Something fishy going on... – how to rationalise European and global fisheries policies

World fish stocks are in peril. But despite massive overfishing, governments continue to support the unsustainable exploitation of maritime resources.

Incidentally, we are all on the same boat of unsustainable global fisheries policies, or rather, on the same sinking ship. The capacity of the global fishing fleet is twice the size of sustainable levels. As a result, 85% of the marine fish stocks worldwide are either fully exploited or overexploited, according to the FAO.

Like in a prisoner’s dilemma, only cooperation can optimise the outcome. In contrast to current practises, fisheries management must provide fishermen with proper incentives. The worldwide fisheries industries receive $14-20bn of subsidies each year. While it is true that subsidies do not automatically lead to overcapacity and overfishing, they certainly create incentives for fishermen to continue fishing despite losses.

With the reform of the Common Fisheries Policy (CFP), the EU now has the chance to set the example. The European Commission may be all at sea about the reform, but the challenges are daunting and catchy guidelines will not suffice.

First, the blatant overcapacity of the European fisheries fleet must be reduced. It is currently two or three times larger than sustainable numbers, consisting of 141 thousand fishermen and 85000 vessels. Around 60-70% of the stocks in the EU waters are overfished, and this has contributed to a decrease in catches by 26% during the last 15 years. However, as long as the EU spends money like water on the fishing industry; the proposed budget for 2014-2020 amounts to 6.5bn euro, these fishermen are encouraged to keep on fishing. Bilateral agreements allowing EU-flagged vessels to fish in third countries’ waters against compensation are neither a solution.

Second, the quota system must be reformed in order to avoid discarding. Inaccurately designed quotas currently force fishermen to throw horrendous amounts of fish back into the sea dead. The management and monitoring of the CFP must also be improved, notably to prevent illegal, unreported and unregulated fishing from slipping through the net.

As important and urgent as a sea change of the CFP might be, collective action is needed at the global level if EU policies are to have a bigger impact than that of a drop in the ocean. As the world’s largest importer of fishery products, the EU is dependent upon sustainable fisheries policies elsewhere. Imports account for 60% of the EU consumption.

However, the difficulties of the EU27 to reform its fisheries policies are multiplied at the multilateral level. While environmental alarms and important work conducted by the United Nations and regional organisations do not seem to induce countries to rationalise their fisheries policies, economic consequences might. Given that 39% of the total production of fish products is traded, the World Trade Organisation (WTO) could play an important role in preventing this tragedy of the commons from deteriorating. Building on the Doha mandate, countries have agreed to strengthen the ‘disciplines on subsidies in the fisheries sector, including through the prohibition of certain forms of fisheries subsidies that contribute to overcapacity and over-fishing’.

But the issue is controversial, and with ocean wide divergences in opinions, the WTO seems to be in deep water. If fisheries subsidies were to be prohibited as part of the Agreement on Subsidies and Countervailing Measures, countries would henceforth have the right to retaliate against a foreign country that subsidises its fisheries industry by invoking negative environmental externalities. This would expand the SCM agreement, which is currently confined to pure economic ‘injury’ or ‘adverse effects’ on industries.

Amid the Doha impasse, not even a watered down agreement on fisheries appears feasible. The negotiations have come to focus rather on expanding the exceptions than tightening the disciplines. While countries in the ‘friends of fish’ group push for stronger disciplines, others not only consider the issue to fall under national competence, but reject the causal link between subsidies and overfishing.

The deadlock is symptomatic of the ongoing changes in the global economy, making special and differential treatment for developing countries less of a clear cut issue. Asia produces 65.8% of the global fisheries production (China alone produces one third of the global production), Europe only 10.8%. Asia also has more people working in the sector. Out of the 150 million people that make a living out of fisheries worldwide, 85.5% live in Asia, 1.4% in Europe. But at the same time, the average production per person is much higher in Europe, 23.9 tonnes, compared to 2.4 tonnes in Asia, suggesting that subsidies have different impacts in different contexts.

But regardless of who is contributing the most to overfishing, or what the criteria for exemptions should be, clear incentives that reduce capacity and stop overfishing must be set. In economic terms, there are significant gains to be made. The foregone economic benefits resulting from overfishing and underperforming fisheries stocks amount to more than $50bn per year, according to World Bank estimates. But as long as the fisheries industry is forced to operate with losses, it is natural for fishermen to ask for subsidies. It is therefore also time to consider whether it is reasonable that the value of the capture only accounts for 20% of the total value of the fisheries market.

