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JANUARY 27, 1995

                      Wesley S. Scholz
        Director, Office of International Commodities
           Bureau of Economic and Business Affairs
                     Department of State
              Georgetown University Law Center

                    ON THE LAW OF THE SEA
                 An International Symposium
                  Friday, January 27, 1995

 "The Law of the Sea Convention and the Business Community:
            The Seabed Mining Regime and Beyond"

     I would like to thank Eric Fersht and the Georgetown
International Environmental Law Review for inviting me to
participate in this symposium.  The Senate is now in the
process of deciding upon its priorities, including future
action on the Law of the Sea Convention.  An informed
national debate will be an important element in the process
and this symposium should make a significant contribution to
that debate.

     Most of the public conferences and symposia that have
addressed the Law of the Sea Convention in the last few
years have included the seabed mining issue because it has
been the source of industrialized country objections to the
Convention. Such gatherings have also devoted considerable
attention to issues such as fisheries, protection and
conservation of the marine environment, marine science and,
of course national security aspects of the Convention.  In
keeping with the topic assigned to this panel, I will
discuss the recently concluded agreement modifying the deep
seabed mining provisions of the Convention and how it
addresses U.S. objections.  However, before doing so, I will
attempt to broaden the debate on the impact of this
Convention on the business community by making some general
comments on the provisions of the Convention that effect the
oil and gas, marine transportation, and telecommunications
industries, as any assessment of the impact of the
Convention on United States' economic and commercial
interests must look beyond seabed mining and consider the
implications of the Convention for these sectors as well.

     The offshore oil and gas industry is a multibillion
dollar industry.  In addition, to activities in areas under
U.S. jurisdiction such as Alaska and the Gulf of Mexico, we
have substantial interest in offshore oil and gas
development activities globally given our growing dependence
upon imported oil.  U.S. based oil companies, as well as
equipment and service companies, are important players in
the competition to locate and develop offshore gas and oil
resources.  The pace of technological advance which drove
the need to define the outer limits of the continental
margin has not abated.  Advances in technology and increased
efficiencies are taking us to greater and greater depths and
rekindling interest in areas that once were considered

     Recognizing the importance of the Law of the Sea for
their industry, the National Petroleum Council, in 1973,
published an assessment of industry needs in an effort to
influence the negotiations.  Entitled Law of the Sea:
Particular Aspect Affecting the Petroleum Industry, it
contained conclusions and recommendations in five key areas,
freedom of navigation, stable investment conditions,
protection of the marine environment, accommodation of
multiple uses and dispute settlement.  The views reflected
in this study had a substantial impact on the negotiations
and most of its recommendations found their way into the
Convention in one form or another.

     Included among the provisions that were influenced by
these views, or which are otherwise of interest to the
industry, are:

--  confirmation of coastal State control of the continental
shelf and its resources to a distance of 200 nautical miles
and beyond to the outer edge of the continental margin
defined on the basis of geological criteria;

--  establishment of a Continental Shelf Commission to
advise States in delimiting their continental shelves in
order to promote certainty and uniformity;

--  specific provisions on the settlement of disputes
related to the delimitation of continental shelves among
States with opposite or adjacent coasts;

--  revenue sharing applicable to development of resources
beyond 200 nautical miles based on a modest royalty
beginning in the seventh year of production;

--  recognition of the role of the International Maritime
Organization in setting international safety and pollution

--  allocation of enforcement responsibility for safety and
pollution standards among States of registry, port States
and coastal States;

--  requirements for the prompt release of detained vessels
and crews upon the posting of a bond, and;

--  a comprehensive system of dispute settlement allowing a
choice among the International Court of Justice, a
specialized Law of the Sea Tribunal and arbitration.

     It is obvious from this list that in addition to the
oil and gas industry, the maritime transportation industry,
will also be profoundly affected by the Law of the Sea
Convention.  The United States economy is highly dependant
upon foreign trade. Increasing imports of oil and other
basic commodities are essential to our continued economic
growth.  Export industries are accounting for an
increasingly large share of our economic output and job
creation.  This trend will continue with the implementation
of the results of Uruguay Round of trade negotiations and
progress in liberalizing trade regionally in the Americas
and Asia.  A healthy, efficient and unimpeded global marine
transportation system will be essential to supporting this
continuing expansion of international trade.

     In this regard, one of the most significant aspects of
the Law of the Sea Convention is the balance it strikes
between our interest as a coastal State in controlling
activities in adjacent offshore areas and our interests as a
major maritime power in freedom of navigation and
overflight.  While greatly expanding the authority of
coastal States, the Convention elaborates important
guarantees to insure that such authority does not unduly
impede marine transportation.  In addition to the provisions
I've just identified, provisions on innocent passage in the
territorial sea, straits transit and archipelagic sea lanes
passage include significant new elaborations on traditional
international law of the sea which will continue to support
the expansion of international trade.

