WORLD TRADE WT/CTE/W/51
19May1997
ORGANIZATION(97-2205)
Committee onTrade andtheEnvironment Original: English
ENVIRONMENTAL AND TRADE BENEFITS OFREMOVING SUBSIDIES
INTHE FISHERIES SECTOR
Submission bytheUnited States
Item6
1. There isincreasing international recognition thatfisheries resources aregreatly overused, with
increasing risktotheviability ofmany stocks. Apartofthecause isthatmany countries provide
subsidies tothefisheries sector. These subsidies promote overfishing andundermine thesustainability
oftheresource. These subsidies alsodistort trade leading tolessefficient production.
I. GLOBAL FISHERIES RESOURCES ARE OVERUSED
2. Recent trends inworld fisheries (increased harvesting levels andindications thatstocks are
becoming stressed) havegenerated considerable andgrowing concerns about thissector 'seconomic
viability andenvironmental sustainability. Inaddition toconcerns regarding increases inharvest levels,
therearemany indications thatfishing effort andharvesting capacity areatexcessive levels, andmust
berestrained ifglobal fisheries aretobemanaged sustainably. U.NFoodandAgricultural Organization
(FAO) work inthisareaindicates that: (i)forthelasttwoormore decades, thenumber andaggregate
sizeoffishing vessels hasincreased atasignificantly greater ratethanworld harvests; (ii)veryfew
oftheworld ’slargest fishresources areundeveloped; and(iii)theharvests oftraditional highly valued
species aredeclining, while harvests oflesspreferred species areincreasing.
3. FAO'sfisheriesexpertshavepreparedconsistentlypessimisticanalysesofthestateoftheworld's
fishresources, andadvocate significant reductions inglobal harvesting capacity andsubsidies: “The
depletion ofvarious fishstocks hasoccurred invirtually allcoastal states throughout theworld. Indeed
[...]thisisaninevitable outcome unless appropriate controls areadopted. ”(SeeMarine Fisheries
andtheLawoftheSea:aDecade ofChange, Rome, FAOFisheries Department, 1993). Mostrecently,
FAOestimated thattwo-thirds oftheworld 's200major fishresources areeither "senescent" (showing
declining yields) or"mature" (atmaximum exploitation levels).
4. Theeconomicconsequencesofover-utilizationofarenewablenaturalresourceareclear.Without
proper adjustment toachieve asustainable rateofutilization, theviability ofagiven fishery asan
ecological linkandsource offood, economic wealth andexport earnings willbejeopardized. Declining
yields (output perunitofeffort) inthefaceofeverimproving technological capability forharvesting
fishisaclear signofaresource instress andtheneedforadjustment intheindustry.
5. These concerns about thehealth oftheresource havebeenwidely echoed inanumber of
internationalmeetingsandagreements,includingthe1992Rio“EarthSummit”;the1995Kyotomeeting
onthecontribution ofsustainable fisheries tofoodsecurity; therecently negotiated UNfisheries
agreements; andanumber ofFAO fisheries technical andpolicy conferences.WT/CTE/W/51
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II. SUBSIDIES TOTHE FISHERIES SECTOR ARE SUBSTANTIAL
6. In1993, FAO analyzed global costsandrevenues inworld fisheries, andconcluded thattotal
costs, including operating andcapital cost,exceed revenues by$54billion. Specifically, theyidentified
global costs of$124 billion andrevenues of$70billion, andinferred thatsome substantial share of
thisdisparity wascovered bysubsidies. Atcurrent levels ofcapacity, global revenues fallfarshort
ofcosts. FAOhasestimated thatglobal fishing capacity would havetobecutsignificantly forindustry
revenues tocover allcosts.
7. More recently, reports prepared bytheGovernments ofNewZealand (Seafood Trade Access
Study,1996, byRory Macleod) andtheUnited States (National Marine Fisheries Service, National
Oceanic andAtmospheric Administration, andDepartment ofCommerce, Analysis ofthePotential
Economic Benefits forRebuilding U.S.Fisheries ,April 1992) show thatfisheries sector subsidies are
substantial; assume awidevariety offorms; figure significantly inthenational fisheries policies of
anumber ofcountries; andareprovided mainly totheharvesting sector, asopposed toother sectors
(processing, aquaculture, marketing, etc.)ofthefishing industry. Subsidies include direct government
payments fortheconstruction offishing vessels aswellasloanguarantee programmes thatminimize
theriskincurred byprivate sector lenders. Inaddition, income support programmes andfuelsubsidies
areprovided insome countries.
III. SUBSIDIES TOTHEFISHING SECTOR AREUNDERMINING THESUSTAINABILITY
OFTHE RESOURCE
8. Global commercial fisheries relyheavily ona"common pool" wildresource withinadequate
access controls. Itisdifficult toeffectively manage theresource duetothelackofaccess controls.
Subsidization further exacerbates thiscondition byencouraging overfishing andstructural overcapacity
inthefishing sector. Many fisheries experts believe thatineffective management isthemostfundamental
problem inthissector. Ineffective management leadstoovercrowded fisheries, andthereby strengthens
pressures forsubsidies. Subsidies tendtoexacerbate theoverfishing andovercapitalization common
intheworld 'scommercial fisheries.
9. Themajorityofglobalfisheriessubsidiesincreaseharvestingoperationsandcapacity.Therefore,
most subsidies infisheries haveanegative impact from aconservation standpoint because they:
(a) encourage themovement ofadditional capital intoaneconomic sector thatisalready
overcapitalized;
(b) promote overfishing byvessels already inthefisheries;
(c) exacerbate andcompound thealready difficult problems offisheries management;
and
(d) represent amisallocation ofGovernment financial resources thatcould otherwise be
employed more efficiently.
10. Thenegative impacts ofsubsidies onresource conservation canbeseeninmany parts ofthe
world. Forexample, therehasbeenasharp decline intheharvest oftraditional highly-valued species
andadecline inthehealth ofthese stocks. Asaresult, there hasbeen ashifttoutilization of
lower-valued, previously abundant species. Therecent increase inthevolume oftheworld-wide catch
masks theproblem –depleting onespecies andmoving ontoanother cannot besustained.WT/CTE/W/51
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11. Ontheother hand, there isapositive roleforsubsidies intended toreduce effort andcapacity
infisheries,i.e.,environmentalsubsidies.AnumberofGovernments,includingtheEU,Japan,Canada,
andtheUnited States, areturning increasingly toenvironmental subsidies asameans ofaddressing
resource conservation problems. Examples ofenvironmental subsidies infisheries include: vessel and
fishing permit buybacks tobring vessels outofproduction; retraining offishermen; stock enhancement;
andR&D in"clean" harvesting technology.
12. Insum, itappears thatthemajority ofsubsidies infisheries haveanegative impact onthe
resource. Ontheother hand, some subsidies mayplayauseful role,butthere isdisagreement and
uncertainty regarding theireffectiveness aseconomic andconservation instruments.
IV. SUBSIDIES DISTORT TRADE INTHE FISHERIES SECTOR
13. While theimpacts ofsubsidies ontrade infishhavenotbeencarefully studied, there islittle
doubt thatthesesubsidies distort tradeandputunsubsidized fleets atacompetitive disadvantage. World
tradeinfishproducts hasgrown significantly, andabout one-third ofproduction fromcapture fisheries
harvests andaquaculture istraded. Trade infishery products increased substantially inthe1970s and
1980s, buttherateofgrowth appears tohaveslowed inrecent years. Currently, global fisheries trade
amounts to$40to$45billion annually.
14. After theworldwide move to200-mile Exclusive Economic Zones (EEZs), which occurred
inthe1970s, theresource-rich including many developing countries, havehadtheadvantage infish
trade. The200-mile EEZs allowed countries toexclude non-domestic fishing vessels fromtheirEEZs
andtoturnoverthefisheries sector todomestic industry. Currently, theresource-rich nations
(e.g.Canada, Norway, Iceland, Chile) havebecome netfishexporters. Conversely, nations thatare
notasrichinfishresources havebecome significant netimporters.
15. Fisheriesexportsplayamajorroleintheeconomiesofanumberofmainlydevelopingcountries.
Three nations (Somalia, Seychelles andIceland) depend onseafood for60to80percent ofthevalue
oftheirtotalexports; andseven (Cape Verde, French Guiana, Guinea-Bissau, Maldives, Mauritania,
Mozambique, andSenegal), depend onseafood for40to59percent ofthevalue oftheirtotalexports.
Insummary,10oftheworld's41"vulnerablesingle-commodity-dependenteconomies"intheagricultural
andfisheries sector relyonseafood foratleast40percent ofthetotalvalue oftheirexports.
16. Subsidies infisheries areprovided primarily toalleviate theoperating andcapital costsofthe
harvesting sector. Among themostcommon forms are:grants, loans, andloanguarantees forvessel
construction; fiscal benefits related tofueltaxes anddepreciation allowances; andpayment by
governments offoreign access feesonbehalf oftheirfishing industries.
17. Thesesubsidiesareprovidedtoanindustrythatharvestsarenewable,publiclymanagedresource
bothinside andoutside thewaters under thejurisdiction oftheindustry 'scoastal state. Therefore,
subsidies infisheries havetwobroad international impacts: (i)ontrade; and(ii)ontheharvesting
operations themselves.
18. Theeconomic consequences ofsubsidization mirror theconservation effects described above
inthattheypromote over-production anddelay market-balancing adjustment.
(a) Fisheries subsidies promote amisallocation ofeconomic resources .They encourage
over-production andhinder market exit. Subsidized fleets thustendtobetoobigand
fishtoomuch. Subsidies represent resources thatcould bemore efficiently usedWT/CTE/W/51
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elsewhere intheeconomy. Eliminating them canprovide anadvantage forstrapped
budgets.
(b) Subsidies induce adistorted market equilibrium .They usually lower costs andtend
toencouragefishingactivity,lowerpricesandstimulatedemand.Sincethesedistortions
tendtopushshort-term production beyond yieldlevels which aresustainable overthe
longer term, theinevitable market correction isdelayed andrisksaremuch moresevere
(e.g., thecollapse ofafishery asaneconomic resource).
(c) Subsidiespromotestructuralovercapacitybydelayingexitfromthemarket.Inasituation
ofstructural excess fishing capacity, therationally expected response would beexit
fromthemarket bytheleastefficient producers. However, subsidies canserve tokeep
theseproducers fromexiting themarket, thussustaining chronically inefficient fleets.
Thiscreates apermanent lobby forcontinued assistance.
(d) Subsidiesaffecttradebyshiftingtheburdenofadjustmentontonon-subsidizedproducers.
Byremoving market pressures toequate revenues withlongterm average costs,
domestic subsidies tendtoshifttheburden ofadjustment inovercapacity situations
toforeign suppliers. Thisresponse further exacerbates themarket distortions listed
above.
(e) Subsidies canmake itmore difficult fordeveloping countries totakefulleconomic
advantage ofthefishresources intheirownEEZs.When paidtodistant water fleets,
subsidies promote operations thatoften target highly migratory andstraddling stocks.
Asaresult, stocks thatstraddle theEEZofacountry butalsoexistinthehighseas
maybeexploited onthehighseasbyasubsidized distant water fleet. These subsidized
operations thustakeresources thatwould betaken byother unsubsidized fleets, often
ofdeveloping countries, operating intheirownEEZs.
19. Generally, subsidies support marginal, ofteneconomically unviable coastal fleets. Inaddition,
when subsidized fleets harvest resources thatareshared, transboundary, oronthehighseas,themore
efficient producer isdisplaced from themarket.
V. CONCLUSION
20. Fisheries isagoodexample ofanatural resources sector where removing subsidies willgenerate
significant benefits fortrade andtheenvironment. Subsidies tendtoreduce internal costsandthereby
exacerbate theproblems ofovercapacity andoverfishing. Thisproblem isperhaps more acute for
developing countries whose economies arelessdiversified andwhoaretherefore more dependent on
export earnings fromtheirnatural resources. Subsidies alsodistort trade, affecting prices anddistorting
sources ofsupply. Removing subsidies would thusprovide adouble dividend forboththeenvironment
andtheglobal economy.