This case study addresses the potential friction between free trade and environmental protection. It explains the challenge to US environmental standards applied to gasoline and the struggle between importers and domestic refiners to maintain market share. This case covers the period between 1993, when the EPA issued the gasoline regulations, and 1995, when Venezuela and Brazil brought the dispute to the WTO.

This case was written by Alejandro Martinez-Zurita, Ashok Menon, Marsha Venegas, Jason Buntin and Gisela Vergara with the assistance of Dr. Andrew Procassini. Copyright 1998 by the Center for Trade and Commercial Diplomacy, Monterey Institute of International Studies, Monterey, California.
All rights reserved.

The drive for increased market share between foreign and domestic firms for gasoline sales in the US has become fiercely competitive. Pressed with declining sales and new environmental requirements to improve the quality of their gasoline, large US oil companies found an opportunity to block importers.

Venezuela, already well established in the US market, found its market threatened by EPA regulations that seemed to discriminate against foreign refiners. The United States was the largest importer of Venezuelan oil, absorbing 65% of that country's oil exports. After a three-year period of consultations to establish the regulation of the Clean Air Act amendments, Congress overruled an EPA decision that allowed foreign refiners, mainly Venezuelan, to use the same standards as US companies.

In the 1990 amendment to the Clean Air Act (CM), Congress directed the EPA to prescribe new regulations to improve air quality in the most polluted areas of the country, known as "non-attainment areas." Only reformulated gas (RFG), gasoline with reduced emissions of toxics, could be sold in these areas by 1995. In the rest of the US, "conventional gasoline" could be sold to consumers (See Appendix #1). The CM also established "antidumping" specifications for conventional gasoline to ensure that each refiner, blender and importer's conventional gasoline was not more polluting than the gasoline sold in 1990 (See Appendix # 2).

The EPA was responsible for issuing the standards for reformulated and conventional gasoline regulations. In 1991, the environmental agency proposed different standards for domestic and foreign refiners, assuming that the latter lacked the actual 1990 testing data necessary to show the quality of their gasoline. Domestic refiners were required to establish an "individual historic baseline" through three possible methods. Importers who lacked "reliable data" of their gasoline in 1990, could only show the quality of their 1990 gasoline through a "statutory baseline" (See Appendix #3). The variation in these standards created an uneven playing field that led to a battle placing the EPA between formidable foreign and domestic interests.

The EPA met with various interest groups, domestic and foreign refiners to determine the basis for the new rule. However, Petroleos de Venezuela S.A. (PDVSA) was among the most influential participants. There was a lot at stake! As the national petroleum company of Venezuela, PDVSA was particularly important because a large amount of total Venezuelan GNP comes directly from the petroleum industry. In 1992, the industry accounted for two-thirds of the central government's revenues and four-fifths of export earnings. State-owned, PDVSA was the second largest oil producer in the world and the seventh largest foreign investor in the United States. The Venezuelan company owned Citgo Petroleum, a major gasoline marketer in the eastern and southeastern portions of the United States, and had 50% share of Uno-Ven, in partnership with Union Oil Company of California. It also had joint ventures in Europe and Asia.

DVSA representatives met with EPA officials regarding whether the company had all the data necessary to establish an individual baseline, based on the quality of the gasoline they produced in 1990, and whether the EPA could formulate an adequate enforcement scheme that included separate individual foreign refinery baselines. Contrary to EPA opinion that most importers lacked actual 1990 testing data, Venezuelan refineries claimed they had sufficient data on the quality of the gasoline they produced in 1990 to establish separate individual baselines using the same method as U.S. refiners. PDVSA stated that Venezuelan refiners were willing to submit to an audit of the necessary data for verification of its separate individual baseline determinations in the same manner as U.S. domestic refiners.

Venezuela hired a Washington based law firm to facilitate its communication with the U.S. government. Venezuela argued it has always done whatever was necessary to produce according to US standards. For example, PDVSA had made substantial changes to produce low-sulfur fuel oil and unleaded gasoline when the U.S. required it. PDVSA's gasoline formed part of the gasoline pool consumed in the United States in 1990, from which the statutory baseline was derived. Therefore, PDVSA's argued that its compliance with the same rules imposed on U.S. refiners will result in an overall reduction in pollutants compared with 1990 levels (1). To conform to US requirements to produce RFG, PDVSA announced in September 1993, an investment plan of more than $1 billion in its refineries, contracting mostly with US engineering and construction companies. Additionally, the Venezuelan company announced a $500 million investment plan to control atmospheric pollutants and dispose of solid wastes in its refineries. With this investment, PDVSA alleged it should receive the same regulatory treatment as U.S. refiners.

