The Law of the Sea Treaty: Impeding American Entrepreneurship and Investment
[ Page 5 ]
The primary stumbling block to ratification is the bizarre regulatory regime governing seabed mining of deep ocean resources like the minerals cobalt and manganese. This system is unique in its byzantine complexity. The treaty effectively treats the ocean’s unowned seabed resources as property of the United Nations. The LOST established an International Seabed Authority (ISA), ruled by an Assembly and a Council, to govern deep seabed mining and redistribute income from the industrialized West to developing countries. Perhaps inspired by “Star Trek,” the LOST also created an entity called the Enterprise, which would mine the ocean floor—with the coerced assistance of Western mining companies—on behalf of the Authority.
The convention explicitly limited resource development and promised to protect developing countries from the lower prices that would result from minerals production. Essentially, it authorized an OPEC-style commodity cartel.
The details spelled out were as bad as the principles. Private companies had to survey two sites and turn one over gratis to the Enterprise; they also were required to transfer technology to the Enterprise and to developing states. American miners would be targeted by anti- density and antimonopoly provisions, while developing nations would dominate the Authority. Western governments would be required to enforce payment of fees and royalties, subsidize the U.N.’s mining operation, and provide resources for redistribution to Third World governments and pseudo-national entities like the Palestinian Liberation Organization (now the Palestinian Authority).
The problems with such a system are numerous. It would empower an inefficient international organization and incompetent—often kleptocratic—Third World governments, setting poor precedents for the development and operation of other multilateral institutions. Establishing a global oceans regulatory system that restricts entrepreneurship would do more than hinder resource development on the seabed; it would deter the production of software, technology, and processes designed for seabed mining or with dual-use capabilities. Finally, a LOST-like regime would discourage exploration of other currently unowned resources, most notably space. Although the treaty’s economic impact might have seemed limited, its future adverse effects always would have been enormous. Today, they could be even worse.
[ Page 8 ]
The new International Tribunal for the Law of the Sea is supposed to offer dispassionate adjudication of disputes. Yet membership is decided by quota: Each “geographical group” is to have at least three representatives.8 In its early days the Tribunal served as a dumping ground for frustrated LOST politicos such as Cameroon’s Paul Engo and Tanzania’s Joseph Warioba, both of whom once had hoped to become the Authority’s Secretary-General.
Many of the specific “fixes,” such as to the voting system, are inadequate. According to the revised treaty, the United States would be guaranteed a seat on the Council but no veto. The Council would consist of four chambers, any one of which could block action if a majority of its members voted no. Although the U.S. might be able to round up the necessary votes to form a majority in its chamber, it could not prevent other nations from blocking required ISA business in the other chambers on such matters as approval of rules for mining applications.
[ Page 9 ]
Voting in the ISA so far gives no reason for optimism. Electing members to the dominant Council has proven to be no easy task, with substantial disagreement over membership criteria and political horse- trading.9 For instance, in 1996 there were 22 candidates for 15 seats on the Legal and Technical Commission. But the Council, rather than select from this pool, simply expanded the membership to 22. Five years later there were 24 candidates in the election, so the Council again increased the size of the panel. During the 2004 election for ISA Secretary-General, substantial pressure was applied to the three candidates who were apparently trailing to withdraw to avoid having a contested election.10
The revised treaty retains the ISA’s ability to impose production controls. Negotiators excised provisions that set a convoluted ceiling on seabed production, but they preserved Article 150, which, among other things, states that the ISA is to ensure “the protection of developing countries from adverse effects on their economies or on their export earnings resulting from a reduction in the price of an affected mineral, or in the volume of exports of that mineral.”
[ Page 11 ]
Nevertheless, operations might eventually become economically feasible as technologies evolve and market conditions change. Seabed mining is in some senses a distant cousin of the undersea oil exploration that is already occurring in shallower ocean waters. But such developments are unlikely to go on with the Law of the Seat Treaty in its current form, and it may even threaten innovations to harvest resources such as oil from deeper ocean sources. As noted previously, the LOST requires sharing the revenues of oil drawn from the Outer Continental Shelf from 200 or more nautical miles beyond U.S. shores. Seven percent of revenues is a significant levy, heavy enough to discourage more costly or risky exploration and production. Today, it is hard to imagine any entrepreneur investing capital sufficient to create a viable deep seabed mining operation. The underwater environment is forbidding, in ways potentially as challenging as space. The great depths, incredible pressure, and uneven seabed make the creation of a workable, let alone an economical, mining operation extremely difficult. But absent intrusive regulation, entrepreneurs have accomplished the seemingly impossible before.
