'Working Apart or Together'

The case for a Common Approach to Management of the TunaResources in Exclusive Economic Zones of Pacific Island

Countries(Draft Report)

Gert van SantenPhilipp Muller

March 2000

2

The views, interpretations and conclusions expressed in this study are the result ofresearch supported by the World Bank, but they are entirely those of the authors andshould not be attributed in any manner to the World Bank, to its affiliated members, orto members of its Board of Executive Directors or the countries they represent.

For copies of the report, please contact:

Mr. David ColbertPapua New Guinea and Pacific IslandsCountry Management UnitEast Asia and Pacific RegionThe World Bank1818 H Street, NWWashington DC, USA, 20433Telephone: (202) 458 7156Fax: (202) 522 3393E-mail: Dcolbert1@worldbank.org

3

Table of Contents

Preface 5Executive Summary 7

1. Introduction 112. Benefits of Past PIC Cooperation 153. Optimizing Benefits from Tuna Resources:

the Broader Picture 214. The Draft MHLC Agreement 275. Joint Negotiating Strategies 356. Towards a Cooperative Multilateral

Negotiation Approach 39

Annex 1: Statistics 43

Bibliography 49

5

PrefaceThis report was prepared as a background paper to the World

Bank’s Pacific Islands Regional Economic Report (RER) due to becompleted mid 2000. It was initially conceived as a review of theeconomic benefits that Pacific Island Countries had obtained from theexploitation of the large and valuable tuna resources in their waters. Itsfocus widened to include the potential impact of the new RegionalConvention for the Conservation and Management of Highly MigratoryFish Stocks in the Western and Central Pacific that is expected byagreed upon by August 2000.

Management of the world’s fisheries resources is characterizedby great complexity and interdependence of biological, technical,economic and political issues. This is particularly marked in the case ofstraddling and oceanic fish stocks like tuna. This report attempts tocapture some of this complexity and focuses on the economic andpolitical aspects of the access agreements Pacific Island Countries havenegotiated with distant water fishing nations. It reviews the potentialeffects of the draft Convention, its financial implications, and its impacton the ability of Pacific Island Countries to obtain maximum benefitsfrom the tuna resource in the future. The report does not attempt toprovide ready made or easy answers. Rather, its key message is thatPacific Island Countries should carefully weigh both the advantages anddisadvantages when reviewing the draft Convention and developingstrategies for future tuna access agreements and negotiations.

While borrowing heavily from existing literature, the authorsequally relied on the management and staff of the Forum FisheriesAgency in Honiara to provide data and assessments for several issuesnot covered in published reports. The authors are grateful to FFA for allthe assistance provided. The draft report was peer-reviewed by RobertGillett, Tony Lewis, Grimur Valdimarsson, Meryl J. Williams, ThomasTarp and Peter Philipson. The views, interpretations and conclusionsexpressed in this study are entirely those of the authors and should notbe attributed in any manner to the World Bank.

7

Executive Summary

The Pacific Island Countries (PIC) and Territories1 aresurrounded by sea areas providing a habitat for the world’s largest andmost valuable tuna resources. While only about 50% of the Western andCentral Pacific Ocean (WCPO) waters fall within the ExclusiveEconomic Zones (EEZ) of PIC and Territories, these areas yield some65-75% of total regional tuna production, with a 1998 estimated valueof US$ 1.3 billion. Tuna resources and their exploitation are critical tothe future social and economic security and political stability of theSouth Pacific region, and their importance can not be overstated. Acommonly made comparison is that tuna is to the PIC what oil is tocountries of the Middle East.

Tuna stocks in the WCPO are generally in a robust state, despitelevels of concentrated fishing in some areas and the large volume oftotal catches. For only one tuna species (bigeye) is the situationuncertain, and scientific concern has been expressed about excessiveexploitation of the stock.

Although PIC fishermen have traditionally exploited theseresources for local consumption, most tuna is currently caught byvessels from Distant Water Fishing Nations (DWFN) and furtherhandled by large scale multinational tuna canning industries and by acomplex integrated tuna distribution systems for high quality - sashimi -tuna.

PIC have adopted two strategies to obtain benefits from foreignexploitation of their large tuna stocks, (a) negotiating access fees forvessels fishing in their waters, and (b) investing themselves, oftenthrough local, public companies and joint ventures, in catching andprocessing tuna. At times, PIC have been successful in negotiatingmultilateral access fees, with the US Multilateral Tuna Treaty beingparticularly beneficial. Nevertheless, most access agreements are stillnegotiated bilaterally, yielding what some consider quite modestreturns. PIC received in excess of US$55 million in direct access feepayments in 1997/98. PIC also cooperated successfully in creating jointactivities for registration of fishing vessels, research and for monitoring,control and surveillance of the fishing fleet. The investment track recordis less positive; while some public investments have been successful,some US$2-300 million has been invested in publicly owned companiesproviding few if any sustained economic returns. The results of morerecent, private investments, notably in trans-shipment and local catchingof sashimi tuna, appear more promising.

Tuna resources in the WCPO are likely to become the subject ofa new management regime. This report explores the potential impact of

1 Much of the issues and discussion in this report concern Pacific Island Countries which are membersof the Forum Fisheries Agency; sometimes the non-independent territories are also included.

8

the draft MHLC Convention2 that is being jointly negotiated by PIC andDWFN. The ability of PIC to financially benefit from the Convention inthe future, and realize optimum access fees and investment income fromthe tuna industry, depends critically on key aspects of the draftConvention that have not yet been agreed on. Notably, future fundingarrangements for the implementation of the Convention, and rules forallocation of the Total Allowable Catch (TAC) of tuna stocks, or otherways to allocate exploitation rights of the resource, have yet to bedetermined. Funding for implementation of the Convention is likely tobe agreed upon before the Convention is finalized, but the resourceallocation rules will be left to the future Convention’s Commission todecide.

Preliminary cost estimates for future operation of theCommission are available; however, the broader financial implicationsof the Convention were not available, and have been roughly estimatedin this report. Once in force, the Convention may impose additionalinvestment and annual operational costs of the order of some US$ 6million and US$ 7 million on DWFN. The incremental financial burdenfor PIC (including activities that may eventually be funded by aiddonors) may increase by an estimated US$2 million (investments) andUS$ 3 million (annual operational costs), provided full use would bemade from existing control functions and surveillance systems. If theConvention introduces entirely new systems, these costs would besubstantially higher. Potential financial obligations for all PIC may totalclose to US20 million, of which only a declining portion may be donorfunded in the future; PIC’s current financial obligations concerning tunamanagement and administration are about US$16 million, of which 65% is currently funded by aid donors.

What actions could PIC recommend to minimize theirdependence on foreign aid and total financial contributions to theConvention? Savings could be made if the Convention uses, expandsand integrates operations of all functions that are currently already inplace, specifically: (a) the FFA Vessel Monitoring System, (b) the Airand Maritime Surveillance, (c) the Regional Vessel Register, and (d) theSPC conducted tuna research and monitoring. Combining (future) high-seas observer programs with existing regional/national observerprograms, and arranging regional collection of economic and other datathrough a single fisheries institution would also help.

Probably the most critical future task of the Commission is toset future rules for allocation of TAC or resource exploitation rights. Atleast four approaches are conceivable to distribute the TAC (or similar‘rights’) and numerous combinations of these four. TAC may bedistributed:

2 The Regional Convention for the Conservation and Management of Highly Migratory Fish Stocks inthe Western and Central Pacific (the 'MHLC' process).

9

• Largely to individual DWFN - who would re-distribute theTAC to their own fleets- with a modest allocation to PIC fortheir indigenous fisheries;

• Directly as a quota to individual vessels wishing to fish in theentire area, again, with a separate allocation to PIC indigenousfisheries;

• To individual DWFN and to PIC as a group, each receiving anegotiated share of the total TAC, roughly reflecting tunaconcentrations in high seas and EEZ areas; and

• To individual DWFN and individual PIC through anegotiated formula that also handles tuna in high seas areas.

The third option appears somewhat superior compared to theothers, but it may only be realized if PIC are able to overcome theiroccasional reluctance to cooperate, and immediately develop a jointnegotiating strategy for the final negotiations of the MHLC and itssubsequent implementation.

PIC governments have negotiated far more bilateral thenmultilateral access agreements to regulate distant water fishing nationaccess to the tuna in their EEZ. Bilateral agreements were preferreddespite the fact that the US Multilateral Tuna Treaty, the onlymultilateral access agreement currently in force, has provided financialbenefits to PIC that far exceed those obtained from bilateral agreements.This preference reflected the following PIC concerns about thedrawbacks of multilateral agreements: (a) loss of sovereignty, (b) theperceived financial costs of including small PIC with limited tunaresources in multilateral agreements, (c) a loss of negotiating capability,and (d) a potential decline in linked bilateral aid. While these concernsare real and have some validity, their negative impact can be minimizedthrough closer PIC cooperation.

Conclusion. The MHLC Convention will have many, complexand profound implications for PIC ‘ownership’ of the resource, fortheir ability to negotiate and receive future access fees and for theirability to share in the ‘rent’ from tuna exploitation in high seas outsidetheir EEZ. It is important that PIC Governments carefully review theoptions and implications of MHLC as soon as possible.

Close and sustained PIC cooperation in finalizing the Convention, innegotiating foreign fleet access and even in defining local aid andinvestment strategies is fundamental for future success. Without animmediate assessment of the potential economic and political impact ofthe draft Convention, and without close cooperation in the developmentof a joint strategy to finalize the Convention, PIC will substantiallyreduce their future ability to influence tuna management, reap a fairportion of benefits from tuna exploitation, and obtain reasonableinvestment returns.

11

1. Introduction

1.01 Tuna, a Large and Valuable Resource. Pacific Island Countries (PIC) havesovereign rights over resources in a sea area of 20 million km2 . The Westernand Central Pacific Ocean (WCPO)3 has the largest tuna resources in the world;the 1998 regional tuna catch of 1.77 million tons comprises 52% of the 3.4million world catch4. The Exclusive Economic Zone (EEZ) of PIC only coversabout 50% of the WCPO; nevertheless it produces some 65-75% of totalregional tuna catches. The landed value of the tuna catch from PIC EEZ watersfor 1998 is estimated at some US$ 1.3 billion (Annex 1.Table 2).

1.02 Fishing Technology. Three types of tuna fishing predominate in the region: a)long-lining, frequently fishing in the high seas and targeting deep swimmingtuna (bigeye and yellowfin for the high value -sashimi - markets in Japan andother markets in the developed world, as well as albacore for canning); and b)pole-and-line fishing and purse-seining, which operate largely in EEZ areas andtarget surface swimming, smaller -and mostly lower priced - tunas (skipjack,yellowfin, a few bigeye) for canning and specialty products. Skipjack and smallyellowfin caught by purse seines comprise about 65% of current total WCPOtuna catch, pole and line catch comprises about 15%, and long-line accounts for11% of the catch; the rest is taken by assorted, small-scale gear. In terms ofspecific markets the WCPO supplies some 50-70% of the world of tuna usedfor canning, and approximately 30-40% of Japan’s sashimi market.

