Fisheries of the Caribbean, Gulf of Mexico, and South Atlantic; Reef Fish Fishery of the Gulf of Mexico; Amendment 26, 67447-67462 [06-9342]

Agencies

• DEPARTMENT OF COMMERCE
• National Oceanic and Atmospheric Administration

[Federal Register Volume 71, Number 225 (Wednesday, November 22, 2006)]
[Rules and Regulations]
[Pages 67447-67462]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-9342]


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DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric Administration

15 CFR Part 902

50 CFR Part 622

[Docket No. 060731206-6280-02; I.D. 072806A]
RIN 0648-AS67


Fisheries of the Caribbean, Gulf of Mexico, and South Atlantic; 
Reef Fish Fishery of the Gulf of Mexico; Amendment 26

AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and 
Atmospheric Administration (NOAA), Commerce.

ACTION: Final rule.

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SUMMARY: NMFS issues this final rule to implement Amendment 26 to the 
Fishery Management Plan for the Reef Fish Fishery of the Gulf of Mexico 
(FMP). Amendment 26 establishes an individual fishing quota (IFQ) 
program for the commercial red snapper sector of the reef fish fishery 
in the Gulf of Mexico. Initial participants in the IFQ program will 
receive percentage shares of the commercial quota of red snapper based 
on specified historical landings criteria. The percentage shares of the 
commercial quota will equate to annual IFQ allocations. Both shares and 
IFQ allocations will be transferable. In addition, NMFS informs the 
public of the approval by the Office of Management and Budget (OMB) of 
the collection-of-information requirements contained in this final rule 
and publishes the OMB control numbers for those collections. The 
intended effect of this rule is to manage the commercial red snapper 
sector of the reef fish fishery to preserve its long-term economic 
viability and to achieve optimum yield from the fishery.

DATES: This rule is effective January 1, 2007, except: Amendments to

[[Page 67448]]

Sec.  622.4(p)(4) Sec.  622.7(gg), and (hh) are effective November 22, 
2006. The existing stay of Sec.  622.16 is lifted, effective November 
22, 2006. The revision of Sec.  622.16(b) is effective November 22, 
2006. The new stay of Sec.  622.16, except paragraph (b), is effective 
November 22, 2006, until January 1, 2007.

ADDRESSES: Copies of the Final Supplemental Environmental Impact 
Statement (FSEIS), the Final Regulatory Flexibility Analysis (FRFA), 
and the Record of Decision (ROD) may be obtained from Phil Steele, 
NMFS, Southeast Regional Office, 263 13th Avenue South, St. Petersburg, 
FL 33701; telephone 727-824-5305; fax 727-824-5308; e-mail 
Phil.Steele@noaa.gov.
    Comments regarding the burden-hour estimates or other aspects of 
the collection-of-information requirements contained in this final rule 
may be submitted in writing to Jason Rueter at the Southeast Regional 
Office address (above) and to David Rostker, Office of Management and 
Budget (OMB), by e-mail at David--Rostker@omb.eop.gov, or by fax to 
202-395-7285.

FOR FURTHER INFORMATION CONTACT: Phil Steele, telephone 727-824-5305; 
fax 727-824-5308; e-mail Phil.Steele@noaa.gov.

SUPPLEMENTARY INFORMATION: The reef fish fishery of the Gulf of Mexico 
is managed under the FMP. The FMP was prepared by the Gulf of Mexico 
Fishery Management Council (Council) and is implemented through 
regulations at 50 CFR part 622 under the authority of the Magnuson-
Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act).
    On August 2, 2006, NMFS published a notice of availability of 
Amendment 26 and requested public comments (71 FR 43706). On August 24, 
2006, NMFS published the proposed rule to implement Amendment 26 and 
requested public comments (71 FR 50012). NMFS approved Amendment 26 on 
October 26, 2006. The rationale for the measures in Amendment 26 is 
provided in the amendment and in the preamble to the proposed rule and 
is not repeated here.

Comments and Responses

    NMFS received a total of 1,890 comments on the proposed IFQ 
program, including 1,473 comments in favor of the program, urging NMFS 
to implement the IFQ program by January 1, 2007. The remaining comment 
letters opposed the IFQ program for reasons summarized below. Similar 
comments are consolidated, and each is followed by NMFS' response.
    Comment 1: Numerous individuals expressed concern about enforcement 
of the IFQ program and how it will prevent further illegal harvest of 
red snapper. Additional concerns included an alleged illegal fishery 
able to meet or exceed the commercial red snapper quota, inadequate law 
enforcement presence in the Gulf to curb this illegal harvest, IFQ 
shares given to commercial fishermen with past fishery violations, and 
inadequate penalties for fishery violations that do not inhibit 
potential violators from participating in illegal activities. In 
addition, some commenters recommended the Secretary of Commerce delay 
implementation of the IFQ program until the enforcement aspects of this 
program are reviewed by a Gulf of Mexico law enforcement taskforce.
    Response: The IFQ program was designed with full input by Federal 
and state law enforcement officers. The red snapper IFQ program will be 
intensely monitored, incorporating a vessel monitoring system (VMS) and 
pre-departure notification requirement implemented via Amendment 18A to 
the FMP, a requirement for advance notification of landing information, 
a dockside monitoring component, and real-time data management to 
account for all red snapper landed, including a checks-and-balances 
system matching quota allocations with fish purchased. Law enforcement 
officers will be able to correlate where fish have been caught, where 
they were physically landed, and to whom the catch (or portion of the 
catch) was sold. For individuals found in violation of the IFQ program, 
fines, loss of IFQ shares, and sanctions to their commercial reef fish 
permit could be imposed.
    Comment 2: Twelve comments were received questioning requirements 
of the IFQ program, including pre-departure notification, advance 
notification of landing information, restricted offloading times, 
security of personal identification numbers (PINs) for landing 
verification, and the cost recovery program.
    Response: The enforcement related requirements mentioned above are 
essential to the success of the IFQ program. Enforcement of regulations 
must exist to deter individuals from violating the law. The pre-
departure notification requirement is associated with the VMS 
requirement implemented via Amendment 18A to the FMP, not Amendment 26. 
Advance notification of landing information is required and is 
essential for monitoring IFQ landings and ensuring the integrity of the 
IFQ program. The IFQ program requires allocation holders landing red 
snapper and dealers receiving red snapper to enter data for landings/
sale transactions. The IFQ share/allocation holder would validate the 
transaction online by entering his unique PIN number at the point of 
transaction submittal to ensure validity in landings data, such as 
total weight and ex-vessel value of landings. The PIN number is 
protected so the PIN number is not revealed. The Magnuson Stevens Act 
requires NMFS to establish a fee to assist in recovering the actual 
costs directly related to the management and enforcement of any IFQ 
program. Cost recovery fees would be paid by the IFQ share/allocation 
holder landing red snapper. NMFS expects these costs should be more 
than offset by increased profits realized under the IFQ program.
    Comment 3: One commenter indicated Amendment 26 disregarded 
requirements of the Magnuson-Stevens Act. The commenter was concerned 
the IFQ plan accounted for only past participation and not present 
participation, specifically stating that the landings data from the 
years 2005 and 2006 were not used to initially calculate IFQ shares. 
The commenter was also concerned the IFQ plan did not account for 
dependence on the fishery.
    Response: Throughout the development of the IFQ program, the issues 
of initial eligibility for and initial allocation of IFQ shares have 
featured prominently in Council deliberations. Both past and present 
participation played an important role in designing the IFQ program. To 
take into account present participation in the fishery, only those who 
own Class 1 or Class 2 licenses at the time this final rule is 
published in the Federal Register would be eligible for initial 
distribution of IFQ shares. However, past participation, as evidenced 
through historical landings associated with a reef fish permit, 
determines the amount of IFQ shares allocated to each eligible 
participant. Historical landings are deemed to reflect each 
participant's dependence on the fishery.
    The qualifying landings are those made during the period 1990-2004 
for Class 1 licenses or 1998-2004 for Class 1 historical captain and 
Class 2 licenses. The years 1990 and 1998 reflect the beginning years 
for which landings could be assigned to appropriate licenses. The 
Council and NMFS recognize that some long-time participants who no 
longer own Class 1 or Class 2 licenses, as well as some current owners 
of Class 2 licenses, may not receive initial IFQ shares. However, after 
receiving input from the public, the Council chose 2004 as the ending 
year for allocation purposes to deter speculation in the fishery while 
the

