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6.1. Government cost and industry value - some principles

Already in chapter 5 above, when discussing the four different categories of fisheries subsidies, the notions of “cost - or revenue - to the government” and “value to the industry” were mentioned. In this section, we will look closer at these concepts and try to establish how we can measure subsidies, i.e. how we can assign monetary values to fisheries subsidies. The reason for wanting to do so is to allow us to make more quantitative analyses. We may want to be able to say how much of the profits generated by the fisheries industry that can be linked to subsidies or how much money from the public budget that is spent on the fisheries sector. Chapters 7 and 8 below give more details on examining industry profits in relation to subsidies and discuss comparative analyses, respectively. In this chapter, we will look at different methodologies and practices for valuing individual subsidies of different types.

First we need to clarify the concepts of government cost (or revenue) and industry value. The Guide’s definition of subsidies is centred on the impact a subsidy has on firms’ profits and the value of a certain subsidy for the industry could thus be defined as this change in profitability that it has provoked. For the government, the value may be something quite different, corresponding to the public expenditure including direct and indirect administrative costs for operating and managing the subsidy. Accordingly, the government cost - or revenue, if a negative subsidy - and the value to the industry of a certain subsidy may be different and to understand the economic value of a subsidy, we should look at both aspects.

To measure the impact on profitability that a subsidy has is not an easy task and we need to make some assumptions. The main guiding principle for the assessment of the industry value is based on the assumption that all positive subsidies are beneficial to the industry and that if governments did not provide them, the industry would either have to or want to pay for them itself. Hence, all positive subsidies have a positive value to the industry. This is of course a simplification of a much more complicated analysis. It could, for example, also be argued that if the support provided through subsidies was necessary for the industry, the industry would pay for it itself already and the subsidies would not be needed in the first place. Moreover, somewhat different arguments would need to be used for certain subsides such as border measures, fisheries management, free resource access and of course for negative subsidies. Nevertheless, the Guide suggests that the value of a subsidy accruing to the industry is most accurately estimated as the cost that the industry would have to pay on commercial terms for obtaining the same service or good and that this principle should be utilized whenever possible.

With regard to the value of fisheries subsidies expressed as the cost (revenue) to the government, the assessment has to be based mainly on information from the public budget, except for in the case of foregone revenues (e.g. tax rebates) which are generally not included in the budget and will have to be assessed separately. Moreover, it is important that the cost of a subsidy is evaluated not only as the financial transfer it may entail - in the case of a grant for example - but that also the administrative cost to run the program or implement the regulation is included. This implementation cost includes personnel cost and other operational costs incurred by, for instance, fisheries administrations or other government agencies dealing with subsidies reaching the fisheries sector.[6]

For some types of subsidies, in particular those belonging to Category 1 and consisting of direct financial transfers, assessing the value according to these principles may be a relatively easy task. It is probably fair to assume that the approximate value to the industry of an investment grant corresponds to the amount of the grant plus the interest rate it would have cost to borrow the same amount of money on commercial terms. For the government, the expenditure would consist of the grant itself and the administrative cost related to its distribution. Other subsidies are more difficult to assess, in particular with regard to deciding the value the subsidy represents to the industry. The value is the change in profits but this change should be measured compared to what? Disregarding various economic theory considerations[7] and taking a practical approach, it is suggested that the change is measured as the difference between a situation with the particular subsidy and a situation without it. This approach is also in line with how we identify fisheries subsidies, i.e. by the definition of benchmarks representing the “normal” - non-subsidy - situation. Accordingly, in cases when the subsidy means offering services or goods at a price different from an existing market price, such as favourable loans at low interest rates or a decommissioning program paying for vessels to be scrapped, the real benefit to the industry consists of the difference between the price offered through the subsidy measure and the market price the industry would have paid or received for the service or good had the subsidy not been available.

For subsidies for which there exist commercial alternatives at market prices, the calculation of the value of the subsidy is hence relatively apparent. Also subsidies such as tax rebates that clearly represent a situation where the fisheries industry is treated differently from industry in general are fairly uncomplicated to assess. The value to the industry would in such a case be the difference between the tax actually paid and the tax that would have been paid had there not been a subsidy. Here the benchmark is not the market price - because there is no market price for taxes - but the normal tax rate. The cost to the government should be calculated as the revenues foregone owing to the scheme plus any additional cost involved in administrating the scheme.

As already noted, the situation becomes much more complicated when we look at areas such as fisheries management and resource access, typically some of the services included in Category 2 as well as Categories 3 and 4 subsidies that include longer-term effects or government inaction. For some of the former, i.e. services provided by the public sector in Category 2, we may know the cost to the government but what is the value of the service to the industry? Here the principle of market prices and norm values cannot be used, simply because there are none. In these situations, we may want to assess the actual impact on the profits of the industry, generally in the form of increased revenues. For example, if we can estimate the value of increased sales of fishery products owing to an “Eat Healthy Food” and fish consumption campaign, the value of this campaign to the industry would be the increase in net income thanks to the improved sales.

However, this type of calculation is often a cumbersome exercise requiring a substantial share of research that is not always a practical option for our fisheries subsidies study. Hence, in these cases we may need a proxy for our estimate and the Guide suggests using the cost to the government - if known or estimated - also as an estimate of the value to the industry.

Box 4: Theory and practice

In the agriculture sector, various methods have been developed for measuring subsidies in relation to trade distortions. One tool commonly used is the Producer Subsidy Equivalent (PSE) which has been the basic Aggregate Measurement of Support (AMS) in GATT/WTO trade negotiations. According to the OECD, “the PSE is an indicator of the value of the transfers from domestic consumers and taxpayers to producers resulting from a given set of agricultural policies, at a point in time” (Silvis and van der Hamsvoort 1996, page 529). It would naturally be interesting to use this type of measurement also for the fisheries sector. However, work by OECD (1993) has shown that due to the characteristics of the fisheries industry, the PSE is not a valid indicator for fisheries subsidies. Generally, in other sectors, the benchmark against which assistance and related trade distortions are measured is a situation of no government intervention, which corresponds to a situation of economically efficient allocation. In the fisheries sector, this benchmark situation of efficient allocation is much more difficult to assess as market failure is inherent to an open access fishery, implying that efficient allocation will only occur in a situation with government intervention. Moreover, it is difficult to establish external reference prices as well as domestic prices for raw fish - parameters required for the PSE model - because fresh fish is highly perishable and heterogeneous, and as a high degree of vertical integration is often found in the sector (OECD 1993). In addition, the restrictions to access by foreign vessels to domestic fishing grounds and to port facilities constitute a common public support in the fisheries sector that the PSE model does not take into account (Munk and Motzfeldt 1993).