1.03 Status of Tuna Stocks. Unlike many other major fish stocks in the world, mosttuna stocks in the WCPO are currently in a robust state and fishing efforts donot exceed biologically sustainable levels5. The only exception is the bigeyestock, which yields about 5% of the total tuna catch, is largely found in non-EEZ areas, and is exploited mainly by longliners6. Stock assessments haveraised concern about biological overfishing and a serious decline in adultbiomass, as normalized average catches per unit effort have been declining forsome time.

3 The area under discussion (the Central and Western Pacific Ocean) is usually defined to be locatedbetween 400N to 400S, east from Asia to 1500 W. Most tuna catch statistics use this area definition.However, much of the issues and discussion in this report concern a smaller area covered by (the EEZof) PIC who are members of the Forum Fisheries Agency (FFA). Unless noted otherwise, the reportrefers to FFA PIC: the Cook Islands, the Federated States of Micronesia, Fiji, Kiribati, Marshall Islands,Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu. In afew places all countries, including non-independent countries are mentioned when the term ‘PacificIsland Countries and Territories’ is used. To avoid confusion, this report does not include nor refer toissues pertaining to eastern Indonesia, the Philippines, and the north-western Pacific.4 John Hampton, Antony Lewis and Peter Williams (1999): The Western and Central Pacific TunaFishery, Overview and Status of Stocks, Secretariat of the Pacific Community.5 Tuna stocks are monitored by the South Pacific Commission, who in 1997 concluded that skipjack andyellowfin stocks were exploited at low to moderate levels. For bigeye tuna the situation is highlyuncertain, and further research and application of more informative stock-assessment models is urgentlyrequired. The albacore stocks appear stable or even increasing. Source: South Pacific Commission(1997): Status of Tuna Stocks in the Western and Central Pacific Ocean. Paper prepared for the SecondMultilateral High-level Conference on the Conservation and Management of Highly Migratory FishStocks in the Western and Central Pacific.6 Some concern has also been expressed about the status of certain bill-fishes and sharks, which arecaught as by-catch of tuna long-lining.

12

1.04 Foreign Fleets. Most industrial vessels catching tuna originate in DistantWater Fishing Nations (DWFN): Japan, the USA, China, Korea, Taiwan, and toa lesser extent Philippines and Indonesia. Some 905 DWFN vessels werelicensed to operate in Forum Fisheries Agency (FFA) member country watersin 19997. As detailed in Annex 1, Table 1, tuna catches in the EEZ of PIC FFAmember countries by nationality of fishing vessel vary considerably, with FSM,PNG, Kiribati and Solomon Islands waters producing the largest volumes.Vessels from Japan, Korea, Taiwan and the USA each produce roughly a fifthof total production; the rest is being produced by other vessels (including localvessels).

1.05 Catch Value. In 1995 the value of the annual tuna harvest from WCPO waters(US$1.7 billion) represented 10% of the combined GDP of all the nations in theregion, and over a third of the value of their combined exports (US$4.3billion)8. The value of the catch from a single set of a purse seine vessel can beequal to a year and a half of exports from one of the smaller PIC. The totalcatch of subsistence and small-scale commercial fisheries of PIC (covering allspecies) is less than 10% of the tuna catch. About 10 thousand Pacific Islanderswere estimated to be directly employed in tuna related activities in PIC in1995; indirectly, another 10-20 thousand may be involved in the sector. This isroughly 4-7% of the total labour force. The social economic and politicalimportance of tuna cannot be overstated. In some atoll States there are virtuallyno other opportunities for development.

1.06 The Tuna Industry. The increasingly sophisticated, complex and high-costtechnology of the tuna industry in the Pacific reflects the need for greatervolume and marketing power in the lower-valued canned tuna market and thehigh prices paid in the Japanese and other developed markets for high qualitytuna, notably for sashimi. Success of the industry currently depends on:

• A complex of vertically integrated systems and timely input supplies;• Efficient vessel operations and maintenance;• Highly skilled fishing;• Sound and timely fish preservation and fish grading;• Regular air scheduling for transshipment of fresh tuna; and• Strong affiliation with key foreign markets.

1.07 The Purpose of this Report. PIC have adopted two strategies to benefit fromthe exploitation of their large tuna stocks: (a) negotiating access fees fromforeign vessels fishing in their waters, and (b) investing themselves, oftenthrough local, public companies and joint ventures, in catching and processingtuna. Since the tuna resources in the WCPO are likely to become the subject ofa new management regime, this report explores the potential impact of the draftMHLC Convention9. The analysis suggests that PIC ability to financiallybenefit from the Convention, and realize optimum access fees and investment

7 The total number of vessels operating in the WCPO is much larger.8 Gillett, Robert (1997): The Importance of Tuna to Pacific Island Countries: a report prepared for theForum Fisheries Agency; Gillett, Preston and Associates, Suva.9 The Regional Convention for the Conservation and Management of Highly Migratory Fish Stocks inthe Western and Central Pacific (the 'MHLC' process).

13

income from the tuna industry in the future is critically dependent on keyaspects of the draft Convention that have not yet been decided. Notably, futurefunding arrangements and rules for allocation of TAC of tuna stocks are yet tobe determined. Funding arrangements are likely to be agreed upon before theConvention is finalized, but TAC allocation rules will be left to the futureConvention’s Commission to decide. This report analyzes the potential costsand benefits of the Convention, and reviews the implications of variouspossible alternatives for TAC allocation rules.

15

2. Benefits of Past PIC Cooperation2.01 Past Cooperation. Exploitation of tuna and related species has historically

taken place in an environment in which only technical limitations constrainedfishing effort, and vessels did not pay for the right to fish. Over time PICrealised that, with their newly acquired, often immense EEZ and modestinstitutional means, efforts to manage access to their tuna resources and toadequately profit from exploitation, if taken in isolation, may be difficult andcostly. Decision makers in the region at that time benefited from a number oftechnical assistance programs which trained and educated them about theindustry, and prepared them for the strategic choices that they were facing.Early on PIC have been surprisingly effective in creating regional agreementsthat manage exploitation levels of and access to tuna resources in their EEZ.The Forum Fisheries Agency (FFA) has been particularly instrumental inencouraging and implementing a number of these regional agreements. It wascreated in 1979 to: ‘… help PIC in the exercise of their rights within the EEZand enhance cooperation between all coastal States in the region and Statesinvolved in harvesting the resource’.

2.02 The earliest efforts of the FFA and its member countries involved multilateralcooperation. When their EEZ were declared, PIC cooperated in an outstandingway to harmonize access agreements, implement monitoring, surveillance andcontrol of fishing, and report data. From this promising beginning PIC havecontinued to cooperate and created a network of measures to manage andcontrol access to their tuna resources and levy license fees that no individualcountry could have created on its own.

2.03 PIC cooperation particularly aimed at joint scientific research, collection ofinformation and the exchange of such information. Other efforts focused onbetter vessel identification, improved reporting of catch and positioninformation and other harmonised minimum terms and conditions (MTC) ofaccess to PIC EEZ by foreign fishing vessels. Standardised reporting for all PICEEZ also benefited foreign vessels, and enabled easier electronic dataprocessing. Regional and international organisations benefited fromstandardised analysis of catch information. Mechanisms for compliance andverification of catch reporting were followed by the implementation of theRegional Register of Foreign Fishing Vessels, FAO Vessel Markings and theintroduction of its Code of Conduct for Responsible Fishing.

2.04 The regional agreements that have been concluded so far include:

• The Regional Register of Foreign Fishing Vessels, maintained by FFA, ofvessels licensed to fish in the region;

• The Harmonised Minimum Terms and Conditions for Foreign FishingVessel Access, detailing joint standardised conditions for vessel access;

• The Palau Arrangement, which places a specific ceiling on the number ofpurse seiners licensed to operate in the region;

• The FSM Arrangement which encourages investment by domesticindustries and offers preferential access to its EEZ to member countries;

16

• The US Multilateral Tuna Treaty, which directs operations of the US purseseine fleet in PIC EEZ;

• The Niue Treaty, which provides a framework for regional cooperation infisheries surveillance;

• The FFA member countries Vessel Monitoring System (FFA VMS),managed and administered by the FFA secretariat on behalf of FFAmember countries, which uses electronic equipment on each VMSregistered fishing vessel to track position, speed and direction of the vesselin the EEZ of FFA member countries;

• Air Surveillance and Ground Control, operated by Australian, NewZealand and French aircraft and maritime (surface) surveillance byAustralian donated patrol vessels; and

• Joint Fisheries Research and Statistical Monitoring through the Secretariatof the Pacific Community (SPC) Oceanic Fisheries Programme,coordinating research on tuna and data collection.

2.05 Shared Costs. Not only would some of these arrangements be meaningless orless effective if limited to a single country, but the costs to negotiate, operateand maintain these arrangements would have been prohibitive for manyindividual countries. For example, the annual operating costs of the regionalregister (US$ 0.5 million), FFA VMS (US$ 1.2 million) and joint research(US$ 1.8 million) amounts to some US$ 3.5 million. Even if only the largest sixcountries had created these functions individually, costs would have been of theorder of US$ 21 million. Other joint activities, like air surveillance (US$7-24million) and maritime surveillance (US$ 2.3 million) are executed far more costeffectively if closely coordinated.

2.06 Access Fees. The monetary and other benefits of these cooperatively createdagreements have been substantial. With increasingly effective means ofsurveillance and control, individual PIC and the group as a whole were able tonegotiate and receive considerable direct financial transfers and aid for licensesissued to local and DWFN vessels exploiting their fish resources. The value oflicense fees received by all PIC in 1997/8 is conservatively estimated at US$ 54million10, an increase of 360 % compared to the reported level of 1983 (US$15million). These fees were paid for licenses for about 900 vessels from 14countries, down from about 1300 vessels in 1995. The largest payments weremade by the USA (36%), Taiwan (25%), Korea (21%) and Japan (17%); othercountries contributed 3%. While the US Multilateral Tuna Treaty provided thesingle largest benefit in absolute terms, most benefits still came from bilateralagreements negotiated between individual PIC and DWFN. Net economicbenefits of the tuna industry to the Marshall Islands are estimated by FFA ataround 13% of the total estimated auction value of that catch in Japan andHawaii. Rates of return to PIC of bilaterally negotiated access agreements havegenerally been below 4%11.

