The Northwest Passage & International Law
Research Analysts: Charles Ma and Temesghen Naizghi
Team Leader: Hannah Barltrop
Rising global temperatures in the coming years are anticipated to transform the Northwest Passage into a viable year-round shipping route — a rare case in which climate change would be generating human industry.
The Northwest Passage[i] is a thin body of water spanning 10,000 kilometers that connects the Atlantic and Pacific oceans. As a shipping lane, its geographic location offers a level of convenience that is internationally coveted. In the summer, the Passage holds tremendous value as it is used as a shortcut to help ships cut travel time and fuel costs significantly. This sliver of sea has become even more valuable as ice recession has begun earlier in recent years due to rising temperatures. In fact, after only 24 days at sea in 2017, an icebreaker[ii] (vessel with a specially designed hull for breaking ice sheets) performed the fastest traversal of the Northwest Passage in history. As Arctic ice layers thaw, the region’s vast resource stock is becoming ever more realizable.
The Northwest Passage’s definition is internationally disputed, and while Canada maintains that the Passage has historically been Canadian territory, the United States and the EU assert that it is an international strait.[iii] As Canadian internal waters, the transit through the Passage would be subject to Canadian regulations and oversight whereas as an international strait, foreign ships would be entitled to “free and unencumbered passage.” Although international law has not explicitly taken a side, there have been notable developments that have delineated Canada’s power over the region. In international law, such disputes are governed by a document called the United Nations Convention on the Law of the Sea. This document presents the first obstacle to Arctic resource exploitation. Legally, foreign ships can claim innocent passage: a guarantee of unimpeded speedy transit through sovereign waters predicated on good faith. However, Article 23 of the Convention stipulates that foreign ships carrying “nuclear or other inherently dangerous or noxious substances” can be denied innocent passage.[iv] This would include both nuclear-powered vessels and tankers shipping exploited oil. Since the waters’ proximity to the Canadian coastline leaves Canada vulnerable to the effects of shipping accidents, Article 23 grants Canada the power to deny passage to foreign firms seeking to harvest the massive resource potential located in the increasingly accessible Arctic. This issue highlights a key source of political risk as Canada holds the legal authority to grant or withhold passage to vessels that fall under Article 23. Both foreign and domestic firms will be expected to negotiate with the government to obtain guarantees of innocent passage, the outcomes of which are uncertain.
As firms scramble to be the first to fully capitalize on the Passage’s accessibility, they are also grappling with new International Marine Organization (IMO) regulations on ship fuel. This past summer, the IMO declared that by 2020, ships will be prohibited from using heavy fuel oil: a fuel type that is derived from sulphur-heavy crude oil and results in disproportionately harmful emissions.[v] This regulation forces shippers to either comply by exclusively using low-sulphur blend oils containing less than 0.5% sulphur content or pay burdensome fines. Given that shipping costs could rise between 20% and 85% as a result of the IMO’s regulation, companies are anticipated to use the Passage as often as possible: a trend that would exacerbate marine pollution near Canada’s coastline.[vi] According to the Law of the Seas, Canada would have weak grounds for suspending innocent passage to bar such crossings. As the friction between foreign shipping companies’ interest in slashing costs and Canadian environmental concerns come to a head, the world could experience a renewal of the debate over Canada’s territorial claim to the Northwest Passage.
In addition to anticipated tension between business and environmental interests, the Passage’s thinning ice may lead Canada towards an inevitable confrontation with the rest of the international community. Claes Ragner of the Fridtjof Nansen Institute in Norway highlights the Passage’s potential for preventing ocean pollution.[vii] Ragner argues that by halving the distance that ships must normally travel, the Passage decreases the likelihood that accidents will occur along a shipping route. However, the opening up of the Passage to foreign ships would still be significantly increasing ship traffic in the region. Consequently, while the Passage’s use will decrease the total amount of global pollution, it will be concentrated along Canada’s coast. Therefore, Canada has a vested interest in discouraging increased use of the Passage in order to defend domestic environmental concerns whereas the international community has a conflicting interest in decreasing the total amount of global pollution. This tension would play out in international courts where the legality of sovereignty and the existing regime of innocent passage could be challenged. As the concept of sovereignty asserts the independence and equality of all nations, the courts will have to decide how stringently they will apply the principle of sovereignty.
The immediate instinct that the Passage’s increasing accessibility is a clear opportunity for investment requires critical attention. While the Passage unlocks access to a vast reservoir of potential value, firms will first need to overcome multiple regulatory hurdles. Investors would be mistaken if they assumed that Canadian firms a more attractive investment due to the assumption they would receive preferential treatment. This is for a number of reasons. First, Canada’s stringent enforcement of domestic regulation such as the Arctic Waters Pollution Prevention Act would serve as a clear preliminary obstacle to commercializing the Arctic — even for Canadian businesses. Internationally, Canada would be hard-pressed to explain its reasoning for granting Canadian ships passage while barring foreign ships when innocent passage should be applied universally. A likely outcome that investors should anticipate is a new international treaty that codifies the rules governing traffic through the Passage. Once Canada ratifies the treaty through domestic legislation (as must be done for all international treaties that Canada signs), investors can begin to make more concrete assumptions about the future of the Passage. Given the uncertainty of the Passage’s future, investors intending to capitalize on it would be required to shoulder significant political risk.
Innocent passage in the Northwest Passage is contentious issue of international law that is only expected to become more complicated in the years to come. Due to international and domestic legal concerns, a large influx of traffic in the Passage is unlikely in the immediate future. Instead, investors can closely watch foreign nations’ efforts to secure Passage transit for their own industries. Until then, investors are faced with a great deal of uncertainty that makes investments based on the Passage’s thawing difficult to justify.
[i]The Northwest Passage. PRI. https://www.pri.org/stories/2017-09-04/who-controls-northwest-passage-its-debate.
[ii]Russian Icebreaker. NPR. https://www.npr.org/sections/thetwo-way/2016/06/16/482288188/russia-launches-worlds-biggest-most-powerful-icebreaker.
[iii] Burke, Danita C. The Northwest Passage Dispute. February 26, 2018. https://www.oxfordresearchgroup.org.uk/blog/the-northwest-passage-dispute.
[iv] United Nations Convention on the Law of the Sea, 1982, c.23. http://www.un.org/depts/los/convention_agreements/texts/unclos/unclos_e.pdf.
[v] International Convention for the Prevention of Pollution from Ships, 2005, Annex VI. http://www.imo.org/en/mediacentre/hottopics/pages/sulphur-2020.aspx.
[vi] Jordan, Jack. “Tackling 2020: the impact of the IMO and how shipowners can deal with tighter sulfur limits.” Shipping special report (May 2017): 9. https://www.platts.com/IM.Platts.Content/InsightAnalysis/IndustrySolutionPapers/SR-tackling-2020-imo-impact-shipowners-tighter-sulfur-limits.pdf.
[vii] ABC News. Ice shrinks, Northwest Passage opens up (2017). https://abcnews.go.com/Business/story?id=3609686&page=1
