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Proceedings of the Standing Senate Committee on

Issue 6 - Evidence

OTTAWA, Thursday, March 20, 1997

The Standing Senate Committee on Fisheries met this day at 9:30 a.m. to consider the questions of privatization and quota licensing in Canada's fisheries.

Senator Gérald J. Comeau (Chairman) in the Chair.


The Chairman: With us this morning is Dr. Quentin Grafton, Professor of Economics at the University of Ottawa.

Please proceed, sir.

Mr. R. Quentin Grafton, Department of Economics, University of Ottawa: I would like to thank the Senate for inviting me here today to make a presentation on fisheries policies. I will be talking a little bit more in terms of fisheries policy in general, and not only on quota licensing and the use of private property rights to deal with the problems that Canada faces in its fisheries.

I would like to begin with some quotations from some noted experts in terms of Canadian fisheries. I would like to quote from Peter Pearse. In 1982, he was head of the Commission on the Pacific Fisheries Policy, which was dealing with the problems in the salmon fisheries back in the early 1980s. I will quote from Peter Pearse.

We have some of the world's most valuable fish resources, they are capable of yielding great economic and social benefits; yet many commercial fishermen and fishing companies are near bankruptcy, sport fishermen and Indians are preoccupied with declining opportunities, and the fisheries are a heavy burden on Canadian taxpayers.

A more recent quote is from Richard Cashin, who is head of the task force on incomes and adjustment in the Atlantic fishery that was formed in response to the crisis in the collapse of the groundfish stocks in Atlantic Canada.

We are dealing here with a famine of biblical scale -- a great destruction. The social and economic consequences of this great destruction are a challenge to be met and a burden to be borne by the nation.

Finally, I would like to quote from the Fraser River Sockeye Public Review Board, which was chaired by John Fraser. more 12-hour opening could have virtually eliminated the Late run of sockeye in the Adams River. Such an occurrence would have devastating consequences for the Pacific fishery... Unless all parties work together and manage more competently, the tragedy that befell the Atlantic cod fishery will repeat itself on the West coast.

These quotations of the past few years illustrate the crisis or the challenges that we face in terms of Canadian fisheries. I am very pleased today to make a presentation to this committee to further the debate on what should be done and what are the problems in Canadian fisheries.

I would like to start off by saying that this is a joint presentation by myself and Professor Daniel Lane of the Faculty of Administration of the University of Ottawa.

For us to be able to talk about the solutions, I think it is worthwhile to review some of the major problems in Canada's fisheries. I know the senators are familiar with these problems. I would like to review them from my own perspective. First of all, I would like to emphasize that Canadian fisheries are important. They are not just important to Newfoundland; they are important to Canada as a whole. They employ directly and indirectly about 165,000 people, and in 1993 the landed value was approximately $3 billion.

Further, employment in the fisheries is extremely important in some small communities on the Pacific and the Atlantic coast. I cannot stress how important Canadian fisheries are to Canada as a whole and to these communities.

If we want to get a handle on the state of Canada's ocean fisheries, it is important to understand the common pool problem. The common pool problem is this: One fisher's harvest or yield from the resource reduces the harvest or yield of other fishers. In a sense, there is a rivalry between fishers. There is a total harvest that is available to be caught and that is determined by the providence of nature. Fishers themselves will try to do the best they can for themselves individually. This rivalry can lead to overexploitation of the resource, and in the absence of any controls, what one will find in general is economic and biological overexploitation.

This has been well known for decades, and Canada has tried to address these problems by instituting what is called limited entry, the restriction of entry into fisheries to prevent the biological overexploitation. Unfortunately, limited entry, although it might limit the number of fishers and vessels, does not change the incentives of fishers. Namely, if I wish to catch more fish, I must do something better than the next fisher. How do I do that? I invest in a vessel or gear or whatever I do to be better than the next person. The next person has the same attitude; there is a rivalry again.

This does not necessarily result in biological overexploitation if there is a limit on the total harvest. What it does result in is economic overexploitation because the harvesting costs rise with this rivalry between fishers, but the total harvest has not changed. That is given by the providence of nature. Here in Canada there is overcapitalization in fisheries and overemployment and low incomes. That is one of the fundamental problems that Canada faces. I will call that the common pool problem.

The history of limited entry management in Canada has not been good. It has been reasonably successful to some extent, in terms of ensuring that the total harvest had been met and that there has not been a biological overexploitation. What it has been singularly unsuccessful at is ensuring that fishers do not overcapitalize and do not overinvest and that fishers have a reasonable level of income from fishing. There needs to be a change in fisheries management to address the common pool problems.

I would like to talk about a subject that has had a major impact on fisheries policy, though it has often been ignored, that is, the use of subsidies. Since and including the 1970s, hundreds of millions of dollars have been spent collectively on federal deficiency payments, subsidies to build or upgrade vessels, and interest write-offs. Coupled with this has been income support in the form of unemployment insurance, which is now employment insurance. To give the extent of this income support, in 1990, unemployment insurance benefits for self-employed fishers in Atlantic Canada was, on average, 80 per cent of the income they received from fishing, and in some provinces like Newfoundland, they actually received more from unemployment insurance than they did from fishing. This is for self-employed fishers. There is no question that that level of income support has provided incentives for fishers to remain fishing. In a common pool resource, when you have more fishers fishing, that means there is less to go around to everyone else.

I would also like to talk briefly about management practices because this is an important aspect in terms of Canada's fisheries problems. Fisheries in Canada are overcapitalized. There are too many vessels, the vessels are too powerful, and the gear is too good in terms of being able to catch fish. What this means is that when there is a decline in the fish stock, there is the concern or there is a trade-off between the long-term viability or sustainability of the resource and the short-run costs in terms of job losses and bankruptcies if you were to reduce the total allowable catch. This is a difficult problem for anybody, but that sort of trade-off, those sort of difficulties, is made worse with overcapitalization.

Overharvesting in some of Canada's fisheries is responsible for the decline in these fish stocks. There is a paper that was published in 1994 by Hutchins and Myers that talks about overharvesting in the northern cod fishery, and they claim and give evidence to support their claim that overharvesting was the principal cause, in fact the sole explanatory variable, in terms of the collapse of that stock. Overcapitalization increases the cost of trade-off and makes fisheries policy more difficult.

Predicting abundance in the size of fish stocks is difficult. It is a difficult science. Decision-making which fails to adequately account for uncertainty and risk and use the information that can be provided by fishers and reconcile scientific advice with the objective of fisheries management -- that sort of decision-making, that sort of management, is what is required in Canada, and I unfortunately consider that to be sorely lacking.

The scientific advice tends to be focused on how much fish to catch, the quantity, the weight, and less time has been spent on when, where and how to catch fish.

Finally, in my summary of the problems faced in Canadian fisheries, I would like to talk about straddling and shared stocks. The problem is essentially one of foreign harvesting of Canadian fish. It comes in two forms. Canada shares borders with the U.S. in terms of its exclusive economic zones, so there are fish that can migrate from U.S. waters into Canadian waters. I am referring specifically to salmon. There are salmon that will spawn in Canadian waters and Canadian streams. They are Canadian salmon but there are interceptions by American fishers that take Canadian salmon. That is the problem of shared stocks.