[[Page 67449]]

details of the IFQ program were being developed.
    Comment 4: Some commenters requested Limited Access Privilege 
Programs (LAPPs) be developed for other fisheries such as the for-hire 
sector or the multi-species reef fish fishery. Others supported a 
commercial buy-out program of red snapper fishermen by the recreational 
sector.
    Response: The amendment did not consider the topics listed in the 
above comment. Therefore, this comment is beyond the scope of the rule. 
However, the Council is currently considering implementing a more 
comprehensive LAPP in the Gulf of Mexico reef fish fishery.
    Comment 5: One organization indicated 17 lapsed Class 2 licenses 
should not be included in the initial allocation to avoid possible 
challenges from other fishermen with lapsed or otherwise disputed 
licenses. The number of active permits used in the amendment is 
inaccurate.
    Response: NMFS records and monitors the number of permits and 
licenses in the Gulf of Mexico commercial red snapper fishery. At the 
time of final rule publication, owners of Class 1 or Class 2 licenses 
will be eligible for initial distribution of IFQ shares, with their 
shares determined by their average landings during select years for the 
qualifying period of 1990-2004 for Class 1 licenses or 1998-2004 for 
Class 1 historical captain and Class 2 licenses. These determinations 
are based on landings history and whether all Class 1 and Class 2 
licenses have been validly issued. When the amendment was being 
developed, the current number of permits was accurately assessed and 
provided at that time.
    Comment 6: Several commenters were opposed to the VMS requirement 
because a tracking device is a violation of privacy and vessel owners 
should not be required to have VMS units installed on their vessel. One 
commenter suggested fishermen who have three convictions or more 
involving excessive trip limits, closed area harvest, or illegal sales 
be required to install VMS on their vessel. The commenter also 
suggested VMS units be installed on randomly selected vessels with the 
cost of VMS to be paid for by NMFS.
    Response: The final rule does not include the VMS requirement for 
vessels with a commercial Gulf reef fish vessel permit as proposed in 
Amendment 26. Amendment 26 stated the VMS requirement would be 
unnecessary if Reef Fish Amendment 18A and the associated VMS 
requirement were approved by NMFS. NMFS has implemented the final rule 
for Amendment 18A (71 FR 45428, August 9, 2006), requiring VMS units be 
installed on all vessels with a commercial or for-hire reef fish 
permit. Therefore, there is no need to implement any additional VMS 
requirements with Amendment 26.
    Comment 7: Several commenters indicated the IFQ program 
marginalizes the recreational sector and the allocation of total 
allowable catch (TAC) should be shifted more in favor of the 
recreational fishery.
    Response: Amendment 26 does not reallocate TAC between the 
commercial and recreational fisheries. The commercial quota managed by 
the IFQ program would be distributed based on the same allocation 
methodology used for previous years (i.e. 51 percent commercial/49 
percent recreational). The primary purpose of the IFQ program is to 
reduce overcapacity in the commercial red snapper fishery and to 
eliminate, to the extent possible, the problems associated with derby 
fishing, in order to assist the Council in achieving optimum yield from 
the fishery. Reallocating the TAC would need to be addressed in a 
separate amendment.
    Comment 8: One commenter disputed the sentence on page 38 of 
Amendment 26, which stated, ``The rapid growth and overcapitalization 
of the red snapper fishery have intensified the race for fish.'' 
Another commenter stated the commercial red snapper fishery is not 
overcapitalized.
    Response: The issue of overcapitalization in the commercial red 
snapper fishery has been analyzed in the amendment and has been 
extensively discussed during the development of the IFQ program. The 
harvest capability of the red snapper commercial fishery is larger than 
needed to harvest the commercial quota in an economically efficient 
manner, i.e. the fishery is overcapitalized. This overcapacity is 
evidenced by derby-type conditions. For example, the commercial fishery 
landed its 3.06 million-lb (1.39 million-kg) annual quota in 71.5 days, 
on average, from 1992 through 1995, and their 4.65 million-lb (2.11 
million-kg) annual quota in 77.2, on average, from 1996 through 2003. 
The current commercial red snapper management regime continues to 
constrain the ability to effectively achieve the goals and objectives 
specified in the FMP and in the Magnuson-Stevens Act's ten national 
standards.
    Comment 9: Several commenters stated the IFQ program is unfair to 
crew members and processors, eliminates jobs, harms coastal economies, 
and does not protect the historical integrity of coastal fishing towns. 
One commenter indicated there was no public comment period on the 
social impacts of the IFQ program, nor was there enough data to 
properly assess the effects of the program on the ancillary components 
of the commercial red snapper fishery.
    Response: Amendment 26 analyzes the potential effects of the IFQ 
program on crew members, processors, and coastal fishing communities 
where they are located. With the potential for consolidation of 
existing permits and the reduction in overcapacity, crew members may 
become unemployed with trickle-down effects on fishing communities. 
This is a collateral consequence that may not be avoided in the process 
of promoting efficiency in the fishery. Those employed in the fishery, 
however, can expect a more stable employment opportunity under a more 
efficient fishery. The IFQ program may also change the dynamics of 
negotiations in the fishery. With more flexibility in their fishing 
practices, fishermen may be able to extract some of the profits 
previously enjoyed by dealers/processors. However, the ex-vessel demand 
is a derived demand from consumers. Hence, the ability of fishermen to 
negotiate a better pricing schedule will still be constrained by 
factors faced by dealers/processors in the wholesale/retail market.
    Discussions of the social impacts are more qualitative than 
quantitative due to data limitations, as recognized in the amendment. 
However, the socioeconomic information presented in the amendment 
reflects the best available data. Overall, the IFQ program is expected 
to produce net social and economic benefits. Public comments have been 
sought for all aspects of this program, including the social impact 
analysis, at various public hearings, Council meetings, and during the 
public comment period for the Draft Environmental Impact Statement 
(DEIS), the amendment, and proposed rule.
    Comment 10: Several commenters responded negatively to the IFQ 
program because it creates new-found wealth among quota recipients by 
privatizing a public resource, unequally distributes that wealth among 
participants, and prohibits new entrants into the fishery because of 
prohibitively high share costs. Other commenters suggested initial IFQ 
shares should be distributed equally among Class 1 and Class 2 red 
snapper license holders instead of being issued based on landings data. 
These commenters also suggested the Class 1 votes from the referendum 
were weighted unfairly.

