ABOUT TDM
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GATT/WTO Jurisprudence in the Energy Sector and Movements in the Marketplace
a draft for TDM 2; by Dr Melaku Geboye Desta
The GATT/WTO system creates rights and obligations only for member states and does not directly confer such rights and obligations on private actors. The effect of this is that private actors who are primarily and directly affected by the GATT/WTO-illegal acts of another state will not have standing before any adjudicatory or arbitral tribunal to safeguard their interests - there is no private party access mechanism in the system. Instead, they have to follow the tortuous path of trying to persuade their own governments to bring action on their behalf against the offending states. At the same time, countries members of the trading system want to see their companies treated in accordance with the rules and principles of the trading system; indeed "it is through improved conditions for these private operators that Members benefit from WTO disciplines." This is what a WTO panel called the principle of "indirect effect". To that end, different countries have established different channels through which companies would not just communicate their concerns about the treatment they are getting from other countries, but also to demand that those concerns are addressed at the inter-governmental level, whether bilaterally or through the multilateral dispute settlement forum. Section 301 of the US Trade Act of 1974, and the 1994 EC Trade Barriers Regulation are examples of efforts to provide opportunities to affected private parties to demand their respective authorities to take action on their behalf under the GATT/WTO dispute settlement process. The GATT/WTO jurisprudence in the energy sector is limited. Throughout GATT/WTO history, only two petroleum-related cases were fully litigated to the end. Moreover it is difficult to see how private parties played a role in the initiation and conduct of these cases. But, there are indications that the different phases of the dispute settlement process in both of the cases discussed here closely mirrored oil price fluctuations on the market.
GATT Jurisprudence in the Petroleum Sector: The 1987 Superfund Case
The Superfund case (United States—Taxes on Petroleum and Certain Imported Substances) under the GATT - instituted jointly by Canada, the EEC and Mexico - challenged the legality of US measures imposing discriminatory tax rates on imported and domestic petroleum as well as taxes imposed on certain imported substances that were allegedly not imposed on like domestic products. As the US successfully defended the latter issue as a permissible case of border tax adjustments as envisaged under GATT Article II:2(a), the discussion here will be limited to the issue of discriminatory taxes on petroleum. Seen from the perspective of GATT law, the issues raised in this dispute were fairly straightforward. It was accepted by both sides that the rate of taxation was set at 11.7 cents per barrel for imported petroleum and 8.2 cents per barrel for domestic like products. In the face of such a clear case of discrimination, the US admitted this to be contrary to the national treatment principle of GATT Article III and introduced the weak defence that even if discriminatory the tax differential was so small that its commercial effects were insignificant and did not nullify or impair benefits accruing to complainants. This led to the obvious question of whether the GATT presumption that a measure inconsistent with the General Agreement causes nullification or impairment of benefits accruing under that Agreement is an absolute or a rebuttable presumption and, if rebuttable, whether a demonstration that a measure inconsistent with Article III:2 has no or insignificant effects on trade is a sufficient rebuttal. In line with established GATT jurisprudence, the panel ruled that the impact of a measure inconsistent with the General Agreement is not relevant for a determination of nullification or impairment by the contracting parties. In an often-quoted statement, the Panel concluded that, "while the contracting parties had not explicitly decided whether the presumption that illegal measures cause nullification or impairment could be rebutted, the presumption had in practice operated as an irrefutable presumption."
From the perspective of GATT jurisprudence, this case is known for producing one of the most well-reasoned panel reports. But, from the perspective of the energy sector, it is notable for, inter alia, the following: (1) although the challenged US measure was apparently intended to finance a programme to clean up hazardous waste sites, the measure also coincided with a drastic decline in the international price of oil to one of its record lows (reaching below US $10 per barrel in early 1988), presumably raising calls from affected US domestic industry for protection against low-priced imports; (2) it is a case in which almost all countries inside the GATT with petroleum export interests, including all three OPEC-cum-GATT members at the time (Indonesia, Kuwait, and Nigeria), participated as third parties (indeed, all three of them made submissions to the panel); (3) it is the only case which addressed the question of likeness between crude petroleum and some refined petroleum products and concluded that since all of them served identical end-uses, they were like products in the sense of GATT Article III:2; and (4) although the US accepted the panel ruling "promptly", legislation abolishing the discriminatory tax on petroleum was enacted only over two years later - in December 1989 - by which time the international price of oil had already gone above then OPEC target price of US $18 per barrel and at a time when the national concern in the US was turning away from survival of domestic competitors to security of supply.
WTO Jurisprudence in the Petroleum Sector: The Reformulated Gasoline Case
This dispute (United States — Standards for Reformulated and Conventional Gasoline) arose from the following facts. In a 1990 amendment to the Clean Air Act of 1963, the US Congress directed the US Environment Protection Agency (the EPA) to issue new regulations on the composition and emissions effects of gasoline in order to improve air quality in two senses: to ensure that pollution from gasoline combustion does not exceed 1990 levels for most parts of the country, where conventional gasoline is permitted; and to reduce vehicle emissions of toxic air pollutants and ozone-forming volatile organic compounds in the most polluted parts of the country - identified or identifiable as such - that are labelled as "nonattainment areas" and for whom only so-called reformulated gasoline satisfying specified compositional and performance requirements is allowed. To administer this scheme, the EPA set 1990 as the baseline against which to measure future performance. The EPA then introduced two types of baselines for use by entities working as refiners, blenders and importers: individual baselines (established by the entity itself) and statutory baselines (established by the EPA), depending on the nature of the entity concerned. The complainants challenged the manner in which these baselines were set, arguing that they were designed to protect domestic over foreign entities, hence a violation of GATT Article III on national treatment. The US argued that while the baseline establishment rules did not afford protection to domestic production, the Gasoline Rule nonetheless fell within the scope of the general exceptions provided under GATT Article XX for the protection of health and the environment. The panel found in favour of complainants that, "since, under the baseline establishment methods, imported gasoline was effectively prevented from benefitting from as favourable sales conditions as were afforded domestic gasoline by an individual baseline tied to the producer of a product, imported gasoline was treated less favourably than domestic gasoline." Moreover, the panel also ruled that this inconsistency was not justified by any of the grounds of exceptions under Article XX. The Appellate Body modified the panel's interpretation of Article XX but did not affect the final result on the issues in dispute.
From the perspective of WTO jurisprudence and legal history, the Reformulated Gasoline case is known not just for being the first case to be decided by the newly-created institution - the WTO - and the newly-strengthened dispute settlement system, but also for producing one of the most often-cited reports by later panels and the Appellate Body itself. From the perspective of the energy industry and international relations, this case also has its own important features: (1) it is a case initiated by an OPEC-cum-WTO member - Venezuela - later joined by Brazil; (2) it is a case in which the interest of specific affected private operators, particularly that of Venezuelan energy giant Petroleos de Venezuela, S.A. (PDVSA), was discussed explicitly before the panel by both the complainant as well as the defendant (indeed, PDVSA has been mentioned about ten times in the panel report); and (3) importantly for petroleum exporting countries, this is a case which interpreted clean air as an exhaustible natural resource in the sense of GATT Article XX(g) - thus not only complementing the WTO Appellate Body's unquestioning recognition in Shrimp/Turtle that petroleum is an exhaustible resource but also setting a potentially dangerous legal ground to legitimize future petroleum import restrictions under cover of maintaining air cleanliness.
