File this one under “be careful what you wish for.” Rep. Ed Markey (D-Mass.) must have thought he was being very clever. At a recent House Energy and Commerce Committee meeting on legislation to authorize construction of the Keystone XL Pipeline, Markey introduced an amendment banning U.S. exports of petroleum products made from Keystone crude.

For Markey, the amendment was never a serious legislative proposal. For one thing, as explained on this site and MasterResource.Org, an export ban would violate U.S. treaty obligations under both the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA). In addition, Markey knew Republicans could not support the ban without jeopardizing the long-term supply contracts that pipeline builder-operator TransCanada Corp. had negotiated with Gulf Coast refiners — contracts on which the project’s commercial viability depends.

In fact, Markey was counting on Republicans to vote against the ban, as that allegedly would expose them as duplicitous shills who care only about oil industry profits, not about reducing dependence on OPEC or alleviating pain at the pump. As also explained in the previous columns, Markey’s exposé is itself bogus, because (1) Keystone crude would displace OPEC crude whether the associated refined products were sold domestically or overseas, and (2) much of the refined product would likely be sold in the USA.

This just in: What Markey introduced as a rhetorical prop may be sprouting legislative wings in the Democrat-controlled Senate, where it could win votes to overturn President Obama’s rejection of Keystone XL. Yesterday in National Journal (subscription required), energy reporter Amy Harder wrote:

Now, liberal Sen. Ron Wyden, D-Ore., has drafted a bill to ban exports of both Keystone-shipped oil and refined petroleum products made from that oil. The effort by Wyden, in line to chair the Energy and Natural Resources Committee next year if Democrats hold the Senate, makes environmentalists nervous, because it could conceivably get enough Democratic support to move a bill mandating approval of the pipeline out of the Senate. Such a measure would be certain to pass in the Republican-controlled House.

In fact, Senate Majority Leader Harry Reid, D-Nev., said late last month that he may support the pipeline if the oil stayed here. His staff has been in contact with Wyden’s office on the export-ban proposal. Wyden’s involvement has thus elevated an environmental talking point to a seeming legislative possibility.

Earlier this week, the House Energy and Commerce Committee marked up and approved the North America Energy Access Act (H.R. 3548), sponsored by Rep. Lee Terry (R-Neb.). The bill authorizes construction of the Keystone XL pipeline, the $7 billion shovel-ready project to deliver up to 830,000 barrels per day of Canadian crude oil to Midwest and Gulf Coast refineries.

Democrats offered five amendments to ‘improve’ (that is, sabotage) the bill. The GOP majority easily defeated the killer amendments, including Rep. Ed Markey’s (D-Mass.) amendment to ban exports of petroleum products made from Canadian oil shipped via the pipeline. Markey claims consumers would benefit because refiners would be forced to sell more gasoline in U.S. domestic markets, lowering prices.

Earlier on this site, National Journal’s energy blog, and MasterResource.Org, I opined that Markey’s proposal would violate U.S. treaty obligations under the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA). I also argued that an export ban could backfire. It could drive refining-related investment, production, and jobs out of the USA, increasing pain at the pump by curbing production at home while making higher-priced foreign imports more competitive.

In “Proposed Keystone Export Ban Fraught With Pitfalls,” National Journal reporter Amy Harder quotes two independent experts who offer similar assessments of Markey’s proposal.

One expert is none other than James Bacchus, former Member of the House of Representatives, former Special Assistant to the U.S. Trade Representative, former Chairman of the Appelate Body of the World Trade Organization (the highest international tribunal of world trade), and current Chair of GreenbergTaurig’s Global Practice Group. The man knows whereof he speaks. From the National Journal article:

“All forms of protectionism are politically appealing, especially in an election year,” said former Rep. James Bacchus, D-Fla., who was a chairman of the WTO’s appellate body. “But that doesn’t mean they make economic sense, and it doesn’t mean they’re legal under international law.”

Bacchus added that recent action taken by the United States against China for similar export restrictions makes any legislation banning exports of oil or refined products a bit hypocritical. Last week, the appeals board of the WTO ruled that China broke free-trade laws with its system of export taxes and quotas for raw materials.

“Why would we impose export restrictions on a basic commodity such as oil when we are opposing export restrictions of basic commodities so vigorously in the WTO?” asked Bacchus.

On Jan. 30, 2012, the WTO ruled against China’s restrictions on exports of bauxite, coke, magnesium, manganese, zinc, and other materials. The ruling responds to legal challenges launched in 2009 by the USA, European Union, and Mexico. GATT rules generally prohibit a WTO Member country from restricting exports. China tried but failed to justify its export restraints as measures essential to conservation, environmental protection, or alleviation of critical supply shortages. Attempts to justify a Keystone crude export ban on those grounds would be laughed out of court.

