February 6, 1997
William T. Hogarth, Chief
Highly Migratory Species Management Division (FCM4)
Office of Sustainable Fisheries,
National Marine Fisheries Service
National Oceanic and Atmospheric Administration
Department of Commerce
1315 East-West Highway
Silver Spring, MD 20910
Attn: ASF
Dear Mr. Hogarth:
The Office of Advocacy of the U.S. Small Business Administration (SBA) was established by Congress under Pub. L. No. 94-305 to advocate the views of small business before federal agencies and Congress. Advocacy is also required by §612 of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) to monitor agency compliance with the RFA. On March 28, 1996, President Clinton signed the Small Business Regulatory Enforcement Fairness Act (SBRFA) which made a number of significant changes to the Regulatory Flexibility Act, the most significant being provisions to allow judicial review of agencies' compliance with the RFA.
On December 20, 1996, the National Marines Fishery Service (NMFS) National Oceanic and Atmospheric Administration (NOAA) published the proposed rule for the Atlantic Shark Fisheries: Quotas, Bag Limits, Prohibitions, and Requirements on page 67295 of the Federal Register, Vol. 61, No. 246. The rule would 1) reduce the commercial quotas for Atlantic large coastal sharks and Atlantic pelagic sharks under the framework provisions of the Fishery Management Plan for Sharks of the Atlantic Ocean (FMP); 2) impose a quota on small coastal species; 3) reduce recreational bag limits; 4) prohibit directed fishing of selected species; and 5) prohibit the filleting of sharks at sea.
In the proposed rule, the agency certifies to the Office of Advocacy that the rule will not have a significant impact on a substantial number of small entities. Advocacy is perplexed by the conclusion, as well as the agency's decision to impose catch NMFS Ignored NOAA's Criteria for Determining the Degree of Impact
In accordance with NOAA's criteria for assessing regulatory impact, a rule has a significant impact on a substantial number of small entities if 20 percent of those engaged in the fishery have either a reduction in gross revenues by more than 5 percent; an increase in total costs of production by more than 5 percent; a 10 percent increase in compliance costs; or if 2 percent of small business entities are forced to cease business operations. In view of NOAA' s standards, Advocacy is bewildered by the conclusion that the proposed regulatory actions, considered separately or in aggregate, will not have a significant impact on a substantial number of small businesses.
Quota Reductions Are Significant
The proposed rule will reduce the annual quotas of large coastal species from 2,570 metric tons to 1,285 metric tons which amounts to a 50 percent reduction of annual catch. NMFS contends that the quota will result in the displacement of vessels. NMFS uses the displacement as justification for maintaining a quota for pelagic sharks at 580 metric tons and establishing a precautionary quota of 1,760 metric tons for small coastal species. Currently, there is no quota for small coastal sharks. The precautionary quota is 32 percent less than the current total annual catch for small coastal species.
It is illogical to state that the actions will not have a significant impact on a substantial number of small businesses when the quotas will reduce the annual catch by greater than 50 percent. It is logical to infer that a 50% reduction in catch will result in a loss in revenue of at least 5 percent. This is confirmed by information obtained from associations which have contacted Advocacy about the economic impact of the proposed quotas. The Directed Shark Fishery Association asserts that the majority of the 134 directed shark vessels will lose more than 20 percent of their income. Some are expected to lose as much as 50 percent of their income. Surely a 20 percent loss in income exceeds the 5 percent reduction that triggers NOAA' s standard for significant economic impact. Accordingly, by the criteria set forth by NOAA, the impact of the proposed rulemaking would be significant.
Moreover, such a vast reduction would have to affect a substantial number of small businesses. NMFS acknowledges that practically all of the current participants in the shark fishery qualify as small businesses. The Regulatory Impact Review indicates that there are 326 fisherman, 134 of which qualify for direct permits in the shark fishery. As such, approximately 41 percent of the shark fishery consists of fishermen who only fish for sharks. The remaining fishermen are pelagic longline fishermen that also primarily fish for tuna and swordfish.
Considering the size of the reduction, it is reasonable to assume that all of the fisherman will sustain a reduction in revenue that is greater than 5 percent. Even a crude calculation that assumes that the 50 percent reduction only affects half of the directed shark fishermen, the rule would still affect 67 of the 326 fishermen or 21% of the industry.
