[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT HEARING ON UNITED STATES OWNERSHIP OF FISHING VESSELS
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON FISHERIES CONSERVATION, WILDLIFE AND OCEANS
of the
COMMITTEE ON RESOURCES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
__________
JUNE 4, 1998, WASHINGTON, DC
__________
Serial No. 105-98
__________
Printed for the use of the Committee on Resources
Available via the World Wide Web: http://www.access.gpo.gov/congress/house
or
Committee address: http://www.house.gov/resources
U.S. GOVERNMENT PRINTING OFFICE
49-404 CC WASHINGTON : 1998
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON RESOURCES
DON YOUNG, Alaska, Chairman
W.J. (BILLY) TAUZIN, Louisiana GEORGE MILLER, California
JAMES V. HANSEN, Utah EDWARD J. MARKEY, Massachusetts
JIM SAXTON, New Jersey NICK J. RAHALL II, West Virginia
ELTON GALLEGLY, California BRUCE F. VENTO, Minnesota
JOHN J. DUNCAN, Jr., Tennessee DALE E. KILDEE, Michigan
JOEL HEFLEY, Colorado PETER A. DeFAZIO, Oregon
JOHN T. DOOLITTLE, California ENI F.H. FALEOMAVAEGA, American
WAYNE T. GILCHREST, Maryland Samoa
KEN CALVERT, California NEIL ABERCROMBIE, Hawaii
RICHARD W. POMBO, California SOLOMON P. ORTIZ, Texas
BARBARA CUBIN, Wyoming OWEN B. PICKETT, Virginia
HELEN CHENOWETH, Idaho FRANK PALLONE, Jr., New Jersey
LINDA SMITH, Washington CALVIN M. DOOLEY, California
GEORGE P. RADANOVICH, California CARLOS A. ROMERO-BARCELO, Puerto
WALTER B. JONES, Jr., North Rico
Carolina MAURICE D. HINCHEY, New York
WILLIAM M. (MAC) THORNBERRY, Texas ROBERT A. UNDERWOOD, Guam
JOHN SHADEGG, Arizona SAM FARR, California
JOHN E. ENSIGN, Nevada PATRICK J. KENNEDY, Rhode Island
ROBERT F. SMITH, Oregon ADAM SMITH, Washington
CHRIS CANNON, Utah WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas CHRIS JOHN, Louisiana
JOHN PETERSON, Pennsylvania DONNA CHRISTIAN-GREEN, Virgin
RICK HILL, Montana Islands
BOB SCHAFFER, Colorado RON KIND, Wisconsin
JIM GIBBONS, Nevada LLOYD DOGGETT, Texas
MICHAEL D. CRAPO, Idaho
Lloyd A. Jones, Chief of Staff
Elizabeth Megginson, Chief Counsel
Christine Kennedy, Chief Clerk/Administrator
John Lawrence, Democratic Staff Director
------
Subcommittee on Fisheries Conservation, Wildlife and Oceans
JIM SAXTON, New Jersey, Chairman
W.J. (BILLY) TAUZIN, Louisiana FRANK PALLONE, Jr., New Jersey
WAYNE T. GILCHREST, Maryland NEIL ABERCROMBIE, Hawaii
WALTER B. JONES, Jr., North SOLOMON P. ORTIZ, Texas
Carolina SAM FARR, California
JOHN PETERSON, Pennsylvania PATRICK J. KENNEDY, Rhode Island
MICHAEL D. CRAPO, Idaho
Harry Burroughs, Staff Director
Dave Whaley, Legislative Staff
Jean Flemma, Democratic Legislative Staff
C O N T E N T S
----------
Page
Hearing held June 4, 1998........................................ 1
Statement of Members:
Pallone, Jr., Hon. Frank, a Representative in Congress from
the State of New Jersey.................................... 2
Prepared statement of.................................... 3
Saxton, Hon. Jim, a Representative in Congress from the State
of New Jersey.............................................. 1
Prepared statement of.................................... 2
Young, Hon. Don, a Representative in Congress from the State
of Alaska.................................................. 4
Prepared statement of.................................... 7
Statement of Witnesses:
Asicksik, Eugene, President, Norton Sound Economic
Development Corporation.................................... 52
Prepared statement of.................................... 128
Bohannon, Frank, Vice-President, United Catcher Boats........ 56
Prepared statement of.................................... 152
Evans, David, Deputy Director, National Marine Fisheries
Service, Department of Commerce............................ 31
Prepared statement of.................................... 73
Gilmore, Jim, Director of Public Affairs, At-Sea Processors
Association................................................ 50
Prepared statement of.................................... 77
Kirk, Michael, Cooper, Carvin and Rosenthal.................. 54
Prepared statement of.................................... 83
Leape, Gerald, Greenpeace.................................... 58
Prepared statement of.................................... 167
North, Rear Admiral Robert C., U.S. Coast Guard, Department
of Transportation, accompanied by Thomas Willis, United
States Coast Guard......................................... 34
Prepared statement of.................................... 75
Plesha, Joe, General Counsel, Trident Seafoods Corporation... 48
Prepared statement of.................................... 91
Stevens, Hon. Ted, a Senator in Congress from the State of
Alaska..................................................... 8
Prepared statement of.................................... 16
Additional material supplied:
Alaska Ocean Seafood Limited Partnership, prepared statement
of......................................................... 198
Fraser, Dave, Captain, FV Muir Milach, prepared statement of. 184
Giles, Don, President, Icicle Seafoods, Inc., prepared
statement of............................................... 86
The Alaska Crab Coalition, prepared statement of............. 206
The Capacity Reduction and Buyback (``CRAB'') Group, prepared
statement of............................................... 202
Hendricks, Jeff, General Manager, Alaska Ocean Seafood
Limited Partnership, prepared statement of................. 211
TCW Special Credits, Los Angeles, California, prepared
statement of............................................... 87
Communications submitted:
Assessment of the World's Fishing Fleet 1991-1997, A Report
to Greenpeace International, John Fitzpatrick and Chris
Newton..................................................... 194
OVERSIGHT HEARING ON UNITED STATES OWNERSHIP OF FISHING VESSELS
----------
THURSDAY, JUNE 4, 1998
House of Representatives, Subcommittee on Fisheries
Conservation, Wildlife, and Oceans, Committee
on Resources, Washington, DC.
The Subcommittee met, pursuant to other business, at 10:43
a.m., in room 1324, Longworth House Office Building, Hon. Jim
Saxton (chairman of the Subcommittee) presiding.
Mr. Saxton. I ask you now, with consent, that Mr. Pombo and
Mrs. Chenoweth be invited to sit on the panel, inasmuch as they
are not members of the Subcommittee.
The Subcommittee on Fisheries Conservation, Wildlife, and
Oceans will come to order for purposes of a hearing.
STATEMENT OF HON. JIM SAXTON, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF NEW JERSEY
Mr. Saxton. Today we are discussing the American ownership
of fishing vessels under the Magnuson-Stevens Fishery
Conservation and Management Act and the Commercial Fishing
Industry Vessel Anti-Reflagging Act of 1987.
The Magnuson-Stevens Act has largely achieved the goal of
eliminating foreign fishing in the EEZ and in developing
domestic fisheries. In addition to this primarily successful
legislation, Congress has taken other steps to foster further
Americanization of the fleet. One bill to achieve this was the
Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987.
This legislation created a new ownership standard, required
that vessels engaged in the U.S. fishery be built in the United
States, and required that specific manning requirements by
American crews be maintained.
Two primary principles of this legislation, the American
ownership standard and the American built standard, included
grandfather or savings clauses. This was to allow vessel owners
who were already in the fishery, or those who had made
substantial investments to rebuild vessels in foreign
shipyards, to maintain their eligibility to participate in U.S.
fisheries.
The Coast Guard, under the jurisdiction of the Department
of Transportation, was charged with the implementing of these
new requirements for fishing vessels. Differences in the
interpretation of the two grandfather clauses by the Coast
Guard has led to unfulfilled goals for the legislation. And
that is why the Subcommittee is meeting today to analyze this
issue.
I am especially interested in the subject of U.S. ownership
after this Subcommittee's scrutiny of the ATLANTIC STAR.
Welcome to our many distinguished witnesses, and I look
forward to their testimony.
[The prepared statement of Mr. Saxton follows:]
Statement of Hon. Jim Saxton, a Representative in Congress from the
State of New Jersey
Good morning. Today we are discussing the American
ownership of fishing vessels under the Magnuson-Stevens Fishery
Conservation and Management Act and the Commercial Fishing
Industry Vessel Anti-Reflagging Act of 1987.
The Magnuson-Stevens Act has achieved the goal of
eliminating foreign fishing in the EEZ and developing domestic
fisheries. In addition to this largely successful legislation,
Congress has taken other steps to foster further
Americanization of the fleet. One bill to achieve this was the
Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987.
This legislation created a new ownership standard, required
that vessels engaged in the U.S. fishery be built in the United
States, and required that specific manning requirements by
American crews be maintained.
Two primary principles in the legislation, the American
ownership standard and the American built standard, included
grandfather or ``savings'' clauses. This was to allow vessel
owners who were already in the fishery--or those who had made
substantial investment to build or rebuild vessels in foreign
shipyards--to maintain their eligibility to participate in U.S.
fisheries.
The Coast Guard, under the jurisdiction of the Department
of Transportation, was charged with implementing these new
requirements for fishing vessels. Differences in the
interpretation of the two grandfather clauses by the Coast
Guard has led to unfulfilled goals of the legislation. And that
is why the Subcommittee is meeting to analyze this issue. I am
especially interested in the subject of U.S. ownership after
this Subcommittee's scrutiny of the ATLANTIC STAR. Welcome to
our many distinguished witnesses I look forward to your
testimony.
Mr. Saxton. Before I turn to Mr. Young to introduce our
first witness, let me ask Mr. Pallone if he has any opening
statement.
STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. Thank you, Mr. Chairman. I want to thank you
for having this oversight hearing today. You mentioned the
Commercial Fishing Industry Vessel Anti-Reflagging Act which
was signed into law in 1988. And that required that only
vessels which are owned by a majority of U.S. interests can be
U.S. flagged and eligible to fish in the U.S. Exclusive
Economic Zone. And the law also required that fish processing
vessels entering the U.S. fishery be U.S. built, and that
vessels rebuilt abroad be prohibited from participating in the
U.S. Fishing industry. The Coast Guard was given the
responsibility for enforcing these requirements. Unfortunately,
loopholes in the law have allowed several large vessels to be
rebuilt overseas, thereby circumventing the law and going
against congressional intent.
According to a 1990 GAO report, the Anti-Reflagging Act's
American control provisions have had little impact on ensuring
that U.S. fishery operations are controlled by U.S. citizens.
And this is a result of the Coast Guard's interpretation
allowing the grandfather exemption to remain with a vessel even
if the vessel is subsequently sold to a foreign-owned company.
Consequently, should the Congress desire another result, it may
wish to consider changes to the existing legislation.
Now I understand that Senator Stevens will testify before
us, and he has introduced the American Fisheries Act in the
Senate, S. 1221, which would increase the minimum U.S.
ownership requirement for U.S. flagged fishing vessels to 75
percent in order to fly the U.S. flag and qualify for fishery
endorsements. This bill would also phaseout the use of fishing
vessels greater than 165 feet in length and prohibit vessels
rebuilt abroad from participating in the U.S. fishing industry.
As I understand it--and the Senator will probably talk more
about it--his bill is primarily a fisheries allocation bill for
the North Pacific U.S. EEZ. And while the bill would likely
have a limited impact on fishing vessels off the Atlantic
Coast, it could dramatically change the make-up of fishing
vessels on the West Coast and the Bering Sea.
I believe that U.S. flagged vessels should be primarily
U.S. owned. The American citizens, not foreign interests,
should be the ones to catch fish in our waters. And we should
ensure that our important fishery resources are adequately
protected for the current and future generations.
I understand that today's hearing is not meant to debate
the merits of the Senator's bill, but rather to shed light on
what progress has been made, if any, in increasing the American
control of fishing vessels in our EEZ.
And again, I just want to thank you for holding this
hearing, and I certainly look forward to the statement that
Senator Stevens will be making.
[The prepared statement of Mr. Pallone Jr., follows:]
Statement of Hon. Frank Pallone, Jr., a Representative in Congress from
the State of New Jersey
Mr. Chairman,
Thank you for holding this oversight hearing today on
United States Ownership of Fishing Vessels. As you know, our
Committee has jurisdiction over responsibly managing our
fishery resources under the Magnuson-Stevens Act.
The Commercial Fishing Industry Vessel Anti-Reflagging Act
was signed into law in 1988. It required that only vessels
which are owned by a majority of U.S. interests can be U.S.
flagged and eligible to fish in the U.S. Exclusive Economic
Zone. The law also required that fish processing vessels
entering the U.S. fishery be U.S. built and that vessels
rebuilt abroad be prohibited from participating in the U.S.
fishing industry. The Coast Guard was given the responsibility
for enforcing these requirements. Unfortunately, loopholes in
the law have allowed several large vessels to be rebuilt
overseas, thereby circumventing the law and going against
Congressional intent.
According to a 1990 General Accounting Office report, ``The
Anti-Reflagging Act's American control provisions have had
little impact on ensuring that U.S. fishery operations are
controlled by U.S. citizens. This is a result of the Coast
Guard's interpretation allowing the grandfather exemption to
remain with a vessel even if the vessel is subsequently sold to
a foreign-owned company. Consequently, should the Congress
desire another result, it may wish to consider changes to the
existing legislation.''
Senator Stevens who will testify before us shortly, has
introduced the American Fisheries Act in the Senate. S. 1221
would increase the minimum U.S. ownership requirement for U.S.
flagged fishing vessels to 75 percent in order to fly the U.S.
flag and qualify for fishery endorsements. The bill would also
phase out the use of fishing vessels greater than 165 feet in
length and prohibit vessels rebuilt abroad from participating
in the U.S. fishing industry.
As I understand it, S. 1221 is primarily a fisheries
allocation bill for the North Pacific U.S. EEZ. And while the
bill would likely have a limited impact on fishing vessels off
the Atlantic Coast, it could dramatically change the make up of
fishing vessels on the West Coast and Bering Sea. I believe
that U.S. flagged vessels should be primarily U.S. owned.
American citizens, not foreign interests, should be the ones to
catch fish in our waters. We must also ensure that our
important fishery resources are adequately protected for the
current and future generations.
Today's hearing is not meant to debate the merits of the
Stevens Bill, but rather to shed light on what progress has
been made, if any, in increasing the American control of
fishing vessels in our EEZ.
Thank you again, Mr. Chairman, for holding this hearing. I
look forward to hearing from Senator Stevens, the Coast Guard,
National Marine Fisheries Service, and others today on this
matter.
Mr. Saxton. Thank you, Mr. Pallone.
I ask unanimous consent that all Subcommittee members be
permitted to include their opening statements in the record;
without objection. And for purposes of introduction of our
colleague from the Senate and an opening statement----
Mr. Miller. I just want to ask----
Mr. Saxton. The gentleman from California.
Mr. Miller. I just want to join with Mr. Pallone and others
to say that I believe that this hearing raises very, very
serious issues about the goal of the Americanization of this
resource and other issues about the capitalization of the
fishing resources here.
And I want to thank you for holding this hearing. It's an
important hearing.
STATEMENT OF HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF ALASKA
Chairman Young. Mr. Chairman, I appreciate you holding
these hearings, and I will go through my opening statements as
quickly as possible.
Mr. Saxton. May I just interrupt you----
Chairman Young. Yes.
Mr. Saxton. [continuing] long enough to ask unanimous
consent that Mr. Smith be permitted to sit on the panel as much
as he's not a member?
Chairman Young. That's fine.
Mr. Saxton. Thank you.
Chairman Young. Now, may I continue?
Mr. Saxton. Please.
Chairman Young. Thank you.
[Laughter.]
I appreciate it.
Before I introduce our esteemed witness and the author of
S. 1221--which we're not holding the hearing on today--I just
thank you, Mr. Chairman, for holding this hearing. It's deeply
important to me, and I believe the fisheries, itself.
There are many who may not know the Magnuson-Stevens Act
originated in this Committee. Of course, now it's named the
Magnuson-Stevens Act, and it was enacted in 1976. This Act
gives Americans control of the fisheries. That was the first
step; it was the right step.
And then we passed the Commercial Fishing Industry Vessel
Anti-Reflagging Act in 1987 to make sure that American owned
and controlled vessels harvested our fishery resources. I
specifically supported this bill because I believed it was
important to have U.S. owned and U.S. manned vessels harvesting
U.S. resources.
While we thought both laws were successful in Americanizing
the fisheries, it appears we weren't as successful as we
thought. In trying to be fair to those vessel owners who had
already made substantial investment in fishing vessels--either
those vessels already in the fisheries or those being rebuilt
in foreign shipyards--Congress created grandfather clauses
which the Coast Guard has now misinterpreted and which have
potentially allowed the opposite results to occur.
It now appears the Coast Guard has ruled that any vessel
which was already in the fishery at the time of the passage of
the Act could be sold to foreign interests. I'm deeply
disappointed in the Coast Guard, although I have always been a
strong supporter of it. Someone needs some better legal advice.
And according to the GAO report in 1990, that Coast Guard
ruling could lead to 29,000 fishing vessels that were in the
fisheries at the time of the Anti-Reflagging Act's passage to
be sold to foreign interests. This is clearly not what we
intended.
I was the sponsor of the ownership amendment at the
Merchant Marine and Fisheries Committee markup. Existing law at
the time allowed foreign entities to set up American
corporations, even if they were foreign controlled, and own
fishing vessels harvesting fish in U.S. waters. The intent of
my amendment was to require a majority of voting stock to be in
the hands of individuals who are American citizens. The Coast
Guard ruling has created an opposite effect.
In addition, the interpretation of the grandfather clause
which allowed a certain number of vessels to be rebuilt in
foreign shipyards and retain their eligibility to fish in U.S.
waters may have had unintended consequences. There have been
allegations that a number of speculative contracts were written
to allow vessels to be rebuilt and brought to the U.S.
fisheries when there had been no intent to do so prior to the
grandfather clause, and the Coast Guard's interpretation of
that clause.
I am also concerned that the Coast Guard did not seem to
think that changes in the specifications of the vessels being
rebuilt mattered. In several documented cases, vessels went to
shipyards with the intent of being converted to fish tender
vessels which do not harvest fish. And when they came out of
that shipyard, low and behold, they were large factory trawlers
certain to harvest fish.
I also believe the Coast Guard missed the boat on
interpreting the ownership requirement by allowing vessels
which entered foreign shipyards as U.S.-owned projects to leave
the shipyard and enter U.S. fisheries as totally foreign-owned
projects.
Most of the vessels which entered the U.S. fisheries
through these grandfather clauses are now involved in the
Bering Sea groundfish fishery. There is an overcapitalization
problem in this fishery. I don't think anyone, including the
witnesses, will debate that issue. I have tried not to assess
blame nor have I claimed that eliminating all factory trawlers
is the solution to that problem. There is an overcapitalization
problem.
Having said that, it is important that bycatch be further
reduced in this fishery. Now I've talked to all sides in this
issue, urged them to set down, stop the free-for-all, and stop
the bycatch. So far, I've not had a proposal other than from
the CDQ community. And by the way, I want to remind the people,
the CDQ program was adamantly opposed by certain people in this
audience when we tried to pass it. And now they're hiding
behind the program. Very frankly, I might want to look at the
CDQ program, and maybe we ought to CDQ the whole fishery. Let's
really get working together where we don't have a free-for-all,
and where we do maintain the shots, and we protect this
fishery.
This is not about allocation; this is about protecting the
Bering Sea. I'm deeply disturbed that some people would think
that the current situation is perfectly alright. That we don't
have to worry about the sea; we can continue to catch these
fish. We can continue to do harm to other species other than
what they're targeted. I think this is terribly incorrect.
Again, most of you in this room have talked to me some time
or other, and I've suggested you sit down and talk this over.
You have not done so. Now I'm going to tell you right now, this
issue is not going away. This issue is going to be with us.
We're not talking about S. 1221, but we're talking about
legislation that will be supported universally.
This trawl fleet has to understand they're small in
numbers; they're not large in numbers. Yes, they have a few
dollars, and they have a lot of ships. But, in fact, the
American public wants this industry to clean its act up.
I'm hoping that the witnesses today will take and address
the issues I've just suggested--and even those issues in S.
1221, although we're not debating that bill today.
And the last issue, may I say one thing? For those honored
guests in this Committee today, this is not a property taking.
Fishing has always been at the privilege of a State or the
Federal Government. It has never been a right in any coastal
area in the United States. It has always been a prerogative of
the State or the prerogative of the Federal Government, and it
is not a taking. And to have someone that has been a hired gun
write a legal opinion deeply disturbs me. A hired gun, not one
that doesn't have an interest, but somebody that's been
employed, has been hired, and now writes an opinion saying it's
a taking. I also have another little group of people called the
National Public Policy Research. And I don't know who in the
world they are. God help us; there are so many of these people
around that say, ``the bill in Congress, S. 1221, the American
Fisheries Act managed to, all by itself, to violate the first
three of the four abuses above.'' And I won't read those. ``The
bill sponsored by Alaska's Ted Stevens would throw 1,500
Americans in Washington State out of work.'' Are we worried
about jobs, or are we worried about the species? Are we worried
about jobs, or are we worried about a continued ability not
only to harvest but do it correctly?
That's the role of this Committee. If we continue to do
what's been done, we'll destroy the fisheries. The jobs will be
lost, and we'll lose a great part of our history if we don't do
something.
And, Mr. Chairman, I want to compliment you again for
having this hearing today. And I'm a little bit excited now,
but if you think I'm excited, watch my Senator.
[Laughter.]
[The prepared statement of Mr. Young follows:]
Statement of Hon. Don Young, a Representative in Congress from the
State of Alaska
Mr. Chairman, I appreciate you holding this hearing today
on the American ownership of fishing vessels. This is an issue
that has been debated and addressed by Congress since the
1970's.
The Magnuson-Stevens Fishery Conservation and Management
Act, enacted in 1976, gave first preference to American-flag
vessels for the harvesting of fishery resources in U.S. waters.
This was the first step in replacing foreign fleets in U.S.
waters with our own fishing vessels.
We then passed the Commercial Fishing Industry Vessel Anti-
Reflagging Act of 1987 to make sure that American owned and
controlled vessels harvested our fishery resources. I
specifically supported this bill because I believed it was
important to have U.S. owned and U.S. manned vessels harvesting
U.S. resources.
While we thought both laws were successful in Americanizing
the fisheries, it appears we weren't as successful as we
thought. In trying to be fair to those vessel owners who had
already made substantial investment in fishing vessels--either
already in the fisheries or being rebuilt in foreign
shipyards--Congress created grandfather clauses which the Coast
Guard has now mis-interpreted which has potentially allowed the
opposite results to occur.
It now appears that the Coast Guard has ruled that any
vessel which was already in the fishery can be sold to foreign
interests. According to a GAO report in 1990, that could lead
to 29,000 fishing vessels that were in the fishery at the time
of the Anti-Reflagging Act's passage to be sold to foreign
interests. That is clearly not what Congress intended. I was
the sponsor of the ownership amendment at the Merchant Marine &
Fisheries Committee markup. Existing law at the time allowed
foreign entities to set up American corporations, even if they
were foreign controlled, and own fishing vessels harvesting
fish in U.S. waters. The intent of my amendment was to require
a majority of voting stock to be in the hands of individuals
who are American citizens. The Coast Guard ruling has created
the opposite effect.
In addition, the grandfather clause which allowed a certain
number of vessels to be rebuilt in foreign shipyards and retain
their eligibility to fish in U.S. waters may have had
unintended consequences. There have been allegations that a
number of speculative contracts were written to allow vessels
to be rebuilt and brought into U.S. fisheries when there had
been no intent to do so prior to the grandfather clause and the
Coast Guard's interpretation of that clause.
I am also concerned that the Coast Guard did not seem to
think that changes in the specifications of the vessels being
rebuilt did not matter. In several cases, I understand vessels
went into shipyards with the intent of being converted to fish
tender vessels which do not harvest fish. When they came out of
the shipyard they were large factory trawlers which certainly
do harvest fish.
I also believe the Coast Guard missed the boat on
interpreting the ownership requirements, by allowing vessels
which entered foreign shipyards as U.S.-owned projects to leave
the shipyard and enter U.S. fisheries as totally foreign-owned
projects.
Most of the vessels which entered the U.S. fisheries
through these grandfather clauses are now involved in the
Bering Sea groundfish fishery. There is an overcapitalization
problem in this fishery. I don't think anyone here will debate
that issue. I have tried not to assess blame nor have I claimed
that eliminating factory trawlers is the solution to that
problem.
Having said that, it is important that bycatch be further
reduced in this fishery. I am not happy that in some years this
fishery is closed not because the target species quota is met,
but rather because the bycatch quota is reached. The amount of
salmon, crab and halibut that are wasted in this fishery is
criminal. I understand the CDQ vessels are required to meet
more stringent conservation requirements when they fish in this
fishery. That is something else we need to look into.
I suspect we will hear more about these issues from the
witnesses and I expect the Coast Guard will detail why they
followed the interpretations that allowed these things to
happen.
A number of people have attempted to turn this hearing into
a debate on S. 1221, introduced by Senator Stevens. This is not
a hearing on that legislation and, at this point, no
legislation has been introduced on the House side. It is clear
that the Stevens bill does raise some interesting questions
about why the goals of Americanizing the fisheries were not
realized, but this hearing is not on that bill.
In addition, some people have questioned whether fishing
permits and licenses are considered property and have tried to
turn this into a debate on property rights. Let me very clearly
state that fishing permits and licenses do not give the permit
holder any right to fishery resources in U.S. waters. Permits
are a privilege that allow the permit holder to attempt to
harvest fish. There are no guarantees beyond that. No one here
should question my leadership in the area of defending personal
property rights but in this case there is no claim of property
associated with fishing permits or licenses.
I look forward to hearing today's witnesses and engaging in
a frank discussion of why the goals of Americanizing the U.S.
fisheries has not been fully realized.
Thank you, Mr. Chairman.
Chairman Young. At this time, I'd like to introduce my dear
and good friend that has been with me for many, many years,
that knows this issue probably better than anybody in this
room--including myself--and that works very hard to try to make
sure, not only Alaska, but all of the seas are protected. This
is our Senior Senator. To look at him, I'm beginning to wonder
if he's not taking something--well, there's new drugs out on
the market nowadays----
[Laughter.]
[continuing] but I tell you----
[Laughter.]
He is the person that has introduced the legislation. He'd
like to talk about this issue. It's my honor to introduce our
Senior Senator, Senator Ted Stevens.
Senator, welcome.
Mr. Saxton. Senator, thank you for being here. Why don't
you proceed as you see fit. And we've allocated enough time for
you to make your case thoroughly. So why don't you proceed?
STATEMENT OF HON. TED STEVENS, A U.S. SENATOR IN CONGRESS FROM
THE STATE OF ALASKA
Senator Stevens. Mr. Chairman, thank you very much. And,
Congressman Young, Mr. Chairman, I appreciate your comment. You
know as I look around this room I've been sort of----
Chairman Young. Senator, pull that mike just a little
closer to you.
Senator Stevens. I've been reminiscing a little bit because
40 years ago, as legislative counsel to the Interior
Department, I came up here and spent many hours, many days, in
this room as we fought for statehood. And to now appear once
again before you and know that our Congressman is the chairman
of this Full Committee, it's just something that is hard to
believe. Those days of 40 years ago are too bright in my mind
really. I'm liable to start reminiscing about them, but I hope
I won't.
And I do thank you all for your statements. Mr. Pallone,
I'd like to hear your comments. And Mr. Miller, George, I hope
you will go into this very deeply because it's a very serious
issue. It's of great importance, I think, to the United States
fisheries as a whole. And it's obvious, from what Congressman
Young has said, it's extremely important to the fisheries off
our shore. And I hope by the time you conclude these hearings,
Mr. Chairman, you will be convinced--as I was--that legislation
in this area is very much needed.
I brought a series of charts that my staff has prepared to
illustrate why Congress passed the Anti-Reflagging Act. And
I've got to tell you, ladies and gentlemen, I've just returned
from a flight to California and back in less than 24 hours
because of a serious illness of one of my children--which was a
very successful operation, thank God. But if I'm a little slow
this morning and not as hot as Congressman Young would like to
have me be, it's because I'm slightly restrained by a little
lack of sleep.
From 1984 to 1987, the foreign-flag fishing was phased out
under the Magnuson Act. In 1986, we realized that nothing in
our Federal law prevented foreign-flag vessels from simply
reflagging to become U.S. flags. So, we introduced and
proceeded with the Commercial Fishing Industry Vessel Anti-
Reflagging Act of 1987. Its goals were to require the U.S.
control of fishing vessels that fly the U.S. flag, and to stop
foreign construction of U.S. flag vessels under the existing
interpretation of the term ``rebuild,'' and to require U.S.
flag fishing vessels to carry U.S. crews.
Of these goals, only the U.S. crew requirement was
achieved. We did not stop foreign interests from owning and
controlling U.S. vessels. In fact, as Congressman Young has
stated, over 29,000 of the 33,000 U.S. flag fishing vessels in
existence are not subject to any controlling interest
requirement. Let me say it again: 29,000 of the 33,000 are not
required to be controlled by the United States even though they
fly--by United States citizens--even though they fly the U.S.
flag.
We also failed to stop the massive Norwegian ship-building
program, which took place between 1987 and 1990, that allowed
20 of the world's largest fishing vessels ever built to come
into our fisheries and fish in our exclusive zone as American
ships. Today, half of the Nation's largest fishery, which is
the Bering Sea pollock, continues to be harvested by foreign
interests on foreign-build vessels that are not subject to the
U.S.-controlling interest standard.
Now if you look at this chart, if you look at the later
years, you'll see that those are the white bars--they're
labeled domestic. If we had it shaded for those that are really
foreign controlled, it would be more than half. So, while the
Magnuson Act has worked and we have Americanized the fisheries,
we have not Americanized the vessels.
So, on September 25, I introduced the American Fisheries
Act that some of you have mentioned, S. 1221. Senators from
just about every region of the country joined in support of
this measure. The co-sponsors now include Senator Breaux from
the Gulf, Senator Hollings from the Southeast, Senator Gregg
from Northeast, Senator Wyden from the West Coast, and my
colleague, Senator Mikulski. This bill would eliminate the
foreign ownership loophole that the Coast Guard interpreted
into the Anti-Reflagging Act. Congress provided a grandfather
clause in that Act to allow vessels whose owners did not meet
the new 51 percent standard, to continue to fish until that
vessel is sold. Once the vessel is sold, it was intended to
have to comply with the controlling interest standard.
The Coast Guard misinterpreted that grandfather clause to
run with the vessel--the legal concept of running with the
vessel, to go with the vessel as the vessel is sold. And the
matter was taken to court, and the DC Court of Appeals upheld
the Coast Guard reading, but all sides agreed that the
practical result was absurd giving the congressional primary
intent of eliminating foreign control over our EEZ fishing.
