WORLD BANK TECHNICAL PAPER NO. 406 Work in progress for public discussion Subsidies in World Fisheries 1 I\ 'Ci//lÌ/////W /a/r7I /ac co RECENT WORLD BANK TECHNICAL PAPERS No. 331 Sharma, Damhaug, Gilgan-Hunt, Grey, Okaru, and Rothberg, African Water Resources: Challenges and Opportunities for Sustainable Development No. 332 Pohl, Djankov, and Anderson, Restructuring Large Industrial Firms in Central and Eastern Eumpe An Empirical Analysis No. 333 Jha, Ranson, and Bobadilla, Measuring the Burden of Disease and the Cost-Effectiveness of Health Interventions: A Case Study in Guinea No. 334 Mosse and Sontheimer, Performance Monitoring Indicators Handbook No. 335 Kirmani and Le Moigne, Fostering Riparian Cooperation in International River Basins: The World Bank at Its Best in Development Diplomacy No. 336 Francis, with Akinwumi, Ngwu, Nkom, Odihi, Olomajeye, Okunmadewa, and Shehu, State, Community, and Local Development in Nigeria No. 337 Kerf and Smith, Privatizing Africa's Infrastructure: Promise and Change No. 338 Young, Measuring Economic Benefits for Water Investments and Policies No. 339 Andrews and Rashid, The Financing of Pension Systems in Central and Eastern Europe: An Overview of Major Trends and Their Determinants, 1990-1993 No. 340 Rutkowski, Changes in the Wage Structure during Economic Transition in Central and Eastern Europe No. 341 Goldstein, Preker, Adeyi, and Chellaraj, Trends in Health Status, Services, and Finance: The Transition in Central and Eastern Europe, Volume I No. 342 Webster and Fidler, editors, Le secteur informel et les institutions de microfinancement en Afrique de l'Ouest No. 343 Kottelat and Whitten, Freshwater Biodiversity in Asia, with Special Reference to Fish No. 344 Klugman and Schieber with Heleniak and Hon, A Survey of Health Reform in Central Asia No. 345 Industry and Mining Division, Industry and Energy Department, A Mining Strategy for Latin America and the Caribbean No. 346 Psacharopoulos and Nguyen, The Role of Government and the Private Sector in Fighting Poverty No. 347 Stock and de Veen, Expanding Labor-based Methods for Road Works in Africa No. 348 Goldstein, Preker, Adeyi, and Chellaraj, Trends in Health Status, Services, and Finance: The Transition in Central and Eastern Europe, Volume II, Statistical Annex No. 349 Cummings, Dinar, and Olson, New Evaluation Procedures for a New Generation of Water-Related Projects No. 350 Buscaglia and Dakolias, Judicial Reform in Latin American Courts: The Experience in Argentina and Ecuador No. 351 Psacharopoulos, Morley, Fiszbein, Lee, and Wood, Poverty and Income Distribution in Latin America: The Story of the 1980s No. 352 Allison and Ringold, Labor Markets in Transition in Central and Eastern Europe, 1989-1995 No. 353 Ingco, Mitchell, and McCalla, Global Food Supply Prospects, A Background Paper Prepared for the World Food Summit, Rome, November 1996 No. 354 Subramanian, Jagannathan, and Meinzen-Dick, User Organizations for Sustainable Water Services No. 355 Lambert, Srivastava, and Vietmeyer, Medicinal Plants: Rescuing a Global Heritage No. 356 Aryeetey, Hettige, Nissanke, and Steel, Financial Market Fragmentation and Reforms in Sub-Saharan Africa No. 357 Adamolekun, de Lusignan, and Atomate, editors, Civil Service Reform in Francophone Africa: Proceedings of a Workshop Abidjan, January 23-26, 1996 No. 358 Ayres, Busia, Dinar, Hirji, Lintner, McCalla, and Robelus, Integrated Lake and Reservoir Management: World Bank Approach and Experience No. 360 Salman, The Legal Framework for Water Users' Associations: A Comparative Study No. 361 Laporte and Ringold, Trends in Education Access and Financing during the Transition in Central and Eastern Europe. No. 362 Foley, Floor, Madon, Lawali, Montagne, and Tounao, The Niger Household Energy Project: Promoting Rural Fuelwood Markets and Village Management of Natural Woodlands No. 364 Josling, Agricultural Trade Policies in the Andean Group: Issues and Options (List continues on the inside back cover) WORLD BANK TECHNICAL PAPER NO. 406 Fisheries Series Subsidies in World Fisheries A Reexamination Matteo Milazzo The World Bank Washington, D.C. Copyright @ 1998 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing April 1998 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the proce- dures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data in- cluded in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, de- nominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissem- ination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. Cover photo from the Ministry of Fisheries of Iceland. ISSN: 0253-7494 Matteo Milazzo is a fishery economist at the National Marine Fisheries Service. Library of Congress Cataloging-in-Publication Data Milazzo, Matteo, 1944- Subsidies in world fisheries: a reexamination / Matteo Milazzo. p. cm. - (World Bank technical paper, ISSN 0253-7494; no. 406. Fisheries series) Includes bibliographical references. ISBN 0-8213-4216-9 1. Fisheries subsidies. I. Title. II. Series: World Bank technical paper; no. 406. III. Series: World Bank technical paper. Fisheries series. SH334.M535 1998 338.3'727-dc2l 98-16921 CIP FISHERIES SERIES Technical Paper Series No. 147 Francis T. Christy Jr., David James, et al. Fisheries and Aquaculture Research Capabilities and Needs in Asia: Studies of India, Thailand, Malaysia, Indonesia, the Philippines, and the ASEAN Region No. 148 David Griffith, Jean-Paul Troadec, et al. Fisheries and Aquaculture Research Capabilities and Needs in Latin America: Studies of Uruguay, Argentina, Chile, Ecuador, and Peru No. 149 Daniel Pauly, Francis Poinsard, et al. Fisheries and Aquaculture Research Capabilities and Needs in Afica: Studies of Kenya, Malawi, Mozambique, Mauritania, Morocco, and Senegal No. 150 Jean-Paul Troadec, et al. International Cooperation in Fisheries Research No. 151 P. Edwards, E. A. Huisman, et al. Tropical Aquaculture Development: Research Needs No. 152 Francis T. Christy, Jr., et al. Small-Scale Fisheries: Research Needs No. 153 David James, et al. Small Pelagic Fish Utilization: Research Needs No. 369 Costa-Pierce, From Farmers to Fishers: Developing Reservoir Aquaculture for People Displaced by Dams No. 406 Milazzo, Subsidies in World Fisheries: A Reexamination Discussion Paper Series No. 135 A Strategy for Fisheries Development No. 165 Fisheries Development, Fisheries Management, and Externalities No. 217 Managing Fishery Resources No. 240 Managing Redundancy in Overexploited Fisheries No. 329 Managing Transboundary Stocks of Small Pelagic Fish: Problems and Options Policy and Research Series No.19 Study of International Fishery Research Booklet Study of International Fishery Research: Summary Report CONTENTS FOREW ORD ........................................................................................................................................................ vi ABSTRACT .................................................................... vii ACKNOWLEDGMENTS .......................................................vi INTRODUCTION ..................................... ...................................................... 1 M ANAGEM ENT AND SUBSIDIES IN FISHERIES ........................................................................................3 AN ANALYTICAL FRAM EW ORK .....................................................................................................................9 The 1994 W TO Subsidies Agreement .......... ................................................................................... 9 Environmental Categories of Subsidies in Fisheries.................................. ............................ 12 Assessing the Impacts of Subsidies ..................................................... 14 BUDGETED SUBSIDIES: DOM ESTIC ASSISTANCE ................................................................................. 17 National Case Studies........................................................................................................................................... 18 Japan .............................................. ........................................................................................................ .18 European Union.................. ...................................................... 20 Structural Programs .............................................................................................................................................. 21 M arket (Price) Supports........................................................................................................................................ 22 Norway ................................................................................................................................................................. 23 United States......................................................................................................................................................... 24 Russia.................................................................................................................................................................... 26 China................................ ........... ............................................................................................. 31 Global Projections ........................... ............................................................................. 35 BUDGETED SUBSIDIES: FOREIGN ACCESS............................................................................................. 36 UNBUDGETED SUBSIDIES ... ................................................................................................................ 42 Subsidized Lending .............................................................................................................................................. 43 Tax Preferences ................................ ..................................47 CROSS-SECTORAL SUBSIDIES .................................................................................. 49 Aid to Shipbuilding .............................................................................................................................................. 50 Infrastructure ........................................................................................................................................................ 53 RESOURCE RENT SUBSIDIES ... ........................................................................................................... 56 CONSERVATION SUBSIDIES IN FISHERIES............................................................................................. 64 THE AGGREGATE LEVEL OF SUBSIDIES IN WORLD FISHERIES ........................................................ 72 CONCLUSIONS .................................................................................................................................................. 75 SELECTED BIBLIOGRAPHY ............................................................................................................................82 FOREWORD Fisheries and the World Bank Group With mounting evidence of non-sustainable levels of fishing effort being targeted at well over half of the world's main fishing populations, the traditional development paradigm of supporting development in areas with abundant fish resources is becoming increasingly irrelevant. Limiting fishing efforts to sustainable levels has become the most urgent sector objective for many Governments and Development Finance Institutions. Because the creation and operation of an effective fisheries management systems is complex and frequently requires careful institutional engineering and political leadership - notably when over-fishing has already wreaked havoc with the fish resources - the principles of fisheries management and their application have become the number one issue in fisheries. New Zealand, Iceland, Namibia, Norway, Canada, Japan and the countries of the European Union have demonstrated the limitations and substantial potential of past and ongoing efforts to create more effective fisheries management systems. The Food and Agriculture Organization of the United Nations (FAO) has drafted a Code of Conduct for Responsible Fishing, which defines the principles of sustainable fisheries management; many countries have already adopted the code. All experiences agree on one point: effectively managing fisheries is impossible without removal of the key causes behind the excessive investment levels in fleets and infrastructure of the past. Of these, overt and hidden subsidies have played a major, and in some cases decisive, role. This issue has received limited scholarly or analytical attention in the past, possibly because reliable data are often hard to come by, and some are sensitive. A clear framework for analysis was lacking. Mr. Milazzo has made the first, courageous effort, to estimate the order of magnitude of major subsidies to the fishing sector on a world wide basis. His findings support earlier assumptions that massive levels of subsidies have indeed been a major driving force behind much of the expansion of fishing effort in many parts of the world. World Bank Group lending to the fishing sector has demonstrated considerable variation. While during 1969-1983 annual lending levels to the sector averaged some US$ 25 million, sector lending declined during the remaining 1980s and early 1990s. Early projects mostly supported fishing ports, fisheries credit programs and rural marketing infrastructure, while in later years the share of lending for fish culture and fisheries research substantially increased, reflecting increasing concern about the state of exploitation of marine fish resources. The World Bank Group now gives the highest priority to assisting its clients in creating the institutional, policy and technical environment to exploit their marine sources and develop their aquaculture potential in a more sustainable way. V ABSTRACT Fisheries in the world is reaching a turning point. Many of the traditional most highly valued stocks are fully or overexploited in a biological sense; in economic terms most fisheries employ excessive fishing effort to reach current levels of production. Ineffective management is the fundamental cause for this over-fishing and excessive use of inputs. Weak and ineffective management systems still govern exploitation of most major fish stocks. Paradoxically, fisheries management effectiveness is being undermined by the very subsidies that are provided to maintain fisheries sector income. This study examines the role of subsidies in explaining the obvious and injurious mismatch between fishing effort and biological production capacity. It uses the definitions and methodology of the World Trade Organization on Subsidies and Countervailing Measures of 1994 in defining the nature and size of subsidies to the sector and their impact ,based on case studies for Japan, the European Union, Norway, the United States, Russia and China. It covers the subsidies explicitly covered in the WTO agreement, including those that are part of public budgets covering operations in local and foreign waters, and unbudgetted subsidies, including subsidized sectoral lending, tax preferences, cross-sectoral subsidies and infrastructure. In addition subsidies that are implied by the WTO agreement, like resource rent subsidies and conservation subsidies are being assessed in some detail. The aggregate level of subsidies to fisheries in the World is estimated at $14-20 billion annually, depending on the extrapolation method from the cases studied. Unbudgetted, cross-sectoral and resource rent subsidies account for close to 80% of all subsidies. Compared to other food products, total support levels for fish production (including global trade protection) are high, of the order of 30-35%; this compares with global support levels for beef (35%), pork (22%), poultry (14%) and lamb (45%). Subsidies are a significant factor in undermining the sustainable use of the wild fish resources in many parts of the world. vii ACKNOWLEDGMENTS both faulty management, and excessive and poorly designed subsidies. In the last half-dozen years, the view has emerged and won wide acceptance that In the spring of 1996, 1 started to examine something is fundamentally wrong with the more systematically the aspect of subsidies ways in which governments manage and and decided to prepare a paper on its role in promote their fishery sectors. Numerous the general resource crisis. In particular, I analysts and commentators have given ever noted the resistance to efforts to discipline closer scrutiny to the causes and cures of the subsidies in recent multilateral trade and emerging general crisis in world fisheries. shipbuilding negotiations. Accordingly, I Indeed, the widely accepted overall view of began to suspect that subsidies in the the fisheries sector's status is generally fisheries sector must play some important pessimistic. role that transcends the sphere of trade. Presently, just two decades after the As I probed more, I soon realized that the worldwide move to 200-mile fisheries zones topic is highly complicated, rapidly in the late 1970s, the major elements of this changing, and seriously encumbered by a picture include widespread overfishing and woeful lack of up-to-date and reliable overcapitalization, ineffective management, information. To give some measure of order deteriorating resource health, decline or flat and structure to this enterprise, I then began global harvests of most traditional species to look for definitions and, more generally, from capture fisheries, and economic and an analytical framework. The result of this trade policies in the fisheries sector whose search was a decision to use, as much as impact on conservation can most politely be possible, the definitions, concepts, and described as perverse. Much of the credit thresholds of the World Trade for calling attention to this crisis belongs to Organization's (WTO) 1994 agreement on the Food and Agriculture Organization's subsidies. (FAO) Fisheries Department staff, who prepared a number of reports on the However, the 1994 WTO agreement is a worsening state of the world's fisheries trade agreement and, as such, was negotiated resources. to respond to trade-related economic injury, and not to environmental harm. To use a I began to pay more attention to these trade agreement to elucidate conservation concerns in late 1995, shortly after the issues, I created my own categories of completion of the United Nations' fisheries "effort- and capacity-enhancing" and "effort- agreements, when officials from FAO and and capacity-reducing" subsidies, and some governments identified "overcapacity" applied them to a wide range of government as the most fundamental problem. measures in fisheries. The rest is given in Simultaneously, it became clear that most the pages that follow. specialists considered "overcapacity" and the related (and broader) phenomenon During the research and drafting of this "overfishing" to be somehow derived from study, I was able to take advantage of my position in the International Fisheries viii Division, Office of Sustainable Fisheries, of minefields of trade law and conducted an the National Marine Fisheries Service electronic correspondence course in the (NMFS) and I received considerable help basics of subsidies law; Gareth Porter, and encouragement from a number of my whose work has shed valuable light on the National Oceanic and Atmospheric mechanics and impacts of distant-water Adminstration (NOAA) colleagues. Among fisheries subsidies, especially resource others, special thanks go to Will Martin and access payments; and Scott Nance, a Pamela Mace for encouraging this project, to Washington-based trade attorney, who urged Dean Swanson for giving me the time to that I look at user fees in fisheries in the work on it, and to Mark Wildman for help in context of subsidies and pointed out the sorting out and interpreting materials on relevance of the U.S.-Canadian softwood Japanese and Chinese fisheries. lumber case. I also benefited from excellent advice and All of the above individuals deserve my information from a number of fisheries and gratitude for helping in various ways with trade specialists in other U.S. government this project; none of them is responsible for agencies, including subsidies experts in the the shortcomings and errors that doubtlessly Office of the U.S. Trade Representative and will appear on the pages that follow. For the Department of Commerce's Import those mistakes, I am solely to blame. Administration, and fisheries investigators with the International Trade Commission. Finally, I also have to take exclusive Fisheries experts in international responsibility for the views and organizations other than FAO, such as the interpretations expressed here, especially World Bank, were also helpful and with respect to certain poorly defined and supportive. Special thanks go to Gert Van contentious issues, such as environmental, Santen and Marea Hatziolos at the Bank for infrastructure, and resource rent (user fee) reading the manuscript, suggesting changes, subsidies in fisheries. I have sought to deal and encouraging me to press forward. with these and other issues as well as I could with limited information and, to a degree, In addition, I have to thank the many foreign with a tentative analytical framework. service officers and others employed in a These issues all need to be studied more number of U.S. missions abroad whose carefully than I was able to in this sectoral reporting cables provided valuable study. Moreover, the General Agreement on information that I could not obtain from any Tariffs and Trade (GATT) consistency of other source. practices with respect to these issues is, to put it mildly, ill defined. In short, much I am also deeply obligated to certain remains to be done both analytically and in individuals outside of government: the policy sphere. Hence, the conclusions Professor Christopher D. Stone of the that I suggest regarding these matters are my University of Southern California's School of own, and do not necessarily reflect the Law, who tried to steer me through the positions and views of the U.S. government. ix INTRODUCTION fisheries should be somehow reduced or, at a minimum, not increased. In the last half-dozen years, the realization has emerged that the world fisheries sector In fact, specialists had predicted before the has reached a turning point. Around 1990, it general move to 200-mile zones in the mid- became apparent that global fish production and late 1970s that the global maximum had plateaued at about 100 million tons sustainable yield was probably not much annually. To be precise, while aquaculture more than about 100 million tons and that, output continued to grow, yields from given the unpredictable variations and capture fisheries - the traditional and largest unknown status of many resources, prudence sector - were uneven and showed increasing should limit actual harvests to about 80 signs of stagnation. Fisheries analysts at million tons annually. FAO identified and publicized these apparent trends in preparation for the 1992 More recently, FAO has completed its latest international conference on responsible global review of status and trends in world fishing at Cancun, Mexico,' and, in the next fisheries resources, and the major few years, 1993 and 1994, their assessments conclusions are, if anything, even more of trends in world fisheries continued to pessimistic.4 This last global assessment highlight this problem. covers trends over a period of more than four decades (1950-94) and, most The marine fisheries sector, by far the most interestingly, proposes a developmental important, attained an apparent peak in fisheries model. With this approach, FAO 1989, with an estimated 85 million tons of has identified four sequential phases: (1) harvests.2 Of this total, many of the undeveloped, (2) developing, (3) mature, traditional, most highly valued stocks are and (4) senescent. fully harvested or overexploited, and most experts would agree that effort in these Applying this model to 200 of the most important fish resources, FAO determined The most concise statement of FAO's emerging that 35 percent are senescent (declining pessimistic view of overall trends in world fisheries landings); 25 percent mature (high may be found in: FAO, Fisheries Department, World exploitation levels); 40 percent still Fisheries Situation, 1992, prepared for the developing; and, strikingly, none in the International Conference on Responsible Fishing, undeveloped phase. In other words, 60 Cancun, Mexico, May 6-8, 1992. 2 Global marine capture harvests in 1994 and 1995 have exceeded the 1989 peak, according to 3 J. Gulland had made these estimates for FAO in preliminary FAO estimates, but practically the entire the early 1970s. FAO, Fisheries Department (S.M. recent uptick in production reflects a jump in Garcia and C. Newton), Current Situation, Trends, harvests of relatively low-value pelagic species, and Prospects in World Capture Fisheries (Rome: especially by a few Latin American nations in their FAO, 1995). Pacific fisheries. In fact, the latest increase in 4 FAO, Fisheries Department (R.J.R. Grainger and harvests may even be discouraging because it may S.M. Garcia), Chronicles ofMarine Fishery Landings suggest that the traditional pattern of developing and (1950-1994): Trend Analysis and Fisheries Potential overusing one resource after another remains (Rome: FAO Fisheries Technical Paper No. 359, unbroken. 1996). 2 percent of the world's major fisheries The importance of subsidies in this sector is resources are overexploited or already increasingly attracting attention. In a exploited at maximum rates, and the dramatic piece of analysis, a 1993 potential for future increases in output is publication prepared primarily by Francis T. modest at best. Christy Jr. and FAO Fisheries Department staff argued pointedly that subsidies are a Practically all fisheries experts point to major causal factor in the creation and ineffective management as a fundamental perpetuation of excess fishing capacity, and cause of the overfishing and overcapacity even offered a gross, inferred estimate of that are so common throughout the world. global assistance in fisheries. In this view, ineffective management or, more specifically, the absence of adequate In recent years, this issue has also made its and meaningful controls on access, way to the negotiating table, although inevitably induces participation at excessive without much success. Attempts were made levels. Further, until and unless such in the Organization for Economic controls are implemented, economically Cooperation and Development (OECD) and viable fisheries will continue to attract new WTO to fashion rules that would have entrants, eroding both the fisheries' applied to fisheries subsidies. In OECD, the profitability and the sustainability of the context was the shipbuilding negotiations; in resource. And as long as fishing effort and the WTO, it was the Uruguay Round harvesting capacity are at excessive levels, Agreement on Agriculture. In both profitability will tend to decline and instances, the fisheries sector (boats in fishermen will press for subsidies. OECD; fish products in WTO) were Unfortunately, subsidies, once provided, explicitly excluded. Inevitably, one has to tend to make the effort and capacity ask why governments are so reluctant to problems worse, and the final result is an apply disciplines to subsidies in the fisheries even more intractable management dilemma. sector. The basic question posed in this study may Nor is the issue of subsidies in fisheries be stated as follows: How do subsidies help restricted to their trade implications. to explain the increasingly obvious and Increasingly, the impacts of subsidies in injurious mismatch between effort/capacity fisheries are seen more in terms of and available resources? To answer that conservation than in the context of trade question or, more modestly, to initiate a injury. And fisheries subsidies seem to fit dialogue on this issue, this study will review a wide range of direct and implicit assistance The starting point for this entire discussion is a programs that encourage and promote the special chapter to FAQ, The State ofFood and building, repair, modernization, and Agriculture, 1992. FAO's fisheries staff and Christy operations of the world's fishing fleets. In are to be credited for launching and shaping the terms so doing, this study will hazard some of the debate on the extent and impacts of subsidies admittedly rough estimates of their overall in the fisheries sector. FAO, Fisheries Department, Marine Fisheries and the Law ofthe Sea A Decade ofChange (hereinafter cited as FAQ, Special Chapter/Marine Fisheries) (Rome: FAQ, 1993). 3 logically in a broader context of outcome of this study should be a better environmentally harmful subsidies in all understanding of whether and how the "bad" natural resource sectors. In various ways, subsidies are effectively an important cause the issue has been raised recently in a of the problem, as opposed to merely a number of international forums and symptom of ineffective management. More meetings, and a fundamental question is ambitiously, this method may provide a always: How can we determine and useful and enlightening analytical tool. measure the environmental effects of Most optimistically, it is hoped that this subsidies in fisheries? assessment, in concert with the work of so many others, will prompt governments and This study will seek to assess, however international organizations to integrate roughly, the implications and impacts of subsidies reform into the broader efforts to subsidies in the fisheries sector. From a support the sustainability of fish resources. methodological perspective, the categories and general analytical approach are taken from the recently concluded trade agreement MANAGEMENT AND SUBSIDIES IN on subsidies. However, in so doing, we will FISHERIES also apply our own subsidiary "categories" organized around the impacts of subsidies It is widely accepted by fisheries experts that on the resource, as opposed to their effects inadequacies in most management regimes on trade. Hence, the chapters that follow have almost inevitably resulted in overuse of will categorize separately (1) subsidies that the resource.6 Accordingly, the most tend to promote additional or more intense fundamental problem in fisheries is the fact fishing effort and added capacity, and (2) that it is still by and large a common those other subsidies that are intended to property resource that is managed on an reduce effort and capacity. open access basis.7 As a result, management The first group is undesirable from a 6 This is a classic theme in fishery economics, conservation standpoint; the second group going back to the "tragedy of the commons" of G. may be environmentally desirable, and, Hardin, As early as the mid-I960s, fishery according to some, can provide a means of specialists, like Francis Christy, were making this dealing effectively with the general resource basic point about open access fisheries. See, Francis dealng efectvelywithChristy Jr., Efficiency in the Use of Marine Resources crisis in world fisheries. In other words, this (Washington, D.C.: Resources for the Future, 1964), study will examine fisheries sector subsidies pp. 1 - 2. For a good example of a current statement within a trade-related conceptual framework along the same lines, note the first sentence in but for conservation more than for trade Thoroflur Matthiasson, "Why Fishing Fleets Tend to ends. Be Too Big," Marine Resource Economics, Vol. 11, No. 3, Fall 1996, pp. 173 - 9. "Economists have known for a long time that the implication of having Most fundamentally, it is our hope that this the most economically viable fish stocks held in approach will help clarify the degree to common is a tendency towards over-investment in which environmentally harmful subsidies fishing capacity." are contributing to the obvious ongoing Christy even states that "open access" management regimes have not only caused erosion of the world's wild fish stocks. One overinvestment in the harvesting sector, but also 4 regimes are unable to control participation in fleet trends in the 1980s: that global fleets the fishery, including both fishing effort and grew faster than harvests and that their gross investments in harvesting capacity. Under operating margins showed substantial these circumstances, effort and investments deficits. tend to exceed optimum levels, with unfortunate consequences both for the A 1992 FAO paper on the world fisheries resources and the long-term economic situation points out that "decked" fishing benefits to the industry and to the larger vessels grew from 816,700 in 1980 to public.' 1,172,800 in 1989, an increase of 43 percent, significantly higher than the growth in In recent years, a number of commentators, harvests. Analyses of time series indicate including FAO staff, academics, and that, between 1970 and 1989, total gross environmentalists, have focused increasingly registered tons (GRT) of world fishing fleets on global trends in the harvesting sector of increased from 13.6 million to 25.3 million the fishing industry. Their chief concern is GRT, or by an average 4.6 per year, while with the industry's use of the resource, landings increased only at an average rate of specifically with respect to harvesting 2.4 percent annually. capacity and effort. The important point is that during the two For this study's purposes, capacity refers decades of the 1970s and 1980s world essentially to vessels and gear, and effort to fisheries harvests grew at only about half the vessels, gear, and the labor and the use to rate as the fleets. FAO staff further assessed which all the above are put. Therefore, these data to take into account the impact of capacity and effort are distinct but, to some the rapidly changing harvesting technology degree, overlapping and related terms. and, as a result, estimated that the real - decline in harvests per unit of capacity was Work done by FAO in the early 1990s in actually even greater. preparation for the May 1992 Cancun, Mexico, conference on responsible fishing Obviously, FAO's work on these issues was was largely responsible for prompting this rough and approximate. Calculations of debate. This work made two key points on harvesting capacity and, therefore, harvests ______________________________ per unit of capacity are difficult to do "massive overinvestments in fisheries administration precisely, even under the best circumstances. and research." Francis T. Christy Jr., "The Death The definition of capacity has not been Rattle of Open Access and the Advent of Property resolved, and adequate data on harvests and Rights Regimes in Fisheries," Marine Resource effort are often lacking. Harvesting Economics, Vol. I1, pp. 287 - 304. An excellent recent summary of this overall analytical framework may be found in a U.S. include a number of elements, such as the government publication that addresses the situation in number of vessels, their size and technical U.S. fisheries: National Marine Fisheries Service, power or efficiency, and the time spent NOAA, Commerce, Our Living Oceans -- The Economic Status of US. Fisheries (Washington: NOAA Technical Memorandum NMFS-F/SPO 22, December 1996). 