Executive Summary

For centuries, fish in the sea were assumed to be a limitless resource, available to all for the taking. More recently, however, depleted stocks and increasing competition for fish have led to a reexamination of this assumption and a search for new ways to manage marine fisheries. The challenge has been to maintain fisheries at sustainable levels, with due regard to productivity, employment, and the cherished way of life in many coastal communities.

With passage of the Fishery Conservation and Management Act of 1976 (now the Magnuson-Stevens Fishery Conservation and Management Act, MSFCMA), Congress for the first time mandated a national program for the conservation and management of fishery resources, to be developed by eight regional fishery management councils and implemented by the Department of Commerce through the National Marine Fisheries Service (NMFS). Councils have implemented measures to limit inputs to the fisheries and outputs from fisheries. Input controls limit such things as the number of participants in fisheries, the type and amount of gear, and methods of fishing. They may close certain areas to fishing and restrict the length of fishing seasons. Output controls use various means to limit catch to some level determined to be sustainable over the long term. Limits on overall catch, including total allowable catch (TAC), are set by the regional fishery management councils based on recommendations of stock assessment scientists. A range of input and output controls can be used separately or together, and many of these measures are discussed in Chapter 4.

Output controls typically include some mechanism for closing the fishery after the target harvest level has been achieved. One form of output control is the individual fishing quota (IFQ), a system under which harvesting privileges are allocated to individual fishermen. The Magnuson-Stevens Act defines an IFQ as



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--> Executive Summary For centuries, fish in the sea were assumed to be a limitless resource, available to all for the taking. More recently, however, depleted stocks and increasing competition for fish have led to a reexamination of this assumption and a search for new ways to manage marine fisheries. The challenge has been to maintain fisheries at sustainable levels, with due regard to productivity, employment, and the cherished way of life in many coastal communities. With passage of the Fishery Conservation and Management Act of 1976 (now the Magnuson-Stevens Fishery Conservation and Management Act, MSFCMA), Congress for the first time mandated a national program for the conservation and management of fishery resources, to be developed by eight regional fishery management councils and implemented by the Department of Commerce through the National Marine Fisheries Service (NMFS). Councils have implemented measures to limit inputs to the fisheries and outputs from fisheries. Input controls limit such things as the number of participants in fisheries, the type and amount of gear, and methods of fishing. They may close certain areas to fishing and restrict the length of fishing seasons. Output controls use various means to limit catch to some level determined to be sustainable over the long term. Limits on overall catch, including total allowable catch (TAC), are set by the regional fishery management councils based on recommendations of stock assessment scientists. A range of input and output controls can be used separately or together, and many of these measures are discussed in Chapter 4. Output controls typically include some mechanism for closing the fishery after the target harvest level has been achieved. One form of output control is the individual fishing quota (IFQ), a system under which harvesting privileges are allocated to individual fishermen. The Magnuson-Stevens Act defines an IFQ as

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--> “a Federal permit under a limited access system to harvest a quantity of fish, expressed by a unit or units representing a percentage of the total allowable catch of a fishery that may be received or held for exclusive use by a person" (MSFCMA, Sec. 3[21]). Individual fishing quotas have been used worldwide since the late 1970s. A few countries, particularly Canada, New Zealand, and Iceland, have significant experience in the benefits and problems of developing, implementing, and managing IFQs. This tool has been adopted in four U.S. fisheries (Alaskan halibut and sablefish, wreckfish, and surf clams/ocean quahogs), and programs were about to be implemented in two other fisheries when Congress intervened through enactment of the Sustainable Fisheries Act of 1996, establishing a moratorium on new programs. Congress asked the National Academy of Sciences to study a wide range of questions concerning the social, economic, and biologic effects of IFQs and other limited entry systems and to make recommendations about existing and future IFQ programs. A committee with expertise in fisheries biology and management, anthropology, economics, law, political science, and business was established to study all aspects of IFQs in response to the request from Congress. Over a seven-month period, the committee held hearings in Anchorage, Seattle, New Orleans, Washington, D.C., and Boston. It heard testimony from fishermen, processors, state and federal regulators, academicians, environmental groups, and members of the public, and received a large amount of written material. This report is the result of the committee's deliberations. The many witnesses who addressed the committee at its five hearings provided a broad view of the real and perceived effects of existing and proposed IFQ programs. Just as there is tremendous variation among U.S. fisheries, their regulations vary according to perceived necessities in each region and the dynamics of the regional fishery management councils. Again and again, the committee was warned against a "one-size-fits-all" approach. The committee was entreated to respect the individual needs of fisheries, fishing communities, and fishing regions, and to refrain from endorsing rigid blueprints at the expense of hard-won measures, carefully crafted to address unique local biologic and social conditions. Critics as well as supporters of IFQs recognized that this tool arose in response to real and pressing fishery problems—situations in which other types of regulation had failed to prevent a race for fish and overharvesting, and in which economic efficiency, safety, and product quality suffered. For example, in Alaska's halibut fishery prior to implementation of the IFQ programs, the season was progressively reduced in an attempt to maintain the annual catch of halibut within the TAC. In response, fishermen increased the number of vessels in their fleets and used larger and larger vessels, with more and more gear. The frenzied derbies1 sometimes forced the fishing fleet to operate in dangerous weather, exacerbated ghost fishing from gear lost in the race for fish, and created incen- 1   See glossary (Appendix F) for definition of terms.