The next chart I have is chart 2, indicates why I believe
the Coast Guard took the position it did. In the 3 months after
the Anti-Reflagging Act became law, the Coast Guard Vessel
Docu-
mentation Office began issuing letter rulings that granted
permanent U.S. ownership waivers. The letter rulings were
signed by the Chief of the Vessel Documentation Office, who--
according to the Coast Guard at the time--was not required to
get any other clearance to issue such letters. About three-
quarters of the rulings were issued in response to requests
from two attorneys, one who was a former employee of the
Documentation Office. As the chart shows, by the time a Coast
Guard legal opinion was prepared in December 1988, the
Documentation Chief had granted at least nine permanent
waivers. This December 1998 legal analysis, prepared by the
Chief of the Coast Guard Maritime and International Law
Division, correctly concluded that the grandfather provision
could only be interpreted to apply to the current owner of a
vessel. Nevertheless, the Documentation Office continued to
issue letter rulings granting permanent exemptions.
Almost 2 years later, on November 16, 1990, the Chief of
the Coast Guard Operational Law Enforcement Division wrote a
memorandum asking why the earlier legal opinion was not being
followed. By that time, the Documentation Office had issued at
least 13 permanent waivers. For reasons still not clear, the
Coast Guard ultimately ignored the Maritime and International
Law Division memo, the previous legal opinions I have
mentioned, and in its final rule 2 years after the letter
rulings, the Coast Guard read the grandfather provision once
again to run with the vessel. We have since learned that the
Coast Guard did not provide the Maritime and International Law
Division opinion to either the district or appeal courts during
the lawsuits.
At our Senate hearing in March, I called on the General
Accounting Office to investigate these Coast Guard actions. The
GAO will deliver its report to our committee--the Congress
committee and to you--in mid-July, and I expect it will be
helpful in ensuring that similar mistakes are not made again by
the Coast Guard. For instance, the Coast Guard informed us that
the letter rulings were permitted by the Administrative
Procedures Act. And I suggest that that might be a subject, Mr.
Chairman, you should look into, as we do, as to whether or not
that should be changed. For one official to be able to issue a
decision which binds the United States forever to recognize a
grandfather and running with the ship until it expires,
contrary to the intent of Congress, because of a provision
that's been misinterpreted in the Administrative Procedures
Act, to me, means that Act should be clarified.
S. 1221 does not seek to make those changes, and we will
look into that later. This bill seeks to correct the negative
effects caused by the Coast Guard's actions which I have
mentioned. S. 1221 would eliminate all exemptions to the U.S.-
controlling interest requirement and would raise the standard
from 51 percent up to 75 percent. Now that happens to be the
same standard that applies to all other vessels operating
commercially in U.S. waters. There must be at least 75 percent
ownership to operate a U.S. flag vessel in U.S. waters.
And unlike the Jones Act, the system under our fisheries
law is really a preference system for U.S. fishing industry
interests, not an outright prohibition on foreign boats. The
Magnuson Act--and I also note that it's the Law of the Sea
concept, too--require that foreign flag vessels be allowed to
harvest the portion of any U.S. catch that U.S. flag vessels
cannot harvest. It would be possible, in other words, to bring
in a foreign flag vessel to harvest a portion of our EEZ
allocations if the U.S. flags could not harvest that portion.
That is not the situation, however, in this area that we're
talking about because these are foreign vessels that have been
flagged as U.S. in order to pose as part of the Americanization
effort. Without a meaningful controlling interest standard,
there is no way to give U.S. interests the fishing preference
envisioned under our law. Our law provides a preference for
U.S. vessels, and so does the Law of the Sea. It provides that
each nation can give a preference to its vessel.
Under our bill, S. 1221, vessel owners would have 18 months
to comply with the new controlling interest standard and could
be sold or otherwise transferred to meet those requirements.
The Maritime Administration, instead of the Coast Guard, would
review company documents for compliance. MarAd has already
expertise in this kind of work through the Federal loan and
subsidy programs for ocean carriers that it administers. And to
my knowledge, we've not had any conflict over their rulings.
Fishing vessels under 100 tons, which tend to be owner-
operated, would continue to demonstrate compliance as they do.
Now there is a simple form that they file. The fishing vessels
over 100 tons, of which there are about 3,500, would be
reviewed annually, as well as whenever a new owner acquires
more than 5 percent ownership of the vessel.
Gentlemen and ladies, even if we enact that bill, S. 1221,
in the Congress today, it would be a quarter of a century
before we would achieve Americanization as envisioned by the
1976 Magnuson Act. And again, in my judgment, everything in S.
1221 is in compliance with the Law of the Sea concepts.
Now let me turn to foreign rebuilds. A second, major
component of S. 1221 would correct the Coast Guard's
misinterpretation of the foreign rebuild grandfather provision.
Prior to the Anti-Reflagging Act, Federal law allowed U.S. flag
vessels to be rebuilt in foreign shipyards. Under the Coast
Guard's interpretation of that rebuild law, a vessel could be
essentially built in a foreign shipyard as long as any portion
of that vessel came from a U.S. hull. Now to illustrate how
extreme the rebuild could be, I want you to look at this next
board that's there by my young assistant. It's chart 3; it
shows the vessel ACONA, which was a 74-foot, 167-ton vessel
fishing in U.S. waters, before being rebuilt in Norway. There
it is, that little vessel right in the center tied up--I don't
know which dock it is; looks like it's tied up in Cordova. It
could be Kodiak.
Now take a look at this next one; this is chart 4, the
ACONA after being rebuilt. A 74-foot, 167-ton vessel is now 252
feet, weighs over 5,000 tons, and is now the ACONA. The only
thing left of the--and it's now called the AMERICAN TRIUMPH, it
was the ACONA. The only thing left of the ACONA is a piece of
steel in the side. I'm told there may be two pieces of steels,
one in each side. Now that's a rebuild. It really is a totally
new Norwegian vessel brought in and now poses as an American
vessel. And it is flagged as an American vessel. This is one of
about 20 of the so-called rebuilt vessels that now fish in the
Bering Sea off our State.
The Anti-Reflagging Act amended Title 46 to prohibit U.S.
flag vessels from being rebuilt overseas. Unfortunately, it
included this grandfather clause we've mentioned for six
vessels which we knew of at the time for which legitimate
investments had been made to rebuild those vessels. The
grandfather provision allowed a vessel to be rebuilt in a
foreign yard and still qualify for the U.S. flag if the U.S.
hull was purchased by July 28, 1987; a contract for rebuilding
was signed within 6 months after the enactment of the Anti-
Reflagging Act; and the vessel was redelivered to the owner by
July 28, 1990.
Now, Congress specifically required the rebuilt vessel to
be delivered to the owner of the U.S. hull in order to
discourage speculators from buying U.S. hulls during the time
we were working on this bill. Unfortunately, the Coast Guard
did not require the same owner to receive the rebuilt vessel.
And the speculation we sought to prevent became quite great.
So, we're not talking really about American fishermen. We're
not talking about people who have jobs on American boats. We're
talking about stealth foreign vessels in our waters flying the
U.S. flag.
Now, the next chart, No. 5, shows the speculative contracts
for U.S. hulls that were signed between the original House
markup which was scheduled for June 9, 1987, and the
rescheduled markup which was held on July 28, 1987, which
became the cutoff dates for contracts on U.S. hulls that could
be rebuilt. Contracts for at least 13 vessels were signed in
those 6 weeks, including 4 on the day before the markup.
As you can see on the chart, like the ACONA, these vessels
were rebuilt into massive fishing vessels. And the chart shows
the extent to which that rebuilding took place. It's just
staggering, the changes. A rebuilt vessel, when they first
started going overseas--they went overseas primarily because
they were putting in new types of accommodations for the
fishermen. And they're what we call the hotel rebuilds. They
were sent over to have these new rooms added that they
redesigned, and they came back, and they're essentially the
same hull. If you look at this, you will find what happened to
these vessels as they went from 500 tons or less than 500 tons
to almost 5,000 tons. I think this is one of the scandals of
the fishing industry, what happened during this period.
S. 1221--and incidently, I'm not going to rest until I get
to the bottom of that scandal. I believe there was real fraud.
I believe there were improper actions taken. And I intend to
see that suits are brought and we, under the Freedom of
Information, get the information that will show the conspiracy
that existed at that time by a group of speculators to take
advantage of this delay in the markup, over here in the House
side, to just throw paper around and claim that those papers
represented vessels that were to be rebuilt.
S. 1221 would correct the problems created by this
unintended influx of capacity by requiring some of those
vessels to leave. As Congressman Young has said, there is no
question--I don't think anyone before you will assert that
there is not tremendous overcapacity in the fleet that harvests
the area that is still the most productive of all of our
fishery areas. Half of the fish that Americans consume is
caught off of the State of Alaska. Now, this is not a bill to
deal with allocations between U.S. and foreign vessels. It's
not a bill to try to deal with any legitimate ownership. It's
to try to deal with the situation that came about because of
the actions taken by that Documentation Office that continued
to approve pieces of paper that have now been ruled to go with
the vessels that were constructed as enormous new vessels
overseas, and allow them into our waters as rebuilt vessels.
We do not eliminate all of the foreign factory trawlers, or
even all of the foreign factory trawlers that came in through
that rebuild loophole. S. 1221 would remove from the fisheries
only half of the rebuild vessels that continued to be foreign-
controlled on September 25, 1997. I might add, many of them
have gone through new devices to try to show they're not
foreign-controlled since that date.
From the records we have, it appears that 18 vessels were
speculative, where the original owner of the hull did not
receive delivery of the rebuild vessel. That's my definition of
speculative, where someone stepped in and bought the paper that
represented a vessel that was over there like the ACONA and
rebuilt it into an enormous factory trawler. It had nothing to
do with trawling before that time. It became a factory trawler
after the rebuild clause was fused. Of those 18, only 13 appear
to be foreign-owned on September 25, 1998. Of the 13 foreign-
owned boats, 3 have already left. They went over and reflagged
in Russia, and continue to fish there so far as I know. Under
S. 1221, the remaining vessels, which we believe to be 10,
would have to find a vessel of equal or greater size to
surrender its U.S. flag in order to continue flying the U.S.
flag. And there are vessels out there that are on the beach;
they could be bought if they wish to stay on that basis.
This was a more lenient approach than requiring all of the
speculative vessels to leave U.S. fisheries. It would make the
current owners of the vessels that caused the
overcapitalization problems responsible for fixing the problem,
but with the potential for some time to remain in the fishery.
Let me parenthetically tell you one of the things we're
working on in the Senate is a new concept of trying to find
some way to have a buyout of some of those vessels in the North
Pacific. Several of the fisheries have come to us and said they
want to have an opportunity to do what has been done in New
England and to buy down some of those vessels. And the owners
of the vessels would borrow the money from a fund and repay
that fund so that it would not be taxpayers' money that would
be used. But they're devising ways to try and bring about a
voluntary reduction in the capacity in each of these fisheries.
But this main fishery, the pollock fishery, the investments are
so large and the numbers are so large of the foreign-owned
vessels, that that's just not possible to approach this problem
on that basis.
The foreign rebuild provisions of S. 1221 would likely
result in only five factory trawlers leaving the Bering Sea
fisheries. It will allow 50 to 55 factory trawlers to remain,
provided they comply with the U.S.-controlling interest
standard--which any lawyer will tell you, it's not that
difficult. We thought--those of us who designed this bill in
the Senate side thought, under the circumstances, that this
bill is very fair. I think we bent over backward to be fair.
But since September, I have seen clearly that the people who
have brought these vessels in knew what they were doing; they
knew they were invading Congressional intent. And they have
conducted just a staggering campaign now to try and defeat S.
1221.
And my last chart I have there is chart 6. It shows the
foreign rebuild grandfather was implemented by the Coast Guard
in much the same way as the ownership grandfather clause. There
are two separate grandfather clauses in the Anti-Reflagging
Act. At least 13 rebuild waivers were granted before the final
rule was promulgated, essentially foreclosing the possibility
of correctly interpreting the provision. As with the ownership
grandfathers, the letter rulings were issued primarily by the
chief of the Vessel Documentation Office, and the majority were
issued to two attorneys, again, one of whom was a former
employee of the person that issued those letters. When you
finish your review today, I hope you will consider whether we
should remove all of the speculative vessels that came through
the loophole and continue to be foreign-owned.
If we continue to be opposed on a basis of our FARE bill,
we're going to have a knock-down, drag-out fight in the
Congress to win this issue to protect these fisheries in the
North Pacific. We might as well go ``whole hog'' and get out of
the whole area those who have speculated and tried to now
destroy our fisheries based upon that speculation.
I know I'm taking a long time, but there are some
interesting views on the final major component of the bill. We
called it the large vessel phaseout. It provides that no new
fishing vessels greater than 165 feet, 750 tons, or 3,000 shaft
horsepower would be allowed into these fisheries. Fishing
vessels above any of these three thresholds that are already in
the fisheries on September 25, 1997, could stay in for the
useful life of the vessel, provided they meet the controlling
interest standard and don't surrender their fishery's
endorsement.
This phaseout could easily be called a moratorium. The
measure would not only prevent new boats from entering, it
would prevent foreign flag vessels from coming back into the
U.S. fleet. I mention that of great importance because many of
these large vessels went over to Russia and started fishing
there as Russian vessels. And now they want to come back and
claim they're still U.S. vessels.
After the Senate hearing, I told many of the people
involved I'd be willing to consider allowing the Councils, the
Regional Fisheries Councils, to provide a means to override the
moratorium even though I've yet to hear a single U.S. fishery
that needs or wants any more large fishing vessels. It does
seem to me Council created the regional corporations; the
regional corporations should be the ones to decide if there is
any need for any new vessels that would exceed that standard
set by S. 1221.
The bill also includes a special measure for Atlantic
herring and mackerel fisheries, in part because a factory
trawler recently modified overseas obtained a fishery
endorsement before the control date of S. 1221. I believe
that's sought by the people in the area very strongly.
I would make one suggestion in closing, Mr. Chairman, and
that is on what Congressman Young discussed--the concept of
taking. I have practiced law now for almost 50 years, Mr.
Chairman, and I would not draft a bill that would violate the
Constitution knowingly. It was not a taking when we phased out
the foreign flag vessels in the early-1980's. They were all
foreign flag vessels then, and we've set up a provision for
Americanization through the joint venture phase. And even the
joint ventures were phased out by an act of Congress. And it
will not be a taking when we remove the foreign-controlled
vessels that purported to be U.S. flags from the U.S. flag
registration. In both cases, we are eliminating a privilege the
United States granted to those entities.
In the case of foreign-flag vessels, the privilege came as
a fishing permit that allowed them to operate in U.S. waters.
That was before the Magnuson Act. In the case of foreign-
controlled vessels, the privilege is in the form of a fishery's
endorsement--a piece of paper issued by an administrative
officer that allows them to operate in U.S. waters as U.S.
vessels. As with the original Magnuson Act and the 1987 Anti-
Reflagging Act, S. 1221 would not take anyone's vessel or
prevent them from using it anywhere in the world with the
proper fishery's endorsement.
It's ironic to me that some of the same factory trawler
owners who now argue that their permits cannot be revoked, 2
years ago told us--when arguing for IFQs, Individual Fishing
Quotas--that fishing was a privilege which could be revoked
without compensation. These people have gone each way on
several issues.
With respect to IFQs, Congress should make clear that there
will be no IFQs ever issued to foreign interests in our waters.
That ought to be another thing we did not do that you should
consider. Put the marker down now and state to everybody that
if we go the IFQ route, there will be no foreign fishing IFQs
in our water.
Now the last chart I said was the last, but I'm mistaken.
There is another chart, chart 7. It showed what happened to the
Bering Sea pollock fishery since the foreign rebuilds entered.
The allowable biological catch, which is called ABC, has
declined by one-third, meaning there are one-third fewer fish
to catch. And the Council, now, because of the pressure of all
of these vessels, has eliminated what we call the buffer
between that allowable biological catch and the total allowable
catch, which is the TAC. So now, that if the ABC accidently
gets set too high, the fleet will have already exceeded what
should be the maximum catch.
All of these mechanisms were designed to protect the fish,
the reproductive capability of these fisheries--not to protect
fisherman, not to protect who owns the vessel at any length,
but to protect the reproductive capability. And because of the
pressure of this overcapitalization the Council, now, has been
forced to eliminate one of the basic protections for the
species themselves, and that was the buffer. The decline in the
allowable catch may be part of a normal stock cycle, but the
shift to a riskier management practice is probably the direct
result of the increased capital and harvesting capacity that go
back to these erroneous rulings that I've mentioned.
Now, ladies and gentlemen, you've been very patient with
me. I can't tell you how chagrined I am to have to come and
confess that when we marked up that bill, we just didn't do a
good job. We should have closed that door, and we should have
been very plain about what rebuild was. And when we said, ``to
the owner,'' we should have said, ``to the original owner,'' to
the owner who submit-
ted the papers at the time that the exemption was sought; but
we didn't. In other words, this is not something for the courts
to deal with; its not something--and by the way, the Court of
Appeals said it was something for Congress to deal with. We
should have done it more specifically, and we need to now go
back and do what we intended to do--assure that only U.S. flag
vessels that are built in the United States can, in fact, be
flagged as U.S. vessels to harvest a portion, the American
portion, of the fisheries within our 200 mile limit.
And I commend you again, ladies and gentleman. I hope that
you will pursue it. There are several other things here that I
could mention about this issue, but I think, in the interest of
time, I'll see if you have any questions of me. It is to me,
the most serious thing that faces our great North Pacific
fishery, and I'm saddened that it's viewed by some as being
Alaska versus the State of Washington issue. It is not. And if
anyone's got any solution to help us prove that, I'd be glad to
explore any solution. We are not taking any of these vessels
out on the basis of where their home port is, or anything.
We're looking to take them out on the basis of whether they
fraudulently came into the fishery. And I hope that you'll
address it from that point of view.
Thank you very much, Mr. Chairman.
[The prepared statement of Senator Stevens follows:]
Statement of Hon. Ted Stevens, a Senator in Congress from the State of
Alaska
Thanks to Chairman Young and Subcommittee Chairman Saxton
for allowing me to testify today.
The matter you are about to consider is of great importance
in the U.S. fisheries, and particularly in the fisheries off
Alaska. By the time you conclude today, it is my hope you will
be convinced, as I was, that legislation is greatly needed.
My first chart (chart 1) illustrates why Congress passed
the Anti-Reflagging Act. From 1984 to 1987, foreign-flag
fishing was being phased out of the EEZ under the Magnuson Act.
In 1986 we realized that nothing in Federal law prevented the
foreign-flag vessels from simply reflagging to the U.S. flag.
The goals of the ``Commercial Fishing Industry Vessel Anti-
Reflagging Act of 1987'' were therefore: (1) to require the
U.S.-control of fishing vessels that fly the U.S. flag; (2) to
stop the foreign construction of U.S.-flag vessels under the
existing interpretation of the term ``rebuild''; and (3) to
require U.S.-flag fishing vessels to carry U.S. crews.
Of these goals, only the U.S. crew requirement was
achieved. We did not stop foreign interests from owning and
controlling U.S.-flag vessels. In fact over 29,000 of the
33,000 U.S. flag fishing vessels in existence are not subject
to any controlling interest requirement. We also failed to stop
the massive Norwegian shipbuilding program between 1987 and
1990 that allowed about 20 of the largest fishing vessels ever
built to come into our fisheries.
Today, half of the nation's largest fishery--Bering Sea
pollock--continues to be harvested by foreign interests on
foreign-built vessels that are not subject to the U.S.-
controlling interest standard. Therefore, while the white bars
in the later years on the chart are labeled ``domestic,'' half
of each could still correctly be labeled ``foreign.''
On September 25, 1997, I introduced the American Fisheries
Act (S. 1221) to fix these mistakes. Senators from just about
every fishing region of the country have joined me in support
of this measure. (Cosponsors include Senators Breaux (Gulf);
Hollings (Southeast); Gregg (Northeast); Wyden (West Coast) and
Murkowski).
Foreign Ownership
S. 1221 would eliminate the foreign ownership loophole the
Coast Guard interpreted into the Anti-Reflagging Act. Congress
provided a grandfather in that Act to allow vessels whose
owners did not meet the new 51 percent standard to continue to
fish until they sold the vessel. Once the vessel was sold, it
was intended to have to comply with the controlling interest
standard. The Coast Guard misinterpreted this grandfather to
``run the vessel.'' While the DC Court of Appeals upheld this
Coast Guard reading, all sides agreed that the practical result
was absurd given Congress' primary intent of eliminating
foreign control.
My next chart (chart 2) indicates why I believe the Coast
Guard took the position it did. In the three months after the
Anti-Reflagging Act became law, the Coast Guard Vessel
Documentation Office began issuing letter rulings that granted
permanent U.S. ownership waivers. The letter rulings were
signed by the Chief of the Vessel Documentation Office, who,
according to the Coast Guard, was not required to get any other
clearance in issuing the letters. About three-quarters of the
rulings were issued in response to requests from two attorneys,
one of whom was a former employee of the Documentation Office.
As the chart shows, by the time a Coast Guard legal opinion
was prepared on December 19, 1988, the Documentation Chief had
granted at least 9 permanent waivers. This December 1988 legal
analysis--prepared by the Chief of the Coast Guard Maritime and
International Law Division--correctly concluded that the
grandfather provision could only be interpreted to apply to the
current owner of a vessel. Nevertheless, the Documentation
Branch continued to issue letter rulings granting permanent
exemptions.
Almost two years later, on November 16, 1990, the Chief of
the Coast Guard Operational Law Enforcement Division wrote a
memo asking why the earlier legal opinion was not being
followed. By that time, the Documentation Office had issued at
least 13 permanent waivers. For reasons still not clear, the
Coast Guard ultimately ignored the Maritime and International
Law Division memo. In its final rule--two years after the
letter rulings--the Coast Guard read the grandfather provision
to run with the vessel. We've since learned that the Coast
Guard did not provide the Maritime and International Law
Division opinion to the either the district or appeals courts
during the law suit which it won.
At our hearing in March, I called on the General Accounting
Office to investigate these Coast Guard actions. The GAO will
deliver its report in mid-July, and I expect it will be helpful
in ensuring that similar mistakes are not made again by the
Coast Guard. For instance, the Coast Guard informed us that the
letter rulings were permitted by the Administrative Procedures
Act, and perhaps that should be changed.
S. 1221, however, does not seek to make these kinds of
changes--it seeks to correct the negative effects by the Coast
Guard's actions. S. 1221 would eliminate all exceptions to the
U.S.-controlling interest requirement, and would raise the
standard from 51 percent up to 75 percent, the same standard as
other vessels operating commercially in U.S. waters.
Unlike the Jones Act, the system under our fisheries law is
really a preference system for U.S. fishing interests, not an
outright prohibition on foreign boats. The Magnuson Act (and
Law of the Sea) require that foreign-flag vessels be allowed to
harvest the portion of any U.S. catch that U.S.-flag vessels
can't harvest. Without a meaningful controlling interest
standard, there is no way to give U.S. interests the fishing
preference envisioned under this law.
Under S. 1221, vessel owners would have 18 months to comply
with the new controlling interest standard, and could be sold
or otherwise transferred to meet the requirements. The Maritime
Administration, instead of the Coast Guard, would review
company documents for compliance. MarAd already has expertise
in this kind of work through the Federal loan and subsidy
programs for ocean carriers that it administers.
Fishing vessels under 100 tons--which tend to be owner-
operated--would continue to demonstrate compliance as they do
now (with a simple form). Fishing vessels over 100 tons--of
which there are about 3,500--would be reviewed annually, as
well as whenever a new owner acquires more than 5 percent
ownership.
Even if we enact S. 1221 today, it will have taken a
quarter century to achieve the Americanization we envisioned in
1976.
Foreign Rebuilds
The second major component of S. 1221 would correct for the
Coast Guard's misinterpretation of the foreign rebuild
grandfather.
Prior to the Anti-Reflagging Act, Federal law allowed U.S.-
flag fishing vessels to be ``rebuilt'' in foreign shipyards.
Under the Coast Guard's interpretation of ``rebuild,'' a vessel
could be essentially built in a foreign shipyard so long as
some portion came from a U.S. hull. To illustrate how extreme a
``rebuild'' could be, my next board (chart 3) shows the vessel
ACONA--which was 74-feet long and 167 tons before being rebuilt
in Norway.
Take a good look--the board after (chart 4) shows the
``ACONA'' upon the completion of its rebuild. It measures 252
feet and over 5,000 tons, and is now called the AMERICAN
TRIUMPH. This is no reasonable way to call this the same
vessel. This particular vessel is currently under investigation
by the Coast Guard because docu-
ments used in obtaining the rebuild waiver may have been back-
dated. This is one of about 20 so-called ``rebuilt'' vessels
that now fish in the Bering Sea.
The Anti-Reflagging Act amended title 46 to prohibit U.S.-
flag fishing vessels from being rebuilt overseas.
Unfortunately, it also included a grandfather provision for 6
vessels for which legitimate investments had been made. The
grandfather provision allowed a vessel to be rebuilt in a
foreign yard and still qualify for the U.S.-flag if (1) the
U.S. hull was purchased by July 28, 1987; (2) a contract for
rebuilding was signed within 6 months of the enactment of the
Anti-Reflagging Act; and (3) the vessel was ``redelivered to
the owner'' by July 28, 1990.
We specifically required the rebuilt vessel to be delivered
to the owner of the U.S. hull in order to discourage
speculators from buying U.S. hulls during the time we were
working on the bill. Unfortunately, the Coast Guard did not
require the same owner to receive the rebuilt vessel--and the
speculation we sought to prevent became quite great.
My next chart (chart 5) shows the speculative contracts for
U.S. hulls signed between the original House markup (June 9,
1987) and the rescheduled markup July 28, 1987 which became the
cutoff date for contracts on U.S. hulls that could be rebuilt.
Contracts for at least 13 vessels were signed in those six
weeks--including 4 on the day before the markup. As you can see
on the chart, like the ACONA, these vessels were ``rebuilt''
into massive fishing vessels (see increases on the chart).
S. 1221 would correct the problems created by this
unintended influx of capacity by requiring some of those
vessels to leave. S. 1221 would not--as some have suggested--
eliminate all of factory trawlers or even all of the factory
trawlers that came through the rebuild loophole. It would
remove from the fisheries only half of the rebuild vessels that
continued to be foreign-controlled on September 25, 1997 (the
day of introduction).
From records we have, it appears that 18 vessels were
speculative (where the original owner of the U.S. hull did not
receive delivery of the rebuilt vessel). Of those 18, only 13
appear to have been foreign-owned on September 25, 1998. Of the
13 foreign-owned boats, three already have left the fisheries
(reflagged to fish in Russia). Under S. 1221, the remaining
vessels (we believe 10) would have to find a vessel of equal or
greater size to surrender its U.S. flag in order to continue
flying the U.S. flag.
This was a more lenient approach than requiring all of the
speculative vessels to leave the fisheries. It would make the
current owners of the vessels that caused the
overcapitalization problems responsible for fixing the
problems--but with the potential for some to remain in the
fisheries. The foreign rebuild provisions of S. 1221 would
likely result in only 5 factory trawlers leaving the Bering Sea
fisheries--and allow 50 to 55 factory trawlers to remain,
provided they comply with the U.S.-controlling interest
standard. We thought this, under the circumstances, was very
fair--we bent over backwards to be fair. Since September I have
seen clearly that the people who brought these vessels in knew
exactly what they were doing--and that they were evading
Congressional intent.
As my next chart (chart 6) shows, the foreign rebuild
grandfather was implemented by the Coast Guard in much the same
way as the ownership grandfather. At least 13 rebuild waivers
were granted before a final rule was promulgated--essentially
foreclosing the possibility of correctly interpreting the
provision. As with the ownership grandfathers, the ruling
letters were issued primarily by the Chief of the Vessel
Documentation Office, and the majority were issued to two
attorneys, one of whom was a former employee. When you finish
your review today, perhaps you will conclude that we should
remove all of the speculative vessels that came through
loophole and that continue to be foreign owned.
Large Vessel Moratorium
There are some interesting views on the final major
component of the bill. In S. 1221, we called it the large
vessel ``phase out.'' No new fishing vessels greater than 165
feet, 750 tons, or 3,000 shaft horsepower would be allowed into
the fisheries. Fishing vessels above any of these thresholds
that were already in the fisheries on September 25, 1997 could
stay for the useful life of the vessel--provided they meet the
controlling interest standard, and don't surrender their
fishery endorsement.
This ``phase out'' could as easily be called a
``moratorium.'' The measure would not only prevent new boats
from entering, but would prevent former-U.S. flag vessels from
coming back into the U.S. fleet. After the Senate hearing, I
said I would be willing to consider allowing the Councils to
override the moratorium--even though I've yet to hear of a
single U.S. fishery that needs or wants any more large fishing
vessels. I should mention that the bill includes a special
measure for the Atlantic herring and mackerel fisheries, in
part because a factory trawler recently modified overseas
obtained a fishery endorsement before the control date in S.
1221.
Closing
Before concluding, I will comment on the suggestion that
this bill would constitute a taking. It was not a taking when
we phased out foreign-flag vessels in the early-1980's, and it
will not be a taking when we remove foreign-controlled vessels
who happen to fly the U.S. flag. In both cases, we are
eliminating a privilege the United States granted to those
entities.
In the case of foreign-flag vessels, the privilege came as
a fishing permit that allowed them to operate in U.S. waters.
In the case of the foreign-controlled vessels the privilege is
in the form of a fishery endorsement that allows them to
operate in U.S. waters. As with the original Magnuson Act and
the 1987 Anti-Reflagging Act, S. 1221 would not ``take''
anyone's vessel or prevent them from using it anywhere else in
the world.
It's ironic to me that some of the same factory trawler
owners who now argue their permits can't be revoked, two years
ago told us--when arguing for IFQs--that fishing was a
privilege which could be revoked without compensation. And with
respect to IFQs, Congress should make clear that there will be
no IFQs issued to foreign entities.
My final chart (chart 7) shows what has happened in the
Bering Sea pollock fishery since the foreign rebuilds entered:
(1) the ``allowable biological catch'' (ABC) has declined by a
third--meaning there are fewer fish to catch; and (2) the
Council has eliminated the buffer between the ABC and the
``total allowable catch'' (TAC)--so that now if the ABC
accidentally gets set too high, the fleet may already have
exceeded what should have been maximum catch. The decline in
the allowable catch may be part of the normal stock cycles, but
the shift to a riskier management practice is probably the
direct result of the increased capital and harvesting capacity
stemming back to the early-199Os.
Mr. Chairmen and Committee members, I appreciate the time
you have taken to listen to me, and commend you for addressing
these important issues today.
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Mr. Saxton. Senator Stevens, thank you very much for the
very thorough, and explicit, and articulate testimony.
And first, I ask unanimous consent that Mr. Delahunt and
Mrs. Smith be permitted to sit on the panel. Thank you very
much.
Second, let me thank you, Senator, for including the
provisions of the House bill relative to the northeastern part
of the country, and specifically the ship that we referred to,
in the language, I believe is the ATLANTIC STAR. We appreciate
very much your including those provisions in your bill. We
think that's of great importance, particularly to Mr. Delahunt
and I, and Mr. Pallone, and other Members of the Congress who
represent sections of the northeast.
