5:07 AM Oct 5, 1994

GATT PANEL TO RULE ON US GASOLINE STANDARDS

Geneva 4 Oct (Chakravarthi Raghavan) -- The GATT Council Tuesday established a panel to look into the complaint from Venezuela against the US over a measure that discriminated against imports of 'reformulated gasoline' from Venezuela and favoured domestic refiners as well as those from a few other countries.

Earlier, the Council adopted a panel ruling against the United States on measures requiring use of 75% of domestically grown tobacco in local manufacture of cigarettes and discriminatory levies as between imported and locally grown tobacco.

But the United States, which allowed the panel ruling to be adopted, and said its implementation would be part of the Uruguay Round implementation legislation before Congress, promptly notified its intention to renegotiate its bound tariffs on imported tobaccos to enhance the protection for its domestic tobacco.

Unbinding its tariff, would enable the US to deal with its domestic tobacco support and imports under the WTO's Agriculture Agreement, with the greater flexibility of its rules and disciplines.

The Venezuelan complaint relates to the higher gasoline standards imposed in several US cities by the US Environment Protection Agency (EPA) in 1993, and the differing certification procedures introduced for certifying the reformulated gasoline.

Neither the GATT press office which briefed the media, nor the Venezuelan mission was able to explain the actual technicalities.

However, they said, the effect was to give longer time for US domestic refiners and those with refineries abroad who imported gasoline and mixed it to comply, while Venezuela (which has a US distribution subsidiary) has to comply immediately.

Venezuelan foreign trade minister, Alberto Poletto, who presented his country's complaint at the Council, said the methodology for certifying imported gasoline for sale in the US was less favourable than the one used to certify US-produced gasoline, and thus provided effective protection for US producers. It also singled out for preferential treatment gasoline imported by an importer who is also a non-US-based refiner and which imported into the US in 1990 at least 75 percent of the gasoline produced at its foreign refinery.

As a result of these discriminatory measures, Venezuela anticipated that its gasoline exports to the US which was $478 million by value would be reduced by at least $150 million under the new rules and would adversely affect a one billion dollar investment programme launched by Venezuela based on the reasonable expectation that its refiners would be able to follow the same standards as applied to US refiners.

Venezuela had originally raised the complaint in January 1994, but then held it in abeyance while pursuing bilateral negotiations.

However, said Poletto, the US Congress has since enacted legislation under which the US EPA may not "sign, promulgate, implement or enforce" any change in the rule that would satisfy Venezuela.

Also, in testimony before Congress, the EPA had revealed that the rule had been intentionally designed to afford protection to US refiners. During the debate some Congress members had acknowledged it violated GATT and would create a non-tariff trade barrier.

The case against the US on the tobacco regulations had been brought by Brazil, Canada, Chile, Colombia, El Salvador, Guatemala, Thailand and Zimbabwe and related to four US measures under the 1993 Budget Act -- the Domestic Marketing Assessment (DMA), the Budget Deficit Assessment (BDA), the No Net Cost Assessment (NNCA) and Fees for Inspecting Imported Tobacco.

The panel found the first two measures violated the US obligation, under Art III of the GATT, to provide equal treatment as between domestic and imported products.

Under the DMA, each domestic manufacturer of tobacco had to certify to the US Department of Agriculture for each calendar year, the percentage of domestic tobacco used to produce cigarettes. If the certification was not provided or if at least 75 percent of domestic tobacco was not used, the manufacturer was subject to a non-refundable marketing assessment and was required to purchase additional quantities of domestic burley and flue-cured tobacco.

The panel held that the DMA was a quantitative regulation setting a minimum specified proportion of 75 percent for use of US tobacco in manufacturing cigarettes and thus violated US obligations under Art III:5 of the General Agreement.

As for the BDA, the US imposed a series of non-refundable marketing assessments on domestic tobacco varieties that received price support, and according to a formula which was same for all types of domestic tobacco, with half paid by producer and half by purchaser.

From 1994 tobacco, all imported tobacco was made subject to the levy, but calculated on a basis different from domestic tobacco. It was calculated as half the BDA imposed on purchases of domestic burley plus half the BDA imposed on purchaser of domestic flue-cured, but with the full one percent payable by the importer

This resulted in a levy in 1994 on all imported tobacco of $0.0163 per pound, while that on domestic flue-cured tobacco was $0.0157.

The panel said that while a change in price support levels for domestic burley and flue-cured tobaccos could result in a given year on elimination of discriminatory treatment against flue-cured tobacco, the US statutorily prescribed averaging method for calculation contained an inherent risk of higher assessment on some types of imported tobacco than on like domestic tobacco.

