Preserving the Independence of the Inshore Fleet in Canada's Atlantic Fisheries

Public Consultations - Moncton, PEI - January 21, 2004
Draft Summary

Overall Summary of the Session

• Many participants stressed the need to strengthen the owner-operator and fleet separation policies but many also support adapting these policies to current circumstances; processing interests argued for the elimination of these policies.
• Many proposed solutions to the problems associated with trust agreements through the creation of inshore “professional corporations”. Others suggested that inshore corporations that were family based and wholly held within the family would be consistent with the spirit of the fleet separation and owner operator policies.
• Many issues were raised with respect to comparative tax treatment with other industries and the necessity to plan for and manage intergenerational transfers.
• Some participants called on DFO to move more slowly with this issue and to create a working group created with DFO, CRA, lawyers, accountants and the fishing industry.
• Several noted that not all trust agreements are “bad”. Some communities have trust agreements that are beneficial, in others they are detrimental to the community. They wanted a cautious approach that would still allow some use of trust agreements provided they did not interfere with the spirit of the fleet separation policy.
• Discussion also included concerns in the region about the designation of a substitute operator and the period of time associated with the designation.

Summary of formal written presentations

• While the government has an excellent record of supporting entrepreneurship, it has a dismal record in allowing that entrepreneurship from maturing into exploitation. An example of this is the fishing licences that have flowed into the hands of processors, contrary to government policy, and money that used to go to a community now goes to an individual, probably outside the community.
• The fleet separation policy must be preserved and strengthened. DFO-induced and supported actions have seen the groundfish fishery and the full-bay scallop fishery leave southern New Brunswick to move into the hands of Nova Scotia processors; the discussion document says this is contrary to government policy.
• It is pointless to continue this line of discussion because the response is always the same; DFO will not go back and correct the errors that have resulted from policy being flouted; they say they are going to do things better from now on – but how?
• Under the Oceans Act, we have committed to applying the precautionary approach to fishing plans through a process called objectives based management – it would be refreshing to attend a meeting with DFO and hear DFO state an objective without using the word “quota”.
• For DFO to pursue a regulatory solution to the issue of trust agreements is a red herring; the process will bog down in legal arguments and challenges until it is pointless. The discussion document is not clear that a regulatory solution exists.
• The fleet separation policy is closely tied to the owner-operator policy. A strengthening of this policy may accomplish the same thing. We have no problem saying a person must have two years experience before they can obtain a fishing licence; we should be able to say that a licence is not transferable for a minimum of five years. At least the operator must be well treated.
• Another option is to cancel a licence held in a trust agreement. The Minister of Fisheries and Oceans has ultimate discretion to issue or not to issue a licence. One cancellation of a licence of those who consistently ignore policy or conservation rules would give the rules under which we operate a whole new perspective.
• The fleet of independent operators in competitive fisheries is a true democracy. Everyone has the same rules, the same opportunities and the same say in the fishing plan. They survive by their abilities and what is brought to them by the sea. This has changed somewhat because of quota management, however, the lobster fishery still allows us to be equals.
• The mind set that allows a person to be a successful independent generally makes a person a poor team player. Hence, we have a poor record of working together and organizing ourselves. We do have a good record of pushing government on issues of conservation and community benefit.
• The role of the independent fleet must be strengthened; we must be allowed to take on some responsibility and be accountable for what we are given. I see no willingness on the part of DFO to give fishermen any responsibility. The licence conditions in some fisheries are 20 pages long – if you were to give a child a 20-page list of do’s and don’ts before they went out for the day, the family would be dysfunctional and if you had failed to communicate family values, there would be little hope of the rules being kept.
• We know that DFOs budget is decreasing; they will not admit that they cannot continue to do all that is necessary to operate a viable, sustainable fishery. We are being told that we must pay DFO for science, that the knowledge gleaned is the property of the Minister and cannot be released without his consent – we are losing responsibility, not gaining it.
• DFO needs to support our independent inshore fleet by allowing them to make decisions and have real responsibility regarding their fishery and actions. Paying someone to do things we are perfectly capable of doing ourselves is the road to poverty, not self-reliance.
   
