1. The issue of fishing capacity has been raised quite recently in reference to growing concern about the spreading phenomenon of excessive fishing inputs and overcapitalization in world fisheries. The issue is essentially one of having too many vessels or excessive harvesting power in a growing number of fisheries. The existence of excessive fishing capacity is largely responsible for the degradation of fishery resources, for the dissipation of food production potential and for significant economic waste. This manifests itself especially in the form of redundant fishing inputs and the overfishing of most valued fish stocks.

2. Excess fishing capacity affects many domestic fisheries throughout the world and, in an even more pervasive form, many high seas fisheries. The globalization of the phenomenon is illustrated by the relative stagnation of world marine catches of major species since the late 1980s. Evidence provided by FAO indicates that, in reference to all major marine fisheries, 35 percent are subjected to severe overfishing, 25 percent are fully exploited and 40 percent still offer scope for development. Demersal and other most valued stocks are generally the most affected. As a matter of additional concern, one may also expect the demand for fish to grow faster than world production during the next decades. This would contribute to raising prices and to increased incentive for further expansion of fishing capacity in all fisheries, including those that are already showing signs of excessive exploitation.

3. As a more global phenomenon, overcapitalization in world marine fisheries appears to be a relatively new phenomenon, dating from the late 1980s and following a decade of very intense fleet development. FAO data indicate that nominal fleet size seems to have peaked during the mid-1990s. However, actual fishing capacity may still be increasing if one takes into account the improvement in efficiency and refitting of older vessels.

4. Overcapitalization in world fisheries came about progressively as a result of various factors, such as:

• the resilient profitability of fishing activities whereby technical progress and relative price inelasticity have largely compensated for diminishing yields in overfished fisheries;
• the effect of the extension of maritime areas under national jurisdiction on private and public investment strategies and of related ‘nationalization’ policies, generally accompanied by sizable subsidization programmes;
• the relative mobility of harvesting capacity, which allowed for a pervasive spill-over of excess capital among fisheries, both within areas under national jurisdiction and on the high seas;
• the changing nature of the industry, which is increasingly competitive and capital-intensive, with markets that are now largely based on internationally traded commodities; and above all,
• the failure of fisheries management in general, and of commonly used management methods in particular, such as total allowable catch (TAC) and other methods which aim essentially at regulating the catch rather than the harvesting capacity itself.

5. At the individual fishery level, the origin of excess fishing capacity stems essentially from the widespread tendency of overinvestment and overfishing under open-access conditions. This textbook case of market failure implies a divergence between rational individual investment behaviour and societal optimality. It can be noted that imposing various constraints on harvesting patterns (regulated open-access) does not significantly change the incentive for overinvestment. It is also necessary to clearly differentiate ‘localized overfishing’ from overcapitalization or excess capacity. The first is clearly the case of excessive effort being applied to an isolated stock; the second, after allowing for possible reallocation, is clearly one of having, throughout the fishing sector or for a large group of fisheries, excessive and redundant harvesting capacity which cannot easily be re-allocated. It is therefore a global problem which takes all its significance at national and international levels rather than at the level of individual fisheries. As such, the management of fishing capacity is a broader concern which needs to be addressed within and across various fisheries and jurisdictions.

6. The Code of Conduct for Responsible Fisheries recognized that excessive fishing capacity threatens the world’s fishery resources and their ability to provide sustainable catches and benefits to fishers and consumers. In Article 6.3, it is recommended that "States should prevent overfishing and excess fishing capacity and should implement management measures to ensure that fishing effort is commensurate with the productive capacity of the fishery resources and their sustainable utilization".

7. A number of countries have taken steps over the last decade to specifically address this issue. This has generally taken the form of strengthened fisheries management methods and reduced economic incentive. In some cases, more radical policies have also been implemented to remove excess capacity. This has contributed to the observed stabilization or reduction in fishing capacity applied in some fishing areas. However, as capacity has increased significantly in other fishing areas, the global situation remains quite dramatic and in need of a more global approach.

8. At its Twenty-second Session in 1997, the Committee on Fisheries (COFI) recommended that a technical consultation be organized by FAO to clarify issues related to excess fishing capacity and to prepare guidelines. The Governments of Japan, Norway and the United States, as well as the European Community agreed to provide financial support for this initiative.

