6
Findings and Recommendations

General Considerations About Individual Fishing Quotas

The committee believes that individual fishing quotas (IFQs) can be used to address a variety of social, economic, and biologic issues in fisheries management. Alternative management systems can also achieve some of the objectives that can be achieved with IFQs. There are no general threshold criteria for deciding when IFQs are appropriate; the use of IFQs should be considered on a fishery-by-fishery basis. IFQs can be used in a preventive manner with stocks that are not overfished or to remedy existing overfishing, overcapitalization, 1 and incentives to fish under dangerous conditions. In general, the committee believes that IFQ programs will be more successful when the following conditions exist:

  •   

     The total allowable catch (TAC) can be specified with reasonable certainty. Where TAC-based management is not possible, other types of individual quota systems, such as individual transferable effort quotas, may be more appropriate.

  •   

     The goals of improving economic efficiency and reducing the numbers of firms, vessels, and people in the fishery have a high priority.

1  

Capitalization is the total dollar value invested in a fishery. Overcapitalization is therefore the existence of a greater financial investment in harvesting or processing capacity than is efficient to catch and process the available fish. As a financial concept, it differs from the idea of overcapacity, or excess capacity.



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--> 6 Findings and Recommendations General Considerations About Individual Fishing Quotas The committee believes that individual fishing quotas (IFQs) can be used to address a variety of social, economic, and biologic issues in fisheries management. Alternative management systems can also achieve some of the objectives that can be achieved with IFQs. There are no general threshold criteria for deciding when IFQs are appropriate; the use of IFQs should be considered on a fishery-by-fishery basis. IFQs can be used in a preventive manner with stocks that are not overfished or to remedy existing overfishing, overcapitalization, 1 and incentives to fish under dangerous conditions. In general, the committee believes that IFQ programs will be more successful when the following conditions exist: •    The total allowable catch (TAC) can be specified with reasonable certainty. Where TAC-based management is not possible, other types of individual quota systems, such as individual transferable effort quotas, may be more appropriate. •    The goals of improving economic efficiency and reducing the numbers of firms, vessels, and people in the fishery have a high priority. 1   Capitalization is the total dollar value invested in a fishery. Overcapitalization is therefore the existence of a greater financial investment in harvesting or processing capacity than is efficient to catch and process the available fish. As a financial concept, it differs from the idea of overcapacity, or excess capacity.

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--> •    Broad stakeholder support and participation is present. Although consensus is not necessary, active stakeholder involvement throughout the design, implementation, and operation of an IFQ program is crucial. •    The fishery is amenable to cost-effective monitoring and enforcement. •    Adequate data exist. Because of the long-term impacts and potential irreversibility of IFQ programs, it is important that sufficient data are available to assess and allow the mitigation of, insofar as possible, the potential social and economic impacts of IFQs on individuals and communities. •    The likelihood for spillover2 of fishing activities into other fisheries is recognized and provision is made to minimize its negative effects. IFQ-based management can be particularly useful, but more difficult to develop and administer, when fisheries have evolved to a point of overcapitalization. When IFQs are applied to overcapitalized fisheries, they can be expected to result in a reduction in the number of participants. However, IFQs can be even more valuable as a preventive measure when applied to fisheries that are not already in trouble. As discussed in greater detail later, decisions to implement IFQs or to use alternative methods of fishery management should be handled by regional councils, rather than at the national level. The committee believes that fishery management—including the development of IFQs and other management programs—should continue to be the responsibility of the regional councils, subject to review by the Secretary of Commerce. Evidence of the effects of IFQs for the conservation of fish stocks is mixed and there are few generalizable statements of fact that can be made (ICES, 1996, 1997). However, to the extent that IFQs are enforced, they can keep harvests within a TAC; open-access fisheries often exceed their TACs. Both OECD (1997) and the committee's examination of U.S. and foreign IFQ programs indicate that IFQs may increase or decrease bycatch discards and highgrading, depending on the fishery. It can be demonstrated, however, that highgrading is unlikely to be profitable (see Box 3.4). Neither the existence of quota busting nor the lack thereof have been demonstrated as a general feature of IFQs. Discussed below are a number of recommendations to Congress, the Secretary of Commerce and the National Marine Fisheries Service, the regional fishery management councils, states, and other fishery stakeholders related to a national policy for IFQs. Action on some of the recommendations in this report will require changes to the Magnuson-Stevens Act, regulatory language developed by the Secretary of Commerce, or rules implemented by regional councils. 2   Spillover occurs when one fishery becomes more restrictive in area, time, or number of licenses available and fishermen shift to other fisheries, increasing the capitalization and effort in these fisheries. This shift is possible when fishing skills and equipment are relatively transferable among fisheries with minor adjustments.