[[Page 67450]]

    Response: Assigning harvest privileges to a public resource is a 
controversial issue discussed in the amendment. This issue, however, is 
not unique to the IFQ program as it also characterizes the current 
license limitation system. NMFS agrees with the Council in contending 
that, in addition to effectively addressing overcapitalization and 
derby conditions in the fishery, the IFQ program can foster stewardship 
of the resource better than the current system due to the assurance IFQ 
shareholders have on the amount of fish they have the opportunity to 
harvest. Further, the Magnuson-Stevens Act makes it clear that IFQ 
programs do not create, nor can they be construed to create, any right, 
title, or interest in or to any fish before the fish are harvested. The 
current license limitation system encourages participants to harvest 
fish as fast as they can before the quota is reached and the fishery is 
closed. While an IFQ program may cause some fishermen to feel 
disenfranchised, an IFQ program will have an overall net benefit to the 
nation as it helps to achieve optimum yield in the red snapper fishery, 
as required by the Magnuson-Stevens Act.
    Several alternatives were considered regarding the initial 
distribution of IFQ shares among eligible participants, including equal 
distribution among eligible Class 1 and Class 2 license holders. The 
Magnuson-Stevens Act requires consideration of historical participation 
in distributing IFQ shares among eligible participants. NMFS agrees 
with the Council that allocation of IFQ shares in proportion to 
landings is more fair and equitable than an equal distribution of IFQ 
shares, since landings indicate dependence on and commitment to the 
fishery. The two red snapper referenda are not part of this final rule, 
although they were required before the IFQ program could proceed. The 
weighting of the votes, as specified by the Magnuson-Stevens Act, was 
based on the proportional harvest under each permit and endorsement 
between January 1, 1993, and September 1, 1996.
    Comment 11: One commenter suggested the development of the IFQ 
program should not have followed Department of Justice Guidelines 
relative to market entry. The commenter was also concerned about price 
fixing by large fish houses that control many of the Class 1 licenses 
and catch a large portion of the quota. Additionally, the commenter was 
concerned that the 8-percent ownership cap is too excessive and would 
allow an entity to acquire excessive shares in the fishery. Finally, 
the commenter stated the 0.0001 percent minimum share limitation is too 
low.
    Response: Reference to the Department of Justice's Horizontal 
Merger Guidelines in the proposed rule was made in recognition that 
some may consider the choice of an ownership cap to be too low. The 
Guidelines merely describe the analytical process the Department of 
Justice will employ in determining whether to challenge a horizontal 
merger. The Council considered several alternatives regarding ownership 
caps, ranging from no cap to a cap of as low as 2 percent. With input 
from members of the public, particularly the industry advisory panel, 
the Council chose an ownership cap equal to the highest allocation an 
IFQ holder possesses at the time of initial allocation of IFQ shares. 
If an ownership cap is too high, market power may become too 
consolidated and produce an unduly anti competitive market. However, 
setting the limit too low could also have adverse effects on the 
economic efficiency of the industry. This can happen in cases where it 
is less costly overall for fewer entities to each catch more fish than 
it is for many entities to each catch smaller amounts of fish. Aside 
from considerations of controlling the undue consolidation of market 
power and maintaining a fair level of competition, Section 303(b)(6) of 
the Magnuson-Stevens Act requires consideration of several factors in 
establishing a limited access program such as the red snapper IFQ 
program. Those factors include, but are not limited to: present 
participation in the fishery; historical fishing practices in, and 
dependence on, the fishery; the economics of the fishery; and the 
cultural and social framework relevant to the fishery and any affected 
fishing communities. Although the approximately 8-percent cap may not 
result in consolidation rising to the level of presenting an undue 
concentration of market power or less competition, a higher cap could 
result in levels of consolidation producing effects that are 
problematic under the Magnuson-Stevens Act. Examples would include 
potentially eliminating numerous small-scale historical participants, 
adversely affecting the social and cultural framework of the fishery by 
adversely affecting working conditions and wages for crew, and 
potentially adversely affecting prices. NMFS solicited comments on 
appropriateness and magnitude of the proposed ownership cap in the 
proposed rule. The only comment received suggested the 8-percent cap 
was too high.
    Current information indicates ex-vessel demand for red snapper is 
elastic, indicating the absence of market power (and resulting price 
fixing) despite the presence of some entities owning as many as six 
Class 1 licenses. Being a derived demand, ex-vessel demand is partly 
determined by the demand at the wholesale and retail markets. Factors 
affecting the wholesale and retail markets, in addition to the presence 
of many substitutes in the ex-vessel market, make it very difficult for 
a dealer or group of dealers to acquire enough market power to 
influence the ex-vessel price for red snapper. This is especially true 
with the presence of an ownership cap of about 8 percent. Currently, 
there are 17 fleet operations, i.e., entities owning more than one 
Class 1 license, accounting for as much as 40 percent of total 
commercial harvest of red snapper. It is fairly reasonable to expect 
these 17 operations to continue their business under the IFQ program. 
Even if these 17 operations increase their control of red snapper 
harvest, it is still very unlikely for any one of them to exercise 
strong market power to affect price fixing.
    The Council provided neither a minimum allocation nor minimum 
landing requirement for initial eligibility. The 0.0001 percent minimum 
initial IFQ share distribution is mainly intended to ensure the lowest 
allocation would be at least a practical minimum amount.
    Comment 12: Several commenters suggested the IFQ program limits 
quota shareholders right to a fair market value because they are 
limited to only selling their shares to other reef fish fishermen, at 
least for the first 5 years of the program.
    Response: Several alternatives were evaluated concerning who should 
be eligible to receive transfers of IFQ shares/allocations. These 
alternatives ranged from allowing everyone to receive transfers to only 
allowing IFQ share/allocation holders to receive transfers. The 
preferred alternative, allowing transfers to any valid commercial reef 
fish permit holder during the first 5 years and, thereafter, any U.S. 
citizen or permanent resident alien, is believed to be most equitable 
because it initially favors commercial reef fish fishermen who have 
invested time and resources into the fishery, but ultimately recognizes 
red snapper as a public resource.
    Comment 13: One commenter stated not enough of the cost to 
implement the IFQ program would be obtained through the cost recovery 
program, resulting in a taxpayer burden, and suggested the commercial 
fishermen cover the entire cost of the IFQ program. Another commenter 
indicated initial IFQ shares should be allocated through an auction

