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The points to be made from these projections are as follows:
1. The prospects (are small) that such large amounts of capital for investment in mining in developing countries could be raised without more incentives and protection against uninsurable risk. For private companies, as you know, the flow of foreign direct investment to the mining industries of the developing countries has been declining because of increased barriers that have been imposed. In spite of the ambitious intentions of the World Bank, the vast bulk of the financial capital, and technical and managerial services must come from private sources. Institutions and mechanisms exist that could provide such incentives and protection for investment in land-based projects. They presently do not exist for mining projects under international water. Without adequate guarantees or insurance for deep seabed mining projects, the shortfall between supply and demand will be high. This will result in higher prices, thus contributing to inflation, and a more serious balance of payments problems. The further result will be declines in the level of economic growth that otherwise might be realized by developed, as well as most developing countries.
2. Investments that might be made in deep seabed mining projects by 1985, say 6-10 projects totaling up to $4-$5 billion would represent only about 130 of total investment requirements. There is ample room for new and expanded mine develop ment in Developing Countries if the capital is available and committed.
3. Without investment in deep seabed nodules projects_there will have to be higher levels of investment in mineral projects in LDC's. The political fragility of source countries or their disposition to pursue policies of resource diplomacy was referred to in my earlier testimony.? The growing share of developing countries' in mineral output and in known reserves of minerals found in deep seabed nodules is illustrated by the following table:
These considerations concerning large capital requirements for mining projects, increased cost incurred as projects progress, attitude of banks towards loans to high risk minerals projects, nature and extent of government programs to provide insurance and guarantees to other minerals projects outside of U.S. territory, the problems of taxation, and the many costs and delays associated with carrying out the provisions of the proposed bill, lead me to the following overall conclusions.
1. The proposed "compensation” provisions which really provide for political risk insurance paid by premiums, are too low to attract investments. The drafters ignored the eroding value of money over time. In 1985 dollars, a 1977 estimated cost of $350 million might balloon to a much higher amount. Insurance of this amount say if paid in the 1980's would cover less than 30 percent of the capital invested (equity and loans). The provisions are much less generous than programs to protect U.S. investors in foreign countries against political risks. The ceiling should be removed.
2. The rather unfortunate tax interpretations offered by the Treasury Department need to be reexamined to provide true equivalance of tax burden between a domestic mining project and a deep seabed minerals project. There is no apparent need to revise the tax laws if proper provisions such as Section 107 of H.R. 3350 were included in S. 2053.
Before the House Committee on Merchant Marine and Fisheries, February 28, 1974.
Unless these and other changes are made in the bill in its present form, I am concerned that the U.S. will not have a viable deep seabed mining industry and will become more dependent upon and more vulnerable to uncertain foreign sources, with adverse impacts on the U.S. economy.
ADDENDUM COMPARISON OF S. 2053 AND S. 2085 INTERNATIONAL AND OTHER OBJECTIVES I was requested by Senator Metcalf to comment on differences in language concerning international objectives between S. 2053 and S. 2085. In general $. 2085 reflects a more optimistic view concerning the eventual prospects of a Law of the Sea Treaty and a less significant appreciation concerning the importance of the minerals in deep seabed nodules to national needs. One also notes a disinclination in S. 2085 to focus on the relationship of such minerals to U.S. security and perhaps a lesser concern about the impact of acquiring such minerals from foreign sources on the U.S. balance of payments.
For example, the world "national needs” are used in Sec. 2(a)l) of S. 2085 in reference to United States requirements for hard minerals. In the comparable statement of objective in S. 2053, the statement of requirements is more focused and more explicit. The words "national industrial and security needs” are used. Since some "national needs" are less important than the security of the United States as an independent nation state and the industrial base required to maintain that security, the significance of the proposed legislation seems to be less important as stated in S. 2085 as compared with S. 2053. In the same statement of objectives in S. 2053 it is correctly stated that the demand for such minerals will increasingly exceed the available domestic sources of supply.” In S. 2085 these words are dropped and the words "will eventually exceed” are substituted. This greatly weakens the time urgency of legislation. The facts are well known that the United States presently is almost totally dependent on foreign sources for cobalt and manganese.
The statement in S. 2085 on the relationship of dependence on foreign sources to the national balance of payments is correct. (Sec. 2(a)(2)): “* * the acquisition of such minerals from foreign sources is a significant adverse factor in the national balance-of-payments position." It runs into billions of dollars a year. S. 2085 merely states that acquisition from foreign sources is a significant factor: the word “adverse” is dropped. This latter statement is unclear and even misleading.
