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In simple terms, the issue is essentially one of having too many vessels or excessive capacity in a growing number of fisheries. The existence of excessive fishing capacity is largely responsible for the degradation of fishery resources, for the dissipation of food production potential and for significant economic waste. This especially manifests itself in the form of redundant fishing inputs and overfishing of most valued fish stocks. Excess fishing capacity affects many domestic fisheries throughout the world and, in an even more pervasive form, many high seas fisheries. The globalization of this phenomenon is illustrated by the relative discrepancy which exists between the evolution of fleet size and of world marine catches of major species since the late 1980s. FAO data indicate that nominal fleet size seems to have peaked during the mid-1990s. However, actual fishing capacity may still be increasing if one takes into account the improvement in efficiency and refitting of older vessels (Gréboval, 1988).

The management of fishing capacity is understood here as the design and implementation of policies and measures aimed at balancing fishing inputs and outputs, with emphasis given to economic aspects. In section 2 and 3 reference is made to general policy guidance that is contained in the Code of Conduct for Responsible Fisheries (CCRF) and the International Plan of Action for the Management of Fishing Capacity (IPOA). Sections 4 to 7 provide a review of definitional issues as well as of the origin and consequences of overcapacity. Section 8 provides information on the various measures that could be used to manage fishing capacity, ranging from economic incentives and disincentives to input and output control. Section 9 provides information on administrative and research requirements. Sections 10 to 12 discuss special considerations for high seas, small-scale fisheries, and industry participation.

This document is introductory. It attempts to enlighten and provide initial guidance on the many issues relating to the management of fishing capacity. In time, additional documentation will need to be developed to address specific issues in more details. This is the case for measurement and assessment aspects, for which FAO documentation is been prepared following the organization of an FAO Technical Consultation on this matter (FAO, 2000a). This is also the case for specific fisheries management schemes that are especially relevant to the control of fishing capacity (e.g. individual quotas and limited-entry schemes), for schemes directly aimed at reducing excess capacity (e.g. vessel buyback schemes) and for other key related issues (e.g. subsidies and related economic incentives). In this document, emphasis is given to economic and sustainability issues. This stems from the fundamental nature and consequences of overcapacity as well as from the guiding articles of the CCRF on this matter. Finally, it should be stressed that the management of fishing capacity is closely related to other fishery management issues. The reader is therefore encouraged to refer to other CCFR guidelines on fisheries management (FAO, 1997).


Overcapacity is identified as a key issue in the Code of Conduct for Responsible Fisheries and is specifically addressed at various points. It is not specifically defined but refers in general terms to excessive fleet size or excessive fishing effort. Article 6 of the Code, which sets out “General Principles”, contains a number of articles relevant to the issue of overcapacity.

Article 6.1: States and users of living aquatic resources should conserve aquatic ecosystems. The right to fish carries with it the obligation to do so in a responsible manner so as to ensure effective conservation and management of the living aquatic resources.
The production of fish requires the use of a variety of inputs, one of which is the fish stock itself. Other key inputs are essentially embodied in fishing vessels (or fishing units in the case of fishing exercised without a vessel) and include labour, capital, technology and fishing time. This article suggests that the fish stock should be constrained at some level from which it is then possible to say something about the degree of excessive use of the other inputs. The concept of Maximum Sustainable Yield (MSY) and other reference points (Caddy and Mahon, 1995) have been used to that effect. Reference points have been defined primarily with respect to a level of harvest, effort or fishing mortality in relation to a desired stock size. Article 6.3 specifically links overexploitation of the fish stock to the problem of excess fishing capacity.
Article 6.3: States should prevent overfishing and excess fishing capacity and should implement management measures to ensure that fishing effort is commensurate with the productive capacity of the fishery resources and their sustainable utilization. States should take measures to rehabilitate populations as far as possible and when appropriate.
This principle is of such fundamental importance that it is reiterated under Article 7 of the Code, which deals specifically with “Fisheries Management”. It is referred to first as a general fishery management principle (Article 7.1.8) and then in the context of the goals of management (Articles 7.2.1 and 7.2.2). Clearly the CCRF aims at preventing both overfishing in the form of too much fishing effort resulting in excessive harvesting and overcapacity in the form of excessive fishing inputs that may or may not be used to their potential. This is made clearer in Article 7.1.8 and basically means that States should not allow fleet size and fishing effort to grow beyond levels considered commensurate with sustainable use. The distinction is particularly important and is addressed in more details in section 4. The following articles provide further guidance:
Article 7.1.8 States should take measures to prevent or eliminate excess fishing capacity and should ensure that levels of fishing effort are commensurate with the sustainable use of fishery resources as a means of ensuring the effectiveness of conservation and management measures.

Article 7.2.1 Recognizing that long-term sustainable use of fisheries resources is the overriding objective of conservation and management, States and subregional or regional fisheries management organizations and arrangements should, inter alia, adopt appropriate measures, based on the best scientific evidence available, which are designed to maintain or restore stocks at levels capable of producing maximum sustainable yield, as qualified by relevant environmental and economic factors, including the special requirements of developing countries.

Article 7.2.2 Such measures should provide inter alia that:

a) excess fishing capacity is avoided and exploitation of the stocks remains economically viable
b) the economic conditions under which fishing industries operate promote responsible fisheries.
In Article 7.1.8 emphasis is given both to the elimination of excess fishing capacity and to the prevention of excess growth in fishing capacity. This clearly indicates that the management of fishing capacity is applicable to all fisheries, independently of their exploitation status. While prevention is generally easier to apply than the cure, this can only be the case in the context of an industry were key inputs (vessels) have a life cycle of about 30 years and little alternative use. Article 7.2.1 provides guidance on the other hand about target stock levels and therefore a starting point to define target effort and target capacity. Article 7.2.2 establishes a further linkage between sustainability and economic requirements. Overall these articles call for measures aimed at avoiding the economic waste which overcapacity represents, through preventive or curative measures that will provide for both sustainability and economic viability as well as for economic and other incentives that are conducive to responsible fishing practices.

Articles 7.6.3 and 7.6.5 provide some further detail on the nature of the measures that might be envisaged.

Article 7.6.3 Where excess fishing capacity exists, mechanisms should be established to reduce capacity to levels commensurate with the sustainable use of fisheries resources so as to ensure that fishers operate under economic conditions that promote responsible fisheries. Such mechanisms include monitoring the capacity of fishing fleets.

Article 7.6.5 States and fisheries management organizations and arrangements should regulate fishing in such a way as to avoid the risk of conflict among fishers using different vessels, gear and fishing methods.

The issue of overcapacity is complicated and the Code foresees that research will be necessary (Article 7.4.3).
Article 7.4.3 Studies should be promoted which provide an understanding of the costs, benefits and effects of alternative management options designed to rationalize fishing, in particular, options relating to excess fishing capacity and excessive levels of fishing effort.
The Code also addresses the fact that it is not simply a question of the level of capacity but also of its structure. States should for example favour particular kinds of fishing capacity so as to minimize the environmental impact of fishing activities (Article 6.6). Similarly, various fisheries sub-sectors (e.g. industrial, semi-industrial, artisanal and recreational sub-sectors) may require special attention and/or alternative approaches, especially if market forces result in socially undesirable outcomes.

It is important to recognize that a precautionary approach requires that the management of fishing capacity be preventive and part of fisheries management rather than reactive and limited to the reduction of excess capacity. In developing an appropriate framework for the management of fishing capacity, the CCRF points to the need to establish clear reference points and to account for the economic dimension of the issue in relation to the reduction of economic waste and the promotion of an economically viable fisheries industry. The CCRF also points to the need to adopt an appropriate framework to assess and guide national policies on the structure of fishing capacity.


The IPOA is a voluntary instrument based on a number of major principles of the Code of Conduct as well as on complementary principles. Its implementation is envisaged in three phases: i) assessment and diagnosis; ii) adoption of preliminary management measures; and iii) a system of periodic reviews and adjustments; with priority given to managing fishing capacity first where it results in unequivocal overfishing. A holistic approach is also recommended, such that consideration be given to all factors affecting capacity in national and international waters, while properly accounting for fleet mobility and evolving technologies.

The immediate objective of the IPOA is for “States and regional fishery organizations, in the framework of their respective competencies and consistent with international law, to achieve worldwide preferably by 2003 but no later than 2005, an efficient, equitable and transparent management of fishing capacity.” The IPOA further specifies that, inter alia, States and regional fishery organizations, when confronted with an overcapacity problem which undermines the achievement of long-term sustainability outcomes, should endeavor to limit fishing capacity to existing levels and progressively reduce the capacity applied to the affected fisheries. Where long-term sustainability is being achieved, it nevertheless urges States and regional fishery organizations to exercise caution.

The IPOA specifies a number of urgent actions to be taken. These are outlined below in reference to the main section of the document: (a) assessment and monitoring of fishing capacity; (b) the preparation and implementation of national plans; and (c) international consideration and immediate actions for major international fisheries requiring urgent attention.

Regarding the assessment and monitoring of fishing capacity, the IPOA recommends, inter alia, that States:

· proceed within the next two years with preliminary assessment of fishing capacity and with the systematic identification of fisheries requiring urgent attention at national, regional and, in collaboration with FAO, at the global level; and

· develop appropriate records of fishing vessels and support the establishment by FAO of an international record of vessels operating in the high seas.

Concerning the preparation and implementation of national plans, the IPA recommends, inter alia, that States:
· develop and implement within two years a national plan of action to manage fishing capacity, accounting for the effect of different management systems on fishing capacity, and, if required, for the need to reduce capacity in some fisheries;

· adapt such a plan of action regularly on the basis of periodic assessment and for increased effectiveness;

· reduce and progressively eliminate all factors, including subsidies and economic incentives, contributing directly or indirectly to the build-up of excessive capacity;

· cooperate through regional fisheries organizations to ensure the effective management of fishing capacity.

Taking account of international considerations, the IPOA recommends, inter alia, that States:
· consider participating in international agreements that relate to the management of fishing capacity, and in particular in the FAO Compliance Agreement1 and the 1995 UN Fish Stocks Agreement2;

· take steps to manage the fishing capacity of their vessels involved in high seas fisheries and cooperate as appropriate with other States in reducing the fishing capacity applied to overfished fisheries;

· recognize the need to deal with the problem of those States which do not fulfil their responsibilities under international law as Flag States with respect to their fishing vessels, and in particular those which do not exercise effectively their jurisdiction and control over vessels which operate in a manner that contravenes or undermines international law and international conservation and management measures;

· support multilateral cooperation to ensure that these Flag States contribute to regional efforts to manage fishing capacity; and

· avoid approving the transfer of vessels carrying their flag to high seas areas where such transfers are inconsistent with responsible fishing under the Code of Conduct.

1 Agreement to Promote Compliance with International Conservation and Management Measures by Fishing Vessels on the High Seas.
2 Agreement for the Implementation of the Provisions of the United Nations Convention on the Law of the Sea of 10 December 1982 relating to the Conservation and Management of Straddling Fish Stocks and Highly Migratory Fish Stocks.
The IPOA calls for States to take immediate steps to address the management of fishing capacity applied to major international fisheries, with priority given to transboundary, straddling and highly migratory stocks which are significantly overfished. It urges States to act individually or multilaterally to substantially reduce the fleet capacity applied to these resources as part of management strategies to restore overfished stocks to sustainable levels.

This overview of the IPOA and related sections of the CCRF shows the importance given by the international community to the management of fishing capacity; its determination to address the issue in a rapid and systematic manner; the wide range of sub-issues which the management of fishing capacity raises; and the strong linkages that exist between these issues and the management of fisheries in general. But neither document provides much information on how to implement the many provisions that they contain, especially as regards the measurement, assessment and management of fishing capacity. Interestingly, fishing capacity and overcapacity have themselves remained relatively vague concepts throughout the preparation and negotiation of both instruments.

The IPOA refers to the need to deal with the problem of those States which do not fulfil their responsibilities under international law as Flag States with respect to the operation of their fishing vessels and support multilateral cooperation to ensure that they contribute to regional efforts to manage fishing capacity. This issue was recently addressed within the context of the FAO Technical Consultation on Illegal, Unregulated and Unreported (IUU) Fishing organized in Rome in October 2000. It is expected that a specific IPOA will be adopted and that CCRF Guidelines will be prepared on this topic. The adoption of the IPOA on the Management of Fishing Capacity has also resulted in increased attention being paid to the issue of subsidies and their impact on sustainability and trade. The Committee on Trade and Environment of WTO has addressed this issue recently, with special reference to fisheries, and FAO organized an expert consultation on subsidies and economic incentives in November 2000.


4.1 Capacity
4.2 Overcapacity

Section I of the IPOA calls for the assessment by the end of 2001 of fishing capacity deployed at national and international levels in relation to all fleets involved in the principal fisheries. Specific documentation is being developed by FAO to address issues related to the measurement and assessment of fishing capacity. Only basic considerations are addressed in this section.

4.1 Capacity

Fishing capacity has been defined in various ways in the literature, either in reference to the characteristics of a fishing vessel or its ability to catch fish (Kirkley and Squires, 1999). The fact that it is not defined expressly in the CCFR or in the IPOA reflects the difficulty of defining capacity and overcapacity in a simple and non-ambiguous manner. Few countries have actually developed a formal definition for the purpose of monitoring and managing fishing capacity. Examples from countries that have done so show that alternative approaches can be taken. In Australia, fishing capacity is defined as the amount of fishing effort that a fishing boat, or fleet of fishing boats, could exert if fully utilized, that is if vessels were not constrained by restrictive management measures. In the European Union, it is defined in terms of two vessel characteristics: gross tonnage and main engine power - full utilization of vessels being assumed. In Canada and in the USA3 it is defined primarily as the amount of fish that a vessel or a fleet can harvest if unrestrained by any regulations or consideration of sustainable harvesting level.

3 In the USA, three definitions of capacity have been proposed (NMFS, 1999):

Technical definition. Technical capacity is "the level of output of fish over a period of time (year, season) that a given fishing fleet could reasonably expect to catch if variable inputs are utilized under normal operating conditions, for a given resource condition, state of technology, and other constraints". Under this definition, excess capacity exists when technical capacity exceeds a target catch level set to rebuild or maintain the stock at a long-run target size.

