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The Cold War between the United States and Russia involved the maintenance of nuclear deterrent forces by both countries, with each nuclear arsenal capable of destroying the other. Thus, a mutually assured destruction (MAD) capability was employed to insure peace, albeit at immense cost. Nuclear-armed missiles fired from submarines and intercontinental ballistic missiles launched from fixed or mobile land-based sites was the cornerstone of the MAD strategy of both countries.
Where small wars were involved, in almost all cases the United States and Russia supported opposing sides. This was particularly the case in the Middle East, with the former Soviet Union generally backing Arab countries and the United States assisting Israel.
The Cold War spawned important military alliances: NATO and the Warsaw Pact. The two sides were "face to face" along the Central Front, which formerly divided East and West Germany. In East Asia, a similar confrontation existed along the demilitarized zone between North and South Korea.
Dramatic changes in Eastern Europe have made the Warsaw Pact obsolete, as one after another former Soviet satellites have overturned their Communist governments and, in effect, declared their "freedom" from the former Soviet Union. Although NATO remains intact as a military alliance, there is apparently far less need for it to counter the threat from Eastern Europe and the former Soviet Union. Moreover, the demise of the former Soviet Union itself and the "birth" of independent or quasi-independent republics changed the entire military and ideological picture vis-à-vis the United States and former Soviet Union. The end of the Cold War was signified by events such as those in the Middle East when for the first time in recent history the Security Council of the United Nations was able to arrive at a unified position countering the aggression of Iraq against Kuwait. A number of previous Middle East crises had demonstrated the inability of the United Nations to serve a useful role, as superpower rivalry precluded the necessary unanimous support by the five permanent members of the Security Council.
From the standpoint of naval forces, a considerable reduction in numbers of fleet ballistic missile submarines now seems appropriate. Likewise, one would expect that navies need a smaller number of large ships designed for force projection, since much of the justification for aircraft-carriers, large cruisers, and battleships is based on the strength and missions of the opposing superpower fleet. The role of nuclear attack submarines is to destroy the fleet ballistic missile submarines and large surface combatant ships of the enemy; hence, a reduction in numbers of deterrent and force projection vessels leads logically to a proportional reduction in submarines designed to counter them.
In the superpower navies, destroyers, frigates, and small cruisers are generally designed to operate in support of aircraft-carriers and battleships as part of battle groups. Therefore, reducing the numbers of carriers and battleships can logically lead to a comparable reduction in numbers of smaller-size combatant ships. Moreover, the superpower navies have large numbers of ships which operate in support of battle groups to provide for underway replenishment of stores, ammunition, and fuel. These support vessels can be reduced in numbers as the numbers of combatant ships are diminished. Overall, the end of superpower rivalry can lead to sizeable reductions in the navies of the United States and former Soviet Union as naval missions and functions change. Deleting the force projection and nuclear deterrence role of navies could result in a large reduction in numbers of some of the most powerful, expensive ships.
According to Sharpe (1991, p. 49) 1992 was scheduled to see the reduction of United States naval forces by 1 aircraft-carrier, more than 70 surface warships, and 22 nuclear submarines. Undoubtedly, financial and resource limitations played a role in the planned reductions, but the plans were also "backed up by a global consensus that truly the Soviet disunion is facing a decline in both military and any other terms you care to mention. There is also the hope that cutbacks in US naval forces may strengthen the arm of the more enlightened political elements in Moscow and lead to a reciprocal decline in, say, the Soviet submarine building effort." Thus far, however, "there are no changes that justify, in terms of matching capabilities, the partial unilateral naval disarmament which is affecting the West. In 1990 ... the Soviets launched ten new submarines, six of them nuclear powered, with formidable modern weapons and sensors .... Clearly, the West is still seen as an active potential adversary, at least by those who manage the allocation of defence funds." (Sharpe 1991, p. 51).