5 fishing.9 Using this definition, even if of Change) correctly drew attention to the information on the numbers and size of the impact of extended jurisdiction. vessels is available, assessments may falter for lack of sufficient data on technical In some instances, the resource-rich coastal efficiency and effort (trips). To help correct states rapidly expanded their harvesting these analytical problems, the United States capacity. In the United States, for example, offered recently to host an FAO-organized a north Pacific factory trawler fleet was technical experts, consultation on managing developed from practically nothing to more capacity in fisheries in early 1998, and than 60 vessels in less than a decade to take among the tasks of this consultation are advantage of the groundfish fisheries in presentations on defining and measuring waters off Alaska. By the end of the 1980s, harvesting capacity. this "Americanized" trawl fleet had the capacity to harvest and process onboard Keeping in mind the above qualifications, more than 1 million tons of groundfish FAO has estimated the global overcapacity annually, as much as all the allocations level in the major food-fish fisheries at about given to foreign-flag vessels a decade 30 percent.'0 If one adds fisheries for all before. As a result, as early as the mid- species (including the lower-value pelagic 1980s, there were growing concerns in species), FAO concludes that all world government and industry about over- fisheries are being fished at about the investment and overcapacity in this sector, maximum sustainable yield (MSY) level. and, in 1987, the U.S. Congress passed a Simply put, there is considerable evidence in measure to restrict foreign investments in support of the view that no aggregate the harvesting sector of the North Pacific additions to fishing capacity are required in groundfish fisheries. the foreseeable future. During the same period, while the resource- One reason why world fishing fleets rich coastal states generally overexpanded increased in the 1980s is that more nations their fleets, the distant-water-fishing became significant participants in marine countries continued to support their fisheries. In fact, the title of FAO's excessively large fleets in a number of ways. pathbreaking publication of 1993 (Marine This latter group sought to find alternative Fisheries and the Law of the Sea: A Decade grounds for their displaced fleets, redirecting them to other exclusive economic zones, such as in the eastern central Atlantic, the 9 Courtland L. Smith and Susan H. Hanna, southeast and southwest Atlantic, and the "Measuring Fleet Capacity and Capacity Utilization," southeast and north Pacific. More recently, Canadian Journal ofFisheries and Aquacultural there was an increase of activity in fisheres Science, Vol. 47, 1990, pp. 2085 - 91. 10 Interestingly, a recent report issued by the U.K. in international high-seas waters, such as the House of Lords Select Committee on Science and so-called doughnut hole between the U.S. Technology on the situation in European fisheries and Russian zones in the Bering Sea, and in also called for immediate cuts of 30 percent in the "peanut hole" in Russia's Far Eastern Sea fishing "effort," as reported by Ehsan Masood, "Briefing Fisheries Science," Nature, March 13, 1997, p. 110. Roughly speaking, the former distant-water fisheries, but their biological sustainability states tended to seek new grounds in has remained intact. Examples of this unmanaged international waters or off the coasts of developing countries. It is worth condition are pollock in U.S. Alaskan waters noting that FAO estimates that the total and most major tuna species in the Western harvests of distant-water fleets actually Pacific. In other instances, resource overuse increased modestly from 7 to 9 million tons has eroded the very viability of the stocks. from 1979 to 1989. There are many examples of this more dire situation, and among the best are the A recent U.S. government study on world distressed state of many demersal, cod-like fishing fleets examined trends in the large stocks in both the northeastern and distant-water fishing fleets." This study northwestern parts of the Atlantic, in waters focused on the very large high-seas fishing under U.S., Canadian, and European Union vessels, which they defined as vessels of 500 (EU) jurisdiction. GRT or more that operate entirely or mainly in waters beyond 200-mile zones. There is little doubt, then, that effort and capacity in fisheries are excessive. Nor is The world high-seas fishing fleet grew from there much question that inadequate 18,217 vessels and 7.8 million GRT in 1975 management systems are primarily to blame to 23,718 vessels and 11.1 million tons in for these results. It is also worth noting that 1992, representing an increase of just over most fishery experts believe that an effective 30 percent in numbers of vessels and 45 cure has to include limits on entry, percent in tonnage. Thus, the high-seas preferably organized around regimes based fishing fleet grew significantly in total on property, or harvest, rights. The best numbers and, what is even more interesting, known of these measures, individual - in average size per vessel. transferable quotas (ITQs), offers the prospect of introducing market-based In summary, whatever the obstacles to incentives (and disciplines) in a sector that precise definitions and measurements, there until recently has been managed practically is now a consensus among scientists and everywhere on an open access model. fishery managers that fishery resources have been and continue to be overused in many Management systems incorporating ITQs parts of the world. In some cases, excessive have made significant progress in the past participation and rates of exploitation have two decades, in particular in countries like undermined the economic viability of New Zealand, Australia, Iceland, and Canada, and even in three U.S. fisheries. At the same time, however, the impetus for expanding the role of ITQs appears to have slowed, at least temporarily, because of U.S. Department of Commerce, NOAA, NMFS, industry resistance in countries as different Office of International Fisheries, World Fishing t s the faie o f n t Fleets: An Analysis ofDistant- Water Operations o the orld of Cia faan n the (Washington: November 1993).ina ap th 7 European Union -- to make any appreciable simply symptoms, of a larger management progress with property-rights-based problem. management.12 FAG's staff of fishery experts is largely Therefore, ineffective management is a responsible for creating the terms and scope fundamental obstacle, and this problem has of the debate on the subsidies issue. not yet been dealt with successfully or at all Interestingly, FAG's "window" to the in the vast majority of countries, including subsidies issue was work its staff completed most of the largest fish harvesters. It is at the time of the United Nations' 1992 Rio compounded by the increasingly obvious Green Summit on projected costs and fact that governments not only undermanage revenues in fisheries. this sector but also play a countervailing role as providers of perverse economic Fishery economics teaches that, without incentives. At a minimum, then, subsidies sufficient access controls, effort and capacity are an unfortunate by-product, or even will increase until all the resource rents are symptom, of ineffective management. Thus, dissipated. The striking feature of the FAG a critical analytical task is to examine the analysis is that it sought to show that on a relationship between, on the one hand, global basis the fisheries sector has long ineffective management, and, on the other, since passed that point and presently government-funded and -directed economic operates at deep losses. In fact, FAO incentives in the fisheries sector. estimated global operating and capital costs at $124 billion and revenues at $70 billion, In summary, it would appear that subsidies yielding a deficit of $54 billion, based on generally have the effect of aggravating an data from the late 1980s. Disparities of this existing natural resource management magnitude between costs and revenues problem. Simply stated, with subsidies, prompted the conjecture that subsidies participation is encouraged and exit is covered most of the difference. However, discouraged. Even more disconcerting is the FAG did not define, categorize, or analyze possibility that environmentally harmful the subsidies per se, but simply inferred subsidies in fisheries act independently as them from their study of global costs and self-standing causal factors. This study will revenues. seek to shed some light on how environmentally harmful subsidies may FAG's work on projected (based on 1989 legitimately be considered as causes, and not data) global costs and revenues was critically significant. This work had the ____________________effect of triggering a debate that is still 12 A good review of the performance of various going on. More important, the emphasis it countries with respect to this issue can be found in placed on costs and revenues suggests a way Eduardo A. Loayza, (ed.), Managing Fishery in which the subsidies issue can be Resources; Proceedings of a Symposium Co- Sponsored by the World Bank and the Peruvian Ministry of Fisheries in Lima, Peru, June 1992 FAQ, Special Chapter/Marine Fisheries, pp. 17 - (Washington, D.C.: World Bank, 1994), especially 19, and, in particular, Appendix 1, "Fishing Cost the summary, pp. xi-xvi. Methodology", pp. 50-53. 8 integrated into classical fishery economics. The global fleet loses about $54 More precisely, theory holds that in an open billion a year through operating access fisheries regime effort will continue losses and insufficient returns on to increase even though revenues per unit of investment in boats. Government effort are declining and that, ultimately, total subsidies, equivalent to the actual revenues will decline until they equal costs. losses, fill the gap.'5 At this point, the fishery is economically unviable and both industry profits and The upshot of FAO's work on costs and resource rents have been completely revenues in fisheries was to move the dissipated. subsidies issue out of the strict confines of trade rules and into the broader domain of A study of subsidies in an open access conservation. As a result, the debate on natural resource sector like fisheries looks at fisheries subsidies no longer deals the same dilemma but focuses on the cost exclusively or even largely with trade injury, curve. That is, since subsidies reduce costs, but, to an increasing degree, with harm to their aggregate impact is to further stimulate the resource and a more fundamental effort and compound the fundamental concern with economic waste. problem. In other words, this study will examine the "push" from subsidies, as Simultaneously, the issue of fisheries opposed to the "pull" of ineffective subsidies has broken out of its narrow management.14 sectoral context. That is, subsidies in the fisheries sector are now frequently FAO's work in 1992 and 1993 had a considered in tandem with subsidies powerful impact. Its broad conclusions were provided to other natural resource sectors. widely accepted; the figures for costs, This trend was evident in the 1992 Green revenues, and losses were frequently cited, Summit at Rio and has been picked up in and many commentators, including subsequent meetings in New York of the environmentalists, academics, and Commission for Sustainable Development journalists, assumed that the huge losses (CSD) and in much of the World Bank's must be covered by subsidies. recent studies and advisory work. As just one example among many others, a 15 Trish Saywell, "Fishing for Trouble," Far March 1997 issue of an influential and Eastern Economic Review, March 13, 1997. respected publication reported that 16 At the CSD meeting in New York of April 1997, a large number of delegations noted the environmentally perverse effects of fisheries 14 Obviously, the approach used in this paper, what subsidies and indicated a willingness to futher a U.S. trade official called the "building-block explore remedial actions. However, the final report method," has advantages and disadvantages. The of the Oceans Section was muted on this issue, advantages are precision, detail, and a more empirical referring vaguely to the need to "identify specific approach. The disadvantages are the complexity, steps at the national or regional levels to prevent or confusion, and unevenness that will necessarily be eliminate excess fishing capacity." In addition, at the encountered in trying to deal globally with subsidies EU's request it was also agreed that governments across an entire sector. should "consider the positive and negative impact of subsidies on the conservation and management of 9 By the June 1997 U.N. General Assembly AN ANALYTICAL FRAMEWORK Special Session, convened to take stock of progress made in the five years after the To better understand the aggregate level, 1992 Green Summit, many analysts and variety, and impact of subsidies in fisheries, government experts tended to treat subsidies an analytical framework is required. This in fisheries in this larger natural resource section suggests, perhaps somewhat context.17 It was reported, for example, surprisingly, that the recently concluded that subsidies to the energy, mining, global trade agreement on subsidies offers a forestry, agriculture, fisheries, and other useful model, in spite of the fact that our sectors had a collective negative impact of primary concern is conservation, and not $500 billion to $900 billion in trade-related economic injury. To address "environmental damage." Interestingly, the the conservation issues that we are primarily critics of environmentally perverse subsidies concerned with, special fisheries-specific include a growing and somewhat unusual categories have to be developed. This alliance of elements on the political left and section discusses an analytical framework right, and are gaining sympathy in and various issues related to quantitative developing countries, where subsidies to assessments. agriculture and fisheries have long been defended for rural and coastal employment The 1994 WTO Subsidies Agreement and food security reasons. In the latter half of the 1980s, negotiations This study examines the impact of fisheries in Geneva and Paris on agriculture and subsidies on conservation. To do so, the shipbuilding respectively presented following chapters will assess their opportunities to craft much stricter and more aggregate level, organize them in comprehensive rules for subsidies in the conservation-sensitive categories, and offer fisheries sector. In both instances, however, some preliminary assessment of their the fisheries sector was excluded. environmental impacts. First, the 1994 Uruguay Round Agreement To do the above, however, requires a on Agriculture excluded fisheries products working definition of subsidies and an from its scope; second, the OECD analytical framework that addresses their Shipbuilding Agreement exempted fishing effects on conservation. vessels and was not even ratified by all the signatories, and therefore did not go into effect. As a result, the rules governing the use of subsidies in the fisheries sector are, almost by default, the provisions in the WTO's basic subsidies agreement -- the Agreement on Subsidies and Countervailing fisheries." UN Non-Paper on Oceans, CSD-5, New York, April 23, 1997. 17 Barbara Crossette, g tSubsidies Hurt Environment, Critics Say Before Talkcs," New York Times, June 23, 1997, p. A-3. 10 Measures (hereinafter the 1994 WTO WTO legal status of fisheries sector Subsidies Agreement).'i subsidies. This agreement constitutes the existing international legal regime governing The 1994 WTO Subsidies Agreement subsidies in the fisheries sector; it was represents a significant improvement in the negotiated and implemented recently; it rules and disciplines governing both the use applies to more than 100 WTO members; its of subsidies and countervailing measures to rules are binding; it addresses, however offset their effects. First, it should be noted tentatively, the issue of environmental that the international rules that govern their subsidies; and it includes what many use are fairly recent. The original General consider a major breakthrough on the issue Agreement on Tariffs and Trade (GATT) of transparency. referred to subsidies briefly and addressed only export subsidies. In addition, these Most significantly, the Subsidies Agreement rules were applied only to subsidies made major progress in defining and provided for exports of industrial classifying subsidies and establishing tests (non-primary) products. On the other hand, of their actionability. subsidies provided to promote exports of primary commodities (e.g., agricultural and The 1994 WTO Subsidies Agreement is fish products) were exempted from binding therefore worth reviewing. disciplines. First, there is a clear definition of subsidies. GATT rules on subsidies were further The WTO Subsidies Agreement defines developed and refined in the 1979 Tokyo them in Article 1.1 as: Round multilateral trade negotiations, and the principal achievement was an agreement "financial contributions" provided by on rules governing actions that may governments in the form of: legitimately offset the effects of subsidized imports. Still, the distinction between * transfer of funds (e.g.; grants, loans, non-primary and primary products equity infusions); remained; disciplines on domestic subsidies * potential transfers of funds (e.g.; loan were weak; and the rules were not accepted guarantees); by developing countries. * forgone government revenue (e.g.; tax preferences); Seen against this general background, the * goods or services (e.g.; other than 1994 WTO Subsidies Agreement is the general infrastructure); logical starting point in our efforts to better * payments to a funding mechanism or understand the specific roles, impact, and to a private body to perform any of the above; or " Uruguay Round Multilateral Trade Negotiations, * price or income support programs Final Act Embodying the Results of the Uruguay (other than tariffs). Round of Multilateral Trade Negotiations, Agreement on Subsidies and Countervailing Measures; Second, there is a requirement in Article 1.1 Marrakesh, Morocco; April 15, 1994 (Washington: Second, the i a orermn inoic USTR, 1994). (b) that the subsidy confer an economic 11 benefit. This is a significant point because (1) injury to the importing country's "subsidies" and the "benefits" they confer domestic industry; are different concepts and are assessed (2) nullification or impairment of a trade differently. benefit; or (3) "serious prejudice." Third, there is a "specificity" test in Article 2. The 1994 WTO Subsidies Agreement Fifth, and finally, in Article 6, the "serious divides all subsidies into two broad prejudice" test of "adverse effects" is categories: specific and nonspecific. Simply developed and defined. Interestingly, while stated, specific subsidies are clearly targeted the first two examples of adverse effects are at certain industries, enterprises, or groups explicitly trade-related, the last test -- of industries and enterprises in a given "serious prejudice" -- is elaborated in ways geographic region; nonspecific subsidies are that, while primarily trade-related, have a made generally available and therefore are somewhat broader scope. broadly distributed in a country. A showing of serious prejudice is a two-step Fourth, subsidies are organized in three process: categories: prohibited, nonactionable, and actionable (see Articles. 3 and 8). First, serious prejudice exists when the ad valorem subsidization exceeds 5 percent; the Prohibited subsidies are, essentially, trade- subsidies cover an industry's operating contingent, and include those that directly losses; the subsidies cover individual promote exports (export subsidies) or enterprises' operating losses on a regular restrain imports through, for example, the basis; debt is forgiven; or grants are required use of domestically produced provided to pay debts. goods. Second, a serious prejudice showing also Non-actionable subsidies include two requires proof of one of the following: trade categories: first, all nonspecific subsidies, displacement; price undercutting, or changes and second, three subcategories of specific in market shares. subsidies, of which two apply to fisheries sector assistance programs. Specific To summarize, the WTO Agreement applies subsidies are nonactionable if they assist a series of tests to subsidies. An offending disadvantaged regions or "promote measure must: adaptation of existing facilities to new environmental requirements." This last (1) meet the definition of subsidies; point is significant because it represents the (2) be determined to confer an economic first opening for environmental subsidies in benefit; a trade agreement on subsidies. (3) be "specific"; (4) be "prohibited" or "actionable"; Actionable subsidies must be "specific" and (5) cause an "adverse effect"; and cause one of three "adverse effects": 12 (6) in the case of the "serious prejudice" test capacity and undermining the sustainability of "adverse effects," pass the two series of of resources in the fisheries sector. tests outlined above. Some may object that treating all effort- and Environmental Categories of Subsidies in capacity-enhancing subsidies as harmful to Fisheries the resource is too sweeping and unfair. Proponents of this view may argue that, One of this study's major underlying since some fishery resources are not concerns is to examine the relationship overfished and may have potential to between trade rules on subsidies and the support increased harvests, we should sustainability of wild fisheries resources. To distinguish between justifiable and do this, two things must be done: unjustifiable effort- and capacity-enhancing subsidies. First, the boundaries of this exercise must be further refined. Toward that end, this study However, the approach advocated in this will be confined to a consideration of study strongly rejects this view. The basic fisheries subsidies provided to the problem is that, given the negative trends in harvesting sector, and not to the entire the status of the resources, the mobility of fishing industry. Conversely, it will exclude capital, and the relative ease with which fisheries subsidies that are provided solely boats can be refitted to operate in fisheries or primarily for the benefit of other sectors, other than those for which they were mainly fish farmers and processors. It is originally planned, the prudent policy is to recognized that this distinction in some treat all such subsidies as potentially cases may be difficult to maintain. Some harmful to the resource. fisheries sector subsidies benefit both the fishermen and the processors and marketers. Thailand's experience in promoting A good example is a price support program. development of its capture fisheries sector These programs indirectly benefit the provides a good example. More than 20 harvesters of the raw fish as well the years ago, Thailand sought from the Asian processors. Development Bank a loan to develop its trawl fishery for groundfish and was rejected Second, in considering subsidies to fish because the ADB felt these resources were harvesters, a critical, environmentally driven already fully exploited. The ADB did, distinction will be made. In one category, however, grant a loan to develop Thailand!s we will place subsidies that tend to promote less-exploited pelagic fisheries in 1974, and and enhance harvesting operations and provided financing for the purchase of 135 capacity. This category of subsidies will be gill-netting and purse seine vessels. Within called "effort- and capacity-enhancing" or a few years, though, according to a World some other descriptive phrase will be used. Bank report, "approximately 70 percent of Essentially, these environmentally harmful the project vessels had been converted into subsidies have the effect, directly or trawlers (which were profitable to operate on indirectly, of exacerbating excess effort and 13 a private basis) and were being used to catch financial burdens on firms -- Article already overfished demersal stocks."19 8.2(c). An even more difficult question is how to It is clear from the above language that the deal with subsidies whose intent is the negotiators were motivated chiefly by a opposite of the undesirable programs. desire to legitimize subsidies intended to Subsidies that are designed primarily to assist industry with pollution abatement restore the health of fisheries resources are a costs. Therefore, the WTO Subsidies good example. These fisheries subsidies are Agreement's narrowly defined allowance for intended to support the viability of the environmental subsidies does not fit the resources through reductions in effort. needs of the fisheries sector. For this Therefore, they are called "conservation exercise, we must support a broader subsidies," and will be treated separately in understanding of measures that should be Chapter IX.20 treated as environmentally benign. Some or all of these subsidies could perhaps be In the Uruguay Round trade agreements, the formally "green-lighted" by the WTO as notion of environmental subsidies found its permissible measures in fisheries. way into both the Agriculture and Subsidies Agreements. Even the WTO Subsidies Accordingly, we would propose treating Agreement recognizes their legitimacy by separately (and perhaps green-lighting) placing in the nonactionable category: subsidies that: assistance to promote adaptation of * reduce exploitation effort; existing facilities to new environmental requirements imposed * divert producers from activities that by law and/or regulations which promote overexploitation of result in greater constraints and resources to more benign economic endeavors; 1 Economic Analysis of the Environmental_Impacts are intended to enhance the resource ofDevelopment Projects (Washington, D.C.: World Bank, 1992), pp. 109-111, citing, Asian Development Bank, Thailand Fisheries Sector Study (Manila: ADB, 1985), Table 25. hasten the development of more 20 Subsidies with benign effects on natural environmentally sensitive harvesting resources have been increasingly recognized as a technology. separate category and are often referred to as "environmental subsidies." Both the Uruguay Round As a practical matter, the most common Agriculture and Subsidies Agreements include provisions for "green-lighting" these subsidies. environmental subsidies in the fisheries However, for purposes of this study, subsidies that sector provide financial incentives to reduce are intended to reduce fishing effort and capacity --harvesting capacity. Such programs are usually through some sort of decommissioning program -- are actually a subset of environmental ntin plae i n s ma subsidies and, for that reason, will be called "conservation subsidies". involve little more than a vessel buy-back 14 and fishing permit repurchase scheme, or and subsidies that facilitate capacity they may be more elaborately contrived, adjustment to strengthen conservation." such as restructuring programs, or programs that finance the diversion of boats from Compounding these difficulties is the fact overharvested to underutilized fisheries, or that governments may combine subsidies the reequipping of boats for deployment in that both promote and reduc harvesting new fisheries. capacity. Therefore, even if we could fairly accurately quantify subsidies to the fisheries Our objective in treating conservation sector, we would still have a hard time subsidies separately is simple and practical. assessing the level and impact of the "good" Our purpose is to exclude measures that, and "bad" elements. A striking example of while they may meet the WTO's definition this dilemma is the EU's package of of subsidies, are not intended to enhance financial assistance programs for the effort and capacity but are designed to do European fishing industry. the opposite. In other words, our motivation is to sharpen our measure of the impacts of Assessing the Impacts of Subsidies subsidies on conservation. One of the most difficult tasks in assessing Conversely, it is not the intent of this the impact of subsidies in fisheries is the sectoral study to speculate generally on the choice of a suitable measure. However, desirability of environmental subsidies or after establishing the categories and their consistency with trade rules. mapping out a typology of subsidies, it became evident that no single yardstick was The distinction between undesirable and practical. This study does not utilize any desirable fisheries sector subsidies is gaining single assessment methodology, relying momentum. At a recent OECD Fisheries instead on a varied and eclectic approach. committee meeting, Canada presented a paper dealing generally with the committee's Most treatments of fisheries sector subsidies medium-term work plan that proposed a -- until the 1993 FAO Special Chapter -- did study of the economic benefits in the not assess them quantitatively but simply fisheries sector; this study would address, listed or categorized them . The trade- among other things, the role of "subsidies based framework proposed here requires that that lead to overcapacity and overfishing, we consider calculation methodologies, as well as the terms and tests reviewed above. 21 The first and most fUndamental point certainly not resolved in Chapter Certainly,fir environmental subsidies are hard to define and have investigations. Since the WTO Subsidies only fairly recently been accommodated, to a limited degree, in trade agreements. On an analytical level," they are increasingly discussed and disputed. A good 2A good recent example is OECD, Fisheries example of a recent discussion of these issues is: Committee, Inventory ofAssistance Instruments in OECD, Trade and Environment: Environmental the Fishing industry and Management Systems Subsidies (Paris: September 1994). (Paris: OECD, 1993). is Agreement defines them as financial Another problem with these unbudgeted or contributions, subsidies will be calculated, underbudgeted subsidies is that information to the degree that the evidence permits, "in on their global incidence is lacking and must terms of the costs to the granting be inferred. In the case of subsidized government" (Annex IV. 1). This calculation lending and tax preferences, we had to use is critically significant, because one of the assumptions based largely on FAO's 1993 tests of "adverse effects" is "serious work on global costs in the fisheries sector. prejudice," which in turn is presumed to exist if the "total ad valorem subsidization of Shipbuilding (Chapter VII) subsidies include a product" exceeds 5 percent -- Article 6.1 both budgeted and unbudgeted elements. To (a). Therefore, to the degree possible, the assess the impact of subsidies provided to case studies and global projections will shipbuilders on the fishing industry, many assess subsidies in terms of their known or sources were used, including FAO's 1993 estimated costs to the subsidizing work on global costs, data in Lloyd's annual governments. shipping register, and information derived from the OECD shipbuilding negotiations This budget-based approach works between the late 1980s and 1994. reasonably well with domestic and foreign budgeted subsidies (Chapters IV and V) and The most difficult category of subsidies to with conservation subsidies (Chapter IX), assess was resource pricing (Chapter VIII). but less well with subsidies to most capital This subsidy results from the failure of costs and tax subsidies. Subsidies to governments to levy an adequate charge to fisheries infrastructure are normally commercial users of this publicly managed budgeted but are controlled by agencies resource. In other words, this category of responsible for public works and not by subsidies results from government inaction, fisheries agencies.23 and not any direct or indirect governmental intervention in the economy. Ideally, Measuring unbudgeted subsidies in fisheries measuring this subsidy would require presents some serious methodological benchmark prices, that is, prices charged by problems. The major unbudgeted (or private producers of the same or similar underbudgeted) subsidies in fisheries are products or, failing that, information on the lending and tax policies and programs total costs to government of managing the (Chapter VI). The economic effect of resource. In fisheries, however, comparable subsidized lending is normally measured by private prices are not available, and the difference between the terms of the information on the public costs of managing subsidized loan and the prevailing terms fish resources is scanty at best. available in capital markets. Tax preferences are usually assessed by reference For all these reasons, the user fee issue had to the level of lost revenue, to be addressed inferentially, drawing on: 3An exception is Japan, where the Fisheries 2o It would appear, too, that in many of the world's Agency speids over $2 billion annually on fisheries major fishing nations, user charges are not levied at infrastructure projects. all on domestic fishermen or, if they are, are levied at 16 1. a U.S. "case study," based largely on will use $80 billion, based on more recent recent changes in fisheries legislation; FAO work.25 2. data on fees paid by distant-water-fishing nations to foreign governments; Finally, it must be acknowledged that this 3. trends in user fees levied by governments analytical framework represents just one on their own fishermen; and approach, and that other methodologies 4. information on trade cases and analogous exist. As an example, one other approach user fees in other natural resource sectors, would be to develop a quantified measure of especially forest products. economic assistance to the fisheries sector. Such a measure, called a producer subsidy Another important related point is the scope equivalent (PSE), was developed for of this study. That is, since this is a study of agriculture by OECD and used in modified sectoral subsidies on a global basis and not a form in the Uruguay Round negotiations, brief supporting a formal trade complaint, and was proposed in OECD for fisheries in the subsidies treated here are obviously the early 1990s.26 However, for reasons that much broader and more numerous. In have no bearing on this study, the PSE countervailing duty investigations, on the exercise in fisheries was not successfully other hand, subsidies are determined as a concluded. More important, PSEs include percentage of the price of the product in border measures (tariff and nontariff question (level of subsidization). However, measures) and may not be a good measure 27 this study will examine aggregate subsidies of net impacts on the resource. in an entire sector, and not simply subsidies per product. To do so, our global "base" will be gross ex-vessel revenues in world 2 As a matter of fact, FAO has published fishery fisheries. statistics in 1996, with data through 1994, that give the following precise estimates of global first-sale FAO's 1993 study calculated gross first-sale revenues from capture fisheries: 1989 - $72.5 billion, and 1994 - $78.8 billion. We feel we are reasonably revenues at about $70 billion, but this study updating the latter figure by assuming current global ex-vessel revenues from capture fisheries at approximately $80 billion. FAO Yearbook, Fishery Statistics: Commodities, Vol. 79 (1994) (Rome: minimal levels. Generally, this state of affairs FAO, 1996). It may also be interesting to point out contrasts with the way most governments manage that, in the last half dozen or so years, the average other natural resources, like forests, water, and unit ex-vessel value has shown no discernible trend mines. Therefore, any discussion of user fees or and even declined somewhat in the last few years. landing taxes in fisheries must resort to cross-sectoral See the average