Uncertainties Loom in EU-ACP Fisheries Trade Relations

1 August 2007

Fisheries are an important source of employment, export revenues and food security in many African, Caribbean and Pacific countries, but the renegotiation of their trade relationship with the EU, as well as negotiations at the WTO, pose serious sustainable development challenges.

Only 50 percent of the EU’s enormous demand for fish can be supplied from its own fishing grounds. The growing supply shortfall is met either through imports or through arrangements that enable its vessels to fish in other countries’ waters. Fisheries trade relations between the EU and ACP countries are governed by WTO provisions, as well as those of the Cotonou Partnership Agreement between the EU and ACP countries. Both of these trade regimes are undergoing a period of change with the negotiation of new Economic Partnership Agreements (EPAs) between the EU and six ACP regional groups, as well as with the crafting of new fisheries disciplines at the WTO.

At the WTO, ACP countries are particularly concerned about the implications of the expiration of a waiver that allows the EU to provide unilateral market access preferences to their fish (and other) products, as well as the treatment of access payments for fishing rights in possible future WTO disciplines on fisheries subsidies. In the context of EPA negotiations, concerns revolve around addressing tariff escalation and tariff peaks, reforming rules of origin, and possibly establishing rules on fisheries investment.

Preference Erosion

Under the Cotonou Agreement, the EU provides ACP countries with non-reciprocal market access preferences, which are covered by a WTO waiver that will expire on 31 December 2007. That date corresponds to the deadline by when the EU and the various ACP regions are expected to have concluded comprehensive and reciprocal Economic Partnership Agreements.

Given the importance of fisheries in the relations between the EU and ACP countries, any erosion of the Cotonou trade preferences can have profound socio-economic implications. This is notably so with regard to ACP countries’ access to the EU market. By one estimate, the removal of preferences would lead to potential losses of around €73 million per year for a country such as Namibia, where fish exports to the EU account for 60 percent of total fish exports.

For those ACP countries that would not be in a position to conclude an EPA before the end- December deadline, Article 37(6) of the Cotonou Agreement requires the EU to identify an alternative regime that would “provide these countries with a new framework for trade which is equivalent to their existing situation and in conformity with WTO rules.” As a transitional trade regime, the EU could either include non-LDC ACP countries in its Generalised System of Preferences Plus (GSP+), or extend the Cotonou preferences to countries unable to wrap up their EPA negotiations by end-2007. The continuation of the current preferences would require a new waiver from the WTO’s most-favoured-nation obligation, which is rather unlikely, or an extension of the preferences without a waiver, which would expose the EU to possible dispute settlement challenges. The shift to the GSP+ would require its revision to include relevant ACP countries.

Shielding Access Fees from WTO Subsidy Disciplines

European access to fisheries resources in ACP countries has long been governed by access agreements, later replaced by fisheries partnership agreements (FPAs). These arrangements allow European fleets to fish in ACP waters in return for ‘access fees’ paid by the EU to the coastal states. Access fees represent a significant portion of government revenue for certain countries. In several Pacific states they account for an estimated 25 percent of total government income; in Guinea Bissau their share is around 40 percent. The high dependence of certain countries on access fees has contributed to the overexploitation of fisheries resources, without delivering a commensurable development benefit. Studying the economics of fisheries agreements, Nick Johnstone (1995) found a positive correlation between the level of public debt and the level of access granted to overexploited resources, and a negative correlation between the level of public debt and the level of financial compensation received.

Given the economic importance of the revenue from access agreements, ACP countries are seeking to ensure that such payments are shielded from any new disciplines on subsidies agreed in the Doha Round negotiations. There now seems to be an emerging consensus among WTO Members that government-to-government payments would not be considered subsidies. However, Members continue to disagree over the treatment of governmentto- industry payments. Argentina, Brazil and the US consider the latter to be subsidies based on the discrepancy between the fees paid to the coastal nation and the price paid by the private companies for the acquisition of fishing rights.

