The natural law basis of legal obligation: international antitrust and OPEC in context.

• Author: Moore, Joel Brandon

Our Business is, to declare, how, chiefly for the Direction of the Will, a certain Kind of Attributes have been impos'd on Things, and their natural Motions; whence there springs up a peculiar Agreement and Conveniency in the Actions of Mankind, a grateful Order and Comeliness for the Ornament of human Life. (1)

ABSTRACT

The Organization of the Petroleum Exporting Countries (OPEC) stabilizes petroleum prices to promote the economic prosperity of its member nations for which oil is a substantial export. Price stabilization influences the price of petroleum around the world, impacting the economies of developed and developing countries. Under U.S. antitrust jurisprudence, the OPEC quota agreements that stabilize prices would likely be declared illegal, and other countries might also declare price fixing to be illegal under their respective competition laws.

Several U.S. Senators have recently proposed that price fixing should be illegal under international law as well. This Note avoids a superficial analysis of the status of international antitrust law by exploring the ultimate basis of legal obligation and situating antitrust in the context of natural law. This Note's conclusion that OPEC should not be sued before the International Court of Justice is based upon implications of the characteristics of the relationship between natural law and human law, the footing of the world community on antitrust matters, and the requirements for implementing fair and consistent antitrust enforcement.

TABLE OF CONTENTS I. INTRODUCTION II. THE ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES III. ANTITRUST LAW IN THE UNITED STATES IV. POLITICAL DISAGREEMENTS OVER ANTITRUST ENFORCEMENT POLICY V. THE RAPID ADVANCE OF COMPETITION POLICY WORLDWIDE VI. PRINCIPLES BEHIND COMPETITION LAW VII. THE NATURAL LAW BASIS OF LEGAL OBLIGATION A. The Natural Law Framework B. Characteristics of the Natural Law Framework C. Policy of Natural Law Enforcement VIII. ANALYSIS IX. CONCLUSION I. INTRODUCTION

United States Senator Arlen Specter made a floor statement on July 19, 2001 about the possibility of legal action against the Organization of the Petroleum Exporting Countries (OPEC) to decrease the price of petroleum. (2) Senator Specter was concerned with OPEC's practice of entering into agreements to restrict oil production, affecting the world market for oil by driving up its price. (3) Senator Specter and four other U.S. Senators together suggested two possible lawsuits against OPEC and other conspiring nations, including a suit in federal district court under U.S. antitrust law, (4) and a suit in the International Court of Justice (ICJ) based on "the general principles of law recognized by civilized nations." (5)

To determine the responsibility of OPEC nations to other sovereigns on principles of antitrust law, the basis of legal obligation should be explored. Natural law explains the origin, nature, and limits of obligation in a historically comprehensive and practical way, and enables cogent analysis of the international law question presented. International antitrust enforcement has elicited heightened concern in an increasingly connected world community where business concerns more frequently involve legal questions that transcend national borders, in which antitrust authorities "communicate, co-operate, and co-ordinate their efforts to achieve compatible enforcement results" in increasing measure. (6) The international legal question posed by OPEC's practice of price fixing is set forth in this Note, including discussion of U.S. antitrust law and the recognition of competition principles around the world, followed by a discussion of the natural law framework for legal obligation that enables a conclusion.

2. THE ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES

   Currently, the Organization of Petroleum Exporting Countries (OPEC) is composed of 11 countries (7) that together produce approximately 40 percent of the world's oil and hold more than 77 percent of the world's proven oil reserves. (8) The first agreement between OPEC nations reportedly took place in 1949 when Venezuela, Iran, Iraq, Kuwait, and Saudi Arabia met to "exchange views" and to "explore avenues for regular and closer communications between them." (9) In response to the unilateral reduction in price of Venezuelan crude oil in 1959, the First Arab Petroleum Congress was convened in Cairo to establish an "Oil Consultation Commission." (10) OPEC was officially formed in 1960 in Baghdad, Iraq. (11) Today, "The Conference," composed of delegations headed by "Their Excellencies the Ministers of Oil, Mines and Energy" of member countries, is the "supreme authority of the Organization" that determines OPEC policy and makes decisions regarding applications for membership. (12) Membership is open to nations with a "substantial net export" of crude petroleum and nations with "fundamentally similar interests" who "share the ideals" of member countries. (13)

