Author: Debashis Chakraborty,

Assistant Professor of Economics,

Indian Institute of Foreign Trade, New Delhi.

Email: debchakra@gmail.com;

Julien Chaisse,

Assistant Professor at the Faculty of Law,

Chinese University of Hong Kong.

Email: julien.chaisse@cuhk.edu.hk.

Animesh Kumar,

Research Fellow at the Centre for WTO Studies,

Indian Institute of Foreign Trade, New Delhi.

Email: animesh012@gmail.com.

INTRODUCTION

The provision of subsidies in different forms (e.g., export subsidies, domestic subsidies, production subsidies or decoupled subsidies, tax relieves) to help local entities realize a competitive advantage vis-à-vis foreign competitors is widely practiced across the globe. While subsidies represent an important instrument in pursuing domestic policy goals and redistribution, the distortions caused by them is a well-known phenomenon.(1)

Understandably, the multilateral trade negotiations have tried to limit the distortions generating from provision of industrial subsidies since GATT days. The GATT 1947 Contracting Parties adopted an illustrative list of prohibited export subsidies in 1960 before the Tokyo Round negotiations to reach a special Code for Subsidies. During the Uruguay Round negotiations, the Agreement on Subsidies and Countervailing Measures (ASCM) was negotiated, where the term ?subsidy? is defined in detail in Article 1. (2) The Agreement classifies subsidies into three broad categories as per the ?traffic light? approach, namely: (i) prohibited; (ii) actionable; and (iii) non-actionable subsidies.(3) Prohibited subsidies are ?red light? subsidies which are harmful to trade per se. Non-actionable subsidies are ?green light? subsidies which are considered to be permitted on the grounds of an explicit reference in the legal text. This category unfortunately was applied only for a period of five years beginning with the entry into force of the WTO, since developing countries were afraid it would be excessively used by industrialized countries. Today efforts are under way to put it back, as the category is important for the promotion of small and medium-sized enterprises (SMEs) in developing countries as well. Lastly, actionable subsidies are ?yellow light? subsidies which are open to be challenged only if they are considered to cause adverse effects on international trade. The agreement also incorporates the corrective measures a country can implement.(4)

One sensitive area under the recent Doha Round negotiations involves provision of fisheries subsidies,(5) given its adverse implications for the large number of fishermen in developing countries and Least Developed Countries (LDCs). According to UN estimates the fishery sector provides means of livelihood through direct and indirect routes to around 500 million people in recent period (6) and the number is expected to increase further. Nearly 40% of global fishery production is exported, and almost 50% of international trade in this category is explained by developing country exports.(7) Fisheries subsidies lower the total cost of production, leading to overcapitalization of fishing industry and exploitation of fish stocks, (8) particularly in the absence of effective management. Apart from direct subsidies, indirect subsidies through access right transfer agreements play an equally important role. Though fishing access agreements confer economic benefits to the South if effective enforcement and compliance mechanisms are introduced, (9) evidence to the contrary does exist.(10) For instance, several of the EU fisheries agreements with West African States potentially led to resource overexploitation, as catch quotas for EU vessels were not specified. (11)

In this background, there is a need to understand to what extent the current multilateral negotiations on fisheries subsidies are going to address the valid concerns of WTO Members. The current paper is arranged along the following lines. First, the ASCM is analyzed and the potential risks of misinterpretation are discussed in Section 2. Section 3 looks into the actual violations of ASCM from the reported/concluded WTO cases. The current trends in Fisheries Subsidies negotiation and the concern for the developing countries are discussed in Section 4. Section 5 draws the conclusions.

