A recent paper proposes that, post-Brexit, the UK should lower tariffs on imported fish to benefit consumers.  That may be a good idea, but the effect on fish stocks in the regions of origin should also be considered.

The Institute of Economic Affairs has published Plan A+: Creating a prosperous post-Brexit U.K. by Singham and Tylecote (1).  The paper is wide-ranging, but of particular interest from an environmental perspective is a short section on fish and fisheries (2).  It includes a proposal that tariffs on certain imported fish should be lowered once Brexit allows the UK to do so (3).  That set me thinking. Generally I favour free trade so that countries can gain from specialising in industries in which they have a comparative advantage, but sometimes short-term gains from trade must be weighed against long-term costs. When the traded good has been harvested from a renewable natural resource such as fish, there clearly is a possible long-term cost in that the quantity of fish imported could contribute to over-exploitation and depletion of the resource.

A little background.   Currently, fish imported into the UK from outside the EU are subject to the EU’s common customs tariff.  Imports of Pacific bluefin tuna, for example, carry a tariff of 22% (4).  Once the UK leaves the EU, and subject to the terms of any Brexit agreement, it will be free to set a lower tariff, or none at all.  Arguments regarding import tariffs typically focus on the protection they offer to domestic producers and the costs they impose on domestic consumers.  The UK fishing industry contributes £1.4 billion annually to the UK economy and employs some 24,000 people (5).  But tuna in recent years has been rare in UK waters (6).  Commercial fishing of tuna by UK fishers is virtually non-existent, and the same goes for some other fish types.

Singham and Tylecote’s proposal to lower tariffs on imported fish relates specifically to those types of fish that are consumed but rarely caught in the UK.  Reduced tariffs, they state, would benefit consumers but have little effect on the UK fishing industry.

Let’s examine these claims.  For any fish type, UK demand is only a small proportion of world demand.  Whether or not the UK levies a tariff therefore has only a small effect on the world price (7).  If a tariff is levied, then it raises the price to UK consumers by most of the amount of the tariff.  Conversely, starting from the UK’s current position, lowering the tariff will reduce prices by most of the amount of the tariff reduction.  That’s a clear benefit to UK consumers.

The claim that there would be little effect on the UK fishing industry is more problematic.  Singham and Tylecote’s point is that the fish types mainly caught by UK fishers – cod, haddock, mackerel, etc – are not those on which they advocate a lowering of tariffs.   But the relevance of this depends on consumer behaviour  in respect of fish purchases, which can usefully be described in terms of the cross-elasticity of demand, a measure of how a change in the price of one good affects demand for another.

Suppose cod and tuna can be taken as representative respectively of UK-caught and imported fish.  If the cross-elasticity of demand between cod and tuna were close to zero – that is, a change in the price of one would have very little effect on demand for the other – then Singham and Tylecote’s argument would be valid.  But it would fail if there were a large positive cross-elasticity of demand, implying that consumers regard cod and tuna as good substitutes. The reality is probably somewhere in between, a situation sometimes described by saying that the goods are weak substitutes. Cod is a white fish while tuna is an oily fish, an important distinction for consumers in terms of both taste and nutrition.  So far, then, Singham and Tylecote’s claim that there would be little effect on the UK fishing industry seems to have a degree of validity.

However, about one third by value of the UK catch consists of oily fish such as mackerel (8). The cross-elasticity of demand between tuna and mackerel seems likely to be fairly high.  If so it would further weaken Singham and Tylecote’s claim.

It might also have been suggested that the interests of millions of fish consumers should take precedence over those of the relatively small number of people employed in the UK fishing industry, but that is not an argument used by Singham and Tylecote.

The above analysis is entirely within a comparative static framework, which is fine so far as it goes.  When considering the economics of a natural resource at risk of depletion, however, it can never give the full picture.  It has no regard to the importance of conservation of fish stocks so as to ensure continuing catches for the benefit of future consumers. This prompts me to pose the following question:

If country A imports fish caught by country B within B’s waters (eg its Exclusive Economic Zone (EEZ)), should A’s policy on fish imports have regard to the conservation of B’s fish stocks?

