US-Japan pact on natural gas should be a no-brainer

2013-04-26T00:00:00Z US-Japan pact on natural gas should be a no-brainerGary Clyde Hufbauer Bloomberg News Arizona Daily Star
April 26, 2013 12:00 am  • 

Prime Minister Shinzo Abe of Japan expected a sharp debate at home when he said his country wanted to join the Trans-Pacific Partnership. He may not have anticipated a sharp debate in the United States.

After all, rarely does Washington have the pleasure of opening new trade negotiations when the potential benefits are so heavily stacked in its favor.

Why so? Because Japan's nontariff barriers - protecting major sectors of the economy, including services, agriculture and selected manufacturers - start from much higher levels than equivalent U.S. barriers, and the partnership aims to reduce them all, preferably to zero.

Japan's inclusion in the trade pact will boost American exports, create American jobs and make both economies more efficient, now and well into the future.

Few sectors stand to gain so much as the growing U.S. liquefied-natural-gas industry. Japan's membership in the partnership, coupled with long-term U.S. supply assurances, will deliver exponential LNG export growth to a huge market hungry for alternative energy supplies.

The timing couldn't be better: Right now, America's competitive advantage in exploration and extraction is unrivaled.

Japan, the world's third-largest economy, is also the single-largest buyer of natural gas. Given the country's indefinite moratorium on expanding the nuclear-energy program, Japan's reliance on natural gas is sure to increase.

In fact, Japan faces the prospect of replacing some 12,000 megawatts of nuclear-generating capacity. The total dearth of natural-gas resources means that Japan must rely heavily on LNG imports as an alternative source of clean power.

Even though the United States is one of the world's largest and most advanced LNG producers (the industry is already responsible for half a million jobs), and the U.S.-Japan security alliance is critical, the United States hasn't yet capitalized on Japan's need.

In 2012, Japan imported a record 87 million tons - an increase of 11 percent compared with the previous year - from nations such as Qatar, Russia, Australia and Indonesia. But not from the United States - to date, it has exported no LNG to Japan.

Under current U.S. law and Energy Department regulations, the export of LNG to Japan can be ensured only by a free-trade relationship with the United States, and the only prospect for this relationship is the partnership agreement. To be sure, the Energy Department could amend its rules so that LNG could be exported to any country, with or without a free-trade pact.

A reform of this sort is being debated by senior energy officials, and President Obama will probably have the last word. But even if the current regulations are changed, Japanese LNG buyers and U.S. LNG sellers will all feel much more secure with a guarantee of free trade in energy written into the partnership. LNG export and import terminals, and specialized ships to carry the LNG, require investment of $10 billion or more, and the payback time is typically 20 years. Companies contemplating investments of this size and duration need legal security.

A trade pact that includes Japan will open new and lucrative markets to U.S. exporters in other sectors, including services, agriculture, automobiles, select manufactures, and possibly coal from the Powder River Basin.

Meanwhile, Japan will continue to expand its already large stock of direct investment in the United States. Both through trade and investment, the partnership with Japan will support far more U.S. jobs than a partnership without Japan.

Obama declared on his first presidential trip to Asia, back in November 2009, that the United States would engage with the other partnership countries - Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam - to shape an effective, mutually beneficial regional-trade agreement.

Japan's inclusion will immediately elevate the stature of this 21st-century pact into an opportunity to renew the U.S.- Japan partnership. It will establish firmer rules for resolving commercial differences between the world's No. 1 and No. 3 economies, and ensure that the pact covers roughly 40 percent of global gross domestic product. It recognizes the importance for the United States of trans-Pacific trade and affirms Japan as a strategic ally.

Not least, it ensures that the U.S. LNG industry can lead the world to a cleaner, more efficient and more affordable energy future.

Gary Clyde Hufbauer is the Reginald Jones senior fellow at the Peterson Institute for International Economics.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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