Economic definition. Economic capacity, based on cost minimization, is "the level of output of fish caught over a period of time (year, season) where short-run and long-run average total costs are equal, for a given fleet size and composition, resource condition, market condition, state of technology, and other relevant constraints". A cost function is estimated and then solved for the optimal level of output given a particular production technology by calculating and equating the fishing firm's short and long-run average costs. However, cost minimization is not the only objective that can govern a fisherman's behaviour and alternative objectives were suggested in a modified definition.

Modified economic definition. Economic capacity levels, based on alternative objective functions are "those levels of output of fish caught over a period of time (year, season) where objectives such as profits or net social benefits are maximized for a given fleet size and composition, resource condition, market condition, state of technology, and other relevant constraints". Under this definition, the potential level of output would differ from that of cost minimization depending on how the alternative objective affected a fisherman's behaviour.

As discussed in FAO (2000a), this indicates that capacity may be defined with reference either to fishing inputs (vessels, potential effort) or to fishing output (potential catch). In both cases, it is essential to further clarify the word potential, as reflected in some of the examples of definitions given previously. A general definition is given below.

Fishing capacity is, for a given resource condition, the amount of fish (or fishing effort) that can be produced over a period of time (e.g. a year) by a vessel or a fleet if fully utilized, that is if effort and catch were not constrained by restrictive management measures.

It should be noted that full utilization in this sense means normal, but unrestricted use rather than maximum use. For example, one may observe that vessels of a certain category will be:

a) able to operate potentially for a maximum of 300 fishing days a year (maximum capacity);

b) expected to operate under normal technical-economic conditions for on average 260 fishing days per year in the absence of restrictions (full capacity); and

c) operated actually only 180 fishing days (observed capacity), e.g. as a result of effort or catch quotas being imposed.

Current capacity utilisation (observed/maximum capacity) will be less than 1 and may be expressed in percentage terms, as is usually done for other industries. For this particular example, one may observe that vessels operate at 60% capacity utilisation although they operate on average at 80% capacity under normal, unrestricted use.

As for other industries, it can be expected that vessels will operate at maximum capacity only in special circumstances. This is likely to occur during the course of a year in relation to a seasonal peak in fish abundance or market demand. Even if calculated on an annual basis, capacity utilisation will have to be interpreted with care. Capacity utilisation levels that are significantly different from full capacity may indeed reflect exceptional (e.g. a peak year resulting from an exceptionally high recruitment) or highly variable production circumstances (e.g. as in the case of pelagic fisheries where abundance shows great inter-annual fluctuations).

The measurement of fishing capacity is a relatively simple matter for single species fisheries, even if exploited by different fleet segments. A production function4 would generally provide a way of estimating capacity both in terms of potential catch and potential fishing effort. In the case of multiple species/fleets fisheries, however, it can become rather intractable as potential use must be assessed also in terms of the potential targeting of effort among species.

4 A production function is a mathematical function that relates a level of catch to specific levels of inputs, of which effort (or any of its components) and stock size. It can be derived from historical data on catch, inputs (vessels or effort) and catch rates (catch per vessel or catch per unit of effort). The comparability of data used is a key issue and requires that attention be paid to standardization (e.g. across vessels of different types) and to the effect of technological change over time.
Recommendation: States should adopt a national definition of fishing capacity and agree on a common definition when the management of fishing capacity involves international cooperation. The FAO Technical Consultation on the Measurement and Assessment of Fishing Capacity recognized that capacity can be estimated either on an input or output basis. For the purpose of international comparison, however, it was recommended that States express their national estimates on both bases.

4.2 Overcapacity

Whether capacity is measured on an input or output basis, it is important to note that both approaches refer to the same fundamental conceptual framework, i.e. the identification and measurement of possible deviations between the current capacity of a fleet (input or output measures) and a given target level of exploitation that can only be defined in reference to both inputs and outputs.

Overcapacity in a fishery describes a situation whereby the capacity of the current fleet is higher than required to ensure a target level of sustainable exploitation. Undercapacity and full capacity can be defined on the same basis.

If a target level of sustainable exploitation is defined for a particular fishery as MSY with its corresponding effort level (EMSY) and stock condition (SMSY), overcapacity can be measured as follows:

· If capacity is measured in input terms [e.g. as potential effort (Et) from the current fleet], overcapacity will occur when Et > EMSY.

· If capacity is measured in output terms [as potential catch (Ct)], overcapacity will occur when the catch potential of the current fleet under target stock conditions is higher than target catch, i.e. when Ct > MSY, with Ct = f (Et, SMSY).

A target level of exploitation may be defined on the basis of the various reference points used in fisheries management. These can relate to long-term sustainability, economic efficiency, or precautionary principles. A reference point can apply to long-term target of sustainable exploitation or to a short-term target (e.g. TAC) set to rebuild or maintain the stock at a long-run target size. Reference points commonly used in fisheries management have been described by Caddy and Mahon (1995). These include: MSY, Long-Term Average Yield (LTAY), Maximum Constant Yield (MCY), Maximum Economic Yield (MEY), Maximum Revenue (MR) as well as other levels of exploitation related to the precautionary approach and generally expressed in terms of fishing mortality. Indicators of sustainability, as developed in FAO (1999b), may also prove useful in estimating input and output target levels.

When a significant level of overcapacity has been identified, its interpretation will obviously depend upon the reference point used in defining a target level of exploitation.

Assuming that overcapacity has been assessed with respect to maximum sustainable exploitation (MSY, EMSY), overcapacity will indicate that fleet size is in excess of the fleet size required to harvest MSY. This situation is likely to result in biological overfishing if the fleet is operating near full capacity. However it will not be the case if capacity utilization is low as the result of management measures that have been successfully introduced to prevent overfishing. In other words, overfishing implies overcapacity but overcapacity does not necessarily imply overfishing.

This example also shows that economic efficiency is implicitly considered in the definition of overcapacity, whatever the target reference point used. This follows from capacity being calculated in reference to full utilization, itself an element of cost minimization. Given the current fleet profile, overcapacity indicates that fleet size is excessive and that improved sustainability and economic performance can be achieved by reducing it5. Economic concerns can be introduced more explicitly by using an economic reference point such as MEY (level of sustainable exploitation which allows for maximum net economic benefits), or by using an economic definition of capacity6.

5 Overcapitalization is sometimes used to refer to overcapacity. If one assumes that vessels are essentially made of capital, excess fleet size would indicate some form of overall 'overcapitalization'. However, overcapitalization actually refers to the excessive use of capital in a given fleet, e.g. to fleet profile rather than fleet size.

6 An economic definition of capacity recognizes that capacity is not only related to the physical capabilities (full use) of a fleet to produce effort or fish, but also to the cost involved (cost minimization). [see footnote 3].

An issue that is secondary to measuring and assessing fishing capacity is that of assessing possible deviations between an observed and desirable fleet profile. This issue is of particular relevance to economic efficiency independently of the level of capacity. But in the presence of significant overcapacity and before taking any remedial action, it may be of particular interest to know more about the performance of different vessels or fleet segments, e.g. to determine vessels that could be retired in priority. This concern can be addressed independently of capacity measurement, as suggested in this document.

Other aspects would need to be addressed in interpreting overcapacity. For example, overcapacity presumes that excess vessels may not be readily disposed off, e.g. transferred to other fisheries at no significant cost without contributing to overcapacity in these fisheries. Overcapacity also presumes current fishing practices. Some may affect stock productivity in a significant manner but not be accounted for in the measurement process, e.g. capacity may be excessive given present mesh-size but not necessarily so if a more adequate mesh size were used sustainably.

An overall assessment of fishing capacity in national fisheries will provide for an overview of capacity utilization (as such an indication of the possible effect of current management measures), the identification of fisheries that may be confronted with an overcapacity problem, and some indication of the magnitude of the problem. An overall assessment of fishing capacity will complement assessment made of the status of fisheries resources, both being actually much related. As indicated in the IPOA, such capacity assessments need to be applied as well to major international fisheries. As an initial step, countries may opt for a technical definition of capacity and use a few simple reference points which do not require much data. In time, overcapacity may be reassessed considering economic aspects more explicitly or using more appropriate reference points for specific fisheries.

To gauge the extent of overcapacity, fisheries authorities must decide on appropriate reference points and should consider the need to adopt a common reference point for international fisheries in which they participate. For the purpose of broad international comparisons, the FAO Technical Consultation on the Measurement and Assessment of Fishing Capacity also recommended that MSY be used by all States as a global reference point - independently of the reference points that may otherwise be chosen at national or international levels.

Precise measurement and assessment of fishing capacity may initially prove to be a difficult undertaking. However, this should not be allowed to stifle policy development. In many fisheries it is clear that there is too much capacity. In many countries it is also quite clear that numerous fleet segments are largely overdeveloped. The precision of measurements in such cases remains secondary to addressing the management of fishing capacity in an effective and sustainable way.

The measurement and assessment of fishing capacity should be addressed as a dynamic process of periodic diagnoses and methodological improvements. In keeping with the precautionary principle, fisheries authorities should not allow uncertainty as to the precise amount of excess capacity to delay the implementation of polices to control capacity and reduce its level where appropriate.


5.1 Access conditions
5.2 Other contributing factors

The fundamental origin of excess capacity in fisheries is the prevalence of free and open access to the resource. This very fact suggests solutions within two broad categories: the imposition of price-related schemes or limited entry schemes.

5.1 Access conditions

A variety of problems arise under conditions of free and open access that require the intervention of the management authorities. In many cases, it is felt that the key issue requiring attention is the conservation of the fish stock. With the benefit of hindsight, it is clear that another key issue is overcapacity. Unless management systems are instituted which enable the overcapacity problem to be addressed, fishery management is doomed to be a costly failure. This is so in the long-term, even if the important, but limited, objective of conserving the fish stock might be achieved in the initial stage of development of a fishery.

The focus given to fish stocks has led many management authorities to move their fisheries from a condition of free and open access to one which can be characterised as regulated open access. Under such a management scheme, one or more elements of the fishery system are constrained (e.g. total catch under TAC systems or restriction in the use of vessels and gear) but access then remains free and open within the constraint. This generally makes the overcapacity problem worse as fishers respond to the constraint (e.g. by using larger boats under a TAC system). To deal with the overcapacity problem, management authorities must focus their efforts much more directly on the fishing fleet itself and less on the fish stock. This certainly does not mean that they must necessarily intervene directly at the fleet level, but they must ensure that the correct incentives are in place to discourage further increases in capacity.

It is important to realise that the development of overcapacity is the consequence of rational investment by fishers given the economic and other incentives that they face under free and open access and regulated open access to increase capacity beyond levels which are optimal for society as a whole. Although such a result is to be deplored, it should not come as a great surprise. Investment in fishing capacity depends on expected profitability and not strictly on expected landings. This result simply confirms the old dictum that “fishermen fish for dollars, not fish”. So long as the net value of a unit of fish continues to increase, it can be expected that capacity will do likewise unless policies are developed to prevent it from doing so.

Policy makers should recognize that overcapacity is a direct consequence of free and open access and address the management of fishing capacity in this context. An in-depth analysis of prevailing access conditions and alternatives options is considered essential to the design of a policy for the management of fishing capacity.

5.2 Other contributing factors

Overcapacity on world fisheries also came about as a result of various factors influencing profitability. Some are the result of the normal evolution of any industry, such as:

· the changing nature of the fishing industry, which is increasingly competitive and capital intensive, with markets that are now based largely on internationally traded commodities;

· the rapid growth in harvesting technology, with vessels of similar size now being able to catch several times what they would 25 years ago;

· the rapid expansion of fish markets which provides for relatively favourable market prices;

· the resilient profitability of the industry as a consequence of both technical progress and high demand, which has offered opportunities for the exploitation of new fisheries, but also prevented downward fleet adjustments in overfished fisheries.

Other factors are linked to national policies aimed at developing capacity. These policies prevailed until the end of the 1980s and are still observed in many countries. A major policy instrument used in this context has been the provision of subsidies and other economic incentives used initially to promote the development of national fleets so as to harvest resources that became available following the extension of maritime areas under national jurisdiction. Subsidies were also used to ensure national participation in selected shared and high seas fisheries, often with the objective of ensuring a lasting share of these fisheries.

With emerging signs of overexpansion in many fisheries, the relative lack of coherence between industry-wide development policies and effort to regulate open access and avoid the overexploitation of some stocks also led to a further expansion of fishing capacity. In this context many countries have dealt with fishing capacity by promoting fleet reallocation or by reducing the hardship cause by overexpansion, generally through some kind of financial assistance which eventually led to additional entry in the fishing sector.

On the other hand the major instruments used to regulate open access did not address the management of fishing capacity itself, at least in any lasting way. Among these are TACs, mesh size and fish size restrictions, effort limitation, gear restriction, seasonal closures and other instruments basically aimed at preserving the productivity of the stock (e.g. protection of certain year classes and reproductive areas) or limiting the overall catch. The implementation of these instruments within the context of otherwise free and open access has no lasting impact on the flow of investment in the fisheries sector. In general, these measures induce a redistribution of fishing effort across fisheries or a modification of vessel capacity.


6.1 Output limits
6.2 Rent dissipation
6.3 Need for fisheries management

Overcapacity is an important issue for a number of reasons. First, it is a sign and consequence of failure to recognise the naturally limited output that a fishery can produce. This appears to be a general policy failure in fisheries management, with the result that many of the world's fisheries are now considered overexploited. Correction of this situation requires a radical revision in the focus of fisheries policy away from dealing with production levels per se and towards the net economic value of what is produced. Secondly, overcapacity is an indicator of resource rent dissipation, which is a key issue in fishery management. Thirdly, a fishery with overcapacity is extremely difficult to manage because of the pressures that exist to make use of the available capacity. Fourthly, overcapacity can spread from fishery to fishery through the relative mobility of vessels.

The following sections discuss these problems in more detail.

6.1 Output limits

In a given fishery, biological production is limited by nature so that even if an infinite amount of inputs were devoted to fishing, output would be limited to the size of the stock. As governments are interested in exploiting their fishery resources on a long-term basis, there is clearly a need to consider the sustainability of different levels of output. For most fisheries, there is a maximum sustainable yield (MSY) that output cannot exceed on a long-term basis, even if it may be possible to exceed this amount in the short-term. The majority of the world's fisheries are now exploited at or beyond the MSY level.

