COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Proposal for a Regulation of the European Parliament and of the Council on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization in the Union Part 1

This report commits only the Commission's services involved in its preparation and does not prejudge the final form of any decision to be taken by the Commission.

TABLE OF CONTENT

1............ Introduction. 4

2............ Procedural Issues and Consultation of Interested Parties. 5

2.1......... Inter-service group. 5

2.2......... Consultations. 6

2.3......... Impact Assessment Board. 7

3............ The results of the public consultation were summarised in much greater detail. Problem definition 8

3.1......... Implementing the Nagoya Protocol: is the EU legal framework fit for the purpose?. 9

3.2......... Current practices of access to and utilization of genetic resources and associated traditional knowledge (the "EU baseline") 12

3.3......... The EU's right to act and justification. 19

4............ Objectives. 20

4.1......... General objective. 20

4.2......... Specific objectives. 20

4.3......... Operational objectives. 21

5............ Policy Options. 21

5.1......... The Business as Usual (BAU) 22

5.2......... Options for addressing the Access pillar of the Protocol 23

5.3......... Options for addressing the User-Compliance pillar of the Protocol 23

5.4......... Options on the Temporal Application of binding EU-level measures. 26

5.5......... Options for Complementary measures in support of the Protocol implementation. 27

6............ Analysis of Impacts. 29

6.1......... General remarks. 29

6.2......... Access Pillar 33

6.3......... User-Compliance Pillar 36

6.4......... Temporal Application of Binding EU-level measures. 43

6.5......... Hypothetical scenarios. 44

6.6......... Complementary Measures. 45

6.7......... Overview of the analysis results. 48

7............ Monitoring and Evaluation. 51

Glossary of key terms used in the context of "Access and Benefit-sharing" 54

Overview of Tables and Boxes. 58

1. Introduction

Genetic resources - the gene pool in both natural and cultivated stocks - play a significant and growing role in many economic sectors: food, the development of medicines, development of bio-based sources of renewable energy, etc. 26% of all new approved drugs over the last 30 years are either natural products or have been derived from a natural product.[1]

The European Union and all of its 27 Member States are Parties to the Convention on Biological Diversity[2] (CBD). The CBD recognizes that states have sovereign rights over genetic resources found within their jurisdiction and the authority to determine access to such resources. The Convention obliges all Parties to facilitate access to genetic resources over which they hold sovereign rights. It also obliges all Parties to share in a fair and equitable way the results of research and development and the benefits arising from the commercial and other utilization of genetic resources with the Party providing these resources.

The CBD also addresses the rights of indigenous and local communities that hold traditional knowledge associated with genetic resources, and which may provide important lead information for the scientific discovery of interesting genetic or biochemical properties.

However, the CBD currently provides little detail on how access and benefit-sharing (ABS) for the use of genetic resources and associated traditional knowledge should be done in practice. Particularly industrialized country Parties have been very reluctant to adopt measures supporting effective benefit-sharing of their researchers and companies. As one consequence, some countries have established increasingly restrictive conditions for access to genetic resources or associated traditional knowledge. At the same time and in the absence of clear rules, European researchers and companies have been accused of 'biopiracy' by countries claiming a violation of their sovereign rights. These problems have seriously undermined global progress to conserve and sustainably use biological diversity; not least since states that are considered as 'biodiversity-hotspots' stand to gain the most from an effective ABS framework.

The issue of ABS is also relevant in international fora outside the Biodiversity Convention. Most prominently, the International Treaty on Plant Genetic Resources for Food and Agriculture was negotiated and in November 2001 adopted in the framework of the UN Food and Agriculture Organization as a specialised ABS instrument. The FAO Commission on Genetic Resources for Food and Agriculture has embarked on a multi-year programme of work on the relevance of ABS to different types of genetic resources used for food or agriculture purposes. More recently, members of the World Health Organization have adopted a Pandemic Influenza Preparedness Framework that balances interests in the rapid sharing of virus samples with the interest in sharing related benefits. The issue of ABS is also being discussed under the UN General Assembly in the context of a broader framework of measures to protect biological diversity in the high seas. In addition, intellectual property rights aspects of protecting innovations based on the utilisation of genetic resources and traditional knowledge associated with such resources are discussed in both the World Intellectual Property Organization and in the WTO Agreement on Trade Related Aspects of Intellectual Property Rights.

The "Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from Their Utilization to the Convention on Biological Diversity" (hereinafter: Nagoya Protocol) is a new international treaty adopted on 29 October 2010 by the 193 Parties to the CBD by consensus. It is a treaty with legally binding effects that significantly expands the general ABS framework of the CBD. The Nagoya Protocol is expected to enter into force in 2014. Once operational, the Nagoya Protocol will generate significant benefits for biodiversity conservation in states that make available the genetic resources over which they hold sovereign rights. It will in particular:

- Establish more predictable conditions for access to genetic resources.

- Ensure benefit-sharing between users and providers of genetic resources.

- Ensure that only legally acquired genetic resources are used.

The EU and its Member States are politically committed to become Parties to the Protocol to secure access of EU researchers and companies to quality samples of genetic resources, based on reliable access decisions at low transaction costs.[3] This will create new opportunities for nature-based research, and contribute to the development of a bio-based economy.[4]

This report presents the assessment of the impacts of EU implementation of the Nagoya Protocol. Starting from the main obligations of Parties to the Nagoya Protocol, particularly those on access and on user-compliance, it identifies different options for meeting these obligations (as there is still flexibility on key issues), and it analyses for each option how it would impact on the EU acquis and on existing practices of providing and utilizing genetic resources and associated traditional knowledge in the EU, and on our relationship with major international partners. In particular, it examines the value-added of EU action in the form of coordinating and setting common rules compared to a baseline where Member States decide to implement the Nagoya Protocol in their own way.

2. Procedural Issues and Consultation of Interested Parties

The CWP 2012 foresees the adoption of an "ABS package" implementing the Nagoya Protocol for the third quarter of 2012 (2012/ENV/002).

2.1. Inter-service group

A Commission Impact Assessment Steering Group was established in February 2012. The group was led by DG Environment. The following Commission services indicated their interest to follow the work: SG, AGRI, DEVCO, EEAS, ENTR, JUST, LS, MARE, MARKT, RTD, SANCO, TAXUD, TRADE. The group met 3 times to discuss drafts of the consultant study, and 2 times to discuss this IA study. All members of the group were regularly informed and consulted by email.

2.2. Consultations

Consultations with the EU Member States

The Commission regularly informed Member States in meetings at Council Working Party level on the state of play in the development of EU implementing measures without prejudging in any shape or form the necessary discussion between Commission services. Regular informal meetings with ABS experts of Member States confirmed that the two Member States (ES, DK) that initially indicated their intention to unilaterally move ahead to implement and ratify the Nagoya Protocol, have decided to wait for the presentation of an eventual EU proposal. The broad majority of Member States, particularly those with major user interests (DE, UK, FR), have consistently stressed that they would see the need for an EU-coordinated approach to implementation. The need for an EU-coordinated approach to implementation and ratification was also stressed in an opinion of the Council Legal Service.

Public Consultation

The Commission held a web-based public consultation from 24 October to 30 December 2011 to seek feedback on a list of questions that addressed key aspects of Nagoya Protocol implementation. 43 replies were received that represented a much broader number of respondents, since the majority of replies came from European or international associations with hundreds or thousands of members each. The respondents covered most sectors potentially affected by implement measures under the Nagoya Protocol. All respondents (except a few neutral replies) pleaded for an EU-harmonised approach to user-compliance measures, with a clear majority considering an EU-Regulation as the most appropriate instrument for achieving harmonised implementation. The majority of respondents considered that implementing measures could have positive effects on competitiveness and on administrative burden, but stressed that such effects depend on the specific implementing measures chosen. Industrial users (e.g. pharmaceutical, biotechnology, seeds, health&beauty) stressed their lengthy supply chains and that information about prior informed consent and benefit-sharing arrangements is currently not available at points in the chain where it may be needed. Research institutions stressed the importance of clear, simple and transparent rules and the need for clarifying ABS-related issues at the time of access to avoid difficulties later on. A summary of the public consultation is included in Annex 3.

Ad hoc consultations

DG Environment organised a technical meeting with EU stakeholders on 26 January 2012. It invited all respondents to the public consultation, Brussels-based representatives of stakeholders, and experts nominated by Member States. At the meeting, the Commission presented its summary of the public consultation, whereas members of the consultant team presented tentative findings of their work. Participants used the opportunity to challenge the consultant team on some of their findings.

DG Environment officials held many meetings with representatives of botanical gardens, culture collections, industry federations or individual companies and participated in various expert conferences on the Nagoya Protocol. The consultant team conducted semi-structured interviews with representatives of stakeholders and companies.

Consultations with third countries

In 2011, DG Environment asked several EU delegations in third countries to seek information from major partner countries on the state of play and their concrete ideas for Nagoya Protocol implementation. The feedback received was complemented by more detailed bilateral discussions with Australia, Brazil, India, Japan, Mexico and Switzerland.

