Sink the Floating OPEC
Do we really want an international cartel with a stranglehold on oceanbed resources?
On April 30, the United States concluded its participation in what had become a supreme act of masochism: the United Nations Conference on the Law of the Sea (UNCLOS). Though the leaders of the developing countries, and their acolytes, are now singing hosannahs to the proposed 175-page treaty (or convention), with its 439 articles, President Reagan has done the world's peoples a favor by announcing that the United States will not sign it.
The treaty increases territorial sea limits from 3 to 12 miles, establishes 200-mile exclusive economic zones, promulgates rules on ocean marine research and pollution control, and provides international navigation rules. It also creates an international regulatory system governing deep seabed mining.
Unfortunately, the treaty, approved by a Conference vote of 130 to 4, with 17 abstentions, is a fatally flawed document. It is inconsistent with this country's economic and security interests and is inimical to the principles of liberty upon which our country was founded.
The treaty's most egregious flaws involve the Orwellian deep seabed mining regime that it would create: an "International Seabed Authority," ruled by an Assembly and a Council, to regulate deep seabed mining and redistribute income to developing countries, and a subsidiary "Enterprise" to mine the seabed for the Authority. This international Leviathan would severely restrict the potential world supply of minerals, and, in particular, US access to important strategic minerals. It also would pose pernicious political precedents for future international diplomatic and economic relations.
Access to the deep seabed is important because the seabed is covered with billions of polymetallic nodules, containing cobalt, manganese, nickel, and copper. Significant sulphide deposits have also recently been discovered.
Increasing the world supply of these resources would be of economic benefit not only to the United States but to the rest of the world. It would be of particular value to developing countries that are seeking to industrialize. Increased supplies of seabed minerals also would enhance our national security by reducing our overseas dependence on potentially unstable land-based suppliers of critical minerals, such as cobalt.
The treaty adopted in April, if accepted by the industrialized countries, would discourage any access to seabed resources. Virtually any regulatory system, however limited, tends to limit experimentation, depress productivity, and increase costs, creating inefficiencies and misallocations in the marketplace. But the byzantine regime created by this treaty is almost unique in its perversity, threatening development of deep seabed minerals in several ways.
First, the incomprehensible regulatory system is specifically designed to restrict private-sector development of the seabed. A company must survey two sites and turn one over gratis to the Enterprise before even applying for a production authorization. To then receive permission to mine its remaining site, a company must potentially compete with the Enterprise, developing nations, and other private companies. A production authorization also could be denied if the company was found to violate either the antimonopoly or antidensity provisions, which restrict the number of mine sites available to any one country—a restriction aimed at the United States.
Permission to mine would be finally subject to votes by the Legal and Technical Commission, the membership of which could be stacked, and the 36-member Council, which is dominated by developing countries. The US government has no effective blocking power, even in conjunction with other Western industrialized countries, despite their disproportionate political and economic interests in seabed mining. Hence, access by US firms would be dependent upon the whims of economic competitors, political adversaries, and nations that want no seabed mining.
Finally, the so-called pioneer investors—those active before ratification of the treaty—would be protected by grandfathering them into (not out of) the Authority's regulatory miasma. Although the four existing private seabed mining consortia and four specified companies controlled by foreign governments would each be guaranteed access to one site, other potential miners from the private sector could be frozen out by Council votes.
Second, many of the treaty's objectives are openly antimining, including "orderly and safe development," "rational management," "just and stable prices," and "the protection of developing countries." This special-interest protectionism is also embodied in the article limiting deep seabed mining production and authorizing commodity agreements and in an article (added late in the negotiations) governing subsidies to land-based producers.
In addition, a moratorium has been placed on the development of minerals other than manganese nodules, such as sulphides, until rules and regulations are adopted by the Authority. Of course, any nation opposing further resource development could, and probably would, block any new rules and regulations indefinitely.
Third, the convention mandates the transfer of mining and processing technology from private miners to the Authority and developing countries. Technology could be interpreted to include engineering and technical skills as well as actual equipment, and there is no effective compensation system for the unauthorized disclosure of any transferred technology.
Fourth, the treaty imposes significant financial burdens both on private miners and industrialized countries. The Authority and the Enterprise would be bureaucratic horrors, with initial start-up costs in the hundreds of millions, or billions, of dollars, and annual operating costs in the tens of millions. To fund them, miners would be subject to an application fee ($500,000), a fixed annual fee ($1 million), and a production, or royalty, charge. Developed countries would be required to provide subsidies in the form of interest-free loans and loan guarantees. The US share would be 25 percent. Moreover, the final session added the requirement that the sponsoring country of a miner be liable for the miner's obligations if the company were unable to perform.