During the 1950s, 1960s and 1970s, the world's fisheries went through a long phase of expansion in terms of output. A consequence was that the annual output increase became firmly entrenched as the criterion for success in fisheries policy. This initial expansion of output was one of the factors leading to the adoption of 200-mile fishing limits. Somewhat unexpectedly, the extension of fishing limits gave a boost to both output and capacity as countries that gained sovereign rights sought to exploit them by developing their domestic industries. Increasing output tended to remain the priority objective in fishery policy.

Yet it has become increasingly apparent since the early 1980s, especially with the collapse of major groundfish stocks, such as these of the North Atlantic, that continuously increasing output is not a viable long-term strategy for fisheries. It is equally apparent that increasing benefits from a State's fishery resources must come either from increasing the value and value-added of a given output, or from reducing the costs of production, or from some combination of the two.

6.2 Rent dissipation

A strategy of economic efficiency must be accompanied by a policy to contain fishing capacity. Increasing the value of output or reducing exploitation costs will both have the effect of increasing profitability. Higher profits will create an incentive for new entry into the fishing industry, as happens with all industries. In the case of fishing, because output is limited, extra capacity will add little to sustainable production and result in a pure waste of resources from a social point of view (but not from that of individual fishing firms). For this reason, in the absence of provisions to control the level of capacity, gains in the economic performance of the fishery will be eroded in the form of excess capacity.

Overcapacity is the major physical manifestation of the dissipation of resource rents often referred to by economists. In other words, some or all potential socio-economic gains of fisheries exploitation are dissipated into excessive capacity in the form of redundant vessels or redundant inputs in general. This happens because use of the resource is unpriced. As a result, each time above-normal profits emerge in the fishery, new entrants are attracted to the industry. If users had to pay to use the resource, then increased demand to use it would drive up its price. In the absence of a standard market mechanism for access to the resource, the industry will necessarily ignore the resource constraint and tend to overextend its capacity, leading to rent dissipation and eventually to overexploitation.

Many countries need to undertake a major change in the focus of fisheries policy away from concentrating upon physical production and towards the economic contribution made by fishery resources. In doing so, they may further embody in their policies the limited nature of production potential and the fact that there is much scope for increasing the economic benefits that can be derived from the rational exploitation of available resources.

6.3 Need for fisheries management

The need for fisheries management is frequently presented in terms of avoiding the overexploitation of the fish resource. In itself, overexploitation leads to economic waste in the form of foregone fish production. But it is essential to recognise that management is also required to address the excessive use of non-fish resources in the process of fisheries exploitation and the underlying dynamics. It is this excessive use of inputs that goes under the generic name of “overcapacity”. This overcapacity is the main cause of economic waste in fisheries exploitation and a large part of the gains from management will come from its resolution.

The presence of excess capacity increases pressure to exceed target fishing mortality, in particular for fisheries that are mostly managed through TACs. It also makes it more difficult to enforce regulations restricting effort. The greater the level of overcapacity, the greater will be the social and political pressure to utilise existing catching and processing capacity, and to maintain employment. In the absence of access limitation, excess fishing capacity is likely to affect various fisheries on a sequential basis: a relative stock collapse in one fishery leading to a sudden reallocation of vessels to another fishery, and so on. The presence of significant excess capacity thus complicates fisheries management in the sense that restrictive measures introduced to address the problem in one fishery generally affects other fisheries.

To assist with the design of appropriate policies, it may prove useful to conduct a systematic assessment of the consequences of overcapacity from a production and economic perspective and its impact on major stakeholders.


Capacity and particularly its degree of utilisation, will vary in response to economic parameters, especially prices of inputs and outputs, and catch rates. Over a longer period, technological change will also be important.

Many fishers exploit more than one fishery, making it difficult to define capacity with respect to one fishery alone. Instead, an attempt must be made to define “industries” (i.e. combinations of fisheries and the fleets which exploit them) and then to consider capacity at this level. Identifying optimal levels of capacity may be problematic because capacity for some fisheries may not be known and it may be difficult to predict fleet behaviour in terms of distribution between fisheries.

Where access is not controlled, movements between fisheries may be very swift. Sudden movements of capacity have caused the collapse of a number of fisheries, for instance the George's Bank haddock in the 1960s. While mobility among fisheries can be high, alternative use of fishing vessels (malleability) is quite limited. This often lead to excess vessels being transferred to other countries or the high seas. Non-malleability is also reflected in the profile of the world's fishing fleet. With reduced investment in the last decade, data on vessels over 100 tons indicate that the majority of the world’s fishing fleet was over 20 years old in 1997 (Smith, 1999).

Investment dynamics also needs to be better understood. For example, fishers may invest in versatile vessels and equipment for a number of reasons:

· in order to exploit a series of naturally-seasonal fisheries;

· in response to management (very short fishing seasons induce fishers to invest in capacity that can be used elsewhere during the closed season);

· as part of a risk-minimisation strategy; or

· to allow for opportunistic behaviour (to the extent that the management system allows such behaviour).

It is important to note also the role of time in the production function: levels of capacity relate to units of output over a time period. This is why restrictions on fishing time frequently lead to overcapacity: fishers simply replace the restricted input (time) with unrestricted ones.

It is essential to recognise that fishing capacity is dynamic and fisheries authorities should allow, so far as is possible, for its dynamics in developing fishery policy. In order to anticipate developments in capacity, an understanding of fisher behaviour is required.


8.1 Effects of perverse economic incentives
8.2 Systems which provide incentives to industry-based adjustment in capacity
8.3 Systems which attempt to regulate input use
8.4 The impact of other fishery management measures on capacity
8.5 Displacing fishing vessels outside of one's EEZ

The simplest and cheapest way of dealing with overcapacity is to prevent its build-up in the first place. In fisheries that do not currently have an overcapacity problem, the priority should be given to putting into place management systems which would prevent capacity from expanding beyond the level which the resource can support in the long run or related target levels.

As overcapacity arises from inadequate access conditions, the development of a policy framework for the management of fishing capacity requires that fisheries authorities simultaneously develop policies to limit and/or price access.

It cannot be emphasised too strongly that overcapacity in a fishery arises as fishers respond rationally to the economic incentives that they perceive. In a fishery where significant profits exist, input capacity can be expected to increase either through new entry to the fishery or through increased investment by existing fishers. Simply limiting entry may not be sufficient to prevent capacity expansion because it will remain difficult to control increased input capacity by existing fishers. To be successful, measures to manage capacity must take both sources into consideration.

In developing a policy to deal with overcapacity, States may opt for one of two broad approaches (Gréboval and Munro, 1999). The first is to establish a system that provides economic incentives for fishers to control capacity of their own accord, without the need for the State to intervene directly. The second is a system through which the State attempts directly to manage capacity levels. The main instruments which are available for the implementation of each broad approach are discussed in this section, following the consideration of the related issue of economic incentives. Alternative instruments are presented in a rather introductory manner, with emphasis being given to the dynamics of capacity adjustments. They are discussed in the context of the general management of fishing capacity, meaning its control and, if required, its reduction.

8.1 Effects of perverse economic incentives

An important first step in controlling fishing capacity is to carefully assess the effect that some economic incentives - including subsidies - may have on its development. This is because firms will invest in a fishery as long as they can derive a significant profit, independent of the overall production level. Profits may be ensured even in the context of dramatically falling catches if prices go up significantly as a result, and/or if costs are significantly reduced through subsidies and other economic incentives.

However, subsidies may not automatically generate situations of overcapacity. This will depend on access conditions and the economics of each fisheries. But as a domestic fishing industry matures, with major stocks becoming heavily exploited, it can be expected that subsidies may foster the occurrence of increasing overcapacity situations if national capacity is not strictly controlled. Where capacity controls are introduced, or as fisheries collapse, the displacement of some vessels outside national jurisdictions may also lead to overcapacity in foreign fisheries.

Therefore the IPOA calls for States to reduce and progressively eliminate subsidies and economic incentives contributing directly or indirectly to the build-up of excessive capacity.

A first step that can be taken towards this end is for countries to undertake a national review of the various subsidies and other economic incentives being provided to their fishing industry, together with a qualitative assessment of their likely impact on fishing capacity, expected investment decisions and sustainability. To date there are few such studies available outside national fisheries administrations. Most 'subsidy studies' that are commonly available provide estimates of the volume of subsidies and discuss their possible effects. Box 1 introduces a few of these studies.

Subsidies and other economic incentives that could lead directly or indirectly to overcapacity are numerous. In the absence of an effective capacity management policy, any incentive that provides for increased profitability could eventually lead to overcapacity in at least some fisheries. At national level, economic incentives provided to promote global fleet development are likely to result initially in some overinvestment in the most profitable fisheries. This may be corrected to some extent by catch or entry restrictions, but as the industry matures towards the full exploitation of most available resources, economic incentives start running counter to the general objective of sustainability.

Subsidies and other economic incentives that could be considered to have the most direct impact on capacity are those provided for the construction, acquisition and refitting of fishing vessels, as well as those which directly contribute to significantly reducing operating costs. These incentives may take the form of budgeted grants, subsidized lending and tax and fiscal preferences. Subsidised lending and tax preferences are important, perhaps even more so than budgeted subsidies at present.

Box 1: Studies on subsidies

Recent publications reveals attempts to categorize and quantify the wide variety of subsidies currently used in the fisheries sector. As such, they provide useful guidance for the conduct of national reviews and assessment. However, present knowledge of the nature and magnitude of the impact of subsidies on sustainability is limited.

Milazzo (1998) provide an example of a framework under which subsidies could be assessed at national level. The author uses the World Trade Organisation subsidies agreement as a framework within which to undertake a detailed analysis of subsidies in fishing. This agreement defines subsidies as "financial contributions" provided by governments. Such contributions include the more classic kind of subsidies, such as transfer of funds (e.g. grants, or soft loans) or potential transfers (e.g. loan guarantees), the provision of goods and services over and above general infrastructure, and price and income support schemes.

Regional reviews have also been undertaken recently by the Organisation for Economic Development and Co-operation (OECD, 2000) and for the Asian-Pacific Co-operation (APEC) by Price Waterhouse Coopers (2000). Both studies relate to government transfers and list numerous subsidies by country and expenditure involved. Some countries have also undertaken in-depth national review (see FAO, 2000b).

However, few studies attempt to link the value of subsidies quantitatively to their potential effect on fishing capacity and sustainability.

The impact of subsidies on fisheries resource sustainability was addressed, inter alia, by the FAO Expert Consultation on Economic Incentives and Responsible Fisheries (FAO, 2000b). The report and documentation prepared for this consultation provide useful guidance for the categorisation of subsidies and indications as to their likely impact on sustainability. The report also establishes priorities for future studies, such as a focus on evaluating the impact of the three categories of subsidies that, a priori, might have the greatest impact on sustainability: capital expansion (e.g. grants to purchase or modernize vessels), tax waivers and deferrals (e.g. sales and income tax exemption) and price support.

Subsidising the capital costs of vessel construction and modernisation is of great importance for fishing capacity. Countries are clearly aware of this since, in the days when fishery development was the rule, many countries had investment codes which generally provided low or zero interest loans, and/or government loan guarantees as a way of reducing interest rates. It is not infrequent to find governments that have been left funding the capital costs of the industry in cases where fishers are unable to meet their capital repayments and the loan guarantees are invoked. Such situations often have pernicious side effects for fisheries management and fishing capacity, e.g. when authorities become reluctant to allow companies to become bankrupt since they hope that if the loans can be re-structured, economic viability can be restored and the government can recover its loans. As a result capacity may be maintained at an uneconomically high level, adjustments to the structure of fishing capacity are delayed, and catch rates are kept at a lower level. This has the effect of worsening the financial situation of fishing enterprises that would be profitable (or more so) if the bankrupt part of the fleet were allowed to fold. Maintaining redundant capacity also increases exploitation rates with the usual risks for the sustainability of the resource.

In addition to subsidised capital costs, investment codes that were intended to develop fishing capacity often included tax preferences. The most widespread of these are tax-free fuel, accelerated capital depreciation, and deferred income taxes. The evidence on the cost of such tax advantages is fragmentary but what there is suggests that the amounts are substantial. There is also a need to consider the way in which subsidies in other sectors may impact upon fishing capacity. The most obvious example is subsidies to shipbuilding.

Unbudgeted subsidies often appear to be carry-overs from an expansionist era. Fisheries authorities should ensure that they continue to serve the purpose for which they were implemented and that their impacts on capacity (if undesirable) do not outweigh their positive impacts on other economic variables.

Subsidies which support access to foreign fisheries should also receive attention. The criticism which is usually levelled against such subsidies is that they represent a mechanism to transfer excess fishing capacity from rich to poor countries (or from temperate to tropical waters). The subsidised fleets may compete with the local fishery sector and their activities may run counter to the conservation interests of the coastal state.

As stated earlier, not all subsidies and economic incentives are necessarily bad. From the point of view of resource sustainability many economic incentives are rather neutral. These include incentives related for example to safety, fish quality, and infrastructures. Incentives aimed at promoting initial fisheries development may also be included, although there are difficulties in targeting subsidies to specific fisheries or fleet segments and in reducing subsidies once initial development has been achieved. Incentives may in addition be aimed directly at promoting conservation and responsible fishing practices, e.g. the adoption of more environmentally-friendly fishing gear.

Correctly developed and targeted, subsidies may also be used to promote downward adjustments in fishing capacity - commonly through buyback programmes. However, there is little evidence that they are successful in their primary aim of achieving capacity reduction - and hence of promoting conservation - unless they are supported by effective measures to prevent effort increases from within the set of vessels that remain. Buybacks are discussed in detail in section 8.3.2. and Box 3.

Perhaps a more compelling line of argument is that subsidies may be a socially desirable response to the problem of dealing with excess capacity. Although excess capacity builds up due to the investment decisions of individual fishers, the underlying fault is a regulatory one. In the absence of measures to correct a market failure (stemming from free and open access to a public good) in fisheries, fishers receive economic signals that encourage them to invest. In fisheries where the market failure has been resolved (e.g. under ITQs) this incentive disappears, as does over-capacity in principle. Where fishers have in effect collectively been led into over-investing, it might be considered fair that subsidies be used to help remedy the situation. The case would be even stronger in situations where economic incentives, perhaps through an investment code, had reinforced the misleading economic signals being received by fishers from the market.

