Tuesday, June 9, 2015

Debunking the Myriad TPA/TPP Myths

A trade policy nerd can only be subjected to blatant protectionist nonsense for so long.  So, after months of hearing/reading/seeing myths about Trade Promotion Authority, the Trans-Pacific Partnership and free trade more broadly, I finally cracked.  The result is a 3500+-word debunking of the nine most common myths (just like old blog times!).  The intro and direct links are below.

Enjoy!

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Top Nine Myths About Trade Promotion Authority And The Trans-Pacific Partnership

The current debate over Trade Promotion Authority proves, once again, that the classic description of the anti-globalization movement—as “largely the well-intentioned but ill-informed being led around by the ill-intentioned and well informed”—still holds true. Despite the tireless efforts of trade policy experts to explain why TPA and the U.S. trade agreements it’s intended to facilitate are, while imperfect, not a secret corporatist plot to usurp the U.S. Constitution and install global government, myths and half-truths continue to infect traditional and social media outlets.

Because these myths—originating with the same old anti-trade bedfellows that have been with us for decades—have duped a lot of good folks who are otherwise predisposed to support liberty and free markets (including some in Congress), and because the House of Representatives is poised to vote on TPA in the coming days, here is one last debunking of the top nine myths about TPA, the Trans-Pacific Partnership (TPP), and U.S. free-trade agreements (FTAs) more broadly.

To save some time, you can skip to your favorite myth by clicking on the links below.

Myth 1: TPA and U.S. FTAs are unconstitutional and undemocratic!

Myth 2: TPA grants the president new and unlimited powers!

Myth 3: TPA sets legally binding congressional rules for U.S. trade negotiations!

Myth 4: Once TPA is approved, Congress will be powerless to stop TPP or other FTAs!

Myth 5: TPP is being negotiated via a dangerous and unprecedented level of secrecy!

Myth 6: FTAs, completed via TPA, undermine U.S. sovereignty!

Myth 7: TPP is a secret backdoor for a parade of horribles (and TPA lets that happen)!

Myth 8: FTAs (and free trade generally) benefit large corporations at the expense of working people!

Myth 9: TPA doesn’t matter!


Thursday, January 22, 2015

Kill the Jones Act; Kill It with Fire; Kill It Now

My latest in The Federalist (with help from an anonymous friend in the shipping industry):

Lost in the never-ending debate about the KeystoneXL pipeline is great news for anyone who opposes cronyism and supports free markets and lower prices for essential goods like food and energy. Sen. John McCain has offered an amendment to repeal the Merchant Marine Act of 1920, also known as the Jones Act, which requires, among other things, that all goods shipped between U.S. ports be transported by American-built, owned, flagged, and crewed vessels....  
The Jones Act and its related statutes raise the cost of essential goods for American families and businesses; strangle the life from the industries they were designed to protect; jeopardize U.S. maritime security; and exacerbate the pain of major national emergencies. (They also are major irritant in foreign trade relations.) So why hasn’t Congress repealed these laws? Maybe we should ask the politicians and well-connected cronies who benefit from the current arrangement. I’m sure they’d be happy to explain.  
McCain’s amendment to repeal the Jones Act is a common-sense solution to the problems facing a key American industry and the pain of the U.S. economy. The amendment, as well as any broader proposal to kill off the Act, deserves widespread support from conservatives and liberals alike. Efforts to dispense with this archaic protectionist boondoggle will no doubt meet fierce resistance from entrenched interests, labor unions, and opponents of free trade. However, those same groups stand only to benefit from efforts to make the U.S. fleet more competitive and less costly. American mariners have what it takes to compete on a global scale, and they should be given the chance. More competition translates to more opportunity, and perhaps the expansion and revitalization of a crucial sector of our economy. Where artificial monopolies and ancient restrictions can be removed, American labor, American business, and American consumers will have a chance to thrive.
Be sure to read the whole thing.