Policy makers must not wait to catch the next wave; this is the one time when we cannot rely on there being plenty of other fish in the sea!

Does the European development agenda help to increase trade with developing countries?

The new Communication from the European Commission and the ongoing reform of the Generalised System of Preferences (GSP) have revived the debate about trade between the EU and developing countries. According to this Communication, it is crucial for the European development agenda to outline the direction of trade and investment and to tailor its policy to meet the new needs of African, Caribbean and Pacific (ACP) countries. However, instead of presenting a comprehensive development policy and substantive GSP reform, the Commissions’ proposals focus on the format. The document goes far beyond the economic aspects, making the strategic objectives blurry. The preferential trade scheme aims at reducing the number of beneficiaries and decreasing the loss of tariffs revenue rather than improving market access to the EU.

The European Union and its Member states are the world’s biggest donors of development aid, accounting for 54% of global official development assistance. Although a significant part of the European aid (around 23%) is dedicated to increase the trade between the EU and developing countries, the effectiveness of these trade facilitation programs might be questioned. More precisely, despite the highly advertised GSP scheme, the access to the European market still remains restricted.

The non-reciprocal trade preferences of the GSP are a centrepiece of the European development agenda. This scheme and trade support measures are supposed to cover most of the import from developing countries, this does not seem to be the case though, when one looks at the figures. In 2007, the preferential access schemes covered 12.6% of the total value of goods that were exported to the EU under GSP scheme and 21.5% of the exports from countries benefitting from the GSP+. The Everything but Arms (EBA) scheme provided for duty-free and quota free access in only 16.5% of the exports in 2007. The proportion of imports covered by the EBA increased to 25.3% when the quota restrictions on sugar and rice were lifted in 2009.

Since 2007, the EU’s General Systems of Preferences thus fail to provide any significant improved market access for ACP countries. Developing and least developed countries still face barriers when exporting to the EU. Despite partial tariff reduction, non-tariff barriers and quotas remain in force to protect sensitive European sectors. The European Commission does not seem to be willing to admit this however. The current reform proposal seems rather superficial as it basically reduces the number of countries benefitting from the GSP and does not provide any substantial increase in tariff reduction and market access in general[1]. The goal to increase low-income and least developed countries’ participation in European import is presumed to be achieved by excluding better performing developing countries. Yet, the poor countries might not have the capacity to increase their exports and take advantage of greater European market openings.

The Economic Partnership Agreements (EPA) with developing countries is also a part of the development agenda since 2007. However, only one agreement has been singed so far. The EPA aims to promote economic development and to boost the trade with the EU. The agreements are focused on technical assistance as well as improvement of provisions on rules of origin, safeguards, custom and trade facilitation. However, they are highly criticised as substituting existing unilateral preferential access with almost fully reciprocal trade agreements that by many are seen as damaging for developing regions. According to the EPAs, African countries are now supposed to eliminate 80% of their tariffs and reduce barriers within a transition period of 15 or 25 years. In contrast to the EPA countries that are already covered by the EBA scheme, the ones that are not covered are offered to sign a free-trade agreement almost of the same type that the EU signs with its developed partners.

The other European development program that focuses on trade facilitation is Aid for Trade. Its main goal is to provide financial assistance for policy programs, infrastructure and production capacity. However, only 22% of the resources from this programme go to the Least Developed Countries (LDC) – the countries that need this type of support the most. As a solution, the European Commission has proposed a plan that targets LDCs more directly and supports small operators and producers as well as regional integration. Yet critics are concerned that the money is likely to go to international companies from developed countries rather than the people in need.

Trade can have a significant positive impact on economic development in poor countries. Hence, it is vital to find a way to actually improve the possibilities for developing countries to export and to make more effective use of their resources. Clear and transparent criteria and requirements should be established so that every developing country can fully benefit from the preferential access schemes. The remaining EU quotas, which hinder some of the most important exports from the least developed countries, mostly agricultural products, should be fully removed.

There is also a strong need for more comprehensive reforms. In the process, the beneficiaries should be included as partners, not as passive observers. The EU programmes should encourage self-regulation and active involvement from the developing countries in their own development process. It is equally important to deepen the cooperation with beneficiaries in order to fight corruption as well as to address the lack of mechanisms for good governance.

