Individual Fishing Quotas: Methods for Community Protection and New Entry Require Periodic Evaluation
Published: 2004-02-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To assist in deliberations on individual fishing quota (IFQ) programs, GAO determined (1) the methods available for protecting the economic viability of fishing communities and facilitating new entry into IFQ fisheries, (2) the key issues faced by fishery managers in protecting communities and facilitating new entry, and (3) the comparative advantages and disadvantages of the IFQ system and the fishery cooperative approach.
section_title: What GAO Found
paragraphs: Several methods are available for protecting the economic viability of fishing communities and facilitating new entry into IFQ fisheries. The easiest and most direct way to help protect communities under an IFQ program is to allow the communities themselves to hold quota. Fishery managers can also help communities by adopting rules aimed at protecting certain groups of fishery participants. Methods for facilitating new entry principally fall into three categories: (1) adopting transfer rules on selling or leasing quota that help make quota more available and affordable to new entrants; (2) setting aside quota for new entrants; and (3) providing economic assistance, such as loans and subsidies, to new entrants. In considering methods to protect communities and facilitate new entry into IFQ fisheries, fishery managers face issues of efficiency and fairness, as well as design and implementation. Community protection and new entry methods are designed to achieve social objectives, but realizing these objectives may undermine economic efficiency and raise questions of equity. For example, allowing communities to hold quota may result in a loss of economic efficiency because communities may not have the knowledge and skills to manage the quota effectively. Similarly, rules to protect communities or facilitate new entry may appear to favor one group of fishermen over another. Furthermore, community protection and new entry methods raise a number of design and implementation challenges. For example, according to fishery experts, defining a community can be challenging because communities can be defined in geographic and nongeographic ways. Similarly, loans or grants may help provide new entrants with the capital needed to purchase quota, but they may also contribute to further quota price increases. Given the various issues that fishery managers face in developing community protection and new entry methods, it is unlikely that any single method can protect every type of fishing community or facilitate new entry into every IFQ fishery. Deciding which method(s) to use is made more challenging because fishery managers have not conducted comprehensive evaluations of how IFQ programs protect communities or facilitate new entry. In comparing the key features of IFQ programs and U.S. fishery cooperatives, we found that each approach has advantages and disadvantages in terms of regulatory and management framework, number of participants, quota allocation and transfer, and monitoring and enforcement. Specifically, in terms of regulatory and management framework, IFQ programs have greater stability than cooperatives because they are established by federal regulations, while cooperatives are voluntary contractual arrangements. In terms of quota allocation and transfer, IFQ programs are open in that they allow the transfer of quota to new entrants, whereas cooperatives are exclusive by contractual arrangement among members. In terms of monitoring and enforcement, IFQ programs are viewed as being more difficult to administer, because NMFS must monitor individual participants, while cooperatives are viewed to be simpler for NMFS to administer, because NMFS monitors only one entity--the cooperative. For some fisheries, a combined approach may be beneficial. For example, a cooperative of IFQ quota holders can combine an IFQ program's stability with a cooperative's collaboration to help manage the fishery.

section_title: Letter
paragraphs: Commercial fishing and fishing-related businesses contributed about   $28 billion to the U.S. gross national product in 2002. However, these  businesses are at risk of decline because about one-third of the U.S. fish  stocks assessed by the National Marine Fisheries Service (NMFS) are  overfished or approaching overfished conditions. The United States is not  alone in facing this problem. According to the United Nation’s Food and  Agriculture Organization, about 28 percent of the world’s major fish stocks  are reported as overexploited, depleted, or recovering from depletion.  Another 47 percent are fully exploited and are producing catches that have  reached, or are very close to, their maximum sustainable limits. Greater  competition for fewer fish increases the likelihood that stocks will decline  further and catches will decrease. If a fishery—composed of one or more  fish stocks in a geographic area—cannot be sustained, the marine  ecosystem could be transformed, thus threatening the livelihood of  fishermen and the way of life in many communities.
Concerns about the condition of the world’s fisheries have led to a search  for new management tools to maintain fisheries at sustainable levels. One  such tool is the individual fishing quota (IFQ), which has been used  worldwide since the late 1970s. Today, several nations, including the  United States, use IFQ programs to manage fisheries within their 200-mile  exclusive economic zone, where foreign vessels are generally prohibited  from fishing. Usually, these programs are established by law. The primary  goals of an IFQ program are to conserve the resource and reduce fishing  capacity (e.g., the number and size of boats). Under an IFQ program,  fishery managers set a total allowable catch (TAC) and allocate quota—the  right or privilege to fish a certain portion of the TAC—to eligible vessels,  fishermen, or other recipients. IFQ programs often allow a quota holder to  transfer quota by sale, lease, or other methods. Such transfers are  expected to reduce the number of fishermen and vessels and consolidate  the quota among the more efficient fishermen. In the United States, the  Magnuson-Stevens Fishery Conservation and Management Act (Magnuson- Stevens Act) established eight regional fishery councils to manage the  nation’s fisheries. These councils develop IFQ programs that are  administered by NMFS.
IFQ programs have achieved several desired conservation and  management benefits, such as helping to stabilize fisheries and reducing  excess investment in fishing capacity. However, these programs have also  raised concerns about the fairness of initial quota allocations, the  increased costs for fishermen to gain entry, and the loss of employment  and revenues in communities that have historically depended on fishing.  Responding to these concerns, Congress, through the Sustainable  Fisheries Act, placed a moratorium on new IFQ programs in 1996.  Congress later extended the moratorium through September 30, 2002, and  then allowed it to expire. Fishery councils are now free to propose new  IFQ programs. During the moratorium, fishery cooperatives emerged as  alternatives to IFQ management in two fisheries—Pacific whiting in 1997  and Bering Sea pollock in 1998. These cooperatives are voluntary  contractual agreements among fishermen to apportion shares of the catch  among themselves. The Department of Justice, in business review letters  concerning its antitrust enforcement intentions with respect to the  cooperatives, stated that Justice did not anticipate bringing any antitrust  enforcement actions against the cooperatives.
This report is the second in a series of reports you requested on individual  fishing quotas. In December 2002, we reported on the extent of  consolidation of quota holdings, the extent of foreign holdings of quota,  and the economic effect of IFQ programs on seafood processors. For this  report you asked us to determine (1) the methods available for protecting  the economic viability of fishing communities and facilitating new entry  into IFQ fisheries, (2) the key issues faced by fishery managers in  protecting communities and facilitating new entry, and (3) the  comparative advantages and disadvantages of the IFQ system and the  fishery cooperative approach.
To conduct this review, we visited domestic fishing communities in Alaska  and Maine, as well as communities in Iceland, New Zealand, and Scotland.  We visited these foreign countries because Iceland and New Zealand have  extensive experience with IFQ programs, and Scotland has developed an  innovative approach for protecting communities and facilitating new  entry. In these locations and elsewhere, we spoke with domestic and  foreign fishery managers, fishery participants, and fishery researchers;  reviewed literature on domestic and foreign quota-based programs; and  reviewed key regulations and studies. We did not evaluate the  effectiveness of the programs in the locations we visited. See appendix I  for additional details on our scope and methodology and appendix II for  descriptions of the programs we reviewed.
subsections: section_title: Background
paragraphs: The Magnuson-Stevens Act provides for the conservation and management  of fishery resources in the United States. The act established eight  regional fishery management councils that are responsible for preparing  plans for managing fisheries in federal waters and submitting them to the  Secretary of Commerce for approval. NMFS, within the Department of  Commerce’s National Oceanic and Atmospheric Administration, is  responsible for implementing these plans. The eight councils are New  England, Mid-Atlantic, South Atlantic, Gulf of Mexico, Caribbean, Pacific,  North Pacific, and Western Pacific.
The Magnuson-Stevens Act, as amended by the Sustainable Fisheries Act,  also establishes national standards for fishery conservation and  management. The fishery councils use these standards to develop  appropriate plans for conserving and managing fisheries under their  jurisdiction. For example:    National Standard 1 requires that conservation and management measures  prevent overfishing while achieving, on a continuing basis, the optimum  yield from each fishery;   National Standard 4 requires that conservation and management measures  not discriminate between residents of different states;   National Standard 5 requires that conservation and management  measures, where practicable, consider efficiency in the use of fishery  resources; and   National Standard 8 requires that fishery conservation and management  measures take into account the importance of fishery resources to fishing  communities in order to provide for the sustained participation of these  communities in the fishery and, to the extent practicable, minimize  adverse economic impacts on these communities.
In addition to the national standards, the Magnuson-Stevens Act also  requires that new IFQ programs consider providing opportunities for new  individuals to enter IFQ fisheries.
