Unconstrained Foreign Direct Investment: an Emerging Challenge to Arctic Security

Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security

Mark E. Rosen, Cara B. Thuringer

COP-2017-U-015944-1Rev November 2017 Cover image: Sea ice in the Chukchi Sea, courtesy of NASA Goddard Space Flight Center on Flickr.

Page i image: Icebreakers on Expedition in the Arctic, courtesy of NOAA on Flickr.

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China’s Natural Resource Strategy Strategy Resource Natural China’s a Concern? in the Arctic FDI is Why Regulatory the Environment Arctic for Recommendations Bank Development Arctic An General Policies and De fnitions and General Policies Standards International FDI on Regulations State Littoral Arctic Relevant States United in the Arctic Chinese Investment Examining Executive Summary Executive Introduction SecurityArctic in Context (FDI) Investment Direct Foreign Contents ii Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security chemical runof from Exploitaton ofthese mining and smeltng mining andsmeltng actvites, andmore. the risk of oil spills, the riskofoilspills, resources carries carries resources ship casualtes, ship casualtes, Executive Summary 1 needs to be taken to ensure that development development that ensure to taken be to needs takes place in a responsible manner the are that regions or and the states that ensures (FDI) investment direct foreign of recipients are capable of monitoring it, the regulating underlying the and bankrupt goes project a if activity, safeguards and enacting foreign owners cannot be held nancially f responsible. Care must also be taken to and more. mining and smeltng actvites, Exploitaton of these resources resources of these Exploitaton carries the risk of oil spills, ship casualtes, chemical runof from three approaches that could be pursued independently or in tandem, to monitor and indirectly regulate regulate indirectly and monitor to tandem, in or independently pursued be could that approaches three Arctic an of funding a inbound FDI. establishing include ose set T and Arctic approaches of FDI multilateral review criteria formation the and Code; Development Arctic an nation; each by administered is study also makes detailed comparisons of the FDI laws of the six main states that border the Arctic Arctic the border that states main six the of laws FDI the of comparisons detailed makes also study is T is Ocean. T is study to of limited states the the Arctic Ocean littoral those because six would, states accident. industrial of type any of brunt the bear to have system, legal current the under Based on and the legal of review ndings of f the FDI transactional in suggest the the Arctic, authors because of resource degradation or social conditions. conditions. social or degradation resource of because focus particular a with — level transactional the at — patterns FDI current the of stock takes report e T and its strategy resource natural China’s is T as case explores on activity a study Chinese case study. Africa. and America South in activities FDI past safeguard the rights of indigenous populations to ensure that they are not displaced from their lands lands their from displaced not they are that to ensure populations of indigenous the rights safeguard economically economically resilient, such as Greenland, Iceland, Russia and, perhaps tribal regions. Special care appreciate these risks and mitigate them. It is in the interests of all of the Arctic states, indeed the world world the indeed states, Arctic the of all of interests the in is It them. mitigate and risks these appreciate using place takes development that ensure to mechanisms cooperative regional develop to a whole, as in disaster state of enhanced place, with the infrastructure and suitable substantially art technology, capabilities. response e T of opportunities rapid also development carry risks socio-economic to countries that are less e changes in the Arctic environment due to climate change are accelerating the rate at which these these which at rate the accelerating are change to climate due environment in Arctic the e T changes recedes. ice the as ship by and exploitation for accessible becoming are resources mining from f runo chemical casualties, ship spills, oil of risk the carries resources these of Exploitation and and activities, e smelting more. T states are Arctic littoral not equal in terms of their to ability e e T Arctic Ocean is a vast region which maritime is by bordered six states that are now coming to China. Other states especially potentials. resource and natural other mineral, deposits, hydrocarbon, their enormous unexploited appreciate and vast Arctic’s the of note taken also have Arctic the of outside e T Arctic is a on essentially accidents closed-sea land, and even all environmental human activity, and currents ocean of because countries littoral other the on impacts environmental serious have can in the Arctic. change of climate pace the by aggressive is is fact T compounded conditions. climactic Executive Summary Summary Executive Development Bank. Te Arctic Development Bank would provide private developers with access to local capital (vs. Beijing sourced) to fnance infrastructure and resource extraction projects. Tese three approaches seek to eliminate the potential that one state could, by enacting low standards, stimulate a race to the bottom in terms of the environmental or labor standards associated with resource extraction.

Unregulated FDI is a signifcant, multifaceted security issue. It must be addressed before the infux of unregulated investments, and the sof power politics that come from those investments, makes it impossible for the U.S. and other states to adopt complementary policies that favor responsible Arctic development.

2 Introduction Introduction 3 economic opportunityeconomic breaker breaker for the lowest average sea ice extent. Temperatures ranged 11 to from 14 degrees Fahrenheit over the 1981–2010 average [1]. sea e T less and conditions warmer general of trend ice is More almost certain to continue. uence of climate change on the change of uence e T climate f in Arctic is undeniable and irreversible in the short term. ere T is very little uncertainty; for the medium the term, Arctic will rapidly. Monitoring conducted by continue the to warm National Snow and Ice Data Center demonstrates robust ice regression in the Arctic (see Figure 1) due to rising average air temperatures (see Figure was a winter 2). e record T 2016–2017 The Arctc is opening up to is opening Arctc The innovation and increasing accessibility of abundant resources; the potential opening of desirable shipping routes; routes; shipping desirable of opening potential the resources; abundant of accessibility increasing and innovation and outside f nancial investment. As a result of these trends, the Arctic is opening up to economic opportunity. NSIDC. Arctic Sea Ice Extent, credit: Figure 1. below the traditional 66 degree north line that denotes the denotes that line north 66 degree the traditional below technological Arctic change; Circle because the impact of activity in happening climate Arctic: the in interest areas adjacent toof the Arctic can f ow into the Arctic.level increased the driving are that trends major four are ere T foreign direct investment while at the same time protecting the Arctic Ocean and surrounding environment. environment. surrounding and Ocean Arctic the protecting time same the at while investment direct foreign refers Arctic the paper, this of purposes the For criteria. of sets erent f di many using ned f de be can Arctic e T Greenland, Canada, are: which Ocean, Arctic the of states littoral in the north 60 degrees above territory to also and included We the Russia, U.S. (Norway), Svalbard and Iceland extended We our mainland Norway. analysis (EEZs) of the Arctic littoral states: Canada, Greenland, Iceland, Norway, Russia, and the United States. Much Much States. United the and Russia, Norway, However, Iceland, desk. Greenland, Canada, states: admiral’s the littoral and Arctic the curiosity of (EEZs) explorer’s the to ned f con been has Arctic the in high. all-time interest an at is history’s of resources its and region the in interest which in Arctic, the for era new a entering are we to e T do more. intent with the strategic investments as made such substantial have China, states, Outside is of cant new f capable dealing with whether the signi remains legal environment and question regulatory e earth’s polar environments are en polar f e o T environments thought of earth’s as barren, desolate regions ruled by polar bears and be to estimated resources in covered ice. And contains while Arctic certainly cold, the the Arctic region is sheries, f far from a unexploited waste. valueless Rich vast, in as mineral, well as deposits, gas and oil, metal, zones economic exclusive the within fall resources these of percent 70 About dollars. of billions many worth Introduction 4 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security was time for the the for time was topartially drill awell in the Beaufort Sea, but by this time it was October and the ice was creeping south. It the ship, drilling Shell’s second safety violations during a routine inspection [3]. inspectorsimpounded16foundwhen was shippropeller experienced malfunctions, critical shathe andf [3]. rig the for drill. However, a day afer the drill began to spin, a 30 mile long by 10 mile wide inspectorsice foe was describedon athe crashwreckage course as a “crushed beer can” [3]. Shell recovered containmentandoilAn recovered,geareddomewasmilliondomeWhenworth$400trial.thefailed during a federal up the sustained no damage. In this case, Shell was not prepared. Shell was lucky.Fortunately But fortheShell, problems did not end there. howheavy ananchor therig would need toprevent therig from dragging its anchor routineina properlycalculatednotstorm [3].had Shellthat clear isaground. Itran nearly and storm typicalfairly a by site of Shell’s foray into the Alaskan Arctic was challenged from the start. Te drill ship that the risks were not sufciently ofset by potential profts and withdrew from the region. severalmissteps involvingselectedheavy consequences.hadhadtheyrigs the Ultimately, Shelldetermined outweigh rewards, for now. As seen in Royal Dutch Shell’s drilling operations in the Alaskan ofshorehigher-riskUnitedoperatorsForStates’Arctic.environmentthe toArctic,in theterritory,toseem risksof these technologiesthatpromise greater safety, efciency, andmeasures forenvironmental protection appropriate Iceland, and Norway. Tese pressures have driven well-capitalized, large regulatorsoperators andto civicinvest groupsin developinghas resulted new in a high-risk environmentcapableinnovationincreasedtechnology.polar demandforanmegatrend insecond for isPressureT e fromoperators in Canada, the United States, Baseline, credit:NSIDC Figure 2. Arctic Air Temperature DifferenceRelativeto1981-2010 Noble Discoverer Noble Kulluk Noble Discoverer Noble to sailsouthtofrom itslocation degreesat70 north. But there were problems. theBy was forced to retreat. In harbor, the Kulluk Te Arctic. the in majorchallenges experienced also , dritowardsf ed coastthebut stopped shortrunningof aground and changing migration patterns are are patterns migration changing a fecting and ice unstable is and infrastructure; permafrost thawing waterways; other or sea change the into fall to homes causing climate is erosion coastal undeniable: of and evident plainly are impacts “…the Arctic described the situation as follows: and State Department representative to the formerA U.S. CoastGuard Commandant unnoticed. gone not have changes Tese resources. Arctic of accessibility the and physical aspects of the Arctic environment the altering dramatically for responsible is change climate factor, other any than tens of thousands of years”[2]. of thousands of tens food sources they have relied upon for preventingpeople from obtaining the Discoverer’s exhaust system exploded, its Noble Discoverer Noble Kulluk Discoverer was blown was able to Unconstrained Foreign Direct Investment: 5 An Emerging Challenge to Arctic Security

Kulluk’s journey, journey, Kulluk’s . Several with the failures Kulluk Future Future operators will technology need and operatonal to techniques capable bring of hope can they north before environment coping with to bring oil safely south the Arctc south, it was late November, 2012. Te next legof the loose [4]. It ran aground on Sitkalidak Island on New Year’s Eve, 2012 [4]. [4]. 2012 Eve, Year’s New on Island Sitkalidak on aground ran It [4]. loose Kulluk Kulluk Prime are changing consumer expectations of the global transit speeds, more transactions are taking place taking are transactions more of speeds, the global transit expectations consumer changing are Prime Given market. changing a to adapting are consumerism and commerce of paradigms general the and online, could be demands this, additional placed on sites from of the the Asia to production Shipping Arctic. the Arctic ts from f bene distance and time realize could in particular Europe Northern of centers consumption Northern Northern Sea Route (NSR) will change from being technically open for transit roughly 40 percent of the 2040-2059 [5]. by between 98 percent to 94 to today year Since Amazon theas such advent services of where commercial world a shipping In activities, consumption. companies to and countriesproduction from alikegoods have move to searched routes for safer faster and transitable transitable Arctic Ocean. Although great challenges remain because of the lack of good charts, icebergs, straits that can become clogged with ice both at and below to the support transiting surface, ships. and While almost no no one infrastructure anticipates a completely open Arctic Ocean, thickness, extent, and timing changes of Arctic to Sea ice the cover has made destination shipping (where ships will go to port to foad load/o (where cargo) and ships perhaps pass transit shipping through the Arctic en route to their fnal destinations) through the Arctic Ocean more appealing. Climate models suggest that the en is in the Arctic. From Shell’s experience, it is clear that future future that clear is it experience, Shell’s From Arctic. the in is en f o very it but challenging, was weather e T operators will need to bring technology and operational techniques capable of south. safely oil bring to they hope coping can before north environment with the Arctic e T third Arctic megatrend, shipping, is one that has several sides. A more open Arctic Ocean is a more and and well respected unlikely oil that others giants, could it have the faced is same challenges fared better. as Furthermore, there Shell nothing exceptionally unique was about the and challenges that Shell faced in the Arctic. into into a disaster. If oil prices had remained high, there would have been the more pressure to deliver oil market. to It is Shell worth had noting that been through its exceedingly operations. As one careful of most the experienced, well capitalized, played a major role. Shell took outmatchedthe conventionalby conditions the of Arctic. Shell geared anotherforup try in2013 technology andlater in2015 but and found that it between meager was, oil fnds in the Chukchi in and the drop of oil someprices from $100 a barrel respects, to $55, and Shell decided to withdrawl in September of 2105. Under erent dif circumstances, it is easy to imagine how a few small missteps could have ballooned resultin the order to cut the challenges corporatefailuresaand thecarelessness,offaultas read Shell’s Many theanxietyregulators of to prevent disaster, and the economic constraints of low oil prices which together put the risk of Shell’s work frmly beyond the reach of any reward. However, the technology that Shell chose to bring north time Shell was ready to tow the the tow to ready was Shell time the for disastrous be would Alaska, of Gulf the cross would it where would factors other of myriad a and line, tow the connected that shackles the line, tow the engines, boat tug 6 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security in the Arctic.in the been out of reach in the Arctic. Some of the largest deposits of iron, diamonds, oil, andof en naturalcomes withgas theare potentiallocated for a big reward. A considerable share of the world’sbank,orforeign uniquedependonthepartner circumstanceswill unexploitedproject.ofthe riskButmostcases,the in resources has of the ground. Whether those partnerships are established between industry and requirementsgovernment, meansa thatdevelopment even the best-capitalized operators will need to seek partnerships will to get Arctic operations the infrastructure in highandrequire risks, resourcesinvestmentmoreusualoperating than Highextract. highercosts, to Arctic, the of populations small and infrastructure limited the of Because environment. Arctic andthe assets, managementresourcesstagethefor setssmallmiscalculations — becometomajor disasters thatlives,risk visibilitydue to small populations —combined with volatile weather and extreme remoteness from disaster occur, it may not be reported for quite some time to accident governmental an should bodies with that the possibility capacity the to increases respond. visibility lowLow Tis signi diminished. fcantly is reporting populations,remoteais partglobeofthewhere public’sthe ability monitorto dispersedactivity throughand community small its with Arctic, environmentalTe damage.in result that mishaps any foractivities Additionally, for many parts of the world, local populations play a key role in monitoring resource extraction Alaska, has only four emergency beds. resources for protecting the health and welfare of workers in the Arctic. For example, the hospital in Barrow,supportto workforce a oisfabsent. en Tereare stagingfew points forsearch andrescue, limitedandvery ore;and internet connectivity remains limited, slow, and unreliable. T ecommunity infrastructure required there are no roads that link one remote community to another; there is no rail system to needto bepartnerscarry high inbuilding volumesup the infrastructure of required to make extraction possible. In some regions, absentinfrastructure.require willoperatorsT isresourcejustmoreinvestthan toin extraction. will T ey For all of the potential Arctic industries, the most signifcant limitation is that there is insufcient or completely of growth dependent upon price and alternative investment opportunities. General trends indicate that the number and scale of these operations will increase in the future,online. Onwith Ba fn theIsland, rate Canada, one of the world’s largest iron mines is preparing to expand operationspercent [8]. stake in Rosnef, Russia’s Arctic operator [7]. In theArctic”[6]. Russia,Similarly, new BPhasseveralgold, decades of U.S. coal,Arctic experience, ando f shorediamondexploration, and19.75a mines are coming experiencetechnologycontinueforwardandcenturyofdevelopmentandworkinalmostone go to we as trend:investment. Exxon Mobil yearshas90 ofexperience withArctic drilling, withplans “buildto on our fourthmajorArcticattentiondriventhekeentrends,has paid whichthese Extractive also to industryhas a become to shipping transit were complicated regulatemore much become wouldshipping to Negotiations fast. closing is routes ice-free increasingly of advantage take to policy that the window of opportunity to craf meaningful shipping is present and reasonable, the fact remains while debate over the true viability of Arctic transit Arctic’stheminingsitesalongand coastline.And shipping lanes. Similarly, it is beyond question that there will be increases in destination shipping to oil and gas fait accompli fait . routes is closing fast closing is routes take ice-free increasingly to of advantage policy to meaningful opportunity craf of window The Unconstrained Foreign Direct Investment: 7 An Emerging Challenge to Arctic Security - , emphasizing , emphasizing As U.S. natonal vigilance in the interest global lapsed, has Arctc has accelerated National Strategy for the Arctic Region Arctic the for Strategy National oil spill, booms, oil eating microbes, dispersal agents, agents, dispersal microbes, eating oil booms, spill, oil Horizon

Deepwater er concrete policies policies concrete er f o or resources budgetary identify to yet have documents glossy ese T 1 On May 10, 2013, the Obama White House released the released House White 10, 2013, the Obama On May strength and stewardship, region Arctic responsible pursuing security interests, U.S. advancing areas: three [9]. cooperation international ening

1 responding to accidents, bailing out vessels in distress, in distress, vessels out volatile bailing to accidents, infrastructure, responding response sparse as such factors, For Many [11]. waters. mishap warmer in used now environmental an from protocols damages or response the challenge temperatures cold and currents, ice, weather, example, in the ermath f a of the 2010 used all were burning situ in and Council. Council. While these outline agreements procedures for response to vessels accidents, in and distress, more, environmental these to a countries legal of commit course or action make arrangements do not resources available. ere T is also no framework for for from costs between states incurred compensation protocols that will advance the resilience of the Arctic. of the protection in As of marine interest the resources, over management Arctic has concerns expanded, Arctic the within have settled) now (mostly boundaries brokered over disputes some and groups, agreements indigenous for respect environment, nonbinding through managed is Arctic the of governance e T emerged. natural gas resources [10]. resources gas natural and non-littoral Littoral in vigilance the has national accelerated. has Arctic global As interest lapsed, U.S. give could that opportunities research pursing and investments, large making claims, staking are alike states that is important it ever, than more Now, ice. Arctic the beneath resources of quantity and type to the hints and policy develop to partners Arctic its with work to and Arctic the to northward attention its turn U.S. the Especially troubling is that, in many respects, the Arctic represents one of the last remaining pockets of global resource reserves in terms of access to mineral, hydrocarbon, and sheryf resources. to According (90 the13 barrels) billion percent Arctic an estimated holds Administration, Energy Information the U.S. of the worlds undiscovered conventional oil resources and 30 percent of its undiscovered conventional Arcticstrategies. reality e T in growth the is T investment. which Arctic. was is coherent to much States, of that support the the detriment United private-sector surging and icebreakers eight with development, Arctic in leader a once allowed has States United the which to degree in the ected f re is today Arctic in the engagement U.S. that is eet f is gaps in cant to f icebreaker limited with two the signi vessels, U.S. to lag Now, its behind. capability development. community and Arctic, the in capabilities defense infrastructure, in investments ects of an accident? What kind kind What accident? an of ects f e long-term the from residents its and environment Arctic the protect regulations of implementable solutions will help to mitigate the risks associated with resource development? policy long-neglected a is Arctic the However, prosperity. American t f bene to potential the have trends ese T published recently have agencies other and DOD, House, White the though even States, United the for area As the physical and technological limitations decrease, the question must be asked: Are the Arctic nations ready to to ready nations Arctic the Are asked: be must eyes question the their have decrease, that operators limitations Which asked: technological we and analysis, physical What this the In As environment? activity? Arctic extraction for physical the to pressure risks the increased are What manage from? come partners their do Where Arctic? the on 8 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security as well capitalized (and therefore able to fund cleanup) therefore(andExxon. as fund capitalized ableto well as onecountry would become involved because of currents (see Figure 4) and the drilling company will not be (the United States) were a fected (see Figure 3). In the Arctic Ocean, it is more likely than not that moreshould rememberedthanbe that only onef verynancially responsible company (Exxon Mobil) andone country as conditions.Ironically, bad best as the under even difcult, introducedaquaticistheoilenvironment, Once tomix.not water and do oil process removing theofis it spills.Regulationsoiladvanced, havealsoreducingspills.likelihood However,ofthe remains factthat the interveningyearsspills,betweentwohavethe we developed bettermethodscontaining of cleaningand up Horizon operationsrecoveryandbetween up clean e fectiveness inof degrees populations.varying Te chain,economies,foodlocalthe oftopsurrounding health of thevery bottomspeciesandfrom thethe to In both cases, the majority of the oil spilled has remained in the aquatic ecosystem, having legacy impacts on remained in the sound [14]. the of skimmers,applicationoflacktheand percent equipment forspreading ten chemicaldispersants oilmeantthe mostof than less and billion, mechanicalclean$7 up,chemicaland dispersants. However, unfavorable exceeded weather, readilyoflackavailablethe burning, situ claims technologies: in same theand ofemployed manyGuard U.S.Coast Tcosts e recovered[14]. was up oil clean and Alaska, Sound, William than successful Comparedto the 1989 consuming proved bacteria ef to on be ective removing dissolved natural gas, but not oil. 265,000 barrels that were burned came at the cost of releasingzone. toxicBurning edioxinsf ortswere also[13]. only marginally Finally, ef ectivethe usebecause of hydrocarbontheoil emulsi fedquickly. because Twindapproximatelye and wave action was su fcient Using availableine fbooms. ofshortageboomsprovedective were hampered efbe upa bythe orts to Clean to 13]. push the oil over or under the booms ofthe percent 50-75 up,clean between and beyond the containment to attempt to contain and remove the 4.9 billion barrels of spilled oil [12]. Despite over $14 billion dollars spent on Figure 3.Impact oftheExxonValdez Spill, credit:Dorsett2010 and ExxonValdez DeepwaterHorizon ExxonValdez can be attributedcanbe severalto factors. fTrsteand most obvious time;isthe20in . ExxonValdez spill,recovering the spilled oil inPrince William Sound was much less Deepwater Horizon spilled more than 260,000 barrels ofcrude oil into Prince spill was never removed from the Gulf of Mexico [12- ofMexico Gulf the from removed never was spill ExxonValdez facilities. enough to overwhelm regional medical infux of 10 critically injured patients is suddencommunities, theArctic most In injuries. for treated and evacuated be to needed 115 remaining the and 11 employees explosion,were killedexplosionthein the of time the at rig drilling the board on were members of case the by.Inpersonnelclose supplies, trained and equipment, necessary the having on rely they can nor action, wave minimal and winds low on rely cannot plans response oil Arctic, the In was on the Alaskanthewason coastline, it epae HorizonDeepwater , 126 crew crew 126 , Deepwater Unconstrained Foreign Direct Investment: 9 An Emerging Challenge to Arctic Security Figure 4. Arctic Sea Currents, credit: AMAP credit: Arctic Sea Currents, Figure 4.

e Arctic is key strategic terrain. Russia is taking aggressive steps to increase its presence there. there. presence its increase to steps aggressive taking is Russia terrain. strategic key is Arctic “e T the Arctic.” for strategy integrated an of the development I will prioritize Sullivan (R-AK), Secretary of Defense James Mattis stated: airmen. airmen. ese T factors result in natural a for transportation, shipping, environment operating challenging resource extraction, and national defense activities. Even though there is exist, little challenges has been done broad to the mitigate risks with agreement that associated the development inevitable that these is now in present the Arctic and the security risks geostrategic associated with associated new sources of Dan Senator from to a questionnaire response a In written [11]. activity other and routes, transit resources, e absence of these legal frameworks puts puts frameworks legal these of absence e T interests. other and sheries f to spill a from damages residual and attention. demands and risk at region Arctic entire the pollutants that the risk increases that currents powerful with environment Sea closed e is T a Arctic nearly will quickly disperse and in mariners to Arctic dangers waters the and enhancing remain regions, there other in for than a reliable less far very are resources long period communications of time. and Navigation e cost of clean up operations, even for a smaller spill, are estimated to be much higher in the Arctic due to to due Arctic the in higher much be to estimated are spill, smaller a for even operations, up clean of cost e T in equation e T to removal the Arctic. unique factors other and sea visibility, low ice, weather, the extreme or chemical via in burning situ be ice remediated oil under cannot since complex more is the much Arctic cleanup for compensated are states ected f a that ensure would that is ere also no T framework dispersants. ships ships using high sulfur fuels reduce the albedo of the which Arctic, drives a positive feedback loop where more solar radiation is absorbed by communities the indigenous for ice, causing more catastrophic be ice could is T to [15]. melt, absorbed is reducing the radiation albedo more as of faster the it region, warming and livelihood. their and food for Ocean Arctic the upon rely heavily that ability of the Arctic Ocean to naturally naturally to Ocean Arctic the of ability much is pollution of impacts the er f bu lower than in warmer climates [15]. Lastly, the soot, aerosols, and other contaminants that are emitted by ice, it is inaccessible to up clean crews ice, it is inaccessible and will be by dispersed the powerful currents in the Arctic Figure Ocean 4.) (see Low temperatures mean that that the chemical breakdown of is much and slower contaminants the Arctic Arctic Ocean over a ten year period and found that oil moving under ice distances long over transported be can before surfacing from below ice oes f [15]. Once pollution is beneath the A A study completed by the Research Council of Norway examined ects f e of the oil and gas drilling on the 10 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 2 • • • • • • will seek to accomplish the following tasks: is vulnerable to fracture. Because the risk of physical, environmental, and political losses statesis solack the great,mechanisms thisor infrastructure study to respond to an incident and the cooperative nature of politics increasedue totheallure ofaccess tonewresources, therisk ofan incident increases. Right now, theArctic current legal regime. Arctic politics are ofen described as “High North,economictraditionalrelationstheupsetpolitical oror willcapital that amountslarge Low of of in f owsTension,” the or but as human activities largeinnumbersforeignoffowstheresultpoliticalof workersof ofupheavalchemical arisk spills; theas pollutionfrommining, smelting oroilandgasactivities; risktheofgroundwater pollution frommining or exploredthisinpaper include largetheriskofa maritime pollution incident froman of shoreplatform; air UnitedStates.the NorwayandCanada, mining,f shing,and oil and gas in the six countries bordering the Arctic Ocean: Russia, Greenland, Iceland, regiontheto fromsoaf -power perspective; suchrisksasthat result fromoutside investment realestate,in examinenon-militarywillpaperArctic.Speci Ttheis security issues finrisks cally,at look study willthis

region Arctic the in FDI of efadverseects moderatethe optionsftolegislativenancialExplorevarious and to properly regulate it Document the capacity of the Arctic littoral states to have an awareness of FDI and the authority and will Document actual patterns of FDI thatrelate anddevelopmentFDI to those activity issues—including security with deal tocapacity its andArctic the regulatoryclimatein and legal current the Describe studies case past on Discusshow foreign direct investment (FDI) patterns and other development cana fsecurity,ect based towards the Arctic policiesU.S.identifynon-militarysecuritycontextandand military a both in securityArctic Def ne An argument made canthat be Finland and Sweden should included be discussion are inthis since they char were to occur. an countries Arctic coastline since Ocean those with aphysical coastline are directly at risk ifan incident ter members of however, Arctic the Council; we have chosen to limit countries to our those inquiry that have 2 ose to be manydiftocontexterent forms.incomesTthis ose in Risk - Unconstrained Foreign Direct Investment: Arctic SecurityAn Emerging Challenge in to Arctic Context Security 11 - - , but , Ice Ice Station Zebra USCG High Latitude Regional Mission Analysis Mission Regional Latitude USCG High