I'd just like to make one point if I may, and then I'm
going to ask Mr. Young for his questions or comments. I'd like
to try to help clear up this issue regarding property rights.
You spoke very eloquently, and I understand what you said, and
I agree with you. I would just like to underline this and
perhaps you can respond to this statement. On February 28 of
1995, the American Factory Trawler Associations wrote to the
Chairman of the Full Committee, Mr. Young. And I have a three-
page letter signed by Joseph Blum, the executive director. And
I might add that the American Factory Trawler Association is
represented here today by Jim Gilmore. They are now called the
At Sea Processor's Association, so they'll have a chance to
comment on this as well. In addressing the issue of ITQs,
there's an interesting passage--statement here on page 2 of
this letter. In speaking to what Congress ought to do relative
to a number of issues involving the North Pacific fisheries,
and they are addressing the issues of ITQs. And they say, and
I'll quote this, ``Specifically,'' they say, ``Congress should
clarify that a quota share issued to a person under a ITQ
program is not a property right. Under the ITQ program, an
individual is provided with a privilege of harvesting a
percentage of the annual allowable catch.'' This is the
American Factory Trawlers Association which I believe today may
be taking a different view.
I would just like you, if you would, sir, Senator, to
comment on this statement and how you see it in the context of
our discussion today.
Senator Stevens. Well, Mr. Chairman, I think you're correct
that the group that represents the factory trawler have taken
all three sides of that same issue. On CDQs, IFQs, and on the
fishery's endorsement, they, on one hand, argue that it is a
property right. On the other hand, when it's convenient, argue
that it's just a privilege. It just depends on what they want
in terms of what the constitutional provision means as far as
I'm concerned. They have not addressed this issue, I think,
fairly on a legal basis. There is no constitutional right;
there is no taking of any property right here. I know of no one
that previously had claimed that about a fishery's endorsement
issued by the Coast Guard. And as such, I just hope the
Committee and the Congress will ignore this new argument.
Mr. Saxton. If fishery quotas or fishing privileges were
property rights, we'd have a hard time regulating fisheries at
all, wouldn't we?
Senator Stevens. You're right. As a matter of fact, the
Regional Councils under the Magnuson Act can take those down
and can stop them from exercising those rights at any time. If
they were property rights, they could not do that without
compensation. But the Regional Fishings Councils have been
doing that since day one under the Magnuson Act because they
set the allowable catch, and they tell you how much that
endorsement is worth in each year. And the Act, as well as the
Law of the Sea, contemplates that that because they're both
provisions to protect the fish--not protect the fishermen or
any vessel. Now, their argument would mean that a vessel that
acquires such an endorsement has a greater right than an
American-built vessel. Think of that, Mr. Chairman. There is no
such concept involved, that I know of, in constitutional law.
Mr. Saxton. Senator, thank you very much.
Mr. Young.
Chairman Young. Thank you, Mr. Chairman.
Before you leave, Senator, I'd like to have both of the two
pictures of the so-called rebuilt ship. I want to leave those
here and remind each member, that is a classic example of what
was not intended. Because other than the Senator and myself,
we're the only two that were here. We knew what we were
intending to do, and now to have that abused as was done is
just absolutely beyond my comprehension. You know, I have
hundreds, Senator--and I know you do, too--of people coming in
and asking for changes in the Jones Act; we need documentation
to get our vessel out of Canada, for instance. The Coast Guard
said you can't do it. And this is the example I think of
malfeasance, if I've ever seen it.
And, Senator, one question--and I want to thank you for
your testimony----
Senator Stevens. Congressman?
Chairman Young. Yes.
Senator Stevens. May I interrupt just--sir, attached to
each one of the statements we've provided you, are a black and
white----
Chairman Young. There's something about--maybe it's the
maturity--there's something about a little picture and a big
picture.
Senator Stevens. Oh.
Chairman Young. I would rather look at the big picture,
believe me.
Senator Stevens. Senators have the trouble of seeing the
big picture every once in awhile.
[Laughter.]
Chairman Young. OK. The other thing is, to your knowledge,
Senator, is there any fishing in any State that it is a right,
other than the Indian treaties? That all fisheries, to your
knowledge, within the three-mile limit are managed by the State
Fish and Game; is that correct?
Senator Stevens. That's correct.
Chairman Young. Nobody has the right. They can shut it
down. Let's go beyond the three-mile limit. What happens if the
Council changes the size of the net from an eight-inch net
which they used to use, to a two-and-one-half-inch net, or from
a two-and-one-half-inch to eight-inch net? Would that be a
taking, for instance?
Senator Stevens. Absolutely not. As a matter of fact, look
at the foreign factory trawlers; they argued before the Council
and got a ruling of the Council that changed the allocation of
fish. It used to be 65 percent onshore, 35 percent offshore.
Now, it's 65 percent off-
shore and 35 percent onshore. In other words, the Council, in
its ruling, put more than half of the boats that were fishing
or bringing the fish back to shore put them on the beach. Now
that wasn't deemed to be a taking. They're arguing right now
before the Council for a larger allocation of this fish.
Chairman Young. All right. I'm----
Senator Stevens. All the endorsement gives you is the right
to take the amount of fish the Council says you can take.
Chairman Young. All right.----
Senator Stevens. How can that be a property right?
Chairman Young. Senator, if I'm an onshore processor. And
if the Council determines I'd get 50 percent of the fish for
example. The Council rules that instead of my getting 50
percent, I get 35 percent; it goes to the offshore trawl fleet.
That is not considered a taking from me. But under their
premise, it would be a taking. Is that correct?
Senator Stevens. Well, they consider it to be a taking when
we say that they have to give up the rights they acquired
through the improper interpretation of the law. Now that is on
another phase of this question of constitutionality. That flag
that they get, you can see how temporary it is. They have
voluntarily given up--if they just go across the line and start
fishing in Russia, they give up that right. Now if it's a
property right, how can Congress provide it just by going
across an imaginary line? They lose that constitutional right.
Their property right argument is just full of holes. It has
never been a property right. And I do not understand----
Chairman Young. Again, Senator, I know what this is. This
is an attempt to what we call ``muddy the water,'' not ``tongue
in cheek.'' There is something really fishy about that
argument, and I hope we are able to beach it so it never swims
again.
Thank you, Mr. Senator.
[Laughter.]
Senator Stevens. Well, let me tell you, Congressman, these
vessels, if we take their flag away from them, they can still
fish in U.S. waters at any time that any Council says that the
American effort is not sufficient to harvest all the fish. We
have not taken away the right to fish; we've just taken away
their privilege to fish as a U.S. flag vessel when they really
are foreign-built, foreign-operated vessels.
Mr. Saxton. Thank you.
I believe Mr. Farr has some questions.
Mr. Farr. Well, thank you very much, Mr. Chairman. I
appreciate you having this hearing and request that my remarks
be submitted in the record.
And I really want to thank the Senator for being here. This
is the International Year of the Ocean. Next week is the
National Oceans Conference out of my district in Monterey--and
a district that you are familiar with because I understood you
spent some years at Fort Ord there--and I appreciate the
connection. It's also very interesting because Monterey used to
be the largest sardine port in the world. And we lost that
fishery because we never paid attention to what happens if you
don't manage the fisheries.
And I think often people forget that our responsibility as
elected Members of Congress--and frankly, it's only our
responsibility be-
cause State legislators and local governments can't do it--is
to protect the resources of this country which have been
declared to be the fisheries out to 200 miles. I mean, in
sense, the Law of the Sea Treaty recognizes that all ocean
politics are local.
And I appreciate the fact that you're bringing this
legislation and this issue to us because if we don't--the
bottom line is really fisheries management. And this goes in to
how you better manage the fisheries so that there is not an
unusual amount of harvesting or harvesting that we can't
control, and that that benefit of that doesn't inure to
American businesses; that we have been a country that has
always looked at the bottom line, and I think that often in
resources, we forget that the bottom line is one that really
needs to be managed appropriately.
And as far as this idea that anything we would do in this
area in regards to taking or--I'd like to remind the Members of
Congress that in where you have local fisheries in the States--
the State that I come from, California, we've banned gill nets,
and there was no takings issue in that. We have required
limited entry in numerous fisheries, and there was no takings
in that. We have required trawlers to have new gear that is--
and we have provided the loan program so that they can transfer
from old technology to new technology; there was no takings in
that.
I agree with the Senator; this is not a takings issue. To
go in and fish in American fisheries is a privilege, not a
right. And that privilege is extended by law that is created by
this Congress. And I think if we don't pay attention to the
fact that we need to be on top of that law, making sure that
that law is a wise law, smart law, is law that really does the
best we can to regulate a fishery, then we are losing
perspective of what we are here elected to do. So I appreciate
you bringing this bill to this Committee. And I look forward to
working with you on it.
Senator Stevens. Thank you very much. In years gone by,
Senator Magnuson sent me to the Law of the Sea Conference. I
had known him for many years before I came to the Senate. He
had wanted me to go to the Law of the Sea Conference to
represent the Congress committee when he was chairman, and I
was a minority member.
I came back and told Warren that I thought that the major
issue facing us was the jurisdiction beyond the three-mile
limit, and we prepared to draw up--and I drafted the first
Magnuson Act and introduced it as a matter fact. Warren made it
his bill when he wanted to get it passed, and I think that was
the way we got it passed. He was the chairman, and I respected
him very greatly, but what I'm telling you is we were not
looking at any kind of conflict between States or between
anyone, we were looking to try and satisfy the objectives of
the Law of the Sea. And when we adopted the concept of the 200-
mile limit, the world did.
Mr. Farr. That's right.
Senator Stevens. But it adopted it with the Law of the Sea
concept that the Nation didn't have the capacity to harvest
within the 200-mile limit, it had to allow foreign vessels to
come in and harvest up to the allowable quota. Now that
provision that came out of the Law of the Sea is what inhibited
us when we wrote the Magnuson Act. We couldn't go against what
we'd argued worldwide, so we said if we find that there's any
place where we cannot harvest it with American fleets, we must
allow the foreign fishing vessels in. And for the first 7 or 8
years--we've given you the chart--after the Magnuson Act
passed, the foreign vessels continued to harvest within our
waters.
These people that came in later, whether they are U.S.
flags or foreign flags, they have no property right within that
200-mile limit, as you rightly state. And these people now that
are foreign built, foreign dominated, they're arguing that our
Constitution protects their right because they came in under
our flag. But our own flag people don't have that right. Well I
hope that everybody keeps that in mind.
Thank you very much.
Mr. Saxton. Senator, thank you very much. We very much
appreciate your being here and your willingness to spend this
amount of time with us. We have two other panels to deal with
here this morning, so at this point, unless you have something
further, we will move on to our second panel. And thank you,
again, very much.
Senator Stevens. We welcome your interest greatly, Mr.
Chairman, and all of your patience with me. Thank you very
much.
Mr. Saxton. Thank you, sir.
I will now introduce our second panel. We have Dr. David
Evans, the Deputy Director of the National Marine Fisheries
Service, and Rear Admiral Robert C. North of the U.S. Coast
Guard.
STATEMENT OF DAVID EVANS, DEPUTY DIRECTOR, NATIONAL MARINE
FISHERIES SERVICE, DEPARTMENT OF COMMERCE
Mr. Saxton. While you are coming forward to take your
seats, and before we hear your testimony--Dr. Evans, prior to
your testimony I have one question which I'd like you to
respond to if you don't mind. The Subcommittee submitted budget
questions to your agency on March 27, 1998, and asked for a
response by April 17, in order to permit us to include these
responses in today's record. Now, June 4, 1998, almost 2 months
later, and we still haven't seen responses to the questions.
What has been the hold up, and when will we receive these
responses?
Dr. Evans. Mr. Saxton, the answers to those questions are
right now at OMB, and I am told that they will be released
almost immediately. But I don't know the exact day.
Mr. Saxton. Well, we would appreciate whatever you can do
to break the answers to those questions loose because we
believe that they are extremely important. And OMB has
apparently had them for quite some time, and has failed to
release them. Is that correct?
Dr. Evans. Yes. There's been some discussion back and forth
between the Department and OMB on these questions to get them
to you. We're very much aware of the importance of your having
that information so that you can continue with this year's
process, and we are working very hard to get them to you.
Mr. Saxton. Do you know roughly how long OMB has had your
responses?
Dr. Evans. No, I don't, sir.
Mr. Saxton. OK. Thank you very much. You may proceed, Dr.
Evans, to give your testimony. We are about an hour and 15 min-
utes into this process, and so we are going to abide by our 5-
minute rule for the second and third panel, so if you would
proceed to try to stay within the 5 minutes, we would
appreciate it. Those little lights there in front of you will
help you understand or know when the time limit has expired.
So, proceed, sir.
Dr. Evans. Thank you very much, Mr. Chairman, members of
the Committee. I'm pleased to be here today to present the
views of the Department of Commerce on the Americanization of
the U.S. fishing fleet and U.S. ownership of fishing vessels.
Before I focus on the Americanization issue, I'd like to
comment on the overcapacity and overcapitalization issue that
was raised in your letter--it was noted in your letter. It's
increasingly evident that excessive investments in harvesting
capacity can contribute to resource overutilization in
fisheries. Both domestically and internationally, there's
little doubt that a significant number of our most valuable
commercial fisheries are burdened with excessive levels of
investment and harvesting capacity. The most obvious domestic
examples of these problems are New England groundfish and
scallop fisheries, the West Coast groundfish fishery, and the
Alaska crab fishery.
The National Marine Fisheries Service is involved in both
international and domestic activities that will help us better
manage capacity in the fishery sector. Internationally, we're
working with the Department of State on an initiative sponsored
by the Fish and Agriculture Organization of the United Nations
on managing harvesting capacity throughout the world. At home,
NMFS has sponsored vessel and permit buyout programs in New
England, Texas, and the Pacific Northwest and is currently
working with both the Pacific and North Pacific Councils to
review the first industry-funded buyout programs developed
under the new authority for fishing capacity reduction under
the Magnuson-Stevens Fishery Act. We believe that the Councils
provide an appropriate mechanism for evaluating the best ways
to maximize the benefits to the industry while minimizing
potential costs or social impacts from capacity reduction
efforts.
Now, let me address the main matter for today. The
Committee has requested the Department's evaluation of the
Americanization of our coastal fisheries. We use the term
``Americanization'' to mean actions taken to ensure that the
benefits derived from the use of the U.S. Exclusive Economic
Zone (EEZ) resources are effectively channeled to U.S.
enterprises and citizens. This effort began in earnest with the
passage of the original Fishery Conservation and Management Act
in 1976. The goals of the FCMA were to phase out foreign
fishing off U.S. coasts, expand domestic capacity, optimize
domestic benefits, achieve optimum yield, and enhance economic
and employment opportunities. In addition to establishing the
200-mile EEZ, the Act directed the Secretary of Commerce to
provide the domestic fishing industry priority access to the
fishery resources in the EEZ.
In 1979, the Department undertook a major effort to study
the social costs and benefits of accelerating utilization of
fishery resources in the EEZ. Based on these findings, the
White House established a fisheries development policy which
stated that significant opportunities for industry expansion
existed and that partner-
ships between local, State, and Federal governments in the
fishing industry were needed.
This policy led to the enactment of the American Fisheries
Promotion Act of 1980 which was directed toward expanding
commercial and recreational fishing efforts in underutilized
fisheries. The amendments specifically authorized financial
assistance to industry, supported the development or expansion
of market opportunities for U.S. fishery products, and allowed
foreign access to fishery resources in exchange for ``chips,''
including trade concessions, technology transfer, and so on.
In 1982, the Processor Preference Amendment gave U.S.
processors preference over joint venture processors for fishing
allocations, and accelerated the phaseout of joint venture
processing.
Finally in 1987, the Anti-Reflagging Act sought to tighten
domestic ownership requirements by increasing the minimum
domestic share to 51 percent. These actions had greatly
Americanized fishing operations by the end of that decade.
One way to determine whether the goal of Americanizing the
U.S. fishing fleet has been achieved is to review the level of
foreign fishing in the EEZ under Governing International
Fisheries Agreements, GIFAs. The United States currently has
GIFAs in force, or is taking steps to extend GIFAs, with
Estonia, Latvia, Lithuania, China, Poland, and Russia.
At present, the only foreign fishing activity occurring
within U.S. jurisdiction is joint venture processing of U.S.
harvested fish off the northeast coast. We permitted joint
venture processing for Atlantic mackerel and herring by two
processing vessels from Estonia and two others from Lithuania.
The total amount of fish available for these activities is
15,000 metric tons of mackerel and 40,000 metric tons of
herring.
Finally, we've also issued transshipment permits under
section 204(d) of the Magnuson-Stevens Act to one vessel each
from Cambodia, Russia, and Panama to receive and transport
processed mackerel from those operations. In addition, last
year we issued transshipment permits to 14 Canadian herring
transport vessels operating in the Gulf of Maine.
While the Department can state that Americanization of the
U.S. fleet has been achieved, based on the relatively low GIFA-
related fishing activity, it cannot provide the Committee with
a clear picture of the ownership structures of the U.S. fishing
fleet. The 1987 Anti-Reflagging Act applied only to vessels
documented after the date of enactment. However, it's clear
that significant foreign participation remains because our
maritime and cabotage laws enable foreign firms to retain and
even increase ownership shares in some segments of the U.S.
fishing fleet. Approximately 25,000 fishing vessels documented
prior to the enactment of the Anti-Regflagging Act are exempt
from the ownership requirements of that statute. And we have no
certain information on their present ownership.
The Department applauds the Committee for its efforts to
deal with national policy issues on excess harvesting capacity
and Americanization. However, our fisheries are highly diverse
and vary substantially in the nature of the fishing vessels
deployed in different fisheries. Our limited knowledge suggests
that foreign investment differs markedly from region to region.
While it would be appropriate for Congress to continue with the
established trend of Americanizing U.S. fisheries, I'd urge you
to carefully examine any retroactive application of the
ownership requirement. Such measurements could have unintended
impacts on those sectors of the industry currently exempt from
ownership requirements or on those that rely on foreign
investment. The retroactive application of the ownership
requirements could also raise concerns about compliance with
U.S. obligations to foreign investors under a variety of
international treaties.
The National Marine Fisheries Service is prepared to work
with the Councils, the fishery constituencies, and Congress to
determine the most appropriate course of action for our
Nation's fishermen and fisheries. It is the Department's desire
to reduce levels of harvesting capacity among all classes of
fishing vessels to levels that are matched with sustainable use
of our resources and that maximize the economic benefit to our
Nation.
Mr. Chairman, this concludes my remarks, but I'm prepared
to respond to any questions that you might have. Thank you very
much.
[The prepared statement of Dr. Evans may be found at end of
hearing.]
Mr. Saxton. Admiral North, you may proceed.
STATEMENT OF REAR ADMIRAL ROBERT C. NORTH, U.S. COAST GUARD,
DEPARTMENT OF TRANSPORTATION, ACCOMPANIED BY THOMAS WILLIS,
UNITED STATES COAST GUARD
Admiral North. Yes, sir. Good morning, Mr. Chairman,
members of the Committee, I am Rear Admiral Bob North, the
Assistant Commandant for Marine Safety and Environmental
Protection. I am pleased to represent the Coast Guard before
this Subcommittee today to discuss the Americanization of the
U.S. fishing fleet. With me to my left is Mr. Tom Willis, who
is the Director of the Coast Guard's National Vessel
Documentation Center.
The Anti-Reflagging Act was designed to prohibit the
reflagging of foreign-built vessels for participation in U.S.
fisheries. It harmonized fisheries and maritime laws, by
generally imposing requirements regarding the documentation,
ownership, manning, and construction of vessels engaged in the
fisheries trade similar to those imposed on vessels engaged in
the coastwise trade. The Act also broadened the definition of
fisheries to include processors and tenders.
Prior to enactment of Anti-Reflagging Act, it was possible
to use foreign-built and 100 percent foreign-owned fish
processing vessels to participate in U.S. fisheries. As a
result of the Anti-Reflagging Act, fishing vessels today are
required to have a certificate of documentation with the
fishery's endorsement, must have 51 percent of their stock
owned by U.S. citizens, except for vessels that are
grandfathered from the American control provisions of the Anti-
Reflagging Act.
Two portions of the Anti-Reflagging Act prove problematic.
These are the grandfather provisions intended to protect the
interests of investors already committed to the U.S. fisheries,
and deal with foreign rebuilding and ownership. I will address
each separately, because each has a different impact on the
Americanization of the U.S. fishing industry.
Prior to the Anti-Reflagging Act, fishing vessels had to be
built in the United States, but could be rebuilt abroad. The
Act, among other things, prohibited vessels seeking fishery
endorsements from being rebuilt in foreign shipyards. However,
the rebuild grandfather provision in the Act exempted vessels
that were built in the U.S. before July 28, 1987, and rebuilt
in a foreign country under a contract entered into before July
11, 1988, and also purchased or contracted to be purchased
before July 28, 1987, with the intent to use the vessel in the
fisheries. The rebuilding grandfather provision also required
that a vessel rebuilt under the above circumstances had to be
redelivered to the owner before July 28, 1990. The window of
eligibility for this exemption has long passed, so no
additional vessels may be rebuilt outside of the United States
and enter or reenter the U.S. fishery. Furthermore, no
additional foreign-built vessels may be documented for use as
fish processors.
As mentioned earlier, the Act requiring a fishing vessel to
be owned by a majority of U.S. citizens. Under the grandfather
provision, the required 51 percent of U.S. ownership does not
apply if before July 28, 1987, the vessel was documented and
operating as a fishing vessel in the Exclusive Economic Zone or
as contracted for purchase for use as a fishing vessel in the
U.S. fisheries.
The ownership grandfather provision of the Anti-Reflagging
Act has been the subject of much controversy. The Coast Guard,
following careful examination of the law, concluded that based
on the plain language of the statute the grandfather provision
ran with the vessel. Although this was seemingly contrary to
the purpose of the law, grandfather provisions by their very
nature run contrary to the overall purpose of a statute.
Recently, the Senate began consideration of the American
Fisheries Act of 1998, S. 1221, a bill which among other things
directly addresses the problems that arose as a result of the
ownership and rebuild grandfather provisions of the Anti-
Reflagging Act.
First, S. 1221 would repeal the ownership grandfather
effective 18 months after enactment. In addition, it would
increase the American control provision for entities owning
fishing vessels from 51 to 75 percent. Entities currently
owning documented fishing vessels and which meet the majority
American control provisions of the Anti-Reflagging Act would
have 18 months to conform to the new standard. A proposed
ownership standard would place fisheries on a par with the
ownership standard for coastwise trade.
Additionally, S. 1221 would also provide for the orderly
phase out of larger vessels, including all of the processing
vessels known to have been deemed grandfathered from the
rebuild prohibition of the Anti-Reflagging Act. This would
remove the remaining 20 vessels which were rebuilt foreign
under the grandfather provision of the Anti-Reflagging Act.
The Coast Guard appreciates the opportunity to testify
about this important matter and stands ready to work with the
Congress on this issue. I'd be pleased to answer any questions
that you may have, sir.
[The prepared statement of Admiral North may be found at
end of hearing.]
Mr. Saxton. Admiral, thank you very much.
I understand, Mr. Willis, you're here just to respond to
questions. You don't have any testimony? OK, thank you.
As you noted, we are now into the second bells of our vote.
We're going to go vote. There are 2 votes, so we'll be 20
minutes or so before we get back. And at that time, we'll begin
with our questions. Thank you.
[Recess.]
Mr. Saxton. I would like, at this time, to turn the floor
over to Mr. Young for his questions.
Chairman Young. Thank you, Mr. Chairman.
Dr. Evans, does the administration believe the United
States has the right to restrict the harvest of U.S. fisheries
resources by foreign vessels?
Dr. Evans. Does the United States believe that we have the
right to restrict the--yes, sir.
Chairman Young. You do?
Dr. Evans. Yes, under the Magnuson Act. Yes, sir.
Chairman Young. OK. I want to make certain that that is
clear for the record.
Does it concern NOAA, the agency responsible for managing
and conserving in our fisheries resources that there's
approximately 29,000 U.S. fishing vessels for which there is
lack of knowledge about ownership?
Dr. Evans. Well, it can concern us on a couple of grounds.
Principally, we're responsible for managing the resource,
looking out for biology of the resource, and dealing with the
enforcement of the regulations that are promulgated, initiated
by the Councils. And from a practical perspective, we apply the
same kind of enforcement policies regardless of who is driving
the vessels and where they come from. We look to the Coast
Guard to provide us with guidance on the ownership and
documentation of the ownership of the vessels. We need to
enforce the regulations relative to the harvest and provide for
the conservation of the stocks regardless of who is on board.
Chairman Young. Doctor Evans, I just have one comment. You
know, the Coast Guard's reputation has been thoroughly sullied
in this whole operation. Have you requested documentation of
who owns what in these vessels?
Dr. Evans. Any time that a person applies for a permit to
go fishing, we rely on the Coast Guard to provide us with
documentation----
Chairman Young. Have they done so?
Dr. Evans. [continuing] for an endorsement.
Chairman Young. Have they done so?
Dr. Evans. Yes, they do.
Chairman Young. Well, we'll get back to you later and see
how recently this has occurred.
What's the total number of factory trawlers in the Bering
Sea fisheries, and the total number in the North Pacific
fisheries?
Dr. Evans. I believe it's around 55. Let me check. I have
Mr. Kent Lind from our North Pacific----
Chairman Young. He'll write you in a little note there in a
minute.
Dr. Evans. OK.
Chairman Young. How many of these factory trawlers meet or
exceed the U.S. ownership requirement of 51 percent?
Dr. Evans. I don't know the answer to that question, sir. I
don't know the ownership characteristics of those trawlers.
That's information----
Chairman Young. Admiral, do you know the ownership
characteristics?
Admiral North. Of those in the Bering Sea?
Chairman Young. Yes.
Admiral North. Not without knowing which specific vessels
they are.
Chairman Young. I would suggest, with all due respect, that
you knew this hearing was coming forth. I would suggest that
you find out.
Admiral North. Sir?
Chairman Young. Because that is the law.
----------
From the list of 35 vessels identified as Catcher
Processors permitted to target North Pacific Pollock for 1997,
provided to the Coast Guard by the National Marine Fisheries
Service, 20 meet or exceed the U.S. ownership requirement of 51
percent.
Dr. Evans, how does NMPS view fishing permits and fishing
licenses? Are they revokable? If so, does NMPS issue
compensation? Are permits or licenses given forever? If not,
how long are permits or licenses issued? And what's the
difference between IFQ and other fishery permits?
Dr. Evans. I'm sorry, sir. I didn't hear the very last part
of your question.
Chairman Young. Well, answer the first one. How do you view
fishing permits and licenses?
Dr. Evans. Fishing permits are basically permission to use
the fisheries resource.
Chairman Young. Are they revokable?
Dr. Evans. Yes, they're revokable.
Chairman Young. Do you issue compensation?
Dr. Evans. No, we do not.
Chairman Young. They're not forever, are they?
Dr. Evans. No, they're not.
Chairman Young. How long are they usually issued? And how
long are the permits or licenses usually issued?
Dr. Evans. Well, they vary from fishery to fishery.
There're some which are renewed annually; some which are issued
for a period of 3 years. It varies.
Chairman Young. What's the longest one?
Dr. Evans. The longest.
Chairman Young. I mean it's usually 1 to 3 years?
Dr. Evans. Typically, yes.
Chairman Young. OK. So in reality, if I was a boat owner, a
vessel owner, and I caught 16 sea lions in my nets repeatedly,
you could revoke by permit. Is that correct?
Dr. Evans. Probably. I would imagine that----
Chairman Young. If you didn't, I'm sure somebody would----
Dr. Evans. [continuing] under the Marine Mammal Protection
Act, where if the 16 sea lions were, you know, characterized as
a problem, that's a possibility. Certainly, yes.
Chairman Young. Very likely. Well, let's say I caught an
abundance amount of bycatch beyond in anyone's acceptable
amount. You could revoke it, couldn't you?
Dr. Evans. I'm not sure that there are provisions to do
that right now. We tend to use other measures to control
bycatch.
Chairman Young. OK. Let's get back--how do you revoke a
license, and what for?
Dr. Evans. Typically, as a consequence of violations of
regulations, licenses have been and----
Chairman Young. That's what I just asked.
Dr. Evans. [continuing] should be revoked. Yes.
Chairman Young. What, I mean----
Dr. Evans. Exceeding a quota, having----
Chairman Young. I just asked----
Dr. Evans. [continuing] prohibited species on board, for
example. Yes.
Chairman Young. Admiral, how many vessels currently
involved in the U.S. fisheries are majority foreign? I asked
that question, majority foreign owned?
Admiral North. Sir, there's 29,000 some vessels in the
fishery. There's no data base that shows the total number of
foreign majority.
Chairman Young. How many in the Bering Sea?
Admiral North. I don't know how many in the Bering Sea are
majority-owned. I don't know what vessels are----
Chairman Young. Mr. Chairman, I'm going to suggest we have
the Coast Guard before this Committee for a prolonged period of
time for more questioning when they are better prepared.
Why did the Coast Guard follow a course of ownership
standard which could have led to fully foreign-owned fishing
fleet in the United States? And didn't the internal Coast Guard
documents raise this issue, and indicate that it was counter to
the congressional intent?
Admiral North. The Coast Guard did what it did in
interpreting the plain language of the statute.
Chairman Young. Now, Admiral, be careful here. Did not your
legal branch warn you of this?
Admiral North. There were a number of legal opinions within
Coast Guard that were expressed, and the discussion or the----
Chairman Young. You chose to disregard them?
Admiral North. Those were not disregarded; those were
considered by the Chief Counsel. The Chief Counsel's final
conclusion was that the grandfather ran with the vessel.
Chairman Young. OK. That's why we're having a GAO
investigation, isn't it?
Admiral North. Yes sir. That's right.
Chairman Young. That wasn't on your watch, was it?
Admiral North. It was not.
Chairman Young. That's good. Well, then, thank God for
that.
[Laughter.]
Because, you know, I have been a big support of your
agency, and I am thoroughly, thoroughly disappointed.
Admiral North. Yes sir.
Chairman Young. I think that someone ought to take the time
to do a little more research, and I'm not going to particularly
beat up any individuals. But this is not the intent. Like I
say, I was the only one sitting on this Committee. We knew what
our intent was. I'm probably remiss in not finding out what was
occurring. But to have the Coast Guard, especially, Mr.
Chairman, when I have about a hundred requests a year on
documentation for Canadian-made vessel or vessel made in Hong
Kong or something. And the Coast Guard says, ``Oh, we can't
document it.'' And yet, I look at this vessel over here. Now if
you can tell there is some justification for that. I mean that
is a disgrace to have that--in fact, I want to find out where
that remaining piece of metal is on that ship. Maybe it's in
the captain's quarters; it's the only place I can figure out it
would be. I wonder how they can identify; maybe it has a DNA.
[Laughter.]
Thank you, Mr. Chairman.
Mr. Saxton. We have three members with us who are members
of the Full Committee but not members of this Committee. And,
Mr. Pombo, if you would like to take your 5 minutes at this
point.
Mr. Pombo. Thank you, Mr. Chairman.
Admiral, I just have a few questions. Is it standard
practice for the rights and privileges relating to vessels to
run with the vessel or with the owner?
