US-Venezuela Spat Over `Dirty Gas' Goes to the GATT

Caracas claims new law unfairly favors US refiners

A NEW United States law forces Venezuela to sell only low-polluting gasoline in the US. But Venezuelan officials are crying ``discrimination'' in a case spotlighting the growing friction between US environmental standards and international trade rules.

In late September, Congress passed a measure requiring Venezuela to meet a higher standard for pollution control than is required of many US refiners. Venezuelan officials claim the measure is blatant protectionism for big US oil companies.

Officials of state-owned Petroleos de Venezuela S.A. (PDVSA) say the gasoline exported to the US is of the same quality as gas sold by many US producers. It claims the current law may cause gas shortages in the northeastern US and therefore higher prices.

Venezuela sells about $50 million worth of refined gasoline annually to the US, mostly through its Citgo subsidiary in northeastern states. In the first half of 1994, those sales accounted for about 9 percent of US daily gas imports.

In March, after testing Venezuelan-refined gasoline, the Environmental Protection Agency (EPA) decided to allow PVDSA to sell gas under the same standards as US refiners. But the bill passed by Congress overules the EPA. The US oil industry lobby is using Congress to ``get rid of the competition,'' says Andres Sosa Pietri, a former president of PDVSA. Venezuela filed a complaint on Oct. 5 with the Secretariat of the General Agreement on Tarrifs and Trade (GATT) in Geneva, claiming the US is using environmental rules to gain an unfair trade advantage.

The dispute, which stems from the Clean Air Act, highlights the new difficulties the US faces in balancing domestic environmental rules and foreign trade relations with developing nations. Two years ago, Mexican tuna fishermen were hit with a US trade ban for not meeting US fishing standards. The standards are based on the number of dolphins killed when catching tuna. But twice since then, GATT has ruled in Mexico's favor, saying a strict dolphin-kill limit constituted an unfair barrier to trade.

Rep. John Boehner (R-Ohio), a prominent backer of the US gasoline law, says it is simply a means to keep ``dirty gas'' out. Venezuela objects, Congressman Boehner claims, because upgrading its refineries to meet the new standards will be expensive. ``It's clear to me,'' he says, ``they're not willing to make the investment necessary to meet our rules.''

The Clean Air Act, which goes into effect in 1995, sets a baseline for cleaning up reformulated gasoline, requiring that it contain no more pollutants than the national average of all gas sold in the US in 1990. More than one-half of the refineries in the US can't meet that standard and would have been forced to spend billions of dollars to comply, says Michael Redemer of Houston-based Texaco Oil Corporation.

So the EPA agreed to allow each refinery to set its own standard, based on the quality of gas it produced in 1990. That lower standard applies from 1995 until '98, when all refiners would have to meet the national average. But no phase-in period was given to foreign gasoline exported to the US. Venezuela objected. After tests, the EPA gave PVDSA the same phase-in period as US refiners.

The EPA decision outraged some US oil companies. Allowing Venezuela to use the 1990 baseline meant it would be exporting gas with ``a high olefin and sulfur content,'' says William O'Keefe of the American Petroleum Institute, the industry trade association. Some in Congress claimed Venezuela was seeking a special exemption. ``The EPA is requiring US refiners to spend $37 billion to comply with clean air rules,'' Boehner says. ``Other countries should be required to do the same thing.''

So, Congress revoked the exemption. Had the EPA exemption gone through, Venezuela would have had a 3 to 4 cent per gallon cost advantage over US refiners, Boehner says. The Venezuela oil company has another advantage, Mr. Redemer of Texaco says. It can export gas more easily to other countries that have lower pollution standards. ``But US companies can't do that because they sell mostly in the US,'' he says.

After the US congressional vote in September, PDVSA indicated that at least some of its gas will meet the tough new US standards, while other gas will be shipped to Europe and Latin America. By mid-1996 or '97, Venezuela expects to complete upgrading its refineries, at a cost of more than $1 billion.

PDVSA estimates the new law will cost them $150 million in lost sales to the US. ``Our revenues were $22 billion worldwide last year,'' a spokesman for the oil company says. ``For the government, the money isn't as important now as the principle of fair trade.''