UNTANGLING THE NETS OF THE FISHERIES SUBSIDIES DEBATE
On 15th February 2021, the World Trade Organisation (WTO) appointed a new Director General, Dr Ngozi Okonjo-Iweala of Nigeria – the first woman and the first African to lead the organization. This blog post will discuss why her appointment can make a difference for the ongoing negotiations on phasing out fisheries subsidies. It will first introduce Dr Okonjo-Iweala and her agenda on fisheries subsidies, and then summarize WTO efforts so far on this topic. The blog post will provide a summary of key developments so far within the WTO, as well as the current state of play in respect of this contentious topic. The post will conclude by reflecting upon what is likely to happen next in securing agreement on fisheries subsides.
The Director General for the WTO
Dr Okonjo-Iweala is the organisation’s seventh Director-General. Her term will last until August 2025 though is renewable. Dr Okonjo-Iweala joined the WTO at a difficult time, not least due to the COVID-19 crisis. Dr Okonjo-Iweala is (twice) former Nigerian finance minister, former Managing Director of the World Bank and a former chair of Gavi, the Vaccines Alliance. An economist by training, she is used to tough negotiations and has not been afraid to criticise the rise of ‘vaccine nationalism’; noting that, ‘It’s unconscionable that people will be dying elsewhere, waiting in a queue, when we have the technology.’
However, it is not just on issues relating to COVID-19 that the new Director General has needed to engage in tough negotiations. Her appointment is of direct relevance to the world’s ocean, as upon her appointment, she has confronted head on the challenge of fisheries subsidies, which have been on the formal negotiating agenda of the WTO since 2001. She has explicitly called for the completion of negotiations on fisheries subsidies as soon as possible in 2021. This call must be met if we are to address the extensive impacts of subsidies that contribute to overcapacity and overfishing, as well as prohibiting subsidies that contribute to IUU-fishing, while also recognising the needs of developing and least developed country members.
What are fisheries subsides?
The definition of a subsidy varies depending upon the context but in general, the term usually means the payment of public money either to an industry, business or to facilitate consumption of a good or service. According to the relevant WTO Agreement on subsidies, a subsidy is a financial contribution by a government or any public body within the territory of a WTO Member that confers a benefit and that is specific in the sense of applying to a specific industry, producers in a particular region, or a specific enterprise. Certain forms of subsidy, such as those contingent upon export performance and those linked to the use of domestic over imported goods, are prohibited automatically under WTO law.
Subsidies are not inherently ‘bad’. Some will have useful effects such as boosting employment, enhancing food security, encouraging innovation and even facilitating adaption to higher environmental standards. Some subsidies may, however, create what is called perverse incentives that, ‘prop up industries and activities that degrade nature, harm species, or cause climate change.’ Within the fisheries sector, common subsidies include, ‘grants, concessional credit and insurance, tax exemptions, fuel price support (or fuel tax exemption), direct payments to industry, such as vessel buyback schemes, fish price support, and public financing of fisheries access agreements.’
Why are fisheries subsides currently the focus of negotiations?
While not all subsidies granted to the fisheries sector are considered as problematic, and in fact, some forms of subsidy – e.g. subsidies promoting responsible fisheries management – may be in fact be beneficial, other forms of subsidy such as those that enhance fleet capacity are generally considered harmful. This is because such subsidies have a tendency to promote overcapacity, which can lead to overexploitation of targeted fish stocks.
The vast majority of fisheries subsidies are granted to large fleets, thereby, ‘disproportionately benefit(ting) big business.’ The knock-on impacts of this on small-scale fisheries, which provide the majority of employment in the fisheries sector, is colossal. If the monies currently used to support industrial fishing were instead reinvested, ‘in sustainable fisheries, aquaculture and coastal community livelihoods to reduce the pressure on fish stocks,’ considerable sustainable development gains would result. In a related respect, fisheries subsidies pose a risk to food security, particularly in respect of coastal communities where up to 80% of animal protein consumed will constitute fish. In essence, ‘(b)y fueling unfair competition between large fleets and individual artisanal fishermen, they are also fostering inequality.’ In addition, certain forms of fisheries subsidies are environmentally destructive, with, for example, subsidies that contribute to overfishing linked to bycatch of other species, including endangered species.
It is against the above context that Sustainable Development Goal 14.6 was promulgated with a view to prohibiting certain forms of fisheries subsidies with the WTO noted as the forum for such negotiations. Goal 14.6 requires that the prohibition by 2020 of,
“certain forms of fisheries subsidies which contribute to overcapacity and overfishing, and eliminate subsidies that contribute to (illegal, unreported and unregulated) IUU fishing, and refrain from introducing new such subsidies, recognizing that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the WTO fisheries subsidies negotiation.”