The statement in S. 2053 that the “present and future national security and economic interests of the United States require the availability of hard mineral resources which are independent of the export policies of foreign nations” is accurate (Sec. 2(a)(3)). The comparable provision in S. 2085 is not, since no time reference is provided. The words "present and future national security and economic interests” in S. 2053 are dropped in S. 2085 and the words "national interest” are substituted for them. Taken together with Sec. 2(a)(1) the impression is left that "eventually” (“happening at some indefinite future time”) it will be in the national interest for the United States to be independent of the export policies of foreign nations. The time has already arrived for this situation to be faced and dependency reduced by appropriate legislation.
S. 2085, in Sec. (2)a)(4) leaves the impression that there is doubt that the alternate source of supply of nickel, copper, cobalt and manganese in the nodules is significant in relation to national needs. The qualifying word "maybe” leads to this doubt. This is unwarranted on the basis of known findings. The unqualified statement in S. 2053 on this topic is more accurate. Also S. 2053 appropriately states that the nodules are “found in great abundance on the deep seabed.” This is very different than the situation characterized in S. 2085 that the nodules only are "existing” in great abundance on the deep seabed. The impression is incorrectly left in the case of S. 2085 that much more prospecting, exploration and development is needed to find an exploit the minerals than in regard to the wording in S. 2053. S. 2053 correctly states the situation.
Also S. 2085 fails to note the difficulties in reaching an agreement on a legal order for deep seabed mining at the Law of the Sea Conferences. In Sec. 2(a)(7) S. 2085 does not take account of the fact that at some point it may be necessary in the national interest of the United States to seek other solutions to the problem of establishing an agreed legal regime for deep seabed mining, outside of the frame work of a comprehensive Law of the Sea Treaty. This should be the case unless there are major concessions by Group of 77 countries that allow assured access by private companies.
Furthermore, S. 2085 tends to convey the view that acceptance of the principle that the mineral resources of the deep seabed are the common heritage of mankind can stand independent of requirements that the principle be legally defined under the terms of a comprehensive, international Law of the Sea Treaty. Without such definition, the principle lacks operative meaning. S. 2053 properly treats this matter in Sec. 2(aX9).
If the wording of S. 2053 are restored on this point, then the reference to the fact that it is in the international interest, not just the national interest that the United States maintain a strong and innovative deep seabed mining industry is appropriately added (Sec. 2(a)10)).
In reference to S. 2085, Sec. 2(a)(14), it is considered inappropriate to prejudice the outcome of international agreements on deep seabed mining by stating that “deep seabed mining remains a freedom of the high seas' "until such time as an internationally agreed regime is adopted for the United States as part of an international agreement.” It is not inconceivable that the principle will not be fully abrogated by future international agreement(s) concerning deep seabed mining.
S. 2085, nevertheless, is commendable to the degree it conforms in operative terms to the provisions of H.R. 3350.
Senator MATSUNAGA. We have a live quorum going on right now. Maybe they can make a live quorum without us, and we will proceed.
Dr. Logue is our next witness. STATEMENT OF DR. JOHN J. LOGUE, DIRECTOR, WORLD
ORDER RESEARCH INSTITUTE, VILLANOVA UNIVERSITY, VILLANOVA, PA.
Dr. LOGUE. I am Dr. John J. Logue, director of the World Order Research Institute, Villanova University. As background, I would say I have attended all six sessions of the Law of the Sea Conferences. It may be of some interest, I have lectured in some 14 countries on law of the sea. I have also organized a number of conferences for U.N. diplomats and others interested in the law of the sea and have organized two sails seminars on the Canadian square-rigger Barba Negra for those same diplomats and others interested in the law of the sea. The purpose of it was, if you will, to bring some of the spirit of the tall ships into the Law of the Sea Conference.
In my testimony, I will stress the potential effect of bills which you are considering on the ongoing U.N. Conference on the Law of the Sea.
As I will indicate, I believe that that Conference presented, and still presents, a marvelous, a unique opportunity to build social and economic justice, to build peace and to save the gravely threatened marine ecological system. It is my view that, properly approached, these salt water talks could do more to control strategic weapons, and to build peace, than the much publicized SALT talks. In the course of my testimony, I will present a very unconventional theory as to why the giant Law of the Sea Conference is in such great trouble and I will make a very unconventional proposal as to how it can get back on its proper course.
As you will see, I believe, it would be very unwise to pass either of these bills. But sidetracking these bills will not, of itself, get the Conference back on its course. If my view, bold and positive action is required if the Conference is not to go under. If it does go under, it would be a tragedy. And if you wish to state as succinctly as Í can what is required, I would say that what is required is that we restore to the central place in the Conference the concept which inspired the calling of the Conference: the concept of the oceans as the common heritage of mankind.
We are approaching, November 1, the 10th anniversary of Ambassador Pardo's famous speech in the United Nations on the ocean crisis. In that speech, he urged us to adopt the common heritage principle as our guide in developing an ocean strategy. It is a good time for us to take stock of how far the Conference has wandered from, and lost sight of, that goal. In my view, the Senate of the United States could do a great work by opening up this question of ocean policy to the broadest public discussion.