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--> Political Structure and Jurisdictional Issues Moratorium Findings: The individual fishing quota is one of many legitimate tools that fishery managers should be allowed to consider and use. Sufficient experience and analysis of existing programs is available, both nationally and internationally, to suggest that IFQs can address some fishery management problems that are not easily addressed with other measures. Specifically, IFQ programs can have advantages over alternative management measures in addressing problems of overcapacity, efficiency, and utilization, if appropriately designed in relation to other objectives. Recommendation: Congress should lift the moratorium on the development and implementation of IFQ programs established by the Sustainable Fisheries Act of 1996, provided the other recommendations and suggestions of this report are considered and followed. Furthermore, the existing federally managed IFQ programs (Mid-Atlantic surf clams/ocean quahogs, Southeast Atlantic wreckfish, and North Pacific halibut and sablefish) should be allowed to proceed under the stewardship of their respective councils, again with the committee's recommendations in mind. A related issue involves the two proposed systems that were stopped by the moratorium, the Pacific coast fixed-gear sablefish fishery and the Gulf of Mexico red snapper fishery. It would be desirable in both fisheries to take advantage of the work expended in developing the plans and to avoid changing control dates that would force the fisheries to start from a new, more intensely capitalized condition than before the moratorium. Both fisheries show evidence of overcapitalization (MRAG, 1997; PFMC, 1997). Roles of Regional Councils Versus the National Marine Fisheries Service (NMFS) and Congress Findings: Circumstances in fisheries vary widely and require different mechanisms to address the diverse conditions. Regional management is more likely than a national authority to be able to respond effectively to regional biologic, economic, and social conditions. It is a general principle that in dynamic, complex systems, it is better to design interventions as close as possible to the source of the problem (see later section on the delegation of management to local authorities). The Magnuson-Stevens Act creates a forum for the development of fishery management plans (FMPs) by those directly involved in the fisheries of each region. However, the history of the act's implementation provides many examples of congressional intervention in the regional management process (Shelley et al., 1994; NRC, 1997). The committee received testimony and has found examples nationwide of congressional action to prevent

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--> approval of council-submitted management programs or to stall implementation of Secretary-approved plan amendments. Recommendation: Congress and the Secretary of Commerce should allow the regional fishery management councils flexibility to adjust existing IFQ programs and develop new ones, subject to normal review by the Secretary and consistent with the national standards of the Magnuson-Stevens Act. State-Federal Interaction and Communication Findings: Adoption of a federal IFQ program can have significant impacts on state management authority in state waters and vice versa. Fishing effort displaced from newly developed limited entry programs in federal waters can shift to state waters (e.g., in surf clam fisheries in New Jersey and New York), placing additional stress on fisheries therein. A lack of coordination among federal and state management authorities can undermine the effectiveness of fishery management programs such as IFQs. A lack of consistent measures can create loopholes that encourage quota violations, underreporting, and other problems. Coordination and cooperation between state and federal managers can increase the effectiveness of limited enforcement resources and improve the scope and quality of data collection programs. Because the division of management authority between legislative and executive branches of government varies among states, state fishery officials who are members of the regional councils may or may not have the authority to ensure that compatible state measures are adopted to complement a federal IFQ program for transboundary stocks. Recommendations: Regional councils should-at their earliest opportunity—officially inform affected state fishery agencies that they are considering adoption of an IFQ program for fisheries that occur in both federal and state waters. Councils should seek the assurance of state authorities that complementary measures will be adopted in the state waters, including consistent controls on recreational or other fisheries that are not included in the IFQ program. Consistent controls could include coordination of enforcement activities, common open fishing periods, and cooperative agreements for transboundary stocks and limited access programs. The committee's intention is not to advocate the usurpation of state authority by the councils. Instead, the committee simply seeks to stress that the consequences and effectiveness of management measures adopted in one jurisdiction depend to a large extent on management measures adopted in adjacent jurisdictions. For example, implementation of a restrictive limited access program in federal waters could lead to a flood of effort into adjacent state waters or vice versa. Proposed regulations implementing a federal IFQ program should identify the manner in which relevant state fishery policy and regulations could be made compatible with the federal program and which

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--> state regulations will continue to apply to vessels fishing in the federal IFQ program. Conversely, if states in a region have developed coordinated and effective limited entry programs in state waters, including IFQs, the regional councils should complement these programs in fishery management plans, where consistent with the national standards of the Magnuson-Stevens Act. Delegation to Local Authorities Findings: The use of IFQs in fisheries management does not preclude, and may in some circumstances benefit from, delegation of some management decisions to subregional or local authorities. For highly localized and relatively discrete fish stocks and/or for geographically bounded fisheries, delegation to the local level can bring biologic, economic, and social benefits. Examples of such functions might include gear restrictions and partnerships between government and industry for purposes such as scientific research, selection and monitoring of closed areas, and decisions about allocation among individuals or groups. Among the expected benefits of delegation are greater input of locally derived knowledge and experience into the decisionmaking process, greater compliance with the rules due to improved participation of stakeholders, and the ability to tailor rules to local conditions. Costs are also associated with such delegation, including the need to coordinate actions taken by such management units within frameworks established by regional councils. Traditionally, fisheries management under the Magnuson-Stevens Act has not taken full advantage of the use of local communities and authorities in the development and implementation of policy. However, the act allows the regional councils and the Secretary of Commerce to delegate management under certain situations, and the councils were authorized (before the Sustainable Fisheries Act's moratorium) to create IFQ programs that may be received or held by associations or units of local government. Local delegation and the pooling of resources are illustrated by the Dutch sole and plaice beam trawl fishery, Japanese inshore cooperatives, and certain Nova Scotia fisheries. Recommendations: In considering the range of management options for a specific fishery, the regional councils should not be precluded from considering proposals for delegated management authority that would operate within the framework of the Magnuson-Stevens Act's national standards and NMFS regulatory guidelines.

