Introduction
Discussion
Conclusions
Recommendations
8. The Secretariat asked the Expert Consultation to define what is and what is not a fisheries subsidy. The Secretariat further requested the Consultation to find a definition that (i) is applicable to all interventions by the public sector that are susceptible to being labelled subsidies, (ii) has a high likelihood of acceptance by those involved in the political debate on fishery subsidies, and (iii) enables the effects of subsidies on trade and fishery resources to be measured.
9. The review paper by Professor W. Schrank, as well as the discussion amongst the group of experts, revealed a large number of different definitions and understandings of what is meant by a subsidy. The Consultation spent a major portion of its time debating the merits of alternative definitions of the term subsidy. Highlights of the group’s discussion are summarised below, followed by a set of conclusions and recommendations.
10. It should be emphasised that subsidies, however defined, represent some but not all of the instruments that effect the incentive structure of the fishing and aquaculture sector. The economic behaviour of firms supplying fish will be sensitive to taxes and other charges, to regulations and to the creation and enforcement of property rights. Responsible fisheries management needs to consider all of these elements.
11. Many different definitions of a subsidy have been used in economic analyses of trade and natural resource use. Our review of these definitions and analyses leads us to conclude that none of the commonly used definitions is adequate for a comprehensive analysis of subsidies’ effects on trade and sustainability in fisheries and aquaculture. Unfortunately, there is no one definition that the Consultation recommends for the measurement, analysis and political debate of subsidies in fisheries.
12. Experts tend to place different emphasis on the following four attributes of subsidies in fisheries and aquaculture:
i. government interventions that only involve financial transfers to producers;[5]13. In order to advance the measurement, analysis and discussion of subsidies in fisheries and aquaculture, the experts in the Consultation propose definitions for four sets of subsidies. The Consultation recommends that any analysis and discussion of this issue state explicitly which of the four sets of subsidies is being considered.ii. government interventions that confer benefits to producers without involving financial transfers from the government to producers;
iii. lack of government interventions to correct for distortions that confer benefits on producers; and
iv. the long-term as well as the short-term effects of government interventions on firms' benefits and costs.
14. The numbering of “sets” 1, 2, 3 and 4 is not meant to imply any ranking of subsidies. Instead, the numbering indicates that higher numbered sets include more elements in the definition of subsidies. In other words, Set 2 includes elements included in Set 1, Set 3 includes elements included in Set 2, and so on. This is illustrated graphically in Figure 1.
Figure 1. Depiction of Sets of Subsidies
15. Set 1 Subsidies: Government financial transfers that reduce costs and/or increase revenues of producers in the short-term.
16. Set 1 Subsidies include direct payments by government to or on behalf of producers, e.g., grants to purchase vessels or to modernize vessels, income support payments, and others.
17. All experts in the Consultation believed definitions of subsidies that include only government financial transfers to producers are too narrow for present purposes. Such definitions exclude government interventions that affect trade and the use of fisheries resources and that involve no financial transfers. Therefore, the definition of Set 2 Subsidies includes all interventions by government - regardless of whether they involve financial transfers - that can potentially reduce costs and/or increase revenues of producers in the short-term.
18. Set 2 Subsidies: Set 2 Subsidies are any government interventions, regardless of whether they involve financial transfers, that reduce costs and/or increase revenues of producers in the short-term.
19. Set 2 Subsidies include tax waivers and deferrals, and insurance, loans and loan guarantees provided by government. Set 2 Subsidies also include government provision of goods and services at a cost below market prices.[6]
20. Set 2 Subsidies correspond closely to many of the definitions used in practice, for example, by the World Trade Organization. Many experts in the Consultation believe that the definition of Set 2 Subsidies satisfy conditions (i), (ii), and (iii) established by the Secretariat (see paragraph 12).
21. Most experts in the Consultation view definitions of subsidies that require active and explicit government intervention, such as Set 2 Subsidies, as too narrow for present purposes. Lack of government action to correct distortions (imperfections) in the production of and markets for fish and fish products confers an implicit benefit to producers that can affect trade and the use of fishery resources as well. Therefore, the experts in the Consultation define Set 3 Subsidies to include lack of correcting interventions by government to remove distortions (imperfections) in production and markets that can potentially affect fisheries resources and trade.
