After having thought through the overall organization of the work and drawn up a general plan for the task ahead of us, the next thing we have to do when starting a fisheries subsidies study is to define what we mean by a fisheries subsidy.
To most of us, a subsidy is some kind of government support to the private sector, generally serving a public purpose. Looking up the term "subsidy" in a dictionary gives us that a subsidy is "a direct or indirect payment, economic concession, or privilege granted by a government to private firms, households, or other governmental units in order to promote a public objective" (FAO Fisheries Glossary and Encyclopaedia Britannica 2001).
Based on this general notion, the Guide proposes a broad definition of fisheries subsidies according to which a subsidy could fundamentally be any government intervention - or lack of intervention - that affects the fisheries industry and that has an economic value. This economic value is interpreted as something having an impact on the profits of the fisheries industry. The intra-government aspect from the definition above is disregarded and subsidies are defined as actions or inactions for which the recipient is part of the private fisheries industry (and not "other government units").
However, not everything the public sector does or does not do can be classified as subsidies[3] and a further qualification of the definition is needed with regard to reference points. Accordingly, we define a subsidy as something that is out of the ordinary, i.e. something that is done differently from what is customary:
Fisheries subsidies are government actions or inactions outside of normal practices that modify - by increasing or decreasing - the potential profits by the fisheries industry in the short-, medium- or long-term
"Government" here also includes other governments and public bodies than the ones in the country where the subsidy as such exists. This would, for example, include contributions from public and international development aid and cooperation institutions. It also of course includes actions or inactions by non-fishery government agencies and organizations. If these actions or inactions benefit the fisheries industry in a significant way, they may be fisheries subsidies even if they are not only directed to the sector. Sponsorships by private companies do however not constitute subsidies.
The "fisheries industry" refers to all productive subsectors of the fisheries and aquaculture sector, i.e. all types of input industry - including transport and other support services - capture fisheries, aquaculture, processing and marketing. It covers all producers and operators, both small and large-scale, engaged in recreational, subsistence and commercial activities. For our particular study, we may of course have decided that we only want to look at a group of firm, at one or a few subsectors or at an aggregate industry level (see also chapter 3 and section 6.3).
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BOX 1 WTO definition It should be noted that the definition of subsidies used in this Guide is much broader than the one used in the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (SCM) which is perhaps the most commonly cited and practically applied subsidy definition. The SCM Agreement is WTO's basic subsidy agreement and the one that currently governs trade disputes regarding the fisheries sector in this respect. It specifies that a subsidy exists if "there is a financial contribution by a government or any public body within the territory of a Member" and this contribution fulfils certain specified conditions, or if "there is any form of income or price support in the sense of Article XVI of GATT 1994". Moreover, benefits have to be conferred. For the subsidy to be offending, it also has to be "specific", "prohibited" or "actionable" and cause "adverse effect" (WTO 1994 Agreement on Subsidies and Countervailing Measures, article 1, also described in Milazzo 1998). The Guide's definition does not require any of these conditions to be fulfilled; an action or inaction is considered a subsidy if it is outside of normal practices and it affects the profits of the fisheries industry. The Guide hence considers regulatory interventions such as border measures to be subsidies as well as interventions by third-country governments while the WTO does not. The Guide also take profit-decreasing subsidies into account, something the WTO ignores. |
By "potential profits" the overall profitability of the industry is implied. However, while subsidies affect profits in the short, medium and long-term, the Guide's focus is on the more direct shorter-term financial effects as we will see when discussing how to assess subsidies in chapter 6. It should be noted that subsidies could also decrease profits. Examples of profit-decreasing subsidies would be taxes and other fees and duties, levied by the government.
It is important to note that the action (or inaction) does not have to be specifically directed to the fisheries industry - it can be something also applicable to other economic sectors - but if the fisheries industry benefits (or suffers) economically compared to industry in general, the Guide defines it as being a fisheries subsidy.
When we say that a fisheries subsidy is an action or inaction that is outside of normal practices, or non-customary, we need to know what we mean by "non-customary" in order to be able to distinguish between subsidies and normal - or general - actions and inactions. The best way to do this is to define what is general and use this situation as the benchmark for "normality" against which the government actions or inactions are measured, i.e. anything that is different from our normality reference point is non-customary and hence a subsidy.
