Individual Essay (ENP-32306)

Laksmi Larastiti

900212503060

Fisheries Subsidy, Trade, and Overfishing in Indonesia : A Review and Discussion Introduction The issue of fisheries subsidies emerge as international issue after the declaration of the fourth WTO Ministerial Conference in Doha, followed by the declaration in Hong Kong which called for commitment to enhance cooperation of both trade and environment (Sumaila, 2013). This polemic forces the WTO as the biggest international trade forum to strengthen the disciplines on subsidies in the fisheries sector, including the prohibition of certain forms of fisheries subsidies which may contribute to overfishing (MRAG, 2009). In addition to cover many gear to fish, fisheries subsidies are also encompass fuel subsidy (Stobutzki et. al, 2006) which expected to reduce the fisheries production costs thus can increase their revenue. Fuel costs occupy almost 60% of the total production costs which reinforces the fact that fuel subsidies are particularly important for the fishermen. However, fuel subsidies are assumed to have adverse effect by inducing fishermen to increase fishing effort and exploit natural resources excessively. The WTO that is under attack by environmental NGOs believes that fuel subsidies can be the root of resource depletion and environmental damage (WWF, 2001). The future fish stocks endangerment have triggered a dispute in international environmental regulation. Therefore, the WTO argued that fuel subsidies should be eliminated in order to achieve global sustainable fisheries. This condition become more difficult considering the fact that there is a strong demand from smallscale fisheries in Indonesia for fuel subsidy, with regard to significantly reduce fishing costs and increase their profit. Nevertheless, the contribution of this subsidy is double-edged, where the latter can enhance welfare of the fishermen, yet also may lead to degradation of fishery resources (Sumaila et. al, 2006) which threatens the sustainability of their livelihood. This paper argues that the global fisheries would not entirely profit from the subsidies, concerning the discrepancy between economic and environmental interests in fisheries enterprises. This paper looks at the fuel subsidy in fisheries which is distributed by the government to fishermen in Indonesia. The policy and economic context of Indonesian fisheries shows a greater urgency for effective subsidy plan, with regard to maintain the balance of resources trade and sustainability. Moreover, fisheries are affected by the fundamental problem that are treated as common property (Fujita and Bonzon, 2005), therefore people prone to maximize their share of the stocks. This paper aimed to explain the WTO fisheries subsidies negotiation and the impact on environment. Also, to discuss the need for Special and Differential Treatment (SDT) in the WTO negotiation in terms of the substantial development needed (Grynberg, 2003) by Indonesia as a developing country. Rule-based regimes applied as international trade pressure put WTO in charge to tackle this global problem of overfishing. Furthermore, overexploitation in fisheries are discussed using the theory of property right and prisoners dilemma in marine resources management. To that effect, a key challenges to align the economic and environmentalists interest are identified with the possible solutions to the problem offered.

Individual Essay (ENP-32306)

Laksmi Larastiti

900212503060

Marine capture fisheries industry in Indonesia Indonesia has the largest EEZ area in Southeast Asia where the capture fisheries industries were stated as a substantive sector contributed to social and economic growth (Stobutzki et. al, 2006). The production of marine capture fisheries in Indonesia (Figure 1) has intensively increased during the past years (Mous et. al, 2005). However, many different conflicting goals among stakeholders remains problem faced by marine resource trade and management in Indonesia.

Figure 1. Indonesia Capture Production (Adapted from FAO fishery statistic, 2013)

