Revenue Sharing
In Article 82 of UNCLOS, state parties agreed to pay a royalty to the International Seabed Authority for exploiting ocean mineral and energy resources, which will then be distributed to land-locked 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 from the baselines from which the breadth of the territorial sea is measured."
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Worse still, these sizable "royalties" could go to corrupt dictatorships and state sponsors of terrorism. For example, as a Treaty signatory and a member of the "Authority's" executive council, the government of Sudan which has harbored terrorists and conducted a mass extermination campaign against its own people -- would have just as much say as the United States on issues to be decided by the "Authority." Disagreements among Treaty signatories are to be decided through mandatory dispute resolution processes of uncertain integrity. Americans should be uncomfortable with unelected and unaccountable tribunals appointed by the Secretary General of the United Nations serving as the final arbiter of such disagreements.
Even if one were to agree with the principle of global wealth redistribution from the United States to other nations, other UN bodies have proven notably unskilled at financial management. The UN Oil-for-Food program in Iraq, for instance, resulted in hundreds of millions of dollars in corruption and graft that directly benefited Saddam Hussein and those nations friendly to Iraq. The Law of the Sea treaty is another grand opportunity for scandal on an even larger scale.
Regarding the third concern, the taxation on resource extraction in exclusive economic zones amounts to just over 2 percent on average, a price that mining and hydrocarbon companies have signaled they are willing to pay as the world’s energy markets hunger for new resources and prices of commodities climb. As for revenue redistribution, opponents too often overlook the fact that following renegotiation of the Law of the Sea, the United States is guaranteed the only permanent veto on how funds are distributed. It is also exempt from any future amendments to the treaty without Senate approval. In other words, the United States would enjoy a position of unequaled privilege, not unfair treatment, within UNCLOS.
Granted, as UNCLOS critics are quick to point out, access to the ECS under UNCLOS is contingent upon payment of royalties to the Interna- tional Seabed Authority (ISBA) for oil and gas development beyond 200 nautical miles (nm).26 However, the royalty framework is relatively insignifi- cant compared to the fee-sharing arrangements for overseas oil and gas development and the enormous economic benefits anticipated from off- shore resource development. Revenue sharing does not begin until the 6th year of production of a particular well or site, starts at 1% of the value of production and increases 1% per year. By the 12th year and remaining years thereafter, the royalty is 7% of the value of production, paid either in kind or in dollars.27 During the 1970s, these revenue sharing provisions were negotiated in consultation with the U.S. oil and gas industry.
Payments are to be distributed by the ISBA to States Parties of UNCLOS in accordance with Article 82(4) on the basis of equitable criteria that take into account economic development factors. Of note, this distribution is distinct from the distribution of revenues generated from deep seabed mining operations under Part XI of the Convention. As a State Party to UNCLOS, the United States would have a permanent seat in the ISBA to ensure both kinds of distributions are made in ways acceptable to the United States—Section 3(15) of the Annex to the IA guarantees the United States a seat on the ISBA Council in perpetuity.28 Any ISBA decision regarding revenue sharing must be approved by the Council.29 Additionally, if distributions are made to a country that is already receiving U.S. foreign aid, the United States could offset aid to that country by the amount of distributions paid by the ISBA, in essence eliminating any increase financial burden to the American taxpayers.
Is there a cost involved in exploring this far frontier? The Convention provides a reasonable compromise between the vast majority of nations whose continental margins are less than 200 miles and those few, including the U.S., whose continental shelf extends beyond 200 miles, with a modest obligation to share revenues from successful minerals development seaward of 200 miles. Payment begins in year six of production at the rate of one percent and is structured to increase at the rate of one percent per year to a maximum of seven percent. Our understanding is that this royalty should not result in any additional cost to industry. Considering the significant resource potential of the broad U.S. continental shelf, as well as U.S. companies’ participation in exploration on the continental shelves of other countries, on balance the package contained in the Convention, including the modest revenue sharing provision, clearly serves U.S. interests.
The Convention provides a reasonable compromise between the vast majority of nations whose continental margins are less than 200 miles and those few, including the U.S., whose continental shelf extends beyond 200 miles, with a modest obligation to share revenues from successful minerals development seaward of 200 miles. Payment begins in year six of production at the rate of one percent and is structured to increase at the rate of one percent per year to a maximum of seven percent. Our understanding is that this royalty should not result in any additional cost to industry. Considering the significant resource potential of the broad U.S. continental shelf, as well as U.S. companies’ participation in exploration on the continental shelves of other countries, on balance the package contained in the Convention, including the modest revenue sharing provision, clearly serves U.S. interests.
The U.S. safeguard against such transfers becomes operative through the interaction of the convention and the 1994 agreement. Convention Article 161, paragraph 8(d) requires consensus of the ISA council to distribute economic benefits, pursuant to Article 162. Section 3, paragraph 15(a) of the annex to the 1994 agreement provides the United States a permanent seat on the council by virtue of being the largest economy on the date of entry into force of the convention.
By ratifying UNCLOS, the U.S. would be subjecting its resource extraction industries to control by the United Nations. Furthermore, these industries would be assessed a royalty fee on these resources that the International Seabed Authority would redistribute to other states, possibly counter to U.S. national security interests.
- Law of Sea structure still favors discredited and corrupt redistributionist model for foreign aid
- Actual royalty rate has yet to be determined, leaving US companies vulnerable to exorbitant costs
- Land-based mineral mining countries possess equivalent voting rights to the US in ISA
- Voting in ISA already beset by corruption and vote dilution
- UNCLOS would create new international authority for a massive and unprecedented transfer of wealth
- UNCLOS obligates states that mine the seabed to provide funds to subsidize its land-based competitors
- Under UNCLOS, U.S. revenues from offshore resource extraction would be redistributed to non-desirable state actors
- U.S. ratification of UNCLOS would give United Nations ability to impose tax on U.S. citizens
- UNCLOS participation would require U.S. to transfer significant royalties to International Seabed Authority
If the U.S. accedes to UNCLOS, it will be required pursuant to Article 82 to transfer royalties generated on the U.S. continental shelf beyond 200 nautical miles (nm)—an area known as the “extended continental shelf” (ECS)—to the International Seabed Authority.
- UNCLOS requires mineral extraction companies pay royalties to ISA to be redistributed
- US accession to UNCLOS would obligate to transfer hundreds of billions of dollars of royalties to ISA
- US offshore oil development could generate $92 billion in royalty payments for US treasury over next 50 year
- UNCLOS obligates member nations to pay upwards of 7% in royalties for development of mineral and energy resources
- Under UNCLOS billions of dollars in royalties for offshore oil development would shift to ISA instead of to US revenue
- U.S. currently collects billions of dollars in royalties on outer continental shelf resource development which would go ISA under UNCLOS
- Mining companies have incentive to over develop resource in inefficient manner to avoid paying higher royalty share