C-388/05, Comm’n v. Italy, 2007 E.C.R. I-0000. 69. PCA Awards Series, supra note 9, ¶¶ 21-23. 70. Id.

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meet the applicable environmental standards.71 Since no agreement was reached on who should pay for the costs, both states agreed to solve the dispute by bringing it before an arbitral tribunal established under the auspices of the Permanent Court of Arbitration (PCA). In thecompromise between the Netherlands and Belgium, the arbitral tribunal was explicitly called upon to settle the dispute on the basis of international law, including necessary European law, while respecting the obligations of the parties arising out of Article 292 EC.72 As previously mentioned, Article 292 EC prescribes that all disputes between EC member states involving EC law should be brought exclusively before the ECJ.73

Where this dispute at first glance seemed to involve only international law aspects, the parties themselves recognized that European law, in particular, Article 6 of the EC Habitats Directive, could potentially be relevant and thus requested the arbitral tribunal to consider this issue as well.

2. The Arbitral Decision

The arbitral tribunal explained that with regard to “the limits drawn to its jurisdiction by the reference to Article 292 of the EC Treaty . . . it finds itself in a position analogous to that of a domestic court within the EC.”74 The arbitral tribunal continued by saying that if the tribunal arrived at the conclusion that it could not decide the case brought before it without engaging in the interpretation of EC law which constitute neither actes clairs nor actes éclairés (i.e., the so-called CILFIT-conditions), Article 292 EC would be triggered and the dispute would have to be submitted to the ECJ.75 Thus, the arbitral tribunal examined whether or not the CILFIT-conditions were met.

The CILFIT conditions concern the obligation of national courts of the EC member states to refer preliminary questions to the ECJ.76 Under these conditions, the obligation of national courts

71. Id.See also Counter-Memorial of the Kingdom of the Netherlands, Permanent Court of Arbitration, Iron Rhine Case (Belg. v. Neth.) ¶ 2.13.5.1 (Jan. 2004), http://www.pca-cpa.org/upload/files/NL%20Counter-Memorial.pdf. 72. PCA Awards Series, supra note 9,¶ 28. 73. CRAIG & DE BURCA, supra note 20, at 203. 74. PCA Awards Series, supra note 9, ¶ 103. 75. Id. 76. Case 283/81, CILFIT and Lanificio di Gavardo SpA v. Ministry of Health, 1982 E.C.R. 3415; Case 224/01, Köbler v. Republik Österreich, 2003 E.C.R. I-10239. Butsee

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to refer preliminary questions to the ECJ is only waived if: (i) the question is not relevant; (ii) it has already been answered by the ECJ; or (iii) the answer is entirely clear so that there is no need for the ECJ to give an answer.77 The arbitral tribunal only examined the first possibility, i.e., whether the application of Community law was necessary for rendering its award in this dispute.78

The arbitral tribunal set out the framework of its jurisdiction by stating that “[f]rom the viewpoint of Article 292 of the EC Treaty the question thus faced by the Tribunal is . . . [D]oes the Tribunal have to engage in the interpretation of the Habitats Directive in order to enable it to decide the issue of the reactivation of the Iron Rhine railway and the costs involved?”79 The arbitral tribunal concluded:

[T]he Tribunal has examined whether it would arrive at different conclusions on the application of Article XII to the Meinweg tunnel project and its costs if the Habitats Directive did not exist. The Tribunal answers this question in the negative, as its decision would be the same on the basis of Article XII and of Netherlands environmental legislation alone. Hence the questions of EC law debated by the Parties are not determinative, or conclusive for the Tribunal; it is not necessary for the Tribunal to interpret the Habitats Directive in order to render its Award. Therefore, . . . the questions of EC law involved in the case do not trigger any obligations under Article 292 of the EC Treaty.80 In substance, the Ijzeren Rijn arbitral tribunal concluded that

the Netherlands had to grant a right of transit to Belgium based on the Treaties of 1839 and 1897, but split the financial burden of the various parts of the reactivation project between both parties.

