The Salmon-Agreement Between Norway and the European Union—A Welfare Economic Analysis

Abstract

In 1996 the Norwegian salmon industry was accused of dumping and having received subsidies in the infant phase of the industry build-up. The accusations were initiated by the Scottish and Irish salmon industry. In June 1997 Norway and the European Commission (EC) signed a five-year agreement. The intention was partly to punish the Norwegian salmon industry and partly to stabilise the salmon market. This paper focuses on the following questions: What was the welfare economic effect of the agreement between the salmon industry in the European Union (EU) and Norway, and how did it influence the welfare of the consumers? The agreement contained the following six measures; increased export tax on Norwegian salmon, tentative limits on the export volume from Norway to the EU market, minimum import price (MIP) on Norwegian salmon, surveillance mechanisms, trilateral co-operation between the industry in Norway, Scotland, and Ireland, and a consultation procedure. The analysis shows that the agreement first and foremost inflicted a welfare loss on the consumers in EU. The trade measures generated a welfare gain for protected producers in EU and suppliers located in Chile and the Faeroe Islands, respectively. The effect was also positive for the Norwegian industry in the short run, but in the long run the trade measures prevented a full utilization of the competitiveness in the Norwegian fish farming industry and increased the exposition of economic risk. The analysis shows that the net effect of the agreement was negative for EU due to moderate gains realized by the EU-producers relative to the approximately three times higher losses inflicted on the consumers.