APPENDIXES

Appendix I: Glossary

Ad valorem tax

A tax that is a percentage of the selling price. An example of an ad valorem tax would be the Value Added Tax (VAT).

Cash flow

A record of an organization’s liquidity, i.e. cash income and cash payments in a given period of time

Depreciation

The decline in value of an asset due to wear, age or technological obsolescence over its economic life span. Depreciation applies both to tangible assets, such as inventory or machinery, as well as intangible assets, e.g. copyrights, licences or leases. For accounting and tax purposes, standardized methodologies for calculating annual depreciation costs are often used that do not necessarily reflect the true economic depreciation.

Direct Foreign Investment

Acquisition or construction of physical capital by a firm from one country in another country.

Equity capital

The equity of company is the funds that have been invested in the company by its owners. Government equity capital occurs when the government is the investor.

Exchange rate

Rate at which one currency may be converted into another. Also called rate of exchange or foreign exchange rate or currency exchange rate.

Fisheries industry (as opposed to public administration)

All productive sub-sectors of the fisheries and aquaculture sector comprising recreational, subsistence and commercial fishing, and including the harvesting, processing, and marketing sectors.

Fixed asset

A long-term asset that is not expected to be converted into cash in the current or upcoming fiscal year. Fixed assets can be both tangible assets, such as fishing vessels, processing plants and real estate, as well as intangible assets, e.g. goodwill, patents and share holdings.

Fixed costs

Production costs that do not vary with the output quantity. Fixed costs could include building or office rent and marketing costs.

Gross margin

Gross margin is a financial ratio describing the gross profit. It is expressed as a percentage and is calculated as the gross income (operating income before depreciation) divided by total sales.

Inter-bank offer rate

The interest rate that the largest international banks charge each other for loans.

Internal rate of return (IRR)

IRR is a financial ratio expressing the net present value of expected future cash flows as a percentage of an investment. In financial analysis, IRR can be used for evaluating the return on an investment and to compare different investment options.

ITQ (Individual Transferable Quota)

A type of quota (a part of a Total Allowable Catch) allocated to individual fishermen or vessel owners and which can be sold to others.

Market prices

In economic terms, the market price is the price at which the market is in equilibrium, i.e. at which supply and demand converge. In more general terms, the market price is the price at which products and services are generally available to consumers in a market economy.

Opportunity costs

The benefit foregone by using a scarce resource for one purpose instead for its next best alternative.

Overhead (costs)

The ongoing administrative expenses of a business, such as rent, utilities, and insurance.

Profit margin

Profit margin is a profit ratio expressing the profit as a percentage of total sales. It is calculated by dividing income before extraordinary items and interest expenses by total sales.

Shadow prices

Any distortion of a free market price that is made in order to reflect the real scarcity value of goods or services, including labour. If no market price exists, this is the unobserved hidden or implicit price that is derived through inferences.

Usury rate

An illegally high interest rate on a loan.

Value-added

The value that has been added to a good through production or processing, i.e., the value of the final good minus the costs for buying raw materials and intermediate goods.

Variable costs

Production costs that vary with the quantity of output. If output increases, then the variable costs will increase.

Appendix II: Other subsidy classifications

There are many ways of classifying subsidies and also many possible subcategories available. Some of the main aspects found in the literature according to which subsidies can be classified are:

· Modalities

Classification according to how the subsidy works, i.e., what mechanism it has in the fisheries sector. In their report on subsidies and support programmes in the APEC countries, PricewaterhouseCoopers (2000, page 8) has developed a list of six modality categories, i.e.:

- Direct assistance to fishers and fish workers
- Lending support programmes
- Tax preferences and insurance support programmes
- Capital and infrastructure support programmes
- Marketing and price support programmes
- Fisheries management and conservation programmes

OECD also classifies subsidies (GFTs) according to how the transfers are implemented, i.e., as Market price support, Direct payments, Cost reducing transfers or as General services. The latter covers the subcategories fisheries management, enforcement and research (OECD 2000).

· Application

Classification according to where in the fisheries sector the subsidy exists. PricewaterhouseCoopers (2000, page 9) defines three subsectors, i.e., Capture fisheries, Aquaculture and Fish processing. In cases where the industry is vertically integrated to a high degree, it may at times be difficult to clearly define the limits between the different subsectors.

· Origin and specificity

Classification according to which government body is funding the subsidy - a fishery specific department or institution such as the Ministry of Fisheries, or one not directly related to fisheries - and whether the subsidy is specific for the fisheries sector or available also to other sectors. Subsidies can also be divided into local, national or regional subsidies. Milazzo (1998) reports on two types of “cross-sectoral subsidies”: aid to shipbuilding and infrastructure development. Support to an underdeveloped geographic region, such as the Norwegian Industrial and Regional Development Fund, is an example of a subsidy benefiting the fisheries sector even though not targeting it directly (EEC 1997). A change in monetary policies, e.g., of interest rates, or in tax rates also affects the fisheries industry even if the intervention is general and originates outside the fisheries sector (Schrank and Keithly Jr. 1999).

· Small scale vs. Large scale

Classification according to the monetary importance of the subsidy, either with regard to the total public expenditure or the benefits to single operators (PricewaterhouseCoopers 2000).

· Short- vs. Long-term

Classification according to within what time frame the subsidy is affecting the profitability of the industry. Subsidies implying changes in capital usually mean long-term effects. However, the issue is complex and, for example, a scheme subsidising investment in fishing vessels will have a long-term effect on the profitability of the industry since it implies a change in capital. At the same time, it is known that with an increasing total fishing capacity, the rents from the fishery - and hence its profitability - will eventually diminish and in a further perspective the impact of the subsidy on profitability may be negative (Schrank and Keithly Jr. 1999). Moreover, subsidies are likely to have more implicit effects on efficiency in general and short-term effects on profits will over time translate into the overall economic sustainability of the activity.

· Budgetary vs. Non-budgetary

Classification according to whether the subsidy is identifiable in the Government budget, e.g., the budget of a fisheries agency or department, or un-/under-budgeted, for example subsidized lending or tax preferences. This latter category may also include subsidies from non-fisheries agencies (Milazzo 1998).

· “Normal” subsidies vs. Conservation subsidies

Classification according to whether the subsidies tend to increase production, e.g., the harvesting capacity, or whether they favourably affect the environment, aiming at decreasing fishing operations and enhancing the resource base. The former are often called “bad” subsidies while the latter are commonly considered to be “good” (Milazzo 1998).

· Positive vs. Negative subsidies

Classification according to whether it is a positive subsidy that tend to increase the industry’s profitability, e.g., a grant or a loan guarantee, or a negative subsidy reducing profits, e.g., taxes. It should be noted, though, that a subsidy that is negative to the fishing industry would be expected to be positive to society as a whole through positive effects accruing to other sectors. Likewise, externalities resulting from subsidies in other sectors can be negative subsidies for the fisheries industry (Schrank and Keithly Jr. 1999). Individual negative and positive subsidies sometimes cancel each other out. For example, a government levy on landed fish could be classified as a negative subsidy but if it finances a fish price support scheme of which the benefits accrue to the fishers paying the levy, the two programmes together constitute a self-financing activity rather than subsidies. Still, the government regulations supporting the activity can be classified as a subsidy since this is a government intervention affecting the profitability of the industry.

· Cost reducing vs. Income increasing

Classification according to how the subsidy influences the profitability of the industry. In a communication to the WTO, the United States differentiated between Subsidies that reduce capital (fixed) and operating (variable) costs, and Subsidies that support incomes and prices (WTO Committee of Trade and Environment, 1999/2000). This classification can be further broken down and subsidies classified according to what type of earnings and costs that are affected by the subsidy.

Appendix III: More examples of possible subsidies of different categories^[18]