UNITED STATES - STANDARDS FOR REFORMULATED AND CONVENTIONAL GASOLINE
Document: Original: English UNITED STATES - STANDARDS FOR REFORMULATED AND CONVENTIONAL GASOLINE Appellate Body Report and Panel Report Action by the Dispute Settlement Body
Date: 20 May 1996
Document codes: WT/DS2/9; WT/DS2/AB/R; WT/DS2/R
Complainant: Venezuela
Respondent: U.S.
Third parties: Australia, Canada, EU, Norway
Dispute stage: Appellate Body
Agreements cited: Art. I, III  GATT 1994Art. 2  Technical Barriers to Trade (TBT)

UNITED STATES - STANDARDS FOR REFORMULATED
AND CONVENTIONAL GASOLINE
Appellate Body Report and Panel Report
Action by the Dispute Settlement Body
At its meeting on 20 May 1996, the Dispute Settlement Body adopted the attached Appellate
Body report on "" ()
and the attached panel report on ""
() as modified by the Appellate Body report. The panel report should therefore be read
in conjunction with the Appellate Body report.
Both reports have been derestricted upon their adoption by the Dispute Settlement Body.

ORGANIZATION Appellate Body

AB-1996-1
Report of the Appellate Body

APPELLATE BODY

United States, Appellant
Brazil
Venezuela, Appellees
European Communities
Norway, Third Participants
AB-1996-1
Present:
Feliciano, Presiding Member
Beeby, Member
Matsushita, Member
I. Introductory
The United States appeals from certain conclusions on issues of law and certain legal
interpretations contained in the Panel Report, , , 29 January 1996 (the "Panel Report"). That Panel had been
established to consider a dispute between the United States, on the one hand, and Venezuela, later
joined by Brazil, on the other. The dispute related to the implementation by the United States of its
domestic legislation known as the Clean Air Act of 1990 (the "CAA") and, more specifically, to the
regulation enacted by the United States' Environmental Protection Agency (the "EPA") pursuant to
that Act, to control toxic and other pollution caused by the combustion of gasoline manufactured in
or imported into the United States. This regulation is formally entitled "Regulation of Fuels and Fuel
Additives - Standards for Reformulated and Conventional Gasoline", Part 80 of Title 40 of the Code
of Federal Regulations,1 and is commonly referred to as the Gasoline Rule.
140 CFR 80, 59 Fed. Reg. 7716 (16 February 1994).

A. Procedural Matters
On 21 February 1996, the United States notified the Dispute Settlement Body of its decision
to appeal certain conclusions on issues of law and legal interpretations in the Panel Report pursuant
to Article 16 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the
"DSU")2 and simultaneously filed a Notice of Appeal with the Appellate Body, pursuant to Rule 20
of the Working Procedures for Appellate Review ( the "Working Procedures").3 Thereafter, on 4 March
1996, the United States filed its Submission as Appellant.4 Venezuela in turn filed, on 18 March 1996,
its Appellee's Submission; Brazil filed on the same day its Appellee's Submission.5 The third
participants followed, the European Communities and Norway filing Submissions, on 18 March 1996.6
The complete record of the Panel proceedings was duly transmitted to the Appellate Body.7
The oral hearing contemplated by Rule 27 of the Working Procedures was held on 27 and
28 March 1996.8 At the hearing, oral arguments were made respectively by the participants and the
third participants. Questions were put to them by the Members of the Appellate Body hearing the
appeal. Most of these questions were answered orally, and some were responded to in writing with
the responses being furnished both to the Appellate Body and the other participants and third participants.9
In addition, the participants and third participants were invited to provide, and did provide, the Appellate
Body and each other with final written statements of their respective positions.10 All the participants
and third participants responded positively and punctually, which was a source of satisfaction for the
Appellate Body.
2WT/DS2/6.
3WT/AB/WP/1, 15 February 1996.
4Pursuant to Rule 21(1) of the Working Procedures.
5Pursuant to Rule 22(1) of the Working Procedures.
6Pursuant to Rule 24 of the Working Procedures.
7Pursuant to Rule 25 of the Working Procedures.
8The oral hearing was originally scheduled for 25 March 1996 but had, for exceptional and unavoidable reasons, to be
deferred to 27 and 28 March 1996.
9Rule 28 of the Working Procedures.
10Rule 28(1) of the Working Procedures.

B. The Clean Air Act and its Implementation
The CAA and its implementation by the Gasoline Rule, are described fully at paragraphs 2.1-
2.13 of the Panel Report. However, it may be convenient to recall a number of the Panel's factual
findings at this stage.
The CAA established twogasoline programs11 toensure that pollutionfrom gasolinecombustion
does not exceed 1990 levels and that pollutants in major population centres are reduced. The first
program concerns ozone "nonattainment areas", consisting of (i) nine large metropolitan areas that
have experienced the worst summertime ozone pollution and (ii) various additional areas included at
the request of the state governors concerned. All gasoline sold to consumers in these nonattainment
areas must be "reformulated." The sale of conventional gasoline in nonattainment areas is prohibited.
The second program concerns "conventional" gasoline, which may be sold to consumers in the rest
of the United States. The implementation of both programs, which apply to gasoline sold by domestic
refiners, blenders and importers, was entrusted to the EPA. As a result, the EPA adopted the Gasoline
Rule, which relies heavily on the use of 1990 baselines as a means of determining compliance with
the CAA requirements.
1. The Reformulated Gasoline Program
The CAA established certain compositional and performance specifications for reformulated
gasoline.12 Thus, the oxygen content must not be less than 2.0 per cent by weight, the benzene content
must not exceed 1.0 per cent by volume and the gasoline must be free of heavy metals, including lead
or manganese. The performance specifications of the CAA require a 15 per cent reduction in the
emissions of both volatile organic compounds ("VOCs") and toxic air pollutants ("toxics"), and no
increase in emissions of nitrogen oxides ("NOx"). Section 80.41 of the Gasoline Rule sets out two
methods by which entities can certify their gasoline as meeting these requirements. From 1 January
1995 to 1 January 1998, domestic refiners, blenders and importers may use an interim method of
certification called the "Simple Model", whichrequires compliance with fixedspecifications concerning
Reid Vapour Pressure, oxygen, benzene and toxics performance. In addition, compliance is required
with certain "non-degradation requirements" by maintaining sulphur, olefins and T-90 qualities at or
below 1990 baseline levels, on an average annual basis. As of 1 January 1998, these entities must
11Section 211(k).
12Section 211(k)(2)-(3).

comply with the "Complex Model", which more accurately predicts emissions performance. The
Complex Model is not in issue in the present dispute.
2. The Conventional Gasoline Program
In order to prevent the "dumping" of pollutants extracted from reformulated gasoline into
conventional gasoline, the CAA requires that conventional gasoline sold by domestic refiners, blenders
and importers in the United States remains as clean as 1990 baseline levels.13 Unlike the Simple Model
for reformulated gasoline, the "non-degradation" from 1990 baseline requirements for conventional
gasoline applies in respect of all conventional gasoline qualities, and not only sulphur, olefins and T-90.
Compliance is measured by comparing emissions from the conventional gasoline sold by domestic
refiners, blenders and importers against emissions from a 1990 baseline and is assessed on an annual
average basis.14
3. Baseline Establishment Rules
In respect of both reformulated gasoline (for sulphur, olefins and T-90 requirements under
the Simple Model) and conventional gasoline (for all requirements), 1990 baselines are an integral
element of the Gasoline Rule enforcement process. Accordingly, the Gasoline Rule contains detailed
baseline establishment rules.15 Baselines can be either individual (established by the entity itself) or
statutory (established by the EPA and intended to reflect average 1990 United States gasoline quality),
depending on the nature of the entity concerned.
(i) domestic refiners
Any domestic refiner which was in operation for at least six months in 1990 must establish
an individual baseline representing the quality of gasoline produced by that refiner in 1990. The Gasoline
Rule provides three methods of establishment to be used for this purpose. Under Method 1, the domestic
refiner must use the quality data and volume records of its 1990 gasoline. If Method 1 data is not
available, the domestic refiner must use its 1990 gasoline blendstock quality data and 1990 blendstock
production records (Method 2). In the event that Method 2 data is not available, the domestic refiner
must establish an individual 1990 baseline on the basis of its post-1990 gasoline blendstock and/or
13Section 211(k)(8) of the CAA.
14Section 80.90 of the Gasoline Rule.
15Section 80.91.

gasoline quality data modeled in the light of refinery changes to show 1990 gasoline composition
(Method 3).
Domestic refiners that were in operation for at least six months in 1990 are not permitted to
forego their individual baseline and use the statutory baseline established by the EPA. However,
domestic refiners that commenced operations after 1990, or operated for less than six months during
1990, are required to use the statutory baseline established by the EPA.
(ii) blenders
Blenders are required to establish an individual baseline representing the quality of their 1990
gasoline using Method 1 above. Failing this, they must use the statutory baseline established by the
EPA. Blenders may not apply an individual baseline using Methods 2 or 3.
(iii) importers
Importers of foreign gasoline are required to establish an individual baseline in respect of gasoline
imported by them during 1990, using Method 1. Like blenders, importers become subject to the statutory
baseline if, as anticipated by the EPA, the data necessary for Method 1 is unavailable.
The Gasoline Rule does not provide for foreign refiner individual baselines, although the possible
use of individual baselines for foreign refiners was examined by the EPA while drafting the Gasoline
Rule. Indeed, the EPA continued to examine the possible use of individual baselines for foreign refineries
after the adoption of the Gasoline Rule, and prepared its May 1994 proposal16 as a result. The May
1994 proposal provided for limited use by importers of individual baselines established for foreign
refineries in order to demonstrate that gasoline produced at that foreign refinery complied with the
reformulated (but not conventional) gasoline standards. The individual baselines would be determined
using Methods 1, 2 or 3, as for domestic refineries under the Gasoline Rule. However, the use of
individual baselines in such cases would be conditioned and limited in a number of ways. The EPA's
May 1994 proposal never entered into force, as the United States Congress enacted legislation in
September 1994 denying the funding necessary for its implementation.
1640 CFR 80, 59 Fed. Reg. at 22 800 (3 May 1994).

C. The Panel Report: Its Findings and Conclusions
The Panel's overall conclusions and its recommendation are set out in the following terms:
8.1 In the light of the findings above, the Panel concluded that the baseline
establishment methods contained in Part 80 of Title 40 of the Code of Federal
Regulations are not consistent with Article III:4 of the General Agreement,
and cannot be justified under paragraphs (b), (d) and (g) of Article XX of the
General Agreement.
8.2 The Panel recommends that the Dispute Settlement Body request the
United States to bring this part of the Gasoline Rule into conformity with its
obligations under the General Agreement.17
On route to its overall conclusions, the Panel made the following principal findings:
(i) that the Panel's terms of reference were established after the 75 per cent rule had ceased
to have any effect, and the rule had not been mentioned in the terms of reference, and
that, in any case, it was unnecessary, in view of findings (ii), (iv), (v) and (vii) below,
to determine whether the measure at issue was inconsistent with Article I:1 of the
General Agreement on Tariffs and Trade 1994 (the "General Agreement");18
(ii) that imported and domestic gasoline were "like products" and that since, under the
baseline establishment rules of the Gasoline Rule, 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. The baseline establishment rules
of the Gasoline Rule were accordingly inconsistent with Article III:4 of the General
Agreement;19
(iii) that, in view of finding (ii), it was not necessary to examine the consistency of the
Gasoline Rule with Article III:1;20
17Panel Report at p. 47.
18Panel Report, para. 6.19.
19Panel Report, para. 6.16.
20Panel Report, para. 6.17.

(iv) that the "aspect of the baseline establishment methods" found inconsistent with
Article III:4 was not justified under Article XX(b) of the General Agreement as
"necessary to protect human, animal or plant life or health";21
(v) that the "maintenance of discrimination between imported and domestic gasoline"
contrary to Article III:4 was not justified under Article XX(d) as "necessary to secure
compliance with laws or regulations which are not inconsistent with the provisions
of [the General] Agreement";22
(vi) that clean air was an exhaustible natural resource within the meaning of Article XX(g)
of the General Agreement;23
(vii) that the baseline establishment rules found to be inconsistent with Article III:4 could
not be justified under Article XX(g) as a measure "relating to" the conservation of
exhaustible natural resources;24
(viii) that it was unnecessary, in the light of finding (vii), to determine whether the measure
at issue was "made effective in conjunction with restrictions on domestic production
or consumption";25
(ix) that it was unnecessary, in the light of finding (vii), to determine whether the measure
at issue met the conditions in the introductory clause of Article XX (sometimes referred
to as the chapeau of Article XX);
(x) that it was unnecessary, in view of findings (ii), (iv), (v) and (vii), to determine whether
the measure at issue was inconsistent with Article XXIII:1(b) as having nullified and
impaired benefits accruing under the General Agreement;26 and
21Panel Report, para. 6.29.
22Panel Report, para. 6.33.
23Panel Report, para. 6.37.
24Panel Report, para. 6.40.
25Panel Report, para. 6.41.
26Panel Report, para. 6.42.

(xi) that it was unnecessary, in the light of findings (ii), (iv), (v) and (vii), to determine
whether the measure at issue was inconsistent with Articles 2.1 and 2.2 of the Agreement
on Technical Barriers to Trade (the "TBT Agreement").27
II. Issues Raised In This Appeal
A. The Claims of Error by the United States
It is important to focus upon the subject matter of this appeal. We seek to do this first by
identifying the issues which have been raised by the Appellant, the United States. In what follows
we highlight those same issues by listing certain other issues dealt with in the Panel proceedings but
which have not been brought before the Appellate Bodyin this appeal, and which we accordingly exclude
from consideration in this Appellate Report.
In its Notice of Appeal, dated 21 February 1996, and its Appellant's Submission, dated 4 March
1996, the United States claims that the Panel erred in law, firstly, in holding that the baseline
establishment rules of the Gasoline Rule are not justified under Article XX(g) of the General Agreement
and, secondly, in its interpretation of Article XX as a whole.
More specifically, the United States assigns as error the ruling of the Panel that the baseline
establishment rules do not constitute a "measure" "relating to" the conservation of clean air within
the meaning of Article XX(g) of the General Agreement. Consequently, it is also the view of the United
States that the Panel erred in failing to proceed further in its interpretation and application of
Article XX(g), and in not finding that the baseline establishment rules satisfy the other requirements
of Article XX(g) and the introductory provisions of Article XX.
The sharply limited scope of this appeal is underscored by noting the number of findings which
the Panel had made but which have not been appealed from by the United States. Very briefly, the
United States does not appeal from the findings or rulings made by the Panel on, or in respect of, the
consistency of the baseline establishment rules with Article I:1, Article III:1, Article III:4, and
Article XXIII:1(b) of the General Agreement and the applicability of Article XX(b) and Article XX(d)
of the General Agreement and of the TBT Agreement. Understandably, the United States has also not
27Panel Report, para. 6.43.

appealed from the Panel's ruling that clean air is an exhaustible natural resource within the meaning
of Article XX(g) of the General Agreement.
B. The Claims of the Appellees and the Arguments of the Third Participants
The Appellees, Venezuela and Brazil, submit that the Appellate Body should dismiss the United
States' appeal and uphold the Panel's findings and conclusions concerning Article XX(g). In particular,
Venezuela and Brazil support the Panel's finding that the measure at issue before the Panel was not
one "relating to" the conservation of exhaustible natural resources. Venezuela also states that a measure
can only be "relating to" or "primarily aimed at" conservation if the measure was both: (i) primarily
intended to achieve a conservation goal; and (ii) had a positive conservation effect.
Venezuela argues that, as the United States has not met its burden with respect to the "relating
to" requirement of Article XX(g) in this appeal, the Appellate Body may uphold the Panel Report on
this issue alone, and it is not necessary to address the additional requirements of Article XX(g), nor
the requirements in the Article XX chapeau.
If the Appellate Body overturns the Panel's findings on the "relating to" component of
Article XX(g) and does proceed to examine the other requirements of Article XX(g), Venezuela and
Brazil submit that the United States has also failed to demonstrate that those requirements have been
satisfied. They argue that the measure in issue is not "made effective in conjunction with restrictions
on domestic production or consumption" as the restrictions are not imposed as direct limits on the
production or consumption of clean air, but rather upon the consumption of certain kinds of gasoline.
They further submit that clean air does not qualify as an "exhaustible natural resource" within the
meaning of Article XX(g).
With regard to the requirements in the chapeau to Article XX, Venezuela and Brazil submit
that the measure is applied in a manner which constitutes "arbitrary or unjustifiable discrimination
between countries where the same conditions prevail." Venezuela argues that the measure constitutes
a "disguised restriction on international trade" as well.
The Appellees also raise the conditional argument that, if the Appellate Body were to overturn
the Panel's findings on Article XX(g), and not find in favour of Venezuela and Brazil as to the other
requirements of Article XX, it would then need to examine their claims under the TBT Agreement.

The third participants, the European Communities and Norway, endorse the Panel's interpretation
of "relating to" and the Panel's findings under Article XX(g). They find it difficult to accept the United
States' arguments that the measure at issue was "made effective in conjunction with restrictions on
domestic production or consumption," as the measure in issue did not impose restrictions on clean
air. With regard to the Article XX chapeau criteria, the European Communities and Norway both
submit that the measure is applied in a manner constituting "arbitrary or unjustifiable discrimination
between countries where the same conditions prevail" and a "disguised restriction on international trade."
C. The Preliminary Question
A preliminary question was raised by the United States at the oral hearing concerning arguments
made by Venezuela and Brazil in their respective Appellees' Submissions on the issues of whether
clean air is an exhaustible natural resource within the meaning of Article XX(g) and whether the baseline
establishment rules are consistent with the TBT Agreement. The gist of the preliminary question is
that the above issues and the related arguments made by Venezuela and Brazil were not properly brought
before the Appellate Bodyin this appeal in accordance with the Working Procedures. It was underscored
by the United States that Venezuela and Brazil had not appealed from the ruling of the Panel on the
clean air issue or from the non-ruling of the Panel on the applicability of the TBT Agreement. Venezuela
and Brazil had not filed Appellants' Submissions under Rule 23(1) of the Working Procedures. Neither
had Venezuela nor Brazil filed separate appeals under Rule 23(4) of the Working Procedures. Their
arguments on these two matters had been made in their Appellees' Submissions pursuant to Rule 22
and, as Appellees, Venezuela and Brazil could not challenge the Panel's finding on the clean air issue
and its non-finding on the TBT Agreement's applicability.
At the oral hearing, in response to questions posed by the Appellate Body, Venezuela and Brazil
confirmed that they, indeed, were not appealing the mentioned two matters. They went on, however,
to state that they believed it would be within the scope of authority of the Appellate Body, if it found
it necessary to do so, to address the results of the Panel's examination of those two issues.
In its Post-Hearing Memorandum, the United States asserted, among other things, that were
the Appellate Bodyto take up the above two matters in the present appeal, unfairness would be generated
vis-à-vis the United States and it would encourage a disregard of the Working Procedures. Such disregard
by the Appellate Body would, it was further stated, create difficulties for third parties who would have
to make up their minds to become third participants or not on the basis of the issues raised on appeal
as set out in the Notice of Appeal and the Appellant's Submission. The United States itself had not

raised the clean air issue and the applicability of the TBT Agreement in its appeal, and the United States
was the only Appellant in AB-1996-1.
We find the United States' submissions on this preliminary question persuasive. The arguments
raised by Venezuela and Brazil on the clean air and TBT issues may be seen to be, in effect, conditional
appeals, that is, conditional on the Appellate Body's overturning the Panel's overall findings on
Article XX(g) and not finding in favour of Venezuela and Brazil as to the other requirements of
Article XX. This condition is not fulfilled. Even if this condition had been fulfilled, the Appellate
Body would have been most reluctant to pass upon these two issues. We observe, in the first place,
that the issues in fact raised by the Appellant, the United States, are not of the kind which cannot be
decided without at the same time necessarily resolving the clean air issue or the applicability of the
TBT Agreement. In the second place, to deal with those two issues, under the circumstances of this
appeal, would have required the Appellate Body casually to disregard its own Working Procedures
and to do so in the absence of a compelling reason grounded on, for instance, fundamental fairness
or force majeure. Venezuela and Brazil could have appealed the Panel's finding and non-finding on
the two matters by taking advantage of Rules 23(1) or 23(4) of the Working Procedures and thereby
placing the Appellate Body in a position to dispose of those issues directly in one and the same appellate
proceeding.
The acceptance by Venezuela and Brazil of the Working Procedures, and their commitment
to them, is not in question. We have no option, however, but to find that the route they chose for
addressing the two issues in question is not contemplated by the Working Procedures, and therefore,
these issues are not properly the subject of this appeal.

III. The Issue of Justification Under Article XX(g) of the General Agreement
Article XX(g) needs to be set out in full:
Article XX
General Exceptions
Subject to the requirement that such measures are not applied in a
manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall
be construed to prevent the adoption or enforcement by any contracting party
of measures:

(g) relating to the conservation of exhaustible natural resources
if such measures are made effective in conjunction with
restrictions on domestic production or consumption;

A. "Measures"
The initial issue we are asked to look at relates to the proper meaning of the term "measures"
as used both in the chapeau of Article XX and in Article XX(g). The question is whether "measures"
refers to the entire Gasoline Rule or, alternatively, only to the particular provisions of the Gasoline
Rule which deal with the establishment of baselines for domestic refiners, blenders and importers.
Cast in the foregoing terms, the issue does not appear to be a live one. True enough the Panel
Report used differing terms, or terms of shifting reference, in designating the "measures" in different
parts of the Report. The Panel Report, however, held only the baseline establishment rules of the
Gasoline Rule to be inconsistent with Article III:4, to the extent that such rules provided "less favourable
treatment" for imported than for domestic gasoline. These are the same provisions which the Panel
evaluated, and found wanting, under the justifying provisions of Article XX(g). The Panel Report
did not purport to find the Gasoline Rule itself as a whole, or any part thereof other than the baseline
establishment rules, to be inconsistent with Article III:4; accordingly, there was no need at all to examine
whether the whole of the Gasoline Rule or any of its other rules, was saved or justified by Article XX(g).
The Panel here was following the practice of earlier panels in applying Article XX to provisions found
to be inconsistent with Article III:4: the "measures" to be analyzed under Article XX are the same

provisions infringing Article III:4.28 These earlier panels had not interpreted "measures" more broadly
under Article XX to include provisions not themselves found inconsistent with Article III:4. In the
present appeal, no one has suggested in their final submissions that the Appellate Body should examine
under Article XX any portion of the Gasoline Rule other than the baseline establishment rules held
to be in conflict with Article III:4. No one has urged an interpretation of "measures" which would
encompass the Gasoline Rule in its totality.29
At the oral hearing and in its Post-Hearing Memorandum, the United States complained about
the designation of the baseline establishment rules in the Panel Report and by the Appellees Venezuela
and Brazil, in such terms as "the difference in treatment", "the less favourable treatment" or "the
discrimination." It is, of course, true that the baseline establishment rules had been found by the Panel
to be inconsistent with Article III:4 of the General Agreement. The frequent designation of those
provisions by the Panel in terms of its legal conclusion in respect of Article III:4, in the Appellate
Body's view, did not serve the cause of clarity in analysis when it came to evaluating the same baseline
establishment rules under Article XX(g).
B. "relating to the conservation of exhaustible natural resources"
The Panel Report took the view that clean air was a "natural resource" that could be "depleted."
Accordingly, as already noted earlier, the Panel concluded that a policy to reduce the depletion of clean
air was a policy to conserve an exhaustible natural resource within the meaning of Article XX(g).
Shortly thereafter, however, the Panel Report also concluded that "the less favourable baseline
establishments methods" were not primarily aimed at the conservation of exhaustible natural resources
and thus fell outside the justifying scope of Article XX(g).
28Canada- Administration oftheForeignInvestment Review Act, BISD 30S/140, adopted 7 February 1984; UnitedStates -
Section 337 of the Tariff Act of 1930, BISD 36S/345, adopted 7 November 1989; United States - Taxes on Automobiles,
DS31/R (1994), unadopted.
29Although, in earlier submissions to the Appellate Body, the United States suggested that "the Gasoline Rule" should
be examined in the context of Article XX(g), in its Post-Hearing Memorandum, dated 1 April 1996, the United States confirmed
its understanding that the "measures" in issue are the baseline establishment rules contained in the Gasoline Rule.
Brazil stated, in its final submission to the Appellate Body, dated 1 April 1996, that "the ‘ measure’ with which this appeal
is concerned is the baseline methodology of the Gasoline Rule, not the entire rule itself." This would suggest a position
similar to that adopted by the United States. Thereafter, Brazil continued to state that "Brazil and Venezuela did not challenge
all portions of the Rule; they challenged only the discriminatory methods of establishing baselines."
Venezuela stated, in its summary statement, dated 29 March 1996, that "the measure to be examined is the discriminatory
measure, that is, the aspect of the Gasoline Rule that denies imported gasoline the right to use the same regulatory system
of baselines applicable to U.S. gasoline, namely, the system of individual baselines."

