Restoring a fully and properly functioning WTO dispute settlement system

Since December 2019, the Appellate Body – the second instance of the WTO’s dispute settlement body– has been paralysed, after the United States (US) repeatedly blocked the nomination of new judges to review appeals of first-instance panel reports. In line with the MC12 mandate to restore a functioning dispute settlement system by 2024, WTO members have held informal negotiations on two separate tracks: one that has led to a draft consolidated text on issues other than the appeal mechanism, and another for the debate on the appeal mechanism that as of January 2024 was still focused on ‘the identification of certain concepts that could offer a solution to this critical issue’. Speaking for the Appellate Body’s main critics, US Trade Representative Katherine Tai, at the G20 Summit in India in August 2023, stated that the ongoing new and constructive process of reforming the WTO’s dispute settlement function ‘requires a fundamental rethink’ with a view to ending ‘the practice of judicial rule making’, among other things. She emphasised that the US had tabled 30 ideas, including on the appeal mechanism. At a US think-tank event in September 2023, she specified key points of the US position, e.g. the need for appropriate alternatives to litigation (leading by example, the US recently resolved all its trade disputes with India through methods other than litigation), an end to ‘judicial overreach’, for WTO members’ policy space to be restored, to allow them to regulate on climate-change issues and non-market practices, and for members to remain free in their legitimate national-security judgements. Some commentators do not expect a breakthrough at MC13, since the 2024 deadline coincides with the US presidential election year, in which repairing a system that in the US is perceived by both Democrats and Republicans as having allowed the ‘China shock’ that eliminated millions of US jobs would politically be very challenging for the Biden administration.

Complementing the Agreement on Fisheries Subsidies

MC12 ended with the adoption of a multilateral Agreement on Fisheries Subsidies that prohibits support for illegal, unreported and unregulated (IUU) fishing, bans support for fishing overfished stocks, and ends subsidies for fishing on the unregulated high seas. WTO members have since negotiated a ‘second wave’ of disciplines eliminating fisheries subsidies that contribute to overcapacity and overfishing. In January 2024, they held a ‘Fish month’based on the latestendorsed draft text, with the aim of transmitting a clean text to ministers at MC13. Experts have stressed that WTO members continue to diverge on a wide range of topics, including on the details of exemptions for developing countries. Acceptances from two-thirds of WTO members are required for the Agreement to enter into force. By January 2024, 55 WTO members, i.e. roughly one-third of the WTO membership, had transmitted their instruments of acceptance.

Incorporating the Investment Facilitation Agreement into WTO legal architecture

In July 2023, a subset of more than 110WTO members finalised negotiations on a plurilateral Investment Facilitation Agreement aimed at eliminating red tape that hampers investment. They opted for a plurilateral negotiating format to develop new WTO rules as a way of overcoming deadlock if consensus is elusive. The talks were launched under a 2017 Joint Statement Initiative after the failure of multilateral trade negotiations on a range of topics under the 2001 Doha Development Round. The 118 countries have since sought to incorporate the agreement, whose benefits would accrue to all WTO members under the most favoured nation principle, into the WTO legal architecture as an ‘Annex4 agreement’. This requires consensus from all 164 current WTO members, some of which, including India and South Africa, are strongly opposed to such a move. They argue that only rules negotiated by all WTO members should be added to the WTO rulebook. Only 9%of WTO members have never participated in a WTO plurilateral deal.

Extending the e-commerce moratorium

Since MC2 in 1998, WTO members have regularly extended the moratorium on the imposition of customs duties to electronic transmissions as part of the work programme on e-commerce, while the definition of ‘electronic transmissions’ as well as the moratorium’s scope and impact have remained controversial. Absent an MC13 decision to extend it, the moratorium will expire automatically in March 2024. The related debate at MC13 could yet again pit developed countries such as the EU and the US, which support the moratorium, against developing countries such as India and South Africa, which call for ending it. The latter have long claimed that, adding to the growing digital divide between developed and developing countries, the moratorium prevents developing countries from taking advantage of the growing imports of electronic transmissions. However, the US has argued that, as some studies have shown, a decrease in digital trade resulting from ending the moratorium would lead to a bigger economic loss for developing countries than potential foregone customs revenue. According to a 2023 Organization for Economic Co-operation and Development (OECD) study, the cost of terminating the moratorium would be considerable. A 2023 International Monetary Fund (IMF)report emphasises other methods of revenue collection resulting from digital trade. As of December 2023, differences among WTO members on the moratorium’s future persist, ‘including the need for more discussions on its definition, scope and impact