4 , a paper by the Congressional Research Service, discusses how the United States, Canada, Canada, States, United the how discusses Service, Research Congressional the by paper a , is is in is Tis Concept. Operations the Naval of requirements presence “continuous it maintain to icebreakers and Congress However, helicopters[20]. multi-range and cutter high endurance additional one to addition are there But icebreaker. each with comes tag that price the billion $1 balked at administrations successive be security occurring. may e 2017 De national T U.S. and the Arctic in thinking about a change that signs a new USCG icebreaker. for funds in procurement $1 billion Bill does include Appropriations fense rst Russian military exercise focused on protecting civilian facilities in the Arctic. in the facilities Arctic. civilian military focused protecting exercise on Russian the frst was Tis conditions. e submarine T shelf. continental the Arctic along work in exploration also is participating Navy e Russian T use in Russian for collected samples that mission exploration in the Arktika-2012 Losharik, involved was shelf. continental the Russian part of are Ridges Mendeleyev and the Lomonosov that prove to orts ef the entitled review, at T structure. force its to in relation four another and ful legal to responsibilities f l its six ice breakers requires the Coast Guard that concluded nent. As part of this exercise, coastal defense forces engaged in a sea-borne landing on Kotelny Island in the Island Kotelny on in a sea-borne landing engaged forces coastal defense this exercise, part of As nent. in Arctic military test feld equipment to and reconnaissance conduct to in order Archipelago Novosibirsk In 2010, the Coast Guard commissioned an independent review of its statutory and national defense missions missions defense national and statutory its review of independent an commissioned 2010, the Coast Guard In cant Arctic compo Arctic a signi fcant included that post exercise command a major conducted October 2012, Russia In By contrast, U.S. investments by DOD and the U.S. Coast Guard have been extremely modest; and and modest; been extremely have Coast Guard the U.S. DOD and by investments U.S. contrast, By 3

4 urged that NATO member countries should go to great pains to not allow the Arctic to become an area of military military of area an become to Arctic the allow not to pains great to go should countries member NATO that urged Russia but fairs, a Arctic of discussions for be to a forum continues this NATO writing, of [22]. As competition 3 e text of the 1949 1949 the of text e T operations. NATO of theater a is Arctic the economic whether exclusive sea, regarding NATO territorial within territory, remains land the schism include to read easily be can Treaty Defense Mutual states NATO Some concern. military of robust area more an a be and Iceland. Norway have should Greenland, Canada, to (CS) of shelf areas Arctic States, the like United the zone and (EEZ) continental that would and NATO icts f within con future consensus of no site the however, be is, ere T could states littoral have eer, Arctic f Sche six Hoop the de Jaap that General recognize Secretary NATO former like Others, [22]. Arctic the in presence military areas. fcient. insu accounts, most by a Yet [21]. suit followed has extent, some to Changes in the NATO, Arctic exercises. Arctic annual their continued have Denmark and President President Putin has been gradually increasing the size of the Russian military contingent in the Arctic. Shortly er f a sending the fc scienti mission to the Arctic Ridge, Putin ordered the resumption of regular is investing Russia f, and aircra patrol anti-submarine and bombers strategic the Arctic by over patrols air scarce capital in additional icebreakers, special f anti-aircra missile systems, and naval modernization units based of in its and around the Kola Peninsula (near Murmansk)[16-19]. ere T have been similar in is shelf its its that theNavy claimed increasing naval deployments continental Russian announcements were also a venue for interaction and competition between U.S. and Soviet submarine forces. To this day, both both day, this To forces. submarine Soviet and U.S. between competition and interaction for venue a also were and bases to strategic of proximity its because in this region operate routinely Russia and States the United points. choke navigational Military competition in the Arctic has cooled down since the Cold War days of e United States and Canada operated a network network a operated Canada and States United e T domain. security national “hot” very a be to used Arctic e T to Line, (DEW) Warning Early Distant the including north, in far the based stations radar warning early of of e T Soviet bombers. give of constellation the DEW early warning Line attacking uppermost comprised seas e Arctic T territory. Canadian on primarily Circle, Arctic the of north situated were that stations radar Arctic Security in Context 12 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 6 5 disaster and emergency response, regional maritime domain awareness (MDA), ice and weather forecasting, Some areas of Navy expertise include such areas as international science and technology (S&T) cooperation, thatapartfrom itscontinued submarine operations, continuewillit playsupportingtoa roleArctic.thein Arctictheinandmore infrastructure supportto thatpresence [28].But,Navythe careful beenhas state to presenceDODincreased an planningfor been alsoU.S.haveNorthern CommandandNavy T eArctic. transitingthe throughor Arctic the in basedcombatanteither shipsof number the inincreases propose not does Roadmap Tat charting. hydrographic and sharing information awareness, domain maritime TU.S.e Navy Arctic Roadmap 2014–2030 projects anincreased U.S. Navy role inthe Arctic inforecasting, credible U.S. Coast Guard, Air Force, and Army Corps of Engineers footprint in Southern Alaska. smallamount of existing infrastructure [27]. T esepolicy statements should also readbe inthe context of a the modernizing to commitments DOD increased ofexamples as Iceland,cited wereKeatStation avik, f Air refurbishment of Tule Air Base in Greenland and recent improvements to a hangar at the former theincreasingU.S. geopolitical Navalimportance ofthe region and theneed toevolve posture. DODArctic infrastructure.deterrence a Te maintain to Arctic the in exercises Congresscontinued discusses to Report 2016 Te events[26]. military to addition in activity increased contingencies this for with associated plan to need commands combatant the that, Given tourism. and f shing, extraction, experience.laterTdocumente recognizes also increased the human activityregion theresourcetoduein strategic partnerships to increase its regional expertise and obtain “small footprint” cold-weather operationalTe DOD’s 2013 Arctic Strategy, and its 2016 Report to Congress, state that DOD will continue to build on its con Wefict. cannot history, this erase we can assure that not does history repeat itself Arctic”[25]. inthe byfollowed swi fly was discoverytime, afer timefrontier. Andnext the discover to raced has mankind ensuretomankind peaceasthe discovers this“next frontier.” AsHagel putTit:roughout“ human history, oil and gas reserves, the DOD cannot rule out the possibility that a greater military presenceformer will beSecretary necessary of Defense Chuck Hagel said that given the rush by nations to exploitan emerging the military Arctic’s threat…and the strategysubstantial seeks to…keep the region as peaceful as it already is” [24]. conjunctionButinheld rollout, thewithseniordefense DOD o f assertedcials“no thatassumption thereis of 2013 policy issued by President Obama and does not dwell on security threats or issues. In a OnNovemberpress 22,conference2013, DODunveiled its strategy for theArctic. TDODstrategye complements theMay expressed its position that NATO should playconcerns increasing a roleinvarious voiced in has settings seeking contrast, by aboutNorway, to what[23]. check itmattersregards those Arctic astroublinga in increases role increase a [22]. has NATO inRussian that believe military not activities inthe Arctic, and has made it clear that it will not cooperate with NATO on Arctic matters. Canada has also maintained that it does

more of critically Russian [27]. activities military In general, 2016strategy document the portends aslightly more robust role DOD Arctic inthe and speaks Te U.S. Guard Coast hasfcant asigni footprint budgetary Arctic inthe to implement its traditional fsheries construct lands. facilities on tribal maintain harbors along Alaska’s coast, restore former lands, DOD provide and erosion food control, and for construction various projects military as well as sizable number of public civil works projects to build and nents and Army the of Engineers Corps (headquartered on Fort Wainwright). has responsibility Te Corps research Most activities. of Arctic the research funding has historically done been by various Navy compo C-130 aircraf. Te Department of Defense has anumber of major inAlaska and bases funds avarietyof includes also District medium- 17th the and high-endurance cutters, buoy tenders, 12helicopters and four response. Guard’s Te Coast consists District 17th of roughly 2,500 personnel at posted and bases air stations enforcement, search and rescue, safety of navigation (and maintenance of navigation aids), and oil spill 5 e report also recognizesalsoreport T e 6

- Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 13 - - but those those but 7 e sanction on the oil companies seek to ban co-operation co-operation seek ban to companies the oil on e sanction T Switzerland Canada, Japan, Norway, EU, the U.S., Corp. Mobil Exxon as companies energy services such on technology frms and oil include and Russian with those sanc of some of seeking is a waiver Mobil Exxon reports, press recent to [30]. According Plc. BP and reportedly request e waiver f in 2012. T Rosne with established which is venture respects the as joint tions blocks. Arctic any cover does not ere have been multiple rounds of sanctions culminating in sanctions directed against the Russian energy the Russian against directed sanctions in culminating sanctions of rounds been multiple have ere T develop resource in Arctic active banks. Both those are frms of large two and Novatech f and Rosne frms based included and broad 2014 was of beginning in the summer sanctions of round e third activities. T ment

in the Arctic, or a compelling reason for one to develop. develop. to one for reason compelling a or Arctic, the in 7 imposition of sanctions against Russia from 2014 for the Russian intervention in Ukraine by the United States e T States dispute. a territorial of because United another one with the war to go to likely by are study this of subject the are Ukraine that in intervention Russian the for 2014 from Russia against sanctions of imposition and European (EU)Union may have heightened political tensions between the various countries, or to resources access over Region in the Arctic on disputes uence f in no had visible have tensions spending political and patrols military in increase some in result may Europe Eastern over tensions race” Political “arms territory. new a is there that evidence no is there but infrastructure, and modernization force in sides all by All All of the six countries are largely in agreement that UNCLOS governs the exercise of their international rights in common areas. is T does not rule out a future scenario and EEZ where their outside states that patrol to wish forces air to and land upset deploy increasingly would states littoral where or quo, status the and acts criminal at piracy, incidents, of environmental shing, illegal for f shelf areas instances continental sea. But at this point, there does not seem to be evidence that any any compelling of the six Arctic states delineate their Exclusive Economic Zones in the Barents Sea around the Svalbard Islands. And, Russia has been been has Russia And, Islands. Svalbard Commission the UN e T around Sea Arctic. Barents the the in in Zones shelf Economic continental Exclusive their extended an delineate to claim lay to process the with complying fully of the Limits of the Continental Shelf (CLCS) will probably the theIn 2016 DODshelf. “respects Reportit DODtheir that of extended to limits Congress, continental stated take years to help the parties demarcate the outer process” that Russia is following to delineate whether it is entitled to an extended continental shelf [27]. resources [22]. However, the authors are of the view that that competition over resources is not likely to cause a cause to likely not is (see resources over adjudicated competition being that are that or view the of benign are authors the comparatively However, either [22]. are resources Arctic the in disputes territorial the boundary because adjacent ict f their of con delineation involve that Canada with disputes two has States e United T 5). Figure is ere T Passage. Northwest of Canada’s the status over disagreement Sea a and longstanding in the Beaufort to have still Norway and Russia Island. of Hans the status over Denmark and Canada between dispute small who opined that there are U.S. strategic interests in the Arctic that justify a modest military presence, including including presence, military modest a justify that Arctic the in interests strategic U.S. are there that opined who but enough to are outreach, not anything those support “yet interests prominent However, S&T missions. planning and small-scale summer deployments” [22]. buildup (force activities military Russian recent to point Wezeman, Siemon as such analysts, independent Some to over access as of that causes could be there concern armed competition future and base improvements) e Roadmap and DOD’s two policy statements also clearly state that DOD’s activities in the Arctic will have have will Arctic the in activities DOD’s that state clearly also statements policy two DOD’s and Roadmap e T to the Arctic like would planners defense U.S. because particularly priorities, budget other with to compete former the of views the of representative also is is T buildup. arms an or competition military of free remain Representative) Arctic Special States’ the United (formerly Papp, Robert of the Guard, Coast Commandant and hydrographic charting and mapping; and are noted as areas in which the Navy could play a more active active more a play could Navy the which in areas as noted are and mapping; and charting hydrographic and of in Russia role. and Engagement activities, the these cooperative in role of airs, f Arctic are NATO a not [29]. policy two statements DOD’s or Roadmap in the Navy addressed directly 14 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security

Figure 5. Arctic Ocean Territorial Claims, credit: UniversityofDurham 8 estimated at about 15 percent. Put another way, because of the broad spacecontinentalthat is classi fedas “international margins inwaters” the Arcticand sea clearly amountsofOcean, beyond actual consequence,the jurisdictionthe a of Asany miles.nauticalcoastal country200 is ofexcess continentalin shelfa claim to jurisdiction of coastal countries. Te shallow depth of the Arctic Ocean means that the countries are entitled dottedareasredunquestionablyareoutsidelinetheall Figure of shown5; in resource andlegal underthe tothe entitlements of states under the 1982 UNLaw of theConvention Sea (UNCLOS). Tis relationship is directionscountriescoastalwatercolumnthatduemeanssignihaveallinterests the f legalcant in landin Eurasiaby andNorthAmerica, closeproximitysmallandsizetheTissome sea.classify Arctic a the as of smallest and the shallowest of the fve major oceans. Because of its size andacross continent.the the Infactcontrast, thatArcticthe region essentiallyisit maritimea is region. nearlyArcticTe Ocean theis surrounded residents,but anywhere from 1,000 to5,000 people reside throughout theyear at research stations scattered Antarctica is a continental land mass that is roughly twice the size of Australia. Tere are no permanent human mostly under the control of individual states. the scope of academic interest. Te Arctic is, for most purposes relevant to this study, a maritime region and anysinglestate’sundernotis that arealand Antarctica a isocontrol anyactivityf-limitsisbeyond toand broadestpossiblesense,theperspectives. In ofcompletelyvariety regionsare di athe fthough fromerent Analystsomakefmistakethe enlumping of ArctictheAntarcticandthe into“polar”a policybasket, even Legal Structure: Antarctica vs.the Arctic asserted while the present the while asserted treaty is inforce” [31]. Antarctica. No claim, new or enlargement of an existing claim, to territorial sovereignty inAntarctica be shall supporting or denying aclaim to territorial sovereignty inAntarctica or create any rights of sovereignty in that “No present the or place acts while taking activities treaty is inforce constitute shall abasis for asserting, quity. Te ’61Accord didnot expressly renounce claims; those however, agreement the diddeclare IV) (Art - claimed sovereignty over areas of Antarctica, on basis of the discovery, exploration, or geographic propin Treaty, nations seven -Argentina, Australia, France, Chile, New Norway, Zealand, and United the Kingdom 12 UST 794,TIAS 1,1959.Entered 4780, December into Force in1961.Prior to conclusion the of 1961 the no nacia xet o scientifc for except Antarctica equipment onto or personnel not introduce may they and continent, the waters on or land eitherthe to sovereignty claims make can country No that countries. Treaty seven of claims the shelved Antarctic 1961 the in established was commons global the of part as status Antarctica’s special country.singleanyjurisdiction of the under not is it because Commons” “Global as classifed is area entire its seabed,deepouterLikethe andspace legally.dientirelyferentisAntarctica being part of a “Global Commons.” columnbelongssinglestatesto versus Ocean’sthe waterofmost and seabed - 8

Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 15 - There There is no evidence that there is a new “arms Arctc, race” or a in compelling the reason for one to develop

9 e 1991 Protocol on Environmental Protection to the Antarctic the Antarctic to Protection Environmental on e 1991 Protocol T es (CCMLR) based which is in Tasmania. 50 years least at for activities” resource all “mineral on enacted a ban Protocol) the Madrid as (known Treaty [31]. Fishing is regulated by a treaty-based Commission for the Conservation of Antarctic Marine Living Resourc Living Marine Antarctic the Conservation of for Commission a treaty-based by regulated is Fishing

9 e Council, as noted, has been has as noted, e Council, T India. and Japan, China, including nations, observer six plus states eight to Aeronautical in Cooperation on Agreement 2011 a instruments: international two brokering for responsible and Maritime Search and Rescue in the Arctic (SAR and Agreement) a 2013 on Agreement Marine Oil Pollution Preparedness and Response in the Arctic. T ese agreements help identify regional goals and points rmed in the Ilulissat Declaration that sovereign rights rights sovereign that Declaration Ilulissat the in rmed f a Ocean, Arctic the bordering states ve f the 2008, In in the Arctic by are predetermined UNCLOS and that the to ected f a the states remain “committed legal of framework” UNCLOS [32]. e T also Declaration stated that the safety ve f Arctic improve to littoral states measures new would develop work and measures additional strengthen “to IMO the through Over together Ocean”[32]. Arctic the in pollution based ship of risk the reduce or membership prevent its and expanded navigation as maritime well of as airs f a Arctic in prominence greater assumed has Council Arctic the time, promoting cooperation, collaboration, and collaboration, cooperation, promoting between integration Arctic nations, indigenous communities, of up made is Council Arctic the Declaration, Ottawa the by 1996 in Founded inhabitants. Arctic other and e T for has Council groups. Arctic been and responsible indigenous six nations eight member permanent rescue. and search and response spill oil to relating regimes coordination some brokering the marine environment (Part XII) and provisions that enables states to establish special protective measures to to measures protective special establish to states enables that provisions and XII) 234). (Part (Article environment covered marine ice the are that waters in pollution vessel-source prevent Organization or Union European the (like organization management regional overarching no is there ough T for Economic Co-operation and Development (OECD)) to addresses common is issues; the closest thing theto e T a body. Arctic governance Arctic regional Council forum is for an intergovernmental Council negotiated under the auspices of the International Maritime Organization (IMO). With the exception of the the exception With (IMO). Organization Maritime of the International the under auspices negotiated of is a the Arctic do limited entitlements so ect because the Arctic f a and a that laws rights To maritime the the various Code, UNCLOS. Polar from concluded Consequently, recently rules. derived Arctic ect f are a special are there adversely resources, because its not than use do or rather land region, Ocean, on maritime Arctic activities the in their that territory to ensure claims to make states to states require that policies establishes UNCLOS extent, authority over Arctic activities. Arctic Regulatory Scheme The bilateral laws, domestic national including arrangements of legal by a collection small is governed e T Arctic conventions maritime international of variety a and law, customaryUNCLOS), as (such treatiesglobal agreements, other activities; however, all forms of mineral resource resource mineral of forms all however, activities; other extraction are banned for Save the for UNCLOS, foreseeable there is future. no overarching, legally airs f or Arctic a that treaty a addresses binding treaty that has organization to mandate regulatory exercise research purposes. Also, management of of airs the f a management Also, purposes. research is Antarctica handled by various treaty organizations and program, science the shing, f shore f o regulate that 16 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 12 11 10 claims is strongly urged by authors. the treaties. other or UNCLOS in established procedures settlement dispute mandatory many of scope the beyond facilities, shore-based and vessels from resulting pollution marine control to laws domestic adopt states that requires UNCLOS generally.environment fnancially responsible for pollution from its territory environment.that harms another state or marine for damage country to another the marine hold the to foundation legal sufcient pollutea provides UNCLOS whether thatexist concerns Similar activities authorizing country’s another with interfering from Tere is a wide diference of opinion as to whether UNCLOS is sufciently prescriptive to stop one country latter respect, the extent to which the eight countries regulate these activities is not uniform. and port operations, as well as mining and industrial operations that impact the marine environment.nation’scoastalArcticeach 76,In and this domesticgovernhydrocarbonlaws development, faquaculture,shing, operationsmostprinciplefthe ag-statebecauseofof control. contrast, In60,UNCLOS underArticles 58, coastalstates havelimited powers overmost aspectsshipof operations including design,construction, and registered,is coastalandstates. demarcation Tis especiallyanimportantis matter since,underUNCLOS, establishes important jurisdictional lines between fag states, the state also under UNCLOS whose laws 56). a commercial Article (UNCLOS including continental shelves vessel and zones, zones, economic exclusive jurisdictional seas, territorial legal and resource important establishes UNCLOS foremost, and First the frst step in the analysis of the legal framework of the Arctic is to determine what UNCLOS provisions apply. in the Arctic region. And, sinceactivities regarding therules normative Arcticthe of most establishes OceanUNCLOS area, maritime a is mostly is the Arctic anchorthe Since for most economic activities in the Arctic region, UNCLOS andthePolarCode [32]. authority regulatory or broker policy a as act to Council Arctic the empower agreements these do Nor contactof forcooperation notcommitbutdothey statesanythe of regulatory to activities anyorfunding.

Articles 286andArticles 287 confers on jurisdiction UNCLOS related disputes to four but bodies exempts (inArticle 192statesArticle that “States have obligation the to protect and marine the preserve environment.” Tere are Canadaand RussiaBoth have regulations enacted that govern shipboard passage respective intheir polar it declined to exercise [34]. jurisdiction were other European Treaties that had dispute settlement provisions that took precedence over UNCLOS and release of waste radioactive from aMOX plant into ITLOS Irish the ultimately Sea. that determined there Tribunalal for (ITLOS) Law to the of issue Sea the an injunction to forbid UKfrom the permitting further somehow to linked [33].Ofnote, trade be 2001Mox inthe Plant Ireland Case sought to get Internation the and multilateral agreements trade usually ofer states abetter option (and remedies) long so as matter the can for is this that obligations the inUNCLOS are broad so as unenforceable to be and, for reason, this bilateral mechanisms have not ef past inthe ectively to been enforce used environmental norms. One possible reason Philippines and that China by was decided an UNCLOS Arbitral Panel in2016,UNCLOS’ dispute settlement vironmental protection matters are fair game. With possible the exception of recent the dispute the between 297 and categories 298) certain Article of disputes such relating as those matters to military and fsheries. En 208)and (Article activities atmosphericseabed pollution of marine the environment 212). (Article fc provisions speci also with dealing pollution from sources land-based 207),vessels (Article 211), (Article U.S.fc regulations. few Arctic speci has very ing passage the of ships through its Route. Northern Sea Apart fromrespecting oil and rules gas the activities, ships Canadian inthe Arctic. Te Russian Federation has developed an elaborate regulatory regime govern areas. Canada’s NORDREG establishes amandatory ship reporting system and azero-discharge for rule all 12 Because of these gaps,of reciprocalofsomesort these Because standards ofand resolving methods disputes and 11 iy n i probably is and fcity speci lack provisions the but 10 - - - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 17 - Likewise, if the current projections projections current the if Likewise, 13 ” there are numerous exceptions to the Polar Code to the Polar exceptions numerous ” are there Addressing the Gaps in Arctic Governance should not normally be entitled to sovereign immunity under IMO instruments and UNCLOS. However the However UNCLOS. and instruments IMO under immunity sovereign to be entitled normally not should a ectedf by a adversely are that coastal states that means if it fairs a of a satisfactory state not is “should” word ectedf commu the a that require or payment who barriers erect to lawyers dodge PRC to have incident PRC in Chinese sue courts. to have nities Even though these ships are ultimately owned by state, these ships are engaged in commercial service in commercial engaged and are these ships state, by owned ultimately are these though ships Even e large Chinese shipping company COSCO is a state-owned conglomerate of separate shipping companies. companies. shipping separate of conglomerate COSCO a state-owned is company Chinese shipping e large T

imprudent practices or to recover money damages for the costs of damages to the marine environment is not not is environment marine the to damages of costs the for damages money recover to or practices imprudent 13 likely transboundary impacts of an incident [37]. While it is in theory possible for one or more states to legally legally to states more or one for possible theory in is it While [37]. incident an of impacts transboundary likely by environment marine the on impacts deleterious has that incident particular a over state another confront using that mechanism, the is mechanism cient. f e UNCLOS T de dispute-settlement recent South China to the of that protect states duties precedent an important establishes China, v. Philippines Sea arbitration, the marine is environment “fair game” in an UNCLOS dispute settlement action [38]. Even though the case Philippines was very the far-reaching, ability of one state to enjoin the action of another state from existing shipping channels, charted areas, and rescue infrastructure. infrastructure. rescue and areas, charted channels, shipping existing Some academics and the U.S. Department Advisory of Board State’s are starting to take note been have of measures outside no concrete yet as of but eld, f gas and in oil the particularly in Arctic, the investments the and coastline in the near and Arctic exploitation resource with associated the issues to address enacted costs of responding to and cleaning up a shipping accident or oil spill would be far more technically complex and and complex technically more far be would spill oil or accident shipping a up shing f cleaning for V) and to Chapter SOLAS, responding (under of costs exemptions preserves Code the of Lastly, scope the from waters. service warmer in than non-commercial on expensive ships government-owned and auxiliaries naval warships, vessels, that vessels merchant own and operate states some because is very problematic is T exemption its coverage. immunity. sovereign claiming by responsibility legal evade potentially could the far from place will take vessels by exempt shing f materialize, sheries f of new high-seas later) (discussed as discussed in “ to owners ship from accident an of risk that nancial f and fact the operational the of most f shi and problematic be could that tons—notwithstanding 500 below ships to the apply not that does Code liability fact Polar the the First, ship-owner [11]. despite increased states about coastal limits, nothing says Code e T insurance their materials. noxious increases carry f cra or coastal costs smaller many cleanup and response for conventions IMO under (dependent on ice conditions), a mandatory reporting scheme for ships entering the Barents side of the Arctic Arctic the of side Barents the entering ships for scheme reporting mandatory a conditions), ice on (dependent liquids. noxious and oil carrying ships February for In requirements separation hull/tank and Ocean, direction. right the in step major a is 2017) in ect f e into went (which Code Polar the Unquestionably 2017, the ship-safety certi fcation company, DNV GL and certi fcation of compliance with the a the ship’s new Polar Danish Code: the anchor Maritime handling tug Magne Authority, Viking [36]. made But the frst ag states, but there is the possibility that states could enforce vessel standards via so- standards restrictions— vessel enforce safety could states that and is the there possibility but the ag with f operational states, Code rests of number a contains Code e T [35]. measures” control state “port called entering before zero ship in or to owners including requires discharges limited that polar cate ensure f their waters—and certi crews polar a possession their in have and equipment safety and requirements training hardening specialized special have are there region, polar the in operate will that ships new For waters[35]. polar ort that increased governance in the Arctic was the IMO’s recent enactment of the Polar e Code. T of the Polar enactment recent in was the the Arctic IMO’s governance increased ort that f One e 500 above ships other any and ships passenger all to applies and 2017, 1, January on force into entered Code of the 60 above in Polar north. degrees Like enforcement tons operating latitudes most IMO instruments, 18 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 14 injured citizens. accidentinanother country would— likely have to absorb the costs of cleanup and the compensation of its is fair to say that in most cases, a country that incurs damage to its Arctic seeking coast — as a result or of an industrial occurred incident the collection where against country an insurance the policy, in assuming entity one ofending was available. the Because suing of the difculties lef of doing be this, it would incident that creates a claims process and a liabilityprecedent. and fund, law states in thatestablished clearly are yet adversely afected by a transboundary pollution