Opinion of AG Colomer, Case C-461/03, Gaston Schul Douane-Expediteur BV v. Minister van Landbouw, Natuur en Voedselkwaliteit, 2005 E.C.R. I-10513 (the ECJ flatly rejecting any relaxation of the CILFIT-conditions as suggested by A.G. Colomer). 77. See DAMIAN CHALMER ET AL., EUROPEAN UNION LAW 299-302 (2006); J. STEINER ET AL., EU LAW 210-17 (9th ed. 2006); CRAIG & DE BURCA, supra note 20, at 467. 78. See PCA Awards Series, supra note 9, ¶ 104. 79. Id. ¶ 121. 80. Id. ¶ 137.

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3. Analysis

It is remarkable that the Ijzeren Rijn arbitral tribunal considered itself able to render its award despite the fact that Community law (Habitats Directive and Article 292 EC) was clearly applicable in this dispute and thus needed to be interpreted and applied. This would have triggered the exclusive jurisdiction of the ECJ based on Article 292 EC.

As a consequence of the fact that the Ijzeren Rijn arbitral tribunal exercised its jurisdiction, the Habitats Directive was not applied in this case, however, it was clearly applicable. That, in turn, affected the uniform application of Community law in all EC member states. Due to the fact that the Ijzeren Rijn arbitral tribunal was not in a position to request a preliminary ruling from the ECJ because it did not meet the conditions of a proper court within the meaning of Article 234 EC,81 the arbitral tribunal was all the more obliged to refuse its jurisdiction in this case and refer the parties to the ECJ as the only proper forum. Consequently, the Ijzeren Rijn arbitral tribunal caused fragmentation—not so much within the international legal order—but rather within the European legal order by adjudicating a case that was clearly an EC law matter.

Finally, this case confirms the observation made above regarding the MOX Plant dispute that arbitral tribunals are not

81. The ECJ formulated the conditions for a court or tribunal to be able to request a preliminary ruling from the ECJ as follows:

12. In order to determine whether a body making a reference is a court or tribunal of a Member State for the purposes of Article 234 EC, the Court takes account of a number of factors, such as whether the body is established by law, whether it is permanent, whether its jurisdiction is compulsory, whether its procedure is inter partes, whether it applies rules of law and whether it is independent (see, in particular, Case C-54/96 Dorsch Consult [1997] ECR I- 4961, paragraph 23, and the case-law there cited, and Case C-516/99 Schmid [2002] ECR I-4573, paragraph 34). 13. Under the Court’s case-law, an arbitration tribunal is not a court or tribunal of a Member State’ within the meaning of Article 234 EC where the parties are under no obligation, in law or in fact, to refer their disputes to arbitration and the public authorities of the Member State concerned are not involved in the decision to opt for arbitration nor required to intervene of their own accord in the proceedings before the arbitrator (Case 102/81 Nordsee’ Deutsche Hochseefischerei [1982] ECR 1095, paragraphs 10 to 12, and Case C-126/97 Eco Swiss [1999] ECR I-3055, paragraph 34).

Case C-125/04, Denuit v. Transorient - Mosaïque Voyages & Culture SA, 2005 E.C.R. I- 923, ¶¶ 12-13. It is submitted that this also applies in analogy to international arbitral tribunals.

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particularly concerned with the possibility that the exclusive jurisdiction of the ECJ may be triggered in a certain case. Instead, tribunals prefer to seize jurisdiction and decide the case even if it requires presenting flawed legal arguments.

C. The Mexico Soft Drinks Dispute

1. The Facts

In 2004 the United States complained about certain tax measures imposed by Mexico on soft drinks and other beverages that use any sweetener other than cane sugar.82 The tax measures concerned included: (i) a 20% tax on soft drinks and other beverages that use any sweetener other than cane sugar (“beverage tax”), which is not applied to beverages that use cane sugar; and (ii) a 20% tax on the commissioning, mediation, agency, representation, brokerage, consignment and distribution of soft drinks and other beverages that use any sweetener other than cane sugar (“distribution tax”).83

