INTERNATIONAL TRADE LAW ASSIGNMENT

DR. SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY,

LUCKNOW

INTERNATIONAL TRADE LAW ASSIGNMENT

ON
THE ROLE OF SUBSIDIES IN INTERNATIONAL TRADE: FISHERY
SUBSIDIES

UNDER THE GUIDANCE OF Mr. SHAIL SHAKYA

SUBMITTED TO: SUBMITTED BY:

Mr. SHAIL SHAKYA SANJEEV VERMA

ASSISTANT PROFESSOR B.COM.LLB(HONS)

FACULTY OF LAW 7TH SEMESTER

D.S.M.N.R.U D.S.M.N.R.U

ASSIGNMENT ON ROLE OF SUBSIDIES IN INTERNATIONAL TRADE-FISHERY SUBSIDIES

INTERNATIONAL TRADE LAW ASSIGNMENT

ACKNOWLEDGEMENT
This project could not have been completed without the support of numerous persons. First, I
would never have been able to finish if I had not had the help and support of my teacher, Mr.
Shail Shakya, who not only encouraged me and proofed my work, but also provided useful
inputs for the completion of the project. In addition, I would like to thank my friends, who
spent time helping me refine my thoughts about the invasion.

Finally, I would like to thank the library staff for helping me find the correct sources of
information and also in finally developing the project.

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TABLE OF CONTENTS

1) INTRODUCTION..3
2) THE NATURE OF SUBSIDIES4
3) THE TYPES OF FISHERY SUBSIDIES..4-6
4) EFFECTS OF SUBSIDIES ON INTERNATIONAL TRADE.6-7
5) INDIAS EXPORT OF MARINE PRODUCTS8-9
6) INTERNATIONAL CONFERENCES9-10
7) OPPORTUNITIES AND CONSTRAINTS FOR THE TWO...10-12
8) CONCLUSION13
9) BIBLIOGRAPHY14

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INTRODUCTION

Fisheries in the World are reaching a turning point. Many of the traditional most highly
valued stocks are fully or overexploited in a biological sense; in economic terms most
fisheries employ excessive fishing effort to reach current levels of production. Ineffective
management is the fundamental cause for this over-fishing and excessive use of inputs. Weak
and ineffective management systems still govern exploitation of most major fish stocks.
Paradoxically, fisheries management effectiveness is being undermined by the very subsidies
that are provided to maintain fisheries sector income.1

Around the year 1990, it was observed that while agriculture output continued to grow, yields
from capture fisheries- the traditional and largest sector- were uneven and showed signs of
stagnation. Fisheries analysts identified and publicized these apparent trends in preparation of
the 1992 International Conference on Responsible Fishing at Cancun, Mexico, and in the
next few years, their assessments of trends continued to highlight this problem.

Practically, all fisheries experts point to ineffective management as the fundamental cause
of the overfishing and overcapacity that are so common throughout the world. In this view,
ineffective management or more specifically, the absence of adequate and meaningful
controls on access, inevitably induces participation at excessive levels. Further, until and
unless such controls are implemented, economically viable fisheries continue to attract new
entrants, eroding both the fisheries profitability and sustainability of the resource. And as
long as fishing effort and harvesting capacity are at excessive levels, profitability will tend to
decline and fishermen will press for subsidies. Unfortunately, subsidies when once provided,
tend to make the effort capacity problems worse, and the final result is an even more
intractable management dilemma.

The importance of subsidies in this sector is increasingly attracting attention. In a dramatic

piece of analysis, a 1993 publication prepared by Francis T. Christy Jr. and FAO Fisheries
Department staff argued that subsidies are a major causal factor in the creation and
perpetuation of excess fishing capacity, and even offered a gross, inferred estimate of
global assistance in fisheries.

1
Seung Wha Chang, WTO Disciplines on Fisheries Subsidies: A Historic Step Towards Sustainability? Journal
of International Economic Law, Vol. 6
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THE NATURE OF SUBSIDIES

Subsidies, loosely speaking, are government policies in aid of one or more industries, usually
carrying a financial benefit to the industry.2 At the most conventional level, subsidies are
government financial transfers to an industry, through payments to workers or to firms.