One of the important role of capture fisheries in Indonesia is that they can provide livelihood to the community, particularly in the coastal area. People depend on marine resources not only as a source of food, but also for all or part of their income (WWF, 2009). Employment rate in Indonesian fisheries is evidently high, that is around 1,3 millions of people with the rate of increase around 5 % annually (Bailey, 1988). Indonesia as the main player in global fish trade is also selling substantially fisheries product. High public expectation exists that the fishery sector in Indonesia should escalate Gross National Product (GNP) through increased total catch (Mous et. al, 2005), therefore Indonesian government initiate to provide fisheries subsidy to their fishermen. The subsidy is considered as government policy to help fishermen, particularly in small scale fisheries, to intensify their current fisheries in response to the global trade pressure and also to support their livelihood. In general, global fisheries trade have resulted in overfishing in most of the worlds fisheries (Sumaila et. al, 2006). This is echoed by Fujita and Bonzon (2005) that due to the competition to maximize catch in global trade, Indonesia marine fisheries are currently faced with the problem of overfishing. In this case, overfishing is defined as the condition where the fishery is being exploited at above level with a higher risk of stock collapse (FAO, 2009). Studies by Stobutzki et. al (2006) have shown that most of the fisheries resources in Indonesia have been ranging from fully exploited to overexploited, and may lead to environmental damage such as stocks depletion or probably extinction.

Individual Essay (ENP-32306)

Laksmi Larastiti

900212503060

Fuel subsidies Most of the coastal fisheries in this country are small-scale fisheries with a small vessels and usually labour-intensive harvesting method (Bailey, 1998). Although there are fishers with non-motorized vessels, currently motorized vessel that utilizes fuel also has been widely used. However, the substantial cost of fuel remains a hurdle for fishermen in developing country like Indonesia. Fuel constituted as the highest portion of total operating costs in fishery. Based on this situation, production costs should be reduced significantly in order to achieve high profit. Fuel subsidies are expected to be beneficial which allow profitable fishing for fishermen. Fuel subsidies defined as "the price differential between what others and fishers pay in an economy, usually defined as direct or indirect financial transfer by the government of a country to its fishing sector" (Sumaila et. al 2006, p. 38). Refer to Khan et. al (2006), fuel subsidies are considered as bad subsidies that reduce costs of fishing to increase revenue, but enhance fishing capacity and may lead to excessive environmental damage. Indonesia fuel subsidies are in the range of US $ 0.07 per litre with the total fuel consumption was around 3,127 million litres. In fact, this was calculated to total fuel subsidy cost of approximately US$ 171 million per year (Sumaila et. al, 2006). However, the number is still relatively small compared to other fuel subsidized countries. This could be due to different abilities between North and South countries to provide fuel subsidies (Sumaila et. al, 2008). WTO Negotiations on Fisheries Subsidies The WTO is a member-driven organization with the complexity of the regulation and disciplines contained in the WTO agreements (Shaffer, 2005). It was established in the 8th Uruguay Round to replace and extend the General Agreement on Tariffs and Trade (GATT). Trading system in the framework of the WTO is a rule-based system with a multilateral trade treaties agreed by the member countries. Compared to other international organizations, the WTO has more power with effective outcome to dispute resolution mechanisms, regarding the presence of Dispute Settlement Body (DSB) in the organization. Compared to the North, South countries face more constraints in complying the trading regulation in the WTO. The inequality experienced by both countries has marked out the importance of effective Special and Differential Treatment (SDT) in fisheries industry for least developed countries, regarding the importance of fisheries sector for development, poverty reduction, and food security concerns (MRAG, 2009). The WTO is at present on how to police fisheries subsidies. From Doha declaration in November 2001, the idea emerges to clarify and develop the WTO disciplines on fisheries subsidies concerning the importance of this sector to developing countries. The WTO, according to the Agreement on Subsidies and Countervailing Measures (ASCM), define subsidies as a financial assistance from governments to firms or individual in the territory of the member state (WTO, 1994). Khan et. al (2006) classified subsidy into three groups, according to their investment in the fishery resources:

Individual Essay (ENP-32306)

