Re: WTO and OPEC

["廖子光 Henry C.K.Liu 郭??" <hliu@xxxxxxxxxxxxxx>]

Yes, yes,Barkley, but try to focus onthe main thrust of the message.
You neglected to point out the misspellings.

Henry

"J. Barkley Rosser, Jr." wrote:

> Henry,
>       This message of yours is full of errors (I apologize if
> I am correcting what others have already corrected; I have
> been out of town for a week).
>        OPEC was founded in 1960.  It did not achieve the
> ability to control production and prices until Libya nationalized
> the "competitive fringe" (owned by Armand Hammer) in 1970.
>         The discontinuity in 1979 was not the Iran-Iraq war which did
> not start until later.  It was the fall of the Shah of Iran and the
> collapse of production in Iran from about 6 million barrels a day
> to about 10% of that level.
>         The main cheaters in 1986 were Iran and Iraq who were
> trying to finance their arms purchases for their mutual war.
> When the price collapsed it sharply exacerbated the Savings and
> Loan crisis in the US which was heavily concentrated in the
> "oil patch" states, especially Texas.  The V.P. Bush ran to Saudi
> Arabia to beg the Saudis to back off.  They did so partially.  They
> do not like "instability" in the market and very likely will partially
> respond this time to the begging by Energy Secretary Richardson
> to increase production somewhat.
> Barkley Rosser
> -----Original Message-----
> From: 廖子光 HenryC.K.Liu 郭?? <hliu@xxxxxxxxxxxxxx>
> To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
> Date: Monday, March 06, 2000 7:22 PM
> Subject: WTO and OPEC
>
> >Oil is not included in the WTO because it is not a commodity that can be
> >produced at will by any nation, regardless of efficiency.
> >
> >OPEC is a cartel.  As such, it will eventually conflict with competition
> >policy thrust of the WTO.
> >A major key to understanding OPEC is the battle for market share within
> >OPEC.  Discontinuities in the production of Iraq, Iran was caused by the
> >Iraq - Iran conflicts in 1979 and 1980. A third discontinuity, in 1990,
> >was caused by Iraq's invasion of Kuwait and the ensuing Gulf War.
> >
> >OPEC came into existence following Arab Oil embargo which started
> >October 19-20, 1973 and ended March 18, 1974.
> >During that period the price for benchmark Saudi Light increased from
> >$2.59 in September 1973 to $11.65 in March. OPEC was setting benchmark
> >prices for its various crudes.
> >
> >By 1981 the effects of seven years of increased prices had had taken its
> >toll on demand in the form of more energy efficient homes, industrial
> >process, and in substantial increases in automobile gasoline mileage. At
> >the same time crude oil production was increasing in the rest of the
> >world, simulated by higher prices. OPEC's total production stayed
> >relatively constant during this period around 30 million barrels per
> >day. However, OPEC's market share was decreased from over 50 percent in
> >1974 to 47 percent in 1979. The loss of market share was caused by
> >production increases in the rest of the world. Higher crude prices had
> >made exploration more profitable for everyone not just OPEC and many
> >rushed to take advantage of it.
> >
> >The rapid price increases of 1979 and 1980 served to accelerate
> >consumer's moves toward efficiency.  They also fueled an increased non
> >OPEC production. This was compounded by the deregulation of domestic
> >crude oil prices in the United States. U.S. producers experienced the
> >effects of increases in world prices plus the additional increase
> >brought on by price deregulation.
> >
> >Demand had peaked in 1979 and it became clear that the only way to for
> >OPEC to maintain prices was by reducing OPEC production. OPEC reduced
> >its total production by a third during the first half of the 1980s. As a
> >result OPEC's share in world oil production dropped below 30 percent.
> >
> >Looking at OPEC member's share within OPEC and not their share of total
> >world production, Saudi Arabia acted as swing producer for OPEC during
> >the first half of the 1980s in an attempt to shore up declining prices.
> >By 1986 the Saudis tired of this role.  Other OPEC member countries were
> >cheating on their quotas. In response Saudi Arabia rapidly increased
> >production causing a major price collapse.