Senator McCain took to the Senate floor today to support his amendment and oppose the Jones Act. The text of his rousing speech is here, and video's below - definitely worth your time, and not just because the Senator entered my piece into the Congressional Record at the right at the end (sadly, not on video):


Fun.


Tuesday, December 23, 2014

Yes, Of Course We Should End the Cuban Embargo

My latest at The Federalist:
Communist-hating lovers of liberty have offered myriad reasons to oppose the current Cuban embargo (see, for example, here and here), but today I want to focus on the most basic: over the last two decades, the United States government has utterly failed to justify its forcible, legislated ban on Americans’ freedom of travel, contract, and commerce. Because we live in a country of natural rights and limited, constitutional government, the state alone bears a heavy burden of proving that its restrictions on individual liberty are in fact warranted. In the case of free trade, and especially freedom of movement, this means that there is a strong presumption in favor of Americans’ right to freely travel to wherever they want, and transact with whomever they want—one that may only be overcome where the state establishes a compelling interest in prohibiting or limiting those actions.  
Read the whole thing here.

Tuesday, August 12, 2014

Video: Heritage Event on Energy Exports

The Heritage Foundation has posted the video of last month's event on US energy exports.  The video is here and embedded below.  (I start around 53:00, if you're just desperate to watch me wave my arms around like a crazyperson.)

Enjoy!

Monday, July 21, 2014

Announcements

Although this blog has gone pretty quiet over the last few months (an understatement, I know), I've been keeping busy with plenty of (non-toddler-related) stuff, including--

This Thursday, July 24, I'll be speaking at the Heritage Foundation at an event on "Energy Exports and Free Trade."  The lineup for the event is (if I do say so myself) pretty stellar, and the subject matter couldn't be more timely.  Here's the description:
Expanding domestic energy production over the past few years has provided a welcome boost to the American economy. The federal government, however, has constrained the economic benefits by significantly limiting companies’ ability to trade energy freely around the world. Join as Congressman Cory Gardner (R-CO) leads a discussion in how open energy markets will create more opportunities for Americans, promote economic prosperity at home and abroad. 
The speakers include me, Rep. Gardner, Jamie Webster (Senior Director, Global Oil Markets, IHS), Ross Eisenberg (Vice President, Energy and Resources Policy, National Association of Manufacturers), and Heritage's Nick Loris.  You can register for the event, or watch it livestream online, here.  Hope you can join us.

This Fall, I'll be a Senior Visiting Lecturer at Duke Law School teaching a course on International Trade Law.  Unlike last semester's political science course, the syllabus for this class isn't really something worth viewing online (it's a lot of textbook stuff).  But here's the course description:
International trade and the World Trade Organization attract a lot of attention and debate. Why do almost all economists say that liberalizing trade flows is a good thing? Why do politicians – even ones who purportedly support free markets – often rail against import competition and “unfair trade”? How does trade liberalization interact with other public policy choices such as protecting the environment or promoting the economic development of poor countries? In this course, we will examine why the WTO exists, how it developed from the GATT and how it fits in the international economic order (Part I). The course will offer you an in-depth, practical knowledge of substantive WTO law drawing heavily on case law. It will address the basic principles of trade in goods and trade in services, as well as some of the more specialized WTO agreements on, for example on trade remedies (subsidies, anti-dumping and safeguards). From a more procedural side, the course will pay close attention to the unique WTO mechanism for the solution of global trade disputes, with special reference again to recent and ongoing cases (Part II). It will conclude by examining U.S. trade law – particularly the widely-used trade remedies laws – and assessing not only the practice of international trade law in the United States, but also whether these laws actually achieve their supposed policy objectives (Part III). Although this course will necessarily address key principles and theories undergirding the international trade law system, one of its driving themes will be the actual practice of this discipline in the United States and at the WTO. The course will be graded based on class participation and an open-book final exam.
Registration is open now, so if you know any Duke law students, please send them my way.

Finally, I've still been writing on non-trade policy stuff over at The Federalist.  Hope you'll scan it, as well as all the other good content over there, when you get a chance.

(Oh, and as for that toddler, she's just awesome.)

