United Nations Convention on the Law of the Sea ANNEXES 1-3

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ANNEX I. HIGHLY MIGRATORY SPECIES
 1. Albacore tuna: Thunnus alalunga. 
 2. Bluefin tuna: Thunnus thynnus. 
 3. Bigeye tuna: Thunnus obesus. 
 4. Skipjack tuna: Katsuwonus pelamis. 
 5. Yellowfin tuna: Thunnus albacares. 
 6. Blackfin tuna: Thunnus atlanticus. 
 7. Little tuna: Euthynnus alletteratus; Euthynnus affnis. 
 8. Southern bluefin tuna: Thunnus maccoyii. 
 9. Frigate mackerel: Auxis thazard; Auxis rochei. 
 10. Pomfrets: Family Bramidae. 
 11.  Marlins: Tetrapturus angustirostris; Tetrapturus belone; Tetrapturus pfluegeri; Tetrapturus albidus; Tetrapturus audax; Tetrapturus georgei; Makaira mazara; Makaira indica; Makaira nigricans. 
 12. Sail-fishes: Istiophorus platypterus; istiophorus albicans. 
 13. Swordfish: Xiphias gladius. 
 14. Sauries: Scomberesox saurus; Cololabis saira; Cololabis adocetus; Scomberesox saurus scombroides. 
 15. Dolphin: Coryphaena hippurus; Coryphaena equiselis. 
 16. Oceanic sharks: Hexanchus griseus; Cetorhinus maximus; Family Alopiidae; Rhincodon typus; Family Carcharhinidae; Family Sphyrnidae; Family Isurida. 
 17. Cetaceans: Family Physeteridae, Family Balaenopteridae; Family Balaenidae; Family Eschrichtiidae; Family Monodontidae; Family Ziphiidae; Family Delphinidae. 
 
 ANNEX II. COMMISSION ON THE LIMITS OF THE CONTINENTAL SHELF
 Article 1
 In accordance with the provisions of article 76, a Commission on the Limits of the Continental Shelf beyond 200 nautical miles shall be established in conformity with the following articles.
 Article 2
 1. The Commission shall consist of 21 members who shall be experts in the field of geology, geophysics or hydrography, elected by States Parties to this Convention from among their nationals, having due regard to the need to ensure equitable geographical representation, who shall serve in their personal capacities.
 2. The initial election shall be held as soon as possible but in any  case within 18 months after the date of entry into force of this  Convention. At least three months before the date of each election,  the Secretary-General of the United Nations shall address a letter to  the States Parties, inviting the submission of nominations, after  appropriate regional consultations, within three months. The Secretary-  General shall prepare a list in alphabetical order of all persons thus  nominated and shall submit it to all the States Parties.
 3. Elections of the members of the Commission shall be held at a  meeting of States Parties convened by the Secretary-General at United  Nations Headquarters. At that meeting, for which two thirds of the  States Parties shall constitute a quorum, the persons elected to the  Commission shall be those nominees who obtain a two-thirds majority of  the votes of the representatives of States Parties present and voting.  Not less than three members shall be elected from each geographical  region.
 4. The members of the Commission shall be elected for a term of five years. They shall be eligible for re-election.
 5. The State Party which submitted the nomination of a member of the  Commission shall defray the expenses of that member while in  performance of Commission duties. The coastal State concerned shall  defray the expenses incurred in respect of the advice referred to in  article 3, paragraph 1 (b), of this Annex.  The secretariat of the Commission shall be provided by the Secretary-  General of the United Nations.
 Article 3
 1. The functions of the Commission shall be:
 (a) to consider the data and other material submitted by coastal  States concerning the outer limits of the continental shelf in areas  where those limits extend beyond 200 nautical miles, and to make  recommendations in accordance with article 76 and the Statement of  Understanding adopted on 29 August 1980 by the Third United Nations  Conference on the Law of the Sea;
 (b) to provide scientific and technical advice, if requested by the  coastal State concerned during the preparation of the data referred to  in subparagraph (a).
 2. The Commission may co-operate, to the extent considered necessary  and useful, with the Intergovernmental Oceanographic Commission of  UNESCO, the International Hydrographic Organization and other  competent international organizations with a view to exchanging  scientific and technical information which might be of assistance in  discharging the Commission's responsibilities.
 Article 4
 Where a coastal State intends to establish, in accordance with article  76, the outer limits of its continental shelf beyond 200 nautical  miles, it shall submit particulars of such limits to the Commission  along with supporting scientific and technical data as soon as  possible but in any case within 10 years of the entry into force of  this Convention for that State. The coastal State shall at the same  time give the names of any Commission members who have provided it  with scientific and technical advice.
 Article 5
 Unless the Commission decides otherwise, the Commission shall function  by way of sub-commissions composed of seven members, appointed in a  balanced manner taking into account the specific elements of each  submission by a coastal State. Nationals of the coastal State making  the submission who are members of the Commission and any Commission  member who has assisted a coastal State by providing scientific and  technical advice with respect to the delineation shall not be a member  of the sub-commission dealing with that submission but has the right  to participate as a member in the proceedings of the made a submission  to the Commission may send its representatives to participate in the  relevant proceedings without the right to vote.
 Article 6
 1. The sub-commission shall submit its recommendations to the Commission .
 2. Approval by the Commission of the recommendations of the sub-commission shall be by a majority of two thirds of Commission members present and voting.
 3. The recommendations of the Commission shall be submitted in writing to the coastal State which made the submission and to the Secretary-General of the United Nations.
 Article 7
 Coastal States shall establish the outer limits of the continental shelf in conformity with the provisions of article 76, paragraph 8, and in accordance with the appropriate national procedures.
 Article 8
 In the case of disagreement by the coastal State with the recommendations of the Commission, the coastal State shall, within a reasonable time, make a revised or new submission to the Commission.
 Article 9
 The actions of the Commission shall not prejudice matters relating to delimitation of boundaries between States with opposite or adjacent coasts.
 ANNEX III. BASIC CONDITIONS OF PROSPECTING, EXPLORATION AND EXPLOITATION
 Article 1 
 Title to minerals
 Title to minerals shall pass upon recovery in accordance with this Convention.
