Articles

Journal of World Investment, Volume 3, No. 3 (June 2002), pp. 507-520.

I. Introduction

Launched on March 26, 1991 when the Presidents of Argentina, Brazil, Paraguay and Uruguay signed the Treaty of Asuncion, the final goal of MERCOSUR (or MERCOSUL in Portuguese) is revealed by the full name behind the acronym---Common Market of the South. To date, however, MERCOSUR has not advanced much beyond a very imperfect customs union. Although the vast majority of goods are now traded among the Member States duty-free, there are some significant exceptions that include both sugar and the entire automotive sector. There are also non-tariff barriers affecting intra-regional trade that have yet to be removed. In terms of goods imported from the outside world, there are still many important products not included in the common external tariff (CET) system. In addition, the deteriorating economic situation in Argentina throughout 2001 caused that country to unilaterally exempt numerous imports from the CET in March of 2001. Although later sanctioned by the other MERCOSUR countries when they granted the Argentines a temporary waiver, that measure also opened the door for some of these countries to pursue the same course of action as Argentina.

Despite the recent setbacks suffered by regional economic integration in South America’s Southern Cone, there is no danger that MERCOSUR is about to collapse. The rationale for more closely linking the economies of the sub-region together remains as strong as ever. Although growth in intra-MERCOSUR trade has stagnated for the last three years, those levels are still almost four times higher than what they were prior to 1991. MERCOSUR has also caused hundreds of firms from the sub-region to invest in cross border ventures, a phenomenon that was almost unknown prior to the 1990’s. Politically MERCOSUR has also permanently banished the prospect of border conflicts and arms races that once predominated in the sub-region, and instead united the Southern Cone in a crusade to mutually support democratic forms of governance. Undoubtedly, the projected return of economic growth to the Southern Cone after 2002 will help defuse tensions currently besetting MERCOSUR.

The purpose of this article is to discuss MERCOSUR’s present dispute resolution mechanisms and the role they have played in furthering the goals of economic integration in South America’s Southern Cone. There are two basic forms of dispute resolution with the formal MERCOSUR framework. One system deals with resolving disputes that may arise between a private-sector investor and a State Party. The second deals with disputes that may arise between State Parties or between an individual or company and (a) State Party(ies) over the application or interpretation of norms and obligations arising out of the integration process. Given that the first system has still not been tested, the article begins by providing a brief overview of it structure before examining the second system in more detail. In discussing dispute resolution mechanisms within MERCOSUR, it is important to note that another option is available to private parties outside the formal MERCOSUR framework. To the extent they have jurisdiction over the matter, a private party may resort to the national court systems to complain about a State Party’s failure to adhere to its MERCOSUR obligations. I. The Protocol of Colonia & Common Market Decision 11/94.

The Protocol of Colonia for the Promotion and Reciprocal Protection of Investments Within the MERCOSUR was signed by the four Member States in January of 1994. The Protocol covers direct and indirect (e.g., portfolio) investments made by nationals (whether individuals or corporations) permanently domiciled in one MERCOSUR country, in the territory of the other Member State(s). It obligates a signatory State to extend the same favourable treatment to all MERCOSUR nationals as is offered to its own nationals or to those from third countries. It also prohibits the expropriation of investments in a way that is arbitrary or discriminatory and limits expropriation to reasons of public interest and upon payment of just compensation. Finally, the Protocol prohibits restrictions on the transfer abroad of capital or profits. Any disputes that may arise among the State Parties concerning the interpretation or application of the obligations created by the Protocol of Colonia are to be resolved by MERCOSUR’s general dispute resolution system---the Protocol of Brasilia. On the other hand, Article 9 of the Protocol of Colonia contains the procedure for resolving disputes that may arise between a private-sector investor and a State Party wherein the investment is located regarding interpretation of the obligations contained in the Protocol of Colonia. As a first step, the parties are required to resolve the dispute through friendly negotiations. If the dispute cannot be resolved within a six-month period, then the investor can then request resolution through either:

• the appropriate courts of the State Party wherein the investment is located;
• international arbitration before the International Center for the
• Settlement of Investment Disputes (ICSID) created by the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, signed at Washington, D.C. on 18 March 1965 or an ad hoc arbitration panel formed under the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL); or
• any dispute resolution system for private parties that may eventually be established within the context of the Treaty of Asuncion.