Tuesday, April 22, 2014

Archaic US Trade Policies Inflate Gas Prices, Enrich Cronies

Cross-posted on Cato's blog:

The summer driving season is still weeks away, but rising U.S. gas prices are already back in the news.  Last week, the average price for regular gasoline at U.S. gas stations hit $3.6918 a gallon – the highest since March 22, 2013 and up 43 cents this year.  Much of this price depends on global supply and demand, but certainly not all of it.  In fact, two archaic, little-known U.S. policies – vigorously defended by the well-connected interest groups who benefit from them – restrict free trade in petroleum products and, as a result, force American consumers to pay considerably more at the pump.

First, the Jones Act - a 94-year-old law that requires all domestic seaborne trade to be shipped on U.S.-crewed, -owned, flagged and manufactured vessels – prevents cost-effective intrastate shipping of crude oil or refined products.  According to Bloomberg, there are only 13 ships that can legally move oil between U.S. ports, and these ships are “booked solid.”  As a result, abundant oil supplies in the Gulf Coast region cannot be shipped to other U.S. states with spare refinery capacity.  And, even when such vessels are available, the Jones Act makes intrastate crude shipping artificially expensive.  According to a 2012 report by the Financial Times, shipping U.S. crude from Texas to Philadelphia cost more than three times as much as shipping the same product on a foreign-flagged vessel to a Canadian refinery, even though the latter route is longer.

It doesn’t take an energy economist to see how the Jones Act’s byzantine protectionism leads to higher prices at the pump for American drivers.  According to one recent estimate, revoking the Jones Act would reduce U.S. gasoline prices by as much as 15 cents per gallon “by increasing the supply of ships able to shuttle the fuel between U.S. ports.”

Some of these costs could potentially be mitigated if it weren’t for the second U.S. trade policy inflating gas prices: restrictions on crude oil exports.  As I wrote for Cato last year, current U.S. law – implemented in the 1970s during a bygone era of energy scarcity and dependence – effectively bans the exportation of U.S. crude oil to any country other than Canada.  Because U.S. and Canadian refinery capacity is finite, America’s newfound energy abundance has led to a glut of domestic oil and caused domestic crude oil prices (West Texas Intermediate and Louisiana Light Sweet) to drop well below their global (Brent) counterpart.  One might think that this price divergence would mean lower U.S. gas prices, but such thinking fails to understand that U.S. gasoline exports may be freely exported, and that gasoline prices are set on global markets based on Brent crude prices.  As a result, several recent analyses – including ones by Citigroup [$], Resources for the Future and the American Petroleum Institute - have found that liberalization of U.S. crude oil exports would lower, not raise, gas prices by as much as 7 cents per gallon.

Thus, the Jones Act and the crude oil export ban – each implemented decades ago – together inflate U.S. gasoline prices by as much as 0.22 per gallon – or about 6% of the current price at your local gas station.  Not everyone in the United States, however, is harmed.  In the case of the Jones Act, the American shipping unions and shipbuilders that benefit from the law have long opposed any type of reforms, regardless of the pains imposed on the American economy and U.S. consumers.  The crude oil export restrictions, on the other hand, have found new support from a small group of U.S. refiners who profit handsomely from depressed domestic crude prices and the lack of any legal limits on their exports.  As is always the case with protectionism, these groups win and U.S. consumers lose.

Given this political dynamic, reform of either law appears unlikely in the near future, regardless of how dramatically the U.S. trade and energy landscape has changed since the laws were imposed.  So the next time you fill up the tank, note that about 6 percent of your bill pads the bottom lines of a few well-connected cronies.

Wednesday, February 12, 2014

Oil & Gas Exports Event: Video and Materials (and Two Important Updates)

If you weren't lucky enough to hear me, Mark Perry and Jim Bacchus opine on the "shale revolution" and the myriad problems with current US policy on oil and gas exports, you're in luck: Cato just posted the video, which is also imbedded below.