[[Page 67451]]

with the proceeds from the auction used to start the IFQ program.
    Response: Section 304(d)(2) of the Magnuson-Stevens Act requires 
the Secretary of Commerce establish a fee to assist in recovering the 
actual costs directly related to the management and enforcement of any 
IFQ program. Section 304(d)(2) states that the fee shall not exceed 3 
percent of the ex-vessel value of fish harvested under the IFQ program.
    Deciding who should initially be eligible to receive IFQ shares, 
and how those shares should be allocated are two of the most 
controversial aspects of designing and implementing an IFQ program. 
Ideally, IFQ shares should be widely distributed to avoid granting 
excessive windfall profits to a few fishery participants. Broader 
initial allocations distribute benefits more equitably and compensate 
more individuals as IFQ shares are consolidated through transfers. 
However, eligibility criteria also should consider time and capital 
invested in developing the fishery as required by Sec.  303(b)(6) of 
the Magnuson-Stevens Act. Class 1 license holders who own or operate 
most of the high volume vessels in the commercial red snapper fishery 
would likely conclude this alternative as unfair because they ventured 
the capital to create the fishery harvesting capacity.
    Comment 14: Without a mandatory sunset policy, NMFS is violating 
the public trust. The IFQ program should be offered for a limited 
duration so there is no confusion as to public ownership of the 
resource, and the public resource should not be leased for the benefit 
of the individual. A review of the IFQ program every 5 years is 
inadequate.
    Response: Existing United States IFQ programs define IFQs as 
``revocable privileges'' not permanent franchises. All limited entry 
systems, by definition, restrict the number of participants in the 
fishery. IFQ programs are a form of limited entry. As such, they are 
sometimes perceived (both by participants in fisheries and other 
members of the public) as an attempt to privatize a public resource and 
are at odds with the idea the public has an inalienable right to free 
access of public resources. The Magnuson-Stevens Act states that an IFQ 
is a permit that may be revoked or limited at any time in accordance 
with the Act. Giving the privilege to catch red snapper, while reducing 
overcapitalization and eliminating the effects of a derby fishery, will 
foster stewardship of the resource among IFQ shareholders who could be 
assured the opportunity to catch their allocation. The current license 
limitation system does not foster such a stewardship incentive, but 
rather encourages participants to compete to harvest the available 
quota before it is reached and the fishery closed.
    A sunset provision (i.e. limiting the duration of the proposed IFQ 
program to either 5 or 10 years as discussed in the amendment) would 
adversely affect the marketability of IFQ shares, and, thereby, 
minimize or negate the effectiveness of the IFQ program in reducing 
excess fishing capacity and providing associated physical, biological, 
ecological, social, and economic benefits. Consideration was given to 
reducing the time for a review of the IFQ program but ultimately a 
conclusion was reached that 5 years is a more reasonable time for 
evaluating the effects of the IFQ program.
    Comment 15: The IFQ program would completely deplete red snapper in 
the Gulf of Mexico. The IFQ program would create incentives to discard 
less economically valuable fish. Species other than red snapper caught 
as bycatch in the red snapper fishery will be caught more frequently 
because the IFQ program will allow fishing year round and there no 
longer is a closed season for red snapper.
    Response: The primary purpose of the IFQ program is to reduce 
overcapacity in the commercial red snapper fishery and to eliminate, to 
the extent possible the problems associated with derby fishing, in 
order to achieve optimum yield from the fishery. The IFQ program may 
increase fishermen's incentive to discard low value fish in favor of 
high value fish. However, the overall environmental benefits of the IFQ 
program to the red snapper stock, its habitat and other non-target 
species are expected to outweigh the adverse effects of any high 
grading activity. Additionally, NMFS is currently evaluating 
alternatives to reduce or eliminate bycatch in a Draft Environmental 
Impact Statement to Evaluate Alternatives to Set Gulf of Mexico Red 
Snapper Total Allowable Catch and Reduce Bycatch in the Gulf of Mexico 
Directed and Shrimp Trawl Fisheries (Red Snapper DEIS). The notice of 
availability for the Red Snapper DEIS published on October 13, 2006 (71 
FR 60509).
    Comment 16: Several commenters believe the data collection for the 
commercial and recreational fishery needs to improve for the IFQ 
program to work successfully.
    Response: Data collection for the commercial fishery would improve 
under the IFQ program. Landings data will be entered into an online 
accounting system immediately when fish are offloaded. This would 
provide real time accounting of commercial landings. Since the IFQ 
program is implemented for the commercial fishery, data collection for 
the recreational fishery is a separate issue and would be addressed in 
a separate amendment.
    Comment 17: Several individuals were concerned the IFQ program is 
inconsistent with ecosystem-based management and suggested the IFQ 
program should be opposed in favor of more fair and sustainable 
alternatives.
    Response: The Council and NMFS evaluated a range of alternative IFQ 
program elements. NMFS believes the IFQ program described by the 
preferred alternatives in the amendment would be the best means to 
accomplish the stated objective, which is to reduce overcapacity in the 
red snapper fishery, while achieving the best socioeconomic outcome for 
current red snapper commercial fishermen and the best biological 
outcome for red snapper and other affected species.
    Comment 18: One commenter suggested red snapper TAC and regulations 
remain status quo for at least 2 years and a precise economic study be 
conducted on the hurricane impacts on the stock as well as the 
communities, industries, and business directly or indirectly depending 
on the fishery.
    Response: Amendment 26 did not consider the effects of adjusting 
red snapper TAC as a method of preventing overfishing. This is 
discussed in the Red Snapper DEIS. Amendment 26 only discussed how IFQ 
shares and allocations would be adjusted if commercial quota is 
changed. The Council and NMFS periodically review and adjust TAC in 
response to new data and information, which generally take the form of 
new or updated red snapper stock assessments. The IFQ program specifies 
how resulting adjustments (reductions or increases) to the commercial 
quota would be distributed among IFQ shareholders. Adjustments in the 
commercial quota would be allocated proportionately among recognized 
IFQ shareholders (e.g., those on record at the time of the adjustment) 
based on the percentage of the commercial quota each holds at the time 
of the adjustment. Initial shares for 2007 will be based on 51 percent 
of 5 million lb (2.3 million kg), which is 2.55 million lb (1.16 
million kg) of the initial quota, or 51 percent of whatever TAC has 
been selected as the Preferred Alternative by NMFS or the Council. Any 
quota share balance resulting from a decision to specify a larger TAC 
would be distributed after the date of publication