Once a forum has been selected, the choice is binding. Whatever forum is utilized, that body must base its decision on the provisions of the particular investment agreement, the law of the State Party involved in the dispute (including its conflict of laws regime) and relevant principles of international law. All arbitral awards are final and binding on the parties involved in the dispute. In August of 1994, the Common Market Council (C.N.C.)---MERCOSUR’s highest institutional body---approved Decision 11/94, which contains the Protocol for the Promotion and Reciprocal Protection of Investments from Outside the MERCOSUR. The provisions of this protocol are almost identical to those found in the earlier Protocol of Colonia. The major difference is that, in any dispute involving private sector investors from non-MERCOSUR countries and a State Party, the private party has the option to refer the dispute to either a court in the country wherein the investment is located or to international arbitration. If international arbitration is chosen, the dispute can be submitted to an ad hoc arbitration body or to an international arbitration institution. There is no express limitation on the arbitral body being ICSID or one formed under UNCITRAL rules. Unfortunately it is not possible to report on how the dispute resolution systems in either the Protocol of Colonia or C.M.C. Decision 11/94 have functioned in practice because neither has yet entered into force. Both require ratification by all four MERCOSUR countries. To date, the Protocol of Colonia has only been ratified by Argentina (although it awaits ratification by the Uruguayan Congress), while C.M.C. Decision 11/94 has been ratified by Argentina and Paraguay (and has been submitted to the Brazilian and Uruguayan Congresses for ratification). One explanation for the delay in ratification may be tied to the inability of the Member States to establish a uniform MERCOSUR regime on foreign investment. As a result, for the last several years the Member States (as well as sub-entities within each country) have competed with each other in offering foreigners tax holidays, subsidized loans, free land, and other incentives to attract foreign direct investment. Another stumbling block has been the fact that recognition of foreign arbitral awards is a relatively new concept in Brazil, and some Brazilian government bureaucrats continue to resist implementing legislation that may impinge on exalted notions of national sovereignty. For example, Brazil remains the only MERCOSUR country that has still not signed the ICSID Convention or even the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

II. The Protocol of Brasilia

Annex No. III to the Treaty of Asuncion established a temporary three-step system for the resolution of disputes that might arise among the State Parties concerning the application of obligations arising under that Treaty. Disputes that could not be resolved through direct negotiations, could be referred to the Common Market Group---MERCOSUR’s second highest institutional body---which could, in turn, seek the technical advise of a panel of experts or specialists. If the dispute could still not be resolved, the matter was referred to the Common Market Council.

In December of 1991, the Presidents of the four MERCOSUR countries signed the Protocol of Brasilia for the Resolution of Controversies. The Protocol of Brasilia contains two different procedures for resolving disputes that may arise either among the State Parties or between a private party and (a) State Party(ies).

A. Disputes Arising Among State Parties

Article 1 of the Protocol of Brasilia covers disputes that may arise among the State Parties concerning: “…the interpretation, application or non-compliance of the dispositions contained in the Treaty of Asuncion, of the agreements celebrated within its framework, as well as any Decisions of the Common Market Council and the Resolutions of the Common Market Group.”

As a first step, the State Parties should attempt to resolve their differences through direct negotiations within fifteen working days (unless the parties extend the time limit). (Article 2) If this proves unsuccessful, then the matter is referred to the Common Market Group (Article 4 (1)). The Common Market Group normally has thirteen days within which to issue its recommendations for resolving the dispute. (Article 6). In formulating these recommendations, it is allowed to turn to a panel of experts for advice. (Article 4(2)).

If the Common Market Group is also unable to successfully resolve the dispute, then the matter can be submitted, at the request of a State Party, to a three-person ad hoc arbitration panel. The arbitrators are limited to a maximum of ninety days to make an award (Article 20). They are explicitly allowed to issue preliminary provisional measures in order to prevent severe and irreparable damages (Article 18). Any decision they make is by majority vote, is binding on the parties and cannot be appealed (Articles 8 and 21). The actual vote tally is kept confidential and no dissenting opinions are allowed (Article 20(2)). The losing party generally has a maximum of thirty days to comply with a decision, unless this time period is briefly suspended in the event further clarification of the decision or an interpretation as to how it should be applied is sought (Articles 21(1), 22 and 23). Failure to adhere to a decision allows the winning party(ies) to adopt temporary compensatory measures, such as the suspension of preferential tariff treatment or other concessions, in order to force compliance. (Article 23).

