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Annex 5. Economic instruments for an ecosystem approach to fisheries[19]

There is growing interest in the use of economic instruments to achieve sustainable development objectives. This is due in part to the often disappointing performance of command and control measures (C&C). Such measures entail the setting of regulatory norms and standards that forbid or allow certain actions or outcomes. They generally focus on blocking the incentive created by various types of market failure for private operators to over-utilize natural resources (such as fisheries) and degrade ecosystem functions and services.

C&C standards are usually tailor-made to regulate how a specific activity, or class of activities, must be carried out. Compliance monitoring and eventual sanctioning of trespasses are usually indispensable features of effective C&C. The primary disadvantages of the C&C approach are: it is considered overly constraining, not adaptable on a case-by-case basis, leaves little room for flexibility and tends to retard technological change (probably for sound reasons in an already over-fished stock). While C&C is often criticized for these reasons, it is widely used by government agencies and even sometimes requested by the industry. Regulations are elaborated within public administrations, often with little concern about enforceability, but they have considerable political appeal because something is being done. The same norm or standard applies to everybody, and this provides a sense of fairness.

Incentives represent an entirely different approach. The first step to provide incentives is to define and enforce user rights. These user rights should be secured in such a way that the benefits to the holders of the rights are linked to the productivity and value of the resource. With a right to a share in the fishery, the incentive is to maximize economic benefits by reducing the cost of using one’s right and/or by increasing the value of the right: e.g. by restoring and maintaining critical ecosystem functions that impact on the productivity of the fishery resources. In theory, rights that are secure in the long term facilitate the acceptance of short-term sacrifices for long-term gains.

Governance systems that assign rights to shares of a fishery are specified by the nature of the fishery, the type of entities that hold rights and rules about transferability and enforceability of rights. Shares can be an amount of catch, units of fishing effort (such as days of fishing) or an exclusive geographical area and time period when fishing is allowed. In order to be effective, the sum of all of the shares must not result in overfishing or in the degradation of critical fish habitat. Shares that are specified as fishing effort units, or fishing areas and time permits may be more practical than shares specified as catch quantities, and more acceptable to fishers, easier to enforce, and not so dependent on scientific advice. There may be a need for additional rules, such as fish size limits, that apply to all holders of rights in the fishery.

The holder of rights can be a person, a corporation, a community, a collective or nominated representatives of a group. In many parts of the world, it will be appropriate to vest these rights in the local community where there are active fish harvesters and other fishery-related workers. This community then takes responsibility for further allocation and monitoring of the use of the resource. In such fisheries, peer monitoring may be important in control of the fishery. This is particularly true of many developing countries, where most of the people involved in fisheries in the world live and work (cf. Governance for a sustainable future, World Humanities Action Trust (WHAT) Commission Report, London, 2000[20]).

The assignment of specific use or access rights is, however, no panacea for removing all incentives (or market failures) to overuse or otherwise degrade and harm ecosystems. TACs and an individual transferable quota (ITQ), in particular, have been shown to create a quota-induced incentive for discarding fish in excess of what is socially optimal. This finding is corroborated by empirical evidence in several ITQ managed fisheries.[21]

Another type of incentive that is gaining considerable popularity is eco-labelling. The potential usefulness of eco-labelling schemes to create market-based incentives for environmentally friendly products and production processes was internationally recognized at the 1992 United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro, Brazil. Here, governments agreed to “encourage expansion of environmental labelling and other environmentally related product information programmes designed to assist consumers to make informed choices”. Consumers are provided with the opportunity to express their environmental-ecological concerns through their choice of products. The consumers’ preferences are expected to result in price and/or market share differentials between eco-labelled products and those that either do not qualify to be eco-labelled or those whose producers do not seek to obtain such labelling. The label is obtained through a certification process based on a set of criteria (i.e. the desired standard). Potential price and/or market share differentials provide the economic incentive for firms to seek certification of their product(s).

[19] This section is based on several sources including: WHAT Commission Report; D. Bailly and R. Willmann, Promoting sustainable aquaculture through economic and other incentives, in R.P. Subasinghe, U.C. Barg, P. Bueno, C. Hough and S.E. McGladdery (eds.), Aquaculture in the third millennium, Technical Proceedings of the Conference on Aquaculture in the Third Millennium (Bangkok, Thailand, 20–25 February 2000), 2001; and K. Cochrane and R. Willmann, Eco-labelling in fisheries management, in Current Fisheries Issues and the Food and Agriculture Organization of the United Nations, M.H. Nordquist and J.N. Moore (eds.), The Hague/Boston/London, Martinus Nijhoff Publishers, pp. 583–615, 2000.
[20] See
[21] It has been argued that the assignment of value-based individual transferable quotas (VITQs) would remove the quota-induced incentive for high-grading and lower the costs of quota trading. Moreover, in the case of multi-species fisheries, VITQs may allow fishermen to respond with greater flexibility to changes in species abundance than under an ITQ system, and may confer greater economic stability. VITQs, however, would present the principal drawback of not fixing a specific target catch when observed fish prices diverge from those estimated at the time of setting the total allowable catch value. As a consequence, the total allowable catch value may have to be adjusted repeatedly within a one-year period, thereby creating insecure economic conditions under which the fishing industry is required to operate. These and other instruments to address the quota-induced incentive for high-grading and discarding are more fully discussed in S. Pascoe, By-catch management and the economics of discarding, FAO Fisheries Technical Paper, No. 370, Rome, 1997, 137 pp.

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