Admittedly the scenario posited by the question is only one of several possibilities: imported fish might be caught (under agreed arrangements) in a third country’s EEZ, or in international waters.  It does I believe present the issue I want to consider in its simplest form.  Here are some arguments that might be adduced.

The sovereignty argument: No
Management of the fish stocks within B’s waters is entirely a matter for B.  Whether it chooses to conserve or to over-exploit is its own decision.  It is no business of A’s to interfere, and to do so could infringe B’s rights under the UN Convention on the Law of the Sea (9).

The laissez-faire argument: No
The fact that there is, and will probably continue to be, a market for exports of fish caught in B’s waters provides B with an incentive to conserve its fish stocks.  Although A has an interest in continuing to have the opportunity to import fish from B, there is no need for it to take any particular steps to that end.

The second-best argument: Yes
B may not be managing its fish stock in a sustainable manner, as evidenced by declining fish populations in its waters.  By limiting its fish imports from B, A can help to limit demand for B’s fish.  Other things being equal, reduced demand will reduce the quantity of fish that B’s fishers can profitably catch in its waters and so contribute to conservation of its fish stock for the benefit of future consumers, including those in country A.

The public choice argument: Yes
B’s government may understand the long-term benefits of conservation, but find it politically impracticable to override a fishing industry lobby defending its short-term interests.  A’s government, however, may find it relatively easy to limit its fish imports, imposing a small cost on each of a very large number of consumers.

All these arguments could have a degree of validity, subject to the detailed circumstances. But the applicability of the sovereignty argument is I suggest very limited indeed.  The UN Convention on Law of the Sea does indeed assign sovereign rights to a coastal country within its 200 nautical mile EEZ.  Those rights, however, are not the equivalent of the sovereignty a country exercises over its land territory: they do not amount to the right to do almost anything it likes. Article 56 specifies that, within its EEZ, a country has:

“sovereign rights  for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters …” (9)

Article 61 explictly forbids over-exploitation of living resources:

“The coastal state, taking into account the best scientific evidence available to it, shall ensure through proper conservation and management measures that the maintenance of the living resources in the exclusive economic zone is not endangered by over-exploitation.” (10)

If B – like most countries (11) – has ratified the Convention, then for A in its policy on fish imports to have regard to the conservation of B’s fish stocks could hardly be described as interference.  It would be helping B to fulfil its treaty obligations.  Even if B were not a party to the treaty, no one would suggest that for A to adopt a trade policy such as an import tariff would in itself amount to interference or an infringement of sovereignty. Any such claim would have to refer to the intentions underlying A’s policy.  There is a subtle difference between a country adopting a trade policy to advance its own interests, without particular regard to its effects on another country, and adopting perhaps the same policy with the intention of affecting another country in a specific way.  Trade sanctions would be an extreme case of the latter.  A policy intended to help conserve another country’s fish stocks would be, at worst, a very mild form of interference.

The laissez-faire argument would be a good one in circumstances in which B is effectively managing its fish stock in a sustainable manner, with regard to its long-term commercial interests.  However,  there are many fisheries for which this is not the case.  The FAO estimated that in 2013 31% of the world’s marine fish stocks were fished at a biologically unsustainable rate (12).

Where, for whatever reason, B is not managing its fish stock sustainably, the second-best argument becomes relevant.  For country A through its trade policy to try to contribute to conserving B’s fish stock is an inferior approach to effective management by B itself, but it may be better than nothing, especially if A’s policy can be coordinated with that of other importing countries.  A coordinated tariff could ensure a significant lowering of the world price of the fish, resulting in a worthwhile reduction in the quantity demanded and so make a material contribution to conservation of B’s fish stock.  It could also avoid the objection that a tariff adopted by one country alone would impose a cost on its consumers but do little towards conservation and therefore little to safeguard continuing imports of the fish for its consumers in future.

Where the reason B is not managing its fish stock sustainably relates to the lobbying power of its fish industry, the second-best argument may be complemented by the public choice argument.  What is envisaged here is far from the situation in which a powerful producer lobby achieving gains for itself at the expense of many dispersed consumers.  In the right circumstances, perhaps via coordination with other importing countries as above, the cost to consumers would be in return for a benefit to future consumers via conservation of B’s fish stock and continuing imports.

