The Kermadec Controversy

New Zealand Centre for Political Research

The New Zealand Centre for Political Research is a web-based think tank that takes a research-based approach to public policy matters and encourages the free and open debate of political issues.

Last year our Prime Minister boldly announced to the United Nations that New Zealand was going to create one of the world’s largest ocean sanctuaries. It was intended to establish our sustainability credentials on the biggest international stage. Instead it has turned into a complex political and policy tangle that some say is threatening the stability of the National Government.

John Key made his announcement about the creation of the 620,000 square kilometres sanctuary on 29 September 2015 during his ‘leaders’ week’ address at the United Nations General Assembly in New York. He said, “The Kermadec Ocean Sanctuary will be one of the world’s largest and most significant fully-protected areas… It will cover 15 per cent of New Zealand’s Exclusive Economic Zone, an area twice the size of our landmass, and 50 times the size of our largest national park in Fiordland… All forms of fishing and mining will be prohibited…”

The announcement was shrouded in secrecy. The Minister in charge of what was dubbed “Project Sunday”, Nick Smith, even went so far as to write his own Cabinet Paper. Officials were not asked to prepare a regulatory impact statement to inform Cabinet of the options and risks associated with the proposal – before they made their decision – even though a failure to do so was a breach of Cabinet protocols. Those in the fishing industry, who were going to be directly affected, were only notified a few hours before the announcement was made, as were the two northern iwi with the closest association with the Kermadecs, Ngati Kuri and Te Aupouri, who were hailed as being supporters. Even the National Party caucus was not advised of the deal before the announcement.

With the UN’s focus at the time on sustainable development, Mr Key and his advisors clearly thought the creation of the sanctuary would become a major public relations victory. But it seems they had learnt nothing from the widespread public dismay that followed the secret signing of the United Nations Declaration on the Rights of Indigenous Peoples by the Maori Party co-leader Pita Sharples in New York in 2010. They should have known such Government ‘surprises’ can easily turn into disasters.

Looking back, it is clear that the biggest mistake in the Kermadec affair was that good quality advice was not provided to Cabinet before the decision to proceed was made, despite it being a Cabinet Office requirement.

The Cabinet Manual is unequivocal about this – Regulatory Impact Assessments and Statements must be prepared before any policy proposals are submitted to Cabinet. The regulatory impact framework has been put in place to encourage an evidence-based approach to policy development. It is meant to ensure that all practical options for addressing a problem have been properly considered and that the benefits of the preferred course of action not only exceed the costs, but will also deliver the highest level of net gain.

The manual explains that regulatory impact analyses are to be prepared by government agencies, before Cabinet papers are drafted, in order to provide their best advice on the issues involved in policy development – especially when new legislation is being proposed. The information provided is to be comprehensive and should include an analysis of the costs, benefits, and risks associated with a project, an outline of the consultation requirements, and plans for implementation, monitoring, and evaluation.

In addition, independent quality assurance on the advice provided to Cabinet must be undertaken – usually by a specialist group within Treasury – and a statement on their findings must be provided in the Cabinet paper.

However, owing to the secrecy and urgency of the project, the comprehensive advice that should have accompanied the Kermadec Ocean Sanctuary proposal, when it was submitted to Cabinet for approval, was missing.

Nick Smith admitted this in his Kermadec Cabinet paper when he said, “The regulatory impact analysis requirements apply to this paper but a Regulatory Impact Statement has not been provided. On that basis, Cabinet’s requirements and the quality assurance criteria for regulatory proposals have not been met.”

He then went on to say, “However, officials consider the paper adequately considers the impacts of the proposals on existing users”.

How wrong they were.

This week’s NZCPR Guest Commentator Canterbury University Law Lecturer David Round, outlines events following the UN announcement:

“Parliament is now considering a Kermadec Ocean Sanctuary Bill.  But there’s many a slip ‘twixt cup and lip. Te Ohu Kaimoana, the Maori Fisheries Commission, which is in charge of administering the Maori share of our fisheries resources, lodged a statement of claim in the High Court a couple of months ago, alleging inadequate consultation by the Crown and also complaining that Maori fishing rights are being overridden. Fighting words!

“The Commission was not concerned about the costs of legal action, because it has a ‘large war-chest’. But evidently those fighting words did not frighten the government quite enough, for now the news arrives that the Commission is urging the Maori Party to ‘seriously consider’ walking away from its ‘relationship’ with the National Party. The Commission claims that the interference with Maori fishing rights is as serious, if not more so, than Labour’s foreshore and seabed legislation.

“The New Zealand Fishing Industry Association has also filed legal proceedings, and an umbrella group, Seafood New Zealand, has asked Parliament to put the bill establishing the sanctuary on hold for the time being. They express concerns about property rights, poor processes and inadequate advice.”

So what are the main concerns of these groups? For the fishing industry, it’s a property right issue.

As Seafood New Zealand explains in their submission to Parliament, the Quota Management System (QMS) underpins our fisheries management regime. Through the ownership of quota, the right to harvest a proportion of the total allowable commercial catch of a fish stock in an area in perpetuity is provided, creating a genuine stake in the long-term sustainability of the species and the marine environment. The security of quota is paramount to the integrity of the system.

