TWN Info Service on Biodiversity and Traditional Knowledge (Nov24/09)
20 November 2024
Third World Network

COP16: Cali Fund for DSI benefit sharing kicks off, but will money flow in?

Geneva, 20 Nov (Nithin Ramakrishnan) – Parties to the Convention on Biological Diversity (CBD) have launched the “Cali Fund” to operationalize the historic decision made in 2022 in Montreal, to establish a global fund to collect monetary benefits arising from the use of digital sequence information (DSI) on genetic resources.

The Sixteenth Conference of the Parties (COP16) to the CBD took place in Cali, Colombia from 21 October to 1 November 2024.

The Cali Fund is part of the multilateral mechanism for sharing benefits arising from the use of DSI. The fund will be administered by the United Nations through its Multi-Partner Trust Fund Office, under the authority of, and accountable to, the COP. It will be administered based on the decisions of the COP.

The initial modalities for operationalizing the multilateral mechanism and the Cali Fund were adopted in the Annex to the COP decision on DSI. (See COP16 adopts initial modalities for DSI multilateral mechanism with last-minute amendments, 15 November 2024.)

Additional modalities could be adopted at COP17 in 2026. The modalities might also be adjusted following a review after the first four years, at COP18 in 2028.

Expectations of monetary contributions

According to the initial modalities, the users of DSI on genetic resources in sectors that directly or indirectly benefit from its use in their commercial activities are required to contribute a proportion of their profits or revenue to the global fund, according to their size.

As an indicative rate, entities which, on their balance sheet dates, exceed at least two out of three of the following thresholds should contribute one percent of their profits, or 0.1 percent of their revenue, to the global fund: (i) total assets: USD 20 million; (ii) sales: USD 50 million; and (iii) profit: USD 5 million, as averaged over the preceding three years. A list of the sectors to which these actors might belong is also enclosed in the decision.

Some of the users such as “public databases”, “academia” and “public research institutions” are not expected to make monetary contributions. However, according to the discussions in COP16, this extension will not be extended to the cases where academic institutions establish business entities and commercialize their research outcomes. It will also not exempt the third-party business entities that partner with academic institutions which commercialize the research outcomes of academic institutions. This is because such entities are considered as benefiting indirectly from the DSI concerned.

However, there is no clarity in the decision as to how the funding contribution mechanism will work. Contributions to the global fund are expected to be made directly, but may be made through a national authority as well. Parties and non-Parties are invited to take administrative, policy or legislative measures, consistent with national legislation, to incentivise contributions from users in their jurisdiction to the global fund in line with the modalities of the multilateral mechanism.

Furthermore, there is nothing in the decision or its Annex on how to ensure that users actually share benefits. The accountability and transparency elements relating to the use of DSI, and benefit sharing are yet to be detailed.

Once the Cali Fund is administratively set up in the Multi-Partner Trust Fund Office, Parties can either set up national bank accounts to collect the funds from the users in their jurisdiction and transfer the collected amounts to the Cali Fund on a periodic basis, or issue a notification requiring users to directly deposit contributions into the Cali Fund.

There are uncertainties attached to this, as some Parties might choose not to adopt both these measures. The United States, a non-Party to the Convention, but a key player in the biotechnology market, has already made it clear that, on its part, there will be no measures taken. Further, it is not clear how transnational corporations operating in multiple Parties will be regulated under these measures and, if so, under the jurisdiction of which specific Party.

Developed countries’ attempt to fish in muddy waters

Developed countries and some commercial actors are seeking exemptions for DSI users from national access and benefit sharing (ABS) laws, as well as from other specialised international ABS regimes established in organisations such as the WHO and FAO, if those users provide monetary contributions to the global fund. According to them, this incentive will motivate users to make monetary contributions to the Cali Fund.

Developed countries even sought to make this the global norm and tried to insert language in the text to get this so-called incentive secured. Accordingly, they wanted to issue a certificate to the contributors to the global fund, which excludes the user from any expectation to share further monetary benefits from the use of DSI.

Furthermore, the calculation of the one percent of profit includes all profits of the users, as per the modalities. This would include products and services developed accessing physical genetic resources or DSI that are governed under other ABS mechanisms.

This however gives an additional opportunity to the users to claim exemptions from those other ABS regimes. The user could cite the payment to the Cali Fund to argue that the benefits gained from those products (which are governed under other ABS regimes) have already been shared, and therefore there is no need to share them through the other mechanisms.

Such a model would have been disastrous for developing countries, as it would not only affect benefits arising from the use of DSI within the scope of the multilateral mechanism, but also benefits arising from the use of genetic materials or DSI covered under the scope of other ABS regimes.

It would have “grabbed” jurisdiction over products and services that are not only covered under national ABS laws, but also under international ABS regimes such as the WHO’s Pandemic Influenza Preparedness Framework and the FAO’s International Treaty on Plant Genetic Resources for Food and Agriculture.