     The Law of the Sea Convention also has a role to play
in the telecommunications revolution.  Billions of dollars
will be spent in the coming years by telecommunications
companies to replace existing undersea cables with fiber
optic cables.  In addition, major expansion of the web of
undersea cables is also anticipated, greatly increasing the
importance of clear rules on the multiple use of ocean
space.  Specifically, the Convention supplements existing
agreements in this area by reinforcing the obligation of
other ocean users to avoid damage to undersea cables and
strengthening the principle of liability for damage to
properly charted cables.

     As the Senate considers what action to take with
respect to the Convention, the constituencies affected by
the Convention in these areas need to undertake a careful
evaluation of the impact on their interests of its entry
into force and a United States decision on accession.  Such
evaluations will be important in ensuring that the Senate's
actions are informed by an understanding of the full impact
of the Convention on U.S. commercial and economic interests.

     Against this backdrop I would now like to turn to the
deep seabed mining question.  With the exception of
commercial space operations, I can think of few potential
commercial endeavors in the last twenty years that, before
the economic feasibility of commercial scale operations has
been established, have received more attention by
economists, academicians, international lawyers, diplomats
and editorial writers than deep seabed mining. With metals
and other commodity prices rising during the 1970s and
growing concerns over the availability of strategic metals
from unstable or hostile countries during the height of the
cold war, it is not surprising that the exploration work and
technological advances of companies in this area would
capture the imagination.

     Unfortunately, expectations of an economic bonanza from
deep seabed mining coincided with a period of deep divisions
within the international community along both East/West and
North/South lines.  Far from the emerging consensus of the
last decade that economic liberalization and democratization
are the keys to development, many developing countries and
the nations of Eastern Europe and the former Soviet Union
possessed highly centralized closed political systems and
command and control economies.  Not surprisingly, they held
a very different view from that of the G-7 industrialized
nations of the appropriate regime to govern ocean mining in
areas beyond national jurisdiction.  With the perceived
success of OPEC fresh in their minds, developing countries
saw an opportunity to shift economic power toward themselves
and away from industrialized countries whose companies
possessed the necessary capital and technology.  It is not
surprising, with the benefit of hindsight, that when coupled
with the United States objective of securing a comprehensive
and broadly acceptable Convention, this alignment of factors
resulted in a highbred mining regime poorly suited to its
intended purpose.

     In 1982, after a failed effort to renegotiate the
mining regime, President Reagan decided that notwithstanding
the general acceptability of its other parts, the United
States would not sign the Convention.  History has proven
him right.  The principled stand taken by the United States
coupled with the dramatic changes in the international
political and economic environment in the intervening years
created the opportunity to secure an agreement modifying the
Convention seabed mining regime to better reflect free
market principles.

     The consultations that led to the agreement modifying
the Convention's seabed mining provisions began in 1990.
Capitalizing on statements by representatives of developing
countries recognizing the need for reform to reflect the
changing international political and economic environment,
the UN Secretary General organized informal consultations.
The United States participated in the consultations from the
outset. Initially, we withheld judgement on whether the
consultations would be effective means for solving our
problems with the regime.  However, over time it became
clear that developing countries were prepared to accept
fundamental change.  Based on the progress achieved in the
prior two years of consultations in creating an outline for
reform, the Clinton Administration announced in April 1993
that it would support the effort to negotiate specific
changes which would permit the United States to consider
joining the Convention.  This announcement and the deposit
of the 60th ratification of the Convention in November of
1993, which would bring the Convention into force one year
later, generated substantial momentum that resulted in the
successful conclusion of the negotiations and the adoption
of the new agreement in July of last year.

     At this point, I would like to review the objections
that resulted in the U.S. decision not to sign the
Convention in 1982 and how they have been addressed in the
new agreement which we signed on July 29 of last year.
Stated simply, the seabed mining regime of the Convention
failed to provide the United States, and other States with
major economic interests which would be affected by deep
seabed mining, a voice commensurate with their interests.
In addition, it was based on principles for the organization
of economic activity that would have interfered with market
forces and effectively preempted private investment in deep
seabed mining, thus, impeding our access to seabed resources
when market conditions warrant their development.

