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 Catch quotas are based on data collected as much as 20 years ago and some species have been overhunted beyond the point of recovery, the Environmental Investigation Agency said in its report.
The lucrative market in live catches for aquariums, especially in China, poses another risk, the report said. Live animals can sell for between $8,400 and $98,000, sometimes more than the roughly $50,000 from sales of meat for a single bottlenose dolphin.
Japan set its catch limit for small cetaceans at 16,655 in 2013, far below the 30,000 caught annually before limits were set in 1993 but still the largest hunt in the world.
Japan's Fisheries Agency wouldn't comment on the EIA report because it hasn't seen it. Japan defends its coastal whaling as a longstanding tradition, source of livelihood and as necessary for scientific research.
The London-based independent conservation group said Japan is failing to observe its stated goal of sustainability and urged the country to phase out the hunts over the next decade.
"The government has a responsibility to restore and maintain cetacean species at their former levels," said Jennifer Lonsdale, a founding director of the EIA.
The small cetaceans are among a number of species facing severe declines in Japan. They include Japanese eels, a delicacy usually served roasted with a savory sauce over rice, and torafugu, or puffer fish.
The status of each species varies, depending on its range and hunting practices. Catch limits for Dall's porpoises are 4.7-4.8 times higher than the safe threshold, the report said.
For the striped dolphin, once the mainstay of the industry but now endangered and disappearing from some areas, catches have dropped from over 1,800 in the 1980s to about 100.
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 That is still four times the sustainable limit, the report said. It urged that the government update its data on the abundance of it and other species and stop transferring quotas from already overfished areas to areas that exceed their quotas.
Under a 1946 treaty regulating whaling, nations can grant permits to kill whales for scientific research.
In July, Japan defended its annual harpooning of hundreds of whales in the icy seas around Antarctica, insisting the hunt is legal because it gathers valuable scientific data that could pave the way to a resumption of sustainable whaling in the future.
Australia has appealed to the World Court to have the whaling outlawed.
Japan considers small cetaceans to be excluded from the international convention on whaling. It most recently published provisional sightings data for 2011-2012 for 17 species in the Western Pacific, Sea of Japan and Okhotsk Sea. It is unclear, however, to what extent such provisional research is taken into account in setting catch quotas, which are based on abundance estimates and assumed population growth rates.
[Associated
Press; By ELAINE KURTENBACH]
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