The draft WTO agreement on fisheries subsidies: Are we closing the net?

On 11 May the chair of the World Trade Organization (WTO)’s fisheries subsidies negotiations released a draft text designed to spur the final stage of negotiations toward final agreement. Talks on fisheries subsidies have been on the WTO’s ledger since 2001 and have been conducted in earnest since 2016. The negotiations are the key element in States’ efforts to fulfil Sustainable Development Goal 14.6, which calls on UN Members to eliminate subsidies that contribute to overfishing, overcapacity or illegal, unreported, and unregulated (IUU) fishing practices — supposed to be completed by 2020.

Over-exploitation and harmful fishing practices are contributing to the risk of extinction of many marine species and the potential collapse of marine ecosystems. Nevertheless, governments around the world continue to provide billions of dollars in fisheries subsidies annually — eg by financially supporting vessels’ purchase, equipping, fuelling, crewing, or operation. A significant portion support unsustainable practices.

Having failed to reach agreement last year, delegates will meet weekly in a final push to secure agreement before 15 July 2021. If talks succeed, the resulting agreement will be the first major addition to the WTO Agreements since 1994 and will entail a partial reimagination of the WTO’s mandate and the factors motivating trade disciplines.

The complexity of addressing unsustainable fisheries subsidies means the draft agreement contains many novel features — for WTO subsidies rules, for trade and development, for the Organization’s mandate, and for its relationships with other substantive areas of international law and external actors. It is impossible to fully assess the text’s many layers and implications here, and final analysis must wait for the completion of negotiations. Instead, I will highlight its most salient features and two major sticking points in the negotiations.

Key features of the draft

Existing WTO rules discipline governments providing financial support in three circumstances: when assistance is linked to export performance (export subsidies) and when assistance is linked to the use of domestic over imported products (local content subsidies — collectively, ‘prohibited’ subsidies) and when assistance causes injury or serious prejudice to another Member’s industries or ‘nullifies’ or ‘impairs’ rights or benefits under the WTO Agreements (‘actionable’ subsidies). In all three cases, assistance must confer a ‘benefit’ and be conferred on an identifiable class of recipient. Until now, WTO subsidies rules have been motivated by classical liberal trade theory: subsidies are undesirable because they distort competitive relationships. Significantly, policy motivations are largely irrelevant: as Canada — Renewables/Feed-in Tariffs illustrate, nothing prevents ‘green’ subsidies being successfully challenged.

The draft agreement somewhat moves away from this starting point by disciplining subsidies not (only) because they distort products’ competitive relationship, but because they incentivise environmentally harmful practices. The draft text essentially envisages an additional layer of obligation for selected subsidies based on recipients’ activities. It thus both adds detail to and expands existing rules. The agreement covers subsidies that meet the existing definition of a subsidy in Art 1 SCM Agreement — ie financial contribution or income or price support, provided by a public body, conferring a benefit, to a specific class of recipient (draft Art 1.1). However, it also potentially expands existing rules by regulating fuel subsidies that, because they do not benefit specific recipients, would not otherwise be disciplined (draft Art 1.2).

The draft essentially establishes four new categories of prohibited subsidy — subsidies that: (1) support vessels ‘engaged in illegal, unreported and unregulated fishing’ (draft Art 3.1); (2) support ‘fishing or fishing related activities regarding an overfished stock’ (draft Art 4.1); (3) ‘contribute to overcapacity or overfishing’ (draft Art 5.1); or (4) support fishing in areas that are neither subject to coastal State jurisdiction nor governed by a regional fisheries management organisation (RFMO) (draft Art 5.3).

To enable the identification of covered subsidies, the draft piggybacks on Members’ reporting obligations under Art 25 SCM Agreement, requiring them to provide information on the fishing activities it subsidies and species-specific catch data in subsidised fisheries (draft Art 8.1(a)), as well as the conservation and management status of stocks within subsidised fisheries, existing conservation and management measures for relevant stocks, the names and registration numbers of subsidised vessels, and fleet capacities in subsidised fisheries (draft Art 8.1(b)). Each year, Members must also provide the (new) Fisheries Subsidies Committee a list of vessels it deems engage in IUU fishing, and details of any access agreements it has with other States (draft Art 8.2). Members must provide other Members with any other requested information in a timely and comprehensive manner (draft Art 8.3).

Perhaps most significantly, the draft dovetails into existing dispute settlement and remedies procedures (draft Art 10). Importantly, WTO Members routinely use unilateral countervailing duties (retaliatory tariffs) to respond to ‘prohibited’ as well as ‘actionable’ subsidies. In a nutshell, and if my reading is correct, this means Members may choose to challenge subsidies in dispute settlement proceedings, and/or can adopt countervailing duties, thus making unilateral trade remedies a tool of environmental protection — albeit one that may only lawfully negate (rather than deter) incentives for unsustainable practices.