It is conceivable that sometime in the future countries will agree on what is "normal" in a global context and therefore useful as international benchmarks and criteria for defining subsidies. Such benchmarks could inter alia include: interest rates for investment loans, standard fuel prices and minimum levels of cost recovery for fisheries management. However, because such standards do not exist presently and because it would take time to reach an agreement on them, it is suggested that standards represented by the overall economic framework of the particular country - or region - under study could be used. Accordingly, the reference points would refer to other sectors in the country, or group of countries, i.e. the "normal" situation without subsides is represented by the circumstances industry in general operates under in the country or region and fisheries subsidies are defined and measured as deviations from these conditions. For example, in a country where public services are provided so to say free of user charge - because they are financed through the tax system - it would be considered normal that also the fisheries industry benefits from certain services without them being defined as subsidies. On the other hand, in a country where cost recovery is the norm, the same benefits to the fisheries sector are subsidies if not directly paid for by the industry.
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FIGURE 3
Fisheries subsidies are actions or inactions by the public sector influencing the profits of the fisheries industry |
However, this approach would be unsatisfactory if we want to make comparisons between countries or regions. On some occasions, there may be alternative standards or guidelines that we can use. For example, if the results of the subsidy study are to be used in an investigation of the effects of subsidies on international trade in fish and fish products, we may want to adapt the definitions we use for our study according to those that are contained in the WTO Agreement on Subsidies and Countervailing Measures (see also Box 1).
If this is not the case, we could consider turning to economic theory for objective advice. This aspect is briefly discussed in Box 2 below. Another source of guidance is the arena of international practice. Even if there is not an established definition of fisheries subsidies, a number of research and other studies have been carried out giving views on what government actions and inactions should be considered subsidies. Examining the existing literature on the issue may not give us all the answers but could still be a good help on the way. We should also remember that subsidies are generally not studied in a vacuum and that the objective and scope of our particular study may give us guidance as to how to define our subsidies and what to include. In chapter 5 below, where different categories of subsidies are discussed, we will look into what international practice tells us about subsidy definitions. We also come back to the issue of benchmarks in chapter 6 where the quantitative assessment of subsidies is discussed.
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FIGURE 4
Fisheries subsidies can be defined within a given economic policy context or based on economic theory or international practice. |
In order to be able to identify fisheries subsidies according to the above definition, we need a good understanding of the overall economic and institutional frameworks within which our subsidies are to be defined. We also, of course, need to know about the fisheries sector. Moreover, quantitative information on several economic and financial issues is needed as benchmarks when assessing the value of the subsidies, something that is discussed in chapters 6 and 7 below.
The type and extent of information needed on the economic and institutional frameworks and the fisheries sector depends on the objective and scope of our particular study; the coverage of our surveys should be appropriate to the task at hand. Nevertheless, some general recommendations on survey contents are given below.
A baseline survey of the macro-economic and institutional frameworks to be used for identifying and assessing fisheries subsidies could include the following aspects:
Policy and legal framework
We need to understand the overall political framework with regard to the role of the public sector. What is the general policy with regard to cost recovery of public services? What government market interventions are there? What is the role of state-owned enterprises? Are there support programmes for businesses, e.g. for regional development, infant industry, etc.? What ministries or government departments are responsible for these policies and programmes and how are they organized?
We should also look into more specific policy and legal matters, particularly in areas that are likely to be relevant to the fisheries sector, e.g. environmental policies and general pollution control measures, food safety and sanitation standards, labour and employment laws, and practices with regard to user right policies in the natural resources sector.
Interest rates and monetary policies
Information on commercial interest rates is needed for determining whether the fisheries industry benefits from loans on favourable terms and for assessing other possible subsidies related to investments. As far as possible, the real alternative financial cost should be used as the benchmark and where different commercial interest rates are used for different types of investment - usually according to the perception of risk - care should be taken to use the rate corresponding to the particular situation. The baseline survey may hence need to list different commercial rates. It should be noted that this might mean including usury rates in an informal market if this is the factual market alternative. If information on commercial rates is lacking, an appropriately adjusted inter-bank offered rate or the rate of return for government bonds might serve as useful guidance. Information on other general loan and credit conditions, such as the need for collateral or typical amortization periods, could also be included in the baseline survey, as well as information on monetary policies of importance with regard to the credit system. We also need to have a good picture of the institutional set-up of the financial and credit sector.