Fifth, the seabed articles create a system of monopolistic advantages for the Enterprise that discriminates against private miners. The Enterprise gains a donated mine site for each and every site for which a developer seeks production authorization. It gains transferred technology directly from its competitors. And it receives from the Authority and from signatory nations subsidized financing and exemptions from taxes and Authority payments.
These competitive disadvantages for private miners include specific consideration granted to 125 developing countries and some 105 "land-locked and geographically disadvantaged" countries. The United States is neither, of course.
Sixth, even the severely restricted access for private miners could be swept away by a three-fourths vote of the member nations after the Review Conference meets 15 years after the commencement of commercial production. Thus, amendments to end private mining approved by the Third World and Soviet bloc could take effect without the consent of the United States and the other Western industrialized nations, irrespective of the seabed investments that had been made in the intervening time. Meanwhile, prejudicial changes in customary international law might preclude a return to open ocean access.
Overall, the treaty creates an environment enormously hostile to private investment. Yet it poses a far more serious danger to this country than simply hindering deep seabed development: ratifying it would legitimize the New International Economic Order (NIEO), a form of international hemlock being served by the developing states. The Law of the Sea conference was but one of the many forums through which the developing countries have been waging economic warfare on the developed nations.
The core of the developing countries' ideology is that economic relations are a zero-sum game, with rich countries having grown wealthy at the expense of poor ones. Third World poverty is seen as a legacy of colonialism, for which the industrialized countries owe reparations.
To enforce this obligation, the developing countries want to create a system of international organizations controlled by them to redistribute the wealth of developed countries' peoples. Such wealth includes not only money but also resources and technology. Demands for preferential insurance and transportation rates and subsidized technologies and claims of expropriation rights all are part of this international socialist nightmare. Related to the NIEO are other totalitarian dreams, such as the New International Information Order, with Third World control of the international press.
In fact, the Law of the Sea treaty is crucial for NIEO proponents, because it would radically restructure international relations, forging new, redistributionist and collectivist legal relationships between developing and developed nations. Among other things, the treaty would establish a legal duty for economically successful countries to pay tribute to unsuccessful ones, Third World control over previously unowned resources and proprietary private technology, and a system of international governance that does not fairly reflect America's political and economic stake in the issues involved.
US acceptance of the treaty, in the words of former Maltan UN Ambassador Arvid Pardo, "however qualified, reluctant, or defective, would validate the global democratic approach to decision making." This would greatly accelerate the campaign to instill NIEO principles in other international organizations and institutions and over other global problems and unowned resources, such as the Antarctic and outer space.
The treaty is fundamentally flawed in its philosophical conception, as well. Though neither commentators nor industrialized country negotiators have paid much attention to philosophy, preferring, instead, to focus on practical economic effects, ideology may have been the deciding factor in these negotiations: it drove and controlled the entire process.
Indeed, the negotiations over the seabed articles were almost entirely an ideological struggle to define the meaning of "common heritage of mankind." The developing countries—the so-called Group of 77—seized the philosophical high ground, effectively setting the agenda for the entire conference. Their ideological aggressiveness essentially guaranteed, from the very beginning, that the West would lose on both the philosophical and practical issues.
The industrialized countries, instead of accepting the redistributionist "common heritage of mankind" principles supported by the Third World, should have stood firm for the fundamental notion, drawn from John Locke, that property ownership of previously unowned resources devolves on those who identify them and mix their labor and capital with them. So vesting ownership in producers—those who take the risks and who have the greatest connection with the resources—is both moral and just. It also has historical and international precedents; the development of the American West is one example.
The treaty embodies the bizarre idea that nations are equal owners of ocean resources—that they are, in essence, as Robert Goldwin put it recently, "stockholders, each with an equal share of stock and the equal voting right that goes with it." This philosophy of international corporate ownership, by restricting access and confiscating earned wealth, goes far beyond the traditional principle of commons, with communal ownership and access. Granting ownership interests to countries that don't even have contact with the resources fundamentally perverts property ownership rights.
Indeed, such self-indulgent claims of ownership are prompted by the naked avarice of some of the leaders of developing states. An oligarchy of international lawyers and diplomats would appropriate and rule in the interests of themselves and their ruling establishments back home; the fundamental rights of all individuals, including most of the citizens of the developing countries, would be venally sacrificed in the guise of international justice, fairness, and cooperation.
