The report of Senator Lautenberg mentioned by Simon Lester in a recent post, does not say a word about two important legal points in the context of this issue (See "OPEC, the WTO, Regionalism, and Unilateralism”, Journal of World Trade, Vol. 37 (2003), by Melaku Desta).
1. Four important OPEC countries -Algeria, Iraq, Iran, Libya- still remain outside the WTO system. Russia, although not a member of OPEC, is known to collude with OPEC quite often. However, Russia is still not a WTO Member.
2. In principle, trade in petroleum products among WTO Members is governed by the rules of the trading system just like other products. Therefore, decisions to restrict supplies on the basis of falling prices below the OPEC-approved price range or any other threshold, could well qualify under Article XI of GATT as quantitative export restrictions through minimum export price requirements. However, the real legal issue is whether these restrictions could qualify in the context of Article XX exceptions as measures relating to the conservation of petroleum. Senator Lautenberg suggests in his report that OPEC’s stated goal is obviously a price target, not conservation, and there is thus no shelter under Article XX because any reference to conservation in such a context is simply a “disguised restriction on international trade” in violation of the Chapeau of Article XX. However, according to Desta it is also plausible to argue that conservation of a mineral resource such as oil cannot be seen in isolation from the financial return of its exploitation for its owners and production restriction decisions caused by falling market prices could be construed as “relating to the conservation” of the resource.
3. Although Desta does not mention the famous Hotelling's rule relating to the optimal exploitation of non-renewable natural resources such as petroleum, it is very likely that all the legal debate in such a case would be centered about this rule. Hotelling's rule and all economic models derived from its perspective deal with the issue of how much of a non-renewable resource must be extracted today and how much must be saved for the future, depending on present and expected economic conditions. If OPEC Members could demonstrate that their behavior is justified under this rule or one of its variants, then a panel may conclude that this behavior is related to the optimal exploitation of a non-renewable resource and thus to its conservation. If they fail in this demonstration, then a panel would conclude that their behavior is an export restriction and that any reference to conservation is simply a disguised restriction of international trade. Once again, we have here a striking example of how legal interpretation could become embedded with economic theory.
4. The rationale behind Hotelling' rule is that someone who sells a disappearing resource today is thereby surrendering the opportunity to sell that commodity in a future market in which it might be more highly valued. The legal challenge for OPEC Members would then be to demonstrate that their announced intention to cut back production as prices go below 60 dollars might be most naturally interpreted from an Hotellig's perspective: producers don't see it as being in their interests to sell for less, given what the oil will be worth in the future (given China's rising demand and the geological availabity of oil).