OECD 19/4/04 1 Economic aspects and drivers of IUU fishing: building a framework David Agnew and Colin Barnes RRAG, Imperial College

OECD 19/4/04 2 Methodology Concentrate on high seas/FOC IUU fishing Identify economic and regulatory drivers that create opportunities and incentives for IUU fishing –Markets and trade –International regulation/management –National management –Fishing activities –Company/vessel operations Identify ways of manipulating these drivers that impact more on IUU vessels than legitimate vessels

OECD 19/4/04 3 Basic incentive equation IUU incentive ~ profit from IUU fishing = Benefit from IUU fishing – Cost of IUU fishing We must attack both ends of this economic equation (cost and benefit) We must find ways of doing this that do not impact on legitimate fishing costs

OECD 19/4/04 4 Basic costs – longliner for toothfish $1.2M to buy Operating costs $2M / year (incl crew) Fishing opportunities – 200 days (4 4 t/day $8000/t for IUU fish = $6.4M Profit assuming vessel & 1 trip’s catch loss = $1.6M Still in profit if only manage two trips

OECD 19/4/04 5 Market control Currently access to markets is equal for most fish species Limiting access to markets (trade measures) should increase cost of fraud, decrease benefit of IUU Increase costs of legitimate fishers through obligation to engage in market measures

OECD 19/4/04 6 Product value Incentive to engage in IUU where supplies restricted and demand high – high value species. IUU leads to decreased legitimate supply and higher prices. Even if there are market controls this may lead to higher prices for IUU fish. Target MCS resources at high value vulnerable stocks – increase cost to IUU. No increased cost to legitimate

OECD 19/4/04 7 World economic outlook Disparity between consumer and producer states fuels IUU (increased benefits and decreased labour costs for IUU vessels, decreased health & safety demands) Alleviation of poverty should reduce pool of cheap labour, increasing costs No (or little) impact on legitimate fishers who already conform to standards

OECD 19/4/04 8 International regulation Regulation currently disadvantages legitimate fishers, creating high costs for them and low costs for IUU – competitive /economic disadvantage. Costs of legitimate operations increasing through environmental concerns. IUU catch may be taken into account setting legitimate TAC, further reducing legitimate benefit and increasing costs. Regulation of legitimate fishers is likely to increase, but the increased costs may force them into loss-making activities increasing the incentive to become IUU (eg cod bans in N. sea, blackfish landings can be considerable). Industry must be involved in identifying solutions, to avoid pushing legitimate fishers to IUU. Increasing universal (maritime) costs (eliminating FOCs, universal VMS/observers) would impact IUU vessels more than legitimate vessels.

OECD 19/4/04 9 International cooperation Treatment of high seas waters in UNCLOS. 2 problems: 1. Poor implementation of obligations by some CPs (to CCAMLR, UNCLOS/Straddling Stocks, Compliance agreement etc). -eg. most recent arrests of vessels by Australia and France have been on CCAMLR CP vessels (Eternal; Lena, Volga; Viarsa 1, Lugalpesca, Maya V). Draft lists of IUU vessels contained 8 CP and 7 NCP vessels). -difficulty of getting some CCAMLR CPs and Straddling Stocks signatories to implement CDS. 2. Patchwork of RFOs & reliance on flag state responsibility leads to regulatory/enforcement problems for RFOs. IUU vessels can increase benefits by moving between N. hemisphere and S. hemisphere RFO areas to avoid detection Harmonising activities of RFOs – reciprocal agreements for activities against IUU including global IUU lists. Wide-ranging agreements on non- flag state MCS activities would significantly increase costs (risk of arrest) of IUU. No effect on legitimate vessels.

OECD 19/4/04 10 Vessel flag transfers & FOC FOC flags require lower costs than other flags. Currently very easy (Dec 1999: San Rafael 1 (Belize) -> Anyo Maru 22 (Belize) -> Sil (Belize) -> Amur (San Tome & Principe) June 2000). Difficulty in acting on vessel under new flag/ownership. Eg. Strela reflagged (Bolivia ->Russia) while at sea 20 days before arriving in Jakarta went on to land IUU catch. Proceeds of sale of IUU fish went to previous owners. No costs of IUU activity levied against IUU company on transfer to flag of CCAMLR CP. Change of ownership/flag led to vessel not being on IUU list. Eliminate possibility of rapid transfer of flags at sea and use of FOC would considerably reduce opportunities for IUU and increase costs (through easier prosecutions) No impact on legitimate vessels

OECD 19/4/04 11 National maritime policy Creates opportunities for IUU vessels to contract nationals. Pool of IUU active nationals and repeat offenders (Maya V arrests some repeat offences). Tightening up domestic laws (cf IPOA) will impact on IUU but should not impact legitimate vessels.

