Bush administration carefully considered risk that ratifying UNCLOS would impose a new tax and concluded that it would not and was resolutely in our best interest regardless
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U.N. “Taxes”/Royalty Payments. Some have objected that the U.S. would be obligated to pay fees to the International Seabed Authority -- which some have inaccurately called “U.N. taxes” -- if the U.S. were to join the Convention and allow resource development on its extended continental shelf. Some have suggested that these fees could result in the loss of billions of dollars to the U.S. Treasury. The Bush Administration carefully considered these concerns and concluded that the licensing and fee structure established by the Convention was acceptable.
First, the fees are minimal in comparison to the enormous economic value that would be received, and the jobs that would be created, by the United States if its industry were to engage in oil, gas, and mineral development on the U.S. extended continental shelf in the Arctic. The U.S. would be required to make no payments for the first five years of production at any site, and then to pay a fee of one percent per year starting in year six, up to a maximum of seven percent in year twelve. Assuming the U.S. Government imposed, for example, a royalty fee of approximately 18 percent on the value of production on the U.S. extended continental shelf, that would be 18 percent more than the U.S. would gain if we stayed outside the Convention. In other words, joining the Convention would attract substantial investment, and produce substantial revenues for the Treasury, that would not otherwise be produced. So, even when the Convention payment is at its highest rate of 7 percent, the U.S. Treasury would still be 11 percent better off with respect to each production site than it would be if the U.S. does not join the Convention. This would be an enormous benefit -- not a loss -- to the U.S. budget.
Second, these fees would only have to be paid by the United States if there is actually production on the U.S. extended continental shelf.
Third, these fees were negotiated by U.S. negotiators in consultation with experts from the U.S. oil and gas industry, who deemed them to be acceptable.
Fourth, all of the western industrialized countries, including our major allies, as well as Russia and China, have concluded that these fees are acceptable and have joined the treaty. If these fees would actually cause the economic woes claimed by critics, then certainly these other countries would not have been willing to agree to pay them. Instead, most of these countries are already busily surveying and staking claims to their extended continental shelves so that their oil, gas, and mining companies can exploit these resources. For example, Norway -- which already has a sovereign wealth fund worth $700 billion, all of which has been derived from Arctic oil and gas profits -- is preparing to make a claim to the oil and gas on its extended continental shelf in the Arctic. Russia, Canada, and Denmark are all preparing to make similar claims in the Arctic using the provisions of the Convention, and they have agreed to pay royalties if they exploit the resources on their extended continental shelves.
Finally, royalty fees would not be paid to the United Nations. They would be paid through the International Seabed Authority, and back to the Parties to the Convention under a distribution formula developed by the Seabed Authority’s Council, where the U.S. would have a permanent seat and a decisive voice on how fees would be spent.
Opponents argue that by ratifying UNCLOS, the United Nations would be given the first opportunity to tax U.S. citizens. However, this is a misunderstanding of the royalties structure within UNCLOS. The International Seabed Authority requires royalty payments from all companies engaged in seabed mining in areas that do not belong to any country and are therefore under the management of the ISA. These payments are a small fraction of the revenue and similar to payments U.S. companies already pay around the world to governments for resource concessions.