Mannheimer Swartling Advokatbyra AB
Extracted by the author from an article first published in 2010 in the 60th Commemorative Book, Court of Arbitration, Polish Chamber of Commerce. Full text and references are available from the author.
The cost of oil, the lack of political will, and the generally lucrative nature of natural resources have resulted in a number of territorial disputes over the years. One sovereignty and jurisdictional dispute involves six nations over the Spratly Islands. The Spratly Islands dispute is aggravated by other boundary disputes among the claimants and the possibility of oil and gas deposits near the islands.
Another example is the territorial dispute between China, Japan, and Taiwan over the Diaoyu/Senkaku Islands in the East China Sea, which recently led to a serious diplomatic and political row between China and Japan. Another dispute exists between China, Taiwan, and Vietnam over the Paracel Islands.
Throughout modern history, territorial claims in the Arctic region have been relatively limited due to inaccessibility from layers of thick ice, harsh weather, and logistical constraints. Global warming may be disputed in some quarters, but there is no doubt that the recent Arctic melt has "given birth to a new scramble for territory and resources among the five Arctic powers," which include Russia, the US, Norway, Canada, and Denmark.
The Arctic region is now more accessible due to the Arctic melt. As a result, Arctic nations seem to be rushing to claim undeveloped and, in some cases, unseen territory and natural resources possibly worth hundreds of billions of dollars. As the Arctic powers rush to stake their potentially lucrative claims, disputes will arise. Moreover, a large number of new disputes are likely to arise because ownership of a large part of the Arctic is unsettled.
An efficient and effective legal regime to resolve Arctic disputes will therefore become necessary.
Unlocking Arctic resources
Although not much is known about what is under the surface of the Arctic Ocean, early returns indicate that the Arctic could hold the last remaining undiscovered hydrocarbon resources on earth.
The shrinking ice cap has rendered exploration of the oil and natural gas deposits lying beneath more practicable. Arctic nations are rushing to claim these oil and gas resources because structures under the Arctic Ocean are estimated to hold 25% of the world's current oil and natural gas resources.
In support of these estimates, the US Geological Survey and the Norwegian company StatoilHydro estimate that the Arctic holds as much as one quarter of the world's remaining undiscovered oil and gas deposits. The Arctic nations are hoping to get a stake in the area now so that if Arctic melt continues retrieval of the natural resources beneath may immediately commence.
Previously, France's Total, Norway's StatoilHydro, and Russia's Gazprom set up a joint operating agreement to extract gas from giant Shtokman gas field, which is believed to be one of the largest gas fields in the world. Gazprom said the reserves of the Barents Sea offshore field were estimated at 3.8 tcm of gas and 37 million tonnes of condensate, up from an earlier estimate of 3.7 tcm and over 31 million tonnes, respectively.
Gazprom also controls Prirazlomnoye oil field in the Barents Sea, which was discovered in 1989 and has reserves of about 610 million bbl. In addition, the Kara Sea has a substantial hydrocarbon potential in Russanov and Leningrad gas-condensate fields. The East Siberia and Laptev seas include several basins that may contain further hydrocarbon resources, and minor oil and gas deposits have been discovered in the onshore territories near the Bering Sea. The USGS has estimated 31.4 billion bbl of oil equivalent, including 8.9 billion bbl of oil off northeast Greenland. In the West Greenland-East Canada basin, the USGS has estimated 7.3 billion bbl of oil.
Canada has extensive reserves, namely the Mackenzie Delta located in the Northwest Territories, which has been estimated to hold 5-6 tcf of recoverable gas.
Canada and the US have long disputed territorial claims in the Beaufort Sea, which is an area that geologists feel sure has enormous promise, since it is an extension of the proved reserves in the nearby Mackenzie Delta and North Slope. Further, Denmark and Canada have a dispute over Hans Island due to the fact that its surrounding waters have long been regarded as an area of great potential for oil and gas.The scramble for the Arctic
A number of Arctic nations have tried to stake claims outside of their Exclusive Economic Zone.