 Article 2 
 Prospecting
 1. (a) The Authority shall encourage prospecting in the Area.
 (b) Prospecting shall be conducted only after the Authority has received a satisfactory written undertaking that the proposed prospector will comply with this Convention and the relevant rules, regulations and procedures of the Authority concerning co-operation in the training programmes referred to in articles 143 and 144 and the protection of the marine environment, and will accept verification by the Authority of compliance therewith. The proposed prospector shall, at the same time, notify the Authority of the approximate area or areas in which prospecting is to be conducted.
 (c) Prospecting may be conducted simultaneously by more than one prospector in the same area or areas.
 2. Prospecting shall not confer on the prospector any rights with respect to resources. A prospector may, however, recover a reasonable quantity of minerals to be used for testing.
 Article 3 
 Exploration and exploitation
 1. The Enterprise, States Parties, and the other entities referred to in article 153, paragraph 2(b), may apply to the Authority for approval of plans of work for activities in the Area.
 2. The Enterprise may apply with respect to any part of the Area, but applications by others with respect to reserved areas are subject to the additional requirements of article 9 of this Annex.
 3. Exploration and exploitation shall be carried out only in areas specified in plans of work referred to in article 153, paragraph 3, and approved by the Authority in accordance with this Convention and the relevant rules, regulations and procedures of the Authority.
 4. Every approved plan of work shall:
 (a) be in conformity with this Convention and the rules, regulations and procedures of the Authority;
 (b) provide for control by the Authority of activities in the Area in accordance with article 153, paragraph 4;
 (c) confer on the operator, in accordance with the rules, regulations and procedures of the Authority, the exclusive right to explore for and exploit the specified categories of resources in the area covered by the plan of work. If, however, the applicant presents for approval a plan of work covering only the stage of exploration or the stage of exploitation, the approved plan of work shall confer such exclusive right with respect to that stage only.
 5. Upon its approval by the Authority, every plan of work, except those presented by the Enterprise, shall be in the form of a contract concluded between the Authority and the applicant or applicants.
 Article 4 
 Qualifications of applicants
 1. Applicants, other than the Enterprise, shall be qualified if they  have the nationality or control and sponsorship required by article  153, paragraph 2(b), and if they follow the procedures and meet the  qualification standards set forth in the rules, regulations and  procedures of the Authority.
 2. Except as provided in paragraph 6, such qualification standards shall relate to the financial and technical capabilities of the applicant and his performance under any previous contracts with the Authority.
 3. Each applicant shall be sponsored by the State Party of which it is  a national unless the applicant has more than one nationality, as in  the case of a partnership or consortium of entities from several  States, in which event all States Parties involved shall sponsor the  application, or unless the applicant is effectively controlled by  another State Party or its nationals, in which event both States  Parties shall sponsor the application. The criteria and procedures for  implementation of the sponsorship requirements shall be set forth in  the rules, regulations and procedures of the Authority.
 4. The sponsoring State or States shall, pursuant to article 139, have  the responsibility to ensure, within their legal systems, that a  contractor so sponsored shall carry out activities in the Area in  conformity with the terms of its contract and its obligations under  this Convention. A sponsoring State shall not, however, be liable for  damage caused by any failure of a contractor sponsored by it to comply  with its obligations if that State Party has adopted laws and  regulations and taken administrative measures which are, within the  framework of its legal system, reasonably appropriate for securing  compliance by persons under its jurisdiction. 
 5. The procedures for assessing the qualifications of States Parties  which are applicants shall take into account their character as  States. 
 6. The qualification standards shall require that every applicant,  without exception, shall as part of his application undertake: 
 (a) to accept as enforceable and comply with the applicable  obligations created by the provisions of Part XI, the rules,  regulations and procedures of the Authority, the decisions of the  organs of the Authority and terms of his contracts with the Authority; 
 (b) to accept control by the Authority of activities in the Area, as  authorized by this Convention; 
 (c) to provide the Authority with a written assurance that his  obligations under the contract will be fulfilled in good faith; 
 (d) to comply with the provisions on the transfer of technology set  forth in article 5 of this Annex. 
 Article 5  
 Transfer of technology 
 1. When submitting a plan of work, every applicant shall make  available to the Authority a general description of the equipment and  methods to be used in carrying out activities in the Area, and other  relevant non-proprietary information about the characteristics of such  technology and information as to where such technology is available. 
 2. Every operator shall inform the Authority of revisions in the  description and information made available pursuant to paragraph 1  whenever a substantial technological change or innovation is  introduced. 
 3. Every contract for carrying out activities in the Area shall  contain the following undertakings by the contractor: 
 (a) to make available to the Enterprise on fair and reasonable  commercial terms and conditions, whenever the Authority so requests,  the technology which he uses in carrying out activities in the Area  under the contract, which the contractor is legally entitled to  transfer. This shall be done by means of licences or other appropriate  arrangements which the contractor shall negotiate with the Enterprise  and which shall be set forth in a specific agreement supplementary to  the contract. This undertaking may be invoked only if the Enterprise  finds that it is unable to obtain the same or equally efficient and  useful technology on the open market on fair and reasonable commercial  terms and conditions; 
 (b) to obtain a written assurance from the owner of any technology  used in carrying out activities in the Area under the contract, which  is not generally available on the open market and which is not covered  by subparagraph (a), that the owner will, whenever the Authority so  requests, make that technology available to the Enterprise under  licence or other appropriate arrangements and on fair and reasonable  commercial terms and conditions, to the same extent as made available  to the contractor. If this assurance is not obtained, the technology  in question shall not be used by the contractor in carrying out  activities in the Area; 
 (c) to acquire from the owner by means of an enforceable contract,  upon the request of the Enterprise and if it is possible to do so  without substantial cost to the contractor, the legal right to  transfer to the Enterprise any technology used by the contractor, in  carrying out activities in the Area under the contract, which the  contractor is otherwise not legally entitled to transfer and which is  not generally available on the open market. In cases where there is a  substantial corporate relationship between the contractor and the  owner of the technology, the closeness of this relationship and the  degree of control or influence shall be relevant to the determination  whether all feasible measures have been taken to acquire such a right.  In cases where the contractor exercises effective control over the  owner, failure to acquire from the owner the legal right shall be  considered relevant to the contractor's qualification for any  subsequent application for approval of a plan of work; 
 (d) to facilitate, upon the request of the Enterprise, the acquisition  by the Enterprise of any technology covered by subparagraph (b), under  licence or other appropriate arrangements and on fair and reasonable  commercial terms and conditions, if the Enterprise decides to  negotiate directly with the owner of the technology; 
 (e) to take the same measures as are prescribed in subparagraphs (a),  (b), (c) and (d) for the benefit of a developing State or group of  developing States which has applied for a contract under article 9 of  this Annex, provided that these measures shall be limited to the  exploitation of the part of the area proposed by the contractor which  has been reserved pursuant to article 8 of this Annex and provided  that activities under the contract sought by the developing State or  group of developing States would not involve transfer of technology to  a third State or the nationals of a third State. The obligation under  this provision shall only apply with respect to any given contractor  where technology has not been requested by the Enterprise or  transferred by that contractor to the Enterprise. 