Tere are an increasing number of Provisional the inwhich cases Measures (UNCLOS 290)are dis being industrial or shipping incident that a Arctic the marinefects environment come up with aprocess or forum for with extreme dealing the costs (and liability) associated with alarge in that direction. Tat development would a good be inArctic governance states coastal ifthe are unable to get an injunction 290or under Article sue for money damages; although, law the slowly to seems be evolving UNCLOScussed. related litigation is not yet at point the where one state can go to an UNCLOS and body 14 Tis means that absent some sort of multilateral instrument - Unconstrained Foreign Direct Investment: ResourceAn EmergingAvailability Challenge to Arctic Security in 19 the Arctic be proven by further exploration. An estimated 45 percent of these resources are located in Alaska [44]. While While [44]. Alaska in located are resources these of percent 45 estimated An exploration. further by proven be still unproven, 84 likelihood percent the of estimate these to reservesmethodology are anticipated probabilistic to geology-based be used located (CARA) fshore o [44]. Appraisal T e Resource USGS Arctic Circum- availability above the 66th parallel. And for good reason: oil is one of the pillars that allow modern society to to society modern allow that pillars the of one is oil reason: good for And parallel. 66th the 6). above gure f (see availability regions some in underway already is extraction gas and oil Arctic, the In it. know we as function 1,669 oil, of barrels billion 90 that estimates (USGS) Survey Geological U.S. the by appraisal resource 2008 A to waiting Arctic, the in lie could liquids gas natural of barrels billion 44 and gas, natural of feet cubic trillion Arctic communities Arctic are communities warming up to the idea of as development the of pressures climate change and increase. globalization Oil Resources resource of facets published widely most the of one is Arctic the in resources hydrocarbon of availability e T vast resources of the Arctic become more and more appealing to investors, developers, and governments. At At governments. and developers, investors, to appealing more and more become Arctic the of resources vast the Washington, f cycles same are shi seeing time, due the Arctic just CSIS as communities to change, environmental climate at speech a In services. and goods, food, for demand worldwide more creates globalization potential as “extraordinary the situation described Lisa Murkowski Senator Alaskan 19, 2017, on July D.C., many however, Arctic, the in issue a divisive remains development resource Natural [43]. access” by limited tability. While they these vary processes are in in uniform and tability. stringency, that f duration they prevent pro projects. large in engaging from operators unlicensed was industry time, a long For is in uncertainty. the Arctic availability of resource theme e T overwhelming there exceptions, few very With Arctic. the of environment high-risk the with coping in uninterested the simply dwindle, world the of parts other in resources as But elsewhere. options table f pro more better, been have the region could erupt into an armed mad dash for resources” [41]. resources” for dash mad armed an into erupt could region the there is no Arctic modern-day gold Fortunately, rush. Much has in changed the time that has intervened future[41-42]. the in unlikely actions such making today, and era and colonial the risk, of grabs value, resource of the between standpoint the from resources review that processes permitting have states Arctic the of All oor at the North Pole. Immediately, responses from the global community were vocal and furious. vocal and furious. were the from community global responses Immediately, oor f at Pole. the the sea North the Rice “ is 15th go T the century; airs isn’t around f protested, you for a world minister can’t foreign Condoleezza State Canada’s of Secretary U.S. en T [39]. territory’” this claiming ‘we’re say and ags f plant just and to go before chief legal advisor, the Department’s State to Bellinger, the John by responded event directing Policy: Foreign in predicted Borgerson G. Scott Scholar [40]. UNCLOS of cation f rati the urge to Senate the icts, f con and potential claims to competing solutions diplomatic to develop help leadership U.S. “Without Arctic Hyperbolic analyses of the resources in ag f on the national its planted Arctic Russia when in 2007, was triggered rhetoric of this foretell Much region. of northernmost a 21st-century gold rush in the planet’s Resource Resource Availability in the 20 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security e Dreki Area, east of the Icelandic coast, on the Jan MayenJanIcelandicridge,theexploringthe dioncoast, f oftwoerent oeast Area,Dreki f shore sites. T e EventhoughIceland notdoesfgureprominently largetheinresource projects, smallnationthe activelyis littoral states’ EEZs)[45]. anticipated287 BBOE inconventional oil and gas (these fgures donot include resources that an are withoutside farlargestendowment ofby the hasRussia and BBOE, 25anticipated haveistoNorway BBOE, 39 resourceinpotential, BBOE 34contains Greenland’sCanada hasBBOE, 94 endowmentestimated be isto Teseresources are not evenly distributed among nations. Excluding natural gas liquids, the Alaskan Arctic 51 percent of anticipated hydrocarbons have yet to be proven [45]. Arctic fossil fuel endowments have been extracted, reserves and discovered potential 426make BBOE ofup conventional35 percent, Arctic andfossil fuel endowments [45]. In percentage terms, 19 percentdiscoveredremainingpotential,andunproven the reserves ofupresourcesin make anticipatedBBOE 290 aretheredata, 117 billion barrels of oil equivalent (BBOE) have been extracted as of 2015 [45]. AccordingIn toa numberthe mostof onshorerecent Arctic areas, exploratory drilling for oil and natural gas has already been carried out; proven byexploration. until speculative likelihoodcontainingof millionleastbarrelsnatural50ator oilequivalentof gas estimates[44].Tese are petroleum to deposits conducive structures (see geological fgure 7). withT provincese petroleum-potential geologic 33 areas considered in resources were gas those that and had a oil10 undiscovered percent of Figure 6.Mining,Oil,andGas Activity, credit: Philippe Rekacewicz; Hugo Ahlenius UNEP/GRID-Arendal Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 21 ere are are ere T [49-50]. date to concentrate zinc of tons 1 billion than the more and produced has Dog mined, Red being Circle. Arctic currently deposit, Aqqaluk the Arctic: Alaska’s in deposits lead and zinc large other two it wilderness, unexplored of expanses vast Alaska’s Given [51]. be to mined yet has which deposit, Qanaiyaq is possibledeposits large more that otherof metals mineralsor exist. Alaska’s commercial mining history began in the late 1880’s, when the discovery of gold in the Klondike and and Klondike the in gold of discovery the when 1880’s, late the in began history mining commercial Alaska’s In the to as Alaska[48]. people as 20,000 many a brought rush that gold triggered on of the Nome beaches be would e T discovery Alaska. in northwestern Range in the Brooks discovered were lead and zinc 1950s, zinc second largest mine, Red into the Dog developed world’s mine, about located 100 miles north of the platinum, rhodium, cobalt, and gold. Resources vary and cobalt, Resources gold. from to state rhodium, in state and terms platinum, of type, size, quality, and with Each and experience mineral also histories metal nation erent has extraction. f di vastly quantity. and Regulatory restrictions Arctic toward national mining attitudes ect the f a in the of resources perceptions the viable cance f signi of commercially of quantities the Consequently, economic country. each in restrictions, deposits legal various accessibility, technological terms in also but distribution of terms in only not vary reserves. of size proven and viability, but the variety and quantities have yet to be determined [47]. [47]. determined be to yet have quantities and variety the but palladium, Mineral Resources phosphate, copper, bauxite, iron, diamonds, zinc, nickel, minerals: of quantities vast holds Arctic e T cant hydrocarbon resources, though exploration has yet to prove exploration though resources, hydrocarbon cant f signi for to the is have potential thought gas, hold to expected also is Iceland north-central of coast f the o Area Gammur the Similarly, reserves[46]. Figure 7. Undiscovered Oil Estimates by the USGS Circum-Arctic Resource Appraisal, Credit: USGS Credit: Appraisal, Resource the USGS Circum-Arctic Estimates by Oil Figure 7. Undiscovered 22 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Table 1. Prospective, Active, and Closed mines in the Canadian Arctic, adopted from Boyd et al., 2016 REE deposit Blatchford inthe Complex Lake [51]. on Yellowknife Bay; the Ekati diamond mine in the Northwest Territories (see fgure 8), and the Nechalacho onBa fnIsland; Izok Lake copper, of zinc, lead, and gold mine near the Coronation Mines Gulf; the Giant gold mine 1. notable size are: are Mary River iron table mine they in so summarized list, to numerous too are Arctic Canadian the in deposits known of probability number or Te [51]. models geologic discovered by been predicted either have tungsten and silver, molybdenum, copper, gold, lead, zinc, of deposits numerous Cordillera, Canadian the the in in west,To the[51]. ShieldCanadian located are diamonds and (REE), elements earth rare uranium, iron, nickel, copper, Gold, deposits. TeCanadian Arctic is rich in mineral Keno Hill Silver High Lake Hasselberg Hackett River Goose RevenueGolden Giant Mine Gayna River Ferguson Lake Izok Lake Howards Pass Faro Mine Ekati Diavik Crest Courageous Lake MineCon Cofee Casino Andrew lake Deposit Active Mine Not Exploited Not Exploited Not Exploited Not Exploited Not Exploited Not Exploited Not Exploited Mine Closed Not Exploited Not Exploited Closed Mine Closed Active Mine Active Mine Not Exploited Exploration Mine Closed Not Exploited Not Exploited Not Exploited Status Territories, Canada), credit: Jason Pineau Jason credit: Canada), Territories, Figure 8.BHP Billiton'sEkati Diamond Mine(Yellowknife, Northwest Gold, Lead, Zinc Gold, Lead, Copper,Zinc, Gold, Silver Lead, Lead Zinc, Copper,Zinc, Gold, Silver Lead, Silver Lead, Zinc, Copper, Lead, Zinc, Gold, Silver Gold Gold, Silver, Copper, Molybdenum Gold Gold, Silver, Lead, Zinc, Gallium, Germanium Nickel, Copper, Platinum, Cobalt, Palladium Zinc, Lead, Gold, Silver Lead, Zinc, Diamond Diamond Iron Gold Gold Gold Copper, Molybdenum, Gold, Silver Uranium Metal Tonnage (Mt) 105.4 million 46 million 156.448 231.96 2752.6 carats carats

7.214 388.5 24.76 92.95 3200 14.6 15.5 10.7 7.67 4.1 14 82 50 46 58 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 23 10 631 362 187 11.67 42.03 567.3 30.99 6.154 14.55 424.6 12.83 44.886 461.28 27.407 48.273 17.525 304.63 44.172 27.146 100.96 20.107 110.144 Zinc, Lead, Gold Palladium Platinum, Copper, Nickel, Molybdenum Iron Zinc, Lead, Gold Cobalt, Palladium, Platinum, Copper, Nickel, Gold Palladium Platinum, Copper, Nickel, Zinc, Lead, Copper, Gold, Silver Gold, Zinc, Lead, Copper, Molybdenum Tungsten, Molybdenum Copper, Silver, Gold, Tungsten Iron Iron Gold Gold Silver Gold, Copper, Zinc, Lead, Silver REEs Cobalt Copper, Nickel, Palladium Cobalt, Platinum, Copper, Nickel, Zinc, Lead Zinc, Lead Zinc, Copper, Lead, Silver Gold, Zinc, Copper,

Exploration Exploited Not Not Exploited Not Exploited Not Mine Active Closed Mine Closed Mine Exploited Not Mine Active Exploited Not Exploited Not Exploited Not Not Exploited Not Exploited Not Closed Mine Exploited Not Mine Active Exploited Not Mine Active Exploited Not Mine Active Closed Mine Active Mine Active Red Mountain C Roche Bay Jason and Tom Wellgreen Raglan West Nunavik Mine Nunavik Point Pine Mine Polaris Creek Prairie Raglan Mine Meliadine Minto Mine Nanisivik Nechalacho King Nickel Lupin Mine Lupin Mactung 1 Mary River 2 & 3 Mary River Mine Meadowbank Kudz Ze Kayah Kudz Logtung Wolverine e geology of Greenland Greenland of geology e T known. currently are that those than deposits more many contains Greenland that suggests that many resources are still trapped beneath the Greenland Ice Sheet [51]. major 2. Greenland’s table in listed are deposits As Greenland’s ice sheet retreats, new resources are being discovered. At present, Greenland holds multiple multiple holds Greenland present, At discovered. being are new resources retreats, ice sheet Greenland’s As and REEs, and precious iron, copper, palladium, platinum, gold, of lead, coal, zinc, molybdenum, deposits possible is it Alaska, with As below. table the in summarized is extraction Current [51]. stones semiprecious 24 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security y r: oa eisl, amcaKti dhnky, amrNrlk Taimyr- Taimyr-Norilsk, Udzhinskoyw, Maimecha-Kotui Peninsula, Kola Severnaya, Tomtor, are: ey T Yaana-Chukotka, metals. and and Yakutia-Anabar. minerals Teir of resources are summarized in table 3. variousgeologic zones. Tere are seven major regions ofthe Russian Arctic that produce Russiansigni fgeologycantquantities across the Arctic varies widely, leading to a diverse allocation of mineral resourcesMostplatinum. and ofNorway’s iridium, north. the osmium, are in concentrated spreaddeposits palladium, rhodium, across rutile,molybdenum, nickel, gold, arsenic, andthe platinum group elements (PGE), whichrutile include and copper.ruthenium, Finally, there are large deposits of iron, copper, threeminesnewthatcoalextractwill (Svalbard Figure- 9.) cobalt, tosilver, awardedzinc, been recentlyhave atRana and Sydvaranger. Permits ilmenite mine, and two iron mines three large resource metal has mines: Norway the Tellnes Modern extraction. near-continuous of 1970s, centuries the three almost spanning until mines active these of were Some of south Trondheim. areas the in mined were copper and silver 1600s, the Norway. In now is what in silver deposits have been exploited Sinceasearly asthe 12th century, deposits have been found in Iceland. oftectonic ri fing andvolcanic activity. Somegold exploration hasoccurred, butthus farprono ftablegold distinctisfromNorth America, Greenland, Scandinavia, Russiarecentanditstodueformation result a as Iceland,contrastin toits Arctic neighbors, doesnot have large mineral deposits. Tgeologice environment Table 2. Active andProspectiveMinesinGreenland,adoptedfromBoydetal.,2016 Kringlerne Kvaneeld f Black Angel Isua NameDeposit Malmbjerg Flammeeld f Skaegaard Citronen Sarfartoq Motzfeldt 329 200 202 132 14 340 4,300 673 13.6 1,107 tons) (in size Deposit Figure 9.RussianCoalMineinNy Alesund, Svalbard, credit: Anna Henly Molybdenum Molybdenum Sulfde Palladium, Gold, Platinum Lead Zinc, REE, Niobium Zirconium REE Niobium, Tantalum, REE, Niobium, Zirconium REE, Uranium, Zinc Silver Lead, Zinc, Iron Material KGHM 21st North Platina Resources Ltd Ironbark Ltd Zinc Hudson Resources Inc West Melville Metals Inc Tanbreez Mining Greenland A/S A/S Greenland Minerals and Energy Black Angel Mining A/S NiceGeneral Development Ltd (2016) Owner Corporate Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 25 Resources REE, Iron, Niobium, Tantalum, Titanium, PGE, Copper, Gold Manganese, Chromium, Flerovium, Phosphorus, PGE, Diamonds Niobium, Iron, Phosphorus, Cobalt, PGE Copper, Nickel, Vanadium, Chromium, Tungsten, Molybdenum, Gold, Lead, Zinc Nickel, Copper, Phosphorus Aluminum, Iron, REE, Niobium, Molybdenum, Copper, Tungsten, Mercury, Gold, Tin, Lead, Zinc Nickel, PGE, Silver, Iron Tin, Diamonds, Tomtor Yaana-Chukotka Yakutia-Anabar Kola Peninsula Kola Udzhinskoyw Maimecha-Kotui Taimyr-Norilsk Taimyr-Severnaya Region involved and harsh environment makes detection, monitoring, and apprehension cult. f di And and and makes wherever involved apprehension monitoring, detection, harsh environment the IUU is of shing because is lure f Arctic in the feasible, an declines serious areas shing most f attractive to a According IUU Fund, report worldwide. by a shing Wildlife f remains mostly in the problem, World sh species (or “stocks”) that are targeted by commercial commercial by targeted are that “stocks”) which (or Seas, species Barents sh f and marine 59 Norwegian are e T ere T [53]. regions. Russia few and a in Alaska between Sea concentrated is Bering the Arctic in the are 30 these, Of [53]. shing f together form the contain betweenAtlantic-Arctic gateway, 21 and 24 of the desirable species [53]. Norway), and (U.S. guards coast professional very two by monitored are Arctic the to inlets the though Even (IUU) and illegal, unreported shing f unregulated in the Arctic is a e T concern. growing great distances there is very little information available [52]. available information little very is there in shing. f shing f commercial of future the about commercial projections precise make to cult f Currently, di is it unknowns, many these industry. Given the impacting are ranges, in due changes migration to areas shing However, including f that activity, change, have climate already commercial changing and coverage ice decreasing sh stocks in the Arctic vary dramatically across the region. Very little is known known is little Very region. the across dramatically vary Arctic the Sea, in Barents stocks the sh f Bay, of n f Ba as tability f such pro Arctic, and the to inlets availability the e of T some the to In itself. According Ocean stocks. sh Arctic f of the in patterns stocks sh f migration about and of size the branch traced have research studies Center—a Science extensive Sea, Fisheries Bering the Alaska and the by dense most is conducted Service—data Monitoring, and Fisheries Marine Research of National Inventory Administration’s ice, Atmospheric permanent and Oceanic historically with areas National in the However, them. to adjacent are or sheries f active contain that areas in gold, iron, nickel, PGEs, high-value REEs, titanium, vanadium, and zirconium have been proven but are not not are but proven been have zirconium and vanadium, titanium, REEs, high-value PGEs, nickel, iron, gold, yet being extracted on a commercial scale [51]. Fisheries ere are also several sub-Arctic mining regions of particular importance due to their proximity to the Arctic Arctic the to proximity their to due importance particular of regions mining sub-Arctic several also are ere T environment. e T Ural Mountains and surrounding area are rich in iron, [51]. gold, and and In platinum PGEs of Siberia, deposits chromite, copper, are copper, the nickel, among tungsten, gold, molybdenum, silver. and gold of deposits smaller includes geology Siberian Additionally, world. the in largest diamonds, copper, cobalt, of deposits Vast certain. almost is Arctic Russian the in extraction mineral Future Table 3. Russian Deposits by Arctic Region, adopted from Boyd et al., 2016 Region, adopted from Arctic by 3. Russian Deposits Table 26 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 16 15 towards the “over the top” shipping gravitate will regression shipsice further navigation, with of safety perspective of thetroubling from More century [60]. latevessels by ice-strengthened moderately by round year possibly to year per increasingfromabout fmonthsve availablethe windowtransitforis Additionally, [5].summer fall and safely transiting the Arctic 6 Ocean in Class Polar while 2040, as early as Arctic the watervessels open- that predict models forecast human history Recent [59].in ice Ocean is as open as it has ever been climate change, to Arctic Due the the world’s current shipping lanes. A transit lanecontinue to forlook ways to reduce transitthrough time and distance, as well as reduce by choke risksthe posed points in the Arctic could achieve all of these goals.remained mostlynotablesame,thewiththeexceptions PanamaSuezand theCanals.of Shipping operators Andwhile shipping has grown in fnitelysafer and more ef cientinthe past six centuries,traders longed shipping for a route routes to thehave Paci fcOcean without sailing around Te Africa dreamor making of a land a trekpassage across throughAsia. the frozen waterways of the Arctic has been alive since theShipping 1400s, when European Japan, Iceland, South China, Korea, as and such the EU, countries, other together bringing to discussare ways signatories of original expanding the Now, the temporary [56-57]. moratoriumspecies fsh [58]. scientists can collect information on fsh stocks and assess how environmental changes in Preventionthe the ofUnregulatedArctic FishingareHighSeas Central the inArctic Ocean, haltscommercial all impacting fshing until Oceanthat was signed on July 16, 2015. T enon-legally binding Canada, agreement, between Greenland, meetings called recentNorway, However, the Declaration [55]. Russia, area and unregulated the UnitedConcerning this States of waters”produced the temporarya “tested havemoratorium countries onf shing intheArctic Arctic Ocean that are beyond the 200 nautical Sea,mile which EEZs is underof thethe purview coastal of the states. Straddling Already Stocks Convention,fshingUnlike vessels nothe such from 50,000agreements various square-mile cover the areasdonut of thehole beyond the reach of the coastal EEZs of Alaska notand under the Russiamanagement of anyin single the country’s Bering EEZ [55]. retreats,exposing more ofthelarge, 1.1million square mile“donut hole” theincentral Arctic Ocean that is Russian waters in the Bering Sea and Sea of Okhotsk [54]. Tis problem is reportedly getting worse as sea ice

No hull icestrengthening Medium hull strengthening 15 16 could feasibly transit vessels are alreadyarevessels Figure 10. Arctic Shipping Routes, credit: Malte Humpert, The Arctic Institute Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 27

18 - to to increase; raising the of probability some sort of that marine casualty will require a complex search-and-rescue mission that would strain the region’s the However, Arctic limited capability. world’s the become to unlikely is Ocean for new intercontinental superhighway container and other transit shipping because there are too many weather and ice uncertainties associated with Most Most experts expect vessel c f tra to increase, especially in and destination possibly commodity transit shipping. with c the f cruise tra associated Vessel industry and tourism is also expected While ice coverage and thickness is declining, no no declining, is thickness and coverage ice While 17 and beyond Polar Codeicebreaker compliance.an As awith generalso thedo matter, to insurance and companies require(NSR) their Route policy Sea holdersNorthern the via Arctic the through and transits make tow only to provide to invaluable is icebreaker an of presence the but transit the of cost(s) the its increases (or is T vessel a escort. of collision the of result the are casualties such Most casualty. a ers f su ship a if services rescue propeller) with free-f oating ice. cient to sustain the costs of delay or, worse, vessel stranding due to weather, bad weather, to due stranding vessel worse, or, delay of the costs sustain to fcient su not are the margins and [63]. etc charts, above – In doingArctic the backgroundtransiting researchships of forrisk the the Gaps mitigate in they Arctichow Governance,about asked (seewere rms f [11]) insurance risk managersmaritime gian at two large Norwe In addition to the issue of delay, the movements of cargo containers has become more or less a commodity, a commodity, less or more become has containers cargo of the movements delay, of the issue to addition In

Figure 11. Arctic Sea Ice Alongside Icebreaker, credit: Chris Linder Icebreaker, Alongside Arctic Sea Ice Figure 11. 17 18 more expensive than traditional routes. Still, the gaps in cost and time are shrinking as ice recedes. recedes. For ice as theshrinking are time nearand cost in gaps term,the Still, Arcticroutes. traditional shippingthan willexpensive remainmore riskier, more difcult, and, if icebreaker escorts are required, ese risks, especially of delays, are anathema to the just-in-time delivery delivery to the just-in-time anathema are of delays, weather. especially ese risks, T Arctic Ocean. of the Arctic through passage ferocity the with contend to need will vessels ice, no requirements or for mostIce cargo containerArctic. shipping companies. ice-free an anticipating is one been steady from year to year. In 2012, 46 vessels carrying a total cargo volume of 4 million tons transited the NSR NSR the transited tons million 4 of volume cargo total a carrying vessels 46 2012, In year. to year from steady been [61]. In 2016, the total cargo volume exceeded 6.9 million tons [62]. For the frst time, China sent ve f vessels— [62]. concept of proof a as the NSR vessels—through container including According to a 2016 report by the Copenhagen Business School, the NSR could reduce the transit shipping distance distance shipping transit the charts. reduce nautical could NSR the School, Business Copenhagen the by report Because 2016 [61]. a Canal Suez to not the have through route According increases although contemporary the to observed, compared been has c percent, f 40 by tra Europe to vessel Asia from summer in uptick general a ice, summer declining of route versus the Northern Sea Route (NSR) or Northwest Passage (NWP), since they could shave an additional additional an shave could they since (NWP), Passage limited Northwest the or (NSR) because Route Sea uncertain problem a of is Northern is T the 10). because versus gure f and route (see coastline, Rotterdam to the Asia hug East that from journey a routes f o the days ve f along to four found is capacity safe-refuge and response Arctic

28 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security shif, sometimes unexpectedly. Buildings such as of ces, housing, and community extractioninfrastructurephase, seasonable variabilitywill thestabilityalsoin faceofthepermafrost willcause extraction equipment to the Inprocess. the of step every complicateresourcesatnaturaldevelopment Meltingwillpermafrostof investment. greater even requiring permafrost, melting of impacts the sustain to rebuilt or support development, the current structures in the Russianleadingpotentiallyto Arcticcatastrophic will needbuilding to failurebe evaluated andcollapse. additionIn and buildingto either infrastructurenew retroloadtof bearingtted capacity would exceed the safety factors incorporateddeterioration into can the be expected building to occur designs sooner, by Soviet perhaps engineers, as earlyunderlie as the mid-2020s. the majority Such signi fcantof reductionsbuilt infrastructure in will[65]. experience If the critical rates (<55 of percent)warming reductionsdue to climateinprojections the loadchange bearingconservatively are capacity moreanticipate ofrapid, f ve-to- the — that standard this by design 2040, standard pilethe of Russian foundationsnine-story consists buildingscities concrete with foundations.infrastructure pile warmingof permafrost impacts Salekhard, urban ofthat the Recent analysis Most of cities. Norilsk, Arctic Russian Yakutsk, of design and urban Anadyr the to observedalsotrendelsewhereTisisArctic. the Russia inacutely is vulnerable warmingtopermafrost due costs, with roads and airport runways following close behind. a 10–12 percent increase [64]. Water and sewer systems are expected to account for the largest share of extra $5.6–7.6 billion dollars to the anticipated costs of replacing worn out infrastructure in the state, representing ice roads. In 2007, the University of Alaska estimated that melting permafrost latitudes.from climate Climate change change wouldis makingadd the problem worse by increasing the depth of the soilArctic. thawing As andthe bypermafrost melting melts and refreezes, infrastructure dilapidates at a Second,much the emerging faster freeze-thaw rate cycles ofthan the Arctic in permafrost lower pose serious challenges to development in and less monitoring. standards lower have which Greenland, Norwaybut less so in Russia and, perhaps, and Canada States, United the in apply consequences.steepregulationsfaceSuch or technology expensive) (and adequate adopt or develop to need will companies in an environmentally responsible manner, meltingpermafrostWhereverit. belowshiregulations fs as requiretransportedresourcesextractedthatand stablemustbe remains that infrastructure and storms Arctic strong withstand can that systems and technologiesdrilling new technologicalasrequiredevelopment, suchresourceswill certain ofextraction accessible due the to retreating of glaciers much and for less sea and ice, but present it will At not make elsewhere. them foreseeablecompletely resources accessible. as future, pro fProtable ftablethe as impact are of they climate mean doesn’t change that change, will make some resources (suchclimate and advancements technological as to due accessible moreof becoming are resources shoreArctic while First, hydrocarbons) more “rush” will occur in the next few years. Tere are several reasons for this. Despitevastthequantity andvalueresourcesof Arctic,theinanalysisthis notdoespredict resource thata The ForwardLook infrastructure dilapidates at a much much a at dilapidates infrastructure refreezes, and melts permafrost the As faster rate than in lower lattudes lower in than rate faster Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 29 er f Shortly a 19 the Chukchi Sea are the only two sites that the authors could locate in the U.S. Arctic that could serve could that a Arctic as in the U.S. locate could the authors that sites two the only Sea are the Chukchi is ore side; rather, pier load materials does not Terminal Mountain e Delong T facility. handling commodity in the located which is Harbor, Dutch fshore o anchored are that barges or ships cargo to conveyors by sent handling. ore do large-capacity to capacity current any have does not Terminal Delong Aleutians. Dutch Harbor and the Red Dog Mine’s shipping facility (known as the Delong Mountain Terminal Port) on on Port) Terminal Mountain the Delong as (known facility shipping the Red Dog and Mine’s Harbor Dutch