Expert study

To support the impact assessment process, the Commission contracted external consultants to analyse the legal and economic impacts of implementing the Nagoya Protocol in the European Union. Information from the consultant study was used as input to this IA. The consultant work included twelve sectoral studies on different groups and sectors utilising genetic resources in the Union. The sectoral studies were complemented by interviews with experts from the groups and sectors studied and overall helped – together with the information already available to the Commission – to understand the relevance of genetic resources to EU users, current approaches to ABS by users, existing bottlenecks, as well as the expectations of stakeholders and their views on main policy options.

2.3. Impact Assessment Board

The draft Impact Assessment was submitted to the Board on 20 June 2012 and discussed at the Board meeting of 18 July 2012.

The key amendments made to the impact assessment following the issuing of the Board opinion are:

– A clearer description of the international legal and political context through amendments to the introduction and the problem definition of the study.

– A more elaborate explanation of current practices of genetic resources utilisation in the Union.

– A clearer explanation on why a unilateral implementation of the user-compliance pillar of the Protocol is likely to negatively affect the internal market including by providing more specific examples.

– Clarification on the appropriate legal basis for implementing the Nagoya Protocol and more detailed considerations on why binding EU-level measures on access currently would not seem justified.

– Development of more elaborate monitoring indicators linked to the objectives and the proposed implementing measures.

– A general explanation on the rationale behind the design of the policy options considered in this study and particularly how the due diligence option would be implemented, monitored and enforced, and the sanctions envisaged. These additions are complemented by more detailed considerations on eventual impacts and costs.

– More detailed considerations as regards the creation of a level playing field, and the impacts and benefits of the due diligence option particularly for SMEs and effects on the use of public funds.

– A clearer explanation of the rationale for and benefits of introducing a system of 'trusted sources'.

– The results of the public consultation were summarised in much greater detail.

3. Problem definition

The EU and most of its Member States[5] have signed the Nagoya Protocol and thereby committed themselves to work towards its implementation and ratification. This political commitment is also expressed in statements by the European Parliament, the Council of the European Union, and by the Commission.[6]

Other industrialized countries that have signed are Australia, Japan, Norway, Korea, Switzerland and the Ukraine. The US cannot ratify the Protocol as it is not a Party to the CBD. Only Norway has so far put in place implementing legislation. Switzerland is advanced in developing implementing legislation, but likely to wait with finalization until there is more clarity on the EU's approach. Other major partners (e.g., Korea, Japan) have signaled their intention to develop implementing measures in view of the EU's approach to achieve a level-playing field for their researchers and companies. Australia arguably has the worlds best functioning domestic access framework and would thus benefit from ratification and indeed it has expressed its interest in close collaboration with the EU on user-compliance measures. Nevertheless, like New Zealand and Canada, Australia is engaged in discussion with its indigenous communities as regards rights over resources, including genetic resources. These three countries may not ratify the Protocol before they have significantly advanced their domestic discussion on this matter.

Many countries from the emerging economies and developing countries group had put in place domestic access frameworks prior to the adoption of the Nagoya Protocol. The main political reason for the launching of the Nagoya Protocol negotiation was a perception by these countries that their efforts on access would not be supported by complementary efforts of user countries, such as the EU and its Member States. After the Protocol's adoption and its signature by many industrialized countries, there is now a strong expectation that industrialized countries such as the EU and its Member States will take effective implementing measures, particularly in the field of user-compliance. Some emerging economies and developing countries are now revising their access frameworks in light of the Protocol. Most have little experience with the user-compliance measures required under the Nagoya Protocol. Particularly emerging economies that need to balance provider with user interest (e.g., Brazil, India) have expressed their interest in a close dialogue with the EU particularly on user-compliance measures.

Overall, there is a major expectation that the EU and its Member States will swiftly ratify and implement the Nagoya Protocol. This expectation also presents a major opportunity, since the EU's approach to user-compliance will become a main reference point for user-compliance measures taken by other industrialized countries and in emerging economies. It also seems that failure of the EU and its Member States to ratify and implement the Nagoya Protocol would deepen the frustration of major provider countries, particularly from the so called "mega-diverse" group of countries. This would very likely result in increasing restrictions on EU researchers and companies that wish to access quality samples of genetic resources from these countries and thereby compromise important EU objectives and hamper the commercial and non-commercial interests of EU users (see 3.2.1 below).

The problem addressed in this IA is to identify a legally sound, effective and efficient way of implementing the Nagoya Protocol in the Union, through measures that satisfy our international obligations under the Protocol and that create legal certainty and an enabling context for those involved in research and development on genetic resources in the EU.[7]

3.1. Implementing the Nagoya Protocol: is the EU legal framework fit for the purpose?

Box 1 sets out a hypothetical, best-practice case of access and benefit-sharing that would be consistent with the basic access and benefit-sharing framework of the CBD.

Box 1: A hypothetical, best-practice case of access and benefit-sharing

A French researcher seeks to collect a little-known marine sponge from the Great Barrier reef in north-eastern Australia for basic research on its genetic and biochemical properties. The researcher logs on to the internet and applies electronically to the Queensland ABS authority for a permit to collect marine sponges for non-commercial research in a specified area of the reef. He receives the permit within ten working days after the Queensland ABS authority has done a basic check on the information provided. The collecting activity takes place after the french researcher has also (electronically) signed the standardised benefit-sharing arrangement for non-commercial research, which is a private law contract under Australian law. The contract allows the french researcher to do non-commercial research on the collected samples, it excludes any use for commercial purpose. He must put a reference sample of each collected species in the collection of Queensland University and also commits to sending them a copy of publications resulting from research on the collected sponges. Publications must mention the existence of the benefit-sharing contract and the use restrictions on the samples. The researcher is allowed to pass on samples to other researchers provided that these also agree to be bound by the conditions set out in the benefit-sharing contract.

A small biotech company in Germany is specialised in developing molecules for use in cancer medication. One of its scientists reads a paper published by the above french researcher on molecules from marine sponges from the Great Barrier reef, and considers that these molecules could help in an ongoing project. He gets in touch with the reference collection at Queensland University and applies for access to the samples identified in the publication, he indicates the commercial interest and accepts paying the standardised small fee for preparation and shipment of the samples. He also signs a standardised benefit-sharing contract that allows patenting of discoveries made in return for a commitment to sharing 2% of economic revenues that may result from an invention. The german biotech company discovers that one of the samples from Queensland University contains a molecule that is highly reactive with a specific type of tumor cells. Through various steps and modifications, company scientists manage to suppress unwanted properties of the molecule, while maintaining its reactivity. The company successfully obtains a patent on this discovery.

Practice has shown, however, that effective ABS transactions may face typical "problem" situations. For example:

– Genetic resources are collected in violation of the laws of the country of origin. International law would not support a claim by a representative of this country in the court of an EU Member State where the illegally acquired resources are utilised.

– The responsible authorities of a country grant a permit for bioprospecting in indigenous territories without prior consultation with indigenous representatives. Is the European researcher allowed to use the obtained samples or not?

– A benefit-sharing contract between a provider and a research institute in the EU excludes commercial uses, samples are nevertheless passed on to other users for applied research without mentioning the ABS-related restrictions. One of these samples is used some years later by a company for developing a nature-based product. The company that successfully sells its nature-based product is alleged of "biopiracy". Is the lack of awareness by that company an acceptable defense? Is the person that broke the information-chain liable?

Access and Benefit-sharing according to the Nagoya Protocol

The CBD does not provide clarity how its Parties must address these and other "problem" situations. The Nagoya Protocol is much more detailed. It rests on two main pillars.

The access pillar leaves Parties discretion whether they wish to regulate access, and require prior informed consent and benefit-sharing for the use of their genetic resources or not. However, if a Party decides to do so, then it must implement the fairly detailed "international access standards" set out in the treaty. The Protocol also clarifies that states must engage with their indigenous and local communities in case access is sought to traditional knowledge or to genetic resources held by these communities. Main Protocol ideas in relation to access include: (i) government authorities or indigenous representatives must give their prior informed consent before access can take place, (ii) specific benefit-sharing obligations must be set out in private law contracts between a provider and a user, and (iii) access frameworks must be clear and transparent, based on non-arbitrary rules, and result in reliable and timely decisions, in a cost-effective manner.

The discretion of Parties to require prior informed consent or not means that states may ratify the Nagoya Protocol without requiring prior informed consent and benefit-sharing for the use of genetic resources over which they hold sovereign rights. Nevertheless, Parties that choose to require prior informed consent must comply with the Protocol obligations on access; it is not possible to comply with these access-provisions through voluntary measures.

The user-compliance pillar of the Protocol obliges all Parties to the Protocol to take measures that only legally acquired genetic resources and associated traditional knowledge are utilized within their jurisdiction. Parties must monitor the compliance of users within their jurisdiction and designate one or more checkpoints for this task. They must also take appropriate, effective and proportionate measures in cases where users within their jurisdiction do not comply with their ABS-related obligations. Parties must also ensure that disputes arising from specific benefit-sharing contracts can be taken to court.

