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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Copyright © 2017, CNA Corp. All Rights Reserved Unconstrained Foreign Direct Investment: i An Emerging Challenge to Arctic Security 1 3 69 13 33 33 38 40 44 53 53 61 65 ...... 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 Definitions 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 runoff from Exploitation ofthese mining and smelting mining andsmelting activities, andmore. the risk of oil spills, the riskofoilspills, resources carries ship casualties, ship casualties, Executive Summary 1 needs to be taken to ensure that development development that beneeds ensure to taken to and manner responsible a in takesplace the are that regions or the states that ensures (FDI) investment direct foreign of recipients regulating it, monitoring of capable are enacting and activity, the underlying the and goes bankrupt if a project safeguards be financially held cannot owners foreign also be taken to must Care responsible. and more. mining and smelting activities, Exploitation of these resources resources of these Exploitation carries the risk of oil spills, ship risk of oil spills, the carries casualties, chemical runoff from runoff chemical casualties, three approaches that could be pursued independently or in tandem, to monitor and indirectly regulate regulate indirectly and monitor to in tandem, or independently be could pursued that approaches three review criteria FDI Arctic multilateral of a set establishing include approaches Those FDI. inbound Arctic an of funding and Code; the formation and Development Arctic an each nation; by administered This study also makes detailed comparisons of the FDI laws of the six main states that border the Arctic the border that states main of six the laws of FDI the detailedalsomakes comparisons study This would, Arctic of Ocean the states thosebecause six states to littoral the is limited study Ocean. This accident. industrial type of any of bear the to brunt have legal system, the current under suggest authors Arctic, in reviewthe the FDI of legaland of the transactional Based the findings on because of resource degradation or social conditions. social or conditions. degradation resource because of a — particularwith level focusat the transactional — patterns FDI of the current report stock takes The its and strategy resource natural China’s explores study caseThis Chinese casea as activity study. on Africa. America and activities in South FDI past safeguard the rights of indigenous populations to ensure that they are not displaced from their lands their lands from displaced not they are that ensure to populations indigenous of the rights safeguard economically resilient, such as Greenland, Iceland, Russia and, perhaps tribal regions. Special care Special care tribal regions. perhaps and, Russia Iceland, Greenland, as such resilient, economically appreciate these risks and mitigate them. It is in the interests of all of the Arctic states, indeed the world indeed the world states, the Arctic all of of in the interests is them. It mitigate these and risks appreciate using takes place development that ensure to mechanisms cooperative regional develop to a whole, as disaster enhanced substantially and infrastructure in place, suitable with the art technology, of state capabilities. response less are also that carryto countries risks socio-economic development of rapid opportunities The The changes in the Arctic environment due to climate change are accelerating the rate at at thesewhich rate the accelerating are change climate to due environment Arctic in the changes The the ice recedes. as ship by and exploitation for accessible becoming are resources mining runoff chemical from casualties, ship spills, oil carries the of risk these resources of Exploitation to ability of their terms in equal not are states littoral Arctic The more. activities, and smelting and The Arctic Ocean is a vast maritime region which is bordered by six states that are now coming to coming now are that states by six is region which bordered maritime is a vast Arctic Ocean The Other states potentials. resource natural other and mineral, hydrocarbon, their enormous appreciate especially deposits, China. unexploited and vast the Arctic’s of also taken note have the Arctic of outside on land, accidents environmental even activity, closed-seahuman a is essentially Arctic and allThe and ocean currents because of countries littoral the other on impacts environmental serious have can Arctic. in the change climate of pace aggressive by the factThis is compounded climacticconditions. Executive SummaryExecutive Development Bank. The Arctic Development Bank would provide private developers with access to local capital (vs. Beijing sourced) to finance infrastructure and resource extraction projects. These 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 significant, multifaceted security issue. It must be addressed before the influx of unregulated investments, and the soft 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 opportunity economic breaker for the lowest average sea ice average the lowest for breaker from ranged Temperatures extent. the over Fahrenheit 14 degrees 11 to general The [1]. 1981–2010 average sea less and conditions warmer of trend More certain continue. almost to ice is The influence of climate change onthe change climate of influence The irreversible and undeniable is Arctic very is little There term. thein short term, the medium uncertainty; for warm to willthe Arctic continue the by conducted Monitoring rapidly. Center Data Ice and Snow National in regression ice robust demonstrates rising to (see 1) due the Arctic Figure (see Figure temperatures air average record a was 2016–2017 winter 2). The The Arctic is opening up to up opening is Arctic The innovation and increasing accessibility of abundant resources; the potential opening of desirable shipping routes; routes; shipping desirable of opening the potential resources; abundant of accessibility increasing and innovation opportunity. to economic up opening is Arctic of the these trends, result As a investment. financial outside and Arctic Sea Ice Extent, credit: NSIDC. Figure 1. below the traditional 66 degree north line that denotes the denotes that line north 66 degree the traditional below in happening activity of because the impact Circle Arctic Arctic. the into flow can the Arctic to adjacent areas technological change; climate Arctic: in the of interest level increased the driving are that trends major four are There foreign direct investment while at the same time protecting the Arctic Ocean and surrounding environment. environment. surrounding Oceantheand Arctic timeprotecting the same while at investment direct foreign refers Arctic the Forpurposes the paper, ofthis criteria. of sets different many using Arctic be defined can The Canada, Greenland, Ocean, the which are: Arctic of states in the north littoral 60 degrees territory above to also included We the U.S. and Russia, (Norway), Svalbard analysis our extended We Norway. mainland and Iceland (EEZs) of the Arctic littoral states: Canada, Greenland, Iceland, Norway, Russia, and the United States. Much Much States. the United and Russia, Norway, Iceland, Canada, Greenland, states: littoral the Arctic (EEZs) of However, desk. admiral’s and the curiosity to explorer’s been the has thein Arctic confined interest history’s of all-time an high. at is resources its and in the region in which interest the Arctic, a new era for entering are we The do more. to intent the strategic with investments substantial made China, have as such states, Outside new significant dealing with of capable is environment regulatory whether the legal and remains question The earth’s polar environments are often thought of as barren, desolate regions ruled by polar bears and by polar bears ruled regions desolate barren, as of thought often are environments polar The earth’s in mineral, Rich waste. valueless a from far is while region the Arctic And certainly in ice. cold, covered to be estimated resources contains Arctic fisheries, the unexploited vast, as well as deposits, gas and metal, oil, zones economic fall the exclusive within these resources of 70 percent About dollars. of billions many worth Introduction 4 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security was for time the but a well Beaufort in the Sea, by drill to ittime this partially and was October ice was the creeping south. It Shell’s ship, second drilling the safety violations during aroutine [3]. inspection propeller malfunctions, shaft critical theand ship experienced was impoundedwhen inspectors found 16 for [3]. rig the However,drill. adaybegan afterto spin,the drill long a30mile waswide icefloe onacrashby 10mile course wreckage the inspectors as described a“crushed can” beer [3].Shell recovered and geared up the An oil containment dome worth $400million during failed When atrial. dome the was recovered, federal sustained no damage. In Shell case, this was not prepared. Shell was lucky. But problems the didnot end there. Fortunately for Shell, how heavy an anchor would rig the to need prevent from rig the dragging its anchor in a routine storm [3]. off site by afairlytypical storm and nearly ran aground. It is thatclear Shell had not properly calculated Shell’s foray into Alaskan the Arctic was challenged fromship The start. the drill that risks were the not sufficiently offset by potential profits and withdrew the from region. misstepsseveral involving had heavy consequences. had selected they rigs Ultimately, the Shell determined outweigh rewards, for now. As inRoyal Dutch seen Shell’s operations drilling Alaskan inthe offshore Arctic, to higher-risk the environment of Arctic. the For operators inUnited States’ territory, to risks seem these technologies that promise greater safety, efficiency, measuresand for environmental protection appropriate Iceland, and Norway. These pressures have driven well-capitalized,large operators to invest in developing new regulators and civic groups has resulted environment inahigh-risk for operators United inCanada,the States, secondThe megatrend is an increased demand for innovationpolar in capable technology. Pressurefrom Baseline, credit:NSIDC Figure 2. Arctic Air Temperature DifferenceRelativeto1981-2010 Noble Discoverer Kulluk Noble Discoverer to south sail from its location at 70degrees north.But there were problems. By the was forced to retreat. In harbor, the Kulluk , also experienced major experienced , also challenges Arctic. inthe The drifted drifted towardsthe coast but stopped short running of aground and changing migration patterns are andinfrastructure; unstable iceand thawing permafrost is affecting into orfall other sea the waterways; erosioncoastal is causing homes to are plainly evident and undeniable: “…the impacts of climate change situation the Arctic described as follows: and State Department representative to the A former U.S. Guard Coast Commandant These changes have not gone unnoticed. and accessibility the of Arctic resources. physical of Arctic the aspects environment responsible for dramatically altering the than any other factor, climate change is tens of thousands of years”[2]. sources havefood they relied upon for preventing people from obtaining the Discoverer’s exhaust system its exploded, Noble Discoverer Kulluk Discoverer was blown was able to to Unconstrained Foreign Direct Investment: 5 An Emerging Challenge to Arctic Security

Kulluk’s journey, Kulluk’s . Several failures with the with . Several failures Kulluk Future Future operators will technology and need operational techniques to capable bring of hope can they north before environment coping with south bring oil safely to the Arctic south, it was late November, 2012. The next leg of of the leg next The 2012. November, late was it south, loose [4]. It ran aground on Sitkalidak Island on New Year’s Eve, 2012 [4]. 2012 Eve, Year’s New on Sitkalidak Island on aground ran loose [4]. It Kulluk Kulluk Prime are changing consumer expectations of the global transit speeds, more transactions are taking place are transactions speeds, the more global of transit expectations consumer changing are Prime Given market. a changing to adapting are consumerism and commerce of paradigms the general and online, the to Asia of sites the production from Shipping the Arctic. be could placed on demands this, additional Arctic benefits from distance in particular time and realize could Europe Northern of centers consumption Northern Sea Route (NSR) will change from being technically open for transit roughly 40 percent of the of 40 percent roughly transit for open being technically from will (NSR) change SeaNorthern Route 2040-2059 [5]. by between 98 percent to 94 to today year faster for searched alike have countries and activities, companies shipping commercial of the advent Since services where Amazon as world a such In consumption. to production goods from move to routes safer and transitable Arctic Ocean. Although great challenges remain because of the lack of good icebergs, charts, of the lack because of remain challenges great Ocean. Although Arctic transitable infrastructure no almost and the surface, below and ice both with at clogged become can that straits the to Ocean, changes Arctic open a completely anticipates one no While ships. transiting support to will go ships (where shipping destination made has Sea Arctic of timing ice cover and extent, thickness, route Arctic en the pass through ships (where shipping transit and perhaps cargo) port load/offload to to the that suggest models appealing. Climate more Arctic Ocean the through their final destinations) to The weather was challenging, but it very often is in the Arctic. From Shell’s experience, it is clear that future future clearthat is it experience, Shell’s From Arctic. very it is inthe often but challenging, was weather The the Arctic with coping of capable techniques operational technology will and bring need to operators south. safely oil bring to they hope can before north environment openmore is a Arctic Ocean has severalmore sides. A one that is shipping, megatrend, Arctic The third and well respected oil giants, it is is it giants, respected oil well and faced have could others that unlikely and Shell as challenges the same was there Furthermore, better. fared the about unique exceptionally nothing faced in the Arctic. Shell that challenges into a disaster. If oil prices had remained high, there would have been more pressure to deliver oil to to oil deliver to pressure been more have would high, there remained had prices oil If a disaster. into that noting worth is It the market. been had careful Shell exceedingly the of one As operations. its through experienced, capitalized, most well played a major role. Shell took conventional technology and found that it was, in some respects, respects, in some was, it that found technology and conventional took Shell role. a major played but in 2015 try later another in 2013 and for up geared Shell the Arctic. of the conditions by outmatched Shell and to $55, $100 a barrel prices oil from of drop and the in the Chukchi finds oil between meager 2105. of in September decidedwithdrawl to ballooned have could few small a missteps how to imagine is it easy circumstances, different Under result in the order to cut the cut to in the order result regulators of the anxiety carelessness, a corporate of the fault as failures and challenges Shell’s read Many Shell’s the of risk put which together prices oil low of constraints the economic and disaster, prevent to north bring to chose Shell technology the that However, reward. any of reach firmlythe beyond work time Shell was ready to tow the tow to ready was timeShell the for be disastrous would Alaska, of the Gulf cross would it where would factors other of a myriad and line, the tow connected that the shackles line, the tow engines, boat tug 6 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security in the Arctic.in the outbeen of reach Arctic. inthe Some of largest the deposits of iron, diamonds, oil, and natural gas are located often comespotentialwiththe for a big reward. Aconsiderable share the of world’s unexploited resources has orbank, foreign on depend unique the will circumstances partner of project. the But risk inmost the cases, offground.the partnerships those Whether are established andbetween industry government, adevelopment requirements means that best-capitalized eventhe operators partnerships to need seek to get will operations require more investment High to operating extract. costs, than higher usual risks, and infrastructure high of limited the Because and infrastructure populations small of Arctic, the resources Arctic inthe will assets, and Arctic the environment. management resources stage the —sets for miscalculations to small become major disasters that risk lives, visibility due populations to small —combined with volatile weather and extreme remoteness from disaster occur, it may not reported for be quite some to time governmental with capacity the bodies to respond. Low reporting is significantly diminished. This low visibility possibility increases the that should anaccident populations, is aremote where of part public’s the globe the ability to monitor activity through community foractivities any mishaps that result inenvironmental damage. The withArctic, its small and dispersed Additionally, for many of parts world, the populations local play akey role inmonitoring resource extraction Alaska, has only four emergency beds. resources for protecting and health the welfare of workers Arctic. inthe For example, hospital the inBarrow, to support aworkforce is often absent. There arestaging few pointssearch for limited and rescue, and very ore; and internet connectivity remains limited, slow, and unreliable. The community infrastructure required there are no roads that one link remote community to there another; volumes high is no rail system to of carry inbuilding partners toneed be up required infrastructure the to make possible. extraction In some regions, absent infrastructure. Thiswill require operators to invest in morethan just will resource They extraction. For of all potential the Arctic industries, most the significant limitationthat is there is insufficient or completely of growth dependent upon price and alternative investment opportunities. trendsGeneral indicate that number the of operations and these scale increase future, inthe will with rate the online. On Baffin Island, Canada, one the of world’s largest iron mines is preparing to expandoperations [8]. percent stake inRosneft, Russia’s Arctic operator [7]. In Russia, new gold, coal, and diamond mines are coming Arctic”[6].the Similarly, of decades BP U.S. has several offshore Arctic experience, exploration, and a19.75 almost one century of and development experience technology as we go forward and continue to work in trend: investment. Exxon Mobil has 90years with ofplans with Arctic drilling, experience to “build on our paid has keen attention also industry Extractive trends, to these has which driven fourth the major Arctic were transit shipping to become a shipping would become much more complicated routes is closing fast. Negotiations to regulate to advantage take policy of increasingly ice-free that window the of opportunity to craft meaningful shipping is present and reasonable, remains fact the debatewhile over viability true the of Arctic transit and mining sites along Arctic’s the coastline. And shipping lanes. Similarly, it is beyond question that increases indestination be there will shipping to oil and gas fait accompli . routes isclosingfast to take ice-free increasingly of advantage policy to meaningful opportunity craft of window The Unconstrained Foreign Direct Investment: 7 An Emerging Challenge to Arctic Security - , emphasizing , emphasizing As U.S. national vigilance in the interest global lapsed, has Arctic has accelerated National Strategy forNational the Region Arctic oil spill, booms, oil eating microbes, dispersal agents, dispersal agents, microbes, eating oil booms, spill, oil Horizon

Deepwater These glossy documents have yet to identify budgetary resources or offer concrete policies concrete offer or budgetaryresources to identify yet have These documents glossy 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 in distress, vessels out bailing accidents, to volatile infrastructure, response sparse as such factors, [11]. Many mishap environmental an from damages or For used waters. in warmer now protocols the response challenge temperatures cold and currents, ice, weather, of 2010 the in the aftermath example, all used were burning in situ and Council. While these agreements outline procedures procedures outline these While Council. agreements environmental in distress, vessels to response for do not these arrangements more, and accidents, make action or of a legal course to countries commit for is alsono framework There available. resources incurred from costs for between states compensation protocols that will advance the resilience of the Arctic. of the resilience will advance that protocols the marine of protection resources, of management over concerns expanded, has in the Arctic interest As settled) have now (mostly boundaries over disputes some and groups, indigenous respect for environment, Arctic within the brokered agreements nonbinding through managed is Arctic of the governance The emerged. natural gas resources [10]. resources gas natural non-littoral and Littoral accelerated. has global lapsed, interest has vigilance thein Arctic national U.S. As give could that opportunities research pursing and investments, large making staking claims, alike are states that important is it ever, than more Now, ice. the Arctic beneath resources of the quantity type to and hints policy develop and partnersto Arctic its with work to and the Arctic to northward attention its turn theU.S. Especially troubling is that, in many respects, the Arctic represents one of the last remaining pockets of pockets of remaining the last of one respects, represents the Arctic in many that, is Especially troubling to According fisheryresources. and hydrocarbon, mineral, to access reserves of in terms global resource barrels) (90 billion 13 percent estimated an holds the Arctic Administration, Energy Information the U.S. conventional undiscovered its of 30 percent and resources oil conventional undiscovered the worlds of Arctic strategies. Arctic waswhich States, United of the to detriment the much is This in the Arctic. growth coherent support that reality The investment. private-sector surging and icebreakers eight with leadera development, Arctic in once has allowed States United to the which in degree reflected the is today thein Arctic engagement U.S. that is gaps in significant with vessels, to two fleetis limited icebreaker the U.S. Now, behind. lag to capability its development. community and in the Arctic, capabilities defense in infrastructure, investments regulations protect the Arctic environment and its residents from the long-term effects of an accident? What kindWhat an accident? of effects the long-term from residents its and environment the Arctic protect regulations development? resource with the associated risks mitigate to will help solutions implementable of long-neglectedArcticpolicy is a the However, prosperity. American to benefit the potential have These trends published recently have agencies other and DOD, House, the White even though States, theUnited for area As the physical and technological limitations decrease, the question must be asked: Are the Arctic nations ready to ready nations the Arctic Are be asked: must the question decrease, limitations technological and the physical As theireyes have that operators Which asked: we this analysis, extraction In activity? for pressure increased manage What environment? Arctic the physical the to risks are What from? do their partners come Where the Arctic? on 8 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security as well capitalized (and therefore able to cleanup) fund as Exxon. one would country become involved of because currents Figure (see 4)and company drilling the not will be United(the States) were Figure affected (see 3). theOcean, In Arctic it is more likelythan notthat morethan should remembered be that only financially one very responsible company (Exxon Mobil) and one country best difficult, even the under conditions. Ironically, bad as as oil and water do not mix. Once oil is introduced to aquatic the environment, process the of removing it is oil spills. Regulations have advanced, also reducing of likelihood spills. the However, remains fact the that intervening years two the spills, between we have developed better of methods containing and cleaning up Horizon populations. degrees The varying of effectiveness in clean up andoperationsrecovery between fromspecies bottom the top to of chain,very the economies, food the local and ofhealth the surrounding In majority the cases, both of oil the spilled has remained aquatic in the ecosystem, having impacts on legacy remained sound inthe [14]. skimmers, and lack the of application equipment for spreading chemical dispersants meant most of oil the mechanical clean up, and chemical dispersants. However, unfavorable weather, lack the of readily available oil was recovered [14].The Coast U.S. Guard employed many samethe of technologies: insitu burning, William Sound, Alaska, and clean up costs and claims $7billion, exceeded and less than ten percent of the thansuccessful Compared to 1989 the consuming proved bacteria effective to be on removing dissolved natural gas, but not oil. 265,000 barrels that were burned came at cost the of releasing toxic dioxins [13].Finally, of use the hydrocarbon zone. Burning efforts were also only marginallybecause effective theoil emulsified quickly. The approximately wind andbecause wave actionwas sufficient to push theoil boomsover orbeyondthe under and the containment up13]. Clean efforts were hampered by a shortage booms.of boomsUsingthe available proved be ineffective to clean up, 50-75percent between of the to attempt to contain and remove 4.9billion the barrels of spilled oil [12].Despite over $14billion dollars spent on Figure 3.Impact oftheExxonValdez Spill, credit:Dorsett2010 and and Exxon ValdezExxon Deepwater Horizon Deepwater Exxon ValdezExxon can be attributed can be factors. to several The first and most obvious20 time;the is in . Exxon ValdezExxon spill, recovering spilled the oil inPrince William Sound was much less Deepwater Horizon Deepwater spilled more than 260,000barrels of oil into crude Prince spill was never removed from Gulf the of Mexico [12- Exxon ValdezExxon facilities. facilities. enough to regional overwhelm medical influx injuredof 10critically patients is most Arctic communities, sudden the evacuated and treated for injuries. In and remaining the to be 115needed employees were explosion in the killed atrig of time the explosion, the 11 members were on board drilling the ofcase and trained personnel by. close In the equipment, necessary the supplies, action, nor rely can they on having rely on low winds and wave minimal In Arctic, the oil response plans cannot was on Alaskan the coastline, it Deepwater Horizon Deepwater , 126 crew , 126crew Deepwater Unconstrained Foreign Direct Investment: 9 An Emerging Challenge to Arctic Security Figure 4. Arctic Sea Currents, credit: AMAP Sea Currents, credit: Arctic Figure 4.