On Dec. 20, 2001, Russia submitted its claim to The UN Commission on the Limits of Continental Shelf, requesting an additional 1.2 million sq km (over 460,000 sq miles) of marine economic control.
The Canadian government has begun programs mapping its continental shelf, and as of 2006 it has committed $51 million to the project.
During 2008, the US government spent $5.6 million to prove that the US continental shelf off the coast of Alaska extends beyond the 200-mile EEZ limit.
Denmark is expected to spend around $42 million between 2004 and 2010 to improve its claims for outer continental shelf territory. As discussed below, other Arctic nations have also been scrambling to stake claims because resources are becoming available due to the melting of the ice.
Importance of Arctic gas for Russia
It is important to note that potential claims of each Arctic nation run the risk of overlapping with, or already overlap, with Russian claims.
Russia had already tried to claim a stake in the Arctic in 2007 by placing a titanium Russian Federation flag beneath sea level using two dual-manned submarines after the commission asked Russia to revise its proposal for over 460,000 sq miles to extend its EEZ.
In the days that followed, Russia also ordered strategic bomber flights over the Arctic Ocean for the first time since the Cold War. Moreover, the director of the National Energy Security Fund, Konstantin Simonov, said that NATO countries are aggressively expanding their military presence in the region. He believed that a military clash in the Arctic was only 20 years away. These actions, have "lit the proverbial fire under the other four countries in the running for that territory, have brought this international dispute to the top of the agenda for the affected nations, and has created a scramble to substantiate circumpolar countries' claims to seabed resources."
Shortly after Russia's actions referred to above, Canadian Prime Minister Stephen Harper stated that the Canadian government "has put a big emphasis on reinforcing, on strengthening our sovereignty in the Arctic" and that "we're expanding our military and coast guard presence into the High Arctic and improving our surveillance capacity, including strengthening the Arctic Rangers."
Also, in response to Russia's actions, the US government sent US Coast Guard icebreaker Healy to the Bering Sea on its own expedition. Based on the actions of the three countries, also the Danish government decided to launch its own Arctic expedition. The Norwegian government was absent from the international dispute over Arctic territory, probably due in large measure to Norway's ongoing cooperation with Russia over offshore hydrocarbon development in the region.Current legal regime
Obtaining rights outside the EEZ
Beyond the 200 nautical mile "economic zone" allocated to the Arctic nations, there is no unilateral right on the part of coastal states to assert a claim to an outer continental shelf.
Pursuant to Article 76 of the UNCLOS, coastal states must first submit data supporting such a claim to the Commission on the Limits of the Continental Shelf. The commission is composed of 21 individuals who are experts in the fields of geology, geophysics, or hydrography. Each member is nominated and elected for a 5-year term by State Parties to the Convention. Ultimately, the commission shall give the submitting coastal state its recommendations concerning the matter on whether a state can claim Arctic territory beyond its 200 nautical mile exclusive economic zone.
However, and more importantly, the commission's view on the territorial issue is not legally binding, which means that the commission has no mandate either to determine shelf boundaries between coastal states or to settle disputes. Article 9 in Annex II to the convention expressly states that "[t]he actions of the Commission shall not prejudice matters relating to delimitation of boundaries between States with opposite or adjacent coasts." Thus, the commission does not have the legal authority to render a binding decision.
UNCLOS dispute resolution provisions
There is currently no binding dispute resolution mechanism to resolve pending and potential territorial conflicts in the Arctic.
The Arctic nations have so far relied upon 'soft law' mechanisms and arrangements with an avoidance of hard law treaty frameworks and at the same time rejecting the need for a 'comprehensive international legal regime' to govern the Arctic Ocean. For a number of reasons, the UNCLOS is an ineffective way of resolving pending and potential disputes relating to territorial claims in the Arctic. This is mainly due to the lack of a binding dispute resolution procedure.
The UNCLOS provides several possibilities to resolve maritime disputes. Specifically, Article 279 includes a provision that "[p]arties shall settle any dispute between them concerning the interpretation or application of this Convention by peaceful means."
