International Economic Law and Policy Blog

High Gas Prices, OPEC and the WTO

It has been a while since we talked about the possibility of a WTO complaint against OPEC.  Given the recent increase in gas prices, I was a bit surprised that it took the U.S. Presidential campaigns so long to raise the issue, but at long last here is something from Hillary Clinton:

Take more aggressive action to pressure OPEC to increase production - OPEC recently reiterated that it will not even consider increasing crude output until September 2008, even though limited supplies are contributing to record oil prices. Hillary believes we should be taking more aggressive action to address OPEC’s control over global production levels and hold OPEC accountable for its decisions. President Bush’s efforts to pressure OPEC over the past seven years have been inconsistent and unsuccessful. Hillary supports sending a strong signal to OPEC that the era of complacency has ended. Hillary will:

• Use the WTO to Challenge OPEC’s Production Quotas - With nine of the thirteen OPEC member countries also being members of the WTO, Hillary believes we should use the tools available at the WTO to address OPEC’s refusal to increase production. WTO rules currently prohibit member countries from imposing export quotas. Yet OPEC member countries are actively and explicitly banding together to restrict oil production and affect global prices. Hillary is calling on the President to engage in immediate negotiations with OPEC members and, if no progress is made, file a formal complaint against OPEC countries at the WTO. Filing a complaint at the WTO will send a clear signal to OPEC countries that the U.S. is committed to an open, transparent global oil market. Such a step will give OPEC members an incentive to increase production as well.

Some of the legal issues involved were discussed at the links provided above.

For good measure, she also wants to take antitrust action:

Allow OPEC Production Decisions to Be Challenged Under U.S. Anti-Trust Law - Currently, OPEC countries cannot be challenged under U.S. anti-trust laws, even when they are engaged in coordinated, commercial activity to control the global oil market. Hillary supports amending the Foreign Sovereignty Immunities Act so that the Justice Department can bring suits against OPEC countries in U.S. courts for price fixing. Changing the rules would help hold OPEC countries accountable for their decisions.

Play Ball: MLB and the WTO

With the U.S. professional baseball season under way this week, I was happy to come across a reason for a blog post about baseball.  A Time magazine article reports that Japan's professional baseball league is complaining about the trade impact of Major League Baseball (MLB), after MLB opened its season with two games in Japan: 

While Japanese fans cheered the lightning series, the country's baseball organization, the Nippon Professional Baseball league (NPB) grumbled. Its best players are migrating to the States. American games are cutting into the Japanese pastime's TV ratings. And now this latest spit in its eye just as NPB opening week commenced. Complained Yomiuri Giants pitching star Koji Uehara, "We're just starting our season. So why does the MLB have to come to play here. There's nothing to be gained from this." Added a Japanese professional baseball official, who wished to remain anonymous, "Every time the MLB holds one of their openers in Japan, sales of our opening week tickets go down.... We see more and more empty seats. It's not necessary for the big leaguers to come here."

As the article explains, it's not just the competition that annoys the Japanese, it's the alleged unfair nature of the competition:

NPB teams lack what might be called the "trade advantages" of their North American counterparts, namely, stadium subsidies, salary depreciation allowances and the anti-trust exemption which helps free up millions upon millions of dollars for MLB teams to spend on raiding Japan's top stars. Most MLB teams use stadiums for little or nothing, having strenuously convinced the cities they play in to build new facilities for them. By contrast the Tokyo Giants pay $250,000 a game to use the Tokyo Dome, while the Softbank Hawks pay $40 million dollars a year to use a similar facility in Fukuoka. Says one longtime observer of the situation, "The NPB should file a grievance with the WTO [the World Trade Organization]."

There are a couple points here.  First, stadium subsidies.  This one is well known.  Many professional U.S. sports teams are able to convince local governments to fund most, if not all, of the cost of their fancy, new stadiums.  There are plenty of complaints about this practice on the merits of the policy (e.g., wouldn't the money be better spent on education?), but there is also a trade impact.  This impact is most directly felt by the other cities that are competing for a franchise, but in addition, according to Japan at least, there is an international impact on competing leagues as well.

Second, salary depreciation.  I'm not really sure about the specifics of this one, although I assume it involves special tax treatment of player salaries.  In essence, another subsidy.

Third, baseball's antitrust exemption, which is also well-known.  On this one, I'm in the minority who take the view that MLB should be treated as a single entity, and thus allegations of antitrust violations involving horizontal restraints (such as team owners acting jointly to prevent another franchise from moving) should be rejected.  As a result, I don't view this exemption as all that significant.  For those who take a different view (most people), the antitrust exemption can lead to a significant advantage for MLB.

So is there a WTO complaint in there somewhere?  I don't really see it, especially given that GATS rules don't have an effective remedy for subsidies that are given to services.  There are the GATS Article XV:2 consultations provisions, but those don't seem to go anywhere concrete.

Finally, there are some practical limits to the competition from MLB:

And so what's next for the American invaders? Might the MLB be contemplating a Japan division to field teams against its National League and American League in the U.S.? The rumors to that effect exist because the Yomiuri Shimbun, the huge newspaper that also owns its own baseball team, was a major sponsor of the Boston-Oakland series and was responsible for the timing of the games to coincide with the local leagues' opening week — which the NPB found so obnoxious. Could Japan be further drawn into the American baseball empire? Well, maybe not. Says Masaki Nagino, planning director of the NPB's Central League: "Not just yet, if you consider the logistics. It still takes 11 hours to fly across the Pacific and as long as that holds, that's our protection."

So perhaps Japan does not have that much to worry about.  Actually, I think the competition could go the other direction.  Remember, there used to be three New York baseball teams.  Now, with a substantially bigger market, there are only two.  Maybe Japan's baseball league could set up a couple franchises over here, in New York and other big cities.  (If the Japanese league were not given an antitrust exemption of its own, that could be a WTO violation, of course.)

The Champagne Cartel

There's always a lot of talk about the OPEC oil cartel, even in the trade context, but what about the French champagne cartel:

A looming shortage of the bubbly French wine, spurred by limits on grape production and rising demand in the U.S., Japan, and the U.K., will push shares of champagne producers higher.

...

"If the champagne craze continues at the current pace, winemakers won't be able to satisfy demand and prices will skyrocket,'' said Laetitia Delaye, analyst at Landsbanki Kepler in Paris, who has been following French beverage companies for three years.

...

The fizzy wine can be produced only in the 34,000-hectare (84,000 acres) Champagne region under strictly defined rules that include producing no more than 15,000 kilos of grapes per hectare.

I think we can safely rule out a WTO complaint any time soon. Similar legal arguments perhaps, but it just doesn't arouse the same broad-based consumer outrage as do high gas prices.