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--> tives to waste other species caught in the process. The cyclical nature of the fishery left consumers facing gluts of fresh halibut for a few weeks each year and buying frozen fish for the remainder of the year. The Alaskan IFQ programs for halibut and sablefish addressed and reduced these problems. Evidence from the Alaskan IFQ programs suggests that the derby has been eliminated, safety has improved, and ghost fishing has been reduced. At the same time, these IFQ programs have left the halibut and sablefish fisheries with fewer fishermen (as intended) and have enriched many of those whose catch history qualified them for quota shares. The capacity of IFQs for transferability, consolidation, and leasing has led to a general concern that independent owner-operators of fishing vessels or crew members will be led into economic dependence on absentee owners as quota shares increase in value and small investors are excluded from the field. Consequently, some programs (e.g., Alaskan halibut and sablefish) have adopted owner-on-board and other provisions intended to prevent absentee ownership. Other fisheries in which IFQ programs have been used—the Atlantic surf clam and ocean quahog one, for example—were of somewhat different nature. However, even though that fishery did not have open access, the management situation through the 1980s created the equivalent of "derby" fishing, when boats were allowed to fish for very short periods of time in order to make the TAC stretch out over the year. A more striking difference from the Alaska IFQ programs is that the surf clam/ocean quahog IFQ program, the first in the United States, was based on free-market principles, with few restraints on ownership, transfer, or consolidation of shares. This program was extremely effective in eliminating economically excessive effort, but in so doing highlighted the tradeoffs involved in terms of the loss of jobs, and decreased opportunities for young people and hired captains to become vessel owners and for independent harvesters to find markets for their clams. Concerns About the Use of Individual Fishing Quotas The National Marine Fisheries Service and other agencies routinely estimate the size of marine fish stocks to determine the amount of fish that can be harvested in a given year so that fisheries can be sustained; this amount is the allowable biological catch. The catch level that fishermen are allowed to take is the TAC, which must be equal to or lower than the allowable biological catch. TACs are set for most fisheries. Most other fishery management measures are designed to help fisheries meet, and not exceed, the TAC. Reliance solely on TAC-based controls can induce fishermen to apply excessive inputs of labor and capital to a fishery as they compete for their share. Thus, arguments have arisen in recent years for controlling fishing activity, restricting access to fisheries, and relying on input controls, such as gear restrictions, and output controls, such as quotas and trip limits. Without controls on the amount of fishing, many fisheries

