The International Business Transactions Blog

Historic WTO Agreement on Fisheries Subsidies

By Yuki Taylor
Law Student Editor

On June 17, 2022, the WTO adopted an Agreement on Fisheries Subsidies in its 12th biennial ministerial conference.  This multilateral treaty is “the first WTO agreement with environmental sustainability at its core.”  The purpose of the Agreement is to prohibit and eliminate certain forms of fisheries subsidies that contribute to overfishing and especially to Illegal, unreported, and unregulated (IUU) fishing, in order to salvage and rebuild marine natural resources to a sustainable level.  In the agreement, “fish” is defined broadly as “all species of living marine resources, whether processed or not.”

The Agreement on Fisheries Subsidies was 25 years in making, commencing with the establishment of a workshop organized by UN Environmental Programme (UNEP) in 1997.  The Agreement was also a declared target under the Sustainable Development Goals (SDGs), which form the heart of the 2030 Agenda for Sustainable Development adopted by all UN member states in 2015.  SDGs consist of commitments on 17 subjects, such as poverty, hunger and climate action.  Target 14 concerns “life below water,” and is designed to “conserve and sustainably use the oceans, seas and marine resources for sustainable development.”  The Agreement was one of the targets set under Target 14, although it was originally intended to be implemented by 2020.

The subsidies subject to the Agreement consist of any government benefit given: (1) to a vessel or operator engaged in IUU fishing or fishing related activities in support of IUU fishing; (2) for fishing or fishing related activities regarding an overfished stock; or (3) to fishing or fishing related activities outside of the jurisdiction of a coastal member or a coastal non-member and outside the competence of a relevant Regional Fisheries Management Organization or Arrangement.  The Agreement will enter into force when two-thirds of WTO member states have ratified the treaty or deposited an instrument of acceptance.

According to the UN Food & Agriculture Organization (FAO), the percentage of stocks fished at biologically unsustainable levels increased since the late 1970s from 10% in 1974, to 35% as of 2019.  Because fishing employs 59 million persons worldwide, and 600 million depend on fisheries for employment, overfishing threatens the livelihoods of hundreds of millions of persons. Governments worldwide are estimated to spend US$ 35 billion annually in support of the fishing sector.  While government support for fishery management or R&D is deemed a beneficial incentive, subsidies implemented to reduce fishers’ operating costs such as support for tax, fuel, gear and shipping vessels have directly led to overfishing or capacity-enhancing, thus harming the sustainability of marine resources.

Of the global subsidies total, US$ 22 billion are considered to be capacity-enhancing or harmful.  The WTO agreement ambitiously aims to curb harmful subsidies, or 63% of the current worldwide support to the fishing industry.  Seven countries in aggregate contribute to more than two-thirds of the global harmful subsidies, specifically China, Japan, the EU, South Korea, United States, Russia and Thailand.

According to the FAO’s latest statistics, in 2020, global marine captures were 78.8 million tons, reflecting a 6.8% decline from the peak recorded in 2018 at 84.5 million tons due to the sever effects of the pandemic.  Additionally, marine captures were heavily dependent on oceanographic conditions such as El Niño events.  Further, global marine fisheries continue to be highly concentrated among a small number of producers.  In 2020, in line with the previous years, the top seven countries accounted for over 50% of the global total, led by 14.9% of captures by China alone, followed by Indonesia at 8.2%, Peru 7.1%, Russia at 5.4%, India 4.7%, Vietnam at 4.2%.  Japan, the largest producer of marine fisheries in 1980’s, producing approximately 10 million ton annually now ranks 8th place after Vietnam.  After replacing Japan for the top spot in the 1990’s, China continuously remains the largest source of marine captures, although its reported fisheries trajectory is in decline as seen in the 18.2 % decrease since 2015.

Analogous to other WTO agreements, the fisheries subsidies treaty as well contains a clause for special and differential treatment for developing countries.  Further, unlike the least-developed-countries whose criteria are set forth by the UN, WTO’s preferential “developing country” status is established by self-identification, and a majority of WTO member states are developing countries.  China, the world largest marine fisheries producer and largest contributor of harmful subsidies, is still a self-proclaimed developing country.