The Magnuson-Stevens Act defines a fishing community as one that is  substantially dependent on, or engaged in, harvesting or processing fishery  resources to meet social and economic needs. The definition includes  fishing vessel owners, operators, and crew, and U.S. fish processors based  in such a community. NMFS guidance further defines fishing community  to mean a social or economic group whose members reside in a specific  location.
At the time of our review, NMFS had implemented three IFQ programs: (1)  the Mid-Atlantic surfclam/ocean quahog program in 1990, (2) the South  Atlantic wreckfish program in 1992, and (3) the Alaskan halibut and  sablefish (black cod) program in 1995. New IFQ programs were being  considered in other commercial fisheries, such as the Bering Sea crab; the  Gulf of Alaska groundfish (e.g., pollock, cod, and sole); and the Gulf of  Mexico red snapper.
Under IFQ programs, fishery managers set a maximum, or total allowable  catch, in a particular fishery—typically for a year—based on stock  assessments and other indicators of biological productivity, and they  allocate quota—generally expressed as a percentage of the TAC—to  eligible vessels, fishermen, or other recipients, based on initial qualifying  criteria, such as catch history. In the United States, fishery councils can  raise or lower the TAC annually to reflect changes in the fishery’s health.  Fishery managers distribute these changes among the quota holders  proportional to their share. For example, a fisherman who received a 5  percent quota share in a fishery with a TAC of 100 metric tons can catch 5  tons of fish. Should the TAC increase from 100 to 200 metric tons in the  following year, the quota holder with a 5 percent share would be able to  catch 10 tons, or 5 tons more than the previous year. Furthermore, IFQs  are generally transferable, meaning that quota holders can buy, sell, lease,  or otherwise transfer some or all of their shares, depending on how much  or how little they want to participate in the fishery. The nature of the  fishing right varies by country. In New Zealand, for example, an IFQ is an  exclusive property right that can be held in perpetuity, whereas in the  United States, an IFQ represents the privilege to fish a public resource.  While this privilege has an indefinite duration, the government may legally  revoke it at any time.
IFQ programs arose in response to conditions that resulted in a race for  fish and overfishing and that reduced economic efficiency, safety, and  product quality. For example, before the IFQ program, the Alaskan halibut  fishery had limits on the amount of time allowed for commercial fishing in  an attempt to keep the annual halibut catch within the TAC, but it did not  have limits on the number of boats that could fish. In response, fishermen  increased the number of vessels in their fleets and used larger vessels with  more gear to catch as much fish as they could in the time allowed. As a  result, the halibut season was reduced to a few days. After the IFQ  program was implemented, the fishing season was increased to 8 months.  Fishermen could choose when to fish and they could use more economical  fishing methods, as long as they kept within their quota limits.
Individual IFQ programs may differ considerably, depending on the  circumstances of the fishery and the objectives of the program. For  example, an IFQ program for a fishery where there are concerns about  overfishing and the consolidation of power among corporate interests may  have different objectives than a program for a fishery where there are  concerns about developing the fishery and attracting new fishermen.  Depending on the fishery, fishery managers may be willing to trade some  potential gains in economic efficiency in exchange for the opportunity to  protect fishing communities or facilitate new entry.
IFQ programs are largely intended to improve economic efficiency and  conserve the resource. According to the theory underlying IFQ programs,  unrestricted quota trading promotes economic efficiency, because those  willing to pay the highest price for quota would be those expected to use  quota the most profitably, by catching fish at a lower cost or transforming  the fish into a more valuable product. Over time, unrestricted trading  should lead less efficient fishermen to either improve their efficiency or  sell their quota. In contrast, restrictions on quota transfers could be  expected to reduce the economic benefits that would otherwise be  obtained where quota is freely transferable. Another fundamental tenet of  this theory is that quota holders will act in ways to promote the  stewardship of the resource. Specifically, giving fishermen a long-term  interest in the resource is likely to provide incentives to fish in ways that  protect the value of their interest.
section_title: Methods Exist for Protecting Fishing Communities and Facilitating New Entry
paragraphs: Several methods are available under IFQ programs for protecting the  economic viability of fishing communities and facilitating new entry. For  protecting communities, the easiest and most direct method is allowing  communities to hold quota. Fishery managers may also help protect  communities by adopting program rules aimed at protecting certain  groups of fishery participants. For facilitating new entry into IFQ fisheries,  the methods principally fall into three categories: (1) adopting quota  transfer rules that promote new entry, (2) setting aside quota for new  entrants, and (3) providing economic assistance to potential new entrants.
subsections: section_title: Methods for Protecting Communities
paragraphs: Concerns have developed in the United States and in other countries about  the potential for IFQ programs to harm the economic viability of fishing  communities. Many fishery experts and participants are concerned that  individual quota holders will sell their quota outside of the fishing  community or sell their quota to large companies. If this were to occur,  fishing jobs could leave the community and larger companies could  consolidate their quota holdings and dominate the fishery. Fishing  communities that lose fishing jobs may have few alternative employment  options, particularly if they depend primarily on fishing and no other  industry replaces fishing.
Allowing communities to hold quota is the easiest and most direct way  under an IFQ program to help protect fishing communities. According to  fishery experts and participants, fishery managers can give each  community control over how to use the quota in ways that protect the  community’s economic viability, such as selling or leasing quota to  fishermen who reside in the community. Community quota could be held  by municipalities, regional organizations, or other groups representing the  community—unlike traditional individual fishing quota, which is generally  held by individual boat owners, fishermen, or fishing firms. Of the three  U.S. IFQ programs, only one allows communities to buy and hold quota— the Alaskan halibut and sablefish program.
Communities allowed to hold quota can obtain it through allocation when  the program begins or at any time thereafter. For example:    The North Pacific Fishery Management Council (North Pacific Council) is  considering allocating quota to community not-for-profit entities as it  develops a proposal for managing the Gulf of Alaska groundfish fishery.
New Zealand fishery managers allocated quota to a Chatham Islands  community trust several years after the IFQ program was implemented.  The trust leases out annual fishing privileges to Chatham Islands-based  fishermen to help keep fishing and fishing-related employment in the  community.
Similarly, fishery managers can incorporate rules into existing IFQ  programs or into the design of new programs to allow communities to  make quota purchases. For example, in 2002, the North Pacific Council  amended the Alaskan halibut and sablefish IFQ program to allow  communities along the Gulf of Alaska to purchase quota. The council is  considering including a similar provision in the proposed plan to manage  the Gulf of Alaska groundfish fishery.
In addition to allowing communities to hold quota, fishery managers can  establish rules governing who is eligible to hold and trade quota as well as  other rules to manage quota as a means of protecting certain groups of  fishery participants. Specific rules may vary by program and change over  time, depending on which members or groups a council wants to protect.  In terms of eligibility to hold quota, for example, the North Pacific Council  initially restricted allocations of Alaskan halibut and sablefish quota to  individual vessel owners in part to protect the fisheries’ owner-operator  fleet. The council later expanded eligibility to allow crew members to hold  quota without owning a vessel.
We also identified several different types of quota transfer restrictions  used in foreign IFQ programs that were aimed at protecting communities.  For example:    Prohibiting quota sales. While none of the IFQ programs in the United  States prohibits the transfer of quota through sales, fishery managers in  other countries have done so. For example, Norway’s IFQ program  prohibited all quota sales to protect fishing communities in certain  locations. Alternatively, prohibitions could be used temporarily to help  prevent fishermen from hastily selling their quota. For example, according  to New Zealand fishermen we spoke with, many small boat fishermen did  not initially understand the long-term value of their quota and therefore  sold their quota shortly after the initial allocation. To remedy this  situation, they suggested that fishery managers could prohibit sales for the  first year after a program’s initial allocation to give fishermen time to make  informed decisions about whether to sell their quota.
Placing geographic restrictions on quota transfers. Iceland and New  Zealand fishery managers have also set limits on where quota can be sold  or leased to protect certain groups, such as local fishermen and the  communities themselves. The Icelandic IFQ program, in which individuals  own vessels with associated quota rather than the quota itself, adopted a  “community right of first refusal” rule to provide communities the  opportunity to buy vessels with their quota before the vessels are sold to  anyone outside of the community. IFQ programs can also regulate quota  leasing to keep fishing in a certain area by establishing rules that limit  leasing or fishing to residents of the community. In terms of leases, New  Zealand’s Chatham Islands community trust has, in effect, used residence  in the Chatham Islands as a requirement to lease its quota.
