OPEC the WTO, REGIONALISM AND UNILATERALISM
by Dr. Melaku Desta in our Working HIstory Series: Enegry Politics Archives: Issue II: Summer 2004
Background
The Organization of Petroleum Exporting Countries (OPEC) and the World Trade Organization (WTO) are two of the most visible international economic institutions today. But, they are often associated with two diametrically opposed players in the global economy: the WTO with the sometimes savage rules of the market and OPEC with the often demonised intergovernmental manipulation of prices. Many believe that OPEC and the WTO do not have anything in common, arguing that OPEC’s domain of oil1 resource management does not have anything to do with the WTO. Indeed, every time oil succeeds in occupying the news headlines, often because of a price hike or collapse and consequent concerted governmental intervention in the name of correcting market failures, while OPEC comes in as the embodiment of that concerted governmental intervention against market forces, the WTO is nowhere to be seen in its professed role as the guardian of those same forces. This raises the important question of whether or not the WTO has any role in the petroleum sector….
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Rethinking the Relationships
This article has shown that the multilateral trading system was designed from the beginning to serve a market access agenda. By the time energy security became an issue after the creation of OPEC, the trading system was ill-suited to address it properly. In an effort to overcome the problem, leading GATT/WTO members opted for the non-multilateral path, and particularly the path of regional trading arrangements, which are inherently based on the philosophy of discrimination.124 This approach cannot provide a lasting solution to the problem of energy trade. In one of his latest writings, Professor John Jackson recalled that, of the two main objectives of the trading system at the time of its creation, “[t]he first, and the more important at that time, sometimes overlooked, was the prevention of another war.” 126 The role of the multilateral trading system as a vital instrument of international peace and stability could be hardly complete in the absence of so many countries controlling so much of such a vital commodity. If there is such a thing as a single product of international trade prone to causing “another war”, oil could probably come on top. Regionalism cannot be the solution in such a sensitive sector; leading WTO members should rather look for solution within the multilateral framework. This needs positive efforts from both sides to look for some common ground, of which there is plenty. At the rhetorical level, both groups of countries accept this approach as the only way forward;126 but it needs to be supplemented by actions that accommodate each other’s primary concerns. At the risk of oversimplification, these primary concerns may be simply stated as follows: consumers want regular and adequate supplies of oil at reasonable prices, and producers want reassurance of their sovereign right to their natural resources, secure access to export markets, and reasonable returns from those exports to support their overall development. The WTO, if allowed, has the potential to adequately address both groups of concerns in the interest of the common good. To this end, members of the WTO should actively facilitate – rather than hinder – the accession of non-WTO OPEC countries. This does not just bring more oil producers into a system of rules, however ineffective; it also allows the acceding countries enormous benefits in terms of attraction of investment; closer integration with the global economic system; better terms of market access for their competitive petrochemical products that will benefit consumers everywhere; gaining much-needed influence in the development of environmental and other rules within the WTO; and use of WTO regulations for domestic regulatory clean-up. At the same time, OPEC countries, without in any way questioning their full sovereignty over their natural resources, might consider relaxing the extent of their intervention in price regulation and even undertake minimum supply commitments at pre-negotiated price levels. This approach goes in line with the objectives of both institutions. By undertaking minimum supply commitments, OPEC furthers one of its principal aims – that of “ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations.”127 Moreover, by undertaking minimum supply commitments or providing other acceptable assurances to consumer countries, OPEC countries will help stabilise the world, of which they are also a direct, though not sole, beneficiary. At the same time, a credible undertaking on the part of suppliers provides much needed confidence and predictability to the market, and a favourable international political environment for the smooth operation of business – two of the most fundamental objectives of the WTO. The WTO on its part might consider taking several measures to assuage OPEC countries’ not unfounded fears. Firstly, the WTO could introduce an explicit understanding providing immunity to OPEC’s price/supply management practices whose WTO-legality could not be taken for granted. Secondly, a restatement of the already established international law principle of national sovereignty over natural resources might help in confidence-building with no cost to anyone. Needless to say, this is only a preliminary proposal, and a more meaningful approach has yet to be devised. But one thing is clear in all this: any approach in this direction has the potential to transform the role of petroleum in international relations from fueling conflict to oiling cooperation. And, as the saying goes, if there is the will, there is always the way.
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About the Author: Dr. Melaku Geboye Dresta LL.B., LL.M., Ph.D. is the Coordinator, Africa Trade Policy Centre (ATPC)Coordinator, Africa Trade Policy Centre (ATPC) United Nations Economic Commission for Africas. Formerly a lecturer at the Center for Energy Petroleum and Mineral Law and Policy at the University of Dundee, Dundee, Scotland, U.K.
Endnotes: Several people have given me several invaluable comments on earlier drafts of this article, to whom I remain grateful. I am particularly indebted to Thomas Wälde, Philip Andrews-Speed, Simonetta Zarrilli, Pierre Noel, Chris Rogers, Bernard Mommer, Axel Desmedt and two reviewers. Responsibility for any errors of course remains exclusively mine.
124 For a contrary view, see “Note: The Applicability of the Antitrust Laws to International Cartels Involving Foreign Governments” 91 Yale Law Journal 765 (1982), pp. 780-82. 125 On the vices of regional trading arrangements in general, see Jagdish Bhagwati, Free Trade Today (Princeton University Press, 2002), pp. 106 – 120. 126 John H. Jackson, “The WTO 'Constitution' and Proposed Reforms: Seven 'Mantras' Revisited", 4 Journal of International Economic Law, 67 (2001), p. 68. 127 OPEC has repeatedly expressed its willingness to enter into what it calls “a fair agreement” that recognizes, on the one hand, owners’ rights to a just price for their exhaustible and non-renewable resources, and, on the other, consumers’ rights to a guaranteed oil supply at reasonable prices. See OPEC, “Forum”, OPEC Bulletin, Vol XXXIII, No 2, February 2002, p. 6. See also the two “Solemn Declarations” of OPEC Countries’ Heads of States and Governments, made on 4-6 March 1975 in Algiers, and on 27-28 September 2000 in Caracas, Venezuela. Likewise, leading powers on the consumer end, including the US and the EU, often talk in identical terminology about their determination to strengthen trade alliances and establish dialogue with oil producers. The US government talks in terms of the “need to strengthen our trade alliances, [and] to deepen our dialogue with major oil producers”. See US National Energy Policy 2001, supra n. 69, p. 8-4. The EC Commission Green Paper also declared that the EU must “establish an ongoing dialogue with producer countries”. See EC Green Paper (2001), supra n. 68, p.73. 128 Article 2.B of the OPEC Statute.