ASIL Insights

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It is well known that overfishing has led to the collapse of several commercially valuable fish species and the decline of others. ^[1] In this context, WTO Members agreed during the WTO Ministerial Conference held in Doha (Qatar) in November 2000, to launch negotiations with the aim to "clarify and improve WTO disciplines on fisheries subsidies, taking into account the importance of this sector to developing countries." ^[2]

For several years, WTO Members have pursued the issue of fisheries subsidies in the WTO Committee on Trade and Environment (CTE) which has the power only to make recommendations. However, following the Ministerial Conference in Doha, current negotiations on fisheries subsidies are taking place in the WTO Negotiating Group on Rules, which is under the authority of the WTO Trade Negotiations Committee.

Presently, there are no special WTO provisions relating specifically to fisheries subsidies. This means that these subsidies are disciplined only by the general subsidies rules found in the current WTO Subsidies Agreement (SCM Agreement).

There is a heated debate in the Negotiating Group on Rules on whether and how to clarify and improve WTO disciplines on fisheries subsidies.  Three approaches have emerged.

The "no need" approach

The first approach could be called "no need for a special fisheries subsidies regime." Japan and South Korea, which heavily subsidize their fisheries, favor this approach.  Some other countries, such as Canada, also favor this approach, although more discreetly.  These countries are not opposed to a cross-sectoral modification of certain provisions of the present SCM Agreement in order to improve their ability to discipline fisheries subsidies among other subsidies. These countries are opposed to the introduction in the SCM Agreement of special rules which apply only to fisheries subsidies. They argue that special fisheries subsidies provisions might lead to a possible fragmentation of the WTO subsidies regime and possibly of the entire WTO system.

This approach is based on the idea that the fisheries sector is not different from other sectors of the economy and there is thus no reason to introduce in the SCM Agreement special provisions relating to fisheries subsidies.  This approach also asserts that the causal link between subsidies and overexploitation of fish resources is not proven. According to Japan, "The possible effects of subsidies on resources change between different resource status and fishery management regimes...[and] lack of effective fishery management brings over-capacity even without subsidies." ^[3] Fisheries management regimes deal with  catch controls (quotas), effort controls (restrictions on boat size, engine power and days at sea, etc.) and  right-based structures (permits, individual transferable quotas, etc.). Therefore, in Japan's view, it would be unfair if these varying situations are ignored and certain fisheries subsidies automatically prohibited.

The "no need" approach does not address some fundamental issues.  First, why is the present SCM Agreement not employed as a means for dealing with WTO Members that are granting prohibited fisheries subsidies or fisheries subsidies causing adverse trade effects? ^[4]   Part of the answer is that there is very poor disclosure and notification of fisheries subsidies. Moreover, it is difficult to find countries that could not be accused of granting fisheries subsidies, so no government desires to expose itself to countercharges by accusing another government.  However, another part of the answer is linked to a diffuse feeling that the current SCM Agreement is not adapted to the special context of the fisheries sector and that lodging a complaint in this context amounts to skating on thin ice. Legal and extra-legal costs of such a complaint are easily identifiable, but the possible benefits are dubious.

Second, fisheries subsidies contribute to the inefficiency of management and conservation regimes. It is likely that excess investments in harvesting capacity, stimulated by fisheries subsidies, encourage a tendency to "free ride," which undermines effective management. In the fisheries sector, such behavior assumes many forms, including non-compliance with fishing regulations (quota busting), illegal fishing, ^[5] or reluctance to accept the judgments of scientists regarding resource sustainability.

Third, it does not seem that the ongoing discussions in the Negotiating Group on Rules relating to the SCM in general take a direction that can improve disciplines on fisheries subsidies through a cross-sectoral modification of the SCM.  A compilation of general SCM issues currently discussed in the Negotiating Group on Rules shows that the majority of topics discussed are not connected in a particular way with the issue of fisheries subsidies. ^[6]

Fourth, few if any fisheries are subject to management that is sufficiently effective to ensure that certain kinds of fishing subsidies will not harm fisheries resources. In addition, some analyses suggest that certain fishing subsidies could be harmful even under ideal management conditions.

