OPEC and Market Competition

We see a humongous demand for oil in our country. These oils are like an elixir to our country’s economy. India hasn’t been fortunate enough to have its own oil produce till date. Unlike the USA, which also faced a backlash in its economy due to lack of oil. In early days the crude oil production of USA was not sufficient for its own and hence it led to major technological advancements in crude oil extraction and lead to increase (overproduction) in its production by 1920s[1]. Similarly, Russia also has acquired a huge footprint in the crude oil market. Developing countries like India, China etc. have a huge demand for these crude oils. Hence, it’s very important to maintain healthy competition in the crude oil market.

There are three main market dominant players in the international crude oil market which are USA, OPEC, RUSSIA. The Organization of Petroleum Exporting Countries (OPEC), was founded in Baghdad, Iraq in 1960 by five countries[2]. Currently, it has a membership of 13 major oil-producing countries. OPEC has been involved in market manipulation by controlling the output level of the member countries and fixing the price of the oils[3]. A cartel is an association of manufacturers and suppliers who are involved in anti-competitive practices like fixing of the price of commodities in the market, production control, sharing of market and customers. OPEC is a collaboration of 13 sovereign countries, which are jointly under OPEC are directly involved in anti-competitive practices. OPEC has a dominant position in its relevant market and can very easily manipulate the price and levels of supply of the crude oil which thereby has a global effect. The indirect advantage of maintaining a healthy competition is to the consumers. Developing countries like India and China at times have to pay a hefty sum because of the repercussions of such anticompetitive agreements in the crude oil industry.

The traits of OPEC shield it from various competition authorities because of the jurisdictional challenges. We do not have any International organization that monitors the market competitions and has binding effects on the sovereign countries. Generally, the cases of cross-border Mergers and Acquisitions are also monitored by the individual company’s/enterprise’s home National Competition regulatory boards with the help of a cooperative organization like ICN[4](International Competition Network). There are organizations like UNCTAD, ICN and OECD (Organization for Economic Cooperation and Development) which are constantly involved in international competition researches but does not have a binding force over any sovereign. WTO’s legal framework of Model Antimonopoly Law/ Competition Act[5] restricts its scope to private enterprises alone, as per the report of UNCTAD which analyses the status quo of the antitrust laws with respect to OPEC[6]. All three organizations the ICN, OECD and UNCTAD are involved in examining the competitional aspect of the international market. They however just contribute in academia because of lack of any authority over the sovereigns.

WTO’s trade and competition policy has always been clear on the fact that it’s field of investigations only covered private enterprises, with a special address to the international private cartels. From the very beginning, OPEC has stood clear from the WTO’s investigation on trade and competition policy. However, the UNCTAD questioned and notified the need to address the intergovernmental agreements.

The set of multilaterally agreed Equitable Principles and Rules for the Control of Restrictive Business Practices was adopted by the UN General Assembly, which were later renamed the “Set of Principles and Rules on Competition” (The ‘UN Set’)[7]. Article 9[8] under the scope of the application of the ‘UN Set’ gave an exemption to the intergovernmental agreements and to the non-competitive results of such agreements.

Martin Khor (Manager of The Third World[9]) wrote[10]– “Policy-makers in major developed countries are advocating the introduction of a new agreement on competition policy in the World Trade Organization so that their big corporations will be better able to take over a larger share of the markets of developing countries. Ironically, competition policy was originally understood as a means to help small companies not to be overwhelmed by the big firms. But it is now sought to be used by the rich countries to help their giant corporations compete with the local firms in the developing countries. By bringing the issue into the WTO, the rich countries plan to make use of the organization’s principle of ‘nondiscrimination’ to argue that local firms cannot be treated more favorably than foreign firms” and since then, international agreements on competition is opposed by the developing countries as per his analysis later on 2007.

DOMESTIC INVESTIGATIONS

Can a National Competition Regulatory authority keep a check on OPEC? Can OPEC be prosecuted in any National Regulatory Authority? The national authorities cannot help in tackling such intergovernmental anticompetitive agreements because of challenges like, Territorial limits– the application of the laws have limits that is the domestic market itself and later on these laws can also applied on the foreign enterprises that have repercussions (effects Doctrine) on the domestic market, as the jurisprudence developed with time. Another limitation before the authorities is that the laws can be applied only on the private enterprises and not on the foreign states. In 1978 a case was filed by the International Association of Machinists and Aerospace Workers (IAM)[11] in the US court against OPEC claiming that the members of the IAM suffered damage because of the price-fixing by OPEC. The court held- “The jurisdiction of the federal court under the act of state doctrine was improper. The US courts will not adjudicate politically sensitive disputes requiring the court to judge a Sovereign Act of a Foreign State”. In 2001 another case PREWITT ENTERPRISE INC. V. OPEC[12] was filed in the US court challenging the price-fixing and quota allocation by OPEC. At the first instance, Judge Weiner reversed the IAM judgement claiming OPEC to be an unincorporated organization and hence can be sued. The judge ruled that OPEC is an intergovernmental organization and hence is not saved by the Foreign Sovereign Immunity Act or the act of state doctrine. Price manipulations by controlling the production is prohibited under the US Antitrust laws. However, in 2002 on appeal, Judge Clermon reversed the decision purely on technical grounds.