This line of argument might be developed in another way. In fisheries analysis, it is common to look at the free and open access equilibrium point. Rather less attention is paid to the way in which this equilibrium is approached. When fisheries were expanding, this lack of attention was justified because when adjustments were required they usually took place quickly with part of the fleet simply moving to another fishery. Now, however, there are fewer opportunities left for fleets to move to, and the question of how the open access equilibrium is reached is much more important. In practice, because of the variable nature of the fishery resource, identifying an equilibrium point (be it open access, MSY or anything else) is a very difficult exercise. As a result there is a tendency to 'overshoot' the equilibrium and then to converge back towards it from above. In the case of open access, this means that there are initially too many vessels and that the number then declines back towards the equilibrium level. If vessels cannot move to other fisheries, however, this means that some vessels must leave the industry altogether, even for open access equilibrium to be restored. The problem is that fishing vessels have long lives, and are often little suited to anything other than fishing: once in the fishery therefore, they tend to remain for a considerable time. This problem may be presented in a number of ways: some authors refer to non-malleable capital, others to asymmetries between entry and exit conditions. The result in any event is that the fishery may remain in a disequilibrium situation for extended periods, beyond even the open access level, with fishing enterprises remaining unprofitable and the resource overexploited.

In conditions such as these it might be considered socially desirable to intervene to reduce the number of vessels at least back to the open access level so as to restore the economic viability of the fleet. At that point, no resource rent would be earned and overexploitation may occur so that in practice yet further capacity reductions would be required.

This argument only makes sense however in the context of a 'one-time' adjustment package. Prior to capacity being reduced to a specific level, a management system must be introduced to actually control it at that level. Options to do this are discussed below. If such capacity control is not implemented, then the problem can be expected to re-emerge quickly and probably in a worse guise because expectations will then have been formed that the government will 'buy out' investment mistakes.

8.2 Systems which provide incentives to industry-based adjustment in capacity

8.2.1 Individual quota systems
8.2.2 Exclusive zones
8.2.3 Licenses under co-operative behaviour
8.2.4 Co-management and community-based management
8.2.5 Taxes and resource rental charges

Some fishery management systems create an environment which removes incentives that lead to the creation of excess capacity and encourage industry-based capacity adjustments that tend to be more efficient and easier to implement. Wherever possible, it is recommended that the problem of controlling capacity be approached in this way.

8.2.1 Individual quota systems

Individual quotas (IQs) systems have been developed in a number of countries over the last decade. An IQ system involves the determination of a TAC by the fisheries authority, and the allocation of this TAC among fishers according to some lasting agreement (see Box 2). The most significant advantage of IQs is that they remove the incentives that lead to excess capacity. In addition, the transferability of IQs may be allowed. That will enable the most efficient operators to increase their shares by trading, and allow the less efficient operators to leave the fishery. Examples of country experiences with IQs systems are provided in Batstone and Sharp (1999) and (Arnason, 1996).

Under an IQ system, fishers have the right to catch a certain amount of fish. Provided that they respect these rights, the management authorities can be sure that the TAC will not be exceeded. As a result, it is up to individual fishers, or fishing companies, to decide what capacity to use to capture their share of the TAC. There is no reason to suppose that they will use more than the capacity required in order to do this.

IQs remove the "race for fish" so that fishing takes place once again throughout the natural season. This generally helps to reduce overcapacity in the processing sector as well.

IQs are likely to prove useful in situations where fishers exploit more than one species since it will be up to each fisher to ensure that they have the necessary catch entitlements for the catch that they wish to land. In the case of highly mixed fisheries, this advantage may be more apparent than real.

The use of IQs requires careful consideration of the characteristics of the fishery to be managed. Clearly, a key consideration is whether fishers will comply, or can be made to comply at reasonable cost, with the restrictions imposed by their catch rights. Even if they do comply, consideration must be given as to how they do so. For instance, if fishers meet their quotas by discarding large quantities of otherwise marketable fish, then the system would appear to have a problem. It is often argued that IQs are not suitable for multispecies tropical fisheries. However, it may be worth evaluating whether combining quotas with other management measures or systems may not provide a way forward (for instance, community-based quotas determined on the basis of main mixed fisheries).

Quite apart from the technical difficulties of introducing IQs, careful consideration will also have to be given to their socio-economic impacts. They may for instance give rise to very strong wealth effects. These could be dealt with through appropriate taxation. IQs may also lead to unacceptable restriction on participation. Here again solutions have been found to ensure participation by specific communities (e.g. in New Zealand) or to ensure that part of the overall quota is regularly tendered (e.g. in Chile).

In countries where they have been implemented, IQs have clearly changed the incentives in a way which brings the fishing industry to resolve the capacity problem of its own accord. This advantage is significant and fisheries authorities should very carefully consider the possible use of IQ-type systems to manage some of their fisheries where they can be implemented.

Under IQ schemes, fishers have an incentive to adjust their inputs to quota levels. There is evidence that downward adjustments are indeed occurring in fisheries which showed a significant overcapacity before the introduction of such schemes. The disposal of redundant inputs may occur in a number of ways: reallocation by the owner to other national fisheries after refitting, sale on the national market, sale on the international market, or scrapping. As long as the vessel concerned has a market value higher than the scrap value, it will therefore remain in the fishery sector and may contribute to overcapacity in other fisheries if entry in these fisheries is not limited.

Box 2: The New Zealand experience with individual transferable quotas
[Based on Batstone and Sharp (1999)].

An ITQ system requires an initial allocation of rights, in the form of shares of a TAC. For any given TAC, it is expected that the market, via transferability of rights, will ensure that it is taken in the optimal (most efficient) manner. One of the first countries to move towards a fishery management system based on individual transferable quotas was New Zealand.

One issue that must be faced in a fishery is what to do about non-commercial fishing (for instance, recreational fishing). The New Zealand approach is for the Minister (following consultation on scientific assessment) to set a TAC and a TACC (total allowable commercial catch) the implication being that the difference is reserved for non-commercial activities carried out by those who do not hold ITQs. Such groups might be artisanal fishers in a fishery which has both industrial and artisanal dimensions. It might be considered too difficult to control the artisanal fleet using ITQs and a part of the TAC may simply be reserved for this activity. Clearly, a key element in the success or failure of fishery management is going to be the ability to control the catch of this segment. If the TACC must be continuously reduced to compensate for increases in catch elsewhere, the system will not last long.

A second issue is how to divide the TACC into ITQs. When the New Zealand system was introduced in 1986, the ITQs were denominated as tonnes of fish, and the management authorities adjusted the TACC by buying or selling ITQs as appropriate in the open market. The government abandoned this system in 1990 apparently because it was proving too expensive to operate.

ITQs have since been denominated as percentages of the TACC and experience suggests that fishers are motivated to ensure that the stock remains in good condition so that their percentage is worth as much as possible.

A third issue that New Zealand had to deal with was the question of traditional Maori fishing rights recognized under the Treaty of Waitangi 1840. The quota management system was successfully challenged by Maori in the High Court and the government was obliged to negotiate a substantial settlement of quota rights. The lesson for countries considering the implementation of quota-based systems is to make sure that traditional rights are explicitly taken into account.

The nature of the right also needs to be well-specified. In New Zealand, quota rights are held in perpetuity, are transferable and may provide the basis for derivative rights, such as leases. They represent legal property and may be used as security.

Quota holders are subject to both minimum and maximum holdings, depending on the fishery. Greater quota holdings are allowed companies engaged in capital-intensive deep-sea fisheries, as opposed to inshore fisheries.

When the system was introduced, ITQ owners were required to pay a resource rental, regardless of whether they fished. This proved contentious and resource rentals were finally abolished in 1994. The government now seeks simply to recover the cost of managing the various fisheries.

The results of the system are very positive. Commercial fishers in New Zealand receive no subsidies and fisheries are managed sustainably. The fishery in New Zealand does not appear to have started from a position of gross overcapacity so that the impact of the system has been more developmental than capacity-reducing. Since the introduction of the system, there has been a substantial increase in both the quantity and the value of production. The quantity has increased from just over 400,000 tonnes in 1986 to over 650,000 tonnes in 1995, whilst the value has risen from 780 million dollars to 1,360 million. Almost all of the increase in value has been in the export sector, with domestic sales being around the 125 million dollar level over the whole period.

The ITQ system has also led to some changes in industrial structure. The concentration of quota ownership has increased slightly with the top 3 companies owning 56% of quota in 1996 compared to 52% in 1991. However, this result is largely due to the deep-water fishery where the capital requirements are great. The system has allowed the development of specialised fishers - for instance, the segment which has increased the most since 1987 is liners which sell high-valued species in niche markets. All segments have been maintained under the system, with the exception of pair trawling which has almost disappeared.

The system has also been associated with increased employment, especially in the processing sector - an expected result since rights give an incentive to add value to the allowed output.

At the moment, non-commercial fishing is not included in the quota management system and managed in other ways. The difficulty is to know what share of the catch should optimally be left for the non-commercial sector. In the New Zealand case, the non-commercial sector is largely recreational. But similar kinds of problem may arise in the fisheries of developing countries where the artisanal sector, although commercially oriented, may be qualitatively different to the industrial sector. In such cases, management of the industrial sector may be relatively easy but may be undermined by developments in the artisanal sector.

8.2.2 Exclusive zones

In some fisheries it may be possible to set aside areas to be exploited exclusively by one or a group of fishers. Territorial use rights in fisheries (TURFs) are one example of such systems. Japanese coastal fisheries are to a large extent managed on this basis and so are many traditional inland and coastal fisheries around the world. The expectation is that if fishers have secure rights to an area, they will exploit it in an optimal manner using only that level of capacity which is necessary to take the desired harvest. Of course this behaviour presumes that rights be individual or managed under strict self-enforced collective rules.

Fisheries authorities should consider exclusive zones as a robust approach to managing fishing capacity in certain fisheries, especially for coastal and relatively sedentary fisheries. The application of this approach to small-scale fisheries generally deserves fuller investigation, especially in instances where related traditional management systems are still in place.

Sedentary fisheries lend themselves particularly well to this kind of management system. Exclusive zones have been used for instance in the UK and France to manage oyster fisheries. The evidence suggests that private areas are exploited much more efficiently than public ones (Guillotreau, 1997).

In Madagascar, a management system including exclusive zones has evolved in the shrimp fishery. A series of zones were defined on the west coast of the island. Over time, it became apparent that the zones provided a way of managing conflict between fishing companies and also to conserve the island’s scarce fuel resources by requiring that vessels to fish close to their onshore processing facilities. As a result, some companies were allocated exclusive rights to certain areas. New companies were allocated rights to fish in other areas with a limit on how many vessels could fish in each zone. Evaluations of the system in the 1990s showed that the exclusive zones were exploited at a level close to maximum economic yield, as suggested by the classic fishery economics literature on a sole owner (Scott, 1955), and that, together with entry limitation, this approach helped avoiding the overcapacity problems that plague many of the world’s fisheries.

The system is now facing serious challenges, however, owing to the development of an artisanal fishery. This puts the management authorities in a difficult position. On the one hand, exclusive zones have provided Madagascar with a profitable, rationally-exploited fishery which contributes significantly to foreign currency earnings. On the other hand, the artisanal fleet is socially desirable and the capacity issue now needs to be reconsidered for both labour-intensive and capital-intensive fleet segments.

It is interesting to note how similar this problem is to that faced in New Zealand where non-commercial catch that is not included in the ITQ system could seriously disrupt the system. In systems that produce successful economic management of fisheries, it is crucial that there be as few exemptions as possible. Any gap that is left, however unimportant it may appear at the time, has a tendency to grow quickly once the economic results of successful management begin to appear.

8.2.3 Licenses under co-operative behaviour

Generally speaking, license limitation schemes do not provide an incentive to fishers to avoid over-capacity and consequently their use is discussed more fully in the next section. There is however one situation where they could be used to provide such an incentive - i.e. where there is a very small number of license holders in a particular fishery and where there is sufficient interaction between them for co-operative behaviour to emerge. In particular they may agree to adopt their own management measures which remove the need to race for capacity. They may agree, for instance, to restrict catch per vessel per day, or to restrict the number of days that they fish. The extent to which such a voluntary arrangement can be expected to work depends on a number of factors. First and foremost the fishers have to build trust between one another. They also need a mechanism (formal or informal) to enforce the agreed measures. They further need to be convinced that the State will not create additional licenses for the fishery, thereby undermining their co-operative arrangement.

To encourage co-operative behaviour, it may be useful to establish licenses over relatively small areas or zones. Clearly however the ability to use zones will depend on the nature of the fishery. In many ways, a fishery with few license holders could easily evolve in a co-management arrangement.

8.2.4 Co-management and community-based management

“Co-management” covers a wide range of possible systems involving the sharing of management responsibilities between the State and communities or more conventional fisher organizations. If a co-management approach is to be implemented, both research and extension work are likely to be required: the former to consider how to create such groups, the latter to undertake training as to how they should operate. There will also be a need for a mechanism (such as an overall co-ordinating body) to deal with disputes between and within groups. Where there are overlapping groups and/or stocks, a key issue will be how to change the allocation of rights over time as relative efficiencies change. Also, consideration might have to be given to the issue of what to do if the group no longer represents the best management alternative. How are rights to be transferred away from the group?

Where a co-management approach is to be used, the main issue will be to decide precisely what rights and responsibilities are being transferred to each group. A key question will be whether the group has property or use rights.

The group is likely to be interested in managing fishing capacity to ensure sustained benefits to all members. Its ability to do so will depend on a number of factors:

· Level of co-operation within the group. Note that this is required on a sustainable basis - the State will have to monitor different groups to ensure that they do not break down over time, particularly because this has tended to be the fate of many traditional management systems.

· Exclusivity of access: a co-management system without exclusive access will be as vulnerable to increases in capacity from uncontrolled elements as are systems such as ITQs or exclusive zone

· Security of rights: the group will not attempt to control fishing capacity if it cannot be sure that it will be able to reap the benefits.

· Objectives of the group: although controlling capacity will increase the profitability of fishing, the group may have other goals which need to be recognized (e.g. employment) even if they prevent effective control and avoidance of excess capacity.

· The incentives at the individual level within the group may not be all that different to those existing under State management systems. In particular the group may find that input substitution undermines its capacity management efforts. As is the case with the State, results will depend on management methods used by the group.

· Respect for the group's leadership by all members.

