Scottish Executive Consultation on a Separate Quota System in Scotland: Response by the National Federation of Fishermen’s Organisations

The Proposals

• The overall thrust of the proposals is to establish a separate quota system in Scotland on criteria set by the Scottish Executive itself and then to apply a range of measures that will affect both Scottish and non-Scottish quota holders.
• These measures range from the sensible to the probably illegal.
• Neither the paper, nor the accompanying Impact Assessment, provides anyquantified justification for the proposals.
• “Marine Stewardship” is presented as a vehicle for a more explicit system of rights-based management than currently pertains. Quota would be assigned for five or six year periods and would be subject to important new conditions regarding usage. It is claimed that this will provide greater certainty for fishermen and will encourage them to take a longer term view towards fish stocks.
• Transfer Costs: The Scottish Executive apparently believes that the cost of purchasing quota, rather than reflecting supply and demand, is substantially and artificially inflated by speculators, slipper skippers and the use of dummy licences. It therefore proposes that quotas should be tied as far as possible to “active vessels”. These are defined as vessels which derive over 70% of their income from fishing in any 3 year period. The Scottish Executive apparently believes that by taking out the speculative or rent aspect of quota transfers the industry would be more profitable. Quota holders who do not meet the new criteria would be obliged to relinquish their quota holdings to individuals or enterprises which do. No mention of compensation is made.
• Favour for certain groups: Although the criteria are not spelled out in detail, it is understood that over time the Scottish Executive intends to provide additional quota to certain groups (under 10s, young new entrants and fishing communities)
• Obtain the means to alter the basis of quota allocations in the future: throughout the paper there is an implication that the Scottish Executive reserves the right to re-base the quota system to more accurately reflect current usage and demands.
• Economic Link Requirement: All quota currently attached to vessels deemed to be Scottish, would be tagged as “Scottish Quota.” The nationality criteria applied are that the vessel must be registered in Scotland, must be administered from a Scottish port and must be a member of a Scottish PO (or managed through the Scottish pool). Transfers of quota and licences at UK level would continue but holders of “Scottish quota” would have to meet additional economic link licence conditions over and above those applied at UK level.
• A new internet-based system to monitor and manage Scottish quotas would be introduced
• FQA transfers could take place without the need for a formal licence transfer
• Holding Producer Organisations to Account: There is a commitment to make POs more accountable and more transparent in their operations. Closer monitoring of POs would be part of a strategy to re-assign unused quota to other POs or groups.

The NFFO as a Stakeholder
NFFO member vessels fish in Scottish waters, land fish into Scottish ports, use Scottish ports as a base, are registered in Scottish ports, are members of Scottish producer organisations and are engaged in quota and licence transfers in and out of Scotland on a regular basis. It has therefore, a major stake in the future of the management of Scottish fisheries.

This manifest status as a major stakeholder in Scottish fisheries is not reflected in the access afforded to the NFFO to various Scottish consultative groups up to and including the Scottish Fisheries Council. This state of affairs is relatively new. There has been a progressive erosion of the NFFO’s involvement in the Scottish fisheries consultative system as the Scottish Executive has become more insular, presumably reflecting the political climate or political directions.

Principal Issues and Detailed Proposals

Drivers
Our first remark is that there is a fundamental lack of openness at the heart of the Scottish proposals. The proposals have been presented as an exercise in modernisation; but in fact although the proposals do contain elements of modernisation, at heart, this is a political initiative using fishing as leverage to secure the entirely political objectives of the present minority administration in Edinburgh. If the Scottish Executive succeeds in securing a separate quota system in Scotland it can be presented as having secured “independence” or at least direct political control, over a part of the Scottish economy. If it fails, a useful fight with Westminster has been provoked that can be portrayed as a denial of the legitimate rights of Scots to self-determination. This may be clever politics but it should be seen as such and not presented as a politically neutral exercise in modernisation. Whilst the degree to which political authority is devolved in the UK is a matter that will largely be determined by the ballot box, we do however strenuously object to fishing being used as a political football, not least as it is a major distraction from dealing with much more important issues confronting the industry.

Unilateral Measures
Unilaterally defining Scottish quota and Scottish licences is at the core of the Scottish proposal. It seems self-evident to us that this cannot be right in law or in terms of natural justice. The UK is the member state to which quotas are granted by the EC and any subdivision should be subject to negotiation between Defra (the UK authority) and the devolved administrations. Although the administration of fisheries is a devolved area under the Scotland Act, defining Scottish quota automatically defines non-Scottish quota; it cannot therefore be right or fair that this is a unilateral decision, especially as proposed Scottish conditions would then be applied to any transfers of quota outside Scotland.

