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.

Food Prices and Export Restrictions

The recent rise in food prices seems to be causing some people to take a closer look at export restrictions:

From Japan:

Japanese Agriculture Minister Masatoshi Wakabayashi said on Tuesday that Japan will propose that the World Trade Organisation set clear rules for food export restrictions imposed by producing countries.

Wakabayashi said Japan will urge that the WTO create a mechanism for food importers, such as Japan, to give an opinion when notified about restrictions by an exporting country.

"In order to exercise export controls, rules have to be clearer," Wakabayashi told a news conference, the text of which was published on the ministry's website.

From the EU:

In Tokyo, EU Trade Commissioner Peter Mandelson said the World Trade Organization should pressure food-producing countries to maintain exports. Some nations have banned exports in an attempt to avert domestic shortages.

"If we restrict trade, we're simply going to add food scarcity to the already large problems of food shortages that exist in different countries," Mandelson said in an interview.

"The WTO stands for free trade. It's also got to stand up against export restrictions, export taxes, which too will stop the free flow of trade in foodstuffs and agricultural produce."

I found the reference to "export taxes" interesting.  Perhaps the food price issue will generate some support for bringing export taxes more clearly within the WTO framework.

Trade in Water

From an editorial in the Toronto Star:

As aquifers and rivers in the United States run dry, there seems little doubt that the Americans will be turning their thirsty eyes north toward our seemingly plentiful water supply. Indeed, no less an authority than former Alberta premier Peter Lougheed has predicted: "The United States will be coming after our water in three to five years."

But isn't our water protected by federal-provincial agreements and legislation, such as Bill C-6, which amended the International Waters Treaty Act in 2000 to ban water exports from the Canadian side of the Great Lakes and other regional basins?

Maybe not. There is a concern that such protections would have no real force against World Trade Organization rules, which prohibit the use of export bans or limitations on any product that a trade partner has contracted to buy – especially when these WTO rules are considered in combination with the provisions of the North American Free Trade Agreement (NAFTA).

Summing up this concern in a report this week, the Polaris Institute declared: "It is not at all clear that either Ottawa or the provinces are in a position to deal with a challenge coming from Washington to turn on the taps for Canadian bulk water exports to the U.S."

Here's the Polaris Institute report mentioned in the article.

I'm not sure that there is really anything to fear from WTO rules on this.  A water export ban or limitation would clearly violate GATT Article XI:1, but I would think that it would not be too hard to justify it under Articles XX(b) or XX(g).

With regard to the NAFTA, the report seems to focus on the Chapter 11 investment provisions.  I wouldn't have thought Chapter 11 would prohibit such regulations, but maybe the report has a point here.

Wheat Export Restrictions

From the AP:

The price of wheat has more than tripled during the past 10 months, making Americans' daily bread — and bagels and pizza and pasta — feel a little like luxury items.

...

Earlier this week, representatives of the U.S. baking industry went to Washington to ask the Bush administration and Congress to address the record wheat prices.

Lee Sanders, senior vice president of the American Bakers Association, said her group isn't asking for a wheat export moratorium, which countries such as Ukraine, Russia and Argentina have enacted. But the industry does want export policies reviewed to ensure domestic bakers have enough affordable flour.

It's not completely clear to me what they are going for here.  They say it's not an export "moratorium" they are after, but they do want "export policies" changed to make sure that domestic bakers have "enough affordable flour."  Perhaps not a complete moratorium, then, but some kind of export restriction?

Export restrictions would clearly violate GATT Article XI:1.  But what about the Article XI:2(a) exception for "[e]xport prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party"?  That might work, although I don't know the facts well enough to have a good sense of it.

And, of course, there is always the export tax, which, for the most part, is a loophole in WTO rules.

Where's the Beef?

Argentina is limiting its beef exports:

Taming inflation was [former President Nestor] Kirchner's goal when he banned most [Argentine] beef exports last year. This year, exports were capped at 480,000 metric tons, down from nearly 700,000 tons in 2005.

Kirchner's wife, the newly elected President Cristina Fernandez, has promised to maintain a high export tax that makes outbound beef too costly for many foreign buyers. So ranchers must keep selling 80 percent of their meat to swamped local markets where profits as well as prices are low.

As an occasional beef consumer, I don't like the higher beef prices I pay as a result of this. The problem, of course, is that foreign producers are happy with the diminished competition, so they are never going to complain.  Isn't there some country that consumes a lot of beef, but does not produce much, that might challenge this under WTO rules?  Could the Argentine beef industry pay some other WTO Member to bring a complaint?

(And yes, I admit I did this post mainly because the post title was too perfect to pass up.)

Export Restrictions: The Missing Disciplines

A student of mine has just submitted an interesting paper on the economic effects of, and legal disciplines on, export restrictions.  The case he has in mind is Chinese coke.  It appears that export restrictions have trade distorting effects symmetric with import restrictions. Of course, export prohibitions are illegal under Art. XI of GATT.  But, strangely (at least from an economic standpoint), export taxes are not illegal and are generally not disciplined.   There might have been an argument at one time that export taxes amount to a subsidy of the users of the input, but softwood lumber seems to have put an end to that.  On April 27, the EU proposed negotiations toward curbing export taxes.  See TN/MA/W/11/Add.6.