Perhaps a few words about my background will indicate why I think public discussion and ocean consciousness raising are essential if we are to get an adequate ocean policy.
It may also be of interest to you that our Institute has sponsored four large conferences on the law of the sea, involving diplomats from some 40 countries, as well as scholars, environmentalists, students, and nongovernmental organization representatives. We have also sponsored two sail seminars on the Canadian squarerigger Barba Negra one from New London, Conn., to the United Nations; the other from the United Nations to Manasquan, N.J. On those sails, we had the same mix of diplomats and other concerned persons.
The sail-seminars, which were very successful, were an attempt to bring the spirit of the tall ships into the Conference. I am appending to my testimony a 1,200-word statement, known as "The Barba Negra Appeal” which was adopted by the diplomats and other persons on the August 22, 1976, Manasquan to United Nations sail.
You will note that the appeal was subsequently endorsed by many distinguished persons, including: ocean explorer Thor Heyerdahl; Charles Yost, former U.S. Ambassador to the United Nations; Rev. Theodore Hesburgh, president of the University of Notre Dame; Arvid Pardo, former Ambassador of Malta to the United Nations; Congressman Donald Fraser; Lord Wilberforce of the United Kingdom; Russell Peterson, former Governor of Delaware and former chairman of the Council on Environmental Quality; and many others.
The appeal asks the law of the sea delegates to take as broad a view as possible of the great work in which they are engaged and to see that the new law of the sea promotes peace and justice as well as protection of the marine environment. It also proposes an interesting revenue-sharing formula which would, we estimate, make at least $3 billion a year in seabed mineral revenues available to promote peace and justice and to protect the marine environment and much more in years to come.
The $3 billion is about 10 times the paltry sum expected under the Informal Composite Negotiating Text--ICNT.
Let me begin by saying that I had hoped that the new administration would take a much broader, much deeper and much bolder approach to the Conference than had the two previous administrations. My hope sprang in part from my knowledge that all the top foreign policymakers in the Carter administration had been members of the Trilateral Commission, a body which, in early 1976, issued a report, "A New Regime for the Ocean," which proposed a bold approach to the law of the sea.
Among the distinguished gentlemen who were members of that Commission last year were Messrs. Carter, Mondale, Vance, Brown, Brzezinski, and, last but not least, Ambassador Elliot Richardson, the very capable head of our law of the sea delegation.
Their report suggested—a very bold suggestion—that as much as one-half the revenues from seabed mineral exploitation within the economic zones of wealthy states should be dedicated to assisting developing nations.
Because of my hopes, I wrote a long memorandum to Mr. Carter late last year giving my views on the opportunity presented by the Law of the Sea Conference. It was entitled, "A Memo to PresidentElect Carter: A Bold and Statesmanlike Law of the Sea Policy Should be Centerpiece in President Carter's Long-Range Foreign Policy." I am appending a copy of that memo to my testimony. I am also appending a list of the U.S. members of the Trilateral Commission at the time their law of the sea report was issued, together with the key quotation from the report having to do with international sharing.
Mr. Chairman, I believe that we have an excellent delegation to the Law of the Sea Conference and an excellent head of it in the person of Ambassador Richardson. They have worked long and hard to move the Conference toward an acceptable treaty. However, I am sorry to say that we have had no bold, new approach to the law of the sea. And I am afraid that that is one more reason why the Conference is in great jeopardy.
Now, let me get to the legislation at hand. In 1973, I said I thought the bill then before the committee, S. 1134, was bad legislation. Today, more than 4 years later, I have the same basic attitude toward the two bills on which I have been asked to comment, S. 2053, which I think is appropriate to call the Metcalf bill, and S. 2085, Which I would call the Weicker bill.
Needless to say, I am certain that both bills reflect impatience, and deserved impatience, with respect to the slow progress of the giant U.N. Conference on the Law of the Sea. Nevertheless, I think they are the wrong medicine for the disease with which the Conference is afflicted. The excerpt from my Nairobi lecture suggests what I think that disease is. I would suggest that the disease is ocean nationalism or grabitis. Or, to put it more simply nearsightedness.
What is wrong with the Conference?
We are all familiar with the conventional explanation of why the Conference is in trouble. The conventional explanation focuses on the treaty articles with respect to the International Seabed Authority in the treaty text now before the Conference, The Informal Composite Negotiating Text, or ICNT.
These articles are judged to be too radical for acceptance by the United States and other developed nations. I tend to agree with that judgment. The next question is: How did such radical articles get into the treaty text? The conventional explanation, and it is a very plausible one, is that the treaty articles on the authority, for which Minister Paul Engo of Cameroon-a friend of mine-was responsible, arbitrarily changed the wording of key articles in a composite draft, the so-called Evensen text on which there appeared to be substantial agreement within the Conference. This