The range of possible definitions is extensive, from the narrow financial aid furnished by a
state or a public corporation in furtherance of an undertaking or the upkeep of a thing 3 to the
broad government action (or inaction) that modifies (by increasing or decreasing) the
potential profits earned by the firm in the short-, medium- or long-term.4 Between the one,
with its focus on direct government expenditures and the other, with its focus on the effect of
a governments policies on a firms anticipated profits, lies an abyss, filled with alternative
definitions that lie between the two extremes.

Definition by the Agreement on Subsidies and Countervailing Measures of the World

Trade Organization (WTO)- It offers a precise definition of subsidies which has legal
standing. The reason for this precision is to avoid ambiguity in the evaluation of subsidies
when used to justify countervailing duties and other disciplines against nations that may
violate the Agreement. Subsidies in the Agreement are defined as direct or potentially direct
transfers of funds from governments to firms or individuals (e.g. grants, loans, loan
guarantees, equity infusions), government revenue foregone (e.g. tax waivers or deferrals),
government provision of goods and services, other than infrastructure, at less than market
prices, and government support of prices and incomes. To be a subsidy, the action must
confer a benefit on the firm or individual, and it must be specific to an industry or group of
industries.5

THE TYPES OF FISHERY SUBSIDIES

Fisheries subsidies are defined as financial payments from public entities to the fishing
sector, which help the sector make more profit than it would otherwise.6 There are many
ways of categorizing subsidies.

2
William E. Schrank, Introducing Fishery Subsidies, FAO Fisheries Technical Paper No. 437, FAO Rome
2003, available at https://library.conservation.org/Published%20Documents/2009
3
The Compact Edition of the Oxford English Dictionary, Oxford: Oxford University Press, 1971, 3127.
4
W.E. Schrank and W.R. Keithly, Jr., The Concept of Subsidies, Marine Resource Economics, XIV, (1999),
151-164 at 163.
5
Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Geneva: GATT
Secretariat, (1994), 264-265
6
Global Fisheries Subsidies, available at www.fao.org
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[a] Direct government payments to the industry- Under this classification would be
included such a diverse range of subsidies as grants made for the purchase of buying new
fishing vessels, fishermens unemployment insurance, compensation for closed seasons,
equity infusions, and price support programmes.

Vessel decommissioning payments may be introduced to stimulate a process of reducing

excess capacity. Fishermens unemployment insurance may be introduced to stimulate
fishermen to enter or remain in the industry. Compensation for closed seasons may be
introduced to permit fishermen to remain in the industry when their incomes are
unexpectedly cut because of measures introduced by governments to protect declining fish
stocks. Equity infusions may be made to avoid the bankruptcy of fishing firms when the
bankruptcy would have catastrophic effects on the employment of a region, particularly when
the bankruptcy is caused by a temporary economic occurrence such as the decline of markets
during a severe business recession.7

[b] Tax waivers and deferrals- This classification includes such programmes as fuel tax
exemptions for fishing vessel fuel, sales tax exemptions, special income tax deductions for
fishermen and deferred tax programmes.Fuel taxes may be allocated for the maintenance of
highways. Sales tax exemptions and special income tax deductions would be "justified" if the
fishery were considered so important yet so financially precarious that these tax concessions
were considered necessary to maintain the industry. Sales tax exemptions for inputs used by
the fishing industry provide general support for the industry. Deferred tax programmes also
render the economics of the industry more favourable to participants, but if tied to special
programmes such as vessel replacement, they may also serve a safety role.

[c] Government loans, loan guarantees and insurance- The government may make loans
to fishermen or fishing firms on favourable terms. Alternatively, the government may
guarantee repayment of private sector loans when financial institutions require added security
that cannot be offered by the industry itself. The government may offer insurance when
private insurers decline to insure fishermen because of the perceived highly uncertain risk in
the industry. Each of these subsidies is offered to enable to industry to operate at lower costs
than would otherwise be possible.

7
U. Rashid Sumaila, Is an all or nothing WTO Fishery Subsidy agreement achievable? Trade and Development
Symposium, available at http://www.ictsd.org
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[d] Implicit payments to, or charges against the industry- These are programmes that do
not transfer funds to the industry and do not waive or defer payments that normally would be
made by the industry to the government. They may include programmes that reduce the
prices that industry pays government for goods to below market prices, or programmes that
may not involve government payments at all. Programmes where government makes
payments, or incurs costs, on behalf of the industry without the payments being made directly
to the industry include: payments for fishing rights to foreign nations; fisheries management;
fisheries enhancement; and gear development.