> >
> >It was almost three years before prices began to recover. The lower
> >prices did have a positive result for OPEC. It encouraged increased
> >consumption and halted production increases in much of the rest of the
> >world, causing among other things, the oil depression in Texas. By the
> >end of the decade of the 1980s OPEC and prices seemed to have
> >stabilized.
> >
> >OPEC, or any other cartel, faces a problem of optimization in their
> >attempts to control prices.  The problem is to determine the level of
> >production which meets their collective goals of highest price with the
> >biggest volume. For OPEC, this means maintaining production levels which
> >insure the highest prices possible without encouraging competition
> >outside of OPEC or significant conservation measures on the part of
> >consumers.
> >
> >In January of 1990 Saudi Arabia and Kuwait had 24 and 9 percent of
> >OPEC's total production. Iraq and Iran had 13 percent and 12 percent
> >respectively. Iraq was involved at this time in a territorial dispute
> >with Kuwait. Negotiations between the two countries were not successful.
> >A meeting on July 25, 1990 between Saddam Hussein and April Glaspie,
> >United States Ambassador to Iraq, was a major factor in Iraq's decision
> >to invade its neighbor. In that meeting Hussein was assured that the
> >United States would not become involved in the dispute. A week later on
> >August 2, 1990 Iraq invaded and occupied Kuwait.
> >
> >The United States reversed itself and became the major player in
> >restoring Kuwait's sovereignty and early in 1991.
> >At this point Iraq could no longer export and Kuwait's oil fields were
> >devastated. Iraq and Kuwait had virtually no production and the slack
> >was taken up by other OPEC members, primarily Saudi Arabia. In February
> >1991 Saudi Arabia's production accounted for over 35 percent of OPEC
> >output. The Saudis had increased production sufficiently to compensate
> >for the loss of Kuwait's production as well as some of that of Iraq.
> >
> >We now come to the current situation. In December 1998 Saudi Arabia's
> >market share was 29.7%, Kuwait 7.4%, Iran 13.0%, Iraq 8.4% and Venezuela
> >11.0%.  Saudi Arabia has the greatest increase in market share compared
> >to the pre Gulf War period. Venezuela is next. In addition the Saudis
> >have always had the largest volume of production.  At most times the
> >Saudis produced at least twice as much as the second largest OPEC
> >producer. Those who have followed OPEC will recall that, especially in
> >the 1980s,  many of the negotiations over production quotas included
> >discussions of what was equitable for the member countries.  Among the
> >factors considered were population, per capita income and the dependence
> >upon crude oil exports.
> >
> >By the end of the 1980s most of the problems about who received what
> >share of the pie had been solved. All of the explicit and implicit
> >agreements in place at that time were disrupted by Iraq's invasion of
> >Kuwait and the ensuing Gulf War. It is probable that OPEC will move in
> >the direction pre Gulf War agreements in splitting up the pie and will
> >return to the old method of doing business. Some consideration will have
> >to be given to the economic needs of OPEC members as well as non OPEC
> >members such as Mexico.
> >
> >Venezuela is a case in point. The country is on its economic knees or
> >worse. In spite of the fact that Venezuela increased its share of OPEC
> >production significantly over the last decade. It is unlikely in any
> >OPEC agreement that Venezuela would be asked to give up it's gains.
> >
> >When OPEC agrees on another cutback in production to boost price, it is
> >not unlikely that Venezuela will not have to share proportionately in
> >that cut. Even if they do they will not be required to give up their
> >gains in market share.  There will be a lot of pressure on Saudi Arabia
> >to shoulder a disproportionate share of the cuts.
> >
> >The current oil price is an inventory problem rather than a long term
> >pricing issue.  When Clinton threatens to release US strategic reserves,
> >OPEC signaled its decision to increase production immediately. Many
> >economists think that U$35 dollar oil in the long run, instead the
> >current US$20 price, is good for the global economy.  At any rate, oil
> >is no longer is critical factor for the US economy which is incresingly
> >less dependent on oil for growth.