[[Page 67452]]

of the final rule setting the new TAC, but no later than July 1, 2007.
    Comment 19: One commenter suggested an IFQ program would not meet 
the goals of Amendment 26 because the IFQ program will shorten the 
season as the quota is filled faster, will not reduce overcapacity, 
will not increase safety at sea, and will not decrease bycatch because 
Class 2 license holders who will lose their license under the initial 
eligibility criteria of the IFQ program, will no longer be able to land 
red snapper previously caught as bycatch when fishing for other 
species.
    Response: These issues are analyzed in the amendment and have been 
thoroughly discussed in the development of the IFQ program. Unlike the 
current system of closed and open seasons, the IFQ program will allow 
the fishery to be open all year long and, thus, allow fishermen to 
properly schedule their fishing activities. Fishermen, therefore, would 
not be forced to fish during inclement weather or at times when there 
are vessel safety concerns just to take advantage of the short open 
season. The IFQ program could result in consolidation of fishing 
operations to take advantage of cost savings, thus reducing fishing 
capacity. Under the IFQ program, both Class 1 and Class 2 license 
holders would be identified as IFQ shareholders. All owners of Class 1 
licenses are expected to receive IFQ share allocations. Of the 628 
Class 2 licenses, 146 are expected not to receive any allocation 
because they did not have any red snapper landings during the 
qualifying period of 1998-2004. Regarding bycatch of red snapper by a 
non-IFQ shareholder, an owner of a vessel with a commercial vessel 
permit for Gulf reef fish could obtain, at no cost, a Gulf red snapper 
IFQ vessel endorsement and purchase allocation from an IFQ shareholder 
to accommodate landing of red snapper bycatch. Bringing all commercial 
red snapper landings under the IFQ program allows better tracking of 
IFQ landings and commercial quotas.
    Comment 20: Commercial fishermen have publicly testified they would 
not change their fishing methods with the IFQ program, but Amendment 26 
indicates one of the benefits to the program would be fewer hooks in 
the water.
    Response: The purpose of the IFQ program proposed in the amendment 
is to reduce overcapacity in the commercial fishery and to end derby 
fishing. The harvest privileges provided by such a program are intended 
to eliminate the incentive to over invest in the fishery and race to 
fish, and to give fishermen a long-term interest in the health and 
productivity of the fishery and, thus, an incentive to conserve it for 
the future. In some cases, the increased flexibility afforded IFQ 
program participants has improved fishing and handling methods, thereby 
increasing product quality and reducing bycatch discard mortality. 
Extending the duration of the fishing season should increase catch 
efficiency. Subsequent changes in fishing practices would be expected 
with a fishery that is now open year-round instead of the first 10 days 
of each month. Over time the IFQ program is expected to attract those 
fishermen who have the most vested interests in the fishery and are the 
most efficient fishermen. Increased efficiency would lead to increased 
catch per unit effort and therefore, less hooks in the water to catch 
the same amount of fish.
    Comment 21: The share allocation provisions in the proposed rule 
are flawed since the provisions do not consider the allocation of the 
initial share to small- and entry-level fishermen who are not yet 
participating in the fishery as required by the Magnuson Stevens Act. 
Also, the proposed rule does not make provisions for reserving funds 
for assistance to new entrants.
    Response: The primary purpose of the IFQ program is to reduce 
overcapacity in the commercial red snapper fishery and to eliminate, to 
the extent possible the problems associated with derby fishing, in 
order to achieve optimum yield from the fishery. After the initial 
allocation, there would be a cost to enter the program, as new entrants 
must purchase shares. Therefore, those interested in entering the 
fishery who cannot afford to buy shares will be excluded from the 
program. One of the principal reasons for developing the proposed IFQ 
program is the fishery is overcapitalized, that is, the collective 
harvest capacity of fishery vessels and participants is in excess of 
that required to harvest the TAC. To remedy this problem, by definition 
the harvest capacity must be reduced. Therefore, loss of employment for 
some current participants, and negative effects on small communities, 
are unavoidable adverse effects of the proposed action. However, the 
overall net social and economic benefits of an IFQ program are expected 
to be better for the Nation as the program helps the red snapper 
fishery achieve optimum yield as required by the Magnuson-Stevens Act. 
The Council and NMFS did consider, during development of Amendment 26, 
the option of using funds from the cost recovery plan to aid these 
individuals in purchasing IFQ shares/allocations but elected not to do 
so at this time. However, this option may be reconsidered, at the 
Council's discretion, as the program evolves.
    Comment 22: One commenter indicated provisions requiring IFQ 
holders use the harvest privileges or forfeit them back to the 
government (i.e. a use it or lose it provision) are unfair. Another 
commenter indicated this provision was fair.
    Response: Although a use it or lose it provision was considered in 
the amendment, it was not proposed. The IFQ program, as implemented, 
would not include a use it or lose it provision.

Changes from the Proposed Rule

    In Sec.  622.4(a)(2)(ix), language was added to clarify that the 
IFQ program requirements do not preclude the existing ability of a 
person aboard a vessel with a commercial vessel permit for Gulf reef 
fish, nor the ability of a person aboard a vessel with an IFQ vessel 
endorsement, to fish for red snapper under the bag limit provisions. 
Those existing bag limit provisions include prohibition of the 
possession of the bag limit when commercial quantities of Gulf reef 
fish are possessed on board a vessel and a prohibition on sale or 
purchase of any Gulf reef fish caught under the bag limit provision.
    In Sec.  622.16(c)(3)(i), the advance notice of landing provision, 
the requirement to report the address of the dealer where IFQ red 
snapper are to be received has been removed. In some cases, fish are 
landed at sites other than the dealer's location, and the specific 
dealer address may not be known at the time of initial offloading. This 
revision would accommodate that circumstance without jeopardizing 
enforceability of the program. Also, in this paragraph, the time frame 
for the advance notice of landing has been revised from ''...at least 3 
hours in advance of landing...'' to ''...at least 3 hours, but no more 
than 12 hours, in advance of landing...''. This more specific time 
frame will provide fishers a reasonable time period to report and will 
provide a better-defined and more practical time period for enforcement 
purposes. Finally, in this same paragraph, language has been added to 
clarify that failure of a vessel owner or operator to comply with the 
advance notice of landing requirement, will preclude authorization to 
complete the required landing transaction report and will preclude 
issuance of the transaction approval code that is required to legally 
possess IFQ red snapper.
    Under NOAA Administrative Order 205-11, dated December 17, 1990, 
the Under Secretary for Oceans and Administration has delegated 
authority

[[Page 67453]]

to sign material for publication in the Federal Register to the 
Assistant Administrator for Fisheries, NOAA.