In 1993, Venezuela exported 70,000 barrels per day to the United States. If allowed to establish its own baseline, PDVSA planned to export 128,000 barrels per day in 1995; 100,000 of reformulated gasoline and 28,000 of conventional gasoline. If PDVSA were not allowed to establish its own baseline, Venezuela would be forced to reduce its production of reformulated gas for the U.S. market to 50,000 per day.

Venezuela warned about possible shortages as a result of the inability for foreign refiners to meet the statutory baseline. The interruption of Venezuelan imports, which accounted for 20% of total U.S. gasoline imports, could cause the gasoline price to rise. About 30% of Boston's gasoline imports and 20% of the New York City area came from Venezuela. PDVSA warned that oil supplies from other importing countries were not secure. Brazil's supply was steadily declining since 1990. It was likely that Brazil, which had no investment capacity to meet the new standards, would cease exports when the reformulated gas requirements came into effect in 1995. Europe exported a very small percentage to the United States; therefore, dedicating such a small portion to reformulated gas with its attendant costs would be impractical for Europeans.

Because of the $357 million projected annual losses to its industry, Venezuela warned that this situation could affect the exports of U.S. goods and services to Venezuela. Its market would be offered to those countries that buy and consume Venezuelan fuel. Venezuela also threatened to stop buying petroleum equipment machinery from the United States, which amounted to $1 billion annually.

The US had been an important supplier of the technology required to raise Venezuela's oil industry output. Since the late 70s, about 50% of all large Venezuelan firms had established some kind of economic relationship with US companies. Because of this long- standing interdependence between the US and Venezuelan firms, the gas dispute was a double-edged sword that would not be resolved easily.

Foreign refiners claimed that the EPA proposed regulations treated importers in a manner less favorable than U.S. refiners. They requested EPA authorization to establish separate individual baselines in order to certify that their gasoline met the reformulated and conventional gasoline requirements. PDVSA charged that the EPA proposed regulations were inconsistent with the principle of "national treatment" and with U.S. obligations under the GATT. This argument would prove to be more effective in getting the foreign refiners position across. At this point, the EPA officials consulted with the Office of the US Trade Representative and the State Department, to better understand US obligations under the GATT.

The Final Rule: A Big Defeat for Venezuela

After two years of consultations with domestic and foreign refiners, in December 1993, the EPA issued a final rule concerning reformulated and conventional gasoline standards. This was the beginning of a new battle with foreign refiners accusing the United States of using environmental standards as a disguise for protectionism. The EPA rule required domestic refiners to establish individual historic baselines based on the quality and quantity of the gasoline they produced in 1990. (See Appendix #4).

The EPA had considered provisions allowing foreign refiners to establish individual refineries baselines in a manner similar to that required for domestic refiners. However, at the moment of the ruling, the EPA indicated "it was not prepared to adopt such provisions" (2). Venezuela continued lobbying and pressuring the United States. Increasing Venezuelan threats to bring the case to the GATT, forced the EPA to consider revision of the rule to allow foreign refiners to establish baselines similar to those required for domestic firms.

In a March 1994, a coalition of US senators accused Department of State of negotiating a secret agreement to please Venezuela.

"Our own Department of State went behind the back of Congress and negotiated a special deal for Venezuela. Under this agreement, Venezuela will drop its GA TT challenge, we will allow Venezuela to use its own standards for reduction of ozone, and we will cap total sales of Venezuelan gasoline in the US at approximately the current level. Venezuela got everything it wanted. They get to continue to export large quantities of dirty gasoline to the US" (3).

In a submission for a Senate resolution, Senator Max Baucus indicated "if we let foreign refiners use weak or contrived data to avoid making our air cleaner, we discriminate against the domestic refiners."