Tax regulations and social security coverage
Information on the overall public revenue and tax system that might be relevant includes VAT rates, for different goods and services if differentiated, and corporate tax rates including general rules for, among other things, depreciation allowances for fixed assets and tax deference possibilities. With regard to employment and labour costs, the main features of the tax systems for individuals need to be covered as well as the general social security structure, including rules for obligatory contributions and common benefits.
Trade regulations and border measures
Tariff and non-tariff border measures should be looked into, giving details on differences between different types of goods and services. Border restrictions with regard to direct investments, ownership or the exertion of certain professions or commercial activities also need to be considered as well as regulations with regard to immigration and labour movements. Depending on the scope of our study, we may also want to know about what relevant international trade agreements there are and what regulations are applied by our main trading partners.
Exchange rates and currency regulations
We need to know if there are any capital movement or foreign currency restrictions, especially if they apply in different ways to different sectors of the economy. Official and unofficial exchange rates of importance to the business community should also be looked at.
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BOX 2 Basic economic theory tells us that perfectly competitive markets will produce an efficient allocation of resources. However, there are many ways in which markets can fail. Three of the more important ways in which this happens concern imperfect competition, externalities and public goods. Governments generally intervene to remedy these shortcomings, e.g. by antitrust legislation, the regulation of negative spill-overs or the internalization of externalities - such as pollution - through taxes and the provision of public goods or the establishment of property rights. In addition to trying to correct market imperfections, modern governments also intervene by using a system of taxation and transfers to produce a more fair distribution of income than what the perfectly competitive markets create. Moreover, since the 1930s, governments have assumed a third role; to use fiscal and monetary policies to promote long-term economic growth and to stabilize excessive unemployment and inflation rates. Interventions by governments hence cover a variety of measures. Different schools of thought in economics have different views on what types of measures that are more important, what the role of the government should be and what is better left to the market forces. These views have also changed over time. Since the 1980s, there has been a trend back towards the competitive-market pole of earlier days within the concept of the welfare state; in the modern mixed economies, markets direct day-to-day economic life and governments intervene with regard to social conditions, e.g. health care, pensions, etc (Samuelson and Nordhaus 2001). It should be recognized, though, that government policy is also influenced by institutional arrangements and public sector resource availability, making generalized international descriptions of government interventions difficult. Considering this as well as our broad definition of subsidies and the great variety of economic theory, it is difficult to give general advice on how to apply the latter when identifying subsidies in practice; detailed analysis - appropriate to the specific situation - would generally be required. Nevertheless, the concepts of perfect competition and efficient allocation of resources could theoretically be used as benchmarks for defining subsidies. An expert group of the OECD concluded in 1993 that "the concept of assistance to the fishing industry in a country should be defined as government intervention or lack of government intervention which distorts the allocation of resources in that country relative to an efficient allocation" (OECD 1993, paragraph 76). However, when Schrank and Keithly (1999) discuss the possibility of using the theoretical concept of perfect competition as a benchmark, they conclude that the criterion is "too amorphous to serve as an operational concept" (Schrank and Keithly 1999, page 157). The main reasons for this include the difficulties in establishing exactly what the norm of the perfect market is and in isolating the specific distorting or correcting effects of a government action (or inaction) (see also Box 5). Schrank and Keithly instead suggest basing the definition of subsidies on a wider framework which is the concept of the firm's costs and revenues. A government intervention that affects a firm's costs or revenues - or that modifies market imperfections that in turn affects the firm's costs and revenues - and hence also potentially has an impact on its profits, should be considered a subsidy. The Guide's definition is based on this concept. However, we are still left with the problem of finding a suitable benchmark; if we define subsidies in relation to potential changes in profits, we need to decide against what these changes are measured. This definition of benchmarks become even more crucial when we want to measure the economic importance of subsidies (see chapter 6). |
In a review of the fisheries sector, we would like to identify and investigate all fisheries specific policies and regulations, e.g.:
Public market interventions in the fisheries sector, e.g. price policies, state-owned enterprises, support programmes, etc.