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--> Designing an IFQ Program to Meet Social and Economic Objectives General Issues Finding: Fishery management systems, including IFQ programs, are sometimes designed with unspecific or conflicting objectives. Uncertainty about the relative importance and measurability of the objectives confuses the design of an IFQ program and makes its implementation less effective. Confusion, conflict, and ambiguity about the relative importance and value of the objectives of an IFQ program can result in contradictions and inconsistencies in its design and implementation, making the program more vulnerable to unintended consequences and less likely to succeed. Goals and objectives are central to IFQ program design. If economic efficiency and rapid downsizing of a fleet are the major objectives, quota shares should be freely transferable, be as divisible as possible, and have long-term tenure. If other major design objectives are paramount or there are conflicting objectives, these central design features may have to be changed. Objectives of fishery management often differ by region and even by fishery within a given region. Recommendation: The biologic, social, and economic objectives of each fishery management plan (and how a limited entry or access program, including IFQs, will achieve the objectives) should be specified clearly through a process that invites broad participation by stakeholders. Similarly, at the plan development stage, the potential impacts of each alternative management option considered should be specified clearly. This could be accomplished by requiring that limited entry programs proposed in FMPs document the likelihood of the possible outcomes and alternatives to achieve plan objectives (e.g., through a “limited access assessment"). Congress should recognize that the design of an IFQ or other limited entry program in relation to concentration limits, transferability, distribution of quota shares, and other design questions will depend on the objectives of a specific plan, underscoring the importance of providing flexibility to the regional councils. Path Dependence Findings: Once an IFQ program is considered, a series of events ensues that may lead to unintended or unexpected consequences that may be difficult to reverse or mitigate. This path of events occurs to some extent with all management measures, but it is particularly true for limited access programs, including IFQs, that involve a fundamental restructuring of social and economic relationships and the creation of expectations about secure privileges of individuals. Depending on the particular fishery and the design of the IFQ program, it may

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--> create a new class of stakeholders—those granted IFQs—with potentially different interests and views than existing shareholders, many of whom may not qualify to hold IFQs despite their previous or current involvement in the fishery. Moreover, resulting perceptions of unfairness and inequity may affect the manner in which stakeholders interact with the management process in the future. In addition, it is widely recognized that although IFQs are limited privileges and may be legally revocable, political pressure from permit and quota shareholders concerned about protecting their investments will resist revocation. This is evidenced in other natural resource sectors, such as mining and ranching, when reduction in privileges of access to public resources are challenged by those who benefit from them. The extensive literature and testimony received indicate that insufficient attention and resources have been devoted to socioeconomic impact assessments prior to decisions about IFQs, and to monitoring and evaluating the performance and consequences of IFQ programs once in place. Recommendations: Councils should give high planning priority to the question of social, economic, and biologic consequences of an IFQ program or alternatives to it. This requires projections of likely consequences based as much as possible on rigorous impact assessment and monitoring and evaluating the subsequent development of a limited access management regime. The regional councils and NMFS must allocate more resources and attention to impact assessments, which are now required by law but often are given inadequate attention. IFQ programs should include a commitment to monitor both short- and longterm impacts and to include in the program the political, financial, and administrative ability to make changes as required to meet original objectives. At a minimum, the regional councils and the Secretary of Commerce should ensure that a preliminary study of the relevant socioeconomic aspects of a fishery being considered for IFQs be done prior to the design of the management program, that alternative limited access management programs be considered, and that a monitoring and evaluation program be part of the initial design (Sec. 303[d][5][A]). These activities could be undertaken relatively quickly and should not provide an excuse for inaction on the part of managers. Discussion, Data Collection, and Speculative Behavior Findings: The committee received considerable evidence that the discussion of programs in council meetings and the initiation of certain kinds of data collection and research, as well as implementation of limited access measures, have led to speculative behavior on the part of participants, encouraging new entry into the fishery and increased harvesting effort before IFQ programs were in place. Delays and postponements of control dates specified

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--> by councils can exacerbate speculative entry and capital stuffing. They can also generate a basis for claims of inequity and unfairness. If the initial allocation of IFQs is based primarily on catch history, modification of the original control date will reward speculative entrants to the disadvantage of earlier participants. The committee heard testimony that this has been a widespread problem affecting the halibut and sablefish IFQ programs, the proposed Pacific sablefish program, and the surf clam/ocean quahog program. Failing to adhere to strict control dates can encourage capital stuffing and the buildup of excess harvesting capacity, one of the primary problems that IFQ programs are designed to mitigate. Testimony indicated that delays and changes in control dates appear to be due not only to the desirable (and required) public involvement process but also to the unnecessary administrative inertia of NMFS. Recommendations: To minimize the potential for speculative investments, the regional councils and the Secretary of Commerce should ensure that data collection and studies be undertaken as part of long-term, routine activities, separate from the consideration of specific management alternatives for a fishery. Data collected on a regular basis will facilitate evaluation of the social, economic, and biologic impacts of various allocation actions, including IFQs. Finding: Early adoption of and adherence to control dates and moratoria on new entry, licenses, and effort will greatly reduce the incentive for speculative entry. If the IFQ program is not implemented, the moratorium can be lifted if new entrants to the fishery are deemed desirable. Recommendation: Control dates should be set early in the development of an IFQ program and be strictly adhered to throughout the development of the program. The public involvement process prior to implementing IFQs should be speeded up as much as possible without compromising its purpose; administrative delay in implementation should be minimized. Nature of the Right or Privilege Definition of the Right Findings: If one of the goals of an IFQ program is to engender stewardship behaviors in the fishing sector, it is desirable to create a long-term stake in the fishery that can be defended against other private actions that threaten the health of the resource. The Magnuson-Stevens Act currently states that the IFQ should not be construed as creating any right, title, or interest to any fish before the fish is harvested (Sec. 303[d][3]). This language properly reflects the fact that the public trust nature of quotas precludes takings claims for their revo-