In May 1994, the EPA issued revised regulations that would allow foreign importers, meeting stringent conditions, to use 1990 data to establish individual historic baselines and demonstrate compliance with reformulated and conventional gas. The EPA inspectors would have to receive full access to the foreign refinery to conduct announced and unannounced inspections and audits. The revised regulations were predicated "under the assumption that the costs inherit in producing reformulated gasoline and meeting the requirements of RFG, will deter most reign refiners from selecting the individual baseline option, thereby further limiting any potential adverse air quality impact" (4). The revised regulations needed Congress approval.

U.S. refiners felt under siege as they were squeezed between domestic environmental regulations and foreign competition. The National Petroleum Refiners Association and American Petroleum Institute objected to EPA tampering with the final rule on

reformulated gas to accommodate Venezuela. They argued that the proposed rule on

RFG would allow PDVSA to export gasoline with higher pollutants than the CM baseline, worsening U.S. air quality in the Northeast. The refiners claimed that even after instituting environmental measures, Venezuela's standards fell below those of the United States. PDVSA again clashed with US oil companies and environmental groups in September 1993, when it asked permission to ship gasoline to New York. The issue became a hot topic because the CM mandated domestic refiners to limit the level of smog-causing chemicals by 1995, and the Venezuelan gasoline contained "higher levels of smog-producing chemical" (5). Although the rule was to be applied in 1995, the U.S. oil refiners were infuriated about the possibility that Venezuela could slip through what they called a loophole of the EPA regulation.

The US oil industry had been hit by economic difficulties, particularly by several plant closings over the last few years. In this unfavorable climate, US refineries were being forced to meet environmental regulations for the period 1991-2000 involving an estimated capital expenditure of $37 billion. A report by the National Petroleum Council stated that "given the projection of declining refinery use until the end of 1995, recovery of these costs will be difficult until capacity and demand are rebalanced by further capacity shutdowns and/or increased product demand" (6).

When the EPA revised regulation, allowing Venezuela to use the US refiners' standards, was sent to Congress, the US oil industry used its power and lobbied Congress to overturn these regulations.

On August 30, 1994, members of Pro-Venezuelan Association Board denounced a U.S. Senator, who acting on behalf of several U.S. oil companies, cut from the US budget an allocation that would permit officials to learn what Venezuela was doing to upgrade the quality of its fuel.

In September 1994, Congress passed an appropriations bill that prohibited the EPA from using funds for implementing the revised regulations. This outcome against PDVSA was the beginning of a fierce battle in the World Trade Organization (WTO).

In March 1995, after costly unsuccessful "consultations" with the United States, Venezuela filed a complaint with the WTO Dispute Settlement Body (DSB) to establish a panel to examine whether the United States had violated the GATT. In May, after its unsuccessful consultations with the United States, Brazil decided to join Venezuela. The European Community and Norway also participated as third parties with the position that the regulations discriminated against imported gasoline.

The essence of the complaints was that the gasoline ruling violated the GATT by using different measures to determine whether domestic and importers satisfied the requirements of the CAA. Venezuela and Brazil claimed that these regulations treated importers of foreign-refined reformulated and conventional gasoline in a manner less favorable than domestic refiners, and that the rules were inconsistent with U.S. obligations under the GATT.

Venezuela argued that it was not challenging the right of the United States to establish laws and regulations meant to protect the environment. Instead, it argued that such rules must be consistent with the WTO principle of "national treatment."

The US stated that the gasoline rule fell within the GA TT Article XX's exceptions, which allow measures that are "necessary for the protection of human, animal and plant life or health."

On May 31' 1995, the DSB established a single panel to examine the challenge by the governments of Venezuela and Brazil. The dispute panel, comprised of representatives from Finland, Hong Kong and New Zealand, was to determine the fate of the EPA regulation and the market for foreign reformulated gasoline refiners.

1. Briefly, explain National Treatment?

2. What was the United States' purpose for amending the Clean Air Act in 1990? 3. What were the costs or benefits to domestic refiners with the implementation of the "Gasoline Rule"?

4. Will the " Gasoline Rule" actually help protect air quality by reducing the level of air pollution?

5. Why did Congress deny funding for the May 1994 proposal?

6. Why did the EPA have different requirements for establishing baselines for foreign refiners and for domestic refiners?