 4. Disputes concerning undertakings required by paragraph 3, like  other provisions of the contracts, shall be subject to compulsory  settlement in accordance with Part XI and, in cases of violation of  these undertakings, suspension or termination of the contract or  monetary penalties may be ordered in accordance with article 18 of  this Annex. Disputes as to whether offers made by the contractor are  within the range of fair and reasonable commercial terms and  conditions may be submitted by either party to binding commercial  arbitration in accordance with the UNCITRAL Arbitration Rules or such  other arbitration rules as may be prescribed in the rules, regulations  and procedures of the Authority. If the finding is that the offer made  by the contractor is not within the range of fair and reasonable  commercial terms and conditions, the contractor shall be given 45 days  to revise his offer to bring it within that range before the Authority  takes any action in accordance with article 18 of this Annex. 
 5. If the Enterprise is unable to obtain on fair and reasonable  commercial terms and conditions appropriate technology to enable it to  commence in a timely manner the recovery and processing of minerals  from the Area, either the Council or the Assembly may convene a group  of States Parties composed of those which are engaged in activities in  the Area, those which have sponsored entities which are engaged in  activities in the Area and other States Parties having access to such  technology. This group shall consult together and shall take effective  measures to ensure that such technology is made available to the  Enterprise on fair and reasonable commercial terms and conditions.  Each such State Party shall take all feasible measures to this end  within its own legal system. 
 6. In the case of joint ventures with the Enterprise, transfer of  technology will be in accordance with the terms of the joint venture  agreement. 
 7. The undertakings required by paragraph 3 shall be included in each  contract for the carrying out of activities in the Area until 10 years  after the commencement of commercial production by the Enterprise, and  may be invoked during that period.    8. For the purposes of this article, "technology" means the  specialized equipment and technical know-how, including manuals,  designs, operating instructions, training and technical advice and  assistance, necessary to assemble, maintain and operate a viable  system and the legal right to use these items for that purpose on a  non-exclusive basis. 
 Article 6  
 Approval of plans of work 
 1. Six months after the entry into force of this Convention, and  thereafter each fourth month, the Authority shall take up for  consideration proposed  plans of work. 
 2. When considering an application for approval of a plan of work in  the form of a contract, the Authority shall first ascertain whether: 
 (a) the applicant has complied with the procedures established for  applications in accordance with article 4 of this Annex and has given  the Authority the undertakings and assurances required by that  article. In cases of non-compliance with these procedures or in the  absence of any of these undertakings and assurances, the applicant  shall be given 45 days to remedy these defects; 
 (b) the applicant possesses the requisite qualifications provided for  in article 4 of this Annex. 
 3. All proposed plans of work shall be taken up in the order in which  they are received. The proposed plans of work shall comply with and be  governed by the relevant provisions of this Convention and the rules,  regulations and procedures of the Authority, including those on  operational requirements, financial contributions and the undertakings  concerning the transfer of technology. If the proposed plans of work  conform to these requirements, the Authority shall approve them  provided that they are in accordance with the uniform and non-  discriminatory requirements set forth in the rules, regulations and  procedures of the Authority, unless: 
 (a) part or all of the area covered by the proposed plan of work is  included in an approved plan of work or a previously submitted  proposed plan of work which has not yet been finally acted on by the  Authority; 
 (b) part or all of the area covered by the proposed plan of work is  disapproved by the Authority pursuant to article 162, paragraph 2 (x);  or 
 (c) the proposed plan of work has been submitted or sponsored by a  State Party which already holds: 
 (i) plans of work for exploration and exploitation of polymetallic  nodules in non-reserved areas that, together with either part of the  area covered by the application for a plan of work, exceed in size 30  per cent of a circular area of 400,000 square kilometres surrounding  the centre of either part of the area covered by the proposed plan of  work; 
 (ii) plans of work for the exploration and exploitation of  polymetallic nodules in non-reserved areas which, taken together,  constitute 2 per cent of the total sea-bed area which is not reserved  or disapproved for exploitation pursuant to article 162, paragraph (2)  (x) . 
 4. For the purpose of the standard set forth in paragraph 3(c), a plan  of work submitted by a partnership or consortium shall be counted on a  pro rata basis among the sponsoring States Parties involved in  accordance with article 4, paragraph 3, of this Annex. The Authority  may approve plans of work covered by paragraph 3(c) if it determines  that such approval would not permit a State Party or entities  sponsored by it to monopolize the conduct of activities in the Area or  to preclude other States Parties from activities in the Area. 
 5. Notwithstanding paragraph 3(a), after the end of the interim period  specified in article 151, paragraph 3, the Authority may adopt by  means of rules, regulations and procedures other procedures and  criteria consistent with this Convention for deciding which applicants  shall have plans of work approved in cases of selection among  applicants for a proposed area. These procedures and criteria shall  ensure approval of plans of work on an equitable and non-  discriminatory basis. 
 Article 7  
 Selection among applicants for production authorizations 
 1. Six months after the entry into force of this Convention, and  thereafter each fourth month, the Authority shall take up for  consideration applications for production authorizations submitted  during the immediately preceding period. The Authority shall issue the  authorizations applied for if all such applications can be approved  without exceeding the production limitation or contravening the  obligations of the Authority under a commodity agreement or  arrangement to which it has become a party, as provided in article  151. 
 2. When a selection must be made among applicants for production  authorizations because of the production limitation set forth in  article 151, paragraphs 2 to 7, or because of the obligations of the  Authority under a commodity agreement or arrangement to which it has  become a party, as provided for in article 151, paragraph 1, the  Authority shall make the selection on the basis of objective and non-  discriminatory standards set forth in its rules, regulations and  procedures. 
 3. In the application of paragraph 2, the Authority shall give  priority to those applicants which: 
 (a) give better assurance of performance, taking into account their  financial and technical qualifications and their performance, if any,  under previously approved plans of work; 
 (b) provide earlier prospective financial benefits to the Authority,  taking into account when commercial production is scheduled to begin; 
 (c) have already invested the most resources and effort in prospecting  or exploration. 
 4. Applicants which are not selected in any period shall have priority  in subsequent periods until they receive a production authorization. 
 5. Selection shall be made taking into account the need to enhance  opportunities for all States Parties, irrespective of their social and  economic systems or geographical locations so as to avoid  discrimination against any State or system, to participate in  activities in the Area and to prevent monopolization of those  activities. 
 6. Whenever fewer reserved areas than non-reserved areas are under  exploitation, applications for production authorizations with respect  to reserved areas shall have priority. 
 7. The decisions referred to in this article shall be taken as soon as  possible after the close of each period. 
 Article 8  
 Reservation of areas 
 Each application, other than those submitted by the Enterprise or by  any other entities for reserved areas, shall cover a total area, which  need not be a single continuous area, sufficiently large and of  sufficient estimated commercial value to allow two mining operations. 
 The applicant shall indicate the coordinates dividing the area into  two parts of equal estimated commercial value and submit all the data  obtained by him with respect to both parts. Without prejudice to the  powers of the Authority pursuant to article 17 of this Annex, the data  to be submitted concerning polymetallic nodules shall relate to  mapping, sampling, the abundance of nodules, and their metal content. 
 Within 45 days of receiving such data, the Authority shall designate  which part is to be reserved solely for the conduct of activities by  the Authority through the Enterprise or in association with developing  States. This designation may be deferred for a further period of 45  days if the Authority requests an independent expert to assess whether  all data required by this article has been submitted. The area  designated shall become a reserved area as soon as the plan of work  for the non-reserved area is approved and the contract is signed. 
 Article 9  
 Activities in reserved areas 
 1. The Enterprise shall be given an opportunity to decide whether it  intends to carry out activities in each reserved area. This decision  may be taken at any time, unless a notification pursuant to paragraph  4 is received by the Authority, in which event the Enterprise shall  take its decision within a reasonable time. The Enterprise may decide  to exploit such areas in joint ventures with the interested State or  entity. 
 2. The Enterprise may conclude contracts for the execution of part of  its activities in accordance with Annex IV, article 12. It may also  enter into joint ventures for the conduct of such activities with any  entities which are eligible to carry out activities in the Area  pursuant to article 153, paragraph 2(b). When considering such joint  ventures, the Enterprise shall offer to States Parties which are  developing States and their nationals the opportunity of effective  participation. 
 3. The Authority may prescribe, in its rules, regulations and  procedures, substantive and procedural requirements and conditions  with respect to such contracts and joint ventures. 
 4. Any State Party which is a developing State or any natural or  juridical person sponsored by it and effectively controlled by it or  by other developing State which is a qualified applicant, or any group  of the foregoing, may notify the Authority that it wishes to submit a  plan of work pursuant to article 6 of this Annex with respect to a  reserved area. The plan of work shall be considered if the Enterprise  decides, pursuant to paragraph l, that it does not intend to carry out  activities in that area. 
 Article 10  
 Preference and priority among applicants 
 An operator who has an approved plan of work for exploration only, as  provided in article 3, paragraph 4(c), of this Annex shall have a  preference and a priority among applicants for a plan of work covering  exploitation of the same area and resources. However, such preference  or priority may be withdrawn if the operator's performance has not  been satisfactory. 
 Article 11  
 Joint arrangements 
 1. Contracts may provide for joint arrangements between the contractor  and the Authority through the Enterprise, in the form of joint  ventures or production sharing, as well as any other form of joint  arrangement, which shall have the same protection against revision,  suspension or termination as contracts with the Authority. 
 2. Contractors entering into such joint arrangements with the  Enterprise may receive financial incentives as provided for in article  13 of this Annex.   3. Partners in joint ventures with the Enterprise shall be liable for  the payments required by article 13 of this Annex to the extent of  their share in the joint ventures, subject to financial incentives as  provided for in that article. 
 Article 12  
 Activities carried out by the Enterprise 
 1. Activities in the Area carried out by the Enterprise pursuant to  article 153, paragraph 2(a), shall be governed by Part XI, the rules,  regulations and procedures of the Authority and its relevant  decisions.    2. Any plan of work submitted by the Enterprise shall be accompanied  by evidence supporting its financial and technical capabilities. 
 Article 13  
 Financial terms of contracts 
 1. In adopting rules, regulations and procedures concerning the  financial terms of a contract between the Authority and the entities  referred to in article 153, paragraph 2(b), and in negotiating those  financial terms in accordance with Part XI and those rules,  regulations and procedures, the Authority shall be guided by the  following objectives: 
 (a) to ensure optimum revenues for the Authority from the proceeds of  commercial production; 
 (b) to attract investments and technology to the exploration and  exploitation of the Area; 
 (c) to ensure equality of financial treatment and comparable financial  obligations for contractors; 
 (d) to provide incentives on a uniform and non-discriminatory basis  for contractors to undertake joint arrangements with the Enterprise  and developing States or their nationals, to stimulate the transfer of  technology thereto, and to train the personnel of the Authority and of  developing States; 
 (e) to enable the Enterprise to engage in sea-bed mining effectively  at the same time as the entities referred to in article 153, paragraph  2(b); and 
 (f) to ensure that, as a result of the financial incentives provided  to contractors under paragraph 14, under the terms of contracts  reviewed in accordance with article 19 of this Annex or under the  provisions of article 11 of this Annex with respect to joint ventures,  contractors are not subsidized so as to be given an artificial  competitive advantage with respect to land-based miners. 