Developed countries also tried to keep the scope of the multilateral mechanism as wide and undefined as possible, such that it effectively limited national policy space to develop national ABS laws or to develop specialised international ABS agreements for benefit sharing from the use of the DSI.

Nevertheless, developing countries made it very clear that they were not ready to forgo their national sovereignty over genetic materials as well as over DSI, for a multilateral global mechanism, in particular when it lacks clarity on several operational elements as well as legal guarantees to benefit sharing in a fair, equitable and accountable manner.

Developing countries retain national sovereignty

With the uncertainties mentioned above, developing countries successfully fought to retain their national sovereignty, such that the rules of DSI benefit sharing would still remain in their hands. (See COP16: Developing countries struggled to defend sovereign rights over DSI on genetic resources, 18 November 2024.)

They delineated the scope of the multilateral mechanism on three counts:

First, as mentioned above, the implementation of the decision is through national-level administrative, policy or legislative measures taken by each Party. This idea was already captured in the proposals of the Co-chairs of the Ad Hoc Open-ended Working Group on Benefit-sharing from the Use of Digital Sequence Information on Genetic Resources (Mphatso Kalemba, Malawi and William Lockhart, UK), who initially drafted the modalities.

This gives leverage to Parties to decide how to compel users in their jurisdiction to contribute to the global fund. Stringent measures could perhaps ensure better income for the fund.

Second, the scope of the multilateral mechanism has been explicitly defined in paragraph 1 of the Annex, thanks to the efforts of the African Group and other developing countries. The President’s text, issued on the last day of the negotiations, proposed the following scope:

“The multilateral mechanism for the fair and equitable sharing of benefits from the use of digital sequence information on genetic resources covers digital sequence information on genetic resources:

(a) That is made publicly available, in compliance with national legislation, where applicable;

(b) That is not subject to mutually agreed terms established at the time of access to the genetic resources from which the digital sequence information on genetic resources is derived, unless those terms allow for the making of the digital sequence information freely available; and

(c) For which the fair and equitable sharing of benefits on the use of digital sequence information on genetic resources is not provided for by other international agreements on access and benefit sharing, except if those instruments choose the multilateral mechanism for that purpose.”

The implication of this text is that it would have effectively limited the policy space of Parties in operationalizing public databases within their jurisdiction and providing access to users based on terms and conditions defined by national legislation. This is because sub-paragraph (a) extends the scope of the multilateral mechanism to DSI that is publicly available.

However, the language was finally changed, thanks to India’s late-night intervention. The scope is now qualified to be “without prejudice to national legislations”.

Third, the African Group and other developing countries also circumscribed the scope of the yearly certificate issued by the global fund, which initially excluded users from any further expectations of benefit sharing. As per the final decision that was adopted, the certificate now only excludes users from expectations to share further monetary benefits from the use of DSI on genetic resources “within the scope of the multilateral mechanism for that year”.

This means that users continue to be obligated to share benefits through other systems, if they use the DSI as covered by such other national or international systems.

Effective measures at the database level can help the money flow

Given the ambiguity of language used in defining the modalities, it is very hard to predict whether there will be a sustainable flow of money into the Cali Fund. This will fully depend on the measures Parties undertake in their respective jurisdictions.

Strong measures will provide stronger impetus for users to contribute. However, there is no clarity or standardisation as to what types of measures a Party should undertake and whom these measures should cover. Legal uncertainties may increase because national measures might vary from Party to Party. This might affect the flow of funds negatively too.

One of the measures that could overcome these legal uncertainties lies in the obligations of Parties funding, sponsoring or hosting sequence databases. According to Paragraph 12 of the Annex, such Parties should ensure that entities operating databases take measures to ensure the effective implementation of the decision.

The measures for effective implementation could, for instance, include the identification of the users of the databases; making sure that they are informed of the need to comply with national and international ABS obligations and with the multilateral mechanism; and regular, or upon request, reporting of usage of DSI to relevant authorities.

The databases could also be mandated to apply terms and conditions, or legally binding contracts, on DSI users, to share monetary contributions to the Cali Fund. 

The modalities of the multilateral mechanism already explicitly call upon entities operating databases to take some of these measures, as detailed in paragraph 10 of the Annex.

Parties could further develop national legislation and mandate additional measures to ensure fair and equitable benefit sharing. Parties without databases could also either develop national databases independently or jointly with other Parties. They could mandate the users to share benefits, through the Cali Fund as well as through other ABS mechanisms, including national systems.

It should be noted that the decision calls for exploring possible new tools and models, such as databases, for making DSI on genetic resources publicly available and accessible in a transparent and accountable manner to all Parties. Additional modalities in this regard could be adopted at COP17 for implementing DSI benefit sharing more effectively. +