7. What interests did Brazil have in participating in the dispute against the United States? 8. Why did third party countries support Venezuela's dispute against the United States?

9. What could the United States have done differently to avoid Venezuela bringing the case to the WTO?

10. Did Venezuela argue the United States' right and obligation to protect and preserve the air quality?

11. What was the issue in the dispute?

12. What major US oil companies influenced Congress to deny funding for the May 1994 proposal?

13. What do you predict will be the outcome of the DSB ruling? On which grounds? 14. According to Venezuela, the unfair "Gasoline Rule" increased its production

costs by investing in the new technology required to meet the environmental standards. Therefore, Venezuela claimed it qualified for the individual baseline data requirements. Taking this into consideration, why did Venezuela not qualify for the individual baselines?

1- National Treatment is according the same treatment to foreign products/companies as is accorded to national products/companies.

2- The United States purpose for amending the Clean Air Act in 1990 was for the protection of plant, human and animal life as stipulated in GA TT Article XX.

3- There were both costs and benefits to domestic refiners. There were increased costs for domestic refiners to integrate technology necessary to comply with the strict standards set forth by the EPA. On the other hand, eliminating one major competitor in the RFG industry would allow the domestic producers to freely charge what they felt necessary for RFG. This would allow them to increase their profits.

4- According to the case study, the new regulations will reduce the level of air pollution.

5- The case study did not state explicitly why Congress denied funding for the May 1994 proposal. I believe it was due to the high level of lobbying by powerful oil interests in the United States.

6- The EPA believed that foreign refiners did not have reliable data for the establishment of a 1990 baseline. The agency also believed that foreign producers of RFG produced gasoline with higher levels of pollutants in 1990 than did their domestic counterparts.

This therefore would allow them to produce RFG that was dirtier than that of domestic counterparts.

7- Brazil would probably produce RFG or was looking to enter competitively in the US market, and therefore wanted National Treatment accorded to foreign producers.

8- Since they do not think highly of US anti-dumping and countervailing duty regulations, they might have seen this case as a way to pressure the US to foster open competition.

9- The US could have funded the 1994 proposal allowing inspectors to go to Venezuela to ensure compliance to EPA standards.

10- No. Venezuela believed the US had the right to protect human, animal and plant life. The regulations did not uphold the GATT principle of National Treatment. This is what Venezuela argued.

11- National Treatment

12- Mobil and Sun played an important role in influencing Congress. They had money, which effectively served to convince Congress that Venezuela was not in a position to comply with EPA standards.

13- Venezuela will win in the WTO. Venezuela can prove that there was no national treatment in the EPA regulation. (Note, before answering this question, the student had read our Epilogue).

14- Because it was argued that Venezuela's gasoline in 1990 had higher level of pollutants than did its domestic counterpart. Therefore, if Venezuela was allowed to establish its own baseline and reduce pollutants by a particular percentage (as the EPA regulations stipulated), then the final product would obviously contain higher levels of pollutants than that of domestic producers. I think it would have been smarter and less costly to set a level for pollutants and not allow any producer to sell RFG in the US with levels of pollutants that exceeded that set level.

On May 31, 1995, the Dispute Settlement Body (DSB) established a single Panel to examine the challenge by the governments of Venezuela and Brazil that U.S. regulations on reformulated and conventional gasoline serve as a discriminatory trade barrier. REPORT OF THE PANEL

The Panel found that imported and domestic gasoline was like products, and that under the baseline established methods, imported gasoline was effectively prevented from benefiting as favorable as domestic gasoline from sale's conditions. The panel found that imported gasoline was treated less favorable than domestic gasoline.

After examining the arguments, the panel was not convinced that the United States had satisfied its burden of proving that foreign refiners could not provide reliable data to use individual baselines. The panel found that importers of gasoline had to adapt to an assigned average standard not linked to the particular gasoline imported, while refiners of domestic gasoline had only to meet a standard linked to their own product in 1990.

In March 1996, the United States appealed the conclusions and interpretations contained in the WTO Panel Report on U.S. Standards for Reformulated and Conventional Gasoline (29 Jan 96). The United States claimed that the Panel ruling was an error.

The United States argued that the regulations were meant to "control toxics and other pollution caused by the combustion of gasoline manufactured or imported into the United States."