 2. A fee shall be levied for the administrative cost of processing an  application for approval of a plan of work in the form of a contract  and shall be fixed at an amount of $US 500,000 per application. The  amount of the fee shall be reviewed from time to time by the Council  in order to ensure that it covers the administrative cost incurred. If  such administrative cost incurred by the Authority in processing an  application is less than the fixed amount, the Authority shall refund  the difference to the applicant. 
 3. A contractor shall pay an annual fixed fee of $US 1 million from  the date of entry into force of the contract. If the approved date of  commencement of commercial production is postponed because of a delay  in issuing the production authorization, in accordance with article  151, the annual fixed fee shall be waived for the period of  postponement. From the date of commencement of commercial production,  the contractor shall pay either the production charge or the annual  fixed fee, whichever is greater. 
 4, Within a year of the date of commencement of commercial production,  in conformity with paragraph 3, a contractor shall choose to make his  financial contribution to the Authority by either:  
 (a) paying a production charge only; or  
 (b) paying a combination of a production charge and a share of net  proceeds. 
 5. (a) If a contractor chooses to make his financial contribution to  the Authority by paying a production charge only, it shall be fixed at  a percentage of the market value of the processed metals produced from  the polymetallic nodules recovered from the area covered by the  contract. This percentage shall be fixed as follows:  
 (i) years 1-10 of commercial production 5 per cent  
 (ii)  years  11  to  the  end of commercial  production  12 per cent 
 (b) The said market value shall be the product of the quantity of the  processed metals produced from the polymetallic nodules extracted from  the area covered by the contract and the average price for those  metals during the relevant accounting year, as defined in paragraphs 7  and 8. 
 6. If a contractor chooses to make his financial contribution to the  Authority by paying a combination of a production charge and a share  of net proceeds, such payments shall be determined as follows: 
 (a) The production charge shall be fixed at a percentage of the market  value, determined in accordance with subparagraph (b), of the  processed metals produced from the polymetallic nodules recovered from  the area covered by the contract. This percentage shall be fixed as  follows: 
 (i) first period  of  commercial   production  2 per cent  
 (ii) second period of commercial production 4 per cent 
 If, in the second period of commercial production, as defined in  subparagraph (d) the return on investment in any accounting year as  defined in subparagraph (m) falls below 15 per cent as a result of the  payment of the production charge at 4 per cent, the production charge  shall be 2 per cent instead of 4 per cent in that accounting year. 
 (b) The said market value shall be the product of the quantity of the  processed metals produced from the polymetallic nodules recovered from  the area covered by the contract and the average price for those  metals during the relevant accounting year as defined in paragraphs 7  and 8. 
 (c) (i) The Authority's share of net proceeds shall be taken out of  that portion of the contractor's net proceeds which is attributable to  the mining of the resources of the area covered by the contract,  referred to hereinafter as attributable net proceeds. 
 (ii) The Authority's share of attributable net proceeds shall be determined in accordance with the following incremental schedule:  
 
Portion of attributable 
net proceeds Share of the Authority  
 First period of 
commercial production Second period of  
commercial production 
That portion representing a  return  on  investment  which  is greater than 0 per cent, but  less than 10 per cent  35 per cent 40 per cent 
That portion representing a  return  on  investment which  is  10 per cent or greater, but  less than 20 per cent  
 42.5 per cent 50 per cent 
That portion representing a  return  on  investment  which  is 20 per cent or greater  
 50 per cent 70 per cent 
 
 (d) (i) The first period of commercial production referred to in  subparagraphs (a) and (c) shall commence in the first accounting year of commercial production and terminate in the accounting year in which  the contractor's development costs with interest on the unrecovered  portion thereof are fully recovered by his cash surplus, as follows:
 In the first accounting year during which development costs are  incurred, unrecovered development costs shall equal the development  costs less cash surplus in that year. In each subsequent accounting  year, unrecovered development costs shall equal the unrecovered  development costs at the end of the preceding accounting year, plus  interest thereon at the rate of 10 per cent per annum, plus  development costs incurred in the current accounting year and less  contractor's cash surplus in the current accounting year. The  accounting year in which unrecovered development costs become zero for  the first time shall be the accounting year in which the contractor's  development costs with interest on the unrecovered portion thereof are  fully recovered by his cash surplus. The contractor's cash surplus in  any accounting year shall be his gross proceeds less his operating  costs and less his payments to the Authority under subparagraph (c). 
 (ii) The second period of commercial production shall commence in the  accounting year following the termination of the first period of  commercial production and shall continue until the end of the  contract. 
 (e) "Attributable net proceeds" means the product of the contractor's  net proceeds and the ratio of the development costs in the mining  sector to the contractor's development costs. If the contractor  engages in mining, transporting polymetallic nodules and production  primarily of three processed metals, namely, cobalt, copper and  nickel, the amount of attributable net proceeds shall not be less than  25 per cent of the contractor's net proceeds. Subject to subparagraph (n), in all other cases, including those where the contractor engages  in mining, transporting polymetallic nodules, and production primarily  of four processed metals, namely, cobalt, copper, manganese and  nickel, the Authority may, in its rules, regulations and procedures,  prescribe appropriate floors which shall bear the same relationship to  each case as the 25 per cent floor does to the three-metal case. 
 (f) "Contractor's net proceeds" means the contractor's gross proceeds  less his operating costs and less the recovery of his development  costs as set out in subparagraph (j). 
 (g) (i) If the contractor engages in mining, transporting polymetallic  nodules and production of processed metals, "contractor's gross  proceeds" means the gross revenues from the sale of the processed  metals and any other monies deemed reasonably attributable to  operations under the contract in accordance with the financial rules,  regulations and procedures of the Authority. 
