Even More on the UN Convention on the Law of the Sea: Follow the Money

Today, I hear there is going to be some decision from the U.S. Supreme Court on health care, or something.  But there is something almost as cool going on down at the other end of the Mall: Sen. John Kerry’s latest effort to win Senate advice and consent for the U.N. Convention for the Law of the Sea (and the job as the next U.S. Secretary of State) by holding a SFRC hearing.

Today, the topic is going to be money, not sovereignty or national security. I think this is by far the strongest argument that treaty proponents have in their favor. As we learned last week during the exchange between Steve Groves and John Noyes, there is a real difference of opinion on whether the UNCLOS provisions regulating the development of undersea resources are necessary or desirable. As a refresher, here is Steve’s argument on this point:

 if the U.S. accedes to UNCLOS, it will be required by Article 82 to transfer royalties generated from hydrocarbon production of the U.S. ECS to the International Seabed Authority for redistribution to developing and landlocked countries. Since the value of the hydrocarbon resources lying beneath the U.S. ECS may be worth trillions of dollars, the amount of royalties that the U.S. Treasury would be required to transfer to the Authority would be substantial. In any event, U.S. accession would amount to an open-ended commitment to forgo an incalculable amount of royalty revenue to corrupt, undemocratic, or despotic regimes.John’s argument on this point.

Here is John’s response:

Suppose that the United States were to remain a non-party to the Convention and a U.S. company actually produced oil from an extended, unilaterally asserted “U.S. continental shelf.”  States Parties to the LOS Convention that do not recognize the U.S. extended continental shelf would regard the oil as coming from the Area.  Since the oil – a “mineral” under Article 133 – has been recovered from the Area without approval under Convention procedures applicable to the Area, States Parties are obligated not to recognize the legality of claims or title to it (Article 137(3) and Annex III, Article 1).  The U.S. multinational that produced the oil – a company with operations, investments, and assets in other countries, and dealing with international commodities exchanges – could face legal restrictions abroad, penalties at least as large as Article 82 payments, and foreign litigation.  Those risks can harm U.S. consumers by increasing the price of hydrocarbons, the market for which is global.  Those risks exist – should the United States remain outside the LOS Convention – with respect to oil production both from an asserted extended continental shelf that borders the Area and from the Western Gap in the Gulf of Mexico; Western Gap lease sales that reserve blocks for possible future development are different from actual production.  Those risks have led oil companies, which favor stable investment conditions, to support U.S. accession to the Convention.  Yes, joining the Convention entails the quid pro quo of Article 82 payments, but those payments are ones that successive U.S. administrations and U.S. oil companies (both during the LOS Convention negotiations and today) have agreed are reasonable in light of gaining the security of internationally recognized rights to an extended continental shelf.  I dispute Mr. Groves’s assertion that “U.S. accession would amount to an open-ended commitment to forgo” the Article 82 fees “to corrupt, undemocratic, or despotic regimes”; as the LOS Convention makes clear, the United States can, when it joins the Convention, block any ISA payment plans concerning Article 82 funds with which the United States disagrees (see LOS Convention, arts. 160(2)(f)(ii), 161(8), and 162(o)(i); 1994 Agreement, Annex § 3(4)-(5), (7), (15)(a) and § 9).

I think the question boils down to: is it worth the security provided by UNCLOS to agree to a “transfer tax” for any investment?  I think here the proponents have the better argument: 7% seems more than reasonable. I expect the oil guys testifying today will make this point again and again.  And I think it is hard for critics to argue against them on this point?

This does not mean, of course, that UNCLOS is definitely worth it for the United States. There are plenty of other problems, especially related to national security. But in my humble opinion, Art. 82 seems a point in favor of ratification, not against.