Actual royalty rate has yet to be determined, leaving US companies vulnerable to exorbitant costs

Royalty rate “To Be determined.” Neither the convention nor the 1994 Agreement establishes the mining royalties that U.S. companies would be required to pay to the Authority. As originally drafted, the convention required mining companies to pay a “production charge” royalty ranging from 5 percent to 12 percent of the value of the processed metals. In the alternative, companies could pay a combi- nation of a production charge and a share of the net proceeds from the sale of the processed metals.70 In any event, each company must pay the Authority a minimum of $1 million per year once commercial produc- tion has commenced.71 The 1994 Agreement revised the convention’s specific royalty range and minimum payment scheme,72 but the 1994 revisions left more questions than answers. essentially, the 1994 Agreement left the seabed mining compensation scheme “to be determined” with the notion that the details would be negotiated within the Authority at some future date when commercial production is imminent. That date has not yet arrived, even though UNCLOS was adopted 30 years ago, and the Authority has yet to begin drafting regulations to establish the financial obligations of mining companies to the Authority. Thus, if the U.S. accedes to the convention, it will be making an uninformed decision based on incomplete information. The 1994 Agreement refers only to a vague “system of payments” that U.S. mining companies would be required to pay to the Authority, stating that “Consideration should be given to the adoption of a royalty system or a combination of a royalty and profit- sharing system.”73