Mr. Willis. Standard practice is that the rights run with
the vessel. Certain rights accrue only to owners, such as the
right to engage in coastwise trade because of 75 percent
ownership. And if a coatwise-eligible vessel was sold to an
entity that didn't meet the 75 percent during that time of
ownership, the vessel would not be eligible for coastwise
trade. If it were sold to an entity that did qualify to engage
in coastwise trade, the vessel would again hold that right.
Mr. Pallone. So typically, if they meet the ownership
requirement, it runs with the vessel?
Mr. Willis. That is correct.
Mr. Pombo. Was there a general industry understanding in
1987 as to the amount of work necessary for a vessel to be
considered to have been rebuilt overseas?
Admiral North. There's a regulatory standard for what
constitutes a new vessel, what constitutes a rebuild. So----
Mr. Pombo. And that's a regulatory standard?
Admiral North. Yes.
Mr. Pombo. And it was understood both within the agency as
well as in the industry what that standard was at that time?
Admiral North. It was understood within the agency. Whether
everyone in the industry understood it or not, I could not tell
you.
Chairman Young. Will the gentleman yield?
Mr. Pombo. Yes.
Chairman Young. Is that in the regulations there?
Admiral North. Yes.
Chairman Young. That is under regulations? There's only two
pieces of steel; that's considered a rebuild?
Admiral North. Yes, sir.
Chairman Young. Where is that regulation?
Admiral North. 46 CFR 67.
Chairman Young. You have it? That's not the current
standard. Hello?
Admiral North. Yes.
Chairman Young. It's the current standard.
Admiral North. Yes sir.
Chairman Young. I beg to differ with you, but I'd like to
see where it is. And I don't think that's the standard at all.
Admiral North. It is the standard.
Chairman Young. OK. Well, we'll see.
Mrs. Linda Smith. Would the gentleman yield?
Chairman Young. Yes.
Mrs. Linda Smith. Those pictures before me, that is a
rebuild?
Admiral North. Yes. That is correct.
Mrs. Linda Smith. Does that meet that standard?
Admiral North. Yes.
Mrs. Linda Smith. So that any piece of metal of any size is
the standard?
Admiral North. Not any piece of metal of any size.
Mrs. Linda Smith. Obviously, there isn't much there.
There's nothing that is structurally going to build that boat
and that. So, give me the standard then. I can see no standard.
That's like the little one we take out compared to one that is
commercial. That's barely commercial. We have one of those like
that in our family. But that is not that.
Mr. Willis. Typically, rebuilt vessels may include mid-
bodies, and so forth. That has been a fact since the second
proviso was enacted back in the 1950's. The standard is that if
any structural parts from an existing vessel are used in
constructing a vessel and those parts are not torn down to a
degree where they're committed to use in building a vessel, you
do not have a new vessel.
The new vessel standard was written very tightly to protect
American interests. In this case, it has been turned in a
different direction.
Mrs. Linda Smith. Obviously, that's not a standard.
Chairman Young. Madam, I'm getting a little confused
because I got something in front of me, Admiral, that says only
7.5 percent of a vessel can be changed on a rebuild in order to
keep your U.S. documentation.
Now, the gentleman on the right, is that correct?
Mr. Willis. No, sir, that is not correct. If it's 7.5
percent or less it is not deemed rebuilding at all; between 7.5
and 10 percent, it may be a rebuilding; above 10 percent, it is
a rebuilding. We're talking about two separate issues here--new
vessel versus rebuilding.
Chairman Young. We're talking about rebuilding?
Mr. Willis. Yes, sir.
Chairman Young. Now to keep your documentation, there is no
standard then? There is no standard. That is not--that cannot
be a standard. If it is, we've got to change it. That is not a
standard.
Mr. Willis. The standard, Mr. Young, is that if you rebuild
and use less than 7.5 percent, you do not lose any entitlements
which you might have such as coastwise; but if you do exceed
the 10 per-
cent, then you will lose entitlement to engage in the coastwise
trade and fisheries.
Chairman Young. You think that's more than 10 percent
there?
Mr. Willis. Yes, sir, I do. And if that project were
performed today, it would absolutely lose all privileges.
Chairman Young. When----
Mr. Willis. Absolutely.
Chairman Young. [continuing] did they change?
Mr. Willis. Pardon?
Chairman Young. When did that change? Since 1987, when
was--did the Coast Guard change it?
Mr. Willis. No, sir, the Coast Guard did not change it. The
Anti-Reflagging Act, as we read it, permitted rebuildings. This
is a rebuilding. It is not a new vessel.
Mrs. Linda Smith. Would the gentleman yield?
Chairman Young. Yes, I'll continue to yield.
Mrs. Linda Smith. Then my understanding is on the
reflagging, then at that point we dropped all reasonable
standards of a rebuilding and you took that opportunity then.
Up to that point, there were reasonable standards. But at that
point, anything went, and we no longer had standards because it
qualified then, as you said, as a rebuild. So, we changed.
Mr. Willis. The Coast Guard did not change the standard.
Any vessel could be completely rebuilt overseas without losing
privileges prior to effective date in the Anti-Reflagging Act.
Mrs. Linda Smith. So there was no standard----
Mr. Willis. There was no standard----
Mrs. Linda Smith. [continuing] as to what percentage?
Mr. Willis. [continuing] for fishing vessels prior to the
Anti-Reflagging Act.
Chairman Young. This vessel, ma'am--this vessel was built
in that gap, wasn't it?
Mr. Willis. Yes, it was, sir.
Chairman Young. In fact, it was put on the waves after the
passage of the Act.
Mr. Willis. Yes, sir.
Chairman Young. I'm thoroughly confused. You said it
couldn't be done after the reflagging.
Mrs. Linda Smith. That's right.
Mr. Willis. It couldn't be done after the windows enacted
in the Anti-Reflagging Act.
Admiral North. Unless it were grandfathered.
Chairman Young. Was this vessel on the waves when we passed
the Act?
Mr. Willis. No, sir. But the Anti-Reflagging Act required
that it be rebuilt under a contract entered into within 6
months after enactment of the Anti-Reflagging Act.
Chairman Young. Do you know when this contract was entered
into?
Mr. Willis. We can provide that information; yes, sir.
Chairman Young. Thank you.
[The information follows:]
----------
The date of the ACONA's contract was July 10, 1988.
Mr. Pombo. Can I have two additional minutes?
[Laughter.]
Which leads me to my next question.
[Laughter.]
Assuming that all relevant documents provided to the Coast
Guard concerning the grandfather vessels to be true and
correct, does the Coast Guard consider the foreign rebuilding
of grandfather vessels that are purchased, or sailed since
1987, or their entry into U.S. fish areas as fraudulent or
illegal?
Admiral North. No.
Mr. Pombo. So the statement that these entered into the
fisheries fraudulently or illegally, the Coast Guard would not
consider to be correct?
Admiral North. Of those 23 vessels that were rebuilt under
the grandfather clause, there was one vessel, this vessel in
particular, where an issue has been raised as to whether the
documentation that was provided was appropriate or correct. We
have no other knowledge or reason to believe that of the other
22 vessels, the documentation provided to prove the rebuild of
the vessel, the grandfather rebuild, was not correct.
Mr. Pombo. If you were provided with the documentation
showing that these vessels entered in a way that was not true
and correct, that they were fraudulent or illegal, would you
remove them?
Admiral North. It could be removed, yes.
Mr. Pombo. And what would that take to remove them? Could
the Coast Guard do it?
Admiral North. Can we do that? Yes, but we would need
whatever documentation one has that would tend to prove the
documentation originally submitted was false.
Mr. Pombo. So, if anyone could provide you a documentation
showing that these vessels entered into the fishery
fraudulently or illegally, you could remove them----
Admiral North. Yes.
Mr. Pombo. [continuing] under current law?
Admiral North. Yes.
Mr. Pombo. If there was evidence of speculation by
particular vessel owners subsequent to the passage of the Anti-
Reflagging Act, would such speculation have provided the Coast
Guard with a legal basis under this or any other act for
refusing to issue such a vessel a certificate of documentation
with a fishery's endorsement?
Admiral North. I'm not sure how you would define
speculation. I know Senator Stevens gave us his definition, but
if you look at the documentation again for the various vessels
involved, and you look at the time frames provided under the
Act, with the exception of the ACONA and the information we've
been provided in that case, there is nothing to suggest that
the documentation was not correct.
Chairman Young. Will the gentleman yield just for a moment?
Mr. Pombo. Sure.
Chairman Young. Admiral?
Admiral North. Yes.
Chairman Young. Most of these were done within a 2-month's
period. You don't call that speculation? Maybe it's seize an
opportunity, but it's speculation, too.
Admiral North. Not my definition.
Chairman Young. I know it's not your definition, I know,
but I hope you don't take offense because you weren't on this
watch. I wished you were on the watch.
Admiral North. Yes, sir.
Chairman Young. You'd have a lot of problems today. But
you've got to tell me that you don't think--you don't consider
that speculation? Do you deal in the stock market?
Admiral North. No, I don't.
Chairman Young. You don't? Well, you're probably smarter
than I am then. Thank you.
[Laughter.]
Mr. Pombo. The difference between a permit to fish and
endorsement on a ship, can you explain that to me?
Admiral North. I believe we're talking about a permit
issued by NOAA for certain species, versus the endorsement on a
certificate of documentation which allows a vessel to engage in
a trade called the fisheries.
Mr. Pombo. So the definitions are not interchangeable? One
is the permission to fish in a particular fishery, the other
one is the ability to use a boat to fish?
Admiral North. One is the ability to engage in a trade; the
other is a permit to allow you to take a certain amount of
catch or to engage in a certain fishery.
Mr. Pombo. So you would--your answer is that there is a big
difference between a----
Admiral North. Yes.
Mr. Pombo. [continuing] permit and an endorsement?
Admiral North. Yes.
Mr. Pombo. Thank you, Mr. Chairman.
Mr. Saxton. Thank you, Mr. Pombo.
Mrs. Chenoweth.
Mrs. Chenoweth. Admiral?
Admiral North. Yes, ma'am.
Mrs. Chenoweth. The Coast Guard issues the endorsement?
Admiral North. The endorsement on the certificate of
documentation, yes.
Mrs. Chenoweth. And the endorsement transfers with
ownership? It's pertinent to the vessel?
Mr. Willis. The endorsement can be issued if the vessel
meets the qualifications for the trade. Transfer of an
endorsement is not automatic, however. In order for the
endorsement to be transferred, the new owner must qualify for
the endorsement, either by conforming to the law or qualifying
under a grandfather provision, and must make application for
the endorsement. Even if the vessel is qualified for an
endorsement, if the new owner does not qualify for the
endorsement, it cannot be transferred. If the new owner does
not apply for the endorsement because of a desire to use the
vessel in a service for which the endorsement is not required,
the endorsement will not be issued. However, this does not
prevent a future qualified owner from obtaining the
endorsement.
Mrs. Chenoweth. But the endorsement is different than the
permit, and----
Mr. Willis. The endorsement is different from the permit.
Mrs. Chenoweth. Can you use the vessel for fishing purposes
without the endorsement?
Mr. Willis. Not on U.S. navigable waters or in the EEZ.
Mrs. Chenoweth. So the endorsement, then, is appurtenant to
the vessel ability to fish?
Mr. Willis. Absolutely.
Mrs. Chenoweth. Then one could say that the endorsement is
a private-property use right?
Mr. Willis. I'm not qualified to answer that question.
[Laughter.]
Mrs. Chenoweth. If you aren't, who is?
[Laughter.]
Now, does NOAA issue the permit to fish?
Dr. Evans. Yes, we do.
Mrs. Chenoweth. So the permits and the endorsements are two
entirely different--one's a permit, and one----
Dr. Evans. Right.
Mrs. Chenoweth. [continuing] is a right.
Dr. Evans. There is a wide range of permits. There are
different kinds of permitting that take place in different
fisheries and different places. They last for different times.
Some of them are tied to quotas; some of them are permission to
fish in open access fisheries. There's a wide variety of
permits. It's the way that we have to regulate the fisheries
basically, yes.
Mrs. Chenoweth. Dr. Evans, none of the permits that you
have referred to in your answer to me are endorsements?
Dr. Evans. That's correct.
Mrs. Chenoweth. There's only one endorsement and that goes
with the vessel, right?
Dr. Evans. That's correct.
Mrs. Chenoweth. The permit goes with the season and the
conditions of the ocean?
Dr. Evans. Right.
Mrs. Chenoweth. Thank you.
Mr. Saxton. Thank you, Mrs. Chenoweth.
Mrs. Smith.
Mrs. Linda Smith. Thank you, Mr. Chairman. You've been very
lenient so far, and I appreciate that.
I have two issues I'm trying to grapple with and that is
private-property rights, and obviously the last question Mrs.
Chenoweth addressed that. I'm going to try to clarify a
question. It's because I don't totally understand, and
certainly you do understand the fishery better than I at this
point.
In our household and in our family, we both fish. And we
have some that commercially fish, and we have some that are
private. But we have known for a long time that when we buy
equipment whether it be for private or commercial, that we are
relying then on the resource being allocated to us. When I buy
fishing licenses or hunting licenses, or even picking berries,
I have to go get that permit. And sometimes I get it, depending
on the resource, and sometimes they'll restrict it to me. I
bought equipment, but the equipment can't be used unless I get
the permit. Tell me how it is different with these ships who
have the same characteristics, or is it similar? I'm trying to
establish a private-property right discussion because I am
trying to sort that out. I don't have a right--from what I can
see--to hunt or fish anytime I want because I happen to have
the equipment. Is there a difference here that would designate
some type of a right beyond the fact that I have the equipment.
And my equipment is authorized, as are certain of my guns and
certain of my--I can't fish with hooks in certain fishing runs
if certain equipment is allowed. How is it any different than
having equipment and a permit when you come to this fishery?
Dr. Evans. You're directing that--I'll take a crack at that
and see if I understand it.
Mrs. Linda Smith. Yes, thank you.
Dr. Evans. Obviously, you need appropriate equipment, and
we can place regulations upon the characteristics of the
equipment that is used to pursue the fishery. But you also need
to have a permit; you need to fish in season; you need to
comply with a whole variety of regulations with----
Mrs. Linda Smith. Which is what I get when I get a
license----
Dr. Evans. Exactly.
Mrs. Linda Smith. [continuing] or a permit.
Dr. Evans. Exactly.
Mrs. Linda Smith. So it has the same two characteristics.
Dr. Evans. Yes.
Mrs. Linda Smith. I'm trying to establish whether I have a
private-property right because I have both.
Dr. Evans. I can't answer that. I can tell you that the
permit is quite analogous to your hunting or fishing permit in
general, or your berry-picking permit, for that matter, yes.
Mrs. Linda Smith. The other question I have comes around
the amount of investment in these ships. I'm trying to sort
each one of them out--where they come from, when they were
retrofitted or rebuilt, where they were rebuilt, and where they
were capitalized. Because some of them, I'm finding, have 51
percent in America; but where the money is, is really where the
control is. So they'll have 51 percent in our State or in our
country, but they were totally capitalized somewhere else. They
are built--all the money came from somewhere else. So they
might show controlling stock interests, but we all know that he
that he who has the money is really the one in control. So,
what I'm asking is a question of value of these ships. My
understanding is we're talking about several million, hundreds
of millions of dollars to build these. Is that right?
Dr. Evans. I'm sure in the case of some vessels, yes.
Mrs. Linda Smith. OK. So, if an asset only had--say the
value of the original ship was an American vessel, which is
what we need, right? We needed something, one little piece of
something to be the original. If, let's say, that was the only
American investment in dollars, and it was $100,000 dollars in
assets. But on paper, it shows that the American interest,
which is that, is 51 percent; is that 51 controlling percent
just because it shows on paper to be controlling stock?
Mr. Willis. We require that 51 percent of all classes of
stock be owned by U.S. citizens, and in our regulations we
state that equity is the issue. So we are concerned about U.S.
equity in the regulation.
Mrs. Linda Smith. OK. So, that does answer what you're
concerned with. I don't know that that answers the actual
application right now. But you do consider equity?
Mr. Willis. Yes.
Mrs. Linda Smith. OK, you've answered my questions. Thank
you.
Mr. Pombo. Will the gentle lady yield? I had an additional
question.
Mrs. Linda Smith. Yes, I'll yield.
Mr. Pombo. If we were to remove--is it 23 vessels? Would
there be less fish--and I guess this is for Dr. Evans--less
fish caught then are currently caught if we took this class of
boats out of the fishery? Would you then have less fish taken
out of the fishery next year?
Dr. Evans. No, I don't think so. There's plenty of capacity
there to harvest the full quota of pollock, for example.
Mr. Pombo. So it's not a matter of there being there or
less fish caught? That would not impact----
Dr. Evans. I don't think so.
Mr. Pombo. [continuing] the decision that you make?
Dr. Evans. I don't think so.
Mr. Saxton. Will the gentleman yield?
Mr. Pombo. Yes.
Mr. Saxton. Just let me try to make a point which you're
speaking to. When Senator Stevens was here, he made the point,
and I think he repeated the point, that this is an
overcapitalized fishery. And Dr. Evans is right; it is so
overcapitalized that taking these ships out of the fishery
probably would not reduce the catch, but it moves toward a
lesser capitalized fishery which is where we want, eventually,
to go.
Mrs. Chenoweth. Would the lady yield?
Mr. Saxton. The gentle lady's time has expired. We'll be
lenient and permit you to ask one more question, and then we're
going to move on.
Mrs. Chenoweth. Mr. Chairman, in focusing on the
overcapitalization rather than either a scarce resource or the
overriding public health, safety, and welfare goal which
usually has been the standards in the courts for a governmental
taking. I, out of great respect for the chairman, I honestly do
feel that we're moving into new and unchartered waters. And I
appreciate the fact that you are holding this hearing and
allowing these issues to come out. And I just want to thank you
very much for doing that. But I do think that if this Congress
establishes overcapitalization as a new standard for perhaps
taking, we may be moving into dangerous waters.
Thank you very much.
Mr. Saxton. Admiral, let me just ask my questions, if I
may. Other types of fishing vessels are endorsed by the Coast
Guard as well; is that right? Smaller vessels?
Admiral North. Yes, sir. All vessels that are in the
fishery, whatever fishery it may be.
Mr. Saxton. Scallop fishery, the long-line fishery----
Admiral North. For U.S. flag vessels.
Mr. Saxton. [continuing] whatever the fishery is?
Admiral North. Yes, sir.
Mr. Saxton. In New England, we recently saw--or there is
recently pending from Dr. Evans' shop, a proposal to
dramatically reduce fishing days permitted for scallopers. If
that new regulation is adopted, does there come into play a
takings issue?
Admiral North. Again, I don't believe that I can really
answer a question on taking versus----
Mr. Saxton. Well has there historical, when we reduce
permitted catches? Has there ever been a takings issue?
Admiral North. Not that I'm aware of. I'm not versed in
what a taking issue is. I'm not a lawyer; all I can tell you is
the vessel documentation laws don't get into that issue.
Mr. Saxton. Dr. Evans, would you like to comment?
Dr. Evans. Let me just check with my counsel. I don't
believe that there's a case.
No, to the best of our knowledge, there's not--the issue
has not been raised. We regulate fisheries, increase quotas,
decrease days at sea, increase them, have closed areas. There
are many kinds of regulations which greatly impact the fisher's
ability to prosecute the fishery.
Mr. Saxton. In the Gulf of Mexico, back in the 1980's, we
required a gear change for shrimpers with the provisions
relative to turtle-excluder devises. Was there any takings
issue considered there?
Dr. Evans. Not that I'm aware of.
Mr. Saxton. When we closed the red fish fishery in the Gulf
of Mexico, was there a takings issue?
Dr. Evans. No, sir.
Mr. Saxton. Striped bass in the northeast?
Dr. Evans. No.
Mr. Saxton. Fifty percent reduction in shark in the
Atlantic?
Dr. Evans. I don't think so; no. It hasn't been raised as
an issue.
Mr. Saxton. Sea urchins on the West Coast?
Dr. Evans. No, sir.
Mr. Saxton. So without going further, which I could do,
basically we have set a--we're not upon setting out on new
waters here or creating a new precedent with our discussion
here. If we fail to issue permits or if--let me ask this
question. Can the Congress change the eligibility standings for
qualifying for fishing permits?
Dr. Evans. I believe so; yes.
Mr. Saxton. And as far as you----
Dr. Evans. I mean you've established the laws under which
we issue the permits. We try to prosecute those laws as best we
can.
Mr. Saxton. And if we choose to say, in establishing
qualifications for fishing permits that of a ship over 165-feet
long with more than 3,000 horsepower does not qualify for a
fishing permit, then you could administer that law without fear
of reprisal under some kind of a takings?
Dr. Evans. Well, I'm not sure--we would certainly
administer that law. If you passed it, we would certainly
administer that law. But in my experience in the Fishery
Service it seems possible for us to be, you know, sued and
challenged on almost all the decisions that we prosecute----
[Laughter.]
[continuing] so, I wouldn't go so far as to say that we
wouldn't be, but we would certainly comply.
Mr. Saxton. Does changing qualifications lead to any
compensation generally to those who don't meet new
qualifications?
Dr. Evans. Not that I'm aware of; no.
Mr. Saxton. Thank you very much. I have no further
questions.
Mrs. Chenoweth. Would the gentleman yield?
Mr. Saxton. Briefly.
Mrs. Chenoweth. Thank you, Mr. Chairman. I very much
appreciate your indulgence, but I think there's a fine line
that you so astutely were able to bring out.
Dr. Evans, do you have any authority or any jurisdiction
over the issuance of an endorsement?
Dr. Evans. No, ma'am, we do not. The endorsements are
issued by the Coast Guard.
Mrs. Chenoweth. And so, for the retrofitting of a boat such
as we see here, you have absolutely no authority over that?
Dr. Evans. That's correct.
Mrs. Chenoweth. And your authority lies with the issuance
of the permit and the carrying out of the terms and conditions
of the permit?
Dr. Evans. That's correct.
Mrs. Chenoweth. Such as closing fishing to certain species
in certain areas, you have that authority?
Dr. Evans. That's right.
Mrs. Chenoweth. And the permit is seasonal?
Dr. Evans. Can be, yes. Or----
Mrs. Chenoweth. And the permit is not appurtenant to the
property or the vessel, itself; right? The permit is issued on
the basis of ocean conditions and the season?
Dr. Evans. Right, and can only be issued to people who are
qualified, for example, who would have an endorsement.
Mrs. Chenoweth. The endorsement has to come first?
Dr. Evans. Right.
Mrs. Chenoweth. Thank you, Doctor.
Mr. Saxton. Thank you very much, Panelists, for your
testimony and for answering our questions.
At this time, we're going to move on to panel No. 3. We
have Mr. Joe Plesha, the general counsel of Trident Foods
Corporation; Mr. Jim Gilmore, director of Public Affairs at the
At-Sea Processors Association; Mr. Eugene Asicksik, president
of Norton Sound Economic Development Corporation; Mr. Michael
Kirk of Cooper, Carvin and Rosenthal; Mr. Frank Bohannon, the
vice-president of United Catcher Boats; and Mr. Gerald Leape of
Greenpeace.
Welcome aboard, if you can all fit.
STATEMENT OF JOE PLESHA, GENERAL COUNSEL, TRIDENT SEAFOODS
CORPORATION
Mr. Plesha. Thank you, Mr. Chairman, members of the
Committee. I appreciate the opportunity to testify today. My
name is Joe Plesha, and I work for Trident Seafoods.
Mr. Chairman, during consideration of the Anti-Reflagging
Act, you, Congressman Young, and other Members of Congress were
led to believe that there were substantial, identifiable, and
irrevocable commitments by U.S.-owned fishing companies to
rebuild their vessels in foreign shipyards. In reliance on
those representations, Congress allowed foreign rebuilding for
particular owners of vessels which were purchased before July
27, purchased with the intent that the vessels be used in the
fishery, and which had entered into a contract to rebuild that
vessel in foreign shipyards by July 12, 1988.
I'd love it if I could describe each and every project that
entered in under this grandfather provision, but because of
time, I just want to describe two that came in under this
grandfather.
Congress was told that the vessel STATE EXPRESS would be
converted into a 500-gross ton, Coast Guard-inspected
refrigeration cargo vessel. The facts are that on July 8, 1987,
Sunmar Holdings acquired an option to purchase the STATE
EXPRESS. The agreement required that Sunmar convey in writing
to the seller its intent to purchase or reject the vessel by
September 6th. That option was extended twice.
Finally, on February 29, 1988, 7 months after the purchase
cutoff date, Sunmar gave written notice of its intent to
purchase the vessel. Then on July 10, 1988, 2 days before the
rebuild cutoff date, Sunmar signed a document which
contemplated rebuilding this vessel in a Norwegian shipyard.
But the document contained conditions which allowed either
party to walk away from the project without penalty. Under U.S.
law, there was no legally binding consideration. Lawyers
representing the project said that U.S. law didn't matter
because the agreement was a valid contract under Norwegian law.
The STATE EXPRESS, a vessel of less than 500 gross tons was
ultimately rebuilt into a 376-foot factory trawler of almost
5,000 gross tons, now called the ALASKA OCEAN.
A second example is the vessel ACONA. Although the rebuilt
grandfather specifically requires that evidence of the intent
that the vessel was purchased for use in the fishery be in the
contract of purchase itself, this small research vessel was
grandfathered based solely on a very short letter of intent.
According to the seller of the ACONA, he was asked to sign that
undated letter of intent well after the actual sale. The letter
was then allegedly backdated and submitted to the Coast Guard
as evidence of the intent that the vessel was purchased for use
in the fishery. The paperwork for this project was then sold to
a foreign-owned fishing company, and the vessel was rebuilt
into what now is the AMERICAN TRIUMPH, the single largest fish
producer in the Bering Sea pollock fishery.
Now lawyers representing these projects claimed that they
were just following the plain meaning of the statute's
grandfather provisions. But the plain meaning of the language
requires that these foreign rebuilt vessels be under a contract
of purchase, not an option to purchase. The plain meaning of
the statute requires evidence of intent to use the vessel in
the fishery, quote, ``be in the contract itself,'' close quote,
not in a backdated letter of intent. The plain meaning requires
a rebuilding contract entered into by July 12, 1988. And I can
only assume that Congress meant a rebuilding contract valid
under U.S., not Norwegian, law.
These boats do not belong in the U.S. fishery under the
law, Mr. Chairman. The Coast Guard blew the call. I think the
Coast Guard made a disastrous decision when it issued ruling
letters allowing foreign-owned corporations to purchase any
vessel that was in the fishery as of 1987.
In the case of the foreign ownership grandfather, though,
at least the Coast Guard's Division of Maritime and
International Law got the call right when it held the correct
interpretation is that the savings provision terminates once
the vessel is sold or transferred. Unfortunately, the Coast
Guard's written, legal opinion was not followed by its Special
Documentation Office.
Because of abuses in the Act's grandfather provisions, a
flood of foreign-built, foreign-owned, foreign-subsidized
vessels has entered the North Pacific fisheries. Foreign
control of our fisheries is increasing each year. It is likely
that over a billion pounds of groundfish is now harvested in
the North Pacific by foreign-owned fishing vessels. The pollock
season has been reduced from a year-round fishery in 1989 to
one that lasts just over 2 months each year now. The remainder
of the year, our investments lie idle.
My company, Trident Seafoods, is 100 percent American-
owned. It's a seafood processing company, and during its 25-
year history, we have never once declared a dividend for our
company shareholders. Instead, all of our earnings have been
reinvested back into the business. After the Anti-Reflagging
Act was passed in late 1987, we invested well over $100 million
dollars to expand our plants in Alaska to process pollock into
various product forms including surimi. Every penny of the
money of those investments came from earnings or borrowings
from U.S. banks. Trident's plants were built with U.S.
materials, U.S. labor; our employees are U.S. residents.
We made these investments because the cornerstone of the
Magnuson-Stevens Act was to Americanize the utilization of our
Nation's fishery resources. Yet, unless Congress removes the
fishing privileges--and I do mean privileges--from the vessels
that blatantly abuse the Act's rebuild provision and requires
true U.S. ownership and control of American flag fishing
vessels, the goals of the Magnuson-Stevens Act will have been
defeated. And those of us who invested everything that we had
in this industry to truly Americanize the fishery will be
displaced.
Thank you.
[The prepared statement of Mr. Plesha may be found at end
of hearing.]
Mr. Saxton. Thank you very much.
Mr. Gilmore, please.
STATEMENT OF JIM GILMORE, DIRECTOR OF PUBLIC AFFAIRS, AT-SEA
PROCESSORS ASSOCIATION
Mr. Gilmore. Thank you, Mr. Chairman, and members of the
Committee. I am Jim Gilmore; I represent the At-Sea Processors
Association, a trade association comprised of companies that
own and operate 23 U.S. flag catcher/processor vessels. Our
member vessels participate primarily in the Bering Sea pollock
and West Coast Pacific whiting fisheries. APA companies have
made signifi-
cant contributions to Americanizing U.S. fishery resources and
in creating benefits in the local, regional, and national
economy.
Recently, competing fishing interests have attempted to
mischaracterize U.S. flag catcher/processors as foreign vessels
because of foreign investment in the fleet, such as that found
in many other sectors of the U.S. seafood industry.
All vessels in the U.S. catcher/processor fleet are U.S.-
built vessels and are operated by U.S. corporations formed
under the laws of the U.S. or a State. The corporations and
documented U.S. vessels are subject to all laws of the U.S.,
including tax, environmental, labor, and all other applicable
laws and regulations. We are subject to maritime manning
requirements, that 75 percent of the crew members on-board
vessels be U.S. residents. We estimate that APA member vessels
easily exceed that minimum requirement.
Our principal competitors, onshore processors, are not
subject to similar manning requirements. And independent
reports indicate that, indeed, Bering Sea shore plants hire a
high percentage of foreign guest workers. Government surveys
report that at-sea processing workers earn two to three times
higher wages than workers in onshore plants. Also, the catcher/
processor fleet produces a higher percentage of pollock
products for the domestic consumer. Major U.S. seafood buyers
such as Long John Silver's restaurants point out that onshore
plants, particularly the Japanese-owned onshore processors in
the Bering Sea, largely produce surimi for export to Japan
regardless of what market prices are between surimi and fillet
products, the two principal product forms.
It has also been pointed out by the National Marine
Fisheries Service, and more importantly in the seafood
marketplace, that at-sea processed products are consistently
higher grade than pollock products made onshore. That benefits
the American consumer and helps boost U.S. export earnings for
those products that we do produce for overseas markets.
While our record of Americanizing the North Pacific
fisheries is good, some suggest going further. Some suggest
revoking the ownership grandfather contained in the Anti-
Reflagging Act that extends to most U.S. fishing and fish
processing vessels. The grandfather exempts these vessels from
having to meet the 51 percent U.S. citizen ownership
requirement.
APA member companies support eliminating the grandfather
rights that cover all of our catcher/processor vessels.
Revoking the grandfather will result in changes of ownership
for certain companies. APA urges that companies be provided a
reasonable period of time to comply with the new set of rules.
In addition, we do compete in an international marketplace, and
ask Congress not to limit our ability to sign long-term
marketing agreements with foreign buyers or to seek financing
from abroad.