values per metric tons: (1989) $824, comparisons and analogies, and has to stress where (1990) $888, (1991) $917, (1992) $953, (1993) $867, we are going as opposed to where we are. An and (1994) $874. interesting World Bank report including a number of 26 OECD, Committee for Fisheries, Ad Hoc Expert case studies of how user fees and environmental Group on Fisheries, Producer Subsidy Equivalent: taxes have been effectively utilized recently in other Quantification of Fisheries Support/A Pragmatic sectors in developing countries is World Bank, Five Ageroach (Paris: OECD, 1991). Years After Rio: Innovations in Environmental Policy Tariffs and nontariff measures restrict imports (Washington, D.C.: World Bank, 1997), especially (and supply) and therefore tend to raise prices for Part Two (Selected Case Studies from the Policy domestically produced goods. The result is a Matrix), pp. 19-50. constriction in demand. Arguably, then, the effect of 17 Still another approach would be to measure BUDGETED SUBSIDIES: subsidies by the difference between DOMESTIC ASSISTANCE domestic and world prices. This latter method has been used by economists for This section examines fisheries sector other sectors, as in recent World Bank subsidies that are identifiable in government analyses of other natural resources.28 budgets, normally in the budgets of the However, calculating "price wedges" in fisheries agency. The methodology is to fisheries is a daunting and perhaps nearly examine a half a dozen case studies and, impossible task.29 using some reasonable assumptions, to suggest global projections. The case studies The approach used in this study has obvious treat as fisheries sector subsidies those advantages and disadvantages. A varied and assistance programs that, first, have the eclectic method may better capture some of effect of promoting and enhancing capacity the unique features of each category of in the fisheries harvesting sector, and, subsidies and minimize the impact of errors. second, as far as we can reasonably conclude On the other hand, this scattered approach based on the information available, (1) meet runs some risk of inviting a profusion of the WTO Agreement's definition of inferences and is not easily comparable with subsidies, (2) confer a benefit, (3) pass the other methods, such as the use of "price specificity test, and (4) can reasonably be wedges," that are commonly used by placed in the actionable category. Note that analysts. Undoubtedly, measuring subsidies we do not deal with the issue of economic in fisheries requires much additional work. injury, or "adverse effects," and therefore are not expressing any opinion regarding the WTO legality of any of these programs. The six economies reviewed here are Japan, the European Union, Norway, the United States, Russia, and China. These economies border measures on conservation is not quite as bad have been chosen because they are all major as that of subsidies. fishing nations but are also highly diverse in 28 An example is the discussion of subsidies for their management of fisheries. All six are fossil fuels and agricultural inputs (pesticides and fertilizers) in World Bank, Expanding the Measure of Wealth: Indicators of Environmentally Sustainable distinctions. Four of the six are affluent, Development (Washington, D.C.: World Bank, while Russia and China are less so. Japan, 1977), pp. 39-62. Russia, and the EU were "losers" when 29 When OECD attempted in the late 1980s to coastal states introduced 200-mile fisheries calculate PSEs for fish, in part using a "price wedge" zones, while the United States and Norway approach, they ran into numerous difficulties. Essentially, reference, or world, prices for fish were were "winners." The United States, hard to determine because of the large number of Norway, and China are major fish exporters, species and product forms, and the extreme while the EU and Japan are not. Russia and variability of harvests and prices. It this regard, fish China developed their fishing industries products may have more in common with fruits and through massive state investments, while the vegetables, for which PSEs did not work as well as with the grains, others did not. We feel, then, that while 18 these countries are all major fishing powers, second, a "special account," is $490 million. they differ in many significant ways and The FAJ's off-budget special account is offer an interesting variety of case studies. utilized entirely for fishing vessel insurance, These six economies account for nearly half reinsurance and compensation programs. of total world fisheries harvests. Obviously, the other half is produced in a large number If the FAJ is the principal distributor of of developing and less affluent countries. fisheries sector subsidies in Japan, the We excluded them simply because we industry cooperatives play a major role in lacked sufficient evidence on their fisheries channeling these resources from government budgets and subsidies. Clearly, much more to industry. There are about 1,500 fishery work needs to be done on the role of cooperatives, federations, and associations fisheries sector subsidies in these countries. of fishermen and processors who mediate between the FAJ and national or regional National Case Studies industry constituencies, and dispense much of the government's assistance to their Japan members. Japan's fishing industry is large, highly Estimating what share of these resources diverse, and, generally speaking, its may legitimately be defined as subsidies is a harvesting sector has not fared well difficult problem and requires that we look economically in recent years. This fishing more carefully at the budget breakouts. industry has also traditionally had considerable influence with the government, First, we have to examine the much larger especially with the Diet committees that general accounts share. It consists of two determine Fisheries Agency of Japan (FAJ) parts: (1) a public sector component that budgets. For those chief reasons, then, the provides funding for various programs that government of Japan funds the fisheries we would categorize under the heading sector generously both absolutely and "infrastructure," and (2) a "nonpublic relatively. expenditures" component, some considerable share of which we maintain are The current budget of the FAJ, a subsidiary subsidies. As a rule, the public sector share of the Ministry of Agriculture, Forestry, and has accounted for about two-thirds, and the Fish (MAFF), is almost $4.0 billion, which private sector share about one-third, of the is equal to about one-fourth of total revenues total. in Japan's marine capture fisheries in recent years.30 The FAJ's budget consists of two In fiscal year 1996, the public sector parts: the first, or "general elements" is $3.5 component totaled almost $2.5 billion, and billion (almost 390 billion yen)31 and the the nonpublic element just over $1 billion. The FAJ's nonpublic expenditures consist of 30 U.S. Embassy, Tokyo, September 30, 1996. programs that are jointly administered by the 31 We will henceforth give the FAJ's fiscal year 1996 budget figures in approximate U.S. dollars, Japanese yen, roughly the exchange rate that using an exchange rate of I U.S. dollar for 110 prevailed during that year. 19 FAJ, on the one hand, and local almost $500 million that funds fishing governmental entities and trade groups, on vessel reinsurance and insurance programs. the other. These programs benefit the harvesting sector, and they certainly appear to fall in Obviously, the programs funded under the the category of a provision by government private sector component of the FAJ's of "goods or services other than general budget are virtually all intended, in various infrastructure" and therefore meet the WTO ways, to promote industry interests. The Agreement's definition. summary that follows of these FAJ nonpublic budget lines focuses on programs These programs are designed to help defray that directly and indirectly assist harvesters, the industry's costs for marine insurance and and it excludes budget lines that support the damage to and loss of their boats, gear, and aquaculture and the processing sectors. other equipment. The largest of the programs -- Vessel Reinsurance and Mutual If we organize the nonpublic budget Insurance -- makes available government- component into major programmatic areas, funded general insurance and more we would get the following breakout: specialized insurance that guarantees the income of fishermen to cover expenses if Table 1. production and revenue fail to meet FAJ "NonPublic" Budget Lines U.S. Dollars expected levels. Japan's FY 1996 (April 1, 1996 -March 30, 1997) In summary, we conclude that the FAJ -- U.S. $ Million -- currently provides about $750 million in Domestic Fisheries $200 Gear Research 18 "budgeted" domestic fisheries sector Domestic Marketing 50 subsidies. TOTAL $268 Source: U.S. Embassy, Tokyo, September 30, 1996 Inevitably, one has to wonder what effect these subsidies have had. Since this section Therefore, we will net at almost $270 considers domestic subsidies, we will look million all the domestic programs budgeted at fisheries inside their 200-mile zone. In in this portion of the FAJ's FY 1996 account those coastal waters, where most of their that enhance the operations and capacity harvests are now taken, there is evidence levels of the harvesting sector. These that many small and medium-scale fishing programs include the following initiatives: enterprises are no longer economically recruiting young fishermen, aid to fish viable. cooperatives and to boat owners, marketing, consumer education, price stabilization, and The FAJ's latest white paper reports the a variety of measures to improve harvesting following deteriorating trend in economic techniques. performance by this latter group: Next, there is an FAJ special account of 20 Table 2 paper, we learn that overall output has Small and Medium-Size Fishing Enterprises dropped to 7.5 million tons, the seventh (figures are per firm) consecutive annual decline; gross revenues 1990 1991 1992 1993 1994 dropped, imports increased, and exports -- Millions of yen -- decreased; average profits for small and Profits 2.9 1.3 -0.9 -3.1 -3.2 medium enterprises declined for the fourth Revenues 136.7 135.0 130.0 120.7 114.0 Costs -Labr 4.7 488 481 4.3 3.2 fish stocks in Japan's Economic Enterprise -Labor 49.7 48.8 48.1 45.3 43.2 Zone are leveling off or declining.33 -Fuel 114.8 15.6 14.5 13.3 12.11 -Other 10.7 11.0 11.3 11.0 10.9 -Gear 13.8 14.4 12.4 11.9 9.9 In summary, it appears that FAJ fisheries -Other 21.0 21.4 22.0 21.8 20.8 sector subsidies may have helped prevent an Source: FAJ, Annual Report on Fisheries Trends (1996) even sharper economic decline in the traditional small and medium-scale coastal These "small and medium" fishing fisheries. However, the recent declines in operations include more than traditional landings in many coastal fisheries suggest, coastal fishermen with one or two small too, that a number of these fisheries are fully boats. This is evident from the fact that the (or even over-) harvested. As far as we can average revenues of this group are over 100 tell, most of the FAJs subsidies to the fish million yen, or about $1 million, annually. harvesting sector tend to encourage more Small and medium fishing enterprises have building, rebuilding, and technical suffered declining profitability, and improvements in the fleet. Therefore, these "average" fishing enterprises in this category subsidies have to be considered one factor showed an increasingly negative return. among others that have helped to create an Interestingly, the data also suggest that the increasingly serious problem of declining basic problem is not costs, which seem to be economic viability and resource 32 under control, but declining revenues. sustainability in Japan's commercial Therefore, recent trends indicate that the fisheries. relatively generous subsidies to Japan's coastal fishermen have not made this an European Union economically viable sector. Rather, a more reasonable interpretation is that the subsidies The European Union provides through the have probably slowed down the decline. Common Fisheries Policy, itself a subset of Japan's fisheries sector is suffering a steady eao m e ofrishriesPsubsidies and long-term downward trend, a sobering Since about 1970, before the introduction of fact that is evident from the annual white 200-mile fishery conservation zones, the papers issued by the FAJ. In its latest white main elements the EU's fisheries sector assistance plans have been two: market The steady decline in revenues is also entirely aftert implemetationofc20-H leelmit consistent with the predictions of classical fishery aftr_te_ipleenttio_ of200mil_liit economics, especially the bioeconomic model on the Sy operation of open access regimes.revenues 21 and, in particular, the accession of Spain and Structural Programs Portugal in 1983, the EU's Common Fisheries Policy evolved and gradually The current EU fisheries sector restructurng assumed its present form. With the addition program, which applies for the six-year of the Iberian countries, the EU's fishing period from 1994 to 1999, has been fleet increased by 75 percent and the number considerably upgraded. During this period, of fishermen more than doubled, total EU budget outlays are almost $3.2 aggravating the dilemma of how to deal with billion, or $530 million per year. This an already sizable surplus capacity in the funding is allocated to six major objectives: harvesting sector. adjustment of fishing effort, fleet renewal and modernization, processing and During the 1980s, the EU provided marketing, aquaculture, port facilities, and increasingly generous subsidies, and generic product promotion. Since this between 1983 and 1990, a period when restructuring plan plays such an important many European fleets were adjusting to role in the EU's larger fisheries sector extended jurisdiction, the EU's annual assistance policies, it is given in greater fisheries sector financial assistance program detail in the table below: increased from $80 million to $580 million. Of these totals, an estimated 20 percent was Table 3 devoted to construction of new vessels. EU Funding for Fisheries Sector Restructuring, 1994-1999 Restructuring received increasing emphasis BU M iins in the 1980s, but little progress was made in s- of fsige ort 87 restoring a better balance between Ajsmn ffsigefr 3. resonn a ettr alace etwenFleet renewal and modernization 747.7 harvesting capacity and available resources. Aquaculture 329.2 In 1983, the EU decided on a three-year Protected marine areas 36.9 structural policy program, and in 1986, it Port facilities 223.9 adopted a 10-year program that would be in Processing and marketing 705.4 force until 1996. Product promotion 101.7 Other 149.9 At present, the EU's fisheries budget is $1.1 SOure U, billion, and fisheries sector subsidies have February 29, 1966 evolved considerably in the last decade. Currently, more than half of their total A fundamental feature of the EU's fisheries fisheries budget supports an ambitious restructuring program is that much of it sectoral restructuring plan. Two categories appears to be spent on traditional forms of may be classified as domestic fisheries industry assistance. Using our categories for subsidies: structural programs and market classifying subsidies into those that tend to (price) supports. enhance and those others that tend to reduce effort and harvesting capacity, it would appear that items 2, 5, 6, and 7 fall in the undesirable effort- and capacity-promoting category. Item 5 (port facilities) accounts 22 for more than 10 percent of environmentally enhancement, and is funded at just over harmful subsidies. This category will be $300 million for the 1994-99 period, or treated separately under infrastructure in about $50 million annually. The above Chapter VII. price support and Pesca programs may fairly be considered as government-funded Therefore, approximately 60 percent, or initiatives that benefit the entire EU fisheries almost $2 billion, of EU fisheries sector, including fishermen. restructuring assistance in the 1994-99 period belongs to the "traditional" effort- In summary, EU-budgeted domestic and capacity-enhancing category. subsidies that enhance fishing effort and capacity include: 1 about 60 percent of the If we annualize these numbers, total EU EU's structural program; and 2 all the EU restructuring assistance for 1996 is about price support programs. $530 million, and, based on our breakouts, we would allocate a range of $300 to 320 However, it should also be noted that these million to the effort- and capacity enhancing funding levels reflect only the EU's category. (Another group that adds up to contribution, and that most of these $200 to 220 million annually tends to reduce programs are co-financed by member state harvesting capacity and redirects industry to governments and, in some cases, by industry alternative sources of supply, for example, or other private bodies. EU member state aquaculture. This group will be treated later co-financing may amount to as much as 70 in Section IX on environmental subsidies.) percent of the EU Commission's contribution, but a cursory examination of a Market (Price) Supports number of recently approved restructuring projects suggests that member state co- The EU implements a number of measures financing probably averages about 50 to support domestic fishery prices, including percent. Using that assumption, all EU (EU a minimum import price program (reference Commission and member state) price), and various other measures designed to support price floors, such as programs to 34The EU Pesca initiative is a good example of a remove excess supplies from the market v ebroad governmental program that almost certainly (withdrawal) and to defray storage costs. includes significant elements of subsidizaiton, but is During the 1980s, these market, or price hard to assess because we do not know enough about support, programs were funded at fairly the program. One European analyst of EU fisheries modest levels, usually about $25 million policies described the Pesca program in terms that annually. almost make it appear proconservation. Accordingly, the Pesca initiative is designed "to assist areas dependent upon the fisheries sector in coping and Currently, the EU also co-funds, with the adjusting to structural changes, for instance, by member states and industry, the Pesca supporting the diversification of employment Community Initiative, which we place in the opportunities in highly dependent areas." Clare broad "marketing" category. This program Coffey, "Introduction to the Common Fisheries is used for generic seafood product Policy: An Environment Perspective," International Environmental Affairs, Vol.8, No.4 (Falll996), promotion, labeling, and quality p.302. 23 contributions to budgeted domestic fisheries profitable and may even depend on subsidies subsidies that we consider on balance to avoid deficits.36 undesirable from a conservation standpoint probably amount to at least $500 million In recent years, these assistance measures annually. have been reduced substantially. There are many reasons that explain Norway's success Norway in reducing subsidies in fisheries: overall affluence, the absence of a distant-water Norway has provided financial assistance to fishing sector, the enormous economic gains its fishing industry for more than 30 years. associated with salmon aquaculture, and the Since 1964, the government has negotiated progress realized in resource recovery annually an assistance package with the through traditional measures, especially in Norwegian Fishermen's Association, with the Barents Sea groundfish fisheries. the overall objective of raising average fishermen's incomes to the level of industrial Accordingly, Norway presents an interesting workers. Not surprisingly, though, these example of an affluent and major producer agreements on financial assistance soon lost and exporter of fishery products that has sight of their original, short-term objectives apparently succeeded in reducing sharply its and effectively became ongoing subsidies fisheries sector subsidies. While Norway's that industry came to expect each year as a fisheries sector subsidies peaked at more matter of course.3 than 1.1 billion Norwegian krona in 1990, this assistance level dropped to under 200 Thus, increases in subsidies have been based million krona in 1993. Using recent on the rationale that the government has an exchange rates, this represents a drop from overriding social and economic policy about $150 million in 1990 to under $30 interest in maintaining employment in million in 1993. fishing communities. At their high point (around 1990), these subsidies represented a Norway's major financial assistance package substantial share of the industry's gross to the fisheries sector in the period 1989- revenues. More recently, even though these 1993 is illustrated below:37 subsidies have been reduced significantly, the evidence suggests that the traditional capture fisheries sector is still barely vThis observation is based on Rognvaldur 36 Hannesson, "Fishery Management in Norway," pp. Hannesson ("Fishery Management in Norway," 11-21; in Managing Fishery Resources, Proceedings p. 21) concludes that" in terms of economic of a Symposium Co-Sponsored by the World Bank efficiency, the ambition (of fishery management in and the Peruvian Ministry of Fisheries in Linma, Peru, 3 OECD, Committee for Fisheries, Review of June 1992. Fisheries (1995), p. 159. 24 Table 4. demonstrated more than the others an ability Total value in millions of Norwegian Krona to sharply cut back sectoral subsidies that Outlays Per Program in Percentages are environmentally undesirable. 1982 1992 1991 1992 199. Price 30 27 31 21 - supports Support to 19 14 9 10 37 reduce operational relatively modest levels of financial costs resources to assistance programs in the Social 26 31 22 50 36 fisheries sector, and does not have an overall schemes fisheries sector assistance policy along the Structure 19 26 32 15 13 lines of the EU, Japanese, and Norwegian programs programs3 4 sectoral programs. In fact, the agency TOAQ90 1,2h75 42f9 responsible for fisheries, the National TOTAL 900 1,125 715 425 195 Source: OECD Review of Fisheries (1995) Marine Fisheries Service (NMFS), a Department of Commerce subsidiary, has a In addition, there are smaller subsidies total budget ofjust $315 million, less than provided to the fisheries sector. For one-tenth of Japans FAJ budget, in spite of example, Norway provided about $600,000 the fact that, in terms of landings and gross in grants to the northern regions fishing revenues, the U.S. industry is about half as industry, most of which is used by the fleet. large as the Japanese. In 1993, $2 million was granted for improving industry efficiency, including U.S. fisheries sector assistance programs are experimental fishing and some R and D; and spread out over several agencies, including another $1.5 million for improved efficiency the Departments of Commerce, Agriculture, in distribution, sales, and marketing; and State, and other agencies, and do not appear still another $1.5 million to individual to be well coordinated among them. Largely plants to improve their operating efficiency. for that reason, there is no such thing in the United States as an overall fishing industry In summary, we may roughly estimate assistance "plan" or "strategy." Fisheries Norway's fisheries sector subsidies in the sector subsidies may be organized according $30 million to $50 million range, of which to the responsible U.S. government agency the large share appear to belong the as follows: undesirable, or effort- and capacity- enhancing category. In the Department of Commerce/National Oceanic and Atmospheric The most encouraging aspect of Norway's Administration/National Marine Fisheries recent handling of fisheries sector subsidies Service: is the simple fact that the government has appreciably reduced them, apparently with 0 research and development no or little negative impact on the industry's (Saltonstall-Kennedy Grants harvesting sector. Of the six case studies Program) -- The S-K program funds reviewed in this survey, Norway has a program of cooperative 25 government-industry development 0 Government procurement (Surplus grants that was originally used Commodity Program) -- The primarily to assist industry. It has Department of Agriculture been redirected considerably to administers a domestic surplus food promote other fisheries policy goals, removal program (Section 32) that chiefly in the area of fisheries has included fisheries products for management. Currently, an more than a decade. In the current estimated $1 million at most is used fiscal year, USDA has allocated for purposes that fall within the $14.4 million under this program for scope of our definition of effort- and fisheries products, all of which will capacity-enhancing fisheries sector be used for Pacific salmon products; subsidies.38 In the Department of State: In the Department of Agriculture: 0 payments to compensate for gear * export market promotion (Market damage (Fishing Vessel and Gear Promotion Program) -- The MMP Damage and Compensation Fund) program is administered by USDA, 0 payments to compensate for damage and is used generally to fund generic caused by interaction with offshore export market promotion of U.S.- energy activities (Fishermen's produced agricultural and fishery Contingency Fund) products. The enabling legislation was amended about a decade ago to U.S. fisheries sector domestic-budgeted include fishery products, and in subsidies that are effort- and capacity- recent years, a total of about $7 enhancing are listed in the table below: million of MMP funding as been provided to four separate U.S. Table 5. fishing industry groups. Program Approximate Current Funding Level $U.S. Millions - S-K development grants 1.0 _____________________Export promotion 7.0 This last estimate is admittedly rough. It is based Gerdme cment 1.0 on an examination of the latest available S-K annual Contingency fund 0.5 report, which shows about 10 development projects TOTAL 23.9 that could be considered as grants that promote Source: Various U.S. Government sources. increased harvests. It should be noted, though, that practically all of these S-K grants support development of underutilized species, such as Therefore, U.S. harvesting effort- and Atlantic mackerel and hagfish, certain squids, Alaska capacity-enhancing subsidies net to roughly grenadier, and Arrowtooth flounder. U.S. Department $25 million in domestic budgeted programs, of Commerce, NOAA, NMFS, The Saltonstall- an extremely low level for a nation whose Kennedy Grant Program: Fisheries Research and gross first-sale revenues in this sector Development, 1996 Report. approach $4 billion. 26 Rusia more than $1 billion. 39 As recently as 1989, shortly before the eclipse of the Soviet era, Russia presents an interesting and unique the annual total fisheries budget was more case study of fisheries subsidies. The bulk than 2 billion rubles, over $3 billion based of these subsidies were implemented prior to on the then-official exchange rate of I ruble 1991 under the former Soviet regime, but equaling US $1.600 Of course, we have no their effects are still with us, mainly in the information on what share of the above form of a large but declining fleet of distant- fisheries budget was allocated to "capital water trawlers, trawler-processors, and pure investment" or commercial fisheries processors, or factory "mother ship". It is assistance. widely recognized that the huge Soviet fishing industry was generously supported Nevertheless, if we assume that capital through direct government payments, state- investments in the commercial fisheries ownership, and artificially low prices for sector continued at the levels prevalent in operating inputs. the 1970s until the end of the Soviet era, we would have to add another roughly $15 It is practically impossible to translate what billion to $20 billion, for a total of more than little we know of Soviet era fisheries $30 billion during the entire Soviet era. Up subsidies into terms that are meaningful to the mid- 1 970s, about two-thirds of all today. Nevertheless, available evidence fisheries sector subsidies went directly to the suggests that as long as a substantial number harvesting sector, mainly for fishing and of Soviet-era fishing vessels continue to fishing support vessels. However, operate, these past subsidies should be government investments in the fishing counted as an important factor. Current industry during the last decade and a half of Russian fisheries development policies are the Soviet era were less concentrated in the in state of transition, and it is still hard to harvesting sector, once it became evident forecast their ultimate effect. that prospects were less encouraging in distant-water fisheries. Soviet capital investments in their fishing industry were made as early as the 1920s, Massive state support for fisheries produced but the modern high-seas and distant-water the expected results. Total catches grew six- fleet operating in all the world's waters is a fold from 1.7 million tons in the early 1950s product of the post-World War II period. A to over 10 million tons in the mid-I970s, U.S. government study of Soviet fisheries putting the Soviet Union in second place estimated that the Soviets had invested a behind Japan. During the same period, total of $16 billion in the fishing industry, Soviet fisheries catches grew by an annual most of it in the 1960s and 1970s. average of 18 percent, while world harvests grew by an average of just 7 percent. In As of the mid- 1 970s, annual capital investments in Soviet fisheries averaged th Department of Commerce, NOAA, NMFS, Fisheries of the USSR, Milan Kravanja et a,. oashington: 1977). Ryhatskie Novosti, No. 48, December 1993. 27 other words, the Soviets were investing in ships was lost to the newly independent the fish-harvesting sector at a far higher rate Ukrainian and Baltic states; and, most than the rest of the world. important, government financial support for what remained dropped precipitately. Only By the mid-1970s, then, the Soviet Union after many months of transition did a was the dominant and most aggressive successor agency, the Russian Committee on player in world high.-seas fisheries. Fisheries, effectively take shape. However, it was also increasingly heavily dependent on continued growth in the high- The industry contracted dramatically, and seas sector, which by then accounted for an harvests in both distant-waters and in amazing 90 percent of the total harvest. Russia's zone dropped sharply. The fishing When coastal states began to implement fleet was generally aging and poorly 200-mile fishing zones in the latter half of maintained even before the dissolution of the 1970s, Moscow's basic fisheries policy the Soviet Union in 1991. Therefore, the was bound to fail. demise of Communism had the effect of accelerating an existing trend. The forced development of the Soviet fleet paid little attention to economic viability. During this period, the Russian fisheries At their peak in the mid-1970s, the Soviets sector saw its production cut to less than half were the least efficient of the major fishing of its peak level. Total Russian output from powers. At that time, the Soviet fleet of capture fisheries dropped from 11.1 million larger vessels accounted for an incredible 50 tons in 1989 (when the Soviet Union placed percent of the total world high-seas and first in the world in terms of total harvests) distant-water fishing vessel tonnage, but to 8 million tons in 1993 and, incredibly, to accounted for only 15 percent of total world 4.3 million tons in 1995. In the Russian Far landings. East, which accounts for two-thirds of total Russian harvests, production declined The Soviet fleet was grossly overcapitalized precipitately from 4.5 million tons in 1990 and required massive institutionalized state to 2.4 million tons in 1994 before support. As a striking example, a U.S. rebounding in 1995. The rapid drop in government assessment from the mid-1970s Russia's total fish harvests after 1991 shows determined that the average Soviet "catch dramatically how dependent the fisheries per tonnage in the high-seas fleet" was about sector was on state financial support. one-fifth as great as Japan's; one-sixth as great as the U.S. average; and less than one- As the government's role unraveled and third as great as the world average. harvests declined, the industry's fundamental economic viability suffered. The lack of The collapse of Russia's fisheries sector after government funding pushed many 1991 was swift and dramatic. Shortly after enterprises to bankruptcy. The then head of the eclipse of the Soviet state system, the old the Russian Committee on Fisheries stated cabinet-level Ministry of Fisheries (Minfish) in late 1993 that, during the 1992-1993 ceased to exist; much of the fleet of large period, fishing enterprises were owed at one trawlers, trawler-processors, and mother point 300 billion rubles, or more than $300 28 million, by the government.4' At about the Southeastern Pacific, the Indian same time, it was reported that in 1993 the Ocean, Antarctica, and other distant state accounted for "only" 28.7 percent of regions, only through significant total investments (public and private) in the government subsidies. It follows fisheries sector.42 that either we shall develop a government marine resource During this transitional period, many fishing program for the high seas or the enterprises went out of business; the fisheries in this area will be condition of the vessels deteriorated; fuel discontinued in the very near costs escalated; and overall profitability future.43 continued to erode. As Russian distant-water fisheries declined A few years ago, a Russian government sharply, fisheries in the Russian zone also investigation reported that the majority of entered a crisis phase. Lacking adequate, or firms were barely surviving. Of the 340 at times any, state funding, the fishing fishing enterprises assessed by the State enterprises sought to break away from Statistics Committee, an astounding 80 to 85 Moscow's central authority, and some percent were involved in or nearing formed joint arrangements with foreign involvement in formal bankruptcy partners. Interestingly, as early as 1992, proceedings. Clearly, the Russian fishing Russian Far Eastern fisheries enterprises fleet was unable to function without with foreign capital accounted for more than continued government subsidies. half of all seafood exports from this region. These joint ventures totaled almost 450, and At the mid-1994 Day of the Fishermen the major foreign investors were U.S., ceremony, a Russian Committee on Japanese, and Chinese.4 Fisheries official admitted as much when he stated to the press that In the meantime, the Russian Committee on Fisheries scrambled to identify means of In former economic conditions, sustaining a declining fishing industry and, Russian fishermen were able to toward that end, resorted to several harvest the bioresources of the "incentive" measures: 41One means was to use the resource This estimate of the U.S. dollar equivalent of 300 itself as a means of generating billion rubles in 1993 is, to say the least, highly certain benefits for the domestic approximate. The ruble has rapidly depreciated throughout the period after the collapse of the Soviet Union. Thus, in 1992, the equivalent would have authorities announced in late 1994 been $1.3 billion. Conversions from rubles to dollars that they would auction off 350,000 are based on the average interbank exchange rates issued by the IMF. Yearly average exchange rates from rubles to dollars are as follows: (1991) 169, Rybatskie Novosti, No. 30, August 1994. (1992) 222, (1993) 933, (1994) 2,205, (1995) 4,562, It is interesting to note that the average foreign and (1996) 5,100. capital contribution to these joint companies was 42 Rybatskie Novosti, No. 18, April 1994. quite small: just 2 million rubles. 