3. SUBSIDIES AND FISHERIES AT THE END OF 2002: THE POLITICAL DEBATE

For reasons stated earlier, many of the recent discussions of fisheries subsidies has taken place in the context of the WTO. In 1999, five nations presented to the WTO’s Committee on Trade and Environment (CTE) a submission urging governments to pursue work within the WTO to achieve the gradual elimination of environment damaging and trade distorting fishery subsidies.^[156] There was then an extensive discussion at the CTE in October 2000 on that subject.^[157]

At that meeting, Japan questioned why the United States, in its presentation to the Committee, stressed fisheries subsidies when these subsidies were covered by the umbrella Agreement on Subsidies and Countervailing Measures. Japan argued that the technical analysis of fishery subsidies and their impact on fishery resources was the role of FAO; that the WTO should not be expected to do such work. New Zealand took the position that the WTO, given its expertise, had a key role to play with regard to subsidies.

At the June 2001 CTE meeting, Iceland, referring to FAO’s Expert Consultation of November/December 2000, stressed that subsidies affected trade whenever they had an impact on the volume of products traded internationally. Australia suggested that the WTO itself was the appropriate body to examine the question of how the WTO could contribute to the reduction of subsidies which promote overfishing. Also at this meeting, Japan emphasized that there were many factors that had deleterious effects on fish stocks, subsidies being only one of them, and that the quality of fisheries management had a major role in mitigating the negative effects of such factors as subsidies. Japan concluded that it was wrong to focus only on subsidies while neglecting other factors and therefore that Japan could not support the continuation of the sustainability discussions at the WTO. Chile complained that fisheries subsidies as an issue were never considered directly; yet concrete action was needed. The WTO, in the opinion of Chile, had exclusive competence for subsidies. Although the United States agreed that there was a need to consider the role of effective fisheries management, it felt that the need for the analysis of fisheries management should not be a reason for delaying the consideration of fisheries subsidies by the WTO. The representative of FAO noted that FAO’s Committee on Fisheries felt that "the study of the trade aspect of fisheries subsidies should be technical and be coordinated with the WTO, as the competent body." But the lead role in the "promotion of cooperation on fisheries subsidies and the relationship with responsible fisheries" should be taken by FAO.

The effect of subsidies on the trade in fish and fish products falls clearly under the WTO umbrella, to the extent that the WTO regulates international trade. Subsidies, in their effect on sustainability separate from any effect on trade, would not fall into the domain of an international trade organization. Yet, as has been noted repeatedly, there is great frustration with the apparent inability of existing arrangements to control overfishing. Because of the existence of strong enforcement procedures under the WTO, there is interest in determining whether there is a legitimate way for the WTO to become involved in sustainability issues. It is this interest that has led over the past three years to the discussions at the CTE meetings which were cited above.

In April 2002, eight countries submitted to the WTO’s Negotiating Group on Rules a document intended to orient discussions on fisheries subsidies, on purported gaps in the Agreement on Subsidies and Countervailing Measures concerning such subsidies, and on the role of WTO discipline with regard to fishery subsidies.^[158] The argument raised in this submission starts with the statement that often commercial fisheries are exploited or potentially exploited by more than one nation, either because fishermen from more than one country may operate in the same area or because the fish may migrate from one jurisdiction to another. As a result, the argument continues, fishery subsidies have implications for trade far beyond the distortion of competitive relationships. In most industries, subsidies that encourage production impinge on trade only at the market level, they have no effect on the trading partners’ ability to produce the good. With shared resources, a trading partner’s ability to produce fish products may be hindered if one country subsidizes the fishery to the extent that the resource is diminished.

Three implications are noted: (1) countries that do not subsidize and that restrain total catch to maintain the resource lose the extra catch to countries that subsidize and do not restrain total catch; (2) competition from subsidized distant water fleets can make it economically unviable for developing countries to develop their own fisheries and therefore to realize the benefits of their own 200-mile zones of fishery jurisdiction; (3) subsidies can contribute to stock depletion, with negative economic, trade and environmental effects for other countries that have an interest in the stock.

The argument continues, stating that the problems are exacerbated by the heterogeneous nature of fishery products, the diffuse nature of subsidies to the sector, and the inaccessibility of information on fishery subsidy programmes, all of which make it difficult to demonstrate the existence of market distortions in the fisheries sector. Therefore, while fisheries subsidies are subject to the Agreement on Subsidies and Countervailing Measures,^[159] the special features of fisheries limit the effectiveness of the policing powers of that agreement. "Improved WTO disciplines are required." In a counter-submission,^[160] Japan emphasized that to the extent that fisheries subsidies distort trade, the Agreement on Subsidies and Countervailing Measures is intended to remedy the problem and until it is demonstrated that the agreement cannot do so, no "jumping" to amend the agreement should occur. If there is a deficiency in the wording of the agreement, then the deficiency is not specifically related to fisheries.

The counter-submission queried how the limitation on access to a resource affects international trade. The submission then argued that the matter of resource depletion, either in the zone of exclusive jurisdiction, or on the high seas, is a question of effective fishery management and as such is a matter for the United Nations Convention on the Law of the Sea and its derivatives, not for the WTO. Essentially, and explicitly, Japan argued that there is no need to treat fisheries subsidies in a special fashion and, therefore, there is no need to change the WTO "discipline" because of factors unique to fisheries.

New Zealand has filed an explanation of the original statement of the eight countries.^[161] The focus of this submission is the heterogeneous nature of fishery products and the economic structure of the fisheries industry, and the view that these special characteristics of fisheries make it difficult to identify the trade distortions that the Agreement on Subsidies and Countervailing Measures was intended to rectify. Since fishing nations can be consumers and importers of fishery products as well as exporters, subsidized benefits to the domestic industry make it more difficult for the exporting country to compete in the market for fishery products in the subsidizing country. Countervailing duties are not relevant here because the subsidizing country is not necessarily exporting its fishery products.

The New Zealand explanation notes that because of the diversity of species, products, and processing techniques, it can be very difficult, or impossible, to establish the reference price of equivalent products for the purpose of evaluating the effects of fishery subsidies on trade. Other industries are so structured that unsubsidized reference prices form a basis for evaluating the effects of subsidies.

The submission of the eight countries appears to focus on three facets of the problem of fisheries subsidies:

1. Because of the heterogeneous nature of fishery products, the variety of fishery subsidies, and a lack of information about the subsidies, the usual WTO rules cannot be applied where they are appropriate;

2. Fish processors and fishermen in a subsidizing country are able to sell their fish in their own country cheaper than can unsubsidized foreigners. Unsubsidized foreigners cannot match the prices so they lose their export business in the subsidizing country. Therefore, international trade is interfered with and WTO disciplines should apply;

3. Where fishing by several nations occurs, as in the case of straddling stocks and highly migratory stocks, and one country runs down the stock by overfishing, then the other countries that fish for that stock have fewer fish to catch. If those other countries normally trade in fish, they can no longer do so because of an insufficient fish population. Once again, the overfishing, subsidizing, country is interfering with international trade and WTO disciplines should apply.

With regard to the first point, a lack of information is a widespread problem, not only for fisheries. It may be difficult to establish both the magnitude of subsidies in fisheries and their effect on international trade, although the United States International Trade Administration appears to have done so for a variety of fishery products from several countries. This would not appear to be an insurmountable problem under the current rules. Similarly, the United States International Trade Commission (ITC), in evaluating material injury to the domestic industry resulting from subsidized imports to the United States in countervail cases, must define the equivalent domestic industry. The focus here is on the production of like products. While there is always an element of arbitrariness in these judgements, the ITC does not seem to have excessive difficulty in defining like fishery products.^[162]

With regard to the second point, this again is not a uniquely fisheries issue. GATT and WTO have traditionally been concerned with the actions of exporting countries that interfere with international trade, often by distorting the price structure by means of, for instance, subsidies, and with the actions of importing countries that impose tariffs and non-tariff barriers (quotas), but not usually by other actions that lead to price distortion. The question raised here is whether there is a meaningful difference in the effects on international trade when importing countries, rather than exporting countries, subsidize prices. Perhaps the jurisdiction of the WTO should be expanded to include price distortions caused by importing nations. But such a major policy change, if necessary and agreed to, would only incidentally be related to the fishery, and the issue would be deserving of a wide discussion. If a change were made in the WTO disciplines with respect to fisheries on this matter, there can be little doubt that fisheries would be cited as a precedent and the change would be more generally applied. It is difficult to see how the WTO can act unless one assumes that it does so in every instance, in every industry, where a nation subsidizes an industry which faces import competition.

Yet, it is not clear that any expansion of WTO authority is necessary for action to be taken in such an import displacement case. Article 6 of the Agreement on Subsidies and Countervailing Measures declares a subsidy in one country that seriously prejudices the interests of another country to be actionable, that is, to be subject to WTO discipline. Serious prejudice is then considered to exist when a subsidy has the effect of displacing or impeding the imports into the subsidizing country of the products of the other.^[163] Apparently there has been only one successful case in this category, and that did not concern fisheries. Perhaps the reason that this part of the agreement is unused is that, if applied at all, it could be very widely applied and would in effect amount to an extension of WTO jurisdiction.

With regard to the third point, it may not be primarily a WTO issue. The United Nations Convention on Straddling Fish Stocks and Highly Migratory Fish Stocks has only just come into force. There are methods built into that convention intended to prevent overfishing. The trade implications of overfishing these stocks are secondary to the issue of sustainability. In the first instance, rather than stretch the enforcement role of the WTO, it has been argued that the convention should be given sufficient time to see if it is capable of providing an adequate framework for solving the problems it was intended to solve. Even were the WTO to enter this arena, it would have to establish that the stocks were being diminished as a result of fishing effort on the part of the subsidizing country. It would probably also have to determine that there was no excessive fishing by unsubsidized fleets as well. These would be very difficult tests to satisfy. It is possible that Article 6 of the Agreement on Subsidies and Countervailing Measures can be applied here as well as in the previous case, but this would be, to date, an untested aspect of the agreement.

In addition, in considering the issue of one or more foreign nations fishing legally within the 200-mile zone of a coastal state, the United Nations Convention on the Law of the Sea takes precedence over the WTO. Article 56 of the convention gives the coastal state the exclusive right to manage its resources within the exclusive zone. Article 62 instructs the coastal state to arrange for fishing within its exclusive zone by foreign vessels when the coastal state does not have the capacity to harvest the entire allowable catch.^[164] The issue of a coastal state permitting overfishing and then setting low catch quotas accordingly, is not an issue of international trade but of fishery sustainability. As such, correction of the problem lies within the framework of a possible auxiliary agreement under the Law of the Sea. The international trade implications of this situation, as apparently conceived by the eight nations, are minor compared to the sustainability implications. If the WTO were used as a framework for solving the problem, there are likely to be future implications for a range of other industries.