[Senate Hearing 107-1059]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 107-1059

              S. 637, INDIVIDUAL FISHING QUOTA ACT OF 2001

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 2, 2001

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
SAM BROWNBACK, Kansas                JOHN B. BREAUX, Louisiana
GORDON SMITH, Oregon                 BYRON L. DORGAN, North Dakota
PETER G. FITZGERALD, Illinois        RON WYDEN, Oregon
JOHN ENSIGN, Nevada                  MAX CLELAND, Georgia
GEORGE ALLEN, Virginia               BARBARA BOXER, California
                                     JOHN EDWARDS, North Carolina
                                     JEAN CARNAHAN, Missouri
                  Mark Buse, Republican Staff Director
               Ann Choiniere, Republican General Counsel
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel
                                 ------                                

                  Subcommittee on Oceans and Fisheries

                   OLYMPIA J. SNOWE, Maine, Chairman
TED STEVENS, Alaska                  JOHN F. KERRY, Massachusetts
KAY BAILEY HUTCHISON, Texas          ERNEST F. HOLLINGS, South Carolina
GORDON SMITH, Oregon                 DANIEL K. INOUYE, Hawaii
PETER G. FITZGERALD, Illinois        JOHN B. BREAUX, Louisiana
                                     BARBARA BOXER, California


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 2, 2001......................................     1
Statement of Senator Breaux......................................    34
Statement of Senator Kerry.......................................    42
Statement of Senator Lott........................................     1
Statement of Senator Snowe.......................................     1
Statement of Senator Stevens.....................................    36
    Prepared statement...........................................    36

                               Witnesses

Behnken, Linda, Director, Alaska Longline Fishermen's Association    26
    Prepared statement...........................................    28
Crockett, Lee R., Executive Director, Marine Fish Conservation 
  Network........................................................    60
    Prepared statement...........................................    62
Giles, Don, President, Icicle Seafoods, Inc......................    21
    Prepared statement...........................................    22
Orbach, Michael K., Ph.D., Professor of Marine Affairs and 
  Policy, Duke University........................................    56
    Prepared statement...........................................    58
Plesha, Joseph T., General Counsel, Trident Seafoods Corporation.     9
    Prepared statement...........................................    10
Sutinen, Jon G., Ph.D., Professor, Department of Environmental 
  and Natural Resource Economics, University of Rhode Island.....    47
    Prepared statement...........................................    48
White, Patten D., Executive Director, Maine Lobstermen's 
  Association....................................................     4
    Prepared statement...........................................     7
Williams, Kay, Chairman, Gulf of Mexico Fishery Management 
  Council........................................................    13
    Prepared statement...........................................    14

                                Appendix

Alverson, Robert D., Fishing Vessel Owners' Association, Manager, 
  letter dated May 14, 2001, to Senator Snowe....................    94
Amaru, Captain William H., South Orleans, Massachusetts, 
  prepared statement.............................................   119
Childers, Dorothy, Executive Director, Alaska Marine Conservation 
  Council, letter with attachments, dated May 1, 2001, to Senator 
  Snowe..........................................................   131
Eder, Michele Longo, Argos, Inc., letter dated April 26, 2001, to 
  Senator Wyden..................................................   136
Ferent, Alexander, President, Massachusetts Fishermen's 
  Partnership, letter dated May 11, 2001, to Senator Snowe.......   123
Leape, Gerald B., Marine Conservation Program Director, letter 
  with 
  attachment, dated May 22, 2001, to Senator Snowe...............    96
Prowler Fisheries, Clipper Seafoods, Courageous Seafoods & 
  Baranof
  Fisheries and Alaskan Leader Fisheries, joint prepared 
  statement......................................................   137
Stephan, Jeffrey R., United Fishermen's Marketing Association, 
  letter dated September 17, 2000, to Senator Stevens............   110
Taylor, Richard R., Sea Scallop Project, Gloucester, MA, prepared 
  statement......................................................   120
Thomson, Arni, Executive Director, Alaska Crab Coalition, letter 
  with
  attached letter of David Benton, North Pacific Fishery 
  Management Council Chairman, dated May 15, 2001, to Senator 
  Snowe..........................................................   139
Tobey, Bruce H., Mayor, City of Gloucester, letter dated May 14, 
  2001, to Senator Snowe.........................................   123
Response to Written Questions Submitted by Hon. John B. Breaux to 
  Kay Williams...................................................    88
Response to Written Questions Submitted by Hon. John F. Kerry to:
    Don Giles....................................................    92
    Joe Plesha...................................................    83
    Patten D. White..............................................    78
    Kay Williams.................................................    87
Response to Written Questions Submitted by Hon. Olympia J. Snowe 
  to:
    Don Giles....................................................    90
    Joe Plesha...................................................    79
    Patten D. White..............................................    77
    Kay Williams.................................................    86

 
              S. 637, INDIVIDUAL FISHING QUOTA ACT OF 2001

                              ----------                              


                         WEDNESDAY, MAY 2, 2001

                                       U.S. Senate,
                     Subcommittee on Oceans and Fisheries, 
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:31 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Olympia J. 
Snowe, Chairman of the Subcommittee, presiding.

          OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. The hearing will come to order.
    Before I begin, I would like to welcome all the witnesses 
and my colleagues and others in attendance today to this most 
important hearing. Before I deliver my opening statement, it is 
my pleasure as well as my privilege to introduce to you the 
Senate Majority Leader, Senator Trent Lott, who is going to 
give a statement. I really appreciate the Leader being here 
this morning. I know you are so busy with your schedule and I 
appreciate your taking the time to stop by and deliver a 
statement. Welcome.

                 STATEMENT OF HON. TRENT LOTT, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Lott. Well, thank you very much, Madam Chairman. We 
appreciate the fact that you are having this hearing, and I am 
quite pleased that you are the chairman of this Subcommittee on 
Oceans and Fisheries. Of course, living on the Gulf of Mexico, 
I care an awful lot about our fisheries nationwide and in the 
region. I know that you have the same concerns there in Maine 
and that part of the United States.
    Fisheries is an important part of our economy in this 
country and certainly in the Gulf of Mexico, and what we want 
to try to do is to be helpful to the fisheries industry, make 
sure we have a balanced approach that does allow our commercial 
fishermen to make a living and our recreational fishermen to 
have an opportunity to enjoy our waters, and also reasonable 
practices for conservation purposes and make sure that we do 
not deplete or destroy resources. So this is a delicate 
balance.
    Unfortunately, in the Gulf we have had a hard time 
maintaining that balance and we have sometimes had problems 
with the National Marine Fisheries and even the Gulf Regional 
Fisheries Council trying to get a balance and trying to get 
reasonable and livable activities from them. So I think to have 
a hearing on this bill is timely. I appreciate the fact that 
you have developed one. I would be very interested and will 
review the testimony of the witnesses here. You have a very 
good group of witnesses lined up.
    I am particularly pleased to welcome Mrs. Harlan Kay 
Williams from my home area. She is a very articulate 
spokesperson for the Gulf and she has been willing to give 
time, and has a very patient husband that allows her to make 
trips like this and speak up for the commercial fisheries 
industry and fisheries as a whole.
    Just so you will all know, every time that I meet with 
Secretary of Commerce Evans the first thing I say to him is: 
Think fish. So now I saw him the other day and he said: I am 
thinking fish, I am thinking fish. And I got a letter from him 
with a little fish drawn at the bottom. So I think we are 
making progress with our new Commerce Secretary, and I look 
forward.
    I will not get into commenting further or even submitting 
questions at this point. I will stay as long as I can, but I 
look forward to seeing what the witnesses have to say. Thank 
you, Madam Chairman.
    Senator Snowe. Thank you. Well, I thank you very much, 
Leader, for your comments and your interest in support of this 
very vital industry to our respective regions of the country 
and to the Nation as a whole.
    This hearing will address one of the most difficult policy 
questions in fisheries management, the use of IFQ's. In 
particular, the Subcommittee will focus today on S. 637, the 
Individual Fishing Quota Act of 2001, that I introduced along 
with Senator McCain. The IFQ Act amends the Magnuson-Stevens 
Act to authorize the establishment of a new individual quota 
system after the current moratorium expires on October 1st of 
2002.
    Last year, I introduced legislation to reauthorize the 
Magnuson-Stevens Act and extend the moratorium on new IFQ 
programs for 3 years until 2003. Congress ultimately extended 
the moratorium for 2 years, through fiscal year 2002, with the 
help of Members of this Subcommittee. It is my hope that the 
combination of the moratorium extension and discussions of the 
legislation before us today will provide fishermen and 
fisheries managers time to prepare for the possibility of using 
IFQ's as a management option.
    However, I want to make one thing clear today. The 
legislation we are considering will in no way force IFQ's upon 
any regional management council or fisheries. S. 637 is not a 
mandate to use IFQ's. We have introduced this bill to begin the 
necessary dialogue before Congress can authorize the councils 
to develop new IFQ's. I expect to hear from a wide range of 
stakeholders who will help the Subcommittee shape the final 
legislation.
    We all know that IFQ programs can drastically change the 
face of fishing communities and fishery conservation and 
management regimes. Therefore, this legislation needs to be 
developed in a careful and meaningful way. This bill sets 
conditions under which new IFQ's may be established and ensures 
that any council that establishes new IFQ's will promote 
sustainable management of the fishery, require fair and 
equitable allocation of individual quotas, minimize negative 
social and economic impacts on local coastal communities, and 
take into account present participation and historical fishing 
practices of the relevant fishery.
    Additionally, the bill requires the Secretary of Commerce 
to conduct a double referendum to ensure that those most 
affected by IFQ's will have the opportunity to formally approve 
both the initiation and the adoption of any new IFQ program.
    The legislation does not authorize fish processing 
companies to hold IFQ's. I am certain this is one of the areas 
that will be the subject of considerable debate. Likewise, the 
legislation does not currently allow IFQ's to be sold, 
transferred or leased, and this too will also be the subject of 
extensive discussions here today.
    The IFQ Act requires participation in the fishery in order 
for a person to hold quota. It permits councils to allocate 
quota shares to entry level fishermen, small vessel owners, or 
crew members who may not otherwise be eligible for individual 
quotas.
    Finally, the bill acknowledges that fishing is a dangerous 
and risky business and there is always the possibility that 
undue hardship may occur. Therefore, the bill allows for the 
suspension of the non-transferability requirements by the 
Secretary on an individual case-by-case basis.
    Over the past one and a half years, the Subcommittee on 
Oceans and Fisheries has traveled across the country, holding 
six hearings on the reauthorization of the Magnuson-Stevens 
Act. We heard official testimony from over 70 witnesses and 
received statements from many more stakeholders during open 
microphone sessions at each field hearing. Additionally, the 
Maine Fishermen's Forum held an informative all-day session on 
IFQ's on March 1st of this year.
    The IFQ Act of 2001 incorporates many of the 
recommendations that were made across the country, especially 
from those men and women who fish for a living and those who 
are most affected by the laws and its regulations.
    Finally, this legislation specifically incorporates a 
number of recommendations from the 1999 National Academy of 
Sciences report on IFQ's and provides councils with the 
flexibility to adopt additional National Academy of Science or 
other recommendations. As with other components of the fishery 
conservation and management system, there is no ``one-size-
fits-all'' solution to IFQ programs. Therefore, this bill sets 
certain conditions under which IFQ's may be developed, but at 
the same time, it clearly provides the regional councils and 
the affected fishermen with the ability to shape any new IFQ 
program to fit the needs of the fishery if such a program is 
desired.
    Unfortunately, successful fisheries conservation and 
management seems to be the exception and not the rule. The 
decisions that fishermen, regional councils, and the Department 
of Commerce make are complex and often depend on less than 
adequate information. It is incumbent upon the Congress to 
provide the variety of stakeholders with the ability to make 
practical and informed decisions.
    At a later date I will introduce additional legislation to 
amend the Magnuson-Stevens Act to address the fundamental 
problems in fisheries management--a lack of funding, a lack of 
basic scientific information, and the need to enhance 
flexibility in the decision-making process. For today, the 
Subcommittee will begin the dialogue on new individual fishing 
quota programs.
    Clearly, I do not presume to offer at the outset a perfect 
solution to such a complex concept. Instead, the issue must be 
resolved through the appropriate debate and consideration by 
the Commerce Committee and the U.S. Senate. I look forward to 
and anticipate the full participation of those Senators who 
have expressed past interest and those who may be new to the 
debate.
    Before I recognize other Members of the Subcommittee--and 
of course, we already have with the Leader and others who are 
going to be coming, Senator Stevens most especially--I would 
like to welcome our distinguished members of the first panel, 
and I would like to invite them to come forward, please. Our 
first panel will include: Mr. Pat White, who is the Executive 
Director of the Maine Lobstermen's Association. Pat has come 
here from Maine today. Pat is also a Commissioner in the 
Atlantic State Marine Fisheries Commission. He has been a 
fishermen for many years, and I know that he is very familiar 
with the IFQ concept, and I look forward to your testimony, 
Pat.
    Mr. Joe Plesha will be here. He is General Counsel to 
Trident Seafoods. Trident is a seafoods company with a 
processing plant in Oregon, Washington, and of course Alaska. 
We also thank you for being here. He also used to be the 
Commerce Committee staffer who handled fisheries. I thank you 
for being here today.
    Next, of course, as the Leader introduced, we have Ms. Kay 
Williams, the Chair of the Gulf of Mexico Fisheries Management 
Council. Ms. Williams is a representative of the Gulf 
commercial fishing sector. We look forward to hearing your 
views here today and your own experience in the industry.
    We have Mr. Don Giles, President of the Icicle Seafoods. 
Icicle is an Alaska-based seafood company which operates 
processing plants in Alaska, Washington, and Oregon. Mr. Giles 
will provide the Subcommittee his views on IFQ's and 
specifically the treatment of processors under any new IFQ 
proposal.
    Finally, we will hear from Ms. Linda Behnken, the Director 
of the Alaska Longline Fishermen's Association, which is based 
in Sitka, Alaska. Ms. Behnken is a commercial fishermen and 
member of the North Pacific Fisheries Management Council, and 
we welcome you as well, Ms. Behnken, and thank you for being 
here today. We appreciate your hands-on experience on these 
issues and more.
    So let me begin by starting with your testimony, Pat, and 
then we will just go right down the line. Thank you.

    STATEMENT OF PATTEN D. WHITE, EXECUTIVE DIRECTOR, MAINE 
                    LOBSTERMEN'S ASSOCIATION

    Mr. White. Thank you, Senator Snowe, Senator Lott, for 
allowing me to speak this morning. Good morning. My name is Pat 
White and I am Executive Director of the Maine Lobstermen's 
Association. I also, as the Senator said, serve as Commissioner 
to both the Pew Oceans Commission and the Atlantic States Maine 
Fisheries Commission, and I am a member of the Marine Fish 
Conservation Network. I began fishing in 1956 and currently 
work as a commercial lobsterman when time allows.
    I would like to state up front that I am not an advocate of 
IFQ's, but I do realize that quota-based management may be 
desired by some sectors of the industry. I compliment you, 
Senator Snowe, and your co-sponsor Senator McCain on your 
efforts to accommodate the wishes of those who favor quota-
based management while being sensitive to those who are not.
    In Maine and much of New England, quota-based management 
programs are very unpopular as an issue of serious concern to 
the fishermen and coastal communities. At this year's Maine 
Fishermen's Forum, a significant portion of the agenda was 
devoted to this topic. The pros and cons of quota-based 
management systems were discussed and recommendations were made 
for implementation.
    Overall, participants felt that quotas are not an 
appropriate management tool for New England because of their 
effect on fishermen, fishing communities, and the health of the 
resource. We have watched the Grand Banks of Newfoundland, the 
premier commercial fishery of the world, and other important 
fisheries of Atlantic Canada collapse under quota management in 
a system very close to IFQ's.
    It is imperative that you proceed with caution and 
carefully consider the implications quota management may have 
on our fisheries and fishing communities. I would like to share 
with you a very brief summary of the major recommendations 
which resulted from our Maine Fishermen's Forum meeting. In 
order for quota-based management to work socially or 
biologically, it must:
    Ensure that creating quota does not privatize the public 
resource; ensure that quotas are not transferable; ensure that 
any quota program protects social and economic fabric of 
coastal communities; establish an equitable system which 
considers historic participation, protects the diversity of the 
fleet, and allows for new entrants; provide for long-term 
conservation and availability of the resource; consider an 
economic rather than single species management approach to the 
extent possible; include a data collection program which 
provides for timely dissemination of information on the 
industry; and set up a review mechanism to allow the program to 
be changed or undone if it is not working.
    New England fisheries have long been characterized by small 
fishing family businesses, able to react to the natural ups and 
downs of various species. For example, many of Maine's 
lobstermen fish for lobster in the summer and fall, shrimp and 
scallop in the winter, and perhaps some clamming or weir 
fishing in between. Others what once predominantly fished for 
ground fish have turned to shrimp and scallop and lobster over 
the past few years and may wish to shift back to ground fish in 
the future. The ocean is highly unpredictable. We have learned 
to adapt. This is how we survive.
    Quota-based management systems, on the other hand, have 
been known to result in fisheries characterized by large 
corporate businesses with highly sophisticated gear aimed at 
particular species. There is little or no room for 
adaptability. The corporate bottom line shapes the fisheries 
rather than Mother Nature's whim.
    Many New England stocks have remained healthy for decades, 
while dozens of others are making tremendous progress under 
current management programs. We have certainly made our share 
of mistakes, but I know we have come a long way. In Maine we 
continue to see record landings of lobsters. Our New England 
scallop stocks and many of our ground fisheries are making 
remarkable recoveries.
    The bottom line is that our way of life and economic 
survival depends on the access to and availability of healthy 
fish stocks. Any management system, quota-based or otherwise, 
must recognize this.
    I feel that Senator Snowe has come through her research--
has been thorough in her research and has done an admirable job 
addressing many of these issues, which are vital to the 
preservation of our fishing industry. S. 637 contains language 
to ensure that the establishment of quotas will not result in 
privatization of the resource. The quota instead is considered 
a grant of permission to engage in activities allowed by the 
individual quota and shall not create or be construed to create 
any right, title, or interest to any fish before the fish are 
harvested.
    Under this program, quotas can be revoked or limited. This 
should help safeguard the fishery in the event the program is 
not working.
    I am pleased that the bill clearly states that individual 
quota shares may not be sold, transferred or leased. This 
language is essential to ensure that small fishermen who 
experience a tough year will not be bought out by large 
corporate interests. However, I am concerned that this bill 
allows transfer to family members due to hardship. I might 
suggest that you consider redefining this as a hardship 
exemption. Appointing an interim captain for a limited duration 
under specific circumstances is very different than permanently 
transferring a quota.
    I am pleased to see that a condition of establishing a 
quota program is that it shall minimize negative social and 
economic impacts of the system on local coastal communities. 
The two referenda allowing eligible holders to approve the 
establishment of a program go a long way in protecting the 
social and economic structure of the community. These referenda 
encourage fishermen's participation in the decisionmaking 
process and the management of the resource. This ensures that 
fishermen buy into the program, which is essential to the 
success of any fishery management program.
    S. 637 states that a quota system must provide for fair and 
equitable allocation of the quota. It calls for a quota system 
to take into account both present and historic fishing 
practices. While I understand the need to consider both these 
items, I feel that the emphasis should be on historical fishing 
practices rather than present. There are a lot of ups and downs 
in fishing. Present practices only provide a snapshot, while 
historic fishing practices show how a business has done over 
time.
    S. 637 allows for quotas to be allocated among categories 
of vessels, as well as a portion of an annual harvest to be 
provided for entry level fishermen. These two provisions are 
crucial and must be compulsory components of the program.
    I am encouraged to see the bill requires present fishery 
management plans to be studied to determine their 
effectiveness, so that the successful elements of these plans 
can be preserved and incorporated into a quota management 
system. It is particularly important to consider the economic 
and social impacts of these plans on fishing communities.
    S. 637 has also built in a provision to allow the review of 
quota systems and the expiration of a quota after 5 years. This 
ensures that the program will evaluate the quota reissuance of 
the program is successful. While it may be appropriate for the 
councils to have this authority, I strongly recommend that a 
peer review also be conducted.
    This bill makes great strides in dealing with many issues 
and concerns about IFQ's. If it is necessary to lift the 
moratorium, this program provides a compromise allowing quota-
based programs to be developed. However, I would like to remind 
you that New England fisheries are doing well under our current 
management programs and many people have serious concerns about 
the impacts IFQ's will have on our fishermen, communities, and 
the fisheries resources.
    Thank you for considering my testimony and I will be happy 
to answer any questions later on.
    [The prepared statement of Mr. White follows:]

      Prepared Statement of Patten D. White, Executive Director, 
                     Maine Lobstermen's Association

    Good morning. My name is Pat White and I am the Executive Director 
of the Maine Lobstermen's Association. I also serve as Commissioner to 
both the Pew Oceans Commission and Atlantic States Marine Fisheries 
Commission and am a member of the Marine Fish Conservation Network. I 
began fishing in 1956 and currently work as commercial lobsterman when 
time allows.
    I would like to state up front that I am not an advocate of IFQs 
(Individual Fishery Quota), but I do realize that quota-based 
management may be desired by some sectors of the industry. I complement 
Senator Snowe and her co-sponsor Senator McCain on their efforts to 
accommodate the wishes of those who favor quota-based management, while 
being sensitive to those who are not.
    In Maine, and in much of New England, quota-based management 
programs are very unpopular and an issue of serious concern to 
fishermen and coastal communities. At this year's Maine Fishermen's 
Forum, a significant portion of the agenda was devoted to this topic. 
The pros and cons of quota-based management systems were discussed and 
recommendations made for implementation. Overall, participants felt 
that quotas are not an appropriate management tool for New England 
because of their effect on fishermen, fishing communities and the 
health of the resource. We have watched the Grand Banks of 
Newfoundland, the premier commercial fishery of the world, and the 
other important fisheries of Atlantic Canada collapse under quota 
management and a system very close to IFQs.
    It is imperative that you proceed with caution and carefully 
consider the implications quota management may have on our fisheries 
and fishing communities. I would like to share with you a very brief 
summary of the major recommendations which resulted from our Maine 
Fishermen's Forum meeting. In order for quota based management to work, 
socially and biologically, it must:

  1. ensure that creating quota does not privatize the public resource,

  2. ensure that quotas are not transferable,

  3. ensure that any quota program protects the social and economic 
        fabric of coastal communities, does not result in consolidation 
        and absentee corporate ownership of fisheries, or give 
        exclusive power to elite groups,

  4. establish an equitable system which considers historic 
        participation, protects the diversity of the fleet, and allows 
        for new entrants,

  5. provide for the long-term conservation and availability of the 
        resource,

  6. consider an ecosystem rather than single species management 
        approach to the extent possible (it was felt that IFQs inhibit 
        any willingness to take an ecosystem approach to management),

  7. include a data collection program which provides for the timely 
        dissemination of information to the industry, and

  8. set-up a review mechanism to allow the program to be changed or 
        undone if it is not working.

    New England fisheries have long been characterized by small family 
fishing businesses able to react to the natural ups and downs of 
various species. For example, many of Maine's lobstermen fish for 
lobster in the summer and fall, shrimp or scallops in the winter, and 
perhaps some clamming or weir fishing in between. Others who once 
predominantly fished for groundfish have turned to shrimp and lobster 
over the past few years, and may wish to shift back to groundfish in 
the future. The ocean is highly unpredictable and almost impossible to 
predict. We have learned to adapt. This is how we survive. Quota-based 
management systems on the other hand have been known to result in 
fisheries characterized by large corporate businesses with highly 
sophisticated gear aimed at a particular species. There is little or no 
room for adaptability. The corporate bottom line shapes the fishery 
rather than mother nature's whim.
    Many New England stocks have remained healthy for decades while 
dozens of others are making tremendous progress under current 
management programs. We've certainly made our share of mistakes, but I 
know we have come a long way. In Maine, we continue to see record 
landings of lobster. Our New England scallop stocks and many of our 
groundfish species are making remarkable recoveries. The bottom line is 
that our way of life and economic survival depends on access to and 
availability of healthy fish stocks. Any management system, quota-based 
or otherwise, must recognize this.
    I feel that Senator Snowe has been thorough in her research and has 
done an admirable job addressing many of these issues which are vital 
to the preservation of our fishing industry.
    S. 637 contains language to ensure that the establishment of quotas 
will not result in the privatization of the resource. The quota instead 
is considered ``a grant of permission to engage in activities allowed 
by the individual quota'' (Section 303e, 2A) and it ``shall not create, 
or be construed to create, any right, title or interest in or to any 
fish before the fish is harvested'' (Section 303e, 1B). Under this 
proposed program, quotas can be revoked or limited. This should help 
safeguard the fishery in the event the program is not working.
    I am pleased that the bill clearly states that ``individual quota 
shares may not be sold, transferred or leased'' (Section 303e, 6A). 
This language is essential to ensure that a small fisherman who 
experiences a tough year will not be bought out by a large corporate 
interest. However, I am concerned that this bill allows transfer to 
family members due to hardship (Section 303e, 7). I suggest that you 
consider redefining this as a hardship exemption. Appointing an interim 
Captain for a limited duration under specific circumstances is very 
different than permanently transferring a quota.
    I am very pleased to see that a condition of establishing a quota 
program is that it ``shall . . . minimize negative social and economic 
impacts of the system on local coastal communities'' (Section 303e, 
1Diii). The two referenda allowing eligible holders to approve the 
establishment of a program go a long way in protecting the social and 
economic structure of the community (Section 304i). These referenda 
encourage fishermen's participation in the decision making process and 
the management of the resource. This ensures that fishermen buy in to 
the program which is essential to the success of any fishery management 
program.
    S. 637 states that a quota system must ``provide for fair and 
equitable allocation of the quota'' (Section 303e, 1Dii) and calls for 
a quota system to take into account both present participation and 
historical fishing practices (Section 303e, 1Dv). While I understand 
the need to consider both these items, I feel that the emphasis should 
be on historical fishing practices rather than present. There are a lot 
of ups and downs in fishing. Present practices only provide a snapshot 
while historical fishing practices show how a business has done over 
time.
    S. 637 bill allows for quotas to be allocated among categories of 
vessels as well as a portion of the annual harvest be provided for 
entry level fishermen (Section 303e, 4A&B). These two provisions are 
crucial and must be compulsory components of the program.
    I am encouraged to see the bill requires present fishery management 
plans be studied to determine their effectiveness so that the 
successful elements of these plans can be preserved and incorporated 
into a quota management system (Section 304j). It is particularly 
important to consider the economic and social impacts on these plans of 
fishing communities.
    S. 637 has also built in a provision to allow for the review of the 
quota system and the expiration of a quota after 5 years (Section 303e, 
2E). This ensures that the program will be evaluated and quota reissued 
if the program is successful. While it may be appropriate for the 
Councils to have this authority, I strongly recommend that a Peer 
Review also be conducted.
    This bill makes great strides in dealing with many issues and 
concerns about IFQs. If it is necessary to lift the moratorium, this 
program provides a compromise allowing quota-based programs to be 
developed. However, I'd like to remind you that New England fisheries 
are doing well under our current management programs and many people 
have serious concerns about the impact IFQs will have on our fishermen, 
communities and fishery resources.
    Thank you for your consideration of my testimony.

    Senator Snowe. Thank you. Right on the mark at 5 minutes. 
If you go beyond the 5 minutes, we will include your entire 
statement in the record.
    Please begin, Mr. Plesha. Thank you.

    STATEMENT OF JOSEPH T. PLESHA, GENERAL COUNSEL, TRIDENT 
                      SEAFOODS CORPORATION

    Mr. Plesha. Thank you, Madam Chair. My name is Joe Plesha 
and on behalf of Trident Seafoods Corporation I want to thank 
you for the opportunity to testify on the IFQ Act of 2001.
    Trident was founded in 1973 and it has never once declared 
a dividend for its shareholders, instead reinvesting its 
earnings back into the seafood industry. Most of Trident's 
investments have been in seafood processing and we now have 
over $300 million invested in shore-based processing plants 
located in the States of Oregon, Washington, and Alaska. These 
facilities have no other use besides seafood processing and 
under a harvester-only IFQ system this $300 million of 
investments would be expropriated from my company and 
transferred to IFQ quota shareholders.
    Trident supports the statutory moratorium on IFQ's. We 
believe that the fisheries of the United States can be fairly 
managed under an open access system. Moreover, no IFQ program 
should be adopted without statutory guidelines or direct 
approval from Congress.
    The IFQ issue is critical to processors in the Pacific 
Northwest and Alaska. Simply put, processors will go out of 
business under a harvester-only IFQ system. Trident's $300 
million of investments in shore-based processing were made to 
be competitive in the open access fisheries of Alaska, 
Washington, and Oregon. If you eliminate the open access race 
to fish, you eliminate the need for investments in processing 
capacity that open access fisheries demanded.
    If vessel owners are the only ones to receive IFQ's, then 
processors are forced to operate at only their variable cost of 
production. We could not meet our debt service over time, we 
could not engage in the product research and development 
necessary to remain competitive on the world market, and we 
could not maintain or improve our plants or equipment.
    Harvester-only IFQ fisheries would lead to bankruptcy of 
the processing sector. I might add that vessel owners would 
suffer the same fate if only processors received ITQ's.
    Therefore, if the moratorium on IFQ's is not extended by 
Congress, we respectfully request that processors be treated 
equally with vessel owners. I know of at least three options to 
treat processors equally with vessel owners under a quota-based 
system.
    The first is the American Fisheries Act style cooperatives. 
Under the American Fisheries Act cooperative structure, a group 
of vessel owners have harvesting quota set aside for their use. 
A vessel can remain in open access, but if a vessel owner 
decides to join a cooperative it must agree to deliver its 
harvest of pollack to the processor to whom it historically 
sold its catch. The American Fisheries Act structure has been 
remarkably successful and Senator Stevens and Senator Gorton, 
its primary authors, should be applauded for this 
groundbreaking legislation.
    Under the American Fisheries Act both sectors, vessel 
owners and processors, have remained viable during a time of 
massive upheaval caused by endangered Stellar sea lion 
regulations and eroding world markets for pollack.
    The second option to treat vessel owners and processors 
equally would be what has been called the two-pie quota system. 
The two-pie system would allocate a harvesting quota based on a 
vessel's catch history and processing quota based on a plant's 
processing history. All fish that are harvested must be caught 
by an entity holding the requisite amount of harvesting quota 
and all fish that are landed must be purchased by a plant 
holding processing quota.
    The processing and harvesting sectors would both likely 
consolidate when the open access fishery is rationalized. Under 
the two-pie system, owners of processing capacity that leave 
the industry would receive compensation for leaving through the 
sale of processing quota just like vessel owners what leave the 
fishery would be compensated by the selling of harvesting 
quota.
    A final option to treat both vessel owners and processors 
equally would be to simply allocate 50 percent of the available 
quota created by the IFQ system to each. That way, each sector 
would receive valuable quota in exchange for the impact that 
IFQ's have on the value of their existing investments.
    In conclusion, Trident supports the IFQ moratorium being 
extended, but if Congress decides to authorize IFQ's we believe 
that it would not intend to punish those of us who have 
invested in processing by transferring the value of our 
investments to those who have invested in vessels. To make sure 
this expropriation does not occur, we request express and 
unambiguous statutory language requiring that vessel owners and 
processors be treated equally in the applications of privileges 
under a quota-based management system.
    Thank you.
    [The prepared statement of Mr. Plesha follows:]

       Prepared Statement of Joseph T. Plesha, General Counsel, 
                      Trident Seafoods Corporation

Introduction
    My name is Joe Plesha and on behalf of Trident Seafoods Corporation 
I want to thank you for the opportunity to testify on S. 637, the IFQ 
Act of 2001.
    Trident was founded in 1973 by its president, Chuck Bundrant. 
Trident has never declared a dividend for its shareholders, instead 
reinvesting its earnings back in the seafood industry. Most of 
Trident's investments have been in seafood processing and we now have 
ten shorebased processing plants that provide markets for fishing 
vessels. Our shorebased plants are located in the states of Oregon, 
Washington and Alaska. In addition to these shorebased facilities, 
Trident owns floating processing vessels, catcher/processing vessels, 
fishing vessels and secondary processing facilities.
    The Subcommittee has heard about the potential benefits of 
Individual Fishing Quota (``IFQ'') fishery management. I would like to 
talk about the enormous impact that adoption of an IFQ program has on 
the value of fishing vessels and primary processing plants. If IFQ 
programs are authorized by Congress, I respectfully request the 
Magnuson-Stevens Act be amended to require that owners of processing 
plants be allocated privileges in the IFQ fishery on an absolutely 
equal basis with vessel owners.

The reasons for allocating privileges in an IFQ fishery to those with 
        processing history are the same as the reasons for allocating 
        privileges in an IFQ fishery to vessels with catch history.
    Under open access there have been investments in both the 
harvesting and primary processing of fishery resources. In a typical 
open access fishery, both sectors have more capacity than is necessary 
to efficiently harvest and process the resource (otherwise the fishery 
would not be considered ``overcapitalized'' and there would be no need 
for the fishery to be rationalized). When the fishery is rationalized 
through an IFQ system, that ``excess'' capacity in vessels and 
processing plants becomes unnecessary. The IFQ system therefore results 
in de-capitalization of both the harvesting and processing sectors.
    For example, in talking with crab fishing vessel owners that 
operate in Alaska, they tell me that if the Bering Sea opilio fishery 
were rationalized, there would be a need for less than fifty fishing 
vessels (not the 250 or more that currently harvest crab) and likewise, 
only one-fifth of the current processing power that is in the Bering 
Sea would be required.
    Rationalizing an open access fishery through an IFQ system has 
dramatic impacts on the value of existing investments made in both 
fishing vessels and primary processing plants.
    Gardner Brown, a professor of economics at the University of 
Washington noted that processors ``can lose with the introduction of an 
IFQ system. No longer is there a race to harvest a fishery-wide quota. 
Harvest rates fall which creates excess demand for fish by 
processors.'' \1\
---------------------------------------------------------------------------
    \1\ There have been a number of articles published in academic 
journals discussing the economic impact of IFQ programs on owners of 
vessels and primary processing plants. Among these articles are, G. 
Brown, ``Renewable Natural Resource Management and Use without 
Markets'', Journal of Economic Literature, Vol. XXXVIII (Dec. 2000) pp. 
875-914 and S. Matulich, R. Mittehammer and C. Reberte, ``Toward a More 
Complete Model of Individual Transferable Fishing Quotas; Implications 
of Incorporating the Processing Sector'', Journal of Environmental 
Economics and Management, Vol. 31 (1996) pp.112-128.
---------------------------------------------------------------------------
    In the North Pacific off Alaska, we have learned from the Community 
Development Quota (``CDQ'') program \2\ and the Halibut/Sablefish IFQ 
program that most of the value of existing investments in both fishing 
vessels and processing plants is transferred to quota share holders 
when an IFQ system is implemented.
---------------------------------------------------------------------------
    \2\ The Community Development Quota program is an IFQ system where 
the rights to the fishery were allocated to coastal communities in 
Alaska.
---------------------------------------------------------------------------
    Under an IFQ program, vessels will harvest fish for a price that 
covers only their variable costs because there are far more boats than 
are necessary to harvest the rationalized fishery. For example, when 
the CDQ program was implemented for pollock off Alaska, Trident 
contracted with the Aleutian/Pribilof Island Community Development 
Association to use CDQ quota. Fishing vessels that had received over 
ten cents a pound for their pollock harvest during the open access 
fishery willingly fished the CDQ pollock quota for four and a half 
cents per pound, a price which covered only the fishing vessels' 
variable costs (i.e., the cost of fuel, groceries and crew). The vessel 
owner made no return on the capital invested in the vessel and thus the 
value of the vessel itself was transferred to the owners of the quota.
    Existing investments in primary processing plants are likewise 
transferred to quota share holders when an open access fishery is 
rationalized through IFQs. Like vessels, processing plants will process 
fish at a price that only covers their variable costs because there is 
more processing capacity than is necessary to process the rationalized 
fishery. When Trident bid on the right to use CDQ quota, for example, 
we paid the amount for the quota that we thought would allow for us to 
cover only our variable cost of production. The over one hundred 
million dollar capital investment that Trident had made in our plant 
was, in essence, transferred to quota share holders.
    The fishery resources in the United States' Exclusive Economic Zone 
belong to the public. The only reason for allocating quota shares under 
an IFQ system to vessel owners (instead of the government auctioning 
quota shares so that the general public receives the economic benefit 
from the resource it owns) is to compensate those vessel owners for the 
devaluation of their existing investments caused by adoption of the IFQ 
system. The exact same rationale applies to primary processors.

The reason processors fear IFQs is that if a fishery is rationalized 
        and they do not receive privileges in the fishery, the value of 
        their investments will be taken away from them.
    The movement from an open access to an IFQ fishery should not take 
the value of existing investments in processing plants and transfer 
that value to vessel-owning quota share holders. Nor should 
rationalization allow for only vessel owners to receive all of the 
economic benefits from the fishery. In the Pacific Northwest and Alaska 
processors that have invested over a billion dollars in these fisheries 
fear the possibility of ``harvester only'' IFQ systems because such a 
system will take the value of their investments away from them.
    Fishing vessel owners who want to exclude processors under an IFQ 
system merely want to change the existing bargaining position between 
harvesters and processors with the adoption of the IFQ program. But 
fishing vessel owners who support ``harvester only'' IFQ systems would 
be strongly opposed to an IFQ system that required all quota shares be 
auctioned by the federal government to the highest bidder or some other 
IFQ system under which they would not receive IFQ privileges.
    Except for the American Fisheries Act, IFQ-style fishery management 
plans in the United States have allocated privileges exclusively to 
vessel owners and, in the case of the North Pacific's CDQ program, 
coastal communities. Those who have invested in seafood processing are 
at serious risk unless Congress adopts IFQ guidelines that require 
owners of harvesting vessels and primary processing facilities to be 
treated identically in the adoption of any future IFQ system.

Harvesters and processors should both receive economic benefits from an 
        IFQ fishery.
    There are at least three methods to maintain the existing balance 
between the harvesters and processors under an IFQ fishery. One way 
would be to simply allocate IFQ quota share privileges 50/50 between 
harvesters and processors; a second way would be to create what has 
been called a ``two-pie'' harvester/processor quota system; and a third 
way would be to require American Fishery Act-style cooperatives that 
include both harvesters and processors.
    The ``two-pie'' harvester/processor quota system would allow 
vessels owners to receive allocations of their catch history through an 
IFQ quota system. Similarly, processors would receive allocations of 
their processing history through a processor quota system. All fish 
that are harvested must be caught by an entity holding the requisite 
amount of harvesting quota. All fish that are landed must be purchased 
by an entity holding the requisite amount of processing quota. The 
quotas would be theoretically transferable. If fishing vessel owner 
``Arctic Fishing Corp.'' is so much more efficient that it can afford 
to pay vessel owner ``Bering Fishing Corp.'' more for ``Bering Fishing 
Corp.'s'' quota than it makes harvesting its own quota, then ``Bering 
Fishing Corp.'' is likely to sell or lease its quota to ``Arctic 
Fishing Corporation's'' more efficient operation. The same is true for 
processors. IFQ systems have been called an ``industry-funded buyback 
program.'' Vessel owners who are perhaps less efficient can sell their 
quota and be compensated for voluntarily leaving the fishery. The 
processing sector, like the harvesting sector, will consolidate when an 
open access fishery is rationalized. Under a ``two-pie'' system, 
however, owners of processing capacity that leave the industry will 
receive compensation for leaving through the sale of processing quota.
    The American Fisheries Act was the first attempt in a federally 
managed fishery to include both harvesters and shorebased processors in 
the benefits of a rationalized fishery. The Act accomplished this goal 
by allowing vessels to form cooperatives among themselves and have 
their historical catch allocated to the cooperatives similar to 
allocations of quota shares to vessels in an IFQ program. If a vessel 
owner decides to join a cooperative, it must agree to deliver its 
harvest of pollock to the processor to whom it has historically 
delivered its catch. In addition, there is a limited entry system 
placed on both the number of pollock harvesting vessels and pollock 
processing plants. The Act has been remarkably successful in allowing 
both harvesters and processors to benefit from the rationalized pollock 
fishery.

Conclusion
    Trident has invested hundreds of millions of dollars into seafood 
processing facilities that operate in open access fisheries. Before 
authorizing adoption of any future IFQ programs, we urge the 
Subcommittee to provide statutory guidelines that require owners of 
processing facilities and harvesting vessels be treated identically in 
the allocation of privileges under any future IFQ system.

    Senator Snowe. Thank you very much, Mr. Plesha.
    Ms. Williams.

  STATEMENT OF KAY WILLIAMS, CHAIRMAN, GULF OF MEXICO FISHERY 
                       MANAGEMENT COUNCIL

    Ms. Williams. Thank you, Madam Chairman. My name is Kay 
Williams and I greatly appreciate the opportunity to testify on 
Senate Bill 637, the IFQ Act of 2001, and to provide you with 
written comments on the council's recommendations for 
amendments to the Magnuson-Stevens Act.
    First let me acquaint you with my background. My family has 
been in the commercial reef fish fishery for years. I became 
involved with the council process in 1992. I was the 
spokesperson for Save America's Seafood Industry, a commercial 
organization based in Mississippi which had members in all the 
five Gulf Coastal States. I was a member of several advisory 
panels to the Gulf Council. I was appointed to the Gulf Council 
in 1997. I presently serve as Chairman of the council and as 
President of the Gulf and South Atlantic Fisheries Foundation.
    Our council has not had the opportunity to review and 
comment on the provisions of the IFQ Act of 2001. We will take 
that action later this month, as will the council chairmen at 
their meeting at the end of May when they address 
reauthorization issues. Therefore I cannot speak for the 
council on your bill. But, as indicated in the appended written 
testimony, the council did support rescinding the Congressional 
moratorium on IFQ's and expressed the need for the council to 
have maximum flexibility in the design of ITQ systems, 
especially in setting the fees.
    The comments I offer on your bill are my own, based on my 
experience in helping develop ITQ's and license limitation 
systems and my knowledge of the industry positions on some of 
these issues in the Gulf of Mexico.
    First, I believe that the IFQ's should not expire in 5 
years, but should be reviewed by the councils and should 
require a two-thirds referendum vote as to whether or not the 
plan should expire by the affected individual shareholders. I 
believe the industry would support the two-thirds double 
referendum vote in the bill.
    A 50 percent income requirement from commercial fishing 
would bring some protection for the IFQ program as it would 
relate to shareholders.
    I do not believe that the fishermen can afford to pay for 
the IFQ program, but could pay for the administrative cost of 
the paperwork perhaps. An example would be when the Gulf 
Council looked at IFQ's before on a three million pound TAC it 
was going to cost $2.1 million the first year and $1.7 million 
annually, and that was on a three million pound TAC, such as in 
the red snapper fishery. In the red snapper fishery they are 
now at 4.5 million. I have no idea what the cost to administer 
that program would be, but I just do not feel that the 
fishermen would be able to pay for the entire administration of 
this type program.
    I believe the industry would support a cap on ownership and 
would support a use it or lose it provision. I believe that 
two-thirds of the industry will want to be able to sell, 
transfer, or lease their quota shares in the Gulf, the reason 
for this being is because they are right now in the red snapper 
fishery, they have a license limitation. They have a 2,000 
pound endorsement, they have a 200 pound endorsement. So those 
endorsements can be sold, transferred, and leased. Many 
fishermen have went out and bought up additional license in the 
aspect of future ITQ's coming in order to increase their share. 
That is why I feel that, unless you do allow the 
transferability and the sale as far as it pertains in the Gulf 
of Mexico, we probably would not get a two-thirds vote.
    An IFQ would in fact stop the derby fishery. But these men 
have already invested so much money into the licenses that they 
are under now, it would be extremely hard for them to accept 
something now that they can no longer transfer, sell, or lease. 
However, they are desperate.
    The one most very important item in the entire bill in my 
opinion is the double referendum requiring a two-thirds vote. 
Very often the councils are not balanced. What comes out of the 
council is not necessarily what the fishermen support. As in 
the case of the Gulf of Mexico Fishery Management Council, we 
have four commercial representatives, we have seven 
recreational representatives, we have five State directors, and 
of course the regional administrator. So always what comes out 
of the council, like I said, is not what the fishermen want.
    The last time the Gulf Council looked at an ITQ, even 
though there were advisory panels set up, input from the 
fishermen, by the time the council got through with the plan 
two-thirds of the fishermen no longer supported that ITQ. So in 
my opinion it is very important with the double referendum, and 
would ask that you at least retain that because that gives the 
fishermen some protection on what is done with their lives and 
how they go about doing that.
    I have appended our written comments and I thank you for 
this opportunity to testify. I will be glad to answer any 
questions.
    [The prepared statement of Ms. Williams follows:]

             Prepared Statement of Kay Williams, Chairman, 
               Gulf of Mexico Fishery Management Council

    Madame Chairman and Members of the Committee, I greatly appreciate 
the opportunity to testify on the Senate Bill 637, IFQ Act of 2001, and 
to provide you with written comments on the Council's recommendations 
for Amendment to the Magnuson-Stevens Act.
    First, let me acquaint you with my background. My family has been 
in the commercial reef fish fishery for years. I became involved in the 
Council process in 1992 as a spokesman for a Mississippi commercial 
fishing association. During that year, the Council conducted 3 sets of 
10 workshops with the commercial red snapper industry to get their 
input on limited access for that fishery. Over the next three years, I 
participated as an Advisory Panel member in the development of an ITQ 
system for the commercial red snapper fishery. The ITQ system was 
implemented by federal rule in December 1995, and rescinded by 
emergency rule in 1996 when Congress was proposing the moratorium on 
IFQs in the Sustainable Fisheries Act. In 1997, I was appointed to the 
Council and I currently serve as President of the Gulf and South 
Atlantic Fisheries Foundation.
    Our Council has not had the opportunity to review and comment on 
the provisions of the IFQ Act of 2001. We will take that action later 
this month, as will the Council Chairmen at their meeting at the end of 
May when they address re-authorization issues. Therefore, I cannot 
speak for the Council on your bill, but as indicated in the appended 
written testimony, the Council did support rescinding the Congressional 
moratorium on IFQs and expressed the need for the Councils to have 
maximum flexibility in the design of ITQ systems, especially the 
setting of fees.
    The comments I offer you on your bill are my own, based on my 
experience in helping develop ITQs and license limitation systems, and 
my knowledge of the industry positions on some of these issues. One of 
the major problems our Council created by reverting back to a red 
snapper license limitation system was a derby fishery that adversely 
affected the price paid to fishermen and also vessel safety. Your bill 
would allow us to address the problems created by the derby fishery. 
However, I do not believe we could get support from two-thirds of the 
fishermen for a system that does not allow IFQ shares to be sold, 
transferred, or leased. Our red snapper industry is under a license 
limitation system where the licenses can be sold, transferred, and 
leased.
    I believe that our industry would support the bill's provisions 
preventing anyone from acquiring an excessive share and for revoking 
shares not used in 3 years of each 5-year period. I believe that the 
provision for the individual quotas to expire after 5 years will be of 
serious concern to our industry. Even though there is a provision that 
allows the Council to renew the quotas, that same provision also allows 
the Council to reallocate or reissue the quotas to other persons which 
would be of concern. Also of major concern is that a 5-year period is 
too short a time upon which to base good business decisions and venture 
the capital necessary to increase the efficiency of the fishing 
operation.
    The structure of the IFQ in your bill removes the economic 
incentives for the industry to consolidate the shares, thereby reducing 
excess fishing capacity in the fisheries. This limits significantly 
its' use as a management tool. Perhaps the review panel established by 
the bill will subsequently propose allowing transfer, leasing, and 
sale.
    I have appended our written comments and I thank you for this 
opportunity to testify. I will be glad to answer any questions.

                                 ______
                                 
    Summary of the Gulf Council's Actions & Administrative 
                                   Policy Committee Actions
                              Mobile, AL, September 11 and 14, 2000
                          Biloxi, Mississippi, November 14-15, 2000

Documents Reviewed
Tab E, No. 3--Council 1999 position on Magnuson-Stevens Act re-
            authorization issues as appended to Mr. Swingle's testimony 
            of July 29, 1999 before the Senate Subcommittee on Oceans 
            and Fisheries.

Tab E, No. 4(a)--Amendments proposed by Senator Kerry on July 27, 2000.

Tab E, No. 4(b)--Summary of above Kerry Bill.

Tab E, No. 5--Senate staff working draft dated June 7, 2000, called the 
            Snowe Bill in committee discussions. Changes by S. 2832 
            proposed by Senator Snowe were noted in review of the staff 
            draft.

Tab E, No. 6--HR. 4046 called the Gilchrist Bill in committee 
            discussion.

Note: The page numbers used in this text are for copies of the bills 
            inserted into the text of the Magnuson-Stevens Act.

    The Committee proceeded by addressing the Council's previous 
recommendations and the new issues in the handout to determine if 
members wished to change the previous recommendations or to support or 
oppose any of the new issues. In the process, the Committee editorially 
revised the Council's previous position statement on the issues in the 
following document, when appropriate.

    1) Rescinding the Congressional Prohibitions on IFQs (or ITQs)

    Currently Section 303(d)(1) of MSA prohibits a Council from 
submitting or the Secretary approving an IFQ system before October 1, 
2000. Section 407(b) prohibits the Gulf Council from undertaking or 
continuing the preparation of a red snapper individual fishing quota 
(IFQ) or any system that provides for the consolidation of permits to 
create a trip limit before October 1, 2000. The Council supports 
rescinding those provisions. The Council also opposes extending the 
moratorium on IFQs.

    The Council reiterated its stand on IFQs (as above) but should 
Congress extend the moratorium the Council requests that Congress 
provide language that would allow the Council to develop a profile 
during the moratorium, containing the information necessary for the 
industry to make a decision on whether ITQs were appropriate, when the 
referendum is conducted. The Committee did review the exclusive quota-
based programs proposed by the Kerry Bill, but did not endorse it.

    2. Regional Flexibility in Designing IFQ Systems

    The Council, while philosophically opposed to fees that are not 
regional in nature and dedicated by the Councils, is concerned over the 
ability of the overcapitalized fleets to pay fees. However, they do 
support the National Academy of Science (NAS) recommendation that 
Congressional action allow the maximum flexibility to the Councils in 
designing IFQ systems and allowing flexibility in setting the fees to 
be charged for initial allocations, first sale and leasing of IFQs [MSA 
Sections 303(d)(2-5) and 304(d)(2)].

    The Council recommended retaining this position and noted the Kerry 
Bill did not provide for regional accounts for fees.

    3. Coordinated Review and Approval of Plan Amendments and 
Regulations

    The Sustainable Fisheries Act (SFA) amended Sections 304(a) and (b) 
of the MSA to create separate sections for review and approval of plans 
and for review and approval of regulations. This has resulted in the 
approval process for these two actions proceeding in different time 
periods, rather than concurrently as before the SFA Amendment, which 
also deleted the 304(a) provision allowing disapproval or partial 
disapproval of the amendment within the first 15 days. The Council and 
the Timely Review Panel recommend these sections be modified to include 
the original language allowing concurrent approval actions for plan 
amendments and regulations and providing for the initial 15-day 
disapproval process.

    Both Senate bills had identical language to implement this Council 
recommendation. Therefore, the Council took no action.

    4. Regulating Activities That Adversely Affect EFH

    The Council recommends that Section 303(b) of MSA be amended to 
provide authority to Councils to regulate activities by individuals or 
vessels that adversely impact fisheries or essential fish habitat 
(EFH). One of the most damaging activities to such habitat is anchoring 
of any vessels near habitat areas of particular concern (HAPC) or other 
EFH (e.g., coral reefs, etc.). When these ships swing on the chain 
deployed for anchoring in 100 feet, 20 to 70 acres of bottom may be 
plowed up by the chain dragging over the bottom. Non-consumptive diving 
has been shown to have an adverse cummulative affect on coral reef 
complexes; especially as levels of diving participation increase. 
Regulation of these types of activity should be allowed.

    The Council's position on this issue was modified as above, (i.e., 
adding non-consumptive diving example). The Council noted that the 
Kerry Bill added 303 (b)(12) allowing regulation of vessel activity in 
coral or other sensitive habitats.

    5. Bycatch

    The MSA, under Section 405, Incidental Harvest Research, provided 
for conclusion of a program to (1) assess the impact on fishery 
resources of incidental harvest by the shrimp trawl fishery of the Gulf 
and South Atlantic, and (2) development of technological devices or 
other changes to fishing operations necessary to minimize incidental 
mortality of bycatch in the course of shrimp trawl activity, etc. 
Because this program has been the principal vehicle under which 
research and data collection has been carried out, the Council 
recommends that this program be extended and funded.

    The Council's position on this issue was modified as above.

    6. Gulf of Mexico Red Snapper Research (Section 407)

    The research provided for has been completed. This section also 
provides, in Subsection (c), that a referendum be conducted by the 
National Marine Fisheries Service (NMFS) of persons holding commercial 
red snapper licenses, to determine if a majority support proceeding 
with an IFQ program and in Subsection (d) makes the recreational red 
snapper allocation a quota and provides for closure of the fishery when 
that quota is reached. The Council recommends that Subsection (c) for 
the referendum be retained and Subsection (d) be rescinded. The 
recreational fishery closure is having severe adverse economic impacts 
on the charter and head boat sectors. This year that fishery that began 
April 21 is projected to close on August 31. As the red snapper stock 
is being restored, the size of fish increases each year and the closure 
comes earlier each year, e.g., January 1 through November 27 in 1997 to 
January 1 through August 29 in 1999.

    The Council's position on this issue was modified as above.

    7. Collection of Economic Data [Section 303(b)(7)]

    Situation: Language throughout the MSA specifies the collection of 
biological, economic, and socio-cultural data to meet specific 
objectives of the Act and for the fishery management councils to 
consider in their deliberations. However, Section 303(b)(7) 
specifically excludes the collection of economic data, and Section 
402(a) precludes Councils from collecting proprietary or confidential 
commercial or financial information. However, NMFS should not be 
precluded from collecting such proprietary information so long as it is 
treated as confidential information under Section 402. Without this 
economic data, multi-disciplinary analysis of fishery management 
regulations is not possible, preventing NMFS/Councils from satisfying 
the requirements of the Act and of the Regulatory Flexibility Act 
(RFA). Economic data are required to meet the requirements of RFA and 
other laws, yet MSA restricts the economic information that can be 
collected under the authority of the MSA.
    Recommendation: Amend the Act to eliminate these MSA restrictions 
on the collection of economic data. Amending Section 303(b)(7) by 
removing ``other than economic data'' would allow NMFS to require fish 
processors who first receive fish that are subject to the plan to 
submit economic data.
    Discussion: Removing this current restriction will strengthen the 
ability of NMFS to collect necessary data and eliminate the appearance 
of a contradiction in the law requiring economic analysis without 
allowing the collection of necessary data. NMFS and the Councils need 
data to be able to comply with RFA, and we should not be prohibited 
from requiring it.

    Both Senate bills had identical language to implement this Council 
recommendation. Therefore, the Council took no action.

    8. Confidentiality of Information [Section 402(b)]

    Situation: Section 402 replaced and modified former Sections 303(d) 
and (e). The SFA replaced the word ``statistics'' with the word 
``information'' expanded confidential protection from information 
submitted in compliance with the requirements of an FMP to information 
submitted in compliance with any requirement of the MSA, and broadened 
the exceptions to confidentiality to allow for disclosure in several 
new circumstances.
    Recommendation: The following draft language clarifies the word 
``information'' in 402(b)(1) and (2) by adding the same parenthetical 
used in (a), and deletes the provision regarding observer information. 
The revised section would read as follows (additions in bold):

    (b) Confidentiality of Information.

      ``(1) Any information submitted to the Secretary by any person in 
compliance with any requirement under this Act and that would disclose 
proprietary or confidential commercial or financial information 
regarding fishing operations or fish processing operations shall not be 
disclosed, except:

       a. to Federal employees and Council employees who are 
responsible for fishery management plan development and monitoring;
       b. to State or Marine Fisheries Commission employees pursuant to 
an agreement with the Secretary that prevents public disclosure of the 
identity or business of any person;
       c. when required by court order;
       d. when such information is used to verify catch under an 
individual fishing quota program; or
       e. when the Secretary has obtained written authorization from 
the person submitting such information to release such information to 
persons for reasons not otherwise provided for in this subsection, and 
such release does not violate other requirements of this Act.''

    The Secretary shall, by regulation, prescribe such procedures as 
may be necessary to preserve the confidentiality of information 
submitted in compliance with any requirement under this Act and that 
would disclose proprietary or confidential commercial or financial 
information regarding fishing operations or fish processing operations, 
except that the Secretary may release or make public any such 
information in any aggregate or summary form which does not directly or 
indirectly disclose the identity or business of any person who submits 
such information. Nothing in this subsection shall be interpreted or 
construed to prevent the use for conservation and management purposes 
by the Secretary or with the approval of the Secretary, the Council, of 
any information submitted in compliance with any requirement or 
regulation under this Act or the use, release, or publication of 
bycatch information pursuant to paragraph (1)(E).

    Both Senate bills had identical language to implement this Council 
recommendation. Therefore, the Council took no action.

    9. Observer Programs

    Reaffirm support to give discretionary authority to the Councils to 
establish fees to help fund observer programs. This authority would be 
the same as granted to the North Pacific Council under Section 313 for 
observers.
    Mr. Swingle noted that the Kerry Bill had provisions for an 
observer program which allowed the Councils to develop the provisions 
of the program and set the fees. It also established an observer fund 
that provided for regional accounts, by fishery, and dedicated the 
funds to that fishery, as had been the case under Section 313 for the 
North Pacific Council. The Council did not endorse the Kerry Bill 
provisions, but retained its position on the issue.