While it is clear that the end of the Cold War should reduce the sizes of superpower navies, this is not necessarily the case for the very numerous small navies, which have other missions. The tendency for these navies to move up in rank has been mentioned previously. The end of superpower ideological rivalry will not automatically put an end to the numerous rivalries and conflicts that exist among nations. Many of these countries have disputes with their neighbours over religion, boundaries, resources, and historic enmities. Iraq's invasion of Kuwait and the resultant war in the Gulf, as a coalition of Arab and non-Arab nations countered the aggression, was not related in any way to traditional Cold War ideological differences. In several past Arab-Israeli wars - 1956, 1967, 1973 for instance - truces were imposed on the contestants by either the United States or the former Soviet Union. Were this not the case, the wars would undoubtedly have lasted longer, with more loss of life. It is also quite possible that longstanding rivals will choose to arm themselves more effectively if they cannot count on help from a superpower. This might certainly be so in the case of North and South Korea. (Morgan 1991) Without naval support from one or other of the superpowers, both Koreas will probably "beef up" their navies.
Without the action of superpowers to put a quick end to small wars they may tend to both increase in numbers and ferocity. The India-Pakistan wars in the past were primarily over religion (Stoessinger 1982, pp. 115-139), and a dangerous state of affairs continues. The Cold War's ending will have little effect on the state of relationships between these two bitter rivals, and the lack of superpowers to keep their clients in check makes the situation even more hazardous.
Although threats of war between small powers may not become less numerous than they are at present, there may be increasing opportunities for navies of superpowers and medium powers such as the United Kingdom, France, Italy, etc. to utilize their navies in noncombatant roles. Although there is no reasonable way that large combat ships and submarines can be employed in humanitarian and other peaceful uses, the large navies have a host of ships designed for amphibious operations and logistic support of the combat ships which might very well serve in roles such as disaster relief, ocean scientific surveys, maintenance of navigational aids, and production of better nautical charts.
Although several navies might use their ships in these functions, an analysis based on US Navy fleet types seems appropriate, since the American navy is now the largest and most effective force in the world. All ship types listed below are found in reasonably large numbers in the US Navy.
US Navy ships suitable for non-combatant roles
Amphibious ships
Amphibious command ships
Amphibious assault ships (general purpose)
Amphibious assault ships (multi-purpose)
Amphibious cargo ships
Amphibious transport docks
Amphibious assault ships (helicopter)
Dock landing ships
Tank landing ships
Mine warfare ships
Mine countermeasures ships
Coastal mine hunters
Auxiliary ships
Ammunition ships
Combat stores ships
Oilers
Fast combat support ships
Replenishment oilers
Fleet tugs
Hospital ships
All the amphibious ships have characteristics useful for disaster relief operations. They all are designed to load and offload cargo under conditions where ports, harbours, and pier facilities are not available. The ships in the US Navy use helicopters or amphibious boats (those that can run ashore on beaches) in some combination. The amphibious assault ships (multi-purpose) carry as many as 42 helicopters, 6-8 vertical takeoff and landing aircraft, and a number of amphibious air cushion vehicles. The amphibious assault ships (general purpose) carry fewer helicopters, 19, but they have extensive medical facilities on board, including operating rooms, X-ray rooms, a hospital ward, an isolation ward, laboratories, and a pharmacy. The amphibious assault ships (helicopter) are similarly equipped. They carry 20 helicopters and also have well-equipped medical facilities.
The mine warfare ships are of modest size and speed: 1312 tonnes full-load displacement and 13.5 knots for the mine countermeasures ships and 895 tonnes full-load displacement and 12 knots for the coastal mine hunters. Their value for non-combatant operations lies in their relatively economical operating costs and the fact that they can be readily converted for various types of oceanographic surveys, since they are built to stream and recover minesweeping gear and have winches, booms, etc. suitable for handling large oceanographic sampling devices.
