Proposal for a tightening-up of the rented vessel scheme and exemptions for quota utilisation

Proposal for changes in the rented vessel scheme

The fishing law is based on a fundamental principle to have a fixed connection between the owner of the vessel, the vessel, and the fishing license. The rented vessel scheme for new vessels is an exemption that allows a shipping company to use another vessel to fish its fishing licenses while awaiting the new vessel. It is economically favourable to fish «double quota sets» on one hull, which gives an incentive to renew the fishing fleet. The rented vessel scheme also constitutes an exemption from the rules on quota utilisation and ordinary deduction, which means that each vessel can only fish and land a quota of each fish species within the quota year.

The scheme has been relatively well used and has contributed to the renewal and modernisation of the fishing fleet. However, the scheme has also been criticised, and the Directorate believes that some parties have exploited the scheme in breach of its intentions and has had as their primary goal to fish more licenses on fewer vessels, which is economically favourable, instead of the goal being related to the renewal of vessels. There have inter alia been cases where the new vessel has been sold shortly after delivery. Reference is made to the Office of the Auditor General of Norway’s investigation of the quota system in the coastal and sea fishing, document 3:6 (2019-2020), where there has been criticism against an increasing number of quotas with no connection to a vessel, and it was recommended to introduce measures to prevent this. The consultation memo is largely based on this criticism.

The Directorate outlines various alternative changes to the scheme:

• An expansion of the scheme to 3 years for the sea fishing fleet, a continuation of 2 years for the coastal fleet over 10 metres, but to reduce this to 1 year for those under 10 metres. An alternative proposal is to exclude vessels under 10 metres from the scheme.
• Introduce requirements for the replacement vessel not to have been a replacement vessel in another rented vessel scheme the last two years prior to the application to use the rented vessel scheme when contracting new vessels

The proposals will protect several considerations. There has inter alia been a desire to adjust the time of the scheme better to real construction time. Another consideration is to prevent the exploitation of the scheme by a shipping company acquiring a vessel with the aim to use the rented vessel scheme while awaiting a new vessel that will be resold upon completion.

Proposal for changes to the exemption rule on quota utilisation

In item 5 of the consultation memo, a proposal is also submitted that will be effective beyond the rented vessel scheme for new vessels. In the respective regulations, there are currently rules on quota utilisation and tightening-up. Upon the acquisition of vessels, a deduction shall generally be made from the quota for the quantity that has been fished within the quota year pursuant to the license given from the other vessel. The purpose of the rules is to prevent each vessel to fish more than one set of quotas per year – to use so-called “quota skipping” – as it would undermine the structure quota scheme.

The Directorate of Fisheries “may” give exemptions to the rule on tightening-up if the replacement vessel has not changed owners for two years. This exemption rule has been frequently used, and there are currently several cases being processed after complaints have been submitted. The general experience is that the Directorate has recently limited its practice through the “may” discretion and incentivized its review of whether the vessel replacement/abandonment application is real or may be due to quota skipping. This has led to a larger number of rejections of applications than before.

Traditionally, changes of practice have been notified to the industry through new or changed regulations, or through instructions, so that the industry actors may know what is applicable at all times. If this is not done, shipping companies may be randomly affected by a rejection when they had a previously justified expectation to have their application approved. In this way, it is positive that a wide consultation process is introduced related to proposals for changes (tightening-up) of the exemption rule.

As a first alternative, the Directorate outlines a proposal to revoke the exemption rule in its entirety. Of course, this would be effective to prevent the abuse of the rule and be a simple solution regarding legal administration. However, it is questioned whether a revocation is a good solution. It would contribute to limit replacements of vessels to the first part of the regulation year and give the shipping companies less flexibility. There may be good reasons for it to be necessary to acquire a vessel throughout the year, also after the replacement vessel’s quotas have been entirely or partially fished. As an intermediate solution, it is suggested to implement more limitations in the current rule:

• For shipping companies with several vessels that are organised as a group etc. are exempt in the case of “internal replacement”.
• Limitations to purchases and sales within the same regulation year, to avoid that the seller only sells the vessel after having fished its quota set for the current year.
• Requirement for a prior ownership time of the replacement vessel (2 years), in addition to the current requirement that the replacement vessel has not changed owners during the last two years.

The proposals aim to safeguard more considerations related to avoid quota skipping. Currently, such factors are in practice emphasised through the Directorate’s “may” discretion. For the industry, it may be challenging to understand how this discretion is practiced at all times. The proposal means that these factors are clarified as conditions, which will make the exemption scheme more predictable for the industry. This will also affect and narrow down the framework of the “may” discretion next to such conditions.