    10. Congressional Funding of Observer Programs

    Situation: Currently, the Secretary is not authorized to collect 
fees from the fishing industry for funding of observer programs. 
Funding of observer programs has been through MSA or MMPA 
appropriations.
    The lack of adequate appropriations to run observer programs has 
resulted in statistically inadequate observer programs that do not 
satisfy the monitoring requirements of the statutes. This is of 
particular concern with regard to observer requirements that are a 
requirement or condition of an ESA biological opinion or a condition of 
a take reduction plan or take exemption under the MMPA. In addition, 
funding is taken from extremely important recovery and rebuilding 
programs to pay for the observer requirements. Consequently, 
investigations into fishing practices or gear modification (or other 
areas that would actually prevent the lethal take from occurring or 
causing serious injury in the first place) cannot proceed.
    Recommendation: If the MSA is not amended to authorize the 
Secretary to collect fees from the fishing industry, then those 
fisheries that are required to carry observers as a condition of 
biological opinion under ESA, or as a condition of a take exemption 
under the MMPA, should be funded through the Congressional 
appropriations directed towards fisheries management under the MSA.

    It was noted that consistent with the Council's position the Kerry 
Bill would authorize $20 million annually to support federal observer 
programs. Therefore, the Council took no action.

    11. Defining Overfish and Overfishing [Section 3(29)]

    Currently, both overfished and overfishing are defined as a rate of 
fishing mortality that jeopardizes the capacity of a fishery to produce 
maximum sustainable yield (MSY) on a continuing basis. The 
Administration proposed redefining these to be consistent with NMFS' 
guidelines in the guidelines for National Standard 1.

    The Council recommends that Congress define overfishing as harvest 
activities (i.e., rate of fishing mortality) that would result in too 
many fish being harvested and overfished as a level (i.e. minimum 
fishery biomass) resulting in too few fish left in the water.

    12. State Fishery Jurisdiction

    The Council supports language in the Act to establish the authority 
of the states to manage species harvested in the exclusive economic 
zone (EEZ) that occur in both the state territorial waters and the EEZ, 
in the absence of a council fishery management plan similar to the 
language specified for Alaska in the last amendment to the Act.

    It was noted that Congress did not propose a change that 
established the state fisheries authority as suggested above. The 
Council took no further action.

    13. Enforcement

    The Council supports the implementation of cooperative state/
federal enforcement programs patterned after the NMFS/South Carolina 
enforcement cooperative agreement. While it is not necessary to amend 
the Act to establish such programs it is consistent with the changes 
needed to enhance management under the Act to suggest to Congress that 
they consider establishing and funding such cooperative state/federal 
programs.

    Both Senate bills had identical language to implement the Council 
recommendation for cooperative state/federal enforcement programs. 
Therefore, the Council took no action on that issue, but did recommend 
that Congress provide authorization for increased funding support for 
NMFS enforcement and for NOAA General Counsel's office to prosecute 
violations.

    14. Council Member Compensation

    The Act should specify that Council member compensation be based on 
the General Schedule that includes locality pay. This action would 
provide for a more equitable salary compensation. Salaries of members 
serving in Alaska, the Caribbean, and Western Pacific are adjusted by 
COLA. The salary of the federal members of the Councils includes 
locality pay. The DOC has issued a legal opinion that prohibits Council 
members in the continental U.S. from receiving locality pay; therefore, 
Congressional action is necessary.

    The Council retained its position on this issue.

    15. Emergency Rule Vote of NMFS Regional Administrator on the 
Council

    Proposal: Modify the language of Section 305(c)(2)(A) as follows 
(new language bolded):

      (A) The Secretary shall promulgate emergency regulations or 
interim measures under paragraph (1) to address the emergency or 
overfishing if the Council, by unanimous vote of the members, excluding 
the NMFS Regional Administrator, who are voting members, requests the 
taking of such action; and . . .

    Currently, the NMFS RA is instructed to cast a negative vote even 
if he/she supports the emergency or interim action to preserve the 
Secretary's authority to reject the request. The Council believes that 
Congressional intent is being violated by that policy.

    The Council retained its position on this issue.

    16. Disclosure of Financial Interest and Recusal

    Proposal: Modify the language of Section 302(j)(2) as follows (new 
language bolded):

      (2) Each affected individual must disclose any financial interest 
held by--
        (A) that individual;
        (B) the spouse, minor child, or partner of that individual; and
         (C) any organization (other than the Council) in which that 
individual is serving as an officer director, trustee, partner, or 
employee; in any harvesting, processing, or marketing activity that is 
being, or will be, undertaken within any fishery over which the Council 
concerned has jurisdiction,
        (D) or any financial interest in essential fish habitat (EFH).

    The Council feels an interest in EFH should be treated from an 
ethical point of view, the same as an interest in fishery operations, 
in determining whether a Council member should abstain from voting. The 
effect of this action would be to exclude the Council member who held 
interests in/or related to EFH from the provisions of Section 208 of 
title 18, SSC, which would prevent that person from voting on habitat 
protection issues. However, if he/she were able to file a disclosure 
notice under 302(j) of the MSA they could vote unless that action would 
substantially change the financial interests of the member. This action 
would put them on the same basis as a person having an interest in a 
commercial harvesting, processing, or marketing activity. A lot of the 
marshland in Louisiana is privately owned.

    The Council's position on this issue was modified as above.

    The Committee then reviewed the following issues first raised in 
the Gilchrist Bill Tab E, No. 6:

      1. Council Members Nominated by Governors
         Kerry Bill (Pages 40-41)--include consideration of members of 
conservation organizations [302(b)]
        Snowe Bill--Silent

    The Council supports the Snowe bill on this issue (i.e., no 
change).

      2. Bycatch Reduction
         Kerry Bill (Page 95)--Reduction Incentives; (Page 116)--
Reporting and Task Forces
        Snowe bill--No Change

    The Council reviewed the bycatch reduction provisions in the Kerry 
Bill (page 95, 116) and felt uncomfortable with the provisions and, 
therefore, took no action.

      3. Fishery Ecosystem FMPs

        Kerry Bill (pages 95-96)--similar to Gilchrest except time 
periods
        Snowe Bill (Page 105)--Development of One or More Pilot 
Ecosystem Plans

    The Council recommends to Congress, that of the two Senate 
proposals for Fishery Ecosystem Plans, it supports the Snowe bill 
proposal, but reserves its position on whether Ecosystem Plans should 
be included as amendments to the Act. The Council takes this position 
because it has not had any information provided to it that demonstrates 
the Ecosystem Plans will provide a management regime superior to 
current FMPs, and because there are no NMFS guidelines upon which to 
base a decision on the complexity of such a plan. The plans could be as 
simple as concluding that our multi-species FMP for about 40 species of 
reef fish is an Ecosystem Plan, or as complex as requiring us to manage 
the other 150 species of finfish (most of which are small prey fish not 
harvested in the fishery), as well as all the invertebrates. We favor 
the Snowe bill provisions because they provide for a more gradual 
approach to evaluating the benefits or aspects of such an approach to 
fishery management.
    The Committee then considered other important issues raised in the 
two Senate Bills as follows:

      1. Capacity Reduction [303(e)]
        Kerry Bill (Page 56); Also see [312(b)]--Page 87
        Snowe Bill--No Change

    The Council, after reviewing the provisions of the Kerry Bill took 
no action, pending a report by NMFS on this subject at the November 
Council meeting.

      2. Peer-Group Review
        Kerry Bill (Pages 97-98)--Establishes a Center for Review
        Snowe Bill (Pages 46-47)--Uses SSC or Council Scientific 
Committees

    After reviewing the provisions of both bills, the Council supports 
the current systems as proposed in the Snowe bill, with the realization 
the Council could, if they choose to, add other experts to the SSC/SAP/
SEP review process on an ad-hoc basis.

      3. Public Notice [302(i)] (Both the Same)
         Kerry Bill (Page 46)--Also allows closed meetings to review 
research projects for cooperative research
        Snowe Bill (Page 48)

    Both Senate bills had identical language allowing the Council to 
notify the public of meetings ``by any other means that will result in 
wide publicity'' in addition to publishing a notice in the newspapers 
of seaports. Therefore, the Council supported that action.

      4. Cooperative Research [408]--With industry/state/academic 
institutes
        Kerry Bill (Pages 109-110)
        Snowe Bill--(S.2832 page 9)

    The Council supports the concept of Cooperative Research programs 
between the fishing industries, educational institutions, and state and 
federal agencies.

      5. Habitat Areas of Particular Concerns [303(b)(7) and 305(b)]
        Kerry Bill (Pages 50 and 65-66)
        Snowe Bill (Page 7, 52, and 66-67)

    Both Senate bills provided for HAPCs as the next step in describing 
areas of EFH critical to certain life history stages of each stock. The 
Council supports HAPCs as a subset of EFH that will be used to describe 
these critical areas.

      6. Regional Fishery Outreach Program [317(a)(b)(c)]
        Kerry Bill (Pages 96-97)
        Snowe Bill--No Change

    The Council reviewed the Regional Fishery Outreach Program 
provisions of the Kerry Bill (pages 96-97). They ``wholeheartedly'' 
support the outreach provision under paragraphs (a) and (b) of this 
section.  Note: Subsequent paragraphs (c),(d), and (e) relate to peer-
group reviews and were not supported.

    The Committee deferred the other issues on the handout to a 
subsequent meeting. They did address two items of critical concern to 
Dr. Claverie. The first of these was a proposed policy on page 3 of the 
Snowe bill (Tab E, No. 5) which proposed that the Secretary of the 
Department of Commerce have exclusive authority for managing fishery 
resources. Dr. Claverie expressed concern that authority may supercede 
the Council authority. Therefore, the Council objects to that 
provision.
    The other provision was on page 40 of the Gilchrist bill (Tab E, No 
6), which would modify Section 301(b) to make the national standard 
guidelines have the full force and effect of law. The Council opposes 
that change.

    Senator Snowe. Thank you very much, Ms. Williams.
    Mr. Giles.

              STATEMENT OF DON GILES, PRESIDENT, 
                     ICICLE SEAFOODS, INC.

    Mr. Giles. Thank you, Senator Snowe and Members of the 
Committee, for the opportunity to testify today.
    Icicle Seafoods has been in business since 1965. We are an 
American-owned company and one of the largest seafood 
processing companies in Alaska. We have processing plants in 
Alaska, Washington, and Oregon.
    I would like to preface my comments today by stating that 
we are not opposed to rationalization. There are many 
compelling reasons why various fisheries could be rationalized. 
Quota-based fisheries can provide many benefits to all the 
participants. The most common justification for rationalization 
is overcapitalization, too much catching capacity, too much 
processing capacity, chasing too few fish. This does not 
necessarily mean that there is a resource problem.
    In Alaska we do not have a resource problem in most of our 
fisheries. We are lucky that we have some of the healthiest, 
well managed fisheries, both State and Federally managed 
fisheries. What we do have in some fisheries is too much 
capacity, both harvesting and processing. It is impossible to 
have an overcapitalized harvesting sector without having an 
overcapitalized processing sector. In most cases, especially in 
remote parts of Alaska, it is very unlikely that the processing 
sector was able to overcapitalize without community investment 
in ports, harbors, docks, water, power, and infrastructure. In 
other words, everybody got to the same position together, 
depending on each other.
    If any fishery is to be rationalized, the benefits of 
rationalization should be shared and enjoyed by those with a 
vested stake in the fishery. The benefits of rationalization 
should not come at the expense of other stakeholders in the 
fishery, including fishermen, processors, and those dependent 
communities.
    In Alaska we do have current rationalization programs that 
are in effect today, the halibut-black cod, the halibut-
sablefish IFQ plan, and the American Fisheries Act pollack 
program. The halibut-sablefish program is going on its seventh 
year. The bottom line for the halibut-sablefish IFQ program is 
it has not worked for the processing sector. Not only has it 
not worked, it has been devastating to the processing sector. 
In the halibut-sablefish IFQ program, the harvesting sector was 
rationalized while the processing sector was not. All of our 
investment in those fisheries were immediately devalued once 
the IFQ's were implemented. 100 percent efficiencies, 100 
percent of the economies of scale, 100 percent of the added 
value of the fisheries, went to the harvesting sector.
    Unfortunately, the processing sector did not get the same 
benefits. You do not have to look very hard in Alaska to 
identify processors and communities that have been devastated 
by the halibut-sablefish IFQ program. A lot of the companies 
that were involved in the halibut-sablefish have not survived 
and it has continued spillover effects on the communities and 
other small boat fisheries in Alaska.
    My testimony today is not to trash the halibut-sablefish 
IFQ program. I am not suggesting that program be revisited. In 
fact, too much quota has moved and too much money has changed 
hands to try to change the program at this time. I would hope 
that we can learn a lesson from this program and not make the 
same mistakes in any future programs.
    The other rationalization program we have in Alaska is the 
American Fisheries Act on pollack. This program is in its third 
year. With this program, both the harvesting and processing 
sectors were rationalized through cooperatives that allow both 
sectors the opportunity to enjoy the benefits of a rationalized 
fishery. This has resulted in reduction of vessels, longer 
season, increased yields, less wastage, less bycatch. These 
benefits have been enjoyed by both harvesters and processors.
    The AFA-style cooperatives may or may not be practical in 
other fisheries. What is clear is that rationalization of both 
the harvesting and processing sectors does work and does not 
diminish the benefits to either the harvesters or the 
processing sector as long as both are rationalized.
    In closing, I am not sure that one program will work for 
every fishery. As a matter of fact, I am certain that that is 
not the case. Different regions, different fisheries, have 
different issues and challenges that may well dictate different 
solutions. Fortunately, you do not have to deal with each 
fishery. That is the job of the fishery councils.
    If the IFQ moratorium is to be lifted, the fishery councils 
will need very clear direction from Congress on how the 
proceed. I would encourage you to continue to work on 
legislation that will provide equal benefits to both the 
harvesting and the processing sectors and direct the fishery 
councils to ensure that any future rationalization program 
provides both the harvesting and the processing sectors equal 
opportunity to protect their investments and share in any 
additional economic value resulting from rationalization.
    Unless future rationalization programs provide equal 
benefits to both the harvesters and the processors, we would 
recommend status quo and extension of the IFQ moratorium.
    Thank you.
    [The prepared statement of Mr. Giles follows:]

   Prepared Statement of Don Giles, President, Icicle Seafoods, Inc.

    My name is Don Giles and I am President and CEO of Icicle Seafoods, 
Inc. Thank you for the opportunity to testify on S.637, the Individual 
Fishing Quota Act of 2001.
    Icicle Seafoods is an Alaska corporation founded in 1965. We 
started with a single salmon cannery in Petersburg, Alaska and have 
expanded over the years with multiple locations throughout Alaska that 
process salmon, crab, herring, halibut, sablefish, cod and pollock. We 
have processing operations throughout Alaska, including Petersburg, 
Seward, Homer, Dutch Harbor and St. Paul. In addition, we operate 5 
floating processing vessels that process fish in various remote parts 
of Alaska. In addition to Alaska, we have two plants in the State of 
Washington and jointly own a canned salmon labeling warehouse in 
Astoria, Oregon. Although we do own a small number of catcher vessels, 
over 85 percent of our business is a result of purchasing fish from 
independent fishermen throughout Alaska.
    I would like to preface my comments by stating that we are not 
opposed to rationalization. There are certainly many compelling reasons 
why various fisheries could be rationalized. Quota based fisheries can 
provide many benefits to any particular fishery, however those benefits 
should be enjoyed by all participants in the fishery including 
fishermen, processors and those communities dependent on the particular 
fishery. The most common justification to rationalize any fishery is a 
result of overcapitalization. It is impossible to have an 
overcapitalized fishing fleet unless the processing sector 
overcapitalized with the fishing fleet in that particular fishery. It 
is very unlikely, especially in remote parts of Alaska, that the 
processing sector was able to overcapitalize without community 
investment in ports, docks, harbors and infrastructure. In other words, 
everyone got to the same place totally dependent on each other. If the 
fishery is to be rationalized whether it is with IFQs, cooperatives or 
any other method, the benefits of the rationalization should be enjoyed 
by everyone that has a vested stake in the fishery.
    In Alaska, we do have an IFQ program for halibut and sablefish in 
place that is going on its 7th year. While my comments today are on why 
that program is not working for the processing sector and why any new 
programs should not be similar to the existing halibut/sablefish IFQ 
program, I am not suggesting that it should be revisited. In fact, too 
much quota and money has already changed hands to reasonably try to 
change that program now. However, I hope my comments today will help 
avoid making the same mistakes when future programs are contemplated.
    In order to give you a clear picture of the current halibut/
sablefish IFQ program, it is appropriate to give a brief history of the 
fishery and how we got to where we are today. Although the program was 
instituted for both halibut and sablefish, the development of each 
fishery was different.

The Halibut Fishery
    The halibut fishery, as recently as the mid 1970's, was a long, 
drawn out fishery that was mostly fished in Alaska by both American and 
Canadian fishermen. Those fishermen basically fished throughout the 
spring, summer, and early fall. They had an informal system where for 
every day they fished they would lay-up for half a day to help spread 
the season out. In other words, if they made a 14-day trip, they would 
tie up for 7 days. In those days our company was the major buyer of 
halibut in Alaska, some years purchasing upwards of 50 percent of the 
catch. The first expansion of our company was purchasing the Seward 
plant in order to provide a market in the Gulf of Alaska for our 
fishermen from Petersburg and Seattle that were having trouble selling 
fish in those days. In a few short years after a major expansion of 
freezers, ice making capacity, docks and cold storage, our Seward plant 
became the largest halibut buyer in the world.
    With the rapid expansion of the small boat salmon fleets throughout 
Alaska many new smaller local Alaskan fishermen began to fish halibut. 
Eventually, the Canadian fishermen were kicked out of Alaskan waters 
and the halibut seasons became increasingly shorter. In order to 
accommodate this growing number of fishermen, we continued to expand 
our capacity including purchasing a plant in Homer, Alaska, and 
building a larger freezer and cold storage facility. Eventually the 
seasons were measured in a few short 24 or 48-hour openings. We were 
still the largest buyer of halibut during this period as millions of 
pounds of fish had to be handled in a few short days. Since we grew 
with the fleet, we maintained our market share. During the last few 
years of the pre-IFQ fishery, we were even supplying our fishing fleets 
with tenders so they could fish in some of the remote areas of Alaska 
and deliver their fish to larger vessels that would safely return the 
product to port. This allowed small vessels to harvest fish in the best 
areas that otherwise would not have been available to them.

The Sablefish Fishery
    Although it resulted in a similar situation as halibut, the 
sablefish fishery had a totally different history. Back in the mid 
1970's, Icicle was purchasing 70 percent-80 percent of the U.S.-caught 
Alaskan sablefish. Although it was a very high percentage, the vast 
majority of the sablefish harvested in Alaska during this period was 
still being caught by foreign fishing fleets. This was a very trying 
and difficult time for both our fishermen and ourselves as it was 
difficult to get a reasonable price for our product since it was 
primarily a Japanese market and they were securing most of their 
product needs from their directed fishing efforts in Alaska. In the 
early 1980's, Icicle Seafoods and other companies, along with 
fishermen, petitioned the North Pacific Fishery Management Council 
(NPFMC) to eliminate the directed foreign fishing in order to allow 
U.S. fishermen and processors to access 100 percent of this fishery. 
Although most fishermen were supportive of this effort, there were some 
that proposed to let the U.S. fishermen harvest the fish but sell 
directly to foreign motherships. Their concern was that the Alaskan 
processing sector did not have the intent to buy, the capacity to 
process, and the access to the market that the foreign companies had. 
During years of debate, the NPFMC prodded the U.S processing side to 
develop the capacity to process, and the necessary infrastructure 
needed for 100 percent U.S. utilization. In 1984, the NPFMC told 
fishermen and processors that they would give them until September of 
that year to catch and process the quota or it would revert to the 
foreign fleets as it had been for decades. That year, 100 percent of 
the fish were taken by July and the market prices increased 
dramatically, providing a new, profitable and viable fishery for both 
fishermen and Alaskan processors.
    Once Americanized like halibut, many new participants in both the 
fishing and processing side entered the fishery. Seasons that once 
lasted 3 or 4 months began to last only 2 or 3 weeks. Again, the 
capacity we invested to prosecute the fishery served us well. In 
addition to our strategically located shore plants in the Gulf of 
Alaska, we invested in processing equipment and ice making capacity on 
our floating processors located in remote parts of Alaska providing 
markets for our fishermen and accessing fish we and our fishermen 
otherwise would not have had access to. As new Alaskan fishermen 
entered the fishery and as seasons became shorter, we continued to work 
to make both ourselves and those fishermen working with us more 
efficient. We modified our operation and began to allow fishermen to 
deliver whole, refrigerated seawater fish. This allowed fishermen, who 
once had to dress all the sablefish on the vessel, to become more 
efficient in their fishing operation as we took over the duties of 
dressing their product. A lot of the traditional vessels continued to 
dress fish, but delivering round, refrigerated fish became more common.

Current Halibut/Sablefish Program
    Although not quite on similar courses, both the halibut and 
sablefish fisheries got into the same situation, which resulted in the 
current IFQ program we have today. Once the IFQ program was put in 
place, 100 percent of the efficiencies, economies of scale, and added 
value of the fishery was given to the harvesting sector. All of our 
investment that not only allowed us to maintain and even grow our 
business, but also allowed our fishing fleet to build good catch 
history that resulted in IFQs, became irrelevant and was immediately 
devalued. Fishermen, once awarded IFQs, were immediately able to 
consolidate and spread their fishing over 9 months. Those that wanted 
out, sold. Those that wanted more, bought. It was and is still today a 
happy story for those fishermen that were awarded IFQs, whether they 
still fish or left the fishery.
    Today the quality of fish being delivered is far superior to the 
pre-IFQ fishery. The added value of the catch in the market is a lot 
higher. Unfortunately, 100 percent of that value has gone to the 
harvesting sector. The processing sector, by being left out of the 
rationalization process, was left with assets that are no longer 
needed. The choice for the processing sector was very clear, either 
continue to try to survive with assets that are not conducive to a 
controlled IFQ fishery or exit. That is exactly what has happened. 
Although we have been able to survive only because we were diversified 
in other fisheries and other areas, our business in the locations that 
were dependent on the halibut and sablefish fisheries has deteriorated. 
This is not only a problem for us, but it's a problem for the fishermen 
that fish other fisheries in those areas. Their fisheries now have to 
carry 100 percent of the burden on assets that were once getting 
reasonable contribution from halibut and sablefish. Our gross profit 
margin on halibut and sablefish during the first 6 years of the IFQ 
program is $20,000,000 less than it was the 6 years previous to the IFQ 
program. Not only are we feeling the pain, but every non-IFQ fishermen 
that delivers other product to these facilities now has to carry a 
bigger burden of the costs and overhead of these facilities.
    As tough as it has been, we are one of the fortunate processors as 
we have been able to survive. Many took the second option, which was to 
just quit with no compensation for their investments. Some will say 
that's just too bad, but when they left they also left many non-IFQ 
fishermen without markets and many communities without a viable 
processing sector. Many in Alaska feel that one of our biggest 
challenges is dealing with our salmon business with the worldwide 
competition of farmed fish. That very well could be the case, but as 
one of the largest salmon processors in Alaska, I can assure you our 
biggest challenge has been adapting to the realities of the halibut/
sablefish IFQs and the economic affect that has had on our salmon 
business. Not only is our salmon industry (fishermen, processors and 
dependent communities) fighting the challenges of the world farm fish 
explosion, but we are having to jointly foot the bill for the lost 
opportunities in the halibut and sablefish business.
    Although there are some communities that have benefited from the 
IFQ program because of their close proximity to good air freight 
service to access the fresh halibut market, there are just as many 
communities that also lost out and no longer have a viable seafood 
industry resulting in economic hardships to not only the community but 
the other non-IFQ fishermen that try to operate out of those 
communities.
    It is too late and not practical to change the existing halibut/
sablefish program; however, we need to learn from it and make sure that 
any future programs allow all the stakeholders (fishermen, processors 
and dependent communities) to enjoy the benefits of a rationalized 
fishery. The benefits should be enjoyed by all and not come at the 
expense of some.

Rationalization Benefits to the Quota Holders
    Rationalization of overcapitalized fisheries provides benefits to 
the participants who receive IFQs and to the nation. Many fisheries in 
Alaska are overcapitalized, resulting in efficiency losses to the 
industry. In those fisheries, too many boats are chasing the fish, 
excess processing facilities are being operated, and communities have 
invested in more infrastructure than is needed. Most fisheries in 
Alaska are open access fisheries, with a race for fish being the 
primary factor in determining the structure of and investment in the 
industry.
    In an open access fishery, more and more boats are added to the 
fleet in a hunt for profits, resulting in shorter seasons. When the 
influx of new boats stops, the fleet will upgrade engines for more 
power, use larger nets or set more pots and longlines, and increase 
their hold capacity as they catch and land fish more quickly. In the 
processing sector, more facilities are needed to process the fish as 
the catch is landed more quickly and in a shorter period of time. 
Processors upgrade their facilities with more processing lines, 
increased freezing capacity, and larger cold storages. Finally, 
communities and support industries upgrade the infrastructure which 
supports the fishing industry, building more dock space, providing more 
housing, and increasing the capacity of utilities such as water, 
electricity, and sewage disposal. The result is a fishing industry that 
can catch, process, and distribute the fish and fish products in a 
shorter period of time, leaving all of the capital facilities idle for 
many months. The Bering Sea pollock fishery, of which I will speak more 
in a moment, began as a ten-month fishery in 1991, decreased to a three 
to four-month fishery in the mid-1990's, and after rationalization by 
the American Fisheries Act (AFA), increased to a six-month fishery in 
2000.
    For the fishermen in the halibut and sablefish fisheries in Alaska, 
rationalization through the IFQ system provided each quota holder with 
a broad range of economic options: (1) a marginal fisherman could 
decide to sell his quota to obtain a return on his investment and 
retire from the fishery; (2) a fisherman who owned multiple boats could 
consolidate his quota onto a smaller number of boats and increase his 
efficiency, resulting in increased economic return; or, (3) a fisherman 
could use his quota to operate while avoiding bad weather, to catch 
fish in response to market demand, and to operate his boat at the 
highest level of efficiency (crew size, fishing grounds choices, fuel 
utilization, etc.).
    Rationalization of an overcapitalized fishery provides increased 
economic value to the quota holders above the economic return from the 
open access fishery. The nation benefits from the productivity gains of 
the industry and from markets with higher quality products and greater 
availability of fish products.

Benefits of Processor Rationalization
    An ITQ system with all IFQs going to the fishermen provides no 
benefits to the processors that supported those harvesters in the open 
access fishery. The processors receive none of the additional economic 
value resulting from rationalization of the harvesting sector, and will 
lose their capital investment in the excess facilities that were needed 
to support the open access fishery. Processors will have only negative 
options available: (1) retire from the fishery and write off the 
capital investment; or (2) continue to operate at a lower level of 
facility utilization and smaller margins.
    Rationalization of the processing sector through processor quotas, 
processor-harvester cooperatives, or some other system will give to the 
processors the same broad set of economic options available to the 
rationalized harvesters: (1) a marginal processor could decide to 
retire from the fishery, sell his quota to another processor, and 
obtain some return on his capital investment; (2) a processor could 
consolidate facilities to make more efficient use of his equipment 
while cutting costs; and, (3) a processor can continue to operate, but 
with greater efficiency through decreased costs resulting from longer 
seasons and more predictable supply of fish.
    Rationalization of the processing sector does not change the 
economic options for the fishermen. They can still exit the fishery, 
consolidate on fewer boats, or operate with better efficiency and 
safety. The only difference resulting from rationalizing both the 
harvesting and processing sectors is that the additional economic value 
from the fishery will be shared by the two sectors. The processing 
sector in Alaska has made significant investments in each fishery, as 
has the harvesting sector. Both sectors should receive benefits from 
those investments when a fishery is rationalized.
    Icicle Seafoods supports the rationalization in many Alaskan 
fisheries provided that the additional economic benefits are shared 
equitably by all sectors. Icicle felt strongly enough about the 
benefits of rationalization to buy its way into the AFA pollock 
processing and harvesting sector. In late 1999, we purchased the P/V 
NORTHERN VICTOR, an AFA pollock processor, and five AFA pollock 
trawlers. In the last fifteen months, we have consolidated our 
harvesting fleet from five vessels to four, resulting in decreased 
costs for Icicle as the boat owner, and increased skipper and crew 
shares for those working on the trawlers. In addition, because the race 
for fish has ended, the trawlers can search longer to find the larger 
pollock, which are ideal for our production of pollock fillets. On the 
Northern Victor, we have slowed our daily processing rate, resulting in 
a higher quality product and increased production of some products with 
strong market demand. Finally, we have been able to respond positively 
to the need to change the nature of the pollock fishery to protect 
Steller sea lions. The AFA cooperative fishing style has lengthened the 
seasons, decreased daily catches overall in the fishery, and made it 
possible to fish away from sea lion rookeries and haulouts.
    In conclusion, I encourage you to continue to work on legislation 
that will provide the additional economic benefits from rationalization 
of overcapitalized fisheries while ensuring that the opportunity to 
share in that additional economic value is available to processors as 
well as harvesters. Unless future rationalization programs provide 
equal benefits to all sectors, we would prefer the status quo.

    Senator Snowe. Thank you, Mr. Giles.
    Ms. Behnken.

             STATEMENT OF LINDA BEHNKEN, DIRECTOR, 
            ALASKA LONGLINE FISHERMEN'S ASSOCIATION

    Ms. Behnken. Thank you, Madam Chairman. Thank you for the 
opportunity to testify. As you said in your introduction, I am 
a longline fisherman, participating in both the halibut and 
sablefish fisheries as a deck hand and a vessel owner. I have 
served on the North Pacific Council for the past 9 years and 
also participated as an industry adviser during the NRC review 
of IFQ's. I am Acting Director of Alaska Longline Fishermen's 
Association and speaking today on behalf of ALFA's membership.
    I would like to address my comments today to the importance 
of establishing both conservation and socioeconomic goals for 
future IFQ programs and to aspects of S. 637 that ALFA members 
consider particularly important.
    IFQ's are a valuable tool for addressing overcapacity and 
resource impacts associated with too many fishermen chasing too 
few fish. IFQ's also have profound socioeconomic impacts in 
fishing communities. The Nation's fisheries and fishing 
communities will be well served by IFQ programs designed to 
meet explicit conservation goals while mitigating socioeconomic 
impacts.
    Congress can assist in this process by requiring regional 
councils to clearly state conservation and socioeconomic goals 
for each IFQ program and requiring periodic performance reviews 
to ensure that long-term goals are met. From a conservation 
perspective, ALFA believes IFQ programs should be required to 
reduce bycatch, minimize habitat impacts, and be abundance-
based. To mitigate socioeconomic impacts and ensure long-term 
conservation concerns are met, IFQ programs should provide an 
entry level accessible to community-based fishermen, maintain 
fleet diversity, require direct ownership of quota share by 
active fishermen, control vertical integration and excessive 
share, and control foreign ownership.
    These goals and a performance review to ensure goals are 
met in the long term must be mandated by Congress to maintain 
the health of the resource, independent fishermen, and fishing 
communities. My experience with IFQ programs indicates that 
over time pressure on IFQ programs builds to liberalize rules, 
allow more consolidation, absentee ownership, and measures to 
benefit major quota shareholders. These changes will come at 
the expense of active independent fishermen, fishing 
communities, and ultimately the resource.
    By requiring councils to establish explicit goals, conduct 
performance reviews, and change use privileges if goals have 
not been met, Congress can ensure that both the resource and 
the fishing communities dependent on the resource are 
protected.
    I would like now to make a few comments specific to S. 637. 
ALFA welcomes language included in the bill that speaks to 
minimizing impacts on coastal communities and providing a 
portion of the quota for entry level opportunities, small 
vessel owners, and crew members. We suggest that language also 
be included in the bill that establishes a minimum goal for 
quota share ownership by people actively participating in the 
fisheries as owner-operators, skippers, or crewmen. We believe 
this active participation by quota shareholders, people with 
direct investments in the resource, is necessary to achieve 
stewardship objectives as well as socioeconomic objectives.
    Finally, ALFA would like to applaud Senator Snowe for 
excluding processors from the list of eligible quota 
shareholders. I know you have heard testimony from processors 
highlighting the disastrous effects of the halibut IFQ program 
on their operations. We have heard the same testimony, but have 
seen no evidence to support their claims. In fact, the 
fishermen-owned cooperative in Sitka has fared very well under 
IFQ's. While some costs have increased, others have decreased. 
Of those that have increased, one of the major ones has been 
more full-time employees at a higher pay scale. These are 
community people who are earning a better wage under IFQ's.
    That said, members recognize the importance of the 
processing sector to the industry and would support 
consideration of a one-time compensation to processors of 
stranded capital to the extent it has not already been 
depreciated or compensated through other tax benefits. ALFA 
would also support regional delivery requirements to protect 
processors investments and community employment, providing 
competitive markets are maintained.
    Members cannot support either a two-pie or a one-pie IFQ 
system. A two-pie system would eliminate competitive markets, 
turning the clock back to pre-statehood days when processors 
controlled the fish stocks and fish runs were overfished. A 
one-pie system or any IFQ program that did not control vertical 
integration would eliminate independent fishermen, again to the 
detriment of the resource and the communities.
    Processor shares would also undermine Americanization 
goals. The American Fisheries Act raised the U.S. ownership 
requirement for vessels to 75 percent. Certainly other U.S. 
fisheries should adopt this standard. Alaska's processing 
capacity is largely owned by foreign or multinational 
corporations. If processors are issued shares or allowed to 
purchase shares, the U.S. will lose ownership of America's 
fishery resources and the Americanization benefits of the 
original Magnuson Act. I cannot imagine Congress would intend 
or allow this to happen.
    In summary, IFQ's are a valuable tool for addressing 
resource problems and rationalizing fisheries. Because 
socioeconomic impacts can be profound, steps must be taken to 
address the concerns of fishermen and fishing communities. To 
ensure that IFQ programs protect the health of the resource and 
fishing communities, ALFA requests that Congress establish both 
conservation and socioeconomic goals for future IFQ programs 
and require program reviews to ensure long-term goals are met. 
We join with both the Marine Fish Conservation Network and the 
Alaska Marine Conservation Council in making this request.
    Finally, ALFA supports language in S. 637 that requires 
measures to mitigate socioeconomic impacts on fishermen and 
fishing communities and excludes processors from the list of 
entities eligible to receive quota share.
    Thank you for the opportunity to testify.
    [The prepared statement of Ms. Behnken follows:]

            Prepared Statement of Linda Behnken, Director, 
                Alaska Longline Fishermen's Association

    Members of the Committee,
    Thank you for the opportunity to testify, and for the attention of 
this Committee to reauthorization of the Magnuson-Stevens Act and the 
implementation of future Individual Fishing Quota (IFQ) programs.
    By way of introduction, let me provide you with information on my 
background relative to this issue. I have been a commercial longline 
fisherman in Alaska since 1982. I have worked as a deckhand since `82, 
and, since 1991, also as the owner/operator of a small combination 
troller/longliner. I did not receive an initial allocation of quota 
shares, but have since purchased small amounts of both sablefish and 
halibut IFQs.
    Since 1991, I have served as director of the Alaska Longline 
Fishermen's Association (ALFA) and, as such, played an active role in 
developing and promoting adoption of the Alaska halibut and sablefish 
IFQ program. In 1992, I was appointed to the North Pacific Fishery 
Management Council, and am completing my ninth year as a member of the 
Council. Through these various roles, I have had an opportunity to gain 
a range of perspectives on IFQs and their impacts on the resource, the 
industry, and the coastal communities of Alaska.

Establishing program goals
    Implementation of any limited entry program, whether that program 
takes the form of licenses, cooperatives, or IFQs, will always be 
controversial. Those who perceive themselves to be winners under the 
new program will generally support the program; those who perceive 
themselves to be losers, or left-out will oppose it. I believe the 
responsibility of managers is to separate the rhetoric from the 
substance, to identify legitimate problems and to clearly articulate 
goals and long-term objectives.
    That said, the socioeconomic impacts of IFQs on fishing communities 
are profound, and must be addressed. ALFA's, and therefore my, role in 
developing Alaska's halibut/sablefish program was to resolve resource 
problems associated with derby fishing while ensuring that 
socioeconomic safeguards relative to consolidation and corporate 
ownership were addressed through effective provisions. ALFA members 
helped the Council establish a vision for the fishery of the future 
that depended on characteristics essential to maintaining a healthy 
resource, a healthy industry and healthy communities. This vision 
included a diverse, owner-operated fleet (everything from skiffs to 
schooners, as we repeatedly stated) that delivered primarily fresh fish 
to coastal communities historically dependent on the fishery. ALFA 
insisted that the IFQ program include provision to limit consolidation, 
protect the small boat fleet, and provide an entry level affordable to 
people who lived in Alaska's coastal communities. We were proponents of 
the vessel size classes, the Block proposal, and the caps on quota 
consolidation. We opposed provisions that allowed leasing and absentee 
ownership, maintaining that the stewardship objectives attributed to 
quota share programs depend on direct involvement in the fisheries by 
those who made investments in the resource. While this final provision 
has been compromised to a far greater degree than ALFA members consider 
acceptable, all other provisions fundamental to our support for the 
program were adopted and implemented.

Lessons learned
    Throughout the IFQ debates, regulators and some industry members 
objected that the socioeconomic caveats built into the sablefish/
halibut program were overly restrictive, inflexible, and would cause 
the program to fail. Quite the opposite has proven to be the case. The 
restrictions have been barely adequate to meet program goals, and 
owner-on-board provisions requiring the quota share owner to be on 
board the vessel when shares are harvested have already been weakened. 
The message is clear: the provisions of IFQ programs will only be 
relaxed over time, they will never be tightened. The reasons are 
explained below.
    When IFQ programs are formulated, all concerned parties are 
involved, voicing their needs and concerns. As time passes, those 
excluded from the program disappear, those hoping to buy quota some day 
have little leverage, and the pressure to change the program comes from 
quota share holders that are well vested, would like more flexibility, 
wish to accumulate more shares, and, in many cases, would like to sit 
on the beach in Hawaii while ``share-croppers'' harvest the fish for 
them. Without checks on the system, and some firm guidelines or 
standards from Congress requiring direct ownership and involvement in 
the fishery by quota share holders, affordable entry level 
opportunities, and continued access by coastal community residents, IFQ 
programs are likely to devolve away from initial goals.
    Congress can safeguard against this process by establishing 
standards for all future IFQ programs, including both conservation and 
socioeconomic goals. To ensure standards continue to be met as IFQ 
programs mature, Congress can, and I believe should, require 
performance reviews and the opportunity to re-specify use privileges. 
This is one of the recommendations cited in Sharing the Fish, the 
report issued by the National Research Council (NRC) commissioned to 
review IFQs (p. 150). By setting such standards and calling for 
periodic review, Congress can ensure that the very legitimate concerns 
about corporate ownership and quota consolidation voiced by independent 
fishermen and fishing communities are addressed. I would urge this 
Committee to establish such guidelines, and to require program reviews 
to determine whether long-term objectives are being met. In 
establishing these standards, I would urge the Committee to rely 
heavily on the recommendations in Sharing the Fish. These 
recommendations, formulated by a diverse panel of fishery experts, 
reflect years of research, experience, public testimony and discussion.
    Along the same lines, I would urge Congress to define 
``cooperatives'' in the Magnuson-Stevens Act and to set similar 
standards for any future use of this management tool. As the Committee 
is no doubt aware, Alaska's pollock fishery is now harvested by pollock 
cooperatives that include harvesters, catcher processors, and 
processors. These cooperatives were formed without the guidance of 
Magnuson-Stevens Act directives and without public involvement. If 
Congress intends to allow Councils to consider the formation of 
cooperatives in other fisheries, guidelines comparable to those 
addressing future IFQ programs, including entry level provisions, 
accommodations for coastal communities, and performance reviews, need 
to be incorporated into the Magnuson-Stevens Act.

Senate Bill 637
    I would like to offer a few comments specific to S. 637. ALFA 
welcomes language included in the Bill that speaks to minimizing 
impacts on coastal communities and providing a portion of the quota for 
entry-level opportunities, small vessel owners, and crew members. 
Whether or not quota is initially set aside for these entities, their 
needs must be addressed by IFQ programs. I would suggest language that 
also establishes a minimum goal for quota share ownership by people 
actively participating in the fisheries, as owner-operators, skippers 
or crew members. This direct involvement by quota share holders will 
ensure that stewardship goals are realized, excessive share caps are 
effective, foreign ownership is controlled, entry-level opportunities 
remain affordable and active fishermen continue to benefit from the 
program. Without such language, over time absentee ownership by 
corporations will become the rule--to the detriment of the resource, 
the fishing communities, and ultimately the Nation.
    Finally, ALFA would like to applaud Senator Snowe for specifically 
excluding processors from the list of eligible quota share holders. I 
am sure you will hear testimony from processors highlighting the 
disastrous effects of halibut quota shares on their operations. I have 
heard the same testimony, as did the NRC Panel during the 
Congressionally requested IFQ review. I have seen no evidence to 
support their claims. In fact, the fishermen-owned processing 
cooperative in Sitka has fared very well under the IFQ program, despite 
being off the road system. Some overhead costs have increased (the 
year-round labor force includes more people at higher wage rates than 
did the labor force hired to work during the fishing derbies) while 
others have gone down (e.g., overtime pay). Although ALFA recognizes 
the importance of protecting the investments of processors, members do 
not consider allocations to processors, either through a ``two pie'' or 
a ``one pie'' system, to be the appropriate means of protecting those 
investments. In fact, ALFA members remain convinced that processor 
quotas will eliminate competitive markets and independent fishermen, 
turning the clock back to days when processors controlled the fisheries 
and Alaska's salmon runs were severely over-fished.
    In considering the issue of processor shares, I would again draw 
the Committee's attention to Sharing the Fish (pp. 154-155). The NRC 
Committee raised questions relative to vertical integration, foreign 
ownership, the existing balance between fishermen and processors, and 
the extent to which processors have already depreciated capacity or 
been compensated by the government through other tax benefits. I would 
urge the Committee to consider each of these questions, particularly 
the issue of foreign ownership.
    The American Fisheries Act raised the U.S. ownership requirement 
for vessels operating in Alaska's pollock fishery waters to 75 percent. 
Certainly other U.S. fisheries should adopt this standard. While there 
are still a few processors in Alaska that are entirely U.S. owned (two 
of which have been invited to testify), they represent a frighteningly 
small minority. Alaska's processing capacity is largely owned by multi-
national corporations, as I am sure you are aware. If quota shares are 
issued to processors, or processors are allowed to purchase shares, how 
will the U.S. retain ownership of America's fishery resources? Will we 
lose all the benefits of Americanization that began with the original 
Magnuson Act? I can not see how such a trend could be avoided, nor can 
I imagine Congress allowing such a trend to occur.
    That said, ALFA's membership has always recognized the importance 
of the processing sector to the health of both the fishing industry and 
the coastal communities. Under the halibut/sablefish program, ALFA 
supported vessel classes that require shore-based processing of 
approximately 80 percent of the total catch; in other words, fishermen 
supported a measure that limited their ability to freeze, or process 
catch in order to provide some protection to the processing sector. We 
would support measures to compensate processors for stranded capital (a 
one-time expense) and would likewise support requirements for regional 
delivery patterns provided competitive markets are maintained. ALFA 
members believe these measures would address the legitimate concerns of 
processors without allowing processors to gain control of the 
fisheries. ALFA can not support processor shares or a program that does 
not limit vertical integration of processors into the harvesting 
sector.

Summary
    IFQs are a valuable management tool for addressing resource 
problems and rationalizing fisheries. Because socioeconomic impacts can 
be profound, Congress must ensure that Councils address the concerns of 
fishermen and coastal communities. If properly designed, IFQ programs 
can promote stewardship, industry stability, and economic health in 
coastal communities. To ensure that these objectives guide the 
development of future programs, ALFA members urge Congress, through 
this Committee, to develop conservation and socioeconomic standards for 
future IFQ programs. Likewise members urge that Congress schedule 
performance reviews to ensure program goals are achieved, and require 
use privileges be changed if original goals are compromised. The 
socioeconomic standards should include quota share ownership by active 
fishermen (including vessel owners, skippers and crew), entry-level 
opportunities, sustained access by coastal community residents, and 
healthy, competitive markets. Although only touched on in this 
testimony, ALFA also supports conservation standards pertaining to 
bycatch reduction and habitat protection.
    In closing, I would like to thank Senator Snowe for introducing S. 
637, Senator Stevens for his long-term commitment to the Nation's 
fisheries, and all Members of this Committee for the opportunity to 
testify.
    Respectfully,
     Linda Behnken (executive director, ALFA)

    Senator Snowe. Well, I thank all of you for your 
outstanding testimony here today on a very complex--not to 
mention contentious--issue. It has been very helpful to hear 
the diverse points of view on the various elements of S. 637 
and other issues as well. Obviously our challenge is going to 
be to reconcile these differences and hopefully be able to move 
forward.
    Pat, let me just start with you. Obviously, you are the 
only one who represents the New England fisheries. As we know, 
there are strong objections to an IFQ program in New England. I 
think it would be safe to say that a majority of the commercial 
fishermen in New England are probably opposed to an IFQ 
program. Do you believe that the double referenda included in 
this legislation would be helpful to the fishermen in the event 
they are opposed to an IFQ? By requiring two-thirds approval 
and a referendum at the initiation of an IFQ program and then, 
of course, based on the completion of an IFQ program for 
approval, do you think that the referendum would help direct it 
in a way that more than the majority of the commercial 
fishermen would want in New England?
    Mr. White. Absolutely, Senator Snowe. One of the things 
that is going to maintain the fisheries in New England is 
biodiversity, and if we continue down the road of single 
species management we will not even be able to have votes in a 
process like this. So this double referenda I think is a good 
step.
    We have already lost a lot of the fishermen, myself 
included, in many of those species because we did not have 
landings data in a certain window. But there are still enough 
left that I think you could get a good cross-section of what 
people's wishes are.
    Senator Snowe. So it would be helpful----
    Mr. White. Absolutely.
    Senator Snowe.--in that sense.
    Why do you think that the fishermen in New England are 
opposed to an IFQ? Do you think it is because of the 
consolidation issue?
    Mr. White. I think consolidation is the principal issue. 
The whole social aspect of our communities in the State of 
Maine specifically are based on fishing. What we have seen 
around the world with a lot of the quota-based management 
programs is that a good percentage of the people have gone out 
of the fishery. I think as I said in my statement, we have made 
a lot of mistakes in fisheries management in New England, but 
we are still there. A lot of the fishermen are still fishing. 
The consolidation I think would be the downfall of our 
waterfronts and social structure.
    Senator Snowe. Mr. Plesha, I would like to have you address 
transferability. I gather the remainder of the panel has 
opinions as well--I know that Pat is opposed to the 
transferability element. Now, some have said that without 
having that type of provision, it would require constantly 
reestablishing the allocation of shares at some point.
    Why do you think? I would like to hear each of the 
panelists comment on the transferability question, because 
obviously that is one of the most difficult areas that we are 
going to have to address in any kind of legislation.
    Mr. Plesha. I guess off the top of my head I would think 
that one of the benefits of a quota-based system is the 
economic efficiency that it would allow to develop, and that 
would be negatively impacted if you would not allow for the 
shares to be transferred and used in the most efficient manner. 
So I think you would get social benefits in the sense that you 
would maintain the existing structure of the fleet, at the cost 
of perhaps some efficiencies.
    Senator Snowe. But why would it not concentrate the 
fisheries in the hands of a few ultimately? Is that not a 
legitimate concern?
    Mr. Plesha. No question, and if you allow full 
transferability in an open access fishery the number of 
participants will greatly decrease.
    Senator Snowe. Ms. Williams, I would like to hear your 
comments. Should it be up to the councils to make the decision 
as to whether or not it should be allowed, leaving it to the 
discretion of the councils to make that decision?
    Ms. Williams. I think it should be left up to the 
fishermen, the people that will be involved, that will be under 
that system. They know best as to whether or not if they should 
be allowed to be transferred, sold, leased. You can build 
provisions in there that will help protect excessive shares 
owned by one individual or several individuals. You can put 
some type of requirement, as I had suggested earlier, as a 50 
percent income requirement, which we already require in the 
Gulf of Mexico.
    I liked your statement when you said one plan does not fit 
all regions, and you are very correct on that. So that is why 
it is very important to let the fishermen decide. You can 
easily set up a panel. Each of the eight regional councils can 
set up a panel of the fisheries or the fishermen that this 
would affect and have them give their input. It is basically a 
business plan and a person that is in business should be 
telling us how they want their business structured, in my 
opinion.
    Senator Snowe. Mr. Giles.
    Mr. Giles. I think transferability or lack of 
transferability does diminish some of the benefits of 
rationalization. In Alaska today we have got a crab fleet that 
is 250 boats that are struggling today and the processing 
sector has ten times the capacity to process it. If the fishery 
was rationalized and everybody had to use the same assets, you 
would lose some of the benefits of trying to consolidate at 
times of low quotas and low fisheries.
    I think as far as the concern about control, I think at the 
North Pacific Council we certainly have taken it up and I think 
the council has the right authority to determine excessive 
share caps, whether it is harvesting or processing or vertical 
integration or whatever the concerns were, to put some strong 
enforceable caps to make sure that any one sector, whether it 
is the harvesting or processing or vertical integration, does 
not grow to a level that is greater than what Congress wants to 
see happen.
    Senator Snowe. Ms. Behnken.
    Ms. Behnken. Thank you, Madam Chairman. I would agree with 
most of what Mr. Giles said. I believe that we tried long and 
hard to find a way to come up with a workable IFQ program for 
halibut that was non-transferable because a lot of people had 
concerns about consolidation and were not able to do so in a 
way that provided an entry level and a way to really 
rationalize the fisheries under the IFQ program.
    Our I think conclusion we came to was, as long as you build 
the program to prevent consolidation, prevent vertical 
integration, prevent the kind of changes that you do not want 
to see, and then schedule performance reviews to ensure that 
those goals are met, and hold onto the opportunity to change 
use provisions and re-issue shares if those goals are not being 
met or have been compromised, then you can accomplish the same 
thing while rationalizing the fishery with the transferability.
    Senator Snowe. What has been your experience? What has the 
North Pacific Council experience been with establishing 
allocations under an IFQ program?
    Ms. Behnken. The halibut-sablefish program has a lot of 
social caveats, if you will, built into it to maintain a 
diverse fleet, to ensure that second generation people buying 
in are real, living, breathing people--corporations cannot buy 
shares. We set low caps on excessive shares. We also have a 
block proposal that further limits consolidation.
    So far those steps have worked well, I believe, to keep the 
fleet diverse, to meet program goals. My concern remains that 
over time the people at the table pushing for changes will 
eliminate some of those safeguards. For that reason, I believe 
future IFQ programs need to be guided by some goals set by 
Congress.
    Senator Snowe. Are those goals in this legislation or are 
there additional recommendations you would make in that regard?
    Ms. Behnken. I think there need to be a few additional 
recommendations in the legislation. One of them in specific 
that I would add from the socioeconomic perspective is that 
some percentage of the quota being fished has to be held and 
owned by active fishermen. I would think that that might be 
different for different fisheries, but in that way you ensure 
that second generation, down the line, there will be vessel 
owners, there will be crewmen, there will be people out on the 
water actually fishing that still hold those shares, rather 
than corporations or people who are absent from the resource, 
who are hiring people to go catch the fish for them.
    Senator Snowe. Would you support new entry?
    Ms. Behnken. Absolutely. I think there needs to be an entry 
level provision, a way built in so that there is an affordable 
entry level for people in the communities.
    Senator Snowe. Ms. Williams, what has been the experience 
of the Gulf of Mexico Council with IFQs? I know you did an IFQ 
program for the red snapper that I gather was never implemented 
because we established the moratorium.
    Ms. Williams. Yes, ma'am.
    Senator Snowe. What was the experience of the council in 
establishing that allocation? Could you bring your microphone 
closer, please. Thank you.
    Ms. Williams. When the council based the establishment of 
the allocation, they took in historical fishing practices, they 
allowed the fishermen to pick two of their best three years. 
That was calculated over the quota percentage and then each 
fishermen was told what their allocation would have been.
    But under the system that the Gulf Council designed under 
the red snapper fishery, you could sell them, you could lease 
them, you could transfer them. What the fishermen did not like 
is that there was not enough provisions put in there as to who 
could own them, how much one could own. There were some 
concerns about that. There were some concerns about the cost, 
what it was going to cost to administer the program.
    But the fishermen right now have been under a derby fishery 
for so long, they need help. They want their lives back. They 
want to be able to fish 12 months out of the year and not 50 
days out of the year.
    Senator Snowe. That is the testimony we heard when we 
conducted a hearing down there recently with Senator Breaux.
    Thank you very much. Now I would like to recognize Senator 
Breaux. Welcome.

                STATEMENT OF HON. JOHN BREAUX, 
                  U.S. SENATOR FROM LOUISIANA

    Senator Breaux. Thank you, Madam Chair. I thank the panel. 
It is good to be back with you on the fishing issues.
    I will just say, I did not have a chance to make an opening 
comment. I apologize for not being here when we started. But I 
support giving the greatest degree of flexibility to the 
councils to manage the fisheries in their respective areas in a 
way that is best for the fishermen, the processors, and all of 
the interests involved in those areas. That is why we have 
eight councils and not one. I mean, what is best in Alaska may 
not be best for the Gulf of Mexico. What is good for the Gulf 
may be totally anathema to the Northeast and to Maine and to 
Alaska and to everywhere else. There are different interests, 
different issues, different fish, different problems, different 
concerns, which all demand different solutions in different 
regions of the country.
    The reason I support the concept of the bill that Senator 
Snowe has set out is because it allows councils another tool to 
help manage their fisheries. It is not mandated, nor should it 
be. Congress should not be micromanaging fish. I have no idea 
what are the best fishery management practices in Alaska. I 
doubt that I know very much about what is the best management 
practices in the Gulf of Mexico, where I come from and have 
fished.
    But I think the council members are charged with that 
responsibility and if they want to use another tool, like an 
individual quota, they should have the opportunity to do so. If 
it does not fit, they do not have to use it. If there is a 
problem that can be solved by the use of an individual quota 
system, that I think should be transferable, they should have 
the authority to do that. Washington should not say no. We 
should not say yes, you have to, but we should give the 
councils the maximum degree of flexibility to use the tools 
that are available to reach good conclusions.
    Mr. Plesha, having said all of that, I do not quite 
understand the suggestion, I take it, that processing plant 
owners should also have a quota. I mean, if the processing 
plants own vessels, as some of them do, they would have a quota 
because they own a vessel. But I mean, why would a processing 
plant that does not catch fish have a quota to catch fish?
    Mr. Plesha. What we have learned in Alaska is that both 
processors and harvesters have capitalized symmetrically, 
equally, in this race to fish that we call open access. When we 
reach a quota-based system, suddenly the harvesting assets, the 
boats, become devalued because you have too many boats, and the 
plants become devalued.
    Senator Breaux. That is the point I do not understand. The 
total allowable fish that can be caught will be set regardless 
of the individual quotas. If we say there are nine million 
pounds of red snapper in the Gulf that can be caught, the 
processing plants would realize that there are going to be nine 
million pounds of fish. They do not really care which boat 
catches it. They know to be prepared for nine million pounds of 
red snapper because that is the total allowable catch, and they 
do not care which boat brings it in and they will fight, 
offering the best price to the boat owners, to make them 
process it at their particular plant.
    I do not understand how a quota which does not affect the 
total allowable catch, but only who gets it, creates a problem 
here.
    Mr. Plesha. Let me give you the Alaskan example for crab. 
In the crab fisheries we will say the quota is 25 million 
pounds. We have 250 vessels racing to catch that quota and we 
will say 25 processing plants racing to process that quota. We 
operate 2 weeks. If you rationalize the fishery with a quota 
system, that fishery could last 7 months. Suddenly you need 50 
vessels, maybe less, and 5 processing plants.
    What happens to the processing plants that are put out of 
business because of this quota system? They were making a 
market rate of return under the 2-week fishery. They were 
getting a return on their capital investments. But when you go 
to a quota system, suddenly they are completely unnecessary 
because they have five times more processing capacity 
instantaneously than is necessary to process that fishery.
    Senator Breaux. So when you have the fishing derby that 
gets everybody to catch it in a very short period of time, you 
need an abundance of processing plants because so much is 
coming in in a short period of time.
    Mr. Plesha. Correct.
    Senator Breaux. So in your case, the derby where everybody 
goes out there and risks their lives to try and catch as much 
as they can in the shortest period of time is in the processing 
plants' interests.
    Mr. Plesha. As it is in the vessels. We have all grown 
together. At one time there were not 25 plants, there were not 
250 vessels. But this industry, at least in the North Pacific, 
has grown up where we have built plants in extremely remote 
areas of Alaska that are good for one thing and that is 
processing seafood, and people have invested in boats so that 
they can deliver crab and make money delivering crab to our 
plants.
    Senator Breaux. So is it fair to say in the fishery you are 
talking about that both the processors and the vessel owners 
feel of the same mind with regard to this particular issue?
    Mr. Plesha. We have been in discussions with the crab 
sector for a good deal of time now and there is a growing 
consensus, I would say it is not a complete consensus but there 
is a growing consensus.
    Senator Breaux. That is the point. What you are 
recommending I do not think fits the Gulf of Mexico. But if you 
think and the fishermen think and the vessel owners think and 
the processing plants think and, most importantly, Senator 
Stevens thinks that is the right thing to do for Alaska, well 
then, so be it. The council can make that decision on what is 
in the best interest of Alaska.
    But what may be okay up there does not fit in the Gulf, and 
I just think that it is important to allow the option for the 
respective councils, Madam Chair, to take the tools and use 
those that best fits their needs. I can appreciate what you are 
saying about Alaska and if that is correct--I have no doubt 
that it is--you would not want to use this tool, whereas the 
council in the Gulf that Ms. Williams is speaking about may 
think that it can work, and I think they ought to have the 
flexibility to do that.
    I thank the panel for their being here. Thank you.
    Senator Snowe. Thank you, Senator Breaux.
    Now I would like to recognize Senator Stevens and thank you 
as well, Senator Stevens, for being here today, because I know 
you are unusually busy as chair of the Appropriations 
Committee.

                STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    Senator Stevens. I cancelled Appropriations today for this.
    [Laughter.]
    Senator Snowe. That tells you how important it is.
    Senator Breaux. That may be too much.
    Senator Stevens. I apologize for being late. I had a little 
oral surgery, so if I lisp a little bit I hope that you will 
excuse me.
    I would like to have the statement placed in the record in 
full.
    Senator Snowe. Without objection, so ordered.
    [The prepared statement of Senator Stevens follows:]

    Prepared Statement of Senator Stevens, U.S. Senator from Alaska
                       Individual Fishing Quotas
                             April 30, 2001

    Thank you Chairman Snowe for introducing your bill, holding this 
hearing, and allowing Alaskan witnesses to participate.
    Thank you to Linda and Don for coming to Washington for this 
hearing.
    For Alaska, a harvester and a processor will testify about the 
impacts of the halibut/sablefish IFQ program.
    Much of the testimony at the Anchorage field hearing last year 
dealt with IFQ's.
    I hope we all agree that Congress should provide guidance where 
appropriate, but leave IFQ details to the Councils.
    Alaska is home to most of the nation's largest fisheries. Dutch 
Harbor is the number one seafood port in the country, and Kodiak, Sand 
Point, King Cove, and St. Paul are dependent on fishing for their 
survival.
    In 1999, 678 million pounds of fish worth $140 million were landed 
at Dutch Harbor, and another 331 million pounds worth $100 million were 
landed at Kodiak.
    Alaskans are rightfully proud of our fishery management record. The 
North Pacific Council sets conservative total allowable catch levels 
for all the major fisheries it oversees.
    We also use strict bycatch and prohibited species catch limits to 
protect other species.
    However, good management alone will not stop a race for fish. 
Without a quota-based system, there is an incentive to build bigger, 
faster, better boats, and invest more capital in processing facilities, 
docks, and other infrastructure.
    In the North Pacific, when we talk about ending a race for fish, we 
call it ``rationalizing'' the fishery.
    The North Pacific Council rationalized halibut in the early 1990's, 
and Congress rationalized Bering Sea pollock in 1998.
    The halibut fishery had become so overcapitalized that there were 
only a few 24-48 hour openings throughout the whole year.
    Fishermen were forced to sea in dangerous weather, and most used 
their profits to buy larger vessels and more gear to compete the next 
year.
    IFQ's allowed halibut fishermen to spread out their effort and 
avoid bad weather. We see the results at the fresh fish counter almost 
any time of year--more fresh fish.
    IFQ's also allowed fishermen to avoid re-investing in new vessels 
and additional gear.
    The downside to IFQ's included the displacement of small fishermen 
with small boats who did not receive quota.
    The race for pollock was so bad that the Seattle fleet decided it 
couldn't compete without 300 foot megatrawlers.
    That fishery had so many problems that Senator Gorton and I finally 
convinced Congress to try to fix things with the American Fisheries 
Act.
    The AFA rationalized Bering Sea pollock in two ways: first, the AFA 
transferred fish between sectors to pay for a capacity reduction 
effort. Second, the AFA authorized cooperatives between fishing vessels 
and processors.
    The cooperatives assigned catch history to vessels and processing 
history to processors, and required a given vessel to deliver most of 
its catch to one processor. However, vessels can switch processors 
under certain circumstances.
    The AFA has worked--31 of the 129 AFA-eligible vessels (24 percent) 
did not fish in 2000. Processors have time to produce more high-value 
fillets and more finished product per ton of pollock harvested.
    Bycatch is much lower than it used to be and the fishery is safer 
because fishermen can avoid the really bad storms.
    I urge Senators to look closely at both the halibut and Bering Sea 
pollock fisheries. These are two very different ways to protect the 
species involved and end the race for fish.

    Senator Stevens. Let me ask you a series of basic 
questions. The Magnuson Act, we now call it Magnuson-Stevens, 
but the whole purpose of that was to protect the reproductive 
capability of the species that we rely on from the sea and at 
the same time to provide a management technique that did not 
bring to Washington every time, did not come to Washington 
every time there was a dispute in one region or another.
    So we created regional councils. I want to make sure we are 
still on the same track. Do you all agree with the statement I 
think the chairman made, in effect, that we do want to have a 
system whereby any management tool such as IFQ is decided upon 
by the regional councils with minimum guidance from the Federal 
Government as to what you must do, can do or cannot do? Do you 
all agree with that? Is that still our goal?
    Mr. Plesha. Senator Stevens, if I might, I think there are 
some very fundamental issues with regard to ITQ systems or IFQ 
systems that the councils do need guidance from the Congress on 
how to proceed with.
    Senator Stevens. Well, I have not gotten to that. But 
minimum guidance still? You do not want us putting down 
amendments to the act that says every council shall do this, 
this, this, this, this, in terms of management techniques, do 
you? Ms. Behnken?
    Ms. Behnken. Senator Stevens, I would say absolutely. I am 
a firm supporter of the council system as the place to make all 
those final decisions. To me the role of Congress is to give 
some very clear guidelines on conservation goals, socioeconomic 
goals, mitigating socioeconomic impacts, as Senator Snowe's 
bill does, and then the councils make the decisions.
    Senator Stevens. Is there any region in the country where 
we still have such a surplus of fish that there is no race for 
the fish?
    [No response.]
    Senator Stevens. I do not know of any. Tell me, is there 
any place that does not need rationalization, as we call it in 
Alaska, some method of decapitalizing the fishing industry in 
that region?
    Ms. Behnken. No, I do not believe there is.
    Senator Stevens. I believe that we have reached the point 
where we have to realize that our goal is to protect that 
reproductive capability and end the race for the fish. What we 
just heard from Mr. Plesha about what is taking place in Alaska 
in terms of the race for fish, with the ever-building fleets 
and the ever-increasing processing capabilities, that the only 
thing that can happen is we keep shortening the seasons to the 
point where the race becomes more intense, the safety becomes 
more difficult for people at sea, and really the ability to 
maintain the quality of the product declines because of the 
competitive factors of getting that quality to market.
    We are better off to have a year-round fishery than to have 
a race for the fish in every council area. Would you disagree 
with that, Mr. White?
    Mr. White. With all due respect, I guess I would disagree a 
little bit, because I think we have always had a race for fish, 
Senator Stevens, in every fishery that we have had. That has 
not been totally unhealthy. I think that the way we have 
reacted to it has been unhealthy in many instances, by going to 
days at sea or catch limits. There may be other methods other 
than a quota-based management program that would deter the 
effects of overfishing in specific species.
    I think there are times of the year with many species of 
fish that it is seasonally ripe, just like fruit, to harvest 
them. I think that will continue on with the race for fish. 
Processors I think have adapted to that also.
    The success of fisheries in New England have been multi-
species, where we have gone from different species to different 
species on different seasons, and I am not sure that the quota-
based system would address that.
    Senator Stevens. Well, I have sat at this table for a long 
time. I do not remember the New England area ever having 
adequate supply of fish.
    Mr. White. I did not say that, sir.
    Senator Stevens. Well, if you do not have an adequate 
supply and you have a race for fish, you are soon going to have 
a strain on one thing or another. If it results in 
overcapitalization, then you will soon have an absolute 
collapse of the fishery, which we have witnessed in your area 
all too often.
    What I am getting at right now is that I think--I agree 
with what Senator Breaux says. We have so many different 
concepts and traditions in the fishing industry in the various 
regions that I think that the wisdom of regional councils have 
been adequately demonstrated and we need to reinforce those 
councils, give them further authority in this area, let them 
make the decisions subject to some guidelines in order to 
protect some of these things.
    I see the light is coming on. But I am still of the opinion 
that the overcapitalization comes to a great extent because we 
have created new mechanisms of value in these fisheries that 
should not be there. I worry about the IFQ's from the point of 
view of having another piece of paper that must be purchased by 
an entrant into the fishery, to the point where only either the 
corporations or the very wealthy can become real participants 
in the fishery.
    So I think what we need to do is to define a way to make 
sure that these systems are term-limited. Coming from me, that 
is something. I do not believe in term limits.
    [Laughter.]
    Senator Stevens. But when you look at the concepts of 
IFQ's, the councils should I think review those principles at a 
set period of time. We must require each succeeding generation 
at least to review those to see if these processes are going to 
fit into their lives.
    I will have some other questions, Madam Chairman. But I do 
believe that we have to reach a conclusion in our area about 
this problem of allocations to the processing plants. I do not 
believe it would be in our best interest to find a way to 
reduce and decapitalize the fishing fleet and leave all of 
those processors out there competing for fish that will come in 
over 10 months rather than coming in over 2 weeks. It just will 
not work.
    Ms. Williams, I am done. I will come back to you in a 
minute.
    Ms. Williams. Yes, Senator Stevens. I wanted to comment on 
what you said about letting the councils have the greatest 
flexibility. I have sat at the council table and I have been on 
the other side where I sat out in the audience representing 
commercial fishermen.
    While the council is a very good place to start, while they 
try to do the very best job that they can, the councils are not 
always balanced. That is why the fishermen need some degree of 
protection. Such as on the Gulf Council, we have four 
commercial representatives, as I said earlier, we have seven 
recreational representatives, we have five State directors, who 
probably 90 percent of the time vote down the recreational 
line.
    That is why sometimes we need Congress to come in and 
intervene on behalf of the fishermen to say, okay, such as 
under the IFQ-ITQ, let us have a double referendum. Let us see 
if the council did what the fishermen asked them to do, because 
very often the council does not take the advice of the 
fishermen. That is why we need Congress to intervene at times.
    Thank you.
    Senator Stevens. Ms. Williams, if you want the Congress to 
intervene, I would just point our attention towards the 
intervention of Congress in the development of Alaska's 
resources. You would be much better off to decide the issues in 
the region than here in Washington. They do not get decided 
here. We have been waiting 20 years for decision on many of our 
resource issues. You are going to wait a long time if you wait 
for Congress to make the decisions to protect solely the 
fishermen in terms of the regional councils' activities.
    Ms. Williams. Senator Stevens, also not necessarily 
intervene. We need some protection from Congress, to give 
guidance to the councils on what they should and should not do 
when it comes to protecting our marine resource and our 
fishermen.
    Senator Snowe. I appreciate your comments, because 
ultimately the legislation that I designed was in response to 
the National Academy of Sciences report, which provided 
recommendations, guidance, and criteria in the design of the 
IFQ's. There is obviously a diversity of opinions, as is 
reflected on this panel, as to which approach is preferable.
    Obviously, we want to design something that would be fair, 
but also to make sure that the fishermen have a voice in the 
shaping of an IFQ program. That is why it is important to hear 
your responses here today.
    The concern, Senator Stevens, from the New England 
perspective is that the IFQ program might diminish the owner-
operator traditional style of fishing in New England. One of 
the provisions I have included in this legislation would 
require--and Ms. Behnken, I know you raised this issue as 
well--it would require owner-operators to be eligible for the 
quota. That is important.
    But nevertheless, the issue in New England is the 
consolidation of quota in the hands of a few, because we have 
many thousand small fishing vessels throughout New England, and 
we also need the flexibility of moving from one fishery to 
another. So that is the challenge here.
    I would like to ask a question on foreign ownership, 
especially in the processors. Again, this is another different 
view, but the American Fisheries Act, due to Senator Stevens' 
leadership on this issue, requires 75 percent American 
ownership of a fishing vessel. Now, many processors are 
foreign-owned.
    So how will we address that issue in this legislation in 
the event we do allow processors to have a share under the IFQ 
program? Mr. Plesha?
    Mr. Plesha. First of all, the idea of foreign ownership is 
near and dear to my heart. Trident is 100 percent American-
owned. It has done as much as any company can possibly do to 
help Americanize the fisheries of the North Pacific. Having 
said that, what we are talking about is people who have legally 
invested in processing plants throughout Alaska. It has been 
discouraged and made illegal by the Congress for many years for 
foreign entities to own vessels. It has not been illegal and it 
has been encouraged for foreign entities to invest in 
processing plants.
    If you were to develop a two-pie system that allocated 
processing quotas to plants and harvesting quotas to vessels, 
the same distinction would be maintained, that the vessels 
would be 100 percent or 75 percent at least U.S.-owned. But it 
would make sure that people who have invested in processing 
facilities do not have the value of their investments taken 
away from them as you rationalize these fisheries.
    I do not think that it would be the intent of Congress to 
expropriate capital investments, even from foreign-owned 
entities.
    Senator Snowe. Does anybody else care to comment? Ms. 
Behnken?
    Ms. Behnken. Thank you, Senator Snowe. I did want to 
respond to some of the comments on processor shares. I share 
the concern that you have raised about maintaining ownership of 
the resource, American ownership of the resource, if we allow 
vertical integration in the fisheries or even by allocating 
shares to processors. I am not convinced that there is a 
growing consensus in the industry in Alaska for processor 
shares and remain concerned about the effect of processing 
shares on the independent operator, on competitive markets, and 
on Americanization, and on our ability to control excessive 
share.
    I guess finally, I do recognize the level of investment 
that has been made by the processing sector. But that is a one-
time expense. To me, IFQ's are designed to meet conservation 
goals, to protect the fish, as Senator Stevens was saying. The 
investments that people have made go secondary to that.
    There probably needs to be some compensation, but IFQ's are 
a long-time fix to address conservation issues. To me, the 
compensation to processors would be a one-time, up front 
compensation and it does not demand processing shares to do 
that.
    Senator Snowe. What about a sunset provision? As you know, 
I have a five-year sunset provision in this legislation. In 
particular, if an IFQ is not working, this is one means of 
controlling the process. How do you all feel about it? Just 
going down the line. Mr. Giles?
    Mr. Giles. I think a sunset provision is appropriate for 
review. The one thing that happened with halibut and sablefish 
is if you allow transfers, the money starts changing hands and 
it gets harder and harder to pull the program back after quota 
and dollars have shifted. The transferability issue, you could 
have these quotas without transferability and you still get a 
lot of the benefits. You would not get the economic benefits 
you would get otherwise.
    But clearly the prizes in the IFQ's are the values that 
quotas create. I would certainly recommend that any new 
programs have a period of time where you can see how the quotas 
are working in some kind of a review; in the interim period, 
though, minimize the amount of permanent transfers, so that 
there are not a lot of dollars and quota changing hands.
    The halibut and sablefish program is on its seventh year 
and millions and millions of dollars have changed hands, and it 
would not be practical now to revisit that.
    I guess I would like to make one comment, too. There is a 
lot of discussion about fishermen and processors, and I think 
you cannot look at every fishery the same way. Certainly in the 
Bering Sea, the fishermen are corporations. They are big boats. 
They are not mom and pop operations. It is an industrial 
fishery. So when we are talking certain fisheries, it is 
different than a skiff fishery or a day fishery where you do 
have family operations. Out in the Bering Sea and the pollack 
and cod and crab fisheries, these are corporation boats, owned 
by corporations, multiple boat owners, multiple boats owned by 
the same owners. So it is not the same as discussing a 
processor-fisherman relationship as it is with the small mom 
and pop fishery.
    Senator Snowe. Senator Stevens.
    Senator Stevens. Thank you very much.
    I have been worried for some time that we may have missed 
one distinction in the Magnuson Act that we should have made. 
That is the distinction between the council activities in areas 
like bycatch, prohibited species, or determining the sustained 
yield, and determining basically the overall activities within 
a council area other than fishing, harvesting, and processing.
    I sometimes wonder if we should not have created a 
requirement that there be a harvesting sort of subcommittee at 
the councils, made up of harvesters, and a processing group 
made up of processors, and let all the members of the councils 
participate in the basics of the allowable catch and bycatch, 
all of the environmental and protection concepts for the 
species themselves, but to have, as Ms. Williams says, a 
fisheries harvesting committee or subcommittee of the council 
to deal with harvesting issues and processing to deal with 
processing, because it does seem to me the problems we are 
having on the councils relate to the conflicts, as Ms. Williams 
has mentioned, between those what are basically concerned with 
the overall environment, the basic ecological issues of the 
oceans, as compared to the business aspects of harvesting and 
processing.
    What do you think about that, Ms. Behnken?
    Ms. Behnken. Thank you, Senator Stevens. I guess I am not 
quite sure what you are looking for. But I do think that the 
council, the North Pacific Council, has relied fairly heavily 
on a number of issues on committees made up of members of the 
industry, members of the processing sector, members of the 
conservation community, to try and come together and suggest a 
solution to the council.
    That has been very effective with regards to the Stellar 
sea lion issue. As you know, our RPA committee did a very good 
job of helping solve those issues. So I think there may be some 
merit in that. I am not sure how that would play out with 
regards to this issue, where you really need the sides really 
working together and the council making the ultimate decision.
    But certainly subcommittees have helped resolve some 
contentious issues in the past.
    Senator Stevens. Well, for the record, I am a little 
worried about the IFQ issue being left totally to the councils 
without some guidance for the protection of those people who 
are actually doing the fishing or doing the processing from 
those who really would use council techniques to really cripple 
both portions because they really do not want the commercial 
fleets out there.
    I am worried about that. I think they should have their 
role in determining policies in the region, but I do not think 
we should give them the tools to destroy the people who harvest 
the fish, process the fish for human use. There has got to be 
some protection in there somewhere for the fishermen.
    I know we put this bill together to protect the species, as 
I said. But the people who are being left out here are the 
people who should be involved in harvesting and processing. Too 
often, I think we are going towards distant investor-owned 
concepts of people who are not at the table and really do not 
care about what goes on at the table; they only care about the 
bottom line. Fishing cannot be totally run on the basis of the 
bottom line.
    Thank you.
    Senator Snowe. Thank you, Senator Stevens.
    I would like to welcome Senator Kerry, who is the ranking 
Democrat on the Subcommittee.

               STATEMENT OF HON. JOHN F. KERRY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Kerry. Madam Chairman, thank you very, very much 
for first of all having the hearing. Secondly, I apologize to 
both colleagues and to the panelists that I was not able to be 
here, just because of the intensity of our schedules around 
here. I think everybody is familiar with that problem.
    But I appreciate Senator Breaux's significant and important 
line of questioning. I think he has done a good job, from what 
I am told by my folks,--that is not really what they said, 
but----
    [Laughter.]
    Senator Kerry. No, it is what they said.
    He and all of us here at this dais have really been deeply 
interested, not just in this issue of IFQ's, but in the whole 
question of how we are going to resolve the differences between 
our different councils, different fisheries, different fishing 
groups within each fishery. It is very complex. If you ever 
wanted to do a study on government and government process, I 
have always said this is one of the issues, not the only one, 
but it is one of the few that really provides just a classic 
kind of process study and interest group study and so forth.
    It is difficult. I have been through with Senator Stevens 
several iterations of the Magnuson Act. He is our senior player 
on all of these issues and he has been involved in more 
evolutions of the fisheries than anybody around here.
    We each come and we are each here on this Committee because 
we represent states that have important fisheries that make 
important contributions to the Nation's wellbeing. Last year 
Senator Hollings and I, in the absence of our ability to 
resolve the Magnuson effort, proposed a Magnuson substitute 
that opened up the question of IFQ's. Obviously, we ran out of 
time before we could have a full discussion, so the moratorium 
continued.
    I am very sensitive to Senator Stevens and Alaska and their 
fishery and their council. This was the whole concept behind 
the councils--that we have differing interests here and it is 
not an one size fits all solution. It just does not lend itself 
that easily to that.
    But I think as Senator Breaux pointed out, we should not, 
because one fishery has a particular set of interests and a 
particular notion of how to approach them, we should not, I 
think, deprive another fishery of the opportunity to have an 
alternative one. When you look at the experience in other 
countries who are managing fisheries, the few that are doing it 
very effectively, have adopted these approaches and they have 
done it with enormous success.
    I know there is a great fear among fishermen. There is fear 
in my State. I cannot sit here and tell you that the fishermen 
in Massachusetts are ready to do this. They are not. But I 
believe there are ways to work through the problems of 
consolidation and the fears people have about access and the 
initial allocation. Those are the biggest fears of all, I 
think, is sort of who gets what.
    That is a legitimate fear. If I was in the industry, if I 
was out there dependent on my income from fishing and it is my 
lifeline and it has been my father's and grandfather's life, 
and I am part of a small community and that small community 
depends on it, I would not want to suddenly be sitting there 
saying: My God, this may be taken away from me by some 
bureaucrat over whom I have no control.
    So it is a legitimate, very legitimate concern people have. 
At the same time, we have a lot of latent permits out there. We 
have stockpiling of fish. There are a whole lot of problems 
even in the present that we need to work through, that I think 
when you look at them some of the principles are really the 
same in how you approach working through existing problems.
    So it is my hope, Madam Chairman, that we will be able to 
resolve this issue this time. I want to work with you and other 
Subcommittee members here to devise national criteria for quota 
management systems, whether it is an IFQ or a fishery 
cooperative or a community or area quota. It seems to me that 
we ought to be able to find a way to set up some standards that 
meet the regional needs.
    Senator Snowe and I recognize that the allocation issues 
are the most contentious, divisive, and potentially destructive 
decisions that any regional council can make. Use of a 
referendum is perhaps one way to ensure that fishermen broadly 
support any IFQ program submitted to the Secretary. But I am 
also interested in finding alternative ways of improving 
confidence in the fairness of council decisions and ensuring 
that IFQ's or any other quota system contain protections 
against consolidation, improve the conservation record of our 
fisheries, and do not result in windfall profits at the expense 
of taxpayers.
    So maybe we should consider whether there should be an 
independent review board for IFQ allocation and fairness 
issues. I do not know the answer to that. But I am very, very 
interested in how quota management tools like IFQ's and fishery 
cooperatives compare with our existing management tools. Today 
a non-IFQ fishery struggles with very substantial and costly 
problems, huge regulatory discards, fishery data gaps, 
inadequate enforcement, and overcapacity.
    Right now the New England Council is struggling to reduce 
mortality in the groundfish fishery by preventing the entry of 
the latent permits. One proposal would devalue permits that 
have not fished for groundfish in the last few years. Like an 
initial allocation of quota for an IFQ, that is a very 
contentious and emotional issue, despite the availability of 
$10 million for a latent buy out in a fishery already closely 
restricted by days at sea and trip limits.
    So we are all struggling with the same issues, even in the 
context of a limited entry fishery rather than an IFQ. There is 
a tremendous concern about consolidation through permit 
stacking in the scallop fishery. So we need to explore these as 
we go forward here, Madam Chairman. That is what you have been 
doing for the last period of time.
    If I could just ask this panel perhaps a couple questions 
before you move on. The NRC has said that IFQ systems, like any 
management regime, requires enforcement and monitoring to be 
effective. Could you share with us--perhaps all of you might 
respond very quickly to this--in an IFQ fishery what are the 
minimum levels of monitoring and enforcement presence necessary 
to ensure compliance with the quota system, as well as to guard 
against high-grading and increased bycatch? And is this greater 
or less than the minimum required for a non-IFQ fishery? Do you 
believe that fishermen and processors would be willing to pay 
the fees for enforcement and monitoring and, if not, why not?
    Who wants to lead off? Yes, Ms. Behnken.
    Ms. Behnken. Thank you, Senator Kerry. First just to say I 
really appreciate your comments about the need for national 
standards, whether it be for cooperatives, limited entry 
programs, or IFQ's.
    Then to respond to your question, the sablefish and halibut 
program has probably a lower level than what was initially 
requested by some of the management agencies when the program 
was implemented. But from my experience as a fisherman, I would 
say that any cheating has certainly decreased, definitely 
decreased under IFQ's from what it was under open access.
    The monitoring has shifted primarily to shore-based 
monitoring at the time of delivery. There is also some 
monitoring by the Coast Guard contacting vessels at sea, and 
penalties can be quite severe, including sanctions against your 
IFQ's or against your quota share. People can lose their quota 
share as well as the value of their catch for that year. A few 
people have been apprehended. The penalties have been severe.
    The sense of the industry is that they are being watched, 
they have a lot at stake, and that cheating is not worth it. So 
I feel that the level is appropriate.
    The halibut and sablefish program starting last year paid a 
maximum up to 3 percent assessment on their ex-vessel value of 
product delivered for monitoring and enforcement and the IFQ 
program. It amounted to just last year 1.8 percent, but the 
maximum is up to 3 percent and seems to be working. It seems to 
be adequate to cover those costs.
    Senator Kerry. Mr. Giles? You do not have to respond if you 
do not want to. Is the monitoring greater or less in your 
judgment than in a non-IFQ structure?
    Mr. Giles. I do not think it is greater. I think it is 
different, and the monitoring points under a rationalized 
fishery might be different than they are under a race for fish.
    Senator Kerry. Conceivably more effective?
    Mr. Giles. Potentially more effective, although I think 
there is potentially--when you are fishing short seasons, there 
is not near the opportunity to high-grade and change your catch 
makeup based on the value of the fishery. You are catching what 
you are catching and delivering.
    But I think the enforcement in the fishery in Alaska has 
been good. I think the industry has paid for it and should pay 
for any additional enforcement required under these systems.
    Senator Kerry. Ms. Williams?
    Ms. Williams. Thank you. I can only give you the example of 
the red snapper fishery. That is the one that I am familiar 
with, the one that the council had actually worked on. The 
commercial fishery cannot afford to pay for the monitoring. I 
do not understand why the monitoring would be any more than 
what they are faced with today.
    When you have a 10-day season, the Coast Guard is out there 
monitoring you whether you are during the opening or if you are 
in the closing, because if you are out there fishing and it is 
closed they have got to know if that is what you are doing. As 
far as monitoring, we had a coupon system set up with the 
previous ITQ that we discussed. That coupon followed that fish 
everywhere it went. If you did not have a coupon, that fish 
better be an import or it was illegal.
    But the fishermen have vessel payments, they have 
insurance, they have crew, they have ice, bait, food, fuel. It 
is not like they are making an awful lot of money on catching 
these fish. They are not catching the fish for free, and they 
cannot afford to pay what we were told the system would cost to 
administer.
    Sure, National Marine Fisheries Service would love for the 
fishermen to pay for it. But when you are under a four million 
pound quota and it is going to cost you $2.5 to $3 million for 
the program for you to catch that four million pounds, and you 
have the foreign imports coming in that you are competing with, 
you are actually going to go in the hole if you have to pay for 
the program, all of the program yourselves.
    Mr. Plesha. Senator Kerry, obviously it varies region to 
region, but just to let you know, in the pollack fishery in the 
Bering Sea under both open access and the American Fisheries 
Act cooperative structure, there is an observer on virtually 
every vessel and two at every processing plant. That has always 
been paid for by the industry. So at least in the North 
Pacific, we are a highly monitored industry.
    Senator Kerry. Have you thought through whether or not 
under the IFQ structure it might be less, that you would not 
have to have that kind of monitoring?
    Mr. Plesha. I think the general feeling, Senator Kerry, is 
that under an individual quota system there might be more of an 
individual incentive to, I will say, cheat or high-grade, so 
that in fact the monitoring would have to stay at that level or 
perhaps even increase.
    Senator Kerry. Okay, fair enough.
    Mr. White. Thank you, Senator Kerry. Two points.
    I think enforcement is a problem in the State of Maine, we 
have got 144 harbors, with in many instances multiple places to 
unload in those harbors.
    To go to a quota-based system and fund it possibly could be 
done because it is under what I understand the consolidation 
process is, because if you are going to take, whatever, 3,000 
license holders and reduce it down to 500, then they probably 
can afford it. But also then you have got to go on a welfare 
program to take care of the other 2500 people that have lost 
their jobs.
    Right now we are in a rebuilding program in New England and 
many of the fishermen are right up against the wall to make 
daily expenses. Many of them do not even have health insurance 
at this point. As much as I agree that the industry should 
participate in some of those expenses, I just do not see how 
they could do it at this time.
    Senator Kerry. Madam Chairman, maybe we can keep the record 
open. There are a couple questions I might submit in writing. 
But I do not want to lengthen this particular panel. I thank 
you very much for your input, and thank you for traveling a 
long distance to be with us.
    Senator Snowe. Thank you very much, Senator Kerry. I too 
want to work with you and other members of this Committee 
hopefully to address many of the issues that have been raised 
here today, so that we can move forward with the 
reauthorization of the Magnuson-Stevens Act. I thank you for 
your views here today as well.
    I too want to thank the panelists for taking the time, 
making the effort, and, as Senator Kerry indicated, traveling 
long distances to be here today to present your views before 
this Committee on a very crucial subject. I know that it is 
crucial to each and every one of you and the constituencies 
that you represent. Thank you, and we will be calling upon you 
again, I am sure, as we proceed with this legislation. Thank 
you very much.
    Senator Stevens. Madam Chair, let me add to these people, I 
regret that I was not here because of this oral surgery. But I 
have read most of your statements and I will read the others. 
But I do appreciate that you have come so long to be with us 
today.
    Senator Snowe. Thank you, Senator Stevens. Thank you.
    Now we will proceed to the second panel of distinguished 
witnesses. Our first witness will be Dr. John Sutinen. Dr. 
Sutinen is a professor in the Department of Environmental and 
Natural Resource Economics at the University of Rhode Island. 
Our next witness will be Dr. Michael Orbach. Dr. Orbach is a 
professor of marine affairs and policy at Duke University. Our 
third witness will be Mr. Lee Crockett, the Executive Director 
of the Marine Fish Conservation Network, a coalition of 
environmental groups and fishing associations.
    We want the welcome all of you here today. I should remind 
the panelists we will present in the record your full 
testimony, but we ask that you limit oral presentations to 5 
minutes so that we can proceed with the questioning. I thank 
you all very much.
    Well, Dr. Sutinen, you look ready. Let us begin with you.

        STATEMENT OF JON G. SUTINEN, Ph.D., PROFESSOR, 
            DEPARTMENT OF ENVIRONMENTAL AND NATURAL 
         RESOURCE ECONOMICS, UNIVERSITY OF RHODE ISLAND

    Dr. Sutinen. Very good. Thank you, Senator Snowe, Members 
of the Committee. I appreciate your----
    Senator Stevens. Pull the mike up.
    Dr. Sutinen. I appreciate this opportunity to share my 
comments with you. I am at the University of Rhode Island. I am 
a fisheries economist. I have been studying fisheries for 
roughly 30 years. While I have served in an advisory capacity 
to managerial bodies as a scientist, I have never played a role 
as a manager, nor do I have any stake, personal material stake, 
in the outcome of your deliberations.
    I want to base my comments today on a large body of 
scientific evidence regarding IFQ's. The scientific evidence 
clearly shows that IFQ's are a potent and valuable tool for 
fisheries management. Overall, they far outperform other 
fishery management measures, even in very complex fisheries, 
such as multi-species fisheries. They conserve the resources 
better than others and they generate greater wealth.
    I agree with the NRC report, otherwise known as the 
National Academy report on IFQ's, that IFQ's should be made 
available to managers as a tool. But, like most potent 
medicines, IFQ's have side effects. The problems of initial 
allocation and social disruption are very real. These side 
effects are real and well documented in the literature. The 
scientific evidence, unfortunately, does not reveal any one 
approach to resolving those questions that seems to work best. 
There is a case by case approach to them.
    The IFQ Act of 2001 attempts to mitigate these side effects 
by prohibiting transfers of quota and requiring a double 
referendum. The available scientific evidence convinces me that 
a permanent ban on transfers would seriously weaken and devalue 
IFQ's as a tool and not put the allocation problems behind us. 
Further, the experience of referendums in agriculture causes me 
to fear that IFQ programs would be rare, the exception rather 
than the rule.
    I think this controversy over IFQ's has exposed a problem 
that I would like to reframe for the Committee if I may. I see 
it in the context of institutional legitimacy. The legitimacy 
of our council system has been compromised, if you will. On the 
dock at least, it is perceived to be weak. They do not trust 
it. Many see no procedural fairness in the fishery management 
system, especially when it comes to the initial allocation of 
quota.
    Notice I said ``procedural fairness,'' not outcome 
fairness. The IFQ Act of 2001 attempts to address the problem 
of procedural fairness or institutional legitimacy, but the 
proposed remedies are too drastic and too simplistic in my 
mind. I urge the Committee to craft legislation that encourages 
the innovation of decentralized fishery management institutions 
that have proven around the world to be more legitimate, and I 
point to the experiment with the area management in the Maine 
lobster fishery as a case in point. There are many other such 
examples around the world.
    Perhaps referenda at the local level, even below the 
council level, would work in such a local governance 
institution. Maybe we would need to think about voting rules, 
such as a two-thirds majority, that would be less restrictive 
than that, since they tend to not work well in other contexts.
    With regards to the transferability, I understand the 
concerns with consolidation, but you reduce values 
significantly. I suggest you consider allowing transfers, at 
least initially, within these localized communities or 
governing structures, and provide for a flexible and legitimate 
framework for relaxing the restrictions on these transfers that 
you would initially put in place.
    Thank you.
    [The prepared statement of Dr. Sutinen follows:]

   Prepared Statement of Jon G. Sutinen, Ph.D., Professor, Department
    of Environmental and Natural Resource Economics, University of 
                              Rhode Island

    Senators:
    My name is Jon G. Sutinen. I am a professor in the Department of 
Environmental and Natural Resource Economics at the University of Rhode 
Island. I would like to thank Senator Kerry for allowing me this 
opportunity to comment on S. 637, the Individual Fishing Quota Act of 
2001.
    Unlike others here today, I am not a fisherman, a fishery manager, 
nor a legislator. I've never tried to earn a living working on the 
water. I've never tried to manage a fishery and faced the tough 
decisions that often pit people against fish. And, I have never held 
elective office and tried to represent constituents' interests by 
writing legislation to improve their lives. Instead, I sit before you 
as an observer, one who has studied fisheries for three decades. I, 
like others in my profession, have been working to understand the 
complex system of interactions between humans and nature that occur in 
fisheries. The results of our profession's research, I believe, can 
help you craft good legislation--legislation that serves the interests 
of your constituents, our marine resources and future generations.
A failing grade?
    In my judgment, our fishery management establishment deserves a low 
grade for its performance over the last quarter century. Forty-six 
percent of the fish stock groups that are under the purview of the US 
National Marine Fisheries Service, and whose status are known, are over 
exploited. Another 39 percent are fully exploited and may be in danger 
of becoming over exploited. These are the results of spending $660 
million per year on the management of an industry that generates $3.6 
billion per annum. \1\
---------------------------------------------------------------------------
    \1\ In other words, management expenditures amount to 18 percent of 
landed value. The data are from OECD (2000).
---------------------------------------------------------------------------
    The United States is not alone, however. According to The Food and 
Agriculture Organization of the United Nations, 69 percent of the 
world's fish stocks for which data are available are exploited at or 
beyond the level corresponding to their maximum sustainable yield. 
After more than 25 years of trying, our fishery management institutions 
have failed to conserve resources and improve the economic health of 
fishing communities.
    The New England groundfish fishery is a dramatic example of 
management failure, resulting in both overfishing and economic losses. 
The volume and real value of New England landings of species regulated 
under the Multispecies Fishery Management Plan have declined markedly 
since the early 1980s. The combined landings volume of haddock, cod, 
and yellowtail founder dropped from 85-110 thousand metric tons in the 
early 1980s to 15-25 thousand metric tons in the mid 1990s--roughly an 
80 percent decrease. The value of these landings adjusted for inflation 
dropped by 60 percent despite a general trend of increasing real prices 
over the last 20 years. The most extreme case of decline was exhibited 
by the relatively slow growing redfish with drastic decreases in both 
landings and revenues. Redfish landings fell from 14,800 metric tons in 
1979 to 322 metric tons in 1996, the lowest since the fishery for this 
species began in the 1930s. In 1994, federal scientists reported that 
excessive fishing had caused the stocks of New England yellowtail 
flounder and haddock to collapse. This mismanagement of groundfish is 
costing US citizens an estimated $150 million per year in foregone net 
value, according to a study by scientists at the Northeast Fisheries 
Science Center.
    The New England Fishery Management Council continues to struggle 
with its efforts to rebuild overfished groundfish stocks. Georges Bank 
cod and Gulf of Maine cod face fishing mortality rates that are too 
high to end overfishing. The spawning stock for Gulf of Maine cod is at 
a record low level. The Council's Multispecies Monitoring Committee 
concluded that a 67 percent reduction in fishing mortality was 
necessary to rebuild the other stocks in the groundfish complex.
    Then there is the story of species left unregulated. Just a few 
years ago, low value species such as dogfish and skates were in great 
abundance, having filled the niche vacated by depleted cod, haddock and 
other valuable species. Now, however, even the lowly dogfish is 
overexploited. Some species of skates too appear to be at risk. The 
National Marine Fisheries Service admits that management plans in New 
England have not prevented overexploitation of the species under their 
management authority.
    This record of decline and ineffective management can be reversed. 
Amending the Magnuson-Stevens Fisheries Conservation and Management Act 
(MSA) is needed to improve the way we manage our fish stocks. The 
question is how can this be done? Certainly, authorizing the use of 
IFQs is a crucial step towards successful fisheries management.
IFQs are a potent and valuable tool for fisheries management.
    There is a worldwide trend towards the use of IFQs. A growing 
number of governments are bringing their fisheries under this form of 
rights-based management. They are doing this because IFQs work well. 
IFQs have a proven record of accomplishment of promoting sustainable 
management of fisheries and producing wealth.
    The scientific evidence is quite clear on these achievements. The 
Organization for Economic Cooperation and Development (OECD 1997) 
reviewed management experiences in more than 100 fisheries in 24 member 
countries. This is the only study I know that systematically compares 
IFQs with more traditional approaches to fisheries management. The 
evidence shows that IFQs are an effective means of controlling 
exploitation, of mitigating the race-to-fish and most of its attendant 
effects, of generating resource rent and increased profits, and of 
reducing the number of participants in a fishery. \2\
---------------------------------------------------------------------------
    \2\ The report by the National Research Council (1999) drew upon 
much of the evidence contained in OECD (2000).
---------------------------------------------------------------------------
    IFQs have been effective in limiting catch at or below the TAC 
determined by management authorities. OECD reports that catch was 
maintained at or below the TAC in 23 out of the 31 IFQ fisheries for 
which information was available. The TAC overruns that did occur were 
due to inadequate monitoring and enforcement. Where overexploitation 
occurred, it was due to poor data that allowed the TAC to be set too 
high.
    The OECD evidence demonstrates that IFQs eliminate or prevent a 
race-to-fish and the resulting problems of over capacity, excess 
effort, waste, unsafe harvesting practices, gear conflict and loss, and 
reduced product quality. Two of the most notable cases are the Canadian 
halibut and sablefish fisheries. Seasons that had been reduced to a few 
days under competitive TACs and limited entry were increased to most of 
the year almost immediately.
    Elimination of the race-to-fish has not been universal, however. 
For example, in the Netherlands sole and plaice and Norwegian cod 
fisheries, IFQs failed to eliminate the race-to-fish. The race-to-fish 
in these fisheries is because the fishery could be closed down when the 
national quota was met, even if individual quotas had not been filled. 
In Iceland, the option to choose between individual effort and catch 
quotas in the demersal fishery led to an increase in investment. A 
race-to-fish occurs in the New Zealand flatfish fishery in years of low 
abundance. Most of the fisheries where a race-to-fish persisted used 
time or area closures independent of the attainment of TAC which may 
have been a factor.
    This illustrates the importance of satisfying first principles when 
designing IFQ programs. It is essential not to contravene or block the 
incentives that IFQs put in place. Blocking those incentives reduces 
IFQs effectiveness.

IFQs are not problem-free, but . . .
    The OECD study also demonstrates that IFQs present problems with 
the initial allocation of quota and with enforcement and compliance. Of 
the 55 IFQ fisheries reviewed by OECD, quota allocation problems were 
documented in ten fisheries with no counter examples.
    The initial allocation of quota is the major impediment to the 
adoption of IFQs in most fisheries. The exceptions are fisheries with a 
relatively small number of producers who are relatively homogeneous. 
The struggle to find a fair and just allocation of harvest rights is 
difficult, time-consuming, and adversarial. The current debate over 
processor shares in Alaska is an apt example of this.
    Allocation of fish (the access to fish or the rights to catch fish) 
is a problem that plagues all forms of fisheries management, whether 
based on IFQs or traditional methods. Allocation is the constant topic 
of meetings and decisions made by fishery managers, and the subject of 
legislative deliberations such as this one.
    There is a tradeoff related to allocation and IFQs that should be 
appreciated by all concerned parties. While the initial allocation of 
IFQs is extremely difficult, the `pain' is all up front and once-and-
for-all. This is especially true for transferable IFQs, since 
thereafter a market emerges to handle the reallocation of quota that is 
needed for the fishery to evolve. If the IFQs are not transferable, 
then the management authorities will have to revisit the allocation 
issue repeatedly.
    Without a market to handle allocation issues, the management system 
pays the price of allocation struggles on a continuing basis. It 
escapes the high up-front of initial allocation brought on by 
transferable IFQs, but it must face the continuing distraction of 
dealing with allocation instead of conservation.
    Actual solutions to the initial allocation problem have taken a 
wide variety of forms. This variety is probably because there is not 
universal agreement on what constitutes a fair and just allocation. 
Each solution is the result of a negotiation and bargaining process. 
The important aspect of the solution is the process--the process by 
which the solution is found. An open and transparent process is needed 
to insure institutional legitimacy, credibility, and trust. As an 
aside, we in the US have not yet designed a process that satisfies 
these criteria.
    Higher enforcement costs and or greater enforcement problems 
occurred in 17 fisheries compared to five that experienced 
improvements. Enforcement proved particularly difficult in high value 
fisheries, in multispecies fisheries, and in transnational fisheries. 
Although enforcement costs frequently increased under individual vessel 
quotas, there was often an increased ability and willingness of 
fishermen to pay these increased costs. Support from industry for 
increased enforcement is common. IFQ holders recognize that the illegal 
fishing by others damages the value of their quota rights and have an 
incentive to aid authorities with enforcement.
    The rents generated by IFQs provide governments with a source of 
revenue to cover the costs of enforcement and administration. In the 
many IFQ fisheries in Australia, Canada, Iceland, and New Zealand, 
industry pays for administration and enforcement with fees levied on 
quota owners. In some cases quota holders voluntarily paid for added 
enforcement, such as in the New Zealand lobster fishery. In addition, 
IFQ management has led to increased cooperation between fishermen and 
enforcement authorities in several cases, including the New Zealand 
fisheries in general, and the US wreckfish fishery. Fishermen reported 
improved compliance in the Canadian halibut fishery. \3\
---------------------------------------------------------------------------
    \3\ Other problems with IFQs that were identified included: 
underreporting of catch and data degradation (documented for 12 
fisheries, but improvements were made in six fisheries); industry 
resistance to IFQs in eight fisheries, but the opposite was true in 
five fisheries; several cases where quotas were consolidated 
(documented in 12 fisheries, but 5 showed contrary evidence), and rules 
were in place to limit consolidation; little evidence that smaller 
vessels are eliminated when individual vessel quotas are introduced 
(two fisheries where elimination occurred and five where it did not); 
class divisions were documented only for the Icelandic fisheries.
---------------------------------------------------------------------------
    Despite the many and serious problems that have confronted IFQs, 
fishery managers are finding ways to mitigate, if not solve, many of 
these problems. Potential participants commonly are afraid that they 
will not receive their fair share in the initial allocation of quota. 
Others fear that landings and processing will leave their communities, 
and that large corporations will take over the fishery, and other 
concerns. We have learned a great deal over the last 20 years of IFQ 
management. I believe that managers can find designs of IFQ programs 
that satisfy first principles (such as creating an exclusive harvest 
right) and still address the concerns of fairness and justice. Where no 
solutions are immediately evident, we should craft the legislation to 
encourage innovation and experimentation.
How do IFQs compare to other fishery management measures? \4\
---------------------------------------------------------------------------
    \4\ The OECD study represents one of the few, if not the only, 
attempts to comprehensively assess the performance of the full suite of 
management measures. The study found considerable evidence, and 
excellent scholarly studies of individual quotas, limited licenses and 
total allowable catch measures. However, there is great paucity of 
evidence on the performance of the other management measures (size and 
sex selectivity, closures, effort quotas, vessel catch limits and gear 
and vessel restrictions). While the theory of how these measures are 
supposed to work is well developed, the supporting empirical evidence 
is missing. The actual application of these methods appears to be 
conducted more on faith than on a sound factual basis.
---------------------------------------------------------------------------
    In their assessment of other management measures, OECD concludes as 
follows:

Total Allowable Catch Quota (TAC)
    Competitive TAC management causes a race-to-fish with the attendant 
effects of over capitalization, shortened seasons, market gluts, 
increased harvesting and processing costs are particularly evident. 
Competitive TAC management generally has not effectively prevented 
overexploitation of the fishery resource--though it has been successful 
in some fisheries.

Limited Licenses
    Over capitalization and increased harvesting costs occur with 
limited licenses, but the evidence is confounded by the presence of 
TACs in many of the reported cases. There have been some initial 
allocation problems, but the amount of evidence is too small to draw a 
firm conclusion. Limited licenses have not stemmed the tendency to 
overexploit the fishery resource.

Size & Sex Selectivity
    Size and sex selectivity measures do not mitigate the race-to-fish 
and result in increased enforcement costs and/or problems are supported 
by the evidence. There is only weak evidence that the average size of 
fish landed increases and that discards increase.

Closures
    It is clear that time and area closures have not been effective in 
assuring resource conservation, though conservation might well have 
been worse without them.

Individual Effort Quotas
    Individual effort quotas (e.g., days-at-sea, trap quotas) result in 
over capitalization, increased harvesting costs, and increased 
enforcement problems.

Vessel Catch Limits
    Vessel catch limits (as distinguished from IFQs) increase 
enforcement costs and problems.

    None of the other (non-IFQ) management measures perform well when 
they are used without IFQs. That is, they do not effectively control 
exploitation and mitigate the race-to-fish. They do not, however, 
present as many social and administrative difficulties as IFQs.
    Most management measures are expected to provide some degree of 
conservation benefits in the form of maintaining or rebuilding resource 
stocks to desired levels. Unfortunately, in practice, none of the 
management measures assures optimal resource conservation. Achieving 
optimal conservation is complicated by several factors or conditions, 
including multispecies, bycatch and discards, and wide fluctuations in 
resource stocks and markets.

What do IFQs provide that other approaches do not?
    IFQs provide important benefits that other approaches do not. IFQs 
effectively constrain exploitation within set limits, mitigate the 
race-to-fish, reduce over capacity, gear conflicts and improve product 
quality and availability. Producers benefit, consumers benefit and, 
when the resource rent is used to pay for the cost of management, the 
general public benefits.
    In addition, there are environmental benefits that are often 
overlooked. For example, reducing the 300,000 traps in Area 2 of the 
American lobster fishery is expected substantially reduce entanglements 
with whales, while at the same time realizing the same yield. Based on 
the evidence, I expect IFQs or transferable traps entitlements will 
ease this downsizing more effectively and with less sacrifice than 
other alternatives.
    Only IFQs and other rights-based approaches have the potential to 
achieve this much.

Why do IFQs perform so well?
    Fishery economists and most social scientists are not surprised 
that IFQs perform so well in comparison to other management measures. 
IFQs solve numerous problems by providing exclusive harvesting rights. 
Other `rights-based' management measures have the potential to do the 
same. None of the traditional management measures provides exclusive 
rights and, therefore, cannot solve the problems created by 
nonexclusive use of the resource.
    In fisheries without exclusive harvesting rights, no fisherman has 
the right to exclude other fishermen from harvesting any part of the 
resource. From an individual fisherman's perspective, leaving fish to 
grow and reproduce is done at the risk of losing the fish to other 
fishermen. Thus, there is no incentive to conserve the resource for 
future use, since no fisherman has exclusive use. The nonexclusive 
nature of fisheries resources is the fundamental cause of 
overexploitation in modern fisheries.
    Without an exclusive right to harvest a quantity of fish, 
competition to catch fish before others do causes a `race-to-fish', 
resulting in fishing seasons that are shorter than optimal for maximum 
economic performance, landings that are too small and of inferior 
quality, and excessive investments in vessels and gear.
    The nonexclusive nature of harvesting fisheries resources also 
leads to conflicts among user groups. Since no fisherman has the right 
to exclude another from access to the resource, two or more fishermen 
can interact at the same time and place in a fishery. They impose 
external costs on each other in the form of gear or other losses. 
Mobile gear (such as trawls) may fish in the same area as fixed bottom 
gear (such as traps), causing damage to one or both of the gears. 
Large, efficient vessels can operate in a fishery on which small-scale 
fishermen are heavily dependent, draining the stock available for 
capture by the smaller fishermen. Failure to consider these external 
costs when deciding where and how to fish causes inferior economic 
performance in the fishery.
    Processors, distributors, wholesalers, retailers and consumers are 
also affected by the nonexclusive nature of harvesting. The race-to-
fish can result in large quantities of fish being landed during short 
periods, requiring the buildup of excessively large processing, storage 
and distribution facilities to handle the periodic peak loads. 
Wholesalers, retailers and consumers find supplies of specific fish are 
abundant for short periods and scarce for long periods; or, the product 
is processed for long shelf life, generally reducing the quality of the 
products and price on the market.
    Of all the management measures available to managers, rights-based 
management measures (such as IFQs) have the greatest chance of 
correcting the fundamental problem of nonexclusive harvesting rights 
and of reducing conflicts among users, producing superior economic 
performance while conserving fishery resources.

Are IFQs appropriate for multispecies fisheries and ecosystem 
        management?
    Despite the complex challenges presented by multispecies fisheries, 
IFQs outperformed all other management measures. This is not to say, 
however, that only IFQs are needed in multispecies fisheries. Rather, 
when other management measures (such as mesh size regulations) are used 
in combination with IFQs, performance was superior. When not used with 
IFQs, performance suffered.
    Fisheries that harvest multiple species are more difficult and 
costly to manage than single species fisheries. A high proportion of 
multispecies groundfish fisheries in OECD countries experienced poor 
resource conservation and economic performance. Relatively non-
selective trawls are used in these fisheries, having high by-catch and 
discard rates, further weakening management's control on exploitation 
patterns (unless by-catch and discarded catch are monitored 
adequately).
    Multispecies fisheries complicate all forms of fishery management. 
In multispecies fisheries where several species are caught jointly, no 
single management measure, or combination of measures, can achieve the 
optimal fishing mortality for all species. Almost any change in 
management measures will favor one species at the expense of another. 
Good conservation on all stocks appears infeasible in such cases.
    With respect to the issue of ecosystem management, there is 
widespread consensus on the importance of accounting for multispecies 
interactions in fisheries analysis and management, but only a limited 
amount has been accomplished to date. The theory for developing models 
to explain and analyze interactions is well developed. Biological and 
economic empirical evidence, however, is inadequate. Attempts to model 
multispecies fisheries in several countries are ongoing and are already 
providing information for the management process in some fisheries. 
IFQs seem to offer high promise, relative to non rights-based 
approaches, for wrestling with the challenge of managing complex marine 
ecosystems. Other rights-based approaches are currently being explored 
by researchers, but no experiments or tests of these approaches are 
underway.
    By-catch is inevitable in many multispecies fisheries. Incentives 
play a major role in determining the amounts of by-catch. An individual 
fisherman will try to control by-catch as long as the benefits outweigh 
the costs to him. Effective management recognizes this and creates or 
modifies incentives to lessen the impact of by-catch.
    There is some anecdotal evidence suggesting that substantial 
discarding at sea and underreporting of landings have increased since 
the implementation of IFQs. However, a study done for OECD found no 
discernible increase in discards under an IFQ system compared to the 
previous limited effort management scheme.
    Some countries have developed tools to counteract discarding. These 
tools include setting TACs by species such that different TACs can be 
filled approximately simultaneously; employing standard harvesting 
technologies; simple and well advertised discard rules; flexible 
monitoring and surveillance designed to deal with the most pressing 
problems at each point in time; and addressing alleged violations 
quickly and effectively with penalties high enough to deter such 
practices.

Are IFQs guaranteed to conserve the fishery resource and produce wealth 
        in a given fishery?
    No. IFQs do not guarantee conservation and wealth in a given 
fishery. Rather, the evidence says that the chances of conservation and 
wealth are far greater with IFQs than other management measures; and 
that the risks of failure are far less with IFQs than without them.
    Most IFQ fisheries have yielded great benefits; and some have 
experienced unfortunate outcomes. Just as when the Dow Jones average 
rose from 2,000 to 10,000, the wealth of share holders in total grew. 
But mixed in with the many stocks that gained in value, there were some 
that lost value. The outcomes for any one stock and any one investor is 
uncertain. Likewise, the outcomes in any one fishery are uncertain; and 
the outcomes for any one participant in a fishery are uncertain. We can 
only try to act so that we maximize the chance of success. IFQs provide 
that option.

Comments on & suggestions for shaping S. 637
    Now I would like to comment on some of the provisions in S.637. I 
believe the bill in its current form can benefit from a few critical 
changes.

Prohibition on IFQ transfers
    Prohibiting transfers of IFQs will result in a number of problems. 
I list some of them here and offer an alternative approach to solve 
what I believe to be the reason motivating the prohibition.
    Most of the successful IFQ fisheries in the world now allow, in 
fact depend on, transfers of quota by either sale or lease or other 
means. Transfers allow markets to function smoothly and to handle the 
allocation problems that too often cripple the management system.
    Several of the fisheries reviewed by OECD initially prohibited 
transfers of quota when IFQs were first introduced. However, shortly 
after the fleet gained experience with and trust in the IFQ program, 
they saw the gains to be realized from trading quota. Fishermen 
restricted by non-transferable IFQs eventually persuaded the government 
authorities to allow transfers.
    By prohibiting transfers--except for hardship and among family 
members--S.637 will severely impair the effectiveness of any IFQ 
program. The transfer prohibition is a `one-size fits all' approach to 
IFQ programs. Nontransferable quotas may be appropriate in some 
fisheries, but certainly not in all.
    The prohibition on transfers creates numerous problems.

    1. The inability to transfer partial fishing rights makes it 
difficult for fishermen and fishing families to adjust to conservation 
requirements.

    2. The prohibition will reduce incomes for those fishermen whose 
quota composition does not match their fishing opportunities.

    3. The prohibition will instill an incentive to cheat, to bust 
one's quota. If the quota are transferable, a fisherman who wants to 
fish more than his quota has the option to acquire more through the 
market. The incentive to cheat is less with transferable IFQs than 
without.

    4. The prohibition will weaken the tendency to reduce fleet 
capacity and over capitalization.

    5. The prohibition on selling and leasing prevents the IFQ from 
taking on value, a value that a fisherman can use if s/he elects to 
retire or otherwise exit the fishery.

    And, there are other ill effects of the prohibition for given 
specific circumstances.
    I can understand the concerns that some producers and those who 
live in fishing communities have with transferability. They seem to 
fear that their way of life will be severely impacted by transferable 
quotas. To me, it is rational that they are willing to accept IFQs if 
transfers are prohibited. However, based on the evidence, I'm also 
convinced that many of those who now oppose transfers of quota will, 
once they have gained experience with IFQs, call for a relaxation of 
the prohibition.
    Prohibiting transfers by law is too inflexible in my judgement. If, 
after an IFQ program is put in place, a majority of fishing interests 
does want transfers, they must ask Congress to change the law. There 
must be a more flexible alternative.
    I propose a compromise. I propose that S. 637 be modified to either

    1. Initially prohibit transfers but establish a flexible framework 
in which Fishery Management Councils and the Secretary of Commerce can 
decide to allow the sale, lease and other transfers of quota.

    2. Restrict transfers of quota to within specified communities or 
regions of a fishery--user groups or areas to be determined in the plan 
development process. Also allow for a framework adjustment process 
whereby the restrictions can be amended or entirely lifted.

Referendum requirement
    The double referendum requirement is an intriguing idea. It appears 
to be a way to insure that the procedures and provisions are fair to 
the affected parties.
    A similar voting procedure is required for establishing 
agricultural marketing orders. Most agricultural marketing orders cover 
crops that are grown by a relatively few producers and marketed in few 
channels. Marketing orders are not viable for crops spread over wide 
areas, involving many producers who sell to many different markets. It 
is just too difficult to get so many heterogeneous crop growers to 
agree--with a two-thirds majority--to a common marketing order.
    I am concerned that the referendum requirement establishes a hurdle 
that is too high. Many of the fisheries subject to federal management 
are quite large, involving hundreds--even thousands--of producers who 
operate over large geographic areas and sell to a wide variety of 
markets. Given the experiences in marketing order programs, I fear that 
agreements on IFQ programs will be rare--the exception rather than the 
rule.
    As an alternative, I suggest devolving to relatively small groups 
the authority to set their own rules, including the use of IFQs. I urge 
the Committee to examine, for example, the experiences of the producer 
organizations in the UK. Each PO is awarded a quota. Members of each PO 
decide how they fish their group quota. Some POs have chosen to operate 
under IFQs and others have not, but all of them work under a group 
quota. Applying this approach to groundfish in New England, we can 
imagine awarding a quota for cod to the fishermen of Gloucester, a 
separate quota of cod to fishermen of Portland, etc. Allow each group 
to decide for themselves how to fish their quota, and require that a 
referendum be held in making that decision. This will give them to 
power to govern their lives and their destiny. In addition, this will 
create a stronger incentive for stewardship over the resource.

