The EU-Faroe Islands Herring Stock Dispute at the WTO: the Environmental Justification

Introduction

On January 8, 2014, Denmark in respect of the Faroe Islands requested the establishment of a panel in the World Trade Organization (WTO) dispute settlement system regarding the import ban imposed by the European Union (EU) on Atlanto-Scandian herring and Northeast Atlantic mackerel caught under the control of the Faroe Islands, and derivative products. The EU also prohibits from its ports vessels flying the flag of the Faroe Islands that fish such herring and mackerel, and vessels transporting such fish or fishery products caught by vessels flying the flag of or authorised by the Faroe Islands.[1] The Faroe Islands challenges these and related measures under Articles I:1, V:2 and XI:1 of the General Agreement on Tariffs and Trade 1994 (GATT 1994).[2] These provisions provide respectively for most-favoured-nation treatment, freedom of transit, and a prohibition on quantitative restrictions on imports.

At the Dispute Settlement Body meeting that considered the request on January 22, the EU exercised its right to block the request.[3] However, if raised at a second meeting of the Dispute Settlement Body, the EU acting alone will no longer be able to prevent the establishment of a panel.[4]

The most important question in this dispute is likely to be whether the challenged EU measure, despite otherwise being inconsistent with an obligation under the GATT 1994, is justified under Article XX(g) of the GATT 1994, which provides an environmental exception. This Insight undertakes a preliminary assessment of the issues likely to arise under Article XX(g) in the future proceedings with respect to herring stock.

Factual Background

The Faroe Islands is “a self-governing territory of the Kingdom of Denmark,” falling within the WTO membership of Denmark, but not within the EU.[5] Since 2007, four coastal States (Faroe Islands, Russia, Iceland, and Norway) and the EU have negotiated each year to set an annual Total Allowable Catch (TAC) for the Atlanto-Scandian herring stock in accordance with the scientific recommendation by the International Council for the Exploration of the Seas (ICES), which is an intergovernmental organization composed of more than 4,000 scientists and aims at providing scientific advice to competent authorities about marine living resources. They have also agreed to restrict their herring fishing to the following shares of the TAC: Norway 61%; Iceland 14.51%; Russia 12.82%; EU 6.51%; and Faroe Islands 5.16%.[6] However, the Faroe Islands has repeatedly expressed its desire to renegotiate the allocation of the TAC among the four countries and the EU, given obvious changes in the distribution of the herring stock in recent years.[7]

During consultations on arrangements for 2013, the Faroe Islands withdrew from the “Coastal States agreement."[8] The remaining three States and the EU therefore agreed on a TAC for 2013 without the Faroe Islands. In response, in March 2013, the Faroe Islands declared a unilateral increase of its catch limits for herring stock in 2013 up to 105,230 tonnes, which amounts to 17% of the TAC set out by the ICES for 2013.[9]

In May 2013, the European Commission notified the Faroe Islands that it was identified as a "country allowing non-sustainable fishing,"[10] on the grounds that the Faroe Islands had failed to cooperate with the EU and the other coastal States in herring management, and that the unilateral increase of its catch limits could render the stock unsustainable. After reviewing the written response by the Faroe Islands to this notification, in August 2013, the European Commission adopted a regulation introducing the trade restrictions against the Faroe Islands that are the subject of the WTO dispute.[11]   

Although the Faroe Islands requested WTO consultations with the EU over this issue in November 2013,[12] the four coastal States and the EU met the following month to consult regarding the allocation of a TAC for the herring stock in 2014 and agreed to resume negotiations in January 2014.[13] The Faroe Islands nevertheless proceeded with its request for the establishment of a WTO panel in January 2014.

Paragraph (g) of Article XX

Subject to certain conditions set out in the “chapeau” of Article XX of the GATT 1994 (discussed further below), paragraph (g) of Article XX provides an exception from the usual GATT disciplines for measures “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.”