> >
> >The drop in oil prices since 1997 was mostly a cyclical effect of the
> >drastic reduction of demand from the Asian financial crisis.  There wass
> >zero pressure even in the U.S. to raise oil prices at that time, because
> >of the effect its has on keeping inflation low.  Even oil companies were
> >not really upset by this condition because, until oil prices drop below
> >$7 per barrel, it is not a big deal because that is the production cost
> >at the North Sea.  The well-head cost is less than $4/barrel, the rest
> >are market induced leasehold cost. North Sea oil is higher because of
> >off shore drilling investments.  Oil can stay at anywhere above $7 for
> >quite a few year without doing any harm to the U.S. or Europe.  It will
> >go back the $35 oil by about 2005, and a lot people will get rich alog
> >with it.
> >OPEC is touting this line of argument,(threats on new exploration) to
> >get the non-opec economies to get behind higer oil prices.  In the long
> >run, less new exploration is good for OPEC.  Before 1973, the whole
> >world was happy with $3 oil.  As for America, cheap oil keep inflation
> >low, the dollar high and interest rate low.  These benefits out-weight
> >the sectorial problems created by a collapse in oil prices.
> >In oil, no one has told the truth for over 80 years.
> >There are all kinds of reasons why Clinton bombed Iraq, oil prices is
> >very low on the list.
> >If Iraq oil re-enters the world market, OPEC will reduce production
> >quota, so the real impact on prices would be minimum, most market
> >analysts estimated the price movement to be less that one dollar.  Many
> >of the Arab producers will curb production and make up the loss of
> >revenue from a reduction of current under-the-table aid to Iraq.
> >
> >So at the post 1997 price of $10+/barrel, only the profit margin was
> >reduced and some idiot oil brokers in Chicago holding high future
> >contracts, or high-rolling investors in oil rigs in Texas got wiped
> >out.  But the good news for the oil industry was that it gave a big
> >boost to oil mergers to consolidate markets and reserves and downsize
> >employment which in better times the governments would have never
> >approved.  If and when Asia recovers, the oil industry will be in the
> >position to command $35 oil in the next cycle, and enjoy the inflated
> >value of their global reserves which they bought up at low cost.  The
> >low prices of the past years have also puts the OPEC countries (mostly
> >arabs) in their places, including the bonus of Indonesia and
> >Russia which are living exclusively on oil exports (not really living,
> >because all of the revenue goes to service foreign debts).
> >With globalization, America, the center, is enjoying the rotting of the
> >outer limbs of the global economy, but it has yet to realize the
> >gangrene kills the whole organism.
> >Iraq is not an oil problem as far as Washington is concerned.  In fact,
> >the low oil price worked against Saddam in the black market.  Saddam is
> >only currently America's worst enemy.  He has not always and will not
> >always be wearing that honor, given the unpredictability to Iran.  The
> >reason America fails to kill Saddam is not because of incompetence, but
> >because Saddam may not be the worst
> >alternative. He is just a bad boy.  What Washington wants is for Saddam
> >to be its bad boy.  Saddam has a major advantage over Clinton, as he did
> >over Bush. Saddam has a focused purpose whereas Clinton, and American
> >policy, is diffused with complex incentives that are at times
> >contradictory.
> >Oil political economy is no intellectual tea party.
> >There is no price economics in oil.  It all politics.
> >
> >
> >The WTO is the only international body dealing with the rules of trade
> >between nations. WTO agreements form the legal ground-rules for
> >international commerce and for trade policy. The agreements have three
> >general objectives: to help trade flow as freely as possible, to achieve
> >further rule-based liberalization gradually through negotiation, and to
> >set up an impartial means of settling disputes.
> >
> >Ricardo coined the term comparative advantage which has been the
> >foundation for international trade.
> >When country A is better than country B at making automobiles, and
> >country B is better than country A at making bread. It is obvious (the
> >academics would say "trivial") that both would benefit if A specialized
> >in automobiles, B specialized in bread and they traded their products.
> >That is a case of absolute advantage.
> >But what if a country is bad at making everything?  Will trade drive all
> >producers out of business? The answer, according to Ricardo, is no. The
> >reason is the principle of comparative advantage, arguably the single
> >most powerful insight in trade economics.