     The specific problems with the seabed mining regime
fell into two broad categories; institutional issues, and
economic and commercial issues.  On the institutional front,
we objected to the fact that the U.S. was not guaranteed a
seat in the executive Council of the International Seabed
Authority, the organization which would administer the
mining regime.  We also objected to provisions which would
have allowed developing countries to dominate the
organization by virtue of their numbers and the principle of
one nation one vote.  In addition, we objected to the fact
that the Convention's seabed mining provisions could be
amended and bind the U.S. without our consent.  Lastly, we
objected to the possibility that future revenues from deep
seabed mining might be distributed to national liberation

     On the economic and commercial front, we opposed the
requirement that, as a condition to the awarding of mining
rights, commercial enterprises would have to undertake to
transfer their mining technology to a competing operating
arm of the Seabed Authority known as the Enterprise, or
possibly to developing countries.  We objected to the
Enterprise benefiting from discriminatory competitive
advantages over other commercial enterprises, such as
through funding of its initial operations by State Parties
via loans and loan guarantees, and by a 10-year exemption
from the payment of royalties.  We also opposed the regime's
production control arrangements which limited the level of
the production from the seabed in order to protect land-
based producers of the minerals that would be produced from
the seabed. Finally, we objected to the regime's onerous
system of financial payments that would be required of
commercial miners, in particular a U.S. $1 million annual
fee payable beginning with the exploration stage.

     In response to these objections, the new agreement
substantially increases the influence of the U.S. and other
industrialized countries in the area of governance.  It
streamlines the operation of the Seabed Authority and
promotes efficient administration.  It reorients the regime
to better reflect free market principles in relation to
economic and commercial issues.  It ensures recognition of
the claims to seabed mine sites established on the basis of
exploration work already conducted by U.S. and other
companies. Finally, it improves provisions to promote
protection of the marine environment.

     Rather than seeking to establish a detailed regime
anticipating all phases of mining activity, the Agreement
establishes general principles in those areas which relate
to the objections we have raised on economic and commercial
grounds. These principles will be the basis for rules and
regulations establishing a management regime for commercial
production when interest in commercial mining emerges.

     In response to our specific objections, the Agreement:

--   increases the influence of the U.S. and other
industrialized countries by: 1) guaranteeing a U.S. seat in
the Council; 2) allowing ourselves and a few other
industrialized countries acting in concert to block
decisions in the Council; 3) providing that the plenary
Assembly can not act independently of Council
recommendations; and 4) establishing a Finance Committee,
which must include the major contributors to the budget
among its members, must pass on all budgetary and financial
issues, and must make decisions by consensus;

--   ensures that future amendments to the regime can not be
adopted over U.S. objections;

--   eliminates provisions compelling the transfer of seabed
mining technology;

--   eliminates the power of the Authority to limit
production from the deep seabed to protect the interests of
land-based producers and, in its place, established
restrictions on subsidization of seabed mining based on the
GATT/WTO agreements;

--   grandfathers in seabed mine site claims by three U.S.-
led multinational consortia on terms "no less favorable
than" the best granted to Japanese, French, Russian, Indian,
Chinese or Korean claimants which have already been

--   eliminates large annual fees miners would have to pay
prior to commercial production; and

--   remodels the Enterprise by: 1) requiring a future
decision by the Council to make it operational; 2) if such a
decision is made, subjecting the Enterprise to the same
requirements as other commercial enterprises; 3) eliminating
the requirement that Parties to the Convention fund its
first mining operation; 4) providing that the Enterprise
operate through joint ventures with other commercial
enterprises; and 5) eliminating provisions that would compel
other commercial enterprises to provide it with technology.

     In addition to responding to the specific U.S.
objections, the new seabed mining regime streamlines the
Authority and emphasizes the need to ensure an efficient
organization in keeping with the recognition that commercial
mining is not imminent.  In particular, the Agreement calls
for the Authority to concentrate its efforts in the early
years on monitoring the ongoing exploration activities of
existing and new claimants and promoting and coordinating
scientific research, particularly in the area of
environmental protection.  To meet these needs a small staff
of six professionals and 17 support personnel has been
agreed upon.  The 1995 budget for the Authority is
approximately $2.5 million dollars which will be funded out
of the existing UN budget.  While these costs can be
expected to increase in 1996 reflecting the fact that some
staff will not be recruited until the latter part of 1995,
it is clear that most member States share a desire to keep
costs to a minimum.

     Notwithstanding the improvements in the mining regime
embodied in the new agreement, it remains controversial
among the three consortia possessing U.S. licenses awarding
exploration rights to specific mine sites in the Central
Pacific Ocean.  With the exception of the consortium
controlled by Lockheed Corporation and Cyprus minerals,
which has muted its criticism lately, these consortia are
multinational, presently including companies from Japan,
Great Britain, Germany, Canada  and Belgium.  Collectively,
they have spent approximately half a billion dollars in
exploration and technology development in the last two
decades although their total combined expenditures have
tapered off to a few 100,000 dollars annually during the
last few years because of the poor economic outlook for
ocean mining in the near term.