19 from developing. developing. from While While there is no in rush” “gold the immediate fng, o strategic investments will continue to be made to hedge ultimate the leasesis or land of form the in assets in investing since supply of sources future up lock erefore, T forever. for low be to expected be cannot prices commodity World increases. price future against investments those whether resources, Arctic in investment foreign of state the assess we that important is it are being responsibly managed, and whether new regulations are needed to prevent harmful FDI trends Fourth, Fourth, commodity infrastructure- prices high-risk, a encourage do not does hydrocarbons not of price market currently low e T gas. encourage and oil especially the development of some mineral resources these For world. the of part resources, distant and turbulent climatically a in exploration resource intensive to be the oil and appealing globalwell-capitalized to operators, well-established, large, price market of oil will rise. need to oaded for processing. Norway’s Tschudi Tschudi Norway’s processing. for oaded f be o could they before Arctic service U.S. the to of out transit Kirkenes to have of would vicinity the in port handling commodity bulk major nearby a e T building minerals. is other contrast, for by port Shipping, transshipment and receiving a as serve to as well as mine ore iron nearby a capabilities[66]. handling cargo bulk cant f signi has also Murmansk of Port Russian on land, high rates of erosion, and severe weather pose severe and costly challenges to the larger engineering engineering larger the to challenges costly and severe pose weather severe and erosion, of rates high land, on extraction. resource support to needed be would that projects On the side U.S. of the Arctic, there is very north little of infrastructure the Bering Strait. Engineers of Corps Army U.S. the Sea, mined Chukchi in the are project gas and oil that exploratory ores its of out pulled any Shell that means is T port. deepwater Arctic U.S. of creation the study to orts f e postponed rapidly deteriorate from season to season, increasing the risk of accidents. of risk the increasing season, to season from deteriorate rapidly can food resources and fossil, mineral, the vast Before 12). gure (see f infrastructure lacks the Arctic ird, T permafrost the will processing, of need developers extraction, be that will to the facilitate exploited, construct infrastructure melting the Inconveniently, families. their and operators for housing and export, transport, challenges due to instability in the permafrost. Transporting extracted resources, whether through the sparse sparse the through whether resources, extracted Transporting permafrost. the Foundations in permafrost. instability to due melting with challenges dangerous and cult f di more be also will systems, rail or road, pipeline, can infrastructure rail and Road environment. Arctic the damage that leaks , causing f shi could pipelines of 30 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Figure 12.Towns andIndustrial ActvityintheArctc, credit: Riccardo Pravetoi, UNEP/GRID-Arendal Unconstrained Foreign Direct Investment: Foreign DirectAn Emerging Challenge investment to Arctic Security 31 (FDI) - - - FDI FDI 22 ) with ) the with 21 considers the following types of transactions to be forms of FDI: FDI: of forms be to transactions of types following the considers 20 A cross border made investment by a resident in one economy (direct investor in is one that economy in resident an enterprise a interest lasting of establishing objective otherthan that ofthe direct Te direct investor. orindirect ownership of10 percent ormore of the power of voting is an Direct investment of enterprise evidence such a quasi-corporations. relationship. be may they or subsidiaries) their (or corporations are enterprises encompasses direct positions (debt investment and equity) and direct fnancial investment equity). and (debt fows any single combination of the preceding. of combination single any (LLCs partnerships ownership, land branches, including owners its from separate entity an were if it as erates fce). o (branch enterprises multi-territory of portions resident trusts, and general), and e OECD has tracked FDI trends for all member states since 1983 so that states had a reliable way of mea of way a reliable had states 1983 so since that all states member for trends FDI tracked has e OECD T country speci FDI on fc barriers to reporting and FDI suring unincorporat or incorporated an individuals, business-related of a group be can individuals, investors Direct or estate body, a government enterprises, related of a consortium enterprise, private or a public ed enterprise, According to the OECD Benchmark Document a quasi-corporation is an unincorporated business that op that business unincorporated an is a quasi-corporation Document Benchmark the OECD to According

22 and Development (IBRD) recognized that a purpose for the bank was to promote “private foreign investment” investment” Reconstruction foreign Bank for of the International of e “private Agreement T 1944 Articles of warfare. trade elimination promote to was bank the for purpose a that recognized (IBRD) Development and 20 21 Legal promotion Legal of promotion FDI has been the of foundation trade international and monetary policy for three- quarters of a century. e T 1944 Bretton Woods sovereign system, agreements monetary were of the international designed regulation II, including to War er rebuild f World a system the economic international and Bank), World the of forerunner IBRD—the and IMF the of establishment the (through capital to access certain activities, such as publishing and broadcasting. Other countries take a more comprehensive approach. approach. comprehensive more a take countries Other broadcasting. and publishing as such activities, certain for purposes of the this nition analysis, OECD f de erently, FDI f di legal regulate systems Because national OECD e T beused[67]. will We also look at past foreign investment patterns of China in developing countries to assess what sort of laws laws of sort what assess to countries developing in China of patterns investment foreign past at look also We and regulations might be necessary in the Arctic. Finally, we look at what local laws are currently in place. acquisition the examining for A below, discussion of discussed FDI process, needs to formal a begin has with nitions f since de States there is United a e T lack FDI. of uniformity in regulate the countries ways that of equity in a as business enterprise, well as a variety of separate rules that restrict of foreign ownership General Policies and Defnitions General Policies whether of examination an entails rst f is T countries. littoral A main thrust Arctic of this study is the in of an direct the rules foreign investment current examination governing of any of sectors industrial and the in resource investments direct foreign shape should either that standards or laws international prevailing are there environment. cultural and physical Arctic the of protection the for implemented be to need would or Arctic (FDI) Foreign Foreign Direct Investment 32 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 24 23 laws of the receiver. But, there have been cases in which FDI is not benign. For better or investorworse,receiver andtheChina’s derivemutual beneandthatinvestorf thet respects sovereigntytherecent anddomestic development.forfundsthe of as longneed capital Suchregardedpositiveare fsoareasows in as to f ows ofthe Bretton Woods language supporting FDI is that direct investments are encouraged to promote capital While FDI is generally encouraged, there are instances where FDI can —and does— go bad. A careful reading Past CriticismsofChineseFDIinDevelopingCountries [78]. market entry excludetheir to method a as used regulations, protect human health or safety, or to conserve national resources, but those measures cannot be parties to establish allow country. NAFTA doesmeasures—including that within entities legal otherenvironmental as rulesmeasures—to same theensure to compliance subject be with and localcountry laws and fornationals. “National treatment” means that foreigna entity caninvest or“set upshop” inanother party’s about how FDI is to be regulated once it is determined that it is not from an industrial sector that is reserved However,[77].feldsspeci f cinagreements neither NAFTAtradeincludefreediscussion muchother nor Unitedthe Statessimilarhavemadereservations NAFTAthe to protecttreaty todomestictheir industries railroads;issuance coinsofand currency;controlandthe ports,ofairports andheliports [75].Canada and transmission;nuclearsatellitepower; communications, telegraphradiotelegraphicand andpostalservices; (with a Mexican partner) is allowed in the areas of petroleum; basic petrochemicals; electricity generation or or condition market access on passive fnancial participation with a Mexican entity. Only passive investment MexicoNAFTA(a member), thegovernment canban private equity investment certainin typesof projects direct investments to protect national security and certain specifed strategic industries [73]. NAFTA and most other bilateral trade and investment agreements do allow states to establish restrictions on of another party: of5theNorth American Free Trade Agreement (NAFTA) states thatin eachparty shall accord toinvestors [70]. Finally, FDI is extensively dealt with in bilateral trade and investment agreements.enterprises,national thetreatment Forforeign ofenterprises, protectionexample, the intellectualand of property rightsChapter agreementsWTO numberof a in with WorldtheGATT/WTO Tradesystem.Inthe Organization in foreign investment(WTO),dealt areissues encouraginginternational investment for…development”[68]. principlesbasicforwardcarriedwereT ese promotetoand (Article,balanced(iii))“long growthtermequilibriumcl.andpayments balances of in by thereconstructionin anddevelopment oftheeconomies that were destroyed ordisrupted byWorld War II

Under Mexico’s 1993Foreign Investment Law, there are exceptions still of to national rule the treatment in Nation Treatment industrialfed sectors [74-76]. inspeci andairports heliports. NAFTA 1108and Article Annexes IIIand IVcontain exceptions to Most Favored clear energy, materials, radioactive telegraph and radiotelegraphy, and control the of and ports, surveillance strategic industriesso-called including generation the petroleum, petrochemicals, basic of and electricity nu and helps by to increase efciency world’s the the which scarce resources are used. motes economic areas, growth stimulates inunderserved competition world and inthe efciency economy, continues to support FDI it because assures efcient movements of capital, reduction of pro barriers, trade Propertyal Rights (TRIPS),and plurilateral the Agreement on Government Procurement policy [69].WTO AgreementTe General on Trade (GATS), inServices Agreement the on Trade-Related Aspects of Intellectu investments[71] and …fair and equitable treatment protection and full [72] and security dispositionofotheracquisition, expansion,or management, saleconduct, operationand treatment no less favorable than it accords to its own investors in respect to the establishment, 23 that, in general terms, assure entry and equal treatment of foreign 24 In the case of - - - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 33 . . 25 , , Elizabeth Economy and Michael Levi of the Council on Foreign Relations; fs shi longer per on seven week days will labor “work such Africa that is Chinese into labor China importing to go to want “they unions,” “have fcialfed also thise o because practice African T justi workers pay. lower at [79]. dance” and sing to like “they and weekends,” on work to refuse “they church,” cial who explains that the motivating factor for for factor the motivating that fcial who explains o fairs A Chinese Ministry Foreign one of quotes Economy culties for the host country if or when the money dries up. Even though countries like the fact that that fact the like countries though Even up. dries money the when or if country host the for culties f di no are with of and FDI, a Chinese there red tape, minimum few associated strings frequently are there deals these of many Similarly, success. long their ensure to projects the “securitize” to place in measures community. business local the than rather power in individuals with relationships personal on based are [79]. reform to resistant more states these makes and power corrupt—in en f elites—o keep to helps is T ventures with local frms and train local workers clear extensive to led have Africa and Argentina in purchases agricultural and estate real Chinese Large and impacts environmental negative causing agriculture, for of land the and clearing of timber cutting small-scaledestruction of [79]. farming or bankrupt gone have failed to abroad all t, make f a sorts creating of pro Chinese investments Many hybrid and electric cars, wind turbines, guided missiles, smart phones and other technologies [79]. [79]. technologies other and phones smart missiles, guided turbines, wind cars, electric and hybrid institutional to led has countries developing certain in cash of amounts large of investment direct Chinese country [79]. in the tax receiving evasion and corruption Chinese seek investors to use Chinese labor to the maximum extent possible rather than enter into can’t outbid the Chinese,” and Chinese investments do not have the same sort of political strings that are are that strings political of sort same the have not do investments Chinese and Chinese,” the outbid can’t countries developing help they since important are “strings” ose T [79]. lending Bank World in present to adopt modern accounting, labor, and environmental protection principles. Chinese in trade and rare investment earth (REE) will elements mining and potentially development enable China to control worldwide supply of these elements important that have uses ubiquitous in A Zambian minister of trade favored investment by China in local industry because the “World Bank by China in the local because “World industry investment of trade A favored minister Zambian By All Means Necessary”

25 • • • • • laws but have a negative impact, and those that entail a disregard of local environmental and labor standards. standards. labor and environmental local of disregard a entail that those and impact, negative a have but laws Regarding negative impacts that do not violate express laws and policies, Economy and Levi cite these examples: • It It is to worth that to noting it these restrict China is observations since alone, investment not appropriate owners its it can help where have to the venue move Levi frequently and of origin—will of country its Economy capital—regardless objectives. corporate their meet otherwise and investment on return greatest the earn prepared a dossier of some of the negative impacts of Chinese FDI. e T book two documents types from of FDI: that impacts externalities do not any local particular violate the underlying analysis and policy recommendations are intended to be universal. universal. be to intended are recommendations policy and analysis underlying the In “ chronicle Chinese investment in legal. South perfectly is America, China by Asia, conducted being is and that FDI Africathe cases, most In to [79]. obtain expansion access economic to raw materialsChina’s to fuel cant in overall dollar value, and could be larger than any other country’s country’s other any than larger be could and value, dollar overall in cant f signi are Arctic the in activities FDI Arctic FDI. eyT have also drawn the greatest amount of attention in the press and activities, in academicChinese c f circles. speci For on focuses paper this Although analysis. this of focus the be will they reason, that 34 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security China frequently used its infuence at the UN Security Council to dilute language of resolutionsChinathreatened tovetoregarding Securitya Council Resolution the that would have initiated anoil embargo onSudan. UnitedNations,theconAt attentiondivert fict.the from variousthroughvenuesto role active playedan Sudan,BeijingSouthseparationandSudan concluded thethat of with war civil the Sudan.During South independentpercentresources2005,moreoil75thanintheof invested that Chinahad were located inin more than $15 billion in Sudan and owns about half of Sudan’s oil refneriesNational estimatedagricultureextraction.Chinaand[80].oilistheItthat Petroleum to When Companyinvested hasSouth Sudan became infrastructurefromshi f edhas funding this ofmuch 2000, Since China. ultimately weretoexported that productsagriculture,riceinfrastructure particularly andfornumerousupbuilding interest-free for loans benefromfSudanwas1990s,ting the scienticultural Bycooperation1960s.and thef existedhavec,since frms. Under these conditions, Beijing partneredWestern withmajorityof Khartoum, the by where risky agreements too deemedwere onthatregions economic, in partners technical,for look toforced were f rms domestic resources could not satisfy. Because oil prices werethat demandhigh andthe globalmeet competitiontoborders itsbeyond looking went wasBeijing China,ferce, particularlyin energy, Chineseboomed resources, for demand As 1980. in exploration started since Sudan in involved been investors have and companiesconoilDarfurChinesef industryduringSudaneseict.the oil the in observed resources be can Perhapsone ofthe most extreme examples ofthe lengths towhich Chinese frms willgoto secure access to have used bribery and ofers of investment to ignore environmental and safety standards. “environmental protection has taken a back seat to rapid economic development” because Chinese investors Finally,Economy andcitesLevi casesoilinand gas extraction Zambia,in Ghana, andMozambique, where avoidIndianminesownedunsafebecauseChinesebyfofrmsorworking conditions low-wagesand [79]. 13) [79]. In Zambia, mineworkers gravitate toward mines owned by Canadian and Australian companiespoor but working conditions (see fgure separate occasionsprotestto wageslow and fve on struck workers 2010, in and Peru in paid lowest the among were mineworkers the reported Levi and Economy Peru, Group’s acquisition Shougang of case the Marcona mines in one involving In [79]. companies” multinational by paid rates than workerslocalconsiderablypay less regulationsand, when they do hire, safety and other environmental on way the “look to concessions political secures frequently China local labor and environmental in standards. of resulted violations considerable studied were that note locations the in Levi FDI Chinese that “legal” and Economy with FDI, associated issues systemic the of some to addition In

Figure 13.MarconaCopper Mine,Peru, credit:Geoeye-1,DigitalGlobe Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 35 encourage their multinational enterprises to engage in responsible business conduct in a variety of areas. areas. of variety a in conduct business responsible in engage to enterprises multinational their encourage FDI global tracking with charged is (UNCTAD) Development and Trade on Conference Nations United e T trends to countries and plans to developing formulate assisting FDI accommodate that is most cial f bene to [85]. Among their other is development things, long-term UNCTAD with the charged developing helping at while economy globalized a of ts f bene the realize to them enables that spot” “sweet the nd f countries e 2016 OECD Code of Liberalization of Capital Movements is the only multilateral framework in e T is framework force 2016 the OECD only Code of multilateral Movements Capital of Liberalization that addresses international FDI ows. f Under the code, countries bind International on Declaration OECD the under themselves to Moreover, [84]. movements agreed capital other and FDI liberalizing measures the 35 Enterprises, and OECD 13 countries adhering countries non-OECD and Multinational Investment in to operating enterprises foreign their to and treatment” have committed territories to accord “national permanent. All million reside permanent. Chinese in told, citizens more than “one Africa and… give Beijing a vested [83]. nations” African many in… interest International Standards of of all of the Arctic states to ectively and f monitor e or regulate inbound investments that enterprises are foreign owned and operated. of small the and population the use Arctic, dispersed the Given potential of relatively labor also imported positions management the of most occupy f sta imported Africa, and America South In concern. a becomes than and en, local f O more receive compensation Chinese make labor. laborers imported their relocation way in the Arctic, where countries are more prosperous and have more robust governance structures. Still, Still, structures. governance robust more and have prosperous more are countries in way where the Arctic, it would be to foolhardy think that outside oil and are that gas in countries and cials f o mining will investors licensing and not actively landowners seek—and from concessions safety and obtain—environmental systems regulatory Arctic, in the sites mining and national drilling the of the many of of remoteness the given ability Also, the capital. to outside for comes thirsty it when mind” of out sight, of “out of element an is there ed from “primarily resource extraction to feed its factories to direct investment investment direct to factories its feed to extraction local for resource ts f bene some “primarily seen from ed have f shi have projects interests infrastructure ese T economic [83]. China’s projects” And companies. infrastructure for construction Chinese [83]. and money-lending engineers and mechanisms Chinese for enforcement employment and are ts f laws bene weak the of mostly but advantage labor, taking businessmen corrupt of persist reports same the exactly out play would Africa and America South of parts in happened has what that unlikely is It by Phillip Manyok demonstrates a clear correlation between military arms sales from China to Khartoum— to China from sales arms military between correlation clear a demonstrates Manyok Phillip by an despite UN oil arms exports embargo—and from to Khartoum China [82]. is T the further illustrates interests. oil Sudanese its protect to in order to go willing Beijing was to that lengths rst f Recent and commercial in Chinese naval port investment Djibouti to in develop China’s Africa suggest that ict and frequently abstained from voting [81]. While Beijing refused calls from the African Union Union African the from calls refused Beijing While [81]. voting from abstained frequently and ict f con Darfur and the United Nations to send peacekeeping analysis an from forces Results to Darfur, clear. Chinais Sudan in did role its send and 400 interests soldiers oil to guard Beijing’s the between e line oilT Sudan. in wells 36 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 27 26 the Arctic has been explored in academic and media circles as relates to thehow to compete, economiesinnovate ofand produce Greenlandreal products andfor real markets” parts [90]. Tissue e of “Dutch Disease” in priorities,sothat everything revolves around who controls the oil tap and who gets how much from it—not country’sinvestments,politics,a educationalnaturalresourcesskewsalways“Dependenceandwrites, on to become less diversifed as domestic industries become less competitive internationally. Tomas Friedman describesprocesstherapid whichbythe in wealthsome fofnaturaldueto ux resource causeseconomyan on development and export of a single commodity; setting the stage for so-called “Dutchbased Disease,”economic growth.a term Tisthat has direct applicability to the Arctic Tpoliciessincee cited above manyalsopromote ofregional economic the diversi local fcationcommunitiesand over reliance upon commoditydepend from FDI, potential risks include: overall commitment to a “just and democratic” society. T e Accord states that despite many positivepredictable abene fts andef ective regulatory regime, wellalignedbe market-oriented policies, anddemonstrate an markets. international to Accord alsoaccess notes and that know-how, properly and functioning tradetechnology and of investments transfers fows will: employment, be transparent of and governed by developmentinvestmentincludethemaximizegenerationwell-sequencedofbene fows” toftopoliciests “active and need organizations, international and regional as well as countries, that Accordstates the FDI, to are “structurally weak and vulnerable small economies” do not sufer the ill efects of globalization. semi-autonomousargue,countries—and,As—thatincludeswouldensuringthat areasrelates tribalwe regions like globalization”Tis ofchallenges[88]. the meeting in andeconomy world the developmentin and trade “centrality of the and development sustainable in investment of role the of terms in benchmarkssome [87].closestTe universal thingato declaration 2008theAccrais Accord, whichwasintended establishto FDIassessing when followshould governance bodies other andstatesstandards what exactlyarticulates that Rights Human of Declaration Universal UN the as such document overarching policy no is Tere • • • • • Some of the relevant goals same time equipping these countries to fnd the correct balance that will foster their sustainable development.

Seeking investment that is development friendly and promotes entrepreneurship and innovation and to debt Limitingcountries’ exposurefnancialtovolatility, commodity-basedendemiciniswhich economies, Encouraging countries to diversify economies their inorder to make less them dependent on commodities ciently [86] ciently f e resources natural using and change climate to Adapting chain value the up move to rms f local Helping See, Articles 11and Articles 13of 13.Article AccraSee, the Accord elaborates that FDI that promotes sustainable develop Tis is derived from UNCTAD’s mission to help lifcountries to adapt to globalization. ing of host the nation’s institutional capacities. ment is that includes which investments in infrastructure, development of human resources, and strengthen opttv patcs tase piig and pricing, [89] FDI of quantity transfer practices, anti‐competitive environmental and social investments, impacts. Countries should therefore local consider both the quality and Crowding-out 26 in this overall inthis process include: 27 e AccraT e - - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 37 28 establish a cooperative weapons development/deployment program rather than rely upon “free and open open and “free upon rely than rather program development/deployment weapons a cooperative establish capability. the defense acquire to competition” An example here would be an agreement between the United States and one or more NATO partners to partners to NATO more or one and States between the United agreement be an would here example An

28 Relevant Arctic Littoral State Regulations on FDI Arctic Littoral Relevant All the of to basic that are the free intended implement trade six agreements concluded have Arctic states Put FDI. on restrictions enact areas, ed f speci in except not, should countries that norms OECD and WTO created are that enterprises the and FDI inbound grant to seek agreements trade bilateral these way, another a state to prohibit FDI rather than when is it wrong to permit it. When the WTO came into being in 1995, being the into WTO came When it. to permit is when it wrong than rather FDI to prohibit a state 21 the of GATT Article addressed or investment and trade regulated that agreements no special were there principal four the of (TRIMs)—one Measures Investment Trade-Related on Agreement e T Rather, [95-96]. measures trade-distorting eliminating of objective the treaty—included WTO the of trade agreements legal [84]. measures to restrict inbound FDI or other movements of capital for: (a) the maintenance of public order or or order public of maintenance the (a) for: capital of movements other or FDI inbound (c) restrict to and measures interests; security essential its of protection the (b) safety; and morals, health, public of protection the security. and peace international to relating obligations its of llment f ful the for wrong is it when emphasizing capital, of ow f free the to barriers on focused have agreements trade Other s and Trade (GATT), which provides that the various free trade commitments are subject to a nation’s nation’s a to subject are commitments trade free various the that provides which war of (GATT), times in Trade taken and s f measures or Tari on materials, war materials, ssionable f “ to relating interests” security “essential considerable but 1994 in GATT the of “reissuance” the in forward carried was 21 Article [94]. emergency” or situation security national permissible what for no are standards there because been voiced have criticisms could justify imposing trade or FDI e T restrictions. 2016 take can OECD states Code member on example, For FDI. the restricting of for Liberalization cations Capital f justi of list a broader outlines Movements include such things as restricting access to certain dual-use technologies such as encryption, semiconductors semiconductors encryption, as such technologies dual-use certain to access restricting as things such include bases. military to proximity in estate real and seaports as well as systems, unmanned and e T legal permissible. are on FDI controls security national law, trade of international the standpoint From Agreement General 1947 the of 21 Article to back traced be can controls security countries’ most for support Many countries have restrictions on FDI in key industries that are related to food production, broadcasting, broadcasting, production, food to related are that industries key in FDI on restrictions have countries Many law U.S. As in discussed below, detail extraction. resource and natural production, defense energy, nuclear needs security national base U.S. for industrial the defense FDI on is focused preserving mostly restricting to broadened been has and potential from adversaries preventing security gaining access to national that of technologies could be concept the used against countries, U.S. other many and States United the In forces. [93]. Given this problem, we would argue that inbound FDI should also be assessed from the standpoint of standpoint the from be also assessed should FDI inbound that argue would we problem, this Given [93]. condition. Disease” “Dutch a create or economy recipient’s the of cation f diversi foster will it whether Law on FDI Under International Trade Security Controls of Canada [91-93]. An OECD paper noted evidence of this in the Province of Newfoundland and Labrador, Labrador, and Newfoundland of Province the in this of evidence noted paper OECD An [91-93]. Canada of growing the and Committee Accounts Public functioning the of activity of level the in “decline a cally f speci uence f energy in in of corporation politics the and provincial its province’s lack of public accountability” 38 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security follows the tables. of each nation’s explanation detailed regulatory and A legal system not. are or processesrestrictive review the whether and not or welcome is FDI whether of in terms FDI approach countries these how of assessment qualitative a provides Table 5 theArctic states andChina approach FDI. and regulations (and an assessment thereof) of China. Table 4 is a summary of the key diourfanalysiserences oftherelevant in lawsthe andregulations. ways For comparative purposes, wehave alsoincluded thelaws and others like the U.S. and China intensely regulate inbound in investments.domestic hands. T e Some tablesstates whichhave followa legal summarizeand regulatory climate which can be specifindustriesbested described(defense orhightechnology) as andlaissez-faireothers focusmore ensuring thenatural resources rely Te legal and regulatory structures of the six Arctic states vary considerably. Some nations rigorously protect Domestic LawsandRegulations [98-99]. matters investment and trade bilateral processthein ofnegotiating one;and Greenland appearsactive indiscussions beto withChinaonvarious stagestradenegotiationsfreeof China:withIceland tradeagreementsfreehas China;withNorwaynow is variousat are statesArctic Other United States[97]. the investing inwhen state other investors the from bilateralinvestment38OECD, hasandreciprocally treatiesthat most-favored-nationalgrant treatmentto byFDI, “national treatment” or “most-favored-national treatment.” T eUnited States, aparty to both WTO the sixArctc states vary considerably. of structures regulatory and legal The Unconstrained Foreign Direct Investment:

An Emerging Challenge to Arctic Security 39

FDI

Assured?

EU or part of has approved the

National Treatment

Yes Yes, if there is a FTA Probably if under a FTA - Yes Only if government Yes . In theory, yes

divestiture

gov’t can order Required? purchaser

requirement but . and air transport in advance

prospective

No per se . system fisheries, energy, great risk if not done

by Advance Notice Similar to U.S. Mostly no except for No Yes Yes Not statutory but Yes

transaction?

FDI proposed an

actual power Adjudicate Agency to

agencies may lack

Authority to an

. Ministries . d Law Greenlan government

of s Clear Delegation Yes....goes to specific Yes under – No Yes Yes, but relevant Yes In theory, yes

and alcohol sales large retailing and .

transport, fishing vodka agriculture, pharma,

hydropower, marine banks others dairy and restrictions on

services, insurance Many . restricted list vessels, federal industries plus misc.

for financial, postal transport, and prohibited or mass media, US flag state owned

sions needed conces , uranium, banks, ventures on brokerage firms, media, defense,

Sectors Off limits?