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--> cation or modification. However, it also may prevent fishermen who have not yet harvested their quota share from bringing a civil action against fishermen who exceed their quota share or trigger bycatch limits and cause a premature closing of the fishery. Likewise, it may preclude actions by IFQ shareholders against other parties who damage a fish stock through pollution or habitat degradation. Although users in California's adjudicated groundwater basins do not have the right to bring action against the government for restricting total withdrawals from a groundwater basin, they can bring civil action against other private users who damage the resource through pollution or through exceeding agreed-to withdrawals. Recommendations: The Magnuson-Stevens Act should be amended to make it clear that the nature of the privilege embodied in an IFQ encompasses the right to protect the long-term value of the IFQ through civil action against the private individuals or entities whose unlawful actions might adversely affect the marine resource or the environment. The act should be clear that it does not authorize actions by IFQ shareholders against federal, state, or local governments for actions designed to protect marine resources and the environment through area closures or other modifications or revocation. Findings: IFQ programs will achieve greater benefits if the interests they create are stable enough to encourage long-term investments, to be useful as loan collateral, and to engender in quota holders a sense of long-term stake in the resource. To the contrary, the moratorium on new IFQ program development and proposals to amend existing IFQ programs (e.g., to allocate increases in the TAC among a new set of stakeholders) could undermine the security of the interest, discourage transfers and purchases of additional quota shares, and destabilize the lending environment. The revocable nature of an IFQ and congressional discussions of uniform sunset provisions may have impaired the security of these interests. Because larger economic entities have access to better means of balancing risk, actions and proposals that undermine the security of the interest can be expected to have a disproportionately large impact on small economic entities. The goal of a sunset law is to counter the tendency of government programs and bureaucracies to be self-perpetuating and to institutionalize policies that favor one group over another. A sunset law does not signify that policymakers know in advance that a particular policy or program has a useful life of a fixed number of years. It signifies instead that policymakers need to reevaluate the utility and effectiveness of an existing policy or program after a period of time to ensure that the best policies are in place, that they address objectives of the law, and that they are not continued merely due to bureaucratic inertia. Under the Magnuson-Stevens Act, IFQ programs are not permanent and may be limited or revoked without compensation (Sec. 303[d][3][C]). However, as

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--> noted in Pautzke and Oliver (1997), the idea of "sunsetting" an IFQ program is fundamentally inconsistent with the nature of IFQs, given the investment made. They stated also that any IFQ program that contemplates a sunset date should be very specific from the outset about the termination date so that fishermen and their lenders can gauge the value of the quota share or IFQ purchase accurately. Within the economic literature on IFQs, the consensus appears to be that permanent fishing rights are the preferred option (Huppert, 1991). Huppert makes the distinction between elimination and modification, and reports that the academic consensus recognizes that modifications should be achieved through buyback programs or annual changes in the TAC. Elimination, by contrast, should be only for cause, for example, repeated and egregious violation of catch limits and other regulations. A limited duration IFQ is likely to reduce the holder's incentive to conserve the fish stocks because its value decreases over time and investments in stewardship of the resource will be reaped by someone else. A sunset provision would largely undermine the purpose of an IFQ program. It could inhibit the downsizing of fleets and probably lead to an investment outburst just prior to the sunset, because everyone would want to be poised for the new allocation mechanism that comes into place after the sunset. When designing an IFQ program, councils should carefully consider the issues of stable, long-term privileges against the public trust nature of fisheries. The committee particularly urges councils to explore alternative ways to gain the benefits of long-term security while preserving the ability to modify programs. For example, the Australian "drop-through" system (see Box 5.2) or simple 10- to 25-year leases may achieve the same degree of security as an allocation in perpetuity.3 These are among the alternatives available to councils to discourage behavior that degrades resources and to reward exemplary behavior without disrupting the security of the harvesting privilege. Recommendation: Regional councils should be authorized to decide on a case-by-case basis whether to limit the duration of IFQ programs through the inclusion of sunset provisions. A blanket national policy of sunset provisions should not be adopted. In deciding on sunset provisions, councils should take into account the effects that limited duration may have on the ability of IFQs to meet their objectives, including the willingness of lending institutions to provide loans and the ability of participants to enter and leave the fishery. An individual council could design an IFQ program that included a sunset provision, a design element that would cause the program to expire after a speci- 3   However, the experience with 25-year rock lobster IFQs in New Zealand is that they do not seem to achieve the same security as IFQs that are indefinite in time. There are few limited duration IFQ programs, however, so it is difficult to generalize this experience.

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--> fied number of years, with or without a renewal provision. In this case, the question arises whether the Secretary of Commerce should be allowed to use the partial approval authority to disapprove a sunset provision while approving the remainder of an IFQ program. Central Registry System Findings: Individuals who do not receive an initial allocation, or those who received a small quantity of quota, may find it difficult to obtain bank financing to purchase shares because they lack acceptable collateral. A concern raised by some lenders is that in some cases a lien has been placed on quota shares as a means of collecting delinquent taxes from the quota holder. Such a lien could be passed on to the purchasers of quota shares without their knowledge, undermining the confidence of lenders in the security of the loan. In response to these concerns, the Magnuson-Stevens Act mandated the development of a central registry system for limited access system permits (Sec. 305[h]). NMFS has published an advance notice of proposed rulemaking for a limited access lien and title registry in the Federal Register (NMFS, 1997b). None of the four U.S. IFQ programs has a registry in place yet and it appears that development activities have been initiated only for the Alaskan halibut and sablefish programs. Recommendation: NMFS should implement the central registry system (as required by the Sustainable Fisheries Act of 1996) as soon as possible for each U.S. IFQ fishery, to increase the confidence of lenders in the security of loans to purchase quota share and provide opportunities for individuals to obtain financing to enter or increase their stake in IFQ-managed fisheries. Initial Allocation General Considerations Findings: Initial allocation of quota share is the most controversial aspect of the implementation phase of IFQ programs. Controversy focuses on who should be eligible for initial allocations and the criteria that should be used to allocate shares. Furthermore, initial allocation of quota can result in windfall gains to the recipients if the quota shares are transferable and measures are not taken to address this issue. The potential for windfall economic gains has created both support for and opposition to IFQs, depending on the particular case and constituency. The initial allocation has been characterized as enabling initial recipients to obtain loans to buy additional quota, resulting in significant shifts in the power of quota holders versus others in the fishery and changes in the composition of

