14/01/98

Dear Sir,

Thank you for your letter of 8 December 1997. Thank you for the consideration that it entails. I believe it is possible to evolve something that meets all needs, and to do so will require some flexibility from all parties. Again I am making this an open letter in the interest of rapid full consultation.

Your key concern is sustainability, and the need for all catch to be covered by ACE.

Industry's concern is that the system be flexible enough to allow people committed to working within the system to do so consistently (given the range of unknowns and random chance involved in fishing). How can taking a fish from the water on Friday the 30 September be a crime against sustainability punishable by loss of business, whereas taking the fish on Saturday the 1^st October is fine - no sustainability concerns. Such rigidity makes no common sense. Section 71 of the 96 Act has far reaching implications, effectively nullifying any defence offered by payment of Deemed Value. That aspect makes the 96 Act orders of magnitude more rigid and inflexible than the 83/86 Act and its amendments.

We all agree that sustainability is our overarching goal.

When you look closely at the 96 Act, it imposes much tighter restraints on catch than the earlier legislation, but still gives an alternative to using ACE, in the payment of Deemed Values and in the By-Catch Trade Off mechanism.

The Associated Species Balancing mechanism, as proposed in my last letter, would provide the flexibility industry needs, but still offers an alternative to using appropriate ACE.

Reading your letter a new possibility occurred as to how we could meet your objectives and industry's. It is not possible to meet both exactly as formulated, but something very close is possible (something much closer than the 1996 Act).

It would be possible to set TACCs on an annual basis, and to ensure that all catch is covered by ACE (usually, though not necessarily, from ACE generated in the year the catch was taken).

This new possibility involves relatively minor modifications to existing structures. Most stay as already suggested:

• ACE would be generated as currently specified in the Act.
• Carry forward would be reinstated - to give fishers most of the operational flexibility they have (under the 83/86 Act) and need (at 20% of ACE held).
• Fishers would need to demonstrate a commitment to balancing by holding a portfolio of ACE at each balance date the value of which equalled or exceeded the value of their Catch for the year to date. {From the Associated Species Balancing mechanism.} Failure to do so to result in suspension of permit, and issue of Deemed Value Invoice.

• At the end of the year fishers would still have a requirement to balance all catch with appropriate ACE.
• Any Catch for which appropriate ACE is not held is carried forward into the next year as an opening balance.
• If overfishing occurred a Deemed Value invoice is raised (once only at the end of year), 80% of which is refundable as ACE is acquired. (If the fisher already has the ACE in their portfolio for the next year, then they simply incur the 20% penalty fee on that portion). A further charge of 10% on any outstanding balance is levied every 6 months. These charges are non-refundable and go to the research fund for that stock.

These new aspects create a very stable system.

• It provides strong incentives to ensure that all catch is covered by appropriate ACE, and is the best system yet in terms of minimising risk to sustainability. (It is always possible & profitable to balance catch with appropriate ACE, and always most profitable to do so with ACE of the appropriate year).
• These elements provide commercial fishers with the flexibility they need to work in an environment that will always have unpredictable aspects.
• It keeps people who are committed to working within the system outside of criminal law.
• It places the penalties on the transgressor, and directly rewards those who are working within the system (reduced research fees).
• It is simple to administer.

It does have one fundamental flaw from an operational perspective.

• It is a system that could strongly favour larger operations, and discriminate against smaller operators in mixed stock fisheries. The study of statistics shows that smaller samples are much more prone to large variation than larger samples. Smaller operators are more likely to need the flexibility of a By-Catch Trade Off mechanism than larger operators. Having the mechanisms described above should go a long way to ensuring a free market in ACE, but it is still very possible for major ACE holders in key by-catch stocks to extract huge premiums, or to force smaller operators out of business. {One could see this as a legitimate market force toward more selective harvesting technology, or as extortion; it very much depends on one's place in the equation.} Perhaps retaining a By-Catch Trade Off for those with less than 5% of the TACC may need to be considered, as an option of last resort if the market fails (ie available only after the end of the year). Just having it there may provide sufficient pressure to keep the market working.

As mentioned above, the implications of section 71 makes the 96 Act far more onerous than one might believe at first glance. When one is dealing with outcomes that always have an unpredictable element, what is reasonable?

When one has to deal with the range of possible permutations of unpredictable elements across a range of stocks, the bounds of reasonableness get stretched quite rapidly - depending on perspective. What may look very reasonable to a fishery officer can appear quite unreasonable to a fisher, and vice versa. Much better if we have a system that copes with that internally, rather than resorting to getting a determination from the courts.

I realise that this is a complex issue.

It does however appear irrational to have B_msy as both the "target" and the "bottom line". That makes an assumption of absolute knowledge and absolute control.

To my mind it makes much more sense to have B_msy as the target, and something like 30% B_msy as the bottom-line. We can then design controls that can have effective feedback loops. It is impossible to construct an effective feedback control that turns off when it goes fractionally below its optimum. It simply does not make sense, in logic, mechanics or mathematics.

If we have B_msy as the optimal target, we can design systems to always have some pressure pushing towards that target, but to allow operation below it without catastrophic "cut-off".

Under such a scenario, we could have mixed stock fisheries where the pressures are there to encourage people to avoid catching a stock, while accepting that with current technologies some excess catch is inevitable in some few stocks. In this fashion technology can evolve, and systems can become more responsive. The alternative "cut-off" approach destabilises and prevents investment (introduces a high risk to investors), and so actually works against sustainability in the longer term.

I acknowledge that there are trade-offs from each perspective, and what we need is a system that encourages and rewards innovation and adaptation towards our targets, not one which penalises catastrophically on the basis of random fluctuation.

This is more of a side issue, but an important one.

I raised two issues that were not addressed in your reply.

• The first is a conceptual problem inherent in contestable research. If the only funding for science is contestable, and is based on the number an strength of arguments put up to investigate issues, then the incentives are for scientists to generate more issues, and more justifications (thus ensuring more funds - conservatism is profitable, pragmatism a liability). It is a rather counter productive loop. I don't have a simple solution, just raising the flag on a point of concern (as a trained scientist, and self-taught economist).
• The second aspect had to do with the use of remote controlled equipment to measure, tag and release fish at depth, rather than bringing them to the surface. It appears the most promising way of getting some hard research data for multiple stocks. It requires sensors to detect tagged fish at all major processing sites, but that isn't a prohibitive cost. Just flagging another possibility for serious consideration.

I realise the vision of a "standards only" Act may be a wee way off, and it is still an objective worth working towards. We may find that we can make remarkable progress in a short time, if we look for the opportunities.

Thank you for your consideration. I trust this ongoing dialogue will have productive practical outcomes.

Yours truly,

Ted Howard