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Report to Congressional Requesters:

United States General Accounting Office:

GAO:

February 2004:

Individual Fishing Quotas:

Methods for Community Protection and New Entry Require Periodic 
Evaluation:

GAO-04-277:

GAO Highlights:

Highlights of GAO-04-277, a report to congressional requesters 

Why GAO Did This Study:

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.

What GAO Found:

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. 

What GAO Recommends:

GAO recommends that the Director of the National Marine Fisheries 
Service (NMFS) ensure that regional fishery management councils that 
are designing community protection and new entry methods for new or 
existing IFQ programs 

* 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.

www.gao.gov/cgi-bin/getrpt?GAO-04-277.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Anu Mittal at (202) 
512-3841 or mittala@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Methods Exist for Protecting Fishing Communities and Facilitating New 
Entry:

Community Protection and New Entry Methods Raise a Variety of Issues 
That Require Consideration:

IFQ Programs and Fishery Cooperatives Have Advantages and 
Disadvantages:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Descriptions of Selected Individual Fishing Quota (IFQ) 
Programs:

Appendix III: Descriptions of Selected U.S. Fishery Cooperatives:

Appendix IV: Comments from the Department of Commerce:

GAO Comments:

Appendix V: GAO Contact and Staff Acknowledgments:

GAO Contact:

Staff Acknowledgments:

Tables:

Table 1: Differences between U.S. IFQ Programs and Fishery Cooperatives 
in Key Areas:

Table 2: Leasing Fees under the Shetland Community Fish Quota Scheme:

Figure:

Figure 1: Fishing-centered and Multi-industry Fishing Communities:

Abbreviations:

IFQ: individual fishing quota: 
ITQ: individual transferable quota: 
IVQ: individual vessel quota: 
NMFS: National Marine Fisheries Service 
NOAA: National Oceanic and Atmospheric Administration: 
TAC: total allowable catch:

United States General Accounting Office:

Washington, DC 20548:

February 24, 2004:

The Honorable Olympia J. Snowe: 
Chairman: 
The Honorable John F. Kerry: 
Ranking Minority Member: 
Subcommittee on Oceans, Fisheries, and Coast Guard: 
Committee on Commerce, Science, and Transportation: 
United States Senate:

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.[Footnote 1] 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.[Footnote 2] 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.

Results in Brief:

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. 
Communities allowed to hold quota can decide how to use it to protect 
their economic viability by, for example, keeping the quota in the 
community and leasing it to local fishermen. Fishery managers can also 
help communities by adopting rules aimed at protecting certain groups 
of fishery participants. Under these rules, fishery managers can decide 
how quota is traded and fished in order to protect a particular group, 
such as fishermen with small boats. 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 to new entrants. Under quota 
transfer rules, fishery managers can, for example, place small amounts 
of quota in blocks and limit the number of blocks that an individual 
can hold, thereby making smaller amounts of quota available and more 
affordable to new entrants. Under set-aside methods, fishery managers 
can set aside a portion of the total quota to make a supply of quota 
specifically available for new entrants. Under economic assistance 
methods, government entities can provide low-interest loans, grants, or 
other subsidies to help new entrants obtain quota that they might not 
otherwise be able to afford.

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. Protecting communities 
and facilitating new entry are 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. Community protection and new entry 
methods also 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. 
Consequently, we are making recommendations to the Director of the 
National Marine Fisheries Service to ensure that fishery councils that 
are designing community protection and new entry methods include 
clearly defined and measurable objectives, build performance measures 
into the design of the IFQ program, and monitor whether the program is 
achieving its community protection and new entry objectives.

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, 
combining elements of both approaches can be beneficial. For example, a 
cooperative of IFQ quota holders can combine the stability of an IFQ 
program with the collaboration of a cooperative to help manage the 
fishery.

Background:

The Magnuson-Stevens Act provides for the conservation and management 
of fishery resources in the United States.[Footnote 3] 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,[Footnote 4] 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.[Footnote 5]

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.

Methods Exist for Protecting Fishing Communities and Facilitating New 
Entry:

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.

Methods for Protecting Communities:

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.