• Many crab fishers in Gulf Region have been told by DFO to transfer their licences before the 2004 fishing season. But, since the CCRA directive of July 2003, fishers only have three options open to them: transfer the licence directly to a son or daughter and suffer the tax consequences; or transfer the licence to a company and contest the regulation with CCRA; or enter into a trust agreement.
• DFO should immediately allow the transfer of a licence to a company if the company conforms to certain conditions, such as family owned and operated. DFO should also allow an extension for those fishers who have been told to transfer their licences until CCRAs position is clarified.
• Many of the affected crab fishers have family members involved in their business and wish to leave the business to the next generation (which could be more than one child). The best way to accomplish this is to form a corporation; this way the whole family benefits.
• DFO will have to work with Revenue Canada and change its policies to allow licences to be issued to corporations and to have Revenue Canada rescind its directive. Whatever a fisher does to try and get a break from taxes, he is going against either DFO or CCRA policies.
   
• The owner-operator and fleet separation policies are the cornerstones of public policy in Atlantic Canada. DFO should move immediately to provide a regulatory solution to the problem of trust agreements by incorporating the owner-operator and fleet separation policies into the General Regulations of the Fisheries Act and apply them across the Atlantic.
• In addition, DFO should also enact administrative measures such as conditions of licence that would prohibit the use of trust agreements designed to undermine the owner-operator and fleet separation policies.
• Fishermen need access to financing and fair tax treatment; this is particularly important to facilitate intergenerational transfers of licences. In Phase II of the AFPR, DFO, in consultation with industry, should develop a series of measures to provide for equitable tax treatment for fishers.
• DFO must continue to consult with fish harvester organizations and act where there is a broad consensus.
• DFO must not introduce any flexibility that erodes the intent of the fleet separation policy - there can be no “opting out” which we view as the loss of licence and quota to private corporate interests, which in turn undermines communities.
• In the discussion document, the expression “undue concentration” is used; this is worrying as we believe the existing level of concentration is already a problem.
• We believe there should be no flexibility in the owner-operator policy until we agree on what is meant by “flexibility”.
• Today’s discussion is taking place because of a lot of work done by fishermen’s organizations to keep this issue on the table. DFO should enact a regulatory solution to the problem of trust agreements that separate legal title from beneficial use. Control of the licence must remain with the licence holder.
• DFO should work with others to ensure access to funding (e.g., loan boards) to lessen dependence on processing companies; this is particularly important for the younger generation trying to get started in the fishery. DFO should also work with CCRA to seek an exemption to the capital gains tax for fishers, which will also assist in intergenerational transfers.
   
• Our association is participating in a community-based rock crab fishery which was started in 1997 on a pilot basis. We have three temporary rock crab communal licences. The association takes the names of those core fishermen interested in using their boats to fish the quota and has a draw if there are more than three interested. The association notifies the DFO and the MFU of the names of the fishermen, pays the licence fees, fuel, bait, dockside monitoring, minor repairs and the Receiver General of Canada.
• We are requesting that the rock crab licences that are presently temporary and are held by fishermen who have been active for more than three years in the rock crab fishery and temporary communal licences that respect the same conditions become permanent beginning in 2004, if the biomass warrants it.
• We hope it will become possible for licences to be issued to corporations in the inshore sector. For the fishermen in our association, it has become a necessity for their economic survival, due to the downward trend of the fisheries in our area.
• While we support the owner-operator policy, we believe that under certain conditions incorporated fishermen’s organizations should be able to hold licences in trust for their core members. These conditions are: the association may hold in trust permanent licences for their core members; the proceeds and responsibilities remain with the members themselves; if they choose to have the administration handled by the association, the agreed upon costs will be divided equally among the members; a legitimate and recognized organization is one that represents the fisheries in which only core fishermen have a vote on all matters relating to the regulation, conservation and development of the fishing industry.
• Our membership is divided into two classes: regular and associate members. Regular members are bona fide fishermen who own licenses and vessels and are actively involved in the commercial fishery and whose major source of income is derived from fishing. Associate members are those persons interested in and connected to the fishing industry, including, but not limited to retired fishermen, fishermen’s helpers and fishermen’s spouses.
   
