WORLD TRADE
ORGANIZATIONTN/RL/W/12
4 July 2002
(02-3743)
Negotiating Group on Rules Original:  English
FISHERIES SUBSIDIES: LIMITATIONS OF EXISTING SUBSIDY DISCIPLINES
Submission from New Zealand1
PURPOSE1. A recent submission (TN/RL/W/3) by eight delegations commented (paragraph 16) that there
may arise significant practical problems in applying existing SCM rules to fisheries sector subsidies.
The submission commented that, in particular, the heterogeneous nature of fisheries products  and
the economic structure of the fisheries industry made it more difficult to identify the sort of market
distortions at which SCM disciplines are directed.  During the discussion in the rules negotiating
group on 6 May several delegations sought further elaboration of this point.  This paper responds to
those requests.
SIGNIFICANCE OF THE GLOBAL STRUCTURE OF THE INDUSTRY
2. The point being made in relation to the “global structure” of the fishing industry is a
straightforward one.  A major problem addressed by the SCM Agreement is the harmful impact of
subsidized imports in the market of another member.  While Parts II and III may, in certain
circumstances, provide for a dispute settlement remedy, the imposition by the importing member of
countervailing duties under Part V is often the most practical “self-help” response to subsidized
imports.
3. In the case of the fisheries sector most of the major subsidizing members are also major
consumers, and have relatively limited exports.  Indeed, they tend to be major importers.  In these
cases, subsidies can make it harder or impossible for other members’ exporters to compete in the
subsidizing Member’s market. Countervailing duties under Part V are of little relevance in such acase; they can only be applied to imports into the complaining member’s market.
PROVISIONS OF PART III OF THE SCM AGREEMENT
4. Apart from distorting access to, and contributing to serious damage to fisheries resources
(see TN/RL/W/3, paragraphs 9-11), the main impacts of  subsidies in the fisheries sector take the form
of price suppression , price undercutting and displacement of imports into the market of the
subsidizing member or third-country markets.
5. In principle these impacts are addressed by the serious prejudice provisions in Part III of the
SCM Agreement.
2  In order to demonstrate that a subsidy has caused “serious prejudice” to the
interests of another member it is (since the lapse of Article 6.1) necessary to demonstrate that as a
result of the subsidy:
                                                     
1 This Submission is without prejudice to New Zealand’s interpretation of the SCM Agreement.
2 A remedy may also, in certain circumstances, be available under Part II.TN/RL/W/12
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• exports of a like product into the market of the subsidizing member or into a third-country
market have been displaced or impeded; or that:
• there has been significant price undercutting by the subsidized product as compared with the price
of a like product in the same market; or that:
• there has been significant price suppression, price depression or lost sales  in the same market;
6. Establishing the trade-distorting effects  of subsidies on market share or price is therefore
central to the application of Part III disciplines as they currently stand.  Although these effects occur
in the fisheries sector, they are particularly difficult to demonstrate.  This is essentially due to the
heterogeneous nature of fisheries products.  Fisheries products are so diverse that, in contrast to other
sectors, unsubsidized reference prices are not generally available.  This means that it is very difficultto establish what prices would be for particular fisheries products in the absence of subsidies.  This is
a critical problem: it is necessary to quantify the price effects of a subsidy in order to show that it
causes significant price undercutting or price suppression.
HETEROGENEOUS NATURE OF FISHERIES PRODUCTS
7. Internationally traded fisheries products are characterised by a high degree of heterogeneity,
reflecting the large range both of species and of processing techniques.  Products from quite distinct
species can nevertheless be in direct competition at market.  Conversely, superficially similar fish
products from the same family can command quite different prices.
EXAMPLE:  HAKE
8. As one example, there are 16 species of hake caught round the world.
3  All participate in
international trade to some extent.  While they form a family group and may be said to be capable of
substituting for each other in the market, each ha s distinctive species characteristics that result in
differences in market perception and value between them.  Further, values may vary between products
and supply sources of any one of the 16 species depending on how the product in trade has been
produced and processed.  (It may be trawl or line caught, processed and frozen at sea or taken to shore
for land based processing, with or without the use of ice to maintain product quality).  A pair of
apparently similar products made from two different but related species, as in this case, may not
command the same prices.  Accordingly, neither could appropriately constitute a price reference pointfor the other.
ESTABLISHING REFERENCE PRICES
9. This heterogeneity makes it especially difficult to demonstrate the effects  of transfers on the
prices or market share of fisheries products, because of the potential for cross-subsidization and the
lack of reference prices for specific products.  Establishing price effects requires as a basis forcomparison information about what prices would be in the absence of the subsidy.  In other sectors,
unsubsidized reference prices provide such a basis for comparison.  However, because fisheries
products are so heterogeneous, unsubsidized reference prices are in general simply not available, as an
OECD Ad Hoc Experts Group established in 1989 to consider fisheries support found.
4
10. As far as processed products are concerned, fisheries products constitute a highly
heterogeneous collection.  As the OECD found, “Products and markets vary considerably from
                                                     