Devolution: Bottom-up trumps top-down
    Senator Snowe has said that the IFQ Act `provides . . . the 
affected fishermen with the ability to shape any new IFQ program to fit 
the needs of the fishery.' I believe the Senator is in line with 
another global trend, the move by governments towards giving fishermen 
more control over their fisheries. Abroad this is referred to as 
devolution--a set of institutional arrangements where the authority and 
responsibility of governing the use of marine resources is passed down 
(devolved) to the local level.
    Why are governments devolving management authority? Because 
governing from afar--the traditional top-down approach to fisheries 
management--is not working well. The burden of centralized fisheries 
management has become too great for many governments, and they have 
found it less costly and more effective to allow users and local 
communities to shape the nature of their fishery management programs. 
The government plays the important role of insuring the users conserve 
the resources and protect the environment, but the government does not 
instruct the users how to achieve those ends.
    User participation in the development and implementation of fishery 
management plans is found to be a critical element for successful 
management. Co-management arrangements are one of the more promising 
avenues for greater user participation. A substantial body of evidence 
demonstrates that more local control over management policy yields 
significant gains. OECD and many other studies have documented the 
benefits of meaningful user participation.
    Moves towards more decentralized fisheries management in the Maine 
lobster fishery and in other fisheries here and abroad seem to be 
successful (in terms of conservation and social and economic outcomes). 
The Netherlands, Denmark, Norway, Sweden and the United Kingdom have 
devolved fishing rights and responsibilities to producers. These 
countries have found that the local control reduces administrative 
costs and greatly improves compliance with management regulations.
    A significant benefit of co-management is the use of local 
knowledge about stock dynamics and ecology. Another advantage is the 
flexibility to adapt with short notice to changing management 
objectives and fishery conditions. Co-management at the local level 
achieves greater economic stability and decreases fishermen's 
perceptions of economic risk. Co-management and IFQs have been found to 
strengthen each other in some fisheries.
    One of the greatest gains of user participation in management 
design and implementation is users' support of the program. It is 
nearly impossible to adopt and implement effective fishery management 
programs without the widespread support of commercial and recreational 
fishers. However, this support is often missing or very weak among 
users of our fishery resources. If fact, opposition to proposed 
management measures is all too common.
    Some observers note that fishermen frequently oppose conservation 
and management measures because they have little assurance that their 
sacrifices will be sufficiently rewarded in the future. Their insecure 
claim on the future rewards of their sacrifice naturally leads them to 
oppose strong conservation measures. Therefore, they pressure Councils, 
NMFS and their elected representatives not to enact strong conservation 
measures. And, when measures they oppose are implemented, they work to 
subvert those measures. The result is ineffective management.
    Authorizing the use of IFQs is expected to improve the prospects 
that fishermen's sacrifices will be worth it to them. But, the 
legislation should be further amended to address the problem of 
industry opposition to strong conservation and management measures. For 
example, producers can be given more of a voice in the selection of 
specific management measures. One way to do this is to encourage 
decentralization of fisheries management.
    While the current version of S.637 is a step in the right 
direction, it does not provide fishermen with sufficient ability to 
shape the program to fit the needs of their fisheries. In addition, 
there appears to be reluctance by the Councils and NMFS to devolve to 
local organizations the authority to customize the rules to meet local 
conditions and needs (especially those rules that have only local 
impact). The Magnuson-Stevens Act could be amended to encourage 
Councils to undertake experiments with decentralized approaches to 
fisheries management. Our fisheries would benefit from more experiments 
along the lines of the area management approach in the Maine lobster 
fishery.
    Thank you.

    Senator Snowe. Thank you.
    Dr. Orbach.

       STATEMENT OF MICHAEL K. ORBACH, Ph.D., PROFESSOR 
         OF MARINE AFFAIRS AND POLICY, DUKE UNIVERSITY

    Dr. Orbach. Madam Chairman, thank you for the opportunity 
to address you this morning. I am the Director of the Duke 
University Marine Laboratory, but I am a cultural 
anthropologist by training. I deal with the very 
interdisciplinary unit that brings all of the natural and 
social sciences to bear on our natural resource questions, 
including fisheries. I deal with what is typically called the 
human dimension of these issues, and of course IFQ's are 
primarily focused on a human dimension question.
    I have worked with all eight of the Regional Fishery 
Management Councils around the country on various issues. I 
have worked with NOAA and I spent a decade as a State Fishery 
Commissioner in North Carolina. So I have seen this perspective 
from many different angles.
    I would add that I have also been involved in the 
consideration and generation of several different kinds of 
limited access systems, always working with the industry, and I 
would point out that in some of those cases we decided not to 
have IFQ's or a limited access system. In other cases, the 
decision of the group was to have them. So I have also been 
involved in facilitating all kinds of decisions on this 
particular kind of issue.
    I make a number of points in my written testimony, but I 
want to focus on three here this morning. The first is the 
question of where we are in human history really with what is 
called the closure of the ocean commons. Rather than being an 
unusual feature of the way humans deal with natural resources, 
rules such as you find in IFQ's or limited access are really 
the general rule for how humans have by and large over time 
dealt with resource questions.
    We have always had rules of access. Now, the big exception 
to this with ocean fisheries is generally the last century and 
in particular since World War Two, where our ability to use and 
extract ocean resources has essentially far outstripped our 
governance structure. What is happening now is we are catching 
up. Because of the tremendous pressure on our ocean resources, 
as Senator Stevens points out, the fact that there are very few 
fisheries that are not very heavily utilized, we are now 
beginning to apply the rules that we apply to every other 
natural resource area.
    I would note that every other natural resource area except 
marine fisheries has had some form of limited access rule in 
effect for decades, if not almost a century in the case of 
forestry, for example. So in a sense, we are getting back into 
the way that humans ought to be relating to natural resources, 
after a great time of not having the appropriate governance 
structure.
    Second is the principle of parsimony. This has been noted 
by the panels earlier, that the principle here is put in law 
only what you really need to put in law. There are some 
features of S. 637, which I think is generally well crafted, 
that are clearly appropriate because of the equity concerns and 
the common concerns of industry, for example the excessive 
share provisions.
    I would add that in general, if you look at the way that 
limited access systems have been implemented, those that have 
attempted to design to avoid excessive shares have in fact done 
so by and large. Those that did not design to avoid it, it has 
occurred. So I think Senator Kerry was correct when he said 
that that is a workable problem, that there are in fact ways to 
design to avoid excessive shares.
    I think in the areas of transferability and sunset 
provisions, however, there is a tremendous amount of 
difficulty, as Dr. Sutinen said, in designing a system that you 
shackle in a way that cannot achieve its intended objectives. I 
think that is a tremendous problem. I think you lose an 
incredible amount of flexibility and ability to achieve 
objectives by disallowing for transferability, and again the 
particular problems that arise, whether it is public trust, 
resource extraction problem, or an excessive share problem, you 
can deal with those separately without the larger prohibition 
against transferability generally.
    Similarly, sunset provisions--I should add, by the way, 
also that I was a member of the National Academy committee that 
produced the Sharing the Fish report. In that report we advise 
against a blanket provision on sunsets, because again they are 
something that will not allow the system to work the way it was 
intended to work.
    Now, if you want to have provisions for a periodic review, 
there are certainly ways to do that without a sunset provision 
formally. If you do consider sunsets, consider the length 
carefully. Five years sounds like a long time, but when you set 
up a system like this and try to allow it to work naturally, 
oftentimes it takes longer than that to see the results come 
out that you even can review. So I would take great care with 
those transferability and sunset restrictions.
    Similarly on the processing issue, I think the former panel 
had it right. We have to decide whether we view that, the whole 
processing question, as a transition issue or whether it is an 
issue that needs to be designed into the Fishery Conservation 
Management Act. In general, the farther you get away from 
specific conservation objectives the more difficult it becomes 
to structure a system such as a limited access system.
    In a sense, I think Mr. Stevens was correct when he said 
that it is an important issue. If you really do want to address 
processing as part of the limited access question, you may have 
to consider larger structural changes in the FCMA itself to 
have that occur in a proper fashion. There are many ways to 
deal with transition phenomenon.
    Finally, the issue of co-management. Co-management does 
work. I would state one caution on the double referendum issue, 
though. Certainly a referendum on the submission of the plan 
may be a very appropriate democratic procedure. But a 
referendum on whether to initiate the consideration, however, 
is quite a different issue. As a social scientist I am aware of 
the fact that the most valid survey results come when the 
people you are surveying are completely educated and informed 
about what you are asking them about. A referendum at the 
beginning of a process may not actually allow fishermen, 
scientists, managers to be educated enough on the issues to 
make an informed decision.
    Again, I think a referendum on submission is absolutely 
appropriate. A referendum on whether to start thinking about 
the process I think is rather dangerous, actually.
    Finally, I think socioeconomic data needs are paramount 
here, and I hope, Chairman Snowe, when you consider your 
recommendations on appropriate research that is needed to 
adequately consider these systems you will fully consider the 
needs to bolster the socioeconomic data and research as well as 
the biological.
    [The prepared statement of Dr. Orbach follows:]

     Prepared Statement of Michael K. Orbach, Ph.D., Professor of 
               Marine Affairs and Policy, Duke University

    My name is Mike Orbach, and I appreciate the opportunity to testify 
regarding S. 637, the IFQ Act of 2001, and the general topic of access 
limitation in marine fisheries management. My formal training is in 
economics and cultural anthropology, and I have worked since the 1970's 
on the applications of social science to marine fisheries management at 
the local, regional, national and international levels, including on 
the design of several limited access systems. I have worked with NOAA 
and all eight of the Regional Fishery Management Councils, all three 
Interstate Marine Fisheries Commissions, and several individual states 
including having served for a decade as a member of the North Carolina 
Marine Fisheries Commission. I also served as a member of the Committee 
to Review Individual Fishing Quotas of the National Research Council, 
which produced the 1999 report, ``Sharing the Fish: Toward a National 
Policy on Individual Fishing Quotas''. I am testifying today as an 
individual, not representing any organization or interest group. I will 
confine my remarks to general aspects of access limitation and IFQs, 
but would be happy to provide further detailed remarks on specific 
aspects of these topics.

The Enclosure of the Ocean Commons
    The most general point I would like to make is that the development 
of limited access provisions in fisheries management is part of the 
more general movement towards ``enclosure'' of the ocean commons. The 
ocean and its resources have been viewed a `the last frontier' on our 
planet, and as such have been subject to free and open access to those 
who wish to extract its resources and otherwise use or benefit from 
those resources. However, as human effects on ocean resources increase, 
through extraction, pollution and other alterations of the ocean 
environment, the need arises for the development of governance systems 
that preserve the public trust in these resources and environments 
while allowing for reasonable use and impact. Questions of limitations 
on access to these environments and resources naturally arise as part 
of these potential governance systems. IFQs, or any other access 
system, must be viewed as only part of the means to achieve legitimate 
objectives of policy and management, and where they are judged 
appropriate should be applied consistent with public trust principles, 
including those of equity as well as conservation.
    Given the general history of human interactions with public trust 
resources, however, it is difficult to image that some form of access 
limitation will not eventually be legitimately considered in many if 
not all situations of ocean resource use, including fisheries. Although 
limited access systems place different constraints on traditional 
fishing communities, they have also been shown to provide significant 
benefits (NRC, 1999).

The Role of Social and Economic Factors in Marine Resource Conservation
    It is important to recognize that any form of conservation policy 
has both social and economic objectives and social and economic 
impacts. No resource conservation measure has `solely biological or 
ecological' objectives or impacts. This is recognized in the 
formulation of the concept of ``Optimum Yield'' in the Magnuson-Stevens 
Act. No quota; no season; no gear regulation is devoid of social and 
economic aspects in decision-making, nor of social and economic impact. 
Thus, the standards of holistic application of social and economic 
considerations to IFQs are equally applicable to virtually all 
fisheries management policy and management decisions, and should be 
consistently applied throughout the decision-making process. The need 
for better social and economic data to make these judgements was 
clearly noted in the Sustainable Fisheries Act amendments of 1996. In 
this area IFQs and other access limitation systems are different in 
degree, but not in kind; they all require much better social and 
economic data and assessment. The data we have show that IFQ systems 
have, by and large, met their design criteria.

Caution in the Upward Aggregation of Responsibility and Authority in 
        Fishery Management Decisions
    The 1999 NRC report (NRC, 1999) notes the desirability of 
management decisions being made at the lowest possible level subject to 
appropriate public trust oversight. S. 637 generally follows this 
principle, recognizing both the focal role of the Regional Councils and 
the desirability of broad participation of constituents in the policy 
development and implementation process, including the potential for 
constituent referenda in those processes. However, caution should be 
exercised in restrictions placed on these processes, including specific 
provisions such as `sunset' requirements (s.303(e)(2)(E) and (F)) or 
restrictions on transferability (s.303(e)(6)(A)) for IFQs, which may 
have the unintended effect of prohibiting the design of limited access 
systems with the potential to achieve their legitimate objectives. 
These decisions would be better left to the constituents, the Councils, 
and NOAA. Many models exist for ``comanagement'' between constituents 
and governments entities.

Involvement of Constituencies in the Development and Implementation of 
        Limited Access Systems
    Substantial, and increased involvement of fishery constituencies in 
the policy development and implementation process is a critically 
important objective. However, care should be taken that such 
involvement preserves important public trust principles. One such 
principle is reflected in s.303(e)(1)(E), which prohibits any person or 
entity from acquiring an ``excessive share'' of any individual quotas, 
a goal that is clearly possible to achieve as demonstrated in several 
existing limited access systems. The decision framework should also not 
unreasonably hinder the broad consideration of potential alternatives. 
As presently written, s.303(8)(B)(b)(i)(1) and (2) may present such a 
hindrance, in prescribing that both the ``submission'' and the 
``preparation'' of plans be subject to referendum procedures. The 
problem with requiring that ``preparation'' of such plans be subject to 
referendum is that until issues are identified, objectives set, and 
alternatives analyzed it is not clear that appropriate information will 
be available to constituencies in order to make informed judgments. 
``Submission'', on the other hand, clearly could be subject to an 
informed referendum, assuming constituents have been fully involved in 
the process. There are many examples of where this has occurred in a 
manner satisfactory to the constituents.

The Appropriate Scope of Application for Limited Access Provisions
    Regarding the potential for application of limited access 
provisions beyond the harvesting sector, it is important to review the 
principles and circumstances which lead to the consideration of access 
limitation to marine resources. The primary principle is that of 
protection of public trust resources and the circumstances are those 
that arise from open access in the harvest sector. The Magnuson-Stevens 
Act is clear in requiring that any restricted access provisions be tied 
to legitimate conservation purposes. I believe that many applications 
of access limitation to the harvesting sector can assist in protecting 
the public trust. However, applications (or extensions) of access 
limitation to the processing sector become one step farther removed 
from the basic needs of resource conservation. If some provision should 
be made to ameliorate the social and economic effects of the transition 
to a harvest sector limited access system on the processing sector, 
consideration should be given to addressing those provisions in a way 
that does not unnecessarily extend access limitations beyond their 
appropriate scope. Nor should any measure unnecessarily or 
inappropriately complicate the system design in a way that may violate 
the objectives or authorities of the Magnuson-Stevens Act. There are 
many possible alternatives for addressing such transition effects.

Summary
    In general, I believe that S. 637 is well crafted, subject to the 
above remarks, and reflects many of the recommendations of the 1999 NRC 
report. Quoting from that report, ``The individual fishing quota is one 
of many legitimate tools that fishery managers should be allowed to 
consider and use'' (NRC, 1999, p-194). I would be pleased to answer any 
questions regarding this testimony, or to supply additional testimony 
or information.

    Senator Snowe. Thank you, Dr. Orbach.
    Mr. Crockett.

 STATEMENT OF LEE R. CROCKETT, EXECUTIVE DIRECTOR, MARINE FISH 
                      CONSERVATION NETWORK

    Mr. Crockett. Good morning, Madam Chair and members of the 
Subcommittee. My name is Lee Crockett. I am the Executive 
Director of the Marine Fish Conservation Network. The network 
is a coalition of 102 environmental organizations and fishing 
associations. You heard from two of our fishing association 
members on the first panel. We are dedicated to promoting the 
long-term sustainability of marine fisheries and we appreciate 
the opportunity to present our views on recent legislation 
proposals to guide the development of individual fishing quota 
programs.
    In 1996 Congress placed a 4-year moratorium on the 
establishment of IFQ programs because of concerns over the 
impact of these programs on both fishermen and the marine 
environment. Unfortunately, Congress was unable to address 
these concerns before the expiration of the moratorium. Thanks 
to the hard work of you, Madam Chair, and Senators Stevens and 
Kerry, Congress extended the moratorium for another 2 years to 
allow time to develop national standards for the design and 
conduct of IFQ programs.
    The network strongly believes that explicit legislative 
standards designed to protect the marine environment, 
fishermen, and fishing communities must be established before 
the IFQ moratorium is lifted. To facilitate this process, we 
have developed a set of legislative standards for IFQ programs, 
which I have enclosed in my written testimony. The standards 
contained in both the Snowe and Kerry proposals would go a long 
way towards protecting the public interests if IFQ programs are 
established. While each proposal has its merits, each could be 
improved with language providing greater specificity and 
increased accountability.
    My specific comments are outlined by our proposal. First, 
the network strongly believes that IFQ programs must 
acknowledge that fisheries are publicly owned, that IFQ's do 
not create compensable property rights, and that IFQ's are 
revocable. Quota shares must be of a set duration, we think not 
to exceed 5 years, after which time they may be renewed subject 
to satisfying defined criteria.
    Senator Snowe's proposal relies on existing statutory 
language stating that IFQ programs do not create compensable 
property rights and are revocable. It also places a 5-year 
limit on quota shares. We strongly support those provisions. We 
believe they could be improved by creating more explicit review 
and renewal or reallocation procedures. This will guard against 
the review becoming perfunctory and make sure that the shares 
are not automatically renewed.
    The Kerry proposal relies on the same language to make sure 
that they are not property and they are revocable. But rather 
than a time limit, it calls for a review every 7 years to 
determine if the quota shares should be renewed or reallocated. 
We do not agree with that approach because the burden is on the 
council to prove that the quota shares should be revoked, so it 
is not as strong as it could be.
    Secondly, the network believes that IFQ programs should 
provide additional conservation benefits to the fishery. To 
accomplish this, we recommend that any decision to renew an IFQ 
program must be based on an evaluation of whether the 
shareholder is providing measurable improvements in avoiding 
bycatch, rebuilding overfished stocks, and protecting essential 
fish habitat.
    The Snowe proposal requires IFQ programs to promote stable 
management of fisheries. We think this is a good first step, 
but greater specificity is needed in regards to what 
``sustainable management'' means. We also think that quota 
shareholders must provide additional benefits or risk losing 
their quota shares, as verified by an independent council 
review committee.
    The Kerry proposal moves in the right direction also by 
directing that councils and the Secretary consider the need to 
meet conservation requirements of the act with respect to the 
fishery, including reduction of overfishing and minimization of 
bycatch and the mortality of unavoidable bycatch. However, 
councils must be required to meet this standard for it to have 
any real impact. In addition, review committees must be 
established and charged with assessing whether this standard is 
met.
    Next, we think IFQ fisheries must ensure broad 
participation by preventing excessive consolidation of quota 
shares and ensuring that a portion of each annual allocation is 
set aside for entry level fishermen and small vessel owner-
operators. The Snowe bill contains a number of provisions that 
will protect fishermen and fishing communities. These 
provisions could be improved by providing greater specificity. 
For example, we recommend that Congress define ``excessive 
share'' in the statute.
    The Snowe bill also allows the allocation of quota shares 
among categories of vessels and sets aside a portion of the 
annual harvest for entry level fishermen, small vessel owners, 
and crew members. These provisions are good. They could be made 
better if they were mandatory.
    The Kerry bill also contains a number of provisions 
designed to protect fishermen and fishing communities. Again, 
we think these should be mandatory provisions.
    Next, the network strongly believes that IFQ programs 
should be reviewed every 5 years to ensure that such programs 
are making improvements in avoiding bycatch, rebuilding 
overfished stocks, and protecting essential habitat before they 
are renewed. The Snowe bill establishes a national review panel 
to evaluate existing IFQ programs and provide comments on 
revising existing programs and the development of regulations. 
We recommend that the review and the regulations be completed 
before councils are authorized to establish IFQ programs.
    Secondly, we recommend that the panel be established 
permanently and be charged with reviewing IFQ programs 
periodically. Finally, we suggest that only individuals with no 
financial interest in IFQ programs serve on the panel, to 
ensure the panel's independence.
    The Kerry proposal would be improved if it required each 
council to establish committees to review shareholders, rather 
than IFQ programs, and IFQ programs should be required to be 
reviewed by a national independent review panel to ensure they 
are meeting the act's conservation requirements.
    Finally, the network believes that IFQ programs must 
recover all administrative costs, including the costs of 
enforcement, observer coverage, and independent peer reviews of 
the program. The Kerry proposal contains cost recovery 
provisions. The Snowe proposal does not and we think it should.
    That concludes my comments and I would be happy to answer 
any questions.
    [The prepared statement of Mr. Crockett follows:]

Prepared Statement of Lee R. Crockett, Executive Director, Marine Fish 
                          Conservation Network

    Good morning Madam Chair and Members of the Subcommittee, my name 
is Lee Crockett, I am the Executive Director of the Marine Fish 
Conservation Network (Network). The Network is a coalition of 102 
environmental organizations, commercial and recreational fishing 
associations, marine science groups, and aquaria dedicated to promoting 
the long-term sustainability of marine fisheries. Our member 
organizations represent nearly 5 million people. We appreciate this 
opportunity to present our views on individual fishing quota programs. 
I will focus my testimony on your legislation, the ``Individual Fishing 
Quota Act of 2001,'' S. 637. I would also like to discuss the exclusive 
quota-based management standards that Senator Kerry proposed in S. 2973 
during the 106th Congress.
    I would first like to commend you and Senators Stevens and Kerry 
for your leadership in this area. Whether to allow the establishment of 
individual fishing quota (IFQ) programs, and if so, subject to what 
standards, is one of the most contentious issues in fisheries 
management today. In 1996, Congress placed a four-year moratorium on 
the establishment of new IFQ programs to allow for further analysis of 
these management tools. In the interim, it directed the National 
Research Council (NRC) to analyze IFQ programs. The NRC released its 
report in December 1998 and recommended that Councils be allowed to use 
IFQ programs provided that appropriate measures were imposed to avoid 
adverse effects from such programs. Unfortunately, Congress was unable 
to address these concerns prior to the expiration of the moratorium on 
September 30, 2000. Thanks to the hard work of you Madame Chair, and 
Senators Stevens and Kerry, Congress extended the IFQ moratorium for 
two additional years. The Network feels that this extension was 
appropriate because it will allow Congress adequate time to develop 
national standards for the design and conduct of IFQ programs.
    We need national standards for IFQ programs for two reasons. First, 
IFQ programs are unique--they grant fishermen the exclusive privilege 
to catch fish, a public resource, before the fish are caught. Second, 
as we have seen with council implementation of the Sustainable 
Fisheries Act, unless Congress provides very explicit direction, 
council implementation will vary widely and will likely be inadequate. 
The Network strongly believes that explicit legislative standards are 
necessary to protect the marine environment, and fishermen and fishing 
communities. To facilitate this process, the Network developed a 
comprehensive set of legislative standards to insure that IFQ programs 
are properly designed and thus advance the conservation and management 
of marine fisheries.
    The legislative standards contained in S. 637 and S. 2973 would go 
a long way toward protecting the public's interest if an IFQ program is 
established in a fishery. While each proposal has its merits, each 
could be improved with language providing greater specificity and 
increased accountability. I have organized my specific comments by the 
Network's seven IFQ program principles.

No Compensable Property Right
    IFQ programs must acknowledge that fisheries resources are publicly 
owned, that IFQs are not compensable property rights, and that IFQs are 
revocable. Quota shares must be of a set duration--not to exceed five 
years, after which time they may be renewed subject to satisfying 
defined criteria.

    S. 637 restates existing Magnuson-Stevens Act language explicitly 
stating that IFQ programs do not create a compensable property right 
and that IFQs are revocable. It also places a five-year limit on quota 
shares. We strongly support the five-year limit on quota shares. 
However, we believe that the bill could be improved by creating more 
explicit review and renewal or reallocation procedures. In order for 
the five-year limit to be meaningful, the Network strongly believes 
that there must be a very real chance that quota shareholders could 
lose their shares if they fail to comply with all aspects of the IFQ 
program. If the review becomes perfunctory and shares are automatically 
renewed, they will take on the trappings of property despite the 
Magnuson-Stevens Act language to the contrary.
    S. 2973 relied on existing Magnuson-Stevens Act language stating 
that IFQs are not property and are revocable. It did not contain a time 
limit on quota shares, instead it called for a review every seven years 
to determine if the quota shares should be renewed or reallocated. The 
Network feels that this procedure is not as strong as the one contained 
in Senator Snowe's bill. The Kerry proposal would be more likely to 
result in a rollover of quota shares because the burden is on the 
council to prove that the shares should be reallocated.

IFQ Shareholders Must Provide Additional Conservation Benefits to the 
        Fishery
    Advocates of IFQ programs often tout their potential to enhance 
conservation. The argument goes that stewardship of the resource will 
be enhanced because the value of the quota shares will be linked to the 
health of the resource. Therefore, the quota shareholder will have a 
financial incentive to conserve the resource. The Network does not 
ascribe to the theory that conservation will automatically be enhanced 
because an IFQ program is established. We believe that IFQ programs 
should be required to provide additional conservation benefits to the 
fishery. To accomplish this, we recommend that any decision to renew an 
IFQ share must be based on an evaluation of whether the shareholder is 
meeting the requirements of the IFQ program and providing additional 
and substantial conservation benefits to the fishery. Additional and 
substantial conservation benefits are scientifically measurable 
improvements in avoiding bycatch, preventing high-grading, reducing 
overfishing, rebuilding overfished stocks, and protecting essential 
fish habitat.

    S. 637 moves in the direction of requiring IFQ programs to provide 
additional conservation benefits, by requiring that programs include 
provisions to ``promote sustainable management of the fishery.'' While 
this is a good first step, greater specificity regarding the meaning of 
sustainable management is necessary. We also believe that quota 
shareholders should be required to provide additional conservation 
benefits. Quota shares held by individuals who are not improving 
conservation should not be renewed.
    S. 2973 moved in the right direction when it directed councils and 
the Secretary of Commerce to ``consider(s) the need to meet the 
conservation requirements of the Act with respect to the fishery, 
including the reduction of overfishing and the minimization of bycatch 
and the mortality of unavoidable bycatch.'' However, for this provision 
to have any real impact, councils must be required to meet this 
standard.

Protection for Individual Fishermen and Fishing Communities
    To ensure that IFQ fisheries have broad participation, limits must 
be established to prevent excessive consolidation of quota shares. 
Preference should be provided in initial allocations to fishermen who 
can demonstrate a record of conservation-minded fishing practices, are 
owner-operators, and have long-term participation in the fishery. Each 
IFQ program must ensure that a portion of each annual-allocation is 
set-aside for entry-level fishermen and small vessel operators.

    S. 637 contains a number of provisions that will help to protect 
fishermen and fishing communities. These include much-needed 
requirements to provide fair and equitable allocation of quota shares 
and a directive to minimize negative social and economic impacts of IFQ 
programs on coastal communities. These provisions could be improved by 
providing greater specificity. For example, the bill requires IFQ 
programs to include ``provisions that prevent any person or entity from 
acquiring an excessive share of individual quotas issues for the 
fishery.'' We recommend that Congress define excessive share in statute 
to not exceed 1 percent of the total quota shares. To recognize the 
need for regional flexibility, councils could exceed this limit if 
there are a small number of participants and the increase would not be 
detrimental to other quota shareholders.
    We also note that S. 637 directs councils to ``take into account 
present participation and historical fishing practices in the 
fishery.'' Again, this is a good first step. However, we recommend that 
councils be specifically excluded from basing the initial allocation of 
quota shares on catch history. We believe that using catch history will 
reward the largest fishermen at the expense of small fishermen. 
Additionally, we believe that giving the biggest shares to the biggest 
fishermen could reward those who have caused problems by using large, 
non-selective, and/or habitat damaging gear. Disallowing the use of 
catch history will also provide a disincentive for fishermen to fish 
rapaciously in order to establish catch history when an IFQ program is 
in the planning stages. Additionally, we recommend that the initial 
allocations reward fishermen who have a demonstrated record of 
conservation-minded fishing practices.
    Finally, S. 637 authorizes IFQ programs to include provisions that 
allocate quota shares among categories of vessels and set aside a 
portion of the annual harvest for entry-level fishermen, small vessel 
owners, or crewmembers. Once again, this is a very good first step that 
could be improved by making these provisions mandatory.
    S. 2973 contained a number of provisions designed to protect 
fishermen and fishing communities. These included provisions to 
establish a fair and equitable initial allocation, consider the 
allocation of a portion of the annual harvest to entry level fishermen, 
consider the social and economic impacts of IFQs, and consider the 
effects of excess consolidation. These provisions needed to be 
mandatory to make them more effective.

IFQ Programs Must Provide Additional Conservation Benefits to the 
        Fishery
    The Network strongly advocates a periodic review of IFQ programs 
every five years. Decisions on whether to renew the program and how to 
improve it should be based on the outcome of that review. Review 
criteria should include additional and substantial conservation 
benefits to the fishery, including avoiding bycatch, preventing high-
grading, reducing overfishing and rebuilding overfished stocks, and 
protecting essential fish habitat.

    As I discussed above, S.637 contains language requiring that IFQ 
programs promote ``sustainable management of the fishery,'' which needs 
further clarification to effectively promote conservation. The Network 
recommends that fisheries subject to an IFQ program, at a minimum, be 
required to satisfactorily meet all of the conservation requirements of 
the Magnuson-Stevens Act. In particular, optimum yield should be set 
below the maximum sustainable yield to guard against overfishing, 
buffer against scientific uncertainty, and protect the ecosystem. 
Bycatch should be reduced over time to insignificant levels, and damage 
to essential fish habitat should be minimized. Additionally, an 
independent review of the program is necessary to insure that 
conservation is enhanced.
    S. 2973, as discussed above, contained of number of conservation 
provisions that should be mandatory. It also contained a requirement 
that each council establish a committee to review the council's IFQ 
programs to ensure the programs are meeting the requirements of the 
Magnuson-Stevens Act, including the conservation requirements. The 
Network recommends that the Secretary establish a national review panel 
to review IFQ programs. We feel that a national panel is necessary to 
ensure a truly independent review of how effective IFQ programs are at 
meeting conservation objectives.

Independent Review of IFQ Programs and Shareholders
    A national IFQ review panel, consisting of individuals 
knowledgeable about fisheries management, but with no financial 
interest in any fishery, should be established to review IFQ programs. 
In addition, each fishery management council should establish and 
maintain an Individual Fish Quota Review Panel, consisting of 
individuals with knowledge in fisheries management, but with no 
financial interest in an IFQ program, to conduct reviews of performance 
of IFQ shareholders.

    S. 637 establishes a national review panel to evaluate success, 
costs, and economic effects of existing IFQ programs. The panel's 
comments are submitted to the councils and the Secretary for the 
revision of existing IFQ programs, and the development of IFQ 
regulations. We have several recommendations to improve this provision. 
First, it seems that S. 637 authorizes the development of IFQ programs 
while the panel is studying existing programs and the Secretary is 
developing regulations. This would allow the development of IFQ 
programs that are inconsistent with the new regulations. We recommend 
that the panel conduct its study and the Secretary promulgate 
regulations before councils are authorized to establish IFQ programs. 
Second, we recommend that the panel be established permanently and be 
charged with reviewing IFQ programs periodically. Finally, to ensure 
that the panel's reviews are independent, we suggest that individuals 
with financial interests in IFQ programs be prohibited from serving.
    S. 2973 required each council to establish an independent review 
panel to make recommendations for development, evaluation, and changes 
to the council's IFQ programs. Appointments to the committee included a 
broad spectrum of interest groups and IFQ holders were prohibited from 
participating. These panels have many good aspects, but should be 
charged with reviewing individual quota shareholders. As stated above a 
national panel should be charged with reviewing IFQ programs.

Recovery of Costs
    Because IFQ shareholders are granted the exclusive privilege to 
catch fish, we believe that IFQ programs must recover all 
administrative costs, including costs of enforcement, observer 
coverage, and independent peer reviews of the programs. Additionally, 
review of IFQ programs depends on good data and adequate funds to carry 
out the reviews. Cost recovery will ensure that the councils and the 
Secretary have the funds necessary to carry out this important mandate.

    S. 637 should be amended to include a provision to require cost 
recovery.
    S. 2973 contained a provision to cost recovery that was very 
similar to the Network's proposal.
Reserve a Portion of the Catch to Protect Ecosystems
    IFQ programs must provide the opportunity for allocation of quota 
shares to entities that do not intend to catch the fish, but instead to 
reserve the quota share for ecosystem purposes. This reserve portion 
would serve as a buffer against scientific uncertainty.

    S. 637 does not contain a provision that allows individuals to buy 
quota shares without fishing them. In fact, the bill prohibits this 
practice by requiring individuals to engage in fishing three of any 
five consecutive years or risk having their quota shares revert to the 
Secretary. This prohibition should be removed from the bill.
    S. 2973 contained a provision that limits the allocation of quota 
shares only to individuals who directly participate in the fishery. 
This prohibition should also be removed.
    Finally, I would like to commend a provision that is in both bills, 
but is not contained in the Network's proposal. Both bills contain 
requirements for super majorities of eligible permit holders to endorse 
an IFQ program before it can be established. We feel that this is a 
fair and equitable means of insuring that an IFQ program has broad 
support among affected fishermen.
    In summary Madame Chair, you and Senator Kerry are to be commended 
for introducing legislation that if enacted would provide a badly 
needed legal framework for IFQ programs. If the two proposals were 
combined and made more specific as recommended above they would go a 
long way towards ensuring that both fish and fishermen are protected.
    Thank you again for providing the Marine Fish Conservation Network 
with an opportunity to presents its views on IFQ programs. I would be 
happy to answer any questions you or other Members of the Subcommittee 
may have.

    Senator Snowe. Thank you. I want to thank all of you for 
your presentations here today. I think it will be helpful to 
this process of determining what essentially will be critical 
to further shaping this legislation. Obviously, as I think you 
heard from the previous panel, there still are a diversity of 
views with respect to the varying issues. There are a number of 
issues involved in the IFQ program.
    Let me start with the whole issue of transferability. I 
know you mentioned, Dr. Sutinen, that without transferability 
you devalue the IFQ program, and IFQ's will be rare. I have 
also included sunset legislation because there are some 
concerns about what the direction or outcome would be of an IFQ 
program. For example, as you heard previously, there is concern 
about the consolidation of interests in the hands of a few, the 
concentration of it; and also whether or not an IFQ is working. 
To what extent can we have control over a program that may not 
be working well.
    So that was the concept behind the sunset provision in this 
legislation. Now, I know that maybe 5 years may not be long 
enough for those who are making the business decisions and for 
long-term decision making. But in the final analysis, it was 
meant to provide some ability for control in the event that the 
program is not working well or that you do see the shares 
ultimately in the hands of a very few.
    Dr. Sutinen. In looking at the evidence with the 
implementation of IFQ programs around the world, most of them--
not most, but many of them--initially prohibited trading. Just 
like our fishermen, they are concerned and the communities are 
concerned about the disruption and consolidation. Almost 
immediately, however, the gains from trade are perceived by the 
players in the process and they begin to put pressure on, 
whether it is the legislature or the managers, to relax those 
restrictions.
    I think it is very logical to start out in many cases with 
these restrictions. But in other cases, particularly new 
fisheries where there are few players, they may not be 
necessary. But set up a framework whereby they can be modified 
and relaxed flexibly, immediately if necessary, if appropriate, 
maybe 5 years in some cases, maybe longer in others, maybe 
never. Some fisheries still have non-transferable quotas.
    Does that help answer?
    Senator Snowe. Yes, it does, yes.
    Dr. Orbach, what is your comment on that? I know you are 
opposed to the sunset provision, but how else, how better do 
you address the question of potentially an IFQ not working 
well? I know we could subject the program to review by the 
Secretary of Commerce, the Department of Commerce. But as we 
have seen presently with the review of fishery management 
plans, it has not worked well. It is grappling with the 
bureaucratic aspects of that kind of decision making once you 
remove it from the council or the area of jurisdiction for the 
fisheries, and that is a problem. We hate to remove it from the 
local area as much as possible, because it does get involved in 
the Federal bureaucracy. We have seen that in our past 
experiences with the management plans of the fisheries.
    Dr. Orbach. I understand that. Rather than say I am opposed 
to them, I simply think people ought to be informed about the 
consequences of having such a provision. Now, if you are 
concerned with review and critical decisionmaking about how the 
program is working, there are a number of ways to do that. 
There is a system that has been designed down in Australia 
called the drop-through system, where in fact the rights you 
purchase are for 20 years with overlapping systems that come 
into play and decisions that are made to stay in the system or 
to transfer to a new redesigned one.
    So there are other ways besides strict sunset provisions to 
take this into account. I think the important point is that if 
you have any kind of a decision time line, that it is clear how 
you are going to act before that deadline occurs. What is it 
you are going to monitor? How is one going to decide whether 
something is working or not? What data and information are you 
going to need to give people reasonable expectations about how 
the system is going to work?
    The other thing about a sunset provision is that there is 
sort of a presumption there that you may actually want to stop 
it and forget the whole thing. I would simply point out that 
the history of these systems worldwide is that nobody has ever 
decided that because, as Dr. Sutinen pointed out, they by and 
large work to do what they were intended to do.
    Senator Snowe. Thank you.
    Mr. Crockett, you mentioned a national review panel or an 
independent review panel for the program. Are you seeking to 
exclude the fishermen from that panel? Would that be your 
intention?
    Mr. Crockett. No, we are not seeking to exclude fishermen. 
We are just seeking to exclude people who have a direct 
financial stake in IFQ programs, so that they are independent.
    If I could, I would like to talk about transferability----
    Senator Snowe. Because generally the fisherman do have a 
financial interest. The owners of the fishing vessels generally 
do. So obviously you would be excluding them.
    Mr. Crockett. I meant specifically a financial stake in an 
IFQ program. So they would not be reviewing their own programs 
to determine whether they should continue or not, so they would 
be a step removed. But we are not suggesting that fishermen not 
be excluded, just fishermen with a direct financial stake in 
that IFQ program.
    If I could just comment on this, we do not have a position 
on transferability, but we certainly feel that there needs to 
be--if there is transferability, that you absolutely have to 
have a hard sunset that has some teeth to it. I think you heard 
testimony in the earlier panel where one of the witnesses said 
that you could not change the halibut-sablefish fishery because 
lots of money had changed hands, millions of dollars had 
changed hands. That is precisely the problem with this, that if 
you want to make changes to it, you want to make midcourse 
corrections, it is going to be very difficult if lots of money 
has changed hands. You can have all the law you want saying 
that this is not property, it is revocable. It is going to take 
on the trappings of property.
    Senator Snowe. Interesting point.
    Dr. Orbach, Dr. Sutinen, do you think that we should have 
an independent review panel of some kind to examine the 
performance of the IFQ programs?
    Dr. Orbach. I personally think that is a very good idea. I 
think I have every faith in the council system, but there are 
only a certain number of people who can participate in it 
effectively at any given point in time. I think functions such 
as the National Academy review--there are a number of ways to 
set up reviews such as that and to ensure their objectivity. I 
think it is a very good idea.
    Senator Snowe. Dr. Sutinen?
    Dr. Sutinen. I think that is a logical direction to go in. 
But I would like to see a set of criteria laid down early on as 
to what is going to be used to pass judgment. There are some 
basic things in the Magnuson-Stevens Act and elsewhere you 
could build on, of course: serving the interest of the 
resource, fishing communities and a number of things. As long 
as those are laid out and are objectively measurable, I think a 
review is a good idea.
    Senator Snowe. Thank you.
    Senator Stevens.
    Senator Stevens. Mr. Crockett, I am not sure I like what I 
am hearing. It seems to me you are suggesting a nationalization 
of the regional councils, a permanent review before the IFQ's 
go into effect, and a review of people who do not have any 
interest in the IFQ's as we go along. That is not this system. 
It is not the Magnuson-Stevens Act, I will tell you. I will 
totally oppose bringing to Washington and to some national 
review board the control over regional council decisions. I 
think you better back off, because that is not what this is all 
about.
    This is about the independence of regions in terms of 
determining their own fate. That is worse than bringing it back 
to the NSF. You might as well just repeal Magnuson-Stevens Act 
as follow your suggestions. No offense meant, but I just do not 
agree with you.
    Dr. Orbach, it seems to me that you have got some basic 
suggestions that do make sense, and that is to make sure that 
these systems are working in a post-approval of an IFQ system 
after a period of years to review that, to see how this is 
working in comparison to other areas and to offer advice to the 
councils in terms of modification of plans or review of the 
socioeconomic issues.
    Am I understanding you right? Yours is not before the IFQ 
goes into effect, but to review the history of it after it 
comes into effect?
    Dr. Orbach. Yes, that is right. I think that we need to 
have our objectives and criteria clear and we need to have some 
experience to go on here. We cannot possibly understand all the 
things that might happen when these systems actually unfold. We 
need to monitor them very carefully and to have a way to adapt 
our management to make sure we are achieving our goals as we go 
along.
    I think there are ways to do that. I think participants in 
the system who have a vested interest have a natural role. I 
think some people who do not have any vested interest have a 
natural role as well. I would like to see both those 
constituencies involved somehow in the process, not one to the 
exclusion of the other, though.
    Senator Stevens. I agree, not one with a veto on the other, 
either.
    Dr. Sutinen, in terms of what you are saying, as I 
understand it, that you feel that the IFQ is one of the most 
valuable tools we have for fisheries management under our 
system of economics?
    Dr. Sutinen. That is correct, sir.
    Senator Stevens. Do you believe that the IFQ's should have 
value? Should they really become certificates of value that can 
be transferred just for an investment purpose?
    Dr. Sutinen. With value, good things happen. As an 
economist, when I evaluate the economic performance of industry 
sectors, etcetera, things that have value do good things. It is 
for that reason that I think if an IFQ system allows for value 
to build up in the form of shares and elsewhere, it is going to 
do good things to our fishing communities.
    Senator Stevens. So just to make sure we understand now, if 
I have an IFQ in fishing for a particular species in Alaska and 
Dr. Orbach's got a bigger and better boat and he wants to buy 
my IFQ and I can go sit on the beach and let him fish from my 
IFQ, that is really what you want us to do?
    Dr. Sutinen. I am not telling you what to do, sir. I am 
saying that if you do that greater value will be generated. Do 
you understand? Do you understand what I am saying?
    Senator Stevens. And I will have a good life and he will 
still be fishing, but what happens to the fishery if we have 
the capability of consolidating the right to harvest fish 
because of value of the certificate issued by the regional 
council?
    Dr. Sutinen. Certainly. If too much consolidation occurs, 
that is a bad thing and we have laws to prohibit that or at 
least restrict the degree of consolidation in any given 
industry, because we get market failure and in those cases 
markets do not serve the best interests of society. So we seek 
instead to build a competitive system where you have a large 
number of small players that are playing or operating on a 
common level playing field.
    Senator Stevens. Well, respectfully, that worries me, too, 
because we designed this to protect the fish and not to protect 
the value of some investment in trying to either harvest the 
fish or process the fish. We have just gone through the AFA. 
Are you familiar with the American Fisheries Act?
    Dr. Sutinen. A little bit, sir.
    Senator Stevens. That was a cooperative approach, not an 
IFQ. It was a cooperative approach, and it has worked very 
well. It has protected the species and we are coming back to a 
normal concept with regard to our ability to assure 
reproduction.
    Do you believe we should put economics above the future 
reproductive capability of the species?
    Dr. Sutinen. I think they are compatible. In my written 
testimony I go on at some length about how I think community-
based systems have a lot of value. In other words, group----
    Senator Stevens. I noticed that, too.
    Dr. Sutinen. Group quotas as opposed to individual quotas. 
I think that system can work well. But when people see value in 
what they hold, that builds up their conservation motive, their 
stewardship of the resource. They then have a stake in the 
future outcomes of the resource, and therefore you do not put 
value over fish. They are compatible.
    Senator Stevens. Would your economic approach permit us to 
put a limit on the amount of the total allowable catch any 
person could acquire?
    Dr. Sutinen. Certainly.
    Senator Stevens. Thank you.
    Thank you.
    Senator Snowe. Thank you, Senator Stevens.
    Senator Kerry.
    Senator Kerry. Thank you, Madam Chairman.
    Dr. Sutinen, you state in your testimony that an open and 
transparent process is needed to ensure institutional 
legitimacy, credibility, and trust, with which I agree 
completely.
    Dr. Sutinen. Yes, sir.
    Senator Kerry. But you then say: We in the U.S. have not 
yet designed a process that satisfies these criteria. Can you 
explain why we have not yet had a fair allocation process 
within an IFQ fishery? What is the rationale for that?
    Dr. Sutinen. I wish I could. I really can not. We found in 
looking at this initial allocation process in many, many 
fisheries that it has been done in many different ways, and one 
size does not fit all. Certainly having it open means that all 
interested parties can participate, whether they are 
processors, fishermen, environmentalists, or the like. Yes, the 
pain is great. The amount of time to negotiate and arrive at 
some acceptable solution, that is quite arduous.
    But unless you have the procedures in place that people 
perceive as being legitimate, in your terms fair, and yield 
just outcomes or procedures, then the institution is weakened 
and it is not sustainable over time.
    Senator Kerry. Sure. But you have just pointed out the 
differences in different places. Obviously there are different 
approaches, as I mentioned in my opening comments. But do you 
think that there is something we can do legislatively or 
through oversight that is going to ensure that fair initial 
allocation process?
    Dr. Sutinen. When I travel around New England and talk to 
fishermen, they feel removed from the council process.
    Senator Kerry. Now?
    Dr. Sutinen. Right now, right.
    Senator Kerry. I agree.
    Dr. Sutinen. They shake their heads and they are, frankly, 
quite upset. They tell me time and again the system is broken.
    Senator Kerry. I hear it. We both hear it. We all hear it.
    Dr. Sutinen. I guess I am a little disappointed. Maybe you 
plan to really examine that system and think about fundamental 
changes to the way we go about managing our fisheries. The 
councils--the principle behind the council notion, move things 
out to the region, is a good one. In the work I have done to 
date, we have not gone far enough in that decentralized or 
decentralization of our management structure.
    Senator Kerry. When you say that, you mean we need to 
decentralize further even than the council?
    Dr. Sutinen. That is correct, if we want a legitimate 
system that is sustainable over time and capable of producing 
high value.
    Senator Kerry. I am really left wondering about that, let 
me tell you. Would you then design a system that is based on a 
fishery per se, and how would you join the multiple 
jurisdictions? What happens, for instance--when fishermen from 
a number of different States approach the Georges Banks.
    Dr. Sutinen. That is right.
    Senator Kerry. Just to pick that as an example, or in 
California with the tuna in the Eastern Tropical Pacific. It 
seems to me you have to get some scope of region in order to be 
able to manage the stock of a particularly large fishery that 
is inviting to people from several jurisdictions.
    Dr. Sutinen. This may take some time to explain, but let me 
try to do it in just a few seconds. First of all, I would not 
draw hard and fast permanent boundaries on these things. 
Instead, I would set up institutional arrangements where the 
players can merge among themselves. If you think for a moment 
about our businesses in this country, they grow and diversify, 
they merge, and they decompose over time. We have institutional 
mechanisms for that to occur in order for good things to 
happen.
    I am thinking that in the same sense you could have 
communities of interests, say New Bedford that might start out, 
and then a subset of them may join with some from the Mid-
Atlantic for specific purposes. If we have an institutional 
structure that is flexible----
    Senator Kerry. What would be the driving force for them 
joining, economics?
    Dr. Sutinen. Yes.
    Senator Kerry. Well, if the driving force is economics, you 
are going to have greater consolidation and more money making 
an impact.
    Dr. Sutinen. Not necessarily.
    Senator Kerry. Why?
    Dr. Sutinen. It depends on what style----
    Senator Kerry. It seems to me if you leave freedom of the 
market unchecked, that is an invitation for the larger 
investor. We had that kind of problem with North Carolina 
boats, with New York investors supporting them, coming up to 
our fishery. That just accented the problem of too much money 
chasing too few fish.
    Dr. Sutinen. Well, first of all, by doing this you create a 
stewardship in the resource.
    Senator Kerry. What creates the stewardship?
    Dr. Sutinen. Because you are giving them some degree, this 
group, exclusive access to using the resource over time.
    Senator Kerry. But if the group is an economically formed 
group, it does not necessarily have ties to the community. It 
does not necessarily have ties to the particular----
    Dr. Sutinen. You would design it that way.
    Senator Kerry. Well, if you do it is going to be one hell 
of a manipulated market.
    Dr. Sutinen. Not necessarily, not necessarily. This is 
being done in some communities. For example, the producer 
organizations in Europe, some of them work under the total 
quota. Some of them divide that up among individuals so the 
members of the quota have individual quotas themselves. In 
other cases they fish it in different ways. They buy quota from 
other producer organizations, etcetera.
    Something along those lines, but it could be organized 
differently, with players other than the harvesters involved in 
these, to serve the community's interests.
    Senator Kerry. Well, that is worthy at least of some staff 
analysis and backdrop. The difficulty with it is that obviously 
working out the democracy of these councils is complicated. It 
has got to be a manageable structure, it has got to be a 
manageable number. We have tried to work out areas of interest. 
But obviously we run into a lot of fishermen within each of the 
councils who feel like they are not represented or the 
commercials are more highly represented than any of the others, 
or that a particular commercial interest is even more 
represented than the other particular commercial interests and 
they do not have as many votes. Then you run into this thing. 
We run into it between Maine and Massachusetts and New 
Hampshire and so forth.
    It is hard to make it a democratic process that is truly 
representative. Through the years, we have really tried to 
decentralize it as much as possible, as you are saying. But 
then the result has been that the more decentralized it gets, 
the less coordinated it becomes and the less you ever get a 
decision made. That is why we ultimately had to insert the 
Secretary into the process, because we were seeing stalemate, 
no decision, status quo, gridlock.
    Dr. Sutinen. May I comment?
    Senator Kerry. Please. That is the purpose.
    Dr. Sutinen. First of all, I do not want to imply that I am 
proposing another layer of government here. I am not. Instead I 
am proposing a set of guidelines and provisions that allow for 
these governing institutions to emerge from the bottom up.
    I am currently working with some local lobstermen who want 
to organize and carry their case to first the State 
legislature, and they encounter all sorts of barriers. They 
work hard for many, many months, sometimes years, to come to an 
agreement on a program, and the law, the institutions around 
them--forming to work together to form some effective governing 
structure, there is all kinds of barriers to that.
    What I am talking about is facilitating that. Some 
countries have rewritten their legislation to facilitate these 
organizations to grow and prosper.
    Senator Kerry. Well, we certainly owe it to ourselves to 
look at what those countries are doing and try to measure it, 
and we will do so.
    Let me ask the other members of the panel and all of you 
just very quickly, because I unfortunately have a slot on the 
floor. I need to go over and speak on something. But would you 
share with us your understanding of the role of IFQ's in 
reducing and promoting bycatch? Any thoughts on that, Mr. 
Crockett or Mr. Orbach? Are they better or worse than other 
management programs in reducing bycatch?
    Mr. Crockett. There are concerns with IFQ programs with 
what is called high-grading, where fishermen will only keep the 
most valuable fish and discard the less valuable, because they 
have more time to catch fish. So that is a bycatch issue that 
needs to be guarded against and why we think there needs to be 
observer coverage, industry-funded observer coverage in IFQ 
programs.
    Senator Kerry. Well, you heard the former panelist say the 
industry cannot afford it.
    Mr. Crockett. I heard others from Alaska, where they are 
funding it, who said they could certainly depend on the 
industry.
    Senator Kerry. It might depend on the kind of catch you get 
and the price of that catch, too, and your costs of fishing.
    Mr. Crockett. Exactly. We think because you are providing 
the exclusive privilege to catch these fish, that that is a 
different scenario than the current practice of open access 
fisheries. So because you have that exclusive privilege, you 
should be contributing to the management of that fishery.
    Senator Kerry. I suppose that should simply be passed on 
and reflected in the cost of the fish? What if the market does 
not respond that way? I mean, when the fishermen come in at an 
auction and the price is paid, it is not a pass-on in the same 
way as it might be in other kinds of productions.
    Mr. Crockett. The other alternative would be a government-
funded program and we see how difficult that is right now to 
get money for observer programs. I think it is only recently 
that Congress has provided additional money, probably $4 
million or so, for observer programs. We are trying to ensure 
that these are managed correctly and you need to generate some 
money to be able to do that.
    Dr. Orbach. Let me just comment briefly on the broader 
question of the environmental effects of fishing. There is some 
evidence in the systems that have been established that the 
IFQ's allow the fishermen more flexibility to deal with 
environmental impacts in their fishing, everything from ghost 
gear, enforcement effects, the ability to target on certain 
fisheries without having to sort of broadcast fish in short 
time frames.
    So there are in fact some positive environmental impacts 
noted in many of these IFQ fisheries as well. The high-grading 
issue is an important one. It is a little difficult to monitor. 
There is also some evidence that high-grading is in fact not 
very economical as a phenomenon.
    Senator Kerry. Well, thank you.
    Again, I would like to read the record open if we could, 
Madam Chairman, just to follow up with the panel.
    Senator Snowe. You certainly can.
    Senator Kerry. I thank you all.
    Senator Snowe. Without objection, it is so ordered. Thank 
you, Senator Kerry.
    Just a few remaining questions. Dr. Sutinen, you referred 
earlier, in response to Senator Kerry's questions to the area 
councils and the management process and the considerable 
dissatisfaction that exists with that process. I would agree. 
That certainly is consistent with the views that were expressed 
during the course of the Committee's field hearings across the 
country in various regions. So it is well represented, 
unfortunately, in terms of how it is viewed.
    Do you think that we should require the development of 
additional procedures in this legislation before we would 
proceed with IFQ legislation?
    Dr. Sutinen. Additional procedures regarding anything?
    Senator Snowe. Yes, the management of this program, 
reconfiguring the process in some way to make it more open, 
more responsive. I obviously included, for example, the double 
referendum initially to make the decisions about whether or not 
the council should proceed with developing an IFQ program, and 
then ultimately on the basis of what that program is all about, 
with a two-thirds vote. So that is a very high threshold in 
order for a program to even begin to be considered by the 
council, and then of course to be approved.
    Dr. Sutinen. I guess I would like to see some provisions 
that not only allow, but encourage the councils. There is some 
tendency right now in the New England Council to do--to 
encourage the councils to allow individual user groups, even 
sub-user groups, to formulate their own rules and within that 
context then either require or certainly encourage some sort of 
democratic decisionmaking process. When you get conflicting 
interests, such as say New Bedford and Gloucester, who cannot 
even get into the same room together and agree on anything, 
then you are going to have to devolve the process even further, 
so you get some common set of interests formulating some rules 
that are common to them.
    But if you have a referendum process across the board in 
the region, I do not think you are going to get a two-thirds 
majority vote on anything. I do not care whether it is IFQ's or 
anything.
    Senator Snowe. So you think that two-thirds is too high?
    Dr. Sutinen. Yes, I do, because it is applied to a very 
large region with a lot of heterogeneous interests. If that 
rule were applied to, say, the southern New England fishermen 
prosecuting a certain species or groups of species, then that 
might work, that might be an appropriate tool for 
decisionmaking.
    Senator Snowe. Dr. Orbach, I know you indicated that you 
are opposed to having a referendum for the council to proceed 
with the development of an IFQ program. But is it not better to 
have the determination as to whether or not it is something 
that is supported by the industry, as opposed to having the 
council go through with considerable expense and time to 
develop such a plan? They need to establish, I think, a base of 
support before they can begin to develop a program.
    As we have heard earlier, it is a very expensive effort in 
any event. It would be important to determine how broad the 
support is or how wide the opposition is with respect to going 
forward with such an idea.
    Dr. Orbach. Yes. I think that you used an important 
difference in the wording there. That is, not to decide to 
develop an IFQ system, but decide to consider an IFQ system. 
Now, in all the cases I am aware of the IFQ systems that have 
been implemented were actually proposed in the first instance 
by some constituencies of fishermen. That is, these things are 
not put in over the objections of fishermen. They have been put 
in with the support of fishermen, also the opposition of some 
others in the industry. But it has not been a black or white 
situation.
    My concern about the up front referendum is that--and I 
have been involved in having fishermen say to me: Come help us 
think about these things. Jon used an important word. By the 
way, the solution to some of the questions Jon raised may not 
structural issues within the system, but ways to provide 
resources to the community outside of the system, to get 
together fully and think about these issues.
    That is a very difficult thing to do, because everybody has 
to make a living, because the councils have hearings all over 
the place. What we have been able to do in many places is to 
facilitate, to bring the information to communities, to provide 
resources so that they can get together and talk with people 
with different experiences and different ideas from other 
places.
    That process is very important. I think the problem with 
the up front referendum is these are very complicated issues. 
People actually do not know, cannot be expected to know, what 
they truly think about these things until they have had an 
opportunity to be in those kinds of forums.
    Senator Snowe. Further, you mentioned in your testimony 
that you are opposed to processors having the ability to 
acquire shares, quotas, under this program.
    Dr. Orbach. Now, there is that ``oppose'' word again. I do 
not oppose or support things. I point out the potential effects 
of one way of doing it or the other. I think the question with 
the processor issue in Alaska is whether we view it as a 
transition phenomenon or whether we view it as a design feature 
that needs to be incorporated into the long-term structure of 
the FCMA. That is the question.
    If you view it as a transition phenomenon, there are many 
ways to help the issue of stranded capital with a one-time 
payment or whatever the issue is, without a change in the basic 
structure of the FCMA. My concern again is the farther you get 
away from the pure conservation objectives of the system, the 
more it becomes questionable whether something is within the 
authorities and the intent of the FCMA.
    My reading is that the FCMA was not designed to regulate 
processing independent of a conservation objective. If that is 
an objective, it might need to be added as a structural new 
feature of the FCMA. I am neither opposed nor supportive of it. 
I simply want to point out those aspects.
    Senator Snowe. So we would have to include some design in 
this legislation to address what you are suggesting?
    Dr. Orbach. I would say that if you are getting into 
especially the two-pie system, where there is a separate 
allocation of processors, that would really require some 
serious thinking about a structural change in the FCMA to 
address the issue of even the basic justification for 
regulating processing, for example. That would have to be 
somehow built into the FCMA. It is not there now.
    Senator Snowe. Mr. Crockett, I notice that you are 
recommending that conservation groups should be able to obtain 
a share of quotas. Now, I would like to hear your rationale for 
that, because obviously that would be, I think, a very unusual 
approach, particularly for groups that obviously do not have a 
vested interest. They do in terms of the whole resource, but do 
not have the financial interest. So obviously, that would be 
opposed by many.
    Mr. Crockett. Well, I think there are many examples in the 
terrestrial environment where conservation groups like the 
Nature Conservancy and others, for example, purchase land to 
set it aside to protect ecosystems. This would be very akin to 
that, where groups who do not intend to fish the resource would 
purchase quota shares and set it aside and not fish it.
    In our proposal, we would say that if there are any fees 
assessed that those individuals who own that unused quota would 
pay the fees, and we feel because there is a fair amount of 
uncertainty in fishery management generally that this would 
serve as a buffer against that uncertainty.
    Senator Snowe. Dr. Orbach and Dr. Sutinen, how would you 
respond to that idea?
    Dr. Sutinen. I can see some value in allowing other 
interests to acquire shares, harvest right shares, because a 
lot of other interests have value. It is not market value, but 
it is value in the status of our fisheries. We have had some 
cases where environmental groups have, as Mr. Crockett points 
out, acquired land, sanctuaries and resources.
    Senator Snowe. Similar to a conservation easement.
    Dr. Sutinen. Once again, it gives them a long-term stake in 
the resource and it removes them from the political marketplace 
and puts them into the commercial marketplace.
    Senator Snowe. I think the difficulty is that the reason 
for going to the IFQ program to begin with, is because 
fisheries are a limited resource. There are only so many that 
are going to be able to participate. There is only so much fish 
out there to catch. Therefore, adding an element or a dimension 
acquired by a group that does not have that financial interest 
obviously places a greater burden on the overall industry.
    I understand the rationale, the predicate of your idea. I 
think the question is whether or not it should be done in this 
instance, because of the initial reasoning for going towards an 
IFQ program.
    Dr. Orbach.
    Dr. Orbach. I think that everything is a political process 
within fisheries management and politics is not a bad word. It 
is just different values. So certainly you could build in a 
feature of different categories of ownership. I think the 
problem will be if in fact the purchase of quota share by non-
fishing constituencies became a regular phenomenon, what you 
are essentially doing is subverting the design features of the 
FCMA. You are saying that, having made a reasonable judgment 
about how much fish it is appropriate to take out of the ocean 
for commercial purposes, you are allowing a downstream 
reassessment of that judgment.
    That would be to me a design problem with the FCMA in 
general.
    Senator Snowe. Well, do you want to respond, Mr. Crockett?
    Mr. Crockett. If I could just briefly respond to that. I 
think it is a recognition--and you held field hearings all over 
the country and I am sure you heard lots of criticism of the 
data that goes into fishery management, the stock assessments, 
the analyses, all those sort of things. It is just a matter of 
fact in our current system right now that there is a lot of 
error, and this just recognizes that and creates a buffer so 
that if we are wrong in our assessments of the health of the 
resource and the amount of resource we are divvying up, we have 
a buffer, we have a cushion to guard against that.
    Senator Snowe. That was one of the reasons why I proposed 
the sunset, as another way of getting at that problem as well.
    Mr. Crockett. Right, and we strongly support that sunset.
    Senator Snowe. Well, I thank you very much for being here 
today and for your very thoughtful and illuminating testimony 
on this challenging issue, to say the least. But you have been 
very helpful in elaborating on some of the key questions that 
we will have to address on the Subcommittee and beyond.
    So I thank all of you very much for being here today and 
for testifying and for your contributions to this process. 
Thank you.
    This concludes our hearing. Before we leave today, I ask 
unanimous consent that the hearing record remain open for 10 
legislative days so the Subcommittee may accept additional 
statements and questions from Senators, as well as any other 
information that the Subcommittee may want to include in the 
hearing record. Without objection, so ordered.
    The hearing is adjourned. Thank you all for attending.
    [Whereupon, at 12:03 p.m., the Subcommittee was adjourned.]