Pursuant to Article 287, a state can choose to settle its dispute via the International Tribunal for the Law of the Sea, the International Court of Justice, or two arbitral tribunals meeting different requirements as set forth in Annex VII and Annex VIII. It is important to note, however, that Article 298 permits a state to declare in writing that it does not accept any one or more methods of resolution for various categories of disputes, including boundary disputes between countries with opposite or adjacent territorial seas, exclusive economic zones, or continental shelves.
Pursuant to this clause, Canada, Denmark, and Russia all indicated that they do not accept any of the procedures for the resolution of disputes provided for under Article 298. The dispute resolution provisions are also nonbinding on the US due to the fact that it has not ratified the UNCLOS.
As a result, all of the Arctic nations, except Norway, have opted out of the binding dispute resolution procedures. The Arctic states are thus left to their own devices, with only the help of a nonbinding conciliation committee (i.e., the commission), to resolve disputes regarding the delimitation of continental shelves and exclusive economic zones.
Existing disputes and competing claims
Some of the current disputes include the disagreement between the US and Canada regarding the Northwest Passage, tensions between Russia and all of the other Arctic states following several actions that Russia has taken in the Arctic, and disagreement between Canada and Denmark regarding Hans Island.
The waters surrounding Hans Island have long been regarded as an area with great potential for oil and gas.
The US and Canada have a current dispute regarding the Beaufort Sea, which is a 100-sq-mile area believed to be rich in oil and gas.
Russia, Denmark, and Canada have competing claims relating to the Lomonosov Ridge, which is the highest undersea ridge on the planet and spans the entire Arctic Ocean. Thus, it is a highly contentious area.
Canada and Denmark still have a dispute over the Lincoln Sea but are in discussions to resolve the dispute.
As previously indicated, the legal regime of the UNCLOS is not adequate to resolve these competing claims.
Given the unsettled nature of the Arctic region and the lack of a binding dispute resolution mechanism provided for in the UNCLOS, other ways must be found to address the relevant issues.
As will be discussed below, while some bilateral and multilateral arrangements have been entered into between some of the Arctic nations, many issues remain unresolved. It is obvious that the uncertainty with respect to the legal status of territorial claims outside the exclusive economic zone in the Arctic Sea is a serious obstacle complicating the full development of oil and gas resources.
An early settlement of this issue—with all its consequences—to the satisfaction of the Arctic nations is therefore critically important. The ideal but probably unrealistic ultimate solution would be a multilateral treaty between the Arctic nations with competing claims.
Other possible solutions include less comprehensive agreements delimiting territory based either on bilateral or multilateral agreements. Agreements could also be reached between Arctic nations jointly to develop a contested territory. Another possible solution would be for the Arctic nations to submit their disputes to international arbitration.
Some have suggested that Arctic nations enter into a treaty similar to the Antarctica Treaty as a solution to resolve pending and potential Arctic disputes.
The Antarctica Treaty was created in 1959 after the US invited 12 nations with claims to Antarctica to a conference in Washington, DC. Article IV of the Antarctica Treaty includes a provision that no activities taking place while the treaty is in force will constitute a basis for asserting, supporting, or denying a claim to territorial sovereignty in Antarctica or create any right to sovereignty. In effect, it halted all territorial claims to the continent for the period of the treaty. Due to this clause, prohibiting new claims or the enlargement of existing claims, no sovereignty disputes have arisen in Antarctica for more than 45 years.
Although this treaty is beneficial for the Antarctic, it is not realistic to apply similar provisions to competing claims in the Arctic. The explanation is that the Antarctic Treaty is not permanent, it is aimed at preventing exploration, whereas Arctic nations are rushing to explore. Furthermore, the Antarctic Treaty deals more with scientific aspects while competing claims in the Arctic primarily involve political and economic aspects. In addition, the Antarctic Treaty did not try to resolve existing sovereignty disputes, whereas the Arctic region has unsettled boundaries that must be resolved primarily due to the potentially lucrative nature of the oil and gas reserves.
It is helpful and necessary to look at some of the existing, mostly bilateral, treaties concerning the Arctic Sea.
Several agreements have been entered into among the Arctic states. It should be noted, however, that there is no agreement encompassing all Arctic states with respect to territorial disputes.