The Panel, addressing the task of interpreting the words "relating to", quoted with approval
the following passage from the panel report in the 1987 Herring and Salmon case:30
as the preamble of Article XX indicates, the purpose of including Article XX:(g) in
the General Agreement was not to widen the scope for measures serving trade policy
purposes but merely to ensure that the commitments under the General Agreement
do not hinder the pursuit of policies aimed at the conservation of exhaustive natural
resources. The Panel concluded for these reasons that, while a trade measure did not
have to be necessary or essential to the conservation of an exhaustible natural resource,
it had to be primarily aimed at the conservation of an exhaustible natural resource to
be considered as "relating to" conservation within the meaning of Article XX:(g).
(emphasis added by the Panel)
The Panel Report then went on to apply the 1987 Herring and Salmon reasoning and conclusion
to the baseline establishment rules of the Gasoline Rule in the following manner:31
The Panel then considered whether the precise aspects of the Gasoline Rule that it had
found to violate Article III -- the less favourable baseline establishments methods that
adversely affected the conditions of competition for imported gasoline -- were primarily
aimed at the conservation of natural resources. The Panel saw no direct connection
between less favourable treatment of imported gasoline that was chemically identical
to domestic gasoline, and the US objective of improving air quality in the United States.
Indeed, in the view of the Panel, being consistent with the obligation to provide no
less favourable treatment would not prevent the attainment of the desired level of
conservation of natural resources under the Gasoline Rule. Accordingly, it could not
be said that the baseline establishment methods that afforded less favourable treatment
to imported gasoline were primarily aimed at the conservation of natural resources.
In the Panel's view, the above-noted lack of connection was underscored by the fact
thataffording treatment ofimported gasoline consistentwithits Article III:4 obligations
would not in any way hinder the United States in its pursuit of its conservation policies
under the Gasoline Rule. Indeed, the United States remained free to regulate in order
to obtain whatever air quality it wished. The Panel therefore concluded that the less
favourable baseline establishments methods at issue in this case were not primarily
aimed at the conservation of natural resources.
It is not easy to follow the reasoning in the above paragraph of the Panel Report. In our view,
there is a certain amount of opaqueness in that reasoning. The Panel starts with positing that there
was "no direct connection" between the baseline establishment rules which it characterized as "less
favourable treatment" of imported gasoline that was chemically identical to the domestic gasoline and
"the US objective of improving air quality in the United States." Shortly thereafter, the Panel went
on to conclude that "accordingly, it could not be said that the baseline establishment rules that afforded
30Canada - Measures Affecting Exports of Unprocessed Herring and Salmon, BISD 35S/98, para. 4.6; adopted on 22 March
31Panel Report, para. 6.40.

less favourable treatment to imported gasoline were primarily aimed at the conservation of natural
resources" (emphasis added). The Panel did not try to clarify whether the phrase "direct connection"
was being used as a synonym for "primarily aimed at" or whether a new and additional element (on
top of "primarily aimed at") was being demanded.
One problem with the reasoning in that paragraph is that the Panel asked itself whether the
"less favourable treatment" of imported gasoline was "primarily aimed at" the conservation of natural
resources, rather than whether the "measure", i.e. the baseline establishment rules, were "primarily
aimed at" conservation of clean air. In our view, the Panel here was in error in referring to its legal
conclusion on Article III:4 instead of the measure in issue. The result of this analysis is to turn
Article XX on its head. Obviously, there had to be a finding that the measure provided "less favourable
treatment" under Article III:4 before the Panel examined the "General Exceptions" contained in
Article XX. That, however, is a conclusion of law. The chapeau of Article XX makes it clear that
it is the "measures" which are to be examined under Article XX(g), and not the legal finding of "less
favourable treatment."
Furthermore, the Panel Report appears to have utilized a conclusion it had reached earlier in
holding that the baseline establishment rules did not fall within the justifying terms of Articles XX(b);
i.e. that the baseline establishment rules were not "necessary" for the protection of human, animal
or plant life. The Panel Report, it will be recalled, found that the baseline establishment rules had
not been shown by the United States to be "necessary" under Article XX(b) since alternative measures
either consistent or less inconsistent with the General Agreement were reasonably available to the United
States for achieving its aim of protecting human, animal or plant life.32 In other words, the Panel Report
appears to have applied the "necessary" test not only in examining the baseline establishment rules
under Article XX(b), but also in the course of applying Article XX(g).
A principal difficulty, in the view of the Appellate Body, with the Panel Report's application
of Article XX(g) to the baseline establishment rules is that the Panel there overlooked a fundamental
rule of treaty interpretation. This rule has received its most authoritative and succinct expression in
the Vienna Convention on the Law of Treaties (the "Vienna Convention")33 which provides in relevant
part:
32Panel Report, paras. 6.25-6.28.
33(1969), 8 International Legal Materials 679.

ARTICLE 31
General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with
the ordinary meaning to be given to the terms of the treaty in their
context and in the light of its object and purpose.
The "general rule of interpretation" set out above has been relied upon by all of the participants
and third participants, although not always in relation to the same issue. That general rule of
interpretation has attained the status of a rule of customary or general international law.34 As such,
it forms part of the "customary rules of interpretation of public international law" which the Appellate
Body has been directed, by Article 3(2) of the DSU, to apply in seeking to clarify the provisions of
the General Agreement and the other "covered agreements" of the Marrakesh Agreement Establishing
the World Trade Organization35 (the "WTO Agreement"). That direction reflects a measure of recognition
that the General Agreement is not to be read in clinical isolation from public international law.
Applying the basic principle of interpretation that the words of a treaty, like the General
Agreement, are to be given their ordinary meaning, in their context and in the light of the treaty's object
and purpose, the Appellate Body observes that the Panel Report failed to take adequate account of the
words actually used by Article XX in its several paragraphs. In enumerating the various categories
of governmental acts, laws or regulations which WTO Members may carry out or promulgate in pursuit
of differing legitimate state policies or interests outside the realm of trade liberalization, Article XX
uses different terms in respect of different categories:
"necessary" - in paragraphs (a), (b) and (d); "essential" - in paragraph (j);
"relating to" - in paragraphs (c), (e) and (g); "for the protection of" - in paragraph (f);
"in pursuance of" - in paragraph (h); and "involving" - in paragraph (i).
34See, e.g., Territorial Dispute Case (Libyan Arab Jamahiriya v. Chad), (1994), I.C.J. Reports p. 6 (International Court
of Justice); Golder v. United Kingdom, ECHR, Series A, (1995) no. 18 (European Court of Human Rights); Restrictions
to the Death Penalty Cases, (1986) 70 International Law Reports 449 (Inter-American Court of Human Rights); Jiménez
de Aréchaga, "International Law in the Past Third of a Century" (1978-I) 159 Recueil des Cours 1, p. 42; D. Carreau,
Droit International (3è ed., 1991) p. 140; Oppenheim's International Law (9th ed., Jennings and Watts, eds. 1992) Vol. 1,
pp. 1271-1275.
35Done at Marrakesh, Morocco, 15 April 1994.

It does not seem reasonable to suppose that the WTO Members intended to require, in respect
of each and every category, the same kind or degree of connection or relationship between the measure
under appraisal and the state interest or policy sought to be promoted or realized.
At the same time, Article XX(g) and its phrase, "relating to the conservation of exhaustible
natural resources," need to be read in context and in such a manner as to give effect to the purposes
and objects of the General Agreement. The context of Article XX(g) includes the provisions of the
rest of the General Agreement, including in particular Articles I, III and XI; conversely, the context
of Articles I and III and XI includes Article XX. Accordingly, the phrase "relating to the conservation
of exhaustible natural resources" may not be read so expansively as seriously to subvert the purpose
and object of Article III:4. Nor may Article III:4 be given so broad a reach as effectively to emasculate
Article XX(g) and the policies and interests it embodies. The relationship between the affirmative
commitments set out in, e.g., Articles I, III and XI, and the policies and interests embodied in the
"General Exceptions" listed in Article XX, can be given meaning within the framework of the General
Agreement and its object and purpose by a treaty interpreter only on a case-to-case basis, by careful
scrutiny of the factual and legal context in a given dispute, without disregarding the words actually
used by the WTO Members themselves to express their intent and purpose.
The 1987 Herring and Salmon report, and the Panel Report itself, gave some recognition to
the foregoing considerations of principle. As earlier noted, the Panel Report quoted the following
excerpt from the Herring and Salmon report:
as the preamble of Article XX indicates, the purpose of including Article XX(g) in
the General Agreement was not to widen the scope for measures serving trade policy
purposes but merely to ensure that the commitments under the General Agreement do
not hinder the pursuit of policies aimed at the conservation of exhaustible natural
resources.36 (emphasis added)
All the participants and the third participants in this appeal accept the propriety and applicability
of the view of the Herring and Salmon report and the Panel Report that a measure must be "primarily
aimed at" the conservation of exhaustible natural resources in order to fall within the scope of
Article XX(g).37 Accordingly, we see no need to examine this point further, save, perhaps, to note
36Canada - Measures Affecting Exports of Unprocessed Herring and Salmon, BISD 35S/98, para. 4.6; adopted 22 March
37We note that the same interpretation has been applied in two recent unadopted panel reports: United States - Restrictions
on Imports of Tuna, DS29/R (1994); United States - Taxes on Automobiles, DS31/R (1994).

that the phrase "primarily aimed at" is not itself treaty language and was not designed as a simple litmus
test for inclusion or exclusion from Article XX(g).
Against this background, we turn to the specific question of whether the baseline establishment
rules are appropriately regarded as "primarily aimed at" the conservation of natural resources for the
purposes of Article XX(g). We consider that this question must be answered in the affirmative.
The baseline establishment rules, taken as a whole (that is, the provisions relating to establishment
of baselines for domestic refiners, along with the provisions relating to baselines for blenders and
importers of gasoline), need to be related to the "non-degradation" requirements set out elsewhere in
the Gasoline Rule. Those provisions can scarcely be understood if scrutinized strictly by themselves,
totally divorced from other sections of the Gasoline Rule which certainly constitute part of the context
of these provisions. The baseline establishment rules whether individual or statutory, were designed
to permit scrutiny and monitoring of the level of compliance of refiners, importers and blenders with
the "non-degradation" requirements. Without baselines of some kind, such scrutiny would not be possible
and the Gasoline Rule's objective of stabilizing and preventing further deterioration of the level of
air pollution prevailing in 1990, would be substantially frustrated. The relationship between the baseline
establishment rules and the "non-degradation" requirements of the Gasoline Rule is not negated by
the inconsistency, found by the Panel, of the baseline establishment rules with the terms of Article III:4.
We consider that, given that substantial relationship, the baseline establishment rules cannot be regarded
as merely incidentally or inadvertently aimed at the conservation of clean air in the United States for
the purposes of Article XX(g).
C. "if such measures are made effective in conjunction with restrictions on domestic
production or consumption"
The Panel did not find it necessary to deal with the issue of whether the baseline establishment
rules "are made effective in conjunction with restrictions on domestic production or consumption",
since it had earlier concluded that those rules had not even satisfied the preceding requirement of
"relating to" in the sense of being "primarily aimed at" the conservation of clean air. Having been
unable to concur with that earlier conclusion of the Panel, we must now address this second requirement
of Article XX(g), the United States having, in effect, appealed from the failure of the Panel to proceed
further with its inquiry into the availability of Article XX(g) as a justification for the baseline
establishment rules.

The claim of the United States is that the second clause of Article XX(g) requires that the burdens
entailed by regulating the level of pollutants in the air emitted in the course of combustion of gasoline,
must not be imposed solely on, or in respect of, imported gasoline.
On the other hand, Venezuela and Brazil refer to prior panel reports which include statements
to the effect that to be deemed as "made effective in conjunction with restrictions on domestic production
or consumption", a measure must be "primarily aimed at" making effective certain restrictions on
domestic production or consumption.38 Venezuela and Brazil also argue that the United States has
failed to show the existence of restrictions on domestic production or consumption of a natural resource
under the Gasoline Rule since clean air was not an exhaustible natural resource within the meaning
of Article XX(g). Venezuela contends, finally, that the United States has not discharged its burden
of showing that the baseline establishment rules make the United States' regulatory scheme "effective."
The claim of Venezuela is, in effect, that to be properly regarded as "primarily aimed at" the conservation
of natural resources, the baseline establishment rules must not only "reflect a conservation purpose"
but also be shown to have had "some positive conservation effect."39
The Appellate Body considers that the basic international law rule of treaty interpretation,
discussed earlier, that the terms of a treaty are to be given their ordinary meaning, in context, so as
to effectuate its object and purpose, is applicable here, too. Viewed in this light, the ordinary or natural
meaning of "made effective" when used in connection with a measure - a governmental act or regulation -
may be seen to refer to such measure being "operative", as "in force", or as having "come into effect."40
Similarly, the phrase "in conjunction with" may be read quite plainly as "together with" or "jointly
with."41 Taken together, the second clause of Article XX(g) appears to us to refer to governmental
measures like the baseline establishment rules being promulgated or brought into effect together with
restrictions on domestic production or consumption of natural resources. Put in a slightly different
manner, we believe that the clause "if such measures are made effective in conjunction with restrictions
on domestic product or consumption" is appropriately read as a requirement that the measures concerned
impose restrictions, not just in respect of imported gasoline but also with respect to domestic gasoline.
38Canada - Measures Affecting Exports of Unprocessed Herring and Salmon, BISD 35S/98, paras. 4.6-4.7; adopted
22 March 1988. Also, United States - Restrictions on Imports of Tuna, DS29/R (1994), unadopted; and United States -
Taxes on Automobiles, DS31/R (1994), unadopted.
39Venezuela's Appellee's Submission, dated 18 March 1996; Venezuela's Statement at the Oral Hearing, dated
27 March 1996.
40The New Shorter Oxford English Dictionary on Historical Principles (L. Brown, ed., 1993), Vol. I, p. 786.
41Id., p. 481.

The clause is a requirement of even-handedness in the imposition of restrictions, in the name of
conservation, upon the production or consumption of exhaustible natural resources.
There is, of course, no textual basis for requiring identical treatment of domestic and imported
products. Indeed, where there is identity of treatment - constituting real, not merely formal, equality
of treatment - it is difficult to see how inconsistency with Article III:4 would have arisen in the first
place. On the other hand, if no restrictions on domestically-produced like products are imposed at
all, and all limitations are placed upon imported products alone, the measure cannot be accepted as
primarily or even substantially designed for implementing conservationist goals.42 The measure would
simply be naked discrimination for protecting locally-produced goods.
In the present appeal, the baseline establishment rules affect both domestic gasoline and imported
gasoline, providing for - generally speaking - individual baselines for domestic refiners and blenders
and statutory baselines for importers. Thus, restrictions on the consumption or depletion of clean air
by regulating the domestic production of "dirty" gasoline are established jointly with corresponding
restrictions with respect to imported gasoline. That imported gasoline has been determined to have
been accorded "less favourable treatment" than the domestic gasoline in terms of Article III:4, is not
material for purposes of analysis under Article XX(g). It might also be noted that the second clause
of Article XX(g) speaks disjunctively of "domestic production or consumption."
We do not believe, finally, that the clause "if made effective in conjunction with restrictions
on domestic production or consumption" was intended to establish an empirical "effects test" for the
availability of the Article XX(g) exception. In the first place, the problem of determining causation,
well-known in both domestic and international law, is always a difficult one. In the second place,
in the field of conservation of exhaustible natural resources, a substantial period of time, perhaps years,
may have to elapse before the effects attributable to implementation of a given measure may be
observable. The legal characterization of such a measure is not reasonably made contingent upon
occurrence of subsequent events. We are not, however, suggesting that consideration of the predictable
effects of a measure is never relevant. In a particular case, should it become clear that realistically,
42Some illustration is offered in the Herring and Salmon case which involved, inter alia, a Canadian prohibition of exports
of unprocessed herring and salmon. This prohibition effectively constituted a ban on purchase of certain unprocessed fish
by foreign processors and consumers while imposing no corresponding ban on purchase of unprocessed fish by domestic
processors and consumers. The prohibitions appeared to be designed to protect domestic processors by giving them exclusive
access to fresh fish and at the same time denying such raw material to foreign processors. The Panel concluded that these
export prohibitions were not justified by Article XX(g). BISD 35S/98, para. 5.1, adopted 22 March 1988. See also the
Panel Report in the United States - Prohibition ofImports of Tuna and TunaProducts from Canada, BISD 29S/91, paras. 4.10-
4.12; adopted on 22 February 1982.

a specific measure cannot in any possible situation have any positive effect on conservation goals, it
would very probably be because that measure was not designed as a conservation regulation to begin
with. In other words, it would not have been "primarily aimed at" conservation of natural resources
at all.
IV. The Introductory Provisions of Article XX of the General Agreement: Applying the
Chapeau of the General Exceptions
Having concluded, in the preceding section, that the baseline establishment rules of the Gasoline
Rule fall within the terms of Article XX(g), we come to the question of whether those rules also meet
the requirements of the chapeau of Article XX. In order that the justifying protection of Article XX
may be extended to it, the measure at issue must not only come under one or another of the particular
exceptions - paragraphs (a) to (j) - listed under Article XX; it must also satisfy the requirements imposed
by the opening clauses of Article XX. The analysis is, in other words, two-tiered: first, provisional
justification by reason of characterization of the measure under XX(g); second, further appraisal of
the same measure under the introductory clauses of Article XX.
The chapeau by its express terms addresses, not so much the questioned measure or its specific
contents as such, but rather the manner in which that measure is applied.43 It is, accordingly, important
to underscore that the purpose and object of the introductory clauses of Article XX is generally the
prevention of "abuse of the exceptions of [what was later to become] Article [XX]."44 This insight
drawn from the drafting history of Article XX is a valuable one. The chapeau is animated by the
principle that while the exceptions of Article XX may be invoked as a matter of legal right, they should
not be so applied as to frustrate or defeat the legal obligations of the holder of the right under the
substantive rules of the General Agreement. If those exceptions are not to be abused or misused, in
other words, the measures falling within the particular exceptions must be applied reasonably, with
due regard both to the legal duties of the party claiming the exception and the legal rights of the other
parties concerned.
The burden of demonstrating that a measure provisionally justified as being within one of the
exceptions set out in the individual paragraphs of Article XX does not, in its application, constitute
43This was noted in the Panel Report on United States - Imports of Certain Automotive Spring Assemblies, BISD 30S/107,
para. 56; adopted on 26 May 1983.
44EPCT/C.11/50, p. 7; quoted in Analytical Index: Guide to GATT Law and Practice, Volume I, p. 564 (1995).

abuse of such exception under the chapeau, rests on the party invoking the exception. That is, of
necessity, a heavier task than that involved in showing that an exception, such as Article XX(g),
encompasses the measure at issue.
The enterprise of applying Article XX would clearly be an unprofitable one if it involved no
more than applying the standard used in finding that the baseline establishment rules were inconsistent
with Article III:4. That would also be true if the finding were one of inconsistency with some other
substantive rule of the General Agreement. The provisions of the chapeau cannot logically refer to
the same standard(s) by which a violation of a substantive rule has been determined to have occurred.
To proceed down that path would be both to empty the chapeau of its contents and to deprive the
exceptions in paragraphs (a) to (j) of meaning. Such recourse would also confuse the question of whether
inconsistency with a substantive rule existed, with the further and separate question arising under the
chapeau of Article XX as to whether that inconsistency was nevertheless justified. One of the corollaries
of the "general rule of interpretation" in the Vienna Convention is that interpretation must give meaning
and effect to all the terms of a treaty. An interpreter is not free to adopt a reading that would result
in reducing whole clauses or paragraphs of a treaty to redundancy or inutility.45
The chapeau, it will be seen, prohibits such application of a measure at issue (otherwise falling
within the scope of Article XX(g)) as would constitute
(a) "arbitrary discrimination" (between countries where the same conditions prevail);
(b) "unjustifiable discrimination" (with the same qualifier); or
(c) "disguised restriction" on international trade.
The text of the chapeau is not without ambiguity, including one relating to the field of application
of the standards its contains: the arbitrary or unjustifiable discrimination standards and the disguised
restriction on international trade standard. It may be asked whether these standards do not have different
fields of application. Such a question was put to the United States in the course of the oral hearing.
It was asked whether the words incorporated into the first two standards "between countries where
the same conditions prevail" refer to conditions in importing and exporting countries, or only to
conditions in exporting countries. The reply of the United States was to the effect that it interpreted
45E.g., Corfu Channel Case (1949) I.C.J. Reports, p.24 (International Court of Justice); Territorial Dispute Case (Libyan
Arab Jamahiriya v. Chad) (1994) I.C.J. Reports, p. 23 (International Court of Justice); 1966 Yearbook of the International
Law Commission, Vol. II at 219; Oppenheim's International Law (9th ed., Jennings and Watts eds., 1992), Volume 1,
1280-1281; P. Dallier and A. Pellet, Droit International Public, 5è ed. (1994) para. 17.2); D. Carreau, Droit International,
(1994) para. 369.

that phrase as referring to both the exporting countries and importing countries and as between exporting
countries. It also said that the language spoke for itself, but there was no reference to third parties;
while some thought that this was only between exporting countries inter se, there is no support in the
text for that view. No such question was put to the United States concerning the field of application
of the third standard - disguised restriction on international trade. But the United States put forward
arguments designed to show that in the case under appeal, it had met all the standards set forth in the
chapeau. In doing so, it clearly proceeded on the assumption that, whatever else they might relate
to in another case, they were relevant to a case of national treatment where the Panel had found a
violation of Article III:4. At no point in the appeal was that assumption challenged by Venezuela or
Brazil. Venezuela argued that the United States had failed to meet all the standards contained in the
chapeau. So did Norway and the European Communities as third participants. In short, the field of
application of these standards was not at issue.
The assumption on which all the participants proceeded is buttressed by the fact that the chapeau
says that "nothing in this Agreement shall be construed to prevent the adoption or enforcement by any
contracting party of measures ..." The exceptions listed in Article XX thus relate to all of the obligations
under the General Agreement: the national treatment obligation and the most-favoured-nation obligation,
of course, but others as well. Effect is more easily given to the words "nothing in this Agreement",
and Article XX as a whole including its chapeau more easily integrated into the remainder of the General
Agreement, if the chapeau is taken to mean that the standards it sets forth are applicable to all of the
situations in which an allegation of a violation of a substantive obligation has been made and one of
the exceptions contained in Article XX has in turn been claimed.
Against this background, we see no need to decide the matter of the field of application of
the standards set forth in the chapeau nor to make a ruling at variance with the common understanding
of the participants.46
46We note in this connection that two previous panels had occasion to apply the chapeau. In United States - Imports
of Certain Automotive Spring Assemblies, BISD 30S/107; adopted on 26 May 1983, the panel had before it a ban on imports,
and an exclusion order of the United States' International Trade Commission, of certain automotive spring assemblies which
the Commission had found, under Section 337 of the Tariff Act of 1930, to have infringed valid United States patents. The
panel there held that the exclusion order had not been applied in a manner which would constitute a means of "arbitrary
or unjustifiable discrimination against countries where the same conditions prevail," because that order was directed against
imports of infringing assemblies "from all foreign sources, and not just from Canada." At the same time, the same order
was also examined and found not to be "a disguised restriction on international trade." Id., paras. 54-56. See also United
States - Prohibition of Imports of Tuna and Tuna Products, BISD 29S/91, para. 4.8; adopted 22 February 1982.
It may be observed that the term "countries" in the chapeau is textually unqualified; it does not say "foreign
countries", as did Article 4 of the 1927 League of Nations International Convention for the Abolition of Import and Export
Prohibitions and Restrictions, 97 L.N.T.S. 393. Neither does the chapeau say "third countries" as did, e.g., bilateral trade
(continued...)

