WORLD TRADE
ORGANIZATIONWT/CTE/W/154
4 July 2000
(00-2749)
Committee on Trade and Environment Original:  English
ENVIRONMENTALLY-HARMFUL AND TRADE-DISTORTING SUBSIDIES
IN FISHERIES
Communication from the United States
I. PURPOSES
1. The major purposes of this submission by the United States are, first, to briefly review the
international debate on the environmental and trade implications of fisheries subsidies, and, second, to
identify categories of fisheries sector subsidies that are environmentally harmful and that distort trade.
II. DISCUSSIONS AND STUDIES
2. During the last several years, the conservation and trade effects of subsidies in the fisheries
sector have been discussed in meetings of the World Trade Organization’s Committee on Trade andEnvironment (WTO/CTE), the UN Food and Agriculture Organization (FAO), the Organization for
Economic Cooperation and Development (OECD), a nd in the Asia Pacific Economic Cooperation
(APEC) forum, and further analysed by fisheries economists and other experts in a number of non-
government technical conferences.
3. In the WTO/CTE, submissions on the generally negative environmental and trade
implications of fisheries subsidies were first presented in May 1997.  In subsequent meetings over the
last year, several other papers were presented that sounded similar general themes.  During the same
period, FAO paid considerable attention to the role of subsidies as one factor that contributes to
overfishing and overcapacity.  Specific provisions were included in the 1999 International Plan of
Action on the Management of Fishing Capacity that called on FAO Members to reduce and
progressively eliminate environmentally-harmful subsidies in their national and multinational capacity
management plans.  OECD has collected informa tion on governmental financial transfers (GFTs) in
fisheries among its Members, attempting to estimate aggregate levels of GFTs, as well as the shares
that reduce costs, support revenues and incomes, and fund general services in fisheries.  The APEC
forum is currently completing a study of fisheries subsidies among its Pacific Rim Member
Economies that will examine how the WTO Agreement on Subsidies and Countervailing Measures
applies to those subsidies.
4. Individual WTO Members have also examined, or are in the process of studying, various
aspects of the fisheries subsidies issue.  In the United States, for example, a 1999 Congressionally-
mandated study examined the roles of subsidies and other Federal programmes as factors contributing
to both the expansion and reduction of harvesting capacity in domestic U.S. fisheries, concluding that
some subsidies did promote an increase in capacity in certain fisheries during certain periods.  The EUhas also commissioned a study that examines subsidies in a number of developed countries.WT/CTE/W/154
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III. ENVIRONMENTAL HARM AND TRADE DISTORTION
5. The United States believes that these recent discussions and studies show that there is
considerable agreement on most, if not all, of the basic issues, and that a general consensus is
emerging on the need for subsidies reform in the fisheries sector.  In particular, there is growing
support for the view that certain types of subsidies in fisheries are harmful to resource sustainability
and distort trade.
1. Resource Sustainability
6. While Governments and experts are still debating the issues raised in the above fora, it does
appear that there is some convergence of views on the key points.  This emerging broad consensus
may be briefly summarized as follows:
7. Governments and fishery management experts generally agree that overcapacity (more
capacity than needed for an economically healthy fi shery) and overfishing (rates of fishing mortality
that exceed sustainable levels) are major problems in capture fisheries.  In other words, there is
general agreement that the world’s fishing fleet is too large in relation to available fish stocks, or more
simply, there are too many boats chasing too few fish.
8. Against this background, it is generally agreed that subsidies that affect capacity or effort
have effects on resource sustainability, although views differ on their specific positive and negativeimpacts.  Virtually everyone agrees that some subsidies have negative environmental effects:  they
reinforce the tendencies to overfish and overinve st, 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) mitigate risks.  With
reduced costs and risks, and enhanced prices, vessel owners will tend to pursue harvests to anunsustainable degree and as well as add capital their operations.  In fisheries that are already exploited
at maximum sustainable yield (MSY) or beyond MSY, additional effort and capital further dissipate
rents, lead to resource erosion, and generally result in an unsustainable level of economic activity.
