WTO Rules on Fisheries Subsidies: Progress and Prospects

30 November 2017

New rules to address the negative environmental effects of subsidies to the fishing industry are one of the most likely possible outcomes of  MC11. These negotiations were originally mandated in the Doha Declaration of 2001, only to languish for several years before being given renewed impetus by the United Nations 2030 Agenda for Sustainable Development. Recent proposals have prioritised “effects-based” disciplines focused on subsidies to illegal, unreported, and unregulated (IUU) fishing and subsidies to fish stocks that are already overfished, as well as the more general priorities of the original mandate: subsidies contributing to overcapacity and over-fishing. Disciplines on subsidies to vessels and operators engaged in IUU activity, commitments to improve transparency of fisheries subsidies, and a programme of further work currently appear to be the most likely elements of an outcome at MC11.

From the Doha mandate to the present day

Fisheries subsidies have been an issue on the global agenda for many years. Global fisheries already suffer from overfishing: according to the UN’s Food and Agriculture Organization (FAO), around 60 percent of assessed fish stocks are fully exploited and 30 percent are already over-exploited. The global fleet is also severely over-capitalised as fishing power has increased and resources have been depleted, the harvesting productivity of global fishing fell, on average, by a factor of six between 1970 and 2005, according to a 2009 study from the World Bank.

There is strong evidence from economic modelling and case studies that subsidies to fishing can create incentives for over-capitalisation of the industry and for unsustainable levels of fishing effort. By recent estimates, subsidies to the fishing industry amounted to around US$35 billion per year, of which around US$20 billion were given in forms that tend to enhance fishing capacity. Fisheries management could go some way to curbing these effects, but is rarely effectively enforced, and can in fact be undermined by political pressure exerted by over-capitalised fleets.

WTO members established a mandate for negotiations on the subject as part of the Doha Round in 2001, and elaborated on that mandate in 2005, directing the prohibition of certain subsidies that contribute to overcapacity and overfishing, enhanced transparency, and the inclusion of appropriate and effective special and differential treatment (S&DT) for developing and least developed country (LDC) members. The negotiations have faced technical challenges, particularly for building subsidy disciplines that address sustainability of fish stocks, as well as political challenges given the sector’s economic importance to developed and developing countries.

A Chair’s text of 2007, a milestone in the negotiations, included a list of subsidies to prohibit, a new rule for actionable fisheries subsidies, general exceptions, and a sophisticated system of S&DT, including greater exceptions for small-scale fishing close to shore and narrower exceptions for larger-scale fishing. A Chair’s report of 2011 identified some areas of greater convergence, such as the idea of prohibiting subsidies to IUU fishing.

After a hiatus of several years, negotiations were reinvigorated following the adoption in 2015 of Sustainable Development Goal (SDG) target 14.6 of the United Nations 2030 Agenda for Sustainable Development. This set a deadline of 2020 for prohibiting subsidies contributing to overfishing and overcapacity, and for eliminating subsidies to IUU fishing. WTO members also appear to have been inspired by the inclusion of binding fisheries subsidies rules in the Trans-Pacific Partnership (TPP) Agreement, which has since been renamed as the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP).

A wide range of textual proposals have been tabled throughout the past year. The main proponents include New Zealand, Iceland, and Pakistan; the EU; Indonesia; the Africa, Caribbean, and Pacific (ACP) group; Argentina, Colombia, Costa Rica, Panama, Peru, and Uruguay; the LDC group; Norway; China; and the United States. Proposals tabled in the first half of the year were collated into a matrix in July and then into a vertical compilation text by the proponents in September. In the lead-up to MC11, negotiators have been working from this vertical compilation, including ongoing additions of formal proposals and textual suggestions from various members. They have also been discussing what issues might be ripe enough to be included in an outcome at MC11, and what issues might be candidates for inclusion in a work programme of further negotiations to the twelfth ministerial conference (MC12).