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--> Recommendation: The committee recommends that the Magnuson-Stevens Act be amended to allow the public to capture some of the windfall generated from the initial allocation of quota in new IFQ programs. This could be accomplished by taxing the first transfer of shares, via leasing or sale, to reduce the windfall gains to the initial recipients. Other mechanisms, such as auctions, assessing an annual fee on quota share, or other taxes, would also reduce windfall gains to the initial recipients. Cost Recovery Finding: The implementation of an IFQ program introduces exclusive privileges to harvest a portion of a public resource. Establishment of these privileges should be accompanied by the assignment of obligations and responsibilities to quota shareholders. Shareholders should be obligated to pay an appropriate share of the continuing costs of managing an IFQ program, including a share of the costs of fisheries administration, enforcement, and research. Recommendation: Congress should authorize the collection of fees from the transfer and/or holding of IFQs to provide funding for the attributable costs of research and management associated with establishing and maintaining an IFQ program. Although the Magnuson-Stevens Act is compatible with this recommendation in principle, in practice the limit of 3% may well be too low for some IFQ programs and should be increased (New Zealand currently collects about 5% of the exvessel value of landed fish for cost recovery). Costs that are attributable to specific transactions (such as the recording of a quota transfer or the certification of a registered buyer) should be recovered through fees on those benefiting from the transaction. Other costs, such as monitoring, enforcement, and stock assessment research for particular species, should be borne by holders of quota for these species. They should be recovered by means of a levy either on quota or on landed harvest. Rent Extraction Above Cost Recovery Finding: For some natural resources (e.g., timber, minerals, and oil and gas), the government captures a significant portion of the rent above cost recovery. The extraction of rent depends on having an effective system for capturing and reallocating the rent generated. In so doing, it is important that the rent recaptured not create a system that would encourage overharvesting of the fish stock to maximize the short-run revenue flow to the government. Extracting rent will decrease the value of quota, which has some benefit in terms of making it easier for new individuals to enter a fishery.

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--> Recommendation: The Magnuson-Stevens Act should be amended to authorize the capture of rent in excess of cost recovery. A variety of means could be used by the IFQ programs to recover this rent, including the two-fee system described in Box 5.4. Rent recovery components of IFQ programs should include specification of the use of any extracted rent (see following finding and recommendation). Dedicated Funds from Rent Finding: Channeling rent incomes to dedicated funds would make them visible and important. The beneficiaries of the dedicated funds would acquire an interest in maximizing the rent income, and hence the total rent, if the captured rent is a set proportion of the total rent (for example, through auctions or tax as a share of rent). Because the rent reflects the economic efficiency of the fishery, beneficiaries of the dedicated funds would acquire an interest in having the industry managed efficiently and sustainably and could be expected to promote this goal. What purpose should dedicated funds serve? Most individuals would probably agree that using such funds for the benefit of communities that depend on the fisheries from which the rents are extracted is one legitimate objective. Such dedicated funds could support fisheries research; could finance retraining of fishermen displaced by IFQ programs and support other forms of education, health care, and infrastructure in these communities; or could be allocated by direct cash transfers to inhabitants of affected communities. The exact legal and administrative form of dedicated fishing rent funds, should they be established, must be left for the political process to decide. One example of such a dedicated fund is the 25% of the maximum 3% of landed value of catch that can be devoted to loan programs, according to the Magnuson-Stevens Act. Another example is the dedicated fund associated with the Florida spiny lobster fishery, which receives 90% of revenues from fees and charges in the fishery for the purpose of research, monitoring, enforcement, and education related to the fishery. Recommendation: If the Magnuson-Stevens Act were amended to allow rent capture beyond what is needed to cover the administrative cost of fisheries management, the option of channeling the captured rents to dedicated funds should be given serious consideration. The amounts of money involved are likely in most cases to be small and to make little difference for federal or even state public revenue (Alaska might be an exception). Priority should be given to dedicating any rent extracted from fisheries beyond administrative costs to improving the fisheries and the fishing communities dependent on them. In general, these rents should not be directed to the general treasury. One suggestion is that a community trust be established and co-managed by representatives of quota shareholders, regional councils, communities, and NMFS. Management