9. In order to prepare for the technical consultation, a Technical Working Group (TWG) on the Management of Fishing Capacity met in La Jolla, USA, from 15 to 18 April 1998². It was composed of 35 independent experts from all regions. The meeting provided useful inputs for the preparation of guidelines and technical documentation on fishing capacity. The salient issues discussed by the Technical Working Group are reported below in Section III.

10. FAO subsequently organized the Consultation on the Management of Fishing Capacity, Shark Fisheries, and Incidental Catch of Sea Birds in Longline Fisheries³, in Rome from 26 to 30 October 1998. This Consultation was preceded by a preparatory meeting from 22 to 24 July 1998⁴. The Consultation approved (with several brackets) the provisions of Draft International [Guidelines][Plan of Action] for the Management of Fishing Capacity. The major elements of this draft document, which has been submitted to the Twenty-third Session of COFI for finalization, are presented in Section IV.

11. Finally, it should be noted that other organizations and international fora, such as OECD and APEC, have also contributed recently to some of the many issues related to the management of fishing capacity.

12. The following paragraphs discuss major issues that need consideration in the management of fishing capacity. Reference is also made to the recommendations of the TWG on the Management of Fishing Capacity.

13. The measurement and monitoring of excess fishing capacity is a complex endeavour. Assessing fishing capacity requires assessing and relating physical inputs and resource stocks, taking into account the fact that physical inputs may be applied potentially to various stocks and areas. Assessing excess capacity further requires the definition of target exploitation levels. Present methods of assessment have been relatively empirical (e.g. peak to peak techniques). These are usually sufficient to estimate grossly the magnitude of excess fishing capacity, but much applied research is required for the development of more appropriate monitoring and assessment tools.

14. The greatest challenge to the monitoring and assessment of fishing capacity is obviously the lack of fleet data. The monitoring of fleets and the assessment of fleet dynamics remains largely deficient in most countries. As a result, global and regional data banks (such as those available from Lloyds and FAO, and those compiled by some regional fishery organizations) are rather incomplete and usually quite difficult to use. Of specific relevance to the assessment of eventual excess capacity is the lack of information on gear and target fishery, as this prevents one from assessing the allocation of fleets amongst fisheries, even empirically.

15. The TWG stressed the need to promote the systematic monitoring and assessment of fishing capacity at national and international levels. It further recommended that significant and concerted research be undertaken to develop more appropriate techniques and to address specific issues, such as multi-species fisheries, fluctuation in abundance and fleet mobility. In addition to monitoring physical characteristics, the dynamics of investment and of the allocation of fishing inputs in time and space, and among fisheries should be studied. As such, fleet assessment should be considered to be as important as stock assessment. Both are essential for the joint management of fishing capacity and fisheries resources. Enhanced monitoring and assessment capabilities should be developed not only at national level, but at regional and global levels, with due emphasis being given to creating appropriate fleet records and to addressing the key issue of fleet mobility.

16. Fisheries management methods may be classified in two groups: those which attempt to block the incentive of open-access which leads fishers to race for fish and to overextend their investment (incentive blocking methods), and those aiming at changing the incentive system itself (incentive adjusting methods). The management of fishing capacity further requires that one accounts fully for the mobility and non-malleability of capital stock on the one hand, and for its interaction with complex natural stocks on the other.

17. Incentive blocking methods include: licence limitation schemes, vessel catch limits, individual effort quotas, and gear and vessel restrictions. Some of these methods may be combined, and complemented by TACs. All methods mitigate to some extent the two main outcomes of open-access: the race for fish and capital stuffing. However they have seldom proved effective in controlling fishing capacity, especially in the long term. The predominantly used method concerns licence limitation schemes, often used in connection with TACs. The efficiency of this method has often been limited in the past by the conditions under which it has been implemented, such as: introduction of such schemes in already mature or overexploited fisheries with rather unrestrictive conditions for initial licence allocation; insufficient attention paid to input substitution possibilities; insufficient account taken of gains in productivity resulting from technological improvements; and, too often, implementation against a sectoral policy background of laissez-faire, subsidization and of prompt compromise on socially or politically sensitive aspects.

18. It is felt that when these issues are carefully addressed, licence limitation schemes can prove quite effective in managing fishing capacity. Interestingly enough, licence limitation may take many of the attributes of incentive adjusting schemes. This is the case, for example, whenever the implementation of licence schemes purposely leads fishermen to coalesce, rather than compete, or when licence schemes are implemented together with individual harvest quotas. In this context, the TWG stressed the need to carefully address input substitution and the impact of technological development on fishing capacity.

