WORLD TRADE WT/CTE/W/52
21May1997
ORGANIZATION(97-2206)
Committee onTrade andtheEnvironment Original: English
ITEM 6:THE FISHERIES SECTOR
Submission byNewZealand
I. INTRODUCTION
1. Pursuant totheSingapore Ministerial Declaration, theCommittee onTrade andEnvironment
istasked withcontinuing toexamine thescope forcomplementarities between trade liberalization,
economic development andenvironmental protection. Under Item6ofitsAgenda, theCommittee
hasbeenspecifically tasked withexamining “theeffect ofenvironmental measures onmarket access,
especially inrelation todeveloping countries andinparticular totheleastdeveloped among them,
andtheenvironmental benefits ofremoving trade restrictions anddistortions. ”Inthisregard,
NewZealand welcomes thepresentation ofaSecretariat background paper thatprovides anoverview
ofanumber ofspecific sectors where theremoval oftrade restrictions anddistortions canbeshown
tohavebothsignificant environmental aswellastrade benefits.
2. TheSecretariat paper seeks guidance onthefurther analyses thatshould beundertaken inthe
sectors covered bythepaper orinadditional sectors. NewZealand considers thatfisheries isonesuch
sector. Inourviewitisbothtimely andappropriate toexamine therelationship between tradedistortions
inthefisheries sector andproblems offisheries resource sustainability. Suchanexamination willalso
assist inidentifying theexpected benefits forthemarine environment inremoving trade distortions.
3. Webelieve thatthepreparation bytheSecretariat forafurther paper, covering, interalia:
(a) theWTO Articles thathaveabearing onfishing industry subsidies; and
(b) theextent towhich theWTO rulesadequately regulate subsidies inthefisheries sector;
would provide auseful basisforfurther workbytheCTEinclarifying thesalient issues andformulating
appropriate recommendations forinclusion initsreport onItem6.
II. FISHING INDUSTRY SUBSIDIES: CONTRIBUTORS TOOVER-CAPACITY AND OVER
FISHING
4. Many observers perceive world fisheries tobeina"state ofcrisis". TheFAO hasestimated
thatatthebeginning ofthe1990s, about 69percentoftheworld 'sconventional fishspecies were
fully exploited, overexploited, orintheprocess ofrebuilding asaresult ofdepletion. TheFAO
comments thatthissituation isglobally non-sustainable andmajor ecological andeconomic damage
isalready visible.1
1TheState ofWorld Fisheries andAquaculture ,FAO Fisheries Department, Rome, 1995, p.7.WT/CTE/W/52
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5. Thecausesofthisdecline,depletionanddamagearemany.Itcanbearguedthattradedistortions
havebeensignificant contributors tothisproblem. These factors provide theinappropriate incentives
which leadtothebuild upoffishing capacity, over-capitalization andover-exploitation offishstocks.
Atitsmeeting on17-20 March 1997, theFAO Committee onFisheries identified fishing capacity as
amajor issue. TheCommittee urged thattheissues ofexcessive fishing capacity andfishing effort
leading tooverfishing should begiven special consideration byFAO anditsMember Countries.2
6. Arecent study bytheOECD Fisheries Committee pointed tofisheries management failure
asareason forfleetover-capacity, butindoing sonoted thatincentives forincreased participation
inthefisheries sector, particularly theuseofinappropriate assistance measures, haveaggravated this
problem.3
7. Fishingindustrysubsidiesarewidespreadandaccruetofishers,vesselbuildersandvesselowners.
Economic theory suggests thatthisformoftradedistortion generally encourages theexpansion offishing
fleetcapacity. Byproviding additional revenue orreducing costs, thereturns fromfisheries areinflated
beyond normal economic levels ofexploitation. Inthecaseofafisheries resources, thenormal economic
rateofexploitation willoftenbeabove thelongtermsustainable biological ratesofyield. Theinflated
return fromfisheries encourages newparticipants andexpansion offishing effort andcapacity. These
effects areexacerbated insituations where thereareineffective conservation andmanagement measures.