The aid should be carefully directed to the countries that need it the most. Enhancing the efficiency of the development assistance in order to improve institutional and infrastructural performances in the recipient countries is also essential. The Commission has to make sure that developing countries can make maximum use of their preferences and access the European market without bigger obstacles.

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[1] According to the European Parliament’s estimation, the coverage of the each scheme after the reform will be 32.5% for EBA, 15.3% for GSP+ and 10% for GSP.

The New EU Strategy for Trade and Development

There are some interesting ideas and proposals in the European Commission’s new Communication on trade and development. After a decade as leader of aid for trade, the EU now wants to reform its aid component in trade policy by concentrating it on the Least Development Countries (LDCs). Even if the proposals that are presented in the new strategy will not amount to a radical overhaul of current policy, they are important signals that the Commission now stands ready to spearhead reforms of its own as well as member states’ donations to trade capacity building. For inside-Brussels beltway observers, there are also some interesting nuances in the Communication. The language on a development package in the Doha Round negotiations, for example, differs from previously published strategies in so far as a development package is not explicitly conditioned on success in other negotiating areas.

Finally, the Communication also puts emphasis on some critical aspects of trade and development that often are neglected – for instance the inarguable fact that trade openings by the EU or other economies will not translate into many new trade gains for LDCs unless they reform their economic policy and institutions to a much greater degree than they have done so far. Furthermore, it points out that in many instances, it is not a specific developing-country aspect of trade policy that will help boost these countries’ trade. What many (but not all) developing countries would benefit from are exactly the same trade reforms that other countries favour other countries to undertake: reduced or eliminated market-access restrictions combined with a growth-friendly regulatory environment based on transparency and predictability.

Yet there are few things in the Communication that will catch the attention of key policymakers in developing-country capitals or make a difference in those countries’ efforts to grow their economies through trade. If the ambition with the Communication was to put forward a new component in EU trade policy, exclusive to only developing countries, it is difficult to reach any other conclusion than that the Commission has failed. Rehearsing many strategies form the past six years, since the launch of Global Europe, the Communication rather confirms that specific development aspects of trade policy are low on the agenda and that the EU is not planning to promote them.

This is not surprising. Nor should it necessarily be seen as a deliberative disinterest in promoting development through trade. Events in the past years have pushed the EU to give higher priority to other objectives with trade policy. Four year of crises in the EU – to be followed by what at best looks like anaemic economic growth for the rest of this decade – have strengthened those in the EU that favours a trade policy of mercantilist (if not protectionist) bent. Together with the collapse of the Doha Round, these crises have provoked the other and less defensive wing of EU membership to give higher attention to bilateral trade deals with other big economies – trade deals that could help the EU itself to expand trade and economic growth to a significant degree.

I have four concerns with this communication. First and foremost, it fails to include reforms of EU policy that would have a beneficial effect on developing-country export to the EU. Prime among these absent policies is agriculture. The EU is already operating a one-way free trade policy for the LDCs as far as tariffs are concerned. That is a good policy, and the Communication rightly claims that the so-called Everything-but-arms initiative has had a discerning effect on LDC export to the EU. But developing countries that are not in that LDC group would also benefit from similar access to the EU market – an access that probably not would have eroding effects on export from LDCs. And those developing countries, especially the big and populous ones, have more poor people than the LDCs. Furthermore, there are many other restrictions than tariffs in the agricultural sector. In agriculture or horticulture sectors, it is not always tariffs that present the biggest problems for potential exporters. Non-tariff barriers that are onerous and arcane tend to have a considerable trade-depressing effect. And the EU has not been shy in expanding its NTBs in the agricultural sector. Sanitary and phyto-sanitary (SPS) NTBs have proliferated, not seldom through food-safety regulations. This is not to say that such regulations are unjustified. The problem, however, is that many of them have been designed in an overly trade-restrictive manner (e.g. recent bans of Brazilian meat and Egyptian seed) and that the risk-management process leading to new regulations, or application of regulations, is not very transparent. Moreover, the expansion of the SPS NTBs has led to too high compliance costs for many developing-country exporters.