It is not possible for a Party to comply with the user compliance obligations of the Protocol without taking legally binding measures. However, different than in the case of access, the user-compliance provisions of the Nagoya Protocol leave Parties quite some discretion on the type and mix of implementing measures chosen.

The Nagoya Protocol does not make an explicit statement on its temporal application. Academic commentators hold different views on this issue.[8] Parties must therefore address the temporal application of their implementing measures: whether these will apply only to genetic resources and associated traditional knowledge acquired after the Protocol's entry into force (expected for 2014) or also to uses of genetic resources and traditional knowledge that were acquired after the entry into force of the CBD in December 1993.

Further aspects that must be addressed concerns: (a) the obligation of Parties to respect existing specialized ABS instruments[9] and to establish a mutually supportive relationship with other relevant instruments and processes, (b) the obligation to promote and encourage non-commercial research, (c) the obligation to pay due regard to genetic resources with pathogenic properties, and (d) to consider the special characteristics of genetic resources for food and agriculture. Another important issue concerns (e) the management of relations with non-Parties to the Protocol.

The Protocol also obliges its Parties to establish a National Focal Point on ABS to liaise with the international Secretariat and to respond to information requests by stakeholders. Parties must also designate one or more Competent National Authority responsible for granting access and advising on applicable procedures for requiring prior informed consent and entering into mutually agreed terms. Parties may designate a single entity to fulfill the functions of both focal points and competent national authority.

Is EU law fit for the purpose?

The Nagoya Protocol is a so called "mixed agreement". It allows both the Union and the Member States to become Parties to the treaty at the same time. In this case, the Union and each of its Member States must be able to demonstrate for itself full compliance with all Protocol obligations. How this is achieved is an entirely internal matter to the EU and its Member States. In principle, the spectrum of possibilities ranges from the adoption of legally binding measures only at the level of the Member States with supportive, soft measures at Union-level to a full harmonization of legally binding measures at Union level supported by soft measures at the level of the Member States. The concrete approach chosen for implementing the Nagoya Protocol in the EU and its Member States rests on legal and practical considerations: any EU-level intervention presupposes the existence of Union competence and the demonstration of added value that will not be achieved through implementing measures under the sole responsibility of Member States.

The Protocol's access pillar is not implemented at the Union-level, as currently no Union-level law would establish whether access to genetic resources in the EU requires prior informed consent and benefit-sharing. Some Member States strongly feel that the decision whether to require prior informed consent and benefit-sharing or not is an issue of national sovereignty and cannot be regulated in Union law. Nevertheless, if a Member States chooses to require prior informed consent and benefit-sharing, its domestic access framework could become relevant to the acquis: EU nature legislation seems indirectly relevant for collecting activities in the wild. Other EU laws regulate the exchange of specific genetic resources used for agriculture or health purposes. It can also not be excluded that Member State access systems could come in tension with fundamental principles of non-discrimination, or that widely differing approaches to access could negatively affect the freedom of researchers or the free movement of goods.

A survey of ABS laws and policies of eight EU Member States conducted in preparing this IA[10] showed that only two Member States (ES, BG) have so far developed access legislation. Other Member States have explicitly decided not to require prior informed consent (NL). Upon ratification of the Nagoya Protocol, further Member States might decide to require prior informed consent in the future. France, for instance, has indicated that it is working on domestic access legislation at least for its overseas territories. Member States that decide to move into this direction must comply with the detailed access-provisions of the Nagoya Protocol. In doing so, they can also build on experience with domestic access frameworks in, for example, Australia or Latin America.

The Protocol's user-compliance pillar is not implemented at Union-level. Nevertheless, the activities that must be regulated are closely related to the EU internal market. Differing obligations on users to manage ABS-related information in different Member States, for example, could create significant costs and barriers for EU researchers and companies that are active in more than one Member State. Furthermore, some user measures, particularly where these would require changes in product approval procedures, cannot be implemented without changes to the acquis.

The above-mentioned survey of ABS laws and policies of eight EU Member States showed that none of the Member States surveyed has so far taken user-compliance measures as required under the Protocol. Member States legislating on user-compliance would have significant discretion how to design such measures. Only few examples are in place worldwide (eg, Norway) or under development (eg, Switzerland), and these are based on conceptually different intervention logics.

The analysis concludes that:

– the access pillar of the Nagoya Protocol establishes detailed obligations on Parties that decide to require prior informed consent and benefit-sharing for the use of their genetic resources. A main problem addressed in this study hence is to analyze whether it seems appropriate to leave this part of the Protocol implementation to the Member States or whether an EU-level intervention for implementing the access pillar of the Protocol would create clear added value.

– The user-compliance pillar requires legally binding measures but leaves significant discretion on the design and mix of implementing measures chosen. One main problem addressed in this study is to analyze whether it seems possible to leave this part of the Protocol implementation to the Member States or whether an EU-level intervention for implementing the user-compliance pillar of the Protocol is needed.

3.2. Current practices of access to and utilization of genetic resources and associated traditional knowledge (the "EU baseline")

ABS is a new field of policy and activity, thus data limitations have been encountered in the course of this study. Gaps exist particularly with respect to the amount of genetic resources utilised within sectors and the economic relevance of such utilisation within the EU. Nevertheless, the sectoral studies conducted in support of this IA provide a thorough understanding of the current practices of access to and utilization of genetic resources and associated traditional knowledge within the EU. This section highlights important features of these practices. A much more detailed description is found in Annex 8 to this study and served as the "EU baseline" for identifying suitable implementing measures and for understanding their impacts.

3.2.1. Access and use of genetic resources and associated traditional knowledge in the EU today

Genetic resources are utilized for a wide range of purposes, by a wide range of different actors with different interests. Traditional knowledge associated with genetic resources is relevant in specific cases but of limited relevance overall.

Multiple actors intervene at different stages of the genetic resources value chain. This value chain ranges from collecting, storing, and making available genetic resources for research and development, over basic and applied research on genetic resources, to the eventual development and commercialization of products and services.[11] Box 2 introduces the main actors and their place in the EU genetic resources value chain and explains how genetic resources and associated traditional knowledge are important to them (Annex 8 contains more information).

The importance of genetic resources for the EU varies across sectors. For some EU actors use of genetic resources is their core-business. This includes collections and some academic researchers. However, it also includes all commercial uses that by definition innovate and develop products on the basis of organisms, genes or biochemicals, such as plant and animal breeding companies, biotechnology companies, or the bio-control industry. Other actors use material found in nature mainly for its informational value, when searching for molecules or genes with interesting properties that might help meeting specific challenges in product development (e.g. industrial biotechnology or pharmaceutical industries). Other actors again build products on extracts from material found in nature. This is in particular the case for some companies in the cosmetics or food and beverage industry. A disruption of the supply of genetic resources from the wild and from collections would negatively affect all EU users, although to different degrees. For plant and animal breeders and the biocontrol industry it would effectively disrupt their business. For pharmaceutical or industrial biotechnology companies it would limit the range of available sources of information and inspiration in R&D activities and thus lower their innovation potential. Companies in the cosmetics or food and beverage industry would need to search for different sources for the needed extracts, identify synthetic substitutes or modify the recipes used. They might also need to stop the sale of products that are branded as based on specific natural ingredients.[12]

Traditional knowledge about properties and functions of plants and animals in relation to their environments is generally recognized as important, particularly as regards adaptation to climate change. Such knowledge may provide lead information in scientific research for interesting properties of plants or species. Overall, however, EU users make only limited use of traditional knowledge associated with genetic resources.[13]

Box 2: Main actors and their placement in the EU genetic resources value chain

Botanic gardens, hold documented collections of living plants for scientific research, conservation, display and education. 550 botanic gardens out of 3021 worldwide are within the EU and the EU botanic gardens are amongst the largest in the world (more than 50% of living plant accessions are collected in Europe). Botanic gardens collect some of their new samples in the wild, but also exchange samples with other botanic gardens. They also provide samples to outside users.

Culture collections acquire, conserve and distribute microorganisms and information about them to foster research and education. Among the 601 culture collections worldwide 207 are located in Europe and 161 in the EU. Culture collections rely heavily on the collecting of new material from the wild (45% of their acquisitions); since most microbial genetic resources are still unknown and since material collected must be stored alive.

Gene banks[14] collect, process, store, and distribute biological specimens and associated information to support scientific research. Plant gene banks ensure that the varieties and landraces of crops that underpin our food supply are secure and that they are easily available for use by farmers, plant breeders and researchers. Animal genebanks mainly fulfill conservation purposes and are less involved in the exchange of genetic material for breeding purposes. Gene banks in the EU make a major contribution to the conservation and utilisation of cultivated / domesticated diversity and related wild species.

Academic research institutions conduct basic research on genetic resources to identify its taxonomic nature or new properties or ingredients. Academic researchers frequently collect genetic resources in the wild. Their research on genetic resources, including through consideration of associated traditional knowledge, is critical for biodiversity conservation. Some findings of academic researchers are later used in product development.