> >
> >According to the principle of comparative advantage, countries A and B
> >still stand to benefit from trading with each other even if A is better
> >than B at making everything, both automobiles and bread. If A is much
> >more superior at making automobiles and only slightly superior at making
> >bread, then A should still invest resources in what it does best -
> >producing automobiles - and export the product to B. B should still
> >invest in what it does best - making bread - and export that product to
> >A, even if it is not as efficient as A. Both would still benefit from
> >the trade. A country does not have to be best at anything to gain from
> >trade. That is comparative advantage.
> >
> >The theory is one of the most widely accepted among trade economists. It
> >is also one of the most misunderstood among non-economists because it is
> >confused with absolute advantage. It is often claimed, for example, that
> >some countries have no comparative advantage in anything. That is
> >virtually impossible. So argues pro-traders.  Both US labor and Third
> >World economic nationalists dismiss the theory of comparative advantage
> >by pointing out that the benefits flow toward polarization rather than
> >equalization.
> >
> >A number of simple, fundamental principles run throughout all the WTO
> >agreements. They are the foundation of the multilateral trading system.
> >They include: non-discrimination ("most-favoured-nation" treatment and
> >"national" treatment), freer trade, predictable policies, encouraging
> >competition, and extra provisions for less developed countries.
> >
> >The economic case for an open trading system based upon multilaterally
> >agreed rules is simple enough. Protectionism leads to bloated
> >inefficient companies and can in the end lead to factory closures and
> >job losses. One of the WTO? objectives is to reduce protectionism.  Yet
> >economic efficiency is only one component of national interest.
> >
> >The WTO's creation in 1995 marked the biggest reform of international
> >trade since 1948. During those 47 years, international commerce had come
> >under GATT which helped establish a prosperous multilateral trading
> >system. But by the 1980s an overhaul was due.  Until the end of the Cold
> >War, trade was an exclusively Western block activity.
> >
> >The Uruguay Round brought about that overhaul. It was the largest trade
> >negotiation ever.
> >GATT (the institution) was small and provisional, and not even
> >recognized in law as international organization. It has now been
> >replaced by the World Trade Organization. GATT (the agreement) has been
> >amended and incorporated into the new WTO Agreements. GATT deals only
> >with trade in goods. The WTO Agreements now cover services and
> >intellectual property as well.
> >
> >Under the WTO Agreements, countries cannot normally discriminate
> >between their trading partners. Grant someone a special favour (such as
> >a lower customs duty rate for one of their products) and you have to do
> >the same for all other WTO members.
> >
> >MFN is also a priority in the General Agreement on Trade in Services
> >(GATS) (Article 2) and the Agreement on Trade-Related Aspects of
> >Intellectual Property Rights (TRIPS) (Article 4), although in each
> >agreement the principle is handled slightly differently. Together, those
> >three agreements cover all three main areas of trade handled by the WTO.
> >
> >National treatment: treating foreigners and locals equally. Imported and
> >locally-produced goods should be treated equally - at least after the
> >foreign goods have entered the market. The same should apply to foreign
> >and domestic services, and to foreign and local trademarks, copyrights
> >and patents. This principle of "national treatment" (giving others the
> >same treatment as one's own nationals) is also found in all the three
> >main WTO agreements (Article 3 of GATT, Article 17 of GATS and Article 3
> >of TRIPS), although once again the principle is handled slightly
> >differently in each of these.
> >National treatment only applies once a product, service or item of
> >intellectual property has entered the market. Therefore, charging
> >customs duty on an import is not a violation of national treatment even
> >if locally-produced products are not charged an equivalent tax.
> >
> >Freer trade: gradually, through negotiation
> >Lowering trade barriers is one of the most obvious means of encouraging
> >trade. The barriers concerned include customs duties (or tariffs) and
> >measures such as import bans or quotas that restrict quantities
> >selectively. From time to time other issues such as red tape and
> >exchange rate policies have also been discussed.
> >
> >Since GATT's creation in 1947-48 there have been eight rounds of
> >trade negotiations. At first these focused on lowering tariffs (customs
> >duties) on imported goods. As a result of the negotiations, by the late
> >1980s industrial countries' tariff rates on industrial goods had fallen
> >steadily to about 6.3%.
> >
> >But by the 1980s, the negotiations had expanded to cover non-tariff
> >barriers on goods, and to the new areas such as services and
> >intellectual property.
> >
> >Opening markets can be beneficial, but it also requires adjustment.
