are an important and growing part of the fishing subsidies universe. WWF wishes to support the effective use of capacity-reducing subsidies. However, it would be a grave error for the WTO to give carte blancheto any program proclaiming itself to be aimed at capacity reduction. The mixed history of these programs, in combination with the intense interest of many governments in continuing to use them, will make the accommodation of capacity-reducing subsidies one of the most significant topics negotiated in the course of the WTO fishing subsidies talks. This highly technical issue will likely require treatment in greater depth than can be offered here. The following is intended to introduce some of the salient issues:
(a) Capacity-reducing subsidies can fail.The literature of fisheries management and fisheries economics is replete with warnings that capacity-reducing subsidies often fail, and have at times actually increased overcapacity.266This literature documents
a mixture of problems, including failure to associate capacity-reducing subsidies with proper management controls, “leakage” of capacity between fisheries, poor monitoring and enforcement, and “input stuffing” (reinvestment in more efficient vessels or gear). Even otherwise well-designed buy-back programs may cause increased investment in fishing capacity if the programs have been anticipated by investors accustomed to iterative government buy-back efforts.
(b) A green light for capacity-reducing subsidies should be narrowly defined and subject to strict conditions and limits.In light of the foregoing, it will be critical for negotiators to craft accommodations for capacity-reducing subsidies that are tightly defined and controlled. Among the approaches for doing this, negotiators should consider the following:
264.ALTERNATIVE: Instead of requiring a capacity management plan under the IPOA-Capacity, the rule could forbid green light subsidies in the context of any fishery that is “patently undermanaged” (see¶ V.D.3(b)).
265.This requirement tracks WWF’s proposed ban on subsidies to IUU fishing, which includes a call for hortatory language urging WTO members to include such a conditionality in the eligibility criteria for all fishing subsidies. See¶ V.C.5(d)(iii). The proposal here is to make such a contingency mandatory in the case of exceptions to the red light.
266.See, e.g., Cox and Schmidt (2002, ¶¶ 48–49); Gréboval (2000, ¶¶ 25–30); Lodge (2002, § 5.8); Munro (1998, esp.
22ff.); Porter (2004a, ¶¶ 72–106); Ward and Metzner (2002, § 5.3.2). A frequently cited (but apparently not available on the Internet) survey of experience with buy-back programs is Holland et al. (1999).
(i) Conditioning green light treatment on a capacity management plan meeting certain minimum formal criteria.In addition to the general requirement that all green light subsidies be granted only in the presence of a capacity
management plan consistent with the FAO IPOA-Capacity (see¶ V.E.5(e)), the green light for capacity-reducing subsidies could be conditioned on fulfilling additional specific requirements, such as evidence that capacity in a fishery is subject to regular scientific quantitative evaluation. These criteria might be similar to those developed for the “patently undermanaged” test (see
¶ V.D.3), in that they would not require actual judgments of the quality of management, but would be aimed at testing whether a government had put in place the minimum necessary elements of a capacity-management program. Even so, such criteria would likely have to be administered in part through authority-sharing mechanisms of the kind discussed in ¶ V.I.4.
(ii) Preventing the export of capacity and “input stuffing.”The definition of a capacity-reducing subsidy qualifying for green light treatment could be tailored to require programs to include design features such as guarantees against input stuffing (i.e., the use of vessel scraping or license retirement payments to enhance the gear or power of remaining vessels), reinvestment in capacity or fishing rights, or export of capacity. The notion of disallowing capacity exports has already been introduced into the negotiations by the EU.267
(iii) Subjecting capacity-reducing subsidies to time limits and rules against iteration.268The theory of a buy-back scheme is in some ways similar to the
theory of “safeguard measures” familiar to trade specialists. Like safeguard measures, a buy-back program is meant to be a one-time government intervention to help adjust productive capacity to the conditions of a new environment, while cushioning the blow to firms and individuals who must leave the field (or fishery, as the case may be). Like safeguard measures, subsidies for capacity adjustments are subject to abuse if they do not have a time limit. It is important to ensure that capacity-reducing subsidies do not become subsidies to operations, and to discourage speculative investment made in anticipation of (or assuming the likely safety net of) capacity-reducing subsidies. Accordingly, capacity-reducing subsidies qualifying for green light treatment should be subject to time limits, including limits to disallow repetitive or multiple programs applied to a single fishery or fleet. Article 7 of the WTO Agreement on Safeguards may serve as an instructive model in this regard.269
(iv) Building in a sunset clause for the green light on capacity-reducing subsidies
per se.270In addition to limiting the duration of any given capacity-reducing
subsidy, a time limit on the operation of the green light for such subsidies
Clarifying and Improving Fishing Subsidies Disciplines
P A R T V
V.E.5–V.E.6
267.The EU’s proposal for a red light includes a prohibition on “subsidies for the permanent transfer of fishing vessels to third countries, including through the creation of joint enterprises with third country partners.”
TN/RL/W/82 (EC, April 23, 2003), § 4. This proposal is consistent with a recently adopted EC regulation phasing out such subsidies by the end of this calendar year, discussed earlier in fn. 21.
268.WWF is indebted to Gareth Porter, among others, who used the occasion of one of the workshops preparatory to this paper to raise the suggestion of applying time limits to capacity-reducing subsidies. The idea is further developed in his forthcoming theoretical paper for UNEP (Porter 2004b).
269.Art. 7 (Duration and Review of Safeguard Measures) includes a four-year time limit, subject to limited a right of extension, as well as a rule against reapplication of the safeguards for a determined period of time.
might also be considered. This would, in effect, give added urgency to the need for the prompt and effective elimination of fishing overcapacity. Governments would be on notice that capacity adjustments would have to be accomplished within a certain period (perhaps five years?), or would risk having to proceed without the aid of subsidies. A rule of this kind would, of course, have to include some exceptions for cases in which overcapacity was suddenly generated by truly unforeseeable exogenous causes, such as natural disasters. (v) Conditioning green light treatment on specific monitoring and evaluation
requirements.As with so many other aspects of fishing subsidies,
transparency, active monitoring, and accountability are absolutely vital to any effective capacity-reducing subsidy program. Special reporting requirements for such programs should be built into a new green light.
(vi) Withdrawing green light treatment upon showing of actual increases in capacity.Finally, negotiators should consider a provision that would withdraw the protection of the green light for capacity-reducing subsidies where it can be shown that the subsidy has in fact funded capacity increases. As mentioned earlier in ¶ V.C.4(a), the definition and measurement of capacity are questions fraught with technical complexity. A rule such as the one proposed here could only be workable in a WTO context if a very broad and inclusive definition of “capacity” were adopted. Depending on the nature of the definition ultimately included in new WTO provisions, however, this rule might be one that would benefit from administration through authority-sharing mechanisms of the kind discussed in ¶ V.I.4.
(c) Textual and institutional approaches to a green light for capacity-reducing subsidies:The complexity of an effective and properly limited green light for capacity-reducing subsidies suggests that its details would likely require treatment outside the body of the SCM proper, perhaps in an appropriate annex. But beyond their technical difficulties, some of the ideas outlined in the preceding
paragraphs—particularly subparagraphs V.E.6(b)(i)and V.E.6(b)(ii)—also run hard against the “thin green line.” As with those provisions proposed elsewhere in this paper that rely on the concept of a “patently undermanaged” fishery,
negotiators may be faced with a stark choice between, on the one hand, a blunt and relatively weak rule administered purely by the WTO, and, on the other hand, a more effective and nuanced rule requiring administration in part through authority-sharing mechanisms.271