The farm animal breeding industry breeds animals for agriculture production. Its most important species are cattle, sheep, goats, pigs and chicken. European breeders are world leaders. They usually source material from within their company or from connected farmers. The industry currently makes little use of species found in the wild. Its future demand for wild species is, however, expected to increase because of climate change.

The plant breeding or seed industry[15] develops seed grains, cuttings, seedlings, and other plant propagation material as an essential input for crop production, especially for agricultural, vegetable and fruit plants. Plant breeders depend on the utilisation of genetic resources. Most of the genetic resources used exist in ex-situ collections. Indeed, breeders base their activity on a fairly small number of species developed over decades (100-200 species in floriculture and approximately 500 species as house plants). In 2009, the EU had a global market share of more than 20%.

The biocontrol industry develops and sells techniques for crop-protection that uses 'biocontrol agents' (ie select predatory or parasitic living organisms) to control pests. This industry entirely relies on the utilization of genetic resources. They heavily source new material from the wild, but some also from ex-situ collections. Europe is the largest market in the world for this industry in constant growth.

The cosmetics industry develops, manufactures and sells traditional cosmetics products (e.g. perfumes, make-up) and personal hygiene products (e.g. shampoos, soaps, tooth-care). The overall demand for wild genetic resources in the sector is limited. However, collecting activities in the wild are very important for a niche market. European cosmetics companies are among the 10 world leaders of the sector. The EU has a 50% share of the global market.

The food and beverage industry is one of the largest industrial sectors in the world and the largest manufacturing sector in the EU. It covers a wide range of activities from farming to food processing. However, parts of the industry rely on genetic resources collected in the wild for developing new products on the basis of new natural ingredients and extracts.

The horticulture industry includes activities that range from amateur plant breeding to commercial production for ornamental purpose. New products are developed by utilising genetic resources that are mainly taken from ex situ collections and sometimes collected in the wild. The size of the industry in Europe and worldwide is relatively small.

Companies in the field of industrial biotechnology develop, manufacture and sell products and services that use or contain biological material as catalysts or feedstock to make industrial products. The industry relies by definition on the use of genetic resources and heavily invests in R&D. The EU is one of four established biotechnology centres globally, next to the US, Canada and Australia. 90% of new material in this sector is taken from the wild.

The pharmaceutical industry engages in the discovery, development, and manufacture of drugs and medications. It partially relies on access to genetic resources collected from the 'wild' to identify promising compounds for product development. Biotechnology-based pharmaceuticals account for an increasing share of the market and access to genetic resources is particularly important for segments of the industry involved in natural products research. In the last 30 years, 26 percent of new approved drugs were either natural products or had been derived from a natural product. The future trend is unclear. The market for pharmaceuticals is one of the biggest world-wide, dominated by the US, and followed by the EU and Japan.

As regards the sourcing of genetic resources and associated traditional knowledge, EU users may be grouped in two broad categories. On the one hand side, there are collecting activities in the wild, on the other hand side, users acquire samples and related information from ex situ collections (gene banks, seed banks, databases). The discovery of new or rare genetic diversity in nature is of great interest for scientific research and some ex situ collections. It is therefore mostly university-based researchers and scientists affiliated with ex situ collections that engage in bioprospecting activities, mostly with an explicitly non-commercial purpose. Commercial users of genetic resources, in contrast, rarely collect genetic resources in the wild, except in some particular niches of innovation, such as the biocontrol industry, parts of industrial biotechnology, and some small pharmaceutical biotechnology companies. Overall, however, it seems that the interest of commercial users to engage in bioprospecting has declined. In part this reflects reluctance to directly deal with provider countries, in part collecting activities in the wild have become less important for some of the economically important and research-intensive sectors such as the seed industry and a great proportion of the pharmaceutical and cosmetics industries.[16]

In contrast, the research done for this study shows that EU ex situ collections play a fundamental role in the EU user chain, acting as direct providers to both commercial and non-commercial users. In fact, several commercial sectors including the horticultural and seed industry source almost all of their genetic resources from ex situ collections. Private and in-house collections are also important in various sectors including the horticulture and seed industry, where in-house collections are integral to the plant breeding process. Non-commercial sectors rely on ex situ collections even more strongly. This is particularly the case for the academic research sector, which often owns or is affiliated to particular ex situ collections for the purposes of scientific research. However, it is also the case for research done in botanical gardens or culture collections (e.g. taxonomic work). Such research often relies on genetic material exchanged with other collections, also to keep their collections and conservation activities alive.[17]

Box 3: The Korean National Biodiversity Research Institute (NIBR)

The NIBR was established in 2007. It is mandated to conserve Korean biological resources that are considered as national assets and precious source materials for the country's biotechnology industry. NIBR provides the Korean bio-industry with access to samples and/or information on wild species for basic and applied research. NIBR has developed a national biological resources database network. It supports policy development on biodiversity issues and also serves as an educational centre for the general public to raise awareness about the importance of conserving and wisely using biological resources. The Institute collaborates with various international partners such as botanic gardens, museums or biological institutes to exchange samples and further enrich its own collections as well as to exchange staff and experience, to establish educational and training programmes, and to engage in joint research activities

Source: <http://www.nibr.go.kr/english/main/main.jsp>

3.2.2. How Demand for genetic resources and associated traditional knowledge will evolve

The research undertaken for this study indicates that demand for access to ‘wild’ genetic resources has declined in most sectors, while interest in research and development on genetic resources has increased overall. The future demand for genetic resources is therefore expected to grow or at least to remain stable. Securing continued and improved access to genetic resources therefore seems a major EU priority. As explained above, this also suggests that the EU has a genuine interest not to frustrate important partners particularly from the mega-diverse group of countries. More restricted access practices in provider countries in the future could compromise important EU objectives (see Box 4) and also hamper the commercial and non-commercial interests of EU users.

Overall, the future demand for traditional knowledge associated with genetic resources is likely to decline even further. Such knowledge will remain relevant for some niche markets in the cosmetic and food industries. However, advances in scientific research methods make traditional knowledge less and less relevant as lead information for discovering interesting properties of genetic resources found in the wild. This latter finding applies to all research-intensive value chains, including the pharmaceutical, green, red and white biotechnology[18].

Box 4: Some examples how genetic resources utilisation contributes to public goods

Future breeding programmes: Conserving and documenting wild relatives of plant and animal species for future breeding programmes is widely considered as an insurance against the impacts of climate change on food production systems.

Source: <http://www.fao.org/docrep/meeting/022/mb393e.pdf>

Environmentally sustainable pest control: Pest control with biological agents is an important component of integrated pest management and reduces the use of plant protection products such as pesticides.

Source: <http://lamar.colostate.edu/~hufbauer/Pages/biologicalcontrol.html>

Identifying active compounds for medicine development: In April 2012, the Danish company LEO obtained FDA-approved for a topical gel against a precursor to skin cancer. The main active ingredient of this gel is derived from the Euphorbia peplus plant found in Australia, after an extraction, purification and crystallization process of about five months. LEO will now seek market approval in other major markets.

Source: <http://www.leo-pharma.us/>

Genetic resources also play a major role in developing nature-based renewable energy to face the energy challenges of a growing word population while ensuring biodiversity and environmental protection and make the transition to a post-petroleum economy.

Source: Commission press release on the "Bioeconomy for Europe" (Memo/12/97 of 13 February 2012)

3.2.3. The EU genetic resources value chain

The beginning of the EU genetic resources value chain is characterized by long-term perspectives, low-risks, low-costs, and the predominance of public funding; while the end of the genetic resources value chain is characterized by high investments, high costs and high-risks.

Genetic resources, and sometimes also associated traditional knowledge, are of diverse importance across and within sectors, be it for commercial or non-commercial activities. Analytically, it is useful to distinguish between activities and players at the beginning of the genetic resources value chain ("upstream") and activities and players at its end ("downstream"). Those involved in "upstream" activities (collecting in the wild, description of collected material, storing in collections) face many common challenges in relation to access and benefit-sharing, the same goes for those involved in "downstream" activities (basic and applied research, product development and commercialisation).

Actors at the beginning of the genetic resources value chain (mostly collections and academic researchers) are in direct contact with the laws and authorities of provider countries and must play a key role in establishing ABS-related information and linking it to specific samples collected or stored. Upstream actors are heavily dependent on public funding. In itself, their activity is neither costly nor risky. These first actors pass on samples of genetic resources and first research results to other users that engage in basic or applied research. Actors situated at the end of the genetic resources value chain make substantial investments in developing new products. They often take on huge economic risks. They engage in often lengthy development activities with uncertain outcomes and work in highly competitive markets. Many of these downstream actors are strongly interested in collaborating with academic research to reduce risks and accelerate product development. These downstream actors largely depend on material and information passed on to them from earlier users in the chain, including in relation to ABS.

