Transit fees

The Suez Canal illustrates exactly how much money a country can make from an international waterway that passes through its territory. The Egyptian government has long been highly dependent on the revenue drawn from the Canal, which now constitutes the country's third source of foreign exchange earnings, surpassed only by tourism and the remittances sent home by expatriate workers. So in 2007, when a boom in global trade allowed the Egyptian government to hike up prices, its takings from the 20,410 ships that made their way through the Canal amounted to a staggering $5.2 billion. 'Since the first oil crisis in 1973 and the soaring prices, the economic importance of the canal for Egypt never ceased to grow and it has become an irreplaceable source of income', as the economist Samir Radwan told one news agency on the 50th anniversary of the nationalization of the Suez Canal Company.21 Other governments are well aware of how they can cash in from international trade, particularly from the growth of Asian and Far Eastern economies. Moscow, for example, has been busily promoting an overland trade route known as the North-South Corridor. Using a combination of road, rail and river links, this corridor has the potential to transform intercontinental trade, since it is around 6,000 miles shorter than the Suez Canal route. The Russians estimate that it could handle between 15 and 20 million tons of freight every year, and know just how much money they could earn from transit fees - perhaps as much as $10 billion a year - if the project takes off.

So the debates about the legal status of the Northwest Passage and the Northern Sea Route could have enormous financial implications for Ottawa and Moscow. While no signatory member of the 1982 Convention can levy these transit charges over any section of the territorial sea or an economic zone, the treaty has no bearing over 'internal waters'.22 So if any section of these seas is judged by the ICJ to be their own 'internal waters', then the Canadian and Russian governments, like Egypt and the Suez Canal or Canada and the St Lawrence Seaway, will have a right to charge transit fees from international shipping.23 This assumes that there is no 'international strait' that runs through these waters - in which case the 1982 Convention would prohibit the levying of any transit fees - and that the World Trade Organization does not change its rules to wholly prohibit these charges: under the rules of the General Agreement on Tariffs and Trade (GATT), any such fees can only be levied for 'services rendered' to traffic along the way.24

The 'Arctic Five' might potentially be able to claim a right to levy a charge from any ships that pass through their economic zones on the grounds of Article 234 of the 1982 Convention, which gives a right to impose 'non-discriminatory laws and regulations for the prevention, reduction and control of marine pollution' in these waters. Russian regulations have always stated that any ships wanting to pass anywhere along the Northern Sea Route must formally apply for access and pay an exorbitant 'icebreaker fee', even if a ship doesn't specifically need to be escorted. In 2009 the Russians were charging $16 per ton of oil cargo - partly to compensate for the low trade volumes moving through the waters - whereas Finland charged Baltic shipping just $1 per ton. This consideration may explain President Gorbachev's apparent enthusiasm for the route. In 1987 he argued that:

across the Arctic runs the shortest sea route from Europe to the Far East, to the Pacific. I think that, depending on how the normalization of international relations goes, we could open the Northern Sea Route to foreign ships under icebreaker escort.15

In the meantime, disputes between Canada and the rest of the world over the legal status of these waters are likely to continue. The EU has decreed its strong interest in defending 'the principle of freedom of navigation and the right of innocent passage in the newly opened routes and areas', while emphasizing 'the need to avoid discriminatory practices (in particular in terms of fees, obligatory services, regulations) by any of the Arctic coastal states towards third countries' merchant ships'.26 Not surprisingly, these sentiments caused dismay and alarm in Ottawa: 'This is really troubling for Canadian interests', as one expert on the region, Rob Huebert, told the local media at the end of 2008.27

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