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lead.jpg (22302 bytes)    Volume 4 
   Number 2
   28 May 1999 

Thorir Ibsen

Iceland Ministry for Foreign Affairs


There is a growing concern in the world community about the state of fish stocks, ocean habitats and marine biological diversity. This concern centers not least on the issue of overfishing. This apprehension is understandable in the light of the importance of the oceans for the world community. Indeed, the living resources of the oceans are the single most important source of food for humankind, they provide for the livelihood of millions of people in coastal communities and even of whole nations, and they are of critical importance to the world’s biological diversity. Hence the crucial importance that these resources be conserved and used sustainably for the benefit of both present and future generations.

The common approach to overfishing is to attribute the cause to ineffective fisheries management. Fisheries management is certainly a necessary condition for sustainable fisheries but it is not the only condition. Overfishing is as much an economic problem as the fault of bad ecological management. More specifically it is increasingly recognized that overcapacity of the world’s fishing fleet is the driving force behind the overfishing in many regions of the world.

As soon as the problem of overfishing is approached from this broader perspective, a linkage is made between fisheries, trade, the environment and sustainable development. The following paper offers a look at this linkage through the experience of one country, notably Iceland. First we will review briefly the development of the trade and environment issue, then we will address sustainable fisheries in the context of global market conditions.

Trade and Environment

It is a while since the world community recognized the importance of the link between trade and environment.3 The issue emerged in relation to the growing environmental awareness leading up to the Stockholm Conference on the Human Environment in 1972. At first, the concern was primarily from trade experts who were concerned that environmental policies and conventions would lead to new barriers to trade. A special group on Environmental Measures and International Trade (EMIT) was established in 1971 under the auspices of GATT. However, for a variety of reasons this group remained inactive.

The trade and environment nexus received renewed attention in the period leading up to the UN Conference on Environment and Development, held in Rio de Janeiro in 1992. A new paradigm had emerged under the name of sustainable development. The new direction stressed the need for integrating environmental concerns into all sectors of society. One aspect of this new thinking was the demand that trade and environment policies should be made mutually supportive.

In this climate, the EFTA countries (the countries of the European Free Trade Association) pressed in 1990 for the revival of the 1971 GATT Group. Subsequently the EMIT group met from November 1991 to January 1994. The discussions in the group helped moving the issue forward in the sense of making governments more comfortable with this important issue, which by now was also being addressed in other international fora such as UNEP, UNCTAD, CSD and OECD. Valuable analytical work was conducted, but practical results were beyond the group’s reach.

Building on the group’s work and recognizing the need to move beyond the analytical dimension, the Marrakesh Ministerial Conference in April 1994 decided to take the discussions one step further and directed the first meeting of the General Council of the WTO to establish a Committee on Trade and Environment (CTE). The task given to the Committee was to continue the analytical work, but with a more proactive intention, or as it is put in the decision "(a) to identify the relationship between trade measures and environmental measures, in order to promote sustainable development; (b) to make appropriate recommendations on whether any modifications of the provisions of the multilateral trading system are required, compatible with the open, equitable and non-discriminatory nature of the system..."

The Committee on Trade and Environment has met regularly since February 1995. Cognizant of the fact that the WTO is not mandated to carry out work in the field of the environment, the Committee has sought to focus on those aspects of the trade and environment nexus that fall under the competence of the organization. In other words, the task is to resolve concrete trade policy issues that would offer what have been called "win-win" or even "win-win-win" solutions for trade, the environment and sustainable development alike. This approach allows for specific issues to be addressed in a more concrete manner with a view to making the multilateral trading system more supportive of sustainable development, both in general and what matters more, with respect to specific economic sectors.

There seems now to be an emerging consensus within the Committee that there is no inherent contradiction between trade liberalization on the one hand and environmental protection on the other. The two can and should proceed in unison to maximize the benefits of the respective policies pursued in favor of sustainable development. All available evidence suggests that policies to liberalize trade and investment have a positive impact on the environment, when environmental polices are set at appropriate levels.

The Economics of Sustainable Fisheries

Fisheries management is of crucial importance to the promotion of sustainable fisheries. Such a system must be based on sound scientific knowledge and rigid surveillance and enforcement. Yet while fisheries management is a necessary condition for sustainable fisheries it is not sufficient all by itself. For the system to be effective it must be accepted and supported by the fishing industry and fishermen alike. An important way to build that support is to raise awareness through consultation between public authorities and the fishing community. But a more effective way is to give those who live from fisheries an economic stake in conserving the stocks and using them in a sustainable manner. For that to happen the fisheries sector must be made economically efficient. In short, economic efficiency is required to ensure ecological efficiency.