Five of the auxiliary ships are designed to carry various types of cargos in direct support of combat vessels. They can load and offload cargo rapidly and transfer it at sea. These characteristics make them useful for disaster relief operations, where there is a need to bring in essential food and fuel supplies rapidly. The fleet tugs can serve equally well in a civilian or military role
The US Navy has two large, splendidly equipped hospital ships. They have a full load displacement of 69,360 tonnes, an overall length of 894 feet, and a speed of 16.5 knots. They are equipped with 1,000 patient beds; 12 operating theatres; laboratories; pharmacies; dental, radiation, and optometry departments; and burn care, radiological, and physical therapy departments. They are manned by a crew of 68 and have 820 on the hospital staff. They were deployed in the Persian Gulf region to support US combat forces in the 1991 war against Iraq, but since troop casualties were very light, the hospital facilities were scarcely needed. It is easy to envision, however, the valuable humanitarian role the ships could play in natural disasters, epidemics, and other events requiring medical help.
Of equal importance to the peaceful operations of navies is the skill and training of crews. The US and other large navies have officer and enlisted personnel well qualified to carry out the complex functions of operating a large vessel. They are trained in a great number of specific job skills, which would be as important in peacetime as in war. Of particular note is the capability of the ships and their crews in precision navigation, handling of boats and aircraft, medical technologies, logistics, and maintenance.
Contrary to much common belief, there is a long tradition of using navies in peacetime roles. For example, exploration was long a prime function of naval forces when wars were not going on. One only has to note that Captain Cook of the British Navy and Lieutenant Wilkes of the United States Navy were explorers who contributed tremendously to our knowledge of the Pacific and Southern Oceans. Much of what is known about the Polar seas was due to the efforts of Russian naval personnel. With the age of exploration long since over, the peaceful role of navies must change in character. But, there is still a good deal of work for them to do for the betterment of mankind.
Navies can also be used in direct support of peace, as well as in simply non-warlike activities. Superpowers, medium powers, and countries with small navies can contribute ships to maritime peacekeeping forces. A group of relatively small but well-equipped ships of several nations can operate together under UN command to deter offensive actions by potentially hostile countries. UN seagoing forces could have forestalled conflict at sea in the Spratly Islands region, for instance, and they could likewise prevent all too frequent fishery disputes that sometimes result in violence.
Navies inevitably will respond to changing conditions, but few nations will be inclined to dismantle completely their seagoing combat forces. However, reduction in numbers of both ships and missiles whose function is nuclear deterrence has been continuing for some time, and almost certainly this will be accompanied by a comparable reduction in ships with missions to support large aircraft-carriers and battleships. Still, the world will almost certainly remain an uneasy environment for the conduct of international relations. Security at sea will continue to require navies, but one can hope that in a more peaceful, less ideologically competitive world seagoing forces will be used more for defensive and humanitarian roles than for missions of mass destruction.
Alexander, L.A., and J.R. Morgan. "Choke Points of the World Ocean: A Geographic and Military Assessment." Ocean Yearbook 7, 1988: 340-355.
Allen, S. "The Elements of Sea Power: Mahan Revisited." Ocean Yearbook 7, 1988: 317-339.
Barnaby, F. "The Role of the Submarine." Ocean Yearbook 9,1991: 326-338.
Hill, J.R. Maritime Strategy for Medium Powers. Annapolis: Naval Institute Press, 1986.
Mahan, A.T. The Influence of Sea Power Upon History 1660-1783. Boston: Little, Brown, 1890.
Martin, L.W. The Sea in Modern Strategy. London: Chatto and Windus, 1967.
Moore, J.E. (ed.) Jane's Fighting Ships. London: Jane's Publishers, 1978.
Morgan, J.R. "Small Navies." Ocean Yearbook 6, 1986: 362-389.
Morgan, J.R. "Naval Operations in Korean Waters." Ocean Yearbook 9, 1991: 294-306.