The other problem is the problem of straddling stocks. That is fish that migrate in and out of Canada's exclusive economic zone and the high seas. The most notable problem that we have is on the nose and the tail of the Grand Banks off the coast of Newfoundland. The nose and the tail are outside Canada's 200 nautical mile exclusive economic zone. That has caused some particular problems for us in the past, as you may recall from the incident with respect to the Estai in 1995, which hopefully seems, maybe, to be resolved to some extent today. So that, for me, is a summary of some of the problems that we face here in Canada's oceans fisheries.

Before I talk about what I would like to suggest as ways to deal with these problems, I would like to briefly review the current practices and strategies.

I would like to emphasize that there are current practices and strategies that are for the good, that are improving Canada's fishery policy today. There has been a substantial improvement in Canada's fishery policy over the past 15 years, but we have a long way to go.

First is the issue of rights-based management, which is a catch-all term to refer to the use of private property rights in general for controlling or managing fisheries. It comes in three forms in Canada. It comes in the form of individual vessel quotas which are non-transferable; it comes in the form of individual vessel quotas which are transferable; and it comes in the form of enterprise allocations which are not directly allocated to a vessel but allocated to a company.

Rights-based fisheries management has grown over the past 10 or 15 years. It began in one form in 1976 and it has continued to grow, particularly in the late 1980s and early 1990s. There are now over 20 rights-based fisheries in Canada. They include shellfish and groundfish in British Columbia to herring and offshore groundfish and shellfish in Atlantic Canada. There are a substantial amount of fisheries under rights-based management. These fisheries account for over one-third of the total landed value of fish and employ thousands of fishers and processing workers collectively. Some of these programs, such as the British Columbia halibut fishery, the British Columbia sablefish fishery, the enterprise allocation program for offshore scallops, have been a success.

I would not like to end my review on rights-based management by ignoring the fact that there are problems with rights-based management. In particular is the problem of quota busting and highgrading, and I can think of two fisheries where there have been particular problems in the past. Fisheries and Oceans is aware of these difficulties and over the past few years has tried to deal with these issues by increasing the penalties against fishers who contravene regulations and by increasing surveillance and monitoring. There has been an improvement, but I am not suggesting that there are not difficulties in some fisheries.

Another aspect of the current strategies and practice of the Department of Fisheries and Oceans is licensing policy. It was formed to deal with this issue of entry into fisheries. How do you control entry? You do it by assigning a licence to a vessel and then limiting the number of licences available, so you limit the number of vessels in a fishery. That has been a core aspect of fisheries policy in Canada since the 1970s.

Now in the current strategy, the Department of Fisheries and Oceans is setting up co-licences, which will be given to fishers who meet certain eligibility criteria. They are also changed in terms of the licence fee structure. Their licence fees have been increased substantially on both coasts in line with these changes in licensing policy.

With respect to the Pacific salmon fishery, there have been substantial changes, going back to last year, with the so-called Mifflin plan and the use of vessel licences. Area licences have been set up for the three-gear types, same as gill net and trawl fishers.

In addition, the Government of Canada has instituted licence buy-backs. In the Pacific fishery, it allocated about $80 million in terms of those buy-backs and has bought 20 to 30 per cent of the total fleet out of the Pacific salmon fishery.

The Atlantic groundfish fisheries: Under the tax program, there has been an expenditure of about $60 million which has bought out around 450 licence holders along with their vessels.

I would like to conclude in terms of the current practices and strategies by talking about "co-management", which is a buzzword in fisheries today and in Canada and Canadian fisheries. The lack of appropriate industry and public involvement in fisheries decision-making has been a critical failure of fisheries management to date in Canada; and not just in Canada, it has occurred in other countries as well. Canada is not unique in that. Thus a cornerstone of future fisheries policy will be greater co-management or partnership agreements between the Department of Fisheries and Oceans and fishers and the fishing industry. A move to co-management is also being motivated by budget cuts, which every government department is facing, and certainly in the DFO, according to the numbers I have, the plan is to reduce the number of employees by about one-quarter in the period 1994-95 to 1998. That certainly is part of the motivation for a movement to co-management.

In some rights-based fisheries such as the British Columbia sablefish fishery, the halibut fishery, fishers pay for the full cost of management today, including monitoring, and are major participants in decisions made by the fisheries. These fisheries are some of the best managed fisheries in Canada and generate some of the highest returns for fishers as well.

I can talk briefly in terms of co-management about Bill C-62. The Minister of Fisheries and Oceans under that bill will be able to authorize legally binding access to fisheries resources in exchange for assuming greater fisheries management responsibilities and costs. I would suggest that in some fisheries in Canada, where fishers are well-organized and there are substantial returns, this is a move for the good. In some fisheries that have suffered decades of low incomes and problems in terms of the fish stocks, I do not think the industry is currently able to take full -- I do not mean part -- but full responsibility for services such as licensing, surveillance, data collection, analysis research, inspection and enforcement. There will need to be some help from the Department of Fisheries and Oceans with respect to those activities.

Finally, I will address the issue of ways to improve Canada's fisheries policy. I would like to focus on the Pacific salmon fisheries. The current management plan, the Mifflin plan, involves a buy-back of salmon licences, as I have already mentioned, a licensing requirement that is denominated by gear type, which restricts vessels to designated fishing areas for four years, and a provision for the stacking of salmon licences. In other words, fishers can buy licences from other fishers.

Although this plan is a move for the good, it is an improvement over past policies, it does not deal with the fundamental issue that is faced in the Pacific salmon fisheries -- namely, that there are too many vessels and fishing power is too great at individual salmon openings.

I read you the quotation from the Fraser River Public Review Board. That stresses more than anything else that to deal with the issues in terms of sustainability you need to control the number of vessels at individual salmon openings. What the current plan does is control the total number of vessels in general. These are very large areas that fishers will be allowed to fish in. There is an alternative measure which may be more effective. What we suggest is the rights-based system for the Pacific salmon fisheries. What I suggest is not an individual output control or individual transferable quotas -- I do not think that approach is suitable for the Pacific salmon fisheries because it is very difficult to know how many fish fishers will be able to catch during the season. There will be estimates, and those are updated on a continual basis, but for ITQs, for individual output controls to be effective, there needs to be some surety, some security in the property right, and there will be limited security when it is not clear when the fishery will close, at what time, and how many fish may be caught.

I propose an alternative, and the alternative is what I would call fishers' individual salmon harvesting rights, FISHRs, a catch phrase there. It is a transferable property right, but it is in the form of an annual exhaustible but renewable bidding right over the right to fish for salmon. What I would propose is that fishers would be given these rights free, and then when the season begins -- it will be different times for different stocks and perhaps for different gear type -- fishers would bid with their salmon rights, their bidding rights, to participate at a salmon opening. The Department of Fisheries and Oceans would in advance determine the number of vessels that could participate at an opening, but the bidding process would determine who would participate at an opening.

Hence, in one approach, you can deal with the sustainability issue; at the same time, you can bring in a property right that can perhaps deal with some of the problems in the salmon fisheries because I would make these bidding rights transferable. In other words, fishers who wished to exit the fishery would be able to sell their bidding rights to other fishers and there would be some exit from the fishery.

If the number of vessels were sufficiently limited at some of these salmon openings, there may be cooperative behaviour in terms of fishing rather than some competitive behaviour, which is the norm today.

