never ratified anything. so under this treaty in fact we are completely protected as to any environmental effort because, one, it can't come through the council where we have the veto and, two, it is specifically stated within the confines of the treaty that you only are subject to something if you've signed up to it, and nobody comes through the back door to make you sign up to it. so i think when you see that i think you'reoing to feel mplely mfortable. final question -- let me just ask you. i want to get this on the record. is any one of you here because you're a good soldier or are you here because you're representing your industries and you're expressing the views of the people you represent? mr. timons. >> the latter, mr. chairman. >> i asked you first to please get busy on the deal and you did and i thank you very much. we've -- we'll talk some more, senator. i mean, this is a very serious issue in so many ways, and i

think this is a vigorous discussion and, mr. chairman, thank you for resolving that. my lawyers will get it done a lot faster now. >> thank you. >> until the question asked i didn't view it as being here in support of the administration. our view transcends political party and administrations. our view, regardless of who's in the white house, we look at the substance of the treaty, and that's our focus. >> and i want to emphasize again, the administration did not ask us to bring this treaty out now. we went to the administration and said, what do you think about it. again, it's clear on the record here, and mr. donahue's made it clear, that he made the request for us to be here at this time initially and that's what got us going. >> senator sheheen? >> thank you, mr. chairman, and thank you all for being here. i apologize for missing your testimony. i was in an energy hearing, so i'm actually going to start with that, mr. gerard, energy.

and i wonder if you could talk about why this treaty is important to the energy security of the united states in your letter to the committee you stated that exsession will provide great energy security by securing the united states exclusive rights for oil and gas production. so could you elaborate on that and why -- talk about why it's important? >> surely. it gives us expanded opportunity for the extended continental shelf, the extended resource to develop those resources under the guise and direction of the united states and u.s. law. when we're focused on more specifically right now which is a talked about regularly as the ar particular, it says to me that the ar particular has 1/4 of the world's oil and gas reserves. that is a big number. and right now as we look at it we will be limited in our ability to go beyond our 200 mile exclusive economic zone

unless we become parties to the treaty and, thus, can claim the extended continental shelf. it's estimated our claim up there could go as far as 600 miles t. would give us a very significant footprint. coming back to the fundamental issues i talked about earlier before you got here, senator, certainty is the key. if we have knowledge, understanding, and confidence into who has the rights, who controls, what law controls, it's much more likely the investment will flow. if the risk is too high, the investment will occur but it will go elsewhere in the world. the world continues to shrink as to our ability to produce these resources. with modern technologies today, we can do things we couldn't think of 350 years ago when the treaty was first written and talked about. so it's a very significant time for us on a global basis to look at the potential for oil and gas development. >> thank you. mr. donahue, in your opening

remarks you stated that companies -- companies will be hesitant to take those investment risks, and -- which echos what mr. gerard just said. i wonder if you could talk specifically about any sector of the u.s. business community that opposes u.s. succession to this treaty. have you heard from anybody who opposes it? >> there are a number of think tanks and others who are -- represent some elements of the business community. there are, as senator crocker indicated, people who are concerned about environmental issues, but across the board the people that we represent are concerned about the following issues. a, energy, which is the

financial base on which we're going to fix this economy and give us more energy security. second issue is some legal certainty when the 161 other countries are involved in a process of basically divvying up in their own mind the natural resources in the sea. also a lot of very important issues here on navigation, on supply chain management, on the ability to get at rare earth minerals. this -- to me this is very important and it's an easy issue because you have all -- you have many protections from any -- any difficulties that might come from being a part of the treaty. you have many exclusions because

you're not a part of the treaty, and as everybody on the panel indicated, you obviously had the protection of our armed forces, but we can't sort of run around the world doing our business like that every day, although i would say that the chamber is a vigorous supporter of our armed forces because you can't participate in a global economy without security. and, you know, i think there is a very clear process in the chamber that brings the great preponderance of our members to being in support of this. senator, you might imagine with more than 300,000 members and the ability to legally represent 3 million companies, i can never get anybody -- everybody to agree on anything, including what day it is. >> but just to be clear, you haven't heard from the businesses that you represent any significant down sides to

this country ratifying this treaty? >> exactly. that's correct. and i am more comfortable myself after i have spent a good deal of time exploring that question with our own associates and with people around the city and with members of the congress. and i thank you for that question. >> thank you. mr. timmons, mr. donahue talked about the rare earth minerals from china just now, and you pointed out in your testimony that china's in the process of sharply reducing those exports and that they may eventually consume all of them within the country. can you talk about what the impact might be on both what the advantages of our ratification of the treaty gives us as we're competing for those rare earth minerals and then what would happen if china, in fact, did consume what it's currently

exporting all within country and what impact that would have on consumers and on businesses and jobs in this country. >> yes. if i start with the latter question first. if -- if we don't ratify the treaty and businesses don't make the investments necessary to take advantage of the -- of the rare earth nodules that exist on the sea bed floor and china does use all of its rare earth materials, it would be devastating to the american economy, to manufacturing, and to jobs in this country. the bottom line, as has been stated many times on this panel, is that businesses require certainty before they make multi-billion dollar investments. mining on the sea bed floor is -- is not an inexpensive proposition. it requires years of studying, planning, mapping and significant investment to do so.