“The Arctic is key strategic terrain. Russia is taking aggressive steps to increase its presence there. there. presence its to increase steps is aggressive taking Russia terrain. “Thekeystrategic is Arctic the Arctic.” for strategy integrated an of the development I will prioritize Sullivan (R-AK), Secretary of Defense James Mattis stated: Mattis Secretary James Defense of (R-AK), Sullivan airmen. These factors result in a challenging operating environment for shipping, transportation, natural natural transportation, shipping, for environment operating challenging in a result These factors airmen. these that agreement broad is there though activities.Even defense national extraction, and resource that development the inevitable with the associated risks mitigate to been has done little exist, challenges of security new with sources associated risks geostrategic the associated and in the Arctic present now is Dan Senator from a questionnaire to response a written [11]. In activity other and routes, transit resources, and residual damages from a spill to fisheries and other interests. The absence of these legal frameworks puts ofthese absence legalThe frameworks other interests. and fisheries to a spill from damages residual and attention. demands and risk at region Arctic the entire pollutants the increases that risk that with currents powerful closed Arctic environment The nearly Seais a and a very period Navigation time. for long of there remain and waters dispersewill in Arctic quickly and mariners to the dangers enhancing regions, in other than reliable less far are resources communications The cost of clean up operations, even for a smaller spill, are estimated to be much higher in the Arctic due todue higher Arctic in much the to be estimated are a smallerspill, for even operations, up clean of cost The in equation removal The the Arctic. to unique factors other and visibility, sea low ice, weather, the extreme chemical or burning via in situ be remediated cannot ice oil under since complex more much is the Arctic cleanup for compensated are affected states that ensure would that is alsono framework There dispersants. ships using high sulfur using reduce fuels ships the whichdrivesalbedo the Arctic, of more where loop feedback positive a and the albedo the region, of reducing melt, ice to more causing the ice, absorbed by is radiation solar communities indigenous for could absorbedbe [15]. This is catastrophic radiation more as faster it warming their livelihood. food and Ocean the for Arctic upon rely heavily that ability of the Arctic Ocean to naturally naturally Ocean the to Arctic of ability much is of pollution impacts the buffer [15]. climates in warmer than lower other and the soot, aerosols, Lastly, by emitted are that contaminants ice, it is inaccessible to clean up crews up clean to inaccessible is it ice, will beand the powerful dispersed by Ocean in the (see Arctic currents mean temperatures 4.) Low Figure of the breakdown chemical that that the and slower much is contaminants Arctic Ocean over a ten year period year a ten Oceanover Arctic ice under moving oil that found and distances long over be can transported ice floes below from surfacing before the beneath is pollution [15]. Once A study completed by the Research by completed A study the examined Norway Council of on drillingthe gas and oil of effects 10 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 2 • • • • • • to accomplish seek will following the tasks: is vulnerable to risk the of fracture. physical, Because environmental, and great, is losses so political study this states lack mechanisms the or to infrastructure respond to an incident and cooperative the nature of politics increase due to allure the of access to resources, new risk of the an incident increases. Right now, Arctic the current regime. legal Arctic politics are as often“High described Low North, Tension,” but as human activities or inflows the largeof amounts capitalof that traditional politicalwill upset economicor relations the or chemical spills; risk of the upheaval political as aresult of inflows the largeof numbers of foreign workers pollution from mining, smelting or oil and gas risk of the activities; groundwater pollution from mining or explored paper inthis include risk of the alarge maritime pollution incident from an offshore platform; air Canada, Norway and United the States. mining, fishing, and oil andthe gas six countries in bordering theOcean: Arctic Russia, Greenland, Iceland, to region the from asoft-powerperspective; suchrisks that as resultfrom outside investment in estate,real issues examinethesecurity paper This in Arctic. will non-military Specifically, thislook will study risks at

region Explore various legislative and financial options to moderatethe adverse effects of theFDI in Arctic to properly regulate it capacityDocument the of Arctic the littoral states to have an awareness of FDI and authority the and will patternsDocument actual of FDI issues—including that those relate to FDI and development activity current the and legal Describe regulatory climate Arctic in the and its capacity with security to deal on studies past case howDiscuss foreign direct investment (FDI) patterns and other development cansecurity, affect based towards Arctic the and context bothnon-military amilitary in security Define Arctic and identify policies security U.S. 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 Risk context in this comes in many different be forms. to Those - Unconstrained Foreign Direct Investment: Arctic SecurityAn Emerging Challenge in to Arctic Context Security 11 - - , but , but , Ice Station Zebra Ice 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, States, Service, Research the United the Congressional discusses how by , a paper icebreakers to maintain it “continuous presence requirements of the Naval Operations Concept. This is in This 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 2017 national The De 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 conditions. This was the first Russian military exercise focused on protecting civilian facilities in the Arctic. civilian in facilities the protecting focusedmilitary on exercise Russian first was the This conditions. submarine The shelf. continental Arctic the along work in exploration is alsoNavy participating Russian The use in Russian for collected samples that mission exploration in the Arktika-2012 Losharik, involved was shelf. continental Russian of the part are Mendeleyev Ridges and the Lomonosov that prove to efforts the entitled review, That structure. force its to in relation four another and responsibilities fulfilits legal to 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. Arctic in militarytest field to equipment 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 In October 2012, Russia conducted a major command post exercise that included a significant Arctic compo Arctic a significant 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 modest; and 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 of area an become to the Arctic allow not to pains great to go should countries member NATO that urged Russia but affairs, Arctic of discussions for be to a forum continues NATO this writing, of [22]. As competition 3 schism remains within NATO regarding whether the Arctic is a theater of NATO operations. The text of 1949the text The operations. NATO of a theater whether is the Arctic regarding NATO within remains schism economic sea, territorial exclusive territory, the land include be to can easily read Treaty Defense Mutual NATO Iceland. and Norway Canada, Greenland, States, the United of (CS) areas shelf continental (EEZ) and zone of militarystates concern. area Some an be should Arctic the that NATO within no consensus however, is, There robust more a have to like would and conflicts future of be could the site states littoral the Arctic six that recognize have Scheffeer, de Hoop Secretary General Jaap NATO former [22]. Others, like in the Arctic military presence areas. insufficient. accounts, most by Arctic the in Changes a [21]. Yet suit followed has extent, some to NATO, exercises. Arctic their annual continued have Denmark and President Putin has been gradually increasing the size of the Russian military contingent in the Arctic. in the Arctic. military contingent the Russian the size of been has increasing Putin gradually President regular of resumption the ordered Putin Arctic tothe Ridge, mission the scientific sending after Shortly investing is Russia and aircraft, patrol anti-submarine and bombers strategic by the Arctic over patrols air its of modernization and systems, missile special anti-aircraft icebreakers, in additional capital scarce been similar have There Murmansk)[16-19]. (near Peninsula the Kola based around units in and naval shelf continental claimed its in deployments naval its increasing is Navy the Russian that announcements were also a venue for interaction and competition between U.S. and Soviet submarine forces. To this day, both this day, To forces. Soviet submarine and between U.S. competition and interaction for also a venue were bases and strategic to proximity its because of in this region operate routinely Russia and States the United points. choke navigational of days the Cold since War cooled has down in the Arctic Military competition The Arctic used to be a very “hot” national security domain. The United States and Canada operated a network network a operated andCanada States United The security domain. national used Arctic to veryThe be a “hot” to Line, (DEW) Warning Early the Distant based including north, in the far stations radar warning early of of constellation uppermost the comprised Line DEW The Soviet bombers. attacking of warning early give Arctic seas The territory. Canadian on primarily Circle, the Arctic north of situated were that stations radar Arctic SecurityArctic Context in 12 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 6 5 disaster and emergency response, regional maritime domain awareness (MDA), iceand weather forecasting, Some areas of Navy include such expertise areas as international and science (S&T)cooperation, technology that apart from its continued submarine operations, itcontinue will to play a supporting role Arctic. in the Arcticin the and more to infrastructure support that presence [28].But, Navy the careful has to been state Arctic. The Navy and U.S. Command Northern have been planning also forDOD an increased presence propose increases number in the of combatant ships Arctic inthe or either transiting based through the maritime domain awareness, information sharing and hydrographic charting. ThatRoadmap not does The U.S. Navy RoadmapArctic 2014–2030 projects an increased U.S. Navy rolethe in Arctic in forecasting, credible U.S. Guard, Coast Air Force, and Army of Engineers Corps footprint inSouthern Alaska. amountsmall of statementspolicy existing [27].These infrastructure be the context in should read also a of Air Station at Keflavik, Iceland, were cited as examplesDOD commitmentsof increased the to modernizing refurbishment of Thule in Base Greenland Air and recent improvements to a hangar the at former U.S. Naval increasingthe geopolitical importance of region the and to need evolve the Arctic infrastructure. DOD The continueddiscusses exercises Arctic inthe to maintain adeterrence posture. associated with increased activity inaddition this events[26].Congress to military Theto Report 2016 fishing,extraction, and tourism. Giventhat, the combatant commands to need plan for contingencies Thelater experience. the increased document also recognizes humanthe activity in region due to resource strategic partnerships to increase its and regional obtain expertise “small footprint” cold-weather operational DOD’sThe 2013 Arctic Strategy, Congress,and to Report its 2016 statethat continueDOD will to build on its conflict. cannotWe this history, erase canwe assurethat not does history repeat the in Arctic”[25].itself mankind has to raced discover next the frontier. And after time time, was swiftly discovery followedby to ensure as mankind discovers peace the “next this frontier.” As Hagel put it: “Throughout human history, cannotoil out DOD andthe rule gas reserves, possibility the that agreater necessary presence be military will of Defenseformer Chuck Secretary Hagel said that given by rush the nations to exploit Arctic’s the substantial an threat…and emerging military to…keep strategy seeks the as region it the already as peaceful is” [24]. But held inconjunction with rollout, the senior defense that DOD officials thereasserted is “no assumptionof issued by2013 policy President Obama and not does dwell threats on security or issues. In apress conference On November unveiled 22,2013,DOD its strategy forDOD Arctic. complements the Thestrategy the May expressed its position that NATO should play arole to inseeking check increases [22]. those in various settings about what it regards as atroubling increase inRussian Arctic, inthe activities and military not that believe NATO has arole inArctic matters [23].Norway, by contrast, has voiced increasing concerns has made it clear that not it will cooperate with NATO on Arctic matters. maintained Canadahas also 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 The Coast U.S. Guard has asignificantfootprint budgetary the in to Arctic implement traditional its fisheries construct lands. facilities on tribal maintain harbors along Alaska’s coast, restore former lands, DOD provide and erosion flood 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).Corps has The responsibility research Most activities. of Arctic the research funding has historically done been by various Navy compo C-130 aircraft. Department The Defense of has a number of Alaska in major bases funds and a variety of includes also District medium- 17th the and high-endurance cutters, buoy tenders, 12helicopters and four response.Coast The Guard’s consists District 17th of personnelroughly 2,500 posted bases andat air stations enforcement, search and rescue, safety of navigation (and maintenance of navigation aids), and oil spill 5 The report also recognizes The also recognizes report 6

- Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 13 - - but those but 7 the U.S., EU, Norway, Canada, Japan, Switzerland The sanction on the oil companies seek to ban co-operation co-operation to ban seek oil companies on the The sanction Switzerland Canada, Japan, Norway, EU, the U.S., Mobil Corp. as Exxon companies on energysuch technologyand services firms 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 waiver The in 2012. Rosneft with established which is venture respects the as joint tions blocks. Arctic any cover does not There have been multiple rounds of sanctions culminating in sanctions directed against the Russian energy Russian the against directed in sanctions culminating of sanctions rounds multiple been have There develop Arctic resource in arebanks. active of those Both large firms two and Novatech and firms Rosneft included basedand broad of 2014 was summer in beginning the of sanctions round activities. The third ment

in the Arctic, or a compelling reason for one to develop. develop. to one for reason a compelling or in the Arctic, 7 that are the subject of this study are likely to go to war with one another because of a territorial dispute. The dispute. a territorial because of another one with war to go to likely are this study of the subject are that States the United by in Ukraine intervention the Russian 2014 for from Russia against sanctions of imposition countries, between the various political tensions heightened have (EU) may Union European and or resources to access over Arctic in Region the on disputes influence visible no had have political tensions spending and in military increase in some patrols result may Eastern Europe over tensions Political territory. race” a new is “arms there evidence no is that there but infrastructure, and modernization all sides in force by All of the six countries are largely in agreement that UNCLOS governs the exercise of their international their international of the exercise governs UNCLOS that in agreement largely are the six countries All of upsetto wish that states outside scenario where a future out does This rulenot areas. in common rights theirand EEZ patrol to forces air and land deploy increasingly would states littoral where or quo, thestatus at criminaland acts piracy, incidents, illegal environmental of fishing, instances for areas shelf continental states the six Arctic of any evidence that compelling seem does be to not any there this point, at sea. But delineate their Exclusive Economic Zones in the Barents Sea around the Svalbard Islands. And, Russia has been has Russia And, Islands. the Svalbard Sea around in the Zones Barents Economic their Exclusive delineate UN The in the Arctic. Commission shelf continental extended an to claim lay to the process with fully complying the outer the parties demarcate help to take years will (CLCS) probably Shelf the Continental of the Limits of the “respects it that DOD the 2016 DOD stated Report Congress, In to shelf. continental their extended of limits [27]. shelf continental extended an to entitled is whether it delineate to following is Russia that process” 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 resources over competition that the view of that are the authors [22]. However, resources (see adjudicated being are or benign comparatively either are Arctic in the disputes territorial conflict the because boundaryof adjacent their delineation involve that with Canada disputes has two States United 5). The Figure is There Passage. Northwest Canada’s of the status over disagreement Seain the Beaufort a longstanding and to still have Norway and Russia Island. Hans of the status over Denmark between and Canada small dispute who opined that there are U.S. strategic interests in the Arctic that justify a modest military presence, including including justify a modest military that in theArctic presence, interests strategic U.S. are there that who opined outreach, but anything support to enough prominent “yet not are those interests However, S&T missions. [22]. small-scale and deployments” summer planning buildup military activities (force Russian recent to point Wezeman, Siemon as such analysts, independent Some to access over competition armed be could future there that concern of causes as base improvements) and The Roadmap and DOD’s two policy statements also clearly state that DOD’s activities in the Arctic will have Arctic activities in will the have DOD’s that state clearly also two policystatements and DOD’s Roadmap The to the Arctic like would planners defense particularly because U.S. priorities, budget other with compete to former of of viewsthe the representative is also This buildup. arms an or military free of competition remain Special Representative) Arctic States’ the United (formerly Robert Papp, the Coast of Guard, Commandant and hydrographic charting and mapping; and are noted as areas in which the Navy could play a more active a more play could in which the Navy areas as noted are and mapping; and charting hydrographic and not are affairs, in Arctic NATO of the role activities, and in these cooperative Russia of Engagement role. [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 15percent. Put another way, of because broad the continental margins Arctic inthe Ocean, space that is classified“international as waters” and clearlybeyond the jurisdiction of any is country coastal to claim acontinental shelf inexcess of 200nautical As miles. aconsequence, amounts actual the of sea ofjurisdiction countries. coastal The shallow depth theOcean of Arctic meansthat the countries are entitled shown inFigure areas 5;all outside of red the dotted line are unquestionably and under legal the resource to entitlements the of states Convention under 1982UNLaw the of Sea the (UNCLOS). This relationship is land directions inall means that countries coastal have significant interests legal the water in column due by Eurasia and North size This some small America, theArctic andthe as classify a sea. close proximity of andsmallest shallowest the of five the majorBecause oceans. of thatits size theand fact it is nearly surrounded across continent. the In contrast, Arctic the region is essentially amaritime region. TheOceanthe Arctic is residents, but anywhere from 1,000 to 5,000 people reside throughout year the at research stations scattered Antarctica is acontinental land mass that is roughly sizeof the twice Australia. There arepermanent no human mostly under control the of individual states. of scope the interest. academic The Arctic is, for mostrelevant purposes this to study, a maritime region and Antarctica is aland area that is not under any single state’s control and is off-limits to anybeyond activity though regions the are completely differentfrom avariety perspectives. of the In broadestpossible sense, Analysts often themake mistake of lumpingthe Arctic theand Antarctic into a basket, “polar”even policy 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. The ’61 Accord did not expressly renounce those claims; however,the agreement 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 onto Antarctica except for scientific introduce personnel or equipment on continent, the and may they not claims to land eitherthe or waters No can country make sovereignty shelved claims the of countries. seven 1961Antarcticin the Treaty that commons global the was established Antarctica’s status special of as part ofjurisdiction the any single country. Commons” it because is not under its entire area is classified as “Global outerLike spaceand seabed, deep the Antarctica is entirely different legally. of part being a“Global Commons.” column belongs to single states versus most of Ocean’s the and water seabed - 8

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

9 es (CCMLR) which is based in Tasmania. The 1991 Protocol on Environmental Protection to the Antarctic Antarctic to the Protection on Environmental Protocol 1991 The 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 to eight states plus six observer nations, including China, Japan, and India. The Council, as noted, has has been noted, as The Council, India. and China, Japan, including six observer plus nations, states eight to in Aeronautical Cooperation on a 2011 Agreement instruments: international two brokering for responsible Oil Marine on a 2013 Agreement and Rescue and (SAR Agreement) in the Arctic Search Maritime and and goalspoints regional identify help agreements These in the Arctic. Response and Preparedness Pollution In 2008, the five states bordering the Arctic Ocean, affirmed in the Ilulissat Declaration that sovereign rights sovereign rights that Declaration affirmedIlulissat inArctic the Ocean, the bordering states 2008, the five In to legal the “committed remain states the affected that and UNCLOS by predetermined are in the Arctic work would states littoral Arctic five the that stated also The [32]. Declaration UNCLOS of framework” safety improve to new measures develop and measures additional strengthen “to the IMO through together Over Ocean”[32]. in the Arctic based pollution ship the of risk reduce or prevent and navigation maritime of membership its as expanded well as affairs in Arctic prominence greater assumed Council the Arctic has time, promoting cooperation, collaboration, and integration between Arctic nations, indigenous communities, communities, indigenous between nations, Arctic integration and collaboration, cooperation, promoting of up Council made the Arctic is Declaration, the Ottawa by in 1996 Founded inhabitants. Arctic other and for responsible Arctic has been The Council groups. indigenous six permanent and nations member eight 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 measures special protective establish to states enables that provisions XII) and (Part environment the marine (Article 234). ice covered are that in waters pollution vessel-source prevent or Organization Union European (like the organization management regional overarching no is there Though Council the Arctic issues; common addresses to (OECD)) Development and Co-operation Economic for for forum an intergovernmental Arctic is The Council body. governance a regional to thing the closest is negotiated under the auspices of the International Maritime Organization (IMO). With the exception of the of the exception With (IMO). Organization Maritime the International of the auspices under negotiated do Arctic is so the affect Arctic the because that a laws Code, maritime the various Polar concluded recently of entitlements and the rights special rules. Arctic are Consequently, because there than rather region, maritime a limited To UNCLOS. from derived are resources, use its territory Ocean, in the or to Arctic claims make to states affect adversely do not land their activities on that ensure to states require policies that establishes UNCLOS extent, authority over Arctic activities. Arctic over authority Regulatory Scheme Arctic The bilateral laws, domestic national including arrangements of legalby a small collection governed is Arctic The conventions maritime international a variety of and law, customary UNCLOS), as (such global treaties agreements, other activities; however, all forms of mineral resource mineral resource of all forms activities; however, other future. the foreseeable for banned extraction are legally overarching, no is there UNCLOS, for Save or a treaty affairs Arctic addresses that treaty binding regulatory exercise to mandate has that organization research purposes. Also, management of the affairs of the affairs of management purposes. Also, research organizations treaty various by handled is Antarctica and program, the fishing, science offshore regulate that 16 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 12 11 10 claims is strongly urged by authors. the treaties. ofbeyond scope the many mandatory dispute settlement procedures established inUNCLOS or other resulting from vessels and shore-based facilities, environment generally. UNCLOS requires that states adopt domestic laws to control marine pollution financially responsible forpollution from that its territory harms another state or fordamage the to marine Similar concerns exist UNCLOS whether provides asufficient legal foundation to hold another country from interfering with another country’s authorizing thatactivities pollute marine the environment. There widedifferenceis a of opinion as whether to UNCLOS is sufficientlyprescriptive to stop one country latter extent the respect, to eight the which countries regulate is activities not these uniform. and operations, port as well as mining and industrial operations that impact marine the environment. In this and nation’s 76,eachArctic coastal domestic laws govern hydrocarbon development, fishing, aquaculture, most operations of because principle the of flag-state control. In contrast, under UNCLOS 58,60, Articles statescoastal have limited powers over of most ship aspects operations including construction, design, and is registered, and states. coastal This demarcation important is an especially matter since, under UNCLOS, establishes important flag linesstates, jurisdictional between the statelaws whose under acommercial vessel exclusiveterritorial seas, economic zones, and continental shelves (UNCLOS 56).UNCLOS Article also First and foremost, UNCLOS establishes important resource and zones, jurisdictional legal including firstthe stepthe in analysisframework the legal of the of Arctic is whatto determine UNCLOS provisions apply. Arcticin the region. And, since Arctic the is anchorOcean the for most economic Arctic in activities the region, Since Arctic the is mostly amaritime area, UNCLOS establishes most of normative the regarding rules activities UNCLOS andthePolarCode Nor agreements dothese empower broker as to Arctic apolicy the Council act or regulatory authority [32]. of contact for cooperation but donot they commit any of states the to regulatory or activities any funding.

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.” There 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 offer statesbetter a option (and so long remedies) the as mattercan for is this that obligations the inUNCLOS are broad so as unenforceable to be and, for reason, this bilateral mechanisms have not effectivelypastthe in been to enforce used environmental norms.possible One 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 fisheries. En 208)and (Article activities atmosphericseabed pollution of marine the environment 212). (Article specific provisionsalso pollutionwith dealing from sources land-based 207), (Article 211), vessels (Article U.S. few Arctic specific regulations. has very ing passage the of ships through its Route. Northern Sea Apart fromrespecting oil and rules gas the activities, ships Canadian inthe Arctic. The 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 gaps, these Because some of sort reciprocal standards and of methods resolving disputes and 11 but provisions the lack specificity and is probably 10 - - - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 17 - Likewise, if the current projections projections Likewise, if the current 13 ” there are numerous exceptions to the Polar Code the Polar to exceptions numerous are ” there Addressing the Gaps in Arctic Governance Arctic in Gaps the Addressing 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 by a affected adversely are that coastalstates that means it if affairs of a satisfactory state not is “should” word commu the affected 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 The large Chinese shipping company COSCO is a state-owned conglomerate of separate shipping companies. companies. shipping of separate conglomerate state-owned COSCOis a company shipping Chinese large The

imprudent practices or to recover money damages for the costs of damages to the marine environment is not not is environment the marine to damages of the costs 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 to states more or one theoryin is for it possible While [37]. incident an of transboundary impacts likely by environment the marine on impacts deleterious has that a particular incident over state another confront ChinaSouth recent The deficient. is mechanism that mechanism, dispute-settlement the UNCLOS using protect to states of the duties that precedent important an China, establishes v. Philippines Sea arbitration, the though Even [38]. action settlement dispute UNCLOS an in game” “fair is environment themarine from state another the of action enjoin to state one of the ability case very was far-reaching, Philippines existing shipping channels, charted areas, and rescue infrastructure. and areas, charted channels, shipping existing outside of take note to starting Board are Advisory State’s of Department the U.S. academicsSome and been have measures no concrete yet of as but field, gas particularly and in the Arctic, in the oil investments the and coastline the Arctic near and in exploitation resource with associated the issues address enactedto costs of responding to and cleaning up a shipping accident or oil spill would be far more technically complex and complex technically be more far would spill oil or accident a shipping up cleaning and to responding of costs fishing V) for Chapter SOLAS, (under the Code preserves exemptions Lastly, waters. in warmer than expensive service the scope of non-commercial from on ships government-owned and auxiliaries naval warships, vessels, vessels that merchant operate and own states because some very is problematic exemption This coverage. its immunity. sovereign claiming by evade legal responsibility potentially could the from far vessels will place take exempt by fishing new high-seas of materialize, (discussed fisheries later) as discussedas in “ owners to ship from an accident of risk financial and operational of the most shift and be could problematic that the fact that 500 tons—notwithstanding below ships to Code apply does not the Polar [11]. First, coastal states liability ship-owner increased about nothing The says materials. smallerCode coastal carrycraft noxious many the the fact that despite limits, their insurance increases or costs cleanup and response for conventions IMO under (dependent on ice conditions), a mandatory reporting scheme for ships entering the Barents side of the Arctic side of the Barents entering ships for scheme reporting a mandatory ice conditions), on (dependent liquids. carrying noxious ships and oil for requirements separation hull/tank Ocean, and FebruaryIn direction. in step the right major is a effect in 2017) into Code (which went the Polar Unquestionably made first the Authority, Maritime and the Danish DNV GL company, certification 2017, the ship-safety ButViking [36]. Magne tug handling Polar Code:anchor the new with the compliance ship’s of a certification Code rests with the flag states, but there is the possibility that states could enforce vessel standards via so- standards vessel enforce could states that is the possibility there but states, Code the flag with rests restrictions— and safety operational of number a [35]. The Code contains measures” control state called “port their crews that ensure to owners ship requires waters—and in polar discharges limited or zero including entering certificate before a polar in their possession have and equipment safety specialized and training have requirements special hardening are there region, in the polar will operate that new ships For waters[35]. polar One effort that increased governance in the Arctic was the IMO’s recent enactment of the Polar ThePolar Code. of the enactment recent IMO’s was Arctic the in the governance increased that effort One 500 above ships other any and ships allto passenger applies 2017, and 1, January on force into Code entered the Polar of enforcement instruments, IMO north. Like most 60 degrees above in latitudes operating tons 18 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 14 injuredcitizens. accident inanother —would country likely have to absorb costs the of cleanup and compensation the of its is fair to say that that inmost acountry cases, incurs damage to its Arctic coast —as a result of an industrial againstcollection an insurance policy, assuming one was available. of difficulties the Because of doing this,it incident would left suingthe be offending where entitythe in the incident country seeking occurred or that creates aclaims process and aliability fund, states that are adversely affected pollutiontransboundary by a yet clearly established inlaw and precedent.