19. Incentive adjusting methods include: individual quotas, taxes and co-management schemes, including community-based management. Taxes may indeed be seen as a means of correcting erroneous market signals through price adjustment mechanisms aiming at extracting rents so as to avoid resource depletion and economic waste. Implementation is difficult, however, and taxes, in the form of royalties, would generally be considered at best as a complementary measure. The other incentive adjusting methods aim at creating full or partial property rights for fishermen, therefore largely eliminating the ‘race for fish’ and, in the case of individual transferable quotas (ITQs) in particular, enhancing capacity limitation incentives. For co-management and community-based management to be effective in this context, schemes must of course imply a certain degree of empowerment, exclusivity and collective cohesion.

20. The TWG felt that the management of capacity does require the adoption of policies which clearly specify access conditions and that incentive adjusting methods, in the form of individual or collective quotas, might therefore prove more efficient than other management methods for the control of fishing capacity. While there is growing evidence that this may indeed be the case, the TWG noted that: i) individual quota systems are not readily applicable to many fisheries situations, e.g. most small scale and tropical fisheries; ii) co-management and community-management schemes are still in development and insufficiently researched; and iii) rent extraction through the imposition of royalties is proving difficult to apply, especially as a means of controlling capacity. While new avenues are being developed, there are many instances for which incentive blocking methods and licence limitation schemes in particular will constitute the best available option. Overall, the elaboration and implementation of more appropriate management schemes require that extensive consultation with stakeholders be promoted so as to ensure maximum consensus on capacity management among various user groups.

21. The reduction of excess capacity implies disposal of vessels and the layoff of fishers. Within areas under national jurisdiction, capacity which cannot be re-allocated to underused resources would have to be left to depreciate, to be scrapped or exported. Obviously, in countries where re-allocation possibilities have been exhausted, capacity adjustments is a rather difficult and sensitive task. Capital depreciation would generally involve too slow a joint process of capital reduction and fish stock rebuilding. Thus some induced capital reduction would generally be called for, with specific accompanying measures for labour when required. Incentive adjusting schemes involving property rights do provide strong incentive for capacity adjustments but not for permanent disposal. Incentive blocking methods do not, and attempts to reduce fleet size through buyback programmes may often lead to a net increase in capacity if implemented in this context (the buyback of older boats being often more than compensated for by subsequent investment). For these reasons, the TWG felt that caution should be exercised when designing and implementing any buyback programmes.

22. From a global perspective, any export of used vessels amounts to a displacement of capacity, not a reduction. While quite a number of countries have taken steps to scrap their excess capacity, the export of used vessels is still very common, whether it originates from efforts aimed at reducing harvesting capacity or from fleet modernization schemes. While developing countries may have benefited from the possibility of acquiring cheap second-hand vessels, the massive disposal of (generally subsidized) excess capacity in these countries has often provided an ‘unfair’ advantage to industrial vessels, exacerbated conflicts with the small-scale sector and precipitated the build-up of excessive capacity. The TWG recommended that the issue of vessel disposal be carefully reviewed and that caution be exercised by countries undertaking such schemes to avoid uncontrolled export or temporary re-allocation of capacity to overcapitalized fisheries.

23. High seas fisheries may be confronted with an even greater overcapitalization problem than EEZ fisheries. This stems from the prevalence of rather open-access conditions, with coastal countries fishing increasingly in adjacent high seas areas, and from the fact that there are at present no internationally agreed measures to obligate States to control fishing capacity. Within the present legal framework of the high seas, contained in 1982 UN Convention on the Law of the Sea, the management of capacity is very much subsumed within a catch quota system, with the regional fishery organizations administering quotas being largely unable to deny access to vessels from new or non-participating States. In 1995, the high seas catch represented about 4% of world marine catches in quantity, but 8% in value. Tuna represented 41% of all high seas catches in quantity and, impressively, 82% in value.

24. The 1995 UN Fish Stocks Agreement⁵ does not specifically include provisions for reducing fleet capacity. However, it tightens the obligations of flag States to adhere to conservation and management measures imposed by regional fishery organizations and allows these organizations to better monitor fleet capacity and deployment, and to adjust limit reference points in order to account for fishing capacity considerations. The FAO Compliance Agreement⁶ further provides a mechanism for collating fleet information at the global level and a basic tool for compliance and enforcement of authorizations. The TWG meeting felt that improved management of the high seas requires first and foremost the urgent ratification of these agreements.

