In the LNG Export Debate, the WTO Can’t be Ignored

By Danielle Spiegel-Feld

Published in Breaking Energy June 23, 2014

If history is any guide, the Russian energy firm Gazprom’s recent decision to cut off gas to Ukraine will stoke the already raging debate over whether the Department of Energy (DoE) should allow increased natural gas exports from the United States.

Stakeholders have raised myriad economic and environmental concerns they believe should guide DoE’s decision. Surprisingly, few, however, have acknowledged the extent to which DoE’s hands may be tied by commitments the United States has made to the World Trade Organization (WTO). DoE itself has been virtually, if not entirely, mute on the subject.

The neglect of the WTO dimension is odd. Like most goods, the trade of natural gas is almost certainly subject the rules of the General Agreement on Tariffs and Trade (GATT), which is administered by the WTO. And herein lies the rub: Article XI of the GATT prohibits WTO members from restricting exports of covered goods to other WTO members. If challenged, this provision could make it quite difficult for the U.S. to justify limiting the quantity of natural gas allowed to leave our shores.

Other commentators, including a former chairman of the WTO Appellate Body, have raised similar concerns before. But for some reason the message seems to get lost in the echo chambers of D.C. And with the debate over America’s export policy poised to ramp up further, it bears reiterating the role of the WTO.

The GATT does contain exceptions that relax the strictness of the prohibition on export restraints. For instance, states can apply restrictions “temporarily” to relieve critical shortages of a product. But given that the export restrictions imposed by DoE date back decades and that we’re in the midst of a shale gas boom, the idea that any such restrictions are temporary seems far-fetched.

There’s also the possibility of justifying the restriction under the “General Exceptions” to the GATT contained in Article XX. Article XX(g), which excuses trade restrictions needed to conserve “exhaustible natural resources,” and Article XX(b), which allows trade restrictions necessary to protect “human, animal or plant life or health,” seem particularly relevant and DoE may be able to make use of one of these subsections if it were to restrict exports on environmental grounds.

Yet neither provision offers a straight-forward solution to the problem. To list just one difficulty, Article XX(g) requires that the defending state impose domestic production limits in parallel to the export restrictions and, at least at the federal level, there’s little evidence the U.S. wants to exercise such restraint. As for Article XX(b), any evidence that suggested the U.S. were really restricting exports to keep down domestic prices of natural gas would make it very difficult to successfully use this defense.

Finally, the United States’ recent successes at the WTO could generally complicate efforts to invoke Article XX: in the last two years, the U.S. has won two separate WTO disputes against China in which China attempted to use Article XX to excuse export restrictions of certain raw materials used in the manufacture of electronics and other goods. True, the debate over natural gas exports provides a unique and distinguishable set of facts. But the optics of invoking Article XX on the heels of these victories could pose a challenge.

To be sure, none of this suggests that it would be impossible for the U.S. to design a regime that curtails exports without running afoul of the WTO; there may be some important policy rationales for maintaining such restrictions and the WTO’s rules may be flexible enough to accommodate these concerns. But it does suggest that the government would be foolish to ignore the constraints the WTO may impose. As is usually the case, it’s better to navigate the obstacles that lie ahead with eyes wide open than eyes wide shut.

Danielle Spiegel-Feld is currently the Program Director of the Guarini Center on Environmental, Land Use and Energy Law at NYU School of Law.

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