                         A  P  P  E  N  D  I  X

  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                            Patten D. White

    Question 1a. How can new IFQ programs ensure that quota shares will 
not be consolidated into the hands of the largest fishing interests?
    Answer. A maximum percentage could be established on a fishery by 
fishery basis depending on the size of the fishery and the number of 
people who have historically been in the fishery.
    Question 1b. Should legislation specify penalties if share caps are 
exceeded?
    Answer. S. 637 states that a Council has the authority to include 
the provisions which prevent the issuance of excessive shares. If an 
individual or corporation obtains excess quota under false pretenses, 
that quota should be revoked. Otherwise, it is the responsibility of 
the Council administering the program to ensure that quota allocations 
are not exceeded. I don't see that legislation is needed for this.
    Question 2a. Would I support allowing the environmental community 
to lease quota for a limited time period?
    Answer. No. The proposal I read from the MFCN requested that 
programs must provide the opportunity for allocation of quota shares to 
entities which do not intend to fish. I do not agree with that. If 
environmental conditions are reducing a stock or it's ability to 
reproduce, that condition must be dealt with by the appropriate 
governing body. If a species is listed as endangered, there should be 
no quota.
    Question 2b. Would this be a way to compensate fishermen while 
giving NMFS time to address a pressing problem?
    Answer. If an environmental group were able to lease a quota for a 
limited time, it could be advantageous to the fishermen and merit 
further discussion. However, I don't understand what incentive there 
would be for an environmental group to do this. If a stock is 
threatened and requires a reduction in effort, would it not be the 
responsibility of the respective Council to reduce the amount of quota 
available?
    Question 3a. What measures would I recommend to ensure that changes 
can be made to an IFQ program?
    Answer. It would be difficult for me to respond to this question 
without hearing a lot more public input.
    Question 3b. Without a sunset, can an IFQ program be terminated?
    Answer. Depending on how an IFQ is designed, it could be very 
difficult to terminate, even if it has a sunset. A sunset would help to 
ensure that its value doesn't become excessive.
    Question 4a. How can you ensure that any IFQ will enhance safety?
    Answer. You can't. Most fishermen fish when they can realize the 
highest economic gain. That may or may not be during good weather. 
Fishermen need to remain flexible.
    Question 4b. Do I have any recommendations?
    Answer. There needs to be more outreach and education.
    Question 5a. If the Coast Guard budget is reduced, does it change 
my position on ITQ's?
    Answer. No. I still don't support them. This situation would only 
reinforce my position.
    Question 5b. Would such a reduction require additional safeguards?
    Answer. If enforcement is reduced, alternate management measures 
must be explored.
    Question 6a. Do I believe that an area management program such as 
that used in the lobster fishery could be used to develop an area quota 
program?
    Answer. In Maine we have chosen, for the most part, to limit the 
number of people in an area who are allowed to harvest lobsters and 
have restricted their ability to catch them through trap reductions, 
not the amount they may harvest. According to Webster's definition, 
that is a form of quota. An area quota program would be very difficult 
to implement and would run the risk of introducing all the bad, species 
specific incentives of single species management. We see area 
management as a way to begin evolving towards a multiple species, 
ecosystem approach to fisheries management.
    Question 6b. Would an area quota be more useful and less harmful in 
New England?
    Answer. An area quota is not likely to be helpful and, in many 
ways, could be very harmful to the development of stewardship in area 
management. There are circumstances under which quotas might be useful. 
However, if you get the incentives right--which we believe is happening 
with area management--then users will find it in their interest to 
adopt quotas if quotas are appropriate for the conditions in their 
fishery. Imposing quotas without regard to the kinds of governance 
processes being set up with area management will simply repeat all the 
errors of the past. I don't see area management as an easy process, but 
I do think it creates the right incentives to start us down the road to 
addressing a lot of ecological and ecosystem issues that get totally 
buried with ITQs and quotas.
    Question 7a. Should any new IFQ program be set to a higher 
conservation standard than traditional plans?
    Answer. No. You are correct. The standards are already established 
under the SFA.
    Question 7b. Would this be appropriate?
    Answer. The best reason to adopt a higher standard would be to 
create a disincentive to adopt new IFQs .
    Question 8. Would I comment on the allocation issue?
    Answer. It would take a long time for me to adequately address this 
issue. I will try to be brief. A fisherman is a fisherman, no matter 
what he, or she catches. There are many reasons why a fisherman leaves 
a certain fishery; health, age, status of a resource, economics. The 
majority of fishermen are small boat, near shore fishermen. Their 
economic stability and future security has been dependent on their 
ability to switch from one fishery to another and still come home at 
night. They are quickly loosing that ability by being forced to fish 
for species chosen through qualification criteria that are usually 
inappropriate.

   Response to Written Questions Submitted by Hon. John F. Kerry to 
                            Patten D. White

    Question 1a. Is a buyout a sensible use of government funds?
    Answer. No, to date buyback programs have a bad track record, doing 
little to reduce capacity in fisheries because they allow people to re-
enter the fishery. The money allows these fishermen to upgrade and 
increase their efficiency. In the absence of knowing the details of a 
buyout program, it would be hard to think of a worse way for the 
government to use its funds than this. Buy-outs create all the worst 
kinds of incentives.
    Question 1b. What are the problems or benefits?
    Answer. Problems: Reducing capacity creates haves and have nots, 
inflates the value of remaining permits, creates windfall profits, 
erodes social structure of community, forces/encourages people to enter 
other fisheries. The capacity reduction proposal does not reduce the 
number of fishermen, it only reduces the number who can fish with a 
multi-species permit. When the government starts to hand out these 
kinds of windfall benefits it encourages people to enter the industry 
with much less forethought than they might use otherwise and, when 
things get tough, to stay in the industry far longer than they would 
have otherwise.

    Benefits: Reducing capacity through a buyback program does provide 
financial gain to people who are not doing anything.
    Question 1c. What does the public receive and how does one prevent 
windfall profits?
    Answer. The public receives nothing unless there is a fee or tax on 
remaining licenses. Any buyout has the potential for windfall profits 
if the fisheries recover. What accelerates the windfall is 
implementation of quotas following a buyout program. Additionally, 
because of the prospect of the buy-out windfall or the ITQ windfall, 
policies like this create a strong and artificial lobby among fishermen 
for this kind of management regardless of the merits of the management 
process itself. Even if one ignores these perverse incentives it is 
hard to figure out what possible benefit the public might receive from 
a buy-out program.
    One group of fishermen--those bought out--would receive as much as 
or more than they might expect from an ITQ (or they would not willingly 
agree to a buy-out). Those who refuse a buy-out and stay in the fishery 
would obtain an ITQ (in total) windfall larger by an amount equal to 
what the government paid out in the buy-out program. In other words, a 
buy-out program simply increases the windfall effect of ITQs at public 
expense with no conceivable benefit to the public interest.
    Question 1d. Is a buyout or an IFQ better?
    Answer. This question assumes that overcapacity is a problem. It is 
difficult to answer because it is difficult to define overcapacity and 
overcapitalization. There may be enough capacity to harvest every last 
fish, but this is not the economic decision criteria which determines 
who will fish for what and when. Fishing businesses must be diverse and 
flexible. I support neither a buyback program or IFQ program. They are 
a kind of self-fulfilling prophecy that will assure a conservation and 
economic disaster in one fishery after another.
    Question 2a. Should fishermen in an IFQ pay a fee?
    Answer. If there is to be an IFQ, fishermen probably should pay a 
fee. It would be an easier pill to swallow if they could see a benefit 
from it, as well as the right to fish, such as improved science and 
better enforcement.
    Question 2b. What are the pluses and minuses of an auction vs a 
landing fee?
    Answer. Auctioning off quota shares may be a reasonable way for the 
public to capture some of the resource value it transfers to holders of 
ITQs. In a sense the government creates and guarantees a cartel and all 
its benefits when it creates an ITQ system. It protects ITQ holders 
from competition and, at the same time, gives them exclusive access to 
a public resource.
    Many of the problems of a one-time auction can be eliminated if 
resource rights are `rolled over', say every five years, and re-
auctioned. There is tremendous uncertainty in a one-time auction and, 
as a result, those who have better access to capital (or larger assets 
to post as collateral) are in a much better position to compete. For 
example, banks might be reluctant to lend the average fishermen money 
for a one-time auction because of the uncertainties about the operation 
of the program. People or companies with `internal' capital resources 
don't face these problems. Rolling auctions reduce the uncertainty of 
the initial and all subsequent auctions and make it more possible for 
the average fishermen to compete successfully. An auction, depending on 
how it is set up, could be very unfair to those who have significant 
history but whose financial situation may preclude them from 
participating in an auction at any given time.
    The landing fees may be a more fair method of capturing resource 
rent as each fisherman chooses to fish but they raise the issue of 
enforcement. If you assume there is no enforcement problem then the 
only difference between an auction and landing fees is the up-front 
payment required in an auction. But enforcement can be expected to be a 
major problem with both landings fees and quotas. ITQs, especially, set 
up very strong incentives for non-reporting--much stronger than under a 
regular quota or no quota because the boat gets 100 percent of the 
benefit of avoidance. In a regular quota any unreported catch benefits 
other boats as well as the cheating boat. There are some limited 
fisheries where ITQs and landings fees may be enforceable, but one 
should never underestimate the ingenuity of fishermen.
    Question 2c. Is there merit to delaying fees?
    Answer. Delaying the implementation of a fee schedule would help 
fishermen to participate in the fishery without an undue burden at this 
time.
    Question 2d. Would this allow fishermen time to adjust?
    Answer. Yes
    Question 3. Should the Magnuson Act prevent quota based management?
    Answer. My first answer would be yes, if the question is whether 
Magnuson should prevent the imposition of quotas that would essentially 
destroy area management. I see area management as a way to begin 
evolving towards a multiple species, ecosystem approach to fisheries 
management.
    If the question is, should a management agency be precluded from 
using any form of quota based management, then my answer would be no. 
Many of the lobster management zones in Maine have a quota/cap on 
licenses. Individuals have a quota on number of traps they can fish. 
Neither are transferable and there are not quotas on how much fish may 
be harvested. Quota based management is just one tool in the fisheries 
management tool box.

                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                               Joe Plesha

    Question 1. Your testimony stated that the reasons for allocating 
IFQs to processors are the same as those for harvesters. Those in favor 
of IFQs often argue that they will result in improved conservation; 
increased safety at sea; a reduction in overcapitalization; and 
economic efficiency. How would processor quota shares improve 
conservation and increase safety for commercial fishermen?
    Answer. Rationalizing fisheries through a quota-based system and 
allocating IFQs may result in improved conservation, increased safety 
at sea, reduction in overcapitalization, and economic efficiency. But 
adopting an IFQ fishery management system would achieve those results 
no matter who received the allocations of IFQs: whether the recipient 
is a group of coastal communities through a CDQ-type program, vessel 
owners under a harvester-only quota program, processing plant owners 
under a processor-only quota program, or the general public through a 
simple auction of IFQs to the highest bidder.
    If the only goals of Congress are to improve conservation, increase 
safety at sea, reduce overcapitalization and achieve economic 
efficiency, I would recommend that the Magnuson-Stevens Act be amended 
to require all IFQs be auctioned to the highest bidder so that the 
general public receives the benefit from the fishery resources of the 
United States.
    Congress should be aware, however, that such an auction would have 
a huge impact on the capital investments made in the harvesting and 
primary processing of open access fisheries where the capital 
investments are both relatively durable and specific to the fishery 
involved. \1\ The owners of this ``non-malleable'' capital would suffer 
enormous losses to the value of their existing investments during the 
transition between the open access and privatized fishery equilibrium 
conditions. For that reason I believe investors in both harvesting and 
processing capacity need to be included in the initial awarding of 
rights.
---------------------------------------------------------------------------
    \1\ Processing capacity in the North Pacific may be more durable 
and specific to the fishery involved than are vessels, which can 
perhaps move from area to area and fishery to fishery more easily than 
processing plants and equipment.
---------------------------------------------------------------------------
    The purpose of the ``two-pie'' system is to assure that investors 
in both harvesting and processing capacity do not have the value of 
their investments taken from them and that each sector be treated 
equally as the fishery is rationalized.
    Adoption of a ``two-pie'' harvester and processor quota system does 
nothing to improve conservation, increased safety at sea, a reduction 
in overcapitalization, and economic efficiency above and beyond that 
achieved by a ``one-pie'', harvester-only, quota-based system. But 
please understand that the reverse is also true. If you were to 
rationalize the fishery by allocating only processing quota based on 
the processing history of a particular species, you would achieve 
improved conservation, increased safety at sea, a reduction in 
overcapitalization, and economic efficiency. Under this hypothetical 
processor-only quota system, there would not be any additional 
improvements in conservation, increased safety at sea, reduction in 
overcapitalization, or economic efficiency by adding a ``two-pie'' 
harvester quota along with the processing quota. Under my hypothetical 
example, adding harvesting quota shares to the processing quota system 
would help assure that both harvesting and processing owners do not 
have the value of their investments taken from them and allow for each 
sector be treated equally as the fishery is rationalized.
    Question 2. In the North Pacific, there are approximately 15 
businesses engaged in processing--some with quite a bit more power than 
others. If the processing sector is overcapitalized, as you suggested, 
wouldn't a further consolidation of the processors create the potential 
for monopolistic behavior by the remaining large companies?
    Answer. First, I would like to mention that there are far more than 
fifteen businesses engaged in processing in the North Pacific. In some 
specific fisheries, at some distinct geographic locations of the North 
Pacific, there may be fifteen (or fewer) businesses engaged in 
processing. But overall the North Pacific has far more than fifteen 
processing firms.
    When a fishery is rationalized through a quota-based system 
(whether it is a ``one-pie'' harvester-only IFQ system, ``one-pie'' 
processor-only IFQ system, ``two-pie'' harvester and processor quota 
system or a simple auction of the quota to the highest bidder) 
processing capacity and harvesting capacity will both de-capitalize. 
The harvesting and processing power will decrease. The opilio crab 
fishery off Alaska is an example. There is currently enough harvesting 
and processing power to harvest and process the opilio crab fishery in 
a matter of two weeks or so. If the opilio crab fishery were 
rationalized through a quota-based system, that fishery could go on for 
seven months. Obviously most of the harvesting and processing power 
that is currently used in the two-week long opilio fishery would become 
unnecessary and would leave the fishery after it was rationalized, no 
matter who received the rights to the quota.
    If the fishery were rationalized through a quota-based system, 
however, there need not be a reduction in the number of firms 
processing or harvesting. A ``two-pie'' harvester and processor quota 
system, in fact, may allow for more firms to engage in processing 
because it would allow for specialized processors to purchase quota and 
become engaged in the processing of small amounts of fish that would 
not be practical under the open access ``race to fish.''
    Question 3. Many processors in the North Pacific own fishing 
vessels. Therefore, even if processor quota shares were prohibited, 
isn't it true that processors would receive significant IFQ shares 
through their ownership interest in fishing vessels?
    Answer. No, it is not true. If it were true, owners of processing 
facilities would not care whether processors received rights under a 
quota-based system. Processors in the North Pacific care very much 
about the issue.
    The extent that processors in the North Pacific own fishing vessels 
varies from fishery to fishery and company to company. Many processing 
companies own no vessels. Others own vessels which provide a fraction 
of the fish that are delivered to their plants. No processing company, 
to my knowledge, owns vessels which provide all of its plants' 
production. \2\ To use Trident as an example, our company was founded 
by crab fishermen who invested in processing capacity. In the opilio 
crab fishery, the largest crab fishery in the North Pacific, Trident 
owns three vessels that harvest crab; the Billikin (the vessel which 
started Trident in 1973), the Bountiful (which was built by Trident in 
1979) and the Royal Viking. Trident is a part owner of two other 
vessels that harvest opilio crab: the Barbara J and the Far West 
Leader. These five vessels deliver approximately ten percent of the 
opilio crab processed by Trident.
---------------------------------------------------------------------------
    \2\ There are a few companies that operate only crab or groundfish 
catcher/processor vessels. Catcher/processor vessels harvest and 
process on board the vessel. They are completely vertically integrated 
operations.
---------------------------------------------------------------------------
    There is more ownership of fishing vessels by processors in the 
Bering Sea pollock fishery (which is already rationalized though the 
American Fisheries Act). One of the largest pollock shorebased 
processors, however, does not own any vessels, to my knowledge.
    Question 4. Your testimony refers to the cooperatives set up under 
the American Fisheries Act (AFA) and Trident's participation in the 
pollock fishery. The AFA statutorily set excessive share caps to 
prevent consolidation. Is your company in violation of the share caps 
or has it ever been out of compliance with that section of the AFA? If 
so, how was the situation remedied? Do you believe that the legislation 
should specify penalties, such as immediate revocation of quota if the 
excessive share caps are exceeded?
    Answer. There are two separate excessive share sections in the 
American Fisheries Act (``AFA'') to which the question may refer. One 
section limits ownership of vessels which harvest Bering Sea pollock 
and the other limits ownership of plants which process Bering Sea 
pollock. Section 210(e)(1) of the AFA provides that ``[n]o particular 
individual, corporation, or other entity may harvest, through a fishery 
cooperative or otherwise, a total of more than seventeen and one-half 
percent of the pollock available to be harvested in the directed 
pollock fishery.'' Section 210(e)(2) provides that ``[u]nder the 
authority of section 301(a)(4) of the Magnuson-Stevens Act (16 U.S.C. 
1851(a)(4)), the North Pacific Council is directed to recommend for 
approval by the Secretary conservation and management measures to 
prevent any particular individual or entity from processing an 
excessive share of the pollock available to be harvested in the 
directed pollock fishery.'' Under the direction of section 201(e)(2), 
the North Pacific Fishery Management Council recommended, and the 
Secretary of Commerce established, an excessive pollock processing cap 
of thirty percent. Both of these standards are measured on a calendar 
year basis. Trident has not violated either excessive share 
limitations. I believe that the penalty for violation of these 
standards may already potentially include revocation of a vessel's AFA 
fishing permit or a processor's AFA processing permit.
    Question 5. In Mr. Giles' testimony, he stated his dissatisfaction 
with the current halibut and sablefish IFQ programs but also stated 
that it would not be possible to ``reasonably try to change that 
program.'' What sort of measures would you recommend that Congress 
implement to ensure that changes could be reasonably made to any new 
IFQ program? Without a sunset, how can we guarantee if an IFQ program 
is not working satisfactorily that it can be terminated?
    Answer. IFQ quota shares have value and are treated by the public 
as a property right regardless of existing statutory language in the 
Magnuson-Stevens Act stating that quotas are revocable at any time. It 
is extremely unlikely that any of the existing IFQ plans will ever be 
terminated. Because it would be so difficult to make major changes to 
an IFQ program once it is implemented, Congress should establish clear 
and specific guidelines for future IFQ programs to avoid some of the 
problems that might otherwise arise.
    Even a statutory sunset provision does not necessarily remedy some 
of the problems that can arise from the adoption of IFQs. For example, 
if all IFQ shares for Bering Sea crab were auctioned to the highest 
bidder, but the program were scheduled to sunset in seven years, owners 
of harvesting and primary processing capacity would still have the 
value of their investments taken away. The fact that the program might 
sunset in seven years would be of little comfort.
    Question 6. One of the important components of an effective IFQ 
program is adequate enforcement. However, we have seen over the years 
instances, such as major waves of illegal migrants, when the Coast 
Guard has had to curtail fisheries enforcement activities to address 
pressing needs. The fiscal year 2002 budget includes a 15 percent 
reduction in Coast Guard law enforcement activities. If this reduction 
occurs, would it change your position on the use of IFQs? Would such a 
reduction require additional safeguards be incorporated into any new 
IFQ programs? If so, what would you recommend?
    Answer. Enforcement is an issue with IFQ programs. There is 
generally a greater incentive to high-grade under an IFQ program than 
under open access fisheries. IFQ management plans should contain a 
strong enforcement component that does not rely upon the Coast Guard 
for implementation. In the North Pacific, observers have been used on 
vessels and plants participating in the groundfish fisheries. Perhaps a 
similar program can be adopted as appropriate for IFQ fisheries.
    Question 7. In a fishery where fishermen sell directly to a 
processor, requiring processor shares has obvious advantages and I can 
understand why you would want to require that processors be given 
access to quota. However, in New England, many fishermen sell their 
catch through auctions like the ones in Portland, Maine and Gloucester, 
Massachusetts. Processor shares in this case don't make much sense. 
What would the New England Council do in this case, if we require them 
to allocate quota to processors? Isn't this a perfect example of 
requiring regional flexibility and letting the councils decide if it is 
appropriate to include processors? Would you also require processors be 
granted access to quota if an IFQ were implemented in cases where there 
is no derby fishery?
    Answer. I am not familiar with the fisheries off the coast of New 
England; however, the mere fact that fish might be sold through an 
auction would not diminish the necessity of including both vessel 
owners and primary processors in the initial allocation of rights under 
a quota-based system.
    My point is that the potential benefits of privatized fisheries 
have been frequently studied. There has been little serious examination 
of the economic impacts on existing investments in the industry during 
the transition between open access and privatized fisheries. In an 
overcapitalized fishery that is capital intensive, and where that 
capital is both relatively durable and specific to the fishery 
involved, the owners of that harvesting capital and primary processing 
\3\ capital should expect enormous losses during the transition between 
the open access and privatized fishery equilibrium conditions.
---------------------------------------------------------------------------
    \3\ Fish are highly perishable before being processed into a 
primary product. Investors in fishing vessels and primary processing 
capacity have made investments based on the requirement that fish be 
handled quickly; i.e., these investors have invested in the ``race to 
fish'' caused by the open access fishery management regime. Investors 
in secondary processing of seafood, on the other hand, have not made 
their investments based upon the ``race to fish'' caused by open 
access. Secondary processors have not overcapitalized as a result of 
the existing management regime and will not be adversely impacted, 
therefore, by the privatization of fishery resources. Being that 
secondary processors are consumers of processed seafood, their 
investments may benefit if the utilization of fishery resources is 
increased through privatization.
---------------------------------------------------------------------------
    The issue is not whether fish are sold at an auction, but whether 
investors in harvesting capacity and primary processing capacity have 
invested in the open access race to fish and whether implementation of 
a quota-based management program will slow the pace of the fishery such 
that the existing capital investments in harvesting and primary 
processing are unnecessary.
    If, under an open access system, fish are harvested and then sold 
in the fresh market, there is no primary processing and, in that 
specific case, there would not be any need to include primary 
processors in the initial allocation of IFQ fishing rights.
    If there were no derby fishery (i.e., there was no excess 
harvesting and processing capacity and thus no overcapitalization in 
either the harvesting or processing sectors), it can be argued that 
processors need not be included in the initial allocation of quota 
shares, but then why would you include vessel owners in the initial 
allocation of quota shares? If there is no overcapitalization, there is 
no rationale for including vessel owners in the allocation of quota 
shares. Moreover, whatever IFQ system is adopted, I do not believe it 
should change the bargaining position between harvesters and 
processors. In summary, there is no reason to treat investors in 
processing capacity differently from investors in harvesting capacity. 
IFQ systems have the potential for expropriating the value of 
investments made by owners of harvesting and processing capital. The 
regional councils should be given clear and unambiguous direction from 
Congress that vessel owners and processors be treated equally in the 
allocation of privileges under a quota-based system.
    Question 8. In her testimony, Ms. Behnken stated that processors 
suffer from the one-time expense of cutting back or ending operations. 
How do you respond? Would you support requiring an IFQ program to help 
fund processor buyout through fees instead of requiring processors have 
access to quota?
    Answer. The reduction of value of the investments made in primary 
processing caused by the adoption of an IFQ system can be characterized 
as a ``one-time'' expense the same way that if my house were taken from 
me it would be a one-time expense. If only processors received quota 
shares, vessels owners would also suffer a ``one-time'' expense because 
of a decrease in the value of their vessels. The value of the capital 
invested in primary processing and harvesting is transferred to the 
quota share holders when an IFQ program is implemented, so if there is 
a buyout of existing investments in those sectors, the buyout should be 
paid for by the quota share recipients and not the general public.

   Response to Written Questions Submitted by Hon. John F. Kerry to 
                               Joe Plesha

    Question 1. We are seeing an increased interest in buying out 
excess capacity prior to the institution of an IFQ. While in some 
instances this has been precipitated by a resource crash, fewer 
fishermen means that the value of the quota remaining for the IFQ 
increases on a per capita basis. I would like to ask you to put 
yourselves in our shoes--

   Is this a sensible use of government funds?

   What are the problems or benefits associated with this 
        arrangement?

   What does the public receive from this series of 
        transactions, and how does one prevent windfall profits from 
        occurring?

   Is a buyback or an IFQ a better way to reduce overcapacity? 
        Does your answer differ based on the circumstances surrounding 
        an individual fishery?

    Answer. As a starting point, I am skeptical of whether most buyback 
programs are a wise use of government funds. In a macro sense, the 
government subsidizes entry into the fisheries through various 
governmental programs (for example, the tax-deferral ``Capital 
Construction Fund'' program). Then the fisheries become overcapitalized 
so the government subsidizes exit from the fisheries through buyback 
programs (while government-subsidized entry often is continuing). 
Although there may be exceptions, government-funded vessel buyback 
programs do not generally seem to be a sensible use of funds.
    IFQ programs, on the other hand, have been described as an 
``industry-funded buyback program'' because to the extent a fishery is 
overcapitalized, the IFQ program will reduce the amount of harvesting 
and processing power in the fishery. Vessel owners (and hopefully 
processing plant owners) who leave the fishery, leave voluntarily and 
are compensated for leaving by the leasing or selling of their quota. 
Those who use the quota pay those who do not, and therefore, the 
program is a self-funding buyback of unnecessary capital. I believe 
that an IFQ program (that includes both investors in harvesting and 
primary-processing capacity) is a better way to reduce overcapacity in 
the industry.
    Using a government-funded vessel buyback prior to the adoption of 
an IFQ program may increase the cost to the federal government because 
instead of buying a vessel in an overcapitalized fishery, the 
government is paying for the vessel owner's anticipated value of the 
quota shares that the vessel would receive. Furthermore, the 
beneficiaries of such a buyback program would primarily be those vessel 
owners who chose not to sell their vessels because, as the question 
noted, the amount of quota shares they would receive would increase on 
a pro rata basis. If quota share holders are the primary beneficiaries 
of a buyback program, why not have the quota share holders pay for the 
buyback instead of the public at large?
    Question 2. The NRC report identified concerns that high-grading 
might occur in IFQ fisheries. Since the issuance of that report, have 
any studies shown high-grading to be a problem in IFQ fisheries?
    Answer. I have not heard of any formal studies on this issue.
    Question 3. Massachusetts fishermen, like many small fishermen, do 
not believe that it is possible for a Council to allocate quota fairly 
in an IFQ system. This belief stems primarily from their experiences 
under the current fishery management regime and concerns about conflict 
of interest in Council decisions.

   How can better accountability and fairness be built into any 
        process to design and allocate an IFQ system?

   Have conflicts of interest in the Council (or other systems 
        you are familiar with) been a particular problem in 
        establishing IFQs?

   Could we address this allocation fairness concern through 
        use of a neutral entity--at least until conflict of interest 
        rules are shown to be effective?

   Are there any models that we can look to?

    Answer. It is rare for all sectors of interested parties to be 
evenly represented on a regional council. Those sectors that are under-
represented on a particular council might rightfully fear being 
permanently disenfranchised under the adoption of an IFQ program. I do 
not believe that having a neutral entity make these decisions is 
workable. It is very difficult to identify a truly neutral entity. Just 
by identifying and working with a neutral party, the decision makers 
will have made the decision to go forward with some IFQ program. 
Depending upon how the program is structured, it is possible that the 
costs of such a program to the existing participants in the industry 
will out weigh the benefits. (For example, the neutral party could 
decide to auction the quota shares to the highest bidder.) So it is not 
clear that requiring a ``neutral'' party will provide any better 
assurances that quotas under an IFQ system will be allocated fairly.
    I would make two recommendations. First, the ramifications of an 
IFQ fishery on existing investors in the fishery are so dramatic it is 
very important as a fundamental first step for Congress to establish 
clear and unambiguous guidelines for councils to follow when allocating 
IFQ rights prior to the adoption of any future IFQ programs.
    Second, there is a procedural method to protect those who have 
invested in the harvesting and primary processing of a fishery from 
having the value of their investments taken from them. Section 407 of 
the Magnuson-Stevens Act contains the requirement of a referendum for 
the commercial red snapper fishery in the Gulf of Mexico. Using this 
section as an example, I believe it is appropriate for Congress to 
require a double referendum before any future IFQ programs can be 
adopted. The referendum should require approval by a super majority of 
both harvesters and primary processors in the fishery that is being 
rationalized through the IFQ system. That would provide assurance that 
one sector is not having the value of its investments taken from it. It 
would generally provide confidence that whatever IFQ system is created, 
it is fair to a large percentage of the entities that currently 
participate in that fishery.
    Question 4. It has been suggested that the concepts of area 
management and fishery cooperatives could be combined to provide 
communities with both flexibility and predictability. Perhaps a fishing 
community could be given exclusive rights to fish in an area along with 
a quota on landings.

   Would such an arrangement be workable in practice?

   What concerns need to be addressed in such a system?

   In your experience, are any such systems used in other 
        countries?

    Depending upon the details, such an arrangement might be workable. 
One of the attributes of quotas is that they are malleable and can 
easily be transferred to those who most efficiently use the resource. A 
community does not actually fish or process, per se. But the community 
could transfer the right to harvest the resource to those it believes 
should be awarded those rights. I assume that the community would 
transfer those rights to those who agree to provide the most benefits 
to the community.
    I would only caution that to the extent quotas (or exclusive 
rights, as they are labeled in the question) are allocated to 
communities, there is a risk that investors of harvesting and 
processing capital in the fisheries might not be compensated for have 
the value of their investments transferred to the quota share 
recipients.
    Question 5. As you know, the NRC report addressed the question of 
processor shares. First, the NRC found that there was no compelling 
reason to include or exclude processors from initial allocation of 
harvester quotas, and recommended leaving it to the Councils to decide 
whether a mechanism is needed to address any unacceptable disadvantages 
of an IFQ to processors (such as buyouts). They generally cautioned 
against allocation quota to processors because it would result in 
making the IFQ program too complex. In addition, the NRC found there 
was no compelling reason to establish a separate, complementary 
processor quota system (the ``two-pie'' system).

   Do you think the NRC panel got this right?

   S.637 allows only harvester shares--I don't see any 
        compelling reason to change that prohibition--do you?

    Answer. The NRC panel did not ask (or try to answer) the 
quintessential issue with regard to IFQ allocations: Why allocate 
rights in a public resource to any distinct sector of individuals or 
firms? Why not simply auction off the rights to a public resource so 
that the general public receives the economic benefits from the 
fisheries it owns?
    Vessel owners have been allocated IFQ shares in the past. Why? I've 
heard it said that we want ``fishermen'' to receive fishing quota but, 
at least in the North Pacific, most vessels are owned by corporations. 
Corporations do not actually fish. Many times the shareholders of the 
corporations that own vessels have never fished. Those vessel owners 
who do fish and who have received allocations of IFQ shares, received 
these shares not because they fished, but because they owned a fishing 
vessel. So fishermen have not traditionally been allocated quota 
shares.
    Had the NRC tried to answer the fundamental question of why not 
allocate these IFQ quota share rights to the general public through an 
auction, they would likely have come to a different conclusion. There 
is a compelling reason to allocate quota shares to both vessel owners 
and primary processors. Both sector of investors have much the value of 
their investments taken from them and transferred to quota share 
holders when a fishery is rationalized through an IFQ system. There is 
no rational basis, however, for allocating quota shares one sector of 
investors and not the other.
    The goal of the ``two-pie'' system is to assure that investors in 
both fishing vessels and primary processing be compensated with quota 
for the devaluation of their investments when the fishery is 
rationalized. That same objective can arguably be achieved by AFA-style 
cooperatives or allocating IFQ harvesting shares to both vessel owners 
and primary processors. The main point of my testimony is not to insist 
that a ``two-pie'' system is essential. It is that Congress should 
require vessel owners and primary processors be treated equally in the 
allocation of privileges when a quota-based management system is 
adopted to rationalize a fishery.
    Question 6. In a September, 1999, report to the North Pacific 
Fishery Management Council by Dr. Halvorsen of the University of 
Washington it is reported that Trident Seafoods controlled nearly 55 
percent of the catcher vessels that participate in the pollock co-op 
that delivers to Trident under the American Fisheries Act (and 88 
percent of the catch). Other processors that were given co-ops under 
the American Fisheries Act have similar levels of catcher vessel 
control.
    Given that processors who own or control catcher vessels would 
likely receive IFQ shares for those vessels even under a harvester IFQ, 
I would like to know why you feel that processors should also receive 
Individual Processing Quota (IPQ) shares as well. It seems to me that 
if you have both IFQ and IPQs what you are really doing is giving 
independent catcher vessels only one-half a piece of the pie, with the 
processor getting the other half, while for processor controlled boats 
you get a full piece of the pie. Do you disagree?
    Answer. As I mentioned in response to a question for the record 
from Senator Snowe, the extent that processors in the North Pacific own 
fishing vessels varies from fishery to fishery and company to company. 
Although the figures Dr. Halvorsen reported overestimates the number 
and capacity of vessels Trident owns, the company does own a number of 
pollock trawl vessels. There are some pollock processors, however, that 
do not own any of the vessels that deliver pollock to their plants. 
Moreover, no pollock shorebased processor owns all of the vessels that 
deliver pollock to its plants, as far as I am aware.
    Another example in the North Pacific is crab. In the opilio crab 
fishery, the largest crab fishery in the North Pacific, Trident owns 
three vessels and is a part owner of two other vessels that harvest 
opilio crab. These five vessels deliver approximately ten percent of 
the opilio crab processed by Trident. Other processors may own a 
greater percentage of the vessels that deliver crab to their plants. 
Some processors in the crab fishery do not own any vessels that deliver 
crab to their plants.
    If a firm owns all of the vessels that deliver to its processing 
plant, that firm would be indifferent to whether vessel owners were 
allocated all of the rights in a quota-based system, primary processors 
were allocated all of the rights under a quota-based system, or both 
vessel owners and primary processors each receive half of the rights 
under a quota-based system. But if there is less than 100 percent 
vertical integration between harvesting and processing, it is important 
that each sector receive rights to the rationalized fishery.
    I agree with your characterization of who gets how much pie. Please 
understand, however, that under the ``two-pie'' system, processors and 
vessel owners simply maintain their existing market position vis-a-vis 
the other as the fishery is rationalized. If, under an open access 
fishery, an independent vessel delivered to an independent processor, 
each of those two would be dividing the economic benefit from the 
fishery. The same division between vessel owner and processor would 
happen under the ``two-pie'' system: the vessel owner and processor 
would reach receive ``one-half piece of the pie''--as you put it in 
your question--because that is the division between the two under the 
open access fishery. And, if a single firm owned both the fishing 
vessel and the processor, that firm would receive the whole pie under 
the open access fishery. That firm would also receive the whole pie 
under the ``two-pie'' system. Again, the point is to maintain the 
market position of vessel owners and processors as the fishery is 
rationalized.

                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                              Kay Williams

    Question 1. S.637 requires any new IFQ program to prevent the 
acquisition of an excessive share of quota. Furthermore, S.637 defers 
to the appropriate Council to determine how to prevent such an 
accumulation of excessive shares. Some have suggested that this 
provision should be more specific--for example, whether an excessive 
share cap would be set by a percentage based on national conditions, or 
on a fishery-by-fishery basis. How can new IFQ programs ensure that 
quota shares will not be consolidated into the hands of the largest 
fishing interests? Do you believe that the legislation should specify 
penalties, such as immediate revocation of quota if the excessive share 
caps are exceeded?
    Answer. I think the percentage used as a cap should be set on a 
fishery-by-fishery basis, but within an overall national cap of 3 to 5 
percent. The national cap on shares will help prevent excessive shares. 
In some fisheries the Council may set more restrictive caps. The 
problem would likely be in determining whether individual corporate 
entities are secretly linked. The revocation of quota provisions might 
be helpful in that the Councils cannot specify that type of penalty.
    Question 2. As S.637 is currently written, quota cannot be 
transferred. If some limited transferability, or leasing of quota were 
allowed, would you support allowing the environmental community to 
lease quota for a year (or other limited period of time) if fishermen 
raised questions about the condition of the stock due to environmental 
fluctuations or other competing resource management needs such as the 
protection of an endangered species? Would this be a viable way to 
compensate the fishermen while giving NMFS and the Council time to 
address a pressing problem?
    Answer. As I indicated in my testimony, the non-transferability of 
quota under S.637 limits IFQs as a management tool; therefore, I favor 
allowing transferability and leasing. I do not support setting forth in 
law the rights of the environmental sector to purchase or lease quota, 
especially under the conditions you cited.
    Question 3. In Mr. Giles' testimony, he states his dissatisfaction 
with the current halibut and sablefish IFQ programs but also states 
that it would not be possible now to ``reasonably try to change that 
program.'' What sort of measures would you recommend that Congress 
implement to ensure that changes could be reasonably made to any new 
IFQ program? Without a sunset, how can we guarantee if an IFQ program 
is not working satisfactorily that it can be terminated?
    Answer. Mr. Giles' dissatisfaction was entirely from his firm's 
perspective as a dealer/processor. His testimony indicated that the IFQ 
for the halibut/sablefish fisheries was a ``happy story'' for the 
fishermen. Considering his testimony, I believe it would have been a 
grave miscarriage of justice if the dealers had been granted a share of 
quotas as he proposes. All his firm and the other firms did was greatly 
expand their freezer capacity to the extent they could purchase and 
hold the entire TAC of halibut taken in the 48-hour season and the 
sablefish from a similar derby fishery. I'm sure they purchased the 
fish at a very depressed ex-vessel price and then got to market them 
over the year. No wonder his firm's profits declined with the IFQ. I do 
not support including dealers as recipients of IFQ shares. If you give 
quota shares to dealers that have never received them in the past you 
will have to take the quota shares away from the fishermen who had 
always harvested them as part of the overall commercial quota. The 
fishermen will then have to lease or buy these shares from the dealers. 
The dealers are now double dipping. In the Gulf areas some dealers also 
own vessels so they would receive quota shares because the vessels have 
landed fish in the past. If a region does not allow them to be sold, 
leased or transferred then the dealers who do not own vessels cannot 
have someone to harvest them.
    I objected to the 5-year sunset in your bill largely because of the 
negative image it creates with the industry, that the system will 
likely cease to exist after 5 years, thereby creating a reduced 
incentive for purchasing IFQ shares. I think you could create a more 
positive image of the system by stating that the system would be 
evaluated after 5 years to determine its effectiveness and either 
extended, if effective, or terminated. The Councils have the authority 
under the Act to amend each FMP at any time.
    Question 4. According to the NAS report, it is unknown whether IFQs 
mitigate or enhance the dangers of fishing. For example, the Atlantic 
surf clam IFQ program is considered a management success. Since the 
1990 adoption of this IFQ, economic efficiency has increased and excess 
harvesting capacity has been reduced. However, during the development 
of this IFQ program, improved safety was a major selling point due to 
the frequent losses of boats and lives in the surf clam fishery. Yet, 
since the 1990 inception of this IFQ, nine clam boats and at least 14 
lives were lost in the fishery, a rate of loss comparable to that of 
the pre-IFQ 1980s. The adoption of the IFQs in the surf clam fishery 
has not improved safety. Recognizing that fishing is a very dangerous 
profession, how can we ensure that any new IFQ program will enhance 
safety? Do you have any general recommendations for improving safety 
whether or not new IFQs are implemented?
    Answer. I do not know enough about the surf clam fishery to assess 
the information on vessel safety. With that type of accident record it 
sounds like vessels were overloaded with clams prior to and after the 
ITQ system. That type of overloading would not occur in our fisheries. 
I think that ITQs would make a major improvement in safety for our 
commercial red snapper fishery. Currently they are taking the entire 
annual quota in 50 to 60 days under a vessel limit of 2,000 pounds per 
trip. Under an ITQ system they could fish any time during the year to 
take their share.
    Question 5. One of the important components of an effective IFQ 
program is adequate enforcement. However, we have seen over the years 
instances, such as major waves of illegal migrants, when the Coast 
Guard have had to curtail fisheries enforcement activities to address 
pressing needs. The fiscal year 2002 budget includes a 15 percent 
reduction in Coast Guard law enforcement activities. If this reduction 
occurs, would it change your position on the use of IFQs? Would such a 
reduction require additional safeguards be incorporated into any new 
IFQ programs? If so, what would you recommend?
    Answer. No, it does not change my position on the use of ITQs. It 
is unlikely that we would be able to implement an ITQ system during 
2002. I would certainly hope the Congressional appropriations 
committees would increase the funding available to the Coast Guard as 
they have the major role in enforcing all of the Councils' rules.
    Question 6. Mr. Crockett stated that the Councils should be 
prohibited from determining the initial allocation of quota based on 
historical participation. However, Mr. White stated that the use of 
historical participation is critical to capture the traditional fishing 
patterns. Would you comment on the allocation of quota based on past 
fishing patterns and the potential impact it could have in your 
communities if it is not considered.
    Answer. I think it is very important to consider historical 
participation in designing the eligibility criteria for ITQ systems. 
For our red snapper and reef fish fisheries we have required logbooks 
since 1992. We will use the recommendations of the Ad Hoc Red Snapper 
AP (see responses to Senator Breaux) in using these records to 
determine eligibility and quota shares. I see no impact on fishing 
communities by using the records and an adverse impact if we do not use 
these records of historical participation.
    Question 7. Increased management and enforcement costs are often 
associated with IFQs. Many have recommended to the Subcommittee that we 
require IFQ participants to pay for these costs through the use of 
fees. Currently, the Magnuson-Stevens Act requires the collection of 
fees for this purpose although I understand that NMFS has not been 
aggressive in implementing this requirement. What is the willingness 
and ability of your region's fisheries to pay management costs as part 
of an IFQ?
    Answer. See my discussion under questions raised by Senator Kerry.

   Response to Written Questions Submitted by Hon. John F. Kerry to 
                              Kay Williams

    Question 1. We are seeing and increasing interest in buying out 
excess capacity prior to the institution of an IFQ. While in some 
instances this has been precipitated by a resource crash, fewer 
fishermen means that value of the quota remaining for the IFQ increases 
on a per capita basis. I would like to ask all of you to put yourselves 
in our shoes--

   Is this a sensible use of government funds?

     Answer. No, it is not proper use of government funds. Buying 
excess capacity should be the very last resort in limited cases where 
there is a fishery resource disaster.

   What are the problems or benefits associated with this 
        arrangement?

     Answer. The problem is that there is latent capacity in most 
fisheries and buy-back programs in removing that potential capacity 
does little good.

   What does the public receive from this series of 
        transactions, and how does one prevent windfall profits from 
        occurring?

     Answer. The public receives virtually nothing. If the buy-back 
program is based on fair market value for the vessel there should be no 
windfall profit to the seller, but unless that vessel can be sold there 
is a loss to the public.

   Is a buyback or an IFQ a better way to reduce overcapacity? 
        Does your answer differ based on the circumstances surrounding 
        and individual fishery?

     Answer. A transferable IFQ system, or an ITQ system, is a much 
better way to reduce excess capacity in that the costs are borne by the 
industry and government involvement is minimized. For some of our 
fisheries (for example, the shrimp fishery) ITQs will not work well. 
The Gulf shrimp fishery consists of 3 stocks which are annual crops, 
with great variation in the size of the harvestable crop produced each 
year. The stocks migrate to sea over a limited period during which 
fishing must occur in order to efficiently harvest the stocks. I do not 
support buy-back programs for the fisheries in which ITQs are not 
effective either.

    Question 2. Many economists state that IFQs can provide a 
straightforward way to recover some of the value of granting fishermen 
access to a public resource. This could be accomplished via auctioning 
off initial quota shares or by assessing fees on a percentage of 
landings, or both.
    Answer. I think it would be unfair to the vessel owners who have 
risked the capital to develop the capacity to harvest the stocks if the 
initial quota was auctioned off. This has the potential to provide 
major windfall profits to firms that were never associated with these 
fisheries. Because of the overcapacity existing in fisheries where ITQs 
might help, these owners are unlikely to have the capital resources to 
either purchase initial quota through the auction or initially pay fees 
as a percentage of landings. I do, however, support requiring such fees 
after overcapacity is reduced to the point that the industry can pay 
the fees and would hope the level of fees and time of implementation 
would be left to the Councils to decide. Always remember that those who 
do not fish and those who chose not to fish should be able to buy 
seafood at a reasonable price. Extra cost will be passed onto the 
consumer.

   Do you believe that all fishermen granted shares in an IFQ 
        fishery should have to pay a fee for exclusive access to a 
        public resource?

     Answer. Yes, as I indicated above, at such time as the 
overcapacity has been reduced by the ITQs to the extent the profit 
margin has increased for the remaining participants.

   What are the pluses and minuses of using an auction as 
        opposed to landings fees?

     Answer. The minuses are that the auction system would likely: (1) 
displace a large portion of the current harvesters; (2) significantly 
reduce the value of the vessels belonging to the harvesters displaced; 
(3) potentially provide a windfall profit to firms never associated 
with the fishery or the costs of developing the current harvest 
capacity. From an industry prospective I cannot think of any pluses.

   In extremely over-capitalized fisheries, would there be 
        merit to delaying or phasing-in fees/auctions until sometime 
        after the imposition of an IFQ system? Could this potentially 
        allow small-scale fishermen time to adjust their fishing 
        practices so that the fee would not be an undue burden?

     Answer. Very definitely there would be much merit in taking this 
approach. In fact, I think it would be the only fair approach.

Response to Written Questions Submitted by Hon. John John B. Breaux to 
                              Kay Williams

    Question 1. Ms. Williams, in your testimony you identify two areas 
of concern regarding S.637, IFQ Act of 2001 sponsored by Senator Snowe: 
Individual Fishing Quotas (IFQ) vs. Individual Transferable Quotas 
(ITQ); and expiration of quotas after 5 years.

   Please elaborate on the differences between IFQ/ITQ and why 
        you believe the Gulf would not support an IFQ system?

     Answer. As I understand it IFQs can be transferable or non-
transferable (as in S.637). ITQs are always transferable. I believe 
that our red snapper industry would not approve a non-transferable IFQ 
system by two-thirds vote, whereas I believe they would support an ITQ 
system. I do not know whether two-thirds of the permitted reef fish 
fishermen would support an ITQ system, since most of these fishermen 
target grouper off Florida. The grouper fishery has been fairly stable 
and the fishermen have not been under a restrictive quota like the red 
snapper fishermen. Our red snapper fishermen have been under a license 
limitation system where the licenses can be transferred, sold, or 
leased.

   Why are there concerns over the provision in the bill for 
        individual quotas to expire after 5 years? Is it because of the 
        51/49 percent split between the commercial/recreational share 
        of the red snapper fishery?

     Answer. No it is not related to the commercial/recreational 
allocation. I felt that an ITQ/IFQ system would be less acceptable to 
the industry if federal law provides it will automatically expire 
within 5 years. It would be much more acceptable if the bill had 
provided the system will be evaluated for its effectiveness after 5 
years and either extended or terminated.

    Question 2. In December, Congress gave the Gulf Council authority 
to investigate the benefits and costs of quota management for Gulf 
fisheries. Given the long-standing and high level of interest among 
Gulf fishermen to get started on ITQ planning--and Congress' desire for 
input from the Gulf region--what have you/the Council accomplished so 
far, and what is your timetable for completing this investigation?
    Answer. The Council will appoint an Ad Hoc Advisory Panel (AP) 
consisting of red snapper commercial fishermen and dealers with 4 non-
voting advisors representing the scientific, law enforcement, and 
environmental communities. We will appoint the AP members at our July 
2001 meeting. They will serve as our principal advisors in considering 
the structure of an ITQ system. In developing the red snapper ITQ 
system implemented in 1995 (and rescinded in 1996) we used a similar 
AP. Other advisory groups that will participate in this process include 
the SSC and Socioeconomic Panel (SEP) consisting entirely of economists 
and sociologists. I think the process of preparing the profile for 
consideration by the red snapper industry will take a year or a year 
and a half to complete.
    Question 3. The Committee was recently provided with a copy of a 
scoping document titled ``Individual Transferable Fishing Quota (ITQ) 
Issues and Options'' prepared by commercial fishermen. I'm told that 
the Council was also provided a copy of this document.

   Have you had the opportunity to review the scoping document? 
        If so, do you believe the Gulf Council would be supportive of 
        this document?

     Answer. The document was provided to us in May and we have 
provided copies to our members for their review. The persons drafting 
the document did a lot of work in compiling such a broad array of 
options. Some of the definitions in the working draft are incorrect and 
I am not sure as to how many of the commercial red snapper fishermen 
were involved with the working draft. I only saw five names of 
commercial fishermen in the Gulf area listed under the reference. Under 
Option 1: Section 3.1, Historical Captains were left out of the Initial 
Allocation of Quota Shares. These men ``Historical Captains'' will have 
a vote in the referendum according to the Magnuson-Stevens Act. I think 
the industry document is probably overly broad in including the entire 
complex of snappers and groupers as did the Council in its motion to 
appoint a red snapper AP instead of a reef fish AP. We will, however, 
have the AP review its provisions, along with reviewing Amendment 8 
which contained the Council's red snapper ITQ system, as well as other 
IFQ/ITQ systems.

    Question 4. Ms. Williams, I continue to hear that conflicts of 
interest on the Council prevent adoption of fair management measures. 
In 1996, we tried to address conflicts of interest on the councils by 
requiring a recusal process for cases when Council members have a 
financial interest in fishery management decisions. However, now I'm 
told that conflicts of interest also exist because the Council is 
unfairly balanced--only 5 of 17 members are commercial based/represent 
commercial interests.

   Do you believe there is a conflict of interest problem in 
        the Gulf Council, and how would you say the problem could be 
        fixed?

     Answer. Actually, only 4 of the 11 members appointed by the 
Secretary are commercial. Under the Act, as currently structured, this 
imbalance can only be corrected by the Secretary in the appointment of 
members. The Governors of the five Gulf states do not always submit a 
balanced list of nominees. They should be told, that if they do not 
submit both commercial and recreational names to the Secretary, then 
their list of nominees will not be considered.

   Do you feel that conflicts of interest will hamper the 
        Council from developing an IFQ/ITQ system, and if so, why?

     Answer. I certainly hope not. When we developed the previous red 
snapper ITQ system 6 members were commercial, and the system seemed to 
be supported by a large majority. There does seem to be more expression 
of opposition to any system that might create a windfall profit or 
privatization of a portion of the stocks.

