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Economic Foundations of the Law Of the Sea

Published online by Cambridge University Press:  16 May 2017

Eric A. Posner  and
Alan O. Sykes
Eric A. Posner
Affiliation:
University of Chicago
Alan O. Sykes
Affiliation:
Stanford University.
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Extract

The United Nations Convention on the Law of the Sea demonstrates plausible economic logic by assigning jurisdiction over portions of the ocean to the states that value them the most and can regulate them most cheaply, while respecting other states΄ interests in navigation and additional uses of the seas. For the vast oceanic areas that no state can regulate, the Convention provides for an open access regime subject to simple rules, mostly self-enforcing, to limit conflict over resources.

Type
Research Article
Information
American Journal of International Law , Volume 104 , Issue 4 , October 2010 , pp. 569 - 596
Copyright
Copyright © American Society of International Law 2010

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References

1 United Nations Convention on the Law of the Sea, opened for signature Dec. 10, 1982 Google Scholar, 1833 UNTS 397 [hereinafter UNCLOS], available at http://www.un.org/Depts/los/. For a short, lucid history, see Anderson, David, Modern Law of the Sea 1-22 (2008)Google Scholar.

2 The most thorough economic treatment of issues within the scope of UNCLOS that we have encountered was written by Ross Eckert before UNCLOS was finalized. Eckert, Ross D., The Enclosure of Ocean Resources (1979)Google Scholar. Of course, the general economic problem that justifies some kind of international regulation of the oceans—namely, the tragedy of the commons— has been widely recognized. See, e.g, Hardin, Garrett, The Tragedy of the Commons, 162 Science 1243 (1968)Google Scholar; Friedheim, Robert L., A Proper Order for the Oceans: An Agenda for the New Century, in Order for the Oceans at the Turn of the Century 537, 539 Google Scholar ( Davor, Vidas & 569 Willy, Østreng eds., 1999) [hereinafter Order for the Oceans Google Scholar]; Richard, James Sweeney, Tollison, Robert D., & Willett, Thomas D., Market Failure, the Common-Pool Problem, and Ocean Resource Exploitation, 17 J. L. & Econ. 179 (1974)Google Scholar. Our analysis also relates closely to theories regarding the emergence of property rights. See Demsetz, Harold, Some Aspects of Property Rights, 9J. L. & Econ. 61 (1966)Google Scholar. Eyal Benvenisd briefly touches on some issues of the efficiency of the law of the sea in the course of an article focused on international courts. Eyal, Benvenisti, Customary International Law as a Judicial Tool for Promoting Efficiency, in Then Impact of in International Law on International Cooperation 85 (Eyal, Benvenisti & Moshe, Hirsch eds., 2004 Google Scholar).

3 See, e.g., Sykes, Alan O., International Law, in 1 Handbook of Law and Economics 757 (Polinsky, Mitchell A. & Shavell, Steven eds., 2007 CrossRefGoogle Scholar).

4 Staiger, Robert W. & Sykes, Alan O., International Trade and Domestic Regulation (Stanford Law & Econ. Olin Working Paper No. 387, 2009 CrossRefGoogle Scholar), available at http://ssrn.com/abstract=1504913.

5 See Hardin, supra note 2.

6 See generally Eckert, supra note 2; Thrainn, Eggertsson, Economic Behavior and Institutions (1990)Google Scholar; Dean, Lueck & Thomas, Miceli, Property Law, in Handbook Of Law and Economics, supra note 3, at 183 Google Scholar.

7 This assumes, of course, a regime in which title vests upon capture. That is the case under the traditional high seas regime with respect to virtually all living resources. Insofar as private property rights to wild swimming stocks are concerned, it is also often the case in waters subject to the sovereignty or jurisdiction of a state.

8 More formally, let y and h denote the catch and hours devoted to fishing of a small company, let Y and H denote the aggregate catch and fishing hours for the entire industry, and let p denote the price of a unit of fish. Fishing labor is elastically supplied at the wage of w per hour. Each small company perceives the profit function per season of π = py – wh, where y is equal to the average productivity of fishing for the industry as a whole (Y/H) times hours of fishing, and this average productivity is taken to be fixed by each company. Equilibrium requires zero profits, which in turn implies that p = w(H/Y). This equation states that in equilibrium, price will equal the average cost of fish, in contrast to the condition for maximizing the value of the fishery, which requires price equal to marginal cost. Because average cost lies below marginal cost, the equilibrium involves excessive fishing. Moreover, with price equal to average cost, the aggregate profit from the fishery is zero. The classic exposition of this result is FI. Gordon, Scott, The Economic Theory of a Common-Property Resource: The Fishery, 62 J. Pol. Econ. 124 (1954)Google Scholar.