Unfortunately, some advocate going even further, that is
revoking fishery endorsements for a substantial portion of the
U.S. catcher/processor fleet when they come into compliance
with new ownership standards. That's right. Some advocate
eliminating vessels from the fishery that have lawfully and
responsibly participated in U.S. fisheries since 1990 and
earlier. This proposal places at risk at least 1,500 jobs held
by licensed officers, fishermen, and processing workers. It
will also force the forfeiture of investments held by
individuals who relied on the law as well as executive and
judicial branch rulings that confirm that their projects were
consistent with all relevant laws and regulations.
We have up here a third chart--perhaps a little less
dramatic than Senator Stevens: You see the cover of this
month's Alaska Fishermen's Journal, ``In and Out?''--question
mark. You'll see the two vessels in the top right-hand corner.
They are foreign-built vessels that would be allowed to stay in
under the Senate bill. The other vessels are U.S.-built, but
foreign-rebuilt, vessels that would be out under the
legislation.
Some advance the rationale that revoking fishery
endorsements for certain U.S. catcher/processors is intended to
punish speculators. These speculators are individuals deemed to
have rushed through business deals back in 1987 that resulted
in the rebuilding of vessels overseas. But the proposal to bar
certain vessels from the fishery doesn't penalize the
speculators, they are long gone. It punishes the American
workers, fishermen who have stayed the course, or more recent
purchasers of vessels who made investments based upon the law.
Another rationale is that the fisheries are
overcapitalized. Mr. Plesha and Mr. Bohannon suggest that
someone has to go, and that someone would be us. And that is
the nub of the issue, allocation. Should Congress be in the
business of allocating fish among participants in the fishery?
NMFS has stated in its Senate testimony that proposals to
bar certain vessels from the Bering Sea pollock fishery offer
no conservation benefits and are not an effective method of
addressing overcapitalization. The same amount of fish will be
caught. There will continue to be a race for the fish. And NMFS
has even suggested that within 1 or 2 years, capacity would
return to the fishery that was taken out under the Senate
legislation. There is not likely to be a reduction in bycatch,
nor will there be increased utilization of fishery resources as
the race continues.
There will be winners and losers, but legislating winners
and losers in the marketplace is not Americanization.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Gilmore may be found at end
of hearing.]
Mr. Saxton. Thank you very much.
Mr. Asicksik.
STATEMENT OF EUGENE ASICKSIK, PRESIDENT, NORTON SOUND ECONOMIC
DEVELOPMENT CORPORATION
Mr. Asicksik. Yes, thank you, Mr. Chairman, members of the
Committee. My name is Eugene Asicksik. I am president of Norton
Sound Economic Development Corporation, which is a managing
organization for 15 western Alaska villages participating in
the Western Alaska Community Development Quota Program.
Let me start by saying that NSEDC is totally in support of
the Americanization of the Bering Sea fisheries. In fact, from
our standpoint we are not only in support of Americanization,
but also Alaskanization.
This has happened in our case where 15 western Alaska
villages of NSEDC have 50 percent ownership of Glacier Fish
Company, a company which owns two catcher/processors and one
long-line vessel. Our ownership carries through to the
harvesting, the processing, and the marketing of the fishery.
Through our direct participation and in ownership in the Bering
Sea fisheries, we have learned a lot about the Bering Sea, both
what is working and what is not working.
In addition to NSEDC, another CDQ group has an ownership
position in catcher/processor, and several CDQ groups have
ownership positions in long-line vessels and crabbers.
In the pollock fishery, which is the single largest fishery
in the Bering Sea, there is extensive foreign ownership in the
onshore sector. Nearly 70 percent of the onshore factories
which process Bering Sea pollock are foreign-owned. This
foreign-owned processing carries directly through to foreign-
owned marketing. Almost all of the production of the shore-
based plant is surimi, which is largely the Japanese market. In
addition, foreign ownership is increasing in the catcher boat
fleet which delivers to the foreign-owned processors.
In summary, the Bering Sea pollock and onshore trend is
actually going backward to more foreign.
I should clarify a point here which occasionally causes
confusion. In the Bering Sea pollock fishery, the term onshore
and offshore refer to the physical location of the processing
facilities. They do not mean domestic and foreign as the
onshore and offshore label might imply if we were referring to,
for example, banks.
So back to the pollock fishery; in the offshore sector,
there are vessels called motherships which are vessels which
only process the pollock after being harvested and delivered by
catcher boats. And there are catcher/processors in which both
activities take place on the single hull. The three motherships
in the fishery are all owned, financed, or operated by foreign
entities.
In the catcher/processor portion of the fishery, the
companies operating the fishery are mostly U.S.-owned. But one
large firm is foreign-controlled. This firm has most vessels so
that where the catcher/processors overall, foreign ownership is
approximately 60 percent. We estimate that our little only
owned, U.S.-owned and half Alaskan-owned company, Glacier Fish
Company, has about 9 percent market share among the catcher/
processors. To our knowledge, there are no Alaskan ownership
with a shore-based processing plants. The Alaskan ownership
which has started to show up in the Bering Sea pollock
fisheries in the offshore sector. In the Bering Sea there is
still significant foreign presence. In the biggest picture of
harvesting and processing and marketing pollock,
Americanization has occurred the most among the catcher/
processors including a trend of Alaskanization of which we are
very proud of.
In our support of Americanization, we have an additional
point we wish to make. Some of the measures and proposals which
might be proposed and those of Senate bill 1221 have measures
regarding both Americanization and capacity reduction. We
believe that this is critically important for Congress if it is
to affect measure regarding capacity reduction, to take
precautionary measures against reallocation of fish to less
Americanization sectors. If, for example, there were capacity
reductions in catcher/processor fleet such as might occur in
the passage of S. 1221, we are very fearful that there will be
assertions in North Pacific Fishery Management Council that
Congress intended for there to be a companion at reallocation
for the onshore sector. Any such reallocation would defeat
Americanization; Congress would have succeeded in Americanizing
the offshore fleet. Then the fishery would slip away to the
foreign-dominated onshore fleet.
In conclusion, Mr. Chairman, we believe strongly in
Americanization because of the great benefit which the Bering
Sea fisheries have brought to western Alaska villages through
the CDQ program. We also are very proud of the Alaskanization
of this fishery. And most American presence in this fishery to
date is with the catcher/processors. We would support further
Americanization. We have a fear, however, that a measure to
Americanize the fishery are at risk of being defeated if they
do not apply equally to the onshore sector. If they are not to
be applied equally to the shore-side sector, then we strongly
urge to be viewed to place a moratorium on other protective
measures to prevent our Bering Sea resources from being
reallocated from an Americanized sector to foreign-dominated
sector.
Thank you.
[The prepared statement of Mr. Asicksik may be found at end
of hearing.]
Mr. Saxton. Thank you very much, Mr. Asicksik.
Mr. Kirk, please.
STATEMENT OF MICHAEL KIRK, COOPER, CARVIN AND ROSENTHAL
Mr. Kirk. Thank you, Mr. Chairman. Mr. Chairman, members of
the Committee, I appreciate the opportunity to be here today.
My purpose was to lay to rest the tenuous argument that has
been made by some that legislation along the lines of S. 1221
would work a taking of private property in violation of the
takings clause of the Fifth Amendment. In large part, however,
Mr. Chairman, you and Chairman Young and Senator Stevens have
beaten me to the punch and have made the point that is
dispositive of any claim that a taking would take place.
Fishing is not--and throughout our history has never been--
a property right. Rather, it is a privilege that has been
granted by the State and Federal Governments and is, and
continues to be, fully subject to the regulatory authority of
Congress and the States.
My partner, Chuck Cooper, who during the Reagan
Administration served as head of the Office of Legal Counsel in
the Department of Justice, has carefully analyzed the claim
that has been made that a bill like S. 1221 would work a
taking. And I can report with some confidence that the Supreme
Court's Fifth Amendment jurisprudence, along with numerous
cases from the lower Federal courts, fully confirm your
understanding of the law in this area.
As an initial matter, no reasonable claim can be made--and
I don't understand one to be made--that the Senate bill or like
legislation would result in a physical taking of the vessels,
for the bill neither directly appropriates vessels nor ousts
the owner of possession of the vessels, nor does it require
owners to acquiesce in any physical invasion or occupation of
their vessels. Any takings challenge, therefore, must allege
that the bill effects what the Supreme Court has called a
regulatory taking of some right that's been secured by
regulation. Analysis under either of the two broad conceptual
approaches that the Supreme Court has taken to regulatory
takings yields the inescapable conclusion that S. 1221 or any
legislation like it would not effect a regulatory taking.
Now some have argued that under the Supreme Court's
decision in the Lucas versus South Carolina Coastal Commission
case, a taking of vessels could be effected because a bill like
S. 1221 somehow denies owners of all economically beneficial
use of the vessels. For several reasons, that analysis is
inapt. As an initial matter, it is not at all clear that Lucas
even applies to personal property like vessels. The Supreme
Court did note in Lucas, that the principles applied to the
real property at issue in that case did not necessarily give
rise to similar conclusions in cases involving personal
property.
But beyond whether or not it applies to personal property,
the plain fact is that the value of affected fishing vessels
simply will not be significantly diminished by any legislation
such that it could be said that the bill would deprive vessel
owners of all economically beneficial use of their vessels.
The courts that have applied that test have determined
without setting a specific threshold that it generally means
upwards of 90 percent of the fair market value of the property
must be taken to work a regulatory taking in this area.
There can be no question that legislation such as that
introduced by Senator Stevens would at most require owners of
vessels subject to the bill to sell their vessel or to use
their vessel in fisheries outside the EZZ--EZE, excuse me, EEZ,
I'll get it right the third time. In that regard, it is
noteworthy that well over 90 percent of the fish that have been
harvested worldwide have been harvested outside the EEZ.
Accordingly, there can be no question that any sale that would
take place in response to legislation enacted by Congress would
take place at a price at or approaching fair market value. In
other words, at a value far in excess of any claim that all
economically beneficial use has been deprived. Even vessels
that are forced to surrender their fishery endorsements would
continue to be able to fish outside the EEZ. And finally, any
vessels that lose or have their ability to fish within the EEZ
limited by such legislation could be converted to other
economically beneficial uses.
In summary, whatever policy considerations may guide the
members of this Committee as you deliberate over the merits of
proposals to alter Magnuson-Stevens or the Anti-Reflagging Act,
the potential that the Federal Government will be compelled to
pay compensation to owners of affected fishing vessels can
safely be dismissed.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Kirk may be found at end of
hearing.]
Mr. Saxton. Thank you very much, Mr. Kirk.
Mr. Bohannon.
STATEMENT OF FRANK BOHANNON, VICE-PRESIDENT, UNITED CATCHER
BOATS
Mr. Bohannon. Thank you, Mr. Chairman. Mr. Chairman, and
Committee Members, my name is Frank Bohannon and I am vice-
president of United Catcher Boats.
UCB consists of 58 harvesting vessels, and we fish
principally in the North Pacific for pollock and whiting. I
have been a fisherman for 35 years, and I own a vessel called
NEAHKAHNIE that participated in the first joint ventures in
1979 and 1980 where we began the Americanization of the pollock
and whiting fisheries. I now have two sons fishing in those
fisheries, and one of them runs the vessel. We are an American
fishing family.
Over 20 years ago, we fought hard to pass the 200-mile
limit law to Americanize our fisheries and end foreign fishing
in our waters. Ten years ago, Congress passed the Anti-
Reflagging Act in support of full Americanization of U.S.
fisheries. At that time, U.S. fishermen had fully Americanized
the harvesting but not the processing of North Pacific fishery
resources. Today, we have more foreign fishing in our waters
than we did 10 years ago. So, UCB asks this Subcommittee to
approve legislation that will put an end to foreign fishing in
our waters and fully Americanize our fisheries.
The 1987 Act did more to harm American fishermen in the
North Pacific than it did to help them. Boats like mine went
from harvesting 92 percent of the catch in 1987 to only 26
percent in 1990. Our catches were reduced by 66 percent over a
4-year period because Congress was told that in order to
Americanize the processing industry, our foreign partners had
to go.
The 1987 testimony before Congress was all about U.S.
processing replacing foreign processing. There was almost no
testimony about the new harvesting capacity coming into the
fishery. The issue was processing, and we were given every
assurance that the Congress did not intend to harm U.S.
fishermen. Unfortunately, the 1987 Act had a severe negative
impact on the catcher boat fleet because it allowed 17 or so
foreign-owned, foreign-built, and heavily subsidized factory
trawlers to enter our fishery and harvest in direct competition
with an Americanized catcher boat fleet. This was certainly not
the intent of the 1987 Act or the Magnuson-Stevens Act.
Congress did not intend to allow foreign companies to buy and
sell ownership in foreign-built factory trawlers. Yet, in spite
of this, the Coast Guard Documentation Office, against the
advice of their own lawyers, issued letter rulings which
exempted foreign owners from complying with the new U.S.
ownership and rebuild requirements. This was wrong, and I hope
this Committee will investigate why the Coast Guard so
subverted the intent of Congress.
Ten years ago, my vessel fished throughout the entire year
and harvested enough annually to create a viable business. Over
the last 5 years, I have seen many factory trawler companies go
broke and the vessels assimilated into the empire of a foreign
factory trawler company. I have also watched a number of my
fellow catcher boat captains who pioneered the North Pacific in
the 1980's reluctantly sell their vessels to large processing
companies. Fishing less than 3 months out of the year for
little or no profit has taken the future out of the fishery.
S. 1221 corrects a wrong that was done some years ago by
restoring the intent of the Magnuson Act that American
fishermen get first priority. We had achieved that in the late
1980's. The misinterpretation of the Anti-Reflagging Act by the
Coast Guard undid all our gains and has given foreign fishing
companies a large share of our fisheries resources. It is time
to fix that. For the sake of preserving American fishing
communities, we ask that you approve legislation similar to S.
1221 as quickly as possible.
United Catcher Boat believes the key element to the
legislation are as follows:
Removal of the foreign-owned fleet. UCB believes that those
foreign-owned factory ships that sneak through the loopholes in
the 1987 Act and have not provided any meaningful markets for
U.S. harvesters must be removed from the fishery. This non-
citizen, heavily subsidized, new entrant fleet contributed
greatly to the overcapitalization of the industry, should not
have been allowed to enter our fisheries in the first place,
and have had 10 years of fishing opportunities at the expense
of the existing fishermen.
The ownership. A new 75 percent U.S. ownership requirement
to be established for all fishing industry vessels. In order
for a vessel to be eligible for a fishery endorsement, it would
have to be owned by an entity which has at least 75 percent of
the controlling interest vested in citizens of the United
States. Virtually all of our vessels already meet this
requirement, and we strongly support a tougher U.S. ownership
standard.
No reentry into the U.S. fishery. The legislation should
contain a provision that will prevent the issuance of any new
fishery endorsements for fishing vessel that have reflagged
foreign and left our fisheries. The owners of these vessels
have made a conscious business decision to fish in Russia or
other foreign waters. And in light of the overcapitalization of
our fisheries, we do not think these vessels should be allowed
back into our fisheries.
National vessel size limitation. UCB recommends that if
Congress wants to establish vessel size limits within our
fisheries that it direct the Management Councils to do so.
While most of the harvesting vessels are under the 165-foot
threshold proposed in the Stevens bill, several are not. Many
of our fisheries are already under limited entry, meaning that
the threat of new, large vessels entering the fisheries is not
great. UCB would support a requirement that directs the
Councils to review this issue on a fishery-by-fishery basis and
prescribe appropriate vessel size limitations in those
fisheries where it is needed.
Excessive control. As catcher boat owners, UCB wants more
competition in the marketplace so that we receive the fairest
price for our fish. We hope that the Subcommittee will consider
a provision that will ensure that no company would obtain
excessive control within the fisheries as a result of the
enactment of the legislation. In removing the foreign-owned
fishing fleet, we would like to see additional markets open up,
as opposed to closing markets for our catch and further
consolidating control of the fisheries.
Again, thank you for the opportunity to testify, and I
would be pleased to answer any questions. Thank you for letting
me go overtime.
[The prepared statement of Mr. Bohannon may be found at end
of hearing.]
Mr. Saxton. Thank you very much, sir. We appreciate it, and
we'll get to the questions here in a minute.
Mr. Leape.
STATEMENT OF GERALD LEAPE, GREENPEACE
Mr. Leape. Thank you, Mr. Chairman. On behalf of
Greenpeace, I want to thank you for the opportunity to testify
at this oversight hearing on the failure of the Magnuson-
Stevens Act and the Anti-Reflagging Act to Americanize the
ownership of fish harvesting vessels in U.S. fisheries.
These failures have allowed 13 of the largest factory
trawlers to enter the world's largest fishery, the pollock
fishery between 1988 and 1990. These vessels have not only had
a devastating environmental impact on the Bering Sea ecosystem
and the fishery it supports, but if gone unchecked could
eventually impact fisheries both on the Pacific Coast and in
New England. These boats which increased fishing capacity in
the pollock fishery exponentially have had detrimental impacts
on the pollock stocks, on other marine mammals and birds that
rely on fish, and as you've heard, small-scale fishermen who
have been the life line of many of our Nation's coastal
communities for decades.
In addition, as the seasons have gotten shorter, it's
become increasingly difficult for many of the factory trawler
crews to earn livable wages. I direct you to a recent article
in the Tacoma News Tribune. In 1989, the last year before these
boats began to enter the fishery, boats were able to fish for
pollock year round. And as you've heard, in 1997 the fishery
lasted just 55 days. In 1991, the first full year that all of
these boats were active in the fishery, factory trawlers caught
over 1 million metric tons of pollock, or almost 70 percent of
the total prompting the enactment of a mandated allocation
split, split seasons, and an end to the practice by the Council
of mandating a buffer between the scientifically suggested
limit of catch and the actual allowable catch.
The increased effort in the split season have forced the
fishery into greater concentrations of fishing in smaller areas
of the eastern Bering Sea, much of which is critical habitat to
many marine mammals where they forage for food. In addition,
there has been a tenfold increase in fishing on pollock as
they're spawning.
The impact of this increase is beginning to be seen. The
half a million metric ton quota for the spawning season
represents almost 25 percent of the estimated total spawning
biomass of 2.2 million metric tons. Even if there is no
mandated reduction in catch, as we frankly hope there will be,
allowing the fishery to spread out over space and time will
inevitably have a conservation benefit.
The fishery is now dependant on a strong recruitment of a
1996-year class to stave off more draconian action by the year
2000. And I direct you to a plan team graph at the end of my
testimony that you have before you.
Finally, there is the bycatch issue. The operators of the
boats being investigated today say that they are among the
cleanest fishers in the world. They are careful not to compare
themselves to their shoreside competitors. Using National
Marine Fisheries Serv-
ice numbers, that have been cleansed to show that they
correspond to the specific fishery, these boats have a bycatch
rate that is two to three times that of their shoreside
counterparts. As recently as 1997, these boats were wasting
more fish than the catch of many of the rest of the fisheries
in the U.S. combined.
What is done, or not done, with these boats will have an
impact on the rest of the country as well. For the West Coast,
if the pollock fishery continues to decline, these large
factory trawlers will have to look elsewhere to fish, making it
difficult for many of the Pacific fisheries to maintain their
limitations on entry. On the East Coast, a campaign supported
by environmentalists such as the National Resources Defense
Council, the American Oceans Campaign, and others, fishermen
from coast to coast, and this Committee overwhelmingly endorsed
action last summer, H.R. 1855, which resulted in an
appropriations rider preventing the factory trawler, ATLANTIC
STAR, rebuilt in a Norwegian shipyard, from entering the
Atlantic herring and mackerel fisheries.
As many of you know, the Fisheries Service has fought the
implementation of that rider every step of the way. That
moratorium on factory trawlers needs to be extended to allow
completion of the plan without a factory trawler waiting in the
wings.
Toward that end, we would urge you in legislation to mirror
the language in S. 1221 on this issue. Many of the groups that
were active on the East Coast campaign last year have lined up
in support of S. 1221 and would be poised to support you, Mr.
Chairman, if you choose to introduce a companion bill in the
House.
All around the world over-fishing and destructive fishing
practices on the part of factory trawlers are destroying fish
stocks damaging ecosystems and threatening the livelihoods of
millions of people. On the East Coast to the U.S. and Canada,
over-fishing by foreign factory trawlers has cost almost 40,000
jobs.
Mr. Chairman, we strongly urge you to introduce legislation
that will not only phaseout these boats which are being the
subject of this hearing, but to include provisions from S. 1221
which would limit the allowable size, weight, and power of the
new vessels, eliminate the remaining subsidies that could be
used to build these large boats or expand existing boats, and
prohibit the replacement of remaining vessels that currently
exceed these limits at the end of their useful life.
Failure to act this session could spell the beginning of
the end of the Bering Sea pollock fishery in the North Pacific.
Thank you, and I'd be happy to answer any questions.
[The prepared statement of Mr. Leape may be found at end of
hearing.]
Mr. Saxton. Thank you, Mr. Leape. Thank all of you for your
very fine testimony.
Mr. Young, do you have a question?
Chairman Young. Thank you, Mr. Chairman.
Eugene, the CDQs have environmental restrictions placed on
them in the form of bycatch. Could you comment on those
restrictions and the environmental restrictions as far as the
open access of the fishery?
Mr. Asicksik. Yes; the CDQ program, as you well know, is an
allocation program, and they are six groups that apply to the
State of Alaska who has an oversight. And each CDQ group has to
submit a Community Development Plan to the State. And we have
to identify the targeted fisheries, and we have to identify
that we would have a vessel, a certain--the type of vessel,
what kind of processing, what kind of marketing, and you know,
the cost.
And once all of that is submitted, the State allocates. And
they also, when they allocate the targeted fishery, they also
allocate a prohibited or a bycatch allocation. And the bycatch
allocation can vary from specie to specie. But also in that
bycatch allocation is that if we go over our bycatch in a
targeted fishery, we cannot target the other fishery. So if we
have two fisheries that have the same type of bycatch, and one
is 15 percent and the other one is 20 percent. Say, we went
over in one fishery, we can't go and harvest the other fishery.
Chairman Young. OK. Now what I'm suggesting here is that
you have a quota or amount of tonnage that you're allowed to
catch; right?
Mr. Asicksik. Yes.
Chairman Young. You can catch that over a longer period of
time, can't you? You don't have free-for-all fishery, do you?
Mr. Asicksik. No, we're not. We can fish outside of the
open access fishery, or CDQ fishery can take place outside----
Chairman Young. OK----
Mr. Asicksik. [continuing] or prior or after.
Chairman Young. Now, what I've heard from everybody on that
table that I don't--even you, Jim, think there's an
overcapitalization of the fishery?
Mr. Gilmore. Yes. There is certainly an overcapitalization
of the fishery. Where the CDQ program works well is that they
don't race to catch the fish and, therefore, they're able to
control the bycatch similar to the Pacific whiting cooperative.
Chairman Young. I would like to refer again to my opening
statement--I want to stress this again, Mr. Chairman--is again,
for those that are being paid lots of money to represent
everybody in this room, you better listen to me very carefully
because the issue here is the retention--with all due respects
to Greenpeace--the retention of a viable trawl industry which
does play a major role, other than an environmental role. A
role that I don't think is on the positive side. That this
overcapitalization, this free-for-all fishery, and I think the
excessive amount of bycatch has to stop. And I think it appears
to me, if you're right, Gene, that the CDQs have done that. Is
that correct?
Mr. Asicksik. Yes, we have. And as the regulations are
being written, we will, you know, go into the other fisheries.
We've done the pollock; we are able to do the halibut and sable
fish. And I understand, by August, we will start the mackerel
and----
Chairman Young. OK.
Mr. Asicksik. [continuing] shortly we should fish the other
fisheries.
Chairman Young. Joe, would you clarify something in your
testimony? The District Court and the Appeals Court rulings,
with regard to Southeast Shipyards Association of the United
States versus United States case, specifically did the original
case deal with both the American ownership and foreign
rebuilding saving clauses? And did the Appeals Court ruling
deal with both issues?
Mr. Plesha. Thank you, Mr. Chairman. Just to refresh your
recollection, that case was about two vessels, the GULF FLEET
10 and the GULF FLEET 14. Those vessels were purchased on the
very last day, July 27, right before the Committee's markup.
They were then contracted to be rebuilt in a Norwegian
shipyard. After that, they were subsequently sold to a foreign
company--I believe a Japanese company. They were then taken to
Japan and rebuilt in a Japanese shipyard to completely
different specifications than the original rebuild contract.
Southeast Shipyards brought a lawsuit against the Coast Guard.
That lawsuit made two allegations. One is that the Coast Guard
misinterpreted the ownership requirement because they allowed
the boat to be transferred to foreign ownership. And second,
they requested in their complaint that these specific vessels
be investigated, the Coast Guard make findings, and revoke the
fishery endorsements because they had violated the rebuild
provision of the Anti-Reflagging Act.
The District Court granted the plaintiff's motion for
summary judgment because their memorandum in support of that
then discussed the idea that the concept of the Anti-Reflagging
Act was Americanization, the Coast Guard asked for a
clarification. The clarification was denied. The ownership
issue was appealed, and eventually reversed. But the Order,
with regard to the rebuilding provision specific to those two
boats, has never been reversed.
Chairman Young. And so the Coast Guard hasn't fulfilled
their obligation, according to that?
Mr. Plesha. I believe so.
Chairman Young. Again, I think the Coast Guard came here
very ill-prepared for this testimony, as they did in the
Senate. And I think it's a slap to the Congress. And now we
have this court case that actually verifies that.
I'm about out of time, Mr. Chairman, so go ahead and I'll
ask more questions later on.
Mr. Saxton. Thank you very much.
Mr. Pombo.
Mr. Pombo. Thank you, Mr. Chairman.
Mr. Kirk, I had the opportunity to review your analysis.
Since your original analysis in March, and there has been a
Federal Court decision on a similar issue, the Martirans versus
United States, concern Federal legislation requiring oil
tankers in the U.S. waters to have double-hulls by a set date
causing significant property devaluation for the owners of the
single-hull vessels. The Court held that the plaintiffs in that
case had a takings claim. The Court's opinion stated, ``that
the right to use vessels has been described as one of the
classical property rights inherent in the ownership of vessels
is the right to use them.''
How does that affect your analysis?
Mr. Kirk. Thank you, Mr. Pombo. You're correct. The
Maritrans decision was issued after we put in the paper that we
submitted in the context of Senator Steven's hearing in March.
I would correct one--quibble with one statement you made in
describing the opinion. Judge Hodges did not hold in Maritrans
that the plaintiff had a takings claim. That is still the
subject of that litigation. Rather, the judge rejected certain
arguments that the United States had made in seeking to dismiss
the claim, and the case will continue. There's been no final
determination that the plaintiffs have a takings claim.
But beyond that, to address the substance of the point you
were making, I think the most significant portion of Judge
Hodges' decision--Judge Hodges, as you know, Congressman, is on
the Court of Federal Claims here in Washington--is the care
with which he distinguished the long line of decisions holding
that revocation of permits--permits going to such activities as
building, grazing, prospecting, mining, traversing, and fishing
on public lands or in government-regulated waters--all of which
hold that such revocations do not constitute takings under the
Fifth Amendment. In particular, he talked about a decision from
the Court of Appeals for the Federal Circuit called Mitchell
Arms which explained this principle.
So at bottom, the Maritrans decision in no way changes our
view. In fact, most of the portion of his opinion dealing with
the line of permits cases confirms our view.
Mr. Pombo. Can you differentiate between the permit
processes and the endorsement process on these boats? Do you
know the difference, and that there is a difference? And I'm
sure you've had the opportunity to read this case from your
answer to my question. There's a distinct difference in the
judge's decision between the permit and the endorsement.
Mr. Kirk. Well, I don't think the judge's decision
addressed the endorsements that are before this----
Mr. Pombo. The argument that you laid forth in answering my
question, you dealt with the permit issue--whether it's grazing
permit or a fishing license, or whatever it is. That's one side
of the argument, and we could have an interesting debate as to
whether or not that is truly a taking. But I do believe that
there is a difference between a permit and an endorsement. And
in the answer to the question you gave, you seemed to try to
run all of that together in order to make your point. And I
think that you're mistaken in----
Mr. Kirk. With respect, Congressman, I have to disagree
with you on that. When one is looking at this from a
constitutional perspective and analyzing a potential takings
claim, the endorsements that the Coast Guard issues under
current law are really no different than the fishing permits.
Yes, it is true and in answer to some of the questions that
were put to the prior panel, some distinctions between the
endorsements----
Mr. Pombo. So your argument is there's no difference?
Mr. Kirk. As a matter of constitutional law, no. At the end
of the day, what the endorsement does is it allows fishing to
take place.
Mr. Pombo. So you disagree with the judge's opinion that
inherent in the ownership of vessels is the right to use them?
Mr. Kirk. I do not disagree with that point, but with
holding the----
Mr. Pombo. Which part of it do you agree with?
Mr. Kirk. I----
Mr. Pombo. If the permit and the endorsement are the same
thing in your mind, I don't see how you can say that you agree
with the judge's statement.
Mr. Kirk. The judge didn't address the distinctions that
the Coast Guard has between permits and endorsements. He had
before him a completely different case. The statement that you
read concerning----
Mr. Pombo. It was a very similar case.
Mr. Kirk. Well----
Mr. Pombo. In terms of a regulatory taking, it was a very
similar case. Unfortunately, I'm just about out of time. I'm
sure the chairman will be very lenient----
[Laughter.]
If you----
[Laughter.]
If you accept that the revocation of a fishing endorsement
completely destroys the market value of these ships, would you
concede that the Lucas decision applies, if that were the case?
Mr. Kirk. If you start with the assumption--which I don't
share--that a revocation of the fishing endorsement completely
destroyed all economic value in the vessel, there would still
be a significant question as to whether or not Lucas led to the
conclusion that a taking had taken place because Lucas was
quite--the Supreme Court in Lucas was quite clear in limiting
its decision to real property. And of course, vessels are
personal property. So, I would not say that it necessarily
follows that there is a taking, even under that hypothetical
that you offer.
Mr. Pombo. In your understanding of the Constitution, does
the Fifth Amendment say that only real property applies? Or
does it say private property?
Mr. Kirk. It just uses the word ``property,'' but in the
Supreme Court's cases addressing issues of takings, they've
noted that expectations are different with regard to real
property as opposed to personal property. Throughout our
history, both the States and Congress have regulated personal
property with considerably more detail, so property owners have
a greater expectation with regard to real property.
Mr. Pombo. Because that's where the cases have been, but
the cases have not----
Mr. Saxton. Mr. Pombo, why don't you ask one final question
so we can move on to Mrs. Chenoweth?
Mr. Pombo. Mr. Chairman, I'm going to ask for a second
round of questioning. Thank you.
Mr. Saxton. Mrs. Chenoweth.
Mrs. Chenoweth. Thank you, Mr. Chairman.
Mr. Kirk?
Mr. Kirk. Yes, ma'am.
Mrs. Chenoweth. I'm aware of a March 12th document produced
by your firm, Cooper, Carvin and Rosenthal entitled
``Constitutional Analysis of S. 1221, the American Fisheries
Act.'' On whose behalf did you prepare this analysis? And who
paid your fees to prepare this document?