Achieving a positive outcome on fisheries subsidies is also important to the achievement of other SDGs. As noted by the UN Conference on Trade and Development (UNCTAD),
‘(SDG14.6) also impacts other SDG 14 targets due to be achieved by 2020, in less than five years, such as Target 14.2 on coastal and marine ecosystem management, Target 14.4 on IUU fishing and Target 14.5 on marine protected areas.’
A background on fisheries subsidies negotiations
While SDG 14.6 designated the WTO as the forum for fisheries subsidies negotiations, discussions on this issue long precede the Sustainable Development Goals. As part of the 2001 Doha Declaration, which launched the so-called Doha Round on multilateral trade negotiations at the WTO, Members committed to negotiations to, ‘clarify and improve WTO disciplines on fisheries subsidies.’ As noted above, while there is already a multilateral WTO agreement, the Agreement on Subsidies and Countervailing Measures (SCM), to discipline the grant of certain subsidies with an impact on trade, this has proven ineffective at disciplining subsidies in the fisheries sector. In part, this may be explained by the fact that the SCM is focused upon a finding of adverse trade effects, while the target issue with fisheries subsidies is, inter alia, their adverse environmental effects. A recent report by the UN Food and Agriculture Organisation (FAO), for example, found that overexploitation have pushed fish stocks to the brink in many parts of the world. In addition, notification of subsidies in the fisheries sector has been somewhat lax and to an extent, there is a lack of clarity on the degree of such subsidisation.
It is against the context of lax notification and a concern for the adverse effects of certain forms of subsidies granted to the fisheries sector that the Doha Declaration called upon WTO Members to work to clarify the application of existing subsidies disciplines to fisheries. The substance of these negotiations was elaborated further in the 2005 WTO Hong Kong Ministerial Declaration. This noted that that among Members, “there is broad agreement that the Group should strengthen disciplines on subsidies in the fisheries sector, including through the prohibition of certain forms of fisheries subsidies that contribute to overcapacity and over-fishing…”
Negotiations have been conducted in the WTO Negotiating Group on Rules and in 2007, its (then) Chair put forward a draft text which served as a “central point” of discussion. Under the Chair’s text, certain subsidies such as those the ‘benefits of which are conferred on any vessel engaged in illegal, unreported or unregulated fishing,’ would have been prohibited. Progress on negotiations was, however, slow due to disagreements over, inter alia, special and differential treatment for developing and least developed countries and the role of fisheries management systems.
Discussions within the WTO subsequently fell into something of a lull from 2011 to 2016. Since then, fresh impetus has been provided to WTO discussions by the promulgation of SDG 14.6, which as we have seen directly references the ongoing WTO negotiations on fisheries subsidies.
There was hope that an agreement could be reached within the WTO on fisheries subsidies by the WTO Buenos Aires Ministerial meeting in 2017. This was not, however, possible. Instead, Members committed to, “continue to engage constructively in the fisheries subsidies negotiations, with a view to adopting, by the Ministerial Conference in 2019,an agreement on comprehensive and effective disciplines that prohibit certain forms of fisheries subsidies that contribute to overcapacity and overfishing, and eliminate subsidies that contribute to IUU-fishing recognizing that appropriate and effective special and differential treatment for developing country Members and least developed country Members should be an integral part of these negotiations.”
Since then, negotiations have continued on producing an agreement to discipline fisheries subsidies and eliminate subsidies that contribute to IUU-fishing. Unfortunately, however, the 2020 deadline set out in SDG 14.6 was not met, in part due to the cancellation of the 12th WTO Ministerial meeting in Kazakhstan in June 2020 due to the ongoing COVID-19 pandemic. In terms of progress since then, a draft consolidated Chair’s negotiating text was presented to Members in mid-2020, with its acceptance by Members as a basis for further negotiations described as a significant ‘step forward.’ This text was further updated in November 2020 but Members were unable to secure agreement on a final text by the end of 2020.
What has happened with negotiations in 2021?
Negotiations resumed in January 2021 with the Chair of negotiations, Ambassador Santiago Wills of Colombia, presenting a new draft consolidated text to Members on 11 May 2021. The text is presented as a Chair’s text, meaning that it is prepared under his responsibility but nevertheless, ‘the draft reflects language from WTO members, whether reflected in proposals, or a facilitator’s work, or expressed during meetings and consultations.’ As a Chair’s text, its entire substance is up for, ‘discussion and it will ultimately be up to members to resolve the issues that remain open.’
What is in the May 2021 Chair’s text?