[e] General programmes that affect fisheries- Finally, there are tax waivers applicable to
all industries, subsidy programmes aimed at industries other than fisheries that may affect
fisheries either positively or negatively, and general social programmes that affect the entire
society. Examples of general programmes that fit into the category of tax waivers are
investment tax credit or accelerated depreciation schemes.

THE EFFECT OF SUBSIDIES ON INTERNATIONAL TRADE

Over the past several decades especially, governments around the world have played two
often conflicting roles in marine fisheries. In the first role, governments typically have sought
to secure food supplies to increase employment, and to promote economic development by
increasing the capacity of their fishing fleets and processing facilities. In the second role,
governments have tried to protect societys interests by restraining fishing fleets from
depleting public fishery resources.8

Two key features regarding subsidies

First, that they are not simply tax breaks or grants; they may include other kinds of
government policies, such as those involving research and development or marketing. The
second key feature is that they distort the way markets operate, allowing some groups to
benefit over others. Inevitably, disadvantaged groups succeed in securing the benefits of other
subsidies in order to maintain their parity in the marketplace.9

[a] Increased Fishing Capacity- A major proportion of the fisheries subsidies lead to
overcapacity of the global fishing fleet, through subsidization of vessels, equipment and
labour in one way or the other. The encouragement to creation of overcapacity could be

8
Suzanne Ludicello, Micheal L. weber, Robert Wieland, Fish, Markets and the Fishermen, Island Press, 22
June 2012, Business and Economics
9
Papers Presented at the Expert Consultation on Economic Incentives and Responsible Fisheries, Rome,
November 28 2000, Food and Agriculture Organisation Publication
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provided either through subsidization of capital costs / variable costs or by ensuring price
supports. It has been reported at times that the current size of the global fishing fleet is much
larger than the sustainable limit.
[b] Overexploitation of Fishery Resources- Creation of over-capacity in a country often
leads to overexploitation of the fish stocks owing to increased fishing intensity, both in own
country as well as in the developing countries through access rights route. More importantly
the economic signals of overcapacity and overexploitation (e.g. reduced productivity, lower
catches) often go unnoticed because of huge government support, which aggravate the
problems further. In addition, the provision of subsidies through price support may increase
the number of operators, and add to the consequent environmental risks.10

[c] Unfair Competition- Subsidies provided by several developed countries distort

competition by lowering production costs for their fishery sector, thereby giving them an
artificial competitive advantage. In particular, these producers may undersell other producers
(from the developing countries / LDCs) by charging a relatively lower price, i.e., may gain
market share at the expense of unsubsidized competitors.

CONCERNS ABOUT FISHERY SUBSIDIES

Subsidies provided by governments around the world are substantial. Until recently the most
cited global estimate of fisheries subsidies, prepared by the World Bank, was US$ 1420
billion per year. However, the University of British Columbias Fisheries Centre recently
released a comprehensive estimate for various subsidy types grouped into good, bad and
ugly categories, in both the developed and developing world.

The Good, The Bad and The Ugly

Good subsidies help to maintain or enhance the growth of fish stocks through conservation
and monitoring of catch rates via control and surveillance measures. Examples of good
subsidies are fisheries management, monitoring and enforcement programs. Bad subsidies
result in the growth of fishing effort, which can lead to outright destruction of the natural
resource.11They include all forms of capital inputs from public sources, such as vessel
construction and fuel subsidies. Ugly subsidies are ambiguous, and can lead to either
decline or growth in fishing effort depending on the context and management effectiveness.

10
U. Rashid Sumaila, Catching More Bait: A Bottom-Up Re-estimation of Global Fisheries Subsidies, Journal
of Bioeconomics Vol. 12 Issue 3, October 2010, available at www.heinonline.com
11
Trond Bjorndal and Gordon R. Munro, Incentive-Based Approaches to Sustainable Fisheries, Canadian
Journal of Fisheries and Aquatic Sciences, 2006, 63(3) available at www.jstor.com
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An example is vessel buyback or decommissioning programs, which if not designed and

implemented such that the industry is caught by surprise, will not guarantee that the subsidies
will have a reducing effect on overcapacity.