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--> of dedicated funds at a local level provides incentives for proactive maintenance and enhancement of marine resources. Monitoring and Enforcement Finding: Regardless of how well any fisheries management plan is designed, noncompliance can prevent the attainment of its economic, social, and biologic objectives. Noncompliance not only makes it more difficult to reach stated goals, it also makes it more difficult to know whether the goals are being met, if data fouling occurs. Incentives for quota busting, poaching, and highgrading may increase with the introduction of an IFQ program, due either to the higher profitability of fishing activity or to the perception in the community and the industry that the program is unfair and inequitable. IFQs also improve incentives for quality over quantity, but this in turn may lead to more highgrading and bycatch problems. Monitoring and enforcement costs have risen in some fisheries with the introduction of an IFQ program, whereas in others, costs have fallen. Testimony to the committee indicated that enforcement has apparently become easier and less costly in the wreckfish fishery, for example, and more costly in the Alaskan halibut and sablefish fisheries (see Appendix H). Furthermore, highgrading or bycatch may either increase or decrease with IFQ regimes, depending on how they are designed and enforced. The increased value of the fishery that results from the elimination of the race for fish provides an additional source of revenue. This revenue could be used to finance enhanced monitoring and enforcement efforts if the revenue is channeled appropriately. Recommendations: Councils should design IFQ programs in such a way as to enhance enforcement. The committee recommends that the regional councils and the Secretary of Commerce consider the following three principles for effective monitoring and enforcement in designing IFQ programs. 1. Agreements are more likely to be perceived as fair and desirable if the fishermen participate in their creation and are also more likely to be enforceable. To the extent that the participants in a fishery understand the need for regulation and concur with the form the regulation is taking, enforcement will become easier. Enforcement that is considered fair and desirable to participants is most likely to be respected as a norm and to result in higher compliance rates and less necessity for enforcement actions and associated costs. The rules and regulations governing a fishery are more likely to be supported by fishermen if the administrative process of establishing an IFQ program involves co-management schemes that allow fishermen to participate in their development and implementation. Fishermen are also likely to have the best wisdom about what monitoring and enforcement measures would be most effective.

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--> 2. Incentives to cheat should be identified, and IFQ programs should be designed to reduce these incentives. Program design can have a great effect on the enforcement burden. For example, rather than placing the entire burden for bycatch reduction on enforcement, it is possible to provide alternatives to court-imposed sanctions. Concrete examples are provided by the New Zealand approach, which includes “as-needed" quota transfers and the Alaskan "underage and overage" system and graduated penalties. Sanctions should take the principle of marginal deterrence into account, because it is important to consider the likely effect of a set of penalties on the incentive to commit more serious crimes. In fisheries, one application of this principle would ensure that the penalties for bycatch were not so severe that they would make discarding the catch, rather than landing it, the preferred option. Unobserved discarded catch not only is wasted, but causes data fouling. In practice, applying the principle of marginal deterrence implies establishing a set of graduated sanctions. Administratively imposed sanctions should be established for minor violations with specified increases in penalties for each additional offense. Criminal penalties (jail sentences and/or seizure of catch, vessel, and equipment and forfeiture of quota) should be reserved for serious offenders and for intentional falsification of reports. 3. Adequate funding should be provided for monitoring and enforcement, and it should be obtained from fees assessed on quota or harvest. Research, Monitoring, Evaluation, and Evolution Improve Adequacy of Research Finding: The data needed to manage a fishery become more extensive as management becomes more complex. Different management approaches require different types of data. IFQs require enough biologic data to set a reasonably accurate TAC and enough socioeconomic data to anticipate some of the effects of proposed systems on individuals and communities. In general, labor statistics for the fishing industry are not as complete as for other industries. Assessing the effects of proposed limited entry programs requires information on the range of fishing activities, and other activities in which they are embedded, especially for communities in which fishing is important. Such information makes it possible to estimate the probable effects of different proposals for implementing IFQs or other limited access programs, in much the same way that systems analysis enables assessing the effects of proposed changes in manufacturing procedures and the way an industry is organized (Goodenough, 1963; Lieber, 1994).

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--> Recommendations: Funds should be made available through NMFS to strengthen research on the design, performance, and impacts of IFQ programs. IFQ programs can vary greatly in the details of their implementation and in their effects, intended and unintended, on fish stocks and fishermen. It is important for the nation to learn from its mistakes and successes so that it can develop more effective and efficient management systems. The committee recommends that the Secretary of Commerce promulgate guidelines to the regional councils for all new IFQ programs to monitor their effectiveness. At a minimum, this would include the following: Maintaining a registry of shareholders and all share transactions, including the names of buyers and sellers, and the quota share amounts and value; Assessing the biological status of the stock in a timely fashion, given earlier NRC recommendations (1998a); Measuring the economic performance and characteristics of  Commercial fisheries (e.g., number of participants, annual operating income and costs, investment in gear and vessels, investment in shoreside processing and other infrastructure);  Recreational fisheries (e.g., angler days, consumer surplus); and  Subsistence use patterns; Assessing the performance of the quota share market, including sales price, sale and leasing frequency, and changes in the distribution of quota shares; Collecting data on a routine basis on the system's administrative and enforcement costs; and Monitoring the translocation effects on other fisheries. The committee further recommends to the Secretary of Commerce that by the year 2005, this monitoring information from all existing and new IFQ programs in the United States be analyzed in a comprehensive manner and reported to the councils and other interested parties. The committee was hindered in its efforts to assess the relative economic costs and benefits of IFQ programs because of a lack of IFQ market data (as shown in Appendix H). The Secretary of Commerce should require the regional councils to plan research to allow for systematic evaluation of the effects of proposed IFQ programs and alternatives on the way of life of fishing communities and the way fishing activities are conducted. Complementary to the routine monitoring described above, NMFS should significantly expand its routine collection of social and economic data to allow baseline descriptions of fishery users, monitoring of impacts associated with individual quota and other management programs, and an im-