10 These data do not include estimates for access fees paid by China, and do not include any estimates ofother bilateral aid linked to individual agreements (see Annex 1, Table 3).11 Asian Development Bank (1998): Report on Pursuing Economic Reform in the Pacific; Chapter 5,Table 5.5. In 1993 the level of DWFN access fees paid to PIC as percentage of the landed tuna catchvalue was estimated as follows: a) the USA - 10%; b) Japan - 5%; Taiwan - 3.7 % and Korea - 2.2%.The report argues that, given the level of competition in the canning industry, the fee levels negotiatedbilaterally with Japan, Taiwan and Korea are actually quite substantial. The report does not discuss the

17

2.07 Aid. A number of access agreements have formal and informal arrangementsfor aid and payments in kind; other DWFN provide aid projects on top ofregular license fee payments. Although these aid and in kind payments fluctuatewidely between agreements - some even can not be conclusively linked toaccess fee payments - they appear important for many countries. For the period1990-2000 Solomon Islands received 73% of its Fisheries Departmentdevelopment budget in the form of grants; at least 50% of the grants concernedtuna related infrastructure and Technical Assistance. One of the lessappreciated aspects of the US Multilateral Tuna Treaty has been that the USeffectively monitored the way its own purse-seine fleet implemented Treatyconditions, lifting the administrative burden and costs of monitoring from PICadministrations.12 However, while aid and payments in kind add indirectly tofee income, and as such clearly benefit PIC, aid often reduces the transparencyof an analysis of the real benefits and costs of access agreements. Ad-hoc aidprograms, sometimes linked indirectly to access agreements, may not fullyreflect the priorities and objectives of national development strategies of theeconomy as a whole. The record of a number of these projects suggests that aidand payments in kind may have provided substantially less real benefits thantheir total costs may suggest, using scarce local administrative and financialresources for implementation.

2.08 Indirect Costs. A number of reports refer to the relatively high costs thatcurrent surveillance and control arrangements and in–port transshipmentregulations indirectly impose on visiting foreign fishing vessels. Theseregulations increase the operating costs of these vessels and reduce the potentialwillingness of DWFN to increase access fee payments. Similar complaints havebeen voiced about the negative impact of the often complex and restrictive localinvestment policy framework.

2.09 Public Investment. Over the past 30 years a number of PIC have sought publicand private investment in the tuna industry supported by - mostly - foreignloans, grant funds, payments in kind and local public equity capital. Thesepublic and joint venture companies would help the countries increase localvalue added, and provide additional employment and increase export values,while enhancing the local tax base and local service industries. External aiddonors indirectly encouraged these investments, stressing the need for greaterdomestic industrial activity to reduce economic vulnerability to foreigninvestment decisions. As a result, PIC, sometimes in competition with eachother, pursued investment in vessels, processing plants, transshipment facilitiesand general port infrastructure. These investments competed head-on with wellestablished, global tuna industries. Unfortunately, in appraising these projects,essential technical, financial, marketing, investment policy, company strategyand management issues were too frequently overlooked, and the nature of the

much more profitable sashimi quality tuna trade. Other sources quote even lower levels of access fees.In the late 1980s PNG issued a legislative requirement of a minimum 6% rate of return for accessagreements, which caused the collapse of an existing bilateral agreement, which was never reinstated.12 A frequently voiced criticism of aid linked to access agreements is that it unduly influences thecompetitiveness of the vessels of the country providing the aid. Others suggest that if aid is subtractedfrom multilateral access fee payments, they are similar to those achieved from bilateral accessagreements.

18

competition they would face down-played. Conflicting incentives for publicsector managers, and the inappropriate arrangements for governmentinvolvement in these commercial enterprises were other reasons for poorperformance.

2.10 In many cases public sector tuna ventures have become important localemployers, and, at least in the 1980s, the popular target of technical and capitalaid assistance. This created strong public sector vested interests that havesustained these operations despite crippling financial and economic losses.Strong competition was one key reason for these losses; other reasons includedinadequate management, weak Board level direction, inappropriate (publicservice) operating pressures, deteriorating prices, low labour productivity andcomparatively high operation costs. In the case of some public joint ventureswith foreign partners, ‘milking’ of the venture took place by the parentcompany, facilitated by unprofessional behavior on the part of nationalrepresentatives on the venture Board. Most public investments have providedminimal or negative net economic returns; too many are highly costly failures13.A rough estimate of total public and private investments which have notreturned a minimum economic return totals a conservative US$200 -300million (see Annex 1, Table 4). Consequently, most of the region's economieshave thus far not benefited greatly, if at all, from their public involvement in thetuna industry. For the region as a whole, gains from access fees were largelylost through unfortunate local investments.

2.11 Private Investment. A few modest successes have been achieved with privateinvestment projects. These include: NFDC, now owned by Tri-Marine, andinitially supported by the Asian Development Bank; investments in locallybased, smaller fishing vessels in Samoa and Fiji; and – recently - successfulsashimi transshipment bases, where tuna is transferred through port facilitiesfor onward surface shipment or (mostly) as air cargo (Annex 1, Table 5). In the1990s foreign private and local investments in some, but not all trans-shipmenthave been successful, creating opportunities for the local private service sector,notably in Fiji and Marshall Islands.

2.12 Foreign Developments. PIC are not the only countries facing low returns ontheir investments in the tuna sector. The Japanese long-lining fleet facesincreasing costs and diminishing returns. The country is in the process of amassive buy-out program to reduce the long-lining fleet; competition of vesselsfrom countries with lower labour costs is a key factor. US vessel owners aremaking arrangements to restructure certain purse-seining activities to reduceoperating costs. In 1997 Korean purse-seiners were reportedly losing money.Only Taiwan is still adding new vessels to the purse-seine fleet in the Pacific.The tuna canning industry is consolidating world wide to enhance plantutilization rates, strengthen marketing power and better negotiate raw materialprices. A number of well established tuna canneries in the US have had

13 For a detailed review of the technical, marketing and price issues surrounding investments in the tunaindustry, see: Forum Fisheries Agency and Asian Development Bank (1998): DevelopmentOpportunities in Selected Tuna Fisheries for Pacific Island Countries. Also: Asian Development Bank,Office of Pacific Operations (1997): The Pacific's Tuna: The Challenge of Investing in Growth. For adiscussion of the perceived comparative economic advantages of PIC in processing tuna, see AsianDevelopment Bank (1998): Report on Pursuing Economic Reform in the Pacific, Chapter 5.

19

difficulty competing with Thai products. A number of EU canneries might failif forced to operate outside the protected EU market. Tuna canning in PIC has apoor record; the Taiyo and PAFCO canneries in Solomon Islands and Fijiappear to be making losses, even though they have the major advantages ofnon-tariff access to the European Union under the Lome Convention.

2.13 Diversity and Equity. Some PIC have a large EEZ with major tuna resources,others have a much more modest EEZ, with limited or seasonal concentrationsof tuna. Hence benefits to individual PIC from license fees vary widely; forsome they are quite limited. However, many agreements can only truly beeffective if all PIC participate; for some this means that they incur costs(attending negotiations, providing data, expanding institutions) but are likely toobtain few or no direct benefits. To provide an incentive to such countries toparticipate in multilateral agreements an arrangement was necessary that wouldprovide them with minimum payments, regardless of the size of the tunaresources and actual catches. This was achieved through the system of sharedpayments, and was first applied in the US Multilateral Tuna Treaty. Of the totalannual fee payments, 15% are distributed equally to all 15 participants,regardless of actual tuna catches in their EEZ; such shared payments in 1999totalled US$ 2.4 million.

2.14 Political Importance. Although tuna is an important commodity, it is not theonly factor that determines the interest of other countries in the region. Geo-political concerns often also drive country interests. Some tuna agreements mayhave been negotiated, and aid programs funded, in part to satisfy other thanpurely tuna related objectives of some of the participants. PIC have benefitedfrom this situation, and should continue to do so in the future; clearly they canonly do so most effectively as a group.

2.15 Lessons from Experience14. Previous studies have analysed the practicaloptions available to PIC to optimise benefits from the tuna sector. Theyconclude that for each PIC a sector strategy based on the following principleswould have the highest chance of success:

• Rely on and optimize benefits of fee and other rent income;• Focus local government action on creating a better investment and

sector policy framework that encourages private investment;• Concentrate local investment particularly on service, supply and

niche fish catching operations related to trans-shipment of freshhigh value tuna;

• Encourage the domestic private sector to invest in the industry,possibly with foreign partners;

• Encourage Foreign Direct Investment, where feasible; and• Ensure the current level of PIC control over tuna resources and their

exploitation is not being diminished.

14 These conclusions mostly come from: Asian Development Bank, Office of Pacific Operations(1997): The Pacific's Tuna: The Challenge of Investing in Growth.

21

3. Optimizing Benefits from Tuna: the Broader Picture3.01 Economic, Strategy and Ownership Issues. The findings of recent reports

clearly point to economic and strategy issues determining the future role of PICin the tuna industry in the Pacific Ocean; these issues appear at least asimportant as biological sustainability15. Fundamentally, PIC have a migratingresource in their EEZ over which they currently exercise a somewhat tenuousform of 'ownership' and 'control' - as some tuna move in and out of EEZ -through existing access and MCS agreements and understandings.Traditionally, they have applied the concept of ‘user right’ which explains theirgovernments’ early focus on issues of resource use sustainability16. Major tunaresources appear to aggregate near island groups and continental shelves, andresearch has demonstrated recurring high concentrations of fish in PIC EEZ;nevertheless, PIC control over the resource is not absolute. Actual exploitationof the resource is overwhelmingly in the hands of non-PIC parties, while PIChave no control over tuna - and their exploitation – which happen to reside atany one time in high seas areas beyond national control. As Chapter 2concluded, it will be critical for PIC to ensure that their ‘ownership’ and'control' over this moving resource and their exploitation is not being furtherdiluted by new agreements and conventions. Equally, PIC should not lose theircontrol over existing institutions and arrangements that enable them toindependently monitor and control access to the tuna resources. Their controlover these facilities substantially influences their ability to successfullynegotiate and obtain benefits from providing access to these tuna resources.

3.02 The companies catching, canning and distributing tuna are often large,influential and sometimes dominated by larger industrial conglomerates,operating in global markets. Since all (bilateral and multi-lateral) tuna accessagreements are essentially Government-to-Government agreements theseconglomerates join forces with the most powerful nations in the region whennegotiating access of their fleets to the tuna resources in PIC EEZ. Whatchances do PIC have to better negotiate access and obtain equitable benefitsfrom these parties? Three key lessons jump out from literature on the subject:

• PIC are individually in a very weak position, and highly dependentupon external decisions, to exploit and benefit from the tunaresources in their waters;

• Rent and access fee income - the main source of tuna benefits forPIC in the past - offers most potential for future revenue, providedthat PIC cooperate together in a strategy to minimise theirnegotiation weaknesses, and

• To successfully earn other economic and social benefits from theresource - in addition to fee income - PIC should improve andcoordinate their local investment policies and regulations, and makethem more investor friendly.