No other single assessment methodology has been found and instead a variety of approaches is being suggested by the Guide for assessing the different types of subsidies. When identifying these approaches, attention has been given - to the extent possible - to their practicality, i.e. the methodologies recommended should be workable and give results easy to understand and verify. Hence, for example, shadow prices and opportunity costs have generally been excluded and it is the most direct effect that is measured, largely ignoring second-stage consequences. This approach could be considered unsatisfactory from a theoretical point of view but it is believed necessary for practical reasons.

There are unfortunately also cases when there is no easily estimated government cost to use when we have problems estimating the value to the industry. As we have seen in chapter 5.5 above, Category 4 subsidies do not incur costs to the government because they are non-interventions[8]. In these situations, we may have to turn to the use of standard or conventional values in order to quantity the impact of the subsidy on industry profits. An example of this type of situation, which is discussed further below, is free access to resources. If the industry is allowed to fish without paying for this access to a natural resource - or it is paying a fee that is considered below the actual value of the resource access - we may want to define this privilege as a subsidy and cost it in proportion to the value of the catches, using an estimated standard rate.

Before moving on to looking at examples of how to value different types of subsidies in the next chapter, the main principles for how to assess fisheries subsidies are summarized in Figure 8.

Figure 8: Summary of main principles for assessing fisheries subsidies


1. The corresponding market price value, if available, of the service or good provided through the subsidy. For investments, the financial cost (i.e. corresponding to commercial interest rates) should be included.

2. The normal rate or situation applicable to other industries and to the economy in general (e.g. tax rates, acceptable pollution levels, etc.).

3. An estimate of the net income effect of the subsidy, if there is no applicable market price or norm value.

4. The public cost, if there is no applicable market price or norm value, and an estimate of the net income effect is not possible.

5. A standard, conventional, value related to, for example, turnover, if no other value is available.


1. The actual budgetary expenditure, when available.

2. Foregone revenues, when applicable (e.g. tax rebates).

3. Related administrative costs including personnel costs and a proportionate share of overhead costs.

6.2. Assessing different types of subsidies

6.2.1. Presentation of subsidy examples

Having looked at some general principles for how to assess fisheries subsidies, we will now discuss different types of subsidies in more detail. The text is organized in bullet points according to the main groups of subsidies that we are likely to come across and approximately following the structure of chapter 6.1, i.e. starting with some of the most direct Category 1 subsidies. Additional information on particular methodological issues and examples - using an invented country called Seidisbus - are given in boxes. These examples are summarized in Figure 9 at the end of the chapter.

6.2.2. Investment grants

An investment grant program is probably one of the most obvious examples of a direct financial transfer subsidy of Category 1. These schemes are commonly used for the purchase or modernization of equipment and facilities, having improved competitiveness through more efficient production as an objective. They generally benefit investments in fishing vessels or in the processing industry but can also be found in other parts of the sector, for example, in the input industry for shipbuilding or in the aquaculture subsector.

Box 5: Investment grants - An example

In the country Seidisbus, the Department of Fisheries operates a scheme through which aquaculture producers can apply for grants for improving their fresh fish storage and transport facilities. In the year 2000, a total of 25 aquaculture firms applied for and received funds for investments in cold storage and insulated trucks for a total amount of US$ 700 000. This was a somewhat lower amount than what had usually been given out during the last few years. The market interest rate that would have been charged by commercial banks for giving loans for this type of investment was 15%. According to generally accepted accounting practices, the economic life span of the equipment was estimated as seven years.

In a fisheries subsidies study in 2000, the government cost of the investment grant scheme was estimated as the total amount of the grants disbursed plus administrative costs (part of the Aquaculture Unit’s budget), i.e.: 700 000 + 70 000 = US$ 770 000.

The value to the industry in 2000 was calculated as 1/7 of the total amount of the grants received in 2000 (cost allocated over seven years) plus 1/7 of all grants disbursed in the previous six years plus a 15% financial cost: 14 000 000 (total amount of grants 1994-2000) divided by 7 + 15% interest = US$ 2 300 000.

The value to the industry of this type of subsidy scheme consists of the value of the grant itself plus an estimate of the interest it would have cost to finance the investment commercially. Generally the investments are in fixed assets for which the cost is allocated over a depreciation period of several years and the annual value to the industry should be calculated accordingly. The length of the depreciation period should be based on the expected economic life span of the type of asset in question. We may also want to consider the effect of inflation and the change of monetary values over time and calculate the present value of the depreciation cost for the year of our study.

6.2.3. Vessel decommissioning programmes

Programmes involving financial transfers for reducing fishing capacity are used in many countries. These schemes involve financial compensation for scrapping or exporting fishing vessels to third countries. The effects on the profitability of the industry of such programmes are complex and depend on how exactly the scheme is designed and implemented. If the scheme is used to facilitate the exit - for example the retirement - of individual fishers from the industry, the benefits will accrue to the remaining operators through the sharing of existing resources between a smaller number of actors and thus improve their productivity and profitability - assuming that the decommissioning grant is not at all used for reinvestment in the sector and that there are no new entrants into the fishery, replacing those that left. In the longer term and if the decommissioning scheme has entailed a sustainable decrease in real fishing effort, the effect may also be felt through better catches thanks to an improved resource base. This scenario is of course assuming that overcapacity and overfishing were problems in the first place.

If the decommissioning grant is instead reinvested in the sector, the subsidy would mean a more direct capital injection into the industry that can be used either for covering operating expenses or for other investments and could be considered a Category 1 subsidy. The effect on productivity and catch volumes will depend on the impact of these expenditures on the total fishing effort and the state of the resources. If the decommissioned vessel is not scrapped but transferred into another fishery, its effect on this other fishery also has to be considered in order to assess the total effect of the scheme on the fishing industry as a whole.

Accordingly, a vessel buyback or scrapping scheme can have a value to the fishing industry in several ways depending on the characteristics of the particular program. There are values created to the industry in the form of the increased resource base left for the remaining fishing vessels to exploit in addition to the compensation payments paid for the scrapped or exported boats. The direct financial transfers made in connection with buy-back programmes are classified as Category 1 subsidies. If the price paid for the vessel by the government scheme is higher than the market price that could have been obtained had the vessel been put on the market, this surplus constitutes the value of the subsidy to the industry. The cost to the government would be the actual payments plus any related administrative cost. The more implicit resource related effects are better reviewed in the context of Categories 3 and 4 subsidies. These effects can be immediate or in the longer term and are related to the value of free access to resources. There can be either an explicit increase in quotas for these operators or an implicit possibility to catch more fish thanks to less competition.

Licence, permit and quota buyouts are similar schemes likely to have comparable effects as the decommissioning programmes, depending on the particular conditions and circumstances. In the processing sector, equivalent schemes exist for factory rationalization, i.e. incentives for reducing capacity. Retraining programmes - for fishers or other employees of the sector - with a view to facilitate their redeployment in other industries, i.e. outside the fisheries sector, are measures that also aim at reducing the capacity of the sector.