29 tons of Alaska pollock and other major role in the construction, repair, species to both private Russian and improvement, and maintenance of fishing foreign enterprises, and use the vessels.46 And subsidies were paid to proceeds for construction and fishing enterprises to ensure their delivery of maintenance of vessels used to repair stated amounts of fish products to the fishing boats on the high seas; Russian Federal Food Fund . * Fisheries allocations were also Most fundamentally, to recover from the provided to Japan and Korea in post-1991 industry-wide crisis, Russia must exchange for fuel that was used by dramatically upgrade the maintenance and domestic fishermen; repair of the existing, largely Soviet-era vessels, and rebuild the fleet through * Certain domestic enterprises were domestic and foreign shipyards. The given the exclusive right to export Russian Committee for Fisheries projected fish products; and these costs at $2.8 billion (for repair and maintenance) and $1 billion (for fleet * Foreign investors were given renewal), netting $3.8 billion in total fleet generous allocations and, in some recovery costs. cases, received exemptions from local taxes. However, the Russian government currently lacks the financial wherewithal to provide Currently, it is impossible to determine the investments in the fisheries sector that size of the remaining state-owned sector. approach the levels of the Soviet era. In Late in 1996, the then head of the Russian 1994, the committee determined that the Fisheries Committee reported that 92 industry needed a certain level of funding, percent of fishing enterprises had been but the Ministry of Finance agreed to only privatized, leaving 8 percent in the state- half that amount, and the Russian Federal owned group.45 budget further reduced it to 128 billion rubles for "the development of the fishing The key question in projecting subsidies in industry." Thereafter, only 47 billion rubles Russian fisheries revolves around the role of were actually allocated in the first half of the state. On the one hand, it is clear that the 1994, and the "hope of receiving the state's participation has vastly diminished remaining sum of 81 billion rubles" was and given way to a strong trend toward dismissed as "optimistic at best."48 privatization. On the other hand, there are still reasons to believe that the government ia will be a major factor in stabilizing and It is worthy of note that the Russian agency rebuilding this sector. Even in these dire charged with carrying out fisheries scientific times, the government continues to play a research, VNIRO, has recently converted some research vessels to operate commercially, and is involved in the building and repair of fishing vessels 4s Vladimir Korelsky, "Keeping Its Head Above and the supply of gear. Waters: The Fishing Industry," The Russian, 4 Rybatskie Novosti, No. 38, December 1994. December 1996, pp. 20-27. 48 Rybatskie Novosti, No. 29, August 1994. 30 In the following year, 1995, the Russian Fisheries believes that these resources will Committee on Fisheries total capital be raised through loan guarantees, some investments budget totaled only about 20 other vaguely defined subsidies, and the percent of the amount requested in 1994.' proceeds from fishery exports. In fact, Russia's fiscal year 1996 fisheries Simultaneously, the committee has endorsed budget was modest, with total spending of the need for tax incentives. All these about $100 million, of which a little more categories of assistance would likely meet than half looks like subsidies. the WTO's definitions of subsidies. Russia's FY 1996 Committee on Fisheries Obviously, precise assessments of fishing budget included the following main industry subsidies in both the Soviet and 50 programs: Russian eras are practically impossible. Essentially, "budgeted" subsidies are Table 6. currently at modest levels, but "unbudgeted" Million of US dollars and "indirect" subsidies may be much more Enforcement and 16.0 million significant. More worrisome is the threat aquaculture that these subsidies could reappear if and Education 27.0 million when the Russian government decides it is Capital investments 9.0 million "Ryba" ("Fish") 44.0 million TOTAL 96.0 million Source: U.S. Embassy, Moscow, October 10, 1996 A statement made by the head of the Russian Fisheries Committee in late 1996 The basic question remains: How will reveals the lingering expectations for Russia provide the capital necessary to fund increased government economic assistance: the recovery of its fishing industry?5' At this point, we can only observe that the Direct financial support from the resources will come from either the state, the government will play a role, but nascent Russian private sector, or foreign more important factors include the investors, or from some combination of all creation of favorable economic three. Recent Western reports based on conditions in the areas of credit, information from Russia's fisheries planners taxation, and tariffs, plus full and suggest that the Russian committee on timely payment of all of the ___________________government's budgetary obligations, 4 "Russian Government Cuts Fisheries Committee and the extension of special Funding", Euroftsh Report, March 30, 1995. Some advantages for companies that Russians have even claimed that without significant supply products to the government increases in State aid (subsidies), total Russian agencies and institutions.52 landings may decline to about 3 million tons by the ear 2000. We will therefore assess the state's role in U.S. Embassy, Moscow, October 10, 1996.thsecoasigysgnfatbu 51 This is clearly the most fundamental problem. The fishing industry's capital needs far exceed the 52 state and the private sector's ability or willingness to Korelsky, "Keeping Its Head above Water: The pay. Fishing Industry," p. 22. 31 declining.53 There is reason to believe that There is little doubt that, during the last two Russia's fisheries subsidies will continue to decades, the Chinese government has move away from state ownership and direct aggressively promoted increased capture support and toward various unbudgeted and fisheries production with a program of indirect forms. Since this situation is fishing vessel construction, repair, changing so rapidly, it is impossible to modernization, and purchase from abroad. quantitatively assess these subsidies. As a result, during the period from 1978 to 1994 -- roughly from the onset of economic China reforms to the present -- the number of "powered" fishing vessels grew from fewer Contrary to recent world trends in fisheries, than 40,000 to almost 260,000; total gross China has enjoyed a remarkable spurt of tonnage increased from 1.2 million to over growth in all sectors, including aquaculture 4.0 million, and engine power from 2 and capture fisheries. The state has million to 8.4 million kilowatts. aggressively promoted this expansion, and, as a result, China became a major fishing Simply stated, the aggregate size and power power in the last decade and a half and is of China's modem fishing fleet roughly now the world's leading producer. Capture quadrupled in just a decade and a half after and farmed fish output has boomed from the beginnings of economic reform. In other under 5 million tons in 1970 to 13.5 million words, China's basic policy on marine tons in 1991, more than 20 million tons in capture fisheries was to encourage increases 1994, 22 million tons in 1995, and an in fishing vessels, their engine power, and estimated 25 million tons in 1996, making it the associated harvesting technology. by a wide margin the largest producer of wild harvest and cultured fish and shellfish The growth trends in the marine capture in the world. fisheries sector are most interesting. Marine harvests grew from less than 4 million tons Both the growth rates and expectations in in 1978 to 8 million tons in 1993, 9 million fisheries have been astounding. As an tons in 1994, and perhaps 10 million tons example, during China's seventh five-year currently. Using the most recent official plan (1986-1990), the state set a target of an figures (for 1994), marine capture fisheries almost 30 percent increase in total fish and inland aquaculture each yielded about 9 output compared with the previous plan million tons of annual production, with their years (1981-1985). Incidentally, this combined total of 18 million tons accounting projected increase exceeded the targets for for almost 90 percent of total Chinese grain (12 percent) and meat (20 percent).54 fisheries output. Thus, China currently accounts for more than 10 percent of global s3 Korelsky, "Keeping Its Head above Water: The marine capture fisheries harvests.55 China's 9 Fishing Industry," p. 22., points out that, under "Fish- million tons of marine capture fisheries may 2000," the "federal budget will cover only 20 percent of the industry's overall financial needs." u.s. Department of Commerce, International 5 People's Republic of China, Ministry of Trade Administration, "Doing Business in China," Agriculture, Bureau of Fisheries, China Fishery December 1988, p.7. 1995, p. 2. 32 be broken out roughly in two categories: * relations between fishermen and first, more than 8 million tons in China's China's booming mariculture sector zone, and second, the distant-water sector at became strained, in part because the roughly 500,000 tons and increasing. (This spawning fish used in aquaculture second, distant-water sector is discussed at are taken from wild stock. greater length in the following section.) By the late 1980s and early 1990s, there Such rapid growth in marine capture were signs that the industry's explosive fisheries output inevitably encountered growth had run into serious and undeniable obstacles. Initially, as one would expect, the resource constraints. authorities responded to problems in China's zone. Although China had enacted a In 1992, China's Ministry of Agriculture framework fisheries law in 1986 that lay the issued regulations that sharply restricted groundwork for subsequent management certain fishing practices.57 Complaining that actions, it soon became clear that sterner "fishing in Chinese waters will be restricted measures were needed.56 in a bid to restrain the rampant destruction The telltale signs were numerous: of resources," the ministry sought to regulate more effectively the use of set nets and trawl * By around 1990, average yields (per gear, and implemented closed seasons and unit of effort) in capture fisheries areas, and a more restrictive vessel licensing dropped by more than 50 percent system. with the 1950s; Significantly, China's fisheries authorities * evidence emerged of decreed a first-time national plan to limit overexploitation of traditional capacity in the harvesting sector. species, especially croakers, hairtail, Accordingly, net horsepower in the fleet and squid; operating in China's 200-mile zone during that five-year plan period (1991-1995) was * signs of overuse even appeared with limited to 10.23 million, an increase of just respect to less traditional, recently 1.3 million over the level of the previous initiated fisheries, like filefish; plan period. * capture fisheries harvests tended to Currently, the organization of China's shift toward juvenile fish and lower- fisheries sector may be described as value species; and "mixed." Official publications state that about 90 percent of harvests, or about 8 million tons, are taken by enterprises "run by fishermen," but a large share of these are in This discussion of recent developments in the fact organized as "collectives, cooperatives, efforts of China's fisheries leadership to more and joint groups." effectively manage the capture fisheries relies heavily on: U.S. Department of Commerce, NOAA, NMFS, en "Chinese Fisheries Management", IFR-92/1 IL, by Mark Wildman, based Announces Fishing Restrictions," July 22, 1992. 33 The remaining share -- about 10 percent -- is seems likely that many state-owned fishing operated by the state. In 1995, this latter, enterprises are losing money. In fact, fully state-owned group still numbered more approximately three-quarters of all Chinese than 60 enterprises, with over 3,000 vessels state-owned enterprises (in all sectors) lost that accounted for 850,000 tons of harvests. money in 1996, according to an embarrassed There is little doubt that the major form of Premier Li Peng at the spring 1997 session fisheries subsidy in China is public of the National People's Congress.59 investment in the state-owned sector. To make the matter even more complicated, Therefore, a fundamental and thus far the GATT treatment of subsidies in socialist unanswered question is the size and funding economies is still undeveloped and largely levels of the state-owned and -"financed" theoretical. Essentially, centrally planned sector in Chinese fisheries. Until we have economies subsidize mainly through state more and better information on the state's ownership and investments, but these same evolving role in this sector, any attempt to economies are not yet members of the WTO, assess the level of subsidies is at best an and, therefore, these practices have not been educated guess. challenged under WTO rules. As a result, there is relatively little GATT case law on It appears that the bulk of these subsidies are state ownership and investment subsidies. provided by the Ministry of Agriculture and its fisheries subsidiaries. This writer was Nevertheless, total investments by all unable to obtain data on the fisheries portion governments in all sectors continue to be of the Ministry of Agriculture's budget, but substantial, in spite of the recent wave of we can reasonably infer that it must be economic reform and privatization. significant. In the Chinese government's Worldwide, the World Bank estimates just-announced overall 1997 budget, annual private investments at $4 trillion, six agriculture is allocated $7 billion, but we do times greater than the $700 billion in not have a fisheries breakout. We may government investments. Naturally, infer, though, that the majority of that China, by virtue of its size and the fisheries budget is used for development, organization of its economy, is a major and the biggest item is government placer of government investments. contributions to the state-owned and cooperative sectors. Planned spending in One could infer that all payments to all firms 1997 on all state enterprises is over $300 qualify as subsidies under Article 1 of the billion, one-third more than in 1995. It also 1994 WTO Subsidies Agreement. s8 China's 1997 budget was unusually sparse, even 5 "Major Speech Puts Li Peng in Spotlight," stanards Th Engishashlintn.Pos, March 2, 1997. on Beijing's prudent standards. The English60 World Bank, Advancing Sustainable document totaled only 19 pages and provided no data on "losses at money-hemorrhaging state-owned Development: The World Bank and Agenda 21, enterprises." See, Matt Forney, "Between the Lines: Environmentally Sustainable Development Studies China's Sparse Budget Masks Some Troubling and Monographs No. 19 (Washington, D.C.: World Trends," Far Eastern Economic Review, March 20, Bank, 1997), p. 13. 1997, p. 53. 34 Therefore, when China joins the WTO, these to the domestic capture fisheries sector at massive investments in state-owned and - approximately $500 to $750 million. controlled fishing enterprises will qualify as subsidies, since they are direct financial Even more alarming is the evidence that we transfers (grants, loans, equity infusions) or have regarding China!s long-range planning the provision by government of "goods or for the fisheries sector. A recently published services other than general infrastructure." semi-official report stated that China plans [Article 1.1 (a)(1) (i) and (iv)]. to boost total fish production (including farned and capture fisheries) from the On the other hand, others may note that to present 25 million tons to 35 million tons.61 establish equivalent treatment for socialist While the aquaculture share will increase and market economy firms, the true from 55 to 60 percent of the total, the subsidies should be understood to cover not remaining 40 percent for capture fisheries all transfers of funds to operating still works out to 14 million tons, enterprises, but only transfers that promote considerably more than any other country's fishing effort in excess of levels required to current total output. Therefore, if these achieve economic viability or (alternatively) goals are realized, China will by 2000 maximum economic yield. account for about one-third of total world fisheries output and almost one-fifth of To translate the above, if we had the Chinese capture fisheries harvests. government's total budget for capture fisheries programs, we would ideally Given the resource constraints in their own allocate it partly to a "return on investment zone, it is certain that these projected stream" and partly to a subsidizing stream, increases in capture fisheries must come the first defensible and the second from distant-water fisheries. The above- potentially actionable. cited report assigns a "high priority" and "major support" to "actively develop deep- The evidence that there is a subsidizing sea fishing" through the building of stream in China can be inferred from the "overseas fishery bases that complement declining yields and other signs of strain in production with transportation and Chinese fishing operations, and from Li marketing processes" and "the possibility of Peng's public concession that three-quarters combining foreign aid projects with of all state enterprises were unprofitable in economic cooperation in fisheries." With 1996. It is hard to believe that the level of respect to the state-owned sector, Beijing subsidy is less per unit of economic activity plans to "enthusiastically and boldly push in this sector than in Japan or the EU, which, forward the reform of state-owned aquatic although considerably more affluent, have products enterprises and "gradually far lower catches. Therefore, while we transform them into "limited liability regret the sparse data from Beijing, we have companies." no choice but to make an informed and prudent conjecture. Accordingly, we rate the Chinese governments current subsidies "China: Fast Development of Fishery Seen," Beiin Xinhua Domestic Service March 12, 1997. 35 China is the only major fishing power with state ownership and investments play an such ambitious development plans, and important, although probably declining, role. clearly the only one that continues to count It may be noted that, a decade ago, a U.S. on significant increases in production from government analysis projected that almost deep-sea and distant-water fisheries. 40 percent of 1986 global fish harvests were Therefore, while Japan and the EU may be taken by "state-owned" and "mixed" said to be subsidizing defensively, Beijing's enterprises.62 plans call for probable increases in subsidized expansionist efforts outside its In Russia, the Soviet-era massive capital zone. investments in fisheries have been interrupted but clearly have not ceased. In Global Projections China, the economic reforms have certainly reached and significantly affected the Using the above estimates of the domestic fisheries sector, but, based on the admittedly budgeted subsidies that are effort- and sparse information available to this writer, capacity-enhancing, we are, let us hope, in a the state-owned and -run sector continues to position to hazard a global projection. play a very major role. Obviously, this projection.is fraught with In summary, fisheries subsidies in the form difficulties, since we must not assume that of state ownership and operation are the ability and will to subsidize fisheries in declining in Russia and remain at high levels the case study countries are matched in the -- and may even be increasing -- in China. rest of the world. To project a world total, we start by netting Nevertheless, we need to make our best the fisheries sector domestic subsidies of the effort. Based on the information available six case-studies countries at about $2.0 on budgets and assistance programs, we billion. This estimate, as shown above, is believe it is possible to at least initiate a based on budgeted amounts and does not well-reasoned discussion of the magnitude reflect the total economic impact of of the problem on a global basis. unbudgeted or underbudgeted subsidies. Among the budgeted subsidies, state Next, we need to add some reasonable investments present a major problem. Of estimate for the rest of the world. All other our six case studies, state ownership and countries, as explained above, account for investments play a major role in Russia and slightly more than one-half of total world China. For the time being, Russia's fisheries production in 1994, the latest year subsidies to this sector are collapsing, while for which we have FAO figures. On the China's are impossible to assess accurately other hand, most of these countries are because we lack the necessary budget smaller and, less affluent than our six case information. The matter is further complicated by the fact that, in both countries, public funding in the fisheries 62 U.S. Department of Commerce, NOAA, NMFS, sector (indeed in all economic sectors) is in "World Fishery Trends, 1980-1986," IFR 87/63. a state of flux. Nevertheless, it is clear that 36 studies and are unable to subsidize as Article 1.1 (a)(1) (i) and (iii), since they generously as, say, Japan and Europe. constitute "a direct transfer of funds" and are "goods or services other than general Conversely, many of these countries have infrastructure." Essentially, foreign access statist economies, particularly in the payments are subsidies because agricultural and fisheries sectors, and governments, and not the fishing companies, probably subsidize this sector to the pay them. maximum of their ability to pay. In addition, this category includes a number of This type of subsidy is provided primarily developing and industrial economies with by industrial countries whose distant-water fairly large and, in some instances, rapidly fleets were excluded from foreign fishing growing fishing industries, such as Canada, grounds after the worldwide adoption of Chile, Iceland, Indonesia, the Republic of extended jurisdiction in the late 1970s.63 Korea, Mexico, Taiwan (China), Thailand The EU has traditionally negotiated many and others. types of fishery agreements with non-EU nations, including reciprocal access and We will assume that the vast majority of access-for-trade arrangements, as well as nations other than our six case studies are agreements to pay access fees to third developing countries that tend to provide country governments. For purposes of this only modest budgets for fisheries subsidies. study, we are in principle interested in all Hence, if net domestic subsidies in the six three, since they all involve EU measures case studies amount to about $2.0 billion, that offer economic incentives of one sort or we will give the following, highly tentative another in exchange for improved access for projections for the rest of the world: low; European boats in third country waters. $1.0 billion, and high; $1.5 billion. However, the third category -- direct EU monetary payments to other governments -- In summary, our global estimates of is the most obvious and glaring example of a budgeted domestic subsidies that are effort- subsidy that promotes increased fishing. and capacity-enhancing become: low; $3.0 billion, and high; $3.5 billion. A good, recent example of how these agreements work is the fisheries access arrangement that the EU has negotiated with BUDGETED SUBSIDIES: Mauritania. In June 1996, the EU signed a FOREIGN ACCESS A . This section deals extensively with distant-water fishing subsidies provided by the EU for the simple assistance provided to fishing operations in reasons that this writer had much more information the waters of other coastal states. This type on EU practices than anyone else's. Scattered of subsidy can assume many forms, but the evidence indicates, however, that a number of other, most important type is a government-to- chiefly East Asian, countries also provide this type of Subsidies in the form subsidy. It is not the intention here to place any unfair or disproportionate share of responsibility for of foreign access fees meet the definitions of this practice on the EU's shoulders. the 1994 WTO Subsidies Agreement under 37 five-year fisheries access-for-trade At the same time, the EU and Senegal have agreement with Mauritania that lifted an EU held long negotiations governing the terms embargo on fishery imports from that of access of European boats to the waters of African nation in return for EU payments of that West African country and, according to almost $350 million, or $70 million per press reports, finally came to agreement in year. Interestingly, the agreement permits March 1997. The agreement will be valid an increase in EU access to Mauritanian for four years (1997-2001), and provides for waters, authorizes higher EU total harvests, an annual EU payment of $15.6 million, an and, for the first time, specifically allows EU increase of one-third over the previous directed fisheries for highly valued squid accord but far less than the $42 million and octopus. demanded by Senegalese negotiators. In addition, the EU will pay almost $8 million Not surprisingly, the Mauritanian industry annually to Senegal from the European expressed alarm at the terms of the Development Fund. Therefore, total EU agreement, in large part because it sanctions assistance to Senegal related to this fisheries increased foreign effort in already fully and agreement is $23.6 million. Interestingly, overharvested fisheries. The specific terms the EU received for the first time allocations of the agreement, described as a "windfall" in coastal waters to fish pelagic species like for the cash-strapped Mauritanian sardinella and horse mackerel, traditionally government, substantially increased the low-value species consumed by the overall EU payment from $34 million (under Senegalese. As in Mauritania, Senegalese the old agreement) to almost $350 million, fishing industry groups have objected to the the number of eligible EU boats from 165 to EU's demands, arguing that the local 240, and allowable EU harvests from 76,050 population depends on the coastal pelagic to 183,392 tons. In response to Mauritanian fisheries for food, and that the larger and industry complaints that these arrangements more powerful EU vessels may overfish will harm domestic fishermen, Mauritanian these resources. authorities are considering remedial measures, including tax exemptions and fuel The EU subsidizes similar fisheries access subsidies. arrangements with the following West African countries: Cape Verde, C6te Even more alarming is the possible negative d'Ivoire, Gabon Republic, The Gambia, impact of increased fishing on Mauritania's Equatorial Guinea, Guinea, Guinea-Bissau, already fully harvested resources. The Morocco, SAo Tomd and Principe, and combination of increased legal foreign Sierra Leone. In East Africa, EU fishing, still-rampant illegal foreign agreements have been concluded with operations, and ineffective enforcement Madagascar, Mozambique, and Tanzania, could lead to further and long-lasting harm and in the Indian Ocean, with the Comoros to an already precarious resource base.h Republic, Mauritius, and Seychelles. taU.S. Embassy, Nouakchott, July 24, 1996. eU.S. Embassy, Dakar, October 3, 1996. 38 There is not much doubt that these In response to a question posed in 1996 by a arrangements are implemented member of the European Parliament, the overwhelmingly for the benefit of the EU commission defended the economic benefits distant-water fleet, and that they provide data showing that "the agreements, by only modest benefits to the developing maintaining or expanding the fishing countries and local industries. This possibilities for the Community fleet in third conclusion is shared by European experts country waters, seek to protect the level of themselves. A French academic direct employment on fishing vessels and commentator characterized these EU indirect employment in onshore Rrocessing fisheries agreements as follows: facilities and related industries." Total "direct and indirect" employment benefits The impact of this policy on the were estimated at 45,000 jobs. technical, economic and social development of the The current annual level of EU payments for African/Caribbean/Pacific countries these foreign fishing arrangements is about is negligible. Training, technology $350 million, according to a recent U.K. transfer, and control over the report. These foreign agreements are funded resources are all neglected. Only a mainly for the benefit of the Spanish, small share of the harvests (of the Portuguese, and French fleets. EU boats) are landed and sold locally The European Parliament has spoken to meet (the coastal state's) needs; critically of these agreements, especially research programs tend to target their "considerable financial budget high-value species, like tuna, that are implications."69 Budget outlays at these exported, rather than species that levels and their distribution among EU could be harvested by the local members have clearly reached a point where coastal fishermen to supply domestic they are becoming a divisive issue within markets. These agreements pretend the European Community. to reconcile trade and aid, but they have barely contributed to the Japan has traditionally allocated the bulk of development of the local fishing its fisheries subsidies to the small-scale industries of the coastal states. Isn't it wishful thinking ("utopique") to Answer provided on May 8,1996 by Mrs. Emma support access by the technically Bonnino, the head of DG XIV (Fisheries), Official advanced European fleets to the Journal ofthe European Communities, No. C297/2 1, of these developing countries10, 1996. waters othsdeeoigcures6 8 "House of Lords Says Spain Should Pay More and, at the same time, to claim that For Third Country Deals," Worldfish Report, January we are trying to develop the local 30, 1997, summarizing; House of Lords Select fisheries? 66 Committee on the European Communities, Third Country Fisheries Agreements, (London: Her Majesty'sStationery Office Publications Centre, 1997). 66 JLeBi,"ir-odetZnsEooius69 32 "MEPs Angry as Commission and Council J. Le Bail, "Tiers-Monde et Zones Economiques Exclusives: La Difficile Conquetes d'une Nouvelle By-Pass EP," Worldfish Report, No. 30, December 5, Frontier," (1992), Unpublished article. 1996. 39 coastal sector and not to the larger jurisdiction of other countries in the late companies that conduct offshore and distant- 1970s. The same conclusion is suggested by water fisheries.70 However, the oil crisis and data that show that, during the last decade, implementation of extended jurisdiction of harvests from "offshore" and "distant-water" the 1970s ravaged the distant-water sector fisheries have dropped substantially, while and forced a rethinking of these priorities. coastal fisheries and aquaculture production Subsequently, Japan has attempted in has been more or less stable. various ways to both force adjustments in and subsidize its distant-water fishing sector. As a practical matter, then, Japan's current subsidies to its distant-water fishing industry Currently, the FAJ spends almost $100 mainly benefit the tuna and cephalopod million on distant-water access (squid and octopus) boats that operate in arrangements, main]ly for the benefit of more southerly waters and off the coasts of vessels operating in waters of developing developing countries. countries in the western Pacific and elsewhere. In addition, another $100 million China is in a unique position among major or more is spent on foreign fisheries fishing powers, since it is the only one that assistance, one objective of is which is to continues to promote a blatantly secure continued fishing rights in waters of expansionist distant-water and high-seas the recipient developing nations. fisheries policy. It should be noted that Japan has evidently Within the large marine capture fisheries chosen not to rescue its entire distant-water sector, of great interest to us is the strong sector. In fact, the fleet that previously growth in China's distant-water fleet. This concentrated on groundfish and salmon in sector was launched in 1985, and from 1986 northern, largely U.S. and Soviet waters, has to 1991 grew from practically nothing to contracted markedly. about 275 vessels, and the distant-water catch (outside China's 200-mile zone) Japan's entire distant-water fleet has been jumped from 0.02 million tons to 0.323 reduced from 700 to 288 vessels from 1975 million tons, and, at present, a projected to 1990, and probably has even fewer today. 500,000 tons. China's offshore and distant- The very large distant-water sector, i.e., water fleets were launched in part to take vessels over 1,000 GRT, numbered 127 in some pressure off the increasingly heavily 1990 but only 36 in 1994, and have been exploited near-shore resources. From the mostly sold, transferred to foreign joint beginning, the distant-water fleet was ventures, or reflagged. These figures dominated by a few state-run enterprises. suggest that the downsizing of the Japanese For example, in the mid-980s, distant- fishing fleet hit especially hard in the sector water fishing in the North Pacific and off that operated in waters that fell under the 70 OECD, Committee for Fisheries, Reexamination of Financial Support to the Fishing Industry (Japan), November 13, 1978. 