Laksmi Larastiti

900212503060

a. Good subsidies; subsidies that lead to investment in the management of fish stocks to a social optimum. In order to achieve the optimal use of resource stocks, the ecological value of marine ecosystem was enhanced through conservation. b. Bad subsidies; subsidies that lead to disinvestment in fish stocks as natural capital assets due to resource exploitation that greatly exceeds their limit reference point. c. Ugly subsidies; subsidies that have ambiguous potential to enhance fishery resources or to disinvestment such as resource overexploitation. Bottom-up approach countries in the WTO argues that all subsidies should be allowed, apart from those which were specifically prohibited. On the other side, The Friends of Fish coalition which includes the United States, Chile, Australia, Peru, New Zealand, and Iceland, were fought for a comprehensive list of prohibited subsidies to reduce overexploitation of the marine environment and improve surveillance (Sumaila, 2013). The environmental NGOs (WWF and Greenpeace) have been in the forefront who vocalize that global fish stocks have reached a critical phase since the enactment of the fisheries subsidy. Subsidies are widely recognized to promote more powerful fleets (WWF, 2009), therefore it is timely to eliminate subsidies that encourage further effort to fish. As non-state actors continue to push abolishment of subsidies, new proposal currently under discussion in the WTO negotiations (Sumaila, 2013) that fuel subsidies should be reduced in order to manage fisheries resources trade sustainably through time without generating environmental harm. Theory of property rights in fisheries Fisheries are open access resources and considered as rivalrous and non-excludable goods in economy (Uchida and Wilen, 2004). Non-excludability of the resources hampers a better coordination (Bhandari and Analytics, 2006) in fisheries industry. This has been referred to as Garrett Hardins Tragedy of the Commons in 1968, that public resources might be over-exploited by one, however the costs of resources degradation are shared by all (Hardin, 2009). Accoording to Chichilnisky (1994), open access of a resource can causes an inefficiency of resource use and this can be exacerbated when the products are traded internationally. Insecurity to the risk of losing access to the resource is also another reason why overexploitation occurred (Hotte, 2001). This implies that fisheries as biased public good are still highly lack of property right. Several keys of property rights in fisheries such as licenses, effort quotas, Territorial Use Rights in Fishing (TURFs), Individual Fishing Quotas (IFQs), and Community Development Quotas (CDQ), were introduced as an incentive to preserve the fish stock in fisheries (Fujita and Bonzon, 2005). Prisoners Dilemma Nobody owns the fish stocks as they are considered as a shared resource. Other problem emerge in the form of lack of trust amongst fishermen. If a fisherman fish responsibly by limiting capture, on the other side, other fisherman might catch more fish and profit more revenue and the fish stocks remain depleting anyway. This describe the basic Prisoner's Dillema game (Hardin, 1971) in a fisheries industry.

Individual Essay (ENP-32306)

Laksmi Larastiti

900212503060

Discussion Overfishing has been related to economic issue due to the presumption that marine resources trade has had increase pressure on fish stocks. It is clearly understandable that profits are the main motivation for fishermen to generate maximum production, however limiting effort is better for all. Consequently, fishermen should minimize their effort to fish otherwise they would contribute in environmental harm. Asymmetric information might occurred amongst fishermen, that they might not be aware of the consequences of exceeding Maximum Sustainable Yield (MSY) as limit reference point to constrain harvesting in nature (Richards and Maguire, 1998). Furthermore, this presumption is providing strong evidence that trade fail under open access might be a problem of coordinating efforts. The WTO itself can assist on information transfer to least developed countries while the Dispute Settlement Body can help in the elimination of coordination failure. Indonesia as one of the WTO member should be aware of the existence of strong disciplines under the WTO Agreement on Subsidies and Countervailing Measures (ASCM) on the prohibition of harmful subsidies (Khan et. al, 2006). Based on the characterization by Khan et. al (2006), fuel subsidies can be categorized into bad subsidies which probably leads to overcapacity, overfishing, and IUU fishing. Government idea to provide fuel subsidies for fisheries sector would certainly increase fishing effort which will adversely exacerbates overfishing in environment (Sumaila et. al, 2006). However, undeniable condition remains that fishermen need assistance to reduce fishing costs. Fuel subsidies might be implemented and allocated to fishermen with effective WTO notification requirement. In addition to that, significant improvement in the transparent and accountable subsidy reporting is highly needed. The penalty should be given to government who fails to perform a transparent subsidies. Moreover, appropriate treatment of the special concerns of Indonesia as a developing country should be highlighted. In fact, Indonesia have called for exemptions from subsidies disciplines for developing countries with a small-scale fishermen infrastructure, capital, and operating costs. To respond to this, effective SDT should be implemented in order to generate sustainable fisheries and livelihood (MRAG, 2009). In Indonesia, only small-scale fisheries get the subsidies. Nevertheless, small scale does not mean small impact. Therefore, SDT implemented as the integral part of the WTO Agreements (Mah, 2009) in developing countries should be monitored (WTO, 2008). This is to ensure that the latter will not contribute to overfishing. Still, the major handicap faced by the WTO is the absence of criteria to categorize the eligible country for SDT. Another effort can be carried out under the authority of the WTO, for example the introduction of subsidies which develop fisheries management through minimizing effort and promoting substantial international environment policy goals (Sumaila et. al, 2006). Subsidies that enhance fishery resources management are regarded as necessary (Khan et. al, 2006). This can include nonactionable subsidies, for example retraining fishers, fleet diversification, improving safety and working conditions, and energy-efficient propulsion techniques (Mathew, 2004). Also, the recognition of regulation governing bad subsidies and introduction of less harmful subsidies denote as an opportunity for the WTO to contribute to sustainable development (WWF, 2001).