3 Multilingual Dictionary of Fish and Fish Products (4th Edition), prepared by OECD (Fishing News
Books 1995)
4 Their report is contained in AGR/FI/EG(93)11/REV1 (OECD, 1993).TN/RL/W/12
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country to country making it difficult to establish a world reference price for a given commodity”.5
Unprocessed fish also form a highly heterogeneous collection of species.  The OECD found as
follows:  “The problem of establishing an external reference price for raw fish is in general greater
than for agricultural products.  The difficulty stems from the fact that fishery products are highly
perishable and heterogeneous. Raw fish is comparable to fresh fruit and vegetables for which PSEshave in general not been calculated.”
6. Indeed, establishing even a domestic price for unprocessed
fish may not be straightforward.  The harvesting and processing sectors tend to be highly vertically
integrated, obscuring the domestic prices for unprocessed fish.7
SUBSIDIES AND REFERENCE PRICES
11. Government price support  artificially boosts producers’ profits on supported products, and
may thereby enable them to lower prices of (ie effectively cross-subsidize) other products.  Lower
prices can in turn have the effect of undercutting or foreclosing imports of imported “substituting”
product, or other fisheries products that may be significantly different but compete at similar prices in
the market in similar demand segments (for example finfish and crustacea).  To the extent that
subsidized producers export their product, distortions to other markets will also result.  However, inthe absence of information about what undistorted prices would be (i.e. unsubsidized reference prices)
it is especially difficult in the fisheries sector to  quantify any of these price (and hence market-
share) effects.
12. For similar reasons, it is also difficult to determine the effects on price or market share of
cost-lowering  subsidies, or those which directly enhance revenue  (such as direct payments).  If
government lowers a producer’s costs or increases a producer’s revenue, in either the harvest or the
processing sector, it thereby lowers the price floor at which that producer can profitably sell.  This is
liable to have the effect of lowering the price or market share available to competing producers in the
affected market, potentially distorting international trade.  However, quantifying the effect on theprice or production of a given product is problematic.  Support to the harvest industry, for instance,
often takes the form of input subsidies, which lower the costs of credit, ships, fuel and suchlike.  Such
inputs may be employed, even by a single producer, in the production of a range of distinct fisheries
products. In a multi-species fishery, for instance, a given input subsidy can lower production costs for
a range of distinct unprocessed and processed products.  Quantifying the effect on the price, or
volume produced, of any single product is especially problematic in the fisheries sector, given the
scope for cross-subsidization among products and the lack of unsubsidized reference prices for thoseproducts.
APPLICATION OF SCM PROVISIONS
13. These facts have obvious consequences for the viability of making assessments of effects on
price and market share of like products required pursuant to an action under Part III of the SCM
Agreement.  Transfers to the sector artificially lower their recipients’ costs or boost their incomes.
The resulting distortions to fisheries product markets are of a type that SCM provisions ought to
discipline.  It is a question of ensuring that they can be made operationally effective.  In practice, for
the technical reasons outlined above, it is not feasible to complete some of the critical investigationand analysis needed in order to apply the relevant Part III SCM provisions.  This presents an obstacle
to the application of current SCM rules in the fisheries sector.
                                                     
5 AGR/FI/EG(93)11/REV1, paragraph 67.
6 Ibid, paragraph 57.
7 Ibid, paragraph 57.TN/RL/W/12
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CONCLUSION
14. The characteristics of fisheries products are the source of specific technical obstacles to the
use of the “serious prejudice” and “determination of injury” provisions of the SCM Agreement.
These impediments to the application of existing rules underline the need for specific measures toimprove WTO disciplines on fisheries subsidies.
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