Potential for 'Collusion or Exclusion' Necessitates Scrutiny by Enforcement Authorities
Presenting Federal Trade Commission testimony today before the House Judiciary Committee on competition in the petroleum industry, Richard G. Parker*, Director of the FTC's Bureau of Competition, said that while various factors have contributed to higher consumer heating oil and gasoline prices this year, "increases of this magnitude call for scrutiny by antitrust enforcement authorities to determine whether they result from collusion or exclusion" within the industry. He also stressed that effective merger enforcement remains "critical to preserving competition" among domestic and foreign private oil companies, and addressed the issues that would arise in antitrust lawsuits against sovereign state cartels such as the Organization of Petroleum Exporting Countries (OPEC).
Parker began the testimony with an overview of recent crude oil price increases, noting the corresponding increases that consumers have seen at the gas pumps over that time. "Competition in the energy sector," the testimony stated, "particularly in the petroleum industry, is vitally important to the health and economy of the United States. Antitrust enforcement has an important role to play in ensuring that the industry is, and remains, competitive."
To illustrate the FTC's role in this process, the testimony described the significant recent expansion in Commission resources that have been expended on antitrust enforcement efforts related to the energy industry. It then presented causes of the current oil price spike, including the curtailment of oil production by both OPEC and non-OPEC countries in 1998 and 1999; the recovery of several Asian economies that led to increased demand for petroleum products (which, in turn, reduced existing inventories), and the unusually cold winter this year on the U.S. Northeast, which, coupled with an increased demand for electricity, caused a jump in the demand for heating oil and a reduction in interruptible natural gas supplies.
According to the testimony, the FTC has two major ways to ensure that anticompetitive behavior does not adversely affect the energy marketplace. These include the Commission's antitrust enforcement authority in both the merger and nonmerger areas. Regarding merger enforcement, the Commission, through its significant experience in matters such as Exxon/Mobil and BP Amoco/Arco, works to ensue that such transactions do not result in the accumulation of unlawful market power. In the nonmerger area, the FTC enforces provisions of the antitrust laws that prevent anticompetitive collusive activities or the acquisition or abuse of market power. Such enforcement is critical during times of energy price fluctuations to prevent anticompetitive behavior.
Continuing the Commission's testimony, Parker specifically addressed the Committee's interest in the possibility that OPEC and its members could be liable for anticompetitive behavior under existing U.S. antitrust laws. "Sovereign nations typically enjoy several jurisdictional and substantive defenses to the antitrust laws that are not available to domestic or foreign private companies," the testimony stated. "The Commission does not "have final authority to provide definitive answers or advice to this Committee on the appropriateness of U.S. antitrust enforcement against OPEC members." Instead, "that expertise and authority reside in the executive branch, including the Department of Justice and other executive agencies."
The Commission's testimony next discussed a previous antitrust lawsuit against OPEC that raised issues such as the "foreign sovereign immunity doctrine," which holds that an independent sovereign is equal in sovereignty to all other states. Thus, the courts of one nation generally have no jurisdiction to entertain suits against another nation. Another issue, the "act of state doctrine," similarly declares that "a United States' court will not adjudicate a politically sensitive dispute which would require the court to judge the legality of the sovereign act of a foreign state."
Such an act, the testimony implied, might include that state's production of energy. "The dividing line between 'sovereign' and 'commercial' activities can be elusive," according to the testimony, "particularly where, as here, a government's extraction and sale of natural resources from its own territory is concerned..." Another issue, it said, "would be the relevance, if any, of international law regarding sovereign immunities." Other concerns surrounding a potential lawsuit against OPEC might also include: 1) practical questions as to whether jurisdiction can be obtained over OPEC and its member nations; 2) how a factual investigation could be conducted with respect to documents and witnesses located outside the U.S.; and 3) the nature and enforceability of any remedy.
Still, the testimony stated, "the fact that application of U.S. antitrust laws to OPEC's decision to reduce output is problematic does not mean that there is no place for nonmerger antitrust enforcement in the industry." In fact, "continued oversight of these markets is important to ensure that private participants do not, through anticompetitive conduct, exacerbate conditions caused by OPEC, cold weather or other factors," because the potential is always present for the producers, refiners, or distributors to take advantage of sudden market imbalances to engage in anticompetitive conduct "in the hope that their illegal activities will be lost in all the noise."
Concluding the testimony, Parker said, "The American public needs to know what forces are at work in this vital sector of the economy. The Commission has devoted substantial resources to preserving competition in the oil industry during this period of consolidation...and remains committed to taking all appropriate action to challenge private conduct that violates the antitrust laws."
The Commission vote to approve the testimony and submit a prepared copy for the record was 5-0.
NOTE: The testimony mentioned in this release is available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
*The information in this release, as well as that in the written statement, represent the views of the Federal Trade Commission. Mr. Parker's oral presentation before the Committee and response to questions are his own, and do not necessarily represent the views of the Commission or any individual Commissioner.
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