and companies simply aren't going to do that without the certainty that the treaty provides. one of the reasons that we have those strong military that we've all acknowledged and that we all admire is because we have economic might in this country. the rare earth debate is -- is one that businesses have been quite aware of for a number of years but it's -- it's rather new in the public dialogue, but it is one that will determine our ability to compete and succeed in the international marketplace in this global economy. and it's one that we simply cannot take for granted moving forward. >> and you talked about the importance of certainty before companies are going to be willing to invest large amounts of money that are required. can you talk about the extent to which those investments are happening right now or are those sitting on the sidelines waiting to see what happens with this debate? >> they are sitting on the sidelines for the most part, senator. and i would say that it's not

only in this realm. i think it's very important to remember that it's 20% more expensive to manufacture in this country than among our major trading partners after you take out the cost of labor, and that's because of lots of different things. taxes, regulation, energy wherefore the first time in many, many years we actually have a slight cost advantage. but this is another significant amount of uncertainty that -- that will not allow capital to flow to those investments. >> thank you. >> senator, just one comment and jack gerard may want to mention, while there aren't many companies down on the deep part of the shelf bringing up the rare earth materials, many companies are preparing to do it. you just don't go out there with a boat and throw something over the side. this is a huge, complicated, technical issue and there's a lot of money being invested by

american companies and by consortiums of companies to figure out exactly where it is, exactly how to do it, and exactly how to do it in a safe and environmentally sensitive way. >> thank you. >> thank you, senator sheheen. senator eye isaacson, thank you for your patients. >> thank you. i need to get a couple of clarifications. i wrote down some things i heard in the absence of my having read the testimony so i apologize, but, mr. gerard, you made a statement, i think it's with regard to shell, had invested $4 billion in the arctic. they sent two ships to look at their first claim, is that correct? >> yes. they acquired the less five years ago. through the process of permitting and getting the ability to go out and actually start to drill a well, they've been in that process five years. it's cost them $4 billion to this point, and we hope they're

going to get final approval to drill those first wells this summer during this summer season, but that's how long this process takes. my simple point was these are long-term investments and they're very significant. so we've got to know that we've got some rights intact before we commit to make those investments. >> who is granting that permit? >> u.s. government. >> it's on our current territorial waters? >> yes. it's within the 200 mile exclusive economic zone. >> thank you very much. mr. timmons, you made a statement, and i wrote part of it down so i apologize again if this is wrong. this is an important issue for me. i'm talking about deep sea bed. you talk about international bodies that have permission to issue permits? did i misunderstand you? >> i think so. >> so if currently somebody was going to the deep sea bed to try to mine rare earth minerals, there is no current authority other than what authority --

>> under isa, the convention. >> mr. donahue, the last time i brought this up the chairman and i got into a 15-minute discussion and i blew up the whole meeting. this veto thing is an issue of which there is a lot of conversation. the chairman in his response back to you talked about the council. i'm not talking about environmental right now, i'm just talking about the council. the veto is when you object and there's an absence of consensus? that's what i understand the definition to be. but i also understand on the council and the assembly there is an override that absence of consensus that says a simple majority of those present and voting or a 2/3 vote of the assembly. am i right or am i wrong? >> senator, having watched the discussion here, committed to get some more detail for your colleagues, and not wanting to start another 15-minute harangue, i look forward to

answering that question in specific detail with at least two opinions on the subject. >> i appreciate that and so does the audience. >> thank you. >> thank you very much. mr. mcadam, in your testimony you refer to some nations have attempted to encroach on the ability of u.s. operators to effectively manage or deploy or prepare maintenance and repairs on that you are lines and in your testimony you cite malta's attempt to assess a fee or a license. you talked about a vietnam carrier that had done 106 miles worth of damage to your cable. do you have another example -- are those the two examples you're referring to in some nations or some other examples come to mind? >> yeah, there are other examples, for sure, senator. just one is in india. even though we don't cross into their territory, they require the cable laying and maintaining ships to put into port and they assess a fee against them.

