Help Mineral Consumers: Deep-Six the Sea Law Treaty

Published October 3, 2007

The Wall Street Journal announced on August 22 that “U.S. Resistance to Sea Treaty Thaws.” That is bad news, not good news.

Resources under the Arctic Ocean and an ice-free Northwest Passage are listed as reasons for the United States to ratify the Law Of the Sea Treaty (LOST). But that does not square with my experience on the U.S. delegation. There has always been a dichotomy of U.S. interests. There were the economic interests that would flourish with an improvement in the definition and enforcement of property rights in the ocean areas of the globe beyond national jurisdiction. The other interests were the security and navigational freedoms that were deemed important during the Cold War with the Soviet Union.

The defense issues were always given priority over the economic consequences. Indeed, the nondefense interests were considered bargaining chips to be offered in exchange for maintaining navigational freedoms. We have now reached the point where almost no nondefense concessions remain to be offered.

The one remaining concession is U.S. participation in a worldwide minerals cartel. Normally, cartels are difficult to form and maintain. There is a strong incentive for one member of the cartel to draw off a larger share of the monopoly profits by shaving a little off the price. In the limit, if all the cartel members were to cheat, the prices and output would revert to competitive levels. What is needed is an enforcement mechanism. Under the coffee cartel that was effective during the Kennedy administration, the U.S. government enforced the production quotas by virtue of the United States being the principal consumer of coffee.

Guess what? The United States is one of the principle consumers of minerals–and as such, it could act to enforce the mineral production quotas. It could do this if the United States were to ratify LOST and then take a permanent seat on the International Authority. The U.S. defense establishment could then broker a deal in the Arctic by tilting the cartel production quotas in favor of Russia and Canada that are already large mineral producers. My experience on the U.S. delegation convinces me that this could happen. Indeed, the delegation was given a full briefing by the Commerce Department on the workings of the coffee cartel when I was a member.

The U.S. Senate ought to protect the nation’s consumers by rejecting LOST and its potential mineral cartel.

Jim Johnston ([email protected]) is an economist retired from the Amoco Corporation and a policy advisor to The Heartland Institute.