Tuesday, April 22, 2008

Gas Prices Rise: What is the WTO to Do?

Every day, the price of gas reaches a new “all-time high.” Retail rates are averaging $3.50 a gallon, but for those of us living in California, that would be a dream come true. The last few weeks, I have paid between $3.80 and $3.90 a gallon, and San Franciscans have already seen that magic number: $4.00 a gallon.
Worse yet, there is no indication that prices are stabilizing any time soon. Iran’s President Mahmoud Ahmadinejad claims prices are too low and “oil is a strategic commodity that needs to discover its real value." The recent attacks against Nigeria’s oil pipeline and the Japanese tanker in Yemen have driven the price of oil even higher (now $117 a barrel for crude). How high is “the real value” of oil likely to go? No one can say with any certainty, but it seems clear that we are in for a long upward climb. (photo credit)
Some might say that $4.00 is hardly cause for concern. Europeans have long been paying exorbitant gasoline prices with some real benefits: manufactures produce smaller cars for the European market, more people bike and walk to work, and gasoline tax revenues are used to maintain a robust social safety net. I support the environmental benefits that come from decreased dependence on cars. When I moved to Northern California five years ago, I was more than a little surprised at the underdeveloped and poor condition of public transportation; it’s particularly striking considering how much California prides itself on its progressive environmental policies (a subject about which IntLawGrrl Hari M. Osofsky's posted here, here, here, and here).
But increased gas prices have a profoundly regressive impact: those who can least afford it, are forced to pay the most. It is hardly possible to feed, clothe and house oneself on a minimum wage job, but imagine having to factor in a $50 to $60 weekly gas bill just to get to work. High gas prices, coupled with the rising cost of basic foodstuffs like corn and rice, and the economic fallout from the mortgage crisis have converged into a perfect economic storm that threatens to blow many over before we are done.
Well, does international trade law have anything to say about the price of gas at our pumps?
Yes, actually.
For years, Congress has been clamoring for the United States to bring a dispute in the World Trade Organization against some of the members of the Organization of Petroleum Exporting Countries. U.S. Sen. Frank R. Lautenberg (D-N.J.) has gone so far as to articulate the legal case against those OPEC members who are also members of the WTO. In his report, Busting Up The Cartel: The WTO Case Against OPEC, Lautenberg charges that OPEC’s production quotas violate a host of WTO rules, including General Agreement on Tariffs and Trade, or GATT, Article XI, which prohibits quantitative restrictions or quotas (the rule is more commonly applied to imports, but there is no reason why export quotas could not similarly be covered under the rule). The 2003 report acknowledges OPEC might benefit from certain GATT exceptions, including Article XX, which permits GATT-inconsistent measures “relating to the conservation of exhaustible natural resources.” In short, GATT Article XX may provide an excuse allowing OPEC’s production quotas to stand. But Article XX maintains such restrictions cannot constitute a “disguised restriction on international trade,” which Lautenberg claims it does.
A WTO case against some of OPEC’s most powerful members—Saudi Arabia, Indonesia, Kuwait, Nigeria, Qatar, the UAE and Venezuela—would cause a stir to say the least. It might actually endear the WTO to the majority of Americans who see the organization as The Great Satan. But a WTO case is an unlikely pipe dream. Robert Zoellick, the nation’s top trade chief at the time the Lautenberg report issued, was dismissive of a potential claim (and there is nothing to indicate that his successor, Susan Schwab (left), believes differently). President George W. Bush has consistently refused to entertain the idea.
But will all of that change when gas prices hit $4.00 a gallon?


Jennifer said...

Until communities appreciate their communal dependence on a non-renewable resource, investment into innovation for better long term solutions won't occur at the levels they need to.

We just can't keep using oil for gas in our cars. What happens when the gas runs out? Can we really walk to work? It's going to take city planning, transportation and R&D to work together for generational solutions.

Marjorie Florestal said...

I agree with you in principle, Jennifer but in reality we aren't coming up with a holistic policy. Our approach is piecemeal or even non-existent, with all sorts of unintended consequences; just consider the impact use of corn in biodiesels is having on the cost of basic foodstuffs. It seems like a disaster waiting to happen. With little federal leadership on the matter, the States are left to fend for themselves. I'm not feeling optimistic, but let's hope I'm wrong