B. Disputes Between a Private Party and a State Party or Parties

Under Article 25 of the Protocol, an aggrieved private party (whether an individual or a corporation) has the right to use the procedures established under the Protocol of Brasilia to complain of the application by a State Party or Parties “…of legal or administrative measures which have a restrictive, discriminatory or unfairly competitive effect, in violation of the Treaty of Asuncion, of the agreements celebrated within its framework, the Decisions of the Common Market Council or the Resolutions of the Common Market Group.” It will be noted that the right of private parties to complain is limited to affirmative actions by a State and does not include omissions, such as the failure of a State Party to comply with its MERCOSUR obligations. Legal scholars have also criticized the fact that private parties cannot challenge the legality of actions carried out by MERCOSUR’s institutional bodies, even though these actions may directly and detrimentally affect that private party. Private party complaints are filed with the National Section of the Common Market Group of the country wherein the private party resides or is headquartered (Article 26). If the respective National Sections cannot resolve the dispute within a fifteen-day period, then the complaint is elevated to the full Common Market Group (although the National Section can theoretically refer it directly to the Common Market Group without contacting its counterpart in the country being complained about) (Articles 27 and 28). The Common Market Group, in turn, refers the matter to a three-person panel of experts that have 30 days to make their recommendations (Article 29). If the dispute can still not be resolved at this level (including the refusal by a State Party to adopt recommendations within a fifteen-day period), then the controversy can only continue on to the third step of binding arbitration if the private party’s complaint is adopted by a State Party as its own and a formal request is made for the formation of a three-person ad hoc arbitral panel (Article 32).

C. Modifications Introduced by the Protocol of Ouro Preto

In December 1994, the Presidents of the four MERCOSUR countries signed the Protocol of Ouro Preto, which introduced important modifications to the institutional structure of the MERCOSUR. These modifications also affected MERCOSUR’s dispute resolution mechanism as a result of the creation of a new institutional body called the MERCOSUR Trade Commission. In particular, the MERCOSUR Trade Commission was authorized to “consider the complaints presented by the National Sections of the MERCOSUR Trade Commission originating with the State Parties or private parties…[that] fall within its jurisdiction.” ( Article 21). Furthermore, the Directives issued by the MERCOSUR Trade Commission were added to the legal norms upon which a party using the dispute system could base a complaint (Article 43). Overall, the main task of the MERCOSUR Trade Commission is to insure the application of common trade policy instruments with respect to intra-regional trade and that with the outside world. Annex I to the Protocol of Ouro Preto contains the procedure to follow when a State Party utilizes the option to file a complaint with the MERCOSUR Trade Commission. Such complaints are filed with the President pro-tempore of the full MERCOSUR Trade Commission (Annex I, Article 2). If the Commission cannot resolve the matter at its next regular meeting, then it is forwarded to a one of ten permanent technical committees that assist the Trade Commission in its work. The relevant technical committee has thirty days to make a recommendation or, if there is a difference of opinion, to forward the conclusions of the different experts (Annex I, Article 3). If the MERCOSUR Trade Commission cannot resolve the matter, then the dispute with the different proposed experts’ remedies are forwarded to the full Common Market Group for it to make a decision within thirty days (Annex I, Article 5). If the Common Market Group, in turn, cannot make a final determination, or if an errant State Party refuses to accept the Group’s decision (or the earlier decision of the MERCOSUR Trade Commission if one was forthcoming at that level) within a reasonable time limit, then the aggrieved State Party can proceed to binding arbitration under the Protocol of Brasilia (Annex I, Articles 6 & 7).

