Statement of Thomas J. Donohue: The Law of the Sea Convention: Perspectives from Business and Industry
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Offshore operations are capital-intensive, requiring significant financing and insurance. Oil and natural gas companies do not want to undertake these massive expenditures if their lease sites may be subject to territorial dispute. They operate transnationally, and need to know that the title to the petroleum resources will be respected worldwide and not just in the United States. Availability of clear legal title is crucial to realizing the potential of U.S. offshore areas both now and in the future, as drilling technology continues to advance and make new projects feasible. As ExxonMobil emphasized in its recent letter to this Committee, before it undertakes the immense investments required to explore and develop resources beyond 200 miles, “legal certainty in the property rights being explored and developed is essential.”
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Submarine cables represent critical communications infrastructure, as they form the backbone of the Internet and global e-commerce. Such cables, typically consisting of optical fibers laid along the ocean floor in a bundle no larger than a garden hose, carry over 95 percent of transoceanic voice and data communication. U.S. telecom companies have worked rapidly to meet exploding consumer appetite for data, increasing the total circuit capacity of transoceanic cables landing in the U.S. by more than 1,000 fold since 1995.
There is no substitute for these underwater cables in case of damage. The earth’s satellites can carry no more than seven percent of U.S. international voice and data traffic. But worldwide, nearly 100 cable outages occur each year. The vast majority of cable outages are caused by bottom trawling fishing, dredging, and ship anchoring. Occasionally, cables are taken in an act of piracy, as occurred in 2007 when individuals in commercial vessels from Vietnam stole over 100 miles of cables on the high seas. Cable outages may disrupt governments, financial markets, and business operations and require costly repairs.
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Accession to the Law of the Sea Convention would better protect U.S. companies’ existing cable systems and foster additional investments. Companies would benefit from the legal certainty provided by treaty-based rights to lay, maintain, and repair cables, and conduct surveys incident to laying cables. Like shipping companies, telecom interests emphasize that they cannot merely rely on customary international law because of the threat of encroachments by coastal states. Russia’s attempt to delineate cable routes on its continental margin in the Arctic proves that fears of encroachment are not theoretical. As a non-party, the U.S. loses more than just credibility to lodge diplomatic protests to such actions because, with respect to its submarine cable provisions, the Convention permits parties to invoke its meaningful dispute resolution procedures. U.S. telecom companies have repeatedly emphasized that they are comfortable with, and want to rely on, the compulsory dispute resolution provisions in the Convention.
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The Convention guarantees rights of innocent passage through territorial seas, transit passage through straits and archipelagoes, and freedom of all vessels on the high seas. Seafaring vessels, such as container ships, crude oil tankers, and bulk carriers, carry over 95 percent of all goods imported to or exported from the United States. Guaranteeing their free movement is both an economic and a national security concern, as these ships transport the majority of this country’s oil and other crucial commodities and goods.
The Convention’s detractors argue that U.S. ships can rely on customary international law to ensure their mobility. But customary international law is not well- suited to the needs of business. By definition, it is hard to find and apply customary law because it does not exist in one place. Its rules can and will shift over time. Shipping companies benefit from a set of stable, written rules that they can easily reference during a dispute. The Law of the Sea Convention serves this function by codifying key navigational rights in a single, central authority.
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Lockheed Martin, the only U.S. company with active claims to deep seabed sites under a U.S. law predating the Law of the Sea Convention, recently wrote to this Committee urging the Senate to approve the Convention. Lockheed has invested hundreds of millions of dollars on research and development related to deep seabed mining over the past 40 years. The company’s letter made clear that the multibillion dollar investments now required to launch an ocean-based resource development business will only occur if it can obtain the security of tenure and clear legal rights offered under the Convention. With Lockheed and potentially other U.S. companies poised to expand their operations and create new jobs, Senate accession to this treaty would allow investor dollars to stay here.
Equally important to U.S. companies contemplating deep seabed mining activities is U.S. leadership in the ISA. The next several years will be formative for the nascent deep seabed mining industry. As I mentioned earlier, the Convention’s deep seabed mining regime was overhauled in 1994, resulting in a system that is uniquely favorable to American interests. Those reforms included a permanent U.S. seat on the Council of the ISA. But the U.S. has not assumed that seat, and cannot guide the development of new rules pertinent to deep seabed mining activities while outside the Convention.
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Opponents of the Convention often cite its imposition of royalties on ECS production as an important reason to reject the Convention. Under the Convention, parties must make payments to the ISA based on the value of resources extracted from sites on their extended continental shelves. Production companies would be able to keep the entire value of production at each site for the first five years, subject to any licensing fees imposed by the U.S. Government. Payments to the Seabed Authority would begin at 1% of the value of production in the 6th year of exploitation at a site and rise 1% per year to a maximum of 7% in the 12th year and following years. These royalty rates were negotiated by the U.S. Government with extensive input from U.S. oil and natural gas interests. As oil and natural gas companies have recognized, the royalties are reasonable in view of the immense value of the resources that would be made subject to the United States’ exclusive sovereign jurisdiction. The oil and natural gas companies – and the U.S. Treasury – would be able to retain much more than the U.S. would be required to pay to the Seabed Authority. Notwithstanding the required payments to the Seabed Authority, joining the Convention would be overwhelmingly beneficial to U.S. economy and the U.S. Treasury.
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We support joining the Convention because it is in our national interest--both in our national security and our economic interests. The Chamber has a long and proud history of supporting America's national security interests including playing an instrumental role in mobilizing America's industrial might to fight and win World Wars I and II. It is in this tradition that we support approving the Law of the Sea Treaty.
Becoming a party to the Treaty benefits the U.S. economically by providing American companies the legal certainty and stability they need to hire and invest. Companies will be hesitant to take on the investment risk and cost to explore and develop the resources of the sea--particularly on the Extended Continental Shelf (ECS)--without the legal certainty and stability accession to LOS provides. The benefits of joining cut across many important industries including telecommunications, mining, shipping, and oil and natural gas.
LOS will continue to form the basis of maritime law with or without our accession. Our national interests are best protected by being an active participant in this process. Joining the Convention will provide the United States a critical voice on maritime issues--from mineral claims in the Arctic to how International Seabed Authority (ISA) funds are distributed.
Many opponents present a false option to LOS that does not exist: that the United States can enjoy the benefits of LOS without joining it. In reality, only by joining can the U.S. reap the full economic and national security benefits of the Convention. Like any agreement, LOS isn't perfect. But its benefits far outweigh the costs of continuing to stand on the sidelines. The Chamber and the business community do not fear adverse rulings under the Convention so much as we fear being left behind by our global competitors.
Contrary to some opponents' claims, joining the treaty promotes American sovereignty. LOS strengthens our sovereignty by codifying our property claims in the Arctic and on our ECS. Remaining outside of the Convention undercuts our sovereignty by not allowing us to advance and protect our property claims through the process utilized by every other major global power. the chamber's support for the law of the sea convention.