The European Union was built on the idea that cross-border conflicts over natural resources – specifically, coal and steel – had wrought such grievous harm that those resources ought to be under multinational control to help avert further conflict in Europe. Shared control of strategically important natural resources made perfect sense, and it worked. Since the advent of the European Coal and Steel Community in 1951, Europe has been at peace with itself as intended. However, its resource management has been far from flawless. The economic and monetary union built upon the idea of shared control of natural resources has failed abysmally at the management of a vital – albeit not strategically important – natural resource: fish.
What went wrong?
Since its inception in 1983, the EU’s Common Fisheries Policy has failed to attain its chief objective of preserving the fish resources in EU waters through sustainable fisheries management. The root cause of the failure of the policy lies in the parallel failure of its parent, the Common Agricultural Policy (CAP) that through blatant disregard for economic efficiency and pandering to special interests continues to place a heavy financial burden on EU consumers and taxpayers. True, the CAP is less burdensome than it was in the mid-1980s, when its total cost was two to three percent of the EU’s total GDP, but it still exceeds one percent today.1 Meanwhile, the share of agriculture in EU GDP has decreased from four percent to two percent during the last two decades. In agriculture, unlike fisheries, sustainability is not a major concern. European agriculture will no doubt survive in style even if technological progress and the gradual liberalisation of the CAP continue to reduce the number of farmers needed to feed the masses.
The Common Fisheries Policy is a different matter. The sustainability of fish stocks in European waters is an important concern, or ought to be. Yet 25 years after the launch of the policy, many fish stocks continue to decline to the point of pending extinction despite myriad regulations intended to limit fishing effort as well as to fix fish prices and provide subsidies. For example, stocks of cod in the North Sea are estimated to have decreased by three quarters over the past thirty years. Bluefin tuna stocks in the Mediterranean are also significantly depleted.
The fatal flaws in Europe’s fish policies
The Common Fisheries Policy stipulates that catch quotas for different species in different waters be established each year jointly by the Fisheries Ministers of member states, based on the scientific advice of marine biologists who periodically assess the state of fish stocks. The Total Allowable Catches (TACs) so determined are allocated as quotas to member states that are free to distribute them locally as they see fit.
This approach is substantially flawed in three ways. First, the Fisheries Ministers of member states tend, by political tradition, to be closely related to their fishing industries, a bond that produces a persistent upward bias in the TACs fixed by the ministers who all too often take their cue from boat owners understandably keen to maximise their share of the TACs. Second, the quotas are allocated free of charge to member countries which, in turn, distribute them gratis to fishing firms at home, an arrangement that constitutes a huge public subsidy to European fisheries. Third, the quotas cannot be traded freely, and as a rule are not traded even if member countries occasionally exchange quotas with one another.
What is to be done?
Technically, it would be a simple matter to fix these flaws. First, the determination of the TACs needs to be taken out of the hands of politicians. This might be done by establishing an Open Market Fisheries Committee that would, for reasons analogous to the logic behind the independent apolitical authority of the Federal Reserve Open Market Committee in the United States or the ECB Governing Council, be vested with a broad mandate and broad powers to maximise the long-run profitability of fisheries for the benefit of the sole national owner.2,3 Second, the TACs need to be sold to fishing firms at market price or auctioned off to the highest bidder to ensure that the fishing rights land in the hands of the most efficient fishermen. Third, there needs to be free trade in quotas.
Those three market-based amendments to the Common Fisheries Policy would promote both efficiency and fairness – efficiency by bringing the fishing rights into the hands of the most efficient fishing firms competing, at auctions, for example, on a level playing field, and fairness by allowing the rents from the common property resource at stake to accrue to their rightful owners, the taxpayers. Iceland and Norway should, in principle, have no difficulty joining the EU on terms that would thus divorce access to auction markets from access to natural resources. If Scottish fishermen could pay a higher price than Icelandic ones for the right to fish in Icelandic waters, both parties could benefit, as always.
