U.S. Loses a Key Trade Ruling in Gas Import Case

The United States lost its first appeal to the World Trade Organization on Monday, failing to convince the international body that U.S. environmental regulations do not violate the rules of global trade by discriminating against foreign oil refiners.

A WTO appeals panel in Geneva said U.S. regulations governing imported gasoline do not comply with international rules drawn up to make it easier for foreign companies to sell their products around the world. The U.S. regulations, which are intended to limit auto exhaust emissions, restrict sales of foreign-refined gasoline in this country.

Affirming a decision that the trade organization reached three months ago, the ruling adds fuel to the often volatile debate surrounding the Clinton administration’s trade policy during the presidential campaign. It puts the United States in a difficult diplomatic position and President Clinton in an awkward political spot.

Having played a leading role in establishing the World Trade Organization and occupying a leadership position in the world of international commerce, the United States cannot flout a ruling by the fledgling trade body.

But yielding to an international panel’s argument that U.S. environmental laws represent an artificial trade barrier would give ammunition to Clinton’s militant environmental critics.

Without saying exactly how it would respond to the decision, the White House said it was encouraged by one part of the ruling that has the effect of widening the opportunity for governments to seek exemptions if they promote conservation of exhaustible natural resources.

By accepting the U.S. argument that some exceptions to the global rules lowering barriers to trade may be made to protect certain natural resources, the appeals panel “has preserved the balance in the WTO agreements that maintains the freedom of its members to protect the environment,” acting U.S. Trade Representative Charlene Barshefsky said.

Barshefsky said the administration will review its options. But “our bottom line--and this was recognized by the appellate body--is that the result of this dispute will not compromise this administration’s commitment to strong and effective implementation of the Clean Air Act,” she said.

The panel found that the United States had not met the conditions for exercising the exception because it had not explored other avenues to protect the environment without discriminating against foreign products.

If the administration does not shift its environmental standard, a senior administration trade official said, Venezuela and Brazil may be entitled to unspecified compensation from the United States or may impose duties on U.S. products to make up for the lost gasoline sales.

The gasoline issue represents one of the first major actions by the WTO, which was created by the worldwide trade pact completed in December 1993 to monitor and enforce the rules of international commerce.

Critics have long argued that the WTO would become an all-powerful global agency imposing strict limits on U.S. economic sovereignty. They said they were fearful that the new organization could restrict how the United States imposes standards protecting the environment and workers’ rights in the guise of free trade.

Monday’s decision revolves around a regulation put into effect by the Environmental Protection Agency in December 1993. The rule established stricter requirements for imported gasoline under the Clean Air Act than for most domestically produced gasoline.

Venezuela and Brazil argued that this discriminated against their refiners.

In its report, the three-member appellate body, made up of representatives of the Philippines, Japan and New Zealand, said the United States should bring its regulations into conformity with WTO obligations. It did not say how this should be accomplished.

Perhaps more interesting than the ruling itself, said Robert Housman, a senior attorney with the Center for International Environmental Law, will be how the United States responds.

“We have a measure that violates the WTO and we have to decide what to do with it,” he said. “Do we allow the WTO to undercut our environmental protections?”