Limiting quota leasing. Iceland requires that all quota holders fish at least  50 percent of their quota every other year and prohibits quota holders  from leasing more than 50 percent of their quota each year. Fishery  managers introduced such restrictions, in part, to minimize the number of  “absentee” quota holders—those who hold quota as a financial asset but  do not fish.
Finally, according to fishery managers and experts we spoke with, fishery  managers can help protect fishing communities by (1) setting limits on  quota accumulation, (2) establishing separate quota for different sectors of  the fishery, (3) requiring quota holders to be on their vessels when fish are  caught and brought into port, and (4) restricting the ports to which quota  fish can be landed.
Setting limits on quota accumulation. Fishery managers can place limits  on the total amount of quota an individual can accumulate or hold to  protect certain fishery participants. In the United States, for example, the  North Pacific Council set limits on individual halibut quota holdings that  range from 0.5 percent to 1.5 percent, depending on the fishing area, as a  means of protecting the fishery’s owner-operator fleet.
Establishing separate quota for different sectors of the fishery. To  protect small boat fishermen and local fishing jobs, Iceland developed a  separate quota for small vessels and large vessels and prohibited owners  of small vessels from selling their quota to owners of large vessels. In the  U.S. halibut and sablefish IFQ program, the North Pacific Council  established separate quota categories based on vessel type and length and  placed certain restrictions on transfers among these categories to ensure  that quota would be available to owners of smaller vessels.
Requiring quota holders to be on their vessels. Some programs require the  owner of the quota to be on board when fish are caught and brought into  port. For example, the North Pacific Council requires fishermen who  entered the Alaskan halibut and sablefish IFQ program by purchasing  certain categories of quota, rather than receiving it as part of the initial  allocation, to abide by this rule. The rule was designed in part to limit  speculative quota trading by individuals who are primarily interested in  quota as a financial asset and not otherwise invested in the fishery.
Restricting landings. Fishery managers could restrict the ports to which  quota holders or those who lease quota can deliver their catch. For  example, New Zealand’s Chatham Islands trust leases rock lobster quota  to local fishermen who must then land their catch in the Chatham Islands.
section_title: Methods to Facilitate New Entry
paragraphs: IFQ programs have also raised concerns about opportunities for new  entry. As IFQ programs move toward achieving one of their primary goals  of reducing overcapitalization, the number of participants decreases and  consolidation occurs, generally reducing quota availability and increasing  price. As a result, it is harder for new fishermen to enter the fishery,  especially fishermen of limited means, such as owners of smaller boats or  young fishermen who are just beginning their fishing careers. According to  New Zealand officials, quota prices increased dramatically. For example,  the average price of abalone quota increased by more than 50 percent in  the first 6 months of trading—from about NZ$11,000 to NZ$17,000 per  metric ton—and, by 2003, the average price had reached about NZ$300,000  per metric ton, or about 27 times the price at the start of abalone quota  trading in 1988.
To reduce the barriers to new entry, fishery managers have established  quota transfer rules and set-asides, and/or provided economic assistance,  such as loans or grants. In terms of transfer rules, all domestic and most  foreign IFQ programs allow quota to be sold or leased. Allowing such  transfers provides the opportunity for new entry to those who can find and  afford to buy or lease quota. Since the lease price is generally below the  sales price, leasing quota may help make entry more affordable to  fishermen of limited means, such as small boat fishermen.
Fishery managers can also make quota available and more affordable to  new entrants by “blocking” small amounts of quota and limiting the  number of “blocks” that any one individual or entity can hold. For  example, the North Pacific Council set up two types of halibut quota at the  initial allocation—unblocked and blocked. Unblocked quota holds no  restrictions. Blocked quota, on the other hand, is an amount of quota that  yielded less than 20,000 pounds of halibut in 1994 and can only be bought  or transferred in its entirety. An individual or entity can hold unblocked  quota and one quota block; an individual who holds no unblocked quota  can hold two quota blocks. A state of Alaska study found that estimated  prices for blocked quota were less per pound than for unblocked quota  over the first 4 years of the Alaskan halibut and sablefish IFQ program and  that estimated prices for smaller blocks were less per pound than for  larger blocks.
Setting aside a portion of the total quota specifically for new entrants can  also make quota available. Quota could be set aside at the time of the  initial allocation for future distribution to entities that did not initially  qualify for quota. For example, at the start of the Alaskan halibut and  sablefish program, the North Pacific Council set aside a portion of the TAC  for allocation to communities in western Alaska for community  development purposes. According to fishery managers, similar set-asides  could be used for new entrants by establishing the set-aside at the start of  the IFQ program, or by buying or reclaiming, rolling over, or setting aside  quota during the program.
Buying or reclaiming quota from existing quota holders. Fishery  managers could buy back quota from existing quota holders. For example,  the New Zealand government bought back quota to give to the indigenous  Maori tribes in partial settlement of their claims against the government  over fishing rights. Fishery managers could also obtain quota forfeited by  fishermen who have not complied with program rules; in the New Zealand  IFQ system, for example, quota holders risk forfeiting their quota holdings  if they catch more fish than they have quota for.
Issuing quota for a fixed period of time and then rolling it over for  distribution to new entrants. Depending on the program, the frequency of  the rollover could range from every few years to annually and the amount  of the rollover could range from some to all of the quota. For example, a  rollover system has been proposed for Australia’s New South Wales  fishery under which fishery managers would issue quota for a finite period  of time (e.g., 30 years) under one set of program rules and, periodically  (e.g., every 10 years), quota holders would have the opportunity to choose  whether to continue to participate in the old system or move their quota  into a new system with different rules for another 30 years.
Setting aside TAC increases for distribution to new entrants. Foreign  and domestic IFQ programs generally define an individual fishing quota as  a percentage of the overall TAC and distribute any changes in the TAC  among existing quota holders proportional to their share. Alternatively,  fishery managers could distribute TAC increases to new entrants, leaving  existing quota holders fishing the same amount of fish as they did in the  previous year.
Once fishery managers have set aside quota, they must devise a method  for allowing new entrants to obtain it. According to fishery experts, the  options include:    Selling quota at auction. Fishery managers could auction off quota to the  highest bidder and keep the proceeds. Alternatively, the managers could  serve as an intermediary by auctioning off quota on behalf of existing  quota holders, and the seller would incur all losses or gains. In case the  auction price becomes prohibitive for new entrants, fishery managers  could set aside quota that could be sold at a lower, predetermined price.  Economists generally support the idea of auctioning quota because an  efficient market provides quota to its most profitable users. However, in  the United States, the Magnuson-Stevens Act limits the amount of fees that  may be charged under an IFQ program, which may effectively preclude the  use of auctions.
Distributing quota by lottery. New entrants could be randomly selected  from a pool of potential entrants, giving persons of limited means an equal  chance to obtain quota. Lotteries might be especially advantageous when  the demand for quota from new entrants is greater than the supply of  quota set aside.
Distributing quota to individuals who meet certain criteria. Fishery  managers could allocate quota to new entrants using a point system based  on criteria such as fishing experience or completion of an apprenticeship  program.
Finally, to help make quota affordable, fishery managers and experts told  us that government entities could provide loans or subsidies to potential  entrants who might not otherwise be able to afford the quota. Affordability  is particularly an issue as an IFQ program becomes more successful and  the value of the quota increases.
Loans. The Magnuson-Stevens Act allows NMFS to offer loans. Under this  provision, for example, NMFS has established a low-interest loan program  for new entrants and fishermen who fish from small boats in the halibut  and sablefish fisheries off Alaska. The fishermen can use these loans to  purchase or refinance quota. Since the program’s inception in fiscal year  1998, Alaska has approved 207 loans, totaling nearly $25 million. The  Magnuson-Stevens Act also provides for the creation of a central registry  where owners and lenders can register title to, and security interests (such  as liens) in, IFQs. According to the National Research Council, a registry  would increase lender confidence and provide opportunities for  individuals to obtain financing to enter IFQ fisheries. Although NMFS has  not yet established this registry, its Alaska Region maintains a voluntary  registry where creditors, such as private banks, the state of Alaska, and  private lenders can record liens against quota shares. The Alaska Region  reported that most lending institutions take advantage of this service. The  registry contained 2,581 reported interests in quota share at the end of  2002.