40 Alaska was conducted exclusively by the equipment; the use of government China Aquatic Products Corporation. employees, who account for about 10 percent of the staff in this sector; duty-free Today, China's distant-water fleet operates treatment of imported gear and equipment; all over the world, but mainly in the Pacific direct financial payments to various Pacific and Indian Oceans, and off Western Africa. island state governments to pay for access to Nor is there any sign that China's top fishery the tuna-fishing grounds; and a policy of managers see the end of this growth in the "favorable consideration" of industry foreseeable future. In a 1995 official requests for loans and the use of foreign publication, their long-term fishery currency. development policy included the following goals: "to accelerate aquaculture Therefore, China's recent expansion into development; stabilize offshore [still within distant-water tuna fisheries has been China's 200-mile zone] fishing; and expand promoted primarily by the state-owned distant water fishing." sector. Anecdotal evidence indicates that China, like the other distant-water fishing An informative case study of how China has nations, pays some share of foreign access rapidly developed its distant-water capture fees for its high-seas fleet, but no fisheries sector is its high-seas tuna fishery. information on the levels of these payments China's distant-water tuna fishery is was available. It appears, until more concentrated in the South Pacific and, to a information is available, that state ownership lesser degree, the Indian Ocean.72 The is probably the principal form of subsidy to industry mainly uses longline and pole-and- its distant-water sector. These enterprises line gear, and used tuna vessels and refitted are all state-run or cooperatives, and 70 trawlers purchased from Japan and Taiwan, percent of the fleets' tonnage is accounted China. Its growth has been rapid and recent, for by 11 state-run fishing enterprises, with and as recently as 1991 its total harvests the remainder belonging to the cooperatives. were only about 2,000 tons, but a few years later, in 1994, China's total tuna production The U.S. fishing industry conducts relatively had jumped to about 15,000 tons, mainly in limited distant-water fishing operations. In Palau, Micronesia, and the Marshall Islands. fact, the only major U.S. distant-water fishery is the tuna purse seine fleet's The state has employed a number of operations in the southwest Pacific. In incentives to promote the Pacific tuna 1987, the United States concluded a multi- fishing industry. Principally, it has provided year fisheries agreement with a number of capital in kind in the form of vessels and Pacific island states that guaranteed access to these tuna fisheries in return for license 71 China Agriculture Yearbook, 1987 and 1988, fees and economic assistance payments.73 "Fisheries in 1987", and "Fisheries in 1988" (Beijing: A cultural Publishing House, 1990 and 1991). Japan External Trade Organization, China's Tuna " Samuel Herrick Jr., Byron Rader, and Dale Fishery, December 1995. Squires, "Access Payments and Economic Benefits in the Western Pacific United States Purse Seine Tuna 41 Under the initial terms of the agreement, the and bitter, and Japan refused to increase its United States gained access for up to 55 payment to Kiribati from 5 to 6 percent, U.S.-flag purse seiners for five years in leading to abrogation of the agreement in exchange for fees paid by industry and $10 early 1997.74 million in economic development assistance provided by the U.S. government. Increasingly, it appears that the developing countries are questioning the fundamental When the agreement was extended in 1991, equity of these arrangements. Just one access was again provided for up to 55 striking example is the recent decision of boats, but the industry consented to pay $4 Papua New Guinea to terminate its 40-year million annually for licenses, technical policy of giving tuna fishing licenses to assistance, and an observer program, and the foreign longline vessels after it decided that U.S. government committed to increase its the revenues generated by foreign license annual payment to $14 million. U.S.-flag and access fees were far below an optimum 75 tuna purse seiners participating in these level. fisheries numbered from 40 to 45 in the years immediately following the agreement's In other words, the issue of foreign access extension in 1991, but have recently dropped subsidies must be situated in the larger to fewer than 40. Therefore, the U.S. access context of the efforts by the coastal states to payment through the South Pacific Tuna develop and manage their own fisheries Treaty effectively provides an annual resources. It is fairly clear that one unique subsidy of about $400,000 per boat. feature of fisheries sector subsidies is the simple fact that their effects are not confined Subsidies paid in support of access by distant-water fleets to foreign fisheries are 7 See, for example, the complaints voiced by troubling in a number of ways. Not only are Argentine government and industry over the terms of they clearly subsidies under the terms of the the fisheries agreement with the EU. Department of 1994 WTO Subsidies Agreement, but they Commerce, NOAA, National Marine Fisheries also effectively transfer excess fishing Service, "Argentine-European Union Fisheries Agreement," IFR 94/108. This agreement went into adpbay tern to souerminthe effect in 1995, providing for deployment of up to 70, and probably tend to undermine the mostly Spanish, vessels in Argentine waters with economic and perhaps even the conservation rights to take as much as 250,000 tons annually of interests of the coastal developing states. It fish and squid. The report mentions that these is evident that, increasingly, both allocations to EU vessels include species already government officials and industry heavily fished by Argentine fishermen and observes that, even with the financial support of Brussels, the representatives in these developing countries Spanish vessels may not be able to operate profitably are dissatisfied with these arrangements. Argentina. The recent negotiations between the EU and It has even been reported that a study Morocco and Mauritania were protracted commissioned by Papua New Guinea concluded that the export earnings of a single domestic vessel exceeded the net revenues from licenses and access Fishery," Marine Policy, Vol. 21, No. 1, (1997), pp. fees for 130 foreign boats. "P.N.G. Ends Licensing 83-96. Program", Tuna Newsletter, August 1996, p.7. 42 to waters under the jurisdiction of the shares of harvests in local ports, to provide country that provides the subsidy. Instead, training, etc.); programs that provide subsidies in this sector have manifest financial incentives to sell or lease fishing "spillover" effects, and foreign access vessels to developing countries; and others. payments are probably the best example. The EU, for example, also administers several "trade-for-access" arrangements in Based on information available on EU, which countries that provide fishing Japanese, Chinese, and U.S. foreign access allocations in their waters to EU vessels payments, it is obvious that this category of obtain in return preferential access to the fisheries subsidies must total at least $0.5 EU market for various fish products.78 billion annually, and, if we had better data on other economies, especially Taiwan, Therefore, we will give the following rough China, and the Republic of Korea, the total estimates of budgeted foreign, or distant- could easily be as high as or higher than water, subsidies: low; $0.5 billion, and $0.750 billion. high; $1.0 billion. If these aggregate levels of foreign access payments seem modest, it must be recalled UNBUDGETED SUBSIDIES that foreign fishing (by vessels of nation A in the zone of nation B) has declined A more difficult part of this exercise is significantly in the years after the worldwide estimating subsidies that are not identified in move to extended jurisdiction. Currently, fisheries agency budgets but are the global distant-water catches total only about responsibility of other agencies or are, by 5 million tons, roughly 6 percent of all their nature, unbudgeted or underbudgeted. marine fishery harvests. In other words, if Two types of subsidy that fall into this all fishermen, domestic and foreign, paid category are subsidized lending and tax fees at these rates, the world total would be preferences. about $8 billion." In discussing these categories of subsidies, In addition, there are other forms of we are compelled to use anecdotal assistance to distant-water fleets that are information and certain reasonable hard in some cases to quantify. These assumptions. The absence of adequate include the use of "tied foreign fisheries information on the extent, scope, and assistance"; agreements to provide aid in economic impacts of capital cost and fiscal kind (such as commitments to land specific subsidies in fisheries is a serious problem. It 76 FOYabo.FseySaitc:Cthsad78 A fascinating question is whether the EU's trade- FAd Yeabo. Fishey9Staistc: Ath and for-access agreements should be treated as subsidies. Landings, The argument could be made that these trade 77XSeCapeV11ioieoucien.usdis o concessions qualify as "forgone government See Chapter VIII [on resource rent subsidies] forbeen resolved, a discussion of user fees charged to domestic and, therefore, we do not explicitly treat these fishermen. arrangements as subsidies in this study and did not include them in our calculations. 43 is entirely possible, in fact, that subsidized estimates of industry's operating and capital loans and tax preferences are collectively the costs, and revenues may serve as an major form of financial assistance in this introduction to this issue. In its projections sector. In some countries, these unbudgeted of gross costs and revenues in world subsidies are almost certainly more fisheries, FAG suggested the following important than the budgeted programs breakout of costs: reviewed in the previous two chapters. Table 7. These general comments are borne out by Estimated Costs in World Fisheries trade investigations and reports prepared by -- US$ Billions -- international organizations. In a 1991 Maintenance and repairs $30.207 countervailing duty and antidumping case isane brought by U.S. East Coast salmon farmers Fue 13 against the Norwegian Atlantic salmon Labor 22.587 aquaculture industry, the U.S. International Capital 31.900 Trade Commission and Department of TOTAL COSTS 124.078 Commerce concluded that most of the TOTAL REVENUES 70.000 Norwegian government subsidies were in Source: FAO, Marine Fisheries and Law of the this category, including regional Sea: A Decade of Change (1993) development loans, national fisheries bank Subsidized Lending loans, capital tax incentives, payroll tax preferences, and accelerated depreciation allowances. In developing countries, fisheres sector subsidies is what we where government agencies responsible for generally call subsidized lending. These fisheries generally have modest budgets, it appears that the lion's share of subsidies is budgeted in the accounts of the provided in the forms of subsidized loans and tax breaks.80 budget lines for loan and loan guarantee Lacking sufficient country-specific programs are included in the accounts of a information, we will turn to the global fisheries agency, the full cost to the estimates developed in 1993 by FAO. These government may not be given, or it may be expressed at the relatively low level of the 79 program's basic administrative costs. 79 U.S. International Trade Commission, Fresh and Hence, subsidized lending is, for our Chilled Atlantic Salmon from Norway (hereinafter purposes, an unbudgeted or underbudgeted cited as ITC, Salmon from Norway), Investigation subsidy. No. 701-TA-302, USITC Publication 2371 (April 1991), at B-28. This general observation is suggested by a recent The most common forms of subsidized FAO study of this issue: David Insull and J. lending are government-funded reduced Orzeszko, A Survey of External Assistance to the interest rates, and loan guarantees. Fishery Sectors ofDeveloping Countries (Rome: However, based on available information, FAO Fisheries Circular No. 755, 1991). subsidized lending may also involve more 44 than these two programs. Some fishing industry among the market-based governments may, for example, be willing to industrial countries. commit significant resources to Japan is an interesting example of the use collaboration with industry when they want and impacts of subsidized lending in the to refinance their loans. More telling, they fisheries sector. In fact, various financing may be willing to help industry reschedule programs constitute an important element in or restructure their loans in times of the FA's budget. Under this category, we economic stress, and they may even let it be include a number of reduced interest rate known that, as a last resort, they may forgive and loan guarantee programs, as follows: government loans. Table 8. What are the full costs to government of FAJ Subsidized Loan Programs subsidized lending in fisheries? Clearly, we -- U.S. $ billions -- do not know unless we understand how the Program Loan ceiling government raises money, whether the Fisheries modernization $1.145 govrnmnt mony,Fisheries management .920 government is financing a lower-than- Improvement promotion market interest rate and what those costs are, MAFF finance corporation .600 how frequently a Government has to make Production/marketing .370 good on bad loans that it has guaranteed, Fisheries management .275 what the lost opportunity costs are, what is Reconstruction the "time value" of lendable funds, and so Fisheries maintenance stabilit .200 forth. However one estimates all these International regulatory .120 Strengthening fisheries .090 costs, they must be considerable. Management TOTAL $3.720 Capital costs in this industry are of critical Source: U.S. Embassy, Tokyo, September 30, 1996 significance, since the participants consist for the most part of borrowers with modest In summary, the FAJ maintains portfolios of financial resources. In developing countries, reduced rate and government-guaranteed capital costs in fisheries are probably even loans, categorized by the FAJ as "measures more significant. for the fisheries industry," that have an aggregate face value of $3.7 billion. The Information suggests that a large share of the rates charged by the FAJ are clearly below loans for the construction, modernization, market, and, in late 1996, were further and repair of fishing vessels may have been reduced to 3 percent. made on terms that have little relationship with normal commercial banking Subsidized financing for the fishing industry arrangements. This is certainly true of is provided by a variety of banking China, the former Soviet Union, and other institutions and usually through the East European countries with state-owned numerous fishery cooperatives all over and -managed fishing industries, but it may Japan. The large number and variety of also be true -- to some hard-to-determine wholly and partially government-funded degree -- of Japan, which has the largest financial entities in Japan that are involved 45 in providing capital to the fishing industry industries, although we have no detailed make it extremely difficult to generalize information about these programs. In China, during one five-year plan (1986- about these operations. A 1991 U.S. 1990), the state invested heavily in the Government-funded study listed about a fisheries products sector. The government's dozen finance corporations, industrial and Agricultural Bank of China made loans to fishing sector banks, foundations, the fishing industry that totaled $4 billion, or development corporations, and credit banks. an average of $800 million per year, a sixfold increase from the previous plan To make matters even more confusing, some (1981-1985). It is worth noting that this of the above entities are strictly bank publicized plans in 1991 to provide the governmental, others are quasi-public, while bulk of its loans to state and "collective" still others were public bodies but evolved fishing enterprises in the next plan period as commercial operations. (1991-1995). In the five other countries reviewed in the In Russia, it has been reported that massive case studies, subsidized lending is common: loan guarantees will almost certainly be one means that the government will use to In the United States, a loan guarantee rebuild the devastated Russian fishing fleet. program, the Fisheries Obligation Guarantee [FOG] Program (recently renamed the In Norway, the government subsidizes the Fisheries Finance Program), provides a construction and rebuilding of fishing federal guarantee for private long-term debt vessels through a National Fishery Bank that finances or refinances the construction, program that was capped at 350 million reconstruction, and reconditioning of fishing Norwegian krona (approximately $50 vessels and shoreside facilities. New million) in 1993. guarantees in 1995 totaled $25 million, and the outstanding loan portfolio reached $200 In developing countries, where fishing million. It is critical to note that in response enterprises tend to be small and short of to growing concerns about levels of capital, subsidized lending plays an even capitalization in U.S. fisheries, this program greater role. At a symposium convened by was redirected in the late 1 980s, and, FAO in Manila on institutional credit currently, the new financings are mainly for arrangements in the fisheries sector in the shoreside operations, including aquaculture Asian area, case reports presented by and processing. Fishing vessel financings banking officials from India, Bangladesh, and refinancings under the FOG went reostruto ad ecnistiboning offsig Nrega rn1aprxmtl5 aeEric Fleury, "The European Common Fisheries In the EU, some of the member states Policy and its Consequences on Fishing Dependent lon. crt tot thr finsns Regions" (Brussels: June 1993) p. 4. provide ltn fnancis ar mainl 82 People's Republic of China; Xinhua News Agency; "Bank Provides Huge Loans to Fishery industry," July 7, 199 1. 46 illustrated vividly the importance to the be willing to authorize "in-kind" transactions fishing industries of subsidized credit. in which Mexico exports steel and imports While these arrangements vary from country shrimp boats. to country, it nonetheless generally appears that: The government of Vietnam is building a modem fishing fleet with large doses of * the private banking industries exhibit Vietnamese government, foreign, and other a continued reluctance to provide international capital. Currently, Vietnam is credit to the fisheries sector; building over 100 reasonably large vessels, many of them financed by Spanish and * a large share of credit is given by Danish loans. Vietnamese government government banks, frequently loans are being offered at about 8 percent. institutions whose primary function is to finance agricultural and rural Prospectively, their plans are even more economic development; and ambitious. Vietnam will expand its shrimp and high-seas tuna fisheries in a major 300- * collection problems are common, but vessel fleet acquisition program that will foreclosures less so, given the require, according to an Asian Development difficulty of disposing of repossessed Bank study, $600 million of investments fishing industry assets (boats).13 annually for the next five years, for a total of $3 billion. There are other examples of the significant role of subsidized lending in the fishing The above are just a few examples of industries of other countries. subsidized lending in both the six countries reviewed in the case studies and selected Mexico, for example, intends to renew and developing countries. Global estimates are expand its aging shrimp fleets, and plans to practically impossible, but if Japan alone refurbish 700 vessels and purchase 600 new services a portfolio of almost $4 billion of ones at an estimated total cost of $280 reduced interest rate loans and loan million. The mortgages will be financed by guarantees, certainly the world total must be support from the Export-Import Bank of considerable. Mexico and a Bank of Mexico trust fund. Other financial intermediaries and sources Another way to get a better idea of the are expected to step in and help industry global scope of these programs would be to with these capital costs. It has even been look at the FAO's 1993 figures on costs. suggested that, through complex trade Three items in those estimates stand out: arrangements, the Mexican government may first, capital costs ($31.9 billion), second, supplies and gear ($18.5 billion), and, third, 83FAO, Fisheries Report No. 540, Regional maintenance and repairs ($30.2 billion). Consultation on Institutional Credit for Sustainable Fish Marketing, Capture, and Management in Asia 84 U.S. Embassy, Mexico City, August 14,1996. and the Pacific (hereinafter cited as FAO, Regional 85 Consultation on Institutional Credit), July 3-7, 1995. INFOFISH Trade News, September 16, 1996. 47 These three items total almost $80 billion, Tax Preferences and a good deal of this total is probably financed. To be conservative, we shall The second category of unbudgeted assume that the FAC) figures are on the high subsidies is tax preferences. Many countries side and that some share is paid for out of have tax preference programs that benefit current revenues rather than from borrowed the fishing industry, but in most cases these capital, and we will revise the $80 billion programs are the responsibility of the figure sharply downward to, say, $50 government agency in charge of fiscal billion. matters, frequently a finance ministry. Moreover, there are so many different types What is the subsidization level? Of reduced of taxes and tax rates that, even under ideal interest rates? Of the longer maturities circumstances, accurate assessments and 87 associated with government-guaranteed comparisons are inherently difficult. loans? Of the financial benefits that result Finally, even if these types of programs are from government-assisted refinancings? Of listed in fisheries agency budgets, the the forgiven loans? Of the loans that could information therein usually does not fully not be obtained on any terms from private clarify the programs' costs. sources? In the fisheries sector, we have ample If the total economic benefits to the evidence that three broad types of tax recipients of all forms of subsidized lending preferences are widely used: exemptions amount to just 10 percent of all the loans from fuel taxes; accelerated depreciation of (whose annual payments we place at $50 capital assets, [i.e., the boats]; and deferral billion), the aggregate impact would be $5 of income taxes. billion. The most common type of tax benefit in Most important is the fact that subsidized fisheries appears to be fuel tax exemptions. lending contributes directly to lower These preferences are available to fishermen operating and capital costs, and therefore in the United States; Taiwan, China; Japan; substantially aggravates the overfishing and Russia; and, at least until the early 1990s, overcapacity problems that are so common in the fisheries of both industrial and developing countries.86 from Sri Lanka," in FAO, Regional Consultation on Institutional Credit, p. 108. 86 Just one of many examples: At the 1995 FAO- 87 In the recent U.S. trade case involving the organized conference on credit arrangements for the Norwegian salmon aquaculture industry, the U.S. fisheries sector in southeast Asia, it was reported with investigators made the following revealing respect to Sri Lanka that "in the past some credit admission: "It was not possible, given the number of programs for in-shore fishing craft which were linked producers in Norway, to obtain the total amount of to capital subsidies have contributed to the full and tax benefits provided to all Norwegian salmon sometimes overexploitation of coastal aquatic producers." To correct this problem, the U.S. resources in western and southern Sri Lanka" U. investigators had to ask the government of Norway to Tietze, "Adaptation of National Credit Programs to conduct a survey. Cited in: ITC, Salmonfrom Fishery Management Requirements -- A Case Study Norway, at B-29. 48 Australia and Canada. In the United income taxes on fishing vessel income if States and Taiwan, China, alone, the lost that income is set aside in a CCF account, to revenues have been estimated at roughly be used on future construction, $250 million and $130 million reconstruction, and acquisition costs. respectively.89 Deferred taxes are recaptured through reduced future depreciation allowances. In For other countries, this writer found little 1994, participants deposited $80 million in useful information. However, in Japan the taxable income in CCF accounts and evidence is revealing. In Japanese longline withdrew almost $94 million. There are fisheries for tuna and billfish in Australian currently about 4,300 active CCF accounts, waters alone, 250 participating longline and total deposits in CCF accounts are about vessels benefited from a $0.25/liter diesel $240 million. The CCF program currently fuel rebate that totaled $91 million in allows withdrawals only for investments in 1996.90 If these three examples of fuel tax fishing vessels. exemptions amount to almost $600 million, the world total is almost certainly There is no doubt that tax benefits provided considerably higher. under the CCF program have contributed, however modestly, to expansion of capacity Obviously, fuel tax exemptions in fisheries in some of the most distressed U.S. fisheries. are environmentally harmful in at least two An example is the Northeast region, where ways, since they contribute to overuse of the these tax preferences have been made resource and are inconsistent with energy available to vessels in the groundfish and conservation scallop fisheries during a period when these resources were already overfished.91 Even more complicated are the programs that provide fishermen with relief from Unfortunately, virtually no hard information income taxes. was obtained on income tax preference programs in the fisheries sector in other As one example, in the United States, there countries. On the other hand, anecdotal is an income tax deferral program (Capital evidence suggests that both legal tax Construction Fund). The CCF program preferences and illegal tax avoidance are allows fishing vessel owners to defer federal widespread in this sector. 88 OECD, Committee for Fisheries, Study on Economic Assistance to the Fishing Industry: General Survey and Country Chapters (Paris: OECD, 91 In addition, CCF tax benefits in the groundfish 1991), p. 4. 89 Peter Weber, Net Loss: Fish, Jobs and the and scallop fisheries generally went to operators of Marinethe newer, larger, better-equipped, and harder-fishing Worldwatch nvir (Wash1ngto, .C. boats, the so-called highliners. Amy B. Gautam and 90 "Japanese Fishermen Net Fuel Subsidies," Forum Sury of te 1939 Cstrin datasBase Fisheries Agency News Digest, January-February for Northeast US. Commercial Fishing Vessels, 1997, p.8. NOAA Technical Memorandum NMFS-NE-1 12 (December 1996), pp. 2 and 5. 49 It may be noted that FAO's suggestion that fisheries in the following range: low; $6 apparent costs exceed revenues by such a billion, and high; $7 billion. wide margin ($54 billion) would lead us to believe that relatively few fishermen make profits and owe taxes. However, for reasons CROSS-SECTORAL SUBSIDIES that we need not enumerate here, we suspect that the fishing industry is and always has One conclusion of this study of subsidies in been characterized by underreporting of fisheries is that, to grasp their full scope, we revenues and overreporting of costs. In the need to look at cross-sectoral linkages. United States and Japan, the available Therefore, this section examines subsidies evidence seems to indicate that a good that are not provided directly to fishermen, number of fishermen continue to operate but indirectly benefit them and tend to profitably or did until quite recently. stimulate fishing effort and capacity. Two types of subsidy that fit this category are In conclusion, it has to be assumed that fuel aids to shipbuilding and aids to fisheries tax exemptions clearly reduce costs, and infrastructure, in particular, fishing ports. income tax subsidies serve some purpose for the recipients, and that, generally, they have The first of these cross-sectoral, or the effect of mitigating tax liability. We will "indirect," subsidies is aid to shipbuilding, net these fisheries tax preferences, we whose relevance to levels of fishing effort believe conservatively, at $1.0 billion, and capacity is obvious. This type of subsidy is implemented in two distinct ways Even more fundamentally, what are the costs and is therefore treated twice in this paper. to government and benefits to industry of Subsidies to shipbuilding that are provided these tax preferences? To respond, we directly to the buyers, i.e., fishermen, of would have to know how much current fishing vessels, usually in the form of loans, revenue is lost, what are the opportunity loan guarantees, and tax preferences, are costs, the "time" value of the lost revenue, treated in the previous section under capital and so forth. We cannot answer these costs and taxes. However, shipbuilding questions. At the same time, we strongly subsidies are also provided directly to the suspect that the practical effect of these shipyards, and some share of these benefits programs is to make available more private pass through to the buyers. It is this second financial resources for investments in fishing category that we are dealing with in this vessels. section. In summary, our estimates of unbudgeted The second cross-sectoral indirect subsidy is subsidies are $5 billion of subsidized infrastructure. This category is harder to lending and $1 billion of tax subsidies, for assess with precision and confidence. an aggregate level of $6 billion. However, Obviously, we are concerned with these estimates may underreport somewhat infrastructure spending that is intended the scope of these subsidies in developing largely or exclusively to benefit fishermen, countries. Therefore, we will express our that clearly "targets" the fisheries sector and estimates of unbudgeted subsidies in is therefore "specific" under the terms of the 50 WTO Agreement and, conversely, should * construction subsidies; not be treated as "general infrastructure." * vessel export credits; Infrastructure is probably the most * tax benefits and depreciation for complicated and poorly defined category of shipyards; and fisheries sector subsidies. * grants for research and development. Italy Aid to Shipbuilding 0 State-owned shipbuilding Shipbuilding is among the most heavily companies; subsidized industrial sectors in the world. A 0 construction subsidies; recent OECD survey listed the following 0 vessel export credits; and economic sectors in which "ongoing support exemption of all vessels from value- ... remains prominent ... textiles and added tax. clothing, wood and furniture, shipbuilding, steel, motor vehicles, and information Japan technologies."92 Not surprisingly, many of the world's leading shipbuilding countries are also (or were until recently) leading subsidies; fishing powers: Japan, the Republic of 0 export credits; Korea, Spain, Germany, and Poland. Nor is 0 export credit insurance; it an accident that a disproportionately large 0 maritime credit; and share of the world's existing distant-water research and development. trawlers were built in these countries. Norway Circumstantial evidence supports the inference that subsidies provided to Vessel construction loans; shipbuilders are substantial. A casual glance 0 loan guarantees to shipyards; and at shipbuilding subsidies in some of the 0 research and development. countries reviewed in our case studies is revealing: 93 Spain France * Construction subsidies; 0 reduced interest rate loans to 0 Investment subsidies for operating shipyards; companes; * vessel export credits; * vessel insurance; 92 OECD, Industrial Policy in OECD Countries: * tax exemptions for exported vessels; Annual Review 1994 (Paris: OECD, 1994) p. 8. and 9This material is taken from a U.S. Government * government ownership. compilation of shipbuilding subsidies: U.S. Department of Transportation, Maritime Administration, Maritime Subsidies (Washington: GPO, 1993). 51 Unfortunately, we are unable to determine Table 9. the degree to which these subsidies to World Fishing Fleet shipbuilders effectively subsidize the Gross Tonnage Categories construction and repair of fishingGross tonnage No. Total Average repir ishngvesels ~tonnage age opposed to the other maritime sectors. 100-199 11,159 1,560,229 18 200-499 7,827 2,523,313 18 Therefore, the fundamental and thus far 500-999 2,223 1,538,517 1s unanswered question is how subsidies to 1,000-1,599 659 835,055 17 shipyards influence investment decisions in 1,600-1,999 295 549,442 11 the fishing industry. At this point, we can 2,000-2,999 816 1,97,136 19 only offer rough approximations. 4,0004,999 117 516,790 11 One way to approach this issue is to look at 5,000-5,999 12 65,159 16 a recent profile of world fishing fleets.94 6,000-6,999 11 69,652 12 Fishing vessels over 100 gross registered 7,000-7,999 50 387,306 3 tons totaled 23,515 vessels and 11.2 million 8,000-8,999 1 8,289 0 gross tons in 1994. As one would expect, 9,000-9,999 1 9,814 fishing vessels are among the smallest vessel TOTAL 23,515 11,196,991 types monitored by Lloyd's, but there are Source: Lloyd's of London many of them. Thus, almost half (11,159) of all fishing vessels were between 100 and Eve orier 199 tons, the smallest size category in the Lloyd's data. In fact, fishing vessels constitute only about 3 percent of world World Fishing Fleets tonnage of all types of vessels monitored by Age Profile Lloyd's but almost 30 percent of the total Age category No. Gross number of bottoms. (years) tonnage 0-4 2,313 1,398,872 5-9 3,196 1,717,893 10-14 3,662 1,703,600 15-19 4,240 2,089,768 20-24 4,443 2,017,524 25+ 5,671 2,269,334 Source: Lloyd's of London Lloyd's gives the average age of world fishing fleets at 18 years, roughly the reasonable useful life of a fishing vessel.95 Since the data used by Lloyd's are three years old and new construction in recent Syears has fallen off, the average age of the 94The information in this discussion of fishing 9 fleets is taken from: Lloyd's Register of Shipping, In fact, the U.S. trade investigating agencies, World Fleet Statistics (as of December 31, 1993), USITC and Commerce/ITA, have used 18 years as (London: 1994). the average useful life of a fishing vessel. 52 world fishing fleets is now probably closer With this background in mind, we may then to 20 years. Although the smaller vessels turn back to FAO's 1993 analysis, where it is tend to be the oldest, vessels in most size estimated that the world fishing fleet has a categories are fairly old. In fact, more than replacement value at $320 billion. This 18,000 of the total are more than 10 years estimate has been criticized as too high, and old. Of special note is the substantial to accommodate these criticisms, we will number -- more than 10,000 -- that are 20 use a si nificantly lower value, say, $200 years and older.96 billion. Based on a 20-year useful life for Two broad conclusions seem to follow from the average fishing vessel, this works out to this profile of an aging world fishing fleet. $10 billion in annual new construction. First, in the years to come, world fishing Next, we will assume that the average level fleets will require considerable repair and of subsidization in shipbuilding is about 20 maintenance; second, this aging fishing fleet percent.98 will fairly soon have to be replaced with new construction, upgrades, or conversions The above approach yields net shipbuilding of other vessels. subsidies of $2 billion that benefit the fisheries sector. However, as indicated In a fundamental sense, we may be at a above, this section deals solely with critical turning point with respect to capital subsidies provided to shipbuilders that are cost subsidies in the fisheries sector. If these passed on to fishermen. Since we do not subsidies remain out of control, the aging know how to allocate these subsidies to the fleet will be replaced by newer, more two categories, we will divide them powerful vessels and the conservation evenly.99 Thus, we are left with $1 billion in problem will get worse. If, on the other hand, subsidized lending and tax preferences 9 It is interesting to note the admittedly anecdotal and subsidies provided to shipbuilders are evidence that, in a recent U.S. government-financed restrained, excess capacity may be fishing vessel buyout program, the buyouts averaged significantly reduced in the near future. between 50 and 75 percent of the vessels' annual gross revenues. The fisheries in question (U.S. New England scallop and groundfish) are seriously stressed, but the general impression remains that the The Lloyd's information on the age structure of "true", i.e., market, value of the world's fishing fleets, fishing fleets is intriguing in another way. Does it is well below the replacement cost. suggest that the excess capacity problem in world 9 A modest estimate for an industry sector that fisheries actually peaked about a decade ago? Recall OECD rates as one of the most heavily subsidized. that world fisheries harvests hit a high in 1989 and 9 Anecdotal evidence indicates that some share of subsequently declined modestly. (The 1994 "spike" subsidies provided to shipbuilders is "passed on" to to 109 million tons appears to be an anomaly, fishermen who buy the boats. In the U.S. Pacific because of sharp increases in catches of pelagics in a Northwest fisheries, for example, Norway provided few countries.) Only in the early 1990s did FAO generous subsidies in the 1980s to its shipyards to formally take note of the urgency of the situation. refurbish vessels for use as factory trawlers in Thereafter, the "excess capacity" issue was featured Alaskan waters. Recently, the owners of two of these front and center in the Code of Conduct for factory trawlers had to pay a considerably higher tax Responsible Fisheries, which was negotiated in 1994 bill when the IRS ruled that the subsidies -- in this and 1995. case, $1.75 million -- constituted taxable income. World Fishing, April 1996, p. 4. 