In 1920, the Svalbard Treaty gave Norway sovereignty over Svalbard but also provided "treaty parties equal rights to Svalbard resource exploration." This language has caused an ongoing territorial dispute with Russia.
Russia and Norway entered into an agreement known as the Royal Norwegian Government and the Government of the Union of Soviet Socialist Republics Agreement concerning the Sea Frontier between Norway and the USSR in the Varangerfjord of 15 February 1957 (the "Varangerfjord Agreement"). The Varangerfjord Agreement determined relevant boundaries between the two nations in the Varangerfjord. With that said, "it did nothing to settle borders in the Barents Sea, where Norway and Russia have overlapping EEZs and claimable continental shelves." In 2007, the agreement was extended and as discussed below, a provisional agreement was reached in April 2010 on the maritime boundary in the Barents Sea.
On Dec. 17, 1973, Denmark and Canada entered into an agreement known as the Agreement between the Government of the Kingdom of Denmark and the Government of Canada relating to the Delimitation of the Continental Shelf between Greenland and Canada, which defined the border of the two territories. Despite this agreement, a significant dispute remains between Canada and Denmark over Hans Island. The half-square-mile rock is important because surrounding areas may contain possible oil reserves.
In 1980, Iceland and Norway entered into an agreement to resolve a longstanding dispute "with regard to the claims by each for fishery zones and exclusive continental shelf rights." Despite this agreement, a dispute still remained in relation to Iceland's claim to an area near the Jan Mayen Ridge until it was finally resolved through a conciliation commission.
Based on the recommendations of the conciliation commission, the governments of Iceland and Norway entered into an agreement on Oct. 22, 1981, for the joint management of resources of the Jan Mayen continental shelf. Specifically, each country is entitled to participate with a share of 25% in petroleum activities outlined in the agreement in each other's continental shelf.
Denmark, Iceland, and Norway have entered into agreements to delimit boundaries of their respective 200 nautical mile exclusive economic zones in the northwest Atlantic.
On 1 June 1990, the Agreement between the United States of America and the Union of Soviet Socialist Republics on the Maritime Boundary was entered into which, among other things, "delimits the continental shelf beyond 200 nautical miles between the United States and the Russian Federation." This agreement has yet to be ratified by the Russian parliament, but its provisions have been applied through an exchange of diplomatic notes.
Joint development agreements
Similar to the recent provisional agreement between Norway and Russia and the agreement between Iceland and Norway in 1981, one possible solution is for Arctic nations with competing claims to enter into joint development agreements.
This may allow the full economic potential of the Arctic to be utilized, without awaiting a final resolution of all legal issues. This may be a sensible approach, especially since foreign capital and investment will in all likelihood be required.
Joint development agreements are commonly defined as "intergovernmental arrangements of a provisional nature, designed for functional purposes of joint exploration for and-or exploitation of hydrocarbon resources of the seabed beyond the territorial sea."
A development zone requires the pooling of the rights of the respective states, which rights are then exercised in common on a basis that should ideally be specified by the treaty in unambiguous terms. Rather than trying to delimit the borders, a joint development zone agreement is simply an agreement to work together in a disputed area.
A number of joint development agreements have been entered into between nations over the years. One joint development agreement was entered into between Bahrain and Saudi Arabia in 1958 to establish an area that lies entirely in the Saudi Arabian continental shelf. As part of the delimitation agreement, the border was positioned to avoid crossing the Fasht Abu-Sa'fah field, which, as a result, became wholly within the jurisdiction of Saudi Arabia, and in return, Saudi Arabia was obliged to grant to Bahrain 50% of net revenues from the field.
In 1971, Iran and Sharjah entered into a "Memorandum of Understanding" in relation to Abu Musa, an island in the Persian Gulf. Paragraph 4 of this Memorandum includes a provision stating the following:
"[e]xploitation of petroleum resources of Abu Musa and of the seabed and subsoil beneath its territorial sea will be conducted by Buttes Gas & Oil Co. under the existing agreement, which must be acceptable to Iran. Half the government oil revenues hereafter attributable to the said exploitation shall be paid direct by the Company to Iran and half to Sharjah."