Extending the TRIPS waiver for COVID-19 vaccines to diagnostics and therapeutics

At MC12, WTO members endorsed a five-year waiver for intellectual property (IP) protection under the WTO agreement on trade-related aspects of intellectual property rights (TRIPS),to enable developing countries to manufacture and distribute COVID-19 vaccines. WTO members also mandated a decision within six months on a potential extension of this waiver to the production and supply of COVID-19 diagnostics and therapeutics, as requested by India, South Africa and some 63other WTO members. The debate in the WTO seems to have entered an impasse. US lobby groups as well as lawmakers have pressed the Biden administration to oppose a waiver extension. The former are concerned that the extension could stifle medical research, the latter that it ‘could outsource to foreign countries advanced manufacturing and research jobs that should exist in the United States’. A 2023 US International Trade Commission report states that ‘the wide disparity among countries in their ability to access COVID-19 diagnostics and therapeutics is the result of multiple factors, including access to IP, prices and affordability, regulatory approvals, healthcare infrastructure, and the healthcare priorities of governments’. The EU’s December 2023 statement to the WTO General Council on the follow-up to MC12 issues notes’ that little progress has been made in this complex discussion and the positions of Members remain far apart’

To access information about the document and read the “At a Glance” section as it was published by European Parliamentary Research Service, click here.

To read the full document, click here.

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From Words to Action

It is no understatement to say that the Agreement on Fisheries Subsidies adopted at the WTO’s Twelfth Ministerial Conference (MC12) is a landmark achievement. The first agreement in the WTO’s legal regime to focus on sustainability and the second multilateral agreement reached in the organization’s almost 3 decades of existence, it establishes for the first time a set of global, binding rules on the support governments provide to their fishing sector. With more than 35% of marine fish stocks considered overfished—a proportion that has grown steadily over the past 5 decades—addressing the contribution of fisheries subsidies to this pressing global environmental problem through international cooperation was long overdue.

In particular, the new disciplines prohibit the provision of fisheries subsidies in the situations where concerns about the sustainability of fishing activities are the clearest: (1) when illegal, unreported, and unregulated fishing activities have been identified; (2) when the health of fish stocks is assessed and their biomass is determined to be at alarmingly low levels; and (3) when fishing occurs in unregulated high seas fisheries, meaning that no entity has competence for managing stocks sustainably.

The new rules are thus essential tools to keep at bay the most harmful effects of fisheries subsidies, not only for the marine environment, but also for those who depend on healthy fish resources for their livelihoods and nutrition. At the moment, however, the agreement only consists of words on a few pieces of paper. Its beneficial effects will not materialize—at least not in full—until it enters into force, for which two thirds of the WTO membership (i.e., at least 109 members) must formally accept it. It is only at this stage that the new disciplines will become enforceable by, and against, members that have accepted it. At the time of writing, 52 members had submitted their instrument of acceptance to the WTO.

Meanwhile, members also need to assess what changes will be required domestically to align with the new rules and, in the case of developing country members, identify the types of international assistance they may need to implement these rules. IISD has produced a self-assessment tool they can use to do that as they prepare for implementation.

Toward Further, Broader Rules

Importantly, the agreement’s main disciplines are subsidy prohibitions that focus on specific, particularly alarming situations. But before adopting the agreement at MC12, WTO members were also considering broader rules to curb the subsidies that lead to the overexploitation of fisheries resources more generally. These rules could not be included in the agreement due to a lack of consensus, and members committed to continue negotiations and agree on these additional disciplines later—which they hope to do at the MC13.

Ongoing talks can be seen as an opportunity to better address the underlying role of subsidies in driving overcapacity in global fishing fleets and incentivizing unsustainable levels of fishing.

It is precisely these additional rules that members are now negotiating. While the agreement reached at MC12 aims to prevent the most damaging impacts of fisheries subsidies, the ongoing talks can be seen as an opportunity to better address the underlying role of subsidies in driving overcapacity in global fishing fleets and incentivizing unsustainable levels of fishing. As such, they are an opportunity to tackle more directly, and more broadly, one of the root causes of overfishing.

The further disciplines that are envisaged rely on three key elements: (1) a main prohibition of subsidies that contribute to overcapacity and overfishing, including a list of subsidy types that are presumed to do so; (2) an exception allowing subsidies to continue when members can show that they apply fisheries management measures to keep stocks healthy; and (3) special and differential treatment (SDT) for developing country members, in the form of temporary and permanent exemptions from the rule and the management exception for subsidies by these members. The proposed disciplines also include prohibiting subsidies “contingent upon or tied to” fishing beyond the subsidizing member’s waters, as well as additional transparency requirements.

For more than 3 years, negotiations on this part of the disciplines have focused on this “hybrid” approach—the combination of a general prohibition, including a list of subsidy types, with an exception based on fisheries management. Alternative approaches have (re-)appeared in numerous proposals, but none have gathered a level of support that would give them better chances of attracting consensus. The central issue is whether the balance of rights and obligations—between members that would avail themselves of the management exception and those that would avail themselves of SDT—is acceptable. As members have explored options for an outcome, three broad structural questions have shaped discussions, and they are all interrelated.

How Strict Should the Rules Be for the Big Players?

A key question in negotiations has been whether the envisaged rule would be stringent enough to meaningfully discipline the subsidies provided by the largest players in the fisheries sector—especially members with the biggest fishing fleets and those that provide the most subsidies. Looking at the subsidies that could fall in the scope of the new rules, around 72% are provided by the top 10 subsidizers, a number that increases to 86% if one considers the top 20 subsidizers.* The way the disciplines apply to those providing the most subsidies will thus be critically important to ensure the rules are effective.

