The U.S. current policy of restricting crude oil exports is fundamentally at odds with binding U.S. commitments under a number of international agreements. The General Agreement on Tariffs and Trade, or GATT, is the foundation agreement for the World Trade Organization, WTO. Among the principle GATT commitments adopted by all WTO member countries is a prohibition on the imposition of quantitative restraints on exports. There are exceptions to this prohibition but they are narrowly construed and apply only to certain, and very limited, circumstances.
Crude oil and natural gas, like almost all other products, are subject to GATT disciplines on trade. These same disciplines apply to crude oil and natural gas under U.S. free trade agreements, FTAs, such as the NAFTA, as well as numerous bilateral investment treaties, BITs, most of which also incorporate the GATT prohibitions on restricting exports.
The Prohibition on Export Restrictions Is Enforceable
GATT obligations prohibiting export restrictions are enforceable in binding proceedings under the WTO Dispute Settlement Understanding, DSU. These are the very same procedures recently used by the U.S. to successfully challenge China’s restrictions on exports of raw materials and coerce Chinese compliance through the DSU mechanism. Currently, the U.S. again is using these procedures to pursue a second challenge to China’s export restraints on rare earths, tungsten, and molybdenum.
Importantly, some of the Chinese export restraints that were found to violate the GATT are comparable to the U.S. export restrictions on crude oil and natural gas, including:
• Quantitative restrictions;
• Additional requirements and procedures vis-à-vis the quantitative restrictions; and
• Delayed licensing requirements on exports.
Other U.S. international agreements incorporate the GATT obligations and prohibitions either by reference or direct recitation, and most of those agreements also provide a right of action by which parties may challenge violations to the agreements, typically in international arbitration and sometimes in the courts. For example, bilateral investment treaties and trade and investment facilitation agreements, TIFAs, often incorporate the GATT obligations and provide rights of action under arbitration.
U.S. Statutes Regarding Oil Export Licensing Should Be Interpreted By the Agency and the Courts to Avoid Conflict With GATT Rules
The current U.S. export control regime on exports of crude oil are rooted in a complicated web of U.S. statutes and implementing regulations that give the U.S. president and/or various executive branch agencies sufficient discretion to grant exports of crude oil or gas if the export would be consistent with the U.S. “national interest” or “public interest.” Basic rules of statutory interpretation dictate that the executive branch and the courts must resolve any ambiguity in interpreting these statutes in a manner that is consistent with the GATT and other U.S. international agreements. For example, the Court of Appeals for the Federal Circuit ruled that:
[A]n interpretation and application of [a] statute which would conflict with the GATT Codes would clearly violate the intent of Congress.
The General Agreement on Tariffs and Trade, Article XI, prohibits U.S. export restrictions on crude oil and natural gas to other GATT/WTO member countries, except under very limited exigent circumstances. The limited exceptions to the basic prohibition on export restrictions are narrowly construed and reliance on these exceptions to the GATT prohibition would require the U.S. to impose onerous restrictions on domestic U.S. production and consumption of crude oil and/or natural gas. In addition, even delaying exports under protracted export licensing schemes have been found to be violations of the GATT.
These well-established rules of international trade are incorporated in numerous binding international agreements to which United States is a party. The WTO and other agreements have enforcement mechanisms that enable the parties to these agreements to compel U.S. compliance.
For all of these reasons, the current U.S. policies and procedures restricting exports of U.S. crude oil and natural gas are highly vulnerable to legal challenges in WTO as well as other international forums and the U.S. courts.
Alan Dunn served as Assistant Secretary of the U.S. Department of Commerce during the Administration of George H. W. Bush and as one of the lead U.S. negotiators in the multilateral GATT Uruguay Round negotiations, which established the World Trade Organization (WTO). He also served as a lead negotiator in the North American Free Trade Agreement (NAFTA) negotiations with Mexico and Canada. He is a partner at Stewart and Stewart and has been practicing international trade law for 30 years. This guest post is in conjunction with the Bush Institute's September 12 conference, Energy Regulation: Lessons about Growth from the States, the Nation and Abroad.