State of play heading into Buenos Aires

All proposals on the table include prohibitions of subsidies based on their “effects,” in particular subsidies linked to IUU fishing and subsidies to fishing of stocks that are already overfished. These two prohibitions are thought to be leading candidates for an agreement because of a general understanding that subsidies in these situations, particularly to IUU fishing, are especially egregious that, at least in principle, the disciplines could apply to all WTO members equally. This approach could avoid or minimise debate over exceptions in the form of special and differential treatment (S&DT) for developing countries, which would make the agreement difficult for large developed countries to accept.

This understanding is not a point of firm consensus, however; there are proposals on the table that include exceptions to these prohibitions. Many of the proposals also include prohibitions on subsidies based on the type of cost they target – capital costs, like vessel construction, or operating costs, like fuel. Most proposals for disciplines on these subsidies, for example by the ACP and LDC groups, include S&DT in the form of wide exceptions for these subsidies to be provided to small scale fishing and fishing within developing country WTO members’ own exclusive economic zones (EEZs).

Key issues in the negotiations

Subsidies to Illegal, Unreported, and Unregulated fishing

Of all the issues on the table, the idea of a discipline on subsidies to IUU fishing is one of the most likely candidates for some degree of agreement at MC11. Illegal and unreported fishing is a pervasive problem in global fisheries; some estimates suggest the value lost amounts to up to US$23 billion per year. The issue is mentioned explicitly in SDG 14.6 and has obvious political appeal. The central issue in the negotiations is how IUU fishing in different jurisdictions would be identified and thus trigger the subsidy discipline. A further, deeply political and sensitive issue, that has recently been brought openly into the negotiations is how WTO disciplines might be designed to avoid issues of disputed jurisdiction over different maritime zones.

Identifying activity that would trigger the subsidy prohibition: RFMO lists

Most of the proposals on subsidies to IUU fishing suggest that vessel lists currently published by Regional Fisheries Management Organisations (RFMOs) could be used to trigger the prohibition: once a vessel or operator is listed, subsidies to that vessel or operator would be banned.

Members have proposed different approaches, however, for how to use RFMO lists. The more automatic approach advanced by New Zealand, Norway, and the LDC group, among others, would have the subsidy prohibition apply once a vessel is listed by any RFMO. Other members are concerned about the process by which RFMOs list vessels, and propose that WTO members retain more control over this trigger. A proposal by a group of Latin American countries, for example, would enable a WTO member to recognise RFMO lists of vessels for the purposes of the subsidy prohibition. China has proposed even greater control, requiring a vessel’s subsidising member to verify alleged IUU activity before a subsidy prohibition is applied.

Identifying activity that would trigger the subsidy prohibition: National lists and determinations

A second approach proposed is to apply the subsidy prohibition to vessels identified by national governments for IUU fishing. Identification could be by flag states, subsidising governments, or potentially by coastal states. The EU, New Zealand, and others have proposed that identification could take the form of national IUU vessel lists. Several Latin American members and the LDC group have also proposed that identification could be broader, in the form of national determinations of vessels or operators as having been engaged in IUU fishing under national legislation. Some members have suggested that the prohibition could apply, under certain conditions, to vessels identified by coastal states for IUU fishing in the coastal states’ waters, an idea that has raised concerns about one member’s ability to trigger the subsidy obligations of another member. A proposal by Norway offers a middle ground approach, under which the subsidising member would be required to check that operators receiving subsidies had not recently operated in another member’s EEZ without permission.

Prohibition on subsidies to overfished stocks

Several proposals on the table include a prohibition on subsidies for fishing on stocks that are already overfished. According to the FAO, around 31 percent of assessed fish stocks around the world are overfished.

The more ambitious proposals, including New Zealand and the LDC group, would apply the subsidy prohibition to all stocks that were assessed to be overfished. Other members have argued for a narrower discipline, either by requiring that subsidies have negative effects on an overfished stock, as proposed by the EU and Latin American group, and/or by limiting the subsidy rule to vessels that target an overfished stock, as proposed by the EU and ACP groups. The EU has also proposed to carve fishing within the territorial sea out of this discipline’s scope.