Grants or other subsidies. Grants or other subsidies could decrease the  costs associated with buying or leasing quota. Since grants do not have to  be repaid, they could give fishermen of limited means the opportunity to  enter the fishery and then build their capital in order to increase their  quota holdings. In addition to grants, fishery managers could establish a  “lease-to-own” quota program—new entrants would pay for the quota  while using it. Also, quota could be made available for purchase or lease at  below market prices. Iceland, for example, is considering adopting a  discount program to make quota more affordable. This discounting  scheme would allow crews of small vessels to purchase quota from the  government at 80 percent of its market value.
section_title: Community Protection and New Entry Methods Raise a Variety of Issues That Require Consideration
paragraphs: In considering methods to protect communities and facilitate new entry  into IFQ fisheries, fishery managers face issues about efficiency, fairness,  and design and implementation. Community protection and new entry  methods are designed to achieve social objectives, but achieving these  objectives may undermine economic efficiency, one of the primary  benefits of an IFQ program, and raise questions of equity. Moreover,  community protection and new entry methods present a number of design  and implementation challenges. However, given the particular  circumstances of the fishery and the goals of the IFQ program overall, it is  unlikely that any single method can protect every type of fishing  community or facilitate new entry into every IFQ fishery. It is also unclear  how beneficial these protective methods can be.
subsections: section_title: Community Protection and New Entry Methods Raise Concerns about Economic Efficiency and Equity
paragraphs: Fishery managers face an inherent tension between the economic goal of  maximizing efficiency and the social goal of protecting communities or  facilitating new entry. According to fishery experts we spoke with, this  tension occurs because a community or new entrant often may not be the  most efficient user of quota. For example, according to Icelandic fishery  experts, some communities did not manage their quota effectively and  sold it, reducing the communities’ economic base. In addition, setting  aside quota for new entrants may not be the most efficient use of quota  because experienced fishermen or fishing firms are generally able to fish  the quota more economically than a new entrant. Adopting rules that  constrain the free trade of quota, such as those designed to protect  communities or facilitate new entry, would likely limit the efficiency gains  of the IFQ program. Therefore, fishery managers have to decide how much  economic efficiency they are willing to sacrifice to protect communities or  facilitate new entry.
Methods to protect communities or facilitate new entry may also raise  concerns about equity. In the United States, certain community quotas or  rules aimed at protecting certain groups may not be approved because  they are not allowed under the Magnuson-Stevens Act. For example,  National Standard 4 of the Magnuson-Stevens Act prohibits differential  treatment of states. A rule that proposes using residence in one state as a  criterion for receiving quota may violate the requirements of National  Standard 4. Furthermore, methods that propose allocating quota to  communities or adopting rules aimed at making quota more available or  affordable to a certain group of fishermen can appear unfair to those who  did not benefit and could result in legal challenges. Moreover, allowing  communities to purchase quota may be considered unfair or inequitable,  because relatively wealthy communities would more readily have the  funds needed to purchase quota while relatively poor communities would  not.
section_title: Designing and Implementing Community Protection Methods Presents Multiple Challenges
paragraphs: Fishery managers face multiple challenges in designing and implementing  community protection and new entry methods, according to fishery  managers and experts we spoke with. The resolution of these issues  depends on the fishery’s circumstances and the program’s objectives. It is  unlikely that any single method can protect every kind of fishing  community or facilitate new entry into every IFQ fishery.
In developing an approach to protect fishing communities, fishery  managers have to define community, determine who represents it, and  define economic viability, and communities must determine how to use  the quota. Defining community can be challenging because communities  can be defined in many ways. As discussed earlier, the Magnuson-Stevens  Act defines a fishing community as one that substantially depends on, or is  engaged in, harvesting or processing fishery resources to meet social and  economic needs. NMFS guidance further defines fishing community  geographically—that is, a social or economic group whose members  reside in a specific location. Fishery managers and experts told us that  communities with geographically distinct boundaries are easier to define,  such as island communities or remote communities in Alaska. However,  some communities are difficult to define when, for example, some of the  fishermen live away from the areas they fish, as is the case for many  halibut fishermen who reside in other states and fish in the waters off the  coast of Alaska. Moreover, communities can also be defined in  nongeographic ways, such as fishermen who use the same type of fishing  gear (e.g., hook-and-line or nets) for a particular species or people and  businesses involved in a fishery regardless of location. These communities  can include fishermen and fish processors, as well as support services  such as boat repair businesses, cold storage facilities, and fuel providers.
Once fishery managers define the community, they must then determine  who represents the community and thus who will decide how the quota is  used. More than one organization (e.g., government entity, not-for-profit  organization, private business, or cooperative group) may claim to  represent the interests of the community as a whole. For example, rural  coastal communities in Alaska, which are geographically distinct, could  have several overlapping jurisdictions, including a local native  corporation, a local municipality, and a local borough. Determining who  represents the community is more difficult in communities without  geographically distinct boundaries.
Fishery managers also need to define what constitutes economic viability,  which is likely to differ by community because the fishery has different  economic significance in each community. Some communities primarily  rely on fishing and fishing-related businesses, while others may have a  more diverse economic base. (See fig. 1.) Consequently, it may be unclear  what type of protection a community needs to ensure its economic  viability. Fishery experts we spoke with agreed that few communities in  the United States primarily depend on fishing as their economic base.  Moreover, the balance of industries making up a community’s economy  may change over time when, for example, the area becomes more  modernized or a new industry enters. For example, the economy of the  Shetland Islands changed dramatically with the development of the oil  industry off the Shetland Islands in the 1970s. This development resulted  in jobs and settlement funds that the community used to enhance its  economic base through community development projects.
Finally, communities have to decide whether to keep their quota, sell it, or  lease it to others. If they keep their quota, they also have to decide how to  allocate it. Similarly, if they sell or lease their quota, they have to decide  how to allocate the proceeds. Unless communities can decide how to  allocate quota or the proceeds, the community quota may go unused and  thus prevent the community from receiving its benefit. For example, the  quota New Zealand’s Maori people received from the government in 1992  has not been fully allocated to the Maori tribes, largely because the  commission responsible for distributing the quota and the tribes could not  agree on the allocation formula.
Along with these definitional challenges, fishery managers and  communities have to address other design and implementation issues,  such as whether to establish prohibitions on quota sales or geographic  restrictions on quota transfers.
Prohibitions on quota sales. Prohibiting quota sales may not allow fishing  communities or businesses to change over time as the fishing industry  changes. According to fishery experts we spoke with, rules that prevent  change essentially freeze fishing communities at one point in time and may  create “museum pieces.” For example, prohibitions on quota sales prevent  the fishery from restructuring, thus forcing less efficient quota holders and  fishing businesses to remain in the fishery. Consequently, prohibitions on  quota sales may actually undermine the economic viability of the fishing  communities they were designed to protect. In addition, prohibitions on  quota sales might run counter to an IFQ program’s overall objective of  reducing excess investment in the fishery because such prohibitions act to  prevent fishermen from selling some of their boats or leaving the fishery.
Geographic restrictions on quota transfers. Protecting communities by  imposing geographic restrictions on quota transfers also raises issues that  must be considered and addressed. According to fishery experts we spoke  with, rules that give communities the right to purchase quota before it is  sold outside the community might be legally avoided. For example,  Icelandic officials told us that in their IFQ program, where individuals own  vessels with associated quota rather than the quota itself, companies  holding quota easily avoided the “community right of first refusal” rule by  selling their companies as a whole to an outside company, rather than just  selling their vessels and associated quota. As a result, communities could  not use this rule to prevent the sale. Furthermore, communities that could  benefit from such a rule may not have the money to purchase the quota,  while those communities that can afford to purchase the quota may not  need the rule’s protection.
Other program rules aimed at protecting the community also raise  implementation issues that fishery managers must consider:    Accumulation limits. The challenge in setting accumulation limits—the  amount of quota that any one individual or entity can hold—is to set limits  that are high enough to promote economic efficiency and low enough to  prevent any one individual or entity from holding an excessive share.  According to New Zealand fishery managers and experts, for example,  accumulation limits were set at between 10 and 35 percent, depending on  the species, in order to allow individuals to acquire enough quota to be  efficient and competitive while also stemming overcapacity and  overfishing in the inshore fisheries. Furthermore, as quota becomes more  valuable, managers may face pressure from existing quota holders to raise  or eliminate the limits on accumulation. In Iceland, for example, fishery  managers recently increased accumulation limits from 8 percent to 12.5  percent of the total quota because of such pressure. In cases where both  communities and individuals hold quota, fishery managers may want to set  different limits for communities and individuals. Even after managers set  accumulation limits, monitoring and enforcing these limits could be more  difficult when fishermen create subsidiaries and complicated business  relationships that enable them to catch more than the quota limit for an  individual quota holder. To mitigate this problem, the Alaskan halibut and  sablefish program, for example, requires all quota transfer applicants to  identify whether they are individuals or business entities, and requires all  business entities to annually report their ownership interests. NMFS uses  this information to ensure that no halibut and sablefish quota holdings,  whether individually or collectively, exceed the accumulation limits.
