Delaying US energy exports may run afoul of WTO, report warns

Unnecessary delays in US LNG and coal export applications review processes may conflict with international treaty obligations under World Treaty Organization agreements, a study commissioned by the National Association of Manufacturers warned.

The Greenberg Traurig LLP report by James Bacchus, who formerly chaired WTO’s appellate body, and Rosa Jeong examined two main questions: whether delays at the US Department of Energy in issuing LNG export licenses violate US international obligations as a WTO member, and whether state and local authorities’ efforts in the Pacific Northwest to broaden their environmental review authorities beyond federal requirements violate US international obligations under the WTO.

“The United States has always been a strong advocate of rules that forbid export restrictions and has been forceful in challenging export restrictions imposed by other countries,” said Bacchus, who also is a former US trade negotiator and US House member (D-Fla.). “In short, the tables may be turned on the US directly in the WTO, but also through other countries walking away from core principles that have long been critical to US success in the global economy.”

Ongoing energy export delays and licensing requirements and processes are starting to raise questions about the United States’ own commitment to key principles of the WTO that bind not only the US, but also 158 other countries, the Dec. 3 report said.

US action—or inaction as the current situation appears—raises important questions about the nation’s implementation of these WTO rules, it continued. It also raises the specter that other WTO members may follow suit in ways that would undermine US global competitiveness, the report said.

‘Substantial costs’

“Particularly in light of the United States’ successful WTO challenge to China’s imposition of export duties, quotas, and licenses on raw materials, and the ongoing US challenge to China’s restraints on rare earth exports, there may be substantial costs to the US’s own delays and limits on its export of natural resources,” it warned.

“US manufactured exports have increased dramatically over the past few decades to $1.2 trillion in 2012, but we can do much more,” said Linda Dempsey, NAM’s vice-president of international economic affairs, as the report was released at Cheniere Energy Inc.’s Houston headquarters.

“Countries like China and India already are imposing their own export restraints,” she continued. “The US recently won a case before the WTO against China, and has another pending. We see a lot of restrictions by countries involving inputs US manufacturers need to make their products. Today’s report is a reminder that the US also needs to be the leader in embracing the core exports principle which is such an important part of our own history.”

Texas Association of Business Pres. Bill Hammond added, “Texas has benefited greatly from exports. When capital investment comes here, it brings good jobs, good wages, and good economic growth. The Obama administration needs to get its act together and approve more permits to export LNG.”

Marketplace’s role

Aric Newhouse, NAM’s senior vice-president of policy and government relations, said the association’s underlying view is that the marketplace’s invisible hand should be allowed to work. “Because we’re sitting on an incredible amount of energy resources, natural gas is in a position now that it has not been historically,” he noted. “That said, we don’t believe we should favor one kind of energy over another. Our view is that the marketplace needs to drive where pricing ends up, and any kind of barrier that inhibits this is a mistake.”

Bacchus, who was speaking by telephone from Bali, Indonesia, said the report’s conclusions are entirely his. “We have here measures that would fall under the scope of the kind of governmental actions that could be subject to challenge under WTO agreements,” he indicated. “It doesn’t matter whether they are of local, state, or national origin: If a state or local government takes an action that falls into that category, the US trade office might have to defend it in Geneva.”

Observing that proposals occasionally surface in Congress to bring an export restriction complaint before the WTO against Organization of Petroleum Exporting Countries members who also belong to the WTO, Bacchus said: “The mere fact there could be a successful WTO case does not mean someone will bring one. Even as we speak, Ukraine could bring several cases against Russia since both are members, but I have seen no indication that it will. Political decisions often lead to decisions not to bring a WTO case.”

He also refused to speculate on which countries might bring a WTO challenge on this basis, but added that those which are trying to make their gas supplies more secure with US exports might be high on the list. “The US needs to be careful about how it applies its measures because if one of its trading partners brings a lawsuit, we couldn’t stop it,” Bacchus said. “If such a challenge was brought, it may possibly succeed.”

Contact Nick Snow at nicks@pennwell.com.

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