Community-based systems are compatible with a range of different instruments. In small-scale fisheries, it is common to allocate rights in terms of space. Such systems do work well in policing fishing practices and may be upgraded by the community to regulate capacity. With higher exploitation rates, however, they are vulnerable to the fact that the space may cover a fraction of the stocks and therefore adjacent communities will need to collaborate effectively. Otherwise, it may be preferable to allocate catch rights instead of or, at least, in addition to spatial rights. Provided that the community can be relied upon to ensure that in the aggregate its members do not exceed their catch allocation, such systems can be very effective. In the UK, a form of community-based management has been implemented with catches being allocated to and managed by Producers Organisations (POs). The experience has been that members of the PO quickly agree to manage capacity and in this instance to reduce it by buying out those who wish to leave, provided that their share of the catch remains within the PO. It is interesting to note that fishers in the UK were opposed to individual quota systems at the national level but that such allocations quickly became acceptable at the group level.

8.2.5 Taxes and resource rental charges

Taxes can be considered to provide an incentive for industry-based adjustment in capacity. However, because of low political acceptability, they are likely to be used as a complement to other capacity management schemes.

Increases in fish prices or decreases in fishing costs increase the profitability of fishing, other things remaining equal. If effective rights-based systems exist, then increased profitability will result in increased demand for rights pushing up their price and hence the capitalised value of the fishery (total value of rights over time). If, however, adequate rights-based management systems cannot be instituted, then increased profitability can be expected to result in increased capacity. To prevent this, one option for the State is to tax away excess profits.

Such an approach may be justified on two grounds. First, taxes can be used to correct a market failure. The fish stock represents a valuable resource but in the absence of use rights, there is no market where this value can be revealed and the resource traded. This situation is called market failure in economics, although in this case it might be accurate to say that markets are simply missing. The consequence is that the fish stock appears as a free good to fishers and is exploited beyond the socially optimal level (in principle, market pricing would result in socially optimal solution). Taxation can be used to force fishers to take account of the value of the valuable fish stock that they are using in order to produce fish output, in the same way that they are forced to take account of the cost of other inputs, such as oil, gear, labour and so on. If any of these resources were provided free, fishers would tend to over-use them in exactly the same way that they over-use the fish stock. If a tax has to be paid, either on catch or on effort, then profitability will be reduced and so will the level of fishing effort and capacity.

A second justification for the use of taxes is that they represent the return from the fish resource to the nation. In this view, the State plays the role of steward of the resource on behalf of the owner - i.e. all citizens of the country. The State therefore collects resource rents which it then uses for the benefit of all citizens. In this way everyone can derive some benefit from the nation's fish resources, without necessarily having to become a fisher. Many extractive industries are managed on this basis, through the payment of royalties for example.

If taxation is to be used, States will have to consider a number of issues:

· What to tax? The choice is generally between catch and effort. In theory the two are equivalent but in practice it is almost always easier to tax the catch. A number of options exist for taxing catch: at the point of landing, at some point in the processing chain or, in some cases, at the point of export. There is often a presumption against export taxes but it needs to be made clear that the fisheries case is special in that such taxes are being used as a way of enhancing conservation and economically rational exploitation of the resource.

· What institutional arrangements are required? The system will only work if there is compliance with it. As with all costs, there will be an incentive for enterprises to reduce their tax burden so far as possible. An appropriate institutional structure will have to be established to ensure compliance at reasonable cost. One of the key issues regarding the use of a taxation system is whether it can be made to work without all, or most, of the benefits of reduced exploitation being used up as extra costs required to enforce the system.

· How to avoid rent-seeking behaviour within the tax system? Given the value of fisheries resources, a taxation system can be expected to generate significant amounts of revenue. Depending on the precise institutional arrangements that are established, such revenue might encourage rent-seeking behaviour of various kinds, going from the exploitation of regulatory loopholes to illegal practices. An appropriate system of checks and balances will be required to ensure that rent-seeking behaviour does not use up a substantial portion of the benefits of the system.

In principle, when set at an appropriate level, taxes (or resource rentals) are capable of resolving the capacity problems because enterprises are forced to take the value of the resource into consideration in their decisions.

In practice, taxation is rarely used, at least on its own and in the case of domestic fishers. It is more common to find taxation systems being used in the case of foreign fishers, e.g. in the form of access fees. In many developing countries, taxation have nevertheless been applied to both national and foreign fishers for key fisheries and often since the early stage of development of these fisheries.

Two objections are commonly raised against the use of taxation. First, in order to devise an 'optimal' tax system, a large amount of economic data is required which is generally not available. This objection can perhaps be overcome by accepting that taxes will never be optimal. What might be termed a "satisfying" approach could be adopted, under which the State defines satisfactory levels of tax return on its fisheries. As different levels are achieved, the definition of "satisfactory" can be revised upwards on a trial-and-error basis so that its level gradually approaches the optimum. An approach such as this is used by many large-scale business enterprises to maximise their profitability and there does not seem to be any reason why it could not be made to work in the case of fishing.

A more serious objection in practice is one of political acceptability. A number of different arguments may be put forward as to why taxation cannot be used to manage domestic fishers. First, in fisheries with overcapacity, fishing enterprises are often in poor economic shape, so that implementing taxation is tantamount to driving some of them to bankruptcy, which is something that a government may find it difficult to countenance. Whether such an argument really does exclude the use of taxation or whether it simply means that taxation must be introduced very gradually is something that will have to be judged on a case-by-case basis. Second, it may be argued that taxes will be unacceptable to fishers and that without their support no management system can be expected to succeed. Again the merit of the argument will have to be judged empirically. In Madagascar, for example, taxation was introduced in the context of a more restrictive and effective license limitation scheme which actually guaranties the long-term profitability of the fishery.

The political acceptability of using taxation and resource rental charges must be judged by each State. However, there is no a-priori reason why taxation could not be used to deal with overcapacity and fisheries authorities should give serious consideration to its use.

In practice, taxation may best be used together with other management measures, and with licensing in particular. Thought should be given to how they might be introduced. There is no inherent reason why they have to be in the traditional form: more novel approaches could prove more acceptable. An approach introduced in several countries along with IQ management schemes is the payment of fees under management cost-sharing. Other arrangements might include the periodic sale of fishing rights by the State, if these are provided for a limited period of time.

8.3 Systems which attempt to regulate input use

8.3.1 Licenses and limited entry
8.3.2 Reducing capacity within a licensing programme

If for whatever reason the management authorities are unable to introduce an incentive-based system then a system will have to be introduced which is designed to manage capacity. It should be recognised at the outset that such systems are difficult to implement successfully, especially if introduced in already heavily exploited fisheries.

8.3.1 Licenses and limited entry

Licensing is the most widely used system for capacity management. When the problems of free and open access were first analysed in the 1960s, the importance of limiting entry became immediately apparent and licenses appeared to offer a solution to this problem. Unfortunately, the control of the capacity of individual vessels received far less attention initially and it was only through experience that it became clear that it was difficult to control this second element within licensing systems.

Licensing is a common management tool that remains the main alternative to IQ systems. The main difficulty faced by licensing when considered with respect to the problem of overcapacity is that it does not remove the incentives that led to overcapacity in the first place. As a result, management tends to become a game wherein the authorities try to constrain the investment of the industry (as opposed to a situation where they encourage the industry to adjust its investment in the required direction as happens with IQs (or taxes to some extent).

Instituting a successful licensing scheme is difficult for a number of reasons. A problem is to decide what to licence. Fishing vessels, vessels/gear characteristics or fishing effort may be licensed, all being proxies for fishing inputs. In simple licensing schemes, it is the vessel itself which is licensed and the number of licenses is restricted. The consequence generally is that the average size of vessels increases, and even if this dimension of effort is also controlled, there will be a tendency for fishers to invest to increase the effectiveness of their licensed unit.

This problem is called input substitution (or more colloquially capital stuffing). It can be safely predicted that within a licensing system fishers will attempt to substitute unrestricted inputs for restricted ones. The extent to which this is possible will depend on the nature of the production function. If the degree of flexibility is low, then the management problem is greatly simplified since controlling one input will effectively control all others. On the other hand, if flexibility is substantial then it may be impossible to use input-based management measures because as soon as one input is controlled it is replaced by more of an uncontrolled one. There is a need, therefore, for technical work in support of licensing to investigate the extent to which inputs may be substituted one for the other in the production function.

Indeed, even in the case where technology is very inflexible so that input proportions are difficult to vary, it is important to recognise that this gives only a short respite to the fishery manager. Incentives will be established in both the fishery sector and the sectors servicing it to innovate so as to increase the flexibility of the production technology. Input regulation in the inflexible technology case is likely to create distortions outside of the fishery sector in terms of excessive inventive and innovative behaviour.

In considering the implementation of limited entry programmes based on licenses it is therefore essential to evaluate the potential for input substitution. If the potential is high then such programmes will need to be more specific (and more difficult to enforce) to succeed in controlling fishing capacity. Even if the potential is currently limited, the programme will still establish incentives to increase input substitutability in the medium to long term. In the context of fishing capacity therefore it is wise to view limited entry licensing as one step in the establishment of an effective management regime.

A standard response to the problem of input substitution on the part of management is to attempt to define the licensing conditions more and more tightly. This may be done either by adding more and more licenses to various inputs or by improving the definition of the license unit. Experience with both approaches is mixed. In the UK, for instance, the number of potential licenses in existence became so great in the mid-1990s that the government was forced to simplify the whole system so that it became workable for fishers and enforcement personnel alike. With regards to improving the definition of a license unit, the UK experience with vessel capacity units demonstrates how the fishing industry can manoeuvre within a broad physical definition of capacity that would apply to a whole fleet so as to reduce capacity as measured by the definition whilst increasing it in practice.

Even apparently simple management measures will be subject to input substitution. For instance, restrictions on fishing time in the form of closed seasons or days at sea restrictions will quickly lead fishers to utilise the fact that there are different kinds of time. They are likely to attempt to reduce travel time (faster vessels, re-designed propellers etc.) and gear manipulation time (mechanised gear handling etc) so as to be able to increase fishing time within the constraint imposed by the closed season.

There is little doubt that input substitution will remain an important issue to deal with under any licensing scheme. Based on experience gained, one should nevertheless recognize that in a specific fishery the control of the number of vessels allowed to fish and restriction imposed on a few key characteristics should severely constraint fishing capacity, and that, in time, the number of operating vessels could be adjusted downward if required. The introduction of such a system at an early stage of fisheries development makes it considerably easier to achieve this end. Existing fishers can be provided with transferable licences; additional licenses may be auctioned if the resource and economics permit (following periodic assessments); restrictive entry conditions in the form of permanent licenses may be negotiated along with an appropriate rent sharing mechanism; the share of the rent extracted by the state can be used to ensure proper management, including enhanced industry participation and, in time, the possibility of co-financing possible buyback schemes (e.g. to account for eventual capital stuffing or if the target exploitation level has been overshot). This would generally require a definition of fisheries that would preclude vessels from operating in more than one fishery. The system may be introduced initially in relatively simple fisheries and can be generalized progressively, although it may be difficult to apply to small-scale fisheries.

When licensing is introduced on a fishery by fishery basis a major difficulty is to account for the allocation of initial licenses. Licenses may by given solely for the exploitation of a specific fishery by a specific vessel. The owner of a particular vessel may also be given licenses for the exploitation of several alternative fisheries in recognition of existing seasonal practices (consecutive exploitation of several stocks throughout the year) or in recognition of actual and past involvement. A system of multiple-licensing will allow for some flexibility in relation to year to year fluctuations in abundance, but it is more complex to regulate and may lead to important shift of capacity across fisheries and greater unsustainability. In general, if limited entry is introduced on a fishery basis, multiple-licenses should be provided only when unavoidable (e.g. in connection with the exploitation of seasonal fisheries). As discussed in Box 3 multiple-licensing also causes great difficulties when buy-backs are used to reduce capacity.

Limited entry schemes have often been introduced against a background of rampant overcapacity, with numerous stocks being overexploited and few opportunities for national reallocation. In this context, licensing may be applied for operation in the EEZ as a whole -i.e. for the entire fleet broken down in segments. Such an approach would serve the purpose of capping overall capacity (based on the prevailing importance of various fleet segments) and of creating the basis upon which selected fleet segment subsequently may be reduced while others may be eventually promoted. In this context, a simple proxy of input capacity will have to be applied for the fleet as a whole (such as done in the European Union) or for major fleet segments (e.g. trawler, seiners, etc,). This approach is simple but reinforces the input substitution problem. It also leaves the allocation of fishing input among stocks (or fisheries defined essentially on a stock basis) relatively unrestricted. Then fleet allocation would need to be managed through other measures (e.g. through TAC or closed seasons). Such an approach does not prevent the fisheries authority from using a more elaborate licensing schemes for specific fisheries (e.g. crustaceans).

Another difficulty with licenses is that if they are to be transferable (which is generally recommended by economists), States will have to establish relative vessel efficiencies in order to allow transfers between different categories. If fisheries are already showing signs of overcapacity, it is fairly common practice to require an investor bringing a new vessel to a fishery to retire a more-than equivalent amount of existing capacity. In order to be sure that new vessels do not increase capacity, the ratios between different types will have to be kept up-to-date. Replacement ratios may also be required between gear types.

If input licensing is to be used, serious attention should be paid simultaneously as to: which inputs to restrict; the kind of access to be granted (sector, fleet segment, range of fisheries, specific fishery); the duration of the licenses granted; and the conditions of their initial allocation and eventual reallocation. Fisheries authorities which contemplate introducing such a system should ensure that its specifications be sufficiently robust to avoid, drawing on the experience gained worldwide, many of the problems related to poor initial design.

8.3.2 Reducing capacity within a licensing programme

Management authorities have a number of options for the reduction of capacity in a licensed fishery.

A first possibility is to use attrition. If licenses are not transferable then the management authority can allow the number of licenses to reduce over time as fishers do not renew them for whatever reason or if regulations are introduced to retire inactive licences. The obvious problem with this approach is that it usually takes far too long to be effective. It is also unlikely to give rise to an economically efficient outcome, and it is probably inequitable concerning future entrants.