When the QMS was established in 1986, New Zealand’s 200-mile exclusive economic zone (EEZ) was divided into ten Fisheries Management Areas (FMA) with separate quota available for each individual species. At the time, 27 species were introduced into the QMS, whereas today there are 97 species, due in part to improvements in fishing techniques along with the development of new markets. Whenever a new species enters the system, a catch limit is set and quota shares in the commercial fishery are then allocated.

Fisheries Management Area 10 takes in the whole Kermadec region out to the edge of New Zealand’s EEZ. The immediate area surrounding the Kermadec Islands, out to the 12 nautical mile Territorial Sea limit, is an existing marine reserve that was established in 1990. In addition, a bottom trawling ban was put in place in 2007, creating a Benthic Protected Area.

The fish targeted in FMA 10 by quota holders include the highly migratory species of Tuna and Swordfish. In his Cabinet paper Nick Smith claims that the quantity (20 tons) and value ($164,000) of the fish taken in the area is so small, that it doesn’t matter. He also maintains that because the fish are migratory, they can be caught elsewhere.

But that’s not how those involved see it. There are some 66 fish stocks with separate quota in FMA 10, and 15 with combined quota. While many of these species are not migratory, the continued presence of large numbers of foreign vessels in the waters adjacent to FMA 10 are a reminder, not only of the value of the fisheries resource in the area, but of the detrimental impact a fishing ban would have on the tuna industry, since few other tuna are available in New Zealand waters during the three months or so of the year when they pass through the Kermadec region.

In addition to quota for specified species, ‘nominal’ quota also exists in FMA 10, to cover the eventuality that other commercially viable fisheries are discovered. These shares are largely held by the Crown, with a small proportion held by the Maori Fisheries Commission, which was allocated 840 million of these FMA 10 quota shares as part of their 1992 Treaty of Waitangi fisheries settlement. The Minister, in his Cabinet paper, described them as an “administrative quirk” because they have never been used, but the Commission does not agree. They regard the nominal quota as an asset of future potential value which they believe will one day be realised as technology improves.

The fishing industry is of the view that the Government’s intention to extinguish quota, without the consent of the owners of the rights and without compensation, threatens to undermine the whole system. As the Seafood Council explains, the Bill “will undermine the integrity of the QMS with consequences that will reverberate through all New Zealand’s fisheries. When there is uncertainty about future stock abundance or spatial access to fisheries, quota value typically declines. If quota rights are perceived to be at risk of being rendered worthless, quota owners have little incentive to protect the long-term sustainability of fish stocks. Maintaining the value of quota is therefore important for the effective operation of the QMS. A regulatory taking of harvest rights on the scale perpetrated by the Bill will increase future risk and uncertainty for all quota owners, potentially reducing quota value and eroding the incentives that the QMS establishes for responsible, sustainable management of New Zealand’s fisheries.”

In his Cabinet paper, Nick Smith claims he has the right to cancel quota without compensation: “I propose that no compensation is paid to Highly Migratory Species quota holders on creation of the Sanctuary because it is a measure taken for sustainability purposes. This approach is consistent with the Marine Reserves Act 1971, has similar effect to the Fisheries Act 1996 and is consistent with the proposed approach in the proposed Marine Protection Area Act for establishing marine reserves, species-specific sanctuaries and seabed reserves.”

The industry disagrees and states, “the approach to compensation in the Kermadec Sanctuary Bill is inconsistent with the Marine Reserves Act and the Fisheries Act. The Marine Reserves Act is silent on compensation, thereby allowing affected parties to put forward a case for compensation under New Zealand law. In contrast, the Bill in Schedule 1 clause 1 explicitly precludes the payment of compensation. The Fisheries Act protects the Crown from liability for compensation only for measures imposed for sustainability purposes. In light of the low level of fishing in FMA10 and the existence of the Benthic Protected Area, the Sanctuary cannot be justified in fisheries sustainability terms. The Crown is therefore not protected from the payment of compensation under the Fisheries Act. Like the Marine Reserves Act, but unlike the Bill, the Fisheries Act leaves it open to affected parties to take a legal case for compensation for damages.”

In April, the seafood industry filed proceedings in the High Court contesting the Government’s unilateral move to establish the sanctuary without recognising the existing rights of quota holders. That followed the High Court action lodged by the Maori Fishing Commission in March, alleging that the Bill not only confiscates their property rights, but also undermines their Treaty settlement.

So against a backdrop of a Minister providing inadequate information to Cabinet, arguing that his Government has the right to establish the Kermadec Ocean Sanctuary without due process, some of National’s support partners have now added to the chaos by signalling their opposition to the Bill.

While Nick Smith remains steadfast in his view that his way is the right way, the Deputy Prime Minister Bill English has now taken over negotiations.

There is no doubt this matter will not proceed as smoothly as Nick Smith would wish. One can only hope that the Government has learnt a lesson that in our democracy, arrogance is not a virtue – due process and fair play remain paramount.


Do you believe the Government should be able to confiscate fishing quota rights without compensation?


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