A World Trade Organization Deal on Fisheries Subsidies: Across the finish line?

If the World Trade Organization (WTO) negotiations on fisheries subsidies were a person, the joke goes, they would be allowed to drive a car and drink a beer in most countries. A WTO agreement on subsidies to the fisheries sector has been 21 years in the making since the launch of the Doha Development Agenda in 2001. After decades of talks and successive hiccups that delayed the conclusion of negotiations over the last years, WTO members now seem closer to a deal than ever. Has the time finally come?

Simple Problem, Difficult Questions

If there is one number that WTO negotiators now know by heart, it is the share of fish stocks that are overfished globally: 34%. Overfishing is widespread in global fisheries, and subsidies are recognized as a key driving force behind that pressing challenge. Members’ mandate—agreed by trade ministers at the WTO and given a deadline of 2020 by heads of state under SDG target 14.6—requires them to prohibit “certain forms of fisheries subsidies that contribute to overcapacity and over-fishing” while providing “appropriate and effective special and differential treatment” for developing country members.

Tackling the subsidies that encourage unsustainable fishing is vital to ensure that marine resources can continue to support food security, jobs, and livelihoods for hundreds of millions of people worldwide, as well as preserving an important source of export earnings in many countries. There is no debate on that general imperative. The issue with which WTO members have been grappling is the distribution of responsibilities in a new treaty: between developed and developing countries; between large and small fishing nations; between industrial, commercial fishing operations and more artisanal fishing communities that have limited alternative livelihood options.

Tackling the subsidies that encourage unsustainable fishing is vital to ensure that marine resources can continue to support food security, jobs, and livelihoods for hundreds of millions of people worldwide.

Two essential questions have crystallized a lot of attention. First, do the suggested rules ask enough of the big players? The five largest fishing nations or entities—China, the European Union, Indonesia, Peru, and the United States—are responsible for 42% of global marine capture production. The top five providers of subsidies—China, Japan, Russia, South Korea, and the United States—account for around 66% of the subsidies that will be covered by new rules. An effective agreement needs to impose meaningful disciplines on these actors.

A related debate concerns the link between fisheries management and subsidies. While effective fisheries management (a relatively rare occurrence) can help mitigate the risk that subsidies will lead to overfishing, overly wide management-based exemptions from the new disciplines would undermine the impact of the new treaty.

Second, what kind of special and differential treatment for developing country members would be “appropriate and effective?” Here as well, numbers matter. The world’s top three fishing nations—China, Indonesia, and Peru—are developing countries and, taken as a group, developing countries account for close to 70% of global marine capture production. The equation that members need to solve thus consists of providing some flexibility to developing country members where it is justified from a development perspective, without letting broad carve-outs allow the widespread provision of subsidies that encourage the depletion of fish stocks and put the development prospects of vulnerable communities at risk.

What kind of special and differential treatment for developing country members would be "appropriate and effective"?

Finding a unanimous answer to these questions, on a complex environmental topic that falls squarely outside of WTO negotiators’ usual comfort zone, is no small task. However, members are very close to achieving just this. The draft agreement tabled by the chair of negotiations on November 24, 2021, just a few days before the WTO’s Twelfth Ministerial Conference (MC12) was expected to start, reflects a remarkable level of convergence. Ahead of the rescheduled MC12 planned to take place from June 12 to 15, members now need to focus their efforts on turning convergence into consensus.

Striking the Right Balance

The gradual narrowing of the gaps between members’ positions has required careful balancing between various considerations and priorities. The draft on the table sets out much of the overall balance; it leaves open only a few important outstanding questions that members will need to address in their pursuit of a final equilibrium. The text includes subsidy prohibitions in three substantive areas, as well as innovative rules on transparency that also matter in that balancing act.