The United States considered these taxes inconsistent with Article III of GATT 1994, in particular, Article III:2, first and second sentences, and Article III:4.84 Accordingly, the United States requested consultations with Mexico, which were unsuccessful.85 Consequently, the United States instituted dispute settlement proceedings against Mexico before the WTO.86

As a preliminary point, Mexico raised the issue of jurisdictional competition. More specifically, Mexico requested the WTO panel to decline to exercise its jurisdiction in favor of an Arbitral Panel under Chapter Twenty of NAFTA.87 In short, Mexico argued that this dispute involved two NAFTA states and touched on NAFTA provisions and, therefore, should be treated as a NAFTA dispute rather than a WTO dispute.88 Indeed, Mexico claimed that it had adopted the measure in order to force the United States to cooperate in finding a resolution to the dispute

82. Tax Measures Panel Report, supra note 10, ¶ 1.1. 83. Id. ¶ 2.2. 84. Id. ¶ 1.2. 85. Id. ¶ 1.1. 86. Id. ¶ 1.4. 87. Id. ¶ 3.2. 88. Id. ¶ 7.11.

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within the framework of NAFTA.89 Accordingly, Mexico argued that a NAFTA panel would be in a better position to decide this dispute.90 It should be noted that Mexico and the United States had been engaged in a broader dispute on sugar for quite some time that has been litigated in various proceedings before the WTO and NAFTA.91

2. The WTO Panel Ruling

In a preliminary ruling, the WTO panel rejected Mexico’s request and found instead that under the Dispute Settlement Understanding (DSU) it had no discretion to decide whether or not to exercise its jurisdiction in a case properly before it.92 The WTO panel added that even if it had such discretion, it “did not consider that there were facts on record that would justify the panel declining to exercise its jurisdiction in the present case.”93

In its reasoning, the WTO panel opined that “discretion may be said to exist only if a legal body has the freedom to choose among several options, all of them equally permissible in law.”94 According to the panel, “such freedom . . . would exist within the framework of the DSU only if a complainant did not have a legal right to have a panel decide a case properly before it.”95 Referring to Article 11 of the DSU and to the ruling of the Appellate Body in Australia—Salmon, the panel observed that “the aim of the WTO dispute settlement system is to resolve the matter at issue in particular cases and to secure a positive solution to disputes” and that a panel is required “to address the claims on which a finding is necessary to enable the [Dispute Settlement Body] to make sufficiently precise recommendations or rulings to the parties.”96

89. Id. ¶ 8.89. 90. Id. ¶ 7.11. 91. For detailed discussions of the dispute see Alice Vacek-Aranda, Sugar Wars: Dispute Settlement Under NAFTA and the WTO As Seen Through the Lens of the HFCS Case and Its Effects on U.S.-Mexican Relations, 12 TEX. HISP. J. L. & POL’Y 121, 121-60 (2006) and Patricia Larios, The Fight at the Soda Machine: Analyzing the Sweetener Trade Dispute Between the United States and Mexico Before the World Trade Organization, 20 AM. U. INT’L L. REV. 649, 649-702 (2005). 92. Tax Measures Panel Report, supra note 10, Annex B (fax from Chairman of the Panel, dated Jan. 18, 2005). 93. Id. ¶ 7.18. 94. Id. ¶ 7.7. 95. Id.96. Id. ¶ 7.8 (referring to Appellate Body Report, Australia—Measures Affecting Importation of Salmon, ¶ 223, WT/DS18/AB/R (Oct. 20, 1998)).