Over and above establishing a separate quota system in Scotland, the day-to-day requirements of managing quota within a single member state of the EU demands close collaboration between devolved administrations that is wholly inconsistent with a unilateral approach. Penalty and compensation arrangements, to take one example, demand an agreed set of arrangements.

As presently framed, the proposals suggest that the Scottish Executive will (after formal consultation on the detail but not the principle of a separate quota system) use coercion to establish its own quota management system. Vessels that meet the criteria of “a Scottish vessel” will be obliged to operate under the new system.

Only those vessels in the “grey zone” which do not meet the nationality criteria will have the option to continue to be managed under the UK system. If the Scottish Executive was confident of widespread industry support for its proposal it could have made these arrangements available for vessels to opt in as their owners so chose. No mention is made of vessels defined as Scottish being provided with scope to remain within the UK quota management system.

Instead, a different approach based on coercion has been chosen. We think that this is wrong in principle and will provoke a range of legal challenges in practice.

Additional Economic Links Requirements
The Scottish Executive proposes additional economic links conditions, based on Scottish nationality criteria and applicable to quota transferred out of Scotland. The extent to which these are consistent with the (limited) economic links permitted in the wake of the European Court judgement on Factortame vs UK Government will be critical. Likewise, the degree to which the proposals are a restraint of UK trade may well be an important factor in the litigious future that we foresee for this part of the proposals.

In any event, we are wholly opposed to additional economic links. As a matter of fact the existing UK economic links requirements serve little purpose other than as a fig leaf to hide the contradiction between national quotas and the EU Treaty obligations on the free movement of labour and capital and the right of establishment.

The title of the consultation and its economic links component suggest concern over the operation of the market in quota and licences. It is not being suggested that the market be abandoned but that its operation be curbed in various ways to meet nationality criteria. It is worth pointing out however (because the consultation paper doesn’t) that Scotland has been a major net beneficiary of quota trading since the introduction of FQAs. There has in particular been a very significant flow of demersal quotas from England to Scotland. If a distinction is to be made between Scottish and non-Scottish quota, a case can be made for applying an internal relative stability and rebasing quotas to reflect “national” shares within the UK at some date before the introduction of FQAs. We are not making that case because it would cause massive disruption throughout the industry.

Nevertheless, simply to state it as an option highlights the paranoia that underpins one of the main drivers of the proposals, and also highlights that the attempt to apply nationality criteria is only taking place when the flow of trade in quota could go the other way.

Devolution
The Scotland Act devolved responsibility for fisheries to the devolved administration in Scotland. The decision to continue to manage quotas and licences collaboratively was a decision taken at the time for sound reasons. What the Scotland Act did not provide for was a unilateral decision, without prior agreement by the other UK administrations and industries, to establish a separate Scottish quota management system on terms decided by the Scottish Executive alone, when those terms impinge directly and indirectly on ‘non-Scottish’ or ‘partially Scottish’ vessels.

We therefore think that the Scottish Executive does not have legal authority to pursue the course it has. It is very significant that the Scottish Executive is not consulting on whether a separate quota system is a good idea but only on the detail of how a separate scheme could be run.

Contradictions
The consultation paper is written in aspirational prose to emphasise stability, protection, stewardship, a shared approach and support for communities. These are attributes of a quota management system that few could disagree with. However, underneath the prose there are evident tensions and contradictions which the consultation paper barely mentions or deliberately underplays.

On the one hand stability for most quota holders means the knowledge that their assets in quota and licence are secure. This is an important issue also for the banks that have lent money for investment in fishing. On the other hand, it is clear that the Scottish Executive has ambitions to redistribute quota to support those parts of the fleet that it deems to be deserving. A central thrust of the consultation paper is about giving the Scottish Executive the authority and control to give effect to these (largely unspecified) ambitions. We simply cannot see why a six year use period with the prospect of centralised redirection of quota to more deserving causes will provide existing quota holders with greater stability than they now enjoy. Such a system would make insecurity endemic and could fairly be represented as the reintroduction of micro-management and a much greater degree of centralised control.

The consultation document skirts over the fact that, except at the margins, this is a zero sum game and to reallocate to one part of the fleet requires reallocation fromanother part of the fleet that has come to believe (and can probably demonstrate in law) that it has a legitimate expectation to that quota. The proposals encourage the belief that existing quota holders and those parts of the fleet that would be quota recipients can both be winners when this is palpably untrue.

Experience has demonstrated that “underutilised quota” is a highly controversial area where different perceptions of uptake, lack of information on fishing patterns and fishing strategies, self-interest, market and micro-management collide.

This also highlights a fundamental inconsistency with potentially damaging consequences at EU level. Is it really possible to put up a coherent and credible defence of relative stability in international negotiations in 2012 whilst applying a use it or lose it approach at home? The underutilisation argument is precisely the one used by Spain to weaken and circumvent the principle of relative stability. These are dangerous waters to blunder into.