53 aid to shipyards that benefits the fisheries Therefore, the 1994 Subsidies Agreement sector. seems to say, however implicitly, that infrastructure spending may be considered There is additional circumstantial evidence an actionable subsidy if the program is that suggests that the fisheries component of "specific," as opposed to "general," and is shipbuilding subsidies must be considerable. made available to commercial users at less This evidence is found in the OECD than prevailing market costs. shipbuilding negotiations. Why, we may ask, did the negotiators of the recently failed However, the key word is "general," and the OECD Shipbuilding Agreement spend so fundamental problem remains: What would much time on fishing vessels, and, in be considered specific or targeted, as particular, why did they explicitly exempt opposed to a general, infrastructure in the fisheries sector from the disciplines of fisheries? Past GATT panel reports and case the agreement?'00 We suspect that one law do not shed a great deal of light on important motivation was to avoid the precisely how to distinguish between application of rules to a sector of the permissible, general infrastructure and shipbuilding industry that is fraught with impermissible, specific projects.'o' subsidies and other anticompetitive Nevertheless, Article 2 of the 1994 practices. Subsidies Agreement discusses "specificity" in detail, and we have to assume that there Infrastructure are specific and general infrastructure programs in fisheries, as well as in any other Infrastructure, or public works spending, has sector. Accordingly, a specific program been considered to be a legitimate and would target an "enterprise, or industry, or universal responsibility of governments, group of enterprises or industries," and and, therefore, not reachable under trade general infrastructure benefits the public at law. Nevertheless, it is possible for large (e.g., through the building of roads, spending in this area to be excessive, dams, and bridges) and includes those "targeted," and to confer trade benefits. This projects that are generally thought to be the may be inferred from the definition of responsibility of governments. subsidies in the 1994 Subsidies Agreement, which exempts, i.e., permits, "general According to trade experts, this distinction infrastructure" in Article 1.1 (a) (iii). One depends in large part on the following would have to assume, then, that some questions: Does the private sector normally public works projects may be sufficiently pay for this type of infrastructure? Does the targeted to particular firms or industries that specific infrastructure project clearly benefit they may qualify as "specific" subsidies. 101 U.S. trade experts have explained that "infrastructure" is one of the least clearly defined 100 categories of subsidies in the 1994 Subsidies Article 2 (Scope of the Agreement) of the Agreement. So much so, in fact, that one suggested OECD Shipbuilding Agreement excludes "fishing that an actionable public works program would vessels destined for the building or repairing Party's probably have to clearly target a single or just a few fishing fleet." firms. 54 one firm, a few firms, or one industry sector Preservation of fishing ground in a well-defined region? Is the environment; infrastructure program extraordinarily 0 preserving ecosystems; generous on the government's part? etc. rational utilization of the surface of the sea; Analysis of fisheries sector infrastructure coastal fisheries structural subsidies is hampered by a lack of budget improvement; information. In most countries, the bulk of revitalization of fishing villages. fisheries infrastructure spending is not handled by the fisheries agency, but by other In the EU, as noted in Chapter IV, almost government agencies or by local authorities. $40 million of the fisheries budget was spent In the United States, for example, the Army on "port facilities," but this certainly Corps of Engineers and local government represents only a small share of total funding entities are primarily responsible for port by all EU and member state agencies on moorage, dredging, and building wharves, fishing ports. Nevertheless, it is evident that governments In developing countries, national and local spend enormous sums in a number of ways government bodies probably provide most that we may collectively characterize as of the funding for fisheries infrastructure. In "fisheries infrastructure." Japan, for Sri Lanka, for example, a recent five-year instance, spends two-thirds, or almost $2.5 Fisheries Development Plan allocates fully billion, of its fisheries agency budget on one-third of all projected fisheries spending "Public expenditures," i.e., infrastructure. In during the period 1995-1999 to Japan's FY 1996 budget, these "public infrastructure.'102 expenditures" are broken out as follows: In summary, if Japan spends more than $2 Table 11. billion annually on fisheries sector Billions of U.S. dollars infrastructure, chiefly fishing port Fishing ports and villages 2.013 billion, development, what is a reasonable estimate Coastal fishing ground development 0.295 billion for the world? While we do not know the Shoreline preservation t0.e162 billion, answer to this fuestion, infratueI Disaster rehabilitation 0.004 billion is $10 billion.r am a rcnertive-yess Source: U.S. Embassy, Tokyo, September 30, 1996 However, other elements in the FAJ budget could possibly be treated as targeted 102 U. Tietze, "Adaptation of National Credit infrastructure, and therefore subsidies, but Programs to Fisheries Management Requirements -- gin exeacofn or i.e., nastructuw FA Case Study of Sri Lanka," p. 113. Jaands are spent unde seifi bugeline 103 Extremely conservative indeed, according to wend arespn unabe toma eciat dete ino one expert at an international lending organization. een eHowever, the absence of solid information for any with confidence. FAJ budget lines include country other than Japan and the ambiguity of GATT items such as trade law both argue for a cautious and prudent handling of this issue. 55 Then we would have to ask what share of In brief, fisheries infrastructure may be an this infrastructure spending qualifies as example of a category of subsidies specific and targeted, rather than general, concerning which trade and conservation and what subset of that specific share has the standards differ significantly. Stated simply, effect of stimulating fishing effort and there appears to be a willingness under trade capacity. This last question points to a procedures and agreements to give fundamental problem, which is a yawning governments a wide latitude to spend in this gap between trade law and the dictates of broad category. Conversely, the tests under conservation, at least in fisheries. To be trade agreements and investigations for more precise, it would appear that under the showing that infrastructure projects are 1994 Subsidies Agreement, practically all specific and potentially confer unfair public works programs fall under the advantages are extremely difficult. On the "general infrastructure" category and are other hand, conservation standards are more therefore permissible. But, at the same time, demanding. In fact, if we apply the the bulk of government spending on precautionary approach to fisheries fisheries sector infrastructure goes to the infrastructure, governments should probably building and maintenance of fishing ports, a refrain from many of these projects until and good share of which excessively stimulates unless they can show that the likely effort. environmental consequences are benign, or at least tolerable. To be more precise, if a Government spending on fishing ports has natural resource (e.g., fish) is overused, obvious effects on the levels and types of governments should not invest in harvesting activities. Construction of new infrastructure projects that tend to encourage fishing ports opens up new fisheries, brings and facilitate further use of that resource. the boats closer to the resource, and reduces the costs of trips to and from the fishing Exercising considerable caution, then, we grounds. Deepened ports permit the use of will use a $10 billion estimate of annual bigger and more powerful vessels. What's global fisheries infrastructure spending and more, it appears, at least to some experts in assume that 5 to 10 percent of all this fishery development projects, that the spending qualifies as a subsidy that industry seldom pays more than a small excessively promotes effort and capacity in fraction of the public's costs of running the this sector. This approach yields $0.5 to ports, and usually no share at all of initial $1.0 billion of undesirable global fisheries investment and maintenance costs. infrastructure-related subsidies. All too frequently, then, decisions are made In conclusion, our discussion of what this to build and modernize fishing ports mainly study terms cross-sectoral subsidies yield in response to pressures from sectors other the following rough estimates: aid to than the fishing industry, typically the shipbuilders ($ 1. 0 billion) and infrastructure construction and engineering sectors, and subsidies ($0.5 to $1.0 billion), and we net the results of these decisions are new and these two categories at $1.5 to $2.0 billion. modernized ports that are not cost-effective, and, oftentimes, are not necessary. 56 RESOURCE RENT SUBSIDIES According to this model, most natural resources tend to be underpriced, and these This study has until now focused exclusively lower-than-optimal costs lead to resource on subsidies as they are explicitly defined in overuse. Environmental, or natural, the 1994 WTO Subsidies Agreement. resources are typically underpriced in two However, there is at least one other broad ways: through subsidies that reduce category of subsidies that is implicit, rather operating costs, and through market prices than explicit. This more hypothetical that generally reflect private costs while category is user fees, namely, the imposition ignoring the social costs of suboptimal of charges on users of publicly managed exploitation levels and collateral natural resources to better manage those environmental damage.106 resources and recover society's costs. Seen in this context, user fees in fisheries There is little doubt that consensus has may be designed at a minimum to cover the existed for a long time among specialists in costs of management. Most conservatively, fisheries economics in favor of user fees as a these fees may be pegged at levels to pay the legitimate and effective fisheries "immediate" costs to government of management tool.104 There is even support managing the resource. These costs would for the general proposition that the higher probably include three major elements: the share of rents that accrue to governments fisheries management, the supporting to be used to cover management costs, the science, and enforcement.07 More liberally, more likely the management regime will be fees could be set to meet more ambitious able to effectively regulate levels of effort goals, i.e., the recovery of society's "full and capacity. os In theory, then, user fees costs," including costs associated with the are a practical management tool and impacts of fishing activities on resources generally tend to maximize long-term other than the targeted species; costs economic benefits. associated with collateral environmental impacts; and, more generally, the cost to 104 FreapeIvrEStadadVriJ.16World Bank, Five Years after Rio: Innovations Forwer-than-optimalEcostsaneadndoViesource in Environmental Policy, p. 7. FishryManagmevntAlatin of ishTaeryi 107 It is increasingly accepted that government esources Proceedings of an FAQ-sponsored payments of fishery management costs should be Technical Consultation in Vichy, France, April 20- considered as economic assistance. Consider, for 23, 1980; pp. 411-416. Strand and Norton make the instance, the following statement in an OECD study case that user fees present certain advantages as on economic support to the fishing industry: "The management measures, especially with respect to costs of management should also be counted as minimizing production costs, redirecting assistance if they are not recovered from the industry m the form of fees or taxes... Stock assessment and enforcement of fishery regulations are main maintaining competition among fishermen. components of such control that potentially is a 0For example, Thorolfpr Matthiasson, "Why major benefit to the industry." OECD, Committee Fishing Fleets Tend to Be Too Big," Marine for Fisheries, Economic Support of the Fishing Resource Economics, 11, No.3, Fall 1996, pp. 173-9. Induscty, January 199 1. 57 society of removing a resource in the present extraction fees deals not with their as opposed to in the future.108 legitimacy but with their effective level. Just as important is the corollary. That is, if, Fees charged for removing these other for whatever reasons, governments do not natural resources have gained legitimacy, achieve this cost recovery or make some not only as domestic policy instruments but reasonable progress toward that goal, that as measures reachable under trade law. The failure constitutes a subsidy. Simply put, general principle may be stated as follows: the inability or unwillingness to levy Once it is accepted that states should charge adequate charges for the use of publicly such fees, and, in fact, most of them do, then managed resources is a "subsidy" as much as the failure of other states to conform active interventions that directly distort costs domestic policies with international practice and markets. may be actionable. In other words, states that do not levy such fees or that charge But how do we move from this ideal model unreasonably low fees are thereby to measures that may be treated in trade law conferring to their domestic industry an as subsidies? It is suggested here that the unfair advantage. most practical approach is to examine the evolving practice of governments and ask In the fisheries sector, the right of coastal where that practice is leading us. states to levy fees on foreign fishermen operating in its 200-mile waters is well In the United States, publicly managed grounded in law and practice. The 1982 natural resources usually include some sort Convention on the Law of the Sea states, in of charge for use or extraction. In this sense, addressing the "utilization of living marine fisheries is the exception rather than the rule. resources," that As examples, fees are charged to domestic users of water resources, grasslands, forests, nationals of other States fishing in and offshore oil and gas reserves. As a the exclusive economic zone shall general observation, most of the public comply with the conservation discussion of these natural resource measures and with other terms and conditions established in the laws and regulations of the coastal State. tos These laws and regulations ... may 108 See, for instance, the following statement in a relate, inter alia, to the following: recent World Bank study: "The general principle is (a) licensing of fishermen, fishing increasingly accepted that the price of a resource (or vessesan equimen, iling charge for using environmental services) should vessels and equipment, including reflect the marginal opportunity cost involved. The payment of fees and other latter should incorporate the economic costs of remuneration, which, in the case if production, depletion, and externalities, or, where developing coastal States, may relevant, trade opportunities foregone." Mohan consist of adequate compensation in Munasinghe and Wilfredo Cruz, Economywide Policies and the Environment (Washington, D.C.: the field of financing, equipment, World Bank, 1995), p. 47. 58 and technology relating to the fishing somewhat arbitrarily determined ex-vessel inuty109 industry, 0 value of the species harvested by the foreign boats. This method for computing foreign The above general principle, agreed to in fishing fees was later modified, and the fees 1982, long before the concerns about peaked at about $40 million annually in the fisheries resource overuse and sustainability mid-1980s. Incidentally, these revenues reached today's levels, seems to mean that were far below the "costs" to the U.S. fees levied by developed coastal states will government, however defined, of managing probably be used primarily for conservation, these fisheries. And naturally, with the while fees charged by developing coastal phasing out of foreign fishing in the U.S. states may be used for conservation or for EEZ in the late 1980s, the fees were industry development, effectively eliminated. During the last two decades, in the era of Similarly, a large number of developing 200-mile EEZs, it has become common countries, mainly in Africa, provide access practice for coastal states to charge access to their waters to European fishing vessels in payments to foreign distant-water fleets for exchange for fees, and these EU access the right to fish in the coastal states' waters. payments totaled $350 million in 1996. These access fees are for the most part Many Pacific Island nations charge fees to levied by governments of fisheries resource- foreign distant-waer fleets for access to tuna rich developing countries on the fleets of fisheries. As just one example, Kiribati until more developed countries and were recently levied a fee of 5 percent of the discussed in Chapter V under foreign access value of tuna harvests on Japanese tuna payments. However, that discussion vessels.y 10 focussed on the fact that governments, and not the operators of the distant-water fleets, Therefore, most, indeed practically all, pay a large share of these fees and are E fishing fees have been and are still levied by therefore providing a subsidy to those fleet governments of coastal states on foreign sectors. The rights of governments to levy fishermen. In the context of subsidies, these resource access fees were not however, we need to examine fees charged questioned, and, as shown above, that right by governments to their own fishermen. It is firmly embedded in both international is suggested here that governments will agreements and accepted practice. almost inevitably have to consider seriously the imposition of fees to domestic users of In the United States, a "poundage fee" was fish resources. The impetus to charge fees charged to foreign fishermen, originally to domestic fishermen will most likely be fixed at a rate of 3.5 percent of the driven by a number of factors: the desire to reduce overfishing and overcapacity, the tro pneed to recover some share of the mounting secUnited Nations Convention on the Law of the costs of fisheries management and Sea (New York: United Nations, 1983). othoevr,wened_o_ eamnefes_hage Interestingly, all nd of the "responsibilities" of 110 govrmets Ageir ows is ep.- fishermen operating in foreign EEZs listed in Article isrsuggeshere Agen es ill 62.4 are essentially management-related. Oct. 1996. 59 enforcement, and a natural tendency to align NMFS conducted such a study and fisheries more closely with policies on other recommended a package of fees, including: natural resources. an annual 3 percent fee on the landed value of harvests shares in ITQs, a levy of 0.7 Recent developments in the United States percent on the first sale of all domestically may serve as an interesting and useful case produced and imported fish, a separate levy study of how the user fee issue is to cover observer costs, and a license fee evolving. averaging $500 for boats in the for-hire recreational fishing industry. 12The In principle, the U.S. government's right to package of proposed fees would have charge domestic fishermen user fees to generated about $75 million, approximately recover some share of the costs of 2 percent of the total first-sale value of all management seems logically unassailable. U.S. fisheries (roughly $3.5 billion). After all, the federal government's efforts to manage the fisheries in the 200-mile EEZ However, resistance by industry to user fees are expended mainly for the direct benefit of is traditional. The Magnuson-Stevens Act, the fishermen. In most cases, the as recently amended, includes a strict limit commercial users of these fisheries on the use of fees, requiring that they" shall resources are a reasonably discrete and small not exceed the administrative costs incurred group. Also, with increasing recourse to in issuing the permits." At the same time, limited entry schemes, including individual the law also allowed for exceptions to the transferable quotas [ITQs], license "administrative costs" cap, enhancing the limitations, and license moratoria, government's rights-to levy fees on domestic participation in an ever increasing number of fishermen for management purposes. U.S. fisheries is restricted, and, therefore, the participants should pay for the privilege. Under these amendments, the secretary of commerce: There are growing pressures to look at user charges as a potential means of paying for is authorized (to) collect a fee (of 3 society's considerable investment in marine percent of landed value) to recover fisheries and improving resource the actual costs directly related to the management. In 1993, the U.S. federal management and enforcement of any agency responsible for marine fisheries, the (i) individual fishing quota program; National Marine Fisheries Service, was and (ii) community development asked to consult with its constituencies and quota program that allocates a report on the user fee issue. percentage of the total allowable This section is based heavily on trends and developments in U.S. fisheries for the simple reason that this writer has more information on the situation 112 in the United States with respect to fishing fees, and not because this issue is in any way a uniquely U.S. Posal, December 30, 1993. problem. Indeed, the issue is a global one. Magnuson-Stevens Fishery Conservation and Management Act, (as amended through October l, 60 The secretary may also apply user fees to The total costs of fisheries help fund: management, in the absence of subsidies from other sectors of the * an observer program in the North economy, include the costs of Pacific halibut fisheries,not to exceed research, statistics, surveillance, 114 2 percent of ex-vessel values , and service to fishers, etc. It seems unlikely that many world fisheries * a portion of Fishing Capacity are currently generating resources Reduction Program needs, with fees sufficient to support these functions of up to 5 percent of ex-vessel where they exist, and hence the costs values.is of coordinating research, data gathering, surveillance, etc. are often However, the full costs to the U.S. federal subsidized directly or indirectly. and state governments for managing its One explanation frequently offered, marine fish resources is more than $0.5 falling under the heading of the billion annually, of which the largest share is Tragedy of the Commons, is that enforcement. Thus, the recent changes in where access to the resource is U.S. fisheries law are cautious first steps, uncontrolled, the resource rent and the federal and state fisheries agencies needed to ensure proper management have a long way to go with "full cost is not being generated so that the recovery." To capture the full significance total costs of fishing by all interested of these measures, we need to look at the parties equals or exceeds revenues. longer term. This broader horizon is summarized in an observation included in a Similarly, when OECD's Committee for report on a recent FAO consultation: Fisheries constituted an ad hoc experts group to examine economic assistance to the fishing industries, the analysts suggested a similar basic approach. 18Under 1996); Public Law 94-265; 16 U.S.C. 1854; Section "definitions of assistance," the OECD report 304 (d). includes the" lack of government 114 16 U.S.C 1862; Section 313 (B) (2). intervention which constitutes an implicit 115 16 U.S.C. 1861 (a); Section 312 (d). subsidy to the use of the fish resource" and, The latest amendments to the Magnuson- later on, states authoritatively that Stevens Fishery Conservation and Management Act (16 U.S.C. 1801) appropriate the following sums to carry out the obligations of the act: (1996): $147 117 FAO, Report ofthe Expert Consultation on million; (1997): $151 million; (1998): $155 million; and (1999): $159 million. In addition, the Coast Guidelinesfor Responsible Fisheries Management Guard's 1997 annual report allocates 12.98 percent of (hereinafter cited as FAO, Consultation on its total operational budget of $2.713 billion, or $353 Responsible Fisheries Management), at Wellington, million, to "fisheries law enforcement." Therefore, New Zealand, January 23-27, 1995 (Rome: FAQ federal fisheries management and enforcement costs Fisheries Report No. 519, 1995), p. 63. are $0.5 billion, and, if costs borne by the two dozen 1 OECD, Committee for Fisheries, Economic states are added, the total U.S. costs are probably Assistance to the Fishing Industy: Observations and about $0.6 billion. Findings (Paris: OECD, 1993). 61 If the management regime does not May we conclude, then, that, in the absence require fishermen to take into of adequate user charges, practically all account the full social costs of the transfers of publicly managed fishery fish they harvest, then fishermen can resources to domestic commercial users are be considered to be receiving an potentially actionable subsidies? implicit subsidy on the use of the fish resources. This also applies If we look again at the 1994 WTO Subsidies when fishermen are provided access Agreement, the link between user fees and to foreign waters when the access trade law appears to be in the definition of fees are paid by the Government. subsidies. With this approach, governments should set user fees at certain "adequate" In conclusion, there does not appear to be levels, and failure to do so may legitimately much doubt in the minds of analysts be construed as a "subsidy." Using the employed by international organizations that above reasoning, we may treat a resource pricing may constitute a subsidy.119 government's failure to charge its fishermen But how about the 1994 WTO Agreement? an adequate, or any, price for use of publicly managed fisheries resources as: During the Uruguay Round negotiations, the United States proposed that natural resource * "government revenue that is transfers should be nonactionable if the right otherwise due" that is "forgone or to use the resource was obtained through a not collected," Article 1.1 (a)(1)(ii), public auction and made available to all or parties on the same terms. This proposal was probably crafted with the needs of the * as a provision of a (cost-free) service energy and mining sectors in mind, since it other than general infrastructure, had no relevance to the fisheries sector. Article 1.1 (a)(1)(iii). In fisheries, on the other hand, the Law of the Sea recognizes the rights of states to Even before the completion of the Uruguay allocate preferentially to domestic users, and Round, this indeed was the conclusion only if and when there is a surplus to the reached by the United States in a case needs of domestic fishermen are coastal brought by its forest products industry states obligated to give fishing rights to against their Canadian competitors, the foreign flag vessels. Nor are domestic Canadian softwood lumber case.121 The allocations of fishing rights conducted original U.S. complaint was brought in through an auction process.120 1986, temporarily resolved by a U.S.- Canada memorandum of understanding, and later taken up again and resolved in 1992. 119 In fairness, it must be noted that the OECD In the case concluded in 1992, the United committee decided not to move forward with the States ruled that the Canadian government's economic assistance project. 120 This point is developed in Christopher D. Stone, 121 "The Maladies in Global Fisheries: Are Trade Laws USITC, Softwood Lumber from Canada, Part of the Treatment?", to be published in Ecology Investigation No. 701-TA-312 (Final), USITC Law Quarterly, Vol. 24, No. 2, (1997). Publication 2530 (July 1992). 62 failure to charge its wood products industry Even more powerful is the related basic an equitable market-based stumpage fee principle that in the absence of private constituted a preference and therefore a "benchmark" prices, the level of subsidy subsidy.122 must be calculated on the basis of the government's costs. In fisheries, one could The United States ruled, in fact, that the low argue that the fee would have to be stumpage fees charged by several Canadian determined by reference to the costs of provinces were responsible for a net subsidy management incurred by governments. of almost 3 percent, roughly half of the total Canadian softwood lumber subsidies. In summary, we are suggesting that while this category of subsidies may not be Of course, it will be objected that forests and explicitly addressed in the 1994 WTO fish are vastly different resources, and that Subsidies Agreement, it is compatible with analogies between the two are crude and it. More important is the slow but misleading. Nevertheless, what's critical at inexorable evolution of policies of this early stage is the underlying principle. individual states on fishing fees. That is, failure by a government to charge Increasingly, fees charged to domestic adequate natural resource user fees is a fishermen for management purposes are subsidy that meets the 1994 WTO Subsidies accepted as correct in principle and as Agreement's definitions and is reachable helpful, even necessary, tools of regulatory under domestic countervailing duty and economic policy. legislation. Using the U.S. example, user fees in fisheries will probably be implemented gradually to deal with specifically defined 122 Final Affirmative Countervailing Duty management objectives. However, as this Determination: Certain Softwood Lumber Products practice becomes increasingly common, the from Canada, 57 Fed. Reg. 22570 (May 28, 1992) costs charged to fishermen as fees will Report at Appendix A of Ibid. The Department of become the rule, and, at some point, failure Commerce calculated the level of "preferentiality" to charge a fair cost (or any cost) will according to the following basic procedure: The sale qualify as a subsidy. Once it is accepted that of government-managed "goods" confers a countervailable benefit when the price charged is less failure to charge user fees is a subsidy, we than, in order, (1) a nonselective benchmark price for must also ask about a reasonable level. If, the same good; (2) prices charged by government for for example, we use "the costs of a similar or related good; (3) prices charged by management" as a guide, those costs are not private sellers of the same good; (4) the government's fully transparent and probably vary costs of providing the good; and (5) prices charged for the same good in other jurisdictions. Applying markedly from coastal state to coastal state. the above methodology to fisheries, the fourth test (government's costs) could yield fascinating results. Information on the costs that various It is interesting to note that the Canadian respondents, governments incur in managing fisheries is in their critique of the methology employed by 123 Commerce to calculate the level of preferentiality, argued strongly that the "costs-to-government" 123 approach was the most appropriate.aee o rae 63 costs to government amount to country whose fishery policies are generally approximately 15 percent of gross considered to be reasonably enlightened, revenues.124 In Norway, it has been reported fees were implemented in 1990 to cover the that the ratio of management costs to costs of monitoring and enforcing individual industry revenues is about 10 percent.1 An transferable quota regulations, but the law Icelandic fishery economist observed in a caps them at 0.2 percent of landed value. 128 professional journal that "a rough estimate is As shown above, U.S. fisheries legislation that the Icelandic Government spends as authorizes fees for selected purposes in a much, or more, on fisheries management as, range of 2 to 5 percent. Australia levies user for example, on the University of charges on domestic fishermen operating in Iceland." Two Australian fisheries all Commonwealth fisheries according to a consultants even offered the general complex formula that works out to an comment that "few fisheries management average of about 2.5 percent of ex-vessel agencies know, in any meaningful detail, the value.129 Canada began to implement a research, enforcement, and other system of fees charged to domestic management costs associated with each fishermen in 1996, and while the rates are fishery under its authority."127 Therefore, it complicated, they average about 5 percent of should be no surprise that this writer was ex-vessel values in fisheries managed with unable to determine whether or not these individual quotas.3o Recently, an investor U.S. and Norwegian fisheries "cost/revenue" seeking approval of the Marshall Islands for ratios are typical, and it is possible that a project to "pelletize" and enrich an area in ratios in other countries are higher or lower their zone, offered to give 7 percent of the than in the United States and Norway. revenues from the enhanced fish harvests to the Marshall Islands.131 A number of West Another approach is to examine user fees African States, including Equatorial Guinea, that are currently charged by governments to Guinea Bissau, Mauritania, Morocco, Sao domestic and foreign fishermen. In most Tomd and Principe, and Sierra Leone, have countries, fees are not charged to domestic sought to collect fees amounting to 15 to 20 fishermen, or if they are, the rates are extremely low. In Iceland, for example, a 128 Ragnar Arnason, "Fishery Management in Iceland," in Eduardo A. Loayza (ed.), Managing Fishery Resources, p. 29. Federal and state expenditures for management, 129 The Australian user fee system was science, and enforcement total about $0.6 billion, and implemented in 1991, and is intended to recover the the U.S. commercial fishing industry's net ex-vessel government's full costs. Personal communication revenues are $3.8 billion in the last two years. from Glenn Hurry, of the Australian government, Hannesson, "Fishery Management in Norway," June 10, 1997, during the meeting in Los Cabos, ?.21. Mexico, of the APEC Fisheries Working Group. Thorolfur Matthiasson, "Why Fishing Fleets 130 Barry Kaufmann and Gerry Geen, "Cost- Tend to Be Too Big," Marine Resource Recovery as a Fisheries Management Tool," p. 61. Economics,Vol. 11, No.3 (Fall 1966), at footnote 3. The fees were forecast to generate C$43 million in 127 Barry Kaufmann and Gerry Geen, "Cost- additional revenue, surely far short of the Canadian Recovery as a Fisheries Management Tool," Marine fovernment's total fisheries management costs. Resource Economics, Vol. 12, No. 1 (Spring 1997), U.S. Embassy, Majuro (Marshall Islands), April p. 58. 