Morris, M.A. Expansion of Third World Navies. New York: St. Martin's Press, 1987.
Sharpe, R. (ed.) Jane's Fighting Ships 1991-92. Alexandria: Jane's Information Group, 1991.
Stoessinger, J.G. Why Nations Go to War. New York: St. Martin's Press, 1982.
United Nations. The Law of the Sea. New York: United Nations Press, 1983.
Ocean governance and development: The question of financing
Ruben P. Mendez
Introduction
The
present situation
Specific
proposals
The global commons: disputed and encroached
areas
Institutional arrangements for financing
Notes
The pattern of life on earth has changed radically and irreversibly in this century, and our institutions have not kept pace. Like the oceans themselves, the challenges we now face transcend national boundaries, and yet our laws and funding mechanisms, for the most part, operate at the national level.
A shift, however, seems to be taking place. The Law of the Sea Convention is just one example of a growing recognition of the need for new reforms of international cooperation. But implementing the Convention's programmes and dealing with other critical environmental and developmental issues will require a substantial increase in available funding.
The present pattern of international assistance and other public financial flows, which relies almost completely on unpredictable voluntary contributions, has become obsolete and is woefully inadequate. The urgent challenges before us call for a new approach to questions of international public finance. This chanter,1 discusses a system of taxes, user fees and other mechanisms that could generate substantial revenues on an automatic rather than a discretionary basis, comprehensively rather through the present patchwork. These could be used to fund general and ocean-related development programmes and also the regulation and conservation of ocean resources.
Although these ideas are still new and controversial, there are many reasons to believe that they provide a viable approach, and because the marine environment affects us all so pervasively, the oceans provide an ideal starting point for a system of international public finance. The Law of the Sea Convention, by designating international property rights to the deep ocean bed, has, in fact, already set this process in motion.
Because of the huge volumes of economic activity involving the use of the oceans, international taxes or user fees could mobilize substantial revenues. For instance, a tax of just 0.1 per cent on international trade - 95 per cent of which is through ocean freight - could yield almost $4 billion, based on the level of imports in 1993.
In addition to mobilizing revenues, a variety of "Pigovian," or corrective, taxes and user fees are desirable for the management and optimum development of ocean resources. Charging users for the cost (to other potential users) of using the global commons can prevent the overuse of what is wrongly perceived to be a free and inexhaustible resource. Specifically designed long-term or even quasi-perpetual leases on fisheries, for example, could provide an incentive for leaseholders to maintain, rather than deplete, the resource. And "permits to pollute" could be sold at a price that would discourage polluters and at least equal the cost to society of the pollution. Charging polluters for the damage they cause is more efficient than trying to enforce across-the-board regulations.
Fig. 1 Total net resource flows to developing countries, 1980-1989
Financial measures such as those cited could be implemented within the existing international political framework by means of conventions, or multinational treaties. The automatic, compulsory nature of the charges would eliminate the "free-rider" problem that tends to undermine voluntary funding schemes.
The potential sources of revenue that can be derived from the oceans are varied and extensive. While some may be placed in a general fund for international programmes, a substantial portion should be allocated specifically for ocean governance and development. A proposed multisectoral oceans organization or institutional arrangement could help mobilize these funds and manage their expenditure.
Inadequacies and needs
The scale of funds raised for official development assistance (ODA), $60.4 billion in 19922, pales in comparison to what is spent annually on arms, about $900 billion (based on estimated expenditures in 1989)3, and to the magnitude of the problems that need to be addressed. The present pattern of resource mobilization for assistance programmes, based almost completely on discretionary contributions, has been sorely inadequate, unreliable, and unpredictable. For the past two decades, voluntary contributions have amounted to an average of only 0.35 per cent of the GNP of the developed countries. This is half the 0.7 per cent target established by the United Nations General Assembly and OECD's Development Assistance Committee. Figure 1 shows that in real terms, official development finance stagnated during the last decade, and total net resource flows to developing countries dropped precipitously by 33 per cent.