Atlanto-Scandian herring clearly constitute "exhaustible natural resources," especially given the “evolutionary” interpretation given to that term by the Appellate Body in a 1998 case involving the protection of sea turtles in the course of shrimp harvesting.[14] As in that case, although the EU’s measure could be regarded as applying extraterritorially, the fact that Atlanto-Scandian herring are “highly migratory” could ensure a “sufficient nexus”[15] between the herring stock and the EU to invoke Article XX(g).

A WTO panel would need to investigate the details and structure of the challenged measures to determine the extent to which they relate to the conservation objective. In order to “relat[e] to” the conservation of exhaustible natural resources, “a close and genuine relationship” is required between the measure and its objective.[16] The stated objective of the EU’s measure is “to ensure the long-term conservation of stocks of common interest to the [European] Union.”[17] The EU identifies unsustainable fishing as a situation “where the stock is not continuously maintained at or above the levels that can produce maximum sustainable yield.”[18]

The Appellate Body has explained that Article XX(g) also requires the challenged measure to "work together with restrictions on domestic production or consumption, which operate so as to conserve an exhaustible natural resource."[19] The challenged measure itself states that it is to "be made effective in conjunction with restrictions on fishing by Union vessels, or on production or consumption within the Union."[20] Accordingly, the European Council adopted a regulation in January 2013 to fix fishing opportunities available in EU waters — and to EU vessels in certain non-EU waters — for certain fish stocks, including the herring stock.[21] This could be a decisive factor in assessing the so-called the “even-handedness” requirement in paragraph (g).[22]

Chapeau of Article XX

If the panel finds that the challenged measure falls within the terms of paragraph (g) of Article XX, the panel will then assess whether the measure complies with the strict requirements of the opening paragraph, called the “chapeau,” of Article XX, namely that the measure is “not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade.”

In applying the chapeau to the challenged measure, relevant factors could include: (i) the differential treatment accorded to the Faroe Islands as a country "allowing non-sustainable fishing" in comparison to other countries not identified as such; (ii) the effect of and rationale for the differential treatment,[23] including whether the differential treatment arises from an intent to protect a competing domestic industry;[24] (iii) the extent to which the EU was open to negotiation with the Faroe Islands and other countries;[25] and (iv) whether any less trade-restrictive alternative measure was reasonably available to the EU to secure its legitimate policy objective of conserving the herring stock. [26]

As pointed out by Trade Policy Analyst Simon Lester, the dispute here “may revolve around the methodology for each side’s determination of the appropriate catch level.”[27] The Faroe Islands contends that its unilateral determination of its catch limits is “based on available scientific evidence,”[28] yet the EU concluded that these limits could result in the herring stock not being maintained at levels that can produce maximum sustainable yield.[29]

The European Commission had already assessed several alternative measures before imposing the prohibitions on the Faroe Islands.[30] As regards the possibility to negotiate, the relevant EU regulation provides that a country such as the Faroe Islands that is identified as “a country allowing non-sustainable fishing” must be notified to this effect and given a reasonable opportunity to respond in writing.[31] The ongoing 2014 negotiations and the alleged abandonment by the Faroe Islands of the jointly agreed management plan in 2013 may also be relevant.[32]

Conclusion

Should it proceed, the current dispute may require the panel to assess several important issues under Article XX(g) of the GATT 1994, including novel questions such as whether port restrictions for certain vessels can be justified under this general exception. The EU might also invoke paragraph (b) of Article XX, which provides an exception for measures “necessary to protect human, animal or plant life or health.” In due course, this dispute might also provide an opportunity for the Appellate Body to continue its evolution of jurisprudence in relation to environmental matters.

About the Author: Yoshimichi Ishikawa is an Official in the WTO Dispute Settlement Division of the Economic Affairs Bureau, Ministry of Foreign Affairs, Japan. The opinions expressed here are strictly personal and cannot be attributed to the Ministry of Foreign Affairs of Japan. The author has had no involvement in this dispute.