NOTES:

(1) Renée Sharp & U. Rashid Sumaila, Quantification of U.S. Marine Fisheries Subsidies, 29(1) N. AM. J. FISHERIES MGMT. 18, 18-19 (2009); Anne Tallontire, Trade Issues Background Paper: The Impact of Subsidies on Trade in Fisheries Products 17 (Policy Research – Implications of Liberalisation of Fish Trade for Developing Countries, Project PR 26109, 2004); Peter Gooday, Fisheries Subsidies 14-15 (ABARE Report for the Fisheries Resources Research Fund, Project 1833, 2002); OCEANA, Fisheries Subsidies: The Good, the Bad, and the Ugly 1 (2007), http://na.oceana.org/sites/default/files/o/fileadmin/oceana/uploads/dirty_fishing/cut_the_bait/2007_Subs_outreach_kit/Pauly_Report_Backgrounder_FINAL.pdf (last visited Feb. 27, 2011). The striking example of trade distorting subsidies, the upland cotton subsidies granted by U.S. government for local farmers which had more adverse consequences away from its shores. The efforts of rural farmers in developing countries are being undermined by these subsidies. Therefore the fulfillment of obligations by WTO members and further development of subsidies regulation within the WTO framework prevent its Members from the adverse consequences of harmful subsidies. To sum up, the main focus of subsidy regulation, established under the WTO agreements, is to try to control and reduce the trade-distorting effects of subsidies.

(2) For a commentary, see Luan Xinjie & Julien Chaisse, Why Will China Establish a Government-Sponsored Response Mechanism in Countervailing Games?, 10(2) J. WORLD INVESTMENT&TRADE 227, 229 (2009).

(3) Since the Agreement includes in its definition of subsidies a number of commonly used investment incentives, it does not address this subject in terms of discrimination between foreign and domestic investment. For this reason, this Agreement tackles investment directly but it does not build up any significant incompatibility between foreign and domestic investment. See Julien Chaisse & Gugler Philippe, Foreign Investment Issues and WTO Law – Dealing with Fragmentation while Waiting for a Multilateral Framework, in ESSAYS ON THE FUTURE OF THE WORLD TRADE ORGANIZATION – POLICIES AND LEGAL ISSUES: VOL.1, at 135, 139-140 (Julien Chaisse & Tiziano Balmelli eds., 2008).

(4) Countervailing duties may be imposed after an investigation of a member has led to determine the existence of (i) a countervailable subsidy; (ii) injury to the domestic industry producing the like product; and (iii) a causal link between the subsidised imports and the injury.

(5) Marcos A. Orellana, Towards Sustainable Fisheries Access Agreements: Issues and Options at the World Trade Organization 1 (Commissioned by United Nations Environment Programme (UNEP), Economics and Trade Branch (ETB), 2008).

(6) Ed Pikington, Saving Global Fish Stocks Would Cost 20 Million Jobs, Says UN, http://www.bus inessgreen.com/bg/news/1805526/saving-global-fish-stocks-cost-million-jobs-un (last visited Feb. 27, 2011).

(7) Caroline Dommen, Fish for Thought: Fisheries, International Trade and Sustainable Development 2 (Int’l Centre for Trade and Sustainable Dev. [ICTSD] & IUCN – Natural Resources, International Trade, and Sustainable Development Series No. 1, 1999).

(8) Samar K. Datta & Rahul Nilakantan, Evolving India’s Strategies for the Global Debate on Fisheries Subsidies, 4(12) THE BAY OF BENGAL NEWS 13, 13-14 (2007); UNITED NATIONS ENVIRONMENT PROGRAMME [UNEP], ANALYZING THE RESOURCE IMPACT OF FISHERIES SUBSIDIES: A MATRIX APPROACH, at 1 UNEP/ETB/2004/10 (2004); Stephen Mbithi Mwikya, Fisheries Access Agreements: Trade and Development Issues 1 (ICTSD, Natural Resources, International Trade and Sustainable Development Series Issue Paper No. 2, 2006); Ronald Steenblik & Gordon Munro, International Work on Fishing Subsidies – an Update (1999), available at http://www.oecd.org/dataoecd/3/16/1918004.pdf (last visited Feb. 27, 2011).

(9) See John Atta-Mills et al., The Decline of a Regional Fishing Nation: The Case of Ghana and West Africa, 28(1) NAT. RESOURCES FORUM 13, 18-19 (2004).

(10) See Matteo Milazzo, Subsidies in World Fisheries: A Reexamination 41 (World Bank Technical Paper No. 406, Fisheries Series, 1998).

(11) Vlad M. Kaczynski & David L. Fluharty, European Policies in West Africa: Who Benefits from Fisheries Agreements?, 26(2) MARINE POL’Y 75, 78 (2002).