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III. Major Components for Orderly Implementation of
Domestic Legislation

As was suggested earlier, the first step which Congress must take is to define the goals and policies to be achieved by domestic legislation. Once these decisions have been made and priorities have been established among the basic goals, Congress must establish a legislative and regulatory structure which contains incentives and systems which are correlated to the chosen goals and policies. Work to date under this contract suggests that none of the existing legislative proposals would allow, in their present form, for the consonant implementation of the goals which have appeared in past proposals.

15/

The industry has argued that, irrespective of basic goals and policies, any legislative scheme must establish a vehicle for protecting major American investments which may be diminished by the implementation of an LOS treaty. The establishment of a fund or a series of protective investment mechanisms for securing such investments must include determinations as to the types of investments to be protected. Furthermore, any investment protective device, whether in the form of guaranty, tax incentive, insurance, or a mix of these, must establish orderly procedures for administration of the investment security funds in a manner which meets the basic structural components 1:5

The argument appears to be based on the contention that private sector coverage is unavailable. Research for the preparation of this Report suggests otherwise.

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of a privately based or hybrid insurance program.

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In this regard, without delving into its goals or policies, the OPIC model has been successful to date in avoiding disastrous implications, such as all risks occurring within a period of time which would deplete the allocated amount of money available for insurance coverage. The details of proposed guaranty structures become particularly important in the context of deep seabed mining because the primary risk the passage of a Law of the Sea treaty, and its ratification by the United States

This

is a risk which could conceivably occur contemporaneously
17/
with respect to all participating companies.
could create unique complications because, under some
circumstances, a significant portion of appropriated
guaranty funds might have to be available within a short
18/
period of time.

16

11

It should be noted that the terms "investment security," "investment protection, "guaranty," and "insurance" are by no means interchangeable. The latter two are merely two of the means of achieving investment protection. As this report will suggest further, the most appropriate form of investment protection may lie in a hybrid of both guaranties and insurance. The hybrid would likely be less costly than any of the forms of security proposed to date. For elaboration on this view, see Testimony of Alan H. Kaufman on H.R. 3350, H.R. 3652, House Subcommittee on International Organizations, May 18, 1977.

17/

See further analysis of risk occurrence at pp. 38-41.

18/
The treaty "risk" and ensuing losses will not, however,
occur at the same time. The sequence of (a) agreement in
principle, (b) agreement as to detail, (c) approval by all

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A. Definition of Investment

Existing legislative proposals have been vague in

defining "investment" in a manner which would allow Congress to sense the limits of its commitments and to fairly allocate payments. Under legislation proposed by Professor Moore, "investment" means

"any expenditure of funds (including such interest
costs arising therefrom as the administrator shall
deem reasonable) and use of commodities, services,
patents, processes and techniques, which are dedicated
to the development of a complete mining system for
commercial production from the deep seabed including
a mining ship and associated recovery of equipment,
ore carrier or carriers and processing facilities if
located in, or on, a place subject to the jurisdiction
of the United States. Sec. 3(j).

Professor Moore also proposes a separate definition for "investment for the development of ocean mining." See also H.R. 3652, sec. 4(a). That insurable component would include "...any investment made for research, development or improvement of any aspect of deep seabed mining systems, including pilot operations, but not including investment in plant or equipment for commercial recovery." Sec. 3(k). Moore also has a separate category of "investment for assessment of the environmental aspects of deep ocean mining. Sec. 3(1).

The proposal by Senator Metcalf in the 94th Congress, S. 713, defined investment broadly as the "amount equal to the estimated monetary value of unrestricted access to

conference members and (d) ratification by key nations may occur over a time span ranging from 2-10 years. Government liability and payouts will also depend on the legal strategy pursued by loss claimants.

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hard mineral resources estimated to be contained within the

block or blocks of the deep seabed covered by a license

issued pursuant to this act." Sec. 3(j). Compare H.R. 3350, sec. 3(11).

The definition of "investment" is a fundamental building 19/

block of any deep sea legislation. It determines the potential extent of liability and it sets the standards by which extent of liability under the investment (or guaranty or insurance) fund will be defined. Measured within this context, the definitions in all legislative proposals to date would create substantial difficulties for any agency administering pay-outs from the protection fund, irrespective of whether the protective mechanism consists of insurance, guaranty, or hybrid multilateral financing.

By way of example, the following types of investment interests might be contemplated under the present structure of the industry:

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(1) Research and development costs: these would include various processes, techniques, software material, studies, surveys, and equipment especially constructed for such purposes (including ships). An ancillary difficulty would emanate from any further participation by the federal government in developing materials or equipment for research and development which might be used by industry. Present legislation would not determine whether industry would account for materials, ideas, or other valuable property which may have been acquired through federally funded activities. 20/

For a detailed analysis of the complexity of ocean mining. investment breakdown, see Nyhart, Antrim and Capstaff, "A Cost Model of Deep Ocean Mining and Associated Regulatory Issues," Report to the Office of Marine Minerals, NOAA (Feb. 7, 1977 ed.).

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This creates further problems in accounting for any

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(2) Hardware and Equipment:

A vast array of equipment

will have to be purchased or developed by companies which wish to participate in ocean mining. Such equipment and investments would include the construction of a specialized mining ship; hydraulic lifts; a bottom mining unit or dredgehead; pipe and other connecting materials; maintenance equipment; monitoring equipment; transportaion equipment, including barges, tugs, and special equipment for use in transporting the nodules from landing point to processing plant; equipment for the processing plant storage facilities, and installed processing equipment.

In some cases, this equipment will have been specially designed for ocean mining, and will therefore constitute exclusive investment in the field. In other cases some of the equipment will be transferable from other operations of the companies, if the companies are presently involved in mining or ocean work, or may not be, if the companies are entities specializing in other types of industrial activity. The record of hearings on this subject to date has not included a presentation of data from industry which would enable Congress to begin to estimate the range and types of liability which it is presently asked to legislate.

(3) Financing costs: It is not clear whether debt service will be covered, and it has not been determined how interest will be allocated to a particular investment. Because of the number of different consortia and the different corporations participating in each consortium, it will be important to assess the direct interest costs related to a particular investment. This matter should be resolved in legislation because the interest costs will be substantial.

(4) Other tangible or intangible compensable interests: Depending on the exploration capacity of the individual industry participants, ownership of a tract, block or parcel under the ocean will have value for which a legal claim might be asserted. 21/ Similarly, the proprietary data gathered by individual companies will have significant value, as will existing or potential supply contracts, or minerals which have been extracted and processed.

technology transfer costs arising from the actions of the Enterprise proposed under the RSNT and more recent texts.

21/

See footnote 11.