15 Notably the recent reports published by the Asian Development Bank; see Bibliography.16 PIC Governments early focus on sustainable resource use and their desire to reap social and economicbenefits from the creation of their EEZ led in 1978 to the establishment of FFA.

22

3.03 Optimizing Rent/Access Fee Income. Several efforts have been made by PICand FFA to enter into multilateral agreements in the past. One DWFN hasconsistently refused to negotiate multilaterally, and has successfully maintainedthis position; others at least reviewed such option, but eventually declined.Following the Brisbane Convention of the Pacific Forum, proposals formultilateral agreements were made through FFA to two DWFN, but wereeventually not successful. The US Multilateral Tuna Treaty is currently theonly, and prime example of a successful multilateral (umbrella) agreement. Itclearly has provided PIC with financial returns that could not possibly havebeen achieved through bilaterally conducted negotiations. Other factors alsocontributed to the successful conclusion of its negotiation: (a) the threat ofanother foreign party, with no previous activities in the region, starting fishingoperations, (b) geo-political considerations; (c) the arrest of an American purse-seiner in Solomon Islands, which triggered the potential of trade retaliationunder the US Magnusson Act; and (d) effective FFA management of theprocess.

3.04 No PIC has yet negotiated an access agreement directly with individual fleetowners without DWFN involvement. Bilateral agreements still are the rule.One PIC has recently negotiated an access agreement for vessels from a countrynot previously engaged in the region. Such action may well be useful if it wereto be part of a broader negotiating strategy. In isolation it clearly underminesthe future effectiveness of all PIC to jointly (re-) negotiate existing and futureagreements. Box 1 explains why (Chapters 5 and 6 provide a further discussionof these agreements).

23

Box 1. Benefits of cooperating, risks of going it alone: a simple, hypothetical, example.

The importance of cooperation among island countries to negotiate access to a migrating tuna resourcecan be demonstrated by a simple, hypothetical example. Suppose there are ten island countries in aregion, of which five have an extensive EEZ. Suppose that tuna seasonally aggregate in four countrieswith a large EEZ, and two with a small EEZ, but that tuna migration patterns change, and annualcatches in each country fluctuate widely. Also suppose the fleets of two regional Industrial Nations (IN)wish to fish in the region. What are then the optimal negotiating strategies for both parties?

Negotiating Strategy of IN The IN strategy with the lowest costs and risks is to negotiate with each individual country and offerlow access fees, or aid in kind in return. If a country rejects the initial offer, efforts may be made topersuade individual decision-makers in the country. If these fail, at least 5 other countries couldpotentially be approached with the low offer. If none accepts the IN can selectively offer higher rewards,targeting countries with the largest EEZ and the most convenient location. In this strategy maximumefforts would be made to ensure that no country cooperates with others in these negotiations, andconditions remain secret. To ensure such collusion will not occur, the IN may indicate a potentialreduction in general economic aid or trade policy restrictions to convince individual countries tonegotiate a bilateral deal. Since no country knows the position of the others, and all realise the IN cango elsewhere, they are likely to accept a low offer. Tempting the other IN to make a counter offer maynot be a successful negotiating approach for individual countries, as IN may well exchange keyinformation about each other positions once they realise being ‘played’ against each other.

Negotiating Strategy of 10 Island CountriesThe countries’ best strategy would minimise their key weaknesses: the possibility for IN to shop around,and the fact that they offer access to a fluctuating, migrating resource. This can be achieved bycooperating and negotiating as a group for IN fleet access to their joint resource. Such cooperation hasother advantages; it allows for advance preparation of a joint negotiation strategy and definition ofarrangements to share information. Projected net benefits from the joint negotiation to each individualPIC (gross benefits minus costs) would be set higher than those that could be realistically achievedthrough bilateral negotiations. Such strategy would change the countries from unrelated, small sellers ofaccess to a modest, fluctuating resource (being price takers) to being a single supplier of a large andstable resource (a price setter). The countries would insist on one joint negotiation, with each IN or withboth. Countries may experience pressure (on individual negotiators and at the national level) to reducetheir cooperation. Countries would have several options to counterbalance such pressure. They could:(a) offer access to their entire tuna resource to third parties, (b) use geo-political or internationalconsiderations to their benefit, and (c) influence the media and obtain support from influential non-governmental organization (NGO) groups.

3.05 While the above theoretical example is not sufficiently detailed and realistic tobe applied in practice, it suggests the following critical points for PIC whoprepare for access negotiations. They may consider to:

• Investigate the costs and benefits of a joint strategy; making realisticassumptions about the outcome of bilateral negotiations, and assessing thepotential for exceeding those benefits through a joint approach;

• Analyze and define the optimum way in which they would provide accessto their EEZ (through umbrella contracts with countries and/or individualvessel owners) and obtain maximum fee income and share in the ‘rent’being generated in high seas, non-EEZ areas from tuna;

• Ensure all countries participate in strategy discussions and, if necessary,educate key decision makers;

• Fit bilateral negotiations (if they can not be avoided) into a broad, jointstrategy;

24

• Offer potential access to other parties (including private companies) anddevelop a media strategy based on links to selected, influential media andNGOs; and

• Use expert advice from professional negotiation specialists to reachoptimum results.

3.06 The above example assumes that EEZ house a sufficiently large share of aparticular tuna species so as to make it not financially feasible for the industrialnations to fish only in the high sea areas. In the Pacific this is clearly the casefor surface tunas. No DWFN can operate its purse-seine and pole-and-linefleets profitably without access to PIC EEZ waters. For deep-swimming tunas,notably albacore, oceanic fishing without access to EEZ waters is a realisticoption, as recent negotiations with Taiwan have demonstrated. However, tunalong-lining for other species virtually requires access to the EEZ of one or twocountries with a large EEZ to guarantee decent financial returns. With globalsashimi markets expanding rapidly, global demand for deep swimming tunaswill substantially increase. Hence, a different PIC strategy may be needed tonegotiate access for long-liners, which may combine one or more of thefollowing strategies:

• Offer all or nothing; the countries having by far the largest deep-swimmingtuna resources (Kiribati, FSM, Marshall Islands, Solomon Islands andPNG) could appreciably enhance the profitability of DWFN long-lining(and hence increase the interest of individual DWFN in negotiating a jointagreement) by offering access to their entire combined EEZ;

• Ensure having at least one alternative party willing to negotiate, orconsider offering licenses to individual operators;

• Utilize geo-political developments in the negotiating process;• Utilize the momentum of trends in the industry, and offer special

inducements to up and coming parties; and• Ensure to link all PIC to these negotiations, through a share arrangement.

3.07 Long-term Issues. While current fishing efforts on all tuna - except bigeye - inthe WCPO are sustainable in a biological sense, the investments in plant andvessels exploiting surface tuna stocks appear to exceed optimum economiclevels. For deep-swimming tuna economic over-fishing appears less severe, asmarkets - for sashimi - are rapidly expanding, notably outside Japan, andchanging fishing practices, vessel technology and marketing patterns offercontinuing potential for a further reductions of catching and marketing costs17.(Box 2).

17 Demand for sashimi tuna appears far more price elastic than for canned tuna, where prices are closelytied to those of substitutes such as chicken and pork, and indirectly to feed grains and soy-meal (all ofwhich have declined in recent years in real, inflation adjusted, terms).

25

Box 2: Economic Fisheries Management

Because fish is a common property resource, fishing effort tends to grow tounsustainable biological levels, and needs to be regulated. Although regulation isusually applied with biological objectives in mind, the concept can also be used in aneconomic context. Put simply, to obtain an optimum economic fishing effortinvestment levels in the fishing fleet (and related infrastructure, like ports) should besuch that the industry as a whole would return maximum net benefits. In economicterms such optimally managed fishery returns a resource ‘rent’ over and abovenormal industry profits. When applied to tuna production for canning this conceptfaces practical complications: (a) catching and processing are closely linked, (b)canned tuna is a fairly price in-elastic product, (c) the abundance of tuna (and hencecatches) fluctuate markedly because of environmental factors, (d) canned tuna is aglobal industry, but resources are regional, and (e) investments have a very longeconomic life. These complications make it very difficult to reach a scientificallysound recommendation concerning optimal levels of tuna exploitation andproduction at any one time. However, there is a practical rule of thumb that mayhelp. In the tuna canning industry transfer prices for raw material between vesselsand canneries determine vessel and cannery profitability. When tuna are abundant,transfer prices are usually low, cannery operations become more profitable, andvessels less so. When tuna are less abundant, transfer prices go up, and catchingbecomes more profitable.18 Hence from the perspective of PIC, controlled globalproduction of tuna probably has some advantages.

3.08 Fundamentally, vessel and cannery profits are under pressure globally as aresult of two parallel developments. Relentless expansion of catches and ofcanned tuna production have reduced average raw material prices (in real,inflation adjusted terms) over the past 20 years by some 50%. Canned tunaprices have also been affected by the long term declining trend of prices of theclosest competitor foods, chicken and pork. Specific factors behind thedownward price trend also include:

• A long-running simultaneous expansion and consolidation in the industryworld-wide, with cannery capacity having been expanded substantially inThailand and in producer areas, while being closed in certain other areas;company consolidation has reduced the number of large players in theindustry;

• The existence of protected market blocks (EU, US) for canned tuna, whichsustains over-investment and limits capacity reduction in canning andcatching19;

18 Prices for tuna used for canning have historically have fluctuated markedly. The price cycle recentlyreached another low, which, in a highly competitive industry is affecting long-term economicsustainability of a large part of the fleet. At the end of 1999 skipjack and yellowfin prices in Bangkok,(the reference price for global tuna prices for the canning industry) had plummeted to a new low ofabout US$400 and US$550 respectively.19 One report suggests that surface tuna production from the Pacific should increase from the stillmodest level of current exploitation, as resources could sustain much higher levels. While the reportnotes the low profitability and fierce competition in the tuna canning industry, it assumes that productionincreases could improve factory efficiency and overall profitability. It appears that canneries did benefitfrom recent increases in catches, but the fleet clearly did not. As a result, catching capacity may bepermanently reduced, but canning capacity, already excessive due to trade protection, remains too highin relation to global demand. Without changes in current trade protection arrangements, cannerycapacity is likely to remain too high. Asian Development Bank (1998), Report on Pursuing EconomicReform in the Pacific.