U.S. Extraterritorial Antitrust Law Prevents Further Concentration of Global Shipping

By Yuki Taylor
Law Student Editor

A.P. Møller-Mærsk, better known as Maersk, is a publicly traded Danish logistics and freight transportation firm with one of the largest container shipping lines in the world.  On August 25, 2022, Maersk announced that it had abandoned a planned transaction to sell its wholly-owned subsidiaries, Maersk Container Industry A/S and Maersk Container Industry Qingdao Ltd. (collectively, MCI), manufacturer of reefer (refrigerated) containers, to China International Marine Containers (CIMC).  Maersk decided in tandem with CIMC to terminate the signed stock purchase agreement for the divestment of the reefer container business dated September 27, 2021, due to significant regulatory challenges preventing the closing of the transaction. 

On the same day, the Antitrust Division of the U.S. Department of Justice (DoJ) released a statement regarding the termination of the transaction between the two non-U.S. business entities as follows:

CIMC’s acquisition of MCI threatened to harm this critical aspect of our economy leading to higher prices, lower quality, and less resiliency in global supply chains.  It would have cemented CIMC’s dominant position in an already consolidated industry and eliminated MCI as an innovative, independent competitor.  The deal also would have substantially increased the risk of coordination among the remaining suppliers in the marketplace, most of whom would have been aligned through common ownership and related alliances.

Under U.S. antitrust law, the DoJ may challenge a sufficiently large merger of business firms or acquisition of business assets that risks harming competition in the United States under the Hart-Scott-Rodino Act (HSR), despite the foreign nationalities of the parties or the location of the assets outside of the United States.  The HSR Act provides that any contemplated merger or acquisition meeting the monetary thresholds for assets in the United States, or for sales on the U.S. market, must be notified to the DoJ and Federal Trade Commission (FTC).

In this case, the value of the planned transaction, CIMC’s total assets as of December 31, 2021, MCI’s revenue for 2021, were US$ 987.3 million, approximately US$ 24.3 billion, and US$ 690 million, respectively, all of which were well above the HSR thresholds for premerger notification.  Although the HSR Act exempts transactions between firms with no significant sales to or assets in the United States, both companies far exceeded the exemption.  Maersk is currently the world’ second-largest container shipping line, and CIMC is the largest container manufacturer.  

The planned transaction would have combined two of the world’s four suppliers of insulated container boxes and refrigerated shipping containers, resulting in consolidated control over 90% of the global cold supply chain by the Chinese government.  According to its latest annual report, as of December 31, 2021, CIMC is effectively controlled by the Chinese government via state-owned or state-controlled entities holding 54.23% in the company in aggregate.  Nevertheless, without the planned sales of MCI, China’s “Big 3” consisting of CIMC, Dong Fang International Containers, CXIC Group, together control more than 80% of global container production.  As in the DoJ’s statement, the industry is “already consolidated.”

During the supply chain congestion aggravated by the prolonged global pandemic, logistics companies worldwide are reporting record profits.  Maersk recorded a 55.5% increase in its revenue for 2021 to US$ 61.8 billion, “mainly driven by higher freight rates in ocean, volume increases and acquisitions in logistics & services and higher global demand and increased storage income in terminals.”  CIMC as well reported a 73.9% increase in its revenue in 2021 to US$ 25.8 billion. 

Maersk’s exceptional profits have continued into 2022, as the Danish conglomerate again announced record results with a 52.1% revenue increase in its quarterly report on August 3, in the midst of “exceptional conditions with persisting landside congestion particularly in the United States and Europe.”  CIMC also recorded another substantial increase of 23.2% in revenue for the first quarter of 2022.

Behind record corporate earnings driven by prolonged pandemic supply congestion and shortage, consumers worldwide continue to face rising retail prices.  Although the HSR Act’s extraterritorial effect has blocked this specific merger, it alone cannot prevent the Chinese government’s increasing control over international shipping and other fields of global business.