"Arbitrary discrimination", "unjustifiable discrimination" and "disguised restriction" on
international trade may, accordingly, be read side-by-side; they impart meaning to one another. It
is clear to us that "disguised restriction" includes disguised discrimination in international trade. It
is equally clear that concealed or unannounced restriction or discrimination in international trade does
not exhaust the meaning of "disguised restriction." We consider that "disguised restriction", whatever
else it covers, may properly be read as embracing restrictions amounting to arbitrary or unjustifiable
discrimination in international trade taken under the guise of a measure formally within the terms of
an exception listed in Article XX. Put in a somewhat different manner, the kinds of considerations
pertinent in deciding whether the application of a particular measure amounts to "arbitrary or unjustifiable
discrimination", may also be taken into account in determining the presence of a "disguised restriction"
on international trade. The fundamental theme is to be found in the purpose and object of avoiding
abuse or illegitimate use of the exceptions to substantive rules available in Article XX.
There was more than one alternative course of action available to the United States in
promulgating regulations implementing the CAA. These included the imposition of statutory baselines
without differentiation as between domestic and imported gasoline. This approach, if properly
implemented, could have avoided any discrimination at all. Among the other options open to the United
States was to make available individual baselines to foreign refiners as well as domestic refiners. The
United States has put forward a series of reasons why either of these courses was not, in its view,
realistically open to it and why, instead, it had to devise and apply the baseline establishment rules
contained in the Gasoline Rule.
In explaining why individual baselines for foreign refiners had not been put in place, the United
States laid heavy stress upon the difficulties which the EPA would have had to face. These difficulties
related to anticipated administrative problems that individual baselines for foreign refiners would have
generated. This argument was made succinctly by the United States in the following terms:
Verification on foreign soil of foreign baselines, and subsequent enforcement actions,
present substantialdifficultiesrelating toproblems arising whenever a country exercises
enforcement jurisdiction over foreign persons. In addition, even if individual baselines
were established for several foreign refiners, the importer would be tempted to claim
the refinery of origin that presented the most benefits in terms of baseline restrictions,
46(...continued)
agreements negotiated by the United States under the 1934 Reciprocal Trade Agreements Act; e.g. the Trade Agreement
between the United States of America and Canada, 15 November 1935, 168 L.N.T.S. 356 (1936). These earlier treaties
are here noted, not as pertaining to the travaux preparatoires of the General Agreement, but simply to show how in comparable
treaties, a particular intent was expressed with words not found in printer's ink in the General Agreement.

and tracking the refinery or origin would be very difficult because gasoline is a fungible
commodity. The United States should not have to prove that it cannot verify information
and enforce its regulations in every instance in order to show that the same enforcement
conditions donot prevail in theUnited States and other countries ... The impracticability
of verification and enforcement of foreign refiner baselines in this instance shows that
the "discrimination" is based on serious, not arbitrary or unjustifiable, concerns
stemming from different conditions between enforcement of its laws inthe United States
and abroad.47
Thus, according to the United States, imported gasoline was relegated to the more exacting
statutory baseline requirement because of these difficulties of verification and enforcement. The United
States stated that verification and enforcement of the Gasoline Rule's requirements for imported gasoline
are "much easier when the statutory baseline is used" and that there would be a "dramatic difference"
inthe burden of administering requirements for imported gasolineif individualbaselines were allowed.48
While the anticipated difficulties concerning verification and subsequent enforcement are doubtless
real to some degree, the Panel viewed them as insufficient to justify the denial to foreign refiners of
individual baselines permitted to domestic refiners. The Panel said:
While the Panel agreed that it would be necessary under such a system to ascertain
the origin of gasoline, the Panel could not conclude that the United States had shown
that this could not be achieved by other measures reasonably available to it and
consistent or less inconsistent with the General Agreement. Indeed, the Panel noted
that a determination of origin would often be feasible. The Panel examined, for
instance, the case of a direct shipment to the United States. It considered that there
was no reason to believe that, given the usual measures available in international trade
for determination of origin and tracking of goods (including documentary evidence
and third party verification) there was any particular difficulty sufficient to warrant
the demands of the baseline establishment methods applied by the United States.49

In the view of the Panel, the United States had reasonably available to it data for, and
measures of, verification and assessment which were consistent or less inconsistent
with Article III:4. For instance, although foreign data may be formally less subject
to complete control by US authorities, this did not amount to establishing that foreign
data could not in any circumstances be sufficiently reliable to serve U.S. purposes.
This, however, was the practical effect of the application of the Gasoline Rule. In
the Panel's view, the United States had not demonstrated that data available from foreign
refiners was inherently less susceptible to established techniques of checking,
verification, assessment and enforcement than data for other trade in goods subject
47Para. 55 of the Appellant's Submission, dated 4 March 1996. The United States was in effect making the same point
when, at pages 11 and 12 of its Post-Hearing Memorandum, it argued that the conditions were not the same as between the
United States, on the one hand, and Venezuela and Brazil on the other.
48Supplementary responses by the United States to certain questions of the Appellate Body, dated 1 April 1996.
49Panel Report, para. 6.26.

to US regulation. The nature of the data in this case was similar to data relied upon
by the United States in other contexts, including, for example, under the application
of antidumping laws. In an antidumping case, only when the information was not
supplied or deemed unverifiable did the United States turn to other information. If
a similar practice were to be applied in the case of the Gasoline Rule, then importers
could, for instance, be permitted to use the individual baselines of foreign refiners for
imported gasoline from those refiners, with the statutory baseline being applied only
when the source of imported gasoline could not be determined or a baseline could not
be established because of an absence of data.50
We agree with the finding above made in the Panel Report. There are, as the Panel Report
found, established techniques for checking, verification, assessment and enforcement of data relating
to imported goods, techniques which in many contexts are accepted as adequate to permit international
trade - trade between territorial sovereigns - to go on and grow. The United States must have been
aware that for these established techniques and procedures to work, cooperative arrangements with
both foreign refiners and the foreign governments concerned would have been necessary and appropriate.
At the oral hearing, in the course of responding to an enquiry as to whether the EPA could have adapted,
for purposes of establishingindividual refinery baselinesfor foreign refiners, procedures for verification
of information found in U.S. antidumping laws, the United States said that "in the absence of refinery
cooperation and the possible absence of foreign government cooperation as well", it was unlikely that
the EPA auditors would be able to conduct the on-site audit reviews necessary to establish even the
overall quality of refineries' 1990 gasoline.51 From this statement, there arises a strong implication,
it appears to the Appellate Body, that the United States had not pursued the possibility of entering into
cooperative arrangements with the governments of Venezuela and Brazil or, if it had, not to the point
where it encountered governments that were unwilling to cooperate. The record of this case sets out
the detailed justifications put forward by the United States. But it does not reveal what, if any, efforts
had been taken by the United States to enter into appropriate procedures in cooperation with the
governments of Venezuela and Brazil so as to mitigate the administrative problems pleaded by the United
States.52 The fact that the United States Congress might have intervened, as it did later intervene, in
50Panel Report, para. 6.28.
51Supplementary responses to the United States to certain questions of the Appellate Body, dated 1 April 1996.
52While it is not for the Appellate Body to speculate where the limits of effective international cooperation are to be found,
reference may be made to a number of precedents that the United States (and other countries) have considered it prudent
to use to help overcome problems confronting enforcement agencies by virtue of the fact that the relevant law and the authority
of the enforcement of the agency does not hold sway beyond national borders. During the course of the oral hearing, attention
was drawn to the fact that in addition to the antidumping law referred to by the Panel in the passage cited above, there were
other US regulatory laws of this kind, e.g., in the field of anti-trust law, securities exchange law and tax law. There are
cooperative agreements entered into by the US and other governments to help enforce regulatory laws of the kind mentioned
and to obtain data from abroad. There are such agreements, inter alia, in the anti-trust and tax areas. There are also, within
the framework of the WTO, the Agreement on theImplementation of Article VI of GATT 1994, (the "Antidumping Agreement"),
the Agreement on Subsidies and Countervailing Measures (the "SCM Agreement") and the Agreement on Pre-Shipment Inspection,
all of which constitute recognition of the frequency and significance of international cooperation of this sort.

the process by denying funding, is beside the point: the United States, of course, carries responsibility
for actions of both the executive and legislative departments of government.
In its submissions, the United States also explained why the statutory baseline requirement
was not imposed on domestic refiners as well. Here, the United States stressed the problems that
domestic refineries would have faced had they been required to comply with the statutory baseline.
The Panel Report summarized the United States' argument in the following terms:
The United States concluded that, contrary to Venezuela's and Brazil's claim, Article XX
did not require adoption of the statutory baseline as a national standard even if the
difficulties associated with the establishment of individual baselines for importers were
insurmountable. Application of the statutory baseline to domestic producers of
reformulated and conventional gasoline in 1995 would have been physically and
financially impossible because of the magnitude of the changes required in almost all
US refineries; it thus would have caused a substantial delay in the programme.
Weighing the feasibility of policy options in economic or technical terms in order to
meet an environmental objective was a legitimate consideration, and did not, in itself,
constitute protectionism, as alleged by Venezuela and Brazil. Article XX did not require
a government to choose the most expensive possible way to regulate its environment.53
(emphasis added)
Clearly, the United States did not feel it feasible to require its domestic refiners to incur the
physical and financial costs and burdens entailed by immediate compliance with a statutory baseline.
The United States wished to give domestic refiners time to restructure their operations and adjust to
the requirements in the Gasoline Rule. This may very well have constituted sound domestic policy
from the viewpoint of the EPA and U.S. refiners. At the same time we are bound to note that, while
the United States counted the costs for its domestic refiners of statutory baselines, there is nothing
in the record to indicate that it did other than disregard that kind of consideration when it came to foreign
refiners.
We have above located two omissions on the part of the United States: to explore adequately
means, including in particular cooperation with the governments of Venezuela and Brazil, of mitigating
the administrative problems relied on as justification by the United States for rejecting individual baselines
for foreign refiners; and to count the costs for foreign refiners that would result from the imposition
of statutory baselines. In our view, these two omissions go well beyond what was necessary for the
Panel to determine that a violation of Article III:4 had occurred in the first place. The resulting
discrimination must have been foreseen, and was not merely inadvertent or unavoidable. In the light
53Panel Report, para. 3.52.

of the foregoing, our conclusion is that the baseline establishment rules in the Gasoline Rule, in their
application, constitute"unjustifiable discrimination" anda "disguised restriction oninternational trade."
We hold, in sum, that the baseline establishment rules, although within the terms of Article XX(g),
are not entitled to the justifying protection afforded by Article XX as a whole.
V. FINDINGS AND CONCLUSIONS
For the reasons set out in the preceding sections of this report, the Appellate Body has reached
the following conclusions:
(a) the Panel erred in law in its conclusion that the baseline establishment rules contained
in Part 80 of Title 40 of the Code of Federal Regulations did not fall within the terms
of Article XX(g) of the General Agreement;
(b) the Panel accordingly also erred in law in failing to decide whether the baseline
establishment rules contained in Part 80 of Title 40 of the Code of Federal Regulations
fell within the ambit of the chapeau of Article XX of the General Agreement;
(c) the baseline establishment rules contained in Part 80 of Title 40 of the Code of Federal
Regulations fail to meet the requirements of the chapeau of Article XX of the General
Agreement, and accordingly are not justified under Article XX of the General
Agreement.
The foregoing legal conclusions modify the conclusions of the Panel as set out in paragraph 8.1
of its Report. The Appellate Body's conclusions leave intact the conclusions of the Panel that were
not the subject of appeal.
The Appellate Body recommends that the Dispute Settlement Body request the United States
to bring the baseline establishment rules contained in Part 80 of Title 40 of the Code of Federal
Regulations into conformity with its obligations under the General Agreement.
It is of some importance that the Appellate Body point out what this does not mean. It does
not mean, or imply, that the ability of any WTO Member to take measures to control air pollution
or, more generally, to protect the environment, is at issue. That would be to ignore the fact that

Article XX of the General Agreement contains provisions designed to permit important state interests -
including the protection of human health, as well as the conservation of exhaustible natural resources -
to find expression. The provisions of Article XX were not changed as a result of the Uruguay Round
of Multilateral Trade Negotiations. Indeed, in the preamble to the WTO Agreement and in the Decision
on Trade and Environment,54 there is specific acknowledgement to be found about the importance of
coordinating policies on trade and the environment. WTO Members have a large measure of autonomy
to determine their own policies on the environment (including its relationship with trade), their
environmental objectivesand theenvironmental legislationthey enact and implement. So far as concerns
the WTO, that autonomy is circumscribed only by the need to respect the requirements of the General
Agreement and the other covered agreements.
Signed in the original at Geneva this 22nd day of April 1996 by:
Florentino P. Feliciano
Presiding Member
___________________________ _______________________________
Christopher Beeby Mitsuo Matsushita
Member Member
54Adopted by Ministers at the Meeting of the Trade Negotiations Committee in Marrakesh on 14 April 1994.

WORLD TRADE WT/DS2/R
29 January 1996
ORGANIZATION (96-0326)

Report of the Panel
ii
C. Agreement on Technical Barriers to Trade . . . . . . . . . . . . . . . . . . 25
1. Article 2 - Preparation, Adoption and Application of Technical
Regulations by Central Government Bodies . . . . . . . . . . . . . 25
a) Whether or Not the Gasoline Rule is a Technical
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
b) Article 2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
c) Article 2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2. Article 12 - Special and Differential Treatment of Developing
Country Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
IV. SUBMISSIONS BY INTERESTED THIRD PARTIES . . . . . . . . . . . . . . . 28
A. The European Communities . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
B. Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
V. INTERIM REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
VI. FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
B. Article III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
1. Article III:4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2. Article III:1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
C. Article I:1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
D. Article XX(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1. Policy goal of protecting human, animal or plant life or health 38
2. Necessity of the inconsistent measure . . . . . . . . . . . . . . . . . 39
E. Article XX(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
1. Securing compliance with consistent laws or regulations . . . . . 43
2. Other conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
F. Article XX(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
1. Policy goal of conserving an exhaustible natural resource . . . . 44
iii
2. Measure "related to" the conservation of an exhaustible natural
resource; and made effective "in conjunction" with restrictions
on domestic production or consumption . . . . . . . . . . . . . . . . 45
G. Article XXIII:1(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
H. Applicability of the Agreement on Technical Barriers to Trade . . . . 46
VII. CONCLUDING REMARKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
VIII. CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
I. INTRODUCTION
1.1 On 23 January 1995, the United States received a request from Venezuela to hold
consultations under Article XXII:1 of the General Agreement on Tariffs and Trade 1994 ("General
Agreement"), Article 14.1 of the Agreement on Technical Barriers to Trade ("TBT Agreement")
and Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes
("DSU"), on the rule issued by the Environmental Protection Agency on 15 December 1993,
entitled "Regulation of Fuels and Fuel Additives - Standards for Reformulated and Conventional
Gasoline" (WT/DS2/1). The consultations between Venezuela and the United States took place on
24 February 1995. As they did not result in a satisfactory solution of the matter, Venezuela, in a
communication dated 25 March 1995, requested the Dispute Settlement Body ("DSB") to establish
a panel to examine the matter under Article XXIII:2 of the General Agreement and Article 6 of
the DSU (WT/DS2/2). On 10 April 1995, the DSB established a panel in accordance with the
request made by Venezuela. On 28 April 1995, the parties to the dispute agreed that the Panel
should have standard terms of reference (DSU, Art. 7) and agreed on the composition of the Panel
as follows:
Chairman: Mr. Joseph Wong
Members: Mr. Crawford Falconer
Mr. Kim Luotonen
1.2 On 10 April 1995, Brazil requested the United States to hold consultations under
Article XXII:1 of the General Agreement, Article 14.1 of the TBT Agreement and Article 4 of the
DSU on the rule issued by the Environmental Protection Agency on 15 December 1993 entitled
"Regulation on Fuels and Fuel Additives - Standards for Reformulated and Conventional
Gasoline" (WT/DS4/1). Consultations between Brazil and the United States were held on
1 May 1995 without resulting in a satisfactory solution of the matter. In a communication dated
19 May 1995, Brazil requested the DSB to establish a panel to examine the matter pursuant to
Article XXIII of the General Agreement, Article 14 of the Agreement on Technical Barriers to
Trade and Article 6 of the DSU. On 31 May 1995, the DSB established a Panel in accordance
with the request made by Brazil.
1.3 On 31 May 1995, pursuant to Article 9 of the DSU in respect of multiple complainants,
the DSB decided, with the agreement of all the parties, that for practical reasons this matter be
examined by the Panel already established at the request of Venezuela on 10 April 1995. The
date of the constitution of the Panel, namely 28 April 1995, remained unchanged.
1.4 Due to the additional task given to the Panel, the DSB agreed upon, at the same meeting,
the following terms of reference:
"To examine, in the light of the relevant provisions of the covered agreements cited by
Venezuela in document WT/DS2/2 and by Brazil in document WT/DS4/2, the matters
referred to the DSB by Venezuela and Brazil in those documents and to make such
findings as will assist the DSB in making the recommendations or in giving the rulings
provided for in those agreements".
1.5 The Chairman of the DSB recalled Article 9.2 of the DSU which provides that "the rights
which the parties to the dispute would have enjoyed had separate panels examined the complaints
are in no way impaired".
1.6 Australia, Canada, the European Communities and Norway reserved their rights to
participate in the Panel proceedings as third parties. Only the European Communities and
Norway presented arguments to the Panel.

1.7 The Panel met with the parties to the dispute from 10 to 12 July 1995 and from 13 to
15 September 1995. It met with the interested third parties on 11 July 1995.
1.8 On 21 September 1995, the Chairman of the Panel informed the DSB that the Panel would
not be able to issue its report within six months. The reasons for that delay are stated in
document WT/DS2/5.
1..9 The Panel issued its interim report to the parties on 11 December 1995. Following a
request made by the United States pursuant to Article 15.2 of the DSU, the Panel held a further
meeting with the parties on 3 January 1996.
1.10 The Panel issued its final report to the parties to the dispute on 17 January 1996.
II. FACTUAL ASPECTS
A. The Clean Air Act
2.1 The Clean Air Act ("CAA"), originally enacted in 1963, aims at preventing and
controlling air pollution in the United States. In a 1990 amendment to the CAA1, Congress
directed the Environmental Protection Agency ("EPA") to promulgate new regulations on the
composition and emissions effects of gasoline in order to improve air quality in the most polluted
areas of the country by reducing vehicle emissions of toxic air pollutants and ozone-forming
volatile organic compounds. These new regulations apply to US refiners, blenders and importers.
2.2 Section 211(k) of the CAA divides the market for sale of gasoline in the United States into
two parts. The first part, which covers approximately 30 percent of gasoline marketed in the
United States, consists of the nine large metropolitan areas that experienced the worst summertime
ozone pollution during the period 1987-1989, plus any areas that do not meet national ozone
requirements and are added at the request of the governor of the state. These areas are referred to
as ozone "nonattainment areas", and in this part of the United States only "reformulated gasoline"
may be sold to consumers. In the rest of the United States, "conventional gasoline" may be sold
to consumers.
2.3 Section 211(k)(2)-(3) of the CAA established certain compositional and performance
specifications for reformulated gasoline. The oxygen content must not be less than 2.0 percent by
weight, the benzene content must not exceed 1.0 percent by volume and the gasoline must be free
of heavy metals, including lead or manganese. The performance specifications of the CAA
require a 15 percent reduction in the emissions of both volatile organic compounds ("VOCs") and
toxic air pollutants ("toxics") and no increase in emissions of nitrogen oxides ("NOx"). These
requirements are measured by comparing the performance of reformulated gasoline in baseline
vehicles (representative model year 1990 vehicles) against the performance of "baseline gasoline"
in such vehicles. Section 211(k)(10) of the CAA defines the specifications of baseline gasoline
sold in the summer, which is the high ozone season, and leaves the specifications of winter
baseline gasoline to be determined by EPA. It provides, however, that the specifications for
winter gasoline shall be those of the industry average gasoline sold in 1990. For the year 2000
and beyond, the CAA requires that new reformulated gasoline requirements be developed that
require a 20-25 percent reduction in emissions of VOCs and toxics, depending on EPA's
considerations of feasibility and cost.
142 U.S.C. §7545(k).

2.4 The CAA also sets requirements for conventional gasoline, which ensure that each
refiner's, blender's or importer's conventional gasoline sold in the rest of the country remains as
clean as it was in 1990. This programme is known as "anti-dumping rules" because it is designed
to prevent refiners, blenders or importers from dumping into conventional gasoline fuel
components that are restricted in reformulated gasoline and that cause environmentally harmful
emissions. To accomplish this, section 211(k)(8) of the CAA provides that no refiner, blender or
importer of gasoline may sell conventional gasoline that emits VOCs, toxics, NOx or carbon
monoxide ("pollutants") in greater amounts than the gasoline sold in the United States by that
refiner, blender or importer in 1990. In order to implement this provision, separate individual
baselines must be established for refiners, blenders or importers based on the gasoline they sold in
1990. That permits determination of whether the emissions from a refiner's, blender's and
importer's conventional gasoline (post-1994 gasoline) are greater than the emissions from its 1990
gasoline. If, however, EPA determines that no adequate and reliable data exist regarding the
composition of such 1990 gasoline sold by a refiner, blender or importer, the statutory baseline
gasoline is applied. The statutory annual baseline values are calculated using a seasonal weighting
of the statutory summer baseline, as defined in the CAA, and the statutory winter baseline, as
determined by EPA.
B. EPA's Gasoline Rule
1. Establishment of Baselines
2.5 The CAA directed EPA to determine the quality of 1990 gasoline, to which reformulated
and conventional gasoline would be compared in the future: these determinations are known as
"baselines". EPA set historic baselines for individual entities, and established a statutory baseline,
intended to reflect average US 1990 gasoline quality, which would be used instead of the historic
individual baselines for those entities who were determined to be lacking adequate and reliable
data regarding the quality of the gasoline they produced in 1990.
2.6 EPA's final rule2 ("Gasoline Rule") requires any domestic refiner, which was in operation
for at least 6 months in 1990, to establish an individual refinery baseline, which represents the
quality of gasoline produced by that refiner in 1990. The rule establishes three methods for the
purpose of determining a domestic refiner's individual historic baseline. Under Method 1, the
refiner must use the quality data and volume records of its 1990 gasoline. However, as
acknowledged by EPA at the time, it was not anticipated that many domestic refiners would have
all the data necessary to establish an individual baseline based entirely on actual 1990 data. If
Method 1 type data are not available, a domestic refiner must use its 1990 gasoline blendstock
quality data and 1990 blendstock production records (Method 2). In the event that neither one of
these two methods is available, a domestic refiner must turn to Method 3 type data which consist
of its post-1990 gasoline blendstock and/or gasoline quality data modeled in light of refinery
changes to show 1990 gasoline composition. Domestic refiners are not permitted to choose the
statutory baseline.
2.7 An importer which is also a foreign refiner must determine its individual baseline using
Methods 1, 2 and 3 if it imported at least 75 percent, by volume, of the gasoline produced at its
foreign refinery in 1990 into the United States in 1990 (the so-called "75 % rule")3.
240 CFR 80, 59-Fed. Reg. 7716 (16 February 1994).
340 CFR 80.91(b)(ii).

2.8 Certain entities are, however, automatically assigned to the statutory baseline. Firstly,
refineries which began operation after 1990 or were in operation for less than 6 months in 1990
are required to use the statutory baseline. Secondly, importers and blenders are assigned the
statutory baseline unless they can establish their individual baseline following Method 1. If actual
1990 data are not available, which is, as for domestic refiners, anticipated by EPA, importers and
blenders are assigned to the statutory baseline. EPA considers that blenders which produce
gasoline by combining gasoline blendstocks purchased from many sources cannot determine with
accuracy the quality of their 1990 gasoline using Methods 2 and 3. Similarly, EPA considers that
importers cannot use Methods 2 and 3, because these methods inherently apply only to refineries
and because of the extreme difficulty in establishing the consistency of their gasoline quality over
time.
2. Reformulated Gasoline
2.9 Regarding the implementation of the regulations for reformulated gasoline, EPA proposes
a two-step approach. From 1 January 1995 to 1 January 1998, EPA enforces an interim
programme called the "Simple Model". Under this programme, reformulated gasoline sold in the
United States by domestic refiners will be subject to requirements established with reference to the
individual baseline for certain gasoline qualities and requirements specified in the Gasoline Rule
for other gasoline qualities. More specifically, the parameters sulphur, olefins and T-90 are
measured against each US refiner's individual 1990 baseline and must be maintained at or below
these 1990 levels (these are called "non-degradation requirements"). The requirements regarding
four other gasoline qualities (Reid Vapour Pressure, oxygen, benzene and toxics performance) are
specified by EPA in the Gasoline Rule4. Importers of foreign gasoline also have to comply with
the requirements set out in the final rule regarding Reid Vapour Pressure, oxygen, benzene and
toxics performance. However, importers cannot use individual 1990 baseline for sulphur, olefins
and T-90, but have to comply with levels specified in the statutory baseline for these parameters.
Under the Simple Model, requirements for sulphur, olefins and T-90 must be met on an annual
average basis. EPA adopted the individual baseline approach for these parameters in the Simple
Model because at the time it was formulating its regulation, it considered that the available data
regarding sulphur, olefins and T-90 did not permit an assessment of the precise effects of these
components on the emissions level of gasoline. Given this uncertainty, EPA did not want to
require refiners immediately to make refinery changes which might later prove to be unnecessary,
given the greater flexibility provided by the Complex Model.
2.10 As of 1 January 1998, EPA will enforce the "Complex Model", which will apply the
same emissions reduction requirements to all producers of reformulated gasoline. The individual
baselines for sulphur, olefins and T-90 will no longer apply.
3. Conventional Gasoline (or "Anti-Dumping Rules")
2.11 The 1990 Amendment to the CAA requires that, as of 1 January 1995, each refiner's,
blender's or importer's conventional gasoline sold in the United States be no more polluting than
the gasoline sold by that refiner, blender or importer in 19905. EPA requires domestic refiners to
measure non-degradation requirements for conventional gasoline against their individual baselines
while importers of foreign gasoline are assigned to the statutory baseline. However, in this
programme, the non-degradation requirements apply to all conventional gasoline requirements,
and not only to sulphur, olefins and T-90. Requirements must be met on an average annual basis.
440 CFR 80.41.
542 U.S.C. § 7545 (CAA 211(k)(8)).