it's against the convention, but they do that. and so we have to take legal action or we just have to pay the fees. so those are three examples. >> so the convention exempts you from having to pay a licensing fee or arbitrary fee in order to maintain your cable or lay your cable? >> right. that's all laid out in a framework that we can rely on versus having these unilateral actions that have occurred in many places. >> does the sea bed authority or the assembly or the council have to issue a license to lay a cable? >> i would have to look at the specific details of that, senator. i don't know that off the top of my head. >> because i'm sure we're laying cable now and we're not a party to the treaty. >> right. >> so my question would be if we're laying cable now, not a party to the treaty, would being a party to the treaty from your testimony only benefit us to the extent they would exempt us from paying fees to the countries? >> no. it's not -- it's not the fees, it's -- it's -- we are in and out of these cables constantly, upgrading the technology, doing

maintenance on the cables, and i think the concern that we have is the arbitrary nature of what happens today. and if we can have greater certainty, we can predict our costs better and we can make those investments. that's my main point, senator. >> thank you very much, i'll hand back the balance of my time. >> before you run out, let me say to you quickly, the important -- because you've raised an important question. the voting structure in the council was significantly rewritten as part of the 1994 implementing agreement and it was rewritten in a way that gives the united states a tremendous amount of influence even in matters where the council does not act by consensus so we, in fact, do have a veto over every item that would be critical to us. let me be very specific quickly. finance committee was created. we insisted on this. it has to make recommendations on all financial and budgetary matters before the full council can make its decisions.

the finance committee operates via consensus and there are provisions making clear that the united states will be permanently on that committee. so we have the ability to prevent any counterbudgetary or fiscal matter from being con trir ri to our interests. then the council secondly is divided into several chambers. for any other issue not decided by consensus there is a rule stating that any chamber by majority vote can veto a matter and the united states would be in the chamber with four members so there we'd have to get two other members to agree with us but we, again, could have veto by virtue of that. third, this is very important, section 3 paragraph 4 of the annex states that the isa assembly cannot take a decision on, quote, any matter for which the council also has confidence or any administrative budgetary or financial matter unless it does so based upon a recommendation of the council

where we have the veto. so it can't change the recommendation of the council, all it can do is accept it or send the matter back. so in effect, because of our negotiations in '94 which came out of president reagan's questions about this, we have, in fact, negotiated a rather remarkable position for our self which we're not able to exercise. so we'll get this fully, you know, properly articulated in the context of the record, but i wanted you to be aware of that. >> thank you, mr. chairman. would you mind providing me with that from which you're reading? >> we will give the entire thing to you. we'll give you all the details. >> thank you, mr. chairman. >> you got it. >> mr. chairman, can i ask that you share it with all of them? >> everybody on the committee will get t. thank you, senator casey, for your patience. >> mr. chairman, thank you. thank you for calling this hearing. this is a vitally important issue, and it's -- we're spending time on a subject

matter i think that sometimes we don't in washington do enough of. i'm grateful to be part of this. i'm sorry i'm late. at the risk of being redundant, i'd say that redundancy is important in washington, repeating important messages is important, so i might be plowing old ground, but part of what -- part of it i think hasn't been touched on with great detail yet is mr. mcadam, some of the statements in your testimony that i'm not sure have been -- have been put forth again. i'm reading from page 2 -- it's the first page of your testimony labeled page 2, and you say in the second to the last paragraph, and i'm quoting, aside from our land-based connections with canada and mexico, more than 95% of u.s. international traffic, voice, video, internet, and data

travels over 38 submarine cables each the diameter of a garden hose. without these cables current satly capacity could only carry 7% of the total u.s. international traffic. for that as a predicate, i'd ask you based upon that depends dense we have i guess is the best word, what can you tell us about the importance of this -- of this treaty just as it relates to that 95% dependency that we have on that transmission? >> well, we invest a great deal, senator, in making these cables as redundant as we can. we use the term mesh networks, and if you think about it as a fence, you can cut certain pieces of it but there are other pieces of the network that are redundant and therefore so we're the same as the government in some ways, i guess, we -- to make sure that our customers can rely on that service.

that helpings s us when we have things like storms or earthquakes that sever the cables but if a country takes some sort of unilateral action such as we have seen and doesn't frankly support some of the repair operations that we had in vietnam, and i referred to that in my testimony where it took many months to get those cables repaired, that really can impact global commerce. and so the framework that we will have in place with the treaty allows us to have an ongoing dialogue with the country. we have a set of rules that we can rely on. if there are disputes, we have arbitration we can go to. we can enlist the help of the federal government where our local team can't make the proper head way. so it is a series of additional steps that give us greater certainty and allow us to make these sorts of investments. >> thank you. i was going to go back to a question i know that senator a

sheheen raised and i'm sure others did as well. the question of manufacturing, mr. timmons. i appreciate your testimony. i represent a state that has had a long and very substantial legacy and reputation for manufacturing, and we've had our challenges as you and i have talked about, but we've had a bit of a resurgence and i think we're, frankly, headed in the right direction in terms of being able to greater maintain manufacturing jobs. if someone -- if i were traveling across pennsylvania this august when i'm going to be home and someone grabbed me on the street and said, tell me in a few words why this treaty is important for manufacturing generally having a strategy for manufacturing but especially for maintaining those jobs, what -- what should i say to them in a few sentences? if you can help me with that. >> well, when you're looking at the issue of rare earth