As a result, the panel ruled that the BDA subjected imported tobacco to an internal charge in excess of that applied to like domestic tobacco, inconsistently with Art III:2. But the panel found no violation by the US in respect of the other two measures.

The panel recommended that the US should be requested to bring its inconsistent measures into conformity with GATT obligations.

While allowing the ruling to be adopted and advising that implementing legislation had been included as part of the Uruguay Round package before Congress, the US notified that it was seeking renegotiation its bound tariff schedules on tobacco -- a necessary step to increase the tariff, and thus get around the ruling (against local content requirement) and give the protection for its domestically tobacco production. Paradoxically, the Uruguay Round agriculture agreement would enable the US to do this and raise the tariffs to high levels.

Another item that came up was the ruling against the EU over its banana regime. Guatemala raised the issue of adoption of the second panel ruling, but the Council took no action.

The EU did not even bother to respond. Germany has challenged the validity of the new regime, and the European Court is due to rule on it Wednesday. Guatemala hoped that it would result in disbanding the regime, but made clear that their complaint would stand whatever the ruling.

Guatemala referred to a 22 September meeting of the Latin American banana producers and their call for continued dialogue with the EU. It then referred to a recent EU decision to compensate the ACP countries for the losses suffered by them under the new banana regime and said this showed that the regime, purportedly in place to benefit ACP countries, was not even serving that purpose.

On the ruling against the US by the second tuna panel (US unilateral actions against tuna imports purportedly for protection of dolphins and other sea mammals), the EU sought the adoption of the report and recommendations, noting that on the last occasion the US had no substantive points to make, but had merely asked for the presence of its NGOs when the Council discussed the issue.

The EU reiterated that it favoured environmental protection measures, including protection of dolphins, but that its complaint was against unilateral measures by the US. Canada made a similar point, emphasizing the need for international cooperation in such matters.

The Venezuelan foreign trade minister, Alberto Poletto said the US tuna embargoes had created unnecessary controversy and the US laws had no factual or legal justification, and was not needed for protection of the dolphin. Such protection in the Eastern tropical Pacific Ocean (ETP) was now strictly enforced, on scientifically-based guidelines of the Inter-American Tropical Tuna Commission (IATTC). This latter prohibited the killing of more than specified number of dolphins per year, and set an annual reduction schedule to achieve zero mortality by end of decade. In just two years of the treaty, there had been 97 percent reduction and statistically, it had been reduced to near zero six years ahead of schedule. There was now no effective relationship between US tuna embargoes and protection of dolphin in ETP.

Mexico, Philippines, India, Hong Kong and Japan all supported the request for adoption. Argentina, Australia, Korea, New Zealand, Costa Rica, Brazil and Sweden all stressed the importance of the ruling from the viewpoint of extra-territoriality and supported the request for adoption.

The US representative took note of the "sincerity" of the comments and promised to convey them to Washington.

In other actions, the Council took note of the report of the working party on the EC-ACP Lome-IV agreement. The report had no consensus recommendation, but merely noted views of one side that it was fully consistent with the GATT and of its critics that it violated GATT obligations of non-discrimination -- the point underlined in both banana panel rulings.

Speaking on the issue, Canada and the US encouraged the EU to consider seeking a GATT waiver for the Lome-IV agreement (a route suggested by the banana panels).

The Council adopted the report of the working party on the customs union between Czech and Slovak republics -- the first ever working party report with consensus recommendation in the GATT history of such Article XXIV agreements.

The Council agreed to ask the Chairman of the GATT CPs, Andres Szepesi is to hold renewed consultations on the US proposal for de-restricting of the GATT documents.

The US among other things has proposed that all GATT documents should be un-restricted unless there were compelling reasons to restrict them, and suggesting some criteria for such restrictions -- e.g. tariff schedules while under negotiations, working drafts or 'non-papers', documents relating to Art XXVIII tariff renegotiations, and documents where the parties submitting it want restricted circulation.

In brief comments, the EU spoke of the increasing need (for GATT and the future WTO) to work in an environment of increased transparency at a time when international organizations were coming under criticism for working behind closed doors. Australia also supported de-restriction of documents 'where possible' in order to create a 'sense' of transparency, while Japan said there was a need to have balance between transparency and need to protect the deliberative process.

A number of other delegations said they needed time to consider and consult on the issue, particularly in terms of derestricting documents before they come up for discussion in the Council.

Under any other business, the EU, Australia and Switzerland, raised the US-Japan bilateral trade accord announced on Monday. While welcoming the move to end the crisis and trade tensions between the two, the EU and the others wanted full details of the agreement, and wanted to be reassured that the market access measures in the agreement would apply on a MFN basis to all of Japan's trade partners. Australia and Switzerland too made similar points.

Neither the US nor Japan made no response.