The World Trade Organization Fisheries Subsidies Agreement: A Critical Assessment on the Impacts to Developing Fishing Nations and the Way Forward
By Dr Trung Nguyen
Published on 17 January 2023
The Fisheries Subsidies Agreement of the World Trade Organization (‘the Agreement’) was adopted at the 12th Ministerial Conference in June 2022 as part of the so-called ‘Geneva Package’. Soon after its adoption, the long-awaited Agreement was praised by WTO member states, international organizations and NGOs as a landmark instrument in curbing subsidies provided to the fishery sector to promote sustainable fishing practices in line with Sustainable Development Goal 14 of the United Nations.
The hype is understandable, considering that the Agreement was incubated in 2001 within the framework of the Doha Round, and once becomes effective, it will become the first WTO-covered agreement that directly addresses the environmental issue in international trade.
This post will aim to establish a dialogue with the abovementioned commendation by critically analysing several aspects of the Agreement to show that it remains a problematic instrument in its current state and, simultaneously, provide some recommendations to ASEAN negotiators in the future negotiation process for the Agreement.
I. The critical assessment of the Agreement
The Agreement takes the form of a Protocol amending the WTO Agreement attached to the 12th WTO Ministerial Decision. When entering into force with the acceptance of at least 110 WTO members, the Agreement will be added to the list of 14 other agreements in Annex 1A and become part of the WTO-covered agreements. The scrutiny of the Agreement reveals inconsistencies in several key aspects: its overall structure; lack of provisions concerning harmful subsidies; and lack of special and differential treatment (‘SDT’) for least developed countries (‘LDCs’) and developing countries.
1. The Agreement is a work-in-process
At first glance, there are impressions that the Agreement is not a final version of the WTO’s disciplines on fisheries subsidies. Specifically, paragraph 4 of the Ministerial Decision admits that there remain ‘outstanding issues’ in the Agreement and that WTO members ‘shall continue negotiations’ on these issues to provide additional provisions to the Agreement at a later stage to ‘achieve a comprehensive agreement on fisheries subsidies.’ The Agreement comes without preambular paragraphs and contains a special provision (article 12), which provides that the Agreement ‘shall stand immediately terminated’ if the WTO members fail to adopt comprehensive disciplines within four years after the entry into force of the Agreement unless otherwise decided (by consensus) by the General Council, including all 164 WTO members. These features exhibit uncertainties regarding the current disciplines of the Agreement since they can be amended, supplemented or even terminated in the future negotiation process and show that WTO negotiators considered this Agreement an unfinished business requiring further discussion.
2. The lack of discipline concerning harmful subsidies
The nucleus of the Agreement is the ban on providing subsidies to several activity-based conducts, such as illegal, unreported and unregulated fishing. However, the Agreement has neglected other harmful subsidies that aim to increase vessels’ fishing capacity and help fishers cover operating costs, such as purchasing or upgrading fishing gears, capital costs, and fuel subsidies that contribute to overcapacity or overfishing. According to a study by several NGOs in 2019, these types of subsidies account for over 60% of global fisheries subsidies (approximately 22 billion USD annually) and are rising yearly. Noteworthy, more than half of this kind of subsidy is provided by the top five countries, namely China, the EU, the USA, the Republic of Korea and Japan, to their fisheries sector. This issue has been noted by the Negotiating Group on Rules at the early stage of the negotiation, recognized as one of the most important disciplines of the Agreement and reflected in multiple draft texts of the instrument. As such, it is evident that, at the last negotiation stage, WTO members decided to leave out disciplines regarding subsidies contributing to overcapacity and overfishing, which represent a major proportion of fisheries subsidies, to consolidate consensus for the final text.
3. Inadequate and inequitable special and differential treatment for LDCs and developing countries
WTO-covered agreements often contain SDT provisions, which aim at giving LDCs and developing countries breathing room to implement their commitments and offset the negative effect of new disciplines. In this case, the duration of the peace clause of the Agreement, which allows two years of transitional periods for LDCs and developing countries (articles 3.8 and 4.4) to implement the subsidies ban, is relatively shorter than those set in other WTO-covered agreements. Examples are the Agreement on Agriculture (10 years), the Trade-Related Investment Measures Agreement (5 and 7 years), and the Agreement on Subsidies and Countervailing Measures (up to 8 years). Moreover, aside from the peace clause for the subsidies ban, the Agreement does not contain other differentiation for rights and obligations of LDCs, developing countries and developed countries, which is different when compared to those stipulated under other WTO-covered agreements, such as the Trade Facilitation Agreement where an entire Section (with 13 articles) is dedicated to SDT for LDCs and developing countries.
The approach of the WTO negotiators to SDT in the Agreement is also inequitable for some developing countries since it has disregarded the different conditions of fishing vessels among them. Specifically, the WTO lets members self-declare developing country status. As a result, large economies, such as China, India and Brazil, can consider themselves developing countries and enjoy special and differential treatment similar to smaller economies. This selective accommodation of WTO regulations has been a subject of criticism in the WTO and is further exacerbated in the scheme of fisheries subsidies when major fishing nations, namely China, which account for most of the distant-water fishing with large and modern vessels, can benefit from the same treatment as other WTO members with a more modest fishing fleet or small islands countries that mostly conduct small-scale or artisanal fishing. Consequently, without further proxies to classify WTO members, it is difficult to concoct an equitable SDT formula for China, which houses more than half a million fishing vessels (70% of which are motorized) and other developing WTO members.