EU users of genetic resources are world leaders or play important roles globally at the high-value end of the genetic resources value chain as well as at its beginning

EU collections, particularly culture collections and botanical gardens, are amongst the largest in the world, holding millions of samples and undertaking yearly thousands or even millions of exchange transactions between themselves as well as with collections outside the EU. Collections are the major supplier of research and development material and related information for users further down in the chain. As regards the latter, several EU companies, especially the pharmaceutical, breeding, food or biotechnology industries are world leaders in their field with substantial market shares. They contribute substantially to the EU's gross domestic product.

SMEs are very important in some sectors using genetic resources (e.g. biocontrol, plant and animal breeding, horticulture), they are also important in some steps of the genetic resources value chain (e.g. cosmetics, food, pharmaceuticals) where the major investments are made by large, multinational corporations. In sectors such as cosmetics or food, SMEs and micro-enterprises are dominating the market close to some multinational companies that are world leaders. In other sectors, such as the breeding or biocontrol industries, particularly the medium-sized companies are themselves international players.

3.2.4. ABS best practices and voluntary measures

Since the entry into force of the CBD in 1993, some EU users have engaged in the development of codes of conduct, the formalization of transactions of genetic resources through material transfer agreements, and the improvement of documentation systems. Primarily actors in the up-stream part of the EU user chain (particularly culture collections and botanic gardens) have taken significant steps to bring their conduct in line with the ABS requirements of the CBD and to respect the laws of provider countries. Further advances in this regard have been hampered by the lack of appropriate financial and human resources of individual collections. As regards downstream activities, ABS best practices exist but appear to be of less significance overall. This reflects some variability in the level of awareness and commitment to ABS-compliance practices in different sectors using genetic resources as well as the fact that existing voluntary codes have different levels of ambition and detail. Some examples of ABS best practice codes of conduct are described in Box 5. Overall, it seems important to consider existing voluntary initiatives on ABS as stepping stones for a credible system of EU implementing measures.

Box 5: Examples of ABS best practice codes of conduct

Code of conduct developed by the World Federation for Culture Collections: The code of conduct (“MOSAICC”) translates the CBD provisions on ABS into practical procedures for facilitated access to and transfer of microbial genetic resources. One important part addresses the collection of new samples of microorganisms in the wild. The code of conduct further promotes the systematic use of a Global Unique Identifier to be attached to any item accessed in situ either at the point of isolation of the microbial genetic resource or at the point of deposit in the culture collection. MOSAICC also seeks to achieve full transparency for all transactions from and between culture collections, ranging from the request of specific ABS-related information, to the use of model contracts, and standardised procedures for the transfer of microbial genetic resources. While MOSAICC falls short of measures for monitoring the user chain but, its implementation helps that members of the WFCC have readily accessible information on the origin and conditions related to any microbial genetic resources they hold, receive or transfer. It is expected that this will greatly facilitate efforts of tracking the use of microbial genetic resource throughout the value chain.

Source: <http://bccm.belspo.be/projects/mosaicc/#brochure>

The International Plant Exchange Network (IPEN): IPEN was initially developed by the association of botanic gardens in german speaking countries. Since 2002, IPEN is managed by the European Consortium of Botanic Gardens. Presently, 150 botanic gardens worldwide actively participate in the network, of which 130 are based in the EU; this is about one-fourth of botanic gardens in the EU. The network facilitates the exchange of living plant material between its members, while respecting the ABS requirements of the CBD. The Code of Conduct addresses four main aspects: 1) ensuring the legality of living plant material that enters the network, 2) clear terms and conditions for the circulation of material within IPEN, 3) sharing benefits arising from non-commercial use with countries of origin, 4) transfers of plant material to users outside the network.

Source: http://www.bgci.org/resource/ipen/

IFPMA “Guidelines on Access to Genetic Resources and Equitable Sharing of Benefits Arising out of their Utilization”: The International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) represents national industry associations and research-based pharmaceutical, biotechnology and vaccine companies from both developed and developing countries. It has developed “Guidelines on Access to Genetic Resources and Equitable Sharing of Benefits Arising out of their Utilization”. These guidelines set out best practices to be followed by companies that engage in bioprospecting, they do not take into consideration sourcing from intermediaries. One recommended best practice is to obtain prior informed consent for the acquisition and use of genetic resources controlled by a country or indigenous people. Another is to disclose the intended nature and field of use of the genetic resources when obtaining prior informed consent.

Source: <www.ifpma.org>

BIO "Guidelines for Bioprospecting": The Biotechnology Industry Organization (BIO) is the world's largest biotechnology association. Its "Guidelines for Bioprospecting" seek to assist BIO members involved in bioprospecting activities. They envision that BIO members would enter into a “Bioprospecting Agreement” before collecting physical samples of genetic resources in situ or accessing such resources maintained ex situ. Such agreement would address the granting of prior informed consent and list terms and conditions governing the collection and use of the genetic resources. The guidelines further stipulate that records should be maintained on the handling, storage and physical movement of collected material and that companies should be prepared to share such records upon request with the country providing the genetic resources. The guidelines also stipulate that companies should not accept samples of collected genetic resources from a third party that is not able to provide evidence of compliance with PIC and established conditions governing the use of a sample.

Source: <http://www.bio.org/articles/bio-bioprospecting-guidelines>

3.3. The EU's right to act and justification

The Nagoya Protocol to the Convention on Biological Diversity is a global environmental agreement that establishes a legally binding framework for maximising the benefits of genetic resources use in favour of the conservation and sustainable use of biological diversity worldwide. The system of EU measures for implementing the Nagoya Protocol can therefore be based on the Union's environment competence. The creation of an EU-wide system of user-compliance measures could, in principle, also be based on the Union's competence for the internal market as it avoids negative effects on the internal market in nature-based products and services that would result from a fragmentation of user-compliance systems in the Member States. Nevertheless, given the context and overarching objective of the system of measures, a use of the Union's environment competence seems more pertinent.

An EU-harmonised approach to implementing the user-compliance pillar of the Protocol would provide for legal certainty and establish a level playing field for all actors in the EU genetic resources value chain, minimising their risks of operation and maximising research and development opportunities for researchers and companies. It would also prevent situations where differences in user-compliance obligations between different Member States create costs and barriers for researchers and companies that are active in more than one Member State. Notably, stakeholders unanimously supported an EU harmonised approach to user-compliance in the public consultation.[19]

However, the EU competence is not so evident in addressing the provisions of the access pillar of the Protocol, Some Member States strongly feel that the Union does not have competence to decide whether access to genetic resources over which Member States hold sovereign rights shall in the future be subject to prior informed consent and benefit-sharing requirements or not. Arguably, Union competence is much clearer in case where a Member State has decided to require prior informed consent and benefit-sharing and the specific design of the domestic access framework of that Member State will need to respect fundamental treaty disciplines on non-discrimination or sectoral EU laws for instance in the field of the exchange of agricultural genetic resources. Whatever the case may be, it seems that there is currently no need for the Union to take binding Union-level measures on access. So far, only two Member States have legislated on access, there is very limited practical experience with the functioning of their access frameworks, and no indication that these would raise issues under the acquis. Thus, in ratifying the Nagoya Protocol the Union may choose to implement measures that repond to only some of the Protocol's requirements, leaving others to its Member States.

4. Objectives

4.1. General objective

The general objective of this IA study is to identify appropriate measures for implementing the Nagoya Protocol in the EU and to enable the Union to ratify and comply with the Protocol.

4.2. Specific objectives

Union ratification of the Nagoya Protocol and appropriate implementing measures should contribute to the following specific objectives:

– Support the conservation and sustainable use of biological diversity within the EU and worldwide;

– Provide EU collections, and researchers and companies in Europe with improved and reliable access to quality samples of genetic resources at low cost and with high legal certainty for acquired material;

– Maximise opportunities for research, development and innovation in nature-based products and services, while establishing a level playing field for all EU users of genetic resources, with particular benefits for SMEs and for publicly funded, non-commercial research;

– Protect the rights of indigenous and local communities that grant access to their traditional knowledge associated with genetic resources in accordance with the domestic laws of Parties to the Nagoya Protocol;

– Fully respect other international specialised access and benefit-sharing instruments and be mutually supportive with other relevant international instruments and processes.

4.3. Operational objectives

The chosen implementing measures should also support achieving the following operational objectives:

– Establish a credible system for user-compliance measures;

– Improve information on access and utilisation of genetic resources in the EU;

– Minimise overall implementation costs and burdens, particularly for affected SMEs.

5. Policy Options

The policy options developed and considered for the purpose of this study were drawn from a range of sources: the Nagoya Protocol, existing legislation in third countries, EU experts, academic literature, etc. The main criteria applied was that an option would need to implement particular aspects of the Nagoya Protocol and that the totality of options developed would need to address all aspects of the Protocol implementation. The main options analysed in this study were also, where appropriate, discussed with experts and stakeholders to sharpen their focus and to deepen the understanding of their eventual impacts.