Although the United States argued that the statutory baseline requirement was necessary for verification and enforcement, the Panel concluded that existing, established techniques for verification, assessment, and enforcement of data relating to imported goods, are adequate.

The US explained that it did not impose the statutory baseline requirement on domestic refiners because the magnitude of the changes required would have caused a substantial delay in implementing the program.

The Appellate Body concluded that the baseline establishment rules constituted "unjustifiable discrimination" and a "disguised restriction on international trade." The Appellate Body recommended that the DSB requested the US to bring its baseline establishment rules into conformity with its GA TT obligations.

In May 1996, the WTO adopted the Report of the Appellate Body that found US regulations on reformulated and conventional gasoline, known as the Final Rule, in violation of the United States' obligations under the GATT.

However, as Article XX of the GATT contains provisions designed to protect human health and the conservation of exhaustible natural resources, the Appellate Body did not dispute the ability of any WTO member to take measures to control air pollution or to protect the environment.

COMPLIANCE BY THE US

On June 19, 1996, the US advised the WTO that it intended to meet its obligations with respect to the results of the WTO dispute settlement proceedings. The EPA had initiated an open process to examine all options for compliance and a key criterion in evaluating options would be "fully protecting public health and the environment." (Note: EPA, Final Rule, August 19, 1997).

On June 28, 1996, the EPA published an invitation for public comment seeking to identify "all feasible options that are consistent with the EPA's commitment to protect public health and the environment fully, and at the same time are consistent with the obligations of the United States under the WTO." (Note: EPA, Final Rule, August 19, 1997). Specifically, the EPA invited comment on:

• How to establish a reliable and verifiable individual baseline for a foreign refinery accurately
• How the EPA could adequately monitor compliance with and enforce any baseline requirements
• How the EPA could effectively determine the refinery of origin of imported gasoline, so as to determine the appropriate baseline to apply to the imported gasoline
• The potential environmental impacts from implementing any suggested options .A method by which the EPA could better quantify or characterize potential environmental impacts of any options proposed.

The EPA also requested that commenters provide information and analysis on the public health, environmental, and economic impact associated with any option presented. The EPA received 16 comments from various interested parties during the comment period.

1) The necessity for adequate compliance, audit, and enforcement requirements. The comments questioned the EPA's ability to establish reliable and verifiable baselines, and to effectively monitor compliance by foreign refiners with requirements and enforce violations that are documented.

2) The technical difficulties associated with establishing a foreign refinery's baseline that would reflect the quality only of the subset of the refinery's gasoline exported to the United States in 1990, because the quality of this subset may differ from the refinery's overall average gasoline quality.

3) The possibility that the quality of imported gasoline would decline if the EPA gives foreign refiners the option of establishing individual refinery baselines. This would give an incentive to foreign refiners whose 1990 gasoline was dirtier than the statutory baseline, whereas refineries whose 1990 gasoline was cleaner than the statutory baseline would not have such an incentive. According to some commenters, requiring all foreign refiners to establish individual baselines should avoid this concern. This scenario is often called "gaming."

4) The United States does not impose requirements on gasoline produced at a foreign refinery that is not exported to the United States. Domestic refiners must produce clean gasoline for reformulated gasoline areas without degrading the conventional gasoline sold elsewhere in the United States, essentially controlling all gasoline produced at a domestic refinery. Foreign refiners have the flexibility to produce clean gasoline for the U.S. market by disposing of dirty components in gasoline sold into markets outside the United States, according to the comments. (Note: EPA, Final Rule, August 19, 1997).

Venezuelan and Brazilian refiners affirmed their ability to accurately establish reliable and verifiable individual baselines in the same manner as domestic refiners, and commented that the EPA's gaming concern has no merit if all foreign refiners establish individual refinery baselines. A European refiner urged the EPA to allow foreign refineries to establish individual baselines if they have the necessary supporting data.

Independent gasoline marketers in the United States strongly urged quick compliance with the WTO decision to increase competition in the gasoline market. State and local air management districts asked the EPA to commit to adopt measures that would protect public health and the environment.