There are an increasing whichthenumber in cases Provisionalof Measures (UNCLOS 290) arebeing dis industrial or shipping incident that affectsthe Arctic marine environment come up with aprocess or forum for with extreme dealing the costs (and liability) associated with alarge in that direction. That development be a wouldgood in Arctic governance thestates coastal if 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 This meansthat absentsome 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 in Alaska located are these resources of 45 percent estimated An further by exploration. be proven Circum- USGS The [44]. be offshore to located these anticipated reserves of are percent 84 still unproven, the likelihood methodology (CARA) used geology-based estimate to probabilistic Appraisal Resource Arctic availability above the 66th parallel. And for good reason: oil is one of the pillars that allow modern allow society that to the pillars of one is oil good reason: for the 66th And parallel. above availability (see 6). figure regions underway in some extraction already gas is and oil the Arctic, In it. know we function as 1,669 oil, of barrels 90 billion Geological that Survey (USGS) estimates the U.S. by appraisal 2008 resource A to waiting lie in the Arctic, could liquids gas natural of barrels 44 billion and gas, natural of feet trillion cubic Arctic communities are warming up to the idea of development as the pressures of climate change and and change climate of the pressures as development the idea to of up warming are communities Arctic increase. globalization Oil Resources resource of facets published widely most of the one is Arctic in the resources hydrocarbon of availability The 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 the Arctic of resources vast as just change, climate to due cycles shift seeing the environmental are communities Arctic time, the same services. Washington, food, goods, CSIS and a speech for at In demand worldwide more creates globalization potential “extraordinary as described the situation Lisa Murkowski Senator 19, 2017, Alaskan July on D.C., many however, in the Arctic, issue a divisive remains development resource [43]. Natural access” by limited profitability. While these processes vary in duration and stringency, they are uniform in that they prevent prevent they in that uniform are they stringency, and While varyprocesses duration these in profitability. projects. in large engaging from unlicensed operators industry wastime, a long For is uncertainty. Arctic in the availability resource of overwhelming theme The there very exceptions, few With the Arctic. of the high-riskwith environment in coping uninterested simply dwindle, the world of otherthe parts in resources as But elsewhere. options profitable more been better, have the region could erupt into an armed mad dash for resources” [41]. resources” for dash mad armed an into erupt could the region intervened has in the time that changed has rush. Much gold Arctic modern-day no is there Fortunately, in the future[41-42]. unlikely actions such making today, era and the colonial of grabs between the resource and risk, value, of the standpoint from review resources that processes permitting have states the Arctic All of the seafloor at the North Pole. Immediately, responses from the global community were vocal and furious. were the global community responses from Immediately, Pole. North at the the seafloor world the around go the 15th century;can’t you isn’t “This protested, affairs foreign for minister Canada’s Condoleezza Rice U.S. State Secretary of Then [39]. territory’” this claiming ‘we’re and say flags plant just and before go to legal advisor, chief Department’s the State Bellinger, John directing by the event to responded Policy: Foreign in predicted G. [40]. Borgerson Scott Scholar of UNCLOS the ratification urge to the Senate conflicts, potential and claims competing to solutions diplomatic develop help to leadership U.S. “Without Arctic rush in the planet’s gold a 21st-century of foretell in the Arctic the resources of analyses Hyperbolic on flag national its planted triggered in 2007, when was Russia this rhetoric of Much region. northernmost Resource Availability in the Availability Resource 20 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security exploring two different offshore sites. The Dreki Area, east the of Icelandic coast, the on Jan ridge, Mayen Even though Iceland not does figure prominentlythelarge in resource projects,thenation small is actively littoral states’ EEZs)[45]. anticipated inconventional 287BBOE oil and figures gas (these do not include resourcesthat are outside of Norway39 BBOE, is anticipated to have and 25BBOE, Russia has largest the endowment by far with an contains inresource Canadahas 34BBOE 94BBOE, potential, Greenland’s endowment is estimated to be These resources are notevenly distributed among nations.Excluding natural gas liquids,theAlaskan Arctic 51 percent of anticipated hydrocarbons have yet proven to be [45]. Arctic fossil endowments fuel and have discovered reserves extracted, been potential make up 35percent, and of426 BBOE conventional Arctic fossil endowments fuel [45].In percentage terms, 19percent of anticipated data, there and are discovered inreserves 290BBOE potential, unproven resources make up remaining the 117 billion barrels of oil equivalent have as (BBOE) of extracted 2015[45].According been to most the recent In anumber of onshore Arctic areas, exploratory for drilling oil and natural out; gas has carried already been speculative until proven by exploration. oflikelihood containing at least 50million barrels of oil or natural gas equivalent estimates [44].These are figurepetroleum petroleum-potential deposits (see 7). The areas considered werethat those percent hada10 of undiscovered oil and gas resources in33geologic provinces with structures geological conducive to 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 Arctic Circle. Red Dog has produced more than 1 billion tons of zinc concentrate to date [49-50]. There are are [49-50]. There date to concentrate zinc of tons 1 billion than more Red Dog produced has Circle. Arctic the and being mined, currently deposit, the Aqqaluk Arctic: lead in Alaska’s deposits and zinc large other two wilderness, it unexplored of expanses vast Alaska’s be to mined [51]. Given yet which has deposit, Qanaiyaq exist. minerals metals or other of deposits large more that possible is Alaska’s commercial mining history began in the late 1880’s, when the discovery of gold in the Klondike and and in the Klondike when gold the discovery of 1880’s, history thein began late mining commercial Alaska’s the In Alaska[48]. to 20,000 people as many as brought rush that triggeredgold a Nome the beachesof on discoverywould The be Alaska. in northwestern Range in the Brooks discovered lead were and 1950s, zinc the 100 miles north of about Red located Dog mine, mine, zinc largest second the world’s into developed platinum, rhodium, cobalt, and gold. Resources vary from state to state in terms of type, size, quality, and and quality, type, size, of in terms state to vary state Resources from gold. and cobalt, rhodium, platinum, metal and experience extraction.and mineral with histories different also vastly has Each nation quantity. of of significance the the affect perceptions mining toward attitudes national and Regulatory restrictions in the Arctic resources viable commercially of the quantities Consequently, in each country. deposits various economic legal restrictions, accessibility, also technological in terms but distribution of in terms vary only not reserves. size of proven and viability, but the variety and quantities have yet to be to determined [47]. yet have quantities the and variety but Mineral Resources palladium, phosphate, copper, bauxite, iron, diamonds, zinc, nickel, of minerals: quantities vast holds Arctic The is thought to have the potential for significant hydrocarbon resources, though exploration has yet to prove prove to yet has exploration though resources, hydrocarbon significant for the potential have to thought is is also expected gas, Iceland hold to north-central of coast the off Area the Gammur reserves[46].Similarly, Figure 7. Undiscovered Oil Estimates by the USGS Circum-Arctic Resource Appraisal, Credit: USGS Credit: Appraisal, Circum-Arctic Resource the USGS Oil Estimates by Figure 7. Undiscovered 22 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Table 1.Prospective, Arctic,adopted minesintheCanadian Active, from 2016 al., et Boyd and Closed REE deposit Blatchford inthe Complex Lake [51]. on Yellowknife Ekati the diamond Bay; mine Northwest inthe Territories figure (see 8), theand Nechalacho on Baffin Island;Lake Izok copper,lead, zinc, and gold minenear Coronation the theGulf; Giant gold mine notable sizeare: River Mary iron mine summarized intable 1. Mines of numeroustoo are to list, they so deposits Canadian inthe Arctic are models [51].The number knownof predicted by geologic probability have discovered either been or copper, molybdenum, and tungsten deposits of zinc, lead, gold, silver, Canadianthe Cordillera, numerous Canadian Shield [51].To west, the in and diamonds are located inthe uranium, rare elements earth (REE), deposits. Gold, copper, nickel, iron, CanadianThe richArctic is inmineral 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 Coffee Casino Andrew lake Deposit Active Mine Active Not Exploited Not Exploited Not Exploited Not Exploited Not Exploited Not Exploited Not Exploited Mine Closed Not Exploited Not Exploited Closed Mine Closed Mine Active Mine Active Not Exploited Exploration Mine Closed Not Exploited Not Exploited Not Exploited Status Territories, Canada),credit: JasonPineau 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 Active Mine Closed Mine Closed Mine Exploited Not Active Mine Exploited Not Exploited Not Exploited Not Not Exploited Not Exploited Not Closed Mine Exploited Not Active Mine Exploited Not Active Mine Exploited Not Active Mine Closed Mine Active Mine Red Mountain C Roche Bay and Jason Tom Wellgreen Raglan West Nunavik Mine Nunavik Point Pine Polaris Mine 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 that Greenland contains many more deposits than those that are currently known. The geology of Greenland geologyGreenland of The known. currently are those than deposits that more many contains Greenland that major Greenland’s [51]. Sheet Ice the Greenland beneath still trapped are resources many that suggests 2. in table listed are deposits As Greenland’s ice sheet retreats, new resources are being discovered. At present, Greenland holds multiple multiple holds Greenland present, At being discovered. are new resources retreats, ice sheet Greenland’s As and precious REEs, and iron, palladium, copper, platinum, gold, coal, lead, molybdenum, zinc, of deposits possible is it Alaska, with As below. in the table extraction summarized is [51]. Current stones semiprecious 24 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Severnaya, Tomtor, Yaana-Chukotka, and Yakutia-Anabar. Their resources are tablesummarized in 3. of minerals and They metals. are: Kola Peninsula, Maimecha-Kotui Udzhinskoyw, Taimyr-Norilsk, Taimyr- various geologic zones. There areseven major regions the of Russianthat Arctic produce significantquantities Russian across geology Arctic the varies widely, leading to a diverse allocation of resourcesmineral spread across rhodium, osmium, palladium, iridium, and platinum. Most of Norway’s deposits are concentrated north. inthe molybdenum,rutile, nickel, gold, arsenic, and platinum the group elements include (PGE),which ruthenium, andrutile copper. Finally, there are large deposits of iron, copper, (Svalbard coal -Figure 9.)cobalt, silver, zinc, minesthree new that extract will have recently awarded been to at and Rana Sydvaranger. Permits ilmenite mine, and two iron mines three large mines: Tellnes the metal Modernextraction. Norway has of near-continuous resource spanning almost three centuries were active until 1970s, the Trondheim. Some of mines these areas inthe mined south of 1600s, silver and copper were in what is now Norway. In the silver deposits have exploited been Since as early century, as 12th the deposits have found been inIceland. of tectonic rifting and volcanic activity.Some gold explorationoccurred, has butthus far no profitable gold is distinct from North Greenland, America, Scandinavia, and Russia due to its recent formation as aresult Iceland, incontrast to its Arctic neighbors, not does have large deposits. mineral The environmentgeologic Table 2. Active andProspectiveMinesinGreenland,adoptedfromBoydetal.,2016 Kringlerne Kvanefjeld Angel Black Isua NameDeposit Malmbjerg Flammefjeld 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 Sulfide 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 difficult. And wherever difficult. apprehension and monitoring, detection, makes environment harsh and involved areas fishing most in of declines the serious because lure attractive an is Arctic the feasible, is IUU fishing inmostly problem, a remains IUU fishing Fund, Wildlife the World by a report to According worldwide. the Arctic is concentrated in a few regions. There are 59 marine fish species (or “stocks”) that are targeted by commercial by targeted are that “stocks”) (or fish species marine 59 are There regions. in a few concentrated is the Arctic Seas, whichNorwegianandBarents in The the [53]. are Russia [53]. Of 30 Bering these, fishing Sea and between Alaska species [53]. the desirable 24 of between 21 and contain gateway, the Atlantic-Arctic form together Norway), and (U.S. guards coast very two by professional monitored are the the though inlets Arctic to Even distances great The concern. is a Arctic growing in the (IUU) fishing unregulated illegal, and unreported there is very little information available [52]. available very is information there little fishing. commercial of future the about projections precise to make difficult is it unknowns, these many Given including change, climate to due changes activity, fishing commercial have already that in areas However, in fishing commercial Currently, the industry. impacting are ranges, migration changing and ice coverage decreasing The availability and profitability of fish stocks in the Arctic vary dramatically across the region. Very little is known littleis Very region. the across Arctic in the stocks dramatically fish of vary profitability and availability The Barents Sea,Bay, the as such Baffin Arctic, of to inlets the the In some itself. Arctic in stocks Ocean the fish about to the According stocks. fish of patterns migration traced the size and have the Bering studies and Sea, extensive of branch research Sciencethe Fisheries Alaska Center—a by conducted Monitoring, and Research of Inventory Service—data Fisheries dense Marine most is National Administration’s Atmospheric Oceanic and the National ice, permanent historically with areas in However, to them. adjacent are or fisheries active contain that in areas gold, iron, nickel, PGEs, high-value REEs, titanium, vanadium, and zirconium have been proven but are not not are but been proven have zirconium and vanadium, PGEs, REEs,high-value titanium, nickel, iron, gold, scale [51]. a commercial being extractedyet on Fisheries There are also several sub-Arctic mining regions of particular importance due to their proximity to the Arctic to the proximity to their due of particular importance regions also mining are sub-Arctic several There molybdenum, gold, chromite, in iron, rich are area surrounding and Mountains Ural The environment. the among PGEs are and copper, nickel, Siberia, of deposits [51]. In platinum and gold, copper, tungsten, silver. and gold smaller of deposits geology Siberian includes Additionally, in the world. largest diamonds, copper, cobalt, of deposits certain. almost Vast is Arctic mineral extraction in theRussian 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 “over the top” the shipping ice regression ships gravitate will safety of navigation, with further troubling from of perspective the vessels by late century[60].More by moderately ice-strengthened yearper to possibly year round increasing from about five months availablethe window for transit is summer and [5].Additionally, fall safely transiting Arctic in the Ocean Polar Class 6 Arcticthe as early as 2040,while water vessels forecast models predict that open- in human [59].Recent history ice isOcean as open as it has everbeen toDue climate change, Arctic the world’sthe current shipping lanes. Atransit lane through Arctic the could of goals. achieve all these continue to for look ways to reduce transit and time distance, as well as by reduce choke risks posed the points in remained mostly same, the with notable the exceptions of Suez the and Panama Canals. Shipping operators shippingAnd while has grown infinitelysafer and more efficient the in past six centuries, shipping routes have traders longed for a route to Pacific the Oceanwithout sailing around or land a making Africa trek across Asia. The dream passageof a throughfrozen the waterways alivethe been whenof Arctic the sincehas 1400s, European Shipping South Korea, and EU, the together to ways discuss of expanding temporary the moratorium [58]. [56-57]. fish species Now,the signatories original are bringing countries,other suchChina, as Iceland, Japan, scientists information can collect on fish stocks and assess how environmental changesthe in Arctic are impacting Preventionthe of Unregulated Fishing Arctic High halts commercial Ocean, Central inthe Seas all fishing until thatOcean on was signed July 16,2015.The non-legally binding agreement,Declarationthe Concerning called Greenland, Norway, Russia, and United the States produced atemporary moratorium on fishingthe in Arctic countries have “tested waters” the of unregulated this area [55]. However, recent Canada, meetings between Arctic that Ocean are beyond 200nautical the EEZsof states. mile coastal the Already fishing fromvessels various of Straddling the Stocks is which under purview the Convention,Sea, no such agreements cover areas the of the Unlike 50,000square-mile the donut hole beyond reach the of EEZsof coastal the Alaska and Russia Bering inthe not under management the of any single country’s EEZ[55]. retreats, more exposing of large, the 1.1million square “donut mile hole” central inthe Arctic that Ocean is Russian of and waters Okhotsk Sea Sea [54]. This Bering problemin the is reportedly getting worse ice sea as

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

18 - to increase; raising the probability of the probability raising increase; to will that casualty marine sort of some search-and-rescue complex a require the region’s strain would that mission the Arctic However, capability. limited the world’s become to unlikely Ocean is intercontinental for new superhighway shipping transit other and container weather too many are because there with associated ice uncertainties and Most experts expect traffic Most vessel to and especially increase, destination in shipping. transit commodity possibly withthe associated cruise traffic Vessel also is expected tourism industry and While ice coverage and thickness is declining, no declining, is thickness and ice coverage While 17 and beyond Polar Code compliance. As a general matter, the insurance companies require their policy holders require companies the insurance matter, a general As Code compliance. Polar beyond and icebreaker do so an to with and (NSR) Sea via the Arctic the Northern Route through transits make only to and tow provide to is invaluable an icebreaker of presence the but of the transit cost(s) escort.the increases This its (or vessel of a of collision the result the are casualties such Most rescue services a casualty. suffers if a ship ice. free-floating with propeller) and the margins are not sufficient 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 sufficient not are the margins and [63]. etc charts, Norwe large two at (see managers [11]) risk Governance, in Arctic the Gaps for research background doing In above – Arctic the transiting ships of the risk they mitigate how about asked were firms insurance maritime gian 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 For the near term, Arctic shipping will remain riskier, more difficult, and, if icebreaker escorts are required, are escorts if icebreaker and, difficult, more riskier, will remain shipping term, Arctic the near For ice recedes. shrinking as time are and in cost the gaps Still, routes. traditional than expensive more passage through the Arctic Ocean. These risks, especially of delays, are anathema to the just-in-time deliveryjust-in-time to the anathema are Ocean. the These Arctic especially of delays, risks, through passage companies. shipping container cargo most for requirements weather. Arctic of the ferocity with will contend needvessels to ice, no or Ice ice-free Arctic. 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 transited tons 4 million of volume carrying 2012, 46 vessels cargo a total In year. to year been from steady vessels— five China sent time, the first [62]. For exceeded tons 6.9 million volume cargo 2016, the total [61]. In [62]. concept of a proof as the NSR vessels—through container including nautical charts. nautical distance shipping the transit reduce could the School, NSR the Copenhagen Business by a 2016 report to According Canal [61]. Because the Suez through route the contemporary to compared percent, 40 by Europe to Asia from not hashave observed, traffic been vessel increases in summer although uptick a general ice, summer declining of route versus the Northern Sea Route (NSR) or Northwest Passage (NWP), since they could shave an additional an they since shave (NWP), could Passage Northwest or (NSR) Sea the Northern Route versus route limitedbecauseproblem the a is This 10). (see figure Rotterdam to Asia journeyEast off afrom days five to four uncertain because of and the coastline, hug that the routes along found is capacity safe-refuge and response Arctic