Table 1 summarises all policy options that were considered in the course of this IA. The table highlights those options that are described and analysed in detail in the report. More options were identified in the initial screening of options, however they have been discarded. Annex 4 presents more information on options that were considered but discarded and explains clearly the reasons for discarding them. The main motivations related to doubts about EU competence, no apparent need to intervene at EU-level, or apparent and major legal and practical difficulties.

Table 1: Overview of all policy options considered for this IA (* identifies discarded options)

Business as Usual || - No Union ratification* - Union ratification without implementing measures by Union or Member States (BAU)

Access pillar || Binding measures at MS level || - No EU action (A-1) - EU platform (A-2)

|| Binding measures at EU-level || - EU-wide waiver of PIC requirement* - EU-wide minimum standards on access to genetic resources* - EU-wide minimum standards on access to traditional knowledge*

User-compliance pillar || Binding measures at MS level || Member States take binding measures with soft coordination at EU-level (UC-1)

|| Binding measures at EU-level || - Amending EU legislation on recognition of judgements* - Broad understanding of traditional knowledge associated with genetic resources* - Prohibition on EU nationals to collect in violation of third country laws* - Prohibition on botanical gardens, gene banks and culture collections to include illegally acquired samples into their collection* - General due diligence obligation on EU users (UC-2) - General due diligence obligation on EU users and system for formal recognition of collections as "trusted sources" (UC-3) - Prohibition to utilise illegally acquired genetic resources and "downstream" monitoring (UC-4)

Temporal application || In case of binding EU-level measures…decision on - Application of binding rules to future acquisitions of genetic resources (T-1) - Application of binding rules as of entry into force of the CBD in 1993 (T-2)

Complementary measures || - Bilateral agreements between EU and major provider countries or regions (C-1) - Sectoral codes of conduct and contractual model clauses (C-2) - Technical tools for tracking and monitoring (C-3) - Awareness raising and training activities (C-4) - Obligation on those collecting genetic resources in Member States with a free access policy to place reference samples in identified collections*

As regards business as usual, the study considered two distinct options: first, the Union decides not to ratify the Protocol and second, the Union ratifies the Protocol but implementing measures are not taken neither at Member State nor at Union level.

Different options are considered for implementing the Protocol's access pillar and for implementing its user-compliance pillar. To fully implement the Protocol, one access-option and one user-compliance option must be chosen. For both categories of measures, the study analyses a situation where binding measures are only taken at the level of the Member States as baseline for identifying the value added of a possible EU-level intervention.

In the case of support for binding EU-level rules, a further decision is needed on the temporal application of such rules.

To complete the picture, the IA also analyses complementary measures that could be combined with the main options on access and on user-compliance to enhance their effectiveness and to lower costs. The value added of selecting one or all of these complementary measures depends on primary choices on access and on user-compliance.

5.1. The Business as Usual (BAU)

Option BAU: Union ratification without implementing measures at Union or Member State level

As shown in the problem definition, main obligations of the Nagoya Protocol are currently neither implemented at Union level nor by the Member States. If the Union ratifies the Protocol without action at Member State or Union level, it will be in breach of its international obligations. This would expose the Union to potential challenges under the Protocol's non-compliance mechanism.[20] As one likely consequence, European collections, researchers and companies would face more restrictive access conditions in third countries. The "EU baseline" shows, however, that EU users depend on reliable conditions for access to quality samples of genetic resources. Union non-compliance would also have broader consequences for the EU's credibility in global biodiversity policy-making and could undermine the effectiveness of the CBD as the main global framework for addressing the dramatic loss of species and habitats worldwide.[21] Union ratification of the Nagoya Protocol requires implementing measures at Member State or Union level. This option is therefore not further analyzed in this IA.

The EU baseline of current user practices as described in the problem definition and further detailed in Annex 8 constitutes the main reference point for assessing and comparing all other options analyzed in this IA.

5.2. Options for addressing the Access pillar of the Protocol

Option A-1: No EU level action

Option A-1 leaves it entirely to the discretion of Member States whether to require benefit-sharing or not, and if so, how to comply with the relevant obligations of the Nagoya Protocol. It reflects that currently no Member State has an operational access framework in place and that most Member States consider it outside of Union competence to determine through Union law the legal status of genetic resources under the sovereignty of Member States.

Option A-2: EU platform for discussing access to genetic resources and sharing best practices

The establishment of an EU platform on access to genetic resources would be a flexible way for discussing access practices between EU ABS focal points, competent national authorities, and EU stakeholders. Deliberations would not be legally binding on participants and could include: access to genetic resources in Member States requiring PIC and MAT; simplified access for non-commercial research; access practices of EU ex-situ collections; access of EU stakeholders in non-EU countries; and the sharing of best practices. The deliberations of this platform would also help in identifying a need for EU-level measures on access.

5.3. Options for addressing the User-Compliance pillar of the Protocol

Each of the four options presented would apply to the utilisation of genetic resources and to traditional knowledge that is directly associated with such resources. Each option also addresses relevant monitoring measures, sanctions, and administrative aspects.

Option UC-1: Open method of coordination

This option leaves maximum discretion to Member States on how to implement the user-compliance provisions of the Nagoya Protocol. Supportive EU-level coordination would aim at harmonising the approach to implementing measures taken by the Member States. Coordination could, for instance, include the basic approach to user-compliance taken by Member States, the choice of checkpoints for monitoring user-compliance, the type of information that would need to be collected or disclosed, and who would carry the burden of information.

Option UC-2: Self-standing general due diligence obligation on EU users

Under this option EU users would need to take steps to the best of their ability to ensure that genetic resources and associated traditional knowledge utilised have been acquired in line with access laws of provider countries and that resulting benefits are fairly and equitably shared. This due diligence obligation would apply to all activities that constitute "utilization of genetic resources" as defined in Article 2(c) Nagoya Protocol. This means to all conducting research and development on the genetic or biochemical composition of genetic resources within EU jurisdiction (i.e. basic research, applied research, product development). The basic due diligence obligation and its core elements would be set out in an EU Regulation.

An important feature of the due diligence concept is that it does not establish an absolute obligation of result, but only requires meeting a reasonable standard of care. For example, it would not constitute a breach of the obligation if a user has been diligent but it eventually turns out that a specific genetic resource utilised was illegally acquired in a provider country by an earlier actor in the chain. The required standard of care under a due diligence system varies depending on the type of user, its capacity to take measures, its placement in the genetic resources value chain, or sectoral characteristics. What is reasonable will also evolve over time and may, for example, reflect new developments in codes of conduct or best practices in a sector, or progress in technical tools for tracking and monitoring genetic resources flow.

Option UC-2 foresees that the implementation of (existing or future) best practice codes of conduct groups of users (eg., botanical gardens, cosmetics industry, breeding industries) can be considered as evidence of compliance with the due diligence obligation. To support consistent implementation, the Commission would complement the Regulation with guidance documents for specific groups of EU users. Monitoring of user compliance with the due diligence obligation could focus on observable activities within EU jurisdiction. It would be proportionate under this system to oblige users of genetic resources to declare at identified points that they (have) exercise(d) due diligence.

Suitable points for such declarations are, for instance, the receipt of public research funds or when users intent to market a product. Such declarations would be made upon the occasion of the marketing of a product but formally independently from eventually needed product approval permits. The declarations would be made to the competent national authorities of Member States designated for the purpose of implementing the EU Regulation, they would not be made to the authorities eventually involved in granting a permit. Information about user-compliance could also be included in regular company audit reports. Furthermore, designated Member State authorities would be empowered to do ad hoc compliance checks on users. Such compliance check would be undertaken on a risk-based approach. Competent authorities would check compliance with the obligation of users to make declarations as well as compliance with the due diligence obligation more generally. Checks could include the gathering of information on due diligence measures taken, the check of documentation on how due diligence was exercised in specific cases as well as the physical inspection of sites. In case of non-compliance with the Regulation users would be subject to penalties that should includes administrative fines, but might also include in certain situations the confiscation of illegally acquired genetic resources. The competent national authorities of the Member Statess would be obliged to regularly report in summary form to the Commission on due diligence declarations received and checks and eventual findings made. and to the EU competent national authority. The Commission would make information on the main features and the performance of the EU's due diligence system available to the global information sharing portal established by the Nagoya Protocol (the so called "Access and Benefit-sharing Clearing House Mechanism").

Given the importance of the details for the reliable functioning of the system and for creating legal certainty to stakeholders, an EU Regulation would seem appropriate to ensure the highest level of harmonization and avoid the existence of different approaches to implementation between Member States.

Option UC-3: General due diligence obligation on EU users complemented with a system to formally recognize collections as "trusted sources" of genetic resources

Option UC-3 has two elements. It combines a due diligence system as described in Option UC-2 with a system to identify collections with control measures in place to assure that only well documented samples of genetic resources are made available for utilisation. The concept of "trusted sources" reflects that EU ex situ collections play a fundamental role in the EU user chain, acting as direct providers to both commercial and non-commercial users. It is assumed that a system of trusted sources would substantially lower the risk that illegally acquired genetic resources enter the genetic resources value chain, and that EU users more easily comply with their due diligence obligation in case they are sourcing their material from a trusted source.