Revived Negotiations for a U.S.-Kenya Bilateral Trade & Investment Treaty

By Yuki Taylor
Law Student Editor

On July 14, 2022, the United States initiated a bilateral Strategic Trade and Investment Partnership (STIP) with Kenya.  Despite the present lack of tariff talks, the partnership facilitates enhanced engagement between the two countries in a wide range of subjects, including agriculture, anticorruption measures, digital trade, climate change, and customs procedures.  The two states will cooperate to develop new approaches in trade policy to broaden and solidify mutually beneficial economic growth, founded upon strengthened trade commitments.  

U.S. House Ways and Means Committee Chairman Richard E. Neal has applauded the launch of the bilateral program, commenting “this initiative will lay the groundwork for a comprehensive free trade agreement that includes market access, builds off AGOA, and complements both regional and continental integration.”  AGOA (the African Growth and Opportunity Act) is a unilateral U.S. trade preference program that currently provides duty-free treatment on a variety of imports from 49 sub-Saharan countries for over 1,800 products.

AGOA benefits have become especially important for African states since the largest unilateral preference program, the Generalized System of Preferences (GSP), expired on December 31, 2020.  GSP has not been renewed due to a deadlock in Congress over its eligibility criteria.  Despite the GSP expiration, AGOA beneficiaries continue to receive preferential treatment for an additional 5,100 products. However, to qualify for AGOA benefits, a country must satisfy rigorous criteria concerning such issues as anticorruption, poverty reduction, and human rights, in addition to the GSP eligibility requirements.  Further, AGOA compliance of each country is given detailed assessment annually along with biennial reports compiled by the Office of the U.S. Trade Representative.  As the result, while 47 of the sub-Saharan African countries were eligible for GSP when it was active, 36 countries have qualified for AGOA benefits in 2022.  Kenya is the third-largest beneficiary of AGOA preferential treatment in 2021, after South Africa and Nigeria. 

U.S.-African Trade Stagnation under AGOA

AGOA was once lauded by a former Assistant U.S. Trade Representative for Africa, as a “phenomenal success,” based on the threefold growth of U.S. imports from AGOA countries, reaching $82 billion in 2008 from $22 billion in 2000, and job creation in Africa resulting in over 300,000 new jobs in sectors such as apparel, benefitting women in particular.  However, after peaking in 2008, U.S. imports from sub-Saharan African countries have regressed to the pre-AGOA level.  As for U.S. exports to AGOA countries, after reaching a record in 2014 of approximately $24 billion, they have since languished in the range of $12-16 billion.  Meanwhile, China-Africa trade has increased over the last 20 years by twentyfold, and now amounts to $254 billion annually, of which African to exports to China comprise $106 billion. 

China has now risen as the continent’s biggest trade partner, accounting for 18% of all imports into sub-Saharan Africa and 11% of all exports from the region in 2019.  With growing economic powers at its command, China has influenced African foreign policy in its favor.  Further, on the same day as AfCFTA’s commencement, China’s first FTA with an African state (Mauritius) entered into force.  Located in the Indian Ocean, the island state is geopolitically significant for maritime trade.  China aims to leverage the agreement, coupled with the African state’s extensive network of double-taxation avoidance agreements across the continent, to dominate trade with mainland Africa. 

The United States and the EU have pressured the continent with rigid human rights standards as a prerequisite for various deals.  Without such constraints, China and Russia are rising as favorable partners, gaining influence over politics and foreign affairs in Africa.  Shifting from unilateral tariff concessions to a bilateral approach, the United States’ new trade initiative with Kenya, one of the key countries in the continent, may become the turning point for reinvigorating U.S. trade with Africa. 

Initial negotiations towards an ultimate bilateral FTA between the two states began in 2020 under the previous U.S. administration, but were halted temporarily under the new presidency.  The Kenyan ruling political party had been seeking a trade agreement with the United States to signal its commitment to liberal economic policies, prior to its own presidential election in August 2022.  On August 15th, chaos and fights erupted as the election results were announced.  William Ruto, the deputy president of Kenya since 2013, was declared the winner in a close race, suggesting that trade talks with the United States will continue.