Even the assessed obligations of Member States to the regular budgets of the organizations of the United Nations system have not always been honoured by the large contributors, for various political reasons. The effectiveness of these organizations has thus been critically hampered and in some instances their very viability threatened. Political considerations could easily jeopardize funding for programmes concerned with the oceans, in view of the refusal thus far of certain industrialized countries to ratify or accede to the Law of the Sea Convention. As for funds raised by the World Bank and regional development banks through members' subscriptions and in international capital markets, these are lent to the highly credit-worthy middle- and high-income countries, to maintain the banks' credit ratings.
The inadequacy, unreliability, and unpredictability of present funding sources point to the need for a new system akin to that practiced by nation-states, comprising financing mechanisms that are "automatic" rather than discretionary, as described above.
New funding mechanisms are especially appropriate for ocean governance and development, since the oceans constitute 75 per cent of the world's total surface, contain extensive living and non-living resources fisheries, minerals, and the principal means of transport and are part of the global commons. The oceans, moreover, are the main influence on global climate, absorb most of the atmospheric carbon dioxide and substantial wastes and are the object of extensive expenditures. Substantial funding will be required for:
- the eventual implementation of the rules and programmes of the Law of the Sea Convention;
- the ecologically sound development of marine fisheries including those of the Southern Ocean;
- the exploitation of the resources of the deep ocean bed, e.g., by the Enterprise, for the benefit of all mankind (and, depending on further exploration, the possible need to manage the ecosystem of the deep ocean bed, where various forms of life have been discovered);
- the prevention of marine pollution;
- further research and possible action on the influence of the oceans on the global climate and on regional weather patterns, and other activities such as their development for energy and fresh water.
Averting the tragedy of the global commons
Even the most abundant resources have their limits, and the unrestrained use of the commons leads to their degradation, as illustrated by Garret Hardin in "The Tragedy of the Commons."4 Charging users for the cost of using the commons can prevent overuse of what are wrongly perceived to be free resources. Fees would drive home the economist's principle of "TANSTAAFL" - the acronym for the colloquial aphorism "There ain't no such thing as a free lunch"5 - the counterpart of the environmentalist's "polluter pays principle."
An important requirement for levying such charges and fees is the designation of the oceans as common property, a resource belonging to all mankind, or res communist. This is in contradistinction to the notion of res nullius, a thing that belongs to no one, and is therefore "up for grabs." It is in the latter situation that the tragedy is bound to occur.
Designating the oceans as res communis has ample precedents in traditional international law, dating from the time of Grotius, and a basis in the principles of equity. It could underpin a system of charges for exploiting the ocean bed, marine fisheries, navigation and over-flight, and developing the resources of the Southern Ocean. These charges could, at the same time, lead to more protection and better management of marine resources. The level of fees or charges would vary according to the different kinds of uses or purposes. In some cases, demand could help establish appropriate costs. In other cases, fees may be set in line with economic rents or the level of revenues needed.
The changing political tides
The UNCLOS precedent described above is but one example of the increasingly "porous" boundaries between sectors. In many other areas we also see a breaking down of barriers to traditional ways of generating funds for interregional projects. This development seems to be part of a growing recognition of the integrated and interdependent nature of the challenges and issues before us and the need for parallel institutional changes. It follows a long-term trend of essentially progressive attitudes toward financial matters.
This historical trend is evident in the economic philosophies that have prevailed since the advent of a sense of international community. Laissez faire replaced mercantilism as a more effective means of promoting international trade. After World War II a variety of development assistance programmes sprouted in response to widespread agreement on the need for a more equitable distribution in the wealth of nations and for international development assistance and economic cooperation.
