In the wake of the crisis over the Crimea, new attention has been drawn to the geopolitical case for more exports of U.S. liquefied natural gas (LNG). A House Energy and Commerce subcommittee this week is marking up H.R. 6, the Domestic Prosperity and Global Freedom Act, which would expedite LNG exports. A Ways and Means subcommittee will hold hearings on the LNG export issue.
If the geopolitical reasons for expediting LNG exports somehow aren’t compelling enough for members of Congress, perhaps the implications for U.S. trade policy will help them move the bill toward the House floor.
For those unfamiliar with the debate, under current law the Department of Energy must make a “public interest” determination before granting a license to export U.S. natural gas in liquefied form (known as LNG). The Department of Energy has over 20 export license applications pending; the longest has languished for well over two years.
These export applications are necessary for exporting to any country where we don’t have a free trade agreement in place. Although negotiations are occurring with much of Europe (T-TIP) and Asia (TPP) to create free trade agreements, the United States today does not have free trade agreements with most of its trading partners.
As a member of the World Trade Organization and a signatory to its treaty obligations, the United States has made certain commitments as an international member of the global marketplace to play by those trading rules. WTO rules help ensure a more level playing field in global trade, which greatly benefits the United States.
The United States has successfully challenged other countries’ practices under WTO rules when those nations have enacted trade restrictions or engaged in protectionist behavior that violates their WTO obligations.
A recent high-profile case occurred where the United States had to go to the WTO when China attempted to keep for itself a valuable commodity – rare earth minerals. Rare-earths are highly sought-after and used in the manufacture of many electronic devices. China, the major source in the world for those commodities, decided to limit their export. Global outrage was vocal and intense, including here in the United States. The United States went to the WTO tribunal and ultimately won a decision that China had illegally restricted rare-earths from export.
In light of the recent Chinese rare-earths case, how are we supposed to justify limiting or delaying the export of sought-after natural gas?
No less an authority than James Bacchus, the former chairman of the appellate body of the WTO, echoes this very point, noting that government regulations that unnecessarily impede exports of LNG may be illegal under WTO rules.
In a report commissioned by the National Association of Manufacturers, he wrote, “The tables may be turned on the United States directly in the WTO, but also through other countries walking away from core principles that have long been critical to U.S. success in the global economy.”
The NAM report puts into perspective the accusations of hypocrisy we could face as a nation if the Department of Energy were to further delay LNG exports or deem them not in the public interest.
The U.S. has long been an advocate for free trade; restricting exports of natural gas contradicts our historic trade policy and our compliance with WTO rules.
Nevertheless, a handful of groups and Members of Congress continues to advocate for delays or pauses on LNG exports in an attempt to push US natural gas prices even farther below those abroad. In so doing, they are jeopardizing seriously-needed economic opportunity and our reputation as a nation that stands behind free trade.
The recommendations of the NAM report are an important reminder to Congress and the Administration that America must practice what it preaches.
America, and indeed the world, has greatly benefited from playing by and enforcing the rules that govern the global trading system. By eliminating bureaucratic impediments that “pause” or unnecessarily delay LNG exports, America can avoid undermining the very trading system that has given us so much, reduce our trade deficit, and enjoy greater economic growth and job creation.
Schmalensee is dean, Emeritus and the Howard W. Johnson professor of Management and Economics, Emeritus at the MIT Sloan School of Management.