18, 1997. 64 percent of the value of the fish.132 At the and the higher estimate, 10 percent, seems to other end of the range, Japan's salmon roughly approximate the total costs of fishermen have agreed to fees for harvesting management of those few countries for Russian-origin salmon in Japan's EEZ that which we have such information and is still amount to at least 30 percent of ex-vessel well within the range of what various values.133 governments currently seek from users of To summarize, if one considers the entire their fisheries resources. spectrum of fishing fees applied to domestic and foreign fishermen, the range is from a Naturally, these user fees will be levied by low of a fraction of one percent to one-third governments on their own fishermen or more of ex-vessel values. Just as operating in that nation's EEZ. The significant are the facts that fees charged to operations of distant-water fleets in the domestic fishermen are being used EEZs of foreign nations and in international increasingly and that, over the long term, the waters have to be excluded. Therefore, we rates are heading up. will use $70 billion in "domestic" catches as the denominator. If we apply the suggested Obviously, then, assessing the economic 5 and 10 percent rates to this base, the impact of this category of subsidy is at best resulting uncollected fees are $3.5 billion an informed guess. Our estimate of future and $7 billion, respectively. levels of fishing fees is a range from 5 to 10 percent. The first level, 5 percent, is CONSERVATION SUBSIDIES IN somewhat at the lower end of the range34 FISHERIES 132 Gareth Porter has prepared a draft paper on this This paper has dealt thus far with subsidies whole issue, "The Euro-African Fishing Agreements: that directly or indirectly enhance harvesting Subsidizing Overfishing in African Waters," operations and capacity, and are therefore, (February 1997) that will soon be published by from a conservation perspective, "bad" UNEP. The information on fees as shares of the subsidies. However, in recent years, many value of harvests taken by foreign vessels in waters governments have paid increasing attention off West African nations is from Danielle Mangatelle, Coastal State Requirements for Foreign Fishing, FAO Legislative Study No. 57 (Rome: FAO, programs that are intended to have the 1996). opposite effect. These programs are 133 U.S. Embassy, Tokyo, April 2, 1997. Japan designed to enhance the resource base, agreed to fees for Russian-origin pink and chum reduce fishing operations and capacity, and salmon taken in 1997 in Japan's EEZ that amount to foster "cleaner" harvesting technology, and $1,056 to $1,195 per ton. Using recent Japanese official publications, we roughly estimate the average ex-vessel value of marine salmon capture harvests at least from a conservation perspective. about $3,000 per ton. Note that Japan agreed last year to fees for Russian-origin salmon taken in Russia's, as opposed to Japan's, EEZ amounting to governments charge even foreign fishermen for the more than $2,300 per ton. right to fish in their waters, and those that do set the 134 Incidentally, The Economist ("The Catch about price too low, typically around 5 percent of the value Fish," March 19, 1994; p.13) explicitly dismissed this of the catch." rate as too low. Note the following statement "few 65 The most common of these environmental The Fisheries Agency of Japan has recently subsidies in fisheries are: shown a markedly increased interest in government-subsidized vessel buyouts, and * vessel and fishing permit buybacks; the EU, which funds capacity-reducing * refitting of vessels to operate in less subsidies more generously than anyone else, stressed fisheries; regularly warns that fisheries sector * stock enhancement; subsidies may have "positive" as well as * retraining of fishermen; and "negative" effects. The EU's insistence on * R and D in clean harvesting gear. distinguishing between what are effectively "good" and "bad" subsidies was made As a general observation, it appears that this emphatically at the April 1997 meetings in category of subsidies is claiming an New York of the UN-sponsored increasing share of total assistance levels in Commission on Sustainable the fisheries sector in many countries. Development. 136 While environmental subsidies in fisheries are varied, this discussion will focus on the One encouraging outcome of all the interest major category: vessel buyback programs. in effort- and capacity-reducing subsidies in fisheries is the recognition that subsidies A fundamental objective of some should be considered in the context of environmental subsidies in fisheries is to resource conservation, as well as from a reduce fishing effort and capacity. trade standpoint. If "good" subsidies can However, many cormmentators have noted help resources, then "bad" ones hurt them, how difficult it is to induce the exit of and, ultimately, we are dealing with an array capital from fishing because these assets of environmental injuries that we can align (boats) have little other practical use. For with the material (economic) injury that reason, decapitalization, or investigated in, for example, U.S. disinvestment, in fisheries has to be actively countervailing duty actions. In other words, promoted with economic incentives, i.e., whatever one's views of environmental subsidies. subsidies in fisheries, this category of subsidies has prompted a debate on their In recent years, proposals to study and conservation effects that parallels existing compare the effectiveness of effort- and procedures in trade law that examine capacity-reducing subsidies in fisheries have economic effects. been tabled in a number of international organizations. In the OECD Fisheries Sustainable Fisheries by 2010," Proposal for Future Committee, New Zealand proposed in Work Put Forward by New Zealand, October 10, 1995. October 1995 a long-term sustainable 136 The key language in the CSD's paragraph on fisheries work plan that included a study "of "Oceans" reads: "[there is urgent need for] the use of financial incentives to restructure Governments to consider the positive and negative and reduce fishing effort."35 impact of subsidies on the conservation and management of fisheries through national, regional, 135 and appropriate international organizations, and, OECD, Fisheries Committee, "Fisheries Issues based on these analyses, to consider appropriate at the Turn of the Century -- Moving Towards action". 66 During the last decade, the EU, the United EU fisheries sector assistance programs had States, Japan, Iceland, Russia, and other placed a progressively greater emphasis on countries 137 have made increasing use of restructuring in the decade after the buyouts as a means of reducing effort and worldwide implementation of 200-mile capacity in stressed fisheries. zones. By the end of the 1980s, however, there developed an even stronger recognition In the EU, the commission's fisheries budget that EU fisheries sector structural assistance has allocated increasing sums for had to place more emphasis on reducing decommissioning redundant fishing vessels. harvesting capacity. The initial phase of this restructuring plan -- the Multiannual Guidance Program Responding to the growing fisheries crisis in (MAGP)138 for the period 1987-1991 -- European waters, the commission decided to called for the first time for an overall promote more aggressively a restructuring of reduction in EU fishing capacity of 3 percent EU fishing fleets to bring them in balance in terms of gross tonnage and 2 percent in with available resources. Hence, the EU engine power. From the beginning, the EU's fishing fleet restructuring plan included fleet restructuring initiative seems to have reduction targets both for the EU as a whole enjoyed stronger support in Brussels than in and for the member states. Until recently, the governments of the member states. the long-term goal of the EU Commission's Therefore, in the 1987-1991 period, only restructuring proposal was ambitious: to two EU members met their reduction targets, achieve reductions in fleets of up to 40 while all the others actually increased their percent, depending on the fisheries and the capacity, in large part because the size and power of the vessels involved. governments of the member states continued to provide "capacity-enhancing" subsidies, Unfortunately, more than a decade of such as loan guarantees.39 restructuring has not significantly changed ___________________the profile of the EU fishing industry. In 137 This i erl a sletiv itjaaa for fact, the EU fishing fleet has increased Thsis merely aslcielist. Canada, g example, has also made considerable efforts to markedly in number of vessels in the decade reduce fishing capacity. and a half from the mid-1970s to the early 138 Under this structural initiative, each EU 1990s. According to Lloyd's Register data, member coordinates with industry to develop a co- in fact, the number of EU fishing vessels financed long-term plan, and after the plans are grew from 52,539 in 1975 to 96,100 in approved by the commission, they may be supported 1991. While much of this increase reflects with funds by the EU, the member states, and the addition of new EU members during this industry. 139 Eric Fleury, The European Common Fisheries period, it is striking that total European Policy and its Consequences on Fishing Dependent fishing fleets, including EU and non-EU Regions (Brussels: June 1993) p. 4. The point about inconsistencies between the fisheries assistance that our overall estimate of EU fisheries subsidies policies of the EU Commission and the member state may be low because we only have EU budget data governments seems to be important because it helps and are unable to accurately track spending by the explain the difficulties Brussels has experienced in member state governments. reaching its goals in this sector, and strongly suggests 67 countries, remained the same -- about reduction rates (40 percent over six years in 110,000 vessels -- in 1975 and 1992. selected fisheries) were considered to be too Interestingly, the total European, i.e., EU high.142 In April 1997, the council reached and non-EU, high-seas fishing fleet tentative agreement, in spite of U.K. and remained at the same level -- about 800 French objections, on a fleet downsizing vessels -- during the same period. plan with targeted reductions of 30 percent in "depleted" stocks and 20 percent for In fact, the EU's plans for restructuring its "overexploited" stocks.143 fishing fleet have run into serious obstacles, especially from EU members who object to In summary, the EU fishing fleet has or are unable meet the schedule of remained at roughly the same level of decommissioning targets. As a result, in the vessels for the last two decades, in spite of last few years the commission has the loss of access to traditional distant-water repeatedr had to delay agreements on new fishing grounds and the continued poor targets.14 The cornission has been status of domestic resources. At present, the subjected to strong pressure from industry EU budgets almost $170 million annually and some member states to relax or for "adjustment of fishing effort," significantly modify the restructuring significantly more than any other country. commitments. Presently, during the debates on the next six-year fisheries sector In the United States, the government has restructuring MAGP programs, the targets implemented a vessel buyback program in are coming under increasing attack. New England targeting groundfish and More recently, a number of EU member scallop vessels and a permit buyback effort states have not made sufficient progress in the Pacific Northwest aimed at reducing toward their capacity reduction goals, and the number of participants in the salmon EU Fisheries Commissioner Emma Bonnino fishery. A few years ago, the U.S. Congress has openly criticized the U.K. industry for authorized extraordinary funding for its refusal and/or inability to comply with regional fishing industry economic these targets. Earlier in 1996, assistance programs in the Northeast and the Commissioner Bonnino complained that Pacific Northwest. In 1994, Congress since 1986, the U.K. fishing fleet has approved a $30 million emergency roughly doubled.141 assistance package to New England fishing industry fishermen that provided grants to The next restructuring program for the individual fishermen, some restructuring of period 1997-2002 has targets that are loans, and technical and retraining assistance significantly less ambitious than the for selected distressed communities. previous goals. At an EU Fisheries Council meeting of October 1996, it was noted that the commission's proposed capacity 140_ 142 U.S. Mission to the European Union, October 140 U.S. Mission to the European Union, December 16 1996 26, 1996. 1 U.S. Mission to the European Union, April 16, 141 U.S. Embassy, London, April 5, 1966. 1997. 68 In Iceland, the government has funded Fisheries planned on reducing the fishing modest decommissioning schemes in the fleet by 20 percent, and the support, or fisheries sector. Recently, the Icelandic auxiliary, fleet by 40 percent. Stated Marine Development Fund bought out three another way, the 1992-1995 fisheries plan dozen laid-up small "inshore hook" vessels called for a total reduction ofjust over 1,000 for a reported 20 to 30 percent of their value, fishing and support vessels -- out of a 1992 and is currently deciding on their total of 3,200. This downsizing had the disposition. Inquiries have been received greatest impact on the large and medium from a number of developing countries.144 trawler fleet sectors, and was projected to remove 3.7 million tons of harvesting In Japan, fisheries subsidies that could be capacity from the Russian fleet. termed "benign" in their intent have been used for years to ease the difficult transitions Russia's planned reductions -- through of the distant-water industry. A decade ago, scrapping, conversion to other nonfishery for example, Japanese fishermen who were uses, and sale to foreign buyers -- are excluded from U.S. and Soviet fisheries illustrated in the following table: appealed to the government for "compensation" and, with help from their Table 12. conservative Liberal Democratic allies, Russia's Fleet Reduction Plan, 1992-1995 succeeded in boosting the government's aid Type of Vessel Number of Projected lost package from an initial offer of less than $40 ships harvests million to almost $130 million.145 More Mduid (metric tn recently, when the government decided to Super factory 5 27,000 apply a TAC-based management system on Larger3 half a dozen species, the industry appealed trawlers to the FAJ that "any excess fishing vessels Medium 315 1,022,000 be bought out by the government without trawlers loss to the fishermen."'146 In the FAJ's FY 1996 budget, about $35 million is allocated ytuda to "fleet restructuring."3,705000 to flet rstuctrin."Source: Kaczynski, Status and Trends in Russian Fisheries Sector and Seafood Trade (1995) Russia presents still another example of fleet reduction subsidies. Shortly after 1991, the Even after the planned downsizing Russian government decided to divest itself summarized above, it was estimated that of a large number of state-owned and Russia's Soviet-era fishing fleet would -operated vessels and, in the process, continue to be a liability. Early in 1996, for incurred enormous losses. During the 1992- example, a representative of the Committee 1995 period, the Russian Committee of for Fisheries claimed that some 70 percent 4of the more than 2,700 fishing vessels still 144 U.S. Mission to the European Union, April 16, 1997.14 197U.S. 1 Vladimir M. Kaczynski, Status and Trends in 14U the Russian Fisheries Sector and Seafood Trade U.S. Embassy ,Tokyo, November 18, 1996. (Seattle: Common Heritage Consulting, 1995). 69 belonging to Russian fishing companies are efficiency, and politicians their budget "practically worn out and must be implications; trade people consider them replaced." 148 Similarly, the Russian subsidies nonetheless and grudgingly Committee for Fisheries projected that 77 conceded a few "green lights" for percent of the fishing and 60 percent of the environmental measures in the Uruguay support fleet would have to be rebuilt or Round Subsidies and Agricultural scrapped by 2001. negotiations 49; some environmentalists view them as payments to the devil or, more Obviously, the Russian authorities were modestly, as measures that are in hardly conducting a fire sale of their fishing fundamental conflict with the "polluter pays fleet to promote conservation, but because principle"; even industry doesn't necessarily they had no other choice. Nevertheless, like them, especially if their competitors are their actions in the early 1990s had the effect "rewarded" for bad business decisions. of dramatically reducing effort and capacity The most basic problem with this form of levels of the Russian fishing industry. subsidy is that it often does not meet its goals. Both the EU's fleet reduction targets The above examples constitute the briefest and Canada's plans to decommission salmon sketch of recent developments in world vessels in British Columbia have fishing vessel buyback subsidies. An encountered fierce political resistance. extremely tentative guess is that this Achieving capacity reduction goals seems category amounts to $0.5 billion annually. ever illusive. Quantitative targets are not In summary, it's clear that, in some cases, met, or some goals may be reached but the subsidies in fisheries may have the intent fishermen simply turn around and reenter and hopefully the effect of reducing the fishery, perhaps with improved harvesting pressure on the stocks and easing equipment financed by the buyout.50 the sector's transformation to a more rational match between catching power and available resources. 149 For an interesting analysis of the unfounded However laudable all these goals, experts in fears of trade experts and industry spokesmen that subsidies generally still do not trust environmental subsidies will inevitably pave the way for protectionist abuses, see: Robert Youngman, subsidies, while a coalition of government, "Greenlighted Environmental Subsidies in the GATT industry, and environmentalists, for various 1994: Vehicle for Protectionism or Catalyst for reasons, are urging them. In fact, we are Progress", International Environmental Affairs, Vol. witnessing a still-unresolved debate on the o. 4 (Fall 1966), pp. 337-354. effectiveness and legitimacy of capacity- To avoid such unintended effects, the U.S. reducing subsidies in fisheries. National Marine Fisheries Service, in its first $2 million fishing vessel buyout m New England, actually destroyed by sinking 11 vessels in 1996. The enemies of environmental subsidies are However, even if the bought-out vessel is destroyed, legion. Economists question their the fisherman can use the funds to buy another boat. The mandatory sinkings were reported sentimentally 148 in the industry press. See: Rob Jagodzinski, "End of Pacific Rim Fisheries Update, May 1966. the Line," National Fishermen, January 1997, pp. 13- 15. 70 A second criticism of various Nevertheless, the debate on the effectiveness decommissioning programs has an and appropriateness of environmental international angle, namely, that they do not subsidies generally and what we call prevent the use of these vessels in other, conservation subsidies in fisheries has usually foreign fisheries. Thus, their hardly been resolved. At the same time that practical effect is to "export overcapacity." one hears all the arguments against them As one example, fishing license buyout summarized above, one hears another story. programs in the EU in the mid-1980s The rationale in support of conservation enabled the vessel owners to sell their boats subsidies in fisheries may not be as well outside EU waters or to convert them for developed intellectually, but if one were to nonfishing use in EU waters.!51 assemble its main components, they would probably include the following. A third objection to vessel buyback programs is that they could have the There is, first of all, a practical matter of perverse, unintended effect of inducing budgets and politics. That is, whatever their industry to remain in marginally viable shortcomings, conservation subsidies will fisheries. Proponents of this view speculate almost certainly be with us for some time to that fishermen may come to expect a come. It is clear that they represent government-funded bailout, especially if the considerable and increasing financial buyback program becomes permanent. commitments in a number of developed A fourth criticism is that buybacks remove countries. In the EU alone, the commission some boats but do not adequately control and the Italian government have recently those that remain. That is, the vessels that submitted proposals obligating Brussels and stay in the fishery may be upgraded and Rome to spend $250 million in 1997-1999 become more efficient, undermining the to retire and refit southern Italian driftnet conservation rationale for the program. vessels and to compensate the affected fishermen. Industrial countries, especially Finally, a fifth problem with vessel those with large fisheries budgets, will have buybacks is that they could be implemented a hard time for obvious political reasons wastefully, i.e., on industry sectors whose simply eliminating or significantly reducing operations do not pose the most dire threat subsidies. Rather, it will be easier for them to conservation. In other words, the to "redirect" these subsidies in more existence of buybacks may lead to a bidding environmentally benign directions. In the war among fishermen, and, ultimately, there EU, for example, after 1990, funding for is some danger that the government's decommissioning programs was tripled and financial resources will be dissipated and not aid levels for modernization and effectively used. construction projects were significantly reduced.'2 151 Joshua John, Managing Redundancy in 152 Clare Coffey, "Introduction to the Common Overexploited Fisheries, World Bank Discussion Fisheries Policy: An Environmental Perspective," Paper (Fisheries Series) (Washington, D.C.: World International Environmental Affairs, p. 300. Bank, 1994), p.10. 71 Stated simply (and perhaps somewhat excluded from the product coverage of the cynically), if conservation subsidies are Agreement on Agriculture, conservation funded with monies that would otherwise be subsidies were not covered by the spent on "bad" subsidies, may we not environmental provisions of that agreement. consider that transfer as an indirect, or The Agreement on Agriculture provided a implicit, benefit? much broader cover for several forms of "structural adjustment assistance" and In addition, this type of program can be "payments under environiental programs," "targeted" to address the most dire resource the latter including "payments ... as part of a problems. Presumably, this aspect of clearly defined government environmental conservation subsidies should enable or conservation program."53 governments to use them more effectively or, at least, to avoid their wasteful use. Unfortunately, the 1994 WTO Subsidies Agreement, which was negotiated In a similar vein, conservation subsidies in essentially to meet industrial trade needs, fisheries have the potential to become included a much smaller "environmental effective in a single payment. In other window" limited to "assistance to promote words, unlike conventional subsidies that are adaptation of existing facilities to new paid out year after year, a well-designed environmental requirements imposed by law buyout program can remove a vessel and/or regulations."54 permanently in one year. Therefore, this type of "subsidy" may be more cost- The absence of an environmental cover in effective over the long term. trade law for effort- and capacity-reducing subsidies in fisheries has prompted a number There are also more general political points, of questions. Are environmental subsidies namely, that environmental subsidies signal in fisheries as vulnerable as any other to industry government's support for subsidy? Would a WTO "green light" for managing this resource on a sustainable environmental subsidies in fisheries have the basis. In the international arena, environmental subsidies may, if successful, Uoa prompt the world trading system to use subsidies law more effectively and Negotiations, Final Act Embodying the Results of the proactively in support of conservation ends. Uruguay Round of Multilateral Trade Negotiations, Agreement on Agriculture (Annex 2), paras. 9-12. These are long-range and still somewhat 154 1994 WTO Subsidies Agreement, Part V: Non- vaguely defined goals, but that does not Actionable Subsidies, Article 8 (c). necessarily render them less worthwhile. A related question regarding these subsidies in fisheries is how to accommodate them with trade law. Since fisheries were 72 beneficial effect of encouraging their greater difficulty of analyzing subsidies.155 The use? Should there be constraints in trade main reasons should be obvious from the law on the use of subsidies in fisheries for preceding pages: subsidies exist in many conservation purposes? This study makes different forms and use a variety of funding no attempt to answer these questions but mechanisms; some are budgeted, while simply points out that environmental others are not; they are frequently subsidies in fisheries need clarification in administered by a number of different trade law. Government agencies; recourse to their use may be inconsistent and cyclical; their All things considered, environmental impacts tend to be indirect and diffuse rather subsidies in fisheries, whatever their than direct and easily traceable; and shortcomings, are probably preferable to the generally available information on their use, conventional, effort- and capacity-enhancing objectives, and funding is often lacking.156 type, and should, for practical reasons, play some role in reordering the priorities of As a result, we had little choice but to use a governments in managing fisheries. Exactly selective and descriptive approach. In the what that role is remains to be determined, previous sections, we have reviewed and that is the question being debated today categories of fisheries sector capacity- and in a number of major fishing countries. It effort-enhancing subsidies and suggested the would also appear that the EU will play a following admittedly rough and tentative major part in the outcome of this debate, global estimates: given the simple fact that it has devoted such generous financial resources to environmental subsidies. Ultimately, the tasks at hand are, first, to improve the design and implementation of conservation subsidies in fisheries to achieve the maximum environmental benefit and reduce their unintended, collateral harmful effects, and, second, to integrate them into subsidies law at least as well as environmental subsidies have been accommodated in the WTO Agreement on Agriculture. 155 Americo B. Zampetti, The Uruguay Round Agreement on Subsidies: A Forward Looking Assessment THE AGGREGATE LEVEL OF 156 A good short review of the analytical issues in SUBSIDIES IN WORLD FISHERIES assessing budgeted and unbudgeted subsidies in the fisheries sector may be found in OECD Committee This study confirms the previous for Fisheries, Producer Subsidy EquivalentQuantifcation of Fisheries SupportA fihePragmatic Approach (Paris: OECD, 1991). 73 Table 13. Therefore, the estimates given in this paper Estimates of Global Fisheries Subsidies are rough and illustrative, and are provided (US $ Billions) in ranges to give reasonable approximations Category Low High Budgeted subsidies 1. Domestic 3.0 3.5 same time, we feel that in developing these 2. Foreign access .5 1.0 estimates we have exercised prudence and Unbudgeted subsidies 6.0 7.0 caution. In particular, our focus on the Cross-sectoral subsidies 1.5 2.0 Resource rent subsidies 3.0 7.0 TOTAL 14.0 20.5 governments has inevitably overlooked Source: Author's Estimates other funding sources. The fact that these estimates fall in a broad Two other sources of subsidies that stand range is not surprising: Transparency is out are, first, assistance provided by national generally insufficient; information on major government agencies other than the one players like China and most of the responsible for fisheries, and, secondly, developing countries is woefully inadequate; assistance given by subsidiary and local and some categories of assistance, like government entities. In the latter camp we supstream" subsidies and user fees, are include the U.S. states, the EU member inherently difficult to analyze. states, the Chinese provinces, the Japanese prefectures, and so on. Even in the more narrow and technical context of normal trade investigations, there Evidence suggests that subsidies provided is apparently considerable latitude. One by subnational government entities may be good example is Norway's subsidies to its highly significant. As one example, the Atlantic salmon farmers. In 1991, the United States found, in its positive United States ruled that these subsidies determination in a 1986 subsidies amounted to 2.27 percent ad valorem, but investigation concerning Canadian the EU decided in early 1997 to apply a groundfish that of 55 Canadian government countervailing charge of almost 3.68 programs conferring subsidies, 11 were percent, an increase of more than 50 federal, 6 were joint federal-provincial, and percent. 1 57 38 were provincial.158 Given the fact that this study did not reach below the national level, except 157 ITC, Salmonfrom Norway, at B-28; O occasionally, the estimates probably err on Mission to the European Union, March 21, 1997. The EU decision on subsidies is still preliminary. UnitedSatesfoud,initposi One may object that the two cases were investigated 158ter atin a 16 s e s half a dozen years apart and may not have precisely ut Cernin Canaian the same scope. On the other hand, it is hard to Canada (Investigation No. 70 1-TA-257-Final), believe that Norway, given all the scrutiny from U.S. USITC Publication 1844, May 1986, at A-69. and EU subsidies and dumping investigations that it has endured in recent years, would deliberately increase assistance to this sector. 74 the low side, perhaps by a considerable Table 14. margin. C&SM MaRLTpe Budgeted subsidies Development grants In summary, our estimates of State investments environmentally harmful global fisheries Foreign access payments sector subsidies are, to use round numbers, Mre pot $15 billion to $20 billion, depending on the Unbudgeted subsidies Subsidized loans low and high estimates for the various Loan guarantees subsidy categories. However, these Loan restructuring estimates are so rough that they are better Fuel tax exemption expressed as approximate shares of world Accea deprat capture fisheries first-sale revenues. Given Aidt sh prs global ex-vessel sales of about $80 billion, "Targeted" infrastructure our estimated levels of subsidies amount to Conservation subsidies Vesselpermit buybacks about 20 and 25 percent of world revenues. Resource pricing Generalizing further, the most reasonable subsidies User fees conclusion would be to say that effort- and Source: Author's Table capacity-enhancing, i.e., "bad," subsidies in world fisheries amount to about one-fifth to one-fourth of global revenues. Still another way to look at fisheries Finally, the study seems to indicate that subsidies is to place them in the larger environmental subsidies in fisheries, or their context of total economic support and major component, i.e., vessel buybacks, compare this support level with competing account for at most about 5 percent of all food products. If we add a very rough subsidies provided worldwide in this sector.(tariffs subsdie proide wordwie inthi secor.and nontariff barriers) in fisheries of, say, 10 Simply put, just as trade experts insist that 159 all subsidies misallocate resources, distort markets, and are therefore bad from a trade point of view, it also appears that practically 159 According to an FAQ-funded study, the all subsidies in fisheries are bad from a conservationUruguay Round produced the following fish tariff consrvaton sandpint,results (figures are trade weighted): EU-10.7 percent; Japan-4. 1 percent; and USA-0.9 percent. Average Another way to represent these global post-Uruguay Round fisheries tariff levels in the fisheries sector subsidies is to organize them developing countries are generally higher than in the by major types in each category. In this industrial countries. And we have to take into way, we have a sort of taxonomy of account the trade effects of nontariff measures (quantitative restrictions, import licenses, state- subsidies in fisheries: trading, etc.). Aggregating all the above tariff and nontariff barriers, we tentatively propose 10 percent as a conservative measure of total global support in this sector. A U.S. government fisheries trade expert has told me that, if anything, this estimate may be too low. See, Agnes Filhol, Impact ofthe Uruguay Round on International Fish Trade (Rome: FAO 75 support in fisheries in the 30 to 35 percent while there are certainly serious range. environmental problems in agriculture, and subsidies probably have a generally An OECD analysis of global average food aggravating effect on them, there is not subsidies suggests that government much reason to believe that agricultural assistance to the fisheries sector is subsidies collectively constitute a significant comparable to subsidies provided to threat to the resource base. In fisheries, on producers of competing protein foods. the other hand, knowledgeable analysts within and outside government are making Table 15. precisely that latter allegation. Average Global Food Subsidies (including trade measures) CONCLUSIONS Product Subsidy (%) Wheat 48 Coars grais 36This study is simply a first rough attempt to Rice 86 organize available information on subsidies Oilseeds 24 in fisheries into useful categories and hazard Sugar 48 some educated guesses at their global level Beef (and veal) 35 and environmental impacts. In so doing, it Pork 22 suggests a number of conclusions, some Poultry 14 more firm than others. Lamb and mutton 45 Eggs 14 Source: OECD, Agricultural Policies, Markets, and For purposes of clarity, we may organize Trade in OECD Countries (1996) them in two groups, dealing with: In conclusion, we might say that this study (1) analytical and methodological issues and suggests that total economic support (2) with more substantive matters. (subsidies and trade protection) in fisheries is between about one-fourth and one-third of With respect to analytical issues, future total revenues. Seen in this context, investigations of subsidies in fisheries may subsidies in the fisheries fall in the same help bridge many of these gaps. approximate range as in the pork and beef A better understanding of budgeted sectors. subsidies requires more data, but, presumably, gaps in information can be However, there are two crucial differences: bridged, especially with the notification First, subsidies paid to pork and beef requirement included in the 1994 Subsidies producers are governed by the reduction Agreement. Unbudgeted and underbudgeted commitments of the Uruguay Round subsidies are harder to assess with Agreement on Agriculture, while fisheries confidence for a variety of reasons. Indirect subsidies escaped these disciplines. Second, and "upstream" subsidies, like infrastructure Globefish Research Program; Vol. 38, July 1995), p. 8. 