A more promising alternative is to charge license fees. Such fees can be expected to reduce the number of participants - overall as well as in selected fisheries. If applied to all licenses independently of whether these are active or not, fees can also be used to reduce the number of latent licences. This measure applies particularly to the case where multiple-licenses have been provided initially in a rather lax manner. Obviously charging substantial license fees would be difficult if capacity has already developed to the extent that profitability is minimal. If profitability remains high, the introduction of license fees can be negotiated with the industry against the introduction of more restrictive licensing, the latter offering some guarantee of sustainable profitability. When fees are substantial this may nevertheless encourage some input substitution as licence-holders seek to increase the net revenue from operating their licences. Charging fees to promote reduction will thus require that the licensing scheme in place be particularly robust.

A more common approach is to use buy-backs (see Box 3). As the number of licenses issued is often too great, governments may decide to buy some of them back. Experience to date suggests that it is very difficult to design buy-back programmes which have a substantial impact on capacity without being prohibitively expensive. Buy-backs suffer a number of problems:

· Latent capacity. Where this exists, buy-backs, at least in their early stages, will either buy-out currently-inactive capacity or encourage such capacity to become active.

· Input substitution. This problem pervades effort-based management and buy-backs are no exception. It may occur through remaining vessels changing their input usage.

· Re-use conditions. The UK programme requires vessels to be scrapped. This increases the cost of the programme per unit of capacity retired but ensures that it really is retired. Other programmes allow vessels to be transferred to other uses or other fisheries thereby reducing the amount required by an owner to make it worth while to retire a vessel. Where vessels are allowed to move to other fisheries, care should be taken that the authorities do not end up buying out the vessel over and again.

· A further problem with buy-backs is that the implicit assumption that it is simply the number of fishing units which is the problem and that buying some of them out is sufficient. However, overcapacity is not simply a problem at the fleet-level but in many cases also affects the configuration of the vessel itself (especially where input substitution has occurred or vessel design has been affected).

Before undertaking buy-back schemes, fisheries authorities should ensure that the conditions of their long-term effectiveness are fulfilled, giving due consideration to the issue of vessel disposal.

Rather than using buy-backs, another method which has been suggested for capacity reduction is to issue fractional licences. With this approach, when the system is introduced, each fisher receives only a fraction of a licence. In order to continue fishing the remaining fraction(s) must be purchased from someone else. By setting the fractions appropriately, the authorities can effect any desired reduction in the number of license holders, although as always the caveat remains that the reduction in capacity is likely to be far less. Fractional licenses effectively represent an industry-funded buy-back programme. They are thus likely to be popular with governments and unpopular with fishers. Their long-run consequences can be expected to be the same as those of government-funded buy-backs.

Another possibility is to auction the first round of licences. Such an approach may have a number of advantages, if it is politically acceptable. To begin with, the government will obtain some resource rent from the fishery. Second, the initial number of licenses can be set at, or below, the estimated optimal capacity so that the need for buy-backs in the future will be greatly reduced, and perhaps even eliminated. Third, resource rental charges can be attached to the licenses so that the government continues to extract resource rent in the future as stocks recover and profits increase. Over time, capacity can be expected to increase through input substitution so that there will be a need to periodically adjust the number of licences. The big problem will concern those fishers who have been unsuccessful in their bid for a licence. States will have to evaluate different options concerning such fishers (e.g. buyout or subsidies for vessel reallocation). The approach can be expected to be very unpopular with fishers, who will perceive it as an attempt to make them pay for their existing "rights".

Overall, a licensing programme may allow capacity to be reduced but only under certain conditions of input substitutability and license allocation. If, as is often the case, the licensing system initially formalises the existing open access level of capacity in a relatively mature fishery sector, then it is likely to be a long, difficult and expensive process to reduce capacity using this system. Past experience in North America and the EU would tend to bear out this conclusion, but has also paved the way for improved design.

In the case of a developing fishery sector, the early introduction of license limitation may prove a valid alternative to incentive-based measures, especially if the latter are not readily applicable. Fisheries authorities contemplating the introduction of license limitation schemes should take advantage of experience gained elsewhere and remain aware that many of the difficulties associated with such schemes result from delayed introduction, lax implementation and insufficient industry participation.

Box 3: Buybacks

Holland, Gudmundsson and Gates (1999) present a comprehensive analysis of buy-back programmes around the world. It should be noted that most of the programmes reviewed have been implemented in the context of relatively loose limited entry schemes.

Three general goals are associated with buyback programmes: conservation of fish stocks, improvement of economic efficiency through fleet rationalisation and transfer payments to the fishing industry. The common element for the implementation of such programmes seems to be a crisis of one kind or another that has greatly reduced the quantity of fish available.

The implementation of buy-backs raises many issues. First, most of the gains go to the owner of the capital, who in some cases may not even be a fisher. And in any event retiring vessels from the fishery also has an effect on people who are not eligible to receive compensation from the buy-back. Most obviously, there is likely to be less employment among crew members and those who work in fishing vessel support industries. Processing employment may also decline, although this depends on catch rather than capacity. The reduction in employment associated with buy-backs has meant that government assistance does not generally end with funding the buy-back itself but extends also to various supplementary expenditures such as unemployment assistance, early retirement, new business and re-training grants and so on. These costs are often met from non-fishery budgets.

A second problem is to decide how to target the buy-back. Sometimes, buybacks target those who are most dependent on the fishery. Generally, this is done by introducing a minimum qualifying activity level - for instance, only vessels which fished at least x days the previous year. The logic underlying this approach is that it helps those most affected by the crisis in the fishery. However, the approach mixes two objectives: the primary one of reducing fishing capacity with a second socio-economic objective. As is often the case, using one regulatory instrument to achieve two objectives causes some difficulties. First, it probably means that less reduction in capacity is achieved than might otherwise have been. Secondly, it may create perverse economic incentives, because it excludes those who have voluntarily reduced their activity as the fishery has declined. In the future, if other fisheries decline and if fishers expect there to be a buyback programme, they are likely to maintain their fishing activity at a level higher than they would otherwise have done, to ensure that they qualify for the buyback. This is yet another demonstration of a well-known rule in economics that it is best to focus one policy instrument on one policy target.

Assuming multiple-licensing, a significant difficulty with buy-backs is that all licenses are not used equally. Is it better therefore to target a buy-back at licenses which are lightly-used or at those which are heavily-used? Some schemes have taken the former route. The advantage is that capacity can generally be retired cheaply. The disadvantage is that the impact on catch is less than proportional to the capacity retired. Nonetheless, this approach seems preferable to the second for a number of reasons. First, targeting heavily-used licenses may once again set up perverse economic incentives in other fisheries since it is those that contribute most to overfishing who are rewarded with a buy-out when the government intervenes. Second, depending on the precise nature of both the fishery and the buy-back scheme, skippers and crew from the retired heavily-fished licenses may simply switch to lightly-used licenses so that the overall effect on catch and fishing effort may be minimal. In other words, great care must be taken with the second approach to ensure that it does not simply become an expensive method of achieving the first result.

This conclusion may need to be modified depending on the structure of the fleet, particularly if lightly-used licenses correspond to older, less technically efficient vessels, perhaps with older fishers who are near to retirement in any case whereas heavily-used licenses correspond to newer, more technically-efficient vessels. Focussing on the first group may turn out simply to be an expensive way of removing capacity from the industry that would have left of its own accord. From a capacity reduction viewpoint it may make more sense to focus on the second group. It is nonetheless an interesting indication of the degree of failure of fisheries policy that a strategy of deindustrialisation such as this can appear to be the best approach. Whether such a neat characterisation of fishing fleet structure is possible will depend on particular cases. Where there is little difference between the technical characteristics of the lightly-used and heavily-used licences, then focusing on the former seems preferable. Another consideration relevant to this conclusion is the license transfer and aggregation conditions. If those retiring heavily-used licenses are able to acquire lightly-used licenses and replace the vessels, then clearly the fact that these licenses were previously used with technically inefficient vessels is irrelevant. Once again, potential capacity has to be retired. Finally, the re-use conditions for retired vessels are also important. Some programmes impose no restrictions at all so that a retired vessel could be used to replace another vessel in the fishery. In this case there is clearly no point in focussing on heavily-used licences. The fewer restrictions there are on re-use, the lower the amount of compensation that an individual licence-holder will require and hence the more capacity can be removed from fishery X with a given budget. However, this advantage comes at a cost. The capacity is not really retired and may be expected to re-appear somewhere. In extreme cases, a country could find itself funding the buy-back of licenses associated with the same vessel over and over again as different fisheries become the subject of buy-back programmes. To avoid this kind of problem some countries have insisted that retired vessels be scrapped. In this way, capacity is clearly reduced but the approach tends to be expensive because the vessel owner cannot receive anything for the vessel itself. The entire value of the license must be reflected in the compensation received.

Giving priority to lightly-used licenses focuses in practice on potential capacity. Some buy-back schemes have taken this route directly by establishing rules in terms of the physical characteristics of the vessel. Since it is potential capacity that is being removed, it is to be expected that it will be less active licenses that will be retired.

Some buy-backs have tried to address the problem of skipper and crew re-deployment directly by requiring that those in receipt of buy-back funds leave fishing altogether. Whether this is a reasonable policy must be judged in the particular context under consideration but there appear to be a number of general arguments against it. First, if licence-holders are not fishers then it will not be effective. Second, skippers may simply pass on their skills through training or by selling their logbooks. Third, it may be difficult to enforce the rules. Fourth, there may be constitutional objections to the government preventing individuals from earning their living in certain ways.

The authors conclude that although buy-backs appear at first sight to offer an ideal way to reduce capacity thereby improving efficiency and conserving the fish stock whilst at the same time helping those fishers who wish to leave the fishery, in practice their ability to achieve the three objectives which are usually assigned to them is limited. They tend to be undermined, more or less quickly depending on technical conditions, by the problem of input substitution and latent licences.

Buy-backs are also likely to be of very limited appeal to most developing countries since they almost invariably involve significant expenditure by government. In developing countries the government generally attempts to manage fisheries so as to increase its receipts, rather than its expenditure. Looking at buy-backs as an investment, there seems little evidence so far that they pay off to their funders. The main gainers tend to be those who are able to leave the industry rather than those who stay. A revision of existing license schemes in the direction of more restrictive conditions and more effective industry participation would appear to be a pre-requisite.

8.4 The impact of other fishery management measures on capacity

Resource conservation measures may be successful on their own terms but may cause excessive waste of other inputs. Depending upon precise circumstances, conservation measures can act either to increase or to decrease the amount of capacity in a fishery.

Fisheries authorities which rely mostly on conservation measures for the management of their fisheries should assess their effect on fishing capacity. Fisheries authorities which are taking steps to introduce measures to control fishing capacity would eventually need to reassess the use of existing conservation measures in view of ensuring complementarity.

One common conservation measure is the total allowable catch (TAC). By limiting catch to the TAC level, the management authorities can allow the stock to re-build and can achieve stock conservation objectives. TACs are often used on their own following a simple approach: catch is monitored and/or estimated and once the TAC has been attained, the fishery is closed for the remainder of the season. The problem is that the TAC does not control the amount of capacity that the industry uses. If the TAC is successful in increasing stock size, then other things being equal profitability will increase and new entry will be encouraged into the fishery. The TAC will therefore be taken more quickly and the season will have to be closed earlier. In fisheries managed using TACs on their own, one typically finds that the closed season becomes longer and longer. In the US Pacific halibut fishery for instance the period during which fishing was allowed fell from over 300 days per annum to just a few days. The fishery has now been moved to individual quota management which is reversing the previous season restriction.

An alternative measure that may be considered is to allocate individual effort quotas. That is, each fisher is restricted in the amount of time that can be spent fishing each period. Obviously such a measure would have to be associated with a restriction on the number of fishers, otherwise it is clear that no control is placed on total potential effort. But even if the numbers are restricted, this method suffers the same drawbacks as a licensing scheme. It will only work if there is a clear and inflexible link between effort and catch, and if effort can be adequately defined. In practice, input substitution is likely to undermine this measure just as it may undermine licences.

Another approach may be to implement gear or vessel restrictions. Effectively by requiring fishers to use rather inefficient fishing methods some limit may be placed on physical capacity. However, even if it is successful in physical terms, this approach raises questions about its economic impact.

Closed seasons may be used either to protect the stock at critical periods, such as spawning, or as a way of limiting total catch (effectively in this case the closed season will be the obverse of a TAC). In both cases, if the closed season increases stock size and hence fishing profitability, it is almost certain to increase fishing effort and capacity in the open season. In exactly the same way as a TAC, the expectation is that the closed season will become longer and longer if an effective policy to control capacity is not implemented.

Similarly, closed areas may be used to protect the stock at particular times. Their impact depends on how effort re-allocates itself outside of the closed area and whether the closed area increases the stock size. In the latter case, the effect on capacity is likely to be similar to a closed season. One particular kind of closed area which has become fashionable is a marine reserve, which may be used to manage a fishery when it is difficult to use alternative management measures or to protect part of the stock as a kind of insurance policy if there should be a stock collapse due to overfishing outside of the reserve. Such a measure can be expected to be capacity-increasing (see Box 4 for more detail).

Mesh size limitations and related selectivity regulations are also used to reduce fishing pressure on juvenile stocks and to provide an opportunity of increased fish size and catch at a later time. Such measures have little affect on the long-term dynamics of overinvestment although they will generally decrease profitability in the short-term.

It should be noted that this section has analysed each of the measures individually assuming that they are the only measure used. In practice, fisheries policy comprises a whole suite of measures that are used simultaneously and this can change the picture. For instance, TACs, which worsen overcapacity if used on their own, are an essential part of an ITQ policy. Similarly, buy-backs under a licensing scheme, are unlikely to be very effective at reducing capacity whereas under ITQs they may be a very helpful way of quickly decreasing it to the desired level. The conclusion, therefore, is not that certain management and conservation measures should be avoided, but that States must develop an appropriate policy mix. Various conservation measures may be used at national and fishery levels, in connection with measures aimed at controlling fishing capacity. Fisheries management would generally require that an appropriate range of measures be implemented - generally on an adaptive basis, i.e. subject to periodic adjustments.

Upon the introduction of management measures which directly address the control of fishing capacity, the use of existing conservation measures would eventually need to be reassessed. If significant overfishing is occurring at that time on several stocks, conservation measures may be used initially with the aim of rebuilding these fish stocks. As this will generally mean a reduction of profitability for a fleet that may already be confronted with financial difficulties, this may prove a difficult endeavour in the absence of financial incentives to reallocate or scrap vessels.