Individual Essay (ENP-32306)

Laksmi Larastiti

900212503060

It is clear that in addition to fisheries subsidies, a central problem of fisheries management is also the absence of property rights governing access to the resource. Fish in nature have a direct use value (Goulder and Kennedy, 1997) with the future fish stocks that are uncertain. In Indonesia, easy entry to fishing is notoriously makes it possible for everyone to exploit fish stocks (Bailey, 1998). A rightsbased fishery management can support to designate shares of the catch to long term sustainability. Through the rights-based management, fishers will obtain clear property right in the fishery and fishermen can have a role in terms of maintaining the future of the fisheries (Fujita and Bonzon, 2005). Territorial use right (TURFs) can be one of an excellent practical administrative measure to reduce the common property problem and dilemma in natural resources. Furthermore, this would encourage conservation and accumulation of natural capital (Arnason, 2012) considering the fact that declining fish stocks in the ocean would certainly contribute in economic collapse. The first statement point in the WTO Agreement: "raise standards of living, ensure full employment and a large and steadily growing volume of real income, and expand production and trade.." (WTO 2013, p. 21) expressed the WTO concern more to trade, rather than to the environment. However, the trade produces economic growth and benefits which may be used as a way to increase the environmental quality. Still, policy coordination is substantial to minimize the adverse effect from trade to environment (Jayadevappa and Chhatre, 2000). New roadmap on fisheries should be generated in order to reach sufficient agreement among the member of the WTO towards a better fisheries management. How to address these issues within the WTO requires more negotiations and proposals on better reporting of subsidies and understanding the impact of subsidies on resource sustainability (Mah, 2009). Defining working guidelines and sustainability criteria for specific fishery sectors, using both ecological and economic indicators is highly desirable and needed. Regarding to the discrepancy between the economists and the environmentalists, it is also important to take into account our future generation needs of the resources. Therefore, the new regulation should emphasizes the importance to reduce, if not, eliminate the bad subsidies thus the preservation of fisheries resources and livelihood of the fishermen can be maintained. WTO might be the only institution which have the power to address this fuel subsidies problem effectively and to push their member states' commitment to prohibit or reduce a fisheries subsidies which may harm the environment. Conclusion It is obvious that fisheries subsidy issue in Indonesia remains unsettled. There has been a strong argument that as a developing country, Indonesia has the right to magnify their economic growth. Fisheries sector are highly important as they produce substantial amount of profit for small-scale fisheries in Indonesia. Recently, fisheries enterprises are heated by the prohibition of fuel subsidies granted by government, due to the fact that this bad subsidies are widely recognized to enhance environmental harm. WTO is considered as a large international scope trade organization with thoroughgoing mechanisms which can help to ensure that coordination failure in fisheries trade will be eliminated. This require a greater understanding from fisheries industry that the fisheries subsidy regulation made by the WTO

