Currently, liquefied natural gas (LNG) exports are restricted to countries with free trade agreements with the United States. Producers wishing to export to countries without U.S. free trade agreements must first get approval from the Department of Energy (DOE). With proven reserves of natural gas in the U.S. at an all-time high, companies have been flocking to export LNG to foreign markets. However, the DOE is stonewalling, approving only one of the 13 requests to export to non-free trade agreement countries and staking further exports on the release of a report that has been delayed until early next year. These types of bureaucratic hoops only hurt American companies and bring into question the President’s commitment to increasing exports.The Reuters article that Olson cites helpfully explains that the big report was originally going to be out in March, then got delayed until late summer, and now won't be out until after the November elections. That, of course, is quite convenient for the Obama administration, as Olson explains:
The Administration appears to be listening to economic advice from interest groups (including environmental groups) who oppose natural gas exports. They argue that free trade in the LNG field will disadvantage U.S. consumers, claiming that as the spread between the international price and the domestic price closes, U.S. prices will rise.I'd add that many of these environmental groups also argue that the process by which much of natural gas is extracted these days - hydraulic fracturing or "fracking" - is
But I digress. For the moment, I'll try to ignore the obvious economic harms imposed by the administration's political stonewalling and instead look at two pretty ridiculous trade angles in this story. First, as Olson notes, it's rather amazing that a President whose top trade priority is the National Export Initiative is, you know, actively blocking billions of dollars in potential U.S. energy exports:
The President has said he wants to “double our exports over the next five years” through his National Export Initiative. Apparently, those exports don’t include natural gas, a booming and vibrant sector of the national economy....Indeed it does, Mr. Olson. Indeed it does.
Recent studies have shown that exporting natural gas could make U.S. producers up to $3 billion per year, creating much-needed jobs for Americans. Reducing burdensome trade restrictions will also make U.S. firms more efficient, encouraging competition and reducing prices—ultimately helping consumers and spurring innovation. The President’s erratic policy of promoting trade in some areas while restricting it in others is hypocritical. Even worse, it sends mixed messages that increase uncertainty, hurt investment and job growth, and threaten American’s economic competitiveness.
Second, and speaking of mixed messages, it turns out that the Obama administration has been fighting against these exact kinds of export restrictions at the WTO. Before I get to that glaring hypocrisy, however, a very quick summary of the US system and the applicable WTO rules is necessary. The US export licensing system for natural gas (15 U.S.C. § 717b) provides DOE with unfettered discretion to deny an application to export natural gas to non-FTA partner countries if the agency determines that the exportation would not be in the "public interest." GATT Article XI prohibits WTO Members from imposing quantitative restrictions on exports (and imports), including those made effective through export licenses. Although WTO jurisprudence on licensing restrictions remains a little unsettled, one thing is pretty clear: discretionary licensing regimes are impermissible restrictions under GATT Article XI. So, because the US licensing system provides DOE with discretion to reject any license application based on the vague “public interest” standard (as evidenced by the long delays in the aforementioned LNG applications), it could be WTO-inconsistent.
So why does this little academic lesson matter? Well, over the last couple years USTR has filed two WTO disputes against China (of course) for its export restrictions on various raw materials (DS394) and so-called "rare earth" elements (DS431). The US won (mostly) the raw materials case citing, among other things, GATT Article XI, and the new, high-profile rare earths dispute is just cranking up. In each dispute, one of the primary export restrictions targeted by the United States has been - wait for it - export licensing systems for the covered products.
So, to recap, the Obama administration is attacking Chinese export licensing restrictions on key raw materials at the exact same time that it is restricting US exports of natural gas via a similarly dubious export licensing system.
You cannot make this stuff up.
On the bright side, at least China isn't, you know, really starving for energy or known to retaliate against US trade litigation with cases of its own or anything.