8. Thefollowing extract from David Doulman, Senior Liaison Officer inFAO'sFisheries
Department, paints asobering picture ofthequantum ofsubsidies provided totheworld 'sfishing fleets.
“Information about subsidies ispoor, piece-meal andoften confidential, and
governments, iftheyareinaposition tomake suchinformation available, aregenerally
reluctant todoso.However theFAO hasestimated thatin1988 theglobal value of
theindustrial fishing fleetwasUS$320 billion andtheoperating costofthefleetfor
theyearwasUS$92billion. Withanassumed rateofreturn oncapital of10percent
(i.e.US$32billion), andtotalrevenue from fishing ofUS$70million, adeficit of
US$54billion would havebeensustained. Thisdeficit represents 77percentofthe
value offishharvested bythefleetin1988. Thisfigure indicates themagnitude of
industrial subsidies paidworld-wide toindustrial fishing fleets. ”4
9. While FAO'smethodology hasbeencriticized asanoversimplification ofthesituation, even
ifthefigures areonlyapproximations, theyarestillsubstantial. Some countries alsoargue thattheir
isnosystemic linkbetween subsidies andover-capacity. From aneconomic theory perspective this
isadifficult argument tomaintain. Itisdifficult tounderstand howtheartificial inflation offishers
returns doesnotaffect theirlevelofactivity andthusaffect thehealth ofthemarine environment. As
mentioned above, theOECD Management Study commented negatively ontheadverse effects of
assistance measures onparticipation inthefisheries sector.
2Report ofthe22nd Session oftheFAO Committee onFisheries ,Rome, 17-20 March 1997, p.iii.
3StatementontheStudyontheEconomicAspectsofManagementofLivingMarineResources,OECDFisheries
Committee, October 1996.
4David J.Doulman, AnOverview ofWorld Fisheries: Challenges andProspects forAchieving Sustainable
Resource Use,April 1996, p.16.WT/CTE/W/52
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III. OTHER EFFECTS OFFISHING INDUSTRY SUBSIDIES
10. Fishing industry subsidies encourage theuseoffisheries resources above normal economic
ratesofexploitation. Inflated returns encourage excess capacity andoverfishing, particularly inpoorly
managed fisheries. Thisactivity hasimplications forthesupply offishtoconsumers andprocessors.
These supply distortions place downward pressures onworld seafood prices.
11. These depressed prices affect theability ofdeveloping countries toachieve economic returns
fromtheirfisheriesresources.Inadditiontocompetitionfromsubsidizedindustries,developingcountries
facetariffescalation attheborder. Tariff escalation isoftenusedtoprotect domestic seafood processing
industries. Combined withtheeffects ofsubsidized competition, thisform oftariff structure denies
developingcountriestheopportunitytorealizeeconomicreturnswhichwouldaffordthemtheopportunity
toenable sustainable development oftheirfisheries resources. Also, bydepressing economic returns,
these trade distortions cancompromise theability ofdeveloping countries toprovide infrastructure
toensure sustainable development.5
12. Within theeconomy, theuseoffishing industry subsidies hasresource allocation implications.
Theuseoftrade distortions encourages participation inthefishing industry.6Investment decisions
withintheeconomyaredistorted,resultinginsub-optimaleconomicperformanceandlowerthanpotential
income andwelfare standards. These economic losses canbecritical ifacountry isstruggling tofind
thenecessary resources toensure thesustainable management offisheries resources. TheOECD notes
that,byproviding economic growth, trade liberalization canhavepositive scale effects inproviding
resources (through economies ofscale) which maybeusedforenvironmental protection aswellas
promoting investment inenvironmental technology.7
IV. CURRENT TREATMENT OFFISHING SUBSIDIES UNDER WTO TRADE RULES
A. Fisheries under theSubsidies Agreement
13. Under WTO trade rules, theonlysector which isspecifically excluded from theAgreement
onSubsidies andCountervailing Measures istheagriculture sector. Asfisheries wasdelinked from
agriculture during theUruguay Round ofNegotiations, thesector issubject totheWTO Agreement
onSubsidies andCountervailing Measures. TheAgreement introduces theconcept ofa"specific"
subsidy, i.e.generally asubsidy available toanenterprise, industry orgroup ofindustries within the
territory ofaMember Country. Only specific subsidies aresubject tothedisciplines setoutinthe
Agreement. Subsidies aredefined interms ofa"financial contribution" which confers abenefit.8
5Report oftheCommittee onTrade andtheEnvironment ,World Trade Organization, Geneva,
18November 1996, p.20.