INCIDENCE OF FISHERY SUBSIDIES IN COUNTRIES

The major subsidizing countries include the developed and the advanced developing
countries in North America such as Canada and the United States, in Europe such as Spain,
Norway, Italy, UK, France and Denmark, in Asia such as Japan, Korea and Turkey and
Australia. The contribution of the 12 countries in the total subsidy basket for the year 1996. It
can be seen that Japan was the highest provider of such subsidies in the World. Hence, as the
volume of subsidy provided by Japan has gradually reduced that for the US has increased
over the period. Other major countries providing substantial volume of subsidies included
Korea and Canada. The proportional contribution of countries like Australia and the UK
remained more or less constant.

INDIAS EXPORT OF MARINE PRODUCTS

Taking the period from 1995 to 2008 it is observed that Indian marine exports have been
highest to Japan for all years except 2002-2006 during which export to the US was the
highest. Indias marine product export to Japan has declined over the years, which could
partially be explained by the weaker domestic demand and stringent SPS-TBT
requirements.12 Moreover, a declining trend is noticed with respect to the US market since
2003 as well. It may not be a coincidence altogether that these two countries are the major
subsidizers in the fisheries sector. The US and Japan remain as the top two export
destinations. It is observed that Indian export to this set of countries barring the exception of
Korea is not increasing over the period. The findings adds credence to the possibility that the
provision of fishery subsidy in these countries is leading to excess supply of fishery products
in these markets, providing unfair price and cost advantages to the local players and
restricting entry of developing country exporters like India.

EFFECT ON DEVELOPING COUNTRIES

There exists a difference in the exportable surplus sourcing behaviour of developed and
developing countries. Developing countries \LDCs generally export the fish caught by their
domestic fleets operating within their own Exclusive Economic Zones (EEZs). However,

12
Cox, A. and C. Schmidt (2002), Subsidies in the OECD Fisheries Sector: A Review of Recent Analysis and
Future Directions, Paris: Directorate of Agriculture, food and fisheries, OECD.
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they might decide to sell their EEZ access rights to foreign fleets for an agreed period of time
in return of financial contributions, if domestic capacity is limited.13 As a consequence, a
major source of fisheries and fisheries related employment in the developing countries \LDCs
might generally be lost to the developed countries. However, a more serious concern area is
that several developed countries provide subsidies to their fishing fleet (e.g. fuel subsidy),
which on one hand provides unfair cost advantages to them and may further increase the
over-fishing pattern on the other.14 The implications of increased fishery subsidies in the
North for developing countries like India is that on one hand the imported fishery products
could be subsidized and therefore compete unfavourably with the Indian varieties at the local
market. On the other hand, the domestic products of other countries could be subsidized and
put Indian exports to their home markets at a disadvantage.

PROGRESS TOWARDS CONSENSUS

Since fishery subsidy and consequent overfishing are global trade and environmental
problems, the debate at the multilateral forum has focussed on how to create a responsible
and sound utilization of marine resources.

INTERNATIONAL CONFERENCES
Cancun, Mexico
In May 1992, 67 nations and international organizations met in Cancun, Mexico at the
International Conference on Responsible Fishing to consider problems of world fisheries.
Among the concerns were the role of fish as a major source of human nutrition, the
importance of preserving the marine environment, and the problems of fishing
overcapacity.15 The Cancun Declaration on Responsible Fishing included twenty clauses
largely focused on problems identified in the contemporaneous Decade of Change
document.16 The title told it all: the concern reflected in the declaration was that there was a
need for the adoption by nations of improved and effective planning and management
standards for fisheries and for the further development of the paraphernalia required for
effective fishery management, including improved data collection and scientific knowledge.