If you'd like a closer look at Mark's or my presentation, you can download them here and here, respectively.  They remain up to date, except for two big developments that warrant mention:
  • First, a few minutes after the Cato event ended, Senator Ted Cruz announced a comprehensive energy plan, one of the core planks of which is the liberalzation of both crude oil and natural gas exports.  (Boy, we were effective!)  Cruz also will be sponsoring formal legislation to implement the plan in the coming days.  Shortly thereafter, Senator Rand Paul stated his opposition to the current export restrictions.  Thus, there now is a more robust reform proposal on the table in Congress and, soon, legislation along those lines.  This is a far more ambitious approach than any before it, including that hinted by Senator Murkowski last month. Thus, it seems like Congress may be catching up to the rest of the policy and business world far more quickly than we imagined just a few short weeks ago.  Giddyup.

  • Second, the non-partisan outfit Resources for the Future published an extensive new study which, echoing previous studies, finds that eliminating the current restrictions on US crude oil exports would lower - yes lower - domestic gasoline prices.  Here's the money line: "Given our projections for the change in crude oil prices and increased efficiency in refinery operations [caused by lifting the crude oil restrictions], we estimate US gasoline prices would be reduced by 2.8 to 6.9 cents per gallon."  This, of course, makes perfect sense if you understand domestic and global oil markets, current US policy (which permits unlimited exports of refined petroleum products), and, well, basic economics. (See my Cato presentation for more.)
More to come, I'm sure.

Thursday, January 23, 2014

Upcoming Cato Event on Oil & Gas Exports

The Cato Institute will be hosting a great event on February 10, 2014 on oil and gas exports.  Details are below, and registration information is available at Cato's website.

Hope you can make it.


Boom to Bust? How Export Restrictions Imperil America’s Oil and Gas Bonanza

February 10, 2014 11:30AM
Hayek Auditorium

Featuring James Bacchus, Former WTO Appellate Body Jurist and Former U.S. Congressman; Scott Lincicome, Cato Institute Adjunct Scholar and International Trade Attorney; and Mark Perry, Professor of Economics, University of Michigan–Flint, and American Enterprise Institute Scholar; moderated by Daniel Ikenson, Director, Herbert A. Stiefel Center for Trade Policy Studies, Cato Institute.

A once-in-a-generation supply shock is transforming global energy markets, lowering crude oil and natural gas prices, and quickly making the United States the world’s largest producer of oil and gas. But energy politics threatens to short-circuit this American economic boom. Of immediate concern are federal regulations — in particular, discretionary export-licensing systems for natural gas and crude oil — that were implemented during the 1970s, an era of energy scarcity. By restricting exports and subjecting approvals to the whims of politicians, the current licensing systems distort energy prices and deter investment and employment in these promising sectors of the U.S. economy. They also irritate global trading partners, likely violate U.S. trade treaty obligations, and undermine other U.S. policy objectives. Ernest Moniz, President Obama’s energy secretary, recently stated that these export restrictions are deserving of “some new analysis and examination in the context of… an energy world that is no longer like the 1970s.” Please join us at the Cato Institute for our examination of these issues.

If you can’t make it to the Cato Institute, watch this event live online at www.cato.org/live and follow @CatoEvents on Twitter to get future event updates, live streams, and videos from the Cato Institute.

Tuesday, January 7, 2014

Are Liberalized US Crude Oil Exports Finally on the Horizon?