Another advantage with FISHRs is that vessel owners will be able to fish wherever they wish based on their bidding. In the current Mifflin plan, fishers are restricted to various areas. This is a particular problem in the salmon fishery because you will have very large fluctuations across seasons in terms of the number of salmon. If you are restricted to an area to fish salmon and the stocks go down, and they will go down, they fluctuate naturally, then you are stuck, you are in a difficult situation; but with a salmon bidding right, you are able to fish elsewhere if you are a successful bidder.

There is another potential advantage with fishers in the sense that by creating a property right you can perhaps deal with some of the conflict issues which I am sure the committee is aware of in the Pacific coast, namely the conflict between commercial fishers, aboriginal fishers and sports fishers. By making an allocation, the government perhaps can deal with these problems by buying out bidding rights from particular groups and allocating them to another group. You deal with the allocation problems by creating a property right.

I would like to talk about another major fishery which has been in the media for several years now, that is, the Atlantic inshore groundfish fisheries. What happened in terms of the collapse of the groundfish stocks, not just cod -- there are other fish as well that have collapsed in terms of their numbers -- is that moratoria were placed, beginning in 1992, on the groundfish stocks, in terms of harvesting. In response to the crisis, which Richard Cashin talked about in the quotation I read to you at the start of this presentation, the Government of Canada established a $1.9 billion aid package, called the TAGS program, The Atlantic Groundfish Strategy. Before that there was an additional several hundred million dollars that was implemented before tax. This can pay individuals between $11,000 and $20,000 a year, and it is due to end in May of next year. There have been changes to the TAGS program; they were instituted back in August of 1996.

The TAGS has been an extremely effective program in providing income support to fishers, there is no question about that. They are quick to sign people up. There are 40,000 people who have been signed up on tags, and there is a lot of money being sent their way. So in that sense, the TAGS program was a great success. However, TAGS was supposed to do more than provide income support to fishers in need. The TAGS program was also supposed to restructure the Atlantic fisheries to try to deal with the problems that are currently being faced, and hopefully when the fish returned there would be a better fishery structure in place.

I would like to suggest however that TAGS has been a singular failure in doing that. Approximately $60 million, a small fraction of the $1.9 billion allocated, has been spent in terms of buying back licences from vessel owners. Approximately 450 licences have been bought back, so there remain thousands of vessels in Atlantic Canada with their owners and their crew just waiting to fish. The problem is there. It is still an overcapitalized fishery and the problems still exist.

So what to do? I would suggest that one way of trying to address the problem and trying to restructure the fishery before the fish return is to allocate individual property rights, and I would call them individual transferable quotas, ITQs, to people in the Atlantic inshore groundfish fishery. These would be allocated gratis, based on past harvest, prior to the collapse of the stocks of course, or perhaps on an equal basis to all fishers who have participated in the past in the fishery. This allocation would be denominated by area, as are most ITQs, so you would not necessarily get an allocation in southern Nova Scotia and then fish in Northwest Newfoundland. That would be based on area ITQs. However, they would be transferable, so if you wished to fish some place else you could buy someone's ITQ in another area.

When the fish come back, they will come back in different levels of abundance, in different areas and at different times. So what you will find is that with some of these area ITQs, the fishers will be able to fish hopefully in the near future, but in other areas it may be two to six years before they can fish. As you set up this program, you can improve the monitoring and enforcement and surveillance that is required to have an adequate individual transferable quota program. So you can experiment with various methods and technology for monitoring and compliance.

One aspect of any ITQ program to be implemented in the Atlantic groundfish fisheries is that it needs to be highly flexible. There are a number of difficulties associated with multi-species fisheries and there needs to be flexibility in terms of landing a fish, in terms of getting fish landed perhaps without quota but making a legal landing, receiving some small payment for it. There are things that need to be considered. If you create an individual transferable quota for individual fishers, then perhaps you can have cooperative fisheries in very small areas. That is a potential as well with this approach, as long as you have flexibility in the program.

The next aspect of my suggestions for improving Canadian fishery policy is institutional change. The first form is institutional change to fisheries management. I do not need to stress this point. Just creating property rights in fisheries will not solve Canada's fisheries policy problems. There needs to be a wide range of changes and a wide range of policies. One of them is institutional change to fisheries management. Decision-making in Canadian fisheries is dominated by fisheries biologists, and they focus on resource evaluation, stock assessment and population ecology.

To improve fisheries policy we need to do much more. We need to understand the environmental, social, and economic constraints faced by fishers. We need a re-engineering and interdisciplinary approach to fisheries. The fundamental goal is to support the operational management of the fishery. We propose that management be based around interdisciplinary teams of fishery experts with bottom-up management on where, how and when fishing is taking place -- putting the managers where the fish are essentially.

We also propose to replace the divisions of science operations and policies in the Department of Fisheries and Oceans by these management teams with well-defined management objectives for each commercial fish stock. These teams would have responsibility for managing fisheries from day-to-day operations, undertaking strategic long-term planning, as well as considering the interests of the fishers, communities and other stakeholders. Fisheries research would play an important role, but would be focused on meeting the goals of the fisheries management teams.

Long-term research needs should be provided by an independent scientific body separately financed with long-term objectives. Too frequently in the Department of Fisheries and Oceans, long-term research needs have moved ahead of operational requirements in the fisheries.

I would also like to propose institutional change in terms of employment insurance. I do not think you can deal with the problems in Canada's fisheries, because they are common pool resources, without changing the nature of employment insurance. I gave earlier some examples in terms of the returns from or the income support from employment insurance.

In Newfoundland in 1990, the average self-employed fisher received $6,900 from unemployment insurance and only received $6,412 from employment in the fishery. They received more from unemployment insurance than they did from fishing. This clearly provides an incentive to remain fishing even though the incomes in the fishery may be very low.

There have been recent changes to employment insurance in Canada and to fishermen's employment insurance. There are various changes that make it less attractive than it was previously, and the benefit rate will now range from 50 to 55 per cent, depending on the intensity of the users. There is also a change in terms of how you qualify. Qualification is based on the earnings in the particular regions, depending on the unemployment rate. For example, in a high unemployment rate area if you have earnings of $2,500 or more from fishing, you are entitled to benefits from unemployment insurance. As the unemployment rate declines in your region, then you must have a high level of income.

Although there have been improvements in employment insurance, nevertheless, it still will provide a very substantial return to fishers and some form of ongoing income support.

What do we propose? We propose scrapping and eliminating the fishermen's employment insurance scheme, which has been in place in one form or another since 1956. Our goal is not to create crisis or create hardship for families with low incomes. The goal is to decouple income support in the fishery from income support for needy families. They need to be separated. That is what we intend, that is what we would like to have.

Once fishermen's employment insurance is scrapped, the money that is saved by the federal government could then perhaps be sent to the have-not provinces, for example Newfoundland, in the form of block funding. Hence, in a sense, the province would receive the same amount of money today with the elimination of employment insurance as it did with employment insurance. Then the province would set up with this additional funding support for welfare, if people need it, and it will be based of course on income and need.

We also propose reforms to the regular employment insurance scheme. Fishermen's employment insurance is for self-employed fishers. There are many processing workers and wage earners in the fishery who receive regular employment insurance. This would continue as it should. However, we suggest, instead of the current system where employees are penalized for being high intensity users, that the employers be penalized for letting go many workers on a regular basis. In other words, the contribution rates of the employers would increase as they let go more workers. This would provide an incentive for the employers to keep workers on rather than trying to use the system to benefit certain people. This perhaps could lead to productivity gains within the processing industry.