26

• Rapid expansion of fishing efficiency (fish aggregating devises, electronictechnology improvements, vessel improvements, better fleet management)and hence fishing effort;

• Large recent production increases due to favorable tuna abundance; and• Development of fishing grounds in the Western Pacific (where the tuna

catch continues to increase, even though very recent measures attempt tolimit capacity and catch) and Indian Ocean.

3.09 To improve the profitability of the production of raw material for canned tuna,PIC could do more than negotiating access agreements. A recent bio-economicstudy20 suggests that a reduction in fishing effort in the WCPO, which producessome 50-70% of the world's canning tuna catch, would increase profits andrents of the fleet in absolute terms. While the computer simulations should beevaluated for what they are -- a simulation based on certain assumptions -- andshould not be given absolute validity, it is clear that limiting global fishingeffort on surface tuna could have considerable potential for expanding theabsolute levels of PIC access fees. While an immediate major reduction of thepurse-seine fleet may face serious political hurdles, a gradual global reductionin catching tuna may have major potential benefits. Hence, PIC may explore, asa long-term negotiating strategy, the feasibility of reducing the overall level ofpurse seine operations in their EEZ, while linking access of new parties to theirEEZ to a simultaneous reduction of their fleets in the Indian Ocean. There areclearly opportunities to do so, as recent bilateral arrangements suggest. Inaddition, the institutional framework for such action already exists. The PalauArrangement could provide an existing, effective tool to manage a long-termreduction of the purse seine operations in the WCPO.

20 Forum Fisheries Agency (1999): A User Guide to the WCPTF Bio-economic Model.

27

4. The Draft MHLC Agreement4.01 Historic Context. Concerns about global overfishing trends, the threatened

status of one specific tuna stock, and local declines of inshore tuna catchesfollowing heavy foreign fishing have created demands for better managementof these stocks in high sea areas. The WCPO is the only remaining high seasocean area where no comprehensive form of tuna management exists. The UNConvention of the Law of the Sea (UNCLOS) and particularly the ImplementingAgreement (Relating to the Conservation and Management of Straddling FishStocks and Highly Migratory Fish Stocks, or IA) have provided theinternational legal framework to improve management. Over the past threeyears both coastal states and DWFN have made major efforts to define howhighly migratory tuna stocks in the WCPO could be managed in the future. PICGovernments were the initial driving force behind the organization of a seriesof five Conferences in which the Regional Convention for the Conservation andManagement of Highly Migratory Fish Stocks in the Western and CentralPacific (the 'MHLC' process) has been negotiated and drafted. The current draftwill be further negotiated during meetings in April and August 2000; the entirenegotiating process is scheduled to be completed by December, when theagreed draft may be submitted to the UN General Assembly21.

4.02 Major efforts have been and continue to be invested in concluding the MHLCprocess; it has been lengthy and difficult because of the diverse interests of PICand DWFN, both individually and as groups. The status of the negotiations isdelicate. Highly sensitive matters, such as the financial contributions to operatethe Convention have been deferred to future sessions. The critical issue of TACallocation among Convention members has been left to the Commission (thatwould be created following approval of the Convention, see below) to decide.This uncertainty may have prevented PIC from having thoroughly evaluated thepotential impact (direct and indirect benefits and costs) that the draftConvention may have for each country individually, as well as for the group asa whole.

4.03 MHLC Principles. The current draft MHLC envisages the establishment of aConvention with regulatory powers to ' …ensure, through effectivemanagement, the long-term conservation and sustainable use of highlymigratory fish stocks in the western and central Pacific Ocean in accordancewith the 1982 Convention and Agreement'.22 The Convention would create aCommission, which would determine the Total Allowable Catches (TAC)23,and criteria for allocation of TAC or the level of fishing effort. The draftConvention retains the right for coastal States to manage the fish resources in

21 With the status of major tuna stocks believed to be robust, some participants to the Conferences notedthat this is an unusual situation; conservation and management measures are usually implemented aftertarget stocks have been over-fished. This has led participants to refer to the Conference ‘getting ahead ofthe curve’, putting in place conservation and management measures to prevent non-sustainable resourceuse from happening.22 (1999) Report of the multilateral High-level Conference on the Conservation and Management ofHighly Migratory Fish-stocks in the Western and Central Pacific; Annex 5, Article 2.23 Ibid: Annex 5, Article 10, para 1 (a).

28

their own EEZ, through the inclusion of a ‘without prejudice ‘ clause24. Itwould also establish new arrangements of monitoring, control and surveillance(MCS), or incorporate and expand existing systems in the region.

4.04 Objectives and Purpose. Biological sustainability is the official objective of theConvention; data requirements, research and measures for conservation andmanagement focus on the biology of tuna.25.

4.05 MHLC: Direct Costs. Establishing and running the Convention and itsCommission will not only impose incremental direct financial costs on PIC, itwill also create obligations to manage tuna resources inside their EEZ. Propermanagement will require local MCS, observer arrangements, continuingresearch and monitoring, an effective fisheries administration, regularreporting, and operation of an effective local legal system.

4.06 MHLC Fund. The draft Convention refers to the financial burden it mayimpose on its members, notably the smaller and financially less endowed PIC.At present some PIC fisheries administrations with modest budgets are alreadystrained to satisfy the costs of fisheries management26. The draft Conventionrecommends the creation of a Fund to … facilitate the effective participation ofthe developing States Parties…. In the work of the Commission, including itsmeetings.27. It also suggests that…cooperation with developing States…shallinclude the provision of financial assistance, transfer of technology, includingjoint venture arrangements, and advisory and consultative services.28 Such aidwould particularly aim at sharing the costs of data collection, stock assessmentand scientific research, and monitoring surveillance, including observerprograms. The size of the Fund remains to be determined, but the currentestimate of contributions to the Fund for the first year of the functioning of theCommission (US$ 100,000) appears a small fraction of future requirements(See Table 2 below). The Fund as currently conceived would be based onvoluntary contributions. Given the importance of donor support to PIC toenable implementation of ongoing MCS and future MHLC related activities,the Fund’s voluntary nature and its future size should be carefully reviewedprior to completion of the MHLC Convention. Voluntary donations tend todecline over time, and are subject to bureaucratic decision making; PIC may

24 Ibid: Annex 5, Article 10, para 1.25 The draft Convention provides some references to economic management measures and objectives. Itdoes refer to …optimum utilisation, and admonishes the Commission to take measures to…prevent oreliminate overfishing and excess fishing capacity and to ensure that levels of fishing effort do not exceedthose commensurate with ….use of selective, environmentally safe and cost effective fishing gear (Annex5, Article 5, para 1 (g)). The Convention Articles also specifically refer the Commission to …Obtainand evaluate economic and other fisheries-related data and information relevant to the work of theCommission. (Annex 5, Article 10, para 1 (j)). These economic data may only refer to fish prices. Whilethe draft Convention elaborately defines the biological and technical data that should be collected, andfor what they should be used, no such references exist for economic data; no economic targets forfisheries management are defined. While the Convention does specifically refer to application of theprecautionary approach, and ….any internationally agreed standards and recommended practices andprocedures.(Annex 5, Article 5, para 1 ©), it only indirectly implies other than purely biologicalsustainability objectives.26 For example, many surveillance vessels are used less than full-time because of local budgetconstraints.27 Ibid: Annex 5, Article 30, para 3.28 Ibid: Annex 5, Article 30, para 4.

29

consider including a specific contribution to the Fund as regular part of theannual budget of the Commission.

4.07 Financial Implications. MHLC will not operate in a management environmentthat needs to be developed from scratch; clearly PIC are currently involved inmonitoring DWFN flag vessels, tasking air surveillance, and collecting data.Specifically, existing regional initiatives (FFA VMS, the HarmonisedMinimum Terms and Conditions of Fisheries Access, the Regional Register,SPC coordinated research and monitoring) provide essential services, withindirect benefits to PIC that far exceed their financial costs. The FFA VMSRegional register and national observer programs are fully cost-recovered fromthe fishing vessels operating in the region. Many of the other initiatives arecurrently also supported by funds from several aid donors.

4.08 The current system of paying for resource management costs, includingresearch and administration, is not at all transparent for tuna in the Pacific, andalso appears questionable from a theoretical point of view. Historically, fundingof these activities has been shared by: (a) DWFN vessel owners (who pay for apercentage of the license fees and some surveillance costs), (b) DWFNGovernments, who pay their share of the license fees (often through aidprograms), (c) PIC, who may pay directly for certain administration andsurveillance costs, and indirectly (through reduced access fees) for others, and(d) by other aid agencies, through FFA and directly. From a theoretical point ofview, these costs should be paid by the users (i.e. the vessels exploiting theresource). In practice, as discussed below, the present system may be difficultto change quickly, as many factors conspire to keep it in place.

4.09 How Much Will MHLC Cost? In the following two tables an attempt is madeto quantify the current costs of managing tuna resources both at the DWFN,regional (FFA) and PIC level. Data in the first table refer to investment costs(in italics) and annual operating costs of various MCS and fisheriesadministration activities - related only to tuna - currently financed by DWFN,aid donors (often through FFA) and PIC. The second table quantifies futureobligations that may result from acceptance of the MHLC Convention ascurrently drafted.

30

Table 1: Estimated Past Investment Costs and Annual Current Costs of FisheriesManagement and Administration for the FFA area. (US$'000; investmentcosts initalics)Current Obligations Ongoing Activities funded by

DWFNOngoing Activities funded by:AID PIC

Regional MCS- VMS Installation- VMS Operation- Air Surveillance- Surface Surveillance,

*Investment*Operation

- Observer Program- Regional Register

5,000850

250500

3505,000

120,0003,000 3,000250 1,000 20

Regional and National TunaResearch

- SPC- National Research

1,800 500

Data Collection- Catch/Effort DWFN- Catch/Effort lo fleet.- Economic data- Compliance

400 400

20 10020 100

Legal Requirements 50Preparation for MHLC 750 1,500 200Finalizing MHLC andCommission 750 1,500 200Fisheries Administration

- Annual reporting- Training and maintaining

staff- Updating equipment

500

500 500 500 500

Total Investment 6,500 123,500 900Total Operating Costs 2,000 10,190 6,470

Notes:Regional MCS. VMS installation of transponders: US$4000 per vessel for 1000 vessels; equipment atFFA center and national stations US$ 1,000,000. VMS Operational costs include US$350,000 for FFAcenter and US$850,000 for 16 national stations. Aerial surveillance covers 1000 hours at US$5 –24,000/hour. Surface surveillance investment comprises 22 Patrol Boats at US$5.2 million each andothers with running costs of about US$260,000 per annum (p/a) each.Observer program: the regional program costs US$250,000 p/a; costs covered by DWFN estimated to bethe same. National observer programs are estimated to cost US$1,000,000 for all PIC.Research. These are estimates for SPC (US$1,800,000) and US$500,000 for all national efforts.Data Collection.. Estimated at US$25,000 per PIC; DWFN spend in total a similar amount.Legal Requirements. These have been averaged over several years, to reduce the impact of theparticularly high cost over recent years.Preparation of MHLC. Actual data.Administrative Costs. These are based on US$30-40,000 per PIC for reporting and twice that amountfor staff development and updating equipment.