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--> are plagued by overcapitalization, waste, and pressures for management measures that place fish stocks at risk. Different methods of limited entry have been developed to control access to fisheries. The IFQ is one means to limit entry in order to reduce overcapitalization and the wasteful practices that occur under other systems. A major intended effect of IFQs is to create economic incentives for owners of vessels to decrease their inputs of labor and capital to a fishery. Thus, in fisheries with excess harvesting or processing capacity, vessels may be laid up and some crew members may lose their jobs, although others may increase their employment from a few days to several months per year. Processing plants may require fewer workers when processing is spread across a longer period of time. On the other hand, with IFQs, economic resources are no longer wasted through overinvestment in capital and labor. Changes in the harvesting and processing patterns resulting from IFQs could be beneficial to consumers favoring year-round fresh product. Decreased costs and increased profitability can benefit consumers and the nation. Although Congress requested a review of IFQs at a national level, it is difficult to discuss the implementation of these programs without consideration of the specific nature of each fishery and the social and economic communities associated with it, as the cases of the existing U.S. IFQ fisheries demonstrate. Each region is unique in terms of its biologic, social, and economic characteristics. To accommodate this regional uniqueness, Congress has delegated the development of fishery management plans to regional councils. A number of advantages and concerns were identified from the range of IFQ programs implemented in U.S. fisheries, through comments in favor of and against IFQs at the committee's public meetings, examination of published information, and the committee's knowledge of IFQs and other management techniques:  Advantages—IFQ programs are widely identified as being a highly effective way of dealing with overcapitalization in the fishing industry. Removing the race for fish has reduced the incentive to buy ever-larger vessels and more equipment and to fish during unsafe conditions. Consumers have been able to purchase fresh fish during longer periods of the year. Many fishermen testified that IFQs provided the opportunity to utilize better fishing and handling methods, reducing bycatch of nontargeted species and maintaining higher product quality. Gear conflicts may also be reduced by IFQs.  Concerns—A number of problems were identified in operative IFQ programs during the committee's work. Prominent among them are concerns about the fairness of the initial allocations, effects of IFQs on processors, increased costs for new fishermen to gain entry, consolidation of quota shares (and thus economic power), effects of leasing, confusion about the nature of the privilege involved, elimination of vessels and reductions in crew, and the equity of gifting a public trust resource.

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--> Summary of Recommendations IFQs can be used to address a number of social, economic, and biologic issues in fisheries management. Alternative management approaches can achieve some, but not all, of the objectives that can be achieved with IFQs. There are no general threshold criteria for deciding when IFQs are appropriate; the use of IFQs should be considered on a fishery-by-fishery basis. IFQs can be used to remedy the effects of overcapitalization and overfishing or to prevent the development of these negative effects. As discussed in greater detail later, decisions to develop IFQs or to use alternative methods of fishery management should be the responsibility of the regional councils. The following recommendations are directed separately to Congress, the Secretary of Commerce and the National Marine Fisheries Service, the regional fishery management councils, and states and others. However, some of the following recommendations overlap because different institutions share responsibilities related to the specific issues of fisheries management. IFQs should be allowed as an option in fisheries management if a regional council finds them to be warranted by conditions within a particular fishery and appropriate measures are imposed to avoid potential adverse effects. The issues of initial allocation, transferability, and accumulation of shares should be given careful consideration when IFQ programs are considered and developed by regional councils and reviewed by the Secretary of Commerce. What Should Congress Do? Because the committee believes that most decisions about IFQs are most appropriately made at the regional level, rather than the national level, the committee's recommendations to Congress relate primarily to changes that should be made to the Magnuson-Stevens Fishery Conservation and Management Act to govern the use of IFQs by regional councils. Congress should recognize that the design of any limited entry system in relation to concentration limits, transferability, and distribution of shares will depend on the objectives of each specific fishery management plan. This underscores the importance of providing flexibility for regional councils in developing IFQ and other limited entry programs. Congress should do the following: Lift the Moratorium. Congress should lift the moratorium on the development and implementation of IFQ programs established by the Sustainable Fisheries Act of 1996. Encourage Cost Recovery and Some Extraction of Profits. Congress should permit (1) assessment of fees on initial allocations of quota and first sale and