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From this, the panel concluded that a WTO panel “would seem therefore not to be in a position to choose freely whether or not to exercise its jurisdiction.”97 Referring to Articles 3.2 and 19.2 of the DSU, the panel further stated that “[i]f a WTO panel were to decide not to exercise its jurisdiction in a particular case, it would diminish the rights of the complaining Member under the DSU and other WTO covered agreements.”98 The WTO panel added that Article 23 of the DSU makes it clear that “a WTO Member that considers that any of its WTO benefits have been nullified or impaired as a result of a measure adopted by another Member has the right to bring the case before the WTO dispute settlement system.”99

Finally, the WTO panel did not make any findings on “whether there may be other cases where a [WTO] panel’s jurisdiction might be legally constrained, notwithstanding its approved terms of reference.”100 In any case, the WTO panel explicitly rejected Mexico’s contention that the WTO proceeding was identical with the on-going negotiations to resolve the sugar dispute within the NAFTA context.101 Consequently, the WTO panel concluded,

[E]ven conceding that there seems to be an unresolved dispute between Mexico and the United States under the NAFTA, the resolution of the present WTO case cannot be linked to the NAFTA dispute. In turn, any findings made by this Panel, as well as its conclusions and recommendations in the present case, only relate to Mexico’s rights and obligations under the WTO covered agreements, and not to its rights and obligations under

97. Id.98. Id. ¶ 7.9. 99. Id. 100. Id. ¶ 7.10. 101. Id. ¶ 7.14. The Panel noted, in this regard, that:

In the present case, the complaining party is the United States and the measures in dispute are allegedly imposed by Mexico. In the NAFTA case, the situation appears to be the reverse: the complaining party is Mexico and the measures in dispute are allegedly imposed by the United States. As for the subject matter of the claims, in the present case the United States is alleging discriminatory treatment against its products resulting from internal taxes and other internal measures imposed by Mexico. In the NAFTA case, instead, Mexico is arguing that the United States is violating its market access commitments under the NAFTA.

Id.

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other international agreements, such as the NAFTA, or other rules of international law.102

3. The WTO Appellate Body Ruling

On appeal before the WTO Appellate Body, Mexico argued that the panel erred in rejecting its request that it decline to exercise jurisdiction in the circumstances of the present dispute.103 Mexico submitted that WTO panels, like other international bodies and tribunals, have certain implied jurisdictional powers that derive from their nature as adjudicative bodies.104

[S]uch powers include the power to refrain from exercising substantive jurisdiction in circumstances where the underlying or predominant elements of a dispute derive from rules of international law under which claims cannot be judicially enforced in the WTO, such as the NAFTA provisions or when one of the disputing parties refuses to take the matter to the ‘appropriate forum’.105

Mexico argued, in this regard, that the United States’ claims under Article III of the GATT 1994 are “inextricably linked to a broader dispute” regarding access of Mexican sugar to the U.S. market under NAFTA.106 Mexico further emphasized that “there is nothing in the DSU that explicitly rules out the existence of a WTO panel’s power to decline to exercise” validly established jurisdiction.107 Accordingly, Mexico argued that the WTO panel should have exercised this power in the circumstances of this dispute.108 In contrast, the United States argued that “the [WTO] Panel’s own terms of reference in this dispute instructed the panel to examine the matter referred to the DSB by the United States and to make such findings as will assist the DSB in making the recommendations and rulings provided for under the DSU.”109

102. Id. ¶ 7.15. 103. Appellate Body Report, Mexico—Tax Measures on Soft Drinks and Other Beverages,¶ 6, WT/DS308/AB/R (Mar. 6, 2006) [hereinafter Mexico Appellate Body Report]. See generally Alberto Alvarez Jimenez, The WTO AB Report on Mexico-Soft Drinks, and the Limits of the WTO Dispute Settlement System, 33 LEGAL ISSUES ECON. INTEGRATION 319, 319-33 (2006). 104. Mexico Appellate Body Report, supra note 103, ¶ 10. 105. Id. (citation omitted). 106. Id. 107. Id. ¶ 11. 108. Id. 109. Id. ¶ 22.

