Law of the Sea Treaty (LOST) Should Walk the Plank
April 19, 2013
When Secretary of State John Kerry gave a speech at the Ross Sea Conservation Reception on March 19, he suggested that we should have called our planet Ocean rather than Earth. He went on to outline an international environmental agenda centered around the oceans that we can expect to be the hallmark of his time in office.
Saving the oceans will be the new rallying cry of the green movement and their political and corporate allies. We can therefore expect a new attempt soon to ratify the United Nations Convention on the Law of the Sea (LOST). This would be a disaster for America.
LOST was drafted during the Cold War, and intended by the Soviet Union as a means of support for its satellite states in the developing world. The fundamental principle of LOST is socialization — or “internationalization,” comparable to nationalization of land or industries — of the world’s oceans and seas. By declaring the world’s oceans “the common heritage of mankind,” it provided a mechanism by which any development of subsea resources outside a nation’s 200 mile zone would help subsidize those regimes.
By socializing resources, the Treaty extended to the exploration and exploitation of subsea resources the Grotian principle that the high seas should be open to all. The Treaty Preamble sets out its overall purpose [emphasis in all quotations added]:
“…the area of the seabed and ocean floor and the subsoil thereof, beyond the limits of national jurisdiction, as well as its resources, are the common heritage of mankind, the exploration and exploitation of which shall be carried out for the benefit of mankind as a whole, irrespective of the geographical location of States….” 
The Treaty refers to the seabed as the Area. This is the high seas or collective zone outside the 200-nautical-mile Exclusive Economic Zone off the coast of every sovereign State. A notion integral to the Treaty, repeated in Article 136, is that “The Area and its resources are the common heritage of mankind.”
The purpose of the treaty was so transparent that President Reagan refused to sign the treaty. It has failed to garner enough support to make it to the Senate floor every time it has been suggested since, even after the Clinton administration negotiated some amendments in 1994.
In order to protect and govern this common heritage, the Treaty creates what is in effect a new world government — a government of the sea. The Treaty sets up a governing organization called the International Seabed Authority (the Authority), to allocate permits to explore and/or exploit the seabed. This provision has remained the sticking point for the United States, which signed an Agreement on the Convention in 1994, but has not yet signed or ratified the Convention itself.
The Authority is governed by an Assembly, in which all member states are represented, and a Council, consisting of 36 members elected from the Assembly according to a formula designed to balance the interests of the states that would engage in exploration and exploitation of resources and states that produce such resources on land.
States and/or their sponsored contractors must pay the Authority to survey, build on or excavate any resource beyond their Exclusive Economic Zone. The Treaty states, “The coastal State shall make payments or contributions in kind in respect of the exploitation of the non-living resources of the continental shelf beyond 200 nautical miles. Over time, countries will pay an increasing amount for the privilege of exploiting seabed resources: “Payments and contributions … after the first five years of production…shall be 1 per cent of the value or volume… [and] shall increase by 1 per cent… until the twelfth year.”
Developing countries are exempt from these payments until they become net exporters of the resource concerned. Payments collected by the Authority are to be redistributed “equitably” among nations, “…taking into account the interests and needs of developing States.”
It should be noted that in the aftermath of the collapse of the Soviet Union and its satellite countries, the main (state) beneficiaries of the treaty at present will be developing countries – especially landlocked countries with no seafaring tradition, oceanic navies or ready access to the open oceans.
Why, because, companies or states wishing to explore and develop deep ocean resources – which would now be managed as a commons for the benefit of all nations – would have to pay an escalating fee for that development of seabed resources, with that fee shared with landlocked states and especially developing nations. In addition, the states and nations would have to transfer technologies to developing countries thus allowing them to proceed with their own offshore development projects.
The Authority’s powers are predicated on the belief that it can manage the global economy and create worldwide growth through production and price controls. For example, the Treaty speaks of the “…increased availability of the minerals derived from the Area as needed in conjunction with minerals derived from other sources, to ensure supplies to consumers of such minerals.”
It calls for “…the promotion of just and stable prices remunerative to producers and fair to consumers for minerals derived both from the Area and from other sources, and the promotion of long-term equilibrium between supply and demand.” This could include price controls for “…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, to the extent that such reduction is caused by activities in the Area.”
The Treaty would allow the Authority to inject itself into any negotiations among signatory countries, stating that “The Authority shall have the right to participate in any commodity conference dealing with those commodities and in which all interested parties including both producers and consumers participate.” The exercise of the Authority’s powers are guided by an Economic Planning Commission, consisting of 15 representatives nominated by member states.
Finally, the Authority has the power to set up the Enterprise — an international version of a nationalized industry — for the purpose of direct exploration and exploitation of resources by the Authority. As the Treaty states, “The Enterprise shall be the organ of the Authority which shall carry out activities in the Area directly, pursuant to article 153, paragraph 2(a), as well as the transporting, processing and marketing of minerals recovered from the Area.”
Anyone familiar with free market principles will quickly recognize the economic issues involved. When this Orwellian Authority was originally conceived, the Soviet Union still provided what many thought was a viable model of economic control. Even in the West, many of the initial Treaty drafters came from states that had nationalized many industries. These industries were politically directed according to economic plans. The Authority is clearly an expression of this way of thinking.