Second, and following on the last comment on NTBs, the EU fails to understand that many of the new sustainability criteria it has introduced in especially farm, food and forestry sectors have disproportionate effects on many developing countries that cannot comply with the new standards. This is not a black-and-white issue – and several developing countries should take greater responsibility for sustainability. But the issue here is rather that the EU has or will use ham-fisted restrictions to its own market as tools to either force through changes in developing countries or, as in the case of biofuels, help protecting local production in Europe at the expense of foreign producers. As far as the Communication has anything to say about new sustainability standards, it presents them as development-friendly. That is a distortion of facts – and several developing countries have already “called the bluff”. But the question remains: will the EU uphold and establish new sustainability standards (as planned) even when they limit production in and export from developing countries?

Third, the EU’s specific trade policy towards Africa is limited to concluding the remaining Economic Partnerships Agreements (EPAs). Judging by previous attempts to negotiate EPAs, that is an ambition which may prove impossible. I think the configuration of EPAs was flawed from the start, but it may be too late to change that now. What the EU can do, however, is help design a beyond-EPA trade policy, which could include, for instance, ambitions to promote regional trade integration in Africa in selected areas like services.

Lastly, the flagship reform in the Communication – a reform of the Generalised System of Preferences (GSP) – is disingenuous. It fails to convince anyone. It is not grounded in good economic analysis of the role of trade for development. The reform is sold on the premise that export to the EU from countries that will be disqualified from GSP will be substituted by export from LDCs. That is a very dubious proposition. The GSP reform rather looks as a suspicious attempt to put pressures on middle-income developing countries to conclude new Free Trade Agreements with the EU. I am in favour of such agreements, but the GSP system is not the right place for exerting such pressures.

It is understandable that a system of preferences adjusts itself to differences between developing countries. It is also understandable that the EU, like many other countries, are grappling with how to differentiate between developing countries with a small role in the global economy and developing countries with a systemically important role in the global economy. But adjustment by increasing tariffs on those countries that have enjoyed a good economic development (but still have a large share of the population living in poverty) will have negative consequences – for them as well as for the EU.

Resurrection?

Did you think that the Doha Round had died and was gone for good?  Not so : the Trade Ministers in December “deeply regretted that … negotiations are at an impasse”;  but they “remain committed to work actively …. towards a successful multilateral conclusion of the DDA”, and they  “recognize that Members need to more fully explore different negotiating approaches while respecting the principles of transparency and inclusiveness”. [1]

This has led commentators to say that “MC8 shelved the Round for an indefinite period” or that “the Doha Round was closing its doors provisionally” [2] – phrases that convey accurately enough the doubts that exist whether, after a pause for the US elections in 2012, it can be revived, with or without new approaches.  In current circumstances this is not a foregone conclusion.

So, where do matters stand three months on?  Here is a progress report, based on discussion at the EUI in Florence between Ambassadors[3] and trade policy experts and academics.  In summary, from the point of view of moving forward and exploring new approaches, it was somewhat disappointing.

Starting with a range of comments about the current situation, what we heard on the one hand was that no intermediary or facilitator (such as the WTO secretariat) could help when the sides “do not agree on what has to be done” and the gap was unbridgeable;  while on the other hand there were too many areas under discussion where developing countries saw benefits to others and no clear advantages for them.  Surprisingly, this was said about trade facilitation, where the ‘costs’ of changes to their systems for customs clearance were seen as outweighing any benefits to their trade; and about market access where benefits would be largely to ‘western’ exporters despite the record growth in south-south trade in recent years.

This all seemed to show that in three months not much has yet moved.  In peripheral comments [the Americans said] it was said that they had rejected the adoption of a duty-free, quota-free regime for LDCs largely because of …. opposition from other African countries who would face preference erosion (losing benefits they have under the AGOA scheme). The phantom of increased competition from Bangladesh was audible in the room.  There was also a reference to China being the principal subsidiser of cotton (based apparently on calculations by ICAC) – mentioned as a reason why the Americans could not reduce their own subsidy regime – which provoked a strong reaction from the other side. ‘You cannot shelter behind us’.

After all this navel gazing and facing backwards it would have been a relief to look ahead and see what new ideas might be under discussion.  One Geneva representative maintained that new approaches would have to be within the Doha mandate.  Almost the only truly ‘new’ candidate was the proposed plurilateral agreement on trade in services being elaborated by a group of 16 countries in Geneva;  but this did not take us very far. [4] Questions about whether new access would be applied MFN (and indeed could be applied in discriminatory fashion in a field of domestic regulation) or whether it would be an Art. V GATS agreement, or drafted as a ‘WTO agreement’ along the lines of the GPA, were largely left open.  

