When working on identifying subsidies, we will realize that there are many different types of fisheries subsidies. Some situations and measures can quite indisputably be identified as subsidies, both in a national context and according to economic theory and international practice, e.g. fishery specific grants and other direct financial transfers from the government to the private fishing industry, while we may have more doubts with regard to a situation of, for example, apparent lack of pollution control. Moreover, depending on the objective of our study, we may have decided that we only want to look at the most direct subsidies and that we do not have any interest or time for carrying out the often quite comprehensive and time-consuming analyses related to more indirect or non-intervention subsidies (see also chapter 3).
Consequently, to facilitate the organization and analysis of our subsidies information, the Guide suggests that we classify fisheries subsidies into four main categories, i.e.:
1. Direct financial transfers
2. Services and indirect financial transfers
3. Regulations
4. Lack of intervention
The first category includes all direct payments by the government to the fisheries industry. These subsidies are likely to have a direct effect on the profits of the industry and can also be negative (i.e. payments from the industry to the government). Their cost (revenue) to the government can usually be found in the public budget and its direct value to the industry will appear directly in the cash flow of the recipient firms. Subsidies belonging to this category are easy to identify and it would generally not be difficult to find consensus when defining these subsidies.
Examples of Category 1 subsidies include:
Investment grants (e.g. to purchase vessels or for modernization), grants for safety equipment, vessel decommissioning programs, equity infusions, income guarantee schemes, disaster relief payments, price support, direct export incentives, etc.
Profit-decreasing subsidies in this category would include, for example, various taxes and fees, and import/export duties.
The second category covers any other active and explicit government intervention but which does not involve a direct financial transfer as specified under Category
1. Category 2 subsidies are services provided by the public sector or indirect financial transfers, e.g. tax rebates. Their cost may or may not be specified in the public budget and the value to the industry does usually not appear explicitly in the accounting of the recipient industry.
Examples of Category 2 subsidies are:
Investment loans on favourable terms, loan guarantees, special insurance schemes for vessel and gear, provision of bait services, indirect export promotion support, inspection and certification for exports, specialized training, extension, ports and landing site facilities, payments to foreign governments to secure access to fishing grounds, government funded research and development programmes, international cooperation and negotiations, fuel tax exemptions, investment tax credits, deferred tax programmes, special income tax deductions, etc.
Our third category of fisheries subsidies includes government regulatory interventions. The government cost of Category 3 subsidies - usually an administrative cost - may be accounted for among other public expenditures for management and regulations and be difficult to identify. The value to the industry does usually not appear directly in the accounting of the industry unless it is a profit-decreasing subsidy entailing an expenditure for the industry (for example, the obligatory procurement of a certain type of gear).
Some examples of Category 3 subsidies are:
Import quotas, direct foreign investment restrictions, environmental protection programmes, gear regulations, chemicals and drugs regulations, fisheries management, etc.
The last and fourth category covers the area of lack of government intervention and may be the most difficult one to deal with. Category 4 comprises inaction on behalf of the government that allows producers to impose - in the short or long-term - certain costs of production on others, including on the environment and natural resources. By definition, they do not imply a direct expenditure to the government (but may represent foregone revenue) and their value to the industry is often implicit.
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FIGURE 7
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Examples of this type of subsidies include:
Free access to fishing grounds, lack of pollution control, lack of management measures, non implementation of existing regulations, etc.
As can be seen, the Guide's classification in categories builds on the modality of the subsidy, i.e. what the mechanism is of the subsidy, and what type of government action it represents.
The WTO definition of subsidies was discussed in Box 1 and it would appear that our Categories 1 and 2 correspond quite closely to the WTO definition. However, the WTO ignores the "reverse" - profit-decreasing - subsidies, such as taxes, as well as actions (or inactions) by foreign governments and international organizations. Moreover, the provision of most infrastructure and border measures are not considered subsidies by the WTO. In addition, the WTO narrows the range of subsidies down to those being relevant in the context of trade, using a number of criteria.