D. Common Market Decision 17/98

In December 1998, the Common Market Council issued C.M.C. Decision 17/98, which contains the Regulations for fully implementing the Protocol of Brasilia for the Resolution of Controversies. In doing so, it enabled the final level of MERCOSUR’s dispute resolution mechanism, involving a three-person arbitration panel, to now be utilized by interested State Parties. Although the Protocol of Brasilia had been signed in 1991, the long delay in making the system fully effective can be explained, in part, by a Latin American cultural trait of allowing one’s adversary to a conflict a face-saving way to retreat gracefully. In addition, during MERCOSUR’s early days, commercial disputes were often used by a government as a means of obtaining other concessions from a culpable party rather than actually resolving the problem before them. Both these goals would be frustrated by a system in which the decisions of the arbitral panels were binding and no appeals were permitted. C.M.C. Decision 17/98 did not make dramatic substantive changes to the provisions found in the Protocol of Brasilia (a shortcoming, according to some analysts), but rather further expanded and explained in greater detail the procedural rules established therein. It also re-emphasized the changes introduced through the Protocol of Ouro Preto--- that State-to-State disputes over the interpretation, application or non-compliance with Directives of the MERCOSUR Trade Commission could be referred to the dispute resolution mechanism as could disputes by private parties against a State Party for enforcement of a legal or administrative measure in violation of a Directive. Among the provisions included in C.M.C. Decision 17/98 are ones further clarifying the roles of the panel of experts as well as the National Coordinators and National Sections of the Common Market Group in the dispute resolution process. Another provision in C.M.C. Decision 17/98 requires the picking of an “alternate” arbitrator to replace the President of the arbitration panel if he or she should become incapacitated during the proceedings, while yet another allows a State Party (upon mutual consent of all the parties to a dispute) to pick an arbitrator from its opponent’s pre-submitted list of arbitrators. Other regulations found in C.M.C. Decision 17/98 deal with specific information that must be included in any complaint filed by private parties with the Common Market Group, the specific procedure to follow when a panel of experts cannot reach a consensus in formulating their recommendations, and guidelines for the payment and reimbursement of expenses of the experts and arbitrators. Most significantly, there is a new requirement that the Common Market Group can only reject a private party complaint upon the consensus of all four countries (modifying the previous language found in Article 29 (1) of the Protocol of Brasilia that could have been interpreted to imply that the consensus of all four countries was needed to accept the complaint).

E. The Proposed Protocol of Olivos for the Resolution of Controversies in MERCOSUR.

On 18 February 2002, the Presidents and Foreign Ministers of the MERCOSUR countries signed the Protocol of Olivos that, once it comes into effect, will contain the new transitional dispute resolution mechanism for MERCOSUR. It is designed to replace the 1991 Protocol of Brasilia (and its implementing regulations found in C.M.C. Decision 17/98), although not the innovations introduced to MERCOSUR’s dispute resolution system under the 1994 Protocol of Ouro Preto. Before the Protocol of Olivos enters into force, however, it must be ratified by all four Member States. In addition, the Common Market Group must also draft implementing regulations before the new system comes into effect.

The Protocol of Olivos is designed to address some of the criticisms that have long been lodged against MERCOSUR’s current dispute resolution system. For example, the Protocol of Olivos establishes a Permanent Tribunal of Review that is designed to “guarantee the correct interpretation, application and fulfilment of the fundamental instruments of the integration process” and MERCOSUR norms “in a consistent and systematic manner.” The Protocol also gives the arbitral panels greater oversight capabilities to help ensure compliance with past decisions they have issued. In addition, it provides State Parties with a faster route to the final stage of the dispute resolution system---binding arbitration. 1. Disputes Arising Among State Parties.

One of the interesting things about the Protocol of Olivos is that its Article 1 acknowledges the State Parties have the option, when appropriate, of using either the MERCOSUR or the WTO system for resolving disputes that may arise among them concerning:

“the interpretation, application or non-compliance with the Treaty of Asuncion, the Protocol of Ouro Preto, on the protocols and agreements celebrated within the framework of the Treaty of Asuncion, the Decisions of the Common Market Council, the Resolutions of the Common Market Group and the Directives of the MERCOSUR Trade Commission.”

Once the choice has been made, however, the parties are barred from beginning another proceeding in another forum involving the same dispute. Furthermore, Article 2 authorizes the Common Market Council to establish an expedited procedure for resolving differences in opinion that may arise among the State Parties on technical matters pertaining to common trade policies (for example, imposition of anti-dumping duties).

As was true of the system established under the Protocol of Brasilia, the State Parties should first attempt to resolve their disputes through direct diplomatic negotiations. If the dispute cannot be wholly resolved within a fifteen-day time period, then the matter will either be referred to the Common Market Group (as was the case under the Protocol of Brasilia) or proceed directly to binding arbitration. Use of the Common Market Group is no longer obligatory, and a dispute will only be forwarded to the Group if all the parties to the dispute so agree. Interestingly, a State not involved in a dispute will now be able to request referral of a dispute to the Common Market Group (although this will not necessarily delay use of the binding arbitration option chosen by at least one the parties to the controversy).

The actual procedures followed by the Common Market Group in any dispute that may be referred to it remain similar to that found in the Protocol of Brasilia. Also similar is the procedure involved for selecting the members of the three-person ad hoc arbitration panel as well as the ordering of preliminary injunctive relief and the issuing of the panel’s final decision.