Lastly, this debate seems now somewhat superfluous.  It is no longer a question of whether, but of how international cooperation to reform fishing subsidies should move forward.  Diplomatic and analytic advances in the past two years have contributed to broad agreement that fishing subsidies often contribute to overcapacity and unsustainable levels of fishing, in particular in the absence of effective management systems. Subsidies contributing to overcapacity, to unsustainable fishing effort, and to illegal, unreported and unregulated (IUU) fishing need to be addressed most urgently. ^[7]

The "traffic light" approach

The second approach could be called the "traffic lights" approach.  It is inspired by the philosophy of the present SCM Agreement  based on the identification of three boxes, which are given the colors of traffic lights: red (forbidden subsidies), green (permitted subsidies), amber (slow down, which means that subsidies may be subjected to a complaint on the basis of their adverse trade effects).

In the fisheries context, the "traffic light" approach is based on the belief that there is an emerging consensus among fisheries policy-makers that effort- and capacity-enhancing subsidies tend to exacerbate the most fundamental problem in most fisheries in many parts of the world, namely the absence of clearly defined and enforceable harvest rights. This approach is supported under different versions by the United States, the European Union, China and a group of countries called informally "Friends of the Fish" (Australia, Chile, Ecuador, Iceland, New Zealand, Peru, Philippines and the United States).

In the US version of this approach, ^[8] Article 3 of the present SCM Agreement (which deals with prohibited red light subsidies) would be expanded in order to cover those fisheries subsidies that directly promote overcapacity and overfishing, or have other direct trade-distorting effects.  

As a supplement to the red light category or independently from it, the United States would like to consider a dark amber category of fisheries subsidies.  In this category a subsidy would be presumed to be harmful unless the subsidizing government could affirmatively demonstrate that no overcapacity/overfishing or other adverse trade effects have resulted from the subsidy.

There is no explicit reference to a "green-light" category in the US version, although the United States recognizes that certain government programs may help to reduce overcapacity and overfishing, and contribute to fisheries sustainability.

In the Chilean version of this approach, ^[9] the red light category contains all fisheries subsidies of a commercial nature, directly geared toward lowering costs, increasing revenues, raising production (by enhancing capacity), or directly promoting overcapacity and overfishing. According to Chile, the following subsidies, inter alia, could be put in a red light box: subsidies designed to enable a country's ships to operate on the high seas or in the local waters of a third country, subsidies that contribute to the purchase of ships (whether new or used), subsidies to help modernize an existing fleet, subsidies that contribute to reducing the costs of production, subsidies that generate positive discrimination in the tax treatment of operators in the fisheries sector, and subsidies that result in positive discrimination in access to credit.

Chile proposes that the amber light category would cover all remaining subsidies that are not in the red light box. In this context, Chile proposes that the burden of proving adverse trade effects would depend on whether the subsidizing country has fully met its notification obligations under the SCM Agreement. In other words, when the subsidizing Member has failed to notify an amber light subsidy, it would bear the burden of demonstrating that this subsidy does not cause trade injury to the complaining Member. For other subsidies, even those that may be necessary to preserve resources and/or social development of communities, the scenario proposed by Chile fits within the classical amber light category.  This means that the complaining Member would have to provide evidence showing adverse trade effects of such subsidies.

Chile's proposal makes no reference to a green light category.

In the European version of this approach, ^[10] the red light category targets capacity enhancing subsidies. In the EU's view, the following types of capacity enhancing subsidies should be prohibited: subsidies for marine fishing fleet renewal (e.g. construction of vessels, increase in fishing capacity); and subsidies for the permanent transfer of fishing vessels to third countries, including through the creation of joint enterprises with third country partners.

The EU proposal contains a clearly-defined green light category entitled "Permitted fisheries subsidies". It is based on the notion that certain types of subsidies are necessary in order to reduce fishing capacity and to mitigate negative social and economic consequences of the restructuring of the fisheries sector. According to the EU, this green light category should include: subsidies to support the retraining of fishermen; early retirement schemes and diversification; limited subsidies for modernization of fishing vessels to improve safety, product quality or working conditions or to promote more environmentally friendly fishing methods, on the condition that any such modernization must not increase the ability of the vessel to catch fish; subsidies to fishermen and vessel owners who have to suspend their fishing activity, when stoppages are due to unforeseeable circumstances such as natural disasters, or in the framework of tie-up schemes linked to permanent capacity reduction measures in the context of recovery plans for overexploited fish stocks; and finally subsidies for the scrapping of vessels and the withdrawal of capacity.  By definition, these green light subsidies would be permitted and therefore not subject to a possible complaint.

The EU proposal does not include an amber light category. However, unlike the preceding proposals, it underlines that the EU is prepared to engage constructively in drawing up rules which take special account of the distinct needs of developing countries in fisheries.