The seabed articles offend other deeply held American values, as well. For instance, restricting entry into seabed mining, setting production limitations, limiting the number of sites for mining, and mandating the transfer of private technology all abridge miners' and consumers' economic liberties.
Such economic freedom arises from the natural right of self-ownership and the necessary corollary right to transfer and trade the fruits of one's own labor. It also arises as a necessary adjunct—indeed, prerequisite—to political freedom, by restricting the general authority of government over individuals and by preserving private counterforces to concentrated government power. The protection of these economic freedoms was one of the prime motivations for founding our democratic system, and the reasons for their protection remain just as compelling today.
Further, creating the Enterprise, with its monopolistic advantages of subsidized funding, donated mine sites, exemption from taxes and Authority payments, and transferred technology, violates the fundamental American antipathy toward government monopolies. Such cartels possess political power as well as economic power and are able to use their political power to aggregate additional economic power. This danger is even greater with the supranational, autonomous, and supremely political Authority.
What conceivable justification could there be for signing a treaty that discourages seabed development, sets dangerous political precedents for future international negotiation, and conflicts with fundamental American philosophical tenets? Some argue that the advantages of the other treaty provisions outweigh the disadvantages of the seabed articles. Others suggest that the lack of a universally accepted treaty could lead to anarchy, chaos, and maybe even war.
Both claims are nonsense. All too often we are asked to sacrifice very real philosophical and economic interests for amorphous and ephemeral foreign and defense policy objectives. The supposed advantages of the latter soon disappear; the disadvantages of the former persist.
For instance, the treaty would require eventual sharing of revenue from petroleum production from the outer margin of the continental shelf, discouraging energy development. The boundary provisions may be unsound. Marine science research would be severely restricted. And the pollution articles are at best marginally beneficial.
More important, the articles governing international navigation are not a major advantage to the United States. The location and depths of the world's straits, and the current state of military technology, suggest that America's military need for the treaty is limited. Further, economic and commercial interests make it likely that international navigation routes would remain open to commercial navigation without a treaty, even where belligerents with no respect for international law, such as Iran and Iraq, are involved.
The articles also offer little improvement over current customary international law. They retreat from free navigation in some instances and are dangerously ambiguous in others.
Indeed, even if the articles were clearly advantageous, such an idealized regime of international law cannot overcome reality. Any navigational guarantees are likely to be commonly supported only so long as it is in both parties' interests to do so. History is replete with examples of countries breaking treaties when they have considered it to be in their national interest. Thus, meaningful navigation protection will come from the ability and willingness of the US government to assure compliance and from the state of the bilateral or regional relations involved. Having no treaty might be marginally less efficient, but that disadvantage would not warrant accepting the costs of the other sections of the treaty.
The anguished cries of the internationalistic Cassandras about anarchy and war should not be taken seriously either. One need only look at the conduct of nations during the past two decades to see that most have behaved rationally. Simply signing international agreements in no way guarantees order; even if it did, the order resulting from this treaty would not be desirable.
But rejecting this treaty will encourage reliance on a different kind of order—the spontaneous order that arises from reliance on voluntary cooperation and the marketplace. Such order, based on freedom of choice and flexibility, is preferable to the totalitarian order embraced by the Third World.
The Reagan administration's decision to reject the treaty was not made simply to satisfy the commercial interests of a few mining companies. Rather, the aim was to attempt to ensure that fundamental philosophical, economic, and national security interests of the United States are adequately protected in the years ahead.
Of course, rejecting the treaty means the failure of a process nearly two decades in the making. But, the question of the kind of global structure being created is paramount, for as former Delegation Deputy Chairman Richard Darman wrote:
…the notion of conceding [the negative international precedents set by the proposed treaty] to avoid the precedent of Conference "failure" (meaning "lack of agreement") seems absurd. It would be to trade long-term, substantive failure for avoidance of temporary procedural failure. Trading these objectionable elements for marginal gains in the system of environmental protection and dispute settlement seems out of proportion. Trading them for questionable interests in treaty protection of distant-water military mobility seems a tie to the past at the expense of the future. And trading them to protect interests that might just as well be protected without a comprehensive treaty seems no trade at all.