In line with the mandate for negotiations, the Chair’s text aims to provide disciplines on subsidies on IUU fishing, subsidies on overfished stocks, subsidies contributing to overcapacity and overfishing. The text also sets down a number of requirements related to notification and transparency. Furthermore, it contains numerous provisions designed to facilitate special and differential treatment for developing and least developed Members. The text contains numerous elements in square brackets, demonstrating that disagreement exists between Members on the relevant section. However, as noted by the Chair, the ‘entire document is effectively in square brackets and nothing is agreed until everything is.’
The provisions of the Chair’s draft consolidated text, as presented to Members on 11 May 2021, are discussed further below.
Illegal, unreported and unregulated (IUU) fishing undermines conservation and management measures taken by States and Regional Fisheries Management Organizations and Arrangements (RFMOs/As). This can result in not only the depletion of targeted stocks, but also impairment of associated ecosystems. Consequently, IUU fishing has implications for food security. In response, a series of international, regional and national policy and legal instruments have been adopted to prevent, deter and eliminate IUU fishing. The provisions of the WTO fisheries subsidy regime, in seeking to prohibit subsidies for IUU fishing, have the potential to support such efforts.
In the current Chair’s text, Article 3 deals explicitly with IUU fishing. Specifically, Article 3.1 sets out, ‘No Member shall grant or maintain any subsidy to a vessel [or operator] engaged in illegal, unreported and unregulated (IUU) fishing.’ The term operator is in square brackets, reflecting, ‘a divergence of views’ between Members on this matter. In terms of the definition of IUU fishing, a footnote to the text explains that it, ‘refers to activities set out in paragraph 3 of the International Plan of Action to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing adopted by the UN Food and Agriculture Organization (FAO) in 2001.’ The Plan of Action sets out what is generally considered to be the key definitional elements of what constitutes IUU fishing but as a Plan of Action it is voluntary. What is notable in regard to the WTO negotiations on the issue is the reliance placed within the Chair’s Text upon existing principles and concepts developed under the law of sea and associated fora. Accordingly, the inclusion within the Chair’s text of the Plan of Action definition of IUU fishing, ‘would in practice support the realisation of States’ existing duties through domestic economic policy in a form that is enforceable through WTO procedures’ (source here). In other words, these disciplines may support States’ existing duties under the law of the sea.
The issue of ‘who’ may make a determination of IUU fishing has proven controversial within the negotiations, with Members concerned not to create a hierarchy between bodies with the competence to make such a determination. The Chair’s text is therefore careful not to create such a hierarchy, setting out that coastal states have the competence to make such a determination in respect of activities within its jurisdiction, as well as flag states for vessels flying its flag and of course Regional Fisheries Management Organizations/Arrangements (RMFO/As). Under Article 3.6, each Member is required to have laws, regulations and/or administrative procedures in place to ensure that subsidies for IUU fishing are not granted or maintained. Members are required to notify of their efforts therein (Article 3.7). Notably, under the current text, port state Members do not have competence under the text to make a determination on IUU fishing. They may, however, pursuant to Article 3.5 notify the, ‘subsidizing Member that it has clear grounds to believe that a vessel in one of its ports has engaged in IUU fishing, the subsidizing Member shall give due regard to the information received and take such actions in respect of its subsidies as it deems appropriate.’ This reflects discussions within the WTO that while port State members may indeed have a role to play in combatting subsidies for IUU fishing, nevertheless, there was ‘considerable discussion of whether a port State Member acting as such-rather than as a coastal State Member or a flag State Member –has any competence to make IUU fishing determinations under any circumstances.’
It has been estimated that around a third of global fish stocks are overexploited. According to UNCTAD, the figure is higher again if depleted stocks are included. Given the well-established links between subsidies and overfishing, it is therefore not surprising that SDG 14.6 references certain subsidies that promote overfishing as requiring prohibition.
In the Chair’s text, Article 4 deals directly with overfished stocks. Article 4.1 sets out the broad direction that no, ‘Member shall grant or maintain subsidies for fishing or fishing related activities regarding an overfished stock.’ According to the text, the assessment as to whether a fish stock is overfished lies within the competence of the coastal state within the jurisdiction of which the fishing is taking place or an RMFO/A, ‘based on best scientific evidence available to it (Article 4.2).’ The question as to ‘who’ has competence in respect of such an assessment is one that has caused difficulties in the negotiations so far.
Subsidies that would nevertheless fall within the prohibition of Article 4.1 but which, ‘are implemented to promote the rebuilding of the stock to a biologically sustainable level’ are not prohibited (Article 4.3). In essence, subsidies, ‘implemented to promote rebuilding of the stock to a biologically sustainable level’ are permissible under the proposed disciplines with Article 4.3 acting as an exception to Article 4.1. The inclusion of this provision reflects the view of certain Members that certain forms of subsidies can facilitate the rebuilding of stocks.
