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Court lifts Mercedes sales ban in blow to France

By Alexandria Sage and Chine Labbé

PARIS (Reuters) - France's top administrative court lifted a sales freeze on Mercedes vehicles on Tuesday, dealing a blow to the government in a bitter row over German carmaker Daimler's use of a banned chemical.

In a temporary injunction ordering the resumption of Mercedes registrations within two days, the Conseil d'Etat voiced "serious doubt" over the legality of the two-month freeze affecting several key models.

France had barred A-Class, B-Class, CLA and SL cars assembled since June because of Daimler's refusal to stop using the air-conditioning coolant R134a, banned from new vehicles since the start of the year under the terms of an EU directive.

The freeze has prevented delivery of around 5,000 Mercedes cars, prompting warnings from dealers that thousands of jobs across the French sales network were at risk if the situation was not rapidly resolved.

The blocked models account for most of the brand's French business and 2 percent of global deliveries.

"We're delighted that the Conseil d'Etat has confirmed our legal opinion and repealed the registration ban in France," a Daimler spokesman said. "We're confident this decision will be upheld."

A definitive ruling is expected within 12 months.

Under the EU "mobile air-conditioning" directive, new vehicle types approved since 2011 must avoid using R134a, a global warming agent 1,400 times more potent than carbon dioxide. Those certified earlier have until 2017 to comply.

The only available substitute that meets EU requirements is R1234yf, made by Honeywell and Dupont.

Both chemicals may ignite when in contact with extremely hot engine parts, releasing toxic hydrogen fluoride gas. The Honeywell coolant can combust at slightly lower temperatures, but has cleared safety tests overseen by the industry and Germany's KBA motoring authority.

But Daimler broke ranks last year and said its own tests had identified unacceptable safety risks, recalling SL models already sold with the Honeywell coolant.

The European Commission has warned Berlin of possible action over the KBA's decision to re-certify the new Mercedes vehicles by extending earlier approvals granted for older models - sidestepping the requirement that they switch from R134a to R1234yf.

But doubts about the German certification "do not allow the minister of transport to opt out of the free movement of goods", the French court ruled on Tuesday.

The older coolant "cannot be seen posing a serious environmental threat" justifying a sales freeze under EU rules, it added, citing the small number of vehicles using the new chemical and the slow pace of its phase-in.

French ministers have "taken note" of the ruling, the government said in an emailed statement. "The registration of these vehicles in France is therefore temporarily authorized until the final ruling."

Honeywell described Daimler's challenge as "unfortunate" and called for speedy implementation of the EU directive.

"Certainty of enforcement is necessary to ensure fairness, compliance and continued innovation and investment for environmentally preferable products," the company said.

The dispute has fanned consumers' safety concerns and intensified efforts by carmakers such as Volkswagen to develop non-combustible alternatives based on CO2.

Toyota has also taken a step back from the new chemical while saying it has no doubts over its safety. The Japanese automaker plans to revert to R134a in three new models until the situation is resolved, it said on Friday.

(Writing by Laurence Frost; Additional reporting by Christiaan Hetzner in Frankfurt; Editing by Catherine Bremer and David Cowell)

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