Classification

    The Administrator, Southeast Region, NMFS, determined that 
Amendment 26 is necessary for the conservation and management of the 
Gulf red snapper fishery and is consistent with the Magnuson-Stevens 
Act and other applicable laws.
    This final rule has been determined to be significant for purposes 
of Executive Order 12866.
    NMFS prepared a final supplemental environmental impact statement 
(FSEIS) for this amendment; a notice of availability was published on 
August 2, 2006 (71 FR 43706).
    NMFS prepared an FRFA, as required by section 604 of the Regulatory 
Flexibility Act. The FRFA incorporates the initial regulatory 
flexibility analysis (IRFA), a summary of significant issues raised by 
public comments, NMFS responses to those comments, and a summary of the 
analyses completed to support the action. A copy of the full analysis 
is available from the NMFS (see ADDRESSES). A summary of the analysis 
follows.
    Twelve comments were received on issues involving pre-departure and 
post-landing notifications, restricted offloading times, cost recovery 
program, and security of personal identification numbers (PINs) for 
landing verification. Except for cost recovery, all these issues relate 
to enforcement and monitoring of catches. These requirements are 
necessitated to effectively track and validate landings on a real-time 
basis and to enhance the likelihood of a successful IFQ program. The 
cost recovery program is a Magnuson-Stevens Act requirement mainly 
designed to shift the cost of the IFQ program to those who would 
directly benefit from the program. The fee is currently set at the 
maximum allowable level, 3 percent of ex-vessel value, but may be 
adjusted downward if the fee exceeds the actual costs directly related 
to the management and enforcement of the program. NMFS is strongly 
committed to providing security for PINs and will ensure such 
information is handled in compliance with existing requirements 
relevant to confidential information.
    One commenter questioned whether the IFQ program considered past 
and present participation, dependence on the fishery, and potential for 
excessive share ownership. The commenter was also concerned that 2005 
and 2006 landings were not used in calculating initial IFQ shares. The 
amendment contains substantial discussions of these issues, in addition 
to the fact that the Council received many comments from the public on 
each of these issues. NMFS agrees with the Council that restricting 
eligibility for initial IFQ distribution and consideration of landings 
history for calculating IFQ shares reflect past and present 
participation in the fishery as well as dependence on the fishery. NMFS 
also agrees with the Council in disallowing 2005 and 2006 landings to 
deter speculation in the fishery while the details of IFQ program were 
being developed.
    One organization commented that the number of active permits used 
in the amendment is inaccurate and that 17 lapsed Class 2 licenses 
should not be included in the initial allocation. NMFS records and 
monitors Class 1 and Class 2 licenses in the commercial red snapper 
fishery on a daily basis. The number used in the amendment accounts for 
all existing Class 1 and Class 2 licenses, regardless of whether they 
are active or inactive, expired or not. The current regulations allow 
renewal of a Class 1 or Class 2 license any time after it expires. The 
amendment only provides that whoever owns a Class 1 or Class 2 license 
at the time the final rule is published is eligible for initial IFQ 
allocation, with actual shares determined by landings during the 
qualifying period of 1990-2004 for Class 1 licenses not issued based on 
historical captain status, and 1998-2004 for Class 1 licenses issued 
based on historical captain status and for Class 2 licenses.
    One commenter noted the commercial red snapper fishery is not at 
overcapacity while another one disputed the statement in the Amendment 
that the rapid growth and overcapitalization of the red snapper fishery 
have intensified the race for fish. Since the 1990's, the harvest 
capability of the commercial red snapper fishery has far exceeded the 
level to harvest the quota in an economically efficient way. This has 
resulted in a derby-like fishery, with the usual negative results such 
as seasonally depressed ex-vessel prices due to market gluts and 
fishing during unfavorable weather conditions, among others. Management 
responded to these conditions by imposing more restrictive regulatory 
measures to alleviate the derby effects.
    One commenter stated that the IFQ program is unfair to crew members 
and processors, eliminates jobs, harms coastal economies, and does not 
protect the historical integrity of coastal fishing towns. The 
amendment notes that the expected consolidation of operations which 
reduce overcapacity would result in some crew members being displaced 
and this would create trickle-down effects on fishing communities. This 
is an unavoidable consequence of promoting efficiency in the fishery 
but could also result in more stable employment for some crew members. 
The IFQ program may also change the dynamics of negotiating in favor of 
harvesters, but the extent of such change is still constrained by 
factors faced by dealers/processors in the wholesale and retail market.
    Several commenters suggested distributing IFQ shares equally among 
Class 1 and Class 2 license holders. Others commented that the program 
unequally distributes wealth among participants and that the program 
prohibits new entrants into the fishery due to prohibitive share costs. 
The Council considered several alternatives on initial distribution of 
IFQ shares, including equal allocation among Class 1 and Class 2 
licenses. NMFS agrees with the Council's decision to allocate IFQ 
shares in proportion to landings, although this may result in unequal 
initial distribution of wealth. The reason for this is that 
proportional allocation is more fair and equitable than equal 
distribution, because proportional landings are more reflective of 
historical participation in, dependence on, and commitment to the 
fishery. Entry into the fishery is actually expected to be less costly 
under the IFQ program than under the current system, since IFQs can be 
purchased in lower denominations whereas licenses can only be bought as 
whole licenses. New entrants can especially benefit from this, because 
they can first experiment on a limited basis and evaluate their 
performance before committing more resources into the fishery.
    One commenter suggested, in effect, that the ownership cap is too 
high and raised concern about price fixing by large fish houses owning 
many Class 1 licenses. The Council considered ownership cap 
alternatives ranging from 2 percent to no cap. The Council's choice of 
an ownership cap equal to the highest allocation an IFQ holder receives 
at the time of initial allocation (about 8 percent) was based on inputs 
from members of the public, including the industry advisory panel. The 
Council deemed this level not to result in market power concentration 
while at the same time it would not penalize the current largest 
operation. In the absence of market power, price fixing is not likely 
to happen. In addition, at least the current 17 fleet operations are 
expected to remain in the fishery under the IFQ programs and, thus, 
would provide

[[Page 67454]]