Illegal, Unreported, or Unregulated Fishing

The first prohibition is found in Article 3 of the draft agreement and applies to the subsidies that contribute to illegal, unreported, or unregulated (IUU) fishing. It requires members not to subsidize any fishing vessel or operator that has been found to engage in IUU activities, as well as any vessel supporting these activities. Such IUU determinations, which can be made by coastal states, flag states, or regional fisheries management organizations (RFMOs), trigger the subsidy rule automatically. However, that strict and automatic prohibition is balanced by three particular provisions in the text.

The draft on the table sets out much of the overall balance; it leaves open only a few important outstanding questions that members will need to address in their pursuit of a final equilibrium.

First, IUU determinations made by coastal states and RFMOs will trigger the subsidy prohibition only if they rely on relevant factual information and follow basic procedural steps. This means that a member’s obligation not to subsidize will not be activated by unfair or unfounded determinations made by other actors. Second, the subsidizing member will decide how long the prohibition applies for each particular infraction; the only requirement is that it lasts at least as long as the original sanction or the IUU listing. Finally, subsidies to developing country members’ artisanal fishing occurring close to the shore cannot be challenged through WTO dispute settlement for a grace period of 2 years.

The balance suggested in the text is that of a strong prohibition, but only triggered by sound IUU determinations, applied in a manner that is calibrated by the subsidizing member and with a transition period during which it cannot be enforced against often-vulnerable artisanal fishing communities in developing countries.

Overfished Stocks

The second prohibition (in Article 4) addresses situations where concerns about sustainability are particularly high, as it forbids members to subsidize activities in fisheries where stocks are already declared to be overfished. The apparent strictness of the prohibition is eased by an important qualifier, which exempts members from the rule in two distinct situations. First, when a subsidy itself is provided to rebuild a stock, it can still be provided. Second, if fisheries management measures are in place to help a stock recover, then all subsidies are still allowed.

Disciplines on subsidies to IUU fishing and overfished stocks now appear to be stabilized, with most recent discussions among members focusing on the third pillar of the negotiations: overcapacity and overfishing.

Here, the balance members appear to have found is the combination of a strong prohibition with a relatively wide exemption when policy efforts are made to build a stock back to healthy levels. There is some level of constructive ambiguity in this flexibility, as the text does not specify exactly what members would have to demonstrate to benefit from that provision. Like the IUU rule, the draft agreement also provides for a 2-year grace period for developing countries’ subsidies to small-scale inshore fishing of overfished stocks.

Disciplines on subsidies to IUU fishing and overfished stocks now appear to be stabilized, with most recent discussions among members focusing on the third pillar of the negotiations: overcapacity and overfishing.

Overcapacity and Overfishing

This third substantive area (Article 5), arguably the one with the largest possible impact, includes several rules. The main prohibition specifies a list of subsidy types that are considered the most likely to contribute to overcapacity and overfishing. These include the subsidies that help fishers cover operating costs, such as fuel, or capital costs, including the acquisition of vessels, engines, and equipment. Here again, the strictness of that basic prohibition is balanced by a fairly broad management-related exemption. Listed subsidies are forbidden unless a member is able to show that fisheries management measures are implemented to keep stocks in the relevant fisheries at a “biologically sustainable level.”

While this particular prohibition has been the subject of intense debate, the current text reflects members’ convergence toward a “hybrid” approach that balances elements from different proposals. It is probable that no member is fully satisfied with all aspects of that compromise—the presumption that some subsidies are harmful and the permissiveness of the exemption have both been hotly debated—but it also seems to be the only option everyone can live with.

This main prohibition is where most discussions on special and differential treatment for developing country members have focused. Although gaps between positions were initially wide, they have progressively narrowed, and nearly all members now seem to agree on the basic structure of these provisions. The approach suggested in the draft agreement includes a combination of three exemptions from the main prohibition:

• Subsidies provided by developing country members for fishing in their domestic exclusive economic zone (EEZ) or under the competence of an RFMO, but only for a period of time (to be negotiated).
• Subsidies provided by developing country members to low-income, resource-poor, and livelihood fishing within a certain distance from the coastal baseline (the text suggests a limit of 12 nautical miles).
• All subsidies provided by small fishing nations (the text suggests these would be members accounting for less than 0.7% of global marine capture production) and least-developed country (LDC) members.