Sticking points

Under the law of the sea competence and responsibility for living resources and environmental protection are shared on a mix of functional and geographic bases. As such, fisheries management and conservation necessarily imply a complex matrix of parallel and overlapping jurisdictional and institutional competences shared between various States and RFMOs. A key issue in the negotiations is how to appropriately identify unsustainable practices — and hence prohibited subsidies? Whose determinations ought to be authoritative, eg, when deciding whether IUU activities have occurred, a stock is overfished, or fishing occurs outside national jurisdiction or RFMO competence?

Importantly, the draft text expressly links its operation to the FAO’s definition of IUU fishing contained in the FAO’s 2001 Plan of Action (IPOA-IUU) (paras. 3.1–3.3). A subsidy will thus be prohibited under draft Art 3 if it supports a broad range of activities. According to the IPOA-IUU, IUU fishing can occur through, inter alia, fishing without or in excess of a license in a State’s EEZ or an RFMO management area, exceeding catch limits for targeted or by-catch species, employing prohibited gear or methods, fishing during closures, or inadequately reporting effort or capture.

For IUU activities, the draft shares authority between coastal States, flag States, and RFMOs (draft Art 3.2). Subsidies will thus become prohibited if they benefit a vessel or operator that is listed by its flag State or is identified by a coastal State as engaging in IUU activities within its maritime zones or by an RFMO within its geographical and species competences (draft Arts 3.2–3.3). Draft provisions attempt to ensure investigations are evidence-based and conducted transparently (draft Art 3.3).

Similarly, the draft grants authority to determine when a stock is ‘overfished’ to the coastal State in whose waters fishing takes place or the RFMO with competence over the activities, subject to the proviso that determinations be ‘based on best scientific evidence available’ (draft Art 4.2). Importantly, port and market State Members are not expressly granted determination authority — their role in identifying unsustainable practices thus seems to be limited to notifying flag and coastal States and RFMOs of vessels’ or operators’ activities.

A more significant sticking point in negotiations relates to the need to provide special and differential treatment (SDT) for developing country Members — and particularly coastal communities in least developed country (LDC) Members who depend on artisanal and subsistence fishing. SDT is a fundamental concept enumerated across the WTO Agreements. The problem lies in providing sufficient flexibility to cater for genuine reliance on coastal fisheries, without undermining the agreement’s objectives — especially ending subsidies for unsustainable commercial fishing.

The draft lays out two alternative paths. Under the first, LDCs would be completely exempted from the prohibition on overcapacity subsidies (draft Art 5.5(a) ALT 1), as would developing country Members in respect of all fishing activities in their territorial sea (draft Art 5.5(b) ALT 1). These exemptions would cease to apply if conditions relating to a Member’s economic development and portion of global marine capture exceed certain thresholds (draft Art 5.5(c) ALT 1). The second approach envisages developing country Members gradually phasing out overcapacity subsidies, including for artisanal and subsistence fishing. While LDC Members would still be exempted from Art 5.1, developing country Members would be permitted to retain over-capacity subsidies for ‘low income, resource-poor or livelihood fishing or fishing related activities’ within the territorial sea for a period of seven years, and for other activities within the EEZ and RFMO-managed areas for five years (draft Art 5.5(a)–(c) ALT 2). Members whose share of annual global marine capture does not exceed 0.7 per cent and who grant less than $25 million USD in annual subsidies for marine fisheries activities would be able seek the Fisheries Subsidies Committee’s permission to extend these periods.

While the first path provides greater flexibility for developing country Members, the second approach more clearly promotes the agreement’s core objectives. Members’ willingness to compromise on these issues will likely determine the path ultimately chosen and, perhaps, the success of negotiations.

A sea change?

While we await the completion of the negotiations, it is worth reflecting on what success would mean. Securing an(y) agreement would demonstrate that the WTO remains capable of facilitating complex multilateral negotiations — given its recent record, this alone would be a victory. This said, by pushing the boundaries of its mandate, success will require the WTO to adapt and to become more agile in engaging with extraneous international law, national decision-making authorities, and the complex web of external international organisations with competence over fisheries. While it is perhaps too much to hope for, we might also wonder whether success on fisheries subsidies is a first step toward rules on other environmentally harmful subsidies — such as the trillions spent annually supporting fossil fuels — or may even smooth the way toward an agreement relaxing existing rules for green subsidies.

Finally, we should remember that success will not affect WTO Members’ abilities to lawfully adopt trade restrictive fisheries protection measures as coastal, port, or market States (see Yoshimichi Ishikawa’s previous exploration of this issue here on EJIL:Talk!). Because such measures will almost invariably violate trade disciplines, their WTO consistency will often turn on successful invocation of the WTO Agreements’ exceptions. It might, however, mean that a panel (or, dare we hope, an Appellate Body division…) may prove more amenable to measures’ justification under, esp, Arts XX(a) or (g) GATT.