WORLD TRADE ORGANIZATION
FINDS THAT CLEAN AIR ACT RULES
CREATE AN UNFAIR TRADE BARRIER
By:
Paulette S. Wolfson
Houston
The Clean Air Act Amendments of 1990 (CAAA) require that refiners manufacture reformulated gasoline meeting strict standards for concentrations of benzene and sulfur, among other materials, for use in certain parts of the United States. This program is being implemented in phases. The first phase of the requirements was to have been met in January 1995. More stringent, phase two requirements for the reformulated fuel are to be met in 1998.
As part of the elaborate regulatory framework devised by the U.S. Environmental Protection Agency (EPA) to implement the reformulated fuels standards, EPA required U.S. refiners to establish a baseline from which to calculate the composition of the reformulated gasoline the refiner would produce. If U.S. refiners had sufficient data, they could create an individual baseline based on the gasoline produced by the refiner in 1990. Otherwise, a formula included in the CAAA would be used. Under the regulations, however, foreign refiners were not given the option of establishing individual baselines; foreign refiners were governed by the more stringent standards in the CAAA.
As exporters of gasoline to the United States, Brazil and Venezuela challenged the U.S. reformulated fuel regulation before the World Trade Organization ("WTO"), the administrative body for the General Agreement on Tariffs and Trade ("GATT"), claiming that the regulation created an unfair trade barrier and violated the GATT's national treatment rule. The WTO's dispute settlement panel found in favor of Brazil and Venezuela, agreeing that the U.S. regulations regarding reformulated gasoline did not necessarily result in improvement in air quality and created an unfair trade barrier. An appeal was filed by the U.S. Trade Representative.
The appellate body's decision was handed down an April 29, 1996. It affirmed the dispute settlement panel's finding that the U.S. regulations violated the GATT. As pointed out by the U.S. Trade Representative, the appellate report reversed the panel's restrictive interpretation of Article XX(g) of the GATT, which provides that the GATT shall not be construed to prevent the adoption of measures relating to the conservation of exhaustible natural resources, as long as such measures do not constitute arbitrary or unjustifiable discrimination between countries, or a disguised restriction on international trade. The appellate body interpreted Article XX(g) in a less restrictive manner, and found that the baseline was, in fact, a measure aimed at the conservation of an exhaustible natural resource (clean air). However, it concluded that the United States had available alternatives which would accomplish the same conservation purpose without discrimination. Therefore, the regulation in question was not in conformity with GATT and the appellate body upheld the decision of the panel. The last step in the WTO process is the adoption of the conclusion of the appellate body by the WTO's members, which is expected in the near future.
