Interesting article in WSJ today:
June 30, 1999
Independent Oil Producers Allege
Four Countries Dumped Oil in U.S.
By HELENE COOPER and CHRISTOPHER COOPER
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- Thirty years ago, after a two-day debate over the
difference between material injury and immaterial injury in America's dense
antidumping laws, Sen. Russell Long issued a commentary still bandied
about in international trade corridors today. The antidumping debate, he
said, "sounds more like the difference between mumbo-jumbo and
jumbo-mumbo."
Tuesday, that jumbo-mumbo erupted into a case that could smack
consumers right in the wallets -- and just before an election year, no less.
A group of independent oil producers has filed an antidumping suit with the
Commerce Department and the International Trade Commission. The oil
companies -- representing an industry that 20 years ago was a cartel that
kept prices high -- say four countries "dumped" cheap oil on the U.S.
market in 1998 and 1999.
The group, called Save Domestic Oil Inc., wants the Clinton administration
to impose dumping duties on oil from the four alleged offenders -- Mexico,
Venezuela, Saudi Arabia and Iraq -- which together account for more than
half of the oil imported into the U.S. The duties requested range from
33.37% (Mexico) to 177.52% (Venezuela). Many of the bigger U.S. oil
companies, which import much of their oil, oppose the complaint.
In Washington, where politicians are still reeling from the steel industry's
recent attempt to limit steel imports, the case is bound to be politically
explosive. "This oil thing could kill us," says one Clinton administration
official. Indeed, if the oilmen win -- and in the world of U.S. antidumping
statutes, he who complains usually wins -- the Clinton administration could
well find itself blamed for increased prices at the pump.
Energy Secretary Bill Richardson called the complaint a "serious charge,
with potentially serious consequences." He added that the administration
should seek to "bring all the parties together to see whether there is a way
to resolve the concerns raised by this petition."
Many economists and trade lawyers who dislike the U.S. antidumping law
say it's crazy to file an oil antidumping complaint because oil is a
commodity regulated by world markets; as a commodity, oil's properties
tend to be consistent, so the markets set a standard price. But Danny
Briggs, proprietor of tiny Pickrell Oil Co. in northwest Kansas and a
member of Save Domestic Oil's executive committee, says he's tired of
watching cheap oil from abroad drive down the prices here. "We tried
everything we could think of" before turning to the trade action, Mr. Briggs
says. "It's been used by the apple growers and the steel manufacturers --
why not the oil producers?"
Although most of the plaintiffs advancing the trade complaint are small oil
producers -- strippers, as they're known in the business -- one exception
is Houston's Apache Corp., one of the nation's largest independent oil
companies. Raymond Plank, Apache's chief executive, said he personally
put up $10,000 and his company anted up another $10,000 to help pay
the costs of the trade complaint, which is ultimately expected to cost the
plaintiffs $1.5 million in legal fees.
They hired Charles Verrill, a powerful Washington trade lawyer who, for
30 years, has represented U.S. businesses, including steelmakers, that
complain about unfairly low prices from foreign competition. In this oil
case, he says, "imports have increased significantly while prices have
declined," noting that the price per barrel plunged to close to $10 earlier
this year before rebounding in the second quarter.
Economists opposed to the antidumping law said they want the oilmen to
lose, but they relish the thought of a win embarrassing politicians into
changing the law, which they see as protectionist and biased. "If this case
succeeds, it may actually help put antidumping reform on the international
trade agenda, where it should have been all along," says Robert Litan, an
economist at the Brookings Institution and co-author of "Down In The
Dumps," a book about antidumping law.
"Any economist who knows this subject will tell you these laws are
ridiculous," Mr. Litan says. "They punish foreigners for selling below cost,
activities which American companies do all the time in their domestic
markets."
U.S. lawmakers, prodded by companies that wanted to protect their
domestic sales from competition from cheap foreign imports, devised and
refined the antidumping law as one weapon in the home-team arsenal. The
rationale behind the law was simple: Hit the foreign countries with stiff
duties to stop them from flooding the U.S. market with cheap goods and
sending the U.S. companies out of business.
The wildcatters complain that Mexico, Venezuela and Iraq have been
selling their oil in the U.S. at below the cost of production -- the most
widely accepted definition of dumping. Saudi Arabia, they complain, sold
oil in Japan at higher prices than the oil it sold in the U.S.
Most trade lawyers say the oilmen have a good shot at victory. That's
because U.S. antidumping law -- conceived in the 1920s -- has been
refined by successive lawmakers -- to heavily favor the plaintiff. Indeed, in
more than 90% of the cases filed, the Commerce Department finds in
favor of the plaintiff.
The case will work its way through the Commerce Department and the
International Trade Commission. The Commerce Department has as many
as 20 days to decide whether to initiate an investigation. If the investigation
goes forward, the department has 190 days to determine if dumping
occurred. The ITC then determines whether "material injury" to the oilmen
occurred. Duties, if warranted, would follow.
The four countries deny the allegations and say they will fight them.
Roberto Mandini, president of Venezuelan state-oil monopoly Petroleos
de Venezuela SA, says that "pushing down oil prices would be suicidal for
Venezuela." Adds Luis de la Calle, Mexico's undersecretary for
international trade negotiations: "Mexico is not in the practice of unfair
commercial practices."
What is not in dispute is how hard a hit small domestic oil took during the
recent downturn in oil prices. While larger oil companies with their huge
asset bases and integrated businesses were able to weather the storm,
many of the smaller producers, which operate on low margins and
minuscule volumes, lurched toward ruin.
These small producers, who mop up the tailings of the country's
once-great oil fields primarily in the West and the Midwest collectively
produce about 1.4 million barrels of oil daily, an amount roughly equivalent
to that imported to Saudi Arabia. And the total number of such subsistence
wells, defined by the Interstate Oil and Gas Compact Commission as ones
producing 10 barrels of crude a day or less, were abandoned at an
accelerated rate during the downturn, experts say.
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