Developing States & Profit Sharing in the Current Seabed Mining Regime
As states and corporations have demonstrated increased interest in the resource potential of the deep sea, it is unclear whether the International Seabed Authority is able to achieve both its redistributive and environmental goals.
By: Amay Gupta, staff member
States and corporations have demonstrated increased interest in the resource potential of the deep sea. As the world’s population is estimated to surpass nine billion people by the year 2050, the International Seabed Authority (ISA), an international body comprising all 167 member states party to the 1982 United Nations Convention on the Law of the Sea, has expressed hope that these operations will help meet the world’s demand for critical minerals. So far, the ISA has entered into twenty-nine fifteen-year contracts for the exploration of three materials ranging from 800 to 4,000 meters below the surface of the ocean in the hopes of achieving this goal. While no mining operations have commenced anywhere in the world, the ISA is rushing to finalize the world’s first pre-emptive mining code to regulate mineral exploitation by 2020. The ISA’s alacrity in establishing this code for the common benefit of human kind raises the question – do party states view the oceans as a source of wealth that should be equitably shared? Alternatively, will party states be able to adhere to this goal, especially those states that are not well equipped to manage their deep-sea minerals resources in accordance with international laws?
Let us take a small Pacific Island state as an example. Nauru, the fourth poorest Pacific Island state, is a small nation with a population of around 13,000 people and a colonial-era history of terrestrial mining. On April 10, 2008, Nauru Ocean Resources Inc. (NORI), a wholly-owned subsidiary of the Canadian corporation Nautilus Minerals Inc., submitted a mining application for polymetallic nodules to the ISA. Because Nauru is a developing state, the ISA granted NORI’s access to exploration and exploitation rights. However, the Seabed Disputes Chamber of the International Tribunal for the Law of the Sea clarified in 2011 that developing and developed states have the same obligations and responsibilities when it comes to acting as sponsor states. Concurrently, the Seabed Disputes Chamber recognized that developing states may have difficulty complying with their obligations. In 2015, Nauru allowed the EU to help assist them draft Nauru’s International Seabed Minerals Act, which aimed to “establish a legal framework for the sponsorship, and for the effective control, by Nauru of contractor to undertake Seabed Mineral Activities.” Yet, the Act only provides for a very small sponsorship application fee of $15,000 and an annual administration fee of only $20,000 as well as a contingent percentage (to be determined) of the market value of the mined substances. In contrast, the ISA collects an application fee of $250,000.
Considering that the ISA also collects royalties, it is unlikely that Nauru will receive substantive benefits from allowing NORI to operate. The World Bank has voiced concerns that deep seabed mining will be unable to contribute to the economic development of small Pacific island nations. Furthermore, the World Bank has noted that Nauru has “no technical personnel, ministry or regulatory infrastructure relevant to DSM, and limited legal capacity within government.” Nauru’s incentives to support wealth sharing decrease as royalties and other payments imposed by the ISA continue to grow. It is easy to imagine that developing nations may fail to impose environmental restrictions on these mining enterprises to maximize individual revenues from mining. In addition, as developing states become sponsors of mining endeavors, royalties imposed by the ISA reduce the need for states to impose payment obligations.
Furthermore, the ISA’s inherent structures heavily benefit the profit expectations of commercial mining enterprises at the expense of other stakeholders. It is apparent from the nature of the ISA that the drafting of the Mining Code is not just about regulation, but about creating a mining economy. Because the ISA does not define the concept of a stakeholder, it is open to input from a wide variety of interests in order to express the depoliticized goals of mining. As a result, commercial enterprises are the ones benefiting the most. In recent ISA surveys and delegation meetings that address payment mechanisms, an overwhelming majority of responses were from companies or contractors in contrast to governments or NGOs.
Moreover, current proposals advocate for payment systems that propagate the interest of commercial actors rather than the ISA. Because deep seabed mining is a growing venture with high uncertainty regarding profits and geological risk, corporate stakeholders typically advocate for payment systems that rely on royalties alone rather than a combination of royalties and profit sharing. It has been said that contractors should not be expected to engage in profit sharing because it would require too much transparency.
As the next ISA meeting approaches in February 2020, the ISA should continue its trend of taking more time to develop the draft exploitation regulations. While there have been calls for an increase in environmental protections, it is important to also focus on how the financial proceeds will be split. As the current proposed structures disincentivize island nation states from sharing in profit maximization, it is unclear whether the ISA can achieve both its redistributive and environmental goals.
Amay Gupta is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. Amay graduated from University of California-Berkeley in 2016 with a B.A. in Economics.