Oil, OPEC and Antitrust
Yesterday, the House of Representatives passed HR 6074 which, in part, would amend the Sherman Antitrust Act.* The bill provides, in part:
The Sherman Act (15 U.S.C. 1 et seq.) is amended by adding after section 7 the following:Sec. 7A. (a) It shall be illegal and a violation of this Act for any foreign state, or any instrumentality or agent of any foreign state, to act collectively or in combination with any other foreign state, any instrumentality or agent of any other foreign state, or any other person, whether by cartel or any other association or form of cooperation or joint action–
(1) to limit the production or distribution of oil, natural gas, or any other petroleum product;
(2) to set or maintain the price of oil, natural gas, or any petroleum product; or
(3) to otherwise take any action in restraint of trade for oil, natural gas, or any petroleum product;
when such action, combination, or collective action has a direct, substantial, and reasonably foreseeable effect on the market, supply, price, or distribution of oil, natural gas, or other petroleum product in the United States.
(b) A foreign state engaged in conduct in violation of subsection (a) shall not be immune under the doctrine of sovereign immunity from the jurisdiction or judgments of the courts of the United States in any action brought to enforce this section
(c) No court of the United States shall decline, based on the act of state doctrine, to make a determination on the merits in an action brought under this section.
(d) The Attorney General of the United States may bring an action to enforce this section in any district court of the United States as provided under the antitrust laws.
The bill also would require the Attorney General to establish a Petroleum Industry Antitrust Task Force.
The new “Petroleum Industry Antitrust Task Force” would be charged with determining the existence and extent of gasoline price gouging, anticompetitive price discrimination by refiners, actions to inflate prices by constraining supplies, and possible oil price manipulation in futures markets, Kagen said.The bill, which would amend the Sherman Antitrust Act, also requests a Government Accountability Office study on the effects on competition of prior oil industry mergers and divestitures, he indicated.
…
This would be the second time the House considered a No Oil Producing and Exporting Cartels (NOPEC) bill, which would attempt to change the Act of State doctrine and the concept of sovereign immunity, King said. “There is no certainty that enabling the attorney general to sue [the Organization of Petroleum Exporting Countries] for an antitrust violation will result in lower gas prices for Americans. Given the instability that such a suit might create in the world oil market, this legislation would be long on psychic compensation but short on actual returns to America’s pocketbook,” he maintained.
* For our foreign readers, in order for the bill to become a law, it would also have to be passed by the Senate and signed by the President.
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May 21st, 2008 at 8:40 pm
The Act says “ … when such action, combination, or collective action has a direct, substantial, and REASONABLY FORESEEABLE EFFECT on the market, supply, price, or distribution of oil, natural gas, or other petroleum product in the United States”
Price-fixing agreements […] are illegal “PER SE”: no defence resting on the claims that the prices fixed are reasonable, or on evidence that price competition in an industry is excessive and ruinous, will succeed. Agreements directed to controlling the flow of SURPLUS [emphasis mine] supplies into the market so as to stabilize prices will be regarded as ‘tampering’ with free price movements and hence as equivalent to price fixing. These basic rules cover the bulk of cases; and straightforward changes of price fixing probably account for the majority of all antitrust cases every year. (A.D. Neale and D.G. Goyder, “The Antitrust Laws of the U.S.A – A Study of Competition Enforced by Law”, Cambridge University Press, 1980, reprinted 1982, 3rd ed., p. 42)
Do we get the RULE OF REASON for price fixing?
As Alan Greenspan said more than 45 years ago: http://www.polyconomics.com/searchbase/06-12-98.html The world of antitrust is reminiscent of Alice’s Wonderland: everything seemingly is, yet apparently isn’t, simultaneously. It is a world in which competition is lauded as the basic axiom and guiding principle, yet “too much” competition is condemned as “cutthroat.” It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as “enlightened” when initiated by the government. It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge’s verdict — after the fact.
The general antitrust thinking on horizontal agreements is that most mergers and joint agreements should be judged by an economic rule of reason, while price collusion and division-of-market agreements should remain illegal per se (D. T. Armentano, “Antitrust Policy – The Case for Repeal’, Washington, D.C., Cato Institute, 1986, p. 55)
The rule of reason is a doctrine developed by the United States Supreme Court in its interpretation of the Sherman Antitrust Act. The rule, stated and applied in the case of Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911), is that only combinations and contracts unreasonably restraining trade are subject to actions under the anti-trust laws and that size and possession of monopoly power are not illegal. http://en.wikipedia.org/wiki/Ruleofreason
illegal per se often refers to categories of anticompetitive behavior in antitrust law conclusively presumed to be an “unreasonable restraint on trade” and thus anticompetitive. http://en.wikipedia.org/wiki/Illegalperse
The per se approach purposely abstracts the very economic issues that may be relevant in such cases (Armentano, p. 65)
The per se approach assumes that there are no economic efficiencies associated with the price agreement and that the conspiracy restricts market production and raises the market price for oil (Armentano, p. 65-66)
Now, we get the rule of reason replacing the per se approach?
Is this the first step towards abolishing antitrust law? I do sincerely hope it.
ivocerckel AT siquijor DOT ws
May 22nd, 2008 at 11:45 am
I hardly believe that’s a step towards repeal of antitrust.
I am just curious what harm is DOJ or any US court able to cause to OPEC?
Another problem is the vagueness of the following clause: “direct, substantial, and reasonably foreseeable effect on the market, supply, price, or distribution”.
May 25th, 2008 at 12:45 am
Rethinking our Sanity in the “Let’s Nail OPEC and Deny Global Warming Age.”
In opening, I have taken it upon myself to inter-change words to the song “I’m Proud to Be an American Where at Least I know I’m Free” to “The Lunatics Run the Asylum in the U.S.A.”
Face it, the belief of G/W has set the stage towards a general economic tail-spin. In sum, most people in the U.S.A believe G/W is real; and as such, all kinds of unpleasant things are occurring such as; out-of-control petrol prices, real estate collapse and a steeply falling dollar.
Think of the economic effects of G/W like riding a horse who suddenly spooks. It does not matter what made the horse you are riding spook; the fact is, when your horse spooks, you are left with only 3 choices;
(1) allow yourself to fall-off (bad choice, like buying a water-front house, motorhome or a new SUV);
(2) hold-on and let the horse run you off to the barn (VERY bad choice, like the antitrust suit against OPEC to stop the high gas prices);
(3) hold-on and try to head towards clear pasture (safe choice, like raising taxes to Eisenhower-era 91% on America’s wealthiest folks to fund re-building the transportation infrastructure to include high speed rails, subways, inter-urbans and lanes dedicated to light-electric cars (in sum, a transportation infrastructure tailored to an economy not hopelessly dependant on petrol).
The lunatics are the Article I, II, III riders who sit on their spooked horses galloping back towards the barn where they break their necks the moment their horse suddenly stops at the stall-door.
The lunatics lose site of the fact it is irrelevant whether G/W is really going to occur while assessing G/W’s present, devastating impact on our economy. They also lose site of the fact the price of fuel has risen to the breaking point.
Lunatics want more G/W studies, antitrust suits against OPEC and lower taxes so they can continue to support all the high-maintenance garbage they have been acquiring since post-Reagan tax cuts (mcMansions, motorhomes, motoryachts, face-lifts, tummy-tucks, 300+HP sports cars and SUVs).
And the band of loonies play on . . .