But here’s the kicker. “Although rare earth metals were not part of Monday’s ruling,” Reuters reports, “a number of U.S. lawmakers urged the United States to use the decision to launch a new case to force Beijing to lift its rare earth export restriction.” Reuters does not identify any of those lawmakers by name, but Markey is a leading critic of Beijing’s export restrictions on rare earth metals. Such metals are used to manufacture the ‘clean tech’ products of which he is so fond, including hybrid and electric vehicles, solar panels and wind turbines. Somebody please tell Mr. Markey: Dissing the same law to which you appeal for redress is neither honorable nor smart.

On the potential consumer impact of Markey’s amendment, Ms. Harder quotes Michael Levi of the Council on Foreign Relations:

But an export ban on refined products derived from the pipeline’s oil would have more complicated repercussions, since products such as gasoline are already being exported from the Gulf Coast in growing quantities. A ban on exporting some refined products could hurt oil companies’ bottom lines because refineries might run at less than full capacity. And that could subsequently raise U.S. gasoline prices, experts say.

“If this was somehow effective at trapping product in the United States that otherwise would be exported, the ultimate impact on gasoline prices could very well be bad rather than good,” said Michael Levi, energy-security expert at the Council on Foreign Relations.

Since writing my MasterResource column, I have given further thought to these issues and conclude that Markey’s amendment traduces the two most basic principles of modern trade law.

The national treatment principle (treating foreigners and locals equally) prohibits importing nations from discriminating against a foreign commodity, service, or item of intellectual property once it has entered into domestic commerce. The moment any Canadian crude crosses the border, whether via Keystone XL or any other mode of transport, it enters into U.S. domestic commerce. Thus, under both GATT and NAFTA (Articles 301, 606), it must be accorded national (equal) treatment. Only if Congress were to ban all petroleum product exports, including those made from oil produced in the USA, would Markey’s amendment not flout the national treatment requirement. Even then it would still conflict with the WTO’s general prohibition of export restrictions.

Markey’s amendment also conflicts with the most favored nation principle, which holds that if you grant a privilege to one trade partner, you must grant it to all. Markey’s amendment would not require OPEC crude and products made from it to “stay here.” The restriction would apply only to Canadian crude and products made from it. Under Markey’s proposal, Congress would grant most favored nation status to OPEC but deny it to Canada. Brilliant!

Last night over dinner with a knowledgeable source, I heard the skinny on the $7 billion Keystone XL pipeline extension that would double U.S. imports of tar sands oil from western Canada…if the Obama administration allows it.

The 1,700 mile pipeline would link expanding Canadian crude production with America’s first-class refining hub in the Midwest and along the Gulf. It was one of three diplomatic priorities articulated by Canadian Prime Minister Stephen Harper during his February sit-down with President Barack Obama (the other two were Afghanistan and trade policy). That’s why the State Department is behind it.

However, oil production from tar sands is more carbon-intensive than traditional production, so environmentalist groups are staunchly opposed to the Keystone XL pipeline. As a result of the greens’ organized opposition, the Environmental Protection Agency in July, 2010, rebuked the State Department’s draft Environmental Impact Assessment* of the pipeline, stating that it contained “inadequate information.”

*[Because the pipeline crosses an international border, the primary permitting agency is the State Department. Under the National Environmental Protection Act (NEPA), any federal agency action (ie, permitting) must adequately account for the environmental impact of the permitted action. Generally speaking, there are two ways to do so: with a less detailed “Environmental Assessment” and a more detailed “Environmental Impact Statement.” Because of the magnitude of the Keystone XL pipeline, the State Department had to conduct a detailed Environmental Impact Assessment. This is the document that the EPA critiqued.]

In order to address the EPA’s concerns, the State Department in March undertook a supplemental Environmental Impact Assessment, for which the comment period ended in mid-April. A final draft has not yet been issued.

For now, the project is in limbo, and the pipeline’s proponents are worried that the Environmental Impact Statement might be referred to the Council on Environmental Quality, the bureaucracy responsible for administering NEPA. Such a referral could lead to lengthy, costly delays.

Of course, all these agencies (State, EPA, and CEQ) work for the President. So what does he think about this inter-agency conflict? I believe it’s his doing, to provide himself political cover. Canada is out closest friend, literally and figuratively, and the pipeline is a major priority for our northern neighbors. I can’t imagine that the President would check such a vital Canadian interest. At the same time, he must cater to the needs of his environmentalist base. It would be politically savvy of the President, knowing full well that he will approve the pipeline, to have the EPA question the pipeline as a sop to the greens, and then have the State Department answer the EPA’s questions. The politics of high gas prices further suggests that the President is a pipeline proponent.

Then again, this Administration is waging war on domestic energy production, so maybe I’m giving the President too much credit.