In their report on the Transition to responsible fisheries: Economic and policy implications, the OECD defines government financial transfers (GFTs) as measures that "alter the incentive structure faced by participants in a sector" (OECD 2000, page 129). This characterization is relatively close the Guide's definition of subsidies but the OECD uses the monetary value of the government intervention as the practical criterion for its definition instead of the effect on the industry's profits as used by the Guide. The list of interventions defined as GFTs is more extensive than the WTO's and includes direct payments (corresponding to the Guide's Category 1), cost reducing transfers (corresponding closely to the Guide's Category 2 including, for example, loan guarantees and tax rebates), general services (covering management and research expenditures, provision of fishing ports and other services, etc., included in the Guide's Categories 2 and 3) and market price support[4] (i.e. in particular border measures which are in the Guide's Categories 1 and 3 depending on their modality). It would hence appear that the OECD's definition of GFTs is very similar to the Guide's definition of subsidies, with the important exception of Category 4 - non-interventions. However, in an earlier report, the OECD states that lack of government intervention can constitute an implicit subsidy to the use of the fish resource (OECD 1993).
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BOX 3 Some subsidies may fall into several different categories at the same time. Duty on imports of fish and fishery products, for example, may - as a regulatory intervention - protect local producers and would hence be a profit-enhancing Category 3 subsidy for the processing industry. At the same time, it may be a profit-decreasing Category 1 subsidy for fish importers and retailers who are paying the import duties. Likewise, most subsidies are impacting not only on the direct recipient of the subsidy but will be "carried along" in the downstream production and distribution chain and it could at times be difficult to determine which stage in the chain should be considered the true direct beneficiary. Market facilities at a landing site, for example, benefit both the fishers - the sellers - and the traders and processors - the buyers. When studying subsidies, each measure and support program has to be analysed individually and should be classified according to its particular characteristics. Naturally, there are subsidies that are difficult to put in one "box". The Guide suggests using the most direct and main impact on revenues or costs of the industry or firm as the criteria for the classification and the Guide's focus is on the short-term financial effects. Probably without exception, all subsidies have indirect consequences, side effects as well as a longer-term impact but, even though their importance is recognized, these should not be the main concern for the classification at this stage and their detailed assessment is generally outside the scope of this Guide (see also chapter 6). It should also be remembered that the examples of subsidies and of how to classify them in this Guide are only there for guidance. The objective and framework of our particular fisheries subsidies study may require a certain structure of the information and we may find that we want to classify certain measures or situations in a different way from what is recommended in the Guide. We will also most certainly find subsidies that are not specifically mentioned in the Guide. |
A study on subsidies in the APEC member economies adopted a definition of subsidies and support programs similar to the one used by the OECD (PricewaterhouseCoopers LLP 2000). It was however pointed out that a number of parties did not consider some of the so-called support programs, included in the study, to be subsidies. These support programs included fisheries management, conservation, enforcement and research and development. Still, it was recognized that "it is arguable that these programs could be considered subsidies if the costs of the programs are not passed on to the fishing industry" (PricewaterhouseCoopers LLP 2000, page 3).
In a World Bank study, Milazzo reviewed resource rent subsidies and the practice of levying user fees in the fisheries sector (Milazzo 1998). He concluded that there appears to be a trend towards increased use of fishing fees for management purposes. Moreover, he suggests that a subsidy created by the non-recovery of government fishery management costs could be compatible with the WTO Subsidies Agreement, although not explicitly addressed therein.
From the above discussion, it appears that the explicit government interventions of Categories 1 and 2 are generally accepted as being subsidies according to international practice. With regard to Categories 3 and 4, these subsidies represent more implicit benefits (or detriments) to the industry and here the arguments are not quite as clear. Still, it would appear that there is tendency towards a broader definition of subsidies and we may want to consider this when we identify the subsidies for our study, especially if the results are to be used in cross-country comparisons.
There are of course many ways of classifying subsidies and also many possible subcategories available. Some of the main aspects found in the literature according to which subsidies can be classified are reviewed in Appendix II. A list containing more examples of subsidies from the different categories presented here is found in Appendix III.
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[4] Market price support was
not included in the work presented in the report but is subject to a separate
study. Different methods are needed for identifying and measuring market price
support than those used for other GFTs (see OECD 2002). |