31

Table 2: Estimated Future Incremental Investment and Total Annual OperatingCosts for Requirements of the MHLC Convention, for the FFA area + oceanicareas. (US$'000; investment costs in italics)Obligations Future Activities funded by

DWFNFuture Activities funded byAID PIC

National and Regional MCS byExpanding Existing Systems

- VMS Installation- VMS Operation- Air Surveillance- Surface Surveillance

*Investment*Operation

- Observer Program- Regional Register

6,000 a)1,700

3,050 500

350 5,000

3.000 3,000 250 1,000

20Tuna Research- SPC- Other research- National research

900 800

1,800

500Data Collection

- Catch/Effort DWFN- Catch/Effort lo.fleet- Economic data- Compliance

1,000 80020 10020 100

Legal Requirements- Review- Updating

250 350 50 50

Fisheries Administration- Annual reporting- Training staff- Updating equipment

500 1,000 600 6001,000 1,000

Overhead MHLC- Annual meetings- Data dissemination- Secretariat- Scientific Committee- Technical Committee

150 100 500 75 75

150 50 500 75 75

Total Investment 6,000 (8,000) a) 1,000 1,000Total Operations 9,350 10,990 8,720a) This would be US$ 8 million if an entirely new VMS system would be set up.NotesMCS. VMS Installation costs; assumes existing FFA VMS would cater for all vessels fishing in EEZand high seas. Investment costs include: upgrading of existing equipment and expansion of number ofvessels to 2000 vessels (US$3 million), upgrading of equipment at FFA Headquarters, the CommissionHeadquarters and national stations (US$3 million). VMS operating costs would double for DWFN toinclude entire fleet operating in EEZ and oceanic areas. Air and surface surveillance costs would remainat current levels. DWFN observer programs would substantially increase in scope to cover those vesselsthat operate on the high seas. Regional register costs would remain the same.Research. A 50% increase in SPC research costs is assumed to cover high seas areas, to be funded byDWFN; DWFN research requirements will increase by an estimated US$ 800,000 annually.Data collection requirements will at least double (for PIC) and are estimated to increase 150% forDWFN.Legal requirements are estimated to require US$40,000 per country, and include direct legal supportand associated costs of introducing additional legislation.Administration Costs for DWFN are estimated to increase to accommodate reporting requirements,and double for PIC. Staff training costs will increase, and equipment costs for PIC will double.MHLC Overhead Costs are based on current estimates.

32

4.10 Analysis. The above tables should be interpreted with some caution. WhileCommission secretariat costs were drawn from FAO and FFA preparedproposals, most other data are based on estimates, notably figures for thoseactivities that would be required under a future MHLC regime. In the allocationof costs, liberal use has been made of the assumption that many future costs ofPIC would actually be donor funded, or be supported by the MHLC Fund.These assumptions may or may not fully materialise. It is clear that the futurewillingness of aid donors to maintain or expand their support for MCS andresearch will have a considerably impact on potential projected PICexpenditures.

4.11 The strategy MHLC will adopt for the use of existing programs will be ofcritical importance for future costs; Table 2 includes two different assumptionsfor future MCS activities. The first assumes MHLC action will utilise andexpand all MCS and related functions already in place, like those executedcurrently by FFA. The second assumes that MHLC would create entirely newVMS systems under its own control, bypassing existing functions. In thesecond option, investment and operating costs would be higher. Moreimportantly, under that scenario PIC may lose the existing MCS arrangements– now under their control - as they may no longer be able to obtain essentialforeign aid support for future operations of the FFA VMS. PIC should thereforemake every effort to jointly insist that the existing FFA VMS and relatedsystems be retained and used under the Convention.

4.12 It is not unrealistic to assume that part of the costs of activities undertaken andpaid for by DWFN (cost recovered under user-pays principles) are indirectlypaid by PIC. DWFN have generally been quite effective in their access feenegotiations enabling them to 're-recover' some of these costs through reducedaccess fee payments. It is not inconceivable that these costs will continue to betaken into account when future access fees will be negotiated, putting pressureon PIC to reduce access fees. It appears essential that, through closecooperation during negotiations, PIC avoid being indirectly charged for thefuture costs of user-paid services.

4.13 From the above estimates it is also fair to conclude that introduction of MHLCwill come at a price. The estimates show that:

• MHLC may impose additional investment and annual operational costs -inthe order of some US$ 6 million and US$ 7.3 million -- on DWFNoperations, which particularly reflect the expansion of the VMS, observerprograms, research and other services to the oceanic areas;

• The incremental financial burden the Convention may directly impose onPIC (including activities eventually funded by aid donors) may increase byan estimated US$2 million (investments) and US$ 3.1 million (annualoperational costs) if full use was made from existing functions andsystems;

• Total PIC potential financial obligations under the new regime may totalclose to US$20 million (compared to US$16.5 million without MHLC) ofwhich only a portion may be donor funded in the future29; and

29 Currently an estimated 55% of PIC annual operating expenditures are covered from outside, mostlyaid donors; the actual figure is probably even higher.

33

• The additional work demanded from PIC Fisheries Divisions related toMHLC may take away staff and funding, and decrease attention away fromcoastal (non-tuna) activities.

4.14 What specific actions could PIC take to minimise their dependence on foreignaid and their total financial contribution to MHLC? While individual nationsmay be able to reduce their individual costs by limiting or postponing certainspecific expenditures, or by not joining the MHLC Convention, DWFN andPIC could further reduce their costs by insisting that under the new Conventionthe Commission:

• Uses, expands and integrates operations of all functions that are currentlyalready in place, specifically: (a) the FFA VMS, (b) Air and MaritimeSurveillance, (c) the Regional Register, and (d) SPC Conducted Researchand monitoring;

• Combines the (future) high-seas observer program with existingregional/national observer programs;

• Examines those activities which could be more effectively carried out bythe private sector;

• Organizes the planning and execution of one broad regional tuna researchprogram, executed by SPC in cooperation with national researchinstitutes30;

• Organizes regional collection and coordination of economic and other data,including vessel operational data through a single, existing fisherieseconomics institution; and

• Gives priority to DWFN effectively monitoring their own fleets; effectiveDWFN monitoring would enable PIC to reduce current compliancerequirements, - trans-shipment in port and EEZ entry and exist reporting -enabling DWFN vessels to reduce costs.

4.15 Further Considerations. Although the estimates of Tables 1 and 2 have beencarefully assessed and discussed with specialists involved in these matters,individual estimates may be challenged. It is unlikely, however, that someadjustment of individual figures will change the basic conclusion of the aboveanalysis: the introduction of MHLC will impose direct additional potentialcosts on DWFN and PIC. PIC may decide to ignore these costs, but by doingso may limit their ability to influence activities and decisions of theCommission, and future management decisions. Are these future costs worththe effort? PIC Governments initially aimed at a Convention to manage tuna inareas beyond national jurisdiction only. In terms of immediate tunamanagement needs only bigeye - a species comprising 5% of the total WCPOtuna catch of which 80% (mature tuna) is caught in the high seas by DWFNlongline vessels - qualifies for urgent management attention. However, suchmanagement measures could be easily agreed to by the four DWFN catchingbigeye. If, in addition, a reduction of fishing pressure on juvenile bigeye was beneeded, the purse seine fleets of the 4 major DWFN could easily agree on a

30 FFA/SPC countries are quite insistent that scientific advisory services continue to be available to themdirectly, and not be compromised by provision of additional services required by the Commission; paperwalls may make it possible to accommodate this.

34

precautionary ban on the practice of setting on fish aggregating devices.Alternatively PIC could ensure that the practice is prohibited within their EEZ.

4.16 The draft MHLC Agreement raises questions beyond its likely implementationcosts. The current Convention has biological sustainability as its objective, butas the Commission may develop criteria for the allocation of the catch, itintroduces an element of uncertainty with major economic implications. Thefinancial arrangements to pay for the direct cost of MHLC, and the widerfinancial principles as to who pays for the costs of ‘management’ are equallyimportant. MHLC should ideally move towards a system in which the userpays, as is happening in many fisheries around the world. Such system wouldavoid the artificial dependency of PIC on aid and their own limited budgets topay for part of the ‘management’, but also to shield them from measures thatmay enable DWFN to recapture user-paid management fees by reducing accessfees. There appears a strong moral obligation for PIC to receive long term andequitable benefits from the Convention; their social and economic developmentis closely tied to tuna related benefits, and such dependence is likely to increasein the future.

4.17 As discussed in more detail in Chapter 5, lack of PIC cooperation during thefinal stages of the MHLC negotiations and during its implementation mayseverely weaken their ability to maintain control over:

• MCS related activities that are currently executed by them within their EEZ,often under the FFA umbrella;

• Bilaterally, multilaterally or individually negotiated access agreements, andactual fishing efforts in each EEZ;

• Decisions to initiate access agreements with non-MHLC members;• The area the Convention would cover, including the issue of future linkages

between the tuna stocks and fisheries in the Convention area and theEastern Pacific;

• Decision making procedures for the Convention31.• Ways and means for withdrawal or delay of the Convention;• Arrangements in case of delays in reaching agreement on successful

conservation measures; and• Treatment of potential DWFN.

31 For example, the minimum number of countries who by ratifying the Convention would enter it intoforce appears limited and the Convention could conceivably enter into force without the consent orparticipation of the four PIC with the lion share of the EEZ and tuna resources.

35

5. Joint Negotiating Strategies

5.01 Principles. Current multilateral and bilateral agreements are based on one oftwo operating principles. One charges fees on the basis of the current or lastyear's catch, either in terms of volume or value; the other charges a flat fee pervessel, or for a total fleet 32. The latter principle is being applied in the USMultilateral Tuna Treaty. The advantages and disadvantages of each systemwere recently reviewed in some detail33.

5.02 The system that charges fees based on current or last year's output (in terms ofvalue or volume) is regularly used in bilateral access agreements. It offers thebest potential for cheating. The system requires extensive data, which aredifficult and sometimes impossible to verify; there are strong incentives forsustained mis- or under-reporting. Monitoring costs are relatively high.