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The WTO Appellate Body started its analysis by noting that Mexico did not question whether the WTO panel had jurisdiction to hear the U.S. claims.110 Moreover, Mexico did not claim that there were “legal obligations under the NAFTA or any other international agreement to which Mexico and the United States are both parties, which might raise legal impediments to the Panel hearing this case.”111 “Instead, Mexico’s position [was] that, although the [WTO] Panel had the authority to rule on the merits of the United States’ claims, it also had the ‘implied power’ to abstain from ruling on them, and ‘should have exercised this power in the circumstances of this dispute.’”112 Hence, the issue before the Appellate Body was not “whether the [WTO] Panel was legally precluded from ruling on the United States’ claims that were before it, but, rather, whether the [WTO] Panel could decline, and should have declined, to exercise jurisdiction with respect to the United States’ claims under Article III of the GATT 1994 that were before it.”113

The WTO Appellate Body continued by agreeing with Mexico’s claim that “WTO panels have certain powers that are inherent in their adjudicative function.”114 According to the Appellate Body, “WTO panels have the right to determine whether they have jurisdiction in a given case, as well as to determine the scope of their jurisdiction.”115

In this regard, the [WTO] Appellate Body has previously stated that it is a widely accepted rule that an international tribunal is entitled to consider the issue of its own jurisdiction on its own initiative, and to satisfy itself that it has jurisdiction in any case that comes before it. Furthermore, the [WTO] Appellate Body has also explained that [WTO] panels have a margin of discretion to deal, always in accordance with due process, with specific situations that may arise in a particular case and that are not explicitly regulated. For example, [WTO] panels may exercise judicial economy, that is, refrain

110. Id. ¶ 44. 111. Id. (citation omitted). 112. Id. (citations omitted). 113. Id. 114. Id. ¶ 45. 115. Id.

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from ruling on certain claims, when such rulings are not necessary to resolve the matter in issue in the dispute.116

But at the same time, “the [WTO] Appellate Body has cautioned that to provide only a partial resolution of the matter at issue would be false judicial economy.”117

In the WTO Appellate Body’s view, it does not necessarily follow, however, from the existence of these inherent adjudicative powers that, once jurisdiction has been validly established, WTO panels would have the authority to decline to rule on the entirety of the claims that are before them in a dispute.118 On the contrary, the WTO Appellate Body noted that, while recognizing WTO panels’ inherent powers, it has previously emphasized that:

Although panels enjoy some discretion in establishing their own working procedures, this discretion does not extend to modifying the substantive provisions of the DSU. . . . Nothing in the DSU gives a panel the authority either to disregard or to modify . . . explicit provisions of the DSU.119 Indeed, the “fact that a [WTO] Member may initiate a WTO

dispute whenever it considers that any benefits accruing to that Member are being impaired by measures taken by another Member implies that that Member is entitled to a ruling by a WTO panel.”120 According to the WTO Appellate Body, “[a] decision by a [WTO] panel to decline to exercise validly established jurisdiction would seem to ‘diminish’ the right of a complaining Member to ‘seek the redress of a violation of obligations’ within the meaning of Article 23 of the DSU, and to bring a dispute pursuant to Article 3.3 of the DSU. This would not be consistent with a panel’s obligations under Articles 3.2 and 19.2 of the DSU.”121

116. Id. ¶ 45 (internal quotes and citations omitted). 117. Id. (internal quote and citation omitted). 118. Id. ¶ 46 (emphasis added). 119. Id. (citing Appellate Body Report, India—Patent Protection for Pharmaceutical and Agricultural Chemical Products, ¶ 92, WT/DS50/AB/R (Dec. 19, 1997)) (emphasis in original). 120. Id. ¶ 52 (internal citations omitted). 121. Id. ¶ 53 (citations omitted). See also Understanding on Rules and Procedures Governing the Settlement of Disputes, art 3.2, 19.2, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 2, Legal Instruments—Results of the Uruguay Round, 33 I.L.M. 1125 (1994) [hereinafter DSU].

