Opinion

A legal case against the OPEC cartel

Decades of putting up with OPEC have not reduced oil prices.

By

As the national average price of gasoline raced toward $4 a gallon and airlines laid off workers by the thousands because of rising jet fuel costs, the US House of Representatives took action: It overwhelmingly passed the Gas Price Relief for Consumers Act of 2008.

The bill would have made it illegal for foreign states "to act collectively" to limit the production or distribution of oil. Put simply, the bill permitted the Justice Department to charge the Organization of the Petroleum Exporting Countries with violating American antitrust laws.

Even before the 324-to-84 House vote in May, President Bush pledged a veto, saying OPEC might retaliate against US interests overseas or cut oil production further. But Senate Republicans held the line for him, this month threatening a filibuster that Democrats couldn't break. That effectively killed the bill and, for now, any hope that the US would finally start treating oil the same way it does computer chips, vitamins, and other products.

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OPEC may call itself an "organization," but it is, pure and simple, a cartel that manipulates markets, restricts output, and fixes prices. The US and the European Union have vigorously prosecuted other multinational cartels for doing the same thing in other markets.

Swiss healthcare company F. Hoffmann-La Roche, for instance, paid a $500 million fine to the US in 1999 for its part in a years-long scheme to raise prices on vitamin products. Just last year, British Airways and Korean Air each paid a $300 million fine to the US for fixing international cargo rates.

But when it comes to oil, the US gets squeamish. For nearly 50 years, the members of OPEC have openly operated as a cartel. OPEC's statutory provisions even state that its mission is "the coordination and unification of the petroleum policies of member countries and the determination of the best means for safeguarding their interests, individually and collectively."

The cartel's economic effect on the US has been devastating, dating from the oil embargo in the 1970s, which led to the first US fuel shortage since World War II, to today's unstoppable escalation of pump prices. US spending on imported oil has gone from about $185 billion a year to an expected $440 billion in 2008. Much of that excess is winding up in the pockets of OPEC members, increasing their global economic and political power.

High gas prices have now gone from consumer irritation to a serious threat to our national economic health. Our antitrust laws are tailor-made to help out in such a crisis.

OPEC is clearly a "combination or conspiracy" that restrains trade in violation of the Sherman Antitrust Act. Still, over the years, courts have made it nearly impossible to use the act against OPEC, whose members claim they are sovereign nations and thus immune from such prosecution.

But OPEC's behavior is commercial, not governmental or diplomatic. It is perfectly appropriate for Congress to remove these legal obstacles. Foreign businesses and individuals have long been subject to US antitrust laws – even for conduct overseas, if it has substantial effect on commerce here. So should OPEC.

Imagine suing OPEC members for the amount they overcharged for petroleum products the US government purchased. Imagine the seizure of OPEC assets to pay this award, such as Venezuelan government-owned Citgo headquarters in Houston or Saudi Arabia's Aramco assets in New York.

And imagine Justice Department officials compelling OPEC and its coconspirators to disclose documents that might bring to light exactly how this cartel has functioned. Might this information show a relationship between OPEC and US oil companies?

If we are afraid of OPEC, remember that our decades of putting up with this cartel have done nothing to reduce oil prices.

The bill Congress proposed was actually somewhat cautious. It didn't allow private suits for damages but gave enforcement jurisdiction exclusively to the Justice Department. Under the Bush administration, the attorney general seems unlikely to have used this authority anyway, but all that could change come January, when a new president and new Congress get to work.

Job One for them should be to look past the fearmongering rhetoric and enact this important piece of legislation.

At the very least, passage of this bill would send this loud and clear message to OPEC: Competition – the basis of free enterprise and economic organization throughout much of the world – ought to be the norm for producing oil just as it is for producing anything else.

Darren Bush, Harry First, and John J. Flynn are law professors at the University of Houston, New York University, and University of Utah, respectively. © Los Angles Times.

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