Owner-on-board requirements. According to fishery experts we spoke  with, requiring quota holders to be onboard their vessels could be  impractical, especially for small businesses where the same person would  have to be on board at all times. Furthermore, such a rule would require so  many exceptions, such as for emergencies and illness, that it could  become meaningless.
Requirements to bring catch into ports in a particular geographic area.
These requirements may not be healthy for a community’s economy in the  long term. For example, such a requirement may subsidize inefficient local  fish processors that cannot compete on the open market. With reduced  competition, these processors may offer less money for the catch, thus  reducing the fishermen’s income and ultimately harming the community.  According to Shetland Islands fishery managers we spoke with, had  fishermen been required to land their catch in the Shetland Islands, they  would have been forced to sell their catch at a price far below the market  value and the processor would have had no incentive to restructure into  the competitive business it is today.
Leasing provisions. According to some fishery managers and experts,  leasing reduces stewardship incentives, which may impact the  community’s long-term economic viability. Quota leasing separates the  person holding the quota from the person fishing the quota. In some cases,  quota leasing may diminish stewardship incentives by creating a class of  absentee quota holders who rely on independent fishermen. While owner- on-board rules, such as those in Alaska, may minimize the risk of creating  this class of absentee quota holders, fishermen who lease quota have only  a temporary privilege to catch fish. Thus, they have less interest in the  long-term health of the fishery, especially as the end of their lease term  approaches. Consequently, incentives may exist to catch more fish than  their quota allows and sell this over-quota fish on the black market or to  fish using nonsustainable methods. For example, according to New  Zealand fishery experts, quota holders in the high-value abalone fishery  found that unskilled fishermen who leased quota were jeopardizing the  fish by extracting them in ways that harmed the abalone beds.
Given the issues raised by quota transfer and other program rules, as well  as the potential loss of economic efficiency resulting from these rules,  some fishery managers and experts view freely transferable quota as being  the best way to maintain economically viable communities and therefore  place few or no restrictions on quota sales or leases. For example, New  Zealand allows free trade in quota on the theory that free trade is needed  to maximize returns from the fishery and enhance stewardship of the  resource. Similarly, the surfclam/ocean quahog IFQ program has relatively  few restrictions on quota transfers.
section_title: New Entry Methods Present Design and Implementation Challenges
paragraphs: As with community protection methods, new entry methods also present a  variety of design and implementation challenges to fishery managers.  Allowing quota to be transferred through sales or leases provides the  opportunity for new entry but quota prices may increase over time,  making quota less affordable. In the New Zealand IFQ program, for  example, the average price per metric ton of rock lobster quota in one  management area skyrocketed from NZ$23,265 to NZ$222,500 over an 8- year period.
While leasing helps make quota available at prices lower than the sales  price, the lease price may still be unaffordable or unprofitable to fish and  thus not practical for new entrants. For example, according to New  Zealand fishing industry representatives, the lease price for rock lobster in  2003 was about NZ$22.50 per kilo, but fishermen needed to sell the fish for  at least NZ$30 per kilo to cover their costs. To minimize the risk  associated with leasing, the Shetland Islands community quota program  levied fees based on the sales revenue from the quota fished, rather than  setting a fixed lease price that fishermen would have to pay, regardless of  the amount of quota fish caught.
Set-asides to make quota available for new entrants also raise challenges,  according to fishery experts. In setting aside quota for new entrants,  fishery managers have to decide how much quota to reserve and who  would be eligible to receive it, such as owners of small boats or young  fishermen. If a set-aside occurs when a program is first established,  managers do not have to take quota away from existing quota holders.  However, there are many challenges associated with setting aside quota  after a program is implemented.
Buying back quota. Buying back quota may not be possible because the  government may not find quota holders willing to sell their quota. For  example, New Zealand funded a buyback program to obtain quota as part  of its settlement with the Maori tribes. However, the government was not  able to obtain the amount of quota it was seeking, and, as a result, had to  give the tribes money in place of some of the quota.
Issuing quota for a fixed period of time. Issuing quota with expiration  dates could make it less likely that fishermen would accept the IFQ system  or make investments in efficiency. Fishermen could also find it difficult to  invest in boats and gear because banks may be less willing to lend money  and fishermen may be less willing to borrow. Furthermore, as with leasing,  stewardship incentives could decline as the quota expiration date draws  near.
Setting aside TAC increases. Replenishing quota by using TAC increases  might not always be feasible because quota would not be available to  reserve as a set-aside when the TAC remains the same or declines. Setting  aside TAC increases would also dilute the interests of existing quota  holders, who would hold a smaller percentage of the TAC.
Fishery managers also face challenges in deciding which new entrants  would be eligible to receive quota from the set-aside. If fishery managers  decide to auction quota to the highest bidder, they cannot be assured that  quota would be affordable to new entrants. Fishery managers could  auction the quota in small amounts, which would make the quota more  affordable and thereby open up opportunities to new entrants. However,  the value of the quota would decrease to reflect the inherent inefficiency  of this distribution mechanism. In addition, while lotteries could provide  potential entrants an equal chance to obtain quota and resolve some of the  equity issues raised by auctions, they would also create more uncertainty  for existing quota holders. Current quota holders would no longer have  control over quota purchases and would have to depend on the luck of the  draw. This uncertainty is a disincentive to invest in boats or gear.
Economic assistance methods are designed to provide new entrants with  the capital needed to purchase quota and are the most direct method of  helping new entrants. However, they raise the following concerns,  according to fishery experts we spoke with:    The financial assistance may not be sufficient for a potential new entrant  to enter the fishery or buy enough quota to earn a living.
Providing economic assistance could contribute to an increased demand  for quota and further price increases, thereby defeating the primary  purpose of trying to make quota more affordable.
Government entities may not be willing or able to fund economic  assistance programs.
section_title: Evaluations of Community Protection and New Entry Methods Would Enable Managers to Determine Their Effectiveness
paragraphs: Fishery managers have not conducted comprehensive evaluations of how  IFQ programs protect communities or facilitate new entry, because few  IFQ programs were designed with community protection or new entry as  objectives. This lack of information, combined with the concerns about  economic efficiency and fairness, makes it more difficult to decide which  community protection and new entry methods to use. In order to  determine whether the chosen methods are working or how they should  be improved, fishery managers would have to clearly define community  protection or new entry as an objective, identify data that isolate the  impact of community protection and new entry methods, collect these  data before implementing the program—baseline data—and compare  these data with data collected over the course of the program. This effort  would then allow managers to determine whether their community  protection or new entry methods are accomplishing their objectives and  whether they need adjustments to promote effectiveness or respond to any  unintended consequences.
Under the Magnuson-Stevens Act, fishery managers are required to analyze  the social and economic conditions of the fishery in developing fishery  management plans. These data could be used as a baseline for the social  and economic conditions in a fishing community. In addition to baseline  data, fishery managers need to collect data once the IFQ program is  established. For example, some fishery experts told us that many fishing  communities in Iceland collapsed when quota was sold and left the  community. However, other fishery experts and Icelandic officials said  that these communities would have collapsed regardless of the IFQ, in  part, due to the lack of educational and employment opportunities and the  movement of people to Reykjavik, the capital, as the country modernized  during this time period. This difference in opinion exists partly because  Iceland did not collect the data needed to determine whether the IFQ  program, or other factors, led to the communities’ demise. Recognizing the  need for additional information, Alaskan fishery managers will collect data  each year on the amount of halibut and sablefish quota held in each  community to help assess the effectiveness of its recent amendment  allowing communities to purchase quota. Similar issues arise in trying to  collect data that distinguishes new entrants from existing quota holders.  Without the data to clearly understand the changes occurring in a fishery  or community, fishery managers cannot effectively modify their  community protection or new entry methods.
section_title: IFQ Programs and Fishery Cooperatives Have Advantages and Disadvantages
paragraphs: During the moratorium on new IFQ programs in the United States, two  fishery cooperatives, among others, emerged as an alternative fishery  management approach—the Whiting Conservation Cooperative and the  Pollock Conservation Cooperative. (See app. III for a description of each  cooperative.) These cooperatives are voluntary contractual agreements  among fishermen to apportion shares of the catch among themselves. In  comparing the key features of IFQ programs and these U.S. fishery  cooperatives, we identified the advantages and disadvantages of each  approach in key areas. Given these differences, an IFQ program combined  with some characteristics of a cooperative, such as provisions of New  Zealand’s cooperative-like stakeholder organizations, may be beneficial.
subsections: section_title: IFQ Programs and Fishery Cooperatives Differ in Several Respects
paragraphs: While both IFQ programs and fishery cooperatives can vary widely, the  general characteristics of IFQ programs and fishery cooperatives differ in  the areas of regulatory and management framework, number of  participants, quota allocation and transfer, and monitoring and  enforcement. (See table 1.)
