WTO | Environment - disputes 7

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United States — Standards for Reformulated and Conventional Gasoline

WTO case Nos 2 and 4. Ruling adopted 20 May 1996

On 23 January 1995, only days after the WTO and its new dispute settlement procedure came into being, Venezuela complained to the Dispute Settlement Body that the United States was applying rules that discriminated against gasoline imports. Venezuela formally requested consultations with the United States, as required under WTO dispute settlement process.

The case arose because the United States applied stricter rules on the chemical characteristics of imported gasoline than it did for domestically refined gasoline (for details see box).

Venezuela said this was unfair because US gasoline did not have to meet the same standards — it violated the “national treatment” principle and could not be justified under exceptions to normal WTO rules for health and environmental conservation measures. (Legal details below.)

Just over a year later (on 29 January 1996) the dispute panel completed its final report. (By then, Brazil had joined the case, lodging its own complaint in April 1996. The same panel considered both complaints.) The dispute panel agreed with Venezuela and Brazil.

The US was found to be violating WTO rules because it discriminated against the gasoline imports.

The United States appealed.

The Appellate Body completed its report, and the Dispute Settlement Body adopted the report on 20 May 1996, one year and four months after the complaint was first lodged. The appeal report upheld the panel’s conclusions (although it made some changes to the panel’s legal interpretation).

The United States and Venezuela then took six and a half months to agree on what the United States should do. The agreed period for implementing the solution was 15 months from the date the appeal was concluded (20 May 1996 to 20 August 1997). The Dispute Settlement Body monitored progress — the United States submitted “status reports” on 9 January and 13 February 1997, for example.

The United States agreed with Venezuela that it would amend its regulation within 15 months, and on 26 August 1997 it reported to the Dispute Settlement Body that a new regulation had been signed on 19 August.

Legally speaking ...

Venezuela and Brazil claimed that the Gasoline Rule was inconsistent, among other things, with GATT Article III (“national treatment”), i.e. treating domestic and imported products equally), and was not covered by GATT Article XX (which deals with general exceptions to the rules, including for certain environmental reasons).

The US argued that the Gasoline Rule was consistent with Article III, and, in any event, was justified under the exceptions contained in GATT Article XX, paragraphs (b), (g) and (d).

The Panel found that the Gasoline Rule was inconsistent with Article III, and could not be justified under paragraphs (b), (d) or (g).

On appeal of the Panel’s findings on Article XX(g), the Appellate Body found that the baseline establishment rules contained in the Gasoline Rule fell within the terms of Article XX(g), but failed to meet the requirements of the “chapeau” (introductory paragraph) of Article XX.

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The US Clean Air Act and the Gasoline Rule:

Following a 1990 amendment to the Clean Air Act, the US Environmental Protection Agency (EPA) promulgated the Gasoline Rule on the composition and emissions effects of gasoline, in order to reduce air pollution in the US.

From 1 January 1995 (coincidentally the date when the WTO came into being), the Gasoline Rule permitted only gasoline of a specified cleanliness (“reformulated gasoline”) to be sold to consumers in the most polluted areas of the country. In the rest of the country, only gasoline no dirtier than that sold in the base year of 1990 (“conventional gasoline”) could be sold.

The Gasoline Rule applied to all US refiners, blenders and importers of gasoline.

It required any domestic refiner which was in operation for at least 6 months in 1990, to establish an individual refinery baseline, which represented the quality of gasoline produced by that refiner in 1990.

The Environmental Protection Agency also established a statutory baseline, intended to reflect average US 1990 gasoline quality.

The statutory baseline was assigned to those refiners who were not in operation for at least six months in 1990, and to importers and blenders of gasoline. Compliance with the baselines was measured on an average annual basis.