Yet, one after another command and control economies collapsed in the 1980s and 1990s. There were three principal reasons for this collapse. The first is ineffectiveness. Command and control regimes are often more interested in the rules than the effect of the rules, and in proclaiming judgments rather than enforcing them. This means that parties who find the rules inconvenient simply ignore them. At the national level, this leads to black markets. At the international level it leads to ineffective treaties.
Second, centralized economic planning breeds inefficiency, most often seen in the misallocation of resources. Even the best economic planning committees cannot overcome the fact that they suffer from what economist Friedrich Hayek called “the fatal conceit.” Planners cannot know more than the distributed intelligence of markets how to better allocate resources.
Finally, the ability to pick winners and losers in the allocation game means that efforts will be made to tip the scales in favor of one nation or another. At best, this leads to extensive lobbying; at worst, it leads to corruption.
LOST suffers from all three of these flaws. Just to focus on one of the problems, the treaty establishes a centralized authority to authorize and exercise control of open ocean development: The International Seabed Authority (the Authority).
Under the rules governing development as allowed by the authority, almost all deep-sea mining performed by companies from industrialized states will happen at a loss. Industrialized state governments are required to levy fees and royalties to subsidize both the Enterprise and the activities of developing states. Setting fees relies on two provisions, outlined in Annex 8 to the Agreement, that amends to the Treaty. The provisions are vague, which creates significant cost and uncertainty:
“(a) The system of payments to the Authority shall be fair both to the contractor and to the Authority and shall provide adequate means of determining compliance by the contractor with such system;
(b) The rates of payments under the system shall be within the range of those prevailing in respect of land-based mining of the same or similar minerals in order to avoid giving deep seabed miners an artificial competitive advantage or imposing on them a competitive disadvantage;”
These provisions essentially force a contracting company to pay more than it would otherwise in order to be fair to the Authority. Because seabed mining is more expensive than land-based mining, paying for the privilege at the same rates as land-based mining adds a second layer of competitive disadvantage, despite what the Annex text purports. In all probability, these extra fees mean that any mining activities will take place at a loss, arguably the reason why progress in subsea mining has not met expectations when the Treaty was drafted.
Misdirected Mining … on Land
Because the Treaty misallocates resources, seabed mining has been deferred, resulting in more mining on land. Land-based mining operations are very happy with this arrangement, and are even represented in their own chamber of the Council.
The net result: an institutionalized subsidy to land-based mining operations from the very existence of the Treaty, because the Treaty deters effective seabed competition. This, combined with the higher development and, under the treaty, bureaucratic costs of sea bed development will almost certainly result in woeful underdevelopment of the vast area of resources contained in the sea bed – a loss to the entire world.
It will also result in slower innovation, since companies would be forced to share any new technology for sea bed exploitation with the authority and other countries. Why invest the time and resources in developing a new technology, even if it improves the efficiency of operations or increases resource recovery, only to see both a share of the income and the technology itself, transferred to others without compensation.
(Non-market) Environmentalism Unbound
Also troubling is the power that treaty gives to international environmental lobbyists to direct and/or stymie both existing and future economic development. As Iain and I explore in our American Spectator article Lets Lose Lost, LOST has been advanced by environmental groups as a solution to a wide variety of environmental issues because the convention includes provisions that require governments to take measures to“minimize to the fullest possible extent” the release of substances “harmful” to the oceans. It also establishes a tribunal — a permanent court — to police the treaty.
Anyone who knows the tactics of the environmental movement should realize that this would be manna from heaven for global warming alarmists. The release of carbon dioxide from fossil fuels has been blamed for ocean acidification, coral bleaching, species loss, ice melt and virtually every other ill that greens have claimed is befalling the oceans.
If LOST is ratified, under the U.S. Constitution it has the force of law. The environmental movement would therefore be able to use the treaty, U.S. courts, and the UNCLOS tribunal to force the U.S. to minimize emissions of carbon dioxide.
Since the treaty does not take economic cost into account, and the U.S. is the world’s second largest emitter of carbon dioxide (despite rapid emissions decreases caused by technological advances such as the development of fracking), such a requirement could amount to the forced de-industrialization of the United States. Economic disaster, mass unemployment, and vastly increased poverty would result.
There is no economic case for the United States to ratify LOST. It uses the failed socialist economic theory to govern the ocean floors. It has proven unable to resolve disputes. It subsidizes dangerous regimes. It does not establish meaningful property rights and thus fails to provide certainty for developers. And because it requires technology transfers, it suppresses research and development.
As designed, LOST amounts to little more than a scheme for transferring wealth from the poor in developed countries with ocean coastlines to wealthy oligarch’s in developing countries with no ready access to the world’s oceans.
It is, however, the threat of environmental extremism in a vast new area provides the biggest reason to reject the treaty. The Kyoto Treaty was rejected as national policy for good reason. This is Kyoto with a court attached.
Secretary Kerry has told us what he wants. We may choose to call our planet Ocean, but we should not let our people drown in a tidal wave of foolishness.