                                 ______
                                 
  Response to Written Questions Submitted by Hon. Olympia J. Snowe to 
                               Don Giles

    Question 1. Mr. Plesha's testimony states that the reasons for 
allocating IFQs to processors are the same as those for harvesters. 
Those in favor of IFQs often argue that they will result in improved 
conservation; increased safety at sea; a reduction in 
overcapitalization; and, economic efficiency. Do you believe processor 
quota shares improve conservation and increase safety for commercial 
fishermen?
    Answer. Conservation and increased safety will be a positive by-
product of any rationalization program, including IFQs. Those benefits 
would result regardless of whether harvesters received 100 percent of 
the IFQs, processors received 100 percent of the IFQs, or if both were 
rationalized in a fair and equitable manner. However, only those that 
are rationalized will get the benefits of reduction of 
overcapitalization and economic efficiency. Unless both harvesting and 
processing are rationalized together, especially in the remote areas of 
the North Pacific, rationalization will cripple either sector that is 
not included as part of the rationalization program. If the processing 
sector is excluded, harvesters will have fewer markets as processors 
exit crab fisheries with low GHLs or provide less processing capacity, 
in general.
    Question 2. In the North Pacific, there are approximately 15 
businesses engaged in processing--some with quite a bit more power than 
the others. If the processing sector is overcapitalized, as you 
suggest, wouldn't a further consolidation of the existing processors 
create the potential for monopolistic behavior by the remaining large 
companies?
    Answer. There are substantially more than 15 businesses engaged in 
processing in the North Pacific. The State of Alaska alone has issued 
over 400 fishery business licenses for 2001. I am not sure what is 
considered ``more power'', but clearly there are several companies like 
us that have historically participated in most fisheries in the North 
Pacific. There has been no limitation or restrictions on processing in 
the North Pacific and processors range anywhere from small single 
fishery operations to larger multi-species companies like us. The 
harvesting sector is also made up of single vessel, single fishery 
operator to large corporations, not related to the processing sector, 
that have multiple vessels and multiple fisheries. Whether a large or 
small harvester or processor, the potential benefits of rationalization 
should be enjoyed by all and not come at the expense of some.
    Certainly Congress can either directly or through the Council 
process provide safeguards to assure neither the harvesting or 
processing sector is damaged due to excessive control of either sector.
    Question 3. Many processors in the North Pacific own fishing 
vessels. Therefore, even if processor quota shares were prohibited, 
isn't it true that processors would receive significant IFQ shares 
through their ownership interest in the fishing vessels?
    Answer. Certainly some processors own fishing vessels and would 
receive IFQs just like some fishermen own processing companies and 
would receive processing quotas if allowed. Some processors own 
catcher/processors, as do some fishermen. As long as both processors 
and harvesters legally got to where they are, why should either be 
punished or put to a disadvantage with a rationalization program. If 
processor quota shares were prohibited, companies that have not 
invested heavily in the harvesting sector would be disadvantaged. 
Excessive share caps should be looked at, in both the harvesting and 
processing sectors, to assure neither sector can be controlled by the 
other. Each fishery is different and ownership of harvesting vessels by 
processors and processing companies by harvesters should be looked at 
to help determine adequate ownership caps in each sector. Our Company 
owns two crab vessels and two multi-purpose vessels that operate in one 
crab fishery. They have delivered less than 10 percent of the crab we 
have processed the past 5 years. If only IFQs were authorized and 
processing quotas were prohibited, our investment in the harvesting 
vessels would be protected, but our processing business would still 
fail, as it would not get the same benefits and efficiencies the 
harvesting sector got with IFQs. Only if we owned 100 percent of the 
vessels that have delivered to us would an IFQ-only program work. 
However, this is the exact situation that seems to be the biggest 
concern for those not in favor of processor rationalization.
    Question 4. S. 637 requires any new IFQ program to prevent the 
acquisition of an excessive share of quota. Furthermore, S. 637 defers 
to the appropriate council to determine how to prevent such an 
accumulation of excessive shares. Some have suggested that this 
provision should be more specific--for example, whether an excessive 
share cap would be set by a percentage based on national conditions, or 
on a fishery-by-fishery basis. How can new IFQ programs ensure that 
quota shares will not be consolidated into the hands of the largest 
fishing interests? Do you believe that the legislation should specify 
penalties, such as immediate revocation of quota if the excessive share 
caps are exceeded?
    Answer. I have previously addressed the excessive share issue and 
think there should be such caps in both the harvesting and processing 
sectors. I believe this is best left to the Councils to decide on a 
fishery-by-fishery basis with specific guidance and direction from 
Congress. Legislation that specifies penalties, including revocation of 
quota, is appropriate.
    Question 5. In your testimony, you expressed dissatisfaction with 
the current halibut and sablefish IFQ programs but also stated that it 
would not be possible now to ``reasonably try to change that program''. 
What sort of measures would you recommend that Congress implement to 
ensure that changes could be reasonably made to any new IFQ program? 
Without a sunset, how can we guarantee if an IFQ program is not working 
satisfactorily that it can be terminated?
    Answer. One way would be to prohibit any permanent transfers of any 
quota, harvesting or processing, for a period of two or three years 
after which a referendum of all quota holders, both harvesting and 
processing, would validate the program, after which permanent transfers 
can take place. This would allow all participants the opportunity to 
enjoy the benefits of rationalization, including temporary transfers of 
quota until the program is validated by all participants (both 
harvesting and processing). Permanent transfers of quota, resulting in 
permanent de-capitalization and increased efficiencies, is one of the 
major benefits of rationalization. A two-year moratorium on permanent 
transfers would give the industry, Councils and Congress the 
opportunity to continue the program, fine tune it or return to status 
quo.
    Question 6. One of the important components of an effective IFQ 
program is adequate enforcement. However, we have seen over the years 
instances, such as major waves of illegal migrants, when the Coast 
Guard have had to curtail fisheries enforcement activities to address 
pressing needs. The fiscal year 2002 budget includes a 15 percent 
reduction in Coast Guard law enforcement activities. If this reduction 
occurs, would it change your position on the use of IFQs? Would such a 
reduction require additional safeguards be incorporated into any new 
IFQ programs? If so, what would you recommend?
    Answer. Quota programs increase the motivation of both harvesters 
and processors to follow the regulations and to use peer pressure to 
ensure that others play by the rules. Quotas for harvesters and 
processors represent a long-term commitment to a fishery and a strong 
interest in keeping it healthy, both biologically and financially. On 
the ``big stick'' side, the possibility of losing quota shares in an 
enforcement action is a very high stakes gamble and a strong incentive 
to stay inside the regulations.
    Question 7. In a fishery where fishermen sell directly to a 
processor, requiring processor shares has obvious advantages and I can 
understand why you would want to require that processors be given 
access to quota. However, in New England, many fishermen sell their 
catch through auctions like the ones in Portland, Maine and Gloucester, 
Massachusetts. Processor shares in this case don't make much sense. 
What would the New England Council do in this case if we require them 
to allocate quota to processors? Isn't this a perfect example of 
requiring regional flexibility and letting the councils decide if it is 
appropriate to include processors? Would you also require processors be 
granted access to quota if an IFQ were implemented in cases where there 
is no derby fishery?
    Answer. Certainly each area of the country is unique and different. 
Not knowing the situation in New England, it's hard for me to comment 
on what will work and what will not. Clearly in Alaska, there has been 
huge investment of both the processing and harvesting sectors that 
cannot be used for any other purpose. Those investments in very remote 
parts of Alaska are inter-dependent on each other under the current 
derby-style fisheries. If the fisheries are rationalized, both sectors 
must be rationalized or the investments made by one sector will be 
stranded in very remote parts of the North Pacific. Most of the 
processing locations in remote Alaska are uniquely and totally 
dependent of the various fisheries. Most of these communities where 
located are small and those assets cannot be transferred or re-invested 
for other industries because there are none. All non-rationalized 
fisheries in Alaska are derby fisheries. All regions are different and 
have their own unique challenges. In Alaska, the situation is obviously 
different than how you describe the situation in New England, and 
appears to support regional flexibility.
    Question 8. Ms. Behnken stated that processors suffer from a one-
time expense of cutting back or ending operations. How do you respond? 
Would you support requiring an IFQ program to help fund a processor 
buyout through fees instead of requiring processors to have access to 
quota?
    Answer. Ms. Behnken's comment was very disturbing as it would be to 
her if I suggested that we just give harvesters some money to go away 
whether they wanted to or not. What she acknowledged is that 
processors' investment will be devalued with a harvester-only IFQ and 
her only remedy was to just give processors some money to go away 
whether we want to or not. In the case of our Company, after 35 years 
of working with independent fishermen developing, Americanizing, and 
fully utilizing various fisheries in the North Pacific, she is 
suggesting we take some money and go away. Some of us do not want to go 
away. We want to be part of the future. Rationalizing both the 
processing and harvesting sectors allows those that want to continue to 
do so and also allows both sectors to privately fund a buyout of those 
harvesters and processors that want to exit. If the processing sector 
is allowed to rationalize the same as the harvesting sector, whether 
through processing quotas, cooperatives, or any other equitable system, 
there would be no need for any sort of fund for processor buyout.

   Response to Written Questions Submitted by Hon. John F. Kerry to 
                               Don Giles

    Question 1. We are seeing an increasing interest in buying out 
excess capacity prior to the institution of an IFQ. While in some 
instances this has been precipitated by a resource crash, fewer 
fishermen means that value of the quota remaining for the IFQ increases 
on a per capita basis. I would like to ask all of you to put yourselves 
in our shoes--

   Is this a sensible use of government funds?

   What are the problems or benefits associated with this 
        arrangement?

   What does the public receive from this series of 
        transactions, and how does one prevent windfall profits from 
        occurring?

   Is a buyback or an IFQ a better way to reduce over-capacity? 
        Does you answer differ based on the circumstances surrounding 
        an individual fishery?

    Answer. Certainly with any rationalization program including IFQs, 
the industry is in a better position to de-capitalize the fishing and 
processing efforts without public funds. Loans are appropriate to help 
expedite the de-capitalization, but can be paid back from those that 
remain in the fishery. If the industry is funding any buybacks and 
assumes the financial liability of such buybacks then certainly the 
industry should benefit from any additional profits or efficiencies 
resulting in a rationalized fishery.
    Question 2. The NRC report identified concerns that high-grading 
might occur in IFQ fisheries. Since the issuance of that report, have 
any studies shown high-grading to be a problem in IFQ fisheries?
    Answer. I do not know of any studies regarding high-grading in any 
fishery. This would be very difficult to document if this was 
happening.
    Question 3. Massachusetts fishermen, like many small fishermen, do 
not believe that it is possible for a Council to allocate quota fairly 
in an IFQ systems. This belief stems primarily from their experiences 
under the current fishery management regime and concerns about conflict 
of interest in Council decisions.

   How can better accountability and fairness be built into any 
        process to design and allocate an IFQ system?

   Have conflicts of interest in the Council (or other systems 
        you are familiar with) been a particular problem in 
        establishing IFQs?

   Could we address this allocation fairness concern through 
        use of a neutral entity--at least until conflict or interest 
        rules are shown to be effective?

   Are there any models that we can look to?

    Answer. I think the North Pacific Council has addressed allocating 
quota in a fair and reasonable manner for harvesters. There will never 
ever be 100 percent consensus on allocative issues, but if the industry 
wants to enjoy the benefits of a rationalized fishery, they will find a 
way to come to reasonable consensus. Clearly, there has and always will 
be conflict of interest concerns at the Council process. This is an 
issue that will probably never go away, but I feel the benefits of 
having knowledgeable Council members far outweigh the conflict of 
interest concerns.
    Question 4. It has been suggested that the concepts of area 
management and fishery cooperatives could be combined to provide 
communities with both flexibility and predictability. Perhaps a fishing 
community could be given exclusive rights to fish in an area along with 
a quota on landings.

   Would such an arrangement be workable in practice?

   What concerns need to be addressed in such a system?

   In your experience, are any such systems used in other 
        countries?

    Answer. In the North Pacific, community concerns have been largely 
about maintaining traditional landing patterns and history that they 
historically have had and do not want to lose in a rationalized 
fishery. Especially in remote parts of Alaska, harvesters, processors 
and communities have all invested heavily in the various fisheries. 
Communities have never fished or processed and have not expressed an 
interest to do so. The best way to protect the communities is to 
protect a healthy processing sector within those communities and assure 
traditional landings are not jeopardized if a particular fishery is 
rationalized. There has been growing support particularly in the Bering 
Sea crab fisheries for a two-pie regionalization / rationalization 
program. This allows for fishermen to receive IFQs, processors to 
receive processing quota IPQs, both regionalized to areas where both 
processing and harvesters have traditionally landed and processed their 
catch. This allows both harvesters and processors to enjoy the 
efficiencies and benefits of rationalization while at the same time 
protecting the traditional landing ports for the communities.
    Public funds have been invested in the ports and infrastructure to 
help both processors and harvesters prosecute these fisheries. A huge 
amount of private funds have been invested in the processing and 
harvesting sector to develop, Americanize and fully utilize various 
fisheries throughout the North Pacific. All sectors (communities, 
harvesters, processors) should be allowed to enjoy the benefit of 
rationalization and not be victim of rationalization.
    Question 5. As you know, the NRC report addressed the question of 
processor shares. First, the NRC found that there was no compelling 
reason to include or exclude processors from initial allocation of 
harvester quotas, and recommended leaving it to the Councils to decide 
whether a mechanism is needed to address any unacceptable disadvantage 
of an IFQ to processors (such as buyouts). They generally cautioned 
against allocating quota to processors because it would result in 
making the IFQ program too complex. In addition, the NRC found there 
was no compelling reason to establish a separate, complementary 
processor quota system (the ``two-pie'' system).

   Do you think the NRC panel got this right?

   S. 637 allows only harvester shares--I don't see any 
        compelling reason to change that prohibition--do you?

    Answer. I think the NRC got it wrong. First of all, processing 
shares allocation would be very simple and a lot less complicated than 
harvesting shares because of the fewer number of processors than 
harvesters. If public policy is that 100 percent of the value of 
various fisheries should go to the harvesting sector then they have it 
right and no consideration should be given to processors and dependent 
communities. I do not believe that is right or good public policy. For 
over 25 years, the industry has been encouraged by Congress and the 
North Pacific Fishery Management Council (NPFMC) to develop, 
Americanize, and fully utilize various fisheries in the North Pacific, 
resulting in hundreds of millions of dollars invested with both public 
and private funds. Harvesters could not have done it alone without 
processor expansion and investment. Processors could not have 
accomplished the expansion without ports, harbors and infrastructure 
investment from fishery-dependent communities. Harvesters, processors 
and dependent communities all got here together and all should be a 
part of the future. What the NRC is basically saying is a vessel owner 
who may have not been on the water for the past ten years should be 
awarded 100 percent of the value and efficiencies of a rationalized 
fishery while the investments of processors and some dependent 
communities are left stranded in remote ports in the North Pacific. 
Unless both harvesting and processing sectors are equitably 
rationalized together, the processing sector will immediately be 
devalued resulting in a steady deterioration of their business and 
steady deterioration of the economics, employment and tax base of the 
dependent communities where those processors are located.
    I believe these are compelling reasons why processor shares must be 
authorized to assure viable industry under any sort of rationalized 
fishery.
    Question 6. In a September, 1999, report to the North Pacific 
Fishery Management Council by Dr. Halvorsen of the University of 
Washington it is reported that Trident Seafoods controlled nearly 55 
percent of the catcher vessels that participate in the pollock co-op 
that delivers to Trident under the American Fisheries Act (and 88 
percent of the catch). Other processors that were given co-ops under 
the American Fisheries Act have similar levels of catcher vessel 
control.

   Given that processors who own or control catcher vessels 
        would likely receive IFQ shares for those vessels even under a 
        harvester IFQ, I would like to know why you feel that 
        processors should also receive Individual Processing Quota 
        (IPQ) shares as well. It seems to me that if you have both IFQs 
        and IPQs what you are really doing is giving independent 
        catcher vessels only one-half a piece of the pie, with the 
        processor getting the other half, while for processor 
        controlled boats you get a full piece of the pie. Do you 
        disagree?

    Answer. Under any rationalization program, no sector should be 
discriminated against based on whatever history they have, whether it 
is harvesting, processing or both. Once harvesting and processing 
quotas are initially allocated, if Congress wants to limit, control or 
cap ownership in any sector to assure there is no excessive share or 
control, they could and should do so.
    Processing companies that have invested in harvesting vessels 
should get the same rights and privileges as other harvesters and 
processors. Ownership goes both ways. One of the major crab processors 
in the Bering Sea is owned by fishermen. I do not believe they should 
have to divest in either harvesting or processing to enjoy the benefits 
of a rationalized fishery. Their investment, just like some processors 
that have invested in harvesting, was done legally and should not be 
devalued as a result of rationalization.
    It's ironic that the biggest fear that is being perpetuated by some 
is the ownership of harvesters by processors and the perceived control 
they will have. In fact, if IFQs are allowed without processor quotas, 
those same companies will be the only surviving processors and those 
companies that have depended on independent fishermen for their supply 
of fish will be the first to go out of business leaving only those 
processors that also have substantial harvesting rights as the only 
viable market for independent fishermen. In fact, some of the same 
proponents of this concern were the first to sell their pollock catcher 
vessels to processors at twice the market value they could have 
received from other harvesters once the American Fisheries Act (AFA) 
was enacted. If they are so concerned about processor ownership of 
harvesting vessels, why didn't they sell out to willing non-processor 
buyers?
    Congress and the Councils could and should control excessive shares 
in both harvesting and processing once initial allocations of quota are 
issued, but neither sector should be penalized for their existing 
investment in either harvesting or processing.
                                 ______
                                 
Robert D. Alverson on behalf of the Fishing Vessel Owners' 
                                         Association (FVOA)
                                                       May 14, 2001
Hon. Olympia J. Snowe
The United States Senate,
495 Senate Russell Office Bldg.,
Constitution and Delaware Avenues, N.E.,
Washington, DC.

    Dear Senator Snowe:

    The following comments are made on behalf of the Fishing Vessel 
Owners' Association (FVOA). They address the proposed Senate amendments 
to the Magnuson-Stevens Act. The FVOA is a trade association founded in 
1914 dedicated to groundfish longline issues. The Association's vessels 
operate from off the coast of California to the waters adjacent to 
Russia in the Bering Sea.
    The Association supports Individual Fishing Quotas (IFQs) as a 
management tool for use by the Regional Fishery Management Councils. 
The Association also supports Individual Processing Quotas (IPQs) as 
management tools that should be made available to the Regional 
Councils. While IFQs and IPQs should both be available, neither should 
be mandated. The Association continues to support the IFQ program for 
halibut and sablefish in waters off Alaska and the more recent 
sablefish ``tiered'' IFQ program unanimously supported by the Pacific 
Council. The latter proposal is currently working its way through the 
regulatory process in Washington, D.C.
    The Association believes there are adequate safeguards for 
establishing limited entry programs, including IFQs, in the Magnuson-
Stevens Act. The Association supports the Regional Councils retaining 
their current flexibility in dealing with policy issues concerning 
IFQs, such as ownership and use restrictions, leasing, selling, local 
community concerns, and small vessel and large boat concerns. Every 
fishery has a unique quality to it. There can be important cultural as 
well as resource issues that a Council may want to address with an IFQ. 
The issues differ in each region and each Council will certainly have 
various degrees of concern. IPQs would require new legislation that 
would have to be carefully thought out.
    Ms. Linda Behnken stated before your Subcommittee on May 2, 2001, 
that the Halibut/Sablefish IFQ program had been liberalized since its 
first inception, and she suggested this was something to avoid. These 
comments were presented within the context of small vessel operators 
and crew participation. In reality, the NPFMC has not liberalized the 
Halibut/Sablefish IFQ program relative to either one of these concerns 
since 1992, when the program was initially voted on, nor since 
implementation of the program in 1995.
    The Council has taken two significant actions to tighten 
restrictions on vessel owners, and to make provisions for new entrants 
into the fishery. The first action taken was the ``block'' program, 
which defined quota shares allotted in units less than 20,000 pounds as 
being in a special category. This category of quota has certain 
ownership limitations, such that no one can own more than two blocked 
units in any given management area. This program is designed to keep a 
number of small units of IFQ in the market, so that crew members or new 
IFQ holders could readily buy their way into the fishery. This 
amendment also discourages large IFQ holders from purchasing blocked 
quotas. Blocked quota is more difficult to buy and sell than unblocked 
quota, therefore, large quota holders tend not to bid for it, which 
obviously helps new entrants and people with small holdings of IFQs.
    The second amendment taken by the Council required a minimum 
ownership in a vessel of 20 percent in order to hire a skipper. Prior 
to that, the requirement to have ownership in order to hire a skipper 
could be as low as 1 percent, which may have encouraged absentee 
ownership. The 20 percent rule puts a significant burden on anyone who 
hires a skipper, therefore, ensuring a more hands-on operation and 
discourages ``sharecropping''.
    Ms. Behnken failed to give specifics when she made her statements, 
because there were no specifics to support her testimony. It is true 
that Ms. Behnken has petitioned the Council for a more stringent level 
of ownership or elimination of hired skippers altogether. The Council 
has not supported her request entirely. Just because the North Pacific 
Council did not support her proposal, does not mean the program was 
liberalized.
    Mr. Don Giles of Icicle Seafoods testified at the May 2, 2001 
hearing that his company has been damaged by IFQs. He suggested that 
the amount of overhead for a processing plant per pound being paid for 
halibut is less than that for other fisheries. He suggested that 
fishermen in other fisheries are subsidizing the halibut fishermen's 
price. Icicle's spokesman also suggested that they have lost market 
share due to the IFQ program. To FVOA members, what Icicle is saying is 
that for the last five years, Icicle has been willingly overpaying 
halibut fishermen in order to get less and less of our product, and not 
paying other fishermen (salmon, crab) a fair market value.
    It should be pointed out that the last three years have been very 
good for the supply of halibut as Senator Breaux noted during the 
hearing. The harvest set by the International Halibut Commission have 
been at near record levels. Notably, Icicle Seafoods has two 
significant plants, one in Seward, Alaska, and the other in Petersburg, 
Alaska. Seward is the #3 port in delivery of halibut, representing 12.1 
percent of all landings, and Petersburg reports 4.1 percent of all 
landings of halibut. Icicle Seafoods used to have a buying station in 
Homer, Alaska, which represents the largest halibut port, or 20.5 
percent of the catch. Icicle's plant burnt down; however, they still 
acquire fish from Homer. With regard to sablefish, Seward is the number 
one port of delivery, representing 24.6 percent of deliveries, and 
Petersburg is number 8, representing 4 percent of all deliveries. (See 
Appendix 1). It may be true that Icicle lost market share; however, 
should Icicle want more product, all it would have to do is bid the 
most competitive price. The harvest levels are at record levels, and 
what is not mentioned is that many processors have gained market 
shares. Clearly, for each processor that lost market share, there was a 
processor that gained market share.
    Prior to 1985, most fishermen in Alaska were not in the race for 
fish. In fact, the U.S. fleet was still building up and phasing out the 
foreign operations. Vessels could move from one processing market to 
another, depending on price arrangements. From 1985 to the mid-90's, 
the U.S. fleet in Alaska became over-capitalized. The processing 
capacity that supported this over-capitalized fleet invested in 
processing and freezing that would allow the entire quotas for 
groundfish and crab to be processed in a month or weeks and in the case 
of halibut, days. The race for fish has become so intense that the 
fishermen have no time to shop for new markets. This is currently the 
case for species like crab in the Bering Sea. Those processors, who 
built the infrastructure to compete in the race for fish, have an 
incentive to keep the race for fish going. The race for fish keeps 
fishermen hostage to existing processing markets. IFQs ended that race 
for halibut and sablefish.
    A harvester IFQ program for Alaska groundfish, would restore most 
of the fleet to pre-1985 with regards to taking the race out of the 
fishing and being able to have time to develop new markets and reduce 
overcapitalization through consolidation. New markets can be developed 
with existing processors as well as new processors with new ideas. 
However, it should be noted that those processors who resisted change 
and failed to give the public what they wanted, relative to halibut, 
(fresh, high-quality fish), lost market shares.
    Another point deserves emphasis. Without the sale or lease of IFQs, 
there can be no consolidation of the fleet. If an overcapitalized fleet 
cannot consolidate, the race for fish is perpetuated. In fact, such a 
program would likely be viewed, on the West Coast, as being worse than 
status quo. In the case of West Coast groundfish, the fishery is 
horribly over-capitalized. Few people, at this time, would look at 
buying a vessel and try to make living at fishing in the lower West 
Coast groundfish fishery. Those currently in the fleet who would like 
to sell out are not having much success. A non-transferable IFQ program 
would force people to stay in the fishery. If the allocated amount of 
IFQ were insufficient to justify operating a vessel, then a person 
would be without any income and the IFQ would go unused.
    The quotas on the West Coast rockfish species have been reduced by 
60 percent to 70 percent over the last four years. If the IFQs are 
saleable, the fishermen can sell out and the person buying can have a 
larger, economically practicable harvest. Both the seller and buyer see 
themselves as gaining. A non-saleable IFQ will hurt those fishermen who 
receive the smaller quotas. If they need to purchase more quota, they 
will be prohibited from doing so.
    If you try and forecast how such a fishery would operate over the 
next 30 years, the following situation develops. As fishermen retire or 
die, they or their families will not be able to sell their vessels or 
businesses. A vessel without fish to catch is of little value. As 
fishermen retire under such a program, do all the fish then go to the 
last person standing and what happens when that person leaves the 
fishery?
    Limited Time IFQs. The FVOA opposes any mandated time limitation 
for IFQs. Time-limited IFQs should be an option for each regional 
council. The Association supports councils having a periodical review 
of an IFQ program. In fact, the North Pacific Council specifically 
requests amendments from the public on their Halibut/Sablefish IFQ 
program once every two years, and provides for an annual report on 
sales and harvest of the fleet.
    The FVOA cautions against short time frames for IFQs. Short time 
limits for IFQs would work similarly to someone leasing a home or an 
apartment. Under those circumstances, the person leasing is not 
generating any equity in their residence. The same would be the case 
for someone with a limited entry IFQ. A homeowner, who generates 
equity, tends to protect and improve his or her investment. A lessee 
does not have that same incentive.
    A short term IFQ would tend to encourage the recipient of such a 
privilege to maximize the immediate harvest of the IFQ and lobby for 
maximum quotas. This would impede conservation efforts. A long term IFQ 
program allows the vessel owners to amortize expenses over a longer 
period of time and not maximize the income up front to cover the long-
term expenses. This encourages conservation.
    Finally, I wish to emphasize the importance of IFQs to safety. The 
race for fish kills fishermen. Our pre-IFQ halibut derbies proved 
that--and the Bering Sea crab fisheries still do. Since IFQs were 
established, our halibut fishery's safety record has greatly improved. 
(See Appendix 2). Search and Rescue (SAR) attempts have been reduced 
significantly. Other fisheries should have that benefit as well.
    Thank you for the opportunity to provide these comments.
        Sincerely,
                                        Robert D. Alverson,
                                                           Manager.
                                 ______
                                 
                               National Environmental Trust
                                                       May 22, 2001
Hon. Olympia J. Snowe
United States Senate,
SR-154 Russell Senate Office Building,
Washington, DC.

    Dear Senator Snowe:

    Thank you for hosting a hearing on Individual Fishing Quotas on May 
2, 2001. We appreciate your willingness to take on this very 
controversial topic within the context of the Magnuson-Stevens Fishery 
Conservation and Management reauthorization. NET supports the position 
of the Marine Fish Conservation Network on IFQs and we thank you for 
your support of a prohibition on non-transferability. On behalf of the 
National Environmental Trust I respectfully request that this letter 
and the attached paper be included in the record of the hearing.
    We would like to address a point that was repeatedly raised during 
your hearing. One of the witnesses portrayed other countries' 
experience with IFQs, including the New Zealand program, as shining 
successes. The attached document is a copy of an academic paper written 
by a professor from the University of New Zealand who has witnessed 
first hand the problems with the IFQ program over its first 11 years. 
Her observations are in the body of this paper. I recommend it to you 
and your staff so that your legislation can benefit from the lessons 
that New Zealand learned the hard way by enacting IFQ programs without 
strict national standards requiring equity and conservation.
    If you have any questions, please contact me at NET, 202-887-1346.
        Sincerely,
                                           Gerald B. Leape,
Marine Conservation Program Director, National Environmental Trust.
    Tradeable Quota in Practice: Decision making, Institutions and 
           Outcomes--the New Zealand Experience over 11 years
 Catherine Wallace, School of Business and Public Management, Victoria 
        University of Wellington, Wellington, \1\ New Zealand, 
                         [email protected]
---------------------------------------------------------------------------
    \1\ The author is grateful to Victoria University of Wellington for 
research leave and a research grant that contributed to the preparation 
of this paper. Thanks are due to Sarah Duthie and Marta Lang for 
research assistance and to Barry Weeber for help with the preparation 
of stock information and for other advice.
---------------------------------------------------------------------------
Abstract \2\
---------------------------------------------------------------------------
    \2\ All dollar values used in this paper are nominal New Zealand 
Dollar values unless otherwise specified. In June 1998 US$1 was worth 
approximately NZ$2.
---------------------------------------------------------------------------
    Tradeable quota management systems set out to limit the total catch 
with the purpose of enhancing both biological and economic outcomes in 
fisheries, while providing fishers with incentives to care for the 
resource. New Zealand has had 11 years experience with such a system, 
introduced in 1986, just eight years after her declaration of an EEZ. 
The paper explores institutional evolution and decision making and the 
evidence of fish stocks and environmental outcomes, for insights as to 
how the expectations of economists, policy makers and others have been 
matched by the actual outcomes. The paper traces how institutions have 
evolved in the context of major public sector and microeconomic 
reforms, one set of commercial players with specified property rights 
while non-commercial players have none, cost recovery and the move 
towards quota holder corporations, contracting out and devolution of 
management to industry. The commercial fishing industry has gained 
ascendancy in official decision making, this is cemented by a recently 
announced intention by government to move towards co-management and 
devolve aspects of fisheries management to the industry. Data problems 
abound but it seems probable that some fish stocks are in healthy 
shape, some significantly over fished and many of unknown status with 
risky catch limit setting. Research effort has been undermined by 
industry reluctance to pay or to have environmental questions explored. 
Management has become stratified on fish stocks with little attention 
to the interactions between fisheries or ecosystem effects, despite a 
1996 law change requiring environmental principles in management.
    Keywords: Fisheries management, tradeable rights, co-management, 
New Zealand.

INTRODUCTION
Quota Management Systems: the core theory
    The ``blackboard economics'' of transferable quota management 
systems look good because they seem to provide strong durable signals 
to the owners of quota to look after the resource for which rights of 
access had been assigned to them or which they have subsequently 
purchased. The practical experience in places that have used tradeable 
fish quota is mixed and suggests that most systems need further 
development (Sissenwine and Mace, 1992; Annala, 1996; Eythorsson, 1996; 
Sharp, 1997; Hatcher, 1997; and Wallace, 1997). The experience and 
literature of fisheries policy and economics increasingly stresses the 
importance of incentives, institutions and governance arrangements 
(Ostrom 1990, Dubbink and van Vliet, 1996) and the design details of 
resource management. Ecological economics widens the horizons to 
include consideration of ecological functions and ethical matters 
(Folke and Kaberger, 1991). How has it worked in the New Zealand 
fisheries?
    The basic analytics of, and rationale for, a quota management 
system (QMS) in fisheries is to move from the ``tragedy of open 
access'' (the re-diagnosed form of Garrett Hardin's ``tragedy of the 
commons'') (Bromley, 1991, 22) and input controls to a system of 
restricted access to fish. This restriction would be managed by catch 
limits, known as ``output'' controls. (Pearce and Turner, 1990; and 
Scott, 1988).
    The basic theory is that with an ownership stake in the fishery and 
exclusion of excessive effort, the fishers will care for the future of 
the stocks and no longer feel obliged to ``race for fish''. The result 
is better profits for fishers, and under some conditions, higher fish 
stocks (Anderson, 1995; Pearce and Turner, 1990).
    There is a well-established economic literature to the effect that 
the point of biologically maximum sustained yield will not necessarily 
coincide with the economically optimum point. Maximisation of economic 
rents may require that less is caught and so that stocks are larger 
than if the aim were for the maximum sustainable yield (Larkin, 1977). 
The literature on institutions and co-management addresses the best 
means of achieving the cut backs and restraint that are essential for 
maintaining effort limitation and mutual assurance (Ostrom, 1990; Sen 
and Nielsen, 1996; Townsend, 1995; Couper and Smith, 1997).
    The theory does however predict that if fish stocks are slow 
growing, of low fecundity, and the catch value and discount rates are 
high, then it may well be rational in narrow economic terms to ``mine'' 
the fish stocks, catch the lot and invest the proceeds. This provides 
better financial returns than waiting for the fish to grow (Pearce and 
Turner, 1990).
    Consideration of non-market values and the incorporation of 
preservation and other non-commercial values into decision making 
suggests that if these other values are included then the optimal fish 
stock is likely to be higher than the narrowly defined financial 
optimum for commercial fishers (Pearce and Turner, 1990). Thus, fishing 
effort should be less, and stocks greater, when ecosystem values are 
included in the calculus.
    These basic elements of the theory point to a number of policy 
issues to be dealt with in the design and implementation of any 
tradeable system. This includes: exclusions, allocation of rights, to 
whom, as percentage shares or absolute tonnage; incentives to cheat or 
to comply, the problems of multispecies fisheries and environmental 
aspects of management outside the commercial fishers' interests, 
institutions for mutual assurance, participation and cooperation, and 
so on. This paper will engage with just some of these issues. It will 
explore the impact of the evolving institutional arrangements in New 
Zealand on the information and research base, TACC and TAC decision 
making, stock assessment and the state of the stocks, on participation 
in decision making and legal and political legitimacy.

THE NEW ZEALAND EXPERIENCE
The New Zealand EEZ and prior to the QMS
    New Zealand's EEZ was declared in 1978 at a time when the domestic 
commercial fisheries and their management were almost wholly focused on 
inshore fisheries and input controls. The means of fisheries management 
was a licencing system that did little to restrict effort and so 
resembled open access.
    Fisheries management was cumbersome, seemingly inefficient and the 
transaction costs of fisheries management were deemed to be high with a 
large number of very small operators and vessels. In 1977 there were a 
reported licenced total of 5178 vessels of which only 13 New Zealand 
owned vessels were 30 metres or longer (National Research Advisory 
Council, 1980, 44). Foreign vessels and later, joint venture charter 
vessels from abroad were operating in the deeper water (Bradstock, 
1979) which led the government of the day launch a campaign to retire 
some inshore fishing effort and to induce fishers to move into the 
deeper water of the EEZ (400-1200m). The Minister of Fisheries launched 
a ``think big'' campaign with incentives to help people to fish the 
deeper waters (Habib and Roberts 1978).
    In 1983 frustration with the administrative burden of managing 
fisheries, when so many vessels and owners were operating, led the 
government of the day to implement a policy of ejection from the 
fishery all those who gained less than NZ$10,000 (1983NZ$) or less than 
80 percent of their income from fishing. The effect of this was that a 
very large number of fishers with seasonal incomes from fishing were 
barred from fishing. There was no attempt at compensation. Maori 
communities were particularly affected (Cooper ed, 1988, 1989; Waitangi 
Tribunal, Wai 27, 1992, 282; Memon and Cullen, 1992).
    This administrative exclusion apparently caused considerable 
hardship (Waitangi Tribunal, Wai 27, 1992; Memon & Cullen, 1992), but 
it had little effect on the level of catch since most of the vessels 
were very small. Presumably it did help with the administrative 
burden--but there has been no systematic study of this.
    In 1983 a trial quota system was introduced for some deep-water 
species, with provision in the Fisheries Act 1983 for this and for 
expansion of the quota system. It was the experience of this that led 
the government's advisers to then recommend the extension of this quota 
system to the Quota Management System including the inshore species.

The QMS
    Introduced in 1986, New Zealand's Quota Management System (QMS) of 
individual transferable fisheries quota (ITQ) has now operated for over 
a decade. There have been a number of descriptions and commentaries, so 
this paper offers only a potted history of the introduction of the QMS. 
Previous descriptions or studies of the New Zealand Quota Management 
System (QMS) include Clark and Duncan (1986), Clark, Major and Mollett 
(1988), Dewees (1989), Sissenwine and Mace (1992), Memon and Cullen 
(1992), Annala (1996), Gaffney (1997), Sharp (1997) and Wallace (1997).
    Individual transferable fisheries quota (ITQ) was introduced in 
earnest with the 1986 allocations to individuals of access to 26 
species or species groups of fish, each in 10 geographic regions. 
Rights of access to absolute tonnages were issued in perpetuity. 
Allocations were grandparented and then fishers in the inshore 
fisheries were invited to tender back to the Government so that total 
effort was reduced. Under the QMS the Minister of Fisheries sets Total 
Allowable Catch (TAC) limits containing Total Allowable Commercial 
Catch (TACC) limits for each fish stock, the difference being 
allocations for recreational and customary Maori catch and some 
estimate of unreported and illegal catch. These allocations were 
implicit under the 1983 Act, but this has now changed with the 1996 
Fisheries Act to explicit provision for these other uses though they 
are not assigned to individuals.
    The objective of fishery management under the 1983 and 1986 laws 
was management of fish stocks at least to the level that would yield 
maximum sustainable yield (MSY). By law, social, economic, 
environmental and cultural reasons can condition the rate of movement 
to MSY. Environmental controls are required and these have been made 
more explicit in the 1996 Fisheries Act.

Industry Size and Profitability.
    Industry export revenues during the period 1987-1997 have increased 
considerably, from NZ$790 to about NZ$1.1-1.3 billion (current values). 
They are subject to the usual demand pressures, exchange rate 
fluctuations and a variable level of inflation. Much of the increase is 
attributable to the expansion of the New Zealand fishing industry into 
the deep water from a predominantly inshore fishery rather than to the 
QMS itself. Because fishing followed a ``fishing down'' pattern in a 
number of deep water stocks (principally orange roughy), and because 
the frontiers of fishing have expanded within the EEZ, much of the rate 
of expansion of fishing has been unsustainable. It has been a 
``mining'' process rather than one of catch rates matched to yield. We 
do not have a counterfactual for what would have happened in the 
absence of the QMS, nor do we have full figures for the profitability 
of the industry. What information there is, though, suggests that at 
least the bigger players have for the most part remained profitable. 
\3\ The number and size profile of vessels has changed. This one would 
expect when deeper waters are being fished, so that the proportion of 
larger vessels has increased but the absolute numbers of vessels have 
declined compared to the beginning of the period (New Zealand Fishing 
Industry Board, Economic Review, and successive years).
---------------------------------------------------------------------------
    \3\ This based on an inspection of the reports and Economic Reviews 
of the NZ Fishing Industry Board, the public accounts of Sanfords Ltd, 
and reports by the Treaty of Waitangi Fisheries Commission for various 
years.
---------------------------------------------------------------------------
    During the 1990s charter vessels from other countries caught about 
half the catch, a change from the pre-QMS days when foreign vessels 
licensed by the New Zealand government caught most of the deep-water 
catch. Gradually, two trends asserted themselves. The first was that 
New Zealand companies increased their fishing capacity. The second that 
instead of vessels being licensed by government, they became, in 
effect, licensed to private operators as joint ventures or charters--so 
the proceeds went to New Zealand companies rather than to the 
government.
    In the mid-late1990s, about 90 percent of the total catch was 
exported. About 30 percent of the export revenues come from species 
with stocks that are known to be below or considerably below the level 
that would support the MSY, but not all such stocks of a species may be 
so stressed. For most stocks, stock biomass is unknown. Much of the 
expansion of catch during the period since 1986 has been unsustainable.

Quota Transfers and Concentration of Ownership
    ITQs are transferable by sale or lease and there are indeed trades, 
though prices indicate a mixture of arms length and non-arms length 
trading (Ministry of Fisheries, monthly Quota Monitoring System 
Reports).
    In the 11 years of operation of the QMS there appears to have been 
considerable concentration of ownership or control of quota, though 
there are legal limits on quota aggregation and on foreign ownership. 
The Ministry of Fisheries does not monitor aggregation, which anyway is 
extremely difficult to track as corporate arrangements intertwine. This 
concentration probably reflects both market conditions and the 
government's policy of recovery of costs of fishery management since 
1994, which has been largely designed by the bigger fishers. It has 
placed a share of costs on small fishers which is larger than their 
share of the total catch because some charges have been based on the 
number of transactions, vessels etc, rather than the share of the 
catch.
    The one body exempt from the quota aggregation limits is the Treaty 
of Waitangi Fisheries Commission (Te Ohu Kaimoana). This body was 
established in 1989 \4\ after a series of legal and political 
interventions by Maori who successfully argued that New Zealand's 
founding Treaty between the British Crown and Maori, the Treaty of 
Waitangi, guaranteed them their fisheries. Eventually the government 
did a deal with Maori by which they were collectively allocated 10 
percent of the quota, promised 20 percent of future allocations and 
were given a half share in a large fishing company. In addition, Maori 
were granted exclusive non-commercial fishing rights.
---------------------------------------------------------------------------
    \4\ As the Maori Fisheries Commission.
---------------------------------------------------------------------------
    The Treaty of Waitangi Fisheries Commission has found it extremely 
difficult to find agreement amongst Maori on a formula for the onward 
allocation of quota to tribes (iwi) or subtribes (hapu). In the years 
during which argument has ground on, the Commission has used its income 
from quota leases to accumulate more quota, with the result that in 
1998 it estimates that it owns or controls over 50 percent of the total 
quota (Pryke, Fisheries Commissioner, pers com, June 1998).
    The Treaty of Waitangi Fisheries Commission's holding is part of 
the commercial quota, and this is distinct from the allowance for 
customary Maori fishing which has never been well researched or 
quantified but has been allowed for, first implicitly, now explicitly.
    There is increasing pressure from parts of the fishing industry and 
from within the Ministry of Fisheries to remove quota aggregation 
limits and to remove controls on ownership by foreigners who have 
hitherto been restricted from owning of quota.

From Absolute to Percentage Shares
    In 1990, the fiscal burden of the need to buy back quota from 
fishers where the catch rates had been set too high was recognised to 
be too heavy. For example, with Chatham Rise orange roughy TACC 
adjustments would have required over $50 million in Government revenue 
for the buy-back. As a result of analytical work by Lee Anderson, the 
quota was redefined from absolute tonnages to percentage shares in the 
total allowable commercial catch (TACC) and a major amendment to the 
Fisheries Act 1983 was passed in 1990.

Resource Rentals and Cost Recovery
    In 1995, after the suspension of resource rental payments, a system 
of industry ``cost recovery'' charges of about 70 percent of fisheries 
management and research costs were introduced. This was asked for by 
the industry as a replacement for an earlier system of resource 
rentals. The cost recovery system has driven several major changes. It 
is often difficult to separate the effects of the QMS per se from the 
effects of the cost recovery regime.
    The cost recovery system was based on the notion of ``avoidable 
costs''. In the context of the government's more generalised move to 
``user pays'', the ``avoidable cost'' principle requires the industry 
to pay for those costs which would not be incurred if the industry were 
not there.
    The resource rental revenue had always returned less than fishery 
management and research costs. They rose from very low initial levels 
when the QMS began to about NZ$22 million in 1988/89 when fisheries 
management cost about NZ$32 million (not including sales tax). But even 
then much of the revenue did not stay with the government. From October 
1989 to September 1995, the government returned to fishers NZ$128.5 
million as compensation for TACC reductions during this period 
(Ministry of Fisheries, 1997a).
    The government gave up resource rentals under joint pressure from 
Maori, who contested the government's ownership of fish, and hence the 
legitimacy of its collection of rentals, and from the industry. The 
government has never taken the revenues it had hoped for from the 
fishery. Resource rentals were levied per tonne and were never more 
than 2.8 percent of total export revenues. Much but not the entire 
quota was grandparented.
    When, in 1992, under pressure to do so by the fishing industry (NZ 
Fishing Industry Association, 1992), the government decided to adopt 
cost recovery, it expected to get NZ$53 million annually, to retain 
resource rentals of NZ$20 million annually, and to gain once-off 
revenue of NZ$133m from tender of further species into the QMS (Cabinet 
Minute 23 Nov 1992; Ministry of Fisheries 1997a). In practice the 
government gave away the resource rentals to the industry as 
compensation for TACC reductions from 1989-1995, it is grand-parenting 
new quota, and has only levied about NZ$33-36 million in cost recovery 
charges. This is considerably less than the government imagined, and 
also less than the industry offered in 1993 to pay. Official records 
record an industry agreement to pay a sum of NZ$47 million in cost 
recovery payments and NZ$66 million for new quota (Ministry of 
Fisheries 1993). In the years since cost recovery was actually 
introduced, the industry has exerted huge pressure to whittle down the 
sum. This has been done by challenging the principle of avoidable 
costs, by pressuring for and achieving a Parliamentary inquiry into 
cost recovery, and by challenging each line item in the budget of the 
Ministry of Fisheries. Research projects and budgets have been 
particularly hard hit. Overall, the annual cost recovery for fisheries 
management and research has been less than 3 percent of total export 
receipts.

The Dominance of the Industry
    A forceful impact of cost recovery has been in the industry's own 
perception of its political place. In possession of quota, the only set 
of defined rights, the industry has tended to consider its rights as 
pre-eminent in any dispute with other stakeholders such as 
recreationalists or environmental organisations. The cost recovery 
process has strongly reinforced this view, both in the minds of the 
industry participants and many officials and politicians.
    The industry believes that if it is subject to cost recovery then 
it should have the dominant voice in both what is done by the Ministry 
and how--or better still, that it should itself be allowed to under 
take this work (New Zealand Fishing Industry, 1997, 7). This has become 
known as ``user pays means user says''.
    This position of the industry and some in government is strongly 
contested by most of the other parties to fisheries management. 
Environmental organisations for instance argue that the polluter pays 
principle does not imply that polluters should run the ruler over the 
pollution control agency or take a position of having the dominant say 
in what the agency does. Nor should they be able to closely influence 
which contracts are let to undertake the research (distinct from 
monitoring). Environmental organisations consider that all stakeholders 
should be heard but that the industry should pay since the essence of 
fishery management is to improve the resource rents in the fishery and 
to protect the fish and the environment from the impacts of fishing 
(Environment and Conservation Organisations et al 1997).
    Recreational fishers also oppose the assumption of greater 
influence and control by the industrial fishers since they see them as 
adding less value, as having less ``merit good'' qualities and as using 
methods such as trawling that are intrinsically more damaging than many 
methods of recreational fishing.
    The 1997-98 Parliamentary inquiry (Primary Production Select 
Committee, 1998) has resulted in a majority recommendation that the 
industry be given more control of fisheries management services and be 
allowed to undertake some of them itself (Primary Production Select 
Committee, 1998). The Cabinet too has decided to devolve to the 
industry the running of core quota registry databases (quota holdings, 
vessel ownership, catch etc) and to allow the industry to do research 
and other services on contract to the government or instead of the 
government commissioning these services. Organisations in the 
environmental, recreational fishing and scientific community oppose 
these changes (submissions to the Primary Produce Select Committee 
1997; submissions to the Minister of Fisheries on Ministry of 
Fisheries, 1997c), seeing them as a process of industry capture of 
fisheries management disguised as co-management. They see themselves 
being progressively shut out of decision making as quota holding 
companies assume fisheries management functions and do research.
    The fate of the quality of data and research has become a 
particularly contentious point. Quality information is vital to the 
quota management system. Non-industry stakeholders expect the research 
to be increasingly industry client driven rather than independent. The 
Ministry considers that it can control standards by contract 
specification and monitoring but other participants doubt this.

Decision Making Sequences
    Fisheries management in New Zealand has evolved a series of 
decision processes, which in practice have become highly 
compartmentalised. The Ministry is now saying it wants greater 
integration of these processes and Cabinet has approved this.
    Researchers report on stock assessment or other research projects 
in annual stock assessment working groups and plenaries to which 
stakeholders are invited. For the most part those who attend are from 
the Ministry, the research provider or from industry--usually only one 
environmental non-governmental organisation (NGO) if any can attend. 
Recreational fishers and customary Maori fishers rarely attend--partly 
because of the enormous time commitment required. The non-industry 
stakeholders are for the most part employed in other occupations and as 
voluntary organisations cannot attend long meetings stretching into 
days and weeks. Such meetings are however a feature of New Zealand 
fisheries management.
    Annually too there are meetings of a Research Coordinating 
Committee which discusses with the Ministry the future research needs. 
The non-industry science providers have been excluded from these 
meetings. The result is that the industry-hired scientists are able to 
have a considerable influence on the research agenda with the 
scientists who have done the work, principally from a state owned 
institute, unable to defend against any aspersions cast on their work.
    Environmental organisations' attempts to widen the research agenda 
from fisheries stock assessment to environmental assessment, the 
investigation of and control of the impacts of fishing, and the need to 
create no-take areas have had very limited success. Attempts to 
persuade the Ministry to mount a research agenda covering the operation 
of the Quota Management System, and legal, policy and compliance 
research have also failed (Environment and Conservation Organisations 
1996). This lack of non-biological research seems to be in part a 
matter of habit by the Ministry, in part pressure from industry to 
avoid research that leads to unwanted answers and in part a reflection 
of cost cutting. The budget pruning is not just because of the usual 
government restraint but because of the ``cost recovery'' policy. This 
requires the industry to share the costs of fisheries management and 
research --so the industry is quick to pressure for proposed research 
projects to be dropped.
    In 1986 when the QMS was introduced, fisheries management was 
conducted by one branch of the Ministry of Agriculture and Fisheries, 
fisheries research by another. Public Sector reforms (Boston et al, 
1991) generally and fishing industry pressure in particular have seen 
an evolution of this integrated administrative arrangement into 
separated parts and institutions. The fisheries researchers were sent 
off to a state research institute, the fisheries management side 
separated from Agriculture into a Ministry of Fisheries.
    In common with much of the rest of the New Zealand public service, 
many functions are now no longer done by officials but are contracted 
out to the private sector or to state research agencies. Since 1995 the 
Minister of Fisheries has commissioned a range of services from the 
Ministry, from research providers and others. This process has become 
increasingly formalised and elaborate. One reason for this has been the 
prevailing culture of public service managerialism and internal 
contracting and specification. A further reason has been escalating 
demands from the fishing industry for detailed specification of 
spending so that they can contest the costs of fishery management and 
research--of which they pay on average 70 percent.
    The Ministry runs its various consultation processes both at a 
regional and a national level--but to become a full participant 
organisations have to be Ministerially approved parties to 
consultations. National consultations are typically lopsided in 
participation. Commonly there are 10-20 industry members present, 1-2 
environmental representatives and 1-10 recreational representatives. 
Maori with commercial interests are represented via the Treaty of 
Waitangi Fisheries Commission, but customary Maori are on a different 
track of consultations altogether.
    The process of consideration of the fishery management and research 
services and the attendant process of cost recovery, has become a 
powerful driver of industry control over the Ministry and its work, 
though the industry considers the Ministry unresponsive to its demands. 
Fishing industry members see their demands as entirely reasonable 
accountability. Environmental and recreational fishing organisations 
see the system as a short route to industry capture of officials and 
the Minister and believe that these decision-makers are excessively 
influenced by the industry.
    At issue is a fundamental difference of viewpoints. Industry 
participants see themselves, the quota holders, as the primary 
``clients'' of the Ministry. As quota holders, export earners and 
revenue generators they perceive themselves to have greater political 
and legal rights and legitimacy.
    By contrast, environmental and recreational organisations consider 
that the industry is one among a number of users, albeit the one with 
well defined rights, and that the Ministry should be far more vigilant 
than it is in its role as protector of the environment and of other 
interests in society. From this viewpoint, industry influence on 
decision making is excessive and amounts to capture of the regulators 
by the regulated.

Devolution and Co-management
    In 1997 the government decided on further changes aimed at 
devolving to the fishing industry a number of key aspects of fisheries 
management and research. In 1998, under pressure from the fishing 
industry over the cost recovery system of charges, the government 
suspended the implementation of large chunks of the 1996 Act (but not 
the environmental requirements). The intent is apparently to hand over 
much more of the operation of the quota management system to the 
industry and to integrate decisions on catch limits, research and other 
spending. The changes by the government are in part a reflection of a 
strong disposition to minimise government and government spending. For 
some involved though, there is an implicit move to combine ITQs with 
co-management principles. Commercial fishers themselves are forming 
quota holding associations and companies. As of mid 1998 there were 21 
quota holders groups of various kinds, each related to a different 
fishery.
    Only in one or two cases are there effective governance 
arrangements in place. One, the Southern Scallop Enhancement Company 
has achieved a system of internal contracts such that they have agreed 
to fish at a catch limit lower than that set by government. But they 
have also opposed a reduction by the Government to this lower, more 
sustainable, level. The company has penalties for reneging on 
agreements. For the most part, the other groupings are much looser 
associations. Effective internal discipline has not been achieved, 
though the organisations are used for advocacy to government and within 
national industry organisations.

Further Specification of Rights of other Extractive Users
    There has been strong pressure from commercial interests on the 
government to create and confine explicit property rights for 
recreational fishers. The commercial fishers are anxious for 
recreationists to share management costs. Customary Maori fisheries 
management and fishing is in the process of much clearer definition in 
regulations. This is a joint product of the greater specification of 
extractive rights and of a more general recognition in New Zealand of 
Maori right to access resources.

Stocks and Catch Limits
    Fish stock health may have been helped by the QMS--but the reality 
for New Zealand is that for the most part we just do not know. It is 
probable that the QMS is helpful but not sufficient. TAC and TACC 
setting is prone to strong industry pressure for the elevation of catch 
limits or resistance to catch reductions. Even when there are strong 
recommendations from independent scientists for easing of fishing 
pressure, fisher representatives have been reluctant to agree.
    In the case of the northern snapper stock, the Minister tried in 
successive years to reduce the TACC to 3000 tonnes from a limit of 4938 
tonnes. This was in order to allow the stock to rebuild since it was 
judged by the stock assessment plenary to be just over half the size to 
support MSY, the legal target (Annala and Sullivan, 1997a). Industry 
responded with a series of legal injunctions to prevent TACC reductions 
and to gain compensation from the government should reductions be 
allowed.
    The Court of Appeal (CA82/97 & 83/97 Tipping J--NZ Fishing Industry 
Association and others vs Minister of Fisheries) eventually overturned 
the Minister's decision to reduce TACC on a relatively minor point of 
procedure. The Court dismissed key arguments made by the industry that 
their property rights were absolute (p16) and the argument that the 
Minister had no ability to change the shares of the TAC between 
commercial and recreational sectors. On the question of the extent of 
the property rights the Court said:

       ``While quota are undoubtedly a species of property and a 
valuable one at that, the rights inherent in that property are not 
absolute. They are subject to the provisions of the legislation 
establishing them. That legislation contains the capacity for the quota 
to be reduced. If such reduction is otherwise lawfully made, the fact 
that quota are a ``property right'', to use the appellants expression, 
cannot save them from reduction.''

    This judgement makes clear the adjustability of ITQ entitlements.
    On the question of the relative shares of the TAC, the Court ruled 
that the Minister had discretion to change the relative shares of the 
commercial and recreational sectors to the TAC, indeed that there is no 
requirement of proportionality in the 1983 or 1996 Acts. The court 
concluded that the law simply required the Minister to allow for each 
sector. This argument of proportionality is never invoked by the 
industry when the TACC is proportionately increased. In essence, the 
Court concluded that justice was done if due process was followed and 
the required matters considered in decision making. The Court further 
decided that the Minister is entitled to bear in mind changing 
population patterns and population growth (ibid, p18) and to cater for 
increased recreational fishing pressure.
    Industry opposition to TAC and TACC reductions or pressure to 
increase catch limits in the face of evidence that suggests declines in 
a stock seems to be a continuing part of industry behaviour. The 
ratchet effect of industry pressure can be seen in the 1997 round for 
setting catch limits and other controls. Of the 36 stocks discussed, 
the industry wanted catch limits increased for 5 for which limits were 
proposed to be left unchanged. They resisted proposals for limit 
reductions in 11 cases, advocated a lesser cut than proposed in 2 cases 
and wanted an increase for a further 3 stocks which the Ministry 
proposed to hold or increase. For 15 stocks the industry accepted no 
change. In no case did they propose a cut when one was not already 
suggested (Ministry of Fisheries, 1997b, 56-59). This pattern is 
familiar and can be found in other years. The main exception to this 
pattern has been the case of hoki where a segment of the industry fears 
that the elasticities are such that any increase in quantity on the 
market will depress total revenues. Thus a majority of fishers 
regularly oppose catch limit increases for hoki even when stocks look 
robust.
    The upward ratcheting behaviour suggests that industry discount 
rates are high--higher than that of other extractive users and non-
extractive users of fisheries resources. The high discount rate drivers 
appear to be related to a range of joint inputs--such as vessel loans.
    Changes in the law introduced in 1996 are aimed at making ITQs more 
bankable. One effect of this appears to be that fishers have become 
even more resistant to TACC reductions because their ITQs are part of 
their bankable assets and any reduction in tonnages represented implies 
a loss of asset backing for loans. Increased bankability of ITQ appears 
to be translating into greater risks to stocks.
    The capacity of the New Zealand Quota Management System to achieve 
environmental goals as not been demonstrated. Fish stock sustainability 
is unknown in the majority of cases. A few are thought to be at or 
above MSY, some are known to be well below it (eg most orange roughy 
stocks). For most, the state of the stocks just is not known: fisheries 
catch limits are often set on the basis of previous catch with little 
extra known. The National Institute of Water and Atmospheric Research, 
the government owned institute which houses the bulk of the fishery 
scientists, estimated in 1997 that of a total of 150 QMS stocks 
involving 30 species, 56 percent had stock status unknown with respect 
to MSY. The original biomass had been estimated for only 17 percent and 
current biomass and the biomass that would support the MSY was known 
for only 11 percent though the maximum constant yield had been 
estimated for 67 percent of the stocks (NIWA, 1997).
    Annual stock assessment documentation for the 1998-99 fishing year 
(Annala and Sullivan, 1997b, Annala et al 1998) reveals that of the 187 
stocks in the quota management system current biomass is known for only 
25 stocks (13 percent) and 13 of these (over 50 percent of known 
stocks) were below the biomass that would support the MSY. While there 
are other yield estimates for 55 percent of stocks, three-quarters of 
these are estimated from averaging catch. For 45 percent of stocks 
there are no estimate of biomass or yield. Of the 90 new stocks to be 
added to the QMS on 1 October this year there are no estimates of yield 
or current biomass for any of these stocks.

Research
    Despite the large gaps in knowledge, research effort meanwhile has 
decreased significantly. There are two main reasons for this. One is a 
cut back in deep-water species research trawls; the other is the system 
of cost recovery that New Zealand has used. One effect of the cost 
recovery policy has been a marked industry reluctance to agree to 
research: despite economic theory predictions that the industry would 
be concerned about the resource once they owned quota. Research funding 
has been slashed since the early 1990s.
    The Fisheries Research Budget, unadjusted for inflation, and minus 
the contracting costs since 1994/5 has been cut from NZ$22.75 million 
in 1991/2 to $13.34 million for the 1998/9 year as in Fig. 1.

               Fig. 1 Minister of Fisheries Research Budget, $NZ million, nominal values, excluding contracting and data management costs.
Financial Year                                       1991/2       1992/3       1993/4       1994/5       1995/6       1996/7       1997/8       1998/9
--------------------------------------------------------------------------------------------------------------------------------------------------------
Budget NZ$m                                           22.75        21.34        19.40        19.03        17.31        14.45        13.13        13.34
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Annual appropriations to, and approvals by the Minister of Fisheries.

    These are the budgets for research projects commissioned to assist 
the Minister of Fisheries in decision making under the Fisheries Act. 
They do not include research on fisheries impacts on conservation 
portfolio issues (seabirds and marine mammals--typically about $0.8 
million), nor figures for research undertaken privately by the fishing 
industry, fisheries research funded by universities or other by other 
public agencies. A figure between NZ$400,000 and $700,000 should be 
allowed for the costs of contract management. A small part of the 
decrease in research funding can be attributed to research programmes 
that the industry has commissioned directly and which have been 
displaced from the Minister's commissioned work--but this would be less 
than NZ$500,000. In 1993/4 fishing companies commissioned about $NZ11.2 
million of research but most of this was for market and product 
research and exploratory fishing, not for stock assessment or 
sustainability purposes (FORST, 1994; 11).
    Quota owning does not seem to have created strong incentives to 
care for the stocks. Industry opposition to spending money on research 
or controls on the environmental effects of fishing has been strong. In 
successive years, industry submissions have cited a variety of reasons 
for opposing research on the adverse effects of fishing on the 
environment. Few proposals have survived this industry opposition.

The Environment and the Fisheries Act 1996
    A series of legislative amendments occurred during the 1990s most 
of which related to the mechanics of the quota system, ITQs, balancing 
and so forth. A whole new Fisheries Act passed in 1996 has more 
explicit environmental requirements and the purpose (s8) is ``to 
provide for the utilisation of fisheries resources while ensuring 
sustainability''.
    Officially New Zealand fisheries management is conducted within the 
framework of environmental constraints (Fisheries Act 1996 sections 5,8 
and 9; Ministry of Fisheries, 1996). Though this is indeed a mandatory 
requirement of the Fisheries Act 1996, the attention given to those 
requirements by the Ministry and Minister of Fisheries is rhetorical 
rather than real.
    An official publication recently summed up some of the concerns 
about the Quota Management System's environmental limitations prior to 
the new Act:

       The other important environmental question about the QMS 
concerns its impact on non-target species and their ecosystems. Until 
the recent passing of the Fisheries Act 1996, the QMS had been 
relentlessly single-species in its focus, with each stock managed in 
isolation from the other species in the environment. When for examples, 
a stock was reduced by two-thirds to boost its yield, no account was 
taken of the other species in its environment.'' (Ministry for the 
Environment, 1997, 9.75).

