The MERCOSUR and WTO Retreaded Tires Dispute: Rehabilitating Regulatory Competition in International Trade and Environmental Regulation

Abstract

Brazil is currently immersed in the project of building a new common market, known as MERCOSUR, with its neighbors Argentina, Uruguay and Paraguay. It has largely been assumed that this project will produce economic growth and therefore be beneficial for the environment. However, this assumption has recently come into question, as a result of Brazilian and Argentinean efforts to regulate the environmental and health risks associated with retreaded tire imports. Despite the protests of environmentalists, MERCOSUR and WTO tribunals have now issued three separate decisions finding that these measures violate international trade rules. This dissertation examines whether these decisions were correctly decided in light of the relevant scholarly literature on the relationship between trade liberalization and environmental protection, and on regulatory competition theory. I argue that the test applied by WTO and MERCOSUR panels in trade and environment disputes gives insufficient weight to the lessons learned from this literature, and that future panels should adopt a new approach that explicitly draws on these lessons. I then attempt to apply this new approach to the retreaded tire dispute, based on my own examination of the relevant economic and scientific data, and individual interviews I conducted with representatives of the Brazilian government, the Brazilian tire industry, and MERCOSUR.