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--> leasing of it; (2) imposition of an annual tax on quota shares; and (3) zero-revenue auctions (see Box 5.1). The Magnuson-Stevens Act presently imposes limits on various fees that may be used to recover the cost of IFQ management and enforcement, but Congress should increase these limits so that costs of IFQ management and other forms of limited entry can be recovered fully. Additionally, revenues extracted from IFQ fisheries could be used to mitigate some of the potential negative impacts of IFQs and to support research to improve fishery management. Two forms of new value can be created by IFQs: windfall gain available immediately and rents2 generated later. The committee recommends that the Magnuson-Stevens Act be amended to  Allow the public to capture some of the windfall gain sometimes generated from the initial allocation of quotas in new IFQ programs;  Recover the incremental costs of IFQ management by authorizing the collection of fees from the transfer and/or holding of IFQs, even if these costs are greater than the existing limits; and  Authorize the extraction of some of the fishery profits (rents) in excess of cost recovery. Priority should be given to dedicating such revenues to improving the fisheries rather than to the general treasury. Support the Council Process. The Magnuson-Stevens Act gives responsibility for developing fishery management plans to the regional councils. The Secretary of Commerce bears the burden of implementing fishery management plans. Councils must consider conflicting interests and weigh competing considerations. In many cases, councils have spent years developing management plans, including those involving IFQs. Congress should recognize that the design of an IFQ or other limited entry system in relation to concentration limits, transferability, distribution of quota shares, and other design questions will depend on the objectives of a specific plan, requiring flexibility for regional councils in designing IFQ programs. Regional councils should have flexibility to adjust existing IFQ programs and develop new ones. Require Accumulation Limits. Congress should require any council considering an IFQ program to define "excessive share" for the program and use limits on accumulation of quota share or other measures to prevent excessive shares from developing. These limits should be fishery specific and may also be specific to areas and classes of vessel. Support Additional Study and Routine Data Collection. All fishery management systems, particularly those that limit entry, require social and economic data for 2   See Chapter 1 for an explanation of resource rent.

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--> both planning and evaluation. In addition to analyzing the impacts of regulatory actions, the data should be used to monitor the health of fisheries. Monitoring the status of the industry should be as routine and systematic as monitoring the status of the stocks. To date, the regional councils and NMFS have not had access to the data and studies required. Congress should ensure that funding is available to NMFS and the states for the routine and nationwide collection of social and economic information on U.S. marine fisheries in state and federal waters. Where possible, these efforts should be coordinated with cooperative statistics programs being carried out by the states and specific local studies funded through the National Sea Grant College Program and NMFS. It is crucial that all data collection and social and economic research be subject to objective, peer-reviewed selection processes. Determine Rules for Foreign Ownership. Although foreign ownership was an issue on which comment was specifically requested by Congress, little concern was expressed over it at the committee's hearings. This may have resulted because extensive restrictions on foreign ownership in U.S. waters already exist (by virtue of limits on vessel registration) or because other legislative remedies are being sought to reduce foreign participation in U.S. fisheries (e.g., passage of the American Fisheries Act [S. 1221] in 1998, increasing the minimum ownership requirements for U.S. fishing vessels). It appears that the imposition of further limits on foreign ownership would have profound implications on the holding of quota by processors and harvesters in fisheries where significant levels of foreign ownership already exist. Assessing the extent to which profits from U.S. fisheries are expropriated by foreign nations is beyond the scope of this evaluation of IFQs and limited access systems. If Congress were to decide to control foreign ownership, criteria could be established for IFQ-based and other fisheries. Enforcement would require careful analysis of financial and corporate records and the economic conditions of the fishery, and improved access by regulators to certain types of proprietary data. Delegate Decisions About the Transferability of Quota Shares. The decision about whether quota shares should be transferable, one of the most critical elements in the design of an IFQ program, should be delegated to the regional councils because it depends entirely on the specific goals and objectives of the management regime. Define the Nature of the Privilege. Other amendments to the Magnuson-Stevens Act should include provisions to  Make it clear that the nature of the interest embodied in an IFQ encompasses the right of a quota holder to protect the long-term value of quota shares through civil action against the private individuals or entities whose unlawful