The Gasoline Rule limits ("caps") the volume of conventional gasoline that is subject to an
individual baseline to the volume of gasoline produced in 1990 by that entity; all conventional
gasoline produced in excess of the specific volume cap is measured against the statutory baseline.
2.12 Domestic refiners and importers of conventional gasoline, unlike those of reformulated
gasoline, will still be subject to different baselines after the entry into force of the Complex Model
in 1998.
C. The May 1994 Proposal
2.13 In view of the comments made by interested parties during the rulemaking process of the
final Gasoline Rule, EPA proposed, in May 1994, to amend the reformulated gasoline regulation
in order to define criteria and procedures by which foreign refiners could establish individual
refinery baselines in a manner similar to that required for domestic refiners6. Pursuant to this
proposal, foreign refiners would be allowed to establish an individual baseline using Methods 1, 2
or 3. If the individual baseline was approved by EPA, importers could use it for the purpose of
certifying the portion of reformulated gasoline imported from that particular refinery into the
United States. However, the use of individual foreign refinery baselines would be subject to
various additional strict requirements, aiming at ensuring the accuracy and respect of the foreign
refinery's individual baseline with respect to gasoline shipped to the United States and verifying
the refinery of origin. Furthermore, it would not apply to conventional gasoline. After a public
comment period, the US Congress enacted legislation in September 1994 denying funding to EPA
for implementation of the May 1994 Proposal.
III. MAIN ARGUMENTS
A. General
3.1 Venezuela and Brazil requested the Panel to find that the final rule promulgated by the
United States' Environmental Protection Agency ("EPA") on 15 December 1993 and entitled
"Fuels and Fuel Additives - Standards for Reformulated and Conventional Gasoline" ("Gasoline
Rule") was:
(a) contrary to Articles I and III of GATT 1994;
(b) not covered by any of the exceptions under Article XX of GATT 1994;
(c) contrary to Article 2 of the Agreement on Technical Barriers to Trade.
3.2 Venezuela additionally requested the Panel to find that the Gasoline Rule nullified and
impaired benefits accruing to Venezuela under the General Agreement within the meaning of
Article XXIII:1(b).
3.3 Accordingly, Venezuela and Brazil asked the Panel to recommend that the United States
take all necessary steps to bring the Gasoline Rule into conformity with its obligations under the
General Agreement and the TBT Agreement. Venezuela requested the Panel to recommend that
the United States amend the Gasoline Rule to provide treatment for gasoline imports no less
favourable than that accorded to US produced gasoline.
3.4 The United States requested the Panel to find that the Gasoline Rule was:
640 CFR 80 (59 Fed. Reg. 22800, 3 May 1994).

(a) consistent with Articles I and III of the General Agreement 1994;
(b) falling within the scope of Article XX (b), (d), and (g) of GATT 1994;
(c) consistent with the Agreement on Technical Barriers to Trade.
B. The General Agreement on Tariffs and Trade
1. Article I - General Most-Favoured-Nation Treatment
3.5 Venezuela and Brazil argued that the rule allowing an importer which was also a foreign
refiner to establish its individual baseline, provided that it imported into the United States at least
75 percent of the gasoline produced at that refinery in 1990 ("75 % rule"), granted an advantage
to gasoline exported from certain third countries in violation of Article I of the General
Agreement.
3.6 Venezuela argued that the 75 % rule applied only to a fixed, finite and easily determinable
group of countries, determined only by historical facts. Hence, no importer or foreign refiner
could take any action that would alter its ability to benefit from this rule. According to
information submitted to Venezuela by the United States, refineries based in Canada only were
likely to meet the criteria. A previous panel report had found that the European Community's
meat quality regulations requiring certification of imported beef by the US Department of
Agriculture were inconsistent with Article I of the General Agreement because "[E]xports of like
products of other origin than that of the United States were in effect denied access to the EEC
market considering that the only certifying agency authorized to certify the meat ... was a United
States agency mandated to certify only meat from the United States"7. As a matter of fact, only
certain countries could benefit from this provision. This was, accordingly, a breach of Article I.
3.7 Brazil submitted that the two criteria contained in the 75 % rule, i.e. the owner
relationship between the importer and the foreign refiner and the percentage of gasoline it
imported into the United States, were not neutral but had been chosen so as to suit a particular
category of countries and therefore constituted an "advantage" within the meaning of Article I.
These criteria had no link with the characteristics of gasoline as a product. Thus, the 75 % rule
applied a different and more favourable standard to imports from some foreign refineries than it
applied to imports from refineries in other countries.
3.8 The United States replied that the 75 % rule did not provide an "advantage" to the
products of any particular country. The 75 % rule would have applied to any importer that could
meet its two objective criteria, regardless of the country of origin of the gasoline. The
United States specified that the 75 % requirement represented the minimally acceptable value to
ensure that the importer's individual baseline determined under Methods 1, 2 and 3 would be
accurate. (In fact, most foreign refiners were unlikely to export more than 30 % of their
gasoline). Secondly, the criterion requiring that the importer and foreign refiner be the same entity
eliminated the enforcement concerns arising in relation with the establishment of an individual
baseline for a foreign refiner. The United States considered that Venezuela's invocation of the
panel report "European Economic Community - Imports of Beef From Canada" was inapposite
because, in that dispute, the EC regulation at issue expressly listed the US Department of
Agriculture (USDA) as the only certifying authority for the meat in question, and USDA was only
authorized to certify US meat. In that case, the certifying process itself guaranteed that only US
beef would be certified, thereby expressly favouring US beef over that of all other countries. In
contrast, the 75 % rule expressly requires any importer that meets its objective criteria to establish
7"European Economic Community - Imports of Beef From Canada", BISD 28S/92 (adopted on 10 March 1981), paragraph 4.2(a).

an individual baseline for its gasoline. The United States also noted that the regulatory deadline
for individual baseline applications under the 75 % rule had elapsed without any company meeting
the criteria. The 75 % rule had no application and could therefore not be inconsistent with any
provisions of the General Agreement.
3.9 Venezuela considered that the United States interpreted too narrowly the panel report
"EEC - Imports of Beef From Canada" when saying that the favoured country must be expressly
identified in order for the regulation to violate Article I. A rule violated Article I when it
stipulated, like the 75 % rule, that the products of only some countries could qualify.
3.10 Venezuela and Brazil considered that the fact that the 75 % rule had no application should
not prevent the Panel from ruling on it. Venezuela considered that the mere existence of such a
regulation might have inhibiting effects on commercial and investment decisions. Thus, the
possibility of its future application was sufficient to establish an Article I violation. Brazil added
that a clear ruling on the 75 % rule was necessary because it would dissuade countries from
designing future standards that, being neutral at first sight, were in fact designed to fit only the
precise situation of their own multinationals, thus threatening the integrity of Article I.
2. Article III - National Treatment on Internal Taxation and Regulation
a) Article III:4
3.11 Venezuela and Brazil stressed that they were not questioning the right of the United States
to enact stringent environmental standards and regulations in order to improve air quality within
the US territory provided these standards and regulations treated imported products no less
favourably than domestic like products.
3.12 Venezuela and Brazil argued that the Gasoline Rule, by denying foreign refiners the
possibility to establish an individual baseline, violated Article III:4 because it accorded less
favourable treatment to imported gasoline, both reformulated and conventional, than to US
gasoline. The Gasoline Rule required imported gasoline to conform with the more stringent
statutory baseline when US gasoline had to comply only with a US refiner's individual baseline.
Practically, this meant that imported gasoline with certain parameter levels above the statutory
baseline could not be directly sold in the US market whereas gasoline with these same qualities
produced in a US refinery could be freely sold on the US market provided that it conformed with
that refiner's individual baseline. In order to accommodate this situation, foreign refiners had two
options: (i) make expensive investments and changes to their refineries in order to produce
gasoline conforming to the more stringent statutory baseline, or (ii) supply at a lower price
gasoline to an importer that could average that gasoline with other gasolines (if such other
gasolines exist in sufficient amount) in order to meet, over an annual period, the requirements of
the statutory baseline. Both options adversely affected the conditions of competition for imported
gasoline and afforded protection to domestic production in a manner contrary to Article III.
Furthermore, these adverse competitive effects were precisely what EPA intended to avoid for US
refiners by granting them individual baselines. Brazil added that it was up to the United States to
demonstrate that its discriminatory system did not treat imports less favourably.
3.13 Venezuela and Brazil held that officials from the US government had acknowledged on
various occasions that the Gasoline Rule discriminated against imported gasoline and accorded
more favourable treatment to domestically produced gasoline. Venezuela added that another US
government official had publicly stated that such discrimination was intentionally endorsed as a
means of affording protection to US gasoline. These statements showed that the Gasoline Rule
discriminated both in effect and in intent against foreign refiners. Venezuela and Brazil further

argued that EPA's 1994 proposed amendments to the Gasoline Rule ("1994 Proposal")
acknowledged that the discriminatory treatment of imported gasoline was inconsistent with the
United States' obligations under the General Agreement. Venezuela and Brazil argued that the
1994 Proposal would have partly eliminated the discrimination by providing for the establishment
of individual baselines by foreign refiners of reformulated gasoline; however, the discriminatory
treatment of conventional gasoline would have continued.
3.14 Venezuela noted that "Petroleos de Venezuela, S.A." ("PDVSA") had already made costly
adjustments to its production in order to meet the statutory baseline requirements and had
accelerated its programme of investments with a view to complying with the Complex Model
requirements. These adjustments had reduced the volume and value of Venezuela's current and
anticipated gasoline exports to the United States below the levels that would have prevailed if
PDVSA were allowed to establish its individual baseline. These adjustments interfered with
PDVSA's investment programme, obliging it to focus on production for the US gasoline market
and adversely affecting other important investment projects.
3.15 Brazil stated in addition that application of the statutory baseline to foreign refiners and
domestic importers was discriminatory in several respects. First, the flexibility given to domestic
refiners in establishing individual baselines had the effect that many of them were allowed
emissions levels higher than those permitted by the statutory baseline. Secondly, the statutory
baseline was more stringent than the average of the individual baselines for refineries located in
the Eastern and Gulf Coast states (where virtually all Brazilian gasoline was sold) because of the
inclusion in the national average of the strict 1990 Californian standards. The Gasoline Rule also
favoured imports by domestic refiners over imports by importers who were not domestic refiners.
Domestic refiners whose current production was "cleaner" than their individual baseline could
import gasoline with parameter levels above the statutory baseline, could blend it with their own
cleaner production and sell it on the US market as long as the mixture conformed with their
individual baseline. Importers who were not domestic refiners had to conform to the statutory
baseline in all instances. Thus, the Gasoline Rule affected the distribution of gasoline in the
United States by channelling imports to domestic refiners who had an incentive to take advantage
of their privileged position by demanding lower prices from foreign refiners.
3.16 Brazil stated that the same gasoline that it used to export to the United States market as
"finished" gasoline was, since the entry into force of the Gasoline Rule, considered only as
"blendstock8", which was sold at a lower price. Thus, Brazil had not been able to export
"finished" conventional gasoline to the US market since 1 January 1995. Brazilian refiners were
not currently producing reformulated gasoline .
3.17 The United States replied that the Gasoline Rule did not treat imported gasoline less
favourably than domestic gasoline overall. The environmental goal of the Gasoline Rule was to
regulate the overall quality of the gasoline sold in the United States. Each importer had to satisfy
on average the statutory baseline, which approximated average gasoline quality consumed in the
US in 1990, and domestic refiners had to satisfy on average their 1990 individual baselines, which
overall roughly represented 1990 US gasoline quality. Hence, overall domestically produced
gasoline had to be at least as clean as foreign gasoline since roughly half of domestic gasoline
would be "cleaner" and roughly half would be dirtier than gasoline using the statutory baseline.
The United States supplied the Panel with data documenting the number of domestic refiners with
baseline values both above and below the statutory baseline for specific parameters and emissions
levels upon which compliance with the non-degradation requirements was based. This analysis
8Blendstock is unfinished gasoline which has to be blended in order to be sold as finished gasoline.

showed that five domestic refineries had individual baselines that were below the annual statutory
baseline for all fuel parameters and emissions levels, and three domestic refiners had individual
baselines that were above the annual statutory baseline for all fuel parameters and emissions
levels. Thus, most refiners had individual baselines with several parameters above the
corresponding statutory values and several below. The United States considered that a previous
panel report had recognized that "there may be cases where application of formally identical legal
provisions would in practice accord less favourable treatment to imported products and a
contracting party might thus have to apply different legal provisions to imported products to
ensure that the treatment accorded them is in fact no less favourable"9. Since the majority of
importers did not have the necessary data to use Methods 1, 2, or 3, they would be precluded
from supplying the US market as they would be unable to establish an individual baseline. In
fact, the Gasoline Rule granted more favourable treatment to imports since identical treatment
would have in practice excluded imported gasoline from the US market.
3.18 The United States argued that the Gasoline Rule applied to imported gasoline and not to
foreign refiners producing gasoline. Moreover, foreign refiners were not required to produce
gasoline that met any baseline at all, but could produce gasoline which was cleaner or dirtier than
the statutory baseline. The baseline establishment rule focused on the importer of foreign gasoline
because the United States was not attempting to regulate the conduct of foreign companies or
those of other overseas entities; the importer was the first entity, within US territory, that had
control over the quality of gasoline imported into the United States. Thus, foreign refiners were
subject only to the independent purchasing decisions of US importers who had to balance the
products of one or more foreign refiners with that of another in order to comply with the statutory
baseline. The fact that no single batch of gasoline would be deemed as non-complying provided
additional flexibility to both importers and foreign refiners. Moreover, the complainants' focus on
equal treatment of individual foreign refiners was misplaced since the General Agreement applied
to the imported product and not to the producer.
3.19 The United States argued that gasoline from importers was treated similarly to gasoline
from similarly situated domestic parties. For instance, imported gasoline was treated identically to
gasoline produced by domestic refiners with limited 1990 operations or to gasoline produced by
US blenders whose business entailed a lack of consistency of sources and quality of the gasoline
produced. These producers had in common with the importers the inability to establish an
accurate individual baseline because their business characteristics or history were such that they
could not determine the quality of their gasoline as required by Methods 2 and 3. Although
theoretically, the 1990 gasoline quality of an importer might be established by first determining
the refineries of origin for all of the gasoline imported by that importer in 1990, and then
obtaining accurate and verifiable information on the quality of that subset of 1990 gasoline
produced at the refinery and exported to the particular US importer, the United States expected
that only a very limited number of importers would be able to establish an individual baseline
using such a procedure. In addition, there were significant problems associated with establishing
the 1990 gasoline quality of foreign refiners: tracking the refinery of origin of the imported
gasoline, establishing the quality of the small subset of gasoline shipped to the United States and
lack of adequate enforcement capacity. According to the United States, these factors made it very
difficult to verify the accuracy or reliability of claims regarding a foreign refiner's 1990 gasoline
quality for that purpose. On the other hand, gasoline produced by domestic refiners was made
from crude oil whose quality could easily be documented, as were the characteristics of the
physical plant and operational procedures. Thus, the quality of the gasoline produced at such a
domestic refinery could be accurately assessed. The United States further argued that imported
9"United States - Section 337 of the Tariff Act of 1930", BISD 36S/345 (adopted on 7 November 1989).

gasoline and domestically produced gasoline were in the same position with regard to the
flexibility for complying with their respective baselines. As various qualities of gasoline were
available in the market, some above and some below the statutory baseline, an importer had
complete flexibility to select gasoline from different sources and mix them in order to reach the
annual average quality required by the statutory baseline. By contrast, a domestic refiner was
constrained by its refinery equipment and crude oil supplies.
3.20 The United States considered that Venezuela was incorrect in its claim that the US
government official's statement demonstrated that the Gasoline Rule had a protectionist purpose.
The statement in question actually reflected the US government's commitment when it issued the
final Gasoline Rule to continue addressing the issue of how imports were treated, and the US
government's ongoing concern that environmental protection not be compromised. This statement
also showed that the government official's objective was adoption of the best environmental
provision that was fair to all parties concerned. The United States equally rejected Venezuela and
Brazil's argument that the 1994 Proposal implied recognition that the Gasoline Rule discriminated
against imports. The 1994 Proposal was a continuation of EPA's prior attempts to develop
criteria that would protect the environment, minimize disruption to producers, and treat similarly
situated parties alike. The fact that EPA was willing to make this attempt was neither a
determination that the Gasoline Rule was flawed nor a determination that the 1994 Proposal was
feasible. This proposal received largely negative public comment and was rejected in the end,
including by Venezuela. PDVSA itself had objected that the proposed conditions related to
gasoline tracking were basically unworkable.
3.21 The United States disagreed with Venezuela's claim about decreased imports. Data from
the US Energy Information Administration showed that current import volumes had not
significantly decreased from historical levels. Furthermore, import volume and domestic
production fluctuated greatly depending on market conditions, irrespective of US regulatory
action. More specifically, Venezuela's share of the US import market rose from 11.5 to
18.5 percent in the first five months of 1995 compared to the same period in 1994. Regarding the
claim by Venezuela that the Gasoline Rule had obliged its refineries to make burdensome
investments, the United States noted that it was impossible to judge to what extent PDVSA's
investments were made in reaction to regulations, such as the Gasoline Rule, in force in any
particular export market. If, however, PDVSA's investments were related to the Gasoline Rule,
they were more likely due to the need to comply with the Complex Model starting in 1998 than to
the 1995-1998 non-degradation requirements' programme. With respect to compliance with the
Simple Model requirements, the United States considered that PDVSA could upgrade the portion
of its gasoline output sent to the United States by simply adding to it additives such as oxygenates.
In addition, the amount of complying gasoline that could be produced, or the cost of producing it,
was highly dependent on the fraction of gasoline made to meet a particular specification. While a
domestic refiner had to produce all its gasoline output within certain limits, foreign refiners
typically produced only a small fraction of their gasoline output for the US market. Thus foreign
refiners also had the flexibility to select their cleanest blendstocks for the US market. Such
approaches did not require refinery modifications. There was no reason that Brazil could not
adjust in the same manner to the Simple Model requirements. The United States also noted that
reported internal turmoil in Brazil's refining sector, a month-long strike beginning in November
1994, and apparently recurring labour problems this year suggested that Brazil's decreased exports
to the United States could hardly be attributed to US regulations.
3.22 Venezuela agreed with the United States that Article III applied to imported gasoline and
not to the foreign refiners. The Gasoline Rule discriminated against imported gasoline by
applying the statutory baseline to such gasoline while applying individual baselines to US gasoline.

The United States wrongly introduced the concept of "similarly situated parties" as a basis for
arguing that imported gasoline and US produced gasoline were not "like product". Imported and
domestic gasolines had the same tariff classification, served the same end use and the same end
users and were indistinguishable from the commercial standpoint; thus, all gasoline was a like
product. The concept "similarly situated parties" was new to GATT and lacked a legal basis.
Moreover, Venezuela considered that these parties were not "similarly situated". Importers, who
obtained finished gasoline for distribution to other wholesalers or retailers were not "similarly
situated" to blenders, who produced gasoline by mixing gasoline components produced by others.
It was more appropriate to compare them to "jobbers" who obtained finished gasoline for
distribution to other wholesalers or retailers and who used the individual baselines associated with
the gasoline they acquired. Foreign refiners were "similarly situated parties" with respect to US
refiners in that the reasons given by the United States as to why US refiners can establish their
own baselines apply equally to foreign refiners.
3.23 Venezuela argued that the United States did not deny the existence of differential treatment
for imported gasoline. Thus, it had to assume the burden of proving that such treatment was no
less favourable to the imported product. According to past panel reports, the test was not whether
the rules were different but whether such differences accorded no less favourable treatment to
imported products. Venezuela considered that such a demonstration had not been made.
Venezuela disagreed with the interpretation given by the United States to the panel report
"United States - Section 337 of the Tariff Act of 1930" and considered that panels interpreted the
words "treatment no less favourable" contained in Article III:4 as calling for effective equality of
opportunities for imported products. The United States' assertion that it was "incumbent upon
the importer to balance the products of one or more foreign refiners with that of another" was
contrary to that established understanding of Article III:4. No such equality could exist if the
very ability of a producer/exporter to introduce his product into the importer's market depended
on the subsequent decisions of the importer to buy additional product produced and exported by
another person. The opportunity to import a like product could not be conditional upon the
importer's willingness to run a risk of not finding below-statutory baseline gasoline in order to
average it with above-statutory baseline gasoline. Venezuela considered that the reasoning of two
previous panel reports10 regarding the loss of competitive opportunities for imported products was
applicable to this case and led to the conclusion that imported gasoline should have the same
distribution opportunities available to US produced gasoline, including the ability to be sold
directly into commerce with the application of an individual baseline.
3.24 Venezuela considered that the issue at stake was not averaging, a technique which was
also available to domestic refiners, but the difference between the requirements imposed on
imported gasoline and the requirements imposed on US gasoline. In order to regulate the average
quality of gasoline in the United States, the Gasoline Rule regulated every batch of gasoline
produced in or imported into the US. The fact that the very same gasoline with identical
characteristics would be treated differently under the Rule if produced by a US refiner as opposed
to a foreign refiner was precisely the "less favourable treatment" prohibited under Article III:4.
3.25 Venezuela rejected the United States' assertion that a foreign refiner that produced
gasoline in 1990 with properties of sulphur, olefins and T-90 above the statutory baseline only had
to mix "additives such as oxygenates" to upgrade its gasoline; in fact, the very composition of the
foreign gasoline had to change. Venezuela denied the United States' claim that Venezuela had
rejected the 1994 Proposal. Venezuela had simply explained why some means by which the EPA
10"United States - Measures Affecting Alcoholic and Malt Beverages", BISD 39S/206 (adopted on 19 June 1992), and "Canada - Import,
Distribution and Sale of Certain Alcoholic Beverages", BISD 39S/27 (adopted on 18 February 1992).

proposed to achieve certain ends were not workable from a practical standpoint, and presented
alternatives to achieve the same ends in a more practical and workable manner.
3.26 Brazil argued that the alleged benefit to imports deriving from the fact that "roughly half"
of the domestic gasoline must be "cleaner" than imported gasoline (which, in Brazil's view had
not been demonstrated) did not overcome the less favourable treatment accorded to imports
deriving from the fact that "roughly half" of the domestic gasoline was permitted to be "dirtier"
than imported gasoline. This statement by the United States implicitly admitted the discrimination
contained in the Gasoline Rule which required imported gasoline to be cleaner than half of the
domestically produced gasoline. Brazil noted that a previous panel report had rejected any notion
of balancing more favourable treatment of some imported products against less favourable
treatment of other imported products11. The same rationale applied to any notion of balancing
more favourable treatment vis-à-vis some domestic products against less favourable treatment vis-
à-vis other domestic products. Similarly, another panel report12 had concluded that the exposure
of a particular imported product to a risk of discrimination constituted, by itself, a form of
discrimination. The Gasoline Rule exposed all imports to less favourable treatment than the
treatment accorded to what the United States had described as "roughly half" of the domestic
production. Thus, in this dispute as in previous disputes, the panel should reject the notion of
"balancing". Brazil further argued that the United States had not in any event demonstrated that
the average of the individual baselines was equivalent to the statutory baseline. Domestic refiners
were allowed to use post 1990 (Method 3) data to establish their individual baselines whereas the
statutory baseline was presumably established based on actual 1990 data. This contradicted the
US argument that importers were subject to an overall average standard which was equivalent to
that imposed on domestic refiners because baselines based on data from different time periods
could not be considered to be equivalent.
3.27 Brazil argued that United States' reference to the "Section 337" panel report was irrelevant
since it had not demonstrated in this particular case that the application of formally identical legal
provisions would in practice accord less favourable treatment to imported products. The United
States only "believed" that granting individual baselines to foreign refiners would disadvantage
them. Similarly, the United States had not demonstrated why US importers would not be able to
establish an individual baseline following Method 3, based on post-1990 gasoline blendstock, since
according to the United States, importers were blenders and used blendstocks. Finally, the
comparison made by the United States between a foreign refiner and a US importer was
inaccurate, for a foreign refiner had to be compared with a US domestic refiner.
3.28 Brazil rejected the argument that imported gasoline was treated similarly to gasoline from
similarly situated parties. Imported gasoline produced by foreign refiners who had unlimited
operations in 1990 was treated like gasoline produced by blenders and domestic refiners who had
limited operations in 1990, whereas it should have been treated like gasoline produced by
comparable US domestic refiners. Brazil further noted that most US blenders who were not
domestic refiners were in fact importers, and hence should not, as argued by the United States, be
considered as two separate categories. Thus, discriminating between domestic refiners and
domestic importers in practice resulted in discriminating against imports. Moreover, the fact that
domestic refiners were allowed to import blendstock, mix it with their own production and
measure the compliance of the final product against their individual baseline, whereas neither
blenders nor importers were allowed to do this with respect to their own blendstock, showed that
the system did not treat like products in a similar way.
11"United States - Section 337 of the Tariff Act of 1930", BISD 36S/345, (adopted on 7 November 1989).
12"EEC - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal-Feed Proteins", BISD 37S/86
(adopted on 25 January 1990).