Quota Speculation
It is always convenient when driving through a major political initiative such as this to have at least one bête noire. Clearly, widespread speculation in quota would be harmful, as would be the drift of quota into the hands of large corporate groups such as the major supermarkets. But we remain to be convinced that the “slipper skipper” issue is on a scale that would justify the approach proposed. Furthermore, despite their populist appeal, we doubt whether such measures would be resistant to circumvention against a determined purchaser.

One feature of the consultation paper is its almost complete lack of statistical basis. As an example, it is impossible to judge from the consultation paper or the Impact Assessment whether we are seeing the beginnings of large-scale capital penetration or whether the amount of quota held in this way is at the margin and declining. No evidence is presented on which to arrive at a balanced conclusion on whether such draconian moves are necessary or desirable.

We hold no particular brief for fish-selling companies but it is clear that they have played a pivotal role in the development of the fleets and are part of the fabric of the fishing industry. We would anticipate that fish-selling companies’ interests could be damaged by these proposals but again no figures are presented to permit a reasoned conclusion. On the other hand, fish-selling companies which own fishing vessels or shares in fishing vessels would be well placed to attach quota to particular vessels to remain compliant and so one is left asking the question: what would the requirement actually achieve other than requiring the industry to jump through more hoops?

Conclusions
Aspects of the UK quota management system do need modernisation. When it is not motivated by insular and politically driven concerns, the consultation paper does contain some useful ideas worthy of consideration. These, however, would be best accommodated within a UK based regime.

The main issues currently confronting the fishing industry are viability in the face of fuel costs, highly restrictive TACs, effort control and issues of loss of access. The list does not include a UK quota management system that is in fact operating well, albeit in need of some fine tuning. Possibly the biggest issue impacting on quota management, the imbalance between capacity and availability of quota in the under-10 metre fleet, is a serious and difficult problem, largely created by past Government neglect. However, its solution lies with dissolving the line at 10 metres rather than those spelt out or hinted at in the consultation paper.

Overall, it is our view that the UK quota management system has evolved into a set of arrangements essentially fit for purpose. They are broadly understood and accepted by the industry. The introduction of FQAs in 1998 provided a means through which quota could be aligned with capacity without cumbersome and often controversial, bureaucratic, intervention. The Scottish fleet in particular benefited hugely from this arrangement in the intervening decade.

The appropriate response to this set of circumstances would be measured, balanced, incremental change, on the basis of a clear, costed, analysis, taking the fishing industry’s views and international ramifications into account.
Instead we have:

• a major distraction driven by factors outside the fishing industry at a time that the fishing industry is under extreme pressure
• a proposal to define “Scottish quota” unilaterally, in a way that is almost certainly outside the law but which captures the many benefits that the Scottish fleet have made from quota trading over the last decade
• A protectionist economic link requirement that is probably legally challengeable and seeks to place additional constraints on intra-UK trade in quota
• Moves to increase micro-management of producer organisations and to strengthen a command and control approach to fisheries when there is (admittedly slow and imperfect) movement away from this model at EU level
• A rhetorical commitment to stability whilst undermining the assets on which that stability depends
• Raised expectations of a redistribution of quota to fishing communities, under 10s and new entrants, whilst conspicuously failing to indicate where the quota will come from
• Fears raised about quota speculation and large scale capital penetration without offering a single figure to demonstrate the scale of the problem or the trends
• The reintroduction of a use it or lose it approach which will undermine the market in quota and weaken the UK’s international negotiating position on relative stability

We have made clear that it is completely unacceptable and almost certainly illegal for the Scottish Executive to unilaterally define “Scottish quota.” Clearly this is a matter that will have to be resolved either at a high political level or in the Courts.

The Scottish fishing industry has been denied, in this consultation, an opportunity to comment on the central issue of whether it would prefer to continue with a modernised UK quota management system or move to a Scottish system. Much will presumably depend on the reaction of the Scottish fishing industry to this consultation paper and the moratorium which proceeded it but it seems to us that it is already clear that it is irredeemably divided on the issue.

If, in the face of opposition from significant parts of the Scottish fishing industry, legal challenges and whatever position Defra eventually takes, the Scottish Executive decides to proceed with its proposals, we are in for a torrid time. As there is no question of allowing the Scottish Executive to impose its will unilaterally, we must enter difficult negotiations on the terms of the divorce. We can expect this to be difficult, protracted and painful. As with all compromises no party will be completely satisfied.

Against this background we would urge the Scottish Executive to reconsider.

National Federation of Fishermen’s Organisations
August 2008