The WTO's gasoline ruling

Setbacks to the U.S. in a World Trade Organization dispute over gasoline may help U.S. energy security.

A WTO panel ruled that U.S. environmental regulation of imported gasoline is unfair to foreign refiners. An appellate board recently upheld essential parts of the decision.

At issue was the Environmental Protection Agency's method for ensuring that environmental gains from reformulated gasoline aren't offset by degradation of conventional fuel. EPA has let U.S. refiners use individual quality standards for conventional gasoline but required foreign refiners to meet statutory criteria.

EPA's reasons

EPA had sound reasons for applying different standards. It allows U.S. refiners to assess conventional fuel against quality baselines derived from 1990 averages. Administering such baselines outside the U.S., EPA said, would be tricky.

Venezuela and Brazil called the disparity unfair trade practice. The WTO appellate group agreed. It acknowledged the difficulty of administering EPA regulations abroad. But it insisted that the difficulty didn't justify denying foreign refiners a regulatory option available to U.S. competitors.

Early in the dispute, U.S. refiners worried they would face unfair competition if foreign refiners set individual baselines, which they said would fall below U.S. quality averages. Venezuela and Brazil countered that no such quality average existed in law.

Somehow, the EPA now must bring regulation under the Clean Air Act Amendments of 1990 into conformance with international trade agreements. It may have to give foreign refiners the same choice it gives U.S. refiners: an individual quality baseline for conventional gasoline or EPA's version.

For U.S. refiners convinced that the choice gives foreign competitors an unfair advantage, this is not good. But it might help them in a perverse way. EPA may find itself so distracted by the politics of foreign baselines that it loses its taste for even stricter regulation of U.S. gasoline.

That's right: stricter regulation. EPA is considering tougher air quality standards for ozone and particulates. Recent data suggest that raising standards for two pollutants might produce health benefits, although benefits would be small and difficult to measure. The action would mean requirements for reformulated gasoline in places that don't need it now, not to mention further refinements in fuel chemistry.

Energy security enters the picture by association with U.S. sources of petroleum products, foreign and domestic. Those sources are-or should be-eclipsing crude supply as a security concern.

Crude remains essential. But there's plenty of it in the world, available from a rich variety of exporters on a responsive and flexible market. Upsets happen, but corrections are rapid. While no one should grow complacent about crude supply, concerns should focus more than they did in the past on tradability and less on volume.

For the U.S., product is a greater problem. With demand growing and domestic crude production stagnant at best, total imports inevitably rise. And with growth in distillation capacity limited, an increasing share of the rising import total must take the form of product.

Increasing dependency

There aren't as many product exporters in the world as there are crude exporters. And each time the U.S. toughens product quality standards, it risks losing potential suppliers. It thus becomes increasingly dependent on a possibly shrinking group of exporters able and willing to sell products meeting its standards.

It is by inadvertently addressing this trend toward crimped product sourcing that WTO's ruling can be said to have helped U.S. energy security. In addition to giving EPA a reason not to raise ozone and particulate hurdles, it made foreign product suppliers happy. The world's single biggest user of oil needs them to stay that way.