    The 1996 Act has a more comprehensive purpose and principles 
section (see the boxes) than the 1983 Act. This spell out more 
particularly matters that must be had regard to. By June 1998, 20 
months after the coming into effect of these sections, the Ministry of 
Fisheries still had not published discussion papers on the meanings of 
the terms or work out how these terms are to be given operational 
meaning \5\. There is little evidence that the purpose and principles 
of the 1996 Act's are actually informing or guiding decisions on 
fisheries management or research, though these are often referred to in 
official statements.
---------------------------------------------------------------------------
    \5\ The Fisheries Act Implementation Project has addressed a wide 
range of issues and calls for such working papers to be developed. 
These were not given priority in the work plan and at the time of 
writing had not appeared.
---------------------------------------------------------------------------
    In the 1996/7 and 1997/8 rounds of consideration of catch limits 
and other sustainability measures, no provision was made in the 
consultation documentation for the mandatory environmental principles 
under the Act (section 9). Nor was there any explicit (or detectably 
implicit) consideration of the needs of future generations, which is a 
consideration required at the core of the sustainability provisions in 
the purpose of the Act. Section (8) also requires the avoidance, 
remedying or mitigation of any adverse effects of fishing on the 
aquatic environment but no mechanics have been created to achieve 
consideration of these. This language is familiar in New Zealand since 
it is borrowed from the New Zealand Resource Management Act 1991, and 
there it has judicial force.
    Neither since the Act was passed has there been provision of 
substance made in the budget for either of the financial years 1997/8 
or 1998/9 for substantial inquiry, research or policy advice on these 
matters. The Ministry of Fisheries in the 1998 consultation document on 
catch limits and other sustainability measures for the 1998/99 fishing 
year (Ministry of Fisheries 1998a) provided no regular or systematic 
consideration of potential or actual adverse effects of fishing 
methods, fishing in particular areas or ecosystem impacts. Though for 
several years environmental organisations have pressed for attention to 
these matters, no system for review of impacts of fishing on any but 
commercial fish stocks and high profile marine mammal and seabird 
populations has been established.
    The budgeting figures approved by the Minister in June 1998 
(Ministry of Fisheries, 1998b) allocate just NZ$4000 (about US$2,000) 
for operational policy advice to the Minister during the 1998/99 fiscal 
year (July-June) on the needs of future generations. The provision for 
operational policy advice on the adverse effects of fishing on the 
aquatic environment (distinct from effects on fish stocks) was just 
NZ$73,000--somewhat less than half the allocation for advice to the 
Minister on statutory appointments, which are few. It is a very small 
sum compared to the NZ$1.3-1.6 billion gross revenues from fishing 
industry exports and local sales. It is a very small figure indeed to 
give policy advice on fishing impacts in an Exclusive Economic Zone 
(EEZ) of 483 million hectares.
    Environmentally relevant provisions of the Act are set out in fig. 
2.
_______________________________________________________________________
    Fig. 2 Two environmental sections of the Fisheries Act 1996
Part II: Purpose and Principles
    Section 8: Purpose:
    ``The purpose of this Act is to provide for the utilisation of 
fisheries resources while ensuring sustainability.''
    ``Ensuring sustainability'' means
    (a) Maintaining the potential of fisheries resources to meet the 
reasonably foreseeable needs of future generations; and
    (b) Avoiding, remedying, or mitigating any adverse effects of 
fishing on the aquatic environment.
    ``Utilisation'' means conserving, using, enhancing, and developing 
fisheries resources to enable people to provide for their social, 
economic, and cultural well-being.
Section 9. Environmental Principles--
    ``All persons exercising or performing functions, duties, or powers 
under this Act, in relation to the utilisation of fisheries resources 
or ensuring sustainability, shall take into account the following 
environmental principles:
    (a) Associated and dependent species should be maintained above a 
level that ensures their long term viability:
    (b) Biological diversity of the aquatic environment should be 
maintained:
    (c) Habitat of particular significance for fisheries management 
should be protected.
_______________________________________________________________________
International Obligations Relating to Fishing
    The Act further requires that fisheries management be consistent 
with New Zealand's international obligations relating to fishing. The 
Ministry has refrained from clarifying what it considers to be included 
in this category of obligations--but has only asked for funds for work 
relating to fishing agreements and trade agreements. Environmental 
organisations consider that the category includes the UN Convention on 
the Law of the Sea (UNCLOS), the Convention on Biodiversity (CBD), 
Agenda 21, CITES and such global or regional agreements which though 
not fishing agreements never the less relate to fishing. Regional 
agreements include the Convention on the Conservation of Southern 
Bluefin Tuna and the Convention for the Prohibition of Fishing with 
Long Driftnets in the South Pacific. To the extent that these contain 
requirements for environmental care, then New Zealand decisions must be 
conditioned by these requirements. While Australia has prepared a 
report on its international obligations, New Zealand has yet to tackle 
this (Herriman et al, 1997).

The Treaty of Waitangi
    The Act also requires consistency with the 1992 Act that cemented 
the deal between Maori and the Crown in which quota was given to Maori 
along with the share in the Sealords company. There is not space here 
to explore this dimension of the Act further since it is rather 
complicated.

Information
    The information principles require decisions to be based on the 
best available information (s10(a)), require decisions to reflect 
uncertainty (s10(b)) and contain the essence of the precautionary 
principle (s10(c)&(d)).
    The industry has frequently opposed research projects and then 
argued that TACC reductions should not occur because there is no 
evidence of a problem. This subsection seems designed to halt such risk 
taking behaviour. In discussions on fisheries management decisions 
since the Act was passed debate has turned to this section of the Act, 
but it is not clear that any specific decision has been moderated by 
it. The industry in turn has argued that since the purpose of the Act 
is utilisation of fisheries resources, any uncertainty about stocks or 
the environment should not be used to limit catches. It is this 
author's view that that is a misinterpretation of the Act. There is 
also a dispute between the Ministry of Fisheries and environmental 
organisations as to whether provision for non-extractive uses is 
required.
    Fisheries management under the QMS depends crucially on the quality 
of the information on catch, effort, catch against quota, and other 
data. A major issue to emerge in the New Zealand moves to devolve 
research and the administration of the quota management databases to 
the private sector and the fishing industry, is the effect that this 
could have on the quality of information. Non-industry participants are 
united in their apprehension that crucial data may be contaminated, 
biased or become inaccessible to other parties.

Enforcement and Compliance
    One of the motivators for the move from a regulatory approach to a 
self-management approach is the concern that this may improve 
compliance. On-the-water enforcement is very expensive for a country 
with a long coastline and large EEZ. For this reason the QMS supposedly 
uses a ``paper trail'' approach where fishers must sell product to a 
licenced fish receiver and record keeping by all parties in the chain 
is supposed to make cheating difficult. Human ingenuity is such that a 
number of schemes for non-compliance have flourished. Further, the 
Ministry of Fisheries' effort at enforcement and auditing all but 
collapsed so that in 1997 there was only one chance in 50-100 years 
that an audit would be done on any operator. Cheating, high grading, 
dumping and illegal sales have not disappeared. An amendment to the 
regulations in 1997 now requires that fishers provide privately 
commissioned audits of their books. The government hopes that quota 
owner associations or companies will provide a system of industry 
internal enforcement.

CONCLUSIONS
    As always, the New Zealand experience of the quota management 
system is in evolution. What can we say about it so far? Since we do 
not, by the nature of the experience, have a counter factual as to what 
would have happened if New Zealand did not have a QMS, it is difficult 
to be too dogmatic about the outcomes. It is probably safe to say that 
the QMS and more recent evolution towards quota holder groups may have 
helped to diminish the tragedy of open access. It is clear though that 
on its own it is insufficient to provide good environmentally safe 
fisheries management.
    The QMS may have helped but in other ways it has posed its own 
quite serious problems. It is probably also safe to say that the QMS 
has intensified the stratification of fisheries management into single 
stock management. One effect has been that both officials and industry 
came to see area, method or other input controls as illegitimate--
albeit many such have remained on the books, largely unenforced. This 
has meant that particular human and ecological communities have 
suffered considerably from hot spotting of environmental effects and 
local depletion or habitat degradation.
    The QMS has also provided for very lop-sided decision making and 
political dynamics because of the distortion to the legal and political 
position of commercial fishers with legally defined rights against 
other users and the environment itself. This has had pernicious 
consequences for the environment, for other users, extractive and non-
extractive, and for the future. Co-management arrangements may 
strengthen management of stocks that are not subject to pressures to 
mine them but are subject to the race to fish. Such governance 
arrangements will not in the end remove the pressures to mine a 
resource when stock recovery rates are low, prices high and discount 
rates are high.
    Co-management in the New Zealand context has to a large extent 
served as a Trojan horse for the capture by the industry of fisheries 
management at the expense of other users--but the cost recovery 
mechanism did a lot to assist this process of capture.

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                                 ______
                                 
             United Fishermen's Marketing Association, Inc.
                                     Kodiak, AK, September 17, 2000
Senator Ted Stevens,
U.S. Senate,
Washington, DC.
   Re: Legislation that Mandates Processor Sector IFQs For 
                                  BSAI Crab Rationalization

Dear Senator Stevens,

    We understand that several participants of the Bering Sea/Aleutian 
Islands (BSAI) crab industry advocate legislation that mandates the 
North Pacific Fishery Management Council (Council) to incorporate 
provisions for the allocation of ownership rights of BSAI crab to the 
processor sector (``Processor IFQs'', or some variation of the ``2-
Pie'' concept). The proponents advocate that such legislation should be 
passed by Congress within the next few weeks prior to Congressional 
adjournment. We further understand that Congressional leaders have 
indicated to the proponents of such legislation that a consensus should 
be sought and achieved by mid-September from the BSAI crab industry 
with respect to any legislative proposal that mandates BSAI crab 
Processor IFQs (we presume that the ``industry'' refers to processor 
and harvester sectors, from within Alaska, as well as from outside of 
Alaska).
    The United Fishermen's Marketing Association (``UFMA'') represents 
BSAI and GOA crab harvesters (as well as halibut and black cod 
longliners, p. cod pot fishermen and salmon and herring seiners), and 
has represented such crab harvesters with respect to many significant 
issues that impact the conservation and management of the BSAI crab 
fisheries. UFMA is the only Alaska-based crab organization among the 3 
associations that are generally recognized to represent crab 
harvesters.
    UFMA supports the rationalization of the BSAI crab fisheries 
through the application of Harvester IFQs that are developed through 
the Council process. We do not support legislative mandates or other 
strong Congressional direction with respect to the details, components 
or scope of regional rationalization solutions. We do not support 
Processor IFQs.
    There has been no consensus within the BSAI crab industry on this 
issue. In fact, there is significant discord and objection within the 
BSAI crab industry with respect to the concepts of Processor IFQs, and 
Congressional legislation that mandates provisions of regional 
rationalization. This was evident at the recent September Council 
meetings in Anchorage, AK, when a proposal that was developed by a 
small group of BSAI crab harvesters in support of Processor IFQs was 
not endorsed by a significant representation of BSAI crab harvesters, 
and further, was not supported by BSAI crab processors, or by the ad 
hoc BSAI Crab Rationalization Committee. I have been involved in 
consensus building activities in several broad and varied arenas for 
much of my adult life, including the 22 years that I have represented 
UFMA. I can assure you that any attempt to indicate or portray that 
even a semblance of consensus seeking or compromise was attempted or 
present during the past several months with respect to BSAI crab 
rationalization is not accurate.
    We note that a detailed plan that apparently formed the basis, and 
contained the details, of the proposed legislative initiative was only 
made available to a select group within the industry on September 1. 
Most of the stakeholders and affected parties are still unaware of the 
content, details and direction of the legislative proposal to mandate 
Processor IFQs. Please note that 2 Kodiak processors have written 
letters objecting to the concept, and to the process.
    In a letter to Secretary of Commerce Mineta (September 9, 2000) 
that was unanimously approved by the Council the day after the meeting 
of the ad hoc BSAI Crab Rationalization Committee, the Council clearly 
expresses their desire and interest to address BSAI crab 
rationalization at the Council level:

       `` . . . to assure you that this Council is committed to . . . 
developing . . . rationalization measures for the crab fisheries, 
perhaps through an IFQ type program or fishery cooperatives . . . We 
believe that if the moratorium is lifted, for Bering Sea crab or any 
other fisheries, that development of such programs remain in the 
purview of the Council process. Only through the deliberative, public 
process embodied by the regional Council system can the interests of 
all stakeholders be adequately considered and addressed, including 
harvesters, processors, coastal communities, and others. Important 
management considerations at the federal and state level can also be 
appropriately accommodated through this process.''

I. The Council as the Venue for Regional Conservation and Management 
        Decisions
    The Council should be respected as the only venue for recommending 
regional conservation and management solutions generally, and 
specifically, with respect to BSAI crab rationalization. This was the 
experience with respect to the development of the Halibut/Sablefish IFQ 
Program. A legislative mandate to the Council from Congress to 
incorporate BSAI crab Processor IFQs (e.g., ``2-Pie'' IFQs, co-ops, 
etc.) in a BSAI crab rationalization plan is not warranted, nor 
desirable. The Council process, with its attendant provisions for 
public input, requirements for analysis, and opportunity for 
Secretarial Review, is the preferable venue to address the issue of 
BSAI crab rationalization. The Council role in the design and 
development of regional conservation and management initiatives should 
be strengthened and supported, rather than weakened. We note that the 
Council has previously communicated their intention to address BSAI 
crab rationalization in 2 prior letters to the Secretary (9/9/00 and 4/
25/00).
    A significant element of the BSAI crab fleet is unaware of the 
initiative for Congressional action that mandates the inclusion of 
Processor IFQs in a BSAI crab rationalization program. Many more are 
unaware of the significant policy provisions and other details that are 
part of the proposed legislation. The legislative process generally, 
and especially during the last weeks of this Congress, does not provide 
the affected parties and stakeholders with the same level of access, or 
the opportunity for comment and input, as does the Council process.
    We are concerned that the major policy and economic implications, 
and operational details of BSAI crab rationalization may not be 
available for public assessment and analysis; that is, the same 
thoughtful and deliberative review that is otherwise attempted and 
available with respect to the processes that govern customary 
legislative action (e.g., bicameral review, committee review, MSA 
hearings, debate, submission of comment and testimony, markup, reports, 
etc.), or other purely Council-led initiatives (e.g., Council Halibut/
Sablefish IFQ program, etc.).
    We are informed that some proponents of the subject Congressional 
mandate advocate a directive to the Secretary of Commerce (Secretary), 
absent Council action, to impose a BSAI crab rationalization plan that 
includes Processor IFQs by September 1, 2001. We have general 
trepidation to Washington D.C. lobbyists managing the details and 
solutions with respect to complex regional management plans. We are 
equally disquieted by the specter of federal bureaucrats, with the 
ready access and assistance of the same Washington, D.C., lobbyists, 
designing and imposing a Secretarial IFQ Plan for the BSAI crab 
fishery, and that, further, incorporates the precedent of Processor 
IFQs.
    Rationalization of the BSAI crab fishery will be very complex. It 
appears that the majority of BSAI crab harvesters do not want an AFA-
style structure for BSAI crab rationalization. BSAI crab harvesters do 
not want to be tied to a processor. BSAI crab harvesters do not want a 
closed class of processors. The BSAI crab industry has different 
complexities than the BSAI pollock fishery. The BSAI crab fishery 
includes several more processing entities than did AFA, approximately 
370 harvesters, multiple management areas, and several crab species, 
each of which has experienced significantly different fluctuations in 
abundance, and each of which face significantly different expectations 
for future productivity. This is in stark contrast to the single 
species, single area, stable resource, limited number of vessels, and 
few processors that were addressed in the American Fisheries Act. If 
Congress intends to mandate specific details of rationalization in the 
BSAI crab fisheries, including the precedential inclusion of Processor 
IFQs, then we respectfully request that Congress also strictly and 
completely address the details of regulating Processor IFQs.

II. BSAI Crab Vessel Buyback
    We support an appropriation of federal funds for a BSAI crab vessel 
Buyback program. Overcapitalization in the BSAI crab fleet is well 
documented and recognized, and has been the subject of several prior 
actions by the Council and the Secretary. A BSAI crab vessel Buyback 
program should be structured to permanently remove fishing history. It 
should permanently remove vessels from the BSAI crab fishery, and from 
all other BSAI and GOA fisheries, including halibut fishing, salmon and 
herring tendering, etc. There is significant concern among vessel 
owners who are not involved in the BSAI crab fisheries that any vessels 
that may be removed from the BSAI crab fisheries through a Buyback 
program will enter other fisheries in the BSAI and GOA, and create new 
capitalization problems, therefore, impacting whatever economic 
equilibrium may exist in such GOA and BSAI fisheries, and in other 
vessel related endeavors (i.e., salmon and herring tendering, etc.).
    The decision of whether and how to provide federal appropriations 
for a BSAI crab vessel Buyback program should be based on the merits of 
those issues that directly address the issue of overcapitalization of 
the BSAI crab fleet, the associated conservation, management safety and 
economic concerns thereof, whether federal funds are appropriate for 
the purpose of addressing this overcapitalization, and the issues of 
how BSAI crab Buyback will impact overcapitalization in other GOA and 
BSAI fisheries and vessel related endeavors.

III. BSAI Crab Vessel Buyback as Associated with BSAI Crab Processor 
        IFQs
    An appropriation of federal funds for a BSAI crab vessel Buyback 
program should be based on its own merits, on a fair and reasonable 
evaluation of the rationale and expectations for the costs and benefits 
that result from such legislation, and should not be tied to other 
Congressionally mandated actions that address initiatives for regional 
conservation and management plans (i.e., Congressional mandate for 
Processor IFQs). Legislation that addresses fleet overcapitalization 
should not be tied to whether the BSAI crab fleet, or a portion 
thereof, agrees to other unassociated legislation that intends to 
mandate BSAI crab Processor IFQs. These are two very separate and 
unassociated initiatives, and the decision to do the right thing and 
appropriate federal funds to address vessel overcapitalization in the 
BSAI crab fleet should be based on a rational and focused consideration 
of such overcapitalization, the history, literature and demonstrated 
existence of such overcapitalization, the impacts of such 
overcapitalization on the conservation and management of the resource, 
and on the safety, economic and business concerns of the BSAI crab 
fleet (i.e., approximately 370 small businesses).
    We do not support tying, binding or otherwise connecting BSAI crab 
Buyback legislation to any other legislation that mandates the Council 
to develop Processor IFQs.

IV. Kodiak Processors are Disenfranchised by Processor IFQs for BSAI 
        Crab
    Kodiak processors have a past and future stake and investment in 
processing BSAI crab, and, therefore, in any initiative that addresses 
Processor IFQs. Kodiak processors have historically provided important 
competitive markets to harvesters for the sale of BSAI crab. The 
opportunity to purchase and process BSAI crab provides important 
commercial activity for the Kodiak processor sector, the Kodiak 
community in general, processing workers, Borough and City governments 
(i.e., fish tax revenues, sales tax revenues from increased commercial 
activity, etc.), support industries, etc.
    The proposed legislation that intends to mandate Processor IFQs 
should not disenfranchise Kodiak processors from offering competitive 
markets to harvesters. Harvesters need the market option that is 
represented by the Kodiak processing sector, especially when the 
Guideline Harvest Level (GHL) for several species of BSAI crab begin to 
recover. Kodiak processors should have equal opportunity for access as 
BSAI resident processors to purchase and process BSAI crab. Kodiak 
processors should not be limited in their ability to purchase BSAI 
crab. As previously noted, at least 2 Kodiak processors have filed 
objection to the initiative to legislatively mandate Processor IFQs.
    Kodiak processors have been, and will continue to be, impacted by 
the consequences of the American Fisheries Act (AFA). BSAI crab 
Processor IFQs will provide additional benefits and enrichment to that 
component of the AFA processor sector that also process BSAI crab, and 
will further diminish the options and economic stability of the Kodiak 
processor sector.
    Kodiak processors have had a variable history of purchasing BSAI 
crab, and their ability to purchase BSAI crab has been impacted by the 
length of season, the amount of the Guideline Harvest Level (GHL), the 
regulations that govern the time period for the removal of gear from 
the grounds after the closure of a crab season, weather in the BSAI, 
weather in the Gulf of Alaska (GOA), ex-vessel prices in the BSAI and 
Kodiak, whether the season is open long enough to permit harvesters to 
deliver to Kodiak and return to the BSAI fishing grounds prior to the 
season closure, etc. In recent years, low BSAI crab GHLs have 
significantly reduced the ability of BSAI crab harvesters to deliver 
crab to Kodiak.
    The eligibility requirements and allocation formulas that have been 
suggested as the basis for the proposed legislation that intends to 
mandate Processor IFQs disenfranchises Kodiak processors, and 
significantly limits the ability of harvesters to sell crab to Kodiak 
processors, and of Kodiak processors to purchase and process BSAI crab.

V. A Viable Processor Sector Is Important and Essential to the 
        Preservation of Competition
    UFMA clearly understands the significance and importance of the 
processing sector to the harvester sector, to the communities in which 
processors are located, to the states of Alaska, Washington and Oregon, 
and to the nation. UFMA respects, understands and supports the 
processor sector desire for economic stability.
    Our respect, awareness and understanding of the economic needs of 
the processor sector extend to include our concern for the special 
economic needs and competitive position of the small-to-medium size 
BSAI processors. Our concern also extends to the economic needs and 
competitive position of those processors who were not beneficiaries of 
the capitalization, economic benefits, and protection from competition 
that was bestowed upon several BSAI crab processors through provisions 
of the AFA. If Processor IFQs are mandated in legislation, or otherwise 
adopted, then the provisions that govern allocation, ownership, 
transferability, etc. of such Processor IFQs should provide 
differentially preferential benefits to the non-AFA processor sector 
(including Kodiak processors) to equilibrate the relative competitive 
positions, and access to the BSAI crab resource, of non-AFA processors 
as compared to AFA processors.
    Processor IFQs forebode significant impacts, and require careful 
scrutiny and analysis; the rationale for such should be carefully 
reviewed, documented and analyzed. If Processor IFQs are legislatively 
mandated without thorough and thoughtful consideration of the policy 
implications, or of the controls, restraints, constraints, safeguards, 
and other elements and details of a complete package that governs, 
regulates and constrains the impacts of Processor IFQs, we fear that 
the viability and overall competitiveness of the entire processor 
sector and industry may suffer.
    The denial of Processor IFQs is essential to the continuation of a 
competitive and viable processor sector, and industry.

VI. Harvester IFQs are Needed, Warranted and Justified in the BSAI Crab 
        Fishery
    Legislation that clarifies the ability of the Council to continue 
to move forward with BSAI crab rationalization in the harvester sector, 
and that provides funds to develop the required analyses of such, is 
needed, warranted, justified and desirable. We ask that clarification 
be provided to support our understanding that the Council, absent an 
exemption from a Congressional Moratorium on the implementation of IFQ 
programs, is still permitted to proceed with the thoughtful and 
deliberative development of a BSAI crab rationalization program.
    The need for further rationalization of the BSAI crab harvester 
sector is clear, and has been frequently demonstrated in the 
literature, and through the presence of those many factors that are 
customarily used as the rationale for Harvester IFQs. Several prior 
actions, and pending actions, by the Council, the National Marine 
Fisheries Service (NMFS) and the Secretary have recognized the need 
for, and have addressed, BSAI crab rationalization in the harvester 
sector (i.e., BSAI crab LLP, BSAI crab LLP recency requirements, vessel 
moratorium, etc.). Rationalization in the BSAI crab harvester sector 
addresses demonstrated and documented needs with respect to 1) 
overcapitalization; 2) conservation, management and resource concerns 
and benefits; 3) the ability to address conservation, management and 
resource concerns and benefits by addressing harvester 
overcapitalization; 4) vessel and human safety; 5) economic stability 
for approximately 370 small businesses (not the less than 15 businesses 
that make up the processor sector); etc.

VII. Processor IFQs Are Not Justified, Supported or Warranted
    Processor IFQs are unwise, unnecessary, and the need for such has 
not been demonstrated. There is no literature that indicates 
overcapitalization in the BSAI processor sector, generally, or in the 
BSAI crab processor sector, specifically. There is no reasonable 
precedent for Processor IFQs, especially when consideration is given to 
the overall factors that exist in the BSAI crab industry, including 
overall structure, general ownership structure, foreign ownership 
structure, small number of processor entities, large number of 
harvester entities, government sponsored capitalization and protection 
from competition that results from AFA, etc.
    The Council or the Secretary have not recognized, identified or 
considered the concept of overcapitalization in the BSAI crab processor 
sector as an important issue. The Council or the Secretary have not 
taken prior action to address overcapitalization in the processor 
sector as they have with respect to the BSAI crab harvester sector. The 
processor sector has not previously demonstrated, or made the case for, 
overcapitalization in the processor sector.
    It is important to note that many BSAI crab processors will receive 
significant ownership of Harvester IFQs as a result of their ownership 
interest in vessels that will qualify for Harvester IFQs.
    Most participants in the BSAI crab processor sector also 
participate in the processing of most of the other BSAI fishery species 
(e.g., pollock, pacific cod, flatfish, atka mackerel, rockfish, salmon, 
herring, crab, etc.); therefore, it appears impossible that a 
determination of overcapacity can be made in the processor sector 
overall, or in the BSAI crab processor sector, specifically. Add to 
this complexity the fact that several participants of the BSAI 
processor sector also own and operate processing plants that process 
the array of fishery species in the GOA. Standards for making the 
determination of overcapacity in the processor sector should be 
carefully developed and agreed upon, and based on a public process, and 
the application of valid economic principles and theory before an 
arbitrary determination of overcapitalization is made. If a finding of 
overcapitalization in the BSAI crab processor sector can be 
successfully argued, a discussion must then follow with respect to the 
alternatives that are available to remedy the circumstances that 
supported such a finding. Processor IFQs should not be the only 
predetermined solution to address whatever circumstances exist to cause 
such a finding.
    The elements that are generally required to justify the application 
of IFQs to the harvester sector are not present with respect to the 
BSAI crab processor sector; that is, 1) overcapitalization; 2) 
conservation, management and resource concerns and benefits; 3) the 
ability to address conservation, management and resource concerns and 
benefits by addressing harvester overcapitalization; 4) vessel and 
human safety; 5) economic stability for approximately 370 small 
businesses (not the less than 15 businesses that make up the processor 
sector); etc.
    The concept that is labeled as Processor IFQs (i.e., 2 Pie IFQ 
system) is really not an issue of rationalization or traditional IFQs. 
Rather, it is a concept that predominantly advances the economic 
allocation of a public resource to a small number of entities, many of 
whom are foreign owned, dominant, multidimensional, multinational, or 
otherwise economically enhanced by AFA. Processor IFQs represent 
economic protection rather than rationalization. Processor IFQs are 
very different than Harvester IFQs. Processor IFQs are not 
rationalization.

VIII. North Pacific Halibut/Sablefish IFQ Program as a Model for BSAI 
        Crab Rationalization
    BSAI crab should be rationalized in much the same manner as the 
halibut and sablefish fisheries have been, that is, through the 
allocation of Halibut and Sablefish Harvester IFQs. The Halibut/
Sablefish IFQ program was the result of several years of public input, 
hearings, development, modification, analysis and review. While UFMA 
was very concerned about the economic and social impacts that were 
intended and expected to result from the Halibut/Sablefish IFQ program 
(and identified in the Environmental Impact Statements, and other 
analysis documents), we believe that the program has generally worked 
well for the industry, the consumer and the nation. Conservation and 
management of the halibut and sablefish resources, vessel and 
individual safety, product quality, economic stability for several 
thousand small businesses, consumer satisfaction and acceptance, 
product distribution, economic efficiencies, price mechanisms, economic 
return, etc., have all been significantly advanced as a result of the 
Halibut/Sablefish IFQ program. The Council and the Secretary took great 
care to address issues of ownership caps, leasing, transferability, 
product quality, foreign ownership, excessive control, etc. when they 
developed the Halibut/Sablefish IFQ program. UFMA believes that there 
are many successes and lessons with respect to the overall structure of 
the Halibut/Sablefish IFQ program that the Council could use as a 
template for BSAI crab harvester IFQs.
    Unfortunately, several halibut processors who were traditionally 
prominent with respect to the purchase, processing, distribution and 
sale of halibut have lost position in one or more of these areas since 
the implementation of the Halibut/Sablefish IFQ program. There is 
approximately as much halibut being harvested and processed now as 
there was prior to the implementation of the Halibut/Sablefish IFQ 
program. The current processor sector participants in the halibut 
industry have somehow adjusted to the market, price structure, 
economics, buyer and consumer preferences, efficiencies, cost 
structure, distribution mechanisms, etc. that are ever changing in the 
halibut fishery. Fortunately, many of the processors who have lost 
position in the halibut industry still have the opportunity to adapt, 
adjust, improvise and compete.

IX. Anti Competitive Implications of Processor IFQs
    Processor IFQs are a non-traditional ownership mechanism with 
significant anticompetitive implications that should warrant careful 
scrutiny and analysis. The limited field of BSAI crab processors append 
the need for analysis and understanding. Careful consideration and 
study must be given to issues such as excessive control, combinations 
and concentrations, market dominance, free and open market mechanisms, 
consumer price mechanisms, ex-vessel and revenue-sharing price 
mechanisms, mergers, acquisitions, etc. The processing sector exerts 
almost complete control over the means of production and distribution, 
including product form, research and development of products and 
markets, marketing, sales, wholesale and distribution decisions, end 
user and targeted-consumer decisions, etc. The harvester sector exerts 
control over finding, harvesting, delivering and selling BSAI crab at 
an ex-vessel price to a field of few buyers. Processor IFQs provide 
additional market power and capitalization on top of that which is 
afforded to those processors who are beneficiaries of the American 
Fisheries Act.

X. Legislation
    If Congress considers legislation that mandates the Council to 
include specific provisions for BSAI Crab Rationalization, including 
Processor IFQs, we suggest that the following be included in such 
legislation:

Sec. 1. Definitions.
    As used in this Act--

     (1) ``ADF&G'' means the Alaska Department of Fish and Game,

     (2) ``BSAI'' means the Bering Sea and Aleutian Islands as 
identified in the Fishery Management Plan for BSAI crab,

     (3) ``FMP'' means Fishery Management Plan for BSAI crab

     (4) ``FTC'' means the Federal Trade Commission

     (5) ``GHL'' means the annual Guideline Harvest Level as defined by 
ADF&G for a specific species and management area in the BSAI crab 
fisheries,

     (6) ``Harvester IFQs'' means

     (7) ``Harvester IFQ Pool'' means

     (8) ``IFQ Processor'' means a processor who receives an initial 
allocation of Processor IFQs, or who in any way, at any time, acquires 
Processor IFQs,

     (9) ``Non-IFQ Processor'' means a processor who is not eligible to 
receive, or who does not otherwise receive, an initial allocation of 
Processor IFQs,

     (10) ``Open Processor Pool'' means the amount of BSAI crab that is 
allocated from the GHL for a specific BSAI crab species and management 
area for use by all Processors,

     (11) ``Processor'' means

     (12) ``Processor IFQ Pool'' means the amount of BSAI crab that is 
allocated from the GHL for a specific BSAI crab species and management 
area for allocation to IFQ Processors,

     (13) ``Processor IFQ Implementation Date'' means the first date on 
which any Processor IFQ Program that may be recommended by the Council, 
and approved by the Secretary, is operational.
Sec. 2. Procedures For Review and Consideration of Processor IFQs.
     (1) The Secretary shall not consider an FMP Amendment or 
Regulations for Processor IFQs unless:

       (A) The Council votes to recommend an FMP Amendment for 
Processor IFQs to the Secretary, and

       (B) All requirements as set forth in (2) of this Section are 
met, and

       (C) The FMP Amendment and Regulations are subject to all 
customary requirements for regulation and analysis that govern the FMP 
Amendment Process, NEPA, Secretarial Review, and Federal Rulemaking.

    (2) The Council shall not recommend Processor IFQs to the Secretary 
as an FMP Amendment unless:

       (A) The Council has fully developed several options and 
alternatives that are customarily required prior to a Council vote to 
recommend an FMP Amendment to the Secretary, and

       (B) Such options and alternatives are subject to the analyses 
that are customarily required by the Council, NMFS and the Secretary 
for FMP Amendments and regulatory action, and that govern the FMP 
Amendment process, NEPA, Secretarial Review, and Federal Rulemaking, 
and

       (C) The Council approves such recommendation of Processor IFQs 
by no less than a 3/4 vote of the Council in favor of the Processor IFQ 
FMP Amendment package, and

       (D) The FTC provides the Congress, the Secretary and the Council 
with:

         (i) a full scale review of the options, alternatives and 
analyses that are required in (2)(A) and (B) of this Section with 
special attention given to the operation, effects and impacts of BSAI 
Crab Processor IFQs on free and open competition and markets, price 
mechanisms, costs, distribution of rents, and other competitive 
mechanisms, and

         (ii) a finding that the Processor IFQs FMP Amendment Package 
will have no deleterious impacts on free markets and vigorous 
competition in the BSAI crab industry, and

         (iii) a comprehensive written report that documents the review 
and finding that are required in (2)(D)(i) and (ii) of this section, 
and

         (iv) a full scale review, analysis and comprehensive written 
report that examines the quantification, economic and social impacts, 
and the impacts on free and open competition and markets of:

           (I) Processor ownership interest in BSAI crab harvesting 
vessels, and

           (II) Processor ownership interest in BSAI crab fishing 
history, and

           (III) The percentage of Harvester IFQs that will be 
allocated to the processor sector as a result of processor sector 
ownership interest in BSAI crab vessels and BSAI crab fishing history, 
and

           (IV) The general impacts of Processor IFQs on the BSAI crab 
harvester sector, and

         (v) a finding that the processor sector ownership interest in 
BSAI crab harvesting vessels, BSAI crab fishing history, and the 
percentage of Harvester IFQs that may be allocated to the processor 
sector as a result of processor sector ownership interest in BSAI crab 
vessels and BSAI crab fishing history will have no deleterious impacts 
on free markets and vigorous competition in the BSAI crab industry, and

         (vi) recommendations that preserve competition and free 
markets in the BSAI crab processor sector and in the BSAI crab 
harvester sector.
Sec. 3. Operation of Processor IFQs.
    Any Processor IFQ program that the Council may recommend to the 
Secretary as part of a BSAI Crab Rationalization Program, and that the 
Secretary may approve,

     (1) Shall not include an allocation of more than 30 percent of the 
GHL to the Processor IFQ Pool for any BSAI crab species or management 
area in any year, and

       (A) any IFQ Processor may purchase and process crab from the 
amount that is allocated to the Processor IFQ Pool, and

       (B) A Harvester may sell BSAI crab to any IFQ Processor that is 
duly authorized to purchase BSAI crab until such time that the 
Processor IFQ Pool is depleted,

     (2) Shall include an allocation of no less than 70 percent of the 
GHL to the Open Processor Pool for any BSAI crab species or management 
area in any year, and

       (A) any Processor that meets the requirements of the State of 
Alaska that are customarily required to purchase and process BSAI crab 
may purchase and process crab from the amount that is allocated to the 
Open Processor Pool, and

       (B) A Harvester may sell BSAI crab to any Processor that is duly 
authorized to purchase BSAI crab from the Open Processor Pool.

     (3) An IFQ Processor may not own, hold, acquire, attempt or intend 
to acquire, or in any way control, receive by sale, allocation, or 
other transfer device Processor IFQs in excess of 15 percent of the 
aggregate Processor IFQ Pool for any species and management area, 
except that,

       (A) An IFQ Processor may receive an initial allocation of 
Processor IFQs in excess of 15 percent of the aggregate Processor IFQ 
Pool for any species and management area if such IFQ Processor earned 
such percentage as a result of the formula that is used as the basis 
for the calculation and distribution of Processor IFQs to all other IFQ 
Processors, and

       (B) An IFQ Processor that changes its ownership structure must 
divest itself of all Processor IFQs that it owns or otherwise controls 
in excess of 15 percent of the aggregate Processor IFQ Pool for any 
species and management area. (Note: Provisions in the Halibut/Sablefish 
IFQ Program that regulate individual, area and vessel caps, and the 
manner in which changes in the ownership of an entity impact the 
ability of such entity to own in excess of these caps, should be 
included in the provisions that govern those caps that are applied to 
the Processor IFQ Program)

     (4) A merger, acquisition or other combination that includes 2 or 
more IFQ Processors must be approved by the Federal Trade Commission, 
and reviewed by them for the potential impacts to competition that such 
merger or acquisition may pose.
Sec. 4. Processor Eligibility to Own Processor and Harvester IFQs.
     (1) A Processor may not receive an initial allocation of Processor 
IFQs, and may not, in any way, or at any time, acquire, negotiate or 
otherwise engage in any activity that intends to acquire Processor 
IFQs, if such Processor receives, holds, owns or otherwise controls, or 
receives by sale or other transfer device, Harvester IFQs, except that,

       (A) A Processor shall be eligible to receive by initial 
allocation such Harvester IFQs that such Processor may have earned as 
of December 31, 1999, through ownership in a vessel,

       (B) Harvester IFQ's that are earned by a harvesting vessel that 
has been purchased by a Processor after December 31, 1999, shall be 
allocated to the owner-of-record of the harvesting vessel during the 
time period that such Harvester IFQs were earned, unless the 
disposition of such Harvester IFQs are otherwise provided for in a 
sales agreement that governs the sale of the subject vessel, except 
that,

         (i) Any sales agreement that governs the sale of a vessel to 
an IFQ Processor after December 31, 1999, and which grants the fishing 
rights to such IFQ Processor, is herewith declared null and void by 
this Section, and

         (ii) such Harvester IFQs that are the subject of such sales 
agreement shall be deposited into the Harvester IFQ Pool,

     (2) A Processor that holds an ownership interest in a vessel that 
is used in the harvest of crab may not own, hold, acquire, attempt or 
intend to acquire, or in any way control, receive by allocation, sale 
or other transfer device Processor IFQs or Harvester IFQs unless such 
Processor first divests itself of all ownership interest and control of 
any such vessel,

     (3) A Processor that has more than ?? percent of foreign ownership 
interest may not own, hold, acquire, attempt or intend to acquire, or 
in any way control, receive by sale, allocation, or other transfer 
device Processor IFQs. (Note: Provisions that restrict foreign 
ownership of Halibut/Sablefish IFQs should be included in the 
provisions that govern the ownership of BSAI Crab Processor IFQs).

     (4) A Processor that has more than ?? percent of foreign ownership 
interest may not own, hold, acquire, attempt or intend to acquire, or 
in any way control, receive by sale, allocation or other transfer 
device Harvester IFQs. (Note: Provisions that restrict foreign 
ownership of Halibut/Sablefish IFQs should be included in the 
provisions that govern the ownership of BSAI Crab Processor IFQs).
Sec. 5. Transfer, Sale and Lease of Processor IFQs.
    Processor IFQs are transferable by sale, trade, barter or other 
means of transfer device, except that the leasing of Processor IFQs in 
an amount that exceeds 10 percent of any species or area that are owned 
or otherwise controlled by a Processor is not permitted.
Sec. 6. Sunset of Processor IFQ Program.
    Any Processor IFQ program that may be recommended by the Council, 
and approved by the Secretary, shall operate for no more than 2 full 
years of operation, and shall sunset on the second anniversary date 
following the Processor IFQ Implementation Date.
Sec. 7. Federal Trade Commission Report on Processor IFQs.
    Not later than 6 months after the date on which the Processor IFQ 
program sunsets, the Federal Trade Commission, in consultation with the 
Secretary and the Council, shall submit to the Congress, the Secretary 
and the Council a full scale review, analysis and comprehensive written 
report that examines the operation, the economic and social impacts, 
and the impacts on free and open competition and markets that result 
from the 2 year period of the BSAI Crab Processor IFQs program. The 
report shall include:

     (1) an analysis of the operation, effects and impacts of BSAI Crab 
Processor IFQs on free and open competition and markets, price 
mechanisms, costs, distribution of rents, and other competitive 
mechanisms:

       (A) in the BSAI crab industry,

       (B) in the non-AFA processor sector,

       (C) in the Kodiak processor sector,

       (D) in the BSAI and GOA fishing industry,

       (E) in the BSAI crab processor sector with respect to:

         (i) foreign ownership,

         (ii) transferability,

         (iii) caps on ownership,

         (iv) leasing provisions,

         (v) mergers, acquisitions, combinations and concentrations,

       (F) in the BSAI harvester sector with respect to:

         (i) Processor ownership interest in BSAI crab harvesting 
vessels, and

         (ii) Processor ownership interest in BSAI crab fishing 
history, and

         (iii) The percentage of harvester IFQs that are owned by the 
processor sector,

         (iv) The general impacts of Processor IFQs on the BSAI crab 
harvester sector.

       (2) a finding that the processor sector ownership interest in 
BSAI crab harvesting vessels, BSAI crab fishing history, and the 
percentage of Harvester IFQs that may be allocated to the processor 
sector as a result of processor sector ownership interest in BSAI crab 
vessels and BSAI crab fishing history will have no deleterious impacts 
on free markets and vigorous competition in the BSAI crab industry, and

       (3) recommendations that preserve competition and free markets 
in the BSAI crab processor sector and in the BSAI crab harvester 
sector.
XI. Summary and Conclusions
    BSAI crab should be rationalized in much the same manner as the 
halibut and sablefish fisheries have been. Harvester IFQs are needed, 
justified, are a reasonable solution to the circumstances that exist in 
the BSAI crab fishery, are consistent with prior Council action, and 
have shown to be beneficial in other fisheries.
    If such a significant departure from traditional IFQ allocation 
models (i.e., Processor IFQs) is to be contemplated by Congress, it 
should not be part of a legislative mandate that is hastily hewn in 
these last days of this Congress. We are hopeful that Congress will not 
mandate the development and implementation of such a precedent setting 
and significant policy initiative, with such far reaching social, 
economic and resource consequences.
    Valid rationale does not exist for Processor IFQs in the BSAI crab 
fishery. The impacts of Processor IFQs do not only effect the harvester 
sector, but they also impact the consumer, markets, communities that 
depend on the resource, competition, and the less dominant participants 
in the processor sector, including Kodiak processors, and those 
processors who did not receive the largess and capitalization that was 
granted in the AFA. Free and open markets and vigorous competition, and 
the enduring principles that underlie our antitrust laws should be 
every bit as relevant today as when the Sherman Antitrust Act was 
passed 100 years ago.
    Experience has proven that the unintended consequences of these 
kinds of initiatives are generally significantly greater and more 
complex than those consequences that are intended. We respectfully 
request that Congress eschew the pressure to legislate even the minor 
details of such complex programs that carry such significant 
consequences.
        Sincerely,
                                         Jeffrey R. Stephan
                                 ______
                                 
    Prepared Statement of Captain William H. Amaru, South Orleans, 
                             Massachusetts
    Madam Chairman, Committee Members, thank you indeed for the 
privilege and opportunity to share with you some of my ideas, 
experiences and concerns for the future sustainable management of our 
Nation's fisheries resources. When I last sat before a Committee of 
Congress in 1995, the state of our fisheries resources was in a dire 
condition. It is with considerable pride that today I can say we have 
come a long, long way towards rebuilding many fish stocks, and that in 
a relatively short time. The reauthorization of the Magnuson-Stevens 
Act in 1996 set progressive new standards and conditions. Hard work by 
the Nation's Fishery Management Councils, the fishing industries and 
the National Marine Fisheries Service have proven we can successfully 
rebuild fish populations. The question we must now seek to answer is 
how best to manage them for the 21st century and beyond.
    Madam Chairman, believing there must be great depth and detail 
provided already by individual fishing quota interested parties, I 
would prefer to take up as little time as possible by describing for 
you the practical ways I believe individual fishing quotas may be 
helpful. As a member of the New England Fishery Management Council for 
six years, I have been a witness and a party to dramatic changes in 
both the way we manage and fish in New England. I have been a 
commercial fisherman for thirty years. In that time I have observed 
people as well as sea and tide, wind and weather. I believe I 
understand at least a little of both and frankly, the ocean, while 
unpredictable in the extreme and hiding its many secrets from our eyes, 
is often easier to understand than my fellow fishermen. Yet certain 
characteristics do seem nearly constant with us, independence to the 
extreme being first among them. We are hard working, hard headed, 
intelligent, proud and determined to survive whatever sea, weather or 
man can hand us. Most of us do and may God be with my brothers and 
comfort their families, who have found a watery grave before their 
time.
    But for all of our fortitude and independence, we as a group can 
also be difficult and self destructive. Our determination to succeed, 
our need to out-fish the competition and remain competitive has in the 
last half of the previous century driven many of our most important 
fisheries to the edge. I stand here not to provide evidence of this or 
to lay the blame at the feet of any group or groups. Rather, I wish to 
offer solutions, however small they may be, to the vexing problems that 
may still be our undoing as we seek more and better ways to harvest the 
seas' vast fish resources.
    It is fit then to state here that the individual transferable quota 
(ITQ) and the individual fishing quota, without transferability (IFQ) 
need to be brought to the full light of day, out of the closet of 
ignorance and fear. It will be through a greater understand of the 
issues and examples of their uses that we will get beyond the 
recrimination and ``us'' versus ``them'' condition that has 
characterized the argument between differing sides on this issue. Our 
failure (the Fisheries Councils) to be able to use individual fishing 
quotas the past several years and now for two more years into the 
future I believe can be linked to major discard issues in New England 
alone. There is no justification for this kind of waste. I ask that you 
give the Councils, NOAA Fisheries, and the fishing industries of our 
Country the opportunity to use this potentially valuable tool as a part 
of the management plans we need in order to protect and promote 
sustainable fishing for all the people.
    Please remember that no fishery management plan is written without 
pain. Sacrifice on the part of fishers, hard decisions by managers and 
the thankless task of enforcement to uphold regulations continues to be 
the hallmark of all plans. Complexities continue to grow as National 
Standards further complicate rebuilding. While individual fishing 
quotas will not eliminate these features, it can afford managers and 
fishermen reduced complexity, a fixed number of users and in the case 
of transferability, an economic payback for not fishing.
    The following are several possibilities for use of ITQ and IFQ 
management in fisheries plans. I offer the first of these as part of my 
recent experience with the Dogfish Plan which the Mid Atlantic and New 
England Fishery Management Councils jointly developed. The outcome of 
this very difficult management plan, of which I had a hand in writing, 
is now characterized by huge discards of dog fish, in the tens of 
millions of pounds, by boats from Maine to North Carolina who fish 
under a 600 and 300 pound possession limit. In the unregulated fishery 
trips of 10,000 to 25,000 lbs. were common. The plan as I have 
envisioned it would have been a temporary one, perhaps five years, used 
as an experiment to be closely monitored and analyzed both for social 
and scientific success.
    The directed dogfish fishery was a relatively new one with good 
reporting data and a well known universe of major and minor fishing 
interests. Information on who caught the bulk of fish, where and with 
what gear, are all well documented. Because dogfish are difficult to 
handle and of low value, the actual fleet size of directed vessels was 
low, at about 250. With the final trip limits (see above) in the 
Federal Plan set so low, the directed fishery disappeared and shore 
side processing shut down. The U.S. also lost a small but important 
export market as most dogfish products were shipped to European 
Markets. If the two Councils had been able to use an individual fishing 
quota format to distribute the quota, set at about three million 
pounds, the directed boats could have been identified as the ones who 
qualified, the possession limit for these boats could have been set at 
a level which could have allowed rebuilding and kept shore processors 
open and we would still be exporting dogfish products to Europe. 
Instead of having a pure discard fishery, we would have a limited 
directed fishery and a large enough possession limit for non-directed 
boats to lower by-catch discards, none of which we have now. A great 
opportunity to try a temporary, limited IFQ plan on a small fishery as 
a test case was lost and the American people as a result are not 
getting the best management plan or use of their resource for their tax 
dollars.
    An additional and admittedly more complex use for an IFQ/ITQ format 
exists now with the fishery for cod in the Gulf of Maine (GOM). The 
complexity arises mainly from the greater number of participants, and 
age of the fishery but still an opportunity to lower ever increasing 
discards (due to low trip limits) has been lost as the New England 
Fishery Management Council struggles to deal with a growing resource 
and management actions which virtually guarantee that a major portion 
of the resource is discarded. An individual quota for those qualified 
could allow for the fish encountered while on the grounds to be landed, 
not discarded. Once a quota has been filled, the vessel would be 
finished with the fishery for the period. Quota periods would be 
selected as part of the development process of the plan. Quarterly 
quotas seemed appropriate to me. The description here is necessarily 
simple and brief. In reality, it would be time consuming and full of 
difficult issues, but no more so than the current situation, where we 
find ourselves making very little progress. The first time will be the 
most difficult. I expect each additional ITQ/IFQ plan to be better and 
less disruptive as we learn, something we are not today doing.
    To conclude, six years ago, fishermen told me, as I neared the time 
to vote on Amendment Seven to our groundfish plan, that I was about to 
vote them a figurative death sentence. At that time, Amendment Seven 
was seen as the end to many in my industry as it would so fundamentally 
change the way we as fishermen go about our work. It was a tremendously 
wide door being open to a future few really understood. I voted what I 
believed would bring back the fish, and in fact, it has given us back a 
life we were surely losing. I view the furor over the IFQ/ITQ situation 
in no less the same light. Fear of the unknown by some is holding back 
thoughtful and professional managers and like-minded fishers from 
moving forward to ensure we have the correct mix of management 
strategies for the future.
    No one concept or management philosophy should ever become 
entrenched or untouchable in our democratic system. Under the 
Sustainable Fisheries Act, I don't believe it ever will. We need all 
the tools necessary and with careful thought, supported by users and 
industry leaders from all sectors, we will provide the best management 
possible for the future.
    Thank you for listening to my thoughts. Among the many intelligent 
and well supported individuals providing you with testimony today, I 
hope my comments will reach a little farther down and help you make the 
right decisions for the all American People.

                                 ______
                                 
     Prepared Statement of Richard R. Taylor, Sea Scallop Project,
                             Gloucester, MA

    Remarks concerning the opening phase of discussion of Individual 
Fishing Quota (IFQ).
    After reading the bill S.637 as submitted and the invited testimony 
I am prompted to write concerning several of the topics discussed. 
Thank you in advance for this opportunity. As introduction, I began 
commercial fishing on an offshore scalloper with a crew of 13 in 1968. 
Over the years I participated on a part time basis in many fisheries 
both here on the east coast and in Alaska, generally serving as 
engineer, and worked ashore periodically in order to spend time with 
family. These fisheries include groundfish, shrimp, swordfish, offshore 
lobster, snapper/grouper, and scallop. In 1990 still feeling there was 
good opportunity despite the influx of new vessels, I purchased an 
older vessel to fish for scallop out of Gloucester, Massachusetts 
knowing that as a crewman I would have no voice or ability to effect 
needed changes. Am currently one of four industry members appointed to 
the NEFMC Research Steering Committee, and volunteer on the advisory 
panels for scallop, habitat, and aquaculture.

What we are up against
    Belief in the soundness and fairness of fishery management goals 
and practices by the fishing fleets in the northeast region is the 
primary tool that encourages both participation and compliance during 
this major rebuilding phase. I am certain that everyone involved during 
the last five years of constantly moving goalposts would welcome a 
comprehensive plan that addresses specific problem areas. Several of 
these problem areas within the current management process are 
immediately evident:

       1. management of different species by different methods,

       2. the inequality of initial allocation of effort into Days At 
Sea (DAS) which has resulted in a shift in landings by port,

       3. the differential effect of area closures on vessels of 
different size,

       4. the differential effect of area closures on ports in 
different locations, again resulting in a landings shift,

       5. the increasing reliance on regulatory discards, some of which 
result from the items above.

    Most of these issues are beginning to be voiced and some will be 
partially addressed by upcoming Council action. In my opinion all of 
these issues are primary reasons for lack of trust in the existing 
system. With this as background to discussion of future management 
objectives, it is no wonder that there is an apparent lack of 
enthusiasm for a comprehensive system that includes Individual Fishing 
Quotas. For many of the fishing people an often voiced question is 
``What are we going to lose next?'' This fear of change, this 
uncertainty, is a direct result of our constantly changing stream of 
management objectives and plans and makes it very difficult to plan any 
longer term business related decisions, particularly investment. Many 
times it seems as if we have gone through a major amendment to the FMP 
and before those objectives are met, and with clear evidence that the 
changes are working, yet another goal is conceived requiring yet 
another series of meetings and further major change.
    I would like to address each of the numbered points above in short 
form because I feel that an IFQ management system coupled with an area 
management system may be crafted to address these issues.

     1. Different management methods for different species. One of the 
best examples, or worst if you will, is with summer flounder in 
relation specifically to all the other flounder species. Like most of 
the flounders it does not span the range of the region, and so is 
preferentially targeted mostly by the mid-Atlantic vessels because of 
proximity. As you know there is a state by state quota that once filled 
shuts down the fishery to bycatch levels. There is a race to the fish 
reality, and a high volume discard thereafter. Similarly the scallop 
industry in an attempt to be a single species fishery went to a 300 
pound trip limit for groundfish (primarily flounder) for their average 
12 to 14 day trips for these past 5 years. Back of the envelope 
calculations for this time proved startling. DAS for the fleet were 
about 50,000 in 1994 with graduated reduction to approximately 25,000 
for the 2000 fishing year. Although I do not have the official DAS 
usage on hand, these days can be adequately estimated by multiplying 
the number of active full time vessels by the DAS allotment for the 
year. Allowing for the reduction in DAS, multiplying by a low value of 
100 pounds per DAS (these vessels generally have gear on bottom 20 
hours per day, 100 pounds is 3 or 4 fish per hour), and subtracting out 
the amount landed yields an estimate of discards of over 16 million 
pounds. A well crafted IFQ system including transferability would help 
rectify this situation by allowing purchase or exchange of groundfish 
allocation, retention and sale.

     2. Inequality of initial DAS allocation. First let me say that we 
have two different approaches already in place with the groundfish and 
scallop fleets both based on previous history. Scallop vessels were 
required to meet a minimum threshold of about 160 days to be issued a 
full time permit, meaning that all vessels were treated equally in 
terms of annual DAS. Groundfish vessels on the other hand had been 
encouraged to target other species for some years, and those that did 
often received fleet DAS or 88 days, while those that continued to 
catch groundfish were awarded annual DAS on the basis of how hard they 
went after the resource, and received up to 300 days. So here there is 
a built in inequality in the initial effort allocation that many are 
concerned will translate into widely unequal shares of an IFQ based 
fishery.

       Differential access for vessels of differing size. Additionally 
area and rolling closures in the nearshore Gulf of Maine have severely 
impacted landings for that fleet sector and add another level of 
concern that any shares under any type quota system will be further 
reduced because their landings have been reduced these last few years. 
Nearshore vessels often fish only for the day, make several tows and 
return to port. These vessels have been limited to 400 pounds of cod 
per day, often caught in short order, and the balance of catch for the 
day discarded while targeting other species with no poundage 
limitation. Many to most of these fish cannot survive the pressure 
change and are lost to the fishery. For these vessels a multispecies 
quota large enough to survive on would seem a natural solution.

       The more offshore vessels stay out from several days to more 
than a week, tow round the clock, and are allowed several thousand 
pounds per day even if within sight of the other vessels across the 
arbitrary division line. Tagging studies are underway yet a common 
sense approach of more fair allocation seems indicated.

     3. Differential effect of area closures on ports in different 
locations. A nearshore closure in the Western Gulf of Maine and 
seasonal rolling closures effectively hamstring the nearshore fishing 
fleets for half the year, severely impacting the fleets from Cape Cod, 
Boston, Gloucester, New Hampshire, and southern Maine, while New 
Bedford and Rhode Island vessels continue to increase their landings, 
thus their share of the total landings. This has a profound effect on 
market share and distribution patterns. Again an IFQ system that 
started out equal would have a greater chance of adoption and success.

       Among the stated concerns is buyout of quota by large 
corporation from elsewhere and the effect on local communities. Alaska 
has had Community Development Quota for years allowing a one year sale 
(or lease) of a community's share to those with a suitable vessel. A 
variation of this established practice might be a requirement that the 
quota remain within a given geographic region or port.

     4. Increasing reliance on regulatory discards, some of which 
result from the points above. As stocks rebuild and we are restrained 
by SFA to a low (20 percent) rate of removal, the DAS effort controls 
will become even more prone to the discard problem unless DAS are 
considerably reduced. Since all species will be rebuilding at different 
rates, one or the other will of necessity need increased protection. 
Without a combined multispecies quota limit that avoids discarding the 
low population species and continuing to fish for other species we will 
continue to increase regulatory discards.

    Our experience in the scallop fishery has led us to the planning 
and adoption of an Area Management strategy at the Council level. 
Although industry representatives have asked for the ability to close 
areas to allow growout of small scallop as far back as the early 
1980's, it is only recently where the areas closed to protect 
groundfish have given real insight into the potential populations 
possible for this resource. At this time there are more scallop in the 
groundfish closed areas and the mid-Atlantic scallop growout areas than 
have ever been on the shelf in anyone's living memory. Landings this 
year will approach the all time record with known reserves of spawning 
age scallop approximately equal to 4 times landings. No new areas have 
been closed since 1997. Abundance is increasing in the areas that have 
remained open in spite of the existing effort. The scallop plan is 
working, the Council staff and Plan Development Team scientists are 
refining requirements for a more comprehensive Area Management effort 
to continue this trend.
    However most of the offshore vessels are required to be tied to 
dock for 245 days a year. An owner with two vessels has both tied up 
two thirds of the year, and lacks the flexibilty under the current 
system to have one working 240 days, both a poor use of capital and not 
a stable situation. Fleet vessels are aging, having for the most part 
been built in the 1970's and 1980's, and under the current restrictions 
there is little incentive to invest further.
    How does this relate to discussion of a quota based fishery? First 
removals from these management areas are being determined by estimating 
the available biomass (and here we are still developing the tools to 
increase the accuracy of these assessments) and then setting a fleet 
wide Total Allowable Catch or TAC, interpreted under SFA to mean 
approximately 20 percent of the available biomass. Individual vessels 
are then each allocated the appropriate amount of trips with a 
specified amount of pounds to approach the TAC. If for any reason this 
vessel allowance is not taken the remaining amount may return to the 
common pool of pounds to be redistributed to willing vessels, or in the 
case of the Nantucket Lightship Area, it was left to stay in that area 
and access was not redistributed. In the meantime there was no accurate 
biomass estimate nor limit on removals from the otherwise `open' areas 
while landings continue at a record pace. In summary, biomass estimates 
are figured in pounds, removals in pounds as a fraction of biomass, and 
landings are weighed out and sold in pounds, but input effort controls 
are allocated in DAS. As a result we are constantly having to 
equilibrate pounds to days at all levels of planning.
    I feel a well thought out Quota system for this fishery makes 
inherent sense. Transfer of quota (or even DAS) allows flexibility not 
possible under the present system. Regarding S.637 and quota transfer, 
I feel it is critical, first, that all permits begin with an initially 
equal share or allocation (the most difficult issue), secondly that 
transfer not be forbidden in all fisheries, and lastly that the 
acquisition of pounds of groundfish (flounder) allocation, would 
transform undesirable regulatory bycatch (waste) into a marketable 
product, a realistic component of catch even with advanced bycatch 
reduction devices.
    Finally, I would estimate that half of the vessels do not at this 
time fish with the owner on board and have not for some years, making 
this proposed requirement of S.637 unworkable to many if not most.
    There are many other substantive issues regarding reauthorization 
but will save those discussions for a later time.
    Thank you for this opportunity.
                                 ______
                                 
                                        OFFICE OF THE MAYOR
                                                       May 14, 2001
Hon. Olympia J. Snowe,
Chairperson,
Senate Subcommittee on Oceans and Fisheries
Washington, DC.