Furthermore, in accordance with NOAA's standards, the proposed rulemaking would have a significant impact on a substantial number of small businesses in that at least 2% of the businesses in the industry will be forced to cease operation as a result of this rulemaking. The Blue Water Fisherman's Association maintains that the proposed rulemaking will force vessels that are unable to diversify their businesses into bankruptcy. Similarly, the North Carolina Fisheries Association contends that more than 7 of their 35 full-time shark fishermen will go out of business as a result the proposed rulemaking. As such, in the North Carolina Fisheries Association alone 20 percent of the businesses will close down. For NOAA to assert that a 20 percent closure rate is not significant flies in the face of its own standards and is a clear misrepresentation of the facts.
Conversion to Other Fishing Operations is Costly and Probably Not Feasible
Although NMFS justifies its actions by asserting that the fishermen could convert to other fishing operations, such conversions are expensive to the point of being prohibitive and impractical for some fishermen. It is Advocacy' s understanding that the cost of converting can range from $3,000 to $25,000 per boat, depending on the vessel, the equipment necessary for conversion, and the particular fishery selected. The expenditures are in addition to the economic loss that the businesses will encounter from the equipment that will become obsolete as a result of the regulation.
Such expenses and expenditures are significant in an industry where the average gross revenue of a sole fisherman is $139,000 per year.1 If the cost for obtaining new equipment is $25,000, simple elementary arithmetic reveals that such an expenditure would amount to approximately 18 percent of the business' revenues. To purchase new equipment, therefore, would increase costs and cause a reduction in revenues of greater than 5 percent. As stated above, the magnitude of the proposed rulemaking will result in an impact on a substantial number of businesses. As such, by NOAA's definition, such expenses would amount to significant impact on a substantial number of small businesses.
It should also be noted that because of the number of regulations imposed by NMFS, many fishermen may be apprehensive about investing in a fishery which may later encounter a similar reduction in quotas. Throughout the decade, NMFS has enacted similar restrictions and quotas which have forced fishermen to convert to other fisheries. For example, the tuna, flounder, snapper grouper, and swordfish fisheries have regulatory measures that prohibit the landing of a substantial number of fish. As such, converting to other fisheries could be problematic.
Furthermore, such conversions would affect the level of competition in the other fisheries because there would be more fishermen competing for the limited supply of fish. As such, fishermen who are currently in a particular fishery may be forced out of business. Similarly, fishermen may invest money to convert their operations and later be forced out of business due to the level of competition.
Prohibition on Filleting of Sharks at Sea Increases Costs
The proposed rulemaking exacerbates the impact of the quotas by prohibiting the filleting of sharks at sea. Instead of filleting sharks at sea, fishermen will have to bring the sharks to port to filet them. Although NMFS admits that the requirement will increase costs for fishermen, NMFS concludes that it will have little economic impact. This assertion is not supported by any data, research, or any other basis for the conclusion. It is simply a bald assertion. Advocacy contends that an unsubstantiated assertion is not valid for regulatory flexibility purposes.
An Initial Regulatory Flexibility Analysis is Required by RFA
Advocacy is disturbed by the fact that NMFS has provided no economic justification for the proposed rulemaking in view of obvious adverse impacts on small businesses as required by the RFA. The law is clear-an Initial Regulatory Flexibility Analysis (IRFA) is required when a proposed rulemaking will have a significant impact on a substantial number of small businesses.
As stated above, by NOAA's own criteria, the proposed actions individually have a significant impact on a substantial number of small businesses. Moreover, in the aggregate, the effects could be detrimental to the shark fishing industry. Accordingly, NMFS's conclusion that the proposed rulemaking will not have a significant economic impact on a substantial number of small businesses is incomprehensible to Advocacy. Given the foregoing, an IRFA is mandatory so that the industry can evaluate NMFS' s analysis and possible regulatory alternatives. Advocacy urges NMFS to abide by the law and prepare the requisite documents. If you would like to discuss this matter or if this office can be of any further assistance, please contact Jennifer A. Smith. She may be reached either by mail at the above address or by telephone at (202) 205-6943.
Thank you.
Sincerely,
Jere W. Glover
Chief Counsel
Jennifer A. Smith
Assistant Chief Counsel
ENDNOTES
1 The Number and Percent of Firms, Establishments, Employment, Annual Payroll, and Estimate Receipts by Industry and Employment Size. United States Census Bureau, Department of Commerce, prepared under contract by the Office of Advocacy, Small Business Administration, Washington, DC, 1995.