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Deep Seabed Mining Insights: The Role and Rights of Sponsoring States under the UNCLOS Regime26 September 2023

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"Parts of the ocean floor are covered with some of the world’s largest deposits of nickel, cobalt, manganese and copper."

This article forms part of WFW’s Deep Seabed Mining Insight Series, which draws on the firm’s unparalleled experience and expertise in deep seabed mining matters to provide insightful, timely and commercially relevant updates on deep seabed mining legal and regulatory issues. Upcoming topics include the obligations and rights of deep seabed mining contractors and deep seabed mining dispute settlement options. Previous topics include a preview of the recent July 2023 session of the International Seabed Authority, the rule-making process of the International Seabed Authority, and potential issues with calls to adopt a ‘precautionary pause’ on deep seabed mining.

Introduction

The deep seabed is a fertile ground of mineral resources. Parts of the ocean floor are covered with some of the world’s largest deposits of nickel, cobalt, manganese and copper. For example, the Clarion-Clipperton Zone, a stretch of seabed in the Pacific Ocean between Mexico and Hawaii, may harbour around 340 million tonnes of nickel alone. These metals are crucial components for the technologies powering the renewable energy transition – electric car batteries and storage systems for renewable power stations all use them. As worldwide demand grows, the deep seabed is emerging as a potentially critical source for these resources.

"Preserving the Area as the 'common heritage of mankind' to be used 'for the benefit of mankind as a whole.'"

The international regulatory framework governing access to these resources includes States sponsoring private contractors to conduct deep seabed mining activities (“Sponsoring States”). This article explains the role and rights of such Sponsoring States, with particular reference to developing States.

Background

The United Nations Convention on the Law of the Sea (the “Convention” or “UNCLOS”) and the Agreement relating to the Implementation of Part XI of the United Nations Convention on the Law of the Sea (the “1994 Agreement”) establish a legal and regulatory framework governing deep seabed mining in areas of the ocean beyond the limits of state jurisdiction (the “Area”).

Adopted in 1982, the Convention is widely considered one of the most successful multilateral treaties in history, governing everything from the limits of continental shelves to the right of free navigation in international waters. State Parties to UNCLOS spent years negotiating a regulatory framework for the deep seabed, preserving the Area as the “common heritage of mankind” to be used “for the benefit of mankind as a whole.” The framework developed aims at enabling equitable access to mineral resources and provides special rights and preferences for developing States to ensure they can participate and benefit from activities in the Area.

The role of Sponsoring States

Under the Convention, the exploration and exploitation of seabed minerals must be carried out under a contract with the International Seabed Authority (the “Authority”) and subject to its rules, regulations and procedures. To receive a contract, a private entity must be sponsored by an UNCLOS State Party.

The system of State sponsorship is an indispensable part of the UNCLOS regime. In 2011, the International Tribunal for the Law of the Sea (“ITLOS”) published an Advisory Opinion explaining that sponsorship “is a key element in the system for the exploration and exploitation of the resources of the Area set out in the Convention”. Sponsoring States help protect the Area as “the common heritage of mankind”, and the sponsorship system helps ensure that contractors undertake their activities according to the UNCLOS framework.

The rights of Sponsoring States

Sponsoring States enjoy a series of express and implied rights under UNCLOS and the 1994 Agreement. Their key rights include:

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"The system of State sponsorship is an indispensable part of the UNCLOS regime."

  • the right, via their membership in the Authority, to participate in the organisation and control of activities in the Area (UNCLOS, Article 157(2));
  • the right to benefit from policies relating to activities in the Area, including resource development and management, opportunities to participate in Area exploitation, revenue sharing and other items (UNCLOS, Article 150);
  • the right to sponsor natural or juridical persons to carry out activities in the Area (e.g. commercial deep seabed mining entities) and to exercise jurisdiction and control over those entities (UNCLOS, Article 153(2)(b));
  • the right to share equitably in financial and other economic benefits derived from activities in the Area (UNCLOS, Articles 140(2) and 160(2)(f)(i)); and
  • protection from liability in the event that sponsored entities cause damage by failing to comply with the Convention (as long as the Sponsoring State has taken all necessary and appropriate measures to secure effective compliance) (UNCLOS, Article 139(2)).

The status and rights of developing States

Developing States have a central place in the deep seabed mining framework. The Convention regime was designed to encourage and promote participation by developing States, ensuring them an opportunity to develop the Area’s resources and share in its benefits. Article 148 of the Convention explains that:

“The effective participation of developing States in activities in the Area shall be promoted as specifically provided for in this Part, having due regard to their special interests and needs, and in particular to the special need of the land-locked and geographically disadvantaged among them to overcome obstacles arising from their disadvantaged location, including remoteness from the Area and difficulty of access to and from it.”