28 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security shift, sometimesshift, unexpectedly. Buildings such as offices, housing, and communityalso face will infrastructure phase,extraction seasonable variability stability in the of cause permafrostequipment the extraction will to Melting complicate permafrost will development of natural resources step at of process. the every In the or rebuilt to sustain impacts the of melting permafrost, requiring even greater investment. support development, current the structures Russian in the evaluated to need be and Arctic will either retrofitted leading to potentially catastrophic building failure and collapse. In addition to building to infrastructure new capacity bearing load would safety the exceed factors incorporated into building the designs by engineers, Soviet deterioration sooner, to occur expected can be perhaps as early as mid-2020s.Such the significant reductions in underlie majority the of built [65].If infrastructure rates the of warming due to climate change are more rapid, this (<55 percent) critical experience reductionswill capacity bearing load in the of standard the pile foundations that projections conservatively anticipate that by Russian 2040,the cities of Salekhard, Norilsk, Yakutsk, and Anadyr buildingsnine-story with concrete pile foundations. Recent analysis of impacts the of warming permafrost to of urban the design Russian Arctic cities. Most urban consists infrastructure of standard —five-to- design the in Arctic. elsewhere trendThis Russia is acutelyalso observed is vulnerable to warmingpermafrost due costs, with roads and runways airport following behind. close a 10–12percent increase [64].Water and systems sewer are to account expected for largest the share of extra $5.6–7.6 billion dollars to anticipated the costs of replacing worn out state, inthe infrastructure representing ice roads. In University 2007,the of Alaska estimated that melting permafrost from climate change would add latitudes. Climate change is making problem the worse by increasing depth the of thawing soil and by melting Arctic.the As permafrost the melts and refreezes, dilapidates infrastructure at amuch faster rate than inlower Second, emerging the freeze-thaw of cycles seriouschallenges Arctic the permafrost to pose development in and less monitoring. Greenland, have which lower standards Norway but inRussia less so and, perhaps, apply United inthe States, Canadaand face steep consequences. Such regulations adequate (and expensive) or technology companies to need develop will or adopt in an environmentally responsible manner, permafrostbelow shifts it. Wherever regulations requirethat resources transportedandbe extracted must and systems that can withstand strong Arctic storms and thatinfrastructure remains stable as melting ofextraction resources certain require will technological development, such technologies drilling as new accessible due to retreating and glaciers ice, but less sea not it will make completely them accessible. Profitable foreseeable future, impact the of climate change make some will resources (such as off shore hydrocarbons) more change, that doesn’t are mean they as profitable as resources elsewhere. At present and for much the of ArcticFirst, resources while are becoming more accessible due to technological advancements and climate “rush” next inthe few years. occur There will are several reasons forthis. Despite vast the quantity and value of resources Arctic, analysis inthe this not does predict that aresource The ForwardLook infrastructure dilapidates at a much much a at dilapidates infrastructure refreezes, and melts permafrost the As faster rate thaninlower latitudes Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 29 Shortly after 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 pier side; rather, Terminal loadmaterials doesnot Mountain The Delong facility. handling commodity in the is located which Harbor, Dutch offshore 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 there is no “gold rush” in the immediate offing, strategic investments will continue to be made to to made be continue will investments strategic offing, the in immediate rush” “gold no is there While hedge leases the ultimate is or land of thein assets form in investing since supply of sources future lockup Therefore, forever. be expected for cannot be prices to low commodity World increases. price future against whether those investments resources, in Arctic investment foreign of the state assess we that important is it trends harmful FDI needed prevent to are whether new regulations and managed, being responsibly are Fourth, commodity prices do not currently encourage the development of some mineral resources, mineral resources, some of the development encourage currently do not prices commodity Fourth, a high-risk, infrastructure- encourage doesnot hydrocarbons of price market low The gas. especially and oil these resources For the world. part of distant and turbulent in a climatically exploration resource intensive oil of price the global market operators, oil well-capitalized and well-established, large, to beto appealing will rise. need to would have to transit out of the U.S. Arctic before they could be offloaded for processing. Norway’s Tschudi Tschudi Norway’s processing. for they be could offloaded before Arctic the U.S. of out transit to have would service to Kirkenes port of the in vicinity handling commodity bulk major a building is contrast, by Shipping, nearby The minerals. other port for transshipment serve and to as well as mine a receiving as ore iron a nearby capabilities[66]. handling bulk cargo also significant has Murmansk of Port Russian on land, high rates of erosion, and severe weather pose severe and costly challenges to the larger engineering the larger to challenges costly pose and severe weather severe and erosion, of high rates land, on extraction. resource be needed support would to that projects the Beringvery is infrastructure of north Strait. there the Arctic, little side of On the U.S. Corps Engineers of Army Sea, the U.S. in the Chukchi project gas and oil exploratory its of pulled out Shell are mined oresthat any that means This port. deepwater Arctic U.S. of creation the study to efforts postponed rapidly deteriorate from season to season, increasing the risk of accidents. the of risk season season, to increasing from deteriorate rapidly can resources food and fossil, mineral, vast the infrastructure 12). (see Arctic lacks the figure Before Third, extraction, processing, will will facilitate the infrastructure developers that construct need to be exploited, the permafrost of the melting Inconveniently, their families. and operators for housing export, and transport, challenges due to instability in the permafrost. Transporting extracted resources, whether through the sparse whether through extracted resources, Transporting in the permafrost. instability to due challenges Foundations permafrost. melting with dangerous and willdifficult also systems, be rail more or road, pipeline, infrastructure can rail and Road environment. Arctic the damage leaks that causing shift, could pipelines of 30 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Figure 12.Towns andIndustrial ActivityintheArctic, credit: Riccardo Pravettoi, UNEP/GRID-Arendal Unconstrained Foreign Direct Investment: Foreign DirectAn Emerging Challenge investment to Arctic Security 31 (FDI) - - - FDI 22 ) with the) with 21 considers the following types of transactions to be forms of FDI: of be to forms transactions types of the following considers 20 A cross border investment made by a resident in one economy (direct investor (direct economy in one a resident by made investment border A cross economy in one resident is that enterprise in an interest a lasting establishing of objective more or of 10 percent ownership or indirect direct The the investor. direct of that than other investment Direct a relationship. such evidence is of enterprise an of power the voting of bequasi-corporations. they may or their subsidiaries) (or corporations are enterprises financial investment direct and equity) and (debt positions investment direct encompasses and equity). (debt flows 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 office). (branch enterprises multi-territory of portions resident trusts, and general), and The OECD has tracked FDI trends for all member states since 1983 so that states had a reliable way of meaof way reliable had a states 1983 since so that states allmember for trends FDI has tracked OECD The country specificto FDI on barriers 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 elimination of trade warfare. The 1944 Articles of Agreement of the International Bank for Reconstruction for Bank International of the Agreement of Articles 1944 The trade warfare. of elimination investment” foreign “private promote the to bank was a purpose recognized for that (IBRD) Development and 20 21 Legal promotion of FDI has been the foundation of international trade and monetary three- policytrade and for international of beenhas the FDI foundation of Legal promotion international the rebuild designedto were Woodsagreements Bretton 1944 The a century. of quarters monetary sovereign system, of international the regulation II, including War World after system economic Bank), and the World of forerunner IBRD—the the IMF and of the establishment (through capital to access certain activities, such as publishing and broadcasting. Other countries take a more comprehensive approach. approach. comprehensive take a more Other countries broadcasting. and publishing as certain activities, such definition OECD purposes the analysis, of this for differently, FDI regulate legal systems Because national will beOECD used[67]. The We also look at past foreign investment patterns of China in developing countries to assess what sort of laws laws sort of what assess to countries China in developing of patterns investment foreign past also look at We in place. currently local are what laws look at we be necessary might Finally, in the Arctic. regulations and that in ways the of uniformity is a lack since there begin needs to definitions FDI with of A discussion acquisition the examining for discussedprocess, formal below, a has States United The FDI. regulate countries of ownership restrict foreign rules that separate of a variety as well as enterprise, in a business equity of General Policies and Definitions General Policies in the investment direct foreign rules governing current of examination an is this study thrust of A main ofwhether an examination entails first This countries. littoral the Arctic of any of sectors industrial and resource in the investments direct foreign shape should either that standards or laws international prevailing are there environment. cultural and physical the Arctic of the protection for be need to implemented would or Arctic (FDI) Foreign Direct Investment Direct Investment Foreign 32 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 24 23 laws of receiver. the But, there have FDI inwhich cases is not For been benign. better or worse, China’s recent investor and receiver the derive mutual benefit thatand the investor sovereigntythe respects and domestic flows to areas in fundsneed of for development. Suchcapital flows are regarded positive as so long the as of Bretton the 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 go does— bad. A careful reading Past CriticismsofChineseFDIinDevelopingCountries to as exclude amethod used market their [78]. entry regulations, protect human or health safety, or national to conserve resources, but measures those cannot be to establishparties measures—including environmental measures—to ensure compliance laws with and local and ascountry subject other to entities same be the legal rules within that country. NAFTA allow does for nationals. “National treatment” means that aforeign entity can invest or “set up shop” inanother party’s about how FDI is regulated to be once it is that determined it is not from an industrial that sector is reserved fields [77].in specific However, neither NAFTA nor tradeagreementsother free include much discussion Unitedthe States have made similar reservations to NAFTA the treaty to protect domestic their industries railroads; issuance of and coins control the and currency; and of airports heliports ports, and [75].Canada transmission; nuclear satellite power; communications, telegraph and and radiotelegraphic postal services; (with aMexican is allowed partner) areas inthe of generation electricity petroleum; petrochemicals; basic or or condition market access on passive financialparticipation with a Mexican entity.passive Only investment Mexico (aNAFTA member), government the can ban private equity investment of types projects incertain direct investments to protect national strategic and specified industries certain security [73]. NAFTA and most other bilateral and trade investment agreements doallow states to establish restrictions on of another party: 5 of North the American Free Trade Agreement (NAFTA) states in that accord shall each party to investors [70]. Finally, FDI is extensively dealt with inbilateral and trade investment agreements. For example, Chapter enterprises, national the treatment of foreign enterprises, and protection the of intellectual property rights with inanumber of agreements WTO GATT/WTOin the system. In World the Trade Organization foreign (WTO), investment issues are dealt encouraging international investment for…development”[68].basic These principles were carried forward and to promote (Article, cl. (iii))“long growth term balanced and equilibrium inbalances of payments by reconstructionin the and development of economies the that were destroyed or disrupted by World War II

Under Mexico’s 1993Foreign Investment Law, there are exceptions still of to national rule the treatment in Nation Treatmentsectors industrial [74-76]. inspecified 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 to increase which efficiencythe the by world’sscarce resources used. are motes economic areas, growth stimulates inunderserved competition the and in efficiency economy,world continues to support FDI it because assures efficient movements of capital,reduction trade barriers, of pro Propertyal Rights (TRIPS),and plurilateral the Agreement on Government Procurement policy [69].WTO General The Agreement on (GATS),Services Trade in the Agreement on Trade-Related of Aspects Intellectu investments[71] and …fair and equitable treatment protection and full [72] and security acquisition, expansion, management, conduct, operation and or sale other disposition of treatment no less favorable than it accords to its own investors to inrespect establishment, the 23 that, ingeneral terms, assure and treatment equal entry of foreign 24 In of case the - - - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 33 . 25 , Elizabeth Economy and Michael Levi of the Council on Foreign Relations; Relations; Levi Foreign the Council on of Michael and Elizabeth, Economy China importing Chinese labor into Africa is that such labor will “work seven days per week on longer shifts shifts longer per on seven week days will labor “work such Africa that is Chinese into labor China importing go to to want “they unions,” “have workers justifiedofficial practice because this The also African pay. lower at [79]. dance” and sing to like “they and weekends,” on work to refuse “they church,” Economy quotes one Chinese Ministry of Foreign Affairs official who explains that the motivating factor for factor motivating that the officialexplains who Affairs Chinese Ministry Foreign one of quotes Economy difficulties for the host country if or when the money dries up. Even though countries like the fact the like that countries Eventhough up. money dries country orwhenthe if host forthe difficulties no are there tape, red of a minimum Chinese and with FDI, associated strings few frequently are there these deals of many Similarly, success. their long ensure to the projects “securitize” to in place measures community. the local than business rather in power individuals with based personal relationships on are [79]. reform to resistant more these and makes states power corrupt—in keepelites—often to helps This ventures with local firms and train local local with and workers train firms ventures clear extensive led to Africa and have in Argentina agricultural purchases and Chinese estate real Large and impacts environmental negative causing agriculture, for land of the clearing timber and of cutting small-scaledestruction [79]. of farming ofall sorts creating a profit, make failed to or bankrupt gone have abroad Chinese investments Many hybrid and electric cars, wind turbines, guided missiles, smart phones and other technologies [79]. technologies other and phones guided smart missiles, electric turbines, wind and cars, hybrid institutional led to has countries in certain cash developing of amounts large of Chinese investment direct country [79]. in the tax receiving evasion and corruption into enter than rather possible extent seek the use maximum Chinese to to labor Chinese investors can’t outbid the Chinese,” and Chinese investments do not have the same sort of political strings that are are political that strings sort the of same have do not Chinese investments and the Chinese,” outbid can’t countries developing since theyhelp important are “strings” [79]. Those Bank lending in World present principles. protection environmental and accounting, modern labor, adopt to will potentially development and mining (REE) earth elements rare in investment Chinese trade and uses in ubiquitous have that elements these important of supply worldwide control China to enable A Zambian minister of trade favored investment by China in local industry because the “World Bank China in local by industry because the “World investment trade favored of minister A Zambian By All Means Necessary” Means All By

25 • • • • • laws but have a negative impact, and those that entail a disregard of local environmental and labor standards. standards. labor and local of environmental disregard a entail those that and impact, a negative have but laws Levi these and cite policies, Economy and laws express violate do not that impacts negative Regarding examples: • It is worth noting that it is not appropriate to restrict these observations to China alone, since investment investment since these restrict China alone, to to observations appropriate not is it that noting worth is It owners its help can it where the venue to move origin—will country frequently of its of capital—regardless Levi and have Economy otherwise objectives. and meet their corporate investment on return earn the greatest Chinese FDI. of impacts the negative of some of a dossier prepared particular localany violate not do that impacts FDI: of externalities typesfrom The two book documents the underlying analysis and policy recommendations are intended to be to universal. intended are policy and recommendations analysis the underlying In“ fuel to materials raw to access Africa obtain and to America, Asia, in South Chinese investment chronicle perfectly China is legal. by being conducted is cases, that the most FDI [79]. In expansion economic China’s FDI activities in the Arctic are significant in overall dollar value, and could be larger than any other country’s other country’s any than could be and larger value, overall dollar in significant are activities the in Arctic FDI For academic in circles. and press in the attention of amount the greatest also drawn Theyhave FDI. Arctic specific focuses this paper they on ChineseAlthough activities,will reason, be this analysis. the that focus of 34 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security China frequentlyChina itsCouncil used influence to dilute Security the UN languageat of resolutions regarding the threatenedChina Resolution Council to veto that aSecurity would have initiated an oil embargo on Sudan. played an active role through various venues to divert attention from conflict. the the At United Nations, South Sudan. war civil the During that concluded with separation the of Sudan and South Sudan, Beijing independent in2005,more than 75percent of oil the resources that had China invested inwere located in more than $15billion inSudan and owns about of half Sudan’s oil refineries [80]. SouthWhen became Sudan and agriculture to oil It extraction. is estimated that National China the Petroleum Company has invested that were ultimately to Since exported China. 2000,much of funding this hasfrom shifted infrastructure numerous interest-free loans for building up and infrastructure agriculture, for particularly products rice scientific, culturaland cooperation have existedthe since 1960s. the 1990s, By Sudanbenefiting was from firms. conditions,these Under BeijingpartneredKhartoum,with where agreements economic,on technical, firms were forced to look forpartners in regionsthat riskywere deemed too the by majority of Western domestic resources could not satisfy. oil prices were Because and competition high global was fierce, Chinese energy,particularly Beijingwent inChina, boomed looking beyond its borders to demand the meet that and investors have involved been inSudan since exploration in1980.As started demand for resources, Sudanese inthe resources during oil conflict.Chinese companies industry oil Darfur the observed can be Perhaps one of most the extreme examples of lengthssecure the accessgo will firms to toto Chinese which andhave offers bribery used of investment to ignore environmental safetyand standards. “environmental protection has aback seat taken to rapid economic development” investors Chinese because Finally, Economy cites and inoil and cases Levi inZambia, gas extraction Ghana, and Mozambique, where avoid mines owned by Indianbecause or firms Chinese of unsafe working conditions and low-wages [79]. 13) [79].In Zambia, mineworkers gravitate toward mines owned by Canadian and Australian companies but workingpoor conditions figure (see occasions to protest low wages and workers on struck fiveseparate lowest paid inPeru and in2010, mineworkersthe were among the Peru, Economy reported and Levi acquisition of Marcona the mines in involving Shougang Group’s companies” [79].In one case than rates paid by multinational workerspay local considerably less regulations and, dohire, they when way on environmental and safety concessions to other the “look frequentlyChina political secures labor and environmental standards. considerable violations of local that were studied resulted in that FDI locations Chinese inthe FDI, Economy note and Levi issues associated with “legal” In addition to some of systemic the

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. in a variety of conduct business in responsible engage to enterprises their multinational encourage global tracking with FDI charged is (UNCTAD) and Development Trade on Conference Nations United The beneficial most is that FDI accommodate to plans formulate to countries developing assisting and trends developing helping with charged is UNCTAD things, other [85]. Among development their long-term to atthe while of arealize globalized to economy the benefits them enables that spot” “sweet find the countries The 2016 OECD Code of Liberalization of Capital Movements is the only multilateral framework in force force in framework multilateral only is the Movements of Capital OECD 2016 of The CodeLiberalization measures agreed to bind themselves code, countries Under the flows. FDI international addresses that International on Declaration the OECD under [84]. Moreover, movements capital other and liberalizing FDI countries adhering 13 non-OECD and countries the 35 OECD Enterprises, Multinational and Investment to and in their territories operating enterprises foreign to treatment” “national accord to committed have permanent. All told, more than “one million Chinese citizens reside in Africa and… give Beijing a vested Beijing a vested give in Africa reside and… Chinese million citizens “one than more All told, permanent. [83]. African nations” in… many interest International Standards of all of the Arctic states to effectively monitor and regulate inbound investments or enterprises that are are that enterprises or investments inbound regulate and monitor effectively to states the Arctic all of of operated. and owned foreign also labor imported use of the the potential Arctic, of dispersed small population and the relatively Given positions management of the most Africa, staff occupy America and South imported In a concern. becomes relocation make their laborers Chinese Often, imported local than labor. compensation more receive and way in the Arctic, where countries are more prosperous and have more robust governance structures. Still, structures. governance robust more have and prosperous more are countries where in the Arctic, way seek—and actively will not investors mining and gas and oil outside think to that be foolhardy would it are that countries in officials licensing and landowners from concessions safety and obtain—environmental thein Arctic, sites mining the drilling and of many of the remoteness given Also, capital. outside for thirsty systems regulatory the national of the ability to comes when it mind” of out sight, of “out of element an is there China’s economic interests have shifted from “primarily resource extraction to feed its factories to direct investment investment to direct factories its feedto extraction resource “primarily shifted from have interests economic China’s for local seen benefits some have projects [83]. These infrastructure infrastructure projects” for money-lending and And companies. and Chinese construction Chinese engineers for employment are the benefits mostly but labor, [83]. mechanisms enforcement and weak laws of taking advantage businessmen corrupt of persist reports exactly the same out Africa play America and South would in parts of happened has what that unlikely is It by Phillip Manyok demonstrates a clear correlation between Khartoum— military China to sales from arms correlation a clear demonstrates Manyok Phillip by the China [82]. This further to Khartoum illustrates exports from oil embargo—and UN arms an despite interests. oil Sudanese its protect to in order to go willing was Beijing to that lengths Africa in port naval thatsuggest and commercial first China’s develop to in Djibouti Chinese investment Recent Darfur conflict and frequently abstained from voting [81]. While Beijing refused calls from the African Union Union refusedWhileAfrican the calls [81]. Beijing voting from abstained from and Darfurfrequently conflict the oil guard China to did send 400 soldiers Darfur, to forces send peacekeeping to Nations the United and analysis an from Results clear. is Sudan in role its and oil interests line The between in Sudan. Beijing’s wells 36 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 27 26 explored Arcticthe has been and inacademic circles media as relates to economies the of Greenland and parts how to compete, innovate and produce real products for real markets” [90]. The issue of “Dutch Disease” in priorities, revolves that so everything around controls who oil the tap and gets who how much from it—not writes, “Dependence on natural resources always skews acountry’s politics, investments, and educational to become less diversified as domestic industriesbecome less competitive internationally. Thomas Friedman process the describes by rapid the which influx of wealth somedue to natural resourcecauses economyan on development and setting of stage the export “Dutch asingle commodity; for so-called Disease,” aterm that economicbased growth. This has direct applicability the to Arctic since many communities the local of depend policiesThe cited above also promote regionaleconomic diversification and over relianceupon commodity from FDI, potential risks include: overall commitment to a“just and democratic” society. The Accord statesthat despite manypositive benefits a predictable and effective regulatory bemarket-oriented aligned regime, well policies, and demonstrate an Accord notes also that properly functioning and trade investmentstransparentbe flows will: and governed by of employment, transfers of and technology know-how, and access to international markets. well-sequenced to policies maximize development the benefits of investment flows” to include generation to FDI, Accord the states that countries, as well as regional and international organizations, “active need and are “structurally and weak vulnerable economies” small donot suffer effects globalization.ill the of As relates includes ensuring that countries—and, we would argue, semi-autonomous regions areas like tribal —that andtrade development world inthe economy and inmeeting challenges the of globalization” [88].This some benchmarks interms of role the of investment insustainable development and “centrality the of [87]. Thething closest to auniversal declarationthe 2008 is Accra Accord,which was intended to establish whatarticulates exactly standards states and other governance should follow bodies assessing when FDI There is no overarching document policy suchthe UN as UniversalDeclaration of HumanRights that • • • • • Some of relevant the goals same equipping time countries these tothe find correctthat balance fosterwill their sustainable development.

Seeking investmentSeeking that is development and friendly promotes entrepreneurship and innovation and to debt Limiting countries’ exposure to financial volatility,which is endemiceconomies, incommodity-based Encouraging countries to diversify economies their inorder to make less them dependent on commodities Adapting to climate change and using natural resources efficiently [86] Helping firms to move local the valueup chain See, Articles 11and Articles 13of 13.Article AccraSee, the Accord elaborates that FDI that promotes sustainable develop Thisfrom is derived UNCTAD’s mission to help lift countriesadapt to globalization. to ing of host the nation’s institutional capacities. ment is that includes which investments in infrastructure, development of human resources, and strengthen quantity of FDI [89] environmental impacts. Countries should and social therefore consider quality the both and Crowding-out investments, local anti‐competitive practices, transfer pricing, and 26 in this overall inthis process include: 27 The Accra - - 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 the basic implement to intended are that free trade agreements concluded have states the six Arctic All of Put on FDI. restrictions enact in specifiedareas, except not, should countries that norms OECD WTO and created are that the enterprises and FDI inbound seek grant to trade agreements these bilateral way, another a state to prohibit FDI rather than when is it wrong to permit it. When the WTO came into being in 1995, into the WTO came When permit it. to wrong when it is than rather FDI prohibit to a state the GATT Article addressed 21 of or investment trade and regulated that special no agreements were there principal four of the (TRIMs)—one Measures Investment Trade-Related on Agreement The [95-96]. Rather, measures trade-distorting eliminating of the objective the WTO trade of treaty—included legalagreements [84]. measures to restrict inbound FDI or other movements of capital for: (a) the maintenance of public order or or order public of for: (a) the maintenance capital of movements other or FDI inbound restrict to measures (c) and security essential its interests; of safety; and (b) the protection health, morals, public of the protection and peacesecurity. to international relating obligations its of the fulfillment for is wrong it when emphasizing of capital, focused the free flow barriers to on have Other trade agreements on Tariffs and Trade (GATT), which provides that the various free trade commitments are subject to a nation’s nation’s to a subject are trade commitments free various the that provides which Trade (GATT), and Tariffs on of war in taken times measures or materials, war materials, “fissionable to relating security interests” “essential considerable but in 1994 the GATT of in the [94]. Article “reissuance” carried 21 was emergency” forward or security situation national permissible what for standards no are because been there voiced have criticisms of OECD Capital 2016 on The Codethe Liberalization restrictions. FDI trade or justify imposing could take can states member example, For restricting FDI. for justifications of list a broader outlines Movements include such things as restricting access to certain dual-use technologies such as encryption, semiconductors encryption, as semiconductors such certain to dual-use technologies access restricting as things such include military to bases. in proximity estate real seaports and as well as systems, unmanned and legal The permissible. are FDI on security controls national trade law, international of the standpoint From be the can 1947 General traced Article Agreement to 21 of back security controls countries’ most for support Many countries have restrictions on FDI in key industries that are related to food production, broadcasting, broadcasting, food to production, related are that industries key in FDI on restrictions have countries Many law U.S. discussed extraction. As in detail below, resource natural and production, defense energy, nuclear security needs national U.S. base focused industrial preserving for the mostly defense is on FDI restricting U.S. be could used against that technologies to access gaining from adversaries potential preventing and security to been has broadened national of the concept countries, other many and States the United In forces. [93]. Given this problem, we would argue that inbound FDI should also be assessed from the standpoint of of also be the standpoint should assessed FDI from inbound that argue would we this problem, [93]. Given condition. Disease” “Dutch a or create economy recipient’s of the diversification willwhether it foster 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 this in the Province evidence of noted paper OECD [91-93]. An Canada of and the growing Committee Accounts Public of the functioning of activity in level “decline the specifically a accountability” public of its lack and politics provincial in energy corporation province’s of the influence 38 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security follows tables. the of eachnation’s regulatory and system legal restrictive or not. explanation Adetailed and processes review the whether are terms of FDI whether is welcome or not of how countries these approach FDI in Table 5provides aqualitative assessment Arcticthe states and approach China FDI. and regulations of (and Table China. an assessment thereof) of 4is key differences asummary the the ways in our analysis of relevant the laws and regulations. For comparative we have purposes, included also laws the and others like U.S. the and intensely China regulate inbound investments.tables The which follow summarize in domestic hands. Some states have and alegal regulatory climate as laissez-faire described best can which be industries (defensespecified andtechnology) or high others morefocus ensuringthe natural resources rely The legal and regulatory structures the six of Arctic considerably.states vary Some nationsrigorously protect Domestic LawsandRegulations bilateral and trade investment matters [98-99]. processin the of negotiating one; and Greenland appears inactive to discussions be with on China various stages of negotiations trade free with Iceland China: has agreements trade free with Norway China; is now investors from other the state investing when United inthe States Arctic states [97].Other are at various and OECD, has 38bilateral investment treaties that reciprocally grant most-favored-national treatment to by FDI, “national treatment” or “most-favored-national treatment.” The United WTO States,both party to a the sixArctic states vary considerably. of structures regulatory and legal The Unconstrained Foreign Direct Investment:

An Emerging Challenge to Arctic Security 39

FDI

Assured?

or part of has approved the EU

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 purchaser Required?

requirement but .

and air transport in advance

prospective

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

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 Greenlan government . d Law

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 restricted list vessels, federal industries plus misc.