In New Zealand's version of this approach, [11] which is the most recent, the general guiding principle is the prohibition of all subsidies causing overcapacity and overfishing, as well as other trade distortions. In other words, the red light category would be the basis of the primary discipline. As to how construct this red light category, an obvious approach would be, in New Zealand's view, to take reduction of fixed or variable costs, or enhancement of revenues or incomes, as basic tests.  For New Zealand, costs and revenues (including risk-related support) can readily be quantified. On the basis on this extensive test, New Zealand expects that that the red light category would apply, in principle, to the full range of programs that are likely to contribute to overcapacity or overfishing or other trade distortions.

The green light category (entitled "Exceptions" in New Zealand's proposal) could include, for example, management or environmental programs, transitional programs, and subsidies on fisheries which take into account the needs of developing countries. However, this category would include only limited and defined exceptions.

New Zealand's proposal does not mention an amber light category.

The United States has recently signaled its support for this New Zealand proposal, while Japan complained that New Zealand's proposal was not in conformity with the Doha mandate relating to fisheries subsidies. In the same vein, the European Union described New Zealand's proposal as "over the top," while South Korea and Taiwan also criticized New Zealand's initiative. [12]

The "special and differential treatment" approach

The third approach emerging from current negotiations could be called the "special and differential treatment approach." [13] The other approaches either do not mention special and differential treatment for developing countries or confine it implicitly in the green or amber boxes. Moreover, the other approaches seem to consider that full discussion of special and differential provisions will be useful only after a consensus is reached on the primary disciplines applicable to all countries. In this approach however, the special and differential aspect is at the forefront and does not constitute a residual category.

The principal idea is that Article 1 of the SCM  Agreement (which contains the technical definition of a subsidy)  would have to exclude from its scope the following  forms of support that play an important role in developing countries: 1) Access Fees and Development Assistance: namely, any access fees and development assistance granted to small vulnerable coastal states by developed or more advanced developing countries to fish  in their waters or to facilitate sustainable management; 2)  Fiscal Incentives to Domestication and Fisheries Development: namely, incentives applied by small vulnerable coastal states for the development and domestication of their fisheries; and 3) Artisanal Fisheries: namely,  those measures undertaken by governments of small vulnerable coastal states to assist their artisanal fisheries sector.

It is no longer a question of whether, but of how international WTO negotiations to reform fishing subsidies should move forward. The most probable outcome of these negotiations would take the form of a mix between the traffic light approach and the special and differential approach. It would also probably include for the first time in the WTO subsidies regime the notion of adverse environmental effects (overcapacity, overfishing, etc.) whereas traditionally all adverse effects considered in the WTO subsidies regime have been trade related (lost market shares, price undercutting, etc.). In any case, new WTO disciplines relating to fisheries subsidies are not likely to solve all fisheries-related problems. A comprehensive range of complementary solutions will be necessary, both at the international and national levels.

Addendum (Updated December 14, 2007)

On November 30, 2007, the chair of the Doha Round negotiations group on rules, Ambassador Guillermo Valles Games (Uruguay), circulated a draft text to WTO Members on fisheries subsidies. This draft text took the form of an Annex (Annex VIII), which is inserted in the Agreement on Subsidies and Countervailing Measures, the so-called SCM Agreement. This Annex is considered as an integral part of the SCM. As expected, the draft reflects a mix between the "traffic lights" approach and the "special and differential treatment" approach. Any subsidy referred to in Annex VIII is attributable to the Member conferring it, regardless of the flag of the vessel involved. Moreover, "inland fisheries" in river and deltas are not addressed by Annex VIII, and thus, the draft text uses systematically the expression "marine" capture.

The Traffic Lights Approach

The Red Box (prohibited subsidies)

In the draft text, the Red Box includes:

1. Subsidies conferred on the acquisition, construction, repair, renewal, renovation, modernization, or any other modification of fishing vessels or service vessels, including subsidies to boat building or shipbuilding facilities for these purposes.
2. Subsidies conferred on transfer of fishing or service vessels to third countries, including through the creation of joint enterprises with third country partners.
3. Subsidies conferred on operating costs of fishing or service vessels (e.g. fuel, ice, bait, personnel, social charges, insurance, gear, and at-sea support); subsidies conferred on landing, handling or in- or near-port processing activities for products of marine wild capture fishing; and subsidies to cover operating losses of such vessels or activities.
4. Subsidies in respect of, or in the form of, port infrastructure or other physical port facilities exclusively or predominantly for activities related to marine wild capture fishing (for example, fish landing facilities, fish storage facilities, and in- or near-port fish processing facilities).
5. Income support for natural or legal persons engaged in marine wild capture fishing and price support for products of marine wild capture fishing.
6. Subsidies arising from the further transfer (without adequate compensation) by a payer Member government to its national fishing industry of access rights that it has acquired from another Member government to fisheries within the territorial or EEZ waters of such other Member. However, government-to-government payments for access to marine fisheries are not considered as subsidies.
7. Subsidies conferred on any vessel engaged in illegal, unreported or unregulated fishing.
8. Any subsidy conferred on any fishing vessel or fishing activity affecting fish stocks that are in an unequivocally overfished condition.

The Green Box (subsidies not prohibited)

All the following subsidies are not prohibited provided that fisheries management systems are designed by a country or a regional organization to prevent overfishing.

1. Subsidies exclusively for improving fishing or service vessel and crew safety, provided that such subsidies do not involve new vessel construction or vessel acquisition and do give rise to any increase in fishing capacity.
2. Subsidies exclusively for the adoption of selective fishing techniques, for reducing the environmental impact of fishing and for facilitating compliance with fisheries management regimes aimed at sustainable use and conservation (e.g., devices for Vessel Monitoring Systems). Such subsidies must not give rise to any increase in the fishing capacity of any vessel and must not have the effect of maintaining in operation any vessel that otherwise would have been withdrawn.
3. Subsidies to cover personnel costs exclusively for re-education, retraining or redeployment of fishworkers into occupations unrelated to fishing or directly associated activities; and subsidies exclusively for early retirement or permanent cessation of employment of fishworkers as a result of government policies to reduce fishing capacity or effort.
4. Subsidies for vessel decommissioning or capacity reduction programmes, provided that the vessels subject to such programmes are scrapped and the fish harvesting rights associated with such vessels are permanently revoked. Moreover, a fisheries management system in place must include management control measures and enforcement mechanisms designed to prevent overfishing in the targeted fishery.
5. Limited access privileges to individual and groups and other exclusive quota programmes.

The Amber Box (subsidies subjected to a complaint on the basis of their adverse effects)

No Member shall cause, through the use of any subsidy (whether in red or green boxes or under the special and differential treatment approach) depletion, harm, or creation of overcapacity in respect of straddling or highly migratory fish stocks whose range extends into the EEZ of another Member or stocks in which another Member has identifiable fishing interests.

The "Special and Differential Treatment" Approach

All the following subsidies are exempted from prohibited subsidies disciplines. These exemptions are conditional on the establishment by developing countries or a regional organization of a fisheries management system designed to prevent overfishing:

1. Prohibited Subsidies Disciplines do not apply to least-developed country ("LDC") Members
2. For developing country Members other than LDC Members, prohibited subsidies disciplines do not apply when such subsidies relate exclusively to fishing performed on an inshore basis (i.e., within the territorial waters of the Member) with non-mechanized net-retrieval.
3. Prohibited subsidies disciplines in respect of port infrastructure or other physical port facilities and in respect of income and price supports do not apply to developing countries.
4. Subsidies conferred on the acquisition, construction, repair, renewal, renovation, modernization, or any other modification of fishing vessels and subsidies conferred on operating costs of fishing, shall not be prohibited for developing countries provided that they are used exclusively for vessels not greater than 10 meters or 34 feet in length overall, or undecked vessels of any length.
5. For other types of vessels, subsidies conferred on the acquisition, construction, repair, renewal, renovation, modernization, or any other modification of fishing vessels shall not be prohibited for developing countries provided such vessels are used exclusively within the Exclusive Economic Zones of these developing countries and provided the fished stocks are subject to prior scientific status assessment conducted in accordance with relevant international standards.
6. Prohibited subsidies disciplines relating to the further transfer by governments to their fishing industry of access rights do not apply when these access rights concern fisheries within the EEZ of a developing country. The agreement pursuant to which the rights have been acquired must be made public and must contain provisions designed to prevent over-fishing.

In conclusion, when the WTO is not notified of fisheries subsidies, the usual burden of proof standard in case of a dispute (burden of proof on the complainant) no longer applies. The draft text shifts the burden of proof in such a scenario on the subsidizing Member that has not notified the WTO about the contested measure. The Member that provides the subsidy will then have to demonstrate that the contested subsidy is not prohibited.

The text of the draft is available at http://www.wto.org/english/news_e/news07_e/rules_nov07_e.doc.

About the Author:
Marc Benitah is Professor of International Law at the University of Quebec. He is the author of the "Law of Subsidies under the GATT/WTO System" (Kluwer Law International, 2001).

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