     In testimony before the Oceanography Subcommittee of
the former House Merchant Marine and Fisheries Committee in
April of last year, a spokesman for these companies listed
their objections in detail.  Time will not permit a full
discussion in context of this presentation.  Those
interested in a detailed discussion can find one in a
presentation I made at a symposium sponsored by the Center
for Ocean Law and Policy of the University of Virginia
School of Law in May 1994, the proceedings of which should
be published shortly.  The principle criticisms of these
companies fall into three areas; administration of the
regime, financial burdens and the Enterprise.

     With respect to the administration of the regime many
of the criticisms reflect a concern that the organization
will become highly politicized and the decision making
arrangements designed to increase industrialized country
influence will result in gridlock.  This concern is not
entirely groundless if one looks solely to United Nations
political institutions for a model. However, I believe that
a more appropriate analogy is to some of the technical
international organizations that deal with specific
international commercial activities.  A good example is the
International Maritime Organization.  Many issues that have
been successfully resolved in the IMO are no less important
for the economic viability of the affected industry than
will be the case with issues before the Seabed Authority.
Yet the organization has functioned reasonably well in
establishing binding international standards affecting
merchant shipping in areas of vessel construction, safety
and marine pollution.

     In addition, the Seabed Authority will be operating
against the backdrop of the decisions of the Law of the Sea
Preparatory Commission that has successfully registered
mining claims for Japan, France, Russia, South Korea, China
and India.  The technical body charged with judging the
qualifications of applicants and making recommendations on
their applications is widely perceived to have operated in a
professional manner.  The special decision making process
for mining applications under the Convention and the new
agreement make it extremely difficult to reject a positive
recommendation of the counterpart technical body of the
Seabed Authority.

     Another aspect of this concern is what consortia
representatives call a lack of due process.  In particular,
they argue that there is little opportunity for direct
industry input and no remedies available to them to
challenge decisions.  As in any intergovernmental
organization, the primary actors are States which are
jealous of their sovereignty.  As a result, the interests of
commercial enterprises are largely represented by States.
However, the regime breaks new ground by giving commercial
enterprises direct access to binding dispute settlement
procedures, including commercial arbitration for disputes
regarding the contract of work which defines their mining
rights.  Other actions of the Authority may be challenged
through binding dispute settlement procedures initiated by a
sponsoring State.

     Opportunity for industry input in the policy making
process exists through firms relationships with their
sponsoring States. It could take the form of frequent
consultations between the governments of sponsoring States
and their affected firms.  It could also be addressed in
domestic implementing legislation defining the relationship
between a sponsoring State and the commercial enterprise.
Industry advisors are often members of delegations to
international organizations.  In addition, it is not
uncommon for international organizations which deal with
commercial activities to establish industry advisory bodies.
The Convention provides for the creation of additional
subsidiary bodies and, subject to considerations of
budgetary restraint, it would be appropriate to consider
such a body in this context.

     Consortia representatives criticism of the financial
burdens focus primarily on the application fee of $250,000.
As noted above, with the exception of this fee, no fees will
be charged to miners prior to commercial production.  The
detailed financial arrangements, including a $1,000,000
annual fee during the exploration phase, have been dropped.
Instead, the Agreement provides for royalty, or combination
of royalty and profit sharing, arrangements to be
established in the future paralleling arrangements
applicable to land based mining.

     An application fee of $250,000 which secures exclusive
exploration rights, for a minimum of 15 years, to areas tens
of thousands of square kilometers in size, does not appear
unreasonable particularly when compared to arrangements
applicable to exploration rights for resources in other
contexts, whether offshore oil and gas development or land-
based mining. The alternative would be for the costs to be
absorbed in the budget of the organization which would
simply transfer them to governments.  In addition, the
Convention provides that portions of the fee not necessary
to cover the cost of processing an application are

     The other area of concern relates to the Enterprise.
The Enterprise was to be the operating arm of the Seabed
Authority which would compete with other commercial
enterprises.  Critics fear that it will continue to pose a
threat to privately financed mining concerns.  As I noted
earlier, the Enterprise would have benefitted from
discriminatory treatment in a number of respects. During the
negotiation of the new agreement U.S. negotiators sought to
eliminate the Enterprise altogether as an outdated relic of
the past which is inconsistent with the growing acceptance
of free market principles.  Developing countries, on the
other hand, continued to see the Enterprise as the
embodiment of their desire to participate, if only
indirectly, in this new industrial activity, and were
unwilling to give it up entirely.