The Convention and the 1994 Agreement contain specific provisions ensuring that developing States are able to participate in activities in the Area. For example, developing States benefit from special access to allotments in the Area itself:

"Developing States have a central place in the deep seabed mining framework."

  • contractors seeking exploration and exploitation rights in the Area must apply for rights to territory that is “sufficiently large and of sufficient estimated commercial value to allow two mining operations” (UNCLOS, Annex III, Article 8);
  • the Authority then splits the proposed site into two areas of equal estimated commercial value, designating one part for commercial use and reserving the other for activities conducted “in association with developing States” (UNCLOS, Annex III, Article 8); and
  • developing States and their natural and juridical persons can then apply to explore and exploit the reserved areas pursuant to a contract with the Authority, ensuring they have priority access to areas with existing geological data and economic potential (UNCLOS, Annex III, Article 9).

Sponsoring States who are also developing States enjoy additional protections and benefits above and beyond those laid out in the sponsorship system, including:

  • to have their interests and needs particularly considered when carrying out activities in the Area (UNCLOS, Article 140);
  • to benefit from marine scientific research programmes in the Area developed through the Authority or other international organizations (UNCLOS, Article 143(3)(b));
  • guarantees that activities in the Area will “especially” promote their development (UNCLOS, Article 150);
  • “special consideration” in the exercise of certain powers and functions by the Authority (UNCLOS, Article 152(2));
  • “particular consideration” in the development of rules, regulations and procedures on the equitable sharing of financial and other economic benefits derived from activities in the Area and related payments and contributions (UNCLOS, Article 160(2)(f)(i));
  • to benefit from training programmes contractors are mandated to provide to the Authority and developing States (UNCLOS, Annex III, Article 15); and
  • to maintain adequate representation on the Council and its organs (UNCLOS, Articles 161, 163, and 164 and Section 3 of Annex to the 1994 Agreement).

These treaty guarantees create rights that Sponsoring States enjoy and can enforce under international law.

"Sponsoring States, including developing States, have already invested significant resources in preparing for commercial activities in the Area."

RESPECTING THE RIGHTS OF SPONSORING AND DEVELOPING STATES IS CRITICAL

As we wrote in a previous article, the work of the Authority faced a critical juncture at its July 2023 meetings. Section 1, Paragraph 15 of the Annex to the 1994 Agreement facilitates a process whereby “a State whose national intends to apply for approval of a plan of work for exploitation” may request the Council (the Authority’s subsidiary organ) to complete the adoption of rules, regulations and procedures necessary to facilitate these approvals within two years of the request (the so-called “two-year rule”).

The Republic of Nauru (“Nauru”), a small island developing State, triggered the two-year rule in 2021 by notifying the Council of its intent to sponsor an application for approval of a plan of work for exploitation. As a result, the Council was legally required to elaborate and provisionally adopt the exploitation regulations by no later than 9 July 2023. After that deadline expired, the 1994 Agreement expressly permits applicant contractors to submit plans of work for exploitation, which the Authority is obliged to consider and provisionally approve.

The deadline passed without the Council’s elaboration and provisional adoption of the exploitation regulations. The Council’s failure to elaborate and provisionally adopt the exploitation regulations by the prescribed deadline arguably amounts to a direct breach of the Convention and the 1994 Agreement, contravening the express and implied rights of Sponsoring and Developing States.

Further delays by member States of the Authority may significantly undermine and erode the value of proposed activities in the Area, creating further breaches. Sponsoring States, including developing States, have already invested significant resources in preparing for commercial activities in the Area. Some Sponsoring States, including Nauru, have passed national legislation regulating seabed mining and restructured government administration to properly oversee and regulate the mining entities under their effective control.

On 21 July 2023 the Council adopted a decision (the “21 July Decision”) recognising “the expiration of the two-year deadline on 9 July 2023”. The decision creates a roadmap for the elaboration and adoption of RRPs for exploitation, with further Council meetings planned for November 2023, March 2024, and July 2024 and provisional adoption targeted by the end of the thirtieth session. The Council’s 21 July Decision is a welcome step towards eventual elaboration and provisional adoption of the exploitation regulations. However, the member States of the Authority are currently in breach of their obligations under the relevant treaties and international law resulting in a clear loss of opportunity for Sponsoring States, including and most relevantly, Nauru.

The Authority and its member States need to carefully consider how they will fulfil their legal obligations moving forward, in particular vis-à-vis the rights of Sponsoring States. As we will explore in later Insights, these rights are enforceable by both Sponsoring States and Contractors via UNCLOS’s regime of mandatory and binding dispute settlement procedures.

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