Many .

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

if local labor (geothermal), mining fishing

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 military base concession for regulated

.

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

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

.

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

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

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

mandatory review “net benefit” to security. Entities

apply of —

Otherwise, infrastructure “harmful” to US nat’l

Security Connected

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

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

Canada Greenland Iceland Norway Russia United States China

Comparison 4. 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 $369m. for WTO $7 million under None found. None except that Must file if involves 10% of voting stock Done by sector....if review. members. Lesser Danish Law 10% of voting stock strategic sector or on the Foreign sums for non-WTO in financial >50% 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 2006 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 20 years to Mass Media likely when a “controlling Act process (started responsible for make Norway more next. interest” is being in 1985). 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 [101-150] 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

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

. 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

estrictions no r restrictions. But, if a due to the fact that 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 .

mines/oil and

gaining favor worker safety plans. an Env. Impact

safeguards on Review Panels planning and license Plus must do .

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

Greenland Canada Norway Iceland United States Russia 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 of and CFIUSreview addition the of Department the of Homeland to CFIUSCommittee the Security has, at Controlling transactions are now closely monitored. The addition infrastructure of critical andscope the to examplesThese strongly suggestthat United States controls over FDI havebecome increasingly stringent. nitride chips, investment to aChinese [107-108]. fund of semiconductor German subsidiary company Aixtron, is which involved manufacture inthe of gallium test facility in2012.Later Obama in2016,the Administration of blocked sale a$2.6billion the U.S. based placement of wind turbines Corporation, by owned Ralls by Sany Chinese the Group, near anaval weapons and non-proliferation norms[107]. Under authority the of statute, this President aside aproposed Obama set beyondlook terms the to of examine deal the foreign-investor the country’s compliance with counterterrorism U.S. suppliers, infrastructure, energy critical or technologies critical [106]. Thelaw also required CFIUS to Dubaithe Ports World transaction. Most importantly, it required CFIUS to examine proposed purchases of membership of CFIUS—removing White House officials—and sought toreverse the “decision” byCFIUSof In 2007Congress Foreign the passed Investment and National Act of Security reshuffled 2007,which the National Advisor Security and Department the of Homeland [103-105]. Security on of behalf aforeign government and increases membership inthe of CFIUSCommittee the to include the 1992 amendment requiring aCFIUSinvestigation of any proposed takeover acquirer the inwhich is acting acquisitionthe of control [102].There have been numerous amendments the CFIUS to process, includinga and regulations the create presumption the that foreign control of 10percent of atarget company’s equity is against U.S. forces. The definition of be read inawas designedto security national broad and flexible manner, security needs The lawU.S. FDIthe defense restricting is mostlyon industrialbase for preserving focused U.S. national internal CFIUSprocedures. CFIUS process subject the of has significant been changes and now includes numerous improvements in Exon-Florio the enacted Amendment 721of Defense the to Production Section Act of 1950[100-101].The (CFIUS); however, process the of inbound reviewing FDI wasn’t in statute codified Congress untilwhen 1988 President Ford Gerald established interagency the Committee on Foreign Investment United inthe States oftypes foreign direct investment. The U.S. has had administrative procedures sincewhen ineffect 1975, The United States has amixture of statutes and regulationswhich impose controls or, someban in certain cases, United States

U.S. law not does define “national security” butsets out factors, certain includingthecapacity andcapabil 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. TheLeasing Mineral Act 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 fisheries. The Atomic EnergyAct of1954, for example, prohibits the consider indetermining effects the of a foreign acquisition on nationalsecurity. Restrictions existon FDIalso 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 The improvements includethe enactment of FINSAin July 2007, amendment Executiveof Order 11858in 30 and preventing potential adversaries from gaining access to technologies that used could be 29

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

33 - The only real only The 32 that extends national treatment to treatment national extends that 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, to 49 percent. by 29 percent increased was stakesector in the transport foreign maximum The sectors. pertaining 13, 2015 the review to March on made were Act Canada the Investment to amendments Major process Canada has 88 trade and investment agreements of various types. Canada has also signed the Trans-Pacific types. also has Canada signed various the Trans-Pacific 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 foreign investments in telecommunications, banking, transportation, uranium, and insurance insurance and uranium, transportation, banking, in telecommunications, investments foreign restricting businesses, existing purchasing non-Canadians that requires Act Canada Investment [117]. The companies 31 restriction on foreign investors establishing a business (outside of certain restricted industries) is that they that is certain industries) restricted of (outside a business establishing investors foreign on restriction purchasers foreign on restrictions no are There establishment. the business’s of 30 days within notice provide be imposed [117]. may restrictions development lease, but or purchase by either land, Canadian acquiring CFIUS process. the U.S. than prescriptive less seem review a bit processes its but process, FDI an has Canada legal provisions separate are there although the primary is law, (ICA) Act Canada Investment Canada’s in 2015 [71, 113]. Canada has many other free trade agreements other many in 2015 [71, 113]. Canada has Chinawith agreement an concluded In 2014, Canada Partnership. the Trans-Pacific including FDI; inbound national grants which reciprocally Investments,” of Protection Reciprocal and the “Promotion concerning country each commits and in enterprises investments and products (Article 6) in both financial treatment country [115-116]. the in other’s investments make to investors” “encourage (Article3) to While the WTO agreements do not address FDI in a comprehensive manner, the general policy the Canada general of manner, in a comprehensive FDI address do not the WTOWhile agreements The thealso WTO sanctions investments. inbound for treatment national and FDI encourage to is is the agreement such trade free largest The free trade agreements. regional and bilateral of establishment According Mexico. and States, the Canada, United which includes Agreement, Trade Free American North $350 billion over was Canada into States Service, the Research United from FDI the Congressional total to regulations for those in the oil and gas and mining sectors, including numerous environmental reviews by reviews by environmental numerous including sectors, mining and gas those and in the oil for regulations and requirements; and bonding and capital penalties, fines of a system entities; state federaland of a variety bad [111-112]. gone projects of result as a damage who suffer persons empowers that a legal system 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 the 50 states within restrictions statutory of also is a plethora there States, United licenses [110]. fishing a commercial as certain licenses; such obtain to transactions of reporting advance of requirements statutory of thethis combination pertains the Arctic, to As not is infrastructure and its of very is protective States the United that CFIUS suggests by behavior recent and licensing extensive has States the United that dispute beyond similarly is It FDI. uncontrolled for a good target Beyond Exxon-Florio, there are other federal statutes which restrict foreign persons or entities from owning owning from entities or persons which foreign restrict federal statutes other are there Beyond Exxon-Florio, media companies mass in interest controlling a having houses; from brokerage or vessels merchant flag U.S. service U.S. commercial electricityor generation in aircraft operating from banks; or chartered federally or U.S. critical affects it that to extent the except purchase foreign to limits off not [110]. Land is facilities in the investments foreign controlling legislation national to addition In capacity. productive infrastructure or investment efforts. Such actions never would have occurred 25 years ago, when CFIUS approached proposed approached CFIUS when ago, years occurred 25 have would never actions Such efforts. investment [109]. manner technology in a very sectors and laissez-faire in the aviation transactions 44 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security and strong public reporting mechanisms” [125]. improvements inits environmental and policies has “comprehensive compliance and enforcement policies A 2002OECD report on Canada’s environmental program concluded that Canada has made significant that are licensees properly capitalized and can pay for mistakes their and costs the of decommissioning. literature to suggest that not Canadadoes have aresponsible and effective licensing system in place to ensure NEB and other havethere regulatorythe for criticized in media, bodies cases is nothing been specific the in NEB can require corporate ifthe additional depositsposted to be security assetsare insufficient. the While has sufficient fund to assets remediation the event in of an incident or decommissioning.for necessary, If the NEB has authority the to impose conditions on wells, pipelines, and other facilities to ensure that licensee the Canadian law for onshore new or offshore oil and gas, andflaring and venting limited.arestrictly Also, the Departmentthe of Fisheries and Oceans [124]. An environmental impact assessment required is also under frontierthe areas offshore, and sharesCanadianwiththe Environmentaljurisdiction Assessment Agency and sectors. For example, National the authority (NEB) has Board plenary Energy over oil and gas production in As afinal matter,Canada has an extensive regulatory licensing network fortheboth oil and gas and mineral ownership of mines [122-123]. for international mining companies because, apart from uranium, there are restrictions no on special foreign individual provinces can impose conditions on purchases of attractive land [121].Canadais avery country welcomes investment. Chinese The impact of FDI areastribal on remains a (due lackmystery to data)of and public pronouncements and its recent conclusion of agreement, trade free the that Canadahas signaled it messages it when comes investment, to Chinese including by those state-owned enterprises. Through various require defense when areview industries or are infrastructure critical implicated. Canada is sending mixed under ICA’s the national new regulations, security like which, recent the expansion of U.S. the CFIUSrules, ofbecause apublic outcry. Thistype case of would have likely gone through national full a security review didnot case the result inaformal order by Minister the of Industry purchase the was ultimately abandoned was Canada’s then largest mining company and world’s the third largest zinc producer [116].Even though working. However, Minmetals in2004,China (astate-owned enterprise) sought to acquire Noranda, which Since are cases the and filed on aconfidentialreviewed basis, there is not much data on thishow is process investment or order mitigation measures. are not present, National the Cabinet has 45days to assess matter the and either accept or proposed the reject aside thatset finding. thereIf is a finding that is security national implicated that or benefits” “net to Canada with proposed the investment, it notifiesthe Cabinet Federal thatof action Cabinettheand hasdays 15 to account considerations. and socioeconomic both security makes afinding Ifthere ministry the is no issue Ministerthe of Industry is required to have FDI assessthe whether will a“net benefit”Canada into taking to asinfrastructure among categories those of investments subject to [120].Under review 20of ICA, the Section Canada’s guidelines on National list investments Reviews Security inCanadian defense industries and critical (cultural business and are media) implicated, or state owned industries are involved as apurchaser [119]. provide notice to relevant the government office the if valuedollar limit, sectors a certain exceeds or if certain within 45 days to Governor the for in Council in General action [118]. Directfinal investors are required to under Part IV.1 of ICA the (as amended) for consulting relevant with all agencies and providing areview national security.” are Those reviews normally conducted the by Minister of Industry,who is responsible or establishing ones, new and review to approval seek aproposed when acquisition “injurious could be to Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 45 - - - The law is law The 34 Lastly, the U.S. the U.S. Lastly, 35 45 applications and that only two cases had been approved [127]. The U.S. International Trade Administra Trade International U.S. [127]. The 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 Russian three the jurisdiction of under is 21, 1996, and February of Subsoil on Law the Federal or those targets if penalties they violate significant to subject are and targets production to adhere licensees must 34 35 in Russia complain of graft and corruption and difficulty navigating the approval process. approval the navigating difficulty and corruption and graft of complain in Russia in those and interference” “political to subject as in Russia describes climate the FDI State of Department [126]. unpredictable” and described is “non-transparent the mechanism as arise, disputes cases where in theory, where, extraction industries for scheme a licensing doesRussia have that benoted finally should It by governed sector is gas and the oil example, For auction. competitive the of basis on awarded licenses are Strategic Entity, 25 percent in other cases. Other routine cases are decided by the FAS—with advice from from advice the FAS—with decidedby cases are cases.Other other in routine 25 percent Entity, Strategic two. or month additional cases take an can Commission months. three to two about agencies—in relevant because of law, the criticize implementation the analysts legal most but clarity, of modelis a law Russian The trying do business to foreigners most [129]. Also, patterns predictable seem follow to do not the decisions transactions, defined as greater than 50-percent control—25 percent in the case of a foreign government or government foreign of a in casethe percent control—25 50-percent than as defined greater transactions, FederalAnti-Monopoly Russian The management. or membership, board stock, the voting investor—of SOE high-level case a requires that feels if the FAS but the law, administering for responsible is Service (FAS) the Prime headed by Investments, Foreign over Control on the Commission to elevated is the matter review, weeks few a if after approved be can application initial the but detailed, quite are applications The Minister. a Subsoil in the case of 5 percent than less proposed: is interest a controlling of purchases modest outside only defense, media, and government monopolies in communication and railways. There are also some unusual unusual also are some There railways. and in communication monopolies government media, and defense, media/broadcasting, juices, pharmaceuticals, “dairy, of in themanufacturing investments on restrictions subsoilof purchases foreign on special restrictions contains law [129]. The medical vodka” devices and of ownership foreign total on imposescap a general, in and, list official an on contained entities strategic “control” any for approval prior requires also law [130]. The percent 25 to Sectors list the Strategic on entities in 2012 to provide equity capital to local businesses seeking foreign investors in their enterprises [128]. in theirenterprises investors local seeking to foreign businesses capital equity provide in 2012 to FZ-57). (No. Sectors Law the 2008 Strategic is FDI inbound regulating for law principal Russia’s foreign public and investors private investors: foreign types two of regulates It structured. well and clear quite 45 types activities of regulates Sectors Law the Strategic [129]. Article SOEs 6 of foreign including investors resources, natural groups: broad four fallgenerally They into importance. been strategic deemed of have that country to all those who want to run their business here” [126]. Russia’s primary approach to attracting attracting to primary approach [126]. Russia’s here” run to theirbusiness allcountryto those who want localize to companies induce to intended measures been a variety of has pass to investment direct foreign various has Russia [127]. increased have FDI of levels a consequence, [126]. As in Russia their production does Russia but (SOE), enterprises state-owned its those by made and products Russian-made for preferences (RDIF) Fund Investment Direct theRussian established it and in Russia, register to companies foreign allow Russia friendly and be open to an wants always 2015, “Russia in June investors foreign told Putin Vladimir President 46 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 36 noted above concerning inbound investments aviation, inthe fishing,sector. or energy Iceland’s 1996Act establishes afive-person committee to monitor and enforcethe provisions in Icelandiclaw foreignAll entities of must Commerce Ministry the a“contract when notify or decision” to invest is made. Iceland 6);however, (Article with “unlimited those liability” require approval of by Commerce. Ministry the real estate 4)associated (Article with a business enterprise. Non-residents may operate also a business in Commerce. Thelaw affirmatively grantsright the to foreignentities to purchase and holdtitle to Icelandic energy. Investments by foreign states—presumably to include SOEs—require approval of from Ministry the 4statesArticle that only Icelandic citizens are permitted to own exploration energy rights and geothermal remains it when restricted, comes especially to investing infishing companiesthat transferablepossess quotas. including U.S. citizens [135]. Foreign investmentsector 4) fisheries in the (Article and transportair sectors Business Enterprises, extends which national treatment to non-residents of European the Economic Area, The majorlaw governing foreign investment is Act No. 34/991 (1996) on Investment by Non-residents in (Annexprovide VIII). aservices investments other inthe and country allows for movements free of persons from one to country other the to agreement with reaffirms China rights the the of parties—established in an earlieragreement—to make direct (FTAs) with Denmark and Greenland. Iceland concluded an FTA free withtrade in 2013 [134]. TheChina and few restrictions on foreign ownership [133]. In addition, Iceland has entered into agreements trade free Free Trade Association/European Economic Area. It that asserted it also offers afavorable policy on FDI that compliantfully certified been it had withWTO obligationsits and noted its membershipthe in European amember of sincehas 1995.In been WTO the its last internal of review its obligation WTO in2012,Iceland Iceland’s FDI are policies governed by its obligation and under WTO the in its domestic legislation. Iceland Iceland any real power. Thething closest to an authoritative statementcame from a2006 OECD report: effectivenessthe the of agenciesthat implement those regulations thewhether and regulatory entities enjoy Thelaws book theare on state-of-the-art in terms their content,of butthere is not evidence much regarding sufficient funds to pay thefor cleanup and remediation of sites facilitieswhen extractive decommissioned.are FZ of 2001and 1995,respectively. There are requirementsno specific for bonding to ensure availabilityof must prepare also an independent environmental impact statement pursuant to Federal Laws 7-FZand 174- to keep environmental contamination limits to specified and provide forthe costs of decommissioning. They other licenseterms or environmental requirements [131].

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 often unpredictablethus increasingthe investment risks [132]. profits, etc. The framework regulatory is subject to frequent change and, therefore, the costsof corruption, lacking access to information on of use the resourcesmineral and distribution of by level in the a decrease of protection of subsoil, a widening number of offences and intenseA very of extraction resources,mineral primarily hydrocarbons, accompanied has been 36 Licensees for industries Licensees extractive all 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 investment ample expected sector is supply tourism to growing Iceland’s 37 —on the causes of the 2008 financial collapse in Iceland (and the failure of its banks) — lays a good a its — lays portion banks) of failure the (and Iceland in collapse the 2008 financial of the causes —on economy. Iceland’s to in comparison system financial a highly leveraged and unsustainable an on the blame of entities Icelandic offered that lenders foreign by caused was of collapse the much Lewis alsothat identifies remains point butthe financing debt and between equity differences 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 the payment than other requirements regulatory few with licenses exploration also can obtain entities foreign for a process have does not be Greenland [141]. So can determined, as far company tax a regular like of Act, Competition the Danish under although, enterprises, or land either of acquisitions reviewing foreign 37 the government in Copenhagen does retain the right to manage those international affairs relating to “defense to relating affairs those international manage to the right in Copenhagen does retain the government in FDI foreign of the regulation include can been has which, as seen states, in other securityand policy,” sectors. and certain industries through enterprise an establish to able are companies foreign Denmark, in Embassy the U.S. to According are and verycosts modest, These establishment entity. or a taxable affiliate, registered a subsidiary, either environmental protection [140]. Article 7 of the Act stipulates that revenues from mineral resources in mineral resources from revenues that stipulates the Act [140]. Article 7 of protection environmental states the Act 4 of Chapter Interestingly, authorities. Self-Government accrue the Greenland to Greenland foreign with law international under agreements conclude and negotiate may the Naalakkersuisut that any to include appear would This Greenland. concern exclusively that organizations international and states those activities. But of the regulation and resources natural any use of and to access respecting agreements Denmark/Greenland difficultDanish is the because in Greenland development and both FDI governing laws of the state Assessing Self-Government Greenland on the Act yet FDI, assert purports to jurisdiction over government central exercise to empowered is (Naalakkersuisut) Authority Self-Government the Greenland that states 2009 of marine pertain and the extractive industries to that issues most over power” executive and “legislative to undertake these activities”[139]. This includes the tender of an insurance policy sufficient to cover possible to policysufficient an insurance of tender the includes This undertaketo these activities”[139]. of the decommissioning for a plan and plans, the safety licensee, the activities of by cause damage losses or comprehensive, and to well-crafted be appear laws the factthe that (Article facilities 38). Despite offshore working. are these well systems how on information available very is publicly there little Authority, exploration for oil and gas in Icelandic waters is regulated by Act No. 13/2001 on prospecting, 13/2001 on No. Act by regulated is waters Icelandic in gas and oil for exploration Authority, Icelandic to the applies Act The [138]. Act — the Hydrocarbons hydrocarbons of production and exploration, to subject activities are Petroleum shelf. continental the Icelandic and zone, economic sea,territorial exclusive example, an As safety. health and protection, environmental taxation, on regulations and laws Icelandic general an licensees receive will only production and exploration that 884/2011 states No. Regulation the Icelandic expertise, capacity financial experience and the requisite they if “have prospecting in engage to authorization opportunities, but much work remains to identify investment-ready projects. According to Santander Trade Trade Santander to According projects. identify investment-ready to remains work much but opportunities, very tax restrictions few rate; corporate a low has investment; foreign for especially is anxious Iceland Portal, [137]. enterprise an establishing for process a very and simple investment; direct on Energy National the Orkustofnun, Iceland’s to According seem well-crafted. rules development on Iceland’s According to the U.S. Department of State, “There is broad recognition within the Icelandic government government Icelandic within the recognition broad “Thereis State, of Department the U.S. to According the after revival economic the country’s to will (FDI) be contributor a key investment direct foreign that [136]. collapse” 2008 financial 48 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 38 by foreign nationals and limited liability companies [148]. haveactivities licensed, but to be 13of legislation the section allows for purchase of mining lands or licenses of mines, waterfalls—for hydroelectric generation real purposes—and estate [148]. Under Act, the mining all Norway’s of Petroleum Ministry and has responsibility Energy under Act No. 16 over foreign the acquisition land, lands, and mines, tilled waterfalls [147]. ownership of Norwegian real estate, but foreign companies have to obtain a“concession” to purchase forest railways, hydropower,services, and retail of the sale alcohol [147].There are no prohibitions on foreign Norway maintain does traditional controls on industries monopolized by government, the including postal OECD has similarly reported that Norway has afavorable track record on welcoming inbound FDI [146]. no discrimination” award inthe of petroleum exploration and development blocks inNorway [145]. The national treatment [144-145].According to U.S. the Department of State, “foreign oil companies report EU). Norway its has standards liberalized to conform to European Union standards of access free and under principles of reciprocity, and as amember of European the Economic Area (it is not of part the It is an place easy to dobusiness according to World the Norway Bank. welcomes FDI as ageneral matter developed stateNorway modern, with one is avery of highest the average capita per incomes world. inthe Norway effectiveness these of regulations. are few and reported sample so cases small the sizerestricts our ability to make generalizations about the effectiveness of Greenland’s environmental protection and workersafety protocolsbecause there is difficult includingactivities, requirement the for environmental impact assessments. Obtaining gauge atrue of the Mineral and License Safety Authority establish requirements new for entities wishing to engage in exploratory do not contain any restrictions that prevent foreign entities from bidding [143].Recent regulations by the mining operationsscale from foreign investment, but recent the “open door” tenders oil inthe and gas field sustainabilityand social and have an oil spill preparedness and response plan. Greenland protect does small- 2012) and Parliament Act No. require 7,2009),which 7(December to licensees protect mineworker safety oil and gas or must mining Licensees activities[142]. comply with Greenland Parliament Act No. 4(June 4, Greenland’s Mineral Resources Act of 2009 establishes a regulatory apparatus for wishing those to engage in issuethe of uranium mining inGreenland contentious” is still [141]. government maintaining is also previous the government’s relaxation of aban on uranium mining… however, REEinsouthernto Greenland, extract inone combined case of with extraction uranium.current The respectively) are to come expected two online other in2016,while companies have applied for permission According to U.S. the Embassy, things are changing. “In sector, mineral the two mines (ruby and anorthosite covered by icepack and was complicated by extreme climatic conditions short windows. and drilling very Greenland has previously accessible for not very been either mining or hydrocarbon it because activities was Projects Act allows which for importation the of foreign labor sources labor local when are insufficient [141]. transaction exceeds $7 million. In Greenland 2012, the Parliament controversial the passed Large Scale Danish competition authorities require notification of a mergerthe if “combined turnover value” the in 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 The issuance of alicense is predicated a on Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 49

