Saturday, September 1, 2007

LOST Creates International Taxes

LOST defines the portion of the ocean floor and its subsoil that lies beyond the jurisdiction or sovereignty of any one country as “the Area.” The resources of the Area are defined by the Treaty as the “common heritage of mankind.” Activities in the Area are to be carried out for the benefit of mankind as a whole, with special consideration for the needs of developing nations.

To help manage such activities and ensure their compliance with this goal, LOST establishes an international organization known as the International Seabed Authority (ISA). The ISA regulates seabed economic activities in the Area and is charged with providing for the “equitable sharing” of economic benefits derived from it.

The revenue for this “equitable sharing” – as well as for ISA funding in general – is derived from country payments to the ISA. Contractor countries wishing to exploit Area resources must apply for permission to do so, pay the associated fees, then make arrangements with the ISA for profit-sharing or royalties. These arrangements are in addition to country payments to the ISA in the form of an “annual fixed fee” payable from the day production starts, the amount of which is to be established by the ISA.

In addition to funds obtained through payments to ISA relating to activity in the Area, the ISA also obtains payments under LOST from countries seeking to exploit resources on the portions of their own continental shelves extending beyond 200 miles from the coastline.

The Proponents’ Claims:

The various fees, revenue-sharing arrangements and payments do not constitute “international taxes.” The ISA does not have the authority to impose such taxes.

The Facts:

  • Were the United States to ratify the Law of the Sea Treaty, its citizens would be taxed without representation. Unlike the familiar levies imposed by the Internal Revenue Service, however, those generated by LOST’s International Seabed Authority will not involve direct taxation of Americans. Instead, we will be taxed indirectly by removing profits from the American business revenue stream for a governmental purpose – namely, to pay its own expenses – and for distribution to developing countries. In some cases, taxpayers may also pick up the tab in the event the U.S. Treasury is assessed fees owed by its corporations and unable to obtain reimbursement from the companies in question.

  • Proponents of LOST try to minimize the significance of the Treaty’s tax implications by contending that the amounts in question are small. For example, the United States is one of a number of countries that could exploit oil and gas deposits on its continental shelf but more than 200 miles off-shore. Under LOST, such countries would not have to pay the ISA anything for the first five years of production at any given site. In the 6th year they would pay 1% of production, and an additional 1% per annum thereafter, until this tax is capped at 7% in the 12th year of production.

    The effort to trivialize such payments misses the point. The principle of no taxation of the American people without representation would be breached by such an arrangement. The rate at which such taxes are levied could easily be increased once the United States is a party to the Treaty. That is particularly true given the tyranny of the majority likely to operate among LOST members who are would-be beneficiaries of any tax-fed redistribution of wealth.

  • LOST’s champions also note that, with respect to mineral activities in the deep seabed beyond U.S. jurisdiction, an interested company would pay an application fee for the administrative expenses of processing the application. Sums in excess of the cost of processing the application would supposedly be returned to the applicant. They also point to the fact that the Treaty does not specify any royalty requirements for production, suggesting that the U.S. would need to agree to establish any.

    The fact remains that LOST requires that a “system of payments” from the contractor country to the ISA be created with respect to the Area, and states that consideration should be given to the adoption of a royalty system or profit-sharing system. No matter what the details of the chosen payment system are, this still amounts to a requirement that would oblige U.S. companies to pay an international body for the right to exploit resources in the Area – a right that the United States currently enjoys without the requirement of such payment.

  • Finally, defenders of LOST insist that no royalties would go to the UN. Rather, they would be distributed to countries in accordance with a formula to which the United States would have to agree.

    Here again, the point is not who would benefit from the international taxes imposed by LOST. To the extent that the revenues flow into supranational bureaucracies that have a tendency to translate their unaccountability into corrupt practices (e.g., the Oil for Food program), that would be undesirable. To the extent they flow to underdeveloped nations that all-too-often suffer under kleptocracies, that too would be undesirable. Either way, Americans whose resources are diverted to one or both of these beneficiaries will be dunned without their assent.

  • Here again, the precedent created by LOST is as troubling as its provisions’ direct implications. The United Nations and its admirers have been campaigning for years to establish various schemes for imposing international taxes. The effect of actually doing so would be to make the organization less dependent upon the largesse of its member nations – the United States preeminent among them. That, in turn, assures that UN agencies will become still less transparent, accountable and responsible to the publics around the world whom they are nominally supposed to serve.Should the United States become a LOST state party, it will be assenting for the first time to the institutionalization of a mechanism that will allow such agencies to impose international taxes. It will also be advancing markedly the stated ambition of some of the Treaty's framers, best described by the World Federalist Association (a.k.a. Citizens for Global Solutions): "By means of these voluntarily funded functional agencies, national sovereignty would be gradually eroded until it is no longer an issue...Eventually, a world federation can be formally adopted with little resistance."

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