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Finally, with regard to the issue of jurisdictional competition, the WTO Appellate Body, like the WTO Panel, did not express a view as to whether there may be other circumstances in which legal impediments could exist that would preclude a panel from ruling on the merits of the claims that are before it.122 Thus, the WTO Appellate Body saw no reason to disagree with the Panel’s decision.123

4. Analysis

The Mexico Soft Drinks case appears to be the first case in which the issue of jurisdictional competition between dispute settlement systems established by regional trade agreements (RTAs) and the global WTO dispute settlement system was explicitly raised. The WTO Panel and Appellate Body, however, were able to avoid dealing with this issue mainly on factual grounds arguing that the dispute before the WTO was a different one than that raised before NAFTA. Regardless of whether that argument is true or not, the general approach of the WTO Panel and Appellate Body shows little consideration for comity. The WTO Appellate Body seems to argue that if a WTO panel has jurisdiction in a case, it must exercise it by rendering a ruling, regardless of whether or not other courts or tribunals might have jurisdiction or have been seized by the dispute. Of course, a different approach is imaginable in which a WTO panel or Appellate Body relinquishes its jurisdiction and orders the parties to resolve their dispute before another dispute settlement body, or alternatively, the WTO panel or Appellate Body could stay the proceedings until that other body renders its decision. In this way, the WTO panel or Appellate Body could take that decision into account when adjudicating the dispute.

In sum, both the WTO Panel as well as the WTO Appellate Body carefully circumvented the issue by not expressing any clear view on the topic of jurisdictional competition.

122. Mexico Appellate Body Report, supra note 103, ¶ 54. 123. Id ¶ 57.

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D. The Brazilian Tyres Case

1. The Facts

In 2000, Brazil adopted legislation in order to effectively reduce the waste of tires because of the risk for the health and the environment associated with the exposure to toxic emissions caused by tire fires and the transmission of the dengue disease to animals.124 This legislation (Portaria SECEX 8/2000) contained an import ban on retreaded and used tires.125 Following the adoption of Portaria SECEX 8/2000, Uruguay requested in August 2001 the initiation of arbitral proceedings within MERCOSUR.126 Uruguay alleged that Portaria SECEX 8/2000 constituted a new restriction of commerce between MERCOSUR countries, which was incompatible with Brazil’s obligations under MERCOSUR.127

In its ruling on January 9, 2002, the arbitral tribunal found that the Brazilian measure was incompatible with MERCOSUR Decision CMC No. 22 of June 29, 2000, which obliges MERCOSUR countries not to introduce new intra-zone restrictions on commerce.128 Following the MERCOSUR arbitral tribunal award, Brazil enacted Portaria SECEX No. 2 of March 8, 2002, which eliminated the import ban for remolded tires originating in other MERCOSUR countries.129 This exemption was incorporated into Article 40 of Portaria SECEX 14/2004, which contains three main elements: (i) an import ban on retreaded tires (the “import ban”); (ii) an import ban on used tires; and (iii) an exemption from the import ban of imports of certain retreaded

124. Panel Report, Brazil—Measures Affecting Imports of Retreaded Tyres, ¶ 4.11, WT/DS332/R (June 12, 2007) [hereinafter Brazil Panel Report]. 125. Id. ¶ 2.8(a). 126. Id. ¶ 2.13. 127. See First Written Submission of the European Communities, Brazil—Measures Affecting Imports of Retreaded Tyres (WT/DS332), ¶ 70 (April 27, 2006), available at http://trade.ec.europa.eu/doclib/docs/2006/july/tradoc_129251.07.06.pdf [hereinafter First Written Submission, Retreaded Tyres]. 128. See Laudo Del Tribunal Arbitral Ad Hoc del Mercosur Constituido para Entender de la Controversia Presentada por la Republica Oriental del Uruguay a la Republica Federativa del Brasil sobre “Prohibicion de Importacion de Neumaticos Remoldeados (Remolded) Procedentes de Uruguay,” available at http://www.mercosur.int/msweb/portal%20intermediario/es/controversias/arquivos/VI%20 LAUDO.pdf. 129. First Written Submission, Retreaded Tyres, supra note 127, ¶ 137.