These proposals to repair the Common Fisheries Policy would clearly face vigorous political opposition. For starters, many politicians would object to having the determination of TACs vested in an independent committee. Yet, European politicians agreed to give up their right to meddle in monetary policy and accepted an independent ECB. Second, politicians, boat owners, and fishermen alike would object to the removal of the policy’s implicit subsidies just as farmers and their political representatives continue to object to market-friendly reforms of the CAP.They will probably oppose free trade in fishing rights as well.
Still, Iceland has managed to tackle the third of these problems by allowing essentially free trade in quotas since 1991 and also, lately, the second one by levying nominal fishing fees by law. Even so, Iceland’s quota system, in operation since 1984, shares the main features of the Common Fisheries Policy: the Fisheries Minister sets annual quotas for each species and allocates them free of charge to boat owners based on their catches in 1981-83 and they can then either fill their quotas at sea or sell them, as many have done, thereby reducing the amount of capital tied up in the fishing industry and pocketing the rents. Gallup polls have consistently shown that a large majority of the electorate is opposed to the Icelandic quota system, but the system has survived.
Figure 1. Iceland‘s Fisheries 1945-2006
Figure 1 shows that the stock of cod in Icelandic and Greenlandic waters has contracted by almost three quarters since 1955,4 mirroring the decline of the North Sea cod stock. The figure also shows that cod catches in Icelandic waters have been on a declining trend since they peaked in 1981, and in recent years the cod catches have returned to about the same level as in 1945-50. The trend continues: in 2007, the Fisheries Minister decided to cut the cod quota for 2007/8 by a third. Total fish catches have declined by 40% from their peak in 1997. Today, the fishing fleet is 17 times as large as in 1945 and total catches are three times as large, suggesting a dramatic decrease in catches per unit of capital tied up in the fishing industry. The failure to remove the subsidy element from the fisheries policy in Iceland has resulted in a commensurate failure to cut the fleet down to an appropriate size. Had the Icelandic fisheries been regulated by fees or auctions rather than by unrequited quotas, the stocks would now most likely be in better shape, catches would be larger, and the fleet would be much smaller.5
Fish stocks are vital natural resources that require careful economic management. The EU’s Common Fisheries Policy, a product of special interests rather than economic rationale, has failed miserably and resulted in Europe’s fish stocks falling dramatically. Halting this decline requires that tradable fishing quotas be allocated by an independent authority via auction. The present system allocates an upwardly biased number of catches to fishers for free, thereby granting a massive subsidy to lucky recipients who may not be the most valued users.
Moreover, a quota system such as the Common Fisheries Policy induces the discarding of less valuable by-catch species because fishermen are naturally inclined to fill their quota with more valuable species. It is a near-universal experience with quota systems that vessels carrying observers report on average a lower proportion of the more valuable species than corresponding vessels fishing in the same area without observers. According to some estimates, EU fishermen throw between 40% and 60% of their catch overboard. This problem is compounded to an unknown extent by illegal landings made to escape quota constraints. A fee-based policy would make every kilo of every kind of fish valuable, so that there would be no incentive to discard fish or land it illegally as long as its price net of the fee exceeded the opportunity cost of transportation to port.
Ill-advised policies have put Europe’s fish stocks in serious danger of exhaustion. A quota system informed by economic rationale would rescue these valuable resources for present and future generations, if it isn’t stymied by political opponents.
1 OECD (2007), Agricultural Policies in OECD Countries, Monitoring and Evaluation 2007, OECD, Paris.
2 Gylfason, Thorvaldur, and Martin L. Weitzman (2003), “Icelandic Fisheries Management: Fees vs. Quotas,” CEPR Discussion Paper No. 3849, March.
3 This solution could be implemented in each country per se or within the framework of a revamped Common Fisheries Policy safeguarding the rights and interests of each member state.
4 International Council for the Exploration of the Sea (ICES), Stock Assessment Summary, www.ices.dk.
5 Matthíasson, Thórólfur (2001), “The Icelandic Debate on the Case for a Fishing Fee: A Non-technical Introduction,” Marine Policy 25, 303-312.