But . None . No None Telecommunications Large number of Nuclear energy, Natural resources,

. insufficient . or air transport

fishing (geothermal), if local labor mining

Need a local partner?

No Yes, for energy labor Can import . No No Yes for permitted No Strongly encouraged

tilled land, mines)

(waterfalls, forestry,

certain land uses

Purchases

provinces regulate

. regulated concession for military base

Raw Land Review of but some – None No restrictions No restrictions Agricultural lands but need , No No data unless near , None

. must notify

If for export, . market and coal bed gas lands .

Review

through licensing ped for local develo . own >25% except in oil shale on leases on public

Rules Oil and Gas Mostly managed No restrictions if No restrictions Foreign entity can’t No restrictions off limits – No Plus restrictions . Yes

mining. operate a mine prohibited

Minerals

ranium mines. u for restrictions scale - except small . own >25% “concession” to type. Most leased public lands

Mining/ Review of Generally no except No special No clear restrictions Foreign entity can’t Foreigners need a Depends on mine Yes, mining on

Canada

“net benefit” to mandatory review security. Entities

apply of — infrastructure

Otherwise, “harmful” to US nat’l

Security Connected

. provisions found critical Danish Law May not . very strict – state is the project owned. -

National Review of – Yes Only under General including t No No specific addressed Yes Yes, heavy emphasis likely to be – No limits if - off –

Greenland Canada Norway Iceland United States Russia China

Comparison . e Tabl Legislation of FDI 40 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security

Mandatory Filing if Yes, for regulated No special provision No special provisions No special provision No special provision Yes, under Exxon- No specific provision foreign Government areas. (oil sands a found found found found. Florio new area of inquiry). is purchaser? Filing Thresholds for m. for TO million under None found. None except that Must file if involves % of voting stock Done by sector....if review. members. Lesser Danish Law % of voting stock strategic sector or on the Foreign sums for non-TO in financial >5% of voting stock Investment members institutions triggers a Catalogue, a request (depending on review must be filed nature of control) Comments Canada has only Greenland Self Rule Norway has passed Critical A 2 law turned down three Act establishes considerable infrastructure a new introduced the applicants under the Greenland (vs. legislation over the focus area. Ag. and concept of filing Investment Canada Denmark) as past 2 years to Mass Media likely when a “controlling Act process (started responsible for make Norway more next. interest” is being in 5). Canada a natural resource accessible to FDI. proposed. That major foreign mine development. Some seems to be ignored owner. overlap likely. in practice. Source See references -5 and the accompanying text and footnotes below.

Working Draft Review Copy 2 Not for Distribution

Unconstrained Foreign Direct Investment:

An Emerging Challenge to Arctic Security 41

Source: See references [101 150] and the accompanying text and footnotes below. -

. areas inbound technology. process is rigorous .

concession a wide variety of key want access to hat , t

requires a issue before foreign ownership in ad hoc sectors where they .

proposed activity this has not been an restricts outright Decisions probably for a very few

restrictions. But, if a due to the fact that estrictions no r investment investments but . except –

Assessment

FDI and has few coverage is likely Almost . courts FDI closed to foreign courts foreign

Overall Norway welcomes The sparse legal Greenland actively controls. Moderate China is still mostly . Strict Russia actively

unknown.

Enforceability

gas? Statement .

worker safety plans. gaining favor an Env. Impact

mines/oil and

planning and Review Panels license Plus must do .

safeguards on

environmental Environmental mining (mineral)

protection

licensing process advanced. and 7 do require For mining, . and gas of an oil and gas or .

Environmental Done via the Quite positive and Parliament Acts 4 Very strict for oil Unknown Yes Done as conditions

Decisions

extrapolate ’t can

t Transparen No data No , but so few cases - No No No No No

Criteria

Clear Evaluative No No No Yes Yes Yes but quite broad. Yes

welcome FDI?

tolerate or

Welcomes Welcomes

Country policies Welcomes Welcomes Aggressively Aggressively Welcomes Heavily restricts Tolerates

PRC

practices/standards “social interest” of

for Review

corroborate security” or harms

Clear Standards No No Yes No Yes but no way to , Yes “national – No

Canada Greenland Iceland Norway Russia United States China

. Assessment of Legislation 5 Table

42 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 30 29 least during Obama the administration, resulted quite inthese aggressive actions vis-à-visChinese at has, Committee CFIUS the to Security Homeland of Department the of addition the and review CFIUS of Controllingtransactions are now closely monitored. Tadditione ofcritical infrastructure andtothe scope examplesstronglyUnitedTincreasinglyesesuggestbecomethatStateshave controlsstringent. FDI over nitride chips, investment to aChinese [107-108]. fund manufacturegalliumtheof semiconductor involved Germanincompany isof subsidiary Aixtron, which billionAdministrationObama$2.6U.S.the2016, a basedLater in2012.of facilitytestsale inblocked the placementof wind turbines by Ralls Corporation, owned by the Chinese Sany Group, near navala weapons and non-proliferation norms[107]. Under the authority of this statute, President Obama set asidelook a proposedbeyond the terms of the deal to examine the foreign-investor U.S.country’scriticalinfrastructure, suppliers,energy criticalortechnologiescompliance required alsolaw[106]. toCFIUST e with counterterrorism theDubai Ports World transaction. Most importantly, itrequired CFIUS toexamine proposed purchases of membership of CFIUS—removing White House ofcials—and sought to reverse the “decision” by CFIUSreshuthe ofwhich Foreign 2007,Investment fedthe of CongressNational passed Act 2007andSecurity In National Security Advisor and the Department of Homeland Security [103-105]. on behalf of a foreign government and increases in the membership of the CFIUS Committee to include the 1992amendment requiring CFIUSainvestigation ofany proposed takeover whichintheacquirer actingis theacquisition of control [102]. Tere have beennumerous amendments tothe CFIUS process, including a andthe regulations create the presumption that foreign control of 10percent of targeta company’s equity is against U.S. forces. Te defnition of national security was designed to be read in a broadsecurityneeds and fexible manner, U.S.nationalforindustrial defensebase preservingthe on focusedmostly is restrictingU.S.FDIlaw T e internal CFIUSprocedures. includesnumerousimprovementsnowsignichanges and fcantof subjectin the been hasprocess CFIUS enactedtheExon-Florio Amendment toSection 721oftheDefense Production Act of1950 [100-101]. Te (CFIUS); however, the process of reviewing inbound FDI wasn’t codi fed in statute PresidentuntilFordestablishedinteragencyGerald theForeignCommittee1988 United Investment on Statesthe when in Congress when 1975,administrativesince hadinvestment.eforeignfU.S. procedures directecthas ofinT e types Te United States has a mixture of statutes and regulations which impose controls or, in some cases, ban United States certain

U.S. law not does defne “national but out security” sets factors, certain including capacity the and capabil laws of United the States. public lands available for leasing only to citizens of United the States, or corporations organized under the controlled by aliens, foreign corporations, or foreign governments. Te Mineral Act Leasing of 1920 makes issuance of licenses to engage inoperations involving of use the atomic to any energy entity that is owned or in energy, mining, broadcasting, and fsheries. Te Atomic Act Energy of 1954,for example, prohibits the consider indetermining of ef the ects aforeign acquisition on national security. on Restrictions exist FDI also ity of domestic production to national meet defense requirements that President the or may his designee US’s national considerations security 2008. inDecember January revision 2008,the of CFIUS regulations the inNovember 2008,and publication of guidance on CFI Te improvements include enactment the of FINSAinJuly 2007,amendment of Executive Order 11858in 30 and preventing potential adversaries from gaining access to technologies that could be used 29

- - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 43

33 - e T only real 32 that extends national treatment to 31 Of note, there has been recent legislation to increase the allowable amount of foreign investment in these investment foreign of amount theallowable increase to legislation been has recent there Of note, 49 percent. to 29 percent by increased sector was in the transport stake foreign e maximum T sectors. pertaining 13, 2015 the review to March on made were Act Canada the Investment to amendments Major process fc types. also has Canada signed various the Trans-Paci of agreements investment 88 trade and Canada has Zea New Singapore, Malaysia, Japan, Australia, example, for which includes, (TPP), Agreement Partnership [114]. Vietnam and land,

32 33 restricting restricting foreign in investments banking, uranium, transportation, and telecommunications, businesses, insurance existing purchasing non-Canadians that requires Act Canada Investment e T [117]. companies 31 restriction on foreign investors establishing a business (outside of certain restricted industries) is that they industries) of restricted certain a (outside business establishing investors on purchasers foreign restriction foreign on restrictions no are ere T establishment. business’s the of days 30 within notice provide be imposed [117]. may restrictions development lease, but or purchase by either land, Canadian acquiring process. CFIUS U.S. the than prescriptive less bit a seem processes review its but process, FDI an has Canada Canada Investment Act Canada’s (ICA) is the primary law, although there are separate legal provisions in in China 2015 with agreement [71, an 113]. concluded Canada Canada 2014, In has many Partnership. c f other free Trans-Paci the trade including FDI; agreements inbound concerning the “Promotion and Reciprocal Protection which of reciprocally Investments,” grants national each country and commits in enterprises 6) (Article and investments in products both nancial treatment f to in make country (Article [115-116]. 3) the investments investors” other’s to “encourage While the WTO agreements do not address FDI in a comprehensive manner, the general policy of Canada of Canada policy the general manner, in FDI a comprehensive do address not the WTO agreements While is to encourage FDI and national treatment of and e free T bilateral regional trade such for establishment largest agreements. free is trade agreement the inbound investments. e T According WTO Mexico. and States, the United also Canada, includes which Agreement, sanctions Trade Free American the North $350 billion was over Canada into States the FDI United from Service, total Research to the Congressional regulations for those in the oil and gas and mining sectors, including numerous environmental reviews by reviews environmental numerous for those in the including oil and gas sectors, regulations and mining and requirements; bonding and capital penalties, and nes f of a system entities; state and federal of a variety bad[111-112]. gone projects of result a as damage er f su who persons empowers that legalsystem a to access Canada United States, there is also a plethora of statutory restrictions within the 50 states on foreign persons wanting wanting persons foreign on states 50 the within restrictions statutory of plethora a also is there States, United [110]. licenses shing f commercial a as such licenses; certain obtain to transactions of reporting advance of requirements statutory of combination the Arctic, not the is to and pertains this infrastructure As its of protective very is States United the licensing that suggests extensive CFIUS has by States behavior recent United and the that dispute beyond similarly is It FDI. uncontrolled for target good a Beyond Exxon-Florio, there are other federal statutes which restrict foreign persons or entities from owning owning from entities or persons foreign restrict which statutes federal other are there Exxon-Florio, Beyond companies media mass in interest a controlling having from houses; brokerage or vessels merchant ag f U.S. generation service or electricity commercial f in U.S. aircra operating or from banks; chartered or federally the in investments foreign facilities controlling [110]. legislation Land national is to not addition f In o limits capacity. to foreign productive or purchase except infrastructure to the extent that it ectsf a U.S. critical orts. Such actions never would have occurred 25 years ago, when CFIUS approached proposed proposed approached CFIUS when ago, years 25 occurred have would never actions Such orts. f e investment [109]. manner laissez-faire very a in sectors technology and aviation the in transactions 44 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security and strong public reporting mechanisms” [125]. mechanisms” reporting public strong and improvementsenvironmentalitsin “comprehensive haspoliciesand compliance enforcementand policies signifcant made has Canada’s Canada on environmental that concluded report program OECD 2002 A decommissioning.of costs the andmistakes their for pay can capitalizedproperlyand arelicensees that literature to suggest that Canada does not have a responsible and efective licensing system in place to NEBensureand other regulatory bodies have been criticized for speci fcasesc inthe media, there is nothing inthe requirecanNEB additional securitycorporatedepositspostedthe ifbe to assets areinsu fcient.Whilethe has suf cient assets to fund remediation in the event of an incident or for decommissioning. If necessary,NEB hasthe the authority to impose conditions on wells, pipelines, and other facilities to ensure Canadianthat lawforthe newonshore licensee oro f shoreoiland gas, and f aring andventing are strictly limited. Also, the theDepartment of Fisheries and Oceans [124]. An environmental impact assessment is also required under the frontier areas ofshore, and shares jurisdiction with the Canadian Environmental Assessmentsectors. For example,Agency and the National Energy Board (NEB) has plenary authority over oil and gas production in Asa f nalmatter, Canada has an extensive regulatory licensing network for both the oil and gas and mineral ownership of mines [122-123]. for international mining companies because, apart from uranium, there are no special restrictions on individualforeignprovinces canimpose conditions onpurchases ofland [121]. Canadaattractivevery ais country it that signaled has Canada welcomesagreement, Chinese investment.trade free Te impact the of FDI of on tribal areasconclusion remains recent a mystery its (due and to lack of data)pronouncements and public messages when it comes to Chinese investment, including those by state-owned enterprises. Troughrequirereview whenadefense various industries criticalor infrastructure areimplicated. Canadasendingis mixed undertheICA’s newnational security regulations, which, like therecent expansion ofthe U.S. CFIUS rules, publicoutcry.abecause wouldofhavecase likelyofnational gonetype full throughT issecurityreviewa thecase did not result in aformal order by the Minister of Industry the purchase was ultimately abandoned Canada’sthenwas largestminingcompany world’s theand thirdlargestproducerzinc [116]. Even though working.However, in2004, China Minmetals (astate-owned enterprise) sought toacquire Noranda, which Sincecasestheare fandled reviewed conona f dentialbasis, therenot ismuch dataonhow this process is investment or order mitigation measures. are not present, the National Cabinet has 45 days to assess the matter and either accept setor aside reject that thefnding. proposed If there is a fnding that national security is implicated or that “net benefts” to Canada proposedthewith investment, notiitFederalthe fCabinet es that Cabinetdaysactionofto theand15 has accountsocioeconomicbothissuesecurityconsiderations. andno f ndingthereis amakesministry the If the Minister of Industry is required to assess whether the FDI will have a “net beneft” to Canada taking into infrastructure as among those categories of investments subject to review [120]. Under SectionCanada’s 20 of the ICA, guidelines on National Security Reviews list investments in Canadian purchaserdefense[119].implicated,aindustriesinvolved ownedarestateare (cultural media)asbusinessindustriesor and and critical provide notice to the relevant government ofce if the dollar value exceeds a certain limit, withinor45 days ifto the Governorcertain insectorsGeneral in Council for fnal action [118]. Direct investors are required to relevantreviewprovidingconsultingamended)agenciesforalland (aswitha IV.1 Part ICA under the of responsibleisIndustry, whoofMinister the nationalsecurity.”conductedbynormally are reviews Tose approvalproposedandreviewacquisitionestablishing“injuriousaseek or when ones,to be could to new Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 45 - - - e law is is law e T 34 Lastly, the U.S. the U.S. Lastly, 35 e U.S. International Trade Administra Trade International e U.S. [127]. T cases two been had approved only that and 45 applications and the Commission reviewed by were 195 applications 2016, that March of as that reported in contrast, tion, decid were the initial applications of 38 percent About 12 rejected. and conditions) (with approved 183 were the purchasers. by withdrawn were 11 percent and their regulation the scope of of outside as the FAS ed by tional Defense and State Security” State and Defense tional William Pomeranz reported that in February 2009, a Russian newspaper reported that the FAS had received received had the FAS that reported newspaper 2009, a Russian in February that reported Pomeranz William Full title: “On the Procedure of Making Foreign Investments in Companies of Strategic Importance for Na for Importance Strategic of in Companies Investments Foreign Making of the Procedure “On title: Full

the Federal Law on Subsoil of February 21, 1996, and is under the jurisdiction of three Russian ministries. All All ministries. or Russian targets three of those jurisdiction the violate under is they and if 1996, 21, February penalties of cant f Subsoil signi on Law to Federal the subject are and targets production to adhere must licensees 34 35 culty navigating the approval process. the approval navigating culty f di and f corruption and of gra complain in Russia of and Department describes the State in FDI in those climate as Russia interference” subject to “political [126]. unpredictable” and “non-transparent as described is mechanism the arise, disputes where cases theory, in where, industries extraction for scheme licensing a have does Russia that noted nally f be should It by is governed sector gas and oil the example, For auction. competitive of basis the on awarded are licenses Strategic Entity, 25 in percent Entity, other Strategic cases. Other cases routine are decided by advice from the two. FAS—with or month additional an take can cases Commission months. three to two about agencies—in relevant because law, the of implementation the criticize analysts legal most but clarity, of model a is law Russian e T trying to do most business foreigners Also, [129]. patterns do the not seem decisions predictable to follow ned as greater than 50-percent control—25 percent in the case of a foreign government or government a in of case the foreign percent control—25 50-percent than as ned greater f de Anti-Monopoly transactions, Federal Russian e T management. or membership, board stock, voting the investor—of SOE Service is (FAS) for the responsible administering but law, if the feels FAS that a case high-level requires review, the matter is elevated to the Commission on Control over er if a f Foreignweeks few a Investments, be can approved headed application by thethe initial Subsoil but Primea detailed, quite of are case the e T applications in Minister. percent 5 than less proposed: is interest controlling a of purchases outside modest only ere are also some unusual unusual also some are ere T railways. and in communication monopolies government and media, defense, restrictions on in investments the of manufacturing juices, pharmaceuticals, media/broadcasting, “dairy, medical devices and vodka” [129]. e T law contains special restrictions on foreign purchases of subsoil on contained entities an “control” strategic cial f o list any and, in for imposes general, a cap approval on of total prior ownership foreign requires also law e T [130]. percent 25 to list Sectors Strategic the on entities in 2012 to provide equity capital to local businesses seeking foreign investors in their enterprises [128]. enterprises their in investors foreign seeking businesses local to capital equity provide to 2012 in foreign public and principalRussia’s investors private law for regulatinginvestors: foreign inboundof types two FDI isregulates theIt 2008 structured. Strategic well and Sectorsclear quite Law (No. FZ-57). including foreign SOEs investors [129]. Article 6 of the resources, Strategic Sectors Law regulates 45 natural types of activities groups: broad four into fall generally ey T importance. strategic of deemed been have that country country to all those who want to run primary their to approach business [126]. here” attracting Russia’s has been to direct investment to pass foreign a to localize companies induce intended of variety measures does Russia has but various Russia of [127]. levels in FDI As [126]. increased have a Russia their (SOE), production consequence, enterprises state-owned its by made those and products Russian-made for preferences (RDIF) Fund Investment Direct Russian the established it and Russia, in register to companies foreign allow Russia friendly and open an be to wants always “Russia 2015, June in investors foreign told Putin Vladimir President 46 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 36 noted above concerning inbound investments in the aviation, fshing, or energy sector. Iceland’s 1996 Act establishes a fve-person committee to monitor and enforce the provisionsforeignAll entities must MinistrynotifyCommerceintheof “contract Icelandic a when decision”or law investtomade. is Iceland (Article 6); however, those with “unlimited liability” require approval by the Ministrybusinessin ofbusinessenterprise. Commerce.operateaNon-residents a also associated with may 4) (Article estate real Commerce.alawf rmativelyTe foreigngrantsrighttotheentities purchase Icelandicto holdtitleto and energy.Investments by foreign states—presumably toinclude SOEs—require approval from theMinistry of statesthatonlyIcelandicArticle4 citizensexplorationpermittedareenergy ownto rightsgeothermaland remains restricted, especially when it comes to investing in fshing companiesincluding U.S.that citizens [135].possessForeign investmenttransferable fthesheriesin sector (Article andairtransport 4) quotas.sectors BusinessEnterprises,extendsnationalwhich treatmentnon-residents Europeanto theEconomic ofArea, governingInvestmentmajorlawforeignonNon-residents(1996)No.investment T34/991 eActby is in VIII). (Annex services a provide investments in the other country and allows for free movements of persons from one country to the other to agreement with China rea frms the rights of the parties—established in an earlier agreement—to(FTAs)withDenmark andGreenland.make Icelanddirect concluded FTAan 2013with[134].ChinafreetradeinT e andfew restrictions on foreign ownership [133]. In addition, Iceland has entered into free trade agreements FDI onfavorable policya of ersTradeit FreeAssociation/European thatasserted also ItEconomicArea. certifed that it had been fully compliant with its WTO obligations and noted itshas been amembership member of the inWTO sincethe 1995.European In its last internal review of its WTO obligation in 2012, Iceland Iceland’sFDI policies are governed byits obligation under theWTOand inits domestic legislation. Iceland Iceland any real power. Te closest thing to an authoritative statement came from a 2006 OECD report: theef ectivenessoftheagencies that implement thoseregulations andwhether theregulatory entities enjoy regarding evidence muchnot is content, butthere their of terms in state-of-the-art are book the on laws Te sufcient funds to pay for the cleanup and remediation of sites when174- extractiveand respectively.1995,and2001 7-FZ of facilitiesrequirementsspeci FZnof arecTLaws ere ensurebonding availabilityfor toare Federal of decommissioned.to pursuant statement impact environmental independent an prepare also must to keep environmental contamination to speci fed limits and provide for the costs of decommissioning. [131]. terms or requirements other license environmental Tey

Regulations for Processing Oil Works, adopted by Gosgortechnadzor in2003. Regulations inExploration and adopted Extraction, by Gosgortechnadzor in2003;and (c)Industrial Safety regulations: (a)Safety Regulations for and Oil Gas Industry, adopted by Rostekhnadzor in2013;(b)Safety industriesExtractive are considered Hazardous Activities under Russian Law and are covered by three main environmental compliance are ofen unpredictable thus increasing the investment risks [132]. profts, etc. Te regulatory framework and is osubjectfences to frequent of change number and, widening therefore, a the costs subsoil, corruption,of oflacking protectionaccess to information of on the use of mineral levelresources and distribution the of in decrease a by A very intense extraction of mineral resources, primarily hydrocarbons, has been accompanied 36 Licensees for all extractive industries are expected Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 47

Boomerang Iceland’s growing tourism sector is expected to supply ample investment sector is tourism investment growing expected to ample supply Iceland’s 37 nancial collapse in Iceland (and the failure of its banks) — lays a good portion banks) — lays its of the failure (and in Iceland collapse the 2008 fnancial of the causes —on economy. Iceland’s to in comparison system fnancial a highly leveraged and unsustainable an on the blame of entities Icelandic ered f o that lenders foreign by caused was the collapse of much Lewisfes that also identi remains the point but fnancing debt and between equity erences dif are there Obviously, credit. unlimited economy. its of the lead collapse to and Iceland for problem a major was money/credit outside plentiful that One can reasonably question the accuracy of this observation, since Michael Lewis’ 2011 book Lewis’ the accuracy this observation, Michael since question of reasonably can One

foreign entities can also obtain exploration licenses with few regulatory requirements other than the payment payment the than other requirements regulatory few with licenses exploration obtain also can entities foreign of tax like a Act, [141]. regular company So Competition far Danish as the can under be does Greenland although, determined, not have a enterprises, or process for land either of acquisitions foreign reviewing 37 airs relating to “defense “defense to relating airs f a international those manage to right the retain does Copenhagen in government the which, as has and been security policy,” seen in other can states, the include of regulation FDI foreign in sectors. and industries certain through an enterprise to are able establish companies foreign in Embassy Denmark, to the U.S. According liate, f or either a a registered a costs ese T are subsidiary, taxable establishment very entity. modest, and environmental protection [140]. environmental Article 7 of the Act stipulates that revenues from mineral 4 resources Chapter of in the Act states Interestingly, authorities. accrue to Greenland Self-Government the Greenland that the any may Naalakkersuisut include to negotiate appear and would is T conclude Greenland. agreements concern under exclusively international law that with organizations foreign international and states But of those activities. and the regulation resources to access and use natural of any respecting agreements Denmark/Greenland Danish the because cult f di is Greenland in development and FDI both governing laws of state the Assessing central purports government to assert over jurisdiction FDI, yet the Act on Greenland Self-Government is to empowered exercise (Naalakkersuisut) of 2009 Authority that states the Self-Government Greenland “legislative and executive power” over most issues that pertain to the extractive industries and marine cient to cover possible possible cover to cient f su policy insurance an of tender the includes is T activities”[139]. these undertake to of the decommissioning a for and plan plans, safety of the licensee, the by activities cause or damage losses (Article 38). the facilities Despite shore f fact o that the laws ed to appear f be and comprehensive, well-cra working. are systems these well how on information available publicly little very is there e Act applies to the Icelandic Icelandic the for to oil exploration and gas applies in is waters by Authority, Icelandic regulated Act Act 13/2001 No. on e T prospecting, [138]. Act Hydrocarbons the — hydrocarbons to of subject production are and activities exploration, Petroleum shelf. example, continental an Icelandic As the and zone, safety. and economic health exclusive sea, protection, territorial environmental taxation, on regulations and laws Icelandic general an will receive only licensees production and exploration that states 884/2011 No. Regulation the Icelandic capacity nancial f and experience expertise, requisite the “have they if prospecting in engage to authorization opportunities, but much work remains to identify investment-ready projects. According to Santander Trade Trade Santander to According projects. investment-ready identify to remains work much but opportunities, restrictions few very rate; tax corporate low a has investment; foreign for anxious especially is Iceland Portal, [137]. enterprise an establishing for process simple very a and investment; direct on Energy National the Orkustofnun, Iceland’s to According ed. f well-cra seem development on rules Iceland’s According to According the of Department U.S. State, “ere T is broad within recognition the government Icelandic that foreign direct (FDI) investment will be a key to contributor the economic revival country’s er f a the 2008 nancial f collapse” [136]. 48 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 38 [148]. companies liability limited and nationals foreign by activities have to be licensed, but section 13 of the legislation allows for purchase of mining lands or licenses of mines, waterfalls—for hydroelectric generation purposes—and real estate [148]. Under the Act, allNorway’s mining Ministry of Petroleum and Energy has responsibility under Act No. 16 over the foreign acquisition land, lands, and mines, tilled waterfalls [147]. ownership of Norwegian real estate, but foreign companies have to obtain a “concession”foreign prohibitionson no are to T ere purchase [147]. forest alcohol of sale retail hydropower, the railways,and services, Norway does maintain traditional controls on industries monopolized by the government, including postal OECDhas similarly reported that Norway has favorablea recordtrack on welcoming inbound FDI [146]. Te [145]. Norway in developmentexplorationandblocks petroleum discrimination” awardof no the in report companies oil “foreignState, of DepartmentU.S. the to According [144-145]. treatment nationaland access free of standards Union European to conform to standards its liberalized has Norway the EU). of part not is (it Area Economic European the of member a as reciprocity,and of principles under businessaccordingdo Worldto Itplacethe to easy an is Norwaymattergeneral welcomesBank. a as FDI Norway is a modern, developed very state with one of the highest average per capita incomes in the world. Norway efectiveness of these regulations. generalizationsmakeabilityrestricts tooursample sizetheaboutsmall the andreportedcases few so are efectivenessGreenland’sof environmental protection andworker safetyprotocols diisfcultbecause there activities,includingrequirementthe environmentalfor theimpactassessments. gaugeoftrue Obtaining a Mineral License and Safety Authority establish new requirements for entitiescontainnotrestrictionsany doprevent that wishingforeign entities biddingRecentfromregulations [143]. the to by engage in exploratory scalemining operations from foreign investment, but the recent “open door” small- tenders protect does in the oil and Greenland gas fplan. eld response and preparedness spill oil an have and sustainability social and Parliament2012)and ActNo.(December2009),whichrequire7,7 licensees protectto mineworker safety oilandgasormining activities[142]. Licensees must comply withGreenland Parliament ActNo. (June4 4, Greenland’sMineral Resources Act of 2009 establishes a regulatory apparatus for those wishing to engage in current e T the issue of uranium. uranium mining of in Greenland is still extraction contentious” with [141]. combined case one government in is also Greenland, maintaining southern the previous in government’spermission for REE applied have extract relaxation companies to of other a two ban on while uranium 2016, mining… in however,online come to expected are respectively) According to the U.S. Embassy, things are changing. “In the mineral sector, two mines complicated(rubywindows.drillingshortextremeclimaticwas conditionsand andby icepack verycovered andanorthositeby Greenland has previously not been very accessible for either mining or hydrocarbon activities because it was [141]. cient f are insu sources labor local when labor of foreign importation for the allows which Act Projects Scale controversial Large the Parliament passed Greenland the 2012, In million. $7 exceedstransaction the “combined in value” turnover the if merger a noti of competition authorities require fcationDanish ensure that individual’s the or corporate assetsare at event risk inthe of adefault. 66.Limited liabilitySec. companies owning greater than 20percent of aventure have requirements special to 38 Te issuance of a license is predicated on a Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 49