 (ii) In all cases other than those specified in subparagraphs (g)(i)  and (n)(iii), "contractor's gross proceeds" means the gross revenues  from the sale of the semi-processed metals from the polymetallic  nodules recovered from the area covered by the contract, and any other  monies deemed reasonably attributable to operations under the contract  in accordance with the financial rules, regulations and procedures of  the Authority. 
 (h) "Contractor's development costs" means: 
 (i) all expenditures incurred prior to the commencement of commercial  production which are directly related to the development of the  productive capacity of the area covered by the contract and the  activities related thereto for operations under the contract in all  cases other than that specified in subparagraph (n), in conformity  with generally recognized accounting principles, including, inter  alia, costs of machinery, equipment, ships, processing plant,  construction, buildings, land, roads, prospecting and exploration of  the area covered by the contract, research and development, interest,  required leases, licences and fees; and 
 (ii) expenditures similar to those set forth in (i) above incurred  subsequent to the commencement of commercial production and necessary  to carry out the plan of work, except those chargeable to operating  costs.    (i) The proceeds from the disposal of capital assets and the market  value of those capital assets which are no longer required for  operations under the contract and which are not sold shall be deducted  from the contractor's development costs during the relevant accounting  year. When these deductions exceed the contractor's development costs  the excess shall be added to the contractor's gross proceeds. 
 (j) The contractor's development costs incurred prior to the  commencement of commercial production referred to in subparagraphs (h)  (i) and (n) (iv) shall be recovered in 10 equal annual instalments  from the date of commencement of commercial production. The  contractor's development costs incurred subsequent to the commencement  of commercial production referred to in subparagraphs (h)(ii) and  (n)(iv) shall be recovered in 10 or fewer equal annual installments so  as to ensure their complete recovery by the end of the contract. 
 (k) "Contractor's operating costs" means all expenditures incurred  after the commencement of commercial production in the operation of  the productive capacity of the area covered by the contract and the  activities related thereto for operations under the contract, in  conformity with generally recognized accounting principles, including,  inter alia, the annual fixed fee or the production charge, whichever  is greater, expenditures for wages, salaries, employee benefits,  materials, services, transporting, processing and marketing costs,  interest, utilities, preservation of the marine environment, overhead  and administrative costs specifically related to operations under the  contract, and any net operating losses carried forward or backward as  specified herein. Net operating losses may be carried forward for two  consecutive years except in the last two years of the contract in  which case they may be carried backward to the two preceding years. 
 (l) If the contractor engages in mining, transporting of polymetallic  nodules, and production of processed and semi-processed metals,  "development costs of the mining sector" means the portion of the  contractor's development costs which is directly related to the mining  of the resources of the area covered by the contract, in conformity  with generally recognized accounting principles, and the financial  rules, regulations and procedures of the Authority, including, inter  alia, application fee, annual fixed fee and, where applicable, costs  of prospecting and exploration of the area covered by the contract,  and a portion of research and development costs. 
 (m) "Return on investment" in any accounting year means the ratio of  attributable net proceeds in that year to the development costs of the  mining sector. For the purpose of computing this ratio the development  costs of the mining sector shall include expenditures on new or  replacement equipment in the mining sector less the original cost of  the equipment replaced. 
 (n) If the contractor engages in mining only: 
 (i) "attributable net proceeds" means the whole of the contractor's  net proceeds; 
 (ii) "contractor's net proceeds" shall be as defined in subparagraph  (f); 
 (iii) "contractor's gross proceeds" means the gross revenues from the  sale of the polymetallic nodules, and any other monies deemed  reasonably attributable to operations under the contract in accordance  with the financial rules, regulations and procedures of the Authority; 
 (iv) "contractor's development costs" means all expenditures incurred  prior to the commencement of commercial production as set forth in  subparagraph (h) (i), and all expenditures incurred subsequent to the  commencement of commercial production as set forth in subparagraph (h)  (ii), which are directly related to the mining of the resources of the  area covered by the contract, in conformity with generally recognized  accounting principles; 
 (v) "contractor's operating costs" means the contractor's operating  costs as in subparagraph (k) which are directly related to the mining  of the resources of the area covered by the contract in conformity  with generally recognized accounting principles; 
 (vi) "return on investment" in any accounting year means the ratio of  the contractor's net proceeds in that year to the contractor's  development costs. For the purpose of computing this ratio, the  contractor's development costs shall include expenditures on new or  replacement equipment less the original cost of the equipment  replaced. 
 (o) The costs referred to in subparagraphs (h), (k), (l) and (n) in  respect of interest paid by the contractor shall be allowed to the  extent that, in all the circumstances, the Authority approves,  pursuant to article 4, paragraph 1, of this Annex, the debt-equity  ratio and the rates of interest as reasonable, having regard to  existing commercial practice.    (p) The costs referred to in this paragraph shall not be interpreted  as including payments of corporate income taxes or similar charges  levied by States in respect of the operations of the contractor. 
 7. (a) "Processed metals", referred to in paragraphs 5 and 6, means  the metals in the most basic form in which they are customarily traded  on international terminal markets. For this purpose, the Authority  shall specify, in its financial rules, regulations and procedures, the  relevant international terminal market. For the metals which are not  traded on such markets, "processed metals" means the metals in the  most basic form in which they are customarily traded in representative  arm's length transactions.    (b) If the Authority cannot otherwise determine the quantity of the  processed metals produced from the polymetallic nodules recovered from  the area covered by the contract referred to in paragraphs 5 (b) and 6  (b), the quantity shall be determined on the basis of the metal  content of the nodules, processing recovery efficiency and other  relevant factors, in accordance with the rules, regulations and  procedures of the Authority and in conformity with generally  recognized accounting principles. 
 8. If an international terminal market provides a representative  pricing mechanism for processed metals, polymetallic nodules and semi-  processed metals from the nodules, the average price on that market  shall be used. In all other cases, the Authority shall, after  consulting the contractor, determine a fair price for the said  products in accordance with paragraph 9. 