Mr. Kirk. We are appearing in this proceeding, and I
believe in Senator Steven's hearing in connection with which
the document you are referring to was submitted on behalf of
the American Fisheries Act Coalition.
Mrs. Chenoweth. But that's not the question I asked you.
Mr. Kirk. I apologize.
Mrs. Chenoweth. All right. Let me repeat it.
Mr. Kirk. Yes, ma'am.
Mrs. Chenoweth. Mr. Kirk, I'm aware of a document that was
produced by your firm dated March 12, 1998, entitled
``Constitutional Analysis of S. 1221, the American Fisheries
Act,''----
Mr. Kirk. Yes, ma'am.
Mrs. Chenoweth. [continuing] prepared by the firm that you
work for, Cooper, Carvin and Rosenthal. I assume you work for
that firm?
Mr. Kirk. I'm a partner in that firm. Yes, ma'am.
Mrs. Chenoweth. All right; you're a partner. On whose
behalf did the firm prepare that document?
Mr. Kirk. We prepared that document, I believe, in my
name--I didn't write it, my partners did. But it was my
understanding that we prepared it on behalf of the American
Fisheries Act Coalition. I hope that's responsive.
Mrs. Chenoweth. And you don't want to add----
Mr. Kirk. And I believe that second----
Mrs. Chenoweth. [continuing] anything to your answer,
right?
Mr. Kirk. I wanted to respond to the second part of your
question. You'd, I believe, also inquired as to who paid our
fees, and it's my understanding that it was Tysons Seafood.
Mrs. Chenoweth. All right. Thank you.
In the Maritrans case, the court did distinguish from cases
involving guns and nuclear power, as you referred to in your
testimony, from cases such as this one. And as you know the
facts of the Maritrans case goes to the requirement of
regulation that oil tankers in U.S. waters have to have double-
hulls by a certain date.
Mr. Kirk. Yes, ma'am.
Mrs. Chenoweth. And the Court held that the inquiry is not
so simple as examining whether the government prevents the
exercise of a property right by regulating it, transforming the
property right into one totally dependent on the government's
regulatory regime. ``That is tautology,'' the Court said,
``mere participation in a regulated industry does not preclude
a finding that a taking has occurred.'' So the Court did rule
that a taking had occurred in that case.
I wanted to ask Mr. Plesha----
Mr. Plesha. Yes.
Mrs. Chenoweth. You mentioned the fact that vessels were,
of course, taken over to Japan and retrofitted and so forth.
Are you aware that on July 28, 1987, the Committee adopted a
provision allowing vessels purchased for use as fish processors
up until the date of the markup to be rebuilt overseas? Were
you aware of that bit of history?
Mr. Plesha. Actually they had to be purchased before the
date of the markup. They had to actually be purchased, and then
they had to have a contract to rebuild by July 12, 1988. So,
yes; I was certainly aware of that provision.
Mrs. Chenoweth. So, if any of the vessels that you were
referring to in your testimony violated those provisions, then
it would be a legal question, wouldn't it?
Mr. Plesha. Is it a legal question? Had the statute of
limitations passed----
Mrs. Chenoweth. A question of violation of the contract?
Mr. Plesha. We have not even learned of how these contracts
are put together until the last 6 months. We have just now
discovered, for example, that the STATE EXPRESS was never had a
contract to purchase by the right date. They had an option to
purchase. I didn't know that 6 months ago, and I assume that
the statute of limitations has passed for anything that can be
done in court.
Mrs. Chenoweth. You know----
Mr. Plesha. But the honest answer is that the Coast Guard
made a mistake in how they interpreted the Anti-Reflagging
Act's grandfather provisions. They didn't follow the literal
meaning of the statute. They basically just allowed these
vessels in on representations of their owners.
Mrs. Chenoweth. Don't you think in most cases, though, that
people who invested in the vessels invested on the basis that
they were assured that they could make those investments under
the 1987 Amendment?
Mr. Plesha. There were people who had these projects that
absolutely had no investments. They had no financial
investments whatsoever prior to the boats being rebuilt and
delivered into the United States. That's part of the problem.
For example, on one of the boats, it was a conditional sales
contract without any money being put down in the contract
whatsoever. They had no obligation to pay a cent; that's not a
financial investment.
Mrs. Chenoweth. Then, wouldn't that be a question for the
courts? I mean if somebody--like the chairman, our Chairman
Young said, there's malfeasants. Gosh, if there is somebody
should be hung for that. And our concern here, as members of
the Committee, is to protect those who legally and honestly
have relied on the current laws and----
Mr. Plesha. Excuse me, but what about us who tried to
follow the intent of Congress and have spent everything that we
have following that intent by trying to Americanize this
fishery? We are the people who are impacted by that boat. Now
if that boat's legal, there's a backdated document allegedly
involved in that qualifying. We have for 10 years suffered from
that boat being in the fishery. And I mean what we've tried to
do from day one is follow the intent of Congress to Americanize
this fishery with American dollars from American banks.
Mrs. Chenoweth. You know, Mr. Plesha, I have great concern
over our fisheries being over-fished, being from Idaho. I don't
want to see our salmon over-fished. I identify with that issue;
but capitalization as a means for a taking is a concern that we
have here. And so if someone has failed to follow the law, if
they have not been honest in upgrading their fishing vessels,
then they should be taken to court.
Mr. Plesha. You know, I reflect back to Oscar Dyson who had
the PEGGY JO. That was the very first steel-hulled crap catcher
vessel in Alaska. It fished there for 15 years, and he was the
pioneer of the crab fishery. There is a moratorium put in place
that eliminated that boat from ever fishing crab again. And
PEGGY JO--its value was impacted by that. It found alternative
uses, but that is a boat that--I don't know the distinction
that you're trying to reach between a permit and an
endorsement, but it will never, ever fish crab again, because
of a regulation.
Mr. Saxton. The gentlelady's time has expired. Let me----
Mrs. Chenoweth. Chairman, I would like to have another
round of questioning.
Mr. Saxton. OK, we'll get to it. We sure will; that will be
fine.
[Laughter.]
Let me just explore two points, if I may. First, with Mr.
Plesha. Mrs. Chenoweth just made a point--I believe, perhaps
incorrectly--that people, investors who invested in the fishing
vessels which in effect would have their endorsement nullified
by Stevens' bill would suffer a loss on their investment which
we, in essence, according to the premise of the question,
provided assurance that they would have some kind of security.
I would make a different point; those decisions apparently were
made--and you correct me if I'm wrong; I want to make sure I
understand this. Those decisions were made to enter into
contracts during a window of opportunity that was provided
because of a delay in the Merchant Marine and Fisheries
Committee. And that those contracts were signed--A, not knowing
whether the law would ever be passed; B, not knowing what the
provisions of the law would be, if it passed; and C, not
knowing what--given those two facts--not knowing what the
competition or the fishery would be like subsequent to the
passing of that law. Is that a fair statement?
Mr. Plesha. That's correct. The markup was July 28, 1987,
and the bill was signed into law December 11, 1988. So it was a
long period of time between the markup and eventual signing.
Mr. Saxton. So one could conclude that during that period
of time when those decisions were made, that the individuals
who made those decisions didn't really have any assurance as to
what the future would be like, anymore than when those of us
who buy mutual funds or put our money into real estate
investments or any other type of investment decision that we
make, they certainly didn't have any greater assurance than any
other investor. Is that a fair statement?
Mr. Plesha. That's correct.
Mr. Saxton. And so if one were to lose on an investment of
this type, it would be no more out of character than any other
investor in a free economy?
Mr. Plesha. That's exactly correct.
Mr. Saxton. Thank you.
Mr. Kirk?
Mr. Kirk. Yes, Mr. Chairman.
Mr. Saxton. With regard to my friend, the gentleman from
California, Mr. Pombo's questions regarding the endorsement
issue and whether or not there would be a taking if the Stevens
bill were to pass, I believe, and I may--anyone can correct me,
including Mr. Pombo, but I think the assumption was--part of
the question was an assumption that there would be a
significant devaluation in the property known as a fishing
vessel; right? Is that--can you explain from a legal point of
view how that devaluation would generally be considered by the
Court?
Mr. Kirk. Yes, Mr. Chairman. In analyzing a takings claim,
the economic impact is one factor that a court will look at
assuming that the predicate has been established that there is
a property right there in the first place. In my view, that
predicate cannot be established here for the reasons that I
discussed in my testimony.
But even assuming that there is--that a takings challenge
could overcome that hurdle and get to the question that the
analysis that the Supreme Court developed in the Penn Central
case, and economic impact was something that the court looked
at, in my opinion, notwithstanding--the impact in this case
would not be sufficient to support a taking. There are cases on
the books where upwards of 70 percent of the value of the
plaintiff's property has been diminished by regulations enacted
by Congress. And the courts have held that that's not enough.
In view of all the remaining uses that these vessels would
have upon passage of legislation like Senator Steven's bill, I
just don't believe that the economic impact is severe enough to
support a takings finding.
Mr. Saxton. Thank you. Now, let me just make a statement,
and then perhaps you would like to respond to it. With regard
to devaluation in this circumstance, should the Stevens bill
pass?
I would make the point that there is at least some evidence
to indicate that there would be no significant devaluation
based on information I have here in front of me involving other
opportunities, or potential opportunities, for these ships.
This is verified, I believe, quite well by the situation
involving the huge Dutch factory trawler known as the ATLANTIC
STAR which recently announced its arrival in the Mauritanian
waters off the coast of Africa to begin a new fishing venture
on pelagic species. Also, in May 1998, China announced its
rapidly expanding distant water fishing industry will need an
unspecified number of 240 to 250 to 300-foot factory trawlers
soon after the turn of the century. In 1998, a German fish
company announced taking delivery of a refitted 171-foot
factory trawler to replace two others that were sold abroad. In
May, also of this year, an Icelandic fishing company announced
its intent to purchase a 195-foot factory trawler from
Lithuania for fishing in the North Atlantic, and--I won't read
all these, but there an additional 8 or 10 opportunities for
sales.
So it seems to me that if you were dead wrong, with regard
to your interpretation of whether or not there was a taking,
that there is ample evidence here for us, at least, to assume
that there is a market or an opportunity for these ships to be
put to other uses which certainly would have an economic value
speaking strongly against the position that would be taken when
someone suggests that there is a taking here.
Mr. Kirk. The only comment I have, Mr. Chairman, is I agree
wholeheartedly with the point you just made.
Mr. Saxton. Thank you very much.
Mr. Pombo, would you like to----
[Laughter.]
Mr. Kirk. That's a risky position.
Mr. Saxton. [continuing] take another shot here?
Mr. Pombo. Yes, I would, Mr. Chairman.
Mr. Kirk, have you been heavily involved with the fishing
industry in the past?
Mr. Kirk. No, I've not, Mr. Pombo.
Mr. Pombo. And are you familiar with the sale of boats and
fishing vessels, and have you done a lot of work in that area?
Mr. Kirk. No, sir, I've not.
Mr. Pombo. What about in the property rights area? Have you
done an extensive amount of work on that area?
Mr. Kirk. In that area, I do have a fair amount of
experience; yes, sir. We've represented--and I've personally
represented clients in a wide-range of industries, primarily
bringing takings claims against either the United States or
various States. And I've testified a number of times before
State legislatures, I believe up until today, always arguing
that the legislation on the table would effect the taking of
private property. This is the first time that I've testified
that, in my view, the proposed legislation would not effect a
taking.
Mr. Pombo. Mr. Gilmore, the question that the chairman just
asked about the sale of these boats on the open market; would
you like to comment on that?
Mr. Gilmore. I'm not an expert on the brokerage of vessels
either, however, what the Senate legislation would do would be
to put 18 factory trawlers from the United States out of
business within an 18-month period. That would be a capital
value of $400 to $500 million that would be on the market at
one time. They would lose their fishery endorsement in the U.S.
Comments were made earlier that there are opportunities for
foreign flag vessels in the U.S. 200-mile zone, but these boats
were built for the largest fishery in the United States, the
Bering Sea pollock fishery. I don't know of any other joint
venture type operations that would be available to them. The
fate of the ATLANTIC STAR would indicate that there are
relatively few opportunities, and so I think it would be highly
unlikely that these vessels would--in fact, if you go to
Seattle, when you go down to pier 91, you'll find a boat called
the AMERICAN MONARCH, a $60 million catcher/processor vessel
that was permitted to fish in Chile that had its permit in
Chile revoked. I don't know the takings law in Chile, maybe
we've got something here, but had its permit revoked before it
ever caught a fish in Chile, and has been sitting idle for over
a year now at the dock there. So, if there are opportunities, I
think they're few and far between. And for the forced-sale of
assets in such a short time-frame, it would be very difficult
to get a fair market price.
Mr. Pombo. Mr. Leape, is that correct? The organization
that you represent, and in your testimony, you stated that you
would like to see a reduction in the number of fish that are
taken in this fishery. Is that accurate?
Mr. Leape. Yes. If legislation is introduced, we have urged
that a mandated reduction be included.
Mr. Pombo. And the boats that they're talking about here--
the 18 boats or whatever it is--if they were taken out of
production, would that be enough to satisfy the reduction that
you're talking about?
Mr. Leape. Yes, our request urge the Congress to direct the
Councils to achieve an approximate reduction as the boats
leave. So, yes; the answer to your question would be yes.
Mr. Pombo. So, just so I understand your position, what
you're saying is that if you took these boats out of production
and the remaining boats just caught the number of fish they are
now, that would meet your goal?
Mr. Leape. Well, as I said in my statement, a lot of things
would happen if those boats left. Currently, the fishery lasts
55 days. And as recently as 1989, it was year-round. If it was
allowed to lengthen, fishing would slow. It could be spread
out, and it would have less of an impact. You wouldn't see the
problem of localized depletions and heavy focus of effort on
the pollock when they're spawning. And it could be run in a
much more environmentally friendly manner.
Mr. Pombo. But the total number of fish that are caught
would remain the same? That instead of doing it in 3 months,
they might be able to do it year-round, but the total number of
fish would remain the same?
Mr. Leape. Well, what's hard about this hearing, Mr. Pombo,
is it's an oversight hearing and not on specific legislation.
And so if we comment about specific legislation, it's about
what's out there, and that's S. 1221 currently. And what I said
is, we would be urging that a change be included in the
legislation to provide for a mandated reduction in the fishery.
Currently, as the legislation stands, no, it doesn't contain
that.
Mr. Pombo. Well, I wasn't referring to legislation
necessarily, I was trying to figure out where your position was
on total number of fish being caught, or at least your
organization's position, because you said that you wanted to
see a reduction----
Mr. Leape. Right.
Mr. Pombo. [continuing] in the number of fish that were
caught. And I was trying to figure what that reduction was----
Mr. Leape. Well, we felt----
Mr. Pombo. [continuing] that you would prefer----
Mr. Leape. [continuing] if you take out the factory
trawlers in question, from estimates, it seems to be that they
account for about 30 percent of the harvest. That would
approximate what we feel would be the appropriate level of
reduction.
There are others who disagree with us. I can only speak for
Greenpeace and what we feel would be appropriate.
Mr. Pombo. So, you believe that a 30 percent reduction
would be appropriate?
Mr. Leape. Yes; and we have said that before the North
Pacific Council 2 years running.
Mr. Pombo. Is that just in this particular fishery, or is
that in all fisheries?
Mr. Leape. Well, let's keep with the matter at hand, with
all due respect. These factory trawlers fish primarily in the
pollock fishery, and some of them fish in the whiting fishery.
We have been focusing on the pollock fishery because that's
where they all fish. You know, fisheries are different as you
go around the coast, and the conditions they're in are
different. For now, that request is just for the pollock
fishery in the Bering Sea.
Mr. Saxton. Mrs. Chenoweth.
Mrs. Chenoweth. Thank you, Mr. Chairman.
Mr. Kirk, are you here on behalf of Mr. Cooper? Was the
testimony that was prepared which stated testimony of Mr.
Cooper was that all along supposed to be your testimony?
Mr. Kirk. Let me explain the circumstances, Mrs. Chenoweth.
My partner, Mr. Cooper, is today in the midst of a 7-week trial
in the Court of Federal Claims. At the time we prepared the
testimony, we had hoped that he would be able to personally
break away from the trial and appear and give the testimony. As
matters developed, the government's expert witness that he was
responsible for dealing with was up this morning, and so I was
prepared to and appeared in his stead.
Mrs. Chenoweth. Well, in Mr. Cooper's written analysis of
S. 1221, and I noticed that in your oral testimony you skipped
over this part. But he stated that the Supreme Court's decision
in Lucas versus South Carolina Coastal Council set forth a per
se rule applicable to the taking of all beneficial and
productive use of private property; that it is limited only to
land. I noticed you very carefully said private--or property,
private property. Do you agree with him that it's only limited
to land? And is it your position that Lucas, then, does not
apply to other property rights as defined by the Supreme Court
such as contracts entered into by Savings and Loan and----
[Laughter.]
[continuing] I mean it's----
Mr. Kirk. That's a----
Mrs. Chenoweth. Where do you go with this?
Mr. Kirk. The specific holding in Lucas, Congresswoman, was
limited to real property. And the Supreme Court carefully noted
that. I think it's an open question as to whether the per se
taking analysis where all economically beneficial use of the
property has been taken would apply to rights other than real
property.
That being said, it is certainly not our view, and I don't
believe we've said anywhere that a taking claim, in general,
can not be brought involving contract rights, personal
property, or other forms of property aside from land. In the
Savings and Loan case that you referenced, coincidentally
enough, that's the case Mr. Cooper is trying, the damages phase
of that case. The takings claims there were not based upon the
standard in Lucas. It was based on other Supreme Court takings
jurisprudence.
Mrs. Chenoweth. I assume you have read Lucas?
Mr. Kirk. Yes, ma'am.
Mrs. Chenoweth. You know that Lucas was involved--the
taking and the case centered around a special permit procedure.
The court did rule that, with regards to the State's power over
the bundle of rights which includes land and the permits and
the right to build on the land, including a house, that they
acquire, when they take title to property, in other words when
they take the title, they have actually taken the bundle of
rights. ``Because it is not consistent with the historical
compact embodied in the takings clause that title to real
estate is held subject to the State's subsequent decision, to
eliminate all economically beneficial use of regulation hav-
ing that effect cannot be newly decreed and sustained without
compensations being paid the owner.''
Mr. Kirk. Yes, ma'am.
Mrs. Chenoweth. And I'm quoting directly from Lucas.
Mr. Kirk. Yes, ma'am.
Mrs. Chenoweth. Now, Mr. Kirk, you've heard my line of
questioning before. Section 201(b), I think it is, in the new
Bennett 1221 would prescribe new requirements for the size of
the ship and where it was built, and so forth. That would
effectively render, unless someone could meet those new
requirements, render the endorsement useless, wouldn't it?
Unless they could meet the new requirements of section 201(b)
without paying for it?
Mr. Kirk. It would deprive them of the endorsement, but I
don't believe that it would render the underlying vessel
economically useless for the reasons that the chairman gave. It
appears likely to me that the underlying vessel would continue
to have almost all, if not all, of its current market value.
Mrs. Chenoweth. Isn't it true that without the endorsement,
they cannot use the vessel to fish?
Mr. Kirk. No, ma'am. It's true that they cannot use the
vessel to fish within the----
Mrs. Chenoweth. Legally?
Mr. Kirk. Legally within the----
Mrs. Chenoweth. Right.
Mr. Kirk. I can never----
Mr. Saxton. The EEZ.
Mr. Kirk. [continuing] get the acronym right. The EEZ,
thank you. They could still use the--and actually even that's
not true. As I understood Senator Stevens's testimony, when the
full quota has not been fished out of the particular area, the
foreign vessels who don't possess the endorsements are allowed
to come in and fish.
Mrs. Chenoweth. That is under the permit, and I'm talking
about the endorsements that are appurtenant to the vessel. So,
when the endorsement is taken away from vessel, it cannot be
used for fishing, correct?
Mr. Kirk. Within the EEZ. It could still be used for
fishing anywhere else in the world.
Mrs. Chenoweth. So my question is, who would buy a vessel
that would have no place to fish immediately after sale? I
mean, you know, those are just dynamics of the marketplace.
Mr. Kirk. Yes, ma'am.
Mrs. Chenoweth. So----
Mr. Kirk. I would assume somebody who wanted to use it to
fish elsewhere in the world would be interested in buying it. I
assume somebody who could, himself, obtain the endorsement
would be interested in buying it. Or I assume somebody who
would be interested in converting it to other uses----
Mrs. Chenoweth. Why would we----
Mr. Kirk. [continuing] would be interested in buying it.
Mrs. Chenoweth. [continuing] as lawmakers assume that under
these sets of circumstances a forced sale under these sets of
circumstances would bring a full market-value price? And
therein lies the question with the taking.
Thank you, Mr. Chairman.
Mr. Kirk. Thank you, ma'am.
Mr. Saxton. Thank the gentlelady very much for her very
thoughtful questions. And I thank the panelists very much also
for their patience in sticking with us here today. Thank you
very much everyone for your participation, and the hearing is
adjourned.
[The prepared statement of Mr. Giles may be found at end of
hearing.]
[Whereupon, at 2:16 p.m., the Subcommittee adjourned
subject to the call of the Chair.]
[Additional material submitted for the record follows.]
Statement of Dr. David Evans, Deputy Assistant Administrator, National
Marine Fisheries Service, National Oceanic and Atmospheric
Administration, Department of Commerce
Thank you, Mr. Chairman, for the opportunity to present the
views of the Department of Commerce on the Americanization of
the U.S. fishing fleet and U.S. ownership of fishing vessels.
Before I focus on the main topic of this hearing, the
Americanization of U.S. fisheries, I would like to take this
opportunity to discuss briefly the issue of overcapacity and
overcapitalization. As noted in the letter of invitation, it
has become increasingly recognized both in the United States,
as well as many other countries, that excessive harvesting
capacity and investments in the harvesting sector are
contributing to the difficulty in developing management
policies to address widespread resource overutilization in
capture fisheries. In a global context, the Food and
Agriculture Organization (FAO) of the United Nations has
estimated excess capacity in world fisheries for the most
important commercial species at about 30 percent. From a
domestic standpoint, similar concerns have intensified in
recent years, and it now appears beyond doubt that a
significant number of our most valuable commercial fisheries
are burdened with excessive levels of harvesting capacity and
investment in that sector. The most obvious example of these
problems are the New England groundfish and scallop fisheries,
the West Coast groundfish fishery, and the Alaska crab fishery.
NMFS is heavily involved in both international and domestic
initiatives that we believe will help us better manage capacity
in the fishery sector. Internationally, NMFS is working with
the Department of State on an FAO-sponsored initiative on
managing harvesting capacity throughout the world. Recently,
FAO held a technical experts consultation in La Jolla,
California, which will result in a report on defining and
measuring harvesting capacity and analyzing the effectiveness
of possible remedies to the capacity problem. This report is
intended to provide the basis for the development of a FAO
global plan of action. In the domestic sphere, NMFS has
sponsored vessel and permit buyout programs in New England,
Texas, and the Pacific Northwest. The agency has been working
with both the Pacific (West coast groundfish) and North Pacific
Fishery Management (Alaska Crab fishery) Councils to review the
first industry funded buyout proposals developed under new
authority for fishing capacity reduction under the Magnuson-
Stevens Fishery Conservation and Management Act (MSFCMA). These
proposals have been initiated by the industry and are under
review by the appropriate Councils. In addition to buyouts, the
Councils continue to have the authority to design fishery
management programs and amendments on a case-by-case basis.
This allows Councils to recommend appropriate harvesting
regimes that meet the individual needs of specific fisheries.
Obviously, actions that remove and/or reduce excess harvest
capacity at the least economic and social costs are the most
desirable. We believe that the Councils provide an appropriate
mechanism for evaluating the best ways to maximize the benefits
to the industry while minimizing any potential costs and/or
social impacts from capacity reduction efforts.
Now, let me address the issue before the Committee today.
The Committee has expressed its interest in the Department's
evaluating of the Americanization of the fisheries off the
coasts of the United States. The term ``Americanization'' can
be characterized as actions taken over the last two decades to
ensure that the benefits derived from the use of Exclusive
Economic Zone (EEZ) resources are effectively channeled to U.S.
enterprises and, generally, to U.S. citizens. This effort began
in earnest with the passage of the original Fishery
Conservation and Management Act (FCMA) in 1976. The goals of
the FCMA were to phase out foreign fishing off U.S. coasts and
expand domestic capacity, optimize domestic benefits, achieve
and maintain optimum yield from each fishery on a continuing
basis, and enhance economic and employment opportunities. In
addition to establishing the 200-mile Exclusive Economic Zone,
the FCMA directed the Secretary of Commerce, through the
development of fishery management plans, to provide the
domestic fishing industry priority access to the fishery
resources in the EEZ.
In 1979, the Department undertook a major effort to study
the production potential and development patterns for
underutilized species, the social costs and benefits of
developing policy to accelerate utilization of fishery
resources in the EEZ, and the export market opportunities for
underutilized species. Based on these findings, the White House
established a fisheries development policy that found that
significant opportunities for industry expansion existed, that
a partnership between the Federal Government, state and local
governments, and the fishing industry was needed; that each
region had different problems to be addressed; and that
development for all sectors of the U.S. industry should be
considered.
This policy led to the enactment of American Fisheries
Promotion Act of 1980 (AFPA) which was directed towards
expanding commercial and recreational fishing efforts in
underutilized fisheries. The amendments specifically authorized
financial assistance to industry through a competitive grant
program (the Saltonstall/Kennedy grants program); supported the
development or expansion of market opportunities for U.S.
fishery products; and allowed foreign access to fishery
resources in exchange for ``chips,'' including trade
concessions; harvesting technology transfers, foreign
investment in U.S. processing facilities, and over-the-side-
sales of U.S.-harvested fish (joint ventures). The ``Processor
Preference Amendment'' to the MSFCMA was enacted in 1982 to
give U.S. processors preference over joint venture processors
for fishing allocations. This had the effect of accelerating
the phase-out of joint venture processing and boosting
investment in U.S. harvesting and processing capacity. Finally,
the 1987 Anti-Reflagging Act (ARA) sought to tighten domestic
ownership requirements by increasing the minimum domestic share
to 51 percent. During the period covered above, foreign fishing
operations in the U.S. EEZ were progressively reduced and
finally eliminated, and the harvesting sector was--at least
apparently--fully Americanized by the end of the last decade.
The most straightforward way of determining whether the
goal of Americanizing the U.S. fishing fleet has been achieved
is to review the level of foreign fishing in the EEZ under
General International Fisheries Agreements (GIFAs). GIFAs
provide a mechanism by which a foreign nation can petition the
U.S. for access to stocks for which U.S. harvesting effort is
expected to take less than the total allowable harvest for that
year. Participation in a GIFA is the only way foreign fishing
vessels can participate in U.S. fisheries.
With the largest EEZ of any country in the world, the
United States historically shared significant quantities of its
fisheries resources with GIFA partners. The United States has
negotiated GIFAs with many countries under authority of Section
201 (c) of the MSFCMA. GIFAs' set forth the terms and
conditions under which foreign fishing activity may be
permitted within the U.S. EEZ. I say ``foreign fishing
activity'' because the MSFCMA broadly defines the word
``fishing'' so as to include, for example, at-sea processing.
The United States currently has GIFAs in force, or is taking
steps to extend GIFAs, with Estonia, Latvia, Lithuania, China,
Poland, and Russia. In addition, the United States has had
GIFAs with Bulgaria, Cuba, Denmark, European Union, German
Democratic Republic, Iceland, Japan, Korea, Mexico, Norway,
Portugal, Romania, Spain, and Taiwan.
GIFA partners were also permitted to send processing
vessels into U.S. waters to receive U.S.-harvested fish under
joint venture arrangements, but these activities dwindled in
the early l990s. At present, the only foreign fishing activity
occurring within U.S. jurisdiction is joint venture processing
of U.S.-harvested fish off the northeast coast. We have
permitted joint venture processing for Atlantic mackerel and
herring by two processing vessels from Estonia and two others
from Lithuania. Russia is preparing an application for one
additional vessel. The total amount of fish available for these
activities is 15,000 metric tons of mackerel and 40,000 metric
tons of herring.
Activities in the Northeast under these permits provide a
small but important outlet for U.S. fishermen who are coping
with our rebuilding programs for the groundfish stocks. They
have enabled four U.S. vessels from the States of Massachusetts
and New Jersey to harvest almost 2,000 metric tons of mackerel
and almost 500 metric tons of herring worth $375,000 and
$30,000, respectively. Our rebuilding programs are headed in
the right direction, and, in the meantime, delivering product
to foreign processing vessels has allowed U.S. fishermen to
continue to earn income during the rebuilding period for the
major U.S. stocks.
We have also issued transshipment permits under Section
204(d) of the Magnuson-Stevens Act to one vessel each from
Cambodia, Russia, and Panama to receive and transport processed
mackerel from these operations. In addition, last year we
issued transshipment permits to 14 Canadian herring transport
vessels operating in the Gulf of Maine, as provided for under
Section 105(e) of the Sustainable Fisheries Act.
While the Department can state that the Americanization of
the U.S. fleet has been achieved, based on the relatively low
level of GIFA-related fishing activity, it cannot provide the
Committee with a clear picture of the ownership structures of
the U.S. fishing fleet. The 1987 Anti-Reflagging Act sought to
tighten domestic ownership requirements by increasing the
minimum domestic ownership share to 51 percent but only for
vessels documented after the date of enactment. However, it is
clear that significant foreign participation remains because
our maritime and cabotage laws enable foreign firms to retain
and even increase ownership shares in some segments of the U.S.
fishing fleet. While Commerce is not responsible for
administering the ARA, welfare committed to working closely
with the U.S.C.G. to en-
sure that all U.S. fishing vessels are properly documented
before being allowed to participate in federally managed
fisheries. However, fishing vessels documented prior to
enactment of the ARA are exempt from the ownership requirements
of that statute, resulting in approximately 25,000 U.S. fishing
vessels for which there is a lack of knowledge about ownership.
This lack of information constrains our ability to provide an
analysis of the financial characteristics of the U.S. fishing
fleet.
The Department applauds the Committee for its efforts to
deal with national policy on the issues of excess harvesting
capacity and Americanization. However, our fisheries are highly
diverse and vary substantially in the nature of the fishing
vessels deployed in different regions and in fisheries taking
different species. In addition, our limited knowledge suggests
that levels of foreign investment and ownership differ markedly
from region to region. We need to be sensitive to the differing
needs in various fisheries. While it would be appropriate for
Congress to continue with the established trend of
prospectively Americanizing U.S. fisheries, including
increasing the U.S. ownership requirement, I would urge
Congress to carefully examine any retroactive application of
the ownership requirement. Such a measure could have possible
unintended impacts on the financial foundation of those sectors
of the fishing industry currently exempt from ownership
requirements and who currently rely on foreign investment. The
retroactive application of ownership requirements could also
give rise to questions concerning compliance with U.S.
obligations to foreign investors under certain international
agreements.
The National Marine Fisheries Service is prepared to work
with the Councils, the various fishery constituencies, and the
Congress to determine the most appropriate course of action for
our Nation's fishermen and fisheries. It is the Department's
desire to reduce levels of harvesting capacity among all
classes of fishing vessels to levels that are sustainable and
provide the greatest economic benefit to the fishing industry
and our Nation.