   OPEC's "principle aims" include the "co-ordination and unification of petroleum policies" of member countries and the "determination of the best means for safeguarding their interests, individually and collectively." (14) To safeguard their interests, OPEC admits to actively seeking ways of "ensuring the stabilization of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations." (15) OPEC maintains a specialized division named the "Economic Commission" to "assist[] the Organization in promoting stability in international oil prices at equitable levels." (16) OPEC describes itself as composed of nations "heavily reliant" on oil revenues as their main source of income, (17) and consequently attempts to secure "a steady income" for member nations. (18)

   To achieve price stabilization in the oil market, OPEC nations form agreements similar to the one reached in July 2001 that involved reducing production by one million barrels per day, effective September 1, 2001. (19) In an OPEC meeting on September 27, 2001, Dr. Chakib Khelil, President of The OPEC Conference and Algerian Minister of Energy and Mines, said:

   You will recall that, when price stability was threatened in July, we took the decision to remove one million b/d from the market, with effect from 1 September. This sent a positive signal to the market about the seriousness of OPEC's intentions and met with immediate success, because we put our credibility on the line. But our credibility is only as good as the continuation of the effort among our Member Countries to maintain cohesion, solidarity and cooperation, as happened in July. We are prepared to act again, as and when necessary, in the interests of market price stability, either as a full Conference or through informal contacts among our Ministers.... We shall reach a decision that ensures adequate supplies at the $25/b market price, to the full satisfaction of producers and consumers alike. (20) In the year 2001, OPEC agreed to reduce oil production four times to increase prices. (21) Some sources have reported that OPEC has fixed the actual prices for exports due to problems stemming from "quota cheating." (22) OPEC established a "price band mechanism" at its March 2000 meeting that aims to stabilize the price per barrel between $22 and $28. (23) Any fluctuation outside of this six-dollar range will prompt another quota agreement. (24)

   Venezuela Oil Minister Alvaro Silva said, "Nobody [among oil producers] wants a price war." (25) Price wars drive down the cost of oil to consumers, which is what happened in the global economic downturn of 1998 when "internal bickering over production quotas flooded the world with oil, sending prices crashing to $10 a barrel." (26) OPEC Secretary-General Ali Rodriguez commented, "If we compete in times of difficulty, we will all lose something." (27) Since non-member nations such as Russia, the world's second-largest oil producer following OPEC member Saudi Arabia, can also influence the market, OPEC tries to include other countries in agreements to cut production levels. (28) In December 2001, OPEC reached a production cut agreement for which it persuaded Russia, Norway, Mexico, Oman, and Angola to reduce their production as well, effective January 1, 2002. (29) Without such agreements, non-member nations such as Russia can increase their market share when OPEC decides to cut back production. (30) Even when OPEC loses market share from cutbacks due to non-member nation production, OPEC officials believe the alternative is worse; Kuwait's Oil Minister Mr. al-Sabeeh stated, "Long term, we are net gainers out of this." (31) Although OPEC member nations profit from agreements that stabilize petroleum prices, such agreements are probably illegal in countries such as the United States.

3. ANTITRUST LAW IN THE UNITED STATES

   In addition to his floor statement about legal action against OPEC, Senator Specter wrote a letter with the support of Senators Charles Schumer, Herb Kohl, Strom Thurmond, and Mike DeWine addressed to the attention of President George W. Bush. (32) In that letter, the Senators expressed particular concern for the agreements entered into by OPEC and other oil-producing states to restrict production in light of the energy crisis and high prices of OPEC oil. (33) The Senators referred to the agreements as "nothing more than an old-fashioned conspiracy in restraint of trade which has long been condemned under U.S. law." (34)

   In the United States, antitrust law (35) is the body of law "designed to protect trade ... from restraints, monopolies, [and] price-fixing." (36) The Sherman Act (37) declares illegal "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations," and imposes strong punishments on offenders. (38) The Clayton Act also provides a damages remedy for injuries arising from antitrust violations, and also permits...