The contact details of collections identified as "trusted sources" would be listed in an EU-level register, which would simply be a web-site.[22] The EU Regulation would make explicit that users of genetic resources which acquire samples from a collection listed in the EU-register would comply with a major part of their due diligence obligation. The substantive criteria for identifying collections as "trusted source" would build on existing best practice standards, such as IPEN[23], and be set out in an EU implementing act. The Option would leave it to Member States to identify collections under their jurisdiction on the basis of the EU-level criteria and to enter the contact details of such collections in the EU-level register.

Option UC-4: Prohibition to utilise illegally acquired genetic resources or associated traditional knowledge with a "downstream" monitoring system

Opion UC-4 reflects the preferred user-compliance approach of developing countries in the Nagoya Protocol negotiation. The option is based on a general prohibition on users within EU jurisdiction to utilise genetic resources or associated traditional knowledge that were illegally acquired in Parties requiring prior informed consent and the establishment of mutually agreed terms. Compliance with the prohibition is monitored by obliging users to declare to public authorities at specific points whether they utilised genetic resources in conformity with applicable ABS requirements. The focus of the monitoring measures is to establish whether present uses of genetic resources were/ are consistent with applicable rules of provider countries and eventual benefit-sharing obligations. The basic prohibition and the disclosure obligations would be set out in an EU Regulation.

Collections and those conducting non-commercial research within the EU would not be affected by disclosure obligations as they do not aim to create genetic resources based products and services. Such obligations would be established towards the end of the genetic resources value chain, when an intellectual property right is applied for or a market approval is sought. Users would be obliged to disclose at designated points whether an innovation or a product is directly based on the utilisation of genetic resources or associated traditional knowledge. In the affirmative case, they would be further obliged to provide information on the origin or source of genetic resources or associated traditional knowledge used and whether relevant ABS requirements were complied with.

To comply with their disclosure obligation, downstream users would need to determine whether earlier actors in the chain utilised genetic resources or associated traditional knowledge to an extent that this use must be disclosed. Disclosed information – for example on the origin or source of genetic resources utilised, on compliance with provider country laws at the time of access, or on compliance with eventually applicable benefit-sharing obligations – would hence often depend and build on information made available by earlier actors in the chain.

The designated monitoring authorities (e.g., intellectual property rights offices, product approval authorities) would channel the information received to the competent authorities of the Member State or the EU that would have the obligation to check for compliance with applicable ABS requirements, or to provider Parties or to the global ABS Clearing House Mechanism. Failure to disclose, disclosure of false information, or a violation of the prohibition to utilise illegally acquired genetic resources would be subject to sanctions.

5.4. Options on the Temporal Application of binding EU-level measures

Option T-1: Applying implementing measures to genetic resources or associated traditional knowledge acquired after entry into force of the Nagoya Protocol for the EU

It is a legally sound interpretation of the Protocol's temporal scope to apply implementing measures only to genetic resources or associated traditional knowledge acquired (and utilized) after the entry into force of the Nagoya Protocol for a party.[24] Option T-1 would exclude all material acquired before entry into force of the Nagoya Protocol from the scope of implementing measures. This includes, for example, samples held in collections in the EU that were acquired after the entry into force of the CBD from a country that had established access legislation. Option T-1 is consistent with the political position of the EU throughout the Protocol negotiation.

Option T-2: Applying implementing measures to genetic resources or associated traditional knowledge acquired since entry into force of the CBD and utilized after entry into force of the Nagoya Protocol for the EU

In the view of some legal scholars the Protocol applies to genetic resources or associated traditional knowledge acquired in the future but also to new uses of genetic resources that were acquired after the entry into force of the CBD on 29 December 1993.[25] Compared with Option T-1, Option T-2 would bring an amount of samples of genes and naturally occurring biochemicals currently held in EU collections, gene banks and catalogues into the scope of implementing measures. This would expose EU researchers and companies to legal and economic risks that are difficult to reconcile with the principle of legal certainty and might raise constitutional problems in some Member States. Option T-2 has nevertheless been retained for transparency purposes as it corresponds with the expectations of some of our international partners, particularly biodiverse-rich developing countries, and of civil society groups.

5.5. Options for Complementary measures in support of the Protocol implementation

The options in this section could be combined with the main options on access and on user-compliance described above to enhance their effectiveness and efficiency, and to lower costs. In part, they reflect soft obligations of Parties under the Protocol (C2, C3, C4). In all cases, their specific added value to EU implementation depends on the main choices made on access and on user-compliance.

Option C-1: Bilateral cooperation between the EU and provider countries or regions

Bilateral cooperation between the EU and major provider countries or regions of genetic resources, particularly with countries that are recognised as "biodiversity hotspots", could usefully complement EU measures implementing the Protocol. Bilateral cooperation could become important for targeted capacity building measures to help partner countries implement the quite demanding Protocol obligations on access to genetic resources and associated traditional knowledge. It would also allow for collaborative projects focussing, for example, on building partnerships between researchers involved in non-commercial biodiversity research that involves the documenting and description of genes and naturally occurring biochemicals found in situ conditions in partner countries. Such cooperation should also include strenghtening networks of ex situ collections in Parties to the agreement. It would also provide opportunities for developing a mutual understanding on how access for non-commercial research is practically facilitated to researchers and collections from both sides and might also raise the mutual understanding of user-compliance systems in the Parties involved. Bilateral cooperation might also allow discussing, in close dialogue with relevant collections on both sides, potential modalities for applying access and benefit-sharing principles to pre-Nagoya Protocol acquisitions of genetic resources that originate in Parties to the agreement.

Bilateral cooperation could take many forms ranging from regular dialogues over Memoranda of Understanding to formal bilateral agreements. EU measures implementing the Nagoya Protocol could include a general reference to the possibility of bilateral cooperation in support of more effective implementation of the Nagoya Protocol in the Union. Such cooperation would normally start with dialogues or joint projects, and if there is mutual interest, eventually move to more formalised cooperation in the form of a Memorandum of Understanding or even a bilateral agreement. The latter would require a formal authorisation from the Council of the European Union.

Option C-2: Supporting the development of sectoral codes of conduct and model contractual clauses

Parties to the Nagoya Protocol must encourage the development, updating and use of model contractual clauses and of voluntary codes of conduct, guidelines and best practices or standards. Model contractual clauses would facilitate and lower costs for transactions of genetic resources and ABS-related information, particularly for the benefit of academic researchers and SMEs with only limited capacity and also for developing country partners that provide genetic resources. Different models for material transfer agreements already exist and are widely used, particularly in basic and applied research in the biosciences to facilitate exchanging samples between research teams. Although these model agreements were not developed for the purpose of ABS, they may be expanded to this end.[26] Parts of the research community and commercial users of genetic resources have furthermore developed best practice codes of conduct specifically for the purpose of ABS. The specific contribution of sectoral codes and of model clauses to ABS compliance will depend on the design of the primary compliance measures taken for implementing the Nagoya Protocol in the Union. Under Option C-2, the Commission would work with EU stakeholders to identify the specific contribution of codes of conduct and of model clause to ABS compliance and for identifying and further developing codes and clauses considered as best practice.

Option C-3: Supporting the development and deployment of technical tools for tracking and monitoring genetic resources flow

The Nagoya Protocol obliges its Parties to encourage the use of cost-effective communication tools and systems in support of monitoring user-compliance. States involved in the Nagoya Protocol negotiation asked the CBD Secretariat to launch a study on the availability of technical tools for tracking and monitoring genetic resources flow. This study identifies a range of relevant tools that would – with some adjustments – be available at very low or no cost. It also sets out the steps needed for deploying such tools in practice.[27] Under option C-3, the Commission would work with information technology experts and ABS stakeholders to support the rapid testing and more widespread deployment of technical tools for tracking and monitoring genetic resources flow.

Option C-4: Awareness raising and training activities

ABS is a new field of activity. Awareness raising and training activities would help EU stakeholders to understand their relevant obligations better and achieve more effective implementation at lower cost. Actors broadly familiar with the concept would benefit from information about the specificities of EU implementing measures. Under this option, the Commission and the Member States would support targeted awareness raising and training activities in collaboration with major stakeholders groups.

6. Analysis of Impacts

6.1. General remarks

6.1.1. Methodology for analysing impacts and data limitations encountered

The analysis proceeds in four steps. Step 1 involves an analysis of the policy options on access followed by an analysis of the policy options on user-compliance. Each of the options for implementing the access and the user-compliance pillar of the Protocol are analysed on the basis of the full set of impact assessment criteria described below.

To facilitate a comparison between options from the same pillar, the performance of each option against specific impact assessment criteria is graded.[28] The specific IA criteria cover four wider issues and impacts examined, i.e. issues specific to the Protocol, as well as economic, social and environmental impacts. The IA criteria are not excluding each other, some are relevant only for analysing options implementing one of the pillars of the Protocol.