6Statement ontheStudy onEconomic Aspects ofManagement ofLiving Marine Resources ,OECD Fisheries
Committee, October 1996.
7Report onTrade andEnvironment totheOECD Council atMinisterial Level,OECD Environmental Policy
Committee/Trade Committee, Paris, May 1995, p18.
8R.McLeod, Seafood Trade Access Study ,New Zealand Fishing Industry Board, 1996, p.78.WT/CTE/W/52
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B. Application oftheSubsidies Agreement
14. Essentially, theAgreement establishes three categories ofsubsidy.
(a) Prohibited Subsidies -These arecontingent onexport performance
ortheuseofdomestic overimported goods. Suchsubsidies aresubject
toautomatic andrapid dispute settlement procedures;
(b) Actionable Subsidies -While notprohibited, these subsidies have
"adverse effects" ontheinterests ofother Member Countries, i.e.they
maycause injury toanindustry ornullify orimpair thebenefits
accruing toother Members under theGATT. Actionable subsidies
aresubject toautomatic dispute settlement andmaybesubject to
countervailing action; and
(c) Non-actionable Subsidies -These canbenon-specific subsidies or
specific subsidies involving assistance under defined conditions for
industrial andapplied research, disadvantaged regions orforcertain
environmental purposes.9
15. Inrelation tofisheries, actionable subsidies provide themost useful areaforexamination.
NoMember Country shallcause adverse effects totheinterests ofother Member Countries through
theuseofsubsidies. Among thedefinition orclarification of"adverse effects", includes asituation
where asubsidy causes serious prejudice totheinterests ofanother Member.10Serious prejudice is
deemed toexistinthecaseof:
(a) thetotaladvalorem subsidization ofaproduct exceeding 5percent;
(b) subsidies tocover operating losses sustained byanindustry;
(c) subsidies tocover operating losses sustained byanenterprise; and
(d) direct forgiveness ofdebt,i.e.forgiveness ofgovernment-held debt,andgrants tocover
debtrepayment.11
16. These provisions appear toprovide astrong setofdisciplines totackle many ofthesubsidies
whichareprovidedtotheworld'sfishingfleets.However,whiletheAgreementdoesprovidedisciplines,
untilthescope andrange offishing industry subsidies becomes clearer, theability ofWTO rules to
address theseforms ofassistance through thesepractical disciplines willnotbeknown. Aconsideration
oftheadequacy ofthecurrent Subsidies Agreement toregulate therange offishing industry subsidies
therefore represents auseful focus forfuture work.
9TheResults oftheUruguay Round: TheLegal Texts,WTO, Geneva, June 1994, p.266-277.
10Ibid.
11Ibid.WT/CTE/W/52
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V. CONCLUSIONS
17. There arestrong reasons fromthetradeandenvironment perspective toexamine fishing industry
subsidies andhowtheyrelate toWTO trade rules. Fishing industry subsidies affect themarine
environment, theinterests ofdeveloping countries andtheability ofcountries toensure sustainable
development. There isscope forvaluable work inclarifying which WTO Articles haveabearing on
fishing industry subsidies andconsidering whether these Articles adequately regulate these subsidies.
NewZealand believes thatconsideration bytheCTEofthese issues could constitute apractical and
timely contribution towork under Item6.