In the detailed critique of the Minister's letter of 8 December 1996, the lack of agreement on principles for the balancing regime was highlighted. Here are proposed modifications to the principles that are workable, and can produce effective outcomes. Bits removed are struck out, and additions are highlighted in blue italic, and detailed explanation follows.

The original set of principles used by the Ministry was founded on the notion that fisher's know what they are going to catch before they catch it. That notion has no basis in reality. Fishers can influence the outcome of their fishing activity, but not control it. The difference is fundamental.

The degree of randomness is so great that any attempt to allow for it must necessarily nullify the initial assertion that fishers can control what they catch. The result of trying to sort out in court what element was deliberate and what was random, would lead to frustration of all parties.

The 1983/86 legislation started out with this assertion, and required so many changes and defences that the initial assertion was countered in practice, and extreme administrative complexity was the result.

A workable evolution is to have a balancing regime that requires all parties to balance by the end of the year (without penalty) or at some later time (with a continuing penalty). Such a system requires inter-year flexibility to allow fishers to cope with the inherent uncertainties at all levels of fishing. Reinstatement of the 20% carryforward of un-used ACE (one of the foundation principles of the ACE regime) is an essential first step in this regard.

If we are to remove Deemed Value payment as a defence (because there is no crime), and instead have it as a bond against future acquisition of ACE, and require all Catch to be balanced with appropriate ACE, then a further level of flexibility (with a strong penalty attached) is required. This would allow fishers to have an "Overdraft" facility on ACE from future years (ie carry their unbalanced catch forward), but would charge for the privilege. The charge would need to be proportional to usage, and might be set at zero for quantities under 100Kg, and at higher rates for higher quantities or for stocks under threat. In my response to the Minister's letter I suggested a rate of 20% of Deemed Value, with an ongoing 10% of Deemed value every 6 months. This could be increased substantially if individuals exceed say 10% of their ACE holdings for that stock, and there was any perceived threat to the stock. The incentive must be strong to balance with the appropriate ACE in a short time frame (thus mitigating any sustainability issues), and give sufficient flexibility to allow individuals to work with the unpredictable reality they face, without incurring criminal liability.

A balancing regime with these principles has some realistic chance of success:

1. Secure sustainability by ensuring:

• removals do not exceed TACCs on an annual basis; and all catch is covered by ACE for the appropriate stock (usually though not necessarily of the same year);
• systems developed are operationally simple, and encourage a high level of voluntary compliance; and
• where TACCs are exceeded, the costs to society of that overfishing are imposed upon the responsible fishers.

2. Enhance the value of individual property rights in the stock (linked to incentives for husbandry) through:

• secure perpetual rights in the stock;
• ability for quota owners to act collectively;
• enforceability/effective controls to ensure catch does not exceed each fisher's catching rights each fisher's catch is balanced by the fisher's catching rights;
• unimpeded transferability to enable the efficient use of the resource; and
• recognising that harvesters need to acquire an appropriate portfolio of ACE to encompass likely catch mixes a substantive portfolio of ACE of a likely catch mix to demonstrate commitment to balancing Catch with ACE (and to mitigate risks to sustainability).

3. A system that:

• is operationally practical;
• is administratively practical;
• is cost effective;
• internalises the costs in a fair an equitable manner;
• has a high level of voluntary compliance; and
• minimises the role of Government while ensuring public outcomes are achieved.

The changes proposed to these principles and objectives are explained below.

1. Secure sustainability by ensuring:

• removals do not exceed TACCs on an annual basis; and all catch is covered by ACE for the appropriate stock (usually though not necessarily of the same year);

• Fishing is a highly uncertain activity. Many factors contribute to a fisher's inability to predict the results of their actions when they place their nets, lines, or traps in the water. Advances in fishing technology have incrementally improved the accuracy of fisher's predictions, but have not yet removed all doubt. Complete control of what is caught may be technically possible in the not too distant future, but is prohibitively costly at this time, and in the short and medium term future. Therefore, it is unrealistic to expect fishers to be able to catch an exact amount of fish and no more.
• Given the twin needs for effective limits on catch to ensure sustainability; and operational flexibility to ensure voluntary compliance, we absolutely require mechanisms that produce both outcomes. Unrealistic expectations do not help. Any system developed must acknowledge what fishers can do, and what they cannot do. Penalties must be sufficiently harsh to prevent exploitation, but limits must be sufficiently flexible to allow all those who are committed to working within the system to do so at low risk (to themselves and the fishery).

• systems developed are operationally simple, and encourage a high level of voluntary compliance; and

• Operation simplicity must not be confused with internal simplicity. A fuel-injected turbo, automatic car with ABS braking is operationally simple to administer - it has accelerator, brake and steering wheel. It is not internally simple. Internally it is a technical masterpiece of engineering elegance and complexity. It is very easy to drive.
• Similarly in considering the internal control mechanisms required to make a quota management system stable, we need simplicity of control and outcomes, not necessarily simplicity of the internal mechanisms that turn those control inputs into effective outcomes.
• Ideally the legislative focus should be only on the inputs and outputs, and leave the technicians to sort out the best mechanisms. Government doesn't legislate the design of turbo chargers, or ABS microchip control mechanisms. Government legislates speed limits, maximum exhaust emission levels and minimum braking effectiveness.
• Government needs to ensure that TACCs are set, and that the control mechanisms used effectively keep catches within those limits, and thus ensure sustainability. Government doesn't want, and doesn't need to know how that is done. How it is done needs to be created by the experts in the field who actually know what they are dealing with, what the limits of their knowledge are, and what are achievable and cost effective options. That sort of detailed knowledge cannot be communicated to non-experts easily. Things can only be examined on their technical merit, then proven or disproven in actual usage.