Management decision-making: We already talked briefly about that in terms of current practices and strategies of the Department of Fisheries and Oceans. A lot of current decision-making is based on standardized principles of sustainable yield and fishing morality. These standardized biological reference points have often been confused with management objectives. They are not management objectives, they are biological reference points. The Department of Fisheries and Oceans has focused more on tactics and methods rather than strategies and plans. There needs to be a fundamental change. Socio-economic considerations, long recognized as important in Canadian fisheries, have usually been left to political decision-makers instead of being explicitly incorporated into management procedures and decision-making. To date, there is no integrated decision-making framework that reviews and analyzes socio-economic and operational considerations along with biological analysis.

We propose a change in approach. The change would incorporate fisheries science and management science to fisheries management science, the use of the scientific method to develop and evaluate strategic alternatives using objectives that integrate biological, economic, social and operational and other relevant factors into decision-making. A critical aspect of fisheries management science will be well-defined objectives, measurable objectives, performance indicators and a structured form of decision-making. This of course will be enhanced by the use of fisheries management teams.

This decision-making framework would be based on operations management and remanagement science. We would strongly suggest management by objectives: first, the setting of specific goals and milestones; second, team work and decision-making where all team members participate; and third, feedback and appraisal of performance and goal attainment would be a critical aspect to the new decision-making approach. It has been termed "Total Quality Management" in the business world, or adaptive management. That is the general approach that is required to deal with the decision-making and the problems that Canada's fisheries face.

Finally, I would like to close by talking about the management of shared and straddling fisheries in Canada. There are no easy solutions for these problems, as there are no easy solutions for many of Canada's fishery problems. What is clear is that a cooperative outcome, cooperative in the sense of foreigners harvesting Canadian fish or the Americans harvesting Canadian fish, has the potential to benefit everybody. More importantly, if there is no cooperation, everybody will lose, and Canada will lose big time. So we need to set up mechanisms which bring about cooperation with shared and straddling stocks.

How do we do that? One way is to set up what are called side payments. You could set up a side payment, more specifically, a reverse side payment in the form of penalties for non-cooperation. You can set up benefits or side payments, incentives for cooperation. Canada can help set this up as can other countries. The onus is on Canada to do it because we are talking about essentially Canadian fish.

How to do this? Canada in the past has implemented various reverse side payments in the Pacific salmon fisheries. This involved fees for American vessels passing through Canadian waters; it involved Canada fishing heavily the salmon stocks; the idea of penalizing certain American states to bring about some cooperative outcome. Unfortunately, in the case of the Pacific salmon fisheries, Alaska really can be given very few incentives and very few penalties to bring it into a cooperative outcome. That is the essential problem that Canada faces.

In terms of straddling stocks, we know all the problems we have encountered in the nose and tail of the Grand Banks and the arresting of the Spanish trawler, the Estai in March 1995. Eventually, Canada and the European Union came to some kind of settlement. That settlement was reached by Canada giving up fish. That is the side payment that Canada implemented. Canada agreed to a reduction in the turbot harvest from 60 to 15 per cent of the total allowable catch, while the EU catch went from 13 to 55 per cent. In response to Canada giving or reducing its catch, the EU will implement along with Canada a program of satellite monitoring of vessels, onboard observers and dockside monitoring. So at least we will get a handle on how many fish are being caught, which I do not think was necessarily the case in the past. That is a positive development even though Canada has had to pay for it.

Finally, the United Nations Conference on Straddling Fish Stocks and Highly Migratory Fish Stocks: This offers a possibility of resolving some of the conflicts which Canada faces. Under the agreement, regional organizations will have the authority to impose and enforce fisheries regulations on the high seas. Canada was a founding member of the Northwest Atlantic Fishing Organization, which includes the EU, Canada and some other countries. This is an organization that in the past has been less than effective in dealing with the problems of overfishing and exploitation of the high seas on Canada's continental shelf.

With this United Nations conference, there is the potential that NAFO could become an effective organization for the benefit of all its members, including Canada. But if this is to be effective, it has to be the case that any improvements in management will not be eaten up by new entrants, new countries coming to Canadian waters and the high seas of Canada's continental shelf to reap the benefits that Canada and other countries have implemented. To set this up, there must be some mechanism that countries can be excluded from NAFO. There is no provision for that on the UN Conference on Straddling Fish Stocks, but one potential method is to restrict membership by ensuring that to become a member you have to make a payment -- you cannot come in for free; in other words, allowing entry only after a country has purchased membership into the organization from an existing member. If you come in with a payment, then one member leaves -- new entrant, somebody exits the fishery. This is the idea of creating property rights in terms of the regional fisheries organization NAFO.

If we are to deal with the problems in terms of straddling stocks, we also have to create property rights not just for countries for Canada and other members, but also for individual fishers; otherwise, we will have the same problems we have in our domestic fisheries, namely overcapitalization and overemployment. There needs to be the implementation of individual transferable quotas for the high seas fisheries off Canada's continental shelf, quotas which would be managed, monitored and enforced by NAFO or some other regional organization.

The allocation of quota would be in two stages, one to the individual member countries, two to the individual vessels, and there would be transfers of quota available between vessels across countries. Canada has the potential to benefit from such transfers.

This approach of using property rights to try to lead to a more cooperative outcome dealing with foreign fishing could be tried in terms of shared fishery stocks such as the salmon stocks on the West Coast. For example, allocations could be made to individual vessels in terms of bidding rights or FISHRs to harvest salmon in both Canadian and American waters. Thus Canadians would be allowed to participate in all American openings, including Alaska openings, and of course Americans would be allowed to participate in Canadian waters. Fishers themselves would determine who they are bidding, what fish are caught and where. The allocation would be based on a U.S.-Canada basis as well as a state basis on the where the fish return to spawn. So that is another potential way of trying to deal with the problem of shared fisheries.

That concludes my presentation. I would like to thank the committee for its patience and I would welcome any questions and inquiries.

The Chairman: You noted in your presentation that ITQs represent approximately one-third of the value of the total Canadian catch. We tried to get this out of DFO, but we were not successful. Is it an estimate?

Mr. Grafton: Part of the problem is the collapse of the Atlantic groundfish stocks because the offshore sector had enterprise allocations, and that was an important component in terms of contributor, in terms of the total catch and also total employment. So because those stocks have collapsed, it is difficult to come up with a number. The number I have come up with comes from a source in 1996.

The Chairman: So it is fairly recent.

Mr. Grafton: I would suggest it is fluctuating.

The Chairman: It gives us a general benchmark.

Mr. Grafton: It is a benchmark, and it is increasing and has been increasing.

Senator Landry: Rationalization <#0107> the plant should be rationalized also.

Mr. Grafton: I agree. I focused primarily on the harvesting sector. There must be rationalization in the processing sector, particularly in Atlantic Canada.

Senator Landry: You used the word "highgrading" in your presentation, which is quite important in the Atlantic, Northern New Brunswick especially. It seems that the fishermen who own the plant and the licence are the ones that are doing the highgrading. It would not be hard to determine which one, because there is one plant that paid about 50, 60 cents more than all the others. The Japanese eat more with their eye than their mouth. If it is a perfect crab, no moss on it, they will get much more money. Plant owners have not been doing the worst highgrading. If anything is mossy, if there is a leg missing, if there is a black mark on it, it all goes back to the bottom. There is friction between those who are highgrading and those who are not.