With respect to their regulatory and management framework and number  of participants, IFQ programs generally have greater stability, take longer  to establish, and manage larger numbers of participants than cooperatives.  IFQ programs have greater stability than fishery cooperatives because  they are established and terminated by federal regulations, while  cooperatives are established and terminated by voluntary contractual  agreements.
IFQ programs generally take longer to establish than fishery cooperatives  because of the fishery management council process. Fishery councils must  review the IFQ proposal, develop alternatives and options, and analyze  their potential social and economic effects before submitting the proposal  to the Secretary of Commerce for approval. While the secretary is  reviewing the proposal, NMFS must publish draft regulations for public  comment before the secretary makes a final decision and the regulations  are implemented. This process can be quite lengthy; for example, it took 3  years for the North Pacific Council to review, analyze, and adopt the  proposed Alaskan halibut and sablefish IFQ program and another 3 years  to implement the program. In comparison, because fishery cooperatives  are voluntary, agreements can be reached within a shorter period of time.  For example, the contract to form the whiting cooperative was negotiated  in less than a day.
Finally, IFQ programs can manage larger numbers of diverse participants.  At the end of 2002, for example, the Alaskan halibut and sablefish IFQ  program had about 3,500 participants, ranging from crewmembers on  small boats to owners of large freezer vessels. In contrast, according to  fishery experts, fishery cooperatives work better with fewer and relatively  homogeneous participants because it is difficult for members to reach  agreement where there are many participants with diverse interests. For  example, the whiting cooperative has four participants and the pollock  cooperative has eight participants. In both cooperatives, the participants  are large harvesting and processing companies that own catcher-processor  vessels.
With respect to allocating and transferring fishing privileges, IFQ programs  provide greater transparency than fishery cooperatives. Under an IFQ  program, NMFS uses widely published criteria established by fishery  councils to allocate quota to individual entities, such as individual  fishermen or fishing firms. Under a fishery cooperative, NMFS allocates  quota to the cooperative, which, through negotiated contract, distributes  the quota among its members. For example, the four companies that  operated catcher-processor vessels in the Pacific whiting fishery  negotiated a private contract to divide up the sector’s quota using catch  history, vessel capacity, and number of vessels.
When quota can be transferred, IFQ programs are less exclusive than  cooperatives, because they provide entry opportunities for fishermen who  can find and afford to buy or lease quota. In comparison, cooperatives are  exclusive contractual arrangements where quota is transferred among the  members, and potential entrants may have difficulty entering the  cooperative.
Finally, regarding monitoring and enforcement, IFQ programs are viewed  as being more difficult for NMFS to administer than fishery cooperatives,  because NMFS must monitor individual participants for compliance with  program rules, such as quota accumulation and catch limits. In contrast,  cooperatives are viewed as being simpler for NMFS to monitor and  enforce, because NMFS monitors one entity—the cooperative—and the  cooperative is responsible for monitoring the actions of its members.
section_title: A Combined Approach May Provide Benefits in Some Cases
paragraphs: For some fisheries, establishing a cooperative of quota holders within the  overall framework of an IFQ program to help manage fishing may  maximize the benefits of IFQ programs and fishery cooperatives while  minimizing their downsides. Some of the benefits of a combined  IFQ/cooperative approach are illustrated in the examples below, where  groups of New Zealand quota holders formed cooperative-like  organizations to help manage their fisheries, such as abalone, hoki, orange  roughy, scallops, and rock lobster.
With respect to regulatory and management framework and number of  participants, a cooperative of IFQ holders offers the following advantages:    A combined approach provides the stability of an IFQ program. Because  the IFQ program is set by regulations, it will remain in place even if the  cooperative dissolves. Also, should the cooperative fail to perform, its  management authority and responsibilities would revert to the  government. For example, according to New Zealand fishery managers we  spoke with, the Challenger Scallop Enhancement Company (Scallop  Company) has managed the scallop fisheries effectively, but should it fail  to perform, its responsibilities would return to the government.
A combined approach can provide a way for large numbers of participants  to organize into smaller groups to help manage their fisheries collectively.  For example, New Zealand’s rock lobster IFQ quota holders formed nine  regional cooperative groups under the umbrella of the New Zealand Rock  Lobster Industry Council. The council and the regional groups provide  advice on management of rock lobster fisheries.
A combined approach can provide the opportunity for fishery participants  to pool information, assess stocks, achieve economies of scale in  production and try other forms of cooperation. For example, a cooperative  of quota holders could decide to pool their quota and fish in more  economical ways, such as having only certain members fish and then  distributing the proceeds among all members. Similarly, a cooperative of  quota holders could agree to stop fishing in certain areas or leave some of  the quota unfished to protect the resource. In New Zealand, for example,  abalone quota holders agreed not to fish some of their quota, because they  believed that the TAC had been set too high.
In terms of allocating and transferring fishing privileges, a combined  approach offers the following advantages:    Under a combined approach, the fishery council, rather than the  cooperative, could make the difficult and often contentious decisions  regarding who can hold quota and how much quota an individual receives.
A combined approach would also provide transparency, because the IFQ  program’s quota allocation and transfer rules could be used to allocate  quota to members of the cooperative.
Fishery managers could reduce the exclusivity of a cooperative by  requiring that the cooperative give each new quota holder the opportunity  to join. For example, membership in New Zealand’s stakeholder  organizations is open to any entity that holds quota in the particular  fishery. Moreover, quota allocations are not lost if a cooperative of quota  holders dissolves, because each member retains the quota allocated under  the IFQ program.
In terms of monitoring and enforcement, under a combined approach, the  government could give some management responsibilities to the  cooperative, such as monitoring the actions of individual members for  compliance with certain program rules. New Zealand officials told us that  their government reduced its monitoring costs for its scallop fisheries  because the Scallop Company now performs this function. Because of the  size and common interests of cooperatives, members often create peer  pressure to conform to program rules. Self-regulation might also decrease  overall enforcement costs. Finally, a combined approach would provide  the enforcement mechanisms of an IFQ program should self-regulation fail  and/or should the cooperative fail to perform its other management  responsibilities. New Zealand, for example, devolved most IFQ  management responsibilities to the Scallop Company, but the government  has not lost its management authority.
section_title: Conclusions
paragraphs: No method will protect communities or facilitate new entry if the fishery  collapses. While an IFQ is a fishery management tool put in place to  protect the resource, as well as reduce overcapacity, these laudable goals  may have unintended consequences: the loss of communities historically  engaged in or reliant on fishing and reduced participation opportunities  for entry-level fishermen or fishermen who did not qualify for quota under  the initial allocation. New IFQ programs or modifications to existing  programs may be designed to address these problems by incorporating  community protection and new entry goals. However, because the goals of  community protection and new entry run counter to the economic  efficiency goals, fishery councils face a delicate balancing act to achieve  all goals. It is therefore critically important for fishery councils to tailor  IFQ programs to achieve efficiency and conservation as well as social  objectives. However, without collecting and analyzing data on the  effectiveness of the approaches used, fishery councils will not know if the  program is meeting its intended goals and if mid-course adjustments need  to be made.
section_title: Recommendations for Executive Action
paragraphs: To protect fishing communities and facilitate new entry into new or  existing IFQ fisheries, we recommend that the Director of the National  Marine Fisheries Service ensure that regional fishery management  councils that are designing community protection and new entry methods  take the following three actions:    Develop clearly defined and measurable community protection and new  entry objectives.
Build performance measures into the design of the IFQ program.
Monitor progress in meeting the community protection and new entry  objectives.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Commerce for  review and comment. We received a written response from the Under  Secretary of Commerce for Oceans and Atmosphere that included  comments from the National Oceanic and Atmospheric Administration  (NOAA). NOAA stated that our report was a fair and thorough assessment  of community protection and new entry issues in IFQ programs. NOAA  generally agreed with the report’s accuracy and conclusions and agreed  with the substance of the report’s recommendations. NOAA’s comments  and our detailed responses are presented in appendix IV of this report.
