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The effects of subsidies on the sustainability of fisheries resources can be analyzed by the Gordon-Schaefer Model. The subsidies result in changes in the revenue function or cost function of economic agents using fisheries resources. Under a free operation system, if the government grants subsidies directly to fisheries companies for the purpose of increasing the revenue of the fisheries companies, the profits of industry and the income of fishermen will be increased in the short run, which will further induce new entrants into fisheries. In that case, the pace of entry into the fishery depends on whether the existence of the economic rent and revenues lasts over a long period of time or in a short period of time. In the long term, the expansion of fishing effort in the fisheries industry will deplete fisheries resources and reduce catches.

A. Effect of revenue increasing subsidy

In [Fig. 1], the total revenue function and the total cost function are represented. The economic rent is generated from the fishery at a comparatively large fishing effort level. Therefore, under the free operation system, the effort of fishing will be increased to E₁, where the economic rent will disappear. As shown in Figure 1, the fishing effort E₁ exceeds the fishing effort that can achieve the maximum sustained production (MSY). And because of the fishing efforts reaching E₁, total revenue is determined at a level lower than its maximum level as a result of an increase in fishing effort. If a financial transfer that increases the revenue of fishermen, such as price subsidies, is introduced, the total revenue for each level of fishing effort will increase. Figure 1 shows that the introduction of such a subsidy system shifts the TR curve to TR_sub, a new total revenue curve. Under the free operation system, the introduction of the subsidy system will result in excess profits represented by the distance between A and B for the fishermen in the short run. However, if excess profits occur, new economic agents will enter the fishery sector or the existing fishermen will increase their fishing effort, resulting in an increase in fishing effort to E2, the new equilibrium point, and at point C, the excess profit will disappear. As we saw, the most significant effect of the financial transfer is that the fishing effort will be extended to the excessive level, which is far from the level of the fishing effort to achieve the maximum sustained production (MSY).

[Fig. 1] 
Effect of revenue increasing subsidy.

B. Effect of cost reducing subsidy

The subsidies for reducing fishery costs reduce total fishery costs at each level of catch effort. When such subsidies are introduced, the total cost curve shifts downward. If a financial transfer that decreases the cost of fishers is introduced, the total cost for each level of fishing effort will decreases. [Fig. 2] shows that the introduction of such a subsidy system shifts the TC curve to a new total cost curve, TCsub. Under open access to fishery, the introduction of the subsidy system will result in excess profits represented by the distance between AB for the fishers in the short run.

[Fig. 2] 
Effect of cost reducing subsidy.

Accordingly, the introduction of a cost reducing subsidy under open access to fishery has the effect of causing an excess profit to the fishers in the short run. If excess profits occur, however, the entry of new fishers increases or existing fishers increase the effort of fishing. As a result, the fishing effort increases to a new equilibrium point with no excess profit, which is D in the graph. In the case of these subsidies, there is an effect of increasing the fishing effort to an excessive level, far from the MSY catch effort level, and also reducing fishery resources.

Governments provide subsidies in the form of special tax exemptions or loans with low interest in order to increase exports. Export subsidies are provided for the purpose of increasing exports, as they reduce the prices of export goods by providing cost advantages to domestic producers. As a result, the foreign consumers can acquire imported goods that are cheaper than the actual supply cost of the product.

Export subsidies affect the exports directly and imports indirectly, and thus trade balance and the domestic economy. Since the subsidy eventually lowers the export price of the domestic commodity, its trade balance deteriorates in the short term. However, if the export price is low, which will increase the export volume, and if the foreign demand for the domestic exports is relatively flexible, the export income of the country will increase after the decrease in the export price is compensated by the increase in the export volume.

[Fig. 3] illustrates the effect of such subsidies through a partial equilibrium analysis. Under free trade, S₀ is a domestic country’s export supply curve for a fisheries product, and D₀ is a foreign country’s import demand curve for the fisheries product. Then the market equilibrium will be obtained at E. Thus the domestic country’s export amount will be OQ₀ and the unit price will be P₀. Assuming that domestic country pays a subsidy amounting to P₁P₂ per unit, domestic country’s supply curve will be shifted from S₀ to S₁ and, as a result, the market equilibrium point will be shifted to F. Therefore, the price paid by foreign consumers will be lowered to P₁, and the export amount will be OQ₁. Whether the export revenue will increase or not depends on whether the area □OP₀EQ₀ is larger or smaller than the area of □OP₁FQ₁. A domestic country’s exporters of the fisheries product can expand their production beyond the free trade level since the unit price (including subsidies) of their export becomes to P₂ from P₀, which is a distortion of free trade in terms of price and quantity, which will lead to overfishing or overproduction of fisheries products.

[Fig. 3] 
Effect of export subsidy.

Since the focus of concern on fisheries subsidies differs from country to country and from organization to organization, there is no assented definition or classification of fisheries subsidies. The GATT(GATT, 2000), APEC(APEC, 2000), FAO(FAO, 2000), OECD(OECD, 2000), UNEP (UNEP, 2006), WTO(WTO, 1999, 2005) and other organizations connected to trade or subsidies have taken different approaches. We consider the following classifications on the fisheries subsidies that can be used as criteria when we define the adequate fisheries subsidies for Korea under the international regulations on the fisheries subsidies.

A. Classification by UR SCM Agreement

The GATT SCM Agreement at Uruguay Round categorized the subsidies as prohibited, non-actionable, and actionable subsidies. The definitions are given as in <Table 1>.