prohibitions against taking foreigners prohibitions a majority interest in projects infrastructure such as “power grids, “defense, Similarly, [149]. estate real non-residential of types in most or services” telecommunications basic process the general, In control”[149]. “state for reserved are gas” and oil and guidelines published telecommunications, few are electricity, there that in non-transparent as reforms—described recent some still—despite is non-existent. mostly are approved been have cases many how on statistics and assessed be will cases how on be reviewed and approved by the relevant government authority” and any contracts by and a rm any contracts f foreign that authority” by government the be relevant and reviewed approved given has agency government the until courts Chinese in enforceable not are approval government requires its approval [149]. the Unlike system U.S. in which there c are f speci for agencies that clearing proposed have responsibility are ere T FDI based on of the the value investment. FDI based on regulates the type mostly of China FDI, comparison of the FDI laws of the Arctic littoral states with an assessment of the FDI laws of China. China. of laws FDI the of assessment an with states littoral Arctic the of laws FDI the of comparison investments, a prohibited” particular unless and and industry, by cation f restricted, classi on is based FDI of system Chinese the Bath, to According “encouraged, of Catalogue Investment Foreign the on listed is industry the is investment of “regardless permitted. However, its cation, f a classi foreign project investment must newspaper, radio or television market without a concession. concession. a without market television or radio newspaper, China and the China FDI from over control A is increased of focus this paper on it heavy and China will suggest it to is nish f this law, important of is international the cornerstone that reciprocity Given other countries. FDI unrelated to the acquisition of mines or real estate is regulated by the Ministry of Trade and Industry. and Industry. by the of Ministry Trade is of or mines regulated real estate to the acquisition FDI unrelated are for of required c f purchases than greater Speci authorizations 10 of percent the stock capital of banks and media national a e T in companies. and stake Norwegian Financial Institutions the ownership Media an Ownership Act of of one-third 1997, than for greater acquiring from buyer foreign a prohibits example, cient capital for the “acquisition, development and operation” of real estate estate real of operation” and development “acquisition, the for capital cient f su has applicant the that showing that will be period used for a in e also a T mining. prescribes post-decommissioning regulation two-year closed. has mine the er f a impacts environmental any mitigate to licensee 50 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Unconstrained Foreign Direct Investment: ExaminingAn Emerging Chinese Challenge to Arctic Security Investment51 in the Arctic especially apparent especially when apparent panic buying of commodities by anxieties general in resulted mid-2000s the in rms f Chinese over the of quantitysuccess the at looking when of However, ownership. resourcesChinese being consolidated to seem many lenses, of under a variety through investments these good. than China to harm more done have For one, the Chinese companies that did not carefully vet their investments faced massive losses. For example, the Sino Iron project in Western Australia, which was developed which was developed Australia, in Western project Sino Iron Chinese Chinese investors abroad has been to own rather assets, than lease them The The inital attude of Chinese SOEs, then perhaps China might have a better reputation abroad. reputation better a have might China perhaps then SOEs, Chinese Chinese companies Chinese also companies learned hard and standards lessons abroad about labor environmental practices. North in countries made Poor have behavior Africa by and America Chinese South in companies has violence and damaged abuse, reputation. China’s Widely labor publicized damage, instances of environmental America and Europe wary of Chinese Had direct Chinese been investment. companies to more attentive of behavior the managing at ective f e more been government Chinese the had and behavior corporate good c and Metallurgical Corporation of China, ran Corporation $6 and c f budget over four behind years billion by and Citic Paci Metallurgical and site project the of challenges the assess to developers Chinese the of part the on failure A [152]. schedule accurate. from far were calculations cost that meant Australia in regulations As both a supplier and a consumer of commodities, Chinese SOEs operate in a unique position as they hedge hedge they as position unique a in operate SOEs Chinese commodities, of consumer a and supplier a both As side. consumer the on prices commodity high against and side supply the on prices commodity low against e T initial of attitude abroad Chinese has investors been to own assets, rather than lease them. is T was Arctic control roughly 85 percent of the water space, which includes the resources in the water column and and column water the in resources the includes which space, water the of percent 85 roughly control Arctic the seabed [151]. At the time talk of seems this to (2017) writing the Heritage” have subsided; “Common there is oil world should prices rise no occur or guarantee, however, that this mineral scarcities talk won’t again resurface. Understanding the impact of Chinese Understanding FDI general strategy in the Arctic China’s begins by understanding region that in and resources to approach the securing writing in natural that Shiloh resources. so Rainwater, the Arctic Naval College the War Review, of regime legal the reorder to aspirations has China that reports How [150]. mankind” of heritage “common the are areas these because commons, global the of part become exactly those policies would be implemented is unclear, since under UNCLOS the six littoral states in the Investment in the Arctic Natural Resource Strategy China’s Examining Chinese Chinese Examining 52 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security to both legalframeworksbothto andChineseinvestment. Duringanalysis,our observednumerouswe changes to Our analysis relied on the best sources of data available at the timestudy examined legaltheandregulations represents(orabsence and sizetheChineseofthereof) investment Arctic.theain snapshot in time in regards garneringinfisofthroughChinaTothatuence investmentscale andArctic, scope this identify the the in Quantifying ChineseDirectInvestment dropped in the same period. or of leveledhave America South and Africa investments in whereas 2014, since steadily increased has trustworthy to highly advanced operators. Te number moreof becoming investments are frms going Chinese demonstrate examples thatinto platforms. Tese North submersible drilling America and and Europe rigs oil constructionof the on frmsNorwegian partnershipswith formedhavecompanies Chinese and Yamalproject;PeninsulatheLNG investedinheavily are frms Chinesearea; Dreki thehydrocarbons in Examplesabound:thisof recently, Iceland,CNOOC subsidiary operatorbecameleadatheCNOOC of on projects. secure more quality, the2008 fnancial crisis, this pattern has changed. China has found that it isable toacquire stakes inhigher one-hundred-yeartaken”alreadySinceprojects[153].are a good history.has industry Te oil world T e projects. As desirableFu Chengyu, for the options CEO of fewCNOOC lamented were in there 2004, abroad, “it’s resources in investingactually seriously not easy began companies for usChinese to fnd projects. China’sinvestments are alsomuch more strategic and inregions that have proven resource potential. When to expected be produce positive reasonably returns. can’t that sink projects to into willing capital less are institutions nancial f Chinese price. recalibratedto focus on diversity of supply but at a reasonable out.Recognizing thisposition unsustainable,tobe China has than otherdirection any in fowedrarelycapital that meant institutions,wheremassive costoverruns andproject failures However,thisstrategybleedingthe toled China’s of fnancial pro [152].ftability than important more much was security provenwithassetsproon focus fregionstabilitygreaterwithinstability. oChinese f ofcials,minds the In aboutinvest,howto invest, where to when.andInvestments aremuchwithmadegreater carenow, a with lot alearned hasyears,China ten to sevenof course themid-2010sovershows that the mid-2000s to the commodityglobalmarkets.experiencewithComparinggaineddealinghave individual transactions from graduallyhasChinareadjusted strategyitstoward natural resources, politicalbusinessbothand as leaders to major overseas. losses third-party and reports, diligence due studies, appraisals of feasibility new targets [152]. In addition to this, SASAC will hold produce SOEs and their managers accountable to SOEs requiring role, oversight greater a on taken has (SASAC) Commission Administration and Supervision Assets State-owned Te to. funding supply to agree they projects the of critical more become haveChina’sinstitutions fnancial Fortunately for future operations, China has demonstrated the ability to learn from these blunders abroad. focus on diversity of supply supply of diversity on focus to recalibrated has China but at areasonable price Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 53 and from our own research. We found evidence that 40 en use a maze maze a use en f o will investors because funds investment trace to challenging is it this, of Because 39 ce, track inbound FDI, however their statistics are frequently at odds with each other. each with odds at frequently are statistics their however FDI, inbound track ce, f O e T would authors like IntelTrak. to thank the RWR Advisory Group’s experts at both AEI and RWR Advisory Group. A notable exception to this is Russia, Both the Central Bank of Russia (CBR) and Rosstat, the National Statistical Statistical the National Rosstat, and (CBR) of Bank Russia Both the Central to is this Russia, exception A notable (AEI) Our from and the relied on heavily Institute analysis Enterprise American Tracker the China Investment

39 40 is is an obvious overstatement of the problem since many of the Western democracies in the Arctic are not not are Arctic the in democracies Western the of many since problem the of overstatement obvious an is is T democracies Western large even monitored, closely not is FDI if But, money. outside by uenced f in easily that are there Arctic, the in And bankers. and investor their upset will that action an taking before twice think will the fold. entering already are that investors nancial backwardness they have, but their overdependence overdependence their but have, they backwardness nancial f the not is nations developing the with issue major A thedolestheondeveloped of countries, which makesthem vulnerable alwaysandkeepsthe receivingat end... e T can that façade proposes be to the of BJP the the urban compared government development growing or the of poor the plight downplaying either cars, and gadgets for fascination — a with rabid psyche India’s pity them [156]. We believe that FDI should be tracked carefully, because the impact of large quantities of investment dollars dollars investment of quantities large of impact the because carefully, tracked be should FDI that believe We India, in FDI of analyst An fooding investor. into the of some Arctic nationality nations the of (Greenland) or regardless tribally true, be governed to this land believe can have We an impact sovereignty. on political follows: as problem overall this summarized FDI, for site modest a is which industry recently, for example, spurred a sizable number of members of Congress to call for greater regulation regulation greater for call to Congress of members of number sizable a spurred example, for recently, industry in of lm f investments U.S. and [154]. companies New broadcast was legislation very introduced recently of Cornyn John in 2017 and in Senator November (R-NC) both the and by Senate House Cong. Pittenger Chinese is the buying expand attention “China that scope to of of because concern (R-TX) a greatly CFIUS reviews of growing level the rule, general a as However, [155]. pace” breathtaking a at Companies American spoadic. is recieves FDI lack lack of reporting of on reporting is lack Chinese investment legal, likely because and these are predominantly transactions Alternatively, scrutiny. regulatory avoid to on reported or tracked stringently not therefore, reasons. competitive to attributed be can movie U.S. the of control nancial f Chinese greater of prospect the alarms: raise can investments Occasionally, particular project or investment. When the values of investments are reported, it also merits some skepticism skepticism some merits also it reported, are investments of values the When investment. or project particular or misreported en f o are investments that found analysis Our accurate. are reported values the whether to as maneuvering. geopolitical and competition including reasons of myriad a for misrepresented We assembled our data from existing databases indicated that the scope of Chinese in investment the Arctic is both and underreported of concern. e T ere are very few sources that are are in laws ed the f that various in the investment identi were legal that of review domestic issues sources e T few transparency very are ere T governmental investments. by these quantify reporting to through attempt our in not encountered periodicals, also were from states sourced is data the of most and FDI, Chinese tracking agencies. a of parent governmental) (or corporate true the obfuscate to subsidiaries and companies liability limited of is indicates that Chinese investment in the Arctic is highly dynamic, dynamic, highly is Arctic the in investment Chinese that indicates is T transactions. several of scope and size changed. or cancelled being deals old and formed being regularly deals new with 54 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Sources: U.S. Intelligence Central Agency, United Naitons, RWR Advisory Group, CNA 2012-2017 Nations, Littoral Arctic in Investment Chinese 6. Table Total USA Russia Norway Iceland Greenland Canada much needed capital into Russian projects and the economy in general.Despitefrequenteconomyannouncementsin theRussian capital intoprojects and needed much [159-160]. In Russian media we noted instances of ‘creative accounting’ (infating wasthe reportedvalue ofby deals)China to Dailyattract is either the total value of the iron in the mine,Financial Times,or whoalsoreported the ontheacquisition cost ofbyGeneral Nice,developing assert that thebillion$2 fgure thethat mine the andReutersannounced) [158]. been notinvestment hadthe of valueo fcialinvestment the (though IsuaIron project, owned byGeneral Nice, wasreported byChinaDaily anestimated beto billion$2 dollar praises of the power of the Chinese economy and Chinese enterprise abroad. For example, in Greenland, the in reality. We discovered instances of suspected distortions in the Chinese mediaDuring which werethis accompaniedstudy, by we encountered many transactions that were initially reported to be signi fcantly higher than and media. Chinese expense, scope, and anticipated value of various investments were clearly distorted, particularly in Russian transaction each of transparency announcementstransactions, the investigation of the manythese the ofof During desired. be muchtoleaves legal, all are transactions these while And sectors. minerals and energy the in primarily investmentsare T ese [157]. investmentcapitalavailable of portion fcantsigni a littoral states.) While annual the Arctic economy is greater than $450billion, investment Chinese remains for a summary of Chinese investment in the 6 table (See paper this by drawn boundary projects located within the 60 degrees north agreements, fnancing agreements, or other cooperative assets, infrastructure, in was the Finland and Sweden), $89.2 billion of in which trillion nations(includingArctic the ofeconomies $1.4 over invested has China 2005-2017, from that, estimate We 323,995,528 142,355,415 Population 35,362,905 5,265,158 335,878 57,728 - $370.60 trillion trillion trillion $18.62 $20.05 billion billion billion $1.06 $1.53 $1.28 GDP - GDP $37,600 $46,400 $57,600 $26,900 $69,400 $49,200 capita - per and Sweden), $89.2 billion of which which or assets, projects was in infrastructure, of billion $89.2 Sweden), Finland and (including natons Arctc the of economies invested the in has trillion $1.4 over China that estmate We Transactions Number of 884 557 281 107 17 5 6

(Million USD) Transaction Average $508.66 $340.6 $691.7 $147.9 $442.1 $30.8 $33.4 Size

(Billion USD) Total Value $449.66 $189.7 $194.4 $2.00 $47.3 $2.5 $1.2 11.6% GDP 1.2% 2.8% 0.9% 5.7% 2.4% % of - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 55 agreements with China Nonferrous, which demonstrates an interest by China Nonferrous to fund and build build and fund to Nonferrous China by interest an demonstrates which Nonferrous, China with agreements the cost at of the zinc the remains, time of mine. However, this too writing, low to the justify high cost of Fjord Citronen the make would that a to rise price zinc of cost the Should project. Citronen the developing argue, lies with exploitation of Greenland’s resources. as is T is long a resources. the so be that feat without cannot undertaken of importance, Greenland’s lies with argue, lessor exploitation of is capital that of source the part, Greenland’s For capital. outside of large, is assistance potential resource natural Greenland’s cient. f su is capital of amount the and favorable are terms the is this of example An possible. extraction make to investment initial cant f signi a require resources most but non-binding of series a held has Ironbark Australia. from Ironbark by owned project, zinc Fjord Citronen the cant enough to to enough signifcant be would impact Tis economy. and population Greenland’s on impact enormous an decisions. regulatory alter aggressiveGreenland’s national development strategy provides space for such inuencef Greenland’s to grow. not of aware it Kim the Prime how yet Minister is. said, Kielsen extensive “as mineral potential, we’re We will not nd f this out until we have turned the last [161]. e T stone” path to a leaders future, prosperous is is notably higher than the other Arctic economy nations. is Greenland’s a special case in the context of this study: it is the smallest nation in terms of population and the size of In its comparison to economy. $1 exceed that Chinese industries and between U.S. transactions active of dozens are there where U.S., the billion in value, these large transactions generate minimal concern because, in the context of the have greater would investment billion $1 a Greenland, In impact. minimal a have transactions these economy, U.S. any money any is changing hands. Whether due toto translation errors or deliberately challenge misleading persistent statements, and there major a poses is T values. investment stated of veracity the in certainty limited is Arctic. the in states non-Arctic by made investments of scale the tracking 11.6 percent for Chinese accounts FDI cases in this study. interesting the of more one presents Greenland GDP (see fgure 14 of for a Greenland’s global of comparison Chinese FDI as a of percentage GDP). Tis about cooperative loan agreements and investment funds, some experts have privately cast serious doubt on if if on doubt serious cast privately have experts some funds, investment and agreements loan cooperative about Figure 14. Chinese FDI as a Percentage of GDP, credit: CNA credit: of GDP, a Percentage as Chinese FDI Figure 14. 56 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Figure 15.Value ofChineseInvestmentin Arctic Countries2005-June2017(inBillions) regions or sectors. or regions even fashion across regions and sectors, then it likely does not pose a major threat to the sovereignty of those should be attentive to the saturation of Chinese FDI in Canada’s economy. If FDI is distributedothernations.isn’taverageinarethisWhile on intheythan Uniteda any means, relativelytheby paniccausefor States GDP.annualmoremuchpercentof worth Individual 3transactions also than are moreequivalent of the UnitedStates Russia,or ChineseoverFDIfour-year the largerisperiod relative Canada’sto totaleconomy, the in thanCanada transactionssigni infewerfare cantlythere interestingWhile case. an also is Canada value out of Arctic the nations that we investigated. As Figure 15illustrates, growth steady. has been longersanctions remain enforced. clearLookingisthatittableatRussia 6, receives mostdollarbyFDIthe continuethe to expected is investmenttrendChinesegreatersaturationdollars,thishave nations of may worthonaverage, $691.7 million each. Tisisequal to2.8percent ofRussia’s annual GDP. Andwhile other by economic necessity. Russia had over 281 inbound investment transactions with China from 2012 to 2017, sanctions against Russia by the United States and most OECD nations that drives the two countries together Ourdata also indicates that Russia is extremely vulnerable to in fuencefrom China. T isis compounded by Greenland’s total revenue [163-164]. meaningthat therevenue frommining a industry would constitute close toone- ffoftheGovernmenth of over this same 15-year period, overall tax revenues for the government of Greenland couldwill be generatedbe about by the$24 numerous billion, proposed mining projects over the next 15 years [163]. It estimates that Te Government of Greenland’s Oil and Mineral Strategy estimates that more than $4.4 billion in tax revenue out by foreign workers [162]. projectpro ftable,likelyisitthat initial the development phasesprojecttheof would mostlikely carried be Sources: CNA, RWR Advisory Group

Value ( in Billions) 200 250 300 350 100 150 50 0 2012 2013 2014 Year 2015 2016 2017 Greenland Iceland Norway Canada USA Russia Total

Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 57 Chinese investment in investment Chinese falls into the following three buckets: energy, energy, buckets: three the Arctc predominantly predominantly the Arctc infrastructure, and mining infrastructure, e rig rig e T [170]. Sea Kara the to way its on Murmansk in stopped it when stir a caused rig, drilling submersible it where Field, Leningradskoye the for bound ultimately is and Limited Services eld f Oil China by owned is . f Ne Gazprom by beoperated will announced announced f Rosne tability. f pro achieve to bar low surprisingly a of promise similar hold discoveries oil New With [169]. equivalent oil of tons billion 9.5 as much as hold could Sea that Laptev the in discovery a major experts that Russian predicting by 2020 about 20 of percent oil could Russian come production from the Arctic, expansion continued of Arctic oil and gas activities is to be expected, the despite risksenvironmental from the [169]. VIII, In and Arctic region a with 2017, shipment June Nanhai extraction associated semi- is may be the case for most deposits, but according to recent analysis of Norwegian oil oil Norwegian of analysis recent to according but deposits, most for case the be may is T table. f unpro as oil to elds f some for cient f su are barrel per $35 above prices Sea, Barents the in elds f Arctic the it Statoil’s making company 2022, as soon as online brought be will eld f Castberg Johan the cally, f Statoil, Speci by [168]. table f developed pro be be will eld f Castberg e T [168]. Shelf Norwegian the on operation in eld f northernmost project. the on subcontractor a serving rm, as f engineering Norwegian a AS, Solutions Aker with for for this study to examine each transaction, with particular attentiveness to natural resource investments. oil writing, this of time the At gas. natural Arctic and oil is labeled recently have dismissed been has analysts that most investment of prices, area One these At barrel. per $50s high to $30s low the from ranged have prices investment in the Arctic predominantly falls into the following following the into falls predominantly Arctic the in investment nding f is T mining. and infrastructure, energy, buckets: three underscores the environmental concerns that unregulated development poses in the Arctic. and oil wells As come online, the of probability environmental prospective mines degradation is Because multiplied. of this, it was important Following the Money is in T study is what interested sectors attracted particularly the most investment. Increasingly, it seems that Chinese e Aurora Observatory near Kárhóll, Kárhóll, near Observatory e T Aurora in Iceland[165]. culture and language of Chinese the understanding the study to used which e T be was Observatory, is will Aurora collaboration. Iceland, research of another example China, Sino-Icelandic of Institute 2011, Research In Polar the investment. to leased Chinese land from of wary proceeds the very with been nanced f historically has Iceland [166]. Borealis) though even (Aurora denied was lights course” northern golf “eco an for land purchase to bid Nubo’s Huang tycoon property Chinese enterprises[167]. business with connection in land of ownership foreign permits generally law Icelandic in the energy, mining, or infrastructure sectors. Given that the resources of that the the Given more are resources Arctic sectors. becoming or in mining, infrastructure the energy, available, we expect that this trend will continue. China has also made cant in f investments signi research in the Arctic states, particularly in e T Iceland. of hosts Iceland University the a Northern Light Confucius Institute, center research that aims to elevate Overall, Chinese investment in Arctic nations is clearly on the rise. As seen in Figure 15, those investments investments those 15, in seen Figure As rise. the on is clearly nations in Arctic investment Chinese Overall, are Most rapidly increasing. were Chinese made investments in construction/ the energy, transportation, almost all c f and were nancial, investments, f made real Among sectors. Arctic-speci estate infrastructure, 58 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security sense of the industries and types of transactions that are being carried out. analyzingamountthe of,andtrends ChineseinArctic.theFDI in It providedis givetointerested partiesa transactionsTe thatarelistedsu had f cient support datato their inclusion. informationTis in usedwas shortnarrative. T eselists are not meant to beexhaustive of all investments that occurred in any given year. ofunderlyingthe dataTablein andFigure6 10.Transactions thatexceed $100million areaccompanied by Appendix A and Appendix B summarize the Arctic transactions of which we are aware of, and provide much concrete. more is resources these to China’s of access from start to fnish. With such a large foothold already established in Russian Arctic oil and gas, the security explorationtheKaraindemonstrate Sea that Chinainterestedis becomingin partnera resourcein activity inresources and complementing infrastructure. Investment in the Yamal LNG port, as well as in oil and gas Lookingforward, thisanalysis found evidence thatChina mayseeking be strategicallyto placeinvestments [174]. Energy and Minerals Greenland of percent 12.5 acquire to right the Shenghe gives agreement decidingmajoritytakeoveraagreement theofRather, [174].theentitle to didthem o foundf cialsthatthe Kuannersuitthedespiteproject,Shenghe’suranium ofpercent that60claimsacquire preferred tooption Greenland’sGME.in MineralMinistryResourcesof established thatShenghe’s investments grantnota do to the Kvanef eld/Kuannersuit uranium project, and Shenghe Resources, a Chinese company thatagreementan betweenisGreenland investing Minerals Energyand(GME),Australianan ownedcompany rightswith complicatedevelopment the ofprojects. REE In Greenland, authorities just completed anintense scrutiny of will material nuclear of unearthing the and waste mining to due environmental damage over Concerns demand for technology such as laptops, cell phones,the solaras especiallyvaluable, panels,areresources and T electricese[171-173]. vehiclesOcean Arctic westerncontinues the to rise.in andGreenland in because they are ofen collocated with radioactive elements. Potential and proven deposits of REEs are muchfound of today’s technology. While most REEs are actually abundant in nature, they are hazardousAnother to resourceextract, area in which we see investment potential is rare earth elements (REEs). REEs are used in Unconstrained Foreign Direct Investment: Why is FDIAn Emerging in Challenge the to Arctic Arctic Security 59 a Concern? In a small nation such as Greenland, it may only take a couple hundred new citizens to dramatically alter the the alter dramatically to citizens new hundred couple a take proportional only may it using Greenland, years as such four nation every small a In legislature national its to members 31 elects Greenland landscape. political erent. Greenland has a population population a has Greenland erent. f di is Arctic the of context the nations, 52 across spread are people billion endowed both also are Iceland and Greenland [177]. citizens 330,000 about has Iceland and 56,000 mere a of rise not to it the in. might While an interest demonstrated the has PRC already that resources natural with citizens. become level of workers an fcial o it strategy, imported does if not require much nation creativity to Arctic envision a an situation where of even a modestlandscape political the alter could migrants of ux f in in Africa. She found that of the one million Chinese residing and working in Africa, one-third or more are are or more one-third in Africa, working and residing Chinese million of the one that found She in Africa. supervisors, managers, as such roles that last one contracts to with xed-term occupy f labor that three migrants notes this [176]. years Park temporary and skilled more be to tend Africa into migrants Chinese of two- subset other e T contract. their of end the at country host African their in remain seldom they translators; and ese T to migrants and tend [176]. be a under unskilled contract operating not are migrants of labor thirds 1.1 where of Africa, in the context or concerning negative inherently not While permanently. to settle tend ectively participate in the the in participate ectively f e cannot It project. the with disassociated intellectually is community host the then sustainment. long-term its or regulation, management, project’s Imported labor is a source of friction for many reasons and potentially a threat to cally f on political research conducts speci Chinese sovereignty. migration, Jung Park of University Georgetown Yoon Professor While it goes without saying that the development of natural resources is are ways there right, a resources sovereign of natural the that saying it development While goes without political in make which When up investments foreign FDI large of percentages can GDP, ectf a sovereignty. leaders may begin to feel beholden to the overseas fueling investors the rather domestic economy, than citizens. As will be in generally the discussedcase below, in of Chinese Djibouti, there seemsinvestments to skill low the is at labor that of much however, labor; local of in utilization the improvements small be some persists, this If project. a of nancing f or engineering, design, the in involved those include not does and level becoming increasingly important to Chinese citizens. In China, frustration over corruption, safety violations, violations, safety corruption, over frustration China, In citizens. Chinese to While important culture. increasingly corporate becoming in change a and regulation government both pushing is disasters and social, environmental and labor, with comply will companies Chinese that indicate changes small slow, been has enforced. process this rigorously and promulgated clearly are regulations these when only but regulations, environmental multiple critical failures on the part of Chinese multinational corporations to abide by local environmental by local environmental to abide corporations on multinational the part of Chinese failures critical multiple in Africa. particularly A to spill in the suspend regulations, Chad authorities 2013 during led government [175]. Corporation Petroleum National China by operations of suspension is Nonetheless, Chinese environment, the to enterprises have relates it shown as an particularly ability and responsibility, social willingness to Corporate adjust attention. business negative practices to in response Concern? nd f to far look to Our over Chinese FDI have concern in the Arctic is that of impact the Chinese FDI does historical doesn’t abroad not One investors. Chinese of policies and practices the in dence f con much evoke Why is FDI in the Arctic a 60 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Military Support Facility in Doraleh, Djibouti, is the most prominentmostSupportMilitarytheDoraleh, example.Djibouti,Facility RailwayisGroupin China and Finally, a pattern is emerging in how China uses the activities of its SOEs to advance military interests. China’s signifcant have rami fcations could for impacts, the health, change economic climate security, of and top culture of onArctic Environmental degradation, peoples. groups. these for unreliable becoming is change, climate to due rapidly changing already is which Arctic, e T traditions. economic and Arcticpopulation is composed of tribal groups who rely heavily on the Arctic for important social, cultural, high the ofMost Arctic. the in impactsculturaland potentialsocialEnvironmental has degradation also should something go wrong [11]. standards for FDI to ensure that projects are sufciently well-capitalized to aford self-funded remediation especially as regards the operation of oilinspections, rigs. and Other standardsstandards environmentalthat harmonized the promotingArctic Council in could rolesupport prominentinclude more a assume to needs Council Arctic the that argue analysts that reason this for is disaster.It oil Komi the of extent the transparentabout be to unwilling isRussia watersand Russian territorial within occurring is seepage the because difcult, is problem the of extent the Monitoring ocean. the into empties that river large a into seepage terrestrial of efects the remediate to especially Arctic; the in capability cleanup limited is there potentiallyfsheries, generatingharms political and friction among Ocean the Arctic Arctic powers. pristine As noted the in reaches multiple oil places in the this report, when region the for issues creates also It contaminated, destroyed, or driven from their ranges by oil been pollution. have displaced that resources have other reindeer, groundwater, and upon spills f relysh, who the people indigenous many report, Greenpeace the in documented As oversight. and technology proper withoutstartedresourceextractionprojectsare ifhappen can whatintowindow Russiancensorship, a is to due underreported mostly been has which pollution, oil Republic Komi the of implications political Te into the Arctic Ocean via the Pechora River [180]. regionsinvolved [180]. Greenpeace alsoestimates thatmonths,12 every 2.6million barrels maketheir way ArcticCircle [179-181]. Some of this is detected, yet suppressed, and some is undetected because of the vast has spilled more than 30 million barrels of oil on land each year—much of that in thewhen Komithey do Republicoccur. near In the Russia, for example, Greenpeace and others documented that thethat wouldotherwiseRussian violate environmental oil industrystandards, countednorbeitcan exposeviolationsto on andif visibility of poor practices. Tis same mechanism can neither be relied upon toand actSouth as America,a deterrentwhen foreign to companiescompanies behaved poorly, indigenous groupshaveenoughpopulation notadequatelydoeshave density to monitor naturalbeen resource developments.able AfricaIn to elevate the Additionally,the Arctic is asparsely populated area. Unlike in other areas where FDI is common, the Arctic political rights. Greenland’s population by 5 percent; assuming that the workers were Isuaableironproject.wouldincreasetheGreenlandTis work on to potentiallywaycouldto tomakingtheir be remain in Greenland and sought Legislature, Inatsisartut, Greenland’sgives foreign National theworkers rights through Greenland.in Once Actthebill enacted,is Projectsover 3,000Chinese Large-Scale workers 2012 the of passage recent Te Inuit Ataqatigiit Party was 326 votes [178]. runner-upthe Siumutandwinning Party dithef between erence election,therepresentation. 2014 the In Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 61 source of the raw the raw of source China’s interest in the in interest China’s to fuel its development Arctc is clear: as one of as one clear: is Arctc the Arctc is an atractve is an atractve the Arctc of unexploited resources, resources, of unexploited the last remaining sources sources remaining the last materials that China needsChina that materials ciently protected while its resources while its resources can protected be ciently f su environment are extracted, but taking that path will require cooperation and between coordination the Arctic nations in advance of resource development. partnerships with partnerships Chinese is companies not bad. inherently However, China’s history of environmental damage, labor and Africa in developments with hardball political and abuse, to caution as be historical South should America interpreted the Arctic ere T nations. is a way forward where the Arctic nd employment and possibly residence. For China, the the China, For residence. possibly and employment nd f could laborers Chinese many where a location also Arctic is a vast landscape opportunity. of For the Arctic also littoral deposits states, of their opportunity and Arctic for resource security. resources regional And development the are possibility of economic regularly berth is a future reality. future a is berth regularly Arctic the resources, unexploited of sources remaining last the of one as clear: is Arctic the in interest China’s the resources, Beyond to development. its fuel needs China that of materials the raw source is an attractive is e T Arctic dominance. t market and f pro seeking SOEs Chinese pad for launching is potential the Arctic Army Army focus the construction of overseas military port in infrastructure in regions investment and Chinese that locations unlikely where is it While there [183]. SOEs is Chinese by presence established an already in the infrastructure Arctic could ever be of used Arctic ownership infrastructure for military operations, Given that over 80% could of give China the in more standing Yamal its claim as an Arctic “stakeholder.” LNG export in facility is Russia nanced by f that Chinese rms with Chinese f capital conditions dominate could Navy PLA the where Port Multipurpose Yamal a Chinese port, the of operation and construction the with China Merchants Holdings, could give the People’s Liberation Army (PLA) the ability to move in and out out and in move to ability the (PLA) Army Liberation People’s the give could Holdings, Merchants China with design from a project to control strategy government Chinese of pattern a greater ts into is f T Ethiopia. of the of majority the populations, local from sourced was labor construction the of much While operation. to Liberation Naval at the Chinese rms. Researchers f by Chinese out was carried work People’s operations and design, the planning, recommend strategy, military Chinese for center research main the Institute, Research China Civil Engineering Construction Company recently completed a rail line from Addis Ababa, Ethiopia Ethiopia Ababa, Addis from line a rail completed recently Company Construction Engineering Civil China to partnership Djibouti [182]. in e T funded was railway was which constructed by Port, the two Multipurpose Chinese with Doraleh exclusively companies, the Chinese with along is, T equipment. manufactured 62 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Unconstrained Foreign Direct Investment: RecommendationsAn Emerging Challenge tofor Arctic Securitythe Arctic63 Regulatory Environment for those that undertake projects that violate core principles. principles. core violate that projects undertake that those for 41 of foreign museum pieces (18 USC 668) that can be mapped to obligations the U.S. the U.S. obligations to be can mapped (18 USC 668) that pieces museum foreign Sec. the thef of 175), and treaty. or agreement international in an assumed could be considered a chemical weapon (18 USC 229), possession of biological weapons and toxins (18 USC toxins and weapons biological of (18 USC 229), possession weapon a chemical becould considered ere are various provisions in U.S. law, for example, as relates to unauthorized possession of chemicals that that chemicals of possession unauthorized to relates as example, for law, in U.S. provisions various are ere T