NOAA indicated that it currently does not have the authority to direct the  councils to adopt the report’s recommendations, because it cannot direct  councils to take actions that are not mandated by the Magnuson-Stevens  Act. We have revised our recommendations accordingly. However, NOAA  agreed with our recommendation to develop clearly defined and  measurable community protection and new entry objectives. NOAA noted  that clearly defined and measurable objectives are often hard to identify,  objectives may vary by IFQ program, and measurable objectives require  data that are not always available or regularly collected. Nonetheless, it  recognized that management objectives are important and should be used  as much as possible as yardsticks in developing IFQ programs. NOAA  agreed with our recommendation to build performance measures into the  design of the IFQ program, noting the importance of selecting feasible and  appropriate performance measures. Finally, NOAA agreed with our  recommendation to monitor progress in meeting the community  protection and new entry objectives. NOAA wrote that provisions for the  monitoring and review of new IFQ program operations are addressed in  the administration’s Magnuson-Stevens Act reauthorization proposal.  NOAA also provided technical comments that we incorporated in the  report as appropriate.
We are sending copies of this report to the Secretary of Commerce and the  Director of the National Marine Fisheries Service. We will also provide  copies to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please call me at  (202) 512-3841 or Keith Oleson at (415) 904-2218. Key contributors to this  report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: This is the second in a series of reports on individual fishing quota (IFQ)  programs. For this report, we reviewed foreign and domestic quota  programs and fishery cooperatives to determine (1) the methods available  for protecting the economic viability of fishing communities and  facilitating new entry into IFQ fisheries, (2) the key issues raised by  community protection and new entry methods, and (3) the comparative  advantages and disadvantages of the IFQ system and the fishery  cooperative approach.
For all three objectives, we visited Iceland, New Zealand, Scotland’s  Shetland Islands, and Alaska and Maine in the United States, where we  interviewed fishery management officials, quota program participants,  researchers, and industry and community representatives and visited  fishing communities. We also visited the fishing communities of Kodiak  and Old Harbor, Alaska; and Jonesport, Portland, Stonington, and  Vinalhaven, Maine. In these communities, we interviewed fishery  participants, local government officials, and community representatives,  and visited fishing and fishing-related businesses. We selected these  countries and U.S. fishing communities in accordance with suggestions  from program managers and industry experts to obtain coverage of a  range of quota-based programs and fishing communities. We also reviewed  the literature on IFQ and other quota-based programs and fishery  cooperatives.
To determine the methods available for protecting the economic viability  of fishing communities and facilitating new entry into IFQ fisheries and  the potential limitations of each method, we identified foreign and  domestic programs with community protection or new entry provisions.  We interviewed and obtained the views of foreign and domestic fishery  management officials, program participants, researchers, and industry and  community representatives on methods that are being used or could be  used to protect communities and facilitate new entry, as well as the  potential benefits and limitations of each method. We also searched for,  but could not find, any studies and assessments of the extent to which  each program has met its community protection or new entry objectives.
To determine the comparative advantages and disadvantages of the IFQ  system and the fishery cooperative approach, we identified and reviewed  fishery management plans, laws, and regulations related to existing IFQ  and fishery cooperative programs. We also reviewed and analyzed studies  and assessments of these programs and interviewed foreign and domestic  fishery management officials, researchers, and industry representatives on  the comparative benefits and downsides of each approach.
We conducted our review from February through October 2003 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Descriptions of Selected Individual Fishing Quota (IFQ) Programs
paragraphs: This appendix describes IFQ programs in Iceland, New Zealand, and  Scotland’s Shetland Islands, as well as the U.S. Mid-Atlantic  surfclam/ocean quahog IFQ program and the U.S. Alaskan halibut and  sablefish IFQ program. The term individual fishing quota as used in this  report includes individual transferable quota (ITQ) and individual vessel  quota (IVQ).
subsections: section_title: Iceland
paragraphs: Iceland’s economy depends heavily on the fishing industry, which provides  70 percent of export earnings and employs 12 percent of the work force.  Iceland excluded foreign fishermen from its waters in the 1970s, when it  introduced its exclusive economic zone. Nevertheless, cod, Iceland’s main  commercial fish stock, had collapsed and other essential stocks were  reported to be near collapse by the 1980s.
In 1984, Iceland introduced individual fishing quotas for its major fisheries.  Fishermen indirectly hold quota in Iceland because Iceland’s individual  fishing quotas are linked to fishing vessels rather than persons. In 1990,  Iceland allowed quota to be sold and leased, transforming IFQs into  individual transferable fishing quota. According to fishery experts and  managers, the fish in Iceland are property of the Icelandic people rather  than individual quota holders. As such, quota allocations are indefinite in  duration and could be revoked by the Icelandic Parliament at any time.
While not explicitly designed with such objectives, Iceland’s IFQ program  used the following provisions to protect communities and encourage new  entry:    Community right of first refusal. This rule provides communities with  the right to veto the transfer of fishing vessels and associated quota to  someone outside of the community. To stop the sale, the community must  purchase the vessel at the market rate.
Emergency community quota allocations. Iceland allocates small blocks  of quota to communities hurt by the transfer of quota from their area.
Separate quota markets for large and small vessels. To help protect small  vessels, Iceland divided its IFQ system into two quota markets—one for  large vessels and another for small vessels. Quota allocated to small  vessels cannot be transferred to large vessels, and quota allocated to large  vessels cannot be transferred to small vessels. Also, small-vessel  fishermen can choose to fish a pre-set number of fishing days (days-at- sea), instead of participating in the IFQ system.
section_title: New Zealand
paragraphs: Seafood is New Zealand’s fourth largest export, after dairy, meat, and  forestry. In 2000, seafood exports were worth about NZ$1.43 billion and  accounted for 90 percent of industry revenue.
New Zealand introduced individual fishing quotas in 1986 for some of the  most economically significant species to prevent overfishing in the inshore  fisheries while developing the unexplored deepwater fisheries. Under the  resulting quota management system, New Zealand manages about 50  species, such as hoki, orange roughy, and scallops. New Zealand’s IFQ fish  accounted for about 95 percent of the fishing industry’s value in 2003.
New Zealand’s system allows fishermen to buy or sell quota, as well as  lease quota on an annual basis. Fishery managers initially established  quota accumulation limits for the inshore and deepwater fisheries.  Furthermore, the allocation of quota changed from weight to a percentage  of the total allowable commercial catch in 1990.
According to New Zealand fishery managers, community protection was  not an objective of the quota management system, and New Zealand has  few fishing-dependent communities. However, the New Zealand  government allocated quota to the indigenous Maori tribes as part of the  settlement agreements resolving claims of ownership of the fisheries  under the Treaty of Waitangi Fisheries Commission. The commission is  leasing quota to fishermen while it develops a formula to distribute quota  to the Maori. Key barriers to reaching agreement on this distribution  formula include identifying membership in tribes and agreeing on how  much quota each tribe should receive.
In recent years, groups of quota holders have joined together in  cooperative-like organizations to help manage some of the fish stocks  under the quota management system. This co-management by government  and industry has led to the formation of key stakeholder groups in  fisheries such as hoki, orange roughy, rock lobster, and scallops.
section_title: Shetland Islands, Scotland (United Kingdom)
paragraphs: Fishing is integral to the economy and culture of Scotland’s Shetland  Islands. In 1999, the value of the Shetland Islands’ fishing industry  accounted for approximately one-fifth of the Shetland Islands’ economy  and provided over 2,500 jobs. As part of the United Kingdom, Scotland is  party to the Common Fisheries Policy of the European Union. The United  Kingdom receives catch quotas for each species from the European Union  and then allocates portions of these quotas to groups of fishermen known  as producer organizations, such as the Shetland Fish Producers  Organization. The United Kingdom manages quotas under a fixed quota  allocation, an individual fishing quota that, in practice, allows quota  trades.
In the 1990s, because of concerns about high quota prices and foreigners  holding local quota, the Shetland Islands’ fishing industry developed the  Shetland Community Fish Quota scheme to protect its fishermen. The  Shetland Fish Producers Organization created and manages two pools of  quota for Shetland Islands fishermen, one for member fishermen and one  for new entrants. Using oil settlement monies,  the local government  purchased quota for the community fish quota pool. This quota pool is  available to those who have no quota as well as those who need additional  quota to participate in the fishery. In 2002, 13 vessels used the pool, more  than half receiving their entire quota from the pool. The producers  organization charges a fee based on gross earnings rather than a fixed- term lease. Thus, new entrants are charged only for fish landed and are not  penalized for leasing quota they cannot fish. The fee is based on the ratio  of quota held to quota borrowed. Table 2 shows how this fee is charged.
section_title: U.S. Mid-Atlantic Surfclam/Ocean Quahog IFQ Program
paragraphs: The surfclam/ocean quahog fishery is a small, industrialized fishery  primarily located in the waters from Maine to Virginia, with commercial  concentrations found off the Mid-Atlantic states. The ocean quahog fishery  arose as a substitute for surfclams when the surfclam fishery declined in  the mid 1970s. While ocean quahogs are found further off shore than  surfclams, the same vessels are largely used in each fishery. The surfclam  fishery developed after World War II and was being overfished by the mid  1970s. Disease and industry overfishing led the Mid-Atlantic Fishery  Management Council to develop a plan to manage the fishery. The  surfclam/ocean quahog fishery consists of small, independent fishermen  and vertically integrated companies.