6.2.4. Equity infusions

Depending on circumstances, we may want to consider government provision of equity capital as a Category 1 subsidy. If the economic system of the country features a high degree of public intervention in the productive sector in general, partly or fully state-owned enterprises also in the fisheries sector - e.g. hatcheries, ship wharves or fishing companies - would be normal and state capital equity infusions should probably not be included in our fisheries subsidies study. Also, if the state capital investment is consistent with usual investment practices and is made on commercial terms, there is likely to be no cost to the government nor any value to the industry - comparing the terms on which the state investment is made with the conditions of the capital market - and hence the event cannot be defined as a subsidy. However, the issue of state capital equity and state-owned enterprises is complex and further definitions are proposed in Box 6.

Box 6: Defining state capital equity subsidies

To decide if a government equity infusion should be considered a subsidy, we usually look at whether the investment has been made on commercial terms or not. However, the situation can sometimes be confusing and to facilitate the assessment of state capital equity subsidies, the below procedure is suggested. The criteria we are looking at include whether the receiver is a company or not, whether the investment is in the form of equity and if it is made on commercial terms.

Step 1. Define whether the receiver of the investment is a company or not (as opposed to a government institution or department):

It is a company if:

- It carries out commercial activities
- It has a legal form that could also be (entirely) private
- It is a tax payer

Step 2. Define whether the investment is in the form of equity or not (as opposed to a loan or a grant):

It is equity if:

- It appears in the balance sheet as equity of the company in question
- It appears in the balance sheet of the public accounts as a non-depreciable asset (e.g. as a share holding)

Step 3. Define whether the investment is commercial or not (as opposed to for non profit reasons):

It is commercial if:

- Return on the investment is required (and dividends - or similar - have been received by the state during the last 5-year period)

- The investment itself has been made on commercial terms and is consistent with private sector investment practices

With regard to the assessment of the subsidy, it is suggested that:

1. If the investment has been invested in a company as equity for commercial purposes:

The cost to the government is nil except for administrative costs.

The value to the industry equals the financial opportunity cost, i.e., how much would it have cost to borrow the same capital? The annual value of the subsidy is calculated as the estimated interest cost at market rates for a loan equalling the state equity of the company.

2. If the state capital has been invested in a company as equity but not for commercial purposes:

The cost to the government is the actual amount of the capital invested (to be reported in the year of disbursement in the same way as a grant subsidy) plus administrative costs.

The value to the industry is the financial opportunity cost.

3. If the state capital has been invested in a company but not as equity and not for commercial purposes:

The cost to the government is the actual amount of the capital invested plus administrative costs.

The value to the industry is the actual amount of capital invested as well as the financial opportunity cost (i.e. the same as a grant).

4. If the state capital has not been invested in a company and not as equity and not for commercial purposes it is not a state capital equity subsidy measure (but may constitute another type of subsidy).

6.2.5. Income support and unemployment insurance programmes

There is a variety of income support schemes and unemployment insurance schemes for fishers. Some of these are part of general social insurance schemes while others are specifically designed for fishers. The schemes can be co-financed by contributions from the fishing industry or be publicly funded. Some examples are:

Generally, these schemes belong to Category 1 and their value to the industry correspond to the difference between the actual income fisheries employees receive with the schemes as compared to how much they would have received without them. Industry contributions - or contributions directly by the employees, other than ordinary income tax or other obligatory fees not specific to the fisheries sector - should be deducted to arrive at the net value of the subsidy to the industry.

Box 7: Income guarantee scheme - An example

In our invented country Seidisbus, the fishers in the semi-industrial and industrial fisheries are organized in a Fishers’ Association that administers various matters on behalf of the fishers and represents them in different contexts. The Association collects fees from its members to pay for its running costs but there is also a number of support schemes for which the Association receives funding from the government. For example, there is an Income guarantee scheme that compensates fishers for loss of income during periods when fishing fails that is financed at 90% by the state. The scheme guarantees a monthly income of US$ 500. During the year 2000, a total of US$ 500 000 was paid out under the scheme.

In the 2000 fisheries subsidies study, the cost of the scheme for the government was calculated as 90% of 500 000 = US$ 450 000. No overhead or administrative cost is considered because the Association manages the scheme and the administrative cost of the Ministry of Fisheries for disbursing the funds is minimal.

The value of the scheme to the industry is considered equivalent to the US$ 450 000 received from the government and disbursed to the fishers.

6.2.6. Price support

Market price support can take several forms and is defined by OECD as occurring when the domestic price of a product is higher than the world price as a result of government policy (OECD 2000). Price regulation systems such as those in place in, for example, the EU and Norway are Category 1 subsidies. Through these systems, compensation is given to fishers whose fish does not reach an established norm price. Price compensation systems can be financed, at least partly, by the industry itself through levies on landed fish. The subsidy’s value to the industry is the actual compensation paid out assuming it equals the difference between the amount the fisher would have received had there not been a price support scheme and the total amount the fisher has received with the scheme. If the program is co-financed by the industry, the industry contributions should be deducted in order to arrive at the net value of the program. If a government body administers the program, the cost of the scheme to the government should include an estimated administration cost in addition to the total compensation payments.

Box 8: Positive and negative subsidies

Care should be taken to understand situations where positive and negative subsidies are combined. When there are industry contributions to support schemes and subsidy programmes, these should be deducted from the gross public cost and from the calculated industry value to arrive at the net public cost and the net value to the industry. However, it is usually good practice to show both the gross and net values in a fisheries subsidies report.

A price support could of course also take other forms and could concern, for example, inputs to the fishing or aquaculture subsectors, e.g. drugs needed for breeding of fish or support for the production of a certain gear. Price support also exists with regard to transport costs, often with the objective to reduce disadvantages in remote areas and forming part of regional development programmes.

6.2.7. Export incentives and other market interventions

The marketing side of the industry - both regarding domestic sales and exports - can be supported in many other ways other than by direct market price support, e.g.:

Box 9: Depreciation costs

In some countries, there are guidelines and standards for how annual depreciation plans should be calculated based on estimated economic life spans for various types of investments and capital expenditures are allocated over time with annual depreciation costs reported in the public accounts. When available and found to reasonably reflect the likely economic depreciation, we should use these accounting standards for estimating the government cost of fisheries subsidies containing fixed assets. However, in other countries, the government accounts are based on a cash accounting principle and do not include costs for depreciation; the investment is accounted for in its totality at the time of expenditure. In other cases, the depreciation cost reported in the accounts is not based on the expected economic life span but is an accounting or fiscal depreciation cost. This may make it difficult to estimate the annual depreciation cost for our fisheries subsidies study. If the investment is small, the capital cost may have to be disregarded and when assessing, for example, a small landing site, only the operational expenditures as reported in the government accounts would be included. However, when assessing more substantial infrastructure subsidies, e.g. a port facility, it would be necessary to find out - or at least estimate - the relevant investment cost or the real government cost of the measure would be - maybe significantly - undervalued. It is also important to note that earlier subsidy schemes may still have a value to the industry even if no disbursements were made in the year for which the study is being carried out. In the same way, important investments made in the year under study could be allocated over several future years. For more important investments with a long life-span we may also want to consider the effect of time and estimate the present value of the depreciation cost.

