World Trade Organization (WTO) Decision on Gasoline Rule (Reformulated and Conventional Gasoline)

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 80

[FRL-5528-2]

World Trade Organization (WTO) Decision on Gasoline Rule

(Reformulated and Conventional Gasoline)

AGENCY: Environmental Protection Agency.

ACTION: Invitation for Public Comment.

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SUMMARY: EPA is initiating a process to identify and evaluate any and

all options available to meet U.S. international obligations, in

response to a recent decision by the World Trade Organization (WTO).

The WTO decision concerns one aspect of rules issued under the Clean

Air Act for conventional and reformulated gasoline. In particular it

relates to the baseline used in these programs to determine the

requirements for imported gasoline. EPA's goal is to identify any and

all feasible options consistent with EPA's commitment to fully protect

public health and the environment. Comments are invited from all

interested parties on these matters.

DATES: Comments must be received on or before September 26, 1996.

ADDRESSES: Interested parties may submit written comments (in

triplicate if possible) for EPA consideration. The comments are to be

addressed to: EPA Air and Radiation Docket, Attention: Docket No. A-96-

33, Room M-1500, Mailcode 6102, U.S. EPA, 401 M Street, S.W.,

Washington, D.C. 20460. The docket is open for public inspection from

8:00 a.m. until 5:30 p.m. Monday through Friday, except on governmental

holidays. As provided in 40 CFR Part 2, a reasonable fee may be charged

for copying docket materials. Should a commenter wish to provide

confidential business information to EPA, such information should not

be included with the information sent to the docket. Materials sent to

the docket should, however, indicate that confidential business

information was provided to EPA.

FOR FURTHER INFORMATION CONTACT: Karen Smith, U.S. EPA, 401 M Street,

S.W. (Mailcode 6406J), Washington, D.C. 20460, telephone (202) 233-

9674.

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SUPPLEMENTARY INFORMATION: The World Trade Organization recently

adopted the report of its Appellate Body concerning one aspect of rules

issued under the Clean Air Act for conventional and reformulated

gasoline. The dispute initiated by Venezuela and Brazil involves the

baseline used to set the emissions requirements in these programs for

imported gasoline. The WTO concluded that EPA's rules in this matter

were inconsistent with U.S. obligations under the General Agreement on

Tariffs and Trade (GATT) because they unjustifiably discriminated

against imported gasoline. It is important to note that the Clean Air

Act was not at issue in this dispute.

The U.S Government is disappointed with the results of this

decision, but is gratified that it fully recognized a country's right

to adopt appropriate measures to protect public health and the

environment. In addition, the WTO decision clearly recognizes that

clean air is an exhaustible natural resource, and that conservation of

this resource is covered by the provisions of Article XX(g) of the

GATT.

EPA is initiating a process to identify and evaluate all options

available to the agency in responding to this decision. EPA's goal is

to identify any and all feasible options consistent with EPA's

commitment to fully protect public health and the environment, and at

the same time consistent with the obligations of the United States

under the WTO. Before deciding what course to take, EPA intends to

fully evaluate all options identified in this public process. This

invitation for public comment is designed to inform EPA's evaluation of

the options.

The following description of the relevant regulatory provisions and

related issues is provided to help the public in preparing comments. As

noted above, the conventional gasoline program contains emissions

requirements designed to ensure that gasoline does not degrade in

quality from 1990 levels in ways that would adversely affect the levels

of air pollution from motor vehicles. The Clean Air Act calls for

conventional gasoline produced or imported by a refiner or importer to

stay as clean as it was in 1990. See section 211(k)(8) of the Act. To

meet this requirement, EPA regulations require that domestic refiners

establish a baseline that reflects the quality of the gasoline they

produced in 1990. The emission requirements for conventional gasoline

are keyed to these individual baselines. For the conventional gasoline

program, see 40 CFR 80.90 -93, 80.101(b). Individual baselines play a

limited role in the reformulated gasoline program. From 1995 through

1997, certain of the emission requirements for reformulated gasoline

are expressed in terms of individual baselines. After that date,

individual baselines are not used in the RFG program. See 40 CFR

80.41(h), (j).

Based on the limited ability of importers and domestic blenders to

determine the quality of the gasoline they produced or imported in

1990, in almost all cases they are assigned the statutory baseline

instead of an individual baseline. The statutory baseline was designed

to approximate the national average for 1990 gasoline quality. There is

no provision in the regulations under which a foreign refiner may

establish an individual baseline, nor are they assigned the statutory

baseline. Imported gasoline is regulated through the importer, not the

foreign refiner, and foreign refinery modelling information/data may

not be used by an importer to establish an importer baseline.