Mr. Grafton: Highgrading is certainly a problem. As you point out, in terms of the crab fisheries, there is more of a problem in other fisheries in the sense that a good number of crab live after they are thrown overboard. But cod that are caught in a trawler are dead, so you have got a sustainable ---

Senator Landry: You mentioned also dockside rating. Does that do the job?

Mr. Grafton: Not for highgrading, no. Dockside monitoring does help ensure that there is no quota busting. In other words, you land your quota, it is registered; someone who does not have quota cannot land without being found out. But dockside monitoring does not deal with highgrading because highgrading takes place out at sea.

Senator Landry: You mentioned lobster. The escape hatch has been a valuable thing, even when catching the small lobster. I was told by many fishermen that they might get a hold of those lobster, sometimes for one, two, three hours, that they only cull them when they are finished fishing, that those lobster are half dead and when they throw them back, the cod eat them. Hence, a good escape hatch will save all these small lobster.

Also, the hoop size is normally five and a half inches. Some fishermen, and there is no law that regulates that, have a seven inches hoop, some as high as eleven. The result of that, especially in the Northumberland Strait where it is a breeding ground because the water is warm, is that they catch all the big female lobsters and thus they are getting rid of the production line. We tried to get a regulation passed with respect to that, but it did not work.

Mr. Grafton: That is part of the issue in terms of when and how fish or shellfish are caught. There has been a tendency in Canada and elsewhere to focus in on quantity, how many you can catch or the total weight in terms of the catch, unless time has been focused in on those sorts of issues which are clearly important.

Senator Landry: Another thing that is happening in many fishing plants is that many of them just pack their own catch. Their catch might take place in six to eight weeks at the most, so their crew, after the catch, are not interested in the rest of the fisheries. So that crew is only making eight weeks on employment. The "real" fishing plants continue to get fish from somewhere else, other ground. Right now, we are bringing in crab from Rhode Island. But those guys would not bother with that, there is no money in it.

Senator Petten: The monitoring is usually industry-managed and industry-funded. As of a friend of mine would say, is this putting the rabbits in charge of the lettuce patch?

Mr. Grafton: It depends on the fisher. The British Columbia halibut fishery is funded by the industry, but it is managed in the sense that it is done independently. They contract it. In the British Columbia halibut fishery, every landed fish gets a tag. That was never done prior to the introduction of ITQs. So I would suggest that the monitoring, the surveillance of what is going on is far better today with ITQ management than it ever was prior to that.

Now, that is not to say that you are going to have as good an outcome as that in other fisheries. There have been problems, particularly in Atlantic Canada with a couple of fisheries that I can think of, where there were problems in terms of monitoring and enforcement. Part of that issue is that of the property right itself. You have to feel that you have some sort of security in the property right. As well, there needs to be some adjustment period. There needs to be a period of adaptation with fishers, in terms of the management procedures. That is what I would suggest. Over time, you may see an improvement. You want to set it up so that the fishers perhaps pay for it, if there are substantial returns from the fishery. Some independent authority, company, whatever you want to call it, does the actual job.

Senator Marchand: I notice, Dr. Grafton, that you received your Ph.D. at UBC. I am from Kamloops and know the Adams River, and that is where we grow all the fish for the commercial fishers to catch. We get very little benefit up country. We are essentially in cattle country, but we spawn a lot of fish out of there. I have heard IQ referred to in other ways, in terms of fisheries management. It was not an individual quota, because of all the problems that we have out there.

What is the current proportion of salmon out of a fish farm versus wild salmon, in terms of what is being produced for the market today in Canada?

Mr. Grafton: I could not give you those numbers. I am sorry. I do not know them. Fish farming or agriculture or "mari-culture" certainly developed in Canada. The principal suppliers are Chile and Norway.

Senator Marchand: So you do not have any thought about what the future might be in that?

Mr. Grafton: There is potential there. The industry went through an adjustment period back in the late 1980s. A lot of participants lost money, went bankrupt. There are issues in terms of water quality, as well as escapement of the Atlantic salmon that is farmed and the mingling of stocks, which is considered to be a potential problem. But in terms of the sheer numbers, the commercial fishery, in terms of fish that come into spawn, they are by far the largest supplier of salmon but I cannot give you the proportions.

Senator Marchand: I wondered, because it would have an impact on the whole fishery and whatever you do in the fishery.

Mr. Grafton: It has had an impact on prices for sure.

Senator Marchand: I tried to listen carefully to what you had to say about ITQs and IQs and how fish should be managed. One complaint that, as a British Columbian, I have heard for many years is the fact that Ottawa manages, from 3,000 miles away, our British Columbian fishery. Do you have any comments about that?

Maybe in my angry moments and not thinking it through as carefully as I should, but reacting as a British Columbian, I felt that the fishery should be managed locally rather than from 3,000 miles away in Ottawa. What is your opinion? Should the fisheries jurisdiction be transferred?

Mr. Grafton: Of course the oceans, fisheries resources are managed by the federal government. That is part of the Constitution. In terms of the idea that Ottawa is a long distance away from British Columbia, that is true. I would like to point out that the people at Department of Fisheries and Oceans in Vancouver and elsewhere in the province are British Columbians as well as Canadians, and they are making decisions for the benefit of the British Columbia fisheries as well as Canada as a whole. Those day-to-day decisions are made by people in British Columbia. They are not made by people in Ottawa; for example the British Columbia halibut and sablefish fisheries is managed by Bruce Terse. It has been for some time. He has done an excellent job. He lives and works in British Columbia. I do not think that is necessarily a handicap to the management of our fisheries; I think there is goodwill on behalf of any level of government to try to do the best for the fisheries.

However, there may in fact be errors of commission, or perhaps omission, in terms of fisheries policy. But that is not a lack of goodwill. To the sense that you could transfer responsibilities to Victoria and you would get better decision-making, I do not know. It is a function of how it is done and the personnel.

Senator Marchand: You have not analyzed or you do not want to get into the political debate because it has been pretty hot and heavy recently out there?

Mr. Grafton: I do not actually agree with the idea that the fisheries are being managed from Ottawa in the sense that there is no consideration of the British Columbia interest; I do not think that that is the case at all.

Senator Marchand: I will give you that. In terms of the overall effective administration of the fish over the long haul, you do not see any advantage of taking it out of the jurisdiction of Ottawa and giving it to British Columbia?

Mr. Grafton: I do not see a big advantage. What is important, and something that is currently taking place, is the divesting of personnel and management responsibilities as far away from Ottawa to the individual regions. I think that that is a very positive move. It is something I would support and I think does improve fisheries.

Senator Marchand: Maximum decentralization.

Mr. Grafton: In terms of fisheries management, I should say yes. Clearly, there needs to be an overall fisheries policy, which can be made in Ottawa; but in terms of actual operational management, it has to take place, and to a large extent does, in the regions.

Senator Marchand: I do not think we have done a worse job than the provinces than we have over the past 30 years, in terms of managing our fish on both coasts. The West Coast is not as bad off as the Atlantic cod. But we have had bumps all over the place in terms of sockeye. It is interesting that you feel that it would not help.

Mr. Grafton: There is one way it may have helped in the past. In the sense that the provinces, certainly in Atlantic Canada, do not have the resources of the federal government, there would have been less support for the fishing industry over the past few years. To that extent, if the provinces had been managing the fisheries, they could not have supported the fisheries to the extent that they were supported. That would be true to a lesser extent in British Columbia. To that extent, it may well have been beneficial, but of course the support was done for a variety of reasons.