These measures are generally Category 1 or 2 subsidies and should be categorized according to whether the particular support program involves a direct financial transfer to the industry (Category 1), or not (Category 2). Some activities may be classified as Category 3 or 4 subsidies, e.g. certain types of market regulations.

When assessing the value of the subsidies, there are many different aspects to consider. For example, the organization of national markets probably involves administration - i.e. personnel and overhead costs - but it may also include the physical infrastructure in the form of fish markets. Larger infrastructure projects clearly targeting the fisheries sector such as fish markets - as well as fishing harbours discussed below - are generally examples of public investment subsidies to the fisheries sector. The annual cost to the government of this type of subsidy should be estimated as the depreciation cost per year in addition to maintenance and other operational costs for running the facility. Regarding the value to the industry, it should preferably be estimated as the prevailing market price for using the same type of facility that is being provided. In many cases, however, there is no market price alternative and we may have to use the government cost as a proxy when estimating the industry value.

Government activities that indirectly support the marketing side of the fisheries sector are difficult to assess. For example, the promotion of fish consumption could be part of a broad government information campaign for healthier food habits and the fisheries sector would then only be one among other food sectors being affected. An estimate of the value of the campaign to the fisheries industry should then be based on only a part of the overall cost for the campaign. This cost accruing to the fisheries sector could be calculated according to a distribution index based on the total value added created by the different subsectors, i.e. generally reported as the different subsectors’ contribution to GDP[9]. Other distribution index that could be used, depending on circumstances, include, for example, the number of employees or the total sales value (turnover) in the various subsectors.

6.2.8. Import quotas, tariffs and other border measures

Border measures that do not involve a financial transfer to - or from - the industry can be classified as Category 2 subsidies. These include regulatory frameworks such as import quotas and other non-tariff measures, import tariffs as well as landing bans for foreign fishing vessels and can represent important advantages for the domestic industry. The measures represent in practice transfers from consumers to fishers arising from government policy (Flaaten and Wallis 2000). Tariff escalation regimes are border measures that benefit in particular the processing industry by allowing raw fish to be imported at lower tariffs than processed products. For importers and traders selling imported products, tariffs may instead constitute a negative Category 1 subsidy if the import duties on fishery products are higher than on other imported goods, in particular foodstuff.

Border measures are often difficult to assess with regard to their value to the industry. If there are international prices available for the products in question, these prices could be used in a comparison with domestic prices to assess how the measure has influenced the national market and price structure. If there is a difference between local and international prices that cannot be explained by other influences, this difference could be used for drawing conclusions with regard to the border measure’s impact on, for example, revenues to the local processing industry. However, one of the reasons why PSEs (see Box 4) are difficult to calculate for the fisheries sector is that the wide variety of processed fishery products, many of which are market specific, do not have internationally traded equivalents. It would also be difficult to assume that there are no other influences and the calculation may require more statistical data than are available.

Box 10: Calculating the value of a fish export promotion subsidy - An example

In Seidisbus, exports of fish and fishery products represented 25% of the total export value in the year 2000. Under the Ministry of Trade, there is an Export Council working on promoting exports, both of fish and of other products. In addition to providing various information and contact services, the Council organizes a trade fair every two years. The fair is funded by the Council and by contributions from the participating export companies. In the trade fair 2000/2001 - held in February 2000 - 30 of the 100 exhibitors were from the fisheries industry.

In the fisheries subsidies survey, the activities of the Export Council were found to be a subsidy to the export sector as industry focusing on the domestic market did not receive the same support. The total budget of the Export Council in 2000 amounted to US$ 300 000 covering costs for personnel, rent of offices, depreciation on vehicles and office equipment, and other operational expenses. The cost for organising the trade fair in 2000 was US$ 50 000 whereof US$ 40 000 were extra-budgetary funds provided by the Council (i.e. excluding costs for ordinary staff of the Council and general overhead costs) and US$ 10 000 fees collected from the participating companies.

The cost to the government of the “Export Council subsidy” in 2000 was calculated as follows:

Cost of general activities in 2000:

25% (fisheries’ share of exports) of 300 000 (total budget) = 75 000.

Cost of trade fair 2000/2001:

30% (fisheries industry participants) of 40 000 (Council contribution) = 12 000

TOTAL: 75 000 + 12 000 = US$ 87 000.

Considering that the trade fair is a biannual event, we could consider allocating the cost over two years. However, in this particular case, it was decided against considering the relatively small amount and that the benefits of the fair were likely to occur already in 2000.

With regard to the value of the subsidy to the industry, no comparable market prices were found and it was decided that the cost to the government should be used as a proxy for the industry value, US$ 87 000. Over the next year, the Export Council plans to do a questionnaire survey among the exporting companies to evaluate the likely impact of its activities on export sales and net income. In a future fisheries subsidies study, the results of this survey could be used for assessing the value of the subsidy to the industry

There are also border measures such as restrictions with regard to foreign direct investment, both in the processing and harvesting subsectors. Restricting competition through stopping the free movement of harvesting services constitute implicit assistance to those fishers who are allowed to fish. Such measures include inter alia:

The effect of these types of subsidies to the domestic industry is translated into less competition and therefore potentially larger market shares. When attempting to assess the value of these larger market shares, we are likely to encounter similar difficulties as when assessing other border measures.

To use the government cost of border measures as a proxy may not either appear as a satisfactory option. The cost is likely to be a fairly low administrative cost, badly reflecting the true value of the measure. The government cost may also be difficult to estimate correctly because it is likely to require various overhead calculations. Another option is to use a pro rata standard value, valuing the support measure at, for example, a fixed percentage rate of turnover. The particular situation and the framework of the actual study will have to decide which approach that we should choose.

Box 11: Administrative costs and overhead

Many of the costs related to fisheries subsidies are indirect costs, i.e. overhead costs of authorities and administrations implementing a support scheme or a regulation. By definition, these costs are generally not directly related to a specific activity and need to be calculated using some sort of distribution index as discussed on page 47 above. In this context, we also need to think about how many different stages or levels of overhead we want to include when assessing a particular subsidy. Let us assume that we are calculating the government cost for an investment grant scheme in the aquaculture sector (see also Box 5). The scheme is administered by the Aquaculture Unit of the Department of Fisheries of the Ministry of Agriculture and Natural Resources but financed from a special fund for sustainable rural development within the Ministry of Finance. The cost of the program is first of all the grants themselves, which represent the direct cost. But what administrative and overhead costs should we include? If the administration of the scheme makes claim to a fair amount of time and resources of the Aquaculture Unit, part of its budget - calculated according to a suitable distribution index - should be assigned to the grant scheme. Then we could argue that also part of the budgets of the Department of Fisheries and the Ministry of Agriculture and Natural Resources should be linked to the grant scheme as the Aquaculture Unit draws on their resources. Some administrative costs of the Ministry of Finance could also be related to the channelling of funds. However, these calculations easily become quite complex and if we think that the administrative cost is negligible, we could probably ignore it. Accordingly, in the above example, only calculating the overhead and administrative cost of the Aquaculture Unit may satisfy us.