Methods to Facilitate New Entry:

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.[Footnote 6]

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.[Footnote 7] 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.[Footnote 
8] 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.[Footnote 9] According to the National Research Council, a 
registry would increase lender confidence and provide opportunities for 
individuals to obtain financing to enter IFQ fisheries.[Footnote 10] 
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.[Footnote 11] 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.[Footnote 
12]

* 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.

Community Protection and New Entry Methods Raise a Variety of Issues 
That Require Consideration:

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.

Community Protection and New Entry Methods Raise Concerns about 
Economic Efficiency and Equity:

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.

Designing and Implementing Community Protection Methods Presents 
Multiple Challenges:

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.

Figure 1: Fishing-centered and Multi-industry Fishing Communities:

[See PDF for image]

[End of figure]

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.[Footnote 13]

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.

New Entry Methods Present Design and Implementation Challenges:

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.[Footnote 14] 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.[Footnote 15] 
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.

Evaluations of Community Protection and New Entry Methods Would Enable 
Managers to Determine Their Effectiveness:

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.[Footnote 16] 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.

IFQ Programs and Fishery Cooperatives Have Advantages and 
Disadvantages:

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.

IFQ Programs and Fishery Cooperatives Differ in Several Respects:

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.):

Table 1: Differences between U.S. IFQ Programs and Fishery Cooperatives 
in Key Areas:

Key areas: Regulatory and management framework; 
IFQ programs: 
* Established (and terminated) by regulations; 
* Subject to fishery management council process; 
Fishery cooperatives: 
* Established (and terminated) by voluntary contractual agreements[A]; 
* Not subject to fishery management council process.

Key areas: Number of participants; 
IFQ programs: 
* Number may be large; 
Fishery cooperatives: 
* Number generally small.

Key areas: Allocation and transfer of quota; 
IFQ programs: 
* NMFS allocates quota to eligible entities; 
* Quota traded on the open market; 
* New entry requirements established by regulation; 
Fishery cooperatives: 
* NMFS allocates quota to cooperative, which, through negotiated 
contract, allocates quota among members; 
* Quota traded only within the cooperative; 
* New entry closed at cooperative's discretion.

Key areas: Monitoring and enforcement; 
IFQ programs: 
* NMFS monitors individual participants for compliance with individual 
TAC limits and other program rules; 
* NMFS enforces; 
Fishery cooperatives: 
* NMFS monitors cooperative for compliance with TAC limits; 
* NMFS enforces; 
* Cooperative monitors its members for compliance with individual TAC 
limits and contract terms; 
* Cooperative members can bring legal action against another member 
for breach of contract. 

Source: GAO's analysis.

[A] Certain aspects of the pollock cooperative are governed by the 
American Fisheries Act. For specific information on the whiting and 
pollock cooperatives, see appendix III.

[End of table]

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.[Footnote 17] In both cooperatives, the participants are 
large harvesting and processing companies that own catcher-processor 
vessels.[Footnote 18]

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.

A Combined Approach May Provide Benefits in Some Cases:

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.[Footnote 19] 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.

Conclusions:

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.

Recommendations for Executive Action:

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.

Agency Comments and Our Evaluation:

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.

Signed by: 

Anu K. Mittal 
Director, Natural Resources and Environment:

[End of section]

Appendix I: Scope and Methodology:

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.

[End of section]

Appendix II: Descriptions of Selected Individual Fishing Quota (IFQ) 
Programs:

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).

Iceland:

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.

New Zealand:

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.[Footnote 20] 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.

Shetland Islands, Scotland (United Kingdom):

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.[Footnote 21] 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.

Table 2: Leasing Fees under the Shetland Community Fish Quota Scheme:

Percent of quota borrowed: 100; 
Percent of quota already held: 0; 
Fee charged (based on revenues from landings): 6.0% of all landings.

Percent of quota borrowed: 80; 
Percent of quota already held: 20; 
Fee charged (based on revenues from landings): 4.8% on 80% of the 
landings.

Percent of quota borrowed: 50; 
Percent of quota already held: 50; 
Fee charged (based on revenues from landings): 3.0% on 50% of the 
landings.