9 Gordon, supra note 8, develops the point in a static model. Much the same points can be made in a dynamic setting, where current fishing activity affects both the costs of other fishing in the current period and the rate of reproduction in the fishery, which determines costs in future periods. See Sykes, supra note 3, at 761–68. A more elaborate treatment of the dynamic case may be found in the appendix to Cooper, Richard N., An Economist’s View of the Oceans, 9 J. World Trade L. 357, 372 (1975)Google Scholar.

10 Undersea hydrocarbon deposits, however, are often more localized than fish populations, and so the allocation of regulatory authority to a single government often has a better chance of solving the problem with oil and gas than it does with fisheries, as we note below. Nevertheless, even then deposits of hydrocarbons pose common pool problems that are addressed both by private law and public law, municipal and international.

11 See Eggertsson, supra note 6, at 84–91; Lueck & Miceli supra note 6.

12 The allocation of jurisdiction over the resource to a single state, of course, does not solve this problem unless the state thereafter takes measures to limit search by private actors.

13 See, e.g., Elinor, Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (1990)Google Scholar. Ostrom’s work is in part a response to more pessimistic analyses such as Hardin, supra note 2.

14 Domestic pollution, by contrast, may have international consequences if it later becomes pollution of the oceans. Sovereignty over internal bodies of water is, to this degree, not unlimited, as we note below. See also UNCLOS, supra note 1, Arts. 193, 194(2).

15 This observation may help to explain some aspects of UNCLOS that are sometimes viewed as inequitable, such as the fact that landlocked states do not receive any exclusive allocation of ocean resources. See Oxman, Bernard H., The Territorial Temptation: A Siren Songat Sea, 100 AJIL 830, 834 & n.22 (2006)Google Scholar.

16 This problem is particularly likely in the case of fisheries, discussed further below.

17 Some such rules are found outside of UNCLOS. Rules regarding such matters as maritime safety and prevention of pollution are contained in conventions developed under the auspices of the International Maritime Organization. UNCLOS encourages the development of such rules and promotes their universal application. See UNCLOS, supra note 1, Arts. 39(2) & (3), 94, 210, 211(1) & (2), 217.

18 The limits on open access include those concerning seabed minerals, discussed in detail below, requirements concerning pollution by ocean-going vessels such as those in UNCLOS Articles 211 (2) and 217(1), and various limits established in accordance with the UNCLOS framework but in complementary agreements, such as the obligation to cooperate in the conservation of highly migratory species, also discussed below.

19 On self-enforcing aspects of international law, see, for example, Goldsmith, Jack L. & Posner, Eric A., the Limits of International Law (2005)Google Scholar.

20 The first type of situation, illustrated by the shipboard homicide, may also raise difficult conflict-of-law issues relating to the substantive elements of the crime or the attendant penalty.

21 See Agora: Piracy Prosecutions, 104 AJIL397 (2010).

22 UNCLOS, supra note 1, Art. 86. Most of the high seas provisions, other than those concerning living resources, also apply within the EEZ pursuant to Article 58(2).

23 Of Part VII.

24 UNCLOS, supra note 1, Art. 87(1). Paragraph 2 of that article provides that these freedoms shall be exercised “with due regard for the interests of other States in their exercise of the freedom of the high seas.”

25 Id., Art. 94(3).

26 On international law as a self-enforcing solution to coordination games, see Goldsmith & Posner, supra note 19, at 26–35.

27 UNCLOS, supra note 1, Art. 97.

28 Id., Arts. 99, 105, 107, 108, 109, 110. Other illegal activities are addressed in other international agreements.

29 For example, the UN Security Council has found it necessary to authorize all states to take enforcement action against pirates in Somalia’s territorial sea. SC Res. 1816 (June 2, 2008); see Ashley Roach, J., Countering Piracy off Somalia: International Law and International Institutions, 104 AJIL 397, 400 – 02 (2010)CrossRefGoogle Scholar (on Resolution 1816 and subsequent Security Council resolutions regarding piracy off Somalia).