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tires from other countries of the MERCOSUR, which is referred to as the “MERCOSUR exemption.”130

The “MERCOSUR exemption” did not form part of previous regulations prohibiting the importation of retreaded tires, notably Portaria SECEX 8/2000, but was introduced as a result of a ruling issued by a MERCOSUR arbitral tribunal.131

The EC initiated proceedings against Brazil before the WTO dispute settlement body complaining about the import ban and the MERCOSUR exemption.132 Essentially, the EC argued that the “MERCOSUR exemption” is discriminatory and that Brazil was not obliged to implement the MERCOSUR arbitral tribunal decision in the way it did, i.e., lifting the ban only for MERCOSUR Member States.133 According to the EC, Brazil should instead have lifted the ban for all WTO Members.134 Besides, the EC claimed that Brazil was at least partially responsible for the MERCOSUR arbitral tribunal’s ruling that resulted in the adoption of the “MERCOSUR exemption” because it did not defend itself in the MERCOSUR proceedings on grounds related to human health and safety.135

Brazil defended its measure by emphasizing that it introduced the exemption only after the MERCOSUR arbitral tribunal ruled that the import ban violated Brazil’s obligations under MERCOSUR.136 In addition, Brazil argued that the MERCOSUR arbitral tribunal ruling was adopted in the context of an agreement intended to liberalize trade that is expressly recognized in Article XXIV of the GATT 1994.137 Moreover, Brazil argued that it had an obligation under international law to implement the ruling of the MERCOSUR arbitral tribunal.138 Indeed, Brazil claimed that it applied the MERCOSUR ruling in the narrowest way possible, that is, by exempting imports of a particular kind of retreaded tires (remolded) from the application of the ban.139

130. Brazil Panel Report, supra note 124, ¶ 2.7. 131. First Written Submission, Retreaded Tyres, supra note 127, ¶ 137. 132. Request for Consultations by the European Communities, Brazil—Measures Affecting Imports of Retreaded Tyres, WT/DS332/1 (June 20, 2005). 133. Brazil Panel Report, supra note 124, ¶ 4.299. 134. Id. 135. Id. ¶ 7.268. 136. Id. ¶ 4.302. 137. Id. ¶ 3.3(c). 138. Id. ¶ 4.302. 139. Id. ¶ 7.279.

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2. The WTO Panel Ruling

The WTO Panel accepted that it was only after the MERCOSUR arbitral tribunal found Brazil’s ban on the importation of remolded tires to constitute a new restriction on trade prohibited under MERCOSUR that Brazil exempted remolded tires originating from MERCOSUR countries from the application of the import ban.140 For the WTO panel, the MERCOSUR exemption “does not seem to be motivated by capricious or unpredictable reasons [as it] was adopted further to a ruling within the framework of MERCOSUR, which has binding legal effects for Brazil, as a party to MERCOSUR.”141 The WTO Panel added that the discrimination arising from the MERCOSUR exemption was not “a priori unreasonable,”142 because this discrimination arose in the context of an agreement of a type expressly recognized under Article XXIV of the GATT 1994 that “inherently provides for preferential treatment in favour of its members, thus leading to discrimination between those members and other countries.”143

According to the WTO Panel, the MERCOSUR arbitral tribunal ruling provided a reasonable basis to enact the MERCOSUR exemption, with the implication that the resulting discrimination is not arbitrary.144 The WTO Panel indicated, however, that it was not suggesting that “the invocation of any international agreement would be sufficient under any circumstances, in order to justify the existence of discrimination in the application of a measure under the chapeau of Article XX.”145 The WTO panel concluded that the “MERCOSUR exemption” had not resulted in the import ban being applied in a manner that would constitute arbitrary or unjustifiable discrimination.146

Finally, the WTO Panel explicitly stated that it was not in a position to assess in detail the choice of arguments by Brazil in the

140. Id. ¶ 7.272. 141. Id. 142. Id. ¶ 7.273. 143. Id.144. Id. ¶ 7.281. 145. Id. ¶ 7.283. The Panel also considered that it was not contrary to the terms of Article XXIV: 8(a) of the GATT 1994—which specifically excludes measures taken under Article XX from the requirement to liberalize “substantially all the trade” within a customs union—to take into account, as it did, “the fact that the MERCOSUR exemption was adopted as a result of Brazil’s obligations under MERCOSUR.” Id. ¶ 7.284. 146. Id. ¶ 7.289.

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