To offer an example, the Government of Iceland devoted some fifteen years to developing an effective sustainable fisheries management system. Total Allowable Catch (TAC) was introduced for all the most important commercial fish species, based on sound scientific observations and assessments. Also, to ensure that catch levels were not surpassed, a rigid enforcement and compliance system was established to monitor the fishing of every fishing vessel in the country with the help of a state-of-the-art computer system that links all ports of landings to the Directorate of Fisheries.

Yet despite the ever more stringent system, there was always pressure from the industry to increase the TAC and to allow for more fishing capacity. The underlying reason was that the system lacked the economic incentive granting the industry and fishermen a more direct stake in the conservation and sustainable use of the stocks. The one factor standing in the way of generating this incentive was the overcapacity of the fleet. In other words, there were too many boats fishing the limited amount of fish to allow for sufficient economic return for the operations. The fleet had to be rationalized. Towards this end Individual Transferable Quotas (ITQs) were introduced.

The advantage of ITQs is the efficiency and flexibility offered. Fishing operations can increase or reduce their harvesting rights and change their composition in accordance with what they feel is cost-effective. This they can do by trading in catch quotas through a public auction market, the Quota Exchange. The price is determined by supply and demand and payment for harvest rights is either made in monetary form or by exchanging rights.

The cost-effectiveness of fishing in Iceland has increased substantially due to the quota system. Many enterprises have merged to allow for increased efficiency and to spread operating risks. Both management and ownership of enterprises have also changed and presently most of the country’s larger fishery enterprises are listed on the stock market. This, coupled with the flexibility of the system, has led to results in line with the generally positive experience from the application of ITQs in other countries, which broadly speaking means,

  • there has been a decline in fishing efforts;
  • the growth of the fishing fleet has stopped and in some cases contracted;
  • economically important fish stocks have recovered;
  • the quality of landed catch has increased;
  • profitability has increased; and
  • total employment in the industry has not contracted significantly owing to the increased emphasis on product value and quality.

The fisheries management system in Iceland is still under development. But the experience to date has shown that the success of sustainable fisheries management depends not only on rigid ecological requirements with respect to science and catch levels and on active participation of stakeholders, but also and perhaps more importantly on the fisheries sector being economically efficient.

The Global Context - How WTO can help

It is difficult for any country to maintain a sustainable fisheries management regime in a world market characterized by overcapacity. Such circumstances provide for constant pressure on the domestic fisheries sector and through it on the government to increase supply, notably by allowing more fishing, to the detriment of fish stocks and marine biological diversity. This is in particular relevant for countries that depend heavily on export of fish products, such as Iceland where fish products constitute more than 70% of the export value of goods. Global overcapacity creates supply distortions that place downward pressures on world seafood prices. This situation reduces revenue which each fishing operation seeks to meet by increasing their individual supply by intensifying fishing with subsequent negative effects on fish stocks.

According to FAO statistics the overcapacity of the global fishing fleet was 30% in 1989. Others believe this figure to have been an underestimation and assess the current overcapacity as high as 150%. Government subsidies are a major cause of this overcapacity. A recent study made by Matteo Milazzo and published by the World Bank estimates that a total of US$14 to 20 billion of environmentally harmful subsidies are being granted to the global fisheries sector, which amounts to 20 to 25% of world fisheries first-sale revenues. According to the study, the OECD countries and China may be responsible for up to 75% of these subsidies.

Government subsidies encourage both excessive fishing effort and overinvestment in fishing capacity. Gareth Porter offers a useful summation of the effects of subsidies:

State subsidies to the fishing industry contribute to overcapacity in three ways: First, by reducing costs and increasing profits per unit of effort, state subsidies have attracted more entrants into the fishing industry. Second, by reducing the cost of adopting new technologies, subsidies have induced more of the industry to adopt those technologies than would have been the case in an undistorted market. And, third, subsidies have encouraged producers who would have disinvested partially or completely to remain in the industry, in spite of serious financial difficulties caused by overfishing. Subsidies to the fishing sector have prevented the market signals from influencing the fishing industry to stop investing in already overcapitalized fisheries.

