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U.S. LNG Process an Affront to Free Trade, WTO Expert Says

U.S. Department of Energy (DOE) delays in approving exports of liquefied natural gas (LNG) to non-free trade agreement (FTA) countries -- and the DOE review process itself -- run afoul of the General Agreement on Tariffs and Trade (GATT) and invite a challenge from a World Trade Organization (WTO) member nation, a former WTO executive said Tuesday.

Former WTO Appellate Body Chairman James Bacchus was hired by the pro-exports National Association of Manufacturers (NAM) to study whether the U.S. LNG process was in conflict with GATT. Speaking on a conference call Tuesday from Bali, Indonesia, site of the WTO's ninth ministerial conference, he said the United States is trying to have it both ways: impeding LNG exports while having challenged other countries' export restrictions.

"We can't have it both ways..." he said. "We need to be careful what we ask for, and we have to be careful what we do."

Bacchus said his argument is based, in part, on legal rulings from cases in which the United States had fought export restrictions imposed by other countries. Still, he said, most previous jurisprudence under GATT has focused on import restrictions; challenges to export restrictions have been less common.

“The United States has always been a strong advocate of these [free trade] rules and has been forceful in challenging export restrictions imposed by other countries, as highlighted recently when the United States successfully challenged China’s imposition of export duties, quotas and licenses on a variety of raw materials at the WTO,” wrote Bacchus and Rosa Jeong, both of law firm Greenberg Traurig LLP, in their report “LNG and Coal: Unreasonable delays in approving exports likely violate international treaty obligations.”

It is not clear whether a WTO member would challenge the United States on LNG export practice. Nations that might take a case to the WTO often choose not to for political reasons, Bacchus said. However, if a case were brought against U.S. LNG practice, it would likely be successful, he said.

For manufacturer lobbying group NAM, DOE exports are a free markets and a free trade issue. Markets should decide the volume of exports and where they go, according to NAM. "We need a level playing field internationally," said Linda Dempsey, NAM vice president of international economic affairs, at a press briefing in Houston. "Manufacturers have a lot to gain if we continue to have export opportunities overseas...The United States needs to play by the same rules that every other country does."

A key provision of the 1994 GATT forbids export restrictions, including those made effective through licenses or other measures. Bacchus said the implementation of U.S. rules in ways that unnecessarily impede exports of LNG, as well as exports of coal, likely violate WTO trade rules.

"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," Bacchus said. "In short, 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."

While DOE has authorized global LNG exports to four projects, only one, that of Sabine Pass Liquefaction LLC/Sabine Pass LNG LP, has received site and facilities approval from the Federal Energy Regulatory Commission and is now under construction (see Daily GPI, April 17, 2012). The others given the nod by DOE include Freeport LNG, Lake Charles Exports LLC (see Daily GPI,Aug. 8), and Dominion Cove Point LNG LP (see Daily GPI,Sept. 12).

The last approval DOE granted, expanded export authority for Freeport, was far less than what the applicant had sought. Pro-export interests said after the order was issued that DOE was bending its own rules in trying to govern export volumes (see Daily GPI,Nov. 21).

"Manufacturers need strong and smart energy and trade policies to expand manufacturing in the United States and remain globally competitive," said NAM CEO Jay Timmons. "Unfortunately, it has become increasingly difficult to get a permit to do just about anything in the United States, and infrastructure projects like LNG and coal export terminals are crippled by delays and regulatory obstacles."

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