The rulemaking record for the conventional and reformulated

gasoline program contains information regarding the environmental,

cost, verification and enforcement issues associated with setting the

baseline rules for domestic and imported gasoline. For further

discussion of these matters, see 59 FR 7716 (February 16, 1994); 59 FR

22800 (May 3, 1994).

One baseline issue considered during the rulemakings noted above

involves allowing foreign refiners to petition EPA for approval of an

individual baseline for a foreign refinery. This issue was also raised

during the WTO dispute settlement proceedings. In this respect, the

Appellate Body identified two omissions of the United States: (1) the

United States had not sufficiently explored ways of overcoming its

administrative concerns with respect to imported gasoline and (2) the

United States had considered the costs of compliance with the statutory

baseline for domestic refiners but had not adequately considered them

for foreign refiners. It is important to note that EPA is inviting

comment on all feasible options that the agency should consider.

Commenters should not limit themselves to consideration of individual

baselines for foreign refiners. EPA is interested in evaluating any

alternative approach that would achieve the environmental benefits

associated with these gasoline programs while treating domestic and

imported gasoline in a manner consistent with U.S. obligations under

the WTO.

Some of the issues that are relevant to individual baselines and

may also be relevant to other options include the following:

How would EPA be able to accurately establish a reliable and

verifiable individual baseline for a foreign refiner? This would

include consideration of the technical problems associated with

determining the quality and volume for gasoline imported into the U.S.

from a foreign refinery in 1990, determining the refinery of origin for

gasoline imported in 1990, and consideration of the role of independent

verification in establishing an accurate baseline.

How would EPA be able to adequately monitor compliance and enforce

any baseline requirements? This would include consideration of the

ability to audit and inspect both foreign and domestic facilities, and

the ability to enforce against foreign refiners and importers.

How would EPA be able to effectively determine the refinery of

origin of imported gasoline, so as to determine the appropriate

baseline to apply to the imported product? This would include

consideration of the kind of tracking and segregation needed to ensure

effective determination of refinery of origin.

Commenters should address these issues to the extent relevant to

the option(s) they are addressing.

Commenters should identify the potential environmental impacts from

implementation of any suggested option. For example, for those

commenters that might propose individual baselines, this would include

consideration of the number of foreign refiners that could seek and be

able to establish an individual baseline, the individual baseline

levels that could be established, the volume of imported gasoline that

could be subject to such a baseline, the areas of the country in which

this gasoline would be used, the length of time that a foreign refiner

could use an individual baseline, and the regulatory programs in which

such a baseline was allowed, e.g. conventional or reformulated

gasoline.1

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\1\ Commenters should be aware that EPA is currently prohibited

by law from taking any further action on its May 1994 proposed rule

that would have allowed the establishment of individual baselines

for foreign refiners for use in the federal reformulated gasoline

program. Omnibus Consolidated Recissions and Appropriations Act of

1996, Pub. L. No. 104-134, Sec. 101(e), 142 Cong. Rec. H3922 (daily

ed. April 25, 1996); 59 Fed. Reg. 22800 (May 3, 1994).

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In addition, EPA invites any other comments relevant to the two

issues raised by the appellate body in its report as omissions on the

part of the United States--exploring adequately the means of mitigating

the administrative problems identified in EPA's earlier

[[Page 33705]]

rulemaking, and considering the costs for foreign refiners that might

result from the use of the statutory baseline for imports.

A key criterion in evaluating any options presented in response to

this notice will be fully protecting the public health and the

environment. The reformulated and conventional gasoline programs are

important components in the strategy for achieving that goal. EPA

invites comment that would allow EPA to better quantify or characterize

potential environmental impacts of any options proposed by commenters,

as well as feasible options to address any such potential impacts.

As noted above, EPA's goal in inviting public comment is to obtain

information that will help the agency identify any and all feasible

options consistent with EPA's commitment to fully protect public health

and the environment, and at the same time consistent with the

obligations of the United States under the WTO. EPA requests that

commenters provide information and analysis on the public health and

environmental impact associated with any option presented for

consideration. Commenters should also identify the economic and other

impacts associated with any suggested option, and discuss the

relationship of the option to the United States' obligations under the

WTO.

Dated: June 20, 1996.

Mary D. Nichols,

Assistant Administrator for Air and Radiation.

[FR Doc. 96-16541 Filed 6-27-96; 8:45 am]

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