Senator Marchand: Mainly to manage the resource as best you can. Of course, if you devastate the resource, then you devastate the income for so many people. That is what it is all about, really. You have to sustain the fishery and we have not done that. By and large, successive governments have not performed very well, Conservative and Liberal, a mixture of both administrations. We have not done a good job.

Perhaps you could refresh my memory in terms of where ITQs or IQs are used around the world, and in so doing, could you also comment on the health of the fishery resources in countries that have used ITQs -- profitability in the fishery, the operations and things like that.

Mr. Grafton: Rights-based management has been implemented in a number of countries -- Iceland for example, New Zealand, Australia, even the U.S. has implemented it in three or four fisheries. The outcome depends on the fishery and on the country. Overall, I would suggest that the outcome has been positive. In other words, if you were to compare the current situation to what happened prior to the implementation of rights-based management, I think you can see an improvement in those fisheries. Improvement comes in various ways. It can come in terms of the value of fish that are landed. ITQs do not change the total landings. They perhaps can change the value of landings.

In halibut fishery in British Columbia, there is evidence to suggest that because the season was extended six days to over 180 days, fishers could land the fish whenever they wanted to, land it fresh, sell it fresh. They received much higher prices. The prices may have increased as much as 55 per cent, so that is a substantial benefit.

There are benefits in terms of safety and security at sea when you have an increased periods of fishing. Those are intangible benefits.

There are also benefits, over time, in terms of some rationalization in the fishery. ITQs or rights-based management do not lead to instantaneous adjustments. It may take several years to adjust. There is evidence of switching of gear from a gear that will target certain species more effectively than others and may also lead to higher prices.

There is mixed evidence in various forms. But overall, I would suggest that there has been an improvement in most of these rights-based management fisheries.

Senator Marchand: Is there any relationship in the fishing industry between this kind of rights-based management and the supply management in the agricultural industry, perhaps in the feather industry for instance? One of the things that happened in the feather industry is that quotas were given out to people and Canadians had to pay much higher prices than they would for instance if we were to allow the poultry to come in from the United States. It is all right, up to a point. Any independent nation should be able to feed itself up to a point. As consumers, we paid high prices, but we had quality as well. We had high quality food. Those quotas were given free to individuals and they sold them for very high prices in a lot of cases. Some individuals made pots full of money out of selling a quota that they got for nothing.

Can you comment as to whether there is any kind of relationship between those two.

Mr. Grafton: There is a relationship in the sense that you are allocating gratis, for free, a private property right in some form or another. There are some significant differences.

In terms of the fishing industry, it is not supply management. The quantity of fish that are caught and harvested and sold is based on the providence of nature. It is not determined by regulators here in Ottawa or anywhere else. There is a big difference there.

The other difference is that you can improve the quality of fish, and if consumers pay more for a high quality of fish, that is fine, the consumers have not lost out. There is no market power which is being assigned to fishers in that sense. Your point is well taken with respect to the allocation of perhaps a very valuable property right for free, just on the basis that you have fished in the past. There are some very substantial returns, capital gains, available to fishers who sell their licences coupled with quota. They can make $250,000 or $500,000 just because they happened to fish back in the 1980s. I do not have a problem with people making money from fishing, that is good. I want people to make money from fishing, but I agree with you.

Senator Marchand: The problem I have is them getting something for nothing and then selling it for a large amount of money, coupled with the fact that they do not own that resource. That resource belongs to all of Canadians.

Mr. Grafton: I could not agree with you more. In fact I have written several papers on that issue because I think it is important. What I have proposed in various ways is what would be termed rent capture; namely, the rent is not the rent you pay for a house, it is a rent that comes because there is a fixed supply in terms of the fish. It is a scarcity rent. It accrues to fishers who own these property rights through no particular actions of their own. Because the fish are owned by the Crown for the people of Canada, I think we should receive a return. I proposed at various times and various fisheries rent capture.

Now, how do you implement rent capture? You can auction off fishing rights, but I do not think that is particularly feasible politically. Auctions have some particular problems with them. So I have proposed is that you set up an individual property right, an ITQ, but simultaneous with that you implement a system where you capture part of the returns to the fishers. That would be based on an ad valorem royalty on the value of the fish landed or on the value of the quota itself. You do not try to capture the entire rent. There needs to be some benefits for the fishers themselves. You capture a portion. One number that I came up with some years ago is 50 per cent. A target of rent capture of 50 per cent for the people of Canada is perfectly reasonable and should be done. I agree with you.

In the case of the Pacific fisheries, we could return several millions of dollars a year to the benefit of all Canadians. I think they should be paying it. So I concur and I agree very much with your comments.

The Chairman: I did want to take this opportunity to introduce some special visitors we have with us this morning, a group from the Forum for Young Canadians. I believe they are all from Newfoundland. Thank you very much for coming here. We welcome you and we appreciate your interest.

Professor Grafton, would you check for us -- maybe not today but get it back to us. You referred in discussion with Senator Marchand to provincial jurisdiction on the question of lack of goodwill. You said that there had never been any intention of a lack of goodwill anywhere on the West Coast dealing with quotas and so on. You might wish to check, and I will eat my words if I am wrong, but I believe there has been recently a court case where the judge did in fact use the words "bad will." You might want to check this. I think the DFO was found to be in lack of goodwill. I do not point this out because of government; it is officials of the department.

Senator Doody: Professor Grafton, in your presentation, you recommended a rights-based system that uses fisher's individual salmon harvesting rights, and I think I understand the concept of that transferable right and exhaustible but renewable resource, and so on. I would appreciate it if you could expand on the concept of competitive bidding by licence holders using their FISHRs rather than money. How does that process work?

Mr. Grafton: What I had envisaged is that the Department of Fisheries and Oceans has salmon openings, which exist as part of the management procedures today, so the DFO would allow 20 vessels at this particular opening. That would be announced through various forms of communication. Everybody has access to that information. Fishers would be able to make a telephone call, for example, or use e-mail, or whatever. The fisher could telephone a particular number, give his commercial fishing vessel licence number, or some other number, to get into the system, and then he could indicate, in some manner, that he wished to participate at a particular opening and give his number and his bid. He could bid X amount.

Senator Doody: What is "X"? I can bid "X" too.

Mr. Grafton: That would be for the fisher to determine. There would be an allocation of so many thousands of fisher's individual salmon harvesting rights to each fisher currently in place in the Pacific salmon fishery. They then take these registered bidding units from the Department of Fisheries and Oceans. They know how much they have. They could say, "I really want to participate at this opening so I am going to bid half my bidding units for that opening to make sure that I can participate."

Senator Doody: Bidding units are tons of catch?

Mr. Grafton: No, they are credits. There is no quota or fish attached. This is just a bidding right, and so if 20 are limited in terms of the opening and you are one of the top 20 bidders, you participate. If you are not one of the top 20 bidders, then you keep your bidding rights, but you do not participate at the salmon opening. You did not bid enough. That is how the system would operate.

Senator Doody: Do you understand that?

The Chairman: I believe I do.

Senator Doody: Is there a value on these rights?

Mr. Grafton: Yes. There would be a monetary value.

Senator Doody: What would be the disadvantage of bidding all your rights if it will not cost you anything?