• We would like to congratulate DFO for its desire to put some order into what many consider a patchwork of often conflicting and ad hoc policies.
• The starting point for any discussion on economic or social viability must be the long-term sustainability of the resource. Economic or social objectives are at odds with conservation only when the period considered is short or when the management regime rewards a disregard for the health of the resource or ecosystem. Only short-term political expediency pits conservation against economic or social objectives.
• If the fishing industry is to gain long-term viability, it must become fully self-reliant rather than being constantly dependent on income support programs. Although politically attractive, short-term economic measures that support the industry foster weak economic units that cannot compete in international markets, stifle innovation, depress incomes and create an overall climate of dependence.
• If DFO burdens itself with the short-term social viability of coastal communities, it will fail in its fisheries conservation and economic viability objectives.
• Greater fleet flexibility is required to increase economic viability. As we develop a better understanding of marine resources and the ecosystems in which they live, and as the market demand for seafood evolves, particular fleet structures or gear types may need to evolve. Overly restrictive allocation policies, based on past social relationships, will not allow this evolution to take place.
• DFO should create a framework where access and allocation decisions can respect historic investment in a fishery while not forcing the industry to operate in outmoded fleet structures or gear restrictions.
• The fleet separation policy works directly against economic viability. By creating an artificial barrier between processing and harvesting, processors have little control over the timing and quality of raw materials. Processors are required to be economically viable in the traditional business sense, while artificial social support programs maintain antiquated social relationships between the harvesting and processing sectors.
• No other resource industry has such an archaic and discriminatory policy against vertical integration for specific groups of industry participants. The lack of security of supply places Canada at a disadvantage in international markets with integrated competitors.
• The fleet separation policy is unique to the Atlantic fisheries. If the Atlantic fishery is to contribute to the government’s broad social and economic objectives, it must be freed from the restrictions that currently hinder a wide range of mid-sized, community-based, often family owned processing companies from moving beyond being simple suppliers of commodity products. These companies have the financial, management and marketing potential to become suppliers of branded, high-value products to international markets. The can develop the type of integration required to provide sustainable, good paying and long-season jobs.
• If there is a future for the processing sector in Canada, it is in producing high-value products targeted to high-end markets around the world. Secure supplies of raw materials are required in order to make the necessary investments in product and market development demanded by distributors and retailers. Small and medium sized processors producing these types of products can pay good wages to plant personnel, lengthen the employment period and pay good prices to harvesters for the raw material.
• The Government of Canada must determine the criteria on which access and allocation decisions will be made, and then allow new structures within the fishery to administer these criteria.
• The industry should play a more direct role in access and allocation decisions, but within a framework where future decisions are predictable. The important criteria are:
  • Provision of access and allocations to the harvester/processor who will actually prosecute the fishery;
  • Recognition of historical development of and participation in, various fisheries;
  • Setting individual allocations, within sustainable limits, sufficiently high to allow economic viability and self-reliance by the fleet sectors;
  • Stabilization of allocations, subject to the use of harvesting practices that continue to contribute to the long term sustainability of the fishery and its environment and ensure the greatest benefit to Canada; and
  • Recognition of access and allocation holders’ investment in sustainability, responsible harvesting, economic self-reliance and understanding of the resource and its ecosystem.
     
• Artificial and discriminatory limits on the integration of harvesting and processing have greatly reduced Canada’s ability to generate maximum benefits from our natural fisheries resource. Rather than protect the fishery, fleet separation has become one of the major contributors to the less-than-satisfactory state of self reliance we now face.
   