22. Set 3 Subsidies: Set 3 Subsidies are Set 2 Subsidies plus the short-term benefits to producers that result from the absence or lack of interventions by government to correct distortions (imperfections) in production and markets that can potentially affect fisheries resources and trade.
23. Set 3 Subsidies include the implicit benefits to producers associated with the lack of government regulations that would require producers to bear the costs that they impose on other parties, including costs on the environment and natural resources. By not having to pay for costs imposed on others the cost of production is lower, which in turn influences the amounts of fish produced and traded, and the health of resource stocks. Such implicit benefits are present where government does not require measures to reduce the catch of, for example, sea turtles, sea birds or marine mammals. In this case, producers impose costs on others, in the form of damage to the environment that they do not pay for and do not take into account in their production decisions. Another example is where government does not do enough to prevent the overexploitation of a fishery resource. In this case, producers avoid paying for the costs of harvesting the fishery resource in the short-term while imposing costs on others, and themselves, in the long-term. In these cases, both the sustainability of the resources and trade in fish are affected.
24. All experts in the Consultation agree that these types of implicit benefits (unpaid costs) can have significant impacts on fisheries resource sustainability and trade. However, not all agree that these implicit benefits should be included as subsidies for present purposes. The dissenters believe that the definition of Set 3 Subsidies may not satisfy all of the conditions (i) - (iii) established by the Secretariat. In particular, some of the experts believe that this definition encompasses measures not readily susceptible of classification as subsidies, and that their inclusion moves the discussion of fisheries subsidies into areas that are distinct from, and should be addressed in different contexts from, the fisheries subsidies debate.
25. The experts in the Consultation were unable to decide whether the failure to charge for the costs of fisheries management services constitute a subsidy to producers. There is a lack of research on this issue, and economic reasoning leads to ambiguous conclusions.
26. Clearly, when government provides a factor input at a price below the market price, that constitutes a subsidy under all four definitions above. However, there is no market for management services in most fisheries.[7] Some experts argue that producers have no demand for management services and that, instead, management is forced upon them. In addition, in managing fisheries, government is attempting to ensure the sustainability of the resource for the use of future generations and the enjoyment of non-producers who value the existence of healthy fishery resources.
27. The professional literature on recovering the costs of fisheries management essentially concludes that requiring producers to pay user fees improves the overall efficiency of management - in other words, user fees enhance the value gained from the use of scarce management resources. This literature, however, does not address the issue of whether not charging user fees (or some other form of cost-recovery) should be considered a subsidy. Clearly, charging for user fees reduces revenues (or increases costs), but whether and how such fees affect supply, trade and sustainability is not clear at this time. More research on this important issue is required.
28. Some of the experts in the Consultation argue that definitions of subsidies that include only government interventions (or absence of correcting interventions) that confer short-term benefits on producers are limited because they do not account for the effects over time of such interventions. In other words, an intervention that confers an immediate benefit can ultimately confer harm or losses on producers, especially in fisheries. Some of the experts recommend extending the definition of a subsidy to include interventions (and absence of correcting interventions) that affect costs and revenues in any direction and over time, i.e., in the short-, medium-, and long-term.
29. Set 4 Subsidies: Set 4 Subsidies are government interventions, or the absence of correcting interventions, that affect the costs and/or revenues of producing and marketing fish and fish products in the short-, medium-, or long-term.
30. Set 4 Subsidies include all Set 3 Subsidies plus interventions such as management measures that may decrease (increase) the short-term benefits to producers but that result in an increase (decrease) in long-term benefits to producers. An example is where a closure of the fishery (or an area of the fishery) that imposes short-term losses on producers ultimately results in a rebuilt resource stock and higher long-term benefits to producers. Set 4 Subsidies explicitly account for the effects over time of government interventions and absence of correcting interventions. The effects on benefits to producers in the short-term may be the opposite of the effects in the long-term.
31. The conclusions are:
32. It is recommended that:
