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Fisheries subsidies have an impact on trade
Fisheries subsidies have an impact on trade
FAO/19587/G.Bizzarri

Background

In recent years there has been a growing interest and concern regarding the widespread use of subsidies in the fisheries sector which has been generating international controversy and debate  taking place in the international arena at technical and policy levels, both influencing each other outcomes.

Many fishery managers and most economists see sustainability of fisheries and aquaculture as potentially undermined when governments grant subsidies. It is commonly held that some subsidies distort the conditions of trade in fish and fish products, favouring nations that provide such subsidies over those that do not. And, also it is accepted that these subsidies speed up the development of overcapacity and consequently threaten the continued well being of wild fish stocks, in the absence of effective fisheries management. The controversy over the importance and usefulness of subsidies in fisheries has been  fuelled by the fact that there is no universally accepted definition of exactly what government actions (or inaction) are to be considered as subsidies. The term subsidies can be broadly applied to a wide range of government interventions, or to the absence of correcting interventions, that reduce costs and/or increase revenues of producing and marketing of fish and fish products in the short-, medium- or long-terms. "Government interventions" include financial transfers or the provision of goods or services at a cost below market prices. "The absence of correcting interventions" includes failure by government to impose measures that correct for external costs (externalities) associated with fishing.

Another factor feeding the controversy in addition to the diversity of definitions, have been the difficulties in measuring the magnitude and effects of fisheries subsidies given the lack of available data, information and empirical studies on its use and effects. Furthermore, some of the controversy is no more than an extension of the differences in the manner in which countries use subsidies as a tool in their respective macro-economic policies.

In general, where the incentive for fishers remains one of catching available fish before others are able to do so, most subsidies appear to cause effort and fleet capacity to expand more than it would otherwise have done, which increases the pressure to overfish. And, overfishing leads ultimately to falling catches of fish through stock depletion, and perhaps even to a collapse of the stocks. Elimination of subsidies in badly managed fisheries is therefore highly desirable for reasons of conservation. However, in conditions where perfect control of effort prevails (a quasi impossible task), subsidies would probably result in increased profits rather than in increased fishing effort.

The causal link between subsidies and overfishing should not be taken for granted. Overfishing and subsidies may both be symptoms of poor management of the fisheries rather than there necessarily being a causal link between them. A well targeted subsidy may also have a positive impact on the aquatic ecosystem, reduce overcapacity (e.g. a well-designed vessel decommissioning programme) and may enhance the sustainability of the resource, depending on the purpose for which it is granted, the circumstances in which is given and whether unintended impacts have been avoided.

In summary, at the technical level much progress has been achieved from a theoretical and analytical point of view from work in such intergovernmental agencies as the World Bank, the Organisation for Economic Co-operation and Development (OECD), the United Nations Environment Programme (UNEP) and the Food and Agriculture Organization of the United Nations (FAO) and non-governmental agencies such as the World Wide Fund for Nature (WWF) focusing on fishery subsidies and publishing documents to bring the problem to the attention of the public.

At the policy level, fisheries subsides have started receiving increasing attention from both in governments and by civil society since as early as 1992 when FAO brought the world’s attention to this matter in its publication Marine Fisheries and the Law of the Sea: A Decade of Change in which some fishery subsidies were recognized as a stimulus to overcapacity and overfishing.  In May of that year, an International Conference on Responsible Fisheries met in Cancún, Mexico. Concerned with maintaining fish as a major source of human nutrition, the importance of preserving the marine environment, and problems of excess capacity in fisheries, the conference asked FAO to prepare what was to become the International Code of Conduct for Responsible Fisheries, approved by FAO member countries three years later.