 9. (a) All costs, expenditures, proceeds and revenues and all  determinations of price and value referred to in this article shall be  the result of free market or arm's length transactions. In the absence  thereof, they shall be determined by the Authority, after consulting  the contractor, as though they were the result of free market or arm's  length transactions, taking into account relevant transactions in  other markets. 
 (b) In order to ensure compliance with and enforcement of the  provisions of this paragraph, the Authority shall be guided by the  principles adopted for, and the interpretation given to, arm's length  transactions by the Commission on Transitional Corporations of the  United Nations, the Group of Experts on Tax Treaties between  Developing  and Developed Countries and other international  organizations, and shall, in its rules, regulations and procedures,  specify uniform and internationally acceptable accounting rules and  procedures, and the means of selection by the contractor of certified  independent accountants acceptable to the Authority for the purpose of  carrying out auditing in compliance with those rules, regulations and  procedures. 
 10. The contractor shall make available to the accountants, in  accordance with the financial rules, regulations and procedures of the  Authority, such financial data as are required to determine compliance  with this article. 
 11. All costs, expenditures, proceeds and revenues, and all prices and  values referred to in this article, shall be determined in accordance  with generally recognized accounting principles and the financial  rules, regulations and procedures of the Authority. 
 12. Payments to the Authority under paragraphs 5 and 6 shall be made  in freely usable currencies or currencies which are freely available  and effectively usable on the major foreign exchange markets or, at  the contractor's option, in the equivalents of processed metals at  market value. The market value shall be determined in accordance with  paragraph 5(b). The freely usable currencies and currencies which are  freely available and effectively usable on the major foreign exchange  markets shall be defined in the rules, regulations and procedures of  the Authority in accordance with prevailing international monetary  practice. 
 13. All financial obligations of the contractor to the Authority, as  well as all his fees, costs, expenditures, proceeds and revenues  referred to in this article, shall be adjusted by expressing them in  constant terms relative to a base year. 
 14. The Authority may, taking into account any recommendations of the  Economic Planning Commission and the Legal and Technical Commission,  adopt rules, regulations and procedures that provide for incentives,  on a uniform and non-discriminatory basis, to contractors to further  the objectives set out in paragraph 1. 
 15. In the event of a dispute between the Authority and a contractor  over the interpretation or application of the financial terms of a  contract, either party may submit the dispute to binding commercial  arbitration, unless both parties agree to settle the dispute by other  means, in accordance with article 188, paragraph 2. 
 Article 14  
 Transfer of data 
 1. The operator shall transfer to the Authority, in accordance with  its rules, regulations and procedures and the terms and conditions of  the plan of work, at time intervals determined by the Authority all  data which are both necessary for and relevant to the effective  exercise of the powers and functions of the principal organs of the  Authority in respect of the area covered by the plan of work. 
 2. Transferred data in respect of the area covered by the plan of  work, deemed proprietary, may only be used for the purposes set forth  in this article. Data necessary for the formulation by the Authority  of rules, regulations and procedures concerning protection of the  marine environment and safety, other than equipment design data, shall  not be deemed proprietary. 
3. Data transferred to the Authority by prospectors, applicants for  contracts or contractors, deemed proprietary, shall not be disclosed  by the Authority to the Enterprise or to anyone external to the  Authority, but data on the reserved areas may be disclosed to the  Enterprise. Such data transferred by such persons to the Enterprise  shall not be disclosed by the Enterprise to the Authority or to anyone  external to the Authority. 
 Article 15  
 Training programmes 
 The contractor shall draw up practical programmes for the training of  personnel of the Authority and developing States, including the  participation of such personnel in all activities in the Area which  are covered by the contract, in accordance with article 144, paragraph  2. 
 Article 16  
 Exclusive right to explore and exploit 
 The Authority shall, pursuant to Part XI and its rules, regulations  and procedures, accord the operator the exclusive right to explore and  exploit the area covered by the plan of work in respect of a specified  category of resources and shall ensure that no other entity operates  in the same area for a different category of resources in a manner  which might interfere with the operations of the operator. The  operator shall have security of tenure in accordance with article 153,  paragraph 6. 
 Article l7  
 Rules, regulations and procedures of the Authority 
 1. The Authority shall adopt and uniformly apply rules, regulations  and procedures in accordance with article 160, paragraph 2(f)(ii), and  article 162, paragraph 2(o)(ii), for the exercise of its functions as  set forth in Part XI on, inter alia, the following matters: 
 (a) administrative procedures relating to prospecting, exploration and exploitation in the Area; 
 (b) operations: (i) size of area;  (ii) duration of operations;  (iii) performance requirements including assurances pursuant to  article 4, paragraph 6(c), of this Annex;  (iv) categories of resources;  (v) renunciation of areas;  (vi) progress reports;  (vii) submission of data;  (viii) inspection and supervision of operations;  (ix) prevention of interference with other activities in the marine  environment;  (x) transfer of rights and obligations by a contractor;  (xi) procedures for transfer of technology to developing States in  accordance with article 144 and for their direct participation;  (xii) mining standards and practices, including those relating to  operational safety, conservation of the resources and the protection  of the marine environment;  (xiii) definition of commercial production;  (xiv) qualification standards for applicants; 
 (c) financial matters: (i) establishment of uniform and non-discriminatory costing and  accounting rules and the method of selection of auditors;  (ii) apportionment of proceeds of operations;  (iii) the incentives referred to in article 13 of this Annex;    (d) implementation of decisions taken pursuant to article 151,  paragraph 10, and article 164, paragraph 2(d). 
 2. Rules, regulations and procedures on the following items shall  fully reflect the objective criteria set out below: 
 (a) Size of areas:  
 The Authority shall determine the appropriate size of areas for  exploration which may be up to twice as large as those for  exploitation in order to permit intensive exploration operations. The  size of area shall be calculated to satisfy the requirements of  article 8 of this Annex on reservation of areas as well as stated  production requirements consistent with article 151 in accordance with  the terms of the contract taking into account the state of the art of  technology then available for sea-bed mining and the relevant physical  characteristics of the areas. Areas shall be neither smaller nor  larger than are necessary to satisfy this objective. 