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--> proved understanding of the human dimensions of fisheries. Economic data on operating unit budgets, including costs of equipment, fuel, and gear, are particularly lacking. The Secretary of Commerce should direct NMFS to incorporate socioeconomic variables in routine and case-specific data collection and to fully implement existing plans to do so, such as the Atlantic Coastal Cooperative Statistics Program (ACCSP). Issues of confidentiality of data and data as property must be resolved in order to obtain and use data on a per vessel, skipper, and processor basis for monitoring and enforcement. Concerns about the equity of the initial allocation of quota shares is a major obstacle to the implementation of any IFQ program. It is important that the initial allocation process be transparent and perceived to be fair; this requires adequate data. To accomplish this goal, the committee recommends that the Secretary of Commerce encourage regional councils to undertake the following tasks as soon as is practicable for fisheries under their jurisdiction: Review the adequacy of catch history or other records that might be used for the initial allocation of quota shares. Establish registries of crew and skipper participation, including information on fishing activities since 1990 or as soon after as is feasible. Gather data on the effects of management on communities. Periodic Independent Assessment of the Performance of IFQ Programs Findings: IFQ programs are still relatively new, and the effects of various program characteristics on different types of fisheries are still being tested. Adaptation of programs to changing conditions and design of new programs depend on evaluation of existing programs. The development of any limited access program, especially one that is designed to allocate harvest rights and access to the resource by individual fishermen or firms, will be a complex and controversial process, and the performance of such programs should be monitored carefully. The greater the degree to which stakeholders in the fishery (e.g., vessel owners, hired skippers, crew members, processors, managers) can agree on the process for handling allocation, appeals, enforcement concerns, concentration limits, transferability, and broader socioeconomic considerations, the less controversial or contentious are these elements likely to be. It is possible that a well-designed program can prevent some of the unforeseen consequences of the initial allocation process on the socioeconomic equilibrium in the fishery. However, even in a well-designed program with strong consensus from the stakeholders, the initial allocation process and its possible effects on the distribution of capital within the fishery could create significant long- and short-term difficulties for managers and participants in the fishery. A key to maintaining the stability of

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--> and support for a limited access program are the processes and institutions used to design, manage, review, and change the program. In its public meetings, the committee heard concerns from a number of participants that a process and institution external to the regional council-NMFS system should play a significant role in the design, implementation, and management of any limited access program, especially IFQ programs. Several participants expressed the opinion that the existing council process has not responded adequately to their concerns, specifically about initial allocation mechanisms. Others have expressed dissatisfaction with the NMFS appeals procedures, leasing, the setting of limits on the level of quota concentration, enforcement, and other issues related to the management and regulation of IFQ programs. Although an external institution might provide some stakeholders with greater confidence that their information and recommendations would be evaluated and used objectively, it is just as possible that other stakeholders would feel alienated from a new institution in which they had not participated previously. Both the regional councils and NMFS have well-established structures and mechanisms for gathering and analyzing fishery information, both are familiar with characteristics of the regional fisheries for which they are responsible, and both are familiar to the stakeholders. However, areas for which an external review process might be helpful are (1) reviewing the information-gathering process and (2) reviewing the fishery management plans containing IFQ provisions before they are submitted to the Secretary for approval. Such an external review process could serve several functions: (1) assist the councils and NMFS in identifying the concerns of stakeholders and help direct efforts to gather information on these issues of concern; (2) ensure that the objectives identified by stakeholders are adequately addressed in the proposed program; and (3) provide recommendations to the proposing council if deficiencies or concerns about the proposed IFQ program are noted. Such an external review process could be useful to stakeholders only if it avoids unduly burdening or slowing the decisionmaking processes of the existing fishery management system. The value of an external review body would be to provide recommendations to the councils and NMFS on the development of programs, without requiring additional effort from the councils or NMFS, and to provide an independent, objective review before implementation of IFQs or some other form of limited entry. An external review panel could be organized as a group that understands a fishery but has no direct financial interest in it. Membership on such a panel could include members of the council's Scientific and Statistical Committee (for councils in which they are used), fishermen from other regions or from different fisheries who do not have a financial stake in the program being considered but are familiar with issues in the fishery, outside academics, and fishery managers from other regions or countries having familiarity with the issues and processes involved. Additionally, it might be helpful to include individuals from outside fisheries management to provide new perspec-

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--> tives to the councils and NMFS. This review process could help reduce future challenges to the program being established by providing an opportunity for an additional perspective that is not affected by the proposals being developed and considered. Another option would be to develop and manage IFQ programs through a subset of a council, rather than the entire council. This option could have several advantages, including freeing the council to concentrate on broader management issues and allowing the subgroup to work more quickly and with greater focus. Recommendation: The committee does not believe that creating an institution and process separate from the existing councils and NMFS to design, implement, and/or manage an IFQ program would best address the concerns of stakeholders. The major aspects of designing, implementing, and managing any potential IFQ program should remain within the purview of the regional councils and NMFS. The Secretary of Commerce should ensure that each fishery management plan that incorporates IFQs include enforceable provisions for the regular review and evaluation of the performance of IFQ programs, including a clear timetable, criteria to be used in evaluation, and steps to be taken if the programs do not meet these criteria. Provisions should be made for the collection and evaluation of data required for this assessment. The process could include review by external, independent review bodies. Finding: During its review, the committee found that as IFQ programs have been developed and implemented throughout the United States, the regional councils and NMFS have learned from the implementation of previous IFQ programs. In examining the evolution of IFQ programs nationally from surf clams/ocean quahogs to the proposed red snapper IFQ program in the Gulf of Mexico region and the sablefish IFQ program in the Pacific region, newer programs have been designed to avoid past difficulties. It appears that design features related to accumulation limits, transferability, leasing, quota shares for crew members, and other aspects have been modified based on observations of the effects of previous programs. However, the exchange of information among various regional councils, NMFS, and other interested stakeholders does not appear to be well coordinated. The committee could not find a centralized source of data describing the effects of existing programs. Although some of the programs have documented important aspects of their effects, such as the accumulation of quota share, the degree of transferability, and the geographical distribution of quota, these data are often difficult to obtain. It appears that in some IFQ programs, this lack of readily available information has contributed to the controversy surrounding the implementation and management of the program. With the exception of the Alaskan halibut and sablefish IFQ programs, there is no regular periodic review of the changes in trends in critical elements in the distribution of