Mr. Grafton: You may want to participate at several openings. Bid all your rights for one opening, you spent them all and you cannot participate at any other opening because you spent all your rights. You would have to make a decision as to how much you want to spend and determine which openings you would want to participate at.

Senator Doody: Is this system currently in use somewhere?

Mr. Grafton: No.

Senator Doody: It is a grand imperial concept?

Mr. Grafton: It is an idea which is open to debate. Clearly to be implemented, it would have to be thought through very carefully by fisheries managers. I am an academic in Ottawa. That is the idea. That is how I would envisage it. The detail would be extremely important, how it is done.

Senator Doody: Do you think this system is applicable in fisheries other than the salmon fishery?

Mr. Grafton: It has the potential to be used in other fisheries. It is essentially valuable for escapement fisheries.

Senator Doody: Not for groundfish, for instance.

Mr. Grafton: No, because there are not those problems in the groundfish industry.

Senator Doody: As long as I do not have to explain to the people in my community, in Newfoundland, what this system is.

Mr. Grafton: I would not propose these bidding rights at all for the groundfish fishery. I would propose individual transferable quotas.

Senator Doody: Rather than community quotas.

Mr. Grafton: Individual transferable quotas have been given a bad rap by certain people, perhaps for some good reasons. But ITQs do not preclude having community rights. It ensures that you have a certain percentage, a small percentage presumably, of a total allowable catch in a given area. You can still club together. If it is a small enough area, you can club together and cooperatively manage, control, and regulate that fishery. What is sure with an ITQ is that there will be no changes in regulations by the community or anywhere else that can take that away from you. You have that right. It is yours. You can sell it, you can lease it. You can do whatever you want to do with it; it is yours.

The community that would set up any management procedures could certainly do that, but it could not take away that right. That is important. I would suggest that by creating that right, you might create greater incentives for people to get together and cooperate. It does not preclude the idea of community rights.

Senator Doody: Or enterprise allocations?

Mr. Grafton: I would tend to favour ITQs. There are some reasons for that. There is a mixture of different rights-based management in Atlantic Canada. It might be useful to move them all into an ITQ-type system.

Senator Doody: When you discuss the fishery in my part of the world, you are not only discussing an industry, but also you are discussing a social situation. One must be very careful in changing quotas and so on that you do not change entire communities. There are hundreds of small communities that are dependent or were dependent on the fishery when we had a fishery. So there are implications beyond -- it is relatively simple to deal with the salmon or halibut stock that you can concentrate these systems into.

Mr. Grafton: I agree. There is no question that ITQs would change the structure of the Atlantic inshore groundfish fishery. I thought about it carefully. I thought, what is the current state of the fishery? The current state is a disaster in terms of the stocks, overcapitalization; you do not have high incomes. It is bad in all sorts of ways. I asked myself what can be done to deal with those problems? What will be done will transform the fishery, no mistake about that. But I would suggest in the long run, that is for the benefit of all Newfoundlanders and all Canadians, that it is worth it.

The Chairman: Senators, as of today, proceedings will be accessible on our new web site on the Internet. At the moment, I do not have the web address in front of me, but I think we can get that fairly shortly. If you want to refer to previous works that the committee has done, it will be right there on the web site.

We have managed to incorporate on the site the past three major reports of the committee, especially the important ones -- the 1991 Lobster Report; the 1993 Groundfish Report; and the 1995 Groundfish Report again. Three major studies of the committee will be on the site.

As well, we hope to have the testimony of studies we are conducting available as soon as possible on the Internet.

Senator Petten: I am glad to hear from Senator Doody that you would not apply this bid for openings at a groundfish in Newfoundland. Are you saying that if you have a good year, if you have been a successful fishermen, you are in; if not, you are out? Is this not a problem for someone trying to get into the fishery? If he has to buy it, then we get back to Senator Marchand's problem where he will have to buy it from someone who wants to make a bundle out of it, et cetera. Could you comment?

Mr. Grafton: The initial allocation is obviously a difficult problem in setting up ITQs in any fisheries. It has to be perceived to be fair. How that is done is dependent on the fishery. In Canada, we have often used historical catches in some combination with vessel length. You could use historical catches over a five-year period in the 1980s, or you could say that everybody gets the same amount if he or she is a full-time fisher in the Atlantic inshore groundfish fishery. But it would have to be perceived as a fair mechanism.

I do not think the prices would be particularly high, at least in the short run, in terms of the Atlantic inshore groundfish fishery, given the state of the stocks. That is why it is important to institute rent capture, because rent capture provides benefits for the people of Canada. It also reduces the price of entry because if the previous price was $100 and you are capturing rent, then you will not be paying $100 for it because you know you must pay a certain amount to the Government of Canada. So that will reduce the price. That is one way of trying to deal with that issue.

It is an important issue because we know that capital markets are imperfect so we cannot just borrow large amounts of money to enter into a particular business. There are limits in terms of capital markets, so we would want to address those issues.

Senator Petten: How would you resolve Senator Marchand's problem that if you are going to bid for an opening, someone will obviously bid very high. Is this going to cut out the little person? If the person is successful and gets it, then does he keeps that forever in perpetuity, or can he sell? Can he pass it on? If he sells it, then we have Senator Marchand's problems.

Mr. Grafton: In terms of the bidding rights in the salmon fishery, they would be transferable, so if you have a bidding right based on past participation in the Pacific fishery, you can sell it immediately to somebody else. You would be able to pocket the money and pay whatever taxes are necessary to be paid on that. That is how the system would operate there.

In terms of the bidding process, you bid at a particular opening at a particular time, and these openings will change in terms of time, and perhaps even location, so you have the right for that opening and that opening alone. The following year, you have no more right to participate in that opening than anybody else.

There is certainly the issue in terms of concentration of these bidding rights. Economists and others are concerned about market power, so a system would have to be set up where there would be limits of ownership of these bidding rights. You could only own a certain portion of the total rights. Forty per cent allocation of the total bidding rights to the same fleet, because that is the total catch of salmon, and then there would be some allocation within the fleet, is how I would set it up.

The Chairman: I would like to come back to the EI question, where you referred to the possibility of penalizing those employers who had fish plants and use seasonal workers. How would this apply to an area like the Gulf, which freezes over in the wintertime, therefore you cannot throw nets, you cannot fish? It impacts on a number of provinces, Newfoundland, Nova Scotia, P.E.I., New Brunswick and Quebec. The fish plants cannot operate in the wintertime; neither can the fishermen because of the ice. You will penalize those employers who rely on fish plant workers during the summertime in order for those fish plant owners not to use people who rely on EI. What would you do with the fish -- move it over to a province?

Mr. Grafton: This is certainly a point that I had not given thought to. However, the penalties would be based on the industry itself. You are not penalizing the fishing industry relative to other industries in Canada. It would be within the fishing industry, within a comparable group of companies. Within that comparable group, however you want to set up the comparison, then you would have the penalty structure set in place.

The Chairman: Parts of Nova Scotia have a winter fishery, so they would not be penalized because they would have these wonderful ITQs to be spread over the season, but would all of those provinces affected by the Gulf fishery be penalized? In order for your system to work, you would have to penalize that part of the fishing industry affecting those provinces.

It is a little bit like the stereotype that Atlantic Canadians want to be on EI. That is absolutely false. Nobody wants to be on EI. If you are a field worker in potatoes in P.E.I. for example, you certainly cannot grow potatoes in the wintertime; and you cannot fish in the wintertime either. The stereotype is that they want to be on EI, where they do not. Would the ultimate question not to be just close off those provinces that rely on seasonal jobs?