(b) Duration of operations: 
 (i) Prospecting shall be without time-limit; 
 (ii) Exploration should be of sufficient duration to permit a thorough  survey of the specific area, the design and construction of mining  equipment for the area and the design and construction of small and  medium-size processing plants for the purpose of testing mining and  processing systems; 
 (iii) The duration of exploitation should be related to the economic  life of the mining project, taking into consideration such factors as  the depletion of the ore, the useful life of mining equipment and  processing facilities and commercial viability. Exploitation should be  of sufficient duration to permit commercial extraction of minerals of  the area and should include a reasonable time period for construction  of commercial-scale mining and processing systems, during which period  commercial production should not be required. The total duration of  exploitation, however, should also be short enough to give the  Authority an opportunity to amend the terms and conditions of the plan  of work at the time it considers renewal in accordance with rules,  regulations and procedures which it has adopted subsequent to approving the plan of work.
 (c) Performance requirements:
 The Authority shall require that during the exploration stage periodic  expenditures be made by the operator which are reasonably related to  the size of the area covered by the plan of work and the expenditures  which would be expected of a bona fide operator who intended to bring  the area into commercial production within the time-limits established  by the Authority. The required expenditures should not be established  at a level which would discourage prospective operators with less  costly technology than is prevalently in use. The Authority shall  establish a maximum time interval, after the exploration stage is  completed and the exploitation stage begins, to achieve commercial  production. To determine this interval, the Authority should take into  consideration that construction of large-scale mining and processing  systems cannot be initiated until after the termination of the  exploration stage and the commencement of the exploitation stage.  Accordingly, the interval to bring an area into commercial production  should take into account the time necessary for this construction  after the completion of the exploration stage and reasonable allowance  should be made for unavoidable delays in the construction schedule.  Once commercial production is achieved, the Authority shall within  reasonable limits and taking into consideration all relevant factors  require the operator to maintain commercial production throughout the  period of the plan of work.
 (d) Categories of resources:
 In determining the category of resources in respect of which a plan of  work may be approved, the Authority shall give emphasis inter alia to the following characteristics:
 (i) that certain resources require the use of similar mining methods; 
 and
 (ii) that some resources can be developed simultaneously without undue  interference between operators developing different resources in the same area.
 Nothing in this subparagraph shall preclude the Authority from approving a plan of work with respect to more than one category of resources in the same area to the same applicant.
 (e) Renunciation of areas:
 The operator shall have the right at any time to renounce without penalty the whole or part of his rights in the area covered by a plan of work.
 (f) Protection of the marine environment:
 Rules, regulations and procedures shall be drawn up in order to secure effective protection of the marine environment from harmful effects directly resulting from activities in the Area or from shipboard processing immediately above a mine site of minerals derived from that mine site, taking into account the extent to which such harmful effects may directly result from drilling, dredging, coring and excavation and from disposal, dumping and discharge into the marine environment of sediment, wastes or other effluents.
 (g) Commercial production:
 Commercial production shall be deemed to have begun if an operator  engages in sustained large-scale recovery operations which yield a  quantity of materials sufficient to indicate clearly that the  principal purpose is large-scale production rather than production  intended for information gathering, analysis or the testing of  equipment or plant.
 Article 18 
 Penalties
 1. A contractor's rights under the contract may be suspended or terminated only in the following cases:
 (a) if, in spite of warnings by the Authority, the contractor has conducted his activities in such a way as to result in serious, persistent and willful violations of the fundamental terms of the contract, Part XI and the rules, regulations and procedures of the Authority; or
 (b) if the contractor has failed to comply with a final binding decision of the dispute settlement body applicable to him.
 2. In the case of any violation of the contract not covered by paragraph 1 (a), or in lieu of suspension or termination under paragraph 1(a), the Authority may impose upon the contractor monetary penalties proportionate to the seriousness of the violation.
 3. Except for emergency orders under article 162, paragraph 2(w), the Authority may not execute a decision involving monetary penalties, suspension or termination until the contractor has been accorded a reasonable opportunity to exhaust the judicial remedies available to him pursuant to Part XI, section 5.
 Article 19 
 Revision of contract
 1. When circumstances have arisen or are likely to arise which, in the  opinion of either party, would render the contract inequitable or make  it impracticable or impossible to achieve the objectives set out in  the contract or in Part XI, the parties shall enter into negotiations  to revise it accordingly.
 2. Any contract entered into in accordance with article 153, paragraph 3, may be revised only with the consent of the parties.
 Article 20 
 Transfer of rights and obligations
 The rights and obligations arising under a contract may be transferred only with the consent of the Authority, and in accordance with its rules, regulations and procedures. The Authority shall not unreasonably withhold consent to the transfer if the proposed transferee is in all respects a qualified applicant and assumes all of the obligations of the transferor and if the transfer does not confer to the transferee a plan of work, the approval of which would be forbidden by article 6, paragraph 3 (c), of this Annex.
 Article 21 
 Applicable law
 1. The contract shall be governed by the terms of the contract, the rules, regulations and procedures of the Authority, Part XI and other rules of international law not incompatible with this Convention.
 2. Any final decision rendered by a court or tribunal having jurisdiction under this Convention relating to the rights and obligations of the Authority and of the contractor shall be enforceable in the territory of each State Party.
 3. No State Party may impose conditions on a contractor that are inconsistent with Part XI. However, the application by a State Party to contractors sponsored by it, or to ships flying its flag, of environmental or other laws and regulations more stringent than those in the rules, regulations and procedures of the Authority adopted pursuant to article 17, paragraph 2(f), of this Annex shall not be deemed inconsistent with Part XI .
 Article 22 
 Responsibility
 The contractor shall have responsibility or liability for any damage arising out of wrongful acts in the conduct of its operations, account being taken of contributory acts or omissions by the Authority.
 Similarly, the Authority shall have responsibility or liability for any damage arising out of wrongful acts in the exercise of its powers and functions, including violations under article 168, paragraph 2, account being taken of contributory acts or omissions by the contractor. Liability in every case shall be for the actual amount of damage.

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