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Ricupero for dialogue on oil, trade and development

by Chakravarthi Raghavan

Geneva, 14 Nov 2000 - The need for a dialogue involving energy experts and trade experts to address the range of issues in the relationship between oil-energy and trade rules and their implications for development, the UNCTAD Secretary-General Rubens Ricupero and Alberto Alvarez, the vice-Minister of Petroleum for Venezuela, said Tuesday.

Alvarez was in fact filling in for Venezuelan Minister for Petroleum, Ali Rodriguez who had originally been set to be at the launch and attend an UNCTAD reound-table, but could not come. At the OPEC Vienna meeting Ali Rodriguez has been named to take over from 1 January 2001 as the new Secretary-General of OPEC.

Ricupero and Alvarez both spoke of the need for a forum to address all these questions, but did not spell out where such a forum could be established. The vice-Minister underscored the need for a producer-consumer dialogue involving a wider range of issues than the narrow one of petroleum prices, and spoke of the differing problems faced by the industrialized countries and their consumers, and that oil-importing developing countries and their development problems as a result of the rise in petroleum prices.

Coming from Vienna, where the OPEC held a meeting (and decided for the present not to increase oil supplies to the market), the vice-Minister could not say how far the views he presented were those of Venezuela and how far they reflected or did not the views of the other OPEC members, particularly the Gulf countries.

Both the UNCTAD head and the vice-Minister were speaking at a press conference on the occasion of the launch of an UNCTAD publication, ‘Trade Agreements, Petroleum and Energy Policies’. The study prepared by UNCTAD’s Trade Policy and Commercial Diplomacy Branch, began originally at the instance of petroleum exporting countries to remove their misconception that WTO did not apply to petroleum (voiced at a seminar for Arab countries in Casablanca in 1994).

The study was considered at a meeting in Bahrain in 1996, has since been updated after some national seminars and other regional meetings, and the updated study has been published with additional chapters on regional Agreements like the NAFTA (amongst Canada, Mexico and the US), as well as the implications of US energy trade policy for multilateral trade negotiations.

The study looks at the WTO rules and disciplines and their implications under individual agreements, and not in terms of the agreements as a whole, particularly in the context of their interpretation by the WTO’s Dispute Panels and Appellate Body that have developed a theory of ‘cumulative obligations’ of signatories, and have used it to increase the developing country obligations.

The study of the WTO agreements covers various individual agreements, and their implications for petroleum and products, and the countries producing and exporting them, in terms of pricing as well as ‘dual pricing’ policies (cheaper energy prices for domestic markets and higher for foreign markets) and industrialization and development.

The study also makes references to the EC-US disputes on gas guzzler automobiles and special levies, the Venzuela-US dispute on reformulated and imported gasoline standards, and the panel and appellate body ruling favouring Venezuela against US environmental rules that imposed additional restrictions on petroleum products, refined abroad, and imported into the United States—in effect suggesting that the interests of petroleum exporters has been served by the ruling.

However, the study has not taken account of several other rulings that have cumulated the obligations of countries under the various agreements in the area of goods, as well as those relating to GATS and the TRIPS agreements, and some of the other rulings on environmental issues and exceptions.

Ricupero said the study had been completed before the implications of some of the recent developments, such as decisions of the panels and appellate body at the WTO about ‘cumulative obligations’ theory of the trade system, and the implications it would have in terms of ‘dual pricing’ covered by the study.

But these only reinforced the message from the UNCTAD study that the oil producers and exporting countries to take into account the full implications of the WTO rules and development, both as members of the WTO and those seeking accession, and negotiating their terms of accession, Ricupero added.

The study notes that under ‘dual pricing’ policies, (oil-exporting country) governments keep domestic prices lower, or export prices higher, than if they had been determined by market forces. This is done by all oil-producers in order to promote industrialization by attracting investment and supporting the competitiveness of their industrial sectors.

“While dual pricing as such is not inconsistent with WTO rules and has not yet given rise to major trade problems, it is increasingly likely to come under scrutiny if oil prices continue their upward trend.”

Some later rulings, and positions of some of the major countries, suggest that when the oil-exporting countries try to develop their downstream petroleum based industrial sectors, and/or export refined products, they could easily be hit by challenges and disputes about subsidy and dumping and for falling foul of the TRIMS rules etc.

[One of the earliest disputes raised but settled without going to panels was when Singapore challenged Malaysia which was trying to set up a domestic petro-chemical industry and sought to impose restrictions, in the form of higher duties, on petroleum based chemicals exported by Singapore]

Earlier, the UNCTAD head noted the enormous changes taking place in the world oil market, and their far-reaching consequences not only in terms of economic prospects of the world economy and individual countries, the inflation expectations and others, but also in terms of social consequences in the countries affected.

The Venezuelan minister speaking of the high oil prices, noted that oil supplies were not the only element for the high prices at the pumps, and mentioned lack of refining capacity in the US (and the investments and time needed to build new refineries or expand and bring into production existing capacities), the high taxes in Europe, the transportation costs due to old tankers having been scrapped (for maritime safety and protect against oil spills) and other elements.

Among these last, he referred to the role of speculation in the futures markets, where leveraged funds enable trading and re-trading of a few hundred thousand barrels, sending prices up.

Rodriguez also spoke of the need to ensure that oil market prices are not volatile, swinging from highs to lows, and thus detrimental to new investments in oil exploration and refining etc. The oil transnational corporations, he noted, were through mergers and acquisitions, acquiring other enterprises and proven oil reserves, but not investing in new explorations. Only the oil-exporting countries could undertake this, and for this they needed stable earnings and remunerative prices.

Ricupero referred to the different problems (from those of the industrialized countries) faced by the oil-importing developing countries by the rise in prices, and in particular of those of the least developed nations. The Venezuelan minister expressed sympathy with the problems of the oil-importing developing countries—which were different from the developed countries who could absorb the price rises—and spoke of the special refinancing facility that Venezuela was providing for the Central American and Caribbean countries.

However, it was clear that between these two groups, there are a large number of developing countries, importers of petroleum, who are hit one way or another by the high price rise, and face financing and BOP problems, and being advised to ‘adjust’.

Unlike in 1979-1980, the last time when oil prices jumped and developing countries as a whole closed ranks behind the OPEC and provided political support, but were later disappointed when the Gulf countries went along with the IMF-World Bank-US positions on money and finance issues, there are few signs now of such support from developing countries to the OPEC. Even if Venezuela under President Chavez is trying to invoke the solidarity fund and talk of those days, there is little sign that other exporters can or will do, or even whether they have surplus capital or finance for the purpose.

Perhaps even more, while in other fora the Chavez Presidency and Venezuelan policies are taking an independent, and even populist radical postures, inside the WTO, the policies and positions of Venezuela are ‘neo-liberal’ and seen by several developing countries as much closer to the stances of the US on some matters, and supportive of the EC-Japan calls for new rounds and new issues (including investment rules etc).

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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