Individual Fishing Quotas: Methods for Community Protection and  
New Entry Require Periodic Evaluation (24-FEB-04, GAO-04-277).	 
                                                                 
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.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-277 					        
    ACCNO:   A09344						        
  TITLE:     Individual Fishing Quotas: Methods for Community	      
Protection and New Entry Require Periodic Evaluation		 
     DATE:   02/24/2004 
  SUBJECT:   Federal legislation				 
	     Fishery legislation				 
	     Fishes						 
	     Fishing industry					 
	     Marine resources conservation			 
	     Program evaluation 				 

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GAO-04-277

United States General Accounting Office

GAO

                       Report to Congressional Requesters

February 2004

INDIVIDUAL FISHING QUOTAS

Methods for Community Protection and New Entry Require Periodic Evaluation

GAO-04-277

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

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.

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

o  	Develop clearly defined and measurable community protection and new
entry objectives.

o  	Build performance measures into the design of the IFQ program.

o  	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 [email protected].

February 2004

INDIVIDUAL FISHING QUOTAS

Methods for Community Protection and New Entry Require Periodic Evaluation

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.

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

                                       1

                                      3 5

                                       8

15

24 29 29 29

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             41 
                                       GAO Comments                        45 
       Appendix V         GAO Contact and Staff Acknowledgments            46 
                                       GAO Contact                         46 
                                  Staff Acknowledgments                    46 

  Tables

Table 1: Differences between U.S. IFQ Programs and Fishery Cooperatives in
Key Areas 25 Table 2: Leasing Fees under the Shetland Community Fish Quota
Scheme 35

  Figure

Figure 1: Fishing-centered and Multi-industry Fishing Communities 17

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

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separately.

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.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.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.

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

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

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.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,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:

o  	National Standard 1 requires that conservation and management measures
prevent overfishing while achieving, on a continuing basis, the optimum
yield from each fishery;

o  	National Standard 4 requires that conservation and management measures
not discriminate between residents of different states;

o  	National Standard 5 requires that conservation and management
measures, where practicable, consider efficiency in the use of fishery
resources; and

o  	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.

3Pub. L. No. 94-265 (codified as amended at 16 U.S.C. S:S: 1801-1883).
4Pub. L. No. 104-297 (1996).

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.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.

550 C.F.R. S: 600.345(b)(3).

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:

o  	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.

o  	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:

o  	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.

o  	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.

o  	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.

o  	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.

o  	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.

o  	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.

o  	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.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.

o  	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.

o  	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

6Dinneford, 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).

whether to continue to participate in the old system or move their quota
into a new system with different rules for another 30 years.

o  	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:

o  	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.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.

o  	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.

o  	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.

7For 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.

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.

o  	Loans. The Magnuson-Stevens Act allows NMFS to offer loans.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.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.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.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

12

2002.

o  	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

816 U.S.C. S: 1853(d)(4).

916 U.S.C. S: 1855(h).

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

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

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

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

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.

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

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.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.

o  	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.

o  	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

13In 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.

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:

o  	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.

o  	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.

o  	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.

o  	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 owneron-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 8year 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.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.

o  	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.

o  	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.

14Rock 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.

o  	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.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:

o  	The financial assistance may not be sufficient for a potential new
entrant to enter the fishery or buy enough quota to earn a living.

o  	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.

o  	Government entities may not be willing or able to fund economic
assistance programs.

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

    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.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

16In 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.

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 While both IFQ programs and fishery cooperatives
can vary widely, the Cooperatives Differ in general characteristics of IFQ
programs and fishery cooperatives differ in Several Respects 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 IFQ programs Fishery cooperatives

Regulatory and management framework  o  	Established (and terminated) by 
o  Established (and terminated) by regulations voluntary contractual
agreementsa

o  	Subject to fishery management council  o  Not subject to fishery
management process council process

Number of participants  o  Number may be large  o  Number generally small

Allocation and transfer of quota  o  NMFS allocates quota to eligible entities 
                    o  NMFS allocates quota to cooperative,

o  Quota traded on the open market which, through negotiated contract,

o  	New entry requirements established by allocates quota among members
regulation  o  Quota traded only within the cooperative

o  	New entry closed at cooperative's discretion

Monitoring and enforcement  o  	NMFS monitors individual participants  o 
NMFS monitors cooperative for for compliance with individual TAC limits
compliance with TAC limits and other program rules  o  NMFS enforces

o  	NMFS enforces  o  Cooperative monitors its members for compliance with
individual TAC limits and contract terms

o  	Cooperative members can bring legal action against another member for
breach of contract

Source: GAO's analysis.

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

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

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

18Some 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.

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:

o  	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.

o  	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.

o  	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:

o  	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.

o  	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.

o  	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.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.

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

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:

o  	Develop clearly defined and measurable community protection and new
entry objectives.

o  Build performance measures into the design of the IFQ program.

o  	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.

Anu K. Mittal Director, Natural Resources and Environment

                       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.

Appendix I: Scope and Methodology

We conducted our review from February through October 2003 in accordance
with generally accepted government auditing standards.

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:

o  	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.

o  	Emergency community quota allocations. Iceland allocates small blocks
of quota to communities hurt by the transfer of quota from their area.

o  	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-atsea), instead of participating in the IFQ system.

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

                                  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.1 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 Fishing is integral to the economy and culture
of Scotland's Shetland (United Kingdom) Islands. In 1999, the value of the
Shetland Islands' fishing industry accounted for approximately one-fifth
of the Shetland Islands' economy

1New 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.

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

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.2 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 fixedterm
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 Percent of quota                       Fee charged 
                  borrowed     already held (based on revenues from landings) 
                       100                0              6.0% of all landings 
                                         20       4.8% on 80% of the landings 
                                         50       3.0% on 50% of the landings 
                                         80       1.2% on 20% of the landings 

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

2The 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.

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

  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:

o  	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.

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

o  	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.

o  	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.

o  	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.

o  	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.

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. S: 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

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

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
catcherprocessor, and offshore mothership (large processing vessel).1 The
American Fisheries Act2 statutorily allocated the pollock fishery TAC
among these three sectors and specified the eligible participants in each
sector.3 The nine companies that operated the 20 qualified
catcherprocessor vessels formed the Pollock Conservation Cooperative in
December 1998.4 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

1The 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).

2Pub. L. No. 105-277, Division C, tit. II (1998).

3The 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.

4Four of the companies are also members of the Whiting Conservation
Cooperative.

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

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.

Appendix IV: Comments from the Department of Commerce

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

Appendix IV: Comments from the Department of Commerce

Appendix IV: Comments from the Department of Commerce

                                 See comment 1.

                                 See comment 2.

                                 See comment 3.

                                 See comment 4.

Appendix IV: Comments from the Department of Commerce

Appendix IV: Comments from the Department of Commerce

  GAO Comments

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.

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.

Appendix V: GAO Contact and Staff Acknowledgments

GAO Contact

  Staff Acknowledgments

(360297)

Keith W. Oleson, (415) 904-2218

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.

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