enough competition to make price fixing very unlikely.
    Several commenters suggested the requirement, during the first 5 
years of the program, to sell IFQ shares only to a person who has a 
commercial vessel permit for Gulf reef fish limits shareholders' right 
to a fair market value. The Council and NMFS recognize this potential 
side effect. However, the Council and NMFS approved this alternative to 
ensure, initially, IFQ shares are owned by persons who have a 
demonstrated dependence on the commercial reef fish fishery.
    One commenter stated the IFQ program will shorten the season, will 
not reduce overcapacity, and will not increase safety at sea. The same 
commenter also said the program will not reduce bycatch especially for 
Class 2 license holders ineligible for initial IFQ distribution who 
will no longer be able land red snapper as bycatch. The amendment 
discusses at length that under the IFQ program, the fishery will be 
open year round. This affords more flexibility among fishermen to 
schedule their harvest to take advantage of stock, market, weather, and 
other conditions, including vessel safety. Consolidation of operations 
is an expected result as operations scale down to take advantage of 
cost efficiencies in production, thus reducing overcapacity. With less 
effort in the fishery, bycatch is expected to decrease. Class 2 
licenses which will not receive allocations are those that reported no 
landings as bycatch or otherwise.
    These and other comments have not resulted in changing the proposed 
rule, so the economic analysis conducted for the proposed rule has also 
not changed. The following completes the FRFA summary.
    The Magnuson-Stevens Act provides the statutory basis for the final 
rule. The final rule will establish an IFQ program for the commercial 
red snapper fishery in the Gulf. Specifics for this IFQ program include 
the following: (1) no limit on the duration of the program, but a 
program evaluation is required every 5 years; (2) maximum IFQ share 
ownership equal to the maximum percentage issued to an initial 
recipient of IFQ shares; (3) restriction on initial eligibility only to 
owners of Class 1 or Class 2 license holders; (4) proportionate 
allocation of initial IFQ shares based on average annual landings for 
10 consecutive years during 1990-2004 for Class 1, seven consecutive 
years during 1998-2004 for Class 1 historical captains, and five years 
during 1998-2004 for Class 2; (5) establishment of an appeals process 
and a set-aside of 3 percent of the commercial quota to resolve 
appeals; (6) restriction on transfers of IFQ shares/allocations only to 
those with a valid commercial reef fish permit during the first 5 years 
and, thereafter, to any U.S. citizen or permanent resident alien; (7) 
proportionate allocation of commercial quota adjustments based on 
percentage holdings at the time of the adjustment and phased-in 
issuance of IFQ allocations for the 2007 season; and, (8) provision for 
IFQ cost recovery fees to be paid by IFQ holders but collected by 
registered IFQ dealers/processors. The main objectives of the final 
rule are to address the excess capacity and derby problems in the 
commercial red snapper fishery.
    The final rule would generally impact two types of businesses in 
the Gulf reef fish fishery, namely, commercial fishing vessels 
(including recreational for-hire vessels with commercial reef fish 
permits) and fish dealers. At present, the Gulf of Mexico (GOM) 
commercial reef fish permits are under a license limitation program, 
and licenses are renewable every year. Also, the commercial red snapper 
fishery is presently under a two-tier license limitation program. A 
Class 1 license entitles the holder a trip limit of 2,000 lb (907 kg) 
of red snapper while a Class 2 license affords a lower trip limit of 
200 lb (91 kg). Each type of license is allowed only one trip per day. 
The IFQ program would replace this two-tier license limitation system 
in the commercial red snapper fishery, but the limited access program 
for commercial reef fish permits remains.
    There are 1,118 active commercial reef fish permits and 91 others 
that are currently expired but may be renewed within a year. Thus, a 
total of 1,209 vessels may be considered to comprise the universe of 
commercial harvest operations in the GOM reef fish fishery. Of the 
1,209 commercial permittees, 136 entities hold Class 1 licenses and 628 
entities hold Class 2 licenses. Of the 136 Class 1 licenses, seven have 
been issued on the basis of the historical captain criterion. All 
original owners of Class 1 historical captain licenses have sold their 
licenses. Reported average annual gross receipts (in 2004 dollars) of 
commercial reef fish vessels in the GOM range from $24,095 for low-
volume vertical line vessels to $116,989 for high-volume longline 
vessels. The corresponding annual net incomes range from $4,479 for 
low-volume vertical line vessels to $28,466 for high-volume vertical 
line vessels. Permit records indicate there are 17 Class 1 fleet 
operations owning 58 licenses. In 2004, the top three fleet operations 
landed a total of 987,532 lb (447,937 kg) of red snapper, or an average 
of 329,177 lb (149,312 kg) per fleet operation. At the 2004 average red 
snapper ex-vessel price of $2.83 per pound, the average pounds landed 
convert to ex-vessel revenues of $931,571. No fleet information is 
available for Class 2 licenses, but it is fairly safe to assume that if 
ever a Class 2 fleet operation exists, it would generate much less 
revenues than its Class 1 counterparts.
    There currently exists a permitting requirement for dealers to buy 
or sell reef fish, including red snapper, caught in the GOM. This 
permitting requirement remains under the IFQ program, but in addition, 
a red snapper endorsement would be required for dealers to buy or sell 
red snapper. Based on the permits file, there are 227 dealers 
possessing permits to buy and sell reef fish species. However, based on 
logbook records, there are 154 reef fish dealers actively buying and 
selling red snapper. It is possible that some of the 227 dealers may be 
handling red snapper in one year but not in another. Dealers in Florida 
purchased about $1.8 million worth of red snapper, followed by dealers 
in Louisiana with purchases of $1.4 million, and dealers in Texas with 
purchases of $1.3 million. Dealers in Mississippi purchased $174 
thousand worth of red snapper, and those in Alabama, $88 thousand. 
These dealers may hold multiple types of permits and, because we do not 
know 100 percent of the business revenues, it is not possible to 
determine what percentage of their business comes from buying and 
selling red snapper.
    Average employment information per reef fish dealer in the GOM is 
unknown. Although dealers and processors are not synonymous entities, 
employment for reef fish processors in the Southeast totals 
approximately 700 individuals, both part- and full-time. It is assumed 
all processors must be dealers, yet a dealer need not be a processor. 
Further, processing is a much more labor intensive operation than 
dealing. Therefore, given the employment estimate for the processing 
sector, it is likely the average dealer employment would be lower.
    The Small Business Administration (SBA) defines a small business as 
one that is independently owned and operated, is not dominant in its 
field of operation, and has annual receipts not in excess of $4.0 
million in the case of commercial harvesting entities or $6.5 million 
in the case of for-hire entities. In the case of fish processors and 
fish dealers, rather than a receipts threshold, the SBA specifies 
employee thresholds of 500 and 100 employees, respectively.

[[Page 67455]]

