On 9 February this year, the Brazilian Government ratified the Protocol of Olivos, an agreement designed to improve the dispute settlement system in the trading block MERCOSUR – which is made up of Brazil, Argentina, Uruguay and Paraguay – and to move the system towards a more rule-oriented mechanism. The said protocol entered into force on 1 January.

The new system applies to consultations and the settlement of disputes among MERCOSUR members concerning their rights and obligations under the Treaty of Asuncion. Its coverage also includes complaints made by private parties against members due to the adoption of measures that are restrictive, discriminatory or that otherwise create unfair competition in violation of MERCOSUR legal framework.

The previous system, which was established under the Treaty of Asuncion in 1991, had relied strongly on diplomatic solutions, based on consultation and negotiating procedures. It was implemented in Brazil in 1993 under the rules of Protocol of Brasilia, which provided for two main streams for settling a trade dispute within the block: direct negotiations between member states and a mechanism of ad hoc arbitration if no agreement was reached at a diplomatic level.

The Protocol of Olivos introduces substantial changes in the original system. One of the most important, the creation of the Permanent Tribunal of Review (PTR), is expected to guarantee further consistency and predictability to the decisions over MERCOSUR disputes. It is believed that a standing body would enhance expertise, legitimacy, independence and coherence to the extent this is aspired.

Being headquartered in Asuncion, the PTR will operate as an instance of appeal to review issues of law and legal interpretations by MERCOSUR ad hoc arbitral tribunals. However, to expedite the resolution of the dispute, members may want to submit their dispute straight to PTR, which will then act as the sole instance, instead of referring it to ad hoc arbitration proceedings, an option that leaves no room for appeals.

Moreover, the protocol provides a solution to one of the main deadlocks experienced by the parties to the controversy between Argentina and Brazil regarding antidumping measures on Brazilian poultry. The former Protocol of Brasilia did not foresee the exclusivity of regional jurisdiction when disputes were initiated within the block, thus authorising the submission of the same dispute, either concomitantly or successively, to both the World Trade Organisation (WTO) and MERCOSUR systems. This possibility was the object of sharp criticism both from government officials and scholars, as it clearly jeopardises the strength of the regional system. In order to prevent the risk of conflicting decisions being passed by two equally competent fora, the Protocol of Olivos determines that parties shall elect the appropriate forum to settle a dispute.

The new system adopts a mechanism to follow up the recommendations made by tribunals, such as the one pursued on WTO disputes.

Accordingly, the Protocol of Olivos has been welcomed by MERCOSUR members, especially due to its similarities with the WTO Mechanism, which has shown to be quite satisfactory in settling members' disputes in the past under a rule-oriented approach rather than a diplomatic one.

Tulio Coelho is a partner and Ana Luiza Ferreira a law clerk in the antitrust and foreign trade/WTO practice group of Trench Rossi e Watanabe in Brasilia.