Chapter VII to the Protocol of Olivos contains the provisions for the establishment of a Permanent Tribunal of Review to sit in Asuncion, Paraguay (although the Tribunal can also meet in other cities of the MERCOSUR for well founded, exceptional reasons). The Tribunal of Review is made up of five judges, with each MERCOSUR country choosing one judge (and a supplement) for a two-year period subject to renewal for two consecutive terms. The fifth judge, who becomes the President of the Tribunal and must be a MERCOSUR national, is chosen for a three-year term upon the consensus of all four Member States. If a consensus is not possible, then the Director of the Administrative Secretariat in Montevideo selects the fifth judge by lottery from a pre-submitted list of eight candidates. When a dispute only involves two countries, the Permanent Tribunal of Review is limited to three judges, with one judge from each country to the dispute and the third, a non-national, is chosen to be the President of the Tribunal by the Director of the Administrative Secretariat through a lottery.

A State Party has within fifteen days to respond to any petition requesting review, and the Tribunal must, in general, issue its decision within thirty days thereafter, although one fifteen-day extension is permitted. Article 22 of the Protocol of Olivos gives the Permanent Tribunal of Review the power to “confirm, modify or revoke the legal basis and decisions” of an ad hoc arbitral panel and the Tribunal’s decisions take precedence over those of the ad hoc body. State Parties may request review of a dispute by the Permanent Tribunal of Review that falls within its subject matter jurisdiction if they are unable to fully resolve the matter through direct negotiations.

The decisions of both the ad hoc arbitration panels and the Permanent Tribunal of Review are adopted by majority vote. The actual votes are kept secret and no dissenting opinions are permitted. Decisions of the ad hoc panels and the Permanent Tribunal of Review have the force of res judicata. While ad hoc arbitral awards (unless they are based on equity) can be reviewed by the Permanent Tribunal of Review, the decisions of the Tribunal are final and can not be appealed. State Parties can always request clarification of decisions emanating from either body, however. All decisions must be carried out and implemented within the timeframe included in the decision or, if none is mentioned, within thirty days from the date of its issue. A State Party ordered to comply with a decision must normally inform the winning State(s) of how it intends to do so within fifteen days after receipt of the decision. If a State Party feels that the measures undertaken by another State Party to comply with a decision are insufficient, it has thirty days from the date the measures were implemented to refer the matter back to the body that issued it. That body must, in turn, issue its recommendations within thirty days thereafter. If a State Party feels that another State has not fulfilled its obligations under a decision in full or in part, it is also authorized to impose — within a one-year period after the date for compliance has passed — temporary compensatory measures. These compensatory measures may include the suspension of concessions or obligations granted in the same or even in other sectors and are independent of any obligation to refer the matter back to the body that issued the original decision. Any State Party subject to compensatory measures can, however, refer the matter back to the respective body that issued original decision in order to determine if the compensatory measures imposed are excessive or otherwise unwarranted.

2. Disputes Involving Private Parties and a State Party(ies)

As was true under the Protocol of Brasilia, private party complaints under the new system established by the Protocol of Olivos are still limited to affirmative acts of the State Parties and not for their sins of omission, such as the failure to implement a MERCOSUR norm. There is also no right to challenge the legality of actions carried out by MERCOSUR’s institutional bodies.

Private parties are required to file their complaints with the National Section of the Common Market Group of the State Party wherein they regularly reside or are headquartered. This is in addition to the procedure established under the Protocol of Ouro Preto that permits a complaint to be filed with the National Section of MERCOSUR Trade Commission. A private party complaint should contain sufficient elements to support a claim and establish actual or threatened prejudice.

Once a National Section of the Common Market Group accepts a complaint, it consults with its counterpart in the State Party whose actions are the motive for the complaint in an attempt to resolve the matter. Unless the National Sections agree otherwise, these discussions must result in a resolution within fifteen days after they begin or the matter is referred to the full Common Market Group. The Common Market Group will accept a complaint only if it contains the necessary elements to support a claim. Any decision to reject a complaint requires the consensus of all four MERCOSUR countries. If the complaint is accepted, the Common Market Group convenes a panel of three experts to try to resolve the matter within thirty days thereafter. The experts are selected from a list of twenty-four individuals whose names are kept on file with the MERCOSUR Administrative Secretariat in Montevideo. The parties to a dispute have a right to jointly appear before these experts and present their respective positions. The experts can make unanimous recommendations (including one suggesting dismissal of the complaint as baseless). If there is no unanimity of opinion among the three experts, then their different conclusions will be forwarded to the Common Market Group for it to resolve the matter as best it can. Regardless of whether the experts recommended dismissal of a complaint or they fail to achieve unanimity in their recommendation(s), nothing will prevent a State Party at that point from adopting the private party’s complaint and initiating diplomatic negotiations or formally requesting binding arbitration.

