Intervention of the Holy See
During the Preparatory Committee
established by General Assembly resolution 69/292
dedicated to the Development of an international legally binding instrument
under the United Nations Convention on the Law of the Sea
on the conservation and sustainable use of marine biological diversity
of areas beyond national jurisdiction
Since this is the first time our delegation takes the floor, we would like to congratulate you and thank you for your able assistance in this session. e thank Ambassador Charles for his instructive leadership in the prior Preparatory Committee meetings and we congratulate Ambassador Duarte for his election as Chair.
We have listened carefully to the discussion yesterday and today, and our delegation would agree with others that there seems to be an unbridgeable divide between those seeking to apply two competing principles to this agreement. Therefore, in the interest of moving forward, we will restrict our discussion to the topic of obligations stemming from the use of ocean resources in Areas Beyond National Jurisdiction (ABNJ).
As other delegations have noted, Freedom of the High Seas is not an absolute right and is subject to limitations and corresponding duties. This “right of access” is conditioned as a result of the use of the ocean space and resources. Various uses such as the general obligation for peaceful use, laying of submarine cables, the construction of artificial islands, fishing and scientific research are identified and subsequently qualified, subject to certain limitations and obligations. So regulating use and providing for responsibilities as well as rights are nothing new.
The practical reality is, however, that not all resources in the ocean are equal and not all human activity has the same impact on biodiversity. Some resources, such as minerals, have an immediate inherent value, or the human activity in using the resource creates such a negative impact on the environment that there is a depreciation value. Others, such as marine genetic resources (MGRs), only have potential value and no real value or impact at the time of extraction or use; therefore, there is no benefit to share. Because of these practical realities – and in the spirit of Norway’s intervention, our delegation suggests that our analysis and our resulting agreement must be more nuanced than just identifying specific uses or ocean resources. We cannot have a successful, forward-looking regime without gaps if we focus solely on where resources are located, or what benefits States will enjoy as a result.
Therefore, our delegation suggests a bifurcated structure for considering the “use” of ocean resources, and payments and obligations for that use. This proposed framework consists first of benefit sharing and, second, of Commercial Entitlement/Use Obligations. We have tried to fashion this analysis so that it can be applied, not only to MGRs, but to the use of all potential resources in ABNJ — for example, wind, tide, current, or geothermal renewable energies.
1. With respect to “Benefit Sharing.”
Provisions are obviously already in place in the United Nations Convention on the Law of the Seas (UNCLOS) with respect to benefit sharing. With the advent of new uses and discoveries of ocean resources, however, and in connection with conservation and sustainable use, some thresholds for how benefits might accrue seem helpful. In order to consider whether benefit sharing payments or obligations are appropriate, our delegation suggests that one of the following four criteria should be met:
First, the resource must have an inherent value (such as a mineral) without the intervention of mankind making it something entirely new; or
Second, there is significant harm to the environment in extracting the resource that impacts marine biodiversity for present and future generations; or
Third, the resource is non-living, and specifically not a biological resource used as a commodity in trade such as fish; or
Fourth, the resource cannot be sustainably used.
If one of these four thresholds is met, then the provisions of Part XI and Article 82 of UNCLOS apply 82 and both monetary and non-monetary benefits must be shared. All existing resources covered by these provisions would qualify. If one of these thresholds is not met, however, then instead of “benefit sharing” – since there is no benefit - possible “commercial Entitlement/use Obligations” attach based on “utilization” of resources jointly owned by all States.
2. With respect to Commercial Entitlement/Use Obligations.
We note at the outset that these obligations will not apply to any activities that are associated with Marine Scientific Research as provided for in UNCLOS.
As stated above, MGRs fall into a category of resources that have no value at the time of extraction, and for which it is impossible to agree on the potential value at that time. This issue is not a new one for the business world as often a seller, such as a large pharmaceutical company, has potential products or drugs that are in various stages of development when they sell their company. As a result, the valuation of the company is difficult and most merger or sales contracts include what are called “earn-out provisions.”
An earn-out provision is a contractual clause stating that the seller of a business is to obtain additional compensation in the future if the business achieves certain non-financial and financial milestones. In other words, it is a contingent obligation. Non-financial targets often include the study start, study success, regulatory filing, filing of a patent, regulatory approval for use, first sale, launch of a new product, or minimum number of or increase in sales or customers. Financial targets can include the number of products sold (annual or cumulative sales), unit sales, royalty or license revenue, earnings, revenue, net income, net equity, earnings etc. As New Zealand noted yesterday, the various stages of MGR collection, analysis and utilization could form the basis for these milestones. This model could provide for non-monetary benefits to developing countries with respect to triggers that are not financial in nature, for example, regulatory approvals and patent filings. These non-monetary obligations could include access to collection, data sharing, and clearinghouse or repository arrangements. Monetary payments, if agreed, could be tied to financial benchmarks, but could also be formulated as preventive measures against selling resulting products or drugs into developing countries at exorbitant prices.
As for how this is structured: A party, for example a private company seeking to find and develop MGRs into a useful product, has the option of entering into an agreement prior to use (here, collection of samples) in which case the bargaining power is in their court. If they wait until they file for a patent, the regulator can set the terms. One suggestion is that the mechanism could be the same as used for fishing – through bilateral agreements, Regional Fishing Management Organizations or Agreements (RFMOs or RFMAs), however this is agreed.
As for Intellectual property issues, our delegation believes that this agreement should not impact or try to undermine patent laws. We hope that this can be avoided by including the presumption that the origin of every MGR patent is presumed to be in ABNJ unless otherwise stated. Traceability could become associated with one of the milestone events.
In conclusion: beyond the fact that it fulfills the general principle of economic equity, why should we use this approach? There are several reasons:
First, the Nagoya Protocol anticipates this model and earn-out provisions in particular. The Annex lists monetary benefits, including access fees, upfront payments and milestone payments.
Second, in life sciences merger deals, specifically bio-pharmaceutical deals, 82 percent of bio-pharmaceutical deals included earn-out provisions in 2012. These are provisions that the business world is familiar with and are part of existing international law and practice.
Third, it allows all States to move forward when the parties cannot agree on the value of the resource, especially when it has no value at all at the time of extraction. This is particularly critical where the source of uncertainty may be the undeveloped product, when there is a new market, when the financial information is unreliable, or when there’s an uncertain future but non-State private investors, developers, enterprises and individuals are involved.
Fourth, it permits private companies or actors greater control over whether and when the milestone events are triggered, reduces the risk of overpaying, defers obligations and therefore decreases the disincentives.
Finally, from the perspective of developing countries, the user ultimately compensates States for the use of a resource in the Commons. Every use has the potential to give value, whether monetary or nonmonetary, at some point. It also provides the opportunity to benefit from synergies of working with sophisticated parties in business integration as a matter of contract.
I thank you for your patience with this lengthy intervention.