In conclusion, my main concern about Singham and Tylecote’s proposal to lower tariffs on certain imported fish is that it is presented without any consideration of the possible effects on fish stocks in the marine regions of origin.  Whether detailed information on the state of those fish stocks and the way in which they are managed would strengthen or weaken the case for their proposal is beyond the scope of this post.  But it would be unwise – an application of the precautionary principle – to lower tariffs without a careful examination of what the full effects might be.

Addendum 27 November 2018: WTO Rules and Fish Conservation

Would the imposition of a tariff with the aim of conserving fish stocks in another country’s waters be consistent with WTO rules?  Such a policy would carry a risk of non-compliance with GATT Article I (13), which requires that any advantage granted to one country must be granted to all others.  The logic of setting a tariff with a conservation aim would suggest that, if country B’s fish stocks are more depleted than country C’s, then a higher tariff should be levied on fish imports from country B.  But that is just what Article I prohibits.  The most that could be done, consistently with Article I, would be to set a uniform tariff having regard to the average conservation status of fish stocks in all relevant fish-exporting countries.

However, WTO rules do permit certain exceptions to Article I.  The most relevant appears to be Article XX(g) which permits measures:

“relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption” (14)

Fish as a natural resource are normally described as “renewable” rather than “exhaustible”, but in the US-Shrimp case it was held that in certain circumstances a living species could be considered exhaustible (15).  The clause about domestic restrictions requires “even-handedness” (16) in promoting conservation domestically as well as abroad.  Where a type of fish is both imported and caught in a country’s own waters, this requirement could perhaps be met by combining a tariff on imports with a tax on domestic production.

Paragraph (g) is subject to the overriding condition in the preamble of Article XX that such measures:

“are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail …”.

To demonstrate that this condition is satisfied would seem to require, as a minimum, very good scientific evidence regarding the conservation status of fish stocks in different countries, together with a clear link between the scientific findings and the tariff rates both across countries and between fish species.

Notes and references

1. Singham S & Tylecote R (2018) Plan A+: Creating a prosperous post-Brexit U.K. , IEA Discussion Paper 95 https://iea.org.uk/publications/plan-a-creating-a-prosperous-post-brexit-uk/
2. Singham & Tylecote, as 1 above, pp 64-67.
3. Singham & Tylecote, as 1 above, p 66.
4. European Commission Market Access Database http://madb.europa.eu/madb/euTariffs.htm?productCode=03023599&country=US
5. Ares E, Rhodes C & Ward M (2017) The UK Fishing Industry House of Commons Library Debate Pack 2017/256
6. Although it is beginning to become slightly more common. See https://phys.org/news/2018-04-experts-team-bluefin-tuna-uk.html
7. Suranovic, S M International Trade Theory and Policy Trade 90-5 http://internationalecon.com/Trade/Tch90/T90-5.php
8. UK National Statistics (2017) UK sea fisheries annual statistics report 2016 https://www.gov.uk/government/statistics/uk-sea-fisheries-annual-statistics-report-2016 See Chapter 3 Table 3.2.
9. UN United Nations Convention on the Law of the Sea http://www.un.org/depts/los/convention_agreements/texts/unclos/unclos_e.pdf  p 40
10. UN, as above, p 46
11. Wikipedia UN Convention on the Law of the Sea – Parties https://en.wikipedia.org/wiki/United_Nations_Convention_on_the_Law_of_the_Sea#Parties
12. FAO (Food and Agriculture Organisation of the United Nations) The State of World Fisheries and Aquaculture 2016  http://www.fao.org/3/a-i5555e.pdf  p 38.
13. GATT Article I https://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm#articleI.  Note that the original GATT 1947 agreement has been incorporated into subsequent GATT / WTO agreements.
14. GATT Article XX https://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXX
15. WTO Trade Report 2010 E.Natural resources, international cooperation and trade regulation p 168 https://www.wto.org/english/res_e/booksp_e/anrep_e/wtr10-2e_e.pdf
16. WTO Trade Report, as above, p 168