5.03 Alternatives. In some countries rights to fish a certain amount of fish in a giventime period are sometimes auctioned. This well researched alternative has beenmentioned as the guiding principle to allocate rights to catch tuna in the Pacific.Unfortunately, there are complications. The area covered includes the EEZ of alarge number of countries and high sea areas. PIC wish to obtain access feesfrom vessels exploiting the resource within their EEZ. Finally, both DWFN andPIC wish to share the 'rent’ created in high sea areas. A system in which TACshares would be auctioned to DWFN would almost certainly result in collusion,as the number of DWFN is relatively small. Auctioning 'rights' to individualvessel owners, which could be exercised for specific tuna species, in all areas,raises the issue of how the proceeds would be distributed – between PIC andDWFN, and between PIC themselves. Clearly, this issue directly impacts onPIC and their negotiation strategy to obtain maximum access fees.

5.04 The discussion about the system of charges and their distribution isfundamentally an ‘ownership’ issue. As discussed in para 4.02 under the draftMHLC Convention, such ‘ownership’ may be affected by the way theCommission will define how the TAC of individual species, or specific ‘rights’would be allocated. Several approaches are conceivable to distribute the TACor ‘rights’ and numerous combinations or variations. This report is not theproper place for an exhaustive analysis of these alternatives, as this wouldrequire considerable additional research, strategy development and consensusbuilding34. For demonstration purposes only four, simplified, approaches arepresented to highlight the issues concerned; an earlier analysis covers some ofthe implications35. TAC or ‘rights’ may be distributed:

32 Fixed charges for a given number of boats provide little sustained incentives for resourceconservation, (over and above the agreed fleet limitations). However, they require no exhaustive datacollection, are not subject to fraud, have low administration costs, provide a certain revenue flow to theGovernment, and are independent of the state of the stock or the level of resource rent. In the case of theUS Multilateral Tuna Treaty the risks are largely borne by the US Government. In 1999 only 37 out ofthe maximum 50 vessels operated under the Treaty.33 Centre for International Economics (1999), Capturing economic benefits from the tuna fishery.34 For example, it may be feasible to introduce a fee premium linked to global price levels for tuna; e.g.with prices of benchmark tuna moving above a certain level access fees would increase.35 Asian Development Bank (1998) Workshop proceedings.

36

• Mainly to DWFN - who would re-distribute the TAC to their own fleets inthe form of quota - with a TAC allocation to PIC for their indigenousfisheries;

• Directly as ‘rights’ (quota) to individual vessels wishing to catch fish in theentire area, again with a separate allocation to PIC for indigenous fisheries;

• To DWFN (as a group or individually) and to PIC as group, each receivinga negotiated share of the total TAC, possibly reflecting tuna concentrationsin EEZ and high seas areas; and

• Individual DWFN and individual PIC through a negotiated formula.

5.05 The following assessment only reviews the potential impact on PIC‘ownership’ aspects of the resource, and on their ability to effectively negotiateand obtain access fees from tuna exploitation in their EEZ. It is fair to note that,the first two approaches in this simplified form, would probably not beunacceptable under UNCLOS and the Implementing Agreement.

5.06 The first alternative has few advantages and carries major future risks for PIC.It dilutes PIC ownership of the tuna resources in their EEZ, and forces PIC tonegotiate access fees for a resource that has already been allocated to a DWFN.This alternative would possibly also reduce the ability of PIC to negotiate theirshare of the ‘rents’ generated in high seas, non-EEZ areas.

5.07 The second alternative is only a little better. It would require some form ofquota allocation system (for example, a quota auction) particularly if in thefuture demand for quota would exceed the TAC. Unfortunately, this approachwould also dilute PIC ‘ownership’ of the resource in their EEZ, and complicatethe arrangements for the collection of access fees, as PIC may insist that vesselswith a quota pay separately for the right to fish in a specific EEZ. Thisapproach would force PIC to capture their share of the ‘rent’ generated by thequota auction, which they would share with DWFN and would force PIC todecide whether to maintain some form of access fee arrangement linked tomonitoring, control and surveillance for individual vessels. The fact that vesselswould already have paid for a quota of the TAC (and possibly some of the costsof surveillance and control) would put pressure on PIC to reduce their accessfees. It would also raise administrative issues. Would vessels pay under someform of umbrella agreement, and with whom would such agreement benegotiated? As with the first alternative, the second would dilute PIC'ownership' of the resource, particularly when fishing intensifies, and it forcesPIC to negotiate more complex and costly access agreements.

5.08 The third approach appears more promising, but only if PIC cooperate closely.To pursue this approach agreement would probably be needed among PIC priorto the upcoming MHLC sessions to ensure that specific language detailing thisapproach would be included in the draft Convention. The alternative, gettingthe future Commission to propose this option and reach agreement on it withDWFN, may be far more difficult to achieve. This approach would broaden andstrengthen the PIC negotiation position concerning access fees, as it can opt tonegotiate with DWFN individually, as a group or auction quota to vessel-owners individually. This alternative would also strengthen the 'ownership' ofPIC over the resource. The only drawback of this option is that it may reduce

37

the chances of PIC fairly sharing in the ‘rents’ generated from tuna exploitationin the high seas.

5.09 The fourth approach appears to have higher risks than the third, as it would tieindividual PIC to specific quota, regardless of the actual status of specificstocks within their EEZ. Without close and sustained PIC cooperation to createa common pool of TAC, this alternative would reduce the ability of PIC tonegotiate access. It also contains stronger incentives for individual PIC todiscontinue cooperation.

5.10 Many variations and combinations of these simplified approaches appearpossible. PIC should carefully review and negotiate, among themselves, whichapproach they may wish to pursue, and then develop a strategy to make it work.

5.11 Conclusion. It is clear that any system of TAC or individual ‘rights’ allocationhas many, complex and profound implications for PIC ‘ownership’ of theresource, for their ability to negotiate and receive future access fees and fortheir ability to share in the ‘rent’ from tuna exploitation in the high seas. Theurgency for PIC Governments to carefully review the options and implicationsof MHLC, as soon as possible, can not be overstated. Such review shoulddetermine how the terms of the Convention will enable PIC to:

• Maintain or expand future options to negotiate optimum access fee levels;• Maintain or improve their 'ownership' and ‘control’ over the tuna

resources in their EEZ; and• Maintain their ability to independently monitor vessel operations within

their EEZ , and minimize the costs of such MCS.

39

6. Towards a Cooperative Multilateral NegotiationApproach

6.01 Regional initiatives that require close cooperation, such as multilateral accessagreements, have not been pursued by PIC in the 1990s despite the success ofthe US Multilateral Tuna Treaty. Benefits gained through this agreement, whichfor coastal states represent the “model” agreement, do not only include accessfees, but also development of comprehensive reporting, even for the high seas,transfer of technology, and compliance through US flag state responsibility.PIC negotiated bilaterally because DWFN insisted on such approach. But therewere other reasons. PIC were sometimes reluctant to cooperate, believing theywere better off making bilateral arrangements. They used four frequentarguments to explain their preference for a bilateral over a multilateralapproach: (a) loss of sovereign rights, (b) the high costs to pay for 'lessendowed' PIC, (c) a weakening of future national negotiating strength, and (d)less success in attracting foreign aid.

6.02 Loss of Sovereign Rights. Some PIC Government leaders feel multilateralagreements compromise and dilute PI sovereign rights. To achieve consensusamong PIC national positions need to be modified extensively. A less openlydiscussed, but quite influential factor is the ability of negotiators of bilateralagreements to enjoy some personal rewards in the process. In addition,preparation for multilateral negotiations takes time and effort, which can beavoided when negotiating bilaterally. While these arguments are valid, theirimportance depends on specific circumstances. The need to modify sensitivenational positions may be reduced by using professional negotiating specialistsduring the entire negotiation process. The costs and time to prepare formultilateral negotiations can also be considerable reduced in this age of globalcommunications.

6.03 The ‘Cost’ of Supporting all PIC. This argument has been used extensivelyfollowing the negotiation of the US Multilateral Tuna Treaty, which distributes15% of total fee payments in equal shares to all participating countries,(including those with limited tuna resources). Assuming limited actual fishingtook place in the EEZ of five of the treaty signatories, Treaty payments to thesecountries last year totaled US$ 148,000 per country, for a total of US$ 740,000.While these amounts are not negligible, they appear a modest price to pay for atreaty that paid over US$ 19 million to the region last year.

6.04 Weakening of National Negotiating Strength. This argument refers to theability of the country to train and maintain capable negotiators, and indirectly toits ability to negotiate aid (see next point). Negotiating has become a seriousprofession, and any country with such in-house skills clearly benefits frommaintaining those skills. However, the number of truly highly skillednegotiators in the world is limited; many companies and countries realize thelimitations of their own negotiators and increasingly use hired specialists toprepare for and negotiate agreements and contracts. While individual PIC maydo the same, as a group they could benefit from sharing their services atconsiderable savings.

40

6.05 Bilateral Aid. Bilateral aid has been a traditional part of access negotiations.While all aid has not been equally successful, overall such aid has benefitedPIC. Aid linked to bilateral access negotiations has been relatively easy toobtain; several DWFN actually prefer to provide some supplemental aid linkedto access negotiations. Many PIC have felt more comfortable dealing withbilateral aid agencies, who have been accommodating to specific PICrequirements. Because of the size of their individual economies, some PIC havehad more difficulty attracting multilateral aid. Aid provided as part of an accessagreement has frequently been targeted at the fishing sector. With many PIChaving modest development budgets for the sector, aid has become the primefunding source of sector development budgets. PIC with large tuna resources intheir EEZ particularly fear that multilateral negotiations will not provide themwith the access to aid that bilateral negotiations offer. Small PIC on the otherhand have been unable to obtain aid linked to bilateral access agreements.

6.06 The impact of aid linked to access agreements has not all been positive. Insome instances it has weakened the negotiating position of PIC, creating aneconomic and political dependency factor. Aid also reduced the transparency ofthe actual levels of access fee payments. Some aid has required high costs ofadministration and implementation, often stretching the limited localinstitutional capacity. Other aid projects were poorly selected, or did not reflectnational priorities; others were over-designed or did cost too much because aidrelated procurement arrangements were less competitive. Clearly aid alsoserved commercial and political objectives of the donors. In economic terms, itallowed DWFN to subsidize their own fleets and industry competitiveness bypaying part of the costs of PIC EEZ access and resource management fromtheir aid budget.