Individual fishing quotas were established for the surfclam/ocean quahog  fishery in 1990; it was the first IFQ program in the United States. The  program was not designed nor does it have specific objectives aimed at  protecting fishing communities or facilitating new entry; rather, it was  designed to help stabilize the fishery and reduce excessive investment in  fishing capacity. The program included no specific and measurable limits  on how much quota an individual could accumulate. However, allowing  quota to be sold and leased provides the opportunity for entry into the  fishery.
section_title: U.S. Alaskan Halibut and Sablefish IFQ Program
paragraphs: The Pacific halibut and sablefish fisheries are located off the coast of  Alaska. The fishing fleets are primarily owner-operated vessels of various  lengths that use hook and line or pot (fish trap) gear. Some vessels catch  both halibut and sablefish, and, given the location of both species, they are  often caught as incidental catch of one another. Overcapacity of fishing  effort led to fishing seasons that lasted less than 3 days and a race to catch  fish.
The Alaskan halibut and sablefish IFQ program was implemented in 1995,  shortly before Congress placed a moratorium on new IFQ programs. The  program was designed, in part, to help improve safety for fishermen,  enhance efficiency, and reduce excessive investment in fishing capacity.  The IFQ program includes the following community protection or new  entry provisions:    Community quota. When the program was implemented, the council set  aside quota for a community development program to develop fishing and  fishing-related activities in villages in western Alaska. In 2002, the council  amended the IFQ program to allow certain Gulf of Alaska coastal  communities to buy Alaskan halibut and sablefish quota.
Accumulation limits. The North Pacific Council adopted accumulation  limits ranging from 0.5 percent to 1.5 percent, depending on the fishing  area, to help protect the fisheries’ owner-operator fleet, which operates  out of smaller communities.
Vessel categories. The quota for each person eligible to receive quota was  permanently assigned to one of four vessel categories based on vessel type  and length.
Quota blocks. The council permanently placed small amounts of quota in  blocks, in part, to help make quota available and affordable for entry-level  fishermen. Large amounts of quota remained unblocked. Blocks can only  be bought or transferred in their entirety. An individual can hold two quota  blocks; an individual who holds any amount of unblocked quota can only  hold one quota block.
Crew consideration. Eligibility to obtain most quota by transfer is limited  to those who have 150 days of experience participating in any U.S. fishery.
section_title: Appendix III: Descriptions of Selected U.S. Fishery Cooperatives
paragraphs: A fishery cooperative is a group of fishermen who agree to work together  for their mutual benefit. Two fishery cooperatives emerged as an  alternative to IFQ programs in U.S. federal waters: (1) the Whiting  Conservation Cooperative, established in 1997 and (2) the Bering Sea  Pollock Conservation Cooperative, established in 1998. These  cooperatives are voluntary contractual agreements among fishermen to  apportion shares of the catch among themselves. Fishery cooperatives  operate under the Fishermen’s Collective Marketing Act of 1934 (15 U.S.C.  § 521), which provides an antitrust exemption to fishermen, allowing them  to jointly harvest, market, and price their product.
subsections: section_title: Whiting Conservation Cooperative
paragraphs: The Pacific whiting fishery, located off the coasts of Washington, Oregon,  and California, is under the jurisdiction of the Pacific Fishery Management  Council. Whiting is harvested using mid-water trawl nets (cone-shaped  nets towed behind a vessel) and primarily processed into surimi. The  council has divided the Pacific whiting total allowable catch (TAC) among  three sectors—vessels that deliver to onshore processors, vessels that  deliver to processing vessels, and vessels that catch and also process.
In the 1990s, the fishery was overcapitalized and fishing companies were  engaged in a race for fish. In 1997, four companies operating the 10  catcher-processor vessels in the fishery voluntarily formed the Whiting  Conservation Cooperative, which is organized as a nonprofit corporation  under the laws of the state of Washington. The overall purposes of the  cooperative are to (1) promote the intelligent and orderly harvest of  whiting, (2) reduce waste and improve resource utilization, and (3) reduce  incidental catch of species other than whiting. The specific goals are to (1)  eliminate the race for fish and increase efficiency, (2) improve the  efficiency of the harvest by using an independent monitoring service and  sharing catch and incidental catch information, and (3) conduct and fund  research for resource conservation. The cooperative is not involved in  matters relating to pricing or marketing of whiting products.
The cooperative’s contract allocates the Pacific whiting TAC for the  catcher-processor sector among the cooperative’s members, who agree to  limit their individual harvests to a specific percentage of the TAC. Once  individual allocations are made, the contract allows for quota transfers  among member companies. To monitor the catch, the contract requires the  members to maintain full-time federal observers on their vessels. Member  companies bear the cost of observer coverage. The contract also requires  members to report catches to a private centralized monitoring service. To  ensure compliance, the contract contains substantial financial penalties  for members exceeding their share of the quota.
section_title: Pollock Conservation Cooperative
paragraphs: The pollock fishery off the coast of Alaska is the largest U.S. fishery by  volume. The fishery is under the jurisdiction of the North Pacific Fishery  Management Council, which sets the TAC each year. About 5 percent of  the TAC is held in reserve to allow for the incidental taking of pollock by  other fisheries, 10 percent is allocated to Alaska’s community development  quota program, and the remainder, called the directed fishing allowance, is  allocated to the pollock fishery. Like whiting, pollock is harvested using  mid-water trawl nets. Pollock swim in large, tightly packed schools and do  not co-mingle with other fish species. Pollock are primarily processed into  surimi and fillets. In the 1990s, the Bering Sea pollock fishery was severely  overcapitalized, producing a race for fish. As a result, the fishing season  was reduced from 12 months in 1990 to 3 months in 1998.
The fishery is composed of three sectors—inshore, offshore catcher- processor, and offshore mothership (large processing vessel). The  American Fisheries Act statutorily allocated the pollock fishery TAC  among these three sectors and specified the eligible participants in each  sector. The nine companies that operated the 20 qualified catcher- processor vessels formed the Pollock Conservation Cooperative in  December 1998. The purpose of the cooperative was to end the race for  fish.
Under the cooperative’s agreement, members limit their individual catches  to a specific percentage of the total allowable catch allocated to their  sector. Once the catch is allocated, members can freely transfer their  quota to other members. The American Fisheries Act requires each  catcher-processor vessel to have two federal observers on board at all  times. Member companies bear the cost of observer coverage on their  vessels. A private sector firm also tracks daily catch and incidental catch  data to ensure that each member stays within its agreed upon harvest  limits. To ensure compliance, the contract contains substantial financial  penalties for members exceeding their share of the quota. The cooperative  is not involved in matters relating to pricing or marketing of pollock  products.
In addition to operating under the terms of the cooperative’s contract,  members of the cooperative must conduct fishing activities in compliance  with certain NMFS and council requirements. Specifically, NMFS is  responsible for closing the fishery when the sectoral allocation is reached.  NMFS and the council set the season, impose restrictions against fishing in  certain areas and at certain times, and set incidental catch limits for other  species.
section_title: Appendix IV: Comments from the Department of Commerce
paragraphs: The following are GAO’s comments on NOAA’s written comments  provided by the Under Secretary of Commerce for Oceans and  Atmosphere’s letter dated February 6, 2004.
subsections: section_title: GAO Comments
paragraphs: 1.  The report provided examples of National Standards relating to issues  discussed in the report (overfishing, equity, efficiency, community  protection, and new entry). We did not include National Standards  relating to cost minimization, by-catch, and safety-at-sea, because we  did not discuss these issues in the report.  2.  We revised the text to make it clear that we were providing examples  of commercial fisheries where new IFQ programs were being  considered.  3.  We revised the text to reflect that the halibut season was increased to  8 months.  4.  We deleted the footnote relating to the uniqueness of Alaska, which is  regulated by the North Pacific Council, from states covered by the  other fishery councils, which regulate fisheries in multiple states.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to those named above, Doreen S. Feldman, John S. Kalmar, Jr.,  Susan J. Malone, Mark R. Metcalfe, Carol Herrnstadt Shulman, and Tama  R. Weinberg made key contributions to this report.