25. It is also urgent for the international community to standardize the measurement of fishing vessels and to establish an acceptable mechanism for an international record of fishing vessels of certain size, taking into consideration existing requirements.

26. The obligations imposed by the 1995 UN Fish Stocks Agreement on fishery administrations to apply terms and conditions of participation to high seas fisheries allows for significant scope in exercising control over fishing fleets and eventually over fishing capacity. Further steps may be required in the strengthening and empowerment of regional fishery organizations and the creation of new organizations to ensure full coverage of the resources concerned. On the other hand, steps should be taken to prevent the re-allocation of excess national capacity and of older vessels in general to overfished high seas fisheries, and to address the growing importance of so-called flags-of-convenience vessels.

27. Some countries have tightened fleet disposal and high seas access regulations, and are now considering further reduction in fleet capacity. In the case of tuna in particular, some existing organizations are starting to take steps to address the monitoring and control of capacity. But several difficulties remain. The tuna fishery is experiencing an increasing trend of activity by non-member and flag-of-convenience vessels. This is an issue requiring concerted action by flag States and regional tuna organizations to encourage non-members to become member of such organizations. A related issue is that regional tuna organizations do not provide full coverage for the species, because of gaps in geographic coverage and interactions of stocks and vessels across areas of competence of regional organizations. In this regard, the adoption of a mechanism for global (inter-organization) cooperation in the monitoring, assessment and management of tuna fisheries is highly desirable.

28. The management of fishing capacity needs to be addressed globally, not only because of its potential mobility across fisheries and jurisdictions, but also because various national policies have a direct impact on investment flows and fleet allocation. Therefore it is important for countries to develop national fisheries policies and action plans seeking to adjust fleet capacity to available resources on a sustainable basis.

29. With respect to fisheries management methods, it is important that the conditions of entry and participation in the fishery sector and specific fisheries be reviewed globally in connection with the management of fishing capacity. This may serve as a basis for developing clear guidelines on how to manage capacity at national level, taking into account the characteristics of the industry and related socio-economic policies. Policy guidance is required, for example, to establish limit reference points and target reference points for fishing capacity and exploitation rates; to specify the conditions in which fleet reduction programmes may be implemented; and to establish specific conditions for access to high seas fisheries by flag vessels. Aside from the conditions of entry and participation, other factors having a direct effect on fishing capacity also need to be addressed.

30. One such factor is the use of subsidies and other economic and fiscal incentives which have a direct bearing on fishing capacity. The TWG recommended strongly that countries endeavour to reduce and progressively eliminate subsidies that directly or indirectly promote levels of capacity beyond the target reference point. There is no doubt that heavy subsidization contributed substantially to the rapid and often excessive growth of the fishing fleets in the 1970s and 1980s. Although this remains insufficiently documented, subsidization programmes appear to have been significantly reduced in many countries since the late 1980s. The issue of subsidization and other economic incentives is complex and should be addressed in the context of an overall action plan to manage fishing capacity. It is suggested that subsidies, when required in a fishery or sectoral development context, could be shifted from conventional capital to the promotion of resource conservation, human skills and institutional development.

31. Another issue to be considered carefully in the management of fishing capacity is the relative role of alternative production methods. Although the management of capacity should be designed to encourage efficient and evolving technologies, it also requires governments to balance the interest of alternative modes of exploitation and user groups. A case in point is the respective role of industrial and small scale fisheries in developing countries and of commercial and recreational fisheries in general.

IV. DEVELOPEMENT OF AN INTERNATIONAL INSTRUMENT FOR THE MANAGEMENT OF FISHING CAPACITY

32. The findings and recommendations of the TWG served as a basis for the development of an international instrument for the management of fishing capacity. The provisions of a draft instrument (Draft International [Guidelines][Plan of Action] for the Management of Fishing Capacity) were approved (with several brackets) by the Consultation on the Management of Fishing Capacity, Shark Fisheries, and Incidental Catch of Sea Birds in Longline Fisheries held in October 1998. The draft was submitted to COFI as COFI/99/5 Part III. It was elaborated within the framework of the Code of Conduct for Responsible Fisheries, as an element of fisheries conservation and sustainable management.