6.2.9. Fuel tax exemptions

Box 12: Fuel tax rebate - An example

Fishing vessels in Seidisbus that are registered with the Fisheries Department benefit from a fuel tax rebate. The amount of rebate depends on the type of fuel used; gasoline, diesel and oil mixtures, and there are maximum quotas per annum per fishing vessel based on the horsepower of its engines. The rebate is refunded by the Department of Fisheries when the eligible fisher presents a claim.

The cost to the government is calculated as the foregone revenue plus administrative costs, i.e.:

US$ 0.07 (average rebate per litre of fuel) multiplied by 10 000 000 litres (amount of fuel for which claims have been made) = 700 000.

Administrative cost: 10 000.

TOTAL: US$ 710 000

The value to the industry is assumed to be the same as the actual rebate, i.e. US$ 700 000.

Even though tax rebates are generally classified as Category 2 subsidies, we could consider classifying this particular program as a Category 1 subsidy as it in practice involves a direct financial transfer (through the procedure of reimbursements according to claims).

One quite common fisheries subsidy is to provide fuel at a lower tax rate to fishing vessels. If the fisheries industry has access to fuel at a lower cost than other industries, the scheme could constitute a Category 2 subsidy.

The value of tax exemptions is calculated as the difference between the “normal” tax rate, i.e. the rate applied to other sectors of the economy, and the lower rate granted the fishing industry. For the government, the cost would be represented by the foregone tax revenues and administrative costs related to the scheme.

Other reductions in public fees and taxes implying that inputs, supplies and services are provided below market price should be valued at the difference between the price actually paid by the industry and the market price or price generally charged to other sectors.

6.2.10. Investment tax credits and deferred tax programmes

Benefits gained through investment tax credits should be assessed by comparing the subsidized scheme with the normal tax regulations applicable to other industries. However, because this type of tax credit often means a redistribution of costs over a period of years by allowing accelerated depreciation of fixed assets, i.e. faster than the real economic life span, or by allowing investments to be made out of non-taxed profits on certain conditions, the actual value of the scheme to the industry in a specific year is usually difficult to calculate. One benefit is the extra capital made available for additional investments and this could be valued at the cost of commercial interest rates. Other benefits include the easing of fluctuations in income over a period of years that would constitute a subsidy equaling, for example, an income loss or unemployment insurance or the financial cost of borrowing working capital.

Deferred tax programmes are similar to the investment tax credits and a similar approach for evaluating their benefits to the industry should be applied. With regard to government costs, it is the foregone revenue that should be estimated.

6.2.11. Favourable loans and loan guarantees

When the fisheries industry is offered loans on favourable conditions through government institutions, these are often classified as Category 2 subsidies. A favourable loan may be a loan at a subsidised interest rate or on other favourable terms such as an extended amortization period. When there is a subsidised interest rate - or a favourable interest rate is obtained with the help of a loan guarantee - the value to the industry could be estimated by comparing the subsidised interest rate with prevailing market rates. When the subsidy consists of other favourable terms, the assessment of the value to the industry becomes more difficult and will have to be reviewed on a case by case basis. With regard to the government cost, it would be appropriate to consider costs related to payments for defaulted loans. If there are no such costs, the cost to the government is usually limited to the administrative cost of operating the schemes.

6.2.12. Special insurance schemes for vessels and equipment

Insurance schemes run or underwritten by governments are often classified as Category 2 subsidies when they offer the fisheries industry terms and conditions that are more favourable than those on the commercial insurance market. The industry value of these schemes could be estimated as the difference between the subsidised premium cost to the industry and the corresponding market price for an equivalent insurance. If there is no market price available for the particular type of insurance, an approximation could be made taking the perceived risk into account. The government cost would be calculated as the amount of claims paid out and the administrative cost involved in the managing the scheme less insurance premiums paid by the industry. Also the value of the subsidy to the industry could be based on these actual government costs, in particular if the amount of claims is significant and there are no applicable market prices.

6.2.13. Training and extension

Various types of specialized training and extension services are sometimes available for the fisheries industry, fully or partly funded by the government. There may be training courses on fish handling, safety at sea or in seamanship. Many governments provide extension services with a view to facilitate, for example, the introduction of technologies in the processing sector or to promote the use of better seeds in rural aquaculture. Improved skills usually mean improved production with increased income as a result. It such an effect can be deduced directly from the subsidised training or extension scheme and we can measure the effect, this could also be used as for the assessment of the value to the industry.

To assess the cost to the government of these services may be fairly easy, in particular if they are provided through separate administrative entities, such as a training institute or an extension unit of a fisheries division. With regard to the value of training courses to the industry, market prices may be available for similar tuition in other subject fields.

6.2.14. Inspection and certification services

Strict quality requirements in the world’s main fish importing countries have put pressure on quality assurance for export products. European importers (the EC; now the EU) issued the first regulations with regard to the control of fishery products in 1991 and have since expanded the system to the so called “own health checks” which extends the application of hygiene and quality controls to the whole production chain. Also other countries have introduced similar regulations (FAO 2000b). If the required inspection and certification services are provided to the exporting industry free of charge or at a price lower than the related operational costs, we may want to classify the services as a Category 2 subsidy.

The production standards stipulated by the importers also generally require investments in equipment and infrastructure. If these investments are paid for by the industry, the regulation may initially have a negative impact on the industry’s profits and only pay off in the medium or longer-term. It could hence be classified as a Category 3 subsidy. The assessment of the value to the industry of the regulation and the services provided should preferably be based on an estimate of the value of the increased exports to the markets requiring the certification and the costs of fulfilling the conditions.

6.2.15. Fishing port facilities and other infrastructure

Governments generally provide infrastructure such as roads, dams, bridges and public buildings and this is commonly considered to be the responsibility of the government: it is acceptable to finance basic infrastructure, beneficial to citizens in general, by tax payments through the public budget (at least partly; there are also many examples of users contributing directly to the costs of some of the more general facilities through, for example, road taxes).

However, infrastructure that is specific to a group of citizens or a particular sector of the economy and for which the costs - investment costs and operating costs - are not recovered from these groups of users could be considered a subsidy. The line between general and specific infrastructure is sometimes difficult to draw and we have to refer to the macro-economic framework and common practices in our country of study to decide what infrastructure should be considered fisheries subsidies. Commonly, one of the more clear examples of a subsidy of this type is the provision of fishing port facilities. Harbour dues are often collected but unless these cover the entire cost of building, maintaining and running the port, the provision of the facility could be considered a Category 2 subsidy. Other examples of fisheries specific infrastructure are fish markets that were mentioned under Export incentives and other market interventions above. The principles for assessing the costs and values of harbour or port facilities are the same as those applicable to fish markets.