13
Debashis Chakravorty, Doha Round Negotiations on Subsidy and Countervailing Measures: Potential
Implications on Trade Flows in Fishery Sector, available at www.googlebooks.com
14
Environmentally Harmful Subsidies Policy Issues and Challenges: Policy Issues ad Challenges, OECD
Publishing, Sept 2003, Technology and Engineering, available at www.googlebooks.com
15
Draft Cancun Ministerial Text, Aug 24, 2003, available at www.wto.org
16
Internet Guide to International Fisheries Law: http://www.oceanlaw.net/texts/summaries/cancun.htm (July 11,
2002) and http://www.oceanlaw.net/texts/concun.htm
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Rio de Janeiro, Brazil

The following month, June 1992, the Great Earth Summit, the United Nations Conference
on Environment and Development, met in Rio de Janeiro. This meeting, two years in
preparation, received extensive media coverage and focused the worlds attention on the
problems of the environment.17 Nearly every country participated and several documents
were agreed to at the Conference, most importantly, the Rio Declaration on Environment and
Development which consisted of a statement of 27 principles. While biodiversity, the
ecosystem, and habitat degradation were among the subjects of the principles, and the
principles were broad enough to encompass fisheries problems, there were no direct
references to fisheries or to subsidies

Rome, Italy
Three years after the Rio Conference, FAO sponsored a Ministerial Conference on
Fisheries. After noting that 70 percent of the worlds fish stocks were classed as being fully
exploited, overexploited, depleted or recovering from depletion, the Rome Consensus on
World Fisheries, a product of the Ministerial Conference, declared that there was a need for
urgent measures to avoid further decline.18 More than a dozen steps were urged on
governments and international organizations, steps that included reducing fishing to
sustainable levels and reducing overcapacity in fishing fleets.19 There was mention in the
Rome Consensus of neither the causes of the problems nor how the steps were to be
implemented. Subsidies, once again, were never mentioned.

OPPORTUNITIES AND CONSTRAINTS FOR THE WTO

Even after a decade of political debate, the parties to the WTO have yet to come to an
agreement on actions to eliminate overfishing subsidies. Several reasons account for this lack
of agreement.

Need for Enforceable Multilateral Agreement

First, countries are worried about free-riders, i.e., when some decide to cheat and therefore
reap the benefits of cooperation without any effort. Free-riders will gain a trade advantage
over countries that play according to the rules. To tackle this problem, a multilateral

17
Stephanie Meakin, The Rio Earth Summit: Summary of the United Nations Conference on Environment and
Development, BP-317E available at www.publications.gc.ca/Collection-R/LoPBdP/bp317
18
Fisheries and Aquaculture Department, available at www.fao.org
19
The Rome Consensus on World Fisheries Adopted by the FAO Ministerial Conference Rome, 14-15 March
1995, available at www.fao.org
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enforceable agreement is needed. At the moment only the WTO can provide such an
agreement.

Developing-Developed Country Dichotomy

The importance of the fisheries sector to developing countries should be taken into account.20
Under discussion are special provisions, also known as Special and Differential Treatment
(S&DT) that would allow developing countries to provide subsidies to develop their domestic
fishing sectors to service local demand for fish products and gain footholds in international
trade for fish products. However, many if not most, fisheries in the developing world are
already overexploited in which case overfishing subsidies will only serve to deplete the
resources further.

Fishing Access Agreements

These are agreements that allow a (usually industrialized) country or region to buy fishing
access for its fleet. An example is between the European Commission (EC) and some coastal
countries of West Africa.21 The reason these agreements are considered subsidies is that the
EC negotiates and pays the countries in West Africa on behalf of their fishing sector, thereby
enabling their fleet to earn higher profits than they would otherwise. The obvious way to
tackle this subsidy would be to demand that the fleets that benefit from having access pay for
these fees themselves rather than the government. This solution is, however, not
straightforward because developing countries such as in West Africa or the Pacific Island
countries rely heavily on the foreign exchange they earn from these agreements, and fear that
demanding that the fleets themselves pay the access fees will make access agreements
unattractive to industrial countries.

THE PRESENT DAY CONFLICT

One innovative way to deal with the concerns raised by developing countries would be to
combine policies on fisheries subsidies with those on conservation, trade and development,
which is not the case under the present WTO mandate. A possible solution is to develop a
package involving a number of multilateral organizations that simultaneously remove
overfishing subsidies, and develop adjustment programs to ease the short-term difficulties
that developing countries will face as a result of removing these subsidies. The good news is