e following are the core principles that could be established in a notional Arctic Development Code Code Development Arctic Te notional a purpose in of established the be could Arctic that Development Codeprinciples core would the be are to following ensure e T responsible region. development of the Arctic (ADC): 41 the six Arctic states to establish a multilateral agreement that is then incorporated into the domestic laws of of laws domestic the into incorporated then is that agreement a multilateral establish to states Arctic six the in as each an opposed are that ective ensure manner, these of implemented f e standards To the countries. laws would have domestic to nes f harsh include and possibly each country’s to being aspirational, merely criminal punishment Environmental Development Standards and Project Transparency Environmental Development Bank, Development Arctic proposed the by lending with connection in or instrument have that stand-alone a states as Arctic Either six the by adopted be should standards development of set common organization a below, transnational described Arctic no yet as is ere T development. imprudent by ected f a potentially coastlines like the EU regulations and to conduct actions, promulgate enforcement so the best would approach be for legal and regulatory gaps, we suggest three separate multilateral initiatives to establish a common framework for least, for the current framework legal common structure a is too establish to diverse to monitor initiatives and regulate speciinbound fc multilateral foreign companies and investments investments both separate in inlarge three projects such suggest as we mines, and gaps, oil and gas regulatory projects. facilities. and addressTo legal these development Arctic of nancing f the and FDI, development, -the-shelf technology to remediate an Arctic pollution incident, and not much much not and incident, pollution Arctic an remediate to technology -the-shelf f distance o and time little very is enormous ere T by techniques. exacerbated is this of All stockpiled. being is equipment and technology that of variety a of intentions good factors that would have to be to overcome mount a ort. hoped-for cleanup ef eseT fc scienti the and logistical limitations areto activity, human and relegated of pace development of the current mostly is supportive that not are ed f by a structure legal magni operations ship to related issues liability because not certainly but Last, charts. good and weather be good always will there that hope further and ag states f of unknowns of a major polluting accident occurring there. It also bears repeating that the Arctic is, for all intents c f intents all and for scienti is, are both political there because Arctic the vulnerable that in especially is the Arctic especially repeating e environment T others, marine bears in also It felt be there. to occurring likely very accident is recovery polluting Arctic and the major a of of part remediation unknowns one in pollution incident of An sea. reach the closed beyond nearly a oes, f ice purposes, and the beneath trapped become to were pollution if the Arctic Regulatory Environment Recommendations for 64 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security G. F. E. D. C. B. A.

sound and transparentparticularandprojectsound[184-185].many Sinceassociatedaassessment risks with of the 1992 Biodiversity Convention and Article 15 of its Cartagena Protocol, which require a scientifcally ofadvance planning isfound variousin international instruments including, for example, Article of14 writtenenvironmentalprecededa byADC-scopeprojectsbe Allwill impactassessment. concept T e used to export the ores. miningprojects that are in the interior are within the scope of the ADC if destination shipping must be Projects that could afect the Arctic marine environment will be subject to the ADC. In this context, even project was licensed. Tis would involve a requirement that each projectirrevocably notthewere costspledgedownerwhen those which inpost cases remediationthose andaplants in of long-term bond or Te parties to the multilateral agreement will create a mechanism to deal with the costs of decommissioning courts where site the local is located. owners or operators. T is claims process will be expressly recognized as a preconditionensuretomaximum participation to preventtoanyand costly, suitsfrivolous claimsagainstinfromfbeingled land the in cleanup or damages to livestock or fsheries. Te scope of this claims process would have to bethat limitedthey willparticipate inthis scheme and agree toreimburse claimants for reasonable costs incurred theArctic Ocean’s marine environment. Toperators e of allsites willagree, asconditiona of licensing, associated with incident an in any of the six countries that has a transboundary impact or any orimpact individualsgovernment on wherein organizations procedure claims from one of the a six countries establishcan make claims will for agreementdamage multilateraland cleanup the costs to parties Te international standards. investigatecomplaints fromanother andstate partythat receivecertain projects are notconforming to mechanismrecognizedto binding legally a establish will multilateral agreement the to parties Te extent that those standards have not already been adopted by the countries domestically. adoptrecognizedinternationalto there andftoneriesrigs,operationsstandards oilmines,the for of Te parties to the multilateral agreement agree to meet within a short, specifed period (one to two years) until a license is issued. criminala violationbealso personforaorcompany eitherto commence work onorfnanceproject a public repository a to that electronically is establishedprovided be pursuantwill licenses to and the RODs multilateral signed the agreement of copy A and openissues. togovernment public inspection. It will eachthat writtenlicensegovernmentincorporated referenceanda ointobya f cial by signed is that All projects that are assessed pursuant to the ADC will conclude with a formal Record of Decision (ROD) the other six Arctic states. method of eliciting comment from members of that country’s public as well some and as designated results, the of study, oc f f publication cials from scienti a for requirement mandatory a include should it but projectinvolvingresources,territoryalicense orits towhetherdecide sovereign to therightreserves practices with those of other states. Te multilateral Arctic agreement would establish that each country whichrequires states tominimize impact(s) onthe marine environment and “seek marine toharmonize” Arctic their the impact could and environment, coastlinerequirementthe Arctic conductto sound planninginferred UNCLOS, befrom of canPartXII the on constructed be will projects these of

Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 65 - or limits on investments in scarce national national scarce in investments on limits or 42 ose types of national security or critical resource controls on inbound FDI should be governed governed be should FDI inbound on controls resource critical or security national of types ose T 43 tries, critical infrastructure, nuclear power generation, broadcasting and telecommunications. and broadcasting generation, power tries, critical nuclear infrastructure, supply. in short is would include restrictions on the purchase of controlling interests defense and high-technologies, indus high-technologies, and defense interests controlling of the purchase on restrictions include would Tis minerals other or earth elements, rare hydrocarbons, of purchases foreign on restrictions include would Tis establishing and funding multinational “superfund” to deal with these sorts of situations. situations. of sorts these with deal to “superfund” multinational funding and establishing e failure of a project owner or operator operator or owner project a of failure e T default. enterprise’s the of of risk all the in cover to liability insurance criminal in purchase result would risk default this cover to policy insurance or bond a such have to than complex less nite f in seems policy insurance or bond a Posting ADC. the to party are that states the

42 43 be free to refuse any FDI inconsistent with their treaty obligations and national security concerns, but they but concerns, security national and obligations treaty their with inconsistent FDI be any to free refuse region. the to harmful is that FDI accept not should also We do Arctic FDI in not should We think governing norms any way that upon regional the infringe rights of controls security national own their enforce to nations individual sort some reach not could states resources.Arctic the that reason no is there However, agreements. trade free bilateral or by economic transboundary have could that borders their within FDI of acceptance the limit to agreement of should countries that is proposition e key T environment. marine Arctic the on impact or impacts political Africa and Latin America, including environmental destruction, dilution of worker’s rights, corruption, loss loss corruption, rights, worker’s of dilution destruction, environmental including America, Latin and Africa could they universal, less or more are standards these Since transfer. technology of lack a and sovereignty, of adopted standards actual e T projects. or companies Arctic in FDI future to applicable made and tailored be states. Arctic six the between instrument multilateral a into incorporated be would transactions in which a foreign purchaser is seeking to purchase a controlling interest in an ongoing business business In ongoing an addition in to interest the ADC, controlling a we purchase to suggest seeking is that there purchaser should foreign a be which in the transactions adoption of criteria that assess proposed could policies OECD and in UNCTAD themes recurrent of a number are ere T Arctic. in the enterprise or guide how the Arctic region and states individual could assess whether a is proposed foreign investment in experienced impacts of the adverse some to prevent designed collectively are ese standards T cial. f bene er lower environmental and regulatory regulatory and environmental lower er f o to Greenland and Russia like states certain on in pressure is now more table much the f o costs regulatory lower Taking states. other the vis-à-vis advantage competitive for costs interest. everyone’s Arctic FDI Assessment Criteria for Promulgating an As a result, no single country would be especially disadvantaged if reciprocal standards were adopted in the the in adopted were standards reciprocal if mining rigs, disadvantaged gas be especially and would country oil single no shore f a result, o As of plethora a and however, delayed, were process this If [11]. future near very negotiate to cult f di extremely become would it Arctic, the in a foothold gain to Sowere neries f re and/or sites prospectively. investors new addressed also and users existing the “grandfathered” both that agreement an room breathing of bit little a governments gives commodities other and gas, oil, for prices in decline the too, be will there rise, prices When restarts. boom resource the before regulations these enact and deal” a “cut to shore oil and gas operations (as advocated in Addressing in Addressing advocated (as operations gas and oil shore f o for agreement a of multilateral e T negotiation a be made should and Code can Development Arctic an implement to and Governance) in Arctic Gaps the [11]. perspective FDI and development a from pristine comparatively still is Arctic the because priority high 66 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security • • Te following evaluative criteria/standardswhich, for if followed,acceptable do notFDI trigger could any be sortincorporated of basisTegeneral to challengeFDIinto principles a country’s multilateralwithin amultilateral decision instrument: FDIto agreement authorize should an FDIestablish transaction.“review criteria” mind. in principle important that orkeep “standards,” should agreement FDI an of design e T control. physical and of international law, it remains the right of each country to control the disposition of consultationsresources under wouldits occurlegal on a bilateral or multilateral basis. At the end of the day, undertransactiona concernmultipleofand request consultations principlesstatewiththe that authorized transaction,FDIthe such isareported transaction that raises concerns with another state, any state should have the right to challenge reciprocalreporting on transactions that are within the scope of the agreement is possible. Similarly, if there objectionable to everyone, including the United States. But reciprocal adoption of general FDI principleswhich one country and is asked to “clear” an inbound FDI transaction in another country is almost certain to be inserteditself into the role of directly restricting certain types of FDI [186]. For this reason, an agreement in investmentprovideandto protection forforeign investors, knowledge,ourofbestneverthehas to EU the statesor entities. Even though the European Commission has enacted regulations to promote foreign direct Sovereigncontrol overFDIhasheretofore neversubjectbeenconsentthe to directorregulation outsideof that should acovered be transaction. region, the in work and live to workers foreign of number substantial of importation the in result ores, timber, oil, or gas should also be subject to the FDI agreement. Finally, if the particular project would export toenvironment marine the to access extensive require will that projects Similarly,inland Ocean. Arctic the impact reasonablyregion’s could the accident withinan orwhere watershed Ocean Arctic the acquisition the of controllinga interest businessa in or enterprise that operates orin shorelinenear the of to limited be shouldagreementany of endeavor, overallscope this the with associated sensitivities the of recommendation to equalize the disparities that exist in each state’s national laws and regulations. Because A common set of standards to asses inbound FDI that is adopted by the six Arctic states is the second major An FDIReview Agreement and respectful of the inalienable right of the Arctic states to responsibly develop their resources. to establish a framework for assessing FDI. Obviously, that framework would need to be character,objective, itisappropriatereciprocal, todraw upon some ofthe policy threads intheUNCTAD and OECD guidelines Arctic region themay require that special coastal 234 shipping Article regulations in recognizes by coastal UNCLOS states asbecause of Just its unique impacts. transboundary environmental their of irrespective projects development economic with forward move to states some of willingness monitor the to and manage,capacity low and populations, small including region, Arctic the of vulnerabilities inherent the and preventtheissue from going forward fordiscussion given themany instances whichinFDI has“gone bad” sinceneither UNCTAD nor OECD have published codea on what is “good” vs. “bad” FDI. T atshould not Determining the sort of FDI that is harmful and should be regulated is certain to be controversial, particularly and knowledge. FDITgeneratewille localemployment. Tatlocalemployment should involve transfer oftechnology monitor the resulting FDI enterprise and, if appropriate, regulate it. TeFDI is properly sequenced. T ehost nation has the systems and regulatory mechanisms in place to Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 67 used in local law for def ning a 44 Absent existing standards, 20 percent seems reasonable to the authors. to seems reasonable 20 percent standards, existing Absent business-sensitive or proprietary information of those parties involved in the proposed transaction. proposed the in involved parties those of information proprietary or business-sensitive ere T are both publicly available and published standards for the government to apply in deciding permitted. be should project FDI an whether ce that administers the inbound inbound the administers that ce f o public a is ere T population. local the to known is FDI proposed e T on comment to right the representatives, their through or directly either citizens, local permits and FDI petitions. FDI the of disclosure the require not should transactions proposed concerning information to access Public Te acquiring entity is environmental su event. fciently well capitalized to pay will provide entity the acquiring If not, the the enterprise. FDI to support infrastructure is ere adequate T costs if there is infrastructure. necessary for funding an adverse e e T FDI of overall development promotes the host e T country. FDI will not indigenous crowd-out impacts. social or labor adverse in result or enterprises Te FDI willoperation. with associated not risks the have mitigate to plan a permanent has entity adverse proposing the risks, environmental potential risks or impacts. Conversely, if there are Te acquiring entity will percentage the mostlyto mapped ideally rely operations, on ongoing for localpercent labor. Imported labor shall not exceed transaction. controlling a modest

successful in capturing international development projects because it because is to able projects use a of blend concessional development international in capturing successful 44 have to rely on capital from either China’s EximBank (C-EXIM), China’s Development Bank (CDB), Sinosure Sinosure (CDB), Bank Development China’s (C-EXIM), EximBank China’s either from capital on rely to have Investment Infrastructure Asian Beijing-based or the formed, newly OPIC) to the U.S. equivalent (a rough [188]. members 48 of composed bank multilateral a technically is which (AIIB) Bank Chinese to stimulate loans concessional provide can and portfolio loan a has substantial EximBank China’s very been has China sectors. industrial and mining, in energy, the investments overseas make to or exports how—especially in developing countries—and institutions like the World Bank are becoming increasingly Bank increasingly like are becoming the World institutions countries—and in developing how—especially in helpful been have lending Bank World with associated strings the since ignored be cannot is T irrelevant. governance. poor of elements other and practices, environmental poor corruption, , f gra curbing in past the secure to investments power” f “so these use to and investments these make to rights legal its within is China access to raw materials and real estate. With some exceptions, Chinese businesses that are involved in FDI e whole discussion e of T on Chinese FDI whole to the discussion is are anxious fact predicated that several countries Arctic foreign China’s potential. resource natural and infrastructure their develop to order in capital foreign attract secure and trade, increase allies, new win it helping 2013 to 2005 from tenfold nearly “grown has investment oil and other natural resources”[187]. China has become a “go to” source for investment capital and know- • Arctic Development Bank An • • • • • • • 68 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security noted,theAIIBwas established multilateralviaa international agreement that creates structurea similar to participationstatesof outside variousthe Asiaofin infrastructure projects, including Unitedthe States. As “tool of Beijing” the AIIB was established via a multilateral international agreement that allowed infrastructurefor economicandfnancialdevelopment projects(mostlyChinese). To a refute isAIIBcriticism thethat anotherdevelopment alternativeanbankas source capitalof forAsian countries ableftobenanceto large to compensate for its lack of control in the World Bank and the Asian Development Bank. It decidedto the to f nancingform of growth or infrastructure in a particular region [192]. China led the formation of the AIIB the establishment of the AIIB makes sense since the AIIB is also a multilateral fnancial institution dedicated Tereare many examples of development banks, but, an organization similar to what China orchestrated in and provide the administrative support for the lending facility. short-term solution to the capital access issue. One country could serve as the host nation for the agreement principallyortotally, bythe sixcountries tofnance projects intheregion seems thetomostbe expeditious of the default risk. However, establishment of an Arctic Development Bank that is funded and administered, competitive with China’s. Nor is it reasonable or legal for only one country’s export credit bank tothat assume allthe United States and the export credit agencies of the other Arctic states canhave direform fcultycompeting theironhead-to-heada processesbasis with their Chinese tocounterparts, be itistoo much toexpect Since commercial lenders or Western export credit agencies like the Export-Import Bank of the United States standards; or face legal and fnancial consequences if the repayment of is not recipient made. the that conditions are loan(s) will:comply there withlabor and environmental which in standards; complythat withinternationalis lendingcapital forms and investment responsible context, this In Arctic,cheapandplentifulproblem a moneybecausebecan “chasesit out” responsible investment capital. internationalproject fnance from theWorld Bankor regional development banks. Butcontext ain like the getcannotratingscreditthat lowcountries with some in place a havelendingcan of typefair, Tothisbe • • • • • • lending facilities have these characteristics: emboldenedto make riskier plays or o ferbetter terms than their Western counterparts. In general, Chinese [190]. Moreover, since much of Chinese lending is ultimately fnanced by the state, commercial frms can be whenever it advances Chinese strategic commercial interests as opposed to prioritizing shareholder interests the OECD defnition or practices of development aid. Chinese development banksparticipation can in internationalalso Chinese lend maximize projectswherever to instruments [189].and otherBecause China and is contractsnot a member service of the andOECD, investment directit does not aid, follow foreign loans,

Lower interest rates [190] terms transparency and compliance lending Fewer Lower costs of capital because there are no reserve requirements or costly regulatory oversight state interests of behalf on operate can banks Chinese since outlook lending the in strategicmore be to ability Te commercial borrower [191] Chinese the versus EximBank China by speaking) (practically assumed usually is that risk Default than capital markets Greaterliquidity thanWestern banks,since sourcethe fundsof(CDBand C-EXIM) state the is rather Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 69 - and this could force a systemic systemic a force could this and 45 1,000,000 shares authorized in the articles of incorporation. China is eligible (and has) purchased nearly nearly purchased has) (and eligible China is incorporation. in the of articles authorized 1,000,000 shares pur eligible largest the next is India stock. voting the total of 33.5 percent which represents 298,000 shares Board the 12 member China on also Chinese the a seat AIIB is has and of e President T chaser: 11.9 percent. Directors. of e articles of incorporation specify how many shares each country can purchase. Interestingly, there are are there Interestingly, purchase. each country can shares specify many how incorporation of e articles T

Most regional banks do not have charters that limit their lending to only state borrowers for infrastructure infrastructure for borrowers state to only lending their limit that charters do banks have not regional Most to insurance—similar risk political including products contribute nancial f that of variety wide enterprises a provides private AIIB e to T as projects. well as entities governmental to loans provide can OPIC—and U.S. the 45 en en f the so it would expanded, were membership participating that to the extent Also, Ocean. on the Arctic participants. other the of risk default Issue 2: Should the bank only be chartered to provide capital for public infrastructure or commercialin invest to investors private-sector to capital provide to able be also it should projects? Bank (EIB) is closely aligned with the EU and membership is limited to the 28 member states of the EU [195]. [195]. EU the of Investment states bethemodelEuropean unprecedented:decisions. not would Tat theinvestments holdlevers on member 28 the to limited is membership and EU the with aligned closely is (EIB) Bank in acting a were states the Arctic that the appearance create is it would that of this approach e T downside when Council Arctic the vis-à-vis multilateralism to agreed already had they though even fashion unilateral of the did that the it to a Council full not expanded Arctic have states and coastline membership observer a more multinational operation works in China’s favor since favor it the spreads risk default works in to operation other China’s a and states more multinational Asian in participate to businesses their and countries other inviting is it that appearance political the creates projects. infrastructure does to of help states only the the six ADB membership is littoral Limiting Membership a question. tricky nance with of f and that with states a ensure project outlook to respect Arctic infrastructure commonality As noted, the AIIB is a multinational bank in which there are regional members and non-regional members, members, non-regional and members regional are there which in bank multinational a is AIIB the noted, As and day-to-day activities are determined by the bank’s multinational management team and in which directors, China board has only one vote [194]. For very China of issues, of has major over the one-third structure, capital bank’s the in hold they that stock of shares on based votes of creation its power, of sort this has China that Given operations. or practices lending bank’s in the change the six states would have to decide before moving forward. We present these, followed by these, an of followed outline present the the six We to would have states forward. decide moving before general path forward. Arctic littoral states? bank be limited to the Six Issue 1: Should membership in the ve vice vice ve f and counsel, general a president, of consists team management e Bank’s T members. multinational presidents [193]. e T framework the scope beyond of are this study. an such institution of establishing e T exact mechanics that questions hard some are there but departure, of point analytical a primary as be used could AIIB the of ere are articles of incorporation, bylaws, and the creation of a voting mechanism that that mechanism voting a of creation the and bylaws, incorporation, of articles are ere T corporation. a of that directors—with of board is member equated with stockeT 12 formula ownership. for those voting the rights is not in transparent. But completely day- vested corporations, modern with as is, bank the of control to-day 70 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 46 with environmental consequences (Standard 21). In addition EIB lending policies address lending to projectsparticipationpublicenvironmentallyincludein and be soundmust and practices lending sound Te European Investment Bank (EIB), by contrast, is more prescriptive. Te EIB states that lending must meet [200]. Agreement Climate Paris the with compliance and an concluded recently AIIB the andagreement Nepal),withtheManila-based Asian (e.g.,Development projectsBanktocooperate lendingonsustainable development the goals of some in goalsdevelopment supportsustainable development. bank’sTe governorsboardof will operations have notepromotedthatthey sustainable bank that stating memoranda policy various have does AIIB T e development projects. Instead of requiring all projects to meet standards, the bank emphasizes its support for a selection of sustainable support good environmental and social performance, as opposed to creating preconditions to lending. 2016 Environment and Social Framework [198-199]. Tat particular policy promotes the use of incentives assessed“environmentaltofor thatprojectsbe will diligence”duesocialand pursuantAIIB’sthe to February FinancingstatesOperationalonPolicy Banksprohibited practices.onT e blackletter rulesits inpolicies borrower countries. T e Bank’s Policy on Prohibiteddomesticofaf airsthe involvePracticesinitself not does makes itwebsite that noitsstatement boldon mention the makes AIIBof Tsustainablee development conditions uponborrowers? Issue 3: Should the Arctic Development Bank (ADB) impose environmental and development activities should be permitted. resourcenaturalother facilities, and gas and oilcommercially mines,develop to seeking are that entities private to lending manner,direct responsible fnancially and socially in developed are projects that ensure help to is DevelopmentBankArctic ancreating of pointgovernmentSimilarly,entities. andthe because menu of products and be able to provide capital to private owners/operators dollars,of infrastructureand this products,certainly tribal, suggests that an Arctic Development Bank shouldef toectively engagetourismbeextractive inor activities. estimatesablelowthe evenButformany callbillions toof ofer the widest possible Tere are widely varying estimates of how much investment in Arctic infrastructure is required for the region intermediate loans to EU banks, and equity investments in infrastructure and energy projects. loans,project funds,ventureborrowersprivatecapitalincludingmicro for andfundingpublic f nance, to [197]. management over private lower-income to grants sectorborrowers. and In loans contrast to the AIIB, concessional the board of theprovide IADB exercises can considerable it but day to day oversight clients, private-sector and public focuseson fnancing toLatin America and theCaribbean, o ferslessa robust menu of fnancial products Inter-Americanwhich(IADB), to DevelopmentTeprojects.Bank in stakeequity an take can itprogram, the issuance of securities, like a U.S. investment bank; or like the U.S. Small Businesstothe “economic Investmentdevelopment Corporationof the Asia region” [196]. It also can provide loan guarantees and underwrite approving bank’s the budget. sibility for approval of loan and guarantee proposals, setting interest rates, approving strategies, country and ration, although oversight their appears more to be robust, once meet since they aweek and exercise respon Te 14-member of Board Executive Directors exercises most of powers the of directors of afor-proft corpo of Governors voting whose power is proportional to country’s their capital (similar to Bank IIAB). inthe the Te IADB has 48member countries (and 26eligible borrowing countries) with power vested Board inthe 46 ers a variety of lending productslendingofvariety Finally, Europeana o Investmentf(EIB)ers Bank combat - - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 71

would be vested in an 14-member board board 14-member an in vested be would 47 social impact assessments and the associated obligations of borrowers. borrowers. of obligations associated the and assessments impact social Financial policies include bank capital reserve requirements, lending policies (collaterization), environmental and environmental (collaterization), policies lending requirements, reserve bank capital include policies Financial

47 15 percent, and the remaining 10 percent would be ered f o via an IPO or auction to any would members adopt the ese Arctic T Council. of bylaws of shareholders the ADB the and and policies, general lending members. new of admission the for stock additional of issuance or dissolution on vote would adoption and size certain a above deals of approval and review including responsibility, corporate Day-to-day of specifc sustainable development policies and fnancial policies, and its regional development goals, but it would not be not linked in a would legal it sensethe Council Arctic either to goals, but development regional its and the EU. or a would establish agreement similar structure to capital multilateral e the T AIIB ADB’s in which the purchase six to eligible be would country Each stock. voting the of percent 90 control would members founding a tremendous amount of sense, since the six charter members, especially the United States, would likely face face likely would States, United the especially members, charter six the since sense, of amount tremendous a the on Based lending. and operation the ADB’s nance to f the appropriations in getting headwinds political aforementioned, we recommend the following attributes of the ADB, drawing on the characteristics of other banks: development Council, Arctic the to link policy a have would It agreement. multilateral a via organized be would ADB e T It is important that the six main Arctic states maintain some of the same levers of power as China has retained retained has China as power of levers same the of some maintain states Arctic main six the that important is It sharing and transparency More maintained. are standards development overall that ensure to ADB the with six the of Five banks. development other than risk default less faces ADB the because acceptable is power of makes ADB the in Iceland, Canada, per in capita: GDP investors countries of tier the top among are and passive members OECD are be countries to countries other allowing Also, Norway. and States, United Denmark, the member nations, a permanent seat on the board of directors, and appointment of the bank’s presidency. presidency. bank’s the of appointment and directors, of board the on seat a permanent nations, member the is T ensures that the Chinese is Government able to the establish of appearance a corporate transparent Government. Chinese the by controlled mostly are power of levers spread to important that bank reality the the with structure enables countries other of participation the that is perspective, China’s from better, the All lending. new for revenue of sources additional many have and risk default the Suggested Design of an Arctic Development Bank (ADB) Arctic of an Suggested Design the in China of that to uence f in of position similar a occupying nations Arctic six the imagine to among were one stock If voting majority a reserved China bank. that of design the in admire to deal great a is there AIIB, Unless multilateral instruments are rules that that created reciprocal instruments and establish countries development multilateral Unless approach excellent an is standards reinforce to conditions lending of use the individuals, vis-vis enforce will and an hedge codes if excellent do development there not are come fundamental online soon. Obviously, that standards erect not to be taken must so care and countries Arctic the of systems legal the in erences f di enforce. to countries smaller for impossible are bribery, bribery, fraud, poverty reduction, the rule of law, human rights, health, education, and technology and transfer. knowledge 72 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 48 for the most part, beyond the control of the United States. Accomplishing what is proposed in this papernextyears.few will Delaysentail do costs. challengesT e associated withArctic development arecomplex and, Te issues raised in this study do not have to be tackled at this very moment, but it must be addressed in the continued FDI eforts of Arctic intheir China backyard. United the as StatesRussiawary just as[196]. ofthe Russia,is are interestsour Arctic parallel since the in and StatesUnited the between relationship cooperative a for foundation the be also managed, properly if could, and day this continuesto mostly cooperation Tis it. uponeveryone’s depends survival physical that bad so are conditions climatic the because reason, other no for if cooperation, of deal great a been traditionally has there which in area an been has Arctic the that opined commentatorshaveMost 2017. of January in ofce taking since to attentionmuch paid has State of Secretary or U.S.President the that Timing is an issue. Te Arctic is rarely mentioned in the headlines, and it is almost certainly not something long-termtheir operation and of expenses the wind-down. andwouldcontain reasonable thatwouldriders ensure thatprojects are suassurefcientlyto well-funded Investment Bank. Te point of the Infrastructure ADB Asian formed would recently be the upon to patterned provideis that (ADB)“local” Bank Developmentcapital Arctic foran of Arctic economic development formation the to given be consideration careful urge we Tird, areas. watershedenvironment, including “acceptable” FDI and the associated reporting of FDI transactions to in areas that can a seek fect the Arctic marinefor standards States regional establish Unitedto states littoral Arctic the six the among that agreement multilateral a negotiate recommend we Second, centerpiece. its as (ADC) Arctic Code an Development have would that states littoral Arctic six the among agreement multilateral a of negotiations lead StatesUnited the that recommend we First, development. Arctic with associated issues the address with associated to recommendations risks concordant and dif erent the three mitigateWemake Arctic. to the approachesof development uncontrolled suggested and issues of plethora a raises study Tis Recommendations toU.S.Leadership the need to use local courts. an administrative claims process to facilitate payment for remediation or cleanup costs. Tis wouldTe eliminateADB would act as the trustee for any default or pollution damage payments. incident Aspollution mining trustee,or oil-and-gas itan with would associated claims administer of cost reasonable Borrowersrequiredobtainwouldbef tonancingassociatedriskscover theto project with default theand policies of the board but have authority to authorize projects below a certain level. decisionsandimplement wouldcompetitivetheOf cers basis. a on selected be wouldCorporateofcers the EDB Board, the ADB Board would meet either weekly or fortnightly. whowould come from other development banks (to ensure that thebank isemploying best practices). Like of directors that would consist of two members from each member county urge that eachArctic nation members represent who select interests the of Arctic’s the communities. tribal Whilethe selection of quali fedrepresentatives is entirely up to the discretion of each country, the authors strongly 48 and two at-large representatives Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 73 . e The lack of acton could be could lack of acton The perceived by unscrupulousby perceived setng the stage for a major for the stage setng to confront an environmental industrial accident in which the accident industrial catastrophe of the highest order investors as a regulatory vacuum, vacuum, as a regulatory investors Arctc litoral countries are forced forced are countries litoral Arctc countries countries is one of the best ways that and theStates other Arctic United countries littoral can and should level. a business-to-business on collaborate e T challenges of developing sound Arctic one policiesof the represents few fnal remaining would and States do frontiers, the well United to recognize that are daunting but cannot be now. ignored. start investments making fact and e T Arctic erent levels, and yet the U.S. government recently put put recently government U.S. the yet and levels, erent dif many on States United the to important is Arctic [198]. hold port—on water deep a of construction project—the infrastructure Arctic single its for planning For military, disaster-response, and community support, there are a lot of good reasons why the United States needs to increase its Arctic infrastructure. On another level, it is businesses important that be U.S. purposes. private and both constructing Arctic designing infrastructure and of public for in the vanguard this Incentivizing sort expeditionary of U.S. in business investment the States and United in other Arctic development of the Arctic resources at risk for the foreseeable futur the foreseeable for risk at resources the Arctic of development It is also important that the United States demonstrate a strong commitment to the the Arctic because importance of of this region to the United States’ economic development of well-being. U.S. President infrastructure Trump has a made priority, and the U.S. Arctic should be no exception [197]. e T made made by other countries that will be impossible to unwind. yet, Worse the lack of action could be regulatory a as investors unscrupulous by perceived vacuum, setting the stage for a major accident industrial in which the Arctic littoral countries are forced to confront an environmental the catastrophe highest of order. Depending on the severity of the incident, political pressures might then put future of new mineral or hydrocarbon deposits. Yet when of new Yet deposits. mineral or hydrocarbon that arrives, moment and the United States fnally decides that it needs to implement a likely multilateral quite is it development, Arctic shape to policy that policies or willinvestments already have been e timetable timetable e T money. and ort f e of deal great a take for action will likely be worldwide commodity prices driven and the by discoveries changes in 74 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security

Appendix A: Chinese Arctic Investments over $1 Billion

Country Value (Bn USD) Event Type Sector Chinese Entty Narratve Russia 16.5 Belkomur Rail- Infrastructure, CCECC In November 2012, China Civil Engineering Constructon Company (CCECC) road Project Transportaton commited to the Belkomur Railroad project, which will connect the Russian cites of Perm and Arhangelsk. When completed, the railway will cut tme and distance for travel between the Barents Sea and the Ural region. Over 80% of the $20.6 billion project is antcipated to be funded from private sources. Canada 15.10 Acquisiton Energy CNOOC In February 2013, China Natonal Ofshore Oil Company (CNOOC) fnalized a $15.1 billion acquisiton of the Canadian oil and gas company Nexen. The Nex- en acquisiton will give CNOOC access to producton in the North Sea, Middle East, the Gulf of Mexico, West Africa, and Canada. Russia 10.6 Yamal LNG Energy Export-Import Bank In April 2016, Yamal LNG signed a 15-year loan agreement worth 10.6 billion. Finance of China Other investment partners in the Yamal LNG project include the China Devel- opment Bank. Of note, French energy company, Total, announced in 2015 that it was looking to secure $15 billion for its share of the Yamal project, likely from Chinese investors. The project will cost $27 billion in total. Russia 5.0 Coal Exploraton Energy, Minerals, Shenua Group In September 2014, Rostec and Shenhua Group Corporaton Limited signed an and Develop- Infrastructure MoU to explore the Gerbikan-Ogodzhin coal deposit. This project includes the ment Agreement constructon of a coal export terminal in Primorsky Krai. The partnership is a 50/50 agreement. Exports are antcipated to land in China. Russia 5.0 Investment Financial, Infra- China Development In August 2013, the CDB signed an agreement with the Russian government in Agreement structure Bank (CDB) an efort to atract funds for major infrastructure projects in Siberia. Russian of- fcials claim that over $100 billion in investment is needed in the area. No frm fnancial commitment was announced but ofcials claim that the agreement includes at least $5 billion in Chinese investment. Russia 4.0 Share of Yamal Energy, Shipping CNPC In September 2013, China Natonal Petroleum Company (CNPC) took over 20% LNG Project of Novatek’s share of the Yamal LNG project. Russia 2.1 Joint Venture Shipping Teekay LNG, China In July 2014, Teekay LNG and China LNG entered into a joint venture to build LNG Shipping six Arctc-class LNG tankers for the Yamal LNG project. The LNG carriers will be the frst ice-breaking, polar class LNG carriers to be built. Each vessel is valued at about $316 million. Unconstrained Foreign Direct Investment:

An Emerging Challenge to Arctic Security 75

EximBank of China for loan facilites. loan for China of EximBank China of

1.0 Canada In October 2015, Teekay Corporaton signed a cooperaton agreement with the the with agreement cooperaton a signed Corporaton Teekay 2015, October In Bank Export-Import Financial Energy, Agreement Loan

Acquisiton

1.4 Russia In November 2014, CNPC agreed to purchase 10% of Vankornef. Vankornef. of 10% purchase to agreed CNPC 2014, November In CNPC Energy Stake Field Oil

project will cost $27 billion in total. in billion $27 cost will project

$15 billion for its share of the Yamal project, likely from Chinese investors. The The investors. Chinese from likely project, Yamal the of share its for billion $15

French energy company, Total, announced in 2015 that it was looking to secure secure to looking was it that 2015 in announced Total, company, energy French

billion to the project. The EximBank of China is also a major investor. Of note, note, Of investor. major a also is China of EximBank The project. the to billion

More clarity was brought when it was announced that CDB would provide $1.5 $1.5 provide would CDB that announced was it when brought was clarity More

Bank (CDB) agreed to provide and undisclosed amount of fnancing to Novatek. Novatek. to fnancing of amount undisclosed and provide to agreed (CDB) Bank Bank Finance

1.5 Russia China’s involvement in the Yamal LNG project began when China Development Development China when began project LNG Yamal the in involvement China’s Development China Energy LNG Yamal

Resources Limited, the operator of Red Dog Mine in Alaska. in Mine Dog Red of operator the Limited, Resources Corporaton Investment

1.50 Canada In July 2009, China Investment Corporaton (CIC) acquired a 17.1% stake in Teck Teck in stake 17.1% a acquired (CIC) Corporaton Investment China 2009, July In Investment China Mining Asset Alternatve

LNG carriers for the Yamal LNG project. LNG Yamal the for carriers LNG CLNG Sinotrans,

LNG Shipping, along with Dynagas (Greece) agreed to construct fve polar class class polar fve construct to agreed (Greece) Dynagas with along Shipping, LNG Shipping, Energy riers

1.59 Russia In September 2015, China Merchants Energy Shipping, Sinotrans, and China China and Sinotrans, Shipping, Energy Merchants China 2015, September In Merchants China Shipping Energy, - Car LNG Arctc

LNG Plant LNG

Yamal LNG project. LNG Yamal for Producton

1.6 Russia In July 2015, CNOOC signed a $1.6 billion deal to build equipment for the the for equipment build to deal billion $1.6 a signed CNOOC 2015, July In CNOOC Energy Module Core

deal is in exchange for a $2 billion, 25-year loan fnanced by CDB. by fnanced loan 25-year billion, $2 a for exchange in is deal

as well as for cooperaton on geological exploraton, producton, and sale. The The sale. and producton, exploraton, geological on cooperaton for as well as Bank ment

Oil Supply Agree Supply Oil 2.0 Russia China Development Development China Financial Energy, - In March 2013, Rosnef agreed to conditons for prepaid oil supplies to China China to supplies oil prepaid for conditons to agreed Rosnef 2013, March In

Exploraton

Loan for Coal Coal for Loan Bank ment deal for coal resources owned by En+ Group in Eastern Siberia. Eastern in Group En+ by owned resources coal for deal ment

Development Development 2.0 Russia China Development Development China Mining Energy, In March of 2013, CDB and Shenhua Group agreed to a $2 billion joint develop joint billion $2 a to agreed Group Shenhua and CDB 2013, of March In -

buyback program. buyback

ment Corporaton ment convertble bonds for a 12.5% stake in Urakali, which may be returned in a a in returned be may which Urakali, in stake 12.5% a for bonds convertble

Share Acquisiton Share 2.0 Russia Chengdong Invest Chengdong Energy In September 2013, Chengdong Investment Corporaton paid $2 billion in in billion $2 paid Corporaton Investment Chengdong 2013, September In -

al.

Acquisiton is stll being negotated and may include more partners than Fosun Internaton Fosun than partners more include may and negotated being stll is -

Minority Share Share Minority 25 percent acquisiton in the Russian gold company. The size of the acquisiton acquisiton the of size The company. gold Russian the in acquisiton percent 25

Fosun Internatonal Fosun Mining In November 2016, Fosun Internatonal and Polyus began negotatons for a 20- a for negotatons began Polyus and Internatonal Fosun 2016, November In Potental Potental 2.0 Russia

siton Petrochemical Bluestar Elkem and Orkla (silicon producers). (silicon Orkla and Elkem

Norway 2.0 - Acqui Company Manufacturing, Manufacturing, China Natonal Natonal China In January 2011, China Natonal Bluestar and Blackstone LP agreed to purchase purchase to agreed LP Blackstone and Bluestar Natonal China 2011, January In

Country Value (Bn USD) (Bn Value Event Type Event Sector Chinese Entty Chinese Narratve 76 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security

Country Value (Bn USD) Event Type Sector Chinese Entty Narratve Russia 1.0 Investment Constructon, Infra- CSCEC On March 2017, The Russia Far East Development Fund and the Baikal Regional Funds structure Development fund indicated intent to establish two development funds with Asian investors, the value of which is expected to amount to $1 billion each for infrastructure, constructon, and goal development. Announced investors include China State Constructon Engineering Corporaton, Metropoly, and China Natonal Gold Group. Russia 1.0 Investment Constructon, Infra- China Natonal Gold On March 2017, The Russia Far East Development Fund and the Baikal Regional Funds structure Group Development fund indicated intent to establish two development funds with Asian investors, the value of which is expected to amount to $1 billion each for infrastructure, constructon, and gold development. Announced investors include China State Constructon Engineering Corporaton, Metropoly, and China Natonal Gold Group. Source: Available from authors upon request. Unconstrained Foreign Direct Investment:

An Emerging Challenge to Arctic Security 77

Russia Mining Agreement Exploraton Gold China Natonal Gold Natonal China

Russia Energy Memorandum Cooperaton Energy CNOOC

Russia Energy Memorandum Cooperaton Energy CNPC

Russia Energy Acquisiton Share Pending Silk Road Fund Road Silk

Iceland Energy License Exploraton Oil Ofshore CNOOC

Canada Aerospace, defense, technology defense, Aerospace, Agreement Development Technology Chendu Space Technology Company Technology Space Chendu

Canada Energy, Petrochemicals Energy, Purchase Stake Minority Potental Sinopec

Canada Infrastructure, Transportaton Infrastructure, Agreement Cooperaton Strategic China Railway Rolling Stock Corporaton Stock Rolling Railway China

Co. Ltd. Co.

Greenland Mining Memorandum Mining China Non-Ferrous Metal Industry Foreign Engineering and Constructon Constructon and Engineering Foreign Industry Metal Non-Ferrous China

28 Russia Financial Loan Trade Export-Import Bank of China of Bank Export-Import

36.4 Canada Mining Venture Joint WISCO

40 Canada Mining Investment Mining WISCO

70.4 Canada mining Venture Joint WISCO Internatonal Resources Development Resources Internatonal WISCO

73.1 Canada Mining Acquisiton Share China Minmetal and Wuhan Iron and Steel (Group) Corporaton (WISCO) Corporaton (Group) Steel and Iron Wuhan and Minmetal China

100 Russia Mining Acquisiton Share Project Unknown

Russia Mining Acquisiton Share Minority 100 China Highland China

Canada Majority Share Acquisiton Share Majority 117 Mining China CAMC Engineering CAMC China

Canada Controlling Share Acquisiton Share Controlling 150 Energy, Minerals Energy, CNOOC

Russia Potash Export Contract Export Potash 280 Agriculture Sinochem

Norway Semisubmersible Drilling Platorms Drilling Semisubmersible 450 Energy COSCO Shipyards Co. Shipyards COSCO

Norway Oil Rig Constructon Rig Oil 473 Energy COSCO

Norway Solar Power Company Acquisiton Company Power Solar 640 Energy China Natonal Bluestar Natonal China

Russia Equity Acquisiton in Polyus Gold Polyus in Acquisiton Equity 654 Mining Chengdong Investment Corporaton Investment Chengdong

Country Event Type Event USD) (M Value Sector Chinese Entty Chinese Appendix B: Chinese Investments less than $1 Billion $1 than less Investments Chinese B: Appendix 78 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security

Country Value (M USD) Event Type Sector Chinese Entty Russia Financial Memorandum Financial, Minerals, Mining Export-Import Bank of China Russia Oil Field Joint Development/Share Energy Sinopec Russia Potental Minority Stake Acquisiton Energy Russia-China Investment Fund Russia Potental Ofshore Oil Exploraton Energy CNOOC Russia Potental Rare Earth Mine Mining Unknown Russia Possible Arctc Oil Cooperaton Energy CNOOC Russia Interest in Energy Project Energy CNPC Russia Potental Share Acquisiton Metals Baosteel Russia Pending Mine Development Mining China Nonferrous Metal Industry, COVEC Russia Joint Oilfeld Development Energy China CEFC Energy Company Russia Eastern Siberian Joint Venture Energy CNPC Russia Arctc Drilling Cooperaton Energy CNPCs Russia Possible Minority Share Acquisiton Energy CNPC Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 79 80 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Unconstrained Foreign Direct Investment: ReferencesAn Emerging Challenge to Arctic Security 81 . . http:// https:// https:// . https://www. https://www.eia. http://corporate. . . . https://www.epa.gov/emergency- . . . . . https://obamawhitehouse.archives.gov/sites/ http://www.bp.com/en/global/corporate/sustainability/ http://www.npd.no/Global/Engelsk/3-Publications/Reports/ http://icefoe.net/fles/RussiaInTeArctic-SBlank-pub1073.pdf . . . . https://fas.org/sgp/crs/misc/R42942.pdf http://www.pnas.org/content/110/13/E1191.full#ref-1 https://www.adn.com/arctic/2017/01/26/u-s-arctic-ofcials-dont-expect-big-policy- . https://www.ntsb.gov/investigations/AccidentReports/Reports/MAB1510.pdf http://www.bafnland.com/the-project/location-and-project-history/?lang=en Kerr,Richard A. Lot2010. of Oil “A on the Loose, Not So Much to Be Science Found.” Magazine. Aug. 16. United“Exxon StatesSpill Valdez Environmental Pro f le.” Protection Agency. petroleum- from sea to discharges of ects f e Long-term 2012. Sanni. Steinar and Klungsoyr, Jarle Torgeir, Bakke, Cohen, Laruelle, Golts, Ariel, and 2011. Zysk. Marlene Alexandr’ Russia in Katarzyna the Arctic. Edited by Obama, Obama, Barack 2013. National Strategy for the Arctic Region. U.S. Energy Information Administration. Opening e T In Governance.” Arctic in Gaps the 2012.“Addressing 2013. Asfura-Heim. Patricio “Arctic and E., Mark Rosen, oil and natural gas resources.” Jan. 20. Ramseur, Jonathan L. 2015. Deepwater Horizon Oil Spill: Recent Activities and Ongoing Developments. shore Drilling Unit Kulluk. National Transportation Safety Board. NTSB/MAB- Board. Safety Transportation National Kulluk. Unit Drilling shore f O Mobile of Grounding 2015. midcentury.” by navigable routes shipping Trans-Arctic “New 2013. Stephenson. R. Scott and C., Laurence Smith, ExxonMobil in the Arctic - the Future of Arctic energy. 2017. Video. Accessed 5/10/2017. BP. 2017. “Te Arctic.” BP Global. Mar. nland.” f | Ba History Project and Location Mine River “Mary 2017. May Corporation. Mines Iron nland f Ba 10. NationalSnow & Ice Data Center. 2017. “Warm Arctic, cool continents.” May 3. Accessed May 10, 2017. Rosen, 2017. Yereth. “US Arctic cials f o expect don’t big policy changes Alaska with Trump presidency.” Funk, McKenzie. 2014. “Te Wreck of the Kulluk.” Te New York Times Magazine. Dec. 30. Congressional Research Service. Service. Research Congressional les/Science%20Around%20the%20World%208-16-2010.pdf f school.judsonisd.org/webpages/ameeks/ response/exxon-valdez-spill-profle related activities. Research Council of Norway. PROOFNY_Resultatrapport_Allegro_Douglas_Ferguson_20120509_en.pdf Stephen J Blank. Strategic Studies Institute. 30. fles/docs/nat_arctic_strategy.pdf default/ gov/todayinenergy/detail.php?id=4650 Arctic: Shaping a Safe, Secure and Prosperous Future. Stanford University: Hoover Institution Press. www.scribd.com/document/178239062/Addressing-the-Gaps-in-Arctic-Governance-by-Mark-E-Rosen-and- Patricio-Asfura-Heim 15/10. 10.1073/pnas.1214212110. doi: exxonmobil.comhttp://corporate.exxonmobil.com/en/current-issues/arctic/presence/future-of-arctic-energy environmental-impacts/biodiversity-and-sensitive-areas/the-arctic.html nsidc.org/arcticseaicenews/2017/05/warm-arctic-cool-continents/ Dispatch. Jan. changes-with-trump-presidency/ 26. nytimes.com/2015/01/04/magazine/the-wreck-of-the-kulluk.html?_r=0

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