Dear Senator Snowe:

    I write on behalf of the City of Gloucester and its fishermen 
regarding S. 637, the IFQ Act of 2001. Reference is also made to the 
letter on the same subject dated May 11, 2001 from the Massachusetts 
Fishermen's Partnership. Gloucester endorses the sentiments expressed 
by those remarks.
    Thank you for your assistance in crafting an effective Bill that 
helps sustain our industry without adversely affecting conservation 
measures.
        Sincerely,
                                             Bruce H. Tobey
                                                              Mayor
                                 ______
                                 
                      Massachusetts Fishermen's Partnership
                                                       May 11, 2001
Hon. Olympia J. Snowe,
Chairperson,
Senate Subcommittee on Oceans and Fisheries
Washington, DC.

Dear Senator Snowe:

    The Massachusetts Fishermen's Partnership (MFP) is pleased to 
respond to your request for testimony regarding S. 637, the IFQ Act of 
2001.
    Angela Sanfilippo, President of the Gloucester Fishermen's Wives 
Association, has previously presented testimony on behalf of the 
Massachusetts Fishermen's Partnership (MFP) with regards to 
reauthorization of the Magnuson-Stevens Act. This testimony represents 
the input of the MFP membership, which includes:

   Boston Harbor Lobstermen's Cooperative

   Cape Cod Commercial Hook Fishermen's Association

   Commercial Anglers' Association

   General Category Tuna Association

   Gloucester Fishermen's Wives Association

   Gloucester Fishermen's Association

   Gulf of Maine Fishermen's Alliance

   Marshfield Commercial Fishermen's Association

   Massachusetts Commercial Fishermen's Association

   Massachusetts Inshore Commercial Ground Fishermen's 
        Association

   Massachusetts Lobstermen's Association

   New Bedford Seafood Coalition

   New England Fish Exchange

   Pigeon Cove Fishermen's Co-Op

   Plymouth Lobstermen's Association

   South Shore Lobstermen's Association

    Mayor Bruce H. Tobey of the City of Gloucester has also contacted 
the MFP and requested that he be named in support of this testimony on 
behalf of the City of Gloucester.
    We wish to thank you, Senator Snowe, for your tireless efforts to 
promote the viewpoints and interests of your commercial fishing 
constituents. We are especially grateful for your courage and 
leadership in the United States Senate on the issue of individual 
quotas. The MFP shares your grave concerns about ITQs/IFQs. Last year 
the MFP engaged in a lengthy and well-documented consultation process 
with fishermen of all gear sectors in Massachusetts. The consensus 
among Massachusetts fishermen is decidedly opposed to ITQs and IFQs in 
any form. Before we offer specific comments on S. 637, the MFP wishes 
to state for the record our reasons for opposing ITQs/IFQs and our 
consensus that the present ITQ/IFQ moratorium should be continued.
Massachusetts Fishermen's Partnership (MFP) Position on ITQs/IFQs
    The Massachusetts Fishermen's Partnership (MFP) is fundamentally 
opposed to the creation of individual quota systems in New England 
because we believe that they inevitably put the rights of individual 
small fishermen in competition with corporate greed.
    While we believe that there are well-intentioned efforts to create 
Individual Fishing Quotas (IFQs) with safeguards against 
transferability and consolidation they are ultimately doomed to failure 
for the following reasons.
    Already we have seen that those who have argued most urgently for 
establishment of IFQs have been the first to suggest that they can't 
work effectively without being transferable. In addition, some have 
testified that ``fishermen restricted by non-transferable IFQs 
eventually persuaded government authorities to allow transfers.'' We 
should ask if this was due to greater ``trust in the IFQ program'' as 
they claim or economic necessity!
    Those who champion IFQs admit that ``the initial allocation of 
quota is the major impediment to the adoption of IFQs in most 
fisheries.'' This is like saying that the problem of gun control is 
what to do with the bullets after they are fired. ``The struggle to 
find a fair and just allocation of harvest rights is difficult, time-
consuming and adversarial.'' This is because there is no fair way to 
divide up the ocean. The notion that the ``pain is all up front'' is 
ludicrous considering that those who are denied a quota have no voice 
in the system.
    The much-praised Organization for Economic Cooperation and 
Development (OECD 1997) global study demonstrates that IFQ's present 
problems with the initial allocation of quota and with enforcement and 
compliance. The report documents that IFQ's have failed to eliminate 
the race-to-fish in some fisheries in the Netherlands and Norway and in 
Iceland have led to increases in investment.
    One can only wonder why the proponents of IFQs do not mention the 
Food and Agricultural Organization (FAO) Fisheries Technical Paper 404/
1 and 404/2 entitled ``Uses of property rights in fisheries 
management.'' This 2000 report based on the proceedings of the 
Fishrights 99 conference in Freemantle, Australia corrects many of the 
misconceptions of the OECD report and updates the arguments with many 
practical examples.
    It is also interesting to note that some testimony referred 
specifically to the crisis in the the New England fishery citing 
overfishing and overexploitation of cod. These IFQ advocates are 
apparently unaware that cod are no longer considered overfished in the 
Gulf of Maine and Georges Bank.
    Proponents of IFQs state that ``an open and transparent process is 
needed to insure institutional legitimacy, credibility and trust'', but 
that ``we in the US have not yet designed a process that satisfies 
these criteria.'' The establishment of IFQs will do many things to the 
fishing communities, but it will not promote trust in management 
systems.
    Another misconception is that IFQs promote conservation, but there 
is little evidence to support this claim. The prohibition on transfers 
is said to ``instill an incentive to cheat.'' However it is clear that 
cheating, highgrading and discards are a direct consequence of the 
quota system.
    Finally, it must be said that as soon as quota systems are 
developed, everyone will want a quota. Environmentalists have already 
demanded a quota which is not fished and processors (who also own 
floating catcher/processing vessels) have demanded their share. There 
will never be enough quota to satisfy all parties. A quick look at the 
Gulf of Maine indicates that an initial cod TAC of 2000 mt (slightly 
more than the current TAC) split by 1000 shareholders would yield a 
quota averaging less than 5000 lbs per participant per year. No one 
could stay in business with this level of catch.
    For New England, IFQs are a solution in search of a problem. The 
problem of overfishing is rapidly being controlled under existing harsh 
management measures. Changing the management system now will only 
exacerbate the problems. As we move gradually towards ecosystem 
management it would be tragic to embark on such a costly and 
unnecessary detour. The only system which can work in this area is one 
which provides the most fish for the most fishermen while meeting the 
long term conservation objectives. The IFQ system can never claim to 
meet this objective.
Comments on S. 637
    Having made our position clear for the record, we would like to 
comment specifically on provisions of S. 637. If such legislation were 
to be adopted, we feel strongly that many provisions of the proposed 
statute need to be made more specific in order to avoid confusion and 
implementation that does not conform to the intent of lawmakers. Many 
of our comments are therefore questions. We hope very much to work with 
you and your staff to develop consensus around answers to these 
questions.
    We have inserted our questions and comments as annotations in the 
text of the bill. We have also kept the line numbers for the bill to 
the right hand side. We hope that these can all be included as such in 
the record so that the context of our questions and comments can be 
clear to all concerned parties.
[We reproduce the text of S. 637 and place our bolded/italicized 
        questions and comments in brackets]:
    107TH CONGRESS
    1ST SESSION
    S. 637
    To amend the Magnuson-Stevens Fishery Conservation and Management 
Act (16 U.S.C.1801 et seq.)to authorize the establishment of individual
    fishery quota systems.
    IN THE SENATE OF THE UNITED STATES
    MARCH 28,2001
    Ms.SNOWE (for herself and Mr.MCCAIN) introduced the following bill; 
which was read twice and referred to the Committee on Commerce, 
Science, and Transportation
    A BILL
    To amend the Magnuson-Stevens Fishery Conservation and
    Management Act (16 U.S.C.1801 et seq.)to authorize
    the establishment of individual fishery quota systems.
    Be it enacted by the Senate and House of Representa-1
    tives of the United States of America in Congress assembled,2
    SECTION 1. SHORT TITLE. 3
    This Act may be cited as the ``IFQ Act of 2001 `'.4
    SEC. 2. INDIVIDUAL QUOTA PROGRAMS. 5
    (a)AUTHORITY TO ESTABLISH INDIVIDUAL QUOTA 6
    SYSTEMS.--Section 303 of the Magnuson-Stevens Fishery 7
    Conservation and Management Act (16 U.S.C.1853)is 8
    amended by adding at the end the following:9
    S. 637 IS
    S. 637 Page 2
    ``(e)SPECIAL PROVISIONS FOR INDIVIDUAL QUOTA 1
    SYSTEMS.--2
    ``(1)CONDITIONS.--A fishery management plan 3
    which establishes an individual quota system for a 4
    fishery after September 30,2002--5
[These provisions should be active in 2001 just in case a Council tries 
        to establish an IFQ in the time gap before final approval.]
    ``(A)shall provide for administration of the 6
    system by the Secretary in accordance with the 7
    terms of the plan;8
    ``(B)shall not create, or be construed to 9
    create, any right, title,or interest in or to any 10
    fish before the fish is harvested;11
    ``(C)shall include provisions which estab-12
    lish procedures and requirements for each 13
    Council having authority over the fishery, for--14
    ``(i)reviewing and revising the terms 15
    of the plan that establish the system; and 16
[There should be some limits set for revising the terms such as; within 
        the constraints of the Magnuson-Stevens Act or; consistent with 
        conservation objectives.]
    ``(ii)renewing, reallocating, and re-17
    issuing individual quotas if determined ap-18
    propriate by each Council;19
[Not more frequently than once per year.]
    ``(D) shall include provisions to--20
    ``(i) promote sustainable management 21
    of the fishery;22
    ``(ii) provide for fair and equitable al-23
    location of individual quotas under the sys-24
    tem;25
[We need a specific standard for determining what is fair and 
        equitable. We also need an independent oversight panel to judge 
        the effectiveness of this provision.]
    S. 637 IS
    S. 637 Page 3
    ``(iii) minimize negative social and 1
    economic impacts of the system on local 2
    coastal communities;3
[What happens if it is determined that transferability is ultimately 
        necessary to minimize social and economic impacts?]
    ``(iv)ensure adequate enforcement of 4
    the system,including the use of observers 5
    where appropriate at a level of coverage 6
    that should yield statistically significant re-7
    sults;and 8
[This could easily result in 10-20 percent observer coverage for all 
        vessels. Where will the funding come from for such an expensive 
        program?]
    ``(v)take into account present partici-9
    pation and historical fishing practices,in 10
    the fishery; and 11
[It is imperative that historical fishing practices be taken into 
        account in a way that does not discriminate against vessels who 
        were unable to fish [for various reasons during a reasonable 
        time period.]
    ``(E) include provisions that prevent any 12
    person or entity from acquiring an excessive 13
    share of individual quotas issued for a fishery.14
[This provision is meaningless unless an excessive share is clearly 
        defined. We would recommend 1 percent or less to prevent 
        creeping consolidation.]
    ``(2) PLAN CHARACTERISTICS.--An individual 15
    quota issued under an individual quota system es-16
    tablished by a fishery management plan--17
    ``(A) shall be considered a grant, to the 18
    holder of the individual quota, of permission to 19
    engage in activities permitted by the individual 20
    quota;21
    ``(B) may be revoked or limited at any 22
    time,in accordance with the terms of the plan 23
    and regulations issued by the Secretary or the 24
    Council having authority over the fishery for 25
    S. 637 IS
    S. 637 Page 4
    which it is issued, if necessary for the conserva-1
    tion and management of the fishery (including 2
    as a result of a violation of this Act or any reg-3
    ulation prescribed under this Act);4
[This revocation provision will almost certainly result in numerous 
        lawsuits, which will devour all of the administrative and 
        enforcement funds. We suggest a review board, which would 
        examine all extenuating circumstances and allow for an appeals 
        process.]
    ``(C) if revoked or limited by the Secretary 5
    or a Council, shall not confer any right of com-6
    pensation to the holder of the individual quota;7
[Under certain circumstances beyond the fishermen's control 
        compensation might be appropriate.]
    ``(D) may be received and held in accord-8
    ance with regulations prescribed by the Sec-9
    retary under this Act;10
[Here again, it is imperative to establish an appeals process.]
    ``(E) shall, except in the case of an indi-11
    vidual quota allocated under an individual 12
    quota system established before the date of en-13
    actment of the IFQ Act of 2001,expire not 14
    later than 5 years after the date it is issued, in 15
    accordance with the terms of the fishery man-16
    agement plan; and 17
[Does this mean that expiration could conceivably occur after only one 
        year (this would be not later 5 years)? For pre-existing plans, 
        perhaps consideration should be given to an expiration date 
        possibly ten years from enactment.]
    ``(F) upon expiration under subparagraph 18
    (E),may be renewed, reallocated, or reissued if 19
    determined appropriate by each Council having 20
    authority over the fishery.21
[It will be necessary to state specifically under what conditions it 
        would be appropriate to renew these quotas. If these quotas are 
        to be reviewed individually, who will decide which practices 
        have more conservation benefit?]
    ``(3) ELIGIBLE HOLDERS.--22
    ``(A) IN GENERAL.--Except as provided in 23
    subparagraph (B),any fishery management 24
    plan that establishes an individual quota system 25
    S. 637 IS
    S. 637 Page 5
    For a fishery may authorize individual quotas to 1
    be held by or issued under the system to fishing 2
    vessel owners, fishermen, and crew members.3
    ``(B) NON-CITIZENS NOT ELIGIBLE.--An 4
    individual who is not a citizen of the United 5
    States may not hold an individual quota issued 6
    under a fishery management plan.7
    ``(4) PERMITTED PROVISIONS.--Any fishery 8
    management plan that establishes an individual 9
    quota system for a fishery may include provisions 10
    that--11
    ``(A) allocate individual quotas under the 12
    system among categories of vessels; and 13
[Does this mean that different sized vessels and those with different 
        gear will be allotted unequal quotas regardless of fishing 
        history?]
    ``(B) provide a portion of the annual har-14
    vest in the fishery for entry-level fishermen,15
    small vessel owners, or crewmembers who do 16
    not hold or qualify for individual quotas.17
[It is necessary to be specific about this portion, (possibly 5-10 
        percent), otherwise one IFQ could meet this requirement.]
    ``(5) TERMINATION OR LIMITATION.--18
    ``(A) GROUNDS.--An individual quota sys-19
    tem established for a fishery may be limited or 20
    terminated at any time if necessary for the con-21
    servation and management of the fishery, by--22
[This provision for termination of quotas for management of the fishery 
        gives absolute power to the managers. They can terminate any 
        quota, which does not suit their management plan without 
        explanation or recourse.]
    ``(i) the Council which has authority 23
    over the fishery for which the system is es-24
    S. 637 IS
    S. 637 Page 6
    tablished, through a fishery management 1
    plan or amendment; or 2
    ``(ii) the Secretary, in the case of any 3
    individual quota system established by a 4
    fishery management plan developed by the 5
    Secretary.6
[Both of these authorities would eventually be tempted to exercise 
        political leverage to conform or lose their quota, regardless 
        of the conservation benefits.]
    ``(B) EFFECT ON OTHER AUTHORITY.--7
    This paragraph does not diminish the authority 8
    of the Secretary under any other provision of 9
    this Act.10
    ``(R) EQUIRED PROVISIONS;REALLOCA-11
    TIONS.--Any individual quota system established for 12
    a fishery after the date of enactment of the IFQ Act 13
    of 2001--14
    ``(A) shall not allow individual quota 15
    shares under the system to be sold,transferred,16
    or leased;17
[While the MFP generally supports this restriction, we are at a loss to 
        know what will become of a large number of fishermen who are 
        likely to receive less than adequate quotas in a multispecies 
        fishery. If a fisherman begins with a quota, which becomes 
        inadequate, will he be compensated?]
    ``(B) shall prohibit a person from holding 18
    an individual quota share under the system un-19
    less the person participates in the fishery for 20
    which the individual quota share is issued; and 21
    [What is meant by participation? Would landing one lb of any 
multispecies groundfish qualify?]
    ``(C) shall require that if any person that 22
    holds an individual quota share under the sys-23
    tem does not engage in fishing under the indi-24
    vidual quota share for 3 or more years in any 25
    S. 637 IS
    S. 637 Page 7
    period of 5 consecutive years, the individual 1
    quota share shall revert to the Secretary and 2
    shall be reallocated under the system to quali-3
    fied participants in the fishery in a fair and eq-4
    uitable manner.5
[Who will ultimately determine what is a fair and equitable 
        reallocation. Will this be decided by the courts?]
    ``(7) EXCEPTIONS.--6
    ``(A) HARDSHIP.--The Secretary may sus-7
    pend the applicability of paragraph (6)for indi-8
    viduals on a case-by-case basis due to death,9
    disablement, undue hardship, retirement, or in 10
    any case in which fishing is prohibited by the 11
    Secretary or the Council.12
[This is one of the biggest problems with the bill. It is hard to 
        imagine any situation which prevents a fishermen from making a 
        living that does not constitute an undue hardship. As it is 
        written, this can only be determined by a judge.]
    ``(B) TRANSFER TO FAMILY MEMBERS.--13
    Notwithstanding paragraph (6)(A), the Sec-14
    retary may permit the transfer of an individual 15
    fishing quota, on a case-by-case basis, from an 16
    individual to a member of that individual `s fam-17
    ily under circumstances described in subpara-18
    graph (A)through a simple and expeditious 19
    process.20
[This is a major loophole which needs to be closed to ensure non-
        transferrability. In some communities, many people are related 
        and it is necessary to define precisely what is meant by a 
        family member.]
    ``(8) DEFINITIONS.--In this subsection:21
    ``(A) INDIVIDUAL QUOTA SYSTEM.--The 22
    term `individual quota system `means a system 23
    that limits access to a fishery in order to 24
    S. 637 IS
    S. 637 Page 8
    achieve optimum yield, through the allocation 1
    and issuance of individual quotas.2
[This country has struggled for years with the definition and 
        applicability of optimum yield. This issue will probably never 
        be resolved satisfactorily so it may be advisable to use other 
        terms to describe the IFQ goals.]
    ``(B) INDIVIDUAL QUOTA.--The term `indi-3
    vidual quota `means a grant of permission to 4
    harvest a quantity of fish in a fishery, during 5
    each fishing season for which the permission is 6
    granted, equal to a stated percentage of the 7
    total allowable catch for the fishery.''.8
    (b) APPROVAL OF FISHERY MANAGEMENT PLANS 9
    ESTABLISHING INDIVIDUAL QUOTA SYSTEMS.--Section 10
    304 of that Act (16 U.S.C.1854) is further amended by 11
    adding after subsection (h) the following:12
    ``(i) EFERENDUM PROCEDURE.--13
    ``(1) A Council may prepare and submit a fish-14
    ery management plan, plan amendment, or regula-15
    tion that creates an individual fishing quota or other 16
    quota-based program only if both the preparation 17
    and the submission of such plan, amendment or reg-18
    ulation are approved in separate referenda con-19
    ducted under paragraph (2).20
[The MFP strongly supports this dual referenda plan to guarantee that 
        the industry is ready to support an IFQ plan.]
    ``(2)The Secretary, at the request of a Council,21
    shall conduct the referenda described in paragraph 22
    (1).Each referendum shall be decided by a two-23
    thirds majority of the votes cast by eligible permit 24
    holders. The Secretary shall develop guidelines to de-25
    S. 637 IS
    S. 637 Page 9
    termine procedures and eligibility requirements for 1
    referenda and to conduct such referenda in a fair 2
    and equitable manner.3
[It is unclear what a fair and equitable referendum would look like. 
        Would it be open only to those eligible for quota or would all 
        stakeholders be represented? Under such circumstances a four-
        fifths majority should be the minimum level of acceptance.]
    ``(j) ACTION ON LIMITED ACCESS SYSTEMS.--4
    ``(1) In addition to the other requirements of 5
    this Act, the Secretary may not approve a fishery 6
    management plan that establishes a limited access 7
    system that provides for the allocation of individual 8
    quotas (in this subsection referred to as an `indi-9
    vidual quota system `)unless the plan complies with 10
    section 303(e).11
    ``(2) Within 1 year after receipt of rec-12
    ommendations from the review panel established 13
    under paragraph (3),the Secretary shall issue regu-14
    lations which establish requirements for establishing 15
    an individual quota system. The regulations shall be 16
    developed in accordance with the recommendations.17
[For some complex multispecies fishery management plans, one year may 
        not be enough time to establish all the requirements. It took 
        two years just to identify EFH.]
    The regulations shall--18
    ``(A specify factors that shall be consid-19
    ered by a Council in determining whether a 20
    fishery should be managed under an individual 21
    quota system;22
    ``(B)ensure that any individual quota sys-23
    tem is consistent with the requirements of sec-24
    tions 303(b)and 303(e),and require the collec-25
    S. 637 IS
    S. 637 Page 10
    tion of fees in accordance with subsection (d)(2)1
    of this section;2
[It should be necessary to establish an annual IFQ Budget for the 
        management of a fishery before fees can be collected. That way 
        sufficient funds can be collected to provide for the first 
        year. Also it is important that an IFQ system not be allowed to 
        absorb all funds for fisheries whether or not they are managed 
        by IFQs.]
    ``(C) provide for appropriate penalties for 3
    violations of individual quotas systems,includ-4
    ing the revocation of individual quotas for such 5
    violations;6
[There should be no assessment of penalties until an adequate appeals 
        process is firmly in place.]
    ``(D) include recommendations for poten-7
    tial management options related to individual 8
    quotas, including the use of leases or auctions 9
    by the Federal Government in the establish-10
    ment or allocation of individual quotas; and 11
[Surely there is enough previous experience in ITQ management to know 
        whether a lease sale or an auction should be held.]
    ``(E) establish a central lien registry sys-12
    tem for the identification, perfection, and deter-13
    mination of lien priorities, and nonjudicial fore-14
    closure of encumbrances, on individual quotas.15
[It would be helpful to have an example of what a non-judicial 
        foreclosure of encumbrances on individual quotas might entail.]
    ``(3)(A) Not later than 6 months after the date 16
    of the enactment of the IFQ Act of 2001,the Sec-17
    retary shall establish a review panel to evaluate fish-18
    ery management plans in effect under this Act that 19
    establish a system for limiting access to a fishery,20
[6 months may not be enough time to establish these panels especially 
        if it is determined that they will consist of only 4 
        representative stakeholders.]
    including individual quota systems, and other limited 21
    access systems, with particular attention to--22
    ``(i) the success of the systems in con-23
    serving and managing fisheries;24
    S. 637 IS
    S. 637 Page 11
    ``(ii) the costs of implementing and enforc-1
    ing the systems;2
[There should be a spending cap on enforcement as a percentage of 
        revenue generated or this priority will absorb all program 
        funds.]
    ``(iii) the economic effects of the systems 3
    on local communities; and 4
[The MFP recommends the establishment of independent community-based 
        panels to assess the economic and social impacts of fisheries 
        management on communities.]
    ``(iv) the use of auctions in the establish-5
    ment or allocation of individual quota shares.6
[How will these effects be studied after only 6 months when it will 
        take far longer just to gather the necessary data?]
    ``(B) The review panel shall consist of--7
    ``(i) the Secretary or a designee of the Sec-8
    retary;9
    ``(ii) the Commandant of the Coast Guard;10
    ``(iii) a representative of each Council,se-11
    lected by the Council; and 12
    ``(iv) 5 individuals with knowledge and ex-13
    perience in fisheries management.14
[This should not include anyone who owns quota or in any way profits 
        from quota system. Under no circumstances should the Review 
        Panel be exempted from conflict of interest laws. ]
    ``(C) Based on the evaluation required under 15
    subparagraph (A),the review panel shall,by Sep-16
    tember 30,2003--17
    ``(i) submit comments to the Councils and 18
    the Secretary with respect to the revision of in-19
    dividual quota systems that were established 20
    prior to June 1,1995;and 21
    ``(ii) submit recommendations to the Sec-22
    retary for the development of the regulations 23
    required under paragraph (2).''.24
[Does this mean that pre-existing quota systems can be required to 
        submit to the regulations for new IFQs?]
    Thank you for the opportunity of offering our testimony for the 
record.
        Truly yours,
                                           Alexander Ferent
                                                          President
                                 ______
                                 
                         Alaska Marine Conservation Council
                                         Anchorage, AK, May 1, 2001
Hon. Olympia J. Snowe,
Chairperson,
Senate Subcommittee on Oceans and Fisheries
Washington, DC.

Dear Senator Snowe:

    Enclosed is information regarding the pros and cons of future 
limited access programs for federally managed fisheries in Alaska. We 
urge the Senate Subcommittee on Oceans and Fisheries to develop strong 
standards for future limited access programs that ensure such 
management plans serve conservation and communities and prevent 
corporate control of the resource and access to fishing opportunities.
    Also enclosed is a report on the results of a recent Alaska 
statewide poll that shows the vast majority of people agree that more 
fisheries conservation is needed to strike the balance between economic 
benefits of fishing with long-term sustainability of the ecosystem. We 
believe future limited access fishery management plans must be used as 
tools to achieve this balance
    The Alaska Marine Conservation Council is a community-based 
organization of fishermen, small business owners, subsistence hunters, 
families and others whose livelihoods and ways of life depend on a 
healthy marine ecosystem. We are particularly concerned about bycatch 
in Alaska's fisheries and the effects of bottom trawling on seafloor 
habitats. Future limited access programs should facilitate solutions to 
these problems including creating opportunities to convert bottom trawl 
fisheries to cleaner gears such as pots where possible.
    We look forward to the hearing on Wednesday and opportunity to work 
with the Subcommittee in the coming months.
        Sincerely,
                                           Dorothy Childers
                                                 Executive Director

    Thank you for the opportunity to submit comments for the record 
regarding Senate Bill 637, introduced by Senators Olympia Snowe and 
John McCain.
    Alaska Marine Conservation Council (AMCC) is a community-based 
organization of fishing families and coastal residents dedicated to 
minimizing bycatch, conserving marine habitat, preventing overfishing, 
and preserving clean and sustainable fishing opportunities for Alaska's 
coastal communities. AMCC's members have substantial interest in policy 
development discussions regarding individual fishing quotas (IFQs) and 
other forms of limited access systems because of the potential impacts 
on conservation and the social and economic fabric of coastal 
communities. AMCC is a member of the Marine Fish Conservation Network.
    We appreciate that S. 637 launches a public and open discussion of 
IFQs and other limited access programs in the 107th Congress. The 
legislative hearing on May 2nd allowed an opportunity for various 
perspectives to be aired in a public forum, which is entirely 
appropriate and welcome for an issue of such magnitude and long-lasting 
effect on our Nation's fisheries.
National Standards Are Needed for IFQs and Other Limited Access Systems
    The use of a limited access system in a fishery is often discussed 
as an economic model that could be expected to have conservation 
benefits as a natural consequence of slowing down the race for fish and 
making fisheries more economically efficient. We know from case studies 
of IFQ programs around the world that particular outcomes are not 
achieved unless they are an explicit part of the initial design. The 
National Research Council emphasized the importance of design in its 
report to Congress.

       Confusion, conflict, and ambiguity about the relative importance 
and value of the objectives of an IFQ program can result in 
contradictions and inconsistencies in its design and implementation, 
making the program more vulnerable to unintended consequences and less 
likely to succeed. \1\

    \1\ National Research Council. 1999. Sharing the Fish, Toward a 
National Policy on Individual Fishing Quotas. National Academy Press. 
p. 197.
---------------------------------------------------------------------------
    If properly designed, an IFQ or other limited access plan will be 
an economic model that links conservation benefits with long-term needs 
of our coastal communities and opportunity for fishing families.
    IFQs or other limited access plans for the Nation's fisheries must 
include clear objectives for conservation and communities including:

  1. Clean fishing (promotion of practices that minimize bycatch and 
        adverse impacts on sea floor habitat)

  2. Community stability

          a. Opportunity for community-based fleets

          b. Diverse fleets

          c. Market diversity and healthy competition

          d. Viable entry-level opportunities to coastal community 
residents

          e. Ownership concentration limits

  3. Preserve healthy competition among seafood processors and prohibit 
        processor monopolies (this precludes the award of exclusive 
        processor rights)

  4. Accountability by the public owners of fishery resources, through 
        strict program and individual performance standards. Ensure a 
        funding mechanism that is generated from the fishery, to 
        support program management and enforcement.

  5. Periodic performance review to assess how well the above 
        objectives have been met & to ensure permits or quotas are 
        awarded based on stewardship standards
General Comments on S. 637
    Alaska Marine Conservation Council supports many provisions of S. 
637, especially Sec. 3(e)(1)(D), which requires IFQ systems to promote 
sustainable management of the fishery, provide for fair and equitable 
allocation of individual quotas, minimize negative social and economic 
impacts on local coastal communities, ensure adequate enforcement, and 
take into account present participation and historical fishing 
practices in the fishery.

   RECOMMENDATION: Strengthen Sec. 3(e)(1)(D) to provide 
        councils with explicit conservation and community stability 
        standards for IFQ and other limited access programs (specific 
        recommendations are described below).

    Other aspects of S. 637 that AMCC supports are: the 5 year sunset, 
periodic review of program performance, ability to revoke quota 
privileges, eligibility of fishermen and crew members to hold quota as 
well as vessel owners, and owner-operator requirements to maintain the 
IFQ privilege. AMCC also thanks Senators Snowe and McCain for excluding 
processors from the list of entities eligible to hold quota.
Specific Comments on S. 637--National Standards Should Clarify 
        Conservation Objectives
Programmatic Accountability
    Congress should clearly require IFQ programs and other limited 
access systems to be designed and held accountable through periodic 
performance reviews for achieving conservation objectives. Specific 
conservation objectives include minimizing bycatch, protecting marine 
habitat, preventing high-grading, rebuilding overfished stocks, and 
preventing overfishing.

   RECOMMENDATION: Include specific language that clarifies 
        what ``promote sustainable management of the fishery'' 
        Sec. 3(e)(1)(D)(i) means, using the conservation objectives 
        listed above.

    If IFQ and other limited access systems are required to build in 
conservation objectives, then program design will reflect those goals. 
For example, a regional council could identify shifting individual 
fishing practices toward cleaner gear types as a specific strategy to 
achieve conservation improvements in the fishery. This could be 
designed as an incentive that would both reward those gear types and 
fishing practices that have low bycatch and habitat impacts, as well as 
to encourage less selective gears to convert to less impact gears.
    If Congress requires programs to be designed to meet universal 
conservation standards, then regional councils would have the 
flexibility to identify creative approaches within the specific 
fisheries they are managing.
Individual Accountability
    S. 637 recognizes that holding an IFQ or other form of quota is a 
privilege that ``may be revoked at any time . . . if necessary for the 
conservation and management of the fishery.'' [Sec. 2(e)(2)(A) and (B)] 
AMCC applauds Senators Snowe and McCain for this provision of the bill.
    It is critically important that Congress direct the councils to 
hold individual quota holders accountable for their fishing behavior in 
an effort to reward those who fish with minimal bycatch and habitat 
impacts. In kind, councils should be given the authority and the 
direction to revoke the privilege of using fishing quota from those 
fishermen who do not meet acceptable stewardship standards.

   RECOMMENDATION: Require IFQ and other limited access 
        programs to establish clear conservation criteria that 
        individual quota holders must meet, including specific actions 
        with measurable results to minimize bycatch, protect marine 
        habitat, prevent high-grading, rebuild overfished stocks, and 
        prevent overfishing.

   RECOMMENDATION: Require councils to develop a superior data 
        collection system for IFQ and other limited access programs in 
        order to 1) effectively evaluate programmatic and individual 
        performance, 2) aid in refining elements of the program over 
        time, and 3) identify unintended consequences that may need 
        correction. \2\
---------------------------------------------------------------------------
    \2\ Sharing the Fish, p. 9.
---------------------------------------------------------------------------
Specific Comments on S. 637--National Standards Should Preserve 
        Community Stability
1. Eligibility, Qualifying Years and Qualifying Landings
    Criteria for eligibility, qualifying years and landings determine 
largely who will be allocated fishing opportunity and how it may be 
distributed in the future. This decision therefore is a very 
significant feature for meeting the goals of limited access programs. 
\3\
---------------------------------------------------------------------------
    \3\ Sharing the Fish, p. 142-143. ``Dozens of different criteria 
can be used, each one more or less appropriate and fair, depending on 
the goals of the IFQ program . . . The particular years used to 
determine historical participation and eligibility can have profound 
social and distributional effects . . . ''
---------------------------------------------------------------------------
    Eligibility
    Eligibility should include the following in order to be broad based 
enough to capture the profile of the fleet and communities:

   Vessel owners

   Skippers

   Crew

   Communities

    S. 637 would allow a fishery management plan to include provisions 
that ``provide a portion of the annual harvest in the fishery for 
entry-level fishermen, small vessel owners, or crewmembers who do not 
hold or qualify for individual quotas.'' Sec. 2(e)(4)(B) AMCC 
recommends this section be strengthened as follows.

   RECOMMENDATION: Alter Sec. 2(e)(4)(B) to require programs to 
        reserve a portion of quota for entry-level fishermen, small 
        vessel owners, or crewmembers who do not hold or qualify as 
        initial recipients of individual quotas.

    In Sharing the Fish, the National Research Council advises regional 
fishery managers to weigh a range of qualifying criteria for a 
community allocation including ``proximity to the resource, dependence 
on the resource, contribution of fishing to the community's economic 
and social well-being, and historic participation in the fishery.'' \4\
---------------------------------------------------------------------------
    \4\ Sharing the Fish, p. 206.

   RECOMMENDATION: Add language to Sec. 2(e)(4)(B) to reserve 
        an allocation of quota for communities, in order to enable the 
---------------------------------------------------------------------------
        next generation an opportunity to make a living in the fishery.

    Qualifying years
    As with eligibility, qualifying years should be broad in order to 
avoid freezing today's snapshot in time and to achieve fairness 
reflective of longstanding dependence and patterns of participation by 
independent fishermen and communities.

   RECOMMENDATION: Specifically direct councils to use a broad 
        range of qualifying years in determining who is eligible to 
        hold quota.

    Qualifying Landings
    Landings should include only retained catch of target species to 
prevent assignment of history to bycatch (which effectively rewards 
past wasteful fishing practices). \5\
---------------------------------------------------------------------------
    \5\ This would be consistent with management of Bering Sea pollock 
under the American Fisheries Act.

   RECOMMENDATION: Specifically direct councils to recognize 
        only retained catch of target species if qualifying landings 
---------------------------------------------------------------------------
        are used to determine who is eligible to hold quota.

2. Criteria for Initial Allocation
    A broad range of criteria is important for the distribution of 
quota including individual catch history, long-term participation, 
dependence and good stewardship. \6\ Dependence may be based on 
``geographic isolation; lack of employment alternatives; social, 
economic and cultural systems that have developed in these locations; 
and their dependence on fishing as a source of nutrition, livelihood 
and life style.'' \7\
---------------------------------------------------------------------------
    \6\ Sharing the Fish, p. 204. ``Examples of factors that may be 
taken into account beyond catch history include (1) the extent of 
dependence and commitment to fishing as a way of life . . . (2) 
evidence for or against good stewardship and acceptance of conservation 
goals (e.g. bycatch rates, violation histories, types of fishing gear 
used) . . . These factors reflect the conservation and equity goals of 
the Magnuson-Stevens Act . . . ''
    \7\ Sharing the Fish, p. 19.
---------------------------------------------------------------------------
3. Prevention of Corporate Consolidation and Vertical Integration
    IFQs and other limited access programs if left on their own have a 
distinct tendency to evolve toward corporate consolidation and 
concentration of fishing opportunity into fewer and fewer hands at the 
expense of community stability.
       The capacity of IFQs for transferability, consolidation, and 
leasing has led to a general concern that independent owner-operators 
of fishing vessels or crew members will be led into economic dependence 
on absentee owners as quota shares increase in value and small 
investors are excluded from the field. \8\
---------------------------------------------------------------------------
    \8\ Sharing the Fish, p. 3.
---------------------------------------------------------------------------
    AMCC supports Sec. 2(e)(6)(C) of S. 637 requiring a person holding 
IFQ shares to actively engage in fishing to retain the shares we also 
recognize that not every fisher and vessel class can achieve 100 
percent owner-on-board requirement. AMCC also recognizes the intent of 
S. 637 to prevent ``absentee IFQ fishing'' by prohibiting 
transferability. Through the experience of the halibut and sablefish 
IFQ program, however, Alaskans have found that there are some community 
benefits to allowing limited opportunities for transferability in 
certain cases, to control consolidation and allow for appropriate 
levels of transferability. Finally, it is critically important that IFQ 
and other limited access programs set limits on and enforce a maximum 
of level of quota that a person may hold.

   RECOMMENDATION: Consider adding other exceptions to transfer 
        of shares, and require caps on the amount of quota share a 
        person may hold.

4. Preserve healthy competition among seafood processors and prohibit 
        processor monopolies (this precludes the award of exclusive 
        processing privileges)
    AMCC recognizes that conservation goals can be accomplished through 
IFQ and other limited access programs for fishermen--if they are 
designed properly--because they create an environment in which 
fisherman can slow down to fish more carefully. It is puzzling, 
however, what conservation objectives would be accomplished by 
processor quota shares. In fact, when processors have listed their 
rationale processor shares, their justifications focus on protecting 
their business investments. AMCC does not believe that protecting 
business investments is the role of the Magnuson-Stevens Act, 
especially when the business is benefiting from the exploitation of a 
public resource.
    The American Fisheries Act has given Alaska some experience with 
fishermen-processor cooperatives, which sheds light on the potential 
negative impacts of awarding processor shares. In 1998 Congress passed 
the American Fisheries Act (AFA) to improve management of the Bering 
Sea pollock fishery by reducing the number of factory trawlers, 
assigning fishing and processing rights to specified corporations, and 
allowing for cooperatives (co-ops) to optimize fishing operations. 
However, because pollock corporations experienced an impressive 
financial windfall, there have been consequences for other fisheries.
    Corporate consolidation already occurring in the pollock industry 
was facilitated by the AFA. For example, more and more catcher vessels 
in the fleet are owned by shore-based processing companies who, in 
turn, control foreign fish markets. If consolidation of fishing power 
occurs throughout other groundfish fisheries, there will be a deepening 
of the political imbalance, reducing the ability of coastal communities 
and vessel owner-operator fishermen to participate effectively in 
management decisions.
    AFA-style co-ops promote vertical integration of fishing and 
processing companies. A system dominated by:

      1. processor-owned fisheries,

      2. processor-owned vessels, or

       3. independent vessels delivering to a closed class of 
processors

       has great potential to lower ex-vessel values of fish. Reduction 
in ex-vessel values reduces the local community and state tax bases 
available from fish landings.

    Early reports on the AFA pollock co-ops suggest that they slow down 
the fishery and offer improved long-term planning, value-added product 
development; improved safety; improved quality; improved economic 
performance; and bycatch reduction. But the AFA-style co-op model does 
not fit other groundfish fisheries in Alaska, especially in the Gulf of 
Alaska where our community-based, owner-operator fleet is dominant. 
Gulf fishermen participate in multiple fisheries using various gear 
types, local processors handle groundfish as well as salmon and 
herring, and markets are diverse. A ``closed class'' of processors or 
the direct granting of processing shares could have devastating effects 
on markets, prices and opportunity for independent fleets. Management 
innovations for long-term conservation would be stifled. Processor 
ownership and vertical integration of seafood corporations hearkens 
back to pre-Statehood days when salmon canneries controlled the 
fisherman and the markets.

   RECOMMENDATIONS:

     Maintain the exclusion of processors from eligible holders 
        of quota share.

     Maintain the requirement in the Magnuson-Stevens Act that 
        IFQ and other limited access programs must conform to existing 
        anti-trust laws.

     Limit fishing cooperatives to fishermen only.
Summary
    AMCC thanks the Senate Oceans and Fisheries Subcommittee for 
holding its legislative hearing, and starting an open public dialogue 
on these important issues. The American Fisheries Act was the result of 
a ``deal'' that was cut in private meetings without all of the parties 
who have been impacted by it. That kind of policy-making does a 
disservice to the public process and to the public resources under 
discussion.
    AMCC believes that IFQs and other limited access programs can be 
valuable tools in fisheries management if they are carefully designed 
with clear conservation and community stability objectives. It is 
important that Congress provide specific guidance to regional councils 
to help them design programs that respond to publicly held values for 
communities and the health of the marine ecosystem and fisheries 
resources. While councils may develop region and fishery-specific 
approaches to meet these objectives, the overall end result is 
universal across programs and different areas of the country. Specific 
conservation objectives include minimizing bycatch, protecting marine 
habitat, preventing high-grading, rebuilding overfished stocks, and 
preventing overfishing.
    AMCC recommends some specific additions to S. 637 to maintain the 
social and economic fabric of coastal communities participating in 
fisheries. These provisions should maintain opportunity for community-
based fleets, promote fleet and market diversity, allow viable entry-
level opportunities to coastal community residents, and set limits on 
how much quota a person may hold. AMCC recommends that periodic 
performance reviews be required to assess how well the conservation and 
community stability objectives are being met both at the programmatic 
and individual quota holder level. AMCC urges Congress to preserve 
healthy competition among seafood processors and prohibit processor 
monopolies by not allowing processor quota.
    Again, thank you for the opportunity to provide comment on S. 637 
for the record.
                                 ______
                                 
                                                Argos, Inc.
                                        Newport, OR, April 26, 2001
Senator Ron Wyden,
U.S. Senate,
Washington, DC.
                      RE: Individual Fishing Quotas, S. 637

Dear Senator Wyden:

    My husband, Bob Eder and I are an owner/operator fishing business 
out of Newport, Oregon. We have two boats, small ones, by most fleets' 
standards; 40 ft and 66 ft long. My husband has been a commercial 
fisherman for 25 years. We have 7 crew members., with families who 
depend on us for their support. Primarily, we fish for Dungeness crab 
and sablefish, a species of groundfish that is managed by the Pacific 
Fishery Management Council. We also fish for pink shrimp, tuna, and 
halibut.
    Since 1990 my husband and I have actively supported IFQ's as a tool 
to help manage this nation's fisheries. As best said by Dr. Rod Fujita 
of the Environmental Defense Fund ``Our study indicates that IQs can 
reduce the pressure to over exploit the resource if properly designed 
and used in conjunction with a risk-adverse harvest guidelines and 
appropriate conventional management measures.''
    In considering the specifics of the bill before you, I note that 
there is a prohibition for the sale or lease of quota share. We 
strongly oppose this language. While there may and should, indeed, be 
limitations on the accumulation of quota share, to ensure that it 
remains in the hands of fishermen, to prohibit, in particular, the sale 
of quota share is self defeating. A properly designed quota share 
program can assist in what must be one of our national priorities; 
reduction of the overcapitalization in our nation's fishing fleet. If 
fishermen can buy, or sell quota share, after initial allocation, it 
will allow for an exit strategy from the fishery, one that depends on 
the free market, and not on taxpayer dollars for a hand out.
    We would also oppose any provision that requires that an allocation 
of quota share expire within 5 years of its initial establishment, 
regardless of any provisions subject to its reallocation or renewal.
    A fisherman's life is fraught with change and uncertainty. Weather, 
markets, fish availability changes hourly. Good business planning 
involves some level of long range planning, to the extent possible. It 
would be impossible to make sensible investments in equipment and gear 
if indeed, the quota share that you were fishing could simply be 
reallocated, even if it did occur at some fixed point in time. Although 
the access to quota share is a ``privilege,'' and not a ``right,'' a 
provision to automatically revoke it in a fixed period of time is 
counterproductive to a goal of establishing a nation's fishing fleet 
that is appropriate to harvest the available resource.
    Finally, although I don't see a provision for it here, I want to 
weigh in as being opposed to allocation of quota share for processors. 
First, fishermen aren't processors. We don't want to process, cut, 
freeze, or market fish. All we want to do is catch it. But we don't 
want to have to be restricted to selling to certain fish plants. All 
that would do is further reduce our ability to get the best price for 
our product. It's bad enough as it is right now, particularly in 
Northern CA, OR and WA, with too few fish plants, to get a competitive 
price; to allocate quota share to processors would do further damage.
    Thank you for the opportunity to comment. I hope you find our 
thoughts helpful. I am always available and willing to provide 
testimony, whether in person or by letter, on this most important 
issue.
        Very truly yours,
                                         Michele Longo Eder
                                 ______
                                 
   Joint Prepared Statement of Prowler Fisheries, Clipper Seafoods, 
  Courageous Seafoods & Baranof Fisheries and Alaskan Leader Fisheries
    Prowler Fisheries, Clipper Seafoods, Baranof Fisheries & Courageous 
Seafoods, and Alaskan Leader Fisheries, hereby submits the following 
comments on S.637, a bill to amend the Magnuson-Stevens Fishery 
Conservation and Management Act to authorize the establishment of 
individual fishery quota systems (``IFQs''). These companies 
collectively own and operate eleven freezer longliners that fish for 
Pacific cod in the Bering Sea and Aleutian Islands (``BSAI'') area, and 
include individuals who have served on the North Pacific Fishery 
Management Council and its advisory committees, and are dedicated to 
the conservation of marine resources.
    The potential addition of IFQs as a federal fishery management tool 
is an important matter and warrants careful Congressional 
consideration. These companies support appropriate efforts to promote 
rational utilization of fishery resources and understand that Congress 
sets the overarching policy guidance for federal fishery management 
activities under the Magnuson-Stevens Act. At the same time, these 
companies support strongly the role of the Regional Fishery Management 
Councils, specifically the North Pacific Council, in development of the 
detailed frameworks that constitute fishery management plans. Each 
fishery is distinct, and requires management measures tailored to meet 
the needs of the participants in the fishery balanced against the 
health of the resource.
    The freezer longline sector of the Pacific cod fishery does not 
presently operate under nor is advocating for the formation of an IFQ 
system for this fishery. However, it is concerned that any 
Congressional action to set a national IFQ policy will have an impact 
on future management options as the fleet seeks to pursue an 
appropriate and effective approach to rationalization.
Background on the Freezer Longline Fleet
    The freezer longline sector of the Pacific cod fishery consists of 
36 federally licensed vessels homeported in Alaska and Washington 
State. This small fleet removes their portion of the BSAI Pacific cod 
total allowance catch (``TAC'') from an area exceeding 50,000 square 
mile area, over a nine-month period of time. Their method of fishing, 
bottom longlining, is very selective and results in a slow catch rate.
    From the outset, fishermen who chose to participate in the freezer 
longline sector of the Pacific cod fishery recognized that this gear 
type is more environmentally-friendly. Freezer longline bycatch rates 
are considerably lower than the trawl fleet, and longliners have less 
of a direct impact on the marine environment, specifically the seabed. 
In situations where bycatch concerns have arisen, the fleet has been 
proactive in its efforts to further minimize interactions. For example, 
the freezer longline industry in the North Pacific has self-imposed 
seasonal restrictions during the summer months to avoid periods with 
high bycatch potential. There also has been industry-funded research to 
reduce halibut bycatch mortality and interactions with sea birds.
    In general, this group of freezer longliners supports federal 
efforts to promote the rational management of specific regional 
fisheries. Pursuant to the Magnuson-Stevens Act, the National Marine 
Fisheries Service (``NMFS'') and Regional Fisheries Management Councils 
are required to develop and implement fishery management plans designed 
to promote a healthy and sustainable fisheries. The continual tension 
between the interest in fully exploiting a particular fishery and 
conserving the resource has led to numerous instances of 
overcapitalization and the consequences of the ``race for fish''--
leading to an economically and biologically unsustainable fishery.
    Despite strong successes by the North Pacific Council to avoid such 
an outcome, there have been several notable instances, such as the 
halibut fishery, where an inability to control the early entry of 
vessels into a fishery produced inordinate pressure of the resource and 
lowered market values. However, the freezer longline fleet currently is 
not considered overcapitalized, and is not engaged in a ``race for 
fish.''
Specific comments on S.637 and potential IFQ systems
    The above companies are concerned that several provisions of S.637 
could set adverse precedents that could effect the fleet's ability to 
pursue and implement rationalization measures. In particular, the 
following sections and provisions could be inhibiting:

    Sec. 2(e)(2)(E) contains a five year expiration date. By 
        mandating such a short term sunset provision, the bill would 
        undermine the credibility of any IFQ program by creating 
        tremendous uncertainty at the outset. Subsection (F) following 
        this provision allows an expired IFQ program to be ``renewed, 
        reallocated, or reissued,'' which does little to instill 
        confidence that a fishery participant can reliably make the 
        necessary short and long term business and financial decisions.

         The bill should be amended to eliminate a national sunset 
        provision. Instead, as provided in Section 2 (e)(1)(C), 
        Regional Fishery Management Councils should be authorized to 
        require periodic reviews, and make modest revisions to an IFQ 
        plan after such a review.

    Sec. 2(E)(4)(B) seeks to set aside a small potion of TAC in 
        each fishery for new entrants, small vessel owners or 
        crewmembers. This is an example where ``one size does not fit 
        all.'' The average length for a freezer longliners is over 135 
        feet and are not readily within the financial reach of entry-
        level fishermen.

         If retained, this provision should be stated clearly as 
        discretionary authority for use by the Regional Councils.

    Sec. 2(E)(6) prohibits the transferability of IFQs. If the 
        policy concern relates to consolidation of quota shares into 
        the hands of a small number of participants, it is more 
        appropriate to authorize the Councils to place caps or limits 
        on ownership levels. The Councils possess the requisite 
        understanding to tailor an IFQ plan to a specific fishery.

         The Councils should determine ownership limits for each 
        proposed IFQ plan.

    Allocating quota shares to processors

         In the context of the freezer longline sector of the Pacific 
        cod fishery, there is no factual, rational justification, or 
        any other nexus to support the assignment of quota shares to 
        shore-based processors. Freezer longliners process 100 percent 
        of their Pacific cod onboard. In addition, the fleet already 
        participates in the Community Development Quota (``CDQ'') 
        program, which is designed specifically to promote economic 
        development in communities in the BSAI region.

         Any federal legislation to establish an IFQ system should not 
        authorize allocation of quota shares to shore-based processors.

    Retaining the option to form cooperatives

         An IFQ system is one management regime that has the potential 
        to contribute to further rationalization efforts to support 
        sustainable fisheries. A similar approach involves the 
        formation of fishery cooperatives to promote a decision-making 
        process within a specific fleet that can address such issues as 
        the ``race for fish,'' as well as increasingly complicated 
        environmental matters.

         As Congress formulates a national policy on IFQs, careful 
        consideration should be given to ensure that alternative 
        management measures such as fishery cooperatives are allowed to 
        be examined and implemented by the Regional Fishery Management 
        Councils.
Status of rationalization efforts in the Freezer Longline Sector of the 
        Pacific cod fishery
    The freezer longline fleet is working within the structure of the 
North Pacific Council to ensure that its relative stability and 
sustainability are maintained through prudent management measures. 
Within the past year, two important management steps have moved 
forward: 1) final NMFS action on apportionment of TAC among fixed gear 
participants in the Pacific cod fishery; and 2) North Pacific Council 
passage of a license limitation regime for the freezer longline fleet. 
The first step provides greater certainty in the amount of Pacific cod 
available for harvest by freezer longliners and establishes a basis for 
annual and longer term business decisions. The second step will prevent 
overcapitalization of the fleet by prohibiting new entries into this 
sector of the Pacific cod fishery which has been determined to be fully 
utilized. This is a critical mechanism needed to avoid the ``race for 
fish'' and the consequences of overfishing.
Conclusion
    Prowler Fisheries, Clipper Seafoods, Baranof Fisheries & Courageous 
Seafoods, and Alaskan Leader Fisheries support the role of Congress in 
examining potential mechanisms to promote more effective management of 
the nation's fishery resources. IFQs may provide one tool to achieve 
this goal, but it is inappropriate to impose a single format for the 
diverse fisheries conducted around the country. These companies 
strongly encourage Congress to devise a policy that allows the Regional 
Fishery Management Councils to determine the most effective management 
regime for each specific fishery.
                                 ______
                                 
                                      ALASKA CRAB COALITION
                                          Seattle, WA, May 15, 2001
Hon. Olympia J. Snowe,
Chairperson,
Senate Subcommittee on Oceans and Fisheries
Washington, DC.

Dear Senator Snowe:

    The Alaska Crab Coalition (ACC) wishes to provide comments on 
proposed amendments to the Magnuson-Stevens Fisheries Conservation and 
Management Act, specifically on reestablishment of authority to 
establish individual fishing quota (IFQ) systems. For fifteen years, 
the ACC has been representing crab harvesting vessels that operate in 
the EEZ of the Bering Sea and Aleutian Islands (BSAI) to the State of 
Alaska Board of Fisheries, Alaska Dept. of Fish and Game, the North 
Pacific Fishery Management Council, the Commerce Department and the 
U.S. Congress. For almost as many years, the ACC has advocated the 
establishment of IFQs in BSAI crab fisheries as a management tool to 
improve conditions for the safety of life at sea and to enhance 
conservation and sustainability of the king and tanner crab resources.
    The crab resources in the Bering Sea are overall in a very 
depressed state, and consequently the crab fleet, the shorebased sector 
of the industry and coastal communities depending on the fisheries have 
sunk into a severely stressed financial condition. In the year 2000, 
over 250 crab fishing vessels, mostly small businesses, had only eleven 
days of crab fishing to earn revenue for six to eight dependent 
families each. This is inadequate to maintain the economic survival of 
the fleet, and it is facing a similar outlook in 2001 and for the next 
two to five years.
    Rationalization and decapitalization of the industry through a 
quota-based system is drastically needed. With the support and 
encouragement of the North Pacific Fishery Management Council, 
significant progress has been made in the last eighteen months on the 
development and negotiation of a balanced quota-based program that will 
treat all sectors fairly, fishermen, processors and communities.
    The ACC wishes to note that it is a firm supporter of the buyback 
program authorized in Public Law 106-554, but the association views the 
buyback program as an initial first step towards a long term solution 
in decapitalizing the Bering Sea crab industry. The ACC worked long and 
hard with other fishermen and communities on the development of 
language in PL 106-554 that directs the NPFMC to develop an analysis 
for rationalization of Bering Sea crab fisheries that includes 
individual fishing quotas, processor quotas, cooperatives and quotas 
held by communities. The analysis is to be submitted to Congress early 
next year.
    In closing, the ACC wishes to draw attention to NPFMC and industry 
progress on the development of a rationalization program for BSAI crab, 
as noted in the attached letter of Mr. David Benton to the Secretary of 
Commerce, dated May 2, 2001.
    Thank you for the opportunity to provide these comments.
        Sincerely,
                                              Arni Thomson,
                                                 Executive Director
                                 ______
                                 
                   North Pacific Fishery Management Council
                                         Anchorage, AK, May 2, 2001
The Honorable Donald Evans,
U.S. Secretary of Commerce,
Hoover Building,
Washington, DC.

    Dear Secretary Evans:

    In order to update you on our Council's efforts regarding 
rationalization of the BSAI crab fisheries, I would like to relate the 
most recent activities of the Council. At our recent April meeting, the 
Council continued its discussions of rationalizing the crab fisheries, 
including a review of a report from our Crab Rationalization Committee 
and additional recommendations from our industry Advisory Panel. This 
process has evolved from a focus on co-op style management to that of 
some form of IFQ program, including provisions for inclusion of 
processors and alternatives for `regionalization' to preserve 
processing activities within certain coastal regions. This `three-pie' 
concept contains a myriad of alternatives and options, which the 
Council will once again review at our June meeting where we intend to 
finalize the alternatives for a formal analysis. Our staff is currently 
working on a `white paper' which will scope out the specifics of that 
analysis in order to assist the Council's deliberations in June.
    This analysis could be completed later this year, in time for 
Council consideration in December, with final action likely in February 
of 2002. Once completed, we would also forward that analysis to 
Congress, per the provisions of the recent appropriations bill which 
directs the Council to undertake such an analysis of crab 
rationalization options. As part of the overall process to rationalize 
the crab fisheries, I also want to reiterate our Council's support for 
the buyback program which was also legislated in the recent 
appropriations bill. Such a buyback will be a very important first step 
in the rationalization process, and availability of the authorized 
Congressional funding of $50 million will likely be critical to the 
success of the buyback program.
    In closing, I wanted to assure you that this Council is still 
committed to the overall rationalization process for the crab 
fisheries, and I hope that this update is useful. Anything your office 
can do to expedite the buyback process will certainly facilitate that 
rationalization process. Thank you once again for your attention to 
this and other Council issues in the North Pacific.
        Sincerely,
                                               David Benton
                                                           Chairman

                                  
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