30 The piracy provisions of UNCLOS are essentially the same as those in the Geneva Convention on the High Seas, Arts. 14-22, Apr. 29, 1958, 13 UST 2312, 450 UNTS 82.

31 See supra note 21 and corresponding text.

32 UNCLOS, supra note 1, Arts. 2, 3.

33 Id, Arts. 17–19.

34 These resource justifications are, to be sure, no longer specific to the territorial sea, as coastal states now have control over resources extending well beyond the territorial sea through the EEZ and the continental shelf. See id.., pts. V, VI.

35 Churchill, R. R. & A. v. Lowe, The Law of the Sea 56-67 (3d ed. 1999)Google Scholar.

36 See UNCLOS, supra note 1, Arts. 8(1), 35(c), 49, 52-54.

37 See id., Art. 10(2) (defining a “bay” as “a well-marked indentation whose penetration is in such proportion to the width of its mouth as to contain land-locked waters and constitute more than a mere curvature of the coast”).

38 For a discussion of the problem of opportunistic baseline drawing and possible solutions, see Tullio, Scovazzi, The Establishment of Straight Baselines Systems: The Rules and the Practice, in Order for the Oceans, supra note 2, at 445 Google Scholar.

39 UNCLOS, supra note 1, Art. 38(2).

40 For a recent overview of the dispute, see Michael, Byers, Who Owns the Arctic?: Understanding Sovereignty Disputes in the North 59–87 (2009)Google Scholar.

41 UNCLOS, supra note 1, Art. 234.

42 Byers, supra note 40, at 42–44.

43 Id., Art. 33(1).

44 Id., An. 76(1).

45 UNCLOS, supra note 1, Art. 56(l)(a).

46 The scramble for claims was initiated by President Truman in 1945. Proclamation No. 2667, Policy of the United States with Respect to the Natural Resources of the Subsoil and Seabed of the Continental Shelf (Sept. 28, 1945), 10 Fed. Reg. 12,303 (1945).

47 Churchill & Lowe, supra note 35, at 426 (describing the history of the conflict).

48 See Benvenisti, supra note 2.

49 UNCLOS, supra note 1, Art. 76(8).

50 To be sure, development of the law, including through the International Court of Justice (ICJ) and arbitral tribunals, has helped resolve some of the ambiguity.

51 See Betsy, Baker, Law, Science and the Continental Shelf: The Russian Federation and the Promise of Arctic Cooperation , 25 Am. U. Int’l L. Rev. 251 (2010)Google Scholar.

52 See Maritime Delimitation in the Black Sea (Rom. v. Ukr.) (Int’l Ct. Justice Feb. 3, 2009), at http://www.icj- cij.org/.

53 North Sea Continental Shelf (FRG/Den.; FRG/Neth.), 1969 ICJ REP. 3, 44 (Feb. 20).

54 See Wolfgang, Friedmann, The North Sea Continental Shelf Cases–A Critique, 64 AJIL 229, 236–40 (1970)Google Scholar.

55 See Churchill & Lowe, supra note 35, at 433–45, for the limited exceptions.

56 For additional criticisms of the “proportionality” criterion, as it is sometimes called, see Evans, Malcolm D., Maritime Boundary Delimitation: Where Do We Go from Here? in The Law of the Sea: Progress and Prospects 137, 154-56 (David, Freestone, Richard, Barnes, & David, Ong eds., 2006)Google Scholar.

57 For a discussion, see Oxman, Bernard H., The 1994 Agreement Relating to the Implementation of Part XI of the UN Convention on the Law of the Sea , in Order for the Oceans, supra note 2, at 15 Google Scholar.

58 Agreement Relating to the Implementation of Part XI of the United Nations Convention on the Law of the Sea of 10 December 1982, July 28, 1994, 1836 UNTS 42 [hereinafter 1994 Agreement], available at http://www.un.org/Depts/los/.

59 We follow the discussion in Churchill & Lowe, supra note 35, at 248-53.

60 1994 Agreement, supra note 58, annex, §5, para. 1(b).

61 E.g., Doug, Bandow, Don’t Resurrect the Law of the Sea Treaty , Pol’y Analysis, Oct. 13, 2005, at 8, 9 Google Scholar, at http://www.cato.org/pubs/pas/pa552.pdf.

62 See Oxman, Bernard H., The 1994 Agreement and the Convention, 88 AJIL 687, 691 (1994)CrossRefGoogle Scholar; see also Oxman, supra note 57, at 22-27 (discussing the issue in more detail).