• That inter year flexibility in the TACC has no significant sustainability issues has been proven in 12 years experience of running the Quota Management System with 10% over and 10% under fishing rights.
• 12 years of the QMS has also shown that a Quota before fishing regime doesn't work; as defences and alternatives have been added to the 1983/86 legislation to make it workable, and a retrospective balancing regime in practice.
• 12 years of QMS experience has also shown that administrative complexity helps no-one, and is a greater liability to the crown than it is to industry (who can handle it if it provides operational effectiveness).

• Either we face these realities, and learn their lessons now. Or we repeat the mistakes, and generate an even larger fiasco of legislative and political turmoil.

2. Enhance the value of individual property rights in the stock (linked to incentives for husbandry) through:

• […]
• enforceability/effective controls to ensure catch does not exceed each fisher's catching rights each fisher's catch is balanced by the fisher's catching rights;

• The only way to always have catch balanced by Quota rights is to have flexibility both ways. For flexibility gained by savings made - ie ACE not caught, there should be no cost. If the limit on this amount is moderate (20% of ACE holdings), then biological gains exceed risks - there is net benefit. The fish have been in the water a few weeks longer, and a few more have had the chance to breed. If more catch has been accidentally taken than ACE was held for, then there is an increase in risk to sustainability. That increase in risk will be very small, but under this model we need strong incentives in place to ensure that catch is always quickly covered by appropriate ACE.
• If the incentive is to be "to land" rather than "to dump", these incentives need to be reasonable. Hence the figure of 20% of DV (or bond), with continuing 6 monthly charges for any remaining imbalance. These are consistent with the notions of interest used by institutions such as IRD, and appear to be effective tested, practical, mechanisms.
• Enforceability is gained by the automatic suspension of permits for those who refuse to work within these rules. Commercial fishing without a permit is clearly a major criminal offence. This approach to enforceability is much easier for compliance officers to administer.
• Effectiveness is gained because there is a clear distinction between the legitimate fisher and the criminal. In the current situation all fishers are contingent criminals, and most people object to it on principle. The level of voluntary compliance achieved in the current regime is a testament to the essential good character of most human beings. Do not expect it to continue if the balancing regime of the 1996 Act is ever activated.

• […]
• recognising that harvesters need to acquire an appropriate portfolio of ACE to encompass likely catch mixes a substantive portfolio of ACE of a likely catch mix to demonstrate commitment to balancing Catch with ACE (and to mitigate risks to sustainability).

• The notion introduced in the paper on Associated Species Balancing of not issuing monthly Deemed Value invoices if the fisher has a substantial value of ACE portfolio at the balance date, and suspending the permit of anyone who fails to have a substantive portfolio at any balance date, produces operational simplicity for most people as they don't have to worry about monthly invoices and rebates. Most people intend to work within the system, and are free to go about their business, provided they balance by the end of the year. Those who fail to meet this simple requirement must contend with the consequences.

• This substantially reduces risk to sustainability by constraining total catch. Risk to individual stocks is limited by the incentives and constraints described above.
• The simplification in operational administration, with the reduced number of Deemed Value invoices issued, and refunds required, will be a huge administrative saving.

3. A system that:

• is operationally practical;

• Any system must face the acid test of reality. That reality has many factors:

• Stock Sustainability;
• Uncertainties of catch mix;
• Unpredictable environment;
• High cost of labour.

• Any practical system must produce workable outcomes in this environment - even better if it is simple to use.
• A practical system will produce sustainability and encourage profitable fishing operations.

• is administratively practical;

• Practical administration requires a close match between the principles employed, the reality faced, and the outcomes desired. Focusing on any one of these to the detriment of any other will result in increasing administrative complexity leading on to complete system failure.
• The 1996 Act is already producing levels of administrative complexity as great or greater than the 1983/86 Act. This is indicative of the mismatch between principle and practice. Unless this mismatch is addressed, we face complete system failure.

• […]

The intense focus of Ministry policy to reduce the risk to Ministry personnel and to the Crown is understandable. This focus to the point of detachment from reality, and from operationally achievable objectives is potentially catastrophic.

We need to reduce the role of and the risk to the crown.

We also need objectives that are achievable.

It would be great to gain some operational simplicity.

The only hope of achieving this is to agree on the fundamental principles, and the practical outcomes, then have experts from all disciplines working closely together to produce the best possible mechanisms for achieving them.

Any attempt to legislatively define the mechanisms between principles and outcomes is doomed to failure. The time pressures on all people involved in that political process simply don't allow for an understanding of the detail of issues required to produce effective mechanisms. The political process is also too slow to allow for the element of trial and error that always occurs at some level of project implementation.

There is much in the 1996 Act that is progressive. There are even parts of the balancing regime that are a step forward. But the mismatch of parts, and the lack of a clear set of agreed objectives makes the 1996 Act unworkable in its current form.

Ted Howard Jan 28 1998