6.07 A More Effective Approach. Could PIC be equally or more successful inobtaining aid as part of a multilateral negotiating process? This probablydepends on several factors. For the larger PIC, with diversified economies, itmay become more difficult to attract the same level of sector related aid under amultilateral scenario. However, if PIC cooperatively develop a specific multi-country aid program to be negotiated as part of such multilateral negotiations,the difference may be minor. Such multi-country aid program may particularlybenefit the smallest PIC, who are unable to negotiate bilateral accessagreements and related aid projects. Cooperatively designed regional aidprograms may also attract other donors and multilateral banks. Designed toreflect the development priorities of individual PIC economies, such regionalprograms could cut design and implementation costs of donors. Aid agenciesgenerally respond positively to the beneficiaries ability to prepare bankableproposals based on sound country and sector development strategies.Multilateral negotiations may create an annual review process, at which aidagencies may be invited. Being seen as participating in a successful multilateralagreement may further entice donors to consider incremental funding. Finally,PIC with limited tuna resources and modest fisheries staff and financialresources have historically had great difficulties in maintaining an adequatepresence at regional meetings and consultations; they may be better able toparticipate when part of multilateral agreements.

41

6.08 Other considerations. As the previous Chapter has indicated, alternativeapproaches can be pursued by PIC to optimize their access fee and ‘rent’income from tuna resources, and to negotiate such approaches. However,individual PIC pursue different economic and political objectives, husbanddifferent tuna resources and have widely varying development opportunities.While these differences are real enough, they should not overshadow the notionthat PIC, as a group, cooperating together, would stand a better chance tosuccessfully benefit from their tuna resource than when acting individually. Thebenefits an individual country may obtain by pursuing bilateral deals are likelyto be smaller than the costs and loss of benefits such deal may impose on theother PIC.

• Size counts. Key advantages exist in strength in numbers; the tunaresources being negotiated by individual countries are much more modestcompared to those in the EEZ of all PIC;

• Limit DWFN alternatives. By negotiating as a group, PIC can minimizetheir individual key negotiating weakness, the fact that DWFN can choosewith which country they wish to negotiate. Together, they may be in abetter position to walk away from negotiations;

• The bottom line. Net benefits are more important than gross benefits. Evenif the gross benefits of a bilateral deal are higher, the costs for each PIC toprovide its own MCS, VMS, vessel registry and back-up research tomonitor and implement an agreement are likely to be high and lesseffective;

• Preparation and analysis pays. As a group PIC can afford more elaboratemeans to prepare and implement a deal; negotiating teams can be betterprepared, can develop more elaborate negotiating strategies, and can havesufficient back-up staff for analysis and preparation of counter-proposals;

• If economic aid is part of the deal, it can be carefully prepared andpackaged as a regional program, which could attract additional donors andfunds and provide more benefits to the smallest PIC;

• Maintain existing services. The present FFA VMS, vessel registry,research and monitoring and joint surveillance activities provide majorbenefits to all PIC; they can be best maintained as part of multilateralnegotiations.

Conclusion. Close and sustained PIC cooperation in finalizing the Convention,in negotiating foreign fleet access and even in defining aid supported regionaldevelopment programs and local investment strategies is fundamental for futuresuccess. Without an immediate assessment of the potential economic andpolitical impact of the draft Convention, and without close cooperation todevelop a joint strategy to finalize the Convention, PIC are likely toconsiderably limit their ability to influence future tuna management, reap a fairportion of the benefits from tuna exploitation, and obtain reasonable investmentreturns.

43

Annex 1: Statistics

Annex 1, Table 1: Selected Catches of Some DWFN in PIC EEZ (1997) (‘000 m ton)

Country KoreaPurse-seine

TaiwanPurse-seine

TaiwanLong-line

JapanPurse-seine

JapanLong-line

Other

FSM 7463 22243 901 33750Kiribati 34755 26606 33107SolomonIslands

2780 2675 130

MarshallIslands

85 563 85 431 886

Nauru 18550Palau 611 1820Tuvalu 30 150Fiji 857Tonga

Int.Waters

25999 33929 2895 4525

PNG 75866 2 30

Other 40 596 1820

Source: Forum Fisheries Agency.

44

Annex 1, Table 2: Estimated Volume and Value of Tuna Caught in the Central andWestern Pacific (1998)

EstimatedValue of

the TunaFishery

PurseSeine

Catch (mTon) Price (US$) ValueSJ YF SJ YF (US$ million)

FSM 10843 2363 990 1176 $13.5Japan 199406 39557 1174 1579 $296.6

Kiribati 4561 1737 990 1176 $6.6Korea 145693 55212 990 1176 $209.2PNG 33,215 9277 990 1176 $43.8

Philippines 33465 10839 990 1176 $45.9SB 16345 5556 990 1176 $22.7

Taiwan 195,593 63,100 990 1176 $267.8USA 140532 36231 990 1176 $181.7

Vanuatu 29603 8828 990 1176 $39.7809256 232700 $1,127.5

Pole andLine

Fiji 459 7 1138.5 1352.4 $0.5Japan 115183 3639 1960 1960 $232.9

SB 20854 1235 1138.5 1352.4 $25.4$258.8

LonglineCatch Price

BE YF ALB BE YF ValueChina 1655 1172 3 7370 6750 2100 $20.1

FM 376 461 0 7370 6750 $5.9Fiji 460 862 2121 7370 6750 2100 $13.7

Japan 21933 17998 18693 6830 3770 2100 $256.9Korea 18679 9623 2680 4820 2730 2100 $121.9

PG 40 329 40 7370 6750 2100 $2.8Samoa 113 431 6508 990 1176 2100 $14.3

SB 726 658 1636 7370 6750 2100 $13.2Taiwan (F) 1102 1267 59 7370 6750 2100 $17.1Taiwan (A) 1395 904 18416 4820 2730 2100 $59.5

Tonga 30 47 494 7370 6750 2100 $1.646509 33752 50650 $526.9

TrollCatch

ALB ValueUSA 1721 2100 $3.6

Total $1,916.8

Source: Forum Fisheries Agency

45

Annex 1, Table 3: Estimated Access Fees Paid by Selected DWFN to FFA PIC (US$ million)

DWFN 1996/7 1997/8

Japan 8.5 9.0Philippines 1.8 1.2Taiwan 13.1 13.4Korea 11.5 11.2USA & others 19.3 19.0Solomon Island Charters 0.4 0.4

Source: Forum Fisheries Agency

46

Annex 1, Table 4: Public Investment Projects in the Tuna Industry in the FFARegion 1975-1998Activity andLocation

Purpose/Status InvestmentCosts (US$ M)

Comments

FSM- Micronesia

LonglineFishingCorporation

- NFC- - Trans-

shipmentbases(Yap+Chuuk)

- Kosrae Coldstorage (4000ton)

- PohnpeiFisheriesCorporation

Sashimi tuna project; still operating

Vehicle for national Governmentinvestment; still operatingFresh sashimi transshipment bases; rundown

Occasionally used for fresh tunatransshipment

Original reef fish project; conversion totuna loining plant; closed

4-6

40+

6

5-7

15+

Partly privatized,never profitable

Scheduled forprivatizationRarely used, neverprofitable

Never used forintended purpose

Seeking buyer

Fiji- PAFCO

Cannery- Pole and Line

fleet

OperationalOperational

5-15?1-3?

Cannery providesemployment toover 1000 peoplein area with littlealternativeemployment; ,requiresconsiderable publicsupport

Kiribati- Pole and line- Purse-seiners- Collection

system- Cold Storage

1-32-4?

5-15?

Marshall Islands - Cold storage

- Long-liners- Ebeye Fish

base + long-liners

DerelictDerelictCanceled after start of construction

453+

Solomon Islands- Solomon

Taiyo- Purse-seiners

Joint Venture Catching tuna, canning,Katsuobushi plant, operational

10+

1-3?Tonga - Long-liners 1-3?PNG

- Coastalfisheries

- CoastalFisheries

Never worked, abandoned

Never worked, abandoned

18

3

47

Annex 1, Table 5: Private Investment Projects in the Tuna Industry in the FFARegion 1975-1998

Activity andLocation

Purpose/Status InvestmentCosts(US$ M)

Comments

FSM- sashimi trans-

shipment- 30 long-liners- tuna jerky

production

Transshipment linked to regional air-freight operation; long-liners charteredfrom foreign owners; successful 2-4

1+

Fiji- sashimi trans-

shipment- long-lining Local long-lining companies; successful

1-3

1-3Kiribati

- Long-lining- Tuna jerky

11+

Marshall Islands- Tuna loining

plant 15,000 tons single shift; productive 6Solomon Islands

- Sashimilonglining

- Tri-Marine

Solgreen Ltd. Linked to charteredforeign long-lining vesselsOriginally NFDC

3

5Tonga

- Sashimi trans-shipment (3plants)

- long-lining

1-2

0.5?PNG

- long lining-

Netshed Ltd.Locally owned long-liningvessels

5

Cook Islands- sashimi trans-

shipment0.5?

Palau- sashimi trans-

shipment 0.5?Tokelau - tuna jerky

0.5?

Tuvalu - tuna jerky

0.5?

49

Bibliography

Asian Development Bank, Office of Pacific Operations (1997): The Pacific's Tuna:The Challenge of Investing in Growth.

Asian Development Bank & Forum Fisheries Agency (1998): DevelopmentOpportunities in Selected Tuna Fisheries for Pacific Island Countries.

Asian Development Bank (1998): Report on Pursuing Economic Reform in thePacific.

Cartwright, Ian (1996): The South Pacific Forum Agency: Past, Present andPossible Future Roles in Fisheries Management in the Central Western Pacific. SouthPacific Forum Fisheries Agency.

Cartwright, Ian and Victorio Uherbelau (1998): regional Cooperation in Fisheries– How do we get there? South Pacific Forum Fisheries Agency.

Centre for International Economics (1999): Capturing economic benefits from thetuna fishery.

Forum Fisheries Agency and Asian Development Bank (1998): DevelopmentOpportunities in Selected Tuna Fisheries for Pacific Island Countries.

Forum Fisheries Agency (1999): A User Guide to the WCPTF Bio-economic Model.

Gillett, Robert (1997): The Importance of tuna to Pacific Island Countries: a reportprepared for the Forum Fisheries Agency; Gillett, Preston and Associates, Suva.

John Hampton, Antony Lewis and Peter Williams (1999): The Western and CentralPacific Tuna Fishery, Overview and Status of Stocks , Secretariat of the PacificCommunity.

MHLC Secretariat (1999): Report of the multilateral High-level Conference on theConservation and Management of Highly Migratory Fish-stocks in the Western andCentral Pacific.

Pollard, Stephen, (1995): Tuna Industry Development Study, Regional Report.

Solomon Islands Government (1999): Tuna 2000: towards a sustainable fishery forthe next Millennium - Solomon Islands National Tuna Management Plan: Part 1,Policy Statement and Part 2 Strategies and Procedures.

South Pacific Commission (1997): Status of Tuna Stocks in the Western and CentralPacific Ocean. Paper prepared for the Second Multilateral High-level Conference onthe Conservation and Management of Highly Migratory Fish Stocks in the Westernand Central Pacific.