The establishment of a broad system of international taxation to fund these efforts seems basically a question of time - elements of it are already in place. Although nations are jealous of their sovereignty, and do not readily submit to international authority, compulsory payments to the regular budgets of public international organizations have already been agreed to universally, in principle if not always in practice. In the World Bank and the International Monetary Fund the financial obligations of membership are punctiliously observed. Many political leaders and students of political economy raised the need for a more equitable distribution in the wealth of nations - for a narrowing of the gap between the rich and poor nations - and for international development assistance and economic cooperation. These led to the sprouting of a variety of international assistance programmes after the end of World War II. The beginning of Special Drawing Rights in 1969, although in rudimentary form, was a breakthrough that had been dismissed as fanciful only a decade earlier. And at the Toronto Conference on the Changing Environment in 1989 the participants, including the developed countries, called for international taxation to protect the global environment.
Perhaps the strongest precedent can be found in the European Community, where a true system of international taxation is already in full practice. Under this system, members of the EC pay 1 per cent of their value added tax (VAT) income to the European Commission, with the percentage increasing gradually over the years as Europe-wide legislation supersedes national legislation. This system could serve as a model for financing worldwide institutions such as the United Nations and its affiliated agencies. It illustrates the quickening pace and possibilities of institutional change in the fields of international political and economic relations.
Revenue taxes: Economic potential and technical features
Ninety-five per cent of international trade in goods uses the global commons through ocean freight, and because of the sheer volume involved, a tax on goods and services crossing national boundaries could yield enormous revenues without posing undue hardship. There would, of course, be exceptions, such as Singapore, but special provisions could be made for such cases.
International trade reached almost $4,000 billion in 1989, as measured by the volume of imports. This means that an ad valorem tax levied at only 0.01 per cent could yield almost $4 billion annually in revenue. A tax of 1 per cent could yield almost $40 billion, and a tax of 2 per cent, almost $80 billion, which alone exceeds the total volume of ODA that year. Projected annual export growth rates of at least 6 per cent annually (at constant prices) in the 1990s6 indicate steady growth in revenues. National customs offices would provide a ready-made administrative infrastructure for tax collection.
A general trade tax need not, unlike tariffs, depress the total volume of trade, because of the enormity of the tax base, the rate could be set at a much lower level than tariffs, which are designed deliberately to serve as disincentives to imports. Computer modelling could determine rates that would raise substantial revenues without depressing the volume of trade. The trade tax could be collected either at the point of importation or the point of exportation, preferably at the former, since taxation of imports is much more common and the necessary infrastructure of experienced customs officials and facilities is already in place. If a particular country refused to tax its imports, its trading partners could levy taxes on their exports to it. Determining the commodities subject to a general trade tax should be fairly straightforward.
One technical problem concerns re-exports. It is arguably unfair to tax imported materials again when they have been processed and shipped to another country in the form of finished goods. It should be possible, however, to resolve this problem by giving the exporter a credit or rebate. Other questions concern the treatment of capital goods used in development, and the treatment of certain countries, such as Singapore, that are particularly dependent on international transactions. Here, a system of exemptions or deductibles, and graduated rates could be applied.
As far as invisible items are concerned, it would be practical to include insurance and freight charges in taxes imposed at the point of importation. Import taxes are often charged on the c.i.f. value of imported goods, that is, on "cost, insurance and freight." Other invisible items such as the expenditures of tourists, diplomats and military personnel, would be exceedingly difficult to tax and should therefore be exempted.
How are national boundaries to be defined for the purposes of trade movements? One possibility would be to use membership in the United Nations or any of its specialized agencies as the criterion. This would include practically all countries, including Switzerland and Tonga, but there would still be the political problem cases of Taiwan and Western Sahara. A practical solution would be generally to treat all trade that passes through customs as international. Like a sales or value added tax, a general trade tax would not in itself be progressive, but its effect could be made so by using its proceeds for programmes benefiting poorer countries and the international activities cited at the beginning of this chapter.