    Based on the gross revenue and employment profiles presented above, 
all permitted commercial reef fish vessels (including fleet operations) 
and reef fish dealers affected by the final regulations may be 
classified as small entities.
    The final rule introduces additional reporting and record-keeping 
requirements mainly through the tracking of IFQ shares and the 
corresponding red snapper landings and ex-vessel values.An electronic 
reporting system is the approach to track IFQ shares and corresponding 
red snapper landings. The reporting burden would mainly fall on the 
dealers. An IFQ dealer endorsement would be required of any dealer 
purchasing red snapper. The IFQ dealer endorsement would be issued at 
no cost to those individuals who possess a valid GOM reef fish dealer 
permit and request the endorsement. Although the current GOM reef fish 
dealer permit must be renewed annually at a cost of $100 for the 
initial permit ($25 for each additional permit), the IFQ dealer 
endorsement would remain valid as long as the individual possesses a 
valid GOM reef fish dealer permit and abides by all reporting and cost 
recovery requirements of the IFQ program. As an integral part of the 
electronic monitoring system, an IFQ dealer would be required to have 
access to a computer and the Internet for inputting, among other data, 
pounds and value of red snapper purchased by the dealer from an IFQ 
shareholder. If a dealer does not have current access to computers and 
the Internet, he or she may have to expend approximately $1,500 for 
computer equipment and accessories (one-time cost) and $300 annual cost 
for Internet access. Dealers would need some basic computer and 
Internet skills to input information for all red snapper purchases into 
the IFQ electronic reporting system. Dealers also have to remit to NMFS 
on a quarterly basis, the cost recovery fees equivalent to 3 percent of 
the ex-vessel value of red snapper purchased from IFQ shareholders. 
Although IFQ shareholders pay this fee, it is the responsibility of 
dealers to collect and remit these fees to NMFS. In addition to this 
quarterly remittance, dealers would be required to submit to NMFS a 
year-end report summarizing all transactions involving the purchase of 
red snapper. There is currently no available information to determine 
how many of the 227 reef fish dealers or of the current 154 red snapper 
dealers have the necessary electronic capability to participate in the 
IFQ program. However, demonstration of this capability would be 
necessary for IFQ program participation by any dealer.
    IFQ shareholders also have to use the electronic reporting system 
to report transfer/assignment of shares and allocation as well as to 
monitor their outstanding IFQ allocations. Similar skills and equipment 
needs for dealers also apply to IFQ shareholders. There are 95 IFQ 
holders based on Class 1 license qualification and as many as 482 IFQ 
holders based on Class 2 license qualification. Over time under the IFQ 
program, the number of IFQ shareholders is expected to decline.
    As required by the Sustainable Fisheries Act of 1996, two referenda 
involving qualified commercial red snapper fishery participants have 
been conducted. Results from both referenda indicate strong support for 
an IFQ program in the commercial red snapper fishery. No other federal 
rules have been uncovered that would duplicate, overlap or conflict 
with the final rule.
    The 764 vessels that have Class 1 or Class 2 licenses comprise 64 
percent of all vessels with GOM commercial reef fish permits. Also, at 
least 154, or 68 percent, of the 227 permitted reef fish dealers would 
be affected. It is clear then the final rule would affect a substantial 
number of small entities.
    Since all affected vessel and dealer operations are small entities, 
the final rule would not result in disproportional impacts where small 
entities are placed at a significant competitive disadvantage to large 
entities. Some vessel operations are relatively larger than others. In 
particular, 17 fleet operations account for as much as 40 percent of 
the entire commercial quota for red snapper. These 17 fleet operations 
and another 78 single vessel operations would initially receive about 
90 percent of IFQ shares. The other 482 smaller operations would 
receive the rest of the IFQ shares. Finally, 146 Class 2 vessel 
operations would likely not receive any initial IFQ shares, because 
they have no landings history during the qualifying period of 1998-2004 
for these licenses.
    The final rule has varying effects on the profitability of the 
affected vessel operations. Most likely, it has minimal effects on the 
profits of the 146 Class 2 vessel operations that have no red snapper 
landings. These vessels would mainly lose their relatively low-cost 
entry into the red snapper fishery should the need arise. Under the 
final rule, assuming they already have a Gulf reef fish permit, they 
have to buy shares/allocations even if they intend to fish only on a 
limited basis. Some of the 482 Class 2 vessel operations that may have 
increasingly relied on red snapper to supplement their overall harvests 
may receive small IFQ shares. They may either have to buy more shares/
allocations to continue fishing for red snapper or sell their shares. 
Either way, their overall profits may decline, at least initially, 
although in selling their IFQ shares they would receive some 
remuneration. The 136 Class 1 vessel operations and some Class 2 vessel 
operations that have relatively large red snapper landings are expected 
to benefit most from the IFQ program. An IFQ system is expected to 
improve the profitability of these vessels. This improvement would 
generally take time, since fishermen would have to adjust their 
operations to achieve the most profitable position. Such adjustment may 
involve consolidation of multiple vessel operations to lower costs, 
scheduling of harvests to take advantage of market and weather 
conditions, negotiation with purchasers to strike a long-term deal at 
relatively stable prices, or some other arrangements that take 
advantage of a relatively certain share of a season's quota at the 
start of the season. Some entities may be successful in making 
adjustments while others may not. For those that cannot, there is 
always the option to sell their shares. They may leave the red snapper 
fishery, but would receive some remuneration for doing so.
    Imposition of a cost recovery fee would also affect vessel profits. 
The fee, which is currently set at its allowable maximum of 3 percent 
of ex-vessel revenues, could potentially result in a bigger percentage 
reduction in profits, particularly for smaller operations. Larger 
operations, such as most Class 1 vessels, can absorb this fee because 
their profits are expected to increase under the IFQ program.
    The extent to which the IFQ monitoring system, including the 
collection and remittance of the cost recovery fees, would affect 
dealers' profitability cannot be quantified at this time. However, the 
relatively established dealers, the monetary cost requirement under an 
electronic monitoring system is probably small, especially if they 
already have computer systems in place. Smaller operations, however, 
may totally stay out of the red snapper fishery.
    This amendment considered several alternatives to the final rule. 
An alternative to the IFQ program is the current license limitation 
system. Under this system, overcapacity and derby effects have 
substantially constrained the profitability of the commercial harvest 
industry. The IFQ program is expected to effectively address these

[[Page 67456]]

major issues/problems in the fishery. There are two other alternatives 
with respect to the duration of the IFQ program. One specifies no 
duration while the other imposes a term limit on the program. The 
former has similar effects as the final rule, but it does not contain a 
mandatory evaluation of the program every 5 years. A sunset provision, 
as in the latter alternative, offers a lower likelihood for the IFQ 
program to achieve its intended objectives. Also, it would introduce 
uncertainties into the program due to potential changes in the ``rules 
of the game.''
    With respect to an ownership cap, two other alternatives were 
considered. One places no cap on ownership of IFQ shares while the 
other places a cap ranging from 2 to 15 percent of the commercial 
quota. The first alternative provides a fertile ground for 
consolidation of IFQ shares, but it could also lead to concentration of 
ownership to a select few at the expense of eliminating historically 
small-scale operations in the fishery. The second alternative may be 
too liberal (e.g., 15 percent) as to lead to over-consolidation or too 
restrictive (e.g., 2 percent) as to penalize the more efficient 
operations. It is worth noting that, as per advice of the Office of 
Management and Budget, public comment was especially sought on the 
issue of ownership cap as the proposed rule may be too limiting. The 
only public comment received on this issue suggested the ownership cap 
in the proposed rule is too high. The response to this comment 
discussed the rationale for not changing the final rule.
    Two other alternatives were considered on the issue of initially 
eligible persons. The first one does not specify persons eligible to 
receive initial IFQ shares, and thus does not provide guidance for 
initially allocating IFQ shares. The second restricts initial 
eligibility to Class 1 license holders. This is too restrictive as to 
disallow at least 482 Class 2 license holders from continued 
participation in the fishery at the