NOPEC goes bananas: thwarting Congress's attempt to extend U.S. antitrust law's extraterritorial reach.

• Author: Looper, Scott
• Position: No Oil Producing and Exporting Cartels Act of 2009

1. INTRODUCTION II. AS THINGS STAND A. OPEC B. U.S. Antitrust Law C. The Executive's Foreign Antitrust Policy D. Private Attempts to Apply U.S. Antitrust Law to OPEC in the Courts III. AS SOME WANT THINGS TO STAND A. Oil Price Reduction Act of 2000 ("OPRA") B. Foreign Trust Busting Act ("FTBA") C. International Energy Fair Pricing Act of 2000 ("IEFPA") D. The NOPEC Bill ("NOPEC") IV. AS THINGS WILL LIKELY CONTINUE TO STAND A. Do Cases Brought Under OPEC State a Claim upon which Relief may be Granted? B. Does NOPEC Present a Political Question such that Courts Should Refrain from Adjudicating OPEC Cases on the Merits? V. CONCLUSION I. INTRODUCTION

   On July 3, 2008, the price per barrel of oil hit an all-time high--in both real and current U.S. dollars--of $145. (1) Six months earlier, the price per barrel was $92. (2) Seven years earlier, the price per barrel was $20--a price at which it had hovered since 1985. (3) This rapid escalation in prices between 2001 and 2008 has been blamed for the current recession. (4) When consumers were forced to spend $4 per gallon of gasoline during the summer of 2008--an increase of 100% from a year earlier--they stopped spending in other places. (5) Total consumer spending fell 2.2%, while spending in specialized areas such as automobiles fell 10% or more. (6) At the same time, consumers uncomfortable with $100 fill-ups at the gas station began abandoning cheap houses in U.S. suburbs for smaller residences nearer to work, and began abandoning gas-guzzling American trucks and S.U.V.s for smaller, more fuel-efficient foreign-made cars. (7) The rapid drop-off in demand left the U.S. housing market with an oversupply of cheap homes and left the U.S. auto industry with an oversupply of large vehicles. (8) As the housing market crumbled and as U.S. automakers tinkered on the edge of bankruptcy, thousands of workers were laid off, sending ripple effects reverberating throughout the economy. (9) Economists have concluded that, were it not for the rapid increases in oil prices between 2001 and, especially, 2007 and 2008, the U.S. economy would not be in a recession today. (10)

   The two key ingredients for the dramatic rise in prices were a low price elasticity of demand and flat physical production levels between 2005 and 2007. (11) The one organization best poised to take advantage of these ingredients is the Organization of the Petroleum Exporting Countries ("OPEC"), an Austria-based cartel of twelve oil-producing sovereign states (each a "Member Country," collectively, the "Member Countries") that controls 76% of global oil supply and 44% of global oil production. (12) Generally viewed as responsible for setting global prices by cutting oil production to achieve revenue targets, the cartel is an easy villain for consumers who are upset at the price they pay at the gas pump. (13) For this reason, the organization has been the subject of a bill introduced sixteen times in Congress since prices began rising. (14) The most recent incarnation of the bill, known as the "No Oil Producing and Exporting Cartels Act of 2009," or "NOPEC," aimed to subject OPEC Member Countries to U.S. antitrust laws with an amendment to the Sherman Act. (15) It intended to override standing case law, which has exempted OPEC and its affiliates from the extraterritorial reach of U.S. antitrust law legislative jurisdiction. (16)

   In the summer of 2007, at the height of the oil shock, the NOPEC bill was passed, for the first time, in the House of Representatives ("House"). (17) The bill died in the Senate in 2008, and failed to elicit a vote after Senator Herb Kohl reintroduced it in 2009. (18) If the bill should be raised again in 2010 or 2011 and pass in the Senate, it will return to the House; if it passes in the House, it will be presented to the President for his signature. (19) Assuming, arguendo, that the President would sign NOPEC into law, this paper explores the potential for its success in the American legal system. In the second part, I will describe things as they currently stand, explain OPEC's motivations and effects, outline current U.S. antitrust law and its applicability to extraterritorial cases, remark on the U.S. executive branch's policy with regard to its dealings with OPEC, and discuss case history involving private lawsuits that allege anticompetitive conduct by OPEC. In the third part, I will present a series of legislative attempts--including the NOPEC bill--to extend the reach of U.S. antitrust laws to OPEC's conduct. In the fourth part, I will analyze likely judicial responses to NOPEC--focusing especially on the Supreme Court's probable interpretation--by determining whether NOPEC permits a plaintiff to state a claim upon which relief may be granted and, if so, whether a case brought under NOPEC presents political questions that render the claim nonjusticiable by the court. Finally, in the fifth part, I conclude that the Supreme Court will narrowly interpret NOPEC such that, as things currently stand, no claim can be pleaded against OPEC or its affiliates, and, even if a claim could be pleaded, the case would be barred by the political question doctrine. In other words, I will show that NOPEC's ability to deliver on its promises has been vastly oversold.