Later in 1992, the Earth Summit was held in Rio de Janeiro. Although no direct mention of fisheries or fishery subsidies was made, the Rio Declaration on Environment and Development was broad enough to encompass problems of fisheries. In December 1995, the Kyoto Conference on the Sustainable Contribution of Fisheries to Food Security strengthened the call for responsible fisheries. The Reykjavik Conference on Responsible Fisheries in the Marine Ecosystem, in 2001, reinforced the urgency of the need for improved fishery science and monitoring to continue the implementation of the International Code of Conduct for Responsible Fisheries. Finally, the Fourth Ministerial Meeting of the WTO, held in Doha in 2001, resulted in an explicit directive to the negotiators in the subsequent round of international trade talks to “to clarify and improve WTO disciplines on fisheries subsidies, taking into account the importance of this sector to developing countries. The Plan of Implementation of the 2002 World Summit on Sustainable Development, held in Johannesburg, re-emphasized the Doha Declaration’s call for the WTO to act with respect to fishery subsidies making a call to eliminate subsidies that contribute to over-capacity, while completing efforts undertaken at the WTO to clarify and improve its disciplines on fisheries subsidies. The FAO voluntary international instruments IPOA-CAPACITY and IPOA-IUU adopted in 1999 and 2001 respectively called, inter alia, for the elimination of all factors, including subsidies, causing overcapacity and IUU fishing.

Hauling in the net
Hauling in the net
FAO/Danilo Cedrone

Possible solutions

Solutions lie on the appropriate use of fisheries subsidies. It is essential for governments, when considering the impact of any particular subsidy on sustainable resource use, to determine whether the subsidy actually causes the impact it is believed to have. This means tracing the effect of the subsidy on costs and revenues, then tracing the effect of the resulting profits on changes in fishing effort, and finally establishing the impact of the changes in effort on the biomass of the target stock or stocks.

Subsidies may also feature as part of a social support package for poor fishing communities. While recognising the legitimacy of social support in certain circumstances, these subsidies should be designed in a way that minimises the detrimental effects on efficiency and on the sustainability of the fisheries resources on which the communities depend.

In essence, there is broad agreement in the international fishing community that regardless of the definition used subsidies can contribute, in the absence of effective fisheries management, to generate excessive levels of fishing effort, and overcapacity, which will ultimately affect the sustainability of the fish stock. At the same time there is also large agreement on the side of  developing countries that, when appraising the role of subsidies in their fishery sectors, careful attention also needed to be given to their impact on the economic and social dimensions of sustainable development and, in particular, on their use as an instrument of economic policy aimed, among other objectives, at stimulating the sustainable growth of their national fishery sectors, at reducing and alleviating the poverty of fishing communities and households and at enhancing food security.

The decision over how to use of subsidies in fisheries rests ultimately with national governments which are at present engaged in related negotiations in the WTO.

Action taken

The international community is engaged in negotiating new disciplines governing the use of subsidies in the fisheries sector in the framework of the WTO Negotiating Group on Rules under the Ministerial mandate from Hong Kong that directs such group to “strengthen disciplines on subsidies in the fisheries sector, including through the prohibition of certain forms of fisheries subsidies that contribute to overcapacity and overfishing “and, as an integral part of the negotiations, to establish “appropriate and effective special and differential treatment for developing and least-developed Members”.

Outlook

Much progress has been achieved since the negotiations in the WTO were launched. In November 2007, the Chair of the group negotiating fisheries subsidies tabled a Chair’s draft text. The Chair’s draft proposes a broad ban on subsidies that contribute to overfishing and overcapacity. It also proposes general exceptions to the prohibitions for all WTO members and special and differential treatment (S&DT) for developing countries. However, the general exceptions and S&DTs are conditional on WTO members having in place a fishery management system designed to prevent overfishing. The Chair’s text proposes that WTO members who wish to grant a subsidy that would fall under the general exception or S&DT provisions must notify FAO of their management system. It is proposed that FAO then undertake a peer review of the management system prior to the granting of the subsidy. However, at this stage, it should be noted that the negotiations in the WTO are still under way. When the fisheries subsidies negotiations have been concluded, the agreed text will clarify FAO’s intended role and the nature of the peer review.

 
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