Battle over Raw Material and Value-addition

Accessing raw material is crucial for the survival of the European fish processing industry, which in 2002-2003 was estimated to account for more than one-third of jobs in the EU’s fisheries sector. At the same time, ACP coastal states are seeking to develop their own fish processing industries in order to add value and obtain higher benefits from exports. In the context of declining fish resources, there are conflicting interests: trade rules play in favour of the EU processing industry, but low tariffs on raw fish, combined with tariff peaks and tariff escalation on processed fish, have forced developing countries into being the providers of raw material for the EU fishing industry. EU average tariff rates for raw fish stand at 10.3 percent, while that of processed seafood is at 16.3 percent. With increasing demand from the EU, the fish processing industry in ACP countries is now confronted with a persistent decline in catches for their own use.

To keep its industry competitive, the EU is also seeking to diversify its sources of raw material by implementing autonomous tariff reductions and opening import quotas for whitefish, herring, tuna loins and shrimp from non-ACP countries. Certain quantities of fisheries products will be imported at a 0-to-6 percent customs duty instead of the normal rates, which range from 6.1 percent to 24 percent. This will add to the erosion of preferences for ACP products since new quotas cover products that are also exported by the ACP to the EU.

Rules of Origin

Rules of origin under the Cotonou Agreement determine whether products exported from a country are eligible for duty-free access to the EU. The structure of many ACP fisheries sectors – based on vessel-chartering arrangements, joint ventures and fishing agreements – makes it difficult for them to comply with some of these rules, including those related to ownership of vessels and factory ships, composition of crew, etc. Cotonou rules of origin also prevent ACP exporters from sourcing from non-ACP and non-EU vessels operating in their waters, even when these provide more cost-effective supplies. As a result, the current rules of origin help perpetuate the dependence of ACP countries on EU vessels for access to raw material. In the ongoing review of the rules, ACP countries are seeking provisions that would allow all fish caught in waters under their national jurisdiction to qualify as originating from their countries.

Investment

With regard to EPA investment negotiations, the EU is seeking to secure favourable terms for EU investors in ACP fisheries. Investment that may lead to the development of joint ventures could contribute to enhancing the host countries’ capacity to process, and therefore export, higher value-added products. However, it remains essential for ACP countries to ensure that the new fishing capacity will not drive European fishing overcapacity into their waters, which could further exacerbate the problem of overexploitation. Moreover, increased competition with the growing artisanal fishing sector would need to be addressed.

In its agreements with South and Central American countries, the EU has sought rules on investment in the fisheries sector. For example, the EU-Chile Association Agreement of November 2002 includes a separate protocol on fishing enterprises that establishes conditions, on a reciprocal basis, for European investment in the Chilean fisheries sector. European investors are also seeking to facilitate their exports back to the EU.

Seeking a Regional Approach to Fisheries Partnership Agreements

The Economic Partnership Agreements have been praised by their proponents as a way of strengthening the process of integration in the ACP regions. However, while the EPA negotiations take place between the EU on the one hand and the six ACP groupings on the other, fisheries partnership agreements have remained at the bilateral level between the EU and individual ACP countries. This enables the to EU to negotiate from a position of strength, not least because of the intrinsic imbalance in negotiations between a large bloc such as the EU and any of the individual ACP countries, but also because of the nature of stocks to which European fleets are seeking access. Since species such as tuna and shrimp straddle the exclusive economic zones of neighbouring countries, the EU is able to seek access to these resources from any of the coastal states, thereby increasing competition within the region. These concerns have prompted calls for a regional approach to negotiations on fisheries agreements. The Economic Community of West African States, for instance, has recently proposed the formulation of a framework agreement that would set guiding principles on fisheries negotiations with a view to aligning future agreements with the objectives of regional integration.

Certain ACP industry representatives have demanded that fisheries agreements be included in the EPA negotiations. While a regional approach to fisheries management is desirable, concerns have been raised that access to fisheries resources may be sacrificed in order to gain trade preferences. Given the importance of EU trade preferences to many ACP countries, such a scenario could result in unsustainable levels of fishing.

Moustapha Kamal Gueye is Senior Programme Manager, Environment Cluster, at the International Centre for Trade and Sustainable Development in Geneva.

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