• Crab fishers feel they are being held hostage, particularly since receiving the letter from DFO advising them to dispose of their licences. It is hard to understand why DFO is forcing this on fishers – maybe they want the licences for some other purpose. A fisher can not fish his licence if he’s too old or too sick. Soon we will be seeing our old people tied to the boat and putting to sea. Is this what DFO wants?
• Fishers incorporate to avoid paying hundreds of thousands of dollars in taxes, and are called “tax evaders”. All they want is to be treated equally because right now, they are only ones who don’t get tax breaks.
• What options are available for licence transfers other that trust agreements? If one looks at the bank’s perspective, how can they possibly loan money if a licence cannot be used as collateral. If there were alternative sources of financing, things might be different. The options are to sell your licence to your children and pay high taxes, sell to the federal government, or sell to a plant. Fishers can’t afford the licence, so both the government and processors have the advantage.
• There is definitely a problem with the owner-operator policy. The only solution, particularly for those who have used designated operators in the past 5 years, was to enter into trust agreements. Incorporation used to be an alternative to allow for inter-generational transfers, but with the CCRA directive this is not possible.
• The CCRA directive is discriminatory as it applies only to the Atlantic. A draft bill – Bill C-463 – would help fishers in transferring licences to their children. We need to support this bill.
• We also need clarity around this “5-year rule” – is this cumulative, consecutive, or five years over the course of a lifetime of fishing? DFO should also be clear about how this “rule” is applied in all the Atlantic Regions.
   
• The problems of today’s fisheries are numerous. Our whole east coast fisheries have changed over the years and the dynamics have taken various shapes. Investments in the family enterprise are enormous and growing. Now, many fishers are approaching retirement age or family members of deceased family members still have the need and the desire to keep the enterprise going.
• DFO licensing policy is creating an unnecessary financial pressure that is more intensive than any other family-oriented business, such as the family farm. Family farm operations have avenues whereby capital gains taxes are not as punishing when transferring inside the family unit, depending on the province in which the operation is located; it is important that the same treatment is offered to family fishing enterprises in Atlantic Canada.
• It is time that the Federal and Provincial Governments, DFO, and Revenue Canada not only look at the problem facing our industry today, and in the future, but take action and resolve these complex problems. It is these small and medium sized family enterprises that have contributed a lot to the $2 billion fishing industry in Atlantic Canada.
   
• How is a year calculated in the “five year rule”? Is it one year, or is it one fishing season? Although we have asked DFO for clarification, this has not been forthcoming.
• We need time to consider our options, and allow time for Bill C-463 to be adopted, before being able to offer detailed comments on these two policies. With the Minister’s absolute discretion to issue fishing licences, it will be important for us to have clearer indications of the fiscal consequences of our decisions before we should be asked to make them.
   
• The discussion document poses a number of questions and asks for fishers’ views, although we would have liked to see a clear statement in the document of exactly what form a regulation could take, and what it could or could not do. The questions posed are complex, especially when you consider the potential ramifications and impacts they could have on the <65 foot fleet.
• DFO must clarify what is meant by multi-licensed, multi-species enterprises. In the discussion document, it reads that self reliant fishers are multi-licensed, multi-species; now we have the fixed gear fleet using this expression to justify new access. We do not agree with the use of these terms in this context. DFO must specify what it means by multi-species. We prefer the DFO to recognize that certain fleets have specific needs, and that history has forced some to abandon multi licences.
• The management of a fishing enterprise has changed radically in the last decade. The value of licences, particularly those of lobster, crab and shrimp have forced independent fishers to refine their business practices.
• The Supreme Court and DFO have contributed to the increase in value of an enterprise, by accelerating the integration of First Nations into the fishery through the purchase of licences and gear.
• The AFPR is the first major exercise in 20 years to revise fisheries management policies on the Canadian Atlantic coast. It is clear that the increasingly complex management of fishing enterprises has not benefited from a regulatory framework that has evolved at the same time as management measures. We have serious concerns relating to the increased value of fishing businesses, the fiscal and legal challenges, and intergenerational transfers.
• We support the objective of separating the harvesting and processing sectors, in order to maintain the independence of the inshore fleet. Without the fleet separation policy it would be extremely difficult to combat the repeated assaults by large processing companies trying to assure themselves of good raw material.
• For a number of reasons, including business management, good fiscal practices and good sense, on the advice of their financial advisors, many fishers have incorporated. The CCRA directive will have a major impact on the fishery.
• In terms of policies, it is not sufficient just to have fisheries management policies; we also need the mechanisms that will allow us to manage our fishing enterprises to face whatever comes our way.
• Trust agreements can be beneficial if they respect basic policy objectives. We should support trust agreements that give fishers the opportunity to organize themselves. We will support other associations in pushing for capital gains exemptions for fishers. Family fishing is the only business not allowed to incorporate and to gain certain protections granted to other Canadians.
• These issues can not be addressed with a quick fix. DFO can not solve this problem for us. The situation demands an in depth study, and DFO should set up a working group with representatives of CCRA, industry, accountants and lawyers and others to develop a practical solution.