The single most effective way to resolve the overfishing problem would be the removal of subsidies. It needs examining to what extent this could be accomplished within the framework of the existing WTO Subsidies Agreement. Certainly, many of the subsidies being granted to fisheries operations can be deemed actionable under its provisions. However, there are numerous subsidies that clearly do not fall under the Subsidies Agreement and coverage is questionable with regard to others. It is for this reason that Iceland, Australia, New Zealand, the Philippines and the United States have taken the initiative to encourage WTO Members to address in the next round of negotiations the issue of fisheries subsidies with a view to their removal. At the High Level Symposium on Trade and Environment held by the WTO in Geneva last March 15 and 16, these countries presented a joint statement where they urged "Governments to make an early commitment to progressively eliminate fisheries subsidies that contribute to fisheries overcapacity, in view of their environmentally damaging and trade distorting effects, and to pursue work in the WTO aimed at achieving the reduction and elimination of such subsidies. Progress in this area would represent a clear "win-win" achievement in the area of trade, environment and sustainable development."

In general, the statement was favorably received by other participants at the symposium. In the words of one commentator, "this is the first time any serious effort has been made to give priority to a topic for negotiation here [read: WTO] based largely on a concern with sustainability, rather than a concern with the kind of traditional commercial interests that otherwise drive the WTO agenda." There is also a growing interest in this matter as evidenced by the increased attention fisheries subsidies have received in recent years in fora such as the CSD, the OECD and the APEC, as well as within WTO and FAO. Indeed, in February of this year Governments adopted in FAO an International Plan of Action for the Management of Fishing Capacity which calls on States to "reduce and progressively eliminate all factors, including subsidies and economic incentives and other factors which contribute, directly or indirectly, to the build-up of excessive fishing capacity thereby undermining the sustainability of marine living resources, giving due regard to the needs of artisanal fisheries."

Concluding Remarks

Experience has shown that in the best of all circumstances, the management of natural resources is best entrusted to those living from those resources. In the case of fisheries, the best of all circumstances include effective and ecologically sound fisheries management systems, economically efficient fisheries sectors and global market conditions conducive to sustainable fisheries.

At present, sustainable fisheries are being practiced in a number of countries and regions. But the ability of the countries concerned to maintain sustainability in their fisheries and the possibilities for others to move towards sustainable fisheries is being seriously undermined by a global market characterized by subsidized overcapacity and other market distortions affecting fisheries and fish products. The good news, however, is that this fact is being widely recognized and a window of opportunity stands open to the WTO to address this problem in substantive and comprehensive fashion in the upcoming round of trade negotiations.


  1. Iceland Ministry for Foreign Affairs, Department of Natural Resources and Environmental Affairs. The views expressed in this article are those of the author

  2. Ragnar Arnason, "Fisheries Subsidies, Overcapitalization and Economic Losses", Proceedings of Workshop on Overcapacity, Overcapitalization and Subsidies in European Fisheries, CEMARE, Portsmouth 28-30 October 1998 [forthcoming].

  3. For historical review consult WTO Trade and Environment Division "High Level Symposium on Trade and Environment, Geneva 15-16 March 1999, Background document", and IISD Linkages: Trade & Sustainable Development

  4. Decision on Trade and Environment, 14. April 1994, Marrakesh Ministerial Conference.

  5. Ragnar Arnason, "Rational Sustainable Exploitation of Marine Resources", Paper Presented at a meeting of European Council Committee on Agriculture and Rural Development, Paris February 27, 1998, pp. 6, 11-12.
  6. Matteo Milazzo, Subsidies in World Fisheries: A reexamination, World Bank Technical Paper No. 406, Fisheries Series, (Washington D.C., World Bank, 1998), p. 5.
  7. Gareth Porter, Too Much Fishing Fleet, Too Few Fish. A Proposal for Eliminating Global Fishing Overcapacity, World Wildlife Fund, 1998, pp. 8 and 12.
  8. Gareth Porter, op. cit., Ragnar Arnason (Oct. 1998), op. cit.
  9. Matteo Milazzo, op. cit. pp. 73-74, 77.
  10. Gareth Porter, op. cit. p. 14.
  11. David Schorr, Towards Rational Disciplines on Subsidies to the Fisheries Sector: A Call for New International Rules and Mechanisms. A WWF Discussion paper, September 1998.
  12. "Promote Sustainable Development by Eliminating Trade Distorting and Environmentally Damaging Fisheries Subsidies", a joint statement of Australia, Iceland, New Zealand, the Philippines and the United States presented to the WTO High Level Symposium on Trade and Environment, Geneva 15-16 March, 1999.
  13. Statement of David Schorr, World Wildlife Fund (WWF - US), WTO High Level Symposium on Trade and Environment 15-16 March 1999, Panel 2 -- Synergies.
  14. FAO Committee on Fisheries, International Plan of Action for the Management of Fishing Capacity, 15-19 February 1999