Mr. Grafton: There are a couple of issues here. This gets back to the regular employment insurance system, and then there is the fishermen's employment insurance system. The fact that you are a seasonal worker, Canada has decided to insure such individuals. But what you do not want in terms of fisheries -- you have a common pool resource, it is not like the tourist industry. By providing income support in the form of employment insurance, you encourage people to stay in the fishery, and this has long run consequences as we well know now, given the crisis in Atlantic Canada.

My suggestion is that regular employment insurance is actually a fairer system than what is currently in place. The current system penalizes the individual. If you are a high-intensity user, you will get down to 50 per cent. There are provisos based on various conditions. That is penalizing the user. I am suggesting that instead of penalizing the user, you may want to penalize the employer.

The Chairman: I do not want to belabour it because there are areas of fisheries where you cannot fish during certain times of the year. It is as simple as that.

Mr. Grafton: That is true. Through any choices you make, you cannot fish at certain times of the year. The point is that if you work up to a maximum of 31 weeks and get X amount of dollars, you are entitled to get 26 weeks of benefits. That provides a substantial income support to fishers. That has led to over-employment in the fishery; it has led to low incomes in the fishery and has helped contribute to overcapitalization. The Atlantic fisheries are in a crisis. Something needs to be done, and I am suggesting that there needs to be a decoupling of this income support from the fishery.

I am not suggesting that people on low incomes in Newfoundland and other provinces should be dumped on the street and not thought of. I am suggesting that if you want to provide income support to low income Canadians, which I think we should do, we are a civilized society, then you should do it through an appropriate mechanism, which is welfare. That is what I am proposing in terms of fishermen's employment insurance.

The Chairman: The suggestion of moving to enterprise allocations, ITQs and so on, as a means to solve a lot of the problems that face the common resource or common pool problem, take that to its logical conclusion: those people who are granted a licences know it belongs to them and they can do with it as they wish; in other words, sell it to their neighbours, sell it to the person in Cape Breton who sells it to someone in Halifax who then accumulates a whole bunch of licences and spreads this fish over the year. Suppose a fisher accumulates licences until such time as he or she has enough resources out there to fish economically. At what point do we put a limit on ownership? Do we impose any limits, at all?

Mr. Grafton: Absolutely. We need to impose limits. As I talked about earlier, there is the potential of market power, there are potential abuses that can take place. You want to impose limits. What those limits are should be decided by fisheries managers, who have a much better understanding of the fisheries than I would. There exists limits. In some fisheries, it is 4 per cent of the total allowable catch, or something like that. It is dependent on the fishery, but I believe there should be limits.

The Chairman: We have had witnesses before us, and it has been hard to confirm, but apparently there is something in writing on DFO policy that there shall be no concentration of the fisheries beyond X, Y or Z. I forget the number, but we have had very knowledgeable people from the industry appear before us tell us, in no unequivocal terms, that there is in fact this rule, or whatever it is, and it is being completely abused, absolutely abused. We have had indications that DFO really does not care all that much about it, but that there is no cause for alarm. If there is to be concentration, so be it.

The way the concentration is presently being done, so we are told, is through special administrative arrangements that lawyers work out between the absentee owner and a tenant fishermen, whatever you might want to call it, the person who does the fishing of the vessel whose name may appear somewhere on the paper. This is what is happening because the rules are being ignored; in fact, a heavy duty concentration is taking place right now. Hence, what you are suggesting, that there should be limits, in fact is not being done, it is not being applied. Everybody talks the talk, but they do not walk the walk. It is not being applied.

We have had expressions of concern about concentration. Where does it all end? Do the stocks ultimately become traded on the Toronto Stock Exchange? Do corporate owners start moving quotas from city to city, bidding, trying to entice very poor communities, to entice them over with their quotas? These are some of the concerns that have been expressed to us that need more debate. Would you have any comments on that?

Mr. Grafton: It depends on the fishery. I cannot comment on what other people have said to the committee about underhand concentrations. It depends on the fishery. There is not an automatic outcome that you will have one or a few companies owning all the quota. I will give you examples from fisheries elsewhere in the world where that has not taken place, where there is still diverse ownership of the fishery. It is dependent on how you set up these regulations.

These transactions must be very transparent. One thing you do not want is somebody trading quota in a back room. The trading of quota must take place in a specific place or it must be recorded in a specific place. You are in non-compliance of regulations if you do not do that. Every fisher in the fishery should know who owns what quota, when they bought it, and so on. That should be publicly available information; not the price necessarily, which may considered to be private, confidential. However, they should know who owns what and when, and the amounts that were traded. That, to me, is a prerequisite for this arrangement. I cannot comment on the specifics but there may be problems in terms of the detail, how it is actually done. That would be a management issue that can be rectified.

The Chairman: The overall control, conservation measure that DFO uses, and I do not think we can get away from that, is a TAC on most of the groundfish. There are fisheries where there is no TAC and it seems to work, the lobster for example. But with groundfish, because the cycles can happen very quickly -- and we had a witness appear before us who indicated to us that the assessment of groundfish is very difficult. What happens is that DFO, as it gathers the information, makes quick decisions, and I think rightly so for conservation purposes. But in 1989 when we first had ITQs introduced in Western Nova Scotia mid-season, DFO all of a sudden lowered the boom and closed the fishery because the TAC had been caught or the TAC had been reassessed.

Does this not create the problem that those people who had to rely -- the greatest benefit of ITQs is that you spread your cash over the year. Spreading your cash over the year is probably passed off as being the greatest of the benefits. But if DFO, for conservation purposes, has to cut the quota halfway through the year, will it still not create the race for the fish?

Mr. Grafton: For the property right to function well, it needs to be durable and exclusive, so if you are cutting off in mid-season so you have no surety that you will catch whatever you have in terms of the property right, then the whole system can break down. It is a potentially difficult problem. If you want to set the system up where you want to change the tax and season, and perhaps it is necessary, certainly it may be necessary in 1989 off the coast of Newfoundland, perhaps you set up a scheme of compensation.

ITQs are not some fixed way of doing something. They can be made very flexible. Restrictions may be imposed in terms of transfers across regions if that is considered to be more important than other factors. ITQs can be shaped in various ways to address a number of problems. Of course the devil is in the detail. It may lead to concentration, but you can set up restrictions against concentration. It may be that you have concerns about transfers across regions; if so, you can set up restrictions for that. You may have concerns in terms of the TAC changing mid-season; you can set up a compensation system. It will not happen very frequently, so you can do various things to deal with those issues. On quota-busting, you can set up dockside monitoring that can help. High grading -- you can set up observers on the offshore fleet or an observer on every vessel. You can put up video cameras if you have a dragger. That sort of monitoring is possible. It can help. It will not deal with all the problems with ITQs but it will help.

It is a question of goodwill. It is a question of thinking through problems in an adaptive and flexible way. That is important. If you have a management system with fisheries management teams, with interdisciplinary experts and very close contact with the fishers, then you have the mechanism to help set up flexible ITQ systems that would differ according to regions and different fisheries and adapt over time according to the circumstances.

The Chairman: We have gone through an extremely important meeting this morning. On behalf of the committee, we appreciate your time in sharing with us your expertise, which is very well-known throughout Canada, on this very important subject. On behalf of the committee, we appreciate your time.

The committee adjourned.

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