3.29 Brazil agreed with the United States that Article III applied to gasoline and not to the
producer of gasoline. In this particular case, the standard applied to gasoline had been determined
with reference to the producer of gasoline. Brazil was not questioning this policy choice as such,
but the fact that a different and less favourable standard applied to imported products. In the case
of Brazil, this discrimination was illustrated by the fact that the gasoline exported by Brazil as
"finished" conventional gasoline until 1 January 1995 was now considered as a mere "blendstock"
because it did not meet the statutory baseline requirements. Blendstock gasoline commanded a
lower price because the buyer had to mix it with "cleaner" gasoline in order to comply with the
statutory baseline. In conclusion, Brazil stated that the fact that the product produced by a
Brazilian refiner could not be sold in the United States as finished gasoline while the identical
product produced by a US refiner complying with its individual baseline could be sold as finished
gasoline constituted precisely the less favourable, discriminatory treatment Article III was intended
to prohibit.
3.30 The United States argued that the complainants improperly focused on developing foreign
refinery baselines, and had not demonstrated how foreign refiners could accurately ascertain the
quality of the subset of their total gasoline production exported to the United States, even if they
were able to establish the quality of their total 1990 output by using Methods 1, 2 or 3. Even
assuming that this problem could be overcome by Venezuela and Brazil, it remained for other
foreign refiners. By focusing on foreign refiners' baselines rather than on the more logical
establishment of importers' baselines, the complainants appeared to seek a commercial advantage
for their national oil companies over other foreign gasoline suppliers. This could favour those
importers who had commercial ties to such refiners over others, and thereby distort competitive
conditions among importers. The General Agreement did not require the United States to accord
rights on foreign soil to foreign refiners, as opposed to WTO Members, especially if issues
relating to imports could better be addressed through regulating importers who were located on
US territory.
3.31 The United States further argued that the references made by Venezuela to previous panel
reports were irrelevant because the situation currently under examination was different. The
question posed to this Panel was not whether imports and domestic products were treated
identically (the United States recognized that it was not the case), but whether that treatment was
less favourable under Article III. Given the fact that, for the reasons stated above, an identical
treatment would have precluded most importers from marketing gasoline in the United States, the
specific provisions applying to imports did not violate Article III. The United States also rejected
Brazil's claim that blenders were in fact importers and maintained that they did fall into two
different categories, even if similarly situated in other respects. (Of the registered entities that
were blenders or importers, over a third were solely blenders and over a third were solely
importers.) The United States considered that the difficulties supposedly experienced by
Venezuela and Brazil to export gasoline to the US market were groundless. Firstly, importers
could easily find large amounts of gasoline with low levels of sulphur and olefin, thus "offsetting"
Venezuela's high sulphur and olefin content, because of the typical configurations of refineries
outside of the United States. This was evidenced by the clean imports of reformulated gasoline
this year and by the fact that 1995 exports from Venezuela did not reflect an identifiable impact of
the Gasoline Rule. Secondly, Brazil's choice not to export finished gasoline, but to export
blendstock instead, was unrelated to US environmental regulations since the Gasoline Rule did not
contain any requirements as to whether importers imported gasoline on the one hand, or
blendstock on the other. The conventional and reformulated gasoline requirements did not aim at
establishing whether a product was or was not gasoline. Rather, to be sold as "gasoline",
commercial contracts generally required a product to meet certain standards established by the
American Society of Testing and Materials. Regarding the alleged reduced export volumes from
the complainants, the United States noted that import levels in a given market were generally

sensitive to various factors (US demand, exporting country's supply and demand, refinery cost
structure, gasoline market conditions in other competing exporting countries, for instance), and
that worldwide exports of gasoline to the United States had been following a downward trend over
the last five years. It was equally difficult to know the exact role played by the Gasoline Rule
with regard to the investment programme of Venezuelan refineries since any refiner operating at
the world level needed a significant reformer capacity. Venezuela's investment in such a reformer
unit likely reflected overall Venezuelan market strategy. Moreover, whatever production
limitations PDVSA might have with respect to one particular refiner, blending of feedstock from
several refineries made higher levels of statutory-quality gasoline on a per-shipment basis possible.
In addition, the US government had studied refinery cost structure shortly after passage of the
Clean Air Act and found that refiners whose production of reformulated gasoline was about 30%
or less of their total gasoline production could produce the reformulated gasoline at little or no
incremental cost (i.e. investment costs) because of their ability to select among blendstocks.
3.32 The United States argued that, with respect to the particular baseline to be employed by
domestic refiners that import, the Rule's requirement that refiners use their own baselines applied
only to conventional gasoline, and up to the volume that the refiner imported in 1990. The
purpose of the provision was to prevent a domestic refiner with a baseline more stringent that the
statutory baseline from avoiding that stringent baseline by exporting gasoline produced at the
domestic refinery and then reimporting that same gasoline under the statutory baseline, a concern
raised to EPA in public comments.
3.33 Venezuela argued it was not focusing on foreign refiners but on the situation of imported
gasoline. The foreign refiner had become an issue only because the characteristics of
US produced gasoline set by the Gasoline Rule was determined, in large part, by the historical
quality levels of the individual US producers. Venezuela considered that it was misleading to
engage, as the United States did, in a discussion of the relative situation of importers and domestic
refiners when comparing the respective treatment of domestic and imported products. The focus
of the analysis had to remain on gasoline as a product. The previous panel cases cited by
Venezuela were relevant because the situations were similar. Venezuela disagreed with the United
States' argument that importers could easily obtain suitable offsetting gasoline for Venezuela's
gasoline quality. The data presented by the United States to the Panel regarding the properties of
gasoline imported in 1995 suggested exactly the contrary: by showing that the maximum values
of sulphur, olefins and T-90 of imported gasoline were essentially at the statutory baseline, these
data confirmed that above-statutory foreign gasoline was not purchased by US importers. Thus,
foreign refiners were effectively obliged to comply with the statutory baseline requirements if they
wanted to sell gasoline in the United States.
b) Article III:1
3.34 Venezuela and Brazil claimed that discriminatory baseline requirements contained in the
Gasoline Rule violated Article III:1 for the same reasons they violated Article III:4. By distorting
the conditions of competition for foreign gasoline, both reformulated and conventional, they were
applied "so as to afford protection to domestic production". Venezuela also noted that
Article III:1 was a more general provision than Article III:4. Thus, it would not insist on the
panel ruling on Article III:1 if the Panel found the Gasoline Rule to be inconsistent with
Article III:4.
3.35 The United States replied that, for the reasons expressed under Article III:4, the Gasoline
Rule did not afford protection to domestic production. Furthermore, since Article III:1 had by
itself only an exhortatory character, it was not amenable to a finding of "violation" in a dispute
settlement proceeding. A Panel had never found an independent violation of Article III:1.

3.36 Brazil argued that previous disputes13, to which the United States had been a party,
involved a violation of Article III:1.
3. Article XX - General Exceptions
3.37 The United States argued that the Gasoline Rule fell within the scope of Article XX
whether or not it was consistent with other provisions of the General Agreement. Not all
measures described by Article XX were inconsistent with the General Agreement. However, if
the Panel accepted that the Gasoline Rule was consistent with other provisions of the General
Agreement, in particular Article III, it did not need to decide whether the measures at issue also
fell under Article XX. Article XX guaranteed in any event that these measures were not
inconsistent with the General Agreement.
3.38 Venezuela and Brazil considered that the issue at stake under Article XX was not whether
the CAA or the regulations implementing it were necessary, but whether it was necessary to
accord foreign gasoline less favourable treatment , which, they argued, was the situation in this
case. Venezuela argued further that Article XX provided limited and conditional exceptions from
obligations under other provisions of the General Agreement, and the burden was on the party
invoking that provision to justify the application of any of the enumerated exceptions. The United
States lacked the factual and legal support necessary to carry that burden with respect to any of its
claims under Article XX.
4. Article XX(b)
a) "Protection of Human, Animal and Plant Life or Health"
3.39 The United States argued that it was well established that air pollution, and in particular
ground-level ozone, presented health risks to humans, animal and plants. Toxic air pollution was
a cause of cancer, birth defects, damage to the brain or other parts of the nervous system,
reproductive disorders and genetic mutation. It could affect not only people with impaired
respiratory systems, but healthy adults and children as well. Ozone was also responsible for
agricultural crop yield loss in the United States. Vehicular air toxic emissions accounted for
approximately 40 to 50 percent of total air toxic emissions. The Gasoline Rule provisions sought
to control toxic air pollution from mobile sources by addressing the fuel that creates these
emissions. Thus, its aim was to protect public health and welfare by reducing emissions of toxic
pollutants, VOCs and NOx for reformulated gasoline, and to avoid degradation of air quality for
emissions of NOx and toxic air pollutants for conventional gasoline. Therefore, the Gasoline
Rule fell within the range of policies specified in Article XX(b).
b) "Necessary"
3.40 The United States argued that the non-degradation requirements for both reformulated and
conventional gasoline were necessary to protect human, animal and plant life or health. Using
individual baselines for conventional gasoline was the quickest and fairest way to achieve the
programme's environmental goal, which was to ensure the maintenance of US 1990 gasoline
quality in the cleaner areas without affecting the speedy and cost-effective implementation of the
reformulated gasoline programme in the most polluted areas, and without causing major
disruptions in the domestic production of conventional gasoline. If a single baseline were used for
all conventional gasoline, then all producers whose gasoline was dirtier than this baseline for
13"Canada - Administration of the Foreign Investment Review Act", BISD 30S/140 (adopted on 7 February 1984) and United States -
Measures Affecting Alcoholic and Malt Beverages" BISD 39S/206 (adopted on 19 June 1992).

certain gasoline qualities would need to change the characteristics of their production to meet the
standard for those qualities, and those producers whose gasoline was cleaner than the baseline
could degrade down to the baseline. The result would be the same overall average for gasoline,
but large segments of gasoline producers would have been required to make changes to their
conventional gasoline production. Where future production exceeded their 1990 output, refiners
must meet the statutory baseline. With respect to reformulated gasoline, individual baselines were
used for a three year transition period and applied to three gasoline qualities -sulphur, olefin and
T-90- which were required to preserve their average US 1990 levels because EPA lacked data
about their precise emission effects. This approach avoided requiring large segments of producers
to make changes in their gasoline in order to meet a single requirement, whereas it was not clear
whether and how any such change was needed to avoid emissions increases. However, all
reformulated gasoline refiners must have begun to adjust their operations in order to meet the new
reformulated gasoline requirements that would be in effect in 1998 under the Complex Model.
All regulated gasoline qualities would then be measured against the statutory baseline. Thus, the
baseline system protected air quality in the most practical and cost-effective manner, while taking
the best account of the various producers' characteristics.
3.41 The United States argued that the individual baseline approach was however not possible
with all producers, in particular, refiners that were only producing during part of 1990, blenders
and importers. These categories of producers were in a different situation since they lacked the
data necessary to use Methods 1, 2 and 3, and requiring them to establish an individual baseline,
like domestic refiners, would have had the effect of precluding them from the US market. Thus,
assigning importers to the statutory baseline ensured that they would not be forced out of the
market while treating similarly situated parties alike. Moreover, even if in some cases importers
might be able to establish individual baselines derived from foreign refiner information, giving
importers a choice as to which baseline to use would inevitably have undermined the air quality
objective of the regulation since business incentives would have induced them to use the cheapest
and least stringent option, which would also have been the most polluting one. Taking into
account these concerns over gaming, EPA had determined that no other option was feasible
without having adverse effects on trade. The United States stressed that the Gasoline Rule applied
to the importer and not to the foreign refiner. Given that there had traditionally been a variety of
gasoline and blendstock qualities available on the market, importers were likely to have the
flexibility to import gasoline from various sources, some with levels above and others below the
statutory baseline, as long as the annual average for the importer met the statutory baseline.
3.42 The United States argued that it was not feasible to give individual baselines to foreign
refiners for various reasons. First, gasoline was a fungible international commodity and a
shipment of gasoline arriving in a US port generally contained a mixture of gasoline that had been
produced at several foreign refineries. Therefore it would be very difficult, if not impossible, to
determine the refinery of origin of a shipment of gasoline for the purpose of establishing an
individual baseline. Second, the difficulty of identifying the refinery of origin would also favour
potential gaming of the system since the foreign refiner could be tempted to claim the refinery of
origin for each shipment of imported gasoline that would present the most benefits in terms of the
baseline restrictions. The third reason related to the difficulties of the United States to exercise
enforcement jurisdiction over foreign refiners. The Gasoline Rule could not be enforced simply
by examining the product at the border but required EPA to audit the facilities of refineries in
order to verify, inter alia, that the data provided to establish the individual baselines were
accurate as well as to ensure future compliance. EPA also needed other enforcement tools such as
criminal penalties, civil enforcement proceedings or court warrants, that would not be readily
available to use outside US territory against a refinery located on foreign soil. Holding the
importer accountable for the conduct of the foreign refiner with whom he has not colluded could
have been an unfair solution. The United States recalled that the panel report "United States -

Section 337 of the Tariff Act of 1930" had acknowledged that a measure might need to provide
apparently less favourable treatment to imports in situations where it "might be considerably more
difficult to identify the source of infringing products or to prevent circumvention of orders limited
to the products of named persons"14, than for US products. The present case offered similar
differences in enforcement needs and capabilities with respect to the identification of the source of
gasoline.
3.43 The United States disagreed with Venezuela's assertion that the May 1994 Proposal
demonstrated the feasibility of individual baselines for foreign refiners. This Proposal was a
continuation of EPA's efforts to develop criteria that would protect the environment, minimize
disruption to producers and treat similarly situated gasoline alike, taking into account the
comments and concerns expressed by interested parties. The fact that EPA made this attempt was
neither a determination that the Gasoline Rule was flawed nor a determination that the 1994
Proposal was feasible. The 1994 Proposal contained several strict conditions governing the
establishment of individual baselines for foreign refiners, which showed that concerns still existed.
Moreover, it applied only to reformulated gasoline because the indefinite application of individual
baselines for conventional gasoline and the expectation that many more foreign refiners would
supply the conventional market indicated that the environmental risk associated with allowing this
option were too great to justify even its proposal. In public comments, the 1994 Proposal had
been criticised as favouring a small group of importers over all the others. PDVSA and other
foreign refiners had objected that the proposed conditions, inter alia those related to gasoline
tracking, were unworkable. For these reasons, the United States rejected Venezuela's assertion
that EPA would have finalized this Proposal except for the action by Congress.
3.44 The United States considered that Venezuela's citation of the testimony of a US
government official was inapposite. This testimony reflected the US government's commitment
when it issued the final Gasoline Rule to continue addressing the issue of how imports were
treated together with the concerns that environmental protection not be compromised and that the
provisions be fair to all the parties affected. Contrary to Venezuela's argument, this testimony did
not show that protectionism underlay the Gasoline Rule's treatment of imports. The statement of
a US government official defending the proposed use of foreign refiner baselines only illustrated
that US regulators wished to obtain a mutually satisfactory solution with Venezuela. Moreover,
the Rule explicitly stated that its motivation was environmental protection, not protectionism.
3.45 Venezuela argued that Article XX(b) was not applicable because the United States had not
demonstrated that there were no less trade-restrictive means to achieve its health policy objectives.
The Gasoline Rule's discriminatory baseline requirements were not, therefore, "necessary" within
the terms of Article XX(b). Venezuela considered that there were less trade-restrictive
alternatives to the Gasoline Rule discriminatory baseline requirements that would achieve the same
objective. One such alternative was to authorize the use of individual baselines by foreign refiners
for both reformulated and conventional gasoline. Another alternative was to require all US
gasoline producers to meet the statutory baseline requirements. A third alternative, in Venezuela's
view, would have been to enforce the Complex Model as of 1995, rather than 1998, so as to treat
both US and imported reformulated gasoline equally from the beginning. A fourth alternative
would have been to authorize the use of foreign refiner individual baselines and, if compensating
emissions reductions were necessary, to spread the burden of such compensation equally across all
gasoline, US and imported alike.
14BISD 36S/345, § 5.32, adopted 7 November 1989.

3.46 Venezuela considered that, contrary to the US argument, the use of a foreign refiner
baseline was feasible. It was feasible for a foreign refiner to develop an individual baseline,
relying on the same types of records and data as US domestic refiners. In the case of Venezuela,
PDVSA had all the records necessary to accurately determine an individual baseline in conformity
with the requirements applicable to the US refiners, as had been confirmed by the firm
Turner, Mason and Co. which served as an independent, EPA-approved auditor. The foreign
refiner's individual baseline would be submitted to EPA for approval and to correct any possible
mistakes before the product could be imported into the United States. EPA could then require a
foreign refiner, as a requirement for establishing and maintaining its individual baseline, to appear
before the agency and/or to make available to it production records and any other reasonable
information aimed at ensuring the accuracy of the baseline. Then, enforcement would only be
relevant in verifying the characteristics of gasoline as it entered the United States. This kind of
verification was routinely performed on many types of imported products and, in the case of
gasoline, compliance for each shipment could be determined at the port of entry by testing the
shipment and comparing its fuel properties with the individual baseline of the foreign refiner.
Furthermore, since the importer was currently liable towards EPA for gasoline that did not
conform to the statutory baseline, it was similarly possible to make him liable for gasoline that did
not conform to the foreign refiner's individual baseline. Under US customs law, precedents
existed where an importer was liable for an imported product that did not meet certain standards,
and subject to civil and criminal sanctions. Venezuela cited, inter alia, the case of importers
being liable for products not meeting the safety standards promulgated by the Consumer Product
Safety Commission. This demonstrated that United States' concerns about enforcement
mechanisms outside its territory and importer's liability for the conduct of a foreign company
were without merit. Venezuela rejected the argument that it was not possible to determine the
refinery of origin and noted that during the consultations leading to the 1994 Proposal, PDVSA
had suggested several alternatives to deal with this problem. Moreover, the concerns expressed
by the United States about foreign gasoline being mixed with "dirty" gasoline before being
imported into the United States should apply equally to US produced gasoline being degraded after
it left a US refinery. Venezuela also strongly denied the assertion that it had rejected the 1994
Proposal since it had clearly supported EPA's proposal to allow foreign refiners to establish their
individual baselines and had continued to work with EPA to that end, presenting alternatives and
explaining why particular provisions of the Proposal were unnecessarily burdensome and
unworkable.
3.47 Lastly, Venezuela argued that United States' concern about "gaming", which was based on
the assumption that foreign refiners with "cleaner" gasoline would select the statutory baseline
rather than establishing their own baseline, thus affecting the air quality, was purely speculative
for several reasons. EPA had itself recognised that it did not have data about the average quality
of gasoline imported in 1990, and thus could not know whether a significant amount of that
gasoline imported was "cleaner" than the statutory baseline. Available data indicated that foreign
refiners were not likely to "degrade" from their 1990 gasoline quality and the impact of any such
activity would at most be de minimis. Moreover, US statistics showed that, from January to
March 1995, imported gasoline represented less than two percent of total US gasoline
consumption. Thus, even accepting (which Venezuela did not) the United States' argument that
half of the foreign refiners produced gasoline in 1990 that was below the statutory baseline and
half of the foreign refiners produced gasoline that was above the statutory baseline, possibilities
for gaming would arise for less than one percent of total US gasoline consumption. The practical
impact of gaming was too small to justify discrimination against imported gasoline under
Article XX(b). Finally, several aspects of the Gasoline Rule are incompatible with the professed
US concern regarding the possible environmental impact of potential "gaming" : for example, the
fact that there was no limitation on the volume of reformulated gasoline a US refiner could
produce under its individual baseline, or the fact that in a particular geographical area, the

emissions from gasoline would vary, depending on which refiners were supplying it, and as a
consequence, the emissions levels could exceed the statutory baseline. Moreover, EPA had
recently proposed several amendments to the Gasoline Rule, such as provisions permitting upward
adjustment in baseline levels because of a US refiner's inability to acquire low sulphur content
crude oil that was available in 1990, which equally undermined its environmental objectives.
Venezuela concluded that the United States had not met the burden of the proof required by
Article XX.
3.48 Brazil did not disagree with the purpose of the United States which was to address the
problem of air pollution in order to protect human, animal and plant life and health. However,
Brazil considered that the Gasoline Rule programme did not satisfy the requirements of
Article XX(b), because the burden of achieving this purpose was placed disproportionately on
imported gasoline. All imported gasoline had to meet the 1990 average expressed in the statutory
baseline whereas half of the domestic refineries could sell gasoline which did not meet the
statutory baseline. The concerns expressed by the United States about the negative impact of
imposing a single statutory baseline on domestic refiners could not justify a violation to the
national treatment obligation for the following two reasons. First, EPA did not want to impose on
domestic refiners whose gasoline was dirtier than the statutory baseline the burden of changing
their production characteristics, but it imposed precisely this requirement on foreign refiners.
Secondly, the United States had not demonstrated to the Panel why domestic refiners whose
production was cleaner than the statutory baseline would downgrade to the baseline. And even
assuming that such a downgrade would occur, the overall air quality would not change as long as
the refiners with "dirtier" gasoline were required to upgrade to the statutory baseline. Brazil
considered that a rule establishing the statutory baseline as a minimum with the additional
requirement that those refiners who produced gasoline above the statutory baseline continue to do
so was another option which would take care of the downgrading concern while at the same time
improving air quality in the United States and eliminating discrimination against imports.
3.49 Brazil further argued that the United States had not explained why importers could not
establish an individual baseline, especially using Method 3 since importers presumably maintained
records of their imports and thus could have data on their 1990 imports. Even assuming that it
was necessary to assign importers to the statutory baseline, this did not explain the failure to
provide for individual baselines for foreign refiners. Brazil considered that the United States had
not demonstrated that foreign refiners did not have sufficient data to establish their own baselines.
In that context, the United States referred only to "difficulties" but, according to Brazil, mere
"difficulties" did not create necessity within the meaning of Article XX(b). Moreover, assuming
that these difficulties were insurmountable, they would nevertheless not allow the United States to
discriminate against foreign gasoline since there was an alternative measure, reasonably available,
which was the requirement that all gasoline, domestically produced and imported, meet the same
statutory baseline, as Brazil had noted above.
3.50 Brazil considered that the United States had presented no factual basis to support its
concern that a foreign refiner would "game" the system if given the choice between the statutory
and the individual baseline. Besides, this opportunity for "gaming" could be eliminated by simply
assigning all refiners, domestic or foreign, to the same baseline, statutory or individual.
Regarding the use of individual baselines by foreign refiners, the United States had never made
any attempts to investigate or determine empirically whether the calculation and enforcement of
such baselines were possible. However it merely insisted that these problems were
insurmountable and, therefore, the statutory baseline had to be applied to imported gasoline.
Finally, the fact that numerous parties had objected to particular aspects of the 1994 Proposal did
not mean that non-discriminatory baselines for foreign refiners were not possible. Brazil

concluded that the United States had not demonstrated why it was not possible to permit foreign
refiners of both conventional and reformulated gasoline to use their own baselines.
3.51 Brazil argued that the discrimination under the General Agreement or the TBT Agreement
was not justifiable even assuming that the use of foreign refiners' individual baselines was
impossible. If it were impossible to assign individual baselines to foreign refiners, the United
States would then be justified in using individual baselines for domestic refiners only if no other,
non-discriminatory measure were available. A WTO Member was not permitted to review several
options, select one in which discrimination was unavoidable, and then plead that the selected
option required discrimination. Under Article III of the General Agreement -but also under
Article I of the General Agreement and Article 2 of the TBT Agreement- a WTO Member was
obliged, when the policy option involved discrimination, to choose another option when one was
available. In this particular case, there was such an available alternative, which was to apply the
statutory baseline to all producers of gasoline.
3.52 The United States maintained its arguments regarding the impraticability of foreign
refiner's baseline. It argued that compliance with requirements based on foreign refinery
baselines could not be established only by sampling gasoline on its arrival at a US port of entry,
because it would be necessary to determine the refinery of origin for such imported gasoline.
This type of determination would be difficult, if not impossible, due to the fungible mixing of
gasoline that occurs before arrival in a US port of entry. The enforcement provisions of other US
statutes cited by Venezuela to negate this concern were inapposite, because those statutes all
involved matters that could be resolved by inspection of the product by Customs officials at the
border. The United States also noted that there was no analogous concern with identifying the
source of gasoline produced at domestic refineries, because domestic gasoline was regulated at the
refinery gate, which left no questions of which refinery produced any particular batch of gasoline.
The United States further argued that the potential environmental effect of "gaming" could be,
under a reasonable scenario, an annual increase in NOx emissions from imported gasoline by 5.6
to 7 percent (about 115,000 short tons). US analyses of foreign refinery configurations showed
that because of low fluid catalyst unit capacity among foreign refiners, sulphur and olefin levels in
imports were likely to be low compared to the US statutory baseline, thus leaving ample room for
gaming and degradation. Moreover, the "gaming" incentives for foreign "cleaner" refiners were
not hypothetical: various changes since 1990 in physical plants and operating procedures could
change the economic calculus for producing gasoline of a specified quantity, and the quality of the
crude used in refining could change. In these conditions, a refiner might choose to degrade the
sulphur, T-90 or other characteristics if it proved to be economical. The United States
emphasized that there were no regulatory requirements on foreign refiners, who had ample
flexibility, not available to domestic refiners, to select among blendstocks. The United States
concluded that, contrary to Venezuela's and Brazil's claim, Article XX did not require adoption of
the statutory baseline as a national standard even if the difficulties associated with the
establishment of individual baselines for importers were insurmountable. Application of the
statutory baseline to domestic producers of reformulated and conventional gasoline in 1995 would
have been physically and financially impossible because of the magnitude of the changes required
in almost all US refineries; it thus would have caused a substantial delay in the programme.
Weighing the feasibility of policy options in economic or technical terms in order to meet an
environmental objective was a legitimate consideration, and did not, in itself, constitute
protectionism, as alleged by Venezuela and Brazil. Article XX did not require a government to
choose the most expensive possible way to regulate its environment. In the case at hand, it was
not necessary to assign domestic refiners to the statutory baseline for the non-degradation
requirements for the reasons stated above.