76 and shipbuilding, are also particularly investments in fisheries, both in resistant to analysis. 1o "transitional" economies and in the Certain other categories of fisheries developing countries;162 subsidies do not fit neatly into the context of * the costs to governments of "soft" current trade law. As examples, loan programs; environmental subsidies in fisheries are not * the costs of tax preference programs; adequately addressed in the WTO * the impact in the fisheries sector of Agreement and the user fee issue remains to subsidies provided to the be clarified. And, naturally, information on shipbuilding industry and for subsidies in "transitional" and developing fisheries infrastructure; and countries is scarce, and, therefore, our global * how the user fee issue fits into trade estimates are based in part on projections of law. partial information. The most obvious means to begin to do the Therefore, future studies should examine the above would be to utilize more actively the following: subsidies notification requirement in the 1994 WTO Subsidies Agreement.163 * fisheries subsidies in the developing nations;161 the level of state Even more fundamental is how to assess in a meaningful way the impact of subsidies on 160 An even more fundamental problem -- for trade resources. Assessment methodologies all experts as well as for analysts of environmental use market indexes, whether they aim at issues -- is how to best calculate these and other categories of subsidies. One view is to use the "costs to government" yardstick, but another approach is to assistance was provided annually to developing examine "the economic benefits to the recipients" of countries' fisheries sectors, the bulk of which was the subsidies. Obviously, the two are not the same, used for aquaculture, infrastructure, and training, and especially for subsidies like loan guarantees, which, not for programs that enhance fishing effort and if carefully administered, could cost government harvesting capacity. relatively little. A U.S. government expert on 162 One encouraging tentative conclusion of this subsidies recounted to this writer the "theological" study is the evidence that state ownership may be a debates in the WTO's Subsidies Committee on this form of subsidy whose significance is declining. The issue and noted that the official U.S. view on this reasons are fairly obvious: the demise of the Soviet question is that a proper assessment of subsidies Union, economic reforms in China, and the wave of should take into account their full economic benefits, privatization in many developing countries. As a and not simply the costs to government. result, it seems that if current trends continue, statist 161 Some have asked this writer about the role of overinvestment in the fisheries harvesting sector will foreign assistance and international development aid continue to decline, at least relatively. organizations in promoting the growth of the fishing 163 Interestingly, in its initial subsidies notification industries in developing countries. This issue was to the WTO, Korea reported a total of 133 subsidies, not included in the scope of this study, but according broken out as follows: prohibited -- 16; actionable -- to World Bank sources and a few studies, it does not 32, and nonactionable -- 85. Of the 32 actionable appear that foreign and development assistance has subsidies reported by Korea, 13, or more than a third, played a significant role. See, for example: FAO, A are fisheries programs. "Seoul Decides to Submit Survey ofAssistance. This report covers the second Subsidy Plan to WTO," Seoul Segye Ilbo, February half of the 1980s, and concludes that roughly $500 10, 1995, translated in the Foreign Broadcast million in bilateral and international developmental Information Service, EAS, February 21, 1995, p. 56. 77 calculations of a level of subsidization per to be considered, to some degree at least, a product, a producer subsidy equivalent, or a causal factor of the resource crisis in this "price wedge." This study also monetized sector and not just a symptom of ineffective them by roughly estimating their global management. level in terms of shares of aggregate costs Commentators have focused heavily on the and revenues. Still, this writer feels that connection between subsidies and efforts should move forward to identify overcapacity. Clearly, though, subsidies not some other means of estimating their impact only stimulate investments in new and on resources. Toward this end, fisheries upgraded harvesting capacity, but they also experts should make a greater effort to promote the operations of existing participate in the natural resource accounting capacity.i1s exercises under way within universities, national governments, and international In other words, subsidies go not only to the organizations. boats, but also to fuel, insurance, labor, distant-water fishing rights, and free access Next come the findings regarding to domestic resources. substantive issues: In a related sense, it is noteworthy that This study's key finding is that subsidies in market promotion and price support fisheries approach 20 to 25 percent of the programs constitute a relatively small share sector's revenues. If we assume that the of fisheries subsidies. Therefore, the sector's aggregate costs and revenues are structure of subsidies in fisheries differs roughly equal, then costs are being markedly from those in agriculture.166 suppressed by about 20 to 25 percent. These subsidies are clearly promoting It also appears that affluent countries excessive levels of effort and capacity. account for the majority of subsidies in Most of them promote harvesting operations fisheries. In fact, the OECD nations and and capacity, directly and indirectly, through China are probably responsible for as much grants, capital cost subsidies, tax as three-quarters of the total. In this respect, preferences, aids to shipbuilding, and subsidized access to both domestic and foreign resources. Therefore, subsidies have 165 For example, FAO Consultation on Responsible Fisheries Management states (p. 18) that "the 164 Of course, fishery economics holds that, under fundamental problem with [fleet size and effort open access regimes, costs and revenues will control] is confusion between access control which eventually be about the same. However, FAO regulates investment in fishing capacity and effort calculated in 1993 that costs are far greater than control for the purpose of regulating fishing mortality revenues and proposed a $54 billion estimate of this on the stock." disparity. This study does not address this issue. 166 The lion's share of agricultural subsidies are However, even assuming that global costs are provided by affluent (OECD) countries, and two- considerably greater than revenues, the cost- thirds of these subsidies consist of market and price suppressing effect of subsidies would probably still support measures. OECD, Agricultural Policies, be in the 15 to 20 percent range, surely a significant Markets, and Trade in OECD Countries: Monitoring level. and Evaluation (Paris: OECD, 1996). 78 fisheries subsidies are similar to those in industrial countries and deny trade agriculture.167 opportunities to fish exporters in the At the same time, it is undeniable that developing countries. subsidies in industrial countries (and China) Fisheries subsidies have particularly have significant effects on developing negative environmental impacts. This is countries. These impacts are three-fold: because subsidies in fisheries, in combination with ineffective management, First, subsidies that pay for access are threatening the viability of the resource arrangements support continued operations base, and because their effects on by (mainly) European and East Asian conservation are not limited to the territory distant-water fleets off Africa and in the of the country providing the subsidy but Western Pacific. These subsidized have significant international, or "spillover," operations reduce the fishing opportunities implications. available to local fishermen, and, in most cases, the payments may not compensate Subsidies in fisheries are also highly adequately for the full economic value of the non-transparent in the sense that about three- resources. quarters or more are not budgeted, and a good share of budgeted subsidies are Second, there is scattered evidence that controlled by government agencies other subsidized access arrangements are than those responsible for fisheries. The beginning to compromise local food needs. major categories of unbudgeted subsidies in Distant-water fleets tend to concentrate on the fisheries sector are lending and tax the more lucrative fisheries for species that policies and resource pricing. are favored by the markets of the industrial countries. Finally, environmentally harmful, i.e., effort- and capacity-enhancing, subsidies far Third, there are presumed trade implications. The combination of developed countries' 168 It may be worth pointing out that according to subsidies to their distant-water and to their domestic (coastal) fleetsseafood products appears to have slowed. While minimizes trade opportunities that rightfully global exports doubled from $17.2 billion to $35.7 should be available to the resource-rich billion from 1985 to 1990, they then increased at a developing countries. Clearly, the foreign more modest pace to $47 billion in 1994. Also, access and domestic subsidies reviewed global fishery exports in 1994 were broken out here, in combination with border measures, almost evenly between developing ($23.8 billion) and industrial ($23.2 billion) countries, a split that must have meaningful trade-distorting and arguably does not reflect the allocation of resources price effects that benefit the fishermen of the between the two groups. ______________________169 This large share of unbudgeted subsidies helps 167 In agriculture, the ratio of OECD to developing to explain why so many fishery experts tend to think country subsidies appears to be extremely lopsided. that subsidies in this sector are a marginal issue. That In fact, one unpublished and uncitable study puts is, they are not accustomed to treating as subsidies agriculture subsidies in OECD countries at over $300 Government incentives that can not be found in the billion and in the developing countries at just $10 budgets of fishery agencies. billion. 79 outweigh those whose effect is and overcapacity in harvesting operations. environmentally benign. In fact, our global This same theme was visited in the April estimates suggest that no more than about 5 1997 session of the UN Commission for percent of all subsidies provided to the Sustainable Development. harvesting sector support conservation. Therefore, there does not appear to be much With respect to fisheries, the picture that basis to the appeals of those who call for a emerges collectively from this work is not careful delineation and weighing of "good" encouraging. Common themes that run and "bad" subsidies as a necessary throughout recent World Bank analyses of precondition to effective international natural resource sectors are the needs to: (1) action. establish market-based incentives through In conclusion, while this study points to a the elimination of open access regimes and host of questions, it also suggests strongly the introduction of secure property, or that subsidies are a significant factor in harvest, rights; (2) ensure long-term undermining the sustainable use of the wild sustainability through the capture of resources in many parts of the world. resource rents by means of user fees or royalties; and (3) implement subsidy reform, Several recent studies have highlighted the especially as regards environmentally urgency of the situation in world fisheries perverse subsidies. and the obstacles to reform based on sustainable use. Essentially, much of FAO's Unfortunately, all three reforms have a long work in the last half-dozen years has focused way to go in most of the world's fisheries. on the threat to the resource posed by Tellingly, two of the three generic issues -- continuing overfishing and overcapacity. user fees and subsidy reform -- may be Recently, an OECD-sponsored study has addressed under the broad theme of reviewed in detail the management options "subsidies." and pointed out how difficult it is to effectively regulate fishermen.170 Against this background, it is particularly frustrating that many governments have International organizations are giving closer until recently seemed particularly unwilling scrutiny to the impacts of subsidies in to discuss this issue, even in an analytical natural resource sectors, including fisheries. context. And the environmental consequences of subsidies are receiving more attention than Reform of subsidies in fisheries will almost their trade effects. Recent meetings of assuredly yield many dividends. In FAO's Committee on Fisheries reviewed the particular, elimination or substantial linkages between fisheries sector subsidies reductions in effort- and capacity-enhancing, {i.e., bad} subsidies would: 170 OECD, Directorate for Food, Agriculture and * reduce pressure on the stocks; Fisheries, Fisheries Committee, Ad Hoc Expert * free up fiscal resources for other uses Working Group on Fisheries, Synthesis Report for the * enhance economic efficiency through Study on the Economic Aspects of Management of renhal onoic dicions; and Marine Living Resources (Paris: OECD, 1966). removal of price distortions; and 80 * stimulate increased trade.1 Ultimately, introducing subsidy reform and With respect to subsidies in fisheries, such a market-based incentives will enhance the strategy would ideally include three main fishery sector's long-term economic elements: sustainability and society's general welfare. In this broader context, it may be noted that 1. effort- and capacity-enhancing the World Bank has begun to examine the subsidies must be eliminated, reduced, or contribution of natural resource sectors to more strictly disciplined, preferably through national wealth, and has developed a rules-based regime; methodologies for measuring the wealth of environmental assets that take into account 2. effort- and capacity-reducing resource depletion and collateral subsidies have to be better designed and environmental degradation. Unfortunately, implemented -- to maximize their efficiency this natural resource accounting exercise and minimize their injurious collateral could not accommodate the fisheries sector, environmental impacts -- and must be a startling indication of its poor management integrated into trade law with appropriate and economic performance in the eyes of environmental coverage;73 and most economists.172 3. the "full-cost recovery," or resource Therefore, putting marine fisheries on a pricing, issue also needs to be sustainable track will require bold actions on accommodated more explicitly in trade law, a number of fronts, including reform of with the results that user fees are recognized subsidies. This general conclusion as normal and legitimate government inevitably leads one to think of next steps. charges, and failure to levy these fees at While it is not the purpose of this study to adequate levels is treated as a subsidy. promote specific negotiating strategies, its conclusions do seem to suggest the broadest Conversely, reform of fisheries subsidies outlines of an overall approach. alone will not put this sector back on a 171 These points are taken mainly from World 173 Future efforts to provide WTO cover for Bank, Five Years after Rio, p.4, and from the Report environmental subsidies in fisheries will necessarily of WTO's Committee on Trade and Environment, broaden the scope or increase the number of "green- November 14, 1996. 172 The World Bank did not include fisheries lighted" subsidies m the WTO. Such a trend will assuredly be resisted by many trade experts, some of among the natural resource sectors for which it whom feel that the concessions to environmental performed sustainability assessments because the subsidies in the 1994 Uruguay Round were resources are hard to assess and excessively mobile excessive. See, for example, the following statement (complicating matters ofjurisdiction) and, in a in an OECD report: "there was general concern that revealing judgment, the management regimes so the UR text, which gives a green light for certain ineffective that there are probably no sustainable types of environmental subsidies, ... may be economic rents in the sector. World Bank, excessively permissive, and open an undesirable Expanding the Measure of Wealth: Indicators of exemption from the general disciplines against the Environmentally Sustainable Development, pp. 9 and use of subsidies." OECD, Trade and Environment: 17. Environmental Subsidies, Report on the Meeting of Management Experts (September 13, 1994), p. 12. 81 sustainable path. Undeniably, improved and age profile, there is some reason to believe more effective management, both in the that the problem will eventually solve itself. domestic and international spheres, is a fundamental requirement. Increasingly, Some categories of subsidies that are not so experts seem to agree that improved clearly addressed in trade law may be more management must involve the introduction effectively reformed in the domestic of market-based incentives, most likely political sphere. One suspects that this may through implementation of property, or be the case with user fees and infrastructure. harvest, rights in fisheries. It may be noted that without an international agreement, subsidies provided Thus, the ideal response would be a many- to the energy sector have been significantly faceted and internationally agreed approach reduced during the past decade in a large dealing with property (harvest) rights, user number of countries.174 charges, and subsidy reform. Preferably, such a reform will be coordinated and Nevertheless, the prudent conclusion would multilateral, pursued in part in the WTO and seem to be that remedial actions should be in part in nontrade forums. Examples of implemented domestically and opportunities in WTO include: (1) the internationally sooner rather than later. For current discussions in the Committee on if corrective measures, including reform of Trade and Environment, (2) the subsidies, are not initiated soon, it is likely renegotiation of the UR Agriculture that the crisis of sustainability in world Agreement in 2000, and (3) a formal trade fisheries will go on, becoming a chronic and complaint under the 1994 Subsidies intractable problem, and perhaps even get Agreement. Possibilities in international worse before it gets better. organizations other than WTO include: (1) a fisheries agreement in FAO, and (2) inclusion of fishing vessels in the coverage of the OECD Shipbuilding Agreement. On the other hand, in the absence of such a coordinated and comprehensive strategy, there is always domestic political action, or suasion, leading, one hopes, to effective unilateral reforms. Norway's recent experience with subsidies shows that it is possible for governments to reduce them without binding international commitments. Certain developments in the EU, Japan, and 174 For example, the World Bank has identified the United States also give hope that global reductions in fossil fuel subsidies from about unilateral actions, often spurred by budget $114 billion in 1990-91 to $58 billion in 1995/96. considerations, may yield positive results.Measure of Wealth: And we should not forget that, as shown in dvelomEn p.t the discussion of the world fishing fleet'si 82 Selected Bibliography Normal Competitive Conditions in the Commercial Shipbuilding and Repair The following bibliography gives a selected Industry (Chairmans Proposal). Paris: list of published sources that proved helpful OECD, 1994. in preparing this study. In addition to sources that are cited in the footnotes, it also Uruguay Round Multilateral Trade lists materials that, while not cited, proved Negotiations, Final Act Embodying the helpful in understanding and Results of the Uruguay Round of conceptualizing the issues. This study relies Multilateral Trade Negotiations. heavily on "institutional" sources, i.e., Agreements on Subsidies and reports, analyses, papers, and proceedings of Countervailing Measures, and on meetings issued by international Agriculture (Marrakesh, Morocco, April 15, organizations and individual governments. 1994) Washington, D.C.: USTR, 1994. The most important sources of these materials were the Food and Agriculture United Nations, Final Act of the Third Organization, the Organization for United Nations Conference on the Law of Economic Development and Cooperation, the Sea. The Law of the Sea, United and the World Bank. Nations Convention on the Law of the Sea. New York: United Nations, 1983. To make this bibliography more useful to the reader, it concentrates, although not Ministry of Agriculture, Forestry, and exclusively, on published sources that are Fisheries, Government of Japan. Fisheries generally and freely available to non- Statistics of Japan 1994. Tokyo: MAFF government researchers. Some sources of Statistics and Information Department, information, such as the unclassified 1996. reporting cables and U.S. government translations of the foreign press, are not Commission of the European Communities. listed here (although many are cited in the Proposal for a Council Decision on Specific footnotes). Measures to Encourage Italian Fishermen to Diversify out of Certain Fishing Activities. Finally, instead of simply listing them Brussels: December 1996. alphabetically, the references are organized mainly according to the originating U.S. Government Studies and Reports international organization and government agency. U.S. Department of Agriculture (Economic and Research Service). Estimates of Treaties, Agreements, Laws Producer and Consumer Subsidy Equivalents: Government Intervention in Magnuson-Stevens Fishery Conservation Agriculture, 1982-1986. Washington, D.C.: and Management Act, (as amended through USDA, 1988. October 11, 1996), Public Law 94-265. OECD, Council Working Party on U.S. International Trade Commission. Fresh Shipbuilding. Agreement Respecting and Chilled Atlantic Salmon from Norway 83 (Investigation No. 701-TA-302, USITC Fisheries of the U.S.S.R., 1976. Publication 2371), April 1991. Washington, D.C., 1977. Maritime Administration, U.S. Department NMFS (Office of the Senior Scientist for of Transportation. Report on Foreign Fisheries), NOAA, Department of Shipbuilding Subsidies. Washington, D.C., Commerce, Resource Fee Proposal. 1993. Washington, D.C., 1993. Maritime Administration, U.S. Department NMFS (Office of International Fisheries), of Transportation. Maritime Subsidies. NOAA, Department of Commerce. World Washington, D.C., 1993. Fishing Fleets: An Analysis of Distant- Water Fleet Operations. Washington, D.C.: National Marine Fisheries Service (NMFS), NOAA Technical Memorandum NMFS- NOAA, Department of Commerce F/SPO-14, 1993. (Commerce). Our Living Oceans -- Report on the Status of U.S. Living Marine Food and Agriculture Organization Resources 1995. Washington, D.C.: NOAA Technical Memorandum NMFS-F/SPO-19, FAO. Review of the State of World Fishery 1996. Resources. Rome: FAO Fisheries Circular No. 710, 1990. NMFS, NOAA, Department of Commerce. Our Living Oceans -- The Economic Status FAO. World Fisheries Situation (prepared of U.S. Fisheries 1996. Washington, D.C.: in preparation for the International NOAA Technical Memorandum NMFS- Conference on Responsible Fishing in F/SPO-22, 1996. Cancun, Mexico on May 6-8, 1992). Rome: 1992. NMFS (Office of the Senior Scientist for Fisheries), NOAA, Department of FAO. Marine Fisheries and the Law of the Commerce, Analysis of the Potential Sea: A Decade of Change -- Special Chapter Economic Benefits from Rebuilding U.S. (Revised) of the State of Food and Fisheries. April 1992. Agriculture 1992. Rome: FAO, 1993. NMFS (Office of International Affairs), FAO, Fishery Resources Division. Review NOAA, Department of Commerce. of the State of World Fishery Resources: Argentine-European Union Fisheries Marine Fisheries. Rome: FAO Fisheries Agreement. IFR-94/08. Circular No. 920, 1997. FAO. Chronicles of Marine Fishery NMFS (Office of International Fisheries), Landings (1950-1994): Trend Analysis and NOAA, Department of Commerce. Chinese Fisheries Potential. Rome: FAO Fisheries Fisheries Management. IFR-92/1 1L. Technical Paper No. 359, 1996. FAO. The State of World Fisheries and NMFS (Office of International Fisheries), Aquaculture. Rome: 1995. NOAA, Department of Commerce. 84 FAO. Fisheries Credit Programmes and OECD, Committee for Fisheries, Ad Hoc Revolving Loan Funds: Case Studies. Experts Group on Fisheries. Producer Rome: FAO Fisheries Technical Paper No. Subsidy Equivalent -- Quantification of 312, 1989. Fisheries Support: A Pragmatic Approach. Paris: 1991. FAO. The Fishing Industry in the Russian Far East. Rome: FAO Globefish Research OECD, Committee for Fisheries. Fisheries Program, 1994. and Environment. Paris: 1991. FAG, Fisheries Department. Current OECD, Committee for Fisheries. Economic Situation, Trends and Prospects in World Assistance to the Fishing Industry: Capture Fisheries. Rome: 1995. Observations and Findings. Paris: 1993. FAO, Committee on Fisheries. Priorities for Major Program: Fisheries over the Long and OECD, Committee for Fisheries. Study on Medium Term and for the 1996-1997 Economic Assistance to the Fishing Biennium. Rome: 1995. Industry: General Survey and Country Chapters. Paris: 1991. FAO. Report of the Regional Consultation on Institutional Credit for Sustainable Fish GECD, Committee for Fisheries. Economic Marketing, Capture and Management in Support of the Fishing Industry: Effects on Asia and the Pacific (Manila, Philippines, Efficiency and Trade. Paris: 1991. July 3-7, 1995. Rome: FAO Fisheries Report No. 540, 1996. OECD, Committee for Fisheries. Over- Exploitation of Fish Resources: Outline of a Filhol, Agnes. Impact of the Uruguay Study. Paris: 1991. Round on International Fish Trade. Rome: FAO Globefish Research Program, 1995. OECD, Committee for Fisheries. Inventory of Assistance Instruments in the Fishing Insull, David, and J. Orzeszko, A Survey of Industry and Management Systems. Paris: External Assistance to the Fishery Sectors of 1993. Developing Countries. Rome: FAO Fisheries Circular No. 755, 1991. OECD. Trade and Environment: Environmental Subsidies. Paris: 1994. Organisation for Economic Co-operation OECD. Industrial Policy in OECD and Development Countries: Annual Review 1994. Paris: 1994. OECD, Committee for Fisheries, Ad Hoc Expert Group on Fisheries. Synthesis World Bank and Other Development Report for the Study on the Economic Banks Aspects of Management of Marine Living Resources. Paris: 1996. Expanding the Measure of Wealth: Indicators of Sustainable Developmnt Washington, D.C.: World Bank, 1997. 85 Monitoring Environmental Progress: A Pezzey, John. Sustainable Development Report on Work in Progress. Washington, Concepts: An Economic Analysis. D.C.: World Bank, 1995. Washington, D.C.: World Bank, 1992. Munasinghe, Mohan (ed.). Environmental John, Joshua. Managing Redundancy in Economics and Natural Resource Overexploited Fisheries World Bank Management in Developing Countries. Discussion Paper 240: Fisheries Series. Washington, D.C.: 'World Bank, 1993. Washington, D.C. The World Bank, 1994. Munasinghe, Mohan, and Wilfredo Cruz. World Bank Paper on Harvesting the Economywide Policies and the Waters: A Review of Bank Experience with Environment: Lessons from Experience. Fisheries Development (prepared for a Washington, D.C.: World Bank, 1995. Fishery Development Donor Consultation, October 13-15, Paris, France). Lovei, Magda, and Charles Weiss. Environmental Management and Institutions Other Books, Articles and Manuscripts in OECD Countries: Lessons from Experience. Washington, D.C.: World Fleury, Eric. "The European Common Bank, 1997. Fisheries Policy and its Consequences on Fishing Dependent Regions." Brussels: U.S. Hamilton, Kirk, and Ernst Lutz. Green Mission to the European Union, June 1993. National Accounts: Policy Usesan Empirical Experience. Washington, D.C.: Forney, Matt. "Between the Lines: China's World Bank, 1966. Sparse Budget Masks Some Troubling Trends." Far Eastern Economic Review, Dixon, John A., Richard A. Carpenter, March 20, 1997. Louise A. Fallon, Paul B. Sherman, and Supachit Manipomoke. Economic Analysis Hannesson, Rognvaldur. "Fishing Capacity of the Environmental Impacts of and Harvest Rules." Marine Resource Development Projects. Manila: Asian Economics, Vol. 8, Summer 1993, pp. 133- Development Bank, 1992. 143. Serageldin, Ismail.-Sustainability and the Wealth of Nations. Washington, D.C.: Herrick, Samuel, Jr. , Byron Rader, and Dale World Bank, 1996. Squires, "Access Payments and Economic Benefits in the Western Pacific United Five Years after Rio: Innovations in States Purse Seine Tuna Fishery." Marine Environmental Policy. Washington, D.C.: P.licy, Vol. 21, No. 1 (1997), pp. 83-96. World Bank, 1997. Japan's External Trade Organization. Advancing Sustainable Development: The China's Tuna Fishery. Tokyo: 1995. World Bank and Agenda 21. Washington, D.C.: World Bank, 1997. 86 Kaczynski, Vlad M. Status and Trends of Mace, Pamela M. "Developing and the Russian Fisheries Sector and Seafood Sustaining World Fisheries Resources: The Irade. Seattle, WA.: Bothell, 1995. State of the Science and of Management." Keynote Presentation at the World Fisheries Le Bail, J. "Tiers-Monde et Zones Congress, Brisbane, Australia, July 1996. Economiques Exclusives: La Difficile Conquete d'une Nouvelle Frontiere." Saywell, Trish. "Fishing for Trouble." Fa Unpublished and undated article. Eastern Economic Review, March 13, 1997. Lloyd's Register of Shipping. Statistical Tables 1988. London: 1988. Smith, Courtland L., and Susan H. Hanna. "Measuring Fleet Capacity and Capacity Matthiasson, Thoroflur. "Why Fishing Utilization." Canadian Journal of Fisheries Fleets Tend to Be Too Big." Marine and Auacultural Science, Vol. 47, 1990, pp. Resource Economics, Vol.1 1,No. 3, Fall 2085-2091. 1966, pp. 173-179. Strand, Ivar E., and Virgil J. Norton. "Some Mufson, Steven. "Major Speech Puts Li Advantages of Landings Taxes in Fishery Peng in Spotlight." Washington Pos, March Management." Allocation of Fishery 2, 1997. Resources, Proceedings of the Technical Consultation on Allocation of Fishery Pacific Rim Fisheries Update. "China Resources held in Vichy, France, April 20- Christens Plans to Be a Fishing 23, 1980, pp. 411-416. Superpower." September 1996, Vol, 5, No. Weber, Peter. "Net Loss: Fish, Jobs, and the 24, p. 9. Marine Environment." 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Box 2825 Lusaka BeiTing Tel- (2601) 252 579 Fan: (260 1) 253952 RECENT WORLD BANK TECHNICAL PAPERS (continued) No. 365 Pratt, Le Gall, and de Haan, Investing in Pastoralism: Sustainable Natural Resource Use in Arid Africa and the Middle East No. 366 Carvalho and White, Combining the Quantitative and Qualitative Approaches to Poverty Measurement and Analysis: The Practice and the Potential No. 367 Colletta and Reinhold, Review of Early Childhood Policy and Programs in Sub-Saharan Africa No. 368 Pohl, Anderson, Claessens, and Djankov, Privatization and Restructuring in Central and Eastern Europe: Evidence and Policy Options No. 369 Costa-Pierce, From Farmers to Fishers: Developing Reservoir Aquaculture for People Displaced by Dams No. 370 Dejene, Shishira, Yanda, and Johnsen, Land Degradation in Tanzania: Perception from the Village No. 371 Essama-Nssah, Analyse d'une r6partition du niveau de vie No. 372 Cleaver and Schreiber, Inverser la spriale: Les interactions entre la population, I'agriculture et l'environnement en Afrique subsaharienne No. 373 Onursal and Gautam, Vehicular Air Pollution: Experiences from Seven Latin American Urban Centers No. 374 Jones, Sector Investment Programs in Africa: Issues and Experiences No. 375 Francis, Milimo, Njobvo, and Tembo, Listening to Farmers: Participatory Assessment of Policy Reform in Zambia's Agriculture Sector No. 376 Tsunokawa and Hoban, Roads and the Environment: A Handbook No. 377 Walsh and Shah, Clean Fuels for Asia: Technical Options for Moving toward Unleaded Gasoline and Low-Sulfur Diesel No. 378 Shah and Nagpal, eds., Urban Air Quality Management Strategy in Asia: Kathmandu Valley Report No. 379 Shah and Nagpal, eds., Urban Air Quality Management Strategy in Asia: Jakarta Report No. 380 Shah and Nagpal, eds., Urban Air Quality Management Strategy in Asia: Metro Manila Report No. 381 Shah and Nagpal, eds., Urban Air Quality Management Strategy in Asia: Greater Mumbai Report No. 382 Barker, Tenenbaum, and Woolf, Governance and Regulation of Power Pools and System Operators: An International Comparison No. 383 Goldman, Ergas, Ralph, and Felker, Technology Institutions and Policies: Their Role in Developing Technological Capability in Industry No. 384 Kojima and Okada, Catching Up to Leadership: The Role of Technology Support Institutions in Japan's Casting Sector No. 385 Rowat, Lubrano, and Porrata, Competition Policy and MERCOS UR No. 386 Dinar and Subramanian, Water Pricing Experiences: An International Perspective No. 387 Oskarsson, Berglund, Seling, Snellman, Stenbick, and Fritz, A Planner's Guide for Selecting Clean-Coal Technologies for Power Plants No. 388 Sanjayan, Shen, and Jansen, Experiences with Integrated-Conservation Development Projects in Asia No. 390 Foster, Lawrence, and Morris, Groundwater in Urban Development: Assessing Management Needs and Formulating Policy Strategies No. 392 Felker, Chaudhuri, Gy6rgy, and Goldman, The Pharmaceutical Industry in India and Hungary: Policies, Insititutions, and Technological Development No. 393 Mohan, ed., Bibliography of Publications: Africa Region, 2990-97 No. 394 Hill and Shields, Incentives for Joint Forest Management in India: Analytical Methods and Case Studies No. 395 Saleth and Dinar, Satisfying Urban Thirst: Water Supply Augmentation and Pricing Policy in Hyderabad City, India No. 396 Kikeri, Privatization and Labor: What Happens to Workers When Governments Divest? No. 397 Lovei, Phasing Out Lead from Gasoline: Worldwide Experience and Policy Implications No. 398 Ayres, Anderson, and Hanrahan, Setting Priorities for Environmental MAnagement: An Application to the Mining Sector in Bolivia No. 399 Kerf, Gray, Irwin, Levesque, Taylor, and Klein, Concessions for Infrastructure: A Guide to Their Design and Award No. 401 Benson and Clay, The Impact of Drought on Sub-Saharan African Economies: A Preliminary Examination No. 402 Dinar, Mendelsohn, Evenson, Parikh, Sanghi, Kumar, McKinsey, and Lonergan, Measuring the Impact of Climate Change on Indian Agriculture No. 403 Welch and Fr6mond, The Case-by-Case Approach to Privatization: Techniques and Examples No. 404 Stephenson, Donnay, Frolova, Melnick, and Worzala, Improving Women's Helath Services in the Russian Federation: Results of a Pilot Project THE WORLD BANK 1I1h I I Street. N.\\. \\shIington, ).(:. 20433 1 S \ Telephon: 202-477-1234 l'einl:202-477-0391I Telc\: \]( l 64145 \\( )L I)ì \\- NW(: 24'N423 \\() V l)i\k i \\orld \\ ide. \\uh: htltp: un X u\.\oldhank.oir 14216 i l .'N hok213-rd1n.r ISBN 0-8213-4216-g