Box 13: Assessing infrastructure subsidies - An example

There are ten different landing sites and small ports along the coast in Seidisbus, operated by the local city municipalities. The facilities at the landing sites vary but generally include gas pumps, jetties, toilets, storage lockers, fish wash stands and engine repair rooms. At each site, there is a caretaker - employee of the municipality - who is responsible for the management of the site. The sites are mainly used free of charge by some 800 artisanal fishing boats.

In a fisheries subsidies study, the provision of these landing site facilities free of charge was considered a subsidy to the fisheries industry as this type of services does not generally exist in other economic sectors. However, the assessment of the subsidy caused problems because the capital cost of the investments were not accounted for on an annual basis in the accounts of the municipalities; as the government practices a cash basis accounting principle, the capital expenditure is accounted for in the year of payment and no depreciation costs are allocated over time. Moreover, some of the facilities were very old and it seemed difficult to establish when they had been constructed. Hence, to estimate the annual depreciation cost to be included in the calculation of the government cost of the subsidy various assumptions and approximations had to be used. Some of the investment expenditures could be found in the accounts of previous years. By consulting other departments of the government involved in public infrastructure projects, estimates of the values of other items were obtained as well as their likely economic life spans.

Accordingly, the total cost to the government of the ten landing sites were calculated as follows:

Operational costs: 100 000 (ten caretakers) + 50 000 (maintenance and repairs) + 20 000 (miscellaneous) = 170 000.

Depreciation on infrastructure type 1: 200 000 (investment) divided by 10 years = 20 000.

Depreciation on infrastructure type 2: 300 000 (investment) divided by 20 years = 15 000.

Overhead cost city municipalities: 5 000.

TOTAL: US$ 215 000

With regard to the value of the subsidy to the industry, the annual cost per boat, i.e., approximately US$ 270 according to the above calculation, was compared with the prices charged by two private boat clubs offering mooring and other facilities to leisure boats: US$ 500 per boat per year. Taking the differences in facilities and services into account, it was concluded that a reasonable market price for the landing site facilities offered by the City Municipalities would be around US$ 350. Hence, the total value to the industry was calculated as:

350 multiplied by 800 (number of boats) = TOTAL: US$ 280 000

6.2.16. Payments to foreign governments to secure access to fishing grounds

In some countries, domestic fishers are granted the privilege of free access while foreigners pay some sort of access fee. When a government pays these access fees in foreign countries for its own fishing fleet, these could be considered as Category 2 subsidies with a value to the industry equivalent to the actual annual cost of the fishing right.

6.2.17. Government research and development (R & D)

Governments often fund research institutes and activities. Certain R & D, leading to efficiency improvements, is likely to be carried out also by the industry and government funded research is then a direct support to these activities. Other research may be more related to fisheries management and resource protection and could, for example, provide management information or lead to the development of gear that is then imposed on the industry through gear regulations. R & D activities are probably best classified as Category 2 subsidies. With regard to the assessment of their costs and values, we are likely to encounter similar difficulties as we are for fisheries management and the industry value may have to be assumed to be the same as the government cost (see below).

Box 14: Delineating subsidies, assessing cross-departmental activities and public accounting practices

Sometimes it may be more convenient to define a subsidy according to the organization that delivers the subsidy rather than splitting it up in actual activities or support measures. For example, a research or training institute may be defined as a subsidy in its entirety, rather than separating out the research activities or training courses. At other times, the subsidy is better reported as an activity with several providers, e.g. as fisheries management including inputs from a management division of the Ministry of Fisheries, research activities from an institute and surveillance carried out by the Coast Guard. The approach we chose would depend on the level of detail we are aiming at for our fisheries subsidies study but there are also practical considerations. The way we delineate our subsidies may have to be influenced by the structure of the public accounts and the organization of the public bodies providing the subsidies. It may be very difficult to calculate the cost (revenue) to the government of a certain situation or measure if the subsidy is defined in a way that cuts across several departments or accounting categories.

On the same note, we may want to carry out the study for a financial year, and not on a calendar year basis, unless these coincide. When there is a choice of using the public budget allocation for the year of the study or the actual expenditures incurred, we can use either of the two approaches as long as the difference between the two is not important and a consistent method is used. Likewise, we may have to decide whether we should use figures for approved expenditures or actually disbursed funds. For example, a number of investment grant applications may have been approved in December - at the end of the financial year that we are studying - but the payments are only going to be effected in January. Again, we can use either the accounting or cash basis for our assessment, depending on how the public accounts are organized.

In the same context, care should be taken when assessing and reporting on subsidies involving government agencies receiving their funding from other subsidy providing government agencies; we have to avoid double accounting. For example, funds for training provided by the Ministry of Fisheries to a training institute should not be reported both as part of the Ministry’s subsidy costs and those of the institute.

6.2.18. Fisheries management and environmental protection programmes

Fisheries management is one of the more complex areas with regard to subsidies. The activities included in fisheries management can be divided into three main areas covering a variety of measures and programmes, i.e.:

Governments commonly spend a lot of money managing their fisheries. According to an OECD study, 4.9 billion US$ or 77% of all government financial transfers to the fishing industry in 24 OECD countries in 1997 were spent on “general services”, a definition covering the three activities included in fisheries management (OECD 2000)[10]. In a handful of countries, fisheries management costs are recovered from the industry but in most countries the service is paid for by the fisheries administration and financed via the public budget. In accordance with the Guide’s definition of fisheries subsidies, the national context will decide whether we should consider fisheries management a service that should be provided free of charge - and hence not defined as a subsidy - or whether it is subsidy as the costs are not recovered.

Fishers are likely to benefit from fisheries management by the increased long-term sustainable output from the fishery that a successful management system implies. In the short and medium term, there are also benefits from reduced competition - when access is restricted - and from, for example, regulations allowing fish to grow to larger sizes and hence increasing the return per unit of output (Wallis and Flaaten 2000). However, in the short term, fishers may also experience management negatively if it restricts catch volumes.

Accordingly, different fisheries management activities can be classified into different subsidy categories. Most would probably be Category 2 but others - having both a short-term effect (often as a negative subsidy) and a long-term effect (as a positive subsidy) - are probably better classified as Category 3 subsidies. The lack of appropriate regulations is generally a Category 4 subsidy, benefiting the industry in the short-term but with possible negative consequences in the longer term. It is, however, recognized that it may be difficult to separate out different parts of the management system in this way in practice.