> >The WTO agreements allow countries to introduce changes gradually,
> >through "progressive liberalization". Developing countries are usually
> >given longer to fulfil their obligations.
> >
> >Sometimes, promising not to raise a trade barrier can be as important
> >as lowering one, because the promise gives businesses a clearer view
> >of their future opportunities. With stability and predictability,
> >investment is encouraged, jobs are created and consumers can fully
> >enjoy the benefits of competition - choice and lower prices. The
> >multilateral trading system is an attempt by governments to make the
> >business environment stable and predictable.
> >
> >In the WTO, when countries agree to open their markets for goods or
> >services, they "bind" their commitments. For goods, these bindings
> >amount to ceilings on customs tariff rates.
> >Sometimes countries tax imports at rates that are lower than the bound
> >rates. Frequently this is the case in developing countries. In developed
> >countries the rates actually charged and the bound rates tend to be the
> >same.
> > A country can change its bindings, but only after negotiating with its
> >trading partners, which could mean compensating them for loss of
> >trade. One of the achievements of the Uruguay Round of multilateral
> >trade talks was to increase the amount of trade under binding
> >commitments. In agriculture, 100% of products now have bound tariffs.
> >The result of all this: a substantially higher degree of market security
> >for traders and investors.
> >
> >              The system tries to improve predictability and stability
> >in other ways as well. One way is to discourage the use of quotas and
> >other measures used to set limits on quantities of imports -
> >administering quotas can lead to more red-tape and accusations of unfair
> >play.
> >Another is to make countries' trade rules as clear and public
> >("transparent") as possible. Many WTO agreements require governments to
> >disclose their policies and practices publicly within the
> >country or by notifying the WTO. The regular surveillance of national
> >trade policies through the Trade Policy Review Mechanism provides a
> >further means of encouraging transparency both domestically and    the
> >multilateral level.
> >
> >The WTO is sometimes described as a "free trade" institution, but that
> >is not entirely accurate. The system does allow tariffs and, in limited
> >circumstances, other forms of protection. More accurately, it is a
> >system of rules dedicated to open, fair and undistorted competition.
> >The rules on non-discrimination - MFN and national treatment - are
> >designed to secure fair conditions of trade. So too are those on
> >dumping (exporting at below cost to gain market share) and subsidies.
> >The issues are complex, and the rules try to establish what is fair or
> >unfair, and how governments can respond, in particular by charging
> >additional import duties calculated to compensate for damage caused
> >by unfair trade.
> >
> >Many of the other WTO agreements aim to support fair competition:
> >in agriculture, intellectual property, services, for example. The
> >agreement on government procurement (a "plurilateral" agreement
> >because it is signed by only a few WTO members) extends
> >competition rules to purchases by thousands of "government" entities
> >in many countries.
> >
> >It is claimed by some economists and trade experts that the WTO
> >system contributes to development. It is also recognized that the
> >least-developed countries need flexibility in the time they take to
> >implement the agreements. And the agreements themselves inherit the
> >earlier provisions of GATT that allow for special assistance and trade
> >concessions for developing countries.
> >
> >Over three-quarters of WTO members are developing countries and
> >countries in transition to market economies. During the seven and a
> >half years of the Uruguay Round, over 60 of these countries
> >implemented trade liberalization programmes autonomously. At the
> >same time, developing countries and transition economies were
> >more active and influential in the Uruguay Round negotiations than in
> >any previous round.
> >
> >Henry C.K. Liu
> >
> >"Rafael M?quez Arias" wrote:
> >
> >> Hi Xena!
> >> Look I'm no expert, but I think the reason why WTO
> >> doesn't do anything about oil prices is that it isn't
> >> its concern since no world agreement (under wto rules)
> >> has been reached ever.
> >> As for the sudden importance of oil (once again), well
> >> I think that the US government wants to have all
> >> possible outcomes foreseen and thus it is concerned
> >> with controlling oil prices because it doesn't want
> >> any inflation problems due to petrol. At least, they
> >> might be thinking, that's one less problem to solve.
> >> It is surely dissapointing, all this economic problems
> >> having a political reason...
> >> See ya.
> >> rafael
> >>
> >> __________________________________________________
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> >