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--> actions might adversely affect the marine resource or environment. However, the Magnuson-Stevens Act should be clear that the IFQ privilege does not authorize actions by quota holders against government agencies for decisions designed to protect marine resources and the environment through TAC reductions, area closures, or other restrictions that could affect the amount of fish available for capture. Actions should be available to councils to discourage behavior that degrades the productivity of resources and to reward exemplary behavior without disrupting the security of the harvesting privilege.  Authorize regional councils to decide on a case-by-case basis whether to limit the duration of IFQ programs through the inclusion of sunset provisions. What Should the Secretary of Commerce and National Marine Fisheries Service Do? The committee encourages NMFS to implement the central registry system for limited access system permits (as required by the Sustainable Fisheries Act of 1996) as soon as possible to increase the confidence of lenders in the security of loans for purchase of IFQs and provide opportunities for individuals to obtain financing to enter or increase their stake in IFQ-managed fisheries. NMFS should establish adequate monitoring and enforcement programs once limited entry systems are in place. Limited entry is becoming more standard in marine fisheries management and NMFS and the regional councils seem ill-prepared to meet the requirements of the Magnuson-Stevens Act for limited entry programs. Funds should be made available through NMFS to strengthen research on the design and impacts of IFQ programs and limited entry systems of all types. NMFS should review its priorities and practices to give greater weight to the social and economic data collection and studies mentioned earlier. The Secretary of Commerce should consider the following issues in reviewing proposed IFQ programs before implementation: Delegated management authority—In considering the range of potential management options, regional councils should not be precluded from considering proposals to delegate management authority to other entities within a region that would operate within the framework of the Magnuson-Stevens Act's national standards and NMFS regulatory guidelines. Long-term, routine data collection—The regional councils and the Secretary of Commerce should ensure that data collection and studies are undertaken as part of long-term, routine activities separate from the consideration of specific management alternatives for a fishery. It is significant that the committee was unable to analyze the full set of costs and benefits of any U.S. IFQ program because of the unavailability of the necessary information (see Appendix H).

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-->  Regular review and evaluation—The Secretary of Commerce should ensure that each fishery management plan that incorporates IFQs includes enforceable provisions for regular review and evaluation of the performance of IFQ programs, including a clear timetable, criteria to be used in evaluation, and steps to be taken if the programs do not meet these criteria. Provisions should be made for the collection and evaluation of data required for such assessments. This process could include review by external, independent groups.  Inclusion of fishing communities in initial allocations—Councils should consider including fishing communities in the initial allocation of IFQs (as community fishing quotas), where appropriate. The Secretary of Commerce should interpret the clause in the Magnuson-Stevens Act pertaining to fishing communities (National Standard 8) to support this approach to limited entry management. What Should Regional Fishery Management Councils Do? The committee directs most of its recommendations to the regional fishery management councils because they are in the best position to involve regional stakeholders and design management programs appropriate to the species they manage. The committee proposes several mechanisms, including IFQs, that could be useful in considering choices among the range of alternatives available to deal with problems such as overcapitalization and costly races for fish. Regional fishery management councils should address the following issues or perform these actions in developing and implementing IFQ programs:  Many individuals and groups have a stake in the development, implementation, and management of IFQ programs. Such stakeholders include vessel owners, hired skippers, crew members, processors, communities, fishery managers, environmental groups, and others. Councils should review the adequacy of stakeholder representation on advisory panels and other bodies and take steps to broaden representation, if necessary, to include representatives of stakeholders potentially affected by limited entry programs.  The biologic, social, and economic objectives of each fishery management plan and the means for achieving these objectives through IFQs (if they are deemed appropriate), should be specified clearly through a process that encourages broad participation by stakeholders.  Priority should be given to the question of social, economic, and biologic consequences of a proposed IFQ program and alternatives to it. The councils and NMFS must allocate more resources and attention to impact assessments, which are now required by law but often are given inadequate attention.  IFQ programs should include a commitment to monitor both (1) short-and long-term impacts and (2) the political, financial, and administrative ability to make changes as required to meet program objectives.

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-->  Control dates3 should be set early in the development of an IFQ program and be strictly adhered to throughout the development of the program, with a minimum amount of time between the control dates and the initial allocation of quota.  Councils should demonstrate that a wide range of initial allocation criteria and allocation mechanisms has been considered in the design of IFQ programs. Councils could avoid some of the allocation controversies encountered in the past by giving more consideration to (1) who should receive initial allocation, including crew members, skippers, communities, and other stakeholders; (2) how much they should receive; and (3) how much the potential recipients should be required to pay for the initial receipt of quota (e.g., auctions, windfall taxes).  Councils should avoid taking for granted the "gifting" of quota shares to the present participants in a fishery, just as they should avoid taking for granted that vessel owners should be the only recipients of quota and historical participation should be the only measure for determining initial allocations.  When designing IFQ programs, councils should be allowed to allocate quota shares to communities or other groups, as distinct from vessel owners or fishermen. For existing IFQ programs, councils should be permitted to authorize the purchase, holding, management, and sale of IFQs by communities. Such quota shares could be used for community development purposes, treated as a resource allowing local fishermen to fish, or reallocated to member fishermen by a variety of means, including loans.  Leasing of quota shares should generally be permitted but, if necessary, with restrictions to avoid creation of an absentee owner class. Making shares freely transferable is generally desirable to accomplish the economic goals of an IFQ program. However, if it is desired to promote an owner-operated fishery or to preserve geographic or other structural features of the industry, it may be necessary to restrict long-term transfers of quota shares to bona fide fishermen or to prohibit transfers away from certain regions or among different vessel categories.  Issues such as shifting distributions of quota share holdings among firms or communities can be addressed through setting upper limits on accumulation of quota shares. If important objectives include maintaining owner-operated fisheries and fishery-dependent coastal communities, greater attention may have to be 3   The date established for defining the pool of potential participants in a given management program. For example, in preparing to establish a limited entry program, a council might decide to establish a date that would serve as a cutoff for eligibility. With such a control date established, the council could proceed to assess alternative limited entry systems and other program design characteristics without the fear of stimulating speculative entry into the fishery. Unfortunately, because councils may be influenced by industry or required by NMFS to change the control date, there is often some speculative entry even when the control date is widely publicized. In the case of the Alaskan halibut and sablefish IFQ programs, delays in program implementation led to speculative entry by a sizable group that actively participated in the fishery between 1990 and 1994 but was left out of the initial allocation of quota shares.