3.53 The United States argued that the lack of a volume limitation for the use of individual
baselines under the reformulated gasoline programme was not expected to affect the success of
that program. US data showed that refineries with the highest olefin and sulphur levels in their
baselines (i.e. the dirtiest baselines) as a group had not extended their market share after the start
up of the reformulated gasoline programme. This was consistent with EPA's original expectations
that the short time period during which individual baselines were used in the reformulated
programme would not provide an incentive for refiners to revise their investment and production
decisions based on whether their baselines were above or below the statutory baseline. The
United States also argued that the various baseline adjustments allowed under the Gasoline Rule
either redressed disadvantages occurring as a result of government requirements, or dealt with
situations where the US government did not have data for a full year's representative operations.
3.54 Venezuela argued that the examples posed by the United States in the attempt to show an
increase of average NOx emissions from imported gasoline because of potential gaming were
flawed, leading to exaggerated results because they had relied on the Complex Model, which was
not in use for 1995-1997, and on the assumption that half of the imported gasoline in 1990 had
properties below and half had properties above the statutory baseline. Regarding this last
assumption, the United States had conceded that it simply did not know the properties of the pool
of imported gasoline in 1990, and had failed to present evidence that foreign refiners which might
have exported to the United States gasoline cleaner than the statutory baseline would have an
incentive to degrade down to the statutory baseline. Venezuela rejected this assumption and stated
that there was no economic incentive for a refiner to operate its refinery in a less than optimal
manner to increase the level of a fuel property such as sulphur or olefins for the sole purpose of
making "dirtier" gasoline.
5. Article XX(d)
3.55 The United States considered the Gasoline Rule's baseline establishment system was
necessary to enforce the non-degradation requirements aiming at preventing deterioration of air
quality. The non-degradation requirements ensuring that gasoline sold in the United States did not
become more polluting than in 1990 were "laws or regulations which are not inconsistent with the
provisions of the General Agreement". They were measures for which, pursuant to Article XX(g)
and XX(b), "nothing in [the General Agreement] shall be construed to prevent the adoption or
enforcement by any contracting party". For the reasons stated under Article XX(b), the baseline
establishment rules were necessary to ensure that there was no degradation in gasoline or air
quality. If importers were allowed to use several baselines, depending on which foreign refiners
chose to use them, "gaming" could occur, and result in a deterioration of overall air quality.
Therefore, the Gasoline Rule fell within the scope of Article XX(d).
3.56 Venezuela considered that the United States had not clearly established which were the
"laws or regulations" which were not inconsistent with the General Agreement and with which
compliance was secured, and hence had failed to demonstrate such consistency. Venezuela noted
that a previous panel had found that a measure was deemed to "secure compliance with" only if it
was effective to "enforce obligations" under laws or regulations consistent with the General
Agreement, as opposed to ensuring the broader attainment of an objective15. When stating that
"the baseline establishment rules are necessary to ensure that there is no degradation in gasoline
and air quality", the United States precisely referred to an objective, instead of identifying any
obligation of the non-degradation requirements that the discriminatory baseline requirements were
15"EEC - Regulation on Imports of Parts and Components", BISD 37S/132, para. 5.17-5.18 (adopted on 16 May 1990).

necessary to enforce. Moreover, for the reasons expressed under Article XX(b), the Gasoline
Rule was not necessary. Thus, the United States did not meet the requirements of Article XX(d).
3.57 Brazil considered that, for the reasons it had already developed under Article XX(b), the
United States failed to demonstrate that the Gasoline Rule was "necessary" to secure compliance
with the Clean Air Act, within the meaning of Article XX(d). As Brazil had previously indicated,
there were non-discriminatory alternatives available to the United States.
6. Article XX(g)
3.58 The United States argued that, as a programme intended to preserve clean air, the
Gasoline Rule fell within the scope of Article XX(g).
a) "Related to the conservation of exhaustible natural resources..."
3.59 The United States argued that clean air was an exhaustible resource within the meaning of
Article XX(g) since it could be exhausted by the emissions of pollutants such as VOCs, NOx and
toxics. In the most polluted areas, it could become chronically contaminated and remain so over
long periods of time. Air containing pollutants could move long distances to contaminate other
airsheds. Moreover, by stopping air degradation, the CAA also protected other exhaustible
natural resources such as lakes, streams, parks, crops and forests, which were affected by air
pollution. Thus, the objectives underlying the reformulated and conventional gasoline
programmes fell within the range of policies to preserve both clean air and, consequently, other
natural resources.
3.60 Venezuela noted that it shared with the United States a concern for the impact of dirty air
on health, but claimed that the United States' arguments regarding the applicability of
Article XX(g) to this case were both factually and legally erroneous. Recalling past panel reports,
Venezuela considered that the exceptions provided for by Article XX had to be interpreted
narrowly, in a manner that preserved the basic objectives and principles of the General
Agreement16. Noting that the original purpose of Article XX(g) was to permit exceptions to
otherwise applicable prohibitions or restrictions on the export of tradeable goods that could be
exhausted as a result of their exploitation, Venezuela doubted that clean air was an exhaustible
natural resource within the meaning of article XX(g). Venezuela considered that clean air was a
"condition" of air that was renewable rather than a resource that was exhaustible, such as
petroleum and coal. There was no textual basis for expanding the scope of Article XX(g) to cover
renewable "conditions" of resources as opposed to exhaustible natural resources.
3.61 Venezuela noted that under established GATT jurisprudence, a measure "related to" the
conservation of an exhaustible natural resource only if it was "primarily aimed at" conserving that
resource17. The United States had not even attempted to argue that the Gasoline Rule's
discriminatory requirements, which were the measure at issue in the dispute, were "primarily
aimed at" conservation, but had merely attempted to justify that the reformulated and conventional
gasoline requirements fell under Article XX(g). Furthermore, the United States had identified
only the protection of health as the primary objective for the reformulated and conventional
gasoline requirements, which was irrelevant to an Article XX(g) analysis. Venezuela noted that it
16"United States . Restrictions on Imports of Tuna", DS29/R, 16 June 1994 (unadopted), "Canada - Administration of the Foreign
Investment Review Act", BIDS 30S//140, para. 5.20 (adopted on 7 February 1984), "United States - Section 337 of the Tariff Act of 1930",
BISD 36S/345 (adopted on 7 November 1989).
17"Canada - Measures Affecting Exports of Unprocessed Herring and Salmon", BISD 35S/98, para. 4.6 (adopted on 22 March 1988).

had previously demonstrated to the Panel that the Gasoline Rule methodology contained loopholes
which undermined its own conservation objectives, thus confirming that the discriminatory
baseline system could not be "primarily aimed at" the conservation of an exhaustible natural
resource.
3.62 The United States disagreed with the claim that clean air was not an exhaustible natural
resource within the meaning of Article XX(g). The United States maintained that air was
undoubtedly a natural resource which could be exhausted if it was rendered unfit for human,
animal or plant consumption. This was similar to the recognition in previous panel proceedings
that fish were an "exhaustible natural resource" since their populations could be depleted or
rendered extinct18.
b) "... made effective in conjunction with restrictions on domestic
production or consumption"
3.63 The United States considered that the Gasoline Rule restricted domestic production of
gasoline by requiring manufacturers to limit their production of gasoline so that over the course of
the year the average of particular components of the gasoline did not exceed certain maximum
levels. It also restricted domestic consumption by ensuring that the average of those components
of gasoline sold did not exceed certain maximum levels.
3.64 Venezuela rejected this argument because it considered that the United States had not
shown that the discriminatory baseline requirements were "primarily aimed at rendering effective"
restrictions on domestic production or consumption of clean air, the "natural resource" to be
conserved by the Gasoline Rule. The United States had only referred to restriction on domestic
production and consumption of gasoline.
3.65 Brazil argued that, even assuming that clean air was an exhaustible natural resource, the
Gasoline Rule did not restrict domestic production or consumption of clean air. At best, the
Gasoline Rule sought to increase production if not consumption of clean air, not to restrict it.
Moreover, neither the CAA nor the Gasoline Rule restricted in any way the quantity of gasoline
that could be produced or consumed in the United States, but merely regulated its quality. Since
neither the production nor the consumption of air or gasoline was restricted by the CAA or the
Gasoline Rule, the Gasoline Rule did not fall under Article XX(g).
3.66 The United States argued that the Gasoline rule did restrict domestic consumption of clean
air through its restriction of emissions that polluted the air. This was similar to restrictions
applied on cars in order to conserve fuel. In this case, the Gasoline Rule's application to imports
- including the baseline rules- was primarily aimed at rendering effective restrictions on domestic
production of dirty air, or conversely the consumption of clean air, through regulation of the
gasoline that caused air pollution.
7. Preamble to Article XX
3.67 The United States argued that, as it had demonstrated in the discussion concerning
Article III, the Gasoline Rule applied equally to similarly situated parties. Importers and blenders
were required to meet the parameters of 1990 average US gasoline because they could not
ascertain the refinery of origin and the quality of the gasoline they marketed in 1990. This
avoided the alternatives of either "gaming" problems or excluding most imported gasoline from
18"Canada - Measures Affecting Exports of Unprocessed Herring and Salmon", BISD 35S/98 (adopted on 22 March 1988) and "United
States - Prohibition of Imports of Tuna and Tuna Products from Canada, BISD 29S/91 (adopted on 22 February 1982).

the market. Unlike domestic refiners, importers had the flexibility to rely on a variety of sources
so as to meet an annual average quality of gasoline. Moreover, for each of the requirements,
about half of US gasoline produced by domestic refiners had to be cleaner in certain respects than
the annual average gasoline quality supplied by importers. In addition, a portion of the US
gasoline market was being supplied with gasoline by domestic refiners which had to meet the
statutory baseline because their gasoline could not be presumed to have been part of the gasoline
pool in 1990. But to the extent that the enforcement conditions differed between the United States
and other countries, the "same conditions" did not prevail in the United States and in other
supplying countries. Accordingly, any differences in treatment were neither arbitrarily nor
unjustifiably discriminatory, but were based on valid, legitimate policy reasons.
3.68 The United States further argued that the Gasoline Rule did not constitute a disguised
restriction on trade since its objective was to ensure no degradation from 1990 levels for emissions
and air pollutants, a health objective that had nothing to do with a restriction on trade. The
provisions were transparent and imposed the same overall requirements, stemming from the same
objective, on imported as on domestic gasoline. The evolution of the provisions at issue
demonstrated that treatment of imports had nothing to do with the fundamental structure of the
part of the rule that was being contested. For conventional gasoline, the CAA prescribed
individual baselines on a producer-specific basis for refiners, blenders and importer. At the time
the CAA Amendments were introduced, imports did not figure significantly in the debate, not
surprisingly in the light of their small (2 to 6 percent) share of the US gasoline market. In view
of the uncertainty of the emissions effects of these parameters irrespective of the source of
gasoline, in 1991 EPA agreed to regulate, with respect to reformulated gasoline, on the basis of
individual baselines for the three non-degradation requirements.
3.69 Venezuela argued that the 75 % Rule which applied to only a few refineries that were
historically determined did grant an advantage to gasoline imported by the United States from
certain third countries, as opposed to gasoline imported from Venezuela. Thus, the Gasoline Rule
constituted a means of arbitrary and unjustifiable discrimination between countries where the same
conditions prevailed. Referring to past panel reports19, Venezuela considered that the reference
"where the same conditions prevail" did not relate to the national treatment obligations, as had
been argued by the United States, but only to the most-favoured-nation obligation of the General
Agreement. Moreover, as had been previously argued by Venezuela, the discriminatory baseline
requirements of the Gasoline Rule were not justified by environmental concerns, but intended to
distort the conditions of competition in favour of US gasoline against imported gasoline. Hence,
the Gasoline Rule was a disguised restriction on international trade, within the meaning of the
Preamble of Article XX.
3.70 Brazil rejected the arguments given by the United States and argued that by discriminating
between the United States and all other countries, and by discriminating among third countries
based upon the criteria of ownership and quantity of exports, the Gasoline Rule constituted a
means of arbitrary or unjustifiable discrimination between countries where the same conditions
prevailed. Since the discrimination of imported products was so blatant, Brazil considered that the
restrictions on trade were not disguised.
19"United States - Imports of Certain Automotive Spring Assemblies", BISD 30S/107, para. 55 (adopted on 26 May 1983) and "United
States - Prohibition on Imports of Tuna and Tuna Products from Canada", BISD 29S/91, para. 4.8 (adopted on 22 February 1982).

8. Article XXIII - Nullification and Impairment
3.71 Venezuela argued that, in addition to its violation claim under XXIII:1(a), it was making
an alternative claim of nullification and impairment under XXIII:1(b). The discriminatory
baseline requirements had resulted in shipments of approximately thirty-three thousand fewer
barrels of Venezuelan gasoline to the United States per day than would be possible absent the
discrimination. The price of Venezuelan gasoline and its share in the US market, as well as the
investment programme for Venezuelan refineries, had also been adversely affected. Venezuela
was aware that statistical evidence of adverse trade effects was not the basis for a finding of
nullification or impairment under Article XXIII:1(b). Nevertheless, it wished to emphasize that
by so affecting trade volumes, prices received for Venezuelan gasoline, Venezuela's share in the
US market and PDVSA's investment programme, the Gasoline Rule had distorted the conditions
of competition for trade in the United States compared to the conditions reasonably expected by
Venezuela under the General Agreement. Venezuela said that if the Panel found nullification or
impairment under Article XXIII:1(a), it needed not make a ruling on non-violation nullification or
impairment under Article XXIII:1(b).
3.72 In responding to other claims by Venezuela and Brazil, the United States contested
generally the allegation that there was any identifiable impact on 1995 Venezuelan exports
attributable to the Gasoline Rule. Venezuela's exports to the United Sates had steadily declined
over the last five years, and its decrease in exports in 1995 was entirely consistent with the earlier
decline.
C. Agreement on Technical Barriers to Trade
1. Article 2 - Preparation, Adoption and Application of Technical
Regulations by Central Government Bodies
a) Whether or Not the Gasoline Rule is a Technical Regulation
3.73 Venezuela and Brazil submitted that the Gasoline Rule was a "document" which laid down
"product characteristics" and "with which compliance was mandatory" for both conventional and
reformulated gasoline. Therefore, it was a "technical regulation" within the meaning of Annex I
of the TBT Agreement.
3.74 The United States replied that the non-degradation requirements contained in the Gasoline
Rule did not specify particular product characteristics, and therefore did not meet the TBT
Agreement's definition of a "technical regulation". Shipments of gasoline of widely varying
characteristics could be sold by a particular entity, the only requirement being that at the end of
the year, the average of certain of their chemical ingredients fell below certain levels. Thus, these
provisions were requirements on companies, not on products, and compliance was measured on a
company level for importers and blenders, and on a refinery level for domestic refiners, but not
on a product basis. These provisions constituted requirements on total annual sales, but were not
technical regulations within the meaning of the TBT Agreement. Therefore, the TBT Agreement
did not apply to this dispute.
3.75 Venezuela maintained that EPA's regulation implementing the CAA through the baseline
setting mechanisms precisely established product characteristics for gasoline consumed in the
United States and was therefore a "document which lays down product characteristics" within the
meaning of the definition contained in Annex I of the TBT Agreement. Moreover, the
United States itself admitted this fact when saying that the Rule dealt with "chemical ingredients".
Venezuela was also of the view that averaging did not make any difference for the purpose of the

TBT Agreement since any averaging techniques required examination of the properties of each
individual gasoline shipment. Excluding from the coverage of the TBT Agreement regulations
relying on averaging would open a gaping loophole. Under this interpretation, the obligation of
the Agreement could be avoided by averaging. Venezuela considered that the United States
wanted to avoid examination under the TBT Agreement in order to escape the requirements
contained in Article 2.2.
3.76 Brazil objected to the United States' argument that the Gasoline Rule was not a technical
regulation within the meaning of the TBT Agreement. Brazil considered that the language of the
CAA and that of the Gasoline Rule, referred to the establishment of product standards for gasoline
when determining the fuel properties for the statutory baseline and the individual baselines. These
product standards applied to gasoline were mandatory. The fact, argued by the United States, that
no particular shipment of gasoline needed to meet any precise standards since the requirements
were measured on an annual average basis, and thus that the "product" was the annual quantity of
gasoline produced, blended, or imported, rather than each sub-unit, was irrelevant. Annual
production in this case was simply the unit of production to which the standard was applied.
Brazil noted that if the United States were correct in its assertion that the individual baselines
applied to refiners and not to gasoline, the discrimination would then be even more apparent
because foreign refiners had no baseline. In this case a mandatory requirement would apply only
to imported gasoline while, under the logic of the United States, no requirement would apply to
domestic gasoline, as distinct from domestic refiners. However, the enforcement and surveillance
system provided for by EPA in the Gasoline Rule in order to regularly check the quality of
gasoline and its property at the refinery level argued in favour of a technical regulation setting
forth product characteristics. Moreover, the United States' own statements to the Panel
acknowledged this fact when declaring that the "requirements" of the Gasoline Rule were
"necessary to protect human, animal and plant life or health". In conclusion, Brazil considered
that a rule which obliged imported gasoline that did not meet the statutory baseline to be blended
with gasoline that exceeded these requirements in order to meet the mandatory statutory
requirements was a "document" with mandatory product characteristics.
3.77 The United States argued that the TBT Agreement had been designed to elaborate on the
disciplines of Article III of the General Agreement for a very specific subset of measures
(technical regulations, standards and conformity assessment procedures). The fact that a measure
was in writing, mandatory and applied to products did not make it a technical regulation. Excise
taxes, for instance, met all these criteria but were not "technical regulations". Similarly, the term
"technical regulation" was not so broad as to cover all government regulatory actions affecting
products. For example, government regulations requiring factory smokestacks to have devices to
reduce emissions were not technical regulations, though they were in writing, mandatory and
specified "characteristics". Contrary to what was argued by the complainants, there were no
minimum or maximum content or emissions requirements applied with respect to the non-
degradation requirements for individual shipments of either reformulated or conventional gasoline
under the Simple Model. A shipment or even sale of gasoline was not required to meet specific
product characteristics with respect to the non-degradation requirements at issue. The Gasoline
Rule was not setting uniform criteria in terms of gasoline characteristics; standardization was
neither the purpose nor the result of the regulation. The United States concluded that the
complainants were interpreting the term "technical regulation" out of context and such an
interpretation, if accepted, would introduce into the TBT Agreement many measures which were
in fact not intended to be covered. The United States also argued that Brazil's view that a
"product" in this case be defined as an entire year's production, rather than a shipment or a batch,
would be a radical departure from the concept of "product" under the WTO and was without basis
in the WTO.

b) Article 2.1
3.78 Venezuela argued that Article 2.1 of the TBT Agreement incorporated the obligations of
national treatment and MFN set forth in Articles III and I of the General Agreement. Venezuela
and Brazil argued that, as a technical regulation within the meaning of the TBT Agreement, the
Gasoline Rule laid down product characteristics for imported Venezuelan and Brazilian gasoline
that gave less favourable treatment than that provided to imports from certain third countries and
to US gasoline. Thus, it violated the obligations of national treatment and MFN treatment
contained in Article 2.1 of the TBT Agreement.
c) Article 2.2
3.79 Venezuela and Brazil claimed that the Gasoline Rule created unnecessary obstacles to
international trade in violation of Article 2.2 of the TBT Agreement.
3.80 Venezuela considered that the Gasoline Rule violated Article 2.2 for two reasons. First,
there was evidence that this Rule had been "prepared, adopted or applied with a view to ...
creating obstacles to international trade". The United States did not intend to discriminate against
imported gasoline when it initiated the regulatory process. However, crucial decisions involving
the specific discriminatory aspects of the Rule were knowingly made both during the regulatory
process and thereafter. The testimony under oath made in April 1994 by a government official to
the United States Senate was evidence that the discrimination was intentionally adopted as a means
of affording protection to gasoline produced in the United States.
3.81 Second, the Gasoline Rule had the effect of creating an unnecessary obstacle to
international trade because the more stringent requirements imposed on imported gasoline were
not necessary to fulfil the stated objective of the Rule which is to improve air quality in the United
States. In this respect, Venezuela considered that Article 2.2 of the TBT Agreement provided
greater guidance with respect to the concept of "necessity" than Article XX of the General
Agreement, especially its second sentence which expressly calls for a certain balance. Article XX
spoke only of measures that are "necessary", which had been in previous cases strictly interpreted
to mean that a measure is not necessary if it is not the least trade-restrictive measure reasonably
available20. As explained in relation of Article XX(b), the Gasoline Rule clearly pursued a trade-
restrictive approach despite the fact that alternatives consistent with the General Agreement were
available, while the risks of non-fulfilment of any legitimate objective had been deliberately
exaggerated. EPA itself had acknowledged that less trade-restrictive alternatives of achieving the
air quality objective were possible and the 1994 Proposal, though not entirely consistent with the
General Agreement, was one such alternative.
3.82 Venezuela further considered that the risks of non-fulfilment of a legitimate objective had
to be assessed against "scientific and technical information" which, in the case at hand, had never
been provided despite various requests made by Venezuela, in particular under Article 2.5 of the
TBT Agreement. Article 2.2 of the TBT Agreement required that the trade-restrictive elements of
a technical regulation be eliminated unless "scientific and technical information" or other reliable
factual data demonstrate that those elements were necessary to fulfil a legitimate objective. The
United States had never submitted scientific evidence or technical data demonstrating that the
different baseline requirements were necessary to fulfil the air quality objectives but had always
relied on "gaming" as the justification. EPA had never attempted to analyze how much imported
gasoline would be susceptible to gaming or whether, in case of gaming, the impact on health
20"United States - Section 337 of the Tariff Act of 1930", BISD 36S/345, adopted on 7 November 1989 and "Thailand - Restrictions
on Importation of and Internal Taxes on Cigarettes", BISD 37/200, adopted 7 November 1990.

objectives would be unacceptable. In that regard, Venezuela recalled that EPA itself had
acknowledged that the environmental impact of gaming was speculative because it lacked "clear
evidence" regarding the actual average quality of 1990 imported gasoline and did not know
whether a significant amount of imported gasoline was "cleaner" than the statutory baseline.
Moreover, so little gasoline was imported that the potential differential emissions -between
individual and statutory baselines- would not have any significant impact on the average emission
quality of the gasoline consumed in the United States.
3.83 Brazil stated that, for the reasons already expressed under arguments relating to Articles I
and III of the General Agreement and Article 2.1 of the TBT Agreement, the Gasoline Rule
created "unnecessary obstacles to international trade" in a manner contrary to Article 2.2 of the
TBT Agreement.
2. Article 12 - Special and Differential Treatment
of Developing Country Members
3.84 Venezuela observed that Article 12 of the TBT Agreement imposed certain obligations on
the United States with respect to developing countries. Venezuela did not seek any special
treatment but merely wanted its gasoline to be held to the same baseline requirements as US
gasoline. Venezuela stated that it was not asking for the Panel to rule under Article 12 but
intended to point out that the discriminatory treatment affecting Venezuelan gasoline was
particularly objectionable in the light of that provision.
IV. SUBMISSIONS BY INTERESTED THIRD PARTIES
A. The European Communities
4.1 The European Communities (the "EC") stated that, as an exporter to the United States of
gasoline for automobiles and other fuel oils, it had a substantial interest in the matter before the
Panel. In 1994, the total volume of EC-12 exports to the United States for gasoline represented
6'423'411 metric tonnes. This volume had increased since the enlargement of the EC, on
1 January 1995. The EC declared that it did not contest the right of the United States to enforce
legislation whose purpose was to protect human, animal or plant life or health. However, such
measures had to be in conformity with the provisions of the WTO Agreement and not be applied
so that imports from third countries were discriminated against, that the domestic industry was
afforded protection, or that disguised restrictions were imposed on international trade.
4.2 The EC stated that, while agreeing with the United States that the application of formally
identical provisions could, in certain cases, accord in practice less favourable treatment to
imported products, it could not agree with the consequences which the United States seemed to
draw from the findings of the panel report "United States - Section 337 of the Tariff Act of 1930"
for the present case. It could not be concluded from that report that when it was not technically
feasible to apply to imported products the rule applied to domestic products, it was then sufficient
to find a workable rule which was sufficiently close to that applicable to domestic products,
without changing that latter rule. The EC considered that the logic behind Article III of the
General Agreement required Members to achieve effective non-discrimination or absence of
protection. Such an objective should be achieved preferably by amending existing rules or re-
formulating new rules which could be applied identically to domestic and imported goods.
4.3 The EC argued that risks of violations of Article III:1 and 4 resulted from the fact that
Methods 2 and 3 of establishing individual baselines were only available to domestic refiners.