63 1994 Agreement, supra note 58, annex, §2, paras. 2, 5. However, there is a further question whether the Enterprise will ever come into existence, given the procedural requirements set forth in the 1994 Agreement.

64 Nandan, Satya N., Legislative and Executive Powers of the International Seabed Authority for the Implementation of the Law of the Sea Convention , in Order for the Oceans, supra note 2, at 73, 78–80 Google Scholar; Bandow, supra note 61, at 7 (citing UNCLOS Article 150(h) on protecting developing countries from adverse economic effects of deep- seabed-mining activities).

65 Bandow, supra note 61 ; Jeremy, Rabkin, The Law of the Sea Treaty: A Bad Deal for America, Issue Analysis, June 1, 2006 Google Scholar, at http://cei.org/pdf/5352.pdf

66 We should note, however, that some scholars are skeptical about whether even cash transfers from rich countries to poor countries actually help poor countries. If these transfers are mainly enjoyed by corrupt elites, then the case for redistribution is obviously weakened. See, e.g., Easterly, William, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much III and So Little Good (2006)CrossRefGoogle Scholar.

67 The rule is mitigated somewhat by a provision that gives the mining company a right to participate with the Enterprise in a joint venture.

68 This point is particularly true since the antimonopoly provisions limit only the number and distribution of sites sponsored by a given state, and do not apply to private companies and their subsidiaries and affiliates. Even if that were otherwise, we are of the view that there would be no discernible economic benefits from the antimonopoly provisions because the commodities extracted from the deep seabed are expected to be products for which there are other, territorial sources of supply and for which competitive markets exist.

69 See text at notes 6–12 supra. By contrast, overexploitation of fisheries in the high seas for now does not seem likely to be a problem.

70 See Churchill & Lowe, supra note 35, at 239-48.

71 See, e.g., Groves, Steven, Why Reagan Would Still Reject the Law of the Sea Treaty (Heritage Foundation Web-Memo No. 1676, Oct. 24, 2007)Google Scholar, at http://www.heritage.org/Researcb/InternationalOrganizations/wml676.cfm.

72 Cf. Kitch, Edmund W., The Nature and Function of the Patent System, 20 J. L. & Econ. 265 (1977)Google Scholar (describing the mineral-prospecting system in the American West and the analogy to patent law).

73 All major industrial and maritime states except the United States are party to the Convention and the 1994 Agreement. UNCLOS Article 137 prohibits recognition of claims or exercise of rights over deep-seabed-mining resources except in accordance with the Convention. In Article 311 (6), the parties to the Convention have also agreed that they will not be party to any agreement in derogation of the common heritage principle.

74 UNCLOS, supra note 1, Arts. 63(1), 64; see also Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 Relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks, Aug. 4, 1995, 2167 UNTS 3, available at http://www.un.org/Depts/los/ (including Article 8(4) of that Agreement conditioning the right to fish on participation in the regulatory system).

75 See note 74 supra.

76 See Kwiatkowska, Barbara, Case Report: Southern Bluefin Tuna, Provisional Measures, in 94 AJIL 150 (2000)Google Scholar; Oxman, Bernard H., Complementary Agreements and Compulsory Jurisdiction, 95 AJIL 277 (2001)Google Scholar.

77 See , Takver, Australia: Southern Bluefin Tuna Crashing Toward Extinction to Feed Sushi and Sashimi Market , Indymedia, Oct. 29, 2009 Google Scholar, at http://www.indybay.org/newsitems/2009/10/29/18627181.php.

78 On international authority and efforts to suppress piracy in Somalia’s territorial sea, see, for example, SC Res. 1816, supra note 29; Roach, supra note 29.

79 See Scott, James Brown, Introduction to Cornelius Van Bynkershoek , De Dominio Maris Dissertato)Google Scholar 17 (Ralph Van Deman Magoffin trans..Carnegie Classics 1923) (2ded. 1744) (claiming notion of 3-mile maritime belt of coastal state sovereignty, amounting to extreme range of cannon, originated with Bynkershoek). But see Walker, Wyndham L., Territorial Waters: The Cannon Shot Rule, 1945 Google Scholar Brit, Y.B. Int’l L. 210, 231 (“The historical identification of cannon range with the three mile limit does not carry complete conviction.”)Google Scholar.

80 Churchill & Lowe, supra note 35, at 143-45.

81 See Anderson, supra note 1, at 19.