The draft agreement also includes a footnote that, if retained, would prevent developing country members that account for more than 10% of global marine capture production from using special and differential treatment provisions. According to the most recent FAO data, this would only include China. Another important element included in the text is a soft obligation, for any developing member relying on these exemptions, to try to ensure that subsidies do not encourage overcapacity and overfishing.

The current text reflects an attempt to tailor the flexibilities according to different members’ roles in global fishing and to different kinds of fishing activities.

The current text reflects an attempt to tailor the flexibilities according to different members’ roles in global fishing and to different kinds of fishing activities. The EEZ and RFMO flexibility that covers all developing country members exempts a large share of global catch, fishing effort, and subsidies from the application of the rule, but it is only temporary. On the other hand, exemptions for artisanal fishing, small fishing nations, and LDC members apply permanently, but cover much smaller shares of global catch, effort, and subsidies (see A Draft World Trade Organization Agreement on Fisheries Subsidies: What’s on the Table?) Recent discussions have focused on the combination of particular figures regarding the thresholds and time periods included in these exemptions. The exact numbers will be an important part of the agreement’s final balance.

Beyond the prohibition of specific types of subsidies, Article 5 of the draft agreement also includes rules that specifically relate to subsidies for distant water fishing activities. They include a prohibition of subsidies targeted at (“contingent on”) fishing beyond the subsidizing member’s waters (currently located in the main prohibition); a stand-alone ban on subsidies provided to fishing in the unregulated high seas; and a ban on vessels not flying the flag of the subsidizing member (or alternatively, those not under effective control). Many members have highlighted these disciplines as a priority, as they could help curb the intense fishing activity by subsidized distant water fleets that often occurs right at the border of national EEZs. The final shape of these disciplines will also be an important factor in the overall balance of this article.

Notification and Transparency

A final set of key provisions is included in the section of the draft agreement (Article 8) that deals with notification and transparency. While members already have subsidy notification obligations under existing WTO rules, the text requires them to notify fisheries-related information in relation to their subsidies. Crucially, the draft agreement conditions the use of the various exemptions it contains on the fulfillment of these notification obligations, thus ensuring transparency about exempted subsidies and the stocks being fished with them. Developing members are only able to use special and differential treatment exemptions for the subsidy measures they have notified, including information on the type of fishing activities and catch in the relevant fishery. And to invoke management-based flexibilities (in Article 4 and the main prohibition of Article 5), members must also provide additional information on the relevant management measures and the status of the relevant stocks, which may give an initial sense of the robustness of these measures.

Two important additional elements of the draft transparency text will hang in the political balance. The first is a proposed obligation on members to notify any information pointing to the use of forced labour on board fishing vessels, which is a priority for many members, but sensitive for others, including for systemic reasons. The second is a proposal to oblige members to notify—or perhaps to include in the overall scope of the agreement—non-specific fuel subsidies to their fishing fleets. Some members argue these subsidies are just as environmentally damaging as fuel subsidies provided specifically to fisheries, while others are wary of the systemic implications of including wider economic measures in the scope of the deal.

Sealing the Deal

While the draft agreement still includes a few outstanding questions, it also shows just how much progress members have made toward clinching a long-awaited deal. To be sure, it will not be any member’s dream treaty. But compromise is inherent to the very principle of international negotiation, and from a sustainability perspective, the current text is significantly more ambitious than similar rules on fisheries subsidies agreed in trade agreements among much smaller groups of countries.

The question is whether all WTO members will be able to see enough potential value in the final balance, yet to be crafted, and to show their willingness to clinch what could be a landmark achievement for the WTO, the environment, and the populations around the globe that depend on a healthy ocean.