Individual Essay (ENP-32306)

Laksmi Larastiti

900212503060

has already considered the sustainability of the fisheries industry. Also, optimal regulation will ensure sustainable harvest and assure their livelihood to the future. Therefore, equity of access to information should be provided to the fishermen in developing countries. Coastal developing countries should coalesce into their negotiating positions at the WTO. The existence of SDT in the fisheries subsidy negotiation reaffirms that Indonesia as a developing country has the right to exemption from the elimination of subsidies. Nevertheless, uncontrolled fuel subsidy will lead to high effort in fisheries and overexploitation of fish resources, hence new strategies with more restrictive discipline monitoring are highly considered. Fisheries also hampered by the insecurity to the risk of losing access to resources which lead to race for fish. Improved regulations and restrictive management to right property access required. A better property right management in fisheries generate huge incentives towards the preservation of the value of marine resources today and in the future. One of the underlying reason why the government subsidize fishermen is to help them to survive among the competitiveness of fisheries enterprise. However, fuel subsidies are not suggested thus can be replaced by a good subsidies which support fisheries conservation and management, resource enhancement, habitat protection, resource assessment, and preventing stock depletion. Nevertheless the implementation of fisheries subsidy in Indonesia is thought to be underestimated because of the constraints in accurate monitoring. References Arnason, R. (2012). ITQ Systems: Where do the benefits go? In Fisheries: Sustainable and Profitable. RNH and the Institute of International Affair. Bailey, C. (1998). The political economy of marine fisheries development in Indonesia. Indonesia, No. 46, pp. 25 - 38. Bhandari, L. and Analytics, I. (2006). Cluster Initiatives and Growth Poles: Correcting Coordination Failure. New Delhi: Indicus Analytics. Chichilnisky, G. (1994). North-South Trade and the Global Environment. American Economic Review 84, pp. 851 - 874. FAO. (2013). Fishery and Aquaculture Country profiles. Indonesia. Fishery and Aquaculture Country Profiles. In: FAO Fisheries and Aquaculture Department. Accessed via http://www.fao.org/fishery/countrysector/FI-CP_ID/3/en Fujita, R. and K. Bonzon. (2005). Rights-based fisheries management: an environmentalist perspective. Reviews in Fish Biology and Fisheries, Vol. 15, pp. 309 - 312. Goulder, L. H. and D. Kennedy. (1997). Natures Services Societal Dependence on Natural Ecosystems [Chapter 3: Valuing Ecosystem Services: Philosophical Based and Empirical Methods]. Washington DC: Island Press. Grynberg, R. (2003). WTO fisheries subsidies negotiations: implications for fisheries access arrangements and sustainable management. Marine Policy, Volume 27, No. 6, pp. 499 - 511. Hardin, R. (1971). Collective action as an agreeable n-prisoners' dilemma. Behavioral Science, Vol. 16, No. 5, pp. 472-481. Hardin, G. (2009). The Tragedy of the Commons*. Journal of Natural Resources Policy Research, Vol. 1, No. 3, pp. 243 - 253.

Individual Essay (ENP-32306)