Overcapacity and overfishing
Discussions on subsidies contributing overcapacity and overfishing have undoubtedly been at the heart of negotiations. Article 5 of the Chair’s draft text takes what is known as a hybrid approach to such subsidies, establishing in Article 5.1 that ‘(n) o Member shall grant or maintain subsidies to fishing or fishing related activities that contribute to overcapacity or overfishing’ and providing an indicative list of subsidies contributing to overcapacity or overfishing. It is clear that this list is not exhaustive. Accompanying this provision is, however, a proviso set out in Article 5.1.1 that, ‘(a) subsidy is not inconsistent with Article 5.1 if the subsidizing Member demonstrates that measures are implemented to maintain the stock or stocks in the relevant fishery or fisheries at a biologically sustainable level (emphasis added).’ In essence, the hybrid approachadopted in the text to subsidies contributing to overcapacity and overfishing attempts to strike a balance between ambition and sustainability-based flexibility, whereby the prohibition on such subsidies will not apply if the Member in question has taken steps to ensure the maintenance of stocks at a biologically sustainable level. This provision is, however, different to that set out in Article 4.3 in that is arguably broader in scope. In essence, while Article 4.3 operates as a narrow exemption, Article 5.1.1 is, ‘a sustainability-based flexibility in the prohibition itself.’
It should be noted that there is an overlap between the substance of Article 4 and 5 in respect of their coverage of overfishing. This potential overlap has been an issue of contestation within the negotiations, with some Members noting that the provisions of Article 5 would suffice. The Chair’s text, however, retains both Articles for the time being.
Notification and Transparency
As noted at the beginning of this blog post, one of the more problematic issues surrounding fisheries subsidies is that notification of such subsidies has been somewhat lax and to an extent, the extent of such subsidisation has not always been clear. Accordingly, Article 8 of the Chair’s text establishes enhanced notification requirements in respect of fisheries subsidies in order to assist in the surveillance of obligations. In the view of certain Members, strengthened notification requirements are integral element to any final text, with the US previously noting, for example, that, ‘transparency and accountability for individual Members’ subsidies are key to the success of any WTO fisheries subsidies agreement and to any real impact on sustainable fisheries.’
Special and differential treatment
Undoubtedly, the most controversial issue in the negotiations– and the one that has posed the most significant barrier to progress– is that of special and differential treatment. Special and differential treatment may be defined as a range of ‘special’ ‘provisions which give developing countries special rights and which give developed countries the possibility to treat developing countries more favourably than other WTO Members.’ An example of special and differential treatment across the WTO Agreements includes the grant of transition periods to developing and least developed countries for implementation of WTO Agreements. The WTO adopts the definition of a least developed country accorded by the United Nations though there is no overarching definition within the WTO of what constitutes a developing country. Accordingly, ‘developing countries in the WTO are designated on the basis of self-selection although this is not necessarily automatically accepted in all WTO bodies’.
Securing consensus on special and differential treatment for developing and least developed countries is difficult not merely because of disagreements on technicalities, but because of a divergence of views ‘on its intended purpose’, that is, what special and differential treatment is actually intended to do. For example, the Chair notes that for some Members, special and differential treatment operates, ‘to support implementation of the new disciplines, and thus favour forms such as transitional periods and technical assistance and capacity building.’ However, other Members consider that special and differential treatment is there to provide Members policy space.
Regardless of the existence of disagreement between Members on the intended purpose of special and differential treatment, finding a solution that meets the needs of developing and least-developed countries within the context of negotiations is a fundamental aspect of the negotiating mandate. In addition, and as noted by the current negotiations Chair, it is also necessary because, ‘developing Members constitute a large share of global fishing.’ The key to a successful outcome to special and differential treatment is hence balancing these needs against a desire to maintain the overall effectiveness of fisheries subsidies disciplines. The Chair’s text attempts to strike this balance in a number of ways. Firstly, it provides an exemption (Article 3.8) to the prohibition on subsidies for IUU fishing in respect of, ‘developing country Members, including least-developed country (LDC) Members, for low income, resource-poor or livelihood fishing or fishing related activities within 12 nautical miles measured from the baselines.’ The proposed exemption would be time limited – a common form of special and differential treatment in other WTO Agreements – with the Chair’s text indicating a period of 2 years for the exemption.