Percent of quota borrowed: 20; 
Percent of quota already held: 80; 
Fee charged (based on revenues from landings): 1.2% on 20% of the 
landings. 

Source: GAO analysis of Shetland Fish Producers' Organization data.

[End of table]

U.S. Mid-Atlantic Surfclam/Ocean Quahog IFQ Program:

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.

U.S. Alaskan Halibut and Sablefish IFQ Program:

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.

[End of section]

Appendix III: Descriptions of Selected U.S. Fishery Cooperatives:

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.

Whiting Conservation Cooperative:

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.

Pollock Conservation Cooperative:

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).[Footnote 
22] The American Fisheries Act[Footnote 23] statutorily allocated the 
pollock fishery TAC among these three sectors and specified the 
eligible participants in each sector.[Footnote 24] The nine companies 
that operated the 20 qualified catcher-processor vessels formed the 
Pollock Conservation Cooperative in December 1998.[Footnote 25] 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.

[End of section]

Appendix IV: Comments from the Department of Commerce:

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix.

UNITED STATES DEPARTMENT OF COMMERCE 
The Under Secretary of Commerce for Oceans and Atmosphere 
Washington, D.C. 20230:

Ms. Anu K. Mittal 
Director, Natural Resources and Environment 
United States General Accounting Office 
Washington, D.C. 20548:

Dear Ms. Mittal:

Thank you for the opportunity to review and comment on the General 
Accounting Office's draft report entitled, "Individual Fishing Quotas: 
Methods for Community Protection and New Entry Require Periodic 
Evaluation," GAO-04-277. Enclosed is the National Oceanic and 
Atmospheric Administration's comments on the draft report.

These comments were prepared in accordance with the Office of 
Management and Budget Circular A-50.

Sincerely,

Signed by: 

Conrad C. Lautenbacher, Vice Admiral, U.S. Navy (Ret.)
Under Secretary of Commerce for Oceans and Atmosphere:

Enclosure:

NOAA Comments on the Draft GAO Report Entitled:

"Individual Fishing Quotas: Methods for Community Protection and New 
Entry Require Periodic Evaluation" (GAO-04-277/February 2004):

Recommended Changes for Factual Information:

NOAA finds that the draft GAO report on individual fishing quotas 
(IFQs) was well researched through field trips and literature searches 
and did not contain any significant errors of factual information.

General Comments:

The draft GAO report on IFQs does a fair and thorough job in assessing 
community protection and new entrant issues in IFQ programs. The 
report's discussion of the various methods available to the Regional 
Fishery Management Councils (hereafter referred to "Councils") and the 
Secretary of Commerce as delegated to the National Marine Fisheries 
Service (hereafter referred to "NOAA Fisheries") to achieve these 
objectives is generally well-informed, thorough, and balanced. At the 
same time, the draft report seems to draw almost exclusively from 
information on programs in Alaska, New Zealand, and Iceland, while the 
United States also has IFQ programs in the Mid-Atlantic and South 
Atlantic. In addition, the Gulf of Mexico Fishery Management Council 
has worked for years on an IFQ program in the red snapper fishery. 
Finally, the draft report did not review the British Columbia (Canada) 
individual vessel quota program for Pacific halibut, which served as a 
model for the Alaskan halibut and sablefish IFQ program.

NOAA believes that the most important sections of the report deal with 
remedial measures and the issues raised by these programs. There are 
many methods of dealing with community protection and new entrants, and 
practically all of them present a host of policy and implementation 
issues. The most serious issue is the tension that many of these 
protective measures create between economic efficiency and social 
equity. Notably, the draft report acknowledges that managers will have 
a difficult time choosing between the two goals, in large part, because 
the practical outcomes of proposed measures may be unknown. In light of 
all these uncertainties, the draft report correctly avoids endorsing 
any specific policy or course of action, but calls instead on NOAA 
Fisheries and the Councils to develop more clearly defined objectives, 
to build performance measures into IFQ programs, and to monitor 
progress. Given all the questions attached to the proposed remedies, 
NOAA Fisheries finds that these kinds of recommendations are probably 
as far as we can go at the present time and in the foreseeable future.