prohibitions against foreigners taking a majority interest in infrastructure projects such as “power grids, “power as such in infrastructure projects interest taking a majority foreigners against prohibitions “defense, [149]. Similarly, estate real types non-residential in most of or services” basic telecommunications the process general, In control”[149]. “state reserved for are gas” and oil and telecommunications, electricity, guidelines published few are there in that non-transparent as reforms—described recent some still—despite is non-existent. mostly are been approved cases have many how cases will on how be statistics assessedon and be reviewed and approved by the relevant government authority” and any contracts by a foreign firm that a foreign by contracts any and authority” government the relevant by approved be reviewed and given has agency the in Chinese government until courts enforceable not are approval government requires [149]. approval its proposed clearing for responsibility have that specificagencies are which in there system the U.S. Unlike are There the investment. of based the value FDI on regulates China mostly based theFDI, type FDI on of comparison of the FDI laws of the Arctic littoral states with an assessment of the FDI laws of China. of laws the FDI of assessment an with states littoral the Arctic of laws the FDI of comparison a unless and particular by industry, based classification is FDI on of the Chinese Bath, to system According investments, prohibited” and restricted, “encouraged, Catalogue of Investment the Foreign on industry listed is must project investment foreign a classification, its of “regardless However, permitted. is the investment newspaper, radio or television market without a concession. a concession. without market television radio or newspaper, China China and from the FDI over control will increased it suggest China and on is this paper focus of A heavy this finish to important is it law, international of thecornerstone is reciprocity that Given countries. other FDI unrelated to the acquisition of mines or real estate is regulated by the Ministry of Trade and Industry. Industry. and the Ministry Trade by of regulated is estate real or mines of the acquisition to unrelated FDI of banks stock of capital the 10 percent than of greater purchases for required are authorizations Specific for 1997, of Act Media Ownership and the Institutions Norwegian Financial The media companies. and in a national stake ownership an of one-third than greater acquiring from buyer a foreign prohibits example, showing that the applicant has sufficient capital for the “acquisition, development and operation” of real estate estate real of operation” and development “acquisition, forthe capital sufficient has the applicant that showing perioda for post-decommissioning prescribes a alsotwo-year will regulation bethat used The in mining. closed. has mine the after impacts environmental any mitigate licensee to 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 when panic buying of commodities by by commodities of buying when panic especiallyapparent anxietiesgeneral in resulted Chinese in mid-2000s firms the under beingconsolidated resources of the quantity over of the success when at looking However, Chinese ownership. seem to lenses, many a variety of through these investments good. China than to harm more done have vet carefully did not that the Chinese companies one, For the example, losses. For faced massive their investments Sino Iron project in Western Australia, which was developed which was Australia, in Western project Iron Sino Chinese Chinese investors abroad has been to own them than lease rather assets, The The initial attitude of Chinese SOEs, then perhaps China might have a better reputation abroad. reputation a better have China might Chinese then perhaps SOEs, Chinese companies also learned hard lessons abroad about environmental standards and labor practices. labor and standards environmental about abroad lessons also learned hard Chinese companies of instances publicized Widely reputation. China’s damaged has Chinese companies by behavior Poor North in countries made Africa America and South in have violence and abuse, labor damage, environmental to attentive been more Chinese companies Had wary Chinese investment. direct of Europe America and of the behavior managing at effective been more the Chinese had government and behavior good corporate by Citic Pacific and Metallurgical Corporation of China, ran $6 billion over budget and four years behindyears four and budget over billion $6 of ran China, Metallurgical Corporation and Pacific Citic by and site theproject of the challenges assess to the Chinese the part developers of on A failure [152]. schedule accurate. from far were calculations cost that meant in Australia regulations As both a supplier and a consumer of commodities, Chinese SOEs operate in a unique position as they as hedge position unique a in Chinese operate SOEs commodities, of consumer a and both supplier a As side. the consumer on prices high commodity against side and the supply on prices commodity low against lease was than This them. ownassets, rather has to been abroad of Chinese investors attitude initial The Arctic control roughly 85 percent of the water space, which includes the resources in the water column and and column in the water the resources which includes space, the water of 85 percent roughly control Arctic subsided; talk have seems to Heritage” the(2017) “Common this writing the timeof theseabed At [151]. this occur talk that mineral scarcities rise won’t prices or oil world should guarantee, no is there however, resurface. again Understanding the impact of Chinese FDI in the Arctic begins by understanding China’s general strategy general China’s understanding begins in the Chinese Arctic by FDI of the impact Understanding College Review, War in the Naval writing Rainwater, Shiloh resources. securing to natural approach and region in that the resources so the Arctic that of the legal regime reorder to aspirations China has that reports [150]. How mankind” of heritage the “common are because these areas the global partbecome of commons, in the states the littoral six UNCLOS under since unclear, is exactlybe those implemented policies would Investment in the Arctic Investment Natural Resource Strategy China’s Examining ChineseExamining 52 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security to both legal frameworksto legal both and investment. Chinese our During numerous analysis, we observed changes to analysisOur relied on sources best the of data available at and time the represents asnapshot inregards intime study and examined regulations legal sizeof the the investment Chinese (or absence thereof) Arctic. inthe To of and scope the influence identify scale that China is garneringthrough investment thethis in Arctic, Quantifying ChineseDirectInvestment dropped same inthe period. has increased steadily since 2014,whereas investments and South have in Africa America off leveled or trustworthy to advanced highly operators. The number of investments going into America North and Europe and submersible platforms. drilling examples These demonstratethat firmsChinese becoming are more and companies Chinese have formed partnerships with Norwegian firms the constructionon of rigs oil hydrocarbons Dreki inthe area; firms Chinese are heavily investedthe in Yamal Peninsula LNG project; Examples of abound: this recently, Iceland, operator lead the became CNOOC of on CNOOC asubsidiary quality, more projects. secure 2008financialpatternthe this crisis, has changed.China has foundthat it is able to acquire inhigher stakes The world has a industry oil one-hundred-year history. goodThe projects alreadytaken”are [153]. Since projects. As lamented Fu CEOof the CNOOC Chengyu, in2004,“it’s not actually for easy us to find projects. companiesChinese beganseriously investing inresources abroad, there were few options for desirable China’s investments are much also more strategic and inregions that have proven resource potential. When produce positive returns. capital into projects that can’t reasonably to expected be price. financial institutions Chinese are less willing to sink recalibrated to on focus diversity of supply but at a reasonable out. position this unsustainable, Recognizing to be has China meant that capital rarely flowed in any direction than other institutions, where massive cost overruns and project failures However, to strategy led bleedingthis the of China’s financial was muchsecurity more important than profitability [152]. onfocus assets with proven profitability in regionswithgreater stability. the mindsIn Chinese of officials, about how to invest, where to invest, and Investments when. are made with much greater care now, with a mid-2000s tothe mid-2010s shows the that over course the of to ten seven years, has China a lot learned have commodity with dealing global gained markets. experience Comparing individual transactions from hasChina gradually readjusted its strategy toward natural resources, and political as both business leaders to major overseas. losses appraisals of targets new [152].In addition to SASAC this, hold SOEs will and managers their accountable oversight role, requiring SOEs to produce feasibility studies, due diligence reports, and third-party The State-owned Assets and Supervision AdministrationCommission (SASAC) takenhas greateron a China’s financial institutions havebecome more the critical of projectsthey agree to supplyfunding to. Fortunately for future operations, has China demonstrated ability the to from learn blunders these abroad. focus on diversity of supply 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 found We research. own our from and 40 Because of this, it is challenging to trace investment funds because investors will often use maze a will often because funds investors trace investment to challenging is Because this, it of 39 Office, track inbound FDI, however their statistics are frequently at odds with each withother. at each odds frequently are their statistics however FDI, inbound track Office, AdvisoryRWR and to expertsat the AEI thank both like would authors The IntelTrak. Group’s Advisory RWR 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) Both the Russia Central Bank this Russia, of is to exception A notable (AEI) and Institute Enterprise the American from Tracker the China Investment on heavily relied Our analysis

39 40 This is an obvious overstatement of the problem since many of the Western democracies in the Arctic are not not are democracies Arctic in Western the of the many since problem of the overstatement obvious an is This democraciesWestern large even monitored, closely not is if FDI But, money. outside by easily influenced that are there in the Arctic, And bankers. and will their investor upset will action that taking an think twice before the fold. entering already are that investors A major issue with the developing nations is not the financial backwardness they have, but their overdependence overdependence their but theyhave, backwardness the financial not is nations the developing with issue A major end... the receiving at keeps always and them vulnerable which makes the countries, developed of the doles on urban to the growing can be compared proposes government BJP the that of development the façade The the poor or of the plight downplaying either cars, and gadgets for fascination a rabid — with psyche India’s them [156]. pity We believe that FDI should be tracked carefully, because the impact of large quantities of investment dollars dollars investment of quantities large of because the impact be carefully, tracked should FDI believe that We on political impact an have can land or triballygoverned (Greenland) nations Arctic some flooding into in India, FDI of analyst An the investor. of the nationality of believebe this to true, regardless We sovereignty. follows: as problem this overall summarized FDI, for site a modest which is industry recently, for example, spurred a sizable number of members of Congress to call for greater regulation regulation greater call to for Congress of members of number sizable a spurred example, for industryrecently, very introduced was recently New legislation [154]. companies broadcast and film in U.S. investments of Cornyn John Senator and (R-NC) Pittenger Cong. by Senate and 2017 in boththe House of in November buying is “China that concern a growing reviews CFIUS the because scope of of expand greatly to (R-TX) Chinese attention rule, of a general the as level [155]. However, pace” a breathtaking at Companies American spoadic. is recieves FDI lack of reporting on Chinese investment is likely because these transactions are predominantly legal, and and legal, predominantly are because these transactions likely is Chinese investment on reporting of lack reporting of lack Alternatively, scrutiny. regulatory avoid to on reported or tracked stringently not therefore, reasons. competitive to becan attributed movie U.S. of the Chinese control financial greater of the prospect alarms: raise can investments Occasionally, particular project or investment. When the values of investments are reported, it also merits some skepticism skepticism some also merits it reported, are investments of the values When investment. or particular project or misreported often are investments that found Our analysis accurate. are reported whether theto values as maneuvering. geopolitical and competition including reasons of a myriad for misrepresented databases existing from data our assembled We The concern. of and both is underreported in the Arctic Chinese the scope investment of that indicated The transparency issues that were identified in the legal review of domestic investment laws in the various laws inthe investment domestic in of legal review the identified were that issues The transparency are very that feware sources There these investments. quantify to attempt in our also encountered were states governmental by periodicals, reporting through from sourced not is the data of most and Chinesetracking FDI, agencies. a of parent governmental) (or thetrue corporate obfuscate to subsidiaries and companies liability limited of size and scope of several transactions. This indicates that Chinese investment in the Arctic is highly dynamic, is highly Arctic in the Chinese investment that indicates This several scope of transactions. size and changed. deals or old being cancelled and being formed newwith deals regularly 54 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Sources: U.S. Intelligence Central Agency, United Naitons, RWR Advisory Group, CNA Table 6.ChineseInvestmentin Arctic Littoral Nations,2012-2017 Total USA Russia Norway Iceland Greenland Canada much capital needed into Russian projects and economy the ingeneral. Despite frequent announcements [159-160]. In Russian we media noted instances of ‘creative accounting’ (inflatingthe value to of deals) attract was reported by Daily China is either total the value of iron the mine, inthe or cost the of developing mine the Financial Times, reported on also who acquisition the by Nice, General that assert $2billion the figurethat investmentvalue (though official the the of investment hadbeen announced)not Reuters [158]. the and Isua Iron project, owned by Nice, General was reported by Daily China an to be estimated $2billion dollar praises of power the of economy Chinese the and enterprise Chinese abroad. For example, in Greenland, the in reality. We discovered instances of distortions suspected were which media Chinese inthe accompanied by study, this During we encountered many transactions that were initially reported significantly to be than higher and media. Chinese scope, andexpense, anticipated value of various investments were clearly distorted, in Russian particularly leaves much desired. to be investigation the During of many of transactions, these announcements of the and transactions minerals these sectors. are And while transparency legal, the all of each transaction a significantportion of available investmentcapital [157]. These investments are primarily the in energy littoral states.) While annual the Arctic economy is greater than $450billion, investment Chinese remains for of investment asummary Chinese in the drawn table byboundary 6 paper this (See projects located within 60degrees the north agreements, financing agreements, or other was ininfrastructure, assets,cooperative Finland and Sweden), $89.2billion of which economies of Arctic the nations (including has invested over inthe $1.4trillion We estimate that, from 2005-2017,China 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 was in of infrastructure, assets, or billion projects $89.2 Sweden), Finland and (including nations Arctic the of economies the in trillion $1.4 over has invested China that estimate 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 fundand to ChinaNonferrous by interest an which demonstrates ChinaNonferrous, with agreements justify the high of to cost too this low writing, the timeof at remains, zinc of the cost However, themine. Fjord the Citronen make would that rise zinc a price to of the cost Should project. the Citronen developing argue, lies with exploitation of Greenland’s resources. This is a feat that cannot be undertaken without the be undertaken without cannot that feat is a This resources. Greenland’s of exploitation lies with argue, as so long importance, lessor of is capital that of part, the source Greenland’s For capital. outside of assistance large, is potential resource natural Greenland’s sufficient. is capital of the amount and favorable are the terms is of this example An extraction make to possible. initial investment significant a require resources most but a series non-binding held of has Ironbark Australia. from Ironbark by owned project, zinc Fjord the Citronen an enormous impact on Greenland’s population and economy. This impact would be significant enough to enough would be significant impact This economy. and population Greenland’s on impact enormous an decisions. regulatory alter Greenland’s to grow. influence such for space provides strategy development national aggressive Greenland’s We is. it extensive how the mineral potential, of aware not we’re yet “as said, Kielsen Kim Minister Prime leaders future, prosperous path to a The [161]. stone” turned last the have we until out find this will not is notably higher than the other Arctic nations. Greenland’s economy is a special case in the context of of a special is case in the context economy Greenland’s nations. Arctic the other higher than notably is to comparison In economy. its the size of and population of in terms the smallestthis is nation study: it exceed $1 that Chinese industries and between U.S. transactions active of dozens are there where the U.S., the greater of in the context because, minimal concern generate transactions these large in value, billion have would investment a $1 billion Greenland, In a minimal impact. have these transactions economy, U.S. any money is changing hands. Whether due to translation errors or deliberately misleading statements, there there statements, misleading deliberately or errors translation to due Whether hands. changing is money any to challenge and persistent This poses values. major a investment stated of in the veracity certainty limited is in the Arctic. states non-Arctic by made the scaletracking investments of percent 11.6 for accounts Chinese FDI casesthis in study. interesting the more of one presents Greenland This of GDP). a as of Chinesepercentage FDI a global comparison for 14 (see GDP figure Greenland’s of about cooperative loan agreements and investment funds, some experts have privately cast serious doubt on if on doubt serious cast privately experts some funds, have investment and agreements loan cooperative about Figure 14. Chinese FDI as a Percentage of GDP, credit: CNA credit: of GDP, as a Percentage 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. even fashion across regions and sectors, it then likely amajor not does pose threat to sovereignty the of those should attentive be to saturation the of FDI Chinese in Canada’s economy. If FDI is distributed in a relatively on average are than they inother nations. While isn’t this cause for panic by any means, United the States equivalentthe of more than 3percent of annual GDP. Individual transactions are worth much also more United States or Russia, FDI Chinese over four-year the is larger period relative to Canada’s total economy, anCanada is interesting also While case. there are significantly transactionsfewer Canadathan inthe in value out of Arctic the nations that we investigated. As Figure 15illustrates, growth steady. has been longer sanctions remain enforced. at Looking table 6,it is clear that Russia receives most the FDI by dollar nations may have greater saturation of investment Chinese dollars, to trend continue this is expected the worth on average, $691.7million each.Thispercentequal is to 2.8 of Russia’s annual GDP. while Andother by economic necessity. Russia had over 281 inbound investment transactions with from China 2012 to 2017, sanctions against Russia by United the States and most OECD nations that drives two the countries together data indicatesOur also that Russia is extremely vulnerable to influencefrom China. This is compoundedby Greenland’s total revenue [163-164]. meaning that revenue the from would amining industry constitute to close one-fifth the of Governmentof over same overall this 15-year revenues tax period, for government the of Greenland about be will $24 billion, generatedcould be by numerous the proposed mining projects over next the 15years [163].It estimates that GovernmentThe of Greenland’s Oil and Mineral estimatesStrategy that morethan $4.4 tax billion in revenue out by foreign workers [162]. project profitable, it is likelythat the development initial phases the of project would most likelycarried be Sources: CNA, RWR Advisory Group

Source: CNA, World Fact Book, RWR Advisory Group IntelTrak Figure

Value ( in Billions) 1 . 100 150 200 250 300 350

Value of Chinese Investment in Arctic Countries 20 50 0 2012 2013 2014 Working Draft Review Copy Review Draft Working Year Not forDistribution 2015 05 2016 -