In other areas, less new, there was further support for trade facilitation (where there would be major infrastructure benefits as well as lower transactional costs), especially from the World Bank; but against the view that this was not a win-win sector, this made little impression.  There was also some exchange of view about regulatory divergence in the context of TBTs with the concept of mutual recognition and of negative listing being mentioned.

It was hard to see where this could lead in Geneva.  The current EU enthusiasm for all things bilateral, regional and plurilateral (agreements with Korea and in Central/South America, others under negot-iation with India and Malaysia, also Canada and Japan, the TPP, ACTA and the ISA on Services) is clearly gaining speed.  How such initiatives will be fitted into the multilateral system in due course remains unclear. I asked whether Geneva still considered that a bilateral US-EU initiative for closer trade relations “in a barrier free market” were still thought to be the death of the WTO.  No one wanted to address the issue.

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[1]   The Ministers also said that it was unlikely that the Single Undertaking concept (that “all elements should be concluded simultaneously”) could be realised in the near term (para 2), and for good measure they encouraged Members to work towards ‘early harvest’ agreements and ‘low hanging fruit’ (para 5).

[2]   Prof. Vital Moreira, MEP and Prof. Petros Mavroidis

[3]   From the US and EU, and also India and China, as well as the WTO secretariat.

[4]   This was the subject of an ECIPE/ESF conference on March 6^th.  Main protagonists are the US, Australia, Canada, with other OECD countries and a few others such as Chile, Mexico, Hong Kong, Singapore and Pakistan. The EU is participating in the work but more circumspect.

Spain: please make me austere, but not just yet

There is a heated debate in Brussels now about whether the European Commission should take a hard-line approach against Spain and other countries that will violate the three-percent deficit rule in 2012. And that debate, of course, is a microcosm of the larger debate about fiscal consolidation in Eurozone countries with wrecked public finances: will not new austerity packages to compress deficits only drive down economic activity and make it harder to balance the budget?

I think one has to separate between countries that really are in different positions in order to get a balanced policy. There are countries that most certainly have to use 2012 and 2013 to consolidate fiscal policy and lower deficits. If they do not, they will pay by higher bond yields. Among these countries are those that have had extraordinarily high deficits in the past years. Yet flexibility to violate debt rules should be allowed, but it should be conditioned: only those countries that clearly are undertaking public finance reforms that will have significant effects in the years to come (but not in 2012 and 2013) should be allowed departure.

But that is not enough. The important thing should be to allow flexibility to those countries that clearly undertakes structural economic reforms to boost productivity, competitiveness and growth. That is the key to fiscal consolidation – fiscal consolidation cannot be achieved without substantial economic growth above the Eurozone trend between 2001 and 2007. And part of such a reform agenda is that the government is on track with fiscal policy consolidation which will help to foster growth rather than the other way around.

This is where I have some doubts about Spain. Spain has certainly started to undertake economic growth reforms. In contrast to Italy and Greece, its unit labour cost has moderated in the past three quarters. But these reforms are insufficient. They alone are not going to turnaround the Spanish economy. Furthermore, Spain – and this applies also to the new government – has done a couple of austerity-related tax reforms which have increased taxes in a way that, in the first place, will make private-sector debt deleveraging harder (and prolong it), and, in the second place, put a damper on economic growth.

Tax reform is certainly needed parts of improved fiscal policy. But many of the tax increases that have been done will most likely slow down economic growth. This is certainly true for the slash-and-burn tax increases in Greece. But it is also true for Spain. Its increasing capital gains tax, for instance, will slow down much needed new investment in the Spanish economy. While a traditional Keynesian would say that non-utilization of investments in Spain is the problem and motivates efforts to increase aggregate consumption, the difficulty for Spain and other countries is that past investments were made in wrong areas. A low utilization ratio is not a temporary phenomenon but a permanent condition for a good part of these invested resources. For growth to emerge, new investments in post-bubble sectors will have to be made.

Spain is one of the countries that enjoyed the fastest rise of government spending in the pre-crisis years. Spending increased by levels similar to Ireland and Greece – much faster than for instance in Portugal or Italy. Many of the push factors behind that increase are yet not under control (e.g. pension system) and further reforms need to be done. Rather than a new austerity package to cut the deficit in 2012, Spain needs such structural reforms.