NCPA - National Center for Policy Analysis

An Absurd Claim That Oil Is Being "Dumped" Here

August 5, 1999

The Commerce Department is scheduled to hear complaints from 12 independent oil producers that Saudi Arabia, Mexico, Iraq and Venezuela are selling oil in the U.S. for less than what they spend to produce it. Serious economists say the charge should be laughed off the department's docket.

But they fear it won't. That's because anti-dumping laws are so stacked in favor of domestic companies that government agencies in charge of adjudicating trade cases almost always side against foreigners. "When it comes to dumping, economically ludicrous cases prevail all the time," says Philip K. Verleger, an economist for the Brattle Group of consultants.

Here's what makes the charge of oil-dumping ludicrous to economists:

  • Since oil is priced in a world market, a producer could never hope to recoup his losses from selling below cost because he could never raise his prices to above-market levels to recoup those losses in the future.
  • Since the oil market is world-wide, a tax slapped on four countries would only rearrange oil export-import patterns -- not affecting supplies and prices over all.
  • Saudi Arabia spends only about $1.50 to produce a barrel of oil that sells for about $15, putting to flight the charge it is losing money.
  • Selling below costs is sometimes cited as a tactic to drive a competitor out of business -- but the U.S. oil industry need not worry.

It is a common practice and perfectly legal for U.S. companies during times of economic slack to cut prices so as to generate enough cash to cover their operating expenses, even if they lose money temporarily. But when a foreign company does so and sells over here, it violates U.S. anti-dumping laws.

Political observers point out that the last thing presidential candidate Al Gore needs is for an administration department to announce that it doesn't think Americans are paying enough at the gas pump and the home heating depot.

Source: Michael M. Weinstein, "Oil and Those Slippery Anti- Dumping Laws," New York Times, August 5, 1999.


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