OECD 19/4/04 12 Limited opportunities/Overcapacity Limited legal opportunities, coupled with overcapacity, will fuel IUU, especially if it creates negative profit (loss making) for legal vessels. Poorly restricted effort in national fisheries leads to overcapacity, financial losses and declining stocks. These all affect legitimate fishers. IUU (in national waters and outside national waters – capacity leakage) is then relatively profitable. Vessel prices are also depressed because companies/banks have to sell them. Limited IUU opportunities forces IUU operators to sell vessels. Purchase by legitimate operators is a financial gain to IUU companies. Purchase of ex-IUU vessels by legitimate companies (and reflagging to other states) should be prohibited. All ex-IUU vessels should be scrapped. Measures will increase legitimate vessel costs but have even more effect on IUU costs. Overcapacity should be avoided, and excess capacity scrapped or sale allowed under very strict scrutiny.

OECD 19/4/04 13 Restricted access Restricted access/opportunity creates similar negative profit issues as previous slide. Resource allocation issues (allowing opportunity to states currently not allowed that opportunity – in an RFO or other) will decrease legitimate vessel benefits while reducing the benefits of IUU activities.

OECD 19/4/04 14 Subsidies Subsidies not initially available to IUU operators. But artificial support of the cost of fishing (subsidised entry or exit) creates artificial profitability (negative real profit) and contributes to overcapacity. Also reduces the cost of IUU vessels (subsidised transfers). Removal of subsidies and destruction of excess fishing capacity (prohibition of export, leakage of capacity or sale at reduced prices) will significantly increase IUU vessel costs.

OECD 19/4/04 15 Control surveillance and prosecutions Increasing surveillance should increase IUU costs but might also displace it into lower surveillance areas or into jurisdictions where penalties are not so high. Financial penalties alone unlikely to be enough of a deterrent (see previous costed example) Uniform, targeted approach to surveillance and prosecutions, adopted by all RFOs, would remove unevenness in approach and stop IUU reducing costs by moving to low penalty environment. International cooperation, prosecution in international courts. Legitimate vessels unaffected.

OECD 19/4/04 16 Juxtaposition of high seas and EEZs Possibility of escape behaviour decreases IUU costs. Hot pursuit limited to hails. Agreements between EEZ states and flag states to allow inspections on adjacent high seas, and for median line patroling, would significantly increase IUU costs. International agreement on inspections? No cost to legitimate vessels

OECD 19/4/04 17 Companies Many IUU companies hold legitimate fishing licences. Costs are reduced (don’t pay for licences from IUU vessels) and benefits increased (launder IUU catch with legitimate catch to get higher price). Their size and ownership complexity creates difficulties in tracing and prosecuting. Companies caught engaged in IUU fishing should have all legitimate fishing opportunities removed from them. Eg actions of Uruguay expelling Navalmar SA (Viarsa 1 & Maya V). The restriction is demonstrating effective company ownership etc. Company should be eliminated from operations in any other state. No impact on legitimate vessels.

OECD 19/4/04 18 Conclusions Examination of drivers [markets, global economics international regulation, national management, fishing opportunities, company and vessel operations] allows identification of whether drivers affect benefits or costs of IUU fishing. Action to reverse the driver, removing the incentive to fish IUU, can then be suggested. Solutions often affect the profitability of legitimate operations, so legitimate operators must be included in their design and implementation. Objective, consistent and statistically rigorous monitoring of IUU activity must be undertaken to see which of our actions is having an effect. The high seas are vulnerable. To protect them we are currently attempting a closure of the last marine commons. Universal right of access without responsibility (i.e. outwith obligations of UNCLOS/HMS) must be challenged through international concerted effort and in the international courts.