Following presentations by registered speakers, a round table discussion of the issues raised in the discussion document was held. The following is a summary of that session.

Open Discussion – Trust Agreements, Owner-Operator and Fleet Separation Policies

• Two issues have been raised: the stacking of licences and quota, which involves moves from one community to another; and unfair tax treatment of legitimate licence transfers. It is hard to see how both these issues could be addressed in one regulation that could stand a legal challenge. It is also difficult to see that DFO has the competence to make these regulatory changes.

• The notion of who can have a licence has never been an issue with fishers. If you’re in the boat, that was enough for us, as long as we get to fish competitively with others on a fair basis. The issue is how to prevent the stacking of licences and quota - the status quo only allow licences to move between provinces.

• The July 2003 message was that CCRA would not allow individuals to incorporate and to transfer their licences to these new corporations. DFO should take immediate steps to discuss the potential impact of the CCRA regulation; this has to be resolved before the start of the next fishing season. It is unclear if their directive will be retroactive; and uncertain what happens with existing arrangements.

• We need certain preconditions prior to incorporating, for example, all interests should be owned by family members. Licences should be issued to corporations – this would eliminate the need for trust agreements for tax purposes – provided these family-held corporations held all interests in the licence. This would also mean that the Fisheries Act would not have to be changed.

• For fiscal reasons, and for many other reasons, it is too simple to say “you are either have fleet separation or you do not”. We must be practical which will mean taking the time necessary to consider all the implications of change – this will not be done by spring. We need modern policies, able to respond to the realities of today’s fishery. It is hard to understand why DFO is insisting this be done so quickly.

• While we all want to solve the problem, we have neither the legislative base nor the regulatory framework to make meaningful changes.

• There was a second letter from DFO. The first said “you must transfer your licences”, the second said “we can retire your licence for you”. We suspect that DFO is using the five year rule for other objectives, in particular the Marshall response. This is a very difficult decision that DFO insists must be made; licence holders should be given the necessary time to make the right decision.

• Part of this conflict stems from CCRA; as one of the biggest players, why are they not here? Industry has changed so much; there have been many policy changes and we need to adapt the rules to meet the needs of today. We want to know why we can not transfer licences within the family; we are at a point now when CCRA needs to be here to explain why they are changing the rules.

• There are really two sides to the issue of trust agreements: on one side, the agreements are being used for the benefit of the community and on the other, against it. The community should have some decision making power when something like this comes up, rather than us always having to ask DFO to make the decision. We should be careful as we look at regulation as an option; it is not the only one.

• The document poses some very complex questions. We are not regulation specialists, nor do not have access to specialists in fiscal matters as DFO does. What has DFO done internally to identify the kinds of regulations that could be put in place? The Department of Justice will be involved in drafting any regulation – have they given any indication of what a regulation might look like and how it would be applied? We had hoped that DFO would provide alternatives to regulation; this is not clear from the document. We can talk about objectives to pursue, identify problems, etc, but we can not provide much advice on how to change acts and regulations. The discussion document should have proposed options within DFOs mandate and authority.

• DFO should consider allowing some flexibility in the designated operator provision to allow family members who have inherited a fishing enterprise to carry on the family business.

• A licence should be allowed to stay in the family unit; if this means that they have to incorporate, they should be allowed to do so. There is a complicated issue and will require a tremendous amount of work.