There are the principal technical questions that might arise in the administration of a tax system. There would undoubtedly be others, but as in the case of national taxation - where the most complex systems exist they could be dealt with in various ways. It is clear that a system of international taxation would be technically feasible, even in the face of intricate administrative problems.
The immediately preceding discussion focused on issues relating to a general trade tax, but much of it could also apply to taxing other traded goods. For example, international taxes could be levied on specific traded commodities, such as internationally traded oil, other exhaustible hydrocarbons such as coal and natural gas, mineral raw materials, such as aluminum, copper, iron, lead, nickel, manganese, tin, and zinc and on international passenger and freight transport.
Pigovian measures
In addition to mobilizing revenues, a carefully designed system of international public finance can help regulate and protect the environment. A corrective, "Pigovian", system of incentives and added costs can provide public funds, regulate activities with negative external effects on society and the environment, and promote activities with positive external effects. These are all desirable social outcomes, ones that mechanisms based on market forces and voluntary contributions alone cannot produce or can produce only at inadequate levels. Many problems of the international economy are in fact due to its almost complete reliance on market forces and the goodwill of the rich.
Taxing oil
Oil consumption is the chief cause of increased carbon dioxide and much pollution in the atmosphere, and a tax on oil imports and consumption could play a significant Pigovian, or corrective, role. To be effective, it should increase the cost of oil substantially enough to discourage consumption, encourage energy-saving measures and alternative sources of energy and - to the extent that it does not - to raise funds for corrective and compensatory purposes. Of all the components of world trade, oil holds the most promise for additional tax revenue. Despite its decline, oil accounts for the largest single portion of international trade, after manufactured goods (excluding iron and steel and non-ferrous metals). It thus has the advantage of a large base, but a tax on both domestic and internationally traded oil would have the advantage of a much larger base and a wider distribution of the burden. While the more developed countries would contribute more, there may still be a need for differential rates to ease the burden on developing countries for which the import bill is already onerously high.
Among the many alternative sources of energy that become economically viable are those from the oceans. Some estimates place the worldwide potential of tidal power at the equivalent of more than one billion barrels of oil a year, or 5 per cent of global oil consumption, and the potential of wave and ocean thermal energy at much higher levels. Investment in the development of alternative sources of energy and the promotion of energy efficiency is inhibited by the low price of oil. A tax on oil could change its relative advantage, with beneficial effects from an environmental viewpoint and, in the long run, also in financial terms. Wave-energy devices arranged in line offshore and acting as a barrier could provide other benefits such as harbour protection and aquaculture. Ocean thermal energy conversion (OTEC), utilizing the temperature differences between warm surface and cold deep waters, could be combined with desalinization and other economic activities. Proceeds from oil taxes could be used for further research on alternatives such as these and their development in the twenty-first century to reduce the greenhouse effect of gases and replace dwindling oil reserves.
Taxing polluters of the marine environment: A case-study
Some of the most visible pollutants of the marine environment are oil and petroleum products. Taxes on the amount of oil discharged into the ocean would induce offenders to reduce polluting emissions and, to the extent that total elimination was uneconomic, produce revenues for clean-up operations.
In this situation, taxes would take account of external environmental costs in a way that the market mechanism does not. In a free market, an oil company will pollute the marine environment as long as the environmental costs are not reflected in its income-and-expenditure accounts. Pigovian taxes - in this case a form of fine calculated on the basis of the amount of damage it inflicts on the marine environment (and society) will "internalize" these costs, so that the company will have an incentive to use safeguards. Should the incentives fail, funds will nevertheless be generated to clean up the ocean waters.
A differential tax could also be imposed so that polluters installing anti-pollution devices would be taxed at a lower rate than those who do not. This kind of tax could reduce chronic emissions from routine tanker operations, the single most important cause of discharges from shipping, accounting for one-third of the hydrocarbons entering the ocean from all sources.7 The problem arises because of the fact that after oil tankers unload oil in port, they are too light to sail. So, typically they fill some of their tanks with sea water to add weight (or ballast) to the vessel. When the tanks are emptied and cleaned to take in the new cargo, a significant amount of oil (which had been clinging to the walls of the tanks) is released with the ballast water.