Mr. Chairman, this concludes my remarks and I am prepared
to respond to questions from Members of the Committee.
------
Statement of Rear Admiral Robert C. North, U.S. Coast Guard, Department
of Transportation
Good morning, Mr. Chairman. I am pleased to represent the
Coast Guard before this Committee's oversight hearing on
Americanization of the U.S. fishing fleet. The Coast Guard is
the agency responsible for implementing the provisions of the
Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987
(Public Law 100-239), commonly known as the Anti-Reflagging
Act.
The primary purpose of the Anti-Reflagging Act was to
prohibit the reflagging of foreign built processing vessels
under the Magnuson Fisheries Conservation and Management Act.
The Anti-Reflagging Act harmonized fisheries and maritime laws.
It did this by imposing similar requirements regarding the
documentation, ownership, manning, and construction of vessels
engaged in the fisheries trade as are imposed on vessels
engaged in coastwise trade. The Act also broadened the
definition of fisheries to include activities previously
excluded. This harmonization was accomplished by modifying the
U.S. documentation laws so that only U.S. built vessels are
admitted into fishery related activities, and vessels lose
fisheries privileges if rebuilt in a foreign country.
Prior to enactment of the Anti-Reflagging Act, vessels
engaged in fish processing activities were not required to be
documented with a fisheries endorsement. As a result, it was
possible to use foreign-built vessels for fish processing
activities. Following enactment of the Anti-Reflagging Act,
documentation with a fisheries endorsement is required for fish
processing.
The Anti-Reflagging Act amended the ownership requirements
for vessels in the fisheries trades. Prior to enactment of the
Anti-Reflagging Act, it was possible for corporations organized
under U.S. laws and meeting citizenship criteria for the
corporate president, chairman of the board, and control of the
board of directors, to document vessels for use in U.S.
fisheries; even if 100 percent of the stock was owned by
foreign citizens. Today, U.S. citizens must own 51 percent of
the stock, except for a vessel that is grandfathered from the
American control provisions of the Anti-Reflagging Act.
The Anti-Reflagging Act also addressed the past practice of
using foreign crew and officers on commercial fishing industry
vessels. Today, the citizenship requirements for fishing
industry vessels are identical to the requirements for other
commercial vessels in the Exclusive Economic Zone; except when
fishing exclusively for highly migratory species.
To carry out its responsibilities under the Anti-Reflagging
Act, the Coast Guard has amended its regulations in Title 46
Code of Federal Regulations. These regulations are enforced in
the Coast Guard's daily regulatory activities and in our
compliance and enforcement boarding activities.
Two portions of the Anti-Reflagging Act proved problematic.
These were the provisions intended to protect the interests of
investors already committed to the U.S. fisheries. These
provisions dealt with foreign rebuilding and ownership. I will
address each separately, because each has had a different
impact on the Americanization of the U.S. fishing industry.
Prior to the Anti-Reflagging Act, fish harvesting vessels
had to be built in the U.S., but could be rebuilt abroad.
Section 3 of the Anti-Reflagging Act, among other things,
amended 46 U.S.C. 12108 by prohibiting vessels seeking fishery
endorsements from being rebuilt in foreign shipyards. Section 4
of the Anti-Reflagging Act made new 46 U.S.C. 12108(a)(3)
inapplicable to a vessel which (1) was built in the United
States before July 28, 1987 and (2) was rebuilt in a foreign
country under a contract entered into before July 11, 1988, and
(3) was purchased or contracted to be purchased before July 28,
1987 with the intent to use the vessel in the fisheries. This
rebuilding savings clause, or grandfather provision, also
required that a vessel rebuilt under the above circumstances
had to be redelivered to the owner before July 28, 1990.
Because the window of eligibility for this exemption has long
passed, no additional vessels may be rebuilt outside of the
U.S. and enter or reenter the U.S. fisheries. Furthermore, no
additional foreign built vessels may be documented for use as
fish processors.
Section 7 of the Anti-Reflagging Act, among other things,
amended 46 U.S.C. 12102 by requiring a majority of voting
shares in a corporation owning a fishing vessel to be owned by
U.S. citizens. Section 7 of the Act also provided a savings
clause, or grandfather provision. Under this grandfather
provision, the ``American control'' provision requiring 51
percent U.S. ownership does not apply if before July 28, 1987
the vessel was (1) documented and operating as a fishing vessel
in the EEZ; or (2) was contracted for purchase for use as a
fishing vessel in the U.S. fisheries. The Coast Guard,
following careful examination of the provision of the Anti-
Reflagging Act grandfathering vessels from the American control
provision, concluded that the grandfathered provision ran with
the vessel. Although this was seemingly contrary to the purpose
of the law, grandfather provisions by their very nature run
contrary to the overall purpose of a statute. The Coast Guard
was aware there were many persons who believed the ownership
grandfather provision should terminate on sale or transfer of
the vessel. However, after deliberating this issue, the Coast
Guard concluded the plain language of the statute did not allow
the Coast Guard to adopt a rule that the ownership grandfather
provision's protection terminates when there is a change of
ownership or control. As a result, almost 28,000 vessels
currently documented for the fisheries are eligible for the
ownership grandfather. This means that they can be sold and
still retain full fisheries privileges, without having to meet
the 51 percent U.S. citizen ownership provisions. Furthermore,
those vessels can be rebuilt in the U.S. into much larger
vessels, and still be employed in the fisheries by foreign
controlled corporations.
Recently, the Senate began consideration of the American
Fisheries Act of 1998 (S. 1221), a bill which, among other
things, directly addresses the problems that arose from the
ownership and rebuild grandfather provisions of the Anti-
Reflagging Act.
First, S. 1221 would repeal the ownership grandfather
effective 18 months after enactment. In addition, it would
increase the American control provisions for entities owning
fishing vessels from 51 to 75 percent. Entities currently
owning documented fishing vessels and which meet the majority
American control provisions of the Anti-Reflagging Act would
have 18 months to conform to the new standard. The proposed
ownership standard would place fisheries on a par with the
ownership standard for coastwise trade.
Additionally, S. 1221 would also provide for the orderly
phase out of larger vessels, including all of the processing
vessels known to have been deemed grandfathered from the
rebuild prohibition of the Anti-Reflagging Act. This would
remove the remaining 20 vessels which were rebuilt foreign
under the grandfather provision of the Anti-Reflagging Act.
The Coast Guard appreciates the opportunity to testify
about this important matter and stands ready to work with the
Congress on this issue. I would be happy to answer any
questions you may have.
------
Statement of Jim Gilmore, At-Sea Processors Association
Thank you, Mr. Chairman and Members of the Committee for
the opportunity to testify before the Subcommittee on issues
relating to the conduct of the North Pacific fisheries,
including the relative contributions of various sectors of the
fishing and fish processing industry to the domestic economy. I
am Jim Gilmore, Director of Public Affairs, for the At-sea
Processors Association (APA).
APA represents companies that operate twenty-four U.S.-flag
at-sea fish processing vessels. APA's catcher/processors are
principally engaged in the Bering Sea pollock fishery and the
West Coast whiting fishery. By volume, these two fisheries
account for almost 30 percent of all fish landed in the U.S.
Over 90 percent of the fleet's revenues are derived from its
participation in these two fisheries. Pollock and whiting are
harvested using trawl nets, cone-shaped fishing nets towed
behind the vessel in the middle of the water column. These two
fisheries are widely recognized as two of the cleanest
fisheries in the world, that is, the target species comprise
about 98 percent of the catch.
In the context of this hearing on the status
Americanization, it is important to emphasize that the fleet is
entirely composed of American-flag vessels operated by U.S.
corporations. The fleet substantially exceeds Federal
requirements that at least 75 percent of the crewmembers on
board U.S. fishing and fish processing vessels be American
citizens or qualified U.S. residents. APA estimates that over
90 percent of the workforce in the pollock catcher/processor
fleet consists of American citizens or permanent U.S.
residents. The at-sea pollock processing fleet alone directly
employs about 4,000 American workers. A majority of the workers
live in Washington state, but Alaska, Oregon, California and
Idaho residents are also strongly represented.
American catcher/processor vessels supply substantially
more of their products to the domestic consumer market than
their competitors. Our principal competitors in the pollock
fishery are onshore processors located at, or near, Unalaska on
the Aleutian Islands chain. Two Japanese multinational seafood
companies, Nippon Suisan and Maruha, own or control roughly 70
percent of the Bering Sea onshore pollock processing capacity.
Under current allocations, the North Pacific Fishery Management
Council reserves more than one-third of the Bering Sea pollock
harvest for an onshore processing sector that is dominated by
Nippon Suisan and Maruha.
Unlike the at-sea processing sector, there is no U.S. hire
requirement applied to onshore processors. A study commissioned
by the National Bank of Alaska reports that onshore processors
employ a high percentage of Third World foreign guest workers
who live in company bunkhouses and send home most of their
wages. Virtually all of the onshore pollock production is made
into surimi, most of which is exported to Japan for valued-
added secondary processing and distribution.
The balance of APA's testimony focuses on the following
four issues:
1. The U.S.-flag pollock catcher/processor fleet provides
greater national benefits than competing industry sectors. The
U.S.-flag fleet provides family wage jobs for approximately
4,000 workers. A recent State of Alaska study reported wages in
the at-sea sector are two and one-half times higher than wages
paid to workers in onshore processing plants. At-sea processors
also provide a significantly higher percentage of pollock
products to the domestic market than onshore competitors, thus
creating jobs and wealth in the U.S. through value-added
activities. Because fish are processed within hours of being
caught in the at-sea sector, higher quality is also achieved;
therefore, export earnings are maximized on pollock products
that are shipped to overseas markets.
2. Twenty-three U.S. vessels were rebuilt abroad in the 1980's
in accordance with requirements of the Commercial Fishing
Industry Vessel Anti-Reflagging Act of 1987 (the Anti-
Reflagging Act) and documented as vessels of the United States
with fisheries endorsements. The vessels received U.S. Coast
Guard letter rulings approving their conversion to catcher/
processors. Seventeen of these vessels currently participate in
the Bering Sea pollock fishery, comprise more than half the
pollock catcher/processor fleet, and enhance U.S.
competitiveness in the seafood industry. The right of these
vessels to continue to participate in the fishery should not be
in question.
3. All sectors of the Bering Sea pollock fishing industry are
responsible for the overcapitalization that has occurred in the
harvesting and processing sectors. Congress ought not to
legislate certain participants out of business for the benefit
of companies seeking preferential access to fishery resources,
including Tyson Foods which is a recent and appar-
ently unsuccessful entrant into the fishery. Competing
interests should work together to resolve the problem of
overcapitalization in a manner fair and equitable to all
participants.
4. APA supports eliminating the ownership grandfather contained
in the Anti-Reflagging Act, thus requiring at least 51 percent
or more of the stock in U.S. corporations owning fishing and
fish processing vessels be held by U.S. citizens.
1. The At-sea Processing Sector Provides the Greatest Benefits to the
Nation.
The Magnuson-Stevens Fishery Conservation and Management Act (the
Magnuson-Stevens Act) was amended in 1978 to emphasize the need ``for a
national program for the development of fisheries which are
underutilized or not utilized by the United States fishing industry,
including bottom fish off Alaska. . .'' At that time, the enormous and
healthy North Pacific groundfish fishery was dominated by foreign-flag
fishing and fish processing vessels because the U.S. industry lacked
sufficient harvesting and processing capacity.
APA represents the U.S.-flag catcher/processor fleet that
contributed substantially to achieving Americanization of the
fisheries. The association's member vessels cover the spectrum from
vessels with little or no foreign investment to vessels in which
foreign investment is substantial. We also represent vessels that were
built or rebuilt exclusively in the U.S. and those U.S.-built vessels
that were converted overseas in the 1980's in conformance with the
Anti-Reflagging Act. One thing that all of the vessels have in common
is that they participate in the sector of the Bering Sea pollock
industry that produces the greatest benefits to the U.S.
a. U.S.-flag Catcher/Processors Provide Family Wage Jobs for Americans.
As stated above, Federal law mandates that U.S. residents comprise
75 percent of the crew on board U.S.-flag at-sea fish processing and
fishing vessels. There is no similar requirement for the three large
companies operating onshore Bering Sea pollock processing plants. As
noted above, a report prepared for the National Bank of Alaska found
that foreign guest workers account for a significant percentage of the
work force in shoreside plants. A recent survey conducted by the Alaska
Department of Community and Regional Affairs discusses the wage
disparity between the onshore and at-sea processing sectors. Wages for
crew members on catcher/processors are about two and one-half times
higher than for employees holding comparable jobs onshore.
b. Catcher/Processors Maximize the Value of U.S. Fishery Resources.
Surimi and fillets are the primary products made from pollock. In
the pollock ``A'' season, valuable roe products are produced, the flesh
of the pollock is then processed into fillet and surimi products. With
respect to the principal processed products, surimi accounts for about
60 percent of the catcher/processor fleet production; fillet-type
products account for 40 percent. The product mix for the Japanese-
dominated onshore processing sector is about 90 percent surimi and 10
percent fillets.
Most surimi is exported to Asian markets, principally Japan, where
Nippon Suisan's and Maruha's secondary processing plants and
distribution networks capture the added value. In short, Nippon
Suisan's and Maruha's U.S. subsidiaries are geared towards capturing
America's pollock resource primarily to support parent company
operations in Japan.
In testimony provided to the Senate Commerce Committee in March,
major domestic seafood buyers, Long John Silver's, Gorton's Seafoods,
and LD Foods stated that the Japanese owned plants produce surimi
regardless of how low surimi prices might drop or fillet prices might
rise. Domestic seafood buyers are placed at a significant disadvantage
in attempting to purchase pollock products from onshore processors
because production by the Japanese-owned plants is dedicated almost
entirely to feeding the home market of these vertically integrated
multinationals.
The U.S.-flag catcher/processor fleet's sales of pollock fillets to
the domestic market provide additional evidence of how the at-sea
sector provides greater national benefits than its onshore competitors.
By relying on the domestic market for 40 percent of our sales, jobs and
value are created not only at the secondary processing stage but
throughout the distribution chain to retail and food service outlets.
The benefits are not inconsequential since last year the catcher/
processor fleet produced 100 million pounds of pollock fillet-type
products.
In addition to the issue of product mix, quality issues affect
value. The National Marine Fisheries Service's (NMFS') testimony to the
Senate Commerce Committee on S. 1221 confirmed that at-sea processed
pollock products are generally of higher quality and consequently
command a higher price in the marketplace. Thus, in the surimi market,
U.S. export earnings are maximized by at-sea processing of pollock.
Because we earn higher prices for our products, catcher/processors that
supplement their own harvests by purchasing fish from catcher vessels
provide the ancillary benefit of paying higher prices to fishermen than
our shoreside competitors.
Catcher/processor production of fillet products reduces U.S.
dependence on the Japanese market for seafood sales. Currently, the
troubled Japanese economy, and the accompanying decline in the value of
the yen, means U.S. producers are facing near record low prices for
surimi products. Meanwhile, the domestic pollock fillet market is quite
strong. Maintaining a viable and diverse catcher/processor fleet that
adjusts its product mix in response to market conditions will enable
the U.S. to realize greater national benefits from fishery resources.
c. Catcher/Processors Offers Greater Opportunities for Fishing
Communities.
Recent changes to the Magnuson-Stevens Act require consideration of
the needs of fishing communities. The at-sea fish processing sector,
particularly the catcher/processor fleet, makes vital contributions to
Northwest fishing communities by providing direct and indirect
employment for thousands of fishermen, processors and support industry
personnel. The importance of the fleet to the maritime economy should
not be overlooked. The U.S.-flag catcher/processor fleet spends $15-20
million annually in Northwest and Alaska shipyards. This economic
activity combined with the other substantial contributions of the fleet
to local communities prompted the Washington State Labor Council and
the AFL-CIO's Maritime Trades Department to oppose proposals to revoke
fisheries endorsements for vessels in the fleet.
The catcher/processor fleet also makes important economic
contributions to the Alaskan economy. In 1991, the catcher/processor
fleet initiated training and hiring programs for residents of Western
Alaska native communities, a precursor to the Community Development
Quota (CDQ) program. The CDQ program implemented a year later
formalized efforts to create jobs and economic opportunities for more
than 50 Western Alaska native communities. Catcher/processor companies
became partners in the six CDQ groups that formed. Two of the CDQ
groups have invested in at-sea processing vessels or in companies that
operate such vessels. Further consolidation or shrinking of the fleet,
particularly by legislative fiat, threatens those investments. It could
also reduce the value of the 200 million pound annual CDQ pollock
apportionments since fewer companies would be left to bid on contracts.
It is also important to note that in addition to providing an
important market for pollock fishermen, catcher/processors provide
alternative marketing opportunities in Alaska's salmon fishery. Some
catcher/processors also operate solely as motherships in the Pacific
whiting fishery taking deliveries from smaller Northwest trawl fishing
vessels.
This situation contrasts with the onshore pollock processing plants
that are located in only two Alaska communities, Unalaska and Akutan.
No doubt, the onshore Bering Sea pollock plants make important economic
contributions in the area, but perhaps less so than one might think.
For example, the local tribal council in Akutan wrote that ``few local
residents have elected to work at the (Trident Seafoods) plant because
of the conditions related to processing line jobs: very long hours at
minimum wages.'' With a high percentage of foreign guest workers
employed onshore, operating in areas remote from other Western Alaska
communities, and producing primary processed products for overseas
parent companies, Congress should carefully consider the effects of
proposals that harm U.S.-flag catcher/processors.
2. The Growth of the Catcher/Processor Fleet, While Rapid, Was
Anticipated. The Fleet, Including Vessels Re-built Overseas in the
1980's, Enhances U.S. Competitiveness.
In 1987, most of the Bering Sea pollock harvest was being harvested
by U.S.-flag fishing vessels, but was being processed on board foreign-
flag processing vessels operating in the U.S. 200-mile zone. The U.S.
fishing industry was slowly making progress to develop domestic
processing capability, principally by building catcher/processor
vessels. The priority accorded U.S. processors under the Magnuson
Stevens Act over foreign processors was helpful, but there were many
hurdles to overcome, including acquiring state-of-the-art technology,
gaining market access in Japan, and perhaps most challenging, obtaining
financing and willing investors.
Congress recognized that one circumstance could preclude
development of domestic processing capability--the right of foreign-
built, foreign-flag processing ships to simply re-flag U.S. To prevent
the reflagging of these vessels, which were fully amortized and would
make development of a U.S.-flag catcher/processor fleet problematic,
Congress acted to bar the reflagging of foreign built processing
vessels to U.S.-flag.
Testimony provided in mid-1987 at Congressional hearings on
legislation to bar reflagging affirmed U.S. fishing companies intent on
harvesting and processing pol-
lock were purchasing U.S. vessel hulls for the purpose of rebuilding
them overseas into catcher/processors. It was already common knowledge
that U.S. hull vessels were being sought for these planned conversions.
In January 1987, the Maritime Administration even placed advertisements
in fishery trade publications offering for sale offshore oil industry
vessels that had been repossessed by the agency, vessels which were
``suitable for conversion to a number of fishing applications.''
Foreign rebuilding of U.S.-built vessels for the purpose of
operating in U.S. fisheries was permitted prior to enactment of the
Anti-Reflagging Act. The decision to take these projects abroad was not
surprising; after all, foreign shipyards had been building catcher/
processors since the 1950's. U.S. shipyards had no experience in
constructing fishing vessels that included state-of-the-art processing
facilities on board the vessel. It was clear that conversions would
entail significant rebuilding since accommodating an onboard surimi
processing plant, quarters for a crew of 100 or more, adequate galley
facilities, and other non-fishing functions is virtually impossible to
fit into a vessel smaller than 275 feet in length. Bob Morgan of
Oceantrawl, a company that rebuilt overseas three of the largest
vessels in the Bering Sea pollock fishery, described the scope of the
vessel projects in testimony before the Senate Commerce Committee.
Lists of vessel projects were circulated in Congress and dozens of
overseas rebuild projects were identified. Identifying potential
business. some U.S. shipyards lobbied Congress to expand the scope of
the legislation beyond simply barring the reflagging of foreign built
processing vessels. The yards sought to limit foreign rebuilding of
U.S. vessels as well. Congress acted to address shipyard interests
while protecting investments made by those already engaged in overseas
conversion projects. On July 28, 1987 the House Merchant Marine and
Fisheries Committee ``marked-up'' anti-reflagging legislation that
provided a rebuild ``grandfather'' to U.S. vessels being converted
overseas to catcher/processors as long as the vessel was contracted for
purchase by the bill's date of enactment.
In other words, the Committee created a window for new projects
beyond those projects already in the pipeline on the date of the
Committee ``mark-up.'' By July 28th, twenty-four vessels had already
received Coast Guard rulings approving the planned overseas conversions
as consistent with existing law. A total of 36 vessel projects had been
identified by the date of the ``mark-up.'' A list circulated by Marco
Shipyard on August 3, 1987, just one week after the ``mark-up'' claimed
that more than 100 foreign rebuild projects were planned. With this
information in hand, the rebuild provision was tightened significantly
during House floor consideration of the anti-reflagging legislation in
November, 1987. A retroactive provision was added providing that only
vessels contracted for purchase by July 28, 1987--the date of the House
``mark-up,'' not the date of enactment--were eligible for the rebuild
grandfather. The bill even included language to make eligible for
rebuilding abroad one vessel project that did not meet the revised,
stricter standards included in the final version of the Act.
Since 1987, Congress has not held a single hearing, nor has
legislation been introduced, that evidenced concern about the number of
rebuilt catcher/processors qualified to participate in U.S. fisheries
under the rebuild ``grandfather'' provisions of the Anti-Reflagging
Act. There was an unsuccessful court challenge to the Coast Guard's
interpretation of the ownership grandfather. In a unanimous opinion the
Court of Appeals for the District of Columbia ruled that the plain
language of the statute required the Coast Guard to interpret the
statute as it had.
A 1990 General Accounting Office report found that passage of the
Anti-Reflagging Act effectively limited the rebuilding of U.S. vessels
abroad. No foreign rebuilt vessels, or any other pollock catcher/
processors for that matter have entered the fishery since 1990. The
Anti-Reflagging Act has been amended once since 1987. The 1989 Coast
Guard authorization bill contained a provision providing an exemption
from the Anti-Reflagging statute to allow a foreign built vessel to be
reflagged and to enter the Bering Sea pollock fishery as a mothership
vessel. In short, two years after enacting legislation to bar the
reflagging of foreign vessels as U.S. processors and to limit foreign
conversions of U.S.-built vessels, Congress made a special exception to
allow a foreign built vessel to enter the fishery. Ironically, this
late entrant into the fishery, which is controlled by Maruha, will not
lose its fisheries endorsement under Senate legislation that eliminates
certain U.S.-built, foreign rebuilt catcher/processors.
3. All Sectors of the Bering Sea Pollock Fishery Are Responsible for
Overcapitalization and Should Work Cooperatively on a Solution.
Overcapitalization in the Bering Sea pollock fishery is a serious
concern. The fishery management regime, which rewards those who catch
fish the fastest, creates an incentive for continued capitalization by
participants. Fishermen and processors alike have obliged. Neither the
current moratorium on new vessel entry into the fishery, nor the
approved license limitation program developed by the North Pacific
Fishery Management Council, address the issue of overcapitalization
because neither management measure stops the ``race for fish.'' As a
result, virtually all participants in the pollock industry--onshore
plants, catcher vessels, and at-sea processors--contribute equally and
substantially to overcapitalization.
The economic pressures sparked by overcapacity that face the
fishing industry have led many industry members to seek a rational
management regime that focuses on ending the race for fish. Others,
such as Tyson Foods, which bought into the fishing industry in 1992,
and Trident Seafoods, are seeking to legislate competitors out of
business. Their preferred vehicle is S. 1221, the Senate bill which
revokes fishery endorsements for certain U.S. vessels rebuilt overseas
in the 1980's. Their proposal to remove fishing rights from 18 U.S.-
flag catcher/processors valued at approximately $400 million raises
numerous issues of policy and law, including assertions that the
revocation of fisheries endorsements constitutes a ``takings.'' Of
course, it will be left to the courts to determine the
constitutionality of any such action, but it is clear that serious
equity issues are raised by proposals to revoke fishing rights for
vessels that have participated lawfully and responsibly in the Bering
Sea pollock fishery since 1990 and earlier. Regardless of the legal
avenue available to vessel owners, revocation of fishing rights for
vessels will lead to substantial economic and social hardship for
affected workers, disruptions to the market place, and other
significant adverse impacts.
Even if the group of vessels targeted by S. 1221, or any other
group, is excluded by law from the North Pacific groundfish fishery,
overcapitalization would remain a problem. NMFS concluded in its Senate
Commerce Committee testimony on S. 1221 that arbitrarily revoking
fishing privileges for certain vessels is not an effective method of
addressing overcapitalization. The agency stated that capacity removed
from the pollock fishery without ending the race for fish would be
replaced within one to two years.
It is important to remember that despite concerns about
overcapitalization, North Pacific fish stocks in general, and the
pollock resource in particular, are healthy and well managed. Despite
the relatively long-standing presence of excess harvesting and
processing capacity in the pollock fishery, fishery managers continue
to set the allowable biological catch (ABC) level at or below the safe
harvest level as determined by Federal, state and university
scientists. Catches are closely monitored and recorded by Federal
fishery observers onboard all vessels longer than 125 feet. Electronic
reporting of catch data ensures that harvest amounts are calculated on
a real time basis so the quotas are not exceeded.
a. Overcapitalization in the Onshore Pollock Processing Sector.
In 1992, the Federal Shoreside Processor Preference rule was
imposed requiring that 35 percent of the annual Bering Sea pollock
harvest be delivered onshore for processing. Three large seafood
companies, Nippon Suisan, Maruha and Trident Seafoods are the principal
beneficiaries of this fishery management regulation. Onshore
production, which increased significantly from 1987 to 1991, has
remained relatively stable during the 1990's. While production levels
remain relatively constant, the length of the onshore fishing season
has declined from about 150 days a year when the 1992 Shoreside
Preference rule was implemented to 75 days in 1997. According to the
Department of Commerce's 1990 report on the Anti-Reflagging Act,
onshore pollock processing capacity was 290,000 metric tons during the
year round fishery in 1988; onshore capacity in 1998 is at least 1
million metric tons, or three times the annual onshore production
levels.
In sum, onshore processors do not compete against catcher/
processors in a race for the fish. They compete only against one
another. After years of expanding their plants, upgrading processing
equipment, and financing and purchasing catcher vessels with increased
fishing power and capacity, onshore processors are suffering the
consequences of overcapitalization. The onshore processors are
currently seeking a change in the Shoreside Preference rule that would
give them an increased percentage of the annual pollock harvest.
Because overcapitalization onshore is a self-inflicted problem, their
case for gaining an increased share of the pollock harvest is weak. To
increase their chances of acquiring a greater onshore pollock
allocation, the onshore processors' benefit from legislating catcher/
processors out of business and demanding their share of the harvest.
b. Both Catcher Vessels and Catcher/Processors Have Contributed to
Overcapitalization in the Harvesting Sector.
Some claim that the development of the U.S. catcher/processor fleet
preempted opportunities for catcher vessel operators. Those making that
claim point to catch to-
tals from the mid-1980's when only a half dozen U.S.-flag catcher/
processors were operating. At that time, virtually all of the harvest
was taken by catcher vessels operating in joint venture operations,
that is, they were delivering their catch to foreign-flag processing
vessels operating within the U.S. 200-mile zone. A number of catcher
vessel operators, taking advantage of U.S. processor preference
provisions in the Magnuson-Stevens Act, embarked on projects to build
U.S. catcher/processors. Thus, much of the harvest taken by the catcher
vessel sector in the mid-1980's and then by the catcher/processor
sector by 1990 went to the same individuals or companies; they had
simply made the transition to a more Americanized fishing industry.
Interestingly, since 1991 the catcher vessel sector has increased
its share of the annual pollock harvest from 35 percent to just over 50
percent. The catcher/processor sector share of the catch has declined
from 65 percent to just under 50 percent. The number of catcher boats
and the fleet horsepower have increased by more than 40 percent, the
tank capacity is up by one-third, and the catch per day has grown by
nearly 70 percent. These figures demonstrate dramatically that
overcapitalization in the catcher vessel sector continued unabated.
To be sure, the catcher/processor sector continued to add capacity
as well to try to stay competitive in the race for fish. The solution
to overcapitalization lies in adopting a rational fishery management
system that ends the race for fish and that is a position advocated by
the catcher/processor fleet (and the catcher vessel fleet) throughout
the decade. The solution is not to have Congress select allocation
winners and losers by summarily revoking fishing rights for some long-
term participants for the short-term benefit of a few.
4. APA Supports Eliminating the Anti-Reflagging Act Ownership
Grandfather.
The principal purpose of the Anti-Reflagging Act, as indicated by
its title, was to prevent the reflagging of foreign-built processing
vessels from foreign to U.S.-flag status. After considerable debate and
negotiation in Congress, an ownership provision was included. Prior to
passage of the Anti-Reflagging Act, there was no limit on how much, or
how little, interest foreign nationals could own in a U.S. corporation
operating fishing or fish processing vessels. The Anti-Reflagging Act
imposed a requirement that a minimum 51 percent interest in a
corporation owning a fishing or fish processing vessel must be held by
U.S. citizens.
A ``grandfather''provision was included and that right attached to
an existing qualified fishing vessel. There is no reference in the
statute to the ``grandfather'' right applying to the vessel owner and,
therefore, almost 30,000 fishing vessels enjoy ``grandfather'' rights
under the Act. Some assert that this result was not Congress intent,
but the legislative history of the Anti-Reflagging Act indicates
otherwise. It is replete with statements opposing limits on foreign
investment in U.S. corporations operating fishing and fish processing
vessels. It is not at all surprising that in the ``give and take'' of
the legislative process that compromise language would impose a
prospective ownership standard, but that existing vessels and vessel
projects would be ``grandfathered.'' The significance, of course, of
``grandfather'' rights running with the vessel, and not the owner of
the vessel, is that the ``grandfather'' does not expire when a transfer
of ownership in the vessel takes place.
The Coast Guard, relying on a plain reading of the statute, issued
a rule confirming that the ownership ``grandfather'' attached to the
vessel. The agency's interpretation was challenged in court. The U.S.
District Court of Appeals unanimously upheld the Coast Guard's
interpretation. Thus the situation today that most fishing vessels
remain ``grandfathered'' under the Act and are not subject to the 51
percent U.S. ownership standard adopted in 1987.
APA supports eliminating the ownership ``grandfather'' while
providing for a scheduled phase-in of U.S. ownership in corporations
operating fishing and fish processing vessels, at or perhaps above, the
51 percent level. If Congress acts to eliminate the ownership
``grandfather,'' APA suggests that the following points be considered.