III. An Overview of Recent Arbitral Decisions

To date, six disputes have managed to reach the binding arbitration level of the dispute resolution system established under the Protocol of Brasilia. The first case involved a complaint lodged by Argentina against Brazilian license requirements on imported lactate products that Buenos Aires claimed created an impressible non-tariff barrier to free trade. In a unanimous decision, the Arbitration Panel gave Brazil approximately seven months to eliminate all non-automatic import license requirements not based on very limited exceptions that included the protection of public morality, national security, the life and health of humans, flora, and fauna. In the second case, Argentina alleged that Brasilia was unfairly subsidizing exports of pork meat within MERCOSUR. There was also an Argentine allegation that certain Brazilian currency exchange programmes were being abused by Brazilian pork meat exporters so as to unfairly profit from a forward-currency-exchange type of scheme. The ad hoc Arbitration Panel found that the alleged Brazilian subsidized corn-feed programme that was at the root of Argentina’s complaint was not specifically directed at pork producers and therefore was not a type of subsidy expressly prohibited by either the WTO or MERCOSUR. The Argentine complaints regarding the Brazilian PROEX programme (i.e., subsidized loans for exporters) were rendered moot when Brazil abolished the programme in April 1999 (i.e., prior to the panel’s decision) for intra-MERCOSUR exports. The arbitration panel found no evidence that the forward currency exchange schemes had a prejudicial impact on Argentine pork meat producers. Finally, the panel rejected as untimely a fourth Argentine complaint concerning a Brazilian federal tax incentive programme submitted after the dispute resolution process had formally begun. In the third case, Brazil complained about an Argentine safeguard measure that imposed annual quotas on Brazilian-made cotton textiles. The Brazilians claimed that the Argentine measure not only undermined MERCOSUR’s intra-regional free trade scheme and unfairly favoured imports from non-member states, but it was incompatible with the WTO’s Multi-Fibber Arrangement (MFA). In response, the Argentines claimed, inter alia, that the safeguard measure was permitted under the MFA and that there were no MERCOSUR rules governing the issue. Accordingly, the matter did not even belong in the MERCOSUR dispute resolution system because no MERCOSUR obligations were involved. The arbitral panel dismissed Argentina’s argument that the panel did not have jurisdiction over the dispute and found that Argentina had imposed a safeguard measure that at the time was no longer permissible in the context of bilateral Argentine-Brazilian trade. The Panel gave the Argentine government fifteen days to abrogate its safeguard measure on Brazilian cotton textiles. The fourth case was brought by Brazil, alleging that Argentina’s imposition of an anti-dumping duty on Brazilian whole chickens violated MERCOSUR rules concerning the investigation of unfair trade practices between Member States and the subsequent imposition of remedies. During the first stage of the dispute resolution process, Argentina had even refused to negotiate a diplomatic resolution to the dispute with Brazil, arguing that the anti-dumping duties it levied on Brazilian chicken fell solely within the jurisdiction of the Argentine administrative bodies and courts. Accordingly, the use of the dispute resolution system set up under the Protocol of Brasilia was wholly inapplicable to resolving this matter. Although the ad hoc arbitration panel rejected the Argentine contention that it lacked jurisdiction over the matter, it did find in favour of Argentina. Acknowledging the limited scope of its review powers as a result of the absence of MERCOSUR norms that directly addressed the issues at hand, the Arbitration Panel found that the procedure employed by Argentina for investigating allegations of dumping of Brazilian chickens and the subsequent imposition of anti-dumping measures were reasonable under international trade law and were not used as a subterfuge to thwart intra-MERCOSUR free trade. The fifth case arose over tariffs imposed by Argentina on imported bicycles made by one Uruguayan company as if they were non-MERCOSUR in origin. The request for arbitration was filed by Uruguay and focused on Argentina’s challenge as to the origin of the bicycles. The Arbitration Panel issued a unanimous decision in favour of Uruguay, declaring that Argentina’s blanket treatment of Uruguayan bicycles made by one company as non-MERCOSUR in origin and therefore subject to the Common External Tariff or CET, violated Argentina’s MERCOSUR obligations. If Argentina had genuine questions regarding the authenticity of the certificate of origin issued for a specific shipment of bicycles, the Panel held that the proper recourse for Argentina was to take up the matter with the Uruguayan issuing authority, and to follow the other procedures established in the relevant MERCOSUR rules of origin requirements. Finally, a sixth arbitral award was issued by an ad hoc Panel on January 9, 2002 in a matter brought by Uruguay alleging that a Brazilian law enacted in September 2000 prohibiting the issuance of import licenses for remolded tires violated a July 2000 MERCOSUR standstill prohibition on new restrictions to intra-regional trade flows. The Arbitral Panel ruled in favour of Uruguay, and Brazil was ordered to issue domestic legislation lifting the ban on imported remolded tires within sixty days. In reaching its decision, the Arbitral Panel felt that Brazil was estopped from claiming that an earlier 1991 law was intended to include remolded tires as “used” tires whose importation into Brazil from that date forward was prohibited. Actual behaviour by other Brazilian government agencies since 1991indicated that remolded tires were not treated as used tires, and remolded tires were freely imported into Brazil throughout the 1990’s. Conclusion