June 2017 (in Billions) 2017

Greenland Iceland Norway Canada USA Russia Total

1 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 57 Chinese investment in investment Chinese falls into the following the following into falls three buckets: energy, energy, buckets: three the Arctic predominantly predominantly the Arctic infrastructure, and mining infrastructure, submersible drilling rig, caused a stir when it stopped in Murmansk on its way to the Kara Sea the [170]. The Kara rig to way its on in Murmansk drilling stopped rig, a stir when it caused submersible it where Field, the Leningradskoye for bound China Oilfield by Servicesis owned ultimately is and Limited Neft. Gazprom by will be operated New oil discoveries hold similar promise of a surprisingly low bar to achieve profitability. Rosneft announced announced Rosneft profitability. achieve to bar low a surprisingly of promise similar hold discoveries oil New [169]. With equivalent oil of tons 9.5 billion as much as hold Sea discovery could in the Laptev that a major the from come could production oil Russian of 20 percent 2020 about by experts that predicting Russian risks the environmental be to activities expected, is gas despite and oil Arctic of expansion continued Arctic, VIII, a semi- 2017, Nanhai June [169]. In region the Arctic from shipment extraction with and associated oil as unprofitable. This may be the case for most deposits, but according to recent analysis of Norwegian oil of analysis recent to according but deposits, most for may becase the This unprofitable. as oil fields to some for sufficient are $35 per barrel above prices Sea, in the fields Barents Arctic Statoil’s company it asthe as 2022, soon online making brought field Castberg willJohan be the Specifically, [168]. be profitable Statoil, fieldThe by [168]. Castberg NorwegianwillShelf bedeveloped on the operation in field northernmost project. on the firm, engineering serving a Norwegian AS, subcontractor as a Solutions Aker with for this study to examine each transaction, with particular with transaction, each examine to this study for investments. resource natural to attentiveness oil this writing, the time of At gas. natural and oil is been has dismissed recently that investment of area One labeled Arctic have analysts these most prices, At high $30s to $50s per barrel. the low from ranged have prices investment in the Arctic predominantly falls into the following the following falls into predominantly in the Arctic investment finding This mining. and infrastructure, energy, buckets: three unregulated that concerns the environmental underscores mines prospective poses As in the Arctic. development environmental of the probability online, come wells oil and important was Because this, it of multiplied. is degradation Following the Money attracted sectors in what is particularly interested study This Chinese seems that it Increasingly, investment. the most the understanding of Chinese language and culture in Iceland[165]. The Aurora Observatory near Kárhóll, ObservatoryKárhóll, Aurora near The Iceland[165]. in culture and Chinese language of theunderstanding waswhich Observatory, Aurora The collaboration. research Sino-Icelandic of example another is Iceland, of China, will the usedstudy be to Institute Research Polar leased to land the proceeds from the with financed 2011, In been very historically has wary Chinese investment. of Borealis) [166]. Iceland (Aurora northern lights denied was even though course” golf “eco an for land purchase to bid Nubo’s Huang tycoon Chinese property enterprises[167]. business with in connection land of ownership permits foreign generally law Icelandic in the energy, mining, or infrastructure sectors. Given that the resources of the Arctic are becoming more more becoming are the Arctic of the resources that Given infrastructure sectors. or mining, in the energy, will expect this trend we continue. that available, The Iceland. particularly in states, Arctic in the research in investments alsoChina has significant made elevate to aims that center a research Institute, Confucius Light the Northern hosts Iceland of University Overall, Chinese investment in Arctic nations is clearly on the rise. As seen in Figure 15, those investments 15, those seen the investments rise. Figure in As on clearly is nations in Arctic Overall, Chinese investment construction/ energy, in the transportation, made were Chinese investments Most increasing. rapidly are made were almost all investments, Arctic-specific Among sectors. real estate and financial, infrastructure, 58 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security sense ofsense industries the and of types transactions that are out. carried being analyzing amount the of, and trends FDI Arctic. inChinese the It is provided to give interested a parties transactionsThe that are listed had sufficientdata to their support inclusion. This information in used was short narrative. lists These are not meantbe exhaustive to investmentsall of that in occurred any given year. of underlying the data inTable 6and Figure 10.Transactions that $100million exceed are accompanied by Appendix A and Appendix B summarize Arctic the transactions of wewhich are aware of, and provide much of China’s access resources to these is more concrete. from to start finish. With suchlarge a footholdalready established in Russian Arctic oil security andthe gas, exploration Kara demonstrate inthe Sea that is China interested inresource inbecoming apartner activity in resources and complementing infrastructure. Investment Yamal inthe LNGas well port, as inoil and gas forward,Looking analysis this found that evidence may China to seeking strategically be place investments agreement gives Shenghe right the to acquire 12.5percent of Greenland Minerals and [174]. Energy agreementthe didentitle to them takeover the of adeciding majority [174].Rather, officials found that the preferred option to acquire 60 percent of Kuannersuit the uranium project, despite Shenghe’s claims that in GME.Greenland’s of Mineral Resources Ministry established that Shenghe’s investments donot grant a to Kvanefjeld/Kuannersuit the uranium project, and ShengheResources, companyChinese a that is investing an agreement Greenland between Minerals and (GME),an Australian Energy owned company with rights complicate development the of REEprojects. In Greenland, authorities just completed an intense scrutiny of Concerns over environmental damage due to mining waste and of unearthing the nuclear material will demand for such technology as laptops, phones, cell solar panels, vehicles and continues electric to rise. in Greenland and western inthe Arctic [171-173].These Ocean resources are valuable, the as especially are they because often collocatedwith radioactive elements. Potential and proven deposits of REEs are found much of today’s technology. While most are REEs abundant actually innature, are they hazardous to extract, Another resource area investment we inwhich see potential is rare elements earth are REEs (REEs). in used 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 alter dramatically to new citizens hundred take a couple only may it Greenland, as such a small nation In proportional using every years four legislature national its to elects 31 members Greenland political landscape. billion people are spread across 52 nations, the context of the Arctic is different. Greenland has a population a has population Greenland different. is the Arctic of the context nations, 52 across spread are people billion also both endowed are Iceland and [177]. Greenland 330,000 citizens about has Iceland 56,000 and a mere of rise theto not might it in. While interest an demonstrated already has the PRC that resources natural with even a modest where situation a envision to creativity much require not it does strategy, official an of level citizens. become workers if imported nation Arctic an of the landscape political alter could of migrants influx in Africa. She found that of the one million Chinese residing and working in Africa, one-third or more are are more or in Africa, one-third working and Chinese million residing the one of that in Africa. found She this that notes Park [176]. years to three one last that contracts fixed-term with migrants labor temporary supervisors, managers, as such roles skilled occupy and be Africa to more tend into Chinese migrants of subset other two- The their contract. of the end country in their African at host they remain seldom translators; and be to unskilled [176]. These tend migrants and a contract under operating not are migrants labor of thirds Africa, 1.1 of where in the context concerning or negative inherently not While settle permanently. to tend then the host community is intellectually disassociated with the project. It cannot effectively participate in the participate effectively cannot It the project. with disassociated intellectually is community then the host sustainment. long-term its or regulation, management, project’s political sovereignty. to a threat potentially and reasons many friction of for a source is labor Imported specifically Chinesemigration, on research conducts University Georgetown of Park Jung Yoon Professor While it goes without saying that the development of natural resources is a sovereign right, there are ways ways are there right, sovereign a is resources natural of the development that saying goes without it While political of GDP, percentages up large make investments foreign When affect sovereignty. can in which FDI than rather economy, the domestic fueling investors the overseas to begin beholden feel to leaders may seems to there in Djibouti, Chinese in the case investments of will discussed be As generally below, citizens. skill the low at is labor that of much local of labor; however, thein utilization smallbe improvements some If this persists, project. of a financing in the design, or engineering, those involved include does not and level becoming increasingly important to Chinese citizens. In China, frustration over corruption, safety violations, violations, safety corruption, over China, frustration In Chinese to citizens. important increasingly becoming While culture. in corporate a change and regulation both government pushing is disasters environmental and social, and labor, with will comply Chinese companies that indicate small changes been has slow, this process enforced. rigorously and promulgated clearly are when these regulations only but regulations, environmental multiple critical failures on the part of Chinese multinational corporations to abide by local environmental localby environmental abide to corporations Chinesethe part multinational of on critical failures multiple the suspend to authorities particularly 2013 led in Africa. government in Chad during A spill regulations, [175]. Corporation Petroleum China National by operations of suspension inpractices business adjust willingnessto and ability an shown have Chinese enterprises Nonetheless, is the environment, to relates particularly it as social Corporate responsibility, attention. negative to response Concern? does not abroad Chinese FDI of impact the historical that is the in Chinese Arctic FDI over Our concern to find to look far have doesn’t One of Chinese investors. practices and policies in the confidence much evoke Why is FDI in the Arctic athe in Arctic FDI is Why 60 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security Military SupportMilitary Facility inDoraleh, Djibouti, is most the prominent example. Railway China Group and Finally, apattern is emerging inhow of activities the uses China its SOEs to advance interests. military China’s significant ramifications economic health, thefor security, culture and peoples. of Arctic unreliable for groups. these Environmental degradation, on top of climate change impacts, could have and economic traditions. Thewhich alreadyArctic, is changing rapidly due to climate change,becoming is Arctic population is composed groups of tribal rely who heavily on Arctic the for important cultural, social, Environmental degradation and has potential also cultural impacts social Arctic. in the Most of high the should something go wrong [11]. standards for FDI to ensure that projects are sufficiently well-capitalized to afford self-funded remediation as regardsespecially operation the of standards oil Other rigs. that could Arctic the Council support include to assume amore prominent role inpromoting harmonized environmental standards and inspections, extentthe of Komi the oil disaster. It is for reason this that analysts argue that needs Arctic the Council within Russian is occurring seepage the territorial waters and Russia is unwilling transparent to be about into alarge river that empties into Monitoring ocean. the extent the of problem the because is difficult, there is limited cleanup capability to remediate Arctic; inthe especially effects seepage the of terrestrial potentially generating among friction political Arctic the powers. As noted inmultiple places report, inthis It creates also issues for region the oil the when reaches pristine the Arctic and Ocean harms fisheries, contaminated, destroyed, or driven from ranges their by oil pollution. many indigenous people rely who upon reindeer, groundwater, fish, and other resourcesthat have been proper and technology oversight. As documented Greenpeace inthe report, spills the have displaced Russian censorship, is awindow into what can happen ifresource projects extraction are without started politicalThe implications the of KomiRepublic pollution, oil whichmostlybeen underreportedhas due to into Pechora the Arctic via the Ocean River [180]. regions involved [180].Greenpeace estimates also 12months, that every 2.6million barrels make way their Arctic Circle [179-181].Some of is this detected, yet suppressed, and some of is because undetected vast the has spilled more than 30million barrels of oil on land eachyear—much of that Komi inthe Republic near the dooccur. they when In Russia, for example, Greenpeace and others documented that Russian the oil industry that violate would environmental otherwise standards, nor can it counted be on violations to expose ifand visibility ofsame practices. This poor mechanismcan neitherbe relied upon as adeterrentto act to companies and foreign South when America, companies behaved poorly, indigenous groups have able been to elevate the notdoes have enough population density to adequately monitor natural resource developments. In Africa Additionally, Arctic the is asparsely populated area. Unlike inother areas where FDI is common, Arctic the rights. political Greenland’s population by 5percent; assuming that workers the were able to remain inGreenland and sought could potentially making way their be to Greenland to work on Isua the iron project. This would increase Legislature, gives foreign workers rights inGreenland. Once bill the is enacted, over workers 3,000Chinese The recentpassage Large-Scale theProjects 2012 of through theAct Inatsisartut, Greenland’s National Inuit Ataqatigiit Party was 326votes [178]. representation. In difference the 2014election, the thewinning between Siumut runner-upParty theand Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 61 source of the raw the raw of source China’s interest in the interest China’s to fuel its development fuel to Arctic is clear: as one of as one clear: is Arctic the Arctic is an attractive attractive is an the Arctic of unexploited resources, resources, of unexploited the last remaining sources sources remaining the last materials that China needsChina that materials environment can be sufficiently protected while its resources resources its protected while be can sufficiently environment cooperation will path require taking that extracted, but are of in advance between nations the Arctic coordination and development. resource partnerships with Chinese companies is not inherently bad. inherently not is Chinese with companies partnerships labor damage, environmental history of China’s However, in Africa and developments with political hardball and abuse, to caution historical as be interpreted America should South Arctic the forward where is a way There nations. the Arctic also a location where many Chinese laborers could find employment and possibly residence. For China, theFor residence. and possibly employment find could Chinese laborers many where also a location opportunity. of landscape a vast is Arctic are resources their Arctic states, littoral the Arctic For development regional for opportunity also of deposits economic of the possibility And security. resource and regularly berth is a future reality. berth a future is regularly the Arctic resources, unexploited of sources remaining the last of clear: is in the Arctic one as interest China’s the Beyond resources, development. fuel its China needs to that materials the raw of source attractive an is Arctic The is dominance. market and Chinese seeking profit SOEs pad for launching the potential is Arctic Army focus the construction of overseas military infrastructure in regions and locations where there is there where locations and military infrastructure overseas in regions of focus the construction Army in port Chinese investment that unlikely is it Chinese While [183]. SOEs by presence established an already infrastructure Arctic of ownership military be ever could infrastructure in the used Arctic operations, for the Yamal 80% of over that Given “stakeholder.” Arctic an as claim in its standing China more give could dominate Chinese firms that conditions with by Chinese capital financed is export in Russia facility LNG could the PLA Navy where Port Multipurpose the port, a Chinese of Yamal operation and the construction with China Merchants Holdings, could give the People’s Liberation Army (PLA) the ability to move in and out out in and move to (PLA) the ability Army Liberation the People’s give could Holdings, China Merchants with designprojectfrom a control to strategy government of Chinese pattern greater a into fits This Ethiopia. of the of the majority local from populations, sourced was labor the construction of much While operation. to Naval at the Chinese Chinese firms. Researchers by carried was out work operations design, and planning, Liberation the People’s recommend Chinese military for strategy, center research the main 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 ConstructionChina Civil Engineering Company Chinesewith exclusively by Chinese two companies, the constructed was railway [182]. The Djibouti to was Port, funded in which partnership Multipurpose the with Doraleh This, along 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 undertake those projects that for 41 Sec. 175), and the theft of foreign museum pieces (18 USC 668) that can be mapped to obligations the U.S. the obligations to mapped be can pieces (18 USC 668) museumthat foreign of Sec. the theft 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 There are various provisions in U.S. law, for example, as relates to unauthorized possession of chemicals that chemicals of that possession to unauthorized relates as example, for U.S. law, in provisions various are There

The purpose of the Arctic Development Code would be to ensure responsible development of the Arcticof the development responsible to ensure Codewould be purpose Arctic of The Development the Code Arctic Development notional in a could be established that principles core the are following The region. (ADC): 41 the six Arctic states to establish a multilateral agreement that is then incorporated into the domestic laws of of laws the domestic into then incorporated is that agreement multilateral a establish to states theArctic six opposed as manner, effective in an implemented are these standards that ensure To the countries. of each and possibly fines harsh include to have would laws domestic each country’s aspirational, being merely to criminal punishment Environmental Development Standards and Project Transparency Environmental Development Bank, Development Arctic the proposed by lending with in connection or instrument a stand-alone as Either have that states the six Arctic by be adopted should standards development set of a common described below, organization Arctic no transnational yet as is There development. by imprudent affected potentially coastlines be for would so the actions, best approach enforcement conduct and regulations promulgate the EU to like least, the current legal structure is too diverse to monitor and regulate inbound foreign investments both in investments foreign inbound regulate and monitor to too diverse is legal structure theleast, current theseTo address facilities. gas and oil and mines, as such projects in large investments and specific companies for framework a common establish to initiatives multilateral separate three suggest we gaps, regulatory legal and projects. development Arctic of the financing and FDI, development, techniques. There is very little off-the-shelf technology to remediate an Arctic pollution incident, and not much not and incident, Arctic pollution an remediate technology to veryoff-the-shelf is There little techniques. distance time and enormous by exacerbated this is All of being stockpiled. is equipment technology and that of are and logistical limitations These effort. scientific a cleanup mount to be to overcome have would that factors activity, human and of development pace of the current supportive not is structure by a legalthat magnified a variety of good intentions the hoped-for to relegated mostly are operations ship to related issues because liability certainlynot goodbut charts. and goodLast, be willweather there always and further hope that states flag of The marine environment in the Arctic is especially vulnerable because there are both political and and scientific both are political is especially Arctic in there because the vulnerable environment marine The all intents for is, the Arctic that also bears repeating occurring It accident there. polluting a major of unknowns especially in others, be very is the to Arctic felt part of likely in one closed purposes, sea.and incident a nearly An recovery and remediation of pollution reach the floes, ice beneath the trapped become beyond to were if pollution the Arctic Regulatory Regulatory the Arctic Environment Recommendations for for Recommendations 64 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security G. F. E. D. C. B. A.

sound and transparent assessment of project risks associated with aparticular [184-185].Since many 1992Biodiversitythe Convention and 15of Article its Cartagena Protocol, require which ascientifically of advance planning is found in various international instruments including, for example, 14 of Article preceded projects be by will awritten ADC-scope All environmental impact assessment. The concept ores. the to export used mining projects that are interior inthe are ifdestination of within scope the ADC the shipping must be Projects that could affectthe Arctic marine environment thisbe context, thesubject In ADC. to will even project was licensed. This would involve a requirementthat each project post along-termowner bond or and remediation of plants costs were those inwhich cases not inthose irrevocably pledged the when the parties to The multilateral agreement createwill a mechanismwiththe costs to deal of decommissioning courts where site the local is located. owners or operators. This claimsbe expressly processwill as a recognized precondition to any suits the in to ensure maximum participation and to prevent costly, frivolous claims from against filed being land in cleanup or damages to livestock or fisheries. scope The this of claims process would have belimited to participatethat will scheme inthis they and agree to reimburse claimants for reasonable costs incurred Arcticthe Ocean’s marine environment. The operators sitesall of agree,will as acondition of licensing, associated with incident an inany of sixcountries the that has impact atransboundary or any impact on government organizations from one of sixcountries the can make claims for damage and cleanup costs the parties to The multilateral agreement establishwill a claims procedurewherein individuals or international standards. investigate complaints from another state that party projects certain are not conforming to recognized the parties to The multilateral agreement establishwill alegally binding mechanism to receive and extent that standards those have not adopted already been by countries the domestically. to adopt international recognized standards for operations the of mines, oil and rigs, refineries the to the to parties The multilateral agreement (one period agree within to to two a years)meet short, specified until alicenseis issued. violation acriminal be also for a person or company to either commence work on or finance a project repository that is established pursuant to multilateral the agreement and open to public Itinspection. will government issues. Acopy of RODs signed the provided and be licenseswill electronically to apublic that by is signed agovernment official and incorporated by reference writteninto a that license each projectsAll that are pursuant assessed conclude will to ADC the with aformal Record of Decision (ROD) otherthe sixArctic states. ofmethod eliciting comment from members of that country’s public as well as designated officials from but it should include amandatory requirement for a scientific study, publication the of results, someand sovereign the reserves right to to whether licenseaproject decide involving its or territory resources, ofpractices with those other states. The multilateral Arctic agreement would establishthat each country requireswhich states to minimizeimpact(s) on marine the environment and “seek to harmonize” their environment, requirement the to conduct sound planning inferred can be from Part XIIof UNCLOS, of constructed projects on be these Arctic the coastlinewill and could impact Arctic the marine 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 Those types of national security or critical resource controls on inbound FDI should be governed governed be should FDI on inbound controls resource criticalor security Thosenational of types 43 tries, critical infrastructure, nuclear power generation, broadcasting and telecommunications. and broadcasting generation, power tries, critical nuclear infrastructure, supply. in short This would include restrictions on the purchase of controlling interests defense and high-technologies, indus high-technologies, and defense interests of controlling purchase on the restrictions include would This other minerals or earthelements, rare hydrocarbons, of purchases foreign on restrictions include would This establishing and funding multinational “superfund” to deal with these sorts of situations. deal to these with situations. sorts of “superfund” multinational funding and establishing purchase insurance to cover the risk of the enterprise’s default. The failure of a project owner or operator operator or owner project of a failure The default. the enterprise’s the of risk cover to insurance purchase all in of in criminal liability result would risk this default policy cover to insurance or a bond such have to than complex policy less seemsinfinite insurance or a bond party the ADC. to are Posting that the states

42 43 be free to refuse any FDI inconsistent with their treaty obligations and national security concerns, but they but security concerns, national and obligations their treaty with inconsistent FDI be any refuse free to the harmful region. is to that FDI accept not also should We do not think that regional norms governing Arctic FDI should in any way infringe upon the rights of of the rights upon infringe way in any should FDI Arctic governing norms regional think that do not We securitycontrols national their own enforce to nations individual resources. sort some reach not could states the Arctic that reason no is there However, free trade agreements. bilateral by or transboundary economic have could that their borders within FDI of the acceptance limit to agreement of should countries is that proposition key The environment. marine the Arctic on impact or politicalimpacts Africa and Latin America, including environmental destruction, dilution of worker’s rights, corruption, loss corruption, rights, worker’s of destruction, dilution environmental Africa Latin America, including and they could universal, less or more are these standards Since technology transfer. of lack a and sovereignty, of adopted actualstandards The projects. or companies in Arctic FDI future to applicable made and be tailored between states. the six Arctic instrument a multilateral into be incorporated would In addition to the ADC, we suggest that there should be the adoption of criteria that assess proposed proposed assess that criteria of be the adoption should there that the ADC, to suggest we addition In business ongoing in an interest a controlling purchase seeking is to purchaser in which a foreign transactions OECD could policies and in UNCTAD themes recurrent of number a are There in the Arctic. enterprise or is investment foreign whether a proposed assess could states individual and region the Arctic guide how impacts experienced adverse ofthe in some prevent to designed collectively are beneficial.These standards much more pressure on certain states like Russia and Greenland to offer lower environmental and regulatory and environmental lower offer to Greenland and Russia like certain states on pressure more much is in now the table off costs regulatory lower Taking states. the vis-à-vis other 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 adopted were standards if reciprocal be especially country single would no disadvantaged a result, As gas miningrigs, and oil offshore of plethora a and however, delayed, were this process If [11]. veryfuture near negotiate to difficult extremely would become it Arctic, in the foothold a to gain were refineries and/or sites So prospectively. also new investors addressed and users the existing both “grandfathered” that agreement an room breathing of bit a little governments gives commodities other and gas, oil, for in prices the decline too, will rise, there beprices When boomrestarts. the resource before enact theseregulations and deal” a “cut to The negotiation of a multilateral agreement for offshore oil and gas operations (as advocated in Addressing Addressing in advocated (as operations gas and oil offshore for agreement multilateral of a negotiation The be a made Code should and can Development Arctic an implement to and Governance) in Arctic the Gaps perspective [11]. FDI and a development from pristine still because is the Arctic comparatively high priority 66 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security • • The followingevaluative criteria/standards for acceptable FDIbe incorporated could into a multilateral instrument: if which, followed, do not any trigger of sort basis to challenge country’s decision to authorize an FDI transaction. The FDIgeneral principleswithin a multilateral FDI agreement should establish criteria”“review or “standards,” and physical control. The design of an FDI agreement shouldthat keep important principle inmind. of international law, it remains right the of to eachcountry control disposition the of resources under its legal consultations on would abilateral occur or multilateral basis. At end the of day, the under multiple principles a transaction of concern and request consultations with state the that authorized FDI the transaction, such is areported transaction that raises concerns with another state, any state should have right the to challenge reciprocal reporting on transactions that are of within scope the agreement the is possible. Similarly, ifthere objectionable to everyone, including United the States. But reciprocal adoption of general FDI principles and onewhich is asked country to “clear” an inbound FDI transaction inanother is to almost country be certain itself intoinserted role the of of types FDI directly restricting certain [186].For reason, this an agreement in investment and to provide protection for foreign investors, to of best the our knowledge, EUhas the never states or entities. Even though European the Commission has regulations enacted to promote foreign direct Sovereign control over FDI has heretofore subject to consent the never been or direct regulation of outside should acovered be transaction. result importation inthe of substantial number of foreign workers to live and work region, inthe that ores, timber, oil, or subject gas to should FDI be the agreement. also Finally, project particular ifthe would Similarly,Ocean. inland projects that require will extensive access to marine the environment to export Arctic orthe Ocean within region’s the watershed where an accident could reasonably impact Arctic the acquisitionthe of acontrolling interest inabusiness or enterprise that operates inor near shoreline the of of sensitivities the associated with overall this endeavor, of scope the any agreement should limited be to recommendation to disparities the equalize that exist ineach state’s national laws and regulations. Because A common of set standards to asses inbound FDI that is adopted by sixArctic the states is second the major An FDIReview Agreement ofand inalienable the respectful right of Arctic the states to responsibly develop resources. their to establish aframework for assessing FDI. Obviously, that framework would objective, to need be reciprocal, character, it is appropriate to draw upon some threads UNCTAD inthe of policy the and OECD guidelines region may require shipping coastal special regulations by states coastal of because its unique environmental irrespective of impacts. transboundary their Just as UNCLOS 234that recognizes in Article Arctic the and manage, and of willingness the some states to move forward with economic development projects and inherent the vulnerabilities of Arctic the region, including populations, small low capacity to monitor prevent issue the from going forward for discussion given many the instances FDI inwhich has “gone bad” since neither UNCTAD nor OECD have published on acode what is “good” vs.“bad” FDI. That should not ofDetermining sort the FDI that and is harmful should regulated be controversial, to is be certain particularly and knowledge. The FDIgeneratewill employment. local That local employment should involve transfer oftechnology monitor resulting the FDI enterprise and, ifappropriate, regulate it. The FDI is properlysequenced. The host nation the systemshas andmechanisms regulatory into place Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 67 used in local law for defining a defining used in local for law 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. in the proposed those parties of involved information proprietary or business-sensitive in deciding apply to government the for standards published and available publicly both are There be permitted. should project FDI whether an The proposed FDI is known to the local population. There is a public office that administers the inbound the that administers office public is a There to localthe is known population. FDI proposed The on comment to the right their representatives, through or directly permits local either and citizens, FDI petitions. FDI the of the disclosure require not should transactions proposed concerning information to access Public The The acquiring entity is sufficiently wellcapitalized payto the costs ifthere is adverse an environmental event. provide will entity acquiring the not, If enterprise. FDI the support to infrastructure is adequate There necessary for infrastructure. funding The FDI promotes overall development of the host country. The FDI will not crowd-out indigenous indigenous crowd-out not FDI will The country. host of the overall development promotes FDI The social or labor impacts. in adverse result or enterprises are if there impacts. or Conversely, risks environmental adverse permanent have willnot FDI The operation. with the associated risks mitigate to plan a has entity the risks, proposing potential The acquiring entity will mostly rely on local labor. Imported labor shall not exceed a modest modest exceed a shallnot labor Imported on local labor. rely willmostly entity acquiring The the percentage to ideally mapped operations, ongoing for percent transaction. controlling