While allowing any form subsidisation of IUU fishing may seem a deleterious choice, in the words of the Chair, no one intends to continue to subsidise IUU fishing. Rather, the aim of this provision is to allow impacted Members to, ‘bring their subsidy programmes into compliance, (as well as to) provide the opportunity for subsistence, artisanal and small-scale fishers to comply with the relevant rule.’ By providing a time-limited exemption focused on small-scale, resource-poor and subsistence fisheries – thereby excluding large industrial fisheries – the draft text attempts to strike a balance between ambition and flexibility. The text itself is square-bracketed, and it remains to be seen how this provision will play out in negotiations over the next couple of months.
The Chair’s draft text also contains a virtually identical provision to that of Article 3 (8) in Article 4 (4). The latter Article exempts for an indicative period of two years developing country Members, including LDCs, from the prohibition on granting or maintaining subsidies for fishing or fishing related activities regarding an overfished stock for a period of two years in respect of low income, resource-poor or livelihood fishing within 12 nautical miles. As is the case with Article 3 (8), the text of Article 4 (4) is square-bracketed, reflecting similar disagreements between Members on the appropriateness of any continued form of subsidisation for overfished stocks. For certain Members, ‘overfished stocks are the most vulnerable and therefore the disciplines should apply in full to all Members.’ However, supporters of special and differential treatment in respect of the prohibition on subsidies for overfished stocks argue that it is necessary to overcome implementation challenges associated with multi-species stock, especially in coastal waters. Here, as with Article 3(8), we can see an attempt to strike a balance between ambition and flexibility, as well as the ongoing impact of disagreements between Members on what special and differential treatment is actually for.
A further set of provisions for special and differential treatment provision is set out in Article 5.5 of the Chair’s draft text on overcapacity and overfishing. Two alternatives are provided for within the text. The first would exempt least developed countries from the general prohibition set out in Article 5.1. Developing countries would also be exempt though only in relation to fishing or related activities within the relevant Member’s territorial sea. This direction is, however, accompanied by the proviso that the prohibition set out in Article 5.1 will apply to least-developed and developing countries in the event that a number of threshold conditions – such as GNI per capita and their percentage sharer of marine wild capture fisheries – are met by the relevant Member. In essence, this form of special and differential treatment would operate as a ‘transitional mechanism given that Members initially falling below the thresholds could eventually exceed them and then would graduate from this SDT provision.’
This provision has proven controversial with some Members concerned that the, ‘cumulative effect of the criteria and thresholds in the provision as operating to exclude from the disciplines, long term, virtually all developing Members, as most developing Members in fact would never graduate and become subject to the disciplines.’ An alternate text is therefore provided whereby all developing Members could avail of a time bound exemption for certain types of fishing activities such as, ‘low income, resource-poor or livelihood fishing or fishing related activities within 12 nautical miles’ as well as for activities within the Member’s Exclusive Economic Zone (EEZ) and the area of competence of a relevant RFMO/A. Thereafter, developing Members with a limited share of global fish catch and in respect of which, their subsidies do not go beyond a certain agreed level, could seek an extension through a Committee process. Least-developed countries (LDC) would be exempted from the prohibition set out in Article 5.1.
Article 6.1, albeit in square brackets, sets out that the LDC provisions of the Agreement shall continue to apply for a set number of years to former least-developed countries which have ‘graduated’ from least-developed country status. Pursuant to Article 6.2, Members are mandated (with the word ‘shall’ used) to exercise due restraint in raising matters involving an LDC Member and solutions explored shall take into consideration the specific situation of the LDC Member involved.’ Provisions on technical assistance for developing and least-developed countries – while framed with the obligatory ‘shall’ – are quite soft and are set out in Article 7.
What happens next?
At the crux of the negotiations on fisheries subsidies is the need to balance, ‘ambition and necessary flexibility.’ A Ministerial meeting has been set for 15 July to discuss ‘fisheries subsidies and possibly one or two other topics.’ DG Okonjo-Iweala has directed that the main aim of the July meeting is to to review a very advanced, hopefully final, text. While the missed deadline of 2020 to meet the objectives of SDG 14.6 is clearly disappointing and differences clearly remain between Members on how best to discipline fisheries subsides, the appointment of Dr Okonjo-Iweala as WTO Director General has undoubtedly added impetus to finalising negotiations.
One Ocean Hub’s work on fisheries subsidies
The One Ocean Hub research team is currently investigating the linkages between the protection of the human rights of small-scale fishing communities, IUU fishing and fisheries subsidies. In addition, we are collaborating with the UN Environment Programme (UNEP) to develop e-learning materials on the various areas of international law (law of the sea, multilateral environmental agreements, human rights, trade) that are relevant to support the implementation of SDG 14.