As I mentioned a few weeks ago, a large segment of the energy policy world has suddenly realized that America's archaic crude oil export restrictions are really, really bad policy.  But things have just been kicked into an even higher gear with two new developments:
  • In a much-publicized speech today, Sen. Lisa Murkowski (R-AK), ranking member of the Senate Energy Committee, advocated modernizing US policies for energy exports, particularly natural gas and crude oil.  Accompanying her speech was a new white paper on the same topic, which (among other things) highlights the serious economic problems caused by the current crude oil export licensing system (which is effectively a ban on exports to all countries except Canada), confirms the growing economic consensus that exports won't cause higher gas prices, and recommends that the President, the Commerce Department or (if the first two continue to do nothing) Congress relax the ban.  Just as importantly, Murkowski's views were recently echoed by Sen. Mary Landrieu, (D-LA) who stands to take over the Senate Energy Committee this year. That means that we could have bi-partisan support for easing the US crude oil ban on the Senate committee arguably most integral to any such reforms.
  • Also today, the American Petroleum Institute's President and CEO Jack Gerard reiterated his organization's support for lifting the crude oil export ban: Gerards's formal announcement echoes a few previous statements from folks at API (which is the largest US energy trade association and a big player on Capitol Hill) and is a good sign that they're going to push harder on this issue in the future. (API's related blog post, which calls the crude export ban "obsolete," certainly indicates as much.)
So, given these two big developments, does this mean that the US crude oil export ban will finally die the fiery death that it deserves in 2014?  I'm a bit pessimistic for two reasons.  First, Murkowski is not calling for a complete overhaul of the crude oil export licensing system (or its natural gas cousin): her white paper merely recommends that the Commerce Department or the President exercise their discretion within the current system and thereby approve crude exports to countries other than Canada (which, as noted above, enjoys a presumption of approval). And, according to the Financial Times, Murkowski stated today that any legislation from her on this issue would be “small, targeted bills” to “move the ball forward” - clearly not the overhaul (or total elimination of the system) that free traders, supporters of US energy production and our trading partners would ideally want.  Indeed, the maintenance of an ad hoc, discretionary export licensing system would do little to provide energy markets with the consistency and predictability that they need to operate most effectively, and probably wouldn't quell concerns that the export restrictions violate WTO rules.

Second, while API's support is obviously a big deal, there will undoubtedly be intense opposition to any reform efforts.  As the National Journal reported yesterday, some uninformed politicians and certain domestic refiners - who benefit greatly from the ban - have already come out against reform. Combine that opposition with the inevitable push-back from fossil fuel-averse environmentalists who, in John Podesta, now have a sympathetic ear in the White House, and you have a recipe for a big political battle in Washington and diminished hopes for quick resolution to this problem.  (Indeed, that Podesta's former digs, the Center for American Progress, immediately "blasted" Sen. Murkowski's remarks may be a good indication of what he's thinking.)

In short, crude oil exports could end up being like KeystoneXL or natural gas exports all over again - a frustrating and cripplingly slow process that's subject not to rational market forces but the mercurial whims of our political class.

And, make no mistake, the crude oil situation really is a problem.  As I've repeatedly noted over the last year, the current export restrictions raise a host of legal, economic and policy concerns:
  • Original Cato paper on America's crude oil and natural gas licensing systems (and their economic, legal and policy concerns).
  • Cato podcast on the need for free trade in energy.
  • Reuters oped on the specific trade and economic problems caused by the US crude oil ban.
And, unfortunately, the serious oil supply disruptions contemplated in my Reuters piece - already experienced for natural gas - could be happening a lot sooner that anyone thought:
Oil is a global commodity; therefore, the global supply-demand balance is the primary driver of its price. However, transportation and refining capacity affect local pricing, which is what we as producers care about. The first red flag was pipeline capacity from the Permian to the Gulf Coast. While Permian oil production has risen from 850,000 barrels per day (bpd) in 2007 to an estimated 1.3 million bpd currently, the five inland refineries buying our crude have a capacity of approximately 410,000 bpd. That means almost 900,000 bpd needs to find its way to the Gulf Coast refining complex that stretches from Corpus Christi to New Orleans, or to Cushing, most of which ends up in the Gulf Coast. There is 450,000 bpd of pipeline capacity from Midland to Cushing, and once the four pipeline projects are all completed in 2015, almost 1.5 million bpd of capacity from the Permian to the Gulf Coast will be in service. Problem solved.