• Foreign refiners should be required to establish individual baselines and should not be allowed to default to the statutory baseline;

• Foreign refiners that do not establish an individual baseline should be excluded from the U.S. market;

• Foreign refiners should be subject to the full range of compliance and enforcement measures necessary to secure compliance by foreign parties; and

• Importers should no longer be allowed to use the statutory baseline, but would have to use the individual baseline applicable to the gasoline they imported, to avoid gaming by foreign refiners with clean individual baselines. (Note: EPA, Final Rule, August 19, 1997).

• All market participants that are similarly situated should be treated in the same manner;

• Preserving the ability of independent importers to reblend and reclassify imported conventional and reformulated gasoline is important;

• The use of individual baselines should not restrict the ability to import other gasoline under the importer's statutory baselines;

• Liability for the use of an individual baseline should fall on the foreign refiner not the importer; and

• Mandatory use of individual baselines by foreign refiners should not be imposed as it would limit gasoline supplies coming to the United States. (Note: EPA, Final Rule, August 19, 1997).

The EPA issued The Regulation of Fuels and Fuel Additives: Baseline Requirements for Gasoline Produced by Foreign Refiners on August 19, 1997, revising the requirements for imported conventional gasoline.

These regulations allow foreign refiners to choose to petition the EPA to establish individual baseline based on the quality and quantity of gasoline they sold in the United States in 1990. The EPA requires foreign refiners to meet the same requirements relating to the establishment and use of individual baselines as are met by domestic refiners. The regulations also include additional requirements that address issues unique to refiners located outside the US, specifically those related to tracking the movement of gasoline from the refinery to the US, monitoring compliance with the requirements applicable to foreign refiners, and imposing appropriate sanctions for violations.

Under the Dispute Settlement Understanding, the governments of Venezuela and Brazil have reserved their rights to return the issue to the Dispute Settlement Body if they believe the rule is not consistent with US obligations under the GATT. However, the EPA stated that it believes that this final rule is "consistent with the Agency's commitment to fully protect public health and the environment, and with the US commitment to comply with its obligation under the WTO." (Note: EPA, Final Rule, August 19, 1997).

(1) THE CLEAN AIR ACT

In the 1990 amendment to the CAA, Congress directed the EPA to prescribe new regulations on the composition and emissions effects of gasoline to improve air quality in the most polluted areas of the country by reducing vehicle emissions of toxic air pollutants (toxics) and ozone-forming volatile organic compounds (VOCs). These new regulations were to be applied to u.s. refiners, blenders, and importers.

Section 211 (k) of the CM divided the market for sale of gasoline in the United States into two parts. The first part consists of large metropolitan areas that experienced the worst summertime ozone pollution during the period 1987 -1989, as well as any areas that do not meet national ozone requirements and are added at the request of the state's governor. Only gasoline that reduces emissions of toxics and VOCs, "reformulated gasoline," may be sold to consumers in these areas, known as "nonattainment areas." In the rest of the United States, "conventional gasoline" may be sold to consumers. Beyond the year 2000, the CM requires the EPA to develop new reformulated gasoline requirements that achieve a 20-25 percent reduction in the emissions of toxics and VOCs, taking into consideration the feasibility and cost of achieving such reductions.

(2) ANTIDUMPING RULE

Section 211 (k) (8) of the CAA established specifications for conventional gasoline to endure that each refiner's, blender's, and importer's conventional gasoline was no more polluting than the gasoline they sold in the US in 1990. This provision was known as the "antidumping rule" because it was designed to prevent refiners, blenders, and importers from dumping into gasoline those fuel components that are restricted in reformulated gasoline and that cause environmentally harmful emissions.

(3) PROPOSED REGULATIONS

The EPA issued The Regulation of Fuels and Fuel Additives: Standards for Reformulated and Conventional Gasoline; Proposed Rule (56 FR. 134,416) on July 9, 1991, regarding reformulated and conventional gasoline regulations, and a Supplemental Notice of Proposed Rulemaking (57 FR. 13,416) on April 16, 1992. These proposed regulations set historic baselines for individual entities and established a statutory baseline that the EPA would apply for those entities that lacked adequate and reliable data regarding the quality of the gasoline they produced in 1990.

The proposed regulations required domestic refiners to establish an individual historic baseline and prescribed three methods for establishing this baseline.