The WTO voluntary fund mechanism has been heralded as an opportunity for developing and least-developed countries to utilize technical assistance and capacity building to offset the negative impact of the Agreement. However, article 7 of the Agreement makes it clear that the Fund shall only be provided ‘for the purpose of implementation of the disciplines under this Agreement’, which, as the Agreement currently stands, does not incorporate disciplines that meaningfully assist LDCs and developing countries in the fisheries sector, such as poverty alleviation, disaster recovery, technology transfer and career transition for fishermen. As such, without further disciplines on SDT, it is doubtful whether the disbursement of the Fund can truly assist LDCs and developing countries in offsetting the socio-economic impacts of banning fisheries subsidies.
II. Implications for ASEAN states and recommendations for future negotiation
Negotiating new disciplines of the Agreement will be difficult since most of the low-hanging fruits have already been picked to reach compromises as manifested in the Agreement. Moreover, some ASEAN coastal states have competing interests in the South China Sea regarding territorial claims and fishing grounds, which makes it strenuous to reach a joint position to consolidate consensus among ASEAN members in the upcoming negotiation round.
Against this backdrop, the livelihood of millions of ASEAN fishermen depends on government aid to the fishery sector, which provides inter alia disaster relief and aid to small-scale fishing. These issues have been reflected in the Plan of Action on Sustainable Fisheries 2030 of ASEAN – SEAFDEC, which emphasizes on the dual objectives of sustainable fishing practices and providing supplementary livelihood options, taking into account ‘the special requirements and the needs of small-scale fisheries in the region’ and ‘the effects of climate change and natural disasters.’ Moreover, it is no mystery that countries involved in territorial and maritime disputes in the South China Sea provide subsidies to increase the capacity of offshore vessels as part of the geopolitical strategy to increase their presence in the disputed area. As such, from the socio-economic and national security perspective, ASEAN coastal states, especially claimants in the South China Sea, have a clear incentive to coalesce around a joint position in the future negotiation of the Agreement in the following areas:
(i) Classification of WTO members: The system of self-proclamation of the developing country status in the WTO presents a problem where China, the leading provider of fisheries subsidies, can selectively accommodate SDTs similar to those afforded to other developing countries in the region with a more modest vessels fleet, such as Indonesia, Malaysia and Viet Nam. The status of China as a developing country also makes it more difficult for other developed WTO members to grant further concessions to developing countries. Consequently, developing WTO members, including ASEAN states, should push for a further classification, which can be based on fishing fleet size, catch capacity or motorization, for commitments accurately to reflect SDTs in an equitable manner.
(ii) SDT provisions: The Ministerial Decision underlined that, in the next negotiation phase, the addition of appropriate and effective SDT should be ‘an integral part of [this] negotiation.’ As such, ASEAN countries should push for more holistic SDT disciplines, including capacity building and technical assistance, to implement the Agreement and flexible commitments to safeguard their security and trade interests. In this line, the voluntary fund, which can only be disbursed to implement the disciplines of the Agreement, can be better utilized to offset the impact of banning fisheries subsidies for LDCs and developing countries.
(iii) Harmful subsidies: Regulations on subsidies that can lead to overcapacity and overfishing will be the focus of future negotiations to amend the Agreement. To offset the negative effect of implementing the discipline, the Agreement and previous draft texts show that negotiators are keen on adopting a peace clause approach, where a certain transitional period is granted to LDCs and developing countries to phase out fisheries subsidies gradually. However, this approach is problematic since the disciplines are not retrospective. Put differently, the disciplines only ban subsidies in place after the Agreement enters into force. Consequently, countries in the region that have already provided abundant capacity-enhancing subsidies to their fishery sectors, namely China and South Korea, are less likely to be affected by the ban than those in the process of modernizing their vessels and fisheries sectors, such as Indonesia, Malaysia and Viet Nam. As such, ASEAN countries should opt for a different approach concerning harmful subsidies that include more specific and flexible commitments that can maintain the sustainable development goal while ensuring the livelihood of their fishermen. For example, there can be exemptions for subsidies granted to fishing or fishing-related activities for small-scale and artisanal fishery within the territorial water and exclusive economic zone or to give relief from natural disasters or accidents at sea.
Fishing subsidies have long been considered one of the contributing factors to unsustainable fishing practices and the depletion of fish stocks. In this sense, the Agreement quenches the thirst of the international community for an agreement to address an arduous environmental problem using trade tools. At the same time, discussion of fisheries development, including assessing the impacts of fisheries subsidies, has been an ongoing process at the ASEAN-SEAFDEC forums to consolidate views and positions of ASEAN member states. As there are still grounds to be covered in the next negotiation phase of the Agreement, the time is ripe for ASEAN states to develop a common voice on fisheries subsidies to reach a mutually beneficial solution in future negotiations at the WTO.