Box 4: Marine reserves

The failure of fishery management measures in many instances has led to increasing interest in the idea of marine reserves as a way of sustaining or increasing harvests. A reserve is simply an area closed to fishing. One important objective may be to create a natural nursery area which will “export” fish to surrounding areas. The reserve may also help to prevent stock collapse if it preserves the genetic base and age structure of the population.

Marine reserves do not directly control catch, fishing effort or the efficiency of fishing effort. If other methods cannot be used, then marine reserves may provide a means to increase yields but they will never be the first-best measure for fishery management. The main problem with marine reserves is what happens to the fishing effort that is displaced from the reserve. Since a marine reserve will usually be put into place where other management measures cannot be used, it seems reasonable to assume that conditions of open access pertain to the area that is left open.

Analysing the impact of a marine reserve is a difficult modelling exercise since the result will depend on the migration characteristics of the population, the age structure of the population, the growth parameters of the stock, the vulnerability of the stock to fishing at different ages, the management regime in existence outside of the marine reserve, the cost of fishing, the discount rate, and the size of the marine reserve.

Hannesson (1998) constructs a logistic model to investigate the impact of marine reserves in situations where the age structure effects are not important. The aim is simply to conserve part of the stock. In order to be able to identify what effects are truly due to the marine reserve, he assumes that it is the only management measure in place, and that there is free and open access to the area outside of it. On this basis, he considers the results of a marine reserve compared to a pure open access fishery and an optimally-managed one. A number of conclusions emerge. Two key variables are the size of the marine reserve and the migration rate. It requires relatively large areas (around 80% of the total fishery area) for the marine reserve to push the stock size towards the optimum level. And the higher the migration rate, the closer the fishery comes to the open access level.

For average values of these two variables (a reserve of 40% of the total area and a migration rate of 0.5) he finds that the marine reserve has little effect on the stock size, catch and exploitation rates compared with an open access fishery.

He then considers a discrete time version of the same model, which allows the analysis of seasonal fisheries. By protecting part of the stock and assuming migration to the open-access area, one effect of a marine reserve will be to increase the size of the fish stock at the beginning of each season. This extra fish stock will generate intra-seasonal rents (i.e. revenues in excess of operating costs) compared to a pure open-access fishery. Fishers will respond to such rents in the usual manner - by investing in fishing capacity in an attempt to capture a larger share of rents (or to maintain the share they already have). In Hannesson’s model the level of such investment depends on three variables: fishing costs, fish migration rate and the size of the marine reserve. The lower the fishing costs and migration rate, the greater the impact on capacity. For given values of these two variables, the impact on capacity increases with the size of the marine reserve, and may be substantial. At the same time, the usual corollary follows: increasing capacity results in reduced fishing time so that the capacity would not be fully employed (at least not in the fishery with the marine reserve - it could spill over into another fishery).

In many ways therefore a marine reserve is likely to have similar effects to a closed season. The fish stock may be protected but most likely at the cost of significantly worsening the overcapacity problem.

Marine reserves require therefore support measures designed to restrict fishing effort and capacity. But this removes at least part of their appeal since they were supposed to be a management measure that could be used in situations where more traditional measures could not.

Holland and Brazee (1996) analyse the effects of marine reserves using a model that specifically takes into consideration multiple age classes and a stock-recruitment relationship. They demonstrate that marine reserves may be a method of sustaining or increasing yields in fisheries where effort is at high levels and cannot be reduced. However, they also point out that the initial impact of a marine reserve will be to reduce catch. It will take some time to increase as the stock size increases inside the reserve and feeds into the fishable stock outside the reserve. As a result, in judging whether it is worth implementing a marine reserve, the usual investment-type decision will have to be made: is the sacrifice made now worth it in terms of the pay-off in the future? The answer depends, amongst other things, on the discount rate used: the higher this is, the less it would be worth foregoing catch now, in return for catch in the future. From a policy point of view, such an effect may limit the appeal of marine reserves since they are often considered in situations where effort is high and cannot be reduced - yet typically discount rates are very high in such circumstances.

Holland and Brazee (1996) came to the same conclusion as Hannesson (1998) that reserves may have to be relatively large to be effective. They conclude that the higher is the effort level in the fishery, the greater will have to be the reserve if yield is to be maximised.

Overall, these analyses of marine reserves suggest that from an economic point of view they may have a positive impact on yield but that in doing so they may have an unintended impact on capacity. This possibility needs to be taken very seriously if marine reserves are to be included in a fishery management programme.

Marine reserves are often used for reasons other than pure fishery management: for instance, to maintain biodiversity, to maintain an area of pristine habitat or to attract tourists. Where they are to be implemented for these other reasons, their impact on the fishery needs to be considered.

8.5 Displacing fishing vessels outside of one's EEZ

The IPOA urges that States should ensure that no transfer of capacity to the jurisdiction of another State should be carried out without the express consent and formal authorization of that State.

Capacity reduction programmes in some countries may offer other countries a cheap opportunity to increase or renew their fishing capacity. If the buying country’s fisheries are being effectively managed, then it would make sense for this country to gain access to cheap inputs. One should note however that as in all such cases there will be winners and losers, even if there is a net gain. The choice of production technology will have been changed by the distortions due to the mismanagement of the selling country. It can be expected that these vessels may have been substantially subsidised to be built in the first place, to be disposed of, or both. Since there is no guarantee that cheap inputs will be available on a long-term basis, the buying country must verify that the changes in production technology choices do not have serious long-term effects. In many developing countries industrial vessels acquired in such a way have had significant impacts on local small scale and semi-industrial fleets. Should those who lose out be compensated? Or should all gains go to those using the new technology? This problem may be especially acute where capital is being substituted for labour. Developing countries in particular need to pay close attention to the social costs and benefits of acquiring cheap inputs, even if fisheries are well managed.

If recipient fisheries are near or above full exploitation, and poorly managed in the sense that they effectively remain under conditions of free and open access, then cheap inputs are unlikely to be beneficial since any lower costs of exploitation they may engender will be offset by increased levels of exploitation.

Fisheries authorities should assess the impact that a significant reallocation of their over-capacity to the EEZ of another State may cause and, if potentially detrimental, should take steps to discourage such transfers whenever possible.


9.1 Data requirements
9.2 The need for research

The administrative requirements for the monitoring and management of fishing capacity will depend on the management system adopted. In general States must ensure that the administrative system is sufficient to support the chosen system.

9.1 Data requirements

Fishing capacity should be monitored independently of the management system chosen. This will require the systematic collection of catch and fleet data.

Output is generally monitored on a systematic basis in most countries, at least as far as landings are concerned. Output-based management will require a far stricter control of vessel landings and catches, allowing for the monitoring of discards and bycatch.

With regard to inputs, the IPOA emphasizes that States should develop and maintain appropriate and compatible records of fishing vessels, further specifying conditions for access to information. Awaiting the entry into force of the FAO Compliance Agreement, it also calls for States to support the establishment by FAO of an international record of vessels operating on the high seas.

For the purpose of managing fishing capacity at national level, records of fishing vessels may contain basic vessel information such as: identification number; flag and port of registry; type; key specification (age, origin, length, horsepower, tonnage, etc.); ownership; gear type and main characteristics.

If fishing capacity is to be managed through input control, much greater emphasis will have to be placed on fleet statistical systems and fishing vessel records. Vessels and gear characteristics may need to be further specified. Fisheries authorities may also need to re-construct the history of the fleet over an extended period (date of construction and of major vessel/gear modifications, dates of entry into specific fisheries, etc.). In the absence of such information, it will be difficult and costly to examine long-term fleet dynamics - a requirement for the design of capacity management schemes in general and for input control in particular.

Management information will also need to be collected on a systematic basis in relation to each vessel. This would involve recording any authorisation that is specific to a vessel (e.g. catch quotas under IQs; authorisation to access specific zones and fisheries, gear limitation, entry-exit from various fisheries, etc.).

In general, one observes that inputs and outputs are generally monitored in a rather disjointed manner: with catch data, catch-effort data and fleet data being collected in such a way that it proves difficult to analyse input-output interactions and the dynamics of fleets in relation to the resource base. In Italy, for example, a rather sophisticated fleet monitoring system has been developed, which is quite useful as such, but fails to link information on inputs (technical and economic) and performances (catch, revenues) to specific fisheries. Even if this can be seen as the direct result of the management system in place in the Mediterranean, the system provides little information for use at the fishery level. This points to the need to monitor fleets in both ways: at national level in the form of establishing standard records and at fishery level in terms of monitoring vessels operation in and across fisheries.

Most countries have historically developed monitoring systems and complementary research facilities that emphasize improved knowledge of catches and the status of the resource base. Fisheries authorities may consider it useful to develop similar systems to monitor their fleets and improve knowledge of their characteristics and dynamics - both at national and fishery levels and in relation to changing resource, economic and regulatory conditions.

The direct or indirect control of investment flows and effort allocation requires an appropriate system of segmentation to define fisheries management units. The prevailing approach to sectoral segmentation is the fishery, defined on stock basis. Segmentation may also be applied to the overall fleet and to space (zoning). Segmentation approaches may be used on one or several bases to define capacity management units for the purpose of monitoring and capacity management.

Where the introduction of a capacity management scheme is contemplated, fisheries authority should assess and, if required, redefine the segmentation of the fishing sector as appropriate to the instruments to be employed.

9.2 The need for research

Overcapacity is an industry-level problem. Dealing with it will require a good understanding of the economic behaviour of fishing enterprises. States should facilitate research into the industrial and managerial economics of fishing enterprises so as to enhance such understanding and enable the development of measures to deal with overcapacity that are compatible with the economic strategies of fishers.

Fisheries institutions should provide more adequate support to research on issues related to the management of fishing capacity. Coordinated international research is also required, especially with regard to the development of tools and policy instruments which may be more appropriate for use by developing countries.

Throughout Part 2 of this document, suggestions have been made for areas that require further research if capacity is to be managed successfully. This section summarises the main areas where work appears to be required.

There appear to be four main areas where research would be particularly beneficial. The first concerns the measurement and assessment of capacity. Although progress has been made since 1998, additional work is needed to develop concepts, methods and coordinated application. Further investigation at international, regional and national levels should aim in particular at:

· assessing, in relation to fleet mobility, the significance and effects of international and national spillover of fishing capacity and developing methods for reducing such effects;

· developing fishing vessel technology coefficients to relate vessel efficiency over time and across gear type, thus allowing for the development of fleet profiles and their monitoring;

· conducting case studies on the measurement of fishing capacity (using various methods) and the determination of target capacity levels and paths, with a view to developing standard techniques and units of measurement as well as indicators, and considering explicitly in this context the case of small-scale fisheries and developing countries;

· developing more advanced methods for the systematic assessment of fleet characteristics and dynamics with a view to better understanding fundamental patterns related to fishing capacity;

· designing and implementing comprehensive fleet assessment programmes, using more advanced methods developed for this purpose, while ensuring the continuity of efficient resource assessment; and

· Assessing investment in fish harvesting capacity and sectoral dynamics, with emphasis on: assessing the evolution of capital intensity and related dynamics; and on describing the degree to which capacity issues in the processing industry, as well as market dynamics, affects capacity in the fishing sector.

A second area for empirical research is in the production function itself. It is clear that the issue of input substitution is crucial for capacity management, especially in situations where incentive-based control methods cannot be used. States need to sponsor research to provide understanding of the production functions in their major fisheries so that a coherent policy towards capacity management can be developed. As was pointed out above, it may be very difficult, if not impossible, to control capacity in a fishery which has very flexible production technology (inputs may easily be substituted for one another).

A third area where research is required, both theoretical and empirical, concerns management instruments. It is apparent from section 8 that countries have relatively few instruments from which to choose in the management of their fisheries. Theoretical research would be useful if it allowed the development of new options. Empirical research could usefully be undertaken on the adaptation of existing instruments to particular fishery management situations, for instance developing workable TURF or co-management systems for small scale fisheries.

Finally, far more work is required to understand the economic behaviour of fishers. The point has been stressed in this document that overcapacity arises due to rational responses by fishers to the economic incentives that they face. Far more work could usefully be undertaken to illuminate the incentives, both macroeconomic and sectoral, that fishers face in particular fisheries. The identification of such incentives would allow States to avoid counter-productive policies, which would already be a significant advance. The analysis of investment behaviour and tax policy presented by Jensen (1998) provides an example of the kind of research that could usefully be carried out in many countries.

More specific research topics of particular relevance for coordinated research to be undertaken at national, regional and international levels on fishery management methods and the management of fishing capacity are identified below.

· understanding the mechanisms, advantages and disadvantages of co-management and community-based fisheries management as frameworks for controlling fishing capacity;

· assessing the use of taxes and royalties in relation to the control of fishing capacity, with focus on impact, use and methods;

· conducting studies of buy-back programmes so as to ascertain the conditions under which they can be effective in decreasing capacity on a sustained basis; and

· managing fishing capacity for small-scale fisheries, with special reference to methods and approaches which may be most appropriate, and to community-based mechanisms in particular.


One of the difficult issues in capacity management is to prevent successful policy measures in one fishery from having negative repercussions elsewhere. In particular, capacity removed from one fishery may easily turn up in another fishery. This is a particularly vexing problem in high seas fisheries, where the fleet appears to be steadily increasing - partly no doubt in response to the reduction in opportunities within 200-mile limits.

The precise number of vessels fishing the high seas (with the exception of tuna vessels) is not known. The data which are available tend to under-report high seas catch because catches of coastal state vessels that fish beyond their 200-mile limit are generally nonetheless recorded as coastal state catch.

There have been some significant changes in high seas fishing during the 1990s. One important change has been the withdrawal from distant water fishing of the fleets of the former USSR. This has in turn led to a change in catch composition with tunas coming to represent by 1995, some 41% of such catches and 82% of their value. There also appears to be some increase in the use of open registers ("flags of convenience"), the assumption being that catches of such vessels are under-reported.

A number of international legal instruments address the issue of controlling fishing capacity on the high seas. In 1995, the 1982 United Nations Convention on the Law of the Sea was ratified. Under articles 116-120 of Section 2, States must co-operate with one another, through regional or sub-regional fishery organisations, to ensure the conservation and management of high seas living resources.

In practice, this conservation goal has tended to be undermined by the need to ensure equitable treatment of different countries. Under Article 116 "All States have the right for their nationals to engage in fishing on the High Seas..." and under Article 119 "States concerned shall ensure that conservation measures and their implementation do not discriminate in form or in fact against the fishermen of any State". As a result there is little incentive for existing States to rebuild fish stocks since the benefits generally get dissipated as new participating States cannot be prevented from taking a share of the catch under the above two articles.

Recognising the inadequacy of high seas fisheries management, the 1992 UN Conference on Environment and Development recommended that States convene an intergovernmental conference under the auspices of the UN. This led, in 1995, to the adoption of the UN Fish Stock Agreement. Member nations of the FAO also negotiated a Compliance Agreement which was adopted in 1993 by the FAO conference. Neither of these instruments has yet entered into force (as of November 2000). The IPOA calls for States to consider participating in both agreements.

The 1995 UN Fish Stock Agreement (Article 5, paragraph h) requires States to "take measures to prevent or eliminate overfishing and excess fishing capacity and to ensure that levels of fishing effort do not exceed those commensurate with the sustainable use of fishery resources". The extent to which reductions in capacity can be achieved in practice will depend on the ability and willingness of States to co-operate within regional fisheries fora.

In attempting to assess high seas catch and the capacity involved, two major problems are encountered:

- the absence of reporting requirements for catches beyond national jurisdictions;

- the fact that most States do not require vessels registered under their flags to obtain authorisation to fish in areas beyond their national jurisdiction.

Both of these factors have been addressed in the 1995 UN Fish Stock Agreement, part V, article 18. Once the agreement has been ratified, all vessels will require an authorisation to fish on the high seas and in return will be required to report the quantity and location of their catches.

Although under the 1995 UN Fish Stock Agreement, States would have to authorise vessels flying their flag to fish on the high seas, there is no requirement for them to pass details of authorised vessels to any centralised authority. The FAO Compliance Agreement addresses this issue in the form of requirements to make this information available to and through FAO (Article VI). The Compliance Agreement also contains provision on flag State responsibility (article III) with respect to the granting of vessel authorizations to fish on the high seas.

The situation may therefore improve with the ratification of both instruments, even if there is still a need to agree on an international standard for the measurement of fishing vessels.

The UN Fish Stock Agreement also requires coastal states and distant water states exploiting a straddling stock or a highly migratory stock to establish a regional fishery management organisation for the purpose of managing the resource on a co-operative basis. Such cooperation is essential for the rational management of transboundary fisheries. It is now well established in theory (and in practice) that if countries refuse to co-operate, the outcome is the same as, if not worse than, that which occurs in fisheries exploited under conditions of free and open access. Overfishing and overcapacity are certain to emerge. The situation may be worse because the theory suggests that countries will have an incentive to subsidise their fleets to try to establish a competitive advantage. As a result, a vicious circle of competitive subsidisation could easily become established, with the overcapacity that this implies. Active participation in regional fisheries management organizations by all States concerned is therefore essential as stressed in the IPOA. The IPOA also encourages multilateral cooperation to ensure participation by States which do not fulfil their responsibilities as flag states in this context (Article 33).

Once the 1995 UN Fish Stock Agreement is ratified, regional fisheries management organizations may take steps to change their articles of governance under their conventions to take into effect the provision of this agreement. The 1995 UN Fish Stock Agreement (Article 8, paragraph 4) states in reference to regional fisheries management organizations or arrangements that: "only those States which are members of such an organization or participants in such an arrangement, or which agree to apply the conservation and management measure established by such an organization or arrangement, shall have access to the fishery resources to which those measures apply". This paragraph should enable regional fisheries management organizations to insist on full participation by all States concerned. Although this does not confer regional fisheries management organizations with an authority to limit access, reference to the aforementioned Article 5 (paragraph h), may allow them to adopt such measure provided that this is done without "discriminating against any State or group of States that have a real interest in the fisheries concerned". The agreement also outlines dispute mechanisms that may be of use in facilitating implementation.

As per Article 29 of the IPOA, States are urged to participate in the 1995 UN Fish Stock Agreement and in the Compliance Agreement.

In remains the case that regional fisheries management organisations are generally ill-equipped to address the management of fishing capacity on the high seas. Many are primarily concerned with shared stock fisheries. Most are still largely underfunded and have neither the resource nor the mandate to address this issue. The tuna organizations seem to be an exception. Another issue is that not all high seas areas have established regional fisheries management organizations. It remains the case for large areas of the Pacific in particular. Finally, a large proportion of high seas fleets operate within the jurisdiction of more than one regional fisheries management organization. The strengthening of existing regional fisheries management organizations and the creation of new ones in areas where these could be effective would be a major step forward in the monitoring and progressive control of fishing capacity on the high seas.

Given the wide-ranging nature of high seas fleets, it is essential that regional fishery bodies improve co-ordination. The most detailed information currently exists for the tuna fishery because the various regional tuna commissions (International Commission for the Conservation of Atlantic Tunas (ICCAT), Inter-American Tropical Tuna Commission (IATTC), Indian Ocean Tuna Commission (IOTC) and the South Pacific Commission (SPC)) collect and collate data on catches and tuna vessels. The idea of a global coordination mechanism has been proposed since management measures, if they are to be effective, need to be applied wherever the species are exploited.

In the case of non-tuna high seas fisheries, the great mobility of vessels, both between oceans and inside and outside of 200-mile zones, makes it very difficult to assess capacity and also highlights the need for improved co-ordination between the various regional fishery bodies.

The agreements and measures discussed above represent an important first step in controlling fishing on the high seas. If they are to be effective in controlling capacity, it will be important for States to jointly establish measures aimed directly at controlling fishing capacity.

In principle, the technical difficulties of controlling capacity on the high seas are no different to those discussed throughout this document. The particular difficulties reside more in establishing an effective legal framework, and of ensuring compliance with regulations given the huge areas involved and the open register issue. Because spill-over effects are likely to be a particular problem, with vessels displaced from one fishery re-appearing elsewhere, if necessary by changing flag State, there is a requirement that States taking action to control their capacity should take into account the impact on other fisheries.

Fisheries authorities are urged to assess the effect of any possible transfer of fishing capacity to the high seas which may result from measures taken to manage capacity at national level. Close attention is particularly called for when significant buy-back schemes are undertaken.

The key to success in the management of high seas fisheries is clearly enhanced cooperation between exploiting nations and strengthened regional fisheries management organizations.


The problem of small-scale fisheries has been referred to in a number of places in this document. This section briefly reviews the most important issues that relate to capacity in such fisheries. A set of technical guidelines which deal specifically with the problem of the management of small-scale fisheries is being prepared by FAO.

A first point is that overcapacity clearly afflicts small-scale fisheries just as much as any other. Its nature may however be somewhat different due to high labour intensity. Capacity could for instance take the form of latent use in the sense that fishers can do other things (e.g. agriculture) and quickly switch to fishing if economic conditions warrant it.

In some circumstances, however, labour may prove to be as non-malleable as capital, in the sense that people may find it relatively easy to begin fishing but difficult to leave again.

The broad issues relating to capacity in small-scale fisheries are the same as those discussed so far. Capacity will only be limited if there is a direct or indirect control on entry to the small-scale fishery. The same instruments exist to control capacity but the extent to which they are applicable is likely to be quite different, although of course this will have to be judged on a case-by-case basis. It appears likely that many small-scale fisheries will be easier to control using spatial management measures, such as TURFs, rather than quantitative measures, such as IQs or even licences. In some cases, the most effective approach may be to reinforce traditional fishery management systems, perhaps by formalising them as community-based management. Organising small-scale fishers on a community basis may also make it possible to limit catch from the small-scale fishery on a global basis, with the community itself deciding how this catch is to be taken.

The examples of New Zealand and Madagascar discussed earlier make it clear that all components of a fishery must be included within a management system, regardless of how difficult it may be in the case of small-scale fisheries (commercial or recreational). Otherwise, economic gains which are made due to capacity control by the regulated parts of the fleet, may be undermined by increases in capacity in the unregulated parts. It is frequently the small-scale fisheries which are left as the unregulated part, with the result that a number of countries are finding their otherwise successful fishery management policy being undermined by expansion of the small-scale fishery. They are finding moreover that the expansion may occur very rapidly and may be very hard to manage once it begins.

Dealing with this problem does not necessarily mean reducing the contribution of one sector to the benefit of another. It points rather to the importance of integrating the diverse components of a fishery into a common management system from the beginning. The case of the Madagascar shrimp fishery is instructive in this respect. When analyses were undertaken of the fishery in the late 1980s, the conclusion was reached that little needed to be done about the small-scale sector as it was considered marginal, relying on traditional gear and with few prospects for expansion. In hindsight, it becomes clear that this reasoning overlooked the possibility that fishers may face new incentives to develop new and more productive fishing techniques, such as linking to the export market. As a result the small-scale fishery has expanded in a way that threatens a management system that has otherwise successfully managed capacity. The general lesson is that where the economic incentive exists, fishers will find a way to expand their capacity.

It is essential that small-scale sector interests and problems be addressed from the very outset when formulating fishery management plans. Two major issue areas require attention. First of all the interests of small-scale and industrial fisheries need to be balanced, especially if they interact. Secondly, for developing countries in particular, there is a need to avoid conditions of free and open access that invariably lead to the pauperisation of small scale fishers, when faced with very limited alternative employment.

The section on research suggested that new management instruments should be sought. This applies particularly in the case of small-scale fisheries where the current range of possible management instruments is very limited. Comparative research on the ways in which different instruments have been successfully used in different contexts would be very useful and might allow some kind of "best practice" to be identified. Much work is also needed in developing experiences of co-management or community-based management for tropical fisheries. Experiments could also be undertaken to investigate the possibility of applying existing methods to small-scale fisheries. For instance, the use of appropriate information technology may make it possible to use individual quota systems in some instances. It may also be the case that control of small-scale fisheries is best effected at the processing and marketing level rather than at the harvesting level.

In many countries, a first step would be to strengthen the organisation of small-scale fishers, to design thereafter possible management schemes in close cooperation with these organizations and to agree on experimental implementation. Developing countries where artisanal fisheries prevail are usually confronted with growing overcapacity but face severe lack of financial and technical means to address the problem. In these countries, donor assistance may prove useful.


There is little doubt that industry participation in the management of fisheries has received insufficient attention in most countries. This participation has generally been limited to an advisory role being played by industry representatives.

Given the nature of decisions to be made to manage fishing capacity, it would be advisable to strengthen the role of the industry in considering alternative approaches and in defining specific measures. Industry representatives should be able to advise on the industry’s likely response to different measures, and be able to suggest alternatives for dealing with the problem. Moreover, upon the introduction of capacity management measures, it would seem unavoidable that the industry will have to play an active role in implementation, with a progressive move towards some kind of co-management.

Fisher organizations are generally created to achieve various objectives: port management; joint-marketing; participation in credit schemes and other development efforts; defence of group interest (global or by areas or fleet segments). The way fishers are organized is important but not fundamental when the role of their organizations with respect to management is essentially of an advisory nature. In order to play an active role in the implementation of capacity management measures, fishermen may have to reorganize themselves along different lines.

If effective participation in the management of fisheries and of fishing capacity in particular is to be achieved, industry and fishermen organizations will have to be relevant to the management system that is implemented. The introduction of a new system may require some modification in the way major stakeholders are organized. Fisheries authorities should facilitate such a reorganization when required.

The precise role that industry should play will depend on the capacity management system. In progressing towards a co-management system some specific responsibility may be devolved to relevant industry and fisher organizations.

Another important issue is the prevailing climate which characterizes relations between the fisheries authorities and the industry. The fisheries authorities are generally seen by the industry as 'regulators' - and often as poor regulators. The fisheries authorities on the other hand generally consider the industry as being largely interested in short-term gains and in preserving the many advantages that they may have acquired under previous expansion policies. It may be important for States that are confronted with this situation to take major steps towards establishing a more constructive environment and eventually a real partnership with the industry.


Many of the world's fisheries are overexploited. This overexploitation has two dimensions: overfishing and overcapacity. In the past, fisheries policy has focussed almost exclusively on the issue of overfishing, but there is increasing international awareness, reflected in the IPOA, of the need to deal specifically with overcapacity, in order to ensure the sustainable exploitation of fishery resources. This document provides guidance on the way in which capacity can be controlled and, where necessary, reduced.

It is emphasized in the document that overcapacity arises initially due to the conditions of free and open access which have traditionally prevailed in fisheries exploitation. Management measures which have failed to take into account access issues have frequently made the overcapacity problem worse ("regulated open access"), even if they have achieved their own objectives. Consequently, policies to deal with overcapacity must necessarily include consideration of the access situation in the fishery. No policies will succeed whilst conditions of free and open access remain in place.

The document reviews the principal methods that could be used to control and reduce capacity. There are at present limited alternatives for the management of fishing capacity. Current experience in EEZ fishery management highlights two emerging and related notions: rights-based management schemes and active industry participation. With regard to shared stocks and high seas fisheries, the strengthening of regional fisheries management organizations should be considered a priority. And, in recognition of fleet mobility, increased international co-operation will also be required, starting with the effective implementation of relevant international fisheries instruments.

It is interesting to note that management measures that control fishing capacity will also tend to deal with the overfishing problem, but the reverse is not true. For fisheries that do not yet have overfishing problems, the key issue, therefore, is to introduce a management scheme as soon as possible to control capacity. The simplest and cheapest way of dealing with overcapacity is to prevent its build-up in the first place. Once fisheries are affected by both overcapacity and overfishing, management will be far more difficult because it will be necessary not only to control fishing capacity but also to reduce it.

The adoption of the IPOA on the Management of Fishing Capacity is an important step in the implementation of the guiding principles of the FAO Code of Conduct for Responsible Fisheries. The strengthening of fisheries governance is increasingly recognized by States as a fundamental requirement for the sustainable and responsible use of fisheries resources. The IPOA also signals an important change from standard fisheries management practice, which has typically sought to conserve specific stocks (or groups of stocks) considered in relative isolation, by using various methods to prevent excessive harvest and enhance the productivity of the stocks. Under the IPOA, the management of fishing capacity will finally become an integral part of fisheries conservation and management policies with emphasis being given to reaching a proper balance between investment (fishing inputs) and the productive potential of fish stocks.

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