The proposals by New Zealand and the Latin American country group suggest an objective definition of when a stock is to be considered overfished. Other members would rely instead on national or regional fisheries authorities’ decisions, although concerns have also been raised about their reliability, and whether and how deeply they might be reviewed in the WTO.

A further issue is whether the rule should be extended to un-assessed stocks. Two proposals, by New Zealand and the EU, suggest that the prohibition on subsidies should also apply when a stock’s status is unknown or where scientific information is insufficient, an idea that has raised concerns among some members, particularly those with limited stock assessment information.

Subsidies that contribute to overcapacity and over-fishing

Several members have proposed a prohibition of subsidies that increase the capacity of fishing fleets, either in general terms, i.e. subsidies that contribute to overcapacity, or by identifying specific kinds of subsidies. The EU proposal focuses on capacity-enhancing subsidies, arguing that overcapacity is the root cause of overfishing and stock depletion. Many developing country members are concerned, however, that rules that would limit their ability to provide subsidies that increase fishing capacity, such as by building vessels or supporting more powerful engines, would limit their ability to support the growth of their domestic fishing fleets.

Proposals by the ACP and LDC groups, by the Latin American country group, and by the EU and Indonesia, for example, include a variety of exceptions from this prohibition for developing countries: for LDCs, for small-scale fishing, and for fisheries within EEZs or fishing of RFMO quota. In the case of the EU and Indonesian proposals, some exceptions would be subject to fisheries management being in place to ensure subsidies did not contribute to further overfishing, a key concern.

Members have attempted to address the problem of subsidies that contribute to overfishing in different ways, and negotiators have frequently combined the issue with discussing rules on subsidies to overfished stocks. Indonesia and the LDC group have suggested specific prohibitions on operating costs which are usually considered to contribute to fishing effort and therefore potentially to overfishing. Fuel subsidies make up a large percentage of global subsidies to operating costs, and have been a difficult issue in the negotiations. Mexico and others have argued that the fisheries subsidy disciplines could cover horizontal (i.e. economy-wide) subsidies to fuel which benefit the fishing industry; others have argued instead that disciplines should include the specificity requirement from the current Agreement on Subsidies and Countervailing Measures (ASCM). The EU has proposed exempting fuel de-taxation schemes from the scope of a new fisheries subsidies agreement altogether.

Special and differential treatment

The question of whether and how much S&DT is required in the final agreement is likely to depend on the scope of the final prohibition. There is an important political and technical aspect to the discussions: the United States, in particular, is reluctant to see more flexible rules apply to large developing countries under a WTO deal. The effects based elements of the proposals on the table included, until recently, little or no S&DT, and mostly in the form of extended implementation time for these disciplines. In contrast, much broader S&DT is being discussed in the context of disciplines to subsidies that increase capacity or fishing effort, many of which would exclude LDCs from these prohibitions completely, and apply the prohibitions primarily to fishing outside developing countries’ EEZs and to large-scale fishing. Other members, however, have argued that this would exclude large swathes of fishing from the disciplines.

To MC11 and beyond
There has been a significant push during 2017 to agree on disciplines on fisheries subsidies, specifically to deliver an outcome that contributes to SDG target 14.6. While there is substantial high-level political expectation and therefore momentum behind the negotiations, the technical and legal complexity of the negotiations means it is not yet clear what elements of the proposals on the table might be able to be combined into an outcome at MC11. Much will depend on the potential for flexibility from the largest WTO members.

The US and China have both engaged formally in the fisheries subsidies negotiations only recently and with firm proposals on transparency and IUU, respectively, between which there is no immediately obvious common ground. It remains to be seen whether defensive members have enough flexibility to adopt disciplines that are significant enough for ambitious members to accept. What does seem likely is that whatever is agreed in Buenos Aires will need to be supplemented by a work programme that addresses the remaining issues on the table for a further deliverable to be agreed at MC12 in 2019, one year before the SDG 14.6 deadline of 2020.

 

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