It is important to point out that Article 53 of the Protocol of Olivos emphasizes that, before the common market aspect of the MERCOSUR project is fully implemented (now scheduled for 1 January 2006), its dispute resolution system will be revised by the Member States so as to establish a Permanent Dispute Resolution System. This means that even when the Protocol of Olivos is finally ratified by all four MERCOSUR countries, the system established will still only be transitional in character and subject to future improvements. Critics of MERCOSUR’s current dispute resolution system often complain that it is subservient to political interests and deadlines are rarely respected (thereby considerably lengthening the time for resolving disputes as they slowly wind their way through the system). For example, the fact that professional bureaucrats staff the Common Market Group or the MERCOSUR Trade Commission oftentimes means that a private party’s need of immediate relief is hijacked by larger geopolitical concerns of the State Parties. All of this contributes to a generalized atmosphere of juridical insecurity for the most important actors in any economic integration process---the private sector. Despite its shortcomings, MERCOSUR’s dispute resolution system has shown some positive results, particularly in the last three years. Although only six arbitral panels have actually issued awards to date, this statistic overlooks the fact that hundreds of disputes have entered the system at the first stage and often been successfully resolved at that level or at the second stage. In any event, this low number is bound to increase significantly as the reforms included in the Protocol of Olivos speed up the procedure for reaching the final, arbitration panel stage. The Protocol of Olivos should also help to reduce subordination of dispute resolution to the political agenda of the State Parties by providing a faster route to arbitration and avoiding the heavily politicised Common Market Group altogether. Private sector parties may also benefit from the creation of the Permanent Tribunal of Review by making use of the national court systems to enforce compliance of MERCOSUR obligations by State Parties a more feasible alternative. In particular, a body of case-law established by the Tribunal can help guide the national courts in uniformly interpreting obligations created by MERCOSUR norms and reduce the risk of unexpected results due to conflicting interpretations of these norms by different courts.

The author is the President of Mercosur Consulting Group, Ltd., a Washington, D.C.-based legal and economic consulting firm that assists companies in their strategic business planning for South America. He is also a dual national of the United States and Chile.

*President of Mercosur Consulting Group, Ltd., Washington, D.C., which assists companies in developing strategies for doing business in South America. For a translation into English of the full text of the Treaty of Asuncion and Annexes, see Thomas Andrew O’Keefe, Latin American Trade Agreements, Transnational Publishers, Inc., Ardsley on Hudson, New York, 1997 and 2001, at Appendix 5.

The full text of the Protocol of Colonia, listed as Common Market Council (C.M.C.) Decision 11/93, is available in Spanish or Portuguese from the official web site of the MERCOSUR Administrative Secretariat at: www.mercosur.org.uy.

Interestingly, at the time the Protocol of Colonia was executed in January 1994, Brazil was not a signatory to the ICSID Convention. In addition, prior to the passage of Law No. 9307 of 22 September 1996, it was extremely difficult to enforce a foreign arbitral award in Brazil because of a requirement that any foreign award had to be incorporated into a judgment emanating from a court in the country where the award was made (a procedure that was not even permitted by the law in some countries); see, for example, José Maria Rossani Garcez, A Lei Brasileira de Arbitragem (Lei 9307/96) Sob o Prisma da Arbitragem Internacional, Ano 3 Revista de Direito do Mercosul, April 1999.