[ Page 12 ]
Even if no minerals are ever lifted commercially from the ocean floor, the Law of the Sea Treaty retains its coercive, collectivist philosophical underpinnings. It will have a negative impact on entrepreneurship even if no mining ever occurs. The worst principle is the declaration that all seabed resources are mankind’s “common heritage” under the control of a majority of the world’s nation states. American ratification would help validate some of these discredited collectivist notions.
Among the precedents enshrined by the LOST is that the nation states—not peoples—of the world, in the words of former Malaysian Prime Minister Mahathir Min Mohamad, collectively own “all the unclaimed wealth of this Earth.”14 Granting ownership and control to Third World autocracies with no relationship to the resource nor any ability to contribute anything to their development makes neither moral nor practical sense.
[ Page 13 ]
Moreover, the LOST could set a bad regulatory precedent for the commercial development of space. The U.N.’s Moon Treaty, which is technically in force, mimics the LOST’s common heritage rhetoric, but establishes no institutional regulatory framework. Subjecting private space exploration and development to a LOST-like system would discourage private ventures.
With the only economically viable private space operations limited to launching satellites, the impact of an intergalactic LOST might seem slight. Nevertheless, serious entrepreneurs are entering the industry.15 Making a profit while exploring space is a daunting enough prospect. Attempting to do so when subject to an aggressive regulatory agency likely would be impossible. Mankind would lose not only new technologies, but the very possibility of reaching the heavens.
Many of LOST’s costs are obvious, and reason enough to reject the treaty. But the agreement’s potentially greatest costs are unknown today. By punishing entrepreneurship directed at transforming the great frontiers of the oceans and space, LOST threatens potentially enormous losses well into the future. The exact impact of the regulatory regime might be unpredictable, since the treaty’s exact operation is not certain. But the magnitude of the loss would be enormous.
[ Page 15 ]
The environment is another issue of interest. University of Miami law professor Bernard H. Oxman, a long-time LOST advocate, argues that, “The Convention is one of the rare treaties to articulate a basic environmental norm in unqualified form.”19 There is nothing intrinsically wrong with articulating environmental norms—if they are justified, are qualified to account for competing interests, and are in accordance with each participant country’s governing institutions. But that is unlikely to emerge from a highly political process like the LOST negotiations.
Indeed, the Treaty risks endorsing some very bad environmental policy approaches. For example, South African Ambassador Sandile Nogxina, speaking on behalf of the African Group to celebrate the 10th anniversary of the LOST system, declared that, “The concept of sustainable development is a principle which the African group embraces.”20 At the same ceremony, South Korea’s Jung Hai-ung, representing the Asian group, opined “that the precautionary approach set out in Agenda 21, chapter 17, should be applied to the seabed activities.”21 The Netherlands formally pushed the Council “to apply a precautionary approach to seabed exploration.”22
All of these terms incorporate much larger political agendas. Biasing the process against development globally would have profound impacts on all peoples, and especially those in the poorest lands who most need the results of economic growth, international investment and trade, and globalization. Serious application of the precautionary principle would halt economic development, since it is impossible to prove a negative— that a new process or technology involves no risk. Trade-offs are inherent to any economic endeavor, with a thoughtful balancing of potential costs and benefits.
[ Page 15 ]
As if this weren’t a broad enough agenda for U.N. regulators, the ISA sees an opportunity to do more. In 2004 it proclaimed:
The Authority represents a unique experiment in international relations. It is the only international body with the responsibility of administering a global commons for the benefit of mankind. As a global body with an institutional structure and finely balanced decision-making mechanism that safeguards the interests of all States, the Authority is well equipped to deal with new developments relating to the deep ocean and to play a more meaningful role in the international system of ocean governance.23
The U.N.’s Division for Ocean Affairs and the Law of the Sea boldly announced that the LOST “is not...a static instrument, but rather a dynamic and evolving body of law that must be vigorously safeguarded and its implementation aggressively advanced.”24
Such regulatory activism would inhibit entrepreneurship. Investors seek legal stability and flee political uncertainty. A secure economic environment would be particularly important for entrepreneurs entering high-risk investment fields, notably underwater and in space, where the viability of the very process, let alone the security of the expected profit, would be in doubt. And with entrepreneurship in jeopardy, the future of the world’s poor would also be at risk, as the economic development that could allow them to exit poverty is eroded.