## Facts

- The United States enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in 1980, commonly called the Superfund Act, to finance cleanup of sites contaminated with hazardous substances, including petroleum-related contamination.
- As part of the Superfund funding scheme (and later amendments), the United States imposed excise taxes connected to petroleum and certain chemical inputs, and also applied charges at importation for certain products tied to those internal taxes.
- The petroleum tax included an internal tax on domestic crude oil and a charge on imported petroleum products; the measure at issue was described as taxing domestic crude oil at **8.2 cents per barrel** and imported petroleum products at **11.7 cents per barrel**.
- The United States also applied taxes connected to certain imported substances, designed to reflect the internal tax burden associated with specified taxable chemicals used in manufacturing.
- Canada, Mexico, and the European Economic Community (EEC) challenged aspects of the petroleum and imported-substances taxes as inconsistent with GATT national-treatment disciplines on internal taxation (GATT Article III), and argued that the structure of the taxes disadvantaged imports.
- The parties held consultations in late 1986. After consultations did not resolve the dispute, the GATT Council established a single panel to consider the related complaints together.
- The panel report was circulated on **June 5, 1987** and was **adopted on June 17, 1987** (BISD 34S/136; Panel Report L/6175).

## Issues

1. Whether the challenged charges were properly characterized as internal taxes subject to GATT Article III (including the Note Ad Article III), even when collected at the border, rather than ordinary customs duties under Article II.
2. Whether the petroleum tax structure resulted in imported petroleum products being taxed “in excess of” like domestic products contrary to GATT Article III:2.
3. Whether the tax on certain imported substances could be treated as a permissible border tax adjustment that corresponds to an internal tax borne through domestic taxation of taxable chemical inputs, consistent with GATT Articles II:2(a) and III:2.
4. Whether the United States could defend the measures by arguing that the higher rate caused no harm to the complaining countries, or by pointing to the environmental funding purpose of the taxes.

## Decision

- The panel treated the Superfund charges as part of an internal tax regime and evaluated them under **GATT Article III** rules on internal taxation, rather than accepting that border collection alone makes a charge a tariff under Article II.
- The panel applied Article III:2’s comparative inquiry to determine whether imported products were taxed more heavily than like domestic products, focusing on the relationship between the import charge and the internal tax burden on domestic products.
- With respect to the imported-substances scheme, the panel addressed whether and to what extent a charge on imports may correspond to internal taxes imposed on inputs (taxable chemicals) used in domestic production, and assessed permissibility as a border adjustment only to the extent it mirrors internal taxation borne domestically.
- The panel rejected the view that a complaining party must prove actual trade harm as a condition for finding a breach of Article III:2; the comparison is between the tax burdens on imported and domestic like products.
- The panel recommended that the United States ensure the operation of its Superfund tax measures conforms to GATT disciplines on non-discriminatory internal taxation, and the CONTRACTING PARTIES adopted the report on June 17, 1987.

## Legal Principles

- A charge that is part of an internal fiscal system is analyzed as an **internal tax** under **Article III**, even if it is collected at the time of importation (Note Ad Article III).
- Under **Article III:2 (first sentence)**, where imported and domestic products are “like,” an internal tax on imports “in excess of” the tax on like domestic products is inconsistent with national treatment; a showing of actual adverse trade effects is not a prerequisite.
- Border tax adjustments are limited: an import charge justified as an adjustment must correspond to an internal tax borne by domestic products and must not exceed that burden, consistent with the relationship between **Article II:2(a)** and **Article III:2**.
- In assessing claims about taxes linked to inputs, the analysis turns on whether the tax on the imported product reflects internal taxes imposed on the domestic product (including through taxation of inputs) and whether the resulting burden on imports is greater than the domestic burden.
- The policy objective of financing environmental cleanup does not, by itself, remove a measure from the disciplines of Articles II and III; compliance depends on how the tax operates in relation to imported and domestic products.

## Conclusion

In United States–Taxes on Petroleum and Certain Imported Substances, the adopted GATT panel report analyzed U.S. Superfund petroleum and imported-substances taxes as internal taxes subject to Article III, addressed the limits on border adjustments that track domestic internal taxes (including taxes on inputs), and confirmed that Article III:2 compliance turns on comparative tax treatment of imports and like domestic products rather than proof of actual trade harm.


United States–Taxes on Petroleum and Certain Imported Substances, GATT B.I.S.D. 136 (June 17, 1987)