Laksmi Larastiti

900212503060

Hotte, L. (2001). Conflicts over property rights and natural resource exploitation at the frontier. Journal of Development Economics Vol. 66, No. 1, pp. 1 - 21. Jayadevappa, R. and S. Chhatre. (2000). International trade and environmental quality: a survey. Ecological Economics, Volume 32, Issue 2, pp. 175 - 194 Khan, A., Sumaila, U. R., Watson, R., Munro, G., and D. Pauly. The nature and magnitude of global non-fuel fisheries subsidies. Fisheries Centre Research Reports, Vol. 14, No. 6, pp. 5 - 37. Mah, J. S. (2009). Special and Differential Treatment of Developing Countries Regarding Export Promotion Policies Under the WTO. In Mah, J. S. (2009). Special and Differential Treatment of Developing Countries Regarding Export Promotion Policies under the WTO. In 2009 International Conference of Korea Trade Reach Association , 37~ 63 ( 27 ). . Marine Resources Assessment Group - MRAG. (2009). Fisheries Subsidies and the WTO Negotiations. Policy Brief 9 Document. Accessed via http://www.mrag.co.uk/Documents/PolicyBrief9_Subsidies_insert_Apr09.pdf Mathew, S. (2004). Fisheries Subsidies and Developing Countries. Presentation for International Collective in Support of Fishworkers (ICSF). Accessed via http://www.unep.ch/etb/events/events2004/FisheriesMeeting/presentations/MathewFisheri esSubsidiesan Mous, P. J., Pet, J. S., Arifin, Z., Djohani, R., Erdmann, M. V., Halim, A., Knight, M., PetSoede, L., and G. Wiadnya. (2005). Policy needs to improve marine capture fisheries management and to define a role for marine protected areas in Indonesia. Fisheries Management and Ecology Vol. 12, No. 4, pp. 259 - 268. Richards, L. J. and Maguire, J. J. (1998). Recent international agreements and the precautionary approach: new directions for fisheries management science. Canadian Journal of Fisheries and Aquatic Sciences, Vol. 55 No. 6, pp. 1545 - 1552. Shaffer, G. C. (2005). Can WTO technical assistance and capacity building serve developing countries?. SSRN. Stobutzki, I. C., Silvestre, G. T., and L. R. Garces. (2006). Key issues in coastal fisheries in South and Southeast Asia, outcomes of a regional initiative. Fisheries Research: Vol. 78, Issues 2-3, May 2006, pp. 109 - 118. Sumaila, U. R. (2013). How to make progress in disciplining overfishing subsidies. ICES Journal of Marine Science: Journal du Conseil, 70, No. 2, pp. 251 - 258. Sumaila, U. R., Teh, L., Watson, R., Tyedmers, P., and D. Pauly. (2006). Fuel subsidies to global fisheries: magnitude and impacts on resource sustainability. Fisheries Centre Research Reports, Vol. 14 (6), pp. 38 - 47. Sumaila, U. R., Teh, L., Watson, R., Tyedmers, P., and D. Pauly. (2008). Fuel price increase, subsidies, overcapacity, and resource sustainability. ICES Journal of Marine Science: Journal du Conseil, Vol. 65, No. 6, pp. 832 - 840. Uchida, H. and J. E. Wilen. (2004). Japanese coastal fisheries management and institutional designs: A descriptive analysis. The Twelfth Biennial Conference of International Institution of Fishery Economics and Trade, Tokyo, Japan. WTO. (1994). Uruguay Round Agreement on Subsidies and Countervailing Measures. Article 1-32. Geneva: The WTO. WTO. (2008). New Draft Consolidated Chair Texts of the AD and SCM Agreements (TN/RL/W/236). Accessed via http://www.wto.org/english/tratop_e/rulesneg_e/rules_dec08_e.doc

Individual Essay (ENP-32306)

Laksmi Larastiti

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WTO.

(2013). PREAMBLEWorld Trade Organization. Accessed via http://www.wto.org/english/res_e/booksp_e/gatt_ai_e/preamble_e.pdf WWF. (2001). Hard facts, hidden problems: A review of current data on fishing subsidies. Washington D.C: WWF WWF. (2009). Factsheet: Reforming Fishing Subsidies in The WTO. Accessed via http://awsassets.panda.org/downloads/factsheet_february_2009__final_.pdf

List of Abbreviations ASCM FAO IUU SDT TURFs UNEP WTO WWF : Agreement on Subsidies and Countervailing Measures : Food and Agriculture Organization of the United Nations : Illegal, Unreported, and Unregulated Fishing : Special and Differential Treatment : Territorial User Rights in Fishing : United Nations Environment Programme : World Trade Organization : World Wide Fund