This part of the IA report presents the main observations from the detailed analysis, illustrative examples supporting them and a summary table that shows the grading given to this option with regard to the assessment criteria. The detailed analysis of the options on access and on user-compliance and the motivation for each grading are included in Annex 5 (access pillar) and Annex 6 (user-compliance pillar). The analysis proceeds with a comparison between the identified options for the two pillars of the Protocol. Step 1 concludes with a tentatively identified best performing option on access and a tentively identified best performing option on user-compliance.

Step 2 of the analysis addresses how different choices on the temporal application of binding EU-level measures would impact on their performance. Rather than applying again the full set of IA criteria, particular attention is given to understand the implications for legal certainty and how these would relate to the overall effectiveness of EU-level measures, and ultimately achieving the objectives identified. Step 2 concludes by identifying the best performing option on access and the best peforming option on user-compliance.

Step 3 brings together the preferred options for implementing the access and the user-compliance pillar of the Protocol. The analysis presents by way of hypothetical scenarios how the preferred access and the preferred user-compliance options would work together in practice. These scenarios also help to analyse the potential added value of the complementary measures set out in Options C-1 to C-4.

Step 4 analyses for each complementary option if it would create additional costs but also if there are expected gains in effectiveness, efficiency and cost-savings for the retained choices on access and on user-compliance.

ABS is a new field of policy and activity, thus data limitations have been encountered. There is little quantitative information available on the use and exchange of genetic resources at sector level. Gaps exist particularly with respect to the amount of genetic resources utilised within sectors and the economic relevance of such utilisation (eg., figures on sales/profits deriving from products based on genetic resources, importance of genetic resources for the turnover of the sector, jobs). Available figures are often rough or indirect indicators of what is being sought, and generally do not allow for comparison within or between sectors. Thus the IA mostly builds upon qualitative arguments that are developed against the detailed description of current user practices set out in the EU baseline. To give one example: an option is considered to be low cost and preferable if it corresponds with existing practices of genetic resources use as identified in the EU baseline. An option is considered problematic or costly where it would necessitate a sigificant change in practices, and generally as unacceptable where it would run against the basic economic model of a specific sector.

6.1.2. Criteria stemming from the specificities of Access and Benefit-sharing and from the Nagoya Protocol

Access and benefit-sharing for genetic resources and associated traditional knowledge is addressed not only in the CBD and its Nagoya Protocol, but also in various other international instruments. Attention is given to analysing how an option would respect existing specialised international ABS instruments and be mutually supportive with other relevant international instruments and processes. An option that fully respects specialised ABS instruments and is fully supportive of other relevant instruments and processes is preferable over an option that only partially achieves these aims.

Another important consideration concerns the legal and practical effects of an option for the relationship between Parties and non-Parties to the Nagoya Protocol. The Protocol obliges its Parties to encourage non-Parties to adhere to the Protocol. It does not oblige them to take special safeguards in the relationship with non-Parties. An option is considered preferable if it encourages ABS-conformity in the interaction with ABS stakeholders from non-Parties and does not disrupt existing collaboration or partnerships simply because they involve partners from non-Parties.

As regards coherence with existing EU law, options that would entail a focussed regulatory intervention consistent with the overall design and approach of the EU acquis are considered preferable over options that would introduce new legal concepts or require revising a broad set of existing EU laws.

The analysis also examined issues specific to the Nagoya Protocol implementation. These relate to:

· Special considerations: The Nagoya Protocol obliges Parties to give special consideration to non-commercial research, to eventual threats or danger to human, animal or plant health, and to the special nature of genetic resources for food and agriculture. Options that better allow for these special considerations are considered preferable over others that offer less flexibility.

· Accomodating for differences between sectors: The Nagoya Protocol in principle applies to all uses and all types of genetic resources unless explicitly excluded from its scope. Since genetic resources are used by a wide range of different actors for different purposes and with different interests, it seems important that implementing measures offer some flexibility to accommodate for differences between different sectors utilising genetic resources. An option is considered preferable if it better balances the need for clear and certain rules with flexibility to accommodate for sectoral differences.

· Flexibility to allow for future developments: Access and benefit-sharing for genetic resources is a new field of activity for the EU and its Member States. Given the discretion of the Parties on how precisely to implement their obligations under the Nagoya Protocol, it is considered as advantageous if an option allows for future development and fine-tuning of measures in light of implementing measures taken by partner countries and in light of future sectoral initiatives. Conversely, it is considered a disadvantage if the EU system of implementing measures would "lock-in" one system that might prove to be disfunctional in the medium or long-term and can only be changed at high cost.

· Improving the knowledge base: Given the data limitations encountered, it is considered as important that an option helps to improve the information base on how genetic resources are acquired, transferred and utilised in the Union. This will facilitate future evaluations of the policy.

6.1.3. Assessing Economic impacts

An EU-level playing field for access and benefit-sharing activities implies more opportunities for engaging in research and development on genetic resources, lower transaction costs and lower risks. An EU-level playing field would be particularly beneficial to SMEs and also ensure a more efficient use of public funds spent in favour of gene banks, botanical gardens, academic or applied research. It would also generate more positive effects for the conservation of biodiversity. Options that create an EU-level playing field are therefore considered as preferable over options that would leave significant differences in applicable rules throughout the EU.

An option is generally considered to be more cost-effective and thus preferable if it provides for user-compliance but better corresponds with existing practices of genetic resources use as identified in the EU baseline. It is generally considered problematic if an option would necessitate a sigificant change in practices, and as unacceptable where it would run against the basic economic model of a specific sector.

Innovations flowing from research and development on genetic resources must not be compromised by legal risks. As evidenced by the stakeholder consultation, legal certainty is a major priority for all those potentially affected by access and benefit-sharing requirements. An option is considered preferable if it would provide a greater level of legal certainty to those involved in ABS activities. Where an option entails some legal risk, an important consideration is whether such risks can be controlled by those exposed and if so, at what cost. Options that allow users to control a risk at reasonable costs are considered preferable over options that do not offer such possibilities and leave users exposed. Furthermore, the same type of risk seems generally more preferable at the beginning of the genetic resources value chain, where activities generally have low economic value; rather than at the end of the chain, that is characterised by high investments, high economic value and potentially significant economic losses.

The analysis also considers the distribution of impacts along the genetic resources value chain, which stakeholders would be affected and how. An overburdening of any one activity in the genetic resources value chain would imply the breaking down of the chain, the discontinuation of research and development activities and ultimately the loss of benefits and related conservation gains. An option is considered acceptable if it is proportional to the respective capacities of all particular actors in the genetic resources value chain; it is not considered acceptable where it would clearly overburden a particular player in the chain.

Particular attention is given to analysing the impacts on SMEs. An option is preferable if it maximises economic opportunities for SMEs at low cost, if it is compatible with existing business models and provides for legal certainty and if remaining risks can be controlled at low costs.

Improved access to quality samples of genetic resources with high legal certainty and at the lowest possible transactions costs will maximise research and development opportunities on genetic resources. Although favourable conditions for research and development are no guarantee for important scientific discoveries and the development of valuable products and services, there is nevertheless a clear correlation between improved conditions for R&D in nature-based industries and an increase in the likelihood of important discoveries that will result in innovative products and services. Options that maximise research and development opportunities for EU users are therefore considered preferable over options that create less opportunities, while options that could stifle research and development on genetic resources are considered as prima facie unacceptable.

At last, economic impacts analysed include also a consideration of the effects of an option on the EU's international competitiveness.

The Nagoya Protocol requires that compliance of users with implementing measures is effectively monitored. It is considered as easier and more effective to monitor an observable activity within EU jurisdiction rather than to identify the presence or absence of non-tangible information that relates to facts and findings in a third country, often many years ago. It is also considered more cost-effective to collect relevant information as part of already established activities rather than to establish new monitoring procedures. Furthermore, it is considered more cost-effective to focus on monitoring activities/ information that is available without confidentiality concerns involved. At last, monitoring costs can be reduced, where it is practical and proportional to put the burden of information on economic operators. Costs for monitoring will vary with the effectiveness of monitoring and enforcement measures taken. An option is preferable if it creates the maximum amount of pertinent information at the lowest possible cost.

As regards additional administrative costs for implementation, the IA distinguishes between one-off costs and recurring costs. Generally, low cost options are preferred over high cost options. And costs that occur only once or over a clear time-frame are preferred over costs that are of recurring nature.

6.1.4. Assessing Social impacts

Innovation in nature-based industries is expected to contribute to the achievement of important social objectives, be it health, nutrition, food security, or else. Options that maximise research and development opportunities for EU users are therefore considered preferable over options that create less such opportunities. More benefit-sharing arrangements with providers from developing countries would also contribute to the transfer of knowledge and technology to partners in those countries. Furthemore, it is expected that jobs in the sectors utilising genetic resources will be safeguarded and even increased if access to these resources is assisted and if the user compliace requirements create legal certainty, minimise risks and generate more opprotunities for a wider use of these resources. Although it is not possible to quantify this impact, due to the significance of the