materials, it is a -- it is a vital component of all manufacturing processes, particularly the chemical industry. you have a large preponderance of folks involved in the chemical industry. without those rare earth minerals, manufacturing won't be able to compete and succeed in the world marketplace. ten years ago this country was able to produce 100% of the rare earth materials that we used in manufacturing. today we on shore produce none. and that's because of many factors, regulatory matters, permitting and other -- other factors. the bottom line is if we can't access rare earth materials on the deep sea -- of the floor of the sea, we are going to be put at a significant competitive disadvantage. the manufacturing renaissance that you and i have spoken about will cease to exist and it will harm our economy and cost jobs.

>> i don't think that's a couple of sentences unfortunately but i'll work on that and get back to you. >> but i'd add one more sentence, maybe you're going to say it. if we do this right, we'll drive down the costs and increase the availability of fuels and that's going to have a large, large effect on manufacturing and on your state's economy. >> thank you, mr. donahue. senator, i was going to add something you already know. the other answer that's very interesting in your state is natural gas. the price is down to 2, $3 range today. 83,000 new jobs in your state as a result of that resurgence and i think as jay said earlier, that is primarily what's driving the manufacturing research in the united states. we often forget that those chemical plants and others are primarily driven by the feed stock of natural gas where they convert natural gas to all the products we consume every day and don't think about. so it's natural gas, low cost,

affordable, reliable energy that's driving those other benefits in our economy today. >> i'll submit some more questions for the record. thank you so much for your testimony. mr. chairman, thank you. >> thank you very much. senator sheheen, do you have any second-round questions? >> i have a couple, mr. chair men. man. i know one of the questions raised about the treaty, i heard some of that today, what is the real authority of the international sea bed authority and how would our participation play in that. and i wonder if you all have looked at the authority to the extent that it's operated today and whether you have any views about countries like russia and china and what their actions have been on the authority in

our absence and whether -- whether they are, in fact, taking advantage of our inability to ratify the treaty and participate on the authority. what impact has it had to have the u.s. not be part of that body? >>. >> i'll try it, senator. first is to us, that's very significant. as senator kerry mentioned earlier, the '94 changes, the amendments, were very significant in giving us additional power of permanent seat on that council in the sea bed authority. the reason we say that is twofold. number one, any other decisions that come out of there, we essentially have that veto right. we interpret it as such, so i'm anxious to hear others' legal opinions. we've gone to outside countries counsel and we view we have that right and that authority within the sea bed council. but the other thing we shouldn't overlook, there's been talk about royalties and other things that come from the oil and gas

production being in the sixth and 12th year, today if they're produced anyplace else in the world, those dollars go to wherever that group that allows them to sit there will go. if we have the seat -- the permanent seat in the council, we have the ability to direct that, to make sure that those very significant resources aren't given to unfriendly nations around the world and aren't spent for purposes not in the best interest of the united states. we think it's twofold. number one, we need to be there to secure our own rights but, number two, by being there and having a seat at the table, we can influence and have some direct leverage over other decisions the sea bed thord is making. >> so just to be clear, they're going to assess those rates from our companies whether we're a member. treaty or not? >> well, they apply only beyond 200 miles. my point is that others who are participants who might be paying in that fund today, those

dollars go elsewhere without us having any say until we accede, participate and become part of the treaty process. does that clarify? >> uh-huh. thank you. the other thing that i wonder if -- and this -- again, this may have been covered to some extent, but i haven't heard much discussion since i arrived about how we benefit in the arctic. i mean, you talked about that a little bit, mr. gerard, in terms of our ability to have much more of an opportunity to access the minerals that may -- and the resources that may exist under the arctic, but can you also talk about how what's happening there with other countries and are we lagging behind russia and those other countries who may be also interested in the resources of the arctic? >> well, if you look at the way the authority is set up with the

commission on the limitation, the continental shelf, which determines how far those boundaries may go based on the definition of the continental shelf, those nations that are active in the arctic or seek to be active, russia, denmark, norway, canada, others are all participants. and many of them have already filed or laid claim to those lands or those potential lands in the outer continental shelf. we stand here watching that happen. we have a very, very significant interest in the arctic, and as i mentioned earlier, shell hopefully will start that again today. it's estimated that 1/4 of the world's oil and gas resources are under the arctic. why we would sit on the sidelines and watch the rest of the world develop that resource to us is somewhat mystifying, not to mention our own resources that we have within our own 200 mile exclusive economic zone. we're the only industrialized nation in the world that does not take full advantage of