The EC did not want to discuss the accuracy of the arguments developed by the United States with
respect to the feasibility of individual baselines for foreign refiners, but assumed, for the sake of
argument, that Methods 2 and 3 could not be applied to imported gasoline in this case.
Considering the explanations given by the United States as to what the statutory baseline
represented, and assuming they were correct, the EC failed to see why US refiners could not be
subject to the statutory baseline, like importers and blenders. Such a measure would have been in
total conformity with Article III, paragraphs 1 and 4. In addition, it appeared from the
information submitted by the main parties to the dispute that barely half of the US refiners had
their individual baselines approved at the time of the entry into force of the Rule. While not
affecting the existence of the violation, this fact proved that the application of the statutory
baseline erga omnes would probably not affect significantly the competitive position of US
refiners.
4.4 The EC understood the concern expressed by the United States that certain importers and
blenders, who had the flexibility to select gasoline from various sources, might have an advantage
over US refiners if the statutory baseline were to be applied to all gasoline producers. However,
this potential advantage was inherent to the averaging mechanism contained in the Gasoline Rule
and was not a sufficient reason to introduce a system which would unavoidably favour certain US
producers. Article III required that no less favourable treatment be given to imported products,
not the contrary21. If one considered that a US refiner might have produced extremely "dirty"
gasoline in 1990, the Gasoline Rule did not give an immediate incentive for US refiners to adapt
their production, whereas increased access to US market for third country gasoline was dependent
on a gradual approximation of their quality compared with the statutory baseline. Therefore, the
Gasoline Rule entailed at the very least a serious risk of discrimination, which constituted, by
itself, a form of discrimination22. According to past panel reports, the United States had to show
that, despite the different treatment accorded to imported products, the no less favourable
treatment standard of Article III was met.
4.5 Regarding the 75 % Rule, the EC argued that the fact it was based on objective criteria,
as argued by the United States, was not sufficient to avoid discrimination in the present case. A
de facto discrimination in the application of the most-favoured-nation principle was possible, as
the criteria used to grant that treatment were based on the situation in 1990. An importer meeting
the required criteria after that date could not have invoked it. Hence, the Rule could only benefit
certain countries where US companies had invested in local refiners before 1990. As
acknowledged by the United States, this could have included Canada, where certain US companies
owned refineries at that time. However, this could not have benefitted production of refiners
located in countries where, for instance, the petroleum industry was mostly, if not exclusively,
owned by the State in 1990. Therefore, the 75 % Rule was de facto not based on objective
criteria, and hence contrary to Article I of the General Agreement. The EC further argued that
the Panel should make a finding on this Rule despite the fact that it could no longer be invoked.
A Panel should be guided in its examination by the content of the "matter" -the 75 % Rule in the
present case- referred to it23. A determination by the Panel on the conformity of that rule with
Article I would help avoid this kind of measure being found in the future in the legislation of a
WTO Member.
21"United States - Section 337 of the Tariff Act of 1930", BISD 36S/345 (adopted on 7 November 1989).
22"EEC - Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal Feed Proteins", BISD 37S/86
(adopted on 25 January 1990).
23United States - Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from France,
Germany and the United Kingdom", SCM/185, 15 November 1994 (not adopted).

4.6 As to whether the Gasoline Rule fell under the TBT Agreement, the EC stated that it
agreed with the United States that the requirements on chemical ingredients did not need to be
satisfied by each shipment and also that, the measures at issue being based on a yearly average,
the importers remained free to import different varieties of gasoline provided that the annual
average met the requirements. However, the EC doubted that a standard should be excluded from
the scope of the TBT Agreement only for the reason that it required compliance on a yearly basis
instead of on a shipment basis. It was clear that the importer had only to balance various qualities
of gasoline in order to meet the statutory baseline. From the point of view of the exporting
country, the Gasoline Rule created a clear incentive for adapting its production standards if it
wanted to maintain or increase its share of the US market. Exporting refiners not adapting their
production standards to US requirements (or at least not gradually narrowing the difference down
to total compliance) would be unlikely to increase their sales in the US since importers had to
blend or balance the "dirty" imported gasoline with "cleaner" gasoline. The "cleaner" gasoline
being likely to be more expensive, importers would gradually cease to import "dirty" gasoline,
thus obliging foreign refiners to meet the statutory baseline for each shipment. For this reason,
the EC could not agree with the United States that the non-degradation requirements did not
specify particular "product characteristics". Although no maximum content was set per shipment,
the US methodology resulted in pushing the market to apply standards gradually closer to the
averages referred to in the rule.
4.7 The EC considered that, in certain circumstances, the US system would impose a clearly
defined standard. For example, an exporter setting up its own importation network in the United
States was likely to be obliged to immediately adapt its production to US standards in order not to
have to import gasoline of different qualities at the same time as its own gasoline (with the related
increased costs). Therefore, the EC believed that the Gasoline Rule imposed a technical
regulation within the meaning of the TBT Agreement. The EC further considered that, if one
were to agree with the US arguments, such an averaging system could represent a potential for
circumvention of the TBT Agreement, mainly in the field of chemical products where it was used
relatively frequently. If the mere use of an averaging requirement was sufficient to exclude the
TBT Agreement from applying to certain environmental standards, then the increased legal
protection resulting from Article 2.2 of that Agreement compared, for instance, with Article XX
of the General Agreement, would no longer be available for the other Members.
4.8 Referring to the findings of a previous panel, the EC considered that, from a procedural
point of view, the United States was entitled to rely on Article III and on Article XX in the
alternative24. However, Article XX, as an exception, had to be interpreted strictly, and the EC
was of the view that the Gasoline Rule, in the way it was applied, did not meet the requirements
of Article XX but imposed a disguised restriction on trade by allowing US refiners to continue
producing "dirty" gasoline meeting their individual baselines, while imposing actual constraints on
foreign producers to adapt their production to US standards. Such a protectionist effect would
probably not be created if identical baselines were applied to both imported and domestically
produced gasoline. Moreover, as demonstrated above, the application of the statutory baseline to
both domestic and imported gasoline would have achieved the same aim without introducing
discrimination between sources of supply. In any event, measures inconsistent with the General
Agreement were not necessary to enforce the 1990 CAA amendment. Therefore, the EC
considered that, even if the Gasoline Rule did not constitute a "means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail", it was obviously a means to
alleviate the restructuring efforts of the US refining industry while at the same time requiring
foreign producers to adapt almost immediately their production. Hence, while officially pursuing
24"United States - Restrictions on Imports of Tuna", DS21/R, 3 September 1991, para. 5.22 (not adopted).

environmental objectives, it introduced a disguised restriction on trade. The EC concluded that
the baselines system was not proportionate and did not meet the necessity test of Article XX.
B. Norway
4.9 Norway stated that its reasons for reserving its rights as a third party in this case were in
legal and practical terms very similar to those argued by Venezuela and Brazil in their respective
requests for the establishment of a panel. The Gasoline Regulation denied national treatment to
gasoline imported from Norway. Therefore, Norway supported Venezuela and Brazil's request
that the Panel find the Gasoline Rule to be inconsistent with Articles I and III of the General
Agreement, and with Article 2 of the TBT Agreement.
4.10 Norway said that the Norwegian State Oil Company ("Statoil") was experiencing a very
difficult situation because of the way the Gasoline Rule operated. There was a considerable
incentive for Statoil to be able to export to the US market as compared to other markets. In
1989, Statoil built the Mongstad refinery with the objective of selling to the United States some
0.5 millions tons per year out of a total gasoline production of 2,5 millions tons per year. In
1990, Statoil sold a total of about 470'000 tons of gasoline to the United States, out of which
about 350'000 tons came from Mongstad refinery. Since December 1994, Statoil had not
exported gasoline from Mongstad to the United States.
4.11 Norway argued that changing specifications was in the nature of the refining business.
However, like Venezuela's and Brazil's refineries, Statoil was affected by the discriminatory
nature of the US regulation. Assigned to the statutory baseline for its exports of reformulated
gasoline until 1998 and for conventional gasoline indefinitely, the Mongstad refinery would not
competitively be able to produce any volumes of gasoline, based on current refinery
configurations and investment plans. Norway considered that, if the Panel ruled in favour of
Venezuela and Brazil, Statoil would, as an "Importer of Record" in 1990, be allowed to establish
its individual 1990 baseline for the volume sold that year.
V. INTERIM REVIEW
5.1 On 18 December 1995, the United States requested the Panel to review in accordance with
Article 15.2 of the DSU precise aspects of the interim report that had been issued to the parties on
11 December 1995, and to hold a meeting for that purpose. The Panel met with the parties on 3
January 1996 in order to hear their arguments concerning the interim report. The Panel carefully
reviewed the arguments presented by the United States and the responses offered by Venezuela
and Brazil.
5.2 In respect of the interim report’ s discussion of Article III, the United States argued that in
several respects the interim report dealt with issues that were not disputed by the parties or were
unnecessary to the Panel’ s conclusion that aspects of the Gasoline Rule violated Article III:4.
While the Panel did not agree with all the arguments made by the United States, it did revise the
report to take into account those arguments with which it agreed and paragraphs 6.5 and 6.9 -
6.11 of the findings reflect the Panel’ s response.
5.3 In respect of the interim report’ s discussion of Article XX(b), the United States objected
to the Panel’ s use of specific terms which did not appear in the text of the provision, the
description of the US argument, and the Panel’ s analysis of alternative measures available to the
United States. The Panel revised the report where it accepted the US arguments and paragraphs
6.20 - 6.25 and 6.27 - 6.28 of the findings reflect the Panel’ s response.

5.4 In respect of the interim report’ s discussion of Article XX(d), the United States objected
to the Panel’ s use of specific terms which did not appear in the text of the provision. The Panel
accepted the US arguments and paragraph 6.31 of the revised findings reflects the Panel’ s
response.
5.5 In respect of the interim report’ s discussion of Article XX(g), the United States objected
to the Panel’ s use of specific terms which did not appear in the text of the provision, and the
analysis of alternative measures available to the United States. Venezuela requested a change to
the description of its argument under this provision. The Panel revised the report where it
accepted the arguments of the US and Venezuela and paragraphs 6.35 - 6.36 and 6.40 - 6.41 of
the findings reflect the Panel’ s response.
5.6 In respect of the interim report’ s descriptive section, Venezuela and the United States
suggested further changes which the Panel took into account in re-examining that part of the
report. The Panel revised the descriptive section of the report where it accepted the need for
these changes.
VI. FINDINGS
A. Introduction
6.1 The Panel noted that the dispute arose from the following facts. The Clean Air Act aims
to control and reduce air pollution in the United States. The Act and certain of its regulations (the
“ Gasoline Rule” ) set standards for gasoline quality intended to reduce air pollution, including
ozone, caused by motor vehicle emissions. From 1 January 1995, the Gasoline Rule permits only
gasoline of a specified cleanliness (“ reformulated gasoline” ) to be sold in areas of high air
pollution. In other areas, only gasoline no dirtier than that sold in the base year of 1990
(“ conventional gasoline” ) can be sold.
6.2 The Gasoline Rule applies to refiners, blenders and importers of gasoline. It requires that
certain chemical characteristics of the gasoline in which they deal respect, on an annual average
basis, defined levels. In the Gasoline Rule some of these levels are fixed; others are expressed as
“ non-degradation” requirements. Under the non-degradation requirements, each domestic refiner
must maintain, on an annual average basis, the relevant gasoline characteristics at levels no worse
than its “ individual baseline” — that is, the annual average levels achieved by that refiner in 1990.
To establish an individual baseline, a refiner must show evidence of the quality of gasoline
produced or shipped in 1990 (“ Method 1"). If that evidence is not complete, then it must use data
on the quality of blendstock produced in 1990 (“ Method 2"). If these two methods do not result
in sufficient evidence, the refiner must also use data on the quality of post-1990 gasoline
blendstock or gasoline (“ Method 3").
6.3 Importers are also required to use an individual baseline, but only in the case (unlikely,
according to the parties to the dispute) that they are able to establish it using Method 1 data.
Unlike domestic refiners, they are not allowed to establish an individual baseline by using the
secondary or tertiary data specified in Methods 2 and 3. If an importer cannot produce Method 1
data, then it must use a “ statutory baseline” which the United States claims is derived from the
average characteristics of all gasoline consumed in the United States in 1990. Some other
domestic entities (such as refiners with only partial or no 1990 operations, and blenders with
insufficient Method 1 data) are also assigned the statutory baseline. Exceptionally, importers that
imported in 1990 at least 75 percent of the production of an affiliated foreign refinery are treated
as domestic refiners for the purpose of establishing baselines. Since this dispute concerns only the

Gasoline Rule’ s non-degradation requirements, and not reformulated and conventional gasoline as
such, the Panel will refer generally to “ gasoline” in the course of its findings.
6.4 Venezuela and Brazil claim that the Gasoline Rule violates the national treatment
provisions of Article III:1 and 4 of the General Agreement and the most-favoured-nation provision
of Article I. Venezuela claims in the alternative that the Gasoline Rule has nullified and impaired
benefits under the non-violation provisions of Article XXIII:1(b). Venezuela and Brazil also claim
that the Gasoline Rule violates Article 2 of the Agreement on Technical Barriers to Trade (the
“ TBT Agreement” ). The United States rejects these claims and argues that the Gasoline Rule can
be justified under the exceptions contained in Article XX, paragraphs (b), (d) and (g), which
argument is rejected by Venezuela and Brazil. It also argues that the Gasoline Rule does not
come within the scope of Article 2 of the TBT Agreement.
B. Article III
1. Article III:4
6.5 The Panel proceeded to examine the claim that the Gasoline Rule violates Article III:4 of
the General Agreement, which states:
The products of the territory of any contracting party imported into the territory of
any other contracting party shall be accorded treatment no less favourable than
that accorded to like products of national origin in respect of all laws, regulations
and requirements affecting their internal sale, offering for sale, purchase,
transportation, distribution or use.
The Panel noted that under this provision the complainants are required to show the existence of:
(a) a law, regulation or requirement affecting the internal sale, offering for sale, purchase,
transportation, distribution or use of an imported product; and (b) treatment accorded in respect
of the law, regulation or requirement that is less favourable to the imported product than to the
like product of national origin. The Panel agreed with the parties that the Gasoline Rule was a
law, regulation or requirement affecting the internal sale, offering for sale, purchase,
transportation, distribution or use of an imported product. It proceeded therefore to consider
whether the Gasoline Rule accorded less favourable treatment to imported products than to like
products of national origin.
6.6 The Panel noted the arguments of Venezuela and Brazil that imported gasoline was “ like”
domestic gasoline, but received treatment less favourable because imported gasoline was subjected
to more demanding quality requirements than gasoline of US origin. The United States replied
that gasoline from similarly-situated parties was treated in the same manner under the Gasoline
Rule. Gasoline from importers was treated no less favourably than that from other domestic non-
refiners such as blenders, or refiners who had only limited or no operations in 1990.
6.7 The Panel observed that Article III:4 deals with treatment to be accorded to like products.
However, the text does not specify exhaustively those aspects that determine whether the products
are “ like” . In resolving this interpretative issue the Panel referred, in conformity with Article 3.2
of the Understanding on Rules and Procedures Governing the Settlement of Disputes, to the
Vienna Convention on the Law of Treaties, which states in Article 31 that “ a treaty shall be

interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the
treaty in their context and in the light of its object and purpose” .25
6.8 The Panel proceeded to examine this issue in the light of the ordinary meaning of the term
“ like” . It noted that the word can mean “ similar” , or “ identical” . The Panel then examined the
practice of the CONTRACTING PARTIES under the General Agreement. This practice was relevant since
Article 31 of the Vienna Convention directs that “ subsequent practice in the application of the
treaty which establishes the agreement of the parties regarding its interpretation” is also to be
considered in the interpretation of a treaty. The Panel noted that various criteria for the
determination of like products under Article III had previously been applied by panels. These
were summarized in the 1970 Working Party Report on Border Tax Adjustments, which had
observed:
With regard to the interpretation of the term ‘ like or similar products’ , which
occurs some sixteen times throughout the General Agreement, it was recalled that
considerable discussion had taken place . . . but that no further improvement of
the term had been achieved. The Working Party concluded that problems arising
from the interpretation of the terms should be examined on a case-by-case basis.
This would allow a fair assessment in each case of the different elements that
constitute a ‘ similar’ product. Some criteria were suggested for determining, on a
case-by-case basis, whether a product is ‘ similar’ : the product's end-uses in a
given market; consumers' tastes and habits, which change from country to
country; the product's properties, nature and quality.26
These criteria had been applied by the panel in the 1987 Japan Alcohol case in the examination
under Article III:2 of internal taxation measures. That panel had proceeded on a case-by-case
basis, determining whether various alcoholic beverages were “ like” on the basis of “ their similar
properties, end-uses and usually uniform classification in tariff nomenclatures.” 27 The Panel
considered that those criteria were also applicable to the examination of like products under
Article III:4.
6.9 In light of the foregoing, the Panel proceeded to examine whether imported and domestic
gasoline were like products under Article III:4. The Panel observed first that the United States
did not argue that imported gasoline and domestic gasoline were not like per se. It had argued
rather that with respect to the treatment of the imported and domestic products, the situation of the
parties dealing in the gasoline must be taken into consideration. The Panel, recalling its previous
discussion of the factors to be taken into account in the determination of like product, noted that
chemically-identical imported and domestic gasoline by definition have exactly the same physical
characteristics, end-uses, tariff classification, and are perfectly substitutable. The Panel found
therefore that chemically-identical imported and domestic gasoline are like products under
Article III:4.
6.10 The Panel next examined whether the treatment accorded under the Gasoline Rule to
imported gasoline was less favourable than that accorded to like gasoline of national origin. The
Panel observed that domestic gasoline benefitted in general from the fact that the seller who is a
refiner used an individual baseline, while imported gasoline did not. This resulted in less
favourable treatment to the imported product, as illustrated by the case of a batch of imported
25Vienna Convention on the Law of Treaties, Art. 31.
27"Japan - Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages", BISD 34S/83, 115, para. 5.6
(adopted on 10 November 1987).

gasoline which was chemically-identical to a batch of domestic gasoline that met its refiner's
individual baseline, but not the statutory baseline levels. In this case, sale of the imported batch
of gasoline on the first day of an annual period would require the importer over the rest of the
period to sell on the whole cleaner gasoline in order to remain in conformity with the Gasoline
Rule. On the other hand, sale of the chemically-identical batch of domestic gasoline on the first
day of an annual period would not require a domestic refiner to sell on the whole cleaner gasoline
over the period in order to remain in conformity with the Gasoline Rule. The Panel also noted
that this less favourable treatment of imported gasoline induced the gasoline importer, in the case
of a batch of imported gasoline not meeting the statutory baseline, to import that batch at a lower
price. This reflected the fact that the importer would have to make cost and price allowances
because of its need to import other gasoline with which the batch could be averaged so as to meet
the statutory baseline. Moreover, the Panel recalled an earlier panel report which stated that “ the
words ‘ treatment no less favourable’ in paragraph 4 call for effective equality of opportunities for
imported products in respect of laws, regulations and requirements affecting the internal sale,
offering for sale, purchase, transportation, distribution or use of products.” 28 The Panel found
therefore 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.
6.11 The Panel then examined the US argument that the requirements of Article III:4 are met
because imported gasoline is treated similarly to gasoline from similarly situated domestic parties
— domestic refiners with limited 1990 operations and blenders. According to the United States,
the difference in treatment between imported and domestic gasoline was justified because
importers, like domestic refiners with limited 1990 operations and blenders, could not reliably
establish their 1990 gasoline quality, lacked consistent sources and quality of gasoline, or had the
flexibility to meet a statutory baseline since they were not constrained by refinery equipment and
crude supplies. The Panel observed that the distinction in the Gasoline Rule between refiners on
the one hand, and importers and blenders on the other, which affected the treatment of imported
gasoline with respect to domestic gasoline, was related to certain differences in the characteristics
of refiners, blenders and importers, and the nature of the data held by them. However, Article
III:4 of the General Agreement deals with the treatment to be accorded to like products; its
wording does not allow less favourable treatment dependent on the characteristics of the producer
and the nature of the data held by it. The Panel noted that in the Malt Beverages case, a tax
regulation according less favourable treatment to beer on the basis of the size of the producer was
rejected.29 Although this finding was made under Article III:2 concerning fiscal measures, the
Panel considered that the same principle applied to regulations under Article III:4. Accordingly,
the Panel rejected the US argument that the requirements of Article III:4 are met because imported
gasoline is treated similarly to gasoline from similarly situated domestic parties.
6.12 Apart from being contrary to the ordinary meaning of the terms of Article III:4, any
interpretation of Article III:4 in this manner would mean that the treatment of imported and
domestic goods concerned could no longer be assured on the objective basis of their likeness as
products. Rather, imported goods would be exposed to a highly subjective and variable treatment
according to extraneous factors. This would thereby create great instability and uncertainty in the
conditions of competition as between domestic and imported goods in a manner fundamentally
inconsistent with the object and purpose of Article III.
28"United States - Section 337 of the Tariff Act of 1930", BISD 36S/386, para 5.11 (adopted on 7 November 1989).
29"United States - Measures Affecting Alcoholic and Malt Beverages", BISD 39S/206, para. 5.19 (adopted on 19 June 1992).

6.13 The Panel considered that the foregoing was sufficient to dispose of the US argument. It
noted, however, that even if the US approach were to be followed, under any approach based on
“ similarly situated parties” the comparison could just as readily focus on whether imported
gasoline from an identifiable foreign refiner was treated more or less favourably than gasoline
from an identifiable US refiner. There were, in the Panel’ s view, many key respects in which
these refineries could be deemed to be the relevant similarly situated parties, and the Panel could
find no inherently objective criteria by means of which to distinguish which of the many factors
were relevant in making a determination that any particular parties were “ similarly situated.”
Thus, although these refineries were similarly situated, the Gasoline Rule treated the products of
these refineries differently by allowing only gasoline produced by the domestic entity to benefit
from the advantages of an individual baseline. This consequential uncertainty and indeterminacy
of the basis of treatment underlined, in the view of the Panel, the rationale of remaining within
the terms of the clear language, object and purpose of Article III:4 as outlined above in
paragraph 6.12.
6.14 The Panel then noted the argument of the United States that the treatment accorded to
gasoline imported under a statutory baseline was on the whole no less favourable than that
accorded to domestic gasoline under individual refiner baselines. The United States claimed that
the Gasoline Rule did not discriminate against imported gasoline, since the statutory baseline (by
the nature of its calculation) and the average of the sum of the individual baselines both
corresponded to average gasoline quality in 1990, and that domestic and imported gasoline was
treated equally overall. The Panel noted that, in these circumstances, the argument that on
average the treatment provided was equivalent amounted to arguing that less favourable treatment
in one instance could be offset provided that there was correspondingly more favourable treatment
in another. This amounted to claiming that less favourable treatment of particular imported
products in some instances would be balanced by more favourable treatment of particular products
in others. A previous panel had found that
the "no less favourable" treatment requirement of Article III:4 has to be
understood as applicable to each individual case of imported products. The Panel
rejected any notion of balancing more favourable treatment of some imported
products against less favourable treatment of other imported products. If this
notion were accepted, it would entitle a contracting party to derogate from the no
less favourable treatment obligation in one case, or indeed in respect of one
contracting party, on the ground that it accords more favourable treatment in some
other case, or to another contracting party. Such an interpretation would lead to
great uncertainty about the conditions of competition between imported and
domestic products and thus defeat the purposes of Article III.30
The Panel concurred with this reasoning that under Article III:4 less favourable treatment of
particular imported products in some instances could not be balanced by more favourable
treatment of other imported products in other instances. The Panel therefore rejected the US
argument.
6.15 The Panel observed that, considered even from the point of view of imported gasoline as a
whole, treatment was generally less favourable. 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. Statistics on baselines bore out
this difference in treatment. According to the United States, as of August 1995, approximately
30"United States - Section 337 of the Tariff Act of 1930", BISD 36S/345, para. 5.14 (adopted on 7 November 1989).