33. The immediate objective of the Draft International [Guidelines][Plan of Action] is for "States and regional fishery organizations, in the framework of their respective competencies and consistent with international law, to achieve worldwide by [2003][2005] an efficient, equitable and transparent management of fishing capacity". The document further specifies that, inter alia, States and regional fishery organizations, when confronted with an overcapacity problem which undermines the achievement of long-term sustainability outcomes, should endeavour to limit initially at existing level and progressively reduce the fishing capacity applied to affected fisheries. On the other hand, where long-term sustainability outcomes are being achieved, it nevertheless urges States and regional fishery organizations to exercise caution.

34. The draft instrument is voluntary and based on a number of major principles of the Code of Conduct as well as on complementary principles, such as:

• a three-phase implementation: i) assessment and diagnosis; ii) adoption of preliminary management measures; and iii) a system of periodic reviews and adjustments; with priority being given to managing fishing capacity first where it results in unequivocal overfishing;
• a holistic approach by which the management of capacity should consider all factors affecting capacity in national and international waters, further recognizing the need to properly account for mobility and evolving technologies.

35. The draft instrument specifies a number of actions to be taken urgently. Major actions are outlined below in reference to the main section of the document: assessment and monitoring of fishing capacity, the preparation and implementation of national plans, international consideration and immediate actions for major international fisheries requiring urgent attention.

36. Regarding the assessment and monitoring of fishing capacity, it recommends, inter alia, that States:

• support coordinated effort and research to understand better the fundamental issues related to the measurement and monitoring of fishing capacity;
• proceed within the next two years with preliminary assessment of fishing capacity and with the systematic identification of fisheries requiring urgent attention at national, regional and, in collaboration with FAO, at global level; and
• develop appropriate records of fishing vessels and support the establishment by FAO of an international record of vessels operating in the high seas.

37. Concerning the preparation and implementation of national plans, it recommends, inter alia, that States:

• develop and implement within two years a national plan of action to manage fishing capacity, accounting for the effect of different management systems on fishing capacity, and, if required, for the need to reduce capacity in some fisheries;
• regularly assess capacity and any imbalance with available fisheries resources and management objectives;
• adapt such a plan of action regularly on the basis of periodic assessment and for increased effectiveness;
• assess, in developing such a plan, the possible impact of all factors contributing to overcapacity on the sustainable management of their fisheries;
• reduce and progressively eliminate all factors, including subsidies and economic incentives, contributing directly or indirectly to the build-up of excessive capacity;
• cooperate through regional fisheries organizations with a view to ensuring the effective management of fishing capacity; and
• collaborate through FAO and other international arrangements in research, training and the production of documentation and tools to promote effective management of fishing capacity.

38. Taking account of international considerations, it recommends, inter alia, that States:

• consider participating in international agreements which relate to the management of fishing capacity, and in particular in the FAO Compliance Agreement and the 1995 UN Fish Stocks Agreement;
• take steps to manage the fishing capacity of their vessels involved in high seas fisheries and cooperate as appropriate with other States in reducing the fishing capacity applied to overfished fisheries;
• recognize the need to deal with the problem of those States which do not fulfil their responsibilities under international law as flag States with respect to their fishing vessels, and in particular those which do not exercise effectively their jurisdiction and control over vessels which operate in a manner that contravenes or undermines international law and international conservation and management measures;
• support multilateral cooperation to ensure that these flag States contribute to regional efforts to manage fishing capacity;
• ensure that no transfer of capacity to the jurisdiction of another State be carried out without the express consent and formal authorization of that State; and
• avoid approving the transfer of vessels carrying their flag to high seas areas where such transfers are inconsistent with responsible fishing under the Code of Conduct.

39. Concerning major international fisheries requiring urgent attention, the draft calls for States to take immediate steps to address the management of fishing capacity applied to these fisheries, with priority being given to transboundary, straddling and highly migratory stocks which are significantly overfished. It further urges States to act individually or multilaterally to reduce substantially the fleet capacity applied to these resources as part of management strategies to restore overfished stocks to sustainable levels.

40. The draft also calls for appropriate support to be provided to developing countries on issues related to the management of their fishing capacity. It further urges FAO to provide technical support for a range of activities identified as essential for the implementation of this instrument.

41. The Ministerial Meeting will be informed of any pertinent points which may emanate from the discussions on the subject at the Twenty-third Session of COFI.

42. The Ministerial Meeting is invited to provide guidance on the management of fishing capacity in general, and, in particular, on how to adjust fishing capacity to the state and characteristics of stocks in the context of the implementation of the Code of Conduct for Responsible Fisheries. The Meeting is also invited to review the instrument to be adopted by COFI at its Twenty-third Session and endorse it.