WTO ADOPTS RULING AGAINST US ON GASOLINE RULES

11:41 AM May 20, 1996

WTO ADOPTS RULING AGAINST US ON GASOLINE RULES
Geneva 20 May (Chakravarthi Raghavan) -- The World Trade Organization's Dispute Settlement Body adopted Monday the report of the Appellate Body in the dispute raised by Brazil and Venezuela against the US Standards for Reformulated and Conventional Gasoline which set different and more unfavourable standards for imported gasoline than for domestically refined gasoline.

In other actions, it established a panel to hear the dispute between the US and EU over the latter's ban banning imports of beef from bovine-hormone treated cattle.

The ruling of the Appellate Body, on an appeal by the US, overruled and modified some of the findings and legal arguments of the panel that originally heard the case, but left intact the ruling that the 'baseline establishment rules' of the United States, under its Clean Air Act (CAA), setting different standards for imported and domestically refined gasoline were contrary to the US obligations under the GATT and should be brought into conformity.

The United States had sought to justify its rules in terms of the exceptions under Art. XX (g) of the General Agreement, namely, measures relating to the conservation of exhaustible natural resources, if such measures are made effective in conjunction with restrictions on domestic production or consumption.

The appeal was heard by three members of the seven-member Appellate Body - Florentino Feliciano (of Philippines), Chrisopher Beeby (New Zealand) and Mitsuo Matsushita (Japan).

Under Art. 17.14 of the WTO's Dispute Settlement Understanding, the adoption of the report of the Appellate Body and the unconditional acceptance of its ruling by the parties to the dispute is mandatory, unless it is decided otherwise by consensus.

In upholding the case against the US, though on different grounds, and calling for change of the US gasoline rules, the Appellate Body has said:

"It is of some importance that the Appellate Body point out what this does not mean. It does not mean or imply, that the ability of any WTO Member to take measures to control air pollution, or more generally, to protect the environment is at issue. That would be to ignore the fact that Art. XX of the General Agreement contains provisions designed to permit important state interests -- including the protection of human health, as well as the conservation of exhaustible natural resources - to find expression.

"The provisions of Art XX were not changed as a result of the Uruguay Round of Multilateral Trade Negotiations. Indeed, in the preamble to the WTO Agreement and in Decision on Trade and Environment, there is specific acknowledgement to be found about the importance of coordinating policies on trade and the environment. WTO Members have a large measure of autonomy to determine their own policies on the environment (including its relationship with trade), their environmental objectives and the environmental legislation they enact and implement. So far as concerns the WTO, that autonomy is circumscribed only by the need to respect to respect the requirements of the General Agreement and the other covered agreements."

The Appellate Body's report was signed on 22 April, and circulated to the WTO members on 29 April (when it became available to the US environment lobbies).

Despite the report's reiteration of rights of WTO members on environmental protection, US environmental groups like the Public Citizen's Global Trade Watch, have come out attacking the ruling as a "real life example of the WTO's threat to environmental and health protection, democratic policy-making and national sovereignty".

The US CAA set two gasoline programs to ensure pollution from gasoline combustion does not exceed 1990 levels and that pollutants in major population centres are reduced.

The first program, concerning ozone 'non-attainment areas' (nine large metropolitan areas with the worse summertime ozone pollution, and additional areas that could be included at request of state governors), prohibits sale of conventional gasoline in these areas requires all gasoline sold to be 'reformulated'. For reformulated gasoline, some compositional and performance specifications were set. The compositional ones required oxygen content of no less than 2% by weight, benzene content not exceeding 1% by volume and free of heavy metals including lead or manganese. The performance specifications require a 15% reduction in emissions of both volatile organic compounds (VOCs) and toxic air pollutants (toxics) and no increase in emission of nitrogen oxides (NOx).

The second program under the CAA allows conventional gasoline to be sold in the rest of the US not covered by the first program. But to prevent 'dumping' of pollutants extracted from reformulated gasoline into the conventional gasoline, requires that the latter remain as clear as the 1990 baseline levels, and rules to establish them -- either individual set by the entity itself or statutory to reflect average 1990 US gasoline quality.

Domestic refiners in operation for at least six months in 1990 were required to establish an individual baseline representing the quality of the gasoline produced by them in 1990 -- and sets out three methods to establish this base line -- quality data and volume records of its 1990 gasoline, failing that its 1990 gasoline blendstock quality data and production records and failing that an individual 1990 baseline on basis of its post-1990 gasoline blendstock and/or gasoline quality data modeled to reflect refine changes.

Domestic blenders were required to establish an individual baseline using method one or use a statutory baseline established by the US Environment Protection Agency (EPA).

Importers were required to establish an individual baseline using the method one, but if data for that was unavailable (as anticipated by the EPA) use the statutory baseline.

The panel had held that as contended by the US, clean air was an exhaustible natural resource whose protection is covered by Art XX (g) of the GATT, but that the baseline establishment rules treated imported gasoline differently and unfavourably visavis domestic gasoline, and thus not saved by Art XX (g).

The Appellate body found the panel as having erred in concluding that the baseline establishment rules did not fall within Art XX (g) and in not deciding whether they fell within the ambit of the chapeau, namely, whether they are measures which are 'arbitrary', 'unjustifiable discrimination' or 'disguised restrictions' on international trade. But on this last, the Appellate body found against the US, namely that the US failed to meet the requirements of the chapeau of Art. XX

The US had argued that it could not apply the same measures to domestic and imported products since, without the cooperation of Brazil and Venezuela it could not have applied the domestic standards to the foreign refineries.

The Appellate Body said that while the anticipated difficulties about verification and subsequent enforcement were real to some degree, it had not shown that data available from foreign refiners were inherently less susceptible to established techniques of checking or that had undertaken, but failed, to obtain cooperation of Brazilian or Venezuelan governments to mitigate administrative problems of verification.

The US could have treated foreign and domestic suppliers in the same way by applying statutory baselines, but had not done so for domestic refiners because of the costs that would be involved for immediate compliance with the statutory baselines.

The Appellate body commented that while US counted the costs for its domestic refiners of the statutory baseline, and this may be sound domestic policy, from the viewpoint of the EPA and US refiners, there was nothing on record to indicate that the US did anything "other than disregard that kind of consideration when it came to foreign refiners".