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--> given to equity considerations in setting upper limits on ownership, limiting transfer of quota shares outside communities, and similar measures.  In any fishery for which an IFQ program is being considered, attention should be given to the implications of recreational participation in the fishery and, where appropriate, to potential application of the IFQ program to both commercial and recreational sectors.  Councils should design IFQ programs in such a way as to enhance enforcement by (1) ensuring the fairness of program design and (2) using design principles to reduce the incentives to cheat. Programs that are considered fair and desirable by participants are most likely to be respected. Such programs produce higher compliance rates with less necessity for increased enforcement. IFQ programs are more likely to be perceived as fair and desirable if affected stakeholders participate in their creation.  Councils should proceed cautiously in changing existing IFQ programs. Many individuals have made substantial investments in IFQ programs, even if they received little or no quota initially. Changes should be designed in a way that maintains the positive benefits of IFQs that result from their stability and predictability.  Councils should explore the use of individual and pooled bycatch quotas to control overall bycatch and encourage fishermen to minimize their bycatch rates. What Should States and Others Do? Fish populations often cross boundaries between federal and state waters. States should coordinate with the federal government in designing state fishery management programs that are compatible with federal limited entry systems. Regional councils should—at the earliest opportunity—officially inform affected state fishery agencies that they are considering adoption of an IFQ program for fisheries that occur in both federal and state waters. Proposed regulations implementing a federal IFQ program should specify the manner in which relevant state fishery policies and regulations would be made consistent with the federal system. Conversely, if states in a region have developed a coordinated and effective limited entry program in state waters, including IFQs, the regional councils should, where consistent with the national standards, complement these programs in federal fishery management plans. States should cooperate in the collection of social and economic data through regional cooperative fisheries statistics efforts. In particular, states should contribute to the collection of employment data and information about processing activities. Conclusions Although the IFQ is no panacea, it deserves a place in the array of techniques that may be needed in any particular fishery management plan. Its value in

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--> matching harvesting and processing capacities to the resource, slowing the race for fish, providing consumers with a better product, and reducing wasteful and dangerous fishing has been demonstrated repeatedly. If the regional councils choose to consider IFQs, they must recognize and respect the interests of all those involved in the fishery—crew members, skippers, their families onshore, prospective fishermen, and all related entities. Fairness and efficiency are mandated by the Magnuson-Stevens Act. In allocating harvest privileges to a national resource, managers must recognize that fisheries are held in trust for the nation and that the nation's stewardship as trustee cannot be abrogated. The allocation of permits to harvest a portion of the TAC is a management tool with high potential for efficiency and stewardship in a given fishery. At the same time, it cannot substitute for the federal government's responsibility to exercise stewardship in the national interest. Finally, it must be recognized that a system that confers harvest privileges in a fishery can be difficult to reverse once expectations have been created. The committee is by no means suggesting that IFQs be considered compensable rights. Rather, the committee recognizes the political and economic forces that are resistant to regulatory change once investments have been made. Care must be exercised balancing between the certainty needed by recipients of these privileges and the trust responsibility on behalf of the people for whom a fishery is managed.