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--> quota shares. In the IFQ programs reviewed, information concerning the trends in the price of quota shares appears to be lacking. Recommendation: Existing and future IFQ programs should provide an annual report describing trends in the fishery and the effects of the IFQ program on important management variables. Where possible, it would be worthwhile to examine how these variables have changed since implementation of the program. Factors in an annual review could include the number of quota shareholders, the distribution of quota shareholders among various sectors or vessel classes, changes in the number of vessels, changes in the number of crew members and their holdings of quota shares, and the trends in the price of quota shares over time. This report should be available to IFQ managers in other regions, as well as participants in the fishery and the general public, through the World Wide Web and other venues. Changes to Existing Programs Finding: Holders of quota shares in existing IFQ programs have often made major investments in purchasing IFQs and adjusting their business capital and practices to the IFQ program. For example, the committee received testimony from some Alaskan fishermen who received little or no initial allocation, subsequently invested in quota shares, and are concerned that their investments will be eroded by changes in the program that diminish the value of their quota share (e.g., increasing the quota share pool). Fishermen told the committee that they believe lending institutions will be less willing to make loans for purchases of IFQs if the programs are unpredictable. Recommendation: Councils should proceed cautiously in changing existing programs, even to conform to the recommendations of this report. In spite of initial windfall gains (or even in the absence of them), many individuals have made subsequent investments in quota shares. Changes should be designed to maintain the positive benefits of IFQs that result from their stability and predictability. One means to accomplish gradual change is through use of an Australian "drop-through" system (described in Box 5.2), with different conditions and requirements for each level. Every IFQ program should establish at the outset a process for the review and evaluation of the program and a mechanism for timely, nondisruptive, equitable consideration of program changes. The Magnuson-Stevens Act requires such procedures for review and revisions (Sec. 303[d][5][A]). The North Pacific Fishery Management Council, for example, has set up an annual management cycle for considering proposals for adjusting the IFQ programs for sablefish and halibut. Proposals are solicited in the summer, and the council decides in December of each year which proposed changes warrant further consideration. Recom-

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--> mendations for change also come from the council's Industry Implementation Workgroup, which assists the council in reviewing proposals and overseeing implementation. This process has led to changes such as the block "sweep-up" provision, allowing consolidation of smaller blocks of quota share into larger blocks. Evaluation should be focused on whether the IFQ program is meeting the biologic, economic, and social objectives of the program and the Magnuson-Stevens Act. Some committee members believe that the evolution of an IFQ program to feature broader participation and cooperative management should be one of the key objectives of the program's initial design. This process could be assisted by requiring holders of IFQs to participate in management decisions and to assume responsibility for some of the management functions, such as the observer program and dockside monitoring. The evaluation process could include criteria such as whether the holders of IFQs have acted together to address common concerns and objectives, for example, adopting experimental gear modifications to improve selectivity, or voluntarily closing areas. The Transition Process Findings: The transition from open-access conditions to IFQs can be eased by advanced planning and design. It is important to define the process for change in advance, so that fishermen who are considering investment in the quota share understand and can evaluate the terms of their investment. Recommendations: Several components of program design and implementation influence the effectiveness of the transition to IFQs, and some should be established prior to implementation of an IFQ program:  Output control—A TAC or some other form of output control is in place.  Moratorium—An effective moratorium on entry is in place (see below).  Consultation—All affected stakeholders are consulted on program design elements (e.g., initial allocation, transfer mechanisms, accumulation limit, cost recovery).  Control date—The control date is set as close as possible to implementation and adhered to.  Qualifying period—The qualifying period is of sufficient length to capture the relevant participation in the fishery with respect to the goals of the program. For example, the qualifying period could be set before the control date to reflect historic participation, or afterwards to reward clean fishing.  Program development—The program is developed and implemented as quickly as possible after the control date.  Initial allocation—An appeals process perceived to be fair and equitable is established.

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-->  Compensation—A plan is in place to compensate those who are excluded by the program or whose initial allocation is less than their historical level of participation.  Research monitoring and evaluation—Plans for funding and implementation of research, monitoring, and evaluation are embedded in program design. The committee received testimony indicating that the consideration of an IFQ or other limited access program can cause considerable speculative entry into a fishery. A first step in developing an IFQ program should be to ensure that speculative entry is prevented by limiting new participants. Removing those participants with recent and limited activity in the fishery, and preventing the reentry of latent permits (those permits qualified for use, but not currently being used) would be primary goals of a moratorium. Historical participants with a long history and current participation would continue in the fishery. Once a moratorium is in place and speculative entrants have been removed, the subsequent IFQ program can be established. It might be advantageous to begin using a combination of catch history, stewardship, or other criteria measured after a moratorium has been established rather than prior to it. One advantage of using catch history after the establishment of a license moratorium as a criterion is that all the participants would be using the same qualifying years for the allocation and would have similar conditions under which they are fishing. An additional advantage could be that stewardship criteria may be easier to incorporate after a license limitation and could be used as a complement to catch history in making allocation decisions. Establishing the criteria for determining initial allocation in the absence of speculative entry and with all fishermen operating under the same conditions could make the process of moving from an open-access regime to an IFQ program more lengthy. However, it is possible that defining all potential participants in the program first by limiting speculative entrants, and then gaining stakeholder support by developing criteria for measuring allocation for an IFQ program after this moratorium, could result in an improved transition. This mechanism would provide an opportunity for participants to improve their catch history, decrease bycatch rates, or make other adjustments in fishing practices to make them more likely to qualify for some, or a greater quantity of, the initial allocation.