successful in capturing international development projects because it is able to use a blend of concessional concessional of usea blend to able is because it projects development international successfulin capturing 44 have to rely on capital from either China’s EximBank (C-EXIM), China’s Development Bank (CDB), Sinosure Sinosure Bank (CDB), Development EximBank (C-EXIM), China’s China’s either from capital on rely to have Investment Infrastructure Beijing-based the Asian newly formed, or OPIC) the U.S. to equivalent (a rough [188]. 48 members of bank composed Bank a multilateral technically (AIIB) which is Chinese stimulate to loans concessional provide can and portfolio loan EximBank a substantial has China’s been China has sectors. industrial very and mining, in the energy, investments overseas make to exports or how—especially in developing countries—and institutions like the World Bank are becoming increasingly increasingly becoming Bank are the World like institutions countries—and in developing how—especially in beenhelpful have lending Bank World with associated strings since the ignored be cannot This irrelevant. governance. of poor elements other practices,and environmental poor corruption, graft, in curbing the past to secure investments power” use these to “soft and these make investments to legal rights its within Chinais in FDI involved are that Chinese businesses exceptions, some With estate. real and materials raw to access The whole discussion of Chinese FDI is predicated on the fact that several Arctic countries are anxious to anxious are countries several on Arctic fact the that predicated is of Chinese FDI discussion The whole foreign China’s potential. resource natural their infrastructure and develop to in order capital foreign attract secure win new allies, and trade, it increase helping 2013 2005 to from tenfold nearly “grown has investment know- and capital investment for source to” a “go become China has resources”[187]. natural other and oil • Arctic Development Bank An • • • • • • • 68 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security noted, AIIBwas the established amultilateral via international agreement that creates astructure similar to participation of states outside of Asia various in the projects, infrastructure including United the States. As “tool of Beijing” AIIBwas the established amultilateral via international agreement that allowed for financial andinfrastructure economic development projects (mostly To Chinese). refute criticism that AIIBis the a another development as bank an alternative source of capital for Asian countries able to be to financelarge to compensate for its lack of control World inthe and Bank Asian the Development It Bank. to form decided to financing the growthof the particular region China ina or infrastructure led formation [192]. the AIIB of establishmentthe of amultilateral since AIIBmakes AIIBis the the also sense financial institution dedicated There are many examples of developmentbanks, but, an organization similarwhat to China orchestrated in and provide administrative the support for lending the facility. short-term solution to capital the access as host the issue. nation Onecould country serve for agreement the principally or totally, by sixcountries the to finance projectsthe in the seemsbe regionmost expeditious to of default the risk. However, establishment of an Arctic Development that Bank and is funded administered, competitive with China’s. Nor is it reasonable or for legal only one country’s credit export to bank assume all that United the States and credit export the agencies of other the Arctic states can reform processes their to be have difficulty competing head-to-head Chinese onabasis their counterparts,with ittoo is much toexpect Since commercial lenders or Western credit export agencies like Export-Import the of Bank United the States standards; or and facelegal financial consequences if repayment is not made. complyloan(s) will: with labor and environmental standards; comply with international lending forms and In context, this responsible investment capital is that there inwhich are conditions that recipient the of the Arctic, cheap and plentiful money aproblem can be it because “chases out” responsible investment capital. international project financefrom the WorldBank or regional developmentbanks. But ina context the like To fair, be of type lending this can have aplace insome countries with low credit ratings that cannot get • • • • • • lending facilities have characteristics: these emboldened to make plays riskier or offerbetter thanterms their Western counterparts. In general,Chinese [190]. Moreover, since much of lending Chinese is ultimately financed the by state, commercialbe firms can whenever it advances strategic Chinese commercial interests as opposed to prioritizing shareholder interests OECDthe definition or practices of development developmentaid.Chinese whereverbanks lendcan also and participation ininternational projects is China not [189].Because amember of OECD, the it not does follow loans, foreign aid, direct investment contracts and and other service instruments to maximize Chinese Lower interest rates [190] Fewer lending compliance and transparency terms Lower costs of capital there because are requirements no reserve or costly regulatory oversight state interests The abilitybe moreto strategicthe lending in bankscanoutlook Chinese since operate behalf on of commercial borrower [191] Default risk that is by usually versus assumed speaking) EximBank China (practically Chinese the than capital markets Greater liquidity than Western since banks, source the of funds (CDB and C-EXIM)is state the rather Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 69 - and this could force a systemic a systemic force this could 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 member on 12 the is and China of Board a also AIIB has Chinesethe seat President The chaser: 11.9 percent. Directors. of The articles of incorporation specify how many shares each country can purchase. Interestingly, there are are there Interestingly, purchase. country each can shares specify many how of incorporation articles The

Most regional banks do not have charters that limit their lending to only state borrowers for infrastructure for borrowers state only to their lending limit that charters have banks do not regional Most to insurance—similar politicalrisk including products financial of a wide variety provides AIIB The projects. contribute that enterprises private to as well as entities governmental to loans provide can OPIC—and the U.S. 45 on the Arctic Ocean. Also, to the extent that participating membership were expanded, it would soften the soften would it expanded, were membership participating that the extent to Ocean. the Also, Arctic on participants. the other of risk default public infrastructure orIssue 2: Should the bank only be chartered to provide capital for commercialin invest to investors private-sector to capital provide to able be also it should projects? hold the levers on investments decisions. That model would not be unprecedented: the European Investment Investment European the be unprecedented: not would model That decisions. investments on the levers hold the EU [195]. of states the 28 member to limited is membership alignedBank the closely EU and with (EIB) is acting in a were states Arctic the that appearance the create would it is that approach of this downside The Council the vis-à-vis Arctic when multilateralism to agreed they even though already had fashion unilateral a coastline have did not that states Council the Arctic to the of full expanded observerit and membership a more multinational operation works in China’s favor since it spreads the default risk to other states and and states other to risk the default spreads it since favor in China’s works operation multinational a more Asian in participate to theirbusinesses and countries other inviting is it that the politicalappearance creates infrastructure projects. does help states the six littoral only to membership Limiting question. a tricky is the ADB of Membership finance project infrastructure and Arctic respect to with outlook of a commonality with states that ensure 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 whichbankthere in multinational a the is AIIB noted, As of board and team management multinational the bank’s determined by activities are day-to-day and the of one-third over China has issues, very major [194]. For vote one only in which China has directors, structure, capital in the they bank’s hold that stock of based shares on votes of creation its power, this sort China has of that Given operations. practices or lending in the bank’s change the six states would have to decide before moving forward. We present these, followed by an outline of the of outline an by these, followed present We forward. moving decide before to have would the states six forward. path general Arctic littoral states? bank be limited to the Six Issue 1: Should membership in the multinational members. The Bank’s management team consists of a president, general counsel, and five vicefive and general counsel, president, of a consists team management The Bank’s members. multinational [193]. presidents The framework study. of this the scope beyond are an institution such of establishing exactmechanics The that questions hard some are there but departure, be of thecould AIIB used a primaryof as point analytical that of a corporation. There are articles of incorporation, bylaws, and the creation of a voting mechanism that that mechanism voting of a creation and the bylaws, of incorporation, articles are There a corporation. of that day- But transparent. completely not is rights voting those for formula The ownership. stock with equated is directors—with of board in the 12 member vested modern with the as bank is, corporations, of control to-day 70 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 46 with environmental consequences (Standard 21).In addition EIBlending address policies lending to sound lending practicesand must environmentally be sound and include public participation inprojects The European InvestmentBank (EIB), by contrast, is more prescriptive. statesThe EIB that lending mustmeet and compliance with Paris the Climate Agreement [200]. agreement with Manila-based the Asian Development to Bank cooperate on sustainable development goals development goals insome of lending the projects (e.g., Nepal), and AIIBrecently the concluded an support sustainable development.bank’s The board of governors notethat havethey promoted sustainable development projects. have The AIIBdoes variousmemorandapolicy statingthat bank operations will Instead of requiring projects all to standards, meet emphasizes bank the its support for of aselection sustainable support environmental good performance, and as social opposed to creating preconditions to lending. 2016 Environment Framework and Social policy promotes [198-199].That particular the use of incentives to that for assessed projects be “environmental will due and diligence” social pursuant to AIIB’s the February initspolicies blackletter on prohibited rules OperationalBanks practices. The Policy on Financing states borrower countries.Bank’s The Policy on Prohibited makes no Practices mention of sustainable development Thebold AIIB themakes statement on its websitethat notit does involve the domestic in itself affairsof conditions uponborrowers? Issue 3:Shouldthe Arctic DevelopmentBank(ADB)imposeenvironmental anddevelopment shouldactivities permitted. be entities that are to seeking commercially develop mines, oil and gas facilities, and other natural resource ensure that projects are and financially developed insocially responsible manner, direct lending to private and government entities. Similarly, point the because of creating an Arctic Development is to Bank help menu of products and able be to provide capital to private owners/operators of products, infrastructure tribal, dollars, and suggests certainly this that an Arctic Development should Bank able be to offerpossiblethewidest to effectively engage in tourism activities. or extractive Buteventhe low estimates forcall many billions of There are estimateswidely varying of how much investment in Arctic infrastructure is required forthe region intermediate loans to and EUbanks, equity investments and ininfrastructure projects. energy to public and private borrowers including microfinance,funding for venturecapital funds, project loans, over management [197]. borrowers.sector In contrast to AIIB, the board the of IADB the exercises considerable day to day oversight public and private-sector clients, but it can provide concessional loans and grants to lower-income private onfocuses financingLatin Caribbean,to America the and offers aless robust menu of financialproducts to program, it can an take equity stake inprojects. The Inter-AmericanDevelopment Bank (IADB), which issuancethe like aU.S. of securities, investment or bank; like U.S. the Business Small Investment Corporation to “economic the development of Asia the region” [196].It can provide also 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 BoardThe 14-member Executiveof Directors exercises most powersthe of of directors of a for-profit corpo of Governors voting whose power is proportional to country’s their capital (similar to Bank IIAB). inthe the The IADB has 48 member countries (and 26 borrowingeligible countries)powerwith Board vestedthe in 46 Finally, European Investment (EIB)offers Bank avariety of lending products combat - - Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 71 would be vested in an 14-member board 14-member in an be vested would 47 social impact assessments and the associated obligations of borrowers. borrowers. of obligations the associated and social assessments impact Financial policies include bank capital reserve requirements, lending policies (collaterization), environmental and and environmental policies (collaterization), lending reserve requirements, bank capital policies include Financial

47 15 percent, and the remaining 10 percent would be offered via an IPO or auction to any members of the members any to auction or an IPO via be offered would 10 percent the remaining and 15 percent, and policies, general lending and of ADB the bylaws the adopt would Theseshareholders Council. Arctic new members. of the admission for stock additional of issuance or dissolution on vote would adoption a certain and size deals above of approval review and including responsibility, corporate Day-to-day policies, financial and policies development specificsustainable of and its regional development goals, but it would not be Council the Arctic linkeda legal in sense not either to would it but goals, development regional its and the EU. or to AIIB in sixthe similar structure which the a capital establish would agreement multilateral ADB’s The purchase to be Each eligible country stock. would the voting of 90 percent control would members founding a tremendous amount of sense, since the six charter members, especially the United States, would likely face likely would States, especially members, the United the six charter sense, since of amount a tremendous on lending. Basedtheand operation ADB’s the finance to the appropriations in getting political headwinds other of the characteristics on drawing the ADB, of attributes the following recommend we aforementioned, banks: development a policy Arctic to link the have Council, would It agreement. multilateral via a organized would be ADB The It is important that the six main Arctic states maintain some of the same levers of power as China has retained retained China has as power of levers the same of some maintain states Arctic the six main that important is It sharing and transparency More maintained. are standards development overall that ensure to the ADB with the six of banks. Five development other than risk default faces less because the ADB acceptable is power of Canada, Iceland, per in GDP capita: countries tier of the top among are and members OECD are countries makes in the ADB investors be to passive 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. the bank’s of appointment and directors, of the board on seat a permanent nations, the member corporate a of transparent appearance the to establish able is the Chinese Government that ensures This the Chinese Government. by controlled mostly are power of levers important that the reality with structure spread the bank to enables countries other of the participation that perspective, is China’s from All the better, new lending. for revenue of sources additional many have and risk the default Suggested Design of an Arctic Development Bank (ADB) Arctic Development of an Suggested Design of in China the to that influence of position a similar occupying nations the six Arctic imagine to were one If among stock voting bank. China reserved that in the design a majority of deal admire to a great is there AIIB, Unless multilateral instruments are created that establish reciprocal rules and development that countries countries that rules development and reciprocal establish that created are instruments multilateral Unless approach excellent an is standards reinforce to conditions lending the use of individuals, vis-vis will enforce fundamental are there soon. Obviously, online come codes do not if development hedge excellent an and that standards erect not to must be taken and so care countries Arctic of the in legalthe systems differences enforce. to smaller countries for impossible are bribery, fraud, poverty reduction, the rule of law, human rights, health, education, and technology and technology and and health, education, rights, human the rule law, of reduction, poverty fraud, bribery, transfer. knowledge 72 Unconstrained Foreign Direct Investment: An Emerging Challenge to Arctic Security 48 for most the beyond control part, the of United the States. Accomplishing what is proposed paper inthis will next few years. Delays doentail costs. The challenges associatedwith Arctic development are complex and, The issuesthis in raised study do not have moment, tackled thisbe at to very but it be addressedthe must in continued FDI efforts theirChinabackyard. in Arcticof Russia, since our interests Arctic inthe are [196].Russia parallel is just as United the as wary States of the properly managed, foundation the be also for a cooperative relationship United the between States and everyone’s upon depends physical it. survival This cooperation mostly continues thisday to and could, if a great ofbeen deal cooperation, if for no other reason, climatic the because conditions are that bad so 2017. Most commentators have opined that an Arctic the has area been there inwhich has traditionally that U.S. the President of State or Secretary has paid much attention to office since taking in January of Timing is an issue. The Arctic is rarely mentionedthe in headlines, and almostit is not certainly something long-termtheir operation and of expenses the wind-down. and would contain reasonable ridersthat would ensure that projects are sufficiently to well-funded assure Investmentpoint The Bank. the ADBof be wouldto provide “local”capital foreconomic Arctic development of an Arctic Development (ADB) Bank that is patterned upon recently the formed Asian Infrastructure environment, including watershed areas. Third, we urgecareful considerationgivenbe the to formation “acceptable” FDI and associated the reporting of FDI transactions inareas that can affectthe Arctic marine negotiate amultilateral agreement among sixArctic the littoral states to establish regional standards for Development as its centerpiece. (ADC) Code Second, we recommend that United the States to seek negotiations of amultilateral agreement among sixArctic the littoral states that would have an Arctic address issues the associated with Arctic development. First, we recommend that United the States lead uncontrolled development of Arctic. the We make three different and concordant recommendations to This study raises a plethora of issues and suggested approaches to mitigaterisksthe associatedwith Recommendations toU.S.Leadership courts. to local need use the an administrative claims process to facilitate payment for remediation or cleanup costs. This would eliminate The ADB trustee the would as for act any default pollutionor damage payments. trustee,As it would administer reasonable cost of claims associated with an oil-and-gas or mining pollution incident Borrowers would required be to obtain financing to coverrisksthe associatedwith project default the and ofpolicies board the but have authority to authorize projects below level. acertain Corporate officers selected ona be competitivewould basis. Officers would implement decisions the and EDBthe Board, ADB the would Board either meet weekly or fortnightly. wouldwho come from other development (to banks ensure that is bank the employing practices).Like best of directors that would consist of two members from eachmember county urge that eachArctic nation members represent who select interests the of Arctic’s the communities. tribal ofWhile selection the qualified representatives is entirely up the discretionto eachof 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 action could becould lack of action The perceived by unscrupulous by perceived setting the stage for a major for a stage the setting to confront an environmental an environmental confront to industrial accident in which the accident industrial catastrophe of the highest order of the highest catastrophe investors as a regulatory vacuum, vacuum, regulatory as a investors Arctic littoral countries are forced forced are countries littoral Arctic countries is one of the best ways that the United States and other Arctic littoral countries can and should should and can countries littoral Arctic other and States the United that the best ways of one is countries level. a business-to-business on collaborate Arctic The be ignored. cannot but daunting are Arctic policies sound of developing challenges The recognize to that well do would States United and the final frontiers, the remaining few of one represents now. start investments making fact and Arctic is important to the United States on many different levels, and yet the U.S. government recently put put recently government U.S. yet the and levels, different many on States the United to important is Arctic [198]. hold port—on a deep water of construction infrastructure project—the Arctic single its for planning the United why good reasons of a lot are there support, community and disaster-response, military, For be businesses U.S. that important is it level, On another infrastructure. Arctic its increase needs to States purposes. private and both public infrastructure for Arctic constructing and designing of in the vanguard Arctic in other and States in the United investment expeditionary business U.S. this sort of Incentivizing development of the Arctic resources at risk for the foreseeable futur the foreseeable for risk at resources the Arctic of development because the of Arctic to commitment a strong demonstrate States the United that also is important It made has Trump President well-being. economic States’ the United to this region of the importance The [197]. be exception no should Arctic the U.S. and infrastructure a priority, U.S. of development made by other countries that will be impossible will be that impossible countries other by made be could action of the lack yet, Worse unwind. to a regulatory as investors unscrupulous by perceived industrial a major for the stage setting vacuum, of catastrophe environmental an confront to forced are countries littoral in which the Arctic accident future then put might politicalpressures the incident, the severity of Dependingon order. thehighest of new mineral or hydrocarbon deposits. Yet when Yet deposits. hydrocarbon new mineral or of finally States the United and arrives, moment that a multilateral implement needs to it decides that likely quite is it development, Arctic policy shape to been will have already investments policies or that take a great deal of effort and money. The timetable money. and effort deal of take a great in changes be by action will driven likely for the discoveries and prices commodity worldwide 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 Entity Narrative Russia 16.5 Belkomur Rail- Infrastructure, CCECC In November 2012, China Civil Engineering Construction Company (CCECC) road Project Transportation committed to the Belkomur Railroad project, which will connect the Russian cities of Perm and Arhangelsk. When completed, the railway will cut time and distance for travel between the Barents Sea and the Ural region. Over 80% of the $20.6 billion project is anticipated to be funded from private sources. Canada 15.10 Acquisition Energy CNOOC In February 2013, China National Offshore Oil Company (CNOOC) finalized a $15.1 billion acquisition of the Canadian oil and gas company Nexen. The Nex- en acquisition will give CNOOC access to production 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 Exploration Energy, Minerals, Shenua Group In September 2014, Rostec and Shenhua Group Corporation Limited signed an and Develop- Infrastructure MoU to explore the Gerbikan-Ogodzhin coal deposit. This project includes the ment Agreement construction of a coal export terminal in Primorsky Krai. The partnership is a 50/50 agreement. Exports are anticipated 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 effort to attract funds for major infrastructure projects in Siberia. Russian -of ficials claim that over $100 billion in investment is needed in the area. No firm financial commitment was announced but officials 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 National 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 Arctic-class LNG tankers for the Yamal LNG project. The LNG carriers will be the first 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 facilities. loan for China of EximBank China of

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

Acquisition

1.4 Russia In November 2014, CNPC agreed to purchase 10% of Vankorneft. Vankorneft. 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 financing to Novatek. Novatek. to financing 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 Corporation Investment

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

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

LNG Shipping, along with Dynagas (Greece) agreed to construct five polar class class polar five 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 Arctic

LNG Plant LNG

Yamal LNG project. LNG Yamal for Production

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

as well as for cooperation on geological exploration, production, and sale. The The sale. and production, exploration, geological on cooperation for as well as Bank ment

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

Exploration

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 Corporation ment convertible 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 convertible

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

al.

Acquisition is still being negotiated and may include more partners than Fosun Internation Fosun than partners more include may and negotiated being still is -

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

Fosun International Fosun Mining In November 2016, Fosun International and Polyus began negotiations for a 20- a for negotiations began Polyus and International Fosun 2016, November In Potential Potential 2.0 Russia

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

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

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

Country Value (Bn USD) Event Type Sector Chinese Entity Narrative Russia 1.0 Investment Construction, 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, construction, and goal development. Announced investors in- clude China State Construction Engineering Corporation, Metropoly, and China National Gold Group. Russia 1.0 Investment Construction, Infra- China National 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, construction, and gold development. Announced investors in- clude China State Construction Engineering Corporation, Metropoly, and China National Gold Group. Source: Available from authors upon request. Unconstrained Foreign Direct Investment:

An Emerging Challenge to Arctic Security 77

Russia Mining Agreement Exploration Gold China National Gold National China

Russia Energy Memorandum Cooperation Energy CNOOC

Russia Energy Memorandum Cooperation Energy CNPC

Russia Energy Acquisition Share Pending Silk Road Fund Road Silk

Iceland Energy License Exploration Oil Offshore CNOOC

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

Canada Energy, Petrochemicals Energy, Purchase Stake Minority Potential Sinopec

Canada Infrastructure, Transportation Infrastructure, Agreement Cooperation Strategic China Railway Rolling Stock Corporation Stock Rolling Railway China

Co. Ltd. Co.

Greenland Mining Memorandum Mining China Non-Ferrous Metal Industry Foreign Engineering and Construction Construction 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 International Resources Development Resources International WISCO

73.1 Canada Mining Acquisition Share China Minmetal and Wuhan Iron and Steel (Group) Corporation (WISCO) Corporation (Group) Steel and Iron Wuhan and Minmetal China

100 Russia Mining Acquisition Share Project Unknown

Russia Mining Acquisition Share Minority 100 China Highland China

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

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

Russia Potash Export Contract Export Potash 280 Agriculture Sinochem

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

Norway Oil Rig Construction Rig Oil 473 Energy COSCO

Norway Solar Power Company Acquisition Company Power Solar 640 Energy China National Bluestar National China

Russia Equity Acquisition in Polyus Gold Polyus in Acquisition Equity 654 Mining Chengdong Investment Corporation Investment Chengdong

Country Event Type Event USD) (M Value Sector Chinese Entity 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 Entity Russia Financial Memorandum Financial, Minerals, Mining Export-Import Bank of China Russia Oil Field Joint Development/Share Energy Sinopec Russia Potential Minority Stake Acquisition Energy Russia-China Investment Fund Russia Potential Offshore Oil Exploration Energy CNOOC Russia Potential Rare Earth Mine Mining Unknown Russia Possible Arctic Oil Cooperation Energy CNOOC Russia Interest in Energy Project Energy CNPC Russia Potential Share Acquisition Metals Baosteel Russia Pending Mine Development Mining China Nonferrous Metal Industry, COVEC Russia Joint Oilfield Development Energy China CEFC Energy Company Russia Eastern Siberian Joint Venture Energy CNPC Russia Arctic Drilling Cooperation Energy CNPCs Russia Possible Minority Share Acquisition 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://icefloe.net/files/RussiaInTheArctic-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-officials-dont-expect-big-policy- . https://www.ntsb.gov/investigations/AccidentReports/Reports/MAB1510.pdf http://www.baffinland.com/the-project/location-and-project-history/?lang=en “Exxon Valdez Spill Profile.” United States Environmental Protection Agency. 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