B. Classification by WTO NGR Chair

The NGR Chair presented the draft to the Negotiating Group on Rules. He listed a broad set of banned subsidies and a list of general exceptions in 2007 as shown in the following <Table 2>. In 2008, The NGR Chair issued a second set of consolidated texts. For fisheries subsidies, the Chair tabled a “roadmap for discussions” which was a series of questions that were meant to guide the discussions.

C. Classification by UN POST-2015 Development Agenda

With respect to the UN POST-2015 Development Agenda, SDGs were reported in 2014 and Goal 14 out of 17 Goals is directly connected to the sustainable use of marine resources. The Goal 14 is worth reviewing when we assign the adequate fisheries subsidies for Korea since it shows the directions for the future fisheries. Especially the goal 14.6 aims to prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, eliminate subsidies that contribute to illegal, unreported and unregulated fishing and refrain from bring in new such subsidies by 2020(UN General Assembly, 2014). The contents are summarized in the following <Table 3>.

D. Classification according to sustainability of fish stocks

Since there is no aggreed-upon definition or classification of fisheries subsidies, the trade or subsidies related organizations have suggested different approaches. One of the alternative classifications is one according to Sustainability of Fish Stocks(Smriti et al., 2017). In this approach, fisheries subsidies are categorized as beneficial, ambiguous, and prohibitive subsidies. The subsidy is beneficial if it defends sustainability of fish stocks. On the contrary, it is harmful if it encourages overfishing. In the case of ambiguous subsidies, subsidies enhancing fisheries capacity and subsidies enhancing sustainable fisheries must be differentiated, and subsidies that raise fisheries capacity and cause overcrowding of fishery resources should be banned. Only those subsidies that are capacity enhancing or further IUU fishing should be prohibited(Smriti et al., 2017). The list of subsidies is given in the following <Table 4>.

The Korean Government has been implementing a variety of subsidies measures in various forms and methods to aid the development of fisheries and fisheries associated industries. These subsidies can be broadly classified into two categories. One is the direct subsidies, which are funded by the central or local government. The other is given in the way in which the difference between the higher market interest rate and the lower subsidized interest rate is maintained at a given level when the subsidy is provided in the form of loan. According to the related rules set by the central government, the government shall support a part of the project funds.

The private fisheries businessmen, fisheries corporations, or fisheries co-operatives who purport to carry out the project are requested to bear a certain portion of fund. And the local governments are also required to bear the matching funds for the projects that are qualified to receive the subsidies from the central government. The types of fishery subsidies granted from 2016 to 2019 in Korea are shown in <Table 5> and <Table 6>. <Table 5> shows the list of subsidies granted in 2016. <Table 6> shows the list of grants added in 2017, 2018 and 2019(.Ministry of Oceans and Fisheries, 2016, 2017, 2018, 2019).

In 2017, several subsidies were added, including subsidies for Preparation for Fisheries Subsidies Negotiation with International Organization. And in 2018, only one subsidy was added to the list of the fisheries subsidies in 2017. On the other hand, in 2019, it is worth mentioning that the support for the Fishing Village New Deal 300, which was intended to increase the income of fishing villages and the subsidies for the construction of Noryangjin fisheries market were granted. One of the fisheries subsidies added after 2017 has the title of fisheries subsidies for “Preparation for Fisheries Subsidies Negotiation with International Organization” In reality, however, the subsidies have been granted to the FAO World Fisheries University Support Program and the FTA Fisheries Cooperation Project between Korea and New Zealand. In other words, the subsidies were not used to cultivate the negotiation experts who can bring about the results of negotiations favorable to Korea in international negotiations with the international organizations including the WTO. Based on the determination of the 2017 WTO Ministerial Conference, the 12th WTO Ministerial Conference is being held in 2019.

In the early 2019, the Ministry of Oceans and Fisheries of Korea invited a research service to prepare fisheries subsidies negotiation strategy for the 12th WTO Ministerial Conference, which may be an effective countermeasure for the conference.

As mentioned earlier, fisheries subsidies can be classified according to the criteria set by the UR SCM Agreement, WTO NGR Chair, SDGs goal, and Sustainability of Fish Stocks. Korea's fisheries subsidies may or may not be subject to regulations depending on which of the four classification criteria presented earlier is adopted for classification of fisheries subsidies. Among these international standards, the WTO NGR Chair's standard, which prohibits fisheries subsidies contributing to overcapacity and overfishing, is the most rigorous. This criterion classifies vessel construction, modification or repair/support on operating costs (like fuel and license fees), transfer of vessels, port infrastructure exclusively or predominantly for fishing activities, income and price support, landing and 'in or near' port processing activities subsidies associated to any vessels engaged in illegal, unreported or unregulated (IUU) fishing, subsidies affecting fish stocks that are in 'unequivocally in overfished condition' as prohibited subsidies.

If this standard is adopted for classification of fisheries subsidies., many fisheries subsidies of Korea will be able to be classified as prohibited subsidies. For example, in the case of subsidy for National fishing port construction, it is classified as a prohibited subsidy if the WTO NGR Chair's standard is adopted for classification of the fisheries subsidies. But it will not be classified as a prohibited subsidy if one of the UR SCM Agreement standard, SDGs goal standard, and Sustainability of Fish Stocks standard is adopted for classification of the fisheries subsidies. Therefore, in all the negotiations that are related to fisheries subsidies, all four standards should be taken into account so that the least or less stringent criterion for banning fisheries subsidies is set as a standard in the fisheries subsidies negotiations with international organizations.