Well, not so fast. The problem is that refiners, including Shell/Pemex, Lyondell/CITCO, Exxon Mobil, and Valero, spent billions of dollars each primarily in the 1990s, as domestic sweet production declined, to modify their refineries to process heavy, sour crude from sources including Mexico (Maya), Venezuela (Orinoco), and Saudi heavy-sour. It is not coincidental that Pemex, CITCO (Venezuela), and Aramco (Saudi Arabia) formed joint ventures with refiners in the Gulf Coast in the 1990s to secure outlets for their poorer quality crude. It will cost hundreds of millions to convert each refinery back to sweet service, and the EPA is unlikely to approve a permit for a new refinery in the United States. It remains to be seen whether refiners will invest money to switch back to sweet service, but rest assured they will want a price that is competitive with the heavy sour grades from our Latin neighbors and the Middle East.

E&P companies have long dealt with gas-on-gas competition. Our industry drilled and developed natural gas so efficiently that we drove the price of gas down to a point where drilling for gas was marginal except in the most prolific plays in the best locations relative to consumer markets (e.g., the Marcellus). In addition, the Permian Basin and Eagle Ford have long suffered a glut of NGLs, especially ethane, the lightest and lowest valued component of the NGL stream. In 3+ years, the construction of ethane crackers and olefins complexes in the Gulf Coast for the export of products ranging from ethylene and propylene to plastics and fabrics will help alleviate the NGL glut. Between now and then, “Houston, we have a problem,”–a glut of NGLs.

The same phenomena will occur with the light, sweet crude oil and condensate that is produced from the Eagle Ford, Wolfcamp, and Leonard-aged formations that include the Bone Spring, Spraberry, and Avalon. The price at the wellhead in the Permian will likely be $10-30 per barrel below that of Brent crude, the new global benchmark for oil prices. The price of Brent or WTI Cushing will be irrelevant to Permian or Eagle Ford producers, as it will take discounting to induce an oversupplied sweet refinery to take one producer’s crude over another’s.

There are at least three market-based solutions to this quandary. One, the federal government should lift its ban on exports of crude oil. There are simple, “tea kettle” refineries in Mexico and other Central and Latin American countries that would buy our sweet crude if permitted to do so. We, in turn, import heavy, sour Latin crude to be processed in our complex Gulf Coast refineries. This amounts to a crude swap with our Latin neighbors. Two, refiners invest billions in the aggregate to convert their refineries back to sweet service. The impediment to this strategy is the fact that most of the incremental oil to be developed outside the U.S. is heavy sour, whose producers are willing to discount and enter long-term contracts to sell it. Three, prices fall into the $70s or worse at the wellhead and the investment and the rig count drops, reducing oil production, alleviating the problem. You see, E&P companies primarily reinvest their cash flow into leasehold, drilling, and completions. Few of the most active drillers in the United States pay a dividend.

Lower oil and gas prices mean lower cash flow and reduced rates of return on investment, thus reduced reinvestment, and slower production growth. It is a brutal self-correction mechanism that would have worked for natural gas if not for the large amounts of rich associated gas produced with the oil in our unconventional plays. None of us hopes to resort to the third option.
If the US government were smart, it would pursue the first option - completely lifting the ban on crude oil exports - as soon as possible.  Doing so would restore a little sanity to US energy policy (although more definitely needs to be done), and provide ample benefits for the economy.  However, if the aforementioned concerns and the government's track record with KeystoneXL and natural gas exports are any indication, US energy producers, consumers and market more broadly may endure a lot more pain before any serious, long-term solution is implemented.

If it ever is.

Thursday, January 2, 2014

My International Trade Policy Course: Description & Syllabus

As eagerly mentioned a while ago, I'll be teaching an undergraduate course at Duke University this semester on international trade policy and politics.  For those of you who aren't lucky enough to be Duke students (or live in the area and have the ample time/energy needed to audit the course), I've posted the syllabus below after the jump with the basic course descrption and materials.  As you'll see, almost all of the materials that we'll be covering in class are available for free online, so you can poke around the links and follow along if you're so inclined.  (Or you can just complain vociferously about my obvious confirmation bias - whatever floats your boat.)

Enjoy!