Because of the status of an “intergovernmental” organization and the “sovereign” nature of its member countries OPEC openly engages in anticompetitive behaviors despite being illegal under any legal regime that encourages free market. The US antitrust laws are currently not having jurisdiction to investigate any intergovernmental cartel like OPEC. There has been a long debate in the US for passing of the NOPEC[13](No OPEC) bill which has been defended by the former presidents of the United States of America and is more likely to get approved in the Donald Trump’s administration[14].  NOPEC would amend the antitrust laws so as to enable the US authorities to investigate and penalize OPEC for its collusive practices. Both the US as well as EU competition authorities pose a threat to OPEC when entrusted with proper jurisdiction[15]. EU focuses on maintaining a proper integrated competitive intergovernmental market for its members. Article 101[16] of the treaty does not put any of governmental bodies under scrutiny. OPEC would have been a cartel under the EU competition rules only if the member countries would have qualified as undertakings[17]. EU’s Competition commission’s rules does not apply to any of the conducts in the exercise of official or public authority.

Then what is it that stops the entire world to fight this anticompetitive intergovernmental organization? Oil is one of the most essential fuels that every country needs and this crude oil industry is led by OPEC. OPEC can without much of a stretch cause the world to experience the repercussions of the oil’s price manipulation, it has the power to bring both US and EU to their knees.

CONCLUSION

OPEC has never been challenged by any governmental competition authority despite of its open violations of competition rules. There is a need of National competition authorities and active advocates to suggest and refine the works of organizations like ICN, OECD and UNCTAD and frame up a mechanism/policy so as to protect the future of market competition[18]. There are many SOEs (State Owned Enterprises) that take a major stake in the global economy. These SOEs have a greater chance to be involved in anti-competitive business practices as they hold a very significant amount of market share. With the increase in trade activities by the SOEs competition challenges also increase because of the exemptions they enjoy in different national legal regimes as well as get shielded from their international conducts. There is a need of cross border cooperation of respective competition authorities which can be felicitated by competition agencies like ICN. Not all countries have been able to integrate their legal framework so as to maintain the competition in the market efficiently, hence more work needs to be done to assess the strategies for successful advocacy of competition policy in their respective jurisdiction which will take us closer to international standards of best practices.

[1] https://www.cfr.org/timeline/oil-dependence-and-us-foreign-policy

[2] https://www.opec.org/opec_web/en/about_us/25.htm

[3] https://www.reuters.com/article/us-oil-prices/timeline-half-a-century-of-oil-price-volatility-idUKTRE4AJ3ZR20081120

[4] https://www.internationalcompetitionnetwork.org/

[5] Antimonopoly Act, available at (https://unctad.org/en/Docs/tdrbpconf7d8_en.pdf).

[6] https://unctad.org/en/Docs/ditcclp200311_en.pdf

[7] https://www.competitionauthority.co.bw/commemoration-un-set-principles-and-rules-competition

[8] The UN Set. Available at ( https://unctad.org/en/docs/tdrbpconf10r2.en.pdf)

[9] https://twn.my/

[10] https://www.wto.org/english/forums_e/ngo_e/the_havana_charter_is_not_the_model_to_reform_the_wto_sol_4_january_2019_e.pdf

[11] 649 F.2d 1354

[12] 224 F.R.D. 497

[13] https://www.congress.gov/bill/116th-congress/house-bill/948/text?format=txt

[14] https://www.cnbc.com/2018/12/04/us-legislation-against-opec-is-a-big-concern-barclays-cohen-says.html

[15] Christopher J. Lento, Shifting Sands: An Analysis of OPEC under U.S. Antitrust and EU Competition law and How the U.S. Oil Boom Might Change It All, 2 LSU J. Energy L. & Resources 281 (2014).

[16] EU Competition Law. Available at (https://ec.europa.eu/competition/antitrust/legislation/handbook_vol_1_en.pdf).

[17] https://www.fieldfisher.com/en/insights/is-opec-really-a-cartel

[18]  Pérez Motta, Eduardo. 2016. Competition Policy and Trade in the Global Economy: Towards an Integrated Approach. E15 Expert Group on Competition Policy and the Trade System – Policy Options Paper. E15Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum.


ABOUT THE AUTHOR

Advait Mishra

ME 3

Advait Mishra is a first-year undergraduate law student at Hidayatullah National Law University, Raipur (C.G).

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