100 US refiners, representing 98.5 percent of gasoline produced in 1990, had received EPA
approval of their individual baselines. Only three of the refiners met the statutory baseline for all
parameters. Thus, while 97 percent of US refiners did not and were not required to meet the
statutory baseline, the statutory baseline was required of importers of gasoline, except in the rare
case (according to the parties) that they could establish a baseline using Method 1.
6.16 The Panel found that imported and domestic gasoline were like products, and 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.
2. Article III:1
6.17 The Panel then noted the arguments advanced by Venezuela and Brazil that the Gasoline
Rule was applied “ so as to afford protection to domestic production” contrary to Article III:1.
The United States disagreed and argued in the alternative that Article III:1 was only hortatory and
could not form the basis of a violation. The Panel examined first whether, after making a finding
of inconsistency with Article III:4, it should make a finding under Article III:1. The Panel noted
that the panel in the Malt Beverages case had examined a claim made under paragraphs 1, 2 and 4
of Article III. That panel had concluded that “ because Article III:1 is a more general provision
than either Article III:2 or III:4, it would not be appropriate for the Panel to consider [the
complainant’ s] Article III:1 allegations to the extent that the Panel were to find [the respondent’ s]
measures to be inconsistent with the more specific provisions of Articles III:2 and III:4.” 31 The
present Panel agreed with this reasoning, and therefore did not find it necessary to examine the
consistency of the Gasoline Rule with Article III:1.
C. Article I:1
6.18 The Panel proceeded to examine the claim of Venezuela and Brazil that the Gasoline Rule
violated the most-favoured-nation provision of Article I:1 by permitting an importer to use
secondary evidence to establish an individual baseline, provided that in 1990 it imported at least
75 percent of the production from an affiliated foreign refinery. Venezuela and Brazil claimed
that the rule targeted a small number of countries, and that the different treatment was based on
criteria (ownership and proportion of product purchased) that had no link to the product, as
required under Article I:1. The United States claimed the rule was based on objective criteria
and, in any case, it was not applicable because no importer had qualified for the benefit before the
deadline.
6.19 The Panel observed that it had not been the usual practice of a panel established under the
General Agreement to rule on measures that, at the time the panel’ s terms of reference were fixed,
were not and would not become effective. In the 1978 Animal Feed Protein case, the Panel ruled
on a discontinued measure, but one that had terminated after agreement on the panel’ s terms of
reference.32 In the 1980 Chile Apples case, the panel ruled on a measure terminated before
agreement on the panel’ s terms of reference; however, the terms of reference in that case
specifically included the terminated measure and, it being a seasonal measure, there remained the
31"United States - Measures Affecting Alcoholic and Malt Beverages", BISD 39S/206, 270, para. 5.2 (adopted on 19 June 1992).
32"EEC - Measures on Animal Feed Proteins", L/4599, BISD 25S/49 (adopted on 14 March 1978). See also the Report of the Panel
on "United States - Prohibitions of Imports of Tuna and Tuna Products from Canada", BISD 29S/91, 106, para. 4.3 (adopted on
22 February 1982).

prospect of its reintroduction.33 In the present case, the Panel’ s terms of reference were
established after the 75 percent rule had ceased to have any effect, and the rule had not been
specifically mentioned in the terms of reference. The Panel further noted that there was no
indication by the parties that the 75 percent rule was a measure that, although currently not in
force, was likely to be renewed. Finally, the Panel considered that its findings on treatment under
the baseline establishment methods under Articles III:4 and XX (b), (d) and (g) would in any case
have made unnecessary the examination of the 75 percent rule under Article I:1. The Panel did
not therefore proceed to examine this aspect of the Gasoline Rule under Article I:1 of the General
Agreement.
D. Article XX(b)
6.20 The Panel proceeded to examine whether the aspect of the baseline establishment methods
found inconsistent with Article III:4 could, as argued by the United States, be justified under
paragraph (b) of Article XX. The relevant parts of Article XX were as follows:
Subject to the requirement that such measures are not applied in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or a disguised restriction on
international trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any contracting party of measures:
(b) necessary to protect human, animal or plant life or health;
The Panel noted that as the party invoking an exception the United States bore the burden of proof
in demonstrating that the inconsistent measures came within its scope. The Panel observed that
the United States therefore had to establish the following elements:
(1) that the policy in respect of the measures for which the provision was invoked fell
within the range of policies designed to protect human, animal or plant life or
health;
(2) that the inconsistent measures for which the exception was being invoked were
necessary to fulfil the policy objective; and
(3) that the measures were applied in conformity with the requirements of the
introductory clause of Article XX.
In order to justify the application of Article XX(b), all the above elements had to be satisfied.
1. Policy goal of protecting human, animal or plant life or health
6.21 The Panel noted the United States argument that air pollution, in particular ground-level
ozone and toxic substances, presented health risks to humans, animals and plants. The United
States argued that, since about one-half of such pollution was caused by vehicle emissions, and the
Gasoline Rule reduced these, the Gasoline Rule was within the range of policy goals described in
Article XX(b). Venezuela and Brazil did not disagree with this view. The Panel agreed with the
parties that a policy to reduce air pollution resulting from the consumption of gasoline was a
33"EEC - Restrictions on Imports of Apples from Chile", BISD 27S/98, (adopted on 10 November 1980).

policy within the range of those concerning the protection of human, animal and plant life or
health mentioned in Article XX(b).
2. Necessity of the inconsistent measures
6.22 The Panel recalled its finding in paragraph 6.16 that imported gasoline was treated less
favourably than domestic gasoline, since, under the baseline establishment methods, imported
gasoline was prevented from benefitting from as favourable sales conditions as were afforded
domestic gasoline by an individual baseline tied to the producer of a product. The Panel then
proceeded to examine whether the aspect of the Gasoline Rule found inconsistent with the General
Agreement was necessary to achieve the stated policy objectives under Article XX(b). The Panel
noted that it was not the necessity of the policy goal that was to be examined, but whether or not
it was necessary that imported gasoline be effectively prevented from benefitting from as
favourable sales conditions as were afforded by an individual baseline tied to the producer of a
product. It was the task of the Panel to address whether these inconsistent measures were
necessary to achieve the policy goal under Article XX(b). It was therefore not the task of the
Panel to examine the necessity of the environmental objectives of the Gasoline Rule, or of parts of
the Rule that the Panel did not specifically find to be inconsistent with the General Agreement.
6.23 The Panel then turned to the arguments of the parties relating to that aspect of the
Gasoline Rule found inconsistent with the General Agreement. The United States argued that not
all entities dealing in gasoline could be assigned an individual baseline and, of those who could be
assigned such a baseline, not all could use the same types of secondary or tertiary evidence
(Methods 2 and 3) to establish it. Certain entities including importers, blenders and refiners
which did not have continuous 1990 operations, were simply not in a position to furnish this
secondary or tertiary evidence. Venezuela and Brazil argued on the other hand that foreign
refiners should be accorded their own individual baselines under the Gasoline Rule using the same
types of evidence, as easily available to them as to domestic refiners. Alternatively, they argued
that importers should be able to use individual 1990 baselines established for the foreign refiners
with whom they dealt. They noted that an EPA regulatory proposal had even been made along
those lines in May 1994. The United States countered that such a proposal would not be feasible
because of: (1) the impossibility of determining the refinery of origin for each imported
shipment; (2) the incentive to “ game” the system thereby handed to exporters and importers; and
(3) the difficulty for the United States to exercise an enforcement jurisdiction with respect to a
foreign refinery, since the Gasoline Rule required criminal and civil sanctions in order to be
effective. The United States argued further against the use of foreign refiner baselines by citing
“ equity concerns” of importers that their use would favour those firms that dealt with Venezuelan
product, and the existence of particular competitive conditions in the international market,
including the flexibility maintained by foreign refiners.
6.24 The Panel proceeded to examine whether the United States had in fact demonstrated that
the inconsistent measures found to violate Article III:4 were necessary to achieve the stated policy
objectives of the United States. The Panel noted that the term “ necessary” had been interpreted in
the context of Article XX(d) by the panel in the Section 337 case which had stated that:
a contracting party cannot justify a measure inconsistent with another GATT
provision as "necessary" in terms of Article XX(d) if an alternative measure which
it could reasonably be expected to employ and which is not inconsistent with other
GATT provisions is available to it. By the same token, in cases where a measure
consistent with other GATT provisions is not reasonably available, a contracting

party is bound to use, among the measures reasonably available to it, that which
entails the least degree of inconsistency with other GATT provisions.34
The same reasoning had been adopted by the 1990 Thai Cigarette panel in examining a measure
under Article XX(b). That panel saw no reason not to adopt the same interpretation of
“ necessity” under Article XX(b) as under Article XX(d), stating that
the import restrictions imposed by Thailand could be considered to be "necessary"
in terms of Article XX(b) only if there were no alternative measures consistent
with the General Agreement, or less inconsistent with it, which Thailand could
reasonably be expected to employ to achieve its health policy objectives.35
The Panel also noted that while several past panels examining issues under Article XX had
identified alternative measures that were reasonably available and fully consistent with the General
Agreement, they had also in other instances identified alternative measures that would be “ less
inconsistent” with the General Agreement. For example, the panel in the 337 case found that,
while a general exclusion order applying to imported products was not “ necessary” , a limited in
rem order could be justified even though it too was inconsistent with Article III:4.36 Recalling its
remarks in paragraph 6.22 above, the Panel considered that its task was thus to determine whether
the United States had demonstrated whether it was necessary to maintain precisely those
inconsistent measures whereby imported gasoline was effectively prevented from benefitting from
as favourable sales conditions as were afforded to domestic gasoline by an individual baseline tied
to the producer of a product. If there were consistent or less inconsistent measures reasonably
available to the United States, the requirement to demonstrate necessity would not have been met.
6.25 The Panel then examined whether there were measures consistent or less inconsistent with
the General Agreement that were reasonably available to the United States to further its policy
objectives of protecting human, animal and plant life or health. The Panel did not consider that
the manner in which imported gasoline was effectively prevented from benefitting from as
favourable sales conditions as were afforded to domestic gasoline by an individual baseline tied to
the producer of a product was necessary to achieve the stated goals of the Gasoline Rule. In the
view of the Panel, baseline establishment methods could be applied to entities dealing in imported
gasoline in a way that granted treatment to imported gasoline that was consistent or less
inconsistent with the General Agreement. If a single statutory baseline applying to all entities —
refiners, blenders and importers — was not the chosen regulatory method, then importers could
for example be permitted to use a gasoline baseline applicable to imports derived, when possible,
from evidence of the individual 1990 baselines of foreign refiners with whom the importer
currently dealt. Although such a scheme could result in formally different regulation for imported
and domestic products, the Panel noted that previous panels had accepted that this could be
consistent with Article III:4.37 The requirement under Article III:4 to treat an imported product
no less favourably than the like domestic product is met by granting formally different treatment
to the imported product, if that treatment results in maintaining conditions of competition for the
imported product no less favourable than those of the like domestic product. Further, these
conditions of competition referred to those conditions that were established by government
measures and would not therefore include factors such as the “ flexibility of individual producers”
in this case. The Panel noted finally that a regulatory scheme using foreign refiner baselines, to
34"United States - Section 337 of the Tariff Act of 1930", BISD 36S/345, para. 5.26 (adopted on 7 November 1989).
35"Thailand - Restrictions on Importation of and Internal Taxes on Cigarettes", BISD 37S/200, para. 75 (adopted on 7 November 1990).
36"United States - Section 337 of the Tariff Act of 1930", BISD 36S/345, para. 5.32 (adopted on 7 November 1989).
37"United States - Section 337 of the Tariff Act of 1930", BISD 36S/345, para. 5.11 (adopted on 7 November 1989).

the extent that it did not distinguish between imported gasoline on the basis of its country of
origin, would not necessarily contravene Article I or other provisions of the General Agreement,
and that the United States, notwithstanding suggestions that certain importers might have equitable
concerns, had not established the contrary.
6.26 The Panel noted the claims of the United States that allowing importers or foreign refiners
to use individual baselines in such a way was not feasible for the reasons listed in paragraph 6.23.
The Panel was not convinced that the United States had satisfied its burden of proving that those
reasons precluded the effective use of individual baselines in a manner which would allow
imported products to obtain treatment that was consistent, or less inconsistent, with obligations
under Article III:4. First, while the Panel agreed that it would be necessary under such a system
to ascertain the origin of gasoline, the Panel could not conclude that the United States had shown
that this could not be achieved by other measures reasonably available to it and consistent or less
inconsistent with the General Agreement. Indeed, the Panel noted that a determination of origin
would often be feasible. The Panel examined, for instance, the case of a direct shipment to the
United States. It considered that there was no reason to believe that, given the usual measures
available in international trade for determination of origin and tracking of goods (including
documentary evidence and third party verification) there was any particular difficulty sufficient to
warrant the demands of the baseline establishment methods applied by the United States.
6.27 Second, the Panel did not agree that the United States had met its burden of showing that
the “ gaming” concern was an adequate justification for maintaining the inconsistency with Article
III:4 resulting from the baseline establishment methods. It was uncertain if, or to what extent,
gaming would actually occur, especially given the small market share of imported gasoline
(approximately 3 percent). Moreover, the Panel noted that the Gasoline Rule did not guarantee in
its regulation of US entities that gasoline characteristics subject to non-degradation requirements
(i.e. those regulated by baselines), would remain at the 1990 average levels. For example, there
was no volume cap on the production of reformulated gasoline by individual refineries, which
meant that if producers of relatively dirtier gasoline expanded their relative share of production of
reformulated gasoline, the national average level of pollutants subject to the non-degradation
requirements would be greater than in 1990. Similarly, within the 1990 volume limitations, if the
output of producers of relatively cleaner gasoline fell below 1990 levels, while output of others
did not, national average levels of pollutants would be worse. Moreover, specific provisions of
the Gasoline Rule permitted some refiners to produce dirtier gasoline than they produced in 1990
(e.g., certain producers of JP-4 jet fuel) and permitted others to request specific derogation from
the Rule. The Panel stressed that it was not finding that such events would occur, only that they
could under the Rule. Given that the Gasoline Rule did not therefore guarantee that gasoline
characteristics subject to non-degradation requirements would remain at 1990 levels, the Panel
considered that it was not consistent for the United States to insist that there could be no possible
deviation from achieving those levels in respect of imports, when it had not deemed it necessary
to be as exacting on its own domestic production. Moreover, slightly stricter overall requirements
applied to both domestic and imported gasoline could offset any possibility of an adverse
environmental effect from these causes, and allow the United States to achieve its desired level of
clean air without discriminating against imported gasoline. Such requirements could be
implemented by the United States at any time. The Panel concluded that the United States had not
met its burden of showing that concern over gaming was an adequate justification for maintaining
the inconsistency with Article III:4 resulting from the baseline establishment methods.
6.28 Third, the Panel did not accept that the United States had demonstrated that there was no
other measure consistent, or less inconsistent, with Article III:4 reasonably available to enforce
compliance with foreign refiner baselines, or importer baselines based thereon. The imposition of
penalties on importers was in the Panel’ s view an effective enforcement mechanism used by the

United States in other settings. In the view of the Panel, the United States had reasonably
available to it data for, and measures of, verification and assessment which were consistent or less
inconsistent with Article III:4. For instance, although foreign data may be formally less subject to
complete control by US authorities, this did not amount to establishing that foreign data could not
in any circumstances be sufficiently reliable to serve US purposes. This, however, was the
practical effect of the application of the Gasoline Rule. In the Panel's view, the United States had
not demonstrated that data available from foreign refiners was inherently less susceptible to
established techniques of checking, verification, assessment and enforcement than data for other
trade in goods subject to US regulation. The nature of the data in this case was similar to data
relied upon by the United States in other contexts, including, for example, under the application
of antidumping laws. In an antidumping case, only when the information was not supplied or
deemed unverifiable did the United States turn to other information. If a similar practice were to
be applied in the case of the Gasoline Rule, then importers could, for instance, be permitted to use
the individual baselines of foreign refiners for imported gasoline from those refiners, with the
statutory baseline being applied only when the source of imported gasoline could not be
determined or a baseline could not be established because of an absence of data. In the Panel's
view, because allowing for such a possibility was reasonably available to the United States and
would entail a lesser degree of inconsistency with the General Agreement, the United States had
failed to demonstrate the necessity of the Gasoline Rule's inconsistency with Article III:4 on this
matter.
6.29 In view of the Panel’ s finding that the aspect of the baseline establishment methods found
inconsistent with Article III:4 was not “ necessary” under Article XX(b), the Panel did not proceed
to examine whether it met also the conditions in the introductory clause to Article XX.
E. Article XX(d)
6.30 The Panel proceeded to examine whether the aspect of the baseline establishment methods
found inconsistent with Article III:4 could, as argued by the United States, be justified under
paragraph (d) of Article XX. The relevant parts of Article XX were as follows:
Subject to the requirement that such measures are not applied in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or a disguised restriction on
international trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any contracting party of measures:
(d) necessary to secure compliance with laws or regulations which are not
inconsistent with the provisions of this Agreement, including those relating
to customs enforcement, the enforcement of monopolies operated under
paragraph 4 of Article II and Article XVII, the protection of patents, trade
marks and copyrights, and the prevention of deceptive practices;
6.31 The Panel recalled that the party invoking an exception under Article XX bore the burden
of proving that the inconsistent measures came within its scope. The Panel observed that the
United States therefore had to demonstrate the following elements:
(1) that the measures for which the exception were being invoked - that is, the
particular trade measures inconsistent with the General Agreement - secure
compliance with laws or regulations themselves not inconsistent with the General
Agreement;

(2) that the inconsistent measures for which the exception was being invoked were
necessary to secure compliance with those laws or regulations; and
(3) that the measures were applied in conformity with the requirements of the
introductory clause of Article XX.
In order to justify the application of Article XX(d), all the above elements had to be satisfied.
1. Securing compliance with consistent laws or regulations
6.32 The Panel proceeded to examine whether the aspect of the baseline establishment methods
found inconsistent with the General Agreement secured compliance with a law or regulation not
inconsistent with the General Agreement. The United States argued that the non-degradation
requirements were laws and regulations not inconsistent with the General Agreement, and that the
baseline establishment methods secured compliance with these. Venezuela argued that the United
States had not clearly established which laws or regulations were not inconsistent with the General
Agreement, and with which compliance was secured. Brazil considered that the US measures at
most enforced a policy objective, not an actual obligation as required under Article XX(d).
6.33 The Panel observed that, assuming that a system of baselines by itself were consistent with
Article III:4, the US scheme might constitute, for the purposes of Article XX(d), a law or
regulation “ not inconsistent” with the General Agreement. However, the Panel found that
maintenance of discrimination between imported and domestic gasoline contrary to Article III:4
under the baseline establishment methods did not “ secure compliance” with the baseline system.
These methods were not an enforcement mechanism. They were simply rules for determining the
individual baselines. As such, they were not the type of measures with which Article XX(d) was
concerned.38
2. Other conditions
6.34 The Panel observed that, in view of its finding that the less favourable treatment of
imported gasoline under the baseline establishment methods accorded to importers did not “ secure
compliance” with the underlying baseline establishment rules, it did not need to consider also
whether these methods were “ necessary” to secure compliance and met the conditions in the
introductory clause to Article XX.
F. Article XX(g)
6.35 The Panel proceeded to examine whether the part of the Gasoline Rule found inconsistent
with Article III:4 could, as argued by the United States, be justified under paragraph (g) of
Article XX. The relevant parts of Article XX were as follows:
Subject to the requirement that such measures are not applied in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or a disguised restriction on
international trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any contracting party of measures:
38"European Economic Community - Regulation on Imports of Parts and Components", BISD 37S/132, paras. 5.12 - 5.18 (adopted
on 16 May 1990).

(g) relating to the conservation of exhaustible natural resources if such
measures are made effective in conjunction with restrictions on domestic
production or consumption;
The Panel noted that as the party invoking an exception the United States bore the burden of proof
in demonstrating that the inconsistent measures came within its scope. The Panel observed that
the United States therefore had to demonstrate the following elements:
(1) that the policy in respect of the measures for which the provision was invoked fell
within the range of polices related to the conservation of exhaustible natural
resources;
(2) that the measures for which the exception was being invoked - that is the
particular trade measures inconsistent with the General Agreement - were related
to the conservation of exhaustible natural resources;
(3) that the measures for which the exception was being invoked were made effective
in conjunction with restrictions on domestic production or consumption; and
(4) that the measures were applied in conformity with the requirements of the
introductory clause of Article XX.
In order to justify the application of Article XX(g), all the above elements had to be satisfied.
1. Policy goal of conserving an exhaustible natural resource
6.36 The Panel noted the US argument that clean air was an exhaustible resource within the
meaning of Article XX(g), since it could be exhausted by pollutants such as those emitted through
the consumption of gasoline. Lakes, streams, parks, crops and forests were also natural resources
that could be exhausted by air pollution. Measures to control air pollution were therefore
measures to conserve exhaustible natural resources. Venezuela disagreed, considering that air was
not an exhaustible natural resource within the meaning of Article XX(g); rather, its “ condition”
changed depending on its cleanliness. Article XX(g) was originally intended to cover exports of
exhaustible goods such as petroleum and coal; to expand it to cover “ conditions” of renewable
resources was not justified.
6.37 The Panel then examined whether clean air could be considered an exhaustible natural
resource. In the view of the Panel, clean air was a resource (it had value) and it was natural. It
could be depleted. The fact that the depleted resource was defined with respect to its qualities was
not, for the Panel, decisive. Likewise, the fact that a resource was renewable could not be an
objection. A past panel had accepted that renewable stocks of salmon could constitute an
exhaustible natural resource.39 Accordingly, the Panel found that a policy to reduce the depletion
of clean air was a policy to conserve a natural resource within the meaning of Article XX(g).
39"Canada - Measures Affecting Exports of Unprocessed Herring and Salmon", BISD 35S/98, para 4.4 (adopted on 22 March 1988).
See also the same conclusion with respect to dolphins in the Report of the Panel on "United States - Restrictions on Imports of Tuna", circulated
on 16 June 1994, DS29/R, para 5.13, not adopted.

2. Measures “ related to” the conservation of an exhaustible natural
resource; and made effective “ in conjunction” with restrictions on
domestic production or consumption
6.38 The Panel proceeded to examine whether the baseline establishment methods found
inconsistent with Article III:4 were “ related to” the conservation of clean air. Venezuela argued
that past panels had interpreted “ related to” to mean “ primarily aimed at” the conservation of the
resource. According to Venezuela, loopholes in the establishment of the baseline undermined its
own conservation objectives, and the measure could not therefore be seen as “ primarily aimed” at
conservation.
6.39 The Panel noted that the words “ related to” did not in isolation provide precise guidance
as to the required link between the measures and the conservation objective. However, the Panel
agreed with the interpretation of this term in the report of the 1987 Herring and Salmon case,
where the panel stated that
as the preamble of Article XX indicates, the purpose of including Article XX:(g)
in the General Agreement was not to widen the scope for measures serving trade
policy purposes but merely to ensure that the commitments under the General
Agreement do not hinder the pursuit of policies aimed at the conservation of
exhaustive natural resources. The Panel concluded for these reasons that, while a
trade measure did not have to be necessary or essential to the conservation of an
exhaustible natural resource, it had to be primarily aimed at the conservation of an
exhaustible natural resource to be considered as "relating to" conservation within
the meaning of Article XX:(g).40 (emphasis added)
For the same reasons, the Herring and Salmon panel decided that
the terms "in conjunction with" in Article XX:(g) had to be interpreted in a way
that ensures that the scope of possible actions under that provision corresponds to
the purpose for which it was included in the General Agreement. A trade measure
could therefore in the view of the Panel only be considered to be made effective
"in conjunction with" production restrictions if it was primarily aimed at rendering
effective these restrictions.41 (emphasis added)
6.40 The Panel then proceeded to examine whether the baseline establishment methods could be
said to be "primarily aimed at" achieving the conservation objectives of the Gasoline Rule. The
Panel recalled the purpose of Article XX:(g), which had been expressed by the panel in the 1987
Herring and Salmon case as follows:
[T]he purpose of including Article XX:(g) in the General Agreement was not to widen the
scope of measures serving trade policy purposes but merely to ensure that the
commitments under the General Agreement do not hinder the pursuit of policies aimed at
the conservation of exhaustible natural resources.
The Panel then considered whether the precise aspects of the Gasoline Rule that it had found to
violate Article III -- the less favourable baseline establishments methods that adversely affected the
conditions of competition for imported gasoline -- were primarily aimed at the conservation of
40"Canada - Measures Affecting Exports of Unprocessed Herring and Salmon", BISD 35S/98, para 4.6 (adopted on 22 March 1988).
41Ibidem.

natural resources. The Panel saw no direct connection between less favourable treatment of
imported gasoline that was chemically identical to domestic gasoline, and the US objective of
improving air quality in the United States. Indeed, in the view of the Panel, being consistent with
the obligation to provide no less favourable treatment would not prevent the attainment of the
desired level of conservation of natural resources under the Gasoline Rule. Accordingly, it could
not be said that the baseline establishment methods that afforded less favourable treatment to
imported gasoline were primarily aimed at the conservation of natural resources. In the Panel's
view, the above-noted lack of connection was underscored by the fact that affording treatment of
imported gasoline consistent with its Article III:4 obligations would not in any way hinder the
United States in its pursuit of its conservation policies under the Gasoline Rule. Indeed, the
United States remained free to regulate in order to obtain whatever air quality it wished. The
Panel therefore concluded that the less favourable baseline establishments methods at issue in this
case were not primarily aimed at the conservation of natural resources.
6.41 With respect to whether the baseline establishment methods could be said to be primarily
aimed at "rendering effective restrictions on domestic production or consumption", the Panel
noted that it had not determined that the measures at issue were “ restrictions” , and whether they
were “ on” domestic production or consumption. However, in light of its finding in paragraph
6.40, the Panel did not proceed to determine this issue or whether the measure met the conditions
in the introductory clause of Article XX.
G. Article XXIII:1(b)
6.42 The Panel then noted the claim by Venezuela under Article XXIII:1(b) that benefits
accruing to it under the General Agreement had been nullified and impaired by the application of
the Gasoline Rule, whether or not it conflicted with provisions of the General Agreement. In
view of the finding by the Panel that the Gasoline Rule violated Article III:4 of the General
Agreement, and could not be justified under Article XX (b), (d) and (g), the Panel concluded that
it was not necessary to examine this additional claim.
H. Applicability of the Agreement on Technical Barriers to Trade
6.43 In view of its findings under the General Agreement, the Panel concluded that it was not
necessary to decide on issues raised under the TBT Agreement.
VII. CONCLUDING REMARKS
7.1 In concluding, the Panel wished to underline that it was not its task to examine generally
the desirability or necessity of the environmental objectives of the Clean Air Act or the Gasoline
Rule. Its examination was confined to those aspects of the Gasoline Rule that had been raised by
the complainants under specific provisions of the General Agreement. Under the General
Agreement, WTO Members were free to set their own environmental objectives, but they were
bound to implement these objectives through measures consistent with its provisions, notably those
on the relative treatment of domestic and imported products.

VIII. CONCLUSIONS
8.1 In the light of the findings above, the Panel concluded that the baseline establishment
methods contained in Part 80 of Title 40 of the Code of Federal Regulations are not consistent
with Article III:4 of the General Agreement, and cannot be justified under paragraphs (b), (d) and
(g) of Article XX of the General Agreement.
8.2 The Panel recommends that the Dispute Settlement Body request the United States to bring
this part of the Gasoline Rule into conformity with its obligations under the General Agreement.