20
Hong Kong Ministerial Declaration, December 22, 2005, WT/MIN(05)/Dec Annex D, para. 9. Available at:
http://www.wto.org/English/thewto e/minist e/ min05 e/final text e.htm
21
Atta-Mills, J. Alder and J. U.R. Sumaila, (2004), The Decline of a Fishing Nation: The Case of Ghana and
West Africa, Natural Resources Forum, available at www.googlebooks.com
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that the tens of millions of dollars of savings that will result from reducing overfishing
subsidies can be used to fund the adjustment program, and be redistributed as foreign aid in
order to meet the United Nations Millennium Development Goals aimed at building a better
world for the 21st century.22

The Conflicting Approaches

Despite progress within the Doha Round talks, at the most recent meetings of the WTO
Negotiating Group on Rules, countries clashed over the shape of future WTO rules on
subsidies while submitted contrasting proposals.23 The EU, Japan, Korea and Taiwan
advocate a bottom-up approach that would ban only specific types of subsidies (e.g.,
payments in support of the acquisition, modification or construction of fishing vessels)
leaving the rest (e.g., fishing access agreements and vessel buyback programs) permissible.
Other countries, including the US and New Zealand, want to ban all subsidies, barring
some negotiated exceptions, and are arguing that a comprehensive top-down approach is
necessary.

NEED FOR REDUCTION OF FISHING CAPACITY

Global fisheries are ailing. There is no simple, and surely no single cure. As primary
precautions, we must look to fisheries management. The only problem is that as long as
investment in the harvesting sector is excessive, the best thought-out management plans will
fail. Hence fishing capacity needs to be reduced.24

One cannot address overcapacity without confronting subsidization. The more subsidies, the
more capacity, the more capacity, the fewer fish per unit effort; the lower the fishers returns,
the more intense the pressure for government relief.25A proposal to treat this malady sounds
quixotic. There are many questions that remain for governments to resolve in order to deliver
a successful outcome to the fisheries subsidies talks. They are neither trivial nor
insurmountable but require urgent solutions.

22
World Trade Organization Negotiating Group on Rules: The Doha Mandate to Address Fishery Subsidies:
Issues, TN/RL/W/3
23
Steenblik, Ronald P and Munro, Gordon R (1999) International work on fishing subsidies - An Update,
OECD, available from www.OECD.org
24
Christopher D. Too Many Fishing Boats, Too Few Fish: Can Trade Laws Trim Subsidies and Restore the
Balance in Global Fisheries, 24 Ecology L.Q. 535 (1997) available at www.heinonline.com
25
Payne, I (2000) The Changing Role of Fisheries in Development Policy, Natural Resource Perspectives No
59, Overseas Development Institutes
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The Present Day Challenges

The issue of subsidies is a delicate and complex one. It is delicate in that subsidies are
introduced by governments for reasons which they consider to be valid, such as the economic
development role. Over time, subsidies which once may have served a useful social purpose
may have become entrenched and now serve primarily the interests of participants in the
industry receiving the subsidies. Eliminating these subsidies, then, becomes a local political
issue with, perhaps, international implications. No nation wants others intruding on its
domestic policies. The issue of subsidies is also complex in that there is no agreement even
on what a subsidy is. There is no agreement on how subsidies can be measured. There is no
agreement on how the effects of subsidies can be measured. In the policy realm, there is no
agreement on when subsidies are useful and when they are harmful.

CONCLUSION
Fisheries in the World are reaching a turning point. Many of the traditional most highly
valued stocks are fully or overexploited in a biological sense; in economic terms most
fisheries employ excessive fishing effort to reach current levels of production. Ineffective
management is the fundamental cause for this over-fishing and excessive use of inputs.

Practically, all fisheries experts point to ineffective management as the fundamental cause of
the overfishing and overcapacity that are so common throughout the world. In this view,
ineffective management or more specifically, the absence of adequate and meaningful
controls on access, inevitably induces participation at excessive levels. Further, until and
unless such controls are implemented, economically viable fisheries continue to attract new
entrants, eroding both the fisheries profitability and sustainability of the resource.

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BIBLIOGRAPHY

PRIMARY SOURCES

1. General Agreement on Trade and Tariff, 1994

2. Agreement on Subsidies and Countervailing Measures

SECONDARY SOURCES

Books

1. Nihirika Viz, International Trade Law, (Universal Law Publishing, 1st Edn., 2016)

Useful Websites

www.wto.org
www.jstor.com
www.heinonline.com
www.fao.org
www.unep.org

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