A key question in negotiations has been whether the envisaged rule would be stringent enough to meaningfully discipline the subsidies provided by the largest players.

Since the hybrid approach emerged as the focus of talks in 2020, some developing country members have raised concerns about the permissiveness of the proposed rules, in particular for the largest subsidizers. Other members, including most of the biggest subsidizers, have generally argued that the proposed rules considered under this approach were stringent enough. These discussions have continued since talks resumed in 2023, with various proposals and ideas tabled by different members to somewhat raise the level of ambition in the envisaged rules, notably by making them stricter for large subsidizers.

What Should Be the Role of Fisheries Management?

Another important, and closely related, question that has generated significant debate is whether and how the rules should be linked to members’ fisheries management. It is widely recognized that, in theory, effective management of fisheries resources can help to mitigate the harmful impacts of fisheries subsidies. Influential analytical work on this topic by United Nations Environment Programme or the Organisation for Economic Co-operation and Development has emphasized that point.

Another important, and closely related, question is whether and how the rules should be linked to members’ fisheries management.

But members have shown diverging levels of comfort with the idea of relying on fisheries management as part of the application of WTO subsidy rules. Some developing country members have voiced concern that management-based rules could preserve the status quo by allowing big subsidizers to keep supporting fleets as long as some type of fisheries management measure is implemented, even if such measures are ineffective.

While the link with fisheries management is inherent to the hybrid approach that members have agreed—with varying degrees of enthusiasm—to focus on, some recent discussions have centred on how strict the sustainability and transparency requirements should be for members to use the management exception. Many members have proposed tightening these requirements, for large subsidizers in particular, but others resist the idea of making rules too stringent. The balance that members must strike here will be to ensure that any management-based exemption is strict enough to halt the continuation of unsustainable subsidization, while keeping it accessible to WTO members with different types of fisheries management and levels of capacity.

What Flexibilities Should Be Included for Developing Country Members?
A third key question that has been at the centre of discussions is what types of SDT provisions for developing country members should be part of the new rules. Demands for SDT were limited in the context of the rules included in the Agreement on Fisheries Subsidies, due to their focus on unequivocally alarming situations. But the broader nature of the new disciplines currently under negotiation has led developing country members to be more vocal in calling for exemptions from the main prohibition of subsidies that contribute to overcapacity and overfishing.

Many developing country members argue that they must protect the livelihoods and employment of poor fishing communities and develop their fishing fleets to ensure a fairer distribution of the benefits extracted from fishing among nations. Other members insist that if exemptions from the disciplines are excessively broad, they could undermine the effectiveness of the rules, to the detriment of everyone whose livelihoods rely on the sustainability of marine resources.

Among the top 20 subsidizers, 13 are developing country members and, together, they provided about 55% of global subsidies.

One complicating factor regarding SDT in the context of rules on fisheries subsidies is that some of the largest fishing nations and subsidizers in the world are developing countries. Among the top 20 subsidizers, 13 are developing country members and, together, they provided about 55% of global subsidies.** More broadly, however, many developing countries provide very limited amounts of subsidies, if any. SDT provisions thus need to take this high heterogeneity into account.

Generally, the temporary and permanent exemptions from the main prohibition that members are considering remain quite similar to those that were discussed ahead of MC12 in this area. They include a temporary exemption for subsidies that developing country members provide to fishing in their domestic exclusive economic zone (EEZ) or under the competence of a regional fisheries management organization (RFMO), as well as a permanent exemption for subsidies to artisanal fishing—“low-income, resource-poor, and livelihood” fishing, to be precise. Full exemptions from the main prohibition for least developed country (LDC) members and members that are small fishing nations (and/or small subsidizers) are also among the proposed provisions.

This combination of possible exemptions can be seen as an attempt to tailor the flexibilities to members’ different roles in global fishing and to different kinds of fishing activities. The EEZ and RFMO flexibility that covers all developing countries 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 small-scale fishing, small fishing nations, and LDC members apply permanently, but cover much smaller shares of global catch, effort, and subsidies.

Can WTO Members Do It Again?

WTO members have made progress in defining the broad contours of their collective answer to these questions since negotiations resumed in early 2023. But they must make decisions if they want to conclude this “second wave” of negotiations by adopting additional disciplines on subsidies that contribute to overcapacity and overfishing at MC13.

The question is whether members will show the necessary political will and flexibility to converge toward each other and find a landing zone that, by definition, will not be anybody’s ideal solution. To do that, they will need to recall what enabled conclusion of the first part of the agreement: the capital importance of this common endeavour for both the marine environment and the hundreds of millions of people worldwide whose lives directly depend on it. WTO members did it once; there is no reason they cannot do it twice.

To read the full policy analysis as it appears on International Institute for Sustainable Development’s website, click here.

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To read the full working paper from the World Trade Organization, please click here.

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