     Except for the Netherlands, other industrialized
countries gave us little support in our effort to eliminate
the Enterprise altogether and were willing to settle for
requiring a Council decision (which we and they could block)
to make it operational, removing provisions that
discriminated in the Enterprise's favor, and requiring it to
operate by joint ventures with other commercial firms.
These countries were motivated by the belief that total
elimination was unnecessary, if we could block it from
becoming operational, and that, in the end, such elimination
was not achievable.

     The one area where the Enterprise continues to have a
direct effect on the interests of other commercial
enterprises is the requirement to reserve areas for possible
future use by the Enterprise.  When a commercial enterprise
seeks exploration rights, it must file an application for
two areas of roughly equal estimated commercial value based
on information generated during their prospecting
activities.  One of the two areas will be reserved for
possible future use by the Enterprise.  Retention of this
requirement was insisted upon by developing countries
because otherwise the Enterprise would have nothing to
contribute to attract joint venture partners.  However, we
did succeed in including language that would give the
original applicant a right of first refusal with respect to
a joint venture proposal in the are that it prospected.  It
would also require that, if the area were not utilized
within 15 years, the original applicant would be entitled to
apply for the area, provided it made a good faith offer to
include the Enterprise as a joint venture partner.

     Although we failed to eliminate all vestiges of the
Enterprise, we are now able to block a decision to make it
operational.  While theoretically this could lock up the
reserved sites, I believe that over time more countries will
come to view the Enterprise as a relic and there will be
little enthusiasm for making it operational.  Another
possibility is that it would simply serve as the repository
for an equity share of the Authority in some future joint
venture in a reserved area. However, I can not foresee
circumstances where a substantial number of States would
support it becoming an operational mining concern.

     While the Convention's mining provisions are not
perfect, the improvements we have achieved far exceed the
demands we made in 1982.  The multibillion dollar
investments that will be necessary to mount commercial
mining operations will not take place without assurances of
secure title to the resources.  Given that these resources
are outside the jurisdiction of any State, the act of a
single State which seeks to grant exclusive title to a large
area of the seabed is not likely to be viewed as
sufficiently secure to attract private capital on this
scale.  A State wishing to put public resources at risk
through investment guarantees or direct investment might be
able to overcome the problem, but given current trends, few
if any would be willing to do so.  If deep seabed mining is
to take place on a commercial scale, it will have to be
based on a legal regime that enjoys widespread support
within the international community.  The provisions of the
Convention and the recently concluded agreement are the only
basis upon which such support is likely to be achieved.

     In judging the seabed mining provisions we must bear in
mind that they are still a work in progress.  Many of the
remaining misgivings of their critics are based on
uncertainties over how the regime will operate in practice
and can only be overcome in the process of implementing the
regime.  Given the principles that now guide that process
and the increased influence the U.S. and other
industrialized countries will wield within the institutions
of the regime, I am confident that over time they can be

     Whether from the perspective of its impacts on our
economic and commercial interests in seabed mining,
commercial fishing, maritime transport, offshore oil and gas
development and submarine cables, or from the perspective of
our other important interests, the Law of the Sea Convention
provides an essential framework for addressing problems
which arise from the increasing intensity and diversity of
ocean uses.  Some of these problems are immediate and some
we can only dimly foresee.  Our success in continuing to
advance United States' interests as the international
community builds on this framework will be greatly affected
by our posture toward the Convention.  A failure of the
United States to accede to the Convention will not have
immediate catastrophic consequences, but it will weaken the
framework and diminish our influence over its evolution in
the future.  The impact may be minimal in some areas where
existing means of policy coordination are only supplemented
or reinforced by the Convention.  In other areas the affect
will be more pronounced.

     The Convention is now in force, preliminary indications
are that most other industrialized nations are likely to
ratify or accede to the Convention in the next few years.
Whether as government policy makers or representatives of
individual interests we all face the question of how our
individual interests and the national interest will be
affected by a decision to join or to remain aloof.
Successive Administrations since the Nixon Administration
have concluded that a comprehensive Convention best serves
the full range of United States interests.  The Reagan
Administration and succeeding administrations have decided
that, but for its provisions on deep seabed mining, the
balance struck in the Convention deserves our continuing
support.  The new agreement responds to the objections we
raised in 1982, in addition to making other substantial
improvements to the mining provisions.  It is my hope that
the Senate after careful consideration will reaffirm the
tradition of bipartisan support for a comprehensive Law of
the Sea Convention and act positively on the Convention and
the new agreement in the coming year.

Thank you.
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