WORLD TRADE  
ORGANIZATION  TN/RL/W/154 
26 April 2004 
 (04-1851) 
Negotiating Group on Rules Original:   English 
  
 
FISHERIES SUBSIDIES:  OVERCAPACITY AND OVEREXPLOITATION 
 
Communication from New Zealand
 
  
The following communication, dated 23 April 2004, is being circulated at the request of the 
Delegation of New Zealand. 
 
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SUMMARY 
 
1. Calls for prohibition of subsidies that pr omote overcapacity and overfishing are a common 
feature of initial proposals in the negotiation.  Bu t explicitly addressing overcapacity and overfishing 
through subsidy rules is problematical.  Targeting programmes that have revenue or cost impacts for 
the industry would offer an effective means of addressing subsidy-induced overcapacity and 
overfishing as well as other trade distortions.  An approach involving a broad prohibition of such 
programmes would have to be balanced by excepti ons and transitional provisions, including special 
and differential provisions for developing countries.   INTRODUCTION 
  
2. A common feature of several submissions presented over the past year is that they envisage a broad “red light” (prohibited) category of subsidies in the fisheries sector as a key discipline.  There 
are good practical reasons for taking this approach: experience with current rules suggests that only a "red light", which prohibits subsidies ex ante , provides the requisite certainty and enforceability.  
 
3. A number of possible approaches to defini ng an expanded red light category have been 
suggested.  One submission
1 suggested expanding the category of prohibited subsidies expressly to 
cover those subsidies that "directly promote overcapac ity and overfishing, or have other direct trade 
distorting effects." Another submission2 proposed to prohibit "capacity enhancing subsidies".  A third 
submission3 suggested prohibiting "all fisheries subsidi es of a commercial nature, directly geared 
towards lowering costs, increasing revenues, raisi ng production (by enhancing capacity), or directly 
promoting overcapacity and overfishing".  Those proposing these approaches have had concerns 
about both environmental damage a nd more conventionally defined trade distortions that result from 
subsidies in the sector.  
 
4. As the extracts quoted above indicate, th e second common feature of these proposals is the 
focus on overcapacity and overfishing.  If overcapacity  and overfishing are to be taken as a starting 
                                                      
1 TN/RL/W/77 
2 TN/RL/W/82 
3 TN/RL/W/115 TN/RL/W/154 
Page 2  
 
 point or main point of reference the practical quest ion that follows is how to incorporate them into 
improved subsidy disciplines.   
HOW MIGHT OVERCAPACITY AND OVERFISHING BE ADDRESSED IN SUBSIDY 
RULES? 
 
5. Concepts such as overcapacity
4, overfishing5 or overexploitation or even “trade distortions” 
are not easy to address directly through subsidy disci plines.  Current ASCM provisions typically refer 
to more easily tested trade or economic effects such as impacts on prices, production, imports or exports.  “Overcapacity” and “overfishing” are more complex terms that are liable to prove 
problematical for interpretation and enforcement if in corporated directly into rules in those words. 
 6. To address overcapacity and overfishing thro ugh subsidy rules requires first an understanding 
of how subsidies contribute to those effects.  An earlier submission to the Committee on Trade and 
Environment
6 outlined the linkage: 
 
“ ... it is generally agreed that subsidies that affect capacity or effort have effects on resource sustainability, although views di ffer on their specific positive and negative 
impacts.  Virtually everyone agrees that some subsidies have negative environmental 
effects: they reinforce the tendencies to  overfish and overinvest, thereby exacerbating 
an already difficult problem and undermining remedies.  These subsidies encourage 
overfishing and overcapacity because they: (1) reduce fixed and variable costs; (2) 
enhance revenues and incomes; and (3) mitigat e risks.  With reduced costs and risks, 
and enhanced prices, vessel owners will tend to pursue harvests to an unsustainable 
degree and as well add capital [to] their operations.  In fisheries that are already exploited at maximum sustainable yield (M SY) or beyond MSY, additional effort and 
capital further dissipate rents, lead to r esource erosion, and generally result in an 
unsustainable level of  economic activity.” 
7. Of the three key factors identified here, tw o – costs and revenues – can more readily be 
quantified (and in practice we would expect most risk-related support to be picked up under the 
“costs” heading).  These factors would, on the face of  it, readily lend themselves to direct application 
in improved subsidy disciplines in the fisheries sector .  Focusing on the effect of subsidies on industry 
costs and revenues would also ensure the WT O is not drawn into areas beyond its traditional 
competence.  
CAPITAL OR OPERATING COSTS? 
 8. If costs and revenues are to provide a starting point we also need to consider which costs 
would be covered.  Some earlier proposals seeme d to envisage disciplines applying essentially to 
costs associated with overcapacity – primarily capital costs.  Yet the first real test of any improved 
disciplines will be the extent to which they ad dress overfishing (or overexploitation of fisheries 
resources, as others have put it).  Overfishing is dr iven by overall fishing effort, in which overcapacity 
is a critical but not sole factor.  This strongly s uggests that improved disciplines will need to extend to 
variable costs as well as fixed costs.  
 
                                                     
 
4 “more capacity than needed for an econo mically healthy fishery” (WT/CTE/W/154) 
5 “rates of fishing mortality that exceed sustainable levels” (WT/CTE/W/154) 
6 WT/CTE/W/154  TN/RL/W/154 
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 NEGATIVE OR POSITIVE LIST? 
 
9. Support programmes in the fisheries sector are not orious for their lack of transparency.  Lack 
of reliable information on programmes in a numb er of major subsidising countries has made it 
particularly difficult to quantify and analyse subsidy programmes.7  Inadequacies in WTO notification 
requirements and members’ notifications have contributed to the problem. 
 10. This lack of transparency suggests that  improved disciplines will need to anticipate 
difficulties in monitoring future subsidies.  L ack of transparency also exacerbates risks of 
circumvention.  These risks are already high because of the extent of vertical integration in the 
industry. 
 11. Circumvention risks would be minimised if th e application of new rules was elaborated via a 
negative list rather than a positive list approach.  In other words, a subsidy programme would be 
captured by new rules unless programmes of that type were specifically excluded.  
 
POSSIBLE BASIS FOR EFFECTIVE SUBSI DY DISCIPLINES IN THE FISHERIES 
SECTOR 
 
12. Several conclusions follow from this discussion.  If modified subsidy rules are to be effective 
in addressing overcapacity and overfishing, as well as  other trade distortions, they will need to: 
 
 - make prohibition the primary discipline;   - apply, in principle, to the full range of programmes that are liable to contribute to 
overcapacity or overfishing or other trade distortions; and  
 
 - use a negative list approach for exceptions to minimise circumvention risks.  As to how overcapacity and overfishing might be tr anslated into new rules, an obvious approach 
would be to:   
 - take reduction of fixed or variable cost s or enhancement of revenues or incomes as 
basic tests to be applied within new rules. 
 
EXCEPTIONS 
 13. Submissions in this negotiating group (and, earlier, in other WTO bodies) have suggested a 
number of types of programme that should not be subject to new disciplines .  Some categories of 
management or environmental progr ammes have been mentioned, fo r example, as have transitional 
programmes.   14. These issues will need to be the subject of detailed examination and negotiation.  Exceptions 
would not necessarily be open-ended: some might be  temporary in nature.  Decisions will also be 
needed on whether a simple “exceptions” approach  will suffice or whether a more positive “green 
light” category might also be needed.  But in the interests of effectiveness and avoiding circumvention 
it seems preferable to start with primary disciplin es that are comprehensive in their coverage, with 
only limited and defined exceptions.  This simple r approach also has the advantage of limiting 
compliance costs. 
 
                                                     
 
7 See, for example, the detailed account in Hard Facts, Hidden Problems, WWF 2001 pp 10-24. TN/RL/W/154 
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 TRANSITION 
 
15. Subsidy programmes in the fisheries sector in  some countries are critical for the economics of 
the industry.  In many cases withdrawal of large-s cale subsidies can be exp ected to have important 
social as well as commercial impacts.  It will not be realistic to expect rigorous new disciplines to take 
full effect immediately. 
 16. This suggests that a negotiation will need to address not only exceptions to general rules but 
also a need for transitional provisions that will a llow realistic implementation arrangements.  There 
are useful precedents in various WTO agreements.  Again, these provisions should be considered once 
there is wider agreement on the sh ape of the basic disciplines.  
 
NOTIFICATION 
  
17. As mentioned above, notifi cation requirements and some members’ notification practices 
have contributed to a lack of transparency in rela tion to subsidies in the fisheries sector.  This has 
been flagged in earlier submissions
8 and remains an issue that will need to be addressed in the 
development of improved disciplines.  Development of  transitional provisions is likely to drive much 
of this work.  
SPECIAL AND DIFFERENTIAL PROVISIONS 
 
18. The mandate for this negotiation requires par ticipants to take into account the needs of 
developing and least developed par ticipants and, specifically, to take into account the importance of 
the fisheries sector to developing countries.  As wi th general exceptions and transitional provisions, 
full discussion of special and differential provisi ons will only be practical once there is some 
convergence on the primary disciplines that are to be put in place. 
 
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8 See, for example, TN/RL/W/3 and TN/RL/W/21.