Tankers with segregated ballast tanks do not, on average, discharge as much oil into the oceans, and a differential tax on these two types of ballasts would motivate owners to replace old ballast tanks with segregated ones. Within the first year, assuming that all tankers would, by then, have segregated ballast tanks, revenues would fall by about 50 per cent according to a UNEP study8 and Steinberg and Yager. They estimate an annual revenue over a 20-year period of more than $20 million, assuming a tax of $10 per ton of spillage from tanks without segregated ballasts. At lower prices, oil consumption, shipments and spillage subject to tax would rise and higher rates, say, of $35 to $40 a ton, might be needed to induce tanker owners to install segregated ballasts. Under these conditions, the tax could yield a total revenue exceeding $100 million annually and over a 20-year period induce tanker operators to spend between $4 and $5 billion on pollution-abatement technology.
The taxes just cited are only examples of many possible Pigovian measures that could be designed to help reduce pollution of the oceans. Such measures could be extended to other parts of the global environment. Similar taxes could be imposed on users of carbon fuels to internalize the environmental costs of "the greenhouse effect," on loggers to internalize the socio-economic costs of deforestation, on producers of chlorofluorocarbons (CFCs) to internalize the adverse effects on the ozone layer, and on other generators of negative externalities.
Leases, permits, and auctions
Another way of internalizing external costs to society and the environment is through the granting of leases to private parties to exploit certain areas. Such leases, however, should be granted only on a long-term, even a quasi-perpetual, basis so that there would be an incentive to maintain the resources of the areas under lease rather than to overexploit them. For example, fishing nations could be assigned specific areas of the oceans in which only fish of a particular species, e.g. tuna, might be caught. As payment for the benefits derived available to some nations but not to others - user charges in the form of leases would be imposed.
The cost of administering such schemes may leave nothing significant for general development purposes, but would be a means of financing ocean governance. The discipline imposed could lead to economic efficiency and sustainability. Both the designation of specific fishing areas for specific species and the fees for the right to fish in these areas, would lead to a heightened awareness that a hitherto free resource is limited. The fishing nations would be compelled in their own self-interest to conserve their marine fisheries.
Another means of internalizing external costs would be to sell permits to pollute. The cost of the permits would equal the marginal cost (to society and the environment) of the pollution. This method is used in nation-states and smaller political entities such as States and cities of the United States of America. The advantage of permits to pollute is that the polluters would pay according to the amount of damage they inflict on the environment, which would not be true of across-the-board regulation. National experience has shown this an effective way of dealing with pollution, providing financial means for "cleaning up" the environment and an incentive to decrease pollution. A market for trading in such permits exists in the United States. A global market is also a possibility.
Legal and administrative arrangements
Legal and administrative procedures for international taxes, such as those described here, could be put into effect within the existing international political system. Essentially what is required is a convention, or multinational treaty. At a minimum, it should deal with:
a. defining the tax base;
b. setting the tax rate;
c. the method of collecting the tax;
d. the initial disposition of proceeds;
e. conditions for the treaty to enter into force;
f. sanctions against treaty violators; and
g. the procedures for withdrawal.
Provision might also be made for review of the treaty after a specific period, or for its automatic termination at a fixed date, unless the parties reaffirmed their ratification.
The treaty could include a ceiling on tax rates, so that the tax liability on citizens of each country would not be open-ended, and a certain flexibility to vary rates. Differential tax rates could be used for distributing the tax burden more equitably.
The treaty need not deal with all of these subjects in a definitive way. It could sketch the broad outlines of the proposed tax and leave the filling in of details to a standing body representing the parties to the treaty. This body could, for example, be given the authority to handle specified procedural and administrative problems and even adjust tax rates within stated guidelines.