For a translation into English of C.M.C. Decision 11/94, see O’Keefe, supra, footnote 1, at Appendix 8.

For a translation into English of the Protocol of Brasilia, see O’Keefe, supra, footnote 1, at Appendix 7. The Protocol of Brasilia came into force on 22 April 1993 after it was ratified by the fourth MERCOSUR Member State.

Each State Party or Parties on each side of a dispute selects an arbitrator from pre-submitted lists of candidates. The third arbitrator is chosen by mutual consent and becomes the President of the arbitration panel and cannot be a national of one of the State Parties involved in the controversy. If a consensus cannot be reached as to the third arbitrator, then MERCOSUR’s Administrative Secretariat in Montevideo chooses him or her by lottery. Each State Party or Parties pays for the arbitrator it (they) chose. The cost of the third arbitrator is shared in equal parts by each side to the dispute. See Articles 7, 9, 11, 12, 14, and 24 of the Protocol.

Despite this limitation, it should be emphasized that nothing prevents a private party from trying to use the national court systems to try to seek redress for grievances that may include a State Party’s failure to comply with its MERCOSUR obligations. Interestingly, this option has been frequently pursued, sometimes leading to anomalous results in which a court in one country will make a determination contrary to that reached by the national court in another country but involving similar facts. Part of the explanation for this lies in the fact that, under the Constitution of countries such as Argentina, international law takes precedence over conflicting or non-existent domestic law, while it does not in Brazil and Uruguay; see, for example, Jorge E. Fernández Reyes, Evaluación de los Mecanismos de Solución de Controversias en el MERCOSUR, 4 Revista de Derecho del Mercosur, August 2000.

For a more detailed discussion of the MERCOSUR’s dispute resolution system, including its shortcomings, see Adriana Dreyzin de Klor, Dispute Resolution Mechanism, in O’Keefe, supra, footnote 1, at pp.7-6 through 7-16. See also José Emilio Ortega and Jacquelina Erica Brizzio, Integración y Solución de Conflictos: Perspectivas y Propuestas Para el MERCOSUR, 3 Revista de Derecho del Mercosur, April 1999.

For a translation into English of the full text of the Protocol of Ouro Preto and Annex, see O’Keefe, supra, footnote 1, at Appendix 10.

Interestingly, Annex I to the Protocol of Ouro Preto is silent as to the precise procedure to follow in the event a private party is filing the complaint. Presumably the matter stays with the National Sections of the MERCOSUR Trade Commission. If the matter cannot be resolved at that level, then the private party must resort to the procedure established under the Protocol of Brasilia or lobby to have the complaint adopted by a State Party in order to bring it before the full MERCOSUR Trade Commission.

See Annex I, Article 2. These ten technical committees are: (1) Tariffs, Nomenclature & Product Classification; (2) Customs Matters; (3) Trade Norms; (4) Public Policies that Distort Competition; (5) Safeguard of Competition; (6) Unfair Trade Practices & Safeguard Measures; (7) Consumer Protection; (8) Non-tariff Barriers; (9) Automotive Sector; and (10) Textile Sector.

The text of C.M.C. Decision 17/98 is available in Spanish or Portuguese from the official Website of the MERCOSUR Administrative Secretariat at: http://www.mercosur.org.uy For a more detailed commentary on Decision 17/98, see Ernesto J. Rey Caro, Comentario al Reglamento del Protocolo de Brasilia Para la Solución de Controversias en el MERCOSUR, 3 Revista de Derecho del Mercosur, June 1999.

In reviewing ad hoc arbitral awards, the role of the Permanent Tribunal of Review is limited to insuring a consistent interpretation of the law applied by the arbitration panel as developed by the Tribunal itself and in previous ad hoc arbitral awards.

The full texts of these six arbitral awards are available in Spanish or Portuguese from the official Website of the MERCOSUR Administrative Secretariat at: www.mercosur.org.uy.

It is interesting to point out that the Brazilian complaint on this matter was coupled by another filed with the Textile Monitoring Body that oversees implementation of the WTO’s Multi-Fiber Arrangement. Although the Monitoring Body initially recommended that Argentina drop the safeguard measure because there was no showing that Brazil was actually the cause of any actual or potential harm to the Argentine textile industry, a WTO dispute settlement panel eventually refused to entertain the Brazilian petition.

See, for example, Fernández Reyes, supra, footnote 7, at p. 158, fn. 46, who points out that, between 1995 and May of 2000, the MERCOSUR Trade Commission alone processed some 374 complaints.