The Multinational Monitor



The WTO Strikes

THE WORLD TRADE ORGANIZATION has struck its first blow -- sure to be the first of many, unless the United States withdraws from the organization -- against U.S. democracy, sovereignty and environmental protection.

In mid-January, a World Trade Organization (WTO) panel ruled that an important implementing regulation of the U.S. Clean Air Act violated global trade rules. Everything about the ruling is bad: it overrides an important environmental protection regulation; it establishes reckless and restrictive interpretations of key General Agreement on Tariffs and Trade (GATT) rules; and it demonstrates the ability of the WTO to subvert democracy.

The ruling came in response to a challenge filed by Venezuela and Brazil to Environmental Protection Agency (EPA) regulations that set standards for gasoline designed to reduce emissions that cause smog and air pollution. The EPA rules require each refiner to meet or beat the standards it maintained in 1990. Domestic refiners which cannot provide full data for 1990 are required to estimate their 1990 baseline performance according to one of two formulas; domestic refineries that opened after 1990 are held to a statutory baseline of the 1990 average U.S. gasoline quality. The EPA rules specify that foreign refiners which cannot provide full 1990 data are automatically held to the statutory baseline. This requirement reflects the EPA's conclusion that most gasoline importers cannot provide reliable data on which to base estimates of their 1990 performance.

The WTO panel ruled that the EPA regulations discriminated against foreign gasoline producers, and thus violated GATT rules.

The panel dismissed as irrelevant the U.S. claim that the EPA regulations treat similarly situated parties -- those who can document their 1990 performance fully, or provide reliable data upon which to estimate 1990 performance -- alike. It also dismissed the U.S. contention that foreign producers on the whole were treated the same as domestic gasoline producers, since most foreign refiners would be held to the average standard of the entire U.S. industry.

Although the United States intends to appeal the panel decision, it is not likely to be overturned.

Final adoption of the panel decision will leave the United States with two basic options: pay or obey. The United States could negotiate trade benefits for the plaintiff countries equivalent to their claimed losses from the EPA rule (Venezuela alone claims to lose $150 million in sales annually as a result of the rule), or face trade sanctions of equal amount. Alternatively, the United States could revise the EPA regulations, allowing dirtier gasoline into the country.

More significant in the long term will be the precedents set by the gasoline ruling.

The panel rejected the U.S. argument that the EPA regulations should be upheld under a GATT exception that allows some discriminatory measures where necessary to secure compliance with valid goals, such as environmental protection. The panel's very narrow interpretation of what constitutes an enforcement mechanism will dramatically limit the ability of regulators to choose feasible means to attain environmental, consumer or worker protection goals.

The panel also narrowly construed a GATT exception that allows countries to undertake some discriminatory measures relating to the conservation of exhaustible natural resources. Focusing only on the discriminatory provision of the EPA regulations, and ignoring how they fit in the overall regulatory scheme, the WTO panel rejected the eminently reasonable U.S. claim that the EPA regulations "related to" conservation. The panel's ruling that "relating to" conservation really means "primarily aimed at" conservation, and that each element of a regulatory initiative must satisfy this test in isolation, shrinks the resource-conservation exception to near irrelevance.

Most disturbing about the gasoline decision is its confirmation of WTO critics' worst fears about the new organization's impairment of national democracy and sovereignty.

Industry pounded at the Clean Air Act at every stage of the law-making process: in congressional hearings, in congressional drafting of the legislation, in the EPA's protracted rule-making process, in threatened lawsuits. Venezuela was well represented too, by the elite Washington, D.C. law firm of Arnold & Porter.

Yet citizen pressure and commitment to clean air ultimately led to a bill providing at least some minimal air quality protections. Now foreign countries representing commercial interests have done an end-run around the U.S. democratic process, successfully appealing to an outside forum over which U.S. citizens can exert no direct influence.

While trying to downplay the impact of the decision, the Office of the U.S. Trade Representative has asserted that the WTO is still a good deal for the United States. That claim is untrue. An Essential Information analysis of GATT disputes since 1980, when GATT rules expanded to cover non-tariff issues, shows that the United States is a defendant more often than a plaintiff.

More significantly, the Essential Information analysis shows that, while the United States normally prevails as a plaintiff, it normally loses as a defendant. In other words, countries tend to succeed when they challenge other nation's regulations -- to protect health, safety, the environment or other interests -- under GATT.

With the WTO now empowered to enforce GATT rules with a secretive, inflexible adjudicative process backed by substantial sanctions, the dilemma the United States now faces over revising the EPA gasoline rules is likely to become commonplace. The environment, health and democracy are certain to suffer in the process.

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