Specific Comments:

Page 6, bulleted list:

The list of National Standards could be expanded by adding National 
Standards 7, 9, and 10 (dealing respectively with cost minimization, 
by-catch, and safety-at-sea), which also have implications for IFQ 
programs.

Page 7, paragraph 1:

At the end of the first paragraph, add the following: "Additionally, 
NMFS is preparing a draft proposed rule to implement a Council 
recommendation to include the guided sport sector in the commercial 
halibut IFQ program (this is the first known application of an IFQ 
program to a sport fishery). Up to two percent of the combined 
commercial and guided sport halibut quota will be set aside for certain 
Gulf of Alaska coastal communities for two years to encourage 
development of additional guided sport operators.":

Page 8, paragraph 1, line 2:

Note that the fishing season was increased to eight (not ten) months. 
It has since been expanded by an additional two weeks.

Page 18, bottom of page:

Footnote 13 is not completely accurate. The North Pacific Council, 
while managing fisheries in waters off one state (Alaska), still 
manages access by fishermen from other states (e.g., Washington).

NOAA Response to GAO Recommendations:

The GAO report states, "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 direct regional 
fishery management councils that are designing community protection and 
new entry methods to take the following three actions:":

NOAA Response: NOAA agrees in substance with this recommendation, but 
notes one important point relating to the relationship between NOAA 
Fisheries and the Councils. The current obligations of the Councils 
with respect to fishing communities and new entrants in IFQ programs 
are spelled out in the Magnuson-Stevens Fishery Conservation and 
Management Act (MSA), especially in sections 301(a)(8) and 303(d). NOAA 
Fisheries can only "direct" the Councils to develop plans that are in 
conformity with the MSA and other applicable law. Conversely, the 
Councils cannot be directed to undertake actions that are not mandated. 
However, it should be noted that the Administration's June 2003 MSA re-
authorization proposal would require new Council IFQ programs to the 
extent practicable to maintain the basic cultural and social framework 
of the fishery and the sustained participation of dependent fishing 
communities. The proposal also includes requirements for measures to 
assist participation of entry-level and small scale fishermen, 
captains, and crew, and provisions for the regular review and 
monitoring of program operations. These proposed legislative 
requirements are consistent with the intent of the GAO recommendations.

Recommendation 1: "Develop clearly defined and measurable community 
protection and new entry objectives.":

NOAA Response: NOAA agrees that management objectives are important and 
should be used as much as possible as yardsticks in developing IFQ 
programs. However, "clearly defined and measurable... objectives" are 
often hard to identify. Objectives may vary from one IFQ program to 
another (a fact noted in the draft report's discussion of the surfclam/
ocean quahog and Alaskan halibut/sablefish programs), and measurable 
objectives require data that are not always available or regularly 
collected. NOAA Fisheries will formally request that all Councils 
preparing new IFQ programs include clearly defined and measurable 
objectives that address community protection and new entrants:

Recommendation 2: "Build performance measures into the design of the 
IFQ program.":

NOAA Response: NOAA agrees with this recommendation and will formally 
request that all Councils preparing new IFQ programs include 
performance measures in the design of these programs. A critical task 
will then be the selection of feasible and appropriate performance 
measures. "Performance standards" already exist in the Alaskan halibut 
and sablefish IFQ program and the western Alaska and community 
development quota (CDQ programs. However, it is not clear that these 
"performance standards" are the same as "performance measures" proposed 
by GAO. More fundamentally, the term "performance measures" could be 
used, perhaps inappropriately, as yardsticks to judge the success or 
failure of IFQ programs. For example, performance measures could place 
too much responsibility on IFQs for changes in the structure of fishing 
communities that were brought about by other factors. Finally, 
performance measures may be a crude and inexact way to distinguish 
between efficiency and equity objectives. For example, measures to 
protect communities and facilitate new entrants may succeed, but at the 
expense of excessive lost efficiency.

Recommendation 3: "Monitor progress in meeting the community protection 
and new entry objectives.":

NOAA Response: NOAA agrees with this recommendation and notes that 
provisions for the monitoring and review of new IFQ program operations 
are addressed in the Administration's MSA re-authorization proposal. 
NOAA will write to the Councils, formally urging them to implement this 
recommendation.