2. AS THINGS STAND

   1. OPEC

      OPEC is a political organization. (20) It began as a permanent intergovernmental organization in September, 1960. (21) Its principal aim 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." (22) OPEC attempts to achieve this aim by "devis[ing] ways and means of ensuring the stabilization of prices in international oil markets"--specifically, securing agreements by and between Member Countries to enforce production quotas among oil companies operating within their jurisdictions "with a view to eliminating harmful and unnecessary fluctuations." (23) The interests Member Countries set out to safeguard include "the necessity of securing a steady income to the producing countries; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on their capital to those investing in the petroleum industry." (24) In other words, OPEC's Member Countries engage in consensus decision-making to coordinate oil production in a way that satisfies global demand at a sustainable price. (25) This section will explore the political and economic motivation that informs OPEC decision-making, and it will explain the impact of OPEC decisions on global and domestic oil prices and supplies.

      1. Political and Economic Motivation

         The politics of OPEC decision-making are far-reaching; Member Countries can ignore neither western allies nor the Arab world when engaged in pricing discussions. (26) Between Member Countries, OPEC works as a treaty expressly requiring that participating countries split demand proportionately to their reserves and implicitly ensuring that no one country ramps up supply in order to bankrupt its neighbors. (27) For most Member Countries--who receive 90% of total state revenue from oil exports--the price of oil is of utmost importance to the internal politics of national security and stability. (28) Price management is also a key factor in the Member Countries' relationships with oil importing countries. (29)

         Surprisingly, concerns within the international community about reconciling the diversity of oil supply with its price have brought free market champions such as the United States and the International Energy Agency ("IEA") to understand the need for compromise in the case of oil. (30) A Federal Trade Commission commenter even suggested that "OPEC has now supplanted the Texas Railroad Commission as the ultimate controller of surplus crude production." (31)

      2. Impact of OPEC Decisions on Global Oil Prices and Supplies

         OPEC Member Countries sit atop 76% of the world's proved oil reserves. (32) They are responsible for 43% of global oil production. (33) And ever since they banded together in 1973 to make unilateral pricing decisions (34) without private oil companies at the negotiating table they have introduced a level of volatility to the price of oil that was unheard of in the hundred years before OPEC's ascendancy. (35) Generally, OPEC Member Countries agree, at quarterly meetings, to a price that allows each to earn sufficient revenue to fund necessary development and investment initiatives while maintaining stable markets. (36) After setting an acceptable price, OPEC forecasts the daily demand at which the price would be met. (37) If the forecasted demand is at a level different from current production, OPEC mandates production cuts (or increases)--apportioning the cuts equally among Member Countries (38)--in order to meet the forecasted level. (39) Although OPEC pricing decisions usually reflect on global prices, OPEC Member Countries' production is usually at near-maximum capacity while they constantly increase production to meet rising global demand; (40) one cannot say for sure prices would be different without OPEC's mandates. (41) Additionally, OPEC agreements are often ignored by individual Member Countries (42)--especially Saudi Arabia, which controls 20% of global supply, the most oil of any country--that increase production in order to curry favor with allies or to address what they see as excessively high prices. (43) Therefore, while OPEC is effective at guiding global prices, it lacks the internal enforcement mechanisms to outright control them. (44)

   2. U.S. Antitrust Law

      United States antitrust law grew up with the domestic oil industry; its extension to the foreign oil industry may not require much of a stretch. (45) Current U.S. antitrust law is grounded in the Sherman (46) and the Clayton (47) Acts. The extraterritorial reach of these Acts is constitutionally limited to "[c]ommerce with foreign Nations, and among...