Rejecting the treaty also means risking the early death of the US deep seabed mining industry, for without a universally accepted treaty, there may be no US-flag seabed mining operations. If some foreign-flag seabed mining occurred under a treaty without our participation, however, the increased mineral production would still yield economic benefits to us. Moreover, if the return on seabed mining is high enough, some US seabed mining outside of the treaty is possible, since the geographical and technological characteristics of seabed mining create de facto property rights and discourage poachers, and economic or military retaliation by treaty signatories seems unlikely.
Still, in rejecting the treaty, the US government should begin building an alternative ocean resource regime based on current customary international law, which provides open access to seabed resources and allows miners to mine. Such an alternative mining system would be rooted in the traditional principles of freedom of the high seas and would be intended simply to create an international mechanism to vest and protect the resource property rights of those who seek to explore and develop the seabed and to resolve conflicts between them.
The Deep Seabed Hard Mineral Resources Act, passed in 1980 to provide an interim framework until the treaty came into force, should be amended to eliminate the prohibition on actual mining before 1988. Then the government must attempt to reach an agreement with other potential seabed mining nations for mutual recognition of claims and settlement of disputes over contested claims. Though the major industrialized countries now appear to be unwilling to sign the previously negotiated "Reciprocating States Agreement," after the administration's decision not to sign the Conference treaty, they may be amenable to less-formal arrangement, including even simple parallelism, that would have the same effect.
Such arrangements would recognize that free-market seabed mining and voluntary commercial exchange exploit no one. It also would define the "common heritage of mankind" as a common heritage of unimpeded and equal access to previously unowned resources and freedom to use individual initiative to develop those resources. And it would build an international system intended to benefit all the peoples of the world, not just an elite class of international bureaucrats, lawyers, and political leaders.
In building such a system, the United States would be creating a truly just international structure, which would promote free trade and economic prosperity. In doing so, our country would be enhancing the prospects for international cooperation and world peace.
Doug Bandow is the editor of Inquiry magazine. Until early 1982, he was a special assistant to the president for policy development. He served as a deputy representative to the 10th and 11th sessions of the Third UN Conference on the Law of the Sea.
Life without the Treaty
What happens if the US government stands firm in its decision not to sign the United Nations Law of the Sea treaty? Does it leave the United States in international isolation? Will it be impossible for US firms ever to mine the seabed?
It is true that on April 30 the United States was joined by only three other nations in voting against the Conference treaty. In the aftermath, the words isolated and isolation have shown up frequently in news reports and former diplomats' comments on the US vote and on President Reagan's July announcement that the United States would not be signing the agreement.
Yet 17 other nations—including the Soviet Union, Britain, and West Germany—failed, by abstaining, to vote for the treaty. Although greatly outnumbered by the 130 nations voting for the agreement, the abstaining and nay-voting countries are the source of 60 percent of world production and of contributions to the United Nations. In fact, the only major industrial nations voting for the treaty were France and Japan—and both pointed out that they were not saying whether they would ultimately ratify the treaty.
Sixty ratifications are needed for the treaty to go into effect, but analysts now speculate that they may be a long time in coming. Moreover, if 60 ratifications do come through, they may well be mainly from small nations. If so, the US government's desire for further negotiations on an alternative "minitreaty" could bear fruit. The now-defunct Reciprocating States Agreement (RSA)—negotiated by France, West Germany, Britain, and the United States within the context of UNCLOS—could be the starting point.
The aim of the RSA was to provide a framework for harmonizing national ocean-mining legislation among its signatories and for delineating mine sites. It was to be open to signing by any nation, signatory or nonsignatory to the Law of the Sea treaty, industrial or developing. It attempted, not to regulate seabed mining, but to provide an international legal environment in which development of oceanbed resources might proceed.
Critics of the US stance against the UN treaty worry that, without it, US firms will be unable to obtain financing for the huge capital investments needed to explore and mine the ocean floor. The mining industry itself, however, has enthusiastically supported the Reagan administration's refusal to sign the treaty. As pointed out in a Heritage Foundation report ("The Law of the Sea Treaty: Can the US Afford to Sign?"), it seems doubtful that financing would be forthcoming anyway under the restrictive conditions imposed by the treaty; and with or without the Law of the Sea treaty, credit would be extended to ocean-mining firms on the basis of their existing assets and not their ability to produce seabed minerals.
The advantage of a treaty, then, would not be in the area of financing but in providing the climate in which potential seabed developers might risk their capital on such ventures. And the industry seems willing to bet on there being a viable alternative to the Law of the Sea regime.
This article originally appeared in print under the headline "Sink the Floating OPEC".