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.

GAO Comments:

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.

[End of section]

Appendix V: GAO Contact and Staff Acknowledgments:

GAO Contact:

Keith W. Oleson, (415) 904-2218:

Staff Acknowledgments:

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.

FOOTNOTES

[1] These programs are frequently called individual transferable quota 
(ITQ) programs. 

[2] U.S. General Accounting Office, Individual Fishing Quotas: Better 
Information Could Improve Program Management, GAO-03-159 (Washington 
D.C.: Dec. 11, 2002).

[3] Pub. L. No. 94-265 (codified as amended at 16 U.S.C. §§ 1801-1883).

[4] Pub. L. No. 104-297 (1996).

[5] 50 C.F.R. § 600.345(b)(3).

[6] Dinneford, E., K. Iverson, B. Muse, and K. Schelle, Changes Under 
Alaska's Halibut IFQ Program, 1995 to 1998, Abstract, Alaska Department 
of Fish and Game, Commercial Fisheries Entry Commission (November 
1999). 

[7] For example, the Clean Air Act provides for the Environmental 
Protection Agency to withhold a proportion (2.8 percent) of utilities' 
annual sulfur emissions allowances and offer a portion of them for sale 
in an auction, and to set aside another portion for direct sale at a 
price specified in the statute.

[8] 16 U.S.C. § 1853(d)(4).

[9] 16 U.S.C. § 1855(h).

[10] National Research Council, Sharing the Fish: Toward a National 
Policy on Individual Fishing Quotas (Washington, D.C.: National Academy 
Press, 1999), 8.

[11] Lenders file against identifiable groups of quota shares and not 
against quota holders.

[12] More than one person may have reported an interest against the 
same group of quota shares.

[13] In December 2003, legislation was introduced in the New Zealand 
Parliament that, among other things, sets out the allocation formula to 
be used to allocate quota to the Maori tribes.

[14] Rock lobster traditionally sells for high prices, particularly in 
the large Asian market. However, the Asian market price temporarily 
collapsed in 2003 when the Severe Acute Respiratory Syndrome epidemic 
broke out and fewer Asians were eating in restaurants.

[15] As we noted previously, the Magnuson-Stevens Act's limitation on 
fees may effectively preclude auctions.

[16] In particular, National Standard 8 of the Magnuson-Stevens Act, as 
amended by the Sustainable Fisheries Act, 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 fishing communities, and to the extent 
practicable, minimize adverse economic impacts on fishing communities. 
A fishing community, in turn, is defined as one that is substantially 
dependent on or engaged in the harvesting or processing of fishery 
resources to meet social and economic needs.

[17] Nine companies formed the Pollock Conservation Cooperative. One 
company later transferred its allocation to other member companies.

[18] Some cooperatives have more participants. In 2002, for example, 77 
permit holders in the state of Alaska's Chignik salmon purse seine 
fishery joined a cooperative to fish sockeye salmon.

[19] These organizations can also have members who do not hold quota, 
such as fish processors and exporters.

[20] New Zealand allows individuals to buy or sell an annual catch 
entitlement (ACE). This trading of ACE is theoretically equivalent to 
leasing quota for 1 year.

[21] The European Union found that parts of this scheme were 
noncompliant, largely because it gives preferential treatment to 
Shetland fishermen. Fishery managers are currently working to modify 
the scheme in order to continue community ownership of quota.

[22] The inshore sector is comprised of catcher vessels harvesting 
pollock for processing plants located on or near the shore. The 
offshore catcher-processor sector is comprised of catcher-processor 
vessels (vessels that both catch and process pollock) and catcher 
vessels catching pollock for processing by catcher-processors. The 
offshore mothership sector consists of catcher vessels harvesting 
pollock for processing by motherships (large vessels that process but 
do not catch fish).

[23] Pub. L. No. 105-277, Division C, tit. II (1998).

[24] The inshore sector received 50 percent of the directed fishing 
allowance; the offshore catcher-processor sector received 40 percent; 
and the offshore mothership sector received 10 percent.

[25] Four of the companies are also members of the Whiting Conservation 
Cooperative.

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