Method 1 required refiners to use the quality and volume records of gasoline produced in or shipped from the refinery in 1990. However, the EPA anticipated that many domestic refiners lacked the actual 1990 testing data necessary to establish an individual historic baseline. If Method 1 type data were not available, the domestic refiner must use Method 2 type data that consisted of 1990 gasoline blendstock quality data and 1990 blendstock production records. If neither one of these two methods was available, the domestic refiner must use Method 3 type data that consisted of post-1990 gasoline blendstock and/or gasoline quality data modeled in light of refinery changes to show 1990 gasoline composition. The regulations did not allow domestic refiners to use the statutory baseline.

Methods for Establishing Baselines

Individual Baselines

Method 1 - 1990
gasoline quality data and gasoline production records

Method 2- 1990
gasoline blendstock quality data and blendstock production records

Domestic Refiners

If available data

If Method 1 data not available

Importers

If available data

Not Permitted

Statutory Baseline

Method 3 -post- 1990
gasoline blendstock and/or gasoline quality data modeled in light of refinery changes

If Method 1 and 2 data not available

Not Permitted
Not Permitted

If Method 1 data not available

The EPA assigned importers the statutory baseline unless they could establish an individual historic baseline using only Method 1. As with domestic refiners, the EPA anticipated that most importers lacked the actual 1990 testing data necessary to establish an individual historic baseline using Method 1. The EPA considered that importers would also have extreme difficulty in establishing the consistency of their gasoline quality over time. The EPA, therefore, would not allow importers to use Methods 2 and 3 because "there would be no way [for the EPA] to: 1) prevent the importer from choosing high emission gasoline to import in 1991/1992 simply to get an advantageous baseline, and 2) to insure that 1991/1992 gasoline was the same as the 1990 gasoline imported."(Note: 57 FR. 13,479; April 16, 1992).

(4) THE FINAL RULE

As a result of a court-ordered deadline, the EPA issued final regulations on December 15, 1993 implementing the gasoline program prescribed by Section 211 (k) of the Clean Air Act. The Regulation of Fuels and Fuel Additives: Standards for Reformulated and Conventional Gasoline (59 FR. 7716), known as the Final Rule, established the requirements for reformulated gasoline and the anti-dumping provisions for conventional gasoline.

Under the Final Rule, the EPA measured compliance by refiners and importers with certain reformulated gasoline and anti-dumping standards against baselines intended to reflect the quality of gasoline sold in the United States in 1990. The regulations required domestic refiners to establish individual historic baselines of the quality and quantity of the gasoline they produced in 1990. Domestic refiners must calculate domestic refinery baselines using, in hierarchical order based on the availability of data, 1990 gasoline test data (Method 1 ), 1990 blendstock test data (Method 2), or post-1990 blendstock and/or gasoline test data (Method 3).

In developing the Final Rule, the EPA evaluated comments regarding the proposed approach for establishing baselines for imported gasoline, including comments submitted on behalf of PDVSA.

(1) Oil and Gas Journal, v92, n22, p30 (1) May30, 1994

(2) Federal Register/ Vol. 59, No.84/ May 3, 1994/ Proposed rules

(3) Senate Resolution 197 -Relating to the importation of dirty gasoline (Senate- March 25, 1994)

(4) Federal Register May 3, 1994

(5) TED Case Studies, Venezuela Gas Dispute, 1997,

(6) Dee, Norbert (National Petroleum Refiners Association), Energies, November, December 1993, p. 7,8

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24. Office of the United States Trade Representative. Clinton Administration to Appeal WTO Panel Report on Reformulated Gasoline. February 1996.
http://www.ustr.gov/releases/1996/02/96-18htlm

25. Odessey Bruce. US to Comply with WTO Ruling on Imported Gasoline (seeks to work out timing with Venezuela, Brazil). October 1997.
http://usiahq.usis.usemb.so/ocon/wto/waf1061

26. OGJ Newsletter Oil and Gas Journal. University Microfilms. v94n4 (January 1996): 2-4

27. Has the WTO Threatened US? National Review. University Microfilms v48n3 (February 1996): 1-5

28. Venezuela Defends its EPA Exemption for Reformulated Gasoline. Oil and Gas Journal. University Microfilms v92n22 (May 1994): 30

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