First, companies should be granted sufficient time to come into
compliance with new ownership requirements. We suggest that Congress
establish a three-year time period. Second, preserve the
competitiveness of U.S. seafood companies in the world marketplace. If
Congress acts to increase the level of U.S. citizen ownership and
control in American corporations operating fish and fish processing
vessels, care should be given not to preclude, or impede, domestic
seafood companies from signing long-term marketing agreements with
foreign buyers or arranging for financing from abroad. Third, protect
the interests of U.S. shareholders in corporations required to
restructure their ownership because of a change in the law. The Senate
bill, S. 1221, imposes a 75 percent U.S. ownership and control
standard. Failure to meet that new standard would result in revocation
of a vessel's fisheries endorsement, rendering the vessel valueless for
use in U.S. fisheries. This provision raises a possibility that foreign
investors holding more than 25 percent ownership interest in vessels
might refuse to sell their share to their American partners. Faced with
a loss of fishing rights in the U.S., American partners could be
leveraged into selling their vessel (or buying out their foreign
partner) on unfavorable terms.
Domestic ownership raises another important issue. Serious
consideration should be given to the effects of foreign control of the
Bering Sea onshore pollock processing sector given the dominance of
Nippon Suisan and Maruha in the Japanese surimi market. If Congress
believes that limiting foreign investment in the fisheries is necessary
to increase national benefits, then perhaps similar ownership
limitations should be applied to the onshore processing sector. A
recent annual report issued by Maruha boasts that the conglomerate
controls 100,000 metric tons of surimi annually, or one-quarter of the
annual Japanese consumption. Nippon Suisan is a similar sized company.
Without extending limits on ownership to the foreign-dominated plants,
fishermen will continue to receive less than 9 cents per pound for
pollock while Nippon Suisan and Maruha realize all of the economic
benefits of value-added activities from primary processing through sale
to the Japanese consumer. These rules are at least as important to a
truly Americanized fishery as proposals requiring foreign divestment of
ownership in the catcher/processor fleet.
Once again, thank you for the opportunity to appear here today. I
am pleased to answer any questions that you might have.
______
Statement of Michael W. Kirk, Partner, Cooper, Carvin & Rosenthal,
PLLC, Counsel for the American Fisheries Act Coalition
Mr. Chairman, members of the Committee, I appreciate the
opportunity to be here today. I represent the American
Fisheries Act Coalition, an association of domestic fishing
vessel owners and operators. My purpose today is to lay to rest
an extremely tenuous argument made by some opponents of the
Senate bill that the legislation would work a taking of private
property without providing just compensation in violation of
the Takings Clause of the Fifth Amendment to the United States
Constitution.
Briefly, the American Fisheries Act is designed both to
further the long-standing congressional policy to
``Americanize'' United States fisheries and to address the
problem of over-capacity in those fisheries. The bill would
accomplish these objectives by (1) establishing a new
``corporate control'' standard for the owners of fishing
vessels seeking fishery endorsements; (2) closing certain
loopholes in the citizen control and foreign rebuild provisions
of the Commercial Fishing Industry Vessel Anti-reflagging Act
of 1987 that have allowed foreign-controlled and foreign-
rebuilt fishing vessels to obtain fishery endorsements; and (3)
prohibiting the issuance of new fishery endorsements for large
fishing vessels and requiring that the fishery endorsements for
certain such vessels be permanently surrendered.
Enactment of the bill will result in the loss of fishery
endorsements for certain United States flag fishing vessels
currently operating within the Exclusive Economic Zone
(``E.E.Z.''), including vessels that were purchased, built, or
rebuilt in reliance upon the loopholes in existing law making
such vessels eligible for fishery endorsements.
My partners Charles Cooper, Vincent Colatriano, and I have
analyzed the claim that the bill could effect a taking of
private property in some detail, and I summarize our
conclusions today. At the most fundamental level, the Senate
bill regulates access to the fish in the sea, and no one
asserts a property right to the fish.
As an initial matter, we have concluded that no reasonable
claim can be made that the Senate bill would result in a
physical taking of the vessels, for the bill neither directly
appropriates the vessels, nor ousts the owner of possession of
the vessels, nor requires the owner to acquiesce in a physical
invasion or occupation of the vessels. Indeed, the bill's
opponents do not claim that a physical taking would occur. Any
takings challenge, therefore, must allege that the bill effects
a ``regulatory taking'' of the vessels. Analysis under either
of the two broad conceptual approaches to regulatory takings
yields the inescapable conclusion that the bill does not effect
a regulatory taking of fishing vessels.
Opponents argue that, under the Supreme Court's decision in
Lucas v. South Carolina Coastal Commission, 505 U.S. 1003
(1992), the bill effects a taking of vessels because it somehow
denies the owners ``all economically beneficial use'' of those
vessels which no longer qualify for fishery endorsements. For
several reasons, the Lucas analysis is inapplicable to the
bill.
The Lucas decision contains language suggesting that the
``deprivation of all economically beneficial use'' analysis is
limited to real property. It is unlikely, therefore, that the
Lucas test would even apply to governmental regulation of
property other than land. But even if the Lucas test applies to
regulation of personal prop-
erty, it is unlikely that the value of affected fishing vessels
will be so significantly diminished by the bill that the bill
can be said to deprive vessel owners of all economically
beneficial use of their vessels. The ``all economically
beneficial use'' test, according to court decisions applying
it, means upwards of 90 percent of the fair market value of the
property in question. If the bill does in fact result in some
loss in value, the loss could not possibly amount to such a
high proportion of total value. For example, as to vessels
failing the bill's new corporate control test, the bill merely
requires domestic control which presumably could be effected by
a sale either of the vessel itself or of an interest in the
vessel-owning entity. Since any such sale would presumably take
place at a price at or approaching fair market value, any loss
in value would certainly constitute far less than all
economically beneficial use. Even vessels that are forced to
surrender their fishery endorsements would continue to be able
to fish in waters outside the E.E.Z. Finally, any vessels that
lose their ability to fish in the E.E.Z. could be converted to
economically beneficial uses other than fishing. Many of the
vessels in question, after all, were converted from non-fishing
uses in the first place. In fact, I understand that at least
one has actually been converted into a seismic research vessel,
and a number of vessels have been put to use in foreign waters.
The analyses put forward by the bill's opponents ignore these
alternatives.
Those who argue that the bill would effect a taking
similarly ignore an even more fundamental point. Since at least
1976, the Federal Government has maintained plenary authority
to regulate access to the E.E.Z. A fishery endorsement merely
allows fishing in the E.E.Z. subject to the government's
authority to regulate. A fishery endorsement does not give the
holder the assurance of use. To the contrary, fishing quotas in
the E.E.Z. can be reduced to zero. Moreover, an endorsement
holder has no right to exclude others from a given fishery--all
who meet statutory requirements are entitled to receive an
endorsement. Endorsement holders pay essentially nothing for
the endorsement itself. These features of the endorsements
confirm that a fishery endorsement is not private property; its
revocation is not a taking. Rather, the endorsement is merely a
permit to fish in waters over which the government retains
complete authority.
A long line of cases considering the revocation of permits
to perform activities--building, grazing, prospecting, mining,
traversing, and fishing--on public land and government
regulated waters holds that such revocations cannot rise to the
level of a Fifth Amendment taking. In one such case, the United
States Court of Appeals for the Eleventh Circuit noted that
``both Federal and other state cases stand for the proposition
that permits to perform activities on public land--whether the
activity be building, grazing, prospecting, mining or
traversing--are mere licenses whose revocation cannot rise to
the level of a Fifth Amendment taking.'' Marine One, Inc. v.
Manatee County, 898 F.2d 1490, 1492-93 (11th Cir. 1990)
(emphasis in original); see United States v. Locke, 471 U.S.
84, 104-05 (1985) (``The United States, as owner of the
underlying fee title to the public domain, maintains broad
powers over the terms and conditions upon which the public
lands can be used, leased, and acquired. . . . Claimants thus
must take their mineral interests with the knowledge that the
Government retains substantial regulatory power over those
interests.''); United States v. Chicago, Milwaukee, St. Paul &
Pac. R.R. Co., 312 U.S. 592, 596 (1941); Acton v. United
States, 401 F.2d 896, 899-900 (9th Cir. 1968), cert. denied,
395 U.S. 945 (1969); Osborne v. United States, 145 F.2d 892,
896 n.5 (9th Cir. 1944); Burns Harbor Fish Co. v. Ralston, 800
F. Supp. 722, 727 (S.D. Ind. 1992); Organized Fishermen of
Florida v. Watt, 590 F. Supp. 805, 815-816 (S.D.Fl. 1984),
aff'd sub nom. Organized Fishermen of Florida v. Hodel, 775
F.2d 1544 (11th Cir. 1985), cert. denied, 476 U.S. 1169 (1986).
In Acton, the Ninth Circuit held that a government license to
mine uranium on public land was not property which, when
canceled, entitled the licensee to compensation. Noting that
the plaintiff had made large expenditures in reliance on the
expectation that mining would be permitted to take place, the
court made clear that the value of government permits and
licenses does not transform a government privilege into
property protected by the Takings Clause. Relying on an early
Supreme Court decision involving grazing permits, the court
reasoned:
Unquestionably, the grazing permits were of value to the
ranchers. They were an integral part of the ranching unit--
indeed, the fee lands are practically worthless without them.
But, `the existence of value alone does not generate interests
protected by the Constitution against diminution by the
government, however unreasonable its action may be.'
Reichelderfer v. Quinn, 287 U.S. 315, 319, 53 S. Ct. 177, 178,
77 L.Ed. 331.
Acton, 401 F.2d at 900.
Particularly instructive is Organized Fishermen of Florida, which
considered whether the National Park Service's cancellation of permits
to engage in commercial fishing, as a preference to sport fishermen, in
waters enclosed by Everglades National Park constituted a taking of
private property. 590 F. Supp. at 815-816. The court held that despite
the long-standing practice of allowing commercial fishing in the area
in question, ``the annual permits are merely a license to conduct
commercial fishing activity, . . . [are] a privilege granted by the
Park Service, and [are] . . . by [their] very nature, revocable.'' Id.
at 815. Comparing the commercial fishing permit to the grazing licenses
considered in Acton, that held:
[A] permit for grazing has been considered ``a privilege which
is withdrawable at any time for any use by the sovereign
without payment of compensation.'' Similarly, plaintiffs in the
instant case have no Fifth Amendment taking claim.
Id. at 816 (citations omitted).
In sum, given that the Federal Government has plenary authority
over fishing in the E.E.Z. and that a fishery endorsement merely grants
to the holder the nonexclusive privilege to engage in commercial
fishing in the E.E.Z., the revocation of a fishery endorsement--like
the revocation of a grazing permit--does not trigger a claim for
compensation. Accordingly, any resulting loss of value in a fishing
vessel is also not compensable.
The same result is yielded under the ad hoc regulatory taking test
announced by the Supreme Court in Penn Central Transportation Co. v.
New York, 438 U.S. 104 (1978). This test calls for inquiry into (1) the
character of the governmental action, (2) the economic impact of the
action on a claimant, and (3) the action's interference with the
claimant's reasonable ``investment-backed'' expectations.'' See id. at
124; Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1005 (1984).
For many of the same reasons that the bill would not, under Lucas,
deprive vessel owners of all economically beneficial use of their
fishing vessels, it is doubtful that the ``economic impact'' of the
bill, under the Penn Central test, would be considered particularly
severe. These fishing vessels could be sold for fair market value, or
if not sold, would still be able to fish in waters outside the E.E.Z.,
and, under certain conditions, in waters within the E.E.Z. Moreover,
they can be converted to non-fishing uses.
The inquiry into the ``character of the governmental action'' also
weighs heavily against a finding that the bill effects a regulatory
taking. The bill merely seeks to refine standards for vessel
documentation and endorsement, and to redefine the conditions under
which foreign interests will be allowed to fish in United States
sovereign waters. Both of these areas are well within the Federal
Government's plenary and long-standing authority. The bill thus hardly
represents an initial Federal foray into a new area; nor is it a
dramatic departure from past regulatory practice.
These same considerations also defeat a claim that the bill unduly
interferes with the reasonable investment-backed expectations of vessel
owners. No provision of current law regarding the standards for issuing
fishery endorsements can be read to provide some sort of governmental
guarantee, contractual or otherwise, that those standards were
permanent. Any such claim would amount to the assertion that whenever
Congress tightens the standards for eligibility for Federal licenses or
permits, it must compensate the adversely affected licensees. Such a
rule would have the practical effect of handcuffing Congress from ever
increasing the standards or requirements for Federal licenses or other
privileges, and there is no principle of takings law that supports such
a far-reaching proposition. Moreover, as under the Lucas analysis, the
fundamental proposition that fishery endorsements, like other
governmental licenses, do not create property interests in the
licensees defeats any claim that the endorsements could form the basis
for some type of reasonable investment-backed expectation that an
endorsement, once obtained, would never be lost.
Our analysis, moreover, is unchanged by the United States Court of
Federal Claims' recent decision in Maritrans Inc. v. United States,
1998 WL 214268, No. 96-483C (Fed. Cl. Apr. 24, 1998), cited by some in
support of their arguments against the bill. In Maritrans, owners of
single hulled oil barges are claiming that Federal regulation which
phases out the use of single hulled oil vessels, in preference for
double hulled vessels for environmental reasons, constitutes a taking
of the single hulled barges. I should first note that the decision of
the court does not decide whether the phasing out of single hulled
tankers effects a taking. The opinion merely rejects two of the
arguments presented by the government that would have barred a claim.
But even if the court ultimately does order that compensation must be
paid, the case is easily distinguished from the line of cases I
described earlier concerning permits to use government land or waters.
That the bill's opponents have even cited Maritrans suggests the
difficulty they face fashioning a case that the bill takes private
property.
In summary, whatever policy considerations may guide the members of
this Committee as you deliberate over the merits of this legislation,
the potential that the Federal Government will be compelled to pay
compensation to the owners of affected fishing vessels can safely be
dismissed. Thank you.
______
Statement of Don Giles, President, Icicle Seafoods, Inc.
Thank you, Mr. Chairman, for the opportunity to provide a
statement for the record concerning Icicle Seafood's views on
legislation to Americanize the United States flag fishing
fleet.
By way of introduction, Icicle Seafoods started in 1965
when a group of local fishermen and businessmen purchased a
salmon cannery in Petersburg, Alaska. Today our seafood
processing company continues to be 100 percent American owned,
with a majority of our ownership held by Alaskan fishermen and
employees. Icicle employs, at peak, over 2500 workers at our
processing facilities in Alaska and Washington. As one of the
largest American seafood processing companies, we have
concentrated our business on all species of crab, fresh/frozen/
canned salmon, fresh and frozen halibut, herring, sablefish,
and surimi analog products. This year we are the crab
processing partner for four of the six CDQ groups in western
Alaska.
Icicle supports the goals of S. 1221, introduced by
Senators Stevens, Breaux, Murkowski, Hollings, and Wyden. We
believe that legislation should be enacted to Americanize our
fisheries by ``establishing a meaningful and enforceable
standard of U.S. citizen ownership and control for U.S. flag
vessels employed in the fisheries.'' Icicle also strongly
supports the revocation of the fishery endorsements of foreign
owned and foreign controlled factory trawlers that entered our
fisheries contrary to the intent of Congress. However, we do
have some concerns about the bill, which are explained below.
Americanization
As one of the few truly American seafood companies and one
of the only major independent Alaskan processors left, we
strongly support the full Americanization of our fishing
industry. Because we are one of the very few independents
within the seafood industry, we have no multi-national partners
pressuring us to pursue specific agendas, actions or policies.
We are concerned that S. 1221 may not be tough enough in terms
of preventing foreign owned companies from controlling fishing
and processing vessels. Today we have reason to believe there
are highly integrated foreign-owned corporations that control
fishing and processing vessels, as well as halibut and
sablefish ITQ's, contrary to the intent of the law. In this
regard Icicle would like to encourage the Subcommittee to
consider strict and enforceable standards, such as those found
in section 2 of the Shipping Act, 1916, to ensure that U.S.
fishing and fish processing vessels are truly controlled by
U.S. citizens.
Removal of Foreign Owned/Controlled Factory Trawlers
As a matter of fairness, we support the removal of the
seventeen or so foreign owned or controlled factory trawlers
that sneaked into our fisheries through a misinterpretation of
the law by the U.S. Coast Guard. During the debate on the
Commercial Fishing Industry Vessel Anti-Reflagging Act of 1987,
Icicle and two other American companies seriously looked into
the design, construction, and proforma of a new U.S. built
factory trawler. We collectively spent over $150,000 in
securing bids from four major American shipyards. However, we
ultimately came to the conclusion that it was not a prudent
investment, considering the amount of over-capitalization that
was pouring into the pollock fishery from foreign owned and
foreign built factory trawlers that jumped through the
loopholes of the 1987 Act. We believe our project was precisely
the type of investment that Congress intended to encourage
through the establishment of the American preference policy
that provides priority access to our fishery resources to
American fishermen and American processors. Icicle's plans to
participate in the Alaska groundfish fisheries were preempted
by foreign-owned and foreign built factory trawlers and we see
no reason that these vessels should be allowed to continue to
thwart the policies of the Congress.
Market Consolidation/Unintended Consequences
Icicle is concerned that if S. 1221 or similar legislation
is enacted into law, it could have the unintended consequence
of creating greater market concentration or excessive control
of the fisheries within the hands of a few huge domestic and
foreign controlled seafood companies. If pollock that had been
previously harvested and processed by the vessels eliminated
from the fishery through enactment of a new law now becomes
available to only the remaining pollock participants, the
effects will be detrimental. Under such a situation, their
power will increase as a result of a windfall profit and
increased impacts on the market. Some of these companies are
vertically integrated and/or are already dominant players,
therefore they would now become even more powerful. Such an
outcome could stifle competition within the industry and would
not be beneficial to United States fishermen or independent
shoreside processors like Icicle. Even though Icicle is not in
the business of harvesting or processing pollock, we could be
harmed by these unintended spillover effects of S. 1221 or
similar legislation.
One way to address this issue is to add a provision to the
legislation that would cap at current levels the amount of
quota any large seafood company/entity could control. The term
large seafood entity could be defined as any vessel owner or
corporation that controlled X percent or more of the pollock
landings over the previous three year period. We believe NMFS
and the Council have this vessel landing history readily
available. In determining who controls the quota NMFS should
apply criteria similar to those used to determine control under
section 2 of the Shipping Act, 1916, rather than the less
rigorous review used today in the halibut/sablefish fishery.
Such a provision would ensure that small vessels and processing
companies benefit from removing foreign owned or controlled
factory trawlers. Under this scenario, we would envision
increased competition to purchase, process, and sell pollock
end-products.
Another way to address corporate consolidation or excessive
control within the fishery is to take a portion of the
unallocated quota (quota made available as a result of removing
foreign owned or controlled factory trawlers) and make it
available to traditional American companies that were preempted
from entering the fishery by the foreign owned and built
factory trawlers. We think this approach would be good for the
industry and are confident that specific fair criteria could be
developed to guide this reallocation of quota to bona fide
American companies. These criteria could include a company's
history and investment in all fisheries, local employment,
history of processing in the Bering Sea area, ownership
structure, participation in community development programs and
evidence of specific plans or projects that did not go forward
because they were preempted by the foreign owned and built
factory trawlers.
Conclusion
Icicle hopes that our comments will be useful to you as the
Subcommittee considers legislation to continue the
Americanization of the fishery that began with the Magnuson-
Stevens Act. We support S. 1221 or similar legislation, and
encourage the Subcommittee to include measures to address the
concerns we have raised. If this were done, it would make the
bill much stronger, and we urge your prompt action on such a
bill. The long term health of the fishing industry makes it
critical that Congress act soon to fully Americanize our
fisheries and ensure that they are not dominated by huge
corporations.
------
Statement of TCW Special Credits, Los Angeles, California
Introduction
TCW Special Credits submits this statement to provide
comments with respect to the general subject of United States
ownership of fishing vessels and S. 1221, the American
Fisheries Act, and requests that this statement be made a part
of the June 4, 1998, hearing record.
TCW Special Credits is an affiliate of The TCW Group, Inc.,
a Los Angeles based investment management group that includes
Trust Company of the West, a California trust company and bank.
The TCW Group entities manage over $50 billion of assets on
behalf of public and private pension and retirement plans,
educational and college endowments, charitable foundations,
and, to a lesser extent, certain mutual funds. TCW Special
Credits is a California general partnership which serves as
investment manager of specific funds, trusts and separate
accounts under the TCW umbrella. As such, TCW Special Credits
is a registered investment adviser regulated by the U.S.
Securities and Exchange Commission pursuant to the Investment
Advisers Act of 1940, and is a Qualified Pension Asset Manager
regulated by the U.S. Department of Labor pursuant to the
Employees Retirement Income Security Act of 1994.
Total assets under management by TCW Special Credits are
approximately $1.5 billion today. Investors in these funds and
accounts, like the clients of Trust Company of the West
generally, consist mostly of large public and corporate pension
plans, charitable and educational trusts, as well as some
individual investors. Among the investors in the funds managed
by TCW Special Credits are pension funds of nine states and
municipalities, the endowments of 18 colleges and univer-
sities as well as 14 charitable foundations, and the retirement
plans of 12 of Fortune's top 200 companies.
TCW Special Credits, as agent and nominee of the above-
described funds and accounts, is the holder of record of a
first preferred ship mortgage on the factory fishing vessel
ARCTIC FJORD (Official No. 940866). The ship mortgage secures a
term loan made to Arctic Fjord, Inc., the owner of the vessel,
in the amount of $17 million.
As currently drafted, S. 1221 could substantially impair
the security interest of TCW Special Credits in the ARCTIC
FJORD. For the reasons set forth in this statement, TCW Special
Credits requests that the Subcommittee make changes in this
bill to avoid penalizing TCW Special Credits, which is a U.S.
investor in a company that is now wholly owned by U.S.
citizens, including the Bristol Bay Economic Development
Corporation.
Background of the Bill
S. 1221 would amend the vessel documentation laws of the
United States to establish a new rule of citizenship control
for vessels engaged in the fisheries of the United States. To
operate as a U.S. flag vessel in the navigable waters and 200-
mile exclusive economic zone, a fishing vessel must be properly
documented under Title 46 of the United States Code and owned
by certain qualifying entities. In 1976, when fisheries
jurisdiction was extended to 200 nautical miles in the Magnuson
Fishery Conservation and Management Act (now called the
``Magnuson-Stevens Act''), Congress rejected an amendment that
would have established a vessel citizenship/ownership
requirement similar to that required for vessels operating in
the coastwise trade. Instead, the less restrictive rule of
allowing foreign nationals to be equity investors (of up to 100
percent) in vessel-owning companies was continued. Douglas v.
Seacoast Products, 431 U.S. 265 (1977). It is clear that this
investment rule assisted the fairly rapid development of a
large fleet of U.S. factory trawlers sufficient in capacity to
exclude entirely the foreign fishing fleets that had dominated
fish harvests off the U.S. coast prior to 1974.
By the end of the 1980s, Congress became concerned about
the growth of the U.S. fishing fleet and the practice of
reflagging foreign-built and foreign-converted fishing/fish
processing vessels and enacted the Commercial Fishing Industry
Vessel Anti-Reflagging Act of 1987 (``Anti-Reflagging Act'').
Although justified in part by the purported need to conserve
the affected fish resources, support for this legislation
primarily emanated from competitive and allocation pressures
between and among various sectors of the fishing industry,
primarily in the Pacific Northwest. Moreover, for many years,
domestic fishing industry interests have been concerned about
foreign investment generally, due to the fact that overseas
investors play such a large role because of strong foreign
demand for U.S. seafood products, in particular salmon,
herring, crab, and groundfish from Alaska. Congress clearly
believed that policies should be established that reduced
foreign involvement in U.S. fisheries and, concomitantly, that
benefited U.S. citizens.
The Anti-Reflagging Act was intended to limit foreign
ownership of U.S. flag fishing vessels and cut off the ability
to ``rebuild'' fishing vessels in foreign shipyards. Southeast
Shipyard Ass'n v. U.S., 979 F.2d 1541 (D.C.Cir.1992). Under
that law, specifically 46 U.S.C. Sec. 12102(c)(1), a vessel-
owning corporation or partnership had to be owned at least 51
percent by U.S. citizens to document new vessels for the
fisheries. However, if a vessel, prior to July 28, 1987, had
been documented under U.S. flag or had been contracted for
purchase to be used in the U.S. fisheries, foreign citizens
could still own a controlling interest in the owning entity, so
long as the corporation's president, chairman of the board of
directors, and a majority of the board were U.S. citizens. This
ownership ``grandfather'' clause was confirmed by the D.C.
Court of Appeals in the Southeast Shipyard case.
In addition, prior to the Anti-Reflagging Act, fishing
vessels could undergo substantial reconstruction in foreign
shipyards and not lose their eligibility to operate in the U.S.
fisheries. The Anti-Reflagging Act ended that practice. Again,
however, Congress provided a saving ``grandfather'' clause to
allow vessels that met certain pre-existing conditions to be
rebuilt overseas notwithstanding the change in law.
History of the ARCTIC FJORD
The factory fishing vessel ARCTIC FJORD began as the BRAE
SEA, an offshore supply vessel built in Seattle, Washington at
Todd Shipyard Corp. and delivered in 1975. The vessel was later
purchased by Orion Trawlers, Inc. (``Orion''), a U.S.
documentation citizen under 46 U.S.C. Sec. 12102(a)(4), for
conversion to a factory trawler. However, during the relevant
time period, the stock of Orion was owned by non-citizens. This
purchase was agreed to in a contract entered into before July
28, 1987. The vessel was rebuilt in a Norwegian shipyard
pursuant to a contract also entered into before July 28, 1987.
Upon its conversion to a factory fishing vessel, it was renamed
the MICHELLE IRENE.
Upon delivery following reconstruction, ownership in the
vessel was transferred to three Washington State corporations
as tenants in common: WestcodII, Inc. (50 percent), Simonson
Enterprises V, Inc. (25 percent), and BTI, Inc. (25 percent).
Westcod II, Inc. was a documentation citizen but the
controlling interest in the company was not held by U.S.
citizens consistent with the new test in 46 U.S.C.
Sec. 12102(c)(1). The other two companies were controlled by
U.S. citizens. Thus, the same entity that purchased or
contracted for, and entered into the rebuilding contract, was
not the same entity that owned or controlled the vessel upon
documentation at redelivery.
All these transactions complied with the requirements of
the Anti-Reflagging Act. The U.S. Coast Guard, the agency
responsible for overseeing compliance with the documentation
laws, confirmed in writing that this particular vessel
qualified for both the citizenship and rebuild grandfather
clauses under the Anti-Reflagging Act and that the transactions
did not result in loss of fishing privileges.
In 1993, the owners came into difficulty with their lender,
Christiana Bank og Kreditkasse, and foreclosure action was
taken against the MICHELLE IRENE, then named the PACIFIC ORION.
In 1994, the vessel was sold to Arctic Fjord, Inc. and renamed
ARCTIC FJORD. Shortly thereafter, TCW Special Credits purchased
the loan on the vessel from Christiana Bank.
The vessel was owned entirely by Arctic Fjord, Inc. until
1995, when an ownership agreement was entered into with the
Bristol Bay Economic Development Corporation (``Bristol Bay'')
to carry out the purposes of the Community Development Quota
program. As a result of that agreement, Bristol Bay purchased
20 percent of the stock in Arctic Fjord, Inc. The ARCTIC FJORD
is currently owned and managed in accordance with that
agreement. The ownership structure involves only U.S. citizens.
Effect of S. 1221 on ARCTIC FJORD
In his introductory statement, Senator Ted Stevens (A-
Alaska) said that the rebuilding provisions of the Anti-
Reflagging Act were misinterpreted by the Coast Guard and
abused by speculators, resulting in 14 factory trawlers
entering the fisheries off Alaska that should have been
prohibited by the Anti-Reflagging Act. Based on the fact that
the vessel was subject to the ownership and rebuild grandfather
clauses of the Anti-Reflagging Act, the ARCTIC FJORD is one of
those vessels. In addition, because the same entity did not own
the vessel upon redelivery after its foreign conversion, Sec.
201 (b)(3)(D) of the bill applies to the vessel. Under that
provision of S. 1221, if the controlling interest in a vessel
such as the ARCTIC FJORD materially changes, regardless of who
now owns the vessel or security interests in it, the vessel
must permanently lose its fishery endorsement unless another
active vessel of comparable size and capacity surrenders its
endorsement. S. 1221; Sec. 201(b). This intent is confirmed in
Senator Stevens' introductory comments.
Although the bill is unclear as to every material change in
ownership that brings about this draconian result, we presume
that a foreclosure of TCW Special Credits' ship mortgage and
resulting sale of the vessel is in fact such a material change.
Moreover, other sales of interests in the vessel could be
material, such as the sale of the vessel to another company, a
reorganization of Arctic Fjord, Inc., a change in the current
ownership arrangement with Bristol Bay, or even the death of a
partner in part of the ownership structure. Consequently, it is
quite possible, if the bill is enacted in its current form,
that the value of the ARCTIC FJORD could be far less than the
$17 million face value of the mortgage it secures because it
will not be allowed thereafter to engage in the fisheries of
the U.S. TCW Special Credits has also been advised that it
would be immensely difficult, if not impossible, to operate the
vessel in any other world fishery. Such a result would be a
severe blow to TCW Special Credits' investment in this loan and
its primary security for the loan, which is the vessel itself.
Furthermore, as a lender, TCW Special Credits is concerned
about the size and capacity restrictions set forth in Sec.
301(a) of the bill that extinguish a vessel's fishery
endorsement if the length, tonnage, and horsepower of that
vessel is increased after September 25, 1997. We understand
that changes in tonnage could occur inadvertently because of
the way tonnage is calculated. In addition, every minor
alteration of the vessel, routinely done during drydock
repairs, would create uncertainty into the future.
Overall, S. 1221, as presently drafted, is very ominous for
TCW Special Credits' investment in the Pacific Northwest
fishing industry. It is difficult to fully understand why a
U.S. lender, representing U.S. investors and contracting with
U.S. citi-
zen borrowers, should face the substantial impairment of its
investment in this arbitrary manner. No warning about this
significant change in policy was ever given.
Summary and Conclusion
If enacted in its present form, S. 1221 could result in the
loss of fishing privileges for the ARCTIC FJORD, a vessel owned
by U.S. citizens including an Alaska native corporation and
significantly impair the security in the vessel held by TCW
Special Credits, also a U.S. citizen. Whatever the policy goals
of the bill, this result is clearly unfair with respect to this
vessel unless it is changed to exclude a vessel such as the
ARCTIC FJORD that is owned 75 percent by U.S. citizens at the
present time. TCW Special Credits understands that all vessels
currently operating in U.S. fisheries are subject to
rationally-based management policies that assure the
sustainability of the nation's fishery resources. TCW Special
Credits also understands that one of the sponsors' goals is to
reserve these resources for U.S. citizens. But in the case of
the ARCTIC FJORD, S. 1221 will punish U.S. citizens for having
acquired interests in the vessel simply because of its history
of prior foreign involvement, contrary to the espoused policy
of supporting U.S. investments in the U.S. fishing industry. It
is important to emphasize that nothing in the previous history
of the ARCTIC FJORD indicates that it was not in compliance, at
any time, with all vessel documentation laws then in effect.
TCW Special Credits respectfully requests this Subcommittee
to consider these views and keep them in mind if any
legislation comes before the Subcommittee for action.
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