The U.S. Department of Commerce has rejected a landmark trade case that accused Saudi Arabia, Venezuela, Mexico, and Iraq of dumping crude oil at unfair prices in the U.S.
Save Domestic Oil Inc. (SDO), a group of independent oil producers, brought the action in June, claiming that low-priced imports had forced many independents out of business (OGJ, May 17, 1999, p. 35).
But many other oil companies, ranging from large to small, opposed the case and claimed that SDO represented only a small slice of the domestic industry. Venezuela and Mexico also lodged stiff protests (OGJ, July 5, 1999, p. 33; and July 19, 1999, p. 30).
Last week, the Commerce Department's International Trade Administration ruled the petitioners failed to meet the legal threshold of adequate industry support, and thus it would not proceed to examine the merits of the case.
It said, "Now that Commerce has decided not to initiate investigations, the cases are closed, and no further action will be taken."
Energy Sec. Bill Richardson said the decision benefits both U.S. consumers and domestic oil producers and preserves U.S. relations with Mexico, Saudi Arabia, and Venezuela. Richardson had worked to ensure those three nations that the case did not reflect the official views of the U.S. government.
Charles Verrill, an attorney for the petitioners, said they would appeal the decision to the federal Court of International Trade this month.
The case
The dumping case is believed to have been the first to involve a widely-traded commodity like oil.
SDO alleged the four nations had sold government-subsidized oil at unfairly low prices in the U.S. market last year and into early 1999. The four nations provided more than half of U.S. oil imports during the period.
Prices fell as low as $10/bbl last winter but rebounded to about $20/bbl after the Organization of Petroleum Exporting Countries agreed to restrict production.
The SDO case had to clear two major hurdles before Commerce could investigate the allegations. The group filing the petition had to represent producers with 25% of U.S. oil production, and the petition had to be supported by at least 50% of the producers that expressed an opinion on the matter to the Commerce Department. Commerce surveyed 810 producers to gauge whether they supported or opposed the case.
SDO claimed it had the support of 1,500 individual producers, since its petition was supported by industry groups with that total membership. And SDO said Commerce should ignore the opposition of large oil companies and refiners who bought production from the four nations or had other business relationships with them.
The majors argued that they, too, were domestic producers and therefore their opposition should be counted. Commerce did count them, and calculated industry opposition was as high as 68%.
Independents react
Harold Hamm, SDO president, is an independent with Continental Resources Co., Enid, Okla.
Hamm said foreign governments and major oil companies won a "politically motivated" ruling from Commerce.
"Today, we have learned that 100,000 displaced oil industry workers don't have the same rights under our laws as steel workers, auto workers, textile workers, or farmers and ranchers. Today, the trade laws, designed to protect all Americans from illegal and unfair practices of foreign competitors, were not allowed to work."
Hamm said the defeat "has opened some eyes that trade laws can apply to oil. We believe that foreign powers must now know there are consequences for dumping oil in our markets."
Dewey Bartlett Jr., president of the Oklahoma Independent Petroleum Association, also attacked the decision.
"It's not a shock the Clinton administration wants this swept under the rug. Domestic oil producers have been treated like second-class citizens throughout the Clinton terms."
Bartlett, with Keener Oil Co., Tulsa, said, "From the BTU tax proposal in 1992 to this incredibly short-sighted decision today, the Clinton energy policy has been 'cheap oil.' And the new Energy Secretary, Bill Richardson, has done little to change that reality."
George Yates, Independent Petroleum Association of America chairman, said his group believed SDO had adequate industry support and expressed "disappointment."
Yates, with Harvey Yates Co., Roswell, N.M., noted that Commerce soon will release the findings of a separate investigation on how rising oil imports have affected national security.
"We fully expect the Department of Commerce to reprise its 1995 ruling when it determined that increased oil imports do, indeed, pose a national security threat. At that time, U.S. imports accounted for 50.8% of demand. Today, imports have increased to more than 55% (of U.S. demand)."
Yates said that study "is an ideal vehicle to meet head-on the problems of our industry; namely, needed reform of the tax code and the creation of financial instruments to aid the industry in troubled times and improve capital development."
Others
The American Petroleum Institute, which strongly opposed the SDO case, said, "There is no question that low world oil prices have seriously harmed U.S. producers, their workers, and related businesses. Many thousands of people have lost their jobs, and many firms have shut down.
"But these low prices were set by the forces of supply and demand in international markets, not by alleged unfair pricing by a handful of oil-producing countries.
"We sympathize with all who have suffered because of low oil prices, but we also believe that, had duties been imposed, few would have enjoyed any benefit."
Mexican Energy Minister Luis Tellez praised the Commerce decision. After the SDO case was filed, Mexico had suspended plans to remove a 4% tariff on gas imported from the U.S. (OGJ, July 5, 1999, Newsletter). Tellez says now that tariff soon will be dropped.
"It is absurd that the three countries that have worked hard to stabilize oil prices should engage in dumping," said Tellez. "Mexico has never dumped or subsidized its oil exports."
Petroleos de Venezuela SA Pres. Roberto Mandini said, "The allegations brought against us were false and reflected a fundamental misunderstanding of the workings of the world oil markets.
"Because the Venezuelan economy is so heavily reliant upon oil exports, lower prices were an enormous detriment to our economy. Furthermore, since the U.S. is the largest importer of Venezuelan oil, it is counterintuitive to think that Pdvsa would deliberately drive down the price of oil in the U.S., thereby decreasing our own profits."