Fisheries management and access right regimes
Water and land use regulations for aquaculture
Fish safety and hygiene regulations
Capital markets and credit schemes relevant to the fisheries industry
Tax regulations for the fisheries industry
Social security policies and regulations with regard to labour in the fisheries industry
Trade regulations and border measures regarding fish, fishery products and input goods
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FIGURE 5
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The bullet points in section 4.3 above cover a large number of different types of information needed for the fisheries subsidies study. Depending on the competences and positions of the people in the team carrying out the study, some of this information may be easy to find, e.g. in a ministry or department of fisheries, information on fisheries management regimes is likely to be readily available. General information on issues that we already know something about, for example, regarding economic policies or tax regulations, may also be quite straightforward to get. In the same way, some subsidies may be easy to identify. Certain support schemes, e.g. an investment grant scheme, may be commonly known and therefore not difficult to investigate.
However, there are other issues that may be outside our normal work area or field of competence. There may even be aspects that we do not know about at all and consequently a risk that certain subsidies are not discovered. Therefore, we need to consult a wide range of information sources. To ensure to the extent possible that all subsidies are identified, it is suggested that we approach the exploration of subsidies from two angles, i.e. from the point of view of the provider and from the point of view of the recipients.
In order to do so, we need to identify:
All government agencies and organizations that are involved in the fisheries sector and that may provide subsides - in one form or another - to the sector.
The relevant bodies may be fisheries specific agencies - such as a fisheries ministry or department - or non-fisheries, e.g. a research institute or a health authority. There may also be international organizations, or foreign donor governments. Semi-public and interest groups in the form of, for example, trade unions or producer organizations, should also be identified. They are likely to provide support to the industry that they in their turn receive public funding for.
The actors in the fisheries industry who receive or benefit from fisheries subsidies.
These are the companies and individual operators that are active in fishing, aquaculture, production of inputs, processing, marketing and trade, etc. Making an inventory of the economic activities of the sector and listing main groups of companies and operators according to subsector, size, business form, etc., will give a good picture of the organization of the fisheries industry and also help us identify who should be consulted in the process of identifying and assessing fisheries subsidies.
Accordingly, it is recommended that - in addition to the framework and sector surveys suggested above - we make an extensive inventory of all relevant institutions as well as carry out a thorough review of the fisheries industry. The latter is further discussed in chapter 7. The institutional inventory is important in several ways. It gives us information on potential subsidy providers and hence helps us identify subsidies in a practical way. In-depth information on the institutional arrangements is also important when we assess subsidies (see chapter 6).
Once we have identified all the stakeholders i.e. all parties involved or concerned with the fisheries sector, and we also have a fairly clear idea of what information we need, we can start collecting information and identifying the relevant subsidies. The information gathering can take many different forms - review of existing documents and reports, questionnaires, interviews, discussions, telephone calls, enquires by letter, etc. - and methodologies suitable for each particular situation have to be adopted. We may occasionally also want to consult people outside our group of stakeholders, i.e. companies or representatives of professionals in economic sectors outside fisheries, to clarify benchmarks and reference points.
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FIGURE 6
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The extent of the data collection and the depth of analysis will depend on the objectives of our particular study and the terms of reference that we have given it. It is likely that we want to investigate far beyond a simple listing of existing fisheries subsidies and the subsequent chapters of this Guide suggest and discuss various types of analyses. However, whatever the level of detail we have agreed on for our study, it is generally a good idea to draw up a list early on of already identified subsidies and of situations and support measures that could potentially be defined as subsidies once we have investigated them further. This working document could also contain short descriptions of the subsidies, and information on the responsible authority (provider) and the recipients, and will - when finalized - provide a summary overview of the subsidies in the fisheries sector (see Figure 6).
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[3] For clarity, it should be
mentioned that the Guide generally uses the term "subsidies", meaning - as
defined above - all government actions and inactions. Occasionally, the term
support measure or support program is used as a synonym to government action or
intervention. With regard to government costs (revenues) for subsidies,
expressions like public expenditures, expenses or costs, and public budget
implications are sometimes used meaning the same thing unless stated
otherwise. |