Examples of support programmes and measures that could be identified as subsidies - of different categories - related to fisheries management and to environmental protection include:

The basic characteristics of fisheries management services - i.e. being activities that the industry would not be in a position to organize and implement itself[11] - make it difficult to estimate a market price equivalent for this type of support. Hence, we are likely to have to resign ourselves to using government costs as a proxy for the value of fisheries management to the industry. This is maybe in many ways not a satisfactory way of assessing the presumed short- and long-term effects of catch restrictions or resource sustainability but it is probably the only practical measurement available. The net value of the subsidy equals the total government expense minus any cost recovery form the fishing industry. Cost recovery could take the form of user fees or similar levies. It is important to assess the net value of fisheries management in relation to the costs and value of resource access - discussed below - because the two are closely related.

Box 15: Membership fees to international organizations - An example

Our invented country Seidisbus is a member of several international and regional organizations of which two are of relevance to the fisheries sector: FAO and a regional fisheries committee for the management of small pelagic stocks. FAO has an office in the country and is also currently implementing a project on marine fisheries management in cooperation with the government. The committee has recently been established and only one meeting has been held so far.

In the fisheries subsidies study, it has been agreed that these memberships and their related activities should be considered subsidies to the fisheries industry. The subsidies are related to fisheries management but are reported on separately in the subsidies studies, partly because of their nature and partly because their costs to the government are relatively easy to locate in the public accounts.

The annual government costs for the different activities are calculated as follows:

Membership FAO: 15% (fisheries share of agricultural GDP) of 500 000 (Seidisbus’ annual contribution to FAO) = 75 000.

Hosting of FAO office: 15% (fisheries share of agricultural GDP) of 45 000 (annual operating expenses for the office assumed by the government) = 6 750.

Management project: 20 000 (annual counterpart contribution).

TOTAL FAO: US$ 101 750

Membership regional fisheries committee: 50 000 (annual fee).

Travel costs to meeting for government representative: 5 000 (estimate based on air ticket prices and government DSA rates).

Administrative cost: 10% (estimate) of 300 000 (budget of the International Cooperation Unit of Department of Fisheries) = 30 000.

TOTAL Regional fisheries committee: US$ 85 000

Given that no market price or estimate of the impact on industry income is available, the value to the industry of the activities is estimated to be the same as the government cost with the addition of the FAO contribution to the fisheries management project, i.e.:

TOTAL FAO 101 750 + 100 000 (annual project budget) = US$ 201 750

TOTAL Regional fisheries committee: US$ 85 000

6.2.19. Free or below market price access to fishing grounds

To allow fishers to use resources free of charge or at a cost lower than the actual value of the resources could constitute an important cost-reducing subsidy to the industry that would be classified in Category 4. This is true both in cases of open access as well as in management systems by which permanent or temporary quotas are transferred to the industry, e.g. ITQs. The argument is based on the reasoning that all resources that are scarce have a value to society and by making them available - either indirectly or by granting formal user rights - to the direct users without charging for the use must be considered a subsidy[12].

Box 16: Gear regulations - An example

In 2000, the use of Turtle Excluder Devices (TEDs) became obligatory on all vessels fishing in the waters of Seidisbus. Many boats fishing for export markets were already using TEDs but the usage was now introduced on a wider scale. The government launched an information campaign and also provided advice free of charge to fishers who were, however, expected to pay for the TEDs themselves. Extra resources were also allocated as from the 2000 budget to the Department of Fisheries for inspection and control of the proper use of the device.

The cost to the government in 2000 for introducing the measure was:

10 000 (information campaign and advice services) + 20 000 (inspection and control) + 5 000 (overhead Department of Fisheries) = US$ 35 000

It could be argued that the initial costs should have been allocated (depreciated) over a period of several years as they represent a onetime lump-sum, i.e. as an investment at the beginning of the scheme. However, given that the amount was rather small, this was not considered necessary (see also Box 9).

Regarding the value of the regulation to the industry, the initial impact in 2000 is negative. The marine capture subfisheries sector invested in a total of 100 new TEDs at a cost of US$ 500 each. No immediate economic benefits were perceived even though increased sales in export markets could be expected in the medium-term thanks to improved credibility. Hence, the value reported in the fisheries subsidies report in 2000 was - US$ 50 000 (negative).

This concept of free access to resources should not be confused with the issues of fisheries management, discussed above, even though the two are very closely related. The provision of fisheries management could be a subsidy per se and, in addition, there can be a “resource subsidy”. In a hypothetical situation without any fisheries management and hence free access to resources, the latter is a subsidy. Where there is a fisheries management system in place and fishing quotas are distributed to the fishers free of charge or at a nominal fee, the industry could be said to benefit from both a “fisheries management subsidy” sheries management subsidy and a “resource subsidy”.” At the same time, it should be pointed out the two issues are interrelated - for example, a quota in a well-managed fishery is likely to be worth more than in a badly managed fishery. Moreover, user fees are often used as a management tool.

The support measures categorized in Categories 3 and 4 are the most difficult ones to assess the value of. Still, with regard to fisheries management, discussed above, there are the actual costs to the government for the existing management system that can be used as a basis for estimating a value to the industry of the services provided. For Category 4 subsidies, there is - as we have already noted - no government cost involved and this proxy value is hence not available to us. Moreover, fisheries management and resource access regimes are in practice closely related as access fees are usually seen as a mechanism for recovering management costs. This complicates the matter even more. How do we estimate a value of the resources?

According to economic theory, the value of the resources could be estimated as the opportunity cost to society - or shadow price - of making the fishery resources available to the fishing industry in a certain way. The user fees could be set at a level allowing the government to recover the society’s full cost, i.e. including costs associated with the impact of fishing on non-targeted species, with collateral environmental impacts and the more general cost of removing the resource at present rather than in the future (Milazzo 1998). However, it could also be argued that, if environmental and social costs are disregarded, the immediate opportunity cost of, for example, a free distribution of quotas corresponds to the price that the government could obtain if making the fishery resources available in an alternative way, e.g. selling the rights to fish in an open market to the highest bidder. The value to the industry would also correspond to this market price, i.e. the price that the industry would be prepared to pay for the quota. Unfortunately, there are very few examples where there is this type of free and open market for fishing rights that could give guidance to the value of the resources in general. Moreover, the existing management regime influences the resource rent of the fishery, which in turn is likely to have an influence on the price the individual operators would want or be able to pay as user fees. With this circle of causes and effects, the actual value of the resource is difficult to determine.

Many countries charge licence fees to foreign fishers but not for domestic operations, or at a much lower level. This difference could be used as an indication of the value of the fisheries resources, i.e. the subsidy to the domestic industry would correspond to the access fee charged to foreign operators minus the domestic fees, if any. However, it would again be difficult to separate the fisheries management component from the resource access benefit. Empirical work shows that there is a wide variation of currently used rates. According to Milazzo (1998), considering the whole spectrum of user fees, both for foreign and domestic fishers, there is a range from less than one percent to more than one-third of the ex-vessel value of the production. Milazzo uses 5% and 10% of ex-vessel values as two different estimates of the global domestic resource rent subsidies (excluding distant water fishing fleets). These figures include both the “fisheries management subsidy” and the “resource subsidy”. Here we are at the moment only interested in the “resource subsidy” and in the absence of real values or any international standards, the Guide proposes to use a similar general value for estimating the value of resource access at 3 to 5 percent of the ex-vessel value of production. This value should be added to the costs of management, discussed above, and factual user fees or fishing rights charged should be deducted to arrive at the total of the two subsidies for fisheries management and access rights.