In 1974, two agreements were entered into between Japan and South Korea in which any "[e]xpenses incurred in the exploration and exploitation phases were shared equally between the two concessionaires." Specifically:
"The first agreement was a 'delimitation agreement' for the area through the southern part of the Sea of Japan and the Tsushima/Korea Strait. The second agreement was a 'joint development agreement' for the part of the continental shelf extending southwards into the northern part of the East China Sea, which is an area where petroleum development is complicated by the overlapping claims not only of these two states, but also of North Korea and China as well (emphasis added)."
Unlike the first agreement, according to Article 28 of the second agreement, Japan and South Korea did not delimit territory: "Nothing in this Agreement shall be regarded as determining the question of sovereign rights over all or any portion of the Joint Development Zone or as prejudicing the positions of the respective Parties with respect to the delimitation of the continental shelf."
Also, in 1974 Sudan and Saudi Arabia entered into a joint development agreement establishing a common zone over the seabed and subsoil in the Red Sea up to a line where the water depth exceeds more than 1,000 m.
It is important to point out that joint development agreements do not necessarily have to be split evenly. For example, after more than a 15-year dispute, Senegal and Guinea-Bissau entered into an agreement in 1993 to jointly manage their maritime resources. Pursuant to the agreement, there was an 85:15 split in favor of Senegal for petroleum resources but 50:50 for fishing rights. Further, after a long-standing territorial dispute between Sao Tome and Principe and Nigeria, the respective governments entered into a joint development zone agreement in 2001. The agreement included a provision for a 60:40 split in favor of Nigeria for the rights to resources extracted from the development zone.
In addition, Timor-Leste and Australia entered into an agreement in 2002, in which Article 4a provides a 90:10 split for petroleum resources in favor of Timor-Leste. Numerous other agreements have also been entered into setting forth joint development zones.
In addition to the provisions discussed above, another legal framework that could serve as a starting point for discussions between Arctic nations could be the bilateral agreement signed by Russia and Kazakhstan in 1998 pertaining to the Caspian Sea. The agreement was supplemented by a protocol in May 2002.
The agreement partitions the seabed of the northern part of the Caspian Sea based on the equidistance principle, with some corrections aimed at achieving an equitable result. While the agreement as such does not actually delimit the border—but rather describes the method to be used—the protocol does set forth the geographical coordinates of the modified median line between the two states. The protocol also states that water is to be kept in common use.
A key aspect of the agreement is that it includes a provision that the parties should seek to create favorable conditions for joint development of hydrocarbon resources. It also includes a provision that both parties "shall sign an agreement on the form of their joint operation: a consortium, a business entity with foreign participation or any other form of joint operation ("enterprise"), including conditions for the use of subsurface resources."
Similarly, the Russia and Azerbaijan agreement concluded in September 2002 could be used as a framework. Provisions of the agreement include establishing geographical coordinates enabling the parties to exercise their sovereign rights with respect to the mineral resources. It also includes a clause stating that the parties "sign appropriate cooperation agreements on the basis of internationally recognized practice for development of cross-border deposits subject to approval by the Governments of the Parties."
As previously set forth, the UNCLOS and international law do not provide an effective means to resolve disputes with respect to the legal status of the territorial claims to the Arctic.
It is against this background that attention is beginning to focus on international arbitration, outside the UNCLOS and treaties, as a possible method to resolve Arctic disputes stemming from the rapid polar melt.
In the following, a brief outline gives some of the key elements that may be included in an arbitration agreement aiming towards a final and binding resolution of Arctic territorial issues. The proposed arbitration agreement could be entered into among all of the Arctic nations as a multiparty arbitration arrangement.
Another possibility could be for only some of the Arctic nations to submit their competing claims to arbitration, which is similar to a traditional bipartisan arbitration. Needless to say, these key elements would require further elaboration and detail before being submitted for approval and signature.
A crucial aspect of a multiparty arbitration of this kind is the number of arbitrators. In a traditional bipartisan arbitration, each party would appoint one arbitrator and the two party-appointed arbitrators would agree on a chairman.
In a dispute involving five sovereign states, the approach must be different. Each state should have the right to appoint two arbitrators. One of the two must be neutral, i.e., impartial and independent and of another nationality. The second arbitrator could, however, be a nonneutral arbitrator, for example, a government official, or the like. This nonneutral arbitrator could ensure that the government is provided with some degree of control and influence in the arbitral process. As a result the tribunal would have half of the arbitrators neutral and the other half nonneutral.
The next crucial key element is the chairman of the tribunal. Given the proposed structure, it is important that he or she enjoys the complete confidence of all the party-appointed arbitrators. The chairman should therefore be elected unanimously by the 10 party-appointed arbitrators. Should they fail to do so within a specified period of time, the chairman should be appointed by a well-respected international organization such as the International Court of Justice, the Permanent Court of Arbitration, the Stockholm Chamber of Commerce, or the International Chamber of Commerce.
Another critical aspect in a tribunal of this nature would be the voting rules. As a matter of general principle, it would of course be possible to agree on detailed voting rules, perhaps distinguishing between different issues to be decided. Experience shows, however, that such detailed rules may often create more problems than they solve.
The standard approach would rather be to provide for majority vote, giving the chairman the casting vote. The efficiency of the voting rules is to a large extent dependant on the experience and prestige of the arbitrators. On the assumption that the tribunal outlined above consists of experienced international arbitrators and-or scholars, it is submitted that the standard formula for voting is sufficient, indeed the most suitable one.
For a tribunal of the kind outlined above to serve its purpose, it is desirable that as many issues as possible are decided by it. A fourth key-element in an arbitration agreement, would therefore be to identify, list, and define all the issues which are to be resolved by the arbitrators, i.e., defining the subject-matter jurisdiction of the arbitral tribunal.
The best approach would likely be to use broad categories of definitions rather than try to regulate everything in detail. Again, on the assumption that the arbitrators have the required experience and expertise, it is better to entrust them with the task of interpreting and-or applying provisions concerning their own jurisdiction rather than for the parties to try to cover every jurisdictional aspect in the agreement.
The parties may also want to specify the law and-or rules to be applied to resolve the issues. Since the parties would all be sovereign states, it goes without saying that international law would be applicable, unless the parties agree otherwise. The parties would be well-advised to try to agree on the rules and-or principles to be applied by the arbitral tribunal. For example, the parties might want to agree that the UNCLOS should be applied ex analogia, or perhaps mutatis mutandis, or they may wish to agree on other rules and principles.
In addition, given the increasing role of indigenous people concerning issues and areas related to natural resources in the Arctic, it is worthwhile to consider an appropriate mechanism for including representatives of such groups. Parties may agree, for example, to permit a representative of an indigenous population impacted by the dispute to make a written or oral statement during the course of the arbitration.
A final key element to be included in an arbitration agreement is to provide for an award period, i.e., a period within which the arbitral tribunal must render its award.
Generally speaking, disputing parties want the dispute to be resolved as quickly as possible. Arctic disputes arising from territorial claims would not be an exception. The uncertainty and unpredictability still surrounding claims in the Arctic suggest a prompt resolution of the issues.
The arbitration agreement must also set forth a mechanism for prolongation of the award period. In a multiparty arbitration of this kind it is not a good idea to require the agreement of the parties in this respect. Rather, the right of prolongation should lie with the chairman, or with a well-known and well-established international organization such as the ones mentioned above. In this context, the parties should also include provisions in the arbitration agreement to the effect that the award is final and binding.
The Arctic melt will uncover lucrative oil and gas reserves that will further ignite competing territorial claims and will give rise to new disputes.
The current legal regime is not adequate to resolve pending or potential claims arising from the Arctic melt. Therefore, Arctic nations should contemplate entering into agreements or resolving their disputes through international arbitration. It should be noted that as time passes these claims will likely become more contentious. A proactive approach is therefore desirable.
Thanks to Joshua Fellenbaum, associate at Mannheimer Swartling, who greatly assisted the author in preparing this article.