9. These harmful subsidies tend to have their worst environmental effects in open access
fisheries, somewhat less negative effects in regulated open access fisheries , and the least negative
effects in rights-based fisheries.1  It may be noted that pure open access fisheries have declined
significantly in number in most countries in the last few decades, and that the large majority of
commercial fisheries fall in the regulated open access category, since they are managed with various
effort controls and/or limited access.  At the other end of the spectrum, only a handful of
WTO Members have established rights-based systems (usually, individual transferable quotas)comprehensively in their fisheries sectors.  These same countries provide minimal subsidies.
Therefore, the large majority of environmentally-harmful fisheries sector subsidies are given to fleets
that operate in regulated open access fisheries, and have undesirable implications to one degree or
another for resource conservation.
10. The environmental impacts of the subsidies are felt not only within the exclusive economic
zone (EEZ) of the subsidizing coastal state, but also wherever that country’s fishing fleet operates,
such as in the high seas and the EEZs of other coastal states.  Hence, there is an internationaldimension to the impacts of these subsidies on resource conservation.
                                                     
1 For purposes of this submission, the United States defines these management categories as follows:
Open access fisheries have no effective controls on inputs (e.g. the number of fishers, the type of gear used, etc.)
or outputs (the size of the catch), nor on participation;  regulated open access fisheries have limits on inputs
and/or outputs, and possibly restrictions on participation;  rights-based fisheries have limits on the outputs for
the fishery and specified harvest rights for individual participants or well-defined communities.WT/CTE/W/154
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11. Subsidies may also promote the transfer of excess capacity from fishery to fishery, including
from a fishery in one EEZ to another EEZ, or from an  EEZ fishery to a high seas fishery.  Therefore,
some subsidies have the effect, intended or not, of moving overcapacity from domestic to high seas or
foreign waters, compounding the “spillover” or “leakage” phenomenon that is already present in
ineffectively managed fisheries.
12. Many fisheries throughout the world lack adequate controls on:  (1) capacity levels (including
both new entrants and increased capacity by existing participants);  and/or (2) effort levels (again,
including new effort and expanded effort by existing participants).  As a result, the “spillover” or
“leakage” effect is a common problem.  That is, overcapacity in one fishery may find its way into
other fisheries.  This spillover effect is compounded by the policies of some coastal States that even
encourage these transfers.  In conclusion, the envi ronmental harm associated with some fisheries
subsidies crosses jurisdictions and has serious domestic and international components.
2. Trade
13. Subsidies in capture fisheries may also distort trade, although these precise adverse effects
have not been carefully assessed by non-government experts, international organizations or in WTO
disputes.  Nevertheless, it is reasonable to infer that these impacts are not insignificant.
14. Capture fisheries still account for about two-thirds of world production of fish and shellfish.
In this traditional sector, global harvests have fluctuated between 85 and 90 million tons and,according to FAO, have even declined modestly in the late 1990s.  Products made from fish and
shellfish are heavily traded, with about 40 per cent (by their unprocessed weight) sold in foreign
markets.  Approximately 70 per cent of global seafoo d trade goes to three major markets (Japan, EU,
and the USA).
15. However, worldwide trade in seafood commodities, after growing strongly through the mid-
1990s, has plateaued at about $50 billion annually during the last five years.  Since aquaculture
accounts for a growing share of trade in seafood pr oducts, it follows that trade in seafood products
made from wild-caught fish has declined modestly.
16. Given the level of trade in fish and fish products, the fisheries subsidies have trade-distorting
effects. While these adverse effects have not yet been carefully assessed by non-government experts,international organizations, or in WTO disputes, available evidence indicates that most subsidies in
fisheries tend to promote harvesting operations and capitalization by reducing fixed and variable costs
and supporting prices and incomes.  Only rarely do they directly promote exports.  Further, it seems
that cost reducing subsidies far outweigh subsidies that support incomes and prices, so their aggregate
trade effect is usually to suppress prices.
IV. SUBSIDIES THAT PROMOTE OVERFISHING/OVERCAPACITY AND DISTORT
TRADE
17. The United States provides the following examples of environmentally-harmful and trade-
distorting subsidies.  These categories of fisheries subsidies reduce fixed and variable costs and/or
support incomes and prices.  Therefore, they tend to promote excessive levels of fishing effort and
harvesting capacity, and tend to distort prices and trade.
18. Excluded from this list are, inter alia , Government programmes for fisheries management,
science, enforcement, and most publicly financed port and landings facilities.  Government-funded
programmes that facilitate the transition to sustaina ble fisheries are also not included in this list.
Examples of these activities are publicly-funded programmes that:  reduce fishing capacity
(buybacks);  enhance resources (hatcheries);  support the development and adoption of clean
harvesting technology (bycatch reduction devices);  and facilitate adjustment to the economic distressWT/CTE/W/154
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associated with resource declines.  While some experts advocate recovery from resource users of
some management, science and enforcement costs, many policymakers and industry representatives
believe that these activities are Governmental functions that should not be constrained by a WTO
agreement on subsidies.
A. S UBSIDIES THAT REDUCE CAPITAL (FIXED ) AND OPERATING (VARIABLE ) COSTS
(i) Domestic Fisheries
19. These types of subsidies reduce fixed and variable costs in both domestic and international
fishing operations, but, since about 90 per cent of global capture fishery harvests are taken inside
EEZs, they generally have greater effort- and capacity-promoting effects in domestic fisheries.
(1) Government-Funded Commercially Applicable Research and Development
20. The next three categories may reduce the costs of capital, a key item in a sector in which the
costs of acquiring and financing a vessel play such a major role.
(2) Government Loans and Loan Refinancing at Below Market Rates
(3) Government Loan Guarantees that Facilitate Below Market Rate Loans
(4) Government Forgiveness of Government-Funded Loans
21. The next three categories reduce income and sales taxes, with the result that profit margins
are inflated and additional effort encouraged.
(5) Investment Tax Credits
(6) Income Tax Deferrals/Accelerated Depreciation Allowances
(7) Exemption from National Sales and Fuel Excise Taxes
(unless the tax is a user fee that funds a non-fishery programme such as highwayconstruction and maintenance).
22. The next category is a classic example of a risk mitigating and cost reducing measure that
tends to promote fishing operations.
(8) Government-Supported Marine Insurance at Below Market Rates Where Such
Insurance is Commercially Available
23. The next two categories of programmes are relevant in just a handful of nations with
centrally-controlled fisheries sectors.
(9) Government Ownership/Management of Fishing Enterprises if Inconsistent with
Market Terms
(10) State Trading if Inconsistent with Ma rket Terms and Customary Business Practices
This category is not a fisheries sector subsidy per se , but, to the degree that subsidies provided to
shipyards assist the fishers who buy the vessels, this type should also be considered.
(11) Assistance to Shipbuilding when the Benefits Accrue Specifically to FishersWT/CTE/W/154
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(ii) International Fisheries
24. These types of subsidies explicitly promote international fisheries, including operations on the
high seas and in the EEZs of other coastal States, often supporting the operations of redundant vessels
in ineffectively patrolled EEZs of developing countries:
(1) Government-funded Foreign Access Payments
(2) Government Assistance to Foreign Fishery Joint Ventures
(3) Government-supported Fishing Vessel Exports
(4) Government-supported Below Market Risk Insurance for Foreign Fishery
Investments
B. SUBSIDIES THAT SUPPORT INCOMES AND PRICES
25. These types of subsidies in fisheries support incomes and prices.  Based on presently
available information, including WTO subsidies noti fications, it seems that these income and price-
enhancing subsidies are less common than the aforementioned cost-reducing types.
26. The first two types are explicit price support programmes, and have the general effect of
promoting operations beyond an optimal point and sustaining marginal producers.
(1) Domestic Price Support Programmes
(2) Government Purchases for Above Market Remuneration
27. The next two types are directly trade-promoting subsidies, and do not appear to be widely
practiced.
(3) Rebates of Certain Taxes on Inputs if the Finished Product is Exported
(4) Government-Funded Export Subsidies
28. The last two categories are sector-specific social assistance programmes which may be
harmful if they are implemented in ways that effectively encourage fishers to remain active even
when sufficient fishery resources are no longer available.
(5) Sector-Specific Income Maintenance Programmes
(6) Regional Economic Development, if effectively Fisheries Sector-Specific
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