Box 17: Free access to resources - An example

In Seidisbus, there are no licence fees for national fishers. In fact, no licence or access fee is charged to foreign fishing vessels either as fishing by third country only takes place within in the framework of reciprocal agreements with neighbouring countries.

The total value of the fish landed in Seidisbus is US$ 75 millions (see Box 18). As an estimate of the potential value of the free access to resources, 4% of this landed value is suggested. This gives a total of 3 millions which would then correspond to a cost to the government as foregone revenue. However, if this access fee were to be collected, it would involve an administrative cost to the government. The net cost to the government of this Category 4 subsidy would thus be:

3 000 000 - 100 000 (estimated administrative cost) = US$ 2 900 000

The current value to the industry of the free access regime is the US$ 3 000 000.

In a longer-time perspective, it could be expected that the industry will suffer from a diminution of resources and related problems common to non-regulated fisheries. However, it was not considered possible to quantify these effects in the current Seidisbus study.

6.2.20. Lack of pollution control

If the government allows the fisheries industry to pollute in a way that other industries cannot, we may have identified another Category 4 subsidy. It is also another subsidy for which the value to the industry is difficult to assess: how should it be decided what the “normal” pollution control level is? In a full cost recovery situation and analogous to the discussions above on fisheries management and user fees, the fisheries sector should pay for all collateral impacts on the environment as well as negative externalities caused to other sectors. In practice, the Guide suggests that the value for this type of subsidies is assessed by comparing the fisheries sector with other economic sectors with a view to identify areas in which the fishing industry is under less control than other activities. The value of not imposing pollution control would equal the cost of alterations - in equipment and in practices - that would otherwise have been required for ceasing the polluting behaviour.

6.2.21. Lack of implementation of existing regulations

Another type of situation that could be defined as Category 4 subsidies is the lack of implementation of existing rules and regulations. This could apply to, for example, hygiene and quality control that is not carried out or to fees that should be collected but are not.

6.3. Identifying and assessing subsidies - some remarks with regard to categories 3 and 4 and longer-term impact

In the discussion above on how to assess fisheries subsidies, it transpires that while it is relatively easy to measure subsidies of categories 1 and 2, it is much more difficult to identify and assign reasonable values to subsidies from categories 3 and 4. In our examples, the only values that we have been able to estimate for the categories 3 and 4 are short-term. This is unfortunate as one of the distinguishing characteristics of these two groups of subsides is the long-term perspective they allow us to consider.

The approach in the Guide of focusing on the short-term impact does not imply that the long-term effects are considered unimportant. It is recognized that subsidies have much more far-reaching consequences than the immediate change in profits and the current public budget implication. In the longer-term, subsidies will affect the actual structure of the industry through the impact on the economic performance and on the change in behaviour of the actors of the sector that this triggers. This is also often the reason why governments introduce subsidies: to influence the development of the industry by giving it incentives to do things a certain way, which will benefit society. The long-term impact will hence be felt both at the macro-economic level in the form of costs or benefits to the environment and society as well as at the level of the fisheries industry. This is of course also true for the Category 4 subsidies even though they often exist not because conscious decisions have been made to introduce them but because the industry and society itself - and its economic structure - have changed over time creating new situations.

However, with the knowledge currently available, the longer-term aspects are difficult to assess and the Guide’s focus with regard to the quantitative assessment remains on short-term effects. The assessment we make constitutes a “snap-shot” of the current situation. At the same time as this may be felt to be insufficient, it is believed that it is an inevitable and important step towards a better understanding of the impact of fisheries subsidies, also in the longer-term.

These issues should be kept in mind when referring to Figure 9 in which the examples of subsidies presented in chapter 6.2 are summarized.

Figure 9: Summary of the assessment of fisheries subsidies in the country Seidisbus[13]


Name of subsidy


Cost (revenue) to government (US$)

Value to industry (US$)

Investment grants for storage and transport in aquaculture subsector


770 000

2 300 000

Income guarantee for fishers


450 000

450 000

Fish export promotion through the Export Council


87 000

87 000

Fuel tax rebate for fishing vessels


710 000

700 000

Provision of landing sites and ports


215 000

280 000

FAO membership and project and counterpart contributions


101 750

201 750

Membership in regional fisheries committee


85 000

85 000

Introduction of obligatory Turtle Excluder Devices


35 000

(50 000)

Free access to fish resources by the national fleet


2 900 000

3 000 000


5 353 750

7 053 750

[6] This is of course an oversimplification of reality and it could be argued that to calculate the real cost to the public sector and society, a much broader analysis would be needed looking at opportunity costs, externalities and long-term environmental impact. Some of these aspects may be captured in the assessment of the value of the various subsidies but the fact remains that a reliable in-depth welfare economics evaluation of the value of fisheries subsidies is difficult in practice. Hence, a quantitative analysis in this respect is considered beyond the scope of the type of study suggested by the Guide but any qualitative information that can be added to the study results would of course be valuable.
[7] Schrank and Keithley Jr. (1999) discuss the possibility of using the theoretical concept of perfect competition as the benchmark when assessing subsidies. However, they conclude that the criterion is “too amorphous to serve as an operational concept” (Schrank and Keithley Jr. 1999, page 157). Another suggested benchmark is the situation of efficient allocation of resources (OECD 1993), discussed in Box 4. This is closer to the practical definition recommended by the Guide but the theoretical criterion cannot be fully fulfilled and the concept is thus not used.
[8] See footnote 6.
[9] It should be noted that a measure of the whole fisheries sector’s - as defined by the Guide - contribution to GDP may include contributions from subsectors not directly reported as fisheries, e.g. the food processing industry and the mechanical industry
[10] It should be noted that the OECD definition of government financial transfers is narrower than the Guide’s definition of subsidies and does not, for example, include market price support measures. The study also only covers the capture fisheries subsector. Still, the proportion of funds spent on fisheries management is considerable.
[11] There are several reasons why it cannot be expected from the industry to undertake fisheries management, i.e.: the industry lacks the legal authority required to make fisheries regulations successful; the industry is generally not authorized to ban new entrants or impose restrictions on operators; the public good character of the fishery resources invites to free riding behaviour of individual members of the industry (Hannesson 2000).
[